High Court of Ireland Decisions

Neutral Citation No: [1988] IEHC 10

1985/1816

THE HIGH COURT

ALLIED IRISH BANKS

V.

GERARD MURNANE & ANOR

Judgment of Mr. Justice Barron delivered the 21^st day of December 1988

The Defendant is counterclaiming for damages for breach of contract and for negligence. The circumstances giving rise to this claim relate to an alleged assurance by the Manager of the Plaintiff's branch in Macroom to make certain finance available to the Defendant.

The Defendant is an engineer by profession and at the time of the matters with which this case is concerned had over twenty years' experience in his profession. He gained his original experience in England and returned to this country in 1971. From that date he acted in various capacities including that of a consultant. Towards the end of 1980 he determined to set up a factory of his own for the purpose of making ancillary electrical wiring to be used in consumer electrical goods. He lived in Macroom and had for many years been a customer of the Plaintiff's Bank in that town. He had various discussions with the then Manager of that branch, a Mr. William Rockett, concerning his plans. The Plaintiff himself had no capital. It was necessary therefore to raise all the capital required for the venture. He had previously been recommended by the Bank to Gerard Quinn a Chartered Accountant and it was to him he went for advice and to prepare the necessary financial information and projections for his proposed business.

His discussions with Mr. Rockett took place over many months. He kept the latter fully informed as to the progress he was making and in return received much valuable advice.

Most of these discussions took place informally at the Bank counter. In the course of them, the Defendant sought to ascertain what finance the Bank would be able to provide for him. His intention was to seek I.D.A. approval for his scheme and the maximum grants provided by that body for both plant and machinery. As he had no capital himself he required from the Bank both working capital and the balance of the cost of the plant and machinery. The Manager indicated to him that such money would be available provided that I.D.A. approval was obtained. He assured him that he himself had the necessary authority to sanction the loans. These were to be a term loan of £25,000 repayable over seven years, an overdraft of £15,000 and bridging finance up to £25,000 pending receipt of grants.

The I.D.A. approval was sought in April 1981. The application was made in the form of a brochure setting out the details of the proposed venture and appropriate financial projections to show that it should be successful. The I.D.A. approved of the proposed business, but were doubtful that there were adequate prospective customers. They required the Plaintiff to give them the necessary assurances in this regard. As a result, he contacted various manufacturers and received adequate promises of orders from five of them which was the number required by the I.D.A.. Details of these orders were sent together with an amended proposal to the I.D.A. on the 12th October 1981. These details satisfied the I.D.A. and verbal approval was given on the 22nd October 1981 followed by a formal notification on the 5th November 1981.

When he received the verbal approval, the Defendant immediately went to the Bank to see Mr. Rockett in order to make formal arrangements to take up the promised loans. At the Bank he was told that Mr. Rockett had retired and had left the Bank and that the new manager would not be available until the 29th. He arranged to see him on that date and when he did found that there was no reference in the Bank's files to his arrangements with Mr. Rockett and that Mr. Burke the new Manager knew nothing at all about the matter. Mr. Burke was sympathetic to his application, but required the Defendant in effect to make a new application. When he had digested the details of the proposed business he expressed the view that £65,000 was too much, but that he would apply to the area office for £25,000; £15,000 by way of term loan and £10,000 by way of overdraft. Although this loan was recommended by Mr. Burke, it was rejected by the area office. On receipt of this news, the Plaintiff made efforts to cover his requirements by financial assistance from other lending institutions but without success. He accordingly persuaded Mr. Burke to arrange a meeting at area office. This was done and the meeting took place on the 8th January 1982. The Plaintiff pleaded his case at that meeting and was successful in obtaining the sanction for the amount recommended by Mr. Burke.

The Plaintiff is now claiming damages for losses sustained in his business by reason of the failure of the Bank to honour the promise of finance made to him by Mr. Rockett.

He claims that the Bank were in breach of this agreement in two respects. First, they delayed in making any finance available to him; and, secondly, when they did make it available, they kept him short of what he required.

