Negligent Mistatement
Allied Irish Banks Plc v Fahey
[2015] IEHC 334
JUDGMENT of Ms. Justice Iseult O’Malley delivered the 21st day of May 2015
Introduction
1. In these proceedings the plaintiff claims the sum of €10, 676,158.76 and continuing interest on foot of a joint loan facility drawn down by the defendants. As of the date of the hearing the amount claimed including interest is €12,059,522.06
The contract documents and correspondence
2. The plaintiff relies on a letter of loan sanction dated the 22nd December, 2006, (“the December 2006 letter”). The key provisions relating to the details of the agreement were as follows:
• The sanction was for two loans, Facility 1 and Facility 2.
• The amount of the loan for Facility 1 was stated to be €10, 640,000.
• The purpose of Facility 1 was to assist in the purchase of about 15 acres of land at Ballyleary, Co. Cork. These lands, which were priced at €13.3m, had full planning permission for the development of 167 residential units plus a crèche.
• Interest on the loan was expressed to be at prime rate varying, plus 1%, per annum, “currently 5.25 %”.
• Repayment was provided for in the following terms:
“Interest only to be repaid on facility pending clearance in full from site fines of €91,000 per residential unit sold. Any residual balance will be repayable at the end of the repayment period.”
• There was no definition of the term “repayment period”.
• Facility 2 was for the sum of €6m, which was stated to be for the purpose of development finance towards construction of the buildings already referred to. Repayment was to be
“Interest to be rolled up within the facility for a period of twelve months pending clearance from site fines of Eur 51,000.00 per residential unit sold. Any residual balance will be repayable at the end of the repayment period.”
• The letter provided that all facilities were subject to review by the 30th September, 2007.
• The security for the facilities was to be legal charges over both the Ballyleary lands and another site (“Marinegate”), which was intended to be developed by the same defendants (with the exception of Claire Keenan), plus limited recourse collateral mortgages over both properties from the then owners/vendors of the two sites.
3. The letter stated that the facilities were subject to the terms and conditions set out in the letter and also to the plaintiff’s general terms and conditions. Of the latter, the clauses of relevance in the case are the following.
• Clause 1.1.1, which, in describing the various facilities offered by the bank, referred to loan accounts as being
“usually medium to long-term facilities” with “customised repayment options”.
• Clause 1.1.2, which stated as follows:
“Other specific terms and conditions may apply to facilities in accordance with the relevant letter of sanction or other agreement in writing between the bank and the borrower and to the extent, if any, that the specific terms and conditions conflict with the general terms and conditions set out in this booklet, then the specific terms and conditions will apply.”
• Clause 3.1.1, which provided that loan account facilities were repayable on demand but also stated:
“However, in normal circumstances the bank expects that the loan will be available as stated in the letter of sanction.”
• Clause 3.1.2, which stated that without prejudice to the plaintiff’s right to demand repayment at any time, the happening of any event specified in clause 4.2 might lead the plaintiff to make demand for payment without notice to the borrower.
• Clause 4.2, which set out various “events of default”, including “a material change” relevant to the borrower, which, in the opinion of the plaintiff, was prejudicial to the plaintiff’s interest.
• Clause 7.4, which provided that each party to a facility on a joint account was jointly and severally liable to the bank for repayment of the facility and was subject to all of the applicable terms and conditions.
4. There was no review in 2007 but the December 2006 letter was subsequently the subject of what is described by the bank as a “variation” or “renewal” of the facility by letter of loan sanction dated the 23rdApril, 2009 (“the April 2009 letter”). This letter referred only to Facility 1 and there was no mention of a facility for development finance. The terms of the offer were identical to the December, 2006 offer so far as the amount, purpose and security for the loan were concerned, and in stating that the offer was subject to the terms and conditions set out in the letter and also to the bank’s general terms and conditions. However, the interest rate was now
“Base lending rate varying, plus 2% per annum, currently 3.863% per annum.”
5. There was also a special condition noting that the above interest rate included a funding premium of 0.5%.
6. Under the heading “Repayment” it was provided that
“Facility is subject to review/refinance by 30/4/2010. In the interim interest to be provided as it falls due. Any residual balance will be repayable at the end of the repayment period.”
7. There was no reference in this letter to repayment being made out of sales of the units.
8. In conclusion it was stated that this letter of sanction was in substitution of and not in addition to any previous facility letters.
9. The April 2009 letter was signed by all of the defendants but only a faxed copy of the signed document was returned to the bank. The original has never been produced.
10. On the 17th December, 2009, a further letter of sanction was issued. Again, the offer was subject to the terms and conditions set out in the letter and the bank’s general terms and conditions. The amount, purpose and security of Facility 1 were unchanged from the 2006 offer. Facility 2 was not referred to. The interest rate was base lending rate plus 2%, at that time 2.743% per annum. The facility was to be subject to review/refinance by 30/4/2010. In the interim interest was to be paid as it fell due and any residual balance was to be repayable at the end of the repayment period.
11. In a separate letter, dated the 18th December, the borrowers were told that the new letter of offer would, following their acceptances, replace
“the existing letter of offer dated 13/04/2006.”
12. It is common case that this date was an error and that what was intended was a reference to the letter of December, 2006.
13. The borrowers were also told that, pending receipt of their acceptances, the facility was to continue to be governed by the terms and conditions of the existing letter of offer
“which terms are hereby extended for a further period ending on (a) 31/01/2010 or (b) the date of receipt of the New Letter of Offer duly accepted by you, whichever is the earlier…
…Please note that this letter is supplemental to and not in replacement of the existing letter of offer and save as varied by the terms of this supplemental letter, all other terms and conditions applicable to the facility remain unchanged pending acceptance of the new letter of offer.”
14. The letter warned that surcharge interest could be charged if the borrowers defaulted.
15. This letter of sanction was returned to the bank, by letter dated 28th January, 2010, by Mr. Brendan Cunningham of McNulty Boylan & Partners, who expressed themselves to be acting on behalf of “Liam Fahey, Gerald Paul, Bernard Crowley & Ors.” The covering letter read as follows:
“We are returning the Letter of Sanction, which has been signed by our Clients.
We have been instructed and so believe,that our Clients have paid interest on this loan as it came due, and that it is their intention to continue to do so in the future.
However, whilst we are returning the documentation duly completed, it is incumbent on us to register in the strongest possible terms, our concern and dismay at the changes in terms that are being unilaterally imposed on our Clients, by the Bank, and in particular the following:-
1. Originally our Clients borrowed at a Rate of prime plus 1%, now they are being asked to pay base plus 2%.
2. Our clients had applied for, and been furnished with, Development Finance to enable the property to be developed. Without discussion that Development Finance has been withdrawn, which had the immediate result of seriously damaging our Client’s ability to bring this development to fruition.
These, and other changes, have led to fundamental changes in the terms which are not being offered, but are effectively being imposed on our Client.”
16. The letter of sanction was not in fact “duly completed” by all the borrowers, in that it was not signed by Mr. Keohane.
17. On the 12thMarch, 2010, the bank issued letters of demand, signed by Mr. John Callanan, to each of the borrowers.
18. Mr. Cunningham responded on the 22nd March, 2010, this time on behalf of Mr. Fahey only. He said that it was his understanding that the review of the loan was not due to take place until the 30th April, and that the bank was not entitled to demand repayment prior to that date in the absence of default. He also said that his client would welcome a meeting to discuss the account.
19. Mr. Callanan replied promptly, stating that, since not all the parties to the loan had signed the letter of offer, the facility had expired on the 30thJanuary, 2010. He expressed a willingness to have a meeting with the borrowers, preferably together, otherwise individually.
20. No meeting appears to have taken place. There was a sequence of correspondence in which Mr. Cunningham asked (now on behalf of Mr. Fahey, Mr. Crowley and Mr. Paul) for various documents and information not in his possession to be forwarded to him prior to a meeting. It appears that Mr. Cunningham did have some discussions with Mr. Cormac Veale, a bank official in the Credit Management department.
21. On the 21st May, 2010, Mr. Cunningham wrote to say that his clients were in advanced negotiations with Respond (a social housing agency) in relation to taking part of the property. He proposed that in the meantime, as a gesture of goodwill, his clients were prepared to pay a full year’s interest in advance.
22. On the 14th June, 2010, Mr. Callanan sent out fresh letters of demand to each of the borrowers.
23. Mr. Cunningham responded (apparently on behalf of Mr. Fahey) on the 18th June. In this letter it was asserted that
“You are aware that there is a dispute regarding the nature and extent of the Borrowing in this particular instance.
It is, and at all stages was our client’s understanding that the Facility being made available, allowed the Bank to have recourse only to the property which was being provided as Security, and didn’t allow any additional recourse to the individual Borrowers.”
24. Mr. Cunningham said that legal advice in the context of the loan had been provided by the solicitors who acted on behalf of Ridge Developments Limited, Brian Keohane and Claire Keelan, and that Mr. Fahey did not have the opportunity of having independent legal advice in the matter.
25. It was not accepted that the bank was entitled to call in the loan.
The proceedings
26. The summary summons was issued on the 12th July, 2010. Initially, the matter was entered into the Commercial Court list, on foot of an application made by the plaintiff without objection on the part of the defendants. It was subsequently taken out, on the basis that discussions were continuing between the parties and the plaintiff did not wish to remain in that list.
27. The statement of claim refers to the agreement made in December, 2006 and pleads that
“In accordance with the terms of the aforesaid banking contract as varied and renewed, the Plaintiff provided banking facilities to the Defendants and the Defendants availed of the facilities thereby granted and the Plaintiff has further and in accordance with the terms of the said agreement charged interest for and on account of the amounts outstanding and at the rates agreed and calculated in accordance with the custom and practice of banking.”
28. Reference is then made to the letters of demand of the 14thJune, 2010, the failure of the defendants to discharge the amount due and the continuing accrual of interest calculated as of the 16th June, 2010.
29. In a reply to a notice for particulars, the plaintiff asserted that the original letter of loan sanction was that of the 22nd December, 2006.
“Thereafter agreement was reached on the variation of the facility in accordance with the provisions of a Letter of Loan Sanction dated 23rd April, 2009…
In accordance with the provisions of the Letter of Loan Sanction dated 23rd April 2009, the facility was subject to review/refinance by the 30th April 2010. The Plaintiff declined to renew the facility at the expiration of the said period having regard to the non-progression of the development and further having regard to the fact that not all the Defendants were co-operating in the provision and execution of the contractual loan and security documents…”
30. The first named defendant, in his original defence, pleaded that the loan agreement contained the following express or implied terms:
• That the sums were advanced for the purpose of constructing a residential development;
• Repayment of the sums advanced was to be made from the sale of the development, with a specified sum being paid in respect of each unit sold;
• The loan was recourse to the property provided as security and was not recourse to this defendant.
31. The development had not been completed and as a consequence the term of the loan had not expired.
32. Without prejudice to the foregoing it was pleaded that there was an implied term that the loan would continue as long as interest payments were being made.
33. It was also pleaded that it was the obligation of the plaintiff to ensure that the primary security for the loan was put in place, and that its failure to do so amounted to a breach of a condition of the contract such as entitled the defendant to be released from the agreement.
34. There was also an allegation that this defendant did not receive independent legal advice in relation to any transaction with the plaintiff, and was not advised so to do by the plaintiff.
35. In an amended defence, the first named defendant further pleaded that the failure of the plaintiff to put the primary security in place amounted to contributory negligence within the meaning of s. 34 of the Civil Liability Act, 1961 (as amended) and, as a separate argument, that the defendant had at all material times been a consumer within the meaning of the Consumer Credit Act, 1995 (as amended).
36. The defence of the second and third named defendants was in all material respects identical to the original defence of the first named defendant.
37. The fourth and fifth named defendants pleaded that the loan agreement was at all material times on the basis that repayment of the capital sum would only come from the sale of the properties when the units were developed, and that, pending that clearance in full from site fines, the repayments were interest only.
Oral Evidence
Michael Murphy
38. In 2006 Mr. Murphy was a lending manager within the business banking unit in the South Mall branch of the plaintiff. He said that typically customers that he dealt with would have come to him via the branch of the bank where they held their original accounts. The business banking team would take over the running of any credit application, would prepare a credit paper and present it to the relevant authority in the bank, which was usually a credit committee in Dublin. If it was approved, the approval would be forwarded to the business banking unit for the issuance of the letter of sanction.
39. Mr. Murphy said that he himself had a discretion in the order of €1m, but typically the loans he was dealing with were in excess of €10m.
40. The borrowers in this case had come into contact with the business unit through the Fermoy branch of the bank, where the manager was Ms. Marianne Harris. They had an investment portfolio, in their joint names, based in Cork city, which was “domiciled” in Fermoy but managed in the business banking unit. Mr. Murphy said that he had met them in relation to the Marinegate development. He described Mr. Paul and Mr. Crowley as “well-regarded businessmen”, and “substantial borrowers and substantial businessmen” whose backgrounds were profiled in the papers presented for the credit applications. Mr. Crowley had been an auctioneer and was involved in a number of businesses. Mr. Paul was a property developer and had been an architect. Mr. Fahey was seen as “an investor/property developer.” One of his primary interests was the Briar Rose, a public house and restaurant in Cork city. There was an adjoining development called Ard Fallon, carried out by Mr. Fahey with Mr. Paul and Mr. Crowley, and another bar in Douglas.
41. On the 9th October, 2006, a loan offer was made to Messrs. Fahey, Crowley, Paul and Keohane for the development of 43 units on this site. The Ballyleary lands were referred to in the same letter but ultimately they were the subject of the separate letter in December, 2006. The reason for this was that Ms Keelan was to be added in to the transaction as a joint borrower. Ms Keelan and Mr Keohane are siblings, whose construction company, Ridge Developments, was engaged in building out Marinegate and was to be similarly engaged for the Ballyleary development.
42. Mr Murphy said that he recalled a meeting in 2006, in the Radisson hotel in Cork, to discuss the Ballyleary project. It was attended by his senior manager, Mr. Jim O’Mahony; the Fermoy branch manager Marianne Harris; Mr Murphy himself; Mr. Fahey and Mr. Paul. He was uncertain as to whether any other persons were present. The credit application was made, and was sanctioned, after that meeting.
43. Dealing with the December 2006 letter, Mr. Murphy said that the reason that the two facilities were dealt with separately was that the loan to assist the purchase was to be advanced initially. He went through the terms of the offer, including the special conditions attached to Facility 2 and confirmed that no request had ever been made to draw down this facility and no works were ever carried out on the site.
44. Mr. Murphy said that all the loan facilities were demand loan facilities.
45. With reference to the stipulation in the letter of offer that it was subject to the bank’s general terms and conditions, Mr. Murphy was asked whether those terms and conditions had been furnished and said that they would have been furnished with the letter of offer. He said that they made it very clear that the bank reserved its right at any point to demand repayment.
46. Mr. Murphy was asked about the contention made on behalf of the defendants that this was a non-recourse loan. He defined a non-recourse loan as being one where the bank would not have recourse to the individual, beyond the security pledged as part of the letter of offer. He said that this was not a non-recourse loan, and that such had never been requested or even mentioned. It had not been presented to the credit committee as a non-recourse loan.
47. The statement of the account opened in respect of the loan was produced, showing that Facility 1 was ultimately drawn down in March 2007.
48. The last payment in respect of interest was on the 16th June, 2010, after the second letter of demand, on which date payments were received from three of the defendants. The total balance due as of the date of the hearing was €12,059,522.06.
49. Dealing with the security stipulated in the letter of offer, Mr. Murphy said that there had been a legal charge executed in respect of the Marinegate property and a full transfer of that property to the borrowers. In relation to Ballyleary, the limited recourse collateral mortgage had been executed. The legal charge had not been put in place because not all of the defendants had signed the necessary documentation. The bank was relying on a solicitor’s undertaking, and proceedings had been issued in that respect.
50. The facility was not formally reviewed in 2007 as provided for in the letter of offer. Mr. Murphy referred to the deterioration in the property market at that time and said that there were ongoing, informal meetings to give the bank updates on the proposed or potential development of the site including the possibility that Respond, or another social housing agency, would take some of the units. By April 2009 such an agency would have been the only source of potential sales, or arranging an end user for the units.
51. The facility was reviewed in April 2009. The interest was being paid in accordance with the agreement and the bank decided to extend the facility for a further 12 months up the end of April 2010. At this stage, according to Mr. Murphy, the deterioration of the market was “in full flow” and there certainly would not have been a rationale to commence development of the site.
52. In the application to the credit committee for the extension, the borrowers were categorised as having a relatively stable credit rating. The assets over which the bank held security were set out, including, in Mr. Fahey’s case, the Briar Rose, a house in Clonakilty and a number of units in Marinegate. The security was considered to be adequate.
53. A fresh letter of offer was issued, approving an extension to the limit on the loan account for the year, but in relation to Facility 1 only. In the bank’s view there was no basis to continue with the €6m development facility and it was not prepared to extend it.
54. Mr. Murphy described this letter of offer as being “essentially a continuation” of the December 2006 offer, extending or approving an extension to the limit on the loan account for a further 12 months.
55. The interest rate under the December 2006 letter had been the prime rate plus 1%. Mr. Murphy said that in 2009 there was a money-markets crisis and that the cost of money to the bank had increased significantly. It therefore sought to increase its rates to recoup the cost of that funding. The rate set in the April 2009 letter was a base lending rate plus 2%.
56. It was stated in the letter that the facility was subject to review and re-finance by the 30th April, 2010. Interest was to be paid as it fell due, with the residual balance to be paid at the end of the repayment period.
57. Asked what options the bank had at the time of issuing this letter, Mr. Murphy said that, rather than extending the facility, it could have demanded repayment of the loan, or perhaps restructured the loan to amend the payment terms.
58. The letter issued to the borrowers and was signed by all of them. The bank received a copy of the signed document, sent by fax from the office of Ridge Developments. Mr. Murphy suggested, without contradiction, that the original was mislaid but not by the bank. He said that the bank was concerned about the fact that it did not have an original, and that it was therefore decided in December, 2009 to reissue the letter. It was to be re-signed by the borrowers and returned to the bank. He issued the letter of sanction of the 17th December, 2009, followed by the letter of the 18th December.
59. Mr. Murphy moved to a different department of the bank shortly afterwards and had no further involvement with the file.
Cross-examination of Mr Murphy
60. In cross-examination by Mr Murphy BL, the witness was referred to the letter of December 2009 and was asked about the meaning of the last paragraph, quoted at paragraph 13 above, and in particular the reference to the “existing letter of offer”. He said that this referred to the December 2006 letter, and that it meant that, if the borrowers did not sign the December 2009 offer, the facility would be solely governed by the December 2006 terms. As he moved within the bank shortly afterwards, he did not see or deal with the response in January 2010 from Mr. Fahey’s solicitor, Mr. Cunningham.
61. Mr. Murphy was cross-examined about his recollection of the meeting in the Radisson Hotel, which he said had taken place in 2006. It was put to him that in fact it was at the end of 2008, or early 2009, the purpose being to review the Ballyleary facility, and that this was the first time Mr. Fahey had met him. He disagreed, saying that it was in 2006 and the purpose was to discuss the proposal for that development and facility. He said that he could distinctly remember Mr. Fahey saying “It depends what you think we’re worth” with reference to the rate of interest to be charged by the bank, and the bank’s wish to win the business. Mr. Murphy agreed that there was a lot of competition in the market in 2006 and that the borrowers could have gone to other banks for this project.
