High Court of Ireland Decisions

Judgment Title: ACC Bank PLC -v- Johnston practicing under the style and title of Brian Johnston & Co. Solicitors

Neutral Citation: [2010] IEHC 236


High Court Record Number: 2008 10559 P

Date of Delivery: 01/06/2010

Court: High Court

JUDGMENT of Mr. Justice Clarke delivered the 1st day of June, 2010

1. Introduction
1.1 In a pithy comment about what has emerged from the current economic crisis, the leading international financier, Warren Buffet, suggested that we only get to see who has been swimming without their togs on when the tide goes out. Many practices (whether shady or shoddy) go largely unnoticed when things are going well. When projects make a profit and investors in and lenders to those projects all get their money back, then there may not be very much scrutiny of how the project was put together in the first place. Where, however, the economic tide goes out and interested parties are looking at who will have to bear the burden of losses, then it is much more likely that the precise practices engaged in will come under close scrutiny.

1.2 While Warren Buffet spoke of the international situation and the tide that undoubtedly went out as a result of the credit crunch in the United States, his comment is equally apposite to Ireland. The tide has undoubtedly gone out very far. The practices which were engaged in when the tide was very much in have now come under close scrutiny. Some of that scrutiny operates at the level of national policy. However, this Court, and the Commercial Court in particular, has increasingly been faced with dealing with the consequences of practices engaged in without comment or scrutiny when the tide was in, whose consequences are becoming increasingly apparent now that the tide is out.

1.3 This is far from the first occasion when the Commercial Court has had to analyse practices engaged in at the height of the boom by lenders, borrowers/developers and solicitors acting for both sides. It is important to emphasise at this early stage that no case is made by the plaintiffs (“ACC”) to the effect that the defendant (“Mr. Johnston”) was guilty of inappropriate behaviour. ACC’s case is confined to an allegation that Mr. Johnston, who acted on behalf of ACC in a number of connected property transactions, was negligent in a manner which has left ACC exposed. It should, however, be pointed out that these proceedings also involve the third parties (“Traynor Mallon”), a firm of solicitors who acted on behalf of the borrower involved in the relevant transactions. For reasons which it is unnecessary to set out here, the case as and between Mr. Johnston as defendant and Traynor Mallon as third parties did not proceed at the same time as the main action between ACC and Mr. Johnston and still awaits hearing. In those circumstances, it would be inappropriate for me to go into the issues which arise as and between Mr. Johnston and Traynor Mallon to any extent more than is absolutely necessary for explaining and dealing with the issues which arise in these proceedings. However, it does have to be noted that very significant sums of money indeed were handed over by Mr. Johnston, in his capacity as solicitor to ACC, to Traynor Mallon, in their capacity as solicitor for the borrower, on the basis of undertakings given by Traynor Mallon to the effect that the monies would be applied in the purchase of specific properties or the payment of stamp duties. It seems clear that much of the relevant money was not applied in accordance with those undertakings. Where exactly the money went is not clear and may well not become clear until the third party proceedings come to trial, if even then. However, in summary, ACC argues that Mr. Johnston was negligent in the manner in which he represented their interests in the relevant transactions and claims damages, both for breach of Mr. Johnston’s contract of retainer as such solicitor and for negligence generally. Against that general background, it is necessary to turn to the specific issues which arise.

2. Issues
2.1 There was something of an evolution in the case as it progressed at trial. I have already ruled on the pleading and procedural issues which arose and it is unnecessary to revisit same again. This judgment is directed to the issues as they were at the close of the case. I will turn to a more detailed analysis of the relevant facts in due course. However, in simple terms the primary transaction for which Mr. Johnston was engaged to act on behalf of ACC was a series of inter connected loans in favour of a Mr. Francis Tiernan. Traynor Mallon acted on behalf of Mr. Tiernan. It will be necessary to refer in due course to the letter of retainer by which Mr. Johnston was employed to act on behalf of ACC. It will also be necessary to refer to the facility letters which governed the arrangements between ACC and Mr. Tiernan. At the heart of those facilities and, by necessary inference, at the heart of the task entrusted to Mr. Johnston, was an obligation to put in place certain items of security in favour of ACC. Of particular importance to the issues which have arisen between the parties was a requirement in each of the relevant facility letters that a first legal mortgage of certain lands at Castlewarden should be put in place.

2.2 There is no dispute between the parties but that the lending arrangements and mortgage between ACC and Mr. Tiernan was progressed by Mr. Johnston by means of Mr. Johnston handing over the relevant loan funds (less a deduction in respect of anticipated stamp duty and fees for which Mr. Tiernan was responsible) to Traynor Mallon on the basis of an undertaking from Traynor Mallon that those monies would only be used in closing an anticipated sale in respect of the relevant lands at Castlewarden. Equally it is not in dispute but that the monies retained in respect of stamp duty were subsequently handed over to Traynor Mallon on the basis of an undertaking that the monies would be used to stamp an executed deed of transfer of the Castlewarden lands in favour of Mr. Tiernan.

2.3 So far as the documents which were available to both ACC and Mr. Johnston were concerned, the contract for the purchase of the lands at Castlewarden by Mr. Tiernan was for a sum of €7,000,000. A deposit in the usual amount of 10% or €700,000 appeared to have been paid. The balance of €6,300,000 was to be handed over on closing. While there were certain other smaller loans involved, the amount in respect of the Castlewarden loan, which was handed over by Mr. Johnston to Traynor Mallon, was the loan amount of €6,300,000 less the anticipated stamp duty of €630,000 (being 9% of what was believed to be the purchase price) with a further deduction for certain sums in respect of Mr. Johnston’s fees which Mr. Tiernan was obliged to pay as a result of the terms of his facility from ACC.

2.4 On the basis of the evidence produced at the trial, it would appear that the true contract price in the transaction between Mr. Tiernan and the vendor of the Castlewarden lands was, in fact, €4,000,000. There is no suggestion that either ACC or Mr. Johnston was aware of this fact or that there were facts or circumstances which ought to have led either ACC of Mr. Johnston to know that fact. On the basis of the evidence at the trial it can only be concluded that a fraudulent and forged version of the contract for sale was made available to ACC and Mr. Johnston in which the front page of the contract (being the page which contained the particulars of sale including the price) was replaced with a doctored version showing a €7,000,000 purchase price instead of the true €4,000,000 purchase price. Exactly how that came about is not clear on the evidence, and although a most important and worrying matter in itself, is not an issue which is particularly relevant to the precise questions which arise between ACC and Mr. Johnston in these proceedings.

2.5 On the basis of the evidence it would also appear that some of the monies passed over by Mr. Johnston to Traynor Mallon were handed over to the solicitor acting for the vendor of the Castlewarden lands, but that the entire sum was not and has not been paid. It, of course, needs to be noted that, having regard to the false suggestion that the lands were being purchased for €7,000,000, a loan of €6,300,000 was obtained. Only €4,000,000 was needed to close the sale. But even that full sum was not paid. What happened to the balance of the monies is not, at this stage, clear. What is clear is that while a deed of transfer of the Castlewarden lands was executed by the vendor and given to Traynor Mallon, Traynor Mallon were required to return that deed to the vendor’s solicitor because the full purchase price had not been paid. The precise details of what transpired between the vendor’s solicitor and Traynor Mallon is, like much else of the dealings between the third parties and the vendor and his solicitor, only partially clear at this stage.

2.6 What is clear, however, is that Mr. Tiernan never acquired title to the Castlewarden lands because he simply did not pay the purchase price. On that basis, ACC have never been registered with a first legal charge over the Castlewarden lands. Although there is a document in existence which purports to create a charge as and between Mr. Tiernan and ACC over the lands in question, that document clearly is ineffective to create such a charge because Mr. Tiernan does not and never did own the lands so as to entitle him to create a charge over them. The net factual position is, therefore, that ACC’s money came into the hands of Traynor Mallon, does not appear to be currently recoverable from them on foot of the undertaking, is not, subject to some caveats to which it will be necessary to return, apparently recoverable from Mr. Tiernan and is to a greater or lesser extent gone. At the same time, ACC does not have the first legal charge which it was supposed to have over the Castlwarden lands. ACC says that this state of affairs stems from negligence on the part of Mr. Johnston. So far as the original transaction concerning the loans advanced at the time of the Castlewarden transaction is concerned two real issues arise.

2.7 The first is as to whether it was, having regard to his contract of retainer, the law, and the circumstances generally of this case, negligent, at the level of principle, for Mr. Johnston to have handed over the loan monies to Traynor Mallon on the basis of an undertaking. That issue is largely a question of law coupled with expert testimony concerning the normal and accepted practice of solicitors in such transactions.

2.8 However, before coming to that question, there is a serious factual issue between the parties. Mr. Johnston says that he was authorised by senior personnel in the relevant branch of ACC (the Dundalk branch) to deal with the handing over of the loan funds to Traynor Mallon in the manner in which he did. That is denied by ACC. Likewise, it is suggested by Mr. Johnston that he was authorised to make the subsequent payment over of the stamp duty money in return for an undertaking from Traynor Mallon. That fact is also denied by ACC. However, it is accepted by ACC that if Mr. Johnston was, as he asserts, authorised to act as he did, then that is the end of the case.

2.9 It should also be noted that, in a subsequent transaction, further funds were advanced to Mr. Tiernan on largely the same security that had been in place for the Castlewarden and connected transactions. It is said by ACC that Mr. Johnston was again negligent in allowing that transaction to go ahead and the relevant monies be handed over to Traynor Mallon in circumstances where it is said that Mr. Johnston ought to have been aware that there was no first legal charge in place on the Castlewarden lands.

2.10 As there is a very significant conflict of fact indeed between the parties concerning whether Mr. Johnston received the authorisation to which I have referred, it seems appropriate to deal with that issue first. However, before so doing, it seems to me that I should make some general comments concerning conveyancing practice and also set out a chronology of the relevant undisputed facts drawing attention in that chronology to the areas where there is a dispute between the parties. I turn to a number of brief comments concerning conveyancing practice first.

3. Conveyancing Practice
3.1 For many years the normal way in which property transactions were closed in this jurisdiction involved a meeting at which solicitors representing, respectively, the vendor and the purchaser attended, satisfied themselves that all was in order and procured that the appropriate conveyancing documentation would be executed and/or handed over in return for a bank draft for the purchase price. An added complication arose where the purchaser was funding the relevant purchase with the aid of borrowing from a financial institution. For many years the practice was that the relevant financial institution would appoint its own solicitor who would attend a so-called three-way closing and would receive, at that closing, any relevant documentation required to perfect the financial institutions security, and at the same time would make over the relevant loan proceeds as part of the financial arrangements that needed to be finalised at the closing concerned.

3.2 It should also be added that, in many cases, there would have been an additional requirement to satisfy any mortgage which the vendor would have had in place, frequently with a different financial institution. It would seem that a practice grew up of the parties generally accepting an undertaking from the vendor’s solicitor to apply an appropriate proportion of the purchase price to paying off the existing mortgage, together with an undertaking to provide any necessary documentation to evidence the discharge of the mortgage concerned.

3.3 In more recent times, it would appear that, at least in the case of smaller transactions, a practice has grown up of financial institutions instructing the purchaser’s solicitor to act on their behalf as well. The reason for this would appear to have been to save money so that the financial institutions would not have to pay their own solicitor. In those circumstances, the purchaser’s solicitor gives an undertaking to the financial institution concerned to complete the transaction in an appropriate way and is also required to certify that the title is in order, such that the purchaser owns the property and has given an appropriate mortgage or charge over the property in favour of the relevant financial institution. The evidence suggests that many financial institutions continue to retain their own solicitor for larger transactions. The practice of accepting an undertaking from the vendor’s solicitor to discharge any pre-existing mortgage out of the purchase price appears to have continued.

