The recent Irish Supreme Court case of KBC Bank v BCM Hanby Wallace examined the issue of when a lender's actions could result in a reduction of an award of damages in a professional negligence claim.
KBC Bank Ireland plc (KBC) made loans totalling €23.9m to two of its customers which were to be secured by 30 properties. KBC instructed the law firm BCM Hanby Wallace (BCM) to investigate the title of those properties and to ensure the completion and perfection of its security. When the borrowers eventually defaulted on these loans, it became evident that BCM had only obtained security over three of the properties. As a result, KBC suffered significant losses which it then sought to recover from BCM. In the High Court, BCM accepted that it had been negligent in failing to obtain security over the properties, but argued that KBC had contributed to its own loss as it had failed to verify the statement of assets and income put forward by the borrowers. In the first instance, the High Court granted damages in favour of KBC but declined to make a finding of contributory negligence on the basis that KBC's own conduct was not a proximate cause of the loss.
The issue before the Supreme Court was whether the High Court decision on contributory negligence was correct. The Supreme Court found that while BCM's negligence was clearly a direct and proximate cause of KCM's loss, KCM's failure adequately to assess the borrower's financial position was also an effective cause of the loss. As it was possible for the Court to make a finding of contributory negligence when there were multiple causes of the loss, the Supreme Court found the High Court had erred in not determining whether KCM's conduct amounted to contributory negligence. The Supreme Court therefore directed the High Court to reconsider the issue of contributory negligence.
This case serves as a useful reminder for lenders contemplating professional negligence claims that their own conduct may result in a finding of contributory negligence and a reduction in any potential award for damages.
See Court decision here.