The Court of Appeal has allowed Allied Irish Banks’ appeal and dismissed a cross-appeal by two parents over guarantees they gave for a €400,000 loan to their son, identified in the judgment as JX.
The ruling overturns a High Court decision to send the bank’s claim for a plenary hearing after finding an arguable defence based on JX’s capacity to enter the loan agreement. The parents’ counsel conceded on appeal that the evidence did not support that defence. The appeal court said there was no evidence that JX lacked legal capacity in 2009 or that the bank knew, or could have known, of any such issue before 2015.
The loan facility was agreed in October 2009 for “working capital”, repayable on demand or within 12 months. Each parent signed a guarantee for €400,000. The judgment says payments became irregular in 2012 and stopped in 2015. After receiving a doctor’s report about JX’s health in June 2015, the bank classified him as a vulnerable customer. It demanded payment from JX in September 2016, then from his parents under the guarantees. The bank issued summary proceedings in May 2017.
The parents argued that the underlying loan might be set aside as an improvident transaction because of JX’s mental health and the bank’s alleged failure to ensure he received independent legal advice. They also sought a plenary hearing to pursue discovery, including access to medical records and information about what the bank knew. The appeal court held that they had not shown inherent unfairness in the loan, such as inadequate consideration, or a credible basis for claiming the bank knew or ought to have known of JX’s vulnerability when the loan was made. Information disclosed in 2015 could not be projected back to 2009, it said.
The court also rejected the parents’ argument that they might face an injustice if JX later avoided the loan. It said the loan would be voidable at JX’s suit, rather than void from the outset, and pointed to clause 12 of the guarantees. That clause provides for the guarantor to indemnify the bank and become liable as principal debtor where amounts are unrecoverable from the borrower because of disability or incapacity.
The court concluded that the parents had not shown a fair or reasonable probability of a bona fide defence and dismissed their cross-appeal. On costs, the judgment gave the parents 14 days to apply for a brief supplemental hearing if they wished to argue for a different order. Otherwise, the proposed order would award the bank its costs in the Court of Appeal and High Court.