Corporate Identity
Irish Cases
The Roundabout Ltd. v. Beirne and Others
[1959] 1 I.R. the plaintiff was a newly formed company, incorporated by persons who had fired employees. The High Court held that the former employees were not entitled to picket the premises as they were not in dispute with the plaintiff. Dixon J. wrote
That company has ceased to carry on business in these premises, and the only question in this case is whether the trade dispute survives as against the new company which has been formed and which has taken a lease of the premises from the Marian Park Inn Company. The trade dispute still exists with what I may call the old company, and the question is whether the Union can avail itself of that dispute for the purpose of picketing the premises which are now occupied, and in which business is now carried on, by the new company.
The new company is in law a distinct entity, as is the old company. Each company is what is known as a legal person. I have to regard the two companies as distinct in the same way as I would regard two distinct individuals. I must therefore proceed on the basis that a new and different person is now in occupation of the premises and carrying on business there.
It has been suggested and there is some basis for the suggestion that the new company was formed for the purpose of getting rid of the trade dispute and also of enabling the employment of Union staff to be dispensed with. There is considerable substance in that suggestion. I think that it is quite permissible to describe the formation of the new company as a subterfuge a legal subterfuge to put an end to the trade dispute and enable the business to be carried on without the inconvenience of being subject to the picket. To this description there are two qualifications: first, that even though the formation of the new company may be a subterfuge, the question I have to decide is not ruled by that; the question which I must determine is whether it is a successful subterfuge, capable of effectually achieving its purpose. The second qualification is that I do not think that the sole, or possibly even the primary, purpose of the formation of the new company was to get rid of the trade dispute. I think that there was a genuine idea of getting new blood into the business and a genuine idea of the business eventually being taken over in some way by which the Morans would cease to have a substantial interest, and might possibly cease to have any interest in the premises or business.
Allied Irish Coal Supplies Ltd. v. Powell Duffryn Intl. Fuels Ltd.
[1998] 2 I.R. 519 Murphy J. wrote in a unanimous Supreme Court decision
“The corner stone of company law was put in place just one hundred years ago by the decision of the House of Lords in Salomon v. Salomon & Co. [1897] A.C. 22. Not merely did that case decide that a company incorporated under the Companies Acts is a legal entity separate from its promoters or members, but it was recognised that this was so, even though the company was incorporated for that purpose and with the result that the distinction operated to the manifest detriment of those dealing with the company in the ordinary course of its business. It is sometimes helpful to recall (as Barrington J. did in IPBS v. Cauldwell [1981] I.L.R.M. 242) that in laying down this principle, the House of Lords unanimously reversed the decision of the Court of Appeal, likewise unanimous, which had utterly condemned the conduct of Mr. Salomon and his family for the way in which they had incorporated and operated the family enterprise. Had not the pertinacious Mr. Salomon mounted his appeal, and that in forma pauperis,to the House of Lords, the nature of the relationship between a company and its promoters would have remained as it had been described by Lopes L.J. in the Court of Appeal ( Broderip v. Salomon [1895] 2 Ch. 323 at p 340):-
“The incorporation of the company was perfect – the machinery by which it was formed was in every respect perfect, every detail had been observed; but, notwithstanding, the business was, in truth and in fact, the business of Aron Salomon; he had the beneficial interest in it; the company was a mere nominis umbra,under cover of which he carried on his business as before, securing himself against loss by a limited liability of£1 per share, all of which shares he practically possessed, and obtaining a priority over unsecured creditors of the company by the debentures of which he had constituted himself the holder. It would be lamentable if a scheme like this could not be defeated. If we were to permit it to succeed, we should be authorizing a perversion of the Joint Stock Companies Acts. We should be giving vitality to that which is a myth and a fiction. The transaction is a device to apply the machinery of the Joint Stock Companies Act to a state of things never contemplated by that Act – an ingenious device to obtain the protection of that Act in a way and for objects not authorised by that Act, and in my judgment in a way inconsistent with and opposed to its policy and provisions. It never was intended that the company to be constituted should consist of one substantial person and six mere dummies, the nominees of that person, without any real interest in the company. The Act contemplated the incorporation of seven independent bona fide members, who had a mind and a will of their own, and were not the mere puppets of an individual who, adopting the machinery of the Act, carried on his old business in the same way as before, when he was a sole trader. To legalise such a transaction would be a scandal.”
There are some decisions, particularly in other jurisdictions, and much academic writing which would seem to advocate a restriction of the principles so clearly established by the House of Lords in Salomon and perhaps indicate a wish to resuscitate the views so trenchantly expressed by Lopes L.J. However, I am in complete agreement with the comments made by the learned trial judge in the present case when she said at p. 528:-
“While not expressing any general view on the scope of the principle on which the plaintiff relies, in my view, it cannot be utilised to render the assets of a parent company available to meet the liabilities of a trading subsidiary, to a party with whom it has traded. The proposition advanced by the plaintiff seems to me to be so fundamentally at variance with the principle of separate corporate legal personality laid down Salomon v. Salomon & Co. [1897] A.C. 22, and the concept of limited liability, that it is wholly unstateable.”
Counsel for the defendant sought in argument in this Court, and in the High Court to distinguish the facts of the present case and those in Power Supermarkets Ltd. v. Crumlin Investments Ltd. (Unreported, High Court, Costello J., 22nd June, 1981). There is little difficulty in making such a distinction. In that case Costello J. drew attention to the fact that apart from its initiation, the company in respect of which it was proposed that the corporate veil should be pierced, no meeting of the board had ever been held. There had been no meeting of shareholders. The supermarket, the subject matter of the case, had been purchased without any approval of any meeting of the board of directors and no meeting thereof was ever held to make decisions on trading or commercial matters. In fact the stock sold by the company was purchased not by the directors as such, but by a panel of the Dunnes Stores Group who apportioned liability for purchases to each trading company in the group to whom the goods were invoiced. In the instant case there was, as I have pointed out, a very substantial business carried on by the employees of the defendant who reported to monthly meetings of the board of that company. However, apart from the distinctions which may be drawn between this and other cases, the crucial feature of Power Supermarkets Ltd. v. Crumlin Investments Ltd. is that Costello J. did not purport to question the authority of Salomon v. Salomon & Co. [1897] A.C. 22. Indeed no reference was made to that case in the course of his judgment nor, as far as I am aware, the argument on which it was based. Again it is clear from the judgment in Rex Pet Foods Ltd. v. Lamb Brothers (Ireland) Ltd. (Unreported, High Court, Costello J., 5th December, 1985) that Costello J. had not intended in Power Supermarkets Ltd. v. Crumlin Investments Ltd. to lay down any revolutionary principle of law.
Subsidiaries, whether wholly or partially owned or controlled by the parent, are a well established feature of our company law. Section 155 of the Companies Act, 1963, defines or identifies a subsidiary company. Sections 150 to 154 deal with the circumstances in which companies may be required to produce not merely annual accounts in relation to their own affairs but “group accounts” which are required to give “a true and fair view of the state of affairs and profit or loss of the company a nd the subsidiaries dealt with thereby as a whole . . .”
The fact that the activities of subsidiaries may be reflected in the accounts of the group, show the extent to which the legislature recognised how companies trading in this way may require to be viewed as an economic entity, but there is no question of that legislation making the assets of one company within the group, liable for the debts of another. Such a consequence could operate very unjustly to persons dealing, as they would be entitled to do, with any member of the group as a separate legal entity.
Whilst it would be impossible to say that there are no circumstances in which the members of a company, whether corporate or individual, could not conduct, or purport to conduct the business of a company in such a way as to render their assets liable to meet claims in respect of the business nominally carried on by the company, I believe that this would be an altogether exceptional state of affairs and difficult to reconcile with the seminal judgment in Salomon v. Salomon & Co. [1897] A.C. 22. Moreover if it were sought to make this case, it would have to be presented in circumstances in which creditors having conflicting claims on the assets of the different companies involved would have an opportunity of being heard. Apart from the inherent difficulty in sustaining the case, it seems to me that the joinder of the plc. for the purpose of seeking the relief which it is proposed to claim, could operate as an injustice not merely to the existing defendant, but also to creditors or other persons interested in the assets and activities of the intended defendant.
For these reasons too, I believe the learned trial judge was correct in refusing the application.
Fyffes plc v. DCC plc
[2009] 2 I.R. 488 Laffoy J. wrote
It has been a fundamental principle of Irish company law since the decision of the House of Lords in Salomon v. Salomon & Co. [1897] A.C. 22 that a company registered under the Companies Acts is an artificial legal entity separate and distinct from the members, whether natural or corporate persons, of which it is composed. The authorities relied on by the plaintiff in support of the agency argument and the single entity argument and those cited by the defendants to controvert the propositions advanced by the plaintiff and other authorities in which it was sought to make inroads into the principle enunciated inSalomon, in some cases successfully and in other cases unsuccessfully, are reviewed in Keane on Company Law (3rd ed.) in chapter 11. I propose starting the analysis of the submissions and the authorities by quoting the following summary of the law in this jurisdiction contained in para. 11.64, which I have found helpful in anchoring the multitude of concepts which are encountered in the authorities – agency, trust, lifting the veil of incorporation, piercing the corporate veil, single economic unit, single entity, commercial reality and so forth – in fundamental principle:-
“From this welter of conflicting decisions, the following principles may be extracted with some hesitation:
(1) The rule in Salomon’s case is still the law. The company and its shareholders are separate legal entities and the courts normally cannot infer from the degree of control exercised by the shareholder a relationship of principal and agent or beneficiary and trustee between the shareholders and the company.
(2) The courts, however, will not permit the statutory privilege of incorporation to be used for a fraudulent, illegal or improper purpose. Where it is so misused, the court may treat the company thus incorporated as identical with its promoters.
(3) In certain cases, where no actual misuse of the privilege of incorporation is involved, the courts may nonetheless infer the existence of an agency or a trust if to do otherwise would lead to injustice or facilitate the avoidance of tax liability.
(4) In the case of a group of companies, the court may sometimes treat the group as one entity, particularly where to do otherwise would have unjust consequences for outsiders dealing with companies in the group.
(5) The rule in Salomon’s case does not prevent the court from looking at the individual members of the company in order to determine its character and status and where it legally resides.”
[155] Before considering the authorities and the manner in which they were relied on by the parties, I think it is useful to ask what the plaintiff is endeavouring to achieve by advancing the agency argument and the single entity argument. Counsel for the defendants suggested that it was an attempt to make the assets of one company in a group of companies available to meet the debts or liabilities of other companies in the group. That, in my view, is not a proper characterisation of the propositions advanced by the plaintiff. The plaintiff did not contend that there was a factual basis for saying that Lotus Green was in reality DCC or that Lotus Green was thealter ego of DCC, so as generally to render Lotus Green’s assets liable to meet the liabilities of DCC or for all purposes. In broad terms, the plaintiff’s contention was that, against the factual background which existed in relation to the companies within the DCC Group at the date of the Share Sales, Part V should be applied so as to prevent the statutory remedy available under s. 109(1) being rendered ineffective.
[156] At the risk of unnecessary repetition, it is instructive to re-state the key points of the defendants’ defence on the dealing issue. The defendants admitted that Lotus Green dealt and that a profit accrued to Lotus Green, but denied that the dealing was unlawful. The defendants admitted that DCC and S&L dealt but contended that the dealing was not precluded by virtue of s. 108(9) and that, in any event, no profit accrued to those companies. The defendants denied that Mr. Flavin dealt and contended that, in any event, no profit accrued to Mr. Flavin.
