The Irish Supreme Court was recently asked to consider one of the country’s largest lender cases of recent years: KBC Bank Ireland Plc v BCM Hanby Wallace(‘KBC’http://www.courts.ie/ __80256F2B00356A6B.nsf/0/01F5B8435ABFB92080257A0600 3D46C3).
In March 2012, Mr Justice McGovern held that the Defendant firm of solicitors had not merely breached its duty in not obtaining security with respect to a number of loans but had gone so far as to actively deceive the Claimant Bank on this issue. Out of 30 properties that were required as security, the Defendant obtained a first legal mortgage/charge in respect of only three. Instead, the Defendant accepted undertakings from the borrowers’ solicitors, without reference to, or authority from, the Claimant Bank. Disturbingly, but perhaps not surprisingly, in 2005, at the height of the Irish economic boom, it appears to have been common practice to make loans on the basis of undertakings.
The grounds for the finding of deception were that the Defendant had conveyed to the Bank the impression that the security had been obtained and had given assurances that the monies advanced by the Bank would not be released to the borrower without the security being in place. McGovern J described these breaches of duty as “egregious” and “a fundamental departure” from the instructions given to the Defendant by the Bank.
Moreover, McGovern J accepted the Bank’s contention that if it had been aware that the security it required had not been put in place, it would not have entered into the transactions or lent the sums involved and that the damages should be assessed on the basis of a "no transaction" case. He therefore awarded the Bank over €17 million.
In doing so, the Judge’s rationale at first blush appears to contradict what Lord Hoffmann said in SAAMCo, about there being no distinction between “successful transaction” and “no transaction” cases (see South Australia Asset Management Corp v York Montague Ltd at  A.C. 191 at 218C-G). McGovern J accepted that the Defendant’s duty was to put in place proper security and not to advise the Bank as to whether to lend or not. Therefore according to SAAMCo, the Defendant’s liability should have been limited to the foreseeable consequences of the lack of security rather than all the potential consequences of that course of action (see SAAMCo at 214E-F).
The Judge sought to distinguish SAAMCo, however, on the basis that the breaches of duty in this case constituted active deception rather than mere omissions. In Doyle v Olby (Ironmongers) Limited ( 2 Q.B. 158) the Court of Appeal held that damages for deceit are all those which directly flow from the tortious act, which are not too remote, whether or not they are foreseeable. Lord Hoffmann noted but did not express a view on this proposition in SAAMCo. However it is now firmly entrenched authority. Yet it is questionable whether the principle was properly applied in KBC, as the point was not argued by the Claimant but taken of the Court’s own motion. It will be interesting to see whether the Supreme Court upholds the decision.