Supreme Court dismisses fraud appeal, bound by High Court's finding that plaintiff knew zoning issues existed.

THE SUPREME COURT

[2013] IESC 17

493/2011

Hardiman J.

O’Donnell J.

Clarke J.

Between/

GERARD McCAUGHEY

Plaintiff/Appellant

and

IRISH BANK RESOLUTION CORPORATION LIMITED and MAINLAND VENTURES CORPORATION

Defendants/Respondents

JUDGMENT of Mr. Justice Hardiman delivered the 13th day of March, 2013,

1. This is the appeal of the plaintiff from the judgment of the High Court (Mr. Justice Birmingham) delivered the 27th day of July 2011

and from the associated order dated the 9th day of December, 2011 whereby the plaintiff’s claims against the defendant were

dismissed.

The parties.

2. The plaintiff, Mr. McCaughey, is a successful Irish businessman and formerly the moving spirit behind Century Homes, which he sold

in 2005. The first-defendant is the statutory successor to Anglo-Irish Bank Corporation Limited, a bank which has become notorious.

The second-named defendant is a Delaware Corporation with limited liability which was incorporated by the Bank as a vehicle for

participation in a property fund known as the Anglo-Irish New York Hotel Fund.

3. The plaintiff, in or about September 2006, accepted an invitation to participate in the Fund when this was proposed to him by the

Bank. He agreed to invest the sum of US$1m and, apparently also at the suggestion of the Bank, agreed to borrow US$620,000 of this

from the Bank.

4. The plaintiff had been a customer of the Bank and of its “Private Banking” arm. He was not alone in being solicited to invest in the

Fund mentioned above: about forty-nine other people, customers of the Bank and of its Private Banking arm, also invested in

response to such solicitations. The plaintiff’s action has been described as a “pathfinder” for twenty-two other sets of proceedings.

Background to the investment.

5. Although the investment was made via a complicated corporate and partnership structure, devised by the Bank, the underlying

proposition was quite simple. At the time the investors were solicited (September, 2006) the Bank, had itself agreed to purchase two

long established hotels in the City of New York, being the Beekman Tower Hotel and the Eastgate Tower Hotel. Well before it solicited

any investment from other parties the Bank, in or about May 2006, had agreed to purchase these hotels for over US$150m and was

contractually bound to do so. If it failed to do so it was liable to forfeit a deposit in an amount exceeding US$11m and would

presumably have been subject to proceedings in the nature of specific performance at the option of the vendors. The background to

how the Bank became involved in this transaction is set out in the very detailed judgment of the learned trial judge, but is not

immediately relevant to the issues raised on this appeal. The purchase of the two hotels on foot of the Bank’s contract was closed in

or about the month of October 2006. The plaintiffs and the other investors were solicited by the Bank to invest in the course of the

preceding month, September 2006. It appears from the evidence that the Bank had decided to solicit investors from amongst its “best

customers” - persons known to it to have a net worth of at least €5m and/or incomes exceeding €500,000. It may be inferred that

such persons were not likely to be innocents abroad, or persons under any kind of disadvantage: certainly the plaintiff was not in

either of those categories.

6. For reasons not fully explained, the fact that at the time of solicitation the Bank was itself contractually bound to buy the hotels,

and would have to do so out of its own resources if it could not find third party funds, was not explained to the plaintiff or, it

appears, to any of the investors. Many would consider this a relevant factor in assessing what the Bank had to say about the

project.

7. There were elaborate plans for the two hotels, which were well established but aging structures. These plans involved not merely

the purchase of the hotels but the refurbishment of them at a price calculated on the basis of so much per “key”, a term used in the

American hotel industry to mean room. The plans have not proceeded as was intended and the investors have lost their entire

investment, though the Bank retains a substantial asset. The learned trial judge found, and it appears to be the case, that “the

project has not proceeded as intended, principally because the cost of the planned renovation was far greater than had been

contemplated originally”. The learned trial judge also found, what is undoubtedly true, that “the plaintiff is deeply aggrieved by what

has transpired as are a number of other investors, and is firmly of the belief that he has been seriously ill served by the Bank”. This

sense of bitter grievance arises from what he and others had thought their relationship with the Bank to be.

Motion to admit additional evidence.

8. On the hearing of this appeal the Court had before it a Notice of Motion dated the 17th October, 2012 supported by three

affidavits sworn between the 16th October, 2012 and 19th January, 2013. This motion was to admit additional evidence regarding a

memorandum dated the 17th August, 2012 from a New York City Assistant Commissioner to the Borough Commissioner of Manhattan

to a letter from the same person dated on the same day. These documents relate to matters coming into being some years after the

principal document whose rescission is sought in these proceedings. The views of the author of the 2012 document, insofar as

admissible, could have been adduced before the High Court. The proposed additional evidence does not appear to bear on any issue

properly before the Court on this appeal.

Private Banking.

9. It may be desirable at this stage to discuss the term “Private Banking”. At the trial in the High Court it was the subject of

considerable cross-examination by Mr. Martin Hayden S.C., counsel for the plaintiff/appellant, of Mr. Paul Brophy who was a director

and executive (Vice-President/Head of New York lending) at Anglo in New York.

10. Mr. Brophy agreed that the hotel Fund was being sold “to forty or fifty of Anglo’s best customers”. Asked what the concept

behind Private Banking was, he answered that it was:

“To find opportunities for them to invest their resources and bring products to them… one of the things they did was to

look at real estate investments where the bank would, sought out an investment property or an opportunity and then

would bring that opportunity to a select number of clients where the equity would subsequently be syndicated and the

bank would remain in as the senior lender on the transaction, would provide the senior debt.”

10. He agreed that:

“the bank would source a project, prepare the project and then introduce it… to their best customers.”

11. He agreed that, in relation to the investment in question in this case:

“Anglo would go about getting all the relevant information regarding the investment… then set a structure in place in

relation to this project that involved a durable power of attorney being executed on behalf of, or by the investor”.

12. He agreed that:

“that particular structure effectively in this instance meant that the investor fundamentally had no independent power of

action relative to the investment.”

And that:

“Anglo picked the project, presented the project and was going to run the project”.

13. Mr. Hayden S.C. then put to Mr. Brophy:

“And that was the way it was designed from the outset. It was a question whereby the best customers, who had their

other businesses to be getting on with, didn’t have to worry, because Anglo would mind them?”

14. Mr. Brophy agreed that this was so. That phrase, “Anglo would mind them”, is said by the plaintiff to be at the heart of the

Private Banking relationship as he understood it to be and as he said it was presented to him by Anglo. If this is so, it must be said

that the terms of the Investors’ Commitment Agreement, which appear to exempt Anglo from liability for anything short of fraud or

fraudulent misrepresentation, are gravely at variance with it. “You’re on your own” would be a more apt colloquial summary of certain

provisions of this document, set out below, than “Anglo would mind them”.

