Saturday 17 March 2018

KBC bank awarded €17.7m damages over loans to struck-off solicitor Thomas Byrne

KBC Bank has been awarded €17.7m damages against a Dublin law firm over "most serious" failures to ensure the bank had security for substantial loans advanced to a property developer and struck-off solicitor Thomas Byrne.

The bank sought security on 30 properties, but only got security on three.

Mr Justice Brian McGovern previously found the breach of duty by tBCM Hanby Wallace (now Byrne Wallace) amounted to "a deception" because it was aware the required security was not in place but led the bank to believe it was. This was not about a single act of negligence but "multiple failures" repeated across four separate loan transactions, he ruled.

He rejected arguments of contributory negligence by KBC in failing to properly check out the creditworthiness of either Mr Byrne or developer John Kelly, Hunter's Moon, Kilquade, Co Wicklow, before agreeing to advance loans of some €9m and some €16m to them respectively on dates from 2005 to 2007. The Bank was entitled to rely on assurances from professionals retained by it, he said.

KBC, he ruled, was entitled to damages on a "no transaction" basis - it would not have made the loans if the solicitors had told it the necessary security was not in place. KBC was entitled to recover the full amount of the loans advanced, plus certain costs and stamp duty, he directed.

He also ordered the damages sum was to be reduced by sums representing the 2008 value of the three secured properties, some €900,000 received from Mr Kelly, the value of a site at Oylgate, Co Wexford, and certain costs.

KBC had sought some €25m damages. The sides later reached agreement on most of the damages, but clashed over valuations likely to have been placed in 2008 on the Oylgate lands and on a convenience store property in Rathmines, Dublin, a car showroom when it was purchased.

The judge reserved judgment on those matters to yesterday when he gave judgment assessing the total damages recoverable at €17,694,130. He adjourned the making of formal orders to allow the sides consider his judgment and the figures set out.

A valuer for the bank had argued the appropriate 2008 prices for the Oylgate lands and Rathmines property were €275,000 and €2m respectively. A valuer for the firm disagreed and said the appropriate Oylgate price was €2.5m and €4.5m for Rathmines.

Having analysed the evidence, the judge assessed the value of the Rathmines property as €3.4m in June 2008 and the value of the Oylgate lands as €2.25m in August 2008. That decision meant a reduction in the total damages sought by the bank.

The judge noted KBC, in August 2005, obtained a €5.3m valuation for the Rathmines property but all parties accepted that was based on an incorrect turnover of €130,000 per week. The actual turnover was €46,000.

Having received the €5.3m valuation, KBC reduced that to €4m given the trading history of the premises. An expert for the bank told Mr Justice McGovern he believed the correct value for the premises in

2005 was €2.8m.

The judge found convincing evidence to support €4m, not €2.8m, as being the value of the Rathmines property in August 2005. He also noted property prices increased between 2005 and 2008 before the "catastrophic" decline and estimated the June 2008 value of the property as €3.4m.

On the Oylgate lands, the judge said their value was to be assessed as their value in August 2008, six months after security was furnished for them.

He noted Mr Kelly bought the lands in November 2006 for €3m but was not registered owner until February 2008. Mr Kelly had insufficient funds to pay stamp duty for the lands, the bank had lent him some €181,000 for that and he was registered as the owner in February 2008, the judge noted.

The judge disagreed with the bank that the Oylgate lands should be treated as agricultural lands in August 2008 and accepted evidence on behalf of the law firm it was likely there would have been planning permission for the lands. The attitude of the planning authorities "changed completely" after the property crash which began in earnest in the last quarter of 2008, he noted.

Mr Kelly paid €3m for the lands in November 2007 and it was reasonable to assess that was their value then as bids of between €2.5m and €2.8m were made for them in September 2006, he said. In August 2008, he concluded their value was €2.25m to allow for a falling proeprty market at that time.

While it was easy with hindsight to see how inflated the €3m price was in 2007, and the same could be said of a €2.25m figure in August 2008, and both figures may now seem "wildy extravagant", they represented the market value of the lands at the time, he found.

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