[157] The plaintiff directed the agency argument and the single entity argument towards the defendants’ contention, which counsel for the plaintiff described as being both highly technical and fortuitous, that DCC and S&L did not make a profit, a state of affairs which, in the context of these proceedings, counsel for the plaintiff described as “pure happenstance”. The essence of the agency argument and the single entity argument, as I understand the plaintiff’s submissions, is that, because of the factual circumstances which prevailed, the act of Lotus Green in selling the shares and thereby making a profit was the act of DCC or, alternatively, should be treated as such. Further, the profit generated was DCC’s or should be treated as such. If DCC was precluded from dealing, for example, by virtue of s. 108(6), Lotus Green was similarly restricted. Therefore, Lotus Green is liable to account for the profit under s. 109. Justice and equity require that the provisions of Part V be applied in this manner.
[158] In support of the agency argument, the plaintiff relied on the decision of the English High Court in Smith, Stone & Knight v. Birmingham Corpn. [1939] 4 All E.R. 116, which it was contended has been adopted in, and is still part of the law, of this jurisdiction. The issue in that case was whether a holding company, which was the owner of property which was compulsorily acquired, was entitled to compensation for disturbance in relation to the business carried on in the property by a subsidiary. Atkinson J. held that the subsidiary was carrying on business as agent of the holding company, not on its own behalf, and that, accordingly, the holding company was entitled to compensation for disturbance. He identified six points which were deemed relevant for the determination of the issue as to who was really carrying on the business in earlier authorities. As is pointed out in Keane on Company Law (3rd ed.) (para. 11-38), if an agency were to be inferred in every case where those points or criteria were met, a significant number of subsidiaries would have to be treated as agents of their holding companies.
[159] The plaintiff also relied on the decision of the Court of Appeal in Northern Ireland in Munton Bros. Ltd. v. Secretary of State [1983] N.I. 369, in which Smith, Stone & Knight v. Birmingham Corpn. [1939] 4 All E.R. 116 was followed. That case concerned a claim for compensation under the Criminal Injuries Acts (North Ireland) 1956 to 1970 by a parent company and two subsidiaries arising out of the destruction of the factories occupied by the subsidiaries by terrorist explosions. The issue for the Court of Appeal was whether compensation was payable for consequential loss suffered by the parent company as a result of compensateable damage caused to the property of its wholly owned subsidiaries. Having reviewed a number of authorities, including the judgment of Atkinson J. in Smith, Stone & Knight and a judgment of Lord Denning M.R. in D.H.N. Ltd. v. Tower Hamlets [1976] 1 W.L.R. 852, which was also followed, Lord Lowry L.C.J., stated as follows at p. 376:-
“So, in the present case, one can – and, in my opinion, should – say that the subsidiaries were acting as the alter ego, or alternatively as the agents (it scarcely matters which), of [the parent company]: then the original corporate entity emphasised by Salomon v. Salomon & Co. [1897] A.C. 22 yields to the group entity. Derogatory words like ‘façade’ have been used to describe this result, but this can be misleading because, as we have seen, the ‘realities’ doctrine has been applied in favour of an enterprise as well as against it.”
[160] Lord Lowry quoted two passages from a Canadian judgment, Nedco Ltd. v. Clark (1973) 43 D.L.R. (3d) 714. The second passage, at p. 721, on which counsel for the plaintiff laid particular emphasis, was as follows:-
“After reviewing the foregoing, and many other cases, the only conclusion I can reach is this: while the principle laid down in Salomon v. Salomon & Co. [1897] A.C. 22, is and continues to be a fundamental feature of Canadian law, there are instances in which the court can and should lift the corporate veil, but whether it does so depends upon the facts in each particular case. Moreover, the fact that the court does lift the corporate veil for a specific purpose in no way destroys the recognition of the corporation as an independent and autonomous entity for all other purposes.”
[161] It is generally accepted that the advent of the single corporate entity principle in this jurisdiction was in the decision of this court in Power Supermarkets Ltd. v. Crumlin Investments Ltd. (Unreported, High Court, Costello J., 22nd June, 1981). The issue in that case was whether the first defendant could avoid being liable to the plaintiff on foot of a covenant in a lease of a unit in the shopping centre to the plaintiff, which restricted the use of the remainder of the shopping centre in a particular manner, by conveying the freehold in another part of the shopping centre to another company, Dunnes Stores (Crumlin) Limited, which, like the first defendant, was controlled by the Dunne family and which had commenced trading in that part in a manner restricted by the covenant. Costello J. referred to Smith, Stone & Knight v. Birmingham Corpn. [1939] 4 All E.R. 116 and also to D.H.N. Ltd. v. Tower Hamlets [1976] 1 W.L.R. 852. He went on to say at pp. 8 and 9:-
“It seems to me to be well established from these as well as from other authorities … that a court may, if the justice of the case so requires, treat two or more related companies as a single entity so that the business notionally carried on by one will be regarded as the business of the group, or another member of the group, if this conforms to the economic and commercial realities of the situation. It would, in my view, be very hard to find a clearer case than the present one for the application of this principle. I appreciate that Crumlin Investments is a property owning not a trading company but it is clear that the creation of the new company and the conveyance to it of the freehold interest in a unit in the shopping centre were means of carrying out the commercial plans of the Dunne family in the centre. The enterprise had a twofold aspect (a) the creation of a new retail outlet for the Dunnes Stores Group in the shopping centre and (b) the enhancement of the rents in the centre as a whole which the creation of such an outlet would hopefully produce. To treat the two companies as a single economic entity seems to me to accord fully with the realities of the situation. Not to do so would involve considerable injustice to the plaintiffs as their rights under the covenant might be defeated by the mere technical device of the creation of a company with a £2 issued capital which had no real independent life of its own. If it is established that the covenant is breached there should in my opinion be an injunction against both defendants.”
[162] It is pointed out in Keane onCompany Law (3rd ed.) at para. 11.53 that the general proposition set out at the beginning of that passage was subsequently approved of by the Supreme Court in Re Bray Travel Limited (Supreme Court, 13th July, 1981) and may be treated as representing the law in Ireland. However, it is recorded there that the decision of the Supreme Court was on an interlocutory application in which no written judgments were delivered and it is suggested that may be of somewhat doubtful value as an authority. The commentary in para. 11.53 suggests that the general proposition may state the law too widely; that the “justice of the case” is a somewhat elusive concept and it is extremely difficult to predict with anything approaching certainty how it might or should be applied in specific cases.
[163] Despite the foregoing comments, and developments in the United Kingdom to which I will refer later, there has been a general acceptance of the principle established in Power Supermarkets Ltd. v. Crumlin Investments Ltd. (Unreported, High Court, Costello J., 22nd June, 1981) in this jurisdiction. The plaintiff referred to the decision of this court (Murphy J.) in Lac Minerals Ltd. v. Chevron Mineral [1995] 1 I.L.R.M. 161 and, in particular, to the following statement of the principle by Murphy J. at p. 187:-
“However, the fact that the corporate veil may be lifted in the sense that the acts of one corporate body may be treated as those of another is now well established within this jurisdiction. It is clear from the decisions in Power Supermarkets Ltd. v. Crumlin Investments Ltd. (Unreported, High Court, Costello J., 22nd June, 1981) … and the decision in The State (McInerney) v. Dublin County Council [1985] I.R. 1. In the latter case Carroll J. laid down the following principle at p. 1:- “
‘In my opinion the corporate veil is not a device to be raised and lowered at the option of the parent company or group. The arm which lifts the corporate veil must always be that of justice. If justice requires, as it did in D.H.N. Ltd. v. Tower Hamlets [1976] 1 W.L.R. 852, the courts will not be slow to treat a group of subsidiary companies and their parent company as one.’
In addition to the broad requirement of justice, it is clear that in both of the cited cases the allegation was that the affairs of associated companies were being carried on in such a manner that the decisions of one body corporate were dominated by the other so that there was no reality in the distinction between them. These two ingredients are required, first, the factual identification of the acts of one body corporate with those of another and, secondly, the requirement that justice would be served only if the court ignores the distinction between the separate corporate entities.”
In my view, there is little practical guidance to be obtained from the application of the principle in that case. The proceedings had been preceded by an arbitration, as a result of which, by implication, all of the parties had accepted the identification of the affairs of two corporate parties. Murphy J., in effect, held that the parties could not resile from that position in the proceedings; none of them was entitled to rely upon the objective legal reality of the distinctive corporate personality of each of the companies.
[164] The Supreme Court considered the judgment of Costello J. in Power Supermarkets Ltd. v. Crumlin Investments Ltd. (Unreported, High Court, Costello J., 22nd June, 1981) in Allied Irish Coal Supplies Ltd. v. Powell Duffryn Intl. Fuels Ltd. [1998] 2 I.R. 519. In that case, the plaintiff had invoked the single corporate entity principle in support of an application to join the parent company as a co-defendant in an action against a wholly owned subsidiary, the objective of which was to have recourse to the assets of the parent, if successful. In the Supreme Court, Murphy J., on the facts, distinguished the relationship between the defendant and the parent company from the relationship between Crumlin Investments Ltd. and Dunnes Stores (Crumlin) Ltd. in Power Supermarkets Ltd.. He went on to say at p. 536:-
“However, apart from the distinctions which may be drawn between this and other cases, the crucial feature of Power Supermarkets Ltd. v. Crumlin Investments Ltd. is that Costello J. did not purport to question the authority of Salomon v. Salomon & Co. [1897] A.C. 22. Indeed no reference was made to that case in the course of his judgment nor, as far as I am aware, the argument on which it was based. Again it is clear from the judgment in Rex Pet Foods Ltd. v. Lamb Brothers (Ireland) Ltd. (Unreported, High Court, Costello J., 5th December, 1985) that Costello J. had not intended in Power Supermarkets Ltd. v. Crumlin Investments Ltd. to lay down any revolutionary principle of law.”
[165] The thrust of the defendants’ response to the agency argument and the single entity argument put forward by the plaintiff was that the value of the decisions inSmith, Stone & Knight Ltd. and Power Supermarkets Ltd. as authorities requires to be reassessed in the light of the decision of the Court of Appeal in Adams v. Cape Industries plc [1990] Ch. 433. In that case, three main submissions, which in the judgment of Slade L.J., speaking for the court, were dubbed “the single economic unit” argument, “the corporate veil” argument and “the agency argument”, were advanced in support of a proposition that Cape Industries plc, an English company, was present in the United States of America when default judgments were obtained against it in a court in that jurisdiction in actions for damages for personal injuries alleged to have been suffered as a result of exposure to asbestos dust. The proceedings in England were to enforce the default judgments.
