McAteer v Fried

• Jurisdiction: Ireland
• Judge: Ms. Justice Máire Whelan
• Judgment Date: 17 July 2019
• Neutral Citation: [2019] IECA 216
• Date: 17 July 2019
• Court: Court of Appeal (Ireland)
• Docket Number: Neutral Citation Number: [2019] IECA 216

BETWEEN/

MICHAEL MCATEER, AENGUS BURNS

&

ULSTER BANK (IRELAND) LIMITED

RESPONDENTS

- AND -

LASZLO FRIED

&

JASZAI LIMITED

APPELLANTS

- AND -

LAZLO JEWELLERS LIMITED

&

CLADDAGH JEWELLERS LIMITED

SECOND AND FOURTH NAMED DEFENDANTS/NOTICE PARTIES

[2019] IECA 216

Whelan J.

Peart J.

Edwards J.

Whelan J.

Neutral Citation Number: [2019] IECA 216

Record Number: 2018/274

THE COURT OF APPEAL

Banking & finance – Loan facility – Default in repayment – Litigation to recover sums owed – Striking out of certain paragraphs of defence as vexatious

Facts: The parties had been engaged in substantive litigation concerning the appointment of receivers and the recovery of sums said to be owed in respect of a loan facility made available to the appellants. The High Court had struck out elements of the appellants’ defence as frivolous or vexatious and the appellants now sough to challenge that order.

Held by the Court, that the appeal would be dismissed. The Court was satisfied that the appellants had not made out any basis to disturb the ruling at first instance, and that the elements struck out were indeed unsustainable in the substantive proceedings.

JUDGMENT of Ms. Justice Máire Whelan delivered on the 17th day of July 2019

Introduction

1 This is an appeal against the judgment of Ms. Justice Ní Raifeartaigh delivered in the High Court on the 2nd of May, 2018 and the orders made by her on the 7th June, 2018 and perfected on the 20th June, 2018 striking out certain paragraphs (collectively referred to hereafter as ‘The Laszlo Fried LIBOR Claim’) in a defence delivered on behalf of the appellants on the 4th of September, 2015 on the grounds that same were frivolous and vexatious and bound to fail.

Background

2 The background and history to the course of dealings between the parties giving rise to the then proceedings are set out in detail in the High Court judgment. On the 21st December, 2009 the bank offered the appellant company by way of facility letter a €290,000 overdraft to provide working capital, together with a continuation of an existing demand loan facility in Swiss Francs approximately equivalent to €7,000,000 to assist in the acquisition and laying out of a jeweller's shop at Mainguard Street in Galway City. An additional sum of USD$25,000 in overdraft for working capital was also advanced on foot of the said agreement. The loan facility was secured on the Mainguard Street premises.

3 Thereafter, on 29th March, 2010 the bank offered to the first appellant by way of a facility letter a loan in Swiss Francs approximately equivalent to €5,000,000 for the purposes of restructuring outstanding debts together with €484,000 to assist with the said restructuring. The latter loan was secured on a premises situate at William Street in Galway City.

4 It appears that leases were entered into and executed in respect of the security properties by the appellants with the second and fourth defendants respectively. The second and fourth defendants went into occupation and possession of the said properties as tenants. The validity of the said leases is in dispute. Whilst specific paragraphs pleaded in a defence delivered on behalf of the second and fourth defendants were also struck out by order of the Court on the 7th June, 2018, the second and fourth defendants have not appealed that determination and same are of no further relevance in regard to the issues in this appeal.

5 The bank alleges default by reason of non-payment of the sums due on foot of the said facilities. On 19th April, 2013 the first and second named respondents were appointed as receivers. The within proceedings were instituted in 2014.

6 In the substantive proceedings the respondents seek orders restraining the defendants from preventing them carrying out their functions as receivers together with orders to account for rents received since the date of appointment of the receivers and for declarations as to the validity of the leases aforesaid. The bank seeks recovery of the sum of CHF 5,671,045.49 Swiss Francs together with USD$318.82 as against the first appellant together with interest since the 28th April, 2014. In their defence and counterclaim delivered on 4th September, 2015 the appellants, inter alia, deny liability, plead estoppel and counterclaim for damages for negligence, breach of contract and breach of duty.

The Laszlo Fried LIBOR Claim

7 On 29th November, 2017 the respondents issued a motion returnable before the High Court seeking, inter alia, ‘An order pursuant to the inherent jurisdiction of the court dismissing the following paragraphs of the defence delivered by the first defendant and the third defendant on the ground that same is frivolous and vexatious and is bound to fail:

(a) Paragraphs 2, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37 and 38 (“The Laszlo Fried LIBOR Claim”).’

