THE SUPREME COURT[Appeal No: 360/2009]
Clarke J.
Charleton J.
O’Malley J.
Allied Irish Bank plc
Plaintiff/Respondent
and
Charles James Maguire, Noel McDonald, Richard Clinch and Tommy Gibbons carrying on practice under the style and title of Seamus Maguire & Co Solicitors
Defendants/Appellants
Judgment of Mr. Justice Clarke delivered the 13th October, 2016.
1. Introduction
1.1 Many conveyancing transactions, from the sale of family homes to the transfer of valuable commercial property, are closed by the solicitors involved on the basis of undertakings. A fairly typical example involves a case where the property under sale is the subject of an existing mortgage or charge which requires to be cleared in order to provide the purchaser with good title. Likewise, a financial institution which is lending money to the purchaser for the purposes of facilitating the purchase itself may have a close interest in ensuring that any existing mortgage or charge is discharged so that the purchaser is in a position to put in place security in favour of its lender.
1.2 Without the system of undertakings it might be difficult in practise to close transactions of that type for, typically, the vendor will not be in a position to clear the original mortgage without the purchase price being paid and the purchaser will not be able to pay the purchase price without being able to draw down its own loan from its lender. Against that backdrop the usual arrangement is that the lender to the purchaser provides the money subject to appropriate undertakings including one from the vendor’s solicitor to use all or an appropriate portion of the money concerned to clear an existing mortgage or charge and to provide, in due course, appropriate documentation from the holder of the existing security evidencing the discharge of the relevant loan and security.
1.3 Obviously such an arrangement places trust on the vendor’s solicitor to actually comply with the undertaking. Unfortunately, in the circumstances of this case, an undertaking along those lines was given but not complied with. A solicitor then working in the firm of the defendants/appellants (“Maguires”) gave an undertaking to use certain funds provided by the plaintiff/respondent (“AIB”) in such a fashion but actually used the money concerned to meet other commitments of the client for whom he was acting. That the actions of that solicitor were in serious breach of the undertaking given and, indeed, amounted to a serious breach of professional ethics cannot be doubted and is not disputed. That, as a consequence, Maguires are liable to compensate AIB is likewise not disputed. The issue on this appeal concerns the amount of compensation which should be awarded. That calculation is, at least on one view, complicated by the collapse in property values with which all in this jurisdiction are, unfortunately, familiar.
1.4 The trial judge ultimately awarded compensation based on the entire amount which had been advanced by AIB in relation to the relevant transaction together with interest accrued. Maguires have appealed to this Court against that decision. The trial judge came to the view that the general supervisory jurisdiction which the courts hold over solicitors entitled the Court to depart from simply awarding compensatory damages in all the circumstances of this case. For the reasons advanced in this judgment I have come to the conclusion that it was not appropriate to depart from the principle of compensatory damages and that the appeal must, therefore, be allowed. However, I have also concluded that it is not possible, on the basis of the materials before this Court and on the basis of the findings of fact of the trial judge, to reach an appropriate conclusion as to the amount of compensatory damages which should be awarded in lieu of the sum determined by the trial judge. In those circumstances I would remit the matter back to the High Court for the calculation of damages and propose to give some guidance as to the proper approach to be adopted by that Court in carrying out that exercise.
1.5 While it will be necessary to set out a brief account of the key facts in early course, it is, in my view, in the circumstances of this case, perhaps appropriate to start by explaining the broad issues which arise in fairly general terms before going on to consider how those issues apply in the particular circumstances of this case.
2. The Broad Issue
2.1 There are, in fact, two broad sets of issues. The first set, to which I will shortly turn, concern the question of whether, and if so to what extent, the fact that Maguires are a firm of solicitors, and thus are officers of the court and subject to the direct jurisdiction of the court, may have any impact on the proper approach to the calculation of the amount of damages to be awarded.
2.2 However, there are also issues as to the amount of damages which would be required to meet the general principle behind most damages awards which is that the amount of damages should be calculated on the basis of attempting to put the injured party back into the position in which they would have been had there been no wrongdoing. It is in that context that the collapse in property values potentially comes into significant play.
2.3 The immediate effect of the breach of undertaking given by the relevant solicitor in Maguires was, of course, that an existing charge on the property in question, which acted as security in favour of Anglo Irish Bank (“Anglo”), was not, as it should have been, paid off and the security released. It followed that AIB found itself in a position where the property over which it was entitled to expect that it would hold a first security in fact remained subject to a prior charge in favour of Anglo. As events turned out the sums due to Anglo were such that the entire value of the property was required to go towards discharging the debt owed to Anglo. In substance AIB found itself without any practical security.
2.4 However, certainly by the time the case came for hearing before the High Court, it had become clear that, even had AIB obtained a proper first security over the property in question, the value of that security would have been a long way below the amount owed to AIB, or the amounts advanced which were the subject of the relevant undertaking, simply because the value of the property in question had declined to a level where it fell a very long way indeed short of providing full security for the loan concerned. On that basis the argument put forward on behalf of Maguires was relatively straightforward.
2.5 It was said that, had it not been for the wrongdoing of the solicitor concerned, AIB would have obtained full security over the property in question. However, even with the benefit of that full security, AIB would have lost a lot of money on the transaction. However, it was argued that the losses above and beyond the value of the security did not stem from any wrongdoing on the part of the relevant solicitor but rather stemmed from the fact that AIB had made a loan which turned out to be significantly loss-making. On one view there might also be an issue as to whether the loan was ill-advised or ill-judged from AIB’s point of view in the first place. But, so the argument went, even if the loan were, from the perspective of the time when it was entered into, a sensible lending arrangement, nonetheless the collapse of the property market would have meant that AIB would have lost most of the money advanced even if there had been no wrongdoing. The only part of the loan whose loss was attributable to wrongdoing on the part of Maguires was said, on that basis, to be an amount equivalent to the value of the security. Put in simple terms it is said that most of AIB’s losses stem from the fact that it made what turned out to be a bad loan. Even if AIB had full security it still would have incurred most of those losses. On that basis it was said that AIB should only be able to recover that portion of its losses which stem directly from the fact that it was unable to realise security over the property in question in part discharge of its loan.
2.6 However, as the matter was put to counsel for AIB in the course of discussion why, due to the happenstance of a wrongful act on the part of Maguires, should this bank in this case, perhaps close to uniquely in respect of all significant property loans advanced at the height of the boom, be able to recover the full amount of the loan in a claim for damages when, even had there been no wrongdoing, much of the monies advanced might well have been lost in any event.
2.7 The other side of the argument concentrated on the actual wrongdoing on the part of the relevant solicitor. There was some debate, to which it will be necessary to return in the context of the facts, about whether the entire sum advanced was understood by AIB to be required for use as per the undertaking or whether only a substantial proportion thereof was understood to be so required in order that AIB could become properly secured. Be that as it may, there is no doubt but that a very substantial sum was, on any view, undertaken to be paid over in discharge of the existing loan and was, again on any view, wrongly misapplied. On that basis it is suggested that, having misapplied a very substantial sum of money in flagrant breach of an undertaking, Maguires cannot escape from a liability commensurate with the amount of money misapplied simply by the happenstance that the collapse in property values means that, no thanks to them, the losses suffered by AIB attributable to the relevant lack of security may have been reduced.
2.8 Again put colloquially the counter-argument is as to why a solicitor who misapplies a very substantial sum of money ought to be able to escape with a significantly lesser liability in damages by the good luck that adverse movement in the property market meant that the person to whom the obligation to comply with the undertaking concerned was owed might, as events have turned out, have lost a significant amount of the money concerned in any event.
