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Cite as: [2013] IEHC 136
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Judgment Title: Slattery -v- Friends First Life Assurance Company Ltd Neutral Citation: [2013] IEHC 136 High Court Record Number: 2012 2092 P Date of Delivery: 15/03/2013 Court: High Court Composition of Court: Judgment by: McGovern J. Status of Judgment: Approved | ||||||||||||
Neutral Citation [2013] IEHC 136 THE HIGH COURT COMMERCIAL [2012 No. 2092 P]
[2012 No. 51 COM] BETWEEN DÓMHNAL SLATTERY PLAINTIFF AND
FRIENDS FIRST LIFE ASSURANCE COMPANY LIMITED DEFENDANT JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 15th day of March 2013 1. The plaintiff is a businessman and a principal of Claret Capital Ltd. (“Claret Capital”), a private equity firm incorporated in the State. The defendant is a financial institution. These proceedings arise out of an unsuccessful business venture, namely, the purchase of the St. Regis Hotel, Washington D.C. in the United States of America. Claret Capital and the defendant were part of a consortium involved in the purchase of the St. Regis Hotel for a total purchase cost of $173.25m. 2. The vendor of the hotel was Brickman Real Estate. In the transaction, the vendor agreed to retain a 10% interest in the hotel, the defendant agreed to take a 45% interest and Claret Capital the remaining 45%. The overall requirement of funding for the St. Regis transaction was approximately $180m, split between $45m of equity (from the defendant and Claret Capital) and $135m of senior debt provided by Barclays Capital Real Estate Inc. (“Barclays”). That senior debt was split in turn in to a $105m senior loan and a $30m mezzanine strip. 3. In order to complete the deal, the defendant agreed to make two loans to Claret Capital related companies. The first was to Claret Capital Washington LLC (“CCW”) in the sum of $US22.55 million. It was intended that client investors of the defendant would invest into a limited partnership vehicle (the Lincoln Limited Partnership or “Lincoln”), which would subscribe for shares in CCW, thereby effecting the repayment of the CCW loan. The second loan from the defendant was to another Claret Capital entity, namely, Claret Capital Holdings LLC (“CCH”), which was the vehicle through which it was intended Claret Capital would raise money from its client base and thereby repay the CCH loan. As part of the deal, Claret Capital was to become the asset manager (or General Partner) with the management of the hotel being performed by Starwood, under the St. Regis brand. 4. The CCH loan was originally intended to be for US$22m but was ultimately for US$14.05m as Claret Capital had arranged approximately US$8.5m of equity from their clients. In respect of this loan of US$14.05m, guarantees were entered into by the plaintiff and his fellow directors in Claret Capital. Furthermore, the plaintiff and his fellow directors each took personal loans from Friends First Finance, a company related to the defendant, with the plaintiff’s loan coming to the sum of $1m. 5. Although the plaintiff complains that the issue of personal guarantees had not been raised with him in the discussions leading up to the loan and that he was unaware that one of the signature pages which he completed was in respect of a personal guarantee, he now accepts that he was bound by the guarantee signed on 18th March, 2008, up until the execution of a Deed of Pledge on 20th July, 2009. 6. In these proceedings, the plaintiff claims that by virtue of clause 2.2 of the Deed of Pledge, the full extent of his liability to the defendant is limited in aggregate to an amount equal to that recoverable by the defendant as a result of the Deed of Pledge, namely, the value of 256 shares in Jetbird Ltd. pledged by the plaintiff to the defendant in the said Deed. This has the effect of limiting the recourse to the plaintiff on foot of the guarantee. 7. The defendant claims that the parties never entered into such an agreement and that insofar as clause 2.2 purports to restrict the extent to which the defendant can recover from the plaintiff on foot of the Guarantee, the same is not in accordance with, and does not truly reflect or represent, the common intention of the parties at all material times leading up to the execution of the Pledge. 8. After April 2008, Claret Capital did not raise any further equity for the St. Regis Hotel project. The defendant began to express concerns about the failure of Claret Capital to make scheduled payments on the remaining part of a bridging loan. The defendant put forward a proposal that if Claret Capital was unable to meet the repayment date of the CCH loan, an interest payment would be made to make the loan current and that the repayment date of the principal would be rolled forward for another three months to 5th November, 2008. 9. The defendant informed Claret Capital that it considered the 5th November, 2008, to be the agreed maturity date of the short term bridging loan to CCH, at which date it expected full repayment of interest due and full repayment of the outstanding principal balance. As matters transpired, Claret Capital was in a position to pay only the accrued interest on the loan, which was ultimately rolled forward by a further three months to 5th February, 2009. 10. A further difficulty arose around this time, in that the “insertion” of investors by the defendant to the transaction had become subject to Barclays’ approval in August 2008, but from mid-November such approval was no longer forthcoming. 11. An important meeting took place between the parties on the 29th January, 2009, to discuss the defendant’s investment in the St. Regis Hotel project. At that meeting Claret Capital revealed that the loan from Barclays was due to expire in February 2009, and that Barclays were not going to allow any further investor equity into the hotel scheme unless its own loan exposure was reduced. The defendant claimed that it was not made aware of this information until around that time and was unhappy with the way in which the information was communicated to it. The minutes of the meeting show that the plaintiff made it known that he disputed the validity of the Personal Guarantees. 12. In further discussions between the parties, it became clear that the defendant firmly stood over the Personal Guarantees, and furthermore required additional collateral from the plaintiff in return for the defendant not seeking payment of sums due on foot of a Promissory Note dated 18th March, 2008. A meeting took place on 17th February, 2009, between the plaintiff, Mr. Max Doyle, a Partner in Claret Capital, and the defendant, represented by its then Chief Financial Officer Mr. Tom Browne and Mr. Adrian Hegarty, its then CEO. The defendant’s position was set out at the meeting and further stated by way of email dated 20th February, 2009, from Mr. Browne to the other attendees as follows:-
