Administration
Cases
In re McAllister
[1973] IR 238
Kenny J.
James McAllister was adjudicated bankrupt on the 23rd December, 1970. His liabilities were £386,213, his assets were £76,692 and there was, therefore, a deficiency of £309,521. The bank strike in the State began on the 1st May, 1970, and lasted until the 17th November. During it, the bankrupt purchased large numbers of cattle in the State and brought them to Northern Ireland where he sold them for cash. He paid for them by cheques which were dishonoured when the banks re-opened.
Section 305 of the Irish Bankrupt and Insolvent Act, 1857, gives the Court power at any time to summon any bankrupt before it and s. 306 provides that the Court may examine him upon oath about all matters relating to his trade, dealings or estate, and may reduce his answers into writing and that he is then to sign the transcript. The bankrupt was examined on oath on the 17th April, 1972, and gave evidence that he had given £328,000 to Mr. Gerry Healy of Gransha, Dromare, County Down, to invest it. The bankrupt had had deposit accounts with hire-purchase companies in the State, and a current bank account. He said that Mr. Healy told him that he (Mr. Healy) could get a higher rate of interest. Mr. Healy has disappeared and the bankrupt does not know where he is. I do not believe this evidence and I am convinced that the bankrupt knows where the £328,000 is and that he has probably placed it in a bank outside the State.
Section 385 of the Act of 1857 provides:” “If any person shall refuse to be sworn, or shall refuse to answer any lawful question put by the Court, or shall not fully answer any such question to the satisfaction of the Court, or shall refuse to sign and subscribe his examination when reduced into writing (not having any lawful objection allowed by the Court), or shall not produce any books, papers, deeds, and writings, or other documents in his custody or power relating to any of the matters under inquiry which such person is required by the Court to produce, and to the production of which he shall not state any objection allowed by the Court, it shall be lawful for the Court by warrant to commit such person to such prison as such Court shall think fit, there to remain without bail until he or she shall submit himself or herself to such Court to be sworn, and full answers make to the satisfaction of such Court to all such lawful questions as shall be put, and sign and subscribe such examination, and produce such books, papers, deeds, writings, and other documents in his custody or power.” The bankrupt has not made full answers to lawful questions and when the Official Assignee applied for an order that the bankrupt should be committed to prison until he had given answers to the satisfaction of the Court, the bankrupt contended that s. 385 of the Act of 1857 was repugnant to the Constitution and that the Court had no power to commit him.
The first argument was that the failure of the bankrupt to make full answers to the satisfaction of the Court to questions which were put to him was a criminal contempt and that the Court, when it decided to commit a person under the section was, in substance, convicting him of perjury. It was said that the section authorised trial and conviction of an offence which is not a minor one without the verdict of a jury. Mr. Barrington relied on a passage in the judgment of Ó Dálaigh C.J. in Keegan v.de Burca 1:” “The distinction between civil and criminal contempt is not new law. Criminal contempt consists in behaviour calculated to prejudice the due course of justice, such as contempt in facie curiae, words written or spoken or acts calculated to prejudice the due course of justice or disobedience to a writ of habeas corpus by the person to whom it is directed ” to give but some examples of this class of contempt. Civil contempt usually arises where there is a disobedience to an order of the court by a party to the proceedings and in which the court has generally no interest to interfere unless moved by the party for whose benefit the order was made. Criminal contempt is a common-law misdemeanour and, as such, is punishable by both imprisonment and fine at discretion, that is to say, without statutory limit; its object is punitive: see the judgment of this Court in In re Haughey .2 Civil contempt on the other hand, is not punitive in its object but coercive in its purpose of compelling the party committed to comply with the order of the court, and the period of committal would be until such time as the order is complied with or until it is waived by the party for whose benefit the order was made.” In that case the Supreme Court held by a majority that the refusal to answer a relevant question is a criminal contempt and that a sentence of imprisonment of indefinite duration was incorrect.
The failure to make full answers to lawful questions in bankruptcy is not a criminal contempt even if the categories of criminal and civil contempt are applicable to s. 385 of the Act of 1857. That section authorises a sentence of indeterminate duration, while there was no statutory provision for this when Miss de Burca refused to answer questions. I agree with FitzGibbon L.J. in In re Keller 3when, in relation to s. 385, he said:” “. . . there is no adjudication that the offence of contempt has been committed; and instead of an award of punishment, which should be definite, there is an order for unlimited detention until the required evidence is given, upon which, the object of the committal being obtained, the matter would come to an end.” The object of the section is not to give the Court power to punish or indirectly to enable it to convict a person of perjury but to make it possible to commit a person to prison until he gives satisfactory answers so that his assets may be made available in the bankruptcy. Holmes L.J. emphasised this in In re Garvine 4 when he said that the power of committal was not punishment but was given to make it possible to obtain at some future time more satisfactory answers to questions so as to enable the assignees to collect and realise all the property of the bankrupt. The same view about the purpose of the section was expressed in the speeches in the House of Lords in Hollinshead v. McLoughlin. 5 I am confident that committal in this case will improve the bankrupt’s memory as to what he did with the £328,000 and that it will probably persuade him to disclose where he has this money. If his memory is not made better, some creditors will suffer very large losses.
Mr. Barrington is correct in saying that the Court must be satisfied that the bankrupt has given false evidence on oath before it commits him, but this does not mean that he is convicted of perjury or that he has committed any offence. He is not being tried on a criminal charge and so the section is not repugnant to Article 38, s. 5, of the Constitution.
Then it was said that the prohibition on giving bail which the section created was inconsistent with Article 34, s. 3, sub-s. 1, of the Constitution which gives the High Court “full original jurisdiction in and power to determine all matters and questions whether of law or fact, civil or criminal.” I do not think that the National Parliament has power to pass legislation that the High Court shall not give bail to an accused person and so the words”without bail” are repugnant to the Constitution and did not become part of the law of Saorstát ireann or of the State. It does not follow however that the whole of the section is repugnant to the Constitution and the relevant parts of the section should now read:” “. . . it shall be lawful for the Court by warrant to commit such person to such prison as such Court shall think fit, there to remain until he or she shall submit himself or herself to such Court to be sworn, and full answers make to the satisfaction of such Court to all such lawful questions as shall be put. . . .”
It was suggested that the section was repugnant to the Constitution because the bankrupt or a witness could be compelled under it to answer questions which might incriminate him. There was no discussion as to whether the Constitution confers a right against self incrimination and none of the many cases on this matter which have been decided in the United States of America was cited. In these circumstances I do not intend to decide whether the Constitution creates such a right. The bankrupt may be committed to prison only if he refuses to answer “any lawful question put by the Court” or if he fails to answer fully “any such question.” In my view a bankrupt or person examined in bankruptcy may decline to answer any question which might incriminate him or which might disclose that he has committed a criminal offence and I know that it has been the practice of the judges who have exercised bankruptcy jurisdiction during the last twenty years to warn witnesses that they are not obliged to answer questions if their evidence would show that they had committed a criminal offence.
There will be an order that the bankrupt shall be committed to Mountjoy Prison there to remain until he shall make full answers to the satisfaction of the Court to all such lawful questions as shall be put to him. Counsel have informed me that they propose to appeal and I am prepared to admit the bankrupt to bail on terms that he undertakes to attend the hearing of the appeal in the Supreme Court and is present when judgment is given.
[The bankrupt was admitted to bail and he appealed to the Supreme Court, but he did not answer to his bail and the appeal was dismissed on the 23rd July, 1973, for want of prosecution.]
Tormey v. E.S.R.I.
[1986] IR 615
Hamilton P.
At all times material hereto the first plaintiff in the above entitled proceedings was a bankrupt, having been adjudicated on the 20th October, 1980. On the 10th December, 1985, he caused to be instituted proceedings in which he claimed against the defendant, the Economic and Social Research Institute,
1. A declaration that the purported termination/repudiation by the defendant by letter dated the 23rd September, 1985, of an agreement between the bankrupt and the said Economic and Social Research Institute to employ him is null and void and of no effect, and
2. Damages for breach of the first plaintiff’s constitutional rights, breach of contract and wrongful dismissal,
3. Aggravated and exemplary damages.
The second plaintiff, the Official Assignee, was joined in the said proceedings by order of the court. The statement of claim was delivered on the 10th December, 1985. This matter comes before me by way of an application brought by the said defendant for an order requiring the plaintiffs to furnish security for the defendant’s costs of these proceedings, for an order remitting the measurement of the amount thereof to be furnished by way of security for costs to the Master of the High Court and for an order providing for the costs of this application. The application on behalf of the said defendant is grounded on the affidavit of John Roughan who is described therein as the Assistant Director and Secretary of the defendant. In his said affidavit he states that the defendant has a good andbona fide defence to the plaintiffs’ claim on the grounds set forth in the said affidavit sworn on the 30th January, 1986.
In his said affidavit he avers, inter alia, that:
“I say and believe and have been advised by counsel that the defendant is likely to be successful in its defence to these proceedings and if such should be the case, I say that the plaintiffs do not have any assets against which the defendant could recover costs awarded in its favour. As is already averred the first plaintiff is an undischarged bankrupt and the second plaintiff is joined in these proceedings only pursuant to an order of the Bankruptcy Court. I say that at best, the defendant would have to prove in the first plaintiff’s bankruptcy in the event of costs being awarded in favour of the defendant and in these circumstances, I say and believe that it is just and proper that the plaintiff should be required to furnish security for the defendant’s costs in such amount as the Master of the Honourable Court may appear proper.”
On the 31st December, 1985, the defendant’s solicitors wrote to the solicitors acting for the plaintiff seeking an undertaking to furnish such security for costs but no reply was received to the said letter.
The application on behalf of the defendant is opposed by the bankrupt on the grounds that:
(a) He has a good cause of action against the defendant,
(b) that he, being a bankrupt, is not in a position to provide security for costs,
(c) that the effect of an order directing him to provide security for costs would be to deprive of his constitutional right of access to the High Court to have his claim against the defendant herein determined, in accordance with law.
It is true, as is alleged by Mr. Roughan, that the bankrupt does not have any assets against which the defendant could recover costs if it were successful in defending the plaintiffs’ claim herein and that it would be required to prove in the bankruptcy in the event of costs being awarded to it.
However, it is, and has been for some considerable time, well settled that bankruptcy as such is not a ground for ordering a plaintiff to give security for costs. In his judgment in Cook v. Whellock (1890) 24 Q.B.D. 658 the then Master of the Rolls, Lord Esher, in the course of his judgment stated at p. 661 that:
“It is argued that, though this be so, yet in a preliminary proceeding for security for costs prior to the trial, the defendant may show that the plaintiff is an undischarged bankrupt in order that he may get such security. It seems rather strange that that should be so, but be that as it may, and assuming that he may be allowed to show in the present proceeding that the plaintiff is an undischarged bankrupt, does that entitle him to have security for costs from the plaintiff? It is quite clear that mere poverty is not a sufficient ground for making a plaintiff give security for costs. It is alleged here that the plaintiff is a mere nominal plaintiff. This cannot be said of him in the usual sense in which it is said in these cases, viz., that he is a person really put forward by some other person behind him to bring an action on behalf of that person. It is said that he is a nominal plaintiff, because, if he recovers the money claimed, he will hold it as trustee for his trustee in bankruptcy. I doubt whether this can be said in the proper sense of the words. If he recovered in the action, the only Court I think that could interfere would be the Bankruptcy Court, to which the trustee would have to make an application that the money should be paid to him. But suppose it could be said that the plaintiff would be a trustee of the money recovered, would it follow that he could be said to be a mere nominal plaintiff in the sense that is requisite for this purpose? Suppose he succeeded in the action and were forced to pay over the money to the trustee . . . So, even if the money has to be handed over as assets in the bankruptcy, the plaintiff gets a benefit from it, although his creditors get a benefit too. If he gets benefit from it, he is not a mere nominal plaintiff. It follows, I think, from what has been held in the Court of Appeal in Rhodes v. Dawson (16 Q.B.D. 548), that the mere fact of bankruptcy is not per se a sufficient reason why a plaintiff should be ordered to give security for costs.”
In the course of his judgment in the same case, Lord Justice Lopes stated at page 662:
“But is is said that, nevertheless, the plaintiff being an undischarged bankrupt, ought to be made to give security for costs unless the trustee is made a plaintiff. In Rhodes v. Dawson on a somewhat similar application for security for costs, the whole matter was carefully considered; and it seems to me that the question in this case is really answered by the judgment in that case, where a passage from Chitty’s Archbold (vol. 1., p. 398) is cited with approval, such passage being to the following effect:
‘The plaintiff will not be compelled to give security for costs merely because he is a pauper, or bankrupt, or insolvent, and this even in a qui tam action; and this rule applies where the plaintiff is a trustee of a bankrupt and is suing for the benefit of the estate, or where the plaintiff is suing as executor for the benefit of the testator’s estate’.”
I agree with this statement of the law and refuse the application for security for costs.
Criminal Assets Bureau v. Kelly
[1999] IEHC 172; [2000] 1 ILRM 271 (4th June, 1999)
This is a Motion by the Criminal Assets Bureau for summary judgment in the sum of £2,950,866.12 against the Respondent. The proceedings are brought in the name of the Criminal Assets Bureau pursuant to the provisions of the Criminal Assets Bureau
2. Act, 1996 Order 37 Rule 7 and reads as follows:-
“Upon the hearing of any such Motion by the Court, the Court may give judgment for the relief to which the Plaintiff may appear to be entitled or may dismiss the action or may adjourn the case for plenary hearing as if the proceedings had been originated by plenary summons, with such directions as to pleadings or discovery or settlement of issues or otherwise as may be appropriate, and generally may make such Order for determination of the questions in issue in the Action as may seem just.
Counsel for the Applicant is pressing the Court for summary judgment. Counsel for the Respondent submits that the matter should be remitted for plenary hearing. In First National Commercial Bank Plc. v. Anglin (1996) 1 IR page 75, Murphy J. approved the test for granting leave to defend laid down in the Banque de Paris v de Naray (1984) 1 Lloyd’s Reports 21 as summarised in the headnote thereto which is contained in his judgment at page 79:-
“The mere assertion in an affidavit in the given situation which was to be the basis of a defence did not, of itself provide leave to defend. The Court had to look at the whole situation to see whether the Defendant had satisfied the Court that there was a fair or reasonable probability of the Defendants having a real or bona fide defence.”
3. On the Plaintiff’s affidavits and the exhibits referred to therein the Applicants have established a prima facie case. However in the affidavit filed by Mr McGrattan in paragraph 5 he says:-
“The affidavits filed by the Criminal Assets Bureau do not fully set out the sequence of events in this matter. I say that dating as far back as 1997 there were on-going negotiations with the Revenue Commissioners concerning the settlement of Mr Kelly’s liability. There has been no proper response to the proposed settlement arrangement based on pound for pound discharge of the Bankrupt’s debts. Various offers were initiated by the tax payer and indeed the assessments now purporting to be final and conclusive were raised while the Inspector of Taxes and his colleagues were fully aware of meetings at which a finality of all matters concerned had been concluded with the exception of two matters upon which the Revenue Officials were to return to the tax payer. I say that the representatives of the CAB/Revenue Commissioners intimated to me that while negotiations were ongoing there was no need to appeal these assessments and that they were prepared to allow the tax payer to finalise his affairs with the Revenue Commissioners by negotiation.”
4. It is fair to say that this is hotly contested by the Applicants. There is a conflict of evidence which, if resolved in the Respondent’s favour, would afford him a possible defence. Mr Forde submits that although there is a provision for a notice to cross-examine in summary proceedings, the very presence of a factual dispute precludes summary disposal of the matter. I do not accept that submission. The provision for notice to cross-examine in my view indicates that the Court may resolve issues of fact in summary proceedings. I reject the submission of Mr Forde that notice of cross-examine is more a means of making it clear that one does not accept the averments in the affidavits of the other side, I also reject the contention that cross-examination is permitted only where the Court is of the view that there is no defence but allows the Defendant to give evidence in order to prevent an injustice by the summary judgment.
5. I accept the Court can deal with factual issues other than by sending the whole case to plenary hearing in the appropriate circumstances.
In the case of Prendergast v. Biddle , an unreported judgment of the Supreme Court in 1957, Lavery J. said:-
“The procedure by summary summons is provided in order to enable speedy justice to be done in particular cases where there is either no issue to be tried or the issues involved are simple and capable of being easily determined.”
6. Mr Forde also submits that he has an arguable case in law and submits therefore that if that case should go to trial, he argues that it would be unfair for a Court to make a determination of fact in these proceedings when in any event there is going to be a trial. Mr Nesbitt however argues that it is a “stand alone” issue.
7. Mr Forde quotes the White Book and submits that leave to defend should be given where a difficult question of law is raised or where he has a fair and arguable point to make. Nevertheless, if the point is clear and if the Court is satisfied that there is not really an arguable case leave to defend would be refused. The power to give summary judgment under Order 14 is “intended only to apply to cases where there is no reasonable doubt that the Plaintiff is entitled to judgment, and where therefore, it is inexpedient to allow the Defendant to defend for mere purposes of delay” . ( Jones v. Stone [1894 AC 122] ). TheWhite Book states that as
” a general principle, where a Defendant shows that he has a fair case for defence on reasonable grounds for setting up a defence, or even a fair probability that he has a bona fide defence, he ought to have leave to defend.”
8. Mr Forde’s legal grounds of defence are as follows:-
Bankruptcy Point
9. Section 52 of the 1997 Act defines a chargeable person as “persons or bodies receiving or entitled to the income in respect of which the tax is charged”. He submits that while Mr Kelly physically received the income, he did not legally receive it. He submits that the person receiving the income, to which sub-section 52 means a person is legally entitled to the income, and not a person who merely physically receives it. He submits that although Mr. Kelly physically received the income, it was not legally his and he should not be liable to pay tax on it.
10. Prior to July 1998, when the Bankruptcy Act, 1998 came into force, the after-acquired property of the bankrupt was governed by Section 267 and 268 of the Irish Bankruptcy and Insolvency Act, 1857. Section 267 of the 1857 Act vests in the Assignees for the time being “all the personal estate and effects of a bankrupt present and future wherever the same may be and all property which he may purchase or may come to him (including all that is due or to be due to him)” before such bankrupt has obtained his certificate, while Section 268 vests all his real estate in them.
11. Counsel argued that such profits as may have been generated by Mr Kelly’s activities prior to 3rd July, 1998 were not his in any sense as they automatically vested in the Official Assignee. The Plaintiffs argue, however, that notwithstanding the fact that the section appears to be absolute, property did not vest in the Assignees unless they elected to take it. However, it seems to me that the Defendant has raised a fair point for argument and that that matter would have to be decided on the plenary hearing.
12. After July 1998 the position is governed by the Bankruptcy Act, 1998 according to which:
“Property which is acquired by or devolves on a bankrupt before (his) discharge … shall vest in the Official Assignee if and when he claims it.”
13. In this case the Official Assignee did claim some property. In those circumstances, it is argued that the Defendant is not a chargeable person as defined by Section 52 of the Taxes Consolidation Act, 1997. It is argued that he is not “a person or body of persons receiving or entitled to the income in respect of which tax … is charged” . This does not appear to me to be an arguable point. It is clear that the Defendant received and was entitled to receive the income – the fact that it could later be claimed by the Official Assignee does not seem to me to be relevant.
The constitutional arguments .
1. Is the inspector administering justice?
2. Is the certificate conclusive evidence?
3. Is the limitation period too short?
Section 416 subsection 6 of the 1967 Act reads as follows:-
“In default of notice of appeal by a person to whom notice of assessment has been given or in case of the neglect or refusal of a person, who has given notice of appeal to attend before the special commissioners at the time and place appointed for the purpose of hearing appeals, the assessment shall be final and conclusive”.
Section 933(6)(a) of the Taxes Consolidation Act reads as follows:-
“In default of notice of appeal by a person to whom notice of assessment has been given, the assessment made on that person shall be final and conclusive”.
Section 933(6)(b) reads as follows:-
“Where a person who has given notice of appeal against an assessment does not attend before the appeal commissioners at the time and place appointed for the hearing of that person’s appeal, the assessment made on that person shall, subject to subsection 8 have the same force and effect as if it were an assessment in respect of which no notice of appeal had been given”.
14. It appears to me that Section 9336(a) and (b) are functionally the same as Section 416 of the 1967 Act. The constitutionality of that section has been upheld by the Supreme Court in the case of Deighan v. Hearne [1990] 1IR 499. In my view the Defendant has not an arguable case in view of that decision.
15. Mr Forde also claims that he is an arguable in that “a stipulation that a particular determination on a certificate or report shall be conclusive evidence” may be unconstitutional. In my view this argument has no application in the present case. There is no attempt in the present case to make any certificate final and conclusive evidence. Section 933(6)(a) provides that an assessment becomes final and conclusive in default of an appeal. A certificate is not and does not purport to be final and conclusive evidence of anything. The certificates under Section 966(5)(a) and 966(5)(b) of the Taxes Consolidation Act, 1997 are expressly stated to be evidence “until the contrary is proved” of those facts. Therefore there is not an arguable defence on these grounds.
Time in which to lodge appeal
16. The Defendant complains that the 30 day time limit on appeal is unconstitutionally unfair and is inconsistent with the provisions of Article 41 (3)(1) and (3)(2) of the Constitution. In the Affidaivts filed by the Defendant herein he does not make out any case that he was in any way adversely affected by the fact that the time for making an appeal was confined to 30 days. He had the services of a Solicitor and of a tax advisor. He makes no complaint that the reason he did not appeal was because of the pressure of time. In those circumstances it is not open to Mr Kelly to argue this ground.
17. In view of the findings above it seems to me that the matter should be remitted for plenary hearing on the factual issue raised in the Affidavit of Mr McGrattan and on the legal issue concerning the vesting of the property in the Assignee prior to the 1998 legislation. I will discuss with Counsel the form of order required.
O’Donoghue v. Ireland
[1999] IEHC 45; [2000] 2 IR 168; [2000] 2 ILRM 145
DEFENDANTS
JUDGEMENT of Kearns J., delivered on the 24th day of November 1999
1. By High Court Order dated the 5th day of July 1999, Ms. Justice Laffoy referred for trial by plenary hearing a net issue as follows:-
“Whether Section 21 subsections (1)(2) and (3) of the Bankruptcy Act, 1988 are invalid having regard to the provisions of Article 40(3)(i) and (ii) of the Constitution”.
2. The case put forward on behalf of the Plaintiff is encapsulated in the Notice pursuant to Order 60 Rule 1 of the Rules of the Superior Courts in the following terms:-
“….in the above entitled proceedings the bankrupt will seek a declaration that the words “the Court” in Section 21(1),(2) and (3) (i.e. at the start of (3)) of the Bankruptcy Act, 1988 are invalid and repugnant to the Constitution. The grounds for such invalidity is that the examination process envisaged therein is an intrinsically administrative and inquisitorial process and cannot properly be regarded as a proper judicial function within Article 34(1) of theConstitution; imposing that function on the courts rather than on some executive agency (e.g. the Official Assignee) contravenes the separation of powers between the judicial and the executive functions.
Further, putting the inquisition function into the Court and where the bankrupt will most likely be required to pay all the costs and expenses thereof (e.g. Solicitors and Barristers fees) is so unnecessarily cumbersome, inefficient and extravagant that it is wholly disproportionate to the objectives of the Section; these objectives could very easily be achieved through a far more convenient, expeditious and economical means, e.g. examination by Official Assignee in his office, it will be contended that the court should substitute”the Official Assignee” for the words “the Court””.
3. At the commencement of the hearing before this court the Plaintiff’s arguments were limited to the alleged conflict with Article 34.1 of the Constitution and no evidence was led to support the contention that some other form of enquiry would be less expensive than that provided for by the current regime.
Section 21 of the Bankruptcy Act, 1988 provides as follows:-
“(1) The Court may summon before it a bankrupt or any person who is known or suspected to have in his possession or control any property of the bankrupt or to have disposed of any property of the bankrupt or who is supposed to be indebted to the bankrupt, or any person who the Court deems capable of giving information relating to the trade, dealings, affairs or property of the bankrupt
(2) The Court may examine him on oath concerning the matters aforesaid, either orally or written interrogatories, and may reduce his answers to writing and require him to sign them.
(3) The Court may require him to produce any books of account and papers in his possession or control relating to the matters aforesaid but, where he claims any lien on books or papers produced by him, the production shall be without prejudice to that lien and the Court may determine all questions in relation to the lien.”
