Background
This case concerned commercial court proceedings taken by AIB seeking summary judgment against a borrower in the sum of €1,429.166.22, the borrower and the guarantor of the facilities in the sum of €40,548.60, and the guarantor in the sum of €1,387,003.82 and €40,000.
AIB agreed to refinance three of the borrower’s facilities in May 2013. As security for the original facilities, the guarantor had provided two guarantees: (i) dated 2 March 2009 for up to €1,650,000 plus interest and (ii) dated 1 December 2009 for up to €40,000 plus interest. These guarantees were “all sums due” guarantees which guaranteed to pay and satisfy to AIB on demand all sums of money which were then or at any time thereafter might become owing to AIB from the borrower.
Following a series of demands for repayment of the loans from AIB along with unsuccessful attempts to resolve the matter by the parties, proceedings were issued in January 2017.
Continuation of guarantee
While the borrower and the guarantor did not dispute that the three facilities were refinanced and the money was not repaid, they argued that the guarantees granted were discharged by a material alteration of the underlying three facilities and the change to the contractual obligations between AIB and the borrower.
The guarantor also placed reliance on how, when the borrower had previously sought further facilities from AIB on other occasions, it had sought separate guarantees, which did not occur in the refinance in May 2013.
AIB sought to rely on the fact that the guarantees were continuing “all sums due” guarantees. The guarantees stated:
“The Bank shall be at liberty without obtaining any consent from the Guarantor and without thereby affecting its rights or the Guarantor’s liability hereunder at any time:
- to determine, enlarge or vary any credit to the Borrower…”
AIB argued that they were not required to seek any further guarantees in respect of the 2013 facility, as the refinance was either an enlargement or a variation of the borrower’s credit.
Ms Justice Costello held that while the 2013 refinance agreement may constitute a material variation to the facility, it did not discharge the original guarantees. The wording of the guarantees expressly entitled AIB to vary the borrower’s facility without notifying the guarantor and without the need to obtain fresh guarantees.
Lessons for borrowers
This case serves as a reminder to those entering guarantees to be aware of the potential consequences not just in respect of the initial facilities they are guaranteeing but also potentially in respect of any future refinances which the guarantor may not necessarily be required to consent to or have envisaged at the time of the original guarantee.
Lessons for lenders
For lenders on the other hand, the decision highlights the importance of including clauses that can be found in many guarantees, which may allow the lender to vary the terms of the underlying loan without the guarantor’s consent.
