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The 'no-brainer' investment that went spectacularly wrong

AfTer five weeks in court, businessman Philip Lynch's family are still waiting to find out how much their failed €25m Waterford land investment will cost. Theirs is a high-stakes battle, a very public fight to stave off financial catastrophe.

Taking on AIB and two big firms of solicitors -- LK Shields, the firm that advised them on the land deal, and Matheson Ormsby Prentice, adviser to their co-investor, Kildare property developer Gerry Conlan -- isn't for the faint-hearted. Not only does it cost a fortune, but once it reaches the Commercial Court details of the Lynch family's investments and wealth were laid bare.

Their predicament has also strained long-held relationships. From their evidence we know LK Shield's founder, Larry Shields, and Mr Lynch had been friends and business associates for more than 25 years.

Now they sit close to each other in the courtroom but never talk or exchange a glance. When things go wrong, it's a case of every man and woman for themselves.

Philip, his wife Eileen, daughters Judith, Therese and Philippa and son Paul have attended the court every day.

They have all had a spell in the witness box to talk about their understanding of the loan to buy the 86-acre site in Waterford in 2007 that once rezoned was going to net them a €19m profit within a couple of years.

"Wow, I owe you," was Mr Lynch's reply when he heard just how lucrative this investment with Mr Conlan could be for all of them, the court heard.

Mr Lynch, the chief executive of the investment group One51 and former IAWS plc boss, was a wealthy man who was "good for" about €50m in 2007 when he joined Mr Conlan in this deal.

He was investing millions in shares and properties in Ireland and abroad and described the Waterford deal as a "minor detail" in his busy life at that time. He was a "careful" man, he said, who would never expose his family to excessive financial risks.

He agreed to put up €2.5m or half of the deposit and signed his family up as equal partners with Mr Conlan in the €25.3m loan. The family say they believed it was a "no-risk" transaction.

Mr Lynch was prepared to pay his family's share of the interest repayments and once they sold off parcels of the land for development they would clear the loan and take their profit. They had little to lose, they claim.

The land, which they were buying for €25m, was bought at what they felt was a good price and got more valuable once rezoned.

At its height, the site was worth €80m, almost four times the value of their loan.

More importantly, they believed they had signed up for a "non-recourse" loan, they claim. In the unlikely event they couldn't repay it at some point in the future, they believed they didn't have to worry.

As Paul Lynch explained, they understood they could simply "hand the keys back" or let the bank take the land and that would be the end of the matter.

If AIB got less than €25m for it, that was the bank's tough luck. The Lynch family were entitled to walk away without worrying about the shortfall, they claim.


At the heart of their claim is the removal of a special clause inserted by AIB just before the loan was signed that held Mr Conlan and Mr Lynch personally responsible for the loan.

By removing the clause, the bank made everybody involved in the loan jointly and severally liable to repay it, but the family claim they were unaware of this.

Today, the site is said to be worth about €4m and AIB has gone after the family to repay the money that is still owed. It is separately taking a case against Mr Conlan.

The bank denies the loan, arranged by Mr Conlan, was ever a non-recourse loan and believes not only can it pursue them for what they owe but can also demand they cough up Mr Conlan's portion if he doesn't have the money.

The family claim the loan documents they signed and their legal advice led them to believe at all times they had nothing to worry about and could never be personally held liable for the €25.3m.

Indeed, the court heard that apart from Mr Lynch, none of them "have a prayer" of ever finding that kind of money.

If they are faced with repaying the loan, they want the solicitors involved to pick up the tab for them as a result of the alleged advice they received. The lawyers deny their claims.

The Lynch family's case has been hanging over them for the past couple of years as the property bubble burst and it became clear the bank was limbering up to hold them responsible for repaying the loan.

Their phone records, emails and other correspondence have been closely examined to piece together the chain of events they claim led them to feel so comfortable about their massive loan.

In her evidence, Judith Whelan, Mr Lynch's daughter, who signed the loan documents on behalf of the rest of the family and who managed their investments, denied she and her father had constructed a "fake" story about it being a non-recourse loan.

"This isn't a story made up because of a fall in the property market," she told the court as her version of the terms of the loan was challenged.

The Waterford investment started out as a sweet deal. It was a "no brainer", the court heard.

No one involved ever thought it could go so spectacularly wrong.

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