4. Article 34.1 of the Constitution provides:-
“Justice shall be administered in courts established by law by judges appointed in the manner provided by this Constitution, and, save in such special and limited cases as may be prescribed by law, shall be administered in public.”
5. In the course of legal argument, reference was also made to Article 6 of the Constitution which provides as follows:-
“(1) All powers of government, legislative, executive and judicial derive, under God from the people, whose right it is to designate the rulers of the State and, in final appeal, to decide all questions of national policy according to the requirements of the common good.
(2) These powers of government are exercisable only by or on the authority of the organs of State established by this Constitution.”
6. Articles 15, 28 and 34 of the Constitution assign the powers of government respectively to the legislature, the executive and the judiciary and afford each of those organs of State a certain degree of sovereignty within their respective spheres. However, it is common case that absent from the Constitution is any definition of what constitutes each power of government.
7. In bringing this application, the Plaintiff accepts that this process of examination has been treated as part of the administration of justice for many centuries. As far back as 1603, an English Act provided for the examination of a bankrupt and the imposition of penalties for refusal to appear, answer, etc. In Ireland legislation exists at least as far back as 1836 when legislation provided that the commissioners could summon a bankrupt and his wife and examine them, and such a person could be committed if he refused to be sworn.
8. Despite this unpromising backdrop, the Plaintiff nonetheless submits that quite clearly what is envisaged under Section 21 is a purely administrative function lacking the essential elements of matters typically regarded as justiciable.
9. The Irish Constitution, it is submitted, drew heavily from the concept of separation of powers enshrined at Article III of the Constitution of the United States which provides that the judicial power of the United States shall be vested in one supreme Court and in such inferior Courts as the Congress might from time to time ordain and establish. The said Article further provides that judicial power shall extend to all cases in law and equity arising under the Constitution and laws of the United States.
10. Dr. Ford referred the Court to a case of Steel Company -v- Citizens for a Better Environment (reported in United States Law Week 66 LW 4179) (1998) which was a decision of the United States Court of Appeals for the seventh circuit and the following extract from the judgment of Justice Scalia:-
“Article 3, (2) of the Constitution extends the “judicial power” of the United States only to “cases” and “controversies”. We have always taken this to mean cases and controversies of the sort traditionally amenable to and resolved by the judicial process. Muskrat -v- United States, Supra at 356 – 357. Such a meaning is fairly implied by the text, since otherwise the purported restriction upon the judicial power would scarcely be a restriction at all. Every criminal investigation conducted by the executive is a “case”, and every policy issue resolved by Congressional legislation involves a “controversy”. These are not, however, the sort of cases and controversies that Article 3(2), refers to since “the Constitution’s central mechanism of separation of powers depends largely upon common understanding of what activities are appropriate to legislatures, to executives and to courts”.
Lujan -v- Defenders of Wild Life, 504 U.S. 555, 559 – 560 (1992). Standing to sue is part of the common understanding of what it takes to make a justiciable case. Whitmore -v- Arkansas, 495 U.S., 149, 155 (1990).
The “irreducible constitutional minimum of standing” contains three requirements. Lujan -v- Defenders of Wild Life, Supra, at 560. First and foremost, there must be alleged (and ultimately proven) an “injury in fact” – a harm suffered by the Plaintiff that is “concrete” and “actual or imminent, not “conjectural” or “hypothetical””. Whitmore -v- Arkansas, Supra at 149, 155 (1990) (quoting Los Angeles -v- Lyons 461 U.S. 95, 101 – 102 (1983)). Second, there must be causation – a fairly traceable connection between the Plaintiff’s injury and the complaint of conduct of the Defendant. Simon -v- Eastern Ky. Welfare Rights Organisation, 426 U.S. 26, 41 – 42 (1976). And third, there must be redressability – a likelihood that the requested relief will redress the alleged injury. Id., at 45 -46; see also Warth -v- Seldin, 422 U.S. 490, 505 (1975). This triad of injury in fact, causation and redressability comprises the core of Article 3’s case or controversy requirement and the party invoking federal jurisdiction bears the burden of establishing it’s existence.”
11. The Plaintiff submits that these essential features are lacking in the arrangements provided for by Section 21 of the Bankruptcy Act, 1988. There are no “parties”,there is no substantial issue and no adjudication in the sense in which that expression is commonly understood.
12. Dr. Ford also referred to the Privy Council decision in Attorney General for Australia -v- The Queen and the Boilermaker Society of Australia (1957) 2 WLR p. 607 as a persuasive authority for the proposition that the doctrine of separation of powers precludes the joinder or union of judicial and non judicial powers in the same body.
13. The grounds of complaint in that case were that the Australian Conciliation and Arbitration Acts, 1904 – 1952 were ultra vires and invalid in providing for a Court of Arbitration invested by statute with numerous powers, function and authorities of an administrative, arbitral, executive and legislative character and powers conferred by the Conciliation and Arbitration Acts, 1904 – 1952 which purported to vest in the said Court powers of a judicial nature for the implementation of it’s orders, in consequence whereof it was contended that the relevant statutory provisions were repugnant to the Constitution of Australia.
14. The problem was whether or not it was permissible under the Constitution to enact that upon one body of persons, be it tribunal or court, arbitral functions and judicial functions should be together conferred.
15. In deciding that such an exercise was invalid, their Lordships through Viscount Simonds, who delivered judgment in the case, quoted with approval the following passages from Waterside Workers Federation of Australia -v- J W Alexander Limited (1918) 25 CLR 434 as follows, firstly, from the judgment of Griffith C.J.:-
“It is impossible under the Constitution to confer such functions (i.e. Judicial functions) upon anybody other than a court, nor can the difficulty be avoided by designating a body which is not in it’s essential character a court, by that name, or by calling the functions by another name. In short, any attempt to vest any part of the judicial power of the Commonwealth in any body other than a court is entirely ineffective.”
16. And from the same case the following passage from Barton J., was cited with approval:-
“Whether persons were judges, whether tribunals were courts, and whether they exercise what is now called judicial power depended and depends on substance and not on mere name”.
17. Finally, Dr.Ford referred to the Supreme Court decision In Re. Redbreast Preserving Company Limited (91 ILTR)(1957) in which the Supreme Court reversed Budd J., who in the High Court had held that in conducting the examination of a witness under the provisions of Section 174 of the Companies (Consolidation) Act, 1908, a judge is administering justice and accordingly such examination should be performed in accordance with Article 34,1 of the Constitution in open court.
18. At p.23, Lavery J., seems to have taken the view that such an examination did not form part of the administration of justice in the technical sense and therefore was not a proceeding such as was required to be held in public. He stated:-
“The examination did not of itself lead to an adjudication by the judge. If any motion were to be taken on the information so obtained it would have to be brought by further proceedings.
Continuing, His Lordship stated that in the opinion of the Court the collection and preparation of the material upon which a judge pronounced his decision was not the administration of justice within the meaning of the words used in Article 34,1.”
19. Earlier he had stated:-
“Obviously, it would be quite impossible to carry on the business of the Courts if every step and everything to be done in an action had to be done in open court. There were a large number of matters, such as the issuing and serving of summonses, the swearing of affidavits, the examination of witnesses before Commissioners, the taking of accounts, and other matters, all of which formed part of the administration of justice in the broadest sense of the phrase, but which were plainly not within the meaning of the phrases used in Article 34,1 which appeared in the Constitution in order to enshrine therein the principle that”justice should not only be done but should be seen to be done”.
20. Accordingly, it is submitted that if such an examination under the Companies Act did not form part of the administration of justice, by analogy an examination of a bankrupt should not be regarded as forming part of the administration of justice either.
21. On behalf of the First named Defendant, it was submitted that the separation of powers effected by the Irish Constitution is not completely rigid and definite as is apparent from the Constitution itself – e.g. the appointment of members of the Judiciary by a member of the Legislature (the President) on the advice of the Executive (Articles 35.1 and 13.11), the removal of a member of the Judiciary by the Legislature (Article 35.4.1), the appointment of members of the Executive from members of the Legislature (Article 28.7), the exercise of the power of judicial review of legislation and of acts of the Executive by the Judiciary (Article 34.3.2).
22. The Constitution does not purport to define what constitutes each power of government and there must inevitably be grey areas at the boundary between the exercise of one function and another.
23. The following passage from Johnston J., was cited from Lynham -v- Butler (1933) I.R.74 at p.99:-
“It has been found through universal experience that this division of governmental functions cannot, as a matter of practical policy, be carried out to its logical conclusion and can only take place as an approximation. In no system of which I have knowledge has it been found to be possible to confine the legislative, the executive and the judicial power each in what I may call its own watertight compartment; and, if such a thing were to be attempted, the result, I fear, would be so much the worse for the compartment.”
24. It is argued that there can be many instances when a given function may exhibit characteristics of more than one power of government and the precise characterisation of that function may depend on the context in which the function arises to be exercised and, in the case of a statutorily conferred function, the choices made by the Legislature in assigning the function to a particular organ of State. Article 6 does not expressly recognise an”administrative power” as a characteristic of the separation of powers. It is not an expression which is coextensive with “executive power” and thus does not preclude the attachment of administrative powers and functions to other organs of government ancillary to or for the purpose of giving effect to their primary functions.
25. Article 37 of the Constitution allows for the exercise of limited judicial functions of a non criminal nature by bodies and persons who are not courts or judges. These powers are frequently described as quasi judicial or administrative decision making powers. While the case law on Article 37 has generally focused on whether particular powers conferred on such bodies breached the separation of powers by virtue of permitting an excessive exercise of judicial power by an administrative body, the very existence of Article 37 is an acknowledgement that many decision making functions have both an administrative and a judicial character and may be conferred on a range of bodies, including courts, without violating the Constitution.
26. The most frequently cited definition of judicial powers is that of Kenny J., in McDonald -v- Bord na gCon (no. 2) (1965) IR 217, when he described the characteristic features of the administration of justice as follows:-
“(1) A dispute or controversy as to the existence of legal rights or a violation of the law;
(2) The determination or ascertainment of the rights of the parties or the imposition of liabilities or the infliction of a penalty
(3) The final determination (subject to appeal) of legal rights or liabilities or the imposition of penalties
(4) The enforcement of those rights or liabilities or the imposition of a penalty by a court or by the executive power of the State which is called in by the Court to enforce its judgment
(5) The making of an order by the Court which as a matter of history is an order characteristic of courts in this country.”
In Deaton -v- the Attorney General (1963) IR Kenny J., stated at p.174:-
“There are, however, many matters disposed of by courts in which there is not a justiciable controversy and although everything done by a court is not necessarily an exercise of the judicial power or an act done in the administration of justice, some of these matters, dealt with by the Courts, in which there is not a justiciable issue have been acts characteristic of courts in this country for hundreds of years. What justiciable issue arises when an application is made for the admission of a person into the wardship of the Court or when one of the next of kin of a person who has died intestate seeks an order for the administration of the estate of the deceased by the Court? Many of the orders made by the Courts in matters relating to companies do not seem to present a justiciable issue at any stage. The Courts which now deal with the business formerly dealt with by the Court of Chancery make orders in many cases in which there is no justiciable controversy. While the existence of a justiciable controversy between parties may be a conclusive indication that the administration of justice is involved, its absence cannot be decisive in determining whether an act is or is not an exercise of the judicial power or part of the administration of justice”.
27. In the context of bankruptcy, it is submitted, there is a lis or dispute between the bankrupt and his petitioning creditor or creditors and the adjudication and administration serves to determine the rights of the creditors vis a vis the bankrupt and the liability, if any, of the bankrupt towards them. This determination is final and may be enforced by the executive armof the State if called upon to do so in respect of the judgment of the Court. If not an express judicial function, it is certainly incidental and/or ancillary to a judicial function well within the characteristics outlined by Kenny J., in McDonald, particularly the final characteristic identified by the judge in that case.
28. There is a dearth of Irish authority on the precise nature of bankruptcy proceedings. In State(McKay) -v- Cork Circuit Court (1937) IR 650 the High Court held that an adjudication in bankruptcy made by a County registrar on a ex parte basis was not an administration of justice. The decision appears to have focused not on the nature of the adjudication per se but on the fact that it was made on an ex parte basis and the Applicant had not shown cause which would have required determination of the issues by a court.
29. In Australia the High Court in R. -v- Davidson (1954) 90 CLR 353 held that a statutory provision purporting to confer upon a registrar the power to make sequestration orders in bankruptcy was void as authorising a person who was not in court to exercise a judicial power. Whilst accepting that many of the steps in bankruptcy proceedings are primarily administrative with no judicial element involved, the majority of judges variouslyregarded the position as follows:-
“It is now long history of the English Law of bankruptcy that the process by which a compulsory sequestration has been brought about has always been of a description which may properly be called judicial…there is nothing, however, inherent in the nature of voluntary sequestration to make it impossible for the Legislature to provide some other means than a judicial order for the purpose….but if the Legislature chooses a judicial order as the means of effecting a voluntary sequestration, then chapter 3 of the Constitution, relating to the Judicature, comes into play. By a judicial order is meant an order which by its nature or description or the character given to it by the legislation involves an exercise of the judicial power of the Commonwealth”. (Per Dixon C.J. and McTiernan J.)
Apart altogether from these considerations, it could never be overlooked that even though in many cases there might be no controversy to be resolved, a decision to make a man bankrupt effects the relative positions of persons whose interests are opposed, and that between those opposing interests there is much reason for insisting on an impartial adjudication according to law as there is in the case of litigation inter partes”. (Per Kitto J.)
30. More recently in Gould -v- Brown (High Court of Australia 2nd February 1998) a constitutional challenge was made to the power of the Courts to make examination orders for the purposes of a winding up. Three of the judges held that the power was of a judicial character, and one held that the power, while not judicial in nature, was properly conferred on the Courts as incidental to or ancillary to the exercise of judicial power.
31. As stated by Brennan C.J., and Touhey J.:-
“We respectfully adopt the description of the examination process given by Lockhart J. in the Full Court of the Federal Court:-
“The examination orders, summonses and proposed examination which are the subject of this challenge are in truth but part of the processes that follow from the making of the winding up order, and which ultimately protect and adjust the rights of companies, their creditors and in some cases contributories. The Court’s supervisory role in the course of a winding up is to ensure that the winding up laws are properly interpreted and applied to correct mistakes, and to supervise the exercise of compulsory processes in relation to the examination of persons and the obtaining of documents for the purpose and in the context of those examinations.”
True it is that the function of the Court in conducting an examination is not the determination of rights and liabilities of adversaries, but the function is incidental to the winding up. The incidental character of the function and the traditional supervision exercised by the Court in performing it are sufficient to stamp it with a judicial character.”
32. Gaudron J., expressed a view as to the significance of examination of witnesses which is helpful in understanding how the High Court and Supreme Court in Ireland in Redbreast were able to take such differing views on whether this process involved an administration of justice:-
“The examination of witnesses is a feature of the conduct of judicial proceedings. It is also a feature of the conduct of non judicial proceedings. But the power in question in this case is not properly characterised as one with a “double aspect”. Rather it is an investigative power that courts have to carry out their judicial duties and which other bodies may also have to carry out their functions…the curial examination of witnesses in relation to the affairs of a person who has been declared bankrupt and companies that have been wound up is a familiar feature of bankruptcy and insolvency law. And a power to examine witnesses with respect to matters relevant to the proper administration of a bankrupts estate is readily seen as a power”attendant upon or incidental to the fulfilment of the powers to make sequestration in winding up orders”. Accordingly, if jurisdiction is conferred upon a Federal Court with respect to bankruptcy matters or matters involving the winding up of corporations, a power of examination may also be conferred as incidental or ancillary to the exercise of judicial power in that regard.”
33. Finally, Kirby J., stated:-
“Such functions therefore fall quite readily within the test of activity incidental to the exercise of judicial power stated in Lowenstein’s case (1938) 59 CLR 556. Against a background of such a long established performance of judicial functions in the same or analogous fields, it is impossible to suggest that the examination of officers, on the application of a liquidator, falls outside the scope of the judicial power properly exercisable by a Federal Court. Although of their own nature such functions might seem at first blush to be non-judicial in character, in their context and discharged in connection with the performance of judicial functions, they fall within the judicial power or what was incidental to it.”
34. In short, the Second name Defendant contends that while an examination cannot in isolation be characterised as a judicial function in itself, nevertheless if in the context of the entire procedure which is properly characterised as judicial it is so closely connected to the judicial procedure that it may be regarded as incidental or ancillary to it, it is then a function properly conferred upon the Courts.
35. The Third named Defendant submits that the Bankruptcy Act, 1988 is a consolidation statute, the purpose of which is to create an integrated bankruptcy code. A marked feature of that code is the support which the Act prescribes is to be given by the High Court to the process of bankruptcy. It is submitted that the power to examine persons set out in Section 21 of the Act is but one aspect of this judicial support.
36. It is further submitted that the bankruptcy jurisdiction of the High Court is usually invoked in the first instance by either an application for liberty to issue and serve a Bankruptcy Summons (Section 8), or by the presentation of the petition to adjudicate a debtor bankrupt (Section 11). In the former case, a debtor served with a Bankruptcy Summons may apply to dismiss the Summons (Section 8 (5)). In the latter case, the petition is on notice to the debtor who may dispute the petitioner’s right to an order of adjudication. Even where an order of adjudication is made, the bankrupt may show cause against the validity of the adjudication (Section 16). It is submitted that each of these steps clearly involves an administration of justice by the High Court within the meaning of Article 34 of the Constitution in accordance with the principles adumbrated by the Supreme Court inMcDonald -v-Bord na gCon (No.2) (1965) I.R. 217.
37. The Legislature clearly envisaged that an Official Assignee might not get adequate co-operation from a bankrupt and in that context Section 21 provides an important tool to assist the Official Assignee when he encounters obstructions during the course of his investigations. Sections 19 and 20 of the Act impose obligations on the bankrupt to give assistance, make disclosure and notify the Official Assignee of alterations in his name or address occurring during the bankruptcy.
38. The actual process under Section 21 is usually conducted by a Solicitor or Counsel on behalf of the Official Assignee and the examinee is entitled to be represented by a Solicitor and Counsel. The examination is carried out before and controlled by a judge of the High Court who can rule on the admissibility and propriety of questions and answers. The examinee summoned by the Court may be committed to prison to await further order of the Court in respect of any refusal to be sworn, failure to answer fully or at all any lawful question put by the Court, or refusal to sign and subscribe his examination when reduced to writing.
39. The High Court is also involved in at least ten other ways in the implementation of the Bankruptcy Code, e.g.in approving offers of composition, granting leave to the Official Assignee to disclaim onerous property, setting aside fraudulent conveyances or transfers of property etc.
40. All of this involves and has the characteristic features of “administration of justice”, alternatively is ancillary to the administration of justice by the Court in carrying out it’s role under the Act.
In Murphy -v- G.M. (unreported, O’Higgins J., 4th June 1999) it was contended on behalf of the Respondents that the Proceeds of Crime Act, 1996 was unconstitutional in that it required the Court to carry out intrinsically executive functions such as the expropriation of assets. The issue was addressed byO’Higgins J., on pages 101 – 104 of his judgment where he stated:-
“….in my view the functions given to the Court under the Proceeds of Crime Act essentially constitute the administration of justice. The granting of injunctions, the appointing of receivers, the granting of tracing remedies and the determination of ownership of property are clearly matters with which theCourts have traditionally been engaged. I do not consider that they may correctly be classified as essentially executive or administrative functions.
The Proceeds of Crime Act envisages findings of fact and determinations by the Court with very far reaching effects. If and insofar as any of these provisions could be regarded as administrative or executive functions, they are not there by automatically remove from the ambit of the Courts. If the Act contains incidental powers conferred on the Courts which are of an administrative nature, that does not render the Act or those provisions constitutionally infirm. There is nothing in the doctrine of separation of powers as applied to the Irish Constitution that puts the functions of the Courts into watertight compartments. As noted in Kelly, the Irish Constitution,Hogan and White eds. (3rd ed. 1994) at page 50 ‘complete insulation is not a feature of the Legislature’, ‘complete insulation is not a feature of the Executive’ and ‘complete insulation is not a feature even of the Courts’.”
41. The reasoning of O’Higgins J., in Murphy -v- G.M. was adopted and approved by McGuinness J., in Gilligan -v- CAB (1998) 3 IR 185.
42. It is further submitted that the mere inclusion among the functions given to the Court by the Legislature of certain powers which may not constitute an administration of justice does not render those powers unconstitutional. As was suggested by Murphy J., inIn the Matter of County Glen plc (under investigation) (1995) 1 ILRM 231, there are many areas in which the Courts have traditionally exercised jurisdiction which may not constitute “the administration of justice”. These may include jurisdictions in relation to licensing, wards of court, winding up of companies, administration of trusts and charities, and so on. It can hardly be submitted on behalf of the Plaintiff that the Court must so exclusively concern itself with”the administration of justice” that it would deprive itself of its long established jurisdiction in each of these areas.
43. Finally, all Defendants relied upon the presumption of constitutionality which, it is submitted, in the present context means recognising that there is a wide public interest in protecting persons against the activities of a bankrupt. There is no question in the instant case of the law impairing or restricting a constitutionally protected right to a disproportionate degree. On the contrary, the designation of the Court, rather the Official Assignee, as the authority and power to conduct the examination must be regarded as a safeguardinter alia to protect the bankrupt’s interest, and it may therefore be doubted whether the impugned provision restricts or impairs the Plaintiff’s rights at all.
CONCLUSIONS
44. While the dearth of authority supporting the Plaintiff’s submissions is in no way determinative of the issue, the unbroken thread extending over centuries whereby the examination of witnesses in the context of bankruptcy is seen and perceived as forming part of the administration of justice is, perhaps inevitably, an extremely persuasive factor. Indeed, it is one of the markers adverted to by Kenny J., inMcDonald -v- Bord na gCon.
45. It is quite clear from the authorities opened to the Court that there is no prohibition preventing courts performing certain administrative functions for the purpose of discharging their own functions.
46. It seems to me the examination of witnesses could be described as either an administrative function or a judicial function, as indicated by Gaudron J., in Gould -v- Brown.
47. There must be now some doubt as to whether the Redbreast case was correctly decided because, as Walsh J. stated In Re. Ltd. (1989) ILRM p. 765:-
“If the dictum of the former Supreme Court of Justice in the case of Redbreast Preserving Co. Ltd. (1957) 91 ILTR 12 at p.23 means that the constitutional requirement that justice is to be administered in public is satisfied by the public pronouncement of a decision based on evidence taken other than in public where that is not expressly authorised by a post Constitution Statute, it is clearly incorrect and ought not to be followed”.
48. Further, Section 21 cannot be seen in isolation. It must also be seen in terms of the penalties involved for non-compliance with this Section.
Section 24 of the Bankruptcy Act, 1988 provides:-
“Where the bankrupt or any person summoned or brought before the Court refuses to be sworn or refuses or fails to answer any lawful question put by the Court or does not fully answer any such question or refuses to sign and subscribe his examination when reduced to writing (not having any lawful excuse allowed by the Court) or to comply with any order of the Court under this Act, the Court may order that such person may be committed to prison to await the further order of the Court.”
49. Such a power is clearly regarded by the Legislature as necessary in the context of ensuring compliance with bankruptcy procedures and as being necessary in the wider public interest.
50. It is perfectly obvious that such powers could not be performed or discharged as part of any administrative function and Dr. Ford accepts that if this process was performed as a separate administrative function, the presiding officer would have to certify some offence to bedealt with thereafter by the Courts. If that be so, it is difficult to see what saving in time or expense would ensue.
51. Bankruptcy carries with it enormous penal and prejudicial implications for the person affected, be he a public representative, businessman, director of a company, member of an association or even as a person who may have to seek employment or endure social or other opprobrium as a consequence of both becoming bankrupt and being involved in its procedures thereafter.
52. As has been pointed out, the Bankruptcy Act, 1988 involves the High Court in the implementation of the Bankruptcy Code in numerous different ways, to be the point where it may fairly be said that the Court has the role of ensuring the effective administration of the Code. As such it’s involvement must come, in my view, be regarded as forming part of the administration of justice.
53. However, even if I am mistaken in this view, the Defendants need go no further than to establish that the involvement of the Court under Section 21 is incidental and ancillary to the administration of justice. In my view it clearly falls within that definition. Nothing in the Constitution can be regarded or interpreted as constituting any prohibition on the High Court’s involvement in this way.
