Concurrent wrongdoers and debt recovery

Concurrent wrongdoers and debt recovery

A concurrent wrongdoer in Ireland is defined in s. 11 of the Civil Liability Act 1961 as “one of two or more people responsible to a plaintiff for the same damage” (“Concurrent Wrongdoer/s”).  Concurrent Wrongdoers are jointly and severally liable for the damage sustained by a plaintiff[1].

A recent Court of Appeal decision[2] has clarified that in terms of a debt secured by a mortgage over a property, a valuer who produced a negligent valuation and a borrower who was contractually obliged to repay the debt are NOT Concurrent Wrongdoers for the purposes of the Civil Liability Act 1961 (the “Act”).

The significance of the foregoing lies in the way in which a Court is required to ascertain the extent of the liability of one Concurrent Wrongdoer when a plaintiff has reached a settlement agreement with another pursuant to s. 17 (2) of the Act.

The decision will be of particular interest to lenders and professional valuers.

The Law

S. 17 (2) of the Act provides that where a plaintiff (“P”) has reached an accord or agreement with one Concurrent Wrongdoer (CW1) to release him/ her from liability, unless the agreement/ accord expressly or by implication releases the other Concurrent Wrongdoer/s (CW2) from liability, the liability of the other Concurrent Wrongdoer/s (CW2) will be released by the greater of :-

  • The amount of the settlement between P and CW1; or
  • Any amount stipulated in the settlement agreement between P and CW1; or
  • The extent by which it can be said that CW1 was liable to contribute to CW2 if CW2 had paid the entire claim.

S. 35 (1) (h) and s. 17 (2) of the Act also require, (in the case of an agreement reached between P and CW1 WITHOUT the intention to release CW2) a plaintiff to “identify” with CW1 in any proceedings it issues against CW2. Identification is a legal term, and in this case is employed here so that P does not recover on the double and enjoy a windfall from CW2. Identification provides that in the foregoing instance P be deemed to be responsible for any acts of CW1 in those proceedings by way of contributory negligence.

Executive Summary

In the case in question, the borrowers (ie CW2) alleged[3] that the valuer (ie CW2 due to allegedly negligent provision of a property valuation), as Concurrent Wrongdoer with them, would have been required to contribute to them some or all of the loan outstanding and that consequently the borrowers’ liability to the bank should be reduced or set at nought pursuant to s. 17 (2) of the Act.

The borrowers’ argument was ultimately rejected by the Court of Appeal on the basis that a borrower and a valuer that provided a negligent valuation of property that induced a bank to lend to the borrower, were not Concurrent Wrongdoers. The Court held that any windfall to the bank by reason of its claims against both the valuer (for damage caused by an alleged negligently drafted report) and the borrowers (for the amount of the loan unpaid), was to the detriment of the valuer only and not the borrowers.  Therefore, the Court held that the borrowers could not rely on any settlement reached by the bank with the valuer to relieve the borrowers of having to repay the full amount of the unpaid loan.

The Case and Background/ Facts

The appellants in this case, Ulster Bank Ireland Limited & Others, Plaintiffs/ Respondents -v- Brian McDonagh & Others, Defendants/ Appellants, IEHC 2022 87, were three brothers (the “Borrowers”) who borrowed €21.5 million from Ulster Bank Ireland Limited (“the Bank”) to part fund the acquisition of a site at Kilpedder, Co. Wicklow in 2008.  The Borrowers secured planning permission for a data centre, but the development did not go ahead and the Borrowers were not able to repay the loan.  The Bank and the Borrowers entered into a Compromise Agreement and the Borrowers had to disclose all their respective assets in a Statement of Affairs. The Borrowers were alleged to have breached the Compromise Agreement and the Bank looked for summary judgment for €21.5m against the Borrowers. The Bank issued professional negligence proceedings against its valuer, CBRE for allegedly failing to properly value the Kilpedder lands. This claim was settled for €5 million which, (at the election of the Bank) was applied against the Borrowers’ loan in reduction of the debt. As set out in the decision of the Court of Appeal, there was no apparent legal basis for the Bank to reduce the Borrowers’ liability by the amount paid by CBRE.

High Court decision

Two broad issues were contested before the High Court. The first centred on whether or not the Borrowers/ defendants had breached the Compromise Agreement and secondly, whether CBRE was a Concurrent Wrongdoer with the Borrowers/defendants and thus whether or not the Bank was precluded from pursuing the Borrowers/defendants for the debt under section 17(2) of the Act in full or in part.

