Nature of claimsCommon causes of action
What are the most common causes of action brought against banks and other financial services providers by their customers?
The most common claims brought against banks and other financial service providers in Ireland relate to the misselling of financial products and mismanagement of investment funds. These types of claims will often involve an allegation that the financial service provider committed the torts of misrepresentation and negligent misstatement. A claim may also be brought in tort for breach of a duty of care.
Other causes of action include claims for breach of contract, breach of fiduciary duties and negligence. Civil liability for misstatements in a prospectus also arises under section 1349 of the Companies Act 2014.
An increasingly common type of claim in the Irish financial market is action arising from enforcement actions by either secured lenders or purchasers of non-performing loans. Typically, these actions are injunctive actions taken by borrowers. The Court of Appeal in Tanager v Kane  IECA 352 recently confirmed the enforceability of assigned security rights in loan portfolio sales to banks and private equity funds.
Claims against financial service providers in Ireland have increased in recent years owing to the tracker mortgage scandal whereby it emerged that banks had wrongly refused customers access to tracker mortgages after the economic crash. The Central Bank of Ireland (CBI), which regulates financial services providers in Ireland, identified that more than 30,000 customers have been affected by the tracker mortgage scandal. In May 2019, the CBI issued its first administrative sanction on one of the banks involved in the scandal, imposing a record fine of €21 million. It is anticipated that there will be further fines on other banks in due course.
Financial service providers in Ireland are subjected to regulatory duties enforced by the CBI. The CBI has set out a number of statutory codes of conduct, including the Code of Conduct on Mortgage Arrears, which set out the requirements that regulated firms must comply with when dealing with consumers in order to ensure the protection of consumers. At present, there is legal uncertainty as to the application of these codes of conduct in private law proceedings. Pursuant to section 44 of the Central Bank (Supervision and Enforcement) Act 2013 provides that any failure by a regulated financial service provider to comply with any obligation under financial services legislation is actionable by the customer who suffers loss or damage as a result of such failure.Non-contractual duties
In claims for the misselling of financial products, what types of non-contractual duties have been recognised by the court? In particular, is there scope to plead that duties owed by financial institutions to the relevant regulator in your jurisdiction are also owed directly by a financial institution to its customers?
The existence of several non-contractual duties has been argued before the Irish courts; for example, the duty of good faith and fair dealing. However, in Flynn & Anor v Breccia & Anor  IECA 74 (Flynn) the Court of Appeal upheld the position that Irish contract law does not recognise a general principle of good faith and fair dealing, although there are certain limited categories of contractual relationships that imply such duties, such as partnership agreements.
Similarly, attempts to establish other tortious causes of actions against financial service providers, such as a tort of ‘reckless lending’, have been dismissed by the Irish courts (see ICS Building Society v Grant  IEHC 17). In Haughey v J&E Davy, Bank of Ireland Mortgage Bank and Bank of Ireland  IEHC 206 the plaintiff did, however, successfully establish that the bank owed him an advisory duty in tort.
The CBI’s Consumer Protection Code 2012 also imposes regulatory duties on financial institutions as to their dealing with consumers, including advisory duties. The duty to advise extends to payment protection insurance, and a prohibition against advising a consumer to carry out an investment or take a loan that is beyond their means or not in their best interest. If the misselling of financial products involved a breach of this advisory duty then the financial institution could be held liable for a regulatory penalty. As noted in question 1, it is uncertain as to the application of these codes of conduct in private litigation; however, a customer who has suffered loss as a result of a financial service provider’s failure to comply with any obligations under financial services legislation may bring proceedings.Statutory liability regime
In claims for untrue or misleading statements or omissions in prospectuses, listing particulars and periodic financial disclosures, is there a statutory liability regime?
Section 1349 of the Companies Act 2014 establishes a statutory regime for civil liability arising from untrue statements or omissions in prospectuses. Criminal liability is addressed under section 1357 of the Companies Act 2014. The Act provides for the payment of compensation to those who have acquired securities on the faith of a prospectus that contains an untrue statement or an omission of information required by EU prospectus law to be contained in the prospectus. The statutory regime does not explicitly rule out the possibility for common law claims that might include causes of action arising from misrepresentation. Those persons most likely to find themselves subject to civil liability under the Act include, inter alia:
- the issuer of the prospectus;
- the offeror of securities to which the prospectus relates;
- the guarantor of the issuer of securities to which the prospectus relates;
- every person who is a director of the issuer at the time of the issue of the prospectus; and
- every promoter of the issuer. The Act does not specify jurisdiction.
