National Asset Loan Management Ltd v McMahon and Others; National Asset Loan Management Ltd v Downes

CourtHigh Court
JudgeMr Justice Charleton
Judgment Date16 January 2014
Neutral Citation[2014] IEHC 71
Docket Number2012 NUMBER 1475S,[2012 No. 1475 S & 2012 No. 4456 S]
Date16 January 2014

[2014] IEHC 71

2012 NUMBER 1475S

2012 NUMBER 4456S


Litigation - Loan facility - Repayment - Default - Enforceability - Limited guarantee - Primary debtor - Mortgage - Constitutionality - Fair procedures - Property investment - Shareholdings - Estoppel - National Asset Management Agency Act 2009 - Constitution of Ireland

Facts: These were two separate proceedings in which Séamus Downes was the sole defendant in each after the actions against the other defendants were disposed of. In the first proceedings, it was undisputed that the defendant was one of three individuals who had collectively borrowed the sum of €1,722,941.99 from AIB Bank to finance the purchase of 6 shops at Castletroy in Limerick; a property known as folio 67311 was offered as security. The defendant was obliged to make loan repayments with interest as a primary debtor. In the second proceedings, it was undisputed that the defendant was one of three shareholders in an unlimited company known as Mount Kennett Investment Company ('the Company'), which was used as a property investment vehicle. It was said that AIB Bank had advanced sums of money to this company with the defendant offering a limited guarantee as security for the repayments. The maximum recoverable amount of this guarantee was set at €5,840,000. The plaintiff subsequently acquired the debts and obligations of AIB Bank. Proceedings were then initiated against the defendant (and the other two individuals that had originally been joined to the action) when there was a default in repayment on each of the loans.

The defendant raised a number of defences. In respect of the second proceedings, he claimed that the limited guarantee he had given did not apply to all transactions of the Company, but to a €3 million investment in one specific construction enterprise only. It was also said that officials from AIB Bank inserted an incorrect maximum recoverable amount on the guarantee after the defendant had signed it. The other two shareholders of the Company had also provided limited guarantees, but it was submitted that the plaintiff did not enforce the obligations of the guarantors equally. Further, the defendant averred that the plaintiff was estopped from enforcing the limited guarantee against him because the solicitors for the plaintiff had previously worked for the defendant and given advice on issues that were now being considered in these proceedings.

In regards to the first set of proceedings, it was said that the plaintiff was unfairly being burdened with the obligations of the other parties. It was also argued that the plaintiff did not have the statutory capacity to acquire the interest previously held by AIB Bank because it was not 'development land'. Finally, it was argued that the plaintiff should be barred from proceeding against the defendant because sections 84 and 147 of the National Asset Management Agency Act 2009 were unconstitutional. In this regard, it was said, inter alia, that these sections undermined the principles of constitutional and natural justice guaranteed under Article 40.3 of the Constitution of Ireland and the defendant"s property rights under Article 43.1 and 2 of same.

Held by Charleton J. that the Court could not accept the allegation that AIB Bank had inserted an incorrect maximum recoverable amount on the limited guarantee after the defendant had signed it because it was not plausible that AIB Bank officials would have sent a blank copy of the limited guarantee. It was also clear that the defendant had admitted that he had agreed to limit on the guarantee being set at €5,840,000 when the proceedings were first initiated, and that the investments made by the Company exceeded this limit. In regards to the argument that the plaintiff did not enforce the obligations of all guarantors of the Company"s debts equally, it was said that the wording of the guarantees made it clear that not only could they be enforced in whatever order the plaintiff deemed appropriate, but that any later securities did not dispose of the relevant guarantee. In relation to the defence of estoppel, it was held that there was insufficient evidence to support the defendant"s claim that he had ever received legal advice from the plaintiff"s solicitors on the limited guarantee. It was also said that estoppel could not have arisen even if the defendant"s allegation was true because the plaintiff"s solicitor had not given legal advice to the defendant as an agent of the plaintiff and the plaintiff had not behaved or given a representation that could be said to have altered the strictures of the defendant"s legal obligations.

