Judith Whelan and Others v Allied Irish Banks p.l.c. and Others

• Jurisdiction: Ireland
• Court: Supreme Court
• Judge: Mr Justice O'Donnell
• Judgment Date: 30 January 2014
• Neutral Citation: [2014] IESC 3
• Docket Number: [S.C. No. 51 of 2012]
• Date: 30 January 2014

Whelan & Lynch v Allied Irish Banks plc & Ors

Between:

Judith Whelan, Therese Lynch, Philip Lynch, Eileen Lynch, Philipa Lynch and Paul Lynch

Appellants/Plaintiffs

And

Allied Irish Banks p.l.c., Matheson Ormsby Prentice Solicitors, And LK Shields Solicitors

Respondents/Defendants

[2014] IESC 3

Fennelly J.

O'Donnell J.

MacMenamin J.

Appeal No. 051/2012

High Court Record No. 6866P/2010

THE SUPREME COURT

Tort law - Professional Loan - Banking - Facility letter - Non-recourse loan - Solicitors - Advices - Reliance - Public Policy - Decisions made - Risk - Duty of care - Negligence - Practice and procedure

Facts: The proceedings concerned a transaction in relation to a facility letter providing for an advance for the purchase of lands. The Lynch family maintained that they would not have entered the agreement had they understood that it was not a non-recourse loan. The High Court had entered judgment in the bank"s favour against the Lynch family. The High Court had concluded that it was not just and reasonable to impose a duty of care upon one particular solicitors firm, whereby it was not reasonable to expect that the advices given would have been critical as to whether the loan was a recourse loan which the Lynches would not have proceeded with were it such a loan. It was argued inter alia that AIB"s failure to call evidence could invite the court to draw inference.

Held by the Supreme Court per O"Donnell J. (Fennelly, MacMenamin JJ. concurring) in dismissing the appeals of the appellants save to allow the appeal of the first, second, fourth, fifth and sixth plaintiff against the Bank. The High Court was not correct as to the conclusions dawn on the duty of care, i.e. that none had existed. On the cross-appeal by LK Shields, the findings made would be set aside as there was no reliance on the advice. As to the case against Matheson Ormsby Prentice, it had satisfied the relevant duties required of it. The High Court was correct not to draw inference. Mr Lynch had no basis to seek to resist the bank"s claim for judgment and the Court would dismiss his appeal.

GLENCAR EXPLORATIONS PLC & ANDAMAN RESOURCES PLC v MAYO CO COUNCIL (NO 2) 2002 1 IR 84 2002 1 ILRM 481 1998/20/7466

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WARD v MCMASTER 1988 IR 337 1988 IESC 3

M'ALISTER (ORSE DONOGHUE) v STEVENSON 1932 AC 562 1932 SC (HL) 31 1932 SLT 317

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EAST SUFFOLK RIVERS CATCHMENT BOARD v KENT 1940 4 AER 527 1941 AC 74

JUNIOR BOOKS LTD v VEITCHI CO LTD 1982 3 AER 201 1982 3 WLR 477 1983 1 AC 520

LE LIEVRE v GOULD 1893 1 QB 491

NORTHERN BANK FINANCE LTD v CHARLTON 1979 IR 149

SOCIETE D'AVANCES COMMERCIALES (SOCIETE ANONYME EGYPTIENNE) v MERCHANTS MARINE INSURANCE CO 1924 20 LLOYDS REP 140

VESEY v BUS EIREANN 2001 4 IR 192 2001/24/6453 2001 IESC 93

SHELLEY-MORRIS v BUS ATHA CLIATH (DUBLIN BUS) 2003 1 IR 232 2002/25/6368 2002 IESC 74

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MCQUEEN v GREAT WESTERN RAILWAY CO 1875 LR 10 QB 569

WISZNIEWSKI v CENTRAL MANCHESTER HA 1998 PIQR P324 1998 LLOYDS REP MED 223

1 On the 8 ^th of February 2007 in the offices of the firm of A & L Goodbody the solicitors to Allied Irish Banks (hereinafter "AIB" or "the bank" and the first named defendants herein), the first named plaintiff, Judith Whelan, on her own behalf and on behalf of her siblings (the second, fifth and sixth named plaintiffs), her mother (the fourth named plaintiff) and her father (the third named plaintiff, a well known and very successful businessman), entered into a deal together with another then successful businessman. Mr Gerard Conlan, for the joint purchase by them of 86 acres of land at Kilbarry, County Waterford. Crucially for the purposes of these proceedings, the transaction completed that day also involved the execution and acceptance of a facility letter providing for the advance to the plaintiffs and Mr Conlan of the purchase price of €25 million by AIB and the execution of a deed of charge securing the lands in respect of the same borrowings.

