H136 Slattery -v- Friends First Life Assurance Company Ltd [2013] IEHC 136 (15 March 2013)

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Cite as: [2013] IEHC 136

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Judgment Title: Slattery -v- Friends First Life Assurance Company Ltd

Neutral Citation: [2013] IEHC 136


High Court Record Number: 2012 2092 P

Date of Delivery: 15/03/2013

Court: High Court

Composition of Court:

Judgment by: McGovern J.

Status of Judgment: Approved




Neutral Citation [2013] IEHC 136

THE HIGH COURT

COMMERCIAL

[2012 No. 2092 P]

[2012 No. 51 COM]





BETWEEN

DÓMHNAL SLATTERY
PLAINTIFF
AND

FRIENDS FIRST LIFE ASSURANCE COMPANY LIMITED

DEFENDANT

JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 15th day of March 2013

1. The plaintiff is a businessman and a principal of Claret Capital Ltd. (“Claret Capital”), a private equity firm incorporated in the State. The defendant is a financial institution. These proceedings arise out of an unsuccessful business venture, namely, the purchase of the St. Regis Hotel, Washington D.C. in the United States of America. Claret Capital and the defendant were part of a consortium involved in the purchase of the St. Regis Hotel for a total purchase cost of $173.25m.

2. The vendor of the hotel was Brickman Real Estate. In the transaction, the vendor agreed to retain a 10% interest in the hotel, the defendant agreed to take a 45% interest and Claret Capital the remaining 45%. The overall requirement of funding for the St. Regis transaction was approximately $180m, split between $45m of equity (from the defendant and Claret Capital) and $135m of senior debt provided by Barclays Capital Real Estate Inc. (“Barclays”). That senior debt was split in turn in to a $105m senior loan and a $30m mezzanine strip.

3. In order to complete the deal, the defendant agreed to make two loans to Claret Capital related companies. The first was to Claret Capital Washington LLC (“CCW”) in the sum of $US22.55 million. It was intended that client investors of the defendant would invest into a limited partnership vehicle (the Lincoln Limited Partnership or “Lincoln”), which would subscribe for shares in CCW, thereby effecting the repayment of the CCW loan. The second loan from the defendant was to another Claret Capital entity, namely, Claret Capital Holdings LLC (“CCH”), which was the vehicle through which it was intended Claret Capital would raise money from its client base and thereby repay the CCH loan. As part of the deal, Claret Capital was to become the asset manager (or General Partner) with the management of the hotel being performed by Starwood, under the St. Regis brand.

4. The CCH loan was originally intended to be for US$22m but was ultimately for US$14.05m as Claret Capital had arranged approximately US$8.5m of equity from their clients. In respect of this loan of US$14.05m, guarantees were entered into by the plaintiff and his fellow directors in Claret Capital. Furthermore, the plaintiff and his fellow directors each took personal loans from Friends First Finance, a company related to the defendant, with the plaintiff’s loan coming to the sum of $1m.

5. Although the plaintiff complains that the issue of personal guarantees had not been raised with him in the discussions leading up to the loan and that he was unaware that one of the signature pages which he completed was in respect of a personal guarantee, he now accepts that he was bound by the guarantee signed on 18th March, 2008, up until the execution of a Deed of Pledge on 20th July, 2009.

6. In these proceedings, the plaintiff claims that by virtue of clause 2.2 of the Deed of Pledge, the full extent of his liability to the defendant is limited in aggregate to an amount equal to that recoverable by the defendant as a result of the Deed of Pledge, namely, the value of 256 shares in Jetbird Ltd. pledged by the plaintiff to the defendant in the said Deed. This has the effect of limiting the recourse to the plaintiff on foot of the guarantee.

7. The defendant claims that the parties never entered into such an agreement and that insofar as clause 2.2 purports to restrict the extent to which the defendant can recover from the plaintiff on foot of the Guarantee, the same is not in accordance with, and does not truly reflect or represent, the common intention of the parties at all material times leading up to the execution of the Pledge.

8. After April 2008, Claret Capital did not raise any further equity for the St. Regis Hotel project. The defendant began to express concerns about the failure of Claret Capital to make scheduled payments on the remaining part of a bridging loan. The defendant put forward a proposal that if Claret Capital was unable to meet the repayment date of the CCH loan, an interest payment would be made to make the loan current and that the repayment date of the principal would be rolled forward for another three months to 5th November, 2008.

9. The defendant informed Claret Capital that it considered the 5th November, 2008, to be the agreed maturity date of the short term bridging loan to CCH, at which date it expected full repayment of interest due and full repayment of the outstanding principal balance. As matters transpired, Claret Capital was in a position to pay only the accrued interest on the loan, which was ultimately rolled forward by a further three months to 5th February, 2009.

10. A further difficulty arose around this time, in that the “insertion” of investors by the defendant to the transaction had become subject to Barclays’ approval in August 2008, but from mid-November such approval was no longer forthcoming.

11. An important meeting took place between the parties on the 29th January, 2009, to discuss the defendant’s investment in the St. Regis Hotel project. At that meeting Claret Capital revealed that the loan from Barclays was due to expire in February 2009, and that Barclays were not going to allow any further investor equity into the hotel scheme unless its own loan exposure was reduced. The defendant claimed that it was not made aware of this information until around that time and was unhappy with the way in which the information was communicated to it. The minutes of the meeting show that the plaintiff made it known that he disputed the validity of the Personal Guarantees.

12. In further discussions between the parties, it became clear that the defendant firmly stood over the Personal Guarantees, and furthermore required additional collateral from the plaintiff in return for the defendant not seeking payment of sums due on foot of a Promissory Note dated 18th March, 2008. A meeting took place on 17th February, 2009, between the plaintiff, Mr. Max Doyle, a Partner in Claret Capital, and the defendant, represented by its then Chief Financial Officer Mr. Tom Browne and Mr. Adrian Hegarty, its then CEO. The defendant’s position was set out at the meeting and further stated by way of email dated 20th February, 2009, from Mr. Browne to the other attendees as follows:-

      “In relation to the CCH loan, the main aspects of the suggested way forward were as follows:

      No change in loan principal

      Interest rolled or payable annually in arrears

      Collateral provided including an assignment of whatever interest in the St. Regis Hotel is ultimately acquired by the CCH loan but also to include JetBird shares and any other suitable collateral available

      Personal guarantees from the 4 Claret principals to remain in place as is

      Interest rate on the CCH loan from 6th February to reflect the quality of the collateral available.”

13. JetBird (variously referred to in the pleadings and correspondence as “Jetbird” and “Jet Bird”) was an aircraft leasing venture in which the plaintiff was CEO and a significant shareholder. The defendant had some prior involvement with this undertaking and regarded it as having a significant potential value. As it happens, after the Deed of Pledge was entered into, the fortunes of the company declined and it ultimately ceased trading on 31st May, 2010, before being wound up.

14. At around the same time, the defendant also requested net worth statements from each of the Claret Capital principals so as to appraise any other “collateral opportunities”.

15. Following the meeting of 17th February, 2009, and subsequent discussions between the parties on 27th March, 2009, an offer issued from Mr. Doyle in Claret Capital to Mr. Browne of the defendant in the following terms:-

      “I clarify the following offer from the partners of Claret Capital:

      1) I confirm that the equity in the partners’ existing $2 million investment in St. Regis deal is being voluntarily offered by the partners to be cross-collateralized in your favour;

      2) the further offer of Jet Bird shares to support the CCH loan with a current value of $2 million was calculated by DS being the maximum amount of shares he is in a position to offer you based on his current financial position and taking account of other existing financial arrangements. Notwithstanding this position, DS has been able to make arrangements with other parties to be able to release additional Jet Bird shares to cover the interest payment due on 5th February 2009 . . .

      3) I await your response on my email of last night dealing [sic] partners PPR.”

16. The latter point related to a request from the principals of Claret Capital that their principal private residences be “carved out” from the scope of the Personal Guarantee. The plaintiff claims that this approach was of little value to him as his home was already significantly encumbered under separate arrangements. It seems clear from internal Claret Capital correspondence that the issue of a “carve out” or other mitigation of the Personal Guarantees was very much a desired outcome from these negotiations so far as the other directors of Claret Capital were concerned. On that same day, 27th March, 2009, Mr. Doyle again requested, by way of email to Mr. Browne, that consideration be given to the “carve out”. However, in an email of 7th April, 2009, the defendant (through Mr. Gibney) seems to have rejected this as being included as a condition to the perfection of the security.

17. In a minute of a telephone conversation with Mr. Browne on 22nd April, 2009, Mr. Doyle noted the following:

      “TB stated that FF were not inclined to carve out the PPR’s from the ‘PG’. He clearly stated that Friends First were not about ‘putting people out on the streets’.

      He said that they would be prepared to look at the PPR carve out but the catalyst would be more certainty over the security being JB shares and the St. Regis equity . . .