3.4 The issues which arise in this case stem from the fact that there are some risks inherent in the existing system, no matter what way it is operated. Firstly, there is the question of the discharge of the vendor’s mortgage. The acceptance of an undertaking from the vendor’s solicitor does mean, of course, that that solicitor would be liable in the event that the mortgage was not discharged. However, a liability on such a solicitor is only as good as that solicitor’s ability to meet that liability. In practice, the ability of any solicitor to meet such a liability is dependent on the volume of the solicitor’s own assets, the extent of the solicitor’s insurance, and the extent to which any wrongdoing on the part of such a solicitor might be compensatable from the Solicitors Compensation Fund. However, recent experience has shown that not all such liabilities will be covered and there is, therefore, a risk that, in the event that such an undertaking is accepted, the solicitor may default and there may not be sufficient funds arising in any of the ways which I have set out which will allow for the practical compensation of those (being the purchaser or a lender to the purchaser) who may suffer.

3.5 In addition, it would appear on the evidence in this case that conveyancing documents, which ordinarily require to be registered for them to be effective, are not normally capable of being registered for some little period of time because it is necessary to have those documents stamped with the appropriate amount of stamp duty for the transaction concerned. That stamping process frequently takes a period of time to complete (although it would appear that personal attendance at the stamping office can obviate any such delay). There is, therefore, at least some risk that something might happen between the date on which a transaction closes and the date on which any relevant stamped conveyancing documents are registered, which could affect the interests of a purchaser or a lender to the purchaser.

3.6 I am aware that some consideration has already been given to the possibility of conveyancing transactions being capable of being executed electronically. It seems to me that the problems which emerge from this case emphasise the importance of bringing any such project to conclusion. Provided that conveyancing transactions could be executed and filed electronically (so as to have immediate effect), then there is no reason in principle why all relevant conveyancing and financial transactions could not be executed as part of a single integrated programme. By such a programme any existing mortgage could be released, the property could be transferred from the vendor to the purchaser, any appropriate mortgage in favour of a lending institution to the purchaser could be put in place, and all necessary financial transactions associated with each of those aspects of the overall transaction could be executed. The risks inherent in the existing system, which this case has brought into relief, could also be removed by such a process. It does not seem to me that it would be very difficult to arrange for all appropriate banking transactions to take place electronically (given that the move is in that direction now anyway). Such transactions could be activated provided there was an appropriate verification in advance that the necessary funds were in place in a secure way in a relevant financial institution. Likewise, an electronic completion of the conveyancing aspects of the transaction could occur when all necessary preliminary matters had been appropriately verified. Therefore, if a method can be devised which would allow for the effective transfer of property and other interests (such as charges or mortgages) in property by electronic means, then a fail safe method of conducting conveyancing transactions where all elements of the transaction would take place simultaneously without, indeed, the need for any of the parties to be in same place at the same time, could be put in place. There would be an undoubted saving of time and resources. There would, in addition, however, be a removal of the risks that these proceedings have brought to light. Finally, there is no reason in principle why the integrated electronic closing to which I have referred could not also include the payment of any relevant stamp duty or the like.

3.7 However, neither ACC Bank nor Mr. Johnston had the benefit of such a process and both had to operate within the existing system. In that context, it is next appropriate to set out the relevant factual sequence of events which form the background to the issues in this case. I, therefore, turn to the facts.

4. Summary of Events
4.1 As pointed out these proceedings concern dealings between ACC, Mr. Johnston, Mr. Tiernan as borrower and Traynor Mallon, as Mr. Tiernan’s Solicitors, over a period of time in 2006 and early 2007 when Mr. Tiernan requested and was granted a number of loan facilities.

4.2 On 25th July, 2006, ACC agreed to provide three loan facilities to Mr. Tiernan, one in the sum of €291,000, under the “first letter of sanction”, the second in the sum of €545,000 under the “second letter of sanction”, and the third in the sum of €7,000,000 under the “third letter of sanction”. Separately, on 29th January, 2007, ACC agreed to provide loan facilities in the sum of €1,010,000 under the “fourth letter of sanction”.

4.3 The monies under the first letter of sanction were stated to be to assist with the purchase of an investment apartment at the Saltings, Blackrock, Dundalk, Co. Louth (“the Saltings”), which had a purchase price of €267,000. The funds under the second letter of sanction were to be used for the purpose of purchasing bonds in an equity fund called Sarasin Real Estate Equity Fund (“the Sarasin bond”). The monies under the third letter of sanction were to be used to purchase 103 acres of zoned land at Castlewarden, Naas, Co. Kildare (“Castlewarden”). The monies under the fourth letter of sanction were to be used in the purchase of investment property in Belfast and Newry.

4.4 Under the first letter of sanction ACC was to be provided with the following security:-

a) A first legal mortgage over residential premises in the Saltings;

b) A first legal mortgage over Castlewarden;

c) An extension of ACC’s existing mortgage over lands at Annagassan, Dundalk, Co. Louth; and

d) An extension of ACC’s existing mortgage over commercial premises at Anne Street, Dundalk, Co. Louth.

4.5 In the later part of July, Mr. Johnston was retained by ACC to investigate the legal title to the properties to be charged to ACC and to ensure that ACC would obtain good and marketable title. The letter of appointment provided that, prior to drawdown, ACC should be advised of any matters which would adversely affect ACC’s security.

4.6 In relation to the instruction of Mr. Johnston to act on behalf of ACC, it is important to note that Mr. Johnston was personally close to two senior officials in the Dundalk branch of the ACC, Mr. Gerry McMahon, the manager, and Mr. Paul Cumiskey who was the relationship manager dealing with Mr. Tiernan’s affairs. Mr. Johnston, Mr. McMahon and Mr. Cumiskey played soccer together and it would appear frequently socialised together.

4.7 It seems that, in the latter part of July, it was informally indicated to Mr. Johnston that he was to be instructed to act on behalf of ACC in relation to Mr. Tiernan’s loans. The formal letter of appointment to Mr. Johnston came a little later, on 31st July, 2006. There were, therefore, some dealings between Mr. Johnston and ACC personnel which pre-dated the formal letter of appointment. In that context it should be noted that the facility letter relating to the Saltings suggests that the relevant loan was intended to assist Mr. Tiernan in the purchase of the Saltings. However, it became clear that Mr. Tiernan already owned the Saltings. Mr. Johnston says that at some point between 20th July, 2006, and 24th July, 2006, Mr. Cumiskey told him that ACC was satisfied that Mr. Tiernan already owned the Saltings and that ACC was satisfied with its existing security over Anne Street and Annagassan. It is not clear whether Mr. Cumiskey did, indeed, state this to Mr. Johnston. However, it appears that ACC became aware that the Saltings was to be re-mortgaged and made no objection to this alteration. It is also apparent from the evidence that ACC was aware that title documents to the property of Annagassan were being held by another firm of solicitors who had acted for Mr. Tiernan, Ester McGahon McGuinness, who had given an undertaking to furnish ACC with the relevant title documents. Likewise, ACC was aware that Anne Street was covered by prior charges. It does appear that the change in the terms of the facility in relation to the Saltings never went back to Credit Control in ACC headquarters to amend the purpose of the loan, which was to switch mortgage provider from IIB to ACC, rather than to assist in the purchase of the property.

4.8 The ordinary investigation of title progressed in an uneventful way and is not material to the issues which arise in these proceedings. Suffice it to say that, as a result of the usual exchange of documentation between Mr. Johnston and Traynor Mallon, the various requirements of ACC in relation to conveyancing matters were met. Undertakings in respect of the net proceeds of sale of relevant properties were provided. Title documents and the like were investigated. There is no suggestion that Mr. Johnston did not conduct those investigations in an entirely appropriate and professional manner such that, had a transfer of the Castlewarden lands to Mr. Tiernan taken place, a deed of charge by Mr. Tiernan in favour of ACC would have been effective to provide the first legal charge contemplated by the various facility letters. 4.9 On 24th July, 2006, Mr. Johnston wrote a letter to Traynor Mallon setting out ACC’s requirements. This list included the title documents for the properties at the Saltings, Castlewarden, Annagassan and Anne Street. In addition, Mr. Johnston sought an undertaking from Traynor Mallon to pay ACC all of the proceeds from the sale of the other properties referred to in the facility letters. On 27th July, 2006, Traynor Mallon sent Mr. Johnston a letter containing an undertaking to furnish ACC with the net proceeds of the sale of Red Barns Road and Annagassan and to assign any deposits held in respect of the contracts of sale of those properties in permanent reduction of Mr. Tiernan’s debt to ACC. Traynor Mallon further undertook to lodge €4,000,000 to ACC from the sale of Hill Street in permanent reduction of the sums due to ACC on that property. On the same day, Traynor Mallon also sent Mr. Johnston copy folios for the Saltings, Castlewarden and Annagassan.

4.10 In the meantime, on 31st July, 2006, ACC formally appointed Mr. Johnston to act on its behalf in connection with the provision of security in respect of the loan facilities which it proposed to advance on foot of the first, second and third letters of sanction. The letter of appointment sets out the following:-

“In acting for the Bank, I should be obliged if you would attend to the following (where applicable):-

1. Investigate the legal title to the properties to be / which are charged to the Bank as outlined in the Letter of Loan Sanction and ensure that on completion of the purchase that the Bank obtains good and marketable title in accordance with current Law Society guidelines and that the Bank’s security is in place. In particular the following matters should be attended to:-
a. Ensure that all security documentation required by the Bank is duly and validly executed and completed.

b. Ensure a Deed of Confirmation is executed by all necessary parties where the circumstances render such a Deed appropriate.

c. That all aspects of family law legislation be complied with. In particular the Family Home Protection Act 1976 (as amended).

d. Advise the Bank in relation to the contents of any agreements, contracts, etc entered into by the Borrower relating to the properties to be charged to the Bank.

e. Advise the Bank of the pertinent terms of any lease which the Borrower is entering into and highlight any onerous conditions.

f. [Where security is already registered please confirm that this security is continuing and extends to cover this facility]

g. Where there are outstanding solicitors’ undertakings in respect of the Bank’s existing security, please obtain the appropriate extension of these undertakings in the Bank’s standard form enclosed herewith

…

j. Please confirm that all relevant Planning Permissions/Bye Laws/Building Regulations etc. are in place

k. Conduct all usual property/planning searches against each of the properties.

l. Conduct all usual Companies Office/Judgement / Bankruptcy/Sheriff searches against the Borrower.

m. Ensure all provisions of the Companies Acts are complied with, in particular section 29 and section 31 of the Companies Act 1990, section 60 and section 99 of the Companies Act 1963 (all as amended).

n. Attend to all stamping and registration in the relevant revenue, registry and companies office etc.

o. Where applicable, ensure all authorities are in order – corporate authorities (please review memorandum and articles of the company to ensure the Company has the power to enter into this facility and also to check that the appropriate authorities are obtained. Please obtain the relevant extracts of board resolution and corporate certificate).

p. In the case of guarantors please obtain written confirmation from their solicitor that the guarantor has received independent legal advice.

q. Please review and ensure Powers of Attorney etc are valid and enforceable

2. If any other matters not mentioned herein arise which would adversely affect the Bank’s security prior to drawdown ensure to advise the Bank of same prior to drawdown and obtain the Bank’s consent in writing to proceed.

Please ensure that you receive funds to cover your legal fees from the Borrower and all you expenses and outlay [and confirm same].”