54. I accordingly resolve the issue before the Court by amending the form of words contained in the order of the High Court dated the 5th day of July 1999 and by holding as follows:-
55. Section 21, Subsections (1)(2) and (3) of the Bankruptcy Act, 1988 are not invalid having regard to the provisions of Article 34.1 or any other provision of the Constitution.
Dated this 24th day of November 1999.
‘Donnell & anor -v- The Governor and Company of the Bank of Ireland & ors
[2016] IEHC 10
THE HIGH COURT
BANKRUPTCY
[2012 No. 2480 BANKRUPTCY]
[2012 No. 2479 BANKRUPTCY]
IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 61(7) OF THE BANKRUPTCY ACT 1988 (AS AMENDED)
AND
IN THE MATTER OF BRIAN O’DONNELL (A BANKRUPT)
AND MARY PATRICIA O’DONNELL (A BANKRUPT)
BETWEEN
BRIAN O’DONNELL (A BANKRUPT) AND
MARY PATRICIA O’DONNELL (A BANKRUPT)
APPLICANTS
AND
CHRISTOPHER LEHANE
OFFICIAL ASSIGNEE
AND
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND, BANK OF IRELAND PRIVATE BANKING AND TOM KAVANAGH
RESPONDENTS
JUDGMENT of Ms. Justice Costello delivered on 18th day of January, 2016.
1. On 2nd September, 2013, each of the applicants were adjudicated bankrupt by orders of the High Court. The bankruptcy orders were appealed to the Supreme Court and the judgment and orders of the High Court were ultimately affirmed by the Supreme Court on 28th February, 2015. Pursuant to s. 19 of the Bankruptcy Act 1988, as amended, each of the Bankrupts herein had an obligation within the prescribed time to file in the Central Office a statement of affairs in the prescribed form and to deliver a copy of same to the Official Assignee. It is common case that neither of the Bankrupts have delivered a statement of affairs in the prescribed form nor furnished the Official Assignee with a copy of their statements of affairs.
2. The Bankrupts’ position is that they are not in a position to complete their statements of affairs as they do not possess certain specific information which they require in order to do so. They have been requesting the respondents to this motion to provide the information and the respondents have refused to provide the information sought by the Bankrupts.
3. The Bankrupts say that they have requested the Official Assignee to ask the respondents to provide the Bankrupts with the information they seek in order that they may comply with their statutory obligations to file statements of affairs. By letter dated 21st July, 2015, the Official Assignee wrote to the Bank of Ireland requesting that they furnish the Bankrupts with the information sought by the Bankrupts.
4. By notice of motion dated 31st July, 2015, the Bankrupts sought orders, pursuant to s. 61(7) of the Bankruptcy Act 1988, as follows:-
“… that the Official Assignee and the Respondents shall provide the detailed financial information required for the Applicants to complete the Statements of Affairs
2) And/or in the alternative the Respondents shall provide the detail financial information required to complete the Statements of Affairs pursuant to contract and common law”.
5. Order 76, r. 80(5) of the Rules of the Superior Courts provides that:-
“[u]nless the Court otherwise directs, the bankrupt shall, not later than two clear days before the day fixed for the statutory sitting, lodge with the Official Assignee his statement of affairs in the Form No. 23 and the Official Assignee shall examine same so as to ascertain whether it be so complete, and shall refuse to stamp same, and the bankrupt shall not file same, until presented to the Official Assignee complete, unless the Court shall otherwise direct.”
6. Thus, the statement of affairs must be delivered not later than two clear days before the date fixed for the statutory sitting. In this case, due to the appeal against the adjudication of the bankruptcies (and also the application to annul the bankruptcies) no date for the statutory sitting has, in fact, been fixed.
7. The Bankrupts have not attempted to deliver statements of affairs to the Official Assignee. The Official Assignee has indicated both in correspondence, on affidavit and before the Court that debts and liabilities can be estimated in the Form No. 23. He wishes the Bankrupts to complete statements of affairs to the best of their ability based on the information available to them at present. He argues that they are, and have been since their adjudication, in a position to do so.
8. He points out that the Bankrupts each petitioned for their own bankruptcy in London in 2012. As part of their applications, they each produced statements of affairs as required by the relevant provisions of the bankruptcy code in England and Wales. The Bankrupts were in a position to prepare and swear those statements of affairs as of 26th March, 2012. They have not attempted to utilise the information available to them to comply with the equivalent Irish rules.
9. Instead, they have taken the view that they require detailed information from the respondents in relation to their affairs in order, as they maintain, that they may properly complete the Form No. 23, in respect of each of them.
10. Much of the information actually sought by the Bankrupts is not, in fact, necessary in order that they may complete and file their statements of affairs. Mostly it relates to individual facilities or guarantees which they entered in to with the second named respondent (“the Bank of Ireland”). However, the Bank of Ireland instituted proceedings on 23rd December, 2010, seeking summary judgment against the Bankrupts bearing High Court Rec. No. 2010/6100 S based upon these facilities and guarantees. It also brought proceedings against companies related to the Bankrupts, namely Avoca Properties Limited (bearing High Court Rec. No. 2010/6098 S); Greystoke Société Anonyme (bearing High Court Rec. No. 2010/6101 S); and Vico Swiss Holdings AG (bearing High Court Rec. No. 2010/6102 S).
11. The proceedings were settled and the terms of the Settlement Agreement were not adhered to by the Bankrupts. As a result, upon application by the Bank of Ireland, the High Court entered judgment against the Bankrupts on 12th December, 2011, in the sum of €71,575,991.29. As and from the date of the judgment of the High Court, the underlying claims of the Bank of Ireland have now merged with the judgment. Thus, the debt due and owing to the Bank of Ireland, is the judgment sum together with Courts Act interest thereon from the date of judgment. This is readily ascertainable.
12. By letter dated 4th March, 2013, the solicitors for the Bank of Ireland, Arthur Cox, wrote to the Bankrupts stating that the Bank of Ireland had realised certain property in part satisfaction of the judgment of 12th December, 2011, and setting out that, as of 4th March, 2013, the sum then due and owing by the Bankrupts to the Bank, was the sum of €74,442,432.30. The letter attached a table setting out the calculation of interest on the judgment sum, the reductions made from the principal sum to reflect credits arising from the realisation of certain secured property and the net due and owing as of 4th March, 2013.
13. Thus, the Bankrupts were in the position to state an exact figure of the sum claimed by their major creditor six months prior to the date of adjudication. The only changes to this figure would come from any realisations by the Bank of Ireland and continuing Courts Act interest on the principal sum.
14. It is important to note that the statement of affairs is intended to reflect the position of the bankrupt as of the date of adjudication (though where, as here, there has been a considerable passage of time since the date of adjudication it is permissible but not obligatory, to complete the statement of affairs with more up-to-date information). This is because it is required to enable the Official Assignee to investigate the affairs of the bankrupt and to realise the assets of the bankrupt. It is not a substitution for the proof of debts by creditors of the bankrupt. Any alteration in the figures, whether arising on the basis of accrued interest or reductions to reflect realisations in respect of the debts are matters which relate to the proof of debts and are matters which are the concern of the Official Assignee. They are not matters which need concern a bankrupt in preparing his or her statement of affairs.
15. In any event, Arthur Cox wrote to the Bankrupts by letter dated 3rd June, 2015, updating the schedule enclosed in the letter of 4th March, 2013, setting out the further interest which had accrued and giving credit for the further realisations that had occurred. As of that date, the Bank of Ireland claimed to be a creditor of the Bankrupts in the reduced figure of €70,452,884.75.
16. The Bankrupts are, and at all material times were, in a position to swear and file a statement of affairs as they are obliged to do pursuant to s. 19 of the Bankruptcy Act 1988, since the date of adjudication of the applicants as bankrupts on 2nd September, 2013. It has always been acceptable to include estimates of debt or valuations where the precise figure is not known. Furthermore, it is acceptable to complete the form by entering the figure claimed by a creditor and indicating that the debt or the amount of the debt is not accepted or is disputed.
17. Pending the hearing of the appeal by the Supreme Court against their adjudication as bankrupts, the Official Assignee and the Bankrupts reached a settlement in relation to their application for a stay on the realisation of their assets by the Official Assignee. The Bankrupts agreed to attend for interview in relation to their estates on, or before, 17th January, 2014, and to prepare and file statements of affairs within seven days of the interview. In the event the interview did not take place until April, 2014 and no statement of affairs has been filed by either of them. This is a clear breach of their agreement with the Official Assignee.
18. The Bankrupts do not require the information they seek in order to complete their statements of affairs. They have ample information to hand to do so and where there is any dispute in relation to the amount due to the Bank of Ireland, they may enter the figure furnished by the Bank’s solicitors and, if they wish, indicate that the sum is disputed. It will be a question for the Official Assignee to accept or reject the proof of debt submitted by the Bank of Ireland in due course. It is not a reason for the Bankrupts to fail to furnish statements of affairs as required by the provisions of the Bankruptcy Act 1988 and in accordance with their agreement with the Official Assignee.
19. Finally, the application itself is misconceived. Section 61 of the Bankruptcy Act 1988 is concerned with the functions of the Official Assignee. The Official Assignee will, in due course, investigate and verify or dispute or reject the claims of any creditors of the Bankrupts who seek to prove in the bankruptcy, including the Bank of Ireland. The powers given to him under s. 61 are to enable him to carry out his functions and duties. It is no function of the Official Assignee to complete the statement of affairs on behalf of a bankrupt or to procure information from third parties to enable a bankrupt to complete his statement of affairs. Accordingly, I refuse the reliefs sought against the Official Assignee in the notice of motion.
20. As this Court has held that the Bankrupts do not in fact need the information they seek from the second, third and forth named respondents in order for them to complete their statements of affairs, it is not necessary for the Court to consider whether or not to grant the relief sought against these respondents. The issue as to whether or not the Bank of Ireland has properly credited the amounts realised from the sales of secured properties or whether there was any breach of duty on the part of the fourth named respondent in relation to the sales and/or his expenses and fees relates to the estates of the Bankrupts and the debts claimed by the creditor. As such, it is a matter for the Official Assignee and not the Bankrupts. I therefore refuse all reliefs sought against these respondents.
Ulster Bank Ltd against Sean Dunne
[2014] IEHC 433 (13 August 2014)
THE HIGH COURT
Bankruptcy
[2013 No. 2478]
IN THE MATTER OF A PETITION FOR ADJUDICATION OF BANKRUPTCY BY ULSTER BANK IRELAND LIMITED AGAINST SEAN DUNNE
JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 13th day of August 2014
1. This judgment arises out of a number of legal issues raised before the court in these bankruptcy proceedings. By notice of motion dated 3rd December 2013, the bankrupt sought a number of reliefs, including the return of documentation connected with Family Law proceedings which were seized from a property known as 19, Churchfield, Straffan, County Kildare (hereinafter referred to as the “K Club property”). That notice of motion sought other reliefs which have been dealt with on an earlier date.
2. On 29th July 2013, the Official Assignee obtained a warrant of seizure (the “warrant of seizure”) pursuant to s. 27 of the Bankruptcy Act 1988 (“the Act”). On 26th November 2013, by order of Cooke J., the Official Assignee was granted a search warrant pursuant to s. 28 of the Act. At issue in this application is the right of the Official Assignee to inspect the Family Law documentation found by him at the K Club property. He wishes to do so in order to ascertain the full extent of the bankrupt’s financial position and the existence, if any, of assets which could have been concealed from the bankruptcy process.
3. By notice of motion dated 27th January 2014, the Official Assignee sought an order that he be made a party to the Family Law proceedings and that order was made on 7th March 2014. Thereafter, an argument developed about the extent of the disclosure of documentation in the Family Law proceedings that should be made to the Official Assignee. The bankrupt maintained that the disclosure which had previously been made to the National Asset Management Agency (“NAMA”) pursuant to order of the High Court made on 6th December 2013 is the extent of the disclosure that should be made. The Official Assignee does not accept this.
The Issues
4. The issue before the court is whether the Official Assignee is entitled to examine documents relating to the Family Law proceedings found at the K Club property, and also the documents filed in the Family Law case to which the Official Assignee has been joined as a party.
5. Section 19 of the Act provides that:
“19.—The bankrupt shall—
(a) unless the Court otherwise directs, forthwith deliver up to the Official Assignee such books of account or other papers relating to his estate in his possession or control as the Official Assignee may from time to time request and disclose to him such of them as are in the possession or control of any other person;
. . .
(d) give every reasonable assistance to the Official Assignee in the administration of the estate.”
The Official Assignee relies on this section and also the observations of Gibson L.J. in Re Konigsberg [1989] WLR 1257, where he stated at p. 1267 :
“. . . in my judgment, it is appropriate to treat the trustee as being in the shoes of the bankrupt for the purpose of privilege in proceedings against the joint client. It would be very odd if the trustee, entitled, as he is, to, and in possession of, the information cannot use it in the performance of his duties in seeking to recover the bankrupt’s property.”
6. The Official Assignee submits that, as he has been joined in the Family Law proceedings, he stands in the shoes of the bankrupt so far as the in camera rule is concerned. The bankrupt, for his part, argues that the Family Law papers fall outside the scope of “books relating to the estate”. He also argues that the seizure of documents relating to that matter at the K Club property was unlawful and on foot of a deficient warrant. The warrant stipulates the removal of “property” only, and not documentation or papers, and he urges the court to construe strictly the terms of the warrant. Section 3 of the Act defines property as follows:
“ ‘property’ includes money, goods, things in action, land and every description of property, whether real or personal and whether situate in the State or elsewhere; also obligations, easements, and every description of estate, interest, and profit, present or future, vested or contingent, arising out of or incident to property as above defined.”
In oral submissions to the court, counsel for the bankrupt argued that the Official Assignee could seek discovery of documents. He also says that when the Official Assignee sought a search warrant, it was for the purpose of searching for paintings and valuables but not documents.
Conclusion
7. It is important to put this application in context. In seeking a search warrant in respect of the K Club property, the Official Assignee swore an affidavit in which he stated that he was informed and believed that there exists at the property artwork which is the property of the bankrupt. He said, at para. 13 of his affidavit:
“I am concerned that the said contents, including the artwork, may be removed from the property and seek an order for the issue of a search warrant to the Bankruptcy Inspector and myself pursuant to s. 39 of the Bankruptcy Act 1988, and further orders as the court deems necessary or required to secure the contents and preserve same pending further order of this honourable court.”
He also confirmed that the US trustee concurred with and supported the application. It is clear from the contents of the affidavit that the Official Assignee’s concern was not confined to the removal of artwork, but also the contents of the property.
8. Section 19 of the Act requires the bankrupt to deliver up to the Official Assignee the material specified in the section, including “. . . books of account or other papers relating to his estate”. I am quite satisfied that this includes any Family Law documents found at the K Club property. The property of the bankrupt includes “. . . every description of property, whether real or personal, and includes the papers of the bankrupt”. While the bankrupt argues that “property” as defined in s. 3 of the Act, is limited to items of a monetary value as opposed to personal papers, such an argument flies in the face of the plain language of the Act, and I do not accept it.
9. I also reject the bankrupt’s claim that his rights to privacy are breached if the Official Assignee is allowed inspect the Family Law documents found at the K Club property or produced in the Family Law court proceedings. Against the background circumstances of this bankruptcy, the actions taken by the Official Assignee are neither arbitrary nor disproportionate and are necessary to enable him to carry out his function expressed under s. 61(2) of the Act, to get in and realise the property, to ascertain the debts and liabilities, to distribute the assets of the bankrupt in accordance with the provisions of the Act. To some extent, this seems to be accepted by the bankrupt whose written submissions state that the Official Assignee’s right to access the bankrupt’s Family Law documentation is strictly limited to the right to review documents relevant to his economic estate. It seems to me that this is precisely what the Official Assignee seeks to do. Insofar as there is an interference in the right of the bankrupt to privacy, it seems to me that it does not go beyond what is justified and permissible, having regard to the necessity of the Official Assignee to investigate the financial affairs of the bankrupt. Furthermore, as the Official Assignee is a party to the Family Law proceedings, he is governed by the in camera rule.
10. It is clear that the Official Assignee does not seek inspection of the Family Law documents other than for the purpose of ascertaining relevant information which will enable him to carry out his duties under the Act.
11. So far as the documents found at the K Club property are concerned, the Official Assignee wishes to examine the documentation and establish whether it is relevant to the estate of the bankrupt, and has stated that he will return any irrelevant documentation as soon as this process has been carried out. In my view, this is both reasonable and lawful.
12. The Official Assignee is the appropriate person to examine the documentation and determine what is relevant or irrelevant in ascertaining the assets of the bankrupt. Since he has agreed to return such documents as are irrelevant for that purpose, I refuse the reliefs sought in para. 1 of the notice of motion of 3rd December 2013.
13. As far as the Official Assignee’s motion of 1st May 2014 in the Family Law proceedings is concerned, I will make an order that the Official Assignee is entitled to examine all documentation in relation to the Family Law proceedings [1997 No. 58 M], an order allowing him inspection of all Family Law documentation of the respondent held by Clerkin Lynch Solicitors, and that he shall be entitled to take copies of such documents as he considers relevant for the carrying out of his duties as Official Assignee in this bankruptcy.
Lehane -v- Dunne
[2016] IEHC 679
High Court Record Number:
Costello J.
Status:
Approved
Neutral Citation [2016] IEHC 679
THE HIGH COURT
[2014/7820P]
BETWEEN
CHRISTOPHER LEHANE AS OFFICIAL ASSIGNEE IN BANKRUPTCY
IN THE ESTATE OF SEAN DUNNE
PLAINTIFF
AND
GAYLE DUNNE
DEFENDANT
JUDGMENT of Ms. Justice Costello delivered on the 25th day of November, 2016
1. This is my judgment on the plaintiff’s application for discovery against the defendant, the wife of the bankrupt.
2. The plaintiff seeks discovery of 13 categories of documents and the defendant objects to making any discovery. She argues that the discovery sought is speculative and it is being sought for the purpose of making a case against the defendant. If she is incorrect in that assertion, she consents to make discovery in terms of categories 6, 9, 11, 12 and 13 of the notice of motion. She has proposed alternative categories in respect of categories 1, 2, 4, 5, 7 and 8, and she objects to discovery in respect of categories 3 and 10.
3. I have given a judgment previously in these proceedings where the facts are more fully set out. I do not propose to repeat them here.
Relevant legal principles
4. The discovery sought must relate to a matter in question in the proceedings. The issues in the proceedings are defined by the pleadings. The discovery sought must be necessary for disposing fairly of the cause or matter or for saving costs. The Court shall not make an order for discovery if insofar as the court shall be of the opinion that it is not necessary either for disposing fairly of the cause or matter or for saving costs. (Rules of the Superior Courts, O. 31, r. 12(1)(a) and (5))
5. It has long been established that the test in this jurisdiction is whether the documents sought may lead the parties seeking the discovery directly or indirectly to advance his own case or to damage the case of his adversary. This means that it is not confined to the issues arising from the plaintiff’s case but extends also to issues arising from the defence: Compagnie Financiere et Commerciale du Pacifique v. Peruvian Guano Company [1882] 11 Q.B.D. 55.
6. In Framus Ltd.v.CRH plc. [2004] 2 IR 20, Murray C.J. stated that there must be some proportionality between the extent or volume of the documents to be discovered and the degree to which the documents are likely to advance the case of his or her opponent in addition to ensuring that no party is taken by surprise by the production of documents at trial. In considering whether or not the discovery sought is proportionate in the sense identified by the Chief Justice the burden is upon the party asserting that the discovery ought not to be ordered and to establish that the requested discovery is so burdensome upon that party as to outweigh the benefit that might accrue to the requesting party if the discovery were to be made.
7. Finally, the courts do not permit discovery of what is usually described as “fishing”. A party may not seek discovery of a document in order to find out whether the document may be relevant. The party is not permitted to engage in a general trawl through the documents of the other party. See Hannon v. Commissioners of Public Works and Others [2001] IEHC 59.
The defendant’s primary objection to discovery
8. The plaintiff sought voluntary discovery from the defendant by letter dated the 15th June, 2015. The defendant replied on the 29th June, 2015, stating that the plaintiff was not entitled to any discovery. This was on the basis that the discovery was speculative. The plaintiff was seeking discovery for the purposes of making a case against the defendant. He had not pleaded fraud against the defendant or that she had acted without the requisite good faith in relation to the transactions which he was seeking to have set aside in the proceedings. Secondly, she submitted that he had alternative means of proof as he had already obtained disclosure through other mechanisms. This was a reference to the disclosure of documents made by the bankrupt to his trustee in bankruptcy as part of the American bankruptcy proceedings. In order to assess these arguments it is necessary to consider the pleadings in some detail.
9. In these proceedings the primary reliefs sought are as follows:
“1. A declaration that the transfer of all shares in Mavior, in the legal or beneficial ownership of Sean Dunne, dated the 28th October 2008 from Sean Dunne to Gayle Dunne and/or companies controlled by Gayle Dunne is void and of no effect by virtue of Section 59 of the Bankruptcy Act of 1988 and/or by reason of the provisions of Section 10 of the Irish Statute of Fraudulent Conveyances, 1634 (10 CHAS. 1 SESS. 2, C.3);
2. A declaration that the purported transfer of Sean Dunne’s interest, whether represented by shares in Mavior or otherwise, in the Lagoon Beach Hotel, Cape Town, South Africa made pursuant to the Agreement of the 15th of February 2008 between Sean Dunne and Gayle Dunne is void and of no effect by reason of the provisions of Section 10 of the Irish Statute of Fraudulent Conveyances, 1634 (10 CHAS. 1 SESS. 2, C.3);
3. A declaration that the purported transfer by Sean Dunne of the full book value as calculated as of the 15th of February 2008 or otherwise of all loans made by him to Mavior and all of its related companies and subsidiaries made pursuant to the Agreement of the 15th February 2008 between Sean Dunne and Gayle Dunne is void and of no effect by reasons of the provisions of Section 10 of the Irish Statute of Fraudulent Conveyances, 1634 (10 CHS. 1 SESS. 2, C.3.”
10. At paras. 3 and 4 of the statement of claim it is pleaded:
“3. By transactions which are alleged to be dated the 23rd March 2005, the 15th February 2008 (the “Transactions”) and a Share Transfer dated the 28th October 2008 (the “Transfer”), the Bankrupt purported to transfer a proportion from the profits from the sale of certain assets and / or ownership of certain assets to the Defendant.
In order to give effect to such transfers the Bankrupt and the Defendant and their servants and agents, including a number of corporate entities and trusts, entered into a series of dealings designed to give effect to the transfer of, inter alia, the beneficial ownership of the Lagoon Beach Hotel, Lagoon Gate Drive, Milnerton, Cape Town, South Africa (hereinafter the “Hotel”) from the Bankrupt to Ms. Gayle Dunne.”
11. The transaction of 23rd March, 2005 is pleaded in full and is set out as follows:
“Property Transfer Agreement between Sean Dunne and Gayle Dunne – 23rd March 2005
I, Sean Dunne, hereby undertake to give to my wife Gayle Dunne (nee Killilea), whom I married on the 11th July 2004, 70% of the profits accrued from the sale of my share of the following properties for the benefit of her and our son Bobby Luke and any future children born to us:
1. Woodtown Rathfarnham, Co Dublin
2. IGB Clonskeagh, Co Dublin
3. Lagoon Beach Hotel, Capetown, SA
4. Charlesland, Co Wicklow (residential portion only)
5. Malahide, Co Dublin (MRFC lands)
6. Rivertree (1 & 3 Shrewsbury Road, Dublin 4)
This transfer of money and/or assets is to ensure the financial independence of my wife and children for the future and to secure their independence from my own property investments. The 30% of the profits let over is estimated to cover all tax an associated ocsts in relation to these assets, and any shortfall will be covered by me, and surplus is for my account.
Lagoon Beach: In relation to Lagoon Beach which is owned by Mountbrook Homes Ltd, I have to date loaned Mountbrook Homes approximately €4m. I hereby transfer this debt owing to me from MHL to my wife Gayle.
Charlesland: In relation to Charlesland, which I hold in my own name, the transfer of profits relate to all residential lands only, and all commercial lands are for me and/or my companies.
I further confirm that I renounce on behalf of my estate all claims over or against these properties or the amount of money derived from their sale should I die before this transfer is fully completed.
