Spencer v Irish Bank Resolution Corporation Ltd

JurisdictionIreland
JudgeMr. Justice Gerard Hogan
Judgment Date23 November 2016
Neutral Citation[2016] IECA 346
Docket Number[C.A. No. 404 of 2015],Neutral Citation Number: [206] IECA 346 Record No. 2015 404
CourtCourt of Appeal (Ireland)
Date23 November 2016

[2016] IECA 346

THE COURT OF APPEAL

Hogan J.

Ryan P.

Peart J.

Hogan J.

Neutral Citation Number: [206] IECA 346

Record No. 2015 404

BETWEEN/
JOHN SPENCER
PLAINTIFF/APPELLANT
AND
IRISH BANK RESOLUTION CORPORATION LIMITED (IN SPECIAL LIQUIDATION)
FIRST NAMED DEFENDANT/RESPONDENT
AND (BY ORDER)
STAPLEFORD FINANCE LIMITED
SECOND NAMED DEFENDANT/RESPONDENT

Damages – Negligent misstatement – Misrepresentation – Appellant seeking damages for negligent misstatement and misrepresentation – Whether the conduct of the respondent fell below standards of responsibility

Facts: The plaintiff/appellant, Mr Spencer, claimed damages for negligent misstatement and misrepresentation in respect of oral and written statements which he alleged were made to him by the first defendant/respondent, Irish Bank Resolution Corporation Ltd. The High Court (Costello J) dismissed the appellant's claim ([2015] IEHC 395). The appellant appealed to the Court of Appeal against that decision.

Held by Hogan J that the conduct of the Bank fell below the standards of responsibility which the Court has every right to expect and demand from the holder of a banking licence and from that of its employees. Hogan J noted that this conduct has had serious consequences for the appellant; by 2010 the value of the equity of investors dropped to nil and the loss subsequently crystallised by the sale of the underlying asset by the Irish Bank Resolution Corporation Ltd. Hogan J held that these were losses which the appellant was entitled to say he would have avoided but for the misrepresentations and negligence on the part of the Bank. While Hogan J acknowledged that the appellant entered into the investment knowing that it was high risk, he held that even those who invest in high risk projects are entitled to be protected by the law in respect of negligence and misrepresentation.

Hogan J held that he would accordingly allow the appellant's appeal and remit the matter to the High Court for an assessment of damages. It followed from the terms of this judgment that Hogan J would also dismiss the notices to vary lodged by both the Bank and the second defendant/respondent, Stapleford Finance Ltd, against those findings of misrepresentation made by the High Court.

Appeal allowed.

JUDGMENT of Mr. Justice Gerard Hogan delivered the 23rd day of November 2016
Introduction
1

This is an appeal brought by the plaintiff and appellant, John Spencer ('the plaintiff'), against the decision of the High Court (Costello J.) where his claim for damages for negligent misstatement and misrepresentation in respect in respect of oral and written statements which he alleged were made to him by the first named defendant ('the Bank') was dismissed: see Spencer v. Irish Bank Resolution Corporation [2015] IEHC 395.

2

The background to these proceedings is complex, but it is admirably summarised by Costello J. in the comprehensive judgment which she delivered on 15th June 2015. In many instances in this judgment, I have adopted or adapted the helpful summary of the relevant facts and general narrative set out in the judgment of the trial judge. While I reach a different conclusion from Costello J. in respect of some key aspects of both her reasoning and the ultimate result, her summary of the facts and the issues and her presentation of the applicable legal questions has been of considerable assistance in the preparation of the judgment.

The background facts
3

The essence of the plaintiff's case is that his contention that as a result of certain representations made by the Bank he invested €1m. personally in a life assurance bond offered by Anglo Irish Assurance Company Limited ('AIAC') and he borrowed a further €1 m. from the Bank for the purpose of advancing that sum to a partnership, the Cashel Rock Partnership, so that the Partnership could purchase a life assurance bond from AIAC. In relation to the Partnership, the plaintiff initially claimed that he was an assignee of the interests of the Partnership and was entitled to sue in respect of the losses allegedly caused to the Partnership arising out of the investment in the bond. At the end of the case in the High Court it was accepted that the evidence did not establish an assignment of the Partnership interest and this claim was not maintained. Both of these bonds now have a nil value. It is, however, unnecessary for me now to examine the Castle Rock Partnership issue at all.