No change in loan principal Interest rolled or payable annually in arrears Collateral provided including an assignment of whatever interest in the St. Regis Hotel is ultimately acquired by the CCH loan but also to include JetBird shares and any other suitable collateral available Personal guarantees from the 4 Claret principals to remain in place as is Interest rate on the CCH loan from 6th February to reflect the quality of the collateral available.” 14. At around the same time, the defendant also requested net worth statements from each of the Claret Capital principals so as to appraise any other “collateral opportunities”. 15. Following the meeting of 17th February, 2009, and subsequent discussions between the parties on 27th March, 2009, an offer issued from Mr. Doyle in Claret Capital to Mr. Browne of the defendant in the following terms:-
1) I confirm that the equity in the partners’ existing $2 million investment in St. Regis deal is being voluntarily offered by the partners to be cross-collateralized in your favour; 2) the further offer of Jet Bird shares to support the CCH loan with a current value of $2 million was calculated by DS being the maximum amount of shares he is in a position to offer you based on his current financial position and taking account of other existing financial arrangements. Notwithstanding this position, DS has been able to make arrangements with other parties to be able to release additional Jet Bird shares to cover the interest payment due on 5th February 2009 . . . 3) I await your response on my email of last night dealing [sic] partners PPR.” 17. In a minute of a telephone conversation with Mr. Browne on 22nd April, 2009, Mr. Doyle noted the following:
He said that they would be prepared to look at the PPR carve out but the catalyst would be more certainty over the security being JB shares and the St. Regis equity . . . . . . I believe they have accepted the €2m offer of JB shares and other points per our ‘offer’. LA/MD to commence documentation of same . . . . . . he stated that FF have no intention of going nuclear and calling the loan and accepted the financial wellbeing of the principles [sic] was linked to the funding as outlined by myself to him. He said that such a move would be counterproductive for FF. He acknowledged any discomfort on our side with the ‘PG’.”
. . . we will need visibility on how Barclays’ conditions for introducing equity investors are to be met. While FFLAC/Eureko may be involved in meeting these conditions, this will not be possible unless all the following are in place: • 2 side-letters to the revised Promissory Notes consistent with the original commercial agreement in relation to FFLAC loans to both CCH and CCW - to be done by Friday 8th May. • CBRE (Washington team) to be formally appointed as asset manager (with no ongoing involvement from Claret Capital staff whatsoever) - to be done within one week. • CBRE (Real Estate Finance team) to be formally appointed as ‘finance arranger’ (again no direct involvement by Claret Capital staff in direct negotiation of lending arrangements - all contacts to be pooled with CBRE) - to be done by Friday 15th May. • Corporate governance arrangements amended so that decision-making powers rest in CCW and not in any corporate structure where FFLAC has no influence - to be done by 22nd May. • Payment of February interest on CCH loan from FFLAC to take place in accordance with previous suggestion and collateral previously offered to be perfected (we will be using A&L Goodbody to carry out this work on our behalf) - to be done by Friday 22nd May. • Replacement of all Claret Capital entities from GP roles throughout the structure, new professional independent GPs to be appointed - to be agreed by Friday 29th May and implemented during June. The first five bullet points reflect what has previously been agreed between Claret and FFLAC. The last bullet is a new requirement which reflects the frustration at our side with the delays and also the very significant conflicts of interest which now exist for Claret within the structure . . . . . . FFLAC/Eureko will not participate in dealing with Barclays’ conditions unless all of the conditions are already in place.”
Regarding the o/s $6.5m underwrite loan (which is guaranteed by the principals), I would suggest that this is converted to a mezz loan on a pro-rata basis to the new $20m mezzanine finance introduced to pay down the Barclays loan. This would involve a new capital structure . . . From a FF and Claret principal perspective, this would significantly reduce the probability of a non-recovery from this loan (for a $6.5m loss), the value of the hotel would need to be below c. $105m, with a partial loss where the hotel value is between $105m and $131m. I think it could be argued that the guarantee might be removed on account of no future Claret involvement and the non-recourse nature of the structure.”
In passing, taking control away from Claret may be a good negotiating point to removing the PGs on the 6.5.”
23. By email dated 11th May, 2009, Mr. McGuinness communicated to Mr. Gibney (copying the plaintiff, Mr. Doyle, Mr. Browne and Mr. Hegarty) in which he stated, inter alia:
… 5. Collateral/Interest on CCH loan A payment of $46,000 will be made tomorrow with respect to the CCH loan (per your instruction, we will transfer you a further $10,400 in addition to the $35,600 already paid in error from our client’s monies account. We will simultaneously reimburse our client’s monies account for this amount from our side. We will forward you tomorrow draft security documents with respect to securing the relevant JetBird shares as collateral for the CCH loan.” 25. On 14th May, 2009, arising out of the previous day’s meeting, the plaintiff sent an email to Mr. Browne with a purported summary of discussion points setting out his position as follows:-
The selection of the new GP would be done on a collaborative basis. The debt pay down required by Barclays would be funded by the Eureko funds currently bridging the Lincoln investors (‘the new capital tranche’) on the working assumption those investors are issued B shares. Once the terms of the new capital tranche are defined, all investors would be invited to participate at their option but with no obligation. As part of the refinance of the $6.5m bridging loan would form part of the new capital tranche for an expected total of $26.5m. You were to consider that in view of (1) Claret giving up its Carry in the transaction (2) the revised position of the $6.5m in the capital structure and (3) either the upfront grant of JetBird shares by me to FF ($1m) or continuing back stop collateral of $2m, FF would release the Claret partners from their obligation under the current structure.”
