The High Court
Last year, the High Court had ruled that the solicitors firm had failed to obtain security for loans in respect of 27 properties, and instead allowed the loans to be advanced in reliance on undertakings to provide security. As a result the bank had "suffered very substantial losses due to its inability to realise its security coupled with the substantial devaluation of the properties".
The High Court concluded that the effective cause for the loss was that the bank had no security for €25 million worth of loans advanced to two individuals, and awarded €17.7 million in damages against the solicitors firm. The High Court held that, whilst the bank had been "somewhat careless in its appraisal of the borrowers", this was not a sufficiently proximate cause for the loss. The court held that if the solicitors firm had fulfilled its duties, on the facts of the case, the bank would have decided against making the loans in the first place, and so no loss would have followed. The Court appeared highly influenced by the specific factual matrix of the case which it considered "quite exceptional" including a finding that the solicitors firm had "committed a deception, because it was aware that the required security was not in place, but led the bank to believe that it was".
The Supreme Court
The Supreme Court reviewed the evidence and clarified the finding of "deception" stating that the High Court judgment "cannot and should not be read as imputing any intentional dishonesty or deliberate misleading to any partners or officers of the appellant firm". The Court noted that banks have a duty when reviewing whether to make any given loan to assess the soundness, financial standing and trustworthiness of the prospective borrower as well as the viability of the proposed venture. This meant that banks should have robust and comprehensive credit analysis and approval processes to ensure adequate monitoring of risk, as required by the EC (Licensing and Supervision of Credit Institutions) Regulation 1992. These duties are quite independent of any reliance the bank might place on any third party, such as a solicitor.
Here the bank had failed to obtain verification of the assets or income put forward by the borrowers. This included "extraordinary" claims made by the borrowers regarding their income. Amongst these claims was that one borrower, Mr...