Negligent Mistatement
Cases
Bank of Ireland v. Smith.
[1966] IR 646
Kenny J.
…. The purchaser, Mr. Cosgrave, read the advertisement which was published in the newspapers, and inspected the lands before the auction. He is not a tillage farmer and he specialises in livestock. He relied on the advertisement. He said (and I accept his evidence) that when he inspected the lands it was not easy to know whether they had been undersown with grass. I accept his evidence that he believed the 40 acres were undersown with grass when he went to the auction and when he signed the offer to purchase on the 8th November. It is impossible to make any finding as to the exact date when Mr. Smith ploughed the lands, but I think it was done after the date for completion fixed by the conditions of sale and that it was done some time between the 22nd November, 1965, and the middle of January, 1966. The purchaser has, therefore, established that there was a misdescription of the condition of the lands in the advertisement, that he relied on this and that he has suffered loss as a result of it. The cause of the loss was not his foolish action in making an arrangement with Mr. Smith that he could stay on the lands until the 31st of January, but was that the lands were not undersown. The purchaser was not at fault in failing to distinguish undersown grass from weeds and acted reasonably in relying on the description in the advertisement. The auctioneers had reasonable grounds for their belief that the lands were undersown with grass and the statement in the advertisement was honest but mistaken.
The first matter to be determined is who the vendors on this sale were. The sale was by direction of the Court and
the order for sale was obtained by the Bank of Ireland. Carriage of the proceedings had, however, been trasferred to the defendants for whom Messrs. Hayes & Sons were acting as solicitors and whose name appeared on the advertisement and on the particulars attached to the conditions of sale. I agree with the decision of Mr. Justice Overend in the Bank of Ireland v. Waldron (1) that in a sale by or under the direction of the Court, the Court is not the vendor. In my opinion, the defendants were the vendors and their solicitors and their auctioneers were their agents for the sale.
There was no misdescription or error of any kind in the particulars attached to the conditions of sale, and the provision for compensation in the conditions relates to errors and misstatements in the particulars attached to the conditions. Counsel for the purchaser, however, argued that the misdescription in the advertisement gave the purchaser a right to compensation. As the purchaser took possession of the lands on the 15th March, when he knew that the 40 acres had been ploughed and was not in permanent pasture, he could not succeed in a claim to be released from his contract. The cases cited by counsel dealt with claims by purchasers to be released from their contracts because of misdescription or innocent misrepresentation and none of them establishes that a purchaser is entitled to compensation on a Court sale because there was an innocent misstatement in an advertisement. The general principle was stated by Lord Macnaghten in his usual forthright manner when giving the advice of the Privy Council in Mahomed, Kala Mea v.A. V. Harperink (2). This was a claim by a purchaser to be released from a contract he had entered into in Burma. The auction was carried out by two officers of the Court, a chief clerk and his deputy who acted as auctioneer. The auctioneer read what corresponded to the conditions of sale in the English language, a language which none of those present understood. One of them asked the auctioneer what the conditions meant and was informed “in the vernacular”(Hindustani) that the lands were being sold. The true position, however, was that the interest of the judgment debtor (an equity of redemption) was being sold. The Courts in Burma refused to relieve the purchaser from his contract, decisions which Lord Macnaghten described as “a lamentable miscarriage of justice.” He went on to say:”But over and above all this, there is involved in this case a principle of supreme importance which the learned Judges of the Chief Court entirely disregarded. It has been
laid down again and again that, in sales under the direction of the Court, it is incumbent on the Court to be scrupulous in the extreme, and very careful to see that no taint or touch of fraud or deceit or misrepresentation is found in the conduct of its ministers. The Court, it is said must at any rate not fall below the standard of honesty which it exacts from those on whom it has to pass judgment. The slightest suspicion of trickery or unfairness must affect the honour of the Court and impair its usefulness. It would be disastrous, it would be absolutely shocking, if the Court were to enforce against a purchaser misled by its duly accredited agents a bargain so illusory and so unconscientious as this. Their Lordships are somewhat surprised to find that the learned Judges have nothing to say on this aspect of the case.” The same view was expressed in more restrained language by the Master of the Rolls (Sir Andrew Marshall Porter) in Manifold v.Johnston (1) when he said:”It would be unjust to compel the purchaser to carry out the contract if this were a case of specific performance, and it would be doubly improper to compel him to do so in the case of a sale under the Court.”But in both these cases the claim was to be relieved from the contract and neither of them establishes that a purchaser is entitled to compensation because there had been an innocent error in an advertisement.
The next contention was that the decision of the House of Lords in Hedley Byrne & Co. Ltd. v. Heller (2) had established that a person who relies on an innocent misrepresentation and suffers loss as a result is entitled to damages. The speeches in that case establish that, in some cases, a negligent misrepresentation made to anyone who, to the knowledge of the speaker or writer will rely on it and will be damaged if it is incorrect, gives a right to damages: they do not establish that every innocent misrepresentation gives such a right. I shall be dealing with this decision in a later part of this judgment in connexion with the claim for negligence against the auctioneers.
The next argument was that the statement in the advertisement about the undersowing of the barley was a warranty and not an innocent misrepresentation. Counsel for the defendants said that the statement was not a warranty and that the matter was concluded by the speech of Lord Moulton in Heilbut, Symons & Co. v. Buckleton (3). Lord Moulton, who quoted the much praised remark of Holt C.J., “An affirmation at the time of the sale is a warranty, provided it appear on evidence to be so intended” (a statement which
contains at least two ambiguities), went on to say:”It is . . . . of the greatest importance, in my opinion, that this House should maintain in its full integrity the principle that a person is not liable in damages for an innocent misrepresentation, no matter in what way or under what form the attack is made. In the present case the statement was made in answer to an inquiry for information. There is nothing which can by any possibility be taken as evidence of an intention on the part of either or both of the parties that there should be a contractual liability in respect of the accuracy of the statement. It is a representation as to a specific thing and nothing more. The judge, therefore, ought not to have left the question of warranty to the jury, and if, as a matter of prudence, he did so in order to obtain their opinion in case of an appeal, he ought then to have entered judgment for the defendants notwithstanding the verdict.” In an earlier part of his speech he had said:”It is not contested that the only company referred to was the Filisola Rubber and Produce Estates, Limited, or that the reply of Mr. Johnston to the plaintiff’s question over the telephone was a representation by the defendants that the company was a ‘rubber company,’ whatever may be the meaning of that phrase; nor is there any controversy as to the legal nature of that which the plaintiff must establish. He must show a warranty, i.e., a contract collateral to the main contract to take the shares, whereby the defendants in consideration of the plaintiff taking the shares promised that the company itself was a rubber company. The question in issue is whether there was any evidence that such a contract was made between the parties.”
“It is evident, both on principle and on authority, that there may be a contract the consideration for which is the making of some other contract. ‘If you will make such and such a contract I will give you £100,’ is in every sense of the word a complete legal contract. It is collateral to the main contract, but each has an independent existence, and they do not differ in respect of their possessing to the full the character and status of a contract. But such collateral contracts must from their very nature be rare . . . . . Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract, are therefore viewed with suspicion by the law.” See also the decision in Gilchester Properties v. Gomm (1), in which an innocent misrepresentation made in connexion with a sale was held not to be a warranty and not to entitle the purchaser to damages.
The modern cases, however, show a welcome tendency to treat a representation made in connexion with a sale as being a warranty, unless the person who made it can show that he was innocent of fault in connexion with it. The rule that an innocent misrepresentation causing loss does not entitle a person to recover damages for its falsity produces injustice in many cases. In Oscar Chess Limited v.Williams (1), Denning L.J., having referred to the famous ruling of Holt C.J., said:”The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice,” and in Dick Bentley Productions Limited v. Smith (Motors) Limited (2) the same Judge said:”It seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it, and it actually induces him to act on it by entering into the contract, that is prima facie ground for inferring that the representation was intended as a warranty. It is not necessary to speak of it as being collateral. Suffice it that the representation was intended to be acted upon and was in fact acted on. But the maker of the representation can rebut this inference if he can show that it really was an innocent misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be reasonable in the circumstances for him to be bound by it.” I have not had the advantage of hearing counsel on these two cases but I believe that they express the true rule.
The statement in the advertisement was a representation and was made with the intention of inducing a purchaser to act on it: the purchaser was induced to enter into the contract by it. The representation was incorrect, but was made innocently and honestly: Mr. Mulcahy was innocent of fault in making it, but it would be unreasonable that his principals should not be bound by it. In this connexion the remarks of Lord Macnaghten which I have quoted are relevant, for it would be against conscience that the vendor in a Court sale should not be bound by a representation made by his agent in connextion with that sale.
It follows, in my opinion, that the purchaser is entitled to recover damages for breach of warranty relating to the undersowing of 40 acres.
I think I should deal with the other ground on which the purchaser based his claim. It was said that an auctioneer acting for a vendor should anticipate that any statements
made by him about the property will be relied on by the purchaser and that he, therefore, owes a duty of care to the purchaser and is liable in damages to him if the statement was incorrect and was made carelessly. In my opinion, the decision in Hedley Byrne & Co. v. Heller (1) does not give any support to this startling proposition. It decides that, if a person seeks information from another in circumstances in which a reasonable man would know that his judgment is being relied on, the person giving the information must use reasonable care to ensure that his answer is correct, and if he does not do so, he is liable in damages: but the relationship between the person seeking the information and the person giving it, if not fiduciary or arising out of a contract for consideration, must be, to use the words of Lord Devlin, “equivalent to contract,” before any liability can arise. The basis of the decision in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. is, I think, contained in the speech of Lord Devlin when he said (at p. 528):”I think, therefore, that there is ample authority to justify your Lordships in saying now that the categories of special relationships which may give rise to a duty to take care in word as well as in deed are not limited to contractual relationships or to relationships of fiduciary duty, but include also relationships which in the words of Lord Shaw in Nocton v. Lord Ashburton (2) are ‘equivalent to contract,’ that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract.” Even if an auctioneer’s fees are paid by the purchaser (and in this case the vendors are liable for them), a contractual relationship between the vendors auctioneers and the purchaser does not exist. The decision of Davitt P. in Securities Trust Limited v. Hugh Moore & Alexander Limited (3) supports this conclusion. Moreover, the purchaser has not proved that Mr. Mulcahy was negligent. He was told by an employee of Mr. Smith that the lands had been undersown, he visited them on many occasions and the error which he made is one which could be made by the most careful of auctioneers. The claim in negligence against the vendors fails.
There has been the usual difference in opinion between the experts about damages. I accept the view that the yield of hay from grass undersown in barley is 2 tons to the acre. The representation complained of refers to “approximately 40 acres” the price of hay in the barn would have been £10 per ton. The purchaser lost the hay crop which he
expected and so lost £800. There has also been conflict about the cost of sowing the lands to make them pasture. The agricultural contractor said that the cost would be £15 15s. 6d. an acre, but this includes the use of fertilizer which is not necessary. I will allow £11 an acre for the cost of ploughing, discing, sowing and harrowing. A claim is also made for loss of grazing, but this is not referred to in the letter of the 26th May, 1966, in which the purchaser’s claim is stated. The purchaser will be awarded compensation of £1,240, which will be paid out of the money in Court after the claim of the Bank but before the claim of the defendants.
All this unfortunate litigation has been caused by Mr. Smith who admitted in evidence that he had read the advertisement but said that he did not notice the error. I do not accept his evidence on this. The purchaser will be awarded his costs of this motion which will be taxed on the basis that they were incurred in the trial of an action, but limited to two days, and I will award these costs against Mr. Smith personally. As it may not be possible to recover them from him, the amount of the costs when taxed will be retained in Court on the allocation of the purchase money, and if the purchaser establishes that he cannot recover them from Mr. Smith by the usual methods of legal execution, they will be paid out of the sum retained.
Hazylake fashions Limited v Bank of Ireland
[1989] IR 643 Murphy J
Hazylake Fashions Limited (to whom I shall refer as “the plaintiff”) commenced trading at Easkey in County Sligo in the month of January, 1985. The business of the plaintiff consisted in the manufacture and sale of children’s clothing principally for the export market. The managing director of the plaintiff is and was at all material times Mr. Jean Claude Fabien. Mr. Fabien is a man of considerable commercial experience and in particular is and was familiar with bills of exchange and banking procedures. From the time at which it commenced business at Easkey the plaintiff had a bank account with the defendant at its Sligo branch in Grattan Street. However the discounting of foreign bills of exchange was carried out on behalf of the plaintiff by the Bank Paribas in Luxembourg. In
October, 1985, Mr. Fabien decided to explore the possibility of transferring the plaintiff’s international banking business from the Paribas to the defendant so that it would handle all of the plaintiff’s banking requirements. As a result of that decision Mr. Fabien met with Mr. Eoin Crowley the manager of the defendant’s international banking division at Galway. Mr. Fabien and Mr. Crowley are in agreement with regard to two matters discussed at their meeting. First, both parties agree that no reference was made to the discounting of unaccepted bills of exchange and, secondly, that the defendant would require the plaintiff to procure export credit insurance from the Insurance Corporation of Ireland in accordance with a scheme operated by that insurance company. There was surprisingly little evidence as to what function the defendant was being asked to commit itself to perform. No doubt it was intended that the defendant should discount and collect bills on behalf of its customer but no evidence was directed towards showing that it undertook a commitment in that behalf. The scheme on which the parties embarked emerged more clearly from the documentation executed in connection with the export finance insurance scheme. That documentation shows that the defendant had agreed to make advances to the plaintiff for “up to 90%” of the face value of certain bills of exchange drawn by the plaintiff and that the Insurance Corporation of Ireland, subject to a variety of conditions and stipulations, guaranteed the payment of the full amount of the advances up to an agreed stipulated limit of the aggregate amount outstanding at any given time. Clearly the defendant was satisfied to make the advances partly on the security of the bills of exchange but more particularly on the basis of the guarantees provided by the Insurance Corporation of Ireland. I would infer, therefore, that the parties were in agreement that the defendant would advance 90% of the full amount of all bills of exchange falling within the scheme and presented within the period covered by it, subject of course to the stipulated limit of the revolving credit.
With regard to the issue whether the defendant agreed at any time to discount or make advances against unaccepted bills of exchange, Mr. Crowley was adamant that this possibility was never discussed, less still agreed. He expressed his position graphically by saying that “basically it would be unnatural for bankers to talk of unaccepted bills of exhange.” In fact Mr. Crowley’s views are not supported by the export credit insurance documentation which defines “an eligible instrument”in such a way as would include both an accepted and unaccepted bill of exchange. This interpretation of the definition is reinforced by clause 1 of the guarantee itself which, in paragraph (d) thereof, imposes a condition that “the Bank at the date of the advance had no knowledge of any dishonour by non-acceptance.”Even more impressively the attention of Mr. Crowley was drawn to a brochure issued by the Bank of Ireland under the title “Export Finance Scheme For Non-Capital Goods” which contains the following paragraph:
“The scheme is intended to provide rapid post shipment finance to exporters at attractive interest rates. Interest rates in foreign currencies can be cheaper than Irish Pound rates and the borrowers under the scheme do not have an exchange risk. In addition, unless specifically excluded by I.C.I., the advance can be made against unaccepted bills or notes. This eliminates the
necessity of having the bills/notes sent for acceptance prior to finance being provided.”
Notwithstanding these conflicting viewpoints I am satisfied that the documentation as a whole, including in particular a letter dated the 27th May, 1986, from the Insurance Corporation of Ireland to the plaintiff (to which further reference will be made), makes it clear that the scheme to be operated in the present case was limited to accepted bills of exchange and that furthermore in the month of October, 1985, both the defendant and the plaintiff intended that it should be so limited.
Following the October meeting steps were taken to put the export insurance cover in place. The documentation was not completed until March, 1986. The arrangement provided a guarantee to the defendant for advances made between the 1st March, 1986, and the 31st March, 1987, up to a limit of advances not exceeding at any one time £20,000. The first five bills sent to the defendant for discount and collection were received by it on the 16th April, 1986. It is significant to note that four of these bills related to goods that had been shipped nearly two months before the bills were forwarded to the defendant. This seems to have been a fact which influenced the thinking of Mr. Crowley in convening a further meeting with Mr. Fabien which was held on the 17th April, 1986. Mr. Crowley says that one point which he made at that meeting related to the delay in procuring payment on the bills. He was anxious that the bills would be dispatched the same time as the goods. However it was Mr. Fabien himself who gave evidence of Mr. Crowley’s concern about the authentication of the signature of the acceptor. Mr. Crowley wanted the acceptance executed in the acceptor’s bank and that notification of the acceptance would be telexed direct to the international division in Galway. That this was so is fully supported by the documentation which the defendant devised for the purpose of these transactions. Mr. Crowley explained to Mr. Fabien and to his office manager, Miss Jackie Cunningham, the documents that were required and the manner in which they should be completed. In fact he filled in his own writing one set of documents to illustrate what was required. These included a document known as the “direct collection letter”which purported to emanate from the defendant and was addressed to the drawee’s bankers. The letter referred to the bill in question and gave specific instructions with regard both to collection and payment. In the column dealing with collection instructions a specific requirement was to be inserted by the plaintiff requiring the addressee “to notify acceptance by telex/swift” to the Bank of Ireland at Eyre Square, Galway. Again additional payment instructions were included by the plaintiff on the instructions of Mr. Crowley to remit the proceeds by the same procedure, again to Eyre Square, Galway. This collection letter was carboned onto two copies. The original was entitled “Original Mail”, the first copy entitled “File Copy for Bank” and the second copy entitled “Copy for Exporter”. Obviously it had been originally intended that the direct collection letter would be dispatched by the defendant who would send a copy to its own customer and retain a copy for its own file. It appears, as Miss Commer explained, that some time towards the end of 1984 or the beginning of 1985 the international
division of the Bank of Ireland had changed its system and had transferred to the client the task of communicating instructions to the drawee and its banker. In that way the client was sending out letters appearing to emanate from the defendant though in fact completed and dispatched by the plaintiff. It seems to me that the evidence as to what took place at the meeting of the 17th April, 1986, and the contents of the documentation that followed on that meeting confirmed beyond any possibility of doubt that it was the intention of the defendant to discount or make advances against duly accepted bills of exchange and not against bills of exchange which had not as yet been presented for acceptance. It seems to me impossible to believe that Mr. Crowley would have taken such steps to ensure the authenticity or propriety of any particular acceptance if in fact he was prepared to contemplate making an advance against a bill which had not even been presented for acceptance. The fact that the entire scheme related only to accepted bills of exchange was further underscored by the letter (already referred to) dated the 27th May, 1986, from the Insurance Corporation of Ireland to the plaintiff by which the stipulated limit of the revolving credit was increased from £20,000 to £40,000. That letter indicated that the guarantee to the defendant was in respect of advances made on foot of “a bill of exchange drawn on and duly accepted by a buyer under the terms of a contract covered by the policy.”
The bills delivered to the defendant in the remainder of April, 1986, and during May of the same year had already been processed under the earlier arrangement by which the client procured acceptance of the bill in a manner which was satisfactory to him rather than to the satisfaction of the defendant. It was not until the end of June, 1986, that the new system came into operation. On the 26th June three unaccepted bills were forwarded to the international division of the bank at Galway. It appears that the goods were shipped and the bill drawn at or about the same time. All three bills were discounted on the 30th June. As the evidence was to the effect that it took on average seven days for communications from Easkey to reach the French banks concerned in the transactions and that then those banks had to contact their clients and procure execution of the acceptance it must have been clear to anybody who directed his mind to the issue that not only had the bills of exchange in question not been accepted but that they could not have been presented for acceptance in that time. In fact it would seem that only one of the three bills was ever accepted and that that occurred on the 17th September, 1986, that is to say nearly three months after the advance had been made. Between July and November, 1986, twelve further unaccepted bills were presented and promptly, if not immediately, discounted by the defendant in circumstances which clearly indicated that the bill could not have reached the drawee, less still been accepted by him before the advance was made.
Having regard to the bargain between the parties as I have found it to be, why were these advances made prematurely? Was it the result of a bargain or a blunder?
In support of the proposition that there was some express or implied agreement that the defendant would in fact discount unaccepted bills, attention was drawn to that part of the evidence of Miss Cunningham where she said that Mr.
Crowley had asked her to contact one of his assistants, Miss Commer, as to the manner in which part of the documentation should be completed. The particular document was a form required for the purposes of the Exchange Control Acts and the evidence given by Miss Cunningham, which appeared to be significant, was that she had been told to insert as the drawdown date for advances to be made by the defendant to the plaintiff a date three to four days next following the invoice date of the goods dispatched to the foreign customer. It was tenatively suggested that this indicated an intention by the defendant to make advances within three to four days of receipt of the documentation and, accordingly, irrespective of the fact that acceptance could not have been procured within that time span. In fact it turns out that the particular invoice date suggested by Miss Commer to Miss Cunningham was the 27th February, 1986, which was a date on which goods had been shipped by the company to a foreign buyer, but it is likewise clear that this invoice related to goods in respect of which a bill of exchange had already been drawn and accepted by the drawee. In the circumstances I would attach little value to the evidence but without casting any doubt whatever on the integrity of either witness.
I am convinced that the bargain between the parties related to accepted bills only and that this agreement was never varied expressly or by implication and accordingly that the premature advances made by the defendant and accepted by the plaintiff was due to an administrative error which was almost certainly caused by continuing the practice which had been established in relation to the system originally adopted between the parties when they had been dealing with notes accepted prior to dispatch for collection by the defendant. No doubt the position was exacerbated by the changes in banking procedure of which Miss Commer gave evidence and which took place at or about the same time. There was some conflict between the evidence given by various witnesses as to how, when and by whom the error was discovered. I believe that Mr. Crowley is correct when he says that he was informed of the error by his assistant manager on the 27th November, 1986. On that date in fact the international division of the bank received and discounted an unaccepted bill of exchange. However I believe that Mr. Crowley is mistaken in saying that he telephoned Mr. Fabien in the week beginning the 27th November, 1986. Indeed that evidence is necessarily mistaken as the 27th November, 1986, was a Thursday and not a Monday. I think it is improbable that Mr. Crowley had an opportunity to communicate with Mr. Fabien before he dispatched to the defendant the unaccepted bill drawn on the 24th November, 1986, and forwarded to the defendant on the 3rd December, 1986. Indeed it may have been the receipt of that bill of exchange on Friday, the 5th December, which impelled Mr. Crowley to communicate with Mr. Fabien early in the following week on the 8th or 9th December. Whilst, therefore, I take the view that the communication took place somewhat later than Mr. Crowley believes, it was considerably earlier than Mr. Pat Burke, the manager of the Sligo branch, was given to understand. Furthermore, I accept that the initiative for the communication came from Mr. Crowley rather than Mr. Fabien. Again there is a difference between the parties as to the reaction of Mr. Fabien to the news that
a mistake had occurred in the past which had resulted in unaccepted bills being discounted and that for the future only accepted bills would be discounted with a consequent delay in making advances on foot thereof. Mr. Crowley recalled Mr. Fabien’s attitude as being one of “no problem” whereas Mr. Fabien himself says he got into a panic on hearing the news and advised Mr. Crowley that it would be impossible for the company to do business without having cash available to it. I feel sure that Mr. Fabien was indeed concerned, perhaps not immediately, but as soon as he appreciated the significance of the correct procedure. Indeed Mr. Crowley did say that in subsequent discussions Mr. Fabien adopted his “usual aggressive attitude”.
I believe that Mr. Fabien was more disappointed or concerned than aggrieved. I believe that he must have realised at some stage that the defendant was applying its own system incorrectly and that the correction would necessarily place a greater strain on the plaintiff’s cashflow which at that stage was stretched to the limit. Indeed the man with the real grievance was Mr. Pat Burke, the manager of the Bank of Ireland branch in Sligo, who was not privy to the precise terms of the arrangement between the plaintiff and the international division. He had been permitting the plaintiff to draw on its current account in his branch in the expectation that funds would be forwarded to the branch by the credit division in Dublin shortly after the lodgment of the bills of exchange of which he was notified by his client.
After the mistake was discovered the defendant declined to discount bills until acceptance was notified to them. However even at that stage they made a conscious decision to discount three unaccepted bills. This decision was taken by the credit division in Dublin for the purpose and with the effect of clearing the overdraft which the plaintiff had accumulated on its account in the Sligo branch.
Mr. Fabien explained that as a result of cash shortages the plaintiff was forced to cease production as from the 7th March, 1987. In fact there is some ambiguity as to precisely what was meant by this statement. It would appear from his cross-examination that manufacturing production ceased but that the plaintiff continued to exploit its commercial connection by acting as agents for the sale of goods to its previous customers in France and elsewhere. To that extent the plaintiff may be said to have continued in business but to have arranged to have goods made up for it by another manufacturer.
In these circumstances the plaintiff claimed damages against the defendant on the following bases:
1. That there was a contract between the plaintiff and the defendant under which the defendant agreed to discount unaccepted bills of exchange and to continue doing so until the agreement was terminated by not less than six months notice.
2. That the defendant was negligent in failing to advise the plaintiff in April, 1986, of the delay which would result from the defendant’s requirement that the bills should be accepted in the manner required by the defendant before they were discounted by it.
3. That having regard to the particular relationship between the plaintiff and the defendant, the defendant was liable to the plaintiff for any statement made negligently which resulted in economic damage to the plaintiff. In that context it was contended that the actions of the defendant in discounting unaccepted bills within three to four days of their receipt amounted to an implied statement.
The first of these arguments fails for the reason that I have already decided,viz. that there was not in fact at any time any contract by the defendant to discount unaccepted bills of exchange, still less to continue that procedure for any particular period of time.
The second argument is based upon an amendment to the pleadings by the insertion of an additional paragraph in the particulars in the following terms:
“(g) Failed to inform or advise the plaintiff that in the event of the defendant discounting only accepted bills of exchange there would be delays between presentation of copy bills of exchange and discounting of up to fourteen weeks.”
