A.I.B. Mortgage Bank and Allied Irish Banks Plc v O'Brien

• Jurisdiction: Ireland
• Judge: Ms. Justice Faherty
• Judgment Date: 15 July 2020
• Neutral Citation: [2020] IECA 191
• Docket Number: Appeal Number: 2018/257
• Court: Court of Appeal (Ireland)
• Date: 15 July 2020

BETWEEN/

A.I.B. MORTGAGE BANK

AND

ALLIED IRISH BANKS PLC

PLAINTIFFS/APPELLANTS

-AND-

KEVIN O'BRIEN

AND

GILLIAN O'BRIEN

DEFENDANTS/RESPONDENTS

[2020] IECA 191

Donnelly J.

Faherty J.

Haughton J.

Appeal Number: 2018/257

THE COURT OF APPEAL

JUDGMENT of Ms. Justice Faherty dated the 15 ^th day of July 2020

1 This is the plaintiffs' appeal against the judgment and order of the High Court of 8 June 2018 wherein Binchy J. concluded that the defendants had established as an arguable ground of defence that loan agreements in connection with loan facilities provided in 2010 and relied on by the plaintiffs in their application for summary judgment against the defendants were void for want of consideration. The trial judge remitted the matter for plenary hearing on this basis. It is the plaintiffs' contention in this appeal that the trial judge cited a stateable ground of defence where none exists as a matter of law.

2 It is acknowledged, however, by all concerned that irrespective of the outcome of the within appeal, the plaintiffs' claim against the defendants will be determined by plenary hearing. The issue in this appeal is whether the defendants should be permitted to pursue at the trial of the action the specific argument upon which Binchy J. remitted the matter for plenary hearing.

3 The proceedings commenced on 21 November 2014 by way of summary summons. In the special indorsement of claim the plaintiffs plead that they made loan facilities available to the defendants on foot of:

(a) A letter of loan offer dated 23 September 2010 whereby the first plaintiff offered to the defendants a loan facility of €2,563.000 on the terms and conditions set out therein which said offer was accepted by the loan facilities drawn down in full on 23 December 2010 (Account No. 93035067032-346);

(b) A letter of loan offer dated 29 October 2010 by which the first plaintiff offered a loan facility to the defendants of €774,000 on the terms and conditions set out therein which said facility was drawn down in full and the loan offer accepted on 23 December 2010 (Account No. 93025389530-234).

It is pleaded that the plaintiffs rely on the said letters of loan offer, and where applicable, the terms and conditions pertaining thereto, for their full terms, meaning and effect. It is pleaded that the defendants defaulted in making the repayments required of them pursuant to each of the letters of loan offer and that by letter of demand dated 4 September 2014, the second plaintiff made demand on behalf of the first plaintiff for payment of €2,614,719.86 in respect of Account No. 93035067032-346 and €6,982.33 in respect of Account No. 93025389530-234.

4 It is common case that the dealings between the plaintiffs and the defendants commenced prior to 2010.

Background

5 In 2006 the defendants were residing at No. 23 Clonfadda Wood, Mount Merion Avenue, Blackrock Co. Dublin (hereinafter “No. 23”). That property was held in the sole name of the second defendant and at the time was subject to borrowings of approximately €80,000 which were secured over the property in favour of Bank of Ireland. The defendants were then both aged 55 and had four young children in their care, three of whom were foster children and the other being the parties' still dependent child of the marriage. The first defendant is a solicitor and the second defendant a homemaker.

6 During 2006 the premises (hereinafter “No. 24”) adjacent to No. 23 came up for sale. The first defendant considered No. 24 had the capacity to be extended, unlike No.23. He considered No. 24 a more suitable premises to meet the defendants' then needs and resolved to purchase it. In his replying affidavit to the within proceedings, the first defendant avers that by oral agreement made with an unidentified representative of the first plaintiff in 2006, it was agreed that the plaintiffs would advance 100% of the purchase price for No. 24 to the defendants. He says that as part of this arrangement, it was agreed that No.23 would be sold, with the sale proceeds then to be applied in reduction of the funding advanced by the first plaintiff for the purchase of No. 24. The case made by the first defendant is that he had an informal agreement to purchase No. 24 for up to €3m and that the first plaintiff had promised that, if necessary, it would also advance funds in respect of the stamp duty payable, together with an unspecified amount in connection with the proposed extension to No. 24.