[166] In his judgement Slade L.J. reviewed three of the decisions which Costello J. identified inPower Supermarkets Ltd. as authorities for the principle which he stated: Harold Holdsworth & Co. (Wakefield) Ltd. v. Caddies [1955] 1 W.L.R. 352; Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] A.C. 324; and D.H.N. Ltd. v, Tower Hamlets [1976] 1 W.L.R. 852. In the context of the “single economic unit” argument he stated as follows at p. 536:-
“It is not surprising that in many cases such as Harold Holdsworth & Co. (Wakefield) Ltd.…, Scottish Co-operative Wholesale Society Ltd. v. Meyer …, …, the wording of a particular statute or contract has been held to justify the treatment of parent and subsidiary as one unit, at least for some purposes. The relevant parts of the judgments in D.H.N. Ltd. v. Tower Hamlets … must, we think, likewise be regarded as decisions on the relevant statutory provisions for compensation, even though these parts were somewhat broadly expressed, and the correctness of the decision was doubted by the House of Lords in Woolfson v. Strathclyde Regional Council [1978] S.L.T. 159
Having stated that counsel for the plaintiff had described the theme of all of the cases he referred to as being that, where legal technicalities would produce injustice in cases involving members of a group of companies, such technicalities should not be allowed to prevail, Slade L.J. stated that the court did not think that the cases relied on went nearly so far as that. He continued:-
“As [counsel for the defendants] submitted, save in cases which turn on the wording of particular statutes or contracts, the court is not free to disregard the principle of Salomon v. Salomon & Co. [1897] A.C. 22 … merely because it considers that justice so requires. Our law, for better or worse, recognises the creation of subsidiary companies which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities.”
[167] Later, at p. 539, in dealing with the “corporate veil” argument, Slade L.J. recognised the “cases where statute or contract permits a broad interpretation to be given to references to members of a group of companies”. He went on to deal with an argument advanced on behalf of the plaintiff that the court will lift the corporate veil where a defendant by the device of a corporate structure attempts to evade such rights of relief as third parties may in the future require, stating at p. 544:-
“… we do not accept as a matter of law that the court is entitled to lift the corporate veil as against a defendant company which is the member of a corporate group merely because the corporate structure has been used so as to ensure that the legal liability (if any) in respect of particular future activities of the group (and correspondingly the risk of enforcement of that liability) will fall on another member of the group rather than the defendant company. Whether or not this is desirable, the right to use a corporate structure in this manner is inherent in our corporate law. [Counsel for the plaintiff] urged on us that the purpose of the operation was in substance that Cape would have the practical benefit of the group’s asbestos trade in the United States of America without the risks of tortious liability. This may be so. However, in our judgment, Cape was in law entitled to organise the group’s affairs in that manner and … to expect that the court would apply the principle of Salomon v. Salomon & Co. [1892] A.C. 22 … in the ordinary way.”
[168] As was pointed out by counsel for the defendants, there are echoes of the remarks of Slade L.J. about the effect of Salomon v. Salomon & Co. [1892] A.C. 22 in the short judgment of Barron J. in Allied Irish Coal Supplies Ltd v. Powell Druffryn Intl. Fuels Ltd. [1998] 2 I.R. 519 in the following passage at p. 538:-
“Of course a subsidiary company may be dependent upon its parent company as regards control, finance and operations. But none of that prevents it from being a separate legal entity. The whole concept of limited liability is to enable some part of a person’s affairs to be placed in a separate compartment. What is important is that having decided to carry out a business transaction by way of a particular legal entity, such transaction remains solely the legal and financial concern of that entity. There must, for example, be no suggestion that the benefit of a transaction will be taken by one company and the liabilities under the same transaction borne by another. It is legitimate for individual transactions to be carried out through the medium of a limited liability company. What is not legitimate is for the person in charge to pick and choose which companies shall obtain the benefit of a transaction, only when that transaction has been completed or is under way.”
[169] The defendants submitted that in Adams v. Cape Industries plc [1990] Ch. 433, the Court of Appeal carefully confined the possibility that a subsidiary might be the agent of its principal to cases where such an inference was factually justified. That seems to me to be correct. However, I do not think that the further submission made by the defendants that, in the light of the judgment of Slade L.J. in Adams, only evidence of an express agency agreement between the parties will suffice, is correct. In dealing with the single economic unit argument, Slade L.J. considered the significance of the relationship between the parent and the subsidiary in the following passage at p. 536:-
“In deciding whether a company is present in a foreign country by a subsidiary, which is itself present in that country, the court is entitled, indeed bound, to investigate the relationship between the parent and the subsidiary. In particular, that relationship may be relevant in determining whether the subsidiary was acting as the parent’s agent and, if so, on what terms.”
Later, in considering the agency argument, having identified the crucial question as being whether it could be fairly said that Cape’s business had been transacted by the subsidiary at or from an address in the state of Illinois, he stated at p. 545 that the question necessitated an investigation of the functions which the subsidiary performed and all aspects of the relationship between it and Cape.
[170] On the basis of the foregoing analysis of the pleadings, the submissions made by the parties, the authorities and commentary on the authorities, I have come to the following conclusions:-
(1) As a matter of law, Lotus Green may be regarded as having acted as the agent of DCC in relation to the holding and disposal of the shares in Fyffes, if to do otherwise would lead to an injustice. Whether it should be, depends on whether the inference is factually justified. This is to be determined having regard to all of the facts, including the nature of its interest in the shares, and the relationship between Lotus Green and DCC. The views of the human agents of the companies are not in any way determinative of the question.
(2) As a matter of law, Lotus Green and DCC may be treated as a single entity as regards the sale of the shares in Fyffes and the generation of the profit therefrom for the purpose of preventing the avoidance of the availability of an effective remedy under s. 109 and thus preventing an injustice to parties with a remedy under s. 109, if DCC is liable to account. It should be so treated if the plaintiff has established that:-
(a) an evidential basis exists for finding that, as regards the holding and disposal of the shares, to borrow the terminology used by Murphy J. in Lac Minerals Ltd. v. Chevron Mineral [1995] 1 I.L.R.M. 161, there was a factual identification of the acts of Lotus Green and DCC; and
(b) not to so treat the companies would allow the DCC Group to evade its obligations under Part V.
In relation to the point at (a), the plaintiff argued that the companies in the DCC Group could have, but did not in fact, arrange their affairs so as to ensure that factual identification did not take place. In relation to the point at (b), the plaintiff did not and, on the evidence could not, assert that the purpose of the incorporation of Lotus Green and the hiving off of the shares to it was to avoid liability under Part V. The sole objective was to mitigate the tax liability of the DCC Group. However, the reality of the situation is that by defending the plaintiff’s statutory claim on the basis that DCC made no profit from the sale of the shares, if DCC was precluded from dealing by virtue of s. 108(6) and Lotus Green was not, the DCC Group would effectively evade liability under s. 109, if the profit generated by Lotus Green on the Share Sales were not treated as the profit of DCC. To recognise this reality is to give a purposive meaning to Part V in the light of the Directive.
Samuel Shinkwin v Quin-Con Ltd and Nicholas Quinlan
1998 Nos. 122 and 152
Supreme Court
21 November 2000
[2001] 2 I.L.R.M. 154
(Nem. Diss.) (Keane CJ, Geoghegan and Fennelly JJ)
FENNELLY J
(Keane CJ and Geoghegan J concurring) delivered his judgment on 21 November 2000 saying: The present appeal concerns one principal issue namely, whether the second named defendant was correctly held liable to the plaintiff for serious injuries he sustained in an accident at the factory premises where he was employed by the first named defendant. The first named defendant was uninsured, had no assets and did not defend the claim. Hence the plaintiff’s wish to succeed against the second named defendant, the effective sole shareholder and controller of the first named defendant. The award was £304,000. The plaintiff lost several fingers in his right hand. Damages are not in issue on the appeal.
The plaintiff cross-appeals against the failure of the trial judge to find that he was employed by the second named defendant, an issue which does not arise if he succeeds on the principal issue.
The plaintiff was 20 years of age at the date of the accident, 3 August 1993. The first named defendant had a small factory making trophies near Clogheen, Co. Cork. He originally went to work for the defendants by way of work experience on a FAS training programme. He began working on assembling trophies but graduated to working on woodworking machines. He was put to work on the machine which caused his injury about eight months before the accident. It was an electric circular saw with a jig which had to be moved or adjusted from time to time. The plaintiff moved the jig while the saw was in *157 motion and while it was inadequately guarded. He had never been instructed to do otherwise. The jig shifted suddenly, as it was stiff. His right hand slipped and came in contact with the saw. He lost the index, middle and ring fingers and part of his thumb.
The learned trial judge found in favour of the plaintiff as against the first named defendant because the machine had no proper guard, or, if it did, the plaintiff was not instructed in its use. It was not seriously contested that, as found by the trial judge, the plaintiff received no training in the use of an admittedly dangerous machine and no warnings as to the dangers that were inherent in the work. In particular he was not warned to stop the circular saw before adjusting the jig.
As to the second named defendant, the trial judge held:
The plaintiff regarded the second named defendant as his boss. The second named defendant was in my opinion, or did in my opinion, owe a duty of care to the plaintiff as manager of the factory premises, and I am satisfied that he failed in that duty in that he failed to provide proper training for the plaintiff. He failed to warn the plaintiff of the dangers inherent in the work that he was obliged to do. He failed to ensure that the guard was at all times properly adjusted over the saw and he failed to ensure that the saw was switched off at all times when the jig was being moved.
Counsel for the second named defendant says that the fact he is virtually the sole owner of the business is not relevant. It does not impose a duty of care. The duty to provide a safe system and a safe place of work is an obligation imposed directly in law on the first named defendant as employer of the plaintiff. The decision, if allowed to stand, would open the door too wide and establish a new category or basis of liability for factory managers. A fellow employee is admittedly liable personally for any direct negligent act which causes injury in the work place. However, this case is different. The second named defendant must be regarded merely in the guise of manager. The faults attributed to him are mere acts of omission. Persons in such positions do not attract personal liability. He relied on the judgment of Barron J in the High Court in Sweeney v. Duggan [1991] 2 IR 274 and of this Court on appeal [1997] 2 IR 531.
Counsel for the plaintiff relies on the principle established in Donoghue v. Stevenson [1932] AC 562 that everybody owes a duty to exercise reasonable care not to cause injury to any person who should be regarded as his neighbour, i.e. anybody to whom he is in such a relationship of proximity that it is reasonably foreseeable that that other person may suffer injury as a result of his negligent acts. The first named defendant was not merely the sole effective shareholder of the plaintiff’s employer. He was also the effective and only manager. Counsel laid special emphasis on the complete control exercised by the second named defendant over the factory, which was the plaintiff’s workplace, and the plaintiff. He drew attention to the following passage from the judgment of Gannon J in Tulsk Co-operative Livestock Mart Ltd v. Ulster Bank Ltd High Court 1981 No. 3555P, 13 May 1983:
In every case in which a claim for damages is founded in negligence it is essential to examine the circumstances which bring the parties into relation with each other and in which the risks of reasonably foreseeable harm can be identified, and the extent to which each or either has control of the circumstances, with a view to determining what duty of care, if any, may exist, the nature and extent of the duty, and whether and to what extent there may have been a breach of duty of care….
In order to resolve this argument, I would take two points at opposite ends of a spectrum. On the one hand, a person might be the sole effective and controlling shareholder in a business run by a company but have no involvement in its day to day operations. He would have control of the company but not of the manner in which it conducted its operations. It is clear that such a person would not, without more, be responsible to employees injured by the negligent acts of the company and, in particular, the failure of the company to ensure that there was a safe system of work in operation in its factories. That would disregard the separate legal character of the company, the principle of limited liability and the rule in Salomon v. Salomon [1897] AC 22. Counsel for the plaintiff does not suggest otherwise.
On the other hand, any employee owes to his fellow employees a duty to exercise at least such care in the performance of his work that he does not cause direct injury to his fellow workers. An example, mentioned in the course of argument was the careless dropping of a hammer by one worker on the foot of another.