Even assuming the defendant did have an obligation to advise the plaintiff as to the effect of the procedure, the evidence did not, as I understand it, establish that the procedure itself was such as would involve the alleged delay or indeed that a delay of fourteen weeks subsequent to presentation of the bill would be material or indeed different from the delays which would otherwise occur in the processing of the transaction. What the evidence did make clear was that the duty to obtain the acceptance was imposed on the plaintiff; that it was the plaintiff who drew the bill of exchange and dispatched it with an appropriate direct collection letter to the drawee’s bankers. Accordingly the only function of the defendant was to receive by telex/swift notice of acceptance from the drawee’s bankers. There was no suggestion that there was nor indeed could have been any delay under that heading. Clearly there was some delay in sending the drawn bill to the continental bank and it was reasonable to suppose there would be some delay in the continental bank procuring execution by its customer but the whole purpose of the altered procedure, as I understand it, was to leave this aspect of the transaction under the direct control of the defendant’s client. The plaintiff had the opportunity of pressing its customer to complete the transaction with minimum delay. I do not see how the defendant could have forecast how successful the company would have been in procuring the co-operation of its customers or to give any advice in that regard.
It seems to me that it would be impossible to extend the decision in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465 or indeed the subsequent Irish decision in Securities Trust Ltd. v. Hugh Moore & Alexander Ltd. [1964] I.R. 417 to the facts of the present case. Where Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. extended the concept of negligent actions causing economic loss to negligent misstatements, having the same result in this case would involve the further extension of the law to include implied statements. But even if that extension is justifiable it is difficult to extract from the actions of the parties the
statement which is said to have been made negligently and caused economic loss. It could not be contended that the defendant negligently or otherwise led the plaintiff to believe that the bills were accepted before they were discounted. Manifestly this was impossible having regard to the dates on which the various transactions took place. If it is suggested that the premature discounting of the bills was a representation that this procedure would continue then effectively the company is contending that the original contract had been amended and there is no evidence (or indeed argument) to support that conclusion. The reality of the matter is that the defendant acted negligently in the sense that it failed to take appropriate steps to safeguard its own interests. It did not await notification of acceptance before discounting and it may have lost the protection of the insurance cover as a result. In my view it was making no “statement” express or implied to the plaintiff. The plaintiff was simply the beneficiary of an unfortunate administrative error made within the banking system. I accept that the correction of this error on very short notice to the plaintiff must have added to the serious financial problems which it was then undergoing but I cannot see that the defendant acted in breach of its duty by making a mistake in relation to the conduct of its own business or in correcting the error when it was identified. In the circumstances it seems to me that this argument too must fail.
Finally I would like to add that the evidence given in the case did not cast any reflection on the conduct of Mr. Fabien. All of the bills presented to the defendant whether accepted or not were duly paid and the defendant was reimbursed the full amount of all advances made by it together with interest and all of the costs and charges to which they were entitled. The fact that the advances were made to the plaintiff at an earlier date than would have been appropriate may have had advantages for Mr. Fabien but it is to be noted that he paid interest on those advances from the date on which they were made so that the defendant was as much a beneficiary from the premature payments as was the company. It is particularly important to stress this aspect of the matter as, unhappily, an item was included in an R.T.E. mid-day radio news programme during the course of the hearing concerning the affairs of the plaintiff which gravely concerned the plaintiff having regard to certain matters stated or implied therein. Those imputations were in fact entirely irrelevant to any of the matters which I was called upon to decide for the purposes of this judgment.
Gayson v. A.I.B. plc.
[2000] IEHC 9 (28th January, 2000)
THE HIGH COURT
1994 No. 1417p
BETWEEN
MICHAEL GAYSON
PLAINTIFF
AND
ALLIED IRISH BANKS PLC.
DEFENDANT
Judgment of Mr. Justice Geoghegan delivered the 28th day of January, 2000 .
1. The Plaintiff is a substantial farmer residing and working outside Cashel in Co. Tipperary. In this action he has sued the Defendant bank for damages for alleged negligent advice given to him by the bank not to avail of the tax amnesty which came into being in August 1988. As to what precise advice was sought may be open to different interpretations and therefore the introductory summary which I am giving will be elaborated on considerably in the course of the judgment. As I will be attaching some significance to the pleadings I think it important to start by outlining how the Plaintiff’s case was pleaded in the Statement of Claim. That Statement of Claim was delivered as far back as 3rd August, 1994 and insofar as it contains alleged facts it can be reasonably assumed that it represented the instructions given by the Plaintiff to his own Solicitors at the time.
2. The Statement of Claim sets out that since 1960 the Plaintiff had effectively been a customer of the bank or its predecessor and had from time to time deposited various sums of money with the bank. It is pleaded in paragraph 4 of the Statement of Claim as follows:-
“At all times material hereto the Plaintiff informed the Defendant that the said monies would eventually be required for the education advancement of the Plaintiff’s children.”
3. At this stage I would just signpost the use of the word “informed” and the use of the word “eventually”. What seems to be suggested in the Statement of Claim is that the bank was told the reason for what turned out to be substantial deposits, namely, that they would eventually be required for the education of the children and having regard to the evidence at the hearing I would accept that the bank was probably informed that the education being referred to was third level education. In paragraph 5 of the Statement of Claim there is simply a bald statement that in or about 1982 the bank requested the Plaintiff to supply a foreign address as this was required because of some new legislation. It is pleaded that the Plaintiff thereupon gave the bank the address of his sister in Birmingham. I think it important to cite paragraph 6 in full as it will prove helpful in interpreting the evidence adduced in Court. The paragraph reads as follows:-
“In or about August 1988 the Plaintiff expressed to the Defendant the concern of the Plaintiff that there was owing to the Revenue Commissioners unpaid tax in respect of monies so deposited by the Plaintiff with the Defendant and requested the advice of the Defendant as to whether or not the Plaintiff should avail of the tax amnesty then in force. The Defendant advised the Plaintiff not to avail of the said amnesty.”
4. The rest of the Statement of Claim is routine in that it pleads reliance on the advice, negligence in giving the advice and loss and damage suffered etc. I now therefore turn to the evidence itself.
5. In the Plaintiff’s history the first matter of significance was a conversation which the Plaintiff had with the then manager of the bank in Cashel, Mr. Denis Murphy. That was in 1978. The Plaintiff explained that he and Mr. Murphy had a very good relationship and that Mr. Murphy used to give him advice of all sorts. He used to discuss the farm with him and various aspects of his business. In particular, Mr. Murphy used to advise him as to how to invest his money. In fact, according to the Plaintiff, he used to just leave it to Mr. Murphy and Mr. Murphy arranged for it to be placed in the appropriate account. But in 1978 Mr. Murphy suggested to the Plaintiff that he would earn a better rate of interest if the money was put into a subsidiary of the bank in Northern Ireland. About £70,000 was so deposited. No tax was ever paid on that money while it was in Northern Ireland and I am satisfied that the Plaintiff was well aware that no tax was paid on it. Of course it would have been for the Plaintiff himself to have returned it for tax purposes. He clearly did not do so and what is more his Accountant, Mr. Meade knew nothing about it, a point to which I will be returning. In connection with the 1978 discussions, however, the Plaintiff’s Counsel, Mr. Keane, asked the Plaintiff whether the money which was sent to Northern Ireland had anything to do with his children. His reply at Q. 32 in Book 2 of the transcript was as follows:-
“It was actually in trust for the children. It was Murphy’s suggestion that any spare money I would have would be put into a trust for the children.”
6. Having regard to the pleadings to which I have already referred, this was a surprising answer. I am absolutely certain that if the Plaintiff had instructed his Solicitors that a trust had been created for the children in connection with the monies deposited in the bank, that fact would never have been left out of the Statement of Claim. I do not believe he gave any such instructions. I accept the evidence of the bank witnesses that at no material time was the word “trust” ever used to their knowledge. I believe that it has been introduced into evidence by the Plaintiff to give some kind of spurious credence to his own evidence that he was quite unaware of any element of tax evasion in relation to this account and had understood from Mr. Murphy that because there was a trust for the children no tax was payable. Not only is it inherently unlikely that the Plaintiff had that belief but I am satisfied on the evidence that he never had it. It is the Statement of Claim in my view which gives away the true story. The children were only involved insofar as they formed the motive for the deposit deliberately hidden by the Plaintiff so as to evade tax, with no doubt the misguided good intention of benefiting his children. But I am satisfied that there was never any question of a trust in the legal sense.
7. The next event of significance occurred in 1982. The bank suggested to the Plaintiff that the money be brought back from Northern Ireland. As Mr. Hardiman successfully brought out in cross-examination there is a certain amount of confusion and as he would argue deliberate confusion, as to how the accounts were recorded and identified. A false address for the Plaintiff in the form of “The Glebe Hotel Epson Downs, Epson, England” was used. I am inclined to accept that this address was entirely invented by the manager of the bank, Mr. Murphy and that the Plaintiff was not even aware that it was used. As will become more and more clear, as I proceed with the judgment, the bank, in the form of Mr. Murphy, was not only heavily involved with the Plaintiff in the hiding of the Plaintiff’s money from the Revenue Commissioners but was actively advising and encouraging him as to how this could be done. Given that what is at issue in this case is a fairly net question both as to its factual and legal aspects, it might seem surprising that the hearing took so many days but that was because Counsel for the Plaintiff slowly and skilfully brought to light both the bank’s involvement in the tax evasion and to some extent the bank’s own interest from a competitive point of view in maintaining a situation whereby the Plaintiff received the highest possible yield from his deposit, given that the Plaintiff’s account was one of the biggest in the branch. But none of this evidence was of particular assistance to the Plaintiff unless it tended to support the credibility of the Plaintiff’s own unlikely story. I think that it did not do so. All that has been established is that the bank was clearly implicated in the tax evasion as a consequence of its own activities, encouragement and advice but I am equally certain that at all material times the Plaintiff himself was well aware that the monies were being hidden for tax purposes and that they would in the ordinary way be subject to tax. It is significant that the Plaintiff never told his accountant, Mr. Meade at any stage about the monies he had on deposit in the bank.
8. Even though the money had been returned from Northern Ireland no tax was paid by the Plaintiff in respect of it between 1982 and 1986 when the DIRT system came in. The Plaintiff’s continued excuse for this is that the bank was administering some kind of internal trust for his children and that as he understood it from the advice given to him by the bank, no tax was payable in respect of such trust monies. For the reasons which I have indicated, I reject the Plaintiff’s evidence insofar as he suggests that he was unaware of tax evasion.
9. In 1986 DIRT was introduced for the first time. A senior officer of the bank, Mrs. O’Sullivan, had a discussion with the Plaintiff. I should perhaps pause here to explain that in relation to these deposit monies the Plaintiff never had any dealings in the bank except with the manager, Mr. Murphy or with Mrs. O’Sullivan. Otherwise he would have dealt with any of the other officials of the branch. This fact lends further credence to my belief that the Plaintiff at all material times had full knowledge that he was evading tax.
10. Returning to the discussions, Mrs. O’Sullivan explained to the Plaintiff about the DIRT and suggested that the provision by him to the bank of a genuine overseas address such as the English address of his sister “would get us over the technicalities of the last budget”. He then provided the bank with the address 124 Newbridge Road, Birmingham which was the address of his sister but of course the bank at all material times knew well that the Plaintiff was living in Racecourse Road near Cashel and was not in residence with his sister in England. All the bank was doing was substituting a pseudo genuine English address for a totally bogus one.
11. In case it is thought that I have overlooked it, I should perhaps mention that at some stage a major row broke out between the bank and Mr. Gayson over the return he was achieving on his money. The bank gave him very substantial compensation obviously with a view to preventing him taking his business elsewhere. The only relevance of this is that it is further proof that the bank was extremely anxious to retain the Plaintiff as a customer and that I fully accept. What I am not prepared to do, however, is to take the further quantum leap from that which Counsel for the Plaintiff has invited me to take that the Plaintiff was at all material times entirely innocent of any element of tax evasion and that insofar as evasion did occur it occurred at the behest of the bank looking after its own interest. There is of course some element of truth in relation to the bank’s self interest but the reality is there was a combination of interest.
12. I now turn to the key events, the subject matter of this action. In August 1988 there had been announced a national tax amnesty. The Plaintiff’s evidence is that while he was in the bank he spoke to Mrs. O’Sullivan and asked her the following question:-
“Is there anything in this amnesty for us?”
13. Before I relay the answer I should perhaps explain that if his evidence is correct there could be an ambiguity in the word “us”. The deposit was at all times in the joint names of the Plaintiff and his wife and that might be one context in which the word “us” would be used. But there is also the suggestion that the money was for the benefit of the children and therefore the word “us” might have been used as intended to embrace the entire family. At any rate Mrs. O’Sullivan is alleged to have given the following answer:-
“Not really.”
14. The Plaintiff qualifies that evidence, however, by adding that he may have first asked her something else which he did not recall now in Court and that she replied:-
“Why would you, it could still cost you a good bit of money, I would leave it alone if I were you.”
15. Mrs. O’Sullivan denies that any such conversation ever took place or that she was ever asked about the amnesty. This has troubled me because in other respects I found Mrs. O’Sullivan a reliable and truthful witness. She was extraordinarily frank about there having been at that time a “culture” in the bank of maintaining for customers bogus overseas accounts. I was particularly impressed by the fact that having given that evidence on one particular evening and having attracted considerable newspaper publicity which was naturally adverse to the bank, she repeated it equally frankly the next day. However, assessing the evidence as a whole, I have come to the conclusion that she is mistaken in her recollection that there was never any discussion about the amnesty. I do not think that she is giving untruthful evidence. I think that she simply does not remember. The Plaintiff’s account is not in my view one that would be likely to be invented. Listening to him and watching him in the witness box I was inclined to accept it. If it was an invented story he would have almost certainly alleged that the conversation occurred with Mr. Murphy, the retired manager, and not with Mrs. O’Sullivan. I think that some sort of conversation of a kind in very broad terms similar to what is alleged did take place, though the precise nature of it must be quite uncertain, particularly having regard to the fact that the Plaintiff’s own evidence does not accord with paragraph 6 of the Statement of Claim. Paragraph 6 makes it clear that at the time the Plaintiff sought the advice he was concerned that there was owing to the Revenue Commissioners unpaid tax in respect of the monies deposited. In the witness box the Plaintiff denies this altogether. It was not entirely clear what he was in fact alleging in the witness box but the impression came across that what he had in mind was that there might be some kind of benefit in availing of the amnesty if that had the effect of what he called “freeing the money” it being no longer needed for the higher education of his children. However, in the light of the pleadings and even if the pleadings did not exist, I would be satisfied that the Plaintiff was effectively saying to Mrs. O’Sullivan:-
“What should I do about this amnesty? Would I be safer to own up and avail of it or continue hiding the money in the hopes I might get away with it?”
16. He is effectively then alleging that Mrs. O’Sullivan advised him to continue hiding the money because although he would not have to pay penalties and interest he would still have to pay a great deal of money to the Revenue. If my interpretation of the dialogue between them is correct, that immediately leads to questions of law which are relevant to the liability issue in this case. If there could be a liability on the part of the bank arising out of Mrs. O’Sullivan’s answers, that liability would arise under the principles originally laid down by the House of Lords in Hedley Byrne & Co. Limited -v- Heller & Partners Limited , 1964 AC 465. The effect of that decision is summarised in the 9th Edition of Charlesworth on Negligence at page 91 as follows:-
“The House of Lords has thus expressed the opinion that if in the ordinary course of business, including professional affairs, a person seeks advice or information from another, who is not under any contractual or fiduciary obligation to give it, in circumstances in which a reasonable man so asked would know that he was being trusted or that his skill or judgement was being relied on, and such person, without clearly disclaiming responsibility for it, proceeds to give the advice or information sought, he accepts a legal duty to exercise such care as the circumstances require in making his reply. For a failure to exercise that care an action in negligence will lie, if foreseeable loss or damage is the result.”
17. The editors of Charlesworth, however, go on to observe at page 93:-
“However, as a result of the decision in Hedley Byrne & Co. Limited -v- Heller & Partners Limited, it must not be assumed that, upon every occasion, when economic loss is a foreseeable consequence of a careless statement, an action will lie, even in the absence of a duty recognised at law. On the contrary, the overriding principle is that the existence of such a duty, independent of any question of carelessness and foreseeability, must still be established; indeed it will be an essential fact to be proved in any given case that the defendant had assumed responsibility for giving his opinion, advice or, even, information.”
18. In this connection, the first finding which I would make is one of fact. I am satisfied that any such conversation which the Plaintiff had with Mrs. O’Sullivan was of an “off the cuff” nature and that it would never have reasonably occurred to either of them that any answer given by her could have given rise to an action against the bank. If I am right in that finding of fact that is the end of the case. But I think there are alternative grounds on which the Plaintiff’s action has to be defeated. In my view, as a matter of law, the bank could not be vicariously liable to the Plaintiff for the type of advice allegedly given by Mrs. O’Sullivan. It is quite true as I have already pointed out, that there is abundant evidence of the bank being actively involved in the Plaintiff’s tax evasion and therefore in illegality. But as Mrs. O’Sullivan herself says it was part of the misguided “culture” at the time and indeed rather far-fetchedly she even suggested that it had not occurred to her that tax evasion was involved in the bogus overseas accounts. Even if I do not accept that, and I cannot really accept it, the kind of illegal advice given by the bank in connection with setting up particular types of deposit accounts is intimately connected with the banking business and is of a totally different order from direct advice given to the Plaintiff as to whether he should avail of the amnesty or not. The bank is in no sense in the business of advising customers as to whether they should avail of a tax amnesty or not. If, therefore, Mrs. O’Sullivan gave such advice in circumstances that went beyond a mere casual conversation as I have indicated, she was to use the traditional terminology “on a frolic of her own”. The bank could not be vicariously liable for the advice. Thirdly, I am satisfied that the Plaintiff cannot be said to have relied on the advice. In Book 3 of the transcript, Question 107, the following question and answer in relation to the Plaintiff is to be found:-
“Q. If you had been advised in 1988 to avail of the amnesty, if the bank had advised you, would you have taken that advice?
A. Would I have taken it? If I was encouraged, shall we say, if I was encouraged I would have availed of the amnesty if it freed up the money.”
19. I think that there is no clear evidence that the Plaintiff was necessarily and exclusively relying on the advice of Mrs. O’Sullivan. He was probably in two minds himself as to whether he would avail of the amnesty or not and he decided not to but I think that that was his own independent decision.
20. Fourthly, and perhaps most importantly, I think that as a matter of public policy the Courts would not hold that there was an actionable duty of care owed by Mrs. O’Sullivan even if she was acting as agent of the bank in these circumstances. Once she was being asked to advise on two possible options and one of those options was clearly illegal, I would take the view that an actionable duty of care does not arise. It might be a different matter if the Plaintiff was entirely innocent and never in any sense understood that he was evading tax or perhaps even what an amnesty was but none of that applies here. For all these reasons, therefore, I am of the view that the action must fail.
21. Although it is not strictly relevant, having regard to the findings which I have made, I think that in fairness to the Defendant I should make it clear that the evidence establishes that the Cashel branch of the Defendant bank acted perfectly properly from and after the time that Mr. Silke took over from Mr. Murphy as manager. In 1991 Mr. Silke made it clear to the Plaintiff that DIRT would have to be paid on the account. The Plaintiff was extremely annoyed about this but nevertheless Mr. Silke insisted. The Plaintiff of course believes that that led to a Revenue Commission and audit being imposed on him. This may be problematical in that apparently the system of DIRT was that each bank at a national level simply forwarded to the Revenue Commissioners the grand total of DIRT due from all their customers all over Ireland without names being given. Although DIRT was paid from 1991, arrears of DIRT were not paid because Mr. Silke had been instructed by his superiors that some arrangement had been arrived at whereby the arrears of DIRT would not have to be paid. As in the case of Mrs. O’Sullivan, I found Mr. Silke to be a reliable witness and I accept his evidence in all respects. While I was not impressed by the failure on the part of the bank to call Mr. Murphy as I do not for a moment believe that he was so unwell as to be completely incapable of giving evidence, even evidence on commission. I have formed the view that the inference I should draw from this is not that his evidence would have been favourable to the Plaintiff, except insofar as what was contained in a letter that was produced at the hearing, but rather that his evidence might have been embarrassing to the bank. These additional comments add nothing to the question of liability but I felt that I should make them in fairness to the bank. The action must be dismissed for the reasons which I have given.
Irish Life & Permanent Plc t/a Permanent TSB v O’Mahony
[2015] IECA 98Judgment f Mr. Justice Michael Peart delivered on the 8th day of May 2015
1. By Order of the High Court (Ryan J. as he then was) the plaintiff/respondent (“the Bank”) obtained summary judgment against the defendant/appellant (“Mr. O’Mahony”) for the sum of €927,463.08 together with an order for costs, those to be taxed in default of agreement.
2. Mr. O’Mahony, having been duly served with the Bank’s Summary Summons, entered a personal appearance to the proceedings on the 11th January 2011, and has represented himself before the High Court, and again on this Appeal.
3. In response to the Bank’s Notice of Motion dated 6th May 2011 seeking liberty to enter final judgment against him for the amount due on foot of certain borrowings, Mr. O’Mahony filed a number of replying affidavits in which he first of all contended that the Bank was not entitled to the judgment that it was seeking since it has failed to properly prove its debt; and secondly, in so far as the Bank had purported to prove the sums due by means of the copy documentation exhibited by Remco Appel in his affidavit grounding the Notice of Motion dated 6th May 2011, it had failed to comply with the ‘best evidence rule’ since the originals of such documentation were available to the Bank and had not been produced to the Court. Mr. O’Mahony had sought certain documentation from the Bank by various letters, copies of which he exhibited in his affidavits and these had not been provided by the Bank.
4. Apart from objections that the Bank had not properly proven the amount claimed to be due, Mr. O’Mahony set forth in his replying affidavits a number of grounds which he submits disclose a bona fide defence to the Bank’s claim such that the application for liberty to enter final judgment should be adjourned to a full plenary hearing.
5. Having had the contents of the affidavits opened to him, and having heard any submissions that were made both by the Bank and by Mr. O’Mahony, Ryan J. concluded that it was clear that no bona fide defence was disclosed in the replying affidavits and that the Bank was therefore entitled to judgment in the amount claimed to be due.
6. The grounds which Mr. O’Mahony had contended showed a bona fide defence to the Bank’s claim can be summarised as follows:
(a) There ought to be a set-off between the amount claimed to be due by the Bank, and the amount or value of the security held by the Bank, that this claim for a set-off amounted to a defence to the claim, and that until such time as the value of the security was ascertained, the Bank was estopped from continuing with the proceedings.
(b) Since the redemption date specified in the mortgage forming the Bank’s security for the debt has not passed, the Bank was estopped from bringing, or continuing, proceedings to recover the debt, and that in so far as the Bank claimed that there was a breach of the terms and conditions of the facility letters under which the monies were advanced, the terms of the mortgage deed prevail.
(c) The mortgage deed being the Bank’s security was not validly executed, since it pre-dates the commencement of the Land and Conveyancing Law Reform Act, 2009, and in particular section 64 thereof which abolished the requirement that a deed by an individual had to be sealed, and that the mortgage in question is not sealed.
(d) The mortgage created by the Bank is not a legal mortgage, but rather an equitable mortgage entitling the Bank, therefore, to equitable remedies only, and that the Bank cannot seek legal remedies on foot of same.
(e) The bank has entered into a securitisation agreement with a third party special purpose vehicle in respect of, inter alia, Mr. O’Mahony’s borrowings, and therefore no longer has any entitlement to the recovery of such loans.
(f) The Bank may not obtain judgment for the amount owed by Mr. O’Mahony because it cannot be exposed to an event of default by him since it has granted a Charge to the Central Bank, and further that by granting such Charge the Bank has committed a regulatory breach by not having obtained his prior consent.
(g) Given the pre-condition to any drawdown of a facility that the Bank must value the security being offered, and the fact that in this case the Bank satisfied itself as to the value thereof, the par value of the security must always be accepted by the Bank in full and final settlement of the debt owed to the Bank.
(h) The Bank is guilty of reckless lending, disentitling it to recover judgment for the amount if any such loans.
7. The trial judge, having heard and considered Mr. O’Mahony’s submissions and those made on behalf of the Bank, unsurprisingly concluded that none of these grounds constituted a bona fide defence to the Bank’s claim.
8. Ground (a) is simply misconceived. No question of set-off arises as a matter of law unless there is money owed to the plaintiff by the defendant, and money owed by the plaintiff to the defendant. In the present case it is not contended that the Bank owes any money to Mr. O’Mahony. The idea that the value of the security must be set-off against the borrowings is simply wrong.
9. Ground (b) is equally devoid of any merit, given that the bank is not relying on its security in these proceedings. It is simply seeking judgment for the amount owing on foot of monies lent.
10. Ground (c) lacks any relevance to the proceedings herein for the same reason as at (b) since the mortgage is not relied upon in the present proceedings.
11. Ground (d) is irrelevant for the same reason as at (b) and (c).
12. Ground (e) does not provide any possible basis for the defendant to contend that he may have a bona fide defence to the plaintiff’s claim. It has been averred in the affidavits sworn by Hugo Smith, a Manager of the Bank who works in the Legal & Securities section, that Mr. O’Mahony’s loans are not part of any securitisation agreement, and remain with the Bank, and this is confirmed by Miriam Waldron, who is Head of Securitisation at the Bank, who goes on to say that even if these loans were part of any such agreement it would not be a barrier to the Bank to recovery by the Bank, since, inter alia, under any such agreement the legal title to the loan would remain with the Bank.
13. Ground (f) is equally unarguable. Even if Mr. O’Mahony is correct that a charge has been granted to the Central Bank over the assets of the Bank, it has not been established even to the low threshold of arguability on a motion for judgment that this would act as a bar to recovery by the Bank, particularly in the absence of any suggestion even, not to mention any evidence, that any such charge may have crystallised.
14. Ground (g) is unarguable, and amounts to a submission that the loans to Mr. O’Mahony are non-recourse to him, and that the Bank must be confined in their recovery efforts to the value of the security upon realisation. That simply cannot be the case without a specific and clear non-recourse provision in the loan agreements, and none has been referred to.
15. Ground (h) also fails completely for the reason submitted by the Bank, namely that there is no tort of reckless lending. There is no authority for the proposition that because with the benefit of hindsight a loan ought not to have been made to the borrower the amount thereof is irrecoverable. It is an unarguable point.
