KBC says solicitors failed to ensure proper security for loans of €23m

A FIRM of solicitors retained by a bank to act for it concerning substantial loans to property developer John Kelly and struck-off solicitor Thomas Byrne is being sued for about €23 million over its alleged failure to ensure the bank had proper security related to those loans.

Among a range of claims, KBC Bank Ireland alleges the defendant firm – Byrne Wallace (formerly BCM Hanby Wallace) – accepted and relied on “defective” undertakings concerning security over certain properties from Mr Kelly’s then solicitor, Mr Byrne, who has since been struck off.

KBC Bank Ireland, formerly IIB Bank, claims the alleged negligence caused substantial losses to it as it was later unable to recover monies owed to it under the loans by selling the properties involved.

It is also claiming monies related to costs of legal proceedings over the loans, plus damages for alleged negligence, breach of contract and misrepresentation.

Byrne Wallace denies negligence, breach of contract or breach of duty. It also claims it was at all material times authorised by the bank to accept certificates of title and certain undertakings from Mr Byrne.

KBC had not suffered the alleged losses and was not entitled to be compensated by Byrne Wallace as sought, it is also pleaded.

The largest and most valuable of the properties to be secured was in fact secured, it is claimed.

The firm has also alleged contributory negligence by KBC. It claims the bank’s actions concerning the loans to Mr Kelly were contrary to normal and prudent standards of banking, reflected an “aggressive and target-driven lending style”, and exposed the bank to undue levels of risk by virtue of weak credit analysis, poor due diligence and “target-driven haste”.

It is pleaded the bank allowed a situation where responsibility for ensuring compliance with legal and securities conditions remained with the bank’s relationship management personnel who, it is alleged, had an interest in facilitating Mr Kelly’s requests for large loans to be drawn down as a matter of apparent urgency.

The action, listed for three weeks, opened yesterday before Mr Justice Brian McGovern after talks between the sides earlier.

The case arises from property-related loans made in 2005 and 2006 to Mr Kelly, Kilquade, Co Wicklow, and to Mr Byrne.

Michael Collins SC, for KBC, said the bank alleged it suffered very significant losses as a result of the solicitors’ negligence.

It was the bank’s case, that if it knew the solicitors had accepted undertakings from Mr Byrne concerning security, it would not have proceeded with the transactions.

The bank contended it had always operated in a “careful and prudent” fashion concerning lending, Mr Collins said. It had operated on the basis it had a first legal charge over properties as security but later learned it did not have a first legal charge over a number of properties.

While negligence was denied, there was little or no attempt to defend the actions of the solicitors who had not disputed an expert report from AL Goodbody outlining what should have been done, Mr Collins said.

The defendants had contended the bank should have undertaken a better investigation into matters and, if it had, would not have made the loans.