Asset Freezing
Cases
Fleming v Ranks (Ireland) Ltd
[1983] ILRM 541
McWilliam J: This application has been brought for an interlocutory injunction to restrain the defendants from disposing of or dealing with the assets of the first-named defendant, hereinafter described as Ranks, so as to reduce the value thereof below the sum of 83,724.92, and for an Order giving the plaintiffs liberty to inspect the books and records of Ranks so as to ascertain what funds are available to satisfy the plaintiffs claim in this action.
There are five plaintiffs and they are claiming the sum above-mentioned which they allege is due to them for breach of contract or for misrepresentation, either innocent or fraudulent.
The agreement on which the plaintiffs base their claim was entered into between Ranks and the Irish Transport and General Workers Union (hereinafter called the Union). The Union was expressed to be acting on behalf of its members attached to Ranks Dublin North City Mill and the agreement was headed Ranks (Ireland) Limited – Dublin North City Mills Re-organisation 1978 – Productivity. Schedule B to this agreement set out details of compensation for various categories of employees made redundant.
The plaintiff, Harry Fleming, filed two affidavits but did not state to which category of employees he belongs or any facts necessary to make the calculation of the alleged entitlement of the plaintiffs in accordance with Schedule B. This aspect of the case was not considered at the hearing before me although there is a formal denial in an affidavit filed on behalf of the defendants that the 1978 agreement does relate to Mr Fleming s case. On the other hand, it is accepted on behalf of Ranks that, if the agreement does apply, Mr Fleming would be entitled to approximately 24,000.
The 1978 agreement was followed by an undated letter to an officer of the Union written by the second-named defendant on behalf of Ranks which stated as follows: The Company in the event of redundancy following future plant investment or organisational alteration causing job reductions, would not discontinue the 1978/79 Company Redundancy Scheme unless it could be shown to the mutual satisfaction of the parties that such payments were financially unsustainable. Although an affidavit by an officer of the Union was filed on behalf of the plaintiffs, neither party has suggested that there was any reply to this letter.
On the 13th October 1982, Ranks sent a letter to all employees stating that the company was sustaining huge and insupportable losses and that, to survive, up to two hundred jobs would be lost but that it was hoped that total site closures could be avoided. References in the letter to survival clearly indicated that the total closure mentioned was a possibility. This led to meetings between representatives from Ranks and from the Union and, at a meeting on the 25th November 1982, Ranks offered redundancy payments at the rates set out in the Redundancy Payments Acts plus sixty per cent. of such payments. This offer was rejected by the Union and the matter was referred to the Labour Court which, by determination made on 7th January 1983, recommended that redundancy payments should be made on the basis of paying one half of the payments set out in the 1978 agreement immediately and the balance one year later. Ranks then stated that it was unable to make such a substantial payment and the Union issued strike notice for 19th January 1982. This was followed by an announcement by Ranks that the mills in Dublin and Limerick would have to close on 4th February 1983. Further meetings took place which resulted in proposals which were accepted by a majority of members of the Union, but this decision was not accepted by the plaintiffs who commenced to picket the Dublin mill.
Whatever terms were agreed by the members who accepted the proposals, Ranks now claim that the plaintiffs are only entitled to the statutory redundancy payments.
The agreement accepted by the majority appears to have been reached on the basis that it involved Ranks in no legal liability and that the Union s acceptance was without prejudice to its position in relation to the decision of the Labour Court. Fortunately, on this application, I am not required to consider the effect of this unusual provision.
Accounts have been furnished by Ranks purporting to show that the terms of the 1978 agreement are now financially unsustainable but these accounts are not accepted by the plaintiffs as establishing this.
There are unusual features in the case. The plaintiffs refused to accept the closure of the mill and went into occupation of it, they were committed to Mountjoy prison for this activity but, on their release, returned to their occupation of it and are still denying Ranks access to it.
The plaintiffs, Harry Fleming and Dermot O Donnell, have stated on affidavit that they are members of the Union, but they wrote to Ranks in May and June 1982, respectively, to say that they were no longer members of the Union and asking that their subscriptions should be discontinued. The affidavit by the officer of the Union does not refer to the membership or non-membership of the plaintiffs in the Union.
In the affidavit of the plaintiff, Harry Fleming, he alleges that a substantial asset of Ranks consists of wheat and flour at the Dublin mill and that this asset is perishable, but, by their occupation of the mill, the plaintiffs have prevented necessary steps being taken to preserve it.
