Neutral Citation No.: [2006] IEHC 78
THE HIGH COURT
COMMERCIAL

Record No. 2005 1425S
BETWEEN:
ANGLO IRISH BANK CORPORTATION PLC
Plaintiff

-and-

BRENDAN MCGRATH
 Defendant

EX TEMPORE JUDGMENT DELIVERED BY KELLY J. 
ON WEDNESDAY, 21 DECEMBER, 2005

This is my ruling on the bank’s claim for summary judgment on foot of a guarantee dated 20 December, 2002.

It is important to bear in mind the principles which I am required to apply in dealing with an application of this kind.  These principles are the subject of a number of decisions of the Supreme Court.  I begin by setting forth the principles and I will then seek to apply them to this case.

In First National Commercial Bank plc v. Anglin [1996] 1 IR 75, Murphy J. (speaking for the court said (at pp78-79):-

“For the court to grant summary judgment to a plaintiff and to refuse leave to defend, it is not sufficient that the court should have reason to doubt the bona 
fides of the defendant or to doubt whether the defendant has a genuine cause of action.

In my view, the test to be applied is laid down in Banque de Paris v. de Naray [1984] 1 Lloyd’s Law Rep 21, which was referred to in the judgment of the President of the High Court and reaffirmed in National Westminster Bank plc v. Daniel [1993] 1 WLR 1453.  The principle laid down in the Banque de Paris case is summarised in the headnote thereto in the following terms:-

“The mere assertion in an affidavit of a given situation which was to be  the basis of a defence did not of itself provide leave to defend; the court had to look at the whole situation to see whether the defendant had satisfied the court that there was a fair or reasonable probability of the defendants having a real or bona fide defence”.

In the National Westminster Bank case, Glidewell L.J. identified two questions to be posed in determining whether leave to defend should be given.  He expressed the matter as follows:- 

“I think it right to ask, using the words of Ackner L.J. in the Banque de Paris case, at p 23, “is there a fair or reasonable probability of the defendants having a real or bona fide defence?”.  The test posed by Lloyd L.J. in the Standard Chartered Bank case, the Court of Appeal (Civil Division), Transcript No. 669 of 1990 “is what the defendant says credible?”, amounts to much the same thing as I see it.  If it is not
 credible, then there is no fair or reasonable probability of the defendant having a defence”.”

This decision was cited with approval by the Supreme Court in Aer Rianta v. Ryanair Limited (2002) 1 ILRM 381.  In that case, as appears from the headnote, the Supreme Court held as follows:-

1.	“The test to be applied in deciding whether leave to defend should be granted is   whether, looking at the whole situation, the defendant has satisfied the court that there is a fair and reasonable probability that he has a real and bona fide 
defence.  It is not a sufficient basis for refusing leave to defend that the court has ground to doubt the bona fides of the defendant or to doubt whether the defendant has a genuine cause of action.  The question for the court is not whether the defendant’s version of events is probable or more likely to be true but, rather, whether the defence put forward is so far-fetched or so self-contradictory as not be to credible.
 
2.	The mere assertion on affidavit of a given situation which is the basis of the defence will not of itself ground leave to defend.

3.	The mere length occupied in the argument of the case may demonstrate 
that it is not suitable for summary disposition.

4.	There were considerable weaknesses in the defence put forward by the defendant which was vague and lacked detail.  Nevertheless, the possibility remained open, on the affidavit evidence before the court, that the defendant had a real or bona fide defence or that the defence put forward was credible.  Therefore, the matters
 at issue between the parties required to be resolved by plenary hearing.”

That is the approach which has been indicated by the Supreme Court and it is one which I must follow.  That is the approach which I intend to adopt here.

It is necessary to set out in short summary the facts of this case.  The guarantee was executed in order to secure payment of portion of monies advanced by the bank to a partnership called the MFV Solstice Partnership.  Its purpose was to purchase and equip a fishing vessel of the same name.  Part and parcel of the agreement between the bank and the partnership was that the defendant would guarantee the monies due under what is described in the facility letter as “facility 2”. 

It was also part of the agreement as reflected in the facility letter that a company controlled by the defendant would manage the vessel.  During that time the members of the partnership were to avail of certain capital allowances.  It is also true to say that the management agreement to be entered into with that company contained within it a power of termination.

