Supreme Court allows appeal on contributory negligence, remitting case for High Court to determine bank's fault.

THE SUPREME COURT

[Appeal No: 334/2012]

(Cross Appeal No. 443/2012)

Fennelly J.

O'Donnell J

McKechnie J.

Between/

KBC Bank Ireland plc

Plaintiff/Respondent

and

BCM Hanby Wallace (A Firm)

Defendant/Appellant

John Kelly Proceedings

THE SUPREME COURT

[Appeal No: 335/2012]

(Cross Appeal no. 444/2012)

Between:

KBC Bank Ireland plc

Plaintiff/Respondent

and

BCM Hanby Wallace (A Firm)

Defendant/Appellant

Thomas Byrne Proceedings

Judgment of Mr. Justice Fennelly delivered the 25th day of June, 2013.

1. These appeals raise important issues concerning the application of the defence of contributory negligence pursuant to s. 34 of the

Civil Liability Act 1961. The respondent, a bank, (hereinafter “the bank”) lent large sums of money to two individuals, who defaulted

on their repayment obligations. The bank engaged the appellant, a firm of solicitors, to complete the loan transactions and, above all,

to ensure that the bank obtained the security provided for in the facility letters. The appellant failed in its assigned task. The bank

sued it successfully in the High Court. McGovern J awarded sums of €9,983,585.34 and €7,710,545.16 respectively by way of

damages for negligence against the appellant.

2. The two cases are quite separate. They have been heard together both in the High Court and this Court because they are

between the same parties and concern similar lending transactions. Furthermore, they are crucially linked by the fact that the

borrower in the second case was the solicitor for the borrower in the first. The key act of negligence found against the appellant in

the first case was the acceptance of the solicitor’s undertaking of that solicitor who then himself became a borrower.

3. The appellant pleaded in its defence that the bank had been guilty of contributory negligence principally in the respect that it failed

to carry out any adequate inquiry into the financial standing of the borrowers, before agreeing to lend them very large sums. Thus, it

was claimed that the bank had failed to take appropriate care in the protection of its own interests. The learned trial judge rejected

the defence of contributory negligence in both cases. The appeal turns centrally on the correctness of the learned trial judge’s

analysis of causation. He held that the negligence of the appellant was the proximate cause of the bank’s losses, or causa causans:

even if the bank had been negligent, its acts were at most a mere causa sine qua non.

The loans made to Mr Kelly and Mr Byrne

4. The first set of proceedings relates to three loans made to Mr John Kelly. The second relates to a loan made to Mr Thomas Byrne. I

will describe the loans respectively as the Kelly loans and the Byrne loans.

5. The loans were closely inter-related for several reasons. It is an important feature that Mr Byrne was the solicitor who acted for Mr

Kelly. Mr Byrne then borrowed money from the bank himself. Furthermore, the loans to Mr Kelly were cross-collateralised; security

provided for each of the loans was also security for the others. Finally, each later loan, including the loan to Mr Byrne, was provided

by the bank in ignorance of the fact that there had been a failure to provide security for earlier loans or of the fact that Mr Byrne had

failed to honour undertakings he had given in respect of the earlier transactions.

6. Each of the loans was granted pursuant to a facility letter signed by the borrower. The security requirements included the provision

of a first fixed charge over specified properties. The facility letter provided, in each case, that it was a condition precedent to

drawdown of the loan, inter alia, that there have been compliance with the bank’s security requirements and that all required

documentation (which necessarily included the security documentation) be received by the bank at least three days before

drawdown.

7. The first Kelly loan dated 16th August 2005 was for €4.9 million. Its purpose was to fund the purchase of and works on a property

at 167 Upper Rathmines Road, Dublin 6. There was, inter alia, to be a first fixed charge over that property and over residential

properties at 9, 22, 33 Liberty View, Dublin 8.

8. The second Kelly loan was dated 13th September. The facility letter, which recorded that the first facility had already been drawn

down in part, replaced the first and provided for the advance of an additional €1 million to fund the purchase of the leasehold interest

in Londis, at Upper Rathmines Road, Dublin 6. The combined security by way of first fixed charge was now to cover in addition

numbers 14, 15, 18 and 21 Liberty View, Dublin 8.

9. The third Kelly loan was dated 11th December 2006. It was for €9 million. It was to be used to refinance two existing Educational

Building Society facilities to a total of €5 million, €1.3 million to purchase a leasehold property at Centra, 45-47 James’ Street, Dublin 8

and €2 million by way of “equity release to be used for further investment purposes.”

10. The Byrne loan was the subject of a facility latter dated 8th August 2007 for €9 million. It was “by way of term loan to be

used…………for further investment purposes.” The letter provided for a first legal mortgage, or charge, in the case of registered

property, over three named properties. There were to be first legal mortgages (or charges) over sixteen specified residential

properties. In each case, the security was to incorporate “a security assignment of the benefit of all leases, licenses and agreements

attaching thereto and any rentals payable thereunder.”

11. Following each facility letter, the bank sent a letter of instructions to Mr Ronan Egan, solicitor, in the appellant firm. On 25th

August 2005, the bank, which was then known as IIB Bank, sent a copy of the facility letter for the first Kelly loan and wrote:

"We would be obliged if you would act for IIB Bank Ltd in this matter and ensure completion of the Bank's security

and compliance with all other legal requirements as per the offer letter including, without limitation, the conditions

precedent."

12. The bank asked to have sent to it, inter alia, “Copies of all security documents duly signed.” On 14th September 2005, it sent a

virtually identical letter regarding the facility letter for the second Kelly loan.

13. On 12th December 2006, the bank sent a similar letter, which concluded by stating:

"We will require you to confirm to us in writing that all the security is in place or will be in place on closing and that

all conditions precedent of a legal nature have been fully complied with."

14. On 14th August 2007, the bank sent to Mr Ronan Egan a letter in respect of the Byrne loan in terms virtually identical to the

letter last mentioned.

15. The position, in the case of each loan, was that the bank had already made a decision to advance the relevant monies, subject

to compliance with the terms, including conditions precedent, of the facility letter. Crucially, the bank would not, in fact, advance the

money unless it was satisfied that the specified security had been put in place by the appellant.

16. In summary, the appellant was required to obtain security for the benefit of the bank over a total of 30 properties. Instead of

obtaining these securities prior to the closing of the loan transaction by payment out of the loan monies, the appellant closed on the

basis of the acceptance of the undertakings of Thomas Byrne & Co, Mr Byrne’s firm. The | Defendant firm had no authority to accept

undertakings and did so without reference to the bank. The undertakings were not honoured. The loan monies were paid out to Mr

Kelly and Mr Byrne respectively.

17. The ultimate position with regard to security was that a first legal mortgage or charge was obtained in respect of only three

properties in total.

18. The bank suffered very large losses as a result of the almost complete default by Mr Kelly and Mr Byrne to repay the loans made

to them. The bank obtained judgment against Mr Kelly in the sum of €14,435,747.44 (after allowance for €900,000 recovered from Mr

Kelly’s interest in an investment). The bank obtained judgment against Mr Byrne in the sum of €9,051,977.50.

High Court Judgment on Liability

19. McGovern J gave judgment on the issues of liability on 16th March 2012. He found the appellant to have been negligent in the

performance of the duty it owed to the bank in respect of the completion of each of the loan transactions.

