Quinn v Irish Bank Resolution Corporation Ltd & Wallace

• Jurisdiction: Ireland
• Judge: Mr. Justice Charleton
• Judgment Date: 23 February 2012
• Neutral Citation: [2012] IEHC 36
• Court: High Court
• Date: 23 February 2012

[2012] IEHC 36

The High Court

Record No. 4336P/2011

Quinn v Irish Bank Resolution Corporation Ltd & Wallace

Commercial

Between

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

Plaintiffs

and

Irish Bank Resolution Corporation Limited and Kieran Wallace

Defendants

and

Seán Quinn (Senior), Dara O'Reilly and Liam McCaffrey

Third Parties

TREVOR v WHITWORTH 1887 12 APP CAS 409

EEC DIR 2003/6

COMPANIES ACT 1963 S60

MARKET ABUSE (DIRECTIVE 2003/6/EC) REGS SI 342/2005

TINSLEY v MILLIGAN 1994 1 AC 340

COURAGE LTD v CREHAN 2002 QB 507

SINGH v ALI 1960 AC 167

BOWMAKERS LTD v BARNET INSTRUMENTS LTD 1945 KB 65

HOLMAN v JOHNSON 1775 1 COWP 341

ANSON LAW OF CONTRACT (29ED) 2010 P431

DEVINE v SCOTT & JOHNSON 1932 66 ILTR 107

SPECTOR v AGEDA 1973 1 CH 30

OXUS GOLD PLC v TEMPLETON INSURANCES 2006 AER (D) 246

MCDERMOTT CONTRACT LAW (1ED) 2001 P764

COLLINS v BLANTERN 1767 95 ER 847

MCDERMOTT CONTRACT LAW (1ED) 2001 P840

ILLEGAL TRANSACTIONS: THE EFFECT OF ILLEGALITY ON CONTRACT & TRUSTS LAW REFORM COMMISSION (UK) CONSULTATION PAPER 154-1999

GAMING & LOTTERIES ACT 1956 S36(3)

FITZGERALD v FJ LEONHARDT PTY LTD 1997 189 CLR 215

EURO-DIAM v BATHURST 1990 1 QB 1

PASTORAL CO PTY LTD v FIRST CHICAGO AUSTRALIA LTD 1978 139 CLR 410

CHASE MANHATTAN EQUITIES LTD v GOODMAN 1991 BCLC 897

PFEIFFER & ORS v DEUTSCHES ROTES KREUZ 2004 ECR I-08835

EEC DIR 2003/6 ART 21

SPECTOR PHOTO GROUP NV v VAN RAEMDONCK 2009 ECR I-12073

SIEMS THE EU MARKET ABUSE DIRECTIVE: A CASE-BASED ANALYSIS 2008 2 LFMR 39

EEC DIR 2003/6 ART 7

EEC DIR 2003/6 PART 4

MARKET ABUSE (DIRECTIVE 2003/6/EC) REGS SI 342/2005 REG 41

INVESTMENT FUNDS, COMPANIES & MISC PROVISIONS ACT 2005 S32

INVESTMENT FUNDS, COMPANIES & MISC PROVISIONS ACT 2005 S33

HICKEY & CO v ROCHES STORES (DUBLIN) LTD (NO.1) UNREP FINLAY 14.7.1976 1976/5/761

ST JOHN SHIPPING CORPORATION v JOSEPH RANK LTD 1957 1 QB 267

ANSON LAW OF CONTRACT (29ED) 2010 P380-381

INVESTMENT FUNDS, COMPANIES & MISC PROVISIONS ACT 2005 S33(2)

FINANCIAL SERVICES & MARKETS ACT 2000 S383(9) (UK)

FINANCIAL SERVICES & MARKETS ACT 2000 S131 (UK)

INVESTMENT FUNDS, COMPANIES & MISC PROVISIONS ACT 2005 S33(3)

HALL v CABLE & WIRELESS PLC 2009 AER (D) 231

COMPANIES ACT 1963 S60(1)

COURTNEY v MCCARTHY 2008 2 IR 376

AMALGAMATED INVESTMENT & PROPERTY CO LTD v TEXAS COMMERCE INTERNATIONAL BANK LTD 1982 1 QB 84

CHASE MANHATTAN EQUITIES LTD v GOODMAN & ORS 1991 BCLC 897

MURRAY VERNON HOLDINGS LTD v HASSALL & ORS UNREP 7.5.2010 2010 EWHC 7

WHELAN v KAVANAGH UNREP HERBERT 29.1.2001 2001/24/6568

COMPANY LAW

Shares

Market abuse - Alleged manipulation of share price - Share mortgages and loan guarantees Plea of illegality - Statutory construction - Burden of proof - Whether plaintiffs entitled to rely upon alleged breaches - Singh v Ali [1960] AC 167; Tinsley v Milligan [1994] 1 AC 340; Fitzgerald v FJ Leonhardt Pty Ltd (1997) 143 ALR 569 considered - Market Abuse (Directive 2003/6/EC) Regulations 2005 (SI 342/2005) - Companies Act 1963 (No 33), s 60 - Investment Funds, Companies and Miscellaneous Provisions Act 2005 (No 12), ss 30, 32 & 33 - Council Directive 2003/6/EC - Ruling in favour of plaintiffs (2011/4336P - Charleton J - 23/2/2012) [2012] IEHC 36

