Supreme Court dismisses appeal where shareholder's indemnity remains enforceable despite company law defects.

THE SUPREME COURT

RECORD NO. 323 of 2003

DENHAM J.

McCRACKEN J.

KEARNS J.

BETWEEN

ANGLO IRISH BANK CORPORATION PLC

PLAINTIFF/RESPONDENT

AND

DENIS O’BRIEN, MARGARET O’BRIEN (OTHERWISE MAEVE O’BRIEN), LIAM MADDEN AND DENIS BARRETT

DEFENDANTS/APPELLANTS

Judgment delivered on the 17th day of December, 2004 by Denham J.

1. This is an appeal by Liam Madden, the third named defendant, hereinafter referred to as ‘the appellant’, from the order of the High

Court (Ó Caoimh J.) made on the 23rd July, 2003. The plaintiff/respondent, the Anglo Irish Bank Corporation Plc, is referred to

hereinafter as ‘the bank’.

2. The claim arises on a notice of motion dated 9th April, 2001, where the bank sought liberty to enter final judgment in the terms of

the summary summons. Under that motion the bank sought payment of a sum of money from the defendants as due and owing on

Deeds of Guarantee and Indemnity, dated 10th September, 1992. It was deposed that the deeds were executed as security for a loan

which the bank made to a company known as Edenfell Holdings Limited, hereinafter referred to as ‘Edenfell’. This was a loan to enable

the purchase of land from the first and second named defendants. It was deposed that there was default by Edenfell under the

obligations of the loan agreement and on 25th May, 1995, Mr. William Lacy was appointed a receiver by the bank. Shortly after, on

19th June, 1995, Mr. Sean Flynn was appointed as a liquidator of Edenfell on foot of a petition presented by one of the creditors. It

then transpired that Edenfell had entered into a contract for sale of the lands to Stormdust Limited for £920,000, being the sum then

owed by Edenfell to the bank. The receiver brought an action in the High Court to have this contract set aside, and succeeded.

Stormdust Limited withdrew an appeal to the Supreme Court in October, 1996 on terms agreed with the receiver and with a proposed

alternative purchaser, Astra Construction Limited, hereinafter referred to as ‘Astra’. The receiver entered into a contract to sell the

lands to Astra for £1,500,000. This was challenged by the official liquidator and the fourth named defendant, Mr. Denis Barrett. The

High Court directed that this sale should be set aside as an undervalue but the Supreme Court, on appeal, directed that the sale of

the property to Astra should proceed and that the liquidator should participate with the receiver in relation to the conveyance of the

property.

After the Supreme Court directed the sale of the lands to Astra, the appellant commenced proceedings as a shareholder and creditor

of Edenfell to set aside Astra’s debenture, on the ground that it was void pursuant to s.60 of the Companies Act, 1963. As the

Supreme Court had directed the sale of the property to Astra, the High Court (McCracken J.), on an application for an injunction by

the appellant, dismissed the application. The appellant appealed this decision to the Supreme Court. On 26th June, 1998, this Court

directed that if the appellant were to continue with his proceedings, he should not challenge the title of the receiver to sell the

property, but that instead his claim, if any, should be confined to damages.

On 9th September, 1998, proceedings were commenced in the name of Edenfell by the official liquidator seeking to set aside the loan

agreement of 12th June, 1992, and to set aside the debenture on the grounds of an alleged breach of s.60 of the Companies Act,

1963. The bank then brought an application for an order preventing Edenfell (through its liquidator) from seeking to set aside the loan

and debenture. This application was heard by the High Court (O’Sullivan J.) on 9th November, 1998, when the High Court made an

order restraining Edenfell from challenging the loan and debenture. The first and second named defendants took further proceedings in

1999, seeking to set aside the original sale of the lands from them to Edenfell in 1992. On 1st November, 1999, an application was due

to be heard where Astra and the bank would seek to have the first and second named defendants’ claim struck out as being frivolous

and vexatious and as being an abuse of the process of the court. A settlement was reached between Astra and the first and second

defendants and their claim against Astra was struck out. As the case was about to commence, the solicitor for the first and second

defendants served a notice of discontinuance.