Initially the bank advanced €8.5 million as set out in the facility letter of December 2002 repayable on demand.  It was one of the terms of the facility being made available to the borrowers that a guarantee would be provided by the Defendant in relation to the facility 2 funding.

The monies having been advanced, unfortunately, there was a change in circumstances.  For specified breaches, the management agreement was terminated.  There was a further advance under a subsequent facility letter in 2003.  That facility letter amended portions of the earlier facility letter.

Subsequently, there was a failure on the part of the borrowers to keep up the payments.  
In August 2005, a demand was made on the borrowers.  It was not honoured.  A demand was served on the Defendant on 16 August 2005.  These proceedings followed. 

It is also necessary to look at what I perceive to be the relevant provision of the guarantee.  The guarantee defines the facility 2 obligations as meaning all monies and liabilities which are now or any time in the future shall have been advanced to, become due, owing or incurred by the facility 2 borrowers in respect of facility 2 under the facility letter.

The guarantee itself is contained in clause 2.  Clause 2.1 provides as follows:-

“In consideration of the Bank agreeing to provide Facility 2 to the Facility 2 Borrowers as provided in the Facility Letter and at the request of the Facility 2 Borrowers the Guarantor HEREBY COVENANTS with UNCONDITIONALLY AND IRREVOCABLY 

2.1.1	guarantees to the Bank the payment and discharge in full of the Facility 2 
Obligations and the full, prompt and complete performance and discharge by the Facility 2 Borrowers of all of their respective obligations and liabilities under the Facility Letter”. 

Clause 2.1.2 of the guarantee goes on to provide that the defendant also agrees as a primary obligation to indemnify the bank from time to time on demand from and against certain losses which are enumerated in three numbered paragraphs.

Clause 4 is also of relevance.  It deals with the preservation of rights.  It provides that the bank will be at liberty without thereby affecting its rights hereunder (or reducing or extinguishing the Guarantor’s liability) at any time in its absolute discretion and without the knowledge of the Guarantor to (inter alia) “amend, waive, release or vary the terms of the Facility Letter”.  The guarantee goes on to provide that “the liability of the Guarantor under this Guarantee will be as sole or primary obligor and not merely as surety and will not be impaired or discharged by reason of any of the matters referred to in clause 4.1 above nor by any other act or omission whereby the liability of the Guarantor would not have been discharged if he had been the principal debtor and the Guarantor hereby waives all or any of his rights as surety which may at any time be inconsistent with any of the provisions of the Guarantee”.

The provisions of clause 9 are also relevant.  Clause 9.1 provides that:-

“The Guarantor is fully aware of the obligations undertaken by the Guarantor hereunder and has taken independent legal advice in relation to the contents of this Guarantee and the extent of the Facility 2 Obligations”.

Clause 15 is also relevant.  It provides that the rights and remedies of the bank under the guarantee are cumulative and are without prejudice and in addition to any rights or remedies which the bank may have at law or in equity.

Finally, the provisions of clause 20 are also relevant in particular clauses 20.2 and 20.3.  Clause 20.2 provides as follows:- 

“There are no oral understandings between the Bank and the Guarantor in any 
way varying, contradicting or amplifying the terms of this Guarantee”.

In turn, clause 20.3 provides:-

	“This Guarantee supersedes all prior representations, arrangements, understandings and agreements and sets forth the entire, complete and exclusive agreement and understanding between the parties as to the matters provided for in this Guarantee”.

Clause 8 of the facility letter of 10 December, 2002 is also of relevance.  It provides in clause 8.3 that the bank agrees for a period of six months after making demand for repayment of either of the facilities, the bank shall not have recourse to:-

	“8.3.1  The Facility 1 Borrowers personally in the case of Facility 1…; and

8.3.2	The Facility 2 Borrowers personally in the case of Facility 2, unless it shall first have realised the vessel and the Residual Value Guarantee”.

Furthermore, clause 8.5 expressly provides that nothing “in this paragraph 8 shall limit the Bank’s recourse or rights against the Guarantor or any of the Borrowers…”.