I reserve the right to retain ownership of all these properties and transfer the value as cash or alternative properties at values to be agreed between us.
If no mutual agreement re values then this agreement must stand with no referral to arbitration or legal proceedings by either party, except for the enforcement of the agreement itself.
Sean Dunne: 23rd March 2005
Gayle Dunne: 23rd March 2005
Hua-Hin Thailand”
12. It is then pleaded at para. 6:
“…The O.A. is a stranger to the date of the 2005 Transaction and the circumstances surrounding same which are solely within the knowledge of the Bankrupt and the Defendant. The O.A. will seek discovery of all documents which purport to give effect to or refer to this agreement and, for the avoidance of doubt, the making of the alleged transaction and the date of same are not accepted as valid or accurate by the Plaintiff. Further the O.A. reserves the right to amend pleadings as necessary following such discovery to take account of any steps alleged to have been taken pursuant to the 2005 Transaction which relates to the Estate of the Bankrupt.”
13. The transaction of 15th February, 2008, is pleaded in full and the plaintiff makes a similar plea in relation to being a stranger to the circumstances surrounding this agreement and seeking discovery.
14. He pleads that in the circumstances set out in the statement of claim, the intended purpose and natural and probable effect of the 2005 agreement is to put assets beyond the reach of the bankrupt’s creditors should the “property investments” fail. The statement of claim sets out dealings which were in purported implementation of the transaction of 15th February, 2008, and the share transfer of the 28th October, 2008. He pleads that the necessary and probable effect of these transactions was to give the defendant the beneficial ownership and control of the hotel and ultimately, the net proceeds of sale of the hotel through the realisable value of loans or control of corporate entities. He therefore pleads at para. 27 that:
“The purpose of the Transactions and Transfer set out above was to delay, defeat and hinder the creditors of the Bankrupt and the Transactions were carried out with such intent.
28. Further the necessary and probable result of the Transactions and subsequent dealings in pursuance of the transactions was to delay hinder and defraud the creditors of the Bankrupt.”
15. It is pleaded that the bankrupt was insolvent on 15th February, 2008, and 28th October, 2008, and therefore he was not entitled to enter into such transactions or to put his assets beyond the reach of his creditors. He pleads that the transfer of the Mavior shares on 28th October, 2008, from the bankrupt to the companies controlled by the defendant is void and of no effect as against the plaintiff by virtue of the provisions of s.59 of the Bankruptcy Act 1988, unless the defendant proves that the bankrupt was, at the time of the making of the transfer, able to pay all his debts without the aid of the shares. He pleads the transactions and transfer were entered into for no consideration or no bona fide consideration. They were entered into post the marriage of the bankrupt and the defendant and were not entered into in consideration of the marriage but were voluntary transfers made with the intent of putting assets out of the reach of the bona fide creditors of the bankrupt.
16. In her defence the defendant pleads that the plaintiff’s case invokes statutory provisions requiring an intention to defraud and a lack of bona fides and the plaintiff has failed expressly to plead the required fraud or lack of bona fides necessary to ground the causes of action.
17. She further pleads as follows:
“21. Prior to their marriage and as far back as 2003, following a proposal of marriage made by the Bankrupt to the Defendant, the Bankrupt and the Defendant discussed both getting married and having children. They discussed and they agreed and it was the intention prior to the marriage that if the Defendant married the Bankrupt and started a family with him he would immediately transfer a portion of his wealth to her so as to make her independently wealthy in her own right during or after an unsuccessful marriage or after his death. It was intended that the Defendant would forgo her career as a journalist and her intention to practice as a lawyer in favour of prioritising family life and the Bankrupt’s career and that she would give up her own sources of income from those careers. It was the intention that she would not need to, and would not in fact seek, any further assets from the Bankrupt if they separated or divorced following the marriage or by way [of] claim against his estate in the event of his death and would not compete for assets in family law proceedings on her own behalf or on behalf of her children against his ex-wife or the children of his first marriage…
22. The Defendant and the Bankrupt investigated both the possibility of a prenuptial agreement and a transfer of assets prior to the marriage… They reached an understanding and the Bankrupt undertook, prior to the marriage and having explored a pre nuptial agreement, that he was going to transfer a portion of his wealth to the Defendant immediately after the marriage in consideration of the Defendant’s forbearances aforesaid… The agreement to transfer wealth prior to the marriage of the Defendant to the Bankrupt gave rise to maintainable claims in law in the event of breach, particularly in family law, upon the Bankrupt’s marriage to the defendant in 2004.”
18. In para. 27 it is stated that in the 2005 agreement properties were identified by the parties to give effect to the agreed transfer of wealth referred to in paras. 21-24 of the defence. In para. 31 it is said that each of the 2005 agreements and the subsequent transactions were inextricably linked to the agreement, understanding and intention referred to at para. 21-24 of the defence and the contract of their marriage.
19. In para. 34 of the defence it is pleaded that there was part performance of the 2005 agreement and the bankrupt purchased a property at Shrewsbury Road, Ballsbridge, Dublin 4 on or about July, 2005 then valued at €58 million and the defendant accepted the property.
20. In reply the plaintiff denies that the purchase of the premises (Walford) constituted an act of part performance of the 2005 agreement and pleaded that he would seek discovery of all documentation in relation to the alleged act of part performance and that the defendant was put on full proof that the purchase and gifting of the property to the defendant was an act of part performance of the 2005 agreement or was related to that agreement.
Should there be any order for discovery?
21. The defendant argued on the basis of these pleadings that the plaintiff has not alleged fraud or a lack of good faith against her. She argues that this is required by s.10 of the Conveyancing Act (Ireland) 1634, (the Statute of Charles). As this has not been pleaded, there is no issue in respect of which discovery may properly be sought.
22. The plaintiff submits that the application of s.10 of the Statute of Charles and s.59 of the Bankruptcy Act 1988, are issues for the trial of the action. The plaintiff says that case law in respect of s.10 establishes that there are two varieties of fraudulent intent envisaged by the section: express and actual intent or inferred intent. The plaintiff does not rely upon the first variety of express fraudulent intent. His case is based upon the second variety where a court is invited to draw an inference from circumstances found to have existed at the time and from the transactions themselves. This is the basis upon which the statement of claim is pleaded. The focus is on the transaction and the surrounding circumstances and it is not necessary for the plaintiff to either plead or prove an express fraudulent intent even on the part of the grantor much less the recipient. He relies upon the line of authority running from In Re Moroney [1887] 21 L.R.I. 27 to Doherty v. Quigley [2015] IECA 297. At p. 61 of the report in Moroney’s case, Palles C.B. stated:-
“In other cases, no such intention actually exists in the mind of the grantor, but the necessary or probable result of his denuding himself of the property included in the conveyance, for the consideration, and under the circumstances actually existing, is to defeat or delay creditors, and in such a case… the intent is, as a matter of law, assumed from the necessary or probable consequences of the act done; and in this case, also, the conveyance, in point of law, and without any inference of fact being drawn, is fraudulent within the statute. In every case, however, no matter what its nature, before the conveyance can be avoided, fraud, whether expressly proved as a fact, or as an inference of law from other facts proved, must exist.”
23. I am satisfied that the plaintiff is entitled to frame his case in this fashion. He has chosen not to make express allegations of fraud against the defendant in these proceedings. He is entitled to pursue a claim based upon what Palles C.B. described as the second variety of fraudulent conveyance coming within the scope of s.10 of the Statute of Charles.
24. The second argument advanced by the defendant against any order for discovery is her contention that the plaintiff may obtain the documentation he seeks through other sources and therefore the discovery sought is not necessary. In response the plaintiff says that the defendant is likely to have documentation which is not available to him. He submits that he should not be surprised at trial by such documentation and it should be available to him in advance of trial in order that there may be a fair trial and to save costs. He says he does not have alternative means of obtaining the information. In any event, this is not an answer to the type of discovery sought here: documentation relating to the transfer of wealth by the bankrupt to the defendant. Even if he has documents from the bankrupt’s estate, normally both parties to a transaction are required to make discovery of the documentation in their own possession.
25. I accept the submissions of the plaintiff. That being so, I reject the defendant’s submission that there ought to be no order for discovery at all in this case. I now turn to consider the individual categories of document.
26. Category 1: All documentation which relates to, refers to evidences or records of the purported agreement/transaction of 23rd March, 2006, where Sean Dunne (hereinafter “the Bankrupt”) purported to transfer money and/or assets to the defendant (hereinafter “the 2005 Transaction”) including, but not limited to, documentation referring to the making of and reasons for entering into the 2005 transaction, advices taken before and after the transaction, valuations of the assets purported transferred from the estate of the Bankrupt, drafts or memoranda recording the negotiations in relation to the 2005 transaction or earlier agreements, understandings or arrangements in relation to any proposed transfer of wealth from the Bankrupt to the defendant.
27. Category 2: All documentation evidencing, relating to, or recording the alleged part performance of the 2005 transaction or the performance of any allegation allegedly incurred prior to and subsequent to the 2005 transaction including but not limited to:
(i) All documentation relating to the transfer of Walford, Shrewsbury Road, Dublin 4, to entities controlled by the defendant and which show her interest in corporate entities which own the house; and
(ii) documents relating to the agreement of the 30th March, 2010, which was acknowledged by the Swiss Court on 23rd June, 2010; and
(iii) any other documentation which related to any alleged performance or part performance of the 2005 transaction or relates to any acts which are alleged to be consequent upon the bankrupt’s or the defendant’s obligations thereunder.
28. The plaintiff seeks to set aside the 2008 transaction and the 2008 transfer. The defendant pleads that these are valid transactions and that they resulted from decisions and agreements reached between the bankrupt and the defendant long before there was any issue in relation to his solvency. She pleads that the process of transferring assets dates back to 2003 – 2005 and was carried forward. The plaintiff says that issues around the 2005 transaction and the issues arising from actions predating the transaction are essentially issues of defence. He does not accept that it has any legal effect but this is a matter to be determined at trial. He submits that there should be documentation prior to the alleged execution of the agreement in 2005 and this documentation will go to show when the agreement was made, what the intention of the parties was and may show why no transfer was ultimately effected and the Bankrupt ultimately retained ownership of the properties listed in the agreement. He submits that in the circumstances where the legality and effectiveness of the 2005 transaction is in issue, the ownership of the assets purportedly transferred is in issue and the ability of the bankrupt to enter into the transfer of the property not held in his own name is in issue, the documentation sought in Category 1 is relevant and necessary and fundamental to the disposal of the proceedings.
29. In relation to Category 2, he says that the defendant pleaded that there were acts of part performance of the 2005 transaction. Specifically, she pleaded that “the bankrupt purchased and that the defendant accepted [Walford] Shrewsbury Road, Ballsbridge, Dublin 4 on or about July, 2005.” In replies to particulars at 10(iv) she pleaded that the Swiss judgment “merely provided for the unfulfilled obligations of the bankrupt under the 2005 agreement”. She also relied upon it at reply to particulars 11(ix). Thus this category of documents is both relevant and necessary arising from that defence. The categories sought are not overly broad. They are dictated by the nature of the transactions which he seeks to have set aside, which he says are peculiar, fragmentary and unusual in nature. He says that the categories will not result in the defendant being unnecessarily obliged to discover a significant quantity of additional material: merely that it is complete and comprehensive.
30. The defendant objects to discovery of both of these categories on the basis that the plaintiff has raised no issue as to the validity of the 2005 agreement and has sought no relief in respect of the agreement. She submits therefore that these categories of discovery amount to impermissible “fishing”. She further objects that the two categories are too broad in that they are unlimited in time, as to persons, capacity or jurisdiction. She objects to the use of the formula “relating to” as broadening the scope of the discovery sought. She submits that the categories as drafted would impose an impermissible burden on the defendant with a disproportionate lack of benefit to the plaintiff. If discovery was to be sought she suggested a narrower category of discovery, limiting it to documents recording advice or evidencing the performance or implementation or acts of part performance of the 2005 agreement. She submits that this would include all documentation relating to the transfer of Walford as sought in Category 2 and she agreed to make discovery of the agreement between the bankrupt and the defendant dated 30th March, 2010, and the order of the Swiss court dated 23rd June, 2010.
Discussion
31. I am satisfied that Categories 1 and 2 as drafted are relevant to the issues in the case. The documents are necessary to any objective assessment by the court of the transactions upon which the defendant relies in her defence. The fact that the plaintiff has not pleaded any relief in respect of the 2005 transaction does not alter the fact that the validity and effect of this agreement will be a central issue for the trial judge to resolve. He pleads the transaction is void while the defendant relies upon the validity of the transaction to resist his claims.
32. Given the nature of the transactions at issue in these proceedings, I do not believe that the categories as drafted by the plaintiff are too broad. The transactions relate to the actions of the bankrupt and the defendant. The plaintiff can have no knowledge of these discussions, agreements or advices obtained, if any. The defendant chose to put no evidence at all before the court as to the burden involved in complying with the discovery sought by the plaintiff in respect of these categories. Therefore she has not laid any basis for an argument that the discovery sought is disproportionate. Indeed, in submissions to the court, her counsel accepted that there was no such evidence and that he could not draw a distinction between the costs (and the burden) of making the discovery sought by the plaintiff as opposed to the discovery offered by the defendant.
33. In relation to Category 2(iii) the defendant was invited to confirm that the only acts of performance or part performance of the 2005 transaction upon which she relied were the transfer of Walford and the agreement of 30th March, 2010, acknowledged by the Swiss court on 23rd June, 2010. As she did not take up this invitation, I have concluded that the plaintiff is entitled to this sub-category of discovery also. I will order that discovery be made in terms of categories 1 and 2 in the notice of motion.
34. Category 3: All tax returns made by the defendant or on her behalf jointly or otherwise in any jurisdiction for the years 2005 to the date of the issue of the proceedings.
35. The plaintiff says that the defendant claims that pursuant to the agreements of 2005 and 2008 she immediately became the owner in equity of the Mavior loans and other properties gifted to her by the bankrupt, including Walford. The issue in the case is whether, and if so, when she became the owner of the assets in dispute. He says that her tax returns will reflect whether she acknowledged receiving the assets or whether it is simply a promise to pay her in the future. If she received the assets at a particular date then she would be obliged to make a tax return in relation to it. Thus the tax return(s) will establish a date upon which she says she became owner of the assets in question. He makes the point that she may redact those parts of her tax returns that do not relate to her ownership of or interest in any of the assets at issue in the proceedings.
36. The defendant objects to this category on the basis that it is not relevant. She says that there is no pleaded issue in relation to her tax returns and therefore no issue in relation to the tax treatment of the transfers by or to her. She submits that it is impermissible to seek discovery in aid of investigation. She also submits that the burden of disclosing 9 years of tax returns not limited as to jurisdiction which would be of no benefit to the plaintiff is unreasonable in the circumstances.
Discussion
37. I accept that the question of the tax treatment of the defendant’s assets is not in issue in these proceedings. However the plaintiff is not seeking discovery in aid of an investigation. He is seeking documentation which would assist the plaintiff and the court in determining a date or at least a year in which the defendant became entitled to a particular benefit in a particular asset. The date of the transfer of wealth from the bankrupt to the defendant is critical in these proceedings. The tax returns of the defendant are relevant in assisting in the establishment of this disputed date or dates. On this basis I am satisfied that the discovery sought falls within the Peruvian Guano train of enquiry test.
38. The defendant has not set out any information concerning the burden that would be involved in making discovery in respect of this category of documents. Her tax returns for the 9 years sought should not be unduly difficult to produce even if it involves a number of jurisdictions. She has simply made the bald assertion that it would be an undue burden but has given the court no indication of the actual work involved to substantiate this claim. I am satisfied that the request is not disproportionate and that discovery should be made of the category as sought with the proviso that the defendant is entitled to redact the details of her tax returns which do not relate to the assets at issue in these proceedings. I order that the defendant make discovery in terms of this category.
39. Category 4: All documentation which evidences the plea at para. 25 of the defence that the defendant and/or the bankrupt had decided to develop and maximise the value of the property which it was alleged was transferred under the 2005 transaction.
40. The plaintiff says that this category is designed to capture documents to show that the bankrupt was still in control of the assets after a transfer was alleged to have been effected. He says that this is relevant as one of the indicia of a fraudulent conveyance is that the transferor remains in control after the date of the transfer of the asset. On this basis he says that this category of documentation is both relevant and necessary and he seeks discovery in these terms.
41. The defendant offered to discover all documents recording any agreement between the bankrupt and the defendant that the value of the properties listed in the 2005 agreement would be maximised prior to sale or disposal. The defendant seeks to restrict the category to agreements to maximise the value of the property rather than mere decisions. In response, the plaintiff submits that the proposal of the defendant would show nothing as it is to be assumed that they would always wish to maximise the value of the property.
Discussion
42. Subject to the court deciding that any discovery is necessary in this case, the defendant does not really dispute the relevance of this category. As I have held that discovery is required for the reasons set out earlier in this judgment, the issue of relevance and necessity does not arise in respect of this category. The issue is whether it is properly drafted to capture what the plaintiff requires and is entitled to. I am not satisfied that the category as formulated is really directed towards obtaining discovery of the documents which will show, or will not show, that the bankrupt was still in control of the assets after the transfer was alleged to have been effected. I have therefore redrafted the category and direct the defendant to make discovery of,
“All documents evidencing the involvement, directly or indirectly, of the bankrupt in the management and/or control of property which it was alleged by the defendant was transferred to her pursuant to the 2005 transaction from 2005 to date.”
Categories 5 and 8
43. Category 5: All documentation relating to the purported assignment/novation (if any) of a loan allegedly made by the bankrupt to Mountbrook Homes Limited (subsequently Mavior) in the amount of approximately 4 million euro and all documentation evidencing or recording all funds received by the defendant in purported payment (partial or otherwise) thereof.
44. Category 8: All documentation relating to the loans allegedly transferred/novated (if any) by the bankrupt to the defendant under the 2009 transaction, which loans were claimed to be due to him from Mountbrook Homes Limited (Mavior) and all of its associated companies and subsidiaries, including documentation relating to the claim that the open market value of same was €1.95 million and all documentation evidencing or recording all funds received by the defendant in purported payment (partial or otherwise thereof).
45. The defendant did not really dispute the relevance or necessity of these categories. She took issue with the formulation of the categories. She submitted that there should be one combined category of:
“All documents recording and/or evidencing the assignment of the benefit of the bankrupt’s loan to Mountbrook Homes Limited (subsequently Mavior) to the defendant and all documents recording and/or evidencing any valuation of the bankrupt’s Mavior loan as at the date of the 2008 agreement.”
46. In substance her objection to the categories as formulated by the plaintiff was to discovery of documents “relating to” the assignment or novation of the loan and relating to the valuation of the loan in 2008. Other than the fact that the category or categories was necessarily broadened by the inclusion of documents relating to the assignment or valuation, counsel did not advance any particular reason why the category should be confined in the manner proposed by the defendant.
Discussion
47. As a general proposition, multiplication of categories of discovery should be avoided where possible. However, I am not satisfied that the defendant’s alternative unitary category either captures all that was sought by the plaintiff in the two separate categories or enhances the clarity of that which is to be discovered. Category 5 is directed towards the actual alleged assignment of the loan and any receipts in purported repayment of the loan. Category 8 is directed towards the alleged transfer of the loan in 2008 as part of the 2008 transaction and the open market value of the loan fixed at €1.95 million in 2008 when it was valued at approximately €4 million in 2005. Therefore I do not see that the proposed alternative is an improvement on what was sought.
48. I do not believe that it is appropriate to limit the two categories which seek discovery of documents “relating to” the matters the subject of the categories. It was not suggested that there could be any saving of time or expense by limiting the categories in this way, as the same search exercise would have to be conducted whichever formulation was ordered. I am not persuaded by the argument that including the test “relating to” will lead to more disputes about the discovery when produced. Frequently, courts make orders in these terms and practitioners comply with them for the most part without difficulty or unnecessary disputes. I order that the defendant make discovery in terms of categories 5 and 8 of the notice of motion.
49. Category 7: All documents which relate to, refer to, evidence or record the making of the purported agreement/transaction dated 15th February, 2008, (hereinafter “the 2008 transaction”) and/or the reasons for the bankrupt and the defendant entering into same.
50. The only objection advanced in relation to this category by the defendant was the formulation “relate or refer to”. The defendant submits that this is an “impossibly wide” category. She does not explain either on affidavit or in submissions why it would be difficult for her to make discovery in terms of this category or why it would be unduly expensive.
51. On the other hand, the plaintiff urges that this category of documentation is fundamental to the proceedings. It relates to the transaction that he seeks to set aside. In particular, he wants to e-mail track the correspondence in relation to the 2008 transaction. For this reason, it is essential that the category captures documents relating or referring to the transaction and is not confined to documents which evidence or record the making of the agreement/transaction.
Discussion
52. I accept the submissions of the plaintiff in relation to this category. It is clearly relevant and necessary for a fair disposal of the proceedings. It is not impermissibly wide in its ambit. It is essential that the discovery of this category in particular encompasses documents relating or referring to the 2008 transaction in light of the case advanced by the plaintiff. Ultimately the court will be asked to infer from the surrounding circumstances whether or not the transaction falls foul of the relevant statutory provisions. The court will require to view the evidence in context and therefore this discovery as sought is required. I direct the defendant to make discovery of this category of documents also.
53. Category 10: All documentation relating to the transfer of any interest in the share capital of Lagoon Beach Hotel (Proprietary) Limited (LBH) and/or any novation of any loan obligation by Mavior to Castorena Limited and by Castorena Limited to Volcren Management Limited and the reasons for such transfers and the consideration in relation to same and all documentation relating to or evidencing the defendant’s ownership of shares in Enia Investments Limited.
54. The defendant accepts that she is the ultimate owner of the shares “in the entity which owns the Lagoon Beach Hotel”. She says therefore that this category is not relevant to any issue in the proceedings.
55. The plaintiff says that it is. He says that the central contention is that the entire transaction has the effect of putting assets beyond the reach of the creditors and delaying, hindering or defrauding creditors as a result. He says that one of the indicia of an agreement that will be set aside under such circumstances is where a party purportedly transfers assets but retains control of them. He therefore says that any commentary in relation to transfers may show why it was deemed necessary to transfer the share capital of the hotel holding company and the loan through a myriad of companies in the Isle of Mann, Mauritius and Cyprus. He seeks this category of discovery on the basis that it is relevant to show who ultimately was dealing with the assets through these corporate entities at the date of the relevant transfers.
56. He says that this is not tangential and it is not unduly burdensome. It relates solely to the transfer of any interest in the share capital of the Lagoon Beach Hotel (Proprietary) Limited and/or any novation of any loan obligation by Mavior to the parties referred to in the statement of claim. He points out that the defendant has accepted that she is the ultimate owner of the shares in the various companies as pleaded in paras. 42, 43 and 44 of her defence and that the category is a discreet category in respect of a small number of documents. He says that this therefore falls within the exception recognised by the Supreme Court in Thema International Fund Plc v HSBC Institutional Trust Services [Ireland] Ltd & Anor [2013] 1 IR 274 at para. 54 where Clarke J. accepted there could be an order for discovery;
“…in the sort of situation where there is a single or small number of readily identifiable documents in respect of which there is good reason to believe that production can be procured…”
57. A further reason for seeking this category of discovery is based upon the fact that the bankrupt claims that 30% of the shares in Mavior were held by him in trust for his children. The plaintiff does not accept this and will contend that no such trust exists or that if it exists it is a sham trust. He pleads at para.19(vii) that the assets allegedly held for the benefit of the beneficiaries were not so held insofar as the assets were clearly held to the order of the bankrupt and transferred to the defendant in pursuance of agreements he made with the defendant. On that basis he says it is necessary to see the instructions given in respect of the transfers to see whether the assets were in fact held to his order.
58. The defendant does not argue that the category of documentation sought falls outside of the Thema exception or that she could not procure documentation from the various corporate entities in order that she would be in a position to comply with discovery obligations if this category of discovery is ordered. Her primary objection is the fact that she acknowledges that she is the ultimate controlling party of the company holding the Lagoon Beach Hotel and the loans and therefore the discovery sought is neither relevant nor necessary.