62. It was put to Mr. Murphy that
“Mr. Fahey will say, it wouldn’t even have entered into his mind any issue in relation to interest rates. That wouldn’t even have entered into his mind in 2006. He had no day-to-day dealings really in relation to the proposal to AIB to lend them money and all of that was dealt with by Claire Keelan and any discussion in relation to interest rates in 2006 it would have been, if anyone had said it, it would have been Claire Keelan who said it.”
63. Mr. Murphy said that he was not sure he agreed with that, and that he remembered the comment distinctly.
64. He denied that he had been under pressure in 2006 to recommend the loan to the credit committee.
65. He accepted that there was engagement between himself and the borrowers in early 2009 and that he had seen a document date 25th March, 2009, headed “Ballyleary”. This document, which came from Mr. Fahey but was clearly a presentation on behalf of the partners, proposed that an application be submitted to the planning authority for a change in the planning permission on the site so as to reduce the cost of the development. It asked for a reduction in the bank interest rate from three and a half per cent to 3.125% in view of the deterioration in the property market.
66. Mr. Murphy accepted that the decision to increase the rate of interest under the April 2009 offer required the agreement of the borrowers, and that it was “a fundamental change”.
67. Mr. Murphy was asked how anybody would know, looking at the December 2006 offer, that it was repayable on demand. He referred to the statement in it that the offer was subject to the terms and conditions set out in the letter and also to the bank’s general terms and conditions. Asked how a reader would know what the repayment period was, he said:
“The repayment period, I suppose obviously the nature of the facility and the indefinite timeline to complete and develop out the facility, it would be near on impossible to predict an exact term of the facility and that is why in the second page there is that review clause where all facilities would be subject to review by the 30th September 2007.”
68. Asked how one would know that the bank could have personal recourse to the borrowers, given that the security for the loan was the charge over the lands to be developed and the Marinegate site, Mr. Murphy said that he was absolutely sure that there was full recourse because in 15 years of banking he had never approved a non-recourse facility. He referred to section 7.4 of the general terms and conditions, which provided that each party to a facility was jointly and severally liable to the bank for the repayment of that facility, and was subject to all of the applicable terms and conditions. He said that it was his understanding that with any type of loan there would be full recourse to the individual borrower unless it was explicitly stated that it was non-recourse.
69. It was put to Mr. Murphy that Mr. Fahey would say that he always understood that the loan was non-recourse and that the bank’s security was the charge over the lands. Mr. Murphy said that he completely disagreed with that. Asked whether he was saying that he specifically drew Mr. Fahey’s attention to the fact that he would be personally liable, he said that he did not recall having that conversation.
70. Mr. Murphy was questioned about whether the general terms and conditions booklet had been sent out with the letter of offer. He said that to the best of his recollection offer letters, when signed by him, would have been sent to Marianne Harris (the Fermoy manager) for counter-signature and issuance by her.
“In all cases the general terms and conditions would have been included from our offices.”
71. The letter and booklet would have been put together in an envelope in his office for sending to Ms. Harris. He did not think that they were fastened together with a paper clip.
72. Asked if he was “just assuming” that Ms. Harris had included the terms and conditions with the letter of offer, Mr. Murphy said:
“Of course there would have to be an element of assumption, yes. Again, I issue something to Marianne Harris for signature and onward transfer to the client.”
73. He accepted that he could not say for certain that Ms. Harris included the booklet.
74. Mr. Murphy confirmed that only one copy of the December 2006 offer had issued, and that it had been addressed to Mr. Fahey on behalf of the partnership. He agreed with the suggestion that this was because the bank had the closest business relationship with him.
75. It was put to Mr. Murphy, and agreed by him, that it was a specific term of the 2006 agreement that the facility was repayable on an interest-only basis pending clearance in full from site fines. It was further put, and agreed, that the facility came within the meaning of the phrase “loan account” in the general terms and conditions. He accepted, while maintaining that the bank could demand repayment at any point, that it would not do so without a reason.
76. The witness did not accept the proposition that, the facility not having been reviewed in September, 2007, the review provision had lapsed and there was no obligation on the borrowers to engage with a review thereafter.
77. He said that the significant decline of the property market meant that the bank was in a significantly worse position both in terms of the value of its underlying security and the means by which it was going to be paid. This meant that there had been a “material change relevant to the borrower”, within the meaning of the default provisions in the general terms and conditions.
78. It was accepted that the December 2009 letter did not reflect the fact that the credit committee was by then of the view that either the borrowers should be asked for further security or the loan should be called in in January 2010. Rather, Mr. Murphy said, it reflected the April 2009 letter.
79. The document prepared by Mr. Murphy for the credit committee in April 2009 was put to him. He had, at that time, expressed the view that security cover and repayment capacity was adequate overall. The clients were “fully aware” that the site had devalued considerably since purchase but were committed to paying the interest on the loan from their own resources, pending improvement in market conditions. He felt that although they would be disappointed with the increase in the interest rate, they would continue to work with the bank in every way possible. It had also been noted that proposals in respect of the Marinegate loan would reduce the defendants’ borrowing by about €1 million.
80. Counsel for Mr. Fahey has raised the issue of his capacity when entering into the loan agreement. The following is the cross-examination on that issue.
505 Q. Very finally then, you were familiar with Mr. Fahey’s background and you were aware that his main interest was in the Briar Rose, Were you aware of that?
A. That is correct yes I was aware of that yes
506 Q. And would you accept that was his main interest? His main business interest was Briar Rose.
A. Well as alluded to or as referred to in some of the comments he was both an investor and a developer there is a reference to a rent roll being derived from the Briar Rose property, I do know and from recollection that he actually went back to operate it himself I think it may have been leased out for a period and he may have gone back in to operate it himself so between property investment and property and operating the pub himself is my understanding of Liam Fahey.
507 Q. Well what Liam Fahey will say is that his day to day job his livelihood is as a publican running the Briar Rose that is his livelihood that is his job he is a publican and his main livelihood comes from the Briar Rose?
A. I can’t dispute his involvement in the Briar Rose but I can certainly recall there was a point where he was not involved in operating the Briar Rose again maybe its for Mr. Fahey to clarify whether or not that happened, but there was a point in the, throughout our relationship that I was aware that Briar Rose property was leased out and was being operating by somebody else.
508 Q. By a company?
A. I’m not sure, no sorry the company I’m guessing you are referring is Emvale Taverns which is Liam Fahey’s own company. My understanding is that there was other parties involved again I would stand to be corrected on that.
509 Q. But that is what Mr. Fahey would say that his main livelihood as a publican, yes he had investments, lots of people have investments, but that doesn’t change their day to day activity. You could be an accountant with property investment, you could be a teacher with property investment and in this case Mr. Fahey was a publican with property investment, that is what Mr. Fahey would say?
A. In any of our reports as you will see throughout the court documents the Bank would have regarded Mr. Fahey as a very shrewd property investor, property developer firstly and foremost and I think that would be brought through and that is alluded to within the documents and any documents we presented to our credit. First and foremost we would regard him as a quite astute and well regarded property investor, property developer.
510 Q. The other thing that Mr. Fahey will say is that he has no experience in property development, he has no experience in the building trade and that is not his area at all and he was involved in some investments but purely as an investor and he had no role in deciding whether this was a good development or what type of development it should be or how many units, that was not his role, he is not a property developer in the sense that he is not a builder he is not engaged in that line of activity at all?
A. I would not agree with that and certainly the Bank’s position would be very clear that we regarded Mr. Fahey as an astute businessman involved in property investment, property development, he purchased, he was involved in a development at Ard Fallon, he was involved obviously in Cobh One, Cobh Two, there was also a property play in Youghal’s in Clonakilty which we referred to in security earlier so you know if you were to ask me my opinion as to whether or not that I’d regard him as a publican I’d disagree with that.
81. On behalf of the second and third named defendants, it was put to Mr. Murphy by Ms. Fawsitt SC that their evidence would be that in or about 2008 or 2009, the bank had required the partners to discharge the partnership account in respect of Marinegate and to take individual responsibilities for shares in it. Part of the consideration was said to be that the bank would continue to honour the €6m facility for the development of Ballyleary. Mr. Murphy did not accept this and said that the proposal to take on or “partition” the debt in respect of Marinegate came from the partners.
82. Mr. Murphy was asked when the bank had made the decision that the Ballyleary development was not to go ahead. He said that such a decision had never been taken. The €6m facility was stood down because in 2009 the likelihood of the development progressing was extremely remote, given the economic environment. He also stated that there was a cost to the bank in allowing the facility to stand, and it had by then been standing for three years without being utilised. He pointed out that the document presented by Mr. Fahey in 2009 did not refer this facility. Finally, he referred to a clause, in the general terms and conditions, providing that if a facility was not drawn down within six months it could be withdrawn. However, there was nothing to suggest that, if another proposal were to be put to the bank that made financial sense, the bank would not advance a further facility.
83. Mr. Murphy accepted that the borrowers had continued to engage with the bank after the letter of demand and after the initiation of proceedings.
84. He confirmed that in terminating the facilities the bank was relying on the December 2006 letter of sanction. He clarified that the letter of the 18thDecember, 2009, was following the letter of offer of the 17th December and was not in itself designed to create a contract.
85. It was accepted that, in contrast to the equivalent documentation that had been issued for the Marinegate facility, there was no reference in this facility to reaching a mutual agreement.
86. Ms. Fawsitt put it to Mr. Murphy that by raising the interest rate and then suing the borrowers, the bank had “brought the house down around their ears” because other lenders had followed suit and called in their loans. She said that representations had been made to the bank to the effect that without the development finance, the matter could not be progressed, but that the bank had never said until now that the facility had lapsed. He did not accept this, on the basis that the April 2009 offer had not included that facility. He agreed that in that offer it was still envisaged that repayment of Facility 1 would be from the sale of properties on the site, and that in the interim the interest payments would be made from the borrowers own resources.
87. Mr. Murphy said that the limit on the account was no longer active as of the date upon which it should have been reviewed in 2007. It had therefore technically expired before April 2009, when a new limit was put up of a further 12 months. Under the letter of December 2009 the extension was approved up to the 31st January, 2010, pending receipt of the signed letter of offer.
88. It has to be noted that much of the cross-examination of Mr. Murphy was conducted on the basis that certain evidence would be given by or on behalf of the defendants. In the event, none of the defendants called any evidence.
Evidence of Mr. Callanan
89. In 2009 Mr. Callanan was the senior lending manager in Business Banking in the South Mall branch. He said that he became involved with the defendants’ file in December 2009 when Mr. Murphy moved to a different position in the bank. He had not previously dealt with them. He wished to get the December 2009 letter of sanction signed and returned to the bank. There was a concern that the bank only had a faxed copy of the signed April letter and not an original.
90. The December letter came back signed by four of the parties but not by Mr. Keohane. Because it was not signed by all of them the bank advised that the facility would expire on the 31st January, 2010. Mr. Keohane did not sign and the facilities were called in by letters dated 12th March.
91. Mr Fahey’s solicitor Mr Cunningham responded on his behalf that the effect of the April 2009 letter was that the facility was in place until 30th April, 2010, when it was due for review. Since the account continued to operate within the terms of the facility and there had been no default, the bank was not entitled to call for payment of the full amount. It was said that Mr Fahey would like a meeting to discuss the loan.
92. In reply, Mr. Callanan referred Mr. Cunningham to the previous correspondence and said that copies of the relevant undertaking could be provided if required.
“As this is a matter of urgency I would be grateful if you could contact me to arrange a meeting with your client.”
93. The undertaking in question was the solicitor’s undertaking to register the bank’s beneficial interest in Ballyleary. The bank subsequently issued proceedings against the solicitor who had given that undertaking, seeking an order to compel compliance.
94. Mr Cunningham wrote back asking for copies of various documents before finalising a meeting, on the basis that his firm had not acted for Mr Fahey in relation to the borrowing.
95. A meeting was planned but postponed. The bank was informed that the borrowers were at an “advanced stage” in negotiations with Respond, the social housing agency, and that to demonstrate their goodwill they were prepared to discharge in advance a full year’s interest on the loan.
96. Mr. Callanan said that in the circumstances the bank decided to give the borrowers “the benefit of the doubt” as to the expiry date of the facility. However, given the subsequent lack of cooperation in relation to convening a meeting it was decided to call in the loan again, by letters to each of the borrowers dated the 14th June, 2010. The letter sent to Mr. Paul was, in error, dated the 14th March. However, the letters went out on the 14th June and referred to the state of the account as of that date.
97. Mr Cunningham replied to the letter of demand on the 18th June asserting that there was a dispute regarding the nature and extent of the borrowing, on the basis that it was at all times the client’s understanding that the facility being made available allowed the bank to have recourse only to the property which was being provided as security, and did not allow any additional recourse to the individual borrowers. He requested all relevant documentation and referred again to the offer to pay a year’s interest in advance.
98. Mr. Callanan’s evidence was that he had a clear understanding that there was full, joint and severable recourse to all five borrowers. He had been seeking to have a meeting with them to establish clearly the state of their affairs, in circumstances where the property market had collapsed to the point that repayment of the borrowings would not come from the sale of the sites and there was little prospect of the sites being developed. The offer to pay the year’s interest in advance was insufficient and the bank needed to know what else was available to support the loan.
99. The summary summons issued on the 12th July, 2010.
Cross-examination of Mr Callanan
100. In cross-examination Mr. Callanan confirmed that it was his view that the bank could have relied upon the letter of sanction of April 2009 but that, because the bank did not have the original of that letter, there was a question mark over it. By issuing the letters of March 2010, based on the fact that the five borrowers had not signed the more recent letter of 17th December, 2009, the bank no longer had to rely upon the April 2009 letter and was not bound by the provision therein relating to a review in April 2010.
101. It was put to him that, therefore, the bank could not rely upon the April letter for the purpose of charging an extra half per cent interest on the loan from December 2009. Mr. Callanan accepted this.
102. Mr. Callanan said that his understanding of the situation was that the facilities were repayable on demand. The 2006 agreement, which contained the reference to clause 3.1 of the bank’s terms and conditions (providing that loan account facilities were repayable on demand), was reviewed in April 2009. An amended letter of offer at that time was not returned signed by the five borrowers. In those circumstances the facilities were out of contract since the review date and the bank was entitled to call in the loan.
103. With reference to the provisions in the letter of 2006 for interest only payments pending clearance in full from site fines, Mr.Callanan agreed that it was a specific clause. It was put to him that the contract expressly provided that if there was a conflict between specific terms and the general terms and conditions, the specific terms and conditions would apply. Mr.Callanan said, referring to the history of the site, that by March 2010 it was unlikely that the borrowers would be able to comply with that provision. He said that in seeking a meeting with the borrowers he was not excluding the possibility that the site might be developed as part of the solution. If Respond had contracted to acquire a sufficient number of houses to repay the loans the bank would have looked at that. In this context he referred to Mr Murphy’s evidence as to the fact that Respond and Cluid had been in discussion with a large number of developers in Munster and there was little confidence that they would have the funding required. There was so little information from the borrowers as to the involvement of these agencies that the bank could not, in March 2010, see it happening.
104. Mr. Callanan said that he had read the Marinegate file and was aware that there had been an understanding that those houses would be acquired by Cluid, but that had not happened. Ultimately, only three houses were sold and the borrowers took on personal liability for eight units each. It was put to him that he was mistaken, that Marinegate had never been intended for social housing. He initially accepted that he could be wrong but said that it was not the bank’s preferred option that the borrowers would repay the loan from rental income. Subsequently, the witness said that there was a reference in the papers to a commitment from Cobh UDC to acquire the 43 units for €13m. It was then put to him that there had been a proposal in 2011 or 2012 that NabCo would become involved in a 20-year social housing scheme which would have guaranteed a rental income of €6m over the 20 years. Mr. Callanan said that he was not aware of that.
105. Mr. Murphy BL said that evidence in relation to this matter would be given by an accountant. He put it to Mr. Callanan that such a development would have been attractive as an investment for pension funds. Mr. Callanan said that it would not have been attractive to the bank because it would have required long term funding on its part, with a rental income net of taxes that would have been barely sufficient to meet a standard repayment schedule.
106. Mr. Callanan did not agree with the proposition that interest accruing on the account was not due until charged to the account. He believed that it was due at the date of the demand, at the rate of base plus 2%. Interest was calculated daily and the interest period was three months. It was put to him that in this case the demand had issued on the 14th June but the interest was brought up to date on the 16th July.
Submissions on behalf of the defendants
Interpretation of the contract
107. All of the defendants submit that the repayment of the loan was governed by the express terms of the December 2006 letter of sanction providing that it was to be repaid out of the site fines. No definite, limited repayment period was identified, and it is submitted that in the circumstances the period must be taken to be whatever period of time it takes to build and sell the units so that the loan can be repaid from site fines. It is argued that the general terms and conditions, providing as they do for repayment on demand, cannot either override or be reconciled with the specific terms of the letter. Since interest payments were made as they fell due, the borrowers were not in default and the bank was not entitled to call in the loan.
108. It is contended that, having regard to the case made in the pleadings, the plaintiff should not be permitted to argue that the December 2006 agreement was in some way superseded by a new agreement created by the letter of April 2009. The arguments made in this respect are
• that there was no fresh consideration in April 2009;
• the letter is meaningless without reference to the 2006 letter;
• it would be inconsistent with the actions of the bank, and
• it would be inconsistent with the bank’s claim that the 2006 letter is the basis for the agreement between the parties and that it was “varied and renewed” by April 2009 letter.
109. The defendants rely upon the judgment of Finlay Geoghegan J. in Allied Irish Banks Plc v Galvin Developments (Killarney) Limited& Ors. [2011] IEHC 314 in which a similar repayment term, in relation to payment out of the proceeds of sale, was considered. In that case, a number of letters of sanction contained different provisions for the repayment of capital and interest. There was provision for a review at stated times.
110. Finlay Geoghegan J. noted that the letters were silent as to an express obligation to repay the loans or interest, and as to the bank’s recourse to the borrowers. She found that the express agreement on repayment terms did not include the loans being repayable on demand, and was, in that respect, in conflict with the general terms and conditions. She therefore held that clause 3.1.1 of the general terms did not apply. However, because there was no express provision as to what was to occur in the event of default by the borrower, the general terms and conditions did apply where, as in that case, the borrower was in default. The bank was therefore entitled to call for repayment. In those circumstances she found it unnecessary to consider the consequences of the failure of the parties to reach agreement after the specified review date.
111. The defendants say that since they were not in default, the express repayment terms continued to govern the contract and the plaintiff was not entitled to demand repayment. The April 2009 letter was not the result of a “review”, rather it was the result of a unilateral decision by the plaintiff without any input from the defendants.
112. The defendants make a number of criticisms of the way the plaintiff handled matters. Since many do not seem to have any legal significance I do not believe it necessary to set them out.
113. The plaintiff says that it is entitled to rely on the provision for review in the December 2006 letter. It is pointed out that none of the defendants has denied signing the April 2009 letter, which was issued on foot of the review. The fact that the bank has not been able to produce the original is said not to affect the enforceability of this agreement between the parties. The April 2009 letter is described as constituting a new contractual relationship, which replaced the agreement of 2006.
