Allied Pharmaceutical Distributors Ltd v Walsh

• Jurisdiction: Ireland
• Judge: Mr. Justice Barron
• Judgment Date: 01 January 1991
• Neutral Citation: [1990] IEHC 1
• Court: High Court
• Docket Number: [1987 No. 3401P],No. 3401p/1987
• Date: 01 January 1991

ALLIED PHARMACEUTICAL DISTRIBUTORS LTD

BETWEEN

ALLIED PHARMACEUTICAL DISTRIBUTORS LIMITED AND ALL-PHAR SERVICES LIMITED

PLAINTIFFS

AND

JOHN F. WALSH, JOHN KIDNEY, JOHN DOORLY, PETER FOGARTY AND JAMES C. WALSH PRACTISING UNDER THE STYLE AND TITLE OF ROBERT J. KIDNEY AND COMPANY

DEFENDANTS

[1990] IEHC 1

No. 3401p/1987

THE HIGH COURT

Synopsis:

AGENCY

Agent

Authority - Activities - Principal - Knowledge - Acquiescence - Ostensible authority - Accountant's investment advice - Client's moneys deposited with accountant's private company - Insolvency of company - Depositor's claim against accountant's co-partners - Liability of partnership for loss - (1987/3401 P - Barron J. - 14/12/90) - [1991] 2 I.R. 8

|Allied Pharmaceutical Distributors v. Walsh|

NEGLIGENCE

Accountant

Investment - Advice - Interest - Conflict - Client's moneys - Deposit - Accountant's company - Insolvency of company - Depositor's claim against accountants" co-partners - Ostensible authority of partner - (1987/3401 P - Barron J. - 14/12/90)

|Allied Pharmaceutical Distributors v. Walsh|

PARTNERSHIP

Partner

Duty - Breach - Negligence - Firm - Liability - Accountants - Plaintiff client - Member of defendant firm acting as financial adviser - Client deposited money with members" company - Knowledge of defendants - Ostensible authority of member - Insolvency of members" company - Partnership act, 1890, ss. 5, 10 - (1987/3401 P - Barron J. - 14/12/90) - [1991] 2 I.R. 8

|Allied Pharmaceutical Distributors v. Walsh|

Citations:

PARTNERSHIP ACT 1890 S5

PARTNERSHIP ACT 1890 S10

BRITISH HOMES ASSURANCE CORPORATION LTD V PATERSON 1902 2 CH D 404

PARTNERSHIP ACT 1890 S11

KIRKINRILLOCH EQUITABLE CO-OPERATIVE SOCIETY LTD V LIVINGSTONE & ORS 1972 SLT 154

KETT V SHANNON 1987 ILRM 364

ARMAGAS LTD V MUNDOGAS SA 1985 3 AER 795

MERCANTILE CREDIT CO LTD V GARROD 1962 3 AER 1103

RAPP V LATHAM 1819 2 B & ALD 795

1 Judgment of Mr. Justice Barron delivered the 14th day of December 1990.

2 The first-named Plaintiff was formed in the year 1971 and carries on business as a distributor of pharmaceutical products. The second-named Plaintiff is a wholly owned subsidiary of the first-named Plaintiff. It carries on a similar business to that of the first-named Plaintiff but also carries on business as agent for Pharmaceutical Product Manufacturers. I shall henceforth refer to either or both of them as the Plaintiff. The Chief Executive of the Plaintiff is Maurice Landers. Prior to 1971 he had experience in the wholesale pharmaceutical trade. In that year he decided to set up his own company. This he did together with other pharmacists. He required financial advice and this he sought from John Kidney who was at that time Secretary to the wholesale Drug Federation. The latter felt that his position debarred him from giving such advice and suggested to Mr. Landers that he should consult John Walsh. Both he and John Walsh were partners in the accountancy firm carrying on practice under the name Robert J. Kidney & Company.

3 John Walsh agreed to assist with financial advice and became a financial advisor to the company. Shortly afterwards he became a shareholder and a director in the company. He had a family company Thorndene Investment Trust ("Thorndene") with unlimited liability which had been set up by him as a vehicle for his private capital and as a means of lessening liability to estate duty. The shares in the Plaintiff were taken in the name of Thorndene. Although John Walsh was a director and at all material times remained a director of the Plaintiff and was during the same period a financial advisor to that company he did not receive any remuneration personally. His time was charged for by his firm and such charges included his attendance at directors" meetings.

4 The accounts department of the Plaintiff was established by Mr. Slattery who had considerable experience in similar departments. He had no professional qualification. In practice, all the decisions relating to the finances of the company were made by John Walsh and were implemented either by Mr. Slattery or by Mr. John Murray an employee of Robert J. Kidney & Company. John Walsh did not have any office in the Plaintiff's premises but worked from his own office in the offices of Robert J. Kidney & Company and meetings in which he was involved other than director's meetings took place in those offices.