Mr. Justice Twomey delivered two judgments on behalf of the High Court. The first judgment[4]  was delivered on 6 April 2020 and determined that the Borrowers/defendants were jointly and severally liable to the Bank for the full amount of the outstanding debt. It was determined that the Borrowers had breached the Compromise Agreement and the Bank was entitled to pursue its claim for monies against the Borrowers/defendants.

With respect to the Act, the Court determined in its second judgment[5] that if some defendants in an action are alleged to be in breach of a contract for failing to pay a debt, and there were others responsible for that same debt on the basis of their wrongful conduct, then they were Concurrent Wrongdoers and s. 17 (2) of the Act applies.

However, the High Court concluded in its second judgment[6] that as no evidence was available to the Court to establish that the valuer was negligent in relation to the issue of its valuation report and that the report was the cause of the non-repayment of the loan by the Borrowers the Borrowers were found to be liable for the full amount of the debt outstanding in the amount of c. €22m. The Borrowers/ defendants appealed the case to the Court of Appeal.

The decision of the Court of Appeal relating to the Act

The Court of Appeal comprising the Honourable Mr Justice Brian Murray, Mr Justice Maurice Collins and Ms Justice Teresa Pilkington, delivered its judgment on the 6th of April 2022 and held that the Act is concerned with apportioning responsibility between wrongdoers facing legal proceedings for the recovery of “damages”[7]. The Court concluded that a claim for the recovery of a debt is not an action for the recovery of damages but for the enforcement of a primary contractual right. Even if a claim for a debt could be construed as a claim for “damages” as defined by the Act, the Court of Appeal held that a claim for damages for professional negligence and a claim for repayment of a debt were not actions for the “same damage”, as required by the Act[8]. The Court went on to say that a debtor would be liable for the entire debt, whereas the maximum amount for which the valuer could be held liable was a figure representing the amount of the loan which the lender could not recover from the debtor. Therefore, it was held that the liability of the debtor and valuer were not concurrent as required by s. 17 (2) of the Act.

Ultimately, the Court dismissed the Borrowers’ case on the matter of the application of the Act to proceedings for the recovery of debt and found the Borrowers liable for the full amount of the debt outstanding.  The Court of Appeal found absolutely no basis on which it could be suggested that the valuer, CBRE, could have any liability to contribute to the debt of the defendants, as required by s. 17 (2) of the Act. The Bank was not obliged to have deducted the €5m received from CBRE on foot of the settlement from the debtors’/Borrowers’ liability but as it had elected to do so, the Borrowers’ liability was reduced in that amount.  Therefore, the Borrowers were found to be liable for the full amount of the loan (€27m) less the settlement sum received from CBRE and applied to their loan account (€5m) with interest thereon. The effect of the second judgment of the High Court was upheld and the judgment of c. €22.9m against the Borrowers on a joint and several basis remained.

Further, the Court held that proofs critical to establish negligence – including a professional report confirming that the valuer failed in meeting its standard of care by adhering to general accepted and approved practice – were not present and the Borrowers’ argument was bound to fail for that reason, even if the Court held that the valuer/CBRE and the Borrowers were Concurrent Wrongdoers (which, as above, was not the case).

The Court of Appeal made clear[9] that the case is not concerned with the manner in which liability as between joint debtors or debtors and guarantors should be determined. In its decision, the Court emphasised that its findings do not in any sense have the consequence that in either of these situations a creditor is entitled to effect double recovery nor does it mean that a compromise with one debtor in these circumstances has no implications for another party liable on the debt. Instead, the relevant common law rules and applicable equitable principles (in particular of recoupment and contribution) continue to operate, the court held.  In the case of joint debtors this means that the release of one co-debtor in an agreement which did not expressly or impliedly reserve the creditors’ rights against the others will wholly extinguish the creditor’s rights. In the case of the relationship between guarantors and debtors issues as to whether and if so at what point of time in the context of a particular guarantee the guarantor has a right to indemnity or contribution from the principal debtor, those rights, the guarantor’s rights to subrogation, and indeed its rights against co-sureties fall to be determined in accordance with those equitable principles developed ‘to ensure that the person primarily liable should bear the whole burden in relief of others’ (Re Eylewood Ltd. [2011] 1 ILRM 5 at para. 35 per Finlay Geoghegan J.)[10].