Discussion
59. In other proceedings the submissions of the defendant might well carry weight. However, the essential point in these proceedings is the contention that the entire transaction is a sham designed to put assets beyond the reach of creditors and delay, hinder or defraud creditors as a result. It is well established that a relevant factor to be considered in such a case is whether the party purportedly transferring the assets retains control of them. On this basis it cannot be said that this category of documentation is not relevant. It is clearly necessary as the Official Assignee has no access to the documentation other than by means of an order of discovery. I am satisfied that the order sought falls within the limited exception acknowledged in the Thema case by the Supreme Court. I therefore order discovery in terms of Category 10 as sought by the plaintiff.
60. Category 13: All documentation which evidences the denial at paras. 47 and 54 of the defence that the bankrupt transferor was insolvent as at 15th February, 2008 and 28th October, 2008.
61. During the course of the hearing the defendant effectively withdrew her objection to this category of discovery when acknowledging that the plaintiff had agreed to make comparable discovery on his part. She was more concerned with whether the category implied an obligation on her part to establish that the bankrupt was solvent at the relevant dates rather than the obligation resting on the plaintiff to establish that he was insolvent at the dates in question. This is not a matter which is relevant to an assessment as to whether or not the category of discovery of documentation is relevant and necessary to the proceedings. It was not necessary to debate the point at the hearing of the motion. I order discovery as sought in respect of this category.
Conclusion
62. The defendant is to make discovery in terms of categories 1, 2, 3, 5, 6, 7, 8, 9, 10, 11, 12 and 13 of the notice of motion and category 4 as I have redrafted it.
Lehane -v- Dunne
[2017] IEHC 511
JUDGMENT of Ms. Justice Costello delivered on the 26th day of July, 2017
Introduction
1. The defendant seeks liberty pursuant to O. 40, r. 1 of the Rules of the Superior Courts and/or pursuant the inherent jurisdiction of the court to cross-examine the plaintiff in relation to the contents of his affidavits sworn on the 28th January, 2017 and 23rd March, 2017 to ground his application for a worldwide Mareva injunction against the defendant restraining her from disposing of her assets up to a value of €50,000,000.
Background
2. The plaintiff is the wife of Sean Dunne. Sean Dunne filed for a Chapter 7 bankruptcy in the United States of America on the 29th March, 2013. He was also adjudicated a bankrupt in Ireland on the 29th July, 2013, and the plaintiff is the Official Assignee in bankruptcy in the estate of Sean Dunne (“the bankrupt”). There are thus two bankruptcy proceedings in two jurisdictions in respect of the bankrupt.
3. The Chapter 7 Trustee, Mr. Richard Coan, and the Official Assignee have each instituted the proceedings seeking to recover certain assets of the bankrupt into the estate of the bankrupt. In these proceedings the Official Assignee challenges certain share transfers and shareholder loans which he alleges were legally or beneficially owned by the bankrupt and were transferred by him to the defendant and/or companies controlled by the defendant. The Official Assignee says these transfers are void by virtue of the provisions of s. 59 of the Bankruptcy Act 1988 and/or by reason of s. 10 of the Irish Statute of Fraudulent Conveyances 1634 and various ancillary reliefs.
4. The proceedings have given rise to a number of applications and written judgments already. The issues raised are complex both factually and legally. The facts have been set out more fully in previous judgments. Here, I propose to set out only those matters that are relevant to the issues for decision in this judgment.
5. In her defence the defendant pleads inter alia that she and the bankrupt entered into an agreement dated the 23rd March, 2005, whereby, in consideration of her foregoing her career and waiving any future family law claims against future assets of the bankrupt and agreeing to raise the children of their marriage, the bankrupt agreed to transfer certain assets to her. At para. 34 she pleads: –
“As a part performance of the 2005 agreement on the basis of assets in lieu as agreed, the Bankrupt purchased and the Defendant accepted a property at Shrewsbury Road, Ballsbridge, Dublin 4 on or about July 2005. The Shrewsbury Road property was then valued at €58,000,000…”
6. This property is known as Walford. In his reply at para. 18 the Official Assignee denied that the purchase of Walford on Shrewsbury Road, Ballsbridge, Dublin 4 and/or the alleged gifting of Walford from the bankrupt to the defendant constituted an act of part performance of the 2005 agreement. He also pleaded that if Walford was transferred to the defendant in purported performance of the alleged agreements and the agreements are deemed void that he would seek an account and repayment of all properties or monies received allegedly in the implementation of the purported agreements.
7. The issue of the ownership of Walford and the legal and beneficial interests have played a considerable role both in these proceedings and in the administration of the bankruptcy of the bankrupt.
8. While the proceedings have been progressing since they were instituted in 2014, it was only on the 25th January, 2017, that the plaintiff sought and obtained an interim world wide Mareva injunction restraining the defendant from reducing her personal assets of whatever nature or kind and however derived including all assets in which she has any direct or indirect legal beneficial or other interest below the sum of €50,000,000 pending further order of the court. The Official Assignee explained that the application was brought because, as he said in para. 5 of his grounding affidavit, he recently came into possession of information about the alleged sale of Walford. He averred: –
“… Walford was nominally owned by Yesreb Holding Ltd (hereinafter “Yesreb”). I believe Yesreb to be owned and controlled by the Bankrupt and Gayle Dunne (hereinafter collectively “the Dunnes”) and to have been incorporated by their agents and utilised by them solely for the purpose of putting Walford beyond the reach of the Bankrupts creditors as part of a preplanned scheme. I believe they have now sold the asset with a view to ensuring that if judgment is obtained in these proceedings it will be frustrated.”
9. He explained that although the bankrupt was adjudicated in 2013, significantly more information in relation to his circumstances became available to him in 2016 in the context of the Official Assignee’s application to postpone the discharge of the bankrupt from bankruptcy. He also received information from various parties where applications were made pursuant to s. 21 of the Bankruptcy Act 1988 including solicitor’s files and information from the Revenue Commissioners in relation to the various transactions relating to Walford.
10. In support of this application the Official Assignee swore three affidavits, on the 25th January, 2017, the 23rd March, 2017, and the 3rd May, 2017. The defendant swore two affidavits, one on the 2nd March, 2017, and the other on the 25th April, 2017. On the 6th April, 2017, the defendant issued the motion seeking an order to cross examine the Official Assignee on his affidavits and an order deeming the transcripts of two s. 21 hearings inadmissible or on the alternative an order directing the two parties to attend for cross examination by the defendant’s counsel at the hearing of the application for the Mareva injunction.
Submissions of the Defendant
10. The defendant seeks liberty to cross examine the plaintiff on his affidavits sworn to ground his application for a worldwide Mareva injunction restraining her from disposing of her assets up to a value of €50,000,000. The defendant points to the fundamental requirement that a plaintiff seeking a mareva injunction should make full and frank disclosure of all matters in his knowledge which are material for the judge to know (O’Mahoney v. Horgan [1995] 2 IR 411 at 416). As the plaintiff seeks equitable relief, the court may scrutinise his conduct and refuse the relief if the conduct is such that the court forms the view that it falls below that which is required when seeking a Mareva injunction. She says that she needs to cross examine the plaintiff to support her argument that the plaintiff made incorrect or overstated averments in his grounding affidavit, in particular, but also in his replying affidavits, of such gravity as would justify the court in refusing to grant a Mareva injunction even if one were otherwise warranted. She states that she needs to cross-examine the plaintiff in relation to these issues in support of this argument. Thus, she submits, cross examination of the plaintiff on his affidavit is part of her right to fair procedures before the court.
Cross-Examination
11. She states that cross-examination is necessary and desirable for the resolution of three broad issues: –
(1) There are conflicts of facts between the parties which require to be resolved, clarified or explained.
(2) Whether the court ought to excuse failure on the part of the plaintiff to disclose matters which the defendant says the plaintiff ought to have disclosed and inconsistencies in his evidence, and
(3) Whether and to what extent the sworn beliefs and allegations as to the Defendant’s dishonest behaviour and/or a conspiracy to dissipate her assets to defeat a judgment in these proceedings are in fact supported by the facts.
12. In her written submissions, she identifies eight matters which are appropriate for cross examination arising from the plaintiff’s grounding affidavit: –
(1) The Plaintiff has been guilty of culpable nondisclosure in failing to disclose material facts in his grounding affidavit to obtain interim relief;
(2) He has entirely mischaracterised the nature of the relationship between the Defendant and the Bankrupt, choosing to ignore all marital and family law issues;
(3) The Plaintiff’s allegations regarding the Defendant’s asset ownership to the sum of €50,000,000 are entirely speculative and the Defendant has denied owning assets to that arbitrarily conceived value;
(4) The defendant’s alleged interest in Yesreb Holdings Ltd (“Yesreb”);
(5) The lack of an evidential basis for the propositions and theories advanced by the Plaintiff;
(6) The use of corporate vehicles for legitimate tax planning purposes; and
(7) The beneficial ownership of Walford both prior to the 2013 sale to Yesreb and thereafter;
(8) Whether allegations and belief as to the Defendant’s dishonesty are still maintained by the plaintiff and can be supported.
13. In oral submissions she did not rely on all of these grounds but said that cross-examination of the plaintiff was necessary in relation to the following averments or omissions in the grounding affidavit: –
(1) The plaintiff’s averment as to the insolvency of the bankrupt in February 2008 is not substantiated.
(2) The statement that the defendant seeks to have all matters heard and determined in the United States. The defendant says this is incorrect as she made an offer to have all of the cases heard either in Ireland or the United States with the Chapter 7 Trustee and the Official Assignee both as plaintiffs.
(3) NALM sought and failed to obtain a Mareva injunction against the defendant in the United States in 2012 (prior to either of the adjudications of the bankrupt).
(4) The plaintiff’s averment that there was apparently no original of the 2005 agreement between the bankrupt and the defendant despite the fact that he was invited to inspect it at the offices of her solicitors.
(5) The plaintiff wrongfully stated that she pleaded that she received Walford as a gift when she states that it was for valuable consideration as set out in the 2005 agreement.
(6) The plaintiff failed to refer to the Matsack Agreement whereby the defendant appointed a nominee company in 2006 “to deal with Walford” through Matheson solicitors. This was material, according to the defendant, as it was consistent with her claim that she was the beneficial owner of Walford from the date of the contract to purchase it on 1st July 2005.
(7) The plaintiff did not disclose the fact that he had possession of an opinion on title obtained by Mr. Doran, a potential purchaser of Walford, from senior counsel who raised no issue that the alleged gift of Walford to the defendant was incomplete, while the plaintiff raised the issue in his affidavit.
(8) The plaintiff wrongfully – and demonstrably so – states that the defendant and the bankrupt each say that they have no knowledge of Yesreb. This is a misreading of the transcript of an examination of the defendant in relation to proceedings in the United States.
(9) The plaintiff’s conclusion that the statement by Yesreb to Mr. Doran’s solicitors that it had not received any communication from the Official Assignee in relation to Walford is patently untrue and that Yesreb cannot be relied upon to tell the truth is unwarranted.
(10) The plaintiff cannot sustain his allegation that the bankrupt and the defendant set about arranging their affairs so as to defeat creditors and therefore the averment is not a truthful averment.
(11) The plaintiff overstated his case in stating that the trust asserted by the defendant in respect of her interest in Walford from 2005 – 2013 “is a sham”.
(12) The plaintiff has not adequately explained why he is entitled to a Mareva injunction restraining the defendant from disposal assets below €50,000,000.
(13) The rejection by the plaintiff in his second affidavit of all of the defendant’s assertions that he overstated his case or failed to disclose material facts to the court by way of a general traverse.
(14) The plaintiff exhibited documents in his second affidavit which ought properly to have been disclosed in his grounding affidavit upon which he sought and obtained an interim injunction.
14. The defendant submitted that the court had a discretion whether to permit cross examination of a deponent on his affidavit. Counsel submitted it was unfettered and must be exercised fairly. While this is an interlocutory application and a party generally is required to establish exceptional circumstances to justify cross- examination of a defendant at an interlocutory hearing, this was an exceptional case. The defendant referred to the Director of Corporate Enforcement v. Seymour [2006] IEHC 369 where O’Donovan J. held that the court may order that a deponent be cross-examined on his or her affidavit where it is necessary to resolve material conflicts of facts disclosed in affidavits. The defendant referred to the recent decision of Baker J. in Somague Engenharia S.A. & Wills Bros. Ltd v. Transport Infrastructure Ireland [2015] IEHC 723. She deduced a number of principles from Seymour including: –
“d. The discretion must nonetheless be exercised only if cross-examination is necessary for disposing of the issues
e. There may be examined not merely facts taken in the narrow sense but also the construction, or interpretation, or conclusions that a person draws from those facts, and cross-examination may be permitted in those circumstances even if there is no real dispute as to those material facts.
f. Thus opinions and conclusions may be tested by cross-examination both as to their reliability or reasonableness as the case may be.”
15. She emphasised the fact that O’Donovan J. suggested that the discretion of the court should only be exercised when cross examination is necessary for the disposing of the issues for determination by the court.
16. The defendant referred to the decision of McGovern J. in XL Fuels Group Limited & anor v. Curran & ors [2015] IEHC 715. In that case, the second named plaintiff, the receiver appointed to the first named plaintiff, made serious allegations against the first named defendant regarding his failure to cooperate with the receivership process and alleged obstruction. He sought interlocutory injunctions and the first named defendant was prepared to consent to interlocutory orders in the terms sought in the notice of motion. The issue for the court was whether, if the first named defendant was willing to submit to orders sought by the plaintiffs in the motion for interlocutory relief, there were any circumstances in which it can be necessary for him to be cross examined on his affidavit filed in response to such a motion. In answer to the question the court said: –
“I think the answer must be yes insofar as the court has a discretion. The motion for interlocutory relief which is shortly to be heard by the court is a step being taken by the receiver to preserve and collect assets of the first named plaintiff so that he can deal with them in the receivership. In the face of serious allegations made about misappropriation of company assets and their use in a ‘phoenix company’ which was set up simultaneously with the commencement of the receivership, it is important that the court should resolve the conflicts of fact between the receiver and the first defendant as soon as possible and preferably at the time of the hearing of the interlocutory motion.”
The defendant submitted that in light of the seriousness of the allegations made against her the court should order cross-examination of the plaintiff.
17. The primary ground for seeking to cross examine the plaintiff is to test his alleged material nondisclosures to the court in his grounding affidavit and his “overstatement” of his case against her. She refers to case law which emphasises the importance of nondisclosure in the context of mareva relief. In Bambrick v. Cobley [2006] I.L.R.M. 81 Clarke J. approved of the passage by Brown-Wilkinson V.C. in Tate Access Floors Inc. v. Boswell [1991] Ch. 512 at p. 532 as follows: –
“No rule is better established, and few more important, than the rule (the golden rule) that a plaintiff applying for ex parte relief must disclose to the court all matters relevant to the exercise of the court’s discretion whether or not to grant relief before giving the defendant an opportunity to be heard. If that duty is not observed by the plaintiff, the court will discharge the ex parte order and may, to mark its displeasure, refuse the plaintiff further inter partes relief even though the circumstances would otherwise justify the grant of such relief.”
18. The defendant drew the court’s attention to a decision of the court of Alberta in Royal Bank of Canada v. Boussoulas 2010 ONSC 4650 (Can LII) Stinson J. as providing an example of a situation where the court refused to grant a Mareva injunction to a plaintiff to which it would otherwise be entitled, because the plaintiff had overstated its case in making many unsupported allegations in its many motions, affidavits and pleadings. The plaintiff alleged there was a strong prima facia case that the defendants defrauded the plaintiff of $3.8 million and that the defendants obtained over half the total amount borrowed from the plaintiff on the basis of a fraudulent equipment appraisal. In submissions to court, no mention was made of any evidence of fraud but the plaintiff did not resile from and relied upon its allegations of fraud. The court held that the plaintiff had made certain grave allegations that were shown to be untrue or wrong:
(i) That the defendants fraudulently borrowed over $4 million from the plaintiff between 2005 and 2008. The supposed fraudulent conduct only commenced in 2008 after most of the money had been advanced.
(ii) That the defendants obtained over half of the total amount borrowed on the basis of a fraudulent equipment appraisal was untrue; the appraisal had been obtained by the plaintiff in January 2008 after most of the money had been advanced. There was material misstatement and no evidence of the participation of any of the defendants in the appraisal.
(iii) A deponent who swore the key affidavit lacked personal knowledge of what transpired, failed to qualify his “evidence” which was unsupportable and misleading in relation to a highly material and damaging allegation.
(iv) One deponent swore that significant funds of one company had been diverted to another company but under cross-examination he admitted he had no evidence of this. Several times he was forced to concede under cross examination that he had no personal knowledge or evidence to support his beliefs or conclusions in his affidavits that he stated as facts. His affidavits included numerous occasions in which he went beyond stating facts within his personal knowledge without proper qualification explaining that they were either hearsay or surmise on his part.
In these circumstances the court held that notwithstanding the fact that the plaintiff had a strong prima facia case against the defendants, the court concluded that the plaintiff’s conduct of the proceedings was such as to disentitle it to the relief sought: –
“Misstatements and overstatements of evidence such as those mentioned above impair and impede the court in performance of its function, and are to be strongly discouraged.”
19. The defendant submitted that in dealing with the motion for a Mareva injunction, the court must resolve the factual disputes between the parties and must also allow for the belief of the plaintiff to be tested by reference to the grounds for that asserted belief. She says that the plaintiff’s case for a Mareva injunction hinges on an allegation of dishonesty made against her in the absence of any tangible evidence of any intention on her part to dissipate assets to render herself judgment proof. She says the allegation of dishonesty almost entirely arises from inferences from the actions of persons other than the defendant and from the defendant’s use of a corporate structure to hold her assets for the purpose of tax minimisation. She says she is entitled to test the basis for the state of belief of the plaintiff that she is engaged in a conspiracy to dissipate her assets. It cannot be presumed on the basis of a collection of assumptions and averments as to the plaintiff’s belief to that effect.
20. The cumulative effect of the overstatements and nondisclosures in this case, where a worldwide Mareva injunction freezing assets up to the value of €50,000,000 was sought, made this case quite exceptional. Cross-examination was required in order to assess the culpability of the plaintiff for these over statements and nondisclosures. It was necessary so that the judge dealing with the interlocutory motion could decide whether, in the exercise of equitable jurisdiction, the court would refuse the plaintiff the relief sought.
Exclusion of Evidence
21. Secondly, and separately, the defendant sought to exclude transcripts of the evidence given by two solicitors to the Official Assignee pursuant to investigations into the estate of the bankrupt which he conducted pursuant to s. 21 of the Bankruptcy Act 1988. These are Mr. Patrick Sweetman of Matheson Solicitors and Mr. Donald McAuliffe of Donald McAuliffe and Company. They each were former lawyers of the bankrupt and acted on his behalf in relation to the acquisition of Walford (in the case of Mr. Sweetman) and the subsequent sales of Walford (in the case of Mr. McAuliffe). The defendant says that they were also her lawyers and that they both have an agency relationship with her involving confidential and privileged communications.
22. These latter points were not pursued at the hearing of the motion. The sole basis upon which it has sought to exclude the transcripts of the two witnesses was in order to redress what would otherwise amount to an unfair procedure.
23. She asserts that the plaintiff’s use of his powers for the purpose of prosecuting the proceedings is an abuse of his information gathering role and the deployment of material in these proceedings is thus unlawful. Section 21 investigations cannot be used for the purposes of pursuing litigation advantages against a party other than the bankrupt. She asserts that in order to redress this imbalance the transcripts should be excluded from evidence. In this regard, she relies upon the decisions of the Supreme Court in The State (Hegarty) v. Winters [1956] I.R. 320 and Galway City Council v. Samuel Kingston Construction Ltd & anor [2010] IESC 18.
Submissions of the Plaintiff
Cross-Examination
24. The plaintiff submitted that the law in relation to cross-examination of deponents on their affidavits was well settled. The court has discretion whether or not to permit such cross-examination. The leading case of the Director of Corporate Enforcement v. Seymour establishes that there should be a material conflict of fact arising from the affidavits sworn and that a resolution of the conflict is necessary for the purpose of disposing of the issues the court has to determine.
25. It was submitted that there was very little actual conflict of fact on the affidavits. The Official Assignee in his grounding affidavits sets out his investigation into the affairs of the bankrupt and in particular into the transactions concerning Walford, he sets out what he has found as a result of those investigations and then he sets out his conclusions. In truth, the defendant does not so much wish to cross-examine him on the facts he deposes to, but rather wishes to cross-examine him in relation to the conclusions and inferences he draws from those facts and to cross-examine him on matters which he did not disclose in his affidavit, and the reasons for these omissions.
26. The plaintiff highlighted the important distinction in the authorities between cross-examination on affidavits where the procedure in question will result in a final order, and an application to cross-examine deponents in respect of interlocutory applications. He points out that in an application for an interlocutory injunction, the court does not make a final determination on the facts in the case, which await determination at the end of the full trial.
27. The plaintiff relies upon the dictum of Clarke J. in the Supreme Court in I.B.B. Internet Services Limited v. Motorola Limited [2013] IESC 53 when the court held that the court considering an application such as the current one must decide whether there are “exceptional circumstances” which require cross-examination on an interlocutory application. He stated: –
“7.3 … the cases relied on were all cases where the court was required to make a final order and where, therefore, the substantive rights and obligations of all interested parties were to be finally determined. Insofar as the making of a final order requires a court to take a view on the facts, and insofar as material facts may be the subject of conflicting evidence placed before the court on affidavit and where the contested facts have a bearing on the order which the court will have to make, then the comments made in those cases clearly apply.
7.4 However, there are sound reasons of principle and policy as to why, save in exceptional circumstances, courts should not contemplate cross-examination in interlocutory matters…”
28. The plaintiff submitted that the basic test to obtain Mareva relief is (a) that [the Plaintiff] has an arguable case that he will succeed in the action, and (b) the anticipated disposal of the defendant’s assets is for the purpose of preventing the plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts (see O’Mahony v. Horgan).
29. The plaintiff placed particular emphasis on the observations of O’Sullivan J. in Bennett Enterprises Inc and others v. John Lipton and others [1999] 2 IR 221 when he observed that:-
“I consider that direct evidence of an intention to evade [the defendant’s obligation to the plaintiff] will rarely be available at the interlocutory stage. I consider it is legitimate for me to consider all the circumstances in relation to the case…”.
The learned trial judge accepted that it was permissible to point to a number of matters and allege that they collectively gave rise to a reasonable apprehension that assets will be dissipated with a view to depriving the plaintiffs of their monies in the event that they succeeded in their action.
30. The plaintiff submits that this is particularly apposite to this litigation. He is the Official Assignee in bankruptcy in respect of the estate of the bankrupt. He has no first hand knowledge of the transactions, the subject matter of these proceedings and the application for a Mareva injunction. His information is derived from the bankrupt in the first place and thereafter from his own investigations into the affairs of the bankrupt. Of course, given the dual bankruptcy in this case, much of his information has been derived from the Chapter 7 Trustee in the United States and proceedings conducted in the United States, either by creditors of the bankrupt or by the chapter 7 trustee.
31. It is submitted that the plaintiff has set out in detail his investigations and the result of those investigations. He has then stated his conclusions. If his conclusions are unwarranted or he has overstated inferences to be drawn, he submits that the court is in a position to deal with this in the normal way. All of the material upon which his conclusions are based has been exhibited to the court.
32. He submits that cross-examination is not necessary in the circumstances of this case where the court hearing the application for a Mareva injunction will be in a position to make its own assessment of the evidence adduced. He says that as this is an interlocutory application, the onus rests upon the defendant to satisfy the court that exceptional circumstances exist such as would warrant cross-examination of him at the hearing of an interlocutory application, and that she has not done so.
33. He says the court hearing the application will either find that there has been material non disclosure by the plaintiff in his affidavits or it will not. Cross-examination of the plaintiff does not add anything to this issue.
34. He says that the defendant seeks to cross-examine the plaintiff in relation to matters which are peculiarly within her knowledge and in relation to matters of which the plaintiff has no direct knowledge. These include the nature of the relationship between the defendant and the bankrupt, the total value of the assets transferred by the bankrupt to the defendant, the extent of her assets, the beneficial ownership of Walford (both prior to the 2013 sale to Yesreb and thereafter) and her use of corporate vehicles for legitimate tax planning purposes. He points out that his information in relation to the defendant’s alleged interest in Yesreb is based upon the information he has put together from his investigations and the information which the defendant has set out in her affidavit. It is difficult to see what the plaintiff is to be cross-examined about in respect of these matters, which are peculiarly within her knowledge, rather than upon his conclusions based upon his incomplete knowledge of the affairs of the bankrupt and the defendant.
