Claims in tort that financial investments were mis-sold to investors statute barred

In Cantrell v. Allied Irish Banks Plc [2019] IECA 217 the Court of Appeal allowed an appeal of a finding of the High Court that plaintiffs who allege they had been mis-sold an investment product were inside the limitation period to bring their claims. The Court of Appeal held that the investors suffered a loss when the loan to value covenants (LTV) were entered into for the purpose of securing the borrowings at point in time outside the statutory limitation period meaning the claims were statute barred.

Background

The proceedings concerned whether a number of investor claims case were statute barred. The cases were 'pathfinder' cases out a pool of over 300 disgruntled investors.

The plaintiff's claims related to a number investment schemes managed by AIB known as Belfry 2-6. Monies were invested through trustee/nominee companies on dates between 2003 and 2006. Each of the Plaintiffs invested money and received a Prospectus containing broadly the same information.

Although initially the Belfry schemes performed well, the value of the investments had decreased by March 2008. Letters sent to investors in September 2009 stated that the value had 'eroded' and/or had been written down as 'nil'.

Proceedings were issued in August 2014, and the plaintiffs sought damages for breach of trust, breach of contract, damages for negligence and breach of duty including breach of statutory duty; damages for breach of fiduciary duty, damages for negligent misstatement, and damages for misrepresentations. The plaintiffs claimed that they were unaware that the majority of the investment funds were to be made up of debt funded by borrowings by each investment company, and only a small portion, roughly 20%, came from the equity of investors.

They also claimed that the loan to value covenants covenants were not disclosed to them in the Prospectus or at any other time. These had the effect of triggering an automatic default when the value of the property purchased by the funds fell below the debt owing to the lender. In those circumstances the lender's floating charge would crystallise and the lender would then be entitled to dispose of the charged assets howsoever it saw fit.

In dealing with the preliminary issue of whether the claims were statute barred Haughton J held that the breach of contract claims were statute barred as more than 6 years had elapsed from the dates of investment and the commencement of proceedings were commenced.

In relation to the negligence claims Haughton J held that, while an actionable wrong occurred when the investments were first entered into, a cause of action in tort did not accrue from this date as although there was a mere possibility of loss, overall there was no actual loss. The actual loss happened within the limitation period so the claims in tort were not statute barred.

Appeal

The Court of Appeal allowed the appeal. Baker J. held that the time when the damage or loss occurred was incorrectly identified by Haughton J. The Court found that if the claims of the Investors were to be characterised as arising from the fact that they entered into a flawed transaction, the loss occurred at the time of the loan transactions when the LTV covenants were agreed. The actual loss was caused by the existence of misrepresentations or omissions or incomplete information regarding the LTV covenants and had the Investors sued after the borrowings had been agreed they would have had a stateable and provable cause of action that the investment they bought was different from the one represented to them.

The Court held that the damage became manifest once the LTV covenants were entered into by the directors and, at that stage, the Investors had less chance of surviving a catastrophic loss of property values. The cause of action accrued outside the limitation period – sometime after the investments were made.

While the Court was sympathetic to the plaintiffs the end result means that time began to run for limitation purposes even before the plaintiffs knew, or could have known, that they had any reason to bring proceedings. The case must now be heard in the High Court with the decision of the Court of Appeal on the preliminary issue resolved.

Comment

The decision of the Court of Appeal makes it clear that in assessing the point in time when an action in tort accrued, in the context of financial investments, the crucial factor is when the plaintiffs were in a worse position than they would otherwise have been. In the Cantrell proceedings that happened at some stage after the investments were made and before commercial property was purchased with the assistance of secured loans which contained a LTV covenant. While the precise date is unclear the dicta of Baker J is explicit: it was outside the six-year time limit meaning the claims were statute barred.​

For more information please contact Ciaran Joyce, Knowledge Lawyer, or any member of the Litigation and Dispute Resolution team.

Date published: 20 August 2019