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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> ACC Bank -v- Dillon & Ors [2012] IEHC 474 (12 November 2012) URL: http://www.bailii.org/ie/cases/IEHC/2012/H474.html Cite as: [2012] IEHC 474 |
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Judgment Title: ACC Bank -v- Dillon & Ors Neutral Citation: 2012 IEHC 474 High Court Record Number: 2011 4128 S Date of Delivery: 12/11/2012 Court: High Court Composition of Court: Judgment by: Charleton J. Status of Judgment: Approved |
IEHC Number 474 [2012] An Ard-Chúirt The High Court Commercial [2011 No.4128S] Between ACC Bank PLC Plaintiff And
Gerard Dillon, Patrick Corrigan and Cordill Construction Limited (In Receivership) Defendants Judgment of Mr. Justice Charleton delivered on the 12th day of November 2012 1.0 The plaintiff bank seeks judgment against the first defendant Gerard Dillon and the second defendant Patrick Corrigan for €1,493,181, representing personal loans to each of them, and also seeks judgment against the first defendant and the second defendant, jointly and severally, for €5,383,181 in respect of guarantees for the indebtedness of the third defendant Cordill Construction. That company as it is now in the receivership of the plaintiff bank through a fixed and floating charge over its assets. The appointment of a receiver was in May 2011. Any question as to its loans has already been dealt with, or is being dealt with, elsewhere in the commercial list. 1.1 The background to the case is a series of three loans to Cordill Construction to develop a site at The Claddagh in Galway City. The first was for €3,490,000 for a term of twelve months and is evidenced by a facility letter dated 23rd November, 2006; the second was for €750,000 for a term of twelve months to purchase an additional adjoining site and is evidenced by a facility letter dated 3rd January, 2007; and the third was for €1,000,000 for a term of nine months and is described as “additional development finance” in the relevant facility letter which is dated 6th September, 2007. Gerard Dillon and Patrick Corrigan were directors of Cordill Construction. These facility letters do not contain the usual personal guarantee by directors which is an almost standard obligation of bank loans at this time. Instead, in the first such facility letter reference is made to the "net worth statement" of Cordill Construction as borrower and a condition is inserted that should this drop below the level then disclosed to the plaintiff bank, the directors would each have to give a personal guarantee jointly and severally in the amount of €750,000 each. No such guarantee was ever given despite the net worth of the borrowing company falling markedly, as did the net worth of a great majority of construction companies in Ireland, from the autumn of 2008. Instead, in a series of meetings and telephone calls at that time, the plaintiff bank insisted on personal guarantees from the directors for the continuation of the then overdue loan facilities. These personal guarantees were given by the first and second defendants, who claim not to be bound by the same. Defence 2.1 This is the core of the defence. In addition, a number of claims are made based upon a lack of consideration for the guarantees by the directors, the tort of misrepresentation and a collateral contract based on the claims made. These defences cannot succeed without the core defence being established by the first and second defendants and central to that defence is that the personal guarantees obtained in the autumn of 2008 were procured by duress. 2.2 Personal borrowings were also taken out by the first defendant. In evidence it has not been claimed that there is any basis for any defence to the claim for judgment on these loans. Instead, it is argued that since damage has been caused to the first and second defendants by duress, a counterclaim based on this tort is sustainable. Key events 3.1 Throughout 2007, the market for residential property responded negatively to sales of houses and apartments; this market was overvalued by around 300%, with development land being overvalued by much more. The apartments at The Claddagh in Galway did not sell. A cash flow crisis was thus caused in Cordill Construction. It was hoped that in 2008 the market would return to the inflated values of 2006. That did not happen. Five years later, the true position as to the property values in Ireland is yet to be firmly established. As of 2008, the term of all of the loans had expired. On 20 August, 2008 a meeting was held in the plaintiff bank's premises at which Gerard Dillon and Tom O'Callaghan attended for Cordill Construction and the plaintiff bank was represented by senior credit managers. Most of these gave evidence, with the exception of Eric Gottenbos who could not attend as he was in Australia and an attempt to take video evidence from him was futile because of a breakdown in technology. 3.2 I take the case given by the first defendant at its highest. He says that he was told that if personal guarantees were not forthcoming from the directors, the first and second defendants, that the bank would exercise its rights under the loan agreement with Cordill Construction to call in a receiver. This, he said, would have the effect of undermining State contracts, as the company was then the second largest school builder in Ireland, would disrupt existing contracts and because receivers rarely carry on businesses as a going concern, would cause the 50 employees of the company and 200 or more site workers in various jobs to lose their employment. This was regarded by Gerard Dillon, a clearly decent person, as a horrible prospect which left him with no option but to furnish personal guarantees. At the meeting itself, no agreement was forthcoming from him. He claims that his will was overborne by that meeting and in particular by the threat made to appoint a receiver. On 5 September, 2008, the matter went to the credit committee of the plaintiff bank. It decided that personal guarantees were required