Solicitors acting for National Irish Bank customers have given a guarded welcome to the bank's proposals to settle litigation arising out of the CMI offshore bond controversy. Around 25 customers represented by L.K. Shields have issued legal proceedings against NIB alleging that the bonds should not have been offered to them by the bank. Around another 10 customers may issue proceedings.
Mr Edmund Butler, the head of litigation at the firm, said yesterday it would examine the bank's proposals and then advise its clients whether or not to cooperate. NIB is asking the participants in the scheme to provide details of how they were sold the policies. "If there is evidence that the products were mis-sold, or sufficient evidence to suggest they were mis-sold we will talk to them about compensation," the bank's chief executive, Mr Don Price, said yesterday. Customers will be expected to waive their right to sue the bank as part of any settlement.
The bank is open to accusations that it mis-sold the policies - which include the controversial Clerical Medical International products - because they were marketed to Irish residents as tax-free investment vehicles, when in fact they were subject to capital gains tax (CGT) from 1993 onwards.
When the existence of the scheme came to light in 1998, the customers were investigated by the Revenue Commissioners and pursued for CGT. Many customers also had to face additional tax bills relating to the origins of the funds.
The essence of NIB's offer is to pay that part of the customers' tax settlements which were related to CGT on the bonds. This is in keeping with the general principle in mis-selling cases, which is to restore customers to the position they were in before they bought the faulty product.
The bank will not assist customers with other tax issues, although some may demand compensation for missing out on other opportunities by dealing with NIB.
L.K. Shields will examine the bank's offer on a client-by-client basis, says Mr Eoin Cunneen, a senior associate with the Dublin firm. In addition to the 35 customers who have taken or are contemplating litigation, the firm has been contacted by other bond holders, he said.
Mr Price said yesterday that more than 100 of the 470 customers in the scheme had complained to the bank.
The bank brokered products from three offshore companies: CMI and Scottish Provident based in the Isle of Man and Old Mutual based in Guernsey. The bulk of the £61 million (€78 million) invested in the scheme went into CMI products, with 230 customers investing £35 million.
The cost to the bank of compensating customers is not possible to quantify as each individual case is different, says Mr Price.
By opting to try and settle out of court with customers, the bank hopes to avoid years of damaging litigation. It hopes to resolve the issue within a year although legal sources say this may be optimistic.
Dealing with the litigation threat from bond holders is just one of a number of related issues the bank has to address before it can move forward. Others include a High Court inspectors' investigation of the bond scheme and other issues which should be completed by summer.
Only then can the bank's parent - National Australia Bank - decide whether to proceed with the expansion of the Irish operation or its disposal.
