Court of Appeal: Defendant must make discovery of price paid to NALM for plaintiff’s loans

Killian Flood BL

About this case:

• Citation:
  [2021] IECA 71
• Judgment:
  External link
• Court:
  Court of Appeal
• Judge:
  Mr Justice Robert Haughton

The court held that unjust enrichment claims required a consideration of all evidence that may be relevant in the proceedings and, further, that the pleadings themselves put the purchase price in issue in the case. The court also held that the trial judge had erred by determining controversial legal points in the pre-trial discovery motion rather than leaving them to the actual trial.

Background

The plaintiff, Mr Patrick Wheelock, had previously brought a claim against his former accountant for fraud. It was alleged that the accountant had falsified documents and entered loans on behalf of Mr Wheelock, resulting in €2.67 million debt accruing to him and security being provided over certain lands at Monvoy. The plaintiff ultimately settled these proceedings for €1.5 million, being the extent of the accountant’s insurance cover.

Subsequently, the first defendant, Promontoria (Arrow) Limited, bought the plaintiff’s loans from NALM and appointed the second defendant, Mr Stephen Tennant, as receiver over the Monvoy lands. Mr Wheelock issued plenary proceedings, claiming that the facility letters and security documents grounding the receivership were void due to fraud.

In its defence and counterclaim, Promontoria advanced a case of unjust enrichment, disgorgement of profits and equitable compensation. It was claimed that Mr Wheelock had received an obvious benefit from the fraudulent loan, as the Monvoy lands had increased in value. The defendant alleged that the plaintiff had been unjustly enriched “at the expense of Promontoria.”

Although Promontoria confirmed in replies to particulars that it was limiting its claim for unjust enrichment to €1.5 million, the plaintiff argued that Promontoria was required to outline the amount it paid for the loans in order to ground this claim. In particular, it was argued that any potential payment for unjust enrichment would be limited to the amount that Promontoria paid for the loan.

In a subsequent discovery motion, the plaintiff sought 15 categories of documents from Promontoria. Category 13 sought the price paid by Promontoria to NALM for the loans. It was argued that Category 13 was relevant and necessary to the proceedings because a central issue in dispute was the value of the alleged unjust enrichment to Promontoria. The defendant objected to the category, claiming that the plaintiff’s argument was a legal submission that did not require the information in order to be advanced.

In the High Court, Mr Justice Michael Twomey refused to grant Category 13 on the basis that (1) Promontoria’s “expense” was the loss of valuable rights under the loan facilities and not the price paid for them and (2) the plaintiff could still argue at trial that the discovery of the price was necessary for accounts to be taken. As such, it was held that the purchase price was not relevant or necessary to the proceedings. The plaintiff appealed the decision to the Court of Appeal.

Court of Appeal

In the Court of Appeal, Mr Justice Robert Haughton stated that the overriding concern of the appeal was the relevance and necessity of the Category 13 documents. The court noted that, on their face, the pleadings put the expense incurred by Promontoria in issue. As such, there was a prima facie entitlement to the discovery order.

The court emphasised that unjust enrichment claims vary greatly from one another and a court should be “slow to postulate in advance of trial what evidence forming part of the matrix of facts will have no relevance to a decision which engages principles of equity and justice.”

The trial judge had determined that the unjust enrichment was concerned with whether an individual could in conscience, retain money at the expense of another person. Mr Justice Haughton held that the trial judge was wrong to attempt to resolve this issue of law at a discovery hearing, noting that this area of law was far from settled or certain. The reliance by the trial judge on Bank of Cyprus UK Ltd v Menelaou [2015] 2 All ER 913 to refuse the discovery “represents only one view of how this case might be determined,” and the judge was wrong to be so decisive of the legal issues in the case.

The court considered that, in cases involving unjust enrichment or other equitable reliefs, a trial judge will need to hear evidence on all aspects of a case in order to achieve a just and fair result (Promontoria (Aran) Ltd v Sheehy [2020] IECA 104).

The court also said that it was “far from satisfied” with Promontoria’s contention that the purchase price was not necessary for the plaintiff to defend the unjust enrichment claim. Mr Justice Haughton held that the price information was relevant in the context where Promontoria had to prove that the unjust enrichment was at its own expense. The price went to the heart of the unjust enrichment claim, the court said.

Further, the fact that Promontoria had limited their claim to €1.5 million was not a defence to discovery, because the pleading was made “without prejudice” to a general claim for equitable compensation. Moreover, the plaintiff had put the defendant’s entitlement to €1.5 million in issue in his defence. Mr Justice Haughton endorsed Hartside v Heineken Ireland Ltd [2010] IEHC 3 and Mythen Construction v Allianz plc [2020] IECA 148 to hold that a court should not seek to resolve potentially contested issues in a pre-trial discovery motion. If a document was relevant on its face, it should be discovered, the court said.

Conclusion

As such, the court allowed the appeal and ordered the defendant to make discovery of the purchase price. However, with no objection from the plaintiff, the court limited the inspection of the purchase price documents to the plaintiff and his lawyers. Further, the court directed the parties to give undertakings not to quote the purchase price in open court or in any documents. The court