Tuesday 26 September 2017

Cowboy procedure makes us the 'Sue Nation' without any reservation

IBRC has been suing former financial advisers Ernst & Young and is also taking action against Michael Fingleton and five former Irish Nationwide directors.

Quinn Group has been suing IBRC, while IBRC has taken action against Quinn family companies. Meantime, the administrators of Quinn Insurance are suing former auditors PwC.

Bank of Ireland has been suing its own former property advisers, while investor clients have been suing Bank of Ireland along with Davy Stockbrokers and BDO.

U2's Adam Clayton has been suing his accountant – along with Bank of Ireland – and Bank of Ireland has been suing Westlife's Shane Filan. All music to lawyer's ears.

Without reservation Ireland has suddenly been transformed into a 'Sue Nation' as yesterday's golden circles degenerate into today's litigation spirals. Court services' figures show an explosion in businesses suing one another for negligence, malpractice and breach of contract.

The cases can be divided between those taking action against former advisers, or by banks and financiers against those who won't cough up. The perfect storm has come about for a two reasons.

First, desperation. Financial adviser Maurice Hedderman, of Hedderman Financial Solutions, observed: "We're in a period when everyone is using any method they can to recover some of their losses.

"In some cases those suing their advisers are justified because the risks weren't pointed out properly, and in other cases the clients have to take responsibility for not taking the effort and time to understand their contracts and investments."

A senior figure in an accountancy firm currently involved in a prominent legal action said: "Banks are investigating every avenue to get their money back. They can also see the statute of limitations running out."

Which brings us neatly to the second contributing factor: the clock. The executive added: "There is a six-year time limit on these sort actions; hence the rush to litigate stemming from those deals which went most spectacularly wrong – mostly in 2006 and 2007.

"What we're experiencing is a six-year litigation echo of the bubble bursting. There'd probably be more actions but for the fact that so few have clean hands."

The fire is being fuelled by paperwork – or rather the lack of it. Those big deals famously sketched out on the backs of cigarette packets and beermats and filed in shoeboxes have now come home to roost in the courts where both sides are capitalising on procedure failure.

Procedure came to the fore in the recently settled case between developer David Agar and Ulster Bank (believed to have gained him €30m and costs). He took the bank to court for alleged mis-selling of derivative products.

At least two representatives we spoke to on the issue of procedure said that they always urged clients to demand paperwork when in court with a bank – because there's always good chance the banks won't have it.

One lawyer said: "The first question I ask clients is: 'Did you sign anything'?"

Then there's the boom era attitude of the investors themselves. Maurice Hedderman spent 26 years with Canada Life as a financial adviser before setting up his own advice business in 2007.

His traditional approach wasn't welcomed by all potential clients. "I took a beating from some investors who regarded me as being too negative and cautious when so much money was being made.

"A lot of boom investors were very busy professionals, like doctors and lawyers, and weren't prepared to give their investments enough thought. They had a tendency to jump into things.

"But then too many advisers bought into the enthusiasm for certain asset types, and crossed the line from giving independent advice to being a distributor of products."

He also believes the widespread use of complex derivatives has fuelled litigation. "With leveraged products some thought they'd discovered something new, but they didn't even understood these products themselves. I don't think too many did."

Not surprising then that many of the court actions have highlighted investor carelessness. Former IAWS director Phillip Lynchand his family versus AIB saw the former refusing to acknowledge liability for a €25m loan, while also alleging negligence against two of his legal advice firms.

It emerged during the case that Mr Lynch did not realise which type of loan he had signed up for – believing he and his family had signed up for a non-recourse loan when they had not.

Adding to the confusion are the attempts at new defence precedents, such as pushing the client's own ineptitude for not repaying loans.

In December, one Dublin client's solicitor asserted that he was not liable to repay €3.4m to Bank of Ireland (used to invest in contracts for difference products through Davy stockbrokers – whom he was also suing). He was described as being "very vulnerable" with a medical report stating he was "significantly impaired" looking after his financial affairs and was slow of thought.

In a previous bank case, it was claimed (unsuccessfully) that a director of 25 companies was not wholly liable because he had the reading capacity of a seven-year-old and was unable to understand the documentation.

So who wins in this new sue nation of ours? Mr Hedderman observes: "I've been in the offices of big law firms who made a fortune in property conveyancing during the boom, and I read in their leaflets that they've now become negligence litigation specialists. "After reading those leaflets, I think a lot of aggrieved people would feel like taking action."

The Agar case costs were €1m while the Lynch case costs have been estimated at €3m.

Irish Independent

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