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Judgment Title: KBC Bank v BCM Hanby Wallace Neutral Citation: [2013] IESC 32 Supreme Court Record Number: 334 & 335/2012, 443 & 444/2012 High Court Record Number: 2010 1429 P [2010 270 com] Date of Delivery: 25/06/2013 Court: Supreme Court Composition of Court: Fennelly J., O'Donnell J., McKechnie J. Judgment by: Fennelly J. Status of Judgment: Approved
Outcome: Allow And Remit to the High Court Notes on Memo: Appeal allowed on certain conditions | ||||||||||||||||
THE SUPREME COURT [Appeal No: 334/2012]
(Cross Appeal No. 443/2012) Fennelly J. O'Donnell J McKechnie J.
KBC Bank Ireland plc Plaintiff/Respondent and BCM Hanby Wallace (A Firm) Defendant/Appellant John Kelly Proceedings THE SUPREME COURT [Appeal No: 335/2012]
(Cross Appeal no. 444/2012)
KBC Bank Ireland plc Plaintiff/Respondent and BCM Hanby Wallace (A Firm) Defendant/Appellant Thomas Byrne Proceedings Judgment of Mr. Justice Fennelly delivered the 25th day of June, 2013. 1. These appeals raise important issues concerning the application of the defence of contributory negligence pursuant to s. 34 of the Civil Liability Act 1961. The respondent, a bank, (hereinafter “the bank”) lent large sums of money to two individuals, who defaulted on their repayment obligations. The bank engaged the appellant, a firm of solicitors, to complete the loan transactions and, above all, to ensure that the bank obtained the security provided for in the facility letters. The appellant failed in its assigned task. The bank sued it successfully in the High Court. McGovern J awarded sums of €9,983,585.34 and €7,710,545.16 respectively by way of damages for negligence against the appellant. 2. The two cases are quite separate. They have been heard together both in the High Court and this Court because they are between the same parties and concern similar lending transactions. Furthermore, they are crucially linked by the fact that the borrower in the second case was the solicitor for the borrower in the first. The key act of negligence found against the appellant in the first case was the acceptance of the solicitor’s undertaking of that solicitor who then himself became a borrower. 3. The appellant pleaded in its defence that the bank had been guilty of contributory negligence principally in the respect that it failed to carry out any adequate inquiry into the financial standing of the borrowers, before agreeing to lend them very large sums. Thus, it was claimed that the bank had failed to take appropriate care in the protection of its own interests. The learned trial judge rejected the defence of contributory negligence in both cases. The appeal turns centrally on the correctness of the learned trial judge’s analysis of causation. He held that the negligence of the appellant was the proximate cause of the bank’s losses, or causa causans: even if the bank had been negligent, its acts were at most a mere causa sine qua non. The loans made to Mr Kelly and Mr Byrne 5. The loans were closely inter-related for several reasons. It is an important feature that Mr Byrne was the solicitor who acted for Mr Kelly. Mr Byrne then borrowed money from the bank himself. Furthermore, the loans to Mr Kelly were cross-collateralised; security provided for each of the loans was also security for the others. Finally, each later loan, including the loan to Mr Byrne, was provided by the bank in ignorance of the fact that there had been a failure to provide security for earlier loans or of the fact that Mr Byrne had failed to honour undertakings he had given in respect of the earlier transactions. 6. Each of the loans was granted pursuant to a facility letter signed by the borrower. The security requirements included the provision of a first fixed charge over specified properties. The facility letter provided, in each case, that it was a condition precedent to drawdown of the loan, inter alia, that there have been compliance with the bank’s security requirements and that all required documentation (which necessarily included the security documentation) be received by the bank at least three days before drawdown. 7. The first Kelly loan dated 16th August 2005 was for €4.9 million. Its purpose was to fund the purchase of and works on a property at 167 Upper Rathmines Road, Dublin 6. There was, inter alia, to be a first fixed charge over that property and over residential properties at 9, 22, 33 Liberty View, Dublin 8. 