Statute of Limitations analysed in investment cases
By Jennifer Noctor
08 June, 2017
In a judgment delivered 28 April 2017 [Cantrell v AIB PLC & Ors  IEHC 254], Mr Justice Robert Haughton determined whether a number of investor claims case were barred by virtue of the Statute of Limitations 1957 (as amended). Cases were analysed by reference to when actual loss occurred, which was determined in each case on the specific facts.
The claims made by the nine Plaintiffs in this matter were in relation to five investment schemes (called Belfry 2-6) managed by AIB. The Plaintiffs’ monies had been invested through trustee/nominee companies over a range of dates spanning 2003 to 2006. Each of the Plaintiffs invested a sum of money into their respective Belfry schemes and received a Prospectus that held largely the same information.
Although the Belfry schemes performed well in the beginning, by 31 March 2008 the value of the investments had decreased. Letters sent to the investors in September 2009 stated that the value had ‘eroded’ and/or had been written down as ‘nil’.
Proceedings commenced in August 2014, in which the Plaintiffs sought damages for breach of trust, breach of contract, damages for negligence and breach of duty including breach of statutory duty; damages for breach of fiduciary duty, damages for negligent misstatement, and damages for misrepresentations.
The Plaintiffs claimed that they were unaware that the majority of the investment funds were to be made up of debt funded by borrowings by each investment company, and only a small portion, roughly 20%, came from the equity of investors.
They also claimed that the loan to value covenants (LTV) covenants were not disclosed to them in the Prospectus or at any other time. These had the effect of triggering an automatic default when the value of the property purchased by the funds fell below the debt owing to the lender. In those circumstances the lender’s floating charge would crystallise and the lender would then be entitled to dispose of the charged assets howsoever it saw fit.
A number of issues were identified by the Court, namely:
- The accrual of a cause of action in tort
- Breach of fiduciary duty
- Fraudulent concealment (in that the Plaintiffs claimed that the LTV covenants were fraudulently concealed from them)
The preliminary issues that arose regarding the Plaintiff’s claims under the Statute of Limitations 1957 were decided as follows:
- Breach of Contract Claims:
These were found to be statute barred by virtue of s11(1)(a) of the Statute of Limitations Act 1957 as over 6 years had elapsed from the respective dates upon which the Plaintiffs entered into their investments before any proceedings were commenced.
- Accrual of Cause of Action in Tort:
However, while actionable wrong occurred when the investments were first entered into, a cause of action in tort did not accrue from this date as although there was a mere possibility of loss, overall there was no actual loss. The LTV covenant made no difference to this fact.
The Court noted that although the Plaintiffs’ had paid a commission to AIB on entry into the investments, this did not constitute actual loss.
In respect of Belfry 2 and 3, where investments were made in 2002, 2004, and 2005 there was no evidence that the investor suffered any actual or provable loss more than 6 years before her Plenary Summons was issued, so the claims in tort were not statute barred. This was based on the date of the audited accounts which had been signed off on by the Belfry directors. These were dated 7 July 2008, and showed no loss on the Plaintiffs’ initial investments.
However, in respect of the Belfry 4, 5, and 6 Investments, the claims were held to be statute barred. In respect of Belfry 4 and 5, investments had been made in 2003, but the Plaintiffs’ claims were found to have accrued on 7 July 2008, as this was the date when the approved audited accounts demonstrated actual loss. These claims therefore became statute barred on 8 July 2014.
Likewise, in respect of Belfry 6, where investments were in 2006, the Plaintiffs’ claims were also statute barred on the basis that the claims were found by the Court to have accrued on a date between 22 July and 5 August 2008, these being the dates in which financial statements showing loss were signed off on by the directors and letters were sent which included these financial statements.
- Claim of Fraud – the Loan for Value Covenant Claims
In relation to the Plaintiffs’ claims regarding the LTV covenants, it was held that only when the value of the shareholder investments in each fund were written down to nil in 2009 was there provable actual loss. The cause of action accrued from this date.
This finding was stated to be entirely without prejudice to the question of whether and to what extent these covenants caused the loss in value in the investments.
Their claims in this issue were not statute barred
While the court referred to a number of authorities in this area, such as the judgment of Fennelly J, who had stated in Gallagher v ACC Bank Plc:-
“The date of accrual…is the date when the plaintiff is in a position to establish by evidence that he has suffered damage. Mere possibility of loss is not enough for the cause of action to accrue.” (emphasis added)
And the statement of Finlay CJ in Hegarty v O’Loughran:-
“…a cause of action in tort has not accrued until at least such time as the two necessary component parts of the tort have occurred, namely, the wrong and the damage.” (emphasis added)
However, the court stated that the cases before it were very different on the pleaded facts, in particular regarding the delayed effect on the investments of the LTV covenants. It did, however, note that a number of guidelines and principles emerged from a reading of both Gallagher and Hegarty in relation to the issue of accrual in tort.
This case can be considered unusual in that it represented only a fraction of the cases that related to the Belfry investment schemes, featuring just nine Plaintiffs from a pool of over 300. It was noted that the judgment was to act as a ‘pathway case’ for future related proceedings as opposed to a ‘test case’, as although the determination would have precedential value for similar cases with similar facts, it would not apply automatically to the other proceedings.
This case follows the Brandley case in the Court of Appeal last year where again, actual damage was required before negligence/tort occurs.
These judgments create the possibility that Insurers and other defendants may, in specific circumstances, face a liability beyond the six years from the original act complained of where the damage / actual loss occurs at a later date. No matter what side of the fence you are on, detailed analysis of the facts is required.