4

The plaintiff also advanced a distinct claim for negligent misrepresentation as against the Bank in connection with the representations which he alleges caused him to enter into a loan agreement with the Bank. The plaintiff also sought a declaration that discharges him from his obligations arising under the current loan agreement. He also sues for damages for breach of warranty, breach of duty and breach of fiduciary duty.

5

The second named defendant, Stapleford Finance Ltd. ('Stapleford') was joined by order of the High Court. It purchased the loan, the subject of the proceedings, from the Bank pursuant to s. 12(2) of the Irish Bank Resolution Corporation Act 2013. The second named defendant has counterclaimed seeking judgment against the plaintiff pursuant to the loan agreement. The plaintiff replies that he is entitled to set-off his claim in damages against the Bank in relation to the loan against the entire claim due and owing pursuant to the loan agreement. The plaintiff accepts that if his claim to a set-off fails that the second named defendant will then be entitled to judgment against him in respect of the loan.

6

The appellant did not appeal against certain aspects of the judgment of the High Court, a matter to which I will later refer as appropriate. Both the Bank and Stapleford lodged notices to vary in respect of the findings of misrepresentation made by the trial judge. I will also address this matter in due course.

The Whitgift Shopping Centre
7

The dispute itself concerns the purchase of certain property interests in Croydon, a southern suburb of London in 2005. In the 1960s the Whitgift Shopping Centre ('the Whitgift Centre') was constructed in central Croydon on lands owned by the Whitgift Foundation. It was refurbished in 1985 and 1998. By 2005 the Centre was a large retail/office centre. Part of the Centre comprised ageing offices and a car park which was leased to the British Home Office on a lease which was due to expire in December 2010.

8

The freehold title to the Centre vested in the Whitgift Foundation. The Whitgift Foundation was founded in 1596 and is comprised of two charities; it owns much of the freehold of central Croydon for, inter alia, educational trusts. There was a long reversionary lease held by the Royal London Mutual Insurance Society ('the Royal London') and a long sub-lease held by Whitgift Shopping Centre Partnership and property partners. In essence, therefore, the Whitgift Foundation and the Royal London each owned 25% of the interest in the Centre and the then managing company, the Whitgift Shopping Centre Partnership and property partners, owned the remaining 50%. This long leasehold interest was offered for sale in 2005 and is the subject of these proceedings.

9

Under the terms of the reversionary head lease, no development could be carried out without the consent of the Whitgift Foundation. In addition, even if the Foundation as landlord authorised developments to the Centre, the Whitgift Foundation and the Royal London would each have to agree to contribute to the costs of any proposed development on a pro rata basis. They were under no obligation to contribute to the costs of any development in excess of 5% of the rental income of the Centre.

The purchase of the long leasehold interest in the Whitgift Centre
10

Howard Holdings plc ('Howard Holdings') was an Irish and UK based property development, advisory and management company. It had over 50 staff and was itself based in Croydon. It had significant experience in the Irish, UK, European and South African property markets and at that time had approximately stg£1.5 billion of property under development. The Bank had established a successful working relationship with Howard Holdings during the development and management of two successful property developments in Cork.

11

On 29th March 2005, Howard Holdings made a presentation to the Bank in relation to the Whitgift Centre. The presentation provided a description of the '[s]ignificant opportunities for asset enhancement'. The Bank was interested in joining with Howard Holdings in forming a joint venture to purchase and develop the asset.

12

The structure of the proposed purchase and investment was complex. The leasehold interest was to be acquired by AIAC, a subsidiary of the Bank, and was to be vested in a Jersey unit property trust ('the JUPT'). A fund known as the Whitgift Geared Property Fund was established by AIAC to acquire 77.3% of the units in the JUPT. The balance of the units were to be purchased by representatives of Howard Holdings ('the JV Partners'). The investors in the Whitgift Geared Property Fund would each purchase a life insurance bond from AIAC for the Fund. The value of each bond or policy was linked to the value of the underlying asset, being the long leasehold interest representing 50% of the interest in the Whitgift Centre.

13

The purchase price for the 50% stake in the Whitgift Centre was stg£225 million plus costs of stg£7 million. The source of funding was a debt facility of stg£166m. provided by the Bank and investor equity of stg£66 million. Of this equity, stg£15m. was to come from the JV Partners and stg£51m. was to be raised from the Bank's client base of high net worth individuals. Pending the raising of the equity, the Bank was to provide AIAC and Howard Holdings with bridging facilities in relation to stg£66m. which would be repaid upon receipt of investor equity....

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