The Bank disputes this claim. It maintains that the Plaintiff never received any assurance of a loan from Mr. Rockett and that Mr. Rockett did not have the authority to promise him such a loan. There was a very considerable conflict of evidence which it is necessary for me to refer to in order to determine which evidence should be accepted.

The Defendant was cross-examined as to the improbability of his case. Counsel for the Plaintiff pointed to the absence of documentary evidence during the period from April to October 1981, to the inconsistency in his answers on cross-examination and to the absence of reference to Bank borrowing in the financial proposal sent to the I.D.A. The Defendant said and I accept this that he was not an accountant and that he left matters to his auditor and Bank Manager. One reason for the matters highlighted by Counsel for the Plaintiff is that his accountant has let him down. The accountant wrote to the Defendant's solicitors on the 26th November 1986 setting out certain information to be obtained from their file. That letter was dictated by Mr. Quinn. When Mr. Quinn came to give evidence he had no memory of the transaction neither from having dealt with it as it occurred nor from his perusal of the file in November 1986. This I find improbable. Further his memory could not be jogged by a further consideration of his file. It has so he said been mislaid. This I view with suspicion. The result is that there is no evidence from the appropriate source which might have been able to answer some of the criticisms raised by Counsel. In support of his evidence as to his agreement with Mr. Rockett, the Defendant refers to a diary entry for the 18th of March 1981. There is some doubt as to whether or not this was a diary entry as of that date or an entry in a book kept partly as a diary but mainly as a notebook and therefore made at some other date. It seems to me on the probabilities that it was not made on the 18th of March 1981 but, if not, it was made sometime around that date.

Counsel in particular referred to the contents of paragraph 4 of the Statement of Claim and paragraph 6 of the replies to the Notice for Particulars in support of the allegation of inconsistency. While this paragraph does suggest to some extent inconsistency in the Defendant's case it seems to me that a perusal of the entire documents and particularly of the reply to the letter for particulars indicates a claim on the same basis as that being put forward in evidence by the Defendant. There is no doubt however that the Defendant in giving evidence on several occasions was looking at events with hindsight and in assessing his credibility, this must be taken into account.

Counsel for the Plaintiff is not correct when he refers to the absence of any reference to borrowings from the Plaintiff in the proposal sent to the I.D.A.. The original proposal was based upon one view of how the Defendant's business was to operate. Financial projections were based upon this view. The second proposal at "Notes - Projections" under the heading "General" was prepared on a different view as to how the business would operate. This accounts for the different projections, though it is hard to understand why most of the other figures such as light and power, motor and travel, etc., should have altered. The different figures in relation to expected rent are harder to explain. In the original proposal, rent was included for the first year at £3,200 on the basis that suitable premises could be rented in the Macroom area on a short term basis. In the amended proposal rent is included for the first year at £6,400 but the reference to the nature of the premises to be rented under "Start Up and Projected Development - First Stage" remains unaltered.

As regards bank borrowings, these proposals may not refer to the Plaintiff, but they do refer to such borrowing. The original proposal under the heading Finance indicated cash requirements in the first year of £22,662 rising to £26,300 in the second year and to £30,400 in the third year. These were not cumulative figures but additional amounts in each year. In the cashflow projections, the total of I.D.A. grants £51,500 is set out as being receivable in the first two years of operations. Bank interest and charges on the borrowings are projected as being £3,000 in the first year, £4,500 in the second year and £5,000 in the third year.

This first proposal contained no projected balance sheet. The second proposal sets out bank borrowings as nil and an I.C.C. loan as £25,000 in respect of both first and second year. Financial requirements were recognised to include £33,000 for bridging finance, but as this was to be paid off within nine months did not appear in the projected balance sheet. Clearly the references to bank borrowings are for lower amounts than that sought by the Defendant. Nevertheless, this does not rule out the accuracy of his evidence and having regard to the finance required in the first three years in the original proposal the figures which the Defendant says were promised to him seem more realistic and more likely.

