Governey v Financial Ombudsman and Another

• Jurisdiction: Ireland
• Judge: Mr. Justice Hedigan
• Judgment Date: 26 August 2013
• Neutral Citation: [2013] IEHC 403
• Court: High Court
• Date: 26 August 2013

Governey v Financial Services Ombudsman & Anor

IN THE MATTER PF S.57CL OF THE CENTRAL BANK ACT 1942 AS INSERTED BY S. 16 OF THE CENTRAL BANK

AND

FINANCIAL SERVICES AUTHORITY OF IRELAND ACT 2004

BETWEEN:

HUGH GOVERNEY

Appellant

And

FINANCIAL SERVICES OMBUDSMAN

Respondent

And

IRISH BANK RESOLUTION CORPORATION LIMITED (Formerly Anglo Irish Bank/Anglo Irish Assurance Company)

Notice party

[2013] IEHC 403

No. 289/2012 MCA

THE HIGH COURT

Commercial law – Contract – Investment in shopping centre – Existence of rival shopping centre – Whether failure to disclose all material risks – Whether contract should be rescinded – Central Bank Act, 1942 – Central Bank and Financial Services Authority of Ireland Act, 2004.

Facts The appellant had made an investment of 500,000 with the respondent in respect of a shopping centre and when the investment made losses made a complaint to the Financial Services Ombudsman (the respondent) which had been rejected. The appellant brought proceedings seeking to have the determination set aside and sought the return of the monies. It was contended that as the investment had been structured in the form of a life assurance policy, the principle of uberrime fidei (utmost good faith) applied. Under this principle of full disclosure of all risks should have been made and failing that the contract should be rescinded. The appellant had submitted that there had been a failure to inform him of the development of a nearby shopping centre which ultimately posed a risk to the investment. The notice party had contended that it had disclosed all material facts to the appellant, the nearby shopping centre had not been seen as a threat but rather a potential positive effect to increase overall footfall.

Held by Hedigan J in dismissing the case: The respondent had decided that there had been no material non disclosure and the question for the court was whether there existed any relevant evidence upon which that decision could reasonably be based. It was very questionable as to whether the contract really was one of assurance. All the evidence suggested that it was a contract of investment dressed up as a contract of assurance for tax purposes and dealt with an investment risk not an insurance risk. The respondent had found that the appellant was an experienced investor and the court agreed with this assessment. The respondent had also found there had been no misrepresentation of the investment and that the appellant had been informed that he could lose all of the investment. The respondent had duly considered all the matters evidenced before him, his decision was a judgment reasonably made and clearly based upon the evidence before him. The court would dismiss the appeal against his decision.

1 Judgment of Mr. Justice Hedigan delivered the 26th of August 2013.

The Parties

2 1. The appellant is a retired insurance broker who resides in Palmerston Road, Dublin 6. The respondent is a statutory officer empowered to deal independently with complaints from members of the public regarding their individual dealings with all financial services providers. The notice party, now known as the Irish Bank Resolution Corporation (or "IBRC"), is the former Anglo Irish Bank and Anglo Irish Insurance Company ("Anglo"), which has its registered company address at 5 ^th Floor, Connaught House, 1 Burlington Road, Dublin 4.

3 2 1.2 The appellant seeks the following relief: -

4 (1) An order pursuant to s.57CL (2) (B) of the Central Bank Act 1942 as amended setting aside the finding of the Respondent dated the 23 ^rd July, 2012 and in lieu thereof an order directing the notice party to return to the appellant the premium of €500,000 which was paid by the appellant to the notice party in two instalments of €250,000 on the 23 ^rd and 24 ^th January, 2006 in respect of investment bond INB/0003229.

5 (2) In the alternative an order pursuant to s. 57CL (2) (c) of the Central bank Act 1942 as amended remitting the said finding to the respondent for review.

Background

6 2 1.3 In or around December, the appellant made an investment of €500,000 in a property based fund promoted by the Anglo Irish Assurance Co. Ltd ("Anglo"). This was a highly geared investment scheme in the Kennet Shopping Centre ("Kennet") in Newbury, England.