There are clearly difficult questions to be decided. Amongst these are: 1. The period of the duration of the 1978 agreement: 2. Whether it enured for the benefit of persons who remained in the employment of Ranks: 3. The effect of the decision of the Labour Court when considered in conjunction with the admission by Ranks that the Union s acceptance of the new terms was without prejudice to the position in relation to the decision of the Labour Court: 4. The extent to which members are bound by the agreements of the Union of which they claim to be members and which they allege was negotiating on their behalf: 5. The extent to which Ranks are bound to employees by an agreement with the Union of which the plaintiffs notified Ranks that they were not members: 6. The financial position of Ranks having regard to the controlling interest of the parent company or companies.
These are not matters to be decided at this stage of the proceedings, but they indicate that there are serious questions to be decided in the proceedings and that there is definitely a case to be made on behalf of the plaintiffs.
The case made for granting the injunction is that the association of Ranks with its subsidiary companies and its parent company is likely to enable Ranks to dispose of its assets so that any judgment obtained by the plaintiffs will be of no value
The case made on behalf of the defendants is that there is no actual evidence that Ranks are trying to get rid of their property or are likely to do so, that the company is an Irish company with no record of defaulting on its commitments, that an injunction in the terms sought by the plaintiffs will not make the plaintiffs secured creditors and that the balance of convenience is all in favour of refusing to grant an injunction, particularly having regard to the admitted perishable nature of the wheat and flour which must be disposed of, and that the Court should take account of the behaviour of the plaintiffs in refusing to permit these commodities to be properly preserved.
I have been referred to a number of cases on behalf of the parties.
Barclay-Johnson v Yuill [1980] 1 WLR 1259.
Rahman v Abu-Taha [1980] 1 WLR 1268.
Rasu Maritima SA v Perusahaan Pertambangan Minyakdangas Bumi Negara [1978] QB 644; [1977] 3 WLR 518.
Z Ltd v A-Z and AA-LL [1982] 2 WLR 588.
Searose Ltd v Seatrain UK Ltd [1981] QB 923; [1981] 2 WLR 601.
Goulding Chemicals Ltd v Bolger [1977] IR 211.
American Cyanamid Co v Ethicon Ltd [1975] AC 396; [1975] 2 WLR 316.
The injunction sought by the plaintiffs is of a type which has become known as a Mareva injunction because it was first considered in England and there granted in the case of Mareva Compania SA v International Bulk Carriers SA [1975] Lloyd s Reports 509 and now also reported in [1980] 1 All ER 213n. Prior to that case the principle generally applicable was that you cannot get an injunction to restrain a man who is alleged to be a debtor from parting with his property . See Lister v Stubbs [1980] 45 Ch D 1. In the Mareva case an injunction was granted to restrain a defendant out of the jurisdiction from removing property within the jurisdiction so as to prevent a plaintiff with a good arguable case for damages against the defendant which can properly be brought within the jurisdiction from recovering the amount of any award he may obtain.
This principle has been extended in England by a long line of cases ending in the Rahman case in which Lord Denning said, at page 1237:
So I would hold that a Mareva injunction can be granted against a man even though he is based in this country if the circumstances are such that there is a danger of his absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied.
This principle has now been given statutory force in England by s 37(3) of the Supreme Court Act 1981.
I have not been referred to any Irish case dealing with a Mareva injunction although the jurisdiction to grant such an injunction was raised before me in the Matter of Brendan Molloy Limited but I was of opinion that the injunction there sought was not a Mareva type injunction. I note also that an article at page 114 of the Dublin University Law Journal for 1982 considers the application of such injunctions in family law matters.
The jurisdiction to grant such injunctions in England was, prior to 1981, based on provisions similar to those contained in subsection (8) of s 28 of the Judicature (Ireland) Act 1877. The relevant part of this subsection is as follows: an injunction may be granted by an interlocutory order of the Court in all cases in which it shall appear to the Court to be just or convenient that such order shall be made.
I am satisfied that there is jurisdiction to grant such an injunction and that the cases in which it may be granted are not confined to cases in which a defendant is resident outside the State. From the cases cited I would accept that there must be a real risk of the removal or disposal of the defendant s assets, that there must be a danger of default by the defendant, that the plaintiff must show that he has a good arguable case, and, weighing the considerations for and against the grant of an injunction, the balance of convenience must be in favour of granting it. See Barclay-Johnson v Yuill at p 1265.
As I have already stated, it appears to me that there is a good arguable case to be made on behalf of the plaintiffs. The affidavits filed on behalf of the defendants indicate fairly clearly that Ranks is insolvent and it is not alleged that the company does not propose to dispose of its assets although it is averred that there is no intention of disposing of assets to evade any obligation to the plaintiffs.
Inter-company debts between parent companies, associated companies and subsidiary companies should, in my opinion, be scrutinised by a court where the assets available by companies for the payment of their debts are involved even though there is no legal distinction between such debts and the debts owed by a company to its ordinary creditors. On this basis it might be argued in some cases that an order for liberty to inspect the books of a company might be granted but no arguments were advanced on behalf of the plaintiffs on this basis and there was no discussion of the accounts which were exhibited.
