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Bank's Security/The “Vulnerable” Guarantor

It is common for Lenders to have their loan(s) secured by a personal guarantee(s). The recent High Court case of Ulster Bank Ireland Limited v Roche and Buttimer[1] shows that where the guarantor is in a personal relationship with the borrower, and has no involvement or financial interest in the business, the lender must tread very carefully or risk the guarantee failing.

The Judgment

Ulster Bank obtained a guarantee from both Mr Roche and Ms Buttimer when becoming bankers for Mr Roche's Motor Business. She was a director of the business but not active in its management and not a shareholder. When the bank called in the guarantees, Ms Buttimer argued that hers was invalid because she had signed it subject to undue influence from Mr Roche.

After hearing evidence in relation to the undue influence,the Court agreed, and although the bank did not know about the emotional pressures placed on Ms Buttimer, it knew that she was in a personal relationship with Mr Roche and had no direct interest in the company.

Justice Clarke was satisfied that the bank was placed on inquiry and was obliged to take at least some measures to seek to ensure that the Ms Buttimer is openly and freely agreeing to provide the requested security. As no such steps were taken by Ulster Bank, it was not necessary to consider the precise level of steps which a bank must take.


The High Court has now broadened the circumstances in which a guarantee may be set aside for undue influence by a third party.

In so doing it has increased the risk of guarantees failing and increased the burden on lenders. Ms Buttimer’s guarantee would have been upheld under previous Irish caselaw (2) on the basis that the bank did not know about the undue influence.

Now, where there are “red flags” suggesting that the guarantee is being provided for non-commercial reasons, a lender is automatically deemed to be on notice and must take steps to ensure that the proposed guarantor is giving free, informed consent.


[1] [2012] IEHC 166

[2] Ulster Bank Ireland Ltd v Fitzgerald and another (Unreported, High Court, O’Donovan J, 9 November 2001)

For further information please contact Patrick Donaghy either by email: or phone:(01) 6794165