ACC Bank PLC v Johnston practicing under the style and title of Brian Johnston & Co. Solicitors

Factual and Procedural Background

The case concerns a series of loan facilities granted by Company A to a borrower, represented by a firm of solicitors (Company B). Company A retained Defendant, a solicitor, to act on its behalf in connection with these loans and the securing of appropriate legal charges over various properties, including lands at Castlewarden. The loans were advanced between 2006 and early 2007. Defendant was tasked with ensuring that Company A obtained good and marketable title and first legal charges over the relevant properties prior to drawdown of the loans.

Company A alleges that Defendant was negligent in handling the transactions, particularly in releasing loan monies on the basis of undertakings from Company B rather than ensuring that first legal charges were properly registered. The transactions involved complex dealings, including a purported contract for the purchase of Castlewarden lands at an inflated price, which was later revealed to be fraudulent. The true purchase price was significantly lower, and Defendant released funds accordingly, but the full purchase price was never paid, and Company A never obtained the intended first legal charge.

There is a significant factual dispute as to whether Defendant was authorised by Company A to release funds on the basis of undertakings from Company B. Company A denies giving such authorisation, while Defendant asserts it was granted by senior personnel at Company A's branch. The case also involves third party proceedings between Defendant and Company B, which have not yet been heard.

The court examined conveyancing practices relevant to the case, including the risks inherent in accepting undertakings and the customary practice of three-way closings involving solicitors for the vendor, purchaser, and financial institution. The court also reviewed the sequence of events, correspondence, and evidence given by key witnesses, including Defendant and senior officials from Company A.

Legal Issues Presented

1. Whether Defendant was authorised by Company A to release loan monies to Company B on the basis of undertakings without a registered first legal charge in place.
2. Whether Defendant was negligent in releasing loan monies and subsequent funds (including stamp duty monies) without ensuring the proper security was in place.
3. The proper interpretation of Defendant's letter of appointment and the scope of his duty of care in relation to closing the mortgage transactions.
4. The appropriate measure and assessment of damages payable by Defendant to Company A, considering the unresolved third party proceedings.

Arguments of the Parties

Appellant's (Defendant's) Arguments

• Defendant contends he was authorised by senior personnel at Company A's branch to release funds on the basis of undertakings from Company B.
• Defendant argues that his letter of appointment granted him discretion in closing the mortgage transactions and that it was not negligent to accept undertakings as a method of closing.
• He suggests that the acceptance of undertakings was consistent with certain practices and the particular circumstances of the case, including Company A’s acceptance of undertakings in relation to other properties.
• Defendant points to forensic evidence and attendance notes supporting his account of authorisation.
• He submits that any damages assessment should consider potential recoveries from Company B and that the issue of damages should be deferred until third party proceedings are resolved.

Appellee's (Company A's) Arguments

• Company A denies authorising Defendant to release funds on the basis of undertakings and states that such authorisation would have ended the case.
• Company A asserts Defendant was negligent in releasing funds without ensuring a first legal charge was in place, contrary to the terms of his letter of appointment.
• Company A relies on evidence from senior officials denying any such authorisation and criticises Defendant’s late and inconsistent explanations.
• Company A argues that the proper method of closing was a three-way closing to avoid the increased risk inherent in accepting undertakings.
• It is submitted that damages should be assessed based on the sums advanced less any value of recoveries, excluding penalty interest, and that there is insufficient evidence to establish consequential losses.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Roche v. Peilow [1985] I.R. 232	Professional negligence of solicitors; adherence to common practice does not absolve liability if the practice involves foreseeable risks.	The court relied on this case to emphasise that universal conveyancing practices involving undertakings do not negate a solicitor’s duty to avoid exposing clients to unnecessary risk.
Edward Wong Ltd v. Johnson Stokes & Master [1984] AC 296	Undertaking closings involve foreseeable and avoidable risks; solicitors may be negligent if they accept such risks without client consent.	The court cited this decision to support the conclusion that closing on undertakings without express permission exposes the client to avoidable risks and may constitute negligence.
Midland Bank v. Cox McQueen [1999] All E.R. 62	Clients must give express instructions if they require a particular form of closing; solicitors must follow those instructions.	The court accepted this principle but found it inapplicable here because the letter of appointment expressly required a first legal charge before drawdown, effectively specifying the method of closing.
Reddy v. Bates [1983] I.R. 141	Principle for reduction of damages to reflect risks and contingencies in future loss assessments.	The court referenced this principle in considering the assessment of damages, noting the need to account for risks inherent in lending and potential losses.
County Personnel (Employment Agency) Ltd v. Alan R Pulver & Co [1987] 1 W.L.R. 916	Damages are generally assessed as of the date of the wrong unless another date better reflects justice.	The court applied this principle in considering the timing for damages assessment and the possibility of deferring it pending further evidence.

