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High Court of Ireland Decisions |
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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Maloney -v- Danske Bank A/S [2014] IEHC 441 (06 October 2014) URL: http://www.bailii.org/ie/cases/IEHC/2014/H441.html Cite as: [2014] IEHC 441 |
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Judgment Title: Maloney -v- Danske Bank A/S Neutral Citation: [2014] IEHC 441 High Court Record Number: 2009 594 COS Date of Delivery: 06/10/2014 Court: High Court Composition of Court: Judgment by: Cregan J. Status of Judgment: Approved |
Neutral Citation: [2014] IEHC 441 THE HIGH COURT [2009 No. 594 COS] IN THE MATTER OF THE COMPANIES ACTS 1963 - 2012 AND IN THE MATTER OF RQB LIMITED (IN LIQUIDATION) BETWEEN GEORGE MALONEY APPLICANT AND
DANSKE BANK A/S RESPONDENT JUDGMENT of Mr. Justice Cregan delivered the 6th day of October, 2014 Introduction 2. Although the notice of motion originally sought an order pursuant to O. 74, r. 126 of the Rules of the Superior Courts and s. 231(1) of the Companies Act 1963, this was amended on consent to an application seeking an order pursuant to s. 280 of the Companies Acts 1963 - 2012, at the commencement of the hearing. 3. The liquidator filed an affidavit of 24th September, 2013, (together with various exhibits) and a supplemental affidavit of 1st April, 2014. Michael Leonard on behalf of Danske Bank filed a replying affidavit with exhibits on 15th November, 2013. Both parties also filed written legal submissions on this issue. 4. The liquidator, in his affidavits and written submissions, has submitted that the floating charge is not valid or enforceable; the Bank for its part, has claimed that the floating charge is enforceable. I will address the substance of these submissions in greater detail in a later section of this judgment. Factual Background to this Application The 2005 facility 6. The personal guarantees were signed by the three guarantors on 23rd December, 2005. Mr. Leonard (for Danske Bank) states in his affidavit that in December 2006 there was an agreement between the Bank and the company to continue the 2005 overdraft facility on the understanding that it was repayable on demand. The 2008 facility (a) a new loan facility of €8 million; and b) an additional overdraft facility of €2 million 8. On 4th September, 2008, the Bank wrote to the company offering a new loan facility of €8 million on the terms set out in that loan facility letter. 9. In addition, on 4th September, 2008, the Bank also offered an overdraft facility to the company in the amount of €2 million on similar terms. 10. This offer of a loan facility by the Bank was signed and accepted by the company on 10th September, 2008. (It appears to be accepted by all sides that the overdraft facility was also accepted and signed by the company on the same date.) Thus a contract between the parties came into being on that date (ie 10th September, 2008). 11. It is also agreed between the parties that these two agreements (i.e. the loan facility agreement of 4th - 10th September, 2008 and the overdraft facility agreement of 4th - 10th September, 2008), are to be construed together as they refer to each other. Indeed the relevant provisions of the loan agreement and the overdraft agreement are identical. Security for the 2008 loan facility The loan facility will be secured by:-
(b) First Fixed and Floating charge over assets and undertaking of the company (to be provided).” (Emphasis added). 14. On 10th September, 2008 the floating charge was also executed by the company. Subsequent Developments
The file has been reviewed within the bank and a decision has been made that we cannot proceed with the new facilities until such time as all the security is in place, all preconditions attended to and all outstanding matters have been attended to. This decision has been made on foot of the recent and protracted guarantor problem and also due to the fact that the required personal asset statements are not in a satisfactory format.” 17. It is also an agreed fact that after the 30th September, 2008 further discussions and negotiations took place between the company and the bank in respect of the facilities, the personal asset statements of the guarantors and the security. 18. On 22nd December, 2008 the bank wrote to the company referring to the bank’s facility letter of 4th September, 2008 and suggesting that the security clause would be amended so that the loan facility should be secured by
(b) A First Fixed and Floating charge over the assets and undertaking of the company. (c) An assignment in a format acceptable to the Bank over the borrower’s interest shareholding and/or investment in other properties in Florida. (d) An assignment in a form acceptable to the Bank over the borrower’s interest shareholding and/or investment in certain properties in London. 20. As Mr. Leonard (for Danske Bank) has averred to in his affidavit, discussions in relation to the refinancing were ongoing between the parties between September 2008 and February 2009, but the additional facilities, as provided for under the 2008 facility agreements were never advanced and the envisaged restructuring was never completed. 21. As time went on the financial position of the company deteriorated and on 11th June, 2009, 22nd July, 2009 and 24th July, 2009, the Bank made formal demands for repayments of the amount outstanding under the 2005 facility. 22. On 11th June, 2009 the Bank issued a letter of demand for €8.5 million approximately in respect of the 2005 loan which it had advanced to the company. In this letter of demand the Bank stated inter alia as follows:
