Conditions precedent in loan agreements are almost always thought of as being for the benefit of the lender only. A recent summary decision of the Irish High Court provides pause for thought about that approach.
The Irish High Court recently refused summary judgment and insisted on a full plenary hearing on the grounds that (amongst other matters) a lender had waived a condition precedent to the utilisation of a loan facility.1 The loan in question had been advanced to a father, mother and son as co-borrowers. The son successfully argued that summary judgment should not be granted against him on two grounds:
1. Documentation: the general terms and conditions incorporated into the loan agreement had not been put into evidence before the court. Barrett J took a dim view of this stating:
“The proposition that a court, at the behest of one party to a contract, would grant an order of €3.7 [million] on the basis of selected provisions of that contract when the whole is readily available and there is no good reason for the omission is, with respect, unsustainable.”
Barrett J held that, without seeing the entire contract, he could not make a sound judgment on the case and, in particular, on whether the son was jointly and severally liable (as claimed by the lender) for the debt.
2. Conditions Precedent: the conditions precedent in the loan agreement included a charge over property, which was to be granted by all three borrowers. While not clear from the condition precedent itself, the son stated that the property was owned by the other two borrowers and that its registration in their joint names was a condition to his agreeing to be a co-borrower. The lender waived the condition precedent, seemingly without the knowledge of the son. Barrett J held that the waiver was sufficient to meet the criterion of “an issue to be tried” that required a plenary hearing on the basis that:
“…(a) a lending institution has elected not to insist on compliance with a particular security obligation, (b) in circumstances where compliance with such obligation (I) would have conferred a benefit on a borrower and (II) that security obligation had been agreed to be a pre-condition to drawdown…”.
Importantly, Barrett J did qualify this decision by stating that the result could have been different if he had the benefit of reviewing the complete contract; for example, it might include a contractual provision allowing the lender to waive conditions precedent.
This case emphasises the obvious importance of complete documentation being put before the court where available. It also raises the less obvious point that, absent an express contractual right to unilaterally waive a condition precedent, a lender should always carefully consider whether such waiver could negatively impact upon a co-borrower or guarantor who is not directly involved in agreeing the waiver. This may be a good prompt for lenders to check whether their standard-form documentation includes suitable express provisions in respect of conditions precedents.