Ireland: Litigation Focus: Update On Recent Cases - March 2014

Last Updated: 28 March 2014
Article by Andrew Lenny, Eve Mulconry, Gavin Woods and Susan O'Reilly
Most Read Contributor in Ireland, October 2018

Smith & Anor v. Financial Services Ombudsman & Anor [2014] IEHC 40

This case relates to an appeal from the decision of the Financial Services Ombudsman ("FSO") to the High Court whereby the High Court found that the FSO had failed to offer the appellants a fair hearing and remitted the complaint back to the FSO.

The facts of the case were as follows:- the appellants were property investors who, on 7 March 2005, upon the alleged recommendation of Ulster Bank Ireland Limited (the "Bank"), participated in the Jubilee Consortium, a speculative group investment. The appellants subsequently suffered significant financial losses when the investments performed poorly.

The appellants' complaint to the FSO related to the advice and recommendation of the Bank in respect of the investment. A key issue in the complaint was the conflict between the evidence of the Bank and the appellants regarding the advice received from the Bank.

The FSO held that the conflicting evidence could be resolved by reference to the documentation included in the evidence put before him by the respective parties and found that the complaint was not substantiated and that no oral hearing was necessary.

In the appeal of the FSO's decision to the High Court, Mr Justice Barrett held that the decision of the FSO not to hold an oral hearing when investigating a complaint was an error of such significance as to vitiate the finding of the FSO. He cited with approval the decision in Ulster Bank Investment Funds Limited –v-Financial Services Ombudsman & Ors wherein it was held that, in an appeal of the decision of the FSO, "the Plaintiff must establish as a matter of probability that, taking the adjudicative process as a whole, the decision reached was vitiated by a serious and significant error or a series of such errors. In applying the test the Court will have regard to the degree of expertise and specialist knowledge of the Defendant."

Mr Justice Barrett was satisfied that the deference envisaged by the Court extends to the FSO's expertise in financial services matters and does not extend to matters of procedural fairness. He held that in declining to hold an oral hearing, the FSO had denied the appellants an opportunity to cross-examine the Bank in relation to the conflicting factual issues which was necessary to enable the appellants to establish the merits of their case and ordered that the complaint be remitted back to the FSO for fresh consideration.

Whelan & Ors v Allied Irish Bank plc & Ors [2014] IESC 3

This decision of the Supreme Court relates to the appeal by the Lynch family of Mr Justice Peart's judgment in the High Court (1) granting Allied Irish Bank plc ("AIB") judgment against the Lynch family for the sum of €26,194,554.90 together with interest and (2) dismissing the Lynch family's claim in negligence against both their legal advisors and AIB's legal advisors.

The Supreme Court set aside the finding of the High Court that the Lynch family's solicitors were not negligent. It held that, notwithstanding their limited retainer, the Lynch family's legal advisors were negligent in so far as they had advised the Lynch family that the effect of a last minute alteration to the AIB loan documents was to make the loan non-recourse to all the borrowers when this was not the actual effect of the last minute alteration. However, the Supreme Court was satisfied that, even had the Lynch family been aware that AIB had full recourse to all the borrowers, they would have proceeded to accept the AIB loan. The Supreme Court was therefore satisfied that the Lynch family had not placed any reliance upon the negligent advice of their legal advisors and any damage arising was not caused by the error of the solicitors.

The Supreme Court dismissed the appeal of the finding that AIB's legal advisors were not negligent as they were satisfied that, insofar as the Lynch family had their own legal advisors, AIB's legal advisors were not under a duty of care to directly inform the Lynch family of the last minute alteration to the AIB loan documents and explain the legal consequences of those alteration.

In relation to the appeal of the judgment in favour of AIB, the Supreme Court noted that (1) the members of Mr Lynch's family were only introduced into the facility at a very late stage for Mr Lynch's own private wealth management purposes and (2) that AIB had never sought or relied upon recourse to the balance of the Lynch family members when entering the facility. In the circumstances, the Supreme Court allowed the appeal of the judgment by the remaining members of the Lynch family and dismissed Mr Lynch's appeal. Therefore the judgment of €26,194,554.90 remains against Mr Lynch but has been set aside as against the other members of his family.