In regards to the first set of proceedings, it was said that the mortgage agreement that had been entered into by the defendant and the other two individuals made it clear that all of the obligations could be loaded onto the defendant. The Court also rejected the assertion that the plaintiff did not have the capacity to acquire AIB Bank"s interest in the defendant"s properties in Castleroy. It was said that the National Asset Management Agency Act 2009 made it clear that these shops should be regarded as 'development properties', even though they were built in the 1950s. As a result, the plaintiff had been entitled to acquire the relevant interests.

The allegation that sections 84 and 147 of the National Asset Management Agency Act 2009 were unconstitutional was similarly rejected. It was held that although the defendant had a right to earn a living, this did not necessarily mean an entitlement to keep the income stream generated from property where those legal rights have been signed away in debt or guarantee obligations. It was also said that although s. 147 allowed the plaintiff to appoint a receiver without giving notice to a borrower, this did not constitute a breach of fair procedures in circumstances where swift action was required.

As a result, judgment was given in favour of the plaintiff in both actions.

Mr Justice Charleton
Judgment of Mr Justice Charleton delivered on the 16th of January 2014

1. The plaintiff National Asset Loan Management Limited brings two distinct causes of action against the defendant Séamus Downes. He is now the only defendant left in these proceedings. Other proceedings have been compromised. All of the defendants were solicitors and were partners in a practice in Limerick up to the end of August 2006. Having acquired the debts and obligations of the defendants in both cases from AIB Bank, these proceedings are ostensibly brought by the plaintiff pursuant to its duty under the National Asset Management Agency Act 2009, s. 10, to obtain from same 'the best achievable financial return for the State'. All of the debts and obligations relate to property.


2. In the first of these proceedings, 2012 no. 1475S, the obligation of the defendant is as a primary debtor. The property in question was a set of six shops, two now amalgamated, at Castletroy in Limerick. The property was apparently built in the 1950s. The relevant letter of sanction is dated 22nd October, 2010. It lists the three defendants as the borrowers and advances the sum of €1,722,941.99. The security listed is a legal charge from the defendants dated 7th February, 2008 over the property (folio 67311). The repayment conditions are stated to be '[o]n demand at the pleasure of the bank, subject to refinancing/repayment in full by 01/03/2011. In the interim, interest to be provided for as it falls due [on] foot of your working account.' The purpose of the loan was stated to be: 'Continuation of existing facility originally sanctioned to fund the purchase of commercial property at Dublin Road, Castletroy, Limerick.' The letter was signed by the defendants on 12th November, 2010. The arrangement in fact pursued by the defendants was to rent the premises and all of that income was paid to the bank. The return exceeded interest on the loan. The net result is that, despite the later appointment of a receiver, this debt has been reduced to about €1.3 million.


3. In second of these proceedings, 2012 no. 4456S, the defendant is pursued on a limited guarantee dated 13th June, 2003. The maximum amount recoverable under that guarantee is €5,840,000. The guarantee is in respect of Mount Kennett Investment Company. This was an investment vehicle used by the three solicitor partners in their role as property investors. It was an unlimited company, not carrying the advantage of limited liability, but being free of the obligation in consequence to file annual accounts in the Companies Registration Office and though on dissolution a deficit would have to be paid by the shareholders, any surplus would go to them as well. The three defendants in 2012 no 1475S were equal shareholders.


4. Multiple defences have been raised, including that sections 84 and 147 of the National Asset Management Agency Act 2009 are unconstitutional. In accordance with law, this will be dealt with after the other issues are disposed of. Since the preponderance of the evidence concerned the guarantee liability in 2012 no. 4456S, those issues are considered first.


The guarantee and construction


5. Mount Kennett Investment Company had a registered office at Mount Kennett House, Henry Street, Limerick. It had extensive borrowings. On 24th June, 2009, a loan letter was sent from AIB Bank to the company. That letter was also addressed to the three directors. Seven facilities are included. Firstly, an overdraft of €110,000 as working capital, required to be reviewed by 30th...

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