Quinn v Irish Bank Resolution Corporation Ltd

Facts: The Court delivered a preliminary ruling on the availability to the plaintiffs of a plea of illegality. The illegality claimed was the wholesale manipulation of the price of Anglo Irish Bank Corporation Limited shares to the detriment of the plaintiffs. The High Court had ruled in earlier proceedings that a ruling on the preliminary issue of whether the plaintiffs had any standing or entitlement to rely upon alleged or any breach of the Market Abuse Regulations of s. 60 Companies Act 1963 aided them in their claims for declarations of invalidity or unenforceability. The decision considered whether the Market Abuse Directive 2003/5/EC Regulations 2005 (SI No. 34/ 2005) as transposed into Irish law were confined only to criminal sanctions and responses in civil law or whether a general plea of illegality could be invoked by them. It was argued that Anglo had been supporting and maintaining its share price and that the monies innocently expended by the Quinns in purchasing Anglo shares were expended at a value which was propped up by the market distortion.

Held by Charleton J. that it would be contrary to public policy if the plaintiffs were to be shut out from responding to the flagrant illegality which they now alleged against Anglo and Sean Quinn. The plaintiffs bore the burden of showing that they met with a specific loss as well as bearing the burden of proving the illegality alleged. It was beyond doubt that false and misleading signals were given to the marketplace as to the value of Anglo shares. A potential for injustice arose in the event of the deprivation of remedies.

Reporter: E.F.

1 Mr. Justice Charleton delivered on the 23rd day of February 2012:

2 a A1 This is a preliminary ruling on the issue of the availability to the plaintiffs of a plea of illegality in contracts. Since the decision of the House of Lords in Trevor v Whitworth (1887) 12 App. Cas. 409, it has been clear that a company must not finance the purchase of its own shares. In some circumstances, the courts will not lend their aid to the enforcement of an illegal contract. Even without the prescription of market abuse through Council Directive 2003/6/E.C. of the 28 ^th January, 2003 on insider dealing and market manipulation ("the Market Abuse Directive"), it was arguable that where a party suffered damage through, for instance, share price fixing, that debts due to those who had illegally fixed the market might be defended by reference to the illegality principle. That Directive, however, it is argued by the defendant, has so ring fenced the available remedies that this principle cannot be used outside what the legislation has provided for. Modern companies legislation on a company buying its own shares, it is claimed, is to the same effect.

3 b A2 The illegality claimed in this litigation is the wholesale manipulation of the price of Anglo Irish Bank Corporation Limited shares to the detriment of the plaintiffs; a scheme in which they say that they did not participate and of which they were innocent even of any knowledge. The plaintiffs claim to have lost severely through this chicanery and plead that the receiver appointed over their shares in various companies, through several guarantees and ultimately through a charge over shares in various companies made on the 19 ^th of December, 2008, is not entitled to act. It is through the latter instrument that a receiver was appointed on the 14 ^th of April, 2011, following on a demand for repayment of loans earlier in the same day, thus triggering a receivership event when these loans were not repaid. The plaintiffs claim that such an event cannot lawfully occur due to the foundation of illegality on which the guarantees and that charge is based.

4 c A3 The Irish Bank Resolution Corporation Limited, the first defendant herein, was formerly called Anglo Irish Bank Corporation Limited. Under that name, it caused incalculable damage to the Irish economy. Since it was nationalised by government decision of the 1 ^st January, 2009, the new management have been trying to work through a litany of problems left by the prior controllers. This case is one. I will call the defendant "Anglo". The second defendant is the receiver over shares under an instrument to which reference will later be made. The plaintiffs are the wife of, and the five adult children of, Seán Quinn Senior, a third party to this litigation. I will call the plaintiffs "the Quinns" and refer to Seán Quinn Senior, the third party, simply as "Seán Quinn".

Issue

5 a B1 As this is a judgment given on a preliminary issue, I am taking the case of the plaintiffs at its highest. Any remark as to the facts is not a decision but a reference to what the plaintiffs plead. Since the argument of counsel helpfully ranged widely on illegal contracts as a remedy and as a defence, and on the availability of the plea in the particularly tortuous circumstances of this case, the Court must focus on what it is asked to decide. This is best seen by reference to the text of the preliminary issue set by Kelly J. and by reference to what was refused to be set.

6 b B2 By order of Kelly J. dated the 16 ^th of December, 2011, this Court is required to rule on the following preliminary issue:

7 Do the plaintiffs or any of them have the standing or entitlement to rely upon the alleged or any breach:

8 a (A) of the Market Abuse Regulations; or

9 b (B) section 60 of the Companies Act 1963,

10 in aid of any of their claims for declarations of invalidity, unenforceability or no legal effect in respect of any charge [on] shares or any personal guarantees herein?

11 c B3 Were the decision on that issue to be positive, Anglo asked for a number of other issues to be decided. These included: the relationship of various transactions to the illegality alleged and the effects thereof; the recoverability of loans to the Quinns in whole or in part; the recoverability by reason of illegality on the share charge; an issue related to refinancing in October, 2008 the main July, 2008 borrowing facilities; a further issue on the recoverability of loans; and a further issue of the effects of any finding of legality on the guarantees given by the Quinns. All of these preliminary issues were refused by Kelly J. It is clear, consequently, that the core of this decision is on the issue as to whether the Market Abuse (Directive 2003/6/E.C.) Regulations 2005 ( S.I. No. 342/2005), as transposed into Irish law, and section 60 of the Companies Act 1963, are confined...