114. The plaintiff denies the assertion that there was no consideration provided for the April 2009 letter. Relying upon the decision of Charleton J. in ACC Bank Plc v Dillon & Ors. [2012] IEHC 474, the case is made that the plaintiff contracted to provide and/or maintain the facility, subject to the terms and conditions set out in the letter. The borrowers contracted to continue to pay back the loan with a different rate of interest, and they proceeded to comply with the contract by paying the increased rate.
115. All of the parties are agreed that the letter of December 2009 is not enforceable, since it was not signed by all the borrowers.
Submissions made by the first named defendant only
Whether the general terms and conditions were furnished to the defendant
116. Mr. Murphy BL submits that the onus of proof is on the plaintiff to prove that the booklet was sent out, and that the evidence of Mr. Michael Murphy does not discharge that onus. The only person who could prove that it was sent was Marianne Harris, the Fermoy branch manager, and she did not give evidence. He relies on the finding of fact by Finlay Geoghegan J. in Galvin Developments that, in that case, the booklet had not been sent.
117. However, in Galvin Developments, positive evidence had been given by the defendant that the document had not been received. In the instant case, it was not even put to Mr. Murphy that Mr. Fahey did not receive it. In any event, Finlay Geoghegan J. held, in accordance with the decision in Leo Laboratories Ltd. v. Crompton B.V. [2005] IESC 31, that the terms and conditions were incorporated into the contract by reference.
118. I consider that Mr. Murphy’s evidence of the bank’s system, in the absence of challenge on the facts of this case, would be sufficient to prove delivery of the document on the balance of probabilities. However, if I am wrong in that, it is clear that the general terms and conditions were incorporated by express reference in the letter of sanction.
The consumer credit issue
119. The case is made on behalf of the first named defendant that in entering into the loan agreement he was acting as a consumer within the meaning of the Consumer Credit Act, 1995.
120. Section 2(1) of the Act defines a “consumer” as
“a natural person acting outside his trade, business or profession”
while a “creditor” is
“a person who grants credit under a credit agreement in the course of his trade, business or profession”.
A “credit agreement” for the purposes of the Act is
“an agreement whereby a creditor grants or promises to grant to a consumer a credit”.
121. The plaintiff says, relying on Benincasa v Dentalkit (Case C-269/95), Allied Irish Bank Plc v Higgins& Ors.[2010] IEHC 219 and Allied Irish Bank Plc v Fahy [2014] IEHC 244, that the defendants did not act as consumers in entering into the agreements in question and that therefore the protective provisions of the Consumer Credit Act, 1995 (as amended) have no relevance.
122. In Benincasa, the applicant had intended to establish a business selling dental hygiene products under a franchise agreement. The contract contained a provision conferring jurisdiction on the courts of Florence but the applicant instituted proceedings in Germany, claiming that the agreement was void under German law. The question of the appropriate forum turned on whether or not he entered into the contract as a consumer, within the meaning of the Brussels Convention, since he had not at that stage commenced trading. The relevant provisions of the Convention referred to “proceedings concerning a contract concluded by a person for a purpose which can be regarded as being outside his trade or profession”.
123. The German court sought a ruling as to whether the Convention must be interpreted as meaning that a plaintiff who has concluded a contract with a view to pursuing a trade or profession, not at the present time but in the future, may be regarded as a consumer. In answering this question in the negative, the Court said:
“As far as the concept of ‘consumer’ is concerned, the first paragraph of Article 13 of the Convention defines a ‘consumer’ as a person acting ‘for a purpose which can be regarded as being outside his trade or profession’. According to settled case-law, it follows from the wording and the function of that provision that it affects only a private final consumer, not engaged in trade or professional activities (Shearson Lehman Hutton, paragraphs 20 and 22).
It follows from the foregoing that, in order to determine whether a person has the capacity of a consumer, a concept which must be strictly construed, reference must be made to the position of the person concerned in a particular contract, having regard to the nature and aim of that contract, and not to the subjective situation of the person concerned. As the Advocate General rightly observed in point 38 of his Opinion, the self-same person may be regarded as a consumer in relation to certain transactions and as an economic operator in relation to others.
Consequently, only contracts concluded for the purpose of satisfying an individual’s own needs in terms of private consumption come under the provisions designed to protect the consumer as the party deemed to be the weaker party economically. The specific protection sought to be afforded by those provisions is unwarranted in the case of contracts for the purpose of trade or professional activity, even if that activity is only planned for the future, since the fact that an activity is in the nature of a future activity does not divest it in any way of its trade or professional character.
Accordingly, it is consistent with the wording, the spirit and the aim of the provisions concerned to consider that the specific protective rules enshrined in them apply only to contracts concluded outside and independently of any trade or professional activity or purpose, whether present or future.”
124. In Allied Irish Banks v Higgins, Kelly J. considered Benincasa in the context of a case involving a number of individuals who formed a partnership for the purpose of buying and developing certain lands. He accepted, on the basis of the evidence, that property development or investment was not their principal or main business. However, he rejected the proposition that a person could have only one business or trade or profession, outside of which any borrowings must be made as a consumer. In this regard he referred to s.18 of the Interpretation Act, 2005, by virtue of which the singular imports the plural unless the context requires otherwise. He found that the contract in question could not be seen as being for the purpose of satisfying the individual needs of the defendants in terms of private consumption.
125. In Allied Irish Banks plc v Fahy, this court applied the principles of Benincasa and Allied Irish Banks v Higgins to loans taken out by a solicitor for what the court held to be commercial purposes. (That judgment may be under appeal.)
126. The argument mounted by counsel for the first named defendant under this heading is that the plaintiff was acting in the course of an integral part of its business in extending credit to the first named defendant. This defendant, however, although borrowing for “business purposes”, was not engaged in the “business” of supplying credit or engaging in credit transactions, and was therefore acting as a consumer.
127. It is submitted that the burden is on the bank to demonstrate that the borrowers were not consumers, reliance being placed in this regard on the judgment of the Court of Justice of the European Union in CA Consumer Finance SA v Bakkaus (Case C-449/13).
128. Bakkaus concerned a request for a preliminary ruling in relation to certain provisions of Directive 2008/48/EC. The issues in the case related to the provision of adequate information to consumers, and the obligation to assess the creditworthiness of consumers, in advance of entry by them into credit agreements. The borrowers in the case had taken out personal loans in the region of €20,000 and had defaulted on the terms. At the hearing of the creditor’s claim, the national court had raised concerns arising from the failure of the creditor to give any evidence of the pre-contractual information or assessment of creditworthiness. However, the contract signed by one of the borrowers contained a signed acknowledgement by her that she had received and taken note of the “Standard European Information form” (being a copy of the form annexed to the Directive).
129. Among the questions asked by the referring court were whether the provisions of the Directive precluded national rules according to which the burden of proving non-compliance with a creditor’s obligations lies on the consumer, and whether they precluded the creditor from being able to prove compliance by means merely of the standard form whereby the consumer acknowledged fulfilment of the obligations.
130. Having regard to the principle of effectiveness, the Court held that the Directive does preclude rules according to which the burden of proving non-performance of obligations lies with the consumer, or according to which proof of the standard form has the effect of reversing the burden of proof.
131. It is submitted that the judgment of Kelly J. in Allied Irish Banks plc v Higgins is unsatisfactory insofar as it applied the definition of “consumer” found in the judgment of the ECJ in Benincasa. The criticism is based on the argument that Benincasa was concerned with the interpretation of the Brussels Convention on Civil Jurisdiction, not with the Consumer Credit Directive, and is not to be regarded as an authoritative interpretation of the concept of a consumer.
132. Reliance here is placed on the recent opinion of the Advocate General in Costea v. SC Volksbank Romania SA (Case C-110/14) delivered on the 23rd April, 2015. This concerns Directive 93/13/ EEC (the Unfair Contract Terms Directive). Counsel has provided the court with the text of the opinion in French, accompanied by an “unofficial” English translation. The language of the latter is not without difficulty, as can be seen in the following description of the issue in the case:
“…the present case is special in that it raises questions about the quality of the consumer of a legal professional on the conclusion of a credit agreement whose repayment is guaranteed by a building owned by his cabinet individual lawyer. Thus, it is to consider, first, the question of the impact of special skills and knowledge of a person acting as a consumer and, secondly, the influence of the role this person plays in the context of a guarantee ancillary contract as a consumer under a main contract credit.”
133. It appears that the applicant was a commercial lawyer, whose personal borrowings were guaranteed by his own, solely-owned, law firm which in turn was the owner of a building.
134. By virtue of Article 2 of that Directive, a “consumer” is any natural person who, in contracts covered by the Directive, is acting for purposes which are outside the scope of his or her business while a “professional” means any natural or legal person who, in such contracts, is acting in the course of his or her professional activity, whether public or private.
135. The Advocate General notes that the concept of a “consumer” arises in many spheres of EU law but says that there is no single definition of that concept. He considers that there is therefore no uniform approach to be taken, noting that in different situations a person may act sometimes as a consumer and sometimes in the course of business. In this respect he refers to Benincasa and the observation therein that
“A single person can be regarded as a consumer in connection with certain transactions and an economic operator in relation to others.”
136. In a paragraph relied upon by the defendant in the instant case the Advocate General says:
“Ultimately we are dealing with an objective and functional concept, whose manifestation depends on a single criterion: the inclusion of the legal transaction in the context of foreign operations to professional practice. Indeed, as pointed out by the Romanian Government, the Directive does not establish additional criteria to determine the quality of the consumer. It is, moreover, a concept defined situational, that is to say, in relation to a concrete legal transaction. Therefore, we cannot deprive a person of the ability to be in the situation of a consumer in respect of contracts not covered by his business because of his general knowledge or profession, but be taken into account only its location in a specific legal transaction.”
137. Ultimately, whatever the difficulties of translation, it is clear that the Advocate General is of the view that personal knowledge and experience cannot in themselves preclude a finding that an individual acted as a consumer in a particular context. Reference is made to the fact that the Court’s case law dealing with the Brussels Convention takes a restrictive approach, because the Convention provisions involve exceptions to the general criteria for jurisdiction and must be strictly construed. However, when dealing with Directive 93/13, if it is not clear whether the purpose of the transaction was personal or professional, the court should consider the predominant purpose. The contracting party must be considered to be a consumer if the professional purpose, taking into account all the circumstances, was not dominant.
138. It is submitted by counsel for the first named defendant that this approach is entirely at odds with that in Allied Irish Banks Plc. v. Higgins and that, therefore, the premise of the latter decision must be doubted.
139. It is submitted that in this case, the plaintiff was clearly acting in the course of its business, since lending is integral to its business. However, the borrowers, even if borrowing for business purposes, were borrowing as an incidental part of their business and were therefore acting as consumers.
Discussion and conclusions
140. The principles to be applied by the court in construing the contractual documents are not in dispute. They are set out in the judgment of Lord Hoffman in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 All ER 98, approved in this jurisdiction in the Supreme Court in Analog Devices BV v Zurich Insurance Company [2005] 1 IR 274. The principles are as follows:
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. (see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] 2 WLR 945
(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in The Antaios Compania Neviera S.A. v. Salen Rederierna A.B. 19851 A.C. 191, 201:
“. . . if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”
141. Having regard to these principles and to the evidence in the case, I have come to the following conclusions.
142. Firstly, there is no evidence arising from either the written terms or the oral evidence that this was a non-recourse loan and I consider that each of the borrowers was, in accordance with the general terms and conditions, jointly and severally liable.
143. The original agreement of December 2006 clearly envisaged and provided that repayment of the capital sum would be from the proceeds of the development. No repayment period was specified, since it was not known when the development would be completed. There was, therefore, no specified date by which repayment was to be made. In my view, the bank would not have been entitled to rely on the general terms and conditions to make a demand for repayment while these express terms were in force.
144. However, the agreement did provide for a review the following year. A provision for review of a contract in this context must, in my view, mean that the parties leave open the possibility that the contractual relationship between them may be varied on foot of the review.
145. The fact that no review in fact took place in 2007 may have meant that, technically, for the bank’s internal governance purposes, the loan reached its “limit” and expired. However, on the evidence, all parties continued to treat it as being in continued existence and complied with its terms. If necessary, I would hold that it did continue in being as a matter of law.
146. I also consider that the fact that no review took place in 2007 did not mean that the plaintiff thereby lost in perpetuity the right to carry out a review. That would not accord with principles of business efficacy or, in all likelihood, what the parties contemplated when entering into the agreement.
147. In any event, when the plaintiff did review the agreement and when the letter of offer of April 2009 was sent out, none of the defendants objected and all of them signed the letter. I do not believe that anything turns upon the loss of the original, given that there is no dispute about the signatures.
148. The April 2009 letter was expressed to be in substitution for, and not in addition to, the letter of December 2006. Whether it is described as a “substitution”, as stated in the letter, or “essentially a continuation”, as per Mr. Murphy’s evidence, or a “variation or renewal” as pleaded, there are as a matter of fact significant variations from the earlier letter which had the effect of altering the contract between the parties. In particular, in my view, the withdrawal of Facility 2 (the unused development finance facility) and the dropping of the provision for repayment from the proceeds of the development had the effect of dissociating the repayment of the capital sum for Facility 1 from the progress of the development. This can hardly have gone unnoticed by the defendants at the time, although no issue appears to have been taken with it until the following year.
149. There was still no definition of the concept of the “repayment period” but the provision for review and/or refinance in April 2010 was clear.
150. I consider that the combined effect of these provisions – the dropping of the provision tying the repayment of the capital to the proceeds of the development and the new review date – meant that the bank was no longer bound by an agreement to await completion and sale of the units for the purpose of repayment. However, it was not entitled to repayment on demand (in the absence of default) before the review date.
151. If this is correct, the plaintiff was not entitled to unilaterally alter the terms of the April 2009 letter, in the absence of default in relation to the terms thereof. The fact that the bank did not have the original letter did not, as I have already found, mean that the parties were not bound by it. The demand made in March 2010, made on the basis that not all of the defendants had signed the December 2009 letter, was therefore invalid. However, in the event the bank did not take any further steps before the expiry of the period provided for in the April 2009 letter, and made a fresh demand after that.
152. It is very clear from the evidence that throughout this period efforts were being made, in particular by the defendants, to come up with a solution to the situation. It is noteworthy that they continued to meet the interest payments and indeed offered to pay a year’s interest in advance. However, I do not consider it necessary to decide whether any party could or should have tried harder – ultimately, the point is that no new agreement was reached.
153. That being so, and the express term for the period for review having expired, in my view the repayment obligations of the defendants became governed by the general terms and conditions. To find otherwise would be to find that the repayment obligation of borrowers is cancelled by a failure to agree terms after a review. Those general terms and conditions provide for repayment on demand. I therefore find that the demand of June 2010 was validly made.
154. There remain the separate issues argued on behalf of the first named defendant.
Status as a “consumer”
155. It is abundantly clear that the first named defendant does not meet the test applied in Benincasa and Allied Irish Banks Plc v Higgins, since it cannot be said that he borrowed in excess of €10 million from the plaintiff to satisfy personal needs in terms of private consumption.
156. As far as the burden of proof in relation to the status of the borrower is concerned, I see no reason to depart from the general principle that “he who asserts must prove”. The court in Bakkaus was dealing with a situation where there was no question but that the individuals concerned were consumers. The issue then was the burden of proof in relation to the obligations on the lender arising from that fact. Proof of compliance with those obligations is undoubtedly a matter to be demonstrated by the lender in those circumstances. However, that it is quite a different matter to a proposition that that the lender bears the burden of proving a negative, that is, that a borrower was not a consumer.
157. I do not think it necessary to consider whether the Advocate General’s opinion in Costea represents a change in the approach of the Court of Justice, and a restriction of the authority of Benincasa to jurisdictional issues, because I am of the view that under no formulation of the applicable test could the first named defendant be regarded as having acted as a consumer in this context. That is because I consider that the same outcome results from an application of the “predominant purpose” test to the transactions involved in the instant case.
158. This is not a situation where, as described by Barrett J. in Ulster Bank Ireland Ltd. v. Healy [2014] IEHC 96, an individual invested surplus income or borrowed monies without thereby making that investment his or her business or trade. This defendant was not making an investment with his own funds. He was engaging in a commercial development in the expectation of profit, and funding the development by borrowing. Apart from his business as a publican, the uncontradicted evidence is that he was also in business as a property developer. I see no reason to doubt the logic of Kelly J. in holding that a person may have more than one business.
159. While it was put to Mr. Murphy that Mr. Fahey was not at an early meeting in relation to the development and did not meet him until a much later date, no evidence was given to that effect. There is also the evidence that he was the author of the document submitted to the bank in March 2009, at which point he certainly appears to have been taking a proactive, one might say a leadership, role in the partnership.
Contributory negligence
160. On this issue, the first named defendant argues that s. 34 of the Civil Liability Act, 1961 can be relied upon for the purpose of invoking the concept of contributory negligence. The contention here is that the term “wrong” as used in that Act includes breach of contract. It is submitted that this is a different issue to the admittedly non-existent “tort of reckless lending”.
161. The alleged contributory negligence is said to lie in the failure of the bank to ensure that the legal charges were properly put in place over the lands.
162. Quite apart from the fact that the evidence is that the charges were not put in place because some of the defendants (who were all jointly and severally liable) did not execute the necessary documents, this argument is misconceived. The instant case is not an action for damages or compensation for a wrong, whether for breach of contract or otherwise. It is an action for repayment of a liquidated sum on foot of a loan contract. The concept of contributory negligence has no role in this context.
Decision
163. Having regard to the foregoing I propose to enter judgment for the plaintiff.
Condon v Allied Irish Bank
[2018] IEHC 92
JUDGMENT of Ms. Justice NÃ Raifeartaigh delivered on the 2nd day of February, 2018
Nature of the Case
1. This is a case in which the plaintiff alleges that the second defendant, Mr. Ashcroft, defrauded her in the context of their joint purchase and running of a pub in Cork, known as the Anchor Bar, and that the first, third and fourth defendants are liable to her in respect of her loss as a result of his fraud, either or both on the ground(s) of vicarious liability or direct liability for fraud, negligence and/or negligent misstatement. Mr. Ashcroft was an employee of AIB, the first defendant, and he opened bank accounts at AIB in the plaintiff’s name through which various monies related to the purchase and running of the business were processed. The fourth defendant, Mr. Carroll was an employee of Bank of Ireland, the third defendant, and the plaintiff claims that he engaged in a negligent misstatement by introducing her to the second defendant as a reliable person with whom to go into business, that he was involved in the purchase of the Anchor Bar, and that he continued to have an involvement with regard to the Anchor Bar, including with regard to the giving of a loan for renovations approximately 17 months after its opening.
2. It was decided by the Court in the course of the hearing that issues relating to liability should be dealt with in the first instance, and that the Court should only proceed to hear evidence as to the quantification of the various losses if and when was established by the plaintiff that there was liability on the part of any or all of the first, third and fourth defendants. This judgment accordingly deals with liability only.