      . . . I believe they have accepted the €2m offer of JB shares and other points per our ‘offer’. LA/MD to commence documentation of same . . .

      . . . he stated that FF have no intention of going nuclear and calling the loan and accepted the financial wellbeing of the principles [sic] was linked to the funding as outlined by myself to him. He said that such a move would be counterproductive for FF.

      He acknowledged any discomfort on our side with the ‘PG’.”

18. Around this time, in view of ongoing difficulties in the relationship with Barclays, the defendant supported a cash call on the senior debt in the transaction contributing on behalf of their own investors, as well as on behalf of the principals in Claret Capital and investors in the transaction who had been introduced by Claret but who were unable to meet the required contribution. Following this, on 5th May, 2009, Mr. Browne wrote to Mr. Doyle and the plaintiff directly, expressing disappointment on the lack of “traction” with regard to the various offers contained in the email of 27th March, 2009, and restating the defendant’s position as follows:-
      “Over one month ago, Friends First supported the cash call on the St. Regis senior debt interest reserve on behalf of its own investors and also the Claret Capital principals and any of your investors who were unable to participate. In agreeing to facilitate the disproportionate cash call, we outlined to our shareholder, Eureko, the commitments made by Claret to improve the corporate governance arrangements and the quality of the professional services we would use to improve the viability of the investment - these commitments were set out in your letter of 27th March to Eugene Gibney . . .

      . . . we will need visibility on how Barclays’ conditions for introducing equity investors are to be met. While FFLAC/Eureko may be involved in meeting these conditions, this will not be possible unless all the following are in place:


        • 2 side-letters to the revised Promissory Notes consistent with the original commercial agreement in relation to FFLAC loans to both CCH and CCW - to be done by Friday 8th May.

        • CBRE (Washington team) to be formally appointed as asset manager (with no ongoing involvement from Claret Capital staff whatsoever) - to be done within one week.

        • CBRE (Real Estate Finance team) to be formally appointed as ‘finance arranger’ (again no direct involvement by Claret Capital staff in direct negotiation of lending arrangements - all contacts to be pooled with CBRE) - to be done by Friday 15th May.

        • Corporate governance arrangements amended so that decision-making powers rest in CCW and not in any corporate structure where FFLAC has no influence - to be done by 22nd May.

        • Payment of February interest on CCH loan from FFLAC to take place in accordance with previous suggestion and collateral previously offered to be perfected (we will be using A&L Goodbody to carry out this work on our behalf) - to be done by Friday 22nd May.

        • Replacement of all Claret Capital entities from GP roles throughout the structure, new professional independent GPs to be appointed - to be agreed by Friday 29th May and implemented during June.


      The first five bullet points reflect what has previously been agreed between Claret and FFLAC. The last bullet is a new requirement which reflects the frustration at our side with the delays and also the very significant conflicts of interest which now exist for Claret within the structure . . .

      . . . FFLAC/Eureko will not participate in dealing with Barclays’ conditions unless all of the conditions are already in place.”

19. On foot of this letter, Mr. Conor McGuinness, an employee at this time of Claret Capital, who had acted as an interlocutor with the defendant, circulated an email on 6th May, 2009, to the principals of Claret Capital in the following terms:-
      “I think the letter is pretty clear. In order for FF to be involved in meeting the conditions of Barclays on the loan extension, certain conditions as outlined in the letter must be met in advance. These conditions include the total removal of all Claret involvement from the deal . . .

      Regarding the o/s $6.5m underwrite loan (which is guaranteed by the principals), I would suggest that this is converted to a mezz loan on a pro-rata basis to the new $20m mezzanine finance introduced to pay down the Barclays loan. This would involve a new capital structure . . .

      From a FF and Claret principal perspective, this would significantly reduce the probability of a non-recovery from this loan (for a $6.5m loss), the value of the hotel would need to be below c. $105m, with a partial loss where the hotel value is between $105m and $131m. I think it could be argued that the guarantee might be removed on account of no future Claret involvement and the non-recourse nature of the structure.”

20. By way of email to the Claret Capital principals, including the plaintiff, again dated 5th May, 2009, Mr. Léon Atkins, then general counsel with Claret Capital, offered the following analysis:-
      “The underlying point is that if further funds are to be provided from FF, then there will be conditions attached and now we have them. Clearly, their view is that if they are taking the ongoing funding risk, then they should hold the cards . . .

      In passing, taking control away from Claret may be a good negotiating point to removing the PGs on the 6.5.”

21. On 6th May, 2009, the plaintiff sent an email to his fellow principals and advisors in Claret Capital, indicating that:-
      “I wanted to think about this situation overnight and have concluded in my own mind that this may now be the right time (for lots of reasons) to ‘exit our’ involvement with the asset provided we can do so in a manner that mitigates some or all of our PG exposure.”
22. It would appear from this correspondence that while the wish to mitigate the Personal Guarantees remained very much a live issue in the minds of the plaintiff and Claret Capital, that this goal was to be pursued in consideration of the replacement of Claret Capital as general partner in the St. Regis investment.

23. By email dated 11th May, 2009, Mr. McGuinness communicated to Mr. Gibney (copying the plaintiff, Mr. Doyle, Mr. Browne and Mr. Hegarty) in which he stated, inter alia:

      “Further to our discussions last week and Tom’s earlier letter to Dómhnal/Max, please find below an update on the various points raised …

      … 5. Collateral/Interest on CCH loan

      A payment of $46,000 will be made tomorrow with respect to the CCH loan (per your instruction, we will transfer you a further $10,400 in addition to the $35,600 already paid in error from our client’s monies account. We will simultaneously reimburse our client’s monies account for this amount from our side. We will forward you tomorrow draft security documents with respect to securing the relevant JetBird shares as collateral for the CCH loan.”

24. Following a meeting between the parties on 13th May, 2009, a “model” Deed of Pledge was issued by way of email from Mr. Atkins to Mr. Gibney. This document is said to be based on previous dealings by the plaintiff where he had offered shares as collateral. It arose in evidence that Mr. Gibney had prepared, in conjunction with A&L Goodbody (the defendant’s legal advisors), a draft instrument by which to achieve the Pledge of JetBird shares which included, at clause 7, a proposed “carve out” of the Claret Capital principals’ principal private residences. However, this draft was not presented to the plaintiff for consideration, nor was he aware of its existence other than in the context of these proceedings.

25. On 14th May, 2009, arising out of the previous day’s meeting, the plaintiff sent an email to Mr. Browne with a purported summary of discussion points setting out his position as follows:-

      “In principle, and on the basis of a ‘package’ solution for the refinance of the hotel, Claret Capital is prepared to step down as GP and appoint CBRE in the role of asset manager (as discussed with Max et al).

      The selection of the new GP would be done on a collaborative basis.

      The debt pay down required by Barclays would be funded by the Eureko funds currently bridging the Lincoln investors (‘the new capital tranche’) on the working assumption those investors are issued B shares. Once the terms of the new capital tranche are defined, all investors would be invited to participate at their option but with no obligation.

      As part of the refinance of the $6.5m bridging loan would form part of the new capital tranche for an expected total of $26.5m.

      You were to consider that in view of (1) Claret giving up its Carry in the transaction (2) the revised position of the $6.5m in the capital structure and (3) either the upfront grant of JetBird shares by me to FF ($1m) or continuing back stop collateral of $2m, FF would release the Claret partners from their obligation under the current structure.”

26. On 28th May, 2009, Mr. Gibney reverted to Mr. Atkins attaching a “clean” and “black line” of the draft Deed of Pledge in respect of the JetBird shares, showing comments from A&L Goodbody, with the following covering note:-
      “Please see attached, assuming you are happy with contents we can move to execute soonest? Can we aim for next Tuesday?”
27. On the following day (29th May, 2009), Mr. Atkins sent by email to Mr. Gibney a revised draft of the Deed of Pledge, which was offered in support of the loan itself rather than the Guarantee with the following comments:-
      “I have tidied up the document (as amended) to ensure that it properly matches the arrangements being discussed. The further amended document is attached.

      Dómhnal is away on vacation for two weeks. Let’s get this document finalised so that he can review and approve it as soon as he gets back.”

28. On 2nd June, 2009, Mr. Gibney forwarded, by way of email, a further clean and black line version of the Deed of Pledge, stating:-
      “From your comments/insertions to the previous draft, you appear to be misinterpretating [sic] the rationale of the pledge. The share pledge is intended to be granted in support of DS’ existing joint and several guarantee, and not as security for the obligations of CCH under the promissory note. Accordingly, we have handwritten our comments and believe the draft should be reverted to the version sent to you on 28th May.”
29. Mr. Atkins responded on the same date in the following terms:-
      “The drafting of the Deed of Pledge was made on the basis of progressing the . . . proposal (taken from Dómhnal’s email to Tom Browne of 14 May, a response to which I do not believe has yet been received . . .

      . . . In order to progress this further, I would suggest that a response from Tom in respect of this proposal is now made.”

