Overview

 This case concerned the termination of two demand guarantees by the Plaintiff who was acting as personal representative of an individual who had died in 2012 (the Deceased). The Plaintiff argued that as the guarantees had been terminated, no debt was owed to Ulster Bank Ireland Limited (the Bank).

Facts

In 1985, the Deceased (together with his two fellow directors) had entered to a guarantee for the obligations of MacLochlainn Ltd (the Company) under a loan facility arrangement with the Bank. The guarantee was supported by a life policy on the life of the Deceased (the Policy) and the benefit of the Policy was assigned in favour of the Bank. The premia on the Policy was paid for by the Company. A similar "continuing" guarantee was also executed in 1991 (together the Guarantees).

After the death of the Deceased, the Plaintiff served the requisite notices terminating the 1988 guarantee (in 2012) and the 1991 guarantee (in 2013). The Bank subsequently wrote to the Company demanding repayment of monies owed under the facility letters and to the Plaintiff, demanding monies owed under the Guarantees.

The Plaintiff responded that as the Guarantees had been terminated, no debt was owned and requested that the assignment of the Policy in favour of the Bank be released. The Plaintiff also argued that as the Bank had not issued a demand under the Guarantees within one month of the service of the notices of termination, the Bank had no cause of action.

The Bank asserted that the termination of the Guarantees did not release the Company from liabilities incurred prior to the date of termination. The Bank also urged the Court to consider that as the Company had paid the premia, the proceeds should now be applied to reduce the Company's debt owed to the Bank.

The question raised before the Court was whether the Bank was entitled to recover monies from the Deceased under the Guarantees?

Judgment

The Judge referred to and endorsed the view of Murphy J in McGrath V Danske [2015] (see our earlier client briefing on this case) in relation to demand guarantees but differentiated this case on the basis that the guarantee contained a clause stating that any determination "shall not affect the liability of the guarantor or estate of the guarantor for the amount recoverable at the date of expiration of the notice" i.e. termination did not extinguish the liability but instead crystallised the liability as at the date of expiry. The demand guarantee in the McGrath case did not contain a similar "recovery" clause.

The Judge determined that the clause relating to the debt that is "recoverable" had the effect of crystallising the debt owed under the guarantee on the date of determination of the guarantee. The delay on the part of the Bank in serving its notice did not affect this determination.

James Meagher V Ulster Bank Ireland Limited [2016] IEHC 628