Neutral Citation:  IEHC 15
THE HIGH COURT
[2012 No.11402 P]
NUA MORTGAGES LIMITED
JUDGMENT of Kearns P. delivered on the 16th day of January, 2015
By notice of motion dated 13th June 2014 the defendant seeks an order pursuant to the inherent jurisdiction of the Court or in the alternative an order pursuant to Order 19 rule 28 of the Rules of Superior Courts dismissing the plaintiff’s claim on the grounds that the statement of claim and plenary summons fail to disclose any reasonable cause of action against the defendant and are bound to fail. Alternatively, an order is sought pursuant to Order 19, rule 28 dismissing the plaintiff’s claim on the grounds that it is frivolous and vexatious.
The plaintiff’s claim is for damages arising out of a number of allegations against the defendant including that he has suffered loss and damage due to the alleged reckless lending practices of the defendant, that he was coerced into signing a mortgage agreement, that he was misled by the defendant in relation to the nature of the agreement and the source of the finance, that the defendant was insolvent at the relevant time and was therefore in breach of licensing requirements, and that the defendant engaged in excessive securitisation and breached a number of regulatory requirements.
By plenary summons dated 12th November, 2012 the plaintiff states that “the bank broke serious liquidity laws which has caused the financial collapse. But for this action and knowledge of same I would or could have made different decisions about my financial affairs”. He asserts that the bank engaged in excessive securitisation and reckless lending and that his health and relationships have suffered as a result. The plaintiff claims €1,000,000 in damages and an order declaring that the mortgage agreement is null and void.
In his statement of claim the plaintiff says that “the defendant did not possess the money it claims it loaned out thus rendering the defendant a third party only”. He asserts that he was cajoled into the agreement and was offered no independent legal assistance. The plaintiff contends that the defendant misled him in relation to its financial position and that the bank was insolvent at the time of the agreement but “created the alleged money out of thin air on a computer keyboard”. A number of other claims are set out including that the defendant did not hold a valid licence to trade on the date of the signing of the alleged agreement, that the defendant ignored warnings from the United States markets in relation to the risks involved in the transaction, that no proper risk assessment was carried out, and that the bank is a mere servicing agent for another body and therefore has no legal right to any monies from the plaintiff.
The plaintiff states that he was originally offered €110,000 from the bank which he declined. He states that the bank subsequently offered €256,500 through an agent called ‘Moneypenny’ and accepted falsified financial statements in the name of the plaintiff in order to arrange this loan and to profit by way of commission and ultimately repossession of the property.
The proceedings have been before the Court on a number of previous occasions where the parties were seeking directions. The defendant issued a motion to strike out the proceedings on 13th June 2014.
JURISDICTION TO DISMISS
It is well established that this jurisdiction is one which should be used sparingly and right of access to the courts should be preserved wherever possible. In Lawlor v. Ross (Unreported, Supreme Court, 22nd November 2001) Fennelly J. stated that “the Court should be willing to assume in favour of the Plaintiff that an appropriate amendment of the pleadings might save his case.”
SUBMISSIONS OF THE DEFENDANT
5. In ICS Building v. Grant  IEHC 17, Charleton J. stated:
‘… the argued for tort of reckless lending does not exist in law as a civil wrong. It is not within the competence of the court to invent such a tort. Oireachtas could, if it saw fit, pass a law creating such a civil wrong. It is difficult to imagine the parameters of such a law since those who seek a loan will have different views to what should be borrowed, and if a loan is badly made by a bank, how can the issue of contribution be escaped from by the borrower who sought the money in the first place. Defining that civil wrong would tend to remove the presumption of arms length dealing as between borrower and bank and replace it with a new relationship based on a duty of nurture that other common law countries do not see it as their duty to put into the marketplace as any argued-for law as to reckless lending does not appear in the works on tort that I have consulted from other common law jurisdictions.’