The second named defendant, it seems, falls between these two stools. He is the effective sole shareholder and effective day to day manager. I would reduce the issue to this: did he involve himself so closely in the operation of the factory and, in particular, in the supervision of the plaintiff as to make himself personally liable for any of the acts of negligence which injured the plaintiff?
The evidence discloses that the plaintiff dealt personally with the second named defendant from the beginning. It is true that the latter’s two sons were more physically active on the factory floor. The second named defendant was often absent from the premises. Nonetheless, it was the second named defendant who, about eight months before the accident, approached the plaintiff about using all the machines. He was always in and out of the machine area if the shop was busy, saw the plaintiff using the machine and the difficulties he had in moving the jig. He worked with the plaintiff on the machine on at least one *159 occasion. He repeatedly warned the employees, on his own evidence, that there was no insurance and was aware of a history of accidents that made it impossible to get insurance. He gave instructions about not playing football for the same reason. All of these factors, even though partially disputed by the plaintiff, demonstrate the intimate involvement of the second named defendant in the management of the factory and supervision of the plaintiff, in particular, and his consciousness of the danger of accidents. It is in this context that his concession, in cross-examination, that he was in undisputed control of the factory becomes significant.
McCarthy J in Ward v. McMaster [1988] IR 337 at p. 349 declared his unwillingness to ‘dilute the words of Lord Wilberforce …’. We are here concerned only with the first stage of the two stage test adopted by Lord Wilberforce in the passage from Anns v. Merton London Borough Council [1978] AC 728 at p. 751:
First, one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or
neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter….
The criterion of ‘control’ which is proposed in this case is not an addition to the test for the existence of proximity. The open textured language of Lord Wilberforce leaves wide scope for argument as to the character of ‘proximity or neighbourhood’. Clearly it involves more than a mere test of foreseeability of damage. The assessment of the relevance of control as well as its nature and degree will depend on the circumstances. O Dálaigh CJ in Purtill v. Athlone UDC [1968] IR 205 at p. 213 noted that ‘the defendants employees were in charge and control of the detonators…’ which caused injury to the plaintiff in that case. In my opinion some assessment of the element of control, in the sense of ‘control of the circumstances’, mentioned by Gannon J in the Tulsk case, is a useful guide to the decision as to the existence of a duty of care. A person cannot be held liable for matters which are outside his control. He will not be, as the defendant in Ward v. McMaster was not, in control of the plaintiff’s independent actions and should be responsible in law only for matters which are within his own control.
In my view, the second named defendant, on the particular facts of this case, placed himself in a relationship of proximity to the plaintiff. He had personally taken on a young and untrained person to work in a factory managed by him and personally put him to work upon a potentially dangerous machine over which he exercised control to the extent of giving some though completely inadequate instructions to the workers. He was bound to take appropriate steps to warn the plaintiff of such obvious dangers as failing to stop the *160 circular saw from revolving while adjusting the jig or to ensure that it was guarded. In his supervision and instruction of the plaintiff, he failed to do these things and was consequently negligent.
I do not think the decision in Sweeney is relevant, despite its superficial resemblance to the present case. The plaintiff was also the victim of an accident at the hands of an uninsured corporate employer operating, in that case, a quarry. He obtained a judgment against the company but this was unsatisfied and he was left to prove in the liquidation. He tried to fix the defendant, Duggan, with liability in a separate action on the basis that he was the principal shareholder as well as the quarry manager. The principal basis of the claim, however, was that Duggan should have seen to it that the company was insured. His failure to do so caused damage to the plaintiff, but the claim sounded in economic loss. In so far as the claim was made for damages for personal injury it was statute barred. It emerges clearly from the judgment of Murphy J on the appeal that the claim failed because the defendant, Duggan, could not be under a greater obligation to the plaintiff in respect of insurance than was the company, which was his employer. The plaintiff failed to establish that such a term should be implied into his contract of employment. Hence, his claim also failed against Duggan.
Here the plaintiff makes his claim directly in negligence against the second named defendant, not as employer or as shareholder but as a person who had placed himself by his own actions in such a relationship to the plaintiff as to call upon himself the obligation to exercise care.
It is not necessary, on the facts of the present case to express an opinion on the issue raised in the argument as to the potential exposure generally of factory managers to personal liability. Counsel for the defendant points to the serious implications, inter alia, for insurance and industrial relations of such liability. It may, however, be relevant to observe that there has never been any doubt as to the right of the employer to be indemnified by an employee who, in the course of his employment, negligently causes injury to another. (See McCarthy J in Sinnott v. Quinnsworth [1984] ILRM 523 at p. 537). Counsel for the plaintiff was prepared, if necessary, to cross that bridge. In the event, I find it unnecessary to do so, because of the special facts of the case.
In the light of what I have said, it is unnecessary also to decide whether, as the plaintiff asks, the plaintiff was employed by the second named defendant. I would dismiss the appeal.
Millstream Recycling Ltd v Tierney
[2010] IEHC 55
Judgment of Mr. Justice Charleton delivered on the 9th day of March, 2010.
1. On the 7th December, 2008, it became public knowledge that food used for fattening pigs at several locations in Ireland had become contaminated with dioxins. This entered their meat. It could not be safely eaten. The consequence was that thousands of animals were slaughtered and the reputation of Irish pork products was severely undermined. The plaintiff is a company that manufactured that food. In several newspaper articles that company, together with its principal shareholder, Richard Hogg, was blamed as the originator of these troubles.
2. The plaintiff owns an animal feed manufacturing plant. Pigs are more omnivorous than other animals. Consequently, recycled food left over from human consumption, has since they were first domesticated, tended to be used in fattening swine. Insofar as I understand it, the plant of the plaintiff collects bread and other food products from companies and restaurants and puts it through a process of refinement and drying. Part of this involves the food being sucked into a kind of moving heat process, or its by-products where there is alleged to be some contact between the fuel under combustion that drives the process and the ultimate product that the recycled food is being made into. It would seem that it was at this point that contaminants from oil used by the plaintiff and allegedly supplied by the defendants entered the food product, ultimately to be eaten by pigs which, in turn, are widely consumed by people here in Ireland and in places where our pork products and other agricultural foods are highly prized.
3. What I have said is preliminary. I have no entitlement to judge the facts because a trial has not yet taken place. The public dimension of what is at issue between the parties is, however, important in deciding the issues before me by way of five notices of motion. I will return to that in respect of two of the motions. The motions before me are:
(1) a motion by the plaintiff for third party discovery against the Garda Commissioner of papers related to the criminal investigation into this scandal, which I will deal with at the end of this decision;
(2) a motion by the second defendant to join O’Neill’s Fuels Limited as a third party. I have already dealt with this motion by granting a third party order;
(3) a motion by the first defendant that the case against him should be dismissed pursuant to the inherent jurisdiction of the Court to strike out the claims which have in reality no prospect of success;
(4) a motion by the first defendant for security for costs pursuant to s. 390 of the Companies Act 1963; and
(5) a motion by the second defendant to the same effect.
The Parties Now
4. The plaintiff has multiple creditors in consequence of this food contamination scandal. They are claiming, as against the company, a figure which was put in the affidavits at around €36 million, but which counsel tells me has now grown. A scheme of arrangement pursuant to s. 201 of the Companies Act 1963 has been proposed. It is already the subject of a judgment of Laffoy J. entitled In the matter of Millstream Recycling Ltd. and In the matter of the Companies Acts 1963 to 2009, and In the matter of an application by Millstream Recycling Limited pursuant to s. 201 of the Companies Act 1963 [2009] IEHC (Unreported, High Court, Laffoy J., 23rd December, 2009). Laffoy J. has ordered a meeting of the creditors who are pursuing claims on the basis of contaminated foodstuffs. A meeting of those connected to the company through common shareholders has also been arranged. There is €6.5 million to divide up, which is the limit of the plaintiff company’s insurance cover for this disaster. These meetings will take place on the 1st July, 2010, supposing that the litigation, of which this is part, is then concluded. If a two-thirds majority approve a scheme of arrangement then a petition seeking the sanction of the Court will be made returnable for the 19th July, 2010. In the meanwhile, all further sets of proceedings against the company are stayed.
5. The first defendant is a 75 year old man. He was a principal shareholder in the second defendant. It is claimed that the second defendant was used by him as a mere corporate veil and that it was not really a trading company. The second defendant has assets of €1.3million and current liabilities of €1.5 million, as of its last accounts. It carries no insurance in respect of the supply of products. It is therefore insolvent. The plaintiff claims against the first and second defendants that they are the source of the fuel used to manufacture the pig feed which was contaminated. They claim a particular reliance on the expertise of the first defendant. He is a solvent individual; though whatever wealth he has is unlikely to extend to the full amount of the claims made against the plaintiff, and for which they claim that he and the second defendant are responsible. They are said to be the source of the fuel that came into contact, in some way, with the recycled foodstuffs later ingested by thousands of pigs. In turn, the second defendant has joined O’Neill’s Fuels Ltd., as a third party. As part of their defence to these proceedings they say that they sourced this fuel from a reputable supplier, namely the third party, in circumstances where they neither knew, nor ought to have known that contamination would take place on contact with foodstuffs being recycled for pigs. As against this, the plaintiff claims a special relationship with the first defendant, one whereby they were relying on his expertise in sourcing appropriate fuel for their process in circumstances where the imposition of liability for negligent misstatement causing the damage complained of to the plaintiff can be established.
6. Prior to December 2008 the plaintiff company was trading successfully with about 16 employees and a good balance sheet. The principal of the company, Richard Hogg, had a number of companies prior to the incorporation of the plaintiff. They included Hogg’s Hoggs Ltd. and Millstream Power Ltd. The current plaintiff was incorporated on the 19th June, 2007. The first contact with the defendants came in October 2006, in consequence of a recommendation from a Mr. O’Connell. There is an affidavit from Mr. O’Connell in a form which calls out for requires its contents to be tested in oral evidence. An agreement for the ongoing supply of the relevant fuel was then made. For reasons of cost, convenience, or efficacy, I cannot judge which, a change was made in April 2008 from the kind of fuel apparently supplied over the previous eighteen months by the defendants, or one or other of them, to a new kind of fuel. Again, the plaintiff claims to rely on the expertise of the first defendant in circumstances giving rise to liability, it asserts, for negligent misstatement. Then, over the next six months, this new kind of fuel was used in their pig feed manufacturing plant. When, around the autumn to early winter of 2008 a problem arose with the use of the fuel in their manufacturing process, the plaintiff again claimed to have relied upon the expertise of the first defendant. The plaintiff asserts that it took his advice and acted accordingly to the detriment complained of. It is, of course obvious that all of this is of high public importance. What happened, however it happened, is a national scandal.
7. I emphasise again that it is impossible for me to form any conclusive view as to the issues involved in this case. Because, however, it is important that I express a preliminary view as to aspects of the defence and aspects of the claim, I now set out what I perceive to be the issues in this case.
Issues
8. What does not seem to be disputed by the parties is that the plaintiff company is the source of the pig feed that was contaminated. The manner in which the contamination occurred did not result from the waste human food used, as far as is known, for recycling, but the finished product after it had been dried, baked, grinded and compressed, or whatever, in their plant. That contaminant seems to have come from the oil used in driving the manufacturing process. Those pigs which ingested this foodstuff, in turn, became contaminated. What the contested matters are include the following:-
(1) Were there contaminants in the oil? If so, where did they originally come from?