from the directors. On 10 September, 2008, a spirited refusal was delivered from Cordill Construction to the plaintiff bank protesting against personal guarantees. On 1 October, 2008 the credit committee affirmed that personal guarantees were required in the event that the term of the loans were to be extended. On 6 October, 2008, a senior official in the bank, Eoin Gavigan, rang Gerard Dillon and told him of the decision of the credit committee. The next day the first and second defendants changed their minds and agreed to supply personal guarantees for the Cordill Construction loans. A report to that effect by Eoin Gavigan was sent to the credit committee on 13 October, 2008 and two days later it agreed that extending the term of the loans was the appropriate course to take, rather than the appointment of a receiver. The relevant guarantee documentation was sent to the first and second defendants and was returned signed on 8 December, 2008. A complaint was made in the course of the exchanges by letter, already referred to, that a penal rate of interest was being charged. This was treated by the plaintiff bank as a complaint and was dealt with by a refund which would be large in other circumstances but which made little difference to the level of indebtedness of all of the defendants by this stage. The relevant guarantees were headed with a black warning box, all too familiar in these cases, stating that if the debts were not repaid by the borrower the guarantors would be personally responsible and that legal advice of an independent variety should be sought. Past consideration 4.1 A bank loan is a promise to make money available for a particular time. The borrower promises to repay within that time. The lender is not obliged to extend the loan beyond the term bargained for. In some circumstances, the written terms of a collateral contract are subject to such a clear and express purpose by way of representation that the parties minds may be said to have met and agreed thereon. Such a collateral agreement, despite a written contract that does not seem to include it, may bind any attempt to step outside it. Such obligations cannot be open-ended; they must be precise. Rarely can a collateral bargain be resorted to so as to overturn what the parties have reduced to writing as their entire contract. But if there is proof that an underlying and express purpose in definite form was agreed, then there may be an enforceable contract that is collateral to the principal agreement. A representation by one of the parties that the written form is to be expressly overridden in respect of a particular term may also enable a contract to be construed outside the written form; Curtis v Chemical Cleaning and Dying Co [1951] 1 KB 805 and generally Treitel – The Law of Contract (13th ed, Peel, 2007, London) pp 260-262 as to overriding exemption clauses. The proof required for these forms of contractual alteration battles against the certainty of express written terms. Whilst a collateral contract is not impossible despite a written agreement, it is not proven in these circumstances. 4.2 The plaintiff bank did not give an open-ended assurance that, no matter what might happen, personal guarantees would never be required from the directors of the borrowing corporation. As a matter of ordinary sense, it must be remembered that such a company might collapse; it might be taken over by individuals less trustworthy than the first and second defendants; the buildings that were the subject of the loan might be so badly built as to be unsaleable; or the term of the loan might be so extended as to change any reasonable underlying expectation that might be proven by either party to the contract. What happened here was that because of the personal guarantees given by the first and second defendants, the loans were extended through renewals on 13 November, 2008 to 30 April 2009; on 14 April, 2009 to 30 October, 2009; and on 21 December, 2009 to 30 April, 2010. As noted, it was another year before a receiver was appointed by the plaintiff bank in May 2011. In each instance, there was a demand for repayment which could not be met and in each instance the original contract had terminated and required fresh consideration to support any new bargain. 4.3 McKay and Another v. National Australia Bank Ltd [1998] 1 V.R. 173 has been cited as supporting the defence of past consideration. It is not an authority which can relieve the first and second defendants of their personal guarantees for the debts of Cordill Construction. In that case, the bank held guarantees from two directors of a corporation. When the bank became concerned that their level of security might be inadequate, a fresh level of guarantee was sought and obtained from those directors. The consideration was expressed as being the provision of "banking accommodation" and was attractively dressed up as a forbearance "to enforce immediate payment". This was not sufficient. On appeal, the Supreme Court of Victoria overturned a decree in favour of the bank at first instance and reasoned that consideration was past: the loans had not been called in and the original guarantee of the directors was an existing bargain that had not been replaced by a new contract supported by anything additional to the existing arrangements. Such consideration as there had been was past and the new arrangements were not supported by any fresh consideration from the defendant bank. The judgment of Winneke P. at pp. 177-178 sets out principles that also represent the law in this jurisdiction:
Furthermore, "past" consideration is not sufficient consideration. A guarantee given to secure debt already incurred, but unsupported by any further consideration, will fail for want of valuable consideration: … if it is evident that the guarantee was intended to be limited to past transactions alone, for example, because the surety new that the principal debtor was already indebted to the creditor in an amount exceeding the limit of the surety’s guarantee, the guarantee will be void as being given without consideration.
