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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Hoare & anor -v- Allied Irish Banks Plc & anor [2014] IEHC 221 (28 April 2014)
URL: http://www.bailii.org/ie/cases/IEHC/2014/H221.html
Cite as: [2014] IEHC 221
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Judgment Title: Hoare & anor -v- Allied Irish Banks Plc & anor Neutral Citation: [2014] IEHC 221 High Court Record Number: 2012 8998 P & 2012 168 COM Date of Delivery: 28/04/2014 Court: High Court Composition of Court: Judgment by: Charleton J. Status of Judgment: Approved |
Neutral Citation: [2014] IEHC 221 The High Court Commercial Record Number 2012/8998P (2012/168 COM) Between Michael Hoare and Mary Hoare Plaintiffs and
Allied Irish Banks PLC and James Luby Defendants Judgment of Mr Justice Peter Charleton delivered on the 28th of April 2014 Michael Hoare and Mary Hoare are a married couple with a family. Since the 1980s, they have been involved in purchasing houses in Galway city, renovating these and letting them out to students and others having an interest in obtaining a flat. They currently own over 20 houses either in Galway or in the environs. This house purchase and rental business did very well up to 2008. Mary Hoare also runs a business as a chartered accountant. On the house purchase and rental business, an accumulation of investments was possible over some years so that money coming in was used to buy further investment properties. Over the period 2000 to 2008, the Irish economy became overheated by property speculation and this was fuelled by lax bank lending practices. In addition to their personal business, Michael Hoare ran a construction firm called Dangan Homes Limited which built houses in the environs of Galway. Problems became particularly acute in the last four years leading up to September 2008 for both the building firm and for the purchase and rental business. During that time Dangan Homes Limited borrowed €1.4 million in 2004 to develop houses at Moylough; €3 million in 2005 to develop a 29 acre site at Mountbellew; and €1.256 million in 2006 to develop townhouses at 63/65 Upper Newcastle Road. For the house purchase and let business, no corporate vehicle was used by Michael Hoare and Mary Hoare. The relevant loans there are that €1.1 million seems to represent an accumulation of loans from previous purchases that was targeted at a premises in Woodquay through a facility of 7th October 2004; €150,000 was borrowed in respect of premises at Frenchpark through a facility of 4th December 2006; €360,000 was borrowed for a house at Renmore through a facility dated 18th January 2007; €870,000 was borrowed for a house at Salthill through a facility dated 15th of November 2007; a house in very bad repair at Renmore was bought with the intention of building two houses on the site and the amount of the loan was €492,000 through a facility letter of 12th of May 2008; and finally €1.280 million was borrowed pursuant to a facility letter of 30th of October 2008 to purchase properties at Newcastle Road. This all amounts to over €4.25 million of personal borrowing and in addition to that there was an overdraft facility. These are headline figures and the dates of acceptance differ from the dates of the letters of facilities. By a letter of loan sanction, dated 10th June 2010, the defendant bank offered to restructure some of these sums and this was accepted by the plaintiffs. This case is not about liability to repay borrowing from Allied Irish Banks but the merits of the plaintiffs’ claim against the defendant bank and the validity of a guarantee given by the plaintiffs in respect of Dangan Homes Limited. The above merely details a snapshot of the enterprise of the plaintiffs and the borrowings involved. Interest has to be added to these sums and has been unpaid or underpaid for four years or so. In consequence, the bank appointed a receiver over the personal properties of Michael and Mary Hoare. On 6th September 2012 the plaintiff issued a plenary summons against the defendant bank and against the receiver over their properties claiming damages for breach of contract, negligence, loss of reputation and also sought an injunction to restrain the receiver from acting. In that regard, a temporary injunction was in place in the autumn of 2012 from 10 September to 28 November, but this has since been discharged. The claim was amplified in the statement of claim dated 25th of September 2012. The plaintiffs claim that they had a contract by letter of 18th July 2011 which they accepted in which the defendant bank agreed to exercise forbearance on the loans owed by them and that the defendant bank broke this contract. Furthermore, it is claimed that the defendant bank by putting in a receiver not only evidenced this breach of contract but also caused loss to their business. In a defence and counterclaim delivered on 5th October 2012, the defendant bank denied this claim and counterclaimed in respect of seven facilities which had been drawn down in full by the Michael and Mary Hoare and also sought to recover damages in respect of the losses of Dangan Developments Limited on foot of a guarantee dated 14th of July 2004 which was expressly limited in the sum of €1.844 million. The defendant bank pleaded default and failure to pay and that the circumstances of the guarantee rendered it operative. Summary judgment has already been entered by Kelly J on the counterclaim of the defendant bank in the sum of €7,453,556.76 on 28 November 2012. The various aspects of the plaintiffs’ claim against the bank will be considered first and then the enforceability of the guarantee. Receiver
