Danske Bank A/S t/a National Irish Bank v O'Ceallaigh t/a O'Ceallaigh & Company Solicitors

• Jurisdiction: Ireland
• Judge: Miss Justice Laffoy
• Judgment Date: 23 May 2011
• Neutral Citation: [2011] IEHC 216
• Docket Number: [No. 449 SP/2010]
• Court: High Court
• Date: 23 May 2011

Danske Bank A/S t/a National Irish Bank v O'Ceallaigh t/a Sean O'Ceallaigh & Co Solicitors

BETWEEN

DANSKE BANK A/S trading as NATIONAL IRISH BANK

PLAINTIFF

AND

RUAIRI O'CEALLAIGH AND CORMAC O'CEALLAIGH PRACTISING UNDER THE STYLE AND TITLE OF SEAN O'CEALLAIGH & CO. SOLICITORS

DEFENDANTS

[2011] IEHC 216

[No. 449 SP/2010]

THE HIGH COURT

PROFESSIONS

Solicitors

Undertaking - Enforcement of undertaking - Loan to borrowers by plaintiff - Breach of undertaking to ensure charge over property executed prior to negotiating loan cheque - Funds drawn down but no mortgage furnished - Subsequent loan to borrowers from plaintiff - Entire property sold - No proceeds discharged to plaintiff - Borrowers claim unaware proceeds of sale to be used to repay plaintiff - Whether full and bona fide defence - Whether plaintiff suffered any loss - Whether matter should go to plenary hearing - Bank of Ireland Mortgage Bank v Coleman [2009] IESC 38, [2009] 3 IR 699 applied - Directions as to exchange of pleadings issued (2010/449SP - Laffoy J - 23/5/2011) [2011] IEHC 216

Danske Bank A/S t/a National Irish Bank v O'Ceallaigh & Anor p/a Sean O' Ceallaigh & Co Solicitors

BANK OF IRELAND MORTGAGE BANK v COLEMAN T/A COLEMAN & CO 2009 3 IR 699

UDALL v CAPRI LIGHTING LTD 1987 3 AER 262 1988 QB 907 1987 3 WLR 465

MYERS v ELMAN 1939 4 AER 484 1940 AC 282

Miss Justice Laffoy

1 2 1.1 In these proceedings, which were initiated by special summons which issued on 29^th June, 2010 the plaintiff claims:

2 (a) an order requiring the defendants to compensate the plaintiff to the extent of the plaintiff's loss arising from the defendants' breach of an undertaking of 14^th June, 2006 whereby the defendants undertook to ensure that a mortgage or charge was executed over property comprising 7.2 acres in Rathnew, County Wicklow (the Rathnew property); and

3 (b) an order that arising from the breach of the said undertaking the defendants compensate the plaintiff in the sum of €2,586,338.13 which sum is the amount due and owing as of the date of issuing the proceedings to the plaintiff from the defendants' clients; or

4 (c) an order that the defendants compensate the plaintiff in such other sum as this Honourable Court deems fit.

5 3 1.2 When the proceedings came into the Chancery Motion List from the Master's Court, counsel for the defendants submitted that the matter should go to plenary hearing. Counsel for the plaintiff argued that it was not necessary that the matter should go to plenary hearing and submitted that the Court should make an order on the basis of the evidence before the Court. The purpose of this judgment is to address whether that is possible or, alternatively, how the matter should proceed.

6 2 2.1 The evidence before the Court is affidavit evidence consisting of:

7 (a) an affidavit of Robert John Kearns, manager of the plaintiff, sworn on 23^rd June, 2010 and the exhibits referred to therein;

8 (b) the affidavit of the second defendant sworn on 29^th November, 2010; and

9 (c) the further affidavit of Robert John Kearns sworn on 23^rd February, 2011.

10 2 3.1 The defendants' clients referred to in the endorsement of claim on the special summons were John Murphy, Patrick Minto and John Kavanagh (the borrowers). The undertaking on which the plaintiff relies, the undertaking of 14^th June, 2006, related to a loan agreement dated 22^nd May, 2006 (the May Loan Agreement) wherein the plaintiff agreed to advance the borrowers the sum of €1,526,000, the purpose of which was stated to be to assist the borrowers with the purchase of a c. 1.1 acre site at Glenealy, County Wicklow (the Glenealy property). It was stipulated in the May Loan Agreement that the loan would be repaid in full in a single payment on 31^st May, 2007, at which stage it would be repaid by instalments over a mutually agreeable period, refinanced or repaid. There was a default provision that the loan and interest accrued thereon would become immediately payable on demand by the bank on the occurrence of an event of default stipulated. It was provided that the security to be given to the plaintiff by the borrowers comprised:

(a) a first legal mortgage over the Glenealy property, and

11 (b) a first legal mortgage over the Rathnew property.

