High Court allows plea of illegality in contracts despite market abuse directive, permitting plaintiffs to challenge illegal share price manipulation.

Neutral Citation Number: [2012] IEHC 36

The High Court

Commercial

2011 4336P

Between

CIARA QUINN, COLETTE QUINN, BRENDA QUINN, AOIFE QUINN, SÉAN QUINN [JUNIOR] AND PATRICIA QUINN

PLAINTIFFS

AND

IRISH BANK RESOLUTION CORPORATION LIMITED AND KIERAN WALLACE

Defendants

And

SÉAN QUINN [SENIOR], DARA O'REILLY AND LIAM MC CAFFREY

Third Parties

Judgment of Mr. Justice Charleton delivered on the 23rd day of February 2012:

A1 This is a preliminary ruling on the issue of the availability to the plaintiffs of a plea of illegality in contracts. Since the decision of

the House of Lords in Trevor v Whitworth (1887) 12 App. Cas. 409, it has been clear that a company must not finance the purchase

of its own shares. In some circumstances, the courts will not lend their aid to the enforcement of an illegal contract. Even without

the prescription of market abuse through Council Directive 2003/6/E.C. of the 28th January, 2003 on insider dealing and market

manipulation (“the Market Abuse Directive”), it was arguable that where a party suffered damage through, for instance, share price

fixing, that debts due to those who had illegally fixed the market might be defended by reference to the illegality principle. That

Directive, however, it is argued by the defendant, has so ring fenced the available remedies that this principle cannot be used outside

what the legislation has provided for. Modern companies legislation on a company buying its own shares, it is claimed, is to the same

effect.

A2 The illegality claimed in this litigation is the wholesale manipulation of the price of Anglo Irish Bank Corporation Limited shares to

the detriment of the plaintiffs; a scheme in which they say that they did not participate and of which they were innocent even of any

knowledge. The plaintiffs claim to have lost severely through this chicanery and plead that the receiver appointed over their shares in

various companies, through several guarantees and ultimately through a charge over shares in various companies made on the 19th of

December, 2008, is not entitled to act. It is through the latter instrument that a receiver was appointed on the 14th of April, 2011,

following on a demand for repayment of loans earlier in the same day, thus triggering a receivership event when these loans were not

repaid. The plaintiffs claim that such an event cannot lawfully occur due to the foundation of illegality on which the guarantees and

that charge is based.

A3 The Irish Bank Resolution Corporation Limited, the first defendant herein, was formerly called Anglo Irish Bank Corporation Limited.

Under that name, it caused incalculable damage to the Irish economy. Since it was nationalised by government decision of the 1st

January, 2009, the new management have been trying to work through a litany of problems left by the prior controllers. This case is

one. I will call the defendant “Anglo”. The second defendant is the receiver over shares under an instrument to which reference will

later be made. The plaintiffs are the wife of, and the five adult children of, Seán Quinn Senior, a third party to this litigation. I will call

the plaintiffs “the Quinns” and refer to Seán Quinn Senior, the third party, simply as “Seán Quinn”.

Issue

B1 As this is a judgment given on a preliminary issue, I am taking the case of the plaintiffs at its highest. Any remark as to the facts

is not a decision but a reference to what the plaintiffs plead. Since the argument of counsel helpfully ranged widely on illegal

contracts as a remedy and as a defence, and on the availability of the plea in the particularly tortuous circumstances of this case,

the Court must focus on what it is asked to decide. This is best seen by reference to the text of the preliminary issue set by Kelly J.

and by reference to what was refused to be set.

B2 By order of Kelly J. dated the 16th of December, 2011, this Court is required to rule on the following preliminary issue:

Do the plaintiffs or any of them have the standing or entitlement to rely upon the alleged or any breach:

(A) of the Market Abuse Regulations; or

(B) section 60 of the Companies Act 1963,

in aid of any of their claims for declarations of invalidity, unenforceability or no legal effect in respect of any charge [on] shares or

any personal guarantees herein?

B3 Were the decision on that issue to be positive, Anglo asked for a number of other issues to be decided. These included: the

relationship of various transactions to the illegality alleged and the effects thereof; the recoverability of loans to the Quinns in whole

or in part; the recoverability by reason of illegality on the share charge; an issue related to refinancing in October, 2008 the main

July, 2008 borrowing facilities; a further issue on the recoverability of loans; and a further issue of the effects of any finding of

legality on the guarantees given by the Quinns. All of these preliminary issues were refused by Kelly J. It is clear, consequently, that

the core of this decision is on the issue as to whether the Market Abuse (Directive 2003/6/E.C.) Regulations 2005 (S.I. No.

342/2005), as transposed into Irish law, and section 60 of the Companies Act 1963, are confined as to remedy only to those criminal

sanctions and responses in civil law as set out in legislation, or whether, as is argued on behalf of the Quinns, a general principle of

illegality with an effect on the various contracts underpinning the loans, the guarantees and share charge, may be called in aid by

them.

Share price

C1 Since this case may ultimately pivot on what the share price of Anglo was, it may be useful to provide a snapshot at various

relevant stages of the price of trading in those shares: October 2005 - €11.61; April 2006 - €13.07; August 2006 - €11.36; December

2006 - €15.41; February 2007 – €16.33; March 2007 - €16.24; April 2007 - €16.55; June 1st 2007 - € 17.53; later in June 2007 -

€15.97; August 2007 - €13.44; October 2007 - €11.35; November 2007 - €10.79; December 2007 - €11.47; January 2008 - €9.53; 14

March 2008 - €8.20; 19 March 2008 - €6.90; June 2008 - €7.58; July 2008 - €5.45; later in July 2008 - €5.27; November 2008 -

€0.92; December 2008 - €0.19; January 2009 - €0.20. Nationalisation of Anglo was put into effect shortly afterwards. This series of

share prices reflects the confidence of what is, in our time, personified as ‘the markets’. More prosaically, it reflects how many people

want, or do not want, shares in a company.

Background

D1 If a series of financial transactions can be called horrific, that epithet would apply to the allegations made as plaintiffs by the

Quinns against Anglo and against Seán Quinn. As of the date of this judgment, what follows are only claims of fact and not facts.

D2 There are about 95 companies in the Quinn group of companies. The main holding company is Quinn Group (RoI) Ltd. I will call the

various companies “the Quinn Group”. Whereas these companies were built up by Seán Quinn, and shares in them are held by various

means through other companies, the ultimate beneficial owners are the plaintiffs, the Quinns. In addition, a portion of the cash

reserves of these companies was used by the Quinns to purchase additional solid investments in hotels in foreign cities. Unbeknownst

to the Quinns, from September 2005 Seán Quinn began purchasing contracts for difference in Anglo. If the price of the shares went

up, there was a gain; if it went down there was a call for cash loss. For tax efficiency purposes the company used a foreign

corporate entity which I will call “Bazzely”. This company was owned by the first to fifth named plaintiffs. It did not have a bank

account and monies were transferred to the service provider by companies within the Quinn Group, owned and ostensibly controlled

by the Quinns. Typically, a contract for difference will require an investor to pay approximately one third of the traded share price.

The provider of the contracts for difference may not even hold the share. It can be that both parties are taking a gamble on how the

shares will perform. Unbeknownst to the Quinns, Seán Quinn began investing heavily in these wagers on the movement of Anglo

shares. Positions had been taken initially in other companies apart from Anglo, and the risk had been well spread so that as of the end

of 2005, Bazzely held only contracts for difference in respect of 6 million shares; not more than a few percent of the issued share

capital. As these gambles in Anglo share positions paid off, without the assent or knowledge of the Quinns, Seán Quinn returned the

proceeds into the purchase of yet more of the same. Through 2006 and 2007, again without the knowledge or assent of the Quinns,

Seán Quinn moved money invested in positions on other companies and placed further bets on contracts for difference in Anglo. From

July 2008 the first to fourth named plaintiffs were aware of the general investments in contracts for difference by Seán Quinn. The

fifth named plaintiff had become aware in June 2007. All of this gambling was initially profitable as the share price in Anglo continued

to climb to the highest point on 1 June 2007 of €17.53. Thereafter, a steady and marked decline set in. Whereas huge amounts of

money are alleged to have been forwarded by Anglo to prop up its share price because of this, it should not be forgotten that Anglo

continued to have a legitimate business relationship and to legitimately fund companies in the Quinn Group for their various enterprises

such as cement, insurance, quarrying or finance.