(2) Did the oil come from other suppliers than the defendants? Some suggestion is made in the affidavits that the plaintiff. was using so much oil that they must have had a separate source beyond the defendants. At the moment, there is no evidence of this.
(3) Was the supply relationship between, in reality, the plaintiff and the third party, whereby the defendants had faded completely into the background as mere agents, or even historical facilitators? The claim here is that the third party may not have been the contracting party for the oil to the plaintiff at the start of the supplies, but was the contracting party at the time any contamination occurred.
(4) In relation to the supply of oil, did the plaintiff contract with the first or second defendant, or with both? Here the issue is whether the plaintiff is protected by the corporate nature of the second defendant. The first defendant claims to have acted through the second defendant. It is common in much litigation that a defendant will claim to be the servant of a corporate entity for which he works, in which he has shares, or of which he is the controller. Since contract law is primarily based upon what the parties themselves decided, the law interfering as little as possible so as to give effect to bargaining at arms length, an answer to this issue might usually be found in the terms of written agreements, or at least in correspondence. Where, however, a point is left unstated in the negotiations of the parties to a contract then an agreement may be effected through construing it in accordance with ordinary business sense. Since parties to a business relationship may be presumed to act reasonably, sometimes, terms may be unstated, though acted upon by the parties. The nature of their dealing can therefore supply the missing elements of the contractual framework. The Court is not entitled to include terms which were not agreed by the parties but, sometimes terms can be implied into a contract if, from the point of view from those in the same circumstance as the parties, it was obviously necessary in order to complete the agreement so as to give it effect. Here, it seems to me, there are two sub-issues: The first is as to whether the averments of those acting on behalf of the plaintiff are truthful in ascertaining that they contracted with the first defendant and not the second defendant, or with both the first and second defendants? Secondly, whether a reasonable business person in the position of the plaintiff, in the circumstances identified by the Court as probable, would conclude that they were contracting with a limited liability company, namely the second defendant, or with the first defendant who was merely using a limited liability company, the second defendant, for certain limited purposes in fulfilling the contract?
(5) In making representations, if he did, was the first defendant acting on his behalf on behalf of the company? The resolution of this issue, it seems to me, is very like the last one; as to what a reasonable business person would have thought in the factual circumstances as found by the court.
(6) What were the terms of the relevant contract of sale? Did these include a representation that the oil was fit for the particular purpose for which it was required, or was the plaintiff simply buying any old oil in the expectation that it would be fit for purpose? On the other hand, the plaintiff claims that the term implied by statute of merchantable quality in the supply of the oil product included the purpose for which it was sought and the use for which it would be particularly made and the use to which it would be particularly put in the manufacture of pig feedstuffs.
(7) Was the plaintiff guilty of contributory negligence? Here, an allegation has been made by the defendants that the manufacturing process of drying and compressing, or whatever, was done to make the pig meal was such as to give rise to a high risk of contamination. In other words, they assert that it was not to be expected that material used for combustion or a by-product would ever be combined into a food product. Therefore, the actual process of the plaintiff in the manufacture of swine food is closely under scrutiny.
(8) Was there a relationship of proximity giving rise to liability for negligent advice between the plaintiff and the first defendant? That could, depending on the facts found, also mean the second defendant as his corporate master. Here the issue is whether the first defendant held himself out as an expert not simply in sourcing oils, but in sourcing appropriate oil for the manufacturing process of the plaintiff. In that regard, the plaintiff relies on the events to which I have previously referred to as establishing firstly; a reliance by them on his expertise, secondly, a positive holding out by him of his ability to advise in a specialist way, thirdly, the consequent relationship of proximity leaving them to take his advice and, fourthly, that the damage to the pig food resulted from this.
(9) Should the corporate veil be pierced? The assertion by the plaintiff is that the second defendant was used by the first defendant essentially as an instrument of convenience in circumstances where it would be right to lift the corporate veil and establish liability against the first defendant personally even if all contracts were with that company and in making representations the company was the actor.
9. I turn therefore to the motions before me.
Inherent Jurisdiction to Dismiss
10. It has been established since Barry v. Buckley [1981] I.R. 306 that the High Court is entitled to stay any proceedings against a party, or to remove from pleadings any cause of action against a party, if it is clear that the plaintiff’s claim must fail. That jurisdiction is to be exercised only upon the closest scrutiny and in clear cases. It exists in order to avoid injustice. In most of the cases where it has been exercised a clear injustice exists whereby the parties are dragged into contest liability on foot of a written contract, or on the basis of documents that cannot be gainsaid, when the Court could have much earlier decided that there was nothing in the plaintiff’s claim.
11. All of this emerges clearly from the judgment of the Supreme Court in Jodifern Ltd. v. Fitzgerald [2000] 3 IR 321. I wish to briefly refer to a number of the passages in the three judgments. At p. 326 of the report, Keane J. made the following general observation:-
“The principles of law applicable are not in dispute. It could not be seriously contended that the statement of claim itself disclosed no reasonable cause of action or one that was frivolous or vexatious. The case made on behalf of the defendants and accepted by the learned High Court Judge was that the proceedings should be struck out in the exercise of the inherent jurisdiction of the High Court to take that course where it is clear that the plaintiff’s claim must fail. As was pointed out by McCarthy J. in this court in Sun Fat Chan v. Osseous Limited [1992] 1 I.R. 425, such a jurisdiction undoubtedly exists and is peculiarly appropriate to actions for the enforcement of contracts, since in such cases it may well be that the action may inhibit or preclude the party sued from entering into a new contract in respect of the same subject matter. He also observed, however, that, generally, the High Court should be slow to entertain an application of this nature, since though the facts at first sight may appear clear, a different picture may emerge at the trial. In this case, the defendants say that the correspondence exhibited with the affidavits grounding the application make it clear that the plaintiff’s case must fail and that, accordingly, the High Court was correct in striking out the proceedings.”
12. The judgment of Baron J. emphasises that it is easier to base the jurisdiction to strike out a claim on written documents than it is on the assertion of conflicting testimony. At p. 332 of the report he said:-
“Every case depends upon its own facts. For this reason, the nature of the evidence which should be considered upon the hearing of an application to strike out a claim is not really capable of definition.
One thing is clear, disputed oral evidence of fact cannot be relied upon by a defendant to succeed in such an application. Again, while documentary evidence may well be sufficient for a defendant’s purpose, it may well not be if the proper construction of the documentary evidence is disputed. If the plaintiff’s claim is based upon allegations of fact which will have to be established at an oral hearing, it is hard to see how such a claim can be treated as being an abuse of the process of the court. It can only be contested by oral evidence to show that the facts cannot possibly be true. This however would involve trial of that particular factual issue.
Where the plaintiff’s claim is based upon a document as in the present case then clearly the document should be before the court upon an application of this nature. If that document clearly does not establish the case being made by the plaintiff then a defendant may well succeed. On the other hand, if it does, it is hard to see how a defendant can dispute this prima facie construction of the document without calling evidence and having a trial of that question”.
13. Murray J. was perhaps strongest in emphasising caution since, in his view, the dismissal of proceedings on a summary basis deprives a plaintiff of a constitutional right to access the court. At pp. 334 to 335, he stated:-
“The object of such an order is not to protect a defendant from hardship in proceedings to which he or she may have a good defence but to prevent the injustice to a defendant which would result from an abuse of the process of the court by a plaintiff. Clearly, therefore, the hearing of an application by a defendant to the High Court to exercise its inherent jurisdiction to stay or dismiss an action cannot be of a form of summary disposal of the case either on issues of fact or substantial questions of law in substitute for the normal plenary proceedings.
For this reason, a primary precondition to the exercise of this jurisdiction is that all the essential facts upon which the plaintiff’s claim is based must be unequivocally identified. It is only on the basis of such undisputed facts that the court may proceed.
Moreover, and this is the aspect I wish to emphasise, where all the essential facts have been so identified, it must also be manifest that on the basis of those facts the plaintiff’s case has no foundation in law. It seems to me that if on the basis of the undisputed facts there remains a substantial issue or issues of law as to whether the plaintiff is entitled to some or any of the reliefs sought, the proceedings can hardly be said to constitute an abuse of the process of the court. It may indeed be that since the factual basis of the plaintiff’s claim has been identified that the legal issues arising are susceptible to judicial determination. For this reason it may be tempting, in the interests of economy of litigation, to do just that. However, to proceed (at least in the absence of agreement between the parties) to make a final determination of such issues in an application to stay or dismiss proceedings for abuse of the process of the court would deprive the plaintiff of the due process of plenary proceedings before the court. It must be borne in mind that such an application is usually if not invariably to be made by the defendant before he or she has filed a defence and always before the action is heard. McCarthy J. in Sun Fat Chan v. Osseous Limited [1992] 1 I.R. 425 also pointed out at p. 428 that “Experience has shown that the trial of an action will identify a variety of circumstances perhaps not entirely contemplated at earlier stages in the proceedings; often times it may appear that the facts are clear and established but the trial itself will disclose a different picture”. I fully agree with that observation. Any such change in perception of the circumstances of the case or disclosure of a different picture could well have implications as to the application of the relevant principles of law and how the legal issues are determined.
Certainly, a plaintiff faced with an application to have the proceedings stayed or dismissed in these circumstances is likely to raise, in one form or another, legal issues in response. In a case where there is in effect an abuse of the process of the court, it is quite possible that some at least will be clearly spurious or have no relevance to the facts of the case. Any other legal issues must be clearly discernible as being without merit and readily capable of being resolved in favour of the defendant. It is for the judge hearing the application, within the scope of his discretion, to determine whether any points of law raised can be so clearly and readily resolved in favour of the defendant that to allow the action to proceed would constitute an abuse of the process of the court. Legal issues that are sufficiently substantial as to fall outside that bracket should be left to the trial of that action in those proceedings”.
14. While, as I have said, the jurisdiction to dismiss tends to have been centred around cases based upon the interpretation of contracts or documents, it can be the case that an examination of facts contained in affidavits will reveal a plaintiff who, as a matter of fact, lacks any rational prospect of succeeding in an action although what he has pleaded is sustainable in law.
15. A weak or innovative case based upon contested assertions of fact does not fit within the category of a case that should be dismissed unless it can be demonstrated that what the plaintiff asserts is utterly undermined by the known and readily ascertainable circumstances of the claim, usually in written documentary form; Price and Lynch v. Keenaghan Developments Ltd. [2007] IEHC 190, (Unreported, High Court, Clark J., 1st May, 2007).
Motion to Dismiss; Analysis
16. The first defendant claims that his personality is subsumed into that of the corporate entity through which he traded. He claims that even in giving advice that he was the obvious servant of the second named corporate entity. In consequence, he says there is no prospect of the plaintiff succeeding against him and that he should be released from the burden of litigation in defending himself against allegations of tort and negligence.
