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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> ACC Loan Management Ltd -v- Gillespie [2014] IEHC 654 (12 December 2014) URL: http://www.bailii.org/ie/cases/IEHC/2014/H654.html Cite as: [2014] IEHC 654 |
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Judgment
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Neutral Citation: [2014] IEHC 654 THE HIGH COURT [2013 No. 219 SP] BETWEEN:- ACC LOAN MANAGEMENT LIMITED SUBSTITUTED AS PLAINTIFF BY ORDER DATED 21ST OCTOBER 2014 PLAINTIFF -AND-
FRANCIS GILLESPIE PRACTISING UNDER THE STYLE AND TITLE OF DUNLEVY & BARRY SOLICITORS DEFENDANT JUDGMENT of Ms. Justice Donnelly delivered the 12th day of December 2014 Introduction 2. The Bank relies upon the affidavit of Eoin Gavigan, special asset manager with the Bank, to ground the special summons. He avers that the undertakings were granted in the circumstances as set out in the following paragraphs. Facility One Facility Two The First Undertaking
b) secure a valid legal mortgage on the property for the Bank, c) complete and lodge with the Bank a report and certificate of title and the Bank’s security documents, d) furnish copies of planning permissions and building bylaw approval together with, if issued, a certificate of compliance, e) pending compliance with the undertaking, to complete and lodge with the Bank the report and certificate of title, to promptly furnish to the Bank any information reasonably required concerning the Borrowers’ title for the Bank’s security, and to furnish to the Bank copies of any documents in relation thereto, required by the Bank, and to hold the title documents in trust for the Bank. 6. A second solicitor’s undertaking dated 28th of August, 2007 (“the Second Undertaking”), was provided by the defendant to the Bank under cover of a letter dated the 29th of August, 2007. This undertaking denotes the property as two houses on a one acre site at Main Street, Mountcharles, County Donegal. The Second Undertaking held by the Bank refers to the applicable letter of sanction dated the 30th of August, 2007. The date in the undertaking appears to read the 10th of August, 2007. In any event, the date 30th of August, 2007, is unusual as that facility letter post-dated the undertaking. 7. In general, the Second Undertaking contained the same undertakings as were given in the First Undertaking. However, after the undertaking to ensure that the Borrowers obtain a good marketable title to the property, there was a handwritten insertion that this was:-
8. The Bank first called upon the defendant to comply with the terms of the undertakings provided in relation to the Mountcharles properties by way of letter dated the 9th of December, 2008. The defendant responded by letter dated the 8th of January, 2009, as follows:-
10. Further correspondence ensued. The Bank notified the defendant on the 10th of March, 2009, that, having reviewed its files, this was the first notification that the Bank had received in this regard and sought clarification as to whether this was brought to the Bank's attention prior to completion. The Bank sought further confirmation as to why the entire loan facilities of €500,000.00 were requisitioned in such circumstances. Further reminder letters were sent by the Bank. 11. Conversations took place between an Alan Stewart of the Bank and the defendant. Thereafter, the Bank wrote saying that they had been assured that the defendant was in the process of complying with the undertaking and that the Bank’s charge was being registered on Folio 10462 County Donegal. On that basis, the Bank said it would retract any implication that the defendant was in breach. There is a dispute between the parties as to the effect of that letter - the Bank saying that it was based upon an understanding that the undertaking covered both properties. The position at present is that the Bank has obtained security over one of the properties at Mountcharles. That security was realised by way of a receiver sale of the property in early 2012 and those funds were applied in part reduction of the Borrowers’ indebtedness pursuant to Facility One. Alleged breaches of the undertakings 13. The Bank also claims a breach of the undertakings by that the failure of the defendant to inform the Bank in early course that the contract for the second property at Mountcharles had been rescinded and that the purchase would not proceed. It is claimed that this breach caused the Bank significant loss. According to the Bank, they would not have paid out the money if they had been in receipt of the information. The Bank says it was not adequately informed that the purchase of the second property at Mountcharles was conditional on an exterior event, i.e. planning permission. 14. The Bank claims that the defendant was in breach of the accepted principles of good conduct and practice for solicitors and in breach of his undertaking to the Bank. Furthermore, the Bank says that despite the undertakings, the borrowed funds were not applied for the purpose for which they were borrowed. The defendant was in breach of his duty to inform the Bank that the contract for the second property was conditional but nevertheless allowed the full amount of the facility to be drawn down and did not refund the balance. 15. The Bank also claims that the defendant failed to observe the normal standard of care required in that:-