20. Damages were assessed by McGovern J in a separate judgment of 6th July 2012. Figures had been agreed in respect of all matters

except two. McGovern J, having determined these, gave judgment for €9,983,585.34 in the Kelly case and €7,710,545.16 in the Byrne

case.

21. The core of the judge’s findings on liability was as follows (taken from the judgment of 16th of March) :

“10. Mr. Ronan Egan was the partner in the defendant firm acting in the matter and dealing with the bank, save on

some few occasions when he was on leave. In the course of his evidence, he made a number of significant

admissions. He accepted that the bank's instructions to the defendant were clear and that the defendant was to

obtain a first fixed charge over the various properties referred to in the loan documents, as security for the loans

made. He admitted that the defendant firm was in breach of its obligations towards the bank in respect of the Kelly

loans and that this caused substantial loss. He agreed that he released deeds where no mortgage was registered

and that thereafter a number of parties secured priority over the bank. He accepted that he should have made

enquires about charges before accepting any undertaking, although he argued that this was a general practice at

the time and was commonly done. He also agreed that he did not have instructions to accept an undertaking,

although he argued that the bank decided to proceed on foot of recommendations made by him and was thereby

waiving its rights to insist on a first charge. This was disputed by the plaintiff. On the 8th day of September, 2005,

Mr. Egan wrote to the bank confirming that he would comply with the bank's instructions and he knew, when he

wrote this letter, that he could not procure the security which the bank required. Under cross-examination, he

accepted that if the bank knew the true position concerning the security, it would not have permitted the

drawdown of the second loan which, as described, was a top up loan of €1m and was to be secured on four

apartments and other properties. When the sum of €5.9m was released to Mr. Kelly, none of the undertakings given

by Mr. Byrne on behalf of Mr. Kelly had been complied with. Although he told Ms. Anne Marie Coleman, an employee

of the bank, that he was going to accept an undertaking, Mr. Egan admitted that an email which he sent to the

bank on the 20th day of December, 2006, did not reflect this at all, but, on the contrary, suggested that the

requirements of the bank were being adhered to.

11. So far as the loan of €9m to Mr. Byrne was concerned, Mr. Egan said that if he had told Mr. O'Leary, also an

employee of the bank, that Mr. Byrne had breached undertakings in relation to the Kelly loans, it would have put an

end to any dealings between the bank and Mr. Byrne and the loan would have been refused.

12. Before going on to consider any other evidence in the case, it seems to me that on the admissions of Mr. Egan

alone, the defendant cannot avoid findings of negligence, breach of duty and breach of contract. This was finally

conceded by the defendant in its closing submissions on day 28 of the trial. The plaintiff called expert evidence from

Ms. Catherine Duffy, a solicitor, who is head of the banking and financial services department in A & L Goodbody,

solicitors. In the course of her evidence, she made extensive criticism of the manner in which the defendant carried

out its work on behalf of the plaintiff bank under the terms of its retainer. At the beginning of his evidence to the

court, Mr. Egan said that he did not disagree with her criticisms, save in a few minor respects.”

22. The learned judge, in the course of his judgment referred to assurances which Mr Egan had given to the bank that funds would

not be released until security was in place. For example, in relation to the first Kelly loan, he wrote on 8th day of September, 2005 to

the bank:

"I confirm that I will not release the loan cheque until all security is in place on foot of the facility letter and all

documentation in order".

23. He also noted that Mr. Egan had accepted in the course of his evidence that the bank was entitled to rely on the assurances

which he had given. He summed the matter up in the following passage:

“27. On any view of the evidence, the defendant's breach of duty was egregious. Not only did it fail to ensure that

proper security was put in place for the loans, but it deliberately misled the plaintiff by suggesting that either

security was in place or that the funds would not be released to the borrower until security was in place.

Furthermore, Mr. Egan took it upon himself to recommend to the borrower that an undertaking from Mr. Byrne would

be acceptable when he had no instructions to do so. This was a fundamental departure from the instructions given

to the defendant. An unusual feature of this case is the scale and scope of the negligence of the defendant. It did

not involve a single act of negligence, but multiple failures which the defendant repeated in the second, third and

fourth loan transactions. The problem was exacerbated by the fact that each time the bank was taking a cross-

collateralised security so that when the plaintiff entered into a new loan agreement it was secured on the basis of

the existing security that it understood it had, as well as the new security that was being proffered.

28. In the course of his evidence, Mr. Egan confirmed that he was aware that it was a requirement of the bank that

the defendant would confirm that it would withhold funds until the bank security was in place. He accepted that he

confirmed to the bank that the security would be in place on completion. He also accepted that if the bank had

been informed of the departure from the defendant's instructions at the time of the first Kelly loan, it would not

have gone ahead with that loan.

24. With regard to the second Kelly loan, the judge remarked that that the bank should have been notified that there were

outstanding undertakings in respect of this security for the first loan and that Mr Egan accepted that if the bank had been notified of

this it would not have entered into the second loan for €1 million. That transaction was predominantly handled by Ms. Colette

Staunton, a senior associate in the appellant firm, who had acknowledged she had not informed the bank that she would be closing by

way of undertakings. She also accepted that she did not obtain the security that the defendant had been instructed to obtain. That

witness gave evidence that she had been specifically asked by the bank, which confirmed the instruction not to release the loan

proceeds until the security was in place.

25. Mr Egan accepted that the release of the funds for the third Kelly loan, on foot of solicitor’s undertakings, was wholly at variance

with the bank’s instructions. The learned judge noted that Mr Egan had also agreed that, if checks had been performed as to the

status of existing securities in relation to the first and second Kelly loans (which were cross-collateralised), these would have shown

non-compliance with undertakings. Mr Egan agreed that the third loan would not have proceeded to completion if the existing security

status had been made known to the bank. He closed the transaction also on foot of solicitor’s undertakings. This was contrary to the

bank's instructions.

26. The fact that Mr Byrne had been the solicitor acting for Mr Kelly provided a crucial link between the Kelly loans and the Byrne

loan. The judge noted that Mr. Egan had agreed that, if he had adhered to his instructions from the bank in respect of the Kelly loans,

the bank would never have lent funds to Mr. Byrne. Mr Egan had released a cheque for €9m to Mr Byrne on trust pending searches to

be made against a number of properties. The cheque was cashed during the period when it was purportedly held on trust. Mr Egan

said that he was unaware of this fact. He did not make enquiries with the registrations department of the appellant firm in relation to

outstanding undertakings and did not have any searches made prior to the closing on any of the properties. These, in the view of the

learned judge, “were all breaches of duty of the most serious kind.”

27. Moreover, the appellant issued certificates of title in respect of properties securing the Byrne loan which were clearly incorrect on

their face, as they contained a statement that the properties were free from encumbrances, although there were prior existing

charges. In February 2007, Mr Egan was reminded by the registrations department of his own firm that undertakings that he had

accepted from Mr Byrne in relation to the third Kelly loan were outstanding. In the view of the judge, “he failed to take any

meaningful action and, crucially, failed to inform the bank of the position.”

28. The learned judge noted that Mr Egan had accepted that if he had then informed the bank of the true position, there would have

been no question of the bank lending a "red cent" to Mr. Byrne.

