Ireland: The Supreme Court, Full Recourse Loans And Legal Advice

In Whelan v. AIB (Unreported Supreme Court 30/1/14) the third plaintiff, his wife and children, contracted for a loan to purchase land in Waterford for €25 Million, which later had a value less than €5 million. The third plaintiff was a successful businessman. The loan agreement was on a full recourse basis to all plaintiffs and the documentation was signed by the first plaintiff who had been granted power of attorney from the other plaintiffs. The plaintiffs argued that they had insisted at all times that the loan be on a recourse to property only basis.

The first solicitor firm was advising the plaintiffs in relation to the conveyancing. The second solicitor firm was advising the plaintiffs in relation to the co-ownership agreement pertaining to the lands.

The plaintiffs failed in a claim before the High Court and appealed to the Supreme Court.

The first solicitor firm was not negligent vis-a-vis the plaintiffs - they were advising on the conveyance generally and it was sufficient that they passed the detail of the loan agreement to the second solicitor firm.

The second solicitor firm owed duty of care to the plaintiffs to advise on the wording of the loan agreement, even though such advices went outside the terms of the original retainer. However, the court held that the breach of this duty did not cause a loss to the plaintiffs, since they would have entered the transaction anyway, even if they were advised that the loan was on a full recourse basis – the third plaintiff had placed €2.5 million deposit on the property and they were under time pressure.

The court set aside the judgement as against the children and the wife on the basis that it was a matter to be determined whether it was equitable to permit the bank to enforce the claim against them generally or before pursuing the third plaintiff, on the basis that they had no liability under initial drafts of the loan agreement.

Lessons

A solicitor or adviser may have a duty to advise a client that a loan is not recourse to property only or has been changed from initial drafts, even where that advice goes outside the initial retainer. The court may have a general equitable jurisdiction to refuse enforcement of a loan, where, for instance, initial drafts of the loan did not make a particular party liable.

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