The case of Ulster Bank Ireland Limited v Roche and Buttimer relating to undue influence was considered in the HOMS News 2013 Issue. The outcome of this case led to uncertainty as to what steps a prudent lender should take when dealing with vulnerable sureties. The Irish courts have recently considered the issues of undue influence and independent legal advice in the context of enforcement of guarantees providing further clarity on these matters.
The defendant argued that he was subjected to undue influence arising from the sibling relationship between the defendant and his brother, and that the legal advice obtained was deficient. The defendant claimed that he entered into the guarantee under pressure believing that if he did not do so the business would fail. He further argued that the independent legal advice obtained was inadequate as the advising solicitor acted for the borrowing company.
The Judge, in dismissing the claim of undue influence, stated that a mere desire to be of assistance to a sibling is not evidence of undue influence. To extend the principles laid down in Etridge to brothers who are both directors and participants in a commercial enterprise, “would constitute a major evolution of the principles”. Nonetheless the bank was not granted summary judgment on the basis that it had required confirmation of independent legal advice as a pre-condition to the release of funds but instead relied on an assurance from the defendant’s solicitor. The better approach would have been to insist on receipt of a signed waiver of independent legal advice.
The Governor and Company of the Bank of Ireland v Curran & anor
The High Court held that “there is no obligation on bank’s insisting on customers obtaining legal advice before entering into contracts with them absent some clear evidence of the need to insist on it”. In determining whether such a need arises McGovern J stated that it is necessary to consider whether there is a non-commercial element to the guarantee or if the defendant is not acting as a free agent. In the present case it was held that there was no evidence to suggest that the bank were on notice to ensure that independent legal advice should have been sought.
The defence of undue influence is frequently argued by guarantors in the context of enforcement of guarantees. The Roche case created uncertainty by extending the onus on banks when dealing with vulnerable sureties. Recent case law demonstrates that the courts are taking a pragmatic approach to the issues of undue influence and independent legal advice. Notwithstanding this welcome development a lender will need to ensure that it considers free will and commercial benefit when dealing with personal guarantees.