Alan Bennett and Crispin Jones successfully acted for Mr Dowling in his application to set aside a Statutory Demand served on him by Promontoria (Arrow) Limited ("Promontoria") in the sum of €6,338,675.93. The decision has wide reaching implications for creditors seeking to rely on guarantees.
Promontoria served a Statutory Demand on Mr Dowling in respect of a personal guarantee dated 6 December 2006 signed by Mr Dowling and three others in favour of Anglo Irish Bank Corporation Plc ("the Bank"), securing borrowing taken out by Danum Developments Limited ("Danum"). Danum purchased a development site for approximately €5,000,000 in 2006, which was subsequently sold in 2017 for €172,000. Mr Dowling was the former chairman of a private equity investment company which was an investor and one third shareholder in Danum.
Mr Dowling and the other guarantors signed a guarantee ("First Guarantee") in relation to a facility letter issued to Danum ("First Facility Letter") on 6 December 2006 which stated that the guarantors would jointly and severally covenant to pay on demand "all or any sums of money which are now or shall at any time be owing to the Bank".
There was a further facility letter ("Second Facility Letter") issued to Danum on 19 November 2007 which was not expressed to be an amendment to the First Facility Letter, and made no reference to it. The Second Facility Letter provided that the facility should be repaid on or before 31 March 2008. A further guarantee ("Second Guarantee") was also executed.
Promontoria claimed it took assignment of various assets once owned by the Bank from the National Asset Loan Management Limited ("NALM"), the Irish state residuary body that took on the Bank's book when it failed. Promontoria claimed that the Bank assigned all of its rights in relation to the facilities lent to Danum and the First Guarantee under a Deed of Assignment dated 11 December 2015.
Promontoria made demand on Danum by a letter dated 11 April 2016, more than 6 years after the repayment deadline of 31 March 2008. Further, the demand did not provide any statement of account or workings to reach the figure of €6,301,667.64. The Statutory Demand was then served on Mr Dowling on 3 June 2016 in the sum of €6,338,675.93, again with no statement or workings. Prior to these demands, no demand had been made by the Bank or NALM on Danum or Mr Dowling.
It was held that the Statutory Demand should be set aside on the basis that:
- Promontoria had failed to evidence their status as assignee of the debt. This issue was raised prior to the trial but Promontoria failed to produce relevant key documents. Relying on the Irish authority in English v Promontoria (Aran) Limited the Registrar held that the lack of a full suite of documents put the title of the assignment in doubt and gave rise to the requisite "substantial grounds" for disputing the debt.
- The Registrar held the Applicant had raised a strongly arguable case that the Second Facility Letter was not within the purview of the First Guarantee. Promontoria conceded that the Second Facility Letter was a new freestanding facility, rather than an amendment to the First. This factor, together with the fact that the Second Guarantee was given in substantially different terms, led the Registrar to conclude that the Second Facility letter was not within the purview of the First Guarantee.
- The obligations under the First Guarantee appear to be statute barred. It was held that the Bank's cause of action accrued on 31 March 2008, when Danum failed to repay on the due date. Six years limitation had expired on 31 March 2014. It was argued that for the conditional payment obligation to apply under the First Guarantee, Danum would first have to owe the Bank or, by assignment, Promontoria, an amount in excess of the bankruptcy minimum. It was held that Mr Dowling could rely on all of the defences available to Danum as principal obligor where his obligation is secondary, including limitation. An argument that as the First Guarantee was expressed as an obligation to "pay on demand" limitation only ran for the date of the demand was rejected (TS & S Global v Fithian-Franks).
- The First Guarantee was an indemnity obligation, which did not give rise to a liquidated debt capable of grounding a bankruptcy petition. As indemnity implies a loss, if there is no loss, there is nothing that the lender can be indemnified for.
It was further noted that the lack of any proper quantum evidence of the sum claimed to be due from Danum, the lack of any contractual certification of the alleged debt and Promontoria's failure to disclose much of the relevant contractual material without adequate explanation, were further aggravating factors in what was stated as a case "plainly unsuitable for a summary bankruptcy procedure".
The Statutory Demand was therefore set aside.