McCaughey v Anglo Irish Bank Corporation Ltd and Another

• Jurisdiction: Ireland
• Judge: Mr. Justice Hardiman
• Judgment Date: 13 March 2013
• Neutral Citation: [2013] IESC 17
• Court: Supreme Court
• Date: 13 March 2013

[2013] IESC 17

THE SUPREME COURT

Hardiman J.

O'Donnell J.

Clarke J.

493/2011

McCaughey v Irish Bank Resolution Corp Ltd & Mainland Ventures Corp

Between/

GERARD McCAUGHEY

Plaintiff/Appellant

and

IRISH BANK RESOLUTION CORPORATION LIMITED and MAINLAND VENTURES CORPORATION

Defendants/Respondents

INTERPHOTO PICTURE LIBRARY LTD v STILETTO VISUAL PROGRAMME LTD 1989 1 QB 433

FORSHALL v WALSH UNREP SHANLEY 18.6.1997 1998/6/1685

OAKES v TURQUAND & HARDING 1867 LR 2 HL 325

M (J) & M (G) v BORD UCHTALA 1987 IR 510

SS GAIRLOCH & ORS v MACKEN 1899 2 IR 1

MIN FOR JUSTICE v R (S M) 2008 2 IR 242

HAY v O'GRADY 1992 1 IR 210

EDINGTON v FITZMAURICE 1885 29 CH D 459

Litigation - Investment - Loan - Valid contract - Fraud - Fraudulent concealment - Misrepresentation - Fiduciary duty - Liability - Certificate of Occupancy - Rescission - Damages

Facts: The first named defendant was the former Anglo Irish Bank which had incorporated the second named defendant for use as a vehicle in a property fund. Along with a number of other customers of the bank, the plaintiff had been invited by the first named defendant to contribute to the fund in September 2006, which he subsequently did by investing US$1 million, US$660,000 of which was on loan from the bank. Prior to the plaintiff being established to invest in the property fund, the first named defendant had entered into a contractual agreement to purchase two hotels in New York which was completed in October 2006. The proposed plan to refurbish the hotels was not completed due to the economic downturn, and the plaintiff lost his entire investment whilst the first named defendant retained the hotels as assets. The plaintiff entered proceedings against the defendant for recovery of the investment, rescission of the investment and loan agreements, and damages on the basis of, among other things, misrepresentation. The action was subsequently dismissed. The plaintiff appealed the decision of the High Court.

The plaintiff claimed he invested on the assurance that the relationship between the parties would be fiduciary. He also claimed he was misled, either actively or by concealment, as to the Certificate of Occupancy of the buildings (i.e. whether the hotels were considered transient or residential) in the first named defendant”s promotional brochure. It was the defendant”s claim that the plaintiff had willingly entered an Investors” Commitment Agreement which exempted them from liability for the circumstances that arose and that the basis of the relationship was governed entirely by the terms of the agreement. It denied that there was any misrepresentation whatsoever, and that if representations had been made, the plaintiff did not rely on them when entering the agreement.

Held by Hardiman J (with Clarke J. and O”Donnell J. concurring) that during the production of the promotional brochure, the Certificate of Occupancy issue arose. The first named defendant had been given legal advice to include a reference to the issue in the brochure but had declined to do so. However, the brochure had explained the investment was high risk and advised that independent, professional advice should be sought before a decision was made. It had also explained that the first named defendant did not accept responsibility for inaccuracies in the brochure. Further, it was held that it was unlikely the plaintiff would have refused to invest on the basis of the Certificate of Occupancy issue alone

In terms of the Investors” Commitment Agreement, it was held that the effect of the document was to exempt the first named defendant from liability for anything short of fraud or fraudulent concealment. The plaintiff was therefore not in a position to seek relief on anything outside of these two issues even if it was accepted a more relaxed relationship existed between the parties. The exemption clauses were not considered to be too onerous or unusual. The risk attached to the Certificate of Occupancy issue was considered to be minimal in 2006, and by not mentioning it in the brochure, it was held that this was not a case of fraud by concealment.

Appeal dismissed.

1 JUDGMENT of Mr. Justice Hardiman delivered the 13th day of March, 2013,

2 Judgment delivered by Hardiman J [nem diss]

3 This is the appeal of the plaintiff from the judgment of the High Court (Mr. Justice Birmingham) delivered the 27 ^th day of July 2011 and from the associated order dated the 9 ^th day of December, 2011 whereby the plaintiff's claims against the defendant were dismissed.

