In the dying days of the Celtic Tiger, businessman Brian McDonagh set out to build a €500 million data centre on lands in Kilpeddar, Co Wicklow. Things went pretty well. He got an investment loan. He bought the site and got the lands rezoned. 

When the economy fell over, that didn’t stop McDonagh. He restructured his debt and persisted.

Even when the price for most people would have been too high; strained relationships, failed litigation, a multi-million loan pile, a cat and mouse game with the bank – McDonagh did not let go of his vision. 

Instead, he kept going to ever more extreme lengths to achieve his goal, secretly recording conversations and coming up with “bizarre” theories to justify various acts or omissions.

To use the words of his brother, and co-investor, Kenneth McDonagh, building a data centre was a “passion”. In fact, he conceded, it was more than that for Brian McDonagh. It was an obsession.  And obsessions don’t always end well. 

McDonagh’s honesty and credibility have been slammed in a new High Court judgment in favour of Ulster Bank which sought the recovery of €22 million plus interest against McDonagh and his two brothers, Kenneth and Maurice McDonagh.

The bank successfully won its case that the brothers repeatedly breached the terms of a secret settlement agreement, in which the lender agreed to write off €20 million in debt in exchange for the sale of certain assets, including the Kilpeddar lands.  

How much of the €22 million the bank is entitled to recover from the McDonaghs, as a result of breaching the agreement, is an issue complicated by previous litigation and will be finalised by the court at a later date.

In his judgment this month, Mr Justice Michael Twomey made several damning findings against Brian McDonagh: 

• That he gave “incorrect” sworn evidence he must have known to be false
• That he was party to two forged trust documents
• That he put a ‘fake’ letter on his file with the bank.

It is by no means the first time that McDonagh has been found to have misled a court. This, after all, is a lawsuit with a hefty backstory.

A secret settlement

McDonagh, a qualified engineer, is best known as the businessman who took on Apple in the courts. In 2016, he objected to An Bord Pleanala granting the tech firm planning permission to build a data centre in Athenry, Co Galway despite the fact it was to be on the other side of the country from where he lived.

His credibility took a further knock when the judge hearing the judicial review found out McDonagh failed to disclose his own company, Ecologic Data Centres, had ambitions to build a data centre on 82 acres of land, just off the N11 in Wicklow. 

Ultimately, Apple chose not to build a data centre in Ireland. However, it emerged during the legal challenge that McDonagh had tried in 2015 to get the US firm to buy his rezoned site, near Kilmacanogue.

The Wicklow lands had been bought by the McDonagh brothers, with the help of an Ulster Bank loan, in 2007.

The loan was refinanced in 2009 before the full effects of the recession began to bite. 

By 2013, there were repayment issues.

Talks between the bank and the McDonaghs led to a settlement agreement on March 13, 2013, the terms of which were supposed to be strictly confidential. The bank didn’t want it widely known that it was prepared to wipe over €20 million off  – what was then – a €27 million loan.

Under the compromise agreement, the McDonaghs were to sell the Kilpeddar site by July 31, 2014. The proceeds of that sale were to be paid to the bank. The brothers were also obliged to disclose all their assets to the bank. 

Collectively their property interests were substantial. Maurice McDonagh had 26 investment properties, Brian McDonagh had 12 properties, Kenneth McDonagh had three properties.  

Part of the deal was that certain assets were to be parcelled up and sold for the recession-era price of around €5 million.

The deadline for the sale of Kilpeddar came and went. The bank maintained the McDonaghs had breached the agreement by failing to sell the site. On October 1, 2014, Ulster Bank appointed receivers over the Wicklow lands – a move unsuccessfully challenged by Brian McDonagh in the courts.

Blood is thicker than water

The McDonaghs denied being in breach of the settlement agreement. It was their case that the Kilpeddar site was sold by them on June 13, 2014 for a sum of €1,501,000, to a company named Granja. 

This was heavily disputed by the bank.

In support of their claim, the McDonaghs relied on a one-page document dated June 13, 2014 titled “Heads of Agreement to Sell”, with the sub-heading “Memorandum of Agreement”. This document was said to be a legally binding contract with the buyer.

When the case wound up in court late last year, the bank argued that not only were the heads of agreement not binding, the purported sale was a contrivance as Granja was nothing more than a front for Brian McDonagh. 

The bank accused the businessman of trying to surreptitiously buy back the Kilpeddar lands from himself, and his two brothers, using €1.5 million in secret funds he was meant to have disclosed to the bank.

On foot of these alleged breaches of the agreement, the bank claimed it was entitled to move in for judgment in the sum of €22 million. A letter of demand for the full sum was issued in 2018.

