High Court Finds No Binding Oral Agreement with Bank 

July, 2016 - Eoin MacNeill, Paula Mullooly

Allied Irish Bank PLC -v- Moloney & anor [2016] IEHC 346 Twomey J, 20 June 2016, concerned an application by Allied Irish Bank (AIB) for summary judgment in the sum of €10.8m. The defendants contested the application claiming that they had a binding oral agreement with AIB, whereby it was agreed that the defendants would sell the properties charged to AIB, and the outstanding loan would be written off. The fact of the borrowings was not disputed.

AIB and the defendants had entered into negotiations regarding a possible restructuring of the defendants' loans. AIB sent a non-disclosure agreement to the defendants, which emphasised the non-binding nature of the discussions. The defendants took issue with two particular items during the negotiations, being the number of years which would have to elapse for the loan to be written off, and whether there would be a financial covenant to the effect that the defendants were not to borrow in excess of €20,000 for a period of time. Subsequently, non-binding Heads of Terms of Agreement were signed by the defendants who continued to dispute these two items.

In June 2015, AIB demanded repayment of the facilities. It was at this stage that the defendants first claimed that they reached a legally binding oral agreement with AIB allowing for a restructure of the loans. AIB stated that no agreement was ever reached between the parties. The defendants argued that given conflict of evidence, the matter should be dealt with by way of plenary hearing.

The defendants also sought a mandatory injunction obliging AIB to consent to the sale of the secured properties to a named purchaser. They argued that they had agreed, subject to contract, to sell certain of the properties and if they were not sold at this time, they would become unsaleable. AIB refused to consent to the sale, initially on the basis of a family connection between the purchaser and one of the defendants, but subsequently on the basis that their own valuation of the properties suggested that the purchase price was too low.

Twomey J had to decide whether the defendants had made an arguable case that there was a binding oral agreement between them and AIB. In reaching his decision, Twomey J had regard to the following:
- When one examined all the circumstances and all of the documentation, it was clear that the negotiations were being done on a non-binding, subject to contract and without prejudice basis.
- The only contemporaneous note from the meeting did not give any support to the contention there was a concluded agreement between the parties.
- When AIB sent its Heads of Terms to the defendants, it explicitly stated that they were a 'Non-Binding Term Sheet' and the covering letters made clear that no legally binding obligations were created.
- Subsequent correspondence from the defendants referred to the status of discussions between the parties as amounting to 'proposed agreements'.
- Even though the oral agreement was allegedly concluded in June 2013, it was raised by the defendants for the first time in June 2015 when AIB called in the loan.

Accordingly, Twomey J concluded that the defendants' assertion that they had a binding oral agreement with the Bank was not credible.

He also refused the injunction sought by the defendants, forcing AIB to consent to the sale of the properties, noting that no authorities were cited to support the granting of an application by a mortgagor, to force the mortgagee of a property to consent to the sale of that property, where the mortgagor is in default.

Twomey J took the view that the defendants’ defence flew completely in the face of the plain meaning of the words of the non-disclosure agreement, noting that its terms could not be clearer in providing that the negotiations were without prejudice and that AIB would not be bound until the execution of a formal agreement. He noted that if the Court were to ignore the words of the non-disclosure agreement, business men would legitimately wonder what other words could be put into a document to ensure that negotiations are not binding.




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