15. It was next put to Mr. Brophy that Anglo had sold the investment to its customers on the basis that “we will look after your

interests”.

16. Mr. Brophy replied to this:

“I don’t know how it was specifically sold by the relationship managers but the general thesis of what you are saying

seems accurate, yes.”

17. Mr. Hayden then further pushed his point asking:

“So: ‘Trust me. We are the professionals, we know what we are doing. You don’t have to be troubling yourself about it,

we will look after you.’’ Isn’t that it?”

18. Mr. Brophy replied:

“I can’t say that all those words were used but I think the general premise is that, you know, people were brought an

investment opportunity by the bank, it was explained to them fairly diligently and clearly what they were getting

themselves involved in, they would have been made aware of the risks and pitfalls and the opportunities and ultimately it

was up to those individuals themselves to make a decision, you know: ‘This is a high risk investment. Is this an

investment I want to make?’.”

19. In response to this Mr. Hayden pointed out that it was not an answer to the question he had asked and pressed Mr. Brophy as

follows:

“Can you tell us was it Anglo’s business model effectively to present these projects to people who they know, their best

customers, who are very busy in other spheres of life and that Anglo would look after the difficulties and problems for

them in the context of that investment?”

20. Mr. Brophy replied:

“Yes, I think that is fair”.

21. Mr. Hayden next inquired:

“So therefore, is it fair - would you have understood people, their best customers, to trust Anglo when it comes to

bringing the information to them?”

22. Mr. Brophy answered:

“I think that people would have trust that whatever information Anglo had brought them, that they had brought them

that information on the basis that that information was to the best of their knowledge, yes.”

23. The phrases emphasised: “Anglo would mind them”; “we will look after your interests”; “we are the professionals, we know what

we are doing. You don’t have to be troubling yourself about it, we will look after you”; “Anglo would look after the difficulties and

problems for them in the context of that investment” - are said by the plaintiff to sum up the nature of the Private Banking

relationship which they claim to be one which placed a fiduciary duty on the Bank. The Bank said the relationship was not fiduciary

and was wholly governed by the terms of the commitment agreement. This, as we shall see, excluded liability for anything but fraud

or fraudulent concealment, and sought to exclude even a duty to take care in the making of any representations.

The proceedings.

24. The plaintiff issued proceedings on the 7th October, 2009 and delivered a Statement of Claim on the 4th November, 2009 which

has subsequently gone through a number of amended forms . The principal relief claimed is a rescission of what was referred to as

“the Commitment Agreement”. This is a document entered into between the plaintiff and the Bank on 27th September 2006 whereby

the plaintiff irrevocably committed to pay the sum of US$1m and was thus admitted into the partnership as a Class B limited partner

to the extent of his investment. He was also required to execute a Limited Durable Power of Attorney appointing the partnership,

the manager of the partnership and a number of persons designated by the partnership to act alone as his attorney-in-fact in his

name.

25. In addition to the rescission of this agreement the plaintiff claims, amongst other things, the return of his investment, the

rescission, separately, of the loan agreement whereby he borrowed over US$600,000 for the purpose of the investment; damages for

fraudulent and/reckless concealment; damages for fraudulent misrepresentations; damages for negligence misstatement and/or

misrepresentation; damages for negligence and breach of duty including breach of fiduciary or statutory duty; damages for

conspiracy; damages for intentional interference with the plaintiff’s economic interests; damages for unjust enrichment; damages for

intentional interference with the plaintiff’s economic interests; aggravated or special damage.

26. The defendants by their defence delivered the 11th January, 2010 take two preliminary objections: that the plaintiff should not be

permitted to rely on a document which is extensively pleaded in his proceedings, described by him as the “black brochure” and by the

defendants as the “Fund brochure” because they see it as a promotional document which does not give rise to any legal

representation. There was also pleaded at that time that the proceedings were premature since the investment had been one which it

was clear no funds could be recovered (assuming there were funds to recover) for a period of at least five years which had not then

elapsed.

27. The defendant denied that it provided “tailored property funds”, as the plaintiffs had alleged; it specifically denied that the Bank

owed any fiduciary duty to the plaintiff; indeed it denied that the Bank owed any duty of care to the plaintiff at all.

28. The defendant stoutly denied any misrepresentation or concealment which, as will be seen, was a substantial part of the detail of

the plaintiff’s claim. It denied that any representations were made on which the plaintiff was entitled to rely; it specifically pleaded

that it was not liable for its passing on of figures contained in “external reports or the information contained therein”. It was also

specifically pleaded by the defendants that they did not know that the plaintiff would rely on their acts, conduct or misrepresentation

(which were themselves denied) or that he would be induced thereby to enter into the commitment agreement and pay the monies

mentioned. The Bank expressly denied that they were under a duty to take care in the making of any representations. The

Bank then specifically denied (and this transpired to be an important pleading) that the plaintiff acted on the foot of any such

representations. In other words, the Bank says, apart from anything else, that the plaintiff did not rely on any representations or

other material communicated to him.

29. Apart from a general denial of liability, the Bank in fact counterclaimed against the plaintiff on the basis that his proceedings

represent a breach of the commitment agreement and of the obligations which he undertook thereunder. The Bank seeks against the

plaintiff damages for breach of agreement, warranty representation or acknowledgement.

Outline of issues.

30. The plaintiff complained that he was misled, actively or by concealment, in relation to four particular issues. These are:

“(1) The zoning issue, also sometimes referred to as the Certificate of Occupancy issue.

(2) The cost of renovation issue.

(3) The presence of sitting tenants issue.

(4) The interest rates strategy issue.

31. The learned trial judge remarked that, on the trial at the High Court (which included extensive cross-examination) most attention

had focussed on the first and second of these issues and indeed the arguments on the last issue was not pushed to a conclusion. At

the hearing of this appeal the argument focussed exclusively on the first issue.

32. The reason for this exclusive focus requires to be stated because it may not be apparent to those who have not had the

transcript of the High Court hearing. It appears to me that the issue relating to the cost of renovations was in the foreground in the

appellant’s case there, and that the case they put forward substantially depended on the evidence of Mr. Haskin, who is a long time

prominent player in the New York hotel business. Mr. Haskin had originally been a promoter of the Fund with Anglo but subsequently

fell out with them. It appears from my understanding of the High Court proceedings that Mr. Haskin’s evidence fell considerably short

of what the plaintiff required to prove his case on the renovations cost issue. Accordingly, emphasis shifted before the end of the

High Court case and on this appeal to the zoning issue.

33. It was alleged by the plaintiff that the zoning issue, or even the fact that there was a zoning issue, was never disclosed or

explained to him; that it was thereby concealed from him either fraudulently or negligently. In order to understand this issue certain

terms must be explained.

