When a Bank inserts a pre-condition to the drawdown of funds, then it should ensure that same is complied with, or else it may face a challenge as was faced by ACC Bank in the case of ACC Loan Management Limited –v- Gerard Sheehan [2006] IECA343/87/2016.


The circumstances of the case are that ACC provided a facility letter to a company, Newmarket Foods Limited (“the company”) on 05 March 2008. The security listed for the facility was a personal guarantee and indemnity from the Defendant and a first legal mortgage and charge over 1,625 sq ft warehouse and 2 acres of land in Co. Limerick. The warehouse and 2 acres of land were part of lands owned by the Defendant and, to facilitate the creation of a mortgage and charge over the warehouse and 2 acres, that part of the Defendant’s land was transferred out of the main Folio and into a new Folio.

The company defaulted on its loan repayments on 19 June 2013 and the ACC then sent a letter of demand to the Defendant, calling upon him to discharge the amount due and owing by the company on foot of his guarantee. He failed to do so, and on 07 October 2013, ACC issued proceedings seeking summary judgment against the Defendant. The motion came before the Master of the High Court and, as the Defendant had filed a Replying Affidavit in which he raised a number of issues by way of defence, the Master of the High Court transferred the Motion to the Court List for hearing. The company to which the loan was made was principally owned and operated by the Defendant’s brother, Vincent Sheehan. The Defendant owned a 5% shareholding in the company, but was unaware of that fact until it was revealed during the course of proceedings in an Affidavit filed on behalf of ACC. The Defendant was also a director of the company, though in his first Replying Affidavit, he stated that he did not become aware of that fact either until his solicitor made a search in that regard.

Hearing of Motion for summary judgment

During the hearing of the summary judgment proceedings, Ms Justice Murphy gave her judgment on 17 December 2015 and she concluded that an arguable defence was raised by the Defendant which required to be determined by way of plenary hearing.


ACC then appealed that Order and the proceedings were heard by Justice Finlay Geoghegan, Justice Peart and Justice Stewart in the Court of Appeal on 21 November 2016.

The Defendant, in his Affidavit, stated that his dealings with the company arose when his brother approached him in 2008 and indicated that he was in financial difficulty and was anxious to save his business. The Defendant stated that, with his permission, his brother built a shed/ warehouse on his property in Co. Limerick and he was paid weekly rent for the premises and for his dealings with the company, whereby he would unload the deliveries into the warehouse and when he would receive orders he would make up the orders etc. The Defendant said that he was informed by his brother that the extent of his personal liability under the guarantee and indemnity that he was being asked to sign was the warehouse and the 2 acres which were the subject of the mortgage and charge. The Defendant argued that if he had known that, by providing the guarantee, he was putting his entire farm at risk, he would not have agreed to provide the guarantee.

Shortly after the issue of the facility letter to the company, ACC wrote to David O’Connor, Solicitor, on 07 March 2008. The letter stated that  ACC understood that Mr O’Connor was acting for the company and confirmed that ACC’s security would, firstly, comprise of a guarantee and indemnity from the Defendant, to be supported by a first legal mortgage and charge over the warehouse and 2 acres of land and, secondly, by an assignment of life policy in his name. The letter stated that ACC was prepared to release the loan funds to the solicitor upon receipt of 16 specified items; number 13 being, “letter from guarantor’s solicitor confirming guarantor received independent legal advice prior to execution of guarantee and indemnity document”.

By letter dated 08 March 2008, the solicitor wrote to ACC and stated that he was acting for the guarantors for the company and confirmed that the borrower and his brother were offered independent legal advice and they waived same. The letter further confirmed that the guarantee and indemnity was explained to them in full and that they understood the nature and effect of same but nevertheless they decided to waive their right to independent legal advice.

Defence raised by the Defendant

  • While the solicitor advised him about providing a charge over the warehouse and 2 acres of land, he was never advised by him nor informed by his brother that he was putting his entire farm at risk. The Defendant further stated on affidavit that nobody from ACC ever mentioned or ascertained his status vis-à-vis the company or advised him that independent legal advice would be appropriate.


  • He felt pressurised into providing the guarantee but that he was assured by his brother that the extent of his liabilities under the guarantee was the      value of the warehouse and 2 acres of land over which the charge was being created.


  • ACC failed to comply with its own condition for the drawdown of the loan of  the letter confirming independent legal advice to the guarantors by simply      accepting at face value the statement by the company solicitor that the Defendant  had waived his entitlement to independent legal advice and that      accordingly the guarantee was unenforceable against him.


  • There  was an onus on ACC to seek confirmation of waiver directly from the Defendant before permitting drawdown of the loan.


  • If  it had been explained to him that, by executing the guarantee and indemnity, he was putting not only the warehouse and 2 acres at risk but  also his entire farm of land, he would never have agreed to same. He  stated that he was unaware that the solicitor had written to ACC on 08  March 2008 and denied that the contents of that letter reflect the nature of the advice given to him by the solicitor.


  • The guarantee and indemnity was void and pointed to the fact that ACC itself knew that the Defendant was not in receipt of independent legal advice and that he ought to have received such before entering into the guarantee and indemnity. The Defendant further submitted that, in circumstances where it had identified that the Defendant was someone who needed to be independently advised, it was obliged to ensure that this  happened and therefore had included it as a requirement before drawdown could take place.