6. These views were followed in McConnon v. President of Ireland  IEHC 184,  I.R. 449 at 446 where Kelly J. stated, ‘such a tort does not exist as a civil wrong in Irish law’.”
Hogan J. concluded:-
“It follows, therefore, that there is simply no tort of reckless lending which is known to the law.”
In relation to the plaintiff’s allegation that the defendant illegally “created” the money for the purposes of the loan, counsel submits that this claim is also bound to fail. Arguments of this kind were considered by Hogan J. in McCarthy and Others v. Bank of Scotland PLC and Others  IEHC 340 in the following terms (para. 9):-
‘In his submissions on the motion, in the actions concerning him, Mr. Dempsey described the “money for nothing” theory. He stated that the banks do not have money. Rather, they create money out of “thin air”…He says that the plaintiffs create money by signing promissory notes, and as soon as the promissory note is signed, the banks deposit money in their own statement of account. The bank does not place hard currency in the hands of the debtors. Mr. Dempsey then charge interest on nothing and that is a criminal rate of interest because interest is charged on nothing. Mr. Dempsey states: “it is not like the old days when people used to go to the bank and, in the back room, count out dollars, there is no law that allows the banks to create dollars out of thin air.’
It is scarcely a surprise that in Dempsey this argument was described by the British Columbia courts as “fanciful” and “completely devoid of merit.” Yet this has not deterred other litigants in this jurisdiction advancing similar arguments which are equally lacking in merit and which, indeed, lack any relationship to contractual or other legal realities.”
It is also important to note that the funds in question, regardless of how they were allegedly ‘created’, were drawn down by the plaintiffs and, as stated in the statement of claim, were spent on the refurbishment and upkeep of the properties or however else the plaintiffs saw fit. The nature of the loan agreement between the parties was clear and unambiguous and was willingly signed for by the plaintiffs who were aware of their obligations and responsibilities.”
‘But there is another obstacle which faces the applicant, and which he has not addressed, and it is that there is nothing unusual or mysterious about a securitisation scheme. It happens all the time so that a bank can give itself added liquidity. It is typical of such securitisation schemes that the original lender will retain under the scheme, by agreement with the transferee, the obligation to enforce the security and account to the transferee in due course upon recovery from the mortgagors.’
The views expressed by Peart J. with which I find myself in complete and respectful agreement, also, accords with the approach of the English Court of Appeal in the case of Paragon Finance plc v. Pender  1 WLR 3412. The Court of Appeal was of the view that all that the special purpose vehicle acquired, under an uncompleted agreement to transfer the legal charge, was an equity in the mortgage. Paragon remained the legal owner, and as registered proprietor of the charge, retained all the powers of a legal chargee, including the right to possession, nor was it necessary to join the special purpose vehicle.”
‘In all cases alleging misrepresentation, fraud, breach of trust, wilful default or undue influence and in all other cases in which particulars may be necessary, particulars (with dates and items if necessary) shall be set out in the pleadings.’
In Keaney v. Sullivan  IEHC 8, Finlay Geoghegan J. commented that the court had an inherent jurisdiction to strike out a claim for failure to comply with O.19, r.5 (2) and in that case she proceeded to strike out claims. A similar approach was taken by Edwards J. in Bula Holdings v. Roche  IEHC 208, where Edwards J. made an order striking out the proceedings on the basis that the pleadings were frivolous, vexatious and scandalous and that the particularisation of the claims of fraud, deceit, conspiracy and attempted perversion of the course of justice is so inadequate and deficient that no reasonable cause of action was disclosed.”
SUBMISSIONS OF THE PLAINTIFF
‘The jurisdiction under O. 19, r. 28 to strike out pleadings is one a court is slow to exercise. A court will exercise caution in utilising this jurisdiction.’
However, as emphasised by Denham J. in her judgment such jurisdiction should be exercised ‘if a court is convinced that a claim will fail.’”
