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High Court of Ireland Decisions
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Cite as:  IEHC 347
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Judgment Title: Danske Bank A/S trading as National Irish Bank -v- RQB Ltd & Ors
Composition of Court:
Judgment by: McGovern J.
Status of Judgment: Approved
Neutral Citation Number:  IEHC 347
THE HIGH COURT
2009 3108 S
DANSKE BANK A/S TRADING AS NATIONAL IRISH BANK
RQB LIMITED (FORMERLY KNOWN AS REDQUARTZ BOUNDARY LIMITED),
PADDY KELLY, NIALL MCFADDEN AND PAUL PARDY
JUDGMENT of Mr. Justice Brian McGovern delivered on the 23rd day of July, 2010
1. In these proceedings, the plaintiff (hereinafter referred to as “the Bank”) seeks judgment against the third named defendant in the sum of €8,876,803.16 with contractual interest thereon on foot of a guarantee dated 23rd December, 2005, to secure monies advanced by the Bank to RQB Limited. RQB Ltd. (the first named defendant) is in liquidation and the third named defendant was a director of that company since 2005. The plaintiff provided an overdraft facility to RQB Ltd. on terms set out in a facility letter of 19th December, 2005. This facility was secured by joint and several guarantees given by the third named defendant and by Paddy Kelly (the second named defendant) and Paul Pardy (the fourth named defendant). RQB Ltd. failed to comply with the terms of the facility granted, and on 22nd July, 2009, a demand for repayment of the debt was made of the first named defendant by the Bank. The first named defendant was not in a position to repay the monies advanced and by letters of demand dated 24th July, 2009, the Bank wrote to each of the guarantors, namely, the second, third and fourth named defendants, demanding immediate repayment of the sums then due, namely, €8,563,306.30, in accordance with the terms of the guarantee.
2. In this hearing, the plaintiff seeks judgment against the third named defendant, Niall McFadden. Summary judgment has been obtained by the plaintiff against the second and fourth named defendants on 12th August, 2009, and against the first named defendant on 23rd September, 2009. On 16th October, 2009, the proceedings against the third named defendant, Niall McFadden, were adjourned for plenary hearing.
3. The second, third and fourth named defendants entered into two guarantees to secure the facilities either made available to or offered to RQB Limited. The first was a guarantee of 23rd December, 2005, and the second was a guarantee of 10th September, 2008. These proceedings are brought against the second, third and fourth named defendants on foot of the 2005 guarantee. The summary judgment already obtained against the second and fourth named defendants on 12th August, 2009, was in respect of that guarantee.
4. The third named defendant claims that if he has any personal liability for the debts of the first named defendant it is on foot of the guarantee of 10th September, 2008, as it replaced the 2005 guarantee. This is denied by the plaintiff. The issue in this case is a relatively simple one, namely, whether the plaintiff is bound under the 2005 guarantee or the 2008 guarantee. It is not disputed that he executed both guarantees and that they were proper as to their form.
5. At the conclusion of the plaintiff’s case, counsel for the third named defendant informed the Court that he did not propose going into evidence. It is accepted by the parties that the principles set out in O’Toole v. Heavey  2 I.R. 544, apply. In this case, there do not appear to be any notices claiming contribution or indemnity, and since judgment has been obtained against the other defendants, it seems to me that the ruling in O’Toole and Heavey can be applied as though there was just one defendant. That rule is as follows:
(a) Joint & Several Guarantees of €12,000,000 (Twelve million Euro) from Patrick Kelly, Niall McFadden and Paul Pardy.
Any security held now or at any future time shall be security for all the Borrowers’ liabilities to the bank (actual or contingent and whether as principal or surety).”
7. The 2005 facility was repayable on demand and subject to review on 21st December, 2006. At the end of 2006, the Bank had discussions with RQB and it was agreed to continue the 2005 facility on the understanding that it was repayable on demand.
8. In the early summer of 2008, RQB requested that the Bank would restructure the 2005 facility and discussions took place between the parties. On 10th June, 2008, Mr. Kenneth Dobson, Head of Corporate Banking Ireland, for the plaintiff, sent an email to Mark Buckley of the first named defendant, setting out in broad terms the way in which they were prepared to restructure the facility.
