McAteer v Laszlo
| Jurisdiction | Ireland |
| Judge | Ms. Justice Ní Raifeartaigh |
| Judgment Date | 02 May 2018 |
| Neutral Citation | [2018] IEHC 386 |
| Docket Number | Record No. 2014/4723 |
| Court | High Court |
| Date | 02 May 2018 |
[2018] IEHC 386
THE HIGH COURT
Ní Raifeartaigh J.
Record No. 2014/4723
and
and
Defence – Strike out – Bound to fail – Plaintiffs seeking to strike out certain paragraphs in the defence and counterclaims delivered on behalf of the defendants – Whether the pleadings, or parts thereof, were frivolous, vexatious and bound to fail
Facts: The plaintiffs, Mr McAteer, Mr Burns and Ulster Bank Ltd, applied to the High Court to strike out certain paragraphs in the defence and counterclaims delivered on behalf of the defendants, Mr Fried, Laszlo Jewellers Ltd, Jaszai Ltd and Claddagh Jewellers Ltd. The application was based upon the inherent jurisdiction of the Court to strike out pleadings, or parts thereof, on the basis that they are frivolous, vexatious and bound to fail. The disputed paragraphs of the defences referred to the past involvement of Royal Bank of Scotland (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 was sought by the defendants, in various ways, to link the third plaintiff 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. The plaintiffs submitted that RBS and Ulster Bank could not be treated as a single entity; as Ulster Bank is a subsidiary of RBS and a separate corporate entity from it, it followed that any wrongdoing of RBS could not be attributed to Ulster Bank and that there was no basis in law for treating it as an "agent" of RBS. The plaintiffs also submitted that the relevant paragraphs of the defence put forward a case which was "bound to fail". Counsel submitted that even if the wrongdoing of RBS could be attributed to Ulster Bank as regards the interest rates in respect of the loans, this would not in any event entitle the defendants to refuse to pay back the entirety of the loan and that no authority had been put before the Court in support of such a far-reaching proposition.
Held by Ní Raifeartaigh J that, in view of the evidence, there was not a question to be tried as to whether Ulster Bank was an agent for RBS, a proposition which was not pleaded in the defence. Ní Raifeartaigh J held that there was no suggestion that the interest rates which were actually applied had any bearing on why the defendants defaulted.
Ní Raifeartaigh J held that she would accede to the application to strike out aspects of the defence of the first and third defendants, Mr Fried and Jaszai Ltd; it followed that she should also strike out the equivalent paragraphs in the defence of the second and fourth defendants, Laszlo Jewellers Ltd and Claddagh Jewellers Ltd, also.
Application granted.
This is a case which comes before the Court by way of motion on behalf of the plaintiffs to strike out certain paragraphs in the Defence and Counterclaims delivered on behalf of the defendants. The application is based upon the inherent jurisdiction of the Court to strike out pleadings, or parts thereof, on the basis that they are frivolous and vexatious and bound to fail.
Essentially, 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.
A brief but helpful description of the background of wrongdoing of RBS is set out at paras. 113 and 115 of Property Alliance Group Ltd v Royal Bank of Scotland, [2016] EWHC 3342:
'It is well-known that between January 2006 and March 2012 there was what has been called manipulation' of LIBOR in the sense that on some and perhaps many occasions submissions were made by panel banks which did not reflect the rate at which those banks genuinely thought they could borrow funds but were rather rates which were thought to benefit the banks' trading position and/or individual traders' bonuses. Investigations were carried out by regulators in both England and the United States which revealed widespread LIBOR manipulation. In England the Financial Services Authority ('the FSA') carried out such investigations including an investigation into RBS which revealed many and substantial breaches of principles 5 and 3 of the regulatory Principles for Businesses. These breaches were set out in a Final Notice ('the Notice') of 6 February 2013 and resulted in a fine of £87.5 million which would have been £125 million if RBS had not agreed to settle at an early stage of the investigation and thus qualified for a discount...
