Quinns may avoid €2.34bn liability

Fri, Feb 24, 2012, 00:00

A SIGNIFICANT Commercial Court ruling yesterday means the family of bankrupt businessman Seán Quinn may avoid liability for loans of up to €2.34 billion Irish Bank Resolution Corporation, formerly Anglo Irish Bank, claims they owe.

The family aims to prove their claim that Anglo Irish Bank made the loans to various Quinn companies for the unlawful purpose of supporting the bank’s share price.

Patricia Quinn and her five adult children are seeking to avoid liability for total loans of €2.34 billion, including €1.8 billion allegedly illegally made from September 2007 to fund margin calls on contract for difference positions in Anglo shares.

The investment was built up by Mr Quinn in Anglo from 2005 through a Madeira-registered company, Bazzely, owned but not controlled by the Quinn children. Anglo denies the family’s claims and also contends some €500 million in loans are unrelated to the alleged loans to fund margin calls.

Anglo had asked the Commercial Court to rule that the family could not advance their claims the loans were unenforceable due to alleged illegality. If the family were prevented making such claims, that would considerably shorten the full hearing of their case, it said.

A date for the full hearing has yet to be fixed but, in his decision yesterday, Mr Justice Peter Charleton made suggestions aimed at reducing the costs and length of that hearing. Legal sources believe the case will last several months and is likely to cost more than €30 million. In his key ruling, Mr Justice Charleton ruled the family are entitled to advance claims they can avoid liability for loans if they prove those loans were made for “wholesale” market manipulation in breach of Irish and European law. There may also be a portion of “legitimate debt” involved, he added, a reference to Anglo’s claim that €500 million of the loans are unrelated to the alleged illegality. That could result in a proper apportionment of legitimate and illegitimate debt at the end of this case if the Quinns proved their claims, he noted.

He rejected Anglo’s claims the EC 2003 Market Abuse Directive and other laws “ring-fenced” matters to the extent the courts cannot prevent enforcement of an illegal contract.

It would be “contrary to public policy” if the family were to be shut out from responding to the “flagrant illegality” they allege against both Anglo and Seán Quinn snr via such “horrific” transactions, as alleged, he said.

It may also be the case the Quinns had lost several hundred million euro over being engineered into purchasing Anglo shares worth what may potentially prove to be a fraction of the investment made on their behalf, he noted. Anglo had caused “incalculable damage” to the economy and, since it was nationalised its new management was trying to work through a litany of problems left by the prior controllers, including this case, the judge said.

The illegality alleged was the “wholesale” manipulation of Anglo’s share price to the detriment of the family via a contract for difference scheme about which, they claimed, they did not know or participate in. They claimed to have lost severely through this “chicanery” and the bank’s appointment of a receiver arising from non-payment of the allegedly unlawful loans was unlawful.

The illegality defence rests ultimately on principles of public policy that courts will not assist a plaintiff guilty of illegal or grossly immoral conduct of which the courts should take notice, he said.