Supreme Court allows appeal, remitting loan contract construction case to High Court for plenary hearing.

THE SUPREME COURT

[Appeal No: 296 of 2009]

Denham J.

Hardiman J.

Finnegan J.

Between/

Danske Bank a/s

trading as National Irish Bank

Plaintiff/Respondent

and

Durkan New Homes,

Don Casey, Marian Casey and

Tullycross Developments Limited

Defendants/Appellants

Judgment delivered the 22nd day of April, 2010 by Denham J.

1. This is an appeal by Durkan New Homes, Don Casey, Marian Casey and Tullycross Developments Ltd., the

defendants/appellants, referred to collectively in this judgment as "the appellants", from the order of the High Court of the

17th July, 2009.

2. The High Court ordered that Danske Bank a/s trading as National Irish Bank, referred to in this judgment as "the bank",

recover against the first, second and third named appellants the sum of €29,460,000.99 pursuant to the €29,460,000

facility letter dated 22nd February, 2006 and the sum of €7,572,387.81 pursuant to the guarantee and indemnity dated

31st March, 2006 between the bank and the first, second and third named appellants together with interest. And it was

ordered that the bank do recover against the fourth named appellant the sum of €7,572,387.81 pursuant to the

€7,640,000 facility letter dated 22nd February, 2006 between the bank and the fourth named appellant and the sum of

€29,460,000.99 pursuant to the guarantee and indemnity dated 31st March, 2006 between the bank and the fourth

named appellant together with interest.

3. While the appellants filed many grounds of appeal there were two fundamental issues before the Court:-

"(i) whether this is a case for summary judgment; and

(ii) the substantive issues arising on the agreement.

Summary judgment

4. I shall consider first whether this is a case for summary judgment, as determined by the learned High Court judge, or

whether he fell into error and it is a case for plenary hearing.

5. The basic facts of this case are that the bank made loans to the appellants. By letter dated the 22nd February, the

bank offered to the first, second and third named appellants a loan of €29,460,000 subject to terms. On the same date

the bank offered to the fourth named appellant a loan of €7,640,000 on similar terms. The fourth named appellant

guaranteed the loan to the first three appellants, and the first three appellants guaranteed the loan to the fourth named

appellant. These were supported by legal charges over the properties referred to in the loan offer letters.

6. There were limited recourse terms in the agreement. These are set out in paragraphs 10 and 11 of the loan agreement.

These provide:-

"10. Financial Covenants

(a) Throughout the term of the loan, the Borrowers' indebtedness to the Bank pursuant to this Facility

Letter together with the indebtedness of Tullycross Developments Limited pursuant to the Company

Facility Letter shall not exceed 70% of the combined value of the properties ("see Specified

Percentage") detailed at paragraph 6 hereof.

(b) In the event that there is a breach of the Bank's requirements set out at subclause (a) hereof, the

Borrowers shall either:-

(i) within four weeks of being called upon by the bank to do so pay (or procure payment) to the

Bank such amount as would result in the total of such indebtedness not exceeding the Specified

Percentage or

(ii) furnish to the Bank as soon as possible after they are requested to do so that in any event

no later than four weeks from the date of such request such additional security acceptable to

the Bank and its Solicitors (acting reasonably) as may be required by the Bank to ensure that the

total amount of such indebtedness does not exceed the Specified Percentage

(iii) the Borrowers further agree to provide evidence of title to the Bank which is satisfactory to

the Bank's Solicitors (acting reasonably) in relation to such additional security

(c) For the avoidance of any doubt the Borrowers acknowledge that the Bank will be entitled to call for

valuations of the said properties at any time throughout the term of this loan as often as it may

choose for the purposes of determining whether or not there has been a breach of the Bank's

requirements as set out at subclause (a) hereof. The Bank shall be entitled to call for not more than

four such valuations to be carried out at the Borrowers' expense. All (if any) further such valuations

shall be carried out by a reputable valuer who shall in default of agreement between the Bank and the

Borrowers be nominated by the Borrowers from a list of at least three reputable valuers to be

furnished by the Bank to the Borrowers for such purpose. The written valuation of any such valuer

shall (save in the case of manifest error) be conclusive and binding on both the Bank and the

Borrowers.

(Emphasis added)

Paragraph 11(a) of the loan agreement provides:-

"11. RECOURSE

The Bank has agreed with the Borrowers that provided the Borrowers comply with their obligations as set out in

paragraph 10(b) hereof and pay all interest due to the Bank pursuant to this Facility Letter the Bank's recourse will

be limited to the respective interests in the properties detailed in paragraph 6 hereof. Accordingly:-

(a) Notwithstanding any other provisions of this Facility Letter or any of the Security Documents and

save as expressly provided in sub clauses (b) and (c) hereof of this paragraph, the Banks recourse to

the Borrowers in respect of the Borrowers' obligations hereunder and under the Security Documents

and/or any judgment arising therefrom shall in each case be limited to their respective interests in the

properties detailed in paragraph 6 hereof and the Bank shall not otherwise take or pursue any judicial

or other steps or proceedings or exercise any right or remedy that it may have against the Borrowers

for the discharge of any outstanding indebtedness in respect of the Loan or otherwise under this

Facility Letter or the Security Documents and no action, proceedings, claim, levy, judgment or other

process shall be taken or levied against the Borrowers save to the extent reasonably required by the

Bank in connection with any enforcement or realisation of the security given pursuant to this Facility

Letter.