Conclusion

The decision, insofar as it relates to the application of the Act to cases where it appears more than one person is or may be responsible for loss sustained by a plaintiff, is an important one as it clarifies the fundamental steps to take when examining the relationship between two parties to ascertain if they are Concurrent Wrongdoers.  The decision will be welcomed by banks and lending institutions as it makes it clear that the full amount of a loan remains outstanding even in situations where the lender was induced to lend on foot of an allegedly negligently prepared valuation report.

Further reading – see “The Blame Game”, by John Kennedy SC in the Law Society Gazette, 01 July 2022 and for wider background Appeals court upholds €22m judgment against brothers over data centre lands”  Anthea McTeirnan of the Irish Times dated 06 April 2022.

[1] S. 12 of the Act

[2] Ulster Bank Ireland Limited, Paul McCann and Patrick Dillon, Plaintiffs/ Respondents -v- Brian McDonagh, Kenneth McDonaghj and Maurice McDonagh, Defendants/ Appellants. 2022 IECA 87

[3] amongst other arguments that will not be addressed in this article

[4] Ulster Bank Ireland Limited & Others, Plaintiffs -v- Brian McDonagh & Others, Defendants, 2020 IEHC 185

[5] Ulster Bank Ireland Limited & Others, Plaintiffs -v- Brian McDonagh & Others, Defendants 2020 IEHC 311 delivered on 20 June 2020

[6]  Ulster Bank Ireland Limited & Others, Plaintiffs -v- Brian McDonagh & Others, Defendants 2020 IEHC 311 delivered on 20 June 2020

[7] As defined in s. 2 of the Act

[8] S. 17 (2) of the Act

[9] Para 104,pg 63 & 64 of the Court of Appeal judgment

[10] These principles, the Court found were summarised before in Breslin and Corcoran, Banking Law (4th Ed 2019) at paras. 14-19 – 14-27.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.

For further information and advice in relation to “Concurrent Wrongdoers and Debt Recovery ”, please contact Deirdre Farrell, Partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

Virtual Meetings and Increased Threshold for Winding Up to remain Law until 31 December 2023

Virtual Meetings and Increased Threshold for Winding Up to remain Law until 31 December 2023

The Minister for Trade Promotion, Company Regulation and Digital has announced the extension of the interim period of two temporary measures introduced by the Companies (Miscellaneous Provisions) (Covid 19) Act 2020 (the “Act”) to 31 December 2023 which will be of interest to company directors, shareholders and business owners.

The key measures, now in place until 31 December 2023 are the result of amendments to both the Companies Act 2014[i] and to the Industrial and Provident Societies Act 1893[ii] and are as follows:-

  • Virtual Meetings: Companies and co-operative societies will retain the ability to hold virtual general and creditor meetings.
  • Winding Up: the threshold for initiating a windup of a company has been increased to €50,000 for one single creditor claim and the same amount for claims by two or more creditors[iii].

Two other significant measures introduced by the Act[iv] have not been extended and consequently, the protection period offered by the examinership process may last no more than 100 days[v] and documents executed under seal by a company may no longer be executed in counterparts.

The Act was introduced on 21 August 2020[vi] as a response to the pandemic and specifically with the intent to act as a means of support to small and medium-size enterprises and to address critical issues such as potential company solvency arising from operational issues caused by the crisis.

We see the extension of the temporary measures as a positive development. By allowing corporate bodies to continue to hold meetings electronically it acts to ensure that those entities comply with their legal obligations. Virtual meetings aid companies in their governance and as a result it is expected that same will be provided for in the Companies Act 2014 on a permanent basis in the near future.

[i] Section 6 of the Act and section 14 of the Act

[ii] S. 28 of the Act

[iii] S. 14 of the Act

[iv] s. 13 of the Act (re length of protection offered by examinership process) and Section 5 of the Act (re execution by a company of documents by counterpart)

[v] S.520 of the Companies Act 2014 provides that the period of protection provided by examinership is 70 days from date of presentation of the petition. S. 534 of the Companies Act 2014 allows for an extension of that time period by a further 30 days where examiner unable to provide report within 70 days from presentation of the petition.

[vi] By Commencement Order S.I. No. 320/ 2020 – Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (Commencement) Order 2020

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.

For further information and advice in relation to “Virtual Meetings and Increased Threshold for Winding Up to remain Law until 31 December 2023”, please contact Deirdre Farrell, Partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

Capital Gains Tax Loss Relief On Convertible Loan Notes

Capital Gains Tax (CGT) Loss Relief On Convertible Loan Notes

If your convertible loan note is capable of being characterised as ‘marketable’ and capable of commanding a ‘market price’ over and above the mere value of the loan, it may be possible to claim the debt as a loss for capital gains tax purposes.

