Davy Stockbrokers and Davy Corporate Finance face a legal bill of over £600,000 following the settlement of a high Court case taken by an investor in a film and television production which failed. Terms for the settlement reached between the sides last week after nine days in court were not disclosed but it is reported that the legal costs could reach £600,000.
Westward Garage, a Co. Roscommon firm controlled by businessman Jim Callery which is the largest vehicle importing business in the country and has distribution rights for Scania vehicles, took the legal action against the blue chip advisory firms. Westward states that it invested £100,000 in a media venture but received a return of only £32,750 on the sale of the investment, leaving a short fall of £67,250. The firm was seeking damages for misrepresentation, breach of warranty and breach of duty by the defendants.
The dispute arose from an investment made in 1988 under what was then Section 35 tax relief for film investment through Davy's. Westward could claim full tax relief on any investment up to £100,000 in Vision Film & Television (No.1) Ltd.. The terms of the scheme were that Vision Film & Television Productions (No.1) Ltd. would be liquidated three years after the investment and Westward would be repaid a sum of money at least equal to its investment. They allege that they were told that in order to guarantee the satisfactory liquidation of Vision another firm described as Vision Investments, would buy the company's assets on liquidation. The sum paid would be as much as was needed to ensure the return of Westwards investment and that of other investors, with interest.
The other investors in the were Paul McGuinness' company Principle Management, which invested £65,000, while Davy's Kyran McLoughlin had invested £100,000, and Gay Byrne is reported to have been another investor. The company needed to raise £2 million but only raised £800,000. The company intended to make a number of programmes with a company called Ideal Communications and Television on subjects ranging from concerts to a documentary on Ireland's qualification for the World Cup finals.
When it was realised in 1991 that the money invested would not be realised in time and that there was not going to be a full return on the investment, James Morris, chairman of Windmill Lane, proposed that Windmill Lane would buy the catalogue of unfinished product for the cost of the investors' expected returns. This plan came apart when the IRTC withdrew Windmill Lane's initial TV3 licence. The initial Irish consortium of Paul McGuinness, Ossie Kennedy and James Morris currently hold a 20% stake in TV3 which is now on air.
The main thrust of the case taken by Westward is that it relied on advice given by Davy's and that the defendants were negligent and in breach of their duty. Davy's denied the claim made against them. Much of the case revolved around whether Davy's owed a duty of care similar to that owed to a investor in a public floatation. Davy's has argued that the investment was a private investment project and that the duty of care applying to public floatation did not apply. Westward claims Davy's was represented to them as having investigated any investment they were recommending and Davy's would have satisfied themselves of its viability and Westward claimed it was represented to them that they need make no further investigation.
It was alleged that the closing date for the investment was not March 31, 1988 as the scheme closed some time later and that the investment was not, and was not likely to be, fully subscribed by that date and this was to become pivotal to the outcome; also the proposed investment was not totally secure and Davy's had not investigated the investment as represented; investigation was required by them and that the method of guaranteeing a successful liquidation in the way represented was not guaranteed; Davy's had made no proper investigations of the investment for the purposes of stating any belief which might be acted on as to the soundness of the investment. Further, Westward alleges there were other factors that it should have known when weighing the advice given them. Firstly the alleged lack of investigation by Davy firms; secondly Davy firms were finding it difficult to locate investors and the investment would not be full subscribed by the alleged closing date. Separately it is alleged the investment was not secure or risk free but entirely speculative.
Davy's deny they held themselves out as, or acted as, investment advisors to Westward or made the alleged representations or warranties. If they had made representations or warranties as alleged, Davy's deny they had reason to know that Westward would rely on them or induce them to take action. Negligence is denied and Davy firms argue Westward did rely on any advice or warranties given. It is claimed by Davy's that Westward relied on information and representations contained in the information memorandum prepared by Vision Film & Television Productions (No.1) Ltd. Finally the Davy firms argue that while Westward was told that J & E Davy was acting as the broker to the media investment scheme, the investors should take advice regarding the tax implications and commercial rationale for the investment.
The case ended Tuesday last week after council for the Davy's firms told the court that documentation had emerged which contradicted the instructions given to him when representing his clients. The case was later adjourned and settlement talks commenced. Apparently the placing document for the investment scheme received by Westward stated that the subscription list would open on November 20 1987. But a second placing document given to another investor stated it would open a month later. The Westward document said the scheme would not proceed unless £500,000 was paid by December 11 1987 but the second version stated the deadline was at the end of January 1998. So a difference of one month existed in the documents.
The Sunday Business Post has reported that on Tuesday of last week counsel for Westward asked if Davy's were admitting the existence of more than one version of the placing document and counsel for Davy's told the court that although there were a number of drafts ultimately there was only a single placing document. Counsel for Westward stated he had reason to believe that there was more than one document and that a witness had been subpoenaed to establish that point. Counsel for Davy's stated that instructions from his clients were that no second placing document existed and as a consequence of what had emerged regarding the existence of the second placing document he had "Uwittingly ... mislead the court". The Davey's firms lawyer said it was unfair to expect him to open for the defence in circumstances where it had been said beyond contradiction that his instructions were incorrect and he added later that although he had not seen the document, he had been told that it flatly contradicted his instructions, placing him in a entirely invidious position.
Michael McMahon
