Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
High Court of Ireland Decisions
You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Quinn & ors -v- Irish Bank Resolution Corporation & ors [2015] IEHC 313 (20 May 2015)
URL: http://www.bailii.org/ie/cases/IEHC/2015/H313.html
Cite as: [2015] IEHC 313
[New search] [Help]
Judgment
| ||||||||||||||||
Neutral Citation [2015] IEHC 313 THE HIGH COURT COMMERCIAL [2011/4336P] BETWEEN CIARA QUINN, COLETTE QUINN, BRENDA QUINN, AOIFE QUINN, SEÁN QUINN JNR AND PATRICIA QUINN PLAINTIFFS AND
IRISH BANK RESOLUTION CORPORATION LIMITED (IN SPECIAL LIQUIDATION) AND KIERAN WALLACE DEFENDANTS AND
SEÁN QUINN, DARA O’REILLY AND LIAM MCCAFFREY THIRD PARTIES JUDGMENT of Mr. Justice Haughton delivered the 20th day of May, 2015 Background 2. The background to the application is that these proceedings were commenced by plenary summons dated 16th May, 2011 and were admitted to the Commercial List on 30th May, 2011. The claims asserted by the plaintiffs are set out in their Statement of Claim delivered on 8th July, 2011 and the case is fully defended. The proceedings arise from lending by Anglo Irish Bank, now Irish Bank Resolution Corporation Ltd (in Special Liquidation) (“the Bank”) to the Quinn Group of companies over a period of time, but particularly between 2007 and 2008. The plaintiffs claim that at the relevant times they were the ultimate beneficial owners of the Quinn Group. 3. The plaintiffs inter alia challenge the validity of six share charges that they gave the Bank as security for lending to the Quinn Group. In addition, they seek to challenge the validity of specific personal guarantees that they gave to the Bank as security for significant lending into six Cypriot companies. Their claims to these reliefs as currently pleaded are that the securities should be declared void and unenforceable because they were obtained through undue influence, were improvident or were otherwise liable to be set aside on the basis of an unconscionable bargain. In addition, the plaintiffs pleaded that the securities and guarantees should be declared void and unenforceable on the grounds that they were given in respect of lending which they alleged breached s.60 of the Companies Act, 1963 and/or the provisions of the Market Abuse Regulations (“MAR”). They also pleaded that the securities were tainted by that alleged illegality. Preliminary Issue and Decision of the Supreme Court
1. (a) of the Market Abuse Regulations; or 2. (b) Section 60 of the Companies Act, 1963. in aid of any of their claims for declarations of invalidity, unenforceability or no legal effect in respect of any Charge [on] Shares or any Personal Guarantees.”
So I am satisfied that it is appropriate that as part of the ordinary case management of litigation of this sort that there should be a modular trial dealing with the Plaintiffs’ standing and I propose, therefore, to direct a trial of the questions which are framed at paragraph No. 1 of the “Preliminary Issues” which are identified in the schedule to the Notice of Motion.”
13. Conclusions
12.10 A second type of allegation might have been to suggest that, even if the underlying loans were themselves enforceable (on the grounds that policy did not require unenforceability), then, nonetheless, security put in place to support illegal activity by persons who are unaware of the illegality concerned might not be capable of being enforced. 12.11 The reason why this distinction is important stems from the analysis already conducted in the course of this judgment which suggests that policy may require that underlying contracts entered into by parties who had knowledge of a relevant illegality might nonetheless remain enforceable, but that it was possible, in similar circumstances, that collateral contracts entered into by innocent parties in connection with such illegal activity might be unenforceable, at least against those parties where the innocent parties concerned might not also have been expected to benefit by the very series of transactions which are argued to be unenforceable. 12.12 However, it does not seem to me that an argument was ever truly advanced on behalf of the Quinns which suggested that a distinction might be made between the effect of any illegality on the underlying lending contracts, on the one hand, and on the security or guarantee arrangements in respect of those lending contracts, on the other. Rather, the case made by the Quinns was that the underlying lending contracts were unenforceable on the basis of being void for illegality and that security put in place in close connection with those unenforceable contracts could not, itself, be enforced. 12.13 While there might, therefore, be a theoretical basis on which it might have been possible to consider whether the guarantee or security arrangements from which the Quinns seek to escape in these proceedings are unenforceable, notwithstanding the fact that the underlying loans are, for the reasons already analysed, enforceable, that case was never truly made, and it would, in my view, be inappropriate to address it any further at this stage.” 9. It is against this background that the plaintiffs now seek to amend their Statement of Claim to plead, in effect, that notwithstanding that the underlying lending is enforceable, it was illegal by reason of breach of s.60/MAR, and the share pledges and guarantees are void and unenforceable against them as a matter of public policy because they were innocent of the illegality. This is what may be conveniently termed as a plea of “stand alone” unenforceability of the share pledges and guarantees. Thus, they seek amendments to the Statement of Claim commencing from para. 103 in the terms as set out in the schedule to this judgment (the proposed amendments being underlined). 10. The plaintiffs seek their liberty to amend under Order 28 rule 1 which provides:-