Overall I am left with a suspicion that less than ordinary care was used in the preparation of these proposals. Consequently, the absence of any reference to the Plaintiff is of little or no significance.

It was suggested to the Defendant that the second of the two proposals was prepared in July 1981. This seems to me to be incorrect. The amended proposal was prepared after the Defendant had obtained the order for his products which the I.D.A required. A list of the products made by these companies and other details was sent to Paul Hanratty then with the I.D.A. together with a covering letter, both the letter and the list being dated the 12th October 1981. It was this second proposal which was given to Mr. Burke. I also accept that Mr. Burke was given the letter dated the 3rd of November 1981, its contents were totally relevant to the then state of affairs. The set of projected figures contained in this letter differs from those in the two proposals. The probability is that they were supplied to the Defendant by his Accountant. This letter refers to a borrowing requirement of £65,000 which is the amount for which Mr. Burke accepts the defendant asked.

Mr. Rockett gave evidence which was at total variance with that given by the Defendant. He denies any agreement to make a loan on behalf of the Bank to the defendant. In his evidence he admits that conversations concerning the project took place from late 1980 and that during the first half of 1981 the Defendant indicated to him from time to time what progress he was making in his negotiations. He says it was not until June 1981 that he saw the actual proposal which had been put forward by the Defendant's Accountants to the I.D.A.. He says that after that meeting he prepared certain notes on jotter sheets which he gave to the Defendant but that he heard nothing more from the Defendant thereafter. He denies any such arrangement as is alleged by the Defendant whether on the 18th March 1981 or any other date. He said that he did not know that the Defendant would be looking to the Bank for finance and that the discussions between himself and the Defendant never amounted to more than just that.

Undoubtedly the only Bank record relating to the Defendant's proposed undertaking is a reference on his overdraft limit card to the effect that "he has in mind (July '81) opening a light industry with the help of I.D.A. - matter being investigated by I.D.A. now". There is a conflict of evidence between Mr. Rockett and Mr. Burke as to whether there should be a further file. This need not be resolved. It is clear that whatever arrangement was made that it was not recorded. There are also the jotter notes prepared by Mr. Rockett. While these indicate the improbability that the Bank would grant a loan, their content does suggest that they would have been written much earlier than Mr. Rockett suggests.

In his evidence Mr. Rockett refers to a conversation which he had with the Defendant in Patrick Street Cork in the year 1985. In the course of this conversation he says that the Defendant said to him "I knew you couldn't give me above your discretionary level on your own." The Defendant denies saying this. I accept the Defendant's evidence on this matter. In the first place, such a remark seems to me from my observation of the Defendant to have been totally out of character.

Further had the remark been made, it presupposes that there had been a discussion first of all as to the making of a loan and secondly as to the amount of loan required, both of which matters Mr. Rockett denies.

There are two other matters to which I wish to refer. Evidence was given on behalf of the Plaintiff to the effect that Mr. Rockett's last day in the office as Manager of the Plaintiff's branch in Macroom was the 31st of July 1981 and that he could not therefore have met the Defendant either in August or September or October. Mr. Burke, his successor, also gave evidence to the effect that he had seen the Defendant in the Bank prior to the 29th of October 1981. It is hard to understand why the Defendant would not have been aware of Mr. Rockett's retirement. It would have been at this time that the Defendant was seeking confirmation of orders. It seems to me unlikely that he would not have kept Mr. Rockett informed as to how these efforts were progressing, and I feel that Mr. Rockett may be mistaken, though obviously it may have been that the Defendant told someone else in the Bank and did not consciously realise that Mr. Rockett was no longer there. If he did not know that Mr. Rockett had resigned, likewise he would have been unaware of the appointment of a successor. I accept that he was not consciously aware until the 23rd of October 1981 that Mr. Burke had replaced Mr. Rockett. Some confirmation of this is to be found in a newspaper cutting about the Defendant and his factory printed in December 1981 in the local newspaper. The relevant portion of the cutting is a follows:

"But just as things were about to swing his Bank Manager was transferred and the incoming Manager had to look at the plans fresh (sic)."

