Court of Appeal: Solicitor who invested €1m in bond offered by Anglo entitled to damages for negligence and misrepresentation

About this case:

• Judgment:
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Delivering the judgment of the three-judge Court, Mr Justice Gerard Hogan found that even though the Solicitor had entered into the investment advertised by the Bank knowing that it was high risk, “even those who invest in high risk projects are entitled to be protected by the law in respect of negligence and misrepresentation”.

Background

Mr John Spencer, a solicitor who in 2005 had been in practice on his own account in Nenagh for 20 years, had developed a substantial property portfolio of more than 15 properties both in Ireland and in England. The Court heard that he found managing a large number of individual properties was time consuming and wished to change to a less “hands on” form of property investment.

The essence of Mr Spencer’s case was his contention that as a result of certain representations made by Irish Bank Resolution Corporation (formerly Anglo Irish Bank) he invested €1m in a life assurance bond offered by Anglo Irish Assurance Company (AIAC).

In the High Court, Mr Spencer’s claim for damages for negligent misstatement and misrepresentation in respect in respect of oral and written statements which he alleged were made to him by Irish Bank Resolution Corporation (IBRC) had been dismissed by Justice Costello. In reasoning with which Justice Hogan disagreed, Justice Costello found that the bank had made reasonable representations in their brochure regarding investment returns of 220%, and that Mr Spencer was unable to establish that he would not have invested in the fund had he known the true figures.

Mr Spencer’s investment

The dispute itself concerned the purchase of property interests in the Whitgift Shopping Centre in Croydon, a southern suburb of London in 2005.

In the spring of 2005, Mr Spencer he became aware of an opportunity to invest in a geared property fund offered by Quinlan Private in an asset in Knightsbridge in London, and wrote to Ms Margot Deacy of the Private Client Division of the Bank asking for a loan to enable him to part-finance his proposed investment in the Knightsbridge Investment.

Ms Deacy was aware that the Whitgift Geared Property Fund would shortly be available to market to clients of the Bank, and although she arranged for the loan to Mr Spencer, she also urged that Mr Spencer should consider the Whitgift option before finally committing himself to the Knightsbridge Investment

After numerous meetings and brochures regarding the Whitgift investment, in July 2005 Mr Spencer sent an email to the Bank confirming that he would not be proceeding with the Knightsbridge Investment – instead Mr Spencer would proceed with the Whitgift investment as encouraged by the Bank.

Mr Spencer gave evidence that he would have stayed with the Knightsbridge option if the Whitgift project had simply involved passive asset management. He had explained that while he would have been prepared to accept asset management in Knightsbridge given its prestigious location, he would not have done so in the case of Croydon.

In the years after his investment, Mr Spencer pursued with the Croydon planning authorities the issue of whether any application for development of the Whitgift Centre had ever been lodged. Justice Hogan opined that “in light of all that occurred… it was not surprising to learn that no such planning application for any development was ever subsequently lodged”.

The “irresistible inference” from the evidence of Ms Deacy – who fairly acknowledged Mr Spencer’s interest in the re-development potential of these projects within the Whitgift Centre - was that she persuaded him to avail of the Whitgift option and to cancel the Knightsbridge option, precisely because of the development potential associated with the Croydon project.

Justice Hogan was satisfied that “like many investors, Mr Spencer was probably influenced by a range of factors – but as observed in Donnellan v. Dungoyne Ltd. 1 I.L.R.M. 388, it was sufficient that the issue of development potential was “ a contributing factor in inducing the plaintiffs to undertake the contractual commitments to the defendant….”.

Conclusions

Distinguishing Mr Spencer’s case from McCaughey v. Anglo Irish Bank IEHC 54, Justice Hogan stated that the “veritable Pelion of misrepresentations heaped upon an Ossa of negligence” brought little credit to the Bank, and that “the conduct of the Bank fell below the standards of responsibility which this Court has every right to expect and demand from the holder of a banking licence and from that of its employees”.

The bank’s conduct had serious consequences for Mr Spencer in that by 2010 “the value of the equity of each investor dropped to nil” – a loss “subsequently crystallised by the sale of the underlying asset by the IBRC”.

Justice Hogan ruled that these were losses which Mr Spencer was “entitled to say he would have avoided but for these misrepresentations and negligence on the part of the Bank”.

Notwithstanding the truth in Mr Spencer entering into the investment knowing that it was high risk, Justice Hogan stated that “even those who invest in high risk projects are entitled to be protected by the law in respect of negligence and misrepresentation”.

Accordingly, Justice Hogan allowed Mr Spencer’s appeal and remitted the matter to the High Court for an assessment of damages.