The recent Supreme Court decision in Gallagher v ACC Bank (delivered on 7 June 2012) provided much needed clarification in relation to when the statute of limitations begins to run in tort claims relating to the mis-selling of financial products. It also highlights one of the potential dangers associated with claiming no transaction would have occurred but for the defendant’s negligence.
Mr Gallagher invested €500,000 in ACC’s “Solid World Bond”, borrowing 100% of the capital investment from ACC. Performance of the bond was index linked to a basket of shares. Although the value of the bond was guaranteed, in order to make a return, the basket of shares would have had to far outperform the rate of interest paid on the loan. In fact, the performance of the shares was insufficient to pay any of the loan interest and Mr Gallagher brought a claim against ACC for the interest paid. He commenced his legal action more than 6 years after he purchased the product and ACC argued the claim was consequently statute barred.
Charleton J in the High Court held that the claim was not statute-barred on the basis that Mr Gallagher did not suffer any “immediate loss” at the time he purchased the bond, but faced only a contingent liability, which the Judge noted was not ‘damage’ until the contingency occurs.
The Supreme Court disagreed. Mr Gallagher alleged that he had been induced by ACC’s negligence to invest in the bond, which was a “borrow to invest product” making it wholly unsuitable for him or any investor. He claimed that were it not for ACC’s negligence and misrepresentation he would not have entered into the transaction at all. In light of this the Court observed that it was “inescapable that the plaintiff’s claim as pleaded was that he suffered damage by the very fact of entering the transaction and purchasing the bond”. That was when cause of action accrued and the Court concluded that time should run from that date. As the proceedings were issued by Mr Gallagher more than 6 years after he purchased the bond, they were statute barred.
The Supreme Court made it clear that its decision was based on the facts of the case and that it was not possible “to lay down a rule capable of easy application in every case”. The investment was absolutely fixed in its duration and its nature and there was no active management or investment carried out during its term. The manner in which the case was pleaded as a ‘no transaction’ case also clearly influenced the decision. The Court noted that there may be other cases involving “a different kind of investment, especially one where obligations of management and investment were undertaken”, where the cause of action might not accrue until the end of the period of the investment.