The other matter which I think must be referred to is the meeting between the parties in Cork on the 8th of January 1982. Prior to that meeting the Defendant's application for a total of £25,000 had been turned down. He had offered his house as security and the Bank had not regarded the proposition as one to which they could give their consent. The meeting took place on the 8th of January and following that meeting without any further offers of security the Bank were prepared to accept the proposal. In its letter confirming this dated the 25th of February 1982 the Bank says:

"During your visit to the Bank area office Cork it was noted that you were fully conscious of the risks involved and you acknowledged freely that in the event of yourself and/or your company being unable to meet the commitment hereunder you would not hesitate to dispose of your residence, if necessary, to ensure that such commitments hereunder (sic). Such commitments was the overriding factor in the Bank agreeing to facilitate you in the terms hereunder."

I find this hard to accept. The Defendant says that at this meeting he referred both to his arrangement with Mr. Rockett and to the assurances of orders which he had received. He says that he was asked if he had anything in writing. When he said he had not, he was told such matters were irrelevant. The Bank Officials who were present deny that there were any such references to either of these matters. They say that they changed their minds because they realized that the Defendant understood that if the venture did not work out his house would be sold. This is the way the matter was put in the Bank's letter to which I have already referred. In respect of this conflict, the inherent probabilities favour the Defendant. It is common case that he sought the meeting. It is unlikely that he would not have made all the arguments he could. Again it is unlikely that the Bank officials would change their decision just because they then believed that the Defendant's attitude to the security he was offering was genuine. I prefer his version of the meeting. It is in keeping with the view which I have formed of his character. Mr. Quinn, his accountant, was also present at this meeting but he has little recollection of what occurred.

Mrs. Murnane gave evidence which sought to place the date or dates at which her husband had discussions with Mr. Rockett. Her recollection is too vague for me to be able to place any reliance on her evidence.

I accept the Defendant's evidence as to his discussions with Mr. Rockett. A number of conversations took place and the arrangement upon which he seeks to rely was not made at one specific meeting but evolved over the series of meetings. The diary note for the 18th March 1981 indicates the then arrangement, which during subsequent conversations crystallized into the agreement now being alleged. As I have indicated already, the Defendant looked at events with hindsight and for that reason appeared uncertain about events. I accept that he did make the agreement whereby he would receive a term loan of £25,000 repayable over seven years, an overdraft of £15,000 and bridging finance to a limit of £25,000. I can only assume that Mr. Rockett expected his recommendation to be accepted and gave no thought to what he must have known was his pending retirement.

Counsel for the Plaintiff has accepted that the existence or otherwise of an agreement binding the Bank is a question of fact. I am satisfied that the agreement existed and that it was within the ostensible authority of Mr. Rockett. The failure to make the finance available when it was required was a breach of this contract.

The Defendant's case is pleaded also in negligence. There are features similar to those in Box v. Midland Bank 1979 2 Lloyds 391 referred to by Counsel for the Defendant. In that case the Plaintiff sought an overdraft to finance a contract to fabricate and supply a certain steel to a hydroplant. He supplied cashflow projections in relation to the contract. He was left with the impression by his Bank Manager that there would be no difficulty in the Bank providing finance for the contract to the extent required by the figures produced. It was a condition of the arrangement for the loan that the contract should be covered by a policy issued by the Export Credit Guarantee Department. He was assured that provided that this was done the provision of the finance would be a formality. It was held that the manager was not obliged to predict the outcome of the application for finance, but that once he had done so he was obliged to take reasonable care to see that a statement was accurate since he knew that it would be relied upon. In the circumstances of the case it was found that he had not taken reasonable care and the Bank was found liable in negligence.

In the same way in this case, the assurance was subject to a condition, that the I.D.A. should approve of his scheme, it must have been obvious to Mr. Rockett that the Defendant was relying upon this assurance. In these circumstances, subject to the proof of loss, this cause of action has also been established.