8. The second Kelly loan was dated 13th September. The facility letter, which recorded that the first facility had already been drawn down in part, replaced the first and provided for the advance of an additional €1 million to fund the purchase of the leasehold interest in Londis, at Upper Rathmines Road, Dublin 6. The combined security by way of first fixed charge was now to cover in addition numbers 14, 15, 18 and 21 Liberty View, Dublin 8. 9. The third Kelly loan was dated 11th December 2006. It was for €9 million. It was to be used to refinance two existing Educational Building Society facilities to a total of €5 million, €1.3 million to purchase a leasehold property at Centra, 45-47 James’ Street, Dublin 8 and €2 million by way of “equity release to be used for further investment purposes.” 10. The Byrne loan was the subject of a facility latter dated 8th August 2007 for €9 million. It was “by way of term loan to be used…………for further investment purposes.” The letter provided for a first legal mortgage, or charge, in the case of registered property, over three named properties. There were to be first legal mortgages (or charges) over sixteen specified residential properties. In each case, the security was to incorporate “a security assignment of the benefit of all leases, licenses and agreements attaching thereto and any rentals payable thereunder.” 11. Following each facility letter, the bank sent a letter of instructions to Mr Ronan Egan, solicitor, in the appellant firm. On 25th August 2005, the bank, which was then known as IIB Bank, sent a copy of the facility letter for the first Kelly loan and wrote:
13. On 12th December 2006, the bank sent a similar letter, which concluded by stating:
15. The position, in the case of each loan, was that the bank had already made a decision to advance the relevant monies, subject to compliance with the terms, including conditions precedent, of the facility letter. Crucially, the bank would not, in fact, advance the money unless it was satisfied that the specified security had been put in place by the appellant. 16. In summary, the appellant was required to obtain security for the benefit of the bank over a total of 30 properties. Instead of obtaining these securities prior to the closing of the loan transaction by payment out of the loan monies, the appellant closed on the basis of the acceptance of the undertakings of Thomas Byrne & Co, Mr Byrne’s firm. The | Defendant firm had no authority to accept undertakings and did so without reference to the bank. The undertakings were not honoured. The loan monies were paid out to Mr Kelly and Mr Byrne respectively. 17. The ultimate position with regard to security was that a first legal mortgage or charge was obtained in respect of only three properties in total. 18. The bank suffered very large losses as a result of the almost complete default by Mr Kelly and Mr Byrne to repay the loans made to them. The bank obtained judgment against Mr Kelly in the sum of €14,435,747.44 (after allowance for €900,000 recovered from Mr Kelly’s interest in an investment). The bank obtained judgment against Mr Byrne in the sum of €9,051,977.50. High Court Judgment on Liability 20. Damages were assessed by McGovern J in a separate judgment of 6th July 2012. Figures had been agreed in respect of all matters except two. McGovern J, having determined these, gave judgment for €9,983,585.34 in the Kelly case and €7,710,545.16 in the Byrne case. 21. The core of the judge’s findings on liability was as follows (taken from the judgment of 16th of March) :
11. So far as the loan of €9m to Mr. Byrne was concerned, Mr. Egan said that if he had told Mr. O'Leary, also an employee of the bank, that Mr. Byrne had breached undertakings in relation to the Kelly loans, it would have put an end to any dealings between the bank and Mr. Byrne and the loan would have been refused. 12. Before going on to consider any other evidence in the case, it seems to me that on the admissions of Mr. Egan alone, the defendant cannot avoid findings of negligence, breach of duty and breach of contract. This was finally conceded by the defendant in its closing submissions on day 28 of the trial. The plaintiff called expert evidence from Ms. Catherine Duffy, a solicitor, who is head of the banking and financial services department in A & L Goodbody, solicitors. In the course of her evidence, she made extensive criticism of the manner in which the defendant carried out its work on behalf of the plaintiff bank under the terms of its retainer. At the beginning of his evidence to the court, Mr. Egan said that he did not disagree with her criticisms, save in a few minor respects.”
