McCaughey v Anglo Irish Bank Corporation Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Birmingham
• Judgment Date: 27 July 2011
• Neutral Citation: [2011] IEHC 546
• Court: High Court
• Docket Number: [2009 No.
• Date: 27 July 2011

[2011] IEHC 546

THE HIGH COURT

[No. 9042P/2009]

[No 347COM/2009]

McCaughey v Anglo Irish Bank Corp Ltd & Mainland Ventures Corp

BETWEEN

GERARD McCAUGHEY

PLAINTIFF

AND

ANGLO IRISH BANK CORPORATION LIMITED

AND

MAINLAND VENTURES CORP

DEFENDANTS

CENTRAL BANK ACT 1989 S117(1)

INVESTOR COMPENSATION ACT 1998

ZURICH BANK v MCCONNON UNREP BIRMINGHAM 4.3.2011 2011/50/14278 2011 IEHC 75

DIRECTOR OF CORPORATE ENFORCEMENT v D'ARCY 2006 2 IR 163

INVESTORS COMPENSATION SCHEME LTD v WEST BROMWICH BUILDING SOCIETY 1999 LREP 496

INTERFOTO PICTURE LIBRARY LTD v STILETTO VISUAL PROGRAMMES LTD 1989 QB 433 1988 2 WLR 615 1988 1 AER 348

WALSH v JONES LANG LASALLE LTD 2009 4 IR 401

SPRINGELL NAVIGATION CORP v JP MORGAN CHASE BANK & ORS 2010 2 CLC 705 2010 EWCA CIV 1221

PEEKAY INTERMARK LTD & ANOR v AUSTRALIA & NEW ZEALAND BANKING GROUP LTD 2006 2 LLOYDS REP 511 2006 1 CLC 582 2006 EWCA CIV 386

KENNEDY & ORS v ALLIED IRISH BANKS PLC & AIB FINANCE LTD 1998 2 IR 48 1998/22/8686

NATIONAL BANK OF GREECE SA v PINIOS SHIPPING CO & ANOR (NO 1) 1989 3 WLR 185 1989 1 AER 213 1988 2 LLOYDS REP 126

CASUALTY & GENERAL INSURANCE LTD v CHASE MANHATTAN BANK 2003 1 CLC 358

FORSHALL & FINE ARTS AND COLLECTIONS LTD v WALSH & ORS UNREP SHANLEY 18.6.1997 1998/6/1685

CARTWRIGHT MISREPRESENTATION MISTAKE & NON DISCOSURE 2ED 2007

OAKS v TURQUAND & HARDING 1867 2 LR HL 325

BARINGS PLC (IN LIQUIDATION) v COOPERS & LABRYNTH (NO 2) 2002 2 BCLC 410 2002 PNLR 39

NEW YORK v VICTORY VAN LINES 1979 69 AD 2D 605

CONTRACT LAW

Fraud

Contract - Tort - Tort obligations arising in contractual relationship - Extent -Exemption clause - Fraud - Fraudulent misrepresentation/concealment - Whether plaintiff estopped by exemption clause from pursuing claims other than fraud - Whether fraudulent misrepresentation or fraudulent concealment by defendants - Barings Plc (In Liquidation) v Coopers [2002] EWHC 461 (Ch), [2002] PNLR 39; City of NY v Victory Van Lines (1979) 69 AD 2d 605; Colchester BC v Smith [1992] Ch 421; Derry v Peek (1889) 14 App Cas 337; EA Grimstead & Son Ltd v McGarrigan [1998-99] Info TLR 384; Forshall v Walsh (Unrep, Shanley J, 18/6/1997); HIH Casualty & General Insurances v. Chase Manhattan Bank [2003] UKHL 6, [2003] 1 CLC 358; ICS Ltd v West Bromwich BS [1998] 1 WLR 896; Interfoto Library Ltd v Stiletto Ltd [1989] 1 QB 433; Kennedy v Allied Irish Banks plc [1998] 2 IR 48; National Bank Greece v Pinios Co No 1 [1989] 3 WLR 185; [1989] 1 All ER 213; Oakes v Turquand and Harding (1867) 2 HL 325; Peekay Intermark v ANZ Banking Group [2006] EWCA Civ 386, (2006) 1 CLC 582; Re NIB Ltd: Director of Corporate Enforcement v D'Arcy [2005] IEHC 333, [2006] 2 IR 163; Springwell Navigation Corporation v J P Morgan Chase Bank [2010] EWCA Civ 1221, (Unrep, Court of Appeal (Civil Division), 1/11/2010); Walsh v Jones Lang LaSalle Ltd [2007] IEHC 28, [2009] 4 IR 401; Wildgust v Bank of Ireland [2006] IESC 19, [2006] 1 IR 570 and Zurich Bank v McConnon [2011] IEHC 75, (Unrep, Birmingham J, 4/3/2011) considered - European Community (Unfair Terms in Consumer Contracts) Regulations 1995 (SI 27/1995) - Central Bank 1989 (No 16), s 117 - Investment Intermediaries Act 1995 (No 11) - Investor Compensation Act 1998 (No 37) - Central Bank Act 1942 to 1998 - Relief refused (2009/9042P and 2009/347COM - Birmingham J - 27/7/2011) [2011] IEHC 546

McCaughey v Anglo Irish Bank Corporation Ltd

Facts: The case concerned a claim by the plaintiff, an investor, against the bank which invited and facilitated his participation in a fund for the renovation of hotels. The second defendant was a limited liability company which also facilitated participation in the fund. The plaintiff sought number of reliefs after the failure of the project to proceed as expected. The principal claim was one of rescission of agreements and contracts facilitating his participation in the investment along with damages. Each claim by the plaintiff was based on the brochure used to market the fund to investors and what it omitted. Allegations, inter alia, of fraudulent misrepresentation, and breach of fiduciary duty were made.