In Walsh v Jones Lang LaSalle Ltd  IEHC 38 the Irish Supreme Court noted that a disclaimer in a prospectus could limit liability for negligent misstatement if it was clear that the reader should take all responsibility to ensure the information was accurate. However, the court did note that an adviser has a duty to make sure the information is reasonably accurate. In Spencer v Irish Bank Resolution Corporation Ltd  IECA 346, the Court of Appeal found that a financial institution could be liable for negligent misstatements in prospectuses or brochures even if they are not legally binding.Duty of good faith
Is there an implied duty of good faith in contracts concluded between financial institutions and their customers? What is the effect of this duty on financial services litigation?
In Flynn the Irish Court of Appeal upheld the position that Irish contract law does not recognise a general principle of good faith and fair dealing, although there are certain limited categories of contractual relationships that imply such duties (see question 2).
However, there is a requirement of good faith within the meaning of Directive 93/13/EEC on unfair terms in consumer contracts (Unfair Terms Directive), which mandates fair and open dealing by a bank with the result that contractual terms must be expressed fully, clearly, and legibly with suitable prominence given in the contract to any disadvantageous terms. This was highlighted relatively recently in the case of Allied Irish Banks plc v Peter Counihan & Anor  IEHC 752 (Counihan).Fiduciary duties
In what circumstances will a financial institution owe fiduciary duties to its customers? What is the effect of such duties on financial services litigation?
A fiduciary relationship will typically arise between an investment adviser and a customer and a breach of that duty will occur where an investment adviser places him or herself in a conflict of interest position or earns a commission that is secret from the customer. Whether such a fiduciary relationship exists is a question of fact to be determined by examining the specific facts and circumstances of each case.
In Irish Life & Permanent plc v Financial Services Ombudsman  IEHC 439 the High Court noted that the banking system is, by its nature, a highly regulated one, which is, or at least, ought to be, based on trust. In Irish Bank Resolution Corporation Ltd (In Special Liquidation) v Morrissey  IEHC 527 the court observed that the existence of a commercial relationship governed by a contract between parties of equal status is a strong indicator that a fiduciary relationship does not exist. The decision clarifies that as a general principle, the relationship between a lender and borrower does not involve a fiduciary relationship under Irish law. This is especially so where each party acts in its own commercial interest and the commercial relationship is governed by a written contract. Although the court did not comment definitively on the criteria required to elevate the lender-borrower relationship to that of a fiduciary, it would appear that the interests would need to be closely aligned, that the risks and rewards are shared on a more equal basis, with the borrower actively advising the lender with regard to the use of the loaned moneys. Accordingly, it would appear that a fiduciary relationship between lender and borrower is likely to arise only in very rare cases.Master agreements
How are standard form master agreements for particular financial transactions treated?
The International Swaps and Derivatives Association Inc (ISDA) produces industry standard documentation to facilitate a more efficient and safer derivatives market. As of July 2018, the ISDA now offers Irish and French law-governed versions of its master agreement, to add to its existing English and New York counterparts. One of the reasons for this decision was to provide market participants with an EU option once the United Kingdom withdraws from the EU. The ISDA has noted that the United Kingdom may become a third-country, meaning that the decisions of the English courts would no longer be automatically recognised and enforced across the European Union or European Economic Area. If an ISDA agreement is entered into between the parties and they agree to be governed under Irish law, then the Irish courts will have jurisdiction over any proceedings that might arise from the agreement. Consequently, under the Brussels Recast Regulation an Irish judgment would benefit from automatic recognition across the European Union. Given that this is a very recent development, the Irish courts have not yet been called upon to consider the interpretation of the standard form and there has not been a significant amount of litigation as a result.Limiting liability
Can a financial institution limit or exclude its liability? What statutory protections exist to protect the interests of consumers and private parties?
Under the CBI’s Consumer Protection Code, a financial services provider is precluded from seeking to restrict or exclude:
- any legal liability or duty of care owed to a consumer;
- any duty to act with skill, care and diligence that is owed to a consumer in connection with the provision to that consumer of financial services; or
- any liability owed to a consumer for failure to exercise the degree of skill, care and diligence that may reasonable be expected of it in the provision of a financial service.
Recent case law in this area suggests a reluctance of the court to enforce exclusion clauses and limitations of liability against a consumer.