11. Mr. Hayden S.C. on behalf of the Plaintiffs argued that the question of stand alone unenforceability is a real question in controversy between the parties and that it is necessary for it to be determined. He relied on the judgment of Geoghegan J in Croke v. Waterford Crystal [2005] I.R. 383 to the effect that this is a liberal rule, and argued that the mere novelty of the proposed amendments should not present a barrier to them being permitted, and that it is immaterial that they seek to make a case that may be significantly different from that made originally. It was argued that there would be no real prejudice to the defendants’ position and that any residual prejudice could be met by appropriate amendment of the defence. It was submitted that no additional discovery would be needed and that the trial timetable would not be unduly affected although Mr. Hayden accepted that there might be some minimal delay if particulars were raised and rejoinders were necessary. He drew support for his application from the words “to date” as employed by Clarke J in paras. 12.16 and 13.1 of his judgment in reference to the matters as pleaded in their Statement of Claim, and from the fact that the decision of the Supreme Court did not contain any direction suggesting that the plaintiffs should not be given liberty to amend. In this regard Mr. Hayden S.C. relied by analogy on Clarke v. O’Gorman [2014] IESC 72 where O’Donnell J stated:-
13. The plaintiffs argued two other matters in support of their application. Firstly, they pointed out that lack of awareness on the part of the plaintiffs is pleaded in the Statement of Claim:
• In para. 69(h): “In October 2008, the July Facilities were refinanced, and each of the Plaintiffs shareholdings in Anglo was transferred to a Cypriot company wholly owned by each of them and, again, none of the Plaintiffs were aware of this refinancing”; • In para. 71: “None of the Plaintiffs had any knowledge, involvement or input into any of the discussions preceding the transactions or in respect of the funding arrangements which were put in place in respect thereto”. • They also plead at para. 91 that they “took no active role in any matter relating to Anglo lending, and were effectively dictated to in relation to such lending pursuant to which the personal guarantees and share pledges were required by Anglo” and provide some detail of this allegation.
15. The Plaintiffs also seek to introduce a proposed amendment at 110A to read as follows:-
17. In a written ‘Rejoinder Submission’ by way of alternative argument, and in the event that the common law offence of cheating the public no longer existed, the plaintiffs relied on the principle that a person cannot rely on their own tortious act, citing para. 15.08 of Paul McDermott’s “Contract Law” at pp. 766-767 which states that:-
19. The Bank in opposing the application to amend argued that -
• alternatively, the application to amend is an abuse of the process because it seeks to circumvent the decision on the preliminary issue raising arguments that should have been raised earlier; • this is case managed litigation and it is now nearly four years since the pleadings closed, and there has been extensive and costly discovery (including non-party discovery), exchanges of interrogatories, the trial of the preliminary issue and appeal, the preparation and exchange of witness statements and reports and the preparation of legal submissions; • they would suffer logistical prejudice if the amendments were permitted; and • with regard to the proposed para. 110A, the plaintiff seeks to introduce an amendment on a basis that discloses no claim in law. Res Judicata 22. The Supreme Court decided that the underlying lending was still enforceable notwithstanding that it might be illegal, or tainted by illegality by being in breach of s.60/MAR and concluded that the plaintiffs had no “standing” to impugn the validity of the share pledges/guarantees “in the light of the case made by the Quinns to date”. It is quite clear from paragraphs of the decision quoted above (and in particular paras. 12.6 and 12.16), that the court did not regard “stand alone” unenforceability of the share pledges/guarantees as having been pleaded, and so it did not decide whether as a matter of law they might be unenforceable on that ground. Indeed, Clarke J expressly stated that this did not arise on the case as pleaded and he reserved a decision on it to “a suitable future case”. 23. It follows that the Supreme Court decision determined the preliminary issue only insofar as the issues of s.60/MAR illegality were raised in the pleadings. It therefore cannot be said that the precise case that the plaintiffs now wish to make by way of amendment of their pleadings was determined by the Supreme Court. Although the question of “standing” has been determined, this only reaches as far as the matter was pleaded and it does not go beyond the ambit of the pleadings. I therefore reject the submission that the issue that the plaintiffs now seek to raise is res judicata in the strict sense of that term. Delay/Abuse of the Process 25. While it is undoubtedly the case that the plaintiffs now say that the “stand alone” enforceability issue is a real matter of controversy, it is relevant for the court to consider when this issue became a real matter of controversy, and this will be considered below. 26. The principle that it is an abuse of the process for a litigant to attempt to introduce into existing proceedings or fresh proceedings matters that have already been litigated was established in Henderson v. Henderson [1843] 3 Hare 100. At p. 319 Sir Wigram, Vice Chancellor, in delivering the judgment of the Privy Council, stated:-