12 It was specifically provided that any security held then or in the future should be security for all the borrowers' liabilities to the plaintiff actual or contingent and whether as principal or surety.

13 3 3.2 The undertaking dated 14^th June, 2006 was furnished by the defendants to the plaintiff with their letter of 15^th June, 2006. The letter discloses that the defendants also furnished confirmation in relation to an undertaking in respect of the Glenealy property with the same letter. It is important to emphasise at this juncture that the relief sought by the plaintiff in these proceedings is based solely on the breach by the defendants of the undertaking of 14^th June, 2006.

14 4 3.3 The undertaking of 14^th June, 2006 was in the usual form and, while it was not stated to be in the approved form published by the Law Society, it would seem to follow that precedent. The borrowers signed the usual retainer of the defendants and authorisation, which is part of the undertaking, on 14^th June, 2006. The undertaking was expressed to be made in consideration of the plaintiff agreeing to the drawdown of the loan facility before the mortgage security had been perfected and subject to payment through the defendants of the loan cheque. What is of significance for present purposes is that the defendants undertook to ensure, prior to negotiating the loan cheque or the proceeds thereof, that the borrowers had executed a mortgage or charge in the plaintiff's standard form in relation to the secured property. They also undertook, as soon as practicable, to stamp and register the mortgage deed in the appropriate registry and to furnish it together with the title deeds of the secured property to the plaintiff and, pending compliance with those requirements, to hold all the title documents to the secured property in trust for the plaintiff.

15 5 3.4 The loan of €1,526,000 was advanced to the borrowers on foot of the May Loan Agreement and I assume that this was done electronically to the client account of the defendants, as indicated in the undertaking. The defendants never furnished the plaintiff with a mortgage over the Rathnew property, for the reasons I will outline later. Neither the undertaking in relation to the Glenealy property nor the confirmation which accompanied the letter of 15^th June, 2006 is before the Court and no evidence has been adduced by the plaintiff showing that it got security over the Glenealy property, although I assume that happened. It is also important to emphasise that the plaintiff's claim is based on the breach of the undertaking of 14^th June, 2006 in relation to the Rathnew property solely.

16 6 3.5 On 18^th October, 2006 the plaintiff entered into a further loan agreement (the October Loan Agreement) with the borrowers. There is nothing on the evidence before the Court to indicate that the defendants had any involvement in relation to this loan agreement or, indeed, whether they were put on notice of it at the time. In any event, the amount of the facility provided to the borrowers was €1,366,000 and the purpose of the loan was expressed to be to fund the acquisition of eighteen acres of land at Ballybeg, Rathnew, County Wicklow (the Ballybeg property). It was provided that the loan would be repaid in full in a single repayment on 31^st October, 2011, at which stage the loan would be either repaid by instalments over a mutually agreeable period, refinanced or repaid. There was a default provision similar to the default provision in the May Loan Agreement. The security stipulated was:

(a) a first legal charge over the Glenealy property;

(b) a first legal charge over the Rathnew property; and

17 (c) a first legal charge over the Ballybeg property.

18 Once again, it was stipulated that any security held would be security for all liabilities to the plaintiff. Two of the special conditions contained in clause 7 are of relevance. First, paragraph (d) provided that a sale contract in respect of 4.5 acres of the Rathnew property was to be signed not later than 31^st December, 2006 and a minimum of €600,000 from the sale proceeds was to be used "in permanent reduction of the banks (sic) facilities" by not later than 31^st January, 2007. Secondly, paragraph (e) provided that a sale contract in respect of the Glenealy property was to be signed by not later than 28^th February, 2007, with full proceeds to be used "in permanent reduction of the banks (sic) facilities" by not later than 31^st March, 2007. Obviously, the terms of the May Loan Agreement were varied by those provisions.

19 7 3.6 Chronologically, the next material fact is that in June 2007 the plaintiff discovered via an estate agent that the borrowers had sold the entirety of the Rathnew property, that is to say, 7.2 acres, not merely 4.5 acres as had been stipulated in the October Loan Agreement. It was confirmed by an employee of the defendants' firm that the sale had taken place and that the full proceeds of the sale (€4,250,000) had been released to the borrowers. A meeting took place between the plaintiff and the borrowers on 22^nd June, 2007. It is not suggested on the affidavit evidence that the defendants had any involvement with, or were even aware of, that meeting. Mr. Kearns, in his second affidavit, has averred that the borrowers advised the plaintiff's representatives that the majority of the sale proceeds had been dispersed among the borrowers and had been used for other projects. It was further averred that the borrowers claimed that they were unaware that they were obliged to make any payment...