Waterford Credit Union Ltd v J & E Davy

• Jurisdiction: Ireland
• Judge: Mr. Justice Keane
• Judgment Date: 13 January 2017
• Neutral Citation: [2017] IEHC 8
• Court: High Court
• Docket Number: [2011 No. 555P]
• Date: 13 January 2017

[2017] IEHC 8

THE HIGH COURT

Keane J.

[2011 No. 555P]

BETWEEN

WATERFORD CREDIT UNION LIMITED

PLAINTIFF

AND

J & E DAVY

DEFENDANT

Contract – Breach of contract – Stock Exchange Act 1995 – Investment of money – Misrepresentation as investment advisor – Practice & Procedures – O. 31, r. 12 of the Rules of the Superior Courts – Discovery of documents – Relevancy

Facts: The present proceedings concern cross motions filed by both the parties for discovery of certain category of documents against each other, which arose as a result of filing of a claim for breach of contract by the plaintiff against the defendant. The plaintiff sought discovery of all communications of the defendant with the Irish Stock Exchange (ISE) for proving that the defendant, being his investment advisor, made certain misrepresentations, thereby causing loss to the plaintiff. The defendant refused discovery of those documents claiming that it had nothing to do with the main issue between the parties. The defendant, too, requested the plaintiff to identify its source of information concerning the defendant's role in the sale of a particular bond that had formed a part of the ISE investigation. The defendant argued that the plaintiff had engaged another investment advisor and followed its advice and certain other product producers and never paid attention to the defendant's advice. The defendant disputed the fact that it was engaged as the plaintiff's investment advisor.

Mr. Justice Keane granted an order for discovery of certain categories of documents both by the plaintiff and the defendant as well while denying the other categories. The Court held that the documents, which were relevant and necessary for the fair disposal of the issues between the parties, were discoverable. The Court directed that the defendant would produce all the documents provided to it by ISE about its investigation. The Court also directed the plaintiff to provide all the documentation containing its communications with the other investment advisor, which the plaintiff had engaged and the documentation evidencing the retention of the defendant as its investment advisor since the factum of defendant's retention by the plaintiff had been refuted by the defendant. The Court rejected that contention of the defendant that the investigation carried out by ISE in relation to cetain bonds was not relevant to the present proceedings.

JUDGMENT of Mr. Justice Keane delivered on the 13th January 2017

Introduction

1 These are cross-motions for orders, pursuant to Order 31, r. 12 of the Rules of the Superior Courts (“RSC”), as amended, directing each of the parties in the above-entitled action to make discovery of certain categories of documents.

Background

2 As its name suggests, Waterford Credit Union Limited (“the plaintiff”) operates the business of a credit union in Waterford. J & E Davy (“the defendant”) is a private unlimited company that carries on a stock broking and investment advisory business and which, at the material time, held itself out as having an established expertise to advise credit unions concerning appropriate investments for their funds.

3 Through the defendant, the plaintiff invested the aggregate sum of €5,393,831 in bonds issued by four separate banks, comprising: in January 2005, €1,502,250 in a Nordea Bank AB bond; in March 2005, €1 million in a Jyske Bank bond; in October 2005, €1,910,125 in a Barclays Bank Step-Up Perpetual bond; and in August 2006, €981,456 in an AIB Step-Up Perpetual bond.

4 Having issued proceedings on the 20th January 2011, the plaintiff delivered an amended statement of claim on the 17th April 2014. In broad outline, the plaintiff makes the following claims.

5 The defendant, which warranted that it had the expertise to provide investment advice to credit unions, approached the plaintiff in 2003. In January 2005, the plaintiff entered a contract with the defendant to retain the defendant's professional and expert services as its investment advisor and to provide the defendant with funds to invest on its behalf. In reliance upon the defendant's expertise, recommendations and advices, the plaintiff invested in the four bonds concerned. It was a condition of that contract that the defendant would ensure that the plaintiff's funds were invested in instruments that were authorised under the Trustee (Authorised) Investment Order 1998; guaranteed the capital sum invested; and provided a definite maturity date.

