by Matthew Austin August-26-2015 in Banking & Financial Services, Commercial & Business
The High Court was recently asked to re-visit the law on personal guarantees. Specifically it was asked to address the legal principle that a guarantor will be released from liability under a guarantee where the creditor (i.e. the bank) and the principal debtor (i.e. the borrower) have entered into an agreement which has the effect of altering the contractual position between them to the disadvantage of the guarantor, without the guarantor’s prior consent.
The issue came before Ms Justice Kennedy in Wallace v Roche and Ors [2015] IEHC 521. In that case certain loan facilities were provided by Investec Bank Plc to a parent company (Glynn Properties Limited). A subsidiary company (Saltee Hotel (Wexford) Ltd) executed a deed of guarantee of indemnity whereby it guaranteed the liabilities of Glynn Properties Ltd to the bank. Mr Robert Roche was a director of both Glynn Properties Limited and Saltee Hotel (Wexford) Ltd. He signed the original facility letter with the bank as well as the guarantee and indemnity.
The original facility was for a period of 24 months but the bank and Glynn Properties Limited agreed to an extension of the loan period on a number of occasions. These variations were documented by means of letters of extension and were signed on behalf of Glynn Properties Limited by Robert Roche.
It was argued on behalf of Saltee Hotel (Wexford) Ltd that the variations/extensions to the loan facility meant that the guarantee and indemnity originally given by Saltee Hotel (Wexford) Ltd could not be relied upon by the bank against Saltee Hotel (Wexford) Ltd. It was argued that in each instance a guarantor must not only know about any variations to the guaranteed facility but must also assent to those variations in writing.
Ms Justice Kennedy was satisfied that this argument was incorrect. Ms Justice Kennedy noted the written terms of the original guarantee signed by Saltee Hotel (Wexford) Ltd. In particular she noted that it provided that the liability of the guarantor would not be affected by reason of any increase or decrease in the facility or any other amendment to the facility letter. Furthermore, she noted that Mr Robert Roche was a director of both the borrowing company and the guarantor company. Ms Justice Kennedy was satisfied that by signing the extension letters Mr Roche was undoubtedly an active participant in the changes to the terms of the facility and therefore couldn’t successfully claim that the guarantor was out of the loop on the changes made to the guaranteed facility.
The decision is a useful reminder of the need to carefully review the terms of guarantee documents before executing them. They may operate to bind you to more than you had originally envisaged, particularly if you have a connection to the entity that is the principal borrower in the transaction.
Full copy of the judgment here.
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About the Author
Matthew Austin
Matthew is a partner in the Commercial & Business team and has considerable expertise in a range of practice areas, having acted for Irish and International clients in domestic and multi-jurisdictional issues. Matthew has advised in civil and administrative law disputes and in regulatory and advisory matters including insolvency/restructuring, IP, defamation and media law, competition and consumer protection and data protection.