Concurrent wrongdoers and debt recovery – clarity from the Court of Appeal
Concurrent wrongdoers and debt recovery – clarity from the Court of Appeal
In a recent important judgment (Ulster Bank DAC and Ors v McDonagh and Ors  IECA 87), the Court of Appeal (the Court) confirmed that the Civil Liability Act, 1961 (the CLA) does not apply to debt recovery cases as they are not considered actions for "damages". The decision provides key commentary on the CLA and the law surrounding concurrent wrongdoers and will be an essential reference point going forward for all parties involved in litigation which touches on the issues raised in this case.
In the present case, the Court found that the valuer who was alleged to have provided a negligent valuation and the borrower who was contractually obliged to repay the debt, were not concurrent wrongdoers.
Ulster Bank Ireland Limited (the Bank) provided the defendants with a loan of over €21m in 2008 to fund the purchase of a site in County Wicklow. The loan was secured on the site. Although planning permission had been received to develop a data centre, the plans did not go ahead and the defendants were not able to repay the loan. The Bank reached a compromise agreement with the defendants which was alleged to have been subsequently breached. The Bank sought summary judgment in the amount of €22,090,302.64 against the defendants. Notably, the Bank had settled a claim against CBRE for an allegedly negligent valuation of the site before the debt proceedings were initiated against the defendants. The CBRE settlement figure of €5m was applied by the Bank against the defendants' loan in reduction of the debt.
The High Court
In the High Court (Ulster Bank DAC and Ors v McDonagh and Ors  IEHC 185), the defendants argued that they, along with CBRE, were concurrent wrongdoers and that as a result, no additional money was due and owing to the Bank by the defendants under ss. 17(2) and 35(1)(h) of the CLA. On the other hand, the Bank submitted that these sections did not apply to summary debt claims and that the defendants and CBRE were not concurrent wrongdoers. Twomey J referred to AIB v O'Reilly and Anor  IEHC 151 for the proposition that the CLA could be applied to summary debt claims. In concluding that the CLA did apply to summary debt claims, it was also noted that the non-payment of money was a breach of contract and was therefore caught by the definition of a "wrong" per its CLA definition.
Twomey J thus found that CBRE and the defendants were concurrent wrongdoers. He then considered s.17 of the CLA. Section 17(1) of the CLA provides:
"The release of, or accord with, one concurrent wrongdoer shall discharge the others if such release or accord indicates an intention that the others are to be discharged."
Twomey J found that s.17 (1) was not applicable to the current facts as the settlement agreement between the Bank and CBRE did not refer to the defendants nor did it admit any liability on the part of CBRE. As a result, Twomey J proceeded to consider s.17 (2) of the CLA which allows a claim against a concurrent wrongdoer to be reduced to account for a payment already made by the other concurrent wrongdoer to the injured party. In determining the extent to which the claim against the defendants should be reduced, Twomey J held that regard should be had to the amount of consideration that had been paid for the CBRE settlement. He held that any amount which the settlement provided could reduce the Banks claim against the defendants as well as the extent to which CBRE would have been liable to contribute if the Bank's entire claim was paid by the defendants.
The High Court also dealt with an issue surrounding the Bank's entitlement to bring a claim against the defendants in circumstances where its economic interest in both the facility letter and the underlying security had been transferred to Promontoria (Aran) Limited under a declaration of trust. The High Court was satisfied that the Bank had retained its interest in same and was therefore entitled to bring the case. The High Court's analysis regarding the effect of the declaration of trust was not challenged in the subsequent appeal.
In a subsequent judgment (Ulster Bank DAC and Ors v McDonagh and Ors (No 2)  IEHC 311), the High Court found that there was no evidence before it to support a finding that the valuation provided by CBRE had been negligent. The Court awarded judgment to the Bank against the defendants.
The Court of Appeal
On appeal by the defendants, the Court was tasked with determining a number of issues, including but not limited to, the application of the CLA to the claim made by the Bank in light of the settlement with CBRE and issues stemming from the purported breach of the compromise agreement by the defendants.
The Court held that the provisions of the CLA governing concurrent wrongdoers are solely concerned with allocating responsibility between wrongdoers facing legal proceedings for the recovery of damages. It was highlighted that a claim which seeks to recover a debt is not an action which seeks to recover damages, but is akin to an order of specific performance in respect of a contractual obligation. The Court confirmed that the law which governs "contribution as between or claims as against concurrent wrongdoers has never applied to an action for the recovery of a debt and nothing in the CLA changes that".
The Court pointed out that even if the CLA could be interpreted as allowing a debt recovery action and an action for damages arising from a contract breach to "be equated" in order for debt recovery claims to fall within Part III of the CLA, a claim brought against a debtor based on a loan instrument and a claim against a valuer, whose negligence was allegedly the reason the loan was provided, cannot be regarded as actions seeking to recover the "same damage". The Court clarified that the debtor would be liable for the entirety of the debt whilst the maximum amount which the valuer could be held liable for was a figure representing the amount of the loan which the lender could not recover from the debtor. On that basis, it was held that the liability of the debtor and the valuer were not concurrent. The Bank would not in fact have been legally obliged to deduct the CBRE settlement from the defendants' debt but it did so voluntarily in this case. It was held that if the defendants sought to argue that CBRE was a wrongdoer, they should have put forward expert evidence attesting to the negligence of CBRE in carrying out the site valuation. The Court went on to say that the issue of a potential reduction to the Bank's claim against the defendants would only have arisen if CBRE had a contribution liability greater than €5m. In this regard, the Court found that there was "absolutely no basis on which it could be suggested that CBRE could have any such liability to the Defendants".
In summary, the Court dismissed the appeals of all three defendants. The decision is noteworthy for its confirmation that the CLA does not apply to an action for the recovery of a debt as it is not an action for "damages". The decision is also of interest due to the Court's consideration of the particular factual matrix presented by the case, namely a valuer who was alleged to have provided a negligent valuation and a borrower who was contractually obliged to repay the debt, before ultimately deciding that they were not concurrent wrongdoers. For the wider issues the case addresses, as well as the specific application to valuers (and by extension other professional advisors) as well as banks, receivers, borrowers and creditors, this is a critical and significant decision.