IN CONSIDERATION of the Bank at the request of the Guarantor making loans and advances or providing banking accommodation to the customer whether alone or jointly or in conjunction with any other person and/or in consideration of the Bank at the request of the guarantor for daring to enforce immediate payment of money is (if any) now due and owing by the customer to the Bank ... It was not contended by the respondent, either before the learned judge or on appeal, as any consideration by way of "forbearance to sue" was given by the bank to support this guarantee. No demand had been made by the bank for repayment of the existing debt and no request had been made by the debtor or the appellants for any such forbearance. As the instrument of guarantee itself recognises, the mere fact of forbearance is not of itself sufficient consideration for a person becoming surety for an existing debt. There must be either an undertaking to forbear or an actual forbearance as the surety's request: Halsbury's Laws of England, 4th ed., re-issue, vol. 20, para. 142; Murphy v. Timms [1987] 2 Qd. R. 550 at 551, per Kneipp J. Duress 5.1 It is a principle of contract law that the law should not scrutinise the adequacy of consideration supporting a contract; absent undue influence and improvident bargain. Parties should be left to sort out the benefits and burdens of obligations that are to be crystallised in agreement. A contract, when made, is what the law enforces and the law enforces contracts in accordance with the express terms of that which the parties have expressed to be their bargain. In the rare instances where the law intervenes to supply terms that have not been expressed, the approach is always what is required in the context of the bargain already made, and not what the court might substitute as fair to ameliorate an agreement or to replace any apparent imbalance with what might be more acceptable. The doctrine of duress is not part of the law in order to interfere in the context of an imbalance in bargaining powers where that want in balance is merely the result of a difference in commercial bargaining power in negotiations conducted at arms length. 5.2 It also more than difficult to see that the defence of duress would ever be established simply because of an allegation that one side took apparent advantage of the weariness of the other at a stage in negotiation. The law must allow a measure of appreciation to the stresses of commercial negotiation. How, in any event, would such an application of the doctrine of relief from a contract entered into under duress, were it to be so extended, ever be proven? Duress as a defence in contract law had a similar origin to that defence as an answer to a criminal charge. The threat of violence is no longer necessary to establish that a contract was entered into under duress. Nor is it necessary that consent to bargain is negatived; rather that consent must have been so wrongfully obtained that it can properly be described as an illegitimate and significant cause of the party ostensibly contracting giving assent. 5.3 It seems to me that principles such as the availability of an alternative course of action, a protest at the term agreed or bargain extracted, the availability of time and space to think and recourse to independent advice are items of evidence within which the illegitimacy of pressure may be analysed as constituting, or not amounting to, duress. The threat to do something unlawful, such as blackmail, will establish a sufficient degree of illegitimacy to enable the defence in most instances. This is notwithstanding that it can be the case that a threat to reveal a crime may be to adopt a lawful course of conduct. It is the failure to independently peruse that course from the point of view of public spirit and instead linking it to a commercial course of bargaining that is illegitimate. Even where a threat is wrong, it must be such as to wrongfully establish coercive effect on the mutuality which the law expects in the nature of the contract. Economic duress, far removed from the physical origins of the defence, can be sufficient as in B & S Contracts and Design Ltd v. Victor Green Publications Ltd [1984] I.C.R. 419. There a contract to exhibit at a show was altered by a threat from the organiser to cancel seeking additional payment from the exhibitor because the organiser had been made subject to additional payment demands by its workforce. That particular case would also be an example of past consideration being insufficient to support a contract for the new exhibition charge. 5.4 The first defendant Gerard Dillon gave a fair account of the meeting of 28 August, 2008. He is an honest person. It is appropriate in the context of the plea of duress to expand on the detail already given as to this meeting and how it fits into the sequence of events by quoting his account. He described thus how he was first asked to consent to the directors of Cordill Construction giving personal guarantees if the loans were to be extended:
Other issues 6.1 The second defendant did not appear at the trial. As to the personal indebtedness of that defendant and of the first defendant, this has been properly proven. There is no defence established. Result
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