30. It appears that at this stage, the parties were at cross-purposes on the Deed of Pledge. However, it is noteworthy that the dispute related to whether the Pledge should support the promissory notes or the Personal Guarantees. There is no discernible indication that there were any discussions between the parties to include a clause mitigating liability under the Personal Guarantee.

31. On 4th June, 2009, Mr. McGuinness and Mr. Gibney exchanged emails in anticipation of the former going on annual leave, expressing their understanding of progress to that point on various matters in issue (Mr. Gibney’s comments are underlined):-

      “5. Security on CCH Loan Collateral: EG/Leon to agree on final form for security and DS to sign on return from annual leave.

      On-going, will target agreement by Monday.

      6. Replacement of Claret as GP: EG to liaise with Tom Browne and revert with a response to Dómhnal’s email to Tom of 14 May.

      We will have a formal response to DS mail by Monday.”

32. On that point, it appeared that the drafting of the Deed of Pledge was being dealt with in a way which was separate from the issue of mitigation. A connection was emerging between the issue of mitigation and the requirement that Claret Capital step down as general partner in the transaction. Mr. Gibney made clear his understanding of the nature of the impasse that had been reached at that point, by way of email to Mr. Browne dated 8th June, 2009:-
      “I have progressed the matter of JetBird shares as collateral but need your response to the email below to move things on with Leon as he is interpretating [sic] DS’ email in a different manner to me. My understanding is the share pledge is intended to be granted in support of DS’ existing joint and several guarantee, and not as security for the obligations of CCH under the promissory note without his joint and several guarantee.”
33. On 10th June, 2009, Mr. Doyle (Claret Capital) met with Mr. Browne (Chief Financial Officer of defendant) for Claret Capital’s quarterly review with the defendant. Mr. Doyle’s minutes of this meeting read as follows:-
      St. Regis

      Separately, TB and MD spoke after the meeting on the DS proposal on St. Regis. TB advised that he wanted to secure the charge of the Jetbird shares first and could not do two stages at the same time. He said Eureko were prepared to roll the $2.5m as Mezz and FF were prepared to introduce the Lincoln investors. He was unsure if the $6.5m could also be restructured and said this would be dealt with separately.

      Personal Guarantees

      He said FF were not going to be vindictive on the PG’s and I took this to mean that they were unlikely to call them in light of the JB shares on offer. TB was critical of the firm in terms of not seeking a Global Debt Advisor citing 46/8, Regis and IBRD as examples of banking difficulties. I reiterated our desire to ensure Asset Management was a key focus. TB is on vacation for two weeks.”

34. Mr. Gibney restated the defendant’s position by way of email to Mr. Atkins, copying the plaintiff, Mr. Doyle and Mr. McGuiness, dated 28th June, 2009:-
      “Further to your email . . . we are proposing a 2 stage approach. Initially we wish to increase the collateral around the $6.7m loan as per original suggestion between Max, Tom and Domhnal. To this end the following is to be put in place:
      Amount
      Details
      $46kPayable immediately – DONE
      $63kPayable upon collection from certain CCL Investors representing underwriting costs payable from Date of FF underwriting to Date of Investors Subscription (subject to payment) – O/S
      $60kPayable (subject of disposal of Macau Shares to David Chow) – O/S
      $51kRolled up – O/S
      $220k
      The following are also outstanding as part of stage 1:

      • The equity the CC partners invested in the St Regis deal is to be taken as security by FF, this will become a second charge over shares when issued by CCW. As FFF financed the majority of the investment their consent will be required to secure this collateral.

      • Deed of Pledge over $2m shares in Jet Bird

      Upon completion of the above and as part of stage 2 we can then consider Domhnal’s email to Tom of the 14th May and the appropriate security around the $6.7m loan as part of the ‘package’ solution.

      Accordingly can you revert to my mail of 2nd June with comments on the Deed of Pledge. In addition can you update us on the timing of the payment of the above monies.”

35. On 7th July, 2009, a meeting took place between Mr. McGuinness and Mr. Browne with the former’s note minutes, which were accepted as accurate by Mr. Browne, stating, insofar as relevant, that:-
      “Further to our meeting yesterday at your offices, I have outlined below a summary of our discussions with a particular focus on the agreed actions to progress the relevant point. We discussed the status of the six deliverables that Claret has committed to deliver in relation to the St. Regis investment as outlined below:

      . . .

      5. Payment of interest and Additional Collateral - Action: We agreed to focus immediately on executing the security on (i) Jetbird shares (ii) underlying $6.5m interest in the hotel held by CCH and (iii) a second charge over the equity interest held by the individual Claret Principals in the hotel. As agreed, Leon will revert to you in this regard.

      In relation to the $6.5m, FFLAC-CCH loan it was agreed that this would be addressed to the degree possible at the same time we extend the Barclays loan and introduce investors. We understand the intention is that, on the basis of the above deliverables, the c. $20m FFLAC-CCH loan would be applied to paydown the Barclays loan with any excess potentially being applied to part/fully repay the $6.5m FFLAC-CCH loan. As discussed, in order for an excess to be available for the latter purpose, it is necessary that either some investors participate in the Mezz opportunity or Barclays agree to a lower initial paydown. Both these angles are to be pursued.

      6. Replacement of Claret Capital as General Partner - it was agreed to park this point which can be revisited in due course.”

36. Alongside the Deed of Pledge, the negotiations between the parties were leading to a position where the Claret Capital partners’ stake in the transaction would be made subject to a charge in favour of the defendant. At 11.41am on the morning of 9th July, 2009, Mr. Atkins circulated a draft of the Deed of Charge to the Claret Capital partners by email in which he stated the following:-
      “Attached is a Draft of Charge over your shareholdings in CCH (and any distributions and rights accruing from those shares) and the limited partnership interest you will ultimately receive in the hotel arising from your personal loans to CCH on the initial syndication. As you know, this is to be entered into as part of the arrangements designed to get you all to a point where the Personal Guarantees over the Friends First loan to CCH are released.

      The Deed is based on what is in place with Anglo in respect of your interests in the Carry.

      The main point I want to highlight is that, at Friends First’s request, the Deed secures the obligations you are purported to have to them under the terms of the 2008 Personal Guarantee (rather than CCH’s repayment of the Friends First loan). The downside of this is that by entering into security for the Guarantee, you are confirming the Guarantee’s validity (albeit that the single argument of strength that you have in relation to the Guarantee was that it was not part of the arrangements as you understood them to be and you did not sign a Guarantee document (only a back page). The upside is that, if the Guarantee is released through the arrangements, then the security is released (and I am not sure whether Friends First have really appreciated this). I also want to point out that the Deed makes the security subservient to ‘Prior Obligations’, which I have loosely drafted to be any other obligation to another which is to be discharged from or by the assets being charged (or the proceeds thereof) pursuant to arrangements entered into before the date of the Deed or which is otherwise secured on the assets being charged. I do not know whether this loose definition will be agreed by Friends First who may insist on prior obligations being specifically defined.

      Tom Browne is looking for the draft Deed of Charge by close of business today so let me know if you have any concerns. However, it will be provided only on the basis that you have not yet seen or commented on it.”

37. Shortly afterwards, at 1.18pm on the same day, Mr. Atkins sent a further email to the Claret Capital partners in the following terms:-
      “As a further thought, I am adding the words appearing below to each Deed to be entered into with FF. If this wording is accepted (which it has every chance of not, but it is worth trying), then the Guarantees will be recourse only to the security provided.

      (a) The liability of the Chargors to the Beneficiary under the terms of this Deed and the Guarantee shall be:


        (i) Limited in aggregate to an amount equal to that recovered by the Beneficiary as a result of the enforcement of this Deed with respect to the Charged Property; and

        (ii) satisfied only from the proceeds of sale other disposal or realisation of the Charged Property pursuant to this Deed; and


      the Beneficiary shall not have any recourse under this Deed or the Guarantee to any assets of the Chargors other than the Charged Property.”
38. At 1.42pm on the same day, the plaintiff responded to approved the draft initially furnished by Mr. Atkins’ email sent at 11.41am, as “okay to send over to Tom as a draft”.

39. At 2.14pm, the plaintiff responded directly to Mr. Atkins’ second email, sent at 1.18pm, saying, “Good thinking”.

40. At 4.43pm, Mr. Doyle responded to Mr. Atkins’ second email, copying the other Claret Capital principals, saying, “Any way to make it a bit more inconspicuous?”

41. Mr. Atkins inserted the suggested wording at clause 2.2 of the Deed of Pledge which also incorporated the amendments suggested by the defendant to the previous draft. Both the Deed of Charge, which contained the same wording at clause 9.7, and the Deed of Pledge were sent to Mr. Browne, copying Mr. McGuinness, Mr. Gibney and Ms. Suzie Nolan, another employee of the defendant. The body of the email read:-

      “Further to our meeting on Tuesday, please find attached two draft documents:

      1. Deed of Pledge - Jetbird Shares.

      This is a pledge by Dómhnal of 363 shares in Jetbird in favour of Friends First. This draft incorporates all of A&L Goodbody’s comments on the last draft that I circulated to Eugene.

