Quinn v IBRC (in special liquidation)

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 27 March 2015
• Neutral Citation: [2015] IESC 29
• Court: Supreme Court
• Docket Number: [Appeal No: 150/2012],[S.C. No. 150 of 2012]
• Date: 27 March 2015

Between

Ciara Quinn, Colette Quinn, Brenda Quinn, Aoife Quinn, Seán Quinn Junior and Patricia Quinn

Plaintiffs/Respondents

and

Irish Bank Resolution Corporation Limited (In Special Liquidation) and Kieran Wallace

Defendants/Appellants

and

Seán Quinn, Dara O'Reilly and Liam McCaffrey

Third Parties

[2015] IESC 29

Denham C.J.

Hardiman J.

O'Donnell J.

Clarke J.

Laffoy J.

[Appeal No: 150/2012]

THE SUPREME COURT

Banking and finance – Contracts – Preliminary issue – Plaintiffs seeking to have a preliminary issue tried – Whether plaintiffs had an entitlement to rely on alleged breaches of legislation in aid of claims made concerning the invalidity of guarantees

Facts: The first third party, Mr S Quinn Sr (the father or husband of each of the plaintiffs/respondents, the Quinns) was involved in the acquisition of a substantial indirect interest in Anglo Irish Bank plc, of which the first named defendant/appellant, Irish Bank Resolution Corporation Ltd, is successor, by means of contracts for difference (CFDs). As the Anglo share price declined, Mr S Quinn was required to make substantial payments arising out of those CFDs. In that context, money was borrowed from Anglo. In addition, an arrangement was put in place that Mr S Quinn's indirect interest in Anglo, held through his CFDs, would be taken out by the purchase of shares in Anglo by a group of ten wealthy investors who became known as the "Maple Ten" together with the Quinns. One of the allegations made in the proceedings was that a series of lending transactions entered into in connection with Mr S Quinn's payment obligations under CFDs, together with the purchase of shares in Anglo designed to unwind Mr S Quinn's interest in the bank, amounted to illegal contracts as being in breach of the Market Abuse (Directive 2003/6/EC) Regulations 2005 (MAR) and/or s. 60 of the Companies Act, 1963. A preliminary issue was directed to be tried as to whether the Quinns had an entitlement to rely on any such alleged breaches in aid of the claims made concerning the invalidity of guarantees given by the Quinns, and security put in place by them, by which guarantees and security were said to have been given or put in place in connection with those transactions. The underlying contention of Anglo was that, even if the factual contentions put forward in their claim by the Quinns concerning breaches of either or both the MAR and s. 60 were to be sustained, then the Quinns still could not succeed. That contention was based on a legal argument which came down to a contention that the application of relevant legal principles does not render lending transactions, guarantees or security void or unenforceable even if the relevant transactions are in breach of the MAR or s. 60, or are connected with transactions which breach those provisions. The High Court ruled in favour of the Quinns. Anglo and the second defendant/appellant, Mr Wallace (the Receiver) appealed to the Supreme Court against that finding.

Held by Clarke J that, having concluded that no case was properly made for the independent unenforceability of guarantee or security arrangements, he deemed it unnecessary to consider the further argument put forward on behalf of Anglo concerning the fact that the relevant guarantee and security was already in place. At the level of general principle, Clarke J held that the position adopted by Anglo, namely that, even in the event that a contract is void or unenforceable for illegality, actions completed under the contract may not be reversed by the Court, was entirely consistent with the jurisprudence. Clarke J concluded that the underlying lending contracts were enforceable, notwithstanding their illegality. He further concluded that the Quinns never made a case which suggested that the security arrangements might be unenforceable, even if the underlying lending transactions were enforceable. On that basis, Clarke J was forced to conclude that, on the case as it was pleaded and run, it could only be held that the relevant security arrangements were enforceable; this was because the underlying loans themselves were enforceable and no alternative case had been made. In those circumstances, the question of whether it might be possible to undo executed security was held to not arise.

Clarke J held that, in the light of the case made by the Quinns, they were not entitled to rely on any of the alleged breaches of either s. 60 or the MAR in aid of the claims which they made concerning the invalidity of guarantees given by them and security put in place in respect of underlying lending transactions said to be in breach of those provisions. Clarke J held that the appeal should be allowed.