29. The learned judge went on in a passage to which it will be necessary to return, to say:

“33. What is the effect of these breaches of duty on the part of the defendant? It seems to me that they go far

beyond mere omission with regard to the obtaining of security for the bank in respect of the loans. In reality, the

breach of duty goes so far as to amount to a deception on the part of the defendant because it was aware that

the required security was not in place but led the bank to believe that it was. The defendant accepts that although

the bank had agreed to make the loans, the funds would not actually have been released if the true position had

been made known to the plaintiff. If the funds had not been released, the bank would have suffered no loss. The

loss arose, not so much from the failure to obtain the necessary security, but rather, from the bank being deceived

into permitting the release of the funds on express assurances from the defendant firm which were untrue and

which it knew to be untrue.”

30. The importance of the foregoing passages from the judgment is that they led the learned judge to hold that he should treat the

case for the purposes of the assessment of damages as a “no transaction” case. The appellant argued that the damages for which it

was liable, in view of the finding of liability by the learned judge, should be measured by reference to the failure to obtain the security

provided for by the facility letters, as it was instructed to do. Thus, it claimed, it was liable only for its failure to obtain the security it

ought to have obtained: it was not liable for all the consequences of the bank's decision to lend to Mr Kelly and Mr Byrne. It was not

liable for the fact that the bank had agreed to lend the money in the first place: that decision had been made by the bank. It relied

on the decision of the House of Lords in Banque Bruxelles S.A. v. Eagle Star [1997] A.C. 191 (known as the SAAMCo case). The bank

argued, however, that, on the facts of the case, the money would never have been advanced either to Mr Kelly or to Mr Byrne, if the

appellant had performed its duty. The learned trial judge held for the bank. It was entitled to recover all of the losses it had suffered

as a result of entering into the loan transactions with Mr Kelly and Mr Byrne.

High Court Judgment on Contributory Negligence

31. The appellant claimed that the losses suffered by the bank in each of the two cases had been caused or contributed to by the

contributory negligence of the bank itself or its servants or agents. Essentially, it was claimed that the bank had not taken proper

steps in the protection of its own interests in entering into large loan transactions with Mr Kelly and Mr Byrne respectively without

taking any adequate steps to investigate their financial standing, their earnings, their assets, in short their capacity to repay the

loans as well as their truthfulness and integrity.

32. As the learned trial judge expressed it, the suggestion was that the bank engaged in “targeting both Mr. Kelly and Mr. Byrne so

aggressively that they would have gone ahead with the loans, even if security had not been obtained.” The bank, it was alleged,

failed to take reasonable steps to validate the claims made by the borrowers as to their sources of income and their net wealth in

order to ascertain whether they had the capacity to repay the loans.

33. The learned trial judge said that the principal claims of contributory negligence were as follows:

“(i) The true position concerning two UK properties claimed to be owned by Mr. Kelly which comprised a substantial

percentage of his net worth;

(ii) A statement of affairs furnished in respect of Mr. Kelly and practice accounts for Mr. Byrne;

(iii) The failure on the part of the bank to carry out a proper search of the loans made to Mr. Kelly by IIB Home

Loans, a lending institution, which was connected to the plaintiff bank and which the defendant argued would have

shown that Mr. Byrne, while acting as solicitor for Mr. Kelly, had a number of unfulfilled undertakings;

(iv) The fashion consultancy claim by Mr. Byrne in respect of a number of French fashion houses; and

(v) There was also an issue canvassed before the court as to whether or not the bank could have taken more

timely steps to dispose of those properties where they did have security.”

34. Expert witnesses were called by both parties. The decisions of the bank to make the various loans were scrutinised in great detail.

35. It is not necessary, for the purposes of this appeal, to elaborate on the detail of these arguments for two reasons. Firstly,

counsel for the appellant has identified a wider and, to some extent, different range of issues on the appeal. Secondly, and more

importantly, the real issue to be decided is whether the learned judge was correct in law in the manner in which he considered and,

as it happens, rejected the defence of contributory negligence.

36. The first allegation is that the bank failed to verify that two UK properties listed in the statement of affairs of Mr Kelly and

appearing to represent €20m of his net worth were in fact owned by him. The appellant claimed that it was significant that these two

properties appeared in a statement of affairs furnished in August 2005 by Mr Kelly 2005 as forming part of his assets. The defence

expert said that these properties stood out like a beacon and that the bank should have investigated rental income and other

financially relevant information. These properties were missing from the statement of affairs furnished in 2006 but reappeared in the

statement of affairs of December 2006. The bank’s answer was that these matters did not materially affect Mr Kelly’s net worth.

37. Secondly, a number of points were made concerning the statements of affairs supplied by Mr Kelly. One defence expert said that

there had been a swing in net worth of €2,914,556 between July 2005 and July 2006, about which the bank should have made further

enquiries. There was inconsistent treatment of two properties, 9 and 22, Liberty View, shown by Mr Kelly as owned by him in applying

for the first Kelly loan and in respect of which thereafter security was supposed to be in place. The June 2006 statement of affairs

showed that these two properties had been sold by a company connected with Mr. Kelly. The bank did not notice this. Expert

evidence from the bank was to the effect that it was not required to conduct a forensic examination of the statement of affairs.

Properties at 11, 17, 19 and 21 Greenhills Road were in the statement of affairs of July 2005 at a value of €4.5million, but, in a credit

application to the bank in October 2005, Mr Kelly was seeking to buy these same properties then shown to be worth €8 million.

38. Mr Kelly introduced Mr Byrne to the bank as a new customer. Mr Byrne submitted a statement of affairs showing a net worth of

approximately €32 million. He had spent €21m purchasing property within a period of no more than two and a half years without the

necessity of any mortgage finance. The bank carried out no investigation. Mr Byrne, a solicitor with a small practice in Walkinstown,

Dublin, claimed to have enjoyed an income in 2006 of approximately €12 million, made up of €4 million from his solicitors practice, other

income of €4m and a €4m annual fee for providing consultancy services to French fashion houses. The learned trial judge described

the last claims as “highly questionable,” but, he explained the bank “did not investigate that claim but maintained that it did not need

to do so as it did not rely on that figure in assessing the annual income of Mr. Byrne.” The learned judge added:

“This does not seem to me to be a plausible explanation. Unsurprisingly, the French fashion Consultancy claim was

entirely bogus.”

The learned judge went on to state:

“The second set of accounts dated the 7th day of August, 2007, furnished on behalf of Mr. Byrne, showed that

there was a huge deficiency in the [solicitor’s] client account. This was not picked up by the bank and was a

serious matter. The bank did not raise any detailed queries on the accounts on the basis that it did not place a

great deal of reliance on the practice as the source of repayment of the loan.”

39. The learned judge also noted that two of the properties that Mr Byrne was offering as security, had appeared in the statement of

affairs submitted in 2006 in support of Mr Kelly's application. Yet, in July 2007, the properties were being offered by Mr Byrne as

security for a loan he was seeking. This discrepancy was also not picked up by the bank.

40. Next the judge referred to the emphasis placed by the appellant on the failure of the plaintiff bank to check the records of its

related lending institution, IIB Homeloans, to which it had access, as to the creditworthiness and reliability of Mr Byrne. If they had

done so, they would have discovered a significant number of undischarged undertakings.

41. The defendants also placed reliance on the provisions of the European Communities (Licensing and Supervision of Credit

Institutions) Regulations 1992 (S.I. No. 395 of 1992) (as amended), which obliged credit institutions to manage their businesses “in

accordance with sound administrative and accounting principles and [to] put in place and maintain internal control and reporting

arrangements and procedures to ensure that the business is so managed.”