      2. Deed of Charge - Holdings in CCH etc.

      This charge will be entered into by each of Dómhnal, Max, Bryan and Ronnie Carroll and charges their holding in CCH, and rights accruing to those holdings and any interest in the Hotel that they receive by virtue of their loans to CCH. This is the first draft of this document which has not yet been circulated to Friends First.

      Please note that for the sake of expediency, I am forwarding these documents are the same time as they are provided to the Claret principals and so the documents are subject to their review and comment.”

42. It is of some significance that Mr. Atkins did not “redline” or highlight the changes that he had made. Mr. Seamus Ó Cróinin, a partner in A&L Goodbody’s, gave evidence to the effect that the common practice among experienced commercial lawyers is that “redlined” documents will be exchanged up until the end of the circulation of documents during negotiations, and that this is central to the practice of commercial firms in the interest of efficient negotiations. He regarded it as “inconceivable and unprecedented” that another commercial lawyer would depart from this established practice. Mr. Browne offered the view that a non-redline document would only be furnished at the execution stage. He did, however, accept that the document had been sent for review to the defendant’s legal advisers, and that he would have expected this would involve the document being read from top to bottom.

43. On the morning of 10th July, 2009, Mr. Gibney, who was on leave, replied directly to Mr. Atkins’ email, asking, “Is this the version that I sent back to you with our handwritten comments or an earlier version?” Mr. Atkins responded, later that same day, “Yes, this is the version you sent back to me and which incorporates your comments”.

44. Independently of the correspondence between Mr. Gibney and Mr. Atkins, Ms. Nolan, of Friends First, embarked on a “side by side” comparison of the draft that had been sent on 9th July, 2009, and the previous draft, primarily with a view to ensuring that the defendant’s comments had been satisfactorily incorporated. Ms. Nolan gave evidence that she did not notice the insertion of clause 2.2 at this point. She then forwarded the draft to Mr. Fergus Wheeler, the solicitor in A&L Goodbody who was dealing with the matter, pointing out a number of issues with the incorporation of previous comments by Mr. Atkins, and requesting that Mr. Wheeler, “re-review this document and ensure . . . that it represents a final version for execution”.

45. On 17th July, 2009, Mr. Wheeler reverted to Ms. Nolan with a copy of the Deed of Pledge, bearing handwritten amendments and insertions, described as “tidy up” comments. Ms. Nolan sent this document on to Mr. Atkins, copying Mr. Gibney and Ms. Browne, with a request to issue a “final version of the document”. Remarkably, the document proffered made no amendment to, and raised no query about the insertion of clause 2.2.

46. On 16th July, 2009, the plaintiff had emailed Mr. Atkins to ask how he “got on” with the matter of the Pledge and Charge. On 17th July, 2009, following receipt of the marked draft from Ms. Nolan, Mr. Atkins responded, “Don’t hold your breath yet but they have NOT amended the Guarantee wording I added”. The plaintiff’s further response, on the same evening, was “Let’s get it signed ASAP!!”

47. Perhaps indicative of the defendant’s understanding of the significance, context and effect of the Deed of Pledge at this point is an internal email sent on 13th July, 2009, by Mr. Browne, outlining assets related to the St. Regis transaction held by the defendant, insofar as relevant:-

      “The second asset is a loan from FFLAC to CCH for roughly $6.5m. This is currently secured by joint and several guarantees by the four principals of Claret, including Dómhnal Slattery who, we strongly believe, to have a Net Worth in excess of this figure. On top of this it has been agreed that we will be provided with further security as follows:

      Charge over $2m worth of Jetbird shares currently owned by DS.

      Charge over loan from CCH to CCW which was funded by the FFLAC loan to CCH.

      Second charge over assets held in CCH by the four principals.”

48. It seems clear, therefore, that there was no intention on the defendant’s part that the plaintiff’s liability under the Personal Guarantee should or would be mitigated at this stage, nor that the effect of the Deed of Pledge would be to significantly alter the status of the Personal Guarantee.

49. On 20th July, 2009, Mr. Atkins sent to Ms. Nolan, by email, a draft which he described as involving the correction of some “minor typos”, but more fundamentally, which changed the number of shares to be pledged from 363 to 256, as this figure had initially been erroneously calculated on the basis of a pledge to the value of €2m, rather than $2m, as agreed. The defendant takes issue with the fact that an amendment was made at clause 2.2.3 from “Lender” to “Pledgee”, which it is submitted represents something more important than a mere “typo” but which was not flagged to the defendant.

50. Ultimately, engrossment copies were produced and executed by the plaintiff and Mr. Hegarty for the defendant, on 22nd July, 2009.

51. Mr. Atkins purported to set out the plaintiff’s understanding as to the drafting, execution and effect of the Deed of Pledge by way of a file note dated 14th August, 2009, in the following terms:-

      “Accompanying this Memorandum is a copy of the Deed of Pledge (the ‘Pledge’) entered into between yourself and Friends First Life Assurance Company Ltd. (‘FFLAC’). The original Pledge is to be found in the Claret Capital fireproof cabinet.

      As you know, the Pledge is for 256 of your shares in Jetbird Ltd. and was agreed and entered into as part of wider arrangements sought by FLAC to collateralise their loan of US$14,050,000 to Claret Capital Holdings Ltd. (as evidenced) by a Promissory Note in favour of FFLAC dated 18th March 2008 (the ‘Promissory Note’). When originally drafted by Claret, this Pledge provided security for the repayment of the Promissory Note. However, FFLAC insisted that the Pledge should be security for the obligations of a joint and several guarantee entered into by you (and others) in or about March 2008 (the ‘Guarantee’). This Guarantee has been in contention for some time, albeit FFLAC have refused to acknowledge the concerns that have been raised concerning its validity. Specifically, you are insistent that you were not aware of the Guarantee, or that the arrangements entered into with FFLAC in respect of the St. Regis Hotel were contingent upon this Guarantee. Of particular issue is that you did not sign a Guarantee document, although it now appears that when the St. Regis transaction closed, you were asked to sign a large number of signature pages but without sight of the associated documentation to which those pages related.

      The terms of the Pledge as proposed (securing the Guarantee), meant that your signature of the Pledge would amount to an admission that the Guarantee existed and was valid. Having pointed this out to you, we agreed that the Pledge should be amended to protect your position as far as possible.

      Accordingly, the Pledge was amended to include terms that your liability under both the Pledge and the Guarantee would be limited only to the security provided by the Pledge (see Clause 2.2). In particular, Clause 2.2.3 states that FFLAC:


        ‘shall not have any recourse under [the Pledge] or the Guarantee to any assets of [you] other than [your 256 shares in Jetbird]’.

      This amendment was accepted by FFLAC and their advisors, A&L Goodbody.”
52. The defendant strongly suggests that this document represented an ex post facto justification of the manner in which the Deed of Pledge came to be executed, including clause 2.2. What is certain, in any event, is that the plaintiff was fully aware at the time of execution that clause 2.2 had been inserted, and he executed the document with the intent that his liability under the Personal Guarantee was to be mitigated by means of this document.

53. In the meantime, the Deed of Charge was not signed as issues arose with regard to its validity under the relevant governing law, which was Delaware in the USA. But by letter of 13th November, 2009, addressed to the plaintiff, Mr. Gibney stated:-

      “In respect of the CCH loan, FF holds joint and several Personal Guarantees from you, Max Doyle, Bryan Maloney and Ronnie Carroll (together ‘the Principals’) together with a Pledge of the shares held by you in Jetbird.”
54. This confirms, once more, that the defendant believed that the plaintiff and the other directors of Claret Capital were still bound by their Personal Guarantees, which also clearly indicates the defendant was not aware of clause 2.2 in the Deed of Pledge or its purported effect.

55. In subsequent correspondence, the plaintiff did nothing to disabuse Mr. Gibney of any apparent misapprehension as to the status of the Personal Guarantees, as may have been inferred from his statement quoted above in the letter of 13th November, 2009, nor did he make any enquiries of Mr. Gibney as to his understanding of the position.

56. Mr. Gibney gave evidence that he remained unaware of the existence of clause 2.2 of the Deed of Pledge until early September 2010. He stated that Mr. Doyle, who had resigned from Claret Capital on 13th July, 2009, had intimated in March 2010 that he believed that the plaintiff was “off the hook” with regard to liability under the Personal Guarantee, but a review which was limited to that document only did not support that statement. Mr. Gibney said that Mr. Doyle raised the matter again some time around early September 2010, specifying that the issue was with the Deed of Pledge and it was this information which led to the discovery of the matters contained in clause 2.2.

57. On 2nd September, 2010, Mr. Gibney contacted Ms. Nolan by telephone to inform her of the true position, and on 3rd September, 2010, he contacted Mr. Ó Cróinin and also informed him of this development.

