Allied Irish Banks Plc v Maguire and Others (t/a Seamus Maguire & Company Solicitors)

• Jurisdiction: Ireland
• Judge: Mr Justice Michael Peart
• Judgment Date: 28 July 2009
• Neutral Citation: [2009] IEHC 374
• Court: High Court
• Date: 28 July 2009

[2009] IEHC 374

THE HIGH COURT

Record Number: No. 1277P/2009

Allied Irish Banks Plc v Maguire & Ors (t/a Seamus Maguire & Co. Solicitors)

Between:

Allied Irish Banks Plc.

Plaintiff

And

Charles Maguire, Noel McDonald, Richard Clinch and Tommy Gibbons carrying on practice under the style and title of Seamus Maguire & Co., solicitors.

Defendants

BANK OF IRELAND MORTGAGE BANK v COLEMAN (T/A COLEMAN & CO) UNREP SUPREME 5.5.2009 2009 IESC 38

UDALL (T/A UDALL SHEET METAL & CO) v CAPRI LIGHTING LTD 1987 3 AER 262 1988 QB 907 1987 3 WLR 465

JOHN FOX (A FIRM) v BANNISTER KING & RIGBEYS (A FIRM) 1987 1 AER 737 1988 QB 925 1987 3 WLR 480

IPLG LTD & FRY & ORS (T/A WILLIAM FRY SOLICITORS) v STUART & AN POST UNREP LARDNER 19.3.1992 1998/22/8252

SOLICITORS

Undertaking

Court's jurisdiction - Supervisory and discretionary - Reliance on undertaking to protect banks interests as mortgagees - Failure to comply with terms of undertaking - Application by bank seeking to recover from defendant solicitor all sums due on loan - Whether defendants should be allowed to comply with undertaking - Punitive and compensatory jurisdiction - Discretion - Manner court should exercise discretion - Deliberate, conscious and reckless breach of undertaking - Whether undertaking capable of performance - Discretion to direct compensation - Factors to which court will have regard when determining what order may be fair and just - - Bank of Ireland Mortgage Bank v Coleman [2009] IESC 38, (Unrep, SC, 5/5/2009) not followed; Udall v Capri Lighting Limited [1988] QB 907, John Fox v Bannister King & Rigbys [1988] QB 925 and IPLG Ltd v Stuart (Unrep, HC, Lardner J, 19/3/1992) considered - Defendants ordered to repay to plaintiff bank all sums paid on foot of loan sanction, together with interest (2009/1277P - Peart J - 28/7/2009) [2009] IEHC 374

Allied Irish Banks Plc v Maguire & Ors (t/a Seamus Maguire & Co Solicitors)

Facts: The plaintiff bank sanctioned a loan for the purchase of property. The defendants were a firm of solicitors who acted for the syndicate at the time of purchase and were the solicitors acting for the borrowers in their purchase of the property from the syndicate. The syndicate did not instruct separate solicitors to act for it in the sale to the borrowers. The defendant firm signed and gave an undertaking. The Bank now sought to recover all sums due on the loan because of the failure to complete with the terms of its undertaking. The defendants alleged that they still could comply with the undertaking if given additional time. The defendants alleged that the failure of the bank to appoint its own solicitor to complete this transaction amounted to contributory negligence.

Held by Peart J. That it would be an appropriate exercise of the discretion of the Court having regard to the nature of the breach and the circumstances outlined to order that the defendants repay to the plaintiff bank all sums paid into their client account on foot of this loan sanction, together with any interest due to date of payment. The funds were not used for the purpose intended. There was no evidence to support the plea of contributory negligence.

Reporter: E.F.

1 Mr Justice Michael Peart delivered on the 28th day of July 2009:

2 The plaintiff is a bank which on the 22 ^nd day of May 2007 sanctioned a loan to Alan Hynes and his wife, Noreen Hynes ("the borrowers") in the sum of €3,000,000 for the purchase a property in Co. Wexford which I shall refer to as 'Moongate', and issued a letter of offer to them. I shall refer to the plaintiff as "the Bank".

