Quinn -v- Irish Bank Resolution Corporation Limited (In Special Liquidation) & ors, [2015] IESC 29 (2015)

Docket Number:150 & 160/12
Party Name:Quinn, Irish Bank Resolution Corporation Limited (In Special Liquidation) & ors
 
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THE SUPREME COURT[Appeal No: 150/2012]

Denham C.J.

Hardiman J.

O'Donnell J.

Clarke J.

Laffoy J.

Between/

Ciara Quinn, Colette Quinn, Brenda Quinn, Aoife Quinn, Seán Quinn Junior and Patricia QuinnPlaintiffs/Respondentsand

Irish Bank Resolution Corporation Limited (In Special Liquidation) and Kieran WallaceDefendants/Appellantsand

Seán Quinn, Dara O'Reilly and Liam McCaffreyThird Parties

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 Background

2.1 Seán Quinn was, of course, the founder and principal of what eventually became a complex set of companies which I will refer to as the Quinn Group. From September 2005, Seán Quinn began to indirectly purchase an interest in Anglo by means of the purchase of CFDs. A foreign corporate entity called Bazzely V Consultadoria Economica E Participacoes Sociedade Unipessoal LDA (“Bazzely”), which was registered in Madeira, was used to facilitate the purchase of the CFDs (it would appear that there were perceived tax advantages in the investment being made in that way). Funds were transferred to that company from other companies within the Quinn group in order to facilitate the purchase of the relevant CFDs. Bazzely was, it would appear, owned jointly by the first to fifth named plaintiffs/respondents ("the Quinn children") although it is not clear that the Quinn children knew of their ownership for some time.

2.2 Seán Quinn originally, through Bazzely, invested in CFDs in Anglo but also in other companies so that, at that point, the risk was spread by positions being taken in a number of companies. By the end of 2005, Bazzely held CFDs in respect of six million shares in Anglo, which amounted to a relatively small percentage of the issued share capital of the bank. Seán Quinn continued to acquire CFDs in Anglo in 2006 and 2007. Any profits were used to increase existing CFD positions and to fund new CFD positions.

2.3 Bazzely began to dispose of those of its CFD positions which were not linked to Anglo in late 2006. At this time, Bazzely used any funds realised from the disposal of non-Anglo CFDs to fund Anglo CFDs. The funding for the purchase of the CFD positions during the period of October 2005 until September 2007 was provided by way of loans from companies within the Quinn Group. The CFDs were entered into between CFD service providers and Bazzely. However, as Bazzely did not have a bank account, the funds were transferred to the service providers by Quinn Group Family Properties Limited.

2.4 While the investments in CFDs in Anglo were initially profitable, from June 2007 the share price in Anglo began to fall. As the share price of Anglo declined, Bazzely was the subject of frequent calls to fund the margin on its CFD positions. On the 11th September, 2007, Seán Quinn and Liam McCafferty of the Quinn Group met with David Drumm and Seán Fitzpatrick, who were the chief executive and chairman of Anglo at the time. It would appear that Seán Quinn by that stage had arranged for the purchase of CFDs in Anglo shares which would amount to the equivalent of approximately 24% of the bank’s total issued share capital. Anglo appears to have been concerned by the scale of the Quinn interest at this stage. The Quinns contend that Dara O’Reilly, who was finance director of the Quinn Group, maintained regular contract with Elma Kilrane, a representative of Anglo, in the weeks following the 11th September meeting. According to the Quinns, during such contacts, Mr. O'Reilly and Ms. Kilrane discussed the margin calls for each day, the number of CFDs held, and the calls that had to be met.

2.5 Over the following months, funds were advanced by Anglo to companies within the Quinn Group to meet the negative margin calls. The documentation relating to these loans refer, inaccurately it would appear, to “property acquisitions”. Between 20th and 30th September, 2007, the Quinn group received loans of €100 million from Anglo. In December, 2007, €500 million was advanced by Anglo to Quinn Finance, a company within the Quinn Group, in order to discharge loans advanced by Quinn Group companies to meet such margin calls.

2.6 Around this time (it is alleged that this may have been December 17th, 2007), the Quinn children signed many security documents in favour of Anglo in respect of that €500 million loan. It is said that no legal or financial advice was offered by Anglo, or sought by the Quinn children, in advance of signing the relevant security documentation.

2.7 It should also be noted that at about the same time, Barlo Financial Services Limited, another Quinn Group company, replaced Quinn Group Family Properties Limited as the company which transferred the relevant funds to the CFD providers. The substantive CFD transactions, however, remained between the CFD providers and Bazzely, although the funds were transferred from Barlo...

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