28. In the course of his evidence, Mr. Egan confirmed that he was aware that it was a requirement of the bank that the defendant would confirm that it would withhold funds until the bank security was in place. He accepted that he confirmed to the bank that the security would be in place on completion. He also accepted that if the bank had been informed of the departure from the defendant's instructions at the time of the first Kelly loan, it would not have gone ahead with that loan. 25. Mr Egan accepted that the release of the funds for the third Kelly loan, on foot of solicitor’s undertakings, was wholly at variance with the bank’s instructions. The learned judge noted that Mr Egan had also agreed that, if checks had been performed as to the status of existing securities in relation to the first and second Kelly loans (which were cross-collateralised), these would have shown non-compliance with undertakings. Mr Egan agreed that the third loan would not have proceeded to completion if the existing security status had been made known to the bank. He closed the transaction also on foot of solicitor’s undertakings. This was contrary to the bank's instructions. 26. The fact that Mr Byrne had been the solicitor acting for Mr Kelly provided a crucial link between the Kelly loans and the Byrne loan. The judge noted that Mr. Egan had agreed that, if he had adhered to his instructions from the bank in respect of the Kelly loans, the bank would never have lent funds to Mr. Byrne. Mr Egan had released a cheque for €9m to Mr Byrne on trust pending searches to be made against a number of properties. The cheque was cashed during the period when it was purportedly held on trust. Mr Egan said that he was unaware of this fact. He did not make enquiries with the registrations department of the appellant firm in relation to outstanding undertakings and did not have any searches made prior to the closing on any of the properties. These, in the view of the learned judge, “were all breaches of duty of the most serious kind.” 27. Moreover, the appellant issued certificates of title in respect of properties securing the Byrne loan which were clearly incorrect on their face, as they contained a statement that the properties were free from encumbrances, although there were prior existing charges. In February 2007, Mr Egan was reminded by the registrations department of his own firm that undertakings that he had accepted from Mr Byrne in relation to the third Kelly loan were outstanding. In the view of the judge, “he failed to take any meaningful action and, crucially, failed to inform the bank of the position.” 28. The learned judge noted that Mr Egan had accepted that if he had then informed the bank of the true position, there would have been no question of the bank lending a "red cent" to Mr. Byrne. 29. The learned judge went on in a passage to which it will be necessary to return, to say:
High Court Judgment on Contributory Negligence 32. As the learned trial judge expressed it, the suggestion was that the bank engaged in “targeting both Mr. Kelly and Mr. Byrne so aggressively that they would have gone ahead with the loans, even if security had not been obtained.” The bank, it was alleged, failed to take reasonable steps to validate the claims made by the borrowers as to their sources of income and their net wealth in order to ascertain whether they had the capacity to repay the loans. 33. The learned trial judge said that the principal claims of contributory negligence were as follows:
(iii) The failure on the part of the bank to carry out a proper search of the loans made to Mr. Kelly by IIB Home Loans, a lending institution, which was connected to the plaintiff bank and which the defendant argued would have shown that Mr. Byrne, while acting as solicitor for Mr. Kelly, had a number of unfulfilled undertakings; (iv) The fashion consultancy claim by Mr. Byrne in respect of a number of French fashion houses; and (v) There was also an issue canvassed before the court as to whether or not the bank could have taken more timely steps to dispose of those properties where they did have security.” 35. It is not necessary, for the purposes of this appeal, to elaborate on the detail of these arguments for two reasons. Firstly, counsel for the appellant has identified a wider and, to some extent, different range of issues on the appeal. Secondly, and more importantly, the real issue to be decided is whether the learned judge was correct in law in the manner in which he considered and, as it happens, rejected the defence of contributory negligence. 36. The first allegation is that the bank failed to verify that two UK properties listed in the statement of affairs of Mr Kelly and appearing to represent €20m of his net worth were in fact owned by him. The appellant claimed that it was significant that these two properties appeared in a statement of affairs furnished in August 2005 by Mr Kelly 2005 as forming part of his assets. The defence expert said that these properties stood out like a beacon and that the bank should have investigated rental income and other financially relevant information. These properties were missing from the statement of affairs furnished in 2006 but reappeared in the statement of affairs of December 2006. The bank’s answer was that these matters did not materially affect Mr Kelly’s net worth. 37. Secondly, a number of points were made concerning the statements of affairs supplied by Mr Kelly. One defence expert said that there had been a swing in net worth of €2,914,556 between July 2005 and July 2006, about which the bank should have made further enquiries. There was inconsistent treatment of two properties, 9 and 22, Liberty View, shown by Mr Kelly as owned by him in applying for the first Kelly loan and in respect of which thereafter security was supposed to be in place. The June 2006 statement of affairs showed that these two properties had been sold by a company connected with Mr. Kelly. The bank did not notice this. Expert evidence from the bank was to the effect that it was not required to conduct a forensic examination of the statement of affairs. Properties at 11, 17, 19 and 21 Greenhills Road were in the statement of affairs of July 2005 at a value of €4.5million, but, in a credit application to the bank in October 2005, Mr Kelly was seeking to buy these same properties then shown to be worth €8 million. 