Court's Reasoning and Analysis

The court began by examining the factual matrix, including the sequence of loan facilities, the instructions to Defendant, and the conveyancing practices relevant to the transactions. It noted the importance of a first legal charge being in place before loan drawdown as specified in Defendant’s letter of appointment and the facility letters.

There was a critical factual dispute regarding whether Defendant had authorisation from Company A to release funds on the basis of undertakings from Company B. The court found significant inconsistencies in Defendant’s evidence and supporting documents, including an attendance note that was not contemporaneous and contradicted by other witnesses. Senior officials from Company A denied authorising such releases. On balance, the court accepted Company A’s position that Defendant was not authorised to close the transactions on undertakings.

The court then considered whether Defendant was negligent in releasing funds without ensuring the proper security was in place. It analysed the letter of appointment, which required a first legal charge before drawdown, and acknowledged standard conveyancing practice permitting acceptance of undertakings from the vendor’s solicitor to discharge existing mortgages at a three-way closing.

However, the court held that closing solely on an undertaking from Company B, without a three-way closing, exposed Company A to significantly greater risk. The court referenced expert evidence and the Supreme Court decision in Roche v. Peilow to emphasise that common professional practice does not excuse negligence where foreseeable risks are involved.

The court rejected Defendant’s argument that implied authority existed to close on undertakings due to Company A’s acceptance of undertakings in other contexts. It highlighted that the letter of appointment and facility letters effectively required a three-way closing or equivalent to ensure security before funds were released.

Applying these principles, the court concluded Defendant breached his duty of care and was negligent in both the original and subsequent transactions where funds were released without proper security.

Regarding damages, the court identified practical difficulties in assessing losses at this stage due to unresolved third party proceedings against Company B, which may affect liability and recovery. It acknowledged the case as a "no transaction" case, meaning that absent negligence, the loans would not have been advanced.

The court analysed principles for assessing damages in no transaction cases, noting that damages aim to restore the injured party to the position had the wrongdoing not occurred. It found insufficient evidence to establish consequential losses or the precise value of the loans, and observed that property lending at the time was inherently risky, with likely losses irrespective of Defendant’s negligence.

Consequently, the court decided to defer the assessment of damages until the related third party proceedings are heard, enabling a fuller evidential picture, including the recoverability of funds and value of loans. It ruled that any additional costs arising from this adjournment would be borne by Company A, as the damages claim was initially pursued on an incorrect basis.

Holding and Implications

The court held that Defendant was negligent in releasing loan monies to Company B on the basis of undertakings without ensuring a first legal charge was in place, breaching both his contractual obligations and duty of care to Company A.

The court found that Defendant was not authorised by Company A to close the transactions on the basis of undertakings and that such a method of closing, without express permission, exposed Company A to an unacceptable and avoidable risk.

Damages were not finally assessed but deferred pending resolution of third party proceedings between Defendant and Company B, which are expected to clarify liability and the recoverability of funds. The court indicated that any additional costs caused by this deferral will be borne by Company A.

No new legal precedent was established; rather, the decision reaffirmed established principles that solicitors must adhere to clear instructions regarding closing methods and that common professional practices do not excuse negligence when risks are foreseeable and avoidable.