17. Firstly, I am satisfied that a relationship of proximity giving rise to liability in negligence can occur even within the context of the obvious existence of a corporate entity. In Shinkwin v. Quin-Con Ltd. [2001] 1 IR 514 the plaintiff was injured in a factory. His employer, the party from whom he received cheques, was the first named defendant, a limited liability company. This defendant was uninsured. The second defendant was the sole shareholder. In addition, however, he controlled the factories. What was to be done, and how it was to be done, were matters he decided. The Supreme Court decided that it was essential to examine the relationship of the parties giving rise to the reasonably foreseeable risk of harm. This determines whether a duty of care existed and the nature and extent of that duty. After all, an employee who negligently injures another employee is personally liable and the employer vicariously for acts performed by the employee as part of their set duties. As to whether a duty of care arose depends upon an assessment of all the circumstances of the case. At page 518-519 of the report, Fennelly J. stated:-
“McCarthy J. in Ward v. McMaster [1988] I.R. 337 at p. 347 declared his unwillingness to ‘dilute the words of Lord Wilberforce …’ . We are here concerned only with the first stage of the two stage test adopted by Lord Wilberforce in the passage from Anns v. Merton London Borough [1978] AC 728 at p. 751:-
‘First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the later …’
The criterion of ‘control’ which is proposed in this case is not an addition to the test for the existence of proximity. The open textured language of Lord Wilberforce leaves wide scope for argument as to the character of ‘proximity or neighbourhood’. Clearly it involves more than a mere test of foreseeability of damage. The assessment of the relevance of control as well as its nature and degree will depend on the circumstances. Ó Dálaigh C.J. in Purtill v. Athlone U.D.C. [1968] I.R. 205 at p. 212 noted that ‘the defendants’ employees were in charge and control of the detonators …’ which caused injury to the plaintiff in that case. In my opinion some assessment of the element of control, in the sense of ‘control of the circumstances,” mentioned by Gannon J. in Tulsk Co-operative Livestock Mart Ltd. v. Ulster Bank (Unreported, High Court, Gannon J., 13th May, 1983), is a useful guide to the decision as to the existence of a duty of care. A person cannot be held liable for matters which are outside his control. He will not be, as the defendant in Ward v. McMaster [1988] I.R. 337 was not, in control of the plaintiff’s independent actions and should be responsible in law only for matters which are within his own control.
In my view, the second defendant, on the particular facts of this case, placed himself in a relationship of proximity to the plaintiff. He had personally taken on a young and untrained person to work in a factory managed by him and personally put him to work upon a potentially dangerous machine over which he exercised control to the extent of giving some though completely inadequate instructions to the workers. He was bound to take appropriate steps to warn the plaintiff of such obvious dangers as failing to stop the circular saw from revolving while adjusting the jig or to ensure that it was guarded. In his supervision and instruction of the plaintiff, he failed to do these things and was consequently negligent.”
18. Liability for negligent advice can also arise personally, as well as in respect of advice from a corporate entity. In Forshall v. Walsh [1997] IEHC 100, (Unreported, Shanley J., 18th June, 1997) Shanley J. usefully summarised how liability for negligent misstatement arises in law. At para. 129, he first referred to liability for fraud, which is not pleaded here, and then considered the tort of negligence by misrepresentation. The plaintiff had bought several expensive motorcars, which never materialised, relying on representations from people that the company selling this product to her had both the necessary franchise relationship with the manufacturer and also had the financial ability to procure delivery. Some guidance may also be had from this decision as to the status of an individual who worked for a company but was not subsumed in corporate liability. I quote:
“129. Where fraudulent misrepresentation is alleged it must be established that the representation (as defined above) was intended to and did induce the agreement in respect of which the claim for damages arises.
(a) A plaintiff seeking to establish the commission of the tort of fraud or deceit must prove –
(i) the making of a representation as to a past or existing fact by the defendant;
(ii) that the representation was made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false;
(iii) that it was intended by the defendant that the representation should be acted upon by the plaintiff;
(iv) that the plaintiff did act on foot of the representation; and
(v) suffered damages as a result.
(b) A party seeking damages for negligent misrepresentation must establish that the representor failed to exercise due care in making the representation as a result of which representation the person to whom it was made was induced to enter into the particular agreement and suffered damage in consequence of the inaccurate representation. Closely aligned to the claim of negligent misrepresentation is the wider tort of negligent misstatement. In relation to negligent misstatement, the first matter a plaintiff must establish is that the defendant owed him a duty of care. In Ward v. McMaster [1989] I.L.R.M. 400, McCarthy J. considered that the duty of care arose from the proximity of the parties, the foreseeability of the damage and the absence of any compelling exemption based upon public policy. And in Caparo Industries plc. v. Dickman [1990] B.C.L.C. 273, Lord Bridge, in his speech in the House of Lords, said at page 280:
‘What emerges is that in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care, are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of ‘proximity’ or ‘neighbourhood’ and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope on the one party for the benefit of the other.’
130. He observed in relation to decided cases in which a duty of care in respect of negligent misstatement had been held to exist, that the limit on the liability of a wrongdoer towards those who had suffered economic damage:
‘ … rested on the necessity to prove, in this category of the tort of negligence, as an essential ingredient of the proximity between the plaintiff and the defendant that the defendant knew that his statement would be communicated to the plaintiff, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind (e.g. in a prospectus inviting investment) and that the plaintiff would be very likely to rely on it for the purpose of deciding whether or not to enter on that transaction or on a transaction of that kind.’
(b) Finally, it should be noted that while an employer can be made vicariously liable for the torts of his employee, such liability can only be imposed for the negligence of an employee where the negligence is committed in the course of his employment and the employer is not liable for negligence committed outside the scope of his employment.
131. There was clearly a most exceptional relationship between Michael McSweeney and Amanda Forshall. It started with the fact that she was doing business with a customer of the bank. It was compounded by the fact that the managing director of the customer of the bank was a brother of Michael McSweeney. That the relationship was exceptional is illustrated, first by the number of unsolicited phone calls made by Michael McSweeney to Amanda Forshall and, that, when in trouble, Mrs. Forshall phoned Michael McSweeney, not just at his office, but at his home, using a number which he himself had given to her.
132. Whether one adopts the test propounded by McCarthy J. in Ward v. McMaster, supra, or the test of Lord Bridge in Caparo, supra, all the necessary ingredients which might give rise to a duty of care exist in relation the bank and Mrs. Forshall: there was a relationship which can undoubtedly be characterised as one of ‘proximity’ or ‘neighbourhood’, a relationship of such a nature that the bank, in the person of Michael McSweeney, was aware that statements he might make would most likely be relied upon by Mrs. Forshall and that carelessness in making such statements might cause her damage. There can be no doubt in my mind that in such circumstances it is fair just and reasonable that the law should impose a duty of care on the bank in relation to the representations it made to Mrs. Forshall.”
19. Secondly, I am not convinced that the argument is clearly correct that the first defendant is no longer contractual liable to the plaintiff and so has disappeared from a contractual liability as regards his relationship to the plaintiff. At each stage in these proceedings allegations occur that seem to be personally directed against the first defendant. Whether these are credible can only be judged at trial. The plaintiff claims a continuing relationship of contract between a related company and the defendants from October 2006. The defendants claim that each supply of oil was an independent contract. In giving advice whereby O’Neill’s Fuels Ltd. may have been introduced into the relationship, allegations are directed against the first defendant. In giving advice as to the appropriate fuel to be used as and from April 2008, when the allegedly defective oil came to be first used by the plaintiff, again allegations are made against the first defendant. In later apparently attempting to assist the plaintiff in issues that arose whereby that fuel was alleged not to be burning properly, again it is claimed the first named defendant attended at the plaintiff’s premises and allegations are directed against him personally. I do not know how the evidence as to all of this will come out at trial, much less be decided upon by the trial judge.
20. The first named defendant has made a number of statements to the Gardaí. These include the following:-
“In about March 2008 waste cooking oil got very expensive because biofuel on the continent got very dear, it has since come down. Robert Hogg asked me if I knew any other source of cheap material for running boilers. I was talking to a long time friend of mine, Joe Finnucane, and work colleagues and he told me about O’Neill’s Coals based in Armagh and in the U.K. Joe Finnucane made me aware that O’Neill’s Coals were involved in the business of making biofuel on a much smaller scale and that a by-product of this process was ester oil. Ester oil is vegetable based. When you manufacture biofuels you use soya oil, rape oil, used cooking oil, tallow (that’s animal grease), basically any oils other than fossil oils. … Between myself and Joe Finnucane we put Fergus O’Neill of O’Neill’s Coals in contact with Robert Hogg. Fergus O’Neill and Robert Hogg entered into a business arrangement, more correctly the arrangement was between the two companies O’Neill’s Coals and Millstream Power. …”
21. In another statement Mr. Tierney referred to previous statements that he had made to the gardaí and then went on:-
“I want to say that during the statement when I referred to myself personally, I was really acting as a director of the company Newtown Lodge and the references to myself in the statement should be read accordingly …. Newtown Lodge Limited … was established about four or five years ago to hold a number of small family investments and it was used as a trading link for the used cooking oil pending the establishment of the bio-diesel plant. It does nothing now …. The reason we used Newtown Lodge as a vehicle was because it was an existing trading company with VAT registration and also O’Neill’s payments arrangements would not have fitted in with my experience of Hogg. My experiences were that he was a slow payer. In effect Newtown Lodge was acting as a banker to the arrangement. Initially the contacts between O’Neill’s and Hogg were through me for a few weeks. Then Joe Finnucane came into the picture and all the logistical arrangements were made through him and in effect O’Neill’s and Millstream were dealing with each other directly. As far as I know Robert Hogg and Fergus O’Neill were in direct communication and communication through Joe Finnucane all the time and O’Neill made a number of visits to the plant. At this stage I was virtually withdrawn from the picture because I was involved in the bio-diesel plant in Wexford but Newtown Lodge still maintained the banking and invoicing procedures. Really the company was only a letterbox to facilitate the arrangement between Hogg and O’Neill.”
22. In addition to that, a question has arisen as to the VAT registration of the second defendant Newtown Lodge Ltd. I note that the invoices in respect of the supply of fuel to the plaintiff were headed in such a way as to identify the corporate personality and limited liability status of the second named defendant. The rate of VAT charged on supplies was, however, 0%. It is claimed in affidavits that this was, or was believed to be, a VAT exempt supply. I have no view on this beyond that the matter of inference from whatever is to be decided is not now clear. This is an issue peculiarly to be decided at the trial.
23. Then, it is argued forcibly by the first named defendant that the plaintiff, through Richard Hogg, was very well aware of the benefits of incorporation. He might be regarded, it is asserted, as something of an expert, if not in company law, then at least in the principles of limited liability and separate legal personality acquired through the assumption of corporate personality. It is true that there were many companies associated with Richard Hogg. He might well be the very kind of person who, in the circumstances, would conclude that he was contracting with a limited liability company as opposed to with Mr. Tierney. A written contract would perhaps, as in some of the decided cases, put this beyond peradventure. Here, however, that is merely one of the facts to be looked at in the context of the entire factual matrix relevant to this issue. The applicant has also laid great stress upon the reports from Manus Coffey Ltd., apparently prepared by the plaintiff’s insurance company FBD, in an attempt to adjust the huge losses involved in this case. What is said by Dr. Hayes in that report are a series of hearsay assertions the likely source of which is Richard Hogg. I cannot, however, act on them as of this time. In looking carefully through them I notice, again, a recitation of the alleged involvement of Mr. Tierney in some of the crucial events related to the choice of oil and, more latterly, the decision to proceed notwithstanding apparent issues in the process. Perhaps these allegations are unfair, but I can have no view beyond noting that they are made.
24. Apart from that, I must look to the issue of what Newtown Lodge Ltd. in fact is. I reassert that I am not judging the facts in this case. I notice on reading the second named defendant company’s bank statements that these are addressed to one of two individuals with the surname Tierney at a particular address in Dublin. I notice, in addition, that the bank balance from January 2005 was apparently healthy, at one stage rising to €283,000. I notice as well that €100,000 was withdrawn from that bank account after 7th December, 2008. There may very well be a legitimate reason for this, but the fact is that the balance was then reduced to around €3,000.