2.9 Within the scope of that overall debate a number of additional points arise. First, it is absolutely clear that the value of the security of which AIB was deprived was, at the time when the wrongdoing took place, significantly greater than it had become by the time of the trial. The relevance, if any, of that fact to the proper approach to the calculation of damages in this case is a matter to which it will be necessary to return. Second, there are possible consequences for the issue of the proper calculation of damages which stem from the difference between the sum advanced (€3m) and the sum required to clear the Anglo loan (approx €2.2m). For reasons to which I will shortly turn, the trial judge awarded damages based on the full sum advanced together with interest. However, at least on one view, it may be said that it was only a sum of €2.2m or so which was misapplied. There might be a legitimate debate about whether it was appropriate to award damages in respect of sums which were not misapplied.
2.10 These were the competing arguments at the level of principle in respect of the proper approach to the award of damages. However, there was a further argument put forward by AIB to the effect that, whatever might be the proper outcome of an analysis of the approach to the award of damages in an ordinary case, the Court had, it was said, a wider discretion as to the quantification of damages in the context of a serious breach by a solicitor of a professional obligation, such as the obligation to comply with an undertaking, which entitled the Court to reflect that fact in the award of damages.
2.11 The trial judge agreed substantially with the case made by AIB on that latter issue. Having regard to what he found to be a significant and deliberate breach of undertaking on the part of the relevant solicitor in Maguires, the trial judge took the view that the proper approach to the calculation of compensation in this case was to require Maguires to pay the entire sum which was the subject of the relevant undertaking together with interest. Clearly, therefore, the first broad set of issues concerns whether that view of the trial judge was correct. In one sense that broad question involves three separate issues. The first is as to whether it is correct to suggest that, as a matter of law, a court enjoys an entitlement to assess damages in the context of a breach of undertaking which allows those damages to be determined on a basis which goes beyond purely compensatory damages. The second issue, which obviously only arises in the event that that first question is answered in the affirmative, is as to whether, assuming that such a jurisdiction exists, it was appropriate to exercise it in all the circumstances of this case. That second issue encompasses the question of whether such an approach was justified in the light of the case as pleaded. The third issue is as to whether, if it was appropriate to exercise the jurisdiction in this case, the precise way in which the asserted jurisdiction was in fact exercised was within the range of measures which were reasonably open to the trial judge such that they should not interfered with by this Court on appeal.
2.12 Counsel on behalf of Maguires did not dispute, either before the High Court or this Court, that the High Court does have a general discretionary jurisdiction which entitles it to impose appropriate orders on solicitors in certain circumstances. It is accepted that the jurisdiction in question derives from the supervisory role of the courts over solicitors as officers of the court. The authorities which support that jurisdiction will be referred to in due course.
2.13 However, a number of further issues concerning the application of that principle to the facts of this case were raised. Apart altogether from the debate about whether it would be appropriate to depart from compensatory damages, Maguires argued that, on the basis of the pleadings and the run of the trial, there could not have been said to have been any allegation of fraud properly directed against either the relevant solicitor in Maguires or the firm itself. Thus it was said that the finding by the trial judge of misappropriation, which underlay the decision of the trial judge to require the repayment of all of the sums advanced, was inappropriate having regard to the run of the case. In addition it was said that making an order of that type was inappropriate and oppressive in all the circumstances, even if a jurisdiction to exceed compensatory damages existed, by virtue of (a) the fact that none of the partners in Maguires (who were the defendants in the case) had personally contributed to the breach of undertaking, (b) a suggestion that AIB had not shown that it had been misled as a result of fraudulent conduct to which the partners in Maguires had been a party and (c) having regard to what was said to be a significant over-compensation of AIB in all the circumstances of the case.
2.14 Clearly if the answer to the first and/or second questions is that the Court should not have assessed damages on anything other than a compensatory basis then the question arises as to the damages which should have been awarded on that basis.
2.15 In order to address those broad sets of issues in the context of this case it is then appropriate to turn to the facts.
3. The Facts
3.1 To a very significant extent the facts are not and were not in dispute. The one exception to that general comment, which on one view may be material, is that there was little or no direct evidence as to the true reason why the solicitor concerned, rather than utilising the relevant monies to discharge the obligations on foot of the undertaking which had been given, redirected the monies to another project in which his client was involved. As will become clear the principal reason why the Court did not have such direct evidence available to it was that relevant witnesses were not called by either side.
3.2 On 22nd May, 2007, AIB sanctioned a loan to Alan Hynes and his wife Noreen (collectively “the Hyneses”) in the sum of €3m for the purchase of a property in Co. Wexford known as ‘Moongate’. A letter of offer was issued accordingly and was duly accepted. The vendors of the property concerned were a syndicate, of whom Mrs. Hynes was a member. There was an existing loan secured on the property which at the relevant time stood at approximately €2.2m (advanced by Anglo in favour of the syndicate). It was agreed as part of the terms of the loan to the Hyneses that the existing loan and security in favour of Anglo would be discharged and first security in favour of AIB would be put in place.
3.3 So far as the underlying transaction is concerned it is relevant to note that, by 2007, several of the syndicate members, with the exception of Ms. Hynes, were anxious to exit from the investment. The Hyneses agreed to purchase the other syndicate members’ interests in Moongate. While there is some doubt about the exact terms of that agreement it is clear that the consideration included paying off the amount then owing to Anglo on foot of the loan advanced for the initial purchase. Anglo calculated that sum to be €2,200,870.71 as of 4th July, 2007, with interest accruing daily at a rate of €435.35.
3.4 The loan to the Hyneses was on an interest only basis for the first two years with a possible interest roll-up for a maximum of five years. As already noted, the loan sanction provided that a legal charge over Moongate was to be executed by the Hyneses and that the property should be vested in their joint names. In addition, the letter of sanction provided that “Security item(s) [i.e. legal charge over Moongate] must be in place before drawdown…”.
3.5 Maguires represented both the Hyneses and the syndicate in the transaction. In addition AIB did not instruct its own solicitors in relation to putting in place the security for its loan but agreed to accept Maguires’ undertaking in AIB’s standard form.
3.6 AIB, for the purposes of assessing the loan application, had accepted a valuation of Moongate which Mr. Hynes, who was an accountant in private practice and, in addition, had a number of property interests, had obtained from CBRE. AIB did not elect to obtain its own valuation. The property was valued by CBRE at €3.9 million, taking account of what was said to be its significant development potential, although no planning permission had been granted for any possible development.
3.7 To facilitate the completion of the transaction and drawdown of the loan facility, Maguires gave an undertaking, in a form provided by AIB, to discharge the Anglo loan. Peart J. noted that the undertaking was in a normal form with which solicitors would be familiar although when first introduced such undertakings were intended to be used solely in residential transactions. However, the trial judge noted that this practice had later become commonplace in commercial transactions, where a bank or financial institution was content not to appoint its own solicitor to look after its interests, but was prepared to rely on the purchaser/borrower solicitor’s undertaking to complete matters in a manner which protected the bank’s interests as mortgagees.
3.8 At the time of the closing of the transaction AIB sent a ‘loan pack’ to Fergal Dowling, the solicitor in Maguires dealing with the matter, so that the necessary documentation could be put in place. Mr. Dowling completed the form of undertaking on the 5th June, 2007 and arranged for a partner in Maguires, Richard Clinch, the third named defendant/appellant, to sign it.
3.9 On 6th June, 2007, the completed undertaking, signed by Mr Clinch, was sent to AIB. Later that day, an internal communication noted that the Maguires’ undertaking was “now approved on our systems” and that consequently the relevant funds could be released.
3.10 AIB transferred the sum of €2,992,500 (being the sum sanctioned less an agreed arrangement fee) to Maguires’ client account on 7th June, 2007.
3.11 The relevant portion of Maguires’ undertaking is as follows:
“In consideration of all present and future advances made or to be made by the Lenders to or at the request of the client... we hereby undertake and confirm the Lenders as follows:
1. That the client has or will acquire a good and marketable title to the property……
2. That the client has already executed the Lenders’ standard form of All Sums Legal Mortgage/Charge and other documents specified at 3b below where the client owns the property
3. Where the facilities are to purchase the property or to redeem an existing third party mortgage or encumbrance affecting it, and where the loan cheque has been paid through us:-
(Various Conveyancing documents are then specified)
The undertaking concluded by stating that Maguires had their clients’ irrevocable authority to give the undertaking.
