Anglo's New York hotels deal left wealthy investors 'on their own’

Mary Carolan

An investment agreement between Anglo Irish Bank and 50 wealthy Irish people to buy and renovate two New York hotels meant "you're on your own" rather than "Anglo would mind them", as the investors argued, a Supreme Court judge said yesterday.

Anglo, "which has become notorious", had in 2006 solicited Century Homes co-founder Gerard McCaughey and the other investors from amongst its "best customers" as persons with a net worth of ¤5 million or incomes exceeding ¤500,000 a year and they were unlikely to be "innocents abroad", Mr Justice Adrian Hardiman said.

He ruled the terms of a "commitment agreement" signed by the investors and/or a "black brochure" concerning the investment created no liability for the bank, now IBRC, to Mr McCaughey "for anything short of direct lies or fraudulent concealment".

He also upheld findings no case of fraud was established.

The "breathtakingly broad" terms drafted by the bank in the investment agreement stated the investors had all the material they wanted concerning the proposed investment, were not relying on any representations, had made their own decisions based on their own appraisals and may not have been given complete information, but still wished to proceed, he said.

The brochure referred to the investment as one of "high-risk", and to 10 risk factors, although not a zoning risk, and stated prospective investors should consult their own legal, financial and tax advisers.

The brochure also referred to hotel renovation costs of about $25 million but those increased to between $68-90 million in 2007 and $102 million by 2009, beyond the capacity of the investment fund.

Mr Justice Hardiman yesterday delivered the three-judge court's judgment upholding the High Court's dismissal of the "pathfinder" action by Mr McCaughey over the investment project backed by Anglo's private banking arm involving purchase and renovation of the Beekam Tower and Eastgate Tower hotels.

Mr McCaughey, with addresses at Sandymount, Dublin, and Manhattan Beach, California, sued Anglo and the Anglo-owned Delaware-based Mainland Ventures Corporation (MVC) over the Anglo Irish New York Hotel Fund, a private equity investment.

Adverse implications

He was among 50 people who invested an average of $1 million in the hotels fund in 2006 and yesterday's decision has adverse implications for 22 similar actions. The bank denied all the claims against it and also denied it owed any duty of care at all to the investors.

The investors had lost their entire investment, although the bank retains a substantial asset, Mr Justice Hardiman noted.

He agreed with the High Court the "commitment agreement" meant the bank had exempted itself from liability for anything "short of direct lies or fraudulent concealment".

This was despite the relationship between investor and the bank as set out in that agreement being at variance with the kind of relationship the bank had acknowledged as having with its private investors, he said.

There was appropriate evidence on which the High Court dismissed allegations of fraud by the bank on grounds including failure to refer to zoning issues in its black brochure, despite advice from its US lawyer to do so, he said.

There was also appropriate evidence for the High Court's rejection of non-fraud claims, including negligence, he said.

The non-fraud claims were dismissed mainly on grounds of the High Court finding that disclosure of the zoning issue would not have stopped Mr McCaughey proceeding with the investment.

Mr McCaughey's statement that he would not have invested if the brochure referred to zoning was a "product of hindsight and wishful thinking", the High Court found.

Mr Justice Hardiman noted the High Court found there was no information available in autumn 2006 to indicate cause for particular concern in relation to either hotel regarding zoning.

The finding that Mr McCaughey would have proceeded with the investment was fatal to his non-fraud claims as it destroyed the link between the alleged wrong and the result of that, he said.