38. Mr Kelly introduced Mr Byrne to the bank as a new customer. Mr Byrne submitted a statement of affairs showing a net worth of approximately €32 million. He had spent €21m purchasing property within a period of no more than two and a half years without the necessity of any mortgage finance. The bank carried out no investigation. Mr Byrne, a solicitor with a small practice in Walkinstown, Dublin, claimed to have enjoyed an income in 2006 of approximately €12 million, made up of €4 million from his solicitors practice, other income of €4m and a €4m annual fee for providing consultancy services to French fashion houses. The learned trial judge described the last claims as “highly questionable,” but, he explained the bank “did not investigate that claim but maintained that it did not need to do so as it did not rely on that figure in assessing the annual income of Mr. Byrne.” The learned judge added:
40. Next the judge referred to the emphasis placed by the appellant on the failure of the plaintiff bank to check the records of its related lending institution, IIB Homeloans, to which it had access, as to the creditworthiness and reliability of Mr Byrne. If they had done so, they would have discovered a significant number of undischarged undertakings. 41. The defendants also placed reliance on the provisions of the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 (S.I. No. 395 of 1992) (as amended), which obliged credit institutions to manage their businesses “in accordance with sound administrative and accounting principles and [to] put in place and maintain internal control and reporting arrangements and procedures to ensure that the business is so managed.” 42. The learned trial judge expressed himself in the following terms so far as concerned the evidence of contributory negligence under the various headings summarised thus far:
51. Every case must be decided on its own facts and it seems to me that the facts in this case are quite exceptional. They are sufficiently exceptional to dispose of the defendant's claim for contributory negligence. If there were any shortcomings on the part of the plaintiff in approving the borrowers for the loans, it cannot be said that the defendants [recte; plaintiff] were in any way negligent so far as the actual release of funds was concerned because they were released after the plaintiff sought confirmation from the defendant that it would not release the funds until such time as the security was in place, and they received confirmation of this from the defendant prior to the release of the funds. No bank which retains the services of a professional, such as a firm of solicitors, should have to check into those assurances before releasing the funds. The bank was entitled to rely on the assurances received by the defendant and did so.” 43. The appellant has not brought any appeal against the finding of negligence and breach of duty. Nor has it appealed against the decision of the High Court to assess damages as if this was a “no-transaction” case. The principal issue on the appeal is whether the High Court judgment was correct in its determination of the issue of contributory negligence. 44. However, without appealing the substantive finding of negligence, the appellant complains that the learned trial judge unjustifiably used language at a number of points appearing to impute dishonesty to the appellant, but more precisely to the individual solicitors in the firm, above all Mr Egan, which was not justified either by the evidence or by any allegation made on the part of the bank. Findings of Deception • At paragraph 27, the learned trial judge said:
• At paragraph 33, he said: “It seems to me that they go far beyond mere omission with regard to the obtaining of security for the bank in respect of the loans. In reality, the breach of duty goes so far as to amount to a deception on the part of the defendant because it was aware that the required security was not in place but led the bank to believe that it was…… The loss arose, not so much from the failure to obtain the necessary security, but rather, from the bank being deceived into permitting the release of the funds on express assurances from the defendant firm which were untrue and which it knew to be untrue.” (emphasis added) 47. The solicitors for the bank, by letter dated 3rd April 2012 maintained that it had at all times been a fundamental part of the bank’s case that the appellant had misled the bank into the belief that the stipulated security had been in place in respect of all the loans. It said that the learned trial judge had not fallen into error and that he was aware that the bank was not making any case in fraud or dishonesty against the appellant. It acknowledged that it had not and did not seek to make the case that the appellant or any of its partners or solicitors had acted dishonestly or had intentionally misled the bank and accepted that its contention at the hearing had been that objectively the bank was misled as to the true position. It maintained, nonetheless, that paragraph 33 of the judgment, if properly construed contained a statement of that objective position. 48. The appellant supports its claim that the bank never made a case of deliberate dishonesty by reference particularly to some passages from the cross-examination of Mr Egan by counsel for the bank. One example will suffice. Counsel put it to Mr Egan that certain assurances he had given regarding his dealings with Mr Byrne, which he accepted were “totally inaccurate” were in fact “totally misleading.” Counsel continued: “though I don’t suggest for a moment that it was intentionally misleading.” He went on to reassure Mr Egan in the following terms:
