The recent revelations surrounding Anglo Irish Bank have left a significant number of aggrieved shareholders contemplating litigation. Former chairman of Anglo Irish Bank, Sean Fitzpatrick, has said that he temporarily transferred massive loans to Irish Nationwide each year over a period of 8 years, so that the balance on the loans would not be recorded in his bank’s year end accounts. It has further been disclosed that some of the loans obtained by Fitzpatrick were used to purchase the bank’s own shares, thereby falsely increasing public confidence in the bank.
With limited information in the public forum, it would seem at this stage that there are a number of potential actions which could arise. Given the fiduciary duties owed by the directors of the company to the company itself, the now nationalised bank could have a case against its former directors. Shareholders could have a potential action against the company given the fraudulent representations made as to the financial position of the firm and the reliance placed on these representations by shareholders.
Furthermore, the primary duty of auditors in respect of any company is a) to prepare a report to the members on the accounts examined by them and to state whether they give a true and fair view of the company’s financial position, and b) to state whether these reports have been prepared in accordance with usual accountancy standards and procedures. Consequently, the shareholders could potentially have a claim against the auditors of the bank, Ernst & Young.
One further potential defendant has not received as much attention to date as others, but could equally be as culpable. The Irish Financial Services Regulatory Authority was set up under the Central Bank and Financial Services Authority of Ireland Act 2003 with the following primary functions;
- To promote the best interests of users of financial services in a way that is consistent with the orderly and proper functioning of financial markets, and, the orderly and prudent supervision of providers of those services.
- To take such action as it considers appropriate to increase awareness among members of the public of available financial services, and the cost to consumers, risks and benefits associated with the provision of those services.
This poses serious questions over the role played by the Financial Services Regulatory Authority, particularly in circumstances where it has emerged that they may have been aware of the discrepancies as early as in December 2007.
Is there a duty of care owed by the Financial Regulator to Anglo Shareholders?
The case of *Glencar Exploration plc v Mayo County Council* discusses in detail the duty of care owed in certain circumstances by public authorities to members of the public. This duty arises where the aggrieved belong “to a category of persons for whose benefit a particular statutory framework had been created, and might reasonably be said to have relied on the local authority in each case taking reasonable care in the exercise of the statutory powers vested in them.”
There is no doubt that the statutory duties mentioned above are of the type designed to protect users of financial services in Ireland. Surely the Financial Services Regulatory Authority should have discovered the irregular practices at an earlier stage had they been prudently supervising the providers of financial services in Ireland as obligated to under the statute.
Surely once the Financial Services Regulatory Authority became aware of the aforementioned inconsistencies, this created a sufficiently proximate degree of relationship between the Authority and all actual and potential investors in Anglo Irish Bank so as to owe them a duty of care as envisaged by Lord Atkin in the case of *Donoghue v Stephenson*. This means that once the Regulatory Authority became aware, the investors became persons so closely and directly affected by their actions that they ought reasonably to have had them in their contemplation as being affected when considering the actions or omissions which are now being called into question. Whilst the functions and obligations of the Authority are governed by public law, the legal consequences of carrying them out or not carrying them out as the case may be here, should, result in creating rights enforceable in private law. As David McWilliams said, the Anglo fiasco is Ireland’s Enron, and is unlikely to see any resolution for a number of years yet.
Should you be interested in any further information on this issue or require further advice, contact our litigation department
24 February 2009