Komady Ltd and Another v Ulster Bank Ireland Ltd

• Jurisdiction: Ireland
• Judge: Mr Justice Michael Peart
• Judgment Date: 26 June 2014
• Neutral Citation: [2014] IEHC 325
• Docket Number: Record Number: No. 11888P/2012
• Court: High Court
• Date: 26 June 2014

Komady Ltd & O'Reilly v Ulster Bank Irl Ltd

No Redaction Needed

Between:

Komady Limited and Michael O'Reilly

Plaintiffs

And

Ulster Bank Ireland Limited

Defendant

[2014] IEHC 325

Record Number: No. 11888P/2012

THE HIGH COURT

Contracts – Fraudulent concealment – Rights of action – Plaintiff claiming the mis-selling of “Swaps” constituted concealment by fraud – Whether proceedings were commenced outside the limitation period

Facts: The plaintiffs, Komady Ltd and Mr O”Reilly, entered into two contracts with the defendant, Ulster Bank Ltd, in 2006. The contracts were called “Swap Agreements”, a form of derivative financial instrument by which a borrower can obtain interest rate hedging based on a cumulated notional liability to a bank. The true nature of the swaps became apparent to the plaintiffs in 2012 when they retained legal and financial advisers, as well as the extent of the funds needed to finance the Swaps. The plaintiffs claimed that the Swaps were mis-sold to them by the defendant bank and commenced proceedings in 2012. The defendant submitted that the proceedings had been commenced outside the six year period provided for commencement of claims for breach of contract and for claims arising from a tort. The plaintiff relied on s. 77 of the Statute of Limitations 1957 to escape the rigors of the Statute. The two-fold question submitted for the decision of the High Court as a preliminary issue in advance of the main action was as follows: (a) Have the rights of action asserted by the plaintiffs been brought outside the limitation period? (b) If the answer to the above question is in the affirmative, are the acts and omissions alleged against the defendant capable of constituting concealment by fraud on the part of the defendant of the plaintiff”s rights of action in the sense of s. 71(1)(b) of the Statute? The plaintiffs submitted that the fiduciary nature of the relationship affects the date from which the Statute started to run against them. The defendant submitted that this added nothing as it did not alter the fact that the parties entered into the Swap agreements in 2006 and therefore time must have commenced against the plaintiffs from that year. The defendant did not accept that time did not start to run until the date in 2012 when the plaintiffs alleged they were first advised that the Swaps were not consistent with their financial planning objectives and were unsuitable.

Held by Peart J that the fiduciary relationship between the plaintiffs and the bank is a continuing one; the Bank knew at all times that the plaintiffs had no separate advice in relation to the Swaps and that it had never explained the true nature and vital elements of the Swaps to the plaintiffs. Peart J held that by non-disclosure of vital elements of the Swaps and by false misrepresentations of fact intended to induce the plaintiffs to enter into the Swaps, facts were concealed from the plaintiff that would have enabled them to know that they had a right of action against the bank. Peart J held that the absence of any advice as to any alternative type of instrument that might have been suitable to the plaintiffs” circumstances and objectives supports “concealment by fraud” for the purpose of s. 71(1)(b). Peart J held that the bank also breached its obligations under the Market in Financial Instruments Directive. Referring to Gallagher v ACC Bank plc [2012] 2 IR 620, Peart J held that the plaintiffs suffered their loss in 2006 when they entered into the Swaps and that the limitation period should apply, referring to Knox v Gye [1872] 5 App Cas 656. Peart J held that the plaintiffs have not commenced these proceedings within six years from the date on which their cause of action accrued, hence they are outside the period prescribed by s. 11 of the Statute for such actions in tort. Peart J held that while the existence of the fiduciary relationship could impose a greater obligation of disclosure upon the bank, everything that the plaintiffs needed to know in order to get any advice on the Swaps was known to them by the date of the commencement of the agreements. Instead they did nothing until they ran into financial difficulties in 2012 when they had ample facts at their disposal in order to commence an action for negligence/negligent misrepresentation.

Peart J held that acts and omissions alleged against the defendant are not capable of constituting concealment by fraud on the part of the defendant of the plaintiffs” right of action in the sense of s. 71(1)(b); there was accordingly an order dismissing the plaintiffs” proceedings.

Judgment approved.