35. Items 5 and 8 of the matters identified by the defendant in her written submissions as matters which are appropriate for cross-examination are “The lack of an evidential basis for the propositions and theories advanced by the Plaintiff” and “Whether allegations and belief as to the Defendant’s dishonesty are still maintained by the plaintiff and can’t be supported.” The plaintiff submits that cross-examination for these purposes is not necessary for the court to determine an issue which will arise for decision at the hearing of the application for an interlocutory injunction.
36. It was submitted that the case of Royal Bank of Canada v. Boussoulas was of no assistance to the defendant. It clearly could be distinguished on its facts. The Official Assignee had made plain in his affidavits the facts as they were known to him and had exhibited the relevant material and then had clearly drawn his own inferences. He did not present his inferences or surmises as facts to the court, as occurred in Royal Bank of Canada. Neither did he swear to the truth of matters which could be shown to be untrue in very material respects. For all these reasons leave to cross examine the plaintiff should not be granted.
Exclusion of Evidence
37. In relation to the application to exclude the transcripts of the interviews conducted by Mr. Sweetman and the evidence given by Mr. McCauliffe, it was submitted there was no basis advanced for excluding this evidence. The Official Assignee submitted that the purpose of s. 21 of the Bankruptcy Act 1988 was to enable him to gather information in circumstances where parties might not otherwise assist him in carrying out his functions as Official Assignee of a bankrupt. As such, he must be in a position to use the information obtained, if relevant, in furtherance of his administration of the estate of a bankrupt. It therefore followed that the Official Assignee must be entitled to use this information as required in the administration of the estate including in recovery actions such as the present proceedings.
Discussion
38. The defendant does not point to conflicts of fact in the affidavits which will require to be resolved by the court in order to determine the application for a Mareva injunction. She therefore cannot say that cross examination of the plaintiff is necessary for disposing of the issues for determination of the court as is required by the decisions in Director of Corporate Enforcement v. Seymour and Somague Enenhariasa v. Transport Infrastructure Ireland.
39. Her case is based upon the alleged overstatement of the plaintiff’s case and the nondisclosure of relevant material which the defendant asserts evinces such a level of recklessness or culpability such as could justify a court withholding a Mareva injunction which it was otherwise minded to grant.
40. It is clear from the decision in Seymour that cross-examination to ascertain the “mindset” of deponent may be permitted if it is relevant to the issues to be determined by the court. What then is the relevance of the mindset of the plaintiff to the issues for determination by the court in the injunction application?
41. The court will need to decide firstly whether the plaintiff has an arguable case that he will succeed in the action. The court will reach its own conclusions on this matter on the basis of all of the affidavits and exhibits. Insofar as the plaintiff sets out his conclusions and inferences which he draws from the material he has exhibited, the court will be similarly placed to make its own independent assessment and draw its own conclusions. Therefore, even if the plaintiff has overstated the proper inferences or conclusions to be drawn from the information to be found in the exhibits, cross examination is not required in order for the court to reach its own conclusion as to whether or not the plaintiff has an arguable case.
42. Secondly, the court will then have to consider whether the anticipated disposal of the defendant’s assets is for the purpose of preventing the plaintiff from recovering damages (it awarded) and not merely for the purpose of carrying on a business or discharging lawful debts. In Bennett Enterprises Inc. O’Sullivan J. made it clear that the court is entitled to consider all of the circumstances in relation to the case. It would thus be for the court to draw its own inferences and to decide for itself whether or not the plaintiff has made out a case that the defendant is removing or has attempted to remove assets from the jurisdiction with a view to evading her obligations to the plaintiff in the event that he succeeds in this action. Whether or not the plaintiff has overstated his conclusions as to the risk in this regard is not therefore relevant, as the court will make its own determination based on those facts and not rely upon the inferences or conclusions in the plaintiff’s affidavits.
43. It is only if the court is satisfied as to both of these requirements, that any question could arise as to whether there could be grounds for refusing the injunction sought on the basis of the application of equitable principles.
44. It was predominantly in relation to this aspect of the argument that the defendant advanced her case for leave to cross examine the plaintiff on his affidavits. The defendant emphasised the obligation of a plaintiff applying for ex parte relief to disclose to the court all matters relevant to the exercise of the court’s discretion whether or not to grant the relief before giving the defendant an opportunity to be heard, as stated in O’Mahoney v. Horgan and Bambrick v. Cobley. She argued that while one or two of the omissions or overstatements or errors might be excused by the court, cumulatively they amount to culpable behaviour on the part of the plaintiff. In order for the court to be able to assess whether it should mark its displeasure at this behaviour by refusing the plaintiff inter partes relief, even though the circumstances would otherwise justify the grant of such relief, the plaintiff should be cross examined on his affidavit.
Omissions
45. The defendant identified five omissions from the plaintiff’s affidavits which she said ought to have been disclosed to the court as part of his obligation to disclose all matters relevant to the exercise of the court’s discretion. These are (i) the opinion of senior counsel on Yesreb’s title to Walford procured for Mr. Doran, (ii) the bankrupt’s and the defendant’s letters of wishes of 2007, (iii) the Matsack agreement, (iv) the failure of NALM to obtain a Mareva injunction against the bankrupt in the United States in 2012 and (v) evidence to support his contention that the bankrupt was insolvent in 2008.
46. (i) The opinion of senior counsel for the benefit of Mr. Doran is his opinion on the basis of his instructions which in turn derived from the vendor’s solicitors. It appears to be based upon premises which are at odds with the positions asserted by both the defendant and the plaintiff in this case. The opinion treats the purchase by the bankrupt of Walford in July 2005 as a gift to the defendant. She, on the other hand, has asserted that it was not a gift but that she gave valuable consideration for the property. The Official Assignee believes that the bankrupt remained at all times the equitable owner of Walford, despite the various entities involved in the title. The opinion of the senior counsel concludes that the transaction was completed in 2005/2006 notwithstanding the 2013 conveyance, whereas the plaintiff believes that it only completed in 2013. Finally, the opinion states that the Official Assignee has raised no issue in relation to the 2005/2006 transaction. In the light of the history of these proceedings, and the conduct of the bankruptcy, this unqualified statement is surprising. In light of the facts as they have now been presented to the court, this opinion has either been overtaken by events or further facts have been elicited which would mean that it could not be relied upon without giving counsel an opportunity to reconsider it in the light of these additional facts. It seems to me therefore that the failure to exhibit what is in effect an outdated opinion (notwithstanding the fact that it is dated August, 2016) does not give rise to a need for cross-examination. The failure to do so did not breach the requirement to disclose all matters relevant to the exercise of the court’s discretion in the circumstances.
47. I have reached a similar conclusion in relation to both the Matsack agreement and the letters of wishes. It was submitted that neither of these are documents of title. They may be evidence upon which the parties may rely upon at the trial of the action, but I do not believe that it is necessary to set before the court all evidence in the hands of the deponent provided that the party has otherwise complied with the obligation set out in Tate Access Floors to disclose all matters relevant to the exercise of the court’s discretion whether to grant the interim relief sought. At para. 53 of his grounding affidavit the plaintiff quotes from an affidavit of the bankrupt sworn on the 12th October, 2016, where he states that Walford: –
“… was held in trust by me for my wife Gail Dunne until 9 October 2006 when Matsack Nominees Ltd a nominee company controlled by the partners of Matheson Solicitors, assumed the role of trustee.”
The plaintiff disclosed the existence of that agreement and of the importance attributed to it by the bankrupt and the defendant, even though he did not exhibit the agreement. A court will be able to assess for itself the weight to attribute to such omission without the need for cross-examination to explain the failure to exhibit the agreement referred to in the affidavit. Likewise, the weight to be attributed to the failure to disclose what is, on its face, in the nature of a will, in respect of a person who is not deceased, is a matter for the court hearing the interlocutory application.
48. It will be for the judge hearing the interlocutory application to assess the relevance of the fact that in 2012, when far less was known of the affairs of the bankrupt and the defendant, one of its creditors, NALM, failed to obtain a Mareva injunction in the United States. Five years later a more complete, though by no means clear, picture has emerged. Significantly, many of the events in respect of which the Official Assignee makes complaint in these proceedings and, in particular, in this application, occurred subsequent to the failed application in the United States. In those circumstances, the failure to refer to a failed application by one of the creditors of the bankrupt does not require to be assessed by cross-examination at an interlocutory hearing.
49. Finally, it was said that the plaintiff ought to have indicated the basis upon which he claimed that the bankrupt was insolvent at the time when most if not all of the transfers of property by the bankrupt to the defendant took place. The issue of the solvency of the bankrupt and when he became insolvent is clearly a matter that will require detailed evidence at the hearing of the trial of this case. It is not a matter upon which the court would require further information as is suggested by the defendant in relation to a Mareva injunction. This is quintessentially not an issue to be determined at the injunction hearing and therefore, the failure to adduce fuller, (or any) evidence as to the date of the insolvency of a bankrupt is not a matter in respect of which I will exercise my discretion to permit cross examination.
Culpable Errors
50. The defendant pointed to a number of errors in the plaintiff’s affidavits which the plaintiff either accepted or did not contest. Firstly, in para. 27 of his grounding affidavit, the plaintiff quoted in full the 2005 agreement and stated “There is apparently no original of this agreement available.” The defendant, in fact, had confirmed that she had the original agreement and that it was available for him to inspect at her solicitor’s offices. The plaintiff accepts this, and apologised and explained how the error had occurred while drafting the affidavit and was not then detected. It is for the judge hearing the application to decide whether or he or she accepts that explanation . Cross-examination is not required.
51. Secondly, the plaintiff said that the defendant wanted the litigation to take place in the United States. She says this is incorrect in light of the correspondence which was exchanged between her solicitors and the plaintiff’s solicitors following my judgment refusing to dismiss these proceedings on the basis of forum non conveniens.
52. The situation is more nuanced. She appealed the decision to the Court of Appeal where she is maintaining her argument as to forum non conveniens. Subsequent to lodging her appeal, she offered to have the issues tried either in Ireland or in the United States, provided that there were joint plaintiffs, the plaintiff and the Chapter 7 Trustee. Her preference was for the United States. The plaintiff’s solicitors responded to this letter with a counter offer which was not accepted by the defendant and at present, no agreement has been reached between any of the parties on case management issues for the progression of litigation in both Ireland and the United States. Meanwhile, the defendant is continuing her appeal against the decision refusing to strike out these proceedings and thus is maintaining, in the context of these proceedings, her position that matters should be tried in the United States. Therefore, the error (if such it be) in the plaintiff’s affidavit could not be described as either grave or even misleading. Cross-examination is not required in respect of this issue either.
53. The defendant complains that the plaintiff misrepresented her defence by stating that she pleads that she received Walford as a gift from the bankrupt. In para. 26 of his affidavit he states: –
“In the Defence it is pleaded at para. 33 and 34 that Walford was given to Gayle Dunne in part performance of the transfers.”
Thus, the court’s attention is drawn to the specific plea and where it is to be found. Further, in para. 30, he states:
“… Ms. Dunne has pleaded that it was gifted to her in part performance of the 2005 Agreement and that the gifting to her of Walford strengthens in some way the enforceability of the 2005 Agreement…”
At paragraph 32 the plaintiff then states: –
“The defendant’s position as pleaded is that the transfer to her was a gift which occurred in 2005.”
The defendant alleges that this is an error and does not properly reflect her case. This is so and it is an error, but her position was correctly stated in the preceding paragraphs I have cited. I do not believe that cross examination is required in the circumstances.
54. The matters to which the defendant takes gravest exception are the plaintiff’s repeated averments that she and the bankrupt has stated on oath that they have no knowledge or connection with Yesreb; that the Yesreb declaration is false and that Yesreb cannot be relied upon to tell the truth that neither she nor the bankrupt had any interest in Walford since 2013 and the trust in relation to Walford is a sham. She states that these four averments are very damaging and are false and can be shown not to be borne out by the evidence adduced by the plaintiff.
55. The only evidence that supports the contention that she averred that she had “no knowledge or connection with Yesreb” is an extract from a transcript of her evidence given to the Chapter 7 Trustee’s counsel. She was asked: –
“Who owns Yesreb?
I do not know
Do you know what Yesreb is?
No.”
56. I agree with the defendant that to conclude from this evidence that the defendant has said that she has no connection with or knowledge of Yesreb is simply incorrect. She said what she said. The overstatement gives a misleading impression. However, the potential harm that could have been caused is remedied by the fact that in paras. 90 and 91 the plaintiff set out in full the basis upon which he concludes that she is not being frank with either him or the Chapter 7 trustee in relation to Yesreb and her knowledge of Yesreb. In particular, he quotes in full the exchange I have quoted above.
57. It is also noteworthy that the defendant revealed in her replying affidavit that Yesreb was not a third party Cypriot company with which she had no connection. She says she lent it the money to enable it to purchase Walford from her in 2013. According to her affidavit, the ultimate beneficial owner of Yesreb is John Dunne, her stepson, and he holds the company for the benefit of himself and the three children to the marriage of the defendant and the bankrupt. The defendant maintains, contrary to the assertions of the plaintiff, that neither she nor the bankrupt have had an interest in Walford since 2013. She says his statements in that regard are false or overstatements to a culpable degree.
58. It seems to me that it would be difficult so to conclude on the basis of the evidence the plaintiff placed before the court in his affidavit. He did not have a clear picture of these events and it seemed to him that there was some connection between the bankrupt, the defendant and Yesreb, but initially Yesreb had been portrayed as a third party Cypriot company, rather than an entity with apparently close connections to the bankrupt and the defendant. In light of the emerging picture in relation to Yesreb and the fact that the plaintiff was obliged to piece together information as best he could in relation to the sale to Yesreb in 2013 and the onward sale by Yesreb in 2016 and the fact, as now disclosed by the defendant, that the ultimate beneficiary of Yesreb is the son of the bankrupt rather than either the bankrupt or the defendant, and that he in turn holds it in trust for the benefit of the children of the bankrupt and the defendant and himself, the plaintiff’s misstatement of the situation is (a) explicable (b) redeemed by his full account of the facts upon which he based his conclusion and is a matter which the trial judge may assess without the need for cross-examination. The court ultimately was not misled by the plaintiff’s characterisation of the evidence of the defendant as the entire basis for the plaintiff’s conclusions, overstated as they were, were before the court.
59. In para. 86 of his affidavit, the plaintiff quotes an email of the 5th September, 2011, from the defendant to Mr. Seamus Reddan who acted as the agent of the bankrupt and the defendant in relation to Walford. In the email the defendant stated “as you know the property is held in trust…”. The plaintiff states that he believes that the trust referred to in the affidavit is a sham. He says this on the basis that there was no trust document in 2011/2012 when Ms. Goodman B.L. furnished tax advices to Mr. McAuliffe. No trust is referred to in the defence filed in these proceedings. The statutory declaration sworn by the bankrupt in August, 2016 in relation to Walford makes no reference to a trust. On this basis, it seems to me that the plaintiff has set out the basis for his belief that the reference in the email of September, 2011 to the trust was a sham. It will ultimately be a matter for the court at trial to decide whether this is so. If he overstated his conclusions, he has in no way misled the court as the basis upon which he reached those conclusions is set out in full.
60. In reply, the defendant says that this conclusion is not borne out by the fact that there is a declaration of trust and there is the Matsack agreement. It would appear that there are arguments for believing that the Matsack agreement is not a document of title and therefore cannot constitute a trust. It was not listed as a document of title by Matheson Solicitors when they transferred their file to Mr. McAuliffe. In senior counsel’s opinion on the title to Walford prepared for Mr. Doran, he reaches the same conclusion concerning the Mastack agreement.
61. The defendant placed greatest emphasis upon the bald assertion by the plaintiff that the declaration by Yesreb was false and that Yesreb cannot be relied upon to tell the truth. She states that this is not borne out by the four documents exhibited by the plaintiff.
62. It may be that the judge hearing this matter may conclude that these statements are incorrect and possibly that there are unwarranted. However, critically, the entirety of the evidence upon which the plaintiff bases his conclusion are exhibited before the court and are relatively easy to read and digest. Therefore, while these matters may ultimately amount to very significant and possibly damaging overstatement of the position in relation to Yesreb, all of the relevant material is before the court which can make its own assessment in relation to it. Therefore, it is not a matter upon which cross-examination of the defendant is required in order to assess his alleged culpability in making these averments in relation to the particular evidence in question.
Exclusion of Evidence
63. As was pointed out by counsel for the Official Assignee, the purpose of s. 21 is to assist the Official Assignee in his administration of the estate of a bankrupt. In particular it is to assist in gathering relevant information relating to the trade, dealings, affairs or property of the bankrupt. It is clearly the purpose of the section that information so acquired may be used for the purpose of gathering in any assets of the bankrupt which may not have been handed over to the Official Assignee. Inherent in this function is the fact that the Official Assignee may use the information acquired, if necessary, in court proceedings to recover assets for the benefit of the estate of the bankrupt. It makes little sense if he could not use the information in recovery proceedings. There is nothing in the section to suggest that he should be constrained in any way in the use he makes of information obtained pursuant to examinations made under s. 21 of the Bankruptcy Act 1988.
64. There is no unfairness, as alleged by the defendant, in this situation. All of the property and rights to property of the bankrupt vest in the Official Assignee upon the adjudication, but the Official Assignee is not the bankrupt. By definition he does not have the same knowledge or information regarding the affairs of the bankrupt as the bankrupt himself. The purpose of this provision is to ensure that the bankruptcy process is not frustrated by lack of cooperation by either the bankrupt or any other person who may have knowledge or information relevant to his or her trade, dealings, affairs or property. This provision is designed to redress an imbalance which otherwise could exist to the detriment of creditors of the bankrupt. I do not believe that fair procedures or other equitable principles require that transcripts of evidence obtained pursuant to s. 21 should be excluded from proceedings against parties other than the bankrupt where the Official Assignee maintains those proceedings for the benefit of the estate.
Conclusion
65. Essentially, the defendant has failed to establish exceptional circumstances why cross-examination should be permitted at the hearing of an interlocutory injunction. There is a clear distinction to be drawn between this case and other cases where it is alleged that parties have failed to disclose material which ought to have been put before the court when seeking ex parte relief. I have no reason to believe that a court would not be in a position to assess the culpability or the gravity of the matters identified by the defendant upon the evidence before the court. I also see no merit in the application to exclude from the evidence before the court the transcripts of the evidence of Mr. Sweetman or Mr. McAuliffe. I therefore dismiss the application.
Re: Dunne, a Bankrupt
[2014] IEHC 285
JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 10th day of April 2014
1. This matter comes before the court on foot of a number of notices of motion. On 3rd December, 2013, the bankrupt issued a notice of motion seeking to cross-examine the Official Assignee. This motion was returnable for 9th December, 2013, and was heard on 5th March, 2014. On 6th March, 2014, I delivered a judgment arising out of the hearing of that motion. I concluded that the Official Assignee is not a “witness” within the meaning of O. 76, r. 73, and that if the bankrupt wished to cross-examine the Official Assignee on foot of an application made pursuant to O. 76, r. 76(1), it would be necessary for him to bring an application to the court for liberty to cross-examine, setting out on affidavit the matters on which he wishes to cross-examine the Official Assignee and why it is necessary for him to do so.
2. On 4th December, 2013, a motion was issued on behalf of Traviata Ltd., Gayle Dunne, John Dunne and Lucy Rainey, directing the Official Assignee to return items of property seized at 19, Churchfield, Straffan, County Kildare to the applicants, an order directing the Official Assignee to account to the applicants in respect of items of property removed and for an injunction restraining the Official Assignee from entering upon or interfering with the property at 19, Churchfield, Straffan, County Kildare. This motion was returnable for 9th December, 2013, and was adjourned on 5th March, 2014, to the hearing that took place on 19th March, 2014.
3. On 28th February, 2014, the bankrupt issued a notice requiring the attendance of the Official Assignee for cross-examination on three affidavits. This application was brought pursuant to O. 76, r. 73 of the Rules of the Superior Courts. This matter was canvassed in argument before the court on 5th and 19th March, 2014.
4. By notice of motion issued on 13th March, 2014 (returnable for 19th March, 2014), the bankrupt sought an order directing the Official Assignee to attend for cross-examination on his affidavits sworn on 26th November, 2013, 9th December, 2013 and 10th February, 2014. He also sought an order excising so much of the said affidavits of the Official Assignee as contain hearsay evidence, and he sought a declaration that the Search Warrant of 26th November, 2013, permitting the Official Assignee to search the premises at 19, Churchfield, Straffan, County Kildare is defective on its face and invalid.
5. In March 2014, the Official Assignee brought a motion pursuant to O. 76, r. 73 and/or O. 40, r. 1 of the Rules of the Superior Courts directing that the following parties attend for cross-examination on their affidavits:
The bankrupt, in respect of affidavits sworn on 30th November, 2013, and 17th January, 2014;
John Dunne, in respect of affidavits sworn by him on 6th and 11th December, 2013;
Gayle Dunne, in respect of affidavits sworn on 30th November, 2013, and 18th December, 2013, and
Martine Fleming, in respect of affidavits sworn on 29th November, 2013, and 9th January, 2014.
6. At the hearing of the motion on 19th March, 2014, counsel for the Official Assignee informed the court that if no order for cross-examination was directed against the Official Assignee, he will not be seeking to cross-examine the other deponents.
7. The main issue arising on foot of the various motions before the court is the bankrupt’s challenge to the validity of the Warrant obtained pursuant to s. 28 of the Bankruptcy Act 1988. It is important to note that s. 28 provides for a Search Warrant to be issued “where it appears to the Court that there is reason to believe that any other property of the bankrupt is concealed in any house, building, room or other place not belonging to the bankrupt . . .” [emphasis added]. It is clear, from what is disclosed on affidavit, that there is a dispute on the issue of the beneficial ownership of 19, Churchfield, Straffan, County Kildare (“the premises”). But so far as the validity of the warrant is concerned, this is not relevant. The application for a warrant under s. 28 was made in circumstances where the bankrupt alleges that the premises are owned by Traviata Ltd., which is wholly owned by an Isle of Man trust and the beneficiaries of the trust are claimed to be the lineal descendants of the bankrupt. While the beneficial ownership of the premises is something which may have to be determined in the future, it is not relevant to the validity of the s. 28 warrant and there is no valid reason why there should be cross-examination of the Official Assignee on matters pertaining to this issue.
8. There is also a dispute on the question of the ownership of the contents of the premises. It is the duty of the Official Assignee to ascertain whether or not there is any property of the bankrupt at the premises which can be claimed as part of the bankrupt’s estate. The bankrupt, and other parties seeking to cross-examine the Official Assignee, disputes the basis of the Official Assignee’s belief that there is artwork and other contents in the premises which are the property of the bankrupt and his concern that items may be removed from the premises to the detriment of the bankrupt’s estate and his creditors. It is clear that the applications to cross-examine the Official Assignee are for the purpose of establishing the basis of his information and his belief. In particular, the bankrupt and other applicants claim that the Official Assignee is not entitled to rely on hearsay evidence. In Simple Imports Ltd. v. Revenue Commissioners [2000] 2 I.R. 243, Keane J. said at 251:
“While the syntax is rather odd, the meaning is clear: the District Judge, before issuing the warrant, must have come to the conclusion, from the information on oath of the customs officer, not merely that he (the officer) suspects that there are uncustomed or prohibited goods on the particular premises but that his suspicion is ‘reasonable’. The District Judge is no doubt performing a purely ministerial act in issuing the warrant. He or she does not purport to adjudicate on any lis in issuing the warrant. He or she would clearly be entitled to rely on material, such as hearsay, which would not be admissible in legal proceedings. It is to be presumed, moreover, that the district judge, in issuing the warrant, will act in accordance with the requirements of the relevant legislation and the onus of establishing that he or she failed to do so rests on the person challenging the validity of the warrant.” [Emphasis added]
I entirely agree with that statement of the law and, in any event, I am bound by it.
9. In issuing the s. 28 warrant, the judge of the High Court (Cooke J.) was not purporting to adjudicate on any lis. There is no dispute or no “accuser” to be faced and challenged. Either the warrant is valid on its face or it is not. The bankrupt has shown no grounds on which the s. 28 warrant is invalid or defective on its face. Counsel for the bankrupt challenged the validity of the warrant, inter alia, on the basis that it had been issued to both the Official Assignee and the Bankruptcy Inspector, whereas s. 28 provides that “. . . the Court may grant a Search Warrant to the Bankruptcy Inspector of any of his assistants . . .” There is no merit in this point. At most, the issuing of the warrant to both the Bankruptcy Inspector and the Official Assignee was superfluous, but it does not in any way affect the validity of the warrant.