3.12 It is undisputed that Maguires’ undertaking has not been complied with by them in any respect, that the loan has been called in by AIB and that the Hyneses are not in a position to repay it. It is accepted that the Hyneses are no longer a mark for this sum and a judgment in that regard remains unsatisfied. There is no security in place which AIB can enforce as a result of Maguires’ failure to comply with the undertaking.
3.13 It is next necessary to examine why that came to be the case. The day after the lodgement into Maguires’ client account of the AIB monies (8th June, 2007), Mr Dowling obtained a draft drawn on the client account in the sum of €2m which was not in favour of Anglo, as should have been the case, but in favour of Messrs. Taylor & Buchalter, solicitors. That firm was acting for the vendors of a property in Dalkey to a group of individuals of whom Mr Hynes was one (“Tuskar Group”) and the letter sent to these solicitors stated that this money was “the deposit due” on this property.
3.14 Thereafter it would appear that the balance of the sums originally transferred into Maguires’ client account by AIB was also used in connection with the Tuskar purchase in Dalkey. There was evidence that there were difficulties encountered in respect of the Tuskar purchase. That may or may not explain why Mr. Hynes was anxious to ensure that the monies which are at the heart of these proceedings were applied to the Tuskar project rather than go to discharge the Anglo loan. However, other than providing an explanation as to why things may have turned out as they did, it does not appear that the difficulties encountered in respect of the Tuskar purchase are of any direct relevance to the issues which arise on this appeal. The Tuskar purchase was ultimately completed by a loan from an entirely separate financial institution. It may well be, given that it was a property purchase contracted at the height of the boom, that very substantial losses were incurred which may in turn explain why the monies misapplied (which should have been used to pay off the Anglo loan) were incapable of being recovered.
3.15 In any event Mr Dowling was not called to give evidence. Indeed no witness statement from him was furnished by either party. However, he did set out an explanation to his employers once the situation became apparent. This was done in the form of a memorandum to Mr Clinch dated 22nd December, 2008.
3.16 Mr Dowling stated that “Unfortunately the monies earmarked for discharging Anglo Irish Bank together with the balance of the AIB loan was inadvertently utilised in respect of the purchase of another property at Dalkey”. He continued that he sought the repayment of the Anglo loan by his client but, despite promises, the money to do this never materialised and in 2008 Mr Hynes’ companies went into examinership.
3.17 Peart J. held that it was “simply not credible” that Mr Dowling “inadvertently utilised” the AIB funds in this way and overlooked the Anglo redemption. He was satisfied that “the dispersal of the Moongate funds was for whatever reason a conscious and deliberate act on his part”. It would be very difficult indeed to dispute that conclusion.
3.18 Mr Dowling failed to notify AIB of the problem relating to AIB’s security over Moongate so that AIB did not become aware of these difficulties until the end of 2008. It is true that there was default in the payment of interest due under the loan by the Hyneses in the course of 2008 which resulted in correspondence from AIB. However, the position at that time does not appear to have been considered by AIB to be sufficiently serious to have led to the threat of any serious action. However, the situation changed radically in December 2008.
3.19 On 9th December, 2008, AIB received information from Brendan O’Donovan, solicitor of DFMG solicitors, who by then was acting for the Hyneses, to the effect that the Anglo mortgage had not been paid off and that there were at that stage two mortgages on Moongate. On December 15, 2008, AIB’s solicitor wrote to Maguires to inform them that AIB had relied on the firm’s undertaking dated 5th June, 2007 when advancing the facilities to the Hyneses and that, since some eighteen months had passed since the funds were advanced, AIB required an immediate report as to the position relating to the “refinancing transaction and the perfection of the bank’s security”. No response had been received by 7th January, 2009 when a further letter was written to Maguires seeking an urgent response. Further correspondence with both the Hyneses and Maguires ensued.
3.20 On 8th April, 2009, AIB obtained judgment against the Hyneses in the sum of €3,104,255.40. As of the trial of the action this amount remained unsatisfied.
3.21 Mr Clinch gave evidence to the effect that, shortly before 20th December, 2008, his partner, Seamus Maguire (the first named defendant/appellant) became aware of the problem with the firm’s undertaking. That day Mr. Maguire informed Mr. Clinch of that problem at home via telephone. On the following Monday, 22nd December, Mr Clinch spoke to Mr Dowling about the matter and was told at that time that there was a sum of about €2.3m owing to Anglo. Mr. Dowling said that he had overlooked the redemption of the mortgage because he was pre-occupied with the Dalkey transaction. Mr. Dowling was said to have added that he, having assumed that the mortgage had been cleared, did not “notice the position” until October 2007 and that he had thereupon made efforts to obtain the necessary funds from Mr. Hynes but to no avail.
3.22 It is important that it also be recorded that the trial judge found as a fact that the actual parties to these proceedings, being the partners in Maguires, had acted both promptly and appropriately as soon as they discovered what had happened. It is not suggested that any personal blame can attach to any of those persons. However, of course, it must be recognised that Mr. Dowling was working for Maguires at the time when the undertaking concerned was given and when he failed to comply with it.
3.23 The uncontested evidence before the High Court was that the value of the security as of May 2009 was of the order of €650,000. That evidence was given by Mr. Larry Kelly of Thorntons.
3.24 In addition, Mr. Kelly gave evidence that, as of the time when AIB called-in the loan in January 2009, the value of the property would have been similar to the May 2009 valuation to which reference has just been made.
3.25 Mr. Kelly was also asked for his view of the value of the property at the time of the loan transaction and undertaking. He expressed the view that, having regard to the fact that there was no planning permission, the appropriate valuation was of the order of €2m. On the other hand evidence was given on behalf of CBRE who stood over their valuation, as of that time, of €3.9m. A significant aspect of the difference between the two witnesses in that regard seems to have stemmed from the planning situation. It is common case that there was no planning permission in place. It is also fairly obvious that, depending on market conditions and the view which may be taken of the likelihood of obtaining planning permission, the market value of a property at any given time may reflect, to a greater or lesser extent, the market’s view on planning prospects even though a planning permission may not actually be in place. In passing it should also be noted that CBRE did not materially dispute Mr. Kelly’s valuation as of January 2009 and as of the time of the trial which, of course, occurred only a few months later.
3.26 It can, therefore, be taken as having been established that the value of the security at the time when AIB sought its enforcement and at the time of the trial was probably of the order of €600,000 to €650,000 making allowance for the likely costs of realisation. Because of the view which Peart J. took as to the proper approach to the calculation of damages, the trial judge did not resolve the dispute as to the value of the security as of the time of the transaction and undertaking. That is a matter to which it will be necessary to return.
3.27 There is one further aspect of the facts on which it is necessary to touch. As the trial judge pointed out there was very limited evidence indeed before the High Court as to the precise arrangements entered into between the Hyneses, on the one part, and the syndicate (including Mrs Hynes) from whom they were purchasing. No contract was produced in evidence. The trial judge mentions that there was a suggestion of litigation. The extent to which the other members of the syndicate might have been entitled to funds above and beyond the discharge of the Anglo loan was mentioned but, quite frankly, in a way which lacked all clarity.
3.28 As to AIB’s knowledge of the precise nature of the transaction, the relevant banking documents suggest that the loan facility of €3m was “to assist take out” of Moongate. There certainly does not seem to have been any evidence which suggests that AIB knew of the precise arrangements between the Hyneses and the syndicate. In that sense it does not appear that AIB had any direct knowledge of what was going to happen to the balance of the monies which they were to advance over and above that part of those monies which was required to discharge the Anglo loan. As appears from the facts set out earlier that balance was of the order of €800,000.
3.29 Against the backdrop of those facts it is next necessary to turn to the approach to the calculation of damages adopted by the trial judge.