The receiver, having received the proceeds of the sale, calculated the final deficiency on 16th December, 1998, as £507,768.58. By

letters dated 20th December, 1999, the bank’s solicitor wrote to the defendants seeking payment of this sum pursuant to the terms

of the guarantee and indemnity. Interest accrued on this sum. It was deposed in the affidavit grounding the notice of motion that as

of 19th February, 2001, the aggregate due by the defendants and each of them was £568,719.55.

The proceedings were issued by the bank on foot of a personal guarantee and indemnity of the appellant given in respect of Edenfell

to the bank. An application for summary judgment was made by the bank which resulted in the High Court Order in issue on this

appeal.

The fourth named defendant, Mr. Denis Barrett, is deceased.

3. This matter came before the High Court (Ó Caoimh J.) which on 23rd July, 2003, gave judgment as follows:-

“The case of First National Commercial Bank v. Anglin, [1996] 1 I.R. 75 sets out the approach to be taken by this Court on an

application such as this. In that particular case, it is indicated that in deciding whether to grant summary judgment for a

plaintiff and to refuse leave to defend, the Court has to look at the whole situation to see whether the defendant has satisfied

the Court that there is a fair and reasonable probability of it having a real or bona fide defence or, whether what the defendant

says is credible.

That particular test is propounded in the judgment delivered by Mr. Justice Murphy, and in that case he indicates the approach

which he takes, which is largely based upon English authorities which had been opened to him in that particular case. It is

indicated at page 79 of the judgment, that the mere assertion in an affidavit of a given situation, which was to be the basis of

a defence does not of itself provide leave to defend. The Court has to look at the whole situation to see 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.

In a case involving the National Westminster Bank, two questions were posed by Lord Justice Glidewell in determining whether

leave to defend should be given, and he expressed the matter in the following manner, which is quoted in the judgment of Mr.

Justice Murphy in that case, and he said:

“I think it is 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, Court of Appeal (Civil Division), Transcript No. 699 of 1990 ‘Is what the defendants says credible?’,

amounts to much the same things as I see it. If it is not credible, then there is no fair or reasonable probability of the

defendant having a defence.”

It is on that approach that I address the situation here. The claim being maintained in this particular case by the Bank is on foot of a

document executed by the defendant at the time when there was a loan agreement with the Company in question, Edenfell Holdings

Limited. What the Bank seeks in this case is to rely upon the Deed of Guarantee & Indemnity, signed by the Defendant, and this is

referred to in the Special Endorsement of Claim in this particular case, and what doesn’t seem to be disputed is the primary

indebtedness referred to in the Endorsement of Claim.

The Court has been referred to the specific terms of the Guarantee & Indemnity in this particular case, and all I need to say is that it

is particularly wide in its terms and it contains a number of clauses which are relevant here because it isn’t merely the guarantee, but

there is a separate indemnity which is expressed to be;

“It is agreed as a separate and independent condition that the liability hereunder of the Guarantor shall be not merely as surety

and that any sum or sums of money which may not be recoverable from the Guarantor pursuant to a contract of guarantee

whether by reason of any legal limitation, disability or incapacity on or of the Borrower or any other fact or circumstance and

whether known to the Bank or the Guarantor or not shall nevertheless be recoverable from the Guarantor as sole or principal

debtor in respect thereof and shall be paid by the Guarantor on demand. The Guarantor hereby waives all or any of its rights as

surety which may at any time be inconsistent with any of the provisions of these presents. The obligations of the Guarantor

hereunder shall be enforceable regardless of the validity, regularity or enforceability of the obligations of the Borrower under the

Loan Agreement.”

Now in this particular case, the Defendant has raised a number of points in relation to alleged misrepresentation. A number of these

matters relate to a relationship with the Company, and I am quite satisfied as previously indicated by me in an earlier judgment

delivered today, that the Defendant is not entitled to act in the shoes of the Company, but the essential situation is, because there

is a separate indemnity in the Deed in question, that any wrong alleged in relation to the underlying loan transaction does not avail it

of a defence.

I am not satisfied that the submission made in relation to the signing of the document has any substance such as would preclude me

granting to the Plaintiff the relief which it seeks at this stage. It certainly is not a matter that on the basis of the test propounded in

the Anglin case would raise a reasonable probability of the Defendant having a Defence.