D3 On the 11th September, 2007, Seán Quinn and Liam McCaffrey of the Quinn Group met with David Drumm and Seán FitzPatrick,

then respectively chief executive and chairman of Anglo. At this meeting Seán Quinn revealed, to the alarm of the Anglo gentlemen,

that the Quinns held contracts for difference in Anglo shares which would approximate to 24% of its entire issued share capital. By

way of contrast, the next highest holder of any stake in Anglo held about 3%. About a week later, as the share price continued to

drop, Dara O'Reilly who was finance director of the Quinn Group telephoned Elma Kinane in Anglo and discussed the number of

contracts for difference held in respect of Anglo shares and the loss being experienced by the investor. This initiated regular

telephone calls on these issues. During the rest of that month, €100 million was advanced by Anglo to companies in the Quinn Group

with the express purpose of funding margin calls that were negative to Bazzely. From September onwards, a streamlined process was

initiated and followed through whereby Dara O'Reilly of the Quinn Group would contact Liam McCaffrey of Anglo, or someone

authorised by him, so that funds would be advanced to meet the negative margin calls. On the face of the documentation relevant to

these substantial loans, these were referred to as funds for property acquisitions; but this is alleged to be fraudulent. In December,

2007 a further €500 million was advanced on the basis of discharging loans advanced by companies within the Quinn Group that were

applied to the benefit of the negative margin calls. In addition, the annual accounts of the Quinn Group were to be disguised so that

the exposure to this gambling in contracts for difference would not be noticed outside the allegedly small group of people in the know.

This particular sum of €500 million would only become repayable by the Quinn group without significant sales of the contracts for

difference should the price of Anglo shares reach €12.30. The decline in the share price, however, continued. In order to apparently

formalise that loan, boxes of security documentation were presented for signature by the Quinns. They signed. No legal advice was

offered and none was sought, apparently, by the Quinn adult children.

D4 Despite the decline in the share price of Anglo, Seán Quinn continued in 2008 to add to the existing acquisitions of contracts for

difference in Anglo shares. As the price of the shares declined relentlessly, further negative margin calls were made. It is pleaded that

for the dominant purpose of supporting and maintaining its own share price, Anglo continued to assist in the funding of the ongoing

negative margin calls and, further, took over the effective running of financing this decline. Anglo required that Bazzely not tarry in

meeting what were often daily payment demands. The process for freeing up and loaning funds became routine. It was that Anglo

would send a new facility letter to Dara O'Reilly and the Quinns would receive of that, they claim, only the final back sheet for

signature. The plaintiffs did not request more than this, apparently. This procedure, for whatever reason, kept them in a state of total

ignorance. Anglo never interacted with the Quinns in the sense of providing information or legal advice. Over the days around Saint

Patrick's Day 2008, the severe drop in the share price of Anglo resulted in tranches of €50 million, €20 million, €220 million and €60

million being provided by Anglo to prop up its share price through the Bazzely exposure effected by Seán Quinn. This €350 million of

loans was falsely described, at the insistence of Anglo, as bridging facilities to fund ongoing development projects in property in India

and Russia.

D5 In April, 2008 at the insistence of Anglo, exposure by Bazzely to contracts for difference in Anglo shares was to be reduced. There

was a meeting on Easter Monday between Anglo executives and Seán Quinn and others and thereby pressure was placed by Anglo to

reduce these holdings. In June, 2008 a major company in the Quinn Group, heavily exposed to these borrowings, and to other

borrowings from legitimate financial institutions, indicated that it would be compelled to make a detailed disclosure of the investment

holdings of the Quinns which would include the Bazzely positions. It is pleaded that Anglo executives were concerned that negative

publicity would further undermine its share price. Therefore, a further €200 million was to be advanced by Anglo, through various

means, in order to avoid disclosure of this repugnant scenario. Tied into this loan, at the insistence of Anglo, were share pledges as

security to be given by the Quinns.

D6 In July, 2008 David Drumm of Anglo insisted to Seán Quinn that the exposure to contracts for difference in Anglo shares be

reduced. The share price had, by that stage, plummeted to about a third of its highest price. 10% of the position held by Bazzely was

offered on the international market through an investment bank. No one took it up. By this stage, the holdings of Bazzely had grown,

it is pleaded, to represent about 28% of Anglo shares. These positions somehow amounted to 215,619,414 shares. It is not

demonstrated how the positions which were not share purchases, and the provision of them which did not require purchase by the

provider of shares, could so translate. In distortion of the market, and in furtherance of the previously pleaded agreement to fund an

interest in Anglo shares with the money of Anglo, in July, 2008 the contracts for difference were translated into shares and split three

ways. This is the split of July, 2008: 5 million shares continued to be held until nationalisation of Anglo in January, 2009; 108 million

shares in Anglo were purchased for the Quinns; and 102 million shares were purchased by a consortium that has been referred to as

the Maple 10. None of the plaintiffs were even aware that this vast number of shares had been purchased in their name and, it is

pleaded, they were never consulted about it. The funding necessary for this transaction was €478 million of which €302 million was

provided by refunds from the providers of the contracts for difference and a further €175 million was provided by way of a loan by

Anglo. In October, 2008 the facilities from July 2008 were refinanced for tax purposes whereby the shareholding of the Quinns in Anglo

was transferred to companies in Cyprus wholly owned by each of them though, again, none of the plaintiffs were aware of this.

Somebody, however, deliberately planned this for tax avoidance purposes. To purchase these funds, Anglo advanced €498 million of

which €175 million had previously been advanced and the remainder was a refinancing of facilities already provided to companies in

the Quinn Group. During October 2008, the Quinns became the owners of the various companies in Cyprus to which I will later refer.

Knowledge that they were the owners of these companies came to them only in September, 2010.

D7 It is alleged that on behalf of the Quinns, but without their knowledge or assent in any meaningful way, Bazzely made investments

in excess of €750 million to fund contracts for difference in Anglo shares and that to prop up the share price, and for that purpose, in

distortion of the natural market position, Anglo had to advance €1,800 million. At the moment the mathematics of this does not add

up. Since contracts for difference are typically bought at one third of the share price, some other factor must be present for Anglo to

need to spend about two and a half times the money expended to prop up the effects of that expenditure. The answer may lie in the

continual losses; though even there the allegation is at the moment hard to see through to a conclusion. It will be a matter of

assessment as to what price the share positions through contracts for difference would have been and, perhaps more relevantly, the

share price on the actual purchase of shares in July 2008 would have traded had this abuse of the market not taken place. That

would seem be one possible approach to measuring the loss alleged in consequence of the illegality.

D8 The statement of claim pleads at paragraph 74:

The sole or dominant motivation of Anglo in making these advances was to support and maintain its share price. Anglo

senior management, including its chief executive, supported and encouraged the [contracts for difference] position built

up in Anglo shares for the said purpose (including the allocation by Anglo of a significant number of Anglo shares as part

of a share placing on the 1st February, 2007, proportionate to what Mr David Drumm estimated to be Bazzely’s total

exposure to Anglo ads that time). The requirements of Anglo in this regard were further motivated by Anglo's own

knowledge that the affairs of the bank were being, and had been, managed in a fashion that paid no, or no adequate,

heed to the requirements of corporate governance or the interests of its shareholders. It is the plaintiffs’ case that

insufficient, misleading and inaccurate information was being made available to brokers, shareholders and potential

investors ...[and] the plaintiffs reserve the right to produce further particulars in this regard as they come to light.

D9 During 2005, Anglo was supposed to have made a pre tax profit of €685 million, of €850 million in 2006 and of €1,234 in 2007. It is

claimed that by reason of the matters pleaded, the personal guarantees and the share pledges, to which I will shortly make reference,

are unenforceable as the suit of Anglo and of no legal effect. This is a plea of illegality made in a positive sense against the

enforcement of share mortgages and loan guarantees with a view to ensuring that the second-named defendant, as receiver of those

shares, is disempowered. The illegality pleaded is claimed not to affect the position of the plaintiffs because, as is alleged, they took

no active role in any matter relating to Anglo lending and were dictated to as to the transactions, guarantees, purchases and share

charges, receiving no independent legal or financial advice and in circumstances where Anglo never sought a single meeting with any

of Quinns nor discussed any of the matters as pleaded with them. It is alleged that in 2009 Anglo instructed its solicitors to seek out

the Quinns and Seán Quinn and to provide for them independent legal advice. The solicitor contacted in that regard was from another

firm and he refused instructions on the basis that providing independent legal advice in relation to transactions that had long since

taken place would be inappropriate. The loan transactions are pleaded to be illegal under the Market Abuse Regulations and section 60

of the Companies Act 1963. It Is further pleaded at paragraph 111 of the statement of claim:

In all the premises and having regard to the knowledge of Anglo surrounding the various loan transactions, it owed a duty

of care to each of the plaintiffs and a fiduciary duty to ensure that the consequences of the various transactions were

explained to each of them and to ensure that they were advised of the opportunity to take independent legal advice. In

failing to do so, Anglo acted in flagrant breach of their duty of care and fiduciary duty to the plaintiffs (including, without

limitation, breach of Anglo's duty of care to the plaintiffs under the general principles outlined in the Consumer Protection

Code 2006) and each of them have suffered or will suffer severe loss and damage.