STATUTE OF LIMITATIONS 1957 S71(1)(B)

STATUTE OF LIMITATIONS 1957 S71(1)(A)

STATUTE OF LIMITATIONS (AMDT) ACT 1991 S3

CIVIL LIABILITY & COURTS ACT 2004 S7

CENTRAL BANK ACT 1989 S117(1)

GALLAGHER v ACC BANK PLC T/A ACC BANK 2012 2 IR 620 2013 1 ILRM 145 2012/16/4492 2012 IESC 35

STATUTE OF LIMITATIONS 1957 S11(2)(A)

STATUTE OF LIMITATIONS 1957 S44(A)

CANNY LIMITATION OF ACTIONS 2010 PARA 13.20

KNOX v GYE 1871-72 5 APP CAS 656

STATUTE OF LIMITATIONS 1957 S44

STATUTE OF LIMITATIONS 1957 S11

STATUTE OF LIMITATIONS 1957 S71(1)

KITCHEN v ROYAL AIR FORCE ASSOCIATION & ORS 1958 1 WLR 563 1958 2 AER 241 1955-95 PNLR 18

BEHAN v BANK OF IRELAND 1998 2 ILRM 507 1998/11/3412

Judgment of

Mr Justice Michael Peart

1 Before the Court is a question which Mr Justice Cooke ordered should be decided as a preliminary issue in advance of the main action. In his order dated 15^th October 2013, he set forth a two-fold question in the following terms:

"Upon the basis that the facts alleged by the plaintiffs in the statement of claim and in the reply to the defence as further particularised in replies dated the 22^nd April, 3^rd May and 6^th June, 2013 to requests for particulars, are treated as having been established and correct, the Court directs the determination of the following issues of law:"

(a) Have the rights of action asserted by the plaintiffs in this proceeding been brought outside the limitation period applicable to them under the Statute of Limitations 1957 (as amended) by virtue of the fact that they were brought with effect from 23^rd November 2012?

(b) If the answer to the above question is in the affirmative, are the acts and omissions alleged against the defendant capable of constituting concealment by fraud on the part of the defendant of the plaintiff's rights of action in the sense of S. 71 (1) (b) of the Statute?"

2 At paragraph 22 of his judgment delivered on 8 October 2013 on foot of the efendants motion seeking the trial of a preliminary issue, Cooke J. stated the following in relation to the basis upon which this Court should now determine these questions:

3 2 "22. The Bank has however, for the purposes of this application, undertaken that it will treat as correct the facts relied upon by the plaintiffs, both in relation to the circumstances surrounding their entry into the swap contracts in July 2006, including, accordingly, the fact that the pleaded inducements, representations and warranties were made or given; that the Code of Conduct for Investment Business had not been complied with and that the swap contracts were not in fact suitable for the plaintiffs or consistent with their financial objectives); and also in relation to the plea of fraudulent concealment for the purposes of paragraph (b) of s.70 (1) including the fact that the Bank did not, at or after the commencement on the 1^st November 2007 of the MiFID Regulations reclassify the plaintiffs as retail clients or give any advice or information to the plaintiffs as to the applicability, effect or advantage of those Regulations or as to the duties of the defendant under them. This also, in the view of the Court, necessarily involves accepting that the relationship between the Bank and the plaintiffs at the material times was a fiduciary relationship as pleaded." [emphasis added]

4 3. The parties are agreed that the above represents the basis upon which this Court shall determine the issue directed.

5 4. On 14^th July 2006 the parties entered into two contracts referred to as 'Swap Agreements' which are a form of derivative financial instrument by which a borrower can obtain interest rate hedging based on a cumulated notional liability to a Bank. It is unnecessary to dwell upon the precise nature and detail of these Swaps and how exactly they operate, save perhaps to say that in the case of these two Swaps if interest rates rose above 3.9% the plaintiffs would be "in the money" meaning that the Bank would have to make a payment to the plaintiffs, whereas by contrast if interest rates fell below 3.9% the plaintiffs would be "out of the money" and liable to make a payment to the Bank. Since neither party will be able to forecast with certainty whether interest rates will rise or fall above or below 3.9% during any particular quarter, and since the duration of the Swaps was five years, either party could win or lose, so to speak, over the term of the Swaps, and to that extent each party to the Swap takes a chance that by entering into the agreement there will over the term of the agreement be a benefit. Whether one party or the other has gained or lost under the Swaps is not something which can be finally ascertained until the term of the agreement has expired, since rates may unpredictably vary up or down in any particular quarter.

6 5. A feature of the background to this case is that prior to entering into these Swaps with Ulster Bank, the plaintiffs had existing borrowings with Anglo Irish Bank, and they had entered into what is referred to as an Interest Cap Agreement with Anglo, which is another form of derivative instrument whereby for a single premium of €400,000 paid up front, they were protected against any increase in the interest rate above 5% on those...