Furthermore, as I have also pointed out, it is not in dispute that the management agreement was terminated in December 2003.

Having set out a summary of the relevant facts and the relevant provisions of that facility letter and guarantee, I now turn to the points raised by way of defence.  While three
points are raised in the written submissions, it became clear during the course of the oral submissions that they may be conflated down to two as follows:-

1.	It is contended that the change which occurred in September 2003 (when the management agreement was terminated) could not have been more disastrous 
for the defendant.  It is said that he was ousted from participation in the transaction and that this constitutes a fundamental alteration in circumstances.
The defendant calls in aid the rule in Holme v. Brunskill (1878) 3 QBD 495 and I quote from p 505 where Cotton L.J. said:-

“The true rule in my opinion is, that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration, although in cases where it is without enquiry evident that the alteration is unsubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; yet, that if it is not self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the court, will not, in an action against the surety, go into an enquiry as to the subject of the alteration, or allow the question, whether the surety is discharged or not, to be determined by the finding of a jury as to the materiality of the alteration or on the question whether it is to the prejudice of the surety, but will hold that in such a case, the surety himself must be the sole judge whether or not he will consent to remain liable notwithstanding the alteration, and that if he has not so consented he will be discharged”.      

I believe that rule can be reduced to the following:  if there is a contract of surety guaranteeing a principal agreement, there may not be an alteration of 
the contract guaranteed, without the consent of the surety.  In this case, the contract which is guaranteed is not the management agreement but the 
contract under which the monies were advanced.  Furthermore, if there is to be a variation of the type which attracts the rule in Holme v. Brunskill, it 
has to be of a type which was not contemplated by the parties.  It seems to me that this cant’ be said in this case.  Termination was contemplated by the 
management agreement here.  Not only that, - there was no complaint made prior to this year by the defendant.  But apart from all of those considerations, 
it is clear from paragraph 4 of the guarantee that the bank was entitled to make changes.  There is therefore no doubt that termination was something which 
was contemplated by the parties.  It therefore can’t amount to a variation.  Nor can it give rise to a complaint of an illegal act or of an act of a type that would entitle the surety to be relieved of the obligations.

It is not in dispute either that there was a default.  There was therefore an entitlement to terminate the management agreement.  But quite apart from 
that, it was contemplated at the time of the guarantee, in respect of which the defendant had legal advice, and accordingly, it does not give rise to an 
arguable defence.

2.	The second basis is more general in nature.  I am asked to look at the factual matrix against which this series of agreements were put in place.  I accept that
the court does not look at documents in vacuo.  The court is entitled to have regard to the factual matrix.  I engaged in that exercise in my decision in 
Analog Devices and my decision was upheld by the Supreme Court on appeal.  However, although on can look at the factual matrix this is not a licence to disregard the parties’ agreement - still less is it a reason to set at nought what is agreed between the parties at paragraph 20 of the guarantee
which provides that:
there are no oral understandings between the bank and the defendant in any way varying, contradicting, or amplifying the terms of the guarantee 
and also that the guarantee supersedes all prior representations, arrangements, understandings and agreements and sets forth the entire,
complete and exclusive agreement and understanding between the parties as to the matters provided for in the guarantee.

That being so, I am not entitled – in the absence of evidence of fraud or material representation, to draw a blue pencil through the terms of the
guarantee.  I am unable to identify any legal basis for the argument advanced.  I can understand on a human level why the defendant would
feel hard done by but that is not enough insofar as the legalities are concerned.  On the clear terms of the guarantee and the facility letter, the
bank was entitled to proceed in the way that it has.  Neither do I believe that the bank has diluted the surety’s rights.  Both the text books and the authorities show that the Defendant has rights insofar as the debtors are concerned.  If the defendant has been singled out, he is entitled to be 
treated equitably.  He may therefore enforce his right to indemnity and contribution by instituting fresh proceedings against the principal debtors.  
That does not give a right to stave off judgment as the bank is acting perfectly within its lawful entitlement.  There is nothing to suggest that the 
bank is not entitled to proceed.  Consequently, I am obliged, applying the principles identifies at the commencement of this ruling, to give judgment 
in the plaintiff’s favour and I now propose to do so.  
    Approved: Kelly J.