34. It appears that in New York, and in particular in Manhattan where these hotels are situated, certain terms are used in the hotel

industry which have no immediate corresponding term in the Irish hotel business. Most relevant are the concepts of a “transient

hotel” which seems to resemble a hotel as it is conceived of in Ireland that is a building in which is carried on the business of offering

accommodation food and drink to all comers for agreed periods which are usually short and may be as short as a single night. The

term “residential hotel” is used in New York in contradistinction to “transient hotel” and appears to mean a hotel which offers

accommodation to “residential” customers for periods of at least one month. Sometimes, indeed, occupation by such customers goes

on for years. The units so rented include kitchen facilities and the tenants may cook for themselves, or use the restaurant facilities in

the hotel, or simply eat out. A resident may acquire rights against his Landlord and become a sitting tenant.

35. The distinction between these two types of hotel business is rigidly observed in New York usage. A further complicating factor,

and one that applies in the case of each of the hotels in question here, is that the actual user of an individual hotel building may be

partly transient and partly resident or wholly one or the other. This will be specified on the hotels “Certificate of Occupancy”, a

document issued by the local authority and which is, it was said, required to be produced before any building permit can issue. A

“residential hotel” is sometimes referred to as “an apartment hotel”, and in that sense means an apartment in a block or group of

apartments which is in, or connected to, a building which also has bar, restaurant, meeting rooms and fitness centre services.

36. In the present case, the Eastgate Tower Hotels Certificate of Occupancy was for a transient hotel up to Floor 7 and for a

residential hotel from Floors 8 to 25. The “Certificate of Occupancy” for the Beekman Tower was for a residential hotel throughout.

Notwithstanding this, it was said, each hotel operated as a transient hotel throughout, and had done so for many years. Obviously,

an ability to use premises as a transient hotel is more financially attractive to its owner.

37. This, then, is the “Certificate of Occupancy” issue which arose in March and April 2006. Both premises were owned by the

Denihan family, a family long established in the hotel business in New York. At a certain stage, apparently on or about the 3rd April

2006, after the Bank had made a non-binding “best and final offer”, a sort of pre-contractual indicative bid. The vendors, who had

done a good deal of “due diligence” made it clear that no further due diligence in relation to the condition of the properties would be

permitted and they declined, by imposing an appropriate condition to permit any contact by the would-be purchasers with the New

York City Building Department, inquiring about zoning compliance issues.

38. The purchase agreements were signed on the 19th May, 2006, one for each hotel, by Paul Brophy on behalf of the Bank and also

on behalf of the second-named defendant, the Bank’s newly formed and wholly owned subsidiary for the purpose of this transaction.

39. These purchase agreements or contracts provided for a closing date on either the 28th September, 2006 or the 3rd October,

2006 depending on the date of the completion of the financial due diligence. But the effect of the contracts was that, subject only

to the financial diligence the contracts were “hard”, which means that the deposits which totalled US$11.15m were now non-

refundable.

40. Eight days before these agreements were signed the final issues between the parties were resolved at a face to face meeting

between Mr. Lawrence Denihan of the vendors and Mr. Brophy of the Bank. According to the evidence of one of the witnesses, a Mr.

Haskin, eminent in New York hotel circles and a promoter of the Fund, it was hoped to secure a reduction of US$4m per property in

respect of the zoning/Certificate of Occupancy issues and of the Bank effectively buying the zoning risk. But in the end the Bank

agreed a reduction of only US$1m in total, less than 1% of the purchase price, which was US$151.75m for the two properties.

41. As happened in the High Court, the plaintiff/appellant put considerable emphasis on the signature of the purchase agreements and

the consequent rendering of the deposits of over US$11m non-refundable. He said that that meant there was enormous pressure on

the Bank to proceed with the transaction and an incentive to cut corners and to distract attention from any difficulties that might

arise in an effort to get other investors on board before the closing date. If the other investors could not be provided before the

closing date then the Bank would have to complete the transaction in its own and therefore incur an unnecessary second set of

transaction costs if third parties investors were subsequently introduced since such investors would certainly require a proprietary

interest, direct or indirect, in return for their money.

Documents.

42. Two documents played a central role in the arguments in this case. The first of these was referred to as the “black brochure” and

it featured largest in the plaintiff/appellant’s submission. It is a high gloss brochure with many illustrations and is designed to be an

eye catching and attractive document. From the plaintiff’s point of view it is the most important document in the case and the

evidence showed that, although it was finalised in circumstances of considerable pressure, its contents were the subject of many and

detailed exchanges between the Bank at a senior level, its employees in New York and its legal and other advisers there. By the time

this document was produced the zoning/Certificate of Occupancy issue had clearly emerged and the Bank had taken the view that it

was “manageable”. A good deal of discussion had taken place about whether it was necessary to include any reference to this issue

in the brochure and it was established in evidence that an eminent zoning lawyer advising the Bank and Mr. Haskin, a Mr. Sillerman,

had advised that such a reference should be made and had drafted a form of words for this purpose. This will be considered below.

The Bank did not take Mr. Sillerman’s advice. But on the hearing of this Appeal, the plaintiff agreed that his proposed wording would

have discharged the Bank’s obligation to disclose the zoning issue.

43. From the plaintiff’s point of view, the salient feature of the black brochure was what it did not say. It did not make any reference

at all to the zoning/Certificate of Occupancy issue. This is agreed by the Bank, one of whose witnesses, Mr. Byrne, stated that he

feared that such a reference would be misunderstood. He recalled that Autumn, 2006, was the time when the Tribunal of Inquiry into

Certain Planning Matters and Payments was ongoing in Ireland and said that mention of the zoning issue might have suggested that it

was something “which, in fact, it was not” and might have an off putting effect. Besides, the Bank was genuinely of the view that the

issue was manageable. A similar issue had in fact been “managed” in the case of another New York hotel whose purchase the Bank

had funded (though without taking any beneficial interest itself), the Mark.

44. The Bank’s fundamental position in relation to this brochure was that it was not a document intended to have any legal effect at

all. As we have already seen, the pleadings by the Bank commenced with an objection to any reliance being placed on this document.

Apart from this preliminary issue, the Bank relied on the multiple notes of caution and exclusion contained in the document and the

manifest urging that a customer would take his own legal, financial, and taxation advice.

The black brochure.

45. The brochure consists of thirty-seven pages of text and/or illustration. It is impressively got up with a full colour title page on a

black background, featuring photographs of various famous official and commercial buildings in Manhattan. The Bank’s name and logo

is at the top with the words “Private Banking” underneath. The document is entitled “The Anglo Irish New York Hotel Fund”. There are

further photographs of attractive street scenes in New York before the Table of Contents. After this is a glossy street map locating

both hotels about ten blocks apart, not far from the UN building near the East river in Manhattan. This page features a box containing

the words:

“The hotel market in New York is currently strong due to the increased demand for hotel rooms and a shrinkage of room

supply owing to the recent trend of converting hotel rooms to condominiums.”

