Michael Carney v N M Rothschild & Sons Ltd
| Jurisdiction | England & Wales |
| Judge | Waksman |
| Judgment Date | 01 May 2018 |
| Neutral Citation | [2018] EWHC 958 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Claim No. LM-2016-000117 |
| Date | 01 May 2018 |
[2018] EWHC 958 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES (QBD)
LONDON CIRCUIT COMMERCIAL COURT
HIS HONOUR JUDGE Waksman QC
(sitting as a Judge of the High Court)
Claim No. LM-2016-000117
Nicholas Yell (instructed by Carter-Ruck, Solicitors) for the Claimants
Richard Hanke (instructed by Freshfields Bruckhaus Deringer LLP, Solicitors) for the Defendant
Hearing dates: 16–19, 23–26, 29–30 January and 5 February 2018
INTRODUCTION
This is a financial mis-selling claim brought by two sets of Claimants, Mr and Mrs Carney and Mr and Mrs Fox, who at all material times were British expatriates resident in Malaga and Alicante, Spain, respectively.
The Defendant bank, NM Rothschild & Sons Limited (“the Bank”) entered into loan agreements (“Loan Agreements”) with the Claimants on or about 13 March 2006 and 3 November 2005. By such agreements the Bank advanced €292,500 to Mr and Mrs Carney (“the Carney Loan”) and €750,000 to Mr and Mrs Fox (“the Fox Loan”).
The purpose of the Loan Agreements was to advance funds to the Claimants for the purpose of investing into a fund known as the “Optima 2 Fund” provided by a Luxembourg company called Aspecta Assurance International Luxembourg SA (“Aspecta”) which also provided a life-insurance “wrapper”. The underlying investment was in Notes issued by Barclays Bank plc which in turn represented investments into three highly rated (AA or AAA) funds known as Gartmore Investment Funds, Mellon Global Funds plc and Permal FX, Financial and Futures Limited.
Barclays gave a capital guarantee on the Notes so that at maturity (10 years) the Claimants would receive back approximately 100% of the capital invested.
The loans to the Claimants were secured by these investments and also their (previously unencumbered) properties in Spain.
The loans also allowed for up to 5% of the sum advanced to be drawn down immediately for general use. Furthermore, and depending on the performance of the investments, they could take up to 3% of the value of the investment each year as income drawdown. Finally, they had the option of rolling up interest so that it was payable only at maturity. In making the loans the Bank applied a LTV ratio of 75% as far as the properties were concerned.
Although the Loan Agreements were made with the Bank, it was the Bank's Guernsey subsidiary, now known as Rothschild Bank International Ltd (“RBI”) which dealt with this on the ground, as it were.
There is a very considerable dispute about the nature and extent of the role of the Bank in its dealings with the Claimants prior to the making of the Loan Agreements and the investment. But there is no doubt that the investment was in any event promoted by an independent financial adviser (IFA) called Henry Woods Investment Management (“HW”) which seems to have been the trading name of Henry Woods Associates S.L., based in Marbella. Neither Aspecta nor its predecessor for these purposes, the Premier Group (“Premier”), marketed their investments directly to investors but rather went through IFAs such as HW. The main representatives of HW who dealt with the Claimants were Terry Morgan and Donald Nott respectively.
In the event, the investments underperformed. No doubt this was partly due to the financial crash of 2007–2008 but it seems also to have been due also to a desire on the part of Barclays to deal with the investments conservatively and avoid risk so as to ensure that it would not have to use its own funds to repay the guaranteed amount at the end of the day; but by the same token this reduced the opportunity to make profits. Whatever the cause, it is not suggested (and there is no evidence) that the investments themselves were other than proper.
In the case of Mr and Mrs Fox, having seen what happened with the investment, they terminated it early and invested elsewhere.
At the time when these proceedings were issued in 2016, Mr and Mrs Carney owed about €125,000 under the Carney Loan and Mr and Mrs Fox owed about €242,000 under the Fox Loan. Their houses in Spain, therefore, all remain at risk.
