Draft:Quinn v IBRC (In Special Liquidation)

Quinn v Irish Bank Resolution Corporation Ltd (In Special Liquidation) & ors [2015] IESC 29, [2016] 1 IR 1 is an Irish Supreme court case which involved the businessman Seán Quinn and his family in their dealings with Anglo Irish Bank. The main issue being tried was whether the Quinn family could rely on the alleged illegality of the several lending transactions, to establish that they were not required to comply with the contractual obligations that would otherwise arise pursuant to the terms of the loan contract. This seminal judgement focused on whether the illegality of contract automatically makes a contract unenforceable.

Background
Seán Quinn, a well known Irish businessman with five children, built and formerly owned a large enterprise called the Quinn Group. In 2005, he began to enter into contracts for difference (CFD's) trading with the formerly known Anglo Irish Bank. These contracts allow the contractor to speculate on the future performance of a given asset, which in this instance was shares of various companies, without actually owning it. The contractor will gain money if the price of the inherent share goes up in the company the contract is with; however, in the event that the share's value goes down, the contractor is also liable for payments of the difference between the bought and current price of the share. Quinn bought these contracts through a company named Bazzely V Consultadoria Economica E Participacoes Sociedade Unipessoal LDA.

When the Anglo shares started to fall in the middle of 2007, Anglo began to call Quinn asking him to pay what was owed under the contracts. In order to meet these repayments the Quinn Group borrowed in several bundles over the next year, taking out loans worth more than a billion euro. By 2007, the shares were worth 24% of Anglo's issued share capital. In the loan negotiations for the last 200 million bundle, Anglo had to give them to Quinn Family Properties because Bazzely did not have a functioning bank account. The Quinn family members used their assets in the Quinn Group Portfolio as security against the debt. In 2009, Anglo Irish Bank was nationalized. To avail of tax benefits the Quinns moved their shares with Anglo to six Cypriot companies; these companies were owned by the Quinn family and its loans were personally guaranteed by each of Sean Quinn's children, who owned one company each. The Quinn family claimed that these loans were illegal and thus unenforceable, as they are allegedly in breach of section 60 of the Companies Act 1963 and the Market Abuse (Directive 2003/6/EC) Regulations 2005 (MAR). Between October 2005 and April 2010, Seán Quinn had invested €2.4 billion into CFDs, with Bazzely reporting losses totalling €2.1 billion; he began filing for bankrupcy in November 2011.

Proceedings in the High Court
In 2011, Anglo brought a motion to the High Court requesting clarification as to whether the Quinn family could rely on these supposed breaches of legislation. Anglo argued that even if they are entitled to use them, there are self contained remedies within the contracts which prohibit the Quinn family from using the excuse of illegality of contract to stop their repayments. The Court ruled in favor of the Quinn family; it held that section 60 of the 1963 Act, which prohibits a company from purchasing its own shares or providing financial assistance for such a transaction, was not "self-contained in its remedies". Charleton J decided the "general law of illegality of contracts is entitled to respond in an appropriate and proportionate way", so that the loss suffered by the Quinn's due to a manipulation of the share price of Anglo could be suitably responded to.

Anglo appealed this ruling.

Holding of the Supreme Court
The Court reviewed a large amount of case law when making its decision. The Supreme Court based its decision on the legal doctrine of "ex turpi causa non oritur actio" established in Holman v Johnson, where it was stated that "No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act". However, the Court also argues extensively about the consequences of a strict applicability of that rule and cites Les Laboratoires Servier and anor v Apotex Inc. and ors. The Supreme Court ruled that when deciding whether the level of illegality is too high as to render it unenforceable, the Court should look to the public policy intentions of the statute in question. Regarding the Companies Act, the Court ruled that the contract was enforceable. To say otherwise could lead to a situation that is against the public policy intentions of the Companies Act 1963. The Court stated that section 14, for example, would have no effect if every contract caught by section 60 was to be declared unenforceable.

Regarding the Market Abuse Regulation, the aim of this is to protect investors from market abuse and thus it covers a wide range of topics. So, the Court found again that a wide applicability of illegality could end up hampering the intended effects of the regulation.

The Quinn family argued that Anglo had sold them the shares while knowing that money would be used to buy more Anglo shares which is in contravention to both of the statutes mentioned above. However, the Court found it was extremely unlikely that the Quinn family were unaware of what the underlying transactions were for and that they benefited from the reception of the property then. Thus, they cannot return them to Anglo now after the fact.

Ultimately, the Court allowed the appeal and stated that the Quinns cannot rely on section 60 of the Companies Act 1963 in relation to the alleged breaches.