58. While it is perfectly clear that clause 2.2 in the Deed of Pledge was at all times visible to anyone who looked at it, it is equally clear that for whatever reason, neither the defendant nor its solicitors had spotted it. In these proceedings, the defendant pleads that the agreement sought to be recorded in the Pledge was an agreement whereby, in consideration of the forbearance therein mentioned on the part of the defendant in respect of Claret Capital, the plaintiff was to provide additional security in respect of his liability under the Guarantee. The defendant claims that it was not the agreement or the common purpose of the parties that the liability of the plaintiff was, in any sense, to be limited in its recourse. In those circumstances, the defendant pleads that the Pledge was signed under a common mistake, or alternatively, in circumstances where the defendant was under a unilateral mistake as to the contents of the Pledge.

59. The defendant also alleges that the plaintiff misrepresented the contents of the Pledge and that the mistake made by the defendant was at all material times known to the plaintiff in circumstances where the conduct of the plaintiff, his servants or agents is such that it would be unconscionable for the plaintiff to rely upon the defendant’s unilateral mistake and/or where the plaintiff is estopped from denying the agreement in the form mistakenly believed to exist by the defendant.

60. The defendant counterclaims for rectification of the Deed of Pledge by the deletion of clause 2.2. therefrom, or in the alternative, rescission of the Deed of Pledge. The defendant also counterclaims for judgment against the plaintiff in the sum of $10,174,498 on foot of the Guarantee.

Issues
61. The following issues arise for consideration in this case:

      (i) Are the terms of clause 2.2 of the Deed of Pledge clear on their terms? If so, what is the effect of the document on its face?

      (ii) Was the Deed of Pledge executed in circumstances of mutual mistake or unilateral mistake? If so, is the defendant entitled to rectification or rescission?

      (iii) If there was no mutual or unilateral mistake, is the defendant bound by the terms of the Deed of Pledge and is the plaintiff entitled to the declarations which he seeks?

      (iv) Did the defendant owe to the plaintiff a duty of confidentiality? Was the defendant in breach of that duty or in breach of contract?

      (v) If the defendant was in breach of a duty of confidence or in breach of contract, did any loss flow from this such that would entitle the plaintiff to damages?


The Deed of Pledge
62. Clause 2.2 of the Deed of Pledge reads as follows:
      “2.2 The liability of the Pledgor to the Pledgee under this Deed and the Guarantee shall be:

        2.2.1 limited in aggregate to an amount equal to that recovered by the Pledgee as a result of the enforcement of this Deed with respect to the Charged Assets; and

        2.2.2 satisfied only from the proceeds of sale or other disposal or realisation of the Charged Assets pursuant to this Deed; and

        2.2.3 the Pledgee shall not have any recourse under this Deed or the Guarantee to any assets of the Pledgor other than the Security Assets.”

63. The terms of clause 2.2 of the Deed of Pledge are clear on their terms. It is not necessary to apply rules of construction to interpret them. However, the effect of the words are less clear. The defendant contends that the Deed of Guarantee is a stand-alone document which cannot be varied by clause 2.2 in the Deed of Pledge. Clause 4 of the Guarantee states that it is “. . . in addition to and independent of every other Guarantee or security which Friends First may any time hold in respect of all or any of the Guaranteed Obligations”. Insofar as clause 2.2 of the Deed of Pledge purports to limit the liability of the plaintiff under the Deed and the Guarantee to an amount equal to that recovered by Friends First as a result of the enforcement of the Deed of Pledge with respect to the charged assets, it appears to be in conflict with the Guarantee. Furthermore, clause 2.2.3 of the Deed of Pledge which states “the lender shall not have any recourse under this Deed or the Guarantee to any assets of the Pledgor other than the Security Assets” also appears to be in conflict with the Deed of Guarantee.

64. A further difficulty arises because the Deed of Guarantee was entered into by the directors of Claret Capital, whereas the Deed of Pledge represented an agreement between the plaintiff alone, on the one hand, and the defendant, on the other. If the plaintiff’s liability under the terms of the Guarantee was mitigated by the Deed of Pledge, this would have implications for the other guarantors.

Mutual Mistake or Unilateral Mistake?
65. I am quite satisfied on the evidence that the negotiations leading up to the execution of the Deed of Pledge were conducted on the basis that the Deed was to provide additional collateral for the refinancing of the St. Regis project. While the plaintiff undoubtedly wished to mitigate his exposure under the Guarantee and was actively pursuing steps to that end, no agreement had been reached between the parties on this matter.

66. The defendant pleads that the Deed of Pledge “is not in accordance with and did not truly represent or reflect the common intention of the parties at all times leading up to the execution [thereof].” It seeks rectification of the Deed by the deletion of clause 2.2 so as to properly reflect the common intention of the parties.

67. When Mr. Léon Atkins sent the Deed of Pledge to the defendant for execution, neither he nor the plaintiff were under any misapprehension about the terms of the Deed. It was the defendant who was unaware that the Deed contained clause 2.2 which purported to mitigate the effect of the Deed of Guarantee. The plaintiff sought to persuade the Court that he could have had no reason to believe the defendant had not seen clause 2.2 because it was there to be seen on any proper examination of the document. While that is an attractive suggestion and one, that at first sight seems reasonable, the plaintiff must have known, or at the very least suspected, that the defendant had not noticed this important change as no issue was taken with it. It seems most improbable that the defendant would have agreed to such a clause since it had not been part of the negotiations and the plaintiff was aware that the defendant was looking for the Deed of Pledge as additional collateral.

68. If this is correct, then the true position was one of unilateral mistake and a not common mistake. The mistake was that of the defendant and its solicitors in failing to notice a material alteration in the draft Deed of Pledge which did not accord with the negotiated position and in signing the Deed in that form. It is not necessary that a complete antecedent concluded agreement was necessary. An outward expression of accord on the particular matter in respect of which rectification is sought is all that is required. This test has been helpfully analysed in The Leopardstown Club Ltd. v. Templeville Developments Ltd. [2010] IEHC 152 at p. 211 et seq. Although Edwards J. was speaking of common mistake, the same principle applies with regard to unilateral mistake. One has to look at what was the common intention of the parties as to the nature of the contract before the mistake arose.

69. In this case, the defendant contends that the “common intention” of the parties at all times prior to 9th July, 2009, was for the plaintiff to provide additional security. If the plaintiff had a change of intention, this had not been raised in the discussions with the defendant.

70. In The Leopardstown Club Ltd., Edwards J. stated at p. 253:-

      “. . . that where the conduct of the non-mistaken party goes beyond the boundaries of fair dealing and is unconscionable, it is open to the Court to grant rectification, even in the case of an arms length commercial transaction where the parties have been legally represented in the course of their negotiation.”
71. In A. Roberts & Company Ltd. v. Leicestershire County Council [1961] Ch. 555 Pennycuick J said at p. 570:-
      “A party is entitled to rectification of a contract on proof that he believed a particular term to be included in the contract and that the other party concluded the contract with the omission or variation of that term in the knowledge that the first party believed the term to be included.”
72. In Lucey v. Laurell Construction (Unreported, High Court, 18th December, 1970) Kenny J. held:-
      “The court has jurisdiction to rectify a written Agreement made between the parties only where either there is a mutual mistake made by the two parties in the drafting of a written Agreement which is to give effect to a prior oral Agreement or when one party sees a mistake in the written Agreement and when he knows that the other party has not seen it and then signs the document knowing that it contains a mistake.”
73. In Riverlate Properties v. Paul [1975] Ch. 133, the court held that rectification may be available to an injured party where a mistake arises as a result of some “degree of sharp practice”.

74. In Thomas Bates & Son Ltd. v. Wyndham’s Lingerie Ltd. [1981] 1 WLR 505, the defendant tenant was aware of the plaintiff landlord’s mistake in not including an arbitration provision in a rent review clause but did not draw its attention to it. The plaintiff realised the omission only when rent review was necessary, although the defendant had at all times been aware of the mistake. The Court of Appeal ordered an arbitration clause to be inserted into the lease in accordance with the parties’ original intention and Buckley L.J. stated at p. 516, that for the doctrine to apply, the following conditions must be satisfied:-

      “... first, that one party (A) erroneously believed that the document sought to be rectified contained a particular term or provision, or possibly did not contain a particular term or provision which, mistakenly, it did contain; secondly, that the other party (B) was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A. And I think there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B. ”
75. A number of other authorities were cited where a jurisdiction to grant rescission on foot of unilateral mistake was discussed. What emerges from these decisions is that such relief will only be granted where it would be “inequitable in the circumstances to allow a party to retain a benefit derived from the mistake”, but in general, some level of fraud or “sharp practice” is involved. See Irish Life Assurance Company v. Dublin and Ireland Securities [1986] I.R. 332; [1989] I.R. 252; O’Neill v. Ryan (No. 3) [1992] 1 I.R. 166; Monaghan CC v. Vaughan [1948] I.R. 306; Litmans v. Aspen Oil [2005] EWCA Civ 1579; Coles v. William Hill [1999] L+TR 14; Hurst Stores & Interiors Ltd. v. ML Property Ltd. [2004] EWCA Civ 490; QR Sciences Ltd. v. BTG International Ltd. [2005] EWHC 670; and EuNetworks Fiber UK Ltd. v. Abovenet Communications UK Ltd. [2007] EWHC 3099.