42. The learned trial judge expressed himself in the following terms so far as concerned the evidence of contributory negligence under

the various headings summarised thus far:

“48. A review of the evidence on contributory negligence leads me to conclude that the plaintiff was somewhat

careless in its appraisal of the borrowers, Mr. Kelly and Mr. Byrne. While many of the criticisms were made with the

benefit of hindsight and in the knowledge that Mr. Thomas Byrne has been struck off the Roll of Solicitors for

dishonest conduct, there were, nevertheless, a number of facts presented to the bank which ought to have raised

suspicions in their mind as to the true financial worth of the borrowers and their reliability. It is necessary to

consider the effect of these lapses by the plaintiff and to determine whether they are such as to warrant a finding

of contributory negligence with a concomitant reduction in damages.”

The conclusive determination was expressed in the following two paragraphs:

“50. In this case, the undisputed evidence is that if the defendant had acted in accordance with the bank's

instructions, none of the loans would have proceeded. This was accepted by Mr. Ronan Egan. If the defendant had

complied with its instructions, the first loan would not have closed because Mr. Kelly was not in a position to

provide the actual security required by the bank. In those circumstances, the proximate cause of the plaintiff's loss

was the defendant's negligence and breach of duty. If the decision of the plaintiff to approve the loans was, to

some extent, due to its own negligence in assessing the borrowers, this was a causa sine qua non. In other words,

the loans would not have been subsequently approved but for some lack of care on the part of the plaintiff. But the

proximate cause or causa causans of the loss was the defendant's act in failing to comply with instructions and

releasing the funds to the borrowers in circumstances where it knew or ought to have known that it were acting

against its instructions and had given an explicit assurance to the plaintiff that it would not release the funds

without the relevant security being put in place.

51. Every case must be decided on its own facts and it seems to me that the facts in this case are quite

exceptional. They are sufficiently exceptional to dispose of the defendant's claim for contributory negligence. If

there were any shortcomings on the part of the plaintiff in approving the borrowers for the loans, it cannot be said

that the defendants [recte; plaintiff] were in any way negligent so far as the actual release of funds was

concerned because they were released after the plaintiff sought confirmation from the defendant that it would not

release the funds until such time as the security was in place, and they received confirmation of this from the

defendant prior to the release of the funds. No bank which retains the services of a professional, such as a firm of

solicitors, should have to check into those assurances before releasing the funds. The bank was entitled to rely on

the assurances received by the defendant and did so.”

The Appeal

43. The appellant has not brought any appeal against the finding of negligence and breach of duty. Nor has it appealed against the

decision of the High Court to assess damages as if this was a “no-transaction” case. The principal issue on the appeal is whether the

High Court judgment was correct in its determination of the issue of contributory negligence.

44. However, without appealing the substantive finding of negligence, the appellant complains that the learned trial judge unjustifiably

used language at a number of points appearing to impute dishonesty to the appellant, but more precisely to the individual solicitors in

the firm, above all Mr Egan, which was not justified either by the evidence or by any allegation made on the part of the bank.

Findings of Deception

45. The statements in the High Court judgment to which the appellant takes particular exception are the following:

• At paragraph 27, the learned trial judge said:

"Not only did [the appellant] fail to ensure that proper security was put in place for the loans, but it deliberately

misled the plaintiff by suggesting that either security was in place or that the funds would not be released to the

borrower until security was in place."

• At paragraph 33, he said:

“It seems to me that they go far beyond mere omission with regard to the obtaining of security for the bank in

respect of the loans. In reality, the breach of duty goes so far as to amount to a deception on the part of the

defendant because it was aware that the required security was not in place but led the bank to believe that it

was…… The loss arose, not so much from the failure to obtain the necessary security, but rather, from the bank

being deceived into permitting the release of the funds on express assurances from the defendant firm which were

untrue and which it knew to be untrue.” (emphasis added)

46. The appellant’s solicitors wrote to the bank on the 20th March 2012, claiming that the finding that the appellant had deliberately

misled and deceived the Plaintiff was unsustainable and asking the bank to agree to have it set aside. The solicitors complained of the

personal and professional damage caused to the firm, and especially its named partners, from such a finding and that it should not

continue to hang over them.

47. The solicitors for the bank, by letter dated 3rd April 2012 maintained that it had at all times been a fundamental part of the bank’s

case that the appellant had misled the bank into the belief that the stipulated security had been in place in respect of all the loans. It

said that the learned trial judge had not fallen into error and that he was aware that the bank was not making any case in fraud or

dishonesty against the appellant. It acknowledged that it had not and did not seek to make the case that the appellant or any of its

partners or solicitors had acted dishonestly or had intentionally misled the bank and accepted that its contention at the hearing had

been that objectively the bank was misled as to the true position. It maintained, nonetheless, that paragraph 33 of the judgment, if

properly construed contained a statement of that objective position.

48. The appellant supports its claim that the bank never made a case of deliberate dishonesty by reference particularly to some

passages from the cross-examination of Mr Egan by counsel for the bank. One example will suffice. Counsel put it to Mr Egan that

certain assurances he had given regarding his dealings with Mr Byrne, which he accepted were “totally inaccurate” were in fact

“totally misleading.” Counsel continued: “though I don’t suggest for a moment that it was intentionally misleading.” He went on to

reassure Mr Egan in the following terms:

“I am not suggesting to you, Mr. Egan, that you were trying to mislead Mr. O'Leary, I want to make that absolutely

clear. Nothing I have said could conceivably be construed as that.”

49. The appellant claims that the finding that the appellant was guilty of deception, had acted dishonestly and deliberately misled the

Bank “came out of the blue” and are unsupported by the evidence and wrong in fact and in law. The bank defends the judge’s

findings.

50. Thus, the appellant claims that the court should alter the language used by the High Court, while leaving its substantive findings

unaffected. The learned judge found that the appellant had been negligent, going so far as to describe the negligence as "egregious."

It is unusual, to say the least, for an appellant to invite this Court and to engage in an exercise of this sort. The language used by

the learned judge constituted part of the process which led him to make findings of negligence. He did not make any finding of fraud.

Strictly speaking, I believe that the appellant is not advancing any legal ground of appeal.

51. Nonetheless, an issue of justice and fairness, particularly in so far as the individuals concerned, is at stake. Following some

exchanges at the hearing of the appeal, it did not appear that counsel for the bank was opposed to the Court giving expression to an

appropriate qualification. I think the Court should be prepared to do this but only to the extent that it does not qualify the essence of

the serious findings of negligence.

52. It is important to note that none of the language in either paragraph 27 or paragraph 33 of the judgment refers to any of the

individuals in the appellant firm. It was the firm which he believed to have "misled" the bank and the firm which, he said, gave

assurances “which were untrue and which it knew to be untrue.” It seems likely that the judge was referring to the collective mind of

the firm. The firm could certainly be responsible for the fact that Mr Egan communicated or, on occasion, failed to communicate

information of which the registration department was aware that he was not But a finding of deliberate or intentional misleading

implies that the same person both makes the representation and possesses the knowledge that renders the representation false .

That was not the case here .

53. In all the circumstances, it is appropriate to say that the High Court judgment cannot and should not be read as attributing any

intentional dishonesty or deliberate misleading to any partners or officers of the appellant firm. No allegation of fraud was made at any

time.

Contributory negligence

54. The appellant advances arguments both general and particular for a finding of contributory negligence against the bank.

