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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Friends First Finance Ltd -v- Lavelle & Anor [2013] IEHC 201 (09 May 2013) URL: http://www.bailii.org/ie/cases/IEHC/2013/H201.html Cite as: [2013] IEHC 201 |
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Judgment Title: Friends First Finance Ltd -v- Lavelle & Anor Neutral Citation: [2013] IEHC 201 High Court Record Number: 2012 990 S, 2012 127 COM, 2012 989 S & 2012 128 COM Date of Delivery: 09/05/2013 Court: High Court Composition of Court: Judgment by: Charleton J. Status of Judgment: Approved |
Neutral Citation [2013] IEHC 201 The High Court [2012 No. 990S] Commercial 2012 127 Com Between Friends First Finance Limited Plaintiff And
Charlotte Lavelle Defendant
[2012 No. 989S] Commercial 2012 128 Com Between Friends First Finance Limited Plaintiff And
Peter Lavelle Defendant Judgment of Mr. Justice Charleton delivered on the 9th day of May 2013. 1. These two cases were heard together because they are related. The defendants are also related; they are husband and wife. The defendant Charlotte Lavelle is claimed by the plaintiff financial institution to have borrowed approximately €1.75 million. The defendant Peter Lavelle is claimed by the plaintiff financial institution to have guaranteed that sum. In essence, the defence of Charlotte Lavelle is that she never borrowed the money which was allegedly loaned to her pursuant to written contracts of loan; raising the non est factum defence, which so very rarely succeeds. The defence of Peter Lavelle is that his guarantee is dependent upon the validity of the principal contract and that without an enforceable contract the guarantee is without consideration. There is also a point under the Consumer Credit Act 1995. Basic facts 3. As against Peter Lavelle, the plaintiff financial institution pleads that by a guarantee and indemnity in writing made on the 20th December, 2007, he agreed that in consideration of the plaintiff financial institution granting or continuing accommodation or other banking facilities to Charlotte Lavelle, he would guarantee the payment on demand of any sums when any such became due by her. It is consequently alleged that due to the default set out in the previous paragraph, the guarantee is now operative. 4. The facility letter was dated the 19th December, 2007, and offered Charlotte Lavelle borrowing in the sum alleged for a term of 60 months, specifying over four pages relevant provisions as to amount, term, interest rate, repayment date, conditions precedent, arrangement fee, security, expenses, financial information, representations and warranties, and events of default. The detail of the terms indicates of itself that this borrowing is an extremely serious matter. It is accepted that on the fifth page the signature of Charlotte Lavelle appears as apparently witnessed by one Jennifer Lawson. In evidence, Charlotte Lavelle told me that she had not signed this document in front of Jennifer Lawson and did not know her either at the address there given, or at all. That evidence of Charlotte Lavelle is convincing. This circumstance casts into relief the unfortunate approach of the plaintiff financial institution to this loan. The pivotal fact in the extraordinary saga which follows is stated on the first page of the document as being the purpose of the facility: equity investment in various Quinlan Private Investments. 5. As to the guarantee of Peter Lavelle, this was entered into in consideration of the loan specified. Consideration Quinlan Private 8. I might state immediately that I am far from favourably impressed by any financial institution approaching a loan on a fictitious basis. Even if not unreal, the idea that a wife could suddenly be a borrower when at all material times it was her husband who was seeking a loan undermines the reality of banking commerce. Worse is the apparent acceptance of a partnership as defined by law, and not by the convention of people living together, as an entity to which money could be made available as in this case. Tax planning is not a reason to unthinkingly accept stratagems that run contrary to a proper exploration of the facts before a loan is given. Every transaction is, as a matter of law, entitled to be defined not by empty documents that pretend to a situation that may avoid tax, but by reference to the underlying reality that defines the true nature of a transaction. What matters here, however, is the facts whereby the loan is sought to be recovered and the defences raised by the defendants. I therefore leave that observation aside. Chronology 10. What is apparent from the relevant documents is the close involvement of Quinlan Private Investments. That impression was also enforced by the oral evidence. On the 26th October, 2007, Jennifer Lawson of Quinlan Private Investments seeks to arrange a loan of €2.25 million with the plaintiff financial institution for Peter Lavelle. What is described as a "client profile" is sent to the plaintiff financial institution. Relevant tax advice is also furnished. A "cash flow" is exchanged with the plaintiff financial institution together with residency plans and the residency status of Peter Lavelle. After the exchange of more documents that are clearly seen in hindsight to not be real, Eoin Bastible of Quinlan Private