3. The Court was made aware that the second defendant, Mr. Ashcroft, had fled the country after he had been arrested and interviewed in the course of a Garda investigation into his alleged fraudulent dealings with monies entrusted to him by a number of customers of the AIB. The Court heard evidence that the DPP had directed that certain criminal charges be brought against Mr. Ashcroft, following the submission to that office of the Garda investigation file, but that no trial ever took place because he could not be located. It does not appear that Mr. Ashcroft was ever served with these proceedings. It was a frequently repeated theme in the plaintiff’s case that Mr. Ashcroft was guilty of fraud on various customers at AIB. Indeed, this went so far as the making of an assertion, in written submissions, that he had perpetrated a fraud on the scale of €1.25 million over 60 customers over about 3 years. However, the evidence of Detective Sergeant Fogarty (called on behalf of the plaintiff) before me was that there were 15 complainants in addition to the plaintiff, including AIB itself. He did not put any figure of the estimated amount of fraud. He said that Mr. Ashcroft had been arrested and questioned on the 2nd February 2004, and a file subsequent submitted to the DPP. The DPP directed that charges be preferred under theft and fraud legislation, although he could not recall if any of the directed charges related to Ms. Condon, and he recalled that “one of the difficulties was that it [her case] was lacking proof”. He said that Mr. Ashcroft was never charged because he disappeared and could not be found, despite Interpol and Europol having been circulated.
4. It may well be that these events provide a context as to why the plaintiff has concluded so firmly that Mr. Ashcroft defrauded her in the various ways put forward in the course of this case. However, this court has no evidence of fraud by Mr. Ashcroft other than the evidence put forward by the plaintiff herself, and is not entitled to start from a position of any presumption of wrongdoing or fraud on the part of Mr. Ashcroft, or of loss on the part of the plaintiff. All of the ingredients of the plaintiff’s case must be established on the balance of probabilities in the ordinary way, on the basis of the evidence adduced before the court in these proceedings. The court is not entitled to reach conclusions or draw inferences from the evidence that it would not otherwise draw, simply because there is a history of allegations having been made, a criminal investigation carried out, and charges directed, which would have led to the preferment of charges against Mr. Ashcroft if he had been located.
Lapse of time since the events complained of
5. It is a striking feature of this case that although the trial was conducted in 2017, the proceedings were initiated in 2005, and related to events which had taken place between 1999 and 2002. Thus, there was a gap of some 15-18 years between the events in question and the giving of evidence about those events. This is, needless to say, a situation which is very far from ideal, given the effect of time upon memories. The proceedings were initiated by plenary summons issued on the 3rd March, 2005. Appearances were entered on behalf of the first, third and fourth defendants between March and October, 2005. A detailed statement of claim was delivered on the 22nd November, 2006. Defences were delivered in 2007 and 2008. Notice for particulars were served and replies furnished in due course, and a discovery order in respect of AIB was made on consent on the 5th November, 2010. Notice of trial was served on the 23rd January, 2012. By order dated 21st May, 2015, discovery was ordered in respect of the plaintiff. Further particulars of loss were served on behalf of the plaintiff on the 14th October, 2015. In March 2017, there was a 12-day hearing before me, and the plaintiff herself gave evidence for the best part of 5 days of that hearing.
6. It emerged towards the end of the plaintiff’s cross-examination that the plaintiff had previously instituted proceedings against Mr. Ashcroft, the second defendant, by plenary summons dated the 14th November 2002. In her evidence, she indicated that this was in respect of the same complaints the subject-matter of the present case. The solicitor acting for her at that time was a different solicitor, Mr. Martin Harvey. It is unclear to what extent she told her current solicitor about that case, as the latter did not seek out Mr. Harvey’s file prior to the present hearing. It is clear that the plaintiff had numerous engagements with Mr. Harvey, as the court has seen a detailed bill of costs showing that various steps were taken on her behalf during the period between October 2002 and April 2005 by Mr. Harvey as well as junior counsel and senior counsel. This resulted in a total bill of IR£59,000 which was ultimately not paid by her and resulted in an order of fieri facias being made against her. She gave evidence to the Court that she did not know what had happened to the case against Mr. Ashcroft which had been commenced in November 2002. The records of the Central Office indicate that those proceedings concerned dissolution of the partnership and the taking of accounts; and that she obtained judgment in default against Mr. Ashcroft.
7. The plaintiff also gave evidence that settlement discussions of some kind took place on the steps of a courthouse in Cork in the context of the Anchor bar’s landlords having issued forfeiture proceedings. Again, she said that she did not know what the outcome was, but said the lease was forfeited and that she did not in any way benefit financially as a result of these settlement talks.
8. It is, to put it mildly, most unsatisfactory that these proceedings, heard in 2017, took place against a backdrop of such uncertainty as to what legal proceedings, financial settlements or other outcomes might have occurred back in the 2002-2005 period.
Outline of events between 1999-2002
9. In my examination of this case, it has seemed to me that the case turns primarily on the view the Court takes of the facts. I propose in the first instance to set out a short outline of the chronology of events between 1999 and 2002, in order to provide a framework for the discussion of the claims and evidence which then follows the short chronology.
1996: The plaintiff purchases the pub “Isaac Bells”
10. In 1996, the plaintiff, then a woman in her 40s, with a few years of experience working in a public house, purchased a public house in Cork, called Isaac Bells, with the assistance of a loan from Bank of Ireland. At that stage, she was a customer of Bank of Ireland, and was receiving advice from a Mr. Dermot Kelly in that bank (Patrick’s Bridge branch). She ran this business for some time, but encountered financial difficulties and was unable to obtain further financing from Bank of Ireland through Mr. Kelly. At this stage, it was suggested to her by a friend of her partner that she might talk to Mr. Carroll, the fourth defendant, who also worked in Bank of Ireland but in a different branch to Mr. Kelly. She did not know Michael Carroll or have any dealings with him prior to this.
11. Mr. Carroll’s position in the bank at that time with Bank of Ireland was that of relationship and development manager in Wilton Business Centre, based in the suburbs of Cork City. He agreed to meet the plaintiff. The details of their interactions are subjected to closer scrutiny later in this judgment. There is no dispute on the evidence, however, that Mr. Carroll introduced the plaintiff and Mr. Ashcroft to each other.
Events in 1999, including the sale of Isaac Bells and the purchase of the Anchor Bar
12. In 1999, the plaintiff sold the Isaac Bells pub. She and Mr. Ashcroft then purchased a different pub, the Anchor Bar, also in Cork. The purchase price of the Anchor bar was a matter of some debate at the hearing. Various figures ranging from £140,000 to £210,000 were mentioned. This will be discussed further below.
13. After the plaintiff sold Isaac Bell, the proceeds were used to pay off her mortgage with Bank of Ireland. As will be seen, one of the plaintiff’s claims in the present proceedings is based upon an alleged misappropriation by Mr. Ashcroft of some of the remaining monies that the plaintiff realized through the sale of Isaac Bells. It is alleged that he did this via his dealings with two cheques, one in the amount of IR£87,000 and one in the amount of IR£14,147.97. This will be discussed further below.
14. On the 26th March, 1999, a company by the name of Dublin Rovers was incorporated. This was apparently intended to be the corporate owner of the business of the Anchor Bar. No accounts were ever filed except for abridged accounts for the period before any trading was done. The plaintiff and Mr. Ashcroft were directors and equal shareholders in Dublin Rovers Limited. The company was ultimately dissolved on the 19th December, 2003.
15. Between June and August 1999, two accounts in the name of the plaintiff were set up in AIB Mallow, where Mr. Ashcroft worked. These accounts ended in the digits 092 and 258 respectively, and I will have occasion to refer the account ending 258 again, which I will call “the 258 account”. It was intended that monies from the business of the Anchor Bar would be paid into a Dublin Rovers account in Ulster Bank, but this account was not in fact opened until the 3rd December 1999. In the meantime, takings from the business of the Anchor Bar were lodged into the AIB Mallow 258 account. As will be seen, another part of the plaintiff’s case is based upon alleged misappropriation by Mr. Ashcroft of takings from the Anchor Bar that, on the plaintiff’s case, should have been lodged to the 258 account and, later, the Dublin Rovers account, but were not.
16. On the 3rd August, 1999, the assignment of the lease in respect of the Anchor Bar took place. Sometime around that time, perhaps the Bank Holiday weekend in August, the plaintiff started trading at the Anchor Bar. She gave evidence that the agreement between her and Mr. Ashcroft was that she would engage in the day-to-day running of the business, as this was her strong point, while Mr. Ashcroft would deal with the financial side of things, as she was very weak in this area. The plaintiff gave evidence that she worked extremely long hours at the Anchor Bar from the time it opened until she left in approximately summer of 2001, and that she managed to substantially increase the weekly turnover from what it had been under the previous owners of the bar. The plaintiff kept the till rolls from the Anchor Bar in her possession, and also certain diaries recording the takings.
The year 2000, including the loan for renovations to the Anchor bar
17. In February 2000 Mr. Ashcroft moved from the Mallow branch of AIB to the Middleton branch of AIB. In April 2000, the plaintiff experienced chest pains which resulted in a hospital referral for investigation of a possible cardiac problem. It transpired that she did not have any cardiac problems but may be suffering from stress. On the 29th June, 2000, an application was made jointly by the plaintiff and Mr. Ashcroft to Bank of Ireland for a loan for IR£150,000.00 in order to fund building improvements to the Anchor Bar. These renovations included two apartments in the upper part of the bar premises, with a view to their being rented out. This loan was dealt with by Mr. Carroll, the fourth defendant, in Bank of Ireland. The renovations in question were in fact carried out and at least one of the apartments was then occupied by a tenant.
The year 2001: including the purchase of Sunview Terrace with the assistance of a mortgage from ACC bank
18. Sometime in 2001, probably in early summer, the plaintiff left her position in the Anchor Bar and ceased her involvement in the running of it. An acquaintance of Mr. Ashcroft, a Mr. Ger Keegan, took over the day-to-day running of the bar. The plaintiff gave evidence that she went to live in Cobh, in an apartment owned by Mr. Ashcroft (rent-free), and that she received certain monies (both by way of wages and by way of lump sums) from Mr. Ashcroft at various times, which will be described further below.
19. At a certain point, it was decided that plaintiff would purchase a house which I will refer to as “the Sunview Terrace house”. The booking deposit was paid in May 2001, and the money for the booking deposit was apparently provided by Mr. Ashcroft. A loan was obtained from ACC bank. This loan was not sanctioned until December 2001. The delay was caused by ACC bank wishing the plaintiff to demonstrate that she had £30,000 in her account. Mr. Ashcroft assisted the plaintiff in obtaining this loan, in particular, by transferring £30,000 not belonging to her into one of her accounts in order to satisfy ACC’s requirement in this regard. The money was transferred into her account and left it again within 24 hours, on the 28th November 2001, and was clearly designed to mislead ACC bank as to the plaintiff’s financial situation. The plaintiff gave evidence that it was her intention to “do up” the house and sell it again for profit, but that she was unable to “do it up” because she lacked the necessary funds. She gave evidence that she sold the house, and documentation from this period indicates that she made a profit of €22,747.76 on this sale in June 2003. Another of her complaints in these proceedings relates to an alleged loss of “anticipated profit”.
The year 2002, including the commencement of the garda investigation
20. While it was quite challenging to piece together the chronology being put forward by the plaintiff, it was particularly difficult regarding the year 2002. Of assistance in this regard were a number of other sources, including the evidence of a (retired) Detective Garda who had been part of an investigation into Mr. Ashcroft; the evidence of Mr. Peter Russell, an accountant employed by the plaintiff in the summer of 2002; the evidence of Mr. Tom Connolly, employed at AIB; and some contemporaneous documentation.
21. It is clear from the evidence of Tom Connolly, a former regional director in AIB (now retired) that an AIB internal investigation started up during the year 2002 with regard to Mr. Ashcroft. Mr. Connolly gave evidence that this commenced when, in March of 2002, a customer living in England made a complaint to AIB that Mr. Ashcroft had misappropriated a sum of €500. Initial inquiries were made, and Mr. Ashcroft sought to hand in his resignation within days of the complaint. There is some lack of clarity as to his precise status between March and September/December 2002, but he was formally dismissed on the 17th December, 2002. In the interim, AIB received a number of complaints from various customers about Mr. Ashcroft. The bank apparently sought a Mareva Injunction in respect of Mr. Ashcroft, but not until October 2003.
22. Meanwhile, the timeline as it applies to the plaintiff appears to be as follows. The documentation shows that her AIB accounts were closed at Mallow and Middleton in April/May 2002. The plaintiff gave evidence that she paid off the outstanding balances with sums provided to her by Mr. Ashcroft. Ms. Condon went to an accountant, Mr. Peter Russell, in or about June 2002, to discuss her suspicions relating to Mr. Ashcroft. Based upon what she told Mr. Russell, he started to investigate various cheques and other documents and communicated with AIB on her behalf, including by way of correspondence in which he made certain allegations of forgery. Mr. Russell also advised her to go to An Garda Siochána. The evidence from the (retired) Detective Sergeant who gave evidence in the case was that the plaintiff was in fact the first person to complain to the gardaà about Mr. Ashcroft. He could not say on what date she came to him, but he was in a position to say that her first statement was dated the 4th October, 2002, and that a further statement was dated the 27th October 2002. In November 2002, the plaintiff had a meeting in a hotel or restaurant with Mr. Carroll, the fourth defendant, which she recorded on a phone or some such device. This came to light during the plaintiff’s evidence. She was asked to retrieve the recording and did so. Ms. Gwen Malone created a transcript of it, as did the plaintiff’s solicitor and there are some differences between the two transcripts, of which the Court has taken note. More will be said about this conversation below.
23. Meanwhile, discussions took place between the plaintiff, Mr. Russell and AIB. A meeting took place in which an explanation was given by AIB as to the processing details of the two cheques, for IR£87,000 and IR£14,147.97, respectively. An offer was made by AIB to refund Ms. Condon with IR£65,000. This offer was repeated subsequently by letter dated the 12th January, 2004, but was declined by the plaintiff on the basis that she was entitled to much more as a result of Mr. Ashcroft’s behaviour.
2002-2005
24. As noted at the outset of this judgment, it appears that Ms. Condon instructed a solicitor, Mr. Martin Harvey, who engaged counsel and undertook substantial work on her behalf up to the year 2005, including the issuing of proceedings against Mr. Ashcroft for dissolution of partnership. The present proceedings were commenced in 2005.
25. There are two areas in respect of which I consider it important to examine the evidence in further detail. The first concerns the evidence as to the extent of Mr. Carroll’s interactions with the plaintiff, which is important from the point of view of her claim that he engaged in negligent misrepresentation to her as to the reliability and untrustworthiness of Mr. Ashcroft. The second area concerns the state of knowledge, if any, of AIB with regard to Mr. Ashcroft’s untrustworthiness, having regard to the evidence concerning two events within AIB, which I shall refer to as “the R affair” and “the C affair”.
The interactions between Mr. Carroll and the plaintiff
26. The plaintiff’s evidence was as follows. She said that her partner, on a friend’s recommendation, suggested she make contact with Mr. Carroll for advice. She says she went to meet him where he worked and that a meeting took place after office hours. She says that subsequently they went over to a coffee shop a couple of times and had further discussions. She said that Mr. Carroll suggested to her that, in light of her financial difficulties, perhaps she should consider bringing an investor on board. He said he might have two persons who would be interested, one of whom was Mr. Ashcroft, the second defendant, and that she agreed that he should approach Mr. Ashcroft on her behalf. As regards that what Mr. Carroll told her about Mr. Ashcroft she said as follows:-
“…he knew him personally, that he dealt with him, that he was a sound guy, he was fierce nice, he had a big job with AIB, he was a manager with AIB, he was financial adviser and I couldn’t be in better hands if he agreed, if Kieran Ashcroft agreed to go with me I couldn’t be in better hands.”
27. She said she thought she would be lucky to get a bank manager who was a financial adviser as well and so she was delighted with the suggestion. She says that she had one bank manager recommending another bank manager and she accepted his word. She says that Mr. Carroll organised for her to meet Mr. Ashcroft. There was confusion in her evidence as to whether she first met Mr. Ashcroft when he came to see the Isaacs Bells or when he came to see the Anchor Bar. She initially said the former, then said the latter.
28. She said that Mr. Carroll also told her that clients of his, the O’Leary brothers, had a pub for sale called the Anchor Bar and that he arranged for her and Mr. Ashcroft to see it. She said that she had subsequently discussions with Mr. Ashcroft and this involved her going to his place of business, which at the time was AIB, Mallow. She said that she and Mr. Ashcroft came to an arrangement that they would set up a 50/50 partnership, and that her role would be to run the bar side of things, which was her strength, and that he would do everything connected with the finances. The plaintiff was anxious, throughout the proceedings, to emphasise that she had no talent for finance, figures or paperwork. Ms. Condon said that she knew that Mr. Ashcroft had another bar in Mallow as well, so that, as far as she was concerned, he was not only a financial adviser but also a publican.
29. As regards the purchase price agreed for the Anchor Bar, she said that she herself carried out the negotiation with the O’Leary Brothers, the vendors, which resulted in a purchase price being agreed at £210,000. She gave a vivid description of a meeting between herself, Michael Carroll and Barry Lynch, an accountant, in Barry Lynch’s office, which was on the very top floor of the Mall, facing the Imperial Hotel. She said they told her that the O’Leary brothers were across the road in the Imperial Hotel and that they were “after agreeing now to £230,000”, and she was told to go across on her own and do the sale for that amount. She says she went over to the hotel and she started to bargain with the O’Leary Brothers, and haggled with them, and bluffed them that she was ready to walk out, and got the price down to £210,000. She said that she was absolutely thrilled with herself and went back and told the others that she had got the price to this level. She said she was very surprised at the reaction she got because nobody was pleased, although she had done such a great thing; in fact, they seemed quite miffed with her. At this stage of her evidence, she was saying that the O’Leary Brothers had agreed a purchase price of IR£210,000 at that meeting with her in the Imperial Hotel. In cross-examination, she accepted that the purchase price of IR£210,000 was not accepted until several days later. She continued to insist that Mr. Carroll was present at a meeting in Mr. Lynch’s office before she went over to haggle with the vendors of the Anchor Bar.
30. Having sold the Isaac Bells, the plaintiff was in a position to provide monies towards the purchase price of the Anchor Bar. She gave evidence that the intention was that she and Mr. Ashcroft would go 50/50 on the purchase price. She said that she wrote a cheque for a booking deposit of £3,000.00, that she provided a cheque in the amount of £87,000, and a cheque in the amount of £14, 148.97. In relation to the cheque for IR£87,000, the plaintiff again gave a vivid account of event. These were in the following terms. She said that Mr. Carroll had moved offices and was in a big house belonging to the bank in Douglas with a “big winding staircase up”. His office was at the top. She said that when she was called to his office, Mr. Ashcroft was already there. She had the cheque already made out except that she asked whether it should be made out to the auctioneers or the O’Leary brothers, and they said “just make it out to yourself”. Mr. Carroll produced a big bundle of papers and asked her to sign them and she signed everything. She put the cheque on the table and left it with them. She said “I kind of had to slide it kind of into the table”. Thus, she included Mr. Carroll at a second meeting concerning the purchase of the Anchor Bar. However, later in her evidence, she became very confused as to whether this meeting at the top of the “windy stair” was in connection with the purchase of the Anchor bar or the granting of the Bank of Ireland loan for £150,000 in respect of renovations in the following year, with which Mr. Carroll was indisputably connected.