4. The High Court Judgment
4.1 In his judgment, Peart J came to the view that the following principles could be distilled from the judgments of Laffoy J. in the High Court and that of Geoghegan J. in the Supreme Court both reported in Bank of Ireland Mortgage Bank v Coleman, [2009] 3 IR 699, and the authorities cited therein:
1. “The Court has an inherent jurisdiction in matters concerning the conduct of solicitors, being officers of the court, including but not confined to compliance with their undertakings.
2. It is both a punitive and compensatory jurisdiction.
3. It is discretionary and unfettered in nature requiring each case to be considered on its own facts and circumstances.
4. In its exercise, the Court is concerned to uphold the integrity of the system, and the highest standards of honourable behaviour by its officers - a standard higher than that required by law generally.
5. The order made by the Court can take whatever form best serves the interests of justice between the parties.
6. In the matter of undertakings, the Court must consider the entire undertaking in order to reach a conclusion as to its real ultimate purpose.
7. The Court may order compliance with the undertaking, though late, where there remains a reasonable possibility of so doing.
8. Even where the undertaking may still be complied with, the Court may nevertheless order the solicitor to make good any loss actually occasioned by the breach of undertaking, which may or may not be the entire of the sum which was the subject of the undertaking.
9. Where compliance is not possible to achieve by the time the Court is deciding what order to make, if any, it may order the solicitor to make good any loss actually occasioned by the breach of the undertaking.
10. Carelessness or other form of negligence on the part of the person affected by the undertaking, and in relation to the matter the subject thereof, may be a factor which the Court will have regard to when determining what order may be fair and just.
11. Any order the Court may make ought not be oppressive on the solicitor. Nevertheless, gross carelessness or other conduct considered sufficiently egregious by the Court, though falling short of criminal behaviour or even professional misconduct, will entitle the Court, should it consider it just to do so, to order payment of the entire sum which was the subject of the undertaking, and not simply a lesser sum in respect of loss actually occasioned by the breach of undertaking”.
4.2 Peart J. further took the view that Coleman (and the authorities cited in it such as Udall v Capri Lighting Limited [1987] 3 All ER 262, John Fox v Bannister, King & Rigbys [1987] 1 All ER 737 and I.P.L.G. Limited and Houghton Fry & ors, practicing as William Fry, solicitors v Donald O. Stuart and An Post (High Court, (Lardiner J.), unreported, 19th March, 1992) were authority for the proposition that the special supervisory jurisdiction exercised by the Court in such matters is akin to an equitable jurisdiction, given the wide discretionary nature thereof and its objective of ensuring that justice is done inter partes in a broad sense. The trial judge noted that it is not inappropriate for the Court to have regard to the overall behaviour of the solicitor, even in circumstances where the undertaking may reasonably be capable of being completed and even where the loss actually sustained by the claimant may be less than the entire sum which was the subject of the undertaking.
4.3 In particular, at p.33 of his judgment, the trial judge said the following:-
“In cases of deliberate, conscious or reckless breach of an undertaking by a solicitor, and not one resulting from mere mistake, oversight, inadvertence or other human frailty, a situation cannot be allowed to exist whereby the Court is seen to tolerate less than honourable and professional behaviour, by permitting a solicitor who has acted thus, egregiously, and in a way that is deliberate and utterly reprehensible, to simply walk away from that with permission to comply late with his undertaking, and pay whatever sum has resulted directly from the breach, and perhaps leave the other party with a substantial loss to bear.”
4.4 The trial judge added that to do otherwise would, in the trial judge’s view, be to fall short of what is necessary to accord with the supervisory element of the Court’s inherent jurisdiction - a jurisdiction which exists to uphold the honourable conduct of solicitors - and would place an over emphasis on the compensatory element of the jurisdiction to the detriment of the supervisory element of the jurisdiction.
4.5 Peart J. distinguished Coleman from this case, not least because in Coleman the relevant undertaking could still be complied with and indeed was complied with in due course, thereby putting the relevant plaintiff in the same position as far as enforcement of security was concerned as it would have been had the undertaking been complied with properly at the outset. However, it would appear that the trial judge was particularly influenced by the fact that, in Coleman, the reason for the breach of undertaking was that the defendant in that case had not complied with an undertaking because Gardaí had seized his documents. It was that fact, when combined with the situation which pertained at the trial whereby the undertaking difficulties had been rectified, which led the trial judge to distinguish this case from Coleman. The trial judge noted that Coleman appeared “benign when placed beside the appalling facts” of this case.
4.6 Peart J., having regard to what he found to be the Court’s discretionary jurisdiction in the area, and having regard to the nature of the breach and all the circumstances, ordered that Maguires repay to AIB all sums paid into their client account on foot of the loan sanction together with any interest due.
4.7 It is of some importance to record one further aspect of the issues which arose before the High Court and which are dealt with in the judgment of Peart J. but which are no longer relevant for the purposes of this appeal save that they may provide something of an explanation as to why some of the issues now before this Court were not, perhaps, quite as fully explored before the High Court as they were in argument on this appeal.
4.8 By the time the case came on for hearing in the High Court insurers, acting on behalf of Maguires, had come to an arrangement to purchase the Anglo loan so that they would, in those circumstances, potentially have been in a position to secure the discharge of that loan and thus put AIB back into the position in which they should have been had the Maguires’ undertaking been complied with, being that AIB would have had a first legal charge over Moongate. While arrangements had been made in relation to the purchase of the Anglo loan, no actual purchase had in fact fully been put in place by the time of the trial. In the light of the fact that the trial judge determined that Maguires had to pay to AIB the full sum advanced, there was no longer any commercial advantage to Maguires in purchasing the Anglo loan and that project was abandoned. It was agreed by both sides at the appeal before this Court that the issue, urged by Maguires in the High Court, that they should be allowed to “solve” AIB’s problem by in effect procuring a discharge of the Anglo security at that stage, was no longer alive. However, the fact that there was a lot of emphasis on that issue in the High Court may explain why questions concerning the detail of the calculation of compensatory damages and questions concerning the appropriateness, whether in principle or in the circumstances of this case, of awarding damages which went beyond compensatory damages under the inherent jurisdiction of the Court to regulate solicitors, were not as fully debated at the trial as they were on this appeal.
5. A Possible Further Issue
5.1 One question which has the potential to impact on the proper approach of the Court to an award of damages in circumstances such as arise in this case was not the subject of any significant debate at the hearing before this Court but nonetheless does, in my view, require to be mentioned. In the ordinary way damages are calculated on the basis of the position of the parties immediately after the occurrence of wrongdoing giving rise to loss. However, it is accepted that there may be cases where this approach is not best designed to achieving the overall objective of putting the wronged party back into the position in which they would have been had the relevant wrongdoing not occurred.
5.2 One area of the law of damages, in respect of which the issue of market fluctuations has been the subject of significant exploration, relates to the calculation of damages for the conversion of goods. Clearly goods have the potential to fluctuate both upwards and downwards in value. In such circumstances it is hardly surprising that there have been cases where the value of relevant goods changed between the date of wrongdoing (in such a case frequently conversion) and the trial. It seems to me that there is no real difference in principle to the proper approach to the calculation of damages in a case such as this, being one where a financial institution is deprived of an asset (security) by virtue of wrongdoing (a breach of an undertaking), and a case where a person is deprived of an asset in the shape of goods by reason of wrongdoing in the shape of conversion. Without pressing the analogy too far it seems to me that there are strong reasons for believing that the same broad approach to the calculation of compensatory damages would be appropriate. In that context it is appropriate to have regard to the commentary on the proper approach to the award of damages in the case of conversion which is to be found in McGregor on Damages, 19th Edition (London, 2014) from paragraph 36 - 006 onwards. At paragraph 36 - 013 the authors suggest the following:
“It is submitted that the soundest approach is to start off with the value at the time of conversion as the prima facie measure; this is in accord with the general principle that damages are to be assessed as at the date of the wrong. The effect upon this measure of damages of increases or decreases in the value between wrong and judgment must then be considered.”
