Business Irish

Saturday 24 March 2018

Non-recourse loan issue is central facet of the case


Siobhan Creaton

Businessman Philip Lynch's family's marathon court case to stave off a demand from AIB to repay a €25m loan for a failed land deal has finally ended.

The deal to buy an 86-acre site in Waterford with property developer Gerry Conlan that looked like a "no brainer" in 2007 has turned into a financial nightmare for the family and their hopes rest on Judge Michael Peart finding in their favour and relieving them of this huge debt.

Summing up their case this week, Michael McDowell SC said theirs was not a case where Mr Lynch, his wife Eileen, daughters Judith, Philippa and Therese and son Paul lost money on a land deal and are blaming solicitors, LK Shields and Matheson Ormsby Prentice (MOP) and AIB for their financial distress.

Their case is that the solicitors and the bank were negligent in the way they dealt with them and should compensate them for their loss.

The family say they signed the €25m loan in the belief that AIB was lending the money to them and Mr Conlan on a non-recourse basis.

By this they understood that if, at some point in the future, they were unable to repay the loan, all AIB could do was take ownership of the site just outside Waterford city and sell it to settle the debt.

If the land was by then worth less than the €25m, that was AIB's problem. It could not pursue any of them individually to make up the difference.

Mr Conlan negotiated the loan on their behalf and the court heard that while the Lynchs thought he was getting a non-recourse loan, he never in fact asked AIB for such a loan.

They subsequently signed documents that gave the bank full recourse to pursue them all to repay it in full and to also pay Mr Conlan's share if he couldn't find the money.

The court heard Mr Conlan now owes AIB €226.6m and "has no money", leaving the family liable for the full €25m plus interest.

In 2007, Mr McDowell claims the family had no idea they were "getting into bed" with a developer who didn't have any money, and rather than being generous in giving them a slice of the deal, Mr Conlan needed Mr Lynch -- a successful businessman estimated to be worth around €50m -- to join him in this deal before the bank would give him any more money.

Mr Conlan engaged in "elaborate deception" and his approach to Mr Lynch was "exploitative", the court heard.

Mr McDowell said a lot of the case depended on the credibility of the witnesses and said the court should prefer the evidence of the Lynchs, which was "less rehearsed" and "air-brushed" than that of their solicitors.

The family relied on LK Shields to protect their interests. The firm, headed by Lawrence Shields, a close friend of Mr Lynch's for more than 25 years, was their "anchor man" on the deal, Mr McDowell said, and they believed, based on a series of emails, that they had signed up to a non-recourse loan.

LK Shields deny the claims and dismissed the Lynch family's account of the circumstances leading up to their signing the loan, describing it as "not credible" and containing "glaring omissions" and "multiple inconsistencies".

Paul Sreenan SC, who is representing the firm, told the court the case was "a product of its time" and the "Celtic Tiger and the sort of fever that there was for property and investment".

It is easy to forget that a lot of people "lost the run of themselves" during those heady days, he told the court.

He pointed out that Mr Lynch said in evidence that he didn't understand what non-recourse meant, but nevertheless he wanted it. And were it not for assurances given by LK Shields the deal was non-recourse, the One51 plc boss claimed he would have walked away from the deal.

The fact there were no documents showing Mr Lynch required the loan to be non-recourse was "truly a stunning feature of this case", Mr Sreenan said and a "very significant omission".

LK Shields claimed to have a very limited role in the transaction, with MOP dealing with the bank and the land purchase for the Lynch family and Mr Conlan. LK Shields got involved "simply to be helpful", Mr Sreenan said, and offered "administrative assistance" rather than advice. It also liaised with MOP on the land deal.

Where, as the family claims, the firm gave them information suggesting the loan was non-recourse, Mr Sreenan said this did not mean LK Shields was guilty of negligence as that information may not have been given to them in a "sufficiently clear way" by MOP.

In its defence, AIB says Mr Lynch and his family produced no evidence to show the bank misrepresented them in any way about the nature of the €25m loan. Michael Collins, SC for the bank, said the "simple fact" was that neither Mr Lynch nor his family ever asked AIB for a loan where it would have no recourse to them for the €25m. There was no dispute the final loan documents they signed in February 2007 were for a full recourse loan, the court heard.

The bank admits there was an "error" in the final loan letter that included a special condition giving AIB the right to pursue just Mr Lynch and Mr Conlan that was later removed on advice from its solicitors, A&L Goodbody. This allowed the bank to seek repayment of the loan from all of the borrowers. Mr Collins said this was understood by Ronan McLoughlin, a partner at MOP who was handling the deal for them.

Michael Cush, SC for MOP, said it was retained to solely handle the land purchase and had no duty to advise the family on loan finance -- that was LK Shields' role. MOP did not owe the Lynchs a duty of care.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business