In the context of a receiver in possession, perfection cannot be the basis upon which legal liability is assessed. Rather, a receiver should act as a careful person to gather together and secure the assets charged in terms of physical protection and insurance, should attempt to gain a reasonable profit out of the assets without unreasonably endangering the assets themselves, should study the market and attempt to see at what point a letting or sale might profitably be made, and should do what is prudent according to the standards of people of business in that regard. Of key relevance to how a receiver should act is the existence of the debt charged on the properties and the need to pay it back and to not unnecessarily incur interest charges over a long period to no good effect. Complaints are often made in litigation that a receiver should wait almost indefinitely for property to recover in value. As against that, countervailing factors must be weighed in the balance. With large unpaid loans, interest accumulates over time in an alarming fashion and this may have the effect of cancelling out any correction in the market or even undermining the debt situation of the person whose assets are charged. State organisations such as the National Asset Management Agency may perhaps be able to take a somewhat longer term view that a commercial organisation which is required in banking terms to maintain a particular level of liquidity. There is no perfect time to sell or let which is predictable accurately. The matrix within which decisions about expending further money have to be made, such as on maintaining property, must also be considered. A person who has real property assets for rental over a period of decades may wish to invest substantial sums in renovation to secure a good return. A receiver in possession of flats may regard a lesser investment in painting and decorating a sufficient use of funds so as to enable short-term letting given that the timescale involved may be very much less. All of this is about taking a commonsense view of the circumstances, pressures and returns as they might reasonably be assessed by a prudent receiver acting diligently. Fundamentally, where property assets for rent are to be dealt with, obtaining a report from a reputable source as to what is involved in terms of the condition of premises, furniture and appliances establishes a good foundation for decision-making. The receiver in possession here was the second named defendant Jim Luby. His agent dealing with this matter was Des Gibney, a qualified accountant. The receivers were appointed on 20th of August 2012. They wrote to the borrowers and tenants shortly afterwards. Some controversy has been occasioned by this. The claim that is made is that every tenant was written to and that the Renmore property was included in this hail of letters despite being vacant and close to derelict. The attitude of the receivers was that if they had not written to tenants in possession, what appeared to be tenants in possession and what could have been tenants in possession though not ostensibly present at expected hours, they would have been criticised. The position that the receivers were in remained delicate. The properties were mortgaged pursuant to a number of indentures of mortgage, of which the parties have agreed that one dated 13 May 2005 is a representative sample. Under this deed, the powers of the bank are as those conferred under the Conveyancing Act 1881 with variations. These include the removal of restrictions under section 20 of the Act of 1881 and an amelioration of section 18 of that legislation. Clause 8.01 (d) provides:
The receivers were particularly circumspect as, it is established as a fact, they had a direction from the bank to await the end of litigation and had been advised as to the limits of their powers as a matter of law. Permission was needed to take possession. The reality is that this was slow in coming for understandable reasons of disappointment at the situation as it had developed in terms of the economy on the part of the plaintiffs. As matters currently now stand the rent roll is around €7000 per month. A full report was received on the condition of properties from a responsible agent. This is not regarded as hearsay by the Court because it is merely the discharge of duty in the context of business and how a receiver operated is to be adjudged on the basis of the information that could reasonably have been obtained and the information that was reasonably available. Many of the properties required new appliances, hobs and washing machines and that kind of thing, almost all of them required professional cleaning and several of them needed extra work in relation to fire blanket and extinguisher provision. The report received indicated that some properties were not in good order. For some of the properties, it would have been possible to spend in the region of €2000 each to make them lettable into the medium term. In physical terms, it would seem that the receivers entered into possession of 19 properties, of which two or three seem to have been multiple units, and of these 11 are let and 8 are vacant. The receivers of paid out around €9000 with a view to enabling the letting of some properties and in the context of the rent roll available and the constraints arising from the litigation their performance has been entirely reasonable. A complaint is made by Mary Hoare that some of the properties have been allowed to disintegrate into rack and ruin. In that regard, multiple photographs have been produced. For some of the empty properties, the diligent cutting of grass and excision of weeds carried out by Michael Hoare and family has been allowed to lapse. This, however, can be rectified very easily by spraying with Path Clear or something like that. A mattress has been left out the back of one of the houses. It is unknown who did this. One of the windowsills has grown green slime on the outside. In the Irish weather, this is almost inescapable. All of these issues and all of the relevant photographs of blinds and windows and gardens have been taken into account. In terms of the balance of what could be reasonably expected from the receivers, there has been no breach of duty. Agreement The file was taken over by the section in May 2010. Records were kept of all meetings. These are not, of themselves, admissible. There was cross-examination, however, on any alleged inconsistencies between the testimony of Graham Kelly and Olivia Tone and the notes that were taken by her. From this has emerged no evidence of any attempt at obfuscation or evasion. The first meeting between Michael and Mary Hoare and the bank took place on 6th May 2010 in Galway. The issues concerning Dangan Developments Limited