76. The plaintiff placed particular reliance on the Nai Genova [1984] 1 Lloyd's Rep 353 in support of the proposition that for rectification to be ordered in a case of unilateral mistake, in the absence of estoppel, fraud, undue influence or a fiduciary relationship between the parties, there must be “actual knowledge” on the part of the non-mistaken party of the fact that their counterparty is operating under a mistake.

77. The question of what constitutes “actual knowledge” in this context was considered in Commission for the New Towns v Cooper (Great Britain) Limited [1995] 2 WLR 677 and in JJ Huber (Investment) Limited v. Private DIY Company Limited [1995] NPC 102 with the relevant mental states being usefully summarised by Roger Cooke J in the latter as including:-

      “Category 1, true actual knowledge, Category 2, wilfully shutting one's eyes to the obvious, and Category 3, wilfully and recklessly failing to make such enquiries as an honest and reasonable man would make.”
78. What is meant by an “honest and reasonable man” was considered by Sedley LJ in George Wimpey UK Ltd. v. VI Construction Ltd. [2005] EWCA Civ 77 as follows:-
      “The phrase ‘honest and reasonable’ is not a term of art. It is a judicial attempt to sketch a line beyond which conduct may be regarded as unconscionable or inequitable. Its duality, however, is a recognition that dishonesty alone is too pure a standard for business dealings because it omits legitimate self-interest; while reasonableness alone is capable of legitimising Machiavellian tactics.”
79. The plaintiff further asserted that the Nai Genova is authority for the proposition that carelessness on the part of the mistaken party may be such as to disentitle them to rectification, in circumstances where the mistake is one that their counterparty could not reasonably have foreseen. On this point, the defendant cites the decisions of Denning LJ in Weeds v. Blaney [1978] 2 EGLR 84 and Templiss Properties Limited v. Hyams [1999] All ER(D) 404 as illustrating that negligence on the part of a party seeking rectification for mistake, or their advisors, will not in itself operate as a bar to relief, if the other criteria are fulfilled. Per Brunton QC in the latter (at p. 407):-
      “... it matters not that the mistake was caused by the negligence of the Plaintiff or of his adviser. In almost all cases where rectification of a legal document is sought, the Plaintiff's legal adviser must have been negligent in failing to detect the mistake in the document. That mistake, even if negligent, is not a reason for refusing relief: it is the premise on which relief is granted.”
80. Rectification is not a remedy that may be granted lightly. The authorities show, as summarised by Edwards J in Leopardstown Club Limited at p.241 et seq., that a party seeking rectification must make out their case in strong and clear terms. Although the appropriate standard of proof is on the balance of probabilities, there must be a weight of evidence such that would negative the powerful probative value as to the parties’ intentions where there is a duly executed instrument. The essence of rectification for mistake was neatly captured by Simonds J in Crane v. Hegeman-Harris Co. Inc. [1939] 1 All E.R. 662 at p.664, “it is a jurisdiction which is to be exercised only upon convincing proof that the concluded instrument does not represent the common intention of the parties.

Unilateral Mistake – Findings
81. The chain of emails exchanged between the plaintiff and Mr. Léon Atkins in the period immediately leading up to the signing of the Deed of Pledge establish the following facts as a matter of probability:

      (a) At a time when the plaintiff was prepared to sign the Deed of Pledge (albeit reluctantly), Mr. Atkins came up with the idea of inserting clause 2.2 “as a further thought . . .” He did not believe the wording would be accepted by the defendant, having stated in an email to the Claret Capital partners “if this wording is accepted (which it has every chance of not but it is worth trying) then the Guarantees will be recourse only to the security provided”.

      (b) Mr. Atkins, to the knowledge of the plaintiff, intended to slip clause 2.2 into the Deed of Pledge by sleight of hand. The plaintiff responded to Mr. Atkins’ suggestion of inserting the clause by saying “good thinking” and later, on the same date (9th July, 2009), Mr. Doyle, who was one of the Claret directors, sent an email to Mr. Atkins saying “any way to make it a bit more inconspicuous?”

      (c) When Mr. Gibney asked Mr. Atkins no 10th July, 2009 “is this the version that I sent back to you with our handwritten comments or an earlier version?” Mr. Atkins responded “yes, this is the version you sent back to me and which incorporates your comments”. This was at best ambiguous and at worst misleading.

      (d) On 17th July, 2009, following receipt of the marked draft from Ms. Nolan, Mr. Atkins responded to the plaintiff “don’t hold your breath yet but they have NOT amended the Guarantee wording I added”. The plaintiff, on the same evening, replied saying “let’s get it signed ASAP!!”

82. The only construction one could put on this chain of emails is that the plaintiff did not expect this proposed addition to the draft Deed of Pledge would be accepted, and that it was hoped that the defendant would not notice the clause. Furthermore, when it became clear that the defendant had not noticed the change, the plaintiff’s reaction was to get the document signed as soon as possible in that form.

83. This chain of emails establishes, as a matter of probability, that the plaintiff was aware the defendant had not noticed the change, but sought to bind the defendant by its signature to the document. At the very least, the plaintiff and Mr. Atkins wilfully shut their eyes to the obvious. They may well have expected the defendant or its solicitors to pick up on the clause which was inserted, but they had no reason to believe that they did so, and, indeed, their actions prior to the contract being signed were designed to get the document signed when it appeared clear that clause 2.2 had been missed by the defendant and its solicitors.

84. The plaintiff has argued that the counterclaim is dependent upon a contention that the plaintiff (or, more specifically, Mr. Atkins on his behalf) owed the defendant some unspecified duty of good faith in the course of the negotiations to make sure that it properly read and understood and documentation being provided to it and its legal advisors. The plaintiff relies on the decision of the House of Lords in Walford v. Miles [1992] 2 AC 128, where Lord Ackner stated at p. 138:-

      “. . . the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations.”
85. While that may be true, it does not fit in with what happened in this case. Even if the plaintiff (or Mr. Atkins on his behalf) did not owe such a duty to the defendant, they must face the legal consequences of their conduct if they created a situation which gave rise to the defendant signing an agreement which did not represent the outcome of the negotiations, in circumstances where it would be inequitable or unconscionable to hold the defendant to that agreement, having regard to the surrounding circumstances and where there has been sharp practice, even if that falls short of outright and unambiguous dishonesty.

86. The facts of this case establish that there was a unilateral mistake. I have considered whether rescission would be the proper remedy in this case. I have been referred to O’Sullivan, Elliott & Zakarezweski’s ‘The Law of Rescission’ at paras. 7.07 to 7.08 where it is suggested that there is no jurisdiction to rescind at common law for unilateral mistake but that an equitable jurisdiction may be exercised which is dependent upon the presence of all of the following factors:-

      (i) An operative mistake was made;

      (ii) The other party knew of the mistake; and

      (iii) There was sharp practice or other unconscionable conduct in connection with the mistake.

Operative mistake” was defined in the same text at para. 7.11 as being one which must:-
      (i) Not concern a matter, the risk of which has been allocated by the contract.

      (ii) Concern a matter of real importance.

      (iii) Concern a matter existing at the time of the contract.

      (iv) Not to be a mere error of judgment, and

      (v) Go to the subject matter or terms of the contract as opposed to its commercial consequences.

87. Since I am satisfied the parties had reached broad agreement on the terms of the Deed of Pledge and that it was to ensure the provision of additional security, it seems to me that on the facts of this case, rectification is the more appropriate remedy so as to give effect to the real intention of the parties immediately before clause 2.2 was inserted.

88. While the defendant also based its counterclaim on misrepresentation, it seems to me that the appropriate rubric within which to consider the issues in dispute is in the context of mistake rather than misrepresentation.

89. This is one of those limited cases where rectification does appear to be the proper remedy. The defendant has shown, by convincing proof, that the concluded instrument did not properly reflect the intentions of the parties.

Breach of Confidentiality
90. This leaves the issue of the plaintiff’s claim that there was a breach of duty of confidentiality. The claim arises in the following circumstances: The plaintiff is CEO of Avolon Aircraft Leasing Ltd. (“Avolon”). In August 2010, he had just launched Avolon, an aircraft leasing and lease management services business. This was a new global business and in the previous months he had been involved in an equity raising programme of $1.4bn. The plaintiff claims that he was able to raise this amount of equity due to his reputation as a global aviation financing expert. He claims that the defendant sought to undermine him with a key investor in Avolon, CVC Capital Partners (“CVC”), by revealing details of his financial dealings with the defendant at a time when the latter was well aware that CVC’s investment in Avolon was crucial to its success. The plaintiff claims that the defendant’s contact with CVC in this manner was designed to put pressure on him to meet the demands of the defendant, and in particular to agree to rectification of the Deed of Pledge.

