High Court: Fund granted summary judgment for €1.8m property development loan

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One of the property developers who agreed to the loan sought to argue that there was an oral agreement that he would not be personally liable to the loan, which was not included in the facility letter.

However, Mr Justice Brian McGovern said that this defence could not succeed as it would be in breach of the parol evidence rule.

Background

In the High Court, Promontoria (Arrow) Limited made an application for summary judgment against Michael Shanahan arising out of a loan facility provided by EBS Building Society to Mr Shanahan and Cathal Mallon on foot of a facility letter in June 2006.

The agreed facility was €1.8 million and was for the purchase of a one acre site for development in Dublin. In 2008 and 2009, further letters of amendment extended the loan term.

Pursuant to the National Asset Management Agency Act 2009, NALM became legally and beneficially entitled to the facility and associated rights; which were then acquired by Promontoria in 2015. In 2016, Promontoria issued a letter of demand from the defendants for the €2m then owed under the facility.

Opposing the application for summary judgment, Mr Shanahan raised two issues which he said constituted a defence:

Mr Shanahan contended that the matter should proceed to plenary hearing, as discovery would assist him in establishing his defence

Limited recourse

Mr Shanahan argued that the June 2006 facility letter did not comprise the whole of the agreement with EBS.

He stated that there was “another key term… which was not reduced to writing”, and was instead agreed orally with two representatives of EBS. The “fundamental and underlying term” was that Mr Shanahan would not be personally liable for the borrowings.

There was no reference to limited recourse in the 2006 agreement, nor in the letters extending the loan in 2008 and 2009; therefore Mr Shanahan was seeking to imply this contractual term into the agreement.

Justice McGovern said that the test for implying terms was considered in Flynn v Breccia IECA 74 and Sweeney v Duggan 2 IR 531, which endorsed the following from Liverpool CC v Irwin AC 239:

“… Whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable category of contract it must be not merely reasonable but also necessary. Clearly it cannot be implied if it is inconsistent with the express wording of the contract …”

Justice McGovern said that the facts of the case were “strikingly similar to” Zurich Bank v. Coffey IEHC 26; and said that the Court may reject an implausible, inconsistent, or contradicted defence on the basis that it is untenable or lacking in credibility considering Irish Life and Permanent v. Hudson IEHC 11, and ACC Loan Management v. Dolan IEHC 69

Estoppel

Considering Ulster Investment Bank v Rockrohan Estate 4 IR 37, Justice McGovern said that “estoppel by convention only arises if it is based on a common and not a unilateral assumption or behaviour of the parties”.

Considering NALM v. McMahon & Ors IEHC 71, Justice McGovern explained that “estoppel by representation requires evidence that a party by his words or conduct made a clear and unequivocal promise or assurance which is intended to affect the legal relations between him and the other party or as reasonably understood by the other party to have that effect”.

Justice McGovern considered an affidavit sworn by one of the representatives of EBS whom Mr Shanahan said had agreed to limited recourse, in which the representative specifically rejected Mr Shanahan’s contention.

Justice Mc Govern said it was clear that there was no agreed statement of facts, and that there was no common understanding or underlying assumption between the parties that the loan was a non-recourse or limited recourse loan. Furthermore, there was no satisfactory evidence of a clear and unequivocal promise made to Mr Shanahan.

Decision

Justice McGovern added that for public policy reasons, oral evidence was not admissible if introduced for the purpose of contradicting the terms of a written agreement. As such, the evidence based on an alleged oral agreement could not succeed because it would be in breach of the parol evidence rule.

In response to Mr Shanahan’s contention that discovery would assist his defence, and considering the defence was based on an oral agreement, Justice McGovern said “discovery of what?”

Finding that Mr Shanahan had failed to raise an arguable defence or meet the threshold required in order to have the matter remitted to plenary hearing, Justice McGovern found that Promontoria was entitled to summary judgment sought.