In a judgment delivered on 26 June 2014 in Komady Limited & Michael O’Reilly v Ulster Bank Ireland Limited, the High Court dismissed a swaps mis-selling claim against Ulster Bank Ireland Limited (“UBIL”) on the grounds that the proceedings were issued outside the applicable time period of six years provided in the Statute of Limitations 1957 (as amended) (“the Statute”). The proceedings were dismissed further to a preliminary application brought by UBIL.
Arthur Cox successfully represented UBIL in the proceedings.
In June 2005, UBIL advanced facilities to the Plaintiffs, Komady Limited and Michael O’Reilly, for the purpose of acquiring and developing a site in Dublin. On 14 July 2006, the parties entered into two swap agreements, the purpose of which was to hedge the Plaintiffs’ interest rate exposure.
The Mis-selling Claim
On 23 November 2012, the Plaintiffs initiated proceedings against UBIL alleging that they had been negligently advised and induced to enter into the swap agreements, and that these agreements were not consistent with their conservative financial objectives. In this regard, the Plaintiffs alleged that, as a result of entering into the swaps, they were required to make more payments to UBIL on foot of the swaps than they would have had to if they had not entered into the swaps with UBIL at all. The Plaintiffs further claimed that they would not have entered into the swaps with UBIL had they been properly advised and aware of the risks involved.
These allegations were denied by UBIL and UBIL also pleaded, by way of a preliminary objection, that the claim against it should be struck out on the basis that it was brought outside the six year limitation period set out in the Statute. In response to this, the Plaintiffs sought to argue that the six year time limit provided in the Statute did not begin to run until 2012, when they first received advice from legal and financial experts that alleged that the swaps were not suitable for them.
On the application of UBIL, the High Court agreed that it was appropriate that the issue as to whether the proceedings had been issued in time within the meaning of the Statute be determined as a preliminary issue.
The preliminary issue was heard before Mr Justice Peart on 22 and 23 January 2014.
UBIL contended that time, for the purposes of the Statute, began to run against the Plaintiffs on entry into the swaps (i.e. on 14 July 2006) and that, since the proceedings were commenced more than six years after that date (i.e. on 23 November 2012), the claims were statute-barred.
In response, the Plaintiffs submitted that “the true nature” of the swaps was fraudulently concealed from them by UBIL, and that the six year time limit in the Statute therefore did not begin to run until 2012 when the Plaintiffs received legal and financial advice that alleged that the swaps were not suitable for them, and “the true nature” of the swaps became clear to them. The Plaintiffs sought to rely on section 71(1)(b) of the Statute which provides that, in cases of concealment of fraud, the six year time limit does not begin to run until the plaintiff has discovered the fraud or could, with reasonable diligence, have discovered it. In effect, the Plaintiffs argued that the failure by UBIL to advise them that the swaps were unsuitable for their objectives amounted to a concealment by fraud, thereby depriving the Plaintiffs of a fact vital to their ability to know that they had a cause of action against UBIL.
The Plaintiffs sought to bolster their argument in this regard by claiming that their relationship with UBIL was a fiduciary one, which carried with it a duty of care over and above the normal banker-customer relationship. The Plaintiffs claimed that this relationship affected the date from which time began to run against them for the purposes of the Statute and, in such circumstances, section 71(1)(b) of the Statute could be availed of “indefinitely”, meaning that the commencement of the six year limitation period would effectively be postponed until the Plaintiffs discovered the alleged fraudulent concealment or, with reasonable diligence, could have discovered it.
UBIL submitted in reply that the Plaintiffs knew all of the facts constituting their cause of action immediately after they entered into the swaps in July 2006, and that UBIL did not conceal any fact from the Plaintiffs which would have prevented them from initiating the proceedings at that stage.
Taking the judgment of the Supreme Court in Gallagher v ACC Bank plc  IESC 35 into consideration, Mr Justice Peart concluded that had any damage been suffered by the Plaintiffs as a result of entering into the swaps (which was not admitted by UBIL, nor was there any finding by the Court that any damage was in fact suffered by the Plaintiffs), it would have been suffered when the Plaintiffs entered into the swaps in July 2006 and the Plaintiffs’ cause of action, accordingly, would have accrued on that date.
Mr Justice Peart did not agree with the Plaintiffs’ argument that the existence of a fiduciary relationship (if one did exist, and no finding was made by the Court in this regard), added anything to the Plaintiffs’ case. In this regard, Peart J held that the simple fact was that the Plaintiffs knew everything they needed to know to get advice on the swaps when they entered into them on 14 July 2006, and they had ample facts at their disposal to bring a claim for mis-selling at that stage had they so wished. Mr Justice Peart noted, however, that the Plaintiffs did nothing until they ran into financial difficulty in 2012.
Accordingly, Mr Justice Peart concluded that the Plaintiffs’ claim was statute-barred and, in respect of the Plaintiffs’ attempt to “escape the rigours” of the “fatal effects of the six year limitation period”, Peart J held that the acts and omissions alleged against UBIL were not capable of constituting concealment by fraud of the Plaintiffs’ right of action in the sense envisaged by section 71(1)(b) of the Statute. The Court, therefore, dismissed the Plaintiffs’ proceedings as being statute-barred, noting the desirable saving both in terms of costs to the parties, and in terms of court time and resources by having this determinative issue decided at a preliminary stage.
With the growing number of mis-selling claims in respect of financial products coming before the Irish courts in recent times, this judgment brings helpful clarity to the rules governing when a cause of action accrues in cases of mis-selling and whether a failure to disclose all relevant facts by a financial institution can amount to fraudulent concealment so as to delay the start of the six year time period for Statute purposes. In addition, the comments of Mr Justice Peart are a welcome reminder of the potential merits, both in terms of saving court time and costs, of bringing preliminary applications in appropriate proceedings.Download PDF