The claims were all rejected by the McDonaghs.

The action was not the first legal clash between the parties. Related cases had previously come before the courts, including Ulster Bank’s successful application for a court-appointed liquidator for Granja last summer.

There was an abandoned High Court action by Granja to try and enforce the Kilpeddar sale, and, prior to that, failed UK proceedings brought by Brian McDonagh against Ulster Bank’s parent Bank of Scotland, in respect of loans he drew down to buy a property in Liverpool, known as ‘Sony House’. In the course of that case, McDonagh alleged that he had entered one of the Liverpool loan agreements as a result of intimidation and economic duress placed on him by the bank. His evidence was found to be unreliable.

This time around, the case was set down for 12 days. It ran for five weeks. The court blamed “the evasive and obstructive nature of the evidence given on behalf of the McDonaghs” for the over-run. Brian McDonagh, the bank’s main target, acted for himself as a lay litigant. His brothers Kenneth and Maurice had the benefit of legal representation. For the most part, they rowed in behind their brother in what Justice Twomey described as a “blood is thicker than water” defence. 

Ulster Bank was represented by Amoss Solicitors.

Heads of agreement

The key issue to be decided was whether the McDonaghs had breached the settlement agreement.

For the following reasons, the judge concluded emphatically that they had.

First up, there was the timing. Ulster Bank said it was first informed, in a solicitor’s letter dated October 2, 2014, of Kilpeddar’s purported sale to Granja the previous June. In the intervening three and a half months, all correspondence between the McDonaghs and the bank had only referred to the fact that there was an offer on the lands. Coincidentally, the first mention of an allegedly binding contract occurred the day after receivers were appointed over the lands. 

McDonagh transferred his interest in Balcora to his secretary as “someone who could be trusted to do what she was told with the shareholding”

Brian McDonagh disputed the bank’s version. He maintained that he had informed the bank of the sale to Granja in a letter dated June 16, 2014. Ulster Bank had no record of the letter. In his evidence, JP Moore, a former director at the bank, put it bluntly: “There is no letter.”

McDonagh, described by the judge as “an articulate but a very difficult and obstructive witness” insisted there was. But how to verify it? The businessman told the court of his efforts. He had contacted An Post to see if they had a copy of the handwritten envelope he had used.

Justice Twomey noted in his judgment: “Mr Brian McDonagh appears to be suggesting that it might be the practice of An Post to retain copies of envelopes which pass through its system. This was a bizarre suggestion for an experienced businessman to make and simply served to demonstrate the absurd lengths to which Mr Brian McDonagh was willing to go in order to advance his case.”

When McDonagh refused to back down, claiming an accountant could have forged Gollogly’s signature on the CRO documents, a handwriting sample from Gollogly’s will was produced in court.

But there was other evidence the bank was on notice of the alleged June sale of the Kilpeddar lands. Or at least there was meant to be. In their witness statements, brothers Maurice and Kenneth McDonagh said they had informed a bank official of the sale of the site at a meeting in Ulster Bank’s offices in Suffolk Street, Dublin on June 16, 2014. They said they had even presented the one-page heads of agreement document. This account of events was rejected by the bank.

However, in a startling u-turn, mid-trial, the brothers indicated they would not be giving evidence to the court about showing bank officials the heads of agreement at the meeting. This claim was simply dropped in what the bank’s lawyers, led by senior counsel Rossa Fanning, described as “the most extraordinary development in any Commercial Court case”.

The court concluded that far from informing the bank about the sale of Kilpeddar in June 2014, there was a ‘complete radio silence’ regarding the alleged existence of a signed contract to dispose of the site. “It is as if the signed heads of agreement do not actually exist during this period,” the judge noted.

He found that the likely trigger for the one-page memo coming into existence was the appointment of the receivers to the Kilpeddar site in October 2014. The inexorable conclusion from this finding was that the Wicklow lands had not been sold by the July deadline set down by the bank in the settlement agreement. The McDonaghs had breached their side of the deal.

The money trail

The bank was also able to convince the court that the money put up by Granja to buy Kilpeddar came from two UK companies owned by Brian McDonagh, Balcora and Cleverpeople. Three weeks prior to signing the settlement agreement with the bank in 2013, McDonagh transferred his interest in Balcora to his secretary as “someone who could be trusted to do what she was told with the shareholding”. He also claimed that he had held the shareholding in trust for his brother-in-law, a Malaysian obstetrician named Tian Su Ooi, allegedly the main figure behind Granja.

