Brendan McEneaney & Others v Ulster Bank Ireland Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Andrew Smith |
| Judgment Date | 09 November 2015 |
| Neutral Citation | [2015] EWHC 3173 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2015 Folio164 |
| Date | 09 November 2015 |
[2015] EWHC 3173 (Comm)
Mr Justice Andrew Smith
Case No: 2015 Folio164
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Geraint Jones QC and Mr Phillip Aliker (instructed by Johnsons Solicitors) for the Claimants
Ms Patricia Robertson QC and Mr Adam Zellick (instructed by Pinsent Masons) for the First Defendant
Mr Ewan McQuater QC and Mr Matthew Parker (instructed by Jones Day) for the Second Defendant
Hearing dates: 13, 14 and 15 October 2015
The Applications
There are before me applications in seven consolidated actions.
i) By an application notice dated 24 October 2014 the claimants in five of the actions seek permission to amend the claim forms;
ii) By an application notice dated 31 March 2015 the claimants in the same five actions seek permission to amend their particulars of claim; and
iii) By an application notice dated 17 July 2015 the second defendants in all seven actions seek to have the claim forms and the particulars of claim struck out, or to have summary judgment entered in their favour.
The Background
The proceedings concern a property at 5 Canada Square, Canary Wharf, London E14 (the "Property"). On 23 July 2007 a wholly owned subsidiary of 5 Canada Square Holdings Limited (the "Company"), which is incorporated in Jersey, acquired the shares in Rhodium Investments 2 Limited ("Rhodium 2"), who owned the freehold, and Drummond Investments Limited ("Drummond"), who had a leasehold interest, and so acquired indirect ownership of the Property. (Rhodium 2 and Drummond were referred to in some of the documentation as the "Targets" and I shall adopt this expression.) According to the claimants, it was acquired from the Royal Bank of Scotland ("RBS") for some £453 million, using (i) debt finance provided by the Bank of Scotland, by way of facilities of £348,350,000 and bridging finance of about £63,350,000, and (ii) an initial equity investment of £40 million.
The Property had apparently been valued on 19 July 2007 at £466.5 million. Thus, the loan to value ratio ("LTV") was just under 75%. By 23 July 2008 it was valued at only £410,850,000. In July 2009 the first defendant, Ulster Bank Ireland Limited (the "Bank") referred in a letter to investors to an investment value of £322 million, observing that the value had "substantially reduced from its peak".
The second defendants, Evans Randall Investment Management Limited ("ER"), are a company in an investment banking group that specialises in real estate investments. They acted as advisers to the Company. They prepared and approved an Investment Memorandum dated 5 September 2007 (the "IM") that invited offers for shares in the Company (and also for units in a trust, the "Exempt Trust", that was to invest in shares in the Company, but the Exempt Trust is not important for present purposes). The claimants contend that, while ER present themselves as no more than advisers to the Company, in reality the scheme was "entirely arranged, orchestrated, managed and dictated by ER and its personnel".
The IM stated that in relation to offers ER were not "responsible for providing potential investors with the protections which it gives to its clients for advising them in relation to the investment and it owes no duties under the [Financial Services and Markets Act, 2000 (" FSMA")] regulatory regime to any person other than to the Company and the Exempt Trust". It was recommended that prospective investors "seek advice as to whether this is a suitable investment for them from an appropriately authorised and qualified independent financial adviser". Various risks of investing were specifically identified.
The IM contemplated that generally investors should subscribe directly for shares in the Company. However, because of the tax regime there, it contemplated that investors domiciled in the Republic of Ireland should not become direct shareholders in the Company, but should invest by subscribing for shares in a Maltese company called Canada Square (Malta) Plc, which in turn owned another Jersey company, Canada Square (Jersey) Limited (the "Jersey company"), which in turn subscribed for shares in the Company.