Essentially, however, the focus is on the judge’s analysis of causation. His view was that the proximate cause of the bank’s losses

was the failure of the appellant to perform its duty to see that security was put in place in conformity with the requirements of the

facility letters. Even if the bank had been negligent in assessing the borrowers and approving the loans in the first place, that was a

mere causa sine qua non, and the loans would not have been paid out but for the negligence of the appellant in failing to see to the

security. Thus it appears that, in the view of the learned judge, any prior lack of care by the bank was irrelevant because it was not

the cause of the loss. This issue is a matter of legal principle and requires careful consideration.

55. It follows, in my view, that it is neither necessary nor appropriate to give a detailed account or, above all, to express any

concluded views about the strength of the claims of contributory negligence. A general summary will suffice.

General Points about the Duty of the Bank

56. It need hardly be said that the duty of the bank, in this context, is not a duty it owes to others. Rather it is to do what it is

reasonable to expect that it would do to safeguard its own business and assets. It might be expressed as a duty owed to its

shareholders.

57. The appellant makes a number of points at a general level. When a bank reviews a potential loan transaction, it should assess the

soundness, financial standing and above all the trustworthiness of the borrower and the viability of the proposed venture. This

obligation is quite independent of any reliance on any third party such as a solicitor.

58. It should have robust and comprehensive credit analysis and approval processes, internal controls to monitor risk and to ensure

adequate monitoring of the completion of security.

59. The bank is also bound by the European Communities (Licensing and Supervision of Credit Institutions) Regulations, 1992 (S.I. No.

395 of 1992) (as amended), in particular, to have “effective processes to identify, manage, monitor and report the risks it is or might

be exposed to.”

60. The appellant submits that, if the bank had fulfilled these obligations, it would not have approved the loans, or issued the facility

letters. Thus, the question of instructing solicitors would never have arisen.

Particular Acts of Contributory Negligence

61. Counsel for the appellant referred to a wide range of alleged acts of contributory negligence. Some of them had been considered

in the High Court and are summarised above. I will not repeat them. I will refer in the following four paragraphs briefly to some of the

other allegations made. There are many others.

62. The Bank failed to follow up the express requirement contained in its letters of instruction to the appellant that it receive: “Copies

of all security documents duly signed.” Had it done so, it would have seen that security had not been provided.

63. The bank failed in a number of ways to enquire into or seek verification of the assets or income put forward by Mr Kelly or Mr

Byrne respectively in their statements of affairs when seeking the loans. The examples of the UK properties of Mr Kelly and the

extraordinarily large income alleged by Mr Byrne have been mentioned in the account of the High Court judgment.

64. It was a condition precedent of the facility letter for first Kelly loan that an independent professional valuation be provided of the

Rathmines property to be purchased with the loan. The bank accepted a valuation of €5.3 million based on a weekly turnover of

€130,000, whereas the actual projected turnover, provided by the borrower to the bank, was €80,000. This would have given a

valuation of only €3.26 million. The appellant says this was an error on the face of the report. Since compliance was a condition

precedent, the first Kelly loan should not have been made.

65. In the case of the loans to Mr Byrne, apart from the failure to take any steps to verify the extraordinary sums Mr Byrne claimed to

have by way of income, the appellant said that the bank could have checked the records of its subsidiary or associate company, IIB

Homeloans. Had appropriate checks been made, the Bank would have discovered that there were numerous solicitors’ undertakings

furnished to the bank by Mr Byrne both in respect of his own borrowings and the borrowings of his clients which he had not complied

with.

Appellant’s Submissions

66. Counsel for the appellant submitted that s. 34 of the Civil Liability Act 1961 recognises that there may be more than one cause of

loss or damage. In the present case, there was one transaction in the case of each loan, with different components. The decision of

the bank to make the loans was an integral part of that transaction. Another was the obligation of the appellant to obtain security.

The learned trial judge recognised this division of function when he said: “The appraisal of the borrowers was carried out entirely by

the bank and the defendant was not relied on, to any extent, for this purpose.”

67. The lender, it was submitted, must take reasonable care for the protection of its own property. Counsel criticised, in particular,

the application by the learned judge, at paragraph 51, of the notion of “proximate cause.” He argued that “effective cause” is a

simpler and more appropriate mental construct. He accepted that a remote cause would not come within the section, but said that

here the lack of care of the bank was a direct and immediate cause of the loss. The judge did not give any consideration to the

causative contribution of the failure of the bank to carry out a proper assessment of the borrowers. Counsel argued that the effective

cause of the bank’s loss was its own failure of assessment of the borrowers and of supervision of the loan transactions. The critical

fact was the assessment of the borrowers: the obtaining of the security came in later. There was extremely serious negligence on the

part of the bank. The loans, it was said, would not have been made at all, if the bank had exercised proper care.

68. Counsel referred to the textbook, “Lender Claims,” Hugh Tomlinson Q.C. and others, (Sweet & Maxwell, 2010) which states (at

paragraph 8—12 that contributory negligence has a limited role to play in the field of professional negligence because the plaintiff is

relying on the expertise of the defendant. However, it distinguishes lender claims because “the process of lending is a profit-

orientated business as well as a specific expertise in relation to which it is the claimant, rather than the defendant, who has the

superior knowledge.”

The Bank’s Submissions

69. The bank, in response, lays particular emphasis on the nature and degree of the findings of negligence made in the High Court

judgment. It points out, in particular, that there were four distinct lending transactions. The failure of the appellant to inform the

bank about the status of its security and its provision of misleading confirmations created a wrong impression that Mr Kelly was a

successful and performing borrower. The security was critical. If the appellant had performed its duty to obtain security, the bank

would have suffered no loss.

70. The appellant, as a firm of solicitors, failed to perform the very task entrusted to it. Thus, it was irrelevant that the decision to

make the loans was unwise, even extremely unwise. Where the negligence of the defendant is extremely gross, it would not be

appropriate to make any finding of contributory negligence.

71. The bank relies on the judgment of Walsh J in O’ Sullivan v Dwyer [1971] IR 275, and insists that it cannot be found responsible

for contributory negligence unless it is proved that both parties have been at fault and to have caused the loss. If the act at issue is

not a substantial and operative cause of the loss there can be no finding of contributory negligence. It cites the decision of this Court

in Conole v Redbank Oyster Company Ltd [1976] IR 191 to support the learned trial judge’s analysis of the “proximate cause” of the

loss, which was based on his assessment of the evidence. He made that finding in circumstances where had had earlier concluded

that the loss arose from the radical departure from instructions by the appellant and as a result of the bank being misled into

permitting the release of funds on express assurances which were untrue. The bank had entrusted to the appellant responsibility for

deciding when and whether the funds should be released to the borrowers. It was the appellant through its wrongful actions in

releasing the funds in breach of its instructions and contrary to express assurances given to the bank that security was in place that

was wholly responsible for the loss.

72. The bank relied on the decision of the Court of Appeal in England in Sahib Foods Ltd v Paskin Kyriadse Sands (a Firm) [2003]

EWCA Civ 1832 1 at 18. Clarke L.J., speaking for the Court, said that “it is open to the court to conclude that the share of a

claimant’s responsibility is so small by reference to that of the defendant that it would not be just and equitable to reduce the

damages at all.”

73. The trial judge, it is submitted, found that the actual and only real cause of the whole of the bank’s loss was the appellant’s

negligence: since the appellant, as a firm of solicitors, failed to perform the task entrusted to it to obtain security. It is irrelevant that

the decisions to make the loans were unwise or even extremely foolish. Accordingly there could be no reduction in damages on

grounds of contributory negligence.

