Ulster Bank and McCann v McDonagh and Ors [2020] IEHC 185
This is a decision in which the High Court (Twomey J), held that the Plaintiff, Ulster Bank (the Bank) was entitled to judgment against the Defendants (the Borrowers) for monies loaned, subject to the potential application of section 17(2) of the Civil Liability Act, 1961 (the 1961 Act).
The High Court confirmed that the 1961 Act applies to debt recovery cases and set out some useful worked examples of how section 17(2) should operate in cases where there are concurrent wrongdoers.
The disputed issue under the 1961 Act in this case concerned the Borrowers' argument that the amount of any judgment would have to be reduced if it was established that the Borrowers and the valuer of the security were concurrent wrongdoers.
The High Court held that it was "arguable, to say the least" that the Borrowers and the valuer were concurrent wrongdoers. However it ruled that, before deciding on the amount of the judgment against the Borrowers, it would hear submissions from the parties regarding: (i) whether the valuer and the Borrowers were to be adjudicated as concurrent wrongdoers; and (ii) if so, whether the valuer's liablity to the Bank was in excess of the amount accepted by the Bank in its settlement with the valuer. If the High Court ultimately answers "yes" to both of those questions, the Bank will likely lose out on recovery of the amount of that excess. The final ruling on those questions is awaited.
General background
The Bank sought judgment jointly and severally against the Borrowers in the sum of €22,090,302.64. This amount was sought in respect of a loan taken out by the Borrowers in connection with the purchase of approximately 82 acres of land in Kilpeddar, County Wicklow, intended to be used as a data centre. The Bank sought payment of all sums due from the Borrowers following what the Court found to be several breaches by the Borrowers of a compromise agreement between the Borrowers and the Bank.
The legal issue concerning s. 17(2) of the Civil Liability Act 1961 arose because as well as suing the Borrowers for the repayment of the loan, the Bank previously sued the valuer, for an alleged negligent valuation of the site at a value of €56 million. The Bank's proceedings against the valuer were settled for a figure of €5 million.
In essence, the Borrowers claimed that as the Bank settled with one alleged concurrent wrongdoer (the valuer), this must be considered for the purposes of its proceedings against the other alleged concurrent wrongdoer (the Borrowers) and the Bank could not claim from the Borrowers the difference between the settlement sum it agreed with the valuer (€5 million) and the full amount of the claim (€22 million). In particular, the Borrowers argued that because of the settlement by the Bank of its proceedings against the valuer regarding the alleged negligent valuation of the Kilpeddar site, the Bank's claim against the Borrowers was reduced to zero under the terms of sections 17(2) and 35 of the 1961 Act. However, the Bank maintained that while the 1961 Act applied to negligence and breach of contract claims it had no application to debt recovery claims and, in the alternative, that the valuer and the Borrowers were not concurrent wrongdoers.
Relevant legislation - the 1961 Act
Under Section 2 of the 1961 Act, a wrong is defined as meaning "a tort, breach of contract or breach of trust, whether the act is committed by the person to whom the wrong is attributed or by one for whose acts he is responsible, and whether or not the act is also a crime, and whether or not the wrong is intentional".
Section 11(1) of the 1961 Act provides that "two or more persons are concurrent wrongdoers when both or all are wrongdoers and are responsible to a third person (in this Part called the injured person or the plaintiff) for the same damage, whether or not judgment has been recovered against some or all of them."
Section 17. of the 1961 Act provides as follows:
" (1) The release of, or accord with, one concurrent wrongdoer shall discharge the others if such release or accord indicates an intention that the others are to be discharged.
(2) If no such intention is indicated by such release or accord, the other wrongdoers shall not be discharged but the injured person shall be identified with the person with whom the release or accord is made in any action against the other wrongdoers in accordance with paragraph (h) of section 35; and in any such action the claim against the other wrongdoers shall be reduced
- in the amount of the consideration paid for the release or accord, or
- in any amount by which the release or accord provides that the total claim shall be reduced, or
- to the extent that the wrongdoer with whom the release or accord was made would have been liable to contribute if the plaintiff's total claim had been paid by the other wrongdoers
whichever of those three amounts is the greatest".
Section 35. (1) of the 1961 Act provides that “For the purposes of determining contributory negligence- […]
(h) where the plaintiff's damage was caused by concurrent wrongdoers and after the occurrence of the damage the liability of one of such wrongdoers is discharged by release or accord made with him by the plaintiff, while the liability of the other wrongdoers remains, the plaintiff shall be deemed to be responsible for the acts of the wrongdoer whose liability is so discharged”.
Application of the 1961 Act
The Court ultimately reserved its position pending further submissions in relation to (1) whether or not the Borrowers and valuer were concurrent wrongdoers and (2) if so, the amount of liability the valuer may have had for the damage suffered by the Bank. However, it provided the following guidance with regard to the application of the 1961 Act, on the assumption that the Borrowers and the valuer are held to be concurrent wrongdoers.
