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Supreme Court of Ireland Decisions |
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You are here: BAILII >> Databases >> Supreme Court of Ireland Decisions >> Bank of Ireland Mortgage Bank -v- Coleman [2009] IESC 38 (05 May 2009) URL: http://www.bailii.org/ie/cases/IESC/2009/S38.html Cite as: [2009] 2 ILRM 363, [2009] IESC 38 |
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Judgment Title: Bank of Ireland Mortgage Bank -v- Coleman Composition of Court: Geoghegan J., Fennelly J., Finnegan J. Judgment by: Geoghegan J. Status of Judgment: Approved
Outcome: Allow | ||||||||||||||
THE SUPREME COURT 451/06 Geoghegan J. Fennelly J. Finnegan J. BETWEEN/ BANK OF IRELAND MORTGAGE BANK Plaintiff/Appellant and DANIEL COLEMAN (PRACTISING UNDER THE STYLE OF “COLEMAN & COMPANY”) Defendant/Respondent JUDGMENT of Mr. Justice Geoghegan delivered the 5th day of May 2009 This is an appeal from the refusal by the High Court (Laffoy J.) to grant relief sought in a special summons whereby the long established inherent jurisdiction of the High Court over solicitors as its officers was invoked. It is important to note at this early stage of the judgment that no other cause of action was included in the proceedings and I will be expressing no views whatsoever as to what, if any, alternative remedies the appellant bank would have or would have had under either plenary or summary proceedings. The jurisdiction invoked in this case is the jurisdiction described by Nicholls L.J. in the English Court of Appeal case of John Fox v. Bannister, King & Rigbeys [1987] 1 Q.B. 925 at 928 as “a jurisdiction which is exercised, not for the purpose of enforcing legal rights, but for the purpose of enforcing honourable conduct on the part of the court’s own officers.” The two main reliefs which the appellant sought in the special endorsement of claim on the special summons were as follows:
B. Further and other reliefs, including an order that the defendant repay to the plaintiff the monies misapplied by him in breach of his said undertaking.” “On the 8th August, 2003 the Bank issued what it described as a Mortgage Loan Offer Letter (the Offer Letter) to the Borrower offering an advance of €250,500 repayable over twenty years on security of property at Banane, Meeling, Newmarket, Cork, the purchase price of which was stated to be €295,000. …it is common case that the property in question is the property registered on folio 41096 of the Register of Freeholders County Cork (the Mortgaged Property). On 12th August, 2003 the Borrower signed the acceptance form at the end of that document. In the loan application which the Borrower had submitted to the Bank he had named the defendant as his solicitor. At the same time as the Offer Letter was dispatched the Bank sent it s standard ‘solicitor’s pack’ to the defendant which contained, inter alia, blank standard form s of the following documents for use in the mortgage transaction: (a) solicitor’s undertaking (the Undertaking); (b) solicitor’s Certificate of Title; (c) cheque requisition form; and (d) deed of mortgage/charge. The defendant sent the completed Undertaking which was signed by him and dated 15th September, 2003 to the Bank in September, 2003. He requisitioned the loan cheque at the same time. The loan cheque, which was dated the 29th September, 2003, named “Coleman & Company” as the payee. The defendant endorsed the loan cheque in favour of Joseph M. Jordan & Co., the solicitors acting for the vendors in the sale of the Mortgaged Property. In broad terms, the defendant undertook in the Undertaking … to ensure that the Borrower acquired good marketable title to the Mortgaged Property and to ensure that the Bank obtained a first legal charge on the Mortgaged Property. The defendant accepts that he is in breach of the Undertaking in that he has not perfected the Borrower’s title or the Bank’s security. The Borrower defaulted in meeting the instalment repayments to the Bank. In December, 2004 the Bank called in the loan. By April, 2006 there was a total sum of €258,620.83 due to the Bank by the Borrower, which included arrears of €27,794.65 representing more than eighteen missed monthly instalment payments. In March, 2004 the Bank, having identified ‘apparent irregularities’ (the nature of which have not been disclosed by the plaintiff to the court) in the mortgage transaction at issue here and other mortgage transactions, the applications for which had all been introduced to the Bank by the same mortgage broker, made a formal complaint to the Garda Bureau of Fraud Investigation. That investigation is ongoing. In June, 2004 the Gardaí, pursuant to a warrant, removed the defendant’s file in relation to the purchase and mortgage transactions from his office. The file is still retained by the Gardaí. By letter dated 7th October, 2004 the Bank wrote to the defendant enquiring as to the precise status of the transaction and sought details of what was outstanding in order to fulfil the defendant’s undertaking. The defendant was asked to complete a questionnaire which was enclosed. The defendant’s response was that the Gardaí had his file and that he could not furnish the information sought, but that he would deal with all matters when the file was returned.” The respondent, on the other hand, successfully argued before the High Court that that was not the correct approach to the exercise of this special jurisdiction. This was not a claim for debt