Court of Appeal

Background

Personal guarantees were provided by the late Joseph Flood in May 2007 as security for loans provided by AIB to the Flood Partnership, a property development company established by his sons David, Tom, and Alex in 2002.

Everyday Finance acquired the loan from AIB in or around 2013. Mr Flood died in April 2012, and proceedings against Mr Flood's Estate were filed in April 2014. 

The High Court

In April 2024, the High Court awarded Everyday Finance, the successor in title to AIB, €11 Million in relation to the personal guarantees, notwithstanding a finding of undue influence and inadequate legal advice.

The Court of Appeal

Joseph Flood's widow, Joan Flood appealed the High Court decision in June 2024 contending that the guarantees should be set aside on the basis of (1) undue influence exercised by their three sons, (2) her husband's lack of capacity at the time they were signed and (3) an absence of adequate legal advice. However, the High Court found that the Deceased did have the required capacity to execute the guarantees and that the bank was unaware of any inadequacies in the legal advice obtained. Furthermore, the Court held that the bank could not have been expected to look behind the independent legal advice given to the Deceased.

The Court of Appeal found that while the transaction may be considered improvident and that the presumption of undue influence between the deceased guarantor and his sons remained unrebutted, the fact that the deceased had received independent, albeit inadequate legal advice, meant that the guarantees were binding. The Court went on to say that:

"the bank was not on notice of this inadequacy or the resulting misunderstanding of the deceased…"  

and consequently, could rely upon the guarantees. The Court of Appeal held that this was the case, even in circumstances where the Deceased was unaware of the full liability and implications of the guarantees. 

Guarantees and undue influence

In spite of this, the case highlights the importance of ensuring that guarantors receive adequate and independent legal advice. It suggests that banks should be vigilant about the legal advice provided to guarantors to minimise possible challenge. Additionally, it emphasises the onus on law firms advising clients to take all reasonable steps to ensure they are aware of all the facts and possible liabilities associated with any transaction.

Written by: Conor Cleary and Mark Woodcock