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

• Jurisdiction: Ireland
• Judge: Mr. Justice Fennelly
• Judgment Date: 25 June 2013
• Neutral Citation: [2013] IESC 32
• Court: Supreme Court
• Docket Number: [S.C. Nos. 334, 335, 443 & 444 of 2012]
• Date: 25 June 2013

[2013] IESC 32

THE SUPREME COURT

Fennelly J.

O'Donnell J

McKechnie J.

[Appeal No:334/2012]

(Cross Appeal No. 443/2012)

[Appeal No: 335/2012]

(Cross Appeal no. 444/2012)

KBC Bank Irl PLC v BCM Hanby Wallace

Between/

KBC Bank Ireland plc

Plaintiff/Respondent

and

BCM Hanby Wallace (A Firm)

Defendant/Appellant

John Kelly Proceedings

Thomas Byrne Proceedings

CIVIL LIABILITY ACT 1961 S34

SOUTH AUSTRALIA ASSET MANAGEMENT CORP v YORK MONTAGUE LTD (SUB NOM BANQUE BRUXELLES LAMBERT SA v EAGLE STAR INSURANCE CO LTD) 1996 3 AER 365 1997 AC 191 1996 3 WLR 87

TOMLINSON LENDER CLAIMS 2010 PARAS 8-12

O'SULLIVAN v DWYER 1971 IR 275

CONOLE v REDBANK OYSTER CO 1976 IR 191

SAHIB FOODS LTD (IN LIQUIDATION) v PASKIN KYRIADSE SANDS (A FIRM) 2003 PNLR 181 2003 EWCA CIV 1832 2003 93 CON LR 1

CIVIL LIABILITY ACT 1961 S34(1)

CIVIL LIABILITY ACT 1961 S34(2)(C)

CARROLL v CLARE CO COUNCIL 1975 IR 221

JACKSON & POWELL PROFESSIONAL LIABILITY 7ED 2012 211

CHARLESWORTH & PERCY CHARLESWORTH & PERCY ON NEGLIGENCE 12ED 2010 PARA 4.57

NATIONWIDE BUILDING SOCIETY v JR JONES (A FIRM) 1999 LLOYDS PN 414

PLATFORM HOME LOANS LTD v OYSTON SHIPWAYS LTD 1999 1 AER 833 2000 2 AC 190 1999 2 WLR 518

EUROPEAN COMMUNITIES (LICENSING & SUPERVISION OF CREDIT INSTRUCTIONS) REGS 1992 SI 395/1992

Litigation - Loan facility - Repayment - Professional negligence - Security - Contributory negligence - Causation - Error of law - Civil Liability Act 1961

Facts: These were two related appeals. In both cases, KBC Bank ('the respondent') had lent significant amounts of money to two individuals who had subsequently defaulted in their repayments. The respondent had engaged the appellant, a firm of solicitors, to complete the loan transactions and obtain the security provided for in each loan facility letter. The appellant failed to do this and the respondent brought proceedings against the appellant in respect of each loan. The actions were successful on the grounds of negligence and the respondent was awarded damages of €9,983,585.34 and €7,710,545.16 respectively. During the trial, the appellant had argued that the respondent had failed to carry out adequate financial checks on the borrowers, making them guilty of contributory negligence. This argument was rejected. The appellant brought appeals in relation to both cases, arguing that the High Court was wrong to reject the contributory negligence argument.

The appellant"s argument was focused on the High Court judge"s analysis of the issue of causation in relation to the loss suffered by the respondent. It was argued that s. 34 of the Civil Liability Act 1961 recognised that there may be more than one cause of loss or damage. This was said to be relevant to the present case as each of the loan transactions involved two functions: the respondent deciding to make a loan and the appellant"s obligation to obtain security. It was argued that the respondent had not carried out adequate financial checks, which showed a lack of care shown and which had direct bearing on the loss suffered. It was also argued that these causative contributions were not considered by the trial judge who instead focused erroneously on a single proximate cause for the loss.

The respondent argued that the High Court finding in relation to contributory negligence was correct. It was said that the negligence of the appellant, which was no longer in dispute, was the cause of the bank"s losses; and even if the bank had been negligent, its acts could not be considered relevant or material to the overall loss suffered as the loans would not have been paid out to the borrowers but for the negligence of the appellant in obtaining the securities pursuant to the loan facility letters.