nor a claim for damages for breach of contract nor a claim for conversion or money had and received or indeed for compensation or damages for breach of trust or breach of an agency agreement. The court was not concerned with any of those conceivable causes of action. The court was only concerned with the discretionary remedy open to it in respect of a solicitor guilty of misconduct. There were two aspects to that discretion namely (1) Whether the circumstances warranted its exercise at all and (2) what form it should take. In this particular case, the learned High Court judge in a sense held against the appellant on both counts. In the first instance she did not consider that the appellant was construing the undertaking in the correct way by isolating the particular obligation relating to the money from the various other obligations. Secondly, it is a reasonable inference to draw from the view she took on that issue which was that a remedy was inappropriate given that the purpose of the undertaking as a whole could still be achieved, that even if she were wrong in refusing any remedy, the measure of any compensation would be the actual loss suffered and not simply the sum of €250,500 with or without interest. Although the High Court was not told what the criminal allegations were surrounding the transaction, it was perfectly clear as the learned judge indicated, that even if the respondent had fulfilled his obligations under the undertaking within a reasonable time, the appellant would not have obtained a security which was worth that amount. The learned High Court judge took the view that construing the undertaking as a whole, the obligation of the respondent was to furnish the bank with proper security on the mortgaged property in accordance with the offer letter. She acknowledged that to the date of the hearing before her the respondent was in breach of that obligation. The judge, however, was not satisfied that it was impossible still to comply with what she called “the defendant’s ultimate obligation” a view which has in the event been proved factually correct. The judge went on to hold that if it was impossible to comply with the ultimate obligation, the correct measure of the respondent’s loss would be the value of the security which it should have obtained but did not obtain. It could not simply be measured at €250,500. I would comment on those findings as follows. First of all, as will become clear when I review the case law, the order which the court makes when this special jurisdiction is invoked is discretionary but like all discretionary orders the discretion must not be exercised inappropriately. I would respectfully agree with the learned High Court judge that where, as in this case, a solicitor’s undertaking is involved, it is important in considering the discretionary order to be made to have regard to the undertaking as a whole and not merely to the particular obligation within the undertaking the breach of which is complained of. But if the learned judge intended to convey that the court could never enforce an isolated obligation within the undertaking if the original purpose of the transaction could still potentially be achieved, I would respectfully disagree. The precise enforcement of a particular obligation may, in many instances, be the appropriate order. In the final paragraph of her judgment, Laffoy J. makes clear her consciousness “of the serious risk to the integrity of the lending system in relation to residential mortgages which this case has exposed.” She goes on to observe that, on the evidence she had heard, most if not all the other major residential mortgage lenders adopt similar procedures. It is the system which came into place some years ago and it was designed to avoid the necessity of a third solicitor in a sale acting for the lender. Although the supervisory jurisdiction and its principles were decided long before the major lenders in this country adopted the two solicitor system, a judge being asked to enforce an undertaking given in the context of such a transaction but in exercising his or her discretion ought to have regard to the maintenance of the integrity of that system. There would be cases, therefore, analogous to this case where if the undertaking solicitor behaved in a similar manner, it would be appropriate for a court to order the solicitor to repay to the bank the whole of the sum advanced. However, for reasons indeed adverted to by the learned High Court judge, that would not have been appropriate in this case. The bank by its own negligence independently of any connection with the default by the solicitor provided loan facilities on an overvaluation of the property. The English authorities clearly indicate that an order made by the court under this jurisdiction should not be oppressive towards the solicitor. Therefore, I am in agreement with the learned High Court judge that it would not have been appropriate to order the defendant to repay to the bank €250,500 with or without interest. I find myself at variance however in another respect with the view the learned trial judge took following on that conclusion. She seemed to consider that if the transaction was still capable of completion there was no justification for awarding any compensation against the defendant. I cannot agree with this approach. It would seem to me that the judge ought to have assessed compensation. I do not want to prejudge what the headings of compensation might be but at that