The High Court yesterday refused an application by businessman Hugh O'Regan to force Bank of Ireland to provide an indemnity for any adverse consequence arising from the bank's alleged mismanagement of accounts, pending a full hearing of the case.

Mr O'Regan had argued the granting of the indemnity was critical to the survival of Sharmane Limited, the parent company of a number of subsidiaries, which own pubs and hotels across Dublin, including the Morrison hotel. It has gross assets worth some €30 million and some 450 employees.

The urgency of the matter was because a company called Guerneville Holdings, which now controls the group, would not provide further funding to Sharmane unless Sharmane received the indemnity from the bank.

The bank denied there was ever any agreement on an indemnity or that it had any liability for the alleged alteration of banking mandates by Dale Associates, a management company within the Thomas Read group, or any liability for the "sweeping" of monies from the accounts of Dale to the accounts of other group companies and former group companies of Dale.

The bank also argued the sale of Sharmane was completed without any tax indemnity being provided. The proceedings were an "ill-conceived attempt" to pin the bank with a responsibility it did not have, it claimed.

Mr Justice Frank Clarke refused the injunction application on the basis that such a mandatory interlocutory order at this stage of legal proceedings would effectively amount to specific performance of the alleged indemnity agreement. He adjourned the matter with a view to securing an early hearing of the full proceedings against the bank.

The application was brought by Bill Shipsey SC, on behalf of Sharmane, Hugh O'Regan, Martin Conroy and Thomas Read Holdings, and was opposed by Donal O'Donnell SC, for the bank.

In an affidavit, Mr O'Regan said he and Mr Conroy had disposed of 60 per cent of the issued share capital of Sharmane to Guerneville Holdings Limited last year.

He and Mr Conroy remained the owners of 40 per cent of the shareholding, which was the subject of a further sale contract with Guerneville, which was due to be completed on March 31st, 2005.

When he and Mr Conroy entered negotiations with Guerneville from about January 2002, for the sale of their shares in Sharmane - Guerneville was to buy 60 per cent of the shares for €15 million and later to acquire the remaining 40 per cent for €5 million - irregularities emerged in the bank's management of the company's bank accounts.

Those irregularities were the subject of other proceedings against the bank.

Mr O'Regan said the bank's admitted mismanagement of the accounts of Sharmane and certain companies gave rise to concerns by Guerneville during its due diligence that there could be a tax liability, which none of the parties to the sale of Sharmane had anticipated. The sale was delayed because of further investigations relating to those issues.

He said that, in December 2003, the bank agreed, in open correspondence, that it would indemnify the plaintiffs with regard to any adverse consequences and tax liabilities arising from the bank's mismanagement of their bank accounts.

Mr O'Regan said it now transpired that Sharmane was in serious financial difficulties.

Guerneville had indicated it would provide funding by way of equity investment provided, among other things, that the bank agreed to furnish the tax indemnity. External equity investment by Guerneville was critical to its survival and to ensure it was not put into receivership, Mr O'Regan said.

Opposing the application, Gerry White, senior business manager with Bank of Ireland, said the bank understood that, to facilitate the sale of a number of the Thomas Read group's pubs, a number of companies were demerged from the Read group in March/April 2003.

Sharmane was the parent of the pub trading companies and it was intended the transaction be completed by Guerneville acquiring Sharmane and its subsidiaries.

It was alleged that Guerneville's due diligence uncovered a number of irregularities in how the bank operated the accounts of Dale and the Sharmane companies in the period up to September 2003.

Mr O'Regan had brought those matters to the Bank's attention in July 2003 and asked to have them investigated. The bank gave every assistance to Mr O'Regan.

Despite this, Mr O'Regan had been unable to point to any identifiable loss suffered by Sharmane or the other companies from the alleged irregularities. However, Mr O'Regan and others had taken proceedings against the bank, which the bank would fully defend.

The bank denied liability for any of the alleged matters and did not accept the plaintiffs had suffered any loss.

In December 2003, the bank was urged to take steps or pay amounts to facilitate the completion of the Guerneville deal. Certain "without prejudice" discussions were held aimed at addressing all issues.

A redraft of a proposed indemnity was issued by Mr White in the context of those discussions, which was explicitly stated to be a "draft document" and was proffered as an attempt by the bank to seek a full wrap up of the issues between the parties.