High Court strikes out plaintiffs' frivolous and vexatious fraud claims against bank for loan default.

Neutral Citation: [2014] IEHC 340

THE HIGH COURT

[2012 No. 10545 P]

BETWEEN/

DARAGH McCARTHY, PATRICK BEVAN AND DAFYYD HUGHES

PLAINTIFFS

AND

BANK OF SCOTLAND PLC AND MICHAEL COTTER

DEFENDANTS

JUDGMENT of Mr. Justice Gerard Hogan delivered on 2nd July, 2014

1. In August, 2006 the predecessor in title of the first defendant bank advanced loan facilities in the sum of €2.2m in favour of the

three plaintiffs. The object of these loans was to enable the plaintiffs to acquire two commercial properties in Enniscorthy, Co.

Wexford. Like many property investments which were made at this particular time, this investment has not proved to be a success.

The two properties in question were charged with separate mortgages. The plaintiffs have indeed defaulted on their loans. These

loans were called in April, 2012 and a receiver (who is the second defendant) was subsequently appointed on 1st May, 2012.

2. The plaintiffs commenced the present proceedings in October, 2012. They claim damages for goods and property which have been

allegedly stolen. They also claim damages for theft, deception, breach of duty, misrepresentation, causation, fraud, deceit, non-

performance, breach of contract, breach of promise, attempted damage by perjury, dishonest and insolvent trading and

counterfeiting. It is only fair to say that no claims have been against the receiver, Mr. Cotter, save that his appointment is invalid.

That claim is really contingent on the quite separate claims as against the Bank, the basis for which can now be examined.

3. While the plaintiffs have filed an affidavit in support of these claims, it has to be said that the nature of the averments are not the

easiest to follow. In many respects the plaintiffs – who are litigants in person - have perfected a style of legal writing which can,

without any disrespect, be fairly described as a pastiche copy of the high style of the 19th century pleader. Almost any number of

the thirty three paragraphs of this supporting affidavit could be cited for this purpose, but the opening paragraph may serve to give a

flavour of what was later to come

“This Honourable Court should in all that is Equitable and Just grant all reliefs sought by the Plaintiffs on foot of the

Defendants’ unlawful intentions, actions and collusions to wilfully steal the Plaintiffs’ property and wantonly destroy their

business.”

4. Much of the remainder of the pleadings and affidavits filed by them is in the same vein. It turns out that the principal argument

now advanced by the plaintiffs is that the defendant Bank did not advance them loans of money at all, but rather that it illegally

created currency, so that – or so the argument runs - there is no valid contract of loan. Thus, in their replies to particulars of 18th

October, 2013, the plaintiff’s state:

“The Bank of Scotland monetized our wet inked signed promissory notes/loan offers for their benefit and they were

monetized with intent.”

5. They had also claimed in these replies that if these defendants “cannot produce the real wet inked signed original promissory

notes/loan offers and cannot produce the real wet inked signed deed of mortgage they are in breach of their alleged contract and are

liable.” I should add that the defendants offered to bring the original mortgages into court and did in fact do so.

6. It is, accordingly, not a great surprise that the Bank should move to seek to have the proceedings struck out as unsustainable in

law, whether pursuant to O. 19, r. 28 or pursuant to the inherent jurisdiction of this Court.

The illegally created currency argument

7. So far as the illegally created currency argument is concerned, the plaintiffs drew my attention to an article contained in Bank of

England Quarterly Bulletin, 2014, Q.1, entitled “Money Creation in the Modern Economy” by members of the Bank’s Monetary Analysis

Directorate. It seems to me that the plaintiffs have completely misunderstood the thrust of that article. Of course, no one could deny

that in a modern banking system banks can – and do - increase the money supply by the granting of loans and credits. In that

particular sense – and I emphasise these words – a macro-economist might say that the banking system “creates” money by thus

increasing the money supply. This, however, is scarcely a new insight and simply reflects views which all the great economists –

ranging from Adam Smith to Milton Friedman – have expressed from time to time.

8. All of this, however, is entirely irrelevant as a matter of law. At one point Mr. McCarthy seemed to argue that a loan could only be

valid if something tangible (such as notes or coin) had been exchanged. At other times Mr. McCarthy suggested that he did not

receive a loan of money at all, but rather that as the money advanced had been “created” by the bank, the underlying contract of

loan was somehow invalid or inoperative. The plaintiffs also allege that by reason of this the Bank is guilty of fraud or, as they put it,

fraud in the factum.

9. It is, I think, a measure of the desperate straits in which some litigants have found themselves as a result of the collapse in the

property market from 2008 onwards that arguments of this kind have been seriously advanced, not only in this case but in other

recent cases of the same kind, both here and in other jurisdictions, most notably Canada. A version of this fanciful theory had been

advanced in Dempsey v. Enviston Credit Union [2006] BCSC 750 where it was described in the following terms by Garson J.:

“In his submissions on the motion, in the actions concerning him, Mr. Dempsey described the ‘money for nothing’ theory.

He stated that the banks do not have money. Rather, they create money out of ‘thin air’…He says that the plaintiffs

create money by signing promissory notes, and as soon as the promissory note is signed, the banks deposit money in their

own statement of account. The bank does not place hard currency in the hands of the debtors. Mr. Dempsey then charge

interest on nothing and that is a criminal rate of interest because interest is charged on nothing. Mr. Dempsey states: “it

is not like the old days when people used to go to the bank and, in the back room, count out dollars, there is no law that

allows the banks to create dollars out of thin air.”