9. The restructuring of the facility involved the creation of a €2m overdraft available until 30th June, 2009, to fund business restructuring costs and a loan of €8m to restructure existing borrowings for a three-year term, expiring on 30th June, 2011. The security was stated in the email to be:
Floating charge over assets of RQB (this is a new security).”
11. Two facility letters were issued by the Bank on 7th July, 2008, in respect of a €2m overdraft and an €8m loan, but the matter was not brought to a conclusion because of objections by the fourth named defendant, Mr. Pardy, who was reducing his involvement with the first named defendant and was not willing to sign an acknowledgement that the guarantors would be bound by the 2005 guarantees in respect of such new facility.
12. Further facility letters were issued on 7th August, 2008, but, again, no agreement was concluded.
13. On 4th September, 2008, the plaintiff offered the first named defendant a loan facility of €8m and an overdraft facility of €2m, subject to the terms and conditions contained in the facility letter. The loan facility was to be secured by a Joint and Several Guarantee in the amount of €8m from the second, third and fourth named defendants, and a First Fixed and Floating Charge over assets and undertakings of the company. Clause 8 of the proposed loan facility contained conditions precedent and provided:
14. The overdraft facility of €2m was to be secured by Joint and Several Guarantees in that amount from the second and third named defendants (but not the fourth named defendant) and by a First Fixed and Floating Charge over the assets and undertakings of the company.
15. Clause 11 of the overdraft facility set out conditions precedent and provided that prior to utilisation of the facilities, the bank was to be provided with Personal Asset Statements of the guarantors and these had to be satisfactory the bank. Clause 13 provided that the offer would remain open until 30th September, 2008, and would be subject to renegotiation if acceptance was not received by that date. Clause 14 provided that the facilities would be made available on completion of the security arrangements and on compliance with the provisions of clause 11 and would be subject to renegotiation if utilisation had not commenced by 30th September, 2008.
16. The evidence establishes that it was intended that the 2008 guarantee would replace the 2005 guarantee. There was no controversy about this. The 2008 guarantee was signed on 10th September, 2008, by the second and third named defendants in respect of the overdraft of €2m and the second, third and fourth named defendants in respect of the €8m loan. Both were typed documents presented by the bank for the signature of the guarantors. The guarantee in respect of the overdraft contained, at the beginning, a manuscript addition which read as follows:
18. In the course of his evidence, Mr. Kenneth Dobson referred to a telephone conversation which he had with Mr. Declan Cassidy, a director of RQB, on 10th September, 2008. In the course of that telephone conversation, he admits that he agreed that the manuscript amendments could be made. He even went so far as to admit that he agreed the amendments “word for word” with Mr. Cassidy. He also agreed that by 20th October, 2008, the only outstanding issue was with the second named defendant, Mr. Paddy Kelly, who had not provided a Personal Asset Statement and also had defaulted on obligations to the bank. He agreed that if the issue involving the second named defendant was resolved, they would draw down the facilities.
19. The facilities offered in the letter of 4th September, 2008, were accepted by the first named defendant some time after 10th September, 2008, and, apparently, before 30th September, 2008, which was the date up to which the offer remained open. The facilities were not drawn down or utilised by 30th September, 2008, and the plaintiff argues that this meant the provision of facilities would have to be renegotiated, as provided for in clause 14 of the facility letter. The plaintiff argues that the restructuring was not complete for that reason, and also on account of some outstanding security issues to be resolved by the second named defendant, Mr. Kelly.
20. In defending this action, the third named defendant maintains that everything that needed to be done had been done and there was no impediment to a drawdown of the facilities taking place under the September 2008 offer. When Mr. Dobson gave evidence of his telephone conversation with Mr. Declan Cassidy on 10th September, 2008, he stated that Mr. Cassidy informed him that he wanted two amendments put into the guarantees; one relating to the family home and one relating to the discharge of the 2005 guarantee. According to Mr. Dobson, Mr. Cassidy advised him that the third named defendant did not want to have two guarantees concurrent and:
He was pressed on this in cross-examination. Counsel referred him to his affidavit sworn on 8th September, 2009, in which he stated at paragraph 16;
21. Under the terms of the 2008 facility, the first named defendant was required to create a floating charge. This was done, and although there was some initial problem about its execution, it appears to have been duly executed and registered. No clear evidence was given as to the date of its registration and no record from the Companies Registration Office was produced. The third named defendant claims that the plaintiff is relying on the floating charge and that that, of itself, is evidence of the fact that the 2008 guarantee supplanted the 2005 document. The bank, for its part, claims that it is merely keeping its options open.