(ii) the defendant did not inform the Bank when planning permission was not obtained in the contract rescinded; (iii) the defendant did not return the balance of the loan monies to the Bank after the Borrowers had been reimbursed for the purchase price of the first property; (iv) the defendant did not draw the attention of the Bank to any vagueness arising from the terms of Facility One of the undertakings. The defendant’s reply 18. The defendant also says that the First Undertaking never purported to relate to the second house at Mountcharles, as the purchase was always conditional upon the successful planning application on the Lansford 30 houses and he exhibits the contract of sale. That contract dated the 26th of July, 2007, in fact, records that the purchaser is Paul Doherty, one of the Borrowers. The defendant says that the undertaking he gave on the 28th of August, 2007, was materially different to the previous undertaking with respect to the properties described therein. The defendant relies upon the handwritten qualification but does not address the issue that the handwritten qualification refers to Borrowers in the plural, whereas the contract refers to a single one of the Borrowers. 19. He says that the Second Undertaking was required because the first one only referred to a single property at Mountcharles. He says that if it was otherwise, there would have been no purpose to the undertaking dated the 28th of August, 2007, as the earlier undertaking would have covered the advance of the money, the subject of the facility letter dated the 30th of August, 2007, and would only require to have been extended. 20. The defendant contends that this had been his position from the outset. He says that he had communicated this position to the Bank and its solicitors on many occasions. Furthermore, he refers to a series of phone calls in or about late October to early December 2009. He says that when he explained his position with regard to the undertaking, he received the particular letter from Mr. Alan Stewart of the Bank referred to above. He says that this is an acknowledgment by the Bank that the only undertaking was in respect of a single Mountcharles property. The defendant says that the Bank cannot make the complaint in circumstances where it knew that the purpose contained in the facility letter did not reflect the true purpose in circumstances where the Borrowers owned one of the houses they were purporting to purchase. He says that, in so far as the Bank finds itself at a loss, such is due entirely to its own lending practices and not any wrongdoing on the defendant firm. 21. The defendant asserts that the anomalies revealed a casual approach by the Bank towards lending monies to the Borrowers, i.e. they were lending on overvalued properties and entered arrangements that purported to be one thing but were, in reality, another. He also says that insofar as the Bank paid out monies on foot of the undertakings, it did so not on the basis of the said undertakings, but because of its own negligence and want of care. He says that the Bank cannot put the blame on him for failing to notify them in the letter enclosing the undertaking that the undertaking itself was conditional. He says that was solely a matter for the plaintiff. He says that insofar as any of the parties have deviated from good conduct in practice, it is the plaintiff that has done so and not himself. The Bank’s response 23. Mr. Dillon refers to an e-mail from one of the Borrowers in which the cost of the property was set out and indicated that its value would increase greatly if planning permission was granted. He denies that the purpose of the loan was a fiction and he says that the Bank had been informed that one of the properties was to be purchased by the Borrowers from Mr. Little. Mr. Dillon says that, in his view, the use of the word “property” in the First Undertaking was vague in that it could be understood to mean two houses at Mountcharles. He sets out a synopsis of the sums due and owing in regard to the loan of €500,000.00 and says that of the 2nd of October, 2013, the loan value was now €686,382.45. 24. Mr. Dillon also avers that the Bank's attention was not drawn to the fact that the particular Folio referred to in the First Undertaking only comprised one house in Mountcharles. In relation to the Second Undertaking, he said the handwritten qualification was not drawn to the attention of the Bank. He reiterates that the defendant was in breach of his undertakings and, in particular, failed to promptly furnish the Bank with information reasonably required concerning the Borrowers’ title or the Bank’s security. Subsequent issue raised 26. Mr. Dillon replies to that affidavit saying that he has no recollection of the conversation with the defendant regarding the qualification to the undertaking. He says that he checked his records and does not have any diary entries or other documentation relating to the alleged phone call and put the matter no further than that. He is surprised, however, that Mr. Gillespie can be so certain about the telephone conversation when it was not referred to at all in his first affidavit. He says that the Bank’s perspective is that, fundamentally, they would not have lent €500,000.00 specifically for the purpose of purchasing two houses with a view to development taking place, had it been made aware that only one house would be purchased and that the Borrowers had not secured planning permission. 