I accept in this regard the submission made by counsel on behalf of the Bank. I also, in this regard, accept the contention that is

made that while there is in the documentation a certain protection for the Bank, that it is not to be construed as the Bank leaving a

situation where it could never be open to suit, but it does indicate that the document upon which it sues has to be seen as a

separate document. It is one in which there is a restriction on a right to have set off and if there are other claims, they have to be

maintained on a separate basis and in separate proceedings as against the Bank, but they do not afford a Defence to the particular

claim in question.

I also have to have regard to the submissions made, to take into account the long history of this case in assessing whether there is

substance or ‘credibility’ to use the word referred to in the Anglin case, to the case now being addressed to this Court, and I take the

view that the matters advanced do not raise a credible issue warranting a plenary hearing of this case.

Now other claims that might be maintained by the Plaintiff would clearly be Statute Barred. I have to have regard in particular to the

terms of Clauses 4 and 5 of the Deed and in light of that, I am quite satisfied that the Plaintiff is entitled to judgment at this stage

and I will enter judgment on behalf of the Plaintiff”.

4. The High Court ordered that the bank do recover against the appellant the sum of €845,786.25 and costs of the proceedings when

taxed and ascertained.

5. The appellant has appealed against that judgment and order. He has filed voluminous papers and lengthy written submissions, all of

which I have considered together with his oral submissions.

6. The grounds of appeal filed by the appellant are as follows:

“1. The Honourable High Court Judge was wrong in Law

2. The said Order is a bad Order.

3. The granting of this Order is a Tort in Law

4. The Honourable High Court Judge failed to exercise his discretion available to him in the pursuit of Justice.

5. The Honourable High Court Judge failed to strike out these proceedings which were intentionally and positively grounded on

the premeditated, fraudulent misstatement and misrepresentation of the facts in Anglo’s pleadings in order to pervert the course

of justice

6. The Honourable High Court Judge failed to give weight to the fact that Anglo Irish Bank CORP. as a matter of form

intentionally grounded it’s pleadings on the premeditated, fraudulent misstatement and misrepresentation of the facts at issue

7. the Honourable High Court Judge failed to ensure my Right to Fair Procedure

8. The Honourable High Court Judge entertained proceedings which were intentionally and positively grounded on the

premeditated, fraudulent misstatement and misrepresentation of the facts in Anglo’s pleadings in order to pervert the course of

justice

9. The Honourable High Court Judge failed to consider that the said Guarantee and Indemnity were illegally acquired

10. The Honourable High Court Judge failed to negate the impact of my previous Solicitor, Jim Murphy of Henry Commerford &

Co. Solicitors malicious removal of my Rights before the Honourable High Court

11. The Honourable High Court Judge failed to address the issues surrounding the intentional Abuse of Process

12. The Honourable High Court Judge failed to address the breaches of Banking Law by Anglo Irish Bank CORP.

13. The Honourable High Court Judge failed to address the breaches of Land Law by Anglo Irish Bank CORP.

14. The Honourable High Court Judge failed to address the breaches of Revenue Law by Anglo Irish Bank CORP.

15. The Honourable High Court Judge failed to address the breaches of Contract Law by Anglo Irish Bank CORP.

16. The Honourable High Court Judge failed to address the breaches of Company Law by Anglo Irish Bank CORP.

17. The Honourable High Court Judge failed to address the breaches of Sale of Goods and Services Act 1980 by Anglo Irish Bank

CORP.

18. The failure of the trial Judge to address the contraventions by Anglo of the provisions of the Land Registry Rules 1972

19. The Honourable High Court Judge failed to address the issues surrounding the intentional contempt of Court, by

i. Anglo Irish Bank CORP. Plc

ii. By Beauchamps, Solicitors to Anglo Irish Bank CORP.

iii. By Lyndon McCann Senior Counsel to Anglo Irish Bank CORP.

20. The trial Judge did not allow for the fact this Appellant did not have the benefit of independent legal advice prior to and on

the 10th September 1992

21. The trial Judge did not allow for the fact this Appellant did not have the benefit in these proceedings of disclosure under

discovery

22. The failure of the trial Judge to address the fact that Anglo have breached the terms of their own Debenture

23. The Honourable High Court Judge did not as the Order states he did, read the Affidavits

24. The written Order made by the Honourable High Court is not in keeping with the stenographers transcript of the case.”