(Durkan New Homes and Casey Loan Agreement)"

7. 30th September, 2008 was the repayment date of the loan.

8. On the 30th September, 2008 the appellants discharged all interest due, and claimed to be entitled to rely on the

limited recourse provisions of the agreements.

9. The bank delivered a letter after close of business on the 30th September, 2008 referring to a recent valuation of the

property held as security of €45 million and called upon the appellants to reduce their indebtedness. The bank sought to

invoke the provisions of paragraph 10(b) of the Loan Agreements. The letter contained the following:-

"Dear Sirs

We refer to facility letter dated 22nd February 2006 and in particular to Clause 10. As you are aware from recent

discussions with the Bank, valuation of the property held as security under Clause 6 has been undertaken on our

behalf by CB Richard Ellis dated 2nd of July 2008. The final valuation report was received by the Bank and dated

the 26th September 2008.

This valuation gives a market value of Euro 45 million and in accordance with Clause 10 of the facility letter we

formally request the Borrowers to reduce the current aggregate indebtedness of Tullycross Developments Ltd and

the Borrowers to Euro 31,500,000

…"

In a further letter the bank sought repayment of the loans in full.

10. It was submitted by the appellants that the valuation contemplated by paragraph 10(c) of the Loan Agreements in

final form was only received by the appellants after the close of business on 30th September, 2008, and was outside the

term of the loan and that therefore the bank's right of payment of the loans under the Loan Agreements was, according

to paragraph 11, limited to the properties specified in paragraph 6 of the Loan Agreements. It was submitted that the

operation of paragraph 10(b) (which limited the application of the recourse provisions in paragraph 11) was expressly

stated to be subject to paragraph 10(a). It was also submitted that in light of the wording of 10(c) it was clearly

envisaged that the operation of paragraph 10(a) was conditional upon the obtaining of the valuation. In the bank's letters

dated 30th September, 2008 the bank linked the ability to determine a breach of paragraph 10(a) to the obtaining of the

valuation. Thus, it was submitted, for the purposes of excluding the appellants' right to rely on the limited recourse

provisions of paragraph 11, the provisions and procedures of paragraph 10 had to be construed in accordance with their

terms, namely the delivery of a written valuation in final form and the giving by the bank to the appellants of notice as

contemplated in paragraph 10(b) of the Loan Agreements during the terms of the loans.

11. Apart from issues on the construction of the agreement the appellants raised the issue of banking hours and normal

banking practice. The appellants submitted that the expression "term of loan" equates to the period as from the date of

drawdown to the Repayment Date, i.e. 30th September, 2008, and that in accordance with normal banking practice this

would mean the close of banking business on the 30th September, 2008. It was submitted that if a borrower made a

payment of principal after the close of business on a repayment date that the payment would constitute a breach of a

loan agreement on the grounds that payment had not been made on the relevant repayment date, but was late. It was

submitted that logically the duration of any other obligations under a loan agreement had a similar life. It was submitted

that the appellants having discharged their obligations to pay interest in full up to the Repayment Date, which was

admitted by the bank, the Loan Agreements cease to be executing contracts. As the Loan Agreements made a provision

for the discharge by the appellants of their obligations, by the properties in paragraph 6, it was submitted that the bank

has no right of personal recourse against the appellants, and the bank was not entitled to invoke the provisions of

paragraph 10 after the Repayment Date. It was submitted, if the appellants had elected to repay the loan on the

Repayment Date it would have had to be done by close of business on the 30th September, 2008. If the appellants

elected to rely on the limited recourse provisions of paragraph 6 the payment of any outstanding interest had to be done

prior to the close of business on the 30th September, 2008. The appellants did so elect and paid the outstanding interest

prior to the close of business on the 30th September, 2008, at a time when the bank had not served any notice under

paragraph 10(b) on the appellants.

Bank's submissions

12. The bank submitted that it is entitled to summary judgment, that the terms of the contract are clear, that it is not

capable of any other reasonable interpretation other than as in their submissions, and that the appellants have no

defence to the contracts on which the guarantees are grounded.

Law

13. Order 37r.7 of the Rules of the Superior Courts, 1986 provides:-

"Upon the hearing of any such motion by the Court, the Court may give judgement for the relief to which the

plaintiff may appear to be entitled or may dismiss the action or may adjourn the case for plenary hearing as if the

proceedings had been originated by plenary summons, with such directions as to pleadings or discovery or

settlement of issues or otherwise as may be appropriate, and generally may make such order for determination of

the questions in issue in the action as may seem just."