2 The transaction was one that appeared very advantageous, and if it had been known at the time, might perhaps only have excited the envy of any onlooker. The land in question was very likely to be rezoned, having been included in a draft development plan for County Waterford, and on rezoning and the securing of planning permission, it would almost inevitably have become worth a significant multiple of its purchase price. Indeed, even as the transaction was being negotiated, the value of the land was increasing. The transaction was estimated as likely to produce a profit to the Lynch side of up to 20 million euro in a relatively short period of time. It was anticipated that it would have been eminently possible to rapidly sell a portion of the lands, discharge the loan, and then consider whether it was more advantageous to sell the remaining lands in parcels, or to seek to develop the land and secure even more profits, or to do some combination of the two. The purchase itself was to be financed entirely by the loan, and there was no requirement on any member of the Lynch family or Mr Conlan to risk any of their own funds.

3 Those who contend that the free market system promotes efficiency and rewards enterprise might find it difficult to explain why such potential profits were being made available to members of the Lynch family who had contributed nothing to the sourcing of the land, to the proposals for its development, or the securing of rezoning or planning permission. They were involved in the transaction because of their family relationship to Philip Lynch, and he in turn was involved in the transaction because of his substantial net worth, and his association with Mr Conlan.

4 Indeed, it is contended by the Lynch family, including Mr Lynch himself, that this transaction was a particularly advantageous one because they argue that the loan itself was a non-recourse loan, meaning that they believed that in the unlikely event of default, the lender would look solely to the security of the land itself and would not seek to recover any shortfall from the individual borrowers. This is one of the central issues in this case. But even assuming for the moment that this was not so, this was still a very attractive transaction for the members of the Lynch family with, it appeared, little if any downside risk. Indeed, that is no doubt why Mr Philip Lynch sought to secure their involvement therein. Before there could be any risk to the individual family members (even on the assumption that the loan was not nonrecourse) there would first have to be a dramatic fall in the value of the property bringing it below the price paid (and borrowed). Even if there was some shortfall in this regard, as a matter of practicality it was highly likely that either or both Mr Conlan and Mr Lynch, themselves enormously successful and apparently wealthy individuals, would be in a position to discharge any liability for any shortfall. Accordingly, before there could be a real risk to any of the individuals, there would have to be a total collapse in the property values in Ireland, and a dramatic and total destruction of the wealth of those two individuals. Looked at in 2006 and 2007, it would have been reasonable to assume that such an unlikely combination of events could not occur, could it? We now know better.

5 This transaction, which appeared to promise considerable profit, has become a disaster, not only for the individuals involved but also for the professional advisors whom they seek to blame. Following judgment against the plaintiffs on the 11 ^th January 2012 Peart J. made an order in favour of the bank, against all the plaintiffs, for the sum of €26,194,554.90 with interest accruing at a rate of more than €2,262.59 per day. It appears to be common case that at that time at least, the land itself had a value of less than €5 million. The High Court also dismissed the plaintiffs' claim in negligence against the two firms of solicitors and the plaintiffs therefore became jointly liable for the costs of the successful defendants in what had been a very hard fought and contentious 27 day hearing in the High Court. The plaintiffs now appeal to this Court.

6 The decision of the High Court is contained in the comprehensive and careful judgment delivered on the 8 ^th December 2011. A very full account of the events giving rise to the execution of the loan and the transfer of the land on the 8 ^th February 2007 is contained in that judgment which should be read together with this decision. In the circumstances, I will seek to limit this recital of the background facts to those incidents which appear critical or which are in controversy in this appeal. Even so, it is a necessarily lengthy account.

7 It should be said at the outset that of the dramatis personae involved in the process, Mr Conlan was not joined as a party to the proceedings and neither he nor his associates, Mr Conor Gunne and Mr Richard Godsil, were called as witnesses by the plaintiffs. While AIB was a defendant in the proceedings, a decision was taken in the course of the case not to call evidence and accordingly Mr Derek O'Shea, the official in the bank involved in the loan and responsible for a significant change to the facility letter on the 7 ^th February 2007 (the day before the loan was executed), was not called, nor...