4.11 By letter of 14th August, 2006, Mr. Johnston accepted his appointment as solicitor for ACC and confirmed that his professional indemnity insurance complied with ACC’s requirements. On 14th August, 2006, Mr Johnston also sent a letter to Traynor Mallon stating that he would request a draw down of the funds sought by Mr. Tiernan from ACC. This letter speaks of “various other undertakings” offered by Traynor Mallon. Between 14th and 18th August, 2006, Mr. Johnston sent three letters to ACC setting out that the lending conditions had been complied with. On 14th August, 2006, Mr. Johnston sent the following letter to ACC headquarters in Dublin:

“We confirm that all the banks requirements as set out in paragraph 1 on page 4 of that letter [the letter of appointment] have been complied with save in respect of sub-paragraph h and I which we understand are matters which had been dealt with by the borrower to the bank’s satisfaction.

We also enclose confirmation of Professional Indemnity cover with Solicitors Mutual defence fund in the sum of €2,500,000.00 with top up cover provided by St. Paul Travellers in the additional sum of €2,500,000.00.

In those circumstances we enclose herewith funds requisition forms in respect of each of the three loan facilities and look forward to receipt of the loan proceeds as soon as possible.”

(a) An extension of ACC’s existing first legal mortgage and charge over Anne Street, Dundalk;

(b) A continued assignment of Mortgage Protection Policy on the life of Mr. Tiernan for the term facility;

(c) A solicitor’s irrevocable undertaking on Mr. Tiernan’s irrevocable instruction to furnish to ACC the full net sale proceeds from the sale of the properties at Red Barns and Annagassan; and

(d) A solicitor’s irrevocable undertaking on Mr. Tiernan’s irrevocable instructions to furnish to ACC €4,000,000 from the sale proceeds of Mr. Tiernan’s property at Hill Street, Dundalk, in permanent reduction of all ACC debts in respect of Mr. Tiernan.

“We refer to out letter of 14th August and your three letters of offers dated 20th July for sums of €7,000,000.00, €545,000.00 and €291,000.00. With reference to the security for the loan facility that position can be outlined as follows:

1. The first legal Mortgage and charge on the property located in the Saltings, Blackrock, Co. Louth has been investigated fully and the writer confirms there is good marketable title to this property.

2. The first legal mortgage and charge over 103 acres at Castlewarden, Naas, Co. Kildare has been investigated fully and there is also good and marketable title to this property.

3. We confirm that we have investigated the first legal mortgage and charge over 53.5 acres at Tullydonnell, Togher, Co Louth [i.e., Annagassan] and confirm that it is in order to extend the mortgage on this property.

4. It is also in order to extend the existing mortgage on the commercial premises locates at Anne Street, Dundalk, Co. Louth as this property has previously been fully investigated and the borrower possesses good and marketable title to it.

5. We confirm that this is a matter for the lending institution however we have been advised that this is already in place.

6. We have received irrevocable undertakings from the borrowers solicitors that they will furnish to the bank the full net proceeds of sale from both properties located at Red Barns Road and the property at Annagassan, Co Louth. There is also an irrevocable undertaking from the borrowers solicitor to hold on trust for the bank 10% of the deposits paid in respect of the two properties at Red Barns Road, Dundalk, Co Louth, this satisfying condition 8.

7. We also possess an irrevocable undertaking from the borrowers solicitors that they will furnish to the bank €4,000,000.00 from the sale provides of property located at Hill Street, Dundalk, Co Louth.

8. We also confirm that we have received the contract for sale for the property at Castlewarden and it is in order for the purchase to proceed.

9. We can also clarify that there are no lease agreements in place relating to the said properties.

10. We also confirm that we have carried out planning, judgement and bankruptcy, sheriff and land registry searches and are satisfied with same.


Many thanks for your instructions in the matter and if you have any queries please do not hesitate to contact us. It is now in order to release the funds.”

“I spoke with Joe Traynor about the three way closing. He told me that the other solicitor was not prepared to travel to Dundalk to complete the sale. I said I would travel to New Ross, provided there was certainty about the appointment. Dermot Monahan later phoned back to say that they were having difficulties arranging an appointment and that the documents may not yet be available. Joe had asked him to ask me if the funds could be released on his undertaking to complete the sale. I said I would have to discuss this with the bank.

I spoke with Gerry McMahon and he says that if the undertaking was clear then they would have no difficulty as they were under severe pressure from Tiernan and Traynor to release the monies.

I called Dermot and told him to send on the undertaking for approval. I received this and met with Gerry and Paul again. Release of funds authorised.”

4.15 Mr. Johnston stated that the Dermot, Gerry and Paul mentioned in this note referred to Mr. Monahan from Traynor Mallon, Mr. McMahon and Mr. Cumiskey, respectively. There was some debate at hearing over the contemporaneous nature of the attendance note written by Mr. Johnston. A technical examination of the computer equipment which was used by Mr. Johnston at the time in question was facilitated in the course of the hearing and was undertaken by computer forensic experts from both sides. Mr. Colm Murray from Espion, an Information Risk Advisory & Security Consultancy, gave evidence on behalf of Mr. Johnston of the forensic analysis which he undertook on the computers in questions. Mr Murray gave the court an in depth report of the analysis carried out on the computers and stated that, while the analysis did not produce the result of an exact date on which the attendance was written, Mr. Murray could conclude that the attendance was created sometime between 20th November, 2005 and 4th June, 2008. Counsel for Mr. Johnston asserted that this proved that the attendance was not written in anticipation of the proceedings as the proceedings were not issued until 10th December, 2008.

4.16 It is necessary to set out the sequence of the giving of evidence at the hearing before me, for it is of some relevance to the resolution of the conflicting accounts given by various witnesses in relation to the question of whether ACC authorised Mr. Johnston to accept an undertaking from Traynor Mallon. ACC, as plaintiffs, of course gave evidence first. Mr. Cumiskey denied having authorised Mr. Johnston to accept an undertaking from Traynor Mallon. He was cross-examined on this point generally. However, when Mr. Johnston came to give evidence, his account was much more detailed than had been included in his original witness statement. In particular, he gave an account of having had an initial meeting with Mr. McMahon and Mr. Cumiskey in ACC’s branch at Dundalk at which he raised the question of whether it was possible to accept an undertaking. Mr. Johnston indicated that Mr. McMahon took the view that the Dundalk branch would not have authority to authorise such a course of action, but that inquiries would be made. Mr. Johnston then went on to give evidence concerning a phone call which he maintains he had with Mr. Cumiskey on 25th August, 2006, at which Mr. Johnston maintains that the relevant authorisation was given. Not alone had there been no mention of that phone call in Mr. Johnston’s witness statement, that point had not been put to Mr. Cumiskey. Not surprisingly, counsel for ACC objected. For reasons which I set out in a ruling delivered on that occasion, I formed the view that the appropriate course of action to adopt was to permit both the evidence to be given and the recall of Mr. Cumiskey, but that a further and more detailed witness statement dealing with these issues should also be filed, in advance, by Mr. Johnston. The matter was put back to allow those matters to be attended to.

4.17 At the end of the day, Mr. Johnston’s evidence remained as I have just described it. It will be necessary to come back to the credibility of that evidence in due course. Mr. McMahon, who no longer works for ACC, and was called by Mr. Johnston as a witness, also gave evidence that there was a meeting between Mr. Johnston, Mr. Cumiskey and himself, but indicated that he had no further involvement in the matter. Mr. Cumiskey, on recall, continued to deny having given any authority to Mr. Johnston and further denied that he was at any initial meeting at which such authority was requested.

4.18 There is, therefore, a very significant difference of evidence between each of the three witnesses relevant to this issue. In addition, what is said to be an attendance of those matters gives a version which it is not possible to reconcile with any of the accounts of the witnesses. It will, therefore, be necessary to come back to the truth of these matters in due course.

4.19 In any event, on 24th August, 2006, ACC had sent the monies to Mr. Johnston’s account in three instalments of €500,000 (for the Sarasin Fund), €6,300,000 (for Castlewarden), and €267,000 (for the Saltings) totalling €7,067,000. Also on 24th August, 2006, Traynor Mallon sent Mr. Johnston a letter of undertaking confirming that the money lent to Mr. Tiernan would only be used for the purchase of Castlewarden. Mr. Johnston says that on receipt of this undertaking, he contacted Mr. Traynor of Traynor Mallon and told him that he was not satisfied that the undertaking secured ACC’s interest. On 25th August, 2006, Traynor Mallon sent Mr. Johnston a revised letter of undertaking (dated the 24th but faxed on the 25th) together with another letter undertaking to lodge the title documents when the purchase of Castlewarden was completed. Also, on 25th August, 2006, Mr. Tiernan signed a deed of mortgage over the lands at Castlewarden and the Saltings in favour of ACC.

4.20 Mr. Johnston agreed to hand over a cheque for €5,888,244.20 to Traynor Mallon, being the amount of two facilities (not including the facility for the Sarasin Bond), deducting stamp duty for Castlewarden and Mr. Johnston’s fees and outlays. The cheque was made payable to Mr. Tiernan.

4.21 After this, issues arose in relation to the stamp duty payable on the Castlewarden site. On 29th August, 2006, Traynor Mallon sent Mr. Johnston a letter requesting €630,000 for stamp duty for Castlewarden and also sent an undertaking to stamp and register the title documents. On 4th September, 2006, Mr. Johnston informed Traynor Mallon by letter that ACC would not release stamp duty before the sale had closed and requested that Traynor Mallon send the title documents to him, Mr. Johnston, in order that he, Mr. Johnston, could stamp and register them. On 15th September, 2006, Traynor Mallon sent Mr. Johnston a letter stating:

“We refer to the above matter and understand that your client has agreed to release monies in the sum of €630,000 in relation to stamp duty. A representative from our office will call to your offices today at 2 pm to collect the cheque in the abovementioned amount.”

“We confirm that the above mentioned transaction has now been completed. We hereby undertake to stamp the Deed of Transfer herein and in those circumstances we require it immediate to avoid payment of any penalties. Please arrange to let us have a cheque for €630,000 today. We confirm that ACC Bank has authorised you to release this to us and we await hearing from you by return.”

4.24 The monies for the stamp duty were released on 18th October, 2006. Mr. Johnston gave evidence that on 18th October he spoke with Mr. Cumiskey who said that the money for the stamp duty could be released to Traynor Mallon provided Mr. Johnston received an undertaking that Traynor Mallon would stamp the title documents to Castlewarden. Mr. Johnston stated that after he relayed this information to Traynor Mallon, Mr. Monahan hand-delivered the undertaking to Mr. Johnston, to which Mr. Cumiskey gave his approval. Mr. Johnston then released the €630,000 for the stamp duty to Traynor Mallon. Mr. Cumiskey gave evidence that the conversation in relation to stamp duty on the 18th October, 2006 did not take place and that he would not have had the authority to authorise the release of funds to pay the stamp duty.

4.25 Mr. Cumiskey left ACC in or around January, 2007, and took up a position at another financial institution. Ms. Roisin Mullholland seems to have taken over Mr. Tiernan’s file at this point. In January, 2007 Mr. Tiernan approached ACC with a request for further borrowing to be backed up by a solicitor’s undertaking to repay ACC from what were said to be contracted sale proceeds of lands at Hill Street. The fourth letter of sanction was issued by ACC on 29th January, 2007. The security was almost identical to that in the first, second and third letters of sanction. The main difference was that Mr. Tiernan was required to give an undertaking to pay ACC an additional €1,000,000 from the sale of Hill Street. ACC also appointed Mr. Johnston to act on its behalf on 31st January, 2007. Traynor Mallon sent Mr. Johnston an undertaking for the additional €1,000,000 to ACC from the sale of Hill Street.