D10 I turn therefore to the relevant law in the context of what the Court can now ascertain about the documents necessary to put

in place the guarantees and charges which are impugned in these proceedings.

The documents and severance

E1 Impugned in these proceedings are share pledges over which the second named defendant was appointed as receiver on the 14th

April, 2011, following a demand from earlier that day for payment; non payment was a relevant default event. These share pledges

encompass obligations arising from: the share pledge between Brenda Quinn and Anglo in respect of her shares in Slieve Russell Hotel

Ltd. of the 10th March, 2009; the share pledge dated the 19th December, 2008, between Seán Quinn Jr. and Anglo of his shares in

Quinn Quarries Ltd.; the share pledge between Colette Quinn, Seán Quinn Jr., Ciara Quinn, Aoife Quinn and Brenda Quinn and Anglo of

their shares in Quinn Group (RoI) Ltd. of the same date; the pledge between the same parties of the same date of shares in Quinn

Finance Holding; the share pledge of the 14th January, 2003, between Aoife Quinn and Anglo in shares in Quinn Group Properties Ltd;

and the share pledge dated since January, 2005 between Colette Quinn and Anglo of her shares in Quinn Group Hotels Ltd. In

October, 2008 as part of the scheme to draw back from the contracts for difference in Anglo shares, all of the plaintiffs guaranteed

the borrowings of six Cyprus companies: Lud Investments Ltd.; Moshaid Investments Ltd.; Opawa Investments Ltd.; Pahu Ltd.;

Tarata Enterprises Ltd.; and Morboneto Holdings Ltd. These guarantees were expressed in terms of repaying loan facilities to Anglo

and interest thereon and were, in respect of the first five plaintiffs of the Quinn family, the adult children, for €77 million, and in

respect of the sixth plaintiff, Seán Quinn’s wife and the mother of the adult children, €102 million. On the shares in these Cyprus

companies, there are share mortgages in favour of Anglo. These are all dated the 7th October, 2008.

E2 Shares in valuable companies are charged pursuant to an agreement between those parties, the Quinns, and Anglo dated the 19th

December, 2008. This agreement recites that the chargors, the Quinns, have entered into that agreement in order to secure the

secured obligations; defined as “all monies and obligations, (whether present or future) due or owing by the borrowers to [Anglo] in

any capacity, whether as borrowers guarantors or otherwise” and that includes all amounts due to Anglo by them, through the

security trustee under the charge. Certain other shares are charged in respect of which the Quinns are full owners. Any demand made

by the security trustee under the agreement is an enforcement event. Under clause 6.2, immediately upon the occurrence of an

enforcement event, the security trustee is entitled to sell these shares and cash proceeds resulting are then to be held as against

the secured obligations under the contract. The borrowers include several other companies in the Quinn Group. Under clause 3 the

Quinns, as legal and beneficial owners, mortgaged and charged shares in the main Quinn Group holding company in favour of the

security trustee by way of first mortgage.

E3 The shares so charged are valuable. The monies owed by the borrowers include, but are not exclusively necessarily the funds

furnished by Anglo to distort the market and prop up its share price. If the principal of the unenforceability of illegal contracts is

applied to this charge, it is pleaded that it is thereby rendered of no legal effect. As Lord Goff stated in Tinsley v. Milligan [1994] 1

A.C. 340 at 355 the principle allows no room for judicial discretion. On this point, however, I have some doubt.

E4 A result of total unenforceability might be an unjust, though perhaps inevitable, result were the borrowings also to include

substantial advances by Anglo for legitimate business purposes. It is not a question for me, on this occasion, as to the result should

illegality be capable of a positive plea to undermine the appointment of the receiver under the share charge of the 19th December,

2008. It may be that the principle of justice upon which our legal system is based, under our Constitution, and the true social order

which it thereby seeks to achieve, might thereby, arguably, be undermined through unjust enrichment in that regard becoming the

effect, if a simple declaration of unenforceability due to illegality were the only response available to the courts. Would such a result

be consistent with the vindication of property rights as personal rights under Article 40.3 of the Constitution, or otherwise? It is

perhaps arguable that contract law ought to be capable of influence by these principles so that a result proportionate to the wrong,

in contrast to the common law position of simple unenforceability, might be achieved. This approach has been adopted in Australia in

at least one case in the context of equitable principles. This is referred to below. I further note Case C-453/99 Courage Ltd v. Crehan

[2002] Q.B. 507 that where European competition law rendered an agreement illegal, that a national rule barring an innocent party

from relief was held to be contrary to what was then Article 81 of the European Treaty.

E5 Two matters are clear. Firstly, there is a great deal of money borrowed for ordinary and legitimate business purposes mixed in to

the finance obtained to further the chicanery of market distortion by Anglo and Seán Quinn. Secondly, no matter how one regards the

matter, the purpose of the enforcement, and the effect of enforcement through the share charge will be, on the case pleaded by the

Quinns, to return to Anglo several hundreds of million Euro that was expended by it on market distortion which allegedly deceived the

Quinn purchasers as to the value of that company. It is part of the case of the plaintiffs that the monies innocently expended by the

Quinns in purchasing Anglo shares were expended at a value which was propped up by the market distortion. Had that skewing of the

share price not occurred, any legitimate decision to purchase Anglo shares would have been at a much lesser expenditure.

E6 Any wrongdoer can potentially dress up deceit in a series of legitimate transactions. The basic facts pleaded are perhaps capable

of an inference that all of the security provided by the Quinns for the borrowings from Anglo was put in place in order to secure

repayment of borrowings both legitimate and illegitimate. There are circumstances where because property has passed under an illegal

contract that the courts will not deny the rights thereby set up; Singh v. Ali [1960] A.C. 167, Bowmakers Ltd v. Barnet Instruments

Ltd. [1945] K.B. 65. A claim based on a resulting trust on two people financing a house in equal shares was held to be enforceable by

the House of Lords in Tinsley v Milligan [1994] 1 A.C. 340. This was notwithstanding that the purpose of a house purchase

arrangement, in the sole name of Tinsley, was for Milligan to make fraudulent claims for welfare. I note, however, that this decision

was not followed by the High Court of Australia in Nelson v. Nelson (1995) 184 C.L.R. 538. In neither of these cases was the plaintiff

required to plead or rely on an illegality, the first being a title to a house which was vested in the sole name of the plaintiff in order to

defraud the Department of Social Security, the second being a scheme to fraudulently draw a subsidy from military funds for the

purchase of a second home; the funds could only be drawn to buy a single home for a military family. In Tinsley v. Milligan at pp. 354-

355 Lord Goff explained both the rational for the rule of the unenforceability of illegal contract. He followed Singh v. Ali in enforcing

property rights based on breaches of the law:

The basic principle was stated long ago by Lord Mansfield C.J. in Holman v. Johnson (1775) 1 Cowp. 341, 343, in the

context of the law of contract, when he said:

"The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in

the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in

general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him

and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur actio. No

court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the

plaintiffs own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a

positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court

goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the

plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the

latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis."

That principle has been applied again and again, for over two hundred years. It is applicable in courts of equity as well as courts of

law: see e.g., the notes to Roberts v. Roberts (1818) Dan. 143, 150-151, and Ayerst v. Jenkins (1873) L.R. 16 Eq. 275, 283, per Lord

Selborne L.C. In 1869 Mellor J. said that the maxim in pari delicto potior est conditio possidentis "is as thoroughly settled as any

proposition of law can be": see Taylor v. Chester (1869) L.R. 4 Q.B. 309, 313. It is important to observe that, as Lord Mansfield made

clear, the principle is not a principle of justice; it is a principle of policy, whose application is indiscriminate and so can lead to unfair

consequences as between the parties to litigation. Moreover the principle allows no room for the exercise of any discretion by the

court in favour of one party or the other.