5.3 I respectfully agree that such is the proper approach to the calculation of damages. A plaintiff, no matter what the wrongdoing, is, at least in theory, entitled to a remedy as soon as the wrongdoing is complete. The fact that it may, in practice, take some time for the claim to be formulated, proceedings brought and the matter come to trial and judgment is obvious. But the starting point should surely be to recognise that the plaintiff was entitled to damages as of the time when the wrongdoing was complete and that, as McGregor suggests, the value of those damages as of the time of the wrongdoing should, at a minimum, be the appropriate starting point.
5.4 As far back as the 1930s, in Solloway v. McLaughlin [1938] AC 247, Lord Atkin in the House of Lords had to consider a case where the defendant stockbrokers in that case had converted shares owned by their plaintiff client by selling them. The value of the shares fell and, prior to trial, the stockbrokers bought back the same number of shares at a lower rate. It was suggested that only nominal damages should be awarded on the grounds that the plaintiff had suffered no loss as he had intended to retain his original shares and these would have fallen to the price of the repurchase.
5.5 That suggestion was rejected by the House of Lords where Lord Atkin said:-
“It is objected that this will be to put him [the plaintiff] in a better position than if he had not been defrauded at all… All this amounts to is to recognise that fraudulent brokers have often sounder judgement than their clients as to the future course of markets. If the shares had been converted and not returned, there can be no question that the client would have been entitled to receive the proceeds of the conversion though he himself had planned to hold and thought he had succeeded in holding the shares until a time when the value was nothing. Fortunately for the commercial community the law has many effective forms of relief against dishonest agents, and no injustice is done if the principal benefits, as he occasionally may, by the superior astuteness of an unjust steward in carrying out fraud”.
5.6 That case is clear authority for the proposition that there may be cases where the proper award of compensatory damages must be based on the loss suffered immediately at the time of the wrongdoing even though it may be the case that the wronged plaintiff might have held on to an asset of which he was wrongly deprived and even if, by virtue of a decline in the market value of the relevant asset after the wrongdoing, some losses would have been suffered in any event.
5.7 A somewhat different conclusion was reached in Brandeis Goldschmidt & Co. v. Western Transport [1981] QB 864 where the Court of Appeal for England and Wales awarded only a nominal amount of damages against a claim by the plaintiff in those proceedings that they were entitled to recover as of right the amount of the fall in market value of certain goods during a period when those goods were wrongfully detained. It should be noted that in that case the goods had eventually been returned at a time before the trial.
5.8 The distinction, or potential distinction, between Solloway and Brandeis was addressed in BBMB Finance (Hong Kong) v. Eda Holdings [1990] 1 WLR 409 which came before the Privy Council. In that case Lord Templeman explained:
“The Brandeis Goldschmidt case ... (was) concerned with damages caused by temporary deprivation of possession and use of property. A different consideration will apply where the property is irreversibly converted and the plaintiff loses that property.”
5.9 As the authors of McGregor point out there is a distinction between a case where the claimant seeks the value of goods irreversibly converted and a case where the claimant seeks and obtains the return of those goods. A like distinction can, in my view, be made between a case where it is possible to remedy a breach of undertaking by a solicitor by requiring the solicitor to comply with the undertaking concerned (assuming that it remains possible so to do) and a case where, as here, the actions of the relevant solicitor have rendered it impossible to comply with the undertaking in question. On the basis of those authorities there are strong reasons for believing that the proper approach to the calculation of compensatory damages in a case where an asset has been irrevocably lost by virtue of wrongdoing is to at least start by looking at the value of that asset at the time when the wrongdoing was completed. That is an issue to which it will be necessary to return.
5.10 In passing it may be relevant to note that one of the features of this case is, of course, that AIB was unaware of the fact that it did not have proper security for a significant period of time. It was only when AIB were informed by solicitors acting for the Hynses of the true position that the problem was discovered. The difficulty in calculating the appropriate damages in this case stems from the fact that there had been, on any view, a very significant decline in the value of the property over which security should have been given between the time of the original lending transaction (and, thus, the time at which security should have been put in place) and the time when it was sought to realise that security or the time of trial. But viewed from the perspective of the time when the wrongdoing actually occurred, the value of the security, again on any view, would have been significantly greater.
5.11 In addition it should be recorded that, in the course of discussion during the oral hearing, the possibility was raised that this might be a so-called no transaction case (see for example ACC v. Johnston [2010] IEHC 236, [2011] IEHC 108, [2011] IEHC 376). However, it was emphasised by counsel that no argument was ever made either at first instance or in the context of the appeal to the effect that the proper approach to the calculation of damages in this case should be on a “no transaction” basis. For those reasons it does not seem to me that it would be appropriate for the Court to consider such a possibility for, in the absence of argument having been made at first instance, the necessary evidence to support a no transaction analysis was not present. In any event it seems to me that this case could not truly amount to a no transaction case. AIB was happy to close the transaction on the basis of an undertaking. It was only subsequent to the undertaking being given and the transaction closing on that basis that the wrongdoing occurred when Mr. Dowling did not apply the monies to the discharge of the existing security. It, therefore, follows that the lending of the money by AIB was not dependent one way or the other on the wrongdoing. This is not a case where the money would not have been lent at all had AIB known of the wrongdoing for the money had already been advanced prior to the wrongdoing occurring.
5.12 However, it does seem almost certain that, had AIB discovered that the relevant monies had not been applied in accordance with the undertaking in discharge of the existing Anglo loan but rather had been diverted elsewhere, AIB would have taken immediate action. AIB could not, of course, have enforced the security itself for the breach of the undertaking and the redirection of the monies concerned would have meant that security was not in place. But at that time, i.e. very soon after the loan had been put in place and immediately after the undertaking had been breached, the value of the security was certainly a lot greater than the value which the security ultimately turned out to have when it was sought to be enforced. While AIB did not know it, the fact is that a short number of days after it had advanced the loan in question, AIB had been wrongly deprived by breach of undertaking of a security which, at that time, was much more valuable than it turned out to be at the later stage when security might actually have been sought to be enforced. It may be necessary to consider what effect, if any, that fact should have on the proper approach to the calculation of damages in this case.
5.13 As appears from the above analysis of the judgment of the High Court, the facts of the case and the issues which arise on this appeal, the first issue which logically arises is the question of the existence, and if it exists, the extent, of the jurisdiction of the Court to depart from compensatory damages in a case where it is established that there has been a breach by a solicitor of an undertaking. I, therefore, turn to that issue.
6. Non-compensatory Damages for Breach of Undertaking?
6.1 As already noted, Peart J. was satisfied that such a jurisdiction existed in an appropriate case and came to the view that authority for that proposition could be found in the judgments both of this Court and the High Court in Coleman and also the various cases which were referred to in Coleman.
6.2 It is appropriate, therefore, to start with the judgment of Laffoy J. in the High Court in Coleman for that judgment analyses the position set out in many of the other relevant authorities.
6.3 Laffoy J. started by making a reference to para. 964 of Cordery on Solicitors [Issue 32, August 2006] which is in the following terms:-
“The court, by virtue of its inherent jurisdiction over its own officers, also has power of enforcement in respect of undertakings. The court has a discretion whether or not to exercise it summary jurisdiction and will only do so in clear cases. The jurisdiction of the court is compensatory in effect, although it may be said that it retains a disciplinary slant since it is only exercised where the conduct of the solicitor is inexcusable and merits reproof. To be enforceable by the court the undertaking must be a personal undertaking, given by the solicitor professionally, i.e. as a solicitor, it must be clear in its terms, the whole of the undertaking must be before the court, and the undertaking must be one which is capable of being performed ab initio.”
