AIB v Maguire: No authority that courts can go beyond awarding compensatory damages against a solicitor for wrongdoing

Here (Allied Irish Bank v Maguire & Co Solicitors), the Supreme Court overturned a High Court award of damages against a firm of solicitors for failure to fulfill an undertaking, because it included a punitive element. Clarke J stated: “I am not satisfied that the existing authorities clearly establish a jurisdiction to go beyond compensatory damages”. Charleton J and O’Malley J concurred.

Background

In May 2007, AIB sanctioned a loan of €3 million to Alan and Noreen Hynes  (Hynes) to purchase a property in Wexford. The property was owned by a syndicate, which included Noreen Hynes, and was subject to a mortgage of €2.2 million to Anglo. AIB’s loan offer included a term that Hynes’s solicitor (Maguire & Co) must discharge the Anglo mortgage and give AIB first charge over the property. Maguire gave AIB an undertaking to that effect. AIB released the funds to Maguire. However, Maguire did not pay off the Anglo mortgage, but released the money to Hynes, who used it as a deposit for another development property.

In 2008, Hynes defaulted in payments to AIB. In December 2008, AIB became aware that Maguire had not paid off the Anglo mortgage. In April 2009, AIB secured a judgment against Hynes for €3.1 million. At that time, the value of the property was €600,000 – €650,000. It is contested between the parties whether the value at the time AIB released the funds to Maguire was €2 million or €3.9 million. When AIB could not recover its debt from Hynes, it issued High Court proceedings seeking damages from Maguire.

High Court

Maguire did not contest liability. The dispute between the parties concerned the calculation of damages: whether Maguire’s liability was limited to the value of the property at the time AIB sought to enforce its security (€650,000); whether Maguire was liable for the full sum paid over by AIB (€3 million): or whether liability was somewhere between between those two.

Peart J (here) identified a number of principles from both the High Court judgment (Laffoy J) and the Supreme Court (Geoghegan J) in Bank of Ireland Mortgage Bank v Coleman [2009] 3 IR 699:

  1. The Court has an inherent jurisdiction in matters concerning the conduct of solicitors, being officers of the court, including but not confined to compliance with their undertakings.
  2. It is both a punitive and compensatory jurisdiction.
  3. It is discretionary and unfettered in nature requiring each case to be considered on its own facts and circumstances.
  4. In its exercise, the Court is concerned to uphold the integrity of the system, and the highest standards of honourable behaviour by its officers – a standard higher than that required by law generally.
  5. The order made by the Court can take whatever form best serves the interests of justice between the parties.
  6. In the matter of undertakings, the Court must consider the entire undertaking in order to reach a conclusion as to its real ultimate purpose.
  7. The Court may order compliance with the undertaking, though late, where there remains a reasonable possibility of so doing.
  8. Even where the undertaking may still be complied with, the Court may nevertheless order the solicitor to make good any loss actually occasioned by the breach of undertaking, which may or may not be the entire of the sum which was the subject of the undertaking.
  9. Where compliance is not possible to achieve by the time the Court is deciding what order to make, if any, it may order the solicitor to make good any loss actually occasioned by the breach of the undertaking.
  10. Carelessness or other form of negligence on the part of the person affected by the undertaking, and in relation to the matter the subject thereof, may be a factor which the Court will have regard to when determining what order may be fair and just.
  11. Any order the Court may make ought not be oppressive on the solicitor. Nevertheless, gross carelessness or other conduct considered sufficiently egregious by the Court, though falling short of criminal behaviour or even professional misconduct, will entitle the Court, should it consider it just to do so, to order payment of the entire sum which was the subject of the undertaking, and not simply a lesser sum in respect of loss actually occasioned by the breach of undertaking.

On application of those principles to the facts of this case, Peart J ordered that Maguire pay AIB damages of €3 million plus interest. Maguire appealed that decision to the Supreme Court.

Supreme Court

Clarke J identified the issues as:

[2.11] … The first is as to whether it is correct to suggest that, as a matter of law, a court enjoys an entitlement to assess damages in the context of a breach of undertaking which allows those damages to be determined on a basis which goes beyond purely compensatory damages. The second issue, which obviously only arises in the event that that first question is answered in the affirmative, is as to whether, assuming that such a jurisdiction exists, it was appropriate to exercise it in all the circumstances of this case. That second issue encompasses the question of whether such an approach was justified in the light of the case as pleaded. The third issue is as to whether, if it was appropriate to exercise the jurisdiction in this case, the precise way in which the asserted jurisdiction was in fact exercised was within the range of measures which were reasonably open to the trial judge such that they should not interfered with by this Court on appeal.

On an analysis of the authorities, Clarke J concluded that it is not fully clear if the courts have authority, while calculating damages in such cases, to go beyond making a compensatory award [6.20]. And he noted that the Supreme Court did not disagree, in Coleman, with Laffoy J’s High Court statement that it would not be right to put a claimant in a better position where an undertaking had not been complied with than if it had [6.17].

Clarke cited the long held principle on compensatory damages from Livingstone v. Rawyards Coal Co [1880] 5 App Cas 25, 39, Lord Blackburn:

That sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been if he had not sustained the wrong for which is now getting his compensation or reparation.

In this case, however, there were two separate wrongdoings: the misappropriation of the funds and the concealment of that from AIB for 18 months. If AIB had known about the failure to fulfill the undertaking, it would likely have taken action to improve its position. Therefore, compensatory damage could not be calculated by reference to the value of the property in 2009.

Conclusion

Clarke J held that there is no existing authority that the courts can go beyond awarding compensatory damages against a solicitor for wrongdoing. It is possible to envisage circumstances where that jurisdiction could exist, such as where a solicitor acted to his own benefit. But that was not the case here. So it was not necessary to answer that question [8.1].

However, as the wrongdoing was concealed from AIB, it was appropriate to calculate the loss at a time close to Maguire’s breach of its undertaking when AIB could reasonably have sought to realise the security it should have had [9.1].

Clarke J allowed Maguire’s appeal and sent the case back to the High Court for an assessment of damages.

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