10. As the issuing of the warrant was not a lis, the judge issuing it was entitled to rely on hearsay evidence contained in the grounding affidavit of the Official Assignee sworn on 26th November, 2013. In granting the Search Warrant, the court had concluded that the facts made out in the affidavit of the Official Assignee had been established for that purpose. This is not something which, at this stage, requires cross-examination. As there is a dispute concerning the ownership of property on the premises, this may have to be resolved by an oral hearing if no agreement can be reached between the Official Assignee and other claimants to the property.
11. It is a matter for the court to decide whether its officers should be cross-examined in the interests of the administration of justice (see in Re K. (Infants) [1962] 3 WLR 752). O. 76, r. 76(1) of the Rules of the Superior Courts provides that anyone wishing to require the attendance in court of the Official Assignee or any other officer serving in the Office of the Official Assignee must apply to the court for liberty to do so. There are good public policy reasons for such a filtering process. It protects a court official from frivolous or vexatious applications which could have a significant impact on how he conducts the business of the court. The court should be sparing in the exercise of its discretion to order the attendance of the Official Assignee or one of his officers for cross-examination on affidavits sworn in bankruptcy proceedings. In Irish Bank Resolution Corporation & Ors v. Quinn & Ors [2012] IEHC 510, Kelly J. referred to the decision of O’Donovan J. in Director of Corporate Enforcement v. Seymour [2006] 1 IEHC 369, at p. 5 where the learned judge said:
“At the end of the day, it is within the discretion of the Court as to whether or not such a cross-examination should be directed and that discretion should only be exercised in favour of such a cross-examination if the Court considers that it is necessary for the purpose of disposing of the issues which the Court has to determine. That appears to me to be the import of a statement of Keane C.J. in the course of an unreported judgment of the Supreme Court delivered on 15th December, 2003, in a case of Holland v. The Information Commissioner and represents the current jurisprudence in that behalf in this country.”
12. The notices of motion issued on behalf of John Dunne, Gayle Dunne and Traviata Ltd., seek reliefs in relation to the return of goods that are on the premises. The applicants do not seek cross-examination of the Official Assignee in respect of the ownership of any of the property or goods at the premises. Just as there is a dispute as to the beneficial ownership of the premises, it appears that the ownership of property and goods thereon is also in dispute. These issues may be resolved by discussion between the Official Assignee and the other interested parties, and if it is not possible to resolve the issue in this way, then an inquiry may have to take place within the bankruptcy proceedings to determine whether or not the bankrupt is the owner of any goods or property found on the premises. While the bankrupt has brought a notice of motion for cross-examination of the Official Assignee on three affidavits, it is neither necessary nor desirable in the interests of justice to make such an order. It is clear from the affidavits which have been furnished by the bankrupt that he is principally interested in obtaining the source of information relied on by the Official Assignee in applying for a warrant to search the premises. In Irish Bank Resolution Corporation & Ors. v. Quinn & Ors. [2012] IEHC 510, Kelly J. said at para. 65:
“The order which is sought is specifically focused on the defendants’ relevant affidavits. It is not and will not be permitted to become a trawl through material which will fall to be determined at trial. Neither will it amount to what counsel for the defendants called a deposition before trial. Depositions before trial are not part of the trial process in this jurisdiction such as they are in the United States of America.”
In that case the court stated that it would not permit a fishing expedition or a roving commission.
13. While the bankrupt wishes to establish the source of the Official Assignee’s information grounding the application for the s. 28 warrant, there are good public policy reasons why he should be entitled to maintain informer privilege. Such a privilege was allowed by the court in Director of Consumer Affairs v. Sugar Distributors [1991] 1 I.R. 225. Marks v. Beyfus [1890] 25 Q.B.D. 494 had established that, in criminal matters, police informers need not be disclosed as otherwise the information to enable the police to deter and detect crime might not be forthcoming. In D. v. N.S.P.C.C. [1978] AC 171, Lord Diplock, at 218, said:
“The rationale of the rule as it applies to police informers is plain. If their identity were liable to be disclosed in a court of law, these sources of information would dry up and the police would be hindered in their duty of preventing and detecting crime. So the public interest in preserving the anonymity of police informers had to be weighed against the public interest that information which might assist a judicial tribunal to ascertain facts relevant to an issue upon which it is required to adjudicate should be withheld from that tribunal. By the uniform practice of the judges which, by the time of Marks v. Beyfus, 25 Q.B.D. 494 had already hardened into a Rule of Law, the balance has fallen upon the side of non-disclosure except where, upon the trial of a defendant for a criminal offence, disclosure of the identity of the informer that helped to show that the defendant was innocent of the offence. In that case, and in that case only, the balance falls upon the side of disclosure.”
In the UK, the principle was extended to persons from whom the Gaming Board received information for the purpose of the exercise of their statutory functions and to persons who give information to the NSPCC about alleged ill-treatment of children. It seems to me that in a case such as this, the Official Assignee is entitled to rely on information without disclosing its source when he makes an application for a s. 28 warrant. That is not to say that in due course, if the question of ownership of the contents at the premises remains in issue, that evidence will have to be tendered in the usual way to establish, on the balance of probabilities, whether or not the bankrupt is the owner of such property.
14. No useful purpose can be served by directing the cross-examination of the Official Assignee on this issue. The warrant has been executed, and insofar as there is a dispute concerning the fruits of that warrant, these issues can be resolved in due course by whatever hearings may be necessary for that purpose.
15. I will now deal with the other issues that arise on foot of the notices of motion issued by the bankrupt and other parties. The bankrupt seeks an order for the delivery of confidential papers associated with Family Law litigation in which he is involved. The Official Assignee has been joined as a notice party in the Family Law proceedings. Whether the Official Assignee is entitled to retain and examine the papers which he has seized at the premises is a matter for legal argument if the issue cannot be resolved by agreement. It does not require cross-examination. Insofar as an order is sought directing the Official Assignee to deliver an inventory in respect of items removed from the premises, this has already been done.
16. The application by the bankrupt for an order staying any further applications by the Official Assignee pending the determination of his application to show cause against the bankruptcy is now moot as the application was determined in my judgment of 6th December, 2013, when the application was refused. The bankrupt’s application for an order restraining the Official Assignee from exercising any of his functions or powers pursuant to s. 61 of the Bankruptcy Act 1988, must also fail on the same ground.
17. This leaves the issue of the declaration sought by the bankrupt that by virtue of his prior US bankruptcy, all the bankrupt’s property, wherever situated, is vested in the US bankruptcy estate. This is a question of law in respect of which cross-examination does not arise. It has to be considered against the background of a dual bankruptcy in both the United States and in this State, having regard to the fact that by order of the US bankruptcy judge, dated 12th June, 2013, the automatic worldwide stay on proceedings against the bankrupt pursuant to US law was varied so as to allow for the adjudication hearing in this jurisdiction.
18. I refuse the reliefs sought by the bankrupt in the notices of motion dated 3rd December, 2013, 28th February, 2014, and 13th March, 2014. I also refuse the relief sought in the notice of motion of 4th December, 2013, by Gayle Dunne, John Dunne, Traviata Ltd. and Lucy Rainey.
19. As the Official Assignee has informed the court that he does not wish to cross-examine the bankrupt or Mr. John Dunne, Ms. Gayle Dunne or Ms. Martine Fleming if no order is made directing his cross-examination, I will make no order on the Official Assignee’s application for cross-examination of those parties.
Litigation Finance Ltd -v- Lehane
[2016] IEHC 527
[2016] IEHC 527
High Court Record Number:
2012 2479 BANKRUPTCY & 2012 2480 BANKRUPTCY
Date of Delivery:
03/10/2016
Court:
High Court
Judgment by:
Costello J.
Status:
Approved
Neutral Citation: [2016] IEHC 527
THE HIGH COURT
BANKRUPTCY
[2012 No. 2479 BANKRUPTCY]
[2012 No. 2480 BANKRUPTCY]
IN THE MATTER OF
AN APPLICATION UNDER SECTIONS 61(7) AND 71 OF THE BANKRUPTCY ACT 1988
AND
IN THE MATTER OF
BRIAN O’DONNELL (A BANKRUPT)
AND MARY PATRICIA O’DONNELL (A BANKRUPT)
BETWEEN
LITIGATION FINANCE LIMITED
APPLICANT
AND
CHRISTOPHER LEHANE
OFFICIAL ASSIGNEE
JUDGMENT of Ms. Justice Costello delivered on 3rd day of October, 2016
Introduction
1. The relief sought in the notice of motion dated 31st May, 2016, by the applicant is for:-
“…an Order:
1) Pursuant to Section 61(7) and/or 71 of the Bankruptcy Act 1988 that the Official Assignee shall transfer the chose in action to the Applicant on the terms of the offer made by the Applicant”.
2. Section 61 of the Bankruptcy Act 1988 sets out the functions and powers of the Official Assignee. It includes the power to sell property of the bankrupt. Property includes choses in action (s. 3 of the Act of 1988). Section 61(7) provides:-
“The exercise by the Official Assignee of the powers conferred by this section shall be subject to the control of the Court, and any creditor or other person who in the opinion of the Court has an interest may apply to the Court in relation to the exercise or proposed exercise of those powers.”
3. Section 71 of the Act provides:-
“The Court may make to the bankrupt out of his estate such allowances as the Court thinks proper in the special circumstances of the case.”
4. The applicant is a company incorporated under the laws of England and Wales in 2012 whose sole purpose is to purchase claims relating to the estates of Mr. Brian O’Donnell and Dr. Mary Patricia O’Donnell (“the Bankrupts”). It is not a creditor of either of the estates. The company was incorporated by the four children of the Bankrupts, the directors of the applicant are sons of the Bankrupts and the solicitor representing the applicant is a son of the Bankrupts.
5. In view of the fact that the Bankrupts are not parties to this application and the applicant is not a bankrupt, s. 71 does not apply to this application.
6. The notice of motion does not identify the chose in action which the applicant asks should be transferred to it. The grounding affidavit of Mr. Blake O’Donnell sworn on 28th June, 2016, clarifies that the applicant is seeking an order:-
“…to compel the Official Assignee to assign any and all claims that the bankrupts possess against Hibernia (2005) Limited and Gort Limited to the Applicant.”
7. On 17th June, 2015, the applicant offered €3,500.00 for an assignment of any and all claims of Mr. Brian O’Donnell and Dr. Mary Patricia O’Donnell against Hibernia (2005) Ltd. and Gort Ltd. After an exchange of e-mails, on 20th July, 2015, Mr. O’Donnell, on behalf of the applicant, stated that it wished to purchase the claims of the Bankrupts against the two companies so that the applicant could:-
“…participate as a creditor in voting for the appointment of an insolvency practitioner in relation to the court ordered winding up of Hibernia (2005) Limited and Gort Limited.
Other than the voting rights at the creditors meeting there is currently no value in the claims.”
8. The e-mail did not elaborate on the claims of the Bankrupts against the two companies being wound up by the courts of England and Wales. On the other hand the e-mail elaborated on the purpose in seeking to become creditors of the two insolvent companies. It stated:-
“Mr. O’Donnell and Mrs. O’Donnell have previously indicated to your office in correspondence that they believe Morgan Stanley Mortgage Servicing Ltd illegitimately levied an interest rate swap liability against Hibernia (2005) Limited and Gort Limited which they were not legally entitled to do. Morgan Stanley Mortgage Servicing Ltd subsequently appointed Ernst & Young as administrators over Hibernia (2005) Limited and Gort Limited and sold 15 Westferry Circus to Canary Wharf Group for the balance of the outstanding debt (as calculated by Morgan Stanley Mortgage Servicing Ltd) plus £1.”
9. The Official Assignee’s solicitors wrote to Mr. O’Donnell on 24th July, 2015, pointing out that the information available to the Official Assignee was insufficient for him to assess the applicant’s offer. The letter set out certain matters which the Official Assignee would require before he could evaluate the offer, including detailed documentary records substantiating and outlining the allegations which it was proposed would be made and it sought a Senior Counsel or Queen’s Counsel’s opinion outlining the reasoning for the actions, the prospect of success or failure, the estimated costs of any such action, how any fees are to be discharged and what is the fee arrangement in relation to any such action. The letter concluded:-
“Having ascertained all of the foregoing information the Official Assignee will then be in a position to consider:
• Whether he should embark on the litigation;
• Whether he should assign the litigation;
• What benefit falls to the Estate of the Bankrupt;
• The exact terms of the litigation;
• Whether the litigation is or could be considered vexatious”.
10. Mr. O’Donnell replied by letter dated 11th September, 2015. He did not provide any statement of the claim by the Bankrupts against Hibernia (2005) Ltd. and Gort Ltd. Neither did he set out the detail of the possible claim by Hibernia (2005) Ltd. or Gort Ltd. against Morgan Stanley Mortgage Servicing Ltd. He asked the solicitors to define what they meant by a “ detailed documentary record”. By implication he declined to provide an opinion analysing the merits of the case and said that it was a matter for the Official Assignee. He stated:-
“We do not have any obligation to commission one in order to make a bid for the assets.
We remind you that the Official Assignee has an obligation to realize all assets for the estate and an obligation to accept bids which would generate funds for the estate. Failure to do so will result in a challenge to the High Court.”
The letter requested an immediate response. The Official Assignee did not reply. Then the notice of motion herein issued on 24th May, 2016. On 14th June, 2016, after the motion had issued, Mr. O’Donnell sent an e-mail stating that the applicant had responded comprehensively to all of the queries on 11th September, 2015, and received no follow up response. He said that the Official Assignee was thus in breach of his obligations as Official Assignee.
11. Mr. O’Donnell swore two subsequent affidavits in relation to this application. Only the second dealt with the merits of the application. It was sworn on 14th July, 2016, in response to the affidavit of the Official Assignee sworn on 7th July, 2016. Among other arguments advanced by the Official Assignee, he stated that he did not have any particulars of the claims or the value of the claims or any explanation why an assignment of the claims was necessary. Mr O’Donnell’s replying affidavit gives no further detail of the alleged claims of the Bankrupts against either Hibernia (2005) Ltd. or Gort Ltd. It gives no information in relation to those companies other than the fact that they are in the course of being wound up and that the sole asset of Hibernia (2005) Ltd. has been sold. No further information relating to the possible causes of action by either Hibernia (2005) Ltd. and/or Gort Ltd. against Morgan Stanley Mortgage Servicing Ltd. is put before the Court.
12. Mr. O’Donnell exhibits the joint administrators’ reports dated 27th June, 2013, and 20th December, 2013, in respect of the two companies. From these it appears that an asset is listed in the directors’ statement of affairs as “litigation claim against Morgan Stanley for misselling (sic) swap for £131.6m ending 2016”. It is valued at £500, though the total in the summary of assets suggests this is an error and it should read £5,000. However, there is no evidence in relation to the claim or its value so this is an assumption on my part. The statement of affairs indicates that the directors of the companies, the Bankrupts, claim to be creditors in the sum of £5,149,602. There is no explanation of this claim in the statement of affairs. The report states that the unsecured creditors of the companies primarily comprise the companies’ directors’ loan and ground rent due in respect of the property that was sold. It is to be inferred, though again there is no evidence in this regard, that the Bankrupts’ claim against the two companies is a directors’ loan.
13. Tellingly, the joint administrators state at p. 3 of their report of 20th December, 2013, that:-
“Having reviewed the SoA, the Joint Administrators would comment that the primary asset of the Companies has now been sold and the Joint Administrators believe there to be no remaining assets to realise. You will note from Appendix 5 that the Companies’ directors have included uncharged assets in the SoA. The Joint Administrators have sought legal advice on the validity of these purported assets and believe there to be no value in them[.]
The Joint Administrators would also comment that the realisations from the sale of the Property were sufficient to repay the secured lenders in part only. Therefore, the possibility of a dividend to unsecured creditors did not exist and an independent review or statutory audit of the unsecured liabilities detailed at the SoA was not therefore required.”
Standing
14. The first matter which must be determined is whether or not the applicant has standing to bring an application pursuant to s. 61(7) of the Act of 1988. Usually, assignments of claims in bankruptcies are sought by the bankrupt in the interests of justice so that the bankrupt may pursue the claim when the Official Assignee has decided for various reasons not to pursue the claim. It is noteworthy that neither of the Bankrupts have sought the assignment of these claims in this case. A company, in which they appear to have no interest, seeks the assignment of their asserted chose in action.
15. A creditor of the bankrupt automatically has standing to apply to court pursuant to s. 61(7). The Bankrupts have accepted that their four children are creditors of their estates. However, they have not chosen to bring the application themselves. It is brought by a company they incorporated with the sole purpose of acquiring claims of the Bankrupts against third parties. Thus the interest of the applicant is not that of a creditor in the estate of either of the Bankrupts. In law, it is the interest of an unconnected third party who seeks to buy claims of the Bankrupts.
16. Section 61(7) provides that “any… other person who in the opinion of the Court has an interest may apply to the Court”. The question of the standing of a party, other than a creditor, is a matter for assessment by the court. The court must be satisfied on evidence adduced by the applicant that they have an interest in relation to the exercise or proposed exercise by the Official Assignee of the powers conferred on him by s. 61.
17. At present the applicant has no interest in the causes of action. It seeks to acquire an interest by purchasing the chose in action from the Official Assignee. It says that its offer to purchase the chose in action is sufficient to meet the requirement established by s. 61(7) and that it has standing to bring the application based upon the offer to purchase the property of the Bankrupts without anything more.
18. The purpose of the applicant acquiring the claims is not elaborated or disclosed to the Court. It is therefore left to the Court to assume that it seeks to acquire the claims for the purpose of pursuing them. If this end is to be legitimate, it must be with a view to obtaining a return.
19. Public policy is relevant in this context. The courts will not assist in the proliferation of unmeritorious litigation, either by disappointed bankrupts or by third parties, by ordering the Official Assignee to assign unmeritorious causes of action pursuant to s. 61(7) to persons who wish to acquire the cause of action. They must be alert to possible trading in litigation which could give rise to issues of maintenance or champerty, though the sale of the interest of a bankrupt in litigation by the Official Assignee is authorised by statute and therefore does not offend the rules against maintenance and champerty. The court must consider the proposed proceedings in order to satisfy itself that the assignment of the cause of action could be accepted to be legitimate or in the interests of justice. It must assess, at least in a general way, the prospects of success of the proceedings. At a minimum, the court ought not to order the Official Assignee to assign a claim that is bound to fail as being frivolous or vexatious.
20. The powers of the Official Assignee that are subject to the control of the court are set out in s. 61(3)(a)-(k). The interest of the applicant to the court must relate to the exercise of, or failure to exercise, the powers. These are:-
(a) to sell the property by public auction or private contract, with power to transfer the whole thereof to any person or to sell the same in lots and for the purpose of selling land to carry out such sale by lease, sub-lease or otherwise and to sell any reversion expectant upon the determination of any such lease,
(b) to make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging themselves to have any claim present or future, certain or contingent, ascertained or sounding only in damages whereby the bankrupt or arranging debtor may be rendered liable,
(c) to compromise all debts and liabilities capable of resulting in debts and all claims, present or future, certain or contingent, ascertained or sounding only in damages, subsisting or supposed to subsist between the bankrupt or arranging debtor and any debtor and all questions in any way relating to or affecting the assets or the proceedings on such terms as may be agreed and take any security for the discharge of any debt, liability or claim, and give a complete discharge in respect thereof,
(d) to institute, continue or defend any proceedings relating to the property,
(e) to refer any dispute concerning the property to arbitration under the terms of section 11 of the Arbitration Act, 1954 ,
(f) to mortgage or pledge any property to raise any money requisite,
(g) to take out in his official name without being required to give security, letters of administration to any estate on the administration of which the bankrupt or arranging debtor would benefit,
(h) to agree a sum for costs where the Court so directs or where he considers that the amount which would be allowed on taxation would not exceed €12,000,
(i) to agree the charges of accountants, auctioneers, brokers and other persons,
(j) to ascertain and certify to the Court the amount due in respect of a mortgage debt and the due priority thereof with power to the Court to vary such certificate,
(k) to draw out of the account referred to in section 84 (1) any sum not exceeding €130 by way of indemnity in respect of costs incurred by him.”
21. Examples of a person who would not be a creditor of the bankrupt but who may have an interest in the exercise by the Official Assignee of those powers, other than the bankrupt him- or herself, could include a neighbour to property of the bankrupt, a party to proceedings instituted by, or against, the bankrupt prior to his adjudication, a person concerned in an estate falling within sub-para. (g). In each case, the applicant must adduce evidence to the court so that the court may form the opinion that the applicant has the requisite interest to make the application. If the applicant is not a creditor of the bankrupt, he or she will not automatically have locus standi to bring the application. In the absence of standing, the application cannot be moved.
22. The court cannot form the requisite opinion if an applicant simply makes an offer to purchase an asset from the bankrupt’s estate without giving the court any further information. To hold otherwise could lead to a host of unmeritorious applications pursuant to s. 61(7) and would do violence to the language of the statute. A judge cannot form an opinion without evidence, save that he or she has insufficient evidence to form an opinion.
23. For all of the reasons set out above, it was incumbent on the applicant to set out particulars of the claims of the Bankrupts which it wished to purchase and the value of the claims. It did not do so, despite the correspondence from the solicitors for the Official Assignee and the affidavit sworn by the Official Assignee in reply to the motion. At the very least there should have been sufficient information for the Court to assess:
• Whether the applicant had an interest within the meaning of s. 61(7);
• The nature of the claim(s);
• That the proposed claim(s) is not bound to fail, nor is it frivolous or vexatious;
• Some approximate assessment of the value of the claim; and
• Any other relevant information.
In the absence of this information the Court cannot form an opinion that the applicant has an interest within the meaning of s. 61(7). On this ground, I refuse the application. If the applicant wishes to renew its offer to take an assignment of the claims and sets out the information I have outlined in this judgment or at least some of the information requested by the Official Assignee it may renew the application if necessary and if it sees fit.
24. In view of the fact that I have held that the applicant has not established that it has locus standi to bring the application, I shall not decide whether or not the Court should make an order directing the Official Assignee to assign to the applicant the chose in action of the Bankrupts against Hibernia (2005) Ltd. and Gort Ltd. as this is not necessary for the purpose of my decision on this application.
Irish Life and Permanent plc t/a Permanent TSB v Kennedy & anor
[2019] IEHC 272 (12 May 2019)
JUDGMENT of Mr. Justice Noonan delivered on the 12th day of April, 2019
Background Facts
1. The first defendant (Mr. Kennedy) was formerly a practising solicitor and the second defendant (Mrs. Kennedy) is his wife. These proceedings brought by the plaintiff (“the Bank”) concern two loan agreements entered into in 2006 and 2007 respectively. The 2006 loan was in the amount of €501,250 advanced by the Bank to Mr. Kennedy. That loan was to be secured on Mr. Kennedy’s practice premises known as 4 Charles Street, New Ross, County Wexford. In entering into that agreement, Mr. Kennedy furnished the Bank with a solicitor’s undertaking to procure a first legal charge over the property in favour of the Bank.
2. The 2007 loan was in the sum of €320,000 and was advanced to both Mr. and Mrs. Kennedy. On the Bank’s case, that loan was to be secured by a first legal charge over Mr. and Mrs. Kennedy’s family home known as Ardlegréine, Duncannon, Co. Wexford. The Bank says that it was a term of the agreement that the Bank would be granted a first legal charge over Ardlegréine and Mr. Kennedy gave a solicitor’s undertaking in that respect. Although not necessarily relevant for the purposes of the application now before the court, Mr. Kennedy disputes that there was to be a charge over the family home and says that the solicitor’s undertaking was inadvertently signed by his wife on his behalf when he was abroad in the United States.
3. In respect of the 2006 agreement, the Bank claims that contrary to the terms of the agreement and his solicitor’s undertaking, 4 Charles Street was already the subject of prior incumbrances so that it was not then possible for the Bank to obtain a first legal charge, in breach of Mr. Kennedy’s undertaking. This is effectively admitted by Mr. Kennedy at para. 8 of his defence and in his replying affidavit herein. It is also common case that subsequent to the institution of these proceedings, Mr. Kennedy rectified the position so that ultimately the Bank’s security was put in place.