3 The borrowers accepted that offer by signing the acceptance form attached to the letter of offer, albeit that they made a small alteration to the term of the offer by striking out the word "purchase" and replacing it with the word "refinancing". Not a lot turns on that amendment. The explanation for the amendment appears to have been that the Vendors to the borrowers are a syndicate of persons, including Noreen Hynes (one of the borrowers), and the borrowers had agreed to buy the property from the syndicate, the consideration for which was confined to the repayment to Anglo Irish Bank ("Anglo") of the loan which that bank had made for the purchase by the syndicate. It is not quite clear what the significance to the borrowers the reclassification of the loan from "purchase" to "refinancing" was, but perhaps the fact that the loan sanctioned exceeded by about €800,000 what was required to pay off the Anglo loan has something to do with it, given that there would be a balance left over. However, as I have said, nothing significant turns on that at the end of the day. No Contract for Sale appears to have been executed in respect of this transaction. Certainly none was produced before me, or discovered between the parties.

4 The defendants are a firm of solicitors who had acted for the syndicate at the time of the original purchase of Moongate by them, and were the solicitors acting for the borrowers in their purchase of Moongate from the syndicate. It appears also that the syndicate itself did not instruct separate solicitors to act for it in the sale to the borrowers. The defendants were acting for both the vendor syndicate and the borrowers. In addition, AIB did not choose to appoint its own solicitor to act for it in relation to the putting in place the security for the loan to the borrowers, and agreed to accept the defendants' undertaking in the Bank's standard form, the details of which I will set out in due course. It follows that the defendant firm was looking after the interests of all parties to this transactions, except Anglo.

5 Prior to sanctioning this loan to the borrowers the Bank had dealt principally with Alan Hynes who is an accountant in private practice, who, in addition, had a number of property interests. He was a well respected, valued and trusted customer of the Bank over several years. It would appear that the Bank regarded him as a good customer with whom they were anxious to do business at the time that this loan was sanctioned.

6 The Bank had accepted a valuation of Moongate which Alan Hynes had obtained from CBRE when it assessed the loan application for this transaction. The Bank did not elect to obtain its own valuation. That valuation was in the sum of €3.9 million, taking account of a significant potential development value, although planning permission had not yet been granted for the proposed development of the property. Eugene Duggan, a Senior Area Lending Manager for, inter alia, the Wexford area, has stated in his evidence that the value of the proposed security was not the only criteria for sanctioning the loan, and that other considerations such as the repayment capacity of the borrowers were also important. The defendants have filed a defence to these proceedings in which they plead contributory negligence by the Bank in failing to appoint its own solicitor to complete this transaction on its behalf. It is worth mentioning that there is no plea of contributory negligence on the basis that they failed to carry out its own independent valuation of Moongate property before sanctioning the loan.

7 In order to facilitate the completion of the transaction and the drawdown of the loan facility, the defendant firm signed and gave an undertaking in the form provided by the Bank. This is the normal form of undertaking with which solicitors are well familiar, even though it was intended originally to be used only in residential transactions. Since its introduction it has been in regular use also in commercial transactions, where the bank or financial institution was content not to appoint its own solicitor to look after its interests, and were prepared to rely on the purchaser/borrower solicitor's undertaking to complete matters in a manner which protected the bank's interests as mortgagees.

8 I will set out the chronology of events which followed the acceptance of this loan offer by the borrowers, but should state at this point that it is undisputed that the defendants' undertaking has not been complied with by them in several respects or indeed at all, that the loan has been called in by the Bank, and that the borrowers are not now in a position to repay it. The Bank is seeking to recover from the defendant firm all sums due on the loan, being principal and interest to date, because of its failure to comply with the terms of its undertaking to put the Bank's security in place. It is accepted that the borrowers are no longer a mark for this sum, and a judgment in that regard remains unsatisfied. There is no security in place which the Bank can enforce, as a result of the defendants' failure to comply with its undertaking.

9 In spite of the delay in doing so to date, the defendants plead that in spite of the events which undoubtedly occurred, they can still comply with the undertaking given additional time to do so, and a method by which this can be done has been explained to the Court, which I will come to. In these circumstances, the defendants submit that they ought not to be found liable to repay the loan and interest, but should, albeit late in the day, be allowed to comply with their undertaking, so that the Bank can therefore be in the same position as far as the security and its enforcement is concerned, as if the undertaking had been properly complied with at the outset. The defendants are of the view that if they are required to repay the entire loan and interest to the Bank now, it will be oppressive on them, and will result in the Bank achieving a better result on this defaulted loan than it would have been in had the undertaking been properly complied with, and that such a result would be unjust in all the circumstances.

10 The Bank on the other hand submits that the circumstances surrounding the failure by...