7 In the event, in March 2006, the first defendant secured No. 24 at auction for €2.5m. Shortly thereafter, by letter dated 26 March 2006, the second plaintiff requested a solicitor's undertaking in relation to the funds to be advanced. This was duly completed and returned to the first plaintiff by letter of 27 June 2006.

8 The completion of the purchase of No. 24 took place on 9 August 2006. On the same date, the defendants accepted an offer of mortgage loan from the first plaintiff. On 11 August 2006, both defendants executed a Deed of Mortgage in respect of No. 24 in favour of the plaintiffs. The loan offer of 9 August 2006 was an interest only loan for a term of twelve months.

9 By 25 January 2007, the first defendant had secured a planning permission for an extension to No. 24. In the meantime, No. 24 had been let out to tenants to assist the defendants in making the interest repayments.

10 According to the first defendant, following the grant of planning permission he approached the plaintiffs with a view to borrowing €350,000 to fund the cost of the extension. This request was declined, much to his surprise. He avers that the plaintiffs suggested that he produce plans for a smaller extension which he did on the understanding that the plaintiffs would be willing to advance €150.000 in funding. The first defendant asserts that the plaintiffs reneged on then commitment in this regard and. accordingly, he was obliged to raise the necessary monies by way of a loan from his solicitor's firm and from friends and relations.

11 The defendants moved into No. 24 in December 2007. Before moving to No. 24, they placed No. 23 on the market for sale by auction. No bidders turned up for the auction on 26 September 2007.

12 Documentation exhibited by the first defendant in an affidavit sworn on 16 October 2015 show that by letter dated 13 June 2008, the plaintiffs confirmed that facilities of €2.5m and €760,000 for the defendants had been sanctioned. Albeit not specified, the €2.5m sum appears to relate to the funding which had been advanced in 2006 for the purchase of No. 24. That was certainly the finding of the trial judge. The letter of offer in respect of the €2.5m sum stated that the defendants were being offered a supplemental mortgage loan to be secured by the existing legal mortgage over No. 24. The €760,000 funding related to other indebtedness, the bulk of which was held in the name of the first defendant and some of which appeared to be have been incurred in connection with the acquisition of a holiday home in County Wexford and an apartment in Venice. However, some €70,000 of the €760,000 was to be applied to the redemption of the second defendant's Bank of Ireland mortgage on No. 23. The loan sanction for the advance of €760.000 required that No. 23 should be secured in the name of the first plaintiff with the first plaintiff relying on No. 24 as additional security for this borrowing. In a letter of 21 November 2008 to the solicitor then acting on behalf of the defendants, a Mr. Eamonn Molloy of the first plaintiff advised that the loan was “a restructure and to clear other accounts.” He then set out how the proceeds of the €760.000 loan facility were to be applied including, in the first instance, the discharge of the Bank of Ireland loan of €70,000, with the balance to be paid into a specified loan accounts in the name of the first defendant.

13 No. 23 was duly mortgaged to the plaintiffs as security. The mortgage was completed on 16 September 2008.

14 According to the first defendant, the defendants had received an offer of €1m for No. 23 in early 2008. He avers that the plaintiffs refused to give consent for the sale as they regarded the €1m offer as “a vulture price”. In the court below, the plaintiffs denied that they refused consent and claimed that they did no more than point out that a sale at that price would result in the defendants owing a very significant amount of money to the plaintiffs. An email from a Mr. Michael Deegan of the plaintiffs to the first defendant dated 18 March 2009 advised as follows:

“Kevin. as no. 23 forms part of the security for your facilities, you will need to revert to the bank prior to agreeing a sale. As you will be aware, a sale at €1m euro would represent a significant shortfall on the previously estimated value and would have a significant impact on the residual gearing and your repayment capacity”.

15 The defendants do not gainsay that letters issued from the first plaintiff on 23 September 2010 and 29 October 2010 with loan offers, respectively, of €2.563,000 and €774,000. or that their then legal representative engaged with the plaintiffs in this regard. They, however, dispute the validity of the 2010 facilities on the basis of a want of consideration on the part of the plaintiffs. This issue, which is the crux of the within appeal, is considered in detail later in the judgment.

16 Between 2008 and 2012, the defendants applied the rental income from No. 23 towards their indebtedness to the plaintiffs. No. 23 was sold in 2012, at the very bottom of the property market, for €762,000. As observed by the trial judge, the defendants were left with a very considerable shortfall in the anticipated sale price for No. 23.

17 As can be seen from the indorsement of claim, the plaintiffs allege that the defendants failed to adhere to the repayment terms required by the 2010 facilities. Following a...