The appellant set out lengthy facts submitted to ground the appeal. He alleged abuse of process, fraudulent misstatements,

misrepresentation, and perjury by the bank. He made allegations against his previous solicitor, the solicitor for the bank, and counsel

for the bank.

7. The claim of the appellant in the plenary proceedings is limited to damages for a breach of s.60 of the Companies Act, 1963.

Section 60 (14) of the Companies Act provides:

“Any transaction in breach of this section shall be voidable at the instance of the company against any person (whether a party

to the transaction or not) who had notice of the facts which constitute such breach”.

8. On this appeal being heard before the Supreme Court, the appellant appeared as a lay litigant. He raised many issues, as stated in

his written submissions. In his oral submissions he submitted (i) that there had been a wrongful joinder of the two cases, (ii) that no

valid charge was in existence, (iii) that the time and resources of the court had been wasted and that both he and the court had

been victims of deception, (iv) that he lacked legal advice in and about the execution of the indemnity and, finally (v) that the

statement of claim did not represent his position or his instructions to his then solicitor.

9.1 The appellant submitted that there had been a joinder of the cases before the High Court and he objected to such joinder of

actions as being contrary to the rules and unfair. Having read the papers and the proceedings before the High Court, I am satisfied

that the two cases were not joined. The actions were heard consecutively, as the High Court was entitled to do. Consequently, the

appellant is not entitled to succeed on this ground.

9.2 The appellant submitted that there is no charge in existence. It is notable that the issue of land registry compliance was not

pleaded on the statement of claim. However, leaving that aside, the fundamental issue is that under the law, the only relevant loss is

the loss to the company. Thus it is a matter outside this case, but even if it were correct it would affect only the priority of the debt

not its underlying enforceability.

9.3 The appellant submitted that this action by the bank is a waste of court resources and that it was based on fraud and orders

obtained by deception. The appellant was permitted to present his case before the court, but there are no grounds for him to

succeed on these submissions.

9.4 The appellant submitted that he lacked legal advice, that he was enticed into signing the indemnity, that he relied on the bank

and the bank’s solicitors, and he made submissions of fraud and deception.

There is no doubt that it was open to the appellant to obtain legal advice. When he executed the indemnity it was witnessed by Mr.

O’Shea, Solicitor. Mr. O’Shea was in correspondence with the bank on the transaction. Mr. Comyn also acted for the appellant and

the company. On the papers it is apparent that there was the opportunity for the appellant to obtain independent legal advice.

However, even if there was no evidence on the papers of other solicitors being involved, the transaction would at best have been

voidable and the appellant would have had to act with reasonable promptness to have it set aside. This the appellant did not do,

even in 1998 when he had another solicitor acting for him. I am satisfied that he had legal advice available to him and that the event

is now twelve years ago and any fresh proceedings would be statute barred. However, the Supreme Court has already held that the

appellant may not take steps to have the deed of debenture set aside. Here again we return to the fundamental issue, that the

underlying transaction is the loan by the bank to Edenfell and only Edenfell could set that aside. The loan has not fallen and so

neither has the guarantee. However, ultimately, it is necessary to consider the words of the indemnity. These are clear. The

indemnity created a stand alone obligation, even if there were flaws in the loan agreement that would not detract from clause 4, the

indemnity.

9.5 As to the statement of claim, that document was delivered and filed by the solicitor then acting for the appellant. It sets out a

clear claim which could not succeed as it is a claim reflecting the company claim and the appellant may not sue in the shoes of the

company. Consequently, he could not succeed even if all the facts set out in the statement of claim were proved.

10. Having considered carefully all the papers filed in this case and the oral submissions, I would affirm that order of the High Court.

This case involves a question of company law. However, it is clear that the appellant could not succeed in his action even if all the

facts as set out in the statement of claim were proved. His liability to the bank for the loan is grounded in the indemnity.

Consequently, while the appellant has ranged far and wide in his submissions and has made allegations against the bank, solicitors,

and counsel, the fundamental fact of his indemnity to the bank exists and is not altered by his submissions. I would affirm the order of

the High Court and dismiss the appeal.