Last year, the High Court awarded a bank substantial damages against a Dublin law firm for failing to ensure that proper security was in place before releasing loan monies in respect of a number of properties. The law firm has now successfully appealed this decision to the Supreme Court on two grounds, namely on the issue of contributory negligence and the trial judge’s implication of deception on the part of the solicitors.

In relation to the alleged deception, the Supreme Court stated that the High Court’s judgment “cannot and should not be read as attributing any intentional dishonesty or deliberate misleading to any partners or officers of the appellant firm”.

As regards the issue of contributory negligence, the Court highlighted that lending banks have a duty to assess the creditworthiness, soundness and - most importantly - trustworthiness of the borrowers when reviewing potential loan transactions. The Court noted that this obligation is independent of any reliance on third parties such as a solicitor. In this regard, banks should monitor risk through robust and comprehensive credit analysis and approval processes in line with the EC (Licensing and Supervision of Credit Institutions) Regulations 1992.

The Court noted that when assessing liability for contributory negligence, the law permits for more than one cause of loss. In light of this, it determined that although the law firm’s negligence was a proximate cause of the bank’s loss, it was not the only effective cause. The Court held that the bank’s negligence, or want of care, was also an effective cause of the loss because they had, like the appellant, caused loan monies to be paid to parties who were unable to repay.

The Court distinguished between two types of contributory negligence alleged against the bank. Firstly, their want of care in making the decisions to lend; and secondly, their failure to verify or supervise the performance of the law firm’s duties.

The Court concluded that the trial judge was mistaken in his assessment of causation in absolving the bank of responsibility for contributory negligence. It held that the bank failed to exercise due care in making its lending decision. It further noted that the bank was exclusively responsible for this decision, which was an effective cause of the loss suffered by the bank.

It was also noted that the High Court had never decided whether, if the bank's acts had been a cause of the loss, the bank would have been responsible for contributory negligence. Therefore, in light of the Supreme Court’s findings on causation, the case was remitted to the High Court to decide whether there should be a finding of contributory negligence on the part of the bank and, if so, to apportion responsibility.

The issue of contributory negligence will now be reconsidered by the High Court. It will decide whether and to what extent the bank was contributory negligent.