16. For these reasons, this Court is completely satisfied that none of the grounds offered by way of bona fide defence to the Bank’s claim in the High Court meets the threshold of arguability required to be overcome by a defendant who seeks to have a claim against him adjourned to a plenary hearing. In the present case it is very clear that none of the defences offered by Mr. O’Mahony could possibly succeed, and the High Court judge was correct in giving judgment to the Bank as sought.
17. On this appeal Mr. O’Mahony has introduced some new grounds of appeal. While, as already stated above, he averred in his replying affidavits in a general way that the Bank had failed to properly prove its debt, and that it had failed to provide him with certain documentation which he had sought, and had not produced to the Court the originals of certain documents which he felt should be produced, he had not stated, as he now does on this appeal, that the affidavits sworn by the Bank in relation to the securitisation issue are hearsay and not therefore in compliance with Order 40, rule 4 RSC, or that the affidavit of debt relied upon by the Bank did not comply with the requirements of the Bankers Books Evidence Acts 1879-1989.
18. Since the appellant has at all times been self-represented in these proceedings, this Court has allowed him some leeway, particularly where the Bank through its Counsel was in a position to deal with the new grounds in the course of the appeal. But the rules are clear that a ground not argued in the Court below cannot be argued as part of the appeal except in certain very limited circumstances which in this case do not exist.
19. In his written submissions filed by leave of the Court on the 15th February 2015 the appellant has asserted that in circumstances where “the denial of the debt has been maintained since the commencement of proceedings” (para. 3.4) and “the debt and loan were denied by the defendant in all affidavits” (para. 3.5), mere prima facie proof of the debt is insufficient proof of same. Firstly, the appellant is not correct to so aver. None of his replying affidavits deny the debt. In his first affidavit sworn on the 19th October 2011 he states that “the amount stated in affidavit of Remco Appel is in my belief incorrect”. That is not a denial of the loans or the debt. In his second affidavit sworn on the 5th December 2011 he states “I deny the balances due as stated by Remco Appel. I require PTSB to prove the actual sum owing…”. That is not a denial of the loans or the debt. In his third affidavit he states “Subject to proof of the debt claimed by the plaintiff in accordance with the ‘best evidence rules’ I say and believe in any event the plaintiff is not entitled to recover the debt”. That is not a denial of the loans or the debt. In his fourth affidavit the same paragraph is reproduced. Nowhere in any of these affidavits has Mr. O’Mahony said that he did not borrow the money or that no monies are owed to the Bank on foot of the loans. He makes a number of points as to why he considers that the Bank is not entitled to recover the amount it lent to him, but those must not be seen as a denial of the debt as stated in his said submissions.
20. In such circumstances, this Court is satisfied that the affidavit of debt sworn in support of the Bank’s claim is sufficient for the purpose of proving the debt on the motion seeking summary judgment – subject to the argument only now being raised by Mr. O’Mahony in relation to the Bankers Books Evidence Acts which will be addressed shortly.
21. Mr. O’Mahony has also submitted that the affidavit sworn by Miriam Waldron in answer to his securitisation point, and the affidavit of Keith Brady sworn in response to Mr. O’Mahony’s replying affidavit sworn on 19th October 2011, offend against the rule against hearsay and are not in compliance with Order 40, rule 4 RSC.
22. The point which Mr. O’Mahony makes in relation to Ms. Waldron’s affidavit is that at paragraph 4 thereof she states that she has been advised by Donal O’Kelly & Co, the Bank’s solicitors, that the issue of securitisation does not arise in these proceedings. That is the only averment with which he takes issue on the basis that her averment is hearsay. He submits that the trial judge ought not to have had regard to her affidavit because this paragraph contains hearsay evidence.
23. However, even if one paragraph contains hearsay evidence, there is no reason to exclude the entire affidavit if it is otherwise acceptable. Ms. Waldron as Head of Securitisation at the Bank was clearly in a position to state the position with regard to securitisation, and the fact that Mr. O’Mahony’s loans were not part of any securitisation agreement. The sentence about which Mr. O’Mahony complains on the basis of hearsay is unnecessary. However, its inclusion, though hearsay, cannot defeat this application.
24. The complaint made in relation to the affidavit sworn by Keith Brady is in relation to paragraph 2 of his affidavit. He makes the same complaint in relation to that paragraph as he made in relation to paragraph 4 of Ms Waldron’s affidavit. Paragraph 2 of Mr. Brady’s affidavit states:
“I am referred to a replying affidavit of the defendant sworn on 19th of October 2011. Most of the items referred by him [sic] are not appropriate to a bankers claim on foot of a loan. Insofar as the defendant refers to ‘validation of the debt/the actual accounting’ the figures are already set out in the grounding affidavit of Remco Appel and I have brought them up to date in this affidavit. There is no ‘invoice’ as this is not a sale of goods claim. Nor is it usual to have a certified executed contract. I am advised by the bank’s solicitor that the contract is to be found by reference to a letter of offer and the drawdown of the monies by the borrower on foot of the terms set out therein.” [emphasis added]
Clearly it is the final underlined sentence of this paragraph about which Mr. O’Mahony complains on the basis of hearsay, and for the same reasons as set out in the previous paragraph in relation to the same complaint in relation to Ms Waldron’s affidavit. In so far as the final sentence is hearsay the defendant is correct. But this Court is satisfied that its unnecessary inclusion does not disentitle the plaintiff to judgment.
Bankers Books Evidence Acts 1879 – 1989:
25. This is a point that was not raised before Ryan J. in the High Court. Neither was it raised as a ground of appeal in the original Notice of Appeal filed in the Supreme Court, nor indeed in the Amended Notice of Appeal which Mr. O’Mahony was permitted to file by order of the Supreme Court dated 12th July 2013. Nor was it referred to in written legal submissions filed by Mr. O’Mahony on the 1st November 2013, nor in his further written submissions which he was permitted to file by order of this Court made at a directions hearing on the 4th December 2014, following the transfer of the appeal to this Court pursuant to Article 64 of the Constitution. The first occasion on which this point is raised was in what he called his ‘Aide Memoire’ which he handed to the Court and to the other side, and from which he read for the purpose of assisting him to make his submissions to this Court. No doubt the reason for this is that the decision relied upon for the submission, namely that of Cregan J. in ACC Bank Plc v. Byrne and O’Toole [2014] IEHC 530, was delivered only on the 31st July 2014. Nevertheless, Counsel for the Bank made arguments to the effect that in so far as it was necessary to prove its debt on an application for summary judgment in the High Court, the Bank had done so in a way which complied with all reasonable and normal requirements, and in compliance with the requirements of the Bankers Books Evidence Acts 1879 – 1989, and that this was particularly the case where at no point in any replying affidavit did Mr. O’Mahony seek to argue that he had not applied for and drawn down the loans in question, or that he had defaulted in relation to the repayment of same, or in any way denied that the money borrowed was repayable. As already referred to, his replying affidavits had raised an issue only as to the correct amount owing to the Bank.
26. These are adversarial proceedings between the Bank and Mr. O’Mahony. The issues which arise for determination in the High Court are those issues raised by the parties. As far as Mr. O’Mahony’s case is concerned the issues which were required to be determined in the High Court and which were the subject of the determination of Ryan J. were those raised by him in his replying affidavits, and whether those issues established that he had a bona fide defence to the Bank’s claim. The judge decided that none of those issues raised by him met that threshold for the purpose of adjourning the case to a full plenary hearing. It is that determination which is the subject of the present appeal. The grounds of that appeal are those contained in the original Notice of Appeal filed by Mr. O’Mahony, and the Amended Notice of Appeal filed on the 23rd July 2013.
27. The issue as to whether or not the Bank has complied with the requirements of the Bankers Books Evidence Acts 1879 – 1989 is an issue which Mr. O’Mahony could have raised before the High Court. The fact that the judgment of Cregan J. which he now seeks to rely upon was delivered in another case in July 2014 does not mean that it was not a point which Mr. O’Mahony could have raised. He did not do so. The fact that he was at all times representing himself does not mean that different and more favourable rules of procedure apply to him. All litigants, whether legally represented or not, must conduct their litigation by the same rules, although a Court will always give such assistance to an unrepresented litigant as may seem fair and appropriate. Nevertheless the same rules must apply to everybody.
28. In the present case, Mr. O’Mahony has failed to comply with two rules in particular. The first is that contained in Ord. 58, r, 4 RSC which provides that the Notice of Appeal “shall in every case state the grounds of appeal and the relief sought … ”. Neither his Notice of Appeal nor his Amended Notice of Appeal stated or in any way referred to the ground now sought to be raised in relation to the Bankers Books Evidence Acts.
29. The second rule which would be offended if this Court was decide this issue on this appeal is not one found specifically in the Rules of the Superior Courts but is well-established by case-law, namely that an appellate court will not permit a party to raise on the appeal an issue that was not raised in the court below, except in some exceptional circumstances. The Court can usefully refer to the judgment of Finlay C.J. in KD v. MC [1985] I.R. 697 where at p.701 he states:
“It is a fundamental principle, arising from the exclusively appellate jurisdiction of this Court in cases such as this that, save in the most exceptional circumstances, the Court shall not hear and determine an issue which has not been tried and decided in the High Court. To that fundamental rule or principle there may be exceptions, but they must be clearly required in the interests of justice. This case can not, in my view, however, provide such an exception.”
30. The ground now sought to be relied upon is a new argument in relation to an issue which was not raised in the court below. Therefore it is not an issue which this Court should determine on this Appeal. The determination of the issue by this Court will have to await another case in which the issue is raised and fully argued in the High Court, and properly raised as a ground of appeal to this Court.
31. This Court is satisfied that the order of Ryan J. is correct, and that this appeal should be dismissed.
Allied Irish Banks Plc v Pierse
[2015] IEHC 136
JUDGMENT of Mr Justice David Keane delivered on the 14th January 2015
Introduction
1. The plaintiff in these proceedings (“the bank”) seeks judgment in the sum of €1,986,132.55, together with continuing interest, against the defendants arising out of a loan facility provided by the bank to the defendants, as husband and wife, in April 2006. The purpose of that facility was to provide bridging finance to enable the defendants to purchase two blocks of apartments on the French island of Corsica, pending the execution of a contract for the sale of a 7 acre plot of land (“the 7 acres”) on the first named defendant’s farm (“the farm”), appurtenant to the defendants’ home at Ballinorig House, Ballinorig, Tralee, County Kerry, and the sale of a separate property owned by the first named defendant at Castlegregory, County Kerry.
2. The following facts are not in dispute between the parties. By letter of sanction dated the 6th April 2006 and addressed to the second named defendant, the bank offered the defendants a bridging loan facility in the sum of €2 million on specified terms. That letter recites that, within three months from the date upon which it was drawn down, the loan was to be repaid in full from the net sale proceeds of the land and property already described, with interest to roll up in the interim. The letter of sanction also states that the loan is subject to the bank’s “General Terms and Conditions Governing Business Lending” as set out in a booklet, dated the 4th May 2004, a copy of which was stated to be enclosed.
3. The facility was drawn down in full on the 10th April 2006. The defendants each signed the letter of sanction on the 11th April 2006. However, in circumstances addressed in greater detail below, the loan facility was not repaid in accordance with its terms. In consideration of successive extensions of the loan period and repayment terms, each of the defendants signed subsequent letters of sanction dated the 13th November 2007, the 22nd October 2008, the 23rd December 2008, and the 30th January 2009. On the 9th March 2009 the bank sent letters of demand to each of the defendants requiring repayment of the balance of €2,053,249.68 then outstanding on the loan. The defendants do not dispute that the sum now claimed by the bank is currently outstanding on the loan account at issue. However, they do contend that the bank is not entitled to judgment against them.
The history of the proceedings
4. The proceedings commenced by way of summary summons issued on the 28th May 2010. In the special indorsement of claim, the bank sought judgment in the sum of €2,053,249.68. The defendants entered a memorandum of appearance on the 28th of June 2010. Hanna J. heard the application for summary judgment on the 20th December 2012. The application was refused by the learned judge and the matter was adjourned to plenary hearing.
5. In a statement of claim delivered on the 9th January 2013 the bank seeks: judgment in the sum of €1,892,960.99 (€452,106 of the outstanding debt having been re-paid by the defendants on 21st June 2012); continuing contractual interest at current bank rates; and the costs of these proceedings.
6. A defence was delivered on the 25th February 2013. A reply to defence was delivered on the 21st June 2013, in which the bank denies each of the points of defence raised on behalf of the defendants.
7. The action was tried before me on the 6th, 7th, and 8th May 2014 and I reserved judgment in order to consider the evidence adduced and the defences raised.
The defences raised
8. While the defence delivered includes a series of general denials, including a denial of the loan agreement and an assertion in the alternative that the said agreement is unenforceable because the bank provided either no consideration or only past consideration for it, the defendants (in my view, rightly) did not rely on any of those arguments at trial.
9. The two arguments upon which the defendants did rely are the following: first, that the bank assumed, or ought to have assumed, a fiduciary duty or a duty of care to the defendants under which, in the particular circumstances of the case, the bank should not have entered into the relevant loan transaction with them; and second, that the loan agreement is invalid as between the bank and the second named defendant by operation of the relevant terms of the Consumer Credit Act 1995 (“the 1995 Act”), because the second named defendant must be considered a consumer in relation to that agreement for the purposes of the 1995 Act and did not receive the statutory protection to which she was entitled under that legislation. I propose to deal with each of those defences in turn. Just before doing so, it may be helpful to note that, since the only controversy between the parties was whether the defendants could make out any such defence, the parties agreed that the defendants should go first, and the trial before me proceeded in that way.
Background
10. The first named defendant testified that he inherited the family farm from his father in 1988. The defendants were married in 1996 and reside in the farmhouse on the farm. The farm is situated on the outskirts of Tralee and, when the first named defendant inherited it, comprised some 90 acres. The first named defendant did not see himself as a farmer and leased the farm to a cousin of his. He has earned his own modest income at various times by playing music in local pubs and hotels, by breeding dogs, and by providing gardening services, but has been otherwise effectively unemployed.
11. The second named defendant gave evidence that she had become an employee of the bank prior to her marriage to the first named defendant. She worked at different times in the bank’s Killorglin and Castleisland branches. She moved from full-time work to a job sharing arrangement in 2003, before finally resigning her position in 2010. The defendants have three teenage daughters.
12. The first named defendant gave evidence that he has supplemented the family income at various times by selling off plots of land from the farm. For example, in 2004 he sold 10 acres of land to a third party, who subsequently sold it on to two identified persons, who were then property developers in the Tralee area, for a sum of €300,000. For ease of reference, I will refer to those persons, whose role is central to the main defence advanced, as “the developers.” In 2005, the first named defendant sold a 15 acre site directly to the developers. The first named defendant asserts that, in return, they agreed to pay him €1.2 million in cash and to build two houses for him in Castlegregory, County Kerry. The first named defendant asserts that only one house was provided to him and that the developers still owe him the further sum of €550,000.
13. The first named defendant testified that, at the time of the loan agreement which forms the subject matter of these proceedings, 62 acres of the farm that he had inherited from his father remained in his ownership. Prior to entering into the loan agreement, the first named defendant had entered into two separate agreements with the developers. The first was an oral agreement with the developers to sell them the 7 acres for €1.8 million. The second was an agreement giving the developers (in conjunction with another developer) an option to purchase the remaining 55 acres of the farm for €12 million in exchange for a payment of €50,000.
14. It will be evident at once that the value attributed to the lands for the purpose of these transactions was far in excess of their agricultural value. While no evidence was adduced directly on this point, it appears to be accepted on all sides that what was anticipated in early 2006 was the construction of a ring road around the town of Tralee across the lands and the development upon the lands of a “medical campus”, comprising a hospital and nursing home.
15. Through a contact that the first defendant made when he attended an exhibition of foreign properties in Dublin in early Autumn 2005, the defendants contracted in February 2006 to purchase two apartment blocks, consisting of nine units in total, which were then under construction on the French island of Corsica, at a total cost of €2.2 million. While each of the defendants gave evidence that the Corsican transaction was solely the brainchild of the first named defendant and while the first named defendant testified to his understanding that the relevant properties were only acquired in joint names because the applicable French law does not permit the acquisition of property by a married person in his or her own sole name, it seems to me that nothing turns on that point. If the acquisition of property by married persons in joint names is, in fact, a requirement of French law, then the defendants were plainly faced with a choice whether or not to proceed with the transaction on that basis. It is clear from the evidence that they elected to proceed and that they were therefore seeking bridging finance to acquire that foreign property as joint purchasers (and joint borrowers).
16. The defendants proposed to finance the purchase of the two apartment blocks with the proceeds of sale of the first named defendant’s 7 acres, together with a further sum in cash representing the proceeds of a previous sale of land by the first named defendant.
17. Since the sale of the 7 acres had not yet been effected, the first named defendant testified that he was advised by one of the developers to approach the bank’s regional commercial lending team in Cork to apply for bridging finance. However, on doing so, the first named defendant was informed that the regional commercial lending team did not deal with transactions valued at less than €5 million and was referred by the bank to its Tralee branch. There he was referred to Mr. Patrick Laide, an assistant manager in that branch. Although Mr. Laide is a distant cousin of the first named defendant and the two men knew each other socially, there had been no prior commercial dealings between them. Similarly, while the first named defendant had transferred his accounts to the bank after his marriage to the second named defendant, the defendants had not previously dealt with its Tralee branch. Prior to the loan agreement at issue, the first named defendant had never applied to the bank for a business loan.
18. While the first named defendant was not entirely clear on this point in his evidence, I am satisfied, in particular from the evidence of Mr. Laide, that a meeting between them lasting approximately half an hour took place on the 31st March 2006, having been pre-arranged by telephone. At that meeting, the first named defendant sought to borrow €1.8 million (which sum was later increased to €2 million) as a bridging facility pending the sale of the 7 acres. He informed Mr Laide that he had come to a verbal agreement with the developers for the sale of the 7 acres. Mr Laide said that the first named defendant should obtain an unconditional written contract in that regard so that the bank could have proof of the existence of the contract. The bank received confirmation that this had been done from the defendants’ solicitors on the 7th April 2006. In his evidence, the first named defendant accepted that the urgency in relation to the completion of the loan agreement was at all material times on the defendants’ side and not on the bank’s. On the 10th April 2006, the bank effected the international transfer of the sum of €2 million on the defendants’ behalf to a firm of lawyers representing the vendors of the Corsican properties. As already noted, the properties were purchased in the joint names of the defendants.
19. Unhappily, things went badly for the defendants after they entered into the loan agreement with the bank and purchased the two apartment blocks in Corsica. There were delays in the completion or fitting out of those properties. When completed, the apartments were difficult to lease and the first named defendant asserts that, in several instances, tenants were intimidated and apartments vandalised. The first named defendant testified that, in the end, the defendants were compelled to sell the properties back to the original vendor for €500,000 payable in installments over a period of 15 years, thereby incurring a substantial loss. Under cross-examination, the first named defendant accepted that he had begun to speculate in foreign property investment in anticipation of the sale of the farm lands but had not done his due diligence properly in relation to the acquisition of the apartment blocks in Corsica.
20. Equally unhappily, the anticipated sale of the 7 acres to the developers was never completed. The lands were not rezoned in June 2006, as had been anticipated, although the first named defendant testified that the rezoning of the lands did subsequently occur in February 2007. The developers did not exercise the option to acquire the remaining 55 acres of the farm lands for €12 million. 4 acres of the farm land were subsequently made subject to a compulsory purchase order (“CPO”) (presumably, in connection with the construction of the ring road) and the first named defendant received €515,000 for them. Of that sum, the bank subsequently received the sum of €452,106 – representing the net proceeds of sale under the CPO – in part repayment of the defendants’ loan.
A fiduciary duty or a duty of care?
21. Against this background, the defendants assert that the bank owed them a fiduciary duty or a duty of care, or both, and that the bank breached that duty, or those duties, thereby disentitling it to repayment of the monies owed to it by the defendants.
22. While Counsel for the defendants did not open any law on this issue, Mr Shipsey S.C. for the bank relied upon the decision of the Supreme Court (per Hamilton C.J., nem. diss.) in Kennedy v. Allied Irish Banks plc. [1998] 2 IR 48 in which (at p. 57 of the report) the Supreme Court quoted with approval the following passage from the judgment of Scott L.J. in Lloyds Bank Plc. v. Cobb (Unreported, English Court of Appeal, 18th December, 1991) :
“If a customer applies to the bank for a loan for the purposes of some commercial project, and the bank examines the details of the project for the purpose of deciding whether or not to make the loan, the bank does not thereby owe any duty to the customer. It conducts the examination of the project for its own prudent purposes as lender and not for the benefit of the proposed borrower.”
23. That passage from the judgment of Scott L.J. continues in the following terms:
“If the borrower chooses to draw comfort from the bank’s agreement to make the loan, that is the borrower’s affair. In order to place the bank under a duty of care to the borrower, the borrower must, in my opinion, make clear to the bank that its advice is being sought. The mere request for a loan, coupled with the supply to the bank of the details of the commercial project for whose purposes the loan is sought, does not suffice to make clear to the bank that its advice is being sought…people who engage in speculative commercial ventures must accept the consequences of the failure of their ventures just as they will accept the consequences of their success. They cannnot be allowed to transfer the burden of the failure of their ventures onto the shoulders of a bank lender which was never asked to and never assumed to give advice on the wisdom of the venture.”
24. In considering the point, I derive additional assistance from the decision of Ryan J. in ACC Bank plc v. Deacon & anor. [2013] IEHC 427 in which he, in turn, quoted with approval the following extract from the Encyclopaedia of Banking Law (Issue 123, April 2013 at para. 69:
“Where a bank assumes the role of financial adviser to its customer, it owes the customer a duty to exercise reasonable care and skill in the execution of that role. However, a bank does not usually assume the role of financial adviser to a customer who merely approaches it for a loan or for some other form of financial accommodation. As Scott LJ said in Lloyd’s Bank plc v Cobb (18th December 1991):
‘…the ordinary relationship of banker and customer does not place on the bank any contractual or tortious duty to advise the customer in the wisdom of commercial projects for the purpose of which the bank is asked to lend money. If the bank is to be placed under such a duty, there must be a request from the customer, accepted by the bank, or some other arrangement between the customer and the bank, under which the advice is to be given.’”
25. There is no suggestion in this case that the defendants asked the bank to act as their financial or investment adviser either in relation to the concluded agreement to purchase the foreign properties that they were proposing to finance with the loan facility that they were seeking or in respect of the concluded land sale agreement from which they anticipated obtaining the necessary funds to repay that loan. Nor is there any evidence before the Court of any other arrangement between the defendants and the bank whereby the bank was to advise them in relation to either of those two agreements (each of which, at pain of repetition, had already been concluded – though neither agreement had been executed – when the defendants first approached the bank).
26. Mr Sreenan on behalf of the defendants skillfully contends that, while the position at law may be as I have just described it, on the particular facts of this case the bank ought to be recognised as owing the defendants a duty of care. Specifically, he submits that, in requiring written confirmation from the defendants’ solicitors that an unconditional contract had been signed by the developers for the purchase of the 7 acres for €1.8 million, the bank somehow ‘crossed the line’ and entered into a fiduciary relationship with the defendants, under which it assumed a duty to provide financial advice to them in respect of that transaction. I am satisfied that there is simply no basis for that proposition, which seems to me to be an obvious non sequitur. There is nothing to suggest that, in requiring the relevant confirmation that an unconditional contract had been signed for the purchase of the 7 acres from the first named defendant and an undertaking to provide security over those lands or the proceeds of sale thereof, the bank was doing anything other than seeking to protect its own obvious commercial interest in the repayment of the bridging finance it was being asked to provide. I can see no basis for the proposition that any financial insitution that requires some obvious comfort of that sort is, somehow by implication, assuming a duty to advise the customer in relation to the commercial prudence or wisdom of the underlying transaction in which the customer proposes (or, as in this case, has already agreed) to engage.
27. Equally, I cannot accept that the fact that the first named defendant was referred to the bank’s regional commercial lending team in Cork by one of the developers who were proposing to acquire the first named defendant’s land in some way created a duty of care on the part of the bank to adopt the role of financial adviser to the defendants in respect of the already concluded agreement for the sale of the 7 acres by the first named defendant to the developers. Even leaving aside the fact that the bank’s regional commercial lending team in Cork simply referred the defendants back to its Tralee branch to apply for that bridging finance there, the suggestion that the provision of a referral to the bank by one of the developers involved in the land purchase transaction with the first named defendant creates, in and of itself, a duty of care on the part of the bank to advise the defendants on the financial prudence of that already agreed transaction is, again, a non sequitur.
28. Nor do I accept, as was suggested in argument, that the bank owed the defendants a duty of care to provide them with financial advice because the second named defendant was at that time an employee of the bank. This submission appears to derive from the assertion in evidence by the second named defendant that she trusted the bank as her employer when she signed the letter of sanction in respect of the bridging finance that the defendants were seeking. While there is obviously nothing to prevent any financial institution that wishes to provide general or specific financial advice to any of its employees from doing so, there is no obligation on any such financial institution to provide such advice that I can see or that was identified to me on behalf of the defendants in argument. Insofar as the second named defendant trusted the bank to properly consider the defendants’ application for bridging finance, that trust was evidently vindicated by the bank’s decision to make that finance available. On the other hand, insofar as the second named defendant trusted the bank to provide financial advice on the commerical wisdom or unwisdom of the agreement that the first named defendant had already entered into to sell the 7 acres to the developers concerned, I cannot see any basis upon which that expression of trust can have been warranted, as I can find no evidence that the bank had been requested to assume, or had assumed, any such duty or responsibility.
29. The argument ultimately put forward on behalf of the defendants is that the bank owed them a duty of care whereby it was obliged to refuse to provide them with the bridging finance that they were seeking. That contention is based on two propositions. The first, accepted on behalf of the bank, is that Mr. Laide was not only the contact point for the defendants’ application for bridging finance but was also both the assistant manager with responsibility for certain accounts held with the bank by one of the developers and the contact point (at certain times described as the relationship manager) for the developers in their dealings with the bank’s regional commercial lending team in Cork. The second proposition, vigorously disputed by the bank, is that the bank was, or should have been, aware when the defendants entered into the bridging finance agreement with it that the developers were unlikely to complete the purchase of the 7 acres – upon the anticipated proceeds of which the defendants were relying to repay that loan – because of the developers “poor financial position” at that time.