5 From early in their association the Plaintiff through Mr. Landers and Mr. Slattery became aware of the existence of Thorndene and that it was Walsh's family company. In 1972 when the Plaintiff was short of working capital it was lent £8,000 at interest by Thorndene for approximately three months. This was the only such loan made to it by Thorndene.

6 In the year 1976 Mr. Walsh suggested to Mr. Slattery that the Plaintiff should from time to time place money on deposit with Thorndene. Between that year and 1981 this was done on approximately 13 occasions. When this was first suggested to Mr. Slattery he asked Mr. Landers for authority to do so which he was given. Both Mr. Landers and Mr. Slattery have given evidence to the effect that Mr. Walsh advised them that it would be of benefit to the Plaintiff to do so. At that time the Plaintiff ran three accounts with its bankers, one for its Limerick operation, one for its Dublin operation and one for its subsidiary. Each account had its own overdraft facility. The nature of the Plaintiff's business was such that its several accounts would be heavily in credit at the beginning of the month and would go into debit towards the end of the month.

7 In his position as financial advisor Mr. Walsh received monthly accounts. From time to time, he inquired from Mr. Slattery what was the daily position of the company's bank accounts. It was in the course of such inquiries and as a result of them that he suggested that money should be put on deposit with Thorndene. In his evidence, Mr. Slattery said that having received Mr. Lander's approval he then asked for the terms of such loans and was told that the Plaintiff would receive one per cent more than it was paying to the bank. He also said that when the bank balances had fallen to the point where he required the money he asked Mr. Walsh for a cheque and received it by return. It may be that Mr. Slattery believed at the time that this was the arrangement between them. There is nothing in the documentation which bears him out. One might have expected that with the fluctuating nature of his account the Plaintiff would have been advised to put money on deposit with Thorndene when an account was in credit and to have sought repayment before it went into debit. Such was not the case. Deposits were made for much longer periods, on occasion for months. Obviously, as a result, it was on deposit for periods when the money was being borrowed from the bank and in some cases while the Plaintiff was paying a three per cent surcharge to the bank for exceeding its overdraft limit. While the interest being received might at the beginning have in fact been one per cent more than the Plaintiff's overdraft rate at the bank, this, if it was ever the basis of the arrangement between the parties, was not the basis for long. The documents show that Thorndene circularized the Plaintiff giving details of the rate of interest it was paying on deposits without any reference to any special rate for the Plaintiff.

8 I have no doubt that the Plaintiff placed money on deposit with Thorndene from time to time on the decision of Mr. Walsh. I have equally no doubt that the purpose of such deposits had no basis in the needs of the Plaintiff. It must have been obvious to anyone who stood back and thought about what was happening that the deposits made no commercial sense for the Plaintiff and were in fact costing it money. From the beginning, Mr. Walsh was the person who dealt with the bank and controlled the financial health of the company. No one ever questioned his decisions. In the course of his activities, he was shown and saw all the financial data of the Plaintiff. He was held in high esteem by Mr. Landers and Mr. Slattery. Mr. Landers had authorised Mr. Slattery to do whatever Mr. Walsh advised. Having regard to this background and the difference in their professional qualifications it is possible to understand how these transactions could have taken place.

9 From 1981 to 1986 no deposits were sought by Mr. Walsh. In March 1986 the sum of £70,000 was placed on deposit with Thorndene which was repaid by the 1st September 1986. On the 29th or 30th October Mr. Walsh asked for a deposit of £200,000. However he indicated that he did not want it until November. This Mr. Slattery agreed to and because he did not wish to sign cheques out of order the signing of the cheque was left until November. On that date Mr. Slattery was not available and the cheque was signed by another director. Neither Mr. Slattery nor this director apparently saw anything wrong in the transaction. A further deposit of £200,000 was made on the 27th of November 1986. There were further transactions during the early part of 1987 when a portion of this money was repaid and when further deposits were again made. Ultimately on the 11th March 1987 there was a sum of £350,000 on deposit when Mr. Walsh informed the Plaintiff that Thorndene was insolvent and not in a position to repay the amount on deposit.

10 The relationship between Thorndene and the Defendant firm is a somewhat unusual one. At all times the affairs of Thorndene were managed by Mr. Walsh with the assistance of his Secretary in the partnership. All the books of the company were kept in his office in the partnership offices. In the 1970's one of the partners of the partnership was a director of Thorndene and another partner was the Secretary. Both had resigned by the end of the decade. During that decade also several members of the firm had...