4.26 On 1st February, 2007, Traynor Mallon sent a letter to ACC setting out that unconditional and irrevocable sale contracts were in place in respect of the lands at Red Barns Road and Annagassan. Traynor Mallon sent another letter dated 2nd February, 2007, to ACC setting out that the dates for closing of the sales were the 31st May, 2007, in respect of the Red Barns land, and 30th June, 2007, in respect of the Annagassan land. In relation to the title documents of Castlewarden, Traynor Mallon sent Mr. Johnston a letter dated 13th February, 2007, stating:-

“We hereby undertake to stamp the abovementioned Title Documents and to arrange to have them lodged in the Land Registry within six (6) weeks from the date hereof and we trust that this is the information that you require.”

a) The first legal mortgage and charge on the Saltings property had been fully investigated and that it was in order to extend the charge on this property;

b) The first legal mortgage and charge on the Castlewarden property had been fully investigated and that it was in order to extend the charge on this property;

c) The first legal mortgage and charge on Annagassan had been fully investigated and that it was in order to extend the mortgage on this property;

d) It was in order to extend the mortgage on the Anne Street property as the property had been fully investigated; and

e) Mr. Johnston had an unconditional and irrevocable undertaking from Traynor Mallon to furnish an additional €1,000,000 from the sale proceeds of the sale of Hill Street in addition to the original undertaking in relation to Hill Street.

4.29 In or around mid July, 2007 Gareth Keogh, a senior manager in ACC’s business centre in Drogheda, informed the Asset Management Unit of ACC of concerns regarding ACC’s connections with Mr. Tiernan. ACC seemed to have concerns at this stage in relation to the adequacy of its security in respect of the facilities extended to Mr. Tiernan. From July, 2007 officers from ACC, specifically Mr. Gareth Keogh, Ms. Fiona Henry and Ms. Mullholland made a number of attempts to contact Mr. Johnston. Mr. Keogh spoke with Mr. Johnston on the 10th August, 2007, in relation to ACC’s concerns with the matter. Ms. Mullholland contacted Mr. Johnston by a fax dated 11th August, 2007, and follow up phone calls. Mr. Johnston replied by letter dated 14th September, 2007, and advised that he was in the process of reviewing the file and expected to complete the review within the coming days. During this time, Mr. Johnston was making his own attempts to contact Mr. Traynor in relation to the undertakings.

4.30 Ms. Mullholland again contacted Mr. Johnston by letter dated 28th September, 2007, requesting that he contact her. Mr. Johnston wrote to ACC on 17th October, 2007, setting out that he had spoken with Mr. Traynor and expressed his concerns that matters were outstanding. In his letter, Mr. Johnston explained that Mr. Traynor advised him that the sale of the lands in Dundalk were proceeding but that the prospective purchaser was awaiting loan approval, and that the sale of Castlewarden was agreed and expected to close mid November. It appears that during this time Mr. Traynor was proving to be elusive to Mr. Johnston, and failed to make any contact despite such requests.

4.31 On 1st November, 2007, Ms. Fiona Henry, a senior solicitor with ACC, procured a number of searches in the Land Registry in respect of the property charged. The result of the searches was as follows:-

“That as of 8th July, 1994, Sean (James Bailey) was registered full owner of the Castlewarden property. No charge was registered in favour of ACC; and that as of 1st September, 2004, Carrickedmund Furniture Company Limited was registered full owner of the Anne Street property. A Registry of Deeds search noted the registration on 31st January, 2005, of a mortgage on the property, dated 1st September, 2004.”

4.33 Ms. Henry gave Mr. Johnston a deadline of 9th January, 2008, to revert to her with a report on ACC’s security, failing which ACC would report him to the Law Society. On 21st December, 2007, Mr. Johnston sent a letter to Ms. Henry stating that the issues were caused by Mr. Traynor’s failure to comply with his undertakings. ACC then decided to instruct Matheson Ormsby Prentice (“MOP”), solicitors. In several letters between February, 2008 and the end of March, 2008, MOP sought a security report from Mr. Johnston.

4.34 On 12th December, 2007, ACC had downgraded Mr. Tiernan’s status as borrower due to increasing concerns over the validity and existence of the security for the various facilities. Mr. Tiernan went in into arrears in respect of those facilities in February, 2008. Mr. Tiernan met with Gareth Keogh and Ian Johnstone from ACC on 2nd April, 2008, to discuss the arrears. At this meeting, Mr. Tiernan agreed that he would provide additional security by way of a first legal charge over sites at Annagassan and Red Barns Road. Letters of variation were drafted on behalf of ACC but Mr. Tiernan did not make any further contact with ACC. As such, ACC issued letters of demand for payment on 12th September, 2008, in the sum of €11,433,870.75. Payment was not forthcoming.

4.35 A judgment mortgage was registered against Mr. Tiernan’s property by ACC on 3rd July, 2009, on foot of proceedings taken by ACC against Mr. Tiernan. Against that general history of the facts it is next necessary to turn to the significant conflict of evidence concerning the suggestion by Mr. Johnston that ACC authorised the closing of the mortgage arrangements on the basis of an undertaking from Traynor Mallon.

5. The Conflict of Evidence
5.1 There is a stark conflict of evidence between the parties on this issue. I agree with counsel for Mr. Johnston when, in closing, he submitted that this was not the type of conflict that can easily be explained by difference of recollection or the like. Leaving aside, for the moment, the evidence of Mr. McMahon, the conflict between Mr. Johnston and Mr. Cumiskey is wide indeed. Mr. Johnston recounts an initial meeting with Mr. McMahon and Mr. Cumiskey at which the question of closing on an undertaking is broached. Mr. Johnston recounts Mr. Cumiskey being sent to check with ACC headquarters as to whether such a closing could be authorised. He further recounts that he spoke to Mr. Cumiskey on the phone who confirmed that it was in order to close on foot of an undertaking from Traynor Mallon. Mr. Cumiskey says that none of this happened.

5.2 Against that stark contrast in the evidence it is necessary to look at other factors that may at least be weighed in the balance in considering where the truth or otherwise of the rival contentions may lie. In that context, it is also necessary to note that there is a similar conflict of evidence between Mr. Johnston and Mr. Cumiskey as to whether Mr. Johnston was authorised to hand over the stamp duty money (which it will be recalled he had retained on closing) to Traynor Mallon on foot of an undertaking by Traynor Mallon that the monies would be used to stamp the deed of transfer. The conflict on this issue is equally stark.

5.3 The first point stems from the attendance put in evidence by Mr. Johnston. As pointed out earlier, there was some significant debate between the parties as to the time when the relevant attendance was prepared. By the close of his evidence, Mr. Johnston accepted that the attendance was not (as it could not have been) prepared on a single occasion, the 23rd August, 2006 being the date appearing on it. His evidence was that the first portion was prepared on that date with the attendance being so dated. It became obvious that the latter portions could not have been written on the 23rd as the undertaking from Traynor Mallon in draft form referred to in the note had not arrived by that date. It does have to be noted that Mr. Johnston had not originally proffered evidence which suggested that the document had been drafted in two parts and on two different dates.

5.4 There are other difficulties with the document. It suggests that Mr. McMahon was agreeable to an undertaking provided it was clear. Mr. McMahon gave contrary evidence which was to the effect that he had made it clear that he did not have authority to agree to what was proposed. In addition, the clear impression given by the final two sentences was that, subsequent to obtaining the relevant undertaking, a further meeting with Mr. McMahon and Mr. Cumiskey occurred, as a result of which the funds were authorised for release. While it was suggested by Mr. Johnston that he had very briefly met Mr. McMahon and Mr. Cumiskey while playing football on Thursday 24th August, Mr. Johnston’s evidence was that the authorisation itself came from Mr. Cumiskey as a result of phone calls on the 25th rather than as a result of any meeting with Mr. McMahon and Mr. Cumiskey.

5.5 It is clear, therefore, that there are a series of inconsistencies as and between Mr. Johnston’s evidence as it finally lay and the relevant attendance. There are also significant differences between the attendance and the evidence of Mr. McMahon who was, after all, called to give evidence on behalf of Mr. Johnston. It was suggested to Mr. Johnston on behalf of ACC that the relevant attendance was produced long after the event with a view to substantiating his version of events. The forensic evidence as to the time of its production proved, unfortunately, inconclusive. In that regard I should comment briefly on one point made on behalf of Mr. Johnston in closing. It was suggested, correctly so far as it goes, that Mr. Johnston did not demur from making facilities available for the forensic inquiry to which I have referred. It was said, again correctly so far as it goes, that Mr. Johnston would not have been aware at the time of agreeing to facilitate such an inquiry, that the results would prove inconclusive. It is said that the inference to be drawn from those facts is that Mr. Johnston must have been confident that, if the forensic inquiry produced any results, same would be favourable to him. However, it does not seem to me that that inference follows. As was pointed out by counsel for ACC, by the time Mr. Johnston was consulted, the court had already been asked to facilitate the relevant forensic inquiry. If it had transpired that Mr. Johnston had declined to co-operate with such an inquiry, then it is obvious that there would have been the potential for an adverse inference against him. It seems to me that Mr. Johnston had little option but to co-operate given that his counsel had invited the court to facilitate matters without obtaining his instructions. It is important to note that this was an entirely proper action on the part of counsel, for counsel were unable to speak to Mr. Johnston at the relevant time as he was under cross-examination. It does not seem to me that Mr. Johnston’s authorisation weighs significantly either way.

5.6 However, it is necessary to address the fact that the attendance is, on any view, significantly inconsistent with the evidence. How could this be? For the moment it seems to me that I should simply record that I am not satisfied that the attendance was a contemporaneous memorandum in the sense of a document produced, whether at one or two sittings, within a short number of days of the events. It may well be that the first portion of the memorandum was drafted, as it indicates, on the 23rd. I do not believe it is credible to suggest that the second portion, recording dealings with ACC, could have been drafted at any time in the immediate aftermath of those events. While, of course, accepting that the document was drafted as an internal attendance rather than a detailed document on which reliance might be placed later, it seems to me to be inconceivable that there could be so many errors in it if it was drafted at a time when the events (if they happened in the way in which he suggests) would have been fresh in Mr. Johnston’s mind.

5.7 The next point concerns the evidence of Mr. McMahon. Mr. McMahon’s evidence causes problems for both sides. So far as ACC is concerned, Mr. McMahon was its branch manager at the time. He agrees with Mr. Johnston’s evidence to the effect that a request for an authorisation occurred in the presence of Mr. Cumiskey. However, his evidence differs significantly from Mr. Johnston’s attendance note as to what his response was. Furthermore, he confirmed that he was not afterwards involved in the process, which, while consistent with the evidence Mr. Johnston gave at the end of the day, seems inconsistent with Mr. Johnston’s attendance note. It should be recalled that Mr. McMahon remains a close friend of Mr. Johnston and, indeed, would appear to own part of the premises in which Mr. Johnston currently lives. On the other hand, the one thing that is absolutely clear is that ACC head office authorisation would, as a matter of internal bank policy, have been required and that it was not sought. Any involvement on the part of Mr. McMahon in an authorisation to Mr. Johnston, which was not itself authorised by headquarters, would have amounted to a serious disciplinary matter on Mr. McMahon’s part. At the end of the day, it does not seem to me that Mr. McMahon’s evidence really assists either party in that it casts doubt on the veracity of the accounts of both Mr. Johnston and Mr. Cumiskey.