30. This brings me to what appears to me to be the most unusual feature of this case. In advancing the proposition that the developers were in a “poor financial position” in March or April of 2006, the defendants did not call any evidence on that point. Neither of the developers, nor any other person with any direct knowledge of the developers’ financial standing at the material time, was called as a witness. Instead, the defendants sought to establish that proposition by cross-examination of the two witnesses called by the bank, Mr. Laide, already mentioned, and Mr. Jim O’Mahony, a senior lending manager with the bank who was familiar with the commercial dealings between the bank and the developers. In doing so, the defendants sought, and were permitted, to rely upon selected references to the contents of various internal communications within the bank concerning the developers’ affairs. The Court has been given to understand that the developers obtained copies of those documents from the bank in exercise of their right to do so under the Data Protection Acts and subsequently furnished them to the defendants. However, the developers are not a party to these proceedings and were not called as witnesses at trial. For that reason, I have not identified them in this judgment.
31. Mr. Laide gave evidence that, from his own dealings with the developers on the bank’s behalf, he considered them ‘strong clients’ at the material time and understood that the bank would have no difficulty in providing them with funding. Mr. Laide stated that, as of the 31st March 2006, he was well aware of the status of the developers’ dealings with the bank and had no concern regarding their financial position. The bank’s concern in respect of the developer’s financial status first arose with the collapse of the property market in 2008. Both Mr Laide and Mr O’Mahony testified that the developers did not apply to the bank for funding in relation to their agreement to purchase the 7 acres from the first named defendant.
32. Mr Laide was questioned by reference to selected extracts from various internal communications within the bank in February and March 2006, which, it was suggested, tended to establish that the bank had some concerns in relation to the financial position of the developers at that time. First, there was an e-mail sent to Mr. Laide on the 16th February 2006 by a member of the regional commercial lending team in Cork, expressing a concern that certain required security documentation was then outstanding in respect of an existing commercial loan to the developers and warning that, if the position was not rectified over the next couple of days, the bank would start returning items drawn on the relevant loan account unpaid. However, that communication includes a reply received from Mr. Laide within an hour on the same date confirming that he had been informed by the developers that steps were then in train to rectify the position.
33. Second, there is a further e-mail exchange between the same member of the regional lending team and Mr. Laide on the 22nd February 2006, in which Mr. Laide was relaying a request on behalf of the developers for a redemption figure in respect of an earlier loan by reference to the contemplated sale of the lands against which that loan was secured (apparently part of the Ballinorig lands), to which the staff member concerned responded that the bank “would be looking for a fair chunk of the proceeds to go in debt reduction given that this was considered a high risk transaction by the bank day one.”
34. Finally, in this context, there is an e-mail to Mr. Laide, dated the 28th March 2006, in which another employee of the bank points out that the developers have recently written cheques on a current account that was then €33,000 in debit (without any approved overdraft limit) and that the developers’ loan account was “out of order.”
35. Mr. Laide did not accept that these documents, individually or together, suggest, much less establish, any underlying concern on the part of the bank about the financial position of the developers at that time. Mr Laide testified that the developers had made deposits over which the bank held a lien that could be used, if necessary, to offset the developers’ overdraft and that the bank’s concern was simply to regularise the situation in that regard. Similarly, in contemplating the return of items drawn on the developers’ account unpaid if the relevant security documentation was not put in place, the bank was simply seeking to ensure compliance with the security requirements associated with the relevant facility, rather than expressing any concern about the underlying financial position of the developers.
36. Moreover, Mr. Laide gave evidence that, subsequent to the loan transaction with the defendants (and, indeed, subsequent to the internal communications just described), the bank issued further loan facilities to the developers in 2006 and in 2007.
37. Mr O’Mahony gave evidence that the bank had no material concerns in relation to the solvency of the developers at the material time. He testified that the developers’ borrowings with the bank stood at over €5 million at the time, and that those loans were then within term, which I take to mean that there had been no default in their repayment. He further testified that the developers had a credit rating of 2A or 2B at the time, which would be considered satisfactory. The lowest score on the credit grading system in use in the bank at the time was 8. Mr O’Mahony provided details in relation to additional loan facilities approved by the bank for the developers subsequent to the loan agreement with the defendants now at issue. He testified that a €700,000 facility was approved later in 2006 and another facility of €750,000 was approved in 2007.
38. Mr. O’Mahony corroborated Mr. Laide’s evidence regarding the relevant communications within the bank, testifying that, in his view also, none of the internal e-mails relied upon by the defendants reflected any concern on the part of the bank in March or April 2006 about the underlying financial position of the developers.
39. Mr O’Mahony testified that the developers (in conjunction with a larger commercial entity) ultimately applied for funding to purchase the 55 acres in April 2008, which application for finance was declined by the bank due to concerns it had by then developed regarding the state of the economy, declining land values, and the possible cancellation of the proposed ring road scheme.
40. In the context of the uncontroverted evidence that I have just described and which I accept, I can find no basis for the conclusion that the developers were in “a poor financial position” at the material time, still less that the bank knew, or ought to have known, that that was so.
41. Accordingly, the novel argument advanced on behalf of the defendants – that a bank is under a duty to decline a customer’s application for finance in respect of any transaction in which another customer is involved if there is any basis for any concern on the part of that bank regarding the financial position of that other customer – cannot avail the defendants in the circumstances of this case, even if it were accepted as a correct statement of the position in law. For that reason, I do not propose to express any view upon it.
42. In summary, therefore, on the evidence before me and by reference to the various arguments advanced, I am satisfied that the bank did not breach any duty of care that it owed to the defendants in acceding to their application for bridging finance or, consequently, in entering into a loan agreement with them.
The alternative defence of the second named defendant
43. On behalf of the second named defendant, Mr Sreenan advanced the alternative defence that the loan agreement is invalid as between the bank and the second named defendant by operation of the relevant terms of the the 1995 Act, because the second named defendant must be considered a consumer in relation to that agreement for the purposes of that Act, yet did not receive the statutory protection to which she was entitled under that legislation.
44. The second named defendant gave evidence that, at the material time, she thought that the acquisition of the two apartment blocks on the island of Corsica would provide her husband with a project and that she was not going to stand in his way in circumstances where they both thought that the first named defendants farm lands were worth €12 million. She testified further that she entered into the transaction in the belief she shared with her husband that the money to repay the loan was going to come from a specific source, namely the proceeds of sale of the 7 acres that the developers had agreed to purchase from her husband. The second named defendant stated that she signed the letter of sanction on a wet day while sitting in her car, parked adjacent to the Tralee branch of the bank, when Mr Laide brought the relevant documentation out to her there, although she did not recall the date on which that event occurred. She acknowledged that she knew that she was signing the letter of sanction as co-borrower with her husband, although she had no discusssion with Mr Laide in that regard. Under cross-examination, the second named defendant accepted that, as a bank employee, she knew more about loans than the average person in the street, although she had never worked in the lending area. She accepted that she had signed the letter of sanction and acknowledged that the terms and conditions under which the loan was being advanced were highlighted in it. The second named defendant further acknowledged that she knew that the purpose of the loan was to facilitate the purchase of the two apartment blocks on the island of Corsica.
45. Against that background, it is submitted that the second named defendant must be considered a consumer for the purposes of s. 2(1) of the 1995 Act. That provision provides as follows:
“consumer” means a natural person acting outside his trade, business or profession”
46. The significance of this point derives from the fact that, pursuant to s. 50 of the 1995 Act a consumer is entitled to a “cooling-off period” in respect of any credit agreement, under which they are entitled to withdraw from an agreement within 10 days of receiving it by giving written notice to the creditor.
47. The decision of Kelly J. in AIB plc v. Higgins & Ors [2010] IEHC 219 is a helpful authority on the interpretation of the definition of the term “consumer” under the 1995 Act. That Act transposed Council Directive 87/102/EEC, as amended by Council Directive 90/80/EEC, into Irish law. In defining the term “consumer” the learned judge stated as follows:
“the concept of the consumer was confined to a person acting in a private capacity and not engaged in trade or professional activities. The self same person can be regarded as a consumer in relation to certain transactions and as an economic operator in relation to others. Only contracts concluded for the purpose of satisfying an individual’s needs in terms of private consumption are protected by the Directive.”
48. The learned judge further stated that:
“These defendants acted as partners in a partnership which borrowed money from AIB. They did so with a view to investing in property and its development for profit. In so doing, they engaged in business and the Act had no application to them.”
49. In this case, I cannot avoid the conclusion that, in seeking and obtaining loan finance to acquire jointly with her husband two apartment blocks on the island of Corsica, the second named defendant was not concluding that contract for the purpose of satisfying her individual needs in terms of private consumption. This was a case in which the defendants jointly were acquiring those foreign properties and investing in that development for profit. In doing so, they were both engaging in business, and the 1995 Act has no application to either of them, since neither falls within the definition of consumer, properly construed, for the purposes of that Act in respect of the loan transaction at issue.
Conclusion
50. There must be judgment for the plaintiff in respect of the monies owed under the loan agreement at issue.
Farrelly and Kenny v Kavanagh
[2015] IEHC 114
JUDGMENT of Ms. Justice Costello delivered the 25th day of February, 2015
1. This is a case brought by two property developers, the plaintiffs, against the defendant, the Receiver appointed over their lands in Greystones, Co. Wicklow. The plaintiffs represented themselves throughout the proceedings. In their statement of claim they seek relief in the form of the removal of the defendant from his position as receiver over their assets and damages. The plaintiffs advance their case under the headings of negligence and defamation in their statement of claim dated 12th February, 2013. They further advance their claim for defamation in two further notices for particulars dated 20th June, 2014, and 28th October, 2014. Additional details of their complaints emerged from their witness statements dated 26th June, 2014.
2. The first named plaintiff is an architect by profession. He was adjudicated bankrupt on the 10th October, 2011. As of the date of commencement of these proceedings by way of plenary summons on the 15th January, 2013, he remained an undischarged bankrupt. By order of Kelly J. on 6th February, 2014, it was held that:-
“…all claims by the First Named Plaintiff, an Undischarged Bankrupt, in these proceedings save those that concern “damaged reputation, stress” as referred to at page 3 of the Statement of Claim herein be and the same are hereby struck out”.
It follows that from this order the first named plaintiff could only advance arguments pertaining to defamation proceedings.
Factual Background.
3. The plaintiffs are the owners of three properties situated in Greystones, Co. Wicklow. They comprise:-
(a) Cleevaun, Hillside Road, Greystones, Co. Wicklow, (“the Cleevaun Development”).
(b) 2 Tranquilla Mews, Hillside Road, Greystones, Co. Wicklow (“2 Tranquilla Mews”).
(c) Rockview, Hillside Road, Greystones, Co. Wicklow (“Rockview”).
4. The plaintiffs wished to carry out a mixed three storey development at Cleevaun and also to develop properties at 2 Tranquilla Mews and Rockview. They borrowed funds from ACC Bank Plc (“ACC”) in order to do so and the monies so borrowed were secured by deeds of mortgage and charge over the properties. All three deeds of mortgage were executed, dated respectively: 21st April, 2005, 27th September, 2006, and 30th November, 2009.
5. The Cleevaun Development comprised a three storey building with underground car park. It was a mixture of retail units, commercial units, apartments, a theatre and a dance studio. The underground car park serviced the commercial and the residential units. By 2009 the development had been substantially built but it had not been completed. As with many property developers in Ireland, by 2009 the plaintiffs had fallen into very significant arrears with ACC. While some of the units in the Cleevaun Development had been let, there were vacant units and not all the tenants were paying full commercial rent. Certainly, the rental income was not sufficient to meet the repayments due under the loans to ACC. As the development had not yet been completed, the question of realising ACC’s security was a complex one. ACC proposed that a report be commissioned by a debt insolvency practitioner and accountancy firm to advise the best approach to dealing with the situation. In January, 2010 ACC requested the defendant to assess the situation and advise ACC as to the best course of action to be taken. The plaintiffs have misunderstood the role of the defendant at this time, early 2010. In evidence, they characterised his role as being a manager of the property. Prior to his appointment as a receiver, his role was merely has an advisor to ACC.
6. There was evidence that in March, 2010 ACC was informed by the plaintiffs’ accountant that it would cost several hundred thousand euro in order to complete the development. Accordingly ACC bank decided to appoint the defendant as receiver over the properties pursuant to the three deeds of mortgage. He was appointed on the 11th May, 2010, as a receiver over the three properties. While the defendant had some familiarity with the properties because of his prior advisory role, he proceeded to engage the services of Lisney to assist him in the management of the properties and to market and sell the properties. The defendant instructed The Building Consultancy to prepare a report on the Cleevaun Development. Arising out of the reports from Lisney and The Building Consultancy it became apparent that there were significant difficulties with the Cleevaun Development in particular. These related to the title, failures to comply with the planning permission for the development, fire safety issues, the fact that no management company had been incorporated for the development (which was a multi unit development), the fact that rents were not being paid by some of the tenants and that many of the leases were not commercially valuable leases. The defendant was informed that it would cost €355,000.00 to complete the developments and comply fully with the requirements of the planning permission and all fire safety requirements. All of these issues impacted upon the saleability of the Cleevaun Development.
7. The defendant instructed Lisney to seek to market both the vacant units in the Cleevaun Development and in the other properties and to seek to sell the entire Cleevaun Development. While a number of offers were received, they were all considered by Lisney and the Receiver to be unacceptably low or to require certain works to be carried out to the premises and accordingly they were rejected. There was one offer to lease a unit at Rockview by Ms. Kelly Callaghan and this was accepted by the Receiver who in due course entered into a lease of the unit with Ms. Callaghan. Mr. Ross McParland was prepared to purchase units four and six of the Cleevaun Development, however he required that a management company be established in order that important matters could be regularised in the normal way in this multi unit development. The defendant was prepared to allow Mr. McParland into possession of the units and the sale was to close once a management company had been established.
8. The defendant employed Lisney to manage the properties and they immediately instructed agents to clear up the Cleevaun Development and to maintain the grounds on a regular basis. Lisney engaged with the tenants on behalf of the defendant but from the commencement of the receivership most of the the tenants ceased to pay any rent. This had an additional significant, detrimental impact on the saleability of the Cleevaun Development.
Sales of the three properties
9. 2 Tranquila Mews was marketed and sold by Lisney on behalf of the defendant in early 2011 for the sum of €202,000.00. The plaintiffs complained that the sale price was inadequate and further that the monies realised by the sale were not used to complete some of the outstanding works at the Cleevaun Development. Ultimately, of course, this was a matter for ACC as the charge holder and not a matter for the defendant as receiver.
10. Rockview was not offered for sale as there were planning issues in relation to this development and there were arrears of rent due from the tenants of Rockview (with the exception of Ms. Callaghan). The defendant is currently marketing the property for sale.
11. Lisney were able to market the unoccupied units of the Cleevaun Development for sale and were also seeking offers for the entire development in its existing condition. Any offers that were made were unacceptably low and Lisney could not recommend acceptance of the offers to the defendant. As the defendant had a duty to obtain the best price reasonably obtainable, in the light of these advices, he did not accept any of them.
12. There was a lease of a studio area to Greystones Studios Ltd. The first named plaintiff and his wife were the directors and shareholders of the company. They disputed whether any rent was due under the lease and declined to pay any rent. Ultimately the defendant sought to forfeit the lease and instituted proceedings seeking vacant possession from the tenant. There was a similar difficulty with a lease to Mrs. Ramona Farrelly, the wife of the first named plaintiff, who held a unit under a short term business letting agreement dated 24th June, 2008. The Receiver instituted Circuit Court proceedings against her also. Proceedings were also instituted against tenants Ms. Patricia Meenan and Mr. Keith Sunderland trading as Sweeney Todd who had paid no rent from the commencement of the receivership. There was also a difficulty with the lease of the theatre. The theatre was leased to Greystones Theatre Ltd. of whom the first named plaintiff and his wife were the directors and shareholders. However, the company had been struck off the register for failing to make annual returns in December, 2011 and had ceased to trade. Nonetheless Mr. and Mrs. Farrelly refused to deliver up possession of the theatre to the defendant.
13. In April, 2012 the defendant accepted the reality of the situation and realised that it simply was not possible to sell the Cleevaun Development while there were issues with the tenants, Circuit Court proceedings seeking possession of the premises were in being, there was a history of the non payment of rent, there were breaches of planning permission and issues with fire safety compliance and there was no management company. He took advice from Lisney and was advised to take the property off the market. He decided to attempt to resolve some of these issues before seeking to market the property again. From April, 2012 until the following year he tried to resolve matters in relation to vacant possession with the tenants but was unsuccessful.
14. Following further advices from Lisney, in July, 2013, he then decided to try to sell the property in a distressed properties auction organised by Allsop Space (“Allsop”). By letter dated 19th August, 2013, the plaintiffs wrote to Ms. Elaine McParland, a tenant of part of the premises, in the following terms:-
“Dear Ms. McParland,
It has been brought to our attention that the recent activity around the development is preparation for the sale of the 2 units that you occupy to yourself.
I am writing to bring to your attention the fact that we have challenged the validity of the appointment of the Receiver and the legal right that the Bank has to place the property into receivership. There is an ongoing High Court action and as such no sales should take place until this action has been concluded.
We hereby give notice that you cease all action in relation to the purchase and that we will be applying to the High Court for injunction against the Bank and Tom Kavanagh and their Agents to cease all activity in relation to the property until the action has concluded.
Yours sincerely
Alan Farrelly & Austin Kenny”
Once Allsop became aware of this letter they declined to accept the Cleevaun Development in their auction as they wished to avoid any possible disruption from disgruntled borrowers.
15. By September, 2013 the situation was as follows. The defendant had been appointed three years previously and had experienced very considerable difficulty in trying to realise the security for ACC. Sale in the normal way had proved impossible over a two year period. Attempts to resolve matters with the tenants was proving expensive and unsuccessful. An attempt to sell the Cleevaun Development in the Allsop auction had to be abandoned largely due to the actions of the plaintiffs. The last option available to the defendant was to sell the premises through the new “Click to Purchase” platform devised by Lisney. Click to Purchase was a virtual transaction platform for buying and selling property online which provided the facility for the exchange of contracts to take place electronically in a similar way to a sale by private treaty. Parties who wish to participate must pre-register with Lisney. It is only when they have established that they would be in a position to complete any purchase that they are permitted access to the relevant details in respect of any property in which they have expressed an interest. In relation to the Cleevaun Development the defendant was in a position to provide only limited representations and warranties in respect of compliance with planning laws and building regulations. In order to overcome this difficulty and in the interest of full and proper disclosure a copy of a planning compliance review dated 25th July, 2013, prepared by ORS Consulting Engineers (“the ORS Report”) on behalf of the defendant was made available on the Click to Purchase platform to prospective registered purchasers. A section of the ORS Report comprised part of the plaintiffs’ claim in defamation as is more particularly set out below.
16. In the event the defendant accepted the advices of Lisney and marketed the Cleevaun Development on the Click to Purchase platform. Mr. Ross McParland was the only purchaser who registered an interest. He was the only purchaser who had access to the documents on the Click to Purchase site and in particular to the ORS Report. Ultimately, Mr. McParland made an offer to purchase the entirety of the Cleevaun Development. He offered a total of €430,000.00 which was to comprise €178,450.00 for units four and six which he had previously agreed to purchase and €251,550.00 for the balance of the development. Mr. Hugh Markey of Lisney recommended that the Cleevaun Development be sold to Mr. McParland for this sum and he advised that this was the best price reasonably obtainable. On that basis the defendant accepted Mr. McParland’s offer and the Cleevaun Development was sold to Mr. McParland in February, 2014.
The Plaintiffs’ case as pleaded
17. The indorsement of claim alleges that the defendant was negligent in accepting appointment as a receiver. It was pleaded as follow:-
“In the role as receiver the defendant has an obligation to act as an independent party and must satisfy himself as to the entitlement and right that a financial institution might have to appoint a Receiver. In this regard he should have asked the bank for the following proof:
1. That the bank were in possession (sic) all the appropriate documents in original form.
2. That a full binding, fair and equitable contract (in original form) existed between the parties and signed by both.
3. That the bank had not sold on to a third party or discharged the alleged loan in any way through securitisation or by any other means.
4. That the bank had not acted in any fraudulent way whatsoever in its contractual dealings including non disclosure of facts, any intention to sell on or use as signature of the borrowers in any way that would benefit the bank unknownst to the borrower.”
At the hearing only the argument that the Receiver should not have accepted his appointment was maintained.
18. The second claim was that the defendant was negligent in managing the assets. It was claimed that the defendant failed in his duty of care to the borrower on the basis of the following:-
“1. Failure to approve prospective tenants and act within a reasonable time to secure leases.
2. Failure to understand the full complexities of the building and carry out essential works in order to maintain and improve the assets and to comply with local authorities requests and requirements.
3. Failure to implement a management company and pay landlord bills which has already resulted in the disconnection of services and in turn resulted in damage to the property, temporary closure of businesses, loss of reputation to businesses, loss of income and financial damage.
4. Failure to meet existing tenants in order to discuss long term plans of the development and resolve any issues.
5. Failure to respond to immediate problems with the building in terms of leaks, servicing etc.
6. Negligently running up unnecessarily professional costs which the borrowers will ultimately bear without any real benefit to the asset.
7. Failure to update the borrowers of progress, costs and incomes.
8. Acting in a manner in which serves only to accrue fees and to protect [his] own self interest as opposed to that of the borrower or the asset of which [he has] a duty of care to.”
Each of these complaints was the subject of submission and cross-examination at the trial.
19. The third ground of complaint was that the defendant was negligent in his treatment of tenants in that:-
“1. His failure to meet existing tenants upon their request to discuss the long term plans for the development, carry out essential works under the responsibility of the landlord, and agree to payment structure which reflects the terms of the leases, current market conditions and trading conditions given the state of the development.
2. His constant threats of injunction to the legal operation of Greystones Theatre has resulted in the closure of the Theatre due to the inability to book acts, rent to theatre groups or plan ahead which is essential for the operation of the Theatre. In turn this has reduced the attractiveness of the Studios to renters and users as the performance space is no longer available for use.
3. His complete lack of interest in the development and in maintaining and improving the good work of the existing businesses.”
There is a claim that the defendant should be removed from his position as receiver and a claim for damages and costs.
20. In addition, in notices for particulars dated 20th June, 2014, and 28th October, 2014, the plaintiffs advanced claims in defamation against the defendant as is more particularly discussed below.
21. In written submissions and at the hearing of the action the plaintiffs also argued that the defendant had a conflict of interest when he accepted the position of receiver in view of the fact that he had previously acted as an advisor to ACC in relation to the developments prior to his appointment as receiver. It was also claimed that he was manager of the business comprised in the secured properties and that he owed the plaintiffs as the borrowers a duty of care to manage the properties having regard to their interests as well as that of ACC.
The plaintiffs’ case in defamation
22. The plaintiffs have not pleaded their case in defamation in accordance with the requirements of the Defamation Act 2009. It is not set out in the plenary summons or the statement of claim. It is set out in replies to particulars dated 24th April, 2014, 20th June, 2014, and 28th October, 2014. It was accepted by senior counsel on behalf of the defendant that the affidavits sworn by the plaintiffs in the context of the application to admit the proceedings into the commercial list of the High Court were sufficient to satisfy the requirements of s. 8 of the Defamation Act, 2009, though these affidavits predated the particulars of defamation. No objection was taken to the bringing of a claim in defamation in these proceedings by the defendant. In the circumstances I accept that there has been sufficient compliance with s. 8 of the Act of 2009.
23. At the opening of the case the first named plaintiff on behalf of both plaintiffs identified three alleged claims of defamation against the defendant. Firstly, it was said that the defendant defamed the plaintiffs by continuing to hold himself out as a receiver and to call himself a receiver over the assets of the plaintiffs after they had objected to his appointment and indicated to him that they were challenging his appointment. It was argued that he ought not to have not called himself a receiver from that point onwards and that in so doing he acted wrongly and defamed the plaintiffs. Secondly, the plaintiffs relied on the contents of para. 3.3.1 of the ORS Report. This was a planning compliance review prepared by ORS Consulting Engineers for the defendant in respect of the properties over which he had been appointed receiver. Paragraph 3.3.1 read as follows:-
“Submission of a Fire Safety Certificate for the commercial or residential developments does not appear to be on record with Wicklow County Council Building Control Department or Fire Department. Also the commencement notice for any development should detail the relevant Fire Safety Certificate number if applicable. Copies of the relevant commencement notices on file show that this section has been filled out as “TBA” in all cases. ORS have carried out searches for the above fire safety certificate under the names of the architect and developer and have also searched for all previous Fire Safety Certificates within a 1km radius but there is no record of any certificate for the development. These search results have been verified by the Building Control Section of Wicklow County Council. Please note that we have not requested a meeting with the Building Control Authority or approached the previous architect at any stage and it may be a case that this certificate has been lost by the Local Authority.”
It was argued that this passage implied that the plaintiffs were reckless as developers in that they proceeded to carry out a development without a fire safety certificate and that it is further defamatory of the first named plaintiff as he is an architect and the alleged failure to obtain a certificate reflected negatively on his professional competence.
24. The third allegation of defamation related to three emails of the 23rd August, 2013, referred to as the Allsop correspondence. The defendant had intended to sell the properties at an auction to be conducted by Allsop in September, 2013. The plaintiffs intervened by writing to Ms. McParland a letter dated 19th August, 2014, as is set out above at para. 14. Ms. McParland passed the letter to her husband, Mr. Ross McParland, who in turn forwarded it to Lisney. Mr. Duncan Lyster of Lisney sent an email to Mr. Brendan O’Reilly and Mr. James Anderson of Kavanagh Fennell stating as follows:-
“Brendan/James
See email below from Ross McParland and the letter sent to his wife yesterday by the borrowers. Hugh spoke to Ross this morning to clarify that his offer still stands as his email is a(sic) open to interpretation. The good news is the offer stands.
The letter sent to Elaine McParland underlines that Kenny and Farrelly are on a crusade and an auction would play into their hands.
Give me a call when you have time to discuss this.
Regards,
Duncan”.