‘A large number of cases, starting with Barry v. Buckley  I.R. 306, were presented to the court in a book of cases but they were not really opened to any extent. However I think it important to refer briefly to the latest of those cases Jodifern Ltd v. Fitzgerald  3 IR 321 and in particular to the judgment of Barron J. In his judgment Barron J. says the following at p. 332:-
Where the plaintiff’s claim is based upon a document as in the present case then clearly the document should be before the court upon an application of this nature. If that document clearly does not establish the case being made by the plaintiff then a defendant may well succeed. On the other hand, if it does, it is hard to see how a defendant can dispute this prima facie construction of the document without calling evidence and having a trial of that question.”
It is clear from all of the authorities that the onus lies on the defendant concerned to establish that the plaintiff’s claim is bound to fail. It seems to me to follow that the defendant must demonstrate that any factual assertion on the part of the plaintiff could not be established. That is a different thing from a defendant saying that the plaintiff has not put forward, at that time, a prima facie case to the contrary effect.”
It is further submitted that the defendant’s engaged in fraud, misrepresented the financial situation of the plaintiff, and knowingly relied on erroneous accounts and records in approving the mortgage. In relation to this aspect of his claim, the plaintiff refers the Court to the decision of Birmingham J. in McCaughey v. Anglo Irish Bank Corporation Ltd & Anor.  IEHC 546. Birmingham J. stated:-
‘First, in order to sustain an action in deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made:-
(1) Knowingly, or
(2) Without belief in its truth or
(3) Recklessly, careless whether it is true or false.
Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states, to prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made.’
So, simple lack of care will not of itself suffice. The threshold that the plaintiff has to cross is knowledge of or belief in the falsity of the representation or recklessness as to its truth, that is to say not caring whether the representation is true or false. This aspect is summarized as follows in Cartwright on Misrepresentation, Mistake and Non-disclosure, 2nd Ed. as follows:-
‘The representor will be fraudulent if he made the statement “recklessly, careless whether it be true or false”. It is important to note that Lord Herschel does not say that a representor is fraudulent if he fails to take care - is negligent - whether his statement is true. Negligence is not dishonesty; and the House of Lords in Derry v. Peek was at pains to emphasise that negligence is not sufficient for deceit. Recklessness involves not caring whether the statement is true; an indifference to the truth.’
However, in some circumstances evidence of a lack of care may go some distance to providing evidence that a defendant in truth, lacked belief in the truth of what he was saying or did not care whether what he was saying was true.
Misrepresentation can take the form of either a positive statement, or it can be through omission as it was made clear by the Lord Chancellor, Lord Chelmsford in the case of Oaks v. Turquand and Harding  LR 2HL 325 where at p. 342 he commented:-
‘It is said that everything which is stated in the prospectus is literally true, and so it is, but the objection to it is not that it does not state the truth as far as it goes, but that it conceals most material facts with which the public ought to have been made acquainted. The very concealment of which gives to the truth of which is told the character of falsehood.’”
The plaintiff submits that the Court should be slow to exercise its jurisdiction to strike out proceedings, particularly in cases involving litigants in person, and that the authorities relied upon in relation to particular aspects of his claim as set out above support his contention that his claim warrants further consideration by the Court and should be allowed to proceed.
In relation to the plaintiff’s claim of reckless lending by the defendant, as is clear from the case law relied upon by counsel for the defendant, there is no such civil wrong in this jurisdiction. In particular, the Court notes the decisions on this issue in Healy v. Stepstone Mortgage Funding Limited, ICS Building v. Grant, and McConnon v. President of Ireland. This aspect of the plaintiff’s claim is closely aligned to a number of other broad and general allegations he makes in relation to the lending practices of “various banks” which the plaintiff contends “created the false boom and bust situation which has crippled my country”. Blanket allegations such as these do not give rise to a reasonable cause of action in the plaintiff’s case, are bound to fail and must be struck out. That is not to say that such allegations related to the wider context of the financial crisis should not be considered by a more appropriate forum of inquiry.