6.4 Two aspects of that passage require comment. First, as a general observation, the passage is concerned with the enforcement by a court, as a matter of its inherent jurisdiction over its own officers, of an undertaking rather than being specifically concerned with the quantum of damages which should be awarded in the event that there is a breach of undertaking and in particular a breach which is not capable of being remedied other than by damages. The second is that the passage suggests that the jurisdiction “is compensatory in effect, although it may be said that it retains a disciplinary slant since it is only exercised where the conduct of the solicitor is inexcusable and merits reproof”.
6.5 Laffoy J. then went on to consider the two decisions of the Court of Appeal of England and Wales (being that in Udall and also that in John Fox) which are cited as authority for the propositions advanced in Cordery. The issue in Udall was whether the Court should have exercised its inherent jurisdiction at all. A particular issue was that the trial Court had not considered whether performance of the undertaking was possible. In those circumstances one of the issues which the Court of Appeal considered ought to have been taken into account was the possibility of making what was described as a “compensatory order” against the solicitor concerned. Laffoy J. drew attention to the summary given by Balcombe L.J. in Udall which described the nature of the Court’s jurisdiction by reference to a passage from the speech of Lord Wright in the House of Lords in Myers v. Elman [1940] AC 282, which was in the following terms:-
“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 Abinger C.B. in Stevens v. Hill [(1842) 10 M.& W. 28]. 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 a gross neglect or inaccuracy in a matter which it is a solicitor’s duty to ascertain with accuracy may suffice. Thus, a solicitor may be held bound in certain events to satisfy himself that he has a retainer to act, or as to the accuracy of an affidavit which his client swears. 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 the 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.”
6.6 Balcombe L.J. does mention that the jurisdiction retains a disciplinary slant but that seems to be a comment directed towards the question of the circumstances in which the jurisdiction should be exercised rather than necessarily suggesting that, where the appropriate remedy is compensation, a sum greater than that required to compensate the injured party ought be directed to be paid. As was pointed out by Balcombe L.J. the normal order will be to require the solicitor to do that which he has undertaken to do but where that is not appropriate, for example on the grounds of impossibility, “the Court has power to order the solicitor to make good the loss occasioned by his breach.”
6.7 The judgment in Udall also refers to the earlier judgment in John Fox. In that case the undertaking was to retain a sum of £18,000 out of the proceeds of a sale in which the solicitors who gave the undertaking were acting. The monies were to be retained as a form of security in respect of disputed fees allegedly owing by their client to another firm of solicitors who acted for him on different business. In what was found to be a breach of the relevant undertaking the defendant solicitors had paid over the monies to their client. The matter was complicated by the intervening bankruptcy of the relevant client. The Court of Appeal took the view that, in all those circumstances, it was not possible to tell whether, because of the bankruptcy, the plaintiff solicitors would have actually recovered the monies. As Nicholls L.J. pointed out at p.742:-
“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 £18,000. Nor, conversely am I persuaded that they would necessarily have been left empty-handed.
That being so, I consider that the appropriate order 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.”
6.8 Again it should be noted that the approach of the Court appears to have been to award purely compensatory damages and it seems implicit from the judgment that, in the event that the inquiry resulted in a finding that John Fox would not have been able to obtain the £18,000 or some part of it, no award would have been made even though there had been a breach of undertaking.
6.9 As to the applicability of a parallel jurisdiction in respect of solicitors in Ireland, Laffoy J. referred to I.P.L.G. where Lardner J. accepted that such a jurisdiction existed based on the Court’s right to require its officers to observe a high standard of conduct. Lardner J. suggested that the jurisdiction can be exercised where there is a personal undertaking which is clear and is one which it is not impossible for the solicitor ab initio to perform. As Laffoy J. noted that passage is consistent with the commentary in Cordery.
6.10 Laffoy J., therefore, accepted that the jurisdiction existed but also came to the view that it should not be exercised in the case before her. The reasons for not exercising the jurisdiction in Coleman are, in my view, potentially of some importance to this case. Having considered the purported purchase price of the property which was the subject of the undertaking in Coleman and also a valuation of that property which was at a significantly lower sum, Laffoy J. concluded that it was reasonable to infer that “if the defendant had fulfilled his ultimate obligation under the Undertaking within a reasonable time, the plaintiff would not have obtained a security which was worth (the full value of the loan)”. In words which have an echo of the case made on this appeal, Laffoy J. quoted counsel for the defendant as suggesting that, if the plaintiff was entitled to the relief claimed, it would mean that the plaintiff would be better off if the defendant did not comply with his ultimate obligation under the undertaking than if he did. Laffoy J. concluded that “that cannot be right”.
6.11 While the judgment of Laffoy J. and its approval both of the relevant passage from Cordery and the jurisprudence of the Court of Appeal of England Wales on which it relies, was certainly authority for the proposition that an inherent jurisdiction exists in the Court, as part of its role for supervising its own officers, to enforce or take other action in respect of a breach of undertaking by a solicitor, I cannot find anything either in the judgment of Laffoy J. or any of the authorities cited in it, for the proposition that the proper approach to an award of damages, where that is the appropriate remedy for a breach of undertaking, is anything other than compensatory. Indeed, some of the passages to which reference has been made point in exactly the opposite direction.
6.12 It is then, therefore, necessary to turn to the judgment given by Geoghegan J., speaking for this Court, on appeal in the same case.
6.13 It is important to note that there was a significant development between the High Court hearing and the hearing of the appeal before this Court in Coleman. As noted by Geoghegan J. at para.17 of his judgment, the transaction which was the subject of the undertaking had by the time of the appeal been wholly completed with the title in order and the plaintiff bank’s security fully in place. The question which remained was whether compensation should be required to be paid given that the security which the plaintiff bank was entitled to expect had, by the time of the appeal, been perfected.
6.14 In the context of compensation Geoghegan J. made a number of important observations. Firstly he noted that the plaintiff bank could not have acted on its security until the charge, the subject of the undertaking, was registered and probably thereby suffered loss. It was also observed that there might have been other losses but Geoghegan J. came to the view that the appropriate course of action was to remit the matter 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”.
6.15 Thus again the specific order made by this Court on appeal in Coleman related to actual compensatory damages.
6.16 However, earlier in his judgment, Geoghegan J. had made some comments on the views expressed by Laffoy J. in the High Court in the same case. At para. 7 of his judgment said the following:-
“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.”
It had also earlier been observed that the supervisory jurisdiction was such that a judge in deciding whether, and if so how, to exercise the jurisdiction should have regard to the maintenance of the integrity of the undertaking system as used in conveyancing transactions.
6.17 I cannot find a clear statement in the judgment of Geoghegan J. which supports the proposition that the Court has a jurisdiction to depart significantly from compensatory damages. Geoghegan J. certainly did not expressly disagree with the suggestion by Laffoy J. that it could not be correct that a bank would be better off because a solicitor breached his undertaking than it would have been had he faithfully complied with it. On the other hand Geoghegan J. did note that there might well be cases where the appropriate order would simply be to require the solicitor to pay back all of the money which was the subject of the undertaking. But it is not clear if that latter comment was simply directed to those cases where such might be the appropriate form of compensation designed to put the plaintiff back into the position in which it would have been had the undertaking been complied with. I have already touched on the so-called “no transaction” cases. There might well be transactions where the evidence would suggest that a lending institution would not have advanced money at all had it not been, for example, for an undertaking given by a solicitor with which he knew (or should have known) at the time that he could not comply.
6.18 Thus it follows that there may well be cases where, on a proper analysis, the appropriate remedy is to require full repayment. However, Geoghegan J. also agreed with that aspect of the judgment of Laffoy J. which placed reliance on the fact that, due to the relevant bank’s own failings, its security, even if it had been put in place, would have been less valuable than the amount of the loan.
6.19 On the other hand it is important to emphasise that Coleman was not concerned, directly at least, with the misapplication of funds but rather was concerned with a failure for other reasons to put the required security in place. The files of the solicitor concerned had been seized by An Garda Síochána.