25. Lastly, the issue of dissolving the corporate veil cannot be said in this case to be so far fetched that it should now be dismissed. In Keane Company Law in the Republic of Ireland 3rd Ed., (Dublin, 2000) the confusing decisions on the removal of separate legal personality from the company in favour of establishing liability against its controllers are reduced to five separate propositions. The high degree of scholarship shown by Keane in the various editions of this work require, at the very least, the deference of acknowledgment of the point based on the law as set out by him being arguable at this stage in the proceedings. He extracted these principles at pp. 139-140 at para. 11.64 from a myriad of case law on piercing the corporate veil as follows:-
“(1) The rule in Salomon’s case is still the law. The company and its shareholders are separate legal entities and the courts normally cannot infer from the degree of control exercised by the shareholder a relationship of principal and agent or beneficiary and trustee between the shareholders and the company.
(2) The courts, however, will not permit the statutory privilege of incorporation to be used for a fraudulent, illegal or improper purpose. Where it is so misused, the court may treat the company thus incorporated as identical with its promoters.
(3) In certain cases, where no actual misuse of the privilege of incorporation is involved, the courts may nonetheless infer the existence of an agency or a trust if to do otherwise would lead to injustice or facilitate the avoidance of tax liability.
(4) In the case of a group of companies, the court may sometimes treat the group as one entity, particularly where to do otherwise would have unjust consequences for outsiders dealing with companies in the group.
(5) The rule in Salomon’s case does not prevent the court from looking at the individual members of the company in order to determine its character and status and where it legally resides.”
26. Here, the plaintiff points to a number of factors. They claim that there was an illegal importation of oil at the direction of the defendant. I do not know whether this is true or not. I do not know whether that oil contained toxins which were banned. The assertion is made, however, not baldly but in the light of the experience that led to the national scandal in December 2008. The plaintiff says that the VAT status of the company is questionable. In contrast to the defendants, the plaintiff claims that vatable transactions were being effected. As to whether both parties joined to evade VAT, or whether VAT was not properly chargeable, or whether the second defendant company was exempt from VAT because of low turnover, I do not know. This, however, is part of the factual issues in the case. As well as that, the plaintiff claims that the second defendant was not in reality a trading company. They rely on the statements made by Mr. Tierney to the gardaí. If it was not a trading company, they ask, what was it doing? They say that there must be an onus on the second defendant, and on the first defendant, if he is to escape liability, to establish that the company was indeed a properly incorporated entity, with genuine accounts, complying with the law and engaged in the business of supplying oil. Finally, they point to the company’s accounts and aspects of concern they raise with regard thereto. In particular, and on a more understandable level, from the point of view of the court without affidavit evidence, they refer to the diminishing balance and the situation in the account as of the end of December, 2008.
27. Whether there is enough there to pierce the veil of corporate identity, I do not know. It is, however, arguable in a real way.
On the entirety of the issues traversed, I cannot, on the basis of the material before me, come to a conclusion on the relevant issues in this case which would enable me to even decide where the balance of the strengths of the case lay at this point, much less dismiss it.
Security For Costs
28. Each defendant seeks security for the costs of defending the case brought against it by the corporate plaintiff. Section 390 of the Companies Act 1963 provides:-
“Where a limited company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter, may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and may stay all proceedings until the security is given.”
29. Since Peppard v. Bogoff [1962] I.R. 180 it has been clear that it is not mandatory for a court to order security for costs in every case where the plaintiff company appears to be unable to pay the costs of a successful defendant. A discretion is vested in the court which may be exercised against the plaintiff in special circumstances. In that case the allegation made by the plaintiff was that the defendants had, in effect, ruined its business. This was identified as a special circumstance enabling the court to exercise a discretion along with the fact that a joint plaintiff, not a corporate entity, remained within the jurisdiction and available, in the ordinary way, to satisfy an order for costs should the defendant be successful. At page 187 of the report Kingsmill Moore J. put the matter in this way:-
“Substantially the allegation is one of a conspiracy between the defendants to transfer the business of the plaintiff company to the two defendants, Reynolds and Peppard. If this be the case – an on an application for security for costs a Court cannot try the merits – to order security would be to allow the defendants to defeat an action by reason of an impecuniosity which they have themselves wrongfully and deliberately procured, a result which a court would strive to avoid.”
30. One matter in respect of which any discretion does not exist, however, is in relation to the costs, should the court order security. I have been told that this is potentially a six week case in respect of which costs will tax to include one junior and two senior counsels. I do not see why that should be so. The case seems to me to be straightforward. The fact that scientific evidence is involved is neither here nor there. In virtually every criminal case counsel, if diligent, will research forensic investigative techniques and in every murder case forensic pathology is commonplace as is the psychology of interrogation in confession cases. Further, each of the defendants have claimed, by bald assertion, an amount of €750,000, or €1.5 million in total, a security for costs in order to engage with this litigation as between two very challenged companies and one private individual. The plaintiff, on the other hand, has set aside a sum short of €200,000 for the prosecution of the claims. This seems to me to be a much more realistic, though very substantial, sum. It more accords with the exercise of access to the courts as a right under the Constitution. Further, in litigation parties may have to cut their cloth to suit their measure. Nonetheless, were the larger amount proven, and it is not, that is the security I would have to order. In Thalle v. Soares and Others [1957] I.R. 182, Kingsmill Moore J., at page 192, indicated that the wording of the statute had laid down reasonably precise instructions as to the measure of security to be provided. In Lismore Homes Ltd. v. Bank of Ireland Finance Ltd. (No. 3) [2001] 3 IR 536 the Supreme Court confirmed that whereas the court could make a finding as to the appropriate amount, security for costs meant the sum that was needed by the defendants, I would add reasonably, as a measure of legal costs to defend the claim. At p. 546 Murphy J. said:-
“The word ‘sufficient’ in its plain meaning, signifies adequate or enough and it is directly related in the section to the defendant’s costs. The section does not provide for – as it might have – a sufficient sum ‘to meet the justice of the case’ or some such phrase as would give a general discretion to the court. Harsh though it may be, I am convinced that ‘sufficient security’ involves making a reasonable estimate or assessment of the actual costs which it is anticipated that the defendant will have to meet.”
31. The legal principles which I am required to apply with regard to the issue as to whether security for costs ought to be ordered in favour of either defendant are set out fully by Clarke J. in Connaughton Road Construction Ltd. v. Laing O’Rourke Ireland Ltd.[2009] IEHC 7, (Unreported, High Court, Clark J., 16th January, 2009); . Since I cannot either improve or usefully comment on the summary of the law therein contained, I now quote it in full:-
“2.1 In Usk and District Residents Association Limited v. The Environmental Protection Agency (Unreported, Supreme Court, Clarke J., 13th January, 2006,) the Supreme Court approved what was described as a helpful summary of the law by Morris P. in Interfinance Group Limited v. K.P.M.G. Pete Marwick (Unreported, High Court, Morris P., 29th June, 1998,). As adapted by the Supreme Court in Usk the test set out by Morris P. in Interfinance is in the following terms:-
‘(1) In order to succeed in obtaining security for costs an initial onus rests upon the moving party to establish:
(a) that he has a prima facie defence to the plaintiff’s claim, and
(b) that the plaintiff will not be able to pay the moving party’s costs if the moving party be successful.
(2) In the event that the above two facts are established, then security ought to be required unless it can be shown that there are specific circumstances in the case with ought to cause the court to exercise its discretion not the make the order sought.
In this regard the onus rests upon the party resisting the order. The most common examples of such special circumstances include cases where a plaintiff’s liability to discharge the defendant’s costs of successfully defending the action concerned flow from the wrong allegedly committed by the moving party or where there has been delay by the moving party in seeking the order sought.
The list of special circumstances referred to is not of course, exhaustive.’
2.2 Neither counsel disagreed that the principles are correctly summarised in the passage which I have just cited. It should also be noted that counsel for Connaughton Road helpfully and properly accepted that the evidence before the court established both of the matters set out at paras. (1)(a) and (1)(b) above. Thus, the two matters which Laing O’Rourke were required to establish are accepted as having been so established.
2.3 It follows that security ought to be required unless Connaughton Road can show that there are special circumstances which ought to cause the court to exercise its discretion not to make the orders sought. The special circumstances asserted in this case are, perhaps, the most common category of such circumstances where it is asserted that the plaintiff’s inability to discharge the defendant’s costs of successfully defending the action flow from the wrong allegedly committed by the moving party. It is common case, and clear from the authorities, that the onus of establishing that fact rests on Connaughton Road. It is also common case, and clear from the authorities (see for example the comments of Finlay C.J. in Jack O’Toole Ltd v. McEoin Kelly Associates [1986] I.R. 277 at pp 284 and 285) that the obligation of Connaughton Road, in those circumstances, is to establish a prima facie case to the effect that its inability to pay the costs of the defendant, in the event that the defendant were successful, stems from the wrongdoing alleged in these proceedings. I will shortly turn to an assessment of that issue on the evidence. However, two questions concerning the precise way in which that test ought be applied did arise for debate in the course of the hearing before me. The issues raised do not go to the underlying principles which must now be taken to be well settled. Those issues do, however, concern the precise way in which a court should approach an application where there is a significant contest between the parties as to whether the type of special circumstances asserted in this case have been shown to exist to the necessary prima facie level. Before going on to the application of the relevant principles to the evidence in this case I should, therefore, briefly touch on certain aspects of what might be called the “inability due to wrongdoing” special circumstance to which I now turn.
3.1 As I have already noted, there is ample authority for the proposition that the court retains a discretion not to order security for costs where the plaintiff concerned can establish, on a prima facie basis, that his inability to pay the costs of the defendant concerned (in the event that the defendant might succeed) is due to the wrongdoing which he asserts in the proceedings. It has, of course, been pointed out that there is a certain superficial illogicality about the court considering such an eventuality. The defendant would only become entitled to its costs if it wins. By definition if it wins then the plaintiff’s inability to pay costs cannot have been due to any wrongdoing on the part of the defendant, because the court will have found either that there was no such wrongdoing or no losses (or indeed both).
3.2 On the other hand the court is faced with being unable, at the stage at which the application must necessarily be brought for it to have any practical effect, to reach a view as to which party is going to win. It must, therefore, take the rather superficially illogical step of assuming, for the purposes of the defendant recovering costs, that the defendant will win, but also assuming, for the purposes of determining whether any inability to pay those costs is attributable to the wrongdoing asserted, that the plaintiff will win.
3.3 I am mindful of the fact that all of the authorities make clear that the court’s assessment must be conducted on a prima facie basis. As was pointed out in Irish Conservation and Cleaning Ltd v. International Cleaners Ltd (Unreported, Supreme Court, Keane C.J., 19th July, 2001) to do otherwise would be to invite the court, on a preliminary motion, to decide the case. Everything which I say hereafter should, therefore, be subject to the qualification that I am referring, even if not expressly stated, to the various necessary matters being established on a prima facie basis.