Even so, the mere fact that a transaction is illegal does not have the effect of preventing property, whether general or special, from

passing under it. In Scarfe v. Morgan (1838) 4 M. & W. 270, 281, Parke B. said that "if the [illegal] contract is executed, and a

property either special or general has passed thereby, the property must remain; . . . ". This principle has been applied on numerous

occasions. Notable examples are to be found in Taylorv. Chester L.R. 4 Q.B. 309; Alexander v. Rayson [1936] 1 K.B. 169; and Singh

v. Ali [1960] A.C. 167. In Singh v. Ali, the principle was explained by Lord Denning in the following passage, at pp. 176-177:

"There are many cases which show that when two persons agree together in a conspiracy to effect a fraudulent or illegal

purpose – and one of them transfers property to the other in pursuance of the conspiracy - then, so soon as the

contract is executed and the fraudulent or illegal purpose is achieved, the property (be it absolute or special) which has

been transferred by the one to the other remains vested in the transferee, notwithstanding its illegal origin . . . The

reason is because the transferor, having fully achieved his unworthy end, cannot be allowed to turn round and repudiate

the means by which he did it - he cannot throw over the transfer. And the transferee, having obtained the property, can

assert his title to it against all the world, not because he has any merit of his own, but because there is no one who can

assert a better title to it. The court does not confiscate the property because of the illegality - it has no power to do so

- so it says, in the words of Lord Eldon: 'Let the estate lie where it falls'; see Muckleston v. Brown (1801)6 Ves. 52, 69."

Likewise a court of equity will not, at the instance of the settlor or his personal representative, set aside a settlement which has

been made for an illegal consideration: see Ayerst v. Jenkins L.R. 16 Eq. 275. The effect in that case was that the legal estate

remained absolutely vested in the trustees and (implicitly) that the beneficial interest vested in the beneficiary. (There was however

in that case no contest between the trustees and the beneficiary; and in any event the case was not one in which (as in the present

case) A puts his property in the name of B in order to conceal his (A's) interest in it for a fraudulent purpose. In such a case, it is

most unlikely that A will have constituted B an express trustee of the property.)

E7 This decision is criticised in Anson’s Law of Contract, 29th Ed., (London, 2010). At p. 431 the editors write:

The rule established in the Bowmakers case and extended to equitable interests in Tinsley v Milligan is a manifestation of

judicial concern, where there is no question of enforcing the executory provisions of an illegal contract or transaction,

that people should not be unnecessarily precluded by illegality from enforcing rights already acquired under the completed

provisions of such a contract or transaction. But it is submitted that it is open to a number of objections. First, it avoids

confronting the issue of illegality, the underlying policy issues, and the merits of the parties, and relies instead on the

mechanical application of highly technical and procedural concepts. Secondly, to the extent that the parties can, in their

illegal contract, determine who owns the property that is its subject-matter, parties who know that the contract is illegal

and nevertheless enter into it may be able to insulate themselves from the consequences of the in pari delicto rule.

Furthermore, where the illegality consists, as it often does in modern conditions, in the contravention of a statute, the

property based approach takes no account of the statutory purposes.

E8 It is possible to doubt the applicability of the property based analysis of past, and thus irrelevant, illegality to the facts, if proven,

of this case. This is not a case based on the presumption of advancement. Even were it thus, Nelson v Nelson establishes that to

obtain equity, one must be prepared to come with a good conscience and do equity. The discretionary nature of the remedy

exercised in that case allowed the recovery of money from the sale of the house provided that the military authorities were repaid

their subsidy. The law has traditionally taken the view that the separate nature of transactions which are founded on an illegal

contract may not succeed in removing from the court the repugnance of the original breach which renders it unenforceable. I have

not now to decide the applicability of rigid, and arguably potentially unjust because they are inflexible, rules. These are derived from

such authorities as Devine v. Scott and Devine v. Scott and Johnston (1932) 66 I.L.T.R. 107 on severability; and Spector v. Ageda

[1973] 1 Ch. 30 which draws on the traditional, and possibly outmoded, distinction between a void contract in respect to which other

related transactions may be valid and enforceable, and illegality which Megarry J. describes as “contagious” at p 42; and Oxus Gold

plc v. Templeton Insurances [2006] E.W.H.C. 864 (Comm.) where Cooke J. distinguished the latter case on the basis that some

transactions stood alone. At paragraphs 188-190 he stated:

188. Although reliance was placed by Oxus on the decision of Megarry J. in Spector v. Ageda [1973] 1 Ch. 30 and

the passage at pages 43-46, the situation there was entirely different. The loan, which was the subject of the

court's decision, was given and used to discharge another loan which was in part illegal under the Moneylenders

Acts. As a matter of public policy, it was held that where the subsequent transaction was entered into by a person

who not only knew of the partial illegality of the prior contract, but also was in a real degree responsible for it and

was seeking to avoid its consequences, the whole of the subsequent transaction would be affected by the illegality,

unless there was some way of showing that the partial illegality of the first contract related solely to some defined

portion of the later transaction.

189. The warrants in the present circumstances, however, were not given in order to fulfil the 9 July letter

obligations but were given for a different consideration which included two elements. The first of these was

Templeton's agreement to start work. The second was the waiver of any claim under the 9 July letter which, (if the

letter agreement was illegal and void contrary to my judgment), might amount to no consideration in law but would

not result in a tainting of the warrants themselves.

190. As a matter of public policy, upon which all such issues of illegality ultimately depend, I am unable to see why

these warrants should in any way be struck down. They stand on their own, without the need for consideration and

even if consideration is sought, it can be found without reference to any transaction which is illegal and which could

be said to taint it. However the matter is approached, it appears to me that there was good consideration for the

issue of the warrants. It is trite law that the Courts will not investigate the adequacy of consideration and the

modern approach is much more commercial than was the case in the 19th Century or early 20th Century.

Consideration is readily found in a commercial context and I have no difficulty in finding it here.

E9 Relabelling a claim does not necessarily render legal and enforceable that which is illegal and unenforceable. Guaranteeing an illegal

contract does not make it enforceable through that separate agreement; Devine v. Scott and Johnston (1932) 66 I.L.T.R. 107. Taking

an action on a cancelled cheque, instead of on the debt due under the original illegal contract does not necessarily transmogrify that

transaction into one which the courts should treat as outside the application of the illegality principle. It is arguable that this series of

transactions between the Quinns and Anglo and Seán Quinn does not modify the original and flagrant illegality underlying them. It is

also arguable, that some recovery can occur despite illegality in order to prevent unjust enrichment with monies legitimately lent for

proper business purposes to companies in the Quinn Group and that this is to be separated out from any loss proved to have occurred

due to the distortion by the wrongdoers of the market.

E10 I turn therefore to the general principles of illegality and the relevant principles of statutory construction; realising that in modern

times almost all pleas of illegality rest upon the infringement of a piece of legislation. That is not to rule, however, that repugnant

acts which defraud the marketplace generally of gigantic sums of money cannot legitimately be otherwise noticed under the head of

public policy; see the reference in McDermott, Contract Law, 1st Ed., (Dublin, 2001) at p. 764 to various classifications including

contracts which are injurious to good government. This series of acts of general fraud comes under that rubric. I do not believe that

it would be necessary for such conduct as is alleged in this case to be proscribed by legislation before the courts would be required to

express their repugnance of such conduct by refusing to enforce the results that are specific to it. Flagrant financial immorality as

well as illegal conduct can, and should, result in the courts turning their aid away from those participating.

Contract enforcement and illegality

F1 The general principle of the unenforceability of illegal contracts has already been quoted above. The rules are not simple and their

applicability is not always predictable. It is no longer as clear as when Wilmot C.J. declaimed that: “no polluted hand shall touch the

pure fountains of justice”; Collins v Blantern (1767) 95 E.R. 847 (K.B.), 852. An illegal contract is generally unenforceable; I say

generally because the illegality may be incidental, may be severable, one of the parties may be uninvolved or trivially involved, or one

of the parties may repent. A contract lawful on its face but performed unlawfully by one party to it is enforceable at the suit of an

innocent party. Fraud will generally enable a victim to recover through restitution and that remedy can be available despite illegality.

Little of the actual way in which the competing pleas of illegality, triviality of infringement, repentance from unlawful conduct,

separation of transactions and the uncertain influence of public policy are capable of clear advance exposition. The matter demands

sensible reform, for which an analysis, though not a recommendation, has already been made; see McDermott Contract Law, 1st Ed.,

(Dublin, 2001) p. 840. The reference there is to the possibility of reform based on judicial discretion referable to the seriousness of

the illegality, the involvement of the party seeking a remedy, deterrence as an appropriate response by the court, proportionality and

furtherance of the purpose of the prescriptive legislation; U.K. Law Reform Commission (1999) – Illegal Transactions: The Effect of

Illegality on Contract and Trusts, Law Commission Consultation Paper No. 154(1999). Sometimes the legislation makes it clear that the

enforcement of any contract in breach of its provisions is outlawed, but that is rare; an example of that being s 36(3) of the Gaming

and Lotteries Act 1956. Central to the uncertainty in this area of law, therefore, is the task of the court to ascertain the intention of

the legislature as derived from disparate statutory terms. The courts are not entitled to substitute their own view; the task of the

courts is to apply the policy derived from legislation to private contracts.