With reference to recent dialogue with the Bank and your request for variation of facilities, I confirm that the Bank is not in a position to grant the requested variation to facilities.” 24. By letter dated the 23rd June, 2009 the company replied to this letter and stated that the floating charge dated the 10th September, 2008 was only signed in the context of the loan agreement dated the 4th September, 2008 and was intended to satisfy the security requirements of that facility letter. It also stated that as the Bank never advanced the new loan facility and as the company never enjoyed the benefits of the new loan facility the Bank could not now seek to rely on the floating charge. 25. Subsequently, because the company failed to comply with the formal demands, the Bank issued proceedings on 30th July 2009 seeking judgment against the company and the guarantors. 26. On 12th August, 2009, judgment was entered against Patrick Kelly and Paul Pardy in the sum of €8,577,105.93, on foot of their personal guarantees. 27. On 23rd September, 2009, the Bank obtained judgment in the High Court against the company in the sum of €8,615,830.31. 28. On 24th September, 2009, Boundary Services Limited, a creditor of the company, presented a petition to wind up the company and by order of the High Court the company was wound up on 2nd November, 2009. 29. The Bank also brought proceedings against Mr. Niall McFadden on foot of his personal guarantees. These proceedings were defended by Mr. McFadden at the summary stage and on 16th October, 2009 the Bank’s proceedings against Mr. McFadden were adjourned to plenary hearing. The plenary hearing in respect of this matter came on before the High Court in July 2010 and oral evidence was given on behalf of the Bank. At the conclusion of the case, the High Court (McGovern J.), in a reserved judgment, granted judgment in favour of the Bank against Mr. McFadden on foot of his personal guarantee. (See Danske Bank T/A National Irish Bank v. RQB Limited (formerly known as Redquartz Boundary Limited) & Ors [2010] IEHC 347, 23rd July, 2010.) 30. On 18th November, 2010 McCann Fitzgerald acting on behalf of the Bank wrote to the liquidator, stating that the Bank had obtained judgment against the company in the sum of €8.6 million on 23rd September, 2009 and stating that the Bank had obtained the benefit of the floating charge executed by the company in its favour on 10th September, 2008. It also stated that, in its view, the charge was valid and secured the liabilities of the company to the Bank. 31. On 24th June, 2011 Whitney Moore Solicitors on behalf of the liquidator replied to this letter seeking further comments on the question of the enforceability of the floating charge. 32. Further correspondence then ensued between the parties until eventually in September, 2013 the liquidator issued a motion for directions seeking the directions of the High Court to determine the status of the floating charge. The terms of the loan agreement of 4th September, 2008 34. The terms of the loan agreement entered into between the Bank and the Company are set out in the letter dated 4th September, 2008, signed on behalf of the company on 10th September, 2008. The key terms of this agreement are as follows:-
(ii) Section 2 of the agreement provides that the purpose of the facilities is:- “restructure of existing facilities to assist with the rationalisation of the business. (iii) Section 3 of the agreement is headed “Availability and Repayment” and sets out the repayment terms. (iv) Section 4 of the agreement sets out the rate of interest. (v) Section 5 of the agreement dealing with security provides as follows:- Security “The loan facility will be secured by: (a) Joint and Several Guarantee in the amount of €8 million from Patrick (Paddy) Kelly, Niall McFadden and Paul Pardy (‘the Guarantors’) (to be provided); (b) First Fixed and Floating charge over assets and undertaking of the company (to be provided). Any security held now or at any future time shall be security for all the Borrower’s liabilities to the Bank (actual or contingent) and whether as principal or surety. (Emphasis added). (It should be noted that the agreement itself provides that it is the loan agreement itself which is to be secured by the personal guarantees and the floating charge.) (vi) Section 7 headed “Special conditions” provides at s. 7(c):- “This offer of facilities is contingent on acceptance by the Borrower of the facilities granted under the terms and conditions of the Bank’s letter dated 4th September, 2008, in respect of overdraft facilities”. (vii) Most importantly, Condition 8 of the agreement headed “Conditions Precedent” provides as follows:- “Prior to utilisation of the facilities referred to at clause 1 above, the Bank is to be provided with Personal Asset Statements of the Guarantors. Such personal asset statements are to be satisfactory to the Bank. (Emphasis added) (viii) Paragraph 11 of the agreement provides:- “The offer will remain open until 30th September, 2008 and will be subject to renegotiation if acceptance is not received by that date.” (ix) Paragraph 12 of the agreement provides:- “The facilities will be made available on completion of the security arrangements and on compliance with the provisions of clause 11 and will be subject to renegotiations if utilisation has not commenced by 30th September, 2008.” (Emphasis added) (x) Paragraph 14 provides that:- “This letter is supplemental to the Bank’s letter dated 4th September, 2008, in respect of overdraft facilities.” 35. The overdraft facility letter - at condition 11 - also contains a similar condition precedent to that contained in the loan agreement:- 36. Moreover Clause 7 of the overdraft facility letter refers to the fact that what is secured by the guarantee and the floating charge is the overdraft facility. The terms of the floating charge dated 10th September, 2008 38. Paragraph 1 of the floating charge agreement provides as follows:-
Summary of arguments in relation to the enforceability of the floating charge