25. The next email was from Mr. O’Reilly to Mr. Richard O’Neill of Allsop, which forwarded this email and stated:-
“Richard,
I’ll call you on below,
Regards
Brendan”
26. Mr. O’Neill of Allsop emailed Mr. O’Reilly of Kavanagh Fennell later that afternoon as follows:-
“Brendan,
Further to our earlier conversation, given the events of the July auction we have to be extremely careful about the properties we offer in the forthcoming auction, we are particularly concerned about sales that involve disgruntled borrowers in conflict with the receiver. We expect that such parties are likely to approached by the activists in an attempt to halt the sale.
Due to the above it is with regret that we are unable to include the property in upcoming auction.
If you have any further queries please do not hesitate to contact me.
Kind regards
Richard”.
27. The question for consideration by the court is whether any or all of the above amount to the defamation of the plaintiffs or either of them. Firstly, the defendant is not the author of the emails referred to as the Allsop correspondence. Neither did the defendant publish the Allsop correspondence. The email from Mr. Lyster of Lisney was forwarded by Mr. O’Reilly of Kavanagh Fennell to Mr. O’Neill of Allsop. However, Mr. O’Reilly was not called to give evidence and there was no evidence before the court upon which it could conclude that the defendant had published the emails. That being so it is not necessary to consider whether or not the content of the emails could form the basis of a claim in defamation. If I be incorrect in that conclusion, I nonetheless do not accept the argument that the contents of the Allsop correspondence is defamatory of the plaintiffs. I reject this claim.
28. The ORS Report likewise was not published by the defendant. It was published by Lisney in a very limited fashion. The entire report was made available along with other relevant material on its Click to Purchase platform. Only parties who had registered with Lisney in respect of the particular property had access to the documents on the platform. Thus it was possible to identify each and every person who had access to this document. In fact only Mr. McParland registered an interest in the purchase of the property and thus only Mr. McParland had access to the ORS report (other than the relevant staff of Lisney and Kavanagh Fennell who must have had possession of the ORS Report). Mr. McParland was not called to give evidence. There was no evidence whatsoever that Mr. McParland read or considered para. 3.3.1 of the report or that he formed a negative view of the plaintiffs or either of them as a result. None of the witnesses from Lisney or Kavanagh Fennell were asked if they considered this paragraph of the ORS Report and, if so, what was their opinion of the plantiffs. Therefore there was likewise no evidence that any of these witnesses formed a negative view of the plaintiffs or either of them as a result of reading this section of the ORS Report. This was not a publication to the world at large. It follows that there simply was no evidence before the court upon which the court could conclude that the material, even if defamatory, was in fact published to someone who read the matter complained of and who formed a negative view of the plaintiffs as a result.
29. Furthermore there was no evidence adduced or argument advanced that when Lisney published the material on the Click to Purchase site, it did so as the agent of the defendant. It follows, therefore, that insofar as the placing of the ORS Report on the Click to Purchase site could amount to a publication, it was not one in respect of which the court could conclude that the defendant was legally responsible.
30. Finally, it was argued on behalf of the defendant that at the date the ORS Report was prepared the report was in fact factually correct and that this afforded the defendant a defence pursuant to s.16(1) of the Act of 2009 which provides:-
“It shall be a defence (to be known and in this Act referred to as the “defence of truth”) to a defamation action for the defendant to prove that the statement in respect of which the action was brought is true in all material respects.”
31. Mr. Bolger of ORS, the author of the report, gave evidence that ORS carried out searches for the Fire Safety Certificate. He confirmed that the searches in respect of the Fire Safety Certificate were carried out in the names of the development, Cleevaun, Mr. Farrelly and Mr. Kenny. Mr. Farrelly was both the architect and the developer with Mr. Kenny. He confirmed that ORS requested the Building Control Section of Wicklow County Council try to see if there were any other developments in and around the area that would match the property and the employee in the Building Control Section said they could not find anything in their system. He also confirmed that subsequent to the completion of the report in about the middle of August, 2013 ORS received a copy of the Fire Certificate. Thus the evidence before the court was that the report was correct at the time it was written and that subsequently the Fire Safety Certificate was in fact produced. As the evidence of Mr. Markey of Lisney was that all the material relevant to the sale of the property was made available on the Click to Purchase platform, I infer that the Fire Safety Certificate was in fact made available to Mr. McParland when he also had access to the ORS Report. It of course was also available to staff in Lisney and Kavanagh Fennell. For these reasons I reject the plaintiffs’ claims in defamation based on either the Allsop correspondence or the ORS Report.
32. The balance of the claim was that the defendant continued to describe himself and to act as a receiver in respect of the properties notwithstanding the fact that the plaintiffs had challenged the validity of his appointment and had called upon him to cease acting as a receiver. The basis for their contention that his appointment was invalid related to the circumstances in which they executed the third deed of mortgage dated the 30th November, 2009. The plaintiffs argued that their signatures on this third deed of mortgage were procured by undue influence of their solicitor. It was argued that the receiver ought to have been suspicious that the mortgage had not been validly created and that he should have accepted their objections to his appointment and ceased to act when he became aware of their objections.
33. The plaintiffs have not impugned the mortgage in proceedings against the mortgagee and the deed has not been set aside. According it remains a valid enforceable deed on its face. The plaintiffs did not sue the bank and did not seek an order that the bank remove the defendant as receiver over the property. The plaintiffs adduced no evidence that the bank, never mind the defendant, was aware of the alleged undue influence of the plaintiffs’ own solicitor. In these circumstances there can have been no obligation on the defendant to act upon the mere allegations of the plaintiffs. From his perspective there were three valid mortgages and he had been validly appointed under a deed of appointment pursuant to those mortgages. He owed a duty to the bank which had appointed him to realise the assets. Unless or until that deed of appointment had been set aside either by the bank or by an order of the court he acted perfectly correctly in describing himself as a receiver and in continuing to act as a receiver over the properties. Indeed, he had a duty so to do. It follows therefore that there can be no question of a case in defamation arising based on the fact that he described himself as the receiver of the plaintiffs’ properties or that he continued to act as a receiver of those properties. This claim in defamation also must be rejected.
Mr. Kenny’s Claim
34. The first named plaintiff was an undischarged bankrupt when the proceedings issued, he having been adjudicated bankrupt on 10th October, 2011. By order dated 6th February, 2014, Kelly J. struck out all claims made by the first named plaintiff in the proceedings save those that concerned the “damaged reputation, stress” referred to at p. 3 of the statement of claim on the grounds that he was an undischarged bankrupt. This has been dealt with as a claim in defamation. Thus the balance of the case is maintained solely by the second named plaintiff.
Breach of duty of care
35. It was argued that the defendant breached the duty of care which he owed to the second named plaintiff in selling the properties as he failed to achieve the best price available. It was argued that he ought to have improved or finished out the property in order to maximise the price and that by selling the properties in their existing condition without completing various matters which could be dealt with at relatively small cost he thereby failed to achieve the best price for the properties.
36. In reply the defendant relied upon Silven Properties Ltd. v. Royal Bank of Scotland plc [2004] 1 WLR 997 which was a decision of the English Court of Appeal. Lightman J. delivered the judgment of the court. At para. 16 he held:-
“The mortgagee is entitled to sell the mortgaged property as it is. He is under no obligation to improve it or increase its value. There is no obligation to take any such pre-marketing steps to increase the value of the property as is suggested by the claimants.”
At para. 20 he continued:-
“In our judgment there can accordingly be no duty on the part of a mortgagee, as suggested by the claimants, to postpone exercising the power of sale until after the further pursuit (let alone the outcome) of an application for planning permission or the grant of a lease of the mortgaged property, though the outcome of the application and the effect of the grant of the lease may be to increase the market value of the mortgaged property and price obtained on sale. A mortgagee is entitled to sell the property in the condition in which it stands without investing money or time in increasing its likely sale value. He is entitled to discontinue efforts already undertaken to increase their likely sale value in favour of such a sale. A mortgagee is under a duty to take reasonable care to obtain a sale price which reflects the added value available on the grant of planning permission and the grant of the lease of a vacant property and (as a means of achieving this end) to ensure that the potential is brought to the notice of prospective purchasers and accordingly taken into account in their offers: see Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949. But that is the limit of his duty.”
The court then turned to the question of the duties regarding mortgaged properties of receivers and, in particular, of receivers who under the terms of the mortgage under which they are appointed are designated as agents of the mortgagor (as is the case here). At para. 28 the judgment continued as follows:-
“The mortgage confers upon the mortgagee a direct and indirect means of securing a sale in order to achieve repayment of his secured debt. The mortgagee can sell as mortgagee and the mortgagee can appoint a receiver who likewise can sell in the name of the mortgagor. Having regard to the fact that the receiver’s primary duty is to bring about a situation where the secured debt is repaid, as a matter of principle the receiver must be entitled (like the mortgagee) to sell the property in the condition in which it is in the same way as the mortgagee can and in particular without awaiting or effecting any increase in value or improvement in the property. This accords with the repeated statements in the authorities that the duties in respect of the exercise of the power of sale by mortgagees and receivers are the same and with the holding in a series of decisions at first instance that receivers are not obliged before sale to spend money on repairs…”
37. I accept that this is a correct statement of the law and in particular of the duties of receivers in relation to the sale of secured properties. There was thus no obligation on the defendant to carry out any of the works which the second named plaintiff alleges could have enhanced the purchase price achieved upon the sale of the properties. Furthermore, as the defendant pointed out in evidence, he did not have the money to carry out the works identified, which he was advised would cost €355,000.00 exclusive of VAT. He simply was not in a position to carry out such extensive works. That being so, the fact that he did not carry out works which the second named plaintiff argues were desirable or advisable cannot ground a claim in damages against him. In this case there was clear evidence that the defendant had endeavoured to realise the security for a period of in excess of three years. The property was placed on the market with Lisney for more than two years. There were numerous difficulties in relation to a sale at that time as set out above and evidenced by Mr. Markey and Mr. Anderson. Ultimately Lisney advised that the properties be withdrawn and that an alternative strategy be followed. The defendant was advised to include the properties in an Allsop sale in September, 2013. As discussed above, Allsop declined to accept the properties in the auction because of a fear that the plaintiffs might seek to disrupt the sale. Ultimately, the defendant was left with very few options for realising the security. He took advice from Lisney and followed their advice which was to sell the properties on its Click to Purchase platform.
38. The evidence is clear that the defendant at all times sought to realise the security. His duty, once the decision to sell had been taken, was to sell at the best price reasonably obtainable. This he endeavoured to do within the constraints outlined above. At each step he took advices from Lisney. They were highly experienced in the business of selling commercial developments including mixed developments of this type. They were appropriate agents to instruct and it was perfectly proper to follow their advice in relation to both the method of selling and any offers received for the properties. The second named plaintiff’s complaint is that the properties were sold at an under value. In fact the evidence from Mr. Markey of Lisney was that the price achieved for the Cleevaun Development was a very strong one and that “we got lucky” as the purchaser, Mr. McParland had a particular interest in the property. The second named plaintiff adduced no evidence whatsoever as to the values of the properties and the sale prices which the second named plaintiff alleges ought to have been achieved. Thus there was no evidence to contradict that of Mr. Markey. Accordingly, I find as a fact the properties were not sold at an under value and that the defendant did not act negligently or breach any duty of care which he may have owed to the second named plaintiff in or about the conduct of the sales of the properties.
39. Secondly, the second named plaintiff alleged that the defendant should not have accepted the appointment as receiver and that in accepting the appointment and then continuing to act he breached the duty of care he owed to the second named plaintiff as the mortgagor of the properties. Firstly it should be pointed out that no challenge was advanced against the first two mortgages. The claim was that the third mortgage entered into between the plaintiffs and ACC on 30th November, 2009, was procured by the undue influence of the plaintiff’s solicitor. There was no evidence that ACC was aware of the alleged undue influence and there was certainly no evidence that the defendant was aware of the claimed undue influence at the time he accepted his appointment. On its face there was a valid deed of mortgage and ACC was entitled to appoint a receiver pursuant to the three deeds of mortgage. The defendant gave evidence that he took legal advice before he accepted the appointment in accordance with his normal practice. There was no evidence adduced upon which the court could conclude that he acted negligently or in any way breached any duty of care which he may have owed to the plaintiffs or either of them in accepting the appointment as receiver. As I have already stated, unless and until the deed of mortgage is set aside in proceedings in which the bank is a party, I must proceed on the basis that the deed of mortgage and the appointment pursuant to the deed are what they appear on their face: valid enforceable deeds.
40. A number of the second named plaintiffs complaints related to the dealings, or the lack of them, had between the defendant and various tenants of the properties. The second named plaintiff cannot advance a cause of action against the defendant based upon an alleged cause of action of a third party. Insofar as there is a claim therefore based on alleged mistreatment of any of the tenants or of damage occasioned to them, none of whom were the second named plaintiff, this part of the claim must fail.
41. It was claimed that the defendant acted in a negligent manner in his management of the assets over which he had been appointed receiver. It is important therefore to consider what was the duty of care owed by the defendant as a receiver to the plaintiffs as borrowers. His first duty of care is owed to the mortgagee who appointed him. No particular duty of care is owed to the borrower. The duty is owed equally to any person who has an interest in the equity of redemption. The duty owed by the defendant to the plaintiffs is the same as that owed to a charge holder ranking in priority after ACC if there had been one in this case. In Silven Properties Ltd. v. Royal Bank of Scotland plc, quoted above, at para. 17 of his judgment Lightman J. stated as follows:-
“The mortgagee is free (in his own interest as well as that of the mortgagor) to investigate whether and how he can “unlock” the potential for an increase in value of the property mortgaged (e g by an application for planning permission or the grant of a lease) and indeed (going further) he can proceed with such an application or grant. But he is likewise free at any time to halt his efforts and proceed instead immediately with a sale. By commencing on this path the mortgagee does not in any way preclude himself from calling a halt at will: he does not assume any such obligation of care to the mortgagor in respect of its continuance as the claimants contend.”
42. At para. 29 of his judgment Lightmann J. confirmed that receivers and mortgagees bore the same responsibility. That being so, it follows that while the defendant may well have been free to explore various possibilities in relation to the management of the secured assets with a view to maximising the realisation from a sale of the assets, he was under no obligation to the plaintiffs to do so. It follows therefore that his failure to do so cannot form the basis of a claim against him. This principle alone is enough to justify the rejection of the second named plaintiff’s claim based on the defendant’s alleged breach of his duty of care owed to him in respect of the management of the assets.
43. For the sake of completeness, I should point that there was evidence to show that the defendant took such steps as lay within his power to comply with the requests and requirements of the fire safety authorities of Wicklow County Council. Though under no obligation so to do, he ensured that a management company for the Cleevaun Development was incorporated so that the sale of units four and six to Mr. McParland ultimately could proceed. He employed professional advisors to advise him on various matters which arose during the receivership. Lisney acted as his property management agents. ORS Consulting Engineers prepared a review of the Cleevaun Development with a view to preparing a certificate of compliance with planning permission and building regulations which would be required to enable a sale to take place. The Building Consultancy was employed to prepare and submit a pre acquisition survey report and to advise in respect of compliance with statutory regulations. Various works were carried out to the Cleevaun Development of a maintenance nature and landscape gardeners were employed to spray the weeds and maintain the grounds in an acceptable condition. There was no evidence that the defendant’s agents failed to deal with minor maintenance issues as they arose Complaint was made that the contractors were excessively expensive. However the defendant gave evidence that this was not the case, their rates were competitive and that all expenses incurred by him during the receivership had to be approved by ACC. There was no expert evidence to suggest that the fees charged were improperly incurred or inflated.
44. It was implied that the defendant had unnecessarily generated significant fees for his own benefit to the detriment of the plaintiffs and in particular the second named plaintiff. I reject this suggestion and I wish to record that it is without any foundation in fact. It was apparent from the evidence at trial that the receivership was a difficult one. It took nearly three years to sell the principal development, the Cleevaun Development. It had been necessary to institute three sets of proceedings in the Circuit Court seeking vacant possession against tenants who were not paying rent and who were refusing to surrender vacant possession of their respective units. At least two of these tenants were closely associated with the first named plaintiff. A possible sale of the Cleevaun Development through the Allsop auction process in July, 2013 was frustrated by the intervention of the plaintiffs as has been set out above.
45. In summary, the defendant gave evidence that he did not incur unnecessary, excessive fees in the conduct of the receivership, that it was a difficult receivership and that there were a considerable number of issues which required to be resolved. There was no evidence adduced to rebut the evidence of the witnesses called on behalf of the defendant that they had acted properly and other than in a professional manner. Accordingly I must reject this claim of the second named plaintiff.
46. Much of the case concerned the failure of the defendant to pay the landlord’s ESB bill following his appointment in May, 2010 resulting in power being temporarily cut off. This lead the Fire Officer to hold that there was a breach of the Fire Safety Certificate. The Fire Officer directed the closure inter alia of the theatre. Also, the loss of power contributed to flooding of the Cleevaun Development and particular damage was sustained in the theatre. The evidence on behalf of the defendant was that the account had not been transferred into his name. The account did not distinguish between the apartments and the commercial portion of the development. The defendant was not receiver of the entire development and therefore he could not discharge liabilities for which he and ACC had no responsibility. He sought an apportionment of the account but this was never resolved. He cannot be held liable for the ESB cutting off supply in the circumstances. It follows that he likewise cannot be liable for the Fire Officer closing down the theatre as the development did not temporarily comply with the Fire Safety Certificate, or the flooding that resulted when the pumps could not function in the absence of power.
47. The final complaint related to an alleged conflict of interest. It was said that the defendant advised ACC to appoint him as receiver as the most suitable way to realise a return of the monies owed by the plaintiffs to ACC. It was said that he had a conflict of interest in so advising as he would be paid large fees as a receiver to the three properties. No conflict of interest arises in these circumstances. The defendant never acted for the plaintiffs or either of them. He acted as an advisor to ACC early in 2010. He advised ACC to place the properties in receivership. There was no guarantee that he would be the practitioner whom ACC would appoint to act as receiver. There was no evidence that he advised on that basis. Even had he done so, it would still not give the plaintiffs any cause of action against him. He did not act for them so they cannot say that he acted on the basis of a conflict of interest.
48. In summary, I dismiss all of the claims advanced by the second named plaintiff against the defendant and I dismiss the claims of both plaintiffs based on defamation.
Harrold v Nua Mortgages
[2015] IEHC 15
JUDGMENT of Kearns P. delivered on the 16th day of January, 2015
By notice of motion dated 13th June 2014 the defendant seeks an order pursuant to the inherent jurisdiction of the Court or in the alternative an order pursuant to Order 19 rule 28 of the Rules of Superior Courts dismissing the plaintiff’s claim on the grounds that the statement of claim and plenary summons fail to disclose any reasonable cause of action against the defendant and are bound to fail. Alternatively, an order is sought pursuant to Order 19, rule 28 dismissing the plaintiff’s claim on the grounds that it is frivolous and vexatious.
The plaintiff’s claim is for damages arising out of a number of allegations against the defendant including that he has suffered loss and damage due to the alleged reckless lending practices of the defendant, that he was coerced into signing a mortgage agreement, that he was misled by the defendant in relation to the nature of the agreement and the source of the finance, that the defendant was insolvent at the relevant time and was therefore in breach of licensing requirements, and that the defendant engaged in excessive securitisation and breached a number of regulatory requirements.
BACKGROUND
By letter dated 18th June 2007, the plaintiff and his wife were offered a loan facility by the defendant in the sum of €256,500 for a term of 40 years. The loan was secured on a property at Middle Drumrooske, Donegal Town, County Donegal. On 25th June 2007 a deed of mortgage and charge was entered into in respect of the property. Subsequently, the plaintiff defaulted on his repayment obligations and joint receivers were appointed over the secured property by deed of appointment dated 4th October, 2012.
By plenary summons dated 12th November, 2012 the plaintiff states that “the bank broke serious liquidity laws which has caused the financial collapse. But for this action and knowledge of same I would or could have made different decisions about my financial affairs”. He asserts that the bank engaged in excessive securitisation and reckless lending and that his health and relationships have suffered as a result. The plaintiff claims €1,000,000 in damages and an order declaring that the mortgage agreement is null and void.
In his statement of claim the plaintiff says that “the defendant did not possess the money it claims it loaned out thus rendering the defendant a third party only”. He asserts that he was cajoled into the agreement and was offered no independent legal assistance. The plaintiff contends that the defendant misled him in relation to its financial position and that the bank was insolvent at the time of the agreement but “created the alleged money out of thin air on a computer keyboard”. A number of other claims are set out including that the defendant did not hold a valid licence to trade on the date of the signing of the alleged agreement, that the defendant ignored warnings from the United States markets in relation to the risks involved in the transaction, that no proper risk assessment was carried out, and that the bank is a mere servicing agent for another body and therefore has no legal right to any monies from the plaintiff.
The plaintiff states that he was originally offered €110,000 from the bank which he declined. He states that the bank subsequently offered €256,500 through an agent called ‘Moneypenny’ and accepted falsified financial statements in the name of the plaintiff in order to arrange this loan and to profit by way of commission and ultimately repossession of the property.
The proceedings have been before the Court on a number of previous occasions where the parties were seeking directions. The defendant issued a motion to strike out the proceedings on 13th June 2014.
JURISDICTION TO DISMISS
Order 19, rule 28 of the Rules of Superior Courts provides –
“The Court may order any pleading to be struck out, on the ground that it discloses no reasonable cause of action or answer and in any such case or in case of the action or defence being shown by the pleadings to be frivolous or vexatious, the Court may order the action to be stayed or dismissed, or judgement to be entered accordingly, as may be just.”
The Court also possesses an inherent jurisdiction to strike out proceedings. This well established position was confirmed in Barry v. Buckley [1981] IR 306 where Costello J. stated that the “jurisdiction exists to ensure that an abuse of the process of the courts does not take place” and where a claim is bound to fail “it would be a proper exercise of its discretion to strike out proceedings whose continued existence cannot be justified and is manifestly causing irrevocable damage to the defendant.”
It is well established that this jurisdiction is one which should be used sparingly and right of access to the courts should be preserved wherever possible. In Lawlor v. Ross (Unreported, Supreme Court, 22nd November 2001) Fennelly J. stated that “the Court should be willing to assume in favour of the Plaintiff that an appropriate amendment of the pleadings might save his case.”
SUBMISSIONS OF THE DEFENDANT
Counsel for the defendant submits that the existing jurisprudence makes clear that there is no tort of ‘reckless lending’ in this jurisdiction. In Healy v. Stepstone Mortgage Funding Limited [2014] IEHC 134 Hogan J. considered this issue and previous decisions of the court in the following terms –
“4. In essence the plaintiff’s claim is that there exists in law a tort of reckless lending. It is however, absolutely clear that there is no such common law tort of reckless lending. The matter has, in any event, been put beyond doubt by two recent decisions of this Court that have considered the matter in some detail.
5. In ICS Building v. Grant [2010] IEHC 17, Charleton J. stated:
‘… the argued for tort of reckless lending does not exist in law as a civil wrong. It is not within the competence of the court to invent such a tort. Oireachtas could, if it saw fit, pass a law creating such a civil wrong. It is difficult to imagine the parameters of such a law since those who seek a loan will have different views to what should be borrowed, and if a loan is badly made by a bank, how can the issue of contribution be escaped from by the borrower who sought the money in the first place. Defining that civil wrong would tend to remove the presumption of arms length dealing as between borrower and bank and replace it with a new relationship based on a duty of nurture that other common law countries do not see it as their duty to put into the marketplace as any argued-for law as to reckless lending does not appear in the works on tort that I have consulted from other common law jurisdictions.’
6. These views were followed in McConnon v. President of Ireland [2012] IEHC 184, [2012] I.R. 449 at 446 where Kelly J. stated, ‘such a tort does not exist as a civil wrong in Irish law’.”
Hogan J. concluded:-
“It follows, therefore, that there is simply no tort of reckless lending which is known to the law.”
In light of this, counsel for the defendant submits that this aspect of the plaintiff’s claim discloses no reasonable cause of action and therefore ought to be struck out as being bound to fail.
In relation to the plaintiff’s allegation that the defendant illegally “created” the money for the purposes of the loan, counsel submits that this claim is also bound to fail. Arguments of this kind were considered by Hogan J. in McCarthy and Others v. Bank of Scotland PLC and Others [2014] IEHC 340 in the following terms (para. 9):-
“It is, I think, a measure of the desperate straits in which some litigants have found themselves as a result of the collapse in the property market from 2008 onwards that arguments of this kind have been seriously advanced, not only in this case but in other recent cases of the same kind, both here and in other jurisdictions, most notably Canada. A version of this fanciful theory had been advanced in Dempsey v. Enviston Credit Union [2006] BCSC 750 where it was described in the following terms by Garson J.:
‘In his submissions on the motion, in the actions concerning him, Mr. Dempsey described the “money for nothing” theory. He stated that the banks do not have money. Rather, they create money out of “thin air”…He says that the plaintiffs create money by signing promissory notes, and as soon as the promissory note is signed, the banks deposit money in their own statement of account. The bank does not place hard currency in the hands of the debtors. Mr. Dempsey then charge interest on nothing and that is a criminal rate of interest because interest is charged on nothing. Mr. Dempsey states: “it is not like the old days when people used to go to the bank and, in the back room, count out dollars, there is no law that allows the banks to create dollars out of thin air.’
It is scarcely a surprise that in Dempsey this argument was described by the British Columbia courts as “fanciful” and “completely devoid of merit.” Yet this has not deterred other litigants in this jurisdiction advancing similar arguments which are equally lacking in merit and which, indeed, lack any relationship to contractual or other legal realities.”
Hogan J. went on to consider the decision in Freeman v. Bank of Scotland [2013] IEHC 371 wherein Gilligan J. stated –
“… this ‘creation of currency’ argument resembles the so-called ‘money for nothing schemes’ discussed in Meads v. Meads 2012 ABQB 571. Such arguments are coming before the Courts in numerous jurisdictions with increasing frequency since the economic and property market collapse. In Meads, Associate Chief Justice Rooke stated that such arguments are often advanced by a particular type of vexatious litigant which he termed ‘Organised Pseudolegal Commercial Argument (OPCA) litigants’. He described these arguments as ‘fanciful’ and ‘completely devoid of merit’ and said they are often made by distressed litigants, particularly those who find themselves in financial difficulty, acting under pressure and on the instruction of organised groups or individuals who have a vested interest in disrupting court operations and frustrating the legal rights of governments, corporations and individuals.