Simple debt is not an allowable Loss for Capital Gains Tax Purposes

A loss made on a simple (usually undocumented) loan is not allowable as a gain or loss for capital gains tax purposes (see section 541 (1) (a) of the Taxes Consolidation Act 1997). This is because a simple loan is not considered as capable of appreciating in value for capital gains tax purposes.

However, if the loan is characterised as a ‘debt on a security’ an allowable loss for capital gains tax purposes will be created (see section 541 (1) (b) of the Taxes Consolidation Act 1997). The reason for the foregoing is because a ‘debt on a security’ is considered as a marketable asset, capable of appreciating in value.

What is a ‘debt on a security’?

Section 541 (1)(b) does not define ‘debt’ (and so it has its ordinary meaning) but defines ‘security’ as per section 585 of the TCA ’97 which includes loan stock.

Revenue have clarified in Guidelines on section 541 (par.13.3.) that the reference to loan stock should be regarded as meaning a general class of debt transferable by purchase and sale. The emphasis on ‘transferable’ is in line with the concept of a marketable capital asset capable of appreciating in value. As you will see below, this is the characteristic necessary to classify a convertible loan note as a ‘debt on a security’ pursuant to section 541 (1)(b) of the TCA ’97.

Is a convertible loan note automatically characterised as a ‘debt on a security’?

A convertible loan note is not automatically characterised as a ‘debt on a security’ for the purposes of section 541 (1)(b) of the Taxes Consolidation Act. They key test to apply is whether the loan note possessed the necessary characteristic of ‘marketability’ which would render the holder capable of selling same on the open market (see judgment delivered by Judge Francis Murphy in the Supreme Court case Inspector of Taxes v Keleghan [2001] IESC 43) and receiving an amount over and above the mere value of the loan (also known as making a ‘capital gain’ on a disposal of the asset) (see High Court judgment of Morris J in Mooney v McSweeney 1997 1 ILRM 42).

In the Irish High Court case of Mooney v McSweeney 1997 1 ILRM 429 the claimant was entitled to claim loss relief in respect of the convertible loan advanced in 1985 of £140,000. However in the Supreme Court case of Inspector of Taxes Taxes v Keleghan [2001] IESC 43, the claimant was not permitted to claim loss relief in respect of a convertible loan note which bore different characteristics to that in the first case mentioned – specifically there were restrictions on the right of conversion and no evidence was adduced to suggest that the holder could command a higher value than the funds deemed advanced originally.

It is common for shareholders of privately held companies, and their friends and family members to provide working capital finance to their company by way of a loan. In most cases the loan is provided on an informal basis with little or no supporting documentation. Where the debt cannot be repaid, the shareholder, friend or family member cannot claim capital gains tax loss relief.

Arising from the above we would advise that specific legal advice and assistance would be received before advancing funds to a company.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Capital Gains Tax Loss Relief On Convertible Loan Notes”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

The Employment (Miscellaneous Provisions) Bill 2017 – Far Reaching Implications for Employers

The Employment (Miscellaneous Provisions) Bill 2017 (“the Bill”) which is now at committee stage is expected to be enacted later this year. The Bill if enacted will have wide ranging effects for employers, in particular regarding “low hour” or “zero-hour” contracts. Below, we discuss a number of the more topical aspects of the Bill which we expect to be of concern to employers:-

  1. Terms of employment

If enacted, it will be a requirement for employers to provide employees with a written statement within five days of commencement of employment confirming the following:-

  • The full names of the employer and employee;
  • The address of the employer;
  • The duration of the contract;
  • The method of calculating remuneration;
  • The hours the employee is to be expected to work per week.

From a practical point of view and in an effort to avoid the sanctions under the Bill, it is advisable that employers should include the foregoing information in any offer letter being issued to a new employee. A contract of employment can then be issued inside the 8-week period as provided for in the Terms of Employment (Information) Act 1994.

In the Bill’s current format, where an employer is convicted for failure to comply with the foregoing, they may be liable on summary conviction to a Class A  (ie up to €5,000) fine and or a term of imprisonment not exceeding 12 months.

  1. Banded hours of work

In circumstances where the average hours an employee is working per week is greater than the contracted hours then in such circumstances, the employee on request is entitled to move to a higher band of hours. The reference period to be taken into account is proposed to be 12 months and the bands are as follows:-

Band                                                 From                                   

A                                                          3 to 6 hours

B                                                          6 to11 hours

C                                                          11 to 16 hours

D                                                         16 to 21 hours

E                                                          21 to 26 hours

F                                                          26 to 31 hours

G                                                         31 to 36 hours

H                                                         36 hours plus.