The FSA made specific findings of manipulation in connection with RBS's submission of rates that formed part of the calculation of Japanese yen and Swiss franc LIBOR. United States regulators made similar findings and those manipulations are now admitted by RBS. The FSA also found that RBS inappropriately considered the impact of its LIBOR submissions on the profitability of transactions in its money market trading books as a factor when it made Japanese yen, Swiss franc and US dollar submissions. It concluded that RBS's misconduct undermined the integrity of LIBOR.'
The first defendant is a Spanish businessman and the remaining defendants are corporate entities. The second and fourth defendant are tenants under leases with the first and third defendants in respect of two properties. Their involvement in this motion was minimal; essentially, they adopted the submissions made on behalf of the first and third defendants.
In 2009 and 2010, Ulster Bank provided certain facilities to the first and third defendants. On the 21st December, 2009, Ulster bank offered the third defendant, by way of a facility letter, a €290,000 overdraft to provide working capital, and the continuation of an existing demand loan facility in the sum of Swiss francs approximately equivalent to €7,000,000 to assist in the purchase and outlay of a jeweller's shop on Mainguard Street in Galway. A further $25,000USD in overdraft for working capital was also provided in the same agreement. The loan facility was secured on the Mainguard Street property.
On the 29th March, 2010 Ulster Bank offered, by way of a facility letter, the first defendant a loan in Swiss Francs approximately equivalent to €5,000,000 in order to restructure outstanding debts, and €484,000 to assist with the restructuring. This loan was secured on a property on William Street in Galway.
Leases were entered into as between the first and third defendants, and the second and fourth defendants; the latter two defendants occupy the two properties. While the defences include pleas of estoppel on the basis that the Bank was aware of these leases at certain material times, this aspect of the case does not arise in the present motion.
The plaintiff alleges that there was default by reason of non-payment of the amounts due under the facilities. On the 19th April, 2013, the first and second plaintiffs were appointed as receivers. In these proceedings, they seek orders restraining the defendants from preventing them from carrying out their functions, together with a number of related orders; for account of rents received by them since date of appointment of receivers; for declarations that leases are void and ineffective; and for damages for trespass, negligence and breach of duty. The third plaintiff seeks the sum of CHF 5,671, 045.49 (Swiss francs) and USD$318.82 dollars against the first defendant with interest since 28th April 2104.
As I have noted already, the defendants seek to introduce into this case, by way of certain paragraphs in their defences, the fact that RBS was found guilty of manipulating certain LIBOR rates. This wrongdoing, described briefly above at paragraph 3, was apparently engaged in with a view to benefitting its derivatives trading books. The wrongdoing has been widely publicised and led to a settlement in February 2013 with the UK Financial Services Authority (FSA) for £87,000,000. In addition, in May 2013, RBS entered into a Deferred Prosecution Agreement under the auspices of the United States District Court, District of Connecticut with a penalty of USD$150,000,000. On the 4th December, 2013 the European Commission fined RBS and number of other international financial institutions for participation in cartels responsible for manipulating LIBOR and EURIBOR. RBS received a reduction in the amount fined for cooperating with the Commission's investigation.
The relevant paragraphs of the Defence and Counterclaim of the first and third defendants are as follows: -
'It is expressly pleaded that the plaintiffs have suffered no loss or damage attributable to the First and Third Defendants.
Further or in the alternative and without prejudice to the above, it is further pleaded that:
23. Throughout the lives of the facilities the subject of the within proceeding between the Third Plaintiff and the First and Third Defendants, the interest rates applied were calculated by reference to the London Interbank Offered Rate...
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McAteer v Fried
...of the manipulation of certain LIBOR rates. The High Court on 2nd May, 2018 acceded to the plaintiffs' application [Ní Raifeartaigh J, [2018] IEHC 386], and the appeal from this decision was subsequently dismissed by the Court of Appeal on 17th July, 2019, [2019] IECA 79 It was on 7th Octob......