The High Court ruled that a guarantee given by Dolores McGrath to Danske Bank ceased to be effective on 4 August 2011, three months after notice of termination was received. The court held that the guarantee created a contingent liability requiring a demand, and that the bank could not pursue her under it after the notice period expired.
The dispute concerned a guarantee McGrath signed on 16 February 2005 for borrowings by her husband and son, Michael and John McGrath. The bank, then National Irish Bank, had offered them a €1.32 million bridging loan to fund the purchase of a proposed development at Monksfield, Athlone, County Westmeath. The facility letter required McGrath to provide a guarantee relating to her interests in security offered for the loan.
On 4 May 2011, a solicitor acting for McGrath wrote to the bank, stating that the guarantee was terminated. The bank received the letter the next day. It later demanded more than €1 million from McGrath, on 7 November 2012. She then brought proceedings seeking declarations that the guarantee had been discontinued and was no longer binding on her.
The court first found that the letter met clause 3 of the guarantee, which allowed written notice to discontinue and determine it. The notice had to make clear the intention to end the guarantee; it did not matter that the letter also expressed a mistaken understanding of the guarantee’s scope.
The central dispute was what termination did to McGrath’s liability for existing borrowing. The bank argued that termination only prevented liability for future borrowing, leaving liability for debt already incurred. McGrath argued that the bank had to make a demand during the three-month notice period.
The court examined the guarantee as a whole and concluded it was a demand guarantee: McGrath’s liability became actual only when a demand was made. It rejected the bank’s argument that clause 7 made her a principal debtor. The court found that the clause allowed the bank to seek payment from her without first pursuing the borrowers, but retained the need for a demand. Clause 15 allowed the bank to pursue her as a principal debtor only in specified circumstances involving defects or limitations in the borrowers’ borrowing powers or capacity.
The court held that the bank had three months after receiving notice to decide what steps to take. As no demand was made within that period, the guarantee ceased to be effective from 4 August 2011, and the bank’s right to pursue McGrath under it was extinguished. The judgment resolved the construction and effect of the guarantee; it did not determine the borrowers’ underlying debt.