High Court: AIB entitled to recover more than €6m from company secretary
The High Court has refused to remit a summary judgment of more than €6 million to plenary hearing, because the secretary of the company against which the judgment was made could not prove Allied Irish Bank (AIB) had been negligent in failing to provide him with independent legal advice when he signed a guarantee for the full indebtedness of his company.
The High Court proceedings before Justice O’Regan involved a challenge by Mr Kenneth McMorland to the summary judgment of €6,091,208 awarded to AIB in June 2014.
Foresthaze Developments Limited
Mr McMorland, a tax consultant and company secretary, was also the promoter and CEO of Foresthaze Developments Ltd.
Initially Mr McMorland signed a guarantee commensurate with his shareholding of 14% in this company, and that partial guarantee was executed on 25th October 2006.
He subsequently signed a full guarantee for the full indebtedness of the company on 26th October 2006 following an amended letter of sanction which was also signed by him.
One of the grounds on which Mr McMorland sought to remit the matter to plenary hearing was because he wanted to examine or cross-examine Margaret O’Donnell. This was because of a representation made by Ms O’Donnell to Mr McMorland, that he agreed to sign the full guarantee of 26th October 2006.
AIB accepted that Mr McMorland’s evidence in this regard must be taken at its height so, according to Justice O’Regan “the need to examine or cross-examine Ms O’Donnell did not arise… and could not possibly be a basis to adjourn the matter for a plenary hearing”.
The issues arising in the High Court were summarised by Justice O’Regan:
“(1) In what circumstances might summary judgment be afforded, or should it be adjourned for summary hearing.
(2) The full guarantee and the lack of legal advice in advance of that, and representation by Ms McDonnell.
(3) The fact that Mr McMorland was not requested to secure independent legal advice nor does he waive same in advance of the full guarantee.
(4) Mr McMorland also suggests that if he had known about the restructuring in February 2010 he would have orchestrated a set of circumstances whereby that would not come about.
(5) He also says that the need for independent legal advice was a condition precedent within the letter of loan offer”.
Firstly, Justice O’Regan considered ADM Londis Plc -v- Arman Retail Ltd IEHC 309 and McGrath v. O’Driscoll IEHC 195.
Accordingly, Justice O’Regan stated that the conversation between Mr McMorland and Ms McDonnell would be taken as fact.
Non est factum
Turning to the issue of non est factum, Justice O’Regan considered Irish Bank Resolution Corporation v. Quinn IEHC 470 and Saunders v. Anglia Building Society AC 1004.
The aforementioned cases established that “a person seeking to raise the defence of non est factum must prove (a) that there was a radical or fundamental difference between what he signed and what he thought he was signing; (b) that the mistake was as to the general character of the document as opposed to the legal effect; and (c) that there was a lack of negligence i.e. that he took all reasonable precautions in the circumstances to find out what the document was.”
In Quinn, the Court posed the question, “what could be more negligent than willy-nilly signing formal legal documents without giving any thought as to their effect?”
In relation to the document and the fact that AIB claimed that Mr McMorland was advised that this was short term, Justice O’Regan said “there was no evidence before the Court that he corresponded subsequently with the Bank seeking confirmation that the full guarantee had terminated and, in fact, the documents which he signed at the time clearly made it obvious to him that it was a full guarantee and there was no time limit actually involved”.
In relation to the assertion of the non es factum or that he understood that he was signing a guarantee of short duration, Justice O’Regan found that there was no basis for this assertion.
Mr McMorland referred to Irish Bank Resolution Corporation Ltd v Cambourne Investments Inc & Ors IEHC 262, submitting that “the effect of a condition precedent for the benefit of both parties not being met is that the contract of loan on the two facility letters, which includes the guarantee on the facility letters made by Peter Curistan and Century City, does not come into operation.”
Applying the test that was also applied in Maloney v Elf Investments Ltd ILRM 253, Justice O’Regan stated that there were two matters to be considered: (1) the term must be of its nature exclusively for the benefit of one and, (2) it must be severable.
Furthermore, in Bank of Scotland v. Fergus IEHC 131 it was held that the purpose of obtaining a signature was to obtain certain information by which the bank sought to exclude potential defences to the entitlement to enforce the guarantee against the defendant.
Justice O’Regan was satisfied that it was for the benefit of the bank and that the bank was entitled to waive it, and it was severable from the balance of the document.
Accordingly, Justice O’Regan did not accept that the restructuring in 2010 was any valid ground to adjourn the matter for plenary hearing, as Mr McMorland could not have created any difficulty in that restructuring.
In relation to the assertion that there was a condition precedent requiring either independent legal advice or a waiver in respect of the guarantee of the 26th October, Justice O’Regan held that these were actually “special conditions… for the benefit of the bank”.
As a result, Justice O’Regan held that the matter could “be disposed of on a summary basis” and refused to “adjourn the matter for plenary hearing”.
AIB was entitled to judgment in the sum of €6,091,208 in addition to its costs.