KBC Bank Ireland Plc v BCM Hanby Wallace (A Firm)

• Jurisdiction: Ireland
• Judge: Mr. Justice Brian J. McGovern
• Judgment Date: 16 March 2012
• Neutral Citation: [2012] IEHC 120
• Court: High Court
• Date: 16 March 2012

[2012] IEHC 120

THE HIGH COURT

[No. 1429 P/2010]

[No. 1430 P/2010]

KBC Bank Ireland Plc v BCM Hanby Wallace (a firm)

BETWEEN

KBC BANK IRELAND PLC.

PLAINTIFF

AND

BCM HANBY WALLACE (A FIRM)

DEFENDANT

ACC BANK PLC v JOHNSTON T/A BRIAN JOHNSTON & CO SOLICITORS 2010 4 IR 605 2010/2/284 2010 IEHC 236

SOUTH AUSTRALIA ASSET MANAGEMENT CORP v YORK MONTAGUE LTD 1997 AC 191 1996 3 WLR 87 1996 3 AER 365

ACC BANK v FAIRLEE PROPERTIES LTD & ORS 2009 2 ILRM 101

BRISTOL & WEST BUILDING SOCIETY v FANCY & JACKSON (A FIRM) 1997 4 AER 582

BRISTOL & WEST BUILDING SOCIETY v ROLLO STEVEN & BOND 1998 SLT 9

EUROPEAN COMMUNITIES (LICENSING & SUPERVISION OF CREDIT INSTITUTIONS) REGS 1992 SI 395/1992 REG 16(3)

EUROPEAN COMMUNITIES (LICENSING & SUPERVISION OF CREDIT INSTITUTIONS) REGS 1992 SI 395/1992 REG 16(4)

ACC BANK PLC v JOHNSTON UNREP CLARKE 22.9.2011 2011/2/299 2011 IEHC 376

JACKSON & POWELL ON PROFESSIONAL LIABILITY 7ED 211

NEGLIGENCE

Solicitors

Action for damages for professional negligence and breach of contract - Defendant retained as solicitors to complete loan transactions and perfect security - Assurances - Obtaining of fixed first charge over properties - Acceptance of undertakings without authority of bank - Undertakings not complied with - Unable to realise security - Devaluation of properties - Contributory negligence - Failure to mitigate loss - Basis on which to assess damages - âÇÿNo transaction' case - Scope of duty - Appraisal of borrowers - Responsibility of bank - Whether guilty of negligence - Whether contributory negligence - Whether failure to mitigate loss - ACC Bank plc v Brian Johnston & Co [2010] IEHC 236, [2010] 4 IR 605; Banque Bruxelles SA v Eagle Star [1997] AC 191; ACC Bank plc v Fairlee Properties Ltd [2009] IEHC 45, [2009] 2 ILRM 101; Bristol & West Building Society v Rollo Steven & Bond [1998] SLT 9 and ACC Bank plc v Brian Johnston & Co [2011] IEHC 376, (Unrep, Clarke J, 22/9/2011) considered - European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 (SI 395/1992) - Damages awarded (2010/1429P & 2010/1430P - McGovern J - 16/3/2012) [2012] IEHC 120

KBC Bank Ireland plc v BCM Hanby Wallace (a firm)

Facts The cases concerned transactions entered into by the plaintiff bank where it had advanced loans to third parties which subsequently ran into difficulties. The bank maintained that the solicitors that had engaged to act on its behalf (the defendant) had failed to put in place the requisite security as per its instructions and had accepted undertakings from parties without the necessary authority. The plaintiff maintained that the defendant had misled it as to the true state of affairs ultimately resulting in substantial losses to the bank. Initially the defendant denied liability but made a number of concessions. The defendant contended that the plaintiff was guilty of contributory negligence and had failed to mitigate its loss. It was also asserted that the bank had been aggressively targeting the third parties in questions (to lend monies) and would have gone ahead with the loans, even if security had not been obtained. The defendant maintained that it was only liable for failing to obtain the relevant security and was not liable for all the consequences of the bank”s decision to lend to the parties in question relying on Banque Bruxelles S.A. v Eagle Star [1997] AC 191. The plaintiff submitted that if the defendant had acted in accordance with its instructions, none of the loans would ever have been made because the monies would not have been advanced and the bank would not have suffered any loss.

