Lynch family liable to AIB for €25m loan

BUSINESSMAN Philip Lynch and his family are liable to Allied Irish Banks for a €25 million loan issued to them and developer Gerry Conlon to buy development lands in Waterford now valued at between €3 million and €4 million, the Commercial Court has ruled.

The Lynches and Mr Conlon, in buying the 86 acres at Kilbarry in 2007, intended to develop them and sell them on in expectation of a net profit of €21 million, but development never occurred.

Mr Justice Michael Peart ruled yesterday that Mr Lynch, his wife, Eileen, and four children – Judith, Phillipa, Therese and Paul – had failed to show negligent misrepresentation by AIB in its dealings concerning the February 8th, 2007 loan such as disentitled the bank to repayment.

He also rejected the family’s arguments of entitlement to be indemnified for the €25 million by two law firms – Matheson Ormsby Prentice Solicitors and LK Shields Solicitors – over alleged negligence and breach of duty of care concerning the transaction.

“The family have only themselves to blame for the predicament in which they find themselves,” the judge found, adding that there was “no doubt” Mr Lynch controlled the decision-making in the transaction, with his family relying on him totally.

The case has been adjourned to December 16th for final orders, when AIB is likely to seek judgment orders against the Lynches and the court will also deal with the bank’s separate claim against Mr Conlon over the loan.

The disputed final loan document was signed on February 8th, 2007 by Judith Whelan, daughter of Mr Lynch, on behalf of the family. An earlier draft facility with a special condition providing that the bank only had recourse to Mr Lynch and Mr Conlon was removed from the final facility, with the effect that the bank had recourse to all borrowers for the €25 million.

In his lengthy judgment, Mr Justice Peart accepted that the family, when signing up for the loan, honestly believed it was non-recourse, meaning AIB could not pursue them individually, and its security was confined to the lands.

He rejected claims that AIB negligently misrepresented that the loan was non-recourse in how it amended a draft loan facility letter of February 7th without checking that the Lynches understood the changes. This was a very difficult claim to advance when there was “no evidence” the Lynches ever applied for a non-recourse loan.

No one on the Lynch side had any direct dealings with AIB and Mr Lynch entrusted Mr Conlon with the task of approaching AIB.

While Mr Lynch said he made it clear to Mr Conlon that the loan was to be arranged on a non-recourse basis, Mr Conlon never sought a non-recourse loan and AIB was never aware the Lynches wanted such a loan.

While Mr Conlon’s indebtedness to AIB then was such that it breached the bank’s own guidelines and meant he probably would not have got the loan without Mr Lynch’s involvement, AIB had no duty of care to the Lynches requiring it to tell them about Mr Conlon’s indebtedness.

Mr Lynch appeared to have paid little attention to the loan transaction until “very late in the day”, the judge noted. While that appeared to be Mr Lynch’s style, it was unfortunate that he regarded such a large transaction as “a minor matter” in the overall context of his business activities.

Had certain steps being taken, such as Mr Lynch checking with the Conlon side whether the loan was non-recourse, they would have avoided a situation whereby his daughter Judith unwittingly signed the family up to this loan which she genuinely believed, on the basis of wrong advice from LK Shields, to be non-recourse.

Dismissing the claims against the solicitors, the judge found MOP, which was primarily Mr Conlon’s firm of solicitors, breached no duty of care to the Lynches.

MOP’s retainer concerning the Waterford transaction was confined to the conveyancing. They were never asked to advise on the financing and had not breached a general duty of care in circumstances including their belief the loan was always a recourse loan.

The judge accepted evidence of Ronan McLoughlin, a solicitor with MOP, about what he told Imdaad Suleiman, then a solicitor with LK Shields, on the evening of February 7th, 2007, concerning AIB’s removal of the Mr Lynch/ Mr Conlon recourse clause from the draft loan letter.

The judge found Mr Suleiman misinterpreted what Mr McLoughlin had said, leading to Mr Suleiman wrongly advising the Lynch side that the final facility letter was non-recourse, resulting in the Lynches personal liability for €25 million. In the unusual circumstances of this case, including where LK Shields was never told the Lynches would only sign up to a non-recourse loan and was never retained by the Lynches to advise them about financing of the deal, the scope of the firm’s duty of care to the Lynches did not extend to a point of making them liable for €25 million.