Clarity For Creditors When Settling With Multiple Debtors

• Published date: 05 August 2022
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Debt Capital Markets, Financial Services, Trials & Appeals & Compensation
• Law Firm: Maples Group
• Author: Mr Brian Clarke and Kyle Nolan

Settling with one or some of a number of potential wrongdoers can sometimes be fraught with difficulty, particularly due to concerns regarding the application of the provisions of the Civil Liability Act 1961 (the "Act") on contribution between 'concurrent wrongdoers' i.e. two or more persons who are responsible for the same damage. Until now, the lack of clarity regarding applicability of the Act to claims for the recovery of a debt often preoccupied banks and their advisors when considering debt arrangements with certain co-borrowers and/or guarantors and the form of such arrangements.

In a significant judgment delivered earlier this year¹ , the Court of Appeal held that those provisions of the Act do not apply to claims for the recovery of debts. The Court also held that a claim to recover a debt against a borrower and a related negligence claim against a valuer were not claims for the 'same damage' under the Act - thus, those parties could not be considered concurrent wrongdoers.

Consequently, the Court dismissed arguments by the defendant borrowers that a settlement of a claim against a valuer by the bank precluded the bank from pursuing those borrowers for the balance of the debt.

This is a welcome clarification, especially for creditors, although caution should still be exercised when entering into settlements in such circumstances.

Background

Ulster Bank (the "Bank") sought to recover a judgment against the defendants in the sum of '22 million arising from a loan advanced by the Bank in 2007 which funded the acquisition of an 82 acre site at Kilpeddar, Co. Wicklow (the "Kilpeddar Lands"). In satisfaction of a condition precedent for the loan, the Bank received an independent valuation which valued the Kilpeddar Lands at '57 million.

In March 2013 the Bank and the defendants entered into a compromise agreement pursuant to which the debt, then standing at approximately '25 million, was to be written off in return for a payment of approximately '5 million. The defendants later allegedly breached the terms of the agreement and the Bank then sought judgment for the full amount of the debt.

In June 2013, however, the Bank instituted proceedings against the valuer for the alleged negligent valuation of the Kilpeddar Lands. The Bank settled that action in 2016 in the amount of '5 million which sum was credited to the defendants' loan account.

Defendants: Bank Precluded from Recovery Due to Settlement with Valuer

The defendants argued that, as a...