30. The court has taken into account a number of matters that have led it to the conclusion that the issues that the plaintiffs now seek to raise by way of amendment are in reality arguments that ought to have been raised at the outset or at any rate at an earlier date, and that in exercising its duty to balance the rights of the plaintiffs and the defendants in this litigation the amendment should be refused. 31. Firstly, it is far from clear that the case that the plaintiffs now wish to make was a matter of real controversy at any time prior to the decision of the Supreme Court on 27th March, 2015. The defendants emphasised to the court not only that this issue never formed part of their pleadings but also that in various affidavits sworn by the plaintiffs they consistently relied on an allegation that the underlying loans were illegal and unenforceable and did not suggest that the share pledges/guarantees were in themselves unenforceable. This was the case in an affidavit sworn on 25th May, 2011 by Aoife Quinn grounding the plaintiffs’ application to enter the Commercial List (para. 8(f)); in an affidavit sworn by Colette Quinn on 14th February, 2013 grounding the plaintiffs’ application to lift the stay on proceedings imposed by the Irish Bank Resolution Corporation Act, 2013 (para. 28); and in an affidavit sworn by Aoife Quinn on 27th May, 2013 grounding the plaintiffs’ unsuccessful application to join the Central Bank of Ireland and Minister for Finance as co-defendants (para. 5). 32. The same approach was taken by the plaintiffs in submissions to the court dated 19th September, 2013 in support of an application for injunctive relief where they submitted:-
34. Secondly, the defendants also drew to the court’s attention the eminence of counsel who prepared and signed the Statement of Claim delivered herein. The court takes note of the experience and expertise of these counsel, and of the firm of solicitors instructing them who have particular experience in commercial matters. 35. Mr. Hayden S.C. suggested that the plaintiffs could not reasonably have been aware, until the Supreme Court had delivered its judgment, of a distinct claim that the share charges/pledges might be void or unenforceable notwithstanding that the underlying lending, if illegal, is nonetheless enforceable. I cannot agree with this submission. In the court’s view, the plaintiffs and their lawyers were in a position to assess the level of awareness and innocence of the plaintiffs and to foresee the possibility of making the case, if it could be made, that the security might of itself be unenforceable even if the lending was enforceable. They were equally in a position to anticipate that one outcome of the preliminary issue was that the underlying lending would be enforceable even if it was illegal. Accordingly, the delay in seeking an amendment commenced at a much earlier point in time and, as indicated below, this was probably in May 2012 when the Bank delivered a written submission noting the restricted nature of the pleas in the Statement of Claim. 36. Thirdly, the plaintiffs in their grounding affidavit for this motion and in their submissions failed to give any explanation or reason why the pleas they now wish to make were not pleaded at the outset, or why no application to amend was brought at an earlier point in time. It is true that in Croke Geoghegan J (at p. 394) stated that in a number of High Court decisions cited to him there had been “an overemphasis on an obligation to give good reason for having to amend the pleadings.” However, in a case such as this where the application is made late in the day, after the trial and final determination of a preliminary issue - which in truth was more in the nature of a ‘module’ of the trial - and shortly before the date fixed for hearing of the remainder of the action, it is of some relevance. 37. One reason for the absence of any explanation may be that there have been changes in the plaintiffs’ legal representation and therefore it may be more difficult to ascertain or present any explanation. However, the court cannot discount the possibility that the lawyers who prepared and delivered the Statement of Claim in its present form did not consider that there was a factual basis for making the claim that the plaintiffs now wish to make. For instance, it might have been considered unlikely that the plaintiffs could prove that they were entirely innocent guarantors, or it might have been considered that they would face difficulties if it were demonstrated that they stood, potentially, to gain a benefit from the underlying illegal lending - two possibilities tentatively canvassed by Clarke J at paras. 