31. Mr. Carroll’s evidence was as follows. He said that a colleague of his asked him, on behalf of Mr. Condon’s partner, if he would meet the plaintiff. He was told that she seemed to be “in a bit of difficulty” and he arranged to meet her in the autumn of 1998. He says that she came to his office in the Wilton branch, but that no real discussion took place that day and he asked her to get some financial information together. He said that he subsequently dropped in to her and had a conversation with her in a living area upstairs in the Isaac Bells pub, but that it was not very helpful because she had no bank statements, accounts or other documentation to show him. There was discussion about the viability of the Isaac Bells pub and a discussion about the possibility of extending the premises, as the premises next door were on the market. He said that about a month later he introduced Mr. Ashcroft, the second defendant, to the plaintiff. He said that this was in the context of the premises adjoining the Anchor Bar, but that it transpired very quickly that Mr. Ashcroft had no interest in the adjoining premises. Mr. Ashcroft was a customer of Bank of Ireland, one of approximately 2,000 clients that Mr. Carroll had and was a “reasonable sized client”. He said he had known him as a customer for approximately four years and Mr. Ashcroft had conducted his accounts and his business at the bank in a proper manner. His account was trouble-free and he, Mr. Carroll, had no reason to be uneasy in relation to him.
32. He said that was further telephone contact between himself and the plaintiff, and that in one of those conversations he told her that the Anchor was coming up for sale and that she could contact one of the owners if she wanted to have a look at it. He knew this because the O’Leary brothers, also clients of his, had asked him to let people know that it was coming up for sale and to mention it to anybody he thought might be interested. He said that he mentioned the Anchor Bar to the plaintiff and to Mr. Ashcroft completely separately. He was not aware that a business relationship was developing between them and he was “more than surprised” when he was informed they had come together to buy the Anchor.
33. As regards the plaintiff’s evidence regarding a meeting at the office of Barry Lynch prior to negotiations by her at the Imperial Hotel, he denied that he was present at any such meeting. He said that the plaintiff had asked him to recommend an accountant and he recommended Barry Lynch, who was also one of his customers. Mr. Carroll said that he arranged a meeting with Mr. Lynch and the plaintiff, but that his role at that meeting was very limited. He said he was never present at any meeting in Mr. Lynch’s office regarding the negotiation of the purchase price of the Anchor Bar or indeed any meeting at which were present Mr. Ashcroft, Mr. Lynch, the plaintiff and himself. He said that the only part he played in relation to the purchase of the Anchor Bar was to advise that the property was for sale, and that beyond that he had no involvement. He denied that he took a phone call from O’Leary brothers, during which they accepted the figure that the plaintiff had bid.
34. Mr. Carroll said that he occasionally went into the Anchor Bar socially because his girlfriend was living near there. He said that he did not recall being present for the launch of the Anchor Bar in 1999, but he did remember being at the re-launch after refurbishment on foot of the Bank of Ireland loan which he arranged in 2000. As regards the granting of the loan for renovations to the Anchor Bar, he said that in his view, the plaintiff was peripheral to the credit application because his client and his mark was Mr. Ashcroft.
35. In cross-examination, Mr. Carroll said that he had only reluctantly agreed to meet the plaintiff after he had been asked at least four times. He met her as a favour to a colleague and he was not “taking her on”. He had told her that he had no influence and had nothing to do with her account in Patrick’s Bridge and that she would have to deal with her manager there, Mr. Dermot Kelly, if she wanted to apply for money. He said that he did not know anything about her financial affairs and completely failed to extract any information from her in written form during that period. As a banker, he only worked with paper, accounts and bank statements. He absolutely disputed that there were several more meetings than what he had described and that at one point he said to her “I have an investor for you”. He said that in his 31 years in banking he had never suggested to any customer the concept of even getting a partner, never mind recommending somebody for that purpose. He said that he had simply introduced her to Mr. Ashcroft in connection with the purchase of the premises next door to the Isaac Bells. Furthermore, had not vouched for his character in any way. He firmly disputed that he would ever have told the plaintiff that Mr. Ashcroft was a “bank manager”, because he, as a bank employee himself, was clear in his mind that Mr. Aschroft had never attained anything like the rank of manager in AIB.
36. Mr. Carroll denied taking an active role in the first meeting at which she met Mr. Barry Lynch. He insisted that there was no meeting on the top floor of Mr. Lynch’s office with Mr. Lynch and Mr. Ashcroft, from which they sent her across the road to meet the O’Leary’s in the Imperial Hotel.
37. Mr. Carroll emphatically denied receiving any cheque for the purchase of the Anchor Bar. He was never at any meeting where a cheque for IR£87,000 was handed across, or mentioned, or slid across a table. He said that he did not hear from anyone that the Anchor Bar had been purchased by Mr. Ashcroft and the plaintiff until he was told by them sometime in May or June of 1999.
38. Mr. Carroll was questioned as to why it appeared that the money on the renovations appeared to have been spent before the loan was drawn down. His answer was that Mr. Ashcroft had provided it from his current account and that it was putting pressure under his account as a result. He said he accepted matters on the basis of the certification by an engineer/architect received, which was the normal procedure employed by the bank. He was questioned about why the money went into Mr. Ashcroft’s account. He said that he explained what was going on to Ms. Condon. He said his duty was to ensure that the money was drawn down and that it went for the purpose for which it was granted and as far as he was concerned, this was the case.
39. Mr. Barry Lynch also gave evidence in the case, as follows. He said that he met the plaintiff twice in total and that this was during the year 1999. He said that his first meeting with her was in the Imperial Hotel. Mr. Carroll was present for this meeting. This was for the purpose of what he described as a “kind of informal chat about Anne Condon’s intention to acquire a pub”. He said his understanding from the meeting was that he was being asked to prepare financial projections. He said that he would have made clear, as was the normal procedure, that he would need the historical turnover figures. He received a letter from Barrett and Associates, chartered accountants, dated 8th April, 1999. The court has seen this document and it indicates the turnover inclusive of VAT for the period of the 1st September, 1997 to 31st December, 1998 (prior to the purchase by the plaintiff and Mr. Ashcroft). He then prepared certain projections. He says he was not told at this first meeting that she was intending to purchase the Anchor Bar with anyone else.
40. He said there was s second meeting, purely between the plaintiff and himself, after he had prepared these figures. This meeting took place in his office at 11 South Mall. His office was in a building directly across from the Imperial Hotel, but his office was on the third floor, not the top floor, of a four-floor building. He said that the meeting as described by her with Mr. Ashcroft and Mr. Carroll and himself, in which there were discussions about the O’Leary brothers and negotiations in relation to purchase prices, simply did not happen. He said he had never met Mr. Ashcroft, even to this day. He also said that he had never heard of the O’Learys until this week, when he was listening to the evidence in the proceedings.
41. In cross-examination, it was elicited that, in addition to being a customer of Mr. Carroll in the bank, he had also purchased a holiday home with him in County Kerry around that time. He said that he had no diaries or timesheets in relation to the year in question, or any other note in relation to the plaintiff. At the time he met her in the Imperial Hotel she was purely a prospective client. As matters transpired he never saw her again after those two meetings. He said the initial meeting was relatively cursory and it would be purely just to get “a kind of a feel” for what she wanted. He thought the meeting lasted from 20 to 30 minutes. He said he never heard of Mr. Ashcroft until his name became notorious in later years because of the Garda investigation. He thought it was “bizarre” that Ms. Condon had given evidence about a meeting in his office in the manner described above.
42. Mr. Peter Owens also gave evidence in the case. He was working as a lending manager in the late 1990’s in the Patrick’s Bridge branch of Bank of Ireland in Cork. The manager at the time was Dermot Kelly. He gave evidence that the plaintiff had a loan with Bank of Ireland, which was advanced in or about 1996, in respect of which he had an involvement. This was a loan for IR£120,000 which had assisted her in the purchase of the Isaac Bell pub. He became her relationship manager in around May 1997. In August 1998, the bank called in the loan and her overdrawn current account also. He said there were ongoing meetings and negotiations in the meantime. The bank was of the opinion that the credit was going into a risk category and they were proactive in terms of meeting with her to try and get a resolution. The underlying problem was that she had cleared the pub out of a certain type of customer when she took it over and had been hoping to build it back up, but that this did not really materialise. She had submitted various applications to restructure her borrowings and to take over other liabilities that had built up. When the accounts did come in for September 1997, the fears they had were confirmed insofar as the turnover had significantly dropped. He said that at that time they started looking at the possibility of looking for someone who might come in with some capital, some partner of some type who might get her “over the hump” until trade would increase. He said it came up in the course of conversations a number of times, and that Dermot Kelly had discussions in respect of this also. He thought that the plaintiff had been introduced to Dermot Kelly by other publicans by the name of the O’Connor brothers. She had previously worked for them in another pub where she had worked herself. Dermot Kelly was considered to be “the expert” in respect of pubs within Cork city and all referrals of any inner city pubs were made to him because of his expertise and his knowledge. He said that nothing had come of the suggestion of an investor.
Findings of Fact with regard to the extent of the interactions between the plaintiff and Mr. Carroll, the third defendant
43. I have carefully considered the evidence of the plaintiff, Ms. Condon, both as regards this issue and other issues in the case, together with the evidence of the other witnesses mentioned above. I am satisfied on the balance of probabilities that Mr. Carroll had a more limited involvement with the plaintiff than that which she described in evidence to the Court, and that it was more along the lines described by Mr. Carroll, namely that he provided an introduction to Mr. Ashcroft but had no particular involvement in the purchase of the Anchor Bar, still less any involvement in the ongoing running of the Anchor Bar. It may be that, because of the passage of time, she has conflated the involvement of different people; for example, it may be that the person who suggested she might obtain an investor was Mr. Dermot Kelly (since deceased). Further, I am not satisfied that any meeting took place in Mr. Lynch’s office, at which Mr. Carroll was present, at which the purchase price was discussed. Nor am I satisfied that Mr. Carroll was present at any meeting at which the cheque for £87,000 was passed over by the plaintiff in respect of the purchase of the Anchor Bar. I am satisfied that Mr. Carroll did not refer to Mr. Ashcroft as a “bank manager”, as he would be unlikely to make this mistake or have any reason at that time to mislead her about Mr. Ashcroft’s position in the bank.
44. It is not clear whether any explicit representation by way of a positive reference was made by Mr. Carroll in respect of Mr. Ashcroft, but even if it was, at the time Mr. Carroll introduced Mr. Ashcroft to the plaintiff, he would have had no particular reason to doubt Mr. Ashcroft’s honesty. Further, having considered the credit committee documents and the information contained therein at the time of the Bank of Ireland loan for the renovation of the Anchor Bar, I see nothing in there from which the inference could be drawn that Mr. Carroll knew or ought to have known that Mr. Ashcroft was dishonest or untrustworthy.
45. For completeness, I should say that I considered the contents of a document upon which reliance was placed on behalf of the plaintiff throughout the trial. This was a document entitled “Proposed partnership agreement Anne Condon and Kieran Aschroft”. It was undated and unsigned. The document came from the discovery made by Bank of Ireland. Mr. Carroll gave evidence that he had never seen this document. It contained details in relation to the proposed partnership, some of which came to pass, such as the division of labour as between the plaintiff and Mr. Ashcroft, the employment of Helen Burke, solicitor, and other matters. One item on the document says “Myself to arrange to have all records and cash books updated on a daily basis and all paperwork to be organised in respect of VAT and PAYE”. This is in addition to an item which says “Kieran Ashcroft will arrange to have lodgements collected on a daily basis and same to be balanced against till rolls. These will then be lodged and same are to be verified on a weekly basis by both Kieran and Anne”. Thus, it seems clear that the “myself” referred to earlier is not Kieran Ashcroft. As I understand it, the plaintiff sought to suggest that this document was authored by Mr. Carroll and supported the plaintiff’s evidence that he was much more involved than he was prepared to admit. I am not persuaded of this and I accept Mr. Carroll’s evidence that he was not the author of the document. It will remain a mystery, but it is possible that it was created by Mr. Dermot Kelly (now deceased), the plaintiff’s former bank manager at the Patrick’s Bridge branch of Bank of Ireland, at a time when the purchase of the pub was in contemplation. Given the lack of certainty regarding the date and authorship of the document, I am not prepared to base factual conclusion in the case upon it.
46. The legal consequence of these findings of fact is that I cannot see any basis for attributing liability to Mr. Carroll for negligent misstatement. In particular, I do not think the facts are in any way comparable to those in Forshall v. Walsh and Bank of Ireland [1997] IEHC 100, where an exceptional relationship was found between Michael McSweeney and the plaintiff and which led to liability for negligent misstatement. This arose in circumstances where Michael McSweeney, the brother of one of the directors of a company which had defrauded the plaintiff had made repeated and unsolicited calls to her, that he had been present during detailed discussions of the enterprise and was involved in handing over cheques, where he had made inaccurate statements of fact (that the company was an agent of Lamborghini), where he failed to inform her of the fact of an appointment of a receiver to the company, and where there was an ongoing vouching for the reliability of the company. In those particular circumstances, it was held that the relationship was of a sufficiently proximate nature to impose a duty of care on Mr. McSweeney and through him, his employer the bank. In the present case, as I have found, Mr. Carroll, who was sought out by the plaintiff herself on foot of a recommendation by a friend of her partner, introduced the plaintiff to another client as someone who might be interested in a plan she then had with regard to the Isaac Bells and the pub next door; he also told her the Anchor Bar was for sale. He subsequently provided a loan to her and Mr. Ashcroft for refurbishments to the Anchor Bar in the course of his business as official in Bank of Ireland. He did not know of any reason, throughout this period, for distrusting or doubting the integrity of Mr. Ashcroft. There was no misstatement of fact either. The case is therefore, in my view, strongly distinguishable from the Forshall case on its facts. The plaintiff’s submission that her being brought to the ‘canteen’ in the branch where Mr. Ashcroft worked, and his frequent staff parties at the Anchor bar, somehow created a special relationship akin to that in Forshall is, in my view, unconvincing.
AIB and the “R affair” and the “C affair”
47. It was a part of the plaintiff’s case that AIB was on notice of Mr. Aschroft’s fraudulent propensities by reason of two incidents that had taken place in the years 2000 and 2001 respectively. With a view to preserving the confidentiality of the bank customers in question, Mr. R and Mr. C, I will refer to them by their initials and also describe the incidents concerning them as the “R affair” and the “C affair” respectively. I have examined the documentation in relation to these events, and I have considered the intense cross-examination of Mr. Tom Connolly, former regional manager with AIB, with regard to these events.
48. As regards the “ R affair”, I have read a copy of an AIB internal audit report dated 14 March 2000, which concerned these events. It indicates that a bank account at AIB, Mallow, was opened on behalf of Mr. R, who apparently lived in the United States, by a niece of Mr. R, who herself worked at the branch. The account was opened with a single lodgement for approximately IR£112,000, made up of two cheques payable to Mr. R and drawn on the account of a solicitor’s firm. Ms. R, it seems, failed to have the necessary documents opening the account properly completed; in particular, the necessary money laundering documentation was not filled out, and a form relevant to Non-Resident DIRT exemption was not completed.
49. On the 8th October, 1999, a withdrawal of £75,000 in cash was made. The required advance notice for a large withdrawal under money laundering legislation was not given. Mr. Ashcroft was involved in this withdrawal. His manager was on leave at this time, but on his return, he requested Mr. Ashcroft to obtain written confirmation from Mr. R that he received the proceeds and as to the fate of the funds. It is not entirely clear who had called to the bank to collect the cash, but nothing turns on that.
50. On the 10th February 2000, at a time when Mr. Ashcroft had not given his manager the necessary confirmation in relation to the first withdrawal, there was a further withdrawal for the balance of the cash in the account (approximately £38,000) and the account was closed. Again, the required notice had not been given.
51. Mr. Ashcroft was interviewed on the 16th February, 2000 by the internal audit team. As he was interviewed in Middleton, it is clear that he had already been transferred from Mallow to Middleton at the time of the interview. I mention this because it was suggested on behalf of the plaintiff that he may have been moved because he was under a cloud of suspicion. This seems to me unlikely from all the circumstances, including the dates. It appears from the record of this interview, appended to the audit report, that Mr. Ashcroft was a family friend of the entire R family. Mr. R, who was living in the United States was, according to Mr. Aschroft, having marital and health problems. Apparently, Ms. R (the bank employee) handed Mr. Ashcroft a signed debit and he paid the money in cash to a Mr. JR, brother of the account-holder. When asked whether he was suspicious of the transaction, Mr. Ashcroft stated that he was not aware there was a requirement for him to report large withdrawals, but rather lodgements. He also said that he had received the requested confirmation from Mr. R that he had received the funds two weeks before this date. He said the brother of Mr. R also presented himself at the branch to receive the second tranche of cash, the closing balance.
52. I note also that there is a report dated the 17th February, 2000 from Mr. Ashcroft in which he gave a written account of matters, in the course of which he mentioned being questioned by his own manager over the IR£75,000 cash withdrawal and that “he gave me a background of which there might have been a question mark over the way [Mr. R] had been conducting his affairs”.
53. There is some discussion in the audit report of a letter dated the 17 January, 2000 from Mr. R, confirming he had received the funds. Apparently, there was a delay on Mr. Ashcroft’s part in furnishing this to his manager after its receipt, but a copy had been furnished to his manager as of the 25 February, 2000. The court has seen a copy of this letter. When asked about why had had not immediately handed this to his manager, Mr. Ashcroft said that as he received it on his last day of work in Mallow, he had forgotten.
54. It is clear to me that the concern of the internal audit at that time was with regard to the completion of the paperwork legally required under the money laundering requirements, both at the time of the opening of the account (which was opened by Ms. R), and at the time of the cash withdrawals. There is a criticism of Mr. Ashcroft that he “has been less than co-operative in complying with instructions (issued since Oct 99) to obtain written confirmation” from Mr. R as to his receipt of the cash and his reason for obtaining it. There is also criticism of him for engaging in the second transaction without advising his branch manager, despite the fact that he knew that the latter “had unease concerning the pervious transaction for IR£75,000 in Oct 99”. However, the conclusion of the audit report is simply that Mr. R be written to, seeking various information. Mr. Ashcroft had been given a formal warning on the date of his interview. However, from my reading of the documents, there was no suggestion or suspicion at that time that Mr. Ashcroft himself had misappropriated either or both of the two cash sums in question. The concerns related entirely to the fact that there had been two large cash withdrawals without the appropriate paperwork required by money laundering legislation having been filled out, in order to ensure that these funds were not being used by Mr. R for money laundering purposes.
55. The “C affair” involved a customer, Mr. C, who had apparently lodged a sum of money at the Mallow branch with instructions that it be used to purchase shares. This was not done. A letter dated the 16th July, 2001 written by Mr. Connolly to Mr. C shows that the bank apologized for “poor customer service” and paid compensation for the loss that was occasioned by the instructions not having been followed i.e. the profit he would have realized from the sale of the shares. A document entitled “file note” indicates that the client, Mr. C., had called to the branch to sell three different share holdings, but that the official he dealt with failed to ask him to sign the necessary “CREST Transfer” form. The share deals were passed on to Mr. Ashcroft who failed to contact the client to get him to sign the additional forms. Six weeks later, the client called to the branch seeking settlement from the share sales and discovered the transactions had not taken place. He was very annoyed and wrote to the branch, and the Court has seen his letter of complaint dated the 2nd July, 2001. The branch then processed the sale at a loss of IR£2,781.05. It is clear from the documentation, again, that there was no suggestion or suspicion that Mr. Ashcroft was misappropriating funds. Rather, the problem was that he had failed to implement a customer’s instruction to sell shares.