Belohn Limited & Companies Acts: The Merrow Limited v. Bank of Scotland plc & Anor [2014] IEHC 36

This application arose out of the successful challenge by The Beholn Limited to the appointment of a receiver by Bank of Scotland plc (the "Bank") over the public house and restaurant premises and business known as Foleys Bar/O'Reillys (the "Premises"). An order for costs was granted in favour of The Merrow Limited ("Merrow") (which is the sole shareholder of The Beholn Limited) which was represented by Mr Foley (who was a shareholder of Merrow and also a solicitor).

Mr Foley applied by way of notice of motion in the proceedings for (1) an order pursuant to s.3 of the Legal Practitioners (Ireland) Act 1876 (the "Act") to charge the Premises and the proceeds of the sale of the Premises, (2) an order preserving the proceeds of sale of the Premises and (3) an order restraining the receiver from distributing or dissipating any proceeds of the sale of the Premises. Section 3 of the Act provides that a Court may declare a solicitor employed in a case to be entitled to a charge on property recovered or preserved through the solicitor for the taxed costs, charges and expenses of the case.

The Bank defended this motion and claimed that, although Merrow had been successful in the challenge to the appointment of the receiver, no property had been recovered within the meaning of section 3 of the Act. Accordingly, the Bank argued that Mr Foley was not entitled to rely on section 3 of the Act.

Mr Justice Ryan in the High Court examined the facts of the case and agreed with the Bank that no property had been recovered or preserved within the meaning of section 3 of the Act. He also held that, even if the applicant were in a position to establish the recovery or preservation of property, any charge under section 3 of the Act would be subject to the Bank's prior interest and would be liable to set off. Mr Justice Ryan went further and stated that, even if Mr Foley had satisfied the requirement to show the recovery or preservation of property, the Court would have exercised its discretion to refuse to make a declaration in favour of Mr Foley in respect of his legal costs having regard to, inter alia, the close connection between Mr Foley and Merrow and the fact that his instructions were at less than arms length.

Hibernian Therapeutics Global Limited & Companies Acts: Smisson & Ors [2014] IEHC 41

Hibernian Therapeutics Global Limited (In Liquidation) ("Hibernian") was wound up by order of the High Court on 22 April 2013. At that date, plenary proceedings were pending before the Commercial List of the High Court (the "Proceedings"). Hibernian was a Plaintiff in the Proceedings and a Defendant to a counterclaim in those Proceedings which related to a dispute regarding, inter alia, the ownership of the shares in Hibernian.

The Official Liquidator obtained the leave of the Court pursuant to s.231 of the Companies Act 1963 to serve a notice of discontinuance on behalf of Hibernian as Plaintiff in the Proceedings.

However, following this, the applicants sought leave under s.222 of the Companies Act 1963 to proceed with so much of their counterclaim as sought a declaration that they were the legal and/or beneficial owners of particular shares held in Hibernian. They submitted to the Court that the establishment of their ownership of the shares would assist them in the defence of a claim for damages in separate proceedings in the United States. The applicants did not seek leave to proceed with the balance of their counterclaim against Hibernian. At this application by the applicants, the Official Liquidator indicated to the Court that, if leave was granted to the applicants to proceed with the counterclaim, he was unlikely to seek leave to defend the counterclaim on behalf of Hibernian.

Ms Justice Finlay Geoghegan in the High Court held that it was just and fair to give liberty to the applicants to proceed with their counterclaim insofar as it related to the legal and/or beneficial ownership of the shares held in Hibernian. The order was subject to a number of terms which sought to address the concerns of the Official Liquidator in relation to delay and legal costs. In this regard, the Court directed that the applicants could not seek an order for costs against Hibernian for pursuing their counterclaim unless the Official Liquidator defended the counterclaim. The Court also held, inter alia, that the applicants had to discharge the reasonable costs, remuneration and expenses of the Official Liquidator in relation to any matters required to be done by reason of the decision to grant leave to pursue the counterclaim. In addition, in circumstances where the applicants were based outside the jurisdiction, the Court directed that the applicants' solicitors were to provide an undertaking to the Court to abide by the conditions set by the Court.

The decision is an interesting example of the Irish courts deferring to the legal principles of justice and fairness and allowing parties pursue litigation against an insolvent corporate entity in special circumstances.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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