stage, one of them would presumably have been the real value of the security which the bank should have obtained but did not obtain. I will return to the issue of compensation at the end of this judgment. I intend now briefly to review the relevant case law. The only Irish case which seems to be of relevance is I.P.L.G. Limited v. Stuart [1992] I.E.H.C. 372 (unreported). This was a High Court decision of Lardner J. delivered the 19th March, 1992. The importance of this case and its relevance to the case at hand lies in Lardner J’s clear affirmation that the inherent jurisdiction of the court in respect of solicitors’ misconduct still existed in Ireland notwithstanding that the Solicitors Act, 1960 did not provide that solicitors were officers of the court but created the well known procedures of hearings by a disciplinary committee of the Law Society followed by hearings by the President of the High Court. That legislation followed the striking down, as unconstitutional, of certain provisions of the Solicitors Act, 1954. I accept the reasoning of Lardner J. and accept that the inherent jurisdiction still exists. There are no other Irish cases of importance. The earliest English case of importance is Re Grey [1892] 2 QB 440. The principle underlying the jurisdiction is described in that case by Lord Esher M.R. in the English Court of Appeal at 443 as follows: “The principle so laid down is that the court has a punitive and disciplinary jurisdiction over solicitors, as being officers of the court, which is exercised, not for the purpose of enforcing legal rights, but for the purpose of enforcing honourable conduct on the part of the courts own officers. That power of the court is quite distinct from any legal rights or remedies of the party and cannot, therefore, be affected by anything which affects the strict legal rights of the parties. Such was the principle laid down in the cases to which I have referred, and which were decisions of the Court of Appeal, and therefore are binding on us till overruled by the House of Lords. So, if a solicitor obtains money by process of law for his client, quite irrespective of any legal liability which may be enforced against him by the client, he is bound, in performance of his duty as a solicitor, to hand it over to the client, unless he has a valid claim against it. If he spends it, or if, still having it, he refuses to hand it over, he commits an offence as an officer of the court, which offence has nothing to do with any legal right or remedy of the client.” In the same appeal, Bowen L.J. also delivered a judgment. He uttered the following significant sentence: “If the jurisdiction of the court still exists, then it seems to me that, the matter being one of discretion, no hard and fast rules can be laid down whereby such discretion would be fettered.” In sequence, the next important English case is John Fox already cited. In that case, the plaintiffs, John Fox, a firm of solicitors invoked the inherent jurisdiction in summary proceedings against another firm of solicitors. They sought payment of a sum of £18,000 alleged to have been wrongly released to a client for whom both firms had acted at different times in breach of an undertaking given by the defendants. The High Court had ordered that the £18,000 be paid into a deposit account to the credit of the client. The defendants appealed. Nicholls L.J., in his judgment at p. 929, pointed out that the case was not a straightforward one, that the breach of the undertaking had occurred over four years previously and that the parties’ positions had changed. The £18,000 had been paid to the client who was now a bankrupt. The learned judge took the view that to order the defendants to recreate a fund of £18,000 and place it in an account to the credit of the client could not possibly be right despite the view of the High Court judge. The client or his trustee in bankruptcy could not possibly have any claim to the new fund. The judge then went on to ask the rhetorical question what would be the issue between the plaintiffs and the defendants which would decide the entitlement to the fund if it was ordered to be paid either into a joint account or into court. Nicholls L.J. decided that the matter should be approached this way. “The purpose of the undertaking was as I have sought to describe. What Mr. Fox lost by the breach of the undertaking was the opportunity to take whatever steps might have been open to him at the time to stop the £18,000 being paid to (the client) and ultimately to have recourse to that money to meet his bills. What those steps were, and whether they would have been successful, are not matters canvassed adequately in the evidence in its present form. On the present evidence I am not satisfied that, if the undertaking had been faithfully honoured, John Fox would necessarily have obtained payment to them of the £18,000 nor, conversely, am I persuaded that they would necessarily have been left empty handed. That being so, I consider that the appropriate course is to direct an inquiry in these proceedings, as to what loss, if any, John Fox suffered by reason of the breach of the undertaking. If, as contended by Bannisters, John Fox suffered no loss, Bannisters will not be required to make any payment to John Fox. If, however, John Fox can prove loss to the satisfaction of the Master who will conduct the inquiry it will only be right that Bannisters as officers of the court should now make good to John Fox the amount