56. Neither the “R affair” nor the “C affair” show that AIB had any knowledge of fraudulent dealings by Mr. Ashcroft, nor do they show that they ought to have had a reasonable suspicion that he was defrauding customers of the bank by misappropriating funds entrusted to him. It follows from this finding that I cannot anchor any liability on the part of AIB on any actual or constructive knowledge that Mr. Ashcroft was engaging in fraud upon the customers of AIB.
The plaintiff’s case in negligence
57. Apart from the alleged liability based on negligent misstatement on the part of Mr. Carroll (which I have rejected above), and the alleged knowledge of AIB of Mr. Ashcroft’s fraudulent propensities (which I have also rejected above), the plaintiff’s case in negligence was that the first, third and fourth defendants were liable to her in respect of certain losses (a) by way of direct liability, and/or (b) by way of vicarious liability.
58. I propose to group the plaintiff’s complaints and deal with the pleadings, the evidence and the issues of liability in relation to each complaint. I preface this by saying that an unusual feature of the case was that the alleged loss in respect of each of the claims was not immediately apparent; this was not a case where there were obvious frauds and obvious losses, with the only issue being whether, in law, the remaining defendants were liable for those losses. It was a central plank of the defendants’ cases that the plaintiff could not in the first instance establish loss on many of the claims on the balance of probabilities, even though there were undoubtedly oddities and irregularities in the handling of certain transactions within AIB. Obviously, questions of vicarious liability and proximity in negligence become somewhat academic if no loss was actually caused to the plaintiff. Accordingly, while this judgment is not concerned with the quantification of loss and deals only with liability, I would consider it a minimum condition of liability that the plaintiff must show on the balance of probabilities that at least some loss was caused under each heading. Irregularities and oddities in the manner in which Mr. Ashcroft dealt with monies connected with their purchase and running of the Anchor Bar would not per se amount to the establishment of loss and fraud.
The two cheques connected with the proceeds of the sale of Isaac Bells in 1999
59. The plaintiff’s first complaint related to two cheques connected with the sale of Isaac Bells and the purchase of the Anchor Bar in 1999. The court had a copy of each of the cheques. The first cheque dated the 17th May, 1999 was drawn on Anne Condon Bank of Ireland account and was payable to Anne Condon, in the amount of IR£87,000. The second cheque dated the 18th May, 1999 (one day later) was drawn on the Frank Buttimer solicitor’s client account and payable to Anne Condon, in an amount of IR£19,148.97.
60. The story of these two cheques falls to be considered within the larger story regarding the purchase price of the Anchor Bar. It was pleaded that while plaintiff had agreed a price of IR£210,000 with the O’Leary brothers, the true price was IR£150,000 and that she had been induced by Mr. Ashcroft to pay more than her agreed 50% of the purchase price. This seems to have been based on the recording of a figure of £140,00 in a document from the relevant solicitor, Helen Burke, who handled the purchase of the Anchor Bar.
61. The plaintiff’s evidence concerning the events leading up to the purchase of the Anchor bar and the financial arrangements concerning the payment of the purchase price was, in my view, not reliable. She gave inconsistent accounts of where she had first met Mr. Ashcroft. She gave an account of having “bargained” with the vendors of the Anchor Bar to achieve a purchase price of IR£210,000 instead of IR£230,000, having gone across to the Imperial Hotel for the negotiation and having returned from there to the offices of one Barry Lynch, accountant, where Mr. Aschroft and Mr. Carroll, the second defendant were present. The plaintiff subsequently accepted that she had not managed to achieve the IR£210,000 price at that negotiation in the Imperial Hotel but rather that the vendors had accepted that price some days later. I have also found, above, that no such meeting took place, or at least not one at which Mr. Carroll was present (and indeed I am of the view that Mr. Lynch did not attend any such meeting either). The plaintiff said that, having received the cheque for IR£87,000, she brought it to a meeting with Mr. Ashcroft and Mr. Carroll in the latter’s office, located at the top of a windy stairs and that she slid the cheque on the table to them; she also said that she signed lots of blank documents on that occasion. Her description in that regard was quite vivid. However, later in her evidence, she thought that this meeting might have concerned the taking out of the renovation loan the following year (2000) and that this was when she signed lots of blank documents and said that she was very confused as to what happened at each of the meetings.
62. It may be noted that her claim that she signed lots of blank documents, and could not recollect on which occasion she had done so, made it impossible for her evidence as to the authenticity or context of signature on numerous key documents in the case to be meaningfully tested. This arose in a context where she had at various times suggested that her signature was forged on certain documents.
63. Further, the case she was making about the two cheques in question shifted considerably over the course of her Garda statement, her pleadings and her evidence of five days at the hearing. It may be noted that AIB bank itself investigated this matter in 2002, and offered to pay £65,000 to her, this being the amount which could not be traced through the documentary evidence to bank accounts to her credit with regard to those two cheques. This offer was refused by her. She told the gardaÃ, and pleaded in these proceedings, that she had not received the benefit of those two cheques at all. In revised particulars delivered on the 27 October 2015, the plaintiff made the case that she had not had credit for a total of IR£39,232 in relation to those cheques. In a revised report of Ms. Clare Cowhig, the case was made that she had not had credit for IR£21,267 in relation to those cheques. In the opening by counsel, it was suggested that the plaintiff did get value of the IR£87,000 cheque. In her evidence, at one point she accepted in cross-examination that she had got value for the IR£87,000 cheque in its entirety. Finally, in written submissions at the conclusion of the evidence, it was suggested that IR£67,000 was stolen.
64. Incidentally, the plaintiff gave evidence that she did not recollect AIB having made any offer to her. Mr. Russell, called on her behalf, confirmed that the plaintiff was at a meeting at which she was made an offer from the Bank of IR£65,000 after they had carried out internal investigations and concluded that they could not definitively establish where this amount had gone, in connection with the two cheques for IR£87,000 and IR£19,148.97 respectively. He said she was mistaken when she said in evidence that this never happened or that she had forgotten it. The Court has also seen a letter dated 12th January, 2004 in which the bank made a written offer in this amount to the plaintiff. Mr. Connolly gave evidence of the meeting and letter, and indicated that the Bank’s strategy at the time was to give customers the benefit of any doubt as to where any monies not accounted for had gone, and to make offers accordingly.
65. A certain amount of documentary evidence was before the Court, which made it possible to ascertain the fate of the two cheques, but only up to a certain point. These documents make it clear that approximately IR£14,148.97 of the cheque for IR£19,148.97 cheque was lodged to the plaintiff’s own account (092 at Mallow), having gone (irregularly) in the first instance through the manager’s “Sundries” account (no. 99942484). The remaining IR£5,000 had been given out in cash. The question is who received that sum in money in cash. There was a lodgement docket in relation to the IR£14,147.97 lodgement/ IR£5,000 cash withdrawal which bore the plaintiff’s signature. She insisted that she did not withdraw IR£5000 in cash at this time.
66. As regards the IR£87,000, also made to Anne Condon, this was lodged (again irregularly) to a manager’s account in Mallow (account 99944-673). From here IR£27,000 and IR£28,000 were paid out by way of two cash withdrawals on the 17th May, 1999. Sums of IR£12,000 and IR£15,000 were paid to the account of O’Flynn Exhams, in circumstances where the solicitor acting for the plaintiff and Mr. Ashcroft in the purchase of the Anchor Bar (Helen Burke) was employed at that firm. A sum of £5,000 was also paid out in cash. When AIB investigated these two cheques in 2002/3 and made an offer to the plaintiff of IR£65,000, this sum was arrived at on the basis that (a) £5,000 of the smaller cheque could not be accounted for; and (b) the sums of £12,000 and £15,000, paid to O’Flynn Exhams, must have gone towards the purchase of the Anchor Bar, but the rest could not be accounted for i.e. the remaining IR£60,000. Mr. Connolly said that the bank’s strategy at the time was to give all customers the benefit of the doubt with regard to any sums in respect of which it could not definitely be proved they had received value.
67. When Mr. Tom Connolly, former regional director at AIB was cross-examined, he accepted that the various reconciliations of the bank’s internal accounts at the end of May 1999 did not appear to have picked up various irregularities, including the unusual lodgement of a cheque in Ms. Condon’s name to the 673 account, and/or the fact that two significant cash withdrawals from the 673 account took place on the day before the IR£87,000 cheque was actually lodged; and that there also appeared to have been a delay of two months in the lodgement of one of the sums to an O’Flynn Exhams bank account (between early June and late July 1999). If the plaintiff had in fact been caused a loss by reason of irregularities upon this account, it seems to me that AIB would be liable to her for any such loss. However, proof that the plaintiff had in fact suffered a loss was problematic. The plaintiff was inviting the Court to draw the inference from the fact that there were cash withdrawals from the £87,000, to the conclusion that it was Mr. Ashcroft who had received the cash.
68. It seems to me that she relied upon two matters for the drawing of this inference. The first was that she said she did not receive the cash, or did not recollect receiving the cash. However, the plaintiff’s memory was shown to be flawed in many other aspects of her account. The second matters related to the purchase price for the Anchor Bar. The plaintiff was in effect inviting the Court to draw the inference that Mr. Ashcroft who had pocketed some of her money and then only paid the vendors IR£140,000, which is why that figure appeared the solicitor’s document. The pub was in fact purchased in 1999; that much is also certain. It seems to me that if the plaintiff had, as she related with some degree of pride, driven a hard bargain with the O’Leary brothers down from the agreed price of IR£230,000 to IR£210,000, there can be no question that they ultimately accepted IR£140,000 for the Anchor Bar. It seems to me that what is likely to have happened is there was a part-cash payment, in order to avoid the full stamp duty payment in respect of the purchase. That being so, it seems to me likely that the monies provided by the plaintiff did in fact go to the purchase and stocking of the Anchor Bar, and that it is unlikely that she was defrauded of those monies by Mr. Ashcroft. I am not satisfied on the balance of probabilities that it has been established that there were certain parts of those two cheques for which she did not receive credit. It is possible that this happened, but it is not established on the balance of probabilities, and in fact it seems to me that in all the circumstances the money was used with regard to the Anchor Bar. It follows from my finding that loss has not been proved on the balance of probabilities that I do not consider that AIB have any liability to the plaintiff arising out of these two cheques.
69. Further, as regards the third and fourth defendants, I cannot see how Bank of Ireland or Mr. Carroll could possibly have any legal liability for the manner in which these cheques were handled within AIB even if there had been loss arising from this. The plaintiff initially said that she gave the cheque for IR£87,000 to Mr. Carroll and Mr. Ashcroft at a meeting in Mr. Carroll’s office at the top of windy stair, but as noted, she later doubted her own evidence in this regard. In any event, even if Mr. Carroll was present at a meeting where such a cheque was given to Mr. Ashcroft, I cannot see how this would fix him or his employer with liability for the internal AIB dealings with the cheques.
The complaint relating to the IR£150,000 loan for renovation of the Anchor Bar in the year 2000
70. The plaintiff’s second claim related to the bank loan of IR£150,000 provided in the year 2000 by Bank of Ireland for the renovations done to the Anchor Bar, including the development of two apartments in the upstairs of the premises. Mr. Carroll was directly involved in the granting of this loan by Bank of Ireland and did so within the course of his employment. The loan was granted to Mr. Ashcroft and the plaintiff in their own names and to the Dublin Rovers company. In the statement of claim, it was pleaded that in breach of the agreement Mr. Ashcroft fraudulently caused the funds to be transferred into an account in Douglas in his own name; and that apart from four payments, no monthly repayments were made.
71. There are some slightly puzzling aspects with regard to the documentation in relation to this loan. For example, while the loan was offered on the 17th August, 2000 in order to facilitate the renovations, another letter dated the 18th August from the architectural and planning consultant indicated that the work had already been carried out. This may be explained by Mr. Carroll’s evidence that Mr. Ashcroft had financed the renovations from his current account; the loan monies would then have been used to replenish the amounts temporarily borrowed from there.
72. However, that is, in my view, as far as the issue goes. First, the plaintiff accepts that she signed the facility letter. Secondly, with regard to the two withdrawal/drawdown dockets in relation to this loan (for IR£110,000 and then IR£40,000), the plaintiff’s evidence was inconsistent in a very significant matter. According to the evidence of Peter Russell, on at least two separate occasions in the period 2002/03, she instructed him that she did not sign those withdrawal dockets. It was because of these instructions that Mr. Russell wrote to AIB asserting on her behalf that the signatures were forged. However, in evidence before me, the plaintiff accepted that the signatures were hers and sought to imply that she had never instructed Mr. Russell that the signatures were forged. I note that it was pleaded in the Statement of Claim that she had been requested to sign withdrawal slips in advance in respect of the mortgage loan funds, which she did, on agreed terms the slips would only be used as to the use and application of the funds as agreed i.e. the renovation. Thirdly, there was a letter from solicitor Helen Burke confirming that it was in order to release the IR£150,000 to the borrowers and not the builder. Fourthly, the architects’ certificates confirmed the work to have been done. Fifthly, the plaintiff gave evidence that the work was in fact done to the Anchor Bar in the summer of 2000 over a number of weeks, and that the bar was closed during this period. Accordingly, the plaintiff and Mr. Ashcroft got a loan for renovations and the renovations were carried out; it is difficult to see the basis for any claim for loss arising from these events.
73. The source of the plaintiff’s complaint about this loan may well be Mr. Russell. Mr. Russell even in his evidence to the Court continued to maintain that this loan was “dubious” because only four repayments had been by Mr. Ashcroft in respect of the loan and because the bank had not, in his view, pursued repayment in the normal way. However, the internal credit committee documents show that there were discussions between Mr. Carroll and Mr. Ashcroft about payment of the loan, with the latter repeatedly reassuring the former that it would be attended to. Mr. Russell and the plaintiff appear to believe, on the basis of having been told so by Mr. Keegan (or perhaps told by Sergeant Fogarty that Mr. Keegan had told him, which is second- or third- hand hearsay), that Mr. Keegan was paid only IR£60,000 (not IR£150,000). From this, they have drawn the conclusion that Mr. Ashcroft may have appropriated the balance of the money (the difference between IR£150,000 and IR£60,000) for himself. But if that were so, it is the Bank of Ireland’s loss rather than the plaintiff’s loss. There is no suggestion that Bank of Ireland has pursued or is pursuing her for the loan.
74. As I have found that the plaintiff has not established any loss to herself arising in connection with this loan, it is not necessary to consider any issue of liability on the part of the first, third and/or fourth defendants in relation to it.
The purchase of Sunview Terrace in 2001
75. This is a bizarre claim. It is pleaded that the plaintiff intended to buy the Sunview property for IR£70,000 and renovate it for IR£30,000; that Mr. Aschroft fraudulently and falsely showed ACC bank that she had IR£30,000 in her account so that she could get the mortgage; that she took the loan and purchased the house; and that because she did not have the funds to renovate it, she was forced to sell the property, suffering a “significant opportunity loss”.
76. It is clear from the contemporaneous documentation that the plaintiff needed to show ACC bank that she had IR£30,000 in her bank account in order to get the loan for the purchase of Sunview Terrace. She did not have that IR£30,000. Accordingly, for 24 hours or less, a sum of IR£30,000 was moved into her account by Mr. Ashcroft, in order to create the impression that she had the funds, and so as to provide comfort to ACC bank. The plaintiff admitted in evidence that she knew that Mr. Ashcroft had done this. She was therefore a party to a deception practiced upon ACC. She refused the accept this characterisation of the situation, but it is the harsh reality that she knew that a lie was being told to ACC bank on her behalf and went along with it. She later sold the house at a profit of approximately IR£22,000 and now complains that she would have sold it for more if she had been able to renovate it as planned.
77. The plaintiff’s behaviour in permitting a deceit to be practiced upon ACC bank on her behalf reflects extremely badly upon her, and it is somewhat noteworthy that she did not appear to think that she had done anything wrong in this regard. I will confine myself to stating that the plaintiff has not proved a loss in this regard, let alone a loss for which the first, third or fourth defendants could possibly be held liable.
The claim relating to the Anchor Bar Takings
78. This, together with the plaintiff’s claim relating to her half-share of the Anchor Bar, discussed below, appear to me in reality to be at the heart of the plaintiff’s claim, which was in essence that she trusted her entire savings (the proceeds of the Isaac Bell sale) to Mr. Ashcroft, put in two years of extremely hard work at the Anchor Bar, and came out of the whole episode without a penny to her name.
79. It was pleaded at paragraph 22 of the Statement of Claim that the plaintiff was defrauded by Mr. Ashcroft “of all monies earned while she was involved in the Anchor Bar”, a very far-reaching claim indeed. It was also suggested several times on behalf of the plaintiff that the Dublin Rovers account had been used as “an instrument of fraud”.
80. The bank accounts primarily connected with this claim were: the Dublin Rovers account in Ulster Bank, which was set up in December 1999; and the plaintiff’s AIB Mallow 258 account, which was used as a business account pending the opening of the Dublin Rovers account. It also appears that there was some cross-fertilisation between the two accounts even after the opening of the Dublin Rovers account because direct debits to suppliers had been set up on the AIB 258 account and lodgements of till takings were made into the Dublin Rovers account and, from there, sums were transferred to the 258 account in order to meet the direct debits.
81. The starting point of the plaintiff’s case in this regard appears to have been her overall impression that although the business of the Anchor Bar was operating very successfully, at least while she was working behind the bar and before Mr. Keegan took over, she did not appear to be reaping the benefit of the profit. She said that she initially received £200 in wages per week, although she was working very long hours. She gave evidence that she had accepted this wage because she thought at the time that she had to pay Mr. Ashcroft back for a sum of IR£15,000, because she thought that he had put IR£15,000 more into the purchase of the Anchor Bar than he did. This This is difficult to reconcile with her view that she had put all her money at that time into the Anchor Bar, including the stocking of the bar. If she had paid approximately £90,000 towards the purchase of the bar, and she had paid the remainder of her money (approximately £16,000) towards stocking the bar, her contribution would have matched 50% of the purchase price of £210,000 and she would have owed Mr. Ashcroft nothing.
82. In any event, the plaintiff gave evidence that she herself collecting the takings from the till and counted them, and that she gave them to Mr. Ashcroft on a weekly basis to be lodged. She said that there was a plan initially that they would meet weekly in order to verify the cash takings, but that this did not last. She had kept certain diaries which recorded the takings also. The plaintiff in her evidence in chief was brought through the Dublin Rover (Ulster Bank) account statements and seems to have accepted that the level of lodgements, at least for the period of time through which she was brought in evidence, broadly matched the level of takings that she recalled. In cross-examination, she also accepted that the takings as shown in a number of diaries kept by her more or less corresponded with the lodgements to the Dublin Rover accounts, again for that period of time.