27. The Bank makes a fundamental point that the matter of a qualification by the handwritten amendment was a false premise on which to consider the undertaking, as all the parties knew that security for loans included a mortgage over the properties at Mountcharles. Why, the Bank says, in the circumstances where a commercial development over the entire site was at issue, would the Bank lend money in respect of part of the site? The defendant refers to casual lending practices of the Bank in that regard and warns that logic in lending decisions by lenders cannot be taken for granted. The law 29. It is undoubtedly the case that the court has an inherent jurisdiction in matters concerning the conduct of solicitors as officers of the court including, but not confined to, compliance with their undertakings. It is both a punitive and a compensatory jurisdiction. It is a discretionary jurisdiction requiring each case to be considered on its own facts and circumstances. In matters of undertakings, the court must consider the entire undertaking in order to reach a conclusion as to its real and ultimate purpose. Carelessness or other forms of negligence on the part of the person affected by the undertaking, and in relation to the matter of the subject thereof, may be a factor which the court will have regard to when determining what order may be fair and just in the circumstances. While the courts must not be oppressive to a solicitor, nevertheless gross carelessness or other conduct considered sufficiently egregious by the court will entitle the court, should it consider it just to do so, to order payment of the entire sum which was the subject of the undertaking and not simply a lesser sum in respect of loss actually caused by the breach of the undertaking. 30. Counsel for the Bank made reference to the importance of solicitors’ undertakings in the facilitation of commerce. The Coleman case referred to the serious risk to the integrity of the lending system in relation to residential mortgages but it appears that the courts must also be conscious of the serious risk to the integrity of the lending system in relation to commercial mortgages as well. 31. Both the High Court and Supreme Court in Coleman referred to the decision of Lardner J. in IPLG Ltd. v. Stewart (Unreported, High Court, Lardner J., 19th March, 1992). In that case, Lardner J. held that the jurisdiction of the court to compel a solicitor to carry out his undertaking required for its exercise, inter alia that the undertaking be clear in its terms and that the whole of the agreement to which it relates be before the court. 32. The Coleman case identified that the appropriate proceedings were by way of special summons. This is subject to qualifications. Laffoy J. held that:- “[w]hile it may be appropriate to initiate a claim to enforce the solicitor’s undertaking by way of special summons, the summary process cannot be operated in such a way as to perpetrate an injustice on the solicitor defendant.” In the Coleman case, the defendant had accepted that he had breached his undertaking. In the AIB v. Maguire case, the terms of the undertaking were not at issue. In Danske Bank v. O’ Ceallaigh [2011] IEHC 216, the real issue was one of causality of loss and issues going to compensation and mitigation, rather than the undertakings themselves. Special summons procedure 34. The Supreme Court in Danske Bank v. Durkan New Homes Limited [2010] IESC 22, albeit in the context of a Motion under Order 37, rule 7 of the Rules of the Superior Courts, 1986, stated:-
"Even if the position was otherwise, once the learned High Court Judge was satisfied that the defendant had "a real or bona fide defence", whether based on fact or on law, he was bound to afford them an opportunity of having the issued tried in the appropriate manner." 15. In Aer Rianta c.p.t. v. Ryanair Limited [2001] 4 IR 607, Hardiman J. reviewed Irish cases and concluded at p.623:- "In my view, the fundamental questions to be posed on an application such as this remain: is it "very clear" that the defendant has no case? Is there either no issue to be tried or only issues which are simple and easily determined? Do the defendant's affidavits fail to disclose even an arguable defence?" 16. In McGrath v. O'Driscoll [2007] 1 ILRM 203, Clarke J. described the law as follows, at p.210:- "So far, as questions of law or construction are concerned, the court can, on a motion for summary judgment, resolve such questions (including, where appropriate, questions of the construction of documents), but should only do so where the issues which arise are relatively straightforward and where there is no real risk of an injustice being done by determining those questions within the somewhat limited framework of a motion for summary judgment." 17. Thus, the issue in this appeal is whether the appellants have satisfied the Court that they have an arguable defence. 37. The Coleman case indicates that the transaction as a whole must be considered. On the other hand, the undertaking itself forms the fundamental basis for a cause of action premised on its breach. An example of an undertaking that did not create the equitable charge that had been contended for is to be found in Murray v. Wilken, (Unreported, High Court, Finlay Geoghegan J., 31st July, 2003). The facts of that case are entirely different from those at issue here. Nonetheless, it is illustrative of the fundamental principle that before there can be a breach, there must have been a clear undertaking. Thus, the court must look closely at what has been undertaken before it can find a breach. What has been undertaken?