91. In or around August 2010, the plaintiff received a telephone call from Mr. Peter Rutland, a Board member of Avolon and a senior managing director of CVC. The plaintiff was informed that Mr. Harry van den Heuvel, a senior investment manager of the defendant’s parent company, Eureko BV (now called, and henceforth referred to as “Achmea”), had raised, at a meeting with CVC, the St. Regis deal, the Personal Guarantee, the Pledge and the plaintiff’s purported indebtedness to the defendant. The plaintiff’s evidence is that Mr. Rutland had indicated that Mr. van den Heuvel advised CVC that the plaintiff had acted improperly, in bad faith and had misrepresented certain documents to Friends First. Mr. Rutland sought a detailed report from the plaintiff on this issue in which he was asked to explain the circumstances giving rise to this allegation.

92. Mr. van den Heuvel’s evidence was that on 25th August, 2010, he contacted Mr. Stephen Vineburg, CEO of Infrastructure with CVC by email to query their due diligence process on Avalon and Dómhnal Slattery. He expressed his concerns (as a possible investor in a separate fund administered by CVC) at the experience the defendant had of the plaintiff and Claret Capital, and invoked the spectre of pending legal proceedings, both as against Claret Capital and against the plaintiff personally. On that same day, the plaintiff sent an email to Mr. Jonathan Feuer, a senior partner with CVC who had been directly involved in the Avolon investment, setting out his view of his dealings with the defendant.

93. To put this approach in context, it bears mentioning that on 19th August, 2010, Barclays’ legal representatives issued a Notice of Foreclosure in relation to the St. Regis transaction, pursuant to the law of the District of Columbia, with a principal balance outstanding on their promissory note in the sum of US$101,622,455, and a foreclosure sale scheduled to take place on 24th September, 2010.

94. Subsequently, on 2nd September, 2010, Mr. Gibney became aware of clause 2.2 in the Deed of Pledge, and in due course communicated this to Mr. van den Heuvel. The evidence established quite clearly that when the defendant realised the JetBird Pledge had been amended by the insertion of clause 2.2, it attempted to put significant pressure on the plaintiff in order to reverse the position and to enable it rely on the Guarantee.

95. Mr. Gibney gave evidence of discussions he had with the plaintiff and he produced memoranda of meetings which show quite clearly that pressure was put on the plaintiff to meet what the defendant perceived as being his obligations, with CVC’s purported sensitivity to any adverse publicity arising from legal proceedings being held over the plaintiff as an implied threat, given the latter’s importance to Avolon. There is no doubt whatsoever on the evidence of Mr. Gibney and Mr. van den Heuvel that CVC only became aware of the dispute between the plaintiff and the defendant through Mr. van den Heuvel’s purposeful intervention.

96. Mr. Vineburg’s evidence is that he received a phone call from Mr. van den Heuvel on 6th September, setting out in more detail the specific allegations against the plaintiff, including allegations of mismanagement, misrepresentation and of the poor performance of investments. A memorandum of this conversation was circulated by Mr. Vineburg to a number of other senior personnel with CVC, including Mr. Feuer, specifically noting the prospect of adverse publicity arising out of any legal action.

97. Mr. Vineburg wrote to Mr. van den Heuvel on 14th September, 2010, setting out in great detail the various matters attended to in their due diligence process, putting the view that the plaintiff’s and Claret Capital’s investment record was not unusually poor when compared with other similar vehicles operating in Ireland, and stating that the plaintiff and his management team were experienced and had a good track record. The letter left open the possibility of a face to face meeting to discuss these matters.

98. As events transpired, Mr. van den Heuvel did choose to avail of the offer of a meeting. Mr. van den Heuvel invited Mr. Gibney to accompany him to give first hand feedback of the defendant’s experiences in dealing with the plaintiff and Claret Capital, but also to put his viewpoint on the St. Regis transaction and the situation concerning the plaintiff’s Personal Guarantee in favour of the defendant. The meeting took place at Schipol Airport, Amsterdam, on 29th October, 2010. CVC was represented by Mr. Feuer and another senior executive, as Mr. Vineburg was travelling at the time. In the course of that meeting, the representatives of CVC were told of the defendant’s previous experience with the plaintiff and Claret Capital and queried why CVC had not sought inputs from Achmea and/or the defendant. Mr. van den Heuvel conceded that in his exchanges with the CVC representatives, he expressed the view that the plaintiff had been underhand and dishonest in his dealings with the defendant on the St. Regis investment and not just in relation to the JetBird Pledge matter. He described the plaintiff as someone who “left the kitchen when things turned too hot”.

99. In cross-examination, Mr. Tom Browne, the then Chief Financial Officer of the defendant, accepted that the defendant is a regulated financial institution which, in the ordinary course, would owe a duty of confidence to those with whom it does business. He admitted that he was uncomfortable with the manner in which Achmea had approached CVC to inform them of their unhappiness with the dealings which its subsidiary (the defendant) had with the plaintiff. He accepted that CVC only became interested in raising questions with the plaintiff after the issues were raised by Achmea. When asked whether he would stand over the fact that Achmea approached CVC and decided to give information about one of its customers (the plaintiff) to CVC, he conceded that “it’s probably not right”.

The Duty of Confidentiality in Law
100. In Tournier v. National Provincial & Union Bank of England [1924] 1 K.B. 461, the court held that as between banker and client, there is an implied term of confidentiality otherwise than in circumstances where (a) disclosure is under compulsion of law; (b) there is a duty to the public to disclose; (c) where the interests of the bank require disclosure, and (d) where the disclosure is made by the express or implied consent of the customer. In England and Wales, the scope of this duty has been held to extend even to the dissemination of information as between a company and its wholly owned subsidiary, per Bank of Tokyo v. Karoon [1986] 3 All E.R. 468, where such dissemination cannot be justified by reference to the exceptions set out in Tournier, although this specific point has not been settled in Ireland.

101. In Walsh v. National Irish Bank [2007] IEHC 325, McKechnie J. stated at para. 23:

      “There is no doubt but that it is an implied term of any contract between a banker and its customer that the former will not divulge to third parties, without the express or implied consent of the latter, the state of his account or the amount of his balance, the securities offered and held, the extent and frequency of transactions or indeed any information acquired by the bank during, or by reason of, its relationship with the customer. The seminal authority for this proposition is the case of Tournier v. National Prudential and Union Bank of England, [1924] 1 K.B. 461. That case has been accepted and virtually without qualification has been applied in numerous other decisions since then including Re State of Norway’s Application [1989] 1 All E.R. 746, Lipkin Gorman v. Karpnale [1992] 4 All E.R. 409 and Taylor, Trustee Saving Bank of Wales and Border Counties v. Taylor [1989] 3 All E.R. 563. That such a duty exists, whether it is based on an implied term or underpinned by public interest considerations, was recognised in this jurisdiction by the Supreme Court in National Irish Bank Limited v. Radio Telefis Eireann [1998] 2 IR 465 at p. 494. Therefore there can be no doubt about the existence of this principle of law.”
102. In National Irish Bank Limited v. Radio Telefis Eireann [1998] 2 IR 465, Shanley J in the High Court held that:-
      “Where a person in whom confidential information reposes discloses that information to the detriment of the party who has confided in him, he commits the tort of breach of confidence. The law recognises that a duty of confidence will arise in circumstances where confidential information is so reposed and the courts will restrain any apprehended breach of such a duty of confidence or award damages for actual breach of that duty. To attract the duty of confidence, the information in issue must not be trivial information and must be information which is not already in the public domain. Finally, the public interest (for such it is) in the maintenance of confidences may in certain circumstances have to be balanced against the public interest favouring disclosure. ”
103. On appeal, Lynch J, speaking for the majority of the Supreme Court, framed the duty of confidence in somewhat looser terms than the contractual basis of the Tournier approach, holding that (ibid at page 494):-
      “There is no doubt but that there exists a duty and a right of confidence between banker and consumer as also exists in many other relationships, for example doctor and patient and lawyer and client. This duty of confidentiality extends to third parties into whose hands confidential information may come… There is a public interest in the maintenance of such confidentiality for the benefit of the public at large.”
104. The Court is also directed to the constitutional right to privacy which has, in Herrity v. Associated Newspapers (Ireland) Ltd. [2009] 1 IR 316, been recognised to give rise to an action in damages as between private individuals or entities. The right must be balanced or qualified by reference to competing interests. Where private information has been disclosed without “proper basis”, damages may be assessed on the basis set out in Shortt v. Commissioner of An Garda Síochána [2007] 4 IR 587 and Conway v. INTO [1991] 2 I.R. 305 including aggravated and/or punitive damages.