In McCaughey v IBRC Ltd & Anor  IESC 17, an exclusion clause that limited liability to acts of fraud only was deemed to be at total variance with the relationship of trust that is to be expected between a bank and a consumer. It was further noted that exclusion clauses should be specifically brought to the attention of the consumer. In AGM Londis plc v Gorman’s Supermarket Ltd  IEHC 95 it was noted that the court would consider the relative bargaining positions of the parties in the context of upholding an exclusion clause.
The general position is that the enforcement of an exclusion clause will depend upon the consumer’s level of knowledge coupled with the efforts of the financial institution to highlight the exclusion clause. Exclusion clauses must be carefully drafted as any ambiguity will be generally determined in favour of the consumer.
For private parties that do not come under the definition of consumer, a less stringent approach is taken. For consumers who sign a standardised form, an exclusion clause may also fall within the European Communities (Unfair Terms in Consumer Contracts) Regulations (Unfair Terms Regulation) (SI 27/1995) and could be found to be void under article 6(1). This was successfully pleaded in Start Mortgages Ltd v Hanley  IEHC 320 in relation to a repayment clause in a mortgage.Freedom to contact
What other restrictions apply to the freedom of financial institutions to contract?
In Ireland, a distinction has been made by the courts between financial institutions levying permissible fees and charges against consumers as a genuine pre-estimate of loss caused by the breach of contract, and punitive penalty clauses that are not a genuine pre-estimate of loss. Any clause that is interpreted by the court to be a penalty clause will be void and unenforceable. The Irish Court of Appeal recently upheld this traditional test in Sheehan v Breccia & Ors and Flynn & anor v Breccia  IECA 273. The Court held that the traditional test will apply until the Supreme Court is asked to examine the issue of penalty clauses.
The principle of contractual estoppel applies in Ireland and was recently considered in Counihan. In this case, the parties claimed that the bank should be estopped from enforcing the loan contract because it had made prior representations to the couple that it would not seek to enforce it. Although the application was refused on the facts of the particular cases, the decision highlights the option for a remedy of contractual estoppel in financial services litigation in Ireland.Litigation remedies
What remedies are available in financial services litigation?
The most common remedy for claimants is damages. In equitable claims or claims for misrepresentation, recession or rectification of the contract may be available to the injured party in certain circumstances. Damages can be nominal, contemptuous, punitive, aggravated or compensatory. Irish courts tend to award compensatory and not punitive damages, meaning that the courts look to the damage done rather than punishing the offender and deterring others.
Other remedies that may be available in Ireland include an order for specific performance of the contract, injunctive relief or declaratory relief, depending on the particular circumstances of the case.Limitation defences
Have any particular issues arisen in financial services cases in your jurisdiction in relation to limitation defences?
The law regarding limitation periods in Ireland is outlined in the Statute of Limitations 1957 and 1991, the Civil Liability Act 1961 and the Civil Liability and Courts Act 2004. The majority of financial services disputes relate to matters of contract law or tort, where the usual limitation period is six years. This was recently confirmed in Geoghegan v Financial Services Ombudsman & Ors  IEHC 217, which clarified that the limitation period for misselling claims, begins to run from the date of the sale of the financial products.
Two Irish cases have recently considered the time from which the clock begins to run for cases of misrepresentation within a financial setting, whether it is when the contract was entered into, or when the loss occurred. In Gallagher v ACC Bank  IESC 35, the Supreme Court found that the limitation period is calculated from when the loss occurred; however, the clock may not begin to run if there is only a mere possibility of loss. On the facts of Gallagher, the court noted that there was an immediate loss at the point that the contract was entered into, therefore the clock began to run from that point onwards. It was acknowledged that in scenarios of alleged deviation from investment strategies or mismanagement, the cause of action may occur after the original investment date.
Similarly, in Cantrell v AIB PLC & Ors  IEHC 254, the court determined that if the claims arose from negligence or breach of fiduciary duty, the clock would only begin when the tort was complete (ie, when the loss occurred).
The Financial Services and Pensions Ombudsman Act 2017 extended the time limit for bringing certain financial complaints, specifically relating to long-term financial services. Section 51 of the 2017 Act provides that such complaints against a financial services provider can be made:
- on the later of six years from the date of conduct giving rise to the complaint;
- three years from the earlier of the date on which the person became aware, or ought reasonably to have become aware, of the conduct giving rise to the complaint; or
- within such longer period as the Ombudsman may allow where it appears to him or her that there are reasonable grounds for requiring a longer period and that it would be just and equitable, in all the circumstances, to so extend the period.
Actions for insider trading, unlawful disclosure of inside information and market manipulation under the Companies Act 2014 are subject to a two-year limitation period.