It is also important to note that the funds in question, regardless of how they were allegedly ‘created’, were drawn down by the plaintiffs and, as stated in the statement of claim, were spent on the refurbishment and upkeep of the properties or however else the plaintiffs saw fit. The nature of the loan agreement between the parties was clear and unambiguous and was willingly signed for by the plaintiffs who were aware of their obligations and responsibilities.”
Similarly, in Kearney v. KBC Bank Ireland PLC and Others [2014] IEHC 260 Birmingham J. dismissed the ‘creation of currency’ argument. Referring to the decision of Gilligan J. in Freeman, Birmingham J. stated –
“In my view the phrases ‘fanciful’ and ‘completely devoid of merit’ are very appropriate to describe this argument and indeed significantly more robust language would be justified. Quite simply the plaintiff drew down funds and thereby took on the responsibility to repay. What the source of these funds was matters not a whit.”
In relation to the plaintiff’s assertion that the lender engaged in excessive securitisation and that this somehow relieves him of his responsibility to repay the loan, counsel for the defendant submits that the issue of securitisation as been dealt with in a number of previous decisions of the court. At paragraph 24 of his decision in Kearney, Birmingham J. states: –
“In relation to the emphasis that the plaintiff places on the issue of securitisation; observations made by Peart J. in Wellstead v. Judge White and Others [2011] IEHC 438, are very much on point. There, Peart J. observed:-
‘But there is another obstacle which faces the applicant, and which he has not addressed, and it is that there is nothing unusual or mysterious about a securitisation scheme. It happens all the time so that a bank can give itself added liquidity. It is typical of such securitisation schemes that the original lender will retain under the scheme, by agreement with the transferee, the obligation to enforce the security and account to the transferee in due course upon recovery from the mortgagors.’
The views expressed by Peart J. with which I find myself in complete and respectful agreement, also, accords with the approach of the English Court of Appeal in the case of Paragon Finance plc v. Pender [2005] 1 WLR 3412. The Court of Appeal was of the view that all that the special purpose vehicle acquired, under an uncompleted agreement to transfer the legal charge, was an equity in the mortgage. Paragon remained the legal owner, and as registered proprietor of the charge, retained all the powers of a legal chargee, including the right to possession, nor was it necessary to join the special purpose vehicle.”
Counsel for the defendant says that the plaintiff’s claim that the bank is insolvent or was insolvent at the time of the agreement is also bound to fail. While this allegation is strenuously denied by the bank, it is submitted that the plaintiff’s claim in this regard is ambiguous and even if it were true it is irrelevant. In McCarthy Hogan J., in striking out the plaintiff’s proceedings, stated –
“… the other arguments advanced by the plaintiffs are equally devoid of merit. It was contended that the bank was insolvent at the time it made the loans. While that claim has been strenuously denied, it is sufficient to say – as Gilligan J. said in Freeman – that even if this were so, this would not affect the validity of the loans.”
In Kearney, Birmingham J. also considered a claim in relation to the alleged insolvency of the bank in the following terms –
“The contention that the bank is or was insolvent or has failed to prove its solvency, again, assuming in favour of the plaintiff for the purpose of this exercise that this is or was the situation, something which is of course firmly denied by the bank, this does not have any impact or effect on the validity or enforceability of the loan arrangements and mortgages entered into between the plaintiff and the bank and certainly would not provide the plaintiff with a cause of action. The obligation to repay remains in full force and effect whether the bank is solvent or insolvent.”
As to the plaintiff’s allegations of fraud and misrepresentation, counsel submits that these serious allegations are not properly particularised as required by the Rules of the Superior Courts. This matter was also considered by Birmingham J. in Kearney where the plaintiff had made similar allegations to the present plaintiff against a lending institution. Birmingham J. stated as follows at para. 37: –
“These allegations of extraordinary seriousness are scattered about with abandon, but are not particularised. Order 19, r. 5(2) of the Rules of the Superior Courts provides:-
‘In all cases alleging misrepresentation, fraud, breach of trust, wilful default or undue influence and in all other cases in which particulars may be necessary, particulars (with dates and items if necessary) shall be set out in the pleadings.’
In Keaney v. Sullivan [2007] IEHC 8, Finlay Geoghegan J. commented that the court had an inherent jurisdiction to strike out a claim for failure to comply with O.19, r.5 (2) and in that case she proceeded to strike out claims. A similar approach was taken by Edwards J. in Bula Holdings v. Roche [2008] IEHC 208, where Edwards J. made an order striking out the proceedings on the basis that the pleadings were frivolous, vexatious and scandalous and that the particularisation of the claims of fraud, deceit, conspiracy and attempted perversion of the course of justice is so inadequate and deficient that no reasonable cause of action was disclosed.”
Counsel for the defendant submits that while it is accepted that there must be an appropriate degree of latitude afforded to litigants in person, the plaintiff is still bound by the laws of evidence and procedure. This issue was considered by Clarke J. in In Burke v. Judge Mary O’Halloran & Ors. –
“Understandably lay litigants do not always understand the rules of procedure or evidence or the law applicable to the case in which they are involved. Such parties frequently become frustrated when the court, even allowing some reasonable laxity in the application of those rules or that law, prevents them from doing or saying things that they wish in the course of the proceedings. These and many other factors often lead to such proceedings becoming disjointed, difficult and frequently much more lengthy than they would otherwise be.”
Clarke J. went on to hold as follows:-
“…it does have to be noted that a party who chooses to represent him or herself is no less bound by the laws of evidence and procedure and any other relevant laws, and by the rulings of the court in that regard, than any other party. Where a party chooses to represent him or herself and where that party fails to abide by directions of the court concerning the manner in which the case should be conducted in accordance with procedural, evidential and any other relevant law, then the court must take whatever action is appropriate to deal with any such failure.”
Based on the above, it is submitted on behalf of the defendant that the proceedings should be struck out pursuant to Order 19 rule 28 and/or pursuant to the inherent jurisdiction of the Court.
SUBMISSIONS OF THE PLAINTIFF
The plaintiff denies that he has failed to adequately particularise any aspect of his claim. He refers the Court to a document dated 29th November, 2013 entitled ‘Replies to Particulars” which was prepared on the direction of Ryan J. at an earlier stage in the proceedings. He says that no issue was raised by the defendant in relation to the content of this document and that it clearly sets out the allegations against the defendant. In any event, the plaintiff contends that as a litigant in person he should be allowed a greater degree of latitude in relation to the form of his submissions than would be afforded to qualified professionals. In this regard, the plaintiff refers to the decision of Birmingham J. in O’N. v. McD. and others [2013] IEHC 135 which states as follows: –
“On behalf of the first named defendant, and this is a point that is echoed by other defendants, it is noted that the statement of claim pleads an entirely different cause of action to what had been pleaded in the statement of plenary summons. It is contended that this is an impermissible form of pleading and that for this reason the proceedings should be struck out. There is no doubt that the form of pleadings is unorthodox and indeed quite irregular. However, I am conscious that the pleadings have been drafted by a litigant in person and, if I was of the view that the plaintiff was seeking to pursue a legitimate cause of action and had identified such a cause of action, I would not be prepared to strike out the proceedings but rather would afford him an opportunity to regularise his pleadings.”
The plaintiff submits that a large number of previous court decisions have made clear that the power of the Court to strike out proceedings in an application such as this is one which should be used sparingly. In this regard he refers to the decision of Feeney J. in Kenny v. Trinity College [2011] IEHC 202. At paragraph 5 Feeney J. states: –
“The jurisdiction of striking out proceedings pursuant to Order 19, rule 28 or pursuant to the Court’s inherent jurisdiction is a power which must be exercised sparingly and only when the Court is satisfied that there is a clear case to justify the exercise of such discretion (see Sun Fat Chan v. Osseous Ltd. [1992] 1 I.R. 425). As stated by Denham J. in Aer Rianta c.p.t. v. Ryanair Ltd. [2004] 1 IR 506 (at p. 509):
‘The jurisdiction under O. 19, r. 28 to strike out pleadings is one a court is slow to exercise. A court will exercise caution in utilising this jurisdiction.’
However, as emphasised by Denham J. in her judgment such jurisdiction should be exercised ‘if a court is convinced that a claim will fail.’”
Feeney J. went on to consider the legal principles as set out by the Supreme Court:-
“The courts have consistently emphasised that the jurisdiction must be used sparingly and only in clear cases. The legal principles to be applied and the decided cases were reviewed by the Supreme Court in Supermacs Ireland Ltd. v. Katesan (Naas) Ltd. [2000] 4 I.R. 273 and Geoghegan J. identified the legal principles in his judgment (at p. 283/284):
‘A large number of cases, starting with Barry v. Buckley [1981] I.R. 306, were presented to the court in a book of cases but they were not really opened to any extent. However I think it important to refer briefly to the latest of those cases Jodifern Ltd v. Fitzgerald [2000] 3 IR 321 and in particular to the judgment of Barron J. In his judgment Barron J. says the following at p. 332:-
“Every case depends upon its own facts. For this reason, the nature of the evidence which should be considered upon the hearing of an application to strike out a claim is not really capable of definition. One thing is clear, disputed oral evidence of fact cannot be relied upon by a defendant to succeed in such an application. Again, while documentary evidence may well be sufficient for a defendant’s purpose, it may well not be if the proper construction of the documentary evidence is disputed. If the plaintiff’s claim is based upon allegations of fact which will have to be established at an oral hearing, it is hard to see how such a claim can be treated as being an abuse of the process of the court. It can only be contested by oral evidence to show that the facts cannot possibly be true. This however would involve trial of that particular factual issue.
Where the plaintiff’s claim is based upon a document as in the present case then clearly the document should be before the court upon an application of this nature. If that document clearly does not establish the case being made by the plaintiff then a defendant may well succeed. On the other hand, if it does, it is hard to see how a defendant can dispute this prima facie construction of the document without calling evidence and having a trial of that question.”
Although the issue in that case seems to have been abuse of the process of the court the same principles would equally apply to an issue as to whether or not there was or was not a reasonable cause of action.”
In Salthill Properties Ltd and another v. Royal Bank of Scotland plc and others [2009] IEHC 207 Clarke J., in considering the power of the Court to strike out proceedings, stated:-
“… it seems to me that counsel for Salthill and Mr. Cunningham is correct when he says that the court need not and should not require a plaintiff to be in a position to show a prima facie case at the stage of an application to dismiss, in order that that application should fail. There have been many cases where the crucial evidence which allowed a plaintiff to succeed only emerged in the course of the proceedings. At the level of principle, this is likely to be particularly so in cases alleging fraud or other similar wrongdoing which is likely to be clandestine, if present, and where a plaintiff may only be able to come across admissible evidence sufficient to prove his case by virtue of the use of procedural devices such as discovery and interrogatories. That is not to say that it is legitimate for a party to instigate such proceedings when the party concerned has no basis for so doing. However there is, in my view, a significant difference between circumstances where a plaintiff has a legitimate basis for considering that it may have a claim at the time of commencing proceedings, on the one hand, and a situation where that party has, at that time, available to it, admissible evidence which it can put before the court to establish a prima facie claim, on the other hand.
It is clear from all of the authorities that the onus lies on the defendant concerned to establish that the plaintiff’s claim is bound to fail. It seems to me to follow that the defendant must demonstrate that any factual assertion on the part of the plaintiff could not be established. That is a different thing from a defendant saying that the plaintiff has not put forward, at that time, a prima facie case to the contrary effect.”
In relation to the defendant’s assertion that there is no tort of reckless lending in this jurisdiction which could give rise to a reasonable cause of action, the plaintiff submits that he still intends to pursue his claim on the basis of professional negligence and/or contributory negligence. The plaintiff relies on the case of KBC Bank Ireland plc v. BCM Hanby Wallace [2013] IESC 32 wherein Fennelly J. considered the law in relation to contributory negligence in detail. The Supreme Court also considered the duty owed by a lending institution to its shareholders. Fennelly J. stated:-
“When a bank reviews a potential loan transaction, it should assess the soundness, financial standing and above all the trustworthiness of the borrower and the viability of the proposed venture…It should have robust and comprehensive credit analysis and approval processes, internal controls to monitor risk and to ensure adequate monitoring of the completion of security.”
In remitting the matter to the High Court for failing to make any finding in relation to contributory negligence, the Supreme Court stated that –
“The appellant is entitled to argue for the obligation of the bank, in accordance with the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 (S.I. No. 395 of 1992)(as amended), to manage its businesses “in accordance with sound administrative and accounting principles and [to] put in place and maintain internal control and reporting arrangements and procedures to ensure that the business is so managed.”
The plaintiff submits that the bank was negligent in relation to the financial assessment carried out to establish his ability to service the mortgage and by failing to have regard to warning signs from the US regarding the risks associated with “lending to people who could not afford the repayments”. It is contended that the bank breached its duty of care and negligently increased the risk of injury and damage to the plaintiff. As a result, the plaintiff submits that he was induced into making a decision he wouldn’t otherwise have made.
It is further submitted that the defendant’s engaged in fraud, misrepresented the financial situation of the plaintiff, and knowingly relied on erroneous accounts and records in approving the mortgage. In relation to this aspect of his claim, the plaintiff refers the Court to the decision of Birmingham J. in McCaughey v. Anglo Irish Bank Corporation Ltd & Anor. [2011] IEHC 546. Birmingham J. stated:-
“The meaning of fraud was settled by the House of Lords as long ago as 1889 in the case of Derry v. Peek. The elements of the tort of deceit were stated as follows by Lord Herschel:-
‘First, in order to sustain an action in deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made:-
(1) Knowingly, or
(2) Without belief in its truth or
(3) Recklessly, careless whether it is true or false.
Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states, to prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.’
So, simple lack of care will not of itself suffice. The threshold that the plaintiff has to cross is knowledge of or belief in the falsity of the representation or recklessness as to its truth, that is to say not caring whether the representation is true or false. This aspect is summarized as follows in Cartwright on Misrepresentation, Mistake and Non-disclosure, 2nd Ed. as follows:-
‘The representor will be fraudulent if he made the statement “recklessly, careless whether it be true or false”. It is important to note that Lord Herschel does not say that a representor is fraudulent if he fails to take care – is negligent – whether his statement is true. Negligence is not dishonesty; and the House of Lords in Derry v. Peek was at pains to emphasise that negligence is not sufficient for deceit. Recklessness involves not caring whether the statement is true; an indifference to the truth.’
However, in some circumstances evidence of a lack of care may go some distance to providing evidence that a defendant in truth, lacked belief in the truth of what he was saying or did not care whether what he was saying was true.
Misrepresentation can take the form of either a positive statement, or it can be through omission as it was made clear by the Lord Chancellor, Lord Chelmsford in the case of Oaks v. Turquand and Harding [1867] LR 2HL 325 where at p. 342 he commented:-
‘It is said that everything which is stated in the prospectus is literally true, and so it is, but the objection to it is not that it does not state the truth as far as it goes, but that it conceals most material facts with which the public ought to have been made acquainted. The very concealment of which gives to the truth of which is told the character of falsehood.’”
The plaintiff further contends that his allegations regarding breaches of the Consumer Protection Code 2006, the Consumer Protections Act 2007 and the Consumer Credit Act 1995 should be allowed to proceed. In this regard, the plaintiff relies on the decision of Gilligan J. in Freeman and another v. Bank of Scotland (Ireland) Ltd. and others [2013] IEHC 371. In Freeman, Gilligan J. refused to accede to the Bank’s application to strike out the plaintiff’s claim in relation to alleged breaches of statutory codes and that aspect of the plaintiff’s claim was allowed to proceed. The plaintiff in the present case contends that the bank’s alleged breaches rendered him unable to exercise his free and independent will in arriving at his decision in relation to the mortgage.
The plaintiff submits that the Court should be slow to exercise its jurisdiction to strike out proceedings, particularly in cases involving litigants in person, and that the authorities relied upon in relation to particular aspects of his claim as set out above support his contention that his claim warrants further consideration by the Court and should be allowed to proceed.
DISCUSSION
The plaintiff in these proceedings finds himself in a very unfortunate but unfortunately not uncommon position. Like many other litigants who have come before the courts in recent years, the plaintiff purchased property at the height of the country’s unsustainable property boom and now finds himself in arrears and unable to meet his repayment obligations. Joint receivers have been appointed over his property. The plaintiff makes a number of claims against the defendant bank which he contends relieve him of any liability to repay this debt.
In relation to the plaintiff’s claim of reckless lending by the defendant, as is clear from the case law relied upon by counsel for the defendant, there is no such civil wrong in this jurisdiction. In particular, the Court notes the decisions on this issue in Healy v. Stepstone Mortgage Funding Limited, ICS Building v. Grant, and McConnon v. President of Ireland. This aspect of the plaintiff’s claim is closely aligned to a number of other broad and general allegations he makes in relation to the lending practices of “various banks” which the plaintiff contends “created the false boom and bust situation which has crippled my country”. Blanket allegations such as these do not give rise to a reasonable cause of action in the plaintiff’s case, are bound to fail and must be struck out. That is not to say that such allegations related to the wider context of the financial crisis should not be considered by a more appropriate forum of inquiry.
The Court is also satisfied that the Supreme Court decision in KBC v. Hanby Wallace in relation to contributory negligence as relied upon by the plaintiff does not apply to the facts of the present case and does not amount to a justification for allowing the plaintiff’s claim to proceed. In KBC, the bank had engaged the services of the defendant solicitors to complete loan transactions after ensuring that the security provided for in the facility letter was obtained. The defendant failed to do so and instead closed the loans on the basis of undertakings only despite having no authority to accept undertakings. McGovern J. in the High Court found that the bank had failed to take reasonable steps to verify representations made by the borrowers as to their sources of income and their net wealth in order to ascertain whether they had the capacity to repay the loans. However, it was held that the defendant’s negligence and breach of duty in releasing the funds before security was in place was the proximate cause of the plaintiff’s loss and so no finding of contributory negligence was made. Allowing the defendant’s appeal, the Supreme Court found that the bank had exclusive responsibility for checking the financial soundness of the borrowers and the matter of contributory negligence was remitted to the High Court. In the present case there is evidence that a risk assessment and Irish Credit Bureau check was carried out by the bank. In addition, the bank in the present case, unlike in KBC, did satisfy itself that adequate security was in place, namely, the property itself. In contrast, in KBC the bank’s requirement that security be obtained over a total of 30 properties was not complied with. There was further evidence that the bank had failed to carry out proper searchers of previous loans made to the borrowers, had failed to discover a number of unfulfilled undertakings from the borrowers, and failed to adequately investigate the borrowers’ statement of affairs. In any event, the Supreme Court made no finding as to whether or not the bank’s conduct amounted to contributory negligence which the plaintiff in these proceedings can rely upon. Rather, the matter was simply remitted to the High Court for reconsideration.
As to the plaintiff’s contention that the lender simply “created the alleged money out of thin air on a computer keyboard”, the Court agrees entirely with the decisions of Gilligan and Hogan JJ. in the Freeman and McCarthy cases respectively. As indicated by Gilligan J. in Freeman, this argument has come before the Courts with increasing frequency in recent times and is invariably advanced by litigants who unfortunately find themselves in financial distress. As set out above, this ‘creation of currency’ argument has quite rightly been described as ‘fanciful’ and ‘completely devoid of merit’. This aspect of the plaintiff’s claim is frivolous in the extreme, bound to fail, and accordingly should be struck out. In any event, regardless of how the money was allegedly ‘created’, it is not disputed that the plaintiff applied for the loan, drew down the loan, and spent the funds. By his own admission, the plaintiff was initially offered a lesser amount by the lender which he rejected as “not sufficient for the project which the plaintiff wanted to pursue”. Undoubtedly, the plaintiff willingly participated in the transaction.
The issue of securitisation has been dealt with in detail by previous decisions of the High Court and does not warrant detailed consideration herein. However, the remarks of Peart J. in Wellstead are of particular relevance:-
“…there is nothing unusual or mysterious about a securitisation scheme. It happens all the time so that a bank can give itself added liquidity. It is typical of such securitisation schemes that the original lender will retain under the scheme, by agreement with the transferee, the obligation to enforce the security and account to the transferee in due course upon recovery from the mortgagors.”
The plaintiff contends that securitisation, alongside other fraudulent practices of the bank, amount to a “policy of predatory targeting of customers with the long term goal of fraudulently acquiring valuable property at little or no cost”. In light of a number of previous decisions, the Court is satisfied that this aspect of the plaintiff’s claim is frivolous, bound to fail, and must also be struck out.
The plaintiff relies on the decision of Gilligan J. in Freeman as authority for the proposition that his claim in relation to alleged breaches of statutory codes by the bank should be allowed to proceed. However, the decision of McGovern J. in the substantive hearing in Freeman & Anor. v. Bank of Scotland (Ireland) & ors. [2014] IEHC 284 is worth noting:-
“It is clear, therefore, that non-compliance with a statutory code does not relieve a borrower from his obligations under a loan to repay the lender, nor does it deprive the lender of its rights and powers under the loan agreement. If that is the case so far as statutory codes of conduct are concerned, then, a fortiori, the plaintiffs in this action cannot make the case that they are relieved from their obligations under the loan or that the Bank is deprived of its rights under the loan agreements, if there has been a breach by the Bank of what is a voluntary code.”
No credible evidence has been brought to the attention of the Court that the plaintiff was “lured into a contract” as suggested or that he was coerced or induced in any way to sign up to the mortgage agreement. The plaintiff has failed to meet the very low threshold required to allow this aspect of his claim to succeed and I am satisfied that no amendment of the pleadings could rectify this.
The plaintiff quite correctly submitted that the jurisdiction to strike out proceedings is one which the Court should be slow to exercise and he relied upon a number of authorities in this regard, including Kenny v. Trinity College and Salthill Properties. In O’N. v. McD. & Ors. Birmingham J. emphasised the need for the court to be particularly cautious in cases involving litigants in person. The Court entirely agrees with these decisions and the plaintiff was afforded a great deal of latitude in relation to the form of his pleadings and his submissions to the Court. However, while the Court may sympathise with the unfortunate predicament the plaintiff finds himself in, I am satisfied that this is one such case where the plaintiff’s claim is bound to fail and must be struck out.
DECISION
For the reasons outlined above the plaintiff’s claim is struck out pursuant to the inherent jurisdiction of the Court and pursuant to Order 19, rule 28 of the Rules of the Superior Courts on the basis that it discloses no reasonable cause of action and is bound to fail.
KBC Bank Ireland Plc v BCM Hanby Wallace
[2013] IESC 32
Judgment of Mr. Justice Fennelly delivered the 25th day of June, 2013.
1. These appeals raise important issues concerning the application of the defence of contributory negligence pursuant to s. 34 of the Civil Liability Act 1961. The respondent, a bank, (hereinafter “the bank”) lent large sums of money to two individuals, who defaulted on their repayment obligations. The bank engaged the appellant, a firm of solicitors, to complete the loan transactions and, above all, to ensure that the bank obtained the security provided for in the facility letters. The appellant failed in its assigned task. The bank sued it successfully in the High Court. McGovern J awarded sums of €9,983,585.34 and €7,710,545.16 respectively by way of damages for negligence against the appellant.
2. The two cases are quite separate. They have been heard together both in the High Court and this Court because they are between the same parties and concern similar lending transactions. Furthermore, they are crucially linked by the fact that the borrower in the second case was the solicitor for the borrower in the first. The key act of negligence found against the appellant in the first case was the acceptance of the solicitor’s undertaking of that solicitor who then himself became a borrower.
3. The appellant pleaded in its defence that the bank had been guilty of contributory negligence principally in the respect that it failed to carry out any adequate inquiry into the financial standing of the borrowers, before agreeing to lend them very large sums. Thus, it was claimed that the bank had failed to take appropriate care in the protection of its own interests. The learned trial judge rejected the defence of contributory negligence in both cases. The appeal turns centrally on the correctness of the learned trial judge’s analysis of causation. He held that the negligence of the appellant was the proximate cause of the bank’s losses, or causa causans: even if the bank had been negligent, its acts were at most a mere causa sine qua non.
The loans made to Mr Kelly and Mr Byrne
4. The first set of proceedings relates to three loans made to Mr John Kelly. The second relates to a loan made to Mr Thomas Byrne. I will describe the loans respectively as the Kelly loans and the Byrne loans.
5. The loans were closely inter-related for several reasons. It is an important feature that Mr Byrne was the solicitor who acted for Mr Kelly. Mr Byrne then borrowed money from the bank himself. Furthermore, the loans to Mr Kelly were cross-collateralised; security provided for each of the loans was also security for the others. Finally, each later loan, including the loan to Mr Byrne, was provided by the bank in ignorance of the fact that there had been a failure to provide security for earlier loans or of the fact that Mr Byrne had failed to honour undertakings he had given in respect of the earlier transactions.
6. Each of the loans was granted pursuant to a facility letter signed by the borrower. The security requirements included the provision of a first fixed charge over specified properties. The facility letter provided, in each case, that it was a condition precedent to drawdown of the loan, inter alia, that there have been compliance with the bank’s security requirements and that all required documentation (which necessarily included the security documentation) be received by the bank at least three days before drawdown.
7. The first Kelly loan dated 16th August 2005 was for €4.9 million. Its purpose was to fund the purchase of and works on a property at 167 Upper Rathmines Road, Dublin 6. There was, inter alia, to be a first fixed charge over that property and over residential properties at 9, 22, 33 Liberty View, Dublin 8.
8. The second Kelly loan was dated 13th September. The facility letter, which recorded that the first facility had already been drawn down in part, replaced the first and provided for the advance of an additional €1 million to fund the purchase of the leasehold interest in Londis, at Upper Rathmines Road, Dublin 6. The combined security by way of first fixed charge was now to cover in addition numbers 14, 15, 18 and 21 Liberty View, Dublin 8.
9. The third Kelly loan was dated 11th December 2006. It was for €9 million. It was to be used to refinance two existing Educational Building Society facilities to a total of €5 million, €1.3 million to purchase a leasehold property at Centra, 45-47 James’ Street, Dublin 8 and €2 million by way of “equity release to be used for further investment purposes.”