8.50-8.51 of his judgment. While the court is careful not to prejudge any aspect of the plaintiffs’ case (notwithstanding an invitation to do so in the Bank’s submissions), the absence of any explanation as to why these pleas were not made earlier does put the court at a disadvantage and is a factor that the court takes into account. 38. Fourthly, as the plaintiffs themselves accept in their submissions, the transactions and factual basis for the claims pleaded in their Statement of Claim are virtually identical to the transactions and facts upon which they seek to rely in pursuing the case based on the amended pleading. The primary differences are firstly a plea of innocence and secondly a plea that the share pledges/guarantees are in and of themselves unenforceable at common law as a consequence of the illegality (as opposed to unenforceability) of the underlying lending. As to the first of these, there seems to be little difference between this and the existing pleas of lack of awareness which are set out earlier in this decision. As to the second, this effectively raises a new argument as to legal consequences based on the same facts. 39. This brings the amended pleas within the rubric of those “which ought to have been raised” (to use the words of Costello J) at the outset. It is apparent from the wording of the proposed amendments, and in particular deployment of the word “innocent”, that the Plaintiffs now seek to plead a question/argument identified by Clarke J at para. 8.48 of his judgment, and which he later describes at para. 12.13 as “a theoretical basis” for considering stand alone enforceability. What the plaintiffs seek to do by way of amendment is a recasting of its arguments which essentially still rely on the alleged illegality of the underlying lending under s.60/MAR. The application in its timing and in the wording of the proposed amendments both indicate an intention to overreach or circumvent the actual decision of the Supreme Court on the preliminary issue. As a matter of public policy, this should not be permitted. On this basis alone the court is of the view that none of the amendments should be allowed. 40. Fifthly, Clarke J noted, at para. 12.19, that had he decided that the share charges/guarantees were unenforceable, he would then have had to consider whether such unenforceability would permit the plaintiffs to undo the executed security and to prevent Anglo from exploiting the security in a way which did not require Anglo to invoke the jurisdiction of the court (as a receiver was appointed, and changes made to the directorships of various Quinn companies). 41. Had the plaintiffs included stand alone enforceability pleadings in their Statement of Claim and had these been part of the preliminary issue, and had the plaintiffs succeeded before the High Court/Supreme Court on the stand alone issue, then this further question would have been considered and determined by the court at that stage. As the stand alone issue was not considered, this further question was never considered by the Supreme Court. 42. Sixthly, and more fundamentally, it must now be questioned whether Kelly J would have fixed a preliminary issue at all if the case that the plaintiffs now wish to make had been included in the Statement of Claim. Kelly J clearly felt that there was a discreet legal issue, but it is difficult to characterise the broader issue as now raised by the amended pleadings as being a discreet legal issue. This is because such a preliminary issue would involve assumptions of “innocence” or “lack of awareness” on the part of the plaintiffs of the illegality of the underlying lending, and these are matters that could only really be determined at a full hearing on oral evidence. 43. At para. 12.14 of the Supreme Court’s decision Clarke J stated:-
45. Seventhly, the plaintiffs should have been alerted to the omission from their Statement of Claim of “stand alone” unenforceability pleas when they received the written submissions of the defendants dated 1st May, 2012 in support of their appeal to the Supreme Court. They stated:-
47. Perhaps more importantly, no application was made after 1st May, 2012 to the High Court, or to the Supreme Court, to amend the Statement of Claim, or to defer the appeal until an application was made to the High Court to amend the pleadings, or to broaden the ambit of the Preliminary Issue. While the outcome of any such application, at any rate to the Supreme Court, might have been problematic, the court does regard the plaintiffs as having failed to canvass at an earlier date the plea and legal arguments that they now wish to raise. In this respect, their delay is significant and is unexplained. It is culpable delay in all the circumstances. While of itself it might not justify refusing an amendment, it is a factor that I consider relevant to determining whether there has been an abuse of the process because it undermines the rights of the other parties to the litigation, the efficient use of court time and the finality of litigation. It is of particular significance in the unusual circumstances of this case where Kelly J fixed the preliminary issue as a form of “modular trial dealing with the Plaintiffs’ standing”, with the intention that this broad issue should be determined before the balance of the trial proceeded on oral evidence. 