46. The first portion of the brochure requiring close attention is the executive summary on p.5. The project is introduced as follows:

“Anglo Irish Bank Private Bankers (“Anglo”) are seeking a limited number of investors who wish to avail of an opportunity

to participate in the Anglo Irish New York Hotel Fund (the “Fund”).”

47. The basic business plan was outlined as follows:

“The Fund will acquire the freehold interest in two hotels in prime locations in Midtown Manhattan New York, the Beekman

Tower Hotel and the Eastgate Tower Hotel.”

48. The brochure then announced that “the hotels have been sourced, negotiated and secured by Peninsula Real Estate Fund (the

promoter).” This form of words of course avoids or downplays the direct beneficial interest of Anglo itself in the hotels.

49. The structure of the investment is described as follows:

“The hotels are being purchased for US$151.2m. Acquisition costs amount to US$10.5m. In addition a further c. US$24.8m

is being provided to facilitate the planned renovations of the hotels and US$7.9m is being provided for management fees

and interest costs for years one and two.”

50. The investment is described as follows:

“This fund provides investors with an opportunity to invest in prime hotel assets significantly below replacement costs in

the financial capital of the world.

51. Non-recourse bank borrowings of US$145.8m are being provided by Anglo to the Fund.

The minimum investment is US$1,000,000, although Anglo reserves the right to allow an investment of a lower amount.”

High Risk.

52. Most importantly, from the defendant’s point of view there is the following statement:

“This investment is high risk - please refer to the section entitled “Risk Factors”. Prospective investors should review

this brochure carefully and in its entirety and consult with their legal, tax and financial advisers in relation to the legal tax

financial and other consequences of investing in the Partnership.” (Emphasis added)

53. The partnership itself had already been described as follows:

“The Fund is a US Limited Partnership named ‘The Peninsula Real Estate Fund’… and investors will hold 98.5% of the

capital of the Partnership as Limited Partners. The remaining capital will be held by the Promoter.”

54. At the end of this executive summary, in italics, are the following words:

“N.B.: All figures and statistics in this brochure are reproduced from external reports addressed to Anglo. Reasonable

efforts have been taken to ensure that all such information has been accurately been reproduced. However, Anglo

cannot accept responsibility for any errors in the reports themselves or the information on which they were based.”

55. The effect of this, read literally, is that Anglo is no more than a post box for information of the sort to which the paragraph

relates.

56. Throughout the rest of the document there are generally upbeat boxed statements such as, on p.19 over a colour photograph of

an exciting New York streetscape at night:

“This Fund provides investors with an opportunity to invest in prime hotel assets significantly below replacement cost in

the financial capital of the world.”

57. However at p.26 of the brochure under the heading “Exit Strategy”, potential investors are told:

“The Fund has a target investment period of five years. Investors should be aware that this is not a liquid investment and

should be prepared to invest for a longer period. The partnership agreement runs for a period of eight years with a

possibility of two one year extensions at the discretion of the Investment Committee. In general therefore it will not be

possible for an investor to exit the Fund before the hotels are sold and the Fund is liquidated”.

58. Part of this statement is reproduced in a box on the following page.

Risk Factors.

59. At p.28 there is a section entitled “Risk Factors”. This is very heavily relied upon by the defendants. The first three paragraphs

require citation in full:

“A geared investment is considered to be high risk and the following considers the types of risk associated with an

investment of this kind. This brochure does not constitute investment advice and prospective investors should

consult their own legal, financial or tax advisers in relation to their participation in the investment. All projections,

forecasts and estimates contained in this brochure are prepared on the basis of current information, legislation and tax

practice in Ireland and U.S. This brochure includes information obtained from external sources, and we have taken

reasonable endeavours to accurately reproduce such information. Anglo does not accept any responsibility for its

accuracy or completeness. (Emphasis added)

Prospective investors should consider the following risks amongst others”

60. There then follows a list of ten different types of risk with a short discussion of each. No zoning risk is mentioned.

61. The tight timescale for available for an investor to consider whether or not to invest has already been mentioned. This has a

particular relevance in relation to the zoning risk because to take advice on it, as the investors were urged to do, would have

involved sourcing and instructing a highly specialised lawyer in New York, and inducing him or her to advise in just a few days.

62. Finally, at p.35 of the document there is a section entitled “Investment Steps”. This says; so far as relevant:-

“The following are the steps to be followed once a decision has been made to invest (Emphasis added).

(1) The investor should complete the following document

- Subscription document,

- W - 8 tax form,

- Power of Attorney in order to facilitate the operation of the partnership,

- Professional Investor Declaration.

63. This latter is a declaration that the investor wishes to be treated as a professional investor and not a consumer and therefore

excludes him from the benefit of certain laws and practices for the protection of consumers.

Zoning warning.

64. The role of Mr. Sillerman, a New York Attorney specialising in planning, has already been mentioned. He and his firm, together with

other lawyers were involved in advising Anglo as to whether or not the zoning issues required to be disclosed. In an email of the 31st

August, 2006 Mr. Garrett Thelander of Anglo had suggested to him by Mr. Sillerman the following words for zoning disclosure i.e. a

form of words suggested for use in what became the “black brochure”.

65. This was as follows:

“Zoning

The Company intends to continue operating the Eastgate and the Beekman as transient hotels. It should be noted that

the Certificates of Occupancy for the hotels permit only partial transient hotel use for the Eastgate and only residential

hotel use for the Beekman. Both hotels are in an area of Manhattan in which the construction of a new building for use as

a transient hotel (as opposed to use as a residential hotel) is not permitted on an as-of-right basis. However, zoning

regulations permit the continuation of a use where prior non-conforming use is demonstrated.

Zoning Counsel has advised the Fund that other hotels in circumstances similar to those of the Eastgate and the Beekman

have been traditionally granted changes to their Certificates of Occupancy to permit transient use. However, Zoning

Council has also advised the Fund that it cannot be completely assured of that outcome. If the use of the hotels for

transient purposes were to be challenged, the Fund would either apply to obtain the changes, which could take time, or

operate both hotels as residential to the extent required”.

66. This is a relatively anodyne form of words, but one which clearly indicates the nature of the problem that had arisen. It omits to

offer any opinion as to the probability of the change that might be sought for the Certificates of Occupancy being granted. It also

omits to advise on the length of time or the cost involved to procure such alteration. I consider that this form of words would alert a

prudent potential investor to the need to form some view on these topics, presumably by taking specialist New York advice, if he or

she were seriously interested, but concerned about zoning. I also consider that if such a prudent investor were also aware that

Anglo, for a discount of just US$1m on a consideration exceeding US$150m had agreed to buy, not merely the hotels, but the zoning

risk that went with them from the Denihans, such a person would look more closely at Anglo’s own involvement in the transaction, and

in the risk, and inquire what advice it had taken and what the purport of that advice was.