F2 In Fitzgerald v. F.J. Leonhardt Pty. Ltd. (1997) 189 C.L.R. 215, the issue before the High Court of Australia was the recovery of a

debt by the plaintiff for boring trial holes for water on behalf of the defendant; the circumstance of illegality arising from the failure of

the defendant landowner to obtain the licence required by statute. That case admitted only one answer; that the defendant

company could not escape from a promise to pay for work by pleading an unlawful situation of which it was the author. The plaintiff,

the drilling contractor, was not involved in that illegality. Even in such a situation, the confused rules on illegality as it impacts on the

duty of the courts not to be used as an affront to public policy, led to differing results before the deciding magistrate, on appeal, and

on final appeal. As Kirby J. commented at p 231-232, quoting various academic commentators, that the law on illegality in civil

agreements is uncertain and replete with pitfalls, enabling what some may regard as a just result by reference to the strong dictates

of public policy, or what others may regard as the unjust enrichment of one party through resort to what may be a merely incidental

breach of the law. None of the rules are sufficiently certain to admit a completely predictable result. Courts focus, in a fundamental

sense, on the merits of what is fair to both the parties and to the public good by concentrating ostensibly on such questions as:

whether both parties intended to perpetrate an illegality and how central or peripheral to the matter in suit that might be; whether

the contract was in itself forbidden by statute or common law or might in performance necessarily, or merely possibly, involve a

breach of some law; and whether such illegality as is pleaded has been passed into the periphery of what the court has to scrutinise,

and so enforce, through property having passed or through possession being already asserted. A traditional approach to the rules was

set out by Kerr L.J. in Euro-Diam v. Bathurst [1990] 1 Q.B. 1 at p. 35. The illegality defence rests ultimately on the principle of public

policy that courts will not assist a party who has been guilty of illegal (or grossly immoral) conduct of which the courts should take

notice. The test is thus whether it would be an affront to public conscience to grant relief to a plaintiff because thereby

encouragement would be offered to similar acts. Kerr L.J. at p. 35 in that case, identified the main situations in which the illegality

defence would prima facie succeed. These are: where the plaintiff seeks to, or is forced to, found a claim on an illegal contract or to

plead its illegality in order to support that claim; where the grant of relief would enable the plaintiff to benefit from criminal conduct;

and where absent these situations the court should not be drawn into the enforcement of that which affronts the public conscience

generally. A pragmatic approach is, however, necessary in order to identify whether the claim of a plaintiff is founded on an illegal act

or whether something illegal or reprehensible by way of conduct is merely disclosed in the course of the proceedings. If it is the latter,

the claim will generally succeed and the defence of illegality will fail because it is a mere background.

F3 What the court has been drawn into here is the more complex sphere of statutory construction. The simple rules of interpretation

fall away to be replaced by the imponderable task of attempting to ascertain what was intended by the legislature, in proscribing

conduct, in imposing criminal sanctions and providing for civil regulation and penalties, as to the effect this would have on the

enforceability of civil arrangements which infringe the prohibition in question. Is it an infringement to have effect solely within the

borders of the remedy which the legislation has provided? Or has the legislature, in making certain conduct illegal, added to the vast

sea of unlawful conduct which the principal of the unenforceability of illegal contracts now embraces, and which may operate to

undermine enforceability depending upon how high the tide washes over the arrangements in question, or by reference to triviality or

importance, or to whether the illegality was peripheral or central. In FitzGerald v. Leonhardt , at p. 247, Kirby J. made reference to

the principle that the fundamental rationale of withholding relief is “the court’s self regard. It will not (unless required to) lend its

authority and assistance to a party seeking to invoke its process in connection with illegal or otherwise seriously reprehensible

conduct”. He also made reference to a statement of Mason J. in Yango Pastoral Co. Pty. Ltd. v. First Chicago Australia Ltd. (1978)

139 C.L.R. 410 at 429-430 to this effect:

The question therefore remains whether the court will allow the plaintiff to enforce the contract. The suggestion is that

the court will not do so and that its refusal so to do is dictated by the principle ex turpi causa non oritur actio or by the

more specific rule that the court will not enforce the contract at the suit of a party who has entered into a contract with

the object of committing an illegal act. …In saying this I am mindful that there could be a case where the facts disclose

that the plaintiff stands to gain by enforcement of rights gained through an illegal activity far more than the prescribed

penalty. This circumstance might provide a sufficient foundation for attributing a different intention to the legislature. It

may be that the true basis of the principle is that the court will refuse to enforce a transaction with a fraudulent or

immoral purpose (141). On this basis the common law principle of ex turpi causa can be given an operation consistent

with, though subordinate to, the statutory intention, denying relief in those cases where a plaintiff may otherwise evade

the real consequences of a breach of a statutory prohibition."

F4 I have found this statement helpful. A contrast between the conduct alleged against Seán Quinn and Anglo, involving as it

apparently does at least hundreds of millions of Euro and the much lesser administrative and monetary criminal penalties, to which I

shall shortly refer, is instructive. That consideration impacts on the principle of proportionality and is not without impact on the

central point that the courts should in some circumstances of gross affront to the law, recognise that public policy demands a

response. At pp. 242-245 of his judgment in that case, Kirby J also set out five principles as to the proper approach to statutory

construction in the consideration of illegal contracts. These, footnotes omitted, I gratefully adopt:

1. The first task of a court is to ascertain the meaning and application of the law which is said to give rise to the illegality

affecting the contract. The law in question may be a rule of the common law but nowadays it is much more likely to be a

provision of legislation. The substantial growth of legislative provisions affecting all aspects of the society in which

contracts are made presents a legal environment quite different from that in which the doctrine of illegality was originally

expressed[109]. Courts, in this area, are faced with a dilemma. They do not wish to deprive a person of property rights,

e.g. under a contract, least of all at the behest of another person who was also involved in a breach of the applicable

law. On the other hand, they do not wish to "condone or assist a breach of statute, nor must they help to frustrate the

operation of a statute"[110]. That is why the first function of the court, where a breach of a legislative provision is

alleged, is to examine the legislation so as to derive from it a conclusion as to whether a relevant breach is established

and, if so, what consequences flow either from the express provisions of the legislation or from implications that may be

imputed to the legislators[111]. Little, if any, assistance will be derived for the ultimate task of a court from examination

of the terms of other statutes or judicial classifications of them or by reference to their meaning as found[112].

2. Occasionally, the legislation in question will expressly provide for the consequence of illegality upon contracts made or

performed in breach of its terms. In such a case the entire contract may, depending on the terms of the statute, be void

and its performance unlawful as contrary to the express will of Parliament[113]. The duty of a court in such a case is

clear. No question of the good faith of the parties or their knowledge or intention is involved[114]. Public policy is not, as

such, raised, unless it be the general public policy that the courts should uphold the law of the land[115]. What is

presented is a pure question of the interpretation and enforcement of the legislation. This is a familiar task performed by

courts with the usual tools of statutory construction.

3. Ordinarily, legislation does not expressly deal with the consequences of conduct in breach of its terms upon a contract

which has been fulfilled in some way in breach of a provision of the law. In such a case, where the law in question is (as

it typically is) a statutory provision, it is necessary to ask whether the legislation impliedly prohibits such conduct and

renders it illegal. Some judges have suggested that courts today are less willing than in the past to derive an implication

of illegality from a legislative provision where Parliament has held back from expressly enacting it[116]. Certainly, there are

plenty of judicial dicta to suggest that courts will be slow to imply, where the applicable legislation is silent, a prohibition

which interferes with the rights and remedies given to parties by the ordinary law of contract[117]. This reluctance

probably grows out of a recognition of the multitude of legislative provisions, important and unimportant, which may

nowadays indirectly impinge upon the contractual relations of parties and, if enforced with full rigour, cause harsh and

unwarranted deprivation of rights[118]. In part, this reluctance may be no more than a species of the general rule of

statutory construction that legislation will not be interpreted to deprive parties of basic rights at common law without a

clear expression of the legislative will to do so[119]. Some academic commentators have discerned in earlier cases a

"misplaced judicial zeal" in deriving from the sparse language of legislation a purpose to strike at private contractual

arrangements[120]. They criticise the reliance on fictions of "legislative intention" where the legislation in question makes

no express provision with respect to contracts[121]. They suggest that implied illegality of contracts should be

abandoned, obliging Parliament (if that be its purpose) to make express provision in that regard. But this approach would

be contrary to long-established doctrine and to the commonplace that legislation, typically expressed in brief language,

may contain implications which are to be derived from its express terms. The duty of courts remains, where legislation is

involved, to give meaning to the imputed purpose of Parliament as found in the words used[122]. It would be artificial to

expel implications from the task of legislative construction where they remain an established feature of the interpretation

and application of legislation generally.