10. The Byrne loan was the subject of a facility latter dated 8th August 2007 for €9 million. It was “by way of term loan to be used…………for further investment purposes.” The letter provided for a first legal mortgage, or charge, in the case of registered property, over three named properties. There were to be first legal mortgages (or charges) over sixteen specified residential properties. In each case, the security was to incorporate “a security assignment of the benefit of all leases, licenses and agreements attaching thereto and any rentals payable thereunder.”
11. Following each facility letter, the bank sent a letter of instructions to Mr Ronan Egan, solicitor, in the appellant firm. On 25th August 2005, the bank, which was then known as IIB Bank, sent a copy of the facility letter for the first Kelly loan and wrote:
“We would be obliged if you would act for IIB Bank Ltd in this matter and ensure completion of the Bank’s security and compliance with all other legal requirements as per the offer letter including, without limitation, the conditions precedent.”
12. The bank asked to have sent to it, inter alia, “Copies of all security documents duly signed.” On 14th September 2005, it sent a virtually identical letter regarding the facility letter for the second Kelly loan.
13. On 12th December 2006, the bank sent a similar letter, which concluded by stating:
“We will require you to confirm to us in writing that all the security is in place or will be in place on closing and that all conditions precedent of a legal nature have been fully complied with.”
14. On 14th August 2007, the bank sent to Mr Ronan Egan a letter in respect of the Byrne loan in terms virtually identical to the letter last mentioned.
15. The position, in the case of each loan, was that the bank had already made a decision to advance the relevant monies, subject to compliance with the terms, including conditions precedent, of the facility letter. Crucially, the bank would not, in fact, advance the money unless it was satisfied that the specified security had been put in place by the appellant.
16. In summary, the appellant was required to obtain security for the benefit of the bank over a total of 30 properties. Instead of obtaining these securities prior to the closing of the loan transaction by payment out of the loan monies, the appellant closed on the basis of the acceptance of the undertakings of Thomas Byrne & Co, Mr Byrne’s firm. The | Defendant firm had no authority to accept undertakings and did so without reference to the bank. The undertakings were not honoured. The loan monies were paid out to Mr Kelly and Mr Byrne respectively.
17. The ultimate position with regard to security was that a first legal mortgage or charge was obtained in respect of only three properties in total.
18. The bank suffered very large losses as a result of the almost complete default by Mr Kelly and Mr Byrne to repay the loans made to them. The bank obtained judgment against Mr Kelly in the sum of €14,435,747.44 (after allowance for €900,000 recovered from Mr Kelly’s interest in an investment). The bank obtained judgment against Mr Byrne in the sum of €9,051,977.50.
High Court Judgment on Liability
19. McGovern J gave judgment on the issues of liability on 16th March 2012. He found the appellant to have been negligent in the performance of the duty it owed to the bank in respect of the completion of each of the loan transactions.
20. Damages were assessed by McGovern J in a separate judgment of 6th July 2012. Figures had been agreed in respect of all matters except two. McGovern J, having determined these, gave judgment for €9,983,585.34 in the Kelly case and €7,710,545.16 in the Byrne case.
21. The core of the judge’s findings on liability was as follows (taken from the judgment of 16th of March) :
“10. Mr. Ronan Egan was the partner in the defendant firm acting in the matter and dealing with the bank, save on some few occasions when he was on leave. In the course of his evidence, he made a number of significant admissions. He accepted that the bank’s instructions to the defendant were clear and that the defendant was to obtain a first fixed charge over the various properties referred to in the loan documents, as security for the loans made. He admitted that the defendant firm was in breach of its obligations towards the bank in respect of the Kelly loans and that this caused substantial loss. He agreed that he released deeds where no mortgage was registered and that thereafter a number of parties secured priority over the bank. He accepted that he should have made enquires about charges before accepting any undertaking, although he argued that this was a general practice at the time and was commonly done. He also agreed that he did not have instructions to accept an undertaking, although he argued that the bank decided to proceed on foot of recommendations made by him and was thereby waiving its rights to insist on a first charge. This was disputed by the plaintiff. On the 8th day of September, 2005, Mr. Egan wrote to the bank confirming that he would comply with the bank’s instructions and he knew, when he wrote this letter, that he could not procure the security which the bank required. Under cross-examination, he accepted that if the bank knew the true position concerning the security, it would not have permitted the drawdown of the second loan which, as described, was a top up loan of €1m and was to be secured on four apartments and other properties. When the sum of €5.9m was released to Mr. Kelly, none of the undertakings given by Mr. Byrne on behalf of Mr. Kelly had been complied with. Although he told Ms. Anne Marie Coleman, an employee of the bank, that he was going to accept an undertaking, Mr. Egan admitted that an email which he sent to the bank on the 20th day of December, 2006, did not reflect this at all, but, on the contrary, suggested that the requirements of the bank were being adhered to.
11. So far as the loan of €9m to Mr. Byrne was concerned, Mr. Egan said that if he had told Mr. O’Leary, also an employee of the bank, that Mr. Byrne had breached undertakings in relation to the Kelly loans, it would have put an end to any dealings between the bank and Mr. Byrne and the loan would have been refused.
12. Before going on to consider any other evidence in the case, it seems to me that on the admissions of Mr. Egan alone, the defendant cannot avoid findings of negligence, breach of duty and breach of contract. This was finally conceded by the defendant in its closing submissions on day 28 of the trial. The plaintiff called expert evidence from Ms. Catherine Duffy, a solicitor, who is head of the banking and financial services department in A & L Goodbody, solicitors. In the course of her evidence, she made extensive criticism of the manner in which the defendant carried out its work on behalf of the plaintiff bank under the terms of its retainer. At the beginning of his evidence to the court, Mr. Egan said that he did not disagree with her criticisms, save in a few minor respects.”
22. The learned judge, in the course of his judgment referred to assurances which Mr Egan had given to the bank that funds would not be released until security was in place. For example, in relation to the first Kelly loan, he wrote on 8th day of September, 2005 to the bank:
“I confirm that I will not release the loan cheque until all security is in place on foot of the facility letter and all documentation in order”.
23. He also noted that Mr. Egan had accepted in the course of his evidence that the bank was entitled to rely on the assurances which he had given. He summed the matter up in the following passage:
“27. On any view of the evidence, the defendant’s breach of duty was egregious. Not only did it fail to ensure that proper security was put in place for the loans, but it deliberately misled the plaintiff by suggesting that either security was in place or that the funds would not be released to the borrower until security was in place. Furthermore, Mr. Egan took it upon himself to recommend to the borrower that an undertaking from Mr. Byrne would be acceptable when he had no instructions to do so. This was a fundamental departure from the instructions given to the defendant. An unusual feature of this case is the scale and scope of the negligence of the defendant. It did not involve a single act of negligence, but multiple failures which the defendant repeated in the second, third and fourth loan transactions. The problem was exacerbated by the fact that each time the bank was taking a cross-collateralised security so that when the plaintiff entered into a new loan agreement it was secured on the basis of the existing security that it understood it had, as well as the new security that was being proffered.
28. In the course of his evidence, Mr. Egan confirmed that he was aware that it was a requirement of the bank that the defendant would confirm that it would withhold funds until the bank security was in place. He accepted that he confirmed to the bank that the security would be in place on completion. He also accepted that if the bank had been informed of the departure from the defendant’s instructions at the time of the first Kelly loan, it would not have gone ahead with that loan.
24. With regard to the second Kelly loan, the judge remarked that that the bank should have been notified that there were outstanding undertakings in respect of this security for the first loan and that Mr Egan accepted that if the bank had been notified of this it would not have entered into the second loan for €1 million. That transaction was predominantly handled by Ms. Colette Staunton, a senior associate in the appellant firm, who had acknowledged she had not informed the bank that she would be closing by way of undertakings. She also accepted that she did not obtain the security that the defendant had been instructed to obtain. That witness gave evidence that she had been specifically asked by the bank, which confirmed the instruction not to release the loan proceeds until the security was in place.
25. Mr Egan accepted that the release of the funds for the third Kelly loan, on foot of solicitor’s undertakings, was wholly at variance with the bank’s instructions. The learned judge noted that Mr Egan had also agreed that, if checks had been performed as to the status of existing securities in relation to the first and second Kelly loans (which were cross-collateralised), these would have shown non-compliance with undertakings. Mr Egan agreed that the third loan would not have proceeded to completion if the existing security status had been made known to the bank. He closed the transaction also on foot of solicitor’s undertakings. This was contrary to the bank’s instructions.
26. The fact that Mr Byrne had been the solicitor acting for Mr Kelly provided a crucial link between the Kelly loans and the Byrne loan. The judge noted that Mr. Egan had agreed that, if he had adhered to his instructions from the bank in respect of the Kelly loans, the bank would never have lent funds to Mr. Byrne. Mr Egan had released a cheque for €9m to Mr Byrne on trust pending searches to be made against a number of properties. The cheque was cashed during the period when it was purportedly held on trust. Mr Egan said that he was unaware of this fact. He did not make enquiries with the registrations department of the appellant firm in relation to outstanding undertakings and did not have any searches made prior to the closing on any of the properties. These, in the view of the learned judge, “were all breaches of duty of the most serious kind.”
27. Moreover, the appellant issued certificates of title in respect of properties securing the Byrne loan which were clearly incorrect on their face, as they contained a statement that the properties were free from encumbrances, although there were prior existing charges. In February 2007, Mr Egan was reminded by the registrations department of his own firm that undertakings that he had accepted from Mr Byrne in relation to the third Kelly loan were outstanding. In the view of the judge, “he failed to take any meaningful action and, crucially, failed to inform the bank of the position.”
28. The learned judge noted that Mr Egan had accepted that if he had then informed the bank of the true position, there would have been no question of the bank lending a “red cent” to Mr. Byrne.
29. The learned judge went on in a passage to which it will be necessary to return, to say:
“33. What is the effect of these breaches of duty on the part of the defendant? It seems to me that they go far beyond mere omission with regard to the obtaining of security for the bank in respect of the loans. In reality, the breach of duty goes so far as to amount to a deception on the part of the defendant because it was aware that the required security was not in place but led the bank to believe that it was. The defendant accepts that although the bank had agreed to make the loans, the funds would not actually have been released if the true position had been made known to the plaintiff. If the funds had not been released, the bank would have suffered no loss. The loss arose, not so much from the failure to obtain the necessary security, but rather, from the bank being deceived into permitting the release of the funds on express assurances from the defendant firm which were untrue and which it knew to be untrue.”
30. The importance of the foregoing passages from the judgment is that they led the learned judge to hold that he should treat the case for the purposes of the assessment of damages as a “no transaction” case. The appellant argued that the damages for which it was liable, in view of the finding of liability by the learned judge, should be measured by reference to the failure to obtain the security provided for by the facility letters, as it was instructed to do. Thus, it claimed, it was liable only for its failure to obtain the security it ought to have obtained: it was not liable for all the consequences of the bank’s decision to lend to Mr Kelly and Mr Byrne. It was not liable for the fact that the bank had agreed to lend the money in the first place: that decision had been made by the bank. It relied on the decision of the House of Lords in Banque Bruxelles S.A. v. Eagle Star [1997] AC 191 (known as the SAAMCo case). The bank argued, however, that, on the facts of the case, the money would never have been advanced either to Mr Kelly or to Mr Byrne, if the appellant had performed its duty. The learned trial judge held for the bank. It was entitled to recover all of the losses it had suffered as a result of entering into the loan transactions with Mr Kelly and Mr Byrne.
High Court Judgment on Contributory Negligence
31. The appellant claimed that the losses suffered by the bank in each of the two cases had been caused or contributed to by the contributory negligence of the bank itself or its servants or agents. Essentially, it was claimed that the bank had not taken proper steps in the protection of its own interests in entering into large loan transactions with Mr Kelly and Mr Byrne respectively without taking any adequate steps to investigate their financial standing, their earnings, their assets, in short their capacity to repay the loans as well as their truthfulness and integrity.
32. As the learned trial judge expressed it, the suggestion was that the bank engaged in “targeting both Mr. Kelly and Mr. Byrne so aggressively that they would have gone ahead with the loans, even if security had not been obtained.” The bank, it was alleged, failed to take reasonable steps to validate the claims made by the borrowers as to their sources of income and their net wealth in order to ascertain whether they had the capacity to repay the loans.
33. The learned trial judge said that the principal claims of contributory negligence were as follows:
“(i) The true position concerning two UK properties claimed to be owned by Mr. Kelly which comprised a substantial percentage of his net worth;
(ii) A statement of affairs furnished in respect of Mr. Kelly and practice accounts for Mr. Byrne;
(iii) The failure on the part of the bank to carry out a proper search of the loans made to Mr. Kelly by IIB Home Loans, a lending institution, which was connected to the plaintiff bank and which the defendant argued would have shown that Mr. Byrne, while acting as solicitor for Mr. Kelly, had a number of unfulfilled undertakings;
(iv) The fashion consultancy claim by Mr. Byrne in respect of a number of French fashion houses; and
(v) There was also an issue canvassed before the court as to whether or not the bank could have taken more timely steps to dispose of those properties where they did have security.”
34. Expert witnesses were called by both parties. The decisions of the bank to make the various loans were scrutinised in great detail.
35. It is not necessary, for the purposes of this appeal, to elaborate on the detail of these arguments for two reasons. Firstly, counsel for the appellant has identified a wider and, to some extent, different range of issues on the appeal. Secondly, and more importantly, the real issue to be decided is whether the learned judge was correct in law in the manner in which he considered and, as it happens, rejected the defence of contributory negligence.
36. The first allegation is that the bank failed to verify that two UK properties listed in the statement of affairs of Mr Kelly and appearing to represent €20m of his net worth were in fact owned by him. The appellant claimed that it was significant that these two properties appeared in a statement of affairs furnished in August 2005 by Mr Kelly 2005 as forming part of his assets. The defence expert said that these properties stood out like a beacon and that the bank should have investigated rental income and other financially relevant information. These properties were missing from the statement of affairs furnished in 2006 but reappeared in the statement of affairs of December 2006. The bank’s answer was that these matters did not materially affect Mr Kelly’s net worth.
37. Secondly, a number of points were made concerning the statements of affairs supplied by Mr Kelly. One defence expert said that there had been a swing in net worth of €2,914,556 between July 2005 and July 2006, about which the bank should have made further enquiries. There was inconsistent treatment of two properties, 9 and 22, Liberty View, shown by Mr Kelly as owned by him in applying for the first Kelly loan and in respect of which thereafter security was supposed to be in place. The June 2006 statement of affairs showed that these two properties had been sold by a company connected with Mr. Kelly. The bank did not notice this. Expert evidence from the bank was to the effect that it was not required to conduct a forensic examination of the statement of affairs. Properties at 11, 17, 19 and 21 Greenhills Road were in the statement of affairs of July 2005 at a value of €4.5million, but, in a credit application to the bank in October 2005, Mr Kelly was seeking to buy these same properties then shown to be worth €8 million.
38. Mr Kelly introduced Mr Byrne to the bank as a new customer. Mr Byrne submitted a statement of affairs showing a net worth of approximately €32 million. He had spent €21m purchasing property within a period of no more than two and a half years without the necessity of any mortgage finance. The bank carried out no investigation. Mr Byrne, a solicitor with a small practice in Walkinstown, Dublin, claimed to have enjoyed an income in 2006 of approximately €12 million, made up of €4 million from his solicitors practice, other income of €4m and a €4m annual fee for providing consultancy services to French fashion houses. The learned trial judge described the last claims as “highly questionable,” but, he explained the bank “did not investigate that claim but maintained that it did not need to do so as it did not rely on that figure in assessing the annual income of Mr. Byrne.” The learned judge added:
“This does not seem to me to be a plausible explanation. Unsurprisingly, the French fashion Consultancy claim was entirely bogus.”
The learned judge went on to state:
“The second set of accounts dated the 7th day of August, 2007, furnished on behalf of Mr. Byrne, showed that there was a huge deficiency in the [solicitor’s] client account. This was not picked up by the bank and was a serious matter. The bank did not raise any detailed queries on the accounts on the basis that it did not place a great deal of reliance on the practice as the source of repayment of the loan.”
39. The learned judge also noted that two of the properties that Mr Byrne was offering as security, had appeared in the statement of affairs submitted in 2006 in support of Mr Kelly’s application. Yet, in July 2007, the properties were being offered by Mr Byrne as security for a loan he was seeking. This discrepancy was also not picked up by the bank.
40. Next the judge referred to the emphasis placed by the appellant on the failure of the plaintiff bank to check the records of its related lending institution, IIB Homeloans, to which it had access, as to the creditworthiness and reliability of Mr Byrne. If they had done so, they would have discovered a significant number of undischarged undertakings.
41. The defendants also placed reliance on the provisions of the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 (S.I. No. 395 of 1992) (as amended), which obliged credit institutions to manage their businesses “in accordance with sound administrative and accounting principles and [to] put in place and maintain internal control and reporting arrangements and procedures to ensure that the business is so managed.”
42. The learned trial judge expressed himself in the following terms so far as concerned the evidence of contributory negligence under the various headings summarised thus far:
“48. A review of the evidence on contributory negligence leads me to conclude that the plaintiff was somewhat careless in its appraisal of the borrowers, Mr. Kelly and Mr. Byrne. While many of the criticisms were made with the benefit of hindsight and in the knowledge that Mr. Thomas Byrne has been struck off the Roll of Solicitors for dishonest conduct, there were, nevertheless, a number of facts presented to the bank which ought to have raised suspicions in their mind as to the true financial worth of the borrowers and their reliability. It is necessary to consider the effect of these lapses by the plaintiff and to determine whether they are such as to warrant a finding of contributory negligence with a concomitant reduction in damages.”
The conclusive determination was expressed in the following two paragraphs:
“50. In this case, the undisputed evidence is that if the defendant had acted in accordance with the bank’s instructions, none of the loans would have proceeded. This was accepted by Mr. Ronan Egan. If the defendant had complied with its instructions, the first loan would not have closed because Mr. Kelly was not in a position to provide the actual security required by the bank. In those circumstances, the proximate cause of the plaintiff’s loss was the defendant’s negligence and breach of duty. If the decision of the plaintiff to approve the loans was, to some extent, due to its own negligence in assessing the borrowers, this was a causa sine qua non. In other words, the loans would not have been subsequently approved but for some lack of care on the part of the plaintiff. But the proximate cause or causa causans of the loss was the defendant’s act in failing to comply with instructions and releasing the funds to the borrowers in circumstances where it knew or ought to have known that it were acting against its instructions and had given an explicit assurance to the plaintiff that it would not release the funds without the relevant security being put in place.
51. Every case must be decided on its own facts and it seems to me that the facts in this case are quite exceptional. They are sufficiently exceptional to dispose of the defendant’s claim for contributory negligence. If there were any shortcomings on the part of the plaintiff in approving the borrowers for the loans, it cannot be said that the defendants [recte; plaintiff] were in any way negligent so far as the actual release of funds was concerned because they were released after the plaintiff sought confirmation from the defendant that it would not release the funds until such time as the security was in place, and they received confirmation of this from the defendant prior to the release of the funds. No bank which retains the services of a professional, such as a firm of solicitors, should have to check into those assurances before releasing the funds. The bank was entitled to rely on the assurances received by the defendant and did so.”
The Appeal
43. The appellant has not brought any appeal against the finding of negligence and breach of duty. Nor has it appealed against the decision of the High Court to assess damages as if this was a “no-transaction” case. The principal issue on the appeal is whether the High Court judgment was correct in its determination of the issue of contributory negligence.
44. However, without appealing the substantive finding of negligence, the appellant complains that the learned trial judge unjustifiably used language at a number of points appearing to impute dishonesty to the appellant, but more precisely to the individual solicitors in the firm, above all Mr Egan, which was not justified either by the evidence or by any allegation made on the part of the bank.
Findings of Deception
45. The statements in the High Court judgment to which the appellant takes particular exception are the following:
• At paragraph 27, the learned trial judge said:
“Not only did [the appellant] fail to ensure that proper security was put in place for the loans, but it deliberately misled the plaintiff by suggesting that either security was in place or that the funds would not be released to the borrower until security was in place.”
• At paragraph 33, he said:
“It seems to me that they go far beyond mere omission with regard to the obtaining of security for the bank in respect of the loans. In reality, the breach of duty goes so far as to amount to a deception on the part of the defendant because it was aware that the required security was not in place but led the bank to believe that it was…… The loss arose, not so much from the failure to obtain the necessary security, but rather, from the bank being deceived into permitting the release of the funds on express assurances from the defendant firm which were untrue and which it knew to be untrue.” (emphasis added)
46. The appellant’s solicitors wrote to the bank on the 20th March 2012, claiming that the finding that the appellant had deliberately misled and deceived the Plaintiff was unsustainable and asking the bank to agree to have it set aside. The solicitors complained of the personal and professional damage caused to the firm, and especially its named partners, from such a finding and that it should not continue to hang over them.
47. The solicitors for the bank, by letter dated 3rd April 2012 maintained that it had at all times been a fundamental part of the bank’s case that the appellant had misled the bank into the belief that the stipulated security had been in place in respect of all the loans. It said that the learned trial judge had not fallen into error and that he was aware that the bank was not making any case in fraud or dishonesty against the appellant. It acknowledged that it had not and did not seek to make the case that the appellant or any of its partners or solicitors had acted dishonestly or had intentionally misled the bank and accepted that its contention at the hearing had been that objectively the bank was misled as to the true position. It maintained, nonetheless, that paragraph 33 of the judgment, if properly construed contained a statement of that objective position.
48. The appellant supports its claim that the bank never made a case of deliberate dishonesty by reference particularly to some passages from the cross-examination of Mr Egan by counsel for the bank. One example will suffice. Counsel put it to Mr Egan that certain assurances he had given regarding his dealings with Mr Byrne, which he accepted were “totally inaccurate” were in fact “totally misleading.” Counsel continued: “though I don’t suggest for a moment that it was intentionally misleading.” He went on to reassure Mr Egan in the following terms:
“I am not suggesting to you, Mr. Egan, that you were trying to mislead Mr. O’Leary, I want to make that absolutely clear. Nothing I have said could conceivably be construed as that.”
49. The appellant claims that the finding that the appellant was guilty of deception, had acted dishonestly and deliberately misled the Bank “came out of the blue” and are unsupported by the evidence and wrong in fact and in law. The bank defends the judge’s findings.
50. Thus, the appellant claims that the court should alter the language used by the High Court, while leaving its substantive findings unaffected. The learned judge found that the appellant had been negligent, going so far as to describe the negligence as “egregious.” It is unusual, to say the least, for an appellant to invite this Court and to engage in an exercise of this sort. The language used by the learned judge constituted part of the process which led him to make findings of negligence. He did not make any finding of fraud. Strictly speaking, I believe that the appellant is not advancing any legal ground of appeal.
51. Nonetheless, an issue of justice and fairness, particularly in so far as the individuals concerned, is at stake. Following some exchanges at the hearing of the appeal, it did not appear that counsel for the bank was opposed to the Court giving expression to an appropriate qualification. I think the Court should be prepared to do this but only to the extent that it does not qualify the essence of the serious findings of negligence.
52. It is important to note that none of the language in either paragraph 27 or paragraph 33 of the judgment refers to any of the individuals in the appellant firm. It was the firm which he believed to have “misled” the bank and the firm which, he said, gave assurances “which were untrue and which it knew to be untrue.” It seems likely that the judge was referring to the collective mind of the firm. The firm could certainly be responsible for the fact that Mr Egan communicated or, on occasion, failed to communicate information of which the registration department was aware that he was not But a finding of deliberate or intentional misleading implies that the same person both makes the representation and possesses the knowledge that renders the representation false . That was not the case here .
53. In all the circumstances, it is appropriate to say that the High Court judgment cannot and should not be read as attributing any intentional dishonesty or deliberate misleading to any partners or officers of the appellant firm. No allegation of fraud was made at any time.
Contributory negligence
54. The appellant advances arguments both general and particular for a finding of contributory negligence against the bank. Essentially, however, the focus is on the judge’s analysis of causation. His view was that the proximate cause of the bank’s losses was the failure of the appellant to perform its duty to see that security was put in place in conformity with the requirements of the facility letters. Even if the bank had been negligent in assessing the borrowers and approving the loans in the first place, that was a mere causa sine qua non, and the loans would not have been paid out but for the negligence of the appellant in failing to see to the security. Thus it appears that, in the view of the learned judge, any prior lack of care by the bank was irrelevant because it was not the cause of the loss. This issue is a matter of legal principle and requires careful consideration.
55. It follows, in my view, that it is neither necessary nor appropriate to give a detailed account or, above all, to express any concluded views about the strength of the claims of contributory negligence. A general summary will suffice.
General Points about the Duty of the Bank
56. It need hardly be said that the duty of the bank, in this context, is not a duty it owes to others. Rather it is to do what it is reasonable to expect that it would do to safeguard its own business and assets. It might be expressed as a duty owed to its shareholders.
57. The appellant makes a number of points at a general level. When a bank reviews a potential loan transaction, it should assess the soundness, financial standing and above all the trustworthiness of the borrower and the viability of the proposed venture. This obligation is quite independent of any reliance on any third party such as a solicitor.
58. It should have robust and comprehensive credit analysis and approval processes, internal controls to monitor risk and to ensure adequate monitoring of the completion of security.
59. The bank is also bound by the European Communities (Licensing and Supervision of Credit Institutions) Regulations, 1992 (S.I. No. 395 of 1992) (as amended), in particular, to have “effective processes to identify, manage, monitor and report the risks it is or might be exposed to.”
60. The appellant submits that, if the bank had fulfilled these obligations, it would not have approved the loans, or issued the facility letters. Thus, the question of instructing solicitors would never have arisen.
Particular Acts of Contributory Negligence
61. Counsel for the appellant referred to a wide range of alleged acts of contributory negligence. Some of them had been considered in the High Court and are summarised above. I will not repeat them. I will refer in the following four paragraphs briefly to some of the other allegations made. There are many others.
62. The Bank failed to follow up the express requirement contained in its letters of instruction to the appellant that it receive: “Copies of all security documents duly signed.” Had it done so, it would have seen that security had not been provided.