Ooi, the supposed purchaser of Kilpeddar, a site most recently valued (late 2019) at €8 million, did not give evidence in the case and appears never to have been contacted at any stage by the McDonaghs in respect of the legal proceedings. 

Despite scant evidence of his existence, the judge accepted Ooi was a real person and not a fictional character

When Granja withdrew its legal action aimed at forcing through the sale in 2018, the €1.5 million put up to buy the lands was dispersed. A good chunk of the money was spent on legal fees, but €608,000 was paid to Brian McDonagh through his accountant. McDonagh’s only explanation for the flow of funds was that the money was a loan from Ooi. Without any back-up documentation, the court did not accept this “bald assertion”.

What McDonagh did provide were two declarations of trust dating from 2000 and 2007, asserting Ooi’s beneficial ownership. Neither was signed by Ooi. They were however allegedly signed by the late solicitor Earl Gollogly, acting as a witness. Gollogly died in September 2013. 

“It inescapably follows that Granja was a front for Mr. Brian McDonagh,” the court concluded

Ulster Bank claimed Gollogly’s signature was a forgery. Producing old documents from the Companies Registration Office, signed by the solicitor, the bank called a handwriting expert as a witness, to back up its case that the signatures were different.

When McDonagh refused to back down, claiming an accountant could have forged Gollogly’s signature on the CRO documents, a handwriting sample from Gollogly’s will was produced in court. The signature on the will proved decisive. It matched the CRO documents and not the signature on the declarations of trust. The court concluded that the declarations were forgeries, and that McDonagh knew they were forgeries.

Despite scant evidence of his existence, the judge accepted Ooi was a real person and not a fictional character. However, he found there wasn’t a whit of evidence that he was in any way connected to the money trail.

While the brothers stood in unison in their defence, there was one significant deviation towards the end of the trial when Kenneth McDonagh admitted that, having heard all the evidence, he now believed for the first time, and contrary to Brian McDonagh’s claims, that the funds to purchase the Kilpeddar site did in fact belong to his brother. 

“It inescapably follows that Granja was a front for Mr Brian McDonagh,” the court concluded. 

Lastly, McDonagh did not behave like he had sold Kilpeddar. After the receivers were appointed to the lands in October 2014, and long after the purported sale to Granja, Brian McDonagh tried to sell the lands to Apple. He also tried to block planning permission for a data centre in Arklow, Co Wicklow in 2015 based on his belief that “there was only enough electricity in Wicklow to do either one or the other” –  i.e. to build either the Arklow data centre, or the Kilpeddar data centre. Given his insistence that he had sold the Kilpeddar lands long before this point to an unconnected company, his behaviour simply didn’t add up. 

There were other breaches of the compromise settlement. Brian McDonagh failed to deliver up to the bank the title deeds to an apartment in Portugal claiming that if he had charged the apartment, which he jointly owned with his wife, this would have led to marital breakdown and divorce. He also failed to sell a property called Dromin House in Delgany, Co Wicklow. 

The fly in the ointment

While the case was a knockout legal victory for Ulster Bank, the McDonaghs may have squeezed in the equivalent of a consolation try at the end.

A key issue in the dispute remains unresolved for Ulster Bank. Money. It seems the bank will not recover judgment in the sum of €22 million against the McDonaghs because of a previous, related court action.

In 2016, the lender settled a case against CBRE for €5 million in which it alleged that the global real estate services firm was negligent in valuing the Kilpeddar site at €56 million in 2007, prior to the bank’s issuing the investment loan to the McDonaghs.

The court will have to evaluate the impact of section 17 of the Civil Liability Act 1961 which handles cases where two or more parties may be liable for the same wrong. The law around concurrent wrongdoers means the court will have to weigh up levels of contributory negligence between the parties in order to figure out the appropriate sum Ulster Bank is due from the McDonaghs. This may not be as simple as deducting €5 million from the total sum sought (especially as the bank has already factored in the settlement to its calculations of what is owing).

What degree of negligence was alleged against CBRE? Could it be 10 per cent? Or as high as 50 per cent? According to the bank’s pleadings in the 2016 case, arguably, it was pretty high: “Had the [Bank] been advised of the true value of the [Kilpeddar site] it would not have advanced the said sum of €20 million to the [McDonaghs].”

The bank argued, unsuccessfully, that the Act did not apply in debt cases, while the McDonaghs failed in their claim that the CBRE case reduced their liability to zero.

The court has left over a final order on the matter to another day. It is safe to assume the burden of judgment on the McDonaghs will still be heavy.

Barring a successful appeal, the High Court decision must stand as the biggest wake-up call to the fact that the dream is over.