Appeal allowed.

Judgment of Mr. Justice Clarke delivered the 27th March, 2015.

1. Introduction

1.1 While the issues which arise on this appeal are of very considerable importance, both to the parties and in respect of the law generally, the question which this Court now has to answer is a relatively net one. In these proceedings, the plaintiffs/respondents (‘the Quinns’) make a number of accusations against the first named defendant/appellant (which is, of course, a successor to Anglo Irish Bank plc and which I will refer to as ‘Anglo’ because most of the events relevant to these proceedings occurred when that party bore the Anglo Irish name). In addition, certain claims are made which affect the interests of the second named defendant/appellant (‘the Receiver’) in his capacity as Receiver over certain assets of the Quinns resulting from loans and securities put in place involving the Quinns and Anglo.

1.2 While a range of issues are advanced by the Quinns in these proceedings generally, one specific question was directed to be tried as a preliminary issue.

1.3 It will be necessary to set out some uncontroversial background facts in greater detail in due course. However, it is a matter of wide public knowledge that Seán Quinn senior (the first named third party in these proceedings, and the father or husband of each of the Quinns (‘Seán Quinn’)) was involved in the acquisition of a very substantial indirect interest in Anglo by means of contracts for difference (‘CFDs’). Such contracts, in simple terms, involve an agreement to exchange the difference between the current and future price of financial instruments such as shares. They, thus, entitle a party to benefit in the event that the share price of a relevant company goes up but equally require that the relevant person pays money in the event that the share price goes down. Such contracts can amount to a form of surrogate ownership of shares in the relevant company as the contracting party will be able to acquire shares at their current price by ‘topping up’ the original price with the proceeds of a CFD. As the Anglo share price declined, Seán Quinn was required to make very substantial payments arising out of those CFDs. In that context, money was borrowed from Anglo. In addition, an arrangement was put in place that Seán Quinn's indirect interest in Anglo, held through his CFDs, would be ‘taken out’ by the purchase of shares in Anglo by a group of ten very wealthy investors who became known as the ‘Maple Ten’ together with the Quinns.

1.4 One of the allegations made in these proceedings is that a series of lending transactions entered into in connection with Seán Quinn's payment obligations under CFDs, together with the purchase of shares in Anglo designed to unwind Seán Quinn's interest in the bank, amount to illegal contracts as being in breach of the Market Abuse (Directive 2003/6/EC) Regulations 2005 S.I. No. 342 of 2005 (‘MAR’) and/or section 60 of the Companies Act, 1963 (‘section 60’).

1.5 A preliminary issue was directed to be tried as to whether the Quinns had an ‘entitlement to rely’ on any such alleged breaches in aid of the claims made concerning the invalidity of guarantees given by the Quinns, and security put in place by them, by which guarantees and security were said to have been given or put in place in connection with those transactions.

1.6 It is clear that, as with all cases where a preliminary issue is directed to be tried concerning a legal question, the Court is obliged to accept, for the purposes of argument, that the factual allegations made will be established at trial. That position is, obviously, without prejudice to the entitlement of the relevant defendant (Anglo in this case) to deny the facts and to reserve its position to fully contest those facts at trial. However, the underlying contention of Anglo, which led to the decision of the High Court to direct the trial of a preliminary issue, was to the effect that, even if the factual contentions put forward in their claim by the Quinns concerning breaches of either or both the MAR and section 60 were to be sustained, then the Quinns still could not succeed. That contention was based on a legal argument which, in substance, comes down to a contention that the application of relevant legal principles does not render lending transactions, guarantees or security void or unenforceable even if the relevant transactions are in breach of the MAR, or are in contravention of section 60, or are connected with transactions which breach those provisions. That net question is the issue which arose on the preliminary issue.

1.7 The High Court (Charleton J.) ruled in favour of the Quinns in terms which it will be necessary to address in due course (Quinn & ors v. Irish Bank Resolution Corporation & ors [2012] IEHC 36). Anglo and the Receiver have appealed to this Court against that finding. In order to more fully understand the precise issues which arise, it is necessary to refer both to some uncontroversial background facts and to the factual allegations which the Quinns make in these proceedings insofar as they are relevant to the question which the Court now has to decide.

2. The Factual...