49. The appellant claims that the finding that the appellant was guilty of deception, had acted dishonestly and deliberately misled the Bank “came out of the blue” and are unsupported by the evidence and wrong in fact and in law. The bank defends the judge’s findings. 50. Thus, the appellant claims that the court should alter the language used by the High Court, while leaving its substantive findings unaffected. The learned judge found that the appellant had been negligent, going so far as to describe the negligence as "egregious." It is unusual, to say the least, for an appellant to invite this Court and to engage in an exercise of this sort. The language used by the learned judge constituted part of the process which led him to make findings of negligence. He did not make any finding of fraud. Strictly speaking, I believe that the appellant is not advancing any legal ground of appeal. 51. Nonetheless, an issue of justice and fairness, particularly in so far as the individuals concerned, is at stake. Following some exchanges at the hearing of the appeal, it did not appear that counsel for the bank was opposed to the Court giving expression to an appropriate qualification. I think the Court should be prepared to do this but only to the extent that it does not qualify the essence of the serious findings of negligence. 52. It is important to note that none of the language in either paragraph 27 or paragraph 33 of the judgment refers to any of the individuals in the appellant firm. It was the firm which he believed to have "misled" the bank and the firm which, he said, gave assurances “which were untrue and which it knew to be untrue.” It seems likely that the judge was referring to the collective mind of the firm. The firm could certainly be responsible for the fact that Mr Egan communicated or, on occasion, failed to communicate information of which the registration department was aware that he was not But a finding of deliberate or intentional misleading implies that the same person both makes the representation and possesses the knowledge that renders the representation false . That was not the case here . 53. In all the circumstances, it is appropriate to say that the High Court judgment cannot and should not be read as attributing any intentional dishonesty or deliberate misleading to any partners or officers of the appellant firm. No allegation of fraud was made at any time. Contributory negligence 55. It follows, in my view, that it is neither necessary nor appropriate to give a detailed account or, above all, to express any concluded views about the strength of the claims of contributory negligence. A general summary will suffice. General Points about the Duty of the Bank 57. The appellant makes a number of points at a general level. When a bank reviews a potential loan transaction, it should assess the soundness, financial standing and above all the trustworthiness of the borrower and the viability of the proposed venture. This obligation is quite independent of any reliance on any third party such as a solicitor. 58. It should have robust and comprehensive credit analysis and approval processes, internal controls to monitor risk and to ensure adequate monitoring of the completion of security. 59. The bank is also bound by the European Communities (Licensing and Supervision of Credit Institutions) Regulations, 1992 (S.I. No. 395 of 1992) (as amended), in particular, to have “effective processes to identify, manage, monitor and report the risks it is or might be exposed to.” 60. The appellant submits that, if the bank had fulfilled these obligations, it would not have approved the loans, or issued the facility letters. Thus, the question of instructing solicitors would never have arisen. Particular Acts of Contributory Negligence 62. The Bank failed to follow up the express requirement contained in its letters of instruction to the appellant that it receive: “Copies of all security documents duly signed.” Had it done so, it would have seen that security had not been provided. 63. The bank failed in a number of ways to enquire into or seek verification of the assets or income put forward by Mr Kelly or Mr Byrne respectively in their statements of affairs when seeking the loans. The examples of the UK properties of Mr Kelly and the extraordinarily large income alleged by Mr Byrne have been mentioned in the account of the High Court judgment. 64. It was a condition precedent of the facility letter for first Kelly loan that an independent professional valuation be provided of the Rathmines property to be purchased with the loan. The bank accepted a valuation of €5.3 million based on a weekly turnover of €130,000, whereas the actual projected turnover, provided by the borrower to the bank, was €80,000. This would have given a valuation of only €3.26 million. The appellant says this was an error on the face of the report. Since compliance was a condition precedent, the first Kelly loan should not have been made. 65. In the case of the loans to Mr Byrne, apart from the failure to take any steps to verify the extraordinary sums Mr Byrne claimed to have by way of income, the appellant said that the bank could have checked the records of its subsidiary or associate company, IIB Homeloans. Had appropriate checks been made, the Bank would have discovered that there were numerous solicitors’ undertakings furnished to the bank by Mr Byrne both in respect of his own borrowings and the borrowings of his clients which he had not complied with. Appellant’s Submissions 67. The lender, it was submitted, must take reasonable care for the protection of its own property. Counsel criticised, in particular, the application by the learned judge, at paragraph 51, of the notion of “proximate cause.” He argued that “effective cause” is a simpler and more appropriate mental construct. He accepted that a remote cause would not come within the section, but said that here the lack of care of the bank was a direct and immediate cause of the loss. The judge did not give any consideration to the causative contribution of the failure of the bank to carry out a proper assessment of the borrowers. Counsel argued