Ashwood Enterprises Ltd & Ors v The Governor & Company of Bank of Ireland & Ors (2014)


On its proper construction, a third party legal charge was not restricted to securing the original £27 million loan facility granted by a bank to a property development company, but extended to further loan facilities, an overdraft, and loan facilities extended to related companies.


The court was required to determine preliminary issues concerning the claimants' liability under a third party legal charge (TPLC).

The first claimant company (X) had been established to develop a property held by the second and third claimant property developers (M) on trust for X. For tax reasons, it was decided that X would not develop the property, and M's company (Y) was brought in as the developer. The first defendant bank extended a £27 million loan facility to Y. Y's liabilities were secured by a TPLC over the property given by M with X's consent. A further facility of £10 million was extended to Y in June 2008, and another £6 million extended in December 2008. The bank also made an overdraft facility available to Y in August 2010 to enable the development's completion. The preliminary issues concerned whether the TPLC was restricted to the £27 million facility.

X and M contended that, as a matter of construction or by way of collateral warrant given by an email or further agreement allegedly reached in December 2008, the TPLC did not have the effect of securing Y's borrowings under the £10m facility or any other borrowings under Y's overdraft or facilities extended to other companies (Z) with which M were also involved. They submitted that the same conclusion was reached by way of rectification of a comfort letter of December 2008 given by the bank or by rectification of the TPLC itself. It was argued that X had not been supplied with an accurate redemption figure in relation to the TPLC because the figure included the £10m, Z's borrowings and the overdraft facility and, further, that the subsequent appointment of receivers in respect of the property was invalid because it was carried out by the bank as agent for the National Asset Management Agency of Ireland (NAMA).


(1) The TPLC had been expressed in unambiguous terms to be an all monies charge. A reasonable person, who had all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time that the TPLC was executed, would have understood the parties to have intended it to extend to all the liabilities to the bank and not to confine them to the £27m facility, Investors Compensation Scheme Ltd v West Bromwich Building Society (No.1) [1998] 1 W.L.R. 896 and Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900 applied (see paras 153, 164, 171 of judgment). (2) The December 2008 email did not amount to a collateral warranty to the effect that the TPLC secured only the £27m facility as there was no unambiguous, common intention that it would have contractual effect, Inntrepreneur Pub Co Ltd v East Crown Ltd [2000] 2 Lloyd's Rep. 611 and SmithKline Beecham Plc v Apotex Europe Ltd [2006] EWCA Civ 658, [2007] Ch. 71 considered. Nor was the email's content sufficient to give rise to an estoppel by convention, India v India Steamship Co Ltd (The Indian Endurance and The Indian Grace) (No.2) [1998] A.C. 878 considered (paras 180-183, 190, 194-195). (3) The comfort letter could not be construed effectively so as to carve-out the £10m facility from the scope of the TPLC. The reasonable reader, taking account of the relevant background and reading the comfort letter as a whole, would not have understood the parties to have intended it to refer to the TPLC (para.205). (4) Since there was no outward expression of accord that the comfort letter had the effect contended for by X and M, their claim for rectification failed, Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 A.C. 1101 applied (paras 213, 226, 231). (5) X and M were estopped from denying that the TPLC was security for the £10m facility (para.236). (6) The demand made under the TPLC was made up of sums due under the £27m facility agreement, the £6m facility agreement and the overdraft facility which was expressly secured by means of the TPLC. The bank had reserved the right to demand further sums. There was no basis for arguing that the receivers' appointment had been on the basis of overstated or invalid demands or that X and M had not been provided with sufficient information in relation to the sums claimed (para.249). (7) The NAMA had been set up to acquire significant property-related loans and the security supporting those loans from five Irish distressed lenders. The bank had been designated a participating institution. The TPLC and the rights under it amounted to a "foreign bank asset" for the purposes of the NAMA scheme, and the bank was required to hold the benefit of the TPLC to the NAMA's direction. The legal interest remained with the bank; there was no agency. Accordingly, albeit at the NAMA's direction, the demands and the receivers' appointment remained the act of the bank and were consistent with the terms of the TPLC (paras 251, 259, 261).

Preliminary issues determined in favour of defendants