Allied Irish Banks Plc v Maguire

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 13 October 2016
• Neutral Citation: [2016] IESC 57
• Court: Supreme Court
• Docket Number: [S.C. No. 360 of 2009],[Appeal No: 360/2009]
• Date: 13 October 2016

[2016] IESC 57

THE SUPREME COURT

Clarke J.

Clarke J.

Charleton J.

O'Malley J.

[Appeal No: 360/2009]

Between/

Allied Irish Bank plc

Plaintiff/Respondent

and

Charles James Maguire, Noel McDonald, Richard Clinch

and

Tommy Gibbons carrying on practice under the style and title of Seamus Maguire & Co Solicitors

Defendants/Appellants

Legal profession – Solicitors – Conveyancing – Undertaking – Failure to comply with terms of undertaking – Amount of compensation due

Facts: The appellants, practising as a firm of solicitors, had been acting for a client in a conveyancing transaction. An undertaking in the usual fashion was given to the respondent that the sums provided by it would be used to discharge an existing charge. The funds however were used for other commitments of the appellants’ client. The High Court had found that this was a serious breach of professional ethics and awarded the full sum advanced by the respondent plus interest in damages. The matter now came on appeal to the Supreme Court.

Held by Mr Justice Clarke, the other Justices concurring, that the appeal would be allowed. Having considered the jurisdiction of the Court, it was not appropriate in this matter to depart from the general principle of compensatory damages in the manner adopted by the High Court. However, the Supreme Court itself was not the suitable forum for determining the correct amount of damages and the matter would be remitted to the High Court with guidance as to the calculation process. Bank of Ireland Mortgage Bank v Coleman [2009] 3 IR 699 considered.

Judgment of Mr. Justice Clarke delivered the 13th October, 2016.

1. Introduction

1.1 Many conveyancing transactions, from the sale of family homes to the transfer of valuable commercial property, are closed by the solicitors involved on the basis of undertakings. A fairly typical example involves a case where the property under sale is the subject of an existing mortgage or charge which requires to be cleared in order to provide the purchaser with good title. Likewise, a financial institution which is lending money to the purchaser for the purposes of facilitating the purchase itself may have a close interest in ensuring that any existing mortgage or charge is discharged so that the purchaser is in a position to put in place security in favour of its lender.

1.2 Without the system of undertakings it might be difficult in practise to close transactions of that type for, typically, the vendor will not be in a position to clear the original mortgage without the purchase price being paid and the purchaser will not be able to pay the purchase price without being able to draw down its own loan from its lender. Against that backdrop the usual arrangement is that the lender to the purchaser provides the money subject to appropriate undertakings including one from the vendor's solicitor to use all or an appropriate portion of the money concerned to clear an existing mortgage or charge and to provide, in due course, appropriate documentation from the holder of the existing security evidencing the discharge of the relevant loan and security.

1.3 Obviously such an arrangement places trust on the vendor's solicitor to actually comply with the undertaking. Unfortunately, in the circumstances of this case, an undertaking along those lines was given but not complied with. A solicitor then working in the firm of the defendants/appellants (‘Maguires’) gave an undertaking to use certain funds provided by the plaintiff/respondent (‘AIB’) in such a fashion but actually used the money concerned to meet other commitments of the client for whom he was acting. That the actions of that solicitor were in serious breach of the undertaking given and, indeed, amounted to a serious breach of professional ethics cannot be doubted and is not disputed. That, as a consequence, Maguires are liable to compensate AIB is likewise not disputed. The issue on this appeal concerns the amount of compensation which should be awarded. That calculation is, at least on one view, complicated by the collapse in property values with which all in this jurisdiction are, unfortunately, familiar.