Although a special account has been opened by Ranks for the sums to which the plaintiffs are entitled under the Redundancy Acts, it appears to me that, if damages are awarded to the plaintiffs on the basis of their claims, there is a danger of default by Ranks through inability to pay the amounts of the awards.
But I am of opinion that, to justify such an injunction, the anticipated disposal of a defendant s assets must be for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.
On the question of the balance of convenience, on the evidence before me, there can be very little question about the advantage of disposing of the stocks of wheat and flour which is stated by both parties to be perishable. It is also clear that, if the defendants were to be successful in the action, no undertaking as to damages given by the plaintiffs would be of any value.
I would accept as correct the statement of Sir Robert Megarry, VC, at page 1266 of the Barclay-Johnson case, where he said I would regard the Lister principle as remaining the rule, and the Mareva doctrine as constituting a limited exception to it. The Lister Rule refers to the case of Lister & Co v Stubbs mentioned above, and is that the Court will not grant an injunction to restrain a defendant from parting with his assets so that they may be preserved in case the plaintiff s claim succeeds.
Under all the circumstances of this case I am of opinion that I should not grant the application made on behalf of the plaintiffs.
Countyglen Plc v Carway
[1995] 1 ILRM 481 (High Court)
Murphy J: This is an interlocutory application for a Mareva type injunction. Orders are sought in the following terms:
1.An order restraining John Carway, Stephen Carway, Jane Carway and Warren Carway, whether directly or indirectly or through any other person associated with them or through any company and in particular through a German registered company known as Unigrund GMBH from in any way whatever disposing of, transforming, charging, dissipating, diminishing or in any way how soever dealing with any of their assets within the jurisdiction so as to reduce the value of such assets within the jurisdiction below the sum of 1,145,500 and in particular that none of the said persons or company in any way whatsoever dispose of, transform, charge, dissipate, diminish or in any way howsoever deal with the property known as Ballyvalley House, Killaloe in the Coun ty of Clare.
2.An order directing that the defendants and each of them do upon oath disclose all assets held by them, their associates or associating companies, whether within this jurisdiction or elsewhere.
The application arises against a novel and complex background. By order of the High Court made on the 19th January 1994 pursuant to s 8 of the Companies Act 1990, Mr Frank Clarke SC was appointed to investigate the affairs of the above named Countyglen plc with particular reference to the matters set out in paragraphs (a) to (n) in the said order. On or about 7 July 1994 Mr Clarke produced an interim report and on the 17th October 1994 he presented his final report.
Section 22 of the Companies Act 1990 contains the following important provision, namely:
A document purporting to be a copy of a report of an inspector appointed under the provisions of this Part shall be admissible in any civil proceedings as evidence:
(a)Of the facts set out therein without further proof unless the contrary is shown …
By notice of motion dated the 15th December 1994 and returnable before the High Court at 2 pm on the 23rd January 1995, Countyglen claim as against the defendants orders which include the following:
(1)A declaration that the defendants and each of them have been guilty of fraud and/or conspiracy to defraud in or about the unlawful and wrongful removal of the sum of 541,000 from the plaintiff for the purpose of the purchase of shares in a company known as Orbitron Capital Corporation.
(2)A declaration that the defendants and each of them have been guilty of fraud and/or conspiracy to defraud in or about the unlawful and wrongful removal of the sum of 603,448 from the plaintiff for the purpose of the purchase of shares in a company known as Laurence Trading Ltd.
(3)Further, or in the alternative, an order that the first, fourth and fifth named defendants have been guilty of breach of duty and breach of trust in and about the transactions described in (1) and (2) herein.
(4)A declaration that the first, second, third, sixth, seventh and eighth named defendants hold the sum of 1,144,448 or some part thereof jointly or severally in trust for the plaintiff, the said sums having been fraudulently and/or in breach of duty or in breach of trust removed from the plaintiff company and subsequently held by the said defendants to their use or to their benefit.
(5)An order pursuant to s 12(1)(b) of the Companies Act 1990 directing that the respondents and each of them pay the company the sum of 541,000 unlawfully and wrongfully removed from the company in the course of the Orbitron transaction.
(6)An order pursuant to s 12(1)(b) of the Companies Act 1990 directing the respondents and each of them to restore to the company the sum of 603,448 unlawfully and wrongfully removed from the company in the course of the Laurence/Wyndhan transaction.
The company also claims an order requiring the defendants to indemnify it against the costs or expenses of the inspectorship which the company may be required to pay to the Minister for Justice.
On the 5th December 1994 an application was made ex parte for an interim order in the terms now set out in the motion seeking the interlocutory relief. That order