ACC Bank Plc v Brian Johnston & Company Solicitors and Others

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 01 June 2010
• Neutral Citation: [2010] IEHC 236
• Docket Number: [2008 No. 10559 P]
• Court: High Court
• Date: 01 June 2010

ACC Bank Plc v Johnston t/a Brian Johnston & Co Solicitors & Ors

BETWEEN

ACC BANK PLC

PLAINTIFF

AND

BRIAN JOHNSTON, PRACTISING UNDER THE STYLE AND TITLE OF BRIAN JOHNSTON & CO, SOLICITORS

DEFENDANT

AND

JOSEPH TRAYNOR & SEAMUS MALLON

THIRD PARTIES

[2010] IEHC 236

[No. 10559 P/2008]

THE HIGH COURT

NEGLIGENCE

Professional negligence

Duty of care - Solicitor - Undertaking - Letter of appointment - Solicitor engaged by financial institution lending money for property transaction - Whether negligent to accept undertaking that loan monies will be used exclusively to purchase property and charge will be registered against property - Whether negligent to advance further monies secured by extension of security when no evidence that security in place - Whether common practice to accept such undertakings - Damages - "No transaction" cases - Negligent advice from solicitor that there is good title in property transaction - Assessment of damages - Roche v Peilow [1985] IR 232 applied; Reddy v Bates [1983] IR 141 referred to - Finding for plaintiff; assessment adjourned (2008/10559P - Clarke J - 1/6/2010) [2010] IEHC 236

ACC Bank plc v Johnston

Facts: ACC Bank (ACC) alleged that the defendant solicitor, Mr. Johnston who acted on behalf of the bank in respect of a number of transactions, was negligent in the manner in which he left ACC exposed. The proceedings also involved third parties, Traynor Mallon, a firm of solicitors, and the case between the defendant and third party still awaited hearing. The defendant had handled loan funds in favour of a Mr. Tiernan, handing them over to Traynor Mallon on the basis of an undertaking from them that the monies would only be used in closing an anticipated sale. The contract for the purchase of lands by Mr. Tiernan was for a sum of € 7,000,000. However, the true contract price was € 4,00,000. Mr. Tiernan never acquired title to the lands as the purchase price was not paid and so ACC never registered a first legal charge over the lands. ACC contended that the state of affairs stemmed from the negligence of the defendant. The defendant alleged that he was authorised by ACC to deal with the handing over of the loan funds in the manner in which he did. The issue arose as to conveyancing practices and negligence and the applicable duty of care owed by solicitors in closing transactions of this type and the practice of financial institutions instructing the solicitor of the purchaser to act on their behalf. There was a conflict of evidence as to a three-way closing, the acceptance of the undertakings by ACC and whether the defendant was authorised to release the stamp duty monies in the manner he contended for. The Court considered the question of the loss sustained by ACC so as to entitle it to damages.

Held by Clarke J. Mr. Johnston was negligent in respect of each of the four transactions the subject of the proceedings. To the extent that ACC could seek damages beyond the amounts of the funds advanced less the value of the lands, there was no evidence upon which the Court could conclude that ACC had suffered any consequential loss by virtue of not having had the relevant funds in the period since. There was an evidential deficit which made it very difficult to assess ACC's true losses. Further matters were as flows: what sort of lending by ACC would have been facilitated if the monies advanced to Mr. Tiernan had not been advanced and what would have been the return on such alternative lending and also the extent to which the loan given could be regarded as a surrogate. It was incumbent on ACC to put such evidence before the Court. The Court was not satisfied that ACC had established that it had suffered any loss as a result of not having had access to the relevant monies. There was no evidence of the value of the loans actually acquired by ACC. Damages for tort or breach of contract could be assessed once and only once. The proper course of action was to adjourn the question of damages until such time as the issue between Mr. Johnston and Traynor Mallon were at hearing. Any additional costs would have to be borne by ACC. ACC had not established any loss deriving from not having had the opportunity to use the monies in the intervening period.

Reporter: E.F.

