The High Court found a solicitors’ firm negligent and in breach of contract after it failed to secure properties required for bank loans and gave assurances that the security was in place, or that funds would be withheld until it was. The court held that the bank could recover its losses on a “no transaction” basis, but did not determine the final amount of damages.
In a judgment delivered on 16 March 2012, Mr Justice Brian J. McGovern considered two actions brought by KBC Bank Ireland plc against BCM Hanby Wallace, heard together because they concerned overlapping transactions. One involved loans to John Kelly; the other concerned a €9 million loan to Thomas Byrne, who acted as Kelly’s solicitor.
The bank said its instructions required first charges over 30 properties, but the firm obtained charges over only three and instead accepted undertakings from Byrne’s firm. The judge said the firm’s partner, Ronan Egan, admitted that the firm breached its obligations on the Kelly loans. The defendant ultimately conceded negligence and breach of duty during closing submissions.
The court found that the firm’s conduct went beyond failing to obtain security. It had led the bank to believe security was in place and assured it that loan proceeds would not be released before the required security was furnished, despite knowing otherwise. The judge concluded that the funds would not have been released if the bank had known the true position. He therefore held that damages should be assessed on the basis that the loans would not have proceeded, and that the bank could recover all losses resulting from entering them.
The defendant argued that the bank had been careless in assessing the borrowers’ finances and should bear some responsibility for its losses. The judge accepted that the bank had been “somewhat careless” and that information about the borrowers should have raised suspicions. But he rejected the contributory-negligence defence, finding the firm’s conduct the proximate cause of the loss. The bank was entitled to rely on the firm’s specific assurances, he said.
The court also found the evidence on failure to mitigate inconclusive. It set a method for calculating damages: loan advances and funding costs, less repayments and the value of security or other assets obtained. The secured properties were to be valued as of June 2008. The judge allowed related third-party legal costs but ruled out receivership costs for the three properties over which security had been obtained.
The Oilgate property’s status remained unclear, as did several figures and cost issues. The court directed that counsel return to try to agree the amounts or identify any further evidence needed. The judgment therefore determined liability and the damages methodology, not a final monetary award.