6.20 In my view, therefore, the position on the authorities is not fully clear. Some of the passages from the judgment of Geoghegan J. might be interpreted as suggesting that the Court does retain a discretion, in an appropriate case, to go beyond compensatory damages. Other passages may be more consistent with the view that the High Court should have taken into account a wider range of possible losses, such as delay in being able to enforce security and the like, while nonetheless assessing damages on a compensatory basis.
6.21 Against that inconclusive background, it is, in my view, important to look at the proper measure of compensatory damages in all the circumstances of this case and taking into account the observations of Geoghegan J. in Coleman that one should look at all of the consequences of the breach of undertaking and not just those which are direct, not least because of the obligation to ensure the integrity of the undertaking system.
7. Compensatory Damages
7.1 As in all cases of compensatory damage it is important to start by analysing, as best that can be done on the evidence, what would have happened had the relevant wrongdoing not taken place. In that context in Livingstone v. Rawyards Coal Co. [1880] 5 App Cas. 25 at 39 Lord Blackburn defined the proper measure of damages as:
“That sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been if he had not sustained the wrong for which is now getting his compensation or reparation”.
That classic statement of the underlying principle has been stated and restated on many occasions since.
7.2 With a view to carrying out the exercise just identified in respect of the facts of these proceedings, it seems to me to be important to emphasise that there were, in one sense, two separate elements to the wrongdoing of Mr. Dowling. The first and most obviously serious was the misappropriation of the funds which were paid into Maguires’ client account on the basis of an undertaking that they be used to discharge the Anglo loan over Moongate and thus secure the release of Anglo’s security on that property. However, a further consequence of Mr. Dowling’s wrongdoing was that the fact that AIB did not have security over Moongate (as it was entitled to expect) and, indeed, was unlikely ever to be in a position to get such security, was hidden from AIB for a period of almost exactly 18 months. AIB transferred the loan sum on the 7th June, 2007 and could reasonably have expected that the relevant portion thereof required to clear the Anglo loan would have been paid over to Anglo within a short number of days. AIB did not discover the problem until the 9th December, 2008.
7.3 There can be little doubt but that AIB would have taken significant action at some stage during that period had it been appraised of the true position. Unfortunately it is not possible on the evidence currently available to analyse the actions which AIB might have taken with any great precision. But it is far from unrealistic to expect that there might well have been actions which AIB could have taken during that period which might have significantly improved its position.
7.4 Possibly some form of agreed action might have been negotiated involving Anglo. As already noted there was a difference of evidence, not resolved, as to the value of the property at or around the time of the breach of undertaking. On that basis it is difficult to say more than that the value of the security may have been somewhere between a little under €2m (allowing for costs of realisation) and something not far short of €3.9m. Against that backdrop it seems by no means unrealistic to suggest that some form of arrangement could have been come to which might have afforded real value to AIB. The opportunity to seek to come to any such arrangement was lost by virtue of the fact that the absence of security was concealed by Mr. Dowling from AIB. Other forms of action might also have been considered.
7.5 In those circumstances it seems to me that it is too simplistic to suggest that compensatory damages could only properly be calculated by reference to the agreed value of approximately €650,000 as of January 2009 or the date of trial.
7.6 It is true that, in the events that happened, AIB did not seek to realise its security until January 2009. There was some correspondence arising from a failure to pay interest during 2008 but any such failure was clearly not considered by the bank to be sufficiently serious to warrant calling in the security. A very different situation would be most likely to have pertained had the bank known the true facts.
7.7 Immediately after the wrongdoing had occurred the position was that AIB should have had security over Moongate whose value, at that time, would have been the likely sale price of Moongate less the costs which would necessarily have been incurred in realising the security (or the amount outstanding on the loan if it were less). That was the loss which AIB immediately suffered as a consequence of the breach of undertaking.
7.8 I fully appreciate that AIB could not have realised its security in, say, the autumn of 2007 because it did not have security in place. However, it ought to have been in a position to realise its security at that time. The reason why the security was not in place was due to wrongdoing on the part of Mr. Dowling. I also accept that AIB would not ordinarily have sought to enforce its security until at least the earlier part of 2009. But there is here, in my view, a significant distinction between this case and the facts which underlay the views expressed by Laffoy J. in Coleman to the effect that a bank should not be better off because of a breach of undertaking than it would have been had the undertaking been faithfully complied with. What Laffoy J. was speaking of in Coleman was a difference which was due to the fact that the bank in question in that case had made a bad loan. It may be, depending on the resolution of the difference in view as to the value of Moongate at the time of the undertaking, that AIB in this case also made a bad loan. But there is an additional factor at play here. Whether or not AIB made a bad loan, it is clear on any view of the evidence that the value of its security fell between the time of the breach of undertaking in mid-2007 and the trial in 2009 and did so by a very significant margin. While it might be said that that is just bad luck and an inherent risk in the loan itself, it also needs to be taken into account that the immediate consequence of the breach of undertaking was to deprive AIB of a security which, on any view of the evidence, was significantly more valuable at the time of the breach than would have been the case in 2009.
7.9 For the reasons analysed earlier it is well established that at least the first port of call in relation to the assessment of damages which arise from the loss of an asset is to consider the value of the asset lost at the time of the wrongdoing which gave rise to the loss. In this case the asset lost was the security which should have been in place over Moongate. Had the undertaking been complied with AIB would have had such security. The only reason why it did not have security was due to the breach of undertaking. Immediately after that wrongdoing had occurred AIB had suffered a loss equivalent to the loss in the value of the security at that time.
7.10 For the reasons already analysed it is, of course, the case that it may not always be considered appropriate to assess damages on that basis. But it is clear that it should be the initial possibility which the Court should assess. It follows that it is necessary to consider whether there is any legitimate justification, having regard to fundamental principles, to depart from that position in the circumstances of this case.
7.11 In that context it is important to note the facts in Solloway v. McLaughlin to which I have already referred. The evidence in that case was that the stockbrokers’ client would have held the shares in any event and would, therefore, have suffered some losses because of a decline in value of the shares even if there had been no wrongdoing by the relevant stockbrokers. However, that fact was not considered to be sufficient to allow the stockbrokers to escape from the consequences of their own wrongdoing.
7.12 There is a sense in which such analysis is concerned with what might be described as the other side of the proximity coin. In the ordinary way the doctrine of proximity is designed to limit the scope of damages which can be recovered in respect of wrongdoing by determining the boundary of those consequences which can be regarded as sufficiently proximate to the wrongdoing to justifying an award of damages. But there seems no reason in principle why the same broad considerations may not apply in the other direction as well. The decline in the value of the shares which were at play in Solloway (and which might, on the case made by the stockbrokers, have thus reduced the proper award of damages to a nominal amount), was not sufficiently proximate to the wrongdoing to justify taking that diminution in value into account in the calculation of damages. For like reasons the decline in the value of the security which AIB ought to have held over Moongate, at the time when the wrongdoing in this case was complete, is not sufficiently proximate to that wrongdoing to be taken into account as a means of reducing the damages properly awarded for the breach of undertaking. It must, of course, be taken to be the case that the wrongdoing was complete as soon as Mr. Dowling put himself in the a position where he could not comply with the undertaking. A different position might arise where an undertaking remained capable of performance.
7.13 In addition the fact that AIB was deprived of the opportunity of considering how best to protect its position by the fact that the breach of undertaking was concealed from them for a period of 18 months lends weight to the view that it would not be appropriate, in all the circumstances of this case, to depart from the default position of assessing damages as of the time of the wrongdoing.
