Friday 19 January 2018

Irish CEO liable for over $10m under personal guarantee he gave for a loan

Aviation entrepreneur Domhnal Slattery.
Aviation entrepreneur Domhnal Slattery.

THE CEO of an aircraft leasing company is liable for more than US$10m under a personal guarantee he gave for a loan, the Court of Appeal ruled.

Avolon Airspace CEO Domhnal Slattery is liable for the money to Friends First following what the appeal court said was "sharp practice" which led to a clause being "slipped" into a deed which, unknown to the lender, removed that liability.

That "chicanery" entitled Friends First to rectification of the deed, the three-judge court said.

It also ruled Mr Slattery is not entitled to €100,000 damages awarded by the High Court to him against Friends First over his right to confidentiality.

Mr Slattery, Ailesbury Road, Ballsbridge, Dublin, had sued Friends First arising from the unsuccessful purchase of the St Regis Hotel in Washington DC.

His private equity firm Claret Capital Ltd and Friends First were part of a consortium which bought the hotel for some $180m.

To complete the deal, Friends First agreed to advance loans to two Claret Capital related companies.

Mr Slattery and other directors of Claret entered in 2008 into guarantees of a $14.05m loan and also took personal loans, in Mr Slattery's case for US$1m, from Friends First Finance.

Mr Slattery later argued a clause in a deed of pledge of July 2009 meant Friends First recourse to him was limited to the value of his 265 shares held in an airline company, Jetbird.

Friends First said it was unaware until 2010 of that clause and sought rectification.

The High Court found Mr Slattery knew that Leon Atkins, then general counsel with Claret Capital, intended to "slip the clause" into the deed "by sleight of hand".

Mr Slattery responded "Good thinking" to Mr Atkins' suggestion of inserting the clause, Mr Justice Brian McGovern noted in the High Court.

The actions of Mr Atkins and Mr Slattery prior to the deed being signed was to get it signed when it appeared clear the clause had been missed by Friends First, the judge said.

The facts established a "unilateral mistake" by Friends First concerning the deed and it was entitled to rectification with the effect Mr Slattery and his fellow signatories were liable under the personal guarantee, the High Court ruled.

Dismissing Mr Slattery's appeal, the Court of Appeal said "sharp practice may be a charitable description" of the conduct of Mr Atkins in slipping the clause into the 2009 deed.

It was clear Mr Atkins intended to mislead Friends First as to the contents of the deed and Mr Slattery expressly agreed to the draft of the clause sent to to him by Mr Atkins, president of the appeal court, Mr Justice Sean Ryan, said.

It was "significant" the clause was not "redlined" as was normal practise among experienced commercial lawyers, the judge said.

The clause was "no more than a try-on" and it fooled the recipients to the surprise, but clearly to "the full knowledge", of Mr Atkins' side, he said.

The appeal court also granted Friends First cross-appeal against the High Court's €100,000 award of damages to Mr Slattery after disagreeing with the High Court that Friends First had engaged in "deliberate and conscious breach" of his right to confidentiality.

A spokesperson for Friends First said: “Friends First welcomes today’s judgment by the Court of Appeal. Today’s decision upholds an earlier High Court judgment in favour of Friends First and it vindicates the company’s consistent position that the personal guarantee provided by Mr Slattery at the outset of the transaction must be honoured in full.”

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