LAURENCE SHIELDS, founder of the LK Shields firm, has told the Commercial Court he and businessman Philip Lynch got on well for about 25 years, including socially, and that Mr Lynch reposed a lot of trust in him.
He said he was not personally involved in the 2006-2007 events leading up to the loan of €25 million from AIB to Mr Lynch, his family and developer Gerry Conlan to buy lands in Waterford.
Mr Shields agreed an e-mail sent by a solicitor with LK Shields to the Lynch family on February 8th, 2007, stated the loan involved no legal recourse to the Lynch family and Mr Conlan.
He denied, when the Lynch family had certain contacts with his firm in 2009 about the loan, his firm had a conflict of interest. He was not aware the family were in contact with other solicitors.
Mr Shields gave evidence in the action by Mr Lynch and his family against AIB and two firms of solicitors – LK Shields and Matheson Ormsby Prentice – aimed at preventing the bank pursuing them over the €25 million loan. The family claims they always understood the loan was non-recourse.
AIB denies that claim and is counterclaiming for €25 million judgment orders against the family and, in separate proceedings, against Mr Conlan. Both law firms deny negligence.
Tom Barry, formerly head of AIB Corporate Banking, told the court he was “sceptical” how anyone could have concluded the final terms of the €25 million loan did not involve full recourse to all.
Mr Barry said most business lending by AIB, even at the height of the bubble, was recourse lending. The final AIB loan letter signed by the family and Mr Conlan on February 8th, 2007, was a full recourse loan, he said. He would be “amazed” a solicitor would think it was non-recourse and believed no person with business experience could think that.
However, because an earlier draft loan letter included a condition stating AIB had recourse to Mr Lynch and Mr Conlan, that created potential for confusion, he said. It would have been prudent for AIB, when deciding to remove that condition in its final loan letter, to have acted on advice from its solicitors to make clear the final letter involved full recourse to all borrowers, he said.
He also believed, if AIB was told Philip Lynch was withdrawing from the deal leaving just Mr Conlan in it, this would have been a “significant negative” for the bank in deciding whether to lend.
Mr Barry reviewed 13 other loans to members of the family and concluded that Philip Lynch, his wife Eileen, son Paul and daughter Therese had engaged in recourse borrowing.
A €1 million Bank of Ireland loan to Eileen Lynch to buy shares in One51 investment group was, in his view, high risk if repayment depended on shares. Shares in One51 were “highly illiquid” and had dropped from €6 a share in 2007 to €1 in 2010, he said.
A €1 million Bank of Ireland loan to Philip Lynch to invest in a Redquartz property development at Sawgrass, Florida, was “even higher risk”, he said.
In his witness statement, Mr Barry noted documents discovered by AIB outlined Mr Conlan had loan exposure of some €226.6 million to AIB in late 2006, €14.6 million cash on deposit and a net worth stated to be some €190 million. Mr Barry said he had concluded Mr Conlan typically borrowed from AIB on the basis of full legal recourse to himself.
Mr Barry, who was asked by LK Shields to prepare a witness statement, denied suggestions by Brian O’Moore SC, for the Lynch family, he was not an independent witness on grounds he was formerly employed by AIB. The case, before Mr Justice Michael Peart, has been adjourned to May 3rd.