7.14 However, it also seems to me that some care needs to be exercised in properly calculating the loss in the value of AIB’s security at that time. First of all it is inevitably the case that any mortgagee will incur costs in connection with the realisation of security. Auctioneering and legal fees will inevitably be incurred. Second, it may take some time to actually effect a sale (although this will doubtless depend on market conditions) and, in the event that one is valuing security at a time of volatile market conditions, that fact may also have to be taken into account. There may, indeed, be other factors properly considered in the light of the evidence whether of fact or expert. It does not, therefore, necessarily follow that the value of a security at a particular time is exactly the same as the value of the property over which security is held at the time in question, although, of course, the value of the asset over which security is held forms a very important part of the calculation. Furthermore, the value of the security is also dependent on the amount of the relevant loan at the time in question. It would not seem correct to consider the value of the asset over which security is held at one time and the amount of the debt calculated at a different time. All of this goes to show that, independent of the difference of expert views as to the value of Moongate at or around the time when the breach of undertaking occurred, there are other factors which would need to be taken into account for the purposes of attempting to value the actual security which AIB should have held had the undertaking not been breached. But it does seem to me that the true measure of AIB’s proximate loss in this case, calculated on the basis of compensatory damages, must start with the value of that security (and not the value of Moongate) at some time soon after the breach of undertaking. In addition it is also necessary to take into account the observations at para.8.4 hereafter.
7.15 Unfortunately this Court is faced, as the Court of Appeal of England and Wales was faced in Udall, with a situation where it just does not know the answer to that calculation and does not have available sufficient evidence to reach a proper conclusion on that question.
7.16 Having conducted that analysis as to the proper approach to compensatory damages it seems to me that it is necessary to return to the question of the jurisdiction to award non-compensatory damages.
8. Non-compensatory Damages?
8.1 For the reasons earlier analysed I am not satisfied that the existing authorities clearly establish a jurisdiction to go beyond compensatory damages. It is possible to envisage circumstances where a solicitor acted to his own benefit in breaching an undertaking where it might be regarded as unconscionable to allow the solicitor to retain the benefit of a wrongful gain. It would be no answer to a claim for the return of monies entrusted to a solicitor, for example, but which were misappropriated for the solicitor’s own benefit, to say that the monies were intended for an investment which would have turned out to be unsuccessful. But in this case there was no evidence that the misappropriation was for the benefit of Mr. Dowling still less Maguires, but rather Mr. Dowling’s actions appear to have been based on a misguided desire to advance his clients’ interests. His actions were undoubtedly a flagrant breach of his undertaking and thus of his professional obligations. However, he did not benefit personally.
8.2 On the other hand, for the reasons which I have sought to analyse, it seems to me that a more appropriate approach to the assessment of the true consequences of the breach of undertaking for AIB would be to look at the value of the security lost within a realistic timeframe after the breach of undertaking occurred. If damages were to be calculated on that basis it would seem to me that to award AIB any greater sum would be to fall into the trap, identified by Laffoy J. in Coleman, being to leave AIB better off because of wrongdoing than it would have been had the undertaking been faithfully been complied with.
8.3 In those circumstances it seems to me that, even if there is a jurisdiction to go beyond compensatory damages in a suitable case, it would not be appropriate to exercise that jurisdiction in the circumstances of this case provided that compensatory damages are properly calculated to encompass the immediate loss in the value of the security suffered by AIB as a result of the breach of undertaking by using a calculation of the value of that security around the time of the wrongdoing. Given that I have concluded that the proper approach is that AIB should be awarded compensatory damages only but based on the value of the security lost as of the time of the wrongdoing, it does not seem to me to be necessary to consider the problem which might otherwise have potentially arisen concerning the extent of the actual misappropriation when compared with the amount of the loan advanced by AIB. It a court were exercising a hypothetical discretionary and non-compensatory jurisdiction, then it might have been necessary to consider whether it was appropriate to award damages based on the full value of the loan when only a sum of €2.2m or so was misapplied. Likewise, in the same context, it might have been necessary to consider whether the evidence suggested that AIB was aware of the fact that only €2.2m was the subject of the undertaking concerning discharge of Anglo’s prior security. Indeed it might also have been necessary to consider whether AIB were really concerned with that issue at all for the evidence does not seem to suggest that the bank paid much attention to that question. However, those issues do not arise in the context of an award of purely compensatory damages. For similar reasons the pleadings issues noted earlier do not seem to me to be material.
8.4 However, when looking at the matter from the perspective of compensatory damages, it is necessary not only to have regard to the value of the asset lost by reason of wrongdoing. The reality is that AIB had advanced €3m on foot of a security over the property. As long as the Anglo loan and security was in place then AIB were necessarily going to have, at best, a second charge over the property. However, it should be noted that it is possible that the scale of the Anglo loan might properly be taken into account in attempting to value the security lost by AIB by virtue of the breach of undertaking concerned as of the time of that wrongdoing. Should it transpire that, as of that time, AIB, even as the holder of a second security ranking behind Anglo, nonetheless had a security of some albeit limited value, then that fact would have to be taken into account in assessing the value of the security lost as a result of the breach of undertaking.
8.5 As with so much of the issues concerning the valuation of the security lost at that time, I do not believe that this Court has sufficient information to make an assessment of whether any credit requires to be given under that heading and, even if some credit must be allowed, the extent of the reduction which would thereby be mandated. For example, if the true value of Moongate as of the time of the wrongdoing was, as was suggested by the expert witness called on behalf of Maguire’s, then, even at that time, the Anglo loan was larger than the realisable value of the property so that a second charge would have had no value. On the other hand if it were considered that Moongate had a value (after costs of realisation and any other relevant factors) at the time of the wrongdoing which would have allowed for a surplus over and above the sums required to discharge the Anglo loan then it might be that there was, at that time, some value in a second charge or mortgage which could have been to the benefit of AIB. It is important to emphasise that, given that I consider that the proper time to value the security of which AIB was deprived by wrongdoing, being a first security over Moongate, was at the time of that wrongdoing, then it also follows that credit must be given in the calculation of the loss of the value of that security for the value (if any) of whatever security AIB actually obtained at that time if it should transpire on the evidence that there truly was a value to the imperfect security which AIB obtained.
8.6 In those circumstances, and having regard to the fact that this Court is not in a position to assess those damages, I would propose that the matter be remitted back to the High Court for the purposes of the calculation of damages on that basis.
9. Conclusions
9.1 For the reasons set out in this judgment I am satisfied that it would not be appropriate to award AIB damages which went beyond the loss of the value of the security of which AIB was deprived by virtue of the breach of undertaking which is at the heart of these proceedings. However, I am satisfied that it is appropriate to calculate the loss of the value of that security at a time, close to the breach of undertaking itself, when AIB could have sought to realise the security which it should have had. The immediate loss suffered by AIB, as a direct consequence of the breach of undertaking, was the loss of the value of the security at that time. The further significant devaluation of that security was an unfortunate consequence of the collapse in the property market but was not proximate to the wrongdoing in this case. I do not consider that there is any legitimate basis for giving Maguires the benefit of that devaluation.
9.2 For the reasons analysed earlier it is not possible to give a valuation for the loss of security on the basis which I have indicated. To award AIB any sum in addition to an amount calculated on that basis would, in my view, be to place AIB in a better position because of a breach of undertaking than it would have been had the undertaking been faithfully complied with. On the other hand to award AIB a sum less than that amount, by virtue of the collapse in property prices, would be to give Maguires the benefit of the collapse in property prices and at least in part to allow that benefit to accrue by virtue of an act of concealment on the part of a solicitor employed by them.
9.3 It follows, in my view, that compensatory damages should be calculated on the basis which I have indicated. I am also of the view that, whether or not a jurisdiction to exceed compensatory damages exists under the Court’s inherent supervisory jurisdiction over solicitors (and indeed irrespective of the scope of any such jurisdiction if it exists), it would not be appropriate to exercise such a jurisdiction in the circumstances of this case provided that compensatory damages were calculated on the basis which I have indicated. For those reasons it does not seem to me to be necessary to address the difficult question of the extent, if any, of the jurisdiction to go beyond compensatory damages.
9.4 In all the circumstances it seems to me that the appeal must be allowed but the matter referred back to the High Court to calculate damages on the basis indicated.