The Court is also satisfied that the Supreme Court decision in KBC v. Hanby Wallace in relation to contributory negligence as relied upon by the plaintiff does not apply to the facts of the present case and does not amount to a justification for allowing the plaintiff’s claim to proceed. In KBC, the bank had engaged the services of the defendant solicitors to complete loan transactions after ensuring that the security provided for in the facility letter was obtained. The defendant failed to do so and instead closed the loans on the basis of undertakings only despite having no authority to accept undertakings. McGovern J. in the High Court found that the bank had failed to take reasonable steps to verify representations made by the borrowers as to their sources of income and their net wealth in order to ascertain whether they had the capacity to repay the loans. However, it was held that the defendant’s negligence and breach of duty in releasing the funds before security was in place was the proximate cause of the plaintiff’s loss and so no finding of contributory negligence was made. Allowing the defendant’s appeal, the Supreme Court found that the bank had exclusive responsibility for checking the financial soundness of the borrowers and the matter of contributory negligence was remitted to the High Court. In the present case there is evidence that a risk assessment and Irish Credit Bureau check was carried out by the bank. In addition, the bank in the present case, unlike in KBC, did satisfy itself that adequate security was in place, namely, the property itself. In contrast, in KBC the bank’s requirement that security be obtained over a total of 30 properties was not complied with. There was further evidence that the bank had failed to carry out proper searchers of previous loans made to the borrowers, had failed to discover a number of unfulfilled undertakings from the borrowers, and failed to adequately investigate the borrowers’ statement of affairs. In any event, the Supreme Court made no finding as to whether or not the bank’s conduct amounted to contributory negligence which the plaintiff in these proceedings can rely upon. Rather, the matter was simply remitted to the High Court for reconsideration.
As to the plaintiff’s contention that the lender simply “created the alleged money out of thin air on a computer keyboard”, the Court agrees entirely with the decisions of Gilligan and Hogan JJ. in the Freeman and McCarthy cases respectively. As indicated by Gilligan J. in Freeman, this argument has come before the Courts with increasing frequency in recent times and is invariably advanced by litigants who unfortunately find themselves in financial distress. As set out above, this ‘creation of currency’ argument has quite rightly been described as ‘fanciful’ and ‘completely devoid of merit’. This aspect of the plaintiff’s claim is frivolous in the extreme, bound to fail, and accordingly should be struck out. In any event, regardless of how the money was allegedly ‘created’, it is not disputed that the plaintiff applied for the loan, drew down the loan, and spent the funds. By his own admission, the plaintiff was initially offered a lesser amount by the lender which he rejected as “not sufficient for the project which the plaintiff wanted to pursue”. Undoubtedly, the plaintiff willingly participated in the transaction.
The issue of securitisation has been dealt with in detail by previous decisions of the High Court and does not warrant detailed consideration herein. However, the remarks of Peart J. in Wellstead are of particular relevance:-
The plaintiff relies on the decision of Gilligan J. in Freeman as authority for the proposition that his claim in relation to alleged breaches of statutory codes by the bank should be allowed to proceed. However, the decision of McGovern J. in the substantive hearing in Freeman & Anor. v. Bank of Scotland (Ireland) & ors.  IEHC 284 is worth noting:-
The plaintiff quite correctly submitted that the jurisdiction to strike out proceedings is one which the Court should be slow to exercise and he relied upon a number of authorities in this regard, including Kenny v. Trinity College and Salthill Properties. In O’N. v. McD. & Ors. Birmingham J. emphasised the need for the court to be particularly cautious in cases involving litigants in person. The Court entirely agrees with these decisions and the plaintiff was afforded a great deal of latitude in relation to the form of his pleadings and his submissions to the Court. However, while the Court may sympathise with the unfortunate predicament the plaintiff finds himself in, I am satisfied that this is one such case where the plaintiff’s claim is bound to fail and must be struck out.