4. One principle, however, which tends to reinforce the reluctance of courts to imply a prohibition on a contract, the

formation or performance of which involves some breach of the law, is the conclusion which will often be derived from the

express terms of the legislation itself. Thus, if the legislation provides in a detailed way for sanctions and remedies for

breach of its terms, courts will require good reason to add to those express provisions additional civil penalties, such as

the deprivation of contractual rights, which Parliament has not chosen to enact. Were it otherwise, the parties would be

subject to the penalties (in the present case criminal) expressly provided by the legislation and still more (civil) by the

deprivation of their property (contractual) rights[123]. In a given case, such lost rights might be enormous, supplementing

in a wholly arbitrary way, the defined penalties for which the legislature has expressly provided.

5. A distinction may be drawn between cases where there is nothing illegal in the formation of the contract or necessarily

illegal in its performance and those cases where (as here) the performance has in fact involved a breach of the law. The

case of a contract which, although lawful according to its own terms, may be performed in a manner which the statute

prohibits, was one of the four categories suggested by Gibbs A.C.-J. in Yango Pastoral Company Pty. Ltd. v. First Chicago

Australia Ltd. to illustrate the ways in which the enforceability of a contract may be affected by a statutory provision

rendering particular conduct unlawful[124]. The distinction of illegality in performance was also recognised in the opinions

of Mason J[125] and Jacobs J[126] in the same case. It is a distinction well established in legal doctrine[127]. In such a

case, it is not the contract as formed which is illegal. But the performance of the contract may be illegal if it is clear that

the law in question prescribes that the contract must be performed in one way and one way only and that requirement

has been breached. To ascertain whether such a breach has occurred it has been said that the illegality must affect the

very core or essence of the contract[128]. The fact that a statute was passed for the protection of the public is one

test of whether it was intended to avoid a contract formed, or to be performed, in breach of its provisions. However, that

is not the only test because the effect of the legislation is to be derived from its language in the ordinary way[129].

F5 Bearing these principles in mind, it is necessary to turn to the relevant legislation, noting that the allegations made are there for

the Quinns to prove. Fundamentally, the question on this issue is whether the legislature in setting up a series of norms in relation to

market abuse and financing of the purchase of a company of its own shares intended to create a self-controlled island of regulation

or, instead, wished to influence the general matrix of litigation through recasting public policy.

F6 I turn therefore to the legislation.

The legislation

G1 I bear in mind the dictum of Kirby J. to the effect that scouring around in legislation other than that in issue is of limited use. The

decision, for instance, in Chase Manhattan Equities Ltd. v. Goodman [1991] B.C.L.C. 897, whilst widely cited, is not likely to be of

assistance.

G2 The measure introducing illegality is the Market Abuse (Directive 2003/6/E.C.) Regulations 2005 (S.I. No. 342/2005) (“the

Regulations”) which is based, and must be interpreted in conformity with save where that interpretation is contra legem, Council

Directive 2003/6/E.C. of the 28th January, 2003 on insider dealing and market manipulation (“the Market Abuse Directive”) and the

similarly to be interpreted Investment Funds, Companies and Miscellaneous Provisions Act 2005, (“the Act of 2005”) pursuant to s.30

of which the Regulations were made. On interpretation see the decision of the European Court of Justice in the joined cases of

Pfeiffer and Others v. Deutsches Rotes Kreuz (C-397/01 to C-403/01) [2004] E.C.R. I-08835 at paragraphs 111-114.

G3 According to the recitals to the Market Abuse Directive, the purpose of the measure was to introduce integrity into the market in

financial instruments, to protect market integrity in a harmonised way, to outlaw insider dealing and market manipulation, to avoid

loopholes, to introduce transparency into the market, to ensure prompt disclosure of information, to introduce a single competent

authority in Member States, to introduce a "common minimum set of effective tools and powers for the competent authority", and to

have sufficiently dissuasive and proportionate sanctions. Article 5 requires Member States to prohibit any person from engaging in

market manipulation. Article 16 requires the competent authorities in each Member State to cooperate with each other where

necessary. In that regard, an investigation may be requested. Article 12 requires that all necessary supervisory and investigatory

powers are to be given to the competent authority. Article 14 provides that without prejudice to the entitlement of Member States to

impose criminal sanctions, they must ensure that "the appropriate administrative measures can be taken or administrative sanctions

be imposed against the persons responsible where the provisions adopted in implementation of this Directive have not been complied

with." In conformity with general European law these are required to be effective, proportionate and dissuasive. I am not persuaded

that the addition to public policy or the outlawing of market manipulation to the civil detriment of individuals undermines the scheme

of law which Ireland is obliged to implement pursuant to the Market Abuse Directive.

G4 There is nothing in the decision of the European Court in Spector Photo Group N.V. v. Van Raemdonck, (C-45/08) [2009] E.C.R. I-

12073 which undermines this. I am not satisfied that the Market Abuse Directive imposes a rigid structure on Member States in

penalties for insider trading and market manipulation; Craig and de Búrca – The Evolution of EU Law (Oxford, 2011, 2nd edition)

chapter 25. In EU Law: Text, Cases and Materials by the same authors (Oxford, 2011) at p 600, they write:

The EU has choices when it enacts harmonisation legislation. It may pass legislation that sets minimum standards, which

do not preclude Member States from setting more exacting standards. Minimum harmonisation enables Member States to

maintain more stringent regulatory standards than those prescribed by EU standards, provided that these are compatible

with the Treaty. The EU legislation set a floor and the Treaty a ceiling, with Member States free to pursue their own

policies within these boundaries. The EU can alternatively pass maximal legislation that covers the entire area. This entails

exhaustive regulation of the given field, with the EU rules setting both the floor and the ceiling of regulatory protection,

the corollary being that pre-emption of national action. There is evidence that the Commission now favours maximum

harmonisation, at least in areas such as consumer policy.

G5 I note also that Mathias Siems, “The E.U. Market Abus Directive: A Case-Based Analysis”, (2008) 2 Law and Financial Markets

Review 39 at p. 46 offers this view:

[P]rivate law claims are not addressed in the EU market abuse law. Such claims may not be very important for insider

dealing, which is often called a "victim less crime", this being a crime without a clearly identifiable aggrieved persons.

However, in cases of market manipulation, in particular security is broad, private enforcement can be important. Here are

many questions have to be answered such as whether the basis of the private claim is securities law or tort law, whether

it is directed against the company or the managers, whether causality has to be proven, whether negligence or intent are

necessary, whether it leads to disgorgement of profits, rescission, or damages, and how damages are calculated. These

topics, which have been extensively debated in the US, still depend on national law in Europe.

G6 The Regulations state the applicability of the law to financial instruments. The concept of market abuse is defined as either insider

dealing or market manipulation. The latter is defined in the following way:

(a) transactions or orders to trade -

(i) which give, or are likely to give, false or misleading signals as to the supply of, demand for or price of financial

instruments, or

(ii) which secure, by a person, or persons acting in collaboration, the price of one or several financial instruments at an

abnormal or artificial level,

unless the person who entered into the transactions or issued the orders to trade establishes that the person's reasons

for so doing are legitimate and the transactions or orders to trade, as the case may be, conform to accepted market

practices on the regulated market concerned,

(b) transactions or orders to trade which employ fictitious devices or any other form of deception or contrivance, or

(c) dissemination of information through the media, including the Internet, or by any other means, which gives, or is likely

to give, false or misleading signals as to financial instruments, including the dissemination of rumours and false or

misleading news, where the person who made the dissemination knew, or ought to have known, that the information was

false or misleading;

G7 What is beyond doubt is that false and misleading signals were given to the marketplace as to the value of Anglo shares. Under

Article 7 of the Market Abuse Directive, the Central Bank has the responsibility to ensure that market operators structure their

business so as to prevent and detect market manipulation and to report regularly on their arrangements in that regard. Under Part 4

of the Regulations, the bank has extensive powers to appoint authorised officers who may, in turn, investigate and inspect those who

operate in the financial market. The Central Bank may suspend the trading of any financial instrument, stop payments, block

subscriptions, prevent a business from carrying on further, block a business from dealing with specified transactions or use the same

power subject to specified conditions and may publish information. These powers do not include a measure allowing the Central Bank

to invalidate any transaction that has taken place. The Central Bank is authorised to impose a penalty under Regulation 41 which can

include a reprimand in private or in public, a penalty not exceeding €2.5 million and a disqualification order. On summary conviction,

those guilty of offences under the Regulations may be imprisoned for 12 months or fined €5000 or both.