were gone through in detail and it was noted that the company was not at that stage completing any work and was therefore inactive. The last completed accounts of the company were for 2008. On the personal business of the plaintiff, it was noted that rental income information had been sought and that certain renovation works were needed on some properties. It is in consequence of this meeting that the June 2010 facility letter was issued by the defendant bank. This references a new loan account in the sum of €370,000 to Michael and Mary Hoare and that this was repayable on demand. This rolled up of a number of smaller loans into one. The second facility of €1.185 million was expressed to be in relation to land at Drom and commercial units and two apartments at Moylough. The third facility was a bank guarantee in favour of Galway city council in the sum of €40,000. All of these were on demand facilities. This particular tidying up exercise in the borrowing was accepted by Michael and Mary Hoare on 7th July 2010. In relation to the company, a letter was issued by the defendant bank to Michael and Mary Hoare relating to borrowings of around €6.2 million. Included was a nil balance in respect of the current account upon which it is said by them that the guarantee was entered into by them for this particular project only. It was around €300 in credit. The guarantee issue will be considered later. About a year after the first meeting, the parties met again on 7th April 2011. On Dangan Developments Limited, it was noted that the Moylough site was being tidied up; that the Mountbellew side consist of 29 acres but that unfortunately there was now new housing across the road; that income from houses at Newcastle had been given to the bank; and that the company was insolvent. On the personal borrowings of Michael and Mary Hoare, an agreement noted that the student accommodation would be vacant over the summer, but that “whatever rents they receive will go straight to the bank to service interest payments however whatever shortfall will have to be rolled up (clients to provide a rental schedule).” On the evidence, it is impossible not to accept that Michael and Mary Hoare had agreed to put all rents to service the interest charges into the bank and that they would put for five personal properties on the market in order to try and reduce the overall size of the loans. A certified rental schedule was sought from them together with a certified statement of affairs and they were to identify the properties that they were going to be putting on the market. Shortly after that there was a further meeting, this time held in Dublin, where the defendant bank informed Michael and Mary Hoare that in order for the bank to extend the credit facilities, which were then interest only, that €1 million worth of properties would have to be disposed of from their personal holdings and that the bank would not wait; it was to be done within 12 months. Mary Hoare indicated in evidence that she did not remember that this time limit was imposed. She was understandably confused and the bank’s evidence is preferable. The approach of the bank was to see how matters went over the year, which in that instance was reckonable from May to May. What is alleged in this case to have been an agreement then emerged by way of an email from the defendant bank to Michael and Mary Hoare dated 18 July 2011. This must be quoted:
I refer to our meeting of July 14th in which the Bank acknowledged the various breaches and arrears accrued on the facility held in the name of Dangan and you. While the Bank is not in a position to provide a waiver for these breaches the Bank is willing to show a level of forbearance on the basis that both Dangan and you agree to the following: 1) Dangan Developments Limited All operatives and sites are to be placed on the open-market for sale. The properties/sites must be appropriately marketed (i.e. placed on daft.ie, myhome.ie etc) as realistic values that are acceptable to the Bank. The Bank is to receive written consent to contact/liaise with your chosen estate agent. The estate agent is to provide advice on the renting of the units while simultaneously marketing them for sale. The properties on site to be placed on the market by no later than July 30th. 2) Michael and Mary Hoare personal account Properties with a market value of €1 million are to be identified for sale. The Bank is to be satisfied with the properties selected. The properties/sites must be appropriately marketed (i.e. placed on daft.ie, myhome.ie etc) at realistic values that are acceptable to the Bank. The Bank is to receive written consent to contact/liaise with your chosen estate agent. The properties are to be placed on the market by no later than July 30th. If you have any queries with regard to the above please do not hesitate to contact me. Regards, Graham Kelly As it turned out, things did not go right. It took over two months to get a rental schedule from Michael and Mary Hoare. On 6th of September 2011, there was a meeting with them and Olivia Tone then got the relevant schedule. The defendant bank was told that there were six properties being marketed for sale. As of that point, the defendant bank had not yet got the mandated rents from the properties. A few days later, the six properties were identified and permission was given to the bank to contact the relevant estate agent. A rental schedule was forward eventually on 24th October 2011. There was a further email of 7th November 2011 about the properties. Then, in May 2012 Olivia Tone did a review of how things were going. She was not impressed. What was clearly missing was any apparent seriousness in forwarding the rent roll directly to the bank. Mary Hoare gave evidence on this issue. She came across as a very decent woman who is always doing her best to cope with what were then extremely serious problems. Medical bills had arisen and college fees needed to be paid. Tradesmen who had done work on various properties were demanding payment and they could not been left disappointed. It is hard not to be sympathetic on these issues. These were questions, however, to be addressed to the defendant bank and not to the Court. The parties had