that the effective cause of the bank’s loss was its own failure of assessment of the borrowers and of supervision of the loan transactions. The critical fact was the assessment of the borrowers: the obtaining of the security came in later. There was extremely serious negligence on the part of the bank. The loans, it was said, would not have been made at all, if the bank had exercised proper care. 68. Counsel referred to the textbook, “Lender Claims,” Hugh Tomlinson Q.C. and others, (Sweet & Maxwell, 2010) which states (at paragraph 8—12 that contributory negligence has a limited role to play in the field of professional negligence because the plaintiff is relying on the expertise of the defendant. However, it distinguishes lender claims because “the process of lending is a profit-orientated business as well as a specific expertise in relation to which it is the claimant, rather than the defendant, who has the superior knowledge.” The Bank’s Submissions 70. The appellant, as a firm of solicitors, failed to perform the very task entrusted to it. Thus, it was irrelevant that the decision to make the loans was unwise, even extremely unwise. Where the negligence of the defendant is extremely gross, it would not be appropriate to make any finding of contributory negligence. 71. The bank relies on the judgment of Walsh J in O’ Sullivan v Dwyer [1971] IR 275, and insists that it cannot be found responsible for contributory negligence unless it is proved that both parties have been at fault and to have caused the loss. If the act at issue is not a substantial and operative cause of the loss there can be no finding of contributory negligence. It cites the decision of this Court in Conole v Redbank Oyster Company Ltd [1976] IR 191 to support the learned trial judge’s analysis of the “proximate cause” of the loss, which was based on his assessment of the evidence. He made that finding in circumstances where had had earlier concluded that the loss arose from the radical departure from instructions by the appellant and as a result of the bank being misled into permitting the release of funds on express assurances which were untrue. The bank had entrusted to the appellant responsibility for deciding when and whether the funds should be released to the borrowers. It was the appellant through its wrongful actions in releasing the funds in breach of its instructions and contrary to express assurances given to the bank that security was in place that was wholly responsible for the loss. 72. The bank relied on the decision of the Court of Appeal in England in Sahib Foods Ltd v Paskin Kyriadse Sands (a Firm) [2003] EWCA Civ 1832 1 at 18. Clarke L.J., speaking for the Court, said that “it is open to the court to conclude that the share of a claimant’s responsibility is so small by reference to that of the defendant that it would not be just and equitable to reduce the damages at all.” 73. The trial judge, it is submitted, found that the actual and only real cause of the whole of the bank’s loss was the appellant’s negligence: since the appellant, as a firm of solicitors, failed to perform the task entrusted to it to obtain security. It is irrelevant that the decisions to make the loans were unwise or even extremely foolish. Accordingly there could be no reduction in damages on grounds of contributory negligence. The High Court Judgment
77. There then followed paragraphs 50 and 51 of the judgment, which have been quoted in full. He said that “If the decision of the plaintiff to approve the loans was, to some extent, due to its own negligence in assessing the borrowers, this was a causa sine qua non.” Thus, he was saying, though without so finding, that the bank might have been negligent in approving the loans, but that was no more than causa sine qua non of the loss. The crucial fact was, in his view, that the causa causans or proximate cause of the loss was that the funds “were released after the plaintiff sought confirmation from the defendant that it would not release the funds until such time as the security was in place, and they received confirmation of this from the defendant prior to the release of the funds.” 78. To that extent, the analysis focussed purely on the question of causation. The failure of the appellant to perform its duty properly was the proximate cause of the loss and any contribution of the bank to their own loss was merely causa sine qua non. He rejected the defence of contributory negligence because the appellant could not “rely on a plea of contributory negligence unless it can be shown that the negligence of the client was at least a proximate cause of the loss.” 79. The decision rested crucially on the judge’s conclusion as to the cause of the bank’s loss. The learned judge made no finding and reached no conclusion on the question of whether, if he had concluded otherwise, the acts of the bank would have amounted to contributory negligence. He thought that the bank had been a “somewhat careless” in its appraisal of both borrowers: he spoke of “lapses by the plaintiff. It is difficult to believe that he would not have made some findings of contributory negligence, at least in the case of the lending to Mr Byrne. My conclusion is that the learned judge did not decide whether the bank would have been responsible for contributory negligence, if their acts had been a cause of the loss. Since he did not decide that matter, it is quite clear that this Court cannot do so on appeal. If a finding of contributory negligence was to be made, it could only be made by the judge who heard all the evidence. On the other hand, if the Court concludes that the judge’s analysis of causation was incorrect, it clearly follows that the case must be remitted to the High Court to decide whether there should be a finding of contributory negligence and, if so, to apportion responsibility. Law on Contributory Negligence