Dómhnal is away on vacation for two weeks. Let’s get this document finalised so that he can review and approve it as soon as he gets back.”
. . . In order to progress this further, I would suggest that a response from Tom in respect of this proposal is now made.” 31. On 4th June, 2009, Mr. McGuinness and Mr. Gibney exchanged emails in anticipation of the former going on annual leave, expressing their understanding of progress to that point on various matters in issue (Mr. Gibney’s comments are underlined):-
On-going, will target agreement by Monday. 6. Replacement of Claret as GP: EG to liaise with Tom Browne and revert with a response to Dómhnal’s email to Tom of 14 May. We will have a formal response to DS mail by Monday.”
Separately, TB and MD spoke after the meeting on the DS proposal on St. Regis. TB advised that he wanted to secure the charge of the Jetbird shares first and could not do two stages at the same time. He said Eureko were prepared to roll the $2.5m as Mezz and FF were prepared to introduce the Lincoln investors. He was unsure if the $6.5m could also be restructured and said this would be dealt with separately. Personal Guarantees He said FF were not going to be vindictive on the PG’s and I took this to mean that they were unlikely to call them in light of the JB shares on offer. TB was critical of the firm in terms of not seeking a Global Debt Advisor citing 46/8, Regis and IBRD as examples of banking difficulties. I reiterated our desire to ensure Asset Management was a key focus. TB is on vacation for two weeks.”
• The equity the CC partners invested in the St Regis deal is to be taken as security by FF, this will become a second charge over shares when issued by CCW. As FFF financed the majority of the investment their consent will be required to secure this collateral. • Deed of Pledge over $2m shares in Jet Bird Upon completion of the above and as part of stage 2 we can then consider Domhnal’s email to Tom of the 14th May and the appropriate security around the $6.7m loan as part of the ‘package’ solution. Accordingly can you revert to my mail of 2nd June with comments on the Deed of Pledge. In addition can you update us on the timing of the payment of the above monies.”
. . . 5. Payment of interest and Additional Collateral - Action: We agreed to focus immediately on executing the security on (i) Jetbird shares (ii) underlying $6.5m interest in the hotel held by CCH and (iii) a second charge over the equity interest held by the individual Claret Principals in the hotel. As agreed, Leon will revert to you in this regard. In relation to the $6.5m, FFLAC-CCH loan it was agreed that this would be addressed to the degree possible at the same time we extend the Barclays loan and introduce investors. We understand the intention is that, on the basis of the above deliverables, the c. $20m FFLAC-CCH loan would be applied to paydown the Barclays loan with any excess potentially being applied to part/fully repay the $6.5m FFLAC-CCH loan. As discussed, in order for an excess to be available for the latter purpose, it is necessary that either some investors participate in the Mezz opportunity or Barclays agree to a lower initial paydown. Both these angles are to be pursued. 6. Replacement of Claret Capital as General Partner - it was agreed to park this point which can be revisited in due course.”
The Deed is based on what is in place with Anglo in respect of your interests in the Carry. The main point I want to highlight is that, at Friends First’s request, the Deed secures the obligations you are purported to have to them under the terms of the 2008 Personal Guarantee (rather than CCH’s repayment of the Friends First loan). The downside of this is that by entering into security for the Guarantee, you are confirming the Guarantee’s validity (albeit that the single argument of strength that you have in relation to the Guarantee was that it was not part of the arrangements as you understood them to be and you did not sign a Guarantee document (only a back page). The upside is that, if the Guarantee is released through the arrangements, then the security is released (and I am not sure whether Friends First have really appreciated this). I also want to point out that the Deed makes the security subservient to ‘Prior Obligations’, which I have loosely drafted to be any other obligation to another which is to be discharged from or by the assets being charged (or the proceeds thereof) pursuant to arrangements entered into before the date of the Deed or which is otherwise secured on the assets being charged. I do not know whether this loose definition will be agreed by Friends First who may insist on prior obligations being specifically defined. Tom Browne is looking for the draft Deed of Charge by close of business today so let me know if you have any concerns. However, it will be provided only on the basis that you have not yet seen or commented on it.”