3.4 In order for a plaintiff to be correct in his assertion that his inability to pay stems from the wrongdoing asserted, it seems to me that four propositions must necessarily be true:-
(1) That there was actionable wrongdoing on the part of the defendant (for example a breach of contract or tort);
(2) that there is a causal connection between that actionable wrongdoing and a practical consequence or consequences for the plaintiff;
(3) that the consequence(s) referred to in (2) have given rise to some specific level of loss in the hands of the plaintiff which loss is recoverable as a matter of law (for example by not being too remote); and
(4) that the loss concerned is sufficient to make the difference between the plaintiff being in a position to meet the costs of the defendant in the event that the defendant should succeed, and the plaintiff not being in such a position.”
Decision on security for costs
32. Applying these principles I am satisfied that it is impossible at this stage to adjudge between the strength of the contentions of the plaintiff and the defendant. However, the defendant has raised a defence to the plaintiff’s claim and it can be characterised as being potentially sufficient. The position of the plaintiff is that it continues to trade and to hope that the scheme of arrangement under s. 201 of the Companies Act will be both voted in favour of by the creditors and approved by Laffoy J. in July of this year. The sum of money which the plaintiff company insured itself for would, under normal circumstances, have been ample at €6.5 million. In the light of this catastrophe, however, it is very far from adequate. Any of the pig meal consumers who purchased from the plaintiff could mount an action in negligence outside any scheme of arrangement. The defence to that might well be that the oil supply was bought from a reputable supplier, namely the defendants. An action could also be brought in contract that the goods sold were not of merchantable quality. It is hard to see what the defence to that might be, apart from the defendant proving an understanding as to a different purpose to the assertion of the plaintiff. Under section 62 of the Civil Liability Act 1961 the insurance monies have been ring-fenced as applicable only to discharging the claims payable against the insured in respect of which the insurance was effected. No part of the monies is, in reality, an asset of the plaintiff. The plaintiff company continues to trade. As I have mentioned, its number of employees has decreased from sixteen to six and its reputation has been seriously undermined.
33. Delay is not an issue in this case as a special circumstance enabling me to refuse to award security for costs in favour of other defendants. Nor does a point of law arise which, as put by Morris P. in Lanceforth v. An Bord Pleanála [1998] 2 IR 511 at p. 516 is of “such gravity and importance that it transcends the interest and consideration of the parties actually before the court”. Nor is there an additional plaintiff who can be made liable for security for costs in the ordinary way. Since the discretion of the court on a motion for security for costs is delineated by existing caselaw, it is important to note that the categories are not closed in respect of which a special reason for not ordering security as against a company likely to be unable to pay costs where the defendant has shown a real prospect of a defence.
34. There are two other factors relevant as special circumstances. The statements made by the plaintiff as to the cause of the situation it now faces goes far beyond “a mere bald statement of fact that the insolvency of the company has been caused by the wrong the subject-matter of the claim”; see Jack O’Toole Ltd. v. MacEoin Kelly Associates [1986] I.R. 277 at p. 284 per Finlay C.J. This company traded successfully up to the point where a change of oil, for whatever reason, was, it was claimed, advised by the defendants, or one or other of them. Prior to these events, no issue would have arisen but that the pig meal produced by the plaintiff was of good quality. It had been traded successfully over many years. In contrast, any allegation made by the defendant of contributory negligence is, at this point, unsubstantiated. Similarly, it is difficult to act on the assertion that the plaintiff was in reality trading with O’Neill’s Fuels or that their oil supplies came from unidentified suppliers. On the issue of contributory negligence, or total negligence, the defendants may say that we need time and scientific expertise to establish that the plaintiffs were substantially to blame in respect of the wrong complained of. In other words, their claim that the plaintiff company contaminated its own pig meal amounts to an assertion, and assertions are very often made in the preliminary stages of a case. There is nothing to suggest an alternative defence whereby oil was sourced by the plaintiffs from a supplier other than the defendants and that oil was the cause of the contamination. This amounts, again, to a mere bald assertion. It is unlikely on the current state of the papers that the assertion that the true contracting party with the plaintiff was O’Neill’s Fuel will be made out.
35. Without judging, in any way, the fact of this case, there is a strong argument being made out by the plaintiff that there was an actionable wrong on the part of the defendants both in contract and in tort and that there is a causal connection between that actionable wrongdoing and the practical consequence whereby the plaintiff is now meeting these claims giving rise to a huge level of loss and which has now put the plaintiff into the position where its inability to meet the costs of the defendant is due to that cause alone.
36. There is a further reason. A point of law of exceptional public importance such as that identified by Morris P. in Lanceforth v. An Bord Pleanála [1998] 2 IR 511 may be sufficient to transcend the interests of the parties before the court. Here the court is concerned with issues of fact of exceptional public importance. Those issues of fact are set out in the early paragraphs of this judgment. They concern the public blaming of the plaintiff for a contamination of food scandal that rocked an important sector of the Irish economy, the agri-food industry. The plaintiff has a case to make that they were not responsible for this, but that they acted as they had always done and had it not been for the oil supplied by the defendants that their pig food products would have continued to enjoy the high reputation for quality that they assert was their entitlement. I would find it impossible, where they have made out a case that the ruination of their business and reputation was caused by the defendant to make an order that undermines or removes their right to litigate. The courts are a public forum and it is there that issues of public interest should be resolved. These issues go far beyond the claims and counterclaims of the parties. The principle enunciated by Morris P. as to exceptionally important points of law being of vital public interest is clearly applicable to the resolution of whatever happened to bring about this scandal. It is clear to me that the determination of the facts behind the scandal transcends the individual claims and counterclaims of the parties. It means that this litigation must proceed.
37. Either of the reasons that I have stated would be sufficient and are each on their own, in my mind, sufficient to refuse to order security for costs.
Third Party Discovery
38. The plaintiff claims a discovery against the Garda Commissioner. It is claimed that there are bound to be documents which are of high assistance in the pursuit of their civil claim which have resulted from the Garda Commissioner’s investigation. Two categories, in particular, are sought. Firstly, the forensic and testing results of the composition of oil by each relevant location. The relevant locations are clearly testings from the oil used by the plaintiff, the oils supplied, it is alleged, by the first and second named defendants, or from Northern Ireland through O’Neill’s Fuels, and, it is alleged, oil imported into Wexford which was supposed to be incinerated in Northern Ireland. Then, secondly, the plaintiff seeks a statement as to the source of the oil. As will be apparent from what has gone before, the oil is supposed to have come to the plaintiff from the defendant. They are supposed to have got it from O’Neill’s Fuels Limited. There is also an allegation that O’Neill’s Fuels Limited and the defendants entered into an arrangement, the legality of which is attacked, whereby useful oil that was destined for incineration, was imported from the neighbouring United Kingdom through Wexford and brought up to Northern Ireland. It is speculated that some of this oil may have been the oil ultimately supplied from O’Neill’s through the first and second named defendants, pursuant to contract or on their advice, ultimately used in the pig meal manufacturing process of the plaintiffs, and then consumed by swine all over the country.
39. It is established by Breathnach v. Ireland and The Attorney General, [1993] 2 I.R. 458 that discovery can be made in civil proceedings as to a prior criminal investigation. That was a case, however, where the plaintiff had been prosecuted many years before for robbing a mail train and had been convicted. He claimed his custody was tainted illegality and an alleged confession statement was fabricated. All of this history was of high interest to the parties, when the claim for civil discovery was pursued. It is also beyond that documents consisting of notes, or statements, from informers can never be discovered. To list them, under the heading of a schedule of informer privilege, even without any name would be to invite severe menace by reason of the possibility of investigation. If a serious issue were to arise then the appropriate procedure would be to ask the judge to privately inspect the documents in the presence of a high ranking Garda officer under the strictest security. These principles are well established in consequence of the judgment of Carney J. in the High Court and of the Supreme Court in Ward v. Special Criminal Court [1999] 1 IR 60. In any event I have no potential reason to either believe that are informer statements in this case relevant to the issues, or to doubt that they are in truth informer statements; the only issue upon which a judge can ever been called to adjudicate.
40. In addition to that the Gardaí will be in possession of certain information from Northern Ireland. Under s. 62 of the Criminal Justice (Mutual Assistance Act) 2008 a judge may seek the assistance of another nation in obtaining evidence. Among the procedures are the taking of evidence in a foreign state on oath, and its transcription or video recording, or perhaps a video conferencing. However, that procedure is solely available for the purpose of criminal proceedings. Section 62(6) provides:-
“Evidence obtained by virtue of this section shall not, without the consent of the appropriate authority, be used for any purpose other than that permitted by the relevant international instrument or specified in the letter of request”.
41. It is clear, therefore, that any such material is not discoverable without such permission in a civil case. There can be circumstances where, to protect the legitimate interests of parties, redactions can be made; Cooper Flynn v. R.T.E., [2000] 3 I.R. 344. That, however, does not arise here because I am not persuaded that the criminal investigation file in an active investigation is now discoverable. In McDonald v. R.T.E. [2001] IESC 6 (Unreported, Supreme Court, 25th January, 2001) the plaintiff was alleged to have been a member of a terrorist gang. Words spoken over the television about a murder in 1991 referred to an arrest of the plaintiff on suspicion of membership of such an organisation two years previously. The plaintiff sued for libel. An issue arose as to whether the plaintiff had been identified and whether defamation had occurred. A notice of motion similar to this one for non party discovery, was brought against the Garda Commissioner in order to obtain to access to the relevant investigation files.
42. McGuinness J. first of all set out the arguments of the Garda Commissioner against discovery. These included the following at pp. 16-17 of the judgment:-
“In this case, in Brannock v. Ireland, No. 3 1993 2 I.R. 458. The document sought to be discovered related exclusively to criminal proceedings. In Brannock the criminal proceedings were at an end before the civil proceedings came into being. In the present case while the plaintiff’s proceedings are civil in nature the Oliver file deals with an active and criminal investigation which is aimed at bringing the murderer of Thomas Oliver to justice. To make such documents discoverable, particularly in the situation where certain persons had given information to the Gardaí on an assurance of confidentiality, would create an almost impossible situation in the investigation of crime.”
43. McGuinness J. then went to hold that such documents had been inspected by the court were irrelevant. She then held at p. 27:-
“In addition the file has been assembled in connection with the investigation of criminal offence of abduction and murder which on the evidence before the court is a live investigation. I would accept the submission of counsel for the notice parties that in such a situation it might be of interest to various persons to discover not only what was on the file but was not on the file. It seems to me that in principle it would be injurious to the public interest to bring some of the relevant documents in to the public arena through the means of discovery. There are, however, a number of documents on the file which clearly ought to be produced to the plaintiff. I note that the numbering in the file is handed into this court seems to differ in some way from the numbering which was given to the learned High Court judge … The remainder of the documents on this file should not be produced”.
44. It seems to me to be clear that the Garda Commissioner should not be asked to hand over any statements taken from persons either in Northern Ireland or in this jurisdiction as to the source of the oil or any other matter. Doubtless, interrogations will be planned and the dissemination of the information could undermine the relevant inquiries. However, the forensic results as to the nature of what was found at each relevant site, be it Wexford, the plaintiff’s premises, the defendants’ premises, and the analysis of relevant pig meal and pig meat samples, are neutral facts. The inspection of these is not such as to in any way hinder the Garda investigation. These should be disclosed with, the exception of those obtained under the Criminal Justice (Mutual Assistance) Act 2008. In addition it is beyond argument that nothing in relation to informers can be disclosed, nor even the existence of such information. If a real issue arises on that in the future, the trial judge can be asked to adjudicate in the manner indicated.