AIB plc -v- Maguire and Ors practising as Séamus Maguire Co Solicitors.
High Court
Judgment was given on July 28th, 2009, by Mr Justice Michael Peart.
Judgment
Mr Justice Peart ordered the defendant firm of solicitors to repay to the bank a loan of €3 million, with interest, where the loan was given following a solicitor’s undertaking which was not complied with by the borrower.
Background
On May 22nd, 2007, AIB sanctioned a loan to Alan Hynes and his wife Noreen for €3 million to purchase a property in Co Wexford called Moongate. They were buying it from a syndicate, which included Ms Hynes among its members, and had agreed to repay to Anglo Irish Bank a loan on the property of €2.2 million taken out by the syndicate.
Maguire and Co solicitors represented both Mr and Ms Hynes and the syndicate. The bank did not instruct its own solicitors in the transaction and accepted a letter of undertaking from the solicitors, on the bank’s standard form for such undertakings.
It also accepted a valuation on the property from CBRE of €3.9 million, taking account of its significant development potential, although no planning permission had been granted.
It appeared that a factor in the bank’s decision to grant the loan was the expectation that the borrowers would sell another property, called Newgate, thereby releasing equity which would reduce the bank’s exposure. Interest was to be charged quarterly.
The borrowers accepted the letter of offer and a “loan pack” was sent to Fergal Dowling, the solicitor in Maguires handling the transaction for Mr Hynes.
Mr Dowling completed the form of undertaking and a partner in the firm, Richard Clinch, signed it. The €3 million, less the arrangement fee of €7,500, was lodged to the firm’s account on June 7th, 2007.
Among other statements, the solicitor’s undertaking stated that the client had or would acquire a good and marketable title to the property concerned and would apply all sums exclusively towards the purchase of the property or the discharge of existing third- party mortgages.
However, the day after the lodgment of the funds into the firm’s client account, Mr Dowling obtained a draft for €2 million not in favour of Anglo Irish Bank, but of Taylor and Buchalter, solicitors. They were acting for the vendors of a property in Dalkey and the letter sent to these solicitors stated this was “the deposit due” for this property.
A further €572,821 from the loan also went to Taylor and Buchalter. None of the loan was spent on Moongate.
The company controlled by Mr Hynes, which was seeking to buy the Dalkey property, had sought a loan from AIB to do so, but was turned down.
The vendors of this property were seeking specific performance of the contract to purchase it in the Commercial Court in the days leading up to the sending of the bank draft.
According to a memo from Mr Dowling to Mr Clinch: “Unfortunately the monies earmarked for discharging Anglo Irish Bank together with the balance of the AIB loan was inadvertently utilised in respect of the purchase of another property at Dalkey.”
He continued that he later sought the repayment of the Anglo loan by the client but, despite promises, the money to do this never materialised and in 2008 Mr Hynes’s companies went into examinership.
Mr Justice Peart said that it was “simply not credible” that Mr Dowling “inadvertently utilised” the AIB funds in this way and overlooked the Anglo redemption. He said he was satisfied that this disposal of the funds was “a conscious and deliberate act” on his part.
In 2008 Mr Hynes was running into difficulties in meeting his interest payments to AIB. In December 2008, the bank was told that the Anglo mortgage had not been paid off. The bank sought a report on the situation from Maguires. The firm informed its insurers of the situation.
In January, final letters of demand were issued to the borrowers, who said they were unable to meet their debts and in April, judgment was obtained against them.
When the matter came to the attention of the partners in Maguire and Co, they obtained counsel opinion that it was possible to comply with the firm’s undertaking by acquiring the Anglo mortgage and Anglo agreed to sell this to the firm for €1.5 million.
The firm proposed acquiring Moongate and assigning the charge to AIB. However, the bank did not accept this. By the time the case came to trial, the property was valued at €620,000.
Mr Justice Peart said that as soon as the defendants discovered the awful truth of what had happened, they acted promptly, professionally and honourably in the only way they could.
He pointed out that when the partner in the firm, Mr Clinch, had been asked in court why Mr Dowling had not been called, he replied that he was not responsible for advising proofs in the case.
“Clearly the defendants’ insurers are in the driving seat as far as that aspect of the proceedings is concerned,” he said.
Decision
Mr Justice Peart quoted at length from Mr Justice Hugh Geoghegan's Supreme Court judgment in the case Bank of Ireland Mortgage Bank -v- Coleman. He said he would add to the principles in this case that the jurisdiction being exercised by the court was not unlike an equitable jurisdiction, therefore the court could have regard to the overall behaviour of the solicitor.
This was because the court’s special jurisdiction had as one of its important objectives the upholding of the system and the highest standards of professional behaviour by officers of the court, not simply to ensure that the person adversely affected was compensated for loss.
“In cases of deliberate, conscious or reckless breach of an undertaking by a solicitor, and not one resulting from mere mistake, oversight, inadvertance or other human frailty, a situation cannot be allowed to exist whereby the court is seen to tolerate less than honourable and professional behaviour,” he said.
In the Coleman case, the defendant had not complied with the undertaking because gardaí has seized his documents. The facts of that case looked “entirely benign” when compared with the “appalling facts” of the present case. The two cases were distinctly and significantly different.
“The plaintiff’s funds were misappropriated by being misapplied in a manner to which the plaintiff would never have agreed had it been asked,” Mr Justice Peart said.
Even if the entire Moongate property could be sold by the defendants, there would be a very significant shortfall to the plaintiff bank of at least €2.4 million, not taking into account difficulties with the title.
Having regard to the nature of the breach and the circumstances, he ordered that the defendants pay to the plaintiff bank all sums paid into their client account, together with any interest due.
Leave to appeal has been granted. The full judgment is on www.courts.ie
Martin Hayden SC and Paul Fogarty BL, instructed by Kieran Desmond Kiernan of AIB legal department, for the plaintiff; Paul Gardiner SC and Micheál Ó Scanaill BL, instructed by J A Shaw and Co, Mullingar, for the defendants.