by the lender. Such a regime has the clear benefit of ensuring that both the bank and the vulnerable surety are protected from entering into a transaction with one another due to the undue influence of another. However, the costs imposed by such a regime remains a significant consideration as to whether it should be adopted within this jurisdiction, especially given that the solicitor engaged assumes professional responsibilities to the proposed surety and does not act as agent for the lender, and so it would be improper for such costs to be paid for by the bank. It is notable that Clarke J felt it necessary to reiterate, having already cited the position in Etridge that nothing in his judgement should be taken “as necessarily implying that the full rigours of the regime which applies in the United Kingdom represents the law in Ireland.”28 Therefore it remains to be seen what level of steps will be imposed upon the banks when placed on inquiry. In any event, however, it would appear prudent for a bank to carry out enquiries as a matter of practice in every surety transaction as to the nature of the relationship between the proposed surety and the borrower/principal of the borrowing company, the degree of involvement of the surety in the business, and the shareholding of the surety in the company, if any. If such facts suggest a non-commercial element to the guarantee, the bank should then take appropriate steps to ensure that that the proposed surety is openly and freely agreeing to provide the requested security. And until the courts enumerate what steps a bank should take when placed upon inquiry, banks may be well advised to follow the steps advanced in Etridge to ensure that their security is protected, especially in light of recent decision in Tynan v County Registrar of Kilkenny & Start Mortgages.29 In Tynan, Laffoy J appeared to endorse the approach adopted in Etridge and found that as a matter of law in this jurisdiction, deficiencies in advice given by a solicitor to a wife that is requested by the bank is a matter between the wife and her solicitor and the bank is entitled to proceed on the assumption that a solicitor advising the wife has done his job properly30. However, she cautioned: “if the solicitor does not provide the statement and certificate for which the bank has asked, then the bank will not, in the absence of other evidence, have reasonable grounds for being satisfied that the wife’s agreement has been properly obtained. Its legal rights will be subject to any equity existing in favour of the wife.”31 Degree of Involvement in the Debtor Company
the fact that the surety was not a shareholder in the company played heavily on the judge’s considerations as to whether the bank was placed on inquiry, especially when coupled with evidence that she had little to no involvement in the running of the company and was in a ‘less secure position’ than a spouse in respect of potential legal rights over the assets or income of the other spouse or partner. However, it remains to be seen if a bank would be placed upon inquiry where the surety is in fact a shareholder of the company. In Etridge, Lord Nicholls took the view that a bank was placed on inquiry even where shares were held by both spouses or partners as the shareholding often did not reflect the true situation. However, it must be emphasised that Clarke J made it clear that “Nothing in this judgment should be taken as, therefore, necessarily implying that the law in Ireland goes as far as the position in the United Kingdom as identified in Etridge in placing a bank on inquiry”32, and stated that he would leave it to “another case to deal with any different set of circumstances either as to when a bank is put on inquiry or the steps which a bank must take when put on inquiry.”33 It has always been the case that where monies are advanced to a husband and wife jointly, the bank will generally not be on inquiry34, and this has been reaffirmed most recently in GE Capital Woodchester Home Loans Ltd. v Reade35, wherein Laffoy J acknowledged that whilst the decision in Buttimer represented a development of the law in this jurisdiction, it had no bearing on the assertion of undue influence in that case, where loan monies had been advanced jointly to the Defendants. Therefore, it is submitted in light of Clarke J’s comments in Buttimer, and the standing precedent in the area, a bank should not automatically be placed on inquiry where the spouse/partner is a shareholder in the company to whom monies are advanced and/or is a director with direct involvement in the running of the said company. Conclusion The decision in Buttimer will have wide ranging effects for the enforcement of bank guarantees in this jurisdiction, given the very common trading format in this jurisdiction where both husband and wife act as directors of the family business, which is invariably run primarily by one spouse under the veil of incorporation. It is therefore imperative for the banking community to be aware of its increased obligations after this decision, in order to protect the enforceability of its securities in the future, should a valid claim of undue influence be made against it. ■
On a final note, it is clear from the decision in Buttimer that 28 29 30 31
Ibid [2011] IEHC 250 Ibid at p. 16, para 4.4 Ibid at p.16-17, para 4.5
Bar Review December 2012
32 33 34 35
Ibid p.16 para 5.12 Ibid p.19 para 6.2 CIBC Mortgages plc v Pitt [1994] 1 AC.200 [2012] IEHC 363
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