Court Affirms Central Bank’s Powers to Conduct Inquiries

The High Court recently published its judgment in the case of Purcell v Central Bank of Ireland & Ors.  The proceedings relate to a challenge to the Central Bank's powers to conduct an inquiry as part of an administrative sanctions procedure pursuant to Part III C of the Central Bank Act, 1942 (as amended).

The Court dismissed the applicant's challenge and held, inter alia, that the Central Bank's inquiry process was not an 'administration of justice' and therefore was not invalid by reason of Article 34 or Article 38 of the Constitution.  In reaching its decision, the Court relied on the well-established principle of judicial comity as the facts and issues were in some respects identical to those of a case which was recently determined by the High Court.

Background

In 2010, the Central Bank commenced a regulatory investigation into commercial lending and credit risk management procedures at Irish Nationwide Building Society (INBS), during the period from 1 August 2004 and 30 September 2008.  INBS collapsed during the recent financial crisis, resulting in a cost to the taxpayer of in excess of €5 billion.  Following its investigation, the Central Bank served on INBS, the applicant (a former director and secretary of INBS) and other persons concerned with the management of INBS, a Notice of Inquiry concerning alleged regulatory prescribed contraventions.

Shortly after serving the Notice of Inquiry, the Central Bank reached a settlement with INBS as a corporate entity.  In the associated publicity statement, the Central Bank noted that INBS had admitted to multiple failings, at several levels, of its commercial lending process including at Board level.

The applicant issued proceedings challenging the validity of the Central Bank's statutory powers to commence an investigation against the applicant.  He further asserted that his constitutional right to a good name was infringed by the publication of the INBS settlement and raised a number of procedural challenges including delay, bias, pre-judgment and oppression.

Earlier this year, the applicant had also sought discovery of 'without prejudice' correspondence between INBS and the Central Bank.  The Court of Appeal upheld a High Court decision that the Central Bank had not waived its privilege in the 'without prejudice' correspondence by making a public statement regarding the settlement with INBS.  This was on the basis that, as the actual terms of the INBS settlement were not at issue in the investigation into the applicant, and as the Central Bank had not sought to rely on its terms adversely as against the applicant, the usual exception to 'without prejudice' privilege did not apply.

Decision

In July 2016, the High Court dismissed the applicant's substantive applications.  It found that the majority of claims were previously addressed by the High Court in the January 2016 judgment in Fingleton v Central Bank of Ireland & Ors. (the Fingleton Case) (the applicant in that case was also the subject of the same Notice of Inquiry).

The High Court referred to the principle of judicial comity whereby a judge should follow the decision of another judge of the same court unless there are reasons for believing that the initial judgment was wrong.  In the absence of substantial reasons for believing that the Fingleton judgment was wrong, the High Court held that it should follow the direction of the earlier decision, upholding the validity of certain aspects of the Central Bank's administrative sanctions and inquiry process.

One of the principles previously upheld in the Fingleton Case was that a person who, by virtue of their status, was in a position to influence the actions of a regulated entity may be subject to Central Bank investigation even if they no longer held that position.  The High Court had also found that the admissions made by INBS as part of its own settlement was a matter for the inquiry, whose members were not involved in the settlement process.  The High Court also held that no specific prejudice due to delay arose in the Fingleton Case.

There then remained four issues which, in the Court's view, had not been raised in the Fingleton Case which required determination in the present case.  In respect of the first of these issues, the High Court held that the inquiry did not amount to an 'administration of justice', and therefore was not invalid under the Constitution on a number of grounds, including that the decision of an inquiry is subject to appeal, any penalties imposed by the inquiry are not self-executing and the functions carried out by the inquiry are not those traditionally performed by the courts. The High Court also found that an inquiry does not include the imposition of penal liability notwithstanding that the same conduct may constitute both a regulatory contravention and a criminal offence.  It also dismissed a claim that the burden placed on that applicant was 'oppressive', notwithstanding the existence of related civil proceedings against him,  noting that the applicant was not obliged to incur legal costs for the purpose of the inquiry and that it was open to him to take out insurance cover to cover those costs.  Finally, the High Court found that the burden on the applicant was not disproportionate to the level of public interest involved, noting that the public interest in enquiring as to what gave rise to the collapse of INBS was "overwhelming".

Comment

This decision affirms the Central Bank's powers to commence an inquiry into suspected breaches of regulatory obligations by regulated entities and the scope of this power as it relates to 'persons concerned', or importantly who were previously concerned, with the management of such entities.  Notwithstanding the Court's endorsement of the statutory framework providing for the administrative sanctions and inquiry procedures, the onus remains on the Central Bank to follow the principles of due procedure set out, and implicit, in that framework.

For further information, please contact Dario Dagostino and/or Brendan Hayes.

Date Published: 13 September 2016