105. Previously, the Supreme Court in Haughey v. Moriarty [1999] 3 IR 1 per Hamilton CJ had tentatively recognised, while explicitly refusing to rule authoritatively on the matter, that a constitutional right to privacy may attach to business dealings, in particular bank accounts. This putative right, insofar as it was recognised, would be subject to the exigencies of the common good, and was stated in identical terms to the right of confidentiality set out in National Irish Bank Limited v. Radio Telefís Éireann, citing the decision of Lynch J.

106. However, Hanna J in Caldwell v. Mahon [2007] 3 IR 542 correctly states, in the view of this Court, the position as being that any such right operates at the “outer reaches of and at the furthest remove from the core personal right to privacy”, and thus may readily be qualified by countervailing considerations.

107. The Court is further referred to Attorney General v. Guardian Newspapers (No. 2) [1988] 3 W.L.R. 776, where it was held by Lord Goff at page 805 that:-

      “… a duty of confidence arises when confidential information comes to the knowledge of a person (the confidant) in circumstances where he has notice, or is held to have agreed, that the information is confidential, with the effect that it would be just in all the circumstances that he should be precluded from [disclosing the information to others] … The existence of this broad general principle reflects the fact that there is such a public interest in the maintenance of confidences, that the law will provide remedies for their protection”
108. The learned Law Lord framed this duty in equity, further holding that, in general, the disclosure should be to the detriment of the confider so as to move the court to grant relief, but that this may not be required in all cases.

109. In England and Wales, a closely related tort of misuse of private information is also recognised. In Campbell v. MGN [2004] 2 WLR 1232 a two stage test was stated, the first limb of which being the onus on the claimant to establish a “reasonable expectation of privacy”. On discharge of this onus, the court moves to assess the presence of any relevant countervailing policy considerations or rights, most usually the right to free expression. On the question of detriment, Baroness Hale, speaking for the majority in the House of Lords, endorsed the trial judge’s approach in assessing the question of detriment on an objective basis, with a finding that the breach of confidence would be likely to cause adverse consequences being sufficient to satisfy the test.

110. More recently, in Mosley v. News Group Newspapers Ltd [2008] EWHC 1777 (QB) the High Court of England and Wales reiterated that the right of privacy may be enforced even where there is no pre-existing relationship of confidence. It would seem to this Court, however, that these kinds of cases, relating primarily to personal privacy and deriving from Article 8 of the European Convention on Human Rights and Fundamental Freedoms, fall into a separate and distinct category to the matter at hand.

111. While the issue of the breach of confidentiality was raised in pleadings, it was surprisingly not addressed by way of particularly detailed legal submissions. But, it is clear that the law recognises a duty of confidentiality such as would apply in this case, whether framed in contract, in tort, in equity or on a constitutional basis, and that this Court is possessed of the jurisdiction to award damages on foot of a breach thereof.

112. Insofar as it is necessary to distinguish between the various conceptual frameworks for present purposes, it is absolutely clear that a duty of confidentiality arises as an implied term in banking contracts, following Tournier, but also that a broader duty of confidentiality may arise in the terms set out by Lynch J in National Irish Bank Limited v. Radio Telefís Éireann. Even if an actionable constitutionally grounded right to privacy or confidentiality in business dealings can be said to arise, its parameters of application to the instant case appear to be no broader than those of the fiduciary duty as determined by Lynch J.

Breach of Confidentiality – Findings
113. Looking at what occurred in this case, it is clear that the approach made to CVC by Achmea arose from a desire to pressurise and/or harm the plaintiff’s interests in order to achieve an alteration of the status quo between the parties. The beneficiary of this conduct, had it succeeded, would have been the defendant, and it is clear that Achmea were acting on behalf of the defendant in order to bring this about.

114. A duty of confidentiality existed between the plaintiff and the defendant in circumstances where Claret Capital had borrowings from the defendant and the plaintiff had entered into a Personal Guarantee to secure those borrowings. It is readily apparent that there was no consent on the plaintiff’s part to the defendant’s making disclosure of his affairs, through Achmea and Mr. van den Heuvel, to CVC.

115. Mr. van den Heuvel sought to justify the disclosure of information to CVC on the basis of enquiries as to the latter’s due diligence procedures, in connection with another, entirely separate proposed investment. These requirements purportedly arose pursuant to Dutch law and the regulatory scheme imposed by the Dutch Central Bank.

116. This was a threadbare excuse and a fiction. It is impossible to see how, if it had been the case that Mr. van den Heuvel was earnestly engaged in an appraisal of CVC’s due diligence procedures, that this legitimate undertaking would have been aided by apprising CVC’s representatives of the minutiae of the plaintiff’s dealings with the defendant, including the St. Regis transaction, to the extent of Mr. Gibney’s travelling to Holland in order to have his say. Furthermore, this meeting was deemed necessary even in circumstances where CVC had furnished a very detailed account of their rigorous due diligence processes, and their satisfaction with the Avolon investment made on foot of same.

117. While the proposed engagement by Achmea with CVC potentially involved a significant commitment of funding, it seems from the evidence that this investment, in the “European Infrastructure Fund”, managed by CVC, would have entailed no additional exposure on Achmea’s part to Avolon or any other venture in which the plaintiff was involved.

118. Therefore, it seems to me that the defendant, in giving the information to CVC or in colluding with Achmea in passing on the information, was not pursuing its legitimate interests, nor is there any reasonable justification in the public interest or in pursuance of the defendant’s legal obligations.

119. I am satisfied, on the evidence, that the defendant permitted the improper disclosure of confidential information to a third party for an improper purpose, namely, to put pressure on the plaintiff to conform to the defendant’s negotiating position. Such conduct on the part of the defendant entitles the plaintiff to damages.

120. The defendant submits that the plaintiff has suffered no loss or damage on account of the disclosure to CVC of his dealings with the plaintiff. While it is difficult to ascertain the precise nature or extent of the reputational damage done, in circumstances where CVC seem to have broadly supported the plaintiff’s position, it was admitted in evidence by Mr. van den Heuvel that the disclosure was likely to be unhelpful to the plaintiff’s relations with CVC and his professional prospects, even in circumstances where he had been vindicated by subsequent enquiries.

121. In this case, the plaintiff has not established any special damage arising out of the breach of confidence. But that is not a bar to the plaintiff recovering damages. It is clear from such authorities as Conway v. Irish National Teachers Organisation, McIntire v. Lewis [1991] 1 IR 121 and F.W. v. British Broadcasting Corporation (Unreported, High Court, 25th March, 1999), that the Court is vested with a discretion to award compensatory damages, including aggravated damages, notwithstanding any failure to explicitly plead the latter category. Indeed, it would run contrary to what McCarthy J in McIntire v. Lewis referred to as the “dynamism that characterises the common law” for this Court to hold itself as being artificially restricted in granting the plaintiff a remedy.

122. Aggravated damages are usefully defined by the Law Reform Commission in its consultation paper on Aggravated, Exemplary and Restitutional Damages, published in April, 1998, and cited with approval by Barr J in F.W. v. British Broadcasting Corporation, as follows:-

      “Aggravated damages are classified as a species of compensatory damages, which are awarded as additional compensation where there has been intangible injury to the interests or personality of the plaintiff, and where this injury has been caused or exacerbated by the exceptional conduct of the defendant.”
123. The breach of confidence was a serious one and was deliberately intended to cause harm to the plaintiff’s business interests if he did not become more compliant with the wishes of the defendant. It was a quite improper use of information gathered in the course of a fiduciary relationship. The plaintiff is entitled to be compensated for the deliberate and conscious breach of his right to confidentiality, involving an extraordinary, wilful and totally inappropriate dissemination of this information, and this must be considered independently from any act of the plaintiff in relation to the Deed of Pledge.

Conclusions
124. The terms of clause 2.2 of the Deed of Pledge are clear on its face, but the clause did not represent the concluded agreement between the parties. I hold that the Deed of Pledge was executed in circumstances of unilateral mistake on the part of the defendant. For the reasons outlined earlier in this judgment, it appears to me that the appropriate remedy for the defendant is rectification of the Deed of Pledge so as to exclude clause 2.2 from the document. I will make the order sought by the defendant in its counterclaim at paragraph 53.2.

125. As rectification appears to be the appropriate remedy, I am not awarding damages to the defendant.

126. Since clause 2.2 is to be deleted from the Deed of Pledge, it follows that the plaintiff and his fellow signatories are jointly and severally liable under the Personal Guarantee of 18th March, 2008, on the terms stated therein. On 10th June, 2010, a letter of demand was served by the defendant on the plaintiff pursuant to the Guarantee. It follows that the defendant is entitled to rely on that Guarantee and to recover such sums as are currently due on foot of same. I will hear counsel in due course as to the amount due on foot of the guarantee before the order is made up.

127. The plaintiff is entitled to damages, including aggravated damages, for breach of confidentiality and I measure these at €100,000. The plaintiff is not entitled to the other declarations or relief which he seeks in the statement of claim.


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