83. It may be noted that no VAT returns were ever seen by either of the two accountants who gave evidence on behalf of the plaintiff, and none (or indeed any Revenue documents of any kind) were put before the Court. The plaintiff had kept the till rolls for the Anchor bar from the relevant period, but these were never systematically analysed on behalf of the plaintiff. One would have thought that fairly obvious exercise, in order to establish a shortfall in the lodgements, would be to compare the till receipts with the bank statements for the two relevant bank accounts. The plaintiff’s explanation for this not having been done was the expense of having this exercise carried out. However, the plaintiff did rely upon reports prepared by a Ms. Clare Cowhig, accountant, specifically concerning the takings of the Anchor Bar. During the hearing, in order to try to obtain some precision as to the specifics of the claim related to the takings from the Anchor Bar, the court gave leave for the amendment of the statement of claim to plead that Mr. Ashcroft had failed to lodge the takings from the Anchor Bar to the plaintiff’s account ending 258 in AIB Mallow or the Dublin Rovers account in Ulster Bank, “as particularised in a document prepared on her behalf by Ms. Clare Cowhig entitled ‘Analysis of Bank Lodgements”.
84. Ms. Clare Cowhig gave evidence that she had examined the bank statements relating to three bank accounts; the Dublin Rovers (Ulster Bank) account; and two Anne Condon AIB accounts, ending 017 and 258 respectively. On the assumption that there should have been weekly lodgements of the takings, her methodology was essentially to note any particular weeks where the bank statement showed that no lodgements had in fact been made. However, she first excluded (a) any weekly gaps where there a larger than usual lodgement was made in the subsequent week, which might cover both weeks; and (b) any lodgements from Dublin Rovers account to the 258 account which clearly came in to fund the direct debits which had been set up on the 258 account. Having identified apparent gaps in lodgements, she then “extrapolated” where the missing money might be, by calculating from the average weekly sales set out in spreadsheets prepared from the plaintiff’s diaries. Her calculations led her to the conclusion that approximately IR£58,000 was missing for the year ending July 2001, and a further IR£74,000 missing for the year ending July 2002. As regards the Anne Condon 017 account in Mallow, her evidence was that there was a very odd pattern emerging from the bank statements, whereby large sums of money would be lodged and withdrawn in the same day.
85. Ms. Cowhig also gave evidence that for the plaintiff to have had the entire exercise done of reconstructing the figures in 2002/2003 from the till rolls and the bank statements, and dealing with any arrears of tax and filing of returns, would have been in excess of IR£20,000. This was in the context of the plaintiff’s having earlier given evidence that she could not afford to engage in this exercise at that time.
86. In cross-examination, it was put to her that her particular methodology (the weekly gap methodology) could greatly over-state the figures. For example, on her view, the takings in March 2001 should have been approximately IR£45,000, which would be equivalents to the Christmas 2000 takings, and yet one would not expect March to be as profitable as Christmas. She stood over her methodology. She stated that it had been arrived at by a process of “fair reasoning” and that while it might not be 100% accurate it was taking a “good stab” at uncovering the issue.
87. I am conscious of the fact that, at this stage of the proceedings, I am dealing only with liability and not with loss, and that what it is necessary for the plaintiff to show is (1) that it is likely that there was at least some loss in connection with the takings from the Anchor Bar, rather than a precise figure of that loss; and (2) that the AIB would be liable for any such loss. It seems to me that, even if it could be established that Mr. Ashcroft was stealing the Anchor takings, or some of them, attributing liability to AIB is very problematic.
88. It is worth pausing to consider the alleged manner in which the fraud is said to have been carried out. The claim appears to be essentially that Mr. Ashcroft was pocketing some of the till takings between the time he received them from the plaintiff and before he lodged them to the bank. Thus, if there was theft on his part, this took place before the money ever reached AIB or Ulster Bank. Further, his receipt of the cash takings was in his capacity as partner in the business of the Anchor Bar, and his obligation to lodge them was in his capacity as partner in the business of the Anchor Bar. If he fraudulently appropriated cash before it reached AIB Mallow, I cannot see how this can be laid at the door of AIB. They could not possibly have known, nor as bankers should they have reasonably have been expected to know, what the correct figures were for the takings of the Anchor Bar. I have considered the leading authorities cited to me in respect of proximity and duty of care, including Ward v. McMaster [1988] IR 337, Glencar Explorations v. Mayo County Council (No.2) [2002] 1 IR 84, Beatty v. Rent Tribunal [2006] 2 IR 191, Bates v Minister Agriculture [2012] 1 IR 247, and McGee v Alcorn [2016] IEHC 59, as well as those specifically concerning the duties of banks, including Brennan v. Bank of Ireland [1995] 5 JIC 2301, Towey v Ulster Bank Limited [1986] IEHC 4, Kennedy v AIB [1998] 2 IR 48, Tulks Co-operative Livestock Mart v. Ulster Bank [1983] IEHC 2, and Whelan v. AIB [2014] 2 IR 199. None of these, in my view, come anywhere close to supporting the far-reaching proposition that a bank is liable for theft or fraud committed by one business partner in respect of another in circumstances where the money is wrongfully appropriated before it even reaches the bank; nor do they support the proposition that the bank has a general duty to a customer to monitor the lodgements and withdrawals from the customer’s account, in circumstances where the documents (such as cheques, lodgements and withdrawals) appear regular on their face. I do not see how the fact that Mr. Ashcroft worked in AIB could alter the nature of the bank’s duty to the plaintiff, unless either the bank was on notice of fraudulent propensities on his part (which I have found was not the case) or the bank had assumed an unusual and special relationship with the plaintiff which warranted the imposition of such liability (which, again, on the facts, is not sustainable). Nor can I see any basis in vicarious liability, no matter how the doctrine is stated, on the part of AIB for theft by Mr. Ashcroft of the takings in a pub business in which was engaged with the plaintiff quite separately from his employment as bank official.
89. Further, I cannot see how any stateable case can be made that Mr. Carroll, who had provided an introduction to Mr. Ashcroft in 1999, could be legally liable for any such fraudulent activity, even if Mr. Ashcroft was in fact pocketing some of the takings before they reached the bank accounts in AIB and/or Ulster Bank; still less so, Mr. Carroll’s employer, Bank of Ireland.
90. I am therefore of the view that even if the plaintiff could establish a loss in consequence of Mr. Ashcroft stealing money from the takings instead of lodging it to bank accounts as he was supposed to do, no liability could in any event be laid at the door of the first, third and fourth defendants in this regard.
The claim relating to the Dublin Rovers cheques (Ulster Bank)
91. At paragraph 23 of the Statement of Claim, it was pleaded that the defendants were responsible for “improperly cashing or otherwise honouring cheques drawn from the Dublin Rover Ltd. Account at Ulster Bank Mallow or alternatively crediting Dublin Rover Ltd account cheques to accounts which they knew or ought to have known could not have been authorised payees”.
92. This complaint appears to have originated with Peter Russell’s complaint about 12 particular cheques drawn on the Dublin Rover account. As I understand the position, the paper trail in respect of these cheques shows that 6 of them were lodged to the plaintiff’s AIB Mallow 258 account; 2 were lodged to her account 017 at Middleton AIB; and 1 was negotiated for cash at Middleton and then lodged to her 258 account. Thus, 9 of the 12 cheques in respect of which she makes complaint actually went to her own accounts. As to the remaining 3 cheques, 1 was made out to AK Construction, negotiated for cash at Middleton and lodged to the account of Mr. Andrew Keegan; 1 was made payable to the sister of Mr. Ashcroft; and 1 was payable to AK Developments (signed by Mr. Ashcroft) but it is unclear how the money was obtained.
93. Again, this complaint is somewhat bizarre. It appears that Mr. Ashcroft was an authorised signatory on the Dublin Rovers Account, as one would expect with a co-director of the company. There would have been no need for Mr. Ashcroft to forge the plaintiff’s signature on cheques when he himself was an authorised signatory on the account in any event. Further, it would be rather odd if he were to forge her signature on cheques, and then lodge most of the cheques to accounts in her name. It would be an odd attempt at fraud indeed for a person to forge a person’s signature on a cheque and then use the cheque to lodge money into that person’s own account.
94. The plaintiff alleged that she did not sign any of the cheques in question; but I did not find the plaintiff’s evidence reliable with regard to her signature on documents, particularly having regard to (a) her inconsistency regarding her signature on documents general, and (b) her inconsistency and vagueness of evidence as to when she signed a bundle of blank documents. As to the suggestion that the AIB should have known that the payees were not appropriate, it seems to me again that a bank is not generally required to monitor the pattern of lodgements and withdrawals in respect of an individual’s personal bank account with a view to ascertaining whether a person’s business partner might be defrauding them.
95. In the circumstances described, where I am not persuaded on the evidence either of fraud, forgery or loss, I find that there was no liability on the part of the third and fourth named defendants.
The complaint relating to the plaintiff’s failure to obtain her rightful half-share of the Anchor Bar
96. This complaint also lies at the heart of the plaintiff’s grievances in respect of Mr. Ashcroft. In crude terms, the plaintiff says that she invested money in the region of IR£106,000 into the Anchor Bar; that it increased in value to approximately OR£400,000-IR£500,000 as of 2002, but that she did not receive her rightful half-share of this value when she left the business.
97. The plaintiff gave evidence concerning her decision to stop working in the Anchor Bar in approximately mid-2001, and with regard to events between that time and the commencement of the Garda investigation into Mr. Ashcroft, approximately mid-2002. As with all of her evidence, the sequence of events was vague and inconsistent. She gave a narrative in which she described all going well with the pub at the end of 1999 and in 2000, but that she became increasingly suspicious of Mr. Ashcroft in 2001 because he was not answering her questions about money satisfactorily; that she developed stress to the point where she was admitted to hospital with a suspected cardiac condition; and that she left the running of the bar soon thereafter in the summer of 2001. She gave a vivid account of events in the summer of 2002, involving her taking courage in her hands with regard to the unsavoury characters, including drugs dealers and the like, who were then frequenting the Anchor Bar, and of going down to the bar and having the locks changed on two different occasions. A significant problem with this sequence of events emerged when her doctor gave evidence from his medical notes, indicating that the date of the health problems she described was the year 2000, not 2001. This removed the link she had put forward between her ill-health and her departure from the pub. Further serious questions marks were raised about her narrative that she left the Anchor Bar in a condition of extreme suspicion about Mr. Ashcroft when it emerged, on her own evidence, that after she left the Anchor Bar in the summer of 2001, she moved to an apartment in Cobh belonging to Mr. Ashcroft where she lived rent-free, and also received wages from him, in an amount of approximately double what she had been earning in the Anchor bar. These wages, she said, were for her carrying out interior design on this and other properties owned by him. She then described how she attempted to establish a motor car accessory trade in a shop, again funded in part by Mr. Ashcroft; and that she purchased, with financial and other assistance from Mr. Ashcroft, the Sunview Terrace property, before selling it again at a profit of approximate IR£22,000. The latter events were discussed earlier in connection with the “Sunview Terrace” claim.
98. She also referred to different lump sums received by her from Mr. Ashcroft over this period, and in this regard various figures were mentioned; including IR£6, 000 with which to establish her business in Cobh; IR£5,000 and IR£3,000 for purposes she could not recall; IR£4,000 to pay a booking deposit on Sunview; IR£3,000 to pay the balance of the deposit on that house; and (in April 2002) enough money to enable her to pay of all outstanding monies in the following AIB bank accounts: IR£11,739.24 on the 017 account in Middleton; IR£2,444.12 on her 092 Mallow account; and IR£4,000 left over to deposit in a new Ulster Bank account. Accordingly, it seems that she was the beneficiary of considerable financial largesse on the part of Mr. Ashcroft during the period when, she now claims, she was deeply suspicious of him.
99. Of some importance in this regard also is the conversation between the plaintiff and Mr. Carroll in November 2002, to which I made reference earlier. She had recorded this conversation and the Court had two transcripts of the recording. It is clear that during this conversation, Mr. Carroll was suggesting or advising that she should sell the Anchor Bar at that time, and that this would put an end to her problems, but that the plaintiff herself was refusing to do so. She justified this in the conversation, and in her evidence to the Court, as being because she did not know what might “come back and bite her” in terms of monies owed and because the pub had lost its licence at this time, although she accepted that she had received advice (which seems likely to have been advice from or through her solicitor Mr. Harvey) that she could get another licence from the Circuit Court if she were prepared to spend £10,000, and that this would put considerable value back into the pub. She said (in the recorded conversation) that did not want to do that, that she wanted “nothing to do with the place”. She also gave evidence that some interest was expressed to her personally by potential purchasers of the George, a nearby pub, in also purchasing the Anchor bar and amalgamating the two pubs. She accepted that she did not follow up on this suggestion in any concrete way, whether by contacting Mr. Ashcroft or by taking further advice from professionals. It was in the course of cross-examination around this conversation and period that the plaintiff first indicated that she had issued proceedings against Mr. Ashcroft in 2002. She said she did not know the outcome, but that the subject-matter was similar to the present case. It appears to have proceedings directed at dissolution of the partnership and the taking of accounts. She also indicated that the landlords issued proceedings to forfeit the lease of the Anchor Bar and settlement discussions were had on the door of the court, but that she received no money at that time and the lease was forfeited. This appears to have taken place around May of 2003. It seems surprising that the plaintiff would not have received some financial settlement upon the forfeiture of the lease, given that the value of the property had substantially increased since the time she and Mr. Ashcroft had purchased it, not least because of the renovations carried out.
100. It seems to me that by the end of 2002, a situation had developed with the Anchor Bar such that the plaintiff no longer wanted to have anything to do with it, but that she was simply not prepared to take the steps required to realize its actual and/or potential value at that time, from which she could have taken her 50% share. She seems to have decided to take her chances with bringing proceedings against Mr. Aschroft. However, she now seeks to obtain the value of her half-share in the Anchor Bar from the first, third and fourth defendants. I cannot see any basis in law for this claim. The Anchor Bar was a venture entered into by Mr. Ashcroft outside his terms of employment whereby he purchased a pub with the plaintiff. Their relationship deteriorated to the point where she no longer trusted him and wanted nothing more to do with the pub. At this point in time, the plaintiff herself had the power to take the steps necessary to force a realisation of the value of the pub, but she chose not to do so. She claims that she could not afford to do so, financially, and that she was concerned about the risks, but the potential value of her half-share would have likely exceeded any outlay at this time. The outer limits of AIB’s vicarious liability, on any view of vicarious liability as expressed in the authorities, and/or direct liability in negligence, cannot possibly stretch to cover liability for the equivalent of what she would have obtained from the sale of the Anchor Bar in 2002/3. The loss of the plaintiff’s half-share in the Anchor Bar primarily appears to have resulted from the plaintiff’s own decision to walk away from it in 2002/3.
101. For the sake of completeness, I should say that there was no liability on the part of the third and fourth defendants with regard to this claim.
Personal Injuries Claim
102. Even if there was a valid claim for personal injuries in the case, which was disputed by the defendants, I am of the view that the relevant ingredients for establishing damages for personal injury for mental injury have not in any event been established. There is no doubt that the plaintiff endured a lot of stress over the years, and particularly in 2002. At that time, she interacted with Mr. Peter Russell and Detective Garda Fogarty, and they both described in evidence her distressed condition during this period. At its height, the medical evidence was that of her doctor, Dr. O’Regan, who gave evidence that she suffered from stress and anxiety for many years after 2002, and for which he prescribed anti-depressant medication. The circumstances for obtaining damages for mental suffering have been carefully circumscribed by the superior courts and this case does not fall within the relevant parameters.
Final observations
103. The plaintiff, having invested all of her money and energy into the Anchor Bar, walked away from it in 2002, having received no lump sum in respect of her investment and a general sense that she had not been properly recompensed for her hard work. After living on what were effectively handouts from Mr. Ashcroft for what seems to have been approximately one year, she then went to Mr. Peter Russell, and from there to make a complaint to the Gardai. This happened around the same time that customers were complaining to AIB that Mr. Ashcroft had defrauded them; and he would have been tried in respect of charges arising out of that criminal investigation if he had not disappeared without trace. It seems to me that the background of the criminal investigation has led the plaintiff to try to cast suspicion on every piece of financial dealing she had with Mr. Ashcroft with a view to establishing that she had been defrauded by him at every turn. In this, she appears to have been assisted by Mr. Russell, who was, in my view, rather hasty in reaching conclusions that Mr. Ashcroft had defrauded the plaintiff, on the basis of rather flimsy evidence. No doubt, the plaintiff’s main complaint would have been against Mr. Ashcroft if he had not fled the jurisdiction. However, there is a significant distance to be travelled from the suspicions aroused by what were undoubtedly irregular, odd, and dubious practices in relation to Mr. Ashcroft’s handling of documents such as cheques, on the one hand, and the proof on the balance of probabilities of liability on the part of the first, third and fourth defendants, on the other. The plaintiff has failed, in my view, to establish on the balance of probabilities most, and perhaps, all of the losses alleged by her. The factual basis upon which she sought to draw in the third and fourth defendants was not, in my view, satisfactorily proved. The basis upon which she sought to establish liability on the part of AIB for the fraud of Mr. Ashcroft would involve significant and radical extension of the duty of care owed by banks which is unsupported by legal authority.
104. Accordingly, I consider that liability on the part of the first, third and fourth defendants has not been established and it is not necessary to proceed to a “quantification of loss” module in this case.
Conor Donnellan and Joe Donnellan v Dungoyne Ltd
1993 No. 246 CCA
High Court
15 August 1994
[1995] 1 I.L.R.M. 388
(O’Hanlon J)
O’HANLON J
delivered his judgment on 15 August 1994 saying: In this case the plaintiffs claimed rescission of a lease dated 20 March 1992, (but executed by the first named plaintiff as lessee on 22 November 1991), whereby the defendant demised unto the first named plaintiff Unit No. 7 at the Laois Shopping Centre, Portlaoise, for a term of 35 years from 1 October 1991, subject to an initial rent of £20,000 per annum, (reviewable at five-yearly intervals), and to the covenants on the part of the lessee and lessor therein contained, and whereby the second named plaintiff guaranteed performance by the lessee of *391 the lessee’s obligations under the lease in the manner and to the extent set out in the fourth schedule to the said lease.
Other relief claimed in the civil bill included a claim for repayment of a deposit of £3,691.25 paid by the first named plaintiff; damages for negligent and/or fraudulent misrepresentation; and damages for breach of contract.
The claims were based upon the allegation recited in the civil bill that in order to induce the first named plaintiff to enter into the said lease, the defendant by its servant or agent represented to the said plaintiff that all the units in the shopping centre had been leased to tenants and that all would be occupied before Christmas 1991, when such representation was incorrect to the knowledge of the defendant, its servants and agents. As a result the first named plaintiff claims that his business of shoe retail sales could not be carried on profitably in the said shopping centre, and failed, and that he has been caused considerable loss and damage for which he claims to be compensated in damages.
In the Circuit Court the learned Circuit Court judge (Judge Lynch) found in favour of the plaintiffs and awarded £20,000 damages in favour of the plaintiffs and decreed that the lease could be rescinded without penalty by the first named plaintiff provided possession of the premises were delivered up within one month of the date of his judgment, which was delivered on 29 October 1993. From that order, the defendant has appealed to this Court.