1.4 The trial judge ultimately awarded compensation based on the entire amount which had been advanced by AIB in relation to the relevant transaction together with interest accrued. Maguires have appealed to this Court against that decision. The trial judge came to the view that the general supervisory jurisdiction which the courts hold over solicitors entitled the Court to depart from simply awarding compensatory damages in all the circumstances of this case. For the reasons advanced in this judgment I have come to the conclusion that it was not appropriate to depart from the principle of compensatory damages and that the appeal must, therefore, be allowed. However, I have also concluded that it is not possible, on the basis of the materials before this Court and on the basis of the findings of fact of the trial judge, to reach an appropriate conclusion as to the amount of compensatory damages which should be awarded in lieu of the sum determined by the trial judge. In those circumstances I would remit the matter back to the High Court for the calculation of damages and propose to give some guidance as to the proper approach to be adopted by that Court in carrying out that exercise.

1.5 While it will be necessary to set out a brief account of the key facts in early course, it is, in my view, in the circumstances of this case, perhaps appropriate to start by explaining the broad issues which arise in fairly general terms before going on to consider how those issues apply in the particular circumstances of this case.

2. The Broad Issue

2.1 There are, in fact, two broad sets of issues. The first set, to which I will shortly turn, concern the question of whether, and if so to what extent, the fact that Maguires are a firm of solicitors, and thus are officers of the court and subject to the direct jurisdiction of the court, may have any impact on the proper approach to the calculation of the amount of damages to be awarded.

2.2 However, there are also issues as to the amount of damages which would be required to meet the general principle behind most damages awards which is that the amount of damages should be calculated on the basis of attempting to put the injured party back into the position in which they would have been had there been no wrongdoing. It is in that context that the collapse in property values potentially comes into significant play.

2.3 The immediate effect of the breach of undertaking given by the relevant solicitor in Maguires was, of course, that an existing charge on the property in question, which acted as security in favour of Anglo Irish Bank (‘Anglo’), was not, as it should have been, paid off and the security released. It followed that AIB found itself in a position where the property over which it was entitled to expect that it would hold a first security in fact remained subject to a prior charge in favour of Anglo. As events turned out the sums due to Anglo were such that the entire value of the property was required to go towards discharging the debt owed to Anglo. In substance AIB found itself without any practical security.

2.4 However, certainly by the time the case came for hearing before the High Court, it had become clear that, even had AIB obtained a proper first security over the property in question, the value of that security would have been a long way below the amount owed to AIB, or the amounts advanced which were the subject of the relevant undertaking, simply because the value of the property in question had declined to a level where it fell a very long way indeed short of providing full security for the loan concerned. On that basis the argument put forward on behalf of Maguires was relatively straightforward.

2.5 It was said that, had it not been for the wrongdoing of the solicitor concerned, AIB would have obtained full security over the property in question. However, even with the benefit of that full security, AIB would have lost a lot of money on the transaction. However, it was argued that the losses above and beyond the value of the security did not stem from any wrongdoing on the part of the relevant solicitor but rather stemmed from the fact that AIB had made a loan which turned out to be significantly loss-making. On one view there might also be an issue as to whether the loan was ill-advised or ill-judged from AIB's point of view in the first place. But, so the argument went, even if the loan were, from the perspective of the time when it was entered into, a sensible lending arrangement, nonetheless the collapse of the property market would have meant that AIB would have lost most of the money advanced even if there had been no wrongdoing. The only part of the loan whose loss was attributable to wrongdoing on the part of Maguires was said, on that basis, to be an amount equivalent to the value of the security. Put in simple terms it is said that most of AIB's losses stem from the fact that it made what turned out to be a bad loan. Even if AIB had full security it still would have incurred most of those losses. On that basis it was said that AIB should only be able to recover that portion of its losses which stem directly from the fact that it was unable to realise security over the property in question in part discharge of its loan.

2.6 However, as the matter was put to counsel for AIB in the course of discussion why, due to the happenstance of a wrongful act on the part of Maguires, should this bank in this case, perhaps close to uniquely in respect of all significant property loans advanced at the height of the boom, be able to recover the full amount of the loan in a claim for damages when, even had there been no wrongdoing, much of the monies advanced might well have...