Paragraph 2 of the defence delivered states; ‘It is pleaded that the Third Plaintiff is a public body which is subject to public law obligations and duties’. The Laszlo Fried LIBOR Claim as pleaded at paragraphs 23 to 33 inclusive is set out substantially verbatim at pgs. 5 to 10 inclusive of the judgment of the High Court judge.

8 At para. 2 of the judgment the High Court judge characterises the Laszlo Fried LIBOR Claim in the following terms (which I adopt): -

‘… The disputed paragraphs of the defences refer to the past involvement of Royal Bank of Scotland (hereinafter “RBS”), the parent bank of Ulster Bank (the third plaintiff) in criminal wrongdoing consisting of the rigging or manipulating of certain London Interbank Offered (or LIBOR) rates. It is sought by the defendants, in various ways, to link the third plaintiff Ulster Bank with this wrongdoing and to rely upon this link in their defence of the proceedings by the bank to enforce certain loans and by the receivers to carry out their functions in connection with the properties in question. RBS is not a party to the present proceedings.’

9 In their outline written legal submissions to this Court the appellants do not appear to take issue with this characterisation of the Laszlo Fried LIBOR Claim and indeed cite para. 2 of the High Court judgment in detail at para. 6 of their said submissions.

Analysis of the Disputed Part of the Defence in High Court Judgment

10 The High Court judge noted (para. 9) that the appellants sought to introduce a claim that RBS was found guilty of manipulating certain LIBOR rates, which conduct had been widely publicised and had led to a settlement in February, 2013 with the UK Financial Services Authority (FSA) in the sum of STG£87,000,000 and further, RBS had entered into a deferred prosecution agreement under the auspices of the US District Court in Connecticut with a penalty of USD$150,000,000. Additionally, on the 4th December, 2013 the European Commission fined RBS together with a number of other international financial institutions for participating in cartels responsible for manipulating both LIBOR and EURIBOR.

11 The trial judge from para. 11 of her judgment onward proceeded to evaluate and assess the relevance of that evidence pertaining to conduct on the part of RBS to the matters in issue in the proceedings between the parties, particularly in light of the defence as pleaded and in circumstances where RBS was not a party to the within litigation. She attached weight to the following facts: -

(a) The statement in an affidavit of Mr. Robert Skelly of the 28th November, 2017 where he deposed that at no material time was Ulster Bank a member of any panel of banks involved in setting LIBOR or EURIBOR rates for the relevant currencies;

(b) That no link had been identified between the LIBOR manipulation engaged in by RBS and any loss suffered by the defendants;

(c) That the manipulation engaged in had taken place prior to the commencement of the Laszlo Fried Facility;

(d) That there was no valid basis for conflating the actions of RBS employees with those of its subsidiary, Ulster Bank;

(e) That Ulster Bank had denied it had made any representations in relation to LIBOR such as those contended for in the defence delivered.

12 The Court noted that the first appellant had filed a replying affidavit on the 29th January, 2018 averring that the loans in question were continuations of loan facilities which had commenced in 2006 and accordingly were affected by LIBOR manipulation in those circumstances. The said affidavit set out the history of RBS and the LIBOR misconduct in detail. The first appellant averred that he had retained the services of financial risk services expert Mr. Abhishek Sachdev, whose alleged views were alluded to by the first appellant in his affidavit in support a contention that a nexus existed between Ulster Bank and RBS such as would justify the disputed Laszlo Fried LIBOR Claim paragraphs remaining in the defence delivered. The Court noted that no expert report was exhibited nor any affidavit sworn by the alleged expert in question, the judge observing: -

‘Mr. Fried averred that the expert's view was that Ulster Bank would have had to hedge out their exposure on the loans due to the bank being unable “to run the CHF interest rate foreign exchange risk” and that the nature of this hedge… would have been too complex for Ulster Bank's “very small capital markets dealing room” and that all the interest rate risk must have been passed to RBS.’ (para.13)

13 The affidavit further suggested that in the view of the expert, ‘RBS systems or employees must have been used to do this and the terms of the loan would have been set when the swap hedge was executed’. The judgment continues at para. 13: -

‘Mr. Fried called this process “white labelling”, by which he meant that RBS would have used the brand of “Ulster Bank” as an intermediary for itself as an undisclosed principal when transacting its products with borrowers.’

In substance it was contended that an...