COMPANIES ACT 1990 S29

COMPANIES ACT 1990 S31

COMPANIES ACT 1963 S60

COMPANIES ACT 1963 S99

ROCHE v PEILOW (T/A WILLIAM J SHANNON & CO) 1985 IR 232

EDWARD WONG FINANCE CO LTD v JOHNSON STOKES & MASTER (A FIRM) 1984 AC 296 1984 2 WLR 1

MIDLAND BANK PLC v COX MCQUEEN (A FIRM) 1999 1 FLR 1002 1999 PNLR 593

COUNTY PERSONNEL (EMPLOYMENT AGENCY) LTD v ALAN R PULVER & CO (A FIRM) 1987 1 WLR 916 1987 1 AER 289

REDDY v BATES 1983 IR 141 1984 ILRM 197 1983/12/3454

1. Introduction

2 2 1.1 In a pithy comment about what has emerged from the current economic crisis, the leading international financier, Warren Buffet, suggested that we only get to see who has been swimming without their togs on when the tide goes out. Many practices (whether shady or shoddy) go largely unnoticed when things are going well. When projects make a profit and investors in and lenders to those projects all get their money back, then there may not be very much scrutiny of how the project was put together in the first place. Where, however, the economic tide goes out and interested parties are looking at who will have to bear the burden of losses, then it is much more likely that the precise practices engaged in will come under close scrutiny.

3 3 1.2 While Warren Buffet spoke of the international situation and the tide that undoubtedly went out as a result of the credit crunch in the United States, his comment is equally apposite to Ireland. The tide has undoubtedly gone out very far. The practices which were engaged in when the tide was very much in have now come under close scrutiny. Some of that scrutiny operates at the level of national policy. However, this Court, and the Commercial Court in particular, has increasingly been faced with dealing with the consequences of practices engaged in without comment or scrutiny when the tide was in, whose consequences are becoming increasingly apparent now that the tide is out.

4 4 1.3 This is far from the first occasion when the Commercial Court has had to analyse practices engaged in at the height of the boom by lenders, borrowers/developers and solicitors acting for both sides. It is important to emphasise at this early stage that no case is made by the plaintiffs ("ACC") to the effect that the defendant ("Mr. Johnston") was guilty of inappropriate behaviour. ACC's case is confined to an allegation that Mr. Johnston, who acted on behalf of ACC in a number of connected property transactions, was negligent in a manner which has left ACC exposed. It should, however, be pointed out that these proceedings also involve the third parties ("Traynor Mallon"), a firm of solicitors who acted on behalf of the borrower involved in the relevant transactions. For reasons which it is unnecessary to set out here, the case as and between Mr. Johnston as defendant and Traynor Mallon as third parties did not proceed at the same time as the main action between ACC and Mr. Johnston and still awaits hearing. In those circumstances, it would be inappropriate for me to go into the issues which arise as and between Mr. Johnston and Traynor Mallon to any extent more than is absolutely necessary for explaining and dealing with the issues which arise in these proceedings. However, it does have to be noted that very significant sums of money indeed were handed over by Mr. Johnston, in his capacity as solicitor to ACC, to Traynor Mallon, in their capacity as solicitor for the borrower, on the basis of undertakings given by Traynor Mallon to the effect that the monies would be applied in the purchase of specific properties or the payment of stamp duties. It seems clear that much of the relevant money was not applied in accordance with those undertakings. Where exactly the money went is not clear and may well not become clear until the third party proceedings come to trial, if even then. However, in summary, ACC argues that Mr. Johnston was negligent in the manner in which he represented their interests in the relevant transactions and claims damages, both for breach of Mr. Johnston's contract of retainer as such solicitor and for negligence generally. Against that general background, it is necessary to turn to the specific issues which arise.

2. Issues

2 2 2.1 There was something of an evolution in the case as it progressed at trial. I have already ruled on the pleading and procedural issues which arose and it is unnecessary to revisit same again. This judgment is directed to the issues as they were at the close of the case. I will turn to a more detailed analysis of the relevant facts in due course. However, in simple terms the primary transaction for which Mr. Johnston was engaged to act on behalf of ACC was a series of inter connected loans in favour of a Mr. Francis Tiernan. Traynor Mallon acted on behalf of Mr. Tiernan. It will be necessary to refer in due course to the letter of retainer by which Mr. Johnston was employed to act on behalf of ACC. It will also be necessary to refer to the facility letters which governed the arrangements between ACC and Mr. Tiernan. At the heart of those facilities and, by necessary inference, at the heart of the task entrusted to Mr. Johnston, was an obligation to put in place certain items of security in favour of ACC. Of particular importance to the issues which have arisen between the parties was a requirement in each of the relevant facility letters that a first legal mortgage of certain lands at Castlewarden should be put in place.

3 3 2.2 There is no dispute between the parties but that the lending arrangements and mortgage between ACC and...