The shopping centre is a very elaborate and attractive structure, completed in the year 1991, and scheduled for opening towards the end of that year in time to benefit by the upsurge in trade which normally takes place around Christmas. The developers were fortunate in attracting the interest of the Quinnsworth Group and very extensive premises in the main shopping mall were acquired by Crazy Prices and Penneys as ‘anchor tenants’, so a considerable flow of trade to the shopping centre was thereby immediately guaranteed. This was supplemented by an important letting to Kylemore Bakery, and as the year 1991 progressed, further lettings were made, or units were reserved for parties who had expressed interest and had documentation submitted to their legal advisers for consideration.
When the building work was nearing completion the centre was opened for inspection by interested parties on or about 22 October 1991, with the Minister for State at the Department of the Environment present as guest of honour, and the press release for that occasion referred to the fact that ‘to date 17 units have been reserved or let …. Mr Pat Doherty of Dungoyne Ltd said that he was delighted to welcome the anchor tenants Crazy Prices and Penneys to the centre and that he was confident that the remaining outlets would soon be filled.’ A travelator leads from the car park to the main shopping mall. A brochure produced for the same occasion showed about nine units available for letting, with the remainder (described as supermarket, department store and 16 units) reserved already.
*392
The official opening of the centre took place on 28 November 1991, and as of that date the material put in evidence by the defendant indicates that 15 units were then occupied and nine were vacant. Two of the units occupied were held merely on a temporary letting for the Christmas trade. The number of occupied units is given as 15.
These figures were tending to fluctuate from week to week but the over-all position was that suggested by the figures given above and there was little if any change in the situation by the end of the year.
Almost half the floor area of the entire centre was, however, occupied by the anchor tenants, with other very substantial units occupied by Lifestyle, a restaurant, and a butcher’s premises, so that in terms of floor area over 90% of the internal mall and over 70% of the overall floor area were occupied by the opening day and this still remained the position at Christmas and the end of the year.
Nevertheless, the number of units remaining unoccupied, particularly in the internal mall — the showcase of the centre — was a cause of much concern at all stages to the letting agents, Messrs Mason Owen and Lyons, and Raymond Cribbin, who were jointly engaged as agents, and also to the developers and to the occupying tenants and those who were attracted to the centre as potential tenants.
The second named plaintiff is the father of the first named plaintiff, and has a shoe shop of his own in Carlow. He was interested in setting up his son, the first named plaintiff, in business in the new centre and was in contact with the letting agents as early as the month of February 1991. From that time forward he had numerous meetings with Raymond Cribbin and with David Lyons of Mason Owen and Lyons, and all the negotiations were conducted by him on behalf of his son, the first named plaintiff. He made a number of offers to Raymond Cribbin, but the rent he was willing to pay was unacceptable and nothing came of these offers. He said he was told by the letting agents from the outset that they had enough enquiries from interested parties to fill the centre.
Eventually, when the centre was scheduled to open on 28 November 1991, the plaintiffs met Messrs Cribbin and Lyons by appointment at the Celtic Restaurant in Portlaoise, and had further negotiations — Mr Cribbin leaving after a short time, and the matter thereafter being conducted by David Lyons on behalf of the defendant.
The second named plaintiff said he asked David Lyons what was the position about the lettings and was told that all the units were let. ‘I said, let or signed? He said all were signed up with the exception of No. 7 — that all would be trading before Christmas except Peter Marks (hairdresser) who would come after December.’ He said that they agreed that evening to take a letting at a rent of £20,000 per annum, with a deposit of £3,000 and a rent-free period of five months.
*393
When the centre opened on 28 November 1991, he said that he again raised the matter of the units that had not been let with David Lyons and was told not to worry, that the others would be all fitted out and trading by Christmas. He said that in January 1992, he realised they had been misled completely by the auctioneers and contacted David Lyons by telephone but was told he was the only one complaining. He said had he known the true position in November 1991, he would not have taken the lease.
Conor Donnellan, the first named plaintiff gave evidence in corroboration of what his father had recounted concerning the interview in November 1991, when the agreement was made to take the lease.
David Lyons, of Mason Owen Lyons, gave a different account of the meeting with the plaintiffs on 1 November 1991. He said there was a discussion regarding the current state of play in the letting of units in the centre, and he told them the position. They asked about Peter Marks and he told them they were unlikely to take a letting. He denied that he said all units were let or signed.
I couldn’t have said it. It wasn’t true. A number of leases had been made, a number had signed, a number were showing interest. I definitely didn’t say all the other units were signed up, he is certainly wrong about that. I didn’t use words like ‘signed up’. I did say the lettings were going well. I stated our ambition was to be fully let by Christmas. I didn’t say it would be fully let. I outlined the interest and offers. I stated it as an ambition — our ambition was to be fully let by Christmas. I would say that we were going well, had offers, conveyed that we expected to be fully let by Christmas — not a guarantee. ‘The way things are going we are going to be fully let’. People knew this was not something I could guarantee. I didn’t put it in certain terms. I could have said: ‘This is good — it is going to be let by Christmas!’
A vast amount of evidence was given on the hearing of the appeal, by other persons who had taken lettings of units in the centre, and by persons who had been involved in the management and development of the centre around the relevant time. A number of other tenants said they had been given similar assurances that the centre would be fully let by Christmas (this was denied in each case by Mr Lyons and by Mr Cribbin who was also alleged to have given similar assurances).
When trading in the centre fell away after Christmas 1991, a tenants’ association was formed and a complaint about the number of units remaining unlet quickly came to the fore in their deliberations. A letter dated 6 February 1992, was addressed to Mr Lyons by Richard Macken, one of the tenants, asking for a number of concessions in relation to his letting (inter alia, a rent-free period of at least six months) and stating:
At our original negotiations we discussed the possibility of a rent-free period.
*394
This was turned down by you for the reasons that there would be no rent-free period for any tenant as the centre would be fully let for the opening in November. This was totally acceptable to me as I felt that with a full compliment of tenants the centre would have a strong enough drawing power to attract the traffic flow necessary to justify full rents ….
Mr Lyons replied on 27 February 1992, stating (inter alia):
The lease with you has been freely negotiated and no condition was agreed with regard to the number of units let or unlet and I refute that any undertaking was given in this regard. Our clients’ negotiations with other parties are a matter between them and the parties negotiating.
On 13 February 1992 Eamonn Hiney, managing director of Market Fresh Ltd, another tenant, wrote once again requesting a six-month free period and other relief, and stating:
At our initial meeting in respect of the Laois Shopping Centre we discussed my need for a rent-free period, but my request was denied, as no tenant was receiving a rent-free concession and that practically all the units would be let. I accepted your argument despite the possible slow take up in the centre and our high fitting out costs and on that basis I agreed to sign the lease.
In his reply dated 27 February 1992, Mr Lyons stated:
With regard to rent-free period, we informed you that our clients were not prepared to negotiate on this point. We did not undertake or commit our clients to have other units let on the date of opening.
There followed a letter dated 5 March 1992, signed by or on behalf of 11 tenants of units in the centre, including Messrs Conor Donnellan, Macken and Hiney, and addressed by the Laois Shopping Centre Tenants Association to the developers, part of which reads as follows:
Following a number of meetings of the above we wish to take this opportunity of expressing our total dissatisfaction with the shopping centre and the uneven-handed treatment of the tenants.
A great deal of dissension exists with regard to different rent free periods and other incentives offered to different tenants, but as yet the one guarantee promised to all of us of A FULLY LET SHOPPING CENTRE has not been fulfilled.
We have found since Christmas that because the centre is only half let it has no drawing power and consequently all of us are trading at a huge loss. If we are to continue trading under the present conditions major concessions will have *395 to be given to us, and given until such time as the shopping centre is fully occupied as promised ….
This was followed by a meeting in the Killeshin Hotel, Portlaoise, on 10 March 1992, attended by a number of the tenants, and by Mr Lyons and Jerome O’Connor representing the developers. While the minutes of that meeting refer to the concern expressed about the delay in letting additional units in the centre, there is no reference to the issue of alleged guarantees having been given beforehand to the prospective tenants that a fully-let centre would be achieved within any particular period.
Mr Lyons wrote on 12 March 1992, by way of reply to the letter of 5 March 1992, once again refuting the allegation that he had given such an assurance. He wrote:
Firstly, both my clients and I refuse the suggestion that there has been an unequal treatment of tenants and I would point out that all transactions were freely negotiated.
Neither Ray Cribbin nor anyone from this office gave undertakings or guarantees in relation to the number of units which would be let in the centre; you will recall that we circulated, some weeks prior to opening, a brochure which stated that 16 units were reserved. The current situation is that 16 out of the 25 shop units are either signed or trading ….
Relations between the developer and the management on the one hand and the lessees became rather strained, and I am left with a strong impression that some of the tenants behaved in a rather vindictive and revengeful manner, which damaged the image of the centre and inflicted further damage on themselves as tenants in the process. One person who had been negotiating for a letting of one of the vacant units emerged from a meeting of the tenants’ association having a changed mind as to the advisability of taking a letting and expressed the view that if the tenants had their way they would bring about a closure of the centre. There were other instances where tenants objected, or threatened to object to applications for planning applications for change of user, which again would have brought about guaranteed lettings and an influx of large numbers of people to the centre on a regular basis. I am satisfied that these objections or threats of objection were not made bona fide but were made out of ill-will towards the developers and in an effort to secure a release of the lessees involved from their obligations under their own leases.
However, this case is concerned, not with the trials and tribulations of other members of the business community trading in the centre, but with the particular case of the Donnellans, father and son, in relation to the letting of a unit for the shoe retailing business, and with the conflicting accounts as to what was said in the course of the negotiations leading up to making of the lease in respect of the *396 said unit.
Messrs Lyons and Cribbin in their capacity as letting agents, had to do the best they could for their principals within the comparatively short space of time which elapsed between the erection of the centre and the optimum time for an official opening which it was hoped would take place in time to benefit by the Christmas trade. It was important to get the centre off to a good start and this could only be achieved if a high percentage of the available units had been let and were open for business at or around the time when the centre was opening its doors to the public. Lettings could not be made indiscriminately to any trader who was prepared to pay the rent demanded, but had to be made in such a way that there was a good mix of retail business and services which would make the whole package attractive to the public. Consequently, to inform an inquirer that there were only one or two units left, or none at all, could have reference to the particular purpose for which the unit was required, without necessarily inferring that all other units in the centre had already been taken or reserved. Similarly, the letting agents would have been doing a disservice to their principals if they failed to present as optimistic a face as was reasonably possible as to the prospects for achieving the desirable goal of a fully-let centre or one which was close enough to that target.
In this context, I am of opinion that the press releases which were published from time to time, the very colourful and informative brochures prepared for the preview, and for the official opening, and the encouraging remarks attributed to the developer, Mr Doherty, were all of a character which were well within the bounds of what was permissible in the important task of attempting to ‘sell’ the centre to potential tenants.
At no relevant stage, however, was the centre fully-let or well on the way to being fully-let, and I am satisfied that the information available to the letting agents from their numerous dealings with inquirers and persons negotiating for the remaining lettings was at no stage of a character which could have justified them in making a firm forecast that the entire, or almost the entire centre would be occupied and trading by a particular date in the near future.
Consequently, if the message given to the Donnellans was that the lettings made and units reserved were in accord with the details given on the brochures for the preview and the official opening, and that the agents were actively pursuing the task of letting the remaining units and had some inquiries in hand, and were hopeful of bringing about a good result before too long a period had elapsed, one could hardly quarrel with sales talk of this kind. If on the other hand, a firm commitment was given of the type alleged by the plaintiffs, that the information in the possession of the letting agents was of such a character as to lead them to believe that lettings of all or almost all of the remaining units would be completed before Christmas or by the New Year, then this would have amounted to a misrepresentation of the factual situation and if it was made and *397 the plaintiffs were induced to act upon the faith of it, then a cause of action is established.
Having regard to the fact that not only the plaintiffs, but a large body of other tenants all claim that around the same period a similar firm commitment was made to them in the course of their negotiations with the letting agents, I have come — not without hesitation — to the conclusion that in all probability Mr Lyons (and also Mr Cribbin, although not involved in the final negotiation which resulted in agreement being reached with the plaintiffs), in their enthusiasm to secure the best possible result not only for their clients, the developers, but also for all the tenants in the centre, who had a major interest in the efforts to let the remaining units proving successful, did allow themselves too much latitude in the description they gave of the progress of the efforts to let these remaining units, and the degree of success that had been achieved.
I accordingly have to concur in the finding as already made by the learned Circuit Court judge, that some degree of negligent misrepresentation took place, and that it was a contributing factor in inducing the plaintiffs to undertake the contractual commitments to the defendant involved in the lease and guarantee.
In this situation, a cause of action does exist in favour of the plaintiffs, but it is necessary to consider what relief is appropriate in the circumstances. Negotiations had taken place between the plaintiffs (represented by Mr Donnellan senior) and the letting agents for the defendant, over a protracted period during the year 1991, in the course of which offers had been made to take a letting of a unit in the centre at very substantial rents, before ever the situation had arisen where (as happened for the first time in the month of November 1991) the letting agents had given a firm assurance that all units in the centre (or almost all) would be let and trading in progress in the units commenced before Christmas or the New Year. Consequently I am not prepared to accept what was said in evidence on behalf of the plaintiffs to the effect that, but for the giving of this assurance in early November 1991, they would not have entered into a letting of the unit. Had they been given a more accurate picture of the true situation, as reflected in the brochures for the preview and the official opening, unembellished by firm forecasts about what was to happen in the near future, I believe from all the previous history of the negotiations between the parties, that they would still have been prepared to go ahead, but would in all probability have held out for even greater inducements than the five-month rent-free period which they actually achieved.
On this basis, I am of opinion that a case has not been made out for rescission of the lease, as sought in the civil bill, but merely for damages for breach of warranty, and negligent misrepresentation, as happened in the case of Esso Petroleum Co. Ltd v. Mardon [1976] QB 801, and McAnarney v. Hanrahan [1993] 3 IR 492; [1994] 1 ILRM 210 to which I have been referred by counsel, and which I propose to follow.
*398
This brings me to consider the appropriate measure of damages in the circumstances of the present case. The plaintiffs claim that their business failed and that they have incurred heavy losses as a result, which they attribute to the breach of warranty and negligent misrepresentation on the part of the defendant as already referred to.
However, I am satisfied on the evidence which I have heard, that the failure in business was attributable to a number of diverse factors and that the matters complained of against the defendant merely form part and not a major part in the damage and loss which have been incurred.
It seems clear, from the very interesting and illuminating evidence which was given about the development of major shopping centres in towns and cities around the country, that a person intending to take a lease of a unit at the time the centre first opens for business must be prepared to face an uphill battle, and possibly even a loss-making situation, for some period — be it long or short — before the public can be expected to respond in sufficient numbers, week in, week out, to make the enterprise profitable. A huge amount of money has to be expended — and was expended in the case of Portlaoise — in the construction and development of the centre and correspondingly high rents have to be charged to enable the developer to recoup this enormous expenditure and provide a reasonable return on his investment. A fair reward can be expected for the high-risk capital tied up in the venture and for the manner in which the shopping public has been facilitated in the process. For the lessees of units, it involves a patient build-up of trade by attracting customers away from the more conventional shopping areas patronised by them in the past and it is too much to expect that this process will take place overnight and without some teething troubles.
I think all concerned in the Portlaoise project were conscious of these features of trade in a new shopping centre, and as a result all kinds of attractive inducements were included in the package offered to the incoming tenants — the centre being in a designated area, carried exemption for ten years from rates; double rent allowance against tax; and a further concession allowed by the developer in many, but not in all cases, of an initial rent-free period. I think there was a tactical error involved in allowing rent-free periods to some lessees and not to others, as this was certain to engender acrimony, and did so once the information became generally known. The plaintiffs were more successful than others in pressing for a rent-free period and achieved an allowance of five months free of rent.
Eamonn Hiney, who had been allowed no period free of rent, was another who complained that he had been given an assurance that the centre would be fully let for the opening in November, and said that on this basis he had waived his claim (which he had been making) for a rent-free period. When he raised the two issues again in his letter of 13 February 1992, already referred to, he said that in view of the assurance he had been given that the centre would be fully *399 let he should now be allowed a six-month period free of rent.
I think this represents a realistic approach to a situation where a potential lessee was dithering over whether he should take a lease or not, and eventually decided to do so when given an unfounded assurance of a fully-let shopping centre. I am quite sure that had the plaintiffs been given the full picture about the current letting situation as of November 1991, in their conversation with Mr Cribbin and Mr Lyons, and had simultaneously been offered not five months but a year’s period free of rent, they would have gone ahead with the proposal to take the lease. In reaching this conclusion I have regard to the history of the earlier negotiations between the parties which had taken place in the course of the year.
The evidence given by other occupants of units in the shopping centre, among them representatives of Crazy Prices, Penneys, and the Kylemore Bakery, has satisfied me that there has been, at all relevant times since the opening of the centre, a massive influx of shoppers coming to the centre, sufficient to enable these stores and others to attain, and in some cases to exceed, the targets they set themselves when embarking on new business in the centre. In the case of the butchering business, the original tenant gave up after a few months in the belief that he could not succeed, but the business was then taken over by another lessee, and by virtue of long hours of work and radical changes in business techniques, combined with guaranteed quality of product, a successful outcome has been achieved in the early stages of the life of the centre.
With regard to the undoubted failure of the plaintiffs’ trading in the shoe retailing business, I am satisfied on the evidence that this was due in large measure to the youth and inexperience of Mr Donnellan junior, who was entrusted with the running of the business; a certain lack of effort on his part, as evidenced when he tended to open up for business half an hour after the other traders in the centre, and failed to respond to what appeared to be very helpful and progressive suggestions made to him for attracting more customers to his store. Finally, evidence was given of a major down-turn in the shoe retailing business generally in the years which have elapsed since the centre was opened, with particulars given of dozens of shoe shops in the Dublin and district area which have had to close their doors during that period. Mr Donnellan senior conceded that he himself has been trading at a loss in a long-established shoe retailing business in Carlow.
On the basis that I believe the plaintiffs would probably have held out for a longer rent-free period — say one year instead of the five months actually conceded — had they been put fully in the picture as to the letting situation when they agreed to take a lease of Unit 7, I conclude that damages should be awarded in their favour equivalent to a further seven months’ rent or thereabouts, which I propose to round up to a figure of £12,000.
I allow the defendant’s appeal insofar as that part of the order of the Circuit *400 Court is concerned which would give the plaintiffs the privilege of withdrawing from the lease without penalty, and strike out paragraph 2 of that order. I will vary the provisions of paragraph 1 of the Circuit Court order by substituting a sum of £12,000 damages for the sum of £20,000 referred to therein. I dismiss the plaintiffs’ claim for rescission of the lease referred to in the proceedings, and for rescission of the contract of guarantee entered into by the second named plaintiff, and the claim for repayment of the deposit paid by the first named plaintiff.
With regard to the counterclaim, in respect of which no order was made by the learned Circuit Court judge, it appears from the terms of the counterclaim that judgment has already been entered up in the High Court in favour of the defendant against the plaintiffs for the amount of the counterclaim, and it therefore appears to be unnecessary and inappropriate to make any further order in this regard. Accordingly I propose to strike out the counterclaim with liberty to the defendant to proceed otherwise as they may be advised for the recovery of the amounts referred to therein.