67. But the “prudent investor”, like the “reasonable man” is a legal fiction, a construct, an abstraction, whose putative thoughts and

actions may on occasion bear little or no resemblance to how real people actually operate.

The Commitment Agreement.

68. This document was signed by the plaintiff on the 27th September 2006 and is the principal document or agreement of which the

plaintiff seeks rescission. Clause 3 of the document is extensively relied upon in the defendant’s defence, referred to above. Particular

emphasis is placed on the “Representation and Warranties of the Investor” set out there:

“Representations and Warranties of the Investor. “To induce Mainland to accept this subscription, the investor

represents and warrants as follows:-

(e) “To the full satisfaction of the Investor, the Investor has been furnished any materials the Investor has requested

relating to the Partnership and the offering of the Interests and the Investor has been afforded the opportunity to ask

questions of representatives of the Partnership and Mainland concerning the terms and conditions of the offering of

Interests and to obtain any additional information necessary to verify the accuracy of any information provided to such

Investor and to make an informed investment decision with respect to an investment in the Partnership,

(f) other than as set forth herein, the Partnership Agreement and any separate agreement in writing with the Partnership

executed in conjunction with the Investor’s subscription for Interests, the Investor is not relying, and will not rely, with

respect to its Interests, upon any other information (including, without limitation, any advertisement, article, notice or

other communication published in any newspaper, magazine or similar media or broadcast over television or radio, and any

seminars or meetings whose attendees have been invited by any general solicitation or advertising), any representation or

warranty by the Partnership, the General Partner, Mainland, any Affiliate of any of the foregoing or any of their respective

directors, officers, employees, partners, shareholders, advisers, attorneys in fact, representatives or agents, written or

otherwise in determining to invest in the Partnership, and indirectly the real property located at 3 Mitchell Place, New

York, New York USA and 222 East 29th Street, New York, New York USA (the “Properties”) and expressly acknowledges

that none of the Partnership, the General Partner, Mainland, their respective Affiliates, nor any of their respective

directors, officers, employees, partners, shareholders, advisors, attorneys-in-fact, representatives or agents makes any

representations or warranties to it in connection therewith. The Investor has consulted to the extent deemed appropriate

by the Investor with the Investor’s own advisers as to the financial, tax, legal and related matters concerning an

investment in interest and on that basis believes that an investment in the Partnership, and indirectly the Properties is

suitable and appropriate for the Investor.

(j) The Investor has, independently and without reliance upon the Partnership, Mainland, their respective Affiliates, nor

any of their respective directors, officers, employees, partners, shareholders, advisors, attorneys in fact, representatives

or agents, and based on such documents and information as it had deemed appropriate, made his or her own appraisal of

and investigation into the business, operations, property, financial and other condition, credit worthiness and merits and

consequences of investing in the Partnership and, indirectly the Property, and has made his or her own investment

decision with respect to the investment represented by his or her Interests and his or her participation in the Partnership

and, indirectly, the Properties,

(k) The Investor has, based on his or her own investigation of the interests, the Properties and the Partnership, made his

or her own independent analysis of the likelihood of its success and such investor acknowledges and agrees that the

information regarding the Interests, the Partnership and the Properties (including financial, operational and performance

data and projections) and the economic and market information contained in any materials provided (whether by Mainland

or others) to such Investors in connection therewith would have been obtained or derived from sources prepared by other

parties and that none of the Partnership, Mainland, their respective Affiliates, nor any of their respective directors,

officers, employees, partners, shareholders, advisors, attorneys-in-fact, representatives or agents, assumes any

responsibility for the adequacy, accuracy, completeness or reliability of such material or such information, the Investor

acknowledges that past performance is no indication of future results, and that actual results may differ materially from

projected, estimated or targeted results.

(i) The Investor acknowledges and agrees that (i) any materials provided (whether by Mainland or others) in connection

with such Investors’ investment in the Partnership and indirectly, the Properties, do not purport to be comprehensive or

complete or to contain all information or to describe the risks and potential conflicts of interest that such Investor may

consider material in making a decision to invest in the Partnership and, indirectly, the Properties. (ii) such Investor must

perform his or her own independent due diligence and independent analysis of the merits and the legal, tax, regulatory,

financial and other risks of an investment in the Partnership (and any series of Interest therein) and, indirectly, the

Properties prior to subscribing for Interest, and (iii) none of Mainland, its respective Affiliates, nor any of their respective

directors, officers, employees, partners, shareholders, advisors, attorneys in fact, representatives or agents assume any

responsibility for, and shall have no liability in respect of the materials referred to in Clause (i) above,

(m) The Investor acknowledges and agrees that the Partnership, the general partner, Mainland, the respective Affiliates,

and their respective directors, officers, employees, partners, shareholders, advisors, attorneys in fact, representatives or

agents may have confidential information relating to the Partnership, the General Partner, the interests and the Properties

that has not been disclosed to such Investor, and that notwithstanding such non-disclosure, such Investor has received

information deemed by him or her to be sufficient to allow him or her to make an independent and informed decision with

respect to his or her investment in the Partnership, and, indirectly, the Properties.”

69. It is true, and the learned trial judge acknowledged it, that these clauses referred to “the partnership, the general partner,

Mainland, their respective affiliates and their respective directors, officers, employees, partners, shareholders, advisers, attorneys-in-

fact, representatives or agents” do not refer specifically to the Bank. But it was the learned trial judge’s view that:

“However, it seems to me given the nature of the relationship between Anglo and Mainland and the circumstances in

which Mainland came into existence, that it is impossible to argue that Anglo and Mainland are not Affiliates of each

other.”

70. Indeed, if the Bank, for the purpose of defeating the plaintiff’s claim, or any other purpose, claimed not to be party to the

Commitment Agreement, that contention would be manifestly ridiculous.

71. These “representations and warranties” are said to have been made by the plaintiff but were in reality drafted by the Bank,

presented to Mr. McCaughey and signed by him. In my view they are in terms which are breathtakingly broad. They involve him

stating that he has all the material that he wants, that he is not relying on any representations and that he has made his decision on

the basis of his own appraisal, and that he recognises that he may not have been given complete information but wishes to proceed

all the same. This assessment is substantially that of the learned trial judge. I agree with it and would further say that the object of

the clauses just quoted is to exempt the Bank from liability for anything except direct lies and actual fraud or fraudulent concealment.

The Resolution in the High Court.