82. Thus, the section contemplates that there may be more than one cause of the loss. It is implicit that the negligence of the defendant and the negligence, more properly described as want of care, of the plaintiff are both causes of the loss. 83. The high Court made no apportionment of liability. Thus, there is no question of apportionment before this Court. It suffices to note that the section provides that “the damages recoverable in respect of the said wrong shall be reduced by such amount as the court thinks just and equitable having regard to the degrees of fault of the plaintiff and defendant…” The decisions of this Court in O’ Sullivan v Dwyer [1971] IR 275 and Carroll v County Council for the County of Clare [1975] 1 I.R. 221 are the leading cases. 84. Questions of causation often present difficult problems of analysis. In one sense, everything can be a cause even of remote events. Events have direct and indirect causes. The law does not usually recognise a mere causa sine qua non (sometimes called “but for” causation) as a sufficient basis for the imposition of liability on a defendant. Many acts, even if negligent, are too remote to provide a just basis for imposition of liability. In some cases, the law resorts to the concept of novus actus interveniens. 85. The bank relies on the case of Conole v Redbank Oyster Company Ltd [1976] IR 191, claiming that Henchy J. there adopted an analysis of the question of causation between concurrent wrongdoers which is identical to that followed by the learned trial judge in the present case. In truth that unusual case is one of the few Irish cases in which light is cast on principles of causation. It arose from a tragic drowning of nine young people when the defendant’s boat capsized off the coast of County Clare in 1969. The boat was new. She had been built specially by the third party for the defendant, who was going to use it for dredging oysters. The boat was unseaworthy when delivered to the defendant shortly before the accident. The defendant took her to sea on a few trial runs. On the day of the fatal accident, when the ceremony of naming and blessing the vessel took place, she was taken out on six trips —the sixth being the fatal one. On the fifth trip, the defendant’s manager had taken her out and found that she shipped water to such a degree that the pumps could not clear the water from the deck. The defendant concluded that that boat was absolutely unseaworthy and extremely dangerous. The manager was instructed to tie up the boat. Tragically, he took her out once more. 86. The plaintiff recovered damages from the defendants, as personal representative of his daughter, for their negligence. The defendants' claim for an indemnity or a contribution from the third party was dismissed in the High Court on the ground that the effective cause of the death was the negligence of the defendants who, with knowledge of the dangerous condition of the vessel, allowed the vessel to put to sea on the sixth trip overladen with passengers. Henchy J dealt with the liability of the third party at page 196 as follows:
At page 196, Henchy J added:
89. The context of the present case is professional negligence. The learned trial judge was especially influenced by tha fact that the “bank was entitled to rely on the assurances received by the defendant and did so.” That was, of course, correct insofar as the liability in negligence of the appellant is concerned. It may also be relevant to any consideration of apportionment which may arise. It does not, however, dispose of the question of contributory negligence, though the learned judge next cited a passage from Jackson & Powell on Professional Liability 7th Ed. (Sweet & Maxwell, 2012) at p. 211:
94. The decision of the House of Lords in Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190 is also instructive. The negligence claim was against valuers rather than solicitors and the issue in contention was whether a finding of contributory negligence made against the lenders should be applied to the entire of the loss they had suffered or merely to that part for which the valuers, by overvaluing the property which was taken as security, were responsible. This was an application of the SAAMCo principle, which does not arise on the present appeal. It is of note that Lord Hobhouse accepted that contributory negligence could be found against the lenders in investigating the loan application. At page 211, he said that:
96. It follows that the appellant’s negligence was a direct and, as the learned judge found, a proximate cause of the loss. 97. But was it the only effective cause? To answer this question, I need to make two assumptions. Firstly, I will assume, without deciding, that the bank was wanting in care for its own interests in entering into the loan transactions. Secondly, I will assume that, if it had exercised reasonable care, it would have discovered the truth about the borrowers and would not have agreed to lend them any money. On those assumptions, it seems to me that the bank’s want of care was also a cause of the loss, because the bank, like the appellant, caused loan moneys to be paid out to two persons who were, as it turned out, unable to repay. That would justify a finding of contributory negligence, provided it was shown that the bank was guilty of want of care. 98. I do not think the one cause was necessarily more proximate than the other. They were both effective causes. 99. The bank, however, makes the point very strongly that a defendant should not be absolved even partially from fault when its own negligence consists of a failure to do the “very thing” it was engaged to do. This is the point made in the passage cited by the learned judge from Jackson and Powell. It is difficult to justify permitting a professional person to cast even some of the blame back on the client for failing to spot or correct the professional person’s mistakes “unless the client is expected to be wiser than his own professional advisers.” In the present case, that argument is particularly relevant to the appellant’s attempt to attribute contributory negligence to the bank because it did not notice that it had not got the security which it had stipulated in each of the facility letters. The appellant says that the bank failed to follow up the express requirement contained in its letters of instruction to the appellant that it receive: “Copies of all security documents duly signed.” The argument that the appellant failed in the very task assigned to it does not apply, at least not with the same force, to any contributory negligence of the bank in failing to check the financial soundness of the borrowers. 