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Tuesday 2 September 2014

High Court awards €2m to 'very vulnerable' young man against Davy's Stockbrokers

Published 09/04/2014 | 14:20

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An young man described as "very vulnerable" with intellectual and other difficulties having suffered two strokes by the age of ten has been awarded more than €2m by the High Court against stockbroking firm J & E Davy over "deliberate neglect" resulting in substantial investment losses.

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Mr Justice Peter Charleton made the award today to the 28-year-old man arising from Davy's "deliberate neglect" and breach of duty of care in encouraging him to invest large amounts of his inherited €5m monies in contracts for difference (CFDs).

The man, an only child aged just 20 when he began his investment relationship with Davy using some €5m inherited from his dead parents, is "not a person in the full of their intellectual, physical and mental health", the judge said. That "should have been obvious to any observer of average perception" and many tests carried out on him showed "alarming degrees of impairment".

There was a "systems failure" in Davy concerning its treatment of their client, failures in its documents section and failure in responsibility by higher management, including a senior manager who certified in a "paper-covering exercise" that the man was suitable for CFD trading, the judge found.

The judge's findings on the duties owed by stockbrokers to their clients have significant implications. There is "a serious legal duty" on any stockbroking firm selling financial products which may or may not be suitable for particular clients "to find out who that client actually is", the judge stressed.

This trading in CFDs would never have taken place if Davy had gotten to known their client, he said, Maintaining him "in that sector of speculation was wrong on very day that it occurred" and the young man was entitled to be put back in the position he would have been in had no trades taken place. 

The judge assessed the total award as some €2.1m, based on net losses of €1.25m from CFD trading accounts, plus non-recoverable CGT of €487,066, €350,960 interest cost of funds invested in CFGD trades and further interest to February last of €11,120.

The judge said Davy owed a duty of care appropriate of an experienced stockbroker to their client, it was paid to exercise that care but it manifested an insufficient level of care throughout its entire relationship with the man between 2005 and 2007 and failed to provide the service paid for. 

This amounted to "deliberate neglect", he added. Examples of that included Davy having the man sign blank forms and, unknown to him, treating him as a "gold star" client with an "aggressive" attitude to risk. The terms and confitions of the advisory service provided by Davy to the man limited liability to "deliberate neglect" and Davy's approach demonstrates such "deliberate neglect", he ruled.

The man should never have been allowed at any stage of his relationship with Davy to engage in CFDs, he ruled. The concept and ramifications of CFDs were never properly explained to the man who remains "genuinely mystified" about the full implications of those instruments. While CFDs are represented by those firms dealing in them as "perfectly respectable", some examples might suggest to reasonable people they are "seriously risky", the judge observed.

The client, with a significant medical history, had sued J & E Davy, trading as Davy, Bank of Ireland and Bank of Ireland Mortgage Bank alleging he was not liable for loans of some €3.4m made to him mostly for the CFD investments. His case against the BOI defendants was previously settled.

In his proceedings, the man alleged three loan agreeents entered into by him when he was aged 20-22 between 2005 and 2007 were void on grounds they were procured by unlawful conduct of the defendants, including breach of contract, breach of duty and negligence. Bank of Ireland had made loans to the man between 2005-2007 for €600,00, €1.64m and €1.2m secured on four properties owned by him.

The man, now aged 28 with an address in south Dublin, lost his mother and father when he was aged 12 and 17 respectively and has no other family except distant relations.  He experienced developmental problems, including speech difficulties, and ongoing difficulties include chronic fatigue, panic attacks and depression. A medical report had described him as "significantly impaired" looking after his financial affairs due to a slowness of thought.

Irish Independent

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