2. In the alternative, it was an implied term of the floating charge that if no funds were advanced by the Bank then the floating charge came to an end. 3. In the alternative there was no consideration for the floating charge. 4. In the alternative even if no consideration was required because the contract was under seal, as a matter of law a contract under seal must be signed , sealed and “delivered” by the company and the floating charge in this case was not “delivered” in the legal sense. 5. That, having regard to the decision of McGovern J. in the guarantee case, a similar result should apply in relation to the floating charge in this case.
(ii) There was no implied term in the floating charge that it could not come into effect if the facilities under the 2008 facility letter were not advanced. (iii) There was consideration for the floating charge in that the Bank continued to afford banking facilities to the company under the 2005 facility and it continued to grant time to the company until June, 2009 when the demand for repayments were ultimately made. This consideration in respect of loans already advanced and/or the Bank’s continued forbearance was sufficient consideration to support the floating charge. (iv) Even if there was no consideration, the floating charge was made under seal and as such the floating charge did not need to be supported by consideration. (v) The floating charge had been registered in the Companies Registration Office and as such was valid in law. (vi) That the judgment in the guarantee proceedings before McGovern J. was not relevant in this case. The evidence given in that case could not be used as evidence in this case in aid of the liquidator’s case. No question of issue estoppel arose and the doctrine of res judicata did not apply. The Condition Precedent argument The Nature of Conditions Precedent 44. Indeed, if the phrase “condition precedent” were replaced by the phrase “preceding condition” it might clarify what is, in fact, meant by this phrase. It means that it is a condition which precedes other conditions. Therefore it must be fulfilled before other conditions are fulfilled. It also means that if this condition is not fulfilled then the other conditions fall away or become unenforceable. 45. The exact nature of a condition precedent has been the subject of some academic consideration. As is stated in Contract Law, McDermott, (p. 993):
Preventing a Contract coming into Existence [19.48] A condition precedent may prevent the coming into being of a contract at all, rather than merely suspending its obligations . . . [19.52] ‘The subject to contract’ cases in real property transactions are the best examples of such a process, for until the contract is signed or exchanged, the majority of property sales do not have any force at all. Suspending Obligations or Remedies [19.53] A condition precedent may not prevent the coming into existence of a contract but may merely suspend its obligations. The effect of such a condition precedent is thus to suspend, not the creation of a binding contract, but rather the enforceability of the parties’ reciprocal primary obligations.
“When there is no contract in existence prior to the fulfilment of the condition precedent, it might be referred to as the situation in which there is a ‘condition precedent to the contract’, whilst the situation in which the contract exists but obligations are suspended could be distinguished by referring to it as a ‘condition precedent to the performance’. In whatever way the two categories are referred to, it has been said that there is not a “method by which it can readily be determined into which category a particular collection of words falls”. However, it can be suggested that the question which should be focused on is whether the parties intended there to be any obligations prior to the fulfilment of the condition.” 48. As part of that agreement the parties might agree that a certain condition must be fulfilled before the rest of the contractual conditions can be fulfilled or become enforceable. That condition could be called a “condition precedent”. It is a condition which must be fulfilled before the rest of the contract can be performed. It is, in effect, a condition which precedes the other contractual obligations being performed or becoming enforceable. 49. The term “condition precedent” means, as a matter of logic, that the parties have agreed that the obligations in the contract must occur in a certain sequence over a certain period of time. Thus one condition precedes another and if the earlier condition is not fulfilled then the other conditions do not have to be fulfilled or are unenforceable. 50. This issue was also considered by the Supreme Court in O’Connor v. Coady [2004] 3 I.R. 271 in the context of the differences between conditions precedent and conditions subsequent. 51. In the course of his judgment, Geoghegan J. considered the distinction between conditions precedent and conditions subsequent and stated as follows (at p 282):
‘"It has sometimes proved difficult to decide whether a particular condition of a contract should be classified as a condition precedent or a condition subsequent, and as Professor Stoljar has pointed out in 'the Contractual Concept of Condition' Law Quarterly Review Volume 69 (1953) 485 at p. 506 if the words 'precedent' and 'subsequent' are to make sense they must be connected with a definite point of reference since they express a relationship in time, the question which must be asked is 'precedent to what? Subsequent to what?’. However, provided the effect of a condition is clearly understood, its classification may be merely a matter of words. The condition in the present case was not a condition precedent to the formation of a binding contract. It is clear that a binding contract came into existence immediately upon signature, and that the parties to it were from that moment subject to certain obligations.’ (Emphasis added).