48. Additionally, the defendants pleaded that if the plaintiffs were given leave to amend, they would be prejudiced in two respects. Firstly, they asserted a general prejudice by reason of the time, effort and expense incurred in addressing the preliminary issue through two courts over a period of some three and a half years. I have already adverted to this earlier in this judgment and I consider that this is a factor that the court is entitled to and should take into account in the exercise of its discretion to refuse the amendments sought. 49. They also argued logistical prejudice in that if the amendments were allowed they would need to seek particulars, and possibly further particulars depending upon the replies, followed by the filing of amended defences, and they argued that further discovery or interrogatories would then have to be considered. They point out that as the trial date is currently fixed for 3rd June, it was likely that this would have to be deferred and they argued that this would be very unsatisfactory in the context of commercial litigation that has now been ongoing for nearly four years. 50. I do not consider that the logistical prejudice so described is a significant factor. If the court had been disposed to grant the amendments sought, while a short adjournment of the trial date might have been required, it is probable that, with appropriate case management, the deferral would not have exceeded four weeks. In the context of the overall delay in bringing this case to full trial of the remaining issues this would not have caused any significant or irreparable prejudice. Proposed Plea of Common Law Illegality
53. In a detailed submission at paras. 96-122 of the “First Defendants’ Outline Legal Submissions” the defendants argued that this plea was bound to fail principally because the Criminal Justice (Theft and Fraud) Offences Act, 2001 repealed the majority of the so-called “‘acquisitive’ offences at common law and in statute in Ireland. The abolished common law offences include cheating. Section 3(2) provides that:-
55. This was the first time that an entirely new argument based on tortious wrongdoing was raised in these proceedings, by way of argument in rejoinder on the second day of the hearing of the motion. In the view of the court this was a belated and impermissible attempt to recast the illegality argument and for that further reason the amendment sought at 110A is refused.
Schedule- Amended Pleadings, Paragraphs 103- 110A ILLEGALITY IN THE LOAN AND SECURITY TRANSACTIONS 103. Further and/or in the alternative and without prejudice to the foregoing, the loan transactions engaged in by Anglo, for and on behalf of the positions being maintained by Bazzely, and/or the Cypriot Companies, and/or the subject matter of the said loan transactions were tainted by illegality and/or were for an illegal purpose, of which Anglo was or ought to have been aware. 103A At all material times, the Plaintiffs were innocent parties and to the extent they furnished securities by way of collateral contracts i.e. the share pledges and guarantees impugned in these proceedings, the Plaintiffs did so innocent of and independent from the underlying central contractual arrangements which are of themselves illegal by reason of a breach of Section 60 of the Companies Act 1963 and the Market Abuse Regulations. 103B In so providing the security in such circumstances, the shares pledges and guarantees impugned in these proceedings are unenforceable as against the named, innocent, Plaintiffs, in and of themselves, and independently of the illegality attaching to the underlying loan transactions. In this regard, the Plaintiffs are entitled to rely on the matters pleaded herein in support of the Plaintiffs’ contention that the cultural contractual arrangements are tainted with illegality. (a) The Market Abuse Regulations
b) transactions which secured the price of Anglo shares at an abnormal or artificial level; and c) the dissemination of information which gave, or was likely to give, false or misleading signals as to Anglo shares, in circumstances where Anglo knew, or ought to have known, that the information was false or misleading. 106. In the premises, the lending and, in particular, the provision of the share pledges and guarantees impugned in these proceedings were in support of an illegal objective of market manipulation as prohibited by Regulation 6(1) of the Market Abuse Regulations and, accordingly, were tainted with illegality, or were intended to support an illegal purpose, such that the said loans and said share pledges and guarantees are not enforceable as against the Plaintiffs, as wholly innocent parties. (b) Section 60 of the Companies Act, 1963 108. Such lending and seeking/obtaining of share pledges and guarantees, prima facie, constituted the commission of a criminal offence on the part of certain officers of Anglo pursuant to the provisions of section 60(15) of the Companies Act 1963. 109. In the premises, the lending was further tainted by illegality such that the security taken from the Plaintiffs by Anglo ought not to be enforceable insofar as it relates to the Plaintiffs. 110. By reason of the matters pleaded above, Anglo is estopped from seeking to rely upon the security taken from the Plaintiffs in the form of the personal guarantees and/or the share pledges and the purported appointment of the Share Receiver on foot of the said share pledges is invalid and ought to be set aside. (c) Common Law Illegality |