The Claimants allege that the Bank acted as their adviser as to the suitability of the investment and its risks and also in particular as to its efficacy as a way of avoiding the Spanish version of inheritance tax (“ISD”) in relation to their properties. This was of concern to them because the local tax rate was very high and would apparently impose a direct liability on any of the beneficiaries of the properties on the death of one or more of the Claimants. A core allegation made by all the Claimants is that the Bank's representative, Mr Stephen Dewsnip, made a number of serious misrepresentations about the investments and the tax position in particular (a) at a cocktail party at the Alhaurin Golf Club, Malaga on 4 October 2005 attended by Mr and Mrs Carney among others (“the Cocktail Party”), and (b) at a lunch hosted by Mr and Mrs Fox at their home on 10 October 2005 (“the Lunch”).
The broad thrust of the Claimants' case is that the Bank, through Mr Dewsnip and also through certain documents, some produced by HW but for which the Bank was responsible, advised that this was a very good and safe investment, that it would have the additional effect of taking the value of their properties which stood as security, out of their Spanish estate for the purpose of IHT, thereby substantially reducing the IHT burden on their survivors, and that they could have confidence in the investment and their ability to repay the loans because of the imprimateur of the Bank which had a 200-year-old history and a reputation for being careful and cautious with clients' money.
In fact, say the Claimants, the overall scheme was very risky, it did not generate sufficient funds to be able to repay the interest, the fees charged (which depleted the amount of money which could be invested) were significantly more than and different from what they had expected; further, the tax position was not as they had been led to believe although (fortunately for the Claimants) the tax position as it affects their properties has yet to be tested.
Mr Carney is now 73, as is Mrs Carney. Mr Fox is now 85 and his wife is 83. So in 2005 they were 60, 72 and 70 respectively.
The sole claim made against the Bank by the Claimants is pursuant to s140A and s140B of the Consumer Credit Act 1974 (“the Act”). That is to say, an unfair relationship arose between the Claimants and the Bank out of the Loan Agreements. The principal relief claimed is the removal of their present indebtedness to the Bank under the Loan Agreements and the discharge of the security.
The Bank denies all the key legal and factual allegations made by the Claimants.
THE EVIDENCE
I heard from all the Claimants. I also heard briefly from Geoffrey Hewgill, and Steve Bicknell, and received a witness statement from Karen Douglas who were all further dissatisfied investors. There was also an affidavit admitted as a hearsay statement from Katherine Dillon who was involved in the same scheme but as a financial adviser working for an IFA in Spain called Hamiltons Financial Services (“Hamiltons”).
In this trial, HW, as the IFA at the time, has been conspicuous by its absence. The Claimants had intended to call Mr Nott whose witness statement effectively placed all the responsibility for recommending and advising on the scheme upon the Bank. But shortly before the trial was due to start, the Claimants' solicitors said that they had decided not to call him. It was not suggested that he was unable to give his evidence nor was his witness statement sought to be put in as a hearsay statement. It is difficult to avoid the inference that if he had come to give evidence it might have been difficult for him to sustain his account of matters.
For the Bank I heard from Mr Dewsnip who was a director of RBI in the period 2004 – 2006, managing marketing and business development for RBI's Private Client Department. He subsequently left the Bank. I also heard from Claire Whittett, a director of RBI and Head of Lending at the time, Christopher Coleman, a managing director at the Bank, Group Head of Banking at the Rothschild Group and chairman of RBI, and Peter Rose who was Managing Director of RBI at the time. There is also a hearsay statement from Luis Marban, a Spanish Notary Public who was engaged by the Bank in connection with the notarising of the documents associated with the Loan Agreements. I should add that all of the Bank's witnesses dealing with the circumstances of the granting of the loans stayed outside Court until it was their turn to give evidence.
Each side also called an expert witness to deal with various aspects of the Loans and the investment, from the point of view of suitability and risk among other things. For the Claimants I heard from Solomon Green and for the Defendants I heard from Jason Nicholls.
The events to which the principal witnesses directed their evidence all took place some 12–13 years ago. That imposes a considerable burden in terms of their recollections. The fact that the Claimants have been litigating this case for two years now and have been making complaints of one kind or another for a number of years previously and indeed not long after problems arose, does not necessarily assist them. That is because over time, views and impressions, even if inaccurate, can solidify into what appear to be clear and reliable accounts of what took place, even to the witnesses themselves. There is certainly an element of that here for the Claimants who have, to one extent or another been in touch with many other investors who took out...
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