The parties.

4 The plaintiff, Mr. McCaughey, is a successful Irish businessman and formerly the moving spirit behind Century Homes, which he sold in 2005. The first-defendant is the statutory successor to Anglo-Irish Bank Corporation Limited, a bank which has become notorious. The second-named defendant is a Delaware Corporation with limited liability which was incorporated by the Bank as a vehicle for participation in a property fund known as the Anglo-Irish New York Hotel Fund.

5 The plaintiff, in or about September 2006, accepted an invitation to participate in the Fund when this was proposed to him by the Bank. He agreed to invest the sum of US$ lm and, apparently also at the suggestion of the Bank, agreed to borrow US$620,000 of this from the Bank.

6 The plaintiff had been a customer of the Bank and of its "Private Banking" arm. He was not alone in being solicited to invest in the Fund mentioned above: about forty-nine other people, customers of the Bank and of its Private Banking arm, also invested in response to such solicitations. The plaintiff's action has been described as a "pathfinder" for twenty-two other sets of proceedings.

Background to the investment.

7 Although the investment was made via a complicated corporate and partnership structure, devised by the Bank, the underlying proposition was quite simple. At the time the investors were solicited (September, 2006) the Bank, had itself agreed to purchase two long established hotels in the City of New York, being the Beekman Tower Hotel and the Eastgate Tower Hotel. Well before it solicited any investment from other parties the Bank, in or about May 2006, had agreed to purchase these hotels for over US$150m and was contractually bound to do so. If it failed to do so it was liable to forfeit a deposit in an amount exceeding US$11m and would presumably have been subject to proceedings in the nature of specific performance at the option of the vendors. The background to how the Bank became involved in this transaction is set out in the very detailed judgment of the learned trial judge, but is not immediately relevant to the issues raised on this appeal. The purchase of the two hotels on foot of the Bank's contract was closed in or about the month of October 2006. The plaintiffs and the other investors were solicited by the Bank to invest in the course of the preceding month, September 2006. It appears from the evidence that the Bank had decided to solicit investors from amongst its "best customers" - persons known to it to have a net worth of at least €5m and/or incomes exceeding €500,000. It may be inferred that such persons were not likely to be innocents abroad, or persons under any kind of disadvantage: certainly the plaintiff was not in either of those categories.

8 For reasons not fully explained, the fact that at the time of solicitation the Bank was itself contractually bound to buy the hotels, and would have to do so out of its own resources if it could not find third party funds, was not explained to the plaintiff or, it appears, to any of the investors. Many would consider this a relevant factor in assessing what the Bank had to say about the project.

9 There were elaborate plans for the two hotels, which were well established but aging structures. These plans involved not merely the purchase of the hotels but the refurbishment of them at a price calculated on the basis of so much per 'key', a term used in the American hotel industry to mean room. The plans have not proceeded as was intended and the investors have lost their entire investment, though the Bank retains a substantial asset. The learned trial judge found, and it appears to be the case, that 'the project has not proceeded as intended, principally because the cost of the planned renovation was far greater than had been contemplated originally". The learned trial judge also found, what is undoubtedly true, that "the plaintiff is deeply aggrieved by what has transpired as are a number of other investors, and is firmly of the belief that he has been seriously ill served by the Bank". This sense of bitter grievance arises from what he and others had thought their relationship with the Bank to be.

Motion to admit additional evidence.

10 On the hearing of this appeal the Court had before it a Notice of Motion dated the 17 ^th October, 2012 supported by three affidavits sworn between the 16 ^th October, 2012 and 19 ^th January, 2013. This motion was to admit additional evidence regarding a memorandum dated the 17 ^th August, 2012 from a New York City Assistant Commissioner to the Borough Commissioner of Manhattan to a letter from the same person dated on the same day. These documents relate to matters coming into being some years after the principal document whose rescission is sought in these proceedings. The views of the author of the 2012 document, insofar as admissible, could have been adduced before the High Court. The proposed additional evidence does not appear to bear on any issue properly before the Court on this appeal.

Private Banking.

11 It may be desirable at this stage to discuss the term "Private Banking". At the trial in the High Court it was the subject of considerable cross-examination by Mr....