(a) The liability of the Chargors to the Beneficiary under the terms of this Deed and the Guarantee shall be: (i) Limited in aggregate to an amount equal to that recovered by the Beneficiary as a result of the enforcement of this Deed with respect to the Charged Property; and (ii) satisfied only from the proceeds of sale other disposal or realisation of the Charged Property pursuant to this Deed; and the Beneficiary shall not have any recourse under this Deed or the Guarantee to any assets of the Chargors other than the Charged Property.” 39. At 2.14pm, the plaintiff responded directly to Mr. Atkins’ second email, sent at 1.18pm, saying, “Good thinking”. 40. At 4.43pm, Mr. Doyle responded to Mr. Atkins’ second email, copying the other Claret Capital principals, saying, “Any way to make it a bit more inconspicuous?” 41. Mr. Atkins inserted the suggested wording at clause 2.2 of the Deed of Pledge which also incorporated the amendments suggested by the defendant to the previous draft. Both the Deed of Charge, which contained the same wording at clause 9.7, and the Deed of Pledge were sent to Mr. Browne, copying Mr. McGuinness, Mr. Gibney and Ms. Suzie Nolan, another employee of the defendant. The body of the email read:-
1. Deed of Pledge - Jetbird Shares. This is a pledge by Dómhnal of 363 shares in Jetbird in favour of Friends First. This draft incorporates all of A&L Goodbody’s comments on the last draft that I circulated to Eugene. 2. Deed of Charge - Holdings in CCH etc. This charge will be entered into by each of Dómhnal, Max, Bryan and Ronnie Carroll and charges their holding in CCH, and rights accruing to those holdings and any interest in the Hotel that they receive by virtue of their loans to CCH. This is the first draft of this document which has not yet been circulated to Friends First. Please note that for the sake of expediency, I am forwarding these documents are the same time as they are provided to the Claret principals and so the documents are subject to their review and comment.” 43. On the morning of 10th July, 2009, Mr. Gibney, who was on leave, replied directly to Mr. Atkins’ email, asking, “Is this the version that I sent back to you with our handwritten comments or an earlier version?” Mr. Atkins responded, later that same day, “Yes, this is the version you sent back to me and which incorporates your comments”. 44. Independently of the correspondence between Mr. Gibney and Mr. Atkins, Ms. Nolan, of Friends First, embarked on a “side by side” comparison of the draft that had been sent on 9th July, 2009, and the previous draft, primarily with a view to ensuring that the defendant’s comments had been satisfactorily incorporated. Ms. Nolan gave evidence that she did not notice the insertion of clause 2.2 at this point. She then forwarded the draft to Mr. Fergus Wheeler, the solicitor in A&L Goodbody who was dealing with the matter, pointing out a number of issues with the incorporation of previous comments by Mr. Atkins, and requesting that Mr. Wheeler, “re-review this document and ensure . . . that it represents a final version for execution”. 45. On 17th July, 2009, Mr. Wheeler reverted to Ms. Nolan with a copy of the Deed of Pledge, bearing handwritten amendments and insertions, described as “tidy up” comments. Ms. Nolan sent this document on to Mr. Atkins, copying Mr. Gibney and Ms. Browne, with a request to issue a “final version of the document”. Remarkably, the document proffered made no amendment to, and raised no query about the insertion of clause 2.2. 46. On 16th July, 2009, the plaintiff had emailed Mr. Atkins to ask how he “got on” with the matter of the Pledge and Charge. On 17th July, 2009, following receipt of the marked draft from Ms. Nolan, Mr. Atkins responded, “Don’t hold your breath yet but they have NOT amended the Guarantee wording I added”. The plaintiff’s further response, on the same evening, was “Let’s get it signed ASAP!!” 47. Perhaps indicative of the defendant’s understanding of the significance, context and effect of the Deed of Pledge at this point is an internal email sent on 13th July, 2009, by Mr. Browne, outlining assets related to the St. Regis transaction held by the defendant, insofar as relevant:-
Charge over $2m worth of Jetbird shares currently owned by DS. Charge over loan from CCH to CCW which was funded by the FFLAC loan to CCH. Second charge over assets held in CCH by the four principals.” 49. On 20th July, 2009, Mr. Atkins sent to Ms. Nolan, by email, a draft which he described as involving the correction of some “minor typos”, but more fundamentally, which changed the number of shares to be pledged from 363 to 256, as this figure had initially been erroneously calculated on the basis of a pledge to the value of €2m, rather than $2m, as agreed. The defendant takes issue with the fact that an amendment was made at clause 2.2.3 from “Lender” to “Pledgee”, which it is submitted represents something more important than a mere “typo” but which was not flagged to the defendant. 50. Ultimately, engrossment copies were produced and executed by the plaintiff and Mr. Hegarty for the defendant, on 22nd July, 2009. 51. Mr. Atkins purported to set out the plaintiff’s understanding as to the drafting, execution and effect of the Deed of Pledge by way of a file note dated 14th August, 2009, in the following terms:-