come to a point where stringent demands had been made in order to prop up an extremely serious set of debts. This was the priority. While it can be understandable that personal issues intrude and demand to be dealt with as a priority in themselves, the proper approach for borrowers in this situation would have been to return to the defendant bank and to asked to change. An account in National Irish Bank was opened to receive the rent roll so that the funds would not go to the defendant bank and thus to have an independent account to deal with these pressing personal problems. Some dispute could arise in relation to whether or not €1 million worth of properties had been put on the market. Certainly, a number of houses had been entered onto the books of an auctioneer in Galway, but there had been no bites. The situation of the company was even worse. Again, this is understandable. The lands at Mountbellew had been bought for €3 million and planning permission had been obtained for multiple dwellings which if built, in an inflamed market, would have realised a profit. In terms of business, however, the result was that the nearby construction of a housing estate in this town over 40 km from Galway seems to have saturated whatever housing market there might have been. Things just turned out badly. Despite the planning permission, the land retained a certain value as agricultural fields. The site had been marketed through the reputable firm O’Donnellan and Joyce for just under €1 million on the instructions of Michael Hoare. By letter dated 3rd of November 2011, Michael and Mary Hoare had been advised by this firm in the following terms: “we feel that the offer of €85,000 represent a fair market value for the property at present.” This referred to an offer which the owners were reluctant to accept. In February 2012, Olivia Tone had been informed by the auctioneers that the highest offer to date on the site had been €130,000. Even that offer did not go through. There was then a further meeting of the parties on 17th of July 2012. In the meantime there had been solicitors’ correspondence on both sides. Unfortunately, by this stage the defendant bank had decided that it had shown sufficient forbearance and that as its conditions had not been met letters of demand must issue and a receiver must be appointed. The defendant bank did not act incorrectly. Guarantee
‘I am satisfied 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 the course of his speech in Saunder’s case, Lord Reid having pointed out that there is a heavy burden of proof on the person who seeks to invoke this remedy went on to say:- ‘The plea cannot be available to anyone who was content to sign without taking the trouble to try to find out at least the general effect of the document. Many people do frequently sign documents put before them for signature by their solicitor or other trusted advisers without making any inquiry as to their purpose or effect. But the essence of the plea non est factum is that the person signing believed that the document he signed had one character or one effect whereas in fact its character or effect was quite different. He could not have such a belief unless he had taken steps or been given information which gave him some grounds for his belief…’ Lord Hodson in the same case said:- ‘Want of care on the part of the person who signs a document which he afterwards seeks to disown is relevant. The burden of proving non est factum is on the party disowning his signature; this includes proof that he or she took care. There is no burden on the opposite party to prove want of care.’ AIB contend that they knew nothing of Mr. Mansfield’s reading difficulties until they met Mr. Sutcliffe in August 2009. Mr. Sutcliffe informed them of the difficulties of his client Mr. Mansfield. Mr. Mansfield himself did not tell AIB about his difficulties. He said in his affidavits that he was not aware as to whether the plaintiff was specifically made aware of these difficulties. He said it may have been known to them at the local branch where he had dealings. He went on:- ‘Certainly no member of the plaintiff’s staff ever spoke to me about it in relation to the borrowing. I have never emphasised my difficulties with strangers and there was no reason, as far as I was concerned, to notify the AIB.’ Mr. Mansfield has wide business experience given his company directorships. He is of at least average intelligence where non-verbal reasoning is concerned. He ought to have taken steps to find out what the letter of 19th January, 2009 was or told the bank of his problems. He did neither. He cannot be said to have taken any, still less ‘all reasonable precautions to find out what the document was’ (per Morris J.) Thus, one of the three ingredients required for a defence of non est factum is absent.
It has been said over and over again that the law of contract depends upon the agreement of the parties. The parties in this case agreed that once a specific transaction had been completed the guarantee was at an end. They did not quantify this in any way so it meant that this was to be so irrespective of the contents of the agreement itself. I am further fortified in the view I have taken by the fact that when [the company] went into receivership it did not mention the guarantee as being an asset.
The Court is extremely reluctant to allow any term of a written contract to be overridden orally. Here the bank has, with great responsibility, not attempted to contradict the testimony given on behalf of the plaintiffs. Without the authority of the Supreme Court decision on an express representation being capable of overriding a specific clause within a written contract, the case made on the guarantee would be difficult to support. Some of the documents might be construed so as to raise an inference against the direct testimony of Mary Hoare. But an inference as against direct testimony should be considered with particular caution. In these particular circumstances, any inference against the testimony given on behalf of the plaintiffs is too weak. In that context, the guarantee must be held to have been extinguished by performance, meaning the repayment of the loan which it had supported. Result |