 

The above is of concern to employers and is expected to have a detrimental effect on businesses. In reality, it is widely expected that this new provision will force employers to close during quieter periods so as to avoid employees gaining rights under this provision. The concern is that if employees gain the right to move up in the bands then the employer may not be in a financial position to meet the increased wages over the longer term. The Bill is silent on the reduction of hours when the hours are not available at a later date.

  1. Employers to offer hours to part-time staff

The Employment (Miscellaneous Provisions) Bill 2017 imposes an obligation on employers to offer additional hours that may become available to existing part-time staff. The provision in its current format essentially prevents an employer from offering such additional work to full-time individuals. This measure clearly has an overly burdensome effect on how an employer can run their business. The provision is wide and fails to address issues such as skills and training and puts unreasonable expectation on employers to provide such additional hours to staff that simply may not be trained or qualified to carry out such work. Furthermore, it is likely that the provision will have a serious impact on custom and practice within organisations. For example, in situations where it is customary that overtime is regularly worked by full-time staff, it will not be within the gift of an employer to allow full-time staff to continue in this form. It will be set out in legislation that any such available hours will have to be provided to part-time workers where there are part-time workers employed.

  1. Prohibition on zero-hour contracts

The Employment (Miscellaneous Provisions) Bill 2017 imposes a strict prohibition on zero-hour contracts. If passed zero-hour contracts will only be allowed in circumstances which are genuinely casual in nature and in emergency cover situations. Again, the restriction is overly restrictive and may well result in employers not being able to fill casual or part-time roles for fear of falling foul of the proposed legislation.

  1. Conclusion

It is clear from the foregoing that if passed the Employment (Miscellaneous Provisions) Bill 2017 will have far-reaching implications for employers. Given the overly onerous provisions in the Bill, it is regrettable that there does not appear to have been prior consultation with employers. In the circumstances, you may consider it appropriate to raise the issue with your elected representatives.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “The Employment (Miscellaneous Provisions) Bill 2017”, please contact Brian Kirwan, partner, Amorys Solicitors brian@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

SELLING YOUR COMPANY? HOW TO VALUE YOUR SHARES (Infographic)

Any valuer in the corporate finance area will tell you that valuing a shareholding in a private limited company is not an exact science.

Frequently, no market exists for the purchase of shareholdings in a private limited company save amongst existing shareholders.  In particular, most well-drafted shareholders agreements will require a shareholder to offer his/her shares to their co-shareholders for sale as the first step.   In such circumstances, the remaining shareholders will very often have a good idea what the shares are worth as they may be involved in the day to day running of the business and/or be familiar with valuations of businesses in the relevant industry/sector. Notwithstanding the foregoing, a valuation of a shareholding in a private company would be required for advisory and taxation purposes in such situations.

There is wide scope for significant variations in values when seeking a formal valuation and the first question a valuer usually asks is what the purpose of the valuation?  The objective and for whom the valuer is acting will determine whether s/he seeks to minimise or maximise the valuation and usually in the knowledge that it is the first stage in a negotiation.

A very brief overview of the four most commonly used methods when valuing shares in a small to medium company is set out below.

Selling Your Company How To Value Your Shares

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Selling Your Company? How To Value Your Shares (Infographic)”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

Terms and Conditions of Business – One size does NOT fit all! (Infographic)

Terms and conditions of Business (“T&C’s”) whether they apply to the provision of goods or services, are essential for all businesses.  Too frequently, a business’s T&C’s do not accurately reflect how a business is carried on.  If a dispute arises between a business and its customer, uncertainty of any aspect of the T&C’s can disrupt a business and could lead to time consuming and costly litigation. In addition, it is important for business owners to note that uncertainty of any term or condition could be interpreted against it on the basis of the the “contra proferentum” rule in law leaving any business “on the back foot” should litigation arise.

Save the cost and time of dealing with avoidable disputes by ensuring your business’s T&C’s are a true reflection of how business is carried on “on the ground” and that they comply with current case-law and legislation.

Below are 4 important questions to ask yourself when reviewing your business’s T&C’s to ensure both you and your customer are “on the same page” when engaging your business:

Terms and Conditions of Business – Infographic

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Terms and Conditions of Business (Infographic)”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

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