As you know, the Pledge is for 256 of your shares in Jetbird Ltd. and was agreed and entered into as part of wider arrangements sought by FLAC to collateralise their loan of US$14,050,000 to Claret Capital Holdings Ltd. (as evidenced) by a Promissory Note in favour of FFLAC dated 18th March 2008 (the ‘Promissory Note’). When originally drafted by Claret, this Pledge provided security for the repayment of the Promissory Note. However, FFLAC insisted that the Pledge should be security for the obligations of a joint and several guarantee entered into by you (and others) in or about March 2008 (the ‘Guarantee’). This Guarantee has been in contention for some time, albeit FFLAC have refused to acknowledge the concerns that have been raised concerning its validity. Specifically, you are insistent that you were not aware of the Guarantee, or that the arrangements entered into with FFLAC in respect of the St. Regis Hotel were contingent upon this Guarantee. Of particular issue is that you did not sign a Guarantee document, although it now appears that when the St. Regis transaction closed, you were asked to sign a large number of signature pages but without sight of the associated documentation to which those pages related. The terms of the Pledge as proposed (securing the Guarantee), meant that your signature of the Pledge would amount to an admission that the Guarantee existed and was valid. Having pointed this out to you, we agreed that the Pledge should be amended to protect your position as far as possible. Accordingly, the Pledge was amended to include terms that your liability under both the Pledge and the Guarantee would be limited only to the security provided by the Pledge (see Clause 2.2). In particular, Clause 2.2.3 states that FFLAC: ‘shall not have any recourse under [the Pledge] or the Guarantee to any assets of [you] other than [your 256 shares in Jetbird]’. This amendment was accepted by FFLAC and their advisors, A&L Goodbody.” 53. In the meantime, the Deed of Charge was not signed as issues arose with regard to its validity under the relevant governing law, which was Delaware in the USA. But by letter of 13th November, 2009, addressed to the plaintiff, Mr. Gibney stated:-
55. In subsequent correspondence, the plaintiff did nothing to disabuse Mr. Gibney of any apparent misapprehension as to the status of the Personal Guarantees, as may have been inferred from his statement quoted above in the letter of 13th November, 2009, nor did he make any enquiries of Mr. Gibney as to his understanding of the position. 56. Mr. Gibney gave evidence that he remained unaware of the existence of clause 2.2 of the Deed of Pledge until early September 2010. He stated that Mr. Doyle, who had resigned from Claret Capital on 13th July, 2009, had intimated in March 2010 that he believed that the plaintiff was “off the hook” with regard to liability under the Personal Guarantee, but a review which was limited to that document only did not support that statement. Mr. Gibney said that Mr. Doyle raised the matter again some time around early September 2010, specifying that the issue was with the Deed of Pledge and it was this information which led to the discovery of the matters contained in clause 2.2. 57. On 2nd September, 2010, Mr. Gibney contacted Ms. Nolan by telephone to inform her of the true position, and on 3rd September, 2010, he contacted Mr. Ó Cróinin and also informed him of this development. 58. While it is perfectly clear that clause 2.2 in the Deed of Pledge was at all times visible to anyone who looked at it, it is equally clear that for whatever reason, neither the defendant nor its solicitors had spotted it. In these proceedings, the defendant pleads that the agreement sought to be recorded in the Pledge was an agreement whereby, in consideration of the forbearance therein mentioned on the part of the defendant in respect of Claret Capital, the plaintiff was to provide additional security in respect of his liability under the Guarantee. The defendant claims that it was not the agreement or the common purpose of the parties that the liability of the plaintiff was, in any sense, to be limited in its recourse. In those circumstances, the defendant pleads that the Pledge was signed under a common mistake, or alternatively, in circumstances where the defendant was under a unilateral mistake as to the contents of the Pledge. 59. The defendant also alleges that the plaintiff misrepresented the contents of the Pledge and that the mistake made by the defendant was at all material times known to the plaintiff in circumstances where the conduct of the plaintiff, his servants or agents is such that it would be unconscionable for the plaintiff to rely upon the defendant’s unilateral mistake and/or where the plaintiff is estopped from denying the agreement in the form mistakenly believed to exist by the defendant. 60. The defendant counterclaims for rectification of the Deed of Pledge by the deletion of clause 2.2. therefrom, or in the alternative, rescission of the Deed of Pledge. The defendant also counterclaims for judgment against the plaintiff in the sum of $10,174,498 on foot of the Guarantee. Issues
(ii) Was the Deed of Pledge executed in circumstances of mutual mistake or unilateral mistake? If so, is the defendant entitled to rectification or rescission? (iii) If there was no mutual or unilateral mistake, is the defendant bound by the terms of the Deed of Pledge and is the plaintiff entitled to the declarations which he seeks? (iv) Did the defendant owe to the plaintiff a duty of confidentiality? Was the defendant in breach of that duty or in breach of contract? (v) If the defendant was in breach of a duty of confidence or in breach of contract, did any loss flow from this such that would entitle the plaintiff to damages? 62. Clause 2.2 of the Deed of Pledge reads as follows:
2.2.1 limited in aggregate to an amount equal to that recovered by the Pledgee as a result of the enforcement of this Deed with respect to the Charged Assets; and 2.2.2 satisfied only from the proceeds of sale or other disposal or realisation of the Charged Assets pursuant to this Deed; and 2.2.3 the Pledgee shall not have any recourse under this Deed or the Guarantee to any assets of the Pledgor other than the Security Assets.” 64. A further difficulty arises because the Deed of Guarantee was entered into by the directors of Claret Capital, whereas the Deed of Pledge represented an agreement between the plaintiff alone, on the one hand, and the defendant, on the other. If the plaintiff’s liability under the terms of the Guarantee was mitigated by the Deed of Pledge, this would have implications for the other guarantors. Mutual Mistake or Unilateral Mistake? 66. The defendant pleads that the Deed of Pledge “is not in accordance with and did not truly represent or reflect the common intention of the parties at all times leading up to the execution [thereof].” It seeks rectification of the Deed by the deletion of clause 2.2 so as to properly reflect the common intention of the parties. 