High Court: Man left with €190,000 liability in fraudulent conveyance loses case against Law Society
A man who took out a €190,000 mortgage to purchase property which he mistakenly believed to be in the ownership of a solicitor in 2008 has had his application for judicial review dismissed in the High Court.
Finding no error in the decision taken by the Law Society of Ireland to award compensation for the amount of the mortgage repaid to date rather than the full amount for which the man was potentially liable to the bank, Mr Justice Garrett Simons said it was open to the man to reapply to the compensation fund if the bank proceeds in its claim for the full amount owed or indeed agrees to repayment of a lesser amount.
In 2008, Mr Patrick O’Donovan Jr intended to purchase lands from Mr Alexander Gibbons, a solicitor who has since been struck off the Roll of Solicitors.
In what Mr Justice Simons described as “a most unusual conveyancing transaction”, Mr O’Donovan was under the mistaken impression that the lands were in the ownership of the solicitor, and that he had acquired the title from Mr O’Donovan’s parents a number of years earlier. Mr Gibbons had built a house on the land, and then purported to sell it to Mr O’Donovan in 2008.
Mr Gibbons purported to act as solicitor for Mr O’Donovan in the conveyancing transaction, which Mr Justice Simons said was a conflict of interest and should not have happened.
Mr O’Donovan took out a €190,000 loan from Allied Irish Banks to assist with the purchase of the property, and Mr Gibbons then negotiated the release of the loan monies into his firm’s client account by offering a solicitor’s undertaking to AIB.
The sale of the property did not proceed in circumstances where it transpired that Mr Gibbons never held proper title, and the loan monies were never returned to Mr O’Donovan.
As a result, Mr O’Donovan has a potential liability to AIB pursuant to the mortgage for €190,000. In August 2015, AIB issued summary proceedings against Mr O’Donovan however the proceedings were not progressed past the service of the summons.
Application to Compensation Fund
Pursuant to the Solicitors (Amendment) Act 1960, the Law Society is required to maintain a fund to provide compensation for losses sustained by clients in consequence of dishonesty on the part of a solicitor – the “Compensation Fund”.
Mr O’Donovan made a series of applications to the Law Society for compensation, the first two of which were refused. After the institution of judicial review proceedings in each instance, the Law Society set aside the decisions and reconsidered the matter. In July 2018, the Law Society allowed a partial payment of €18,822.63 – i.e. the amount of the mortgage loan repaid to date.
The Law Society acknowledged that AIB had issued summary proceedings but was not satisfied that the proceedings had been pursued since August 2015. As such, the Law Society was not satisfied that a demonstrable loss of €190,000 had crystallised and refused to make any payment in respect of the outstanding balance of the mortgage loan.
Mr O’Donovan’s principal argument was that the distinction drawn by the Law Society between monies actually paid pursuant to the mortgage loan and the outstanding balance was arbitrary, unreasonable or irrational.
Mr Justice Simons said that the threshold for reviewing the merits of the decision was the legal test of administrative “unreasonableness” or “irrationality”, set out in cases including State (Keegan) v Stardust Victims’ Compensation Tribunal  IR 642; O’Keeffe v An Bord Pleanála  1 IR 39; and Meadows v Minister for Justice and Equality  IESC 3;  2 IR 701. Mr Justice Simons said one matter he had to consider was whether the material before the decision-maker was capable of supporting the finding actually made.
In Mr O’Donovan’s case, the material before the Law Society indicated that AIB had instituted proceedings but they had not progressed since August 2015. Mr Justice Simons said it was reasonable for the Law Society to have a concern that Mr O’Donovan might not ultimately be liable to repay the full amount of the mortgage loan – in that AIB would seek to enter a compromise whereby a sum less than the full amount owing would be accepted. Mr Justice Simons noted that there was no evidence as to the precise position of AIB in this regard.
Mr Justice Simons said the distinction drawn by the Law Society was “certainly a fine one”, but that it was not wholly irrational or unreasonable.
Crucially, the Law Society had not “closed the door” on Mr O’Donovan’s claim and “expressly indicated that it is open to him to reapply on the basis of fresh evidence”. As such, if AIB were to reactivate their proceedings or offer to accept a smaller sum, then Mr O’Donovan could apply to the Law Society to have an additional claim considered.
Mr Justice Simons considered Mr O’Donovan’s secondary argument that the Law Society erred in its interpretation of the legislation and incorrectly introduced a test of whether a “demonstrable loss” had “crystallised”, in circumstances where neither of these terms appear in the legislation.
Mr Justice Simons said it would have been preferable for the Law Society to have employed the statutory language, but said it appeared the Law Society used the more colloquial term “crystallised” to “explain in layman’s terms why the distinction was being drawn between the monies which had been paid pursuant to the mortgage loan and the outstanding balance thereof”.
Stating that it was clear from the terms of the decision letter and the various reports prepared for the Committee that the Law Society was fully aware of the statutory context against which the decision has been made, Mr Justice Simons said the Law Society had not misinterpreted the legislation or applied an incorrect legal test.
- by Seosamh Gráinséir for Irish Legal News
© Irish Legal News Ltd 2019