Cantrell and Others v Allied Irish Banks plc and Others  IECA 217
In a significant ruling on the application of the Statute of Limitations in financial mis-selling claims, the Court of Appeal has reconfirmed that time will start running once a claimant first begins to suffer actual loss – notwithstanding that this may arise at a point long before the claimant ever becomes aware of that loss and the accrual of a cause of action.
Background to Case
Between 2002 and 2006, the plaintiffs invested in a number of property investment schemes of which AIB acted as promoter and placing agent. Funding for these investment schemes, more commonly known as the Belfry Funds, was raised through a mixture of equity and bank borrowings. Bank borrowings negotiated as part of these investments were subject to LTV (loan to value) covenants which meant that, in the event of the value of any property purchased falling below 80% of the sums borrowed, there would be an automatic event of default and the crystallisation of a floating charge, which would entitle the lender to dispose of the investment properties. While these investments were initially profitable, their value went into decline from 2008 with the borrowings going into default. The plaintiffs issued proceedings in 2014 alleging breach of contract, negligent misstatement and negligent misrepresentation against AIB, the directors of the Belfry Funds and others.
It was a key part of the plaintiffs' cases that they were not made aware of the LTV covenants at the time of their investment in the Belfry Funds and in particular that their investment would be entirely wiped out if property values fell and the lender chose to activate its powers under the LTV covenants. The plaintiffs relied on a letter expressing concern regarding the property values which they received in August 2008 and pleaded that it was not until either then, or September 2009 when they received year end financial statements, that they knew of the LTV covenants, the losses suffered and that the lender had forced a sale of the properties.
High Court Ruling
The High Court (Haughton J) found that the plaintiffs were not statute barred in bringing their claims for misrepresentation and negligent misstatement and concluded that they did not suffer actual loss on entering into their investments. While they did undergo risk, this was not to be equated with damage since their investments were capable of making a profit – and did do so in their early years. In Haughton J's view, the mere existence of the LTV covenants did not constitute a loss since there was only a possibility at the time of investment that the LTV covenants would have an impact and this was conditional upon a significant decrease in property values. Such a possibility of loss did not amount to "actual loss" and on this basis the plaintiffs' cause of action did not accrue on entering into the investment agreements. In the case of one of the plaintiffs, the first time that the funds were shown to have actually fallen in value was in the property updates of March 2009. As no loss had occurred until that time, no cause of action could be said to have accrued.
Court of Appeal
In a ruling given on 18 July 2019, the Court of Appeal allowed an appeal against Haughton J's decision and found that the plaintiffs' claims in negligence should be considered statute barred as proceedings issued more than six years after their cause of action had accrued.
In reaching its decision, the Court of Appeal considered the applicable legal principles in respect of when time should be considered to run in financial mis-selling claims, finding that a claimant's cause of action accrues from the point where damage has become manifest. Applying these principles to the Belfry Funds plaintiffs, the Court of Appeal disagreed with the approach taken by the High Court and its view that damage only became manifest at the time that the plaintiffs' losses were presented as part of the audited accounts.
In reaching its decision, the Court of Appeal applied the Supreme Court's ruling in Gallagher v ACC Bank and found that the claims made by the plaintiffs in relation to the LTV covenants could be characterised as claims that they were sold unsuitable financial products and were not informed of the risks involved at the time of purchase. On this basis, damage had been suffered by the very fact of entering into the investments.
In the Court of Appeal's view, since the causative connection between the alleged negligence and the damage suffered was based on the existence of the LTV covenants and the ultimate loss of value of the investment, it was therefore the inclusion of the LTV covenants in the borrowing arrangements that constituted the damage and "actual loss" suffered by the plaintiffs. At the time that the LTV covenants were agreed to, there was a defect which was not latent but was one capable of being discovered on enquiry. As such, had the plaintiffs sued after the borrowings had been agreed, they would have had a stateable and provable cause of action that the investment purchased was different from the one represented to them. Although the assessment or measurement of that loss might prove difficult, in the Court of Appeal's view, there was still a loss which could be ascertained with the benefit of expert evidence.
Having reached its decision that the claims in negligence were statute barred, the Court of Appeal remitted the case back to the High Court for consideration as to whether there may have been any element of fraud involved, in which case the limitation period may not have run from the date on which the borrowings containing the LTV covenants were agreed.
As is evident from the Court of Appeal's ruling and from previous decisions of the Supreme Court, there are "special difficulties" presented by the application of the Statute of Limitations in financial mis-selling claims. The operation of the Statute can often result in an injustice to parties who have suffered significant financial losses in circumstances where, as here, the plaintiffs contended that they did not have any actual knowledge of the losses on their investments and the existence of the LTV covenants until years after the date of their original investment – by which time their claims had become statute barred.
In its judgment, the Court of Appeal noted the introduction of a "discoverability" test in relation to personal injuries claims in order to safeguard claimants against the harsh effects of the Statute of Limitations. In the case of financial mis-selling claims, it will similarly require the Oireachtas to legislate for an amendment to the Statute of Limitations to deal with these types of claims, if it wishes to do so.