LEGAL UPDATE:THE RECENT Supreme Court decision in Patrick Gallagher v ACC Bank plc represents a very welcome clarification of the rules governing the length of time an investor can wait to make a claim in tort (such as negligence and/or breach of duty) against a financial institution which has sold him or her a financial product.
In 2003, Mr Gallagher invested in a capital-protected investment bond sold by the bank known as SolidWorld Bond 4, which offered investors 80 per cent of any net growth in the value of a basket of stocks tracked by the bond over a term of five years and 11 months. Mr Gallagher borrowed from the bank to fund the investment.
The Statute of Limitations 1957 (as amended) operates so that proceedings by investors against financial institutions must be issued within six years from the accrual of the cause of action. A cause of action in a claim for breach of contract accrues when the breach of contract occurs. In so far as a claim in tort is concerned, the cause of action accrues when damage is suffered by the claimant.
In June 2010, more than six years after he had invested in the bond, Mr Gallagher issued proceedings against the bank. Mr Gallagher claimed it was in breach of contract and negligent in inducing him to invest in the bond, which he alleged was wholly unsuitable for him, or indeed any investor.
As the bond was capital-protected, the principal amount borrowed by Mr Gallagher was repaid to him by the bank on the maturity of the bond. Accordingly, the loss claimed by Mr Gallagher in the proceedings was the amount of the interest paid by him on the loan to fund his investment.
In the Commercial Court, the bank strenuously denied the bond had been missold to Mr Gallagher and argued his claim was statute-barred. While it was acknowledged Mr Gallagher’s claim in contract was statute-barred, Mr Justice Charleton determined as a preliminary issue that Mr Gallagher’s claim in tort was not statute-barred. He said it was only when the bond matured at the end of the five year and 11-month term that it could be established that Mr Gallagher had suffered a loss and that he therefore had six years from the date of maturity of the bond to pursue a claim in negligence against the bank.
The bank appealed this decision to the Supreme Court, which found Mr Gallagher’s cause of action accrued when he invested in the bond. As this had happened more than six years before he commenced proceedings, his claim of negligence against the bank was statute-barred.
This decision means that, as a general rule, a claim in tort by an investor in a financial product of the type purchased by Mr Gallagher must be brought within six years of the date of the investment. It has significant implications for financial institutions and will allow them to carry out a more accurate risk assessment of financial products sold to investors on an advisory basis.
In a separate judgment delivered in the Supreme Court in the Gallagher case, Mr Justice O’Donnell suggested legislative intervention may be necessary to clarify the law on limitation periods with more general application than the Gallagher case.
PETER LAW is a partner in the litigation and dispute resolution department of AL Goodbody