The High Court Judgment

74. It is necessary to begin by identifying the context of and parameters for consideration of the defence of contributory negligence

on the appeal. The trial judge noted that a significant amount of evidence had been given on the topic and identified the principal

headings. He then summarised the evidence. In some cases he expressed no view as to whether the evidence suggested contributory

negligence on the part of the bank. Nor did he reject that possibility. On the other hand, he expressed some views on two aspects of

the case of the loans made to Mr Byrne. He described as “highly questionable” Mr Byrne’s claim to be earning a €4m annual fee for

providing consultancy services to French fashion houses. He expressed the view that the bank’s explanation for its failure to

investigate the matter, namely that it did not rely on that figure in assessing Mr Byrne’s annual income, was "not plausible." He went

on to observe:

“Unsurprisingly, the French fashion Consultancy claim was entirely bogus. But if the plaintiff had taken steps to

investigate that, it would quickly have discovered that the claim was bogus and this should have informed the

plaintiff’s view on Mr. Byrne, generally, and the degree of weight it could give to information he was providing.”

Then the learned trial judge turned to Mr Byrne’s practice accounts:

“The second set of accounts dated the 7th day of August, 2007, furnished on behalf of Mr. Byrne, showed that

there was a huge deficiency in the client account. This was not picked up by the bank and was a serious matter.

The bank did not raise any detailed queries on the accounts on the basis that it did not place a great deal of

reliance on the practice as the source of repayment of the loan.”

75. Apart from making these remarks, the judge reached no conclusion as to whether these facts could amount to contributory

negligence. The learned judge first expressed a general view about the facts relied on in support of the defence of contributory

negligence:

“A review of the evidence on contributory negligence leads me to conclude that the plaintiff was somewhat careless

in its appraisal of the borrowers, Mr. Kelly and Mr. Byrne. While many of the criticisms were made with the benefit of

hindsight and in the knowledge that Mr. Thomas Byrne has been struck off the Roll of Solicitors for dishonest

conduct, there were, nevertheless, a number of facts presented to the bank which ought to have raised suspicions

in their mind as to the true financial worth of the borrowers and their reliability.”

76. He then said that it was “necessary to consider the effect of these lapses by the plaintiff.” As he explained, he had “to determine

whether they are such as to warrant a finding of contributory negligence with a concomitant reduction in damages.”

77. There then followed paragraphs 50 and 51 of the judgment, which have been quoted in full. He said that “If the decision of the

plaintiff to approve the loans was, to some extent, due to its own negligence in assessing the borrowers, this was a causa sine qua

non.” Thus, he was saying, though without so finding, that the bank might have been negligent in approving the loans, but that was

no more than causa sine qua non of the loss. The crucial fact was, in his view, that the causa causans or proximate cause of the loss

was that the funds “were released after the plaintiff sought confirmation from the defendant that it would not release the funds until

such time as the security was in place, and they received confirmation of this from the defendant prior to the release of the funds.”

78. To that extent, the analysis focussed purely on the question of causation. The failure of the appellant to perform its duty properly

was the proximate cause of the loss and any contribution of the bank to their own loss was merely causa sine qua non. He rejected

the defence of contributory negligence because the appellant could not “rely on a plea of contributory negligence unless it can be

shown that the negligence of the client was at least a proximate cause of the loss.”

79. The decision rested crucially on the judge’s conclusion as to the cause of the bank’s loss. The learned judge made no finding and

reached no conclusion on the question of whether, if he had concluded otherwise, the acts of the bank would have amounted to

contributory negligence. He thought that the bank had been a “somewhat careless” in its appraisal of both borrowers: he spoke of

“lapses by the plaintiff. It is difficult to believe that he would not have made some findings of contributory negligence, at least in the

case of the lending to Mr Byrne. My conclusion is that the learned judge did not decide whether the bank would have been

responsible for contributory negligence, if their acts had been a cause of the loss. Since he did not decide that matter, it is quite

clear that this Court cannot do so on appeal. If a finding of contributory negligence was to be made, it could only be made by the

judge who heard all the evidence. On the other hand, if the Court concludes that the judge’s analysis of causation was incorrect, it

clearly follows that the case must be remitted to the High Court to decide whether there should be a finding of contributory

negligence and, if so, to apportion responsibility.

Law on Contributory Negligence

80. Section 34(1) of the Civil Liability Act 1961 provides:

“Where, in any action brought by one person in respect of a wrong committed by any other person, it is proved that

the damage suffered by the plaintiff was caused partly by the negligence or want of care of the plaintiff or of one

for whose acts he is responsible (in this Part called contributory negligence) and partly by the wrong of the

defendant, the damages recoverable in respect of the said wrong shall be reduced by such amount as the court

thinks just and equitable having regard to the degrees of fault of the plaintiff and defendant……”

Section 34(2)(c) provides:

“the plaintiff's failure to exercise reasonable care for his own protection shall not amount to contributory negligence

in respect of damage unless that damage results from the particular risk to which his conduct has exposed him, and

the plaintiff's breach of statutory duty shall not amount to contributory negligence unless the damage of which he

complains is damage that the statute was designed to prevent..”

81. In a negligence action, such as the present, the section applies provided it is shown that: a) the defendant has been proved to

be negligent; b) the negligence of the defendant caused loss or damage to the plaintiff; c) the plaintiff had failed to take care for its

own safety (here for its property); d) the plaintiff’s want of care partly caused, i.e., contributed to the damage which it suffered as a

result of the defendant’s negligence.

82. Thus, the section contemplates that there may be more than one cause of the loss. It is implicit that the negligence of the

defendant and the negligence, more properly described as want of care, of the plaintiff are both causes of the loss.

83. The high Court made no apportionment of liability. Thus, there is no question of apportionment before this Court. It suffices to

note that the section provides that “the damages recoverable in respect of the said wrong shall be reduced by such amount as the

court thinks just and equitable having regard to the degrees of fault of the plaintiff and defendant…” The decisions of this Court in O’

Sullivan v Dwyer [1971] IR 275 and Carroll v County Council for the County of Clare [1975] 1 I.R. 221 are the leading cases.

84. Questions of causation often present difficult problems of analysis. In one sense, everything can be a cause even of remote

events. Events have direct and indirect causes. The law does not usually recognise a mere causa sine qua non (sometimes called “but

for” causation) as a sufficient basis for the imposition of liability on a defendant. Many acts, even if negligent, are too remote to

provide a just basis for imposition of liability. In some cases, the law resorts to the concept of novus actus interveniens.

85. The bank relies on the case of Conole v Redbank Oyster Company Ltd [1976] IR 191, claiming that Henchy J. there adopted an

analysis of the question of causation between concurrent wrongdoers which is identical to that followed by the learned trial judge in

the present case. In truth that unusual case is one of the few Irish cases in which light is cast on principles of causation. It arose

from a tragic drowning of nine young people when the defendant’s boat capsized off the coast of County Clare in 1969. The boat was

new. She had been built specially by the third party for the defendant, who was going to use it for dredging oysters. The boat was

unseaworthy when delivered to the defendant shortly before the accident. The defendant took her to sea on a few trial runs. On the

day of the fatal accident, when the ceremony of naming and blessing the vessel took place, she was taken out on six trips —the sixth

being the fatal one. On the fifth trip, the defendant’s manager had taken her out and found that she shipped water to such a degree

that the pumps could not clear the water from the deck. The defendant concluded that that boat was absolutely unseaworthy and

extremely dangerous. The manager was instructed to tie up the boat. Tragically, he took her out once more.

