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= Cantrell v Allied Irish Banks plc =

Cantrell v Allied Irish Banks plc [2020 IESC 71 ] is an Irish tort case concerning misrepresentation and negligence.

Facts
The plaintiffs were investors in a series of ‘Belfry’ property schemes promoted by the defendant, Allied Irish Banks plc. The plaintiffs purchased shares in an Irish company, a subsidiary of which would acquire and hold commercial properties in the UK. This was funded by borrowings negotiated by the fund directors and secured on the fund’s real property. The loan agreement contained a loan to value covenant (‘the LTV covenant’) which provided that if the property fell below 80% of the initial value or the amount lent, then the lender would be entitled to take control of the property and sell it in reduction of the debt. The funds experienced a ‘calamitous fall’ as a result of the financial crisis and the investors were notified that their investments were valued at nil.

The plaintiffs alleged that the defendants induced them to make certain investments which ultimately caused them financial loss. They put forward three claims including a misselling claim, a mismanagement claim, and an 'LTV claim'. Their first claim alleged that the investment was much riskier than they were led to believe by the defendants. They further claimed that the investments had been mismanaged. Finally, they claimed that they were never informed of the LTV covenants nor their implications before entering into the investments. The defendants argued that the plaintiff’s claims were barred by the Statute of Limitations 1957.

High Court
Haughton J held that the plaintiff’s claims for breach of contract were statute barred. Haughton J also addressed the matter of when the six-year time limitation period of the Statute of Limitations 1957 commences for financial loss claims. Section 11(2)(a) of the Statute of Limitations 1957 provides that claims in tort are statute-barred six years after the date on which the cause of action accrued. The court held that the cause of action accrues in cases of financial loss when the plaintiff has suffered actual damage. Regarding the misselling claims, the Court held that the cause of action accrued when it could be said that the value of the investments fell below the amount invested. In the case of the LTV claims, the cause of action accrued when the shareholder investments were first written down to nil. Therefore, the investor’s claims were not statute barred as the cause of action for a claim in tort did not accrue at the date of entering into the investment. Finally, Haughton J held that the mismanagement claims were statute barred.

Court of Appeal
Barker J in the Court of Appeal focused primarily on the claim in respect of the LTV covenant and held that it was statute-barred. The primary issue before the Court of Appeal was the time of accrual of financial loss in torts. In the appeal, Baker J held that the plaintiffs had “underwent risk – more, they say, than they bargained for - but that is not to be equated with damage”. The court held that as the investors were still hypothetically able to profit from the Belfry funds, this would constitute a risk as opposed to a loss. Baker J said that the chance of the LTV covenants impacting the investments negatively was not certain, and thus could not amount to ‘actual loss’. Furthermore, she opined that the possibility of loss could not be said to measure up to the civil standard of loss, and that risk-taking was an integral aspect of investing.

Supreme Court
The Supreme Court reversed the Court of Appeal’s decision and restored the order of the High Court. Regarding the date of accrual, O’Donnell J favoured a ‘pragmatic approach’ over the ‘relentless logic’ followed by the Court of Appeal. Following his own approach in Gallagher v. ACC Bank plc, O’Donnell J stated"‘It is clear that the decision in Gallagher requires the Courts to adopt a pragmatic approach in which the identification of damage for accrual of a cause of action must proceed on an incremental basis and that damage for the accrual of a cause of action must bear a close relationship to the layperson's understanding of that term. That is real actual damage, which a person would consider commencing proceedings for.’"Under this ‘pragmatic approach’, O’Donnell J determined that it was necessary to undertake a ‘basic comparison’ between the plaintiff’s position under the transaction and their position had they not entered into the transaction. Following Wardley Australia Limited v. State of Western Australia, O’Donnell J said"‘If, by that comparison, he had not suffered loss, he had no cause of action… It was only when… the benefits and burdens reveal a loss that a cause of action accrues.’"Where the balance of burdens or benefits depends on a contingency – such as in the case of the LTV covenants - the Court held that"‘If that balance is dependent on the contingency, it is only when that contingency occurs, and affects the value, or the possibility of it occurring affects that value, such as to create a loss, that a cause of action accrues.’"Accordingly, O’Donnell J determined that the High Court had correctly held that the misseling claim accrued when the investment initially fell below parity, and thus was not statute barred, as"‘the misselling claim accrued when the value of the investment first fell below parity: that is, the amount of the original investment… that point did not, on the evidence, occur more than six years prior to the commencement of the proceedings, it was correct to hold that it had not been established that the claim was statute-barred.’"Furthermore, the Supreme Court also held that – regardless of whether they were a separate claim - the LTV covenants were triggered within the six-year limitation period, and accordingly were not statute barred. O’Donnell J stated the following."‘even if the appellants’ case in relation to the LTV covenant is to be treated as simple misselling, the damage is still alleged to be separate and distinct. It is alleged that the LTV covenant had an effect of reducing the value of the investment to zero and it is only at that point that damage occurs, and the cause of action accrues. It is possible, at least in theory, that an LTV covenant might not have an effect on the valuation of the investment when in good times it is valued at a multiple of its original value, but could have an impact on valuation as the possibility that it might take effect and be invoked comes closer. For these reasons, I consider that Haughton J. was correct to hold that, once again, it had not been established that the claims made by all appellants in this regard were statute-barred as it was not shown that the LTV covenant had a negative impact on the valuation of the investment prior to August 2008.’"

Significance
The judgement of the Supreme Court has left the law in this area somewhat uncertain. The pragmatic approach taken by the Supreme Court has the potential to leave financial service providers in a precarious position regarding the date of accrual. Furthermore, O’Donnell J reiterated his position in Gallagher, expressing the necessity for statutory reform regarding dates of accrual. This would bring clarity and give potential litigants guidance on the time period during which they are entitled to receive remedies in tort.