The High Court

Last year, the High Court had ruled that the solicitors firm had failed to obtain security for loans in respect of 27 properties, and instead allowed the loans to be advanced in reliance on undertakings to provide security. As a result the bank had “suffered very substantial losses due to its inability to realise its security coupled with the substantial devaluation of the properties”.

The High Court concluded that the effective cause for the loss was that the bank had no security for €25 million worth of loans advanced to two individuals, and awarded €17.7 million in damages against the solicitors firm. The High Court held that, whilst the bank had been “somewhat careless in its appraisal of the borrowers”, this was not a sufficiently proximate cause for the loss. The court held that if the solicitors firm had fulfilled its duties, on the facts of the case, the bank would have decided against making the loans in the first place, and so no loss would have followed. The Court appeared highly influenced by the specific factual matrix of the case which it considered “quite exceptional” including a finding that the solicitors firm had “committed a deception, because it was aware that the required security was not in place, but led the bank to believe that it was”.

The Supreme Court

The Supreme Court reviewed the evidence and clarified the finding of “deception” stating that the High Court judgment “cannot and should not be read as imputing any intentional dishonesty or deliberate misleading to any partners or officers of the appellant firm”.

The Court noted that banks have a duty when reviewing whether to make any given loan to assess the soundness, financial standing and trustworthiness of the prospective borrower as well as the viability of the proposed venture. This meant that banks should have robust and comprehensive credit analysis and approval processes to ensure adequate monitoring of risk, as required by the EC (Licensing and Supervision of Credit Institutions) Regulation 1992. These duties are quite independent of any reliance the bank might place on any third party, such as a solicitor.

Here the bank had failed to obtain verification of the assets or income put forward by the borrowers. This included “extraordinary” claims made by the borrowers regarding their income. Amongst these claims was that one borrower, Mr Byrne, was worth €32 million and was earning income of €12 million in 2006, including €4 million from his small practice and an “entirely bogus” claim of €4 million income from consultancy to French fashion houses.

On the issue of causation, the Supreme Court accepted that whilst the solicitors’ firm’s failure to obtain adequate security was an effective cause of the bank’s loss, the bank’s initial decision to lend to the borrowers without adequately assessing them was also an effective cause. It was also possible that there was additional fault on the bank “if the evidence showed that the errors of [the solicitors firm in not obtaining adequate security] were known to the bank and overlooked or were so obvious that they could not be ignored”. On this basis, the Supreme Court directed that the High Court consider the question of whether the bank’s failures were such as to amount to contributory negligence, justifying some liability being imposed on the bank for its loss.


The Supreme Court affirmed a line of UK authority that clients of professional firms can be found liable for contributory negligence in appropriate circumstances. This is possible where they retain duties independent of those that they have outsourced to the external advisors. Accordingly, parties considering professional negligence cases should carefully consider their own duties and behaviour in assessing the value of a claim.

In the particular case of bank lending, a bank has a duty to manage its business in accordance with sound administrative and accounting principles as required by the EC (Licensing and Supervision of Credit Institutions) Regulation 1992. It remains to be seen whether the High Court regards the bank’s behaviour in this particular case as constituting contributory negligence; and, if so, the weight it attaches to any such finding.