  • Where ACC did not comply with its own requirement, it would be unconscionable for ACC to succeed in obtaining judgment on foot of the guarantee.


  • The  condition as to legal advice was one that was for the benefit of both parties and not just for ACC so as to ensure that the Defendant would not be able to raise this sort of defence in the event that proceedings had  to be brought against him if the company defaulted on its loan.


Arguments raised on behalf of ACC

ACC’s appeal centred on a number of points, the most relevant of which were:

  • That the trial judge erred in her conclusion that the Defendant required legal advice or independent legal advice if the guarantee is to be valid and      enforceable, given that he was a director and shareholder of the borrower company, and had a commercial arrangement with the company.


  • That the trial judge was incorrect to conclude that ACC was on notice of the deficiencies in the legal advice given to the Defendant, given the contents of the solicitor’s letter to ACC dated 08 March 2008.


  • That the adequacy of any legal advice given to the Defendant was a matter between the Defendant and the solicitor and not a matter for ACC.


  • That the conclusion of the trial judge that the letter from ACC to the solicitor dated 07 March 2008 was part of the agreement between ACC and the Defendant, in circumstances where the condition regarding confirmation that the Defendant received independent legal advice prior to drawdown by      the company was not part of the loan agreement and where in fact the Defendant was unaware of the letter dated 07 March 2008 until the year 2014.


  • That ACC was entitled to rely on the letter dated 08 March 2008 received from the Defendant’s solicitor which informed it that such advice had been      waived by the Defendant. It was submitted by ACC that this was an acceptable means of complying with the condition


  • ACC asserted its disbelief that the Defendant did not understand the nature and scope of the guarantee he gave and that, in any event, the guarantee      itself which the Defendant freely signed without undue influence contained no limitation as to its scope and the Defendant must be taken to have      understood the document that he signed. ACC noted that the guarantee make it clear that the Defendant’s liability extends to all the liabilities of the company and is not limited in any way and, in particular, to the  assets over which the Defendant was agreeable to charge registered, i.e. the warehouse and 2 acres of land.


  • That there is no general requirement that before a guarantee is enforceable ACC must have satisfied itself that the guarantor has received legal advice, be it independent advice or otherwise, and that if a proposed guarantor is uncertain as to what he/she is undertaking by executing a guarantee, it is a matter for that person to seek legal advice.  If that advice turns out to be deficient in any way, the ACC submitted that that was an issue between the guarantor  and their legal advisor but would not affect the validity and  enforceability of the guarantee and referred to the well-known case of Allied Irish Banks plc –v- McKenna   [2014] IEHC122, wherein Bermingham J stated “so far as independent legal advice or more specifically the alleged lack of it is concerned, there is no requirement in law that an adult entering into a guarantee on behalf of the company of which he is a director and shareholder should have independent legal advice”. In response to this argument, the court pointed out that in the McKenna case, AIB had not made it a condition for drawdown that it must receive confirmation that such advice  had been provided to the guarantor.


  • The guarantee document itself expressly warns the proposed guarantor in the following terms “Before you sign this guarantee and indemnity, you should obtain independent legal advice” and also that the Defendant was not aware of the letter from ACC to the solicitor prior to executing the guarantee.


Court of Appeal’s decision


The Court of Appeal referred to certain extracts of the trial judge’s judgment and noted that the trial judge stated that ACC wrote to the borrower’s solicitor on 07 March 2008 indicating that as a requirement of drawing down the funds ACC wished to be provided with a letter from the guarantor’s solicitor confirming the guarantor received independent legal advice prior to execution of the guarantee and indemnity document. The trial judge further stated that it is in ACC’s interest to ensure that the sureties are fully aware of the consequences of executing the guarantee so that, in the event that it is necessary to call in the guarantee, there can be no dispute as to the sureties’ liability thereafter.  The trial judge continued to state that the ACC altered its position and decided to accept the borrower’s solicitor’s word that the sureties had waived their entitlement to independent legal advice and one might have expected that, as a minimum, the ACC would have required signed waivers from the proposed sureties but they did not do so.


The court of appeal held that it was satisfied that the trial judge approached her task of deciding if a prima facie defence was made out in relation to the absence of legal advice in accordance with the correct legal principles. The court of appeal held that what was critical in this case and central to the finding that such a prima facie defence had been made out, is the fact that it was ACC itself that specified that it was a requirement for drawdown that they receive a “letter from guarantor’s solicitor confirming guarantor received independent legal advice prior to the execution of Guarantee and Indemnity document”. The court of appeal held that ACC need not have imposed such a precondition to the drawdown of the loan and, had it not done so, the court might very well have concluded that there was no obligation upon it to ensure that the guarantor received advice prior to drawdown. However, the court held that where, as in this case, ACC itself decided that it required such confirmation, and subsequently waived its own requirement unilaterally in the light of what the solicitor stated in his letter dated 08 March 2008, that is arguably at least something which may at trial be found to provide the Defendant with a defence to the bank’s claim on foot of the guarantee.


Accordingly, the court of appeal held that the Defendant’s case was one whereby an arguable issue was adduced on affidavit and was appropriate to be remitted for plenary hearing. Accordingly, the court of appeal dismissed ACC’s appeal and the proceedings are now remitted for plenary hearing.

Breda Sheahan is a Solicitor in the Commercial Department of FitzGerald Solicitors, 6 Lapps Quay, Cork





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