The defendants submitted that the claim could only be limited to fraud and if successful would lead to an order of recession.

Birmingham J analysed the executive summary in the commitment agreement and the statements of non-reliance and caution contained therein. The exemption clauses together with the vague and non-committal nature of the brochure it was difficult to establish that the plaintiff had been misled or informed.

The plaintiff attempted to rely on Walsh v Jones Lang LaSalle Limited [2009] 4 IR 401 where a waiver did not exclude the defendant from liability. It was held that the case could be distinguished on the fact that in the present case the defendants had accepted no responsibility for third party information, Walsh v Jones Lang LaSalle Limited [2009] 4 IR 401 considered and distinguished.

The plaintiff was held to be precluded from pursuing claims other than those based on fraud as the mutual obligations between the parties arose out of the contract.

The plaintiff failed to establish that fraudulent misrepresentation or fraudulent concealment had taken place in relation to the contents of the brochure; there was no evidence of fraud. The exemption clauses in the commitment agreement were themselves sufficient to dismiss the claim.

1 Judgment of Mr. Justice Birmingham delivered the 27th day of July 2011

Introduction

2 The plaintiff is a successful and prominent Irish businessman, perhaps best known as the co founder of Century Homes Limited, which he sold to Kingspan plc in 2005.

3 The first named defendant is a bank and a limited liability company, formally known as Anglo Irish Bank Corporation plc. At all material times it was licensed under the Central Bank Act and was required to be regulated by the Financial Regulator. As part of the services it provided, the first named defendant (hereinafter referred to as "the bank" or "Anglo") offered private banking facilities to its clients. The second named defendant is a limited liability company incorporated in Delaware, USA. It was incorporated by the first named defendant for the purpose of facilitating participation in a property fund known as the "Anglo Irish New York Hotel Fund" (hereinafter referred to as "the Fund" or "the Hotel Fund").

4 The plaintiff, in September 2006, accepted an invitation to participate in the Fund and invested the sum of $1M of which $620,000 was provided by way of a loan advanced by the first named defendant and the balance came from personal funds that were available to him. The plaintiff was one of approximately 49 people who made similar investments. Issues similar to those that arise for consideration in the present case have been raised by a number of other investors and the present case has been identified as a "pathfinder" case for 22 other sets of similar proceedings.

An Overview

5 The investment project into which the plaintiff and others entered involved the acquisition and planned renovation of two hotels in Manhattan, New York City, being the Beekman Tower Hotel (the "Beekman") and the Eastgate Tower Hotel (the "Eastgate") collectively referred to as "the hotels" or "the two hotels".

6 The project has not proceeded as intended, principally because the cost of the planned renovation was far greater than had been contemplated originally. 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. In these circumstances, the plaintiff on the 7 ^th October, 2009 issued the present proceedings in which he seeks a number of reliefs, the principal of which is rescission of a number of agreements and contracts entered into by him to facilitate his participation in the investment and there is also a claim for damages under several heads of claim. The proceedings involve allegations of fraudulent misrepresentation/fraudulent concealment and in addition claims in respect of misrepresentation, negligent misstatement, breach of fiduciary duty, intentional interference with the plaintiff's economic interest, unjust enrichment and conspiracy. The claim for damages includes claims for aggravated and exemplary damages.

7 There are essentially four legs to the plaintiff's claim as formulated in the pleadings which can be summarised as:-

8 (i) The Zoning or Certificate of Occupancy issue.

9 (ii) The Cost of Renovation issue.

10 (iii) The Presence of Sitting Tenants issue.

11 (iv) The Interest Rate Strategy issue.

12 Of these four issues, most attention has focused on (i) and (ii) and indeed the arguments relating to (iv) have not been pushed to a conclusion but I will be discussing each of these later in the judgment. However, before that, it is necessary to set out in some detail the factual background to the current dispute. In the first instance, and in order to offer context, I will do so without any detailed references to the matters most heavily in dispute and I will discuss these areas of greatest controversy in greater detail later.

13 The genesis of the idea for the project may be attributed to one Timothy Haskin, a New York hotel executive. Mr. Haskin had joined Tishmans Hotel Corporation ("Tishman") in 1993 and had an involvement thereafter with that organisation in various capacities, including Vice President, Partner, Executive Vice President and Managing Director. Tishman has been described as a vertically integrated hotel and real estate company providing services - from a single source in all major disciplines of the hotel, construction and real estate business. Tishman is a very significant force indeed in the New York hotel sector. The role of Mr....