ACC Bank Plc -v- Ruadhri McEllin, John McEllin and Emer McEllin [2013] IEHC 454

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Judgment in the above case was delivered by Mr Justice Birmingham in the High Court on the 18th of October 2013.

Background

The first named defendant (‘the son’) persuaded the second and third named defendants (‘the parents’), into joining him in a property development venture. The parents had owned a general/hardware store for many years. There was a vacant site adjoining their property and it was the intention of the defendants to buy this site and develop the enlarged site into a mixed commercial/residential unit. In April 2006 ACC Bank advanced the sum of €500,000 to facilitate the acquisition of the vacant site. In January 2008 a second loan facility was also provided in the amount of €651,000, which was designed to pay off the existing loan. The defendants defaulted on their repayments and an application was brought by ACC Bank for summary judgment against the three defendants.

Issues Arising

The parents raised the following arguments in their attempt to resist judgment and to have the matter referred to plenary hearing.

1. The second and third named defendants were distant from the transaction.

It was argued that from the affidavits that were filed and the written submissions, there the parents were distanced from the transaction. The parents argued that the son came up with the idea, persuaded his parents to get involved and it was the son who was the real beneficiary. Counsel for the parents even went insofar as using the phrase ‘undue influence’ which the judge found surprising as there was no reference to undue influence in the affidavits which were filed with the Court. While the Court accepted that the initiative was taken by the son the idea of undue influence was rejected as the project was intended to benefit all three defendants and the affidavits of the parents included statements that the outcome of the loans would be that they would be secure in their retirement in regard to financial matters.

2. Capacity to repay linked to a successful outcome.

Counsel for the parents argued that there was a shared understanding between all the parties involved that the capacity to repay was linked to a successful completion of the development project and that ACC Bank ought to have known that this was especially the case with regard to the parents’ capacity to repay. This argument was dismissed and the Court was of the opinion that no arguable case had been made out that there was no obligation to pay should the development project not succeed.

3. The second and third named defendants acted as consumers.

It was argued that the parents were consumers and were not treated as such for the purposes of the Consumer Credit Act 1995. This argument did not stand and the Court pointed out that the documentation surrounding the loans sees the borrowers represent and warrant that in entering into the loan agreement that the borrower is acting within the borrower’s trade, profession or business and thereby not acting as a consumer within the meaning of s. 2 of the Consumer Credit Act 1995. The Court was of the opinion that the transaction had all the hallmarks of a commercial transaction and that this remains the case notwithstanding that the parents may never have been involved in property development previously.

4. The absence of independent legal advice.

It was argued by the parents that they entered into a relationship with ACC Bank without the benefit of independent legal advice, and that there was an obligation on ACC Bank to draw to their attention the desirability and importance of obtaining such advice. Again this argument was rejected as this was a transaction where loans were advanced at the request of the three defendants; the loans were for the purposes of the three defendants and to advance the interests of the three defendants. The Court advised that if the transaction was a situation of elderly parents becoming guarantors for a child’s commercial debts arising from a business enterprise with which they were not involved, the situation might be very different.

5. Delay in calling the loans and appointing a receiver.

This was one of the main arguments put forward by the defendants. It was argued that if ACC Bank had acted more promptly, the secured properties could have been sold for a value which would have seen the debt of the parents cleared. The Court outlined a number of flaws to this argument. Firstly this argument ignores the fact that the parent, as owners of the property, were in a position to sell, if that is what they wished to do, but they did not do so. Secondly the argument ignores that fact that the son, purporting to act on his own behalf and on behalf of the parents sought time and lenience from ACC Bank. Finally and most importantly the Court held that the argument ignores the fact that there is no obligation to enforce rights at any particular time and that it is for ACC Bank to decide when to take action.

Conclusion

The Court stated that the defendants would be entitled to have the matter referred to plenary hearing unless it was very clear that the defendants have no case. The Court held that its view was that no arguable case had been made out and that it is very clear that the parents have no case. The Court commented that it had made it clear at the outset that the threshold to be crossed, before leave to have the matter referred to plenary hearing would be granted, was a low one, but low as it is it has not been crossed. The application by the plaintiff for summary judgment was granted.

This case highlights the Court’s different approach to borrowers who are parents borrowing funds jointly with their children and who are involved in the commercial benefit of the transaction and the Court’s approach to elderly parents who become guarantors for a child’s business debts arising from a business in which the parents are not involved.

Breda Sheahan is a trainee solicitor in the commercial department with FitzGerald Solicitors Cork.

FitzGerald Solicitors is one of Munster’s leading commercial law firms located in Lapps Quay Cork.

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