10. It is scarcely a surprise that in Dempsey this argument was described by the British Columbia courts as “fanciful” and “completely

devoid of merit.” Yet this has not deterred other litigants in this jurisdiction advancing similar arguments which are equally lacking in

merit and which, indeed, lack any relationship to contractual or other legal realities.

11. In Freeman v. Bank of Scotland Ireland [2013] IEHC 371 Gilligan J. noted, having referred to a decision of Meads v. Meads, a

decision of the Alberta Queens Bench, that:

“This ‘creation of currency’ argument resembles the so-called ‘money for nothing schemes’ discussed in Meads v. Meads

[2012] ABQB 571. Such arguments are coming before the Courts in numerous jurisdictions with increasing frequency since

the economic and property market collapse. In Meads, Associate Chief Justice Rooke stated that such arguments are

often advanced by a particular type of vexatious litigant which he termed ‘Organised Pseudolegal Commercial Argument

(OPCA) litigants’. He described these arguments as ‘fanciful’ and ‘completely devoid of merit’ and said they are often made

by distressed litigants, particularly those who find themselves in financial difficulty, acting under pressure and on the

instruction of organised groups or individuals who have a vested interest in disrupting court operations and frustrating the

legal rights of governments, corporations and individuals.”

12. Similar views were expressed by Birmingham J. in Kearney v. KBC Bank Ireland plc [2014] IEHC 260, where, having referred to the

judgment of Gilligan J. in Freeman, he observed:

“In my view the phrases “fanciful” and “completely devoid of merit” are very appropriate to describe this argument and

indeed significantly more robust language would be justified. Quite simply the plaintiff drew down funds and thereby took

on the responsibility to repay. What the source of these funds was matters not a whit. The position is not altered by the

sourcing of the article [from the Bank of England] on which the plaintiff places such reliance.”

13. The Bank of England article to which Birmingham J. referred is the same one as was relied on by the plaintiff here. As Birmingham

J. pointed out, the source of the Bank’s funds is quite irrelevant so far as the obligation to repay the loan is concerned. It would be

entirely unreal to suggest that any customer would inquire as to the source of a bank’s funds and the argument as thus advanced by

the plaintiffs is entirely spurious and absurd.

14. The same can just as readily be said of the contention that a loan must be somehow be made by way of coin or notes, since this

runs entirely contrary to modern realities. While the plaintiffs invoke the concept of fraud, nothing whatever has been advanced to

support this claim. It is accordingly quite impossible to see how any kind of fraud is involved. The simple reality is that, as Birmingham

J. put in Kearney, the plaintiffs have drawn down funds, obtained the benefit of these funds and now have an obligation to repay

these loans.

15. It is unnecessary for present purposes to examine in any detail the type of case which comes within the rubric of “frivolous or

vexatious” within the meaning of O. 19, r. 28. Of course, in some cases and in some contexts, frivolous or vexatious may mean no

more than that the claim is doomed to fail or that it has no reasonable prospect of success: see, e.g., the comments of Barron J. in

Farley v. Ireland, 1st May, 1997, and those of Birmingham J. in Novak v. Data Protection Commissioner [2012] IEHC 449, [2013] 1

I.L.R.M. 207 (where similar words appear in s. 10(1)(b) of the Data Protection Act 1988). To that extent, O. 19, r. 28 overlaps to

some degree with the inherent jurisdiction of the court to strike out unsustainable claims.

16. Yet the very wording of O. 19, r. 28 demonstrates that this jurisdiction is also necessarily broader than the inherent jurisdiction to

strike out unsustainable claims which was identified by Costello J. in Barry v. Buckley [1981] I.R. 306 and which analysis has been

consistently followed in a host of subsequent cases. The concepts of frivolousness and vexatiousness are also broad enough to

include those categories of cases where claims which are tenuous, flimsy, entirely lacking in substance, foolish or absurd have been

advanced. I regret to say that each of these descriptions are also entirely apt so far as the plaintiffs’ “money for nothing” arguments

are concerned.

17. The other arguments advanced by the plaintiffs are equally devoid of merit. It was contended that the Bank was insolvent at the

time it made the loans. While that claim has been strenuously denied, it is sufficient to say – as Gilligan J. said in Freeman – that

even if this were so, this would not affect the validity of the loans.

18. The same applies to the breach of contract arguments. In the replies to particular the plaintiffs state that the Bank “has wilfully

monetized our promissory notes/loans and has possibly securitized our deed or mortgage.” It is clear, incidentally, from the evidence

of John Burnet, head of Credit Sanctioning at the Bank that these particular commercial mortgages were not securitized. It is further

stated that as a result of the “monetizing” of the promissory notes/loans that the Bank is “not a part of interest in our estate and

thus, the first defendant is fraudulent coercing the second defendants to action a defective deed of appointment.” It is not easy to

decipher what exactly is meant by this. It seems to be just another version of the argument that the plaintiffs never entered into a

valid contract of loan. Again, for the reasons stated, this claim is entirely unmeritorious and lacking in any substance whatever.

Conclusions

19. While the persons who made what with hindsight appears to be poor commercial judgments by purchasing commercial or

residential properties at the height of the property boom are entitled to our sympathy and understanding, this cannot take or affect

from the legal rights of the parties. The plaintiffs entered into perfectly valid contracts of loan with the defendant bank on which they

have now unfortunately defaulted, resulting in the appointment of a receiver. They cannot – and should not – be allowed to obstruct

this process by commencing proceedings which are entirely devoid of merit and in so doing advance arguments that are both spurious

and foolish.

20. I regret to say, however, that this is the only way in which these claims can be characterised. In these circumstances, I find

myself coerced to the conclusion that these proceedings should be struck out pursuant to O. 19, r. 28 on the ground that they are

frivolous and vexatious.