5.8 The next point on which some emphasis was placed by counsel for Mr. Johnston in closing concerns the Sarasin bond. One side effect of the forensic trawl of Mr. Johnston’s electronic records to which I have referred, is that it threw up a message left by a receptionist/secretary in Mr. Johnston’s office at the relevant time which records Mr. Cumiskey as having called on the morning of the 25th August in relation to the Sarasin bond. While Mr. Cumiskey indicated in evidence (at an earlier stage and before those records had become available) that he had no particular recollection of making a call to Mr. Johnston in relation to the Sarasin bond, it does not seem to me that a lack of recollection of what would have been a minor part of the process would be either here or there. However, the suggestion made on behalf of Mr. Johnston is to the effect that the phone call suggests that Mr. Cumiskey must have been aware that the sale had closed. In order to understand the point, it is important to note that the Sarasin bond was a type of investment bond promoted by ACC at the time. Mr. Tiernan was to subscribe to €500,000 in the Bond. ACC was to lend him money for that purpose. As it happened, the loan monies were included in the funds sent to Mr. Johnston. However, as the funds were designed to be placed in the Sarasin Bond, they would, in the ordinary way, have to have been returned to ACC. As pointed out earlier the security for the loan in relation to the Sarasin Bond involved the same security as for the other loans and draw down of the Sarasin Bond loan would, in those circumstances, only have arisen where all of the other security was in place. On that basis it is pointed out, correctly so far as it goes, that it is unlikely that Mr. Cumiskey would have been seeking the Sarasin Bond monies unless he believed that the sale and mortgage of Castlewarden had closed. However, it does not seem to me that the point made is really of any significant import. Everyone knew that the relevant sale was due to close on the 25th August, whether in the ordinary way or by an undertaking (if one accepts Mr. Johnston’s evidence). If, therefore, as Mr. Cumiskey asserts, he had had no contact, good, bad or indifferent concerning the closing, then he would have expected the closing to occur on the 25th in any event in the ordinary way by a three-way closing. It does not seem to me that the phone call in relation to the Sarasin Bond carries with it the significance urged on behalf of Mr. Johnston.

5.9 The next set of factors urged concern the suggestion on the part of Mr. Johnston that ACC, and Mr. Cumiskey in particular, were anxious to facilitate Mr. Tiernan to the extent that that would be consistent with bending the rules in his favour. A number of points are relied on. First, it is pointed out that someone in the ACC branch (whether Mr. McMahon or Mr. Cumiskey) undoubtedly approved the Saltings loan going ahead, notwithstanding the fact that the loan was a refinance of an existing loan rather than a loan designed, as the facility letter suggests, to facilitate a purchase. It was clear that that change was a matter that should have been approved by headquarters and that it was not so approved. It must, therefore, be concluded that someone in the Dundalk branch did bend the rules so far as that aspect of the loans are concerned.

5.10 The second point urged concerns the Sarasin Bond again. It is suggested that ACC must have bent the rules to facilitate Mr. Tiernan because the bond was already in being prior to the loan draw down taking place. However, I am not satisfied that the description placed on events on behalf of Mr. Johnston is accurate. On the evidence, it seems to me that the way in which the Sarasin Bond worked was that persons initially subscribed to the Bond without putting up money. When the closing date for the Bond was reached, the bank allocated shares in the bond to subscribers who then had a further period of time to put up actual cash. The fact that Mr. Tiernan had been allocated a share in the Bond prior to draw down of the loan which was to finance his investment in the Bond, was, therefore, nothing unusual. It was indeed in accordance with the normal operation of the Bond. It does not seem to me that this factor shows any favouritism towards Mr. Tiernan.

5.11 The third factor relied on is that, it is said, Mr. Cumiskey approved and was party to all of the loan documentation sent to headquarters supportive of the loans to Mr. Tiernan. That is a factually correct statement. However, it does not seem to me to be surprising. This Court is more than familiar with current banking practice where in the case of large customers (and Mr. Tiernan was, indeed, a large customer with the loans the subject of these proceedings being, it would appear, the largest loans given out by the ACC branch in Dundalk) having a so called relationship manager being a relatively senior bank official, whose job it is to manage the relationship of the bank with such significant customers. In those circumstances, it would be expected that any loan papers going forward to headquarters would require the signature of the relationship manager. On reading the loan papers concerned, same do not seem to me to portray anything more than the usual considerations which a bank might give, although they suffer from the failing (which has now been exposed in many more cases than this) of over optimism in relation to lending in favour of persons with apparent high net worth. I see nothing in the evidence concerning the manner in which Mr. Cumiskey managed the Dundalk branch’s relationship with Mr. Tiernan which is out of the ordinary or suggests any degree of favouritism.

5.12 A further point is raised concerning the valuation of the Castlewarden property for the purposes of the loan facility. In the relevant approval of the loan facility received from ACC headquarters, a condition was imposed that one of a small number of specified valuers should conduct a valuation of the Castlewarden property for the purposes of ensuring that it provided adequate security for the relevant loan. In the event, it would seem that that condition was not strictly complied with. A different firm of valuers was used. That different firm was, it would appear, on a general panel authorised to conduct valuations on behalf of ACC, although it would seem that that general panel was quite extensive. Precisely how it came about that such a valuation, from a firm other than one of those specified in the headquarters’ authorisation, was accepted was not clear on the evidence. Indeed, having regard to the fact that it would now appear that the true purchase price was €4m rather than €7m, the valuation itself must be open to some question. This item does evidence some further preparedness on the part of ACC to bend the rules in favour of Mr. Tiernan, although it does have to be said that, having regard to the fact that the valuers who actually carried out the valuation on behalf of ACC were on an ACC panel, the extent to which any significance can be attached to that fact must necessarily be limited.

5.13 With the exception, therefore, of the undoubted bending of the rules in relation to both the change in the loan in respect of the Saltings from a financing loan to a refinancing loan and the change in authorised valuer to which I have just referred, I do not think that the other issues urged under the heading are material.

5.14 Finally, ACC places reliance on the events which I have described in some detail which post-date problems emerging in respect of the loans. It is pointed out that, notwithstanding the fact that Mr. Johnston came under increasing pressure, first from ACC, then from ACC’s in house solicitors, then from ACC’s external solicitors, and finally from the Law Society, it was a very considerable period of time indeed before Mr. Johnston asserted that the closing had occurred in a way which had been authorised by ACC. I frankly did not find Mr. Johnston’s explanation for this convincing. On many occasions, the correspondence is capable only of one construction. Mr. Johnston was being evasive and did not want to report fully on the relevant matters. While I can well understand that Mr. Johnston was embarrassed by the fact that Traynor Mallon had not met their undertakings and was anxious to see if arrangements could be put in place to ensure that Traynor Mallon would meet those undertakings, that does not seem to me to provide an adequate explanation. Mr. Johnston could not be in difficulties with his professional body (or, indeed, his client) if the problem simply stemmed from a failure on the part of Traynor Mallon to meet an undertaking in circumstances where his client had authorised accepting that undertaking. It seems to me that this is a factor that must weigh very heavily in any consideration. Why was it that, when Mr. Johnston came under increasing pressure in the manner which I have described, he did not simply say something along the lines of “I appreciate that we have a problem with Traynor Mallon and I am doing my best to solve it, but you must appreciate that the Dundalk branch authorised me to close on a Traynor Mallon undertaking and I don’t see why I am being blamed for this”.

5.15 Taking into account all of the above factors, and having had the opportunity to see both Mr. Johnston, Mr. McMahon, and Mr. Cumiskey give evidence, I have, on balance, come to the view that I should accept that Mr. Johnston was not authorised by anyone in ACC to close the mortgage arrangements by undertaking from Traynor Mallon. Short of the finding which I have already made, to the effect that the attendance to which considerable reference has been made was not, at least so far as its second part is concerned, contemporaneous, in any reasonable sense of the term, it does not seem to me that I should reach any concluded view on exactly when and in what circumstances same was prepared. Suffice it to say that it is so inaccurate as to be of little assistance.

5.16 There is even less to go on in relation to the conflict between Mr. Johnston and Mr. Cumiskey as to whether Mr. Johnston was authorised to release the stamp duty monies on the basis of an undertaking from Traynor Mallon. Having concluded that, on balance, I did not accept the evidence of Mr. Johnston in relation to the contended authorisation to close the mortgage by undertaking from Traynor Mallon, I have, for similar reasons, also come to the conclusion that Mr. Johnston was not authorised to release the stamp duty monies in the manner which he contends for.

5.17 Having reached those conclusions on the facts, it seems to me that I must necessarily turn to the second issue raised on behalf of Mr. Johnston which is as to whether, on the basis that he was not authorised as he contended, it was negligent of him, in all the circumstances, to release monies to Traynor Mallon on foot of an undertaking.

5.18 I, therefore, turn to that issue.

6. A Solicitor’s Duty of Care
6.1 In his closing submissions, counsel for Mr. Johnston made two separate points under this heading. First, it was suggested that, in the particular circumstances of this case, Mr. Johnston was, without consent on the part of ACC, entitled to seek to close the mortgage arrangements in the manner in which he did.

6.2 Second, it was suggested that it was not negligent for a solicitor, in any event, to use such a method of closing.

6.3 So far as the particular features of this case are concerned, two real points were relied on. First, it was argued that the duty of care (or contractual obligation) which a solicitor undertakes is primarily governed by the letter of appointment in the relevant case. It is said that a proper interpretation of that letter of appointment gives Mr. Johnston a discretion over the way in which he might choose to close the mortgage transaction. That question turns primarily on the interpretation of the relevant letter.

6.4 Second, it is said that because of certain features of the case, Mr. Johnston was impliedly entitled to close by undertaking.

6.5 There are, therefore, three connected but separate issues which I propose dealing with in turn. The first two relate to the specifics of this transaction, the third to a solicitor’s general duty of care. I turn first to the question of the proper interpretation of the letter of appointment. I have cited extensively from the letter of appointment at para. 4.10 above. The final passage from that letter provides that ACC’s requirements, as set out under the heading ‘Conditions Precedent’ in the letters of loan sanction, had to be met prior to what is described as “drawdown” of the loan facility. The relevant provision of the “conditions precedent” in each of the letters of loan sanction provides for a first legal mortgage or charge over the Castlewarden lands.

6.6 The letter of appointment, therefore, suggests that a first legal charge over the Castlewarden lands was required to be in place prior to drawdown of each relevant loan facility.

6.7 The ordinary meaning of that provision of the letter of appointment seems clear. The letter suggests that there should be a first legal mortgage or charge in place before drawdown. The way in which, in practice, Mr. Tiernan was to draw down the loan facility was by the monies being handed over to him (or, in practice his solicitor) by Mr. Johnston. It follows that the letter of appointment suggests that there should be a first legal mortgage or charge in place prior to the handing over of any monies to Mr. Tiernan.

6.8 ACC argues that the relevant passage imposes a clear obligation on Mr. Johnston to ensure that a first legal mortgage or charge is in place before handing over any money to Mr. Tiernan or Traynor Mallon on his behalf. There is considerable logic in that submission based on the actual wording of the letter of appointment. While the letter of appointment does not require a three way closing, the wording of the letter of appointment seems to imply as much in the absence of the unlikely event that Mr. Tiernan was able to close the sale with the vendor without using ACC’s money. There was a time in the past when purchasers sometimes had to secure bridging finance to enable them to close sales prior to putting more permanent mortgage arrangements in place. I understand that that practice is now a significant rarity. However, under that practice the purchaser was able to close the sale with the vendor and have a separate and subsequent closing with his permanent financial institution at which he was, in advance, possessed of full title. However, in the absence of an arrangement such as that, the only way in which title and money as and between vendor, purchaser and mortgagee can pass at the same time, under the current practice, is by way of a three-way closing. The terms of the letter of appointment do not, therefore, in my view, authorise Mr. Johnston to close on an undertaking.