100. The bank, as already noted, relied on the English Court of Appeal decision in Sahib Foods Ltd v Paskin Kyriadse Sands (a Firm). Clarke L.J., speaking for the Court, said that “it is open to the court to conclude that the share of a claimant’s responsibility is so small by reference to that of the defendant that it would not be just and equitable to reduce the damages at all.” That case provides a helpful analysis of the “very thing” argument. The claimants owned a factory in which they prepared ready-made meals for sale to supermarkets. They had engaged the defendant firm of architects in connection with a general remodelling of the factory. Crucially, this work included a food preparation area in which frying took place. Three years later a disastrous fire took place when employees of the claimants negligently misused a deep fryer in that area. The room concerned was destroyed. The important point was that the fire spread to the remainder of the factory, because the room where the frying took place had not been properly fireproofed following the advice of the architects. The architects were held negligent in failing to see that the room was properly flameproofed. There had clearly also been negligence on the part of the claimant in the frying operation which led to the start of the fire. However, it was held that the claimant had not been guilty of contributory negligence with regard to the escape of the fire to the other areas. 101. Clarke L.J. at page 17 held that it had been the architects’ duty to guard against “the effects of the fire which might be caused by the fault of the claimant…” He continued:
102. In the present case, it is important to distinguish between two types of contributory negligence alleged against the bank. They are, firstly, want of care in making the decisions to lend and, secondly, in failing to verify or supervise the performance by the defendant its duty. 103. For the reasons I have already given, and on the assumption that the bank failed to exercise due care in making its lending decisions, I am satisfied that the bank was exclusively responsible for those decisions. It was not the task of the appellant to check the financial soundness or reliability of the borrowers. The learned trial judge was, in my view, mistaken in absolving the bank of responsibility for contributory negligence solely because their acts were a mere causa sine qua non and not a proximate cause of the loss. It is obvious that the decision to lend to these particular borrowers was an effective cause (combined with the negligence of the appellant) of the loss suffered by the bank. 104. With regard to the second category of acts of contributory negligence, the bank was entitled to rely on the expertise of the appellant to ensure that security was put in place. The appellant had confirmed in writing to the bank that it would not release the loan cheque in each case until all security was in place and subsequently confirmed that it was. To the extent that the solicitors’ duty to obtain security was analogous with the duty of the architects in Sahib Foods to ensure fireproofing of the food preparation (frying) room, it might well be argued that the bank’s responsibility was so small that it would not be just and equitable to fix it with any responsibility. However, there is no absolute rule. It is a matter for judgement in each case of the relative measure of responsibility. As a matter of principle, it is possible that, if the evidence showed that the errors of the appellant were known to the bank and overlooked or were so obvious that they could not be ignored, there was fault on the part of the bank. The appellant is entitled to argue for the obligation of the bank, in accordance with the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 (S.I. No. 395 of 1992) (as amended), to manage its businesses “in accordance with sound administrative and accounting principles and [to] put in place and maintain internal control and reporting arrangements and procedures to ensure that the business is so managed.” 105. I have come to the conclusion that the learned trial judge erred in his conclusion on the issue of contributory negligence. That error is in his treatment of the issue of causation. His decision turned on his determination that any contributory negligence of the bank was merely causa sine qua non and was not a proximate cause of the loss. He reached no conclusion as to whether there had actually been contributory negligence on the part of the bank. 106. It follows that the matter of contributory negligence will have to be reconsidered by the High Court. It remains a matter for the High Court to decide whether there was, in fact, any contributory negligence and, if so, to decide on the relative blameworthiness and causative contribution of the respective faults of the appellant and the bank respectively. It is a matter entirely for the High Court to determine procedures for the further hearing of the case. The further hearing may be conducted by McGovern J but whether it will must be decided by the President of the High Court. In the event the matter is to be reheard by McGovern J, it may also be possible for him, for example, to determine whether or not there was contributory negligence on the part of the bank based on the evidence already given. That is also, of course, a matter for the High Court to decide in the light to the submissions of the parties. 107. For these reasons, I would allow the appeal insofar as the High Court failed to make a finding of contributory negligence. I would remit the matter to the High Court for further consideration of that issue.
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