THE SUPREME Court has ruled a solicitor must compensate a bank because he released to a client a €250,500 loan cheque from the bank to buy lands. This was in breach of an undertaking to first obtain a priority charge in favour of the bank over the property.
However, because Bank of Ireland Mortgage Bank itself negligently provided loan facilities in August 2003, on the basis of an overvaluation of the lands at Banane, Meelin, Newmarket, Co Cork, the court ruled it was not appropriate to order the solicitor to repay the bank the full €250,500 amount of the loan money released and instead directed the case be returned to the High Court to assess what compensation is due.
The court had heard a bank-approved valuer in autumn 2003 valued the lands, described as “a rushy field with a labourer’s cottage” in remote Co Cork, at €295,000 and they were valued in June 2006 at €140,000.
In her November 2006 High Court decision rejecting the bank’s compensation claim, Ms Justice Mary Laffoy said the case exposed “a serious risk” to the integrity of the lending system for residential mortgages, put in place to avoid the need for a third solicitor in a sale.
She noted the bank had up to August 2006 advanced some €2.2 billion on such residential mortgage loans with practically all of those secured on solicitors’ undertakings and most of the other main lenders operating the same way. The bank had brought its case against solicitor Daniel Coleman, practising as Coleman Company, Main Street, Ballinrobe, Co Mayo, seeking compensation over Mr Coleman’s failure to honour an undertaking of September 15th, 2003.
That undertaking provided that Mr Coleman was not to release €250,500 paid to him by the bank, in his capacity as solicitor for John Lane, Sarsfield Drive, Ballinasloe, Co Galway, without Mr Lane having first executed a mortgage in favour of the bank over the property being purchased.
In her High Court decision, Ms Justice Laffoy noted Mr Coleman accepted he had breached his undertaking in having not perfected the client’s title to the lands or the bank’s security.
In seeking compensation for the full sum of €250,500 plus interest, the bank asked the High Court to invoke its inherent jurisdiction over solicitors, as officers of the court. The High Court ruled that was not the correct approach to the exercise of that jurisdiction as (1) the bank would not have obtained the full security even if the undertaking were adhered to and (2) it was still open to Mr Coleman to fulfil the undertaking.
Giving the Supreme Court decision, Mr Justice Hugh Geoghegan agreed there must be regard to the undertaking as a whole, not just the particular obligation within it. There must also be regard to the maintenance of the integrity of the lending system.
While it would be appropriate in some cases to order a solicitor who defaulted on an undertaking to repay the entire sum involved, that was not appropriate here as the bank, by its own negligence and independently of any connection with the solicitor’s default, provided loan facilities on an overvaluation of the property. There was also no evidence the solicitor was party to any fraudulent conduct.
Mr Justice Geoghegan disagreed there was no justification for awarding any compensation on grounds the transaction could still be completed. Completion has since been effected with the title now in order and the bank’s security in place. Given the breach of undertaking, compensation should be assessed and the court would allow the bank’s appeal to that extent, he said. This was an appropriate exercise of the court’s inherent discretion over solicitors as officers of the court.
