High Court: Davy fails in application for further particulars of fraud case against company

About this case:

• Citation:
  [2022] IEHC 95
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Michael Twomey

In so ruling, Mr Justice Michael Twomey noted that nature of fraud meant that a full understanding of a fraudster’s actions would only become clear in the discovery process. As such, the court accepted that a balance had to be struck between a plaintiff providing particulars and obtaining/accessing relevant information through discovery.

Background

In November 2014, the plaintiffs sold bonds in Anglo-Irish Bank to a partnership called O’Connell Partnership. O’Connell was made up of 16 senior management employees in Davy. Additionally, Davy was also the stockbroking firm acting in the sale of the bonds to O’Connell. The net price paid was €5.3 million.

In April 2015, the first plaintiff’s agent stated that Davy did not have a fiduciary relationship with the plaintiffs and that the plaintiffs were aware that the bonds were being sold to Davy employees. In July 2015, the plaintiffs issued proceedings against Davy claiming that the bonds were sold at an undervalue and that Davy had acted in conflict of interest. The proceedings settled in February 2016, with the plaintiffs receiving €1,125,000 and confirming that there was no fiduciary relationship with Davy.

Subsequently, in March 2021, the Central Bank of Ireland investigated the transaction and fined Davy €4.13 million in respect of regulatory breaches and acting in conflict of interest. A 13-page report outlined Davy’s misconduct. The report highlighted failures in senior management to flag conflict of interest and the misleading internal compliance function of senior management.

The plaintiffs issued proceedings in April 2021 against Davy and O’Connell Partnership for fraud and conspiracy. It was alleged that a Davy employee, Mr Tony O’Connor, failed to disclose the identity of the purchasers of the bonds, stating that it was a client of Davy. It was also alleged that fraud took place during the 2015 settlement where it was falsely represented that Davy had no association with the O’Connell Partnership.

As such, the plaintiffs sought to set aside the 2015 settlement and sought damages for Davy’s actions. Davy later issued a motion seeking further particulars of the plaintiffs’ claim.

In response to the motion, the plaintiffs submitted that considerable detail had been provided already to the defendants, including details of transactions, people, dates and the contents of conversations. It was said that, inter alia, details had been provided of the representations and the failures to disclose information which led to the proceedings, as well as the particular dates that those events occurred.

The plaintiffs also relied heavily on the Central Bank report in the pleadings and the defendants claimed that this document was inadmissible evidence in the proceedings.

High Court

Mr Justice Twomey considered the case law on the issue of providing better particulars of pleading in a context of fraud allegations. It was noted that there were competing interests in claims of fraud, where the defendant has to be sufficiently informed of the case to meet at trial, but where the defendant has likely attempted to conceal their wrongdoing. As such, a plaintiff can face difficulties in providing particulars at an early stage in the proceedings before discovery.

It was noted that very precise pleadings of fraud may significantly limit the scope of discovery which may later be provided, which in turn could mean that a plaintiff was barred from pursuing subsequent allegations at trial (National Educational Welfare Board v. Ryan [2008] 2 I.R 816).

It was emphasised in Keaney v. O’Sullivan [2015] IESC 75 that a balance had to be struck between providing proper particulars of a claim and waiting for discovery to fully narrow the issues. It was held that no latitude should be provided to a plaintiff making a bare allegation of fraud. However, where a prima facie case in fraud is pleaded then that person should not be required to narrow the claim via a motion for particulars prior to discovery and interrogatories.

The court applied the case law to the facts and considered the plaintiffs’ pleadings. It was first noted that the admissibility of the Central Bank report was not a matter to be dealt with at this stage in the proceedings. Having considered the details of pleading and the findings in the Central Bank report, the court held that a prima facie case of fraud had been made out by the plaintiffs.

The defendants had a reasonable picture of the alleged fraud, the court held. Further, the court noted that the core of the case was not complex and, accordingly, there was less need for particularisation of the claim (Quinn Insurance Ltd. (Under Administration) v. Pricewaterhousecoopers (A Firm) [2019] IESC 13).

Conclusion

The court refused to order the further particularisation of the plaintiffs’ claim on the basis that a prima facie case of fraud had been made out by the plaintiffs.