of that loss suffered as a result of the breach of the undertaking.” “The jurisdiction is indeed ‘extraordinary’ being based upon the right of the court to see that a high standard of conduct is maintained by its officers acting as such: see Cordery on the Law relating to Solicitors, 7th ed. (1981), p. 116. It is, in a sense a domestic jurisdiction to which solicitors are only amenable because of their special relationship with the court and it is designed to impose higher standards than the law applies generally. Thus, for example, it is no answer to a complaint that a solicitor acted in breach of an undertaking given by him that there was no consideration for it.” “The underlying principle is that the court has a right and a duty to supervise the conduct of its solicitors, and visit with penalties any conduct of a solicitor which is of such a nature as to tend to defeat justice in the very cause in which he is engaged professionally, as was said by Lord Abinger, C.B. in Stephens v. Hill ((1842) 10 M. & W. 28, 152 E.R. 368). The matter complained of need not be criminal. It need not involve peculation or dishonesty. A mere mistake or error of judgment is not generally sufficient, but of gross neglect or inaccuracy in a matter which it is a solicitor’s duty to ascertain with accuracy may suffice. .................................................................................................................................................................................................... It is impossible to enumerate the various contingencies which may call into operation the exercise of this jurisdiction. It need not involve personal obliquity. The term ‘professional misconduct’ has often been used to describe the ground on which the court acts. It would perhaps be more accurate to describe it as conduct which involves a failure on the part of a solicitor to fulfil his duty to the court and to realise his duty to aid in promoting, in his own sphere, the cause of justice. This summary procedure may often be invoked to save the expense of an action. Thus, it may, in proper cases, take the place of an action for negligence, or an action for breach of warranty of authority brought by the person named as defendant in the writ. The jurisdiction is not merely punitive, but compensatory. The order is for payment of costs thrown away or lost because of the conduct complained of. It is frequently, as in this case, exercised in order to compensate the opposite party in the action.” 2. Although the jurisdiction is compensatory and not punitive, it still retains a disciplinary slant. 3. If a person has suffered loss the court has power to order the solicitor to make good the loss occasioned by his breach of duty. 4. Failure to implement a solicitor’s undertaking is prima facie evidence of misconduct even if he has not been guilty of dishonourable conduct. 5. The supervisory jurisdiction is not ousted by defences that might be available to an action at law such as the Statute of Frauds but the court may take these factors into account in deciding whether or not to exercise its discretion and if so in what manner. 6. The summary jurisdiction involves a discretion as to the relief to be granted. 7. Where it is inappropriate for the court to make an order requiring a solicitor to perform his undertaking e.g. on grounds of impossibility, the court has a discretion as to whether it should exercise the power to order the solicitor to pay compensation. What these principles, when read as a whole, clearly indicate is that the special supervisory jurisdiction of the court invoked by summary proceedings is discretionary in nature. In this particular case where the bank appears to have carelessly acted on an overvaluation of the property it was, therefore, going to be at any rate left with a much lesser security than it anticipated. In those circumstances it would not be appropriate to measure the compensation that might be ordered to be paid by the solicitor as the actual amount of the loan unless, of course, the bank had been misled as a consequence of fraudulent conduct to which the solicitor had been a party. But there was no evidence before the High Court or before this court of any such complicity. Since the hearing in the High Court there has been a dramatic change in the factual situation in that the transaction has been wholly completed with the title in order and the bank’s security properly in place. Nevertheless there was a serious and inexcusable breach of the defendant’s obligations not just in relation to the payment but in relation to the undertaking as a whole. The loan cheque issued on the 29th September, 1993. The account went into arrears on the 9th January, 2004. The bank could not have acted on its security until the charge was registered and probably thereby suffered loss. There may have been other losses also. It is for the High Court and not this court at this stage at least to assess the compensation. If the bank has suffered losses directly flowing from a breach of the defendant’s undertaking, it is proper that the defendant should make good that loss. I would, therefore, allow the appeal to the extent of remitting the case back to the High Court to assess these losses (if any) and I would take the view that this court should order such losses as are assessed (if any) be paid by the defendant to the plaintiff. This would be an appropriate exercise of the discretion in all the circumstances. | ||||||||||||||