72. The resolution of this action in the High Court very largely influences the approach that must be taken on this appeal. The learned

trial judge, having set out the causes of action which the plaintiff urged found at p.42 as follows:

“I have concluded that the effect of the provisions of the Commitment Agreement is that the plaintiff is precluded from

pursuing claims other than those based on fraud. In so far as the plaintiff has formulated a claim in tort, under various

heads of claim, it must be recognised that this is a case where the parties have ordered their relationship on the basis of

detailed, precise and elaborate contractual provisions. The effect of this is that the defendant’s obligations in tort cannot

be more extensive than what the parties have by contract determined should be the position. This much is clear from the

judgment of the Supreme Court in Kennedy v. A.I.B. [1998] 2 I.R. There, Hamilton C.J. referred with approval to the Court

of Appeal decision in the case of National Bank of Greece SA v. Pinios Shipping Company, (No. 3) [1998] 2 Lloyds REP

126…

With reference to that case Hamilton C.J. observed that it clearly established that when parties are in a contractual

relationship, their mutual obligations arise from their contract and are to be found expressly or by necessary implication in

the terms thereof and that obligations in tort which may arise from such contractual relationships cannot be greater than

those found expressly or by necessary implication in their contract.

While the exemption clauses are very comprehensive indeed it is, nonetheless, not in dispute that the plaintiff is not in

any way prohibited from pursuing the claim that he wishes to in fraud, resulting if successful in an order for rescission.

The law does not permit a contracting party to exclude liability for his own fraud in inducing the making of the contract, a

long established principal that was restated relatively recently by the House of Lords in H.H. Casualty and General

Insurances Limited v. Chase Manhattan Bank [2003] 1 CLC 358.

If the plaintiff is to succeed therefore, he must establish fraud.”

73. The significance of what was held in the passage just cited is momentous in terms of the resolution of this Appeal. As we have

seen, the learned trial judge cited the clauses in the Commitment Agreement relied upon by the defendant in its defence, whose

effect is summarised above and whose text has been set out earlier. I do not at all dissent from the learned trial judge’s summary of

the effect of these clauses: indeed, I would put it still more directly and say that the Bank has exempted itself from liability for

anything short of direct lies or fraudulent concealment. A Bank will rarely need to have to have recourse to direct lies in order to

achieve a desired result. I would also point out that the relationship brought about by the Commitment Agreement is absolutely at

variance with the relationship of customer and “Private Banker” as described and acknowledged by Mr. Brophy, but this latter found

no reflection in the legal documents put forward by the Bank and signed by the plaintiff, whatever impression may have been

generated in less formal language and more relaxed circumstances.

74. The plaintiff says that terms by way of exemption or exclusion of liability as drastic as those found in this case are “particularly

onerous or unusual”. The Court of Appeal in England held in the case of Inter-photo Picture Library Limited v. Stiletto Visual

Programme Limited [1989] 1 QB 433 that clauses which fall within this category must be shown by the parties seeking to rely on

them to have been “brought fairly and reasonably to the attention of the other party”. The plaintiff relies on the words of Bingham LJ

(as he then was) at p. 445:

“The defendants are not to be relieved of their liability because they did not read the condition, although doubtless they

did not, but in my judgment they are to be relieved because the plaintiffs did not do what was necessary to draw this

‘unreasonable and extortionate’ clause fairly to their attention”.

75. The learned High Court judge distinguished this case on its facts holding, at p.37 that:

“Here, in contrast, the plaintiff called to the defendant’s premises specifically for the purpose of executing documentation.

The documentation was obviously of a legal character and the plaintiff accepts that he was aware that the document

contained legal terms. That a contract would seek to regulate the relationship between plaintiff and defendant is not at

all unusual, on the contrary, it is to be expected. Neither is there anything unusual in a pre-printed contract containing

provisions seeking to safeguard and strengthen the position of the party that prepared it, indeed quite the contrary. How

broad the terms of any exclusions or how specific any recommendations will be, can be expected to vary considerably but

that very fact means that it is incumbent on a party who is signing a document that he knows contains contractual terms

to satisfy himself that these are appropriate to his situation.”

76. I fully acknowledge that the circumstances in which the plaintiff signed the Commitment Agreement, and the nature and indeed

appearance of the Agreement itself, would make anyone aware that the document contained legal terms. However, having regard to

the principles set out in the passage just cited from Bingham LJ, and having regard in particular to the breathtaking scope of the

clauses quoted, I do not necessarily agree that the matters referred to in the citation above from p.37 of the judgment of the High

Court are necessarily sufficient to bring the actual nature and content of the clauses fairly to the attention of a person in the

plaintiff’s position. It may be, having regard to the scope of the clauses, and to their variance with the nature of the previous

relationship between the parties, that such a persons attention should be drawn in absolutely express terms to their enormous scope

and to the total exclusion of liability which they attempt. But this question does not appear to me to be necessary to be resolved in

the present case having regard to the subsequent findings of the learned trial judge on the non-fraud issues.

77. The learned trial judge held (p.41) that the present was a case of contractual estoppel “whereby the parties have expressly and

specifically agreed that irrespective of whether a representation was made or not, or whether there has been any non-disclosure,

that the plaintiff would not rely on that”. He was thus confined to relying on a cause of action in fraud and nothing else.

78. The learned trial judge then went on to consider what was required in order to establish fraud. He followed the decision of

Shanley J. in Forshall v. Walsh and Bank of Ireland (High Court, unreported 18th June, 1997). This case listed the elements which a

plaintiff seeking to establish fraud or deceit must show:

“(i) The making of a representation as to a past or existing fact by the defendant,

(ii) That the representation was made knowingly or without belief in its truth, or recklessly, careless of whether it is true

or false,

(iii) That it was intended by the defendant that the representation should be acted upon by the plaintiff,

(iv) That the plaintiff did act on foot of the representation and

(v) That the plaintiff suffered loss as a result.”

79. These elements of actionable deceit have been well established in the case law for well over a century. Since that line of

authority is aptly epitomised in a modern Irish case, there is no need to review the authorities generally. But the present case is

based very largely on concealment, and it is obvious that to suppress a material fact may give a false impression even though no

positive falsehood is spoken or written.

80. This state of affairs has been recognised by the law for centuries. It was strikingly expressed almost one hundred and fifty years

ago in another case to do with a company seeking investors, Oakes v. Turquand and Harding [1867] LR 2 HL 325 when Lord

Chelmsford said:

“It is said that everything which is stated in the prospectus is literally true, and so it is, but the objection to it is not that

it does not state the truth as far as it goes, but that it conceals most material facts with which the public ought have to

been made acquainted, the very concealment of which gives to the truth which is told the character of falsehood”.

81. The fourth and fifth constituents of a claim for fraud and deceit, as set out by Shanley J., must be read in a slightly altered way

when applied to a fraud or misrepresentation by concealment. The plaintiff cannot have acted on what was concealed, although he

may be said to have acted on the balance of the representation which (unknown to him) is qualified or falsified in its effect by the

omission. Furthermore, to show that he has “suffered damage as a result” of the omission seems necessarily to involve the negative

proposition that he would not have acted in the manner that resulted in the loss, absent the omission.

The High Court’s dismissal of the fraud allegations.