Held by McGovern J in finding in favour of the plaintiff: On the admissions of the solicitor in question, the defendant could not avoid findings of negligence, breach of duty and breach of contract. The appraisal of the borrowers was carried out entirely by the bank and the defendant was not relied upon for this purpose. The defendant”s responsibility was to put in place the proper security. The solicitor deliberately misled the bank and had assured them that the necessary security had been obtained. This amounted to a deception on the part of the defendant solicitors. The problem was also exacerbated by the fact cross-collateralised security was involved which meant that new loans should have been secured on security which was already meant to be in place. Damages should be approached on a ‘no transaction’ basis and that the bank was entitled to recover all of the loss it has suffered as a result of entering into the loans in question. Although the plaintiff was somewhat careless in its appraisal of the borrowers, funds had only been released after the plaintiff had received confirmation from the necessary security was in place. A bank which retained the services of a firm of solicitors were entitled to rely on the assurances received and should not have to check those assurances before releasing funds. The claim for contributory negligence was rejected. The loss to the plaintiff was the amount of the loans advanced together with the costs of funding those loans to date less any interest or capital repayments made by the borrower and/or the value of any secured property (or additional property) which the bank obtained.

1 JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 16th day of March, 2012

2 1. In each of the above cases, the plaintiff (the "bank") claimed damages against the defendant, who at all material times acted as the plaintiff's solicitors, having been retained to complete certain loan transactions and perfect the security required by the bank in accordance with the terms of its retainer. The proceedings bearing Record No. [2010 No. 1429 P] concern loans made to a Mr. John Kelly (the "Kelly loans") and the proceedings bearing Record No. [2010 No. 1430 P] concern a loan made to a Mr. Thomas Byrne (the "Byrne loan") who was, at all material times, the solicitor for Mr. John Kelly, through his firm Thomas Byrne & Co. Solicitors. The parties agreed that the two actions should be heard together as there is a significant overlap in the facts and personnel involved in the transactions. For convenience the parties along with the proceedings will be therefore be referred to in the singular form throughout this judgment.

3 2. Pursuant to the terms of a facility letter dated the 16 ^th day of August, 2005, the bank lent Mr. Kelly a sum of €4.9 million. That loan was topped up by a facility letter dated the 13 ^th day of September, 2005, which amended and replaced and first facility letter by an additional €1 million.

4 3. On the 11 ^th day of December, 2006, the bank issued a facility letter in respect of a further loan of €9m to Mr. Kelly.

5 4. In August 2007, the bank agreed to loan a sum of €9m to Mr. Byrne subject to the terms set out in a facility letter of the 8 ^th day of August, 2007. This was a separate loan facility to that granted to Mr. Kelly in the same sum.

6 5. In each case, the bank retained the defendant to act on its behalf in order to investigate title and ensure the completion and perfection of the security required by the bank. This included obtaining a first fixed charge over a substantial number of properties which are set out in the facility letters in each case.

7 6. In essence, the plaintiff's case is that out of a total of 30 properties which were required by the bank as security in respect of the loans made to Messrs. Kelly and Byrne, the defendant obtained a first legal mortgage/charge in respect of only three properties. Instead, the defendant accepted undertakings from Thomas Byrne & Co. without reference to, or authority from, the bank, and those undertakings were not complied with. The plaintiff alleged that over a substantial period of time, the defendant misled it as to the true state of affairs and led the bank to believe that it would not release funds until the required securities were in place. As a result of these actions, the plaintiff claimed that it has suffered very substantial losses due to its inability to realise its security coupled with the substantial devaluation of the properties.

8 7. The defendant had delivered a full defence in each case and pleaded contributory negligence and a failure on the part of the plaintiff to mitigate its loss and damage. However, as will be described in the course of this judgment, at a late stage in the main trial of the action, the defendant made a number of significant concessions to that initial position.

9 8. A number of issues nevertheless arose in this case:

10 (i) Was the defendant firm guilty of negligence/breach of contract?

11 (ii) If the defendant was guilty of negligence, the basis upon which damages should be assessed.

12 (iii) Was the plaintiff guilty of contributory negligence?

13 (iv) Did the plaintiff fail to mitigate its loss?

14 The plaintiff argued that if it was aware that the security it required had not been put in place, it would not have entered into the transactions or lent the sums involved and that the damages should be assessed on the basis of a "no transaction" case. The defendant contended that this was not the correct basis on which to approach the issue of damages, but asserted that the plaintiff bank was aggressively pursuing Messrs. Kelly and Byrne and would have made the loans in any event. The defendant also contended that the bank failed to mitigate its loss and claimed that in those cases where the bank did have security, they failed to take prompt steps to realise the security. So far as the issue of contributory negligence is concerned, the defendant claimed that the bank was targeting both Mr. Kelly and Mr. Byrne so aggressively that they would have gone ahead with the loans, even if security had not been obtained. The defendant claimed...