67. When Mr. Léon Atkins sent the Deed of Pledge to the defendant for execution, neither he nor the plaintiff were under any misapprehension about the terms of the Deed. It was the defendant who was unaware that the Deed contained clause 2.2 which purported to mitigate the effect of the Deed of Guarantee. The plaintiff sought to persuade the Court that he could have had no reason to believe the defendant had not seen clause 2.2 because it was there to be seen on any proper examination of the document. While that is an attractive suggestion and one, that at first sight seems reasonable, the plaintiff must have known, or at the very least suspected, that the defendant had not noticed this important change as no issue was taken with it. It seems most improbable that the defendant would have agreed to such a clause since it had not been part of the negotiations and the plaintiff was aware that the defendant was looking for the Deed of Pledge as additional collateral. 68. If this is correct, then the true position was one of unilateral mistake and a not common mistake. The mistake was that of the defendant and its solicitors in failing to notice a material alteration in the draft Deed of Pledge which did not accord with the negotiated position and in signing the Deed in that form. It is not necessary that a complete antecedent concluded agreement was necessary. An outward expression of accord on the particular matter in respect of which rectification is sought is all that is required. This test has been helpfully analysed in The Leopardstown Club Ltd. v. Templeville Developments Ltd. [2010] IEHC 152 at p. 211 et seq. Although Edwards J. was speaking of common mistake, the same principle applies with regard to unilateral mistake. One has to look at what was the common intention of the parties as to the nature of the contract before the mistake arose. 69. In this case, the defendant contends that the “common intention” of the parties at all times prior to 9th July, 2009, was for the plaintiff to provide additional security. If the plaintiff had a change of intention, this had not been raised in the discussions with the defendant. 70. In The Leopardstown Club Ltd., Edwards J. stated at p. 253:-
74. In Thomas Bates & Son Ltd. v. Wyndham’s Lingerie Ltd. [1981] 1 WLR 505, the defendant tenant was aware of the plaintiff landlord’s mistake in not including an arbitration provision in a rent review clause but did not draw its attention to it. The plaintiff realised the omission only when rent review was necessary, although the defendant had at all times been aware of the mistake. The Court of Appeal ordered an arbitration clause to be inserted into the lease in accordance with the parties’ original intention and Buckley L.J. stated at p. 516, that for the doctrine to apply, the following conditions must be satisfied:-
76. The plaintiff placed particular reliance on the Nai Genova [1984] 1 Lloyd's Rep 353 in support of the proposition that for rectification to be ordered in a case of unilateral mistake, in the absence of estoppel, fraud, undue influence or a fiduciary relationship between the parties, there must be “actual knowledge” on the part of the non-mistaken party of the fact that their counterparty is operating under a mistake. 77. The question of what constitutes “actual knowledge” in this context was considered in Commission for the New Towns v Cooper (Great Britain) Limited [1995] 2 WLR 677 and in JJ Huber (Investment) Limited v. Private DIY Company Limited [1995] NPC 102 with the relevant mental states being usefully summarised by Roger Cooke J in the latter as including:-
Unilateral Mistake – Findings
(b) Mr. Atkins, to the knowledge of the plaintiff, intended to slip clause 2.2 into the Deed of Pledge by sleight of hand. The plaintiff responded to Mr. Atkins’ suggestion of inserting the clause by saying “good thinking” and later, on the same date (9th July, 2009), Mr. Doyle, who was one of the Claret directors, sent an email to Mr. Atkins saying “any way to make it a bit more inconspicuous?” (c) When Mr. Gibney asked Mr. Atkins no 10th July, 2009 “is this the version that I sent back to you with our handwritten comments or an earlier version?” Mr. Atkins responded “yes, this is the version you sent back to me and which incorporates your comments”. This was at best ambiguous and at worst misleading. (d) On 17th July, 2009, following receipt of the marked draft from Ms. Nolan, Mr. Atkins responded to the plaintiff “don’t hold your breath yet but they have NOT amended the Guarantee wording I added”. The plaintiff, on the same evening, replied saying “let’s get it signed ASAP!!” 83. This chain of emails establishes, as a matter of probability, that the plaintiff was aware the defendant had not noticed the change, but sought to bind the defendant by its signature to the document. At the very least, the plaintiff and Mr. Atkins wilfully shut their eyes to the obvious. They may well have expected the defendant or its solicitors to pick up on the clause which was inserted, but they had no reason to believe that they did so, and, indeed, their actions prior to the contract being signed were designed to get the document signed when it appeared clear that clause 2.2 had been missed by the defendant and its solicitors. 84. The plaintiff has argued that the counterclaim is dependent upon a contention that the plaintiff (or, more specifically, Mr. Atkins on his behalf) owed the defendant some unspecified duty of good faith in the course of the negotiations to make sure that it properly read and understood and documentation being provided to it and its legal advisors. The plaintiff relies on the decision of the House of Lords in Walford v. Miles [1992] 2 AC 128, where Lord Ackner stated at p. 138:-
86. The facts of this case establish that there was a unilateral mistake. I have considered whether rescission would be the proper remedy in this case. I have been referred to O’Sullivan, Elliott & Zakarezweski’s ‘The Law of Rescission’ at paras. 7.07 to 7.08 where it is suggested that there is no jurisdiction to rescind at common law for unilateral mistake but that an equitable jurisdiction may be exercised which is dependent upon the presence of all of the following factors:-
(ii) The other party knew of the mistake; and (iii) There was sharp practice or other unconscionable conduct in connection with the mistake.
