Litigation & Dispute Resolution

In a recent Court of Appeal decision of ACC Loan Management Limited –v- Connolly & Anor [2017] IECA 119, it was found that the creditor was not under an obligation to ensure that a farmer had freely entered into a guarantee for his son’s loans with that bank, despite the relationship between the parties and the fact that both had been advised by the same firm of solicitors.

Background The appeal, brought by Maurice Connolly (“the father”), was in respect of a High Court summary judgment obtained against him by ACC pursuant to a guarantee which he provided as security for loan facilities provided by ACC to the First Named Defendant (“the son”) for the purchase of development land. The guarantee itself contained a declaration signed by the father that he had been afforded the opportunity to obtain independent legal advice and that he had been afforded with such advice. In the summary judgment application, the father filed no replying affidavit (despite having been given the opportunity to do so) and did not present any evidence to ground any arguable defence that he entered into the guarantee by reason of “pressure, undue influence or any other wrongful act by the son”. However, the son swore an affidavit to the effect that the advice provided to the father was not independent, in that it was provided by the solicitors representing the son in the transaction. Counsel for the father also made submissions at the hearing that the transaction was an “improvident one”, given that the father was a “vulnerable person” in his late sixties who had had a heart operation. While the trial judge found that the relationship between the father and son did place ACC “on inquiry”, he concluded that ACC had taken a sufficiently reasonable step in obtaining the declaration.

Decision In one of two concurring judgments dismissing the appeal, Ms. Justice Finlay Geoghegan rejected the argument made on behalf of the father that even in the absence of any claim of undue influence, the High Court decision of Ulster Bank v Roche and Buttimer[1] and that of the House of Lords in Etridge[2] provide that where a bank is on notice of a “familial relationship”, then the bank is obliged to ensure that the guarantor is freely entering into the guarantee or in the alternative, that the guarantor is given independent legal advice prior to executing the guarantee. Ms. Justice Geoghegan explained the reasoning for her decision as being twofold. Firstly, there was no evidence put before the Court by the father that he executed the guarantee by reason of the undue influence or other “wrongful act” by the son. Secondly, Ms. Justice Geoghegan found that in the absence of any such arguable defence, then it follows that there is no arguable defence in Irish law available to the father that the bank, knowing the relationship between the principal debtor and guarantor, was under an obligation to ensure that the father received independent legal advice or that he freely entered into the guarantee. In those circumstances, Ms. Justice Geoghegan also found that the question as to whether the advice given to the father by the solicitors who also acted for the son (which advice was acknowledged by the father in the declaration) was or was not sufficient did not arise. Ms. Justice Geoghegan’s conclusion was based on her finding that the decisions in Ulster Bank v Roche and Buttimer and Etridge were only concerned with the enforceability of a guarantee where the guarantor has established (or in the case of summary judgment proceedings, raised an arguable defence) that the guarantee was entered into as a result of undue influence or other wrongful act. In particular, Ms. Justice Geoghegan considered the judgment in Ulster Bank v Roche and Buttimer, where it was held that Ulster Bank was “put on inquiry” in circumstances where Ms. Buttimer, who was in a relationship with Mr. Roche and guaranteed the debts of a company in which she had no direct interest (other than being a co-director) and had no material involvement in the business, had raised an arguable defence of undue influence. Importantly, however, Ms. Justice Geoghegan found that if an arguable defence of undue influence had been made out by the father in the present case, then it may be arguable “that the approach in Ulster Bank v Roche and Buttimer should also apply to a relationship between a son and an elderly father with no commercial interest in the transaction”.

The decision provides some comfort for creditors seeking to enforce guarantees provided by family members of principal debtors, however it is clear that any such transactions should be treated with caution at the outset.