86. The plaintiff recovered damages from the defendants, as personal representative of his daughter, for their negligence. The

defendants' claim for an indemnity or a contribution from the third party was dismissed in the High Court on the ground that the

effective cause of the death was the negligence of the defendants who, with knowledge of the dangerous condition of the vessel,

allowed the vessel to put to sea on the sixth trip overladen with passengers. Henchy J dealt with the liability of the third party at

page 196 as follows:

“When the defendants discovered that the boat was unseaworthy and, nevertheless, proceeded to put to sea with

passengers aboard, the defendants in effect decided to supplant Fairway [the third party] as tortfeasor in the

event of an accident. Leaving aside the added factor of taking too many passengers on board, the mere

circumstances that the defendants put to sea at all with passengers when they knew the boat to be dangerously

unseaworthy meant that the defendants were consciously undertaking the primary responsibility if an accident

happened, and that Fairway were being relegated to an area of remoteness within which responsibility in negligence

does not operate. Of course, the defendants are entitled to say that there would have been no accident if Fairway

had not been in default in supplying an unseaworthy boat. If the defendants are correct in that assertion, it is

merely something they can put forward to support a complaint by them that Fairway were in breach of the contract

between the defendants and Fairway. However, as far as the negligence that resulted in the drownings is

concerned, any such default by Fairway would have been merely a causa sine qua non and not a causa causans.

In terms of legal causation, there was only one act of negligence in this case: it was the defendants' act of putting to sea in a boat

which they knew to be unseaworthy and which was overloaded with unsupervised young people.”

At page 196, Henchy J added:

“The direct and proximate cause of this accident was the decision of the defendants, acting through Mr. Hugman,

to put to sea with passengers when they had a clear warning that the boat was unfit for the task. The defendants

were the sole initiators of the causative negligence.”

87. I cannot agree that Conole v Redbank Oyster Company Ltd is determinative of the present case. It is sharply distinguishable on

the ground that the defendant, in that case, was, as Henchy J repeatedly emphasised, fully aware of the dangerous condition of the

boat, but consciously put the boat to sea in that full knowledge. The basis for the distinction is emphatically clear from the following

further passage from the judgment at page 196:

“If the defect becomes patent to the person ultimately injured and he chooses to ignore it, or to an intermediate

handler who ignores it and subjects the person ultimately injured to that known risk, the person who originally put

forth the article is not liable to the person injured. In such circumstances the nexus of cause and effect, in terms of

the law of tort, has been sundered as far as the injured person is concerned.”

88. To make that case analagous with the present, it would be necessary to show that the appellant was aware of the financial

unsoundness or dishonesty of the two borrowers at the time the bank entered into the lending transactions. That is not the basis on

which the bank has made its case.

89. The context of the present case is professional negligence. The learned trial judge was especially influenced by tha fact that the

“bank was entitled to rely on the assurances received by the defendant and did so.” That was, of course, correct insofar as the

liability in negligence of the appellant is concerned. It may also be relevant to any consideration of apportionment which may arise. It

does not, however, dispose of the question of contributory negligence, though the learned judge next cited a passage from Jackson &

Powell on Professional Liability 7th Ed. (Sweet & Maxwell, 2012) at p. 211:

"In the context of a professional negligence action, a successful plea of contributory negligence by the defendant is

less common than in other areas of negligence. This is because the parties often do not stand on an equal

footing.... If the defendant makes a mistake, it may be difficult to say that the client was negligent not to spot it or

correct its effect, unless the client is expected to be wiser than his own professional advisers."

90. A professional person is necessarily in a very weak position if he tries to say that his client should have seen that he was

negligent. The professional person is engaged precisely to perform a particular task. In this case, it was the job of the appellant to

obtain the security. Its arguments that the bank was contributorily negligent in failing to check that it had done its job may come

within the scope of the Jackson & Powell, which I have quoted. However, it seems to me to be more relevant to bear in mind that the

plaintiff in this case was a lending bank and that it was its function and its function alone, as noted by the learned trial judge, to

appraise the borrowers and the lending transaction in contemplation. It was within the bank’s area of skill and judgment to appraise

the creditworthiness, soundness and trustworthiness of the borrowers. I would adopt the reasoning in the following passage from

“Lender Claims,” Hugh Tomlinson Q.C. and others, as cited above:

“In the general field of professional negligence contributory negligence as a defence has a limited role to play. This

is because in the majority of cases it is the defendant, a professional, who is professing special expertise and the

claimant is reasonably relying upon that defendant to exercise such expertise competently. The position is different

in lender claims, however, because the process of lending is a profit-orientated business as well as a specific

expertise in relation to which it is the claimant, rather than the defendant, who has the superior knowledge. The

defendant professional's role in the process is typically specific and limited.”

91. There has been a significant body of cases in England in which lenders have been found to the responsible for contributory

negligence, usually in actions taken against valuers. The appellant cites the following passage from Charlesworth & Percy on

Negligence, 12th Ed., (Sweet & Maxwell, 2010), at paragraph 4-57 (footnotes omitted):

“Where solicitors have been found guilty of negligence in the context of mortgage transactions in which they acted

both for borrower and lender and failed to report to the lender matters which cast doubt on the correctness of a

valuation of the property or the good faith of the borrower a number of cases have identified contributory

negligence on the lender’s behalf which have reduced the damages recovered. It was negligent of the lender on the

facts, to fail to obtain bank or credit references in the case of the purchase of a five bedroomed property by a

youthful purchaser with no dependents, to proceed with a loan where an employer’s reference disclosed a lower

income than that claimed and confusing, uncertain and inconsistent answers were given in interview; not

investigating the many credit searches against the borrower’s name by financial institutions; and in failing to

adequately investigate the borrower’s ability to pay.”

92. Some of the cases cited in the above passage involved findings of contributory negligence made by Blackburne J. against the

Nationwide Building Society which was plaintiff in twelve actions against different firms of solicitors. One was Nationwide BS –v- JR

Jones [1999] Lloyds Reports P.N. 414. In that case the Society lent £405,000 to a Mr. Abeywickrama to buy a house for £575,000.

The solicitors were engaged to complete the transaction and were found negligent for failing to report aspects of the transaction

which would have alerted the Society to the fact that the £375,000 not £575,000 was not the true selling price. However, Blackburne

J reduced the damages payable to the Society by forty percent for contributory negligence in respects described in the headnote as

follows:

“The failure to interview the applicant; the failure to take up bank references; the failure to obtain proper

accounts; the failure to enquire as to why it was that the applicant, aged 28, and having no dependents and not

intending that anyone aged 17 or over would be living in the property, was proposing to acquire a home which the

Valuation Report disclosed comprised of four reception rooms, three kitchens, two ensuite bathrooms and five

bedrooms…”

93. Blackburne J, at page 421, while placing the greater share of the blame on the defendant solicitors, considered that “the Society

must carry a substantial part of the blame for this ill-fated transaction.”

94. The decision of the House of Lords in Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 A.C. 190 is also instructive. The

negligence claim was against valuers rather than solicitors and the issue in contention was whether a finding of contributory

negligence made against the lenders should be applied to the entire of the loss they had suffered or merely to that part for which the

valuers, by overvaluing the property which was taken as security, were responsible. This was an application of the SAAMCo principle,

which does not arise on the present appeal. It is of note that Lord Hobhouse accepted that contributory negligence could be found

against the lenders in investigating the loan application. At page 211, he said that:

“… the totality of the plaintiff's loss was partly caused by the defendants fault and therefore the present case

comes within the scope of..” the English statute governing contributory negligence.