(ii) Concern a matter of real importance. (iii) Concern a matter existing at the time of the contract. (iv) Not to be a mere error of judgment, and (v) Go to the subject matter or terms of the contract as opposed to its commercial consequences. 88. While the defendant also based its counterclaim on misrepresentation, it seems to me that the appropriate rubric within which to consider the issues in dispute is in the context of mistake rather than misrepresentation. 89. This is one of those limited cases where rectification does appear to be the proper remedy. The defendant has shown, by convincing proof, that the concluded instrument did not properly reflect the intentions of the parties. Breach of Confidentiality 91. In or around August 2010, the plaintiff received a telephone call from Mr. Peter Rutland, a Board member of Avolon and a senior managing director of CVC. The plaintiff was informed that Mr. Harry van den Heuvel, a senior investment manager of the defendant’s parent company, Eureko BV (now called, and henceforth referred to as “Achmea”), had raised, at a meeting with CVC, the St. Regis deal, the Personal Guarantee, the Pledge and the plaintiff’s purported indebtedness to the defendant. The plaintiff’s evidence is that Mr. Rutland had indicated that Mr. van den Heuvel advised CVC that the plaintiff had acted improperly, in bad faith and had misrepresented certain documents to Friends First. Mr. Rutland sought a detailed report from the plaintiff on this issue in which he was asked to explain the circumstances giving rise to this allegation. 92. Mr. van den Heuvel’s evidence was that on 25th August, 2010, he contacted Mr. Stephen Vineburg, CEO of Infrastructure with CVC by email to query their due diligence process on Avalon and Dómhnal Slattery. He expressed his concerns (as a possible investor in a separate fund administered by CVC) at the experience the defendant had of the plaintiff and Claret Capital, and invoked the spectre of pending legal proceedings, both as against Claret Capital and against the plaintiff personally. On that same day, the plaintiff sent an email to Mr. Jonathan Feuer, a senior partner with CVC who had been directly involved in the Avolon investment, setting out his view of his dealings with the defendant. 93. To put this approach in context, it bears mentioning that on 19th August, 2010, Barclays’ legal representatives issued a Notice of Foreclosure in relation to the St. Regis transaction, pursuant to the law of the District of Columbia, with a principal balance outstanding on their promissory note in the sum of US$101,622,455, and a foreclosure sale scheduled to take place on 24th September, 2010. 94. Subsequently, on 2nd September, 2010, Mr. Gibney became aware of clause 2.2 in the Deed of Pledge, and in due course communicated this to Mr. van den Heuvel. The evidence established quite clearly that when the defendant realised the JetBird Pledge had been amended by the insertion of clause 2.2, it attempted to put significant pressure on the plaintiff in order to reverse the position and to enable it rely on the Guarantee. 95. Mr. Gibney gave evidence of discussions he had with the plaintiff and he produced memoranda of meetings which show quite clearly that pressure was put on the plaintiff to meet what the defendant perceived as being his obligations, with CVC’s purported sensitivity to any adverse publicity arising from legal proceedings being held over the plaintiff as an implied threat, given the latter’s importance to Avolon. There is no doubt whatsoever on the evidence of Mr. Gibney and Mr. van den Heuvel that CVC only became aware of the dispute between the plaintiff and the defendant through Mr. van den Heuvel’s purposeful intervention. 96. Mr. Vineburg’s evidence is that he received a phone call from Mr. van den Heuvel on 6th September, setting out in more detail the specific allegations against the plaintiff, including allegations of mismanagement, misrepresentation and of the poor performance of investments. A memorandum of this conversation was circulated by Mr. Vineburg to a number of other senior personnel with CVC, including Mr. Feuer, specifically noting the prospect of adverse publicity arising out of any legal action. 97. Mr. Vineburg wrote to Mr. van den Heuvel on 14th September, 2010, setting out in great detail the various matters attended to in their due diligence process, putting the view that the plaintiff’s and Claret Capital’s investment record was not unusually poor when compared with other similar vehicles operating in Ireland, and stating that the plaintiff and his management team were experienced and had a good track record. The letter left open the possibility of a face to face meeting to discuss these matters. 98. As events transpired, Mr. van den Heuvel did choose to avail of the offer of a meeting. Mr. van den Heuvel invited Mr. Gibney to accompany him to give first hand feedback of the defendant’s experiences in dealing with the plaintiff and Claret Capital, but also to put his viewpoint on the St. Regis transaction and the situation concerning the plaintiff’s Personal Guarantee in favour of the defendant. The meeting took place at Schipol Airport, Amsterdam, on 29th October, 2010. CVC was represented by Mr. Feuer and another senior executive, as Mr. Vineburg was travelling at the time. In the course of that meeting, the representatives of CVC were told of the defendant’s previous experience with the plaintiff and Claret Capital and queried why CVC had not sought inputs from Achmea and/or the defendant. Mr. van den Heuvel conceded that in his exchanges with the CVC representatives, he expressed the view that the plaintiff had been underhand and dishonest in his dealings with the defendant on the St. Regis investment and not just in relation to the JetBird Pledge matter. He described the plaintiff as someone who “left the kitchen when things turned too hot”. 99. In cross-examination, Mr. Tom Browne, the then Chief Financial Officer of the defendant, accepted that the defendant is a regulated financial institution which, in the ordinary course, would owe a duty of confidence to those with whom it does business. He admitted that he was uncomfortable with the manner in which Achmea had approached CVC to inform them of their unhappiness with the dealings which its subsidiary (the defendant) had with the plaintiff. He accepted that CVC only became interested in raising questions with the plaintiff after the issues were raised by Achmea. When asked whether he would stand over the fact that Achmea approached CVC and decided to give information about one of its customers (the plaintiff) to CVC, he conceded that “it’s probably not right”. The Duty of Confidentiality in Law 101. In Walsh v. National Irish Bank [2007] IEHC 325, McKechnie J. stated at para. 23:
105. Previously, the Supreme Court in Haughey v. Moriarty [1999] 3 IR 1 per Hamilton CJ had tentatively recognised, while explicitly refusing to rule authoritatively on the matter, that a constitutional right to privacy may attach to business dealings, in particular bank accounts. This putative right, insofar as it was recognised, would be subject to the exigencies of the common good, and was stated in identical terms to the right of confidentiality set out in National Irish Bank Limited v. Radio Telefís Éireann, citing the decision of Lynch J. 106. However, Hanna J in Caldwell v. Mahon [2007] 3 IR 542 correctly states, in the view of this Court, the position as being that any such right operates at the “outer reaches of and at the furthest remove from the core personal right to privacy”, and thus may readily be qualified by countervailing considerations. 107. The Court is further referred to Attorney General v. Guardian Newspapers (No. 2) [1988] 3 W.L.R. 776, where it was held by Lord Goff at page 805 that:-