82. The High Court dismissed fraud allegations in relation to each of the matters mentioned above as forming the subject of dispute.

The High Court also dismissed the non-fraud allegations, for example those of negligence, largely on the basis of a finding that the

disclosure of the zoning issue would not have made any difference to the plaintiff: he would have proceeded with the investment

regardless. In doing so, it held (p.47) that:

“it must be said that some of the issues which appear to have the potential to be of the greatest significance in fact

turned out to be balls of smoke”.

83. Later, at p.88 the learned trial judge expressed the view:

“I do believe that this conflict between the parties has brought to centre stage risks that otherwise would be regarded as

remote or theoretical”.

84. In the particular context of the zoning issue, the learned trial judge first essayed, it seems to me with great success, a “thumbnail

sketch of the zoning law in New York” at p.70 ff. He then offers a detailed relevant history of the hotels in question from a zoning

point of view before turning to the question of zoning as it appeared in the context of the Bank’s contract to purchase the hotels

(March - May 2006) and again, five or six months later, in the days prior to the finalisation of the text of the black brochure (last

days of August and into September, 2006). It should be said that the learned trial judge acknowledged the distinction made by the

plaintiff between the zoning issue and the other issues in that the zoning issue gave rise to very serious discussion between Anglo,

their American partners and the lawyers representing various participants as to whether or not disclosure of the zoning issue should

be made whereas the other issues did not cause any such anxiety. This discussion is analysed in great detail between pages 74 and

89 of the learned trial judge’s judgment. He concluded that:

“I do not believe that there was information available either in the Spring or Autumn of 2006 to indicate that there was

cause for particular concern in relation to either hotel.” (p.84)

85. On the following page he says:

“It seems to me that all involved with the two hotels in 2006 were entitled to be confident that the issues related to

zoning and Certificates of Occupancy could and would be regularised. Whether the Certificates of Occupancy would be

permitted to be amended was primarily an issue of fact.”

86. The learned trial judge placed particular emphasis on the fact that the hotels are still operating “to this day other than in

accordance with their Certificates of Occupancy”.

87. He also acknowledged that there was no absolute certainty that the zoning issue could be resolved but observed, at p.86;

“There must be few successful applications in any area of the law where it is not possible to consider in retrospect, and

say ‘could it have gone wrong?’. However, trying to view matters in the round and attempting to put myself in the

position of someone giving consideration to the issue in August 2006, it seems to me that it would have been very

reasonable to expect with real confidence that the building department would acknowledge the reality of the existence of

lawful non-conforming uses. Both hotels gave a clear impression of having lawful uses that were deeply entrenched and

this, more than anything else, is what would have occurred to anyone considering the situation.”

88. The learned trial judge considered in detail the evidence of Mr. Sillerman, who gave evidence for the plaintiff. He fully

acknowledged the various risks attested to by Mr. Sillerman. He was, however, impressed by the contents of Mr. Sillerman’s own

application to Commissioner Santulli, Manhattan Borough Commissioner, Department of Buildings, in 2007. Mr. Sillerman had then

pointed out, in factual statements made in a specific and unequivocal manner, that the case for continued total transient use (and if

necessary amendment of the Certificate of Occupation) was very strong. Accordingly, the learned trial judge was able to conclude, at

p.92:

“I am of the view that any risk facing the hotels in 2006 was very small. While a satisfactory resolution might not have

been completely assured it was certainly to be expected and indeed confidently expected. There was, I am satisfied, a

clear belief on the part of the Anglo personnel that the issue was one that was capable of ready resolution and that belief

was an honest one and a reasonable one and indeed one that was later proved to be correct and quickly proved to be

correct.”

89. I would add that the very small discount accepted by Anglo in return for assuming the zoning risks seems to fortify that finding.

Finding on non-fraud issues.

90. The learned trial judge next connected the fraud and non-fraud issues with his finding on p.93:

“Accordingly, I do not believe that there is any substance in the suggestion that Anglo acted fraudulently in publishing

and distributing a brochure that did not contain a reference to the zoning issue, nor am I of the view that the

publication of the brochure was in this regard negligent.” (Emphasis added)

91. Immediately after this finding the learned trial judge made a number of other findings of great significance. Firstly, he dismissed

Mr. McCaughey’s evidence that he would not have invested in the Fund had the brochure contained any reference to zoning. He did

so in the following language, at p.94:

“I do not lose sight of the fact that the plaintiff has given very firm evidence that he would not have invested in the Fund

had the brochure contained any reference to zoning. He has described his evidence in that regard as ‘categorical’ and has

referred to the fact that he has in the past declined to become involved in investment opportunities in Ipswich and

Sheffield which appeared to raise zoning issues.”

92. He elaborated on this finding as follows:

“I do not, at all, believe that Mr. McCaughey has been intentionally untruthful in making the statement that he has, but I

do believe [that] that statement is the product of hindsight and indeed of wishful thinking. This statement is undermined

by the fact that Mr. McCaughey has also said that had he known about the interest rate strategy and about the long

term tenants, and the status of the renovation budget that he would not have invested. Indeed, it must be said the

phrase ‘I would not have invested’ became something of a mantra. In my view no reasonable prudent investor who found

the proposed investment otherwise attractive, is likely to have been dissuaded from investing by being told about the

reality of the zoning issue.”

93. The learned trial judge then went on, at p.95 to reiterate his dismissal of the fraud based causes of action. He then observed

that:

“Having regard to the view that I have formed about the effectiveness of the exemption clauses contained in the

commitment agreement, that would be sufficient to dispose of the case. However, I should add that the plaintiff has also

failed to establish the evidence and entitlement to succeed on any one of the non-fraud elements of the claim.”

94. The explicit finding on the basis of which the learned trial judge dismissed the plaintiff’s non-fraud claims is his finding that the

plaintiff would not have been dissuaded from investing by being told the reality of the zoning situation.

95. In the course of the hearing of this appeal Mr. Hayden S.C. for the plaintiff/appellant specifically conceded that the wording

suggested by Mr. Sillerman, and set out above, would have been sufficient, in the plaintiff’s view, to meet the Bank’s disclosure

obligations. Referring to this form of words, the learned trial judge found:

“The language suggested for inclusion by Mr. Haskin, which he had obtained from his lawyers, was itself quite comforting.

If it were felt that an Irish readership would benefit from greater elaboration of the situation relating to zoning/Certificates

of Occupancy, then that could have been provided and would have offered additional comfort”.

Status of the foregoing findings.

96. The above findings have been made by the learned trial judge in the course of a meticulous judgment and after a hearing in which

both the plaintiff and witnesses on his behalf, including expert witnesses on New York Law, gave evidence and were cross-examined.