22. I accept that the plaintiff is keeping its options open with regard to the floating charge. But that does not, in my view, conclusively determine the issue as to whether or not the 2008 guarantee applied and supplanted the 2005 guarantee.
23. I accept the evidence of Mr. Kenneth Dobson that, after the 2008 guarantees were signed, the only issue to be resolved was the Personal Asset Statement from the second named defendant and, if this matter had been put right, a drawdown would have taken place. Mr. Dobson, in his evidence, said that it was only when the plaintiff started to arrange a drawdown that they realised there was a problem with one of the guarantors, namely, the second named defendant. In any case, no drawdown took place.
‘There has grown up a tendency to speak about construing documents in or against what is described as the ‘factual matrix’ in which the contract or documents first saw the light of day. In truth, that is only, I think, a modern way of saying what has always been a rule for a long time that, in construing a document, one must look at all of the circumstances surrounding the making of the contract at the time it was made. There is the danger, if one stresses reference to the ‘factual matrix’ that one may be influenced by what is, in truth, a finding of the subjective intention of the parties at the relevant time, instead of carrying out what I understand to be the correct exercise, namely, determining objectively the intent of the parties from the words of the documents themselves in the light of the circumstances surrounding the transaction. It is not permissible, I think, to take into account the finding of fact about what the parties intended the document to achieve when one is faced with the problem some five, ten or many years later of construing it. In deciding what the document did, in fact, achieve, all that one can look at are the general circumstances surrounding the making of the documents and in which it was made, and deduce the intention of the parties from the actual words of the document itself. The contract between the parties is what they said in the relevant document. It is not for this or any court to make a contract for the parties different from the words that the documents actually use, merely because it may be that the parties intended something different’.”
26. As to the manner in which contracts of guarantee should be construed, I accept the argument of Mr. Fanning B.L., counsel for the third named defendant, who argues that they should be construed strictly. Where a party agrees to be answerable for the debts or liabilities of another, and the document purporting to impose such liability has been proffered by a bank, as was the case here, the document must be strictly construed, and if there are any ambiguities in the document, they must be resolved against the bank. The guarantees of 2005 and 2008 do not, in their printed form, appear to have any ambiguity. The manuscript additions to the 2008 guarantees do no more than reflect the intention of the parties. The only disagreement between the parties concerns the question of whether the circumstances which were necessary to trigger the 2008 guarantees had occurred.
Application of the law to the facility letters and guarantee
Any security held now or at any future time shall be security for all the borrowers liabilities to the bank (actual or contingent) and whether as principal or surety).”
28. On 23rd December, 2005, guarantees were signed by the second, third and fourth named defendants in which they jointly and severally agreed:
30. The 2008 guarantee was stated to be in addition to and not to be prejudiced or affected by any collateral or other security and it was stated to be in addition and not in substitution for any other guarantee for the principal given by the guarantors to the bank.
31. The facility letters of 4th September, 2008, were in broadly similar terms. One was offering a €2m overdraft and the other an €8m loan. They were both subject to the bank’s normal terms and conditions, together with the specific conditions set out in the letter. The security was to be a joint and several guarantee of the second, third and fourth named defendants for the loan, the second and third named defendants for the overdraft, and a first fixed and floating charge over the assets and undertaking of the company. It was also provided that:
32. The guarantees signed on 10th September, 2008, were stated to be in addition to and not in any prejudiced or affected by any collateral or other security held by the bank. Clause 14 states:
33. Construing the 2005 and 2008 guarantees and the facility letters, there does not appear to be any ambiguity and they are clear on their face. The intention of the parties can be ascertained from the language which has been used, considered in the light of the surrounding circumstances and the objects of the agreements. In attempting to ascertain the presumed intention of the parties, the courts must use an objective approach. In Analog Devices B.V. v. Zurich Insurance Company  I.R. 272, Fennelly J., giving the judgment of the Supreme Court, stated at p. 294:
35. Since I accept the evidence of Mr. Dobson, and since the restructured facilities never became operative, it follows that the 2005 guarantee remained in place and the third named defendant is bound on foot of that guarantee.
36. The plaintiff is entitled to succeed and to judgment against the third named defendant for the sum claimed in these proceedings on foot of the guarantee of 23rd December, 2005.