HomeProperty BlogImportant Commercial Court decision in relation to the enforceability of guarantees

Important Commercial Court decision in relation to the enforceability of guarantees

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In the recent case of Allied Irish Banks plc (“AIB”) v McKeown & Another [2017] IEHC 363 Costello, J decided that the failure of AIB to obtain a new guarantee in the refinance of three existing facilities did not release the original guarantor from her obligations given at the time the original facilities were completed.

Background

AIB sought summary judgment against firstly the borrower, secondly the borrower and the guarantor and thirdly the guarantor in respect of various sums due under the facilities.

The original facilities in 2009 were guaranteed by the guarantor up to stated amounts but on an ‘all sums due’ basis which guaranteed to pay AIB on demand all sums of money which were then due or which would at any time become payable by the borrower to AIB.

AIB agreed to refinance three of the borrower’s facilities in 2013.

The borrower and the guarantor argued that the refinancing of the three facilities in 2013 amounted to a material change in those facilities and therefore discharged the obligations of the guarantor under the original guarantees.

AIB argued that the original guarantees as ‘all sums due’ guarantees remained valid and enforceable.  In particular, the guarantees stated that AIB ‘shall be at liberty without obtaining any consent from the Guarantor and without thereby affecting its rights or the Guarantor’s liability …to determine, enlarge or vary any credit to the Borrower’. AIB argued that the consent of the guarantor was therefore not required in respect of the refinancing in 2013 as it was an ‘enlargement or variation’ of the borrower’s credit.

Decision

Costello, J found in favour of AIB and decided that the bank was not required to obtain new guarantees for the refinance of the original facilities in 2013.

Summary

Guarantors should be very clear when entering into guarantees as to whether their obligations will survive a variation of the underlying facility which is made without their consent.

For more information contact Nicola Walsh, Head of Property.