14. Several cases were opened before the Court which have addressed this jurisdiction. These included Bank of Ireland

v. Educational Building Society [1999] 1 I.R. 220 where Murphy J. emphasised that it was appropriate to remit a matter

for plenary hearing to determine an issue which is primarily one of law where a defendant identified issues of fact which

required to be explored and clarified before the issues of law could be dealt with properly. He stated at p.231:-

"Even if the position was otherwise, once the learned High Court Judge was satisfied that the defendant had "a

real or bona fide defence", whether based on fact or on law, he was bound to afford them an opportunity of

having the issued tried in the appropriate manner."

15. In Aer Rianta c.p.t. v. Ryanair Limited [2001] 4 I.R. 607, Hardiman J. reviewed Irish cases and concluded at p.623:-

"In my view, the fundamental questions to be posed on an application such as this remain: is it “very clear” that

the defendant has no case? Is there either no issue to be tried or only issues which are simple and easily

determined? Do the defendant’s affidavits fail to disclose even an arguable defence?"

16. In McGrath v. O'Driscoll [2007] 1 ILRM 203, Clarke J. described the law as follows, at p.210:-

"So far as questions of law or construction are concerned the court can, on a motion for summary judgment,

resolve such questions (including, where appropriate, questions of the construction of documents), but should only

do so where the issues which arise are relatively straightforward and where there is no real risk of an injustice

being done by determining those questions within the somewhat limited framework of a motion for summary

judgment."

17. Thus the issue in this appeal is whether the appellants have satisfied the Court that they have an arguable defence.

18. Having quoted relevant cases the learned trial judge held that:-

"If the addition of evidence can assist in any material way in the construction of a document then, I agree, the

matter should be put for plenary hearing. If, on the other hand the question of law arising on affidavit evidence

can be as well considered on a motion for summary judgment as at a plenary hearing, then I feel it is the

obligation of the court to resolve it on hearing that motion. In Cow v. Casey, [1949] 1 KB 474, the issue before

the Court of Appeal was whether the High Court ought to have given summary judgment where a complex issue

arose concerning the statutory rights of a tenant. Lord Greene M.R. in accordance with the approach in our

jurisdiction has emphasised a very cautious line in entering summary judgment in any case. As to a controversy of

law, he had this [to] say, with which I agree:-

'The only point is, that, as everybody knows the Rent Restriction Acts are complicated acts. They

contain a number of difficult matters and there are a number of authorities decided upon them. But is

not sufficient under an O. 14 case to flourish the title of the Increase of Rent Restrictions Acts in the

face of the court and say that is enough to give leave to defend. If a point taken under the Rent

Restriction Act is quite obviously an unarguable point, the court has precisely the same duty under O.

14 as it has in any other case. It may take a little longer to understand the point and to be quite sure

that one has seen all around it in a case under the Rent Restriction Acts than in other cases, but when

the point is understood and the court is satisfied that it is really unarguable, the court has the duty to

apply the rule…'

There is nothing involved in the legal issues in this case which necessitates a plenary hearing. There is no issue of

law that has not already been argued in full."

19. The learned High Court judge appeared to find that if a question of law arose it was the obligation of the trial court to

resolve the matter on the hearing of the motion. He stated at paragraph 17:-

"If the addition of evidence can assist in any material way in the construction of a document then, I agree, the

matter should be put for plenary hearing. If, on the other hand the question of law arising on affidavit evidence

can be as well considered on a motion for summary judgment as at a plenary hearing, then I feel it is the

obligation of the court to resolve it on hearing that motion."

[Emphasis added]

20. While a court may resolve questions of law there is no obligation to do so. The test, as stated previously, is whether

the appellants have established an arguable defence.

21. This was a contract specifically negotiated between the parties. There is a factual matrix.

22. As stated in Banque de Paris v. de Naray [1984] Lloyds' Rep. 21, by Acker L.J. at p.23:-

"It is of course trite law that O.14 proceedings are not decided by weighing the two affidavits. It is also trite that

the mere assertion in an affidavit of a given situation which is to be the basis of a defence does not, ipso facto,

provide leave to defend; the Court must look at the whole situation and ask itself whether the defendant has

satisfied the Court that there is a fair or reasonable probability of the defendants having a real or bona fide

defence."

23. I am satisfied that the appellants have an arguable defence on the construction of the documents. Also, there is the

factual issue of the extent of banking hours, and its application, if any.

24. In this matter the issues to be tried are not simple and clear. I am satisfied that the appellants have shown that they

have an arguable defence. In all the circumstances, as a matter of justice, the case should be heard at a plenary hearing.

25. In the circumstances I make no observations, nor should any be inferred, on the second issue – the substantive issue.

Conclusion

26. Consequently, I would allow the appeal and remit the matter to the High Court for a plenary hearing.