Investments made a formal request for a facility to invest in what was called the "Central European Residential Development Programme II". Then what is called a "Proposal for a High Net Worth Client" was made by that entity on behalf of what was called "The Lavelle Partnership". That document, however, is all about Peter Lavelle; referring to his profession, his cash, his investments, his tax status, and what he is seeking. No one in the plaintiff financial institution seems to have questioned the lawfulness of what was supposed to be a partnership, or what the partnership was supposed to be, or who was running the partnership, or to what ends it was formed, or if it ever had a legal inception, or what it had consisted of. Again, it seems that simply because the document was marked in the name of Quinlan Private Investments meant the plaintiff financial institution failed to follow through on their ordinary, and it seems generally very good and prudent, banking procedures. A "Client Profile: As at August 2007", while apparently relevant to the Lavelle Partnership, so-called, has the personal details of "Peter and Charlotte Lavelle" as being “Married to Charlotte" as the relevant "Marital Status". This abrogation of responsability is shocking. 11. On 20th November, 2007, Quinlan Private Investments suggested to the plaintiff financial institution that they should lend to an entity called "The Lavelle Trust" which transaction was to be backed by "a guarantee from Peter". On the 4th December, 2007, an official of Quinlan Private Investments advises a solicitor as to the investment strategy of Peter Lavelle. After apparently taking some advice, the entity called Quinlan Private Investments suggested to the plaintiff financial institution that "the proposed structure of Peter Lavelle's investment in the Central European Residential Development Programme II will NOT in fact work”. Instead, on the 11th December, 2007, that entity wrote to the plaintiff financial institution:-
13. On the 24th March, 2010, years later, the plaintiff financial institution wrote directly to Charlotte Lavelle, at the address where she and her husband were residing, referring to the investment and continuing:-
15. During the spring prior to this series of unorthodox events, Peter Lavelle and his wife Charlotte Lavelle signed a large number of documents setting up a trust in the Channel Islands in respect of the family finances. This, by the way, was not the vaunted ‘Lavelle Partnership’. Charlotte Lavelle was fully informed as to these investment arrangements through that trust and was required from time to time to append her signature to ensure that they worked. She approached that task honestly and developed an understandable dependence on her husband in the direction of their financial affairs and in the explanation of financial documents. She trusted in his prudence, and more importantly, in his honesty. She was therefore habituated to signing trust documents on the explanation of her husband and with a view to the fulfilment of a specific purpose which she and he had worked out and in respect of which she not only trusted him but fully approved of this financial strategy. Non est factum 16. For the correct legal application of the defence whereby a defendant in general is able to plead successfully in answer to a written contract that it is not his deed, I need go no further than the judgment of Kelly J. in Allied Irish Bank plc v. Higgins and Others [2010] IEHC 219 (Unreported, High Court, Kelly J. 3rd June, 2010). The issue in that case was whether a Mr. Mansfield was entitled to escape liability for a debt on the basis of a reading age appropriate to a seven year old and an alleged complete lack of understanding of the relevant documents. The person in question was a seasoned businessman who could pilot a helicopter and who at one stage controlled a vast financial empire very successfully. The following treatment of the law is set out at pp. 40 - 41:-
‘I am satisfied that a person seeking to raise the defence of non est factum must prove: (a) That there was a radical or fundamental difference between what he signed and what he thought he was signing; (b) That the mistake was as to the general character of the document as opposed to the legal effect; and (c) That there was a lack of negligence i.e. that he took all reasonable precautions in the circumstances to find out what the document was.’ In the course of his speech in Saunder’s case, Lord Reid having pointed out that there is a heavy burden of proof on the person who seeks to invoke this remedy went on to say:- ‘The plea cannot be available to anyone who was content to sign without taking the trouble to try to find out at least the general effect of the document. Many people do frequently sign documents put before them for signature by their solicitor or other trusted advisers without making any inquiry as to their purpose or effect. But the essence of the plea non est factum is that the person signing believed that the document he signed had one character or one effect whereas in fact its character or effect was quite different. He could not have such a belief unless he had taken steps or been given information which gave him some grounds for his belief…’ Lord Hodson in the same case said:- ‘Want of care on the part of the person who signs a document which he afterwards seeks to disown is relevant. The burden of proving non est factum is on the party disowning his signature; this includes proof that he or she took care. There is no burden on the opposite party to prove want of care.’ AIB contend that they knew nothing of Mr. Mansfield’s reading difficulties until they met Mr. Sutcliffe in August 2009. Mr. Sutcliffe informed them of the difficulties of his client Mr. Mansfield. Mr. Mansfield himself did not tell AIB about his difficulties. He said in his affidavits that he was not aware as to whether the plaintiff was specifically made aware of these difficulties. He said it may have been known to them at the local branch where he had dealings. He went on:- ‘Certainly no member of the plaintiff’s staff ever spoke to me about it in relation to the borrowing. I have never emphasised my difficulties with strangers and there was no reason, as far as I was concerned, to notify the AIB.’ Mr. Mansfield has wide business experience given his company directorships. He is of at least average intelligence where non-verbal reasoning is concerned. He ought to have taken steps to find out what the letter of 19th January, 2009 was or told the bank of his problems. He did neither. He cannot be said to have taken any, still less ‘all reasonable precautions to find out what the document was‘ (per Morris J.) Thus, one of the three ingredients required for a defence of non est factum is absent. 18. There are strong policy reasons underpinning the requirement for care in signing legal documents. The stringency of the test whereby liability may be resiled from reflects the proposition that those who enter into contractual relations on the basis of documents must take care as to what they are signing. I accept the commercial sense of the propositions which underpin the defence and note that chaos might be the result were defendants held to a less stringent circumscription of the defence. 19. On the very particular circumstances of this case, however, a situation arises which has rarely, if ever, been seen before and that is that a financial institution in seeking to make someone bound by a loan agreement should not see fit to meet with the borrower face-to-face, explore what requirements they have and ensure that they sign the documents establishing the mutuality of obligations of borrower and lender. Those basic steps of the ordinary establishment of a proper relationship of borrower and lender did not happen here. The plaintiff financial institution has accepted in evidence that they do not know the circumstances under which Charlotte Lavelle signed any of the relevant documents; that they never met her; that they do not know whether she received any of the letters in relation to the borrowing that was in her name; that they could not comment whether these letters which habitually came from Quinlan Private Investments were distinctively marked with the entity of the logo on the envelope (a large embossed golden ‘Q’ apparently); that they did not witness the relevant documents within their premises or even through their own personnel; and that they trusted Quinlan Private Investments to do all which they normally would have done as a matter of prudence. This constitutes a radical departure from the procedures of the plaintiff financial institution. Charlotte Lavelle 21. She told the Court that she came to Ireland in 2004. In 2007 she became aware that a family trust was being set up for her and for her children. In April, 2007 she was given documents to sign in order to settle monies into a trust. She remembers signing these documents for that purpose. When the documents that are relevant to the loan in this case were signed by her, it was in the context of this background. She had no specific recollection of signing the documents relevant to this transaction but accepts that signatures appear as previously indicated. She said that she was given documents by her husband and that these were presented in the context of the family trust and the documents already signed by her in that regard and that she trusted him that he was doing this for her family as he was then in charge. Whereas now, in the context of this case, she would question matters more closely, she then completely trusted her husband. In making a concession of lack of care with the benefit of hindsight, it was within that context. I am satisfied that it does not destroy or undermine the defence raised; relying on a husband who states that documents have a character and effect in accord with a settled family strategy is not negligence because of the circumstances that surround the signature in that context of these documents. Furthermore, that defence must also be seen in the context of the abrogation of duty of the plaintiff financial institution in arranging a loan for someone whom they had never met and in circumstances where the relevant contract, which is supposed to be a meeting of minds, was entrusted through other parties, namely her husband Peter Lavelle, and Quinlan Private Investments. In terms of finding want of care, the balance comes down firmly against the plaintiff financial institution. In contrast, the trusting nature of Charlotte Lavelle was built up in a legitimate context and then used as what was presented to be a continuation of trust administration by her