6.9 However, there is a problem with the proposition put forward on behalf of ACC, at least if it is considered that the letter of appointment is to be construed literally. What is to happen in the likely event that the relevant vendor himself has a mortgage in place over the land which needs to be discharged? I had the benefit of two expert solicitors being Mr. Michael Carrigan, who gave evidence on behalf of ACC, and Mr. Felix McTiernan who gave evidence on behalf of Mr. Johnston. While it will be necessary to return to what might be described as a difference of emphasis between those two undoubted experts in due course, both agreed that it was standard practice for solicitors acting for purchasers to close with a vendor on the basis of an undertaking from the vendor’s solicitor to discharge an existing mortgage and produce suitable evidence of that discharge in due course. Short of a four way closing (which no one suggests is either common practice or should have been contemplated in this case), it is difficult to see how a first legal charge could actually be in place as of the date of drawdown in those circumstances. A first legal charge in favour of ACC can only be put in place when any existing first legal charge over the lands has been discharged. In the immediate aftermath of a three way closing at which the vendor’s solicitor gives an undertaking to discharge a pre-existing mortgage, there will not, by definition, be a first legal charge in favour of the purchaser’s financial institution for such a first charge is impossible until such time as the earlier legal charge has actually been discharged.

6.10 Against that background, counsel for ACC accepted, in his closing submissions, that the letter of appointment must be seen in the context of generally accepted conveyancing practice, such that it could not be taken literally. It was accepted that it would have been appropriate for Mr. Johnston to have closed at a three way closing accepting an undertaking from the vendor’s solicitor to discharge any pre-existing mortgage.

6.11 The problem, however, is to ascertain just how far one should go in departing from the literal terms of the letter of appointment.

6.12 While an important factor in determining the duty of care resting on Mr. Johnston on the facts of this case, it follows that the letter of appointment cannot be absolutely conclusive for, if it is conceded that it may be overborne by accepted solicitors conveyancing practice, then that raises the question of what that practice is and what was, therefore, permitted, as a means of closing. I should emphasise that it is not a question of suggesting that the letter of appointment is irrelevant. It most certainly is not. It is the fundamental basis of Mr. Johnston’s obligations. However, in circumstances where it is accepted there does not have to be strict compliance with the literal terms of the letter of appointment, then the extent of Mr. Johnston’s obligations are not necessarily to be found only in the letter of appointment.

6.13 I propose dealing quickly with the other suggestion, specific to the facts of this case, relied on on behalf of Mr. Johnston. It is said that, in the light of all of the circumstances, placing particular reliance on the fact that ACC were prepared, as part of their security, to accept undertakings in relation to the proceeds of sale of other properties, Mr. Johnston would have been entitled to take an undertaking from Traynor Mallon in the circumstances in which he did. The fact that certain leeway had already been given to Mr. Tiernan in relation to the transaction (a matter addressed earlier) was also relied on under this heading. I am not, however, satisfied that any of those factors would amount to an implied permission or authority to Mr. Johnston to close on an undertaking in circumstances where he would not otherwise have been entitled so to do. The fact that a bank is happy to take an undertaking in respect of proceeds in relation to one property (not itself the subject of a specific loan), but requires a first legal charge over other property, is a matter for the bank itself in assessing all of the risks involved and the adequacy of the security offered for the loan in question. It is not for a solicitor acting on behalf of the bank to second guess the bank’s judgment as to what type of security it wants. Neither is it for a solicitor acting on behalf of a bank to assume that the fact that the bank has given some limited leeway in one area means that the bank impliedly authorises a significant leeway in another area. I am not, therefore, satisfied that any of the issues put forward on behalf of Mr. Johnston as suggesting that he would have been entitled, without bank authority, to close on an undertaking in the particular circumstances of this case, are valid.

6.14 The next matter that requires consideration relates to the general obligations of solicitors in relation to closing transactions of this type. Given that it was accepted by ACC that Mr. Johnston would have been entitled, at a three-way closing, to have accepted an undertaking from the vendors’ solicitor to discharge any pre-existing mortgage, the question arises as to whether Mr. Johnston might, likewise, be entitled to close in the manner which he did. This question leads, initially, to a consideration of the expert evidence.

6.15 I should start my review of the evidence of the expert solicitors by noting that their evidence does not seem to me to be relevant to the question of the construction of the letter of appointment itself. Unless there were technical terms of art whose interpretation was in dispute (an issue to which experts in the field might well be able to give evidence), then letters of appointment, like any other contractual documents, fall to be construed objectively. The views of the parties or the views of persons who might regularly encounter such documents are not relevant save in the sort of limited circumstances to which I have averted where a proper understanding of terms or terminology may require some degree of expert assistance.

6.16 It did not, therefore, seem to me that the evidence of either expert was relevant to the construction question in relation to the letter of appointment. If the letter of appointment were capable of standing on its own without reference to general solicitor’s practice, then the evidence of the two experts might well not have been relevant at all. However, it being conceded on behalf of ACC that the letter of appointment must be taken as being subject to an implied entitlement to accept an undertaking from the vendor’s solicitor to discharge any pre-existing mortgage, such concession being based on accepted conveyancing practice, then it seems to me that it is necessary to consider the expert evidence relating to that practice to see if there are any other matters that ought properly be implied into the contract of appointment or which might be relevant to the solicitor’s duty of care.

6.17 It is important to say something about the general background to the involvement of solicitors on behalf of lending institutions in larger transactions. On the evidence, it seems to me, that this all comes down to risk. Where the amounts involved are relatively small and where the purchaser’s solicitor had adequate insurance, then it would appear that most lending institutions regard it as an acceptable risk to allow the purchaser’s solicitor to act on behalf of the lending institution as well. If there are problems (whether in relation to title or the like or in relation to funds not being properly applied), then the lending institution has a remedy against the solicitor concerned which, if he be adequately insured, is likely to lead to the lending institution being able to recover any losses. In those circumstances, it is a risk worth taking.

6.18 However, it seems clear that most lending institutions decide to instruct their own solicitor to act in larger transactions. The reason for this seems to be that the larger the transaction the larger the exposure of the lending institution and, thus, the greater the risk. There are, however, practical consequences, it seems to me, which ought to be clear to anyone who thinks about it, of the appointment of an independent solicitor to act on behalf of a lending institution. Unless there is a three way closing, that lending institution’s solicitor will have no direct contact with the vendor’s solicitor. Any undertakings given by that vendor’s solicitor will, therefore, be at one remove from the lending institution’s solicitor.

6.19 In that context, it seems to me to be appropriate to analyse the decision of the Supreme Court in Roche v. Peilow [1985] I.R. 232.

6.20 In that case, the defendant solicitor was found liable in negligence on appeal in respect of a practice which, on the evidence, appeared to be universally followed. In allowing the appeal, Walsh J., at p. 252, said the following:-

“The risk in the present case cannot be neutered by describing it as a stock risk. It is a very substantial and real risk. The fact that it was frequently undertaken does not in any way diminish the danger to which it gives rise. The consequences of the risk materialising could not be said to be unforeseeable as the evidence in this case indicates that it was a well known risk and the consequences were obvious if it should materialise. In my view, the decision in Simmons v. Pennington & Sons [1955] 1 W.L.R. 183, is not applicable.”

“As the evidence in the High Court showed, in not making that search the defendants were following a conveyancing practice common at the time amongst solicitors. However, adherence to that practice can avail as a defence only if it be shown that a reasonable solicitor, giving consideration at the time to the interests of the client, would have justifiably concluded that a search in the company’s office was unnecessary or undesirable. Having regard the fact that no undue delay, expense or difficulty was involved in making such a search, and bearing in mind that financial disaster of the kind actually sustained by the plaintiffs was reasonably foreseeable by the defendants as a risk for the plaintiffs, I consider that, notwithstanding that the defendants in not carrying out a search were conforming to a practice widespread at the time in the profession, they were nevertheless wanting in the duty of care owed by them to the plaintiffs. It is to avoid detectable pitfalls of the kind that beset the plaintiffs that prospective purchasers engaged solicitors to act for them.”

6.23 While the duty of care of a professional person is often described by reference to the standards that would normally be applied by a professional of equivalent experience, it is clear from Roche v. Peilow that the mere fact that a practice is universal does not, of itself, immunise the professional concerned from potential liability, if it is a practice which, on reasonable consideration, the professional concerned ought to have identified as giving rise to a significant risk. In that context, it is apposite to note the reference of Walsh J. to a “stock” risk. There is risk in everything. Professionals cannot remove risk from the equation. However, professionals are normally employed to minimise risk or advise clients on relevant risks. Professionals should not expose their clients to unnecessary risk without, at a minimum, advising their clients of the risk involved and inviting their clients’ instructions. The mere fact that there may be a common practice to expose clients to a particular type of risk will not necessarily provide a defence. The ordinary duty of care, therefore, extends not merely to ensuring that the relevant professional person carries out his or her duties in the way in which other suitably qualified members of the relevant profession do, but also extends to considering whether common practices may so obviously involve unnecessary risks which can be eliminated that such practices should not be engaged in. It might be said that such practices are more honoured in the breach than in the observance in the proper sense of that quote.

6.24 Against that background, it seems to me appropriate to ask what the point of employing an independent solicitor might be if it is not to reduce the risk that might otherwise lie on the financial institution. As pointed out earlier, a financial institution, by instructing the purchaser’s solicitor to act on its behalf takes a risk. For the reasons which I have set out it would appear to be a risk which, at least in smaller transactions, financial institutions are willing to take in order to save costs. Where, however, the transaction is bigger and the financial institution chooses to reduce its risk by employing its own solicitor, then it does not seem to me to be appropriate for that solicitor to take it on him or herself to expose the financial institution concerned to the very risks which it has sought to avoid by employing him in the first place.

6.25 Any consideration of what would be involved in accepting a closing in the manner adopted by Mr. Johnston reveals that it necessarily exposes ACC to a significantly greater risk. If there had been a three way closing, then Mr. Johnston would have been present at the closing and, to the extent that an undertaking from the vendor’s solicitor to discharge any existing mortgage might have been forthcoming, Mr. Johnston could have insisted on that undertaking being given to him in his capacity as ACC’s solicitor so that there would have been a direct privety of undertaking in favour of ACC. Indeed, any other technical undertakings concerning the production of documents and the like which might have been required to facilitate closing could have been dealt with on a similar basis. However, at the closing which Mr. Johnston permitted, he would not receive the benefit of any direct undertakings from the vendor’s solicitor. He would also be placing ACC at risk from the actions of two firms of solicitors and, in all likelihood, for greater sums. Indeed it is arguable that ACC, in the events that happened, were at greater risk than if Traynor Mallon had been appointed to act for ACC as well as Mr. Tiernan. In those circumstances ACC could have satisfied themselves as to the adequacy of Traynor Mallon’s insurance and also would have been the direct beneficiaries (through Traynor Mallon) of any undertakings from the vendor’s solicitors.

6.26 It might, of course, be that a lending institution would be willing to take on extra risk. However, it seems to me that an important part of the reason for employing a solicitor itself in the first place must have been to avoid such additional risk. In those circumstances, I think Mr. Johnston was right when, in evidence, he indicated that he felt, at the time, that he should not close on an undertaking without ACC’s consent. Unfortunately, for the reasons which I have analysed, I have come to the view, on the balance of probabilities, that he did not obtain that consent.

6.27 In the overall context, it is also worthy of some little note that, in Roche v. Peilow, some mention is made of the fact that the matter omitted (being a company’s office search) was not particularly onerous. That leads to the question of why there was not a three way closing. The evidence suggests that Traynor Mallon put forward the view that they were having difficulty in arranging the contemplated three-way closing. Whether that was truly the case must be open to at least some significant doubt. While Mr. Johnston could not, of course, have known this, a three way closing would have been disastrous for Traynor Mallon, for it would appear almost certain that the fact that the contract price as and between Mr. Tiernan and the purchaser was only €4,000,000 would then have become obvious. The real possibility that the difficulties in closing were contrived cannot, therefore, be ruled out. However, that fact does not seem to me to weigh in any way against Mr. Johnston, who would have had no reason but to accept the genuineness of what he was being told about the difficulties in arranging closing.

