The High Court ruled that Friends First Managed Pension Funds Ltd. remained liable for 46.6% of interest on an ACC Bank loan connected to the Crystal Property Development Fund, but only up to 1 April 2012. The court rejected ACC’s claim that Friends First had lost the benefit of limited recourse and held that the loan’s 6% surcharge interest was a penalty and could not be recovered.
The judgment, delivered by Ms Justice Finlay Geoghegan on 26 October 2012, concerns a €25.25 million facility issued in 2007 to Friends First, Sean Lyne and Noel Connellan. The loan financed the discharge of existing debt and the purchase of additional land at Gaurus, Ennis, County Clare. Lyne and Connellan had already consented to judgment in 2011; the claim decided in this judgment was against Friends First.
The facility limited Friends First’s liability for principal to the amount realised from the secured land and limited its interest liability to 46.6% of interest accruing under the loan. A later agreement between Friends First, Lyne and Connellan changed how they would share repayment responsibility among themselves. The court found that it did not change their obligations to ACC or their ownership shares in the land. It therefore was not a material variation that ended limited recourse. Nor did Friends First’s payment of €138,404.47 in October 2009, calculated at a lower percentage, vary the co-ownership agreement.
ACC also argued that Friends First’s failure to pay all interest demanded amounted to wilful misconduct, which would remove the liability limits. The court found no evidence of intentional or deliberate misconduct. It held that limited recourse continued to apply.
The court decided that Friends First owed its 46.6% share of interest accrued during the facility term, including interest rolled up and capitalised. It also owed that share after the term expired, but not indefinitely. Given the agreement and the circumstances of the property development loan, ACC had to realise the secured land within a reasonable period after formally demanding repayment. The court set that period at two years from its 1 April 2010 demand, so Friends First’s interest liability ended on 1 April 2012.
The court rejected ACC’s claim for surcharge interest of 6% a year, finding the clause was a penalty rather than a genuine pre-estimate of the bank’s likely loss. It refused the amount claimed and the declaration sought. Instead, ACC was entitled to judgment for 46.6% of interest accrued up to 1 April 2012, less the €138,404.47 already paid. The parties were to be heard on the amount if necessary.