G8 Under the Act of 2005, the penalties are more serious. Section 32 creates an offence carrying a 10 year penalty of imprisonment

or a fine of €10,000,000 or both. This is dissuasive, no doubt, but in the context of all that has allegedly happened in this case, the

contrast with the funds involved under the guarantees and share mortgages is marked. Illegality, as an intrusion through public policy

into such private contracts is not, therefore, disproportionate. Section 33 provides:

(1) If a person contravenes a provision of Irish market abuse law (being a provision the purpose of which is expressed by

that law to be for the implementation of Article 2, 3 or 4 of the 2003 Market Abuse Directive) the person shall be liable—

(a) to compensate any other party to the transaction concerned who was not in possession of the relevant

information for any loss sustained by that party by reason of any difference between the price at which the

financial instruments concerned were acquired or disposed of and the price at which they would have been likely to

have been acquired or disposed of in such a transaction at the time when the first-mentioned transaction took

place if that information had been generally available, and

(b) to account to the body corporate or other legal entity which issued the financial instruments concerned for any

profit accruing to the first-mentioned person from acquiring or disposing of those instruments.

(2) If a person contravenes a provision of Irish market abuse law (being a provision the purpose of which is expressed by

that law to be for the implementation of Article 5 of the 2003 Market Abuse Directive) the person shall be liable—

(a) to compensate any other party who acquired or disposed of financial instruments by reason of the

contravention, and

(b) to account to the body corporate or other legal entity which issued the financial instruments concerned for any

profit accruing to the first-mentioned person from acquiring or disposing of those instruments.

(3) Subsections (1) and (2) are without prejudice to any other cause of action which may lie against the person for

contravening the provision concerned.

(4) An action under subsection (1) or (2) shall not be commenced more than 2 years after the date of the contravention

concerned.

G9 Briefly put, the argument on behalf of Anglo is that the purpose of the Act of 2005 is to protect the marketplace. Compensation, it

is urged, is to any other party who acquired the financial instrument or disposed of it together with an account to the body corporate

which issued the financial instruments for any profit which has accrued due to the wrongdoing; a principle similar to that enunciated

in Hickey & Co. v. Roches Stores(Dublin) Ltd. (No. 1) (Unreported, High Court, Finlay P., 14th July, 1976). The tradability of shares, it

is said, must be protected. There is no indication, it is argued, that the status of the obligation is to be undermined and the remedies

are confined to: a criminal penalty; an account of profit; damages against the wrongdoer or in favour of the company to be

compensated. This is described as a confined scheme which would be undermined by the addition of principles of illegality which, if

the legislature had meant for that to happen, could have rendered such transactions void as other statutes do. What is protected,

they argue, on the other hand, is a regulated market which focuses on actions, if they are wrongful, and not transactions, which

must be protected. The fact that the Central Bank may impose severe sanctions is indicative, it is urged, of the all-encompassing

nature of the legislation. Therefore, this is said to be a comprehensive form of enforcement which does not include illegality and with

nothing left to chance. Key to this argument is that the competent authority itself does not have the power to annul transactions;

and such a power would undermine market integrity. Instead, there is said to be concentration on the perpetrators.

G10 Anglo, or at least senior directors within that bank, together with Seán Quinn are the only parties who can be the wrongdoers

mentioned in the legislation; and the effect of their wrongdoing is sought to be visited on those outside any scheme of market

manipulation that may be proven. As for accounting to the body corporate issuing the financial instruments: it is Anglo that issued the

shares. That was allegedly done under very definite circumstances of propping up a teetering share price, and again it is that entity

which is seeking to enforce a loss visited on other people. In terms of the central purpose of the intrusion of illegality into private

arrangements, that of statutory intent as reflected in public policy, one wonders how the Act of 2005 intended to bar a remedy to

ostensibly innocent victims of the alleged wrongs of Anglo and Seán Quinn. In echoing Devlin J. in St. John Shipping Corporation v.

Joseph Rank Ltd. [1957] 1 QB 267 at 288, this Court balks at enforcing a contract, or depriving a plaintiff of the opportunity to

challenge guarantees and charges based upon a contract, which has as its entire objective the doing of the precise action which the

market abuse legislation outlaws. The legislation is plainly designed for the protection of the public generally. Further, these actions

were not simply civil infringements of technical regulations, they were also very serious indictable crimes; Anson – Law of Contract

(29th edition, 2010, London) p.380-381.

G11 I cannot accept that this Act of 2005 is not a directive to the courts to respond under the illegality principle to contracts which

flagrantly breach its provisions. Nor can I accept that the introduction of illegality into the context within which Anglo and Seán Quinn

were said to have acted would introduce chaos into the marketplace and undermine the scheme of careful regulation which the

legislation set up. On the contrary, weighing heavily on the balance against the success of this argument is the removal thereby of a

proportionate remedy against the wrongdoers alleged in this case, namely Seán Quinn and Anglo, to ensure that there is no unjust

and massive enrichment as a reward for market manipulation. It is difficult to comprehend a sensible view of what is right which would

enable Anglo, as the defendant in this case, to gain from the financial manipulation of the Quinns and to plead that because new

instruments were added on to what may, if proved, be Anglo deliberately causing egregious loss through illegality. It is possible that,

in addition to what is pleaded, the Quinns as plaintiffs may be entitled to seek a remedy under section 33 2) of the Act of 2005. I

cannot fairly assess the leaving open by the Oireachtas of other causes of action under section 33 (3) as being anything other than

deliberate. In that regard, I am not convinced that what is at issue here is what is condemned by Kirby J. at p.244 of Fitzgerald v.

Leonhardt as the addition of random and unfair civil consequences. On the contrary, it seems to me that illegality as a plea is neither

an arbitrary nor an unnecessary supplement to the remedies provided.

G12 At the same time, I am unpersuaded that the arguments advanced on behalf of the plaintiffs with regard to the Financial

Services and Markets Act 2000, of the neighbouring kingdom adds to this analysis. One notes that under s.123, the corresponding

authority in that jurisdiction has the power to impose a penalty in such a manner as it considers appropriate; that under section 383

the corresponding authority may make orders to pay the authority damages; that there is a similar and perhaps corresponding

s.383(9) to s.33(3) in the Act of 2005; and that, finally, s.131 provides that "the imposition of a penalty under this Part does not

make any transactions void or unenforceable". I am not persuaded by the applicability of the decision, within the context of the Act

of 2005, of Teare J. in Hall v. Cable and Wireless plc [2009] E.W.H.C. 1793. All of this shows the good sense in what Kirby J. stated

as to a trawl through other legislation.

The Companies Act 1963

H1 A fundamental rule of company law is that a company should not buy its own shares. In doing so, it undermines the capital upon

which remedies against it will be based. If any illustration of this as a danger to corporate regulation were required, this case may, if

proved, provide an example.

H2 Section 60(1) of the Companies Act 1963, as amended, provides the statutory rule in terms makes the purchase by a company of

its own shares, or assistance in that regard, illegal:

Subject to subsections (2), (12) and (13), it shall not be lawful for a company to give, whether directly or indirectly, and

whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of

or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company,

or, where the company is a subsidiary company, in its holding company.

H3 The subsections recited refer to the passing of a relevant resolution, and other safeguards, in exception to the rule and are not

relevant here. Subsection 15 provides that if a company breaches this rule, every officer of the company participating is to be liable

to a fine on summary conviction of up to £500 (€634.87) or 6 months in prison or both. On indictment before a jury, the penalties

increase to 2 years imprisonment and a fine of £2,500 (€3174.35). These are hardly sufficient responses to the situation alleged in

this case. Subsection 14 provides:

Any transaction in breach of this section shall be voidable at the instance of the company against any person (whether a

party to the transaction or not) who had notice of the facts which constitute such breach.

H4 In essence a person in the marketplace knowingly, or perhaps in circumstances of wilful blindness, transacting with a company

officer who breaches the rule against a corporation providing assistance for the purchase of its own shares may have that transaction

avoided at the instance of the company. The transaction is thus argued to be valid until the bringing of voidance proceedings. In

consequence, the illegality rule is said to be deliberately excluded by the legislature for private contracts.

H5 It should be remembered that Anglo is the perpetrator together with Seán Quinn of the wrong alleged by the Quinns. Anglo do not

now seek to avoid a share sale but rather to compound an alleged wrong by continuing and following through on the appointment of a

share receiver in respect of debts incurred through illegality. Whether a court will be persuaded about the lack of notice of the Quinns

or the sufficiency of the connectedness of the impugned instruments and the illegal behaviour of Anglo or whether a court can

exercise a discretionary but precise severing of monies directly flowing from that illegality is a matter for another day.