6.28 However, I cannot accept the case made on behalf of Mr. Johnston which suggested that it was necessary to arrange for an undertaking type closing in order to ensure that neither Mr. Tiernan nor ACC were exposed to risk on the contract itself. It does appear on the evidence that the 25th August was the nominated closing date and that time was of the essence. In principle, therefore, in the event that the sale did not close on that day because of a failing on the part of Mr. Tiernan, or a failure on the part of ACC, then the vendor would have been entitled to treat the contract as at an end and forfeit the deposit. However, there was nothing in the evidence to suggest that any problems concerning arranging a three-way closing were suggested as being as a result of any actions either on the part of Mr. Tiernan or Traynor Mallon or Mr. Johnston or ACC. The problem, as relayed to Mr. Johnston, (and whether it represented the truth or not is not really relevant in this context), was that the documents might not be ready and that the vendor’s solicitor was not willing to travel, either to Traynor Mallon or to Mr. Johnston’s office. However, it was quite clear that Mr. Johnston was willing himself to travel, either to Traynor Mallon’s office or even the much longer distance to the vendor’s solicitor’s office. I cannot, in those circumstances, see that there was any real basis on which there could have been a fear that insisting on a three-way closing could lead ACC to be exposed either in law, or even on the basis of legitimate opinion, as having a responsibility for any failure to close. On the basis of what Mr. Johnston was told, the only person who could be responsible for a failure to close was the vendor. In those circumstances, it does not seem to me that there was any great need for a closing by undertaking deriving from the underlying facts.

6.29 The balance was, therefore, one where there was no practical reason why a three way closing could not take place. There can be no doubt but that a three way closing provides a greater degree of security for a lending institution who has chosen to give itself that extra security by going to the trouble of instructing and paying its own solicitor. In those circumstances, it does not seem to me to be open to such a solicitor (in the absence of instructions to the contrary) to expose the relevant lending institution client to the much greater degree of risk which necessarily applies when undertakings are accepted. If ACC had wanted to close on the basis of undertakings from Traynor Mallon, then they could easily have instructed Traynor Mallon in the first place and avoided having to pay Mr. Johnston. The Privy Council in Edward Wong Ltd v. Johnson Stokes & Master [1984] AC 296, considered an undertaking closing in Hong Kong and concluded that the practice involved a foreseeable and avoidable risk and that the defendant solicitors were thereby negligent. The risk in this case was, in my view, also foreseeable and avoidable. I did not understand the expert evidence to establish that there was a significant practice of closing on an undertaking in cases where the relevant financial institution had chosen to instruct its own solicitors. Mr. McTiernan’s evidence was significantly influenced by his views on the interpretation of the letter of appointment in this case which, for the reasons which I have earlier analysed, should be construed objectively.

6.30 I should emphasise that nothing in this judgment should be taken as implying that Mr. Johnston was in any way at fault in taking an undertaking from Traynor Mallon as opposed to any other firm of solicitors. There is no evidence that there was any basis on which Mr. Johnston could reasonably have been expected to have had concerns about the probity of Traynor Mallon at the time when the undertaking was taken.

6.31 I also fully appreciate the fact that solicitor’s undertakings have come under much greater scrutiny in more recent times, in the light of unfortunate events that have come under public notice concerning a number of solicitors who have failed to meet such undertakings. It is important that Mr. Johnston’s actions are not viewed with the benefit of hindsight. However, the fact remains that Mr. Johnston exposed ACC to what, in my view, was a significant additional risk which could have been avoided by a three way closing. It was the avoidance of such risks that was at the heart of Mr. Johnston being instructed in the first place.

6.32 In those circumstances, it does not seem to me that it can be implied into the letter of appointment that Mr. Johnston was entitled to close in the manner in which he did. By so doing, he was, for the reasons which I have sought to analyse, exposing ACC to a significantly greater risk than would have been the case had the mortgage and sale closed by the contemplated three-way closing. While it may be that certain transactions do close in such a way (i.e. by means of an undertaking such as that accepted by Mr. Johnston), I am not satisfied on the evidence that there is a sufficient universal practice such as would justify interpreting Mr. Johnston’s letter of appointment as entitling him to close in that way without permission. Furthermore, to interpret the letter of appointment in that way would, in my view, be to undermine one of the principal reasons for instructing Mr. Johnston in the first place.

6.33 In summary, therefore, I am not satisfied that there are any appropriate circumstances (including any universally recognised practice) that would justify interpreting Mr. Johnston’s letter of appointment in this case as authorising closing in the manner in which he did. Even though the extent of the likelihood of solicitors failing to comply with undertakings may not have been at all as apparent at the relevant time as is, now, unfortunately, clear, the practice of closing in that manner involves an inherent increase in the risk to the solicitor’s financial institution client which should not be undertaken without the express permission of that client (at a minimum in cases where the relevant letter of appointment makes clear that drawdown should not occur until a first legal charge is in place). While some deviation from compliance with the precise terms of such a letter of appointment might be permitted (for example, the acceptance of direct undertaking from the vendors’ solicitor to the financial institution’s solicitor concerning the discharge of an existing mortgage), the additional layer of risk which is inherent in closing in the manner in which Mr. Johnston used in this case would, in my view, require an express authorisation.

6.34 Finally, in this context, it is necessary to refer to certain United Kingdom decisions (such as Midland Bank v. Cox McQueen [1999] All E.R. 62) relied on by Mr. Johnston which suggest that if a client (including a financial institution) wishes to insist on a particular form of closing, then express instructions in that regard should be given. I have no difficulty in accepting that proposition as representing the law in this jurisdiction as well. However, it seems to me that that proposition is of no relevance in this case. The express instructions to Mr. Johnston were not to release monies to Mr. Tiernan (or Mr. Tiernan’s solicitor) until a first legal charge was already in place. In the absence of an express, or a necessarily implied, amelioration of that position, then it seems to me that ACC had, in fact, specified a means of closing. For the reasons which I have sought to analyse, the only reasonable amelioration which could be considered to exist on the facts of this case related to a potential acceptance, at a three-way closing, of an undertaking by the vendors’ solicitor to discharge a pre-existing mortgage. It follows that, in my view, ACC had specified, by necessary implication, a three-way closing, for that was the only method by which the conditions precedent to the facility letter could be complied with. It follows that by adopting, without permission, a different and riskier means of closing, Mr. Johnston was in breach both of his general duty of care to ACC and the terms of his letter of appointment.

6.35 So far as the subsequent transaction in the following year is concerned, it seems to me that it follows that Mr. Johnston was also negligent on that occasion. At the time when monies were advanced to Mr. Tiernan in respect of that transaction, Mr. Johnston had at no stage seen an executed transfer in favour of Mr. Tiernan (although he had been told by Traynor Mallon that such existed). Handing over further funds in circumstances where Mr. Johnston was relying on an existing undertaking seems to me to place that transaction in the same category as the earlier transactions. If it was negligent to close the original three loans on foot of the undertaking, then it follows that it was also negligent to close the fourth loan on the same basis and, in particular, without having had sight of materials which ought to have been forthcoming on foot of the undertaking.

6.36 In this context, it is also necessary to refer briefly to the position of Ms. Mulholland. As pointed out earlier, Ms. Mulholland had taken over Mr. Cumiskey’s role by the time that this latter transaction took place. Ms. Mulholland was not called to give evidence, same being explained by the fact that she was, it would appear, on maternity leave. It was suggested by Mr. Johnston that, in the course of certain discussions with Ms. Mulholland, he made reference to the fact that undertakings from Traynor Mallon were outstanding. I am not, however, satisfied on the evidence that it would have been clear to ACC, as of that time, that a first legal charge over the Castlewarden lands was not already in place. It must be recalled that the fourth letter of sanction refers not to the putting in place of a first legal mortgage or charge over the Castlewarden lands, but rather, to the extension of the existing charge to cover the loans to be advanced on foot of the fourth letter of sanction. It follows that the fourth letter of sanction pre-supposes that a first legal charge was already in place and fully effective. The most that can be said is that at the relevant time, Mr. Johnston believed (having been so told by Traynor Mallon) that there was a first legal charge in place and that the relevant deed was awaiting stamping. He had not seen any evidence of the existence of the relevant deed. In those circumstances, it seems to me that Mr. Johnston’s duty of care, on this latter occasion, would have required him to make clear in unequivocal terms that he had not seen direct evidence of the execution of the relevant deed and that he was relying on Traynor Mallon’s word for the fact that it existed. I am not satisfied that Mr. Johnston made that clear to ACC. In the circumstances, it follows that Mr. Johnston was in breach of his duty of care on this latter occasion as well.

6.37 It follows that I am satisfied that Mr. Johnston was negligent. The next question which arises is as to the amount of damages to which ACC are entitled.

7. Damages
7.1 There are two particular difficulties with the question of damages in this case. The first is a purely practical and a logistical one. As pointed out earlier, the third party proceedings between Mr. Johnston and Traynor Mallon have not yet come to hearing. Should Mr. Johnston succeed on liability against Traynor Mallon, then it will be necessary to consider the question of damages as and between Mr. Johnston and Traynor Mallon. Given that it would appear that Traynor Mallon gave undertakings to Mr. Johnston which, for whatever reason, have not, it would seem, been complied with, then there is at least a credible basis for Mr. Johnston’s claim against Traynor Mallon.

7.2 In those circumstances, counsel for Mr. Johnston quite properly drew attention to the potential difficulty with which Mr. Johnston might be faced in having the damages which he might have to pay to ACC assessed at this stage (and on the basis of the evidence currently before the court), while having the damages to which he might be entitled from Traynor Mallon assessed at a later stage (when further evidence might well be before the court). This seems to me to be a genuine difficulty to which significant weight needs to be attached.

7.3 It is a difficulty which is compounded by the second factor to which I wish to refer. The case made by ACC is that, had Mr. Johnston not been negligent, none of the relevant funds would have been advanced to Mr. Tiernan. The evidence led by ACC in that regard is compelling. Each of the relevant senior officials from ACC gave clear and credible evidence to the effect that they would not have authorised funds being paid out to Mr. Tiernan unless a three-way closing were in place. I am satisfied, therefore, that this is a so-called “no transaction” case, in the sense in which that term is used in the United Kingdom jurisprudence.

7.4 The logic of a no transaction case stems from the basic principle that damages, either in tort or in contract, are designed to put the injured party into the position in which that party would have been, had the tort not taken place or the breach of contract concerned not occurred. Where the breach of contract involves professional negligence on the part of an advisor, then there is unlikely to be, in most cases, any significant difference between the proper approach, whether same is considered from the perspective of a tort or a breach of contract, for the breach of contact concerned will simply be a failure to act or advise in a non-negligent way (with the relevant duty of care being assessed by according due weight to any relevant terms of the contract).

7.5 It follows that it is necessary to analyse, on the facts of each case, what would (or would have been likely) to have occurred had there been no negligence. An advisor (whether lawyer, valuer, accountant or the like) who is involved in a transaction cannot guarantee that his client will get what he wants out of the transaction. He or she can only guarantee that the relevant part of the transaction (including any relevant advice) will be carried out in a competent manner. In some cases, it will be clear that, had the relevant advisor carried out his or her duties in competent manner, no transaction would, in fact, have taken place. A solicitor instructed on behalf of a purchaser in a conveyancing transaction does not guarantee that the relevant client will get a good title to the property concerned. Rather, the solicitor commits that there will be an adequate investigation of the title and that the client will only be allowed to complete in the event that good title is made out. If the solicitor negligently advises that there is good title (when there is not), then a proper analysis of the situation suggests that, had the solicitor not been negligent, the relevant sale would not have closed. The fundamental approach to damages in such cases must necessarily, therefore, involve an analysis of what would have happened had the transaction not taken place, rather than what would have happened, had the transaction taken place without any problems, for the solicitor could not, in the hypothetical case which I have posited, have procured that the sale would have taken place without problems.

