High Court: Woman who claims guarantees were made under undue influence is granted injunction against receivers

A woman who claims that she was under duress and undue influence when she acted as guarantor for loans taken by her son, has been granted an interlocutory injunction restraining receivers from selling, possessing, trespassing upon or otherwise dealing with the secured property.

Finding that there was a serious issue to be tried as to whether the guarantee was undermined by undue influence, Ms Justice Carmel Stewart urged the parties to progress to a plenary hearing as speedily as possible.

Background

In October 2000, Ms Catherine Barry inherited her husband’s struggling business following his sudden death from an undiagnosed cancer. She was at this time the carer of an ageing relative and her disabled son.

Ms Barry submitted that due to her lack of business acumen, she placed increasing reliance on her son, Niall Barry, to run the business. It was alleged that Niall was angry about his father’s will not properly providing for him, and consequently took advantage of his mother’s dependency on him to run to business. t was said that he threatened to leave the business if Ms Barry did not act as guarantor for loans to his business – Niall Barry Plant Services Ltd. While she had reservations, Ms Barry said that she “executed the guarantees under the duress and undue influence placed upon her by her son because she relied on her late husband’s business for the family’s livelihood and there would be no one available to run it if her son left”.

Ms Barry said that she did not receive independent legal advice before executing the guarantees, and that the Bank of Scotland (Ireland) Ltd “did not seek to engage with her in any meaningful way regarding legal advice”. Ms Justice Stewart explained that the guarantees impact upon a number of Ms Barry’s assets, including her family home.

The loan was bought by Ennis Property Finance DAC, which appointed Mr James Anderson and Mr Peter Allen as receivers for the secured property.

Claiming, inter alia, undue influence, Ms Barry sought an interlocutory injunction restraining the defendants from selling, possessing, trespassing upon or otherwise dealing with the secured property.

Undue Influence

Ms Justice Stewart said Ulster Bank v Roche & Buttimer [2012] 1 IR 765 was the primary authority on the issue of undue influence. In Roche it was stated that the Court must undertake a two-part exercise when assessing a claim of undue influence emanating from a third-party, determining whether:

1. The claimant was, as a matter of fact, actually under the undue influence of that third party (a finding of fact based on the evidence)
2. Whether the circumstances are sufficient for this undue influence to provide the claimant with a defence (the question of if it can be shown that the Bank was aware of the undue influence exerted over the claimant)

Ms Justice Stewart said that matters become more complicated in cases of constructive knowledge, and that in Roche this was reduced to two key factors:

1. Whether the Bank was put on inquiry, and
2. Whether the necessary steps were taken so as to put those inquiries to rest.

Ms Justice Stewart said it was clear that the Bank would be put on inquiry when it becomes aware of facts suggesting a significant non-commercial element to the guarantee – i.e. the guarantor having no active involvement in the business; or the hallmarks of a personal/familial connection (e.g. shared surname or home address).

Noting that there was, as yet, no list of steps required – Ms Justice Stewart said that the Bank insisting that the influenced party take independent legal advice before executing the agreement would generally be considered sufficient

Ms Justice Stewart said that the insidious nature of undue influence raised a host of complications for lenders, and that if it was “hard for a claimant to establish that undue pressure was applied on an oral basis in a private setting”, it was “even more difficult for the lender to advance its position that such pressure was not applied”.

In these circumstances, Ms Justice Stewart said, “the loan account file is invaluable”, providing a contemporaneous record of steps taken by the Bank to put any inquiries to rest. Noting that Ennis Property Finance was the successor in title and may therefore not possess a complete loan file from the original lender, Ms Justice Stewart acknowledged that this may impede its ability to resist a claim of undue influence at the interlocutory stage, but said this failing could not feature in the court’s assessment.

Ms Justice Stewart said that the first step in securing interlocutory relief was establishing the existence of a serious issue to be tried, and that Ms Barry’s undue influence submission gave rise to such an issue.

Considering Roche, Ms Justice Stewart said that the detailed case set out by Ms Barry went well beyond bald assertion, and her affidavit addressed all of the exemplar questions referred to. The defendants of course challenged this narrative, relying on facility letters sent by the original lender to the Barrys, all referencing Ms Barry in some way. Further, the terms of the Settlement Agreement and a waiver in which Ms Barry waived her right to independent legal advice before signing the agreement was submitted to the court. Ms Barry asserted that she did not receive such advice, and Ms Justice Stewart noted that Ms Barry was an intelligent woman, but that she had no legal training.

Ms Justice Stewart stated that it would be “rather extreme” to hold against Ms Barry on this point and prevent her from progressing a claim of undue influence. Ms Justice Stewart said she was not satisfied that any of exhibits or background material necessarily demonstrated that Ms Barry possessed significant commercial experience and/or was not vulnerable to the undue influence of her son.

Ms Justice Stewart said she was satisfied that there was a serious issue to be tried as to whether Ms Barry’s guarantee was undermined by the undue influence exerted over her by Niall Barry.

Urging the parties to progress the case to a plenary hearing as soon as possible, Ms Justice Stewart granted the injunctive relief sought.

• by Seosamh Gráinséir for Irish Legal News

© Irish Legal News Ltd 2019