A Court of Appeal decision is a major setback for hundreds of investors suing AIB and others over losses sustained after they invested in certain Belfry funds promoted by the bank.
The three judge court, in a judgment on an important preliminary issue in eight “pathway” cases, ruled key aspects of the plaintiffs claims are statute barred, brought outside the relevant six year time limit.
The case has been returned to the High Court to consider how to deal with additional claims by the investors of non-disclosure to them of loan to value (LTV) covenants affecting their investments.
Funds
Court number two of the COA was packed with investors for the judgment, delivered by Ms Justice Marie Baker on Thursday.
Some 300 investors have sued over losses sustained after they put money into five Belfry Funds which invested in commercial property in the UK.
The investors allege the funds were promoted between 2002 and 2006 by AIB and four directors of various companies in the Belfry Properties group, including property investor Tony Kilduff and a former head of AIB private banking, John Rockett.
The investors say they invested sums between €100,000 and €400,000 in the funds.
Following the collapse of the funds, they initiated claims in August 2014 seeking damages on grounds including alleged negligence in the manner the defendants operated the funds.
The defendants, separately represented, deny the claims and AIB and the defendant directors appealed to the COA against an April 2017 decision by the High Court’s Mr Justice Robert Haughton on an important preliminary issue.
Mr Justice Haughton held the investors were not statute barred in their claims of misrepresentation and negligent statement arising from the existence, and alleged non-disclosure, of LTV covenants in the borrowings negotiated on behalf of the Belfry investment vehicles by the defendant directors.
Given that decision, he found it was unnecessary to determine whether the investors were entitled to rely on Section 71.1.b of the Statute of Limitations in relation to alleged non-disclosure of the LTV covenants.
Section 71.1.b provides, where a right of action is concealed by fraud of a defendant or their agent, the period of limitation shall not begin to run until the plaintiff has either discovered the alleged fraud or could, with reasonable diligence, have discovered it.
Giving the COA judgment, Ms Justice Baker noted the LTV covenants provided, if the value of any property purchased by a fund fell below the borrowings by 80 per cent of the value, that would be deemed an automatic default and crystallisation of the floating charge, thus entitling the lender to dispose of the charged assets.
Covenants
The investors pleaded they were not made aware of the LTV covenants and the possible negative impact on their investments was not explained, she noted.
She also noted the investments were in most cases successful in the first few years of operation of the funds but problems began in 2008. Attempts at further loan restructuring had failed by mid 2012 and property disposals continued until the final disposal in 2014.
The investors claimed the cause of action did not accrue until August 7th 2009 when they first became aware of the LTV covenants.
Having considered the claims and applicable law, the judge said the cause of action is linked to the existence of the LTV covenants.
The cause of action accrues when the plaintiffs were in a worse position than they would otherwise have been and that happened at some stage after the investments were made and before commercial property was purchased with the assistance of secured loans which contained a LTV covenant, she said.
The precise date on which this happened in each of the relevant Belfry funds is unclear but, on the facts, whatever that date is, it is “well outside” the six year time limit and these claims are therefore statute barred, she held.
Because the High Court had made no determination of fact regarding the claim of non-disclosure of the LTV covenants, that issue would be returned to the High Court, she added.