7.6 It must be recalled that damages for breach of contract or tort are designed to restore the injured party to the position in which they would have been had the relevant wrong not taken place. In the ordinary way such damages are assessed as of the date of the wrong concerned, although it is clear that the court retains a wide discretion to choose another date where assessing by reference to the date of the wrong would not adequately reflect the overall and fundamental principle that the injured party should be restored to a “no wrong done” position.

7.7 The problem in assessment stems from events that post date the wrong. Consequential losses which accrue after that date, but as a foreseeable consequence of the wrong, will normally be allowable. In a “no transaction” case, involving the injured party expending monies as of the date of the wrong, damages will normally involve the amount of the monies so expended less any value obtained by the transaction (which obviously would not have been obtained had there been no transaction). However, damages also need to reflect the fact that the party has been without of its money between the date of the wrong and the trial.

7.8 On that basis, at the level of principle, the damages to which ACC would be entitled as of the date of the wrong (i.e. when the transaction was completed) would be the sums advanced to Mr. Tiernan less the value of the loan to Mr. Tiernan reflecting the absence of security. To take an extreme example a solicitor who fails to ensure proper security but where the loan is virtually certain to be repaid in any event will only have caused minor or even nominal damage. In addition, consideration needs to be given to whether it has been established that ACC has suffered any further loss by being without its money since the date of the relevant transactions. Against that background it is necessary to turn to the damages claimed by ACC.

7.9 When opening the case, counsel for ACC suggested that the appropriate measure of damages was the amount now owed by Mr. Tiernan to ACC on foot of the relevant loans. It should be pointed out that ACC has already secured a judgment against Mr. Tiernan for those sums (together with other sums due on foot of unconnected loans). There was no dispute between the parties as to the appropriate calculation of the portion of the judgment against Mr. Tiernan which was referable to the loans which are the subject of these proceedings. However, there was an immediate problem with that approach. The sums recovered against Mr. Tiernan, quite properly, included penalty interest which arose from defaults on the part of Mr. Tiernan in meeting payments due under the loans concerned. Given that the underlying basis of ACC’s claim was based on the correct suggestion that this was a no transaction case, it seemed to me to follow that those aspects of the judgment obtained against Mr. Tiernan could not be visited on Mr. Johnston in any circumstances and I so indicated to counsel for ACC who accepted the point. Had there been no transaction, then Mr. Tiernan would never have got the monies and ACC would never have become entitled to any form of penalty interest as against Mr. Tiernan.

7.10 Revised figures were produced which stripped out such items from the amounts due by Mr. Tiernan. Those revised figures were again, as a matter of calculation, agreed. The basis put forward by ACC for suggesting that those revised figures were the proper measure of damages as against Mr. Johnston was that the sums ordinarily due (shorn of penalties and the like) by Mr. Tiernan represented the sums which ACC would now have, in the event that the monies had not been advanced to Mr. Tiernan. In those circumstances, it was suggested that it was likely that the monies would have been advanced to some other person on broadly the same interest regime as applicable to Mr. Tiernan and that ACC would, thereby, have an entitlement to those monies, together with any interest that would ordinarily have accrued on them.

7.11 In general terms, it seems to me that there may well be cases where such a “surrogate” approach is an appropriate way to look at damages. If, for example, the purchaser of an ordinary residence ends up with no title to the property concerned by reason of the negligence of a solicitor, then it will normally be reasonable to assume that, had the purchaser been properly advised and had the sale not, therefore, gone through, the purchaser would have bought a similar house for similar money. Precisely what house the purchaser might or might not have bought is purely speculative. However, using the house which was actually bought as a surrogate seems to be a reasonable approach to putting the purchaser back into the position in which the purchaser would have been, had the negligence not taken place. In those circumstances, another similar house would have been bought which would have appreciated or depreciated at broadly the same rate. Assessing the situation in which he would now be, had there been no negligence, by reference to the house which the purchaser actually tried to buy, seems a reasonable way of approaching damages in those circumstances. It would not, however, always be the case that such an approach is appropriate. For example, if there was some special feature of the house which, for reasons emerging after the time of purchase, added significantly to its value (such as a change in zoning not contemplated at the time when the house was originally bought), then it is difficult to see how such a “windfall” gain could form part of the proper assessment of damages in such a case. If it be a no transaction case, then the plaintiff was never going to get that property, no matter how competent his solicitor was. He would have bought another similar property, but it is unlikely (unless there were compelling circumstances pointing to the contrary) that the alternative property would also have been lucky enough to secure the same “windfall” gain. Likewise, a loss of bargain is not an appropriate part of the calculation of damages in a no transaction case, for the whole point of such cases is that there should have been no transaction and therefore no bargain.

7.12 It follows that in no transaction cases, the court needs to assess what would have happened in the event that no transaction, in fact, occurred. Of course it is the case, as pointed out, that damages are normally assessed as at the date the wrong was committed unless to follow that rule would be to create an injustice (see for example County Personnel (Employment Agency) Ltd v. Alan R Pulver & Co [1987] 1 W.L.R. 916). Where it is likely that any money would have gone into a similar transaction, then there may well be cases where justice requires that damages be assessed to include developments since the wrong and where it may be reasonable to assess such damages by using the transaction in question as a surrogate for what would have happened the money, had it been available for an alternative similar transaction. However, before so doing, it is necessary for the court to be satisfied that the use of the instant transaction, as a surrogate for what would have happened the relevant monies in the event that there was no transaction, is an appropriate basis for the assessment of damages.

7.13 It is interesting to note that in some of the English cases, financial institutions claiming damages against their solicitors for negligence in circumstances such as those which have arisen in this case, placed before the court evidence of the ordinary return which the relevant financial institution made on transactions of the relevant general type at the time in question. That seems to me to be a more appropriate basis for the assessment of damages in no transaction cases of this type.

7.14 On the facts of this case there is potentially a real and substantial difference between the two approaches. On the assumption that these monies were generally available for property related loans, then it does seem appropriate to accept the first part of ACC’s case. It is likely that the monies would have been loaned out on some other property transaction, possibly on much the same terms as those which were available to Mr. Tiernan. However, it should be pointed out that there was no evidence as to whether the terms on which money was advanced to Mr. Tiernan represented something approximating to the average terms on which monies would have been made available at the relevant time for property transactions. However, there is a further significant factor which does need to be considered. Most property lending by banks in the 2006/2007 period has been, to put it at its mildest, highly problematic. Significant losses have been incurred by banks who engaged in such lending, which losses stem, not from any negligence on the part of their solicitors, but rather from the lending practices which gave rise to the relevant loans in the first place. It is by no means unlikely that, had ACC not lent the money to Mr. Tiernan (on the basis of having been properly advised by Mr. Johnston), it would have lent the money to other developers in circumstances where, even had proper security been put in place, significant losses might have accrued.

7.15 In personal injury cases, the courts have consistently made a reduction under the principle first enunciated in Reddy v. Bates [1983] I.R. 141, from damages for future loss of income to represent the risk (assessed on a case by case basis) that persons may not be lucky enough to be in paid employment for their entire working life. While this is a no transaction case, the risks inherent in the sort of lending which ACC was involved with in this case, are illustrative of the general problem. Even if ACC had acquired a first legal charge over the Castlewarden lands, then it seems highly unlikely that ACC would have recovered the full amounts due by Mr. Tiernan on foot of the loans which are the subject of these proceedings. Rather, it seems almost certain that significant losses would have been incurred. If one is to take Mr. Tiernan’s loan as a surrogate, then it seems to me that the bad side of that surrogacy needs to be taken along with the good. The almost certain losses which ACC would have incurred, in any event, in relation to the loans to Mr. Tiernan, may or may not be typical of the sort of property loans which ACC was generally involved with at the relevant time. There is just no evidence in that regard.

7.16 To the extent that ACC may seek damages beyond the amounts of the funds advanced less the value of the loans, there is no evidence from which I could conclude that ACC has suffered any consequential loss by virtue of not having had the relevant funds in the period since. There is, indeed, a real possibility that ACC would be lucky to have retained all those funds as of today.

7.17 I am satisfied, therefore, that counsel for Mr. Johnston is correct when he suggested that there is an evidential deficit which makes it very difficult to assess ACC’s true losses. Without being exhaustive, the matters in respect of which there was no evidence seem to me to be the following:-

(a) What general sort of lending by ACC would have been facilitated if the monies which were actually advanced to Mr. Tiernan had not been advanced; and/or

(b) what the return to ACC would, in fact, have been, on such alternative lending, and, indeed, whether such lending might, in the economic circumstances of the past four years, have actually given rise to the losses; and/or

(c) the extent to which it is appropriate, on the facts, to regard the loan to Mr. Tiernan as a surrogate and, if so, whether it would be appropriate to also, in those circumstances, have regard to any losses that would have occurred, in any event, on those loans, there being no evidence as to the extent of any such losses.

7.19 In addition, there is no evidence of the value of the loans actually acquired by ACC. On the evidence I am not satisfied that ACC has been guilty of any failure to mitigate its losses by any culpable failure to recover sums from Mr. Tiernan to date. However, it seems to me that ACC has to give credit for a reasonable valuation of the relevant loans. If there was no transaction ACC would not have those loans. ACC has the loans. However, ACC has failed to establish the value of the loans.

7.20 Damages for tort or breach of contract are assessed once and only once. Where future uncertain events are relevant to the assessment of damages, the court assesses the likelihood of those events occurring and determining damages accordingly. The value of the potential for recovery of the relevant loans needs to be assessed and deducted from the damages in this case.

7.21 In those circumstances I feel that the proper course of action to adopt is to adjourn the question of damages until such time as the issues between Mr. Johnston and Traynor Mallon are at hearing when the question of damages can be assessed, not only with the benefit of evidence from which the current value of the relevant loans can be assessed, but also with the benefit of evidence of all of the circumstances of the case, including a clearer picture as to where the money trail actually leads, coupled with a more realistic assessment as to whether those monies (or any of them) are actually recoverable. For example, it is known that a significant sum of money went to the vendor of the Castlewarden lands. It may be that that vendor cannot keep those monies and retain the land at the same time. These and other questions will inform the value of the loans based on their likely recoverability and thus, inform the calculation of damages.

7.22 To the extent that additional costs may be incurred by this course of action, it seems to me that those costs will have to be borne by ACC for the primary reason for coming to the view which I have just expressed as to the proper means of dealing with the question of damages stems, in my view, from the fact that ACC approached the question of damages on an incorrect basis.

8. Conclusions
8.1 I have, therefore, come to the view that I should find that Mr. Johnston was negligent in respect of each of the four transactions which are the subject of these proceedings. I also find that this is a no transaction case so that the damages to which ACC are entitled should be based on analysing what would have occurred in the event that those transactions did not go ahead and that ACC had available to it the monies which were actually advanced to Mr. Tiernan on foot of these transactions, which monies would have been deployed otherwise. However, I find that ACC has not established any loss deriving from not having had the opportunity to use those monies in the intervening period.

8.2 I defer a specific finding on the amount of any damages until a further hearing which will take place in conjunction with the hearing of the third party issues as and between Mr. Johnston and Traynor Mallon at which the current value (making due allowance for any possibility of recovery of the loans to Mr. Tiernan) can be assessed. However, any additional costs resulting from that additional hearing will be borne by ACC.