An accountancy firm and two of its senior partners are being sued in the High Court for allegedly making false representations on which a €500,000 investment was made in a company the accountants represented.
First Names Trust Company (Ireland) Ltd, a trustee of designated investment funds, has brought the action against Edward Kirk and John Patrick Donnan, partners in Kirk and Associates, Dundalk, Co Louth, and against the accountancy firm itself.
First Names (formerly IFG Trust Co Ltd) claims it invested €500,000 in a firm called Topsec Technology Ltd, which Kirk and Associates acted as accountants for, based on information provided by the defendants.
The information related to the write-off of a €290,000 debt by Topsec to a related company, Cyberkid Ltd, which are both controlled, First Names says, by businessman Emmet O’Rafferty.
In 2016, First Names brought proceedings against the defendants claiming, among other things, “falsity and untruth” in the representation of certain information about the €290,000 debt, as well as negligence.
It was claimed that the €500,000 investment it made in Topsec had since performed very poorly due to a significant extent to the subsequent discharge of the €290,000 debt.
The defendants deny the claims and in 2022 they brought an application to strike out the First Names action on grounds of a failure to prosecute the case.
Mr Justice Mark Heslin refused to do so.
Giving his decision, the judge said First Names invested €1.5 million in Topsec and, in 2011, it considered making a further investment in that company.
However, it had concerns about €290,000 Topsec had agreed to pay Cyberkid for a certain customer list.
After allegedly receiving assurances that the €290,000 debt from Topsec to Cyberkid would be written off, and would not be a liability for Topsec, First Names agreed to invest another €500,000.
Kirk and Associates, as auditors and accountants of both Topsec and Cyberkid, compiled management accounts for the nine months ending November, 2011 which disclosed a nil balance in respect of associated company loan accounts, meaning there was no €290,000 liability.
First Names also said it was advised in an email on behalf of Edward Kirk in December, 2011 that “all related party debts” from Topsec were either converted or written off and that this “protects shares with no downside on your investment”.
However, the judge said, First Names checked the publicly filed accounts for Topsec in early 2013 and they stated there was to be a “prior year adjustment” as the directors were “of the view that this sum of €290,000 should be ‘written back’ to reflect this payment which had (sic) made”.
There followed correspondence from First Names about this and in 2015, it contacted solicitors. Legal proceedings followed in 2016.
In additional claims of negligence filed in 2022, First Names also contended Kirk and Associates failed to investigate whether the recipients of €290,000 were in fact creditors of Cyberkid.
The defendants also “accepted a nonsensical, implausible and wholly unsatisfactory explanation for that payment from the directors of those companies, it was claimed.
In their strike out for delay application, the defendants argued, among other things, that the defendants received no communications to advance the case for three years between 2019 and 2022. First Names opposed the strike-out application.
Mr Justice Heslin said he was not convinced the defendants established inordinate delay on the part of First Names.
He was satisfied any delay on the part of First Names was excusable for reasons including that the evidence showed there was no delay before the commencement of proceedings in 2016 and no post-commencement delay at least up to 2019.
Regarding 2020 and afterwards, he said, the evidence disclosed First Names continued to take steps to progress the claim.
He also found the defendants had not established any prejudice by delay.
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