husband. Having heard her evidence, I can not legitimately make a finding of negligence against her. As each letter came in, those which were relevant would be marked with the name of Quinlan Private Investments through “a big golden Q” that would be passed to her husband. It was he who dealt with that institution and, it must be remembered, so did the plaintiff financial institution. She did not have the opportunities which they had and, as regards the plaintiff financial institution, misused. Since Peter Lavelle worked at home, he had management of the post. It is clear that he used that control. There is nothing in the evidence which would suggest deception on her part. All of what she signed that is relevant to this case was on the basis of what her husband put before her with a plausible explanation that it was the settlement of monies into the family trust. As far as she was then concerned, her husband made money and he was able to spend it as he wished. As he wanted to settle money into a trust, and as this process was ongoing, all that she had to sign was marked at the appropriate place and was signed by her on that basis. Her husband said to her that she was to sign these documents in order to settle the relevant finances into the trust. 22. I accept that the first time Charlotte Lavelle became aware that she had borrowed money from the plaintiff financial institution was in 2011 when her husband began talking to her about this case. The situation then came as a shock to her. She had never drafted any documents and nor had she participated in any relevant discussions either with the plaintiff financial institution or Quinlan Private Investments; she signed what she was given on the basis of the explanation proffered to her. 23. Even if the relevant defence of non est factum were not to succeed in this case, I would regard it as repellent that a financial institution could hold someone to a bargain in the borrowing of a huge amount of money when there was never any meeting of mind, never mind any meeting in person, whereby that individual could truly be called a borrower as a matter of contract. The stringency of the relevant non est factum defence intrudes for policy reasons into the analysis that is normally conducted in this contract law context whereby nobody is kept to a bargain unless they have in the first instance entered into the agreement which supports it on the basis of a mutuality of understanding as to their obligations. It is too easy to pass around forms for signature. It is also too easy to say: ah yes, I signed that but I had no idea what it was. Equally, it might be commented that it is not an insurmountable difficulty if a bank or financial institution wants to lend money to someone, that they attend its offices, that their requirements be discussed and that they actually agree that they want the money in the context of the basic requirement of a loan that it be paid back. The stringencies of the defence that a document is not the deed of the defendant where there are detailed loan documents demand proper prudence before a court will be minded to accept it. Ultimately, however, a witness while plausible is not to be seen in isolation from the surrounding facts. Obviously, the plaintiff financial institution has emphasised those facts which support their case and have done so with great persuasiveness through their counsel. In the context of the entirety of the evidence, my assessment of the reliability of all of the witnesses and my view of the character of Charlotte Lavelle, the defence that the loan agreement is not her deed is clearly made out. Consumer Credit Act
Provided that if a court is satisfied in any action that a failure to comply with any of the aforesaid requirements, other than section 30, was not deliberate and has not prejudiced the consumer, and that it would be just and equitable to dispense with the requirement, the court may, subject to any conditions that it sees fit to impose, decide that the agreement shall be enforceable.
The term ‘business’ is defined as including ‘trade and profession‘. The term ‘borrower‘ means a consumer acting as a borrower. A credit agreement is defined as ‘an agreement whereby a creditor grants or promises to grant to a consumer a credit in the form of a deferred payment, a cash loan or other similar financial accommodation’. Section 30 of the Act contains mandatory provisions concerning a credit agreement or contract of guarantee entered into by a consumer. Such an agreement has to be made in writing and signed by the consumer. A copy of it must be given personally to the consumer or delivered to him within ten days of the making of the agreement. A credit agreement must contain a statement in respect of a cooling off period which gives the consumer a right to withdraw from the agreement without penalty if he gives written notice to this effect within a period of ten days of receipt of the agreement. Alternatively, he may indicate that he does not wish to exercise that right by signing a statement to that effect under certain conditions. A credit agreement must contain a statement of the names and addresses of all of the parties to it and all of the costs or penalties to which the consumer may become liable for any failure to comply with its terms.
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