Similarly most of those involved on the side of the Bank and their advisers, including each sides expert on New York Zoning Law gave

evidence and were cross-examined. The content of foreign law requires to be proved as a fact in this jurisdiction and in most Common

Law jurisdictions. I am therefore of the view that the findings set out above, both as to the significance of the zoning issue and as to

the state of mind of Mr. McCaughey, are findings of fact made by the judge of the High Court after hearing appropriate evidence to

allow him to make them.

97. I am also of the opinion that they are findings of primary fact being “determinations of fact depending on the assessment by the

judge of the credibility and quality of the witnesses. It is for the determination of those facts that a viva voce hearing takes place”.

98. The foregoing quotation is from the judgment of Henchy J. in M. v. An Bord Uchtála [1987] IR 510 at 523.

99. In such circumstances, as Henchy J. puts it:

“Because those facts depend on the oral evidence given and accepted in the High Court, this Court on appeal will not

normally reverse such findings. Even if it deems different findings to be more appropriate, or even if the findings made

seem to it to be incorrect, this Court will not normally interfere with them. This is because it has not had the advantage

of seeing and hearing the witnesses as they gave their evidence. It is only when findings of primary fact cannot in all

reason be held to be supported by the evidence that this Court will reject them - see Northern Bank Finance v.

Charlton [1979] IR 149.”

100. The conclusions of the learned trial judge at the end of his judgment, summarised at pages 93 - 95, appear to me to depend on

certain earlier findings:

(i) “all involved in the two hotels in 2006 were entitled to be confident that the issues relating to zoning and Certificates

of Occupancy could and would be regularised. Whether the Certificates of Occupancy would be permitted to be amended

was primarily an issue of fact.”

(ii) “I do not believe that the brochure misrepresented the situation as of the date of publication.”

(iii) The judge heard conflicting evidence from “two distinguished members of the New York Land Use Bar, Mr. Sillerman

and Mr. Masyr”. With the result that, as he said “I am now left with the unenviable task of choosing between the

correctness of their views when they find themselves in disagreement”. He preferred the defendant’s experts evidence.

(iv) The learned trial judge withheld belief from the plaintiff’s assertion that “he would not have invested in the Fund had

the brochure contained any reference to zoning”. The judge held that the phrase “I would not have invested” itself

“became something of a mantra”, and gave reasons for that conclusion.

(v) “In my view no reasonable prudent investor who found the proposed investment otherwise attractive is likely to have

been dissuaded from investing by being told about the reality of the zoning issue”.

101. The plaintiff/appellant criticised those findings and others like them on the grounds that they attached too much importance to

what a “reasonable person” or a “prudent investor” would have thought about the reality of the zoning issue and how such a

hypothetical person would have acted. This, counsel said, was to impose an objective standard whereas the plaintiff was entitled to

have the effect of the omission to mention zoning assessed in terms of its subjective impact upon him.

102. I do not accept that this is a proper ground of criticism of the judgment. When one is assessing a statement of a person as to

what he would have done, or not done, had matters developed differently to the way they actually developed, it is reasonable to

consider, as a starting point, whether his claimed reaction would have been reasonable. It would quite wrong, of course, to proceed

on the basis that only a reasonable reaction was open to him because the Courts very often see instances where people react to

particular developments in ways which are irrational, exaggerated, unduly bellicose or unduly timid, or otherwise improbable. But the

learned trial judge’s finding here made every allowance for the capacity for odd reactions for subjective reasons and found that,

though he did not accept Mr. McCaughey’s evidence that “I would not have invested”, that this reaction was subjectively genuine

and “the product of hindsight and wishful thinking”, not of deliberate falsehood.

103. The dictum of Henchy J. on the status of judicial findings of fact is consistent with the long established jurisprudence in this

country and in the neighbouring jurisdiction from The S.S. Gairloch, Aberdeen Glenline Steamship Company v. Macken [1899] 2 IR 1,

Minister for Justice v. S.M.R. [2008] 2 IR 242.

104. In the former case, Holmes LJ said:

“When a judge after trying a case upon viva voce evidence comes to a conclusion regarding a specific and definite matter

of fact, his finding ought not to be reversed by a court that has not the same opportunity of seeing and hearing the

witnesses unless it is so clearly against the weight of the testimony as to amount to a manifest defeat of justice.”

105. To practically the same effect is the well known dictum of McCarthy J. in Hay v. O’Grady [1992] 1 IR 210 at 217:

“An appellate court does not enjoy the opportunity of seeing and hearing the witnesses as does the trial judge who hears

the substance of the evidence but, also, observes the manner in which it is given and the demeanour of those giving it.

The arid pages of a transcript seldom reflect the atmosphere of a trial.

If the findings of fact made by the trial judge are supported by credible evidence, this Court is bound by those findings,

however voluminous and apparently weighty the testimony against them. The truth is not the monopoly of any majority.”

106. I do not consider that the relevant findings in this case are findings which rely on inference rather than being findings of primary

fact. In every case where the credibility of a witness is at stake - credibility in the sense of whether or not the witness is giving a

credible account, not necessarily whether he is lying - are of necessity issues of fact.

107. The finding as to Mr. McCaughey’s intending to invest in the Fund regardless of what he was told about the zoning issue is a

finding as to his state of mind. This, on the authority of Bowen LJ’s well known dictum in Edgington v. Fitzmaurice (1885) 29 Ch D

459, is a matter of fact.

108. Edgington is another case where an investor was gravely disappointed and considered that the terms of a prospectus on the

faith of which he had invested money were fraudulent both in what they said and what they omitted to say. He was upheld in these

beliefs by both the High Court and the Court of Appeal in England. One of the points which those concerned in the management of

the Company took in answer to his claim was that certain statements in the prospectus were not statements of fact, as is required to

constitute actionable fraud, but merely statements of intention. In a memorable passage, at p.483 of the Report Bowen LJ found as

follows:

“A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis

for an action of deceit. There must be a misstatement of an existing fact: but the state of a man’s mind is as much a fact

as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time

is, but if it can be ascertained it is as much a fact as anything else.”

109. This finding arose in the context of a defendant’s attempt to distinguish a statement of intention from a statement of fact but I

am satisfied that it has the necessary corollary that the finding, quoted above, as to Mr. McCaughey’s state of mind at the time he

agreed to make the investment is a “determination of fact depending on the assessment by the judge of the credibility and quality of

the witness”.

110. In my view, it cannot be said that the learned trial judge’s findings in this regard is not “supported by credible evidence” and the

findings certainly cannot be said to be “so clearly against the weight of the testimony as to amount to a manifest defeat of justice”. I

therefore consider this Court to be bound by that finding. The finding itself is fatal to the non-fraud causes of action because it

destroys the causal link between the tort, however framed, and the deleterious result. The learned trial judge’s conclusions on the

fraud based causes of action are themselves based on findings of fact from which there is no scope for departing, some of which are

set out below.

Conclusion.

111. I would dismiss the appeal and uphold the order of the learned trial judge.