Ms Justice Stewart recently granted rectification of a guarantee document which was mistakenly limited to €50,000 in respect of facilities advanced in the sum of €5.32m. Fieldfisher acted for the plaintiff bank in the proceedings titled; KBC Bank Ireland plc –v- Bruce Blake,  IEHC 252. The defendant denied ever having agreed to provide a guarantee or, in the alternative, that such a guarantee was intended to be limited to €50,000. He also claimed that the bank’s relief should be refused because the amount claimed included debt arising from a “SWAP” financial product, in respect of which he was never advised. He denied that there was a mistake or a common continuing intention between the parties. The facility letter provided for a guarantee supported by the defendant’s interest in the properties to be secured. A subsequent facility letter signed by the borrower and affirmed by the defendant as guarantor, provided that the guarantee was for the full amount of the loan.
The guarantor contended (i) that the facility letter provided for a guarantee for the full amount of the loan subject to his interest in the properties; (ii) that he attended at the office of the banks’ solicitors (acting at that time) for the closing in order to execute a Family Law Declaration; (iii) that the borrowers’ solicitor did not at any point advise or legally represent him; and (iv) breach of his rights under the Consumer Credit Act, 1995. The defendant also raised the defences of non est factum and claimed undue influence.
The general principles for rectification on the grounds of either common or unilateral mistake are set out in the decisions; O’Neill -v- Ryan  and Irish Life -v- Dublin Land Securities . In the event that the court accepted that the guarantor read the guarantee, knowing it was limited to €50,000, the court should rectify the guarantee on grounds of unilateral mistake and rely on the decision in Slattery -v- Friends First  in this regard. The court found that it would be unconscionable for the defendant to take advantage of a difference between the intended agreement and the executed agreement, which arose through an inadvertent error.
The primary questions for the court to determine were; (i) the intentions of the parties at the time; (ii) whether the written documents executed reflected those intentions; and (iii) what the consequences should be if the written document is at variance with those intentions.
In circumstances where letters from the borrowers’ solicitor referenced the guarantor as “Our Client”, the court found that the borrowers’ solicitor had held himself out as representing the guarantor. The court found those letters were indisputable as they were sent to a third party (i.e. the bank) and could only have indicated that the borrowers’ solicitors were one and the same as the guarantors’ solicitors. The court also found that the concept of “consumer” must be strictly construed and decided that this agreement had all the hallmarks of a commercial transaction.
The initial facility letter provided for a “guarantee supported by his interest in the properties”. It did not specifically state that the guarantee was for the full amount of the loan. The guarantor claimed that the guarantee was limited to his interest in the properties. Notwithstanding, he also attempted to stand behind the €50,000 limitation actually contained in the guarantee document. The question for the court was whether the phrase “supported by his interest in the properties” constitutes a limitation and also whether there was any ambiguity as to the scope. The court was of the view that the words “supported by” did not serve to limit the scope of the guarantee.
The court was also of the view that the contra proferentem rule (which may apply if there was ambiguity in the facility letter) did not apply here as the banks’ solicitors at that time had written a letter to the borrowers’ solicitors setting out their intention that the loan was to be secured by a guarantee for the full amount of the loan.
Common or Unilateral Mistake
The court then considered whether this was a case where the test for common or unilateral mistake applied. The court accepted the defendant’s evidence that he had read the guarantee document and did see the limitation clause of €50,000. Accordingly, the court found that this was a case of unilateral mistake.
The test for securing rectification on the grounds of unilateral mistake is set out in Slattery -v- Friends First. The claimant must establish that:
- the document was executed under mistake;
- that the contracting party was aware of that mistake; and,
- that there is some element of unconscionability.
The evidence given by the bank and the banks’ solicitors at that time was that there was never an intention to limit the guarantee. The court found that the first two criteria of the test for rectification on the grounds of unilateral mistake were satisfied.
As regards the final criteria relating to unconscionability, the court held that the defendant was an experienced business man. The fact that his legal advice was not independent of the borrower in this case had no impact on the rectification issue. Judge Stewart was satisfied that all three criteria for securing rectification on the grounds of unilateral mistake were satisfied and granted the relief sought to rectify and amend the document.