(b) an extension of an existing first legal mortgage over a 0.5 acre car park at The Diamond, Donegal Town. 39. Given the different loan letters in existence at the time of the giving of the undertaking, the question arises as to which loan letter is the Court to incorporate? Is it the letter of the 23rd of April, 2007, or is it the letter dated the 30th of August 2007, (or indeed is it supposed to be the 30th of July, 2007)? If it is the first letter, there was a clear reference to “properties” being purchased at Mountcharles. If it is the second letter, there was a reference to two houses on a one acre site. Perhaps an inference from the second letter is that the two houses comprised a single site and therefore would be expected to be on a single Folio. On the basis of the evidence before me, there is a real lack of clarity as to which letter was incorporated into that undertaking. Furthermore, it is the case that the Bank knew that the Borrowers owned one of the houses at issue and that they were seeking to buy a second property. Certainly the Bank was on notice that there were two different properties at issue in Mountcharles. In the context of the request for summary judgment, it is surprising to see the Bank Official refer to the word “property” in the First Undertaking as “vague” and therefore “could be understood to mean two houses at Mountcharles.” If the word in the undertaking is “vague”, how can the court decide on summary judgment that it must include the second property? 40. The Second Undertaking refers to the Letter of Sanction of either the 10th of August, 2007, (which does not exist) or the 30th of August, 2007. This undertaking contains a qualification that the Borrowers have entered into a contract that is subject to planning permission. The Bank’s claim is that the letter enclosing the Second Undertaking should have notified them of the qualification in the undertaking. That question is compounded by the factual issue, albeit raised late in the exchange of affidavits by the defendant, that he had, in fact, notified Mr. Dillon verbally of that fact the day before. That is a factual matter which it is not possible to resolve on the affidavits before me. Requirement to draw the attention of the Bank to restrictive matters in an undertaking 42. This raises questions of law as to the extent of the obligations on both sides. Are the Bank entitled to rely upon the fact that they sent the usual undertakings and received the signed document back to justify a claim for breach of undertaking, even if that undertaking, as completed, was more limiting? Does an alteration in the usual undertaking that might render it meaningless, require the solicitor to notify the Bank of that fact? Is the undertaking in law and in fact rendered meaningless by a purported restriction in light of the general conditions contained in the body of the undertaking? The defendant’s claim that no relief is warranted. 44. Similarly with the Second Undertaking, there is a clear legal issue as to whether the qualification was brought specifically to the attention of the Bank and, more importantly, whether it should have been brought to the attention of the Bank. Furthermore, there is an issue as to whether the Second Undertaking is correctly subject to that qualification when, in fact, it was only one Borrower who had entered the contract. 45. For those reasons and for the further reasons referred to below, I am not in a position to determine at this time that the Bank is not entitled to any relief. Whether to refer to Plenary hearing
b) the solicitor is entitled to limit an undertaking in a manner which cuts down on the extent of his obligations regarding the security underlying the loan facility; c) that it is unacceptable for the Bank to assert that the meaning of, or restriction in, an undertaking must be specifically brought to the attention of the Bank, d) the limited nature of the second undertaking that was brought to the attention of the Bank. 48. Apart from the disputed issues of fact to which I have referred to above, issues of law of some complexity arise. Those issues would have implications for all solicitors’ undertakings and require more consideration than the Special Summons format permits. More importantly, I am of the view that there could be an injustice for this defendant in determining those issues in the limited framework of summary proceedings. Some of these issues of law that arise can be distilled as follows:
2. If so, do the express terms of the undertaking limiting it to a particular property, give way to a requirement to make good marketable title of the property referred to as security in the letter of sanction? 3. If the terms of the letter of sanction are incorporated, does a handwritten insertion into the undertaking by a solicitor limit the extent of any incorporation by reference? 4. Is the solicitor obliged to tell the lender when the undertaking does not refer to all the property in the letter of sanction? 5. Is the solicitor obliged to tell the lender that the property is subject to a conditional contract in addition to stating this on the undertaking? 6. Is the solicitor ever entitled to hand over the loan money prior to completion of the conveyance of the property intended to be secured without expressly indicating to the lender that the undertaking he is returning permits him so to do? Damages 51. I am quite satisfied that even if I had been in a position to hold that the defendant was in breach of his undertakings, a full hearing would be necessary to calculate the Bank’s true losses in this case. Directions |