Application to present case. 54. The essential terms in the loan agreement were
(ii) that the company agreed to repay the money according to an agreed schedule and to pay interest on the said loan at an agreed rate; (iii) that the parties agreed that the security for this loan was to be the director’s personal guarantees and the floating charge.
57. The failure of the Condition Precedent must also be considered in the light of clause 12 of the agreement. Clause 12 provides as follows:
59. It is clear from clause 12 of the agreement that if utilisation had not commenced by 30th September, 2008, then the agreement would be subject to renegotiation. This means, in effect, that the parties agreed that if utilisation of the facility had not commenced by 30th September, 2008, then the agreements entered into between them on 4th-10th September, 2008 would come to an end. In effect, it lapsed because of the failure to provide satisfactory Personal Asset Statements. 60. However despite this, the Bank seeks to argue that although the loan was not advanced nevertheless the floating charge remains as a security in respect of all loans previously advanced to the company i.e. the 2005 loan. 61. In my view this argument is completely unsustainable. It is clear - both as a matter of logic and as a matter of common sense, - that if no loan has been advanced there is therefore no obligation on the company to repay a non- existent loan. It must also follow - again as a matter of logic and of common sense - that, if no loan has been advanced, there can be no enforceable security in respect of a non-existent loan. 62. Moreover, apart from considerations of logic and common sense, the wording of the loan agreement itself puts the matter beyond all doubt. The express terms of clause 5 of the loan agreement specifically provide that it is the “loan facility” which is secured by the floating charge. 63. It is clear therefore from the obvious meaning of these words that the loan which is to be secured by the floating charge is the loan facility of 4th-10th September, 2008 (and the corresponding overdraft facility of the same date). There is no express or implied language to the effect that the floating charge would be a charge for the 2005 loan facility. 64. Thus, by virtue of the failure to comply with the condition precedent, the agreement by the Bank to provide a loan lapsed, the agreement by the company to repay the loan also lapsed and the agreement between the parties in relation to the security also lapsed. Thus the floating charge signed on 10th September, 2008 lapsed. In the circumstances the floating charge of 10th September, 2008 is, in my view, unenforceable by the Bank against the company. 65. It was submitted by counsel for the Bank that the fixed charge was a stand alone security and/or in the alternative that it survived the lapsing of the loan agreement, because, on its face, it did not refer to the loan agreement and also because, on its face, it referred to all continuing advances by the Bank to the company. 66. In my view however, this argument cannot succeed for the following reasons:
(ii) Clause 5 of the loan agreement (and the corresponding clause of the overdraft facility agreement ) specifically provided that the loan facility “will be secured by” the floating charge. Thus it was expressly agreed between the parties that the floating charge would be a security for the loan facility. Thus, as a matter of construction of the contract, the floating charge was security for the loan facility of September, 2008 only and was not in any way intended to be a stand alone security. (iii) Whilst it is true that the floating charge on its face does not make any reference to the loan agreement (or the overdraft facility agreement) nevertheless the loan agreement makes reference to the floating charge. It stands therefore to be construed as one of the suite of agreements entered into by the parties at that time. The floating charge itself was signed by the company on 10th September, 2008 (i.e. on the same day that the company signed the loan agreement and the directors signed the personal guarantees.) 68. Counsel for the Bank also sought to rely on the wording of the floating charge itself (in particularly clause 1 thereof) to argue that the floating charge had an independent and stand-alone existence. He submitted that as the Bank had, in effect, continued to permit the advancement of facilities under the 2005 loan to the company (and the accumulation of interest thereon) and as the Bank had exercised forbearance in not making any demand on the company that that constituted consideration for the floating charge and proved that it had a stand alone existence. 69. However in my view this argument is also not sustainable. Firstly it strains the language of clause 1 of the floating charge to breaking point because it is clear that the parties intended to grant the floating charge as a security for the 2008 loan not as security for the 2005 loan; secondly it ignores the express language of the loan agreement that it was the “loan facility” (in 2008) which is to be secured by the floating charge (and not any previous loan); thirdly it is clear that the 2005 loan was only secured by the personal guarantees of the three directors; By contrast the 2008 loan was to be secured by the personal guarantees and the floating charge. Thus the Bank was seeking, and getting, an additional security for the 2008 loan. 70. Moreover there is no evidence whatsoever that the company ever agreed that the floating charge was to cover the 2005 loan or that it should be applied retrospectively. If the parties intended the floating charge to have retrospective effect, or to apply to the 2005 loan from 10th September, 2008 onwards there would have to be clear and unambiguous language in the agreement between the parties to that effect. There is no such language here. 71. For all the above reasons I am of the view that the Bank’s submissions that the floating charge is enforceable cannot be sustained. The implied term argument 73. It is clear that terms can be implied into a contract either by custom or by law or terms can be implied by fact. As is stated in McDermott on Contract Law (page 308).