H6 I am not persuaded that s.60 of the Companies Act 1963, which forbids a company from purchasing its own shares, or from

offering financial assistance in that regard, is self-contained in its remedies and cannot impact on public policy. In a case such as

that pleaded herein, the general law of illegality of contracts is entitled to respond in an appropriate and proportionate way so that

loss caused through the manipulation of the share price of Anglo to those directly at the receiving end of that conduct, namely the

Quinns, can be appropriately responded to.

Illegality as a positive plea

I1 Whereas McDermott notes, at p.840 of his book Contract Law, a distinguished reform discussion, it did not result in a proposal,

which notes that illegality should continue to be used only as a defence. That principle is not universally applied. Illegality can be

used as a positive plea in some circumstances. The plaintiffs, in seeking declarations as against the guarantees and the share

mortgages, call in aid equitable principles. They rely on an argument, based on Courtney v McCarthy [2008] 2 I.R. 376 and

Amalgamated Investment & Property Co. Ltd. v. Texas Commerce International Bank Ltd. [1982] 1 Q.B. 84, that just as estoppel is

not confined to being a matter of defence, then neither is declaratory relief that a plaintiff is to be freed from an unjust deprivation of

property as a result of illegality restricted to a defence to the positive claim of the perpetrator. Even without the application of

equitable principles, illegality can be used by a plaintiff to unwind an illegal transaction.

I2 In Chase Manhattan Equities Ltd v. Goodman and Others [1991] B.C.L.C. 897, the plaintiff sought to impugn the validity and

enforceability of its purchase of thousands of shares. Most of the shares had supposedly been gifted by a Mr. Goodman to a Mrs.

Fitzgerald before they were sold. The plaintiff claimed for misrepresentation and pleaded that the sale agreement was to be

overturned through Mr. Goodman dealing in the shares whilst in possession of unpublished price sensitive information in breach of

legislation in that regard. Knox J. upheld the plea. At page 933 he stated:

The sale agreement was in itself an entirely lawful contract and its implementation today would involve no illegality. But it

was brought into being as a direct result of an illegal act by Mr. Goodman and if the law lends its assistance to its

completion Mr. Goodman will benefit, in the sense of avoiding loss, as a direct result of his illegal act. As Hutcheson J.

observed in the different circumstances of Thackwell v Barclays Bank plc [1986] 1 All E.R. 676 at p.689 it would be

difficult to find a case in which the criminal conduct relied on was more proximate. Equally it does seem to me that it

would be an affront to the public conscience to grant Mr. Goodman the relief for which he counterclaims because the

court would thereby appear to assist him in his illegal conduct. There was debate before me whether insider dealing was

truly described as a crime without the victim. I do not find it necessary or desirable to embark upon that debate. What is

sufficient for present purposes is that it is not a crime without a villain.

I3 Reference has also been made to Murray Vernon Holdings Ltd. v. Hassall and Others [2010] E.W.H.C. 7 (Ch) at paragraph 66. It

may be possible for the plaintiffs to prove that whereas on the face of them, the guarantees and the share mortgages are ostensibly

legal, but that these came about as a direct result of the illegality perpetrated by Seán Quinn and Anglo. Proximity between the

various transactions is, in that regard, and always has been, a highly relevant consideration as to whether the illegality in question

subsides into the background of the matrix of fact which the court needs to unravel or whether it is central to the substance and

justice of the case. I do not regard it as outside what the law allows for plaintiffs who discover themselves to be saddled with a

security which they entered into in good faith, but which they would never have touched were the circumstances of bad faith which

they plead known to them, to call in aid the doctrine of illegality in unravelling a situation of manifest wrong.

Burden of proof

J1 The plaintiffs bear the burden of proving the illegality alleged, its effect on the share price and their lack of involvement with the

conspiracy described; Whelan v Kavanagh (Unreported, High Court, Herbert J, 29th January 2001). The plaintiffs bear the burden of

showing that they met with a specific loss as a result.

Case management

K1 I feel it is appropriate to make a brief comment on case management for this litigation. With the attempted introduction of expert

reports, and the one I have seen is already gigantic, the clear danger has emerged that this case will become unwieldy. Whereas I

have some confidence in the parties seeking to concentrate their minds on what is important to the disposal of this litigation, it is all

too easy for a central point in the case to be lost.

K2 Much time will be saved by sorting out in advance of any hearing what sums of money were applied to which of the many

companies within the Quinn Group. What were the purposes to which these funds were put? As I commented earlier, the simple

addition and subtraction that might be done with a view to corresponding what is alleged to be lost with that which is alleged to have

been applied by Anglo to market manipulation do not now add up. A straightforward narrative, with an appropriate table in that

regard, will be of assistance to the trial judge. In addition, it is all too easy to leave the necessary complex archipelago of the

interaction of financial transactions with individual companies in the uncertain state where no one going into the trial knows what

tranche of money was to be applied to legitimate purpose, such as business development or property deals, and what other portion of

money was to be applied to the manipulation of the share price at various times. A simple calculation in that regard must surely be

possible. One wonders what sums of money were required by the contracts for difference providers. An answer to that in tabular form

may provide a basis for agreement whereby the legitimate provision of money may be identified.

K3 There are central issues in this case. Other remedies, such as misrepresentation, are pleaded by the Quinns. On the issue of

illegality, any form of pre-trial preparation should concentrate on what is to be agreed by Anglo as to its conduct, if anything, and

what is to be discovered in terms of documents in that regard on the parallel issue, upon which this case will hinge, as to what the

Quinns knew or suspected. The involvement in management by the Quinns of the relevant companies is clearly a part of that.

Extraneous and irrelevant issues should be sidelined.

K4 To the extent that the parties will not agree a tabular chronology of the main events, or may be tempted into failing to provide

that measure of agreement which will enable this case to be fairly tried, there is no doubt that the court of trial can, and perhaps

should, exercise its discretion as to costs in a manner which will appropriately respond to error by a client in giving unreasonable

instructions.

K5 It may be, I do not know as this is a matter for Kelly J., that a trial judge can be appointed and that a schedule of issues can be

agreed. Where this function is left to the parties, experience shows that the result may often be an incomprehensible document

running over several pages whereas, in reality, even large cases are decided upon relatively net pieces of evidence and a relatively

small number of central documents. The issues can better, perhaps, be worked out with the trial judge in open court. The core

documents in this case, as to financial transactions, may be agreed simply as an admitted narrative. The guarantee documents, loan

facility documents and share mortgage documents can be similarly agreed. A core book of any authorities on each side should be

prepared. If expert witnesses are to be called, the judge engaging in case management can consider declining to allow any such

evidence unless it is necessary and, if it proves necessary, such evidence can be confined away from a confusing and wasteful

domination of court time in a multiplicity of experts, as has been seen in other cases, in favour of one expert on each side. Finally,

this may be a case to offer time limits to the parties, after an appropriate assessment of submissions and one core book of documents

agreed between the parties.

K6 These are only suggestions as to how costs might be kept under control and the available time of the courts might be best used.

Result

L1 It would be contrary to public policy were the Quinns, as plaintiffs in this case, to be shut out from responding to the flagrant

illegality which they allege against Anglo and Seán Quinn. It may be, that cannot be now assessed, that if their claims are made out

the Quinns have lost several hundred million Euro in consequence of being engineered into purchasing Anglo shares which were worth

what may potentially prove to be a fraction of the investment made on their behalf. Illegality is a concept which intrudes public law

into private arrangements where a party seeks to invoke a remedy which it would be contrary to the conscience of the law to afford

to that party. It is the legislature which dictates how the conscience of the courts is to be exercised. There can be circumstances

where a declaration of illegality by statute is to be confined to the remedies which the legislation promulgating it provides. This is not,

as the Court assesses the legislation, such a situation. A potential for manifest injustice arises were those who are engineered into

loss, through private and powerful entities setting aside the law for their own grossly selfish purpose, to be deprived of remedy. To

the court, it is less important that illegal transactions have had piled on top of them apparently legitimate guarantees and charges.

The case being made by the plaintiffs is that none of these would have arisen, on the case as pleaded, but for the deliberate policy

of illegality that is alleged in this case. That, however, does not mean that there may not be a proper apportionment of legitimate and

illegitimate debt at the end of this case if the Quinns prove what they allege. That is a matter that I cannot now decide. The burden

of proving illegality, and in particular non participation in what is alleged against Anglo and Seán Quinn, remains with the Quinns as

plaintiffs.