The Court held that the Settlement Agreement entered into by the Banks and the valuer did not indicate any intention that the other wrongdoers (the Borrowers) be discharged, pursuant to s. 17(2) of the 1961 Act, the Bank with the valuer meant that the Bank would be “identified with” the valuer for the purposes of ‘deemed’ contributory negligence on the part of the Bank in its claim against the Borrowers. Under Section 17 (2) of the 1961 Act, the Bank would be deemed to be contributorily negligent in its claim against the Borrowers to the extent of the higher of three amounts, i.e.:
- the amount of the settlement - in this case €5 million; or
- the amount by which the settlement provided that the total claim was to be reduced - in this case, there is no reference in the Settlement Agreement to the total claim being reduced, so this is zero; or
- the extent to which the valuer would have been liable to contribute to the Borrowers if the total claim had been paid by the Borrowers.
Therefore, the relevant amount would be the higher of €5 million or the extent to which the valuer would have been liable to contribute to the Borrowers, if the Borrowers had paid the total claim, i.e. a sum of circa €22 million, to the Bank. In order to make a ruling, the Court would be obliged to hypothetically determine the contribution between the valuer and the Borrowers for the damage caused to the Bank.
Worked examples
The Court illustrated its analysis of the application of the 1961 Act with helpful hypothetical examples. One such example was as follows. If the valuer was found by a court to be 20% liable for the non-payment of the loan by the Borrowers, (noting that the sum owed to the Bank was €27 million in round terms before any contribution from valuer), this would mean that the claim against the Borrowers should be reduced by 20%, i.e. from €27 million to €21.6 million. However, the claim had already been reduced by €5 million as a result of the settlement sum received from the valuer, leading to a net claim by the Bank against the Borrowers of approximately €22 million. So based on this hypothetical example, the judgment to be obtained against the Borrowers would be reduced from €22 million to €21.6 million.
Decision
1.2 Application to Debt Recovery Proceedings
The Court relied on the decisions in ACC Bank v. Malocco1 and AIB v. O'Reilly2, in holding that the provisions of the 1961 Act (in particular s. 17 of that Act) apply to a debt recovery action and that the 'damage' suffered by the Bank was the non-payment of the loan and the non-payment of monies was itself a breach of contract with regard to the facility letter.
1.3 Concurrent Wrongdoers
The Court held that on the basis that (1) it seemed clear from the Statement of Claim that the Bank's claim was that the valuer was liable for the same damage as the Borrowers, i.e. the non-repayment of the loan and (2) that the settlement sum was used by the Bank to reduce the Borrowers' debt, it was "arguable to say the least" that the valuer was responsible for the damage caused to the Bank arising from the Borrowers' failure to repay the loan and that accordingly the Borrowers and the valuer were concurrent wrongdoers.
1.4 Requirement for further submissions
The Court held that until there is a Court determination, whether in proceedings by the Bank against the valuer or contribution proceedings between the Borrowers and the valuer (whether actual proceedings, or arising from a hypothetical court determination under s. 17(2)), there could be no certainty as to whether the valuer was in fact responsible for the same damage as the Borrowers. The Court explained that the making of a settlement with the valuer is not the same as a finding by a Court that the valuer is liable for any damage or indeed for damage to the tune of €5 million.
The Court therefore decided that, if after considering the terms of its judgment there was no agreement between the parties on the effect of the 1961 Act on the judgment amount, it would be necessary to hear submissions from both parties on, firstly, whether the valuer was a concurrent wrongdoer and if so, whether it had a liability for the damage caused to the Bank in monetary terms in excess of the sum of €5 million (which has already been deducted from the Bank’s claim).
Implications
In light of this decision, when making a settlement with one party to a dispute, creditors should always be careful to take into account the potential for that party to be considered a concurrent wrongdoer in separate proceedings at a later point and reflect this potential in any settlement. For the avoidance of doubt, it is prudent to expressly record in any settlement agreement that there is no waiver of a claim against any concurrent wrongdoer who is not a party to the settlement albeit that the claim against any such concurrent wrongdoer would be acknowledged to be reduced, but only by the amount is specified in the settlement agreement.
Separate point of interest - legal effect of a declaration of trust
The Borrowers in this case also challenged the entitlement of the Bank to pursue the proceedings against the Borrowers in circumstances where Promontoria (Aran) Limited (the Grantee) had acquired the economic interest in the Facility Letter and the underlying security pursuant to a Declaration of Trust in the course of a loan sale transaction. The Court rejected the Borrowers' argument that the Bank had no legal entitlement to sue the Borrowers.
The Court held that the Bank had clearly retained the legal interest in the Facility Letter and the underlying security and therefore the Bank (and not the Grantee) was the correct party to pursue the action against the Borrowers, albeit that the economic interest in the judgment obtained will be enjoyed by the Grantee under the Declaration of Trust.
1 [2000] 3 I.R. 191
2 [2019] IEHC 151