7 3 1.4 The investment was not a successful endeavour. Part of the reason for this arose out of the development of a new shopping centre in Newbury, the Parkway Centre, which was attracting lucrative tenants away from the Kennet Centre. Dialogue was initiated between the appellant, the notice party and Adonis, the property investment company utilised by the notice party. A complaint letter dated the 5 ^th August 2010 was subsequently sent to the notice party.

8 4 1.5 The essence of the appellant's complaint was that, as the investment had been structured in the form of a life assurance policy, the contractors were to be held to the principles of utmost good faith (uberrime fide), and therefore full disclosure of all risks had to be made or else the contract would be open to rescission. The appellant argued that while the Parkway Centre was referred to in the investment brochure for the Kennet Centre investment, it was never disclosed that it would be a risk to the viability of the investment.

9 5 1.6 Anglo rebutted this claim by way of letter dated the 6 ^th September 2010 where it set out the grounds upon which it claimed the complaint was unsubstantiated. It argued that it had disclosed all material facts to the appellant and that the Parkway Centre was not seen as a risk, but rather a potential positive effect on the Kennet Centre, as it would increase footfall in the town. Reference was made to professional advice received by the Notice party from Savilis and also from a policy document issued by West Berkshire District Council entitled "A Vision for Newbury Town Centre 2025".

10 6 1.7 The notice party also made reference to the appellant's professional experience as a risk management adviser, and that the investment was highly geared and advertised as a high risk venture.

11 7 1.8 A response was written by the appellant's solicitors on 13 ^th September 2010. They sought a copy of the advices obtained from Savilis. This was rejected by letter on the 28 ^th September 2010 as Anglo stated it was not in a position to fulfil the request due to a confidentiality agreement attached to the report. The appellant decided to proceed with a complaint to the respondent (the FSO). The extent of his complaint was an assertion that the reason for the failure of the Kennet investment was the development of the larger Parkway Centre and that the notice party ought to have disclosed that the Parkway centre was a risk which could have had negative effects on the Kennet Centre and a result of this non-disclosure he had not had the opportunity to consider it as a material risk to his investment. He also complained that Anglo failed to disclose the advice given to it by Savilis. If he knew about the proximity of Parkway to Kennet he never would have proceeded with the investment.

12 8 1.9 A final response was sent by the notice party on the 25 ^th January 2011, stating that the appellant was aware of the risks involved in the venture. It also expressed the opinion that Kennet declined as a result of the general trend around the UK in 2009 whereby shopping centres were the poorest-performing sub-sector in the retail market. It was their submission that Parkway did not have an adverse effect on Kennet, and that mention of the centre was also made in the fund brochure and that professional advice given to them opined that Parkway represented an opportunity and not a risk. Finally, they noted that the appellant was an experienced investor. With receipt of the final notice, the office of the Ombudsman was able to begin an investigation into the appellant's investment with the notice party, with both sides being afforded ample room for submissions and rejoinders. Solicitors for the appellant wrote to the respondent on the 15 ^th February 2011, raising the issue of the contract, the principles of utmost good faith and that, while Anglo asserted that it had disclosed all material fact, it was patently obvious to them that Parkway represented a significant risk which Anglo ought to have disclosed. They also challenged the assertion that the decline in Kennet's value was due to the poor performance of shopping centres in the UK, as the fall experienced by the Kennet Centre was disproportionate to the overall index. The kernel of the appellant's argument at this juncture was described as:-

"… the key issue in this matter is whether the proposed opening of the Parkway Centre represented a potential risk to the investment of which our client [the Appellant] should have been informed"

13 9 1.10 The respondent wrote to the parties advising that he would now proceed to investigate the claim. What followed was a number of exchanges between the appellant's legal team and the notice party where a number of disputes arose as to the content of the Savilis' report and that the investment provided by the notice party was incorrect in its figures regarding the percentage of tenants in Kennet that had leases that were to expire and/or break clauses. The Anglo brochure put this figure at 19% where in reality the figure is closer to 40%. The reality of Newbury's potential prosperity was also questioned in light of a document produced by the West Berkshire District Council entitled "A Vision of Newbury Town Centre 2025" where the decline of Newbury was examined and measures to counter act this decline were postulated. Further to this submission were complaints that the appellant had not been made aware of the professional advice from Savilis until it was revealed over the course of the responses made...