Held by Fennelly J. (with O"Donnell J. and McKechnie J. concurring) that the High Court judge had erred in his analysis of causation in that he had asserted that any negligence by the respondent could only be considered a mere causa sine qua non and not a proximate cause of the loss, but no conclusion was reached as to whether there had actually been any contributory negligence. The appellant was correct to state that s. 34 of the Civil Liability Act 1961 recognised that there may be more than one cause of loss or damage. The High Court had not determined whether the respondent had negligently failed to carry out adequate financial checks, nor whether the money would have been loaned had such reasonable care be taken which would have made known the truth of the borrowers" financial situations. It was not the function of Supreme Court to do that now, but it was held that if the High Court had investigated and indeed found that the respondent had failed to take such reasonable care, it would appear that the negligence of the appellant and the respondent could be considered as equal in terms of the loss suffered.

In those circumstances, it was determined that the matter had to be remitted to the High Court so that a finding on contributory negligence could be definitively made. If that was found to be the case, the causative contribution of the respective faults of the appellant and the bank would also have to be determined respectively.

1 1. These appeals raise important issues concerning the application of the defence of contributory negligence pursuant to s. 34 of the Civil Liability Act 1961. The respondent, a bank, (hereinafter "the bank") lent large sums of money to two individuals, who defaulted on their repayment obligations. The bank engaged the appellant, a firm of solicitors, to complete the loan transactions and, above all, to ensure that the bank obtained the security provided for in the facility letters. The appellant failed in its assigned task. The bank sued it successfully in the High Court. McGovern J awarded sums of €9,983,585.34 and €7,710,545.16 respectively by way of damages for negligence against the appellant.

2 2. The two cases are quite separate. They have been heard together both in the High Court and this Court because they are between the same parties and concern similar lending transactions. Furthermore, they are crucially linked by the fact that the borrower in the second case was the solicitor for the borrower in the first. The key act of negligence found against the appellant in the first case was the acceptance of the solicitor's undertaking of that solicitor who then himself became a borrower.

3 3. The appellant pleaded in its defence that the bank had been guilty of contributory negligence principally in the respect that it failed to carry out any adequate inquiry into the financial standing of the borrowers, before agreeing to lend them very large sums. Thus, it was claimed that the bank had failed to take appropriate care in the protection of its own interests. The learned trial judge rejected the defence of contributory negligence in both cases. The appeal turns centrally on the correctness of the learned trial judge's analysis of causation. He held that the negligence of the appellant was the proximate cause of the bank's losses, or causa causans: even if the bank had been negligent, its acts were at most a mere causa sine qua non.

The loans made to Mr Kelly and Mr Byrne

4 4. The first set of proceedings relates to three loans made to Mr John Kelly. The second relates to a loan made to Mr Thomas Byrne. I will describe the loans respectively as the Kelly loans and the Byrne loans.

5 5. The loans were closely inter-related for several reasons. It is an important feature that Mr Byrne was the solicitor who acted for Mr Kelly. Mr Byrne then borrowed money from the bank himself. Furthermore, the loans to Mr Kelly were cross-collateralised; security provided for each of the loans was also security for the others. Finally, each later loan, including the loan to Mr Byrne, was provided by the bank in ignorance of the fact that there had been a failure to provide security for earlier loans or of the fact that Mr Byrne had failed to honour undertakings he had given in respect of the earlier transactions.

6 6. Each of the loans was granted pursuant to a facility letter signed by the borrower. The security requirements included the provision of a first fixed charge over specified properties. The facility letter provided, in each case, that it was a condition precedent to drawdown of the loan, inter alia, that there have been compliance with the bank's security requirements and that all required documentation (which necessarily included the security documentation) be received by the bank at least three days before drawdown.

7 7. The first Kelly loan dated 16 ^th August 2005 was for €4.9 million. Its purpose was to fund the purchase of and works on a property at 167 Upper Rathmines Road, Dublin 6. There was, inter alia, to be a first fixed charge over that property and over residential properties at 9, 22, 33 Liberty View, Dublin 8.

8 8. The second Kelly loan was dated 13 ^th September. The facility letter, which recorded that the first facility had already been drawn down in part, replaced the first and provided for the advance of an additional €1 million to fund the purchase of the leasehold interest in Londis, at Upper Rathmines Road, Dublin 6. The combined security by way of first fixed charge was now to cover in addition numbers 14, 15, 18 and 21 Liberty View, Dublin 8.

9 9. The third Kelly loan was dated 11 ^th December 2006. It was for €9 million. It was to be used to refinance two existing Educational Building Society facilities to a total of €5 million, €1.3 million to purchase a leasehold property at Centra, 45-47 James' Street, Dublin 8 and €2 million by way of "equity release to be used for further investment purposes."

10 10. The Byrne loan was the subject of a facility latter dated 8...