109. In England and Wales, a closely related tort of misuse of private information is also recognised. In Campbell v. MGN [2004] 2 WLR 1232 a two stage test was stated, the first limb of which being the onus on the claimant to establish a “reasonable expectation of privacy”. On discharge of this onus, the court moves to assess the presence of any relevant countervailing policy considerations or rights, most usually the right to free expression. On the question of detriment, Baroness Hale, speaking for the majority in the House of Lords, endorsed the trial judge’s approach in assessing the question of detriment on an objective basis, with a finding that the breach of confidence would be likely to cause adverse consequences being sufficient to satisfy the test. 110. More recently, in Mosley v. News Group Newspapers Ltd [2008] EWHC 1777 (QB) the High Court of England and Wales reiterated that the right of privacy may be enforced even where there is no pre-existing relationship of confidence. It would seem to this Court, however, that these kinds of cases, relating primarily to personal privacy and deriving from Article 8 of the European Convention on Human Rights and Fundamental Freedoms, fall into a separate and distinct category to the matter at hand. 111. While the issue of the breach of confidentiality was raised in pleadings, it was surprisingly not addressed by way of particularly detailed legal submissions. But, it is clear that the law recognises a duty of confidentiality such as would apply in this case, whether framed in contract, in tort, in equity or on a constitutional basis, and that this Court is possessed of the jurisdiction to award damages on foot of a breach thereof. 112. Insofar as it is necessary to distinguish between the various conceptual frameworks for present purposes, it is absolutely clear that a duty of confidentiality arises as an implied term in banking contracts, following Tournier, but also that a broader duty of confidentiality may arise in the terms set out by Lynch J in National Irish Bank Limited v. Radio Telefís Éireann. Even if an actionable constitutionally grounded right to privacy or confidentiality in business dealings can be said to arise, its parameters of application to the instant case appear to be no broader than those of the fiduciary duty as determined by Lynch J. Breach of Confidentiality – Findings 114. A duty of confidentiality existed between the plaintiff and the defendant in circumstances where Claret Capital had borrowings from the defendant and the plaintiff had entered into a Personal Guarantee to secure those borrowings. It is readily apparent that there was no consent on the plaintiff’s part to the defendant’s making disclosure of his affairs, through Achmea and Mr. van den Heuvel, to CVC. 115. Mr. van den Heuvel sought to justify the disclosure of information to CVC on the basis of enquiries as to the latter’s due diligence procedures, in connection with another, entirely separate proposed investment. These requirements purportedly arose pursuant to Dutch law and the regulatory scheme imposed by the Dutch Central Bank. 116. This was a threadbare excuse and a fiction. It is impossible to see how, if it had been the case that Mr. van den Heuvel was earnestly engaged in an appraisal of CVC’s due diligence procedures, that this legitimate undertaking would have been aided by apprising CVC’s representatives of the minutiae of the plaintiff’s dealings with the defendant, including the St. Regis transaction, to the extent of Mr. Gibney’s travelling to Holland in order to have his say. Furthermore, this meeting was deemed necessary even in circumstances where CVC had furnished a very detailed account of their rigorous due diligence processes, and their satisfaction with the Avolon investment made on foot of same. 117. While the proposed engagement by Achmea with CVC potentially involved a significant commitment of funding, it seems from the evidence that this investment, in the “European Infrastructure Fund”, managed by CVC, would have entailed no additional exposure on Achmea’s part to Avolon or any other venture in which the plaintiff was involved. 118. Therefore, it seems to me that the defendant, in giving the information to CVC or in colluding with Achmea in passing on the information, was not pursuing its legitimate interests, nor is there any reasonable justification in the public interest or in pursuance of the defendant’s legal obligations. 119. I am satisfied, on the evidence, that the defendant permitted the improper disclosure of confidential information to a third party for an improper purpose, namely, to put pressure on the plaintiff to conform to the defendant’s negotiating position. Such conduct on the part of the defendant entitles the plaintiff to damages. 120. The defendant submits that the plaintiff has suffered no loss or damage on account of the disclosure to CVC of his dealings with the plaintiff. While it is difficult to ascertain the precise nature or extent of the reputational damage done, in circumstances where CVC seem to have broadly supported the plaintiff’s position, it was admitted in evidence by Mr. van den Heuvel that the disclosure was likely to be unhelpful to the plaintiff’s relations with CVC and his professional prospects, even in circumstances where he had been vindicated by subsequent enquiries. 121. In this case, the plaintiff has not established any special damage arising out of the breach of confidence. But that is not a bar to the plaintiff recovering damages. It is clear from such authorities as Conway v. Irish National Teachers Organisation, McIntire v. Lewis [1991] 1 IR 121 and F.W. v. British Broadcasting Corporation (Unreported, High Court, 25th March, 1999), that the Court is vested with a discretion to award compensatory damages, including aggravated damages, notwithstanding any failure to explicitly plead the latter category. Indeed, it would run contrary to what McCarthy J in McIntire v. Lewis referred to as the “dynamism that characterises the common law” for this Court to hold itself as being artificially restricted in granting the plaintiff a remedy. 122. Aggravated damages are usefully defined by the Law Reform Commission in its consultation paper on Aggravated, Exemplary and Restitutional Damages, published in April, 1998, and cited with approval by Barr J in F.W. v. British Broadcasting Corporation, as follows:-
Conclusions 125. As rectification appears to be the appropriate remedy, I am not awarding damages to the defendant. 126. Since clause 2.2 is to be deleted from the Deed of Pledge, it follows that the plaintiff and his fellow signatories are jointly and severally liable under the Personal Guarantee of 18th March, 2008, on the terms stated therein. On 10th June, 2010, a letter of demand was served by the defendant on the plaintiff pursuant to the Guarantee. It follows that the defendant is entitled to rely on that Guarantee and to recover such sums as are currently due on foot of same. I will hear counsel in due course as to the amount due on foot of the guarantee before the order is made up. 127. The plaintiff is entitled to damages, including aggravated damages, for breach of confidentiality and I measure these at €100,000. The plaintiff is not entitled to the other declarations or relief which he seeks in the statement of claim.
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