6 The bonds concerned were not authorised investments; did not guarantee the capital sum invested; and did not provide a definite maturity date. Further, the defendant failed to comply with its statutory obligations under the Stock Exchange Act 1995 to furnish the plaintiff with all information necessary to enable the plaintiff to know the characteristics of, and risk associated with, the instruments in question. Still further, the defendant failed to disclose to the plaintiff that it was acting as principal in the sale of bonds concerned, which it has advised the plaintiff to invest in, and was thus making an undisclosed, or secret, profit on those transactions.

7 Hence, the defendant is liable to the plaintiff for misrepresentation, breach of warranty, breach of contract, breach of fiduciary duty, breach of statutory duty and negligent misstatement, and the plaintiff is entitled to an indemnity or damages from the defendant in the sum invested, €5,393,831.

8 In the amended defence that it delivered on the 4th June 2014, the defendant joins issue with almost every aspect of these claims.

9 In particular, it denies that it represented or warranted to the plaintiff that it had an established expertise in providing advice to credit unions on authorised investments, or that it approached the plaintiff on that basis in 2003, although it admits that it held itself out generally as having such expertise. It denies that it entered a contract with the plaintiff to provide such advice in 2005, although it admits that it provided information and advice to the plaintiff concerning specific investment products.

10 The defendant denies that it was engaged as an investment advisor by the plaintiff, either on an exclusive basis or at all. It pleads that, in relation to investment products, the plaintiff relied on information and advice provided by several product producers and investment advisors and, specifically, on the investment advice provided by a firm named Dolmen Stockbrokers that the plaintiff appointed for that purpose in late 2005 or early 2006. Further, the defendant pleads that the plaintiff relied on the considerable expertise of its own board members and investment committee.

11 The defendant pleads that it dealt with the plaintiff in accordance with its own terms of business and, in relation to the purchase of the bonds concerned, in accordance with the terms set out in the term sheets that it furnished to the plaintiff prior to each of those transactions.

12 The defendant denies that it represented to the plaintiff that the bonds concerned fell within the terms of the relevant provisions of the Trustee (Authorised Investments) Order 1998; or guaranteed the capital sum invested; or provided a definite maturity date.

13 The defendant denies that it advised the plaintiff to invest in the bonds concerned or, if it did, that it failed to comply with any obligation or duty imposed on it in that regard under the Stock Exchange Act 1995. It denies that any of the provisions of that Act are actionable by the plaintiff to ground any such claim.

14 The defendant denies that it failed to disclose to the plaintiff that it was acting as principal in the sale of the bonds concerned or that it was earning a profit from those sales. In the alternative, the defendant pleads that, in two meetings between the parties, in or around August 2006 and in or around March 2008, it confirmed to the plaintiff that it had acted as principal in the sale of the bonds concerned and had earned a profit in that regard, such that the plaintiff's claim of a secret profit, as set out in its amended statement of claim, is statute barred.

15 The defendant pleads that, if the plaintiff's allegations are correct, any loss or damage incurred was caused or contributed to by the plaintiff's own negligence and that the plaintiff has failed to mitigate its loss.

16 In an amended reply, delivered on the 15th July 2014, the plaintiff pleads, amongst other things, the following. The defendant was the plaintiff's sole investment advisor concerning the purchase by the plaintiff of the bonds concerned, and the defendant is estopped by its conduct from denying that it acted as the plaintiff's advisor in that regard. The plaintiff's board and investment committee members did not advise the plaintiff regarding the purchase of the bonds at issue. The plaintiff did not rely on the expertise of those persons in that regard. Those persons have no such expertise.

17 Further, the plaintiff did not receive the defendant's standard terms of business and did not contract with the defendant on that basis. The defendant is estopped from denying that it failed to furnish its standard terms of business to the plaintiff having regard to the results of an investigation into its conduct by the Irish Stock Exchange, which prepared two reports in June 2007 and February 2008.

18 In addition, the defendant did not disclose to the plaintiff at any time that it was acting as principal in the sale of the bonds concerned, or that it was earning a profit on those sales. Earning a secret profit as undisclosed principal constitutes a breach of the fiduciary duty that the defendant owed to the plaintiff.

19 Finally, the plaintiff's claim in that regard is not statute barred, nor is the plaintiff guilty of laches or acquiescence that would disentitle it to the declaratory...