Bank entitled to Bankruptcy Adjudication despite Borrowers’ Claim of Estoppel

In a recent High Court Judgment[1], the Court found that Allied Irish Banks Plc (“the Bank”) was entitled to adjudication on foot of a Petition for Bankruptcy against two Debtors, who raised a defence of promissory estoppel arising from their claim that the Bank had agreed that their family home and farm would not be pursued in enforcing the outstanding debt owed to the Bank.

In setting out her reasons for doing so, Ms Justice Costello found that the Debtors had not shown that there was a clear and unambiguous promise that the Bank would not seek to recover any sums outstanding against the Debtors’ family home or farm.

Background

Judgment was previously granted in favour of the Bank against the Debtors in the sum of €5,609,566.76 in May 2014. The Judgment arose from personal loan facilities that were used by the Debtors between 2004 and 2008 to purchase houses in Galway City and to renovate them with a view to letting them out. The Debtors also entered into a personal guarantee in respect of loan facilities issued by the Bank to the Debtors’ company. The Bank registered judgment mortgages against the Debtors’ unencumbered family home and farm on 5 June 2014.

Ingredients of Estoppel

The Debtors alleged that the Bank was estopped from seeking to have them adjudged bankrupt on the basis that it had agreed that it would not have recourse to their family home and farm in seeking to recover the loan facilities issued to them. They claimed that the process of bankruptcy would result in them losing their family home and farm and that, therefore, it was inherent in the agreement that the Bank would not bankrupt them. Ms Justice Costello considered the key ingredients of promissory estoppel as set out by Laffoy J. in The Barge Inn Ltd. V Quinn Hospitality Ireland Operations Ltd[2] which are as follows:

There is a pre-existing relationship between the parties;
There is an unambiguous representation;
Reliance by the promisee (and possibly detriment);
Some element of unfairness and unconscionability;
That the estoppel is being used not as a cause of action, but as a defence; and
That the remedy is a matter for the Court.

In determining whether there was an unambiguous representation, the Judge noted that the Supreme Court has defined same as “a clear unequivocal promise or representation”[3]. She also noted that the onus was on the Debtors to establish the promissory estoppel and to satisfy the Court that there was a clear unequivocal promise or representation. The evidence relied on by the Debtors was that of Mrs Hoare, their solicitor at the time the facilities were granted and a former Bank official. The facility letters pursuant to which the Debtors drew down the loans did not state that there would be no recourse to the family home and farm. There was no other written document produced by the Debtors and issued by the Bank which evidenced this alleged agreement. The Debtors therefore claimed that the written terms of the facility letters were varied by oral assurance given to them by the Bank upon which they relied. There was, however, documentation produced by the Debtors which showed that the Bank had agreed that there would be no recourse to the family home and farm relating to the personal guarantee entered into by the Debtors for the borrowings of the company. There was no reference to limited recourse in respect of the Debtors’ personal borrowings. The Court found that the three deponents did not give details of a date or time that the alleged representation was made, nor did they identify the facilities to which the promise related. In particular, the Court noted that the Debtors’ solicitor did not produce any record of this promise.

Ms Justice Costello called it a “surprising omission” that the Debtors negotiated a non-recourse agreement with the Bank in relation to their personal guarantee, however when their personal borrowings were restructured in 2010, this facility letter was not limited as to its recourse. Further to this, the Debtors did not seek to set aside the Judgment Mortgages on the basis of the alleged non-recourse agreement, nor did they seek to have the Bankruptcy Summons dismissed pursuant to s.8(5) of the Bankruptcy Act 1988.

Conclusion

Ms Justice Costello found that when taking into account all of the foregoing factors, the Debtors had not discharged the onus of proof to show that there was a clear and unambiguous promise by the Bank not to seek to recover against the Debtors’ family home and farm in respect of their personal borrowings. She stated that it was “significant” that there was no record held by anyone involved of what was such an important issue and based on the evidence before the Court, the facilities were not non-recourse and the Debtors did not believe that they were so at the time. The Debtors were therefore adjudicated bankrupt.

For further information on this topic please contact Gavin Simons (Partner) or your usual AMOSS contact.

[1] In the Matter of a Petition by Allied Irish Banks Plc for Adjudication of Mary Hoare, as a Bankrupt [2015 No.1750P] and In the Matter of a Petition by Allied Irish Banks Plc for Adjudication of Michael Hoare, as a Bankrupt [2015 No.1749P]

[2] [2013] IEHC 387

[3] Clarke J, Furey & Anor. V Lurgan-ville Construction Company Ltd. & Ors. [2012] IESC