The IM included an "Application Form for Irish Investors", which was addressed to the Maltese Company and which the applicants were to sign. It stipulated a minimum investment of £200,000, but this was subject to the ER's discretion to accept smaller amounts of not less that the equivalent of €50,000 (a power that, of course, might have been used in particular if the investment had been oversubscribed). The application was to be accompanied by a draft for the investment payable to "Ulster Bank Wealth", which is a division of the Bank. The application form also provided for the applicant to give various covenants, including these:
i) "The Applicant irrevocably offers to invest the sum specified … and to become an investor in the [Maltese] Company".
ii) "The Applicant undertakes to the [Maltese] Company that the [Maltese] Company may rely on the offer made by the Applicant to subscribe for Investments in the [Maltese] Company pursuant to the Memorandum and accordingly this offer may not be cancelled, rescinded or otherwise revoked after the date [of the application]. The Applicant agrees to accept the Investments allocated to him whether the number applied for or a lower number".
iii) The Applicant gave a warranty to the [Maltese] Company and [ER] that he "is making an investment based solely on the information contained in [the IM] and not on any other oral or written statement by the [Maltese] Company, [ER], any placing agent or any partner, officer, director, employee, shareholder or affiliate of any of them".
The IM contemplated that investors should give powers of attorney to act on their behalf in connection with their investments to two named persons, said by the claimants to be directors of the Maltese company and described in the IM as being "of ER", and to any director of the Maltese Company.
The claimants in the seven actions are mostly residents of the Republic of Ireland, one of them, Calry Properties Limited, being a company resident in Northern Ireland. They claim in respect of investments made in the Company between September 2007 and April 2008 through shares and loan notes of the Maltese company. There were 80 claimants in the five actions, if joint investors, such as man and wife, are counted together. Apparently some 18 of the claimants had not in fact invested. However, those claimants and some others, a total of 26, have served notices of discontinuance. It might be that the notices are not effective: CPR 38.2(2)(c) provides that "where there is more than one claimant, a claimant may not discontinue unless — (i) every other claimant consents in writing; or (ii) the court gives permission", I was not told whether other claimants had so consented and the court's permission for discontinuance has not been sought. However that may be, it seems that about 54 claimants wish to pursue claims.
The Bank distributed the opportunity to invest in the Company in Ireland, and all of the claimants but one, a Dr Maccon Keane, were introduced to the investment by the Bank. Dr Keane makes no claim against the Bank: he has served his own separate particulars of claim seeking relief against only ER. (The CPR contemplate that all claimants will serve a single pleading, but no complaint was made about that at the hearing before me.) The claimants say that in some cases, but not all, the Bank provided them with the IM, and in some other cases the Bank is said to have used a four page "summary" to introduce the investment. There is an issue, to which I shall return, about whether the Bank was acting as agent for ER.
The claimants delivered their signed application forms to the Bank between September 2007 and May 2008. The Bank transferred investment funds to the Maltese company to a total of £13,130,000 between about 11 January and 24 February 2008. The Maltese company used the money to subscribe for shares in the Jersey company, which in turn used it to subscribe for shares in the Company. By the end of May 2008, according to the evidence of Mr Adam Brown, a partner in Jones Day, ER's solicitors, the investments of all but six of those claimants who actually did invest had been transferred to the Maltese company, or, in the case of Calry Property Limited, the Company. Share certificates and loan notes were issued to most of the claimants between 22 February 2008 and 5 November 2008, but three claimants were issued with share certificates and loan notes only on 16 October 2009. The scheme closed in October 2008: in a letter to investors dated 9 July 2009 the Bank explained that, in order to close the scheme, (i) preferential equity investment of £25 million paying an accrued 12% annual return for the term of the investment had been accepted from a Luxembourg based fund, which was advised by ER; and (ii) in order to repay the bridging loan the Bank of Scotland had increased its facilities by £4 million. The claimants contend that, by the time that the bridging loan was renewed in August 2008, ER knew that the Property had been given a reduced valuation of £410 million in July 2008, they must have known that there was virtually no prospect of raising subscribed investment of £90 million, and they knew that the LTV covenant in the facilities had been substantially breached.
In the letter of 9 July...
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