Significant Judgment On The Application Of The Civil Liability Act To Debt Claims

• Published date: 15 August 2022
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Debt Capital Markets, Financial Services, Trials & Appeals & Compensation, Civil Law
• Law Firm: Dillon Eustace
• Author: Mr Peter Bredin, Rachel Turner and Jack Doyle

Ulster Bank Ireland Limited & Ors v McDonagh & Ors [2022] IECA 87

The Court of Appeal has recently delivered a significant judgment in relation to whether a lender's entitlement to judgment against a borrower is reduced or affected by a claim for damages that the lender may have against another party.

Background

The proceedings were brought by Ulster Bank Ireland Limited ("the bank") and receivers appointed by it against three borrowers, the McDonagh brothers, to whom the bank had advanced a loan of approximately '22 million in 2007 to part fund the acquisition of an 80-acre site at Kilpeddar, Co Wicklow, on which the defendants intended to build a data centre.

A condition precedent of the loan agreement was that the bank would receive an independent report addressed to the bank valuing the lands at a minimum valuation of '56 million. CBRE provided a report to the bank valuing the lands at '57 million.

For various reasons, the proposed data centre did not progress. The loan was not repaid to the bank.

In 2013, the bank and the defendants entered into a compromise agreement under which the bank agreed to write off the debt in exchange for a payment of '250,000, in addition to the proceeds from the sale of the land at Kilpeddar and some artwork items. The essence of the agreement was that the defendants' liabilities, which at the time stood at roughly '25 million, were written-off, in return for payment of approximately '5 million.

It was agreed that the defendants were to keep the bank at all times fully appraised as to all enquiries into the site and any negotiations regarding its sale.

Later in 2013, the bank instituted proceedings against CBRE alleging negligence in the preparation of its valuation of the lands. These proceedings were settled in 2016 for approximately '5 million, which sum was credited to the defendants' loan account.

In 2014, without the bank's knowledge, the defendants purportedly sold the lands. In or around this time, the bank withdrew its consent to any sale and ongoing marketing of the lands and in October 2014, it appointed joint receivers over the lands.

The above proceedings were issued by the bank against the defendants in July 2018 for the recovery of the sum of '22,090,302.64.

High Court

The case was heard in the High Court over 21 days and our previous article linked here examined the decision in detail.

The first issue for the High Court to decide was whether the defendants were in breach of the compromise agreement...