95. At this point, I would return to the crucial question: what was the cause of the bank’s loss? The bank lost its money essentially

because it paid out the loan moneys to two people who were unable to repay. At least that is the form which that loss took. The

money was lost because it was paid to borrowers to whom money should not have been lent. There are two ways of looking at this

unfortunate result. One way is to say that the loans were unsound because the borrowers were unsound. The other is to say that

the loans would not have been paid out at all, if the appellant had done its duty and ensured that security was in place at the point

when they were due to be paid out. There is no doubt that, based on the unchallenged findings of the High Court, the appellant’s

failure to obtain security operated as a major cause of the loss. If there had been security, the bank would have been protected from

the financial results of the borrowers’ failure to repay. That, however, is not the reality in either of these cases. It is much more

probable that the borrowers, certainly Mr Byrne, would not have been able to provide the security. The appellant’s serious fault in

accepting the undertaking of Mr Byrne in respect of the Kelly loans masked the truth. The appellant did not find out whether Mr Kelly

could provide security.

96. It follows that the appellant’s negligence was a direct and, as the learned judge found, a proximate cause of the loss.

97. But was it the only effective cause? To answer this question, I need to make two assumptions. Firstly, I will assume, without

deciding, that the bank was wanting in care for its own interests in entering into the loan transactions. Secondly, I will assume that,

if it had exercised reasonable care, it would have discovered the truth about the borrowers and would not have agreed to lend them

any money. On those assumptions, it seems to me that the bank’s want of care was also a cause of the loss, because the bank, like

the appellant, caused loan moneys to be paid out to two persons who were, as it turned out, unable to repay. That would justify a

finding of contributory negligence, provided it was shown that the bank was guilty of want of care.

98. I do not think the one cause was necessarily more proximate than the other. They were both effective causes.

99. The bank, however, makes the point very strongly that a defendant should not be absolved even partially from fault when its own

negligence consists of a failure to do the “very thing” it was engaged to do. This is the point made in the passage cited by the

learned judge from Jackson and Powell. It is difficult to justify permitting a professional person to cast even some of the blame back

on the client for failing to spot or correct the professional person’s mistakes “unless the client is expected to be wiser than his own

professional advisers.” In the present case, that argument is particularly relevant to the appellant’s attempt to attribute contributory

negligence to the bank because it did not notice that it had not got the security which it had stipulated in each of the facility letters.

The appellant says that the bank failed to follow up the express requirement contained in its letters of instruction to the appellant

that it receive: “Copies of all security documents duly signed.” The argument that the appellant failed in the very task assigned to it

does not apply, at least not with the same force, to any contributory negligence of the bank in failing to check the financial

soundness of the borrowers.

100. The bank, as already noted, relied on the English Court of Appeal decision in Sahib Foods Ltd v Paskin Kyriadse Sands (a Firm).

Clarke L.J., speaking for the Court, said that “it is open to the court to conclude that the share of a claimant’s responsibility is so

small by reference to that of the defendant that it would not be just and equitable to reduce the damages at all.” That case provides

a helpful analysis of the “very thing” argument. The claimants owned a factory in which they prepared ready-made meals for sale to

supermarkets. They had engaged the defendant firm of architects in connection with a general remodelling of the factory. Crucially,

this work included a food preparation area in which frying took place. Three years later a disastrous fire took place when employees of

the claimants negligently misused a deep fryer in that area. The room concerned was destroyed. The important point was that the

fire spread to the remainder of the factory, because the room where the frying took place had not been properly fireproofed following

the advice of the architects. The architects were held negligent in failing to see that the room was properly flameproofed. There had

clearly also been negligence on the part of the claimant in the frying operation which led to the start of the fire. However, it was held

that the claimant had not been guilty of contributory negligence with regard to the escape of the fire to the other areas.

101. Clarke L.J. at page 17 held that it had been the architects’ duty to guard against “the effects of the fire which might be caused

by the fault of the claimant…” He continued:

“……the scope of the defendant’s duty and the extent to which that duty is to guard against the claimant’s

negligence are relevant both to the question whether the claimant’s fault was causative of the damage and, if it

was, what the relative blameworthiness and causative potency of the parties’ respective faults were.”

102. In the present case, it is important to distinguish between two types of contributory negligence alleged against the bank. They

are, firstly, want of care in making the decisions to lend and, secondly, in failing to verify or supervise the performance by the

defendant its duty.

103. For the reasons I have already given, and on the assumption that the bank failed to exercise due care in making its lending

decisions, I am satisfied that the bank was exclusively responsible for those decisions. It was not the task of the appellant to check

the financial soundness or reliability of the borrowers. The learned trial judge was, in my view, mistaken in absolving the bank of

responsibility for contributory negligence solely because their acts were a mere causa sine qua non and not a proximate cause of the

loss. It is obvious that the decision to lend to these particular borrowers was an effective cause (combined with the negligence of the

appellant) of the loss suffered by the bank.

104. With regard to the second category of acts of contributory negligence, the bank was entitled to rely on the expertise of the

appellant to ensure that security was put in place. The appellant had confirmed in writing to the bank that it would not release the

loan cheque in each case until all security was in place and subsequently confirmed that it was. To the extent that the solicitors’

duty to obtain security was analogous with the duty of the architects in Sahib Foods to ensure fireproofing of the food preparation

(frying) room, it might well be argued that the bank’s responsibility was so small that it would not be just and equitable to fix it with

any responsibility. However, there is no absolute rule. It is a matter for judgement in each case of the relative measure of

responsibility. As a matter of principle, it is possible that, if the evidence showed that the errors of the appellant were known to the

bank and overlooked or were so obvious that they could not be ignored, there was fault on the part of the bank. The appellant is

entitled to argue for the obligation of the bank, in accordance with the European Communities (Licensing and Supervision of Credit

Institutions) Regulations 1992 (S.I. No. 395 of 1992) (as amended), to manage its businesses “in accordance with sound

administrative and accounting principles and [to] put in place and maintain internal control and reporting arrangements and

procedures to ensure that the business is so managed.”

105. I have come to the conclusion that the learned trial judge erred in his conclusion on the issue of contributory negligence. That

error is in his treatment of the issue of causation. His decision turned on his determination that any contributory negligence of the

bank was merely causa sine qua non and was not a proximate cause of the loss. He reached no conclusion as to whether there had

actually been contributory negligence on the part of the bank.

106. It follows that the matter of contributory negligence will have to be reconsidered by the High Court. It remains a matter for the

High Court to decide whether there was, in fact, any contributory negligence and, if so, to decide on the relative blameworthiness

and causative contribution of the respective faults of the appellant and the bank respectively. It is a matter entirely for the High

Court to determine procedures for the further hearing of the case. The further hearing may be conducted by McGovern J but whether

it will must be decided by the President of the High Court. In the event the matter is to be reheard by McGovern J, it may also be

possible for him, for example, to determine whether or not there was contributory negligence on the part of the bank based on the

evidence already given. That is also, of course, a matter for the High Court to decide in the light to the submissions of the parties.

107. For these reasons, I would allow the appeal insofar as the High Court failed to make a finding of contributory negligence. I would

remit the matter to the High Court for further consideration of that issue.