4. In connection with the 2007 loan, Mr. Kennedy says that the loan was part of a larger transaction which he agreed with the Bank’s manager in New Ross whereby an additional €180,000 making in total €500,000 would be advanced by the Bank to enable him to build an extension to the family home Ardlegréine. He claims that in breach of that agreement, the Bank refused to advance the additional €180,000 but concedes that he obtained the money subsequently from Bank of Scotland (Ireland) Ltd who obtained a first charge on Ardlegréine. The Bank again claims this to have been a breach of the conditions of the 2007 loan and of his solicitor’s undertaking, as the Bank was thereby precluded from obtaining a first legal charge over Ardlegréine.
5. It is common case that Mr. Kennedy defaulted on the payments due on foot of the loans and this ultimately resulted in the within proceedings being issued on the 25th February, 2009. Another of the complaints made by Mr. Kennedy in these proceedings is that he had a sum of €100,000 in his account which the Bank, he says unlawfully, set off against the debt due leaving him in a situation where he could no longer continue in practice.
6. A statement of claim was delivered by the Bank on the 2nd April, 2009 and the defendants delivered their defence on the 6th November, 2009 at which time Mr. Kennedy’s firm, Simon W. Kennedy & Co., was on record for both defendants. The defence is accompanied by a counterclaim by Mr. Kennedy only which commences with the words:
“The first named defendant repeats the defence herein and counterclaims as follows:-
The plaintiffs were at all material times the defendant’s bankers herein. In respect of the property at Ardlegréine, Duncannon attempted to intimidate the first named defendant and the second named defendant by …”
7. The counterclaim goes on to set out five instances of the alleged intimidation which are broadly, first, that the Bank refused Mr. Kennedy access to the €100,000 referred to above, second, threatened to report him to the Gardaí, the Law Society and to sue him, third, threatened the viability of his practice causing him damage, fourth, discontinued his banking facilities and fifth, notified the Credit Bureau of his default. In the next paragraph, Mr. Kennedy pleads:
“(f) In the context of the foregoing paragraph the first named defendant reserves his right to amend the counterclaim herein to include a claim for defamation, negligence, misrepresentation, abuse of power and position, negligence misstatement and arising therefrom, the infliction of emotional distress.”
8. This would appear to be a concession that the matters set out in that paragraph are not the subject matter of the counterclaim as it stands but may become so in the future. In the concluding paragraph headed “Particulars”, Mr. Kennedy pleads that particulars will be furnished following discovery and also the remedies and orders sought will be furnished on completion of discovery. He concludes by pleading that a claim for general and special damages will be made.
9. The nature of the cause of action pleaded in the counterclaim is somewhat unclear. What is clear however is that the counterclaim is made solely on behalf of the first defendant, Mr. Kennedy, and that the gravamen of the claim is that Mr. Kennedy’s practice was damaged by the alleged wrongful acts of the Bank. Whilst he pleads that he suffered damage and injury, there is no overt plea that his personal or professional reputation has been damaged but rather he reserves the right to make a claim for defamation, suggesting by implication that no such claim is contained in the counterclaim as it stands. Nor does the counterclaim contain any plea that Mr. Kennedy has suffered personal injuries as a result of the matters complained of.
10. Following delivery of the defence and counterclaim, a notice for particulars was raised by the Bank on the 26th October, 2010, and a reply and defence to counterclaim was delivered on the 11th March, 2011. The defendant’s replies to particulars were delivered on the 8th July, 2011 and the Bank raised further particulars on the 22nd November, 2011 at the same time as issuing a motion for discovery. The motion for discovery was dealt with on the 6th June, 2012.
11. In the meantime, the Revenue Commissioners, to whom Mr. Kennedy was substantially indebted in respect of tax arrears, issued bankruptcy proceedings against Mr. Kennedy.
12. On the 18th June, 2012, Mr. Kennedy was adjudicated bankrupt by order of the High Court (Dunne J.). This had the immediate effect of precluding Mr. Kennedy from continuing to practice as a solicitor. An application by Mr. Kennedy to show cause was dismissed on the 14th June, 2013.
13. As noted above, Mr. Kennedy ultimately perfected the Bank’s security in respect of 4 Charles Street and in 2011, the Bank issued separate proceedings by way of special summons seeking an order for possession on foot of the security.
14. Arising from the institution of the special summons proceedings, Mr. Kennedy brought an application to have those proceedings consolidated with the within proceedings. On the 11th February, 2014, the High Court (Barrett J.) acceded to Mr. Kennedy’s application and consolidated the two claims. The Bank appealed to the Supreme Court and ultimately the appeal was transferred to the Court of Appeal which determined the matter on the 3rd May, 2017 by allowing the appeal. This left the Bank free to continue the special summons proceedings and accordingly the Bank obtained an order for possession of 4 Charles Street on the 23rd June, 2017.
The Issue Arising on This Application
15. In this motion issued on the 8th February, 2018, the Bank seeks an order giving directions in respect of the proceedings and in particular, a direction that the Official Assignee in bankruptcy is the only party with standing to defend (including by way of counterclaim) the plaintiff’s claim herein together with an order striking out the defence and counterclaim. In that respect, it is important to note the position of the Official Assignee. By letter of the 8th January, 2015 to the Bank, the Official Assignee said:
“As Official Assignee of (Mr. Kennedy’s) estate I am satisfied the Bank has an entitlement to obtain a money judgment against Mr. Kennedy for the loan advanced to him and that Mr. Kennedy has no right to defend such proceedings nor to pursue a counterclaim for damages…
Please provide this letter to the court confirming my position to it in respect of Mr. Kennedy litigating on his own behalf, which I again confirm he has no right as a bankrupt so to do, as I have no funds in the matter to be represented before the court. In that regard I agree with your analysis of my position as Official Assignee as set out in your legal submissions provided to me in your letter. Please provide me with details of exact amounts in respect of which you seek judgment and I can compromise the claims and admit them as proven claims within the bankruptcy, without need for any further litigation in respect of Mr. Kennedy.”
16. The issue again arose a year later when, by letter of the 5th January, 2016, the Bank wrote to the Official Assignee saying, inter alia :
“The plenary proceedings
In the plenary proceedings, the Bank seeks, inter alia , judgment against the defendants, Mr. and Mrs. Kennedy, in respect of which Mr. Kennedy has made a counterclaim.
As regards Mr. Kennedy, my understanding from your letter dated 8th January, 2015 is that you are satisfied that the Bank is entitled to a money judgment against Mr. Kennedy and further, that Mr. Kennedy has no right to defend the plenary proceedings or to pursue a counterclaim for damages. You indicated that, as Official Assignee, you would not be defending the Bank’s claim for judgment nor pursuing the counterclaim and asked that this fact be drawn to the attention of the appellate court as you have no funds for legal representation.
Request for confirmation
I note that in your letter of 8th January, 2015 you agreed with the Bank’s analysis of your position as Official Assignee as set out in the supplemental legal submissions filed by the Bank in the appeal. In order that the Bank might now draw to the court’s attention your position, set out in correspondence, I should be grateful for your assistance as follows:
1. For the avoidance of doubt, I should be grateful if you could confirm that there has been no change in your position since your letter of 8th January, 2015 that is to say:
(a) That Mr. Kennedy has no entitlement to challenge the surrender by the Official Assignee of the 4 Charles Street premises;
(b) That conduct of the plenary proceedings is a matter for the Official Assignee, not Mr. Kennedy: Mr. Kennedy is entitled neither to defend the Bank’s claim for judgment nor to prosecute the counterclaim.
(c) That you, as Official Assignee, do not intend to defend the Bank’s claim for judgment or to prosecute Mr. Kennedy’s counterclaim.”
17. The Official Assignee replied to this letter on the 8th January, 2016 as follows:
“I refer to your letter dated 5th January, 2016.
I can confirm that there has been no change in my position as set out in my letter of 8th January, 2015. Mr. Kennedy has no entitlement to challenge the surrender by me of the 4 Charles Street premises.
The conduct of the plenary proceedings is being conducted by Mr. Kennedy without my authority or approval.
I do not intend to defend the Bank’s claim for judgment or prosecute Mr. Kennedy’s counterclaim.”
18. Subsequent to the issuing of the within motion, the bank sought confirmation from the Official Assignee as to whether he wished to file an affidavit in this motion. In a letter of the 14th March, 2018, the Official Assignee yet again reiterated his position in the following terms:
“I refer to your letter of the 12th March seeking confirmation of whether I wish to file an affidavit in the matter and I confirm that I do not.
My position in relation to above proceedings is that Mr. Kennedy does not have locus standi to defend these proceedings nor prosecute the counterclaim in his sole name as such authority and right vested in me as Official Assignee on his adjudication as a bankrupt on the 18th June, 2012. The claim is clearly in my view not a personal right claim that continues to vest in Mr. Kennedy.”
The Official Assignee went on to set out a detailed analysis of the legal position with reference to statute and case law and went on to conclude his letter:
“As there are no funds in Mr. Kennedy’s estate to engage counsel or solicitor I do not intend appearing in person or be legally represented at any hearing of this matter and request the court to accept this letter as proof of my position on the matter. I consent to judgment in the matter which will be a proven debt in the bankruptcy on basis no cost order is sought against me as Official Assignee.”
Legal Principles
19. Section 44 of the Bankruptcy Act, 1988 as amended provides at subs. 1:
“(1) Where a person is adjudicated bankrupt, then, subject to the provisions of this Act, all property belonging to that person shall on the date of adjudication vest in the Official Assignee for the benefit of the creditors of the bankrupt.”
20. Property is defined in s. 3 of the Act:
” ‘property’
(a) includes money, goods, things in action, land and every description of property, whether real or personal…”
21. “Things in action” evidently includes litigation claims by the bankrupt. Section 61 of the Act provides for the functions of the Official Assignee which include the power to compromise any claim against the estate of the bankrupt and under subs. (3) (d), to institute, continue or defend any proceedings relating to the property of the bankrupt.
22. The courts have long distinguished between claims by the estate of the bankrupt, which vest in the Official Assignee, and those which are to be regarded as purely personal claims, which do not. This was explained by the Court of Appeal of England and Wales in Heath v. Tang [1993] 1 WLR 1421. Delivering the court’s judgment, Hoffman L.J. discussed the position of the bankrupt in litigation, both as plaintiff and defendant. In dealing with the bankrupt as plaintiff, he said (at p. 1423):
“The property which vests in the trustee includes ‘things in action’; see s. 436. Despite the breadth of this definition, there are certain causes of action personal to the bankrupt which do not vest in his trustee. These include cases in which ‘the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind, or character, and without immediate reference to his rights of property;’ see Declan v. Dale (1849) 2 HLC as 579, 604, per Erle J. and Wilson v. United Counties Bank Ltd [1920] AC 102. Actions for defamation and assault are obvious examples. The bankruptcy does not affect his ability to litigate such claims. But all other causes of action which were vested in the bankrupt at the commencement of the bankruptcy, whether for liquidated sums or on liquidated damages, vest in his trustee. The bankrupt cannot commence any proceedings based upon such a cause of action and if the proceedings have already been commenced, he ceases to have sufficient interest to continue them.”
23. The court went on to deal with the position of the bankrupt as defendant (at p. 1424):
“In case in which the bankrupt is defendant, there is of course usually no question of the cause of action having vested in the trustee. Unless the defence is set off (a situation to which we shall return later) the bankrupt will not be asserting by way of defence any cause of action of his own. But in cases in which the plaintiff is claiming an interest in some property of the bankrupt, that property will have vested in the trustee. And in claims for debt or damages, the only assets out of which the claim can be satisfied will have likewise vested. It will therefore be equally true to say that the bankrupt has no interest in the proceedings.”
24. Heath v. Tang was approved in this jurisdiction by the Supreme Court in A.A. v. B.A . [2017] 3 I.R. 498. That case concerned family law proceedings which were determined by the High Court and appealed by both sides to the Supreme Court. While the appeal was pending, B.A. was adjudicated bankrupt. The appeals were subsequently determined by the Supreme Court and thereafter, B.A. issued a motion to set aside both the judgment of the High Court and Supreme Court on grounds of bias. The court directed the trial of a preliminary issue as to whether B.A. as an undischarged bankrupt had l ocus standi to maintain the motion. The Official Assignee contended that since the judgments related only to B.A.’s property and not his person, he had no standing to maintain the motion. The Supreme Court determined that B.A. did not have locus standi and dismissed the motions.
25. In the course of her judgment, Laffoy J. referred to Heath v. Tang being subsequently considered by the High Court of New Zealand in De Alwis v. Luvit Foods International (unreported High Court of New Zealand Courtney J. 24th March, 2010) which in turn was considered by the High Court in Quinn v. IBRC [2012] IEHC 261. In De Alwis , counsel for the bankrupt submitted that allegations made in the proceedings against the bankrupt were of a quasi-criminal nature affecting the bankrupt’s personal rights and reputation and he should therefore be entitled as a personal right to set aside the judgment that made such findings against him. She approved the following passage from the judgment of Courtney J. which had also been cited with approval by Kelly J. (as he then was) in Quinn :
“[24] … Self-evidently, nearly all claims that result in a judgment enforceable against the estate will involve allegations of wrongdoing by the defendant. It would be a most surprising result if the principle articulated in Heath v. Tang were undermined merely by the fact that the proceedings in which the judgment debt was obtained included allegations of wrongdoing against the defendant. I would add that, even where the allegations of wrongdoing could otherwise be regarded as defamation, that fact alone would not change the position in this case where the complaint is about findings of the court, given that statements made in the course of legal proceedings are privileged.”
26. In Quinn , a third party claim for indemnity was brought in which serious allegations of dishonesty and conspiracy were made against Mr. Quinn. He delivered a full defence but before trial, he was adjudicated a bankrupt. The Official Assignee informed the court that it was not his intention to defend the claim. Mr. Quinn sought to defend the claim himself on the basis that the serious allegations against him personally brought the claim into the category of personal claim unaffected by the bankruptcy. Kelly J. rejected this argument saying (at p. 29)
“66. In my view, merely because the allegations against Mr. Quinn in the third party proceedings involve allegations of wrongdoing, does not remove the defence of such claim from the purview of the Official Assignee. Accordingly, I am of the opinion that this claim for damages against the estate of the bankrupt is not one of those personal claims which do not vest in the Official Assignee. The defence of such a claim is a matter for the Official Assignee. This position is not altered because the claim includes allegations of wrongdoing against Mr. Quinn. Insofar as this argument is concerned, therefore, I reject the entitlement of Mr. Quinn to represent himself further in this litigation.”
27. In the present case, the fact that allegations are made in the proceedings against Mr. Kennedy or by him which could be said to relate to his personal or professional reputation cannot of itself entitle Mr. Kennedy to litigate those issues as personal claims for the same reasons identified in De Alwis and Quinn . As previously noted, no claim in defamation has been made by Mr. Kennedy.
28. In his judgment in A.A. v B.A. Charleton J. discussed the exceptions to the rule that all causes of action in favour of the bankrupt vest in the Official Assignee (at p. 552):
“[96] On the positive side of the scale, in terms of what actions may be instituted or continued by a bankrupt notwithstanding the bankruptcy, a limited exception to the principle of disenabling any further action by the bankrupt survives, allowing the bankrupt to take proceedings in his own name. These exceptions are personal injury actions, as where the bankrupt was injured in a road traffic or workplace accident either before or after the bankruptcy or where the bankrupt has been attacked physically, as in assault or false imprisonment. In addition, it seems, a bankrupt may defend his character if he has been defamed. A bankrupt may also be personally liable for contempt against court proceedings and may be arrested and charged in the usual way if he is accused of having committed criminal offences. Counsel on behalf of B.A. referred in argument to the possibility of taking a race discrimination case. This, it has been recognised in England and Wales, can be an exception because the injury is to the person of the bankrupt as opposed to the trading name of his estate. Alternatively, the claim may be a hybrid of both: see Khan v. Trident Safeguards Ltd. [2004] EWCA Civ 624 , [2004] IRLR 961 “
29. Charleton J. cited with approval a number of passages from the judgment of Aldous L.J. in Ord v. Upton [2000] Ch. 352 which was a medical negligence claim against a doctor claiming damages for pain and suffering and a claim on the same ground for loss of earnings. Such a hybrid claim was held by the court to be under the control of the trustee in bankruptcy and not under the control of the injured party. Aldous L.J. put the matter thus at p. 361:-
“In modern parlance [the bankrupt’s] claim is a single cause of action. However, I cannot accept [counsel for the bankrupt’s] submission that the cause of action is personal. It is a claim for damages for injury to his body and mind and also his capacity to earn and can therefore be considered as a ‘hybrid’ claim, in part personal and in part relating to property. I have come to the conclusion that such an action vested in the trustee. It would only have remained with Mr. Ord if it fell within an exception established by the authorities to be excluded from the definition of property now found in section 436 of the [Insolvency Act 1986]. To do so it must relate only to a cause of action personal to the bankrupt. All causes of action which seek to recover property vest in the trustee whether or not they contain other heads of damage to which the bankrupt is entitled. The authorities … lead to that conclusion.”
30. And further at p.553:
“The authorities are only consistent with the conclusion that the trustee is entitled to the damages for past and future loss of earnings and is not entitled to the damages for pain and suffering. As there is a single cause of action, it vested in the trustee. There is in my view nothing in that conclusion which imposes practical difficulties with which the law cannot deal. The trustee as constructive trustee would have to account to the bankrupt for the property which he obtained inadvertently or by arrangement in an action which vested in him for the benefit of the creditors. The idea that the cause of action should vest in the bankrupt would not be acceptable and compulsory joinder of both could lead to difficulties when the claim for loss of earnings was small compared with the potential costs of the litigation. In such a case the trustee, if the cause of action vested in him, would have to consider carefully his duty to the bankrupt and would probably, if requested, assign the cause of action to him.”
Discussion
31. Applying these principles to the facts of the present case, it is clear that the Bank’s claim for the residual debt subsisting after realisation of its security is a claim which can only be dealt with by the Official Assignee who has already unequivocally stated his position on at least three separate occasions.
32. With regard to Mr. Kennedy’s counterclaim, it is evident from the analysis above that the primary, and perhaps only, complaint of Mr. Kennedy is in relation to damage to his practice with consequent loss to him. That loss can only be financial loss in terms of loss of earnings or loss of profits, however it might be characterised. Either way it seems to me that this is a loss which, if proven, is a loss to his estate which undoubtedly vests in the Official Assignee.
33. Although there is no explicit claim for damages for either defamation or personal injuries, insofar as one could be implied from the terms of the counterclaim, it would at best elevate the counterclaim to the status of a hybrid claim similar to that arising in Ord v Upton . Indeed Mr. Kennedy in the course of oral submissions explicitly conceded that the claim is a hybrid claim – see Transcript Day 3 see P 33 – 34. As De Alwis and Quinn v. IBRC show, the mere fact that allegations of personal impropriety or wrongdoing on the part of the bankrupt are made cannot, without more, cause the claim to be regarded as one personal to the bankrupt. It is equally true to say that claims by the bankrupt to have suffered reputational damage leading to financial loss are either claims against his estate solely or hybrid claims, both of which remain under the exclusive control of the Official Assignee.
34. In the course of his oral submissions, Mr. Kennedy contended that if the law were to be construed so as to prevent him from litigating his counterclaim, this would amount to a breach of his rights under the Charter of Fundamental Rights of the European Union and Article 6 of the European Convention on Human Rights. He sought to distinguish A.A. v. B.A. on the grounds that, by virtue of the State’s shareholding in the plaintiff, it ought to be regarded as an emanation of the State.
35. Article 47 of the Charter provides:
“Everyone whose rights and freedoms guaranteed by the law of the Union are violated has the right to an effective remedy before a tribunal in compliance with the conditions laid down in this Article.
Everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal previously established by law.
Everyone shall have the possibility of being advised, defended and represented.
Legal aid shall be made available to those who lack sufficient resources in so far as such aid is necessary to ensure effective access to justice.”
36. Article 52 of the Charter provides, inter alia , that insofar as it contains rights which correspond to rights under the ECHR, the rights under the Charter shall be the same as those in the Convention.
37. Article 6 of the ECHR was considered in the context of bankruptcy proceedings by the European Court of Human Rights in Luordo v. Italy (app. No. 32190/96) (judgment of 17th October, 2003). In that case, the applicant was the subject of a bankruptcy order that continued in force for fourteen years and eight months. The ECtHR found this violated both Articles 1 and Article 6 of the Convention. The court considered that the length of time involved constituted an unreasonable restriction on the applicant’s ability to deal with his property and that the necessity to restrict the applicant’s rights to achieve a legitimate aim of protecting creditors would diminish over time. The court found that (at para. 70):
“…the length of the proceedings does upset the balance that had to be struck between the general interest in securing the payment of the bankrupt’s creditors and the applicant’s personal interest in securing the peaceful enjoyment of his possessions. The interference of the applicant’s right was accordingly disproportionate to the aim pursued.”
38. In the subsequent case of Campagnano v. Italy (app. No. 77955/01) (judgment of 3rd July, 2006) the ECtHR held that a delay of three years and eight months did not upset the balance referred to in Luordo .
39. In A.A. v. B.A. , the bankrupt advanced the argument that his rights under Article 6 had been infringed. This was dealt with in the judgment of Charlton J:
“[104]…it is asserted on behalf of B.A. that there is some kind of personal entitlement once any issue of fair procedures is raised to access the courts despite the opposition of the Official Assignee and to proceed to try an issue that concerns the estate. That cannot be correct. In virtually any case which goes to plenary hearing multiple questions as to fair procedures or the admission or exclusion of evidence might conceivably be raised. Where there is a genuine issue which has had a real effect on the outcome of a case, the rights of a potential litigant are not lost. Instead, it is for the Official Assignee to assess whether a substantial point has been raised which will have the probable effect of increasing the estate in bankruptcy. If such a prospect is genuine, and fact based, it is for the Official Assignee to consider pursuing it. In the event of disagreement, an application can be made to the High Court, as it was made in this case. In so far as it is contended that rights under article 6.1 of the European Convention on Human Rights will be infringed through some form of denial to ‘a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law’, those rights remain to be exercised through the sensible filter of the Official Assignee and subject to the direction of the High Court.”
Citing the Luordo judgment, Charlton J. referred to the fact that the lapse of over fourteen years was considered disproportionate on its particular facts.
40. A Luordo argument was advanced in Bank of Ireland v. O’Donnell [2015] IEHC 640 and was rejected by Costello J.:
“27. It is quite clear that the limitation on a bankrupt’s right to litigate of itself does not infringe the provisions of Article 6(1) of the Convention. Luordo is authority for the proposition that if the restriction on the right continues for a very long period of time that it may become unlawful. It was not suggested by the defendants that the restriction on their right to litigate personally had become unlawful because of the duration of their bankruptcy. This is not surprising given the fact that the date of adjudication was 3rd September, 2011. It could not be said in all the circumstances that the restriction was disproportionate to the aim as set out in the judgment of the Court in Luordo “.
A similar argument was rejected by Kelly J. in Quinn v. IBRC on the basis that the issue of delay in Luordo did not have any relevance in Quinn . An argument that s. 85 of the Bankruptcy Act, 1988 was unlawful under the Constitution and the ECHR was rejected by the High Court (Laffoy J.) in Grace v. Ireland [2007] IEHC 90.
41. Insofar as Mr. Kennedy’s argument is concerned, it seems to be confined to the simple contention that the fact that he is unable to ventilate his claim is somehow unfair to him. He does not suggest that there was an excessive delay nor do I believe he could in circumstances where having been adjudicated on the 18th June, 2012, he was discharged from bankruptcy by operation of law on the 18th June, 2015. There is in my opinion no doubt that Mr. Kennedy’s counterclaim, as a thing in action, vested in the Official Assignee on the date of his adjudication and on that date, Mr. Kennedy lost the right to deal with his property which included his counterclaim. That is an incident of his bankruptcy which afforded him protection from his creditors. Although Mr. Kennedy did not make direct complaint about it, it is perhaps worth noting that he was the recipient of legal aid, somewhat belatedly applied for in 2018, but he chose to discharge his legal team in advance of the hearing of this application.
Conclusion
42. For these reasons therefore, I am satisfied that the Official Assignee is the only party entitled to either defend the Bank’s proceedings or to pursue the counterclaim and I will discuss further with the parties the consequential orders to be made following this determination.