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

• Jurisdiction: Ireland
• Judge: Mr. Justice Brian J. McGovern
• Judgment Date: 06 July 2012
• Neutral Citation: [2012] IEHC 268
• Court: High Court
• Date: 06 July 2012

KBC Bank Irl PLC v BCM Hanby Wallace (a firm)

COMMERICAL

BETWEEN

KBC BANK IRELAND PLC.

PLAINTIFF

AND

BCM HANBY WALLACE (A FIRM)

DEFENDANT

[2012] IEHC 268

[No. 1429 P/2010]

[No. 1430 P/2010]

THE HIGH COURT

PROFESSIONS

Solicitors

Assessment of damages - Security - Valuation of properties - Appropriate date of valuation - Market value - Whether assessment of value by plaintiff or defendant correct - Damages awarded (2010/1429 & 1430 - McGovern J - 6/7/2012) [2012] IEHC 268

KBC Bank Ireland Plc v BCM Hanby Wallce

Facts: The defendant had acted for the plaintiff in a number of loan transactions in relations to sums advanced to others. The plaintiff had alleged negligence in the defendant"s conduct of the matter, claiming the defendant had, inter alia, failed to obtain the required legal charges over certain properties. In an earlier hearing ([2012] IEHC 120), the Court had found in favour of the plaintiff on a number of issues. The fixing of damages was adjourned until this hearing.

Held by McGovern J, that the parties had been able to agree damages in respect of all but two properties. The first property in Rathmines was the subject of two competing valuations. The Court preferred the valuation of the plaintiff, and used that figure as a starting point accordingly.

The second property was in County Wexford. The Court again preferred the submissions of the plaintiff in respect of the relevant date for the property as discussed in the early hearing.

The figures having been fixed by the Court, an order was made accordingly.

1 JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 6th day of July 2012

2 1. On 16 ^th March, 2012, I delivered judgment on the substantive issue in this case, leaving over the fixing of damages until after a further hearing. In my earlier judgment, I set out the basis on which damages would be awarded and a number of issues remained as to the value to be ascribed to certain properties.

3 2. When the hearing on damages commenced, I was informed by counsel that the parties had reached agreement on all aspects of damages except for two properties, namely, the Rathmines Road property and the Oilgate property in County Wexford.

Rathmines

4 3. In August 2005, the plaintiff ("the Bank") obtained a valuation of €5.3 million on 167, Rathmines Road Upper ("the Rathmines Property") from Bannon Commerical, Chartered Valuation Surveyors. It is accepted by all the parties to this litigation that the figure was based on an incorrect turnover. Mr. Marcus Magnier of Colliers International gave evidence that in his view, the correct value for the premises was €2.8 million. He stood over that valuation on the discrete hearing of the damages issue. The plaintiff was content to accept his valuation for the purpose of the hearing on damages, and it has to be said that it suited the Bank's purpose to do so because this was one of the properties where security was perfected and the value of the property fixed by reference to June 2008 would be deducted from the damages awarded in this case. The Bannon valuation was postulated on the basis of a turnover of €130,000 per week. The Bank had used a projection of €80,000 per week but the actual turnover was €46,000. That was approximately one-third of the turnover estimated by Bannon.

5 4. The Bank, having received the Bannon valuation of €5.3 million, reduced the figure in its own calculation to €4 million in light of the actual trading history. Mr. Magnier was asked to value the Rathmines Property as of June 2008 on the assumption that the Bannon valuation of €5.3 million in August 2005 had been correct. He said if one was to carry out that exercise, the value would be €4.5 million. Mr. Magnier's own professional opinion of the value of the property in June 2008 was €2 million.

6 5. I think it is of some relevance to look at the way in which the plaintiff approached the valuation when the property was offered as security by Mr. Kelly. In a Bank document created in December 2006, the following appears:

"The facility will be cross-secured with the borrower's existing facilities which are secured on the Centra at 167, Rathmines Road, Dublin 6 and 7 apartments at Liberty View... Centra Rathmines is estimated to be conservatively valued at €4.0m..."

7 This was in 2006. The Bank also stated in the same document:

"In addition, the borrower has recently added an off-licence to the outlet's current offering. The store is achieving €55,000 per week currently. However, it is initially projected to achieve €80,000 per week."

8 6. This tends to suggest that the Bannon valuation was defended because it was not, in fact, given exclusively on a turnover basis but that there was a development potential and Mr. Kelly had bought the property for €4.2 million with the intention of upgrading it. Of some importance, the internal Bank document goes on to state:

9 · "The property was valued by Bannon Commerical in 2005 and achieved a value of €5.3m.

10 · Whilst the value of €5.3m does not accurately reflect the standard Centra multiples, it represented the inherent value of the Rathmines property...

11 · However, given that the borrower has not achieved the initial projections provided, we have discounted this value to €4. 0m in our analysis."

12 So the Bank appeared to be justifying the valuation and they were supported by DTZ Sherry Fitzgerald in a report prepared on 29 ^th June, 2011, for the purpose of the court hearing. In that report, they stated:

"Colliers provide a valuation estimate of €2.6m. We are aware that the property sold at the time of the Bannon valuation for a figure of €4.25m. On the basis that this was a freely negotiated transaction, it is strong evidence of the market value of the property, and in the absence of some specific issue, it should equate to the market value of the property at the time. Based on the general analysis of the existing property, the price paid would appear quite strong. However, clearly, the purchaser's motivation included not only the value of the existing building, but the future potential associated with the conversion to convenience store and the value of the established trading business. If one accepts the €5.3m valuation (which appears to take account of the potential for residential overhead) as a reasonable target value based on the assumed trading level, then the price paid does appear to leave room for the cost of conversion works from motor showroom to retail, which we understand were estimated to cost in the region of €600,000, and also leaves some room for the additional risk margin with the ultimate objective of improving the property value to the Bannon target level. Bannon Commercial did not provide a valuation of the property on a direct like-for-like basis with the circumstances at the time of acquisition."

13 7. Mr. Sean McCormack, the author of that report, gave evidence to the court on day 16 of the trial. He was asked by counsel if the Bannon valuation was based on an incorrect turnover figure which was lower than their calculation, did that invalidate their conclusions as to the value of the site. His reply, at answer 71, was:

"No, not necessarily. If the valuation was purely driven by the turnover calculation and if that turnover then proved to be wrong or an error was made, then, clearly, that would make a difference, but it wouldn't necessarily invalidate the overall...