63. The bank failed in a number of ways to enquire into or seek verification of the assets or income put forward by Mr Kelly or Mr Byrne respectively in their statements of affairs when seeking the loans. The examples of the UK properties of Mr Kelly and the extraordinarily large income alleged by Mr Byrne have been mentioned in the account of the High Court judgment.
64. It was a condition precedent of the facility letter for first Kelly loan that an independent professional valuation be provided of the Rathmines property to be purchased with the loan. The bank accepted a valuation of €5.3 million based on a weekly turnover of €130,000, whereas the actual projected turnover, provided by the borrower to the bank, was €80,000. This would have given a valuation of only €3.26 million. The appellant says this was an error on the face of the report. Since compliance was a condition precedent, the first Kelly loan should not have been made.
65. In the case of the loans to Mr Byrne, apart from the failure to take any steps to verify the extraordinary sums Mr Byrne claimed to have by way of income, the appellant said that the bank could have checked the records of its subsidiary or associate company, IIB Homeloans. Had appropriate checks been made, the Bank would have discovered that there were numerous solicitors’ undertakings furnished to the bank by Mr Byrne both in respect of his own borrowings and the borrowings of his clients which he had not complied with.
Appellant’s Submissions
66. Counsel for the appellant submitted that s. 34 of the Civil Liability Act 1961 recognises that there may be more than one cause of loss or damage. In the present case, there was one transaction in the case of each loan, with different components. The decision of the bank to make the loans was an integral part of that transaction. Another was the obligation of the appellant to obtain security. The learned trial judge recognised this division of function when he said: “The appraisal of the borrowers was carried out entirely by the bank and the defendant was not relied on, to any extent, for this purpose.”
67. The lender, it was submitted, must take reasonable care for the protection of its own property. Counsel criticised, in particular, the application by the learned judge, at paragraph 51, of the notion of “proximate cause.” He argued that “effective cause” is a simpler and more appropriate mental construct. He accepted that a remote cause would not come within the section, but said that here the lack of care of the bank was a direct and immediate cause of the loss. The judge did not give any consideration to the causative contribution of the failure of the bank to carry out a proper assessment of the borrowers. Counsel argued that the effective cause of the bank’s loss was its own failure of assessment of the borrowers and of supervision of the loan transactions. The critical fact was the assessment of the borrowers: the obtaining of the security came in later. There was extremely serious negligence on the part of the bank. The loans, it was said, would not have been made at all, if the bank had exercised proper care.
68. Counsel referred to the textbook, “Lender Claims,” Hugh Tomlinson Q.C. and others, (Sweet & Maxwell, 2010) which states (at paragraph 8—12 that contributory negligence has a limited role to play in the field of professional negligence because the plaintiff is relying on the expertise of the defendant. However, it distinguishes lender claims because “the process of lending is a profit-orientated business as well as a specific expertise in relation to which it is the claimant, rather than the defendant, who has the superior knowledge.”
The Bank’s Submissions
69. The bank, in response, lays particular emphasis on the nature and degree of the findings of negligence made in the High Court judgment. It points out, in particular, that there were four distinct lending transactions. The failure of the appellant to inform the bank about the status of its security and its provision of misleading confirmations created a wrong impression that Mr Kelly was a successful and performing borrower. The security was critical. If the appellant had performed its duty to obtain security, the bank would have suffered no loss.
70. The appellant, as a firm of solicitors, failed to perform the very task entrusted to it. Thus, it was irrelevant that the decision to make the loans was unwise, even extremely unwise. Where the negligence of the defendant is extremely gross, it would not be appropriate to make any finding of contributory negligence.
71. The bank relies on the judgment of Walsh J in O’ Sullivan v Dwyer [1971] IR 275, and insists that it cannot be found responsible for contributory negligence unless it is proved that both parties have been at fault and to have caused the loss. If the act at issue is not a substantial and operative cause of the loss there can be no finding of contributory negligence. It cites the decision of this Court in Conole v Redbank Oyster Company Ltd [1976] IR 191 to support the learned trial judge’s analysis of the “proximate cause” of the loss, which was based on his assessment of the evidence. He made that finding in circumstances where had had earlier concluded that the loss arose from the radical departure from instructions by the appellant and as a result of the bank being misled into permitting the release of funds on express assurances which were untrue. The bank had entrusted to the appellant responsibility for deciding when and whether the funds should be released to the borrowers. It was the appellant through its wrongful actions in releasing the funds in breach of its instructions and contrary to express assurances given to the bank that security was in place that was wholly responsible for the loss.
72. The bank relied on the decision of the Court of Appeal in England in Sahib Foods Ltd v Paskin Kyriadse Sands (a Firm) [2003] EWCA Civ 1832 1 at 18. Clarke L.J., speaking for the Court, said that “it is open to the court to conclude that the share of a claimant’s responsibility is so small by reference to that of the defendant that it would not be just and equitable to reduce the damages at all.”
73. The trial judge, it is submitted, found that the actual and only real cause of the whole of the bank’s loss was the appellant’s negligence: since the appellant, as a firm of solicitors, failed to perform the task entrusted to it to obtain security. It is irrelevant that the decisions to make the loans were unwise or even extremely foolish. Accordingly there could be no reduction in damages on grounds of contributory negligence.
The High Court Judgment
74. It is necessary to begin by identifying the context of and parameters for consideration of the defence of contributory negligence on the appeal. The trial judge noted that a significant amount of evidence had been given on the topic and identified the principal headings. He then summarised the evidence. In some cases he expressed no view as to whether the evidence suggested contributory negligence on the part of the bank. Nor did he reject that possibility. On the other hand, he expressed some views on two aspects of the case of the loans made to Mr Byrne. He described as “highly questionable” Mr Byrne’s claim to be earning a €4m annual fee for providing consultancy services to French fashion houses. He expressed the view that the bank’s explanation for its failure to investigate the matter, namely that it did not rely on that figure in assessing Mr Byrne’s annual income, was “not plausible.” He went on to observe:
“Unsurprisingly, the French fashion Consultancy claim was entirely bogus. But if the plaintiff had taken steps to investigate that, it would quickly have discovered that the claim was bogus and this should have informed the plaintiff’s view on Mr. Byrne, generally, and the degree of weight it could give to information he was providing.”
Then the learned trial judge turned to Mr Byrne’s practice accounts:
“The second set of accounts dated the 7th day of August, 2007, furnished on behalf of Mr. Byrne, showed that there was a huge deficiency in the client account. This was not picked up by the bank and was a serious matter. The bank did not raise any detailed queries on the accounts on the basis that it did not place a great deal of reliance on the practice as the source of repayment of the loan.”
75. Apart from making these remarks, the judge reached no conclusion as to whether these facts could amount to contributory negligence. The learned judge first expressed a general view about the facts relied on in support of the defence of contributory negligence:
“A review of the evidence on contributory negligence leads me to conclude that the plaintiff was somewhat careless in its appraisal of the borrowers, Mr. Kelly and Mr. Byrne. While many of the criticisms were made with the benefit of hindsight and in the knowledge that Mr. Thomas Byrne has been struck off the Roll of Solicitors for dishonest conduct, there were, nevertheless, a number of facts presented to the bank which ought to have raised suspicions in their mind as to the true financial worth of the borrowers and their reliability.”
76. He then said that it was “necessary to consider the effect of these lapses by the plaintiff.” As he explained, he had “to determine whether they are such as to warrant a finding of contributory negligence with a concomitant reduction in damages.”
77. There then followed paragraphs 50 and 51 of the judgment, which have been quoted in full. He said that “If the decision of the plaintiff to approve the loans was, to some extent, due to its own negligence in assessing the borrowers, this was a causa sine qua non.” Thus, he was saying, though without so finding, that the bank might have been negligent in approving the loans, but that was no more than causa sine qua non of the loss. The crucial fact was, in his view, that the causa causans or proximate cause of the loss was that the funds “were released after the plaintiff sought confirmation from the defendant that it would not release the funds until such time as the security was in place, and they received confirmation of this from the defendant prior to the release of the funds.”
78. To that extent, the analysis focussed purely on the question of causation. The failure of the appellant to perform its duty properly was the proximate cause of the loss and any contribution of the bank to their own loss was merely causa sine qua non. He rejected the defence of contributory negligence because the appellant could not “rely on a plea of contributory negligence unless it can be shown that the negligence of the client was at least a proximate cause of the loss.”
79. The decision rested crucially on the judge’s conclusion as to the cause of the bank’s loss. The learned judge made no finding and reached no conclusion on the question of whether, if he had concluded otherwise, the acts of the bank would have amounted to contributory negligence. He thought that the bank had been a “somewhat careless” in its appraisal of both borrowers: he spoke of “lapses by the plaintiff. It is difficult to believe that he would not have made some findings of contributory negligence, at least in the case of the lending to Mr Byrne. My conclusion is that the learned judge did not decide whether the bank would have been responsible for contributory negligence, if their acts had been a cause of the loss. Since he did not decide that matter, it is quite clear that this Court cannot do so on appeal. If a finding of contributory negligence was to be made, it could only be made by the judge who heard all the evidence. On the other hand, if the Court concludes that the judge’s analysis of causation was incorrect, it clearly follows that the case must be remitted to the High Court to decide whether there should be a finding of contributory negligence and, if so, to apportion responsibility.
Law on Contributory Negligence
80. Section 34(1) of the Civil Liability Act 1961 provides:
“Where, in any action brought by one person in respect of a wrong committed by any other person, it is proved that the damage suffered by the plaintiff was caused partly by the negligence or want of care of the plaintiff or of one for whose acts he is responsible (in this Part called contributory negligence) and partly by the wrong of the defendant, the damages recoverable in respect of the said wrong shall be reduced by such amount as the court thinks just and equitable having regard to the degrees of fault of the plaintiff and defendant……”
Section 34(2)(c) provides:
“the plaintiff’s failure to exercise reasonable care for his own protection shall not amount to contributory negligence in respect of damage unless that damage results from the particular risk to which his conduct has exposed him, and the plaintiff’s breach of statutory duty shall not amount to contributory negligence unless the damage of which he complains is damage that the statute was designed to prevent..”
81. In a negligence action, such as the present, the section applies provided it is shown that: a) the defendant has been proved to be negligent; b) the negligence of the defendant caused loss or damage to the plaintiff; c) the plaintiff had failed to take care for its own safety (here for its property); d) the plaintiff’s want of care partly caused, i.e., contributed to the damage which it suffered as a result of the defendant’s negligence.
82. Thus, the section contemplates that there may be more than one cause of the loss. It is implicit that the negligence of the defendant and the negligence, more properly described as want of care, of the plaintiff are both causes of the loss.
83. The high Court made no apportionment of liability. Thus, there is no question of apportionment before this Court. It suffices to note that the section provides that “the damages recoverable in respect of the said wrong shall be reduced by such amount as the court thinks just and equitable having regard to the degrees of fault of the plaintiff and defendant…” The decisions of this Court in O’ Sullivan v Dwyer [1971] IR 275 and Carroll v County Council for the County of Clare [1975] 1 I.R. 221 are the leading cases.
84. Questions of causation often present difficult problems of analysis. In one sense, everything can be a cause even of remote events. Events have direct and indirect causes. The law does not usually recognise a mere causa sine qua non (sometimes called “but for” causation) as a sufficient basis for the imposition of liability on a defendant. Many acts, even if negligent, are too remote to provide a just basis for imposition of liability. In some cases, the law resorts to the concept of novus actus interveniens.
85. The bank relies on the case of Conole v Redbank Oyster Company Ltd [1976] IR 191, claiming that Henchy J. there adopted an analysis of the question of causation between concurrent wrongdoers which is identical to that followed by the learned trial judge in the present case. In truth that unusual case is one of the few Irish cases in which light is cast on principles of causation. It arose from a tragic drowning of nine young people when the defendant’s boat capsized off the coast of County Clare in 1969. The boat was new. She had been built specially by the third party for the defendant, who was going to use it for dredging oysters. The boat was unseaworthy when delivered to the defendant shortly before the accident. The defendant took her to sea on a few trial runs. On the day of the fatal accident, when the ceremony of naming and blessing the vessel took place, she was taken out on six trips —the sixth being the fatal one. On the fifth trip, the defendant’s manager had taken her out and found that she shipped water to such a degree that the pumps could not clear the water from the deck. The defendant concluded that that boat was absolutely unseaworthy and extremely dangerous. The manager was instructed to tie up the boat. Tragically, he took her out once more.
86. The plaintiff recovered damages from the defendants, as personal representative of his daughter, for their negligence. The defendants’ claim for an indemnity or a contribution from the third party was dismissed in the High Court on the ground that the effective cause of the death was the negligence of the defendants who, with knowledge of the dangerous condition of the vessel, allowed the vessel to put to sea on the sixth trip overladen with passengers. Henchy J dealt with the liability of the third party at page 196 as follows:
“When the defendants discovered that the boat was unseaworthy and, nevertheless, proceeded to put to sea with passengers aboard, the defendants in effect decided to supplant Fairway [the third party] as tortfeasor in the event of an accident. Leaving aside the added factor of taking too many passengers on board, the mere circumstances that the defendants put to sea at all with passengers when they knew the boat to be dangerously unseaworthy meant that the defendants were consciously undertaking the primary responsibility if an accident happened, and that Fairway were being relegated to an area of remoteness within which responsibility in negligence does not operate. Of course, the defendants are entitled to say that there would have been no accident if Fairway had not been in default in supplying an unseaworthy boat. If the defendants are correct in that assertion, it is merely something they can put forward to support a complaint by them that Fairway were in breach of the contract between the defendants and Fairway. However, as far as the negligence that resulted in the drownings is concerned, any such default by Fairway would have been merely a causa sine qua non and not a causa causans.
In terms of legal causation, there was only one act of negligence in this case: it was the defendants’ act of putting to sea in a boat which they knew to be unseaworthy and which was overloaded with unsupervised young people.”
At page 196, Henchy J added:
“The direct and proximate cause of this accident was the decision of the defendants, acting through Mr. Hugman, to put to sea with passengers when they had a clear warning that the boat was unfit for the task. The defendants were the sole initiators of the causative negligence.”
87. I cannot agree that Conole v Redbank Oyster Company Ltd is determinative of the present case. It is sharply distinguishable on the ground that the defendant, in that case, was, as Henchy J repeatedly emphasised, fully aware of the dangerous condition of the boat, but consciously put the boat to sea in that full knowledge. The basis for the distinction is emphatically clear from the following further passage from the judgment at page 196:
“If the defect becomes patent to the person ultimately injured and he chooses to ignore it, or to an intermediate handler who ignores it and subjects the person ultimately injured to that known risk, the person who originally put forth the article is not liable to the person injured. In such circumstances the nexus of cause and effect, in terms of the law of tort, has been sundered as far as the injured person is concerned.”
88. To make that case analagous with the present, it would be necessary to show that the appellant was aware of the financial unsoundness or dishonesty of the two borrowers at the time the bank entered into the lending transactions. That is not the basis on which the bank has made its case.
89. The context of the present case is professional negligence. The learned trial judge was especially influenced by tha fact that the “bank was entitled to rely on the assurances received by the defendant and did so.” That was, of course, correct insofar as the liability in negligence of the appellant is concerned. It may also be relevant to any consideration of apportionment which may arise. It does not, however, dispose of the question of contributory negligence, though the learned judge next cited a passage from Jackson & Powell on Professional Liability 7th Ed. (Sweet & Maxwell, 2012) at p. 211:
“In the context of a professional negligence action, a successful plea of contributory negligence by the defendant is less common than in other areas of negligence. This is because the parties often do not stand on an equal footing…. If the defendant makes a mistake, it may be difficult to say that the client was negligent not to spot it or correct its effect, unless the client is expected to be wiser than his own professional advisers.”
90. A professional person is necessarily in a very weak position if he tries to say that his client should have seen that he was negligent. The professional person is engaged precisely to perform a particular task. In this case, it was the job of the appellant to obtain the security. Its arguments that the bank was contributorily negligent in failing to check that it had done its job may come within the scope of the Jackson & Powell, which I have quoted. However, it seems to me to be more relevant to bear in mind that the plaintiff in this case was a lending bank and that it was its function and its function alone, as noted by the learned trial judge, to appraise the borrowers and the lending transaction in contemplation. It was within the bank’s area of skill and judgment to appraise the creditworthiness, soundness and trustworthiness of the borrowers. I would adopt the reasoning in the following passage from “Lender Claims,” Hugh Tomlinson Q.C. and others, as cited above:
“In the general field of professional negligence contributory negligence as a defence has a limited role to play. This is because in the majority of cases it is the defendant, a professional, who is professing special expertise and the claimant is reasonably relying upon that defendant to exercise such expertise competently. The position is different in lender claims, however, because the process of lending is a profit-orientated business as well as a specific expertise in relation to which it is the claimant, rather than the defendant, who has the superior knowledge. The defendant professional’s role in the process is typically specific and limited.”
91. There has been a significant body of cases in England in which lenders have been found to the responsible for contributory negligence, usually in actions taken against valuers. The appellant cites the following passage from Charlesworth & Percy on Negligence, 12th Ed., (Sweet & Maxwell, 2010), at paragraph 4-57 (footnotes omitted):
“Where solicitors have been found guilty of negligence in the context of mortgage transactions in which they acted both for borrower and lender and failed to report to the lender matters which cast doubt on the correctness of a valuation of the property or the good faith of the borrower a number of cases have identified contributory negligence on the lender’s behalf which have reduced the damages recovered. It was negligent of the lender on the facts, to fail to obtain bank or credit references in the case of the purchase of a five bedroomed property by a youthful purchaser with no dependents, to proceed with a loan where an employer’s reference disclosed a lower income than that claimed and confusing, uncertain and inconsistent answers were given in interview; not investigating the many credit searches against the borrower’s name by financial institutions; and in failing to adequately investigate the borrower’s ability to pay.”
92. Some of the cases cited in the above passage involved findings of contributory negligence made by Blackburne J. against the Nationwide Building Society which was plaintiff in twelve actions against different firms of solicitors. One was Nationwide BS –v- JR Jones [1999] Lloyds Reports P.N. 414. In that case the Society lent £405,000 to a Mr. Abeywickrama to buy a house for £575,000. The solicitors were engaged to complete the transaction and were found negligent for failing to report aspects of the transaction which would have alerted the Society to the fact that the £375,000 not £575,000 was not the true selling price. However, Blackburne J reduced the damages payable to the Society by forty percent for contributory negligence in respects described in the headnote as follows:
“The failure to interview the applicant; the failure to take up bank references; the failure to obtain proper accounts; the failure to enquire as to why it was that the applicant, aged 28, and having no dependents and not intending that anyone aged 17 or over would be living in the property, was proposing to acquire a home which the Valuation Report disclosed comprised of four reception rooms, three kitchens, two ensuite bathrooms and five bedrooms…”
93. Blackburne J, at page 421, while placing the greater share of the blame on the defendant solicitors, considered that “the Society must carry a substantial part of the blame for this ill-fated transaction.”
94. The decision of the House of Lords in Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190 is also instructive. The negligence claim was against valuers rather than solicitors and the issue in contention was whether a finding of contributory negligence made against the lenders should be applied to the entire of the loss they had suffered or merely to that part for which the valuers, by overvaluing the property which was taken as security, were responsible. This was an application of the SAAMCo principle, which does not arise on the present appeal. It is of note that Lord Hobhouse accepted that contributory negligence could be found against the lenders in investigating the loan application. At page 211, he said that:
“… the totality of the plaintiff’s loss was partly caused by the defendants fault and therefore the present case comes within the scope of..” the English statute governing contributory negligence.
95. At this point, I would return to the crucial question: what was the cause of the bank’s loss? The bank lost its money essentially because it paid out the loan moneys to two people who were unable to repay. At least that is the form which that loss took. The money was lost because it was paid to borrowers to whom money should not have been lent. There are two ways of looking at this unfortunate result. One way is to say that the loans were unsound because the borrowers were unsound. The other is to say that the loans would not have been paid out at all, if the appellant had done its duty and ensured that security was in place at the point when they were due to be paid out. There is no doubt that, based on the unchallenged findings of the High Court, the appellant’s failure to obtain security operated as a major cause of the loss. If there had been security, the bank would have been protected from the financial results of the borrowers’ failure to repay. That, however, is not the reality in either of these cases. It is much more probable that the borrowers, certainly Mr Byrne, would not have been able to provide the security. The appellant’s serious fault in accepting the undertaking of Mr Byrne in respect of the Kelly loans masked the truth. The appellant did not find out whether Mr Kelly could provide security.
96. It follows that the appellant’s negligence was a direct and, as the learned judge found, a proximate cause of the loss.
97. But was it the only effective cause? To answer this question, I need to make two assumptions. Firstly, I will assume, without deciding, that the bank was wanting in care for its own interests in entering into the loan transactions. Secondly, I will assume that, if it had exercised reasonable care, it would have discovered the truth about the borrowers and would not have agreed to lend them any money. On those assumptions, it seems to me that the bank’s want of care was also a cause of the loss, because the bank, like the appellant, caused loan moneys to be paid out to two persons who were, as it turned out, unable to repay. That would justify a finding of contributory negligence, provided it was shown that the bank was guilty of want of care.
98. I do not think the one cause was necessarily more proximate than the other. They were both effective causes.
99. The bank, however, makes the point very strongly that a defendant should not be absolved even partially from fault when its own negligence consists of a failure to do the “very thing” it was engaged to do. This is the point made in the passage cited by the learned judge from Jackson and Powell. It is difficult to justify permitting a professional person to cast even some of the blame back on the client for failing to spot or correct the professional person’s mistakes “unless the client is expected to be wiser than his own professional advisers.” In the present case, that argument is particularly relevant to the appellant’s attempt to attribute contributory negligence to the bank because it did not notice that it had not got the security which it had stipulated in each of the facility letters. The appellant says that the bank failed to follow up the express requirement contained in its letters of instruction to the appellant that it receive: “Copies of all security documents duly signed.” The argument that the appellant failed in the very task assigned to it does not apply, at least not with the same force, to any contributory negligence of the bank in failing to check the financial soundness of the borrowers.
100. The bank, as already noted, relied on the English Court of Appeal decision in Sahib Foods Ltd v Paskin Kyriadse Sands (a Firm). Clarke L.J., speaking for the Court, said that “it is open to the court to conclude that the share of a claimant’s responsibility is so small by reference to that of the defendant that it would not be just and equitable to reduce the damages at all.” That case provides a helpful analysis of the “very thing” argument. The claimants owned a factory in which they prepared ready-made meals for sale to supermarkets. They had engaged the defendant firm of architects in connection with a general remodelling of the factory. Crucially, this work included a food preparation area in which frying took place. Three years later a disastrous fire took place when employees of the claimants negligently misused a deep fryer in that area. The room concerned was destroyed. The important point was that the fire spread to the remainder of the factory, because the room where the frying took place had not been properly fireproofed following the advice of the architects. The architects were held negligent in failing to see that the room was properly flameproofed. There had clearly also been negligence on the part of the claimant in the frying operation which led to the start of the fire. However, it was held that the claimant had not been guilty of contributory negligence with regard to the escape of the fire to the other areas.
101. Clarke L.J. at page 17 held that it had been the architects’ duty to guard against “the effects of the fire which might be caused by the fault of the claimant…” He continued:
“……the scope of the defendant’s duty and the extent to which that duty is to guard against the claimant’s negligence are relevant both to the question whether the claimant’s fault was causative of the damage and, if it was, what the relative blameworthiness and causative potency of the parties’ respective faults were.”
102. In the present case, it is important to distinguish between two types of contributory negligence alleged against the bank. They are, firstly, want of care in making the decisions to lend and, secondly, in failing to verify or supervise the performance by the defendant its duty.
103. For the reasons I have already given, and on the assumption that the bank failed to exercise due care in making its lending decisions, I am satisfied that the bank was exclusively responsible for those decisions. It was not the task of the appellant to check the financial soundness or reliability of the borrowers. The learned trial judge was, in my view, mistaken in absolving the bank of responsibility for contributory negligence solely because their acts were a mere causa sine qua non and not a proximate cause of the loss. It is obvious that the decision to lend to these particular borrowers was an effective cause (combined with the negligence of the appellant) of the loss suffered by the bank.
104. With regard to the second category of acts of contributory negligence, the bank was entitled to rely on the expertise of the appellant to ensure that security was put in place. The appellant had confirmed in writing to the bank that it would not release the loan cheque in each case until all security was in place and subsequently confirmed that it was. To the extent that the solicitors’ duty to obtain security was analogous with the duty of the architects in Sahib Foods to ensure fireproofing of the food preparation (frying) room, it might well be argued that the bank’s responsibility was so small that it would not be just and equitable to fix it with any responsibility. However, there is no absolute rule. It is a matter for judgement in each case of the relative measure of responsibility. As a matter of principle, it is possible that, if the evidence showed that the errors of the appellant were known to the bank and overlooked or were so obvious that they could not be ignored, there was fault on the part of the bank. The appellant is entitled to argue for the obligation of the bank, in accordance with the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 (S.I. No. 395 of 1992) (as amended), to manage its businesses “in accordance with sound administrative and accounting principles and [to] put in place and maintain internal control and reporting arrangements and procedures to ensure that the business is so managed.”
105. I have come to the conclusion that the learned trial judge erred in his conclusion on the issue of contributory negligence. That error is in his treatment of the issue of causation. His decision turned on his determination that any contributory negligence of the bank was merely causa sine qua non and was not a proximate cause of the loss. He reached no conclusion as to whether there had actually been contributory negligence on the part of the bank.
106. It follows that the matter of contributory negligence will have to be reconsidered by the High Court. It remains a matter for the High Court to decide whether there was, in fact, any contributory negligence and, if so, to decide on the relative blameworthiness and causative contribution of the respective faults of the appellant and the bank respectively. It is a matter entirely for the High Court to determine procedures for the further hearing of the case. The further hearing may be conducted by McGovern J but whether it will must be decided by the President of the High Court. In the event the matter is to be reheard by McGovern J, it may also be possible for him, for example, to determine whether or not there was contributory negligence on the part of the bank based on the evidence already given. That is also, of course, a matter for the High Court to decide in the light to the submissions of the parties.
107. For these reasons, I would allow the appeal insofar as the High Court failed to make a finding of contributory negligence. I would remit the matter to the High Court for further consideration of that issue.