The business efficacy test and the officious bystander test “In addition to the terms implied into contract as a matter of law, the courts may also imply in a term in order to repair what it perceives to be in “an intrinsic failure of expression” by the parties. The written document may have a clear purpose but may have omitted, through poor craftsmanship or mere inadvertence or “mischance”, to cover an incidental contingency. This omission, unless remedied by the Court, may frustrate the purpose of the contract. If a judge adds a term to the contract in such circumstances he will say that he is doing it to give the contract “business efficacy”. The aim of the process is to ascertain the presumed intention of both the parties to the contract, deduced from the words of the agreement and the surrounding circumstances. It must be emphasised that the aim of the Court in this process is not to “improve the contract which the parties have made for themselves, however desirable the improvement might be.” 75. However on the facts of this case there is, in my view, no need to imply a term into the contract. The contract is clear on its face and the issue can be decided as a matter of construction. This is because section 5 of the loan agreement specifically provides that it is the loan facility which is to be secured by the floating charge. Thus it follows that if the loan facility was not advanced then the floating charge has lapsed. Thus the clear wording of the contract is that the floating charge is only a security for the loan facility which was to be advanced in 2008. It follows inexorably therefore that if the loan facility was not advanced then the security itself also falls away. 76. It is, in fact, the Bank itself which would have to make an argument that it is an implied term of the contract that the floating charge applies to the 2005 loan. However such an argument would be wholly unsustainable on the evidence before the Court, and also based on the applicable legal principles. The consideration argument 78. Conversely, the consideration for the creation of the floating charge on the part of the company was the agreement by the Bank to advance monies to the borrower. 79. Therefore it is clear that there was consideration for the floating charge and it could not be held to be unenforceable on that basis. 80. I am satisfied therefore that there was consideration for the floating charge and as such, it validly came into existence on 10th September, 2008. However its existence subsequently lapsed on 30th September, 2008 when the underlying loan agreement also lapsed because of the failure of the condition precedent. 81. Counsel for the Bank also contended in the alternative that there was no need for consideration as the agreement was given under the seal of the company. Counsel for the liquidator submitted in response that an agreement under seal had to signed sealed and “delivered” to be enforceable. He argued that in this case the floating charge had not been properly “delivered” and therefore was not enforceable. 82. The hearing was adjourned on two separate occasions to permit the company to investigate this issue further but in the event no further submissions were made on this point. In the circumstances, and given my findings above that there was valid consideration, I do not think it is necessary to consider this issue any further. Registration in the Companies Registration Office The judgement of the High Court (McGovern J.) in Danske Bank T/A National Irish Bank v. RQB Paddy Kelly, Niall McFadden and Paul Pardy 85. However having considered the judgment of McGovern J., I do not believe that it is appropriate for me to make any findings in this case either relying on what he stated in that case or by analogy from his findings in that case. That was a case in which the plaintiff gave oral evidence and was cross examined on that evidence. That is not the case here. Moreover that case involved the issue of personal guarantees and not the issue of the floating charge. It appears from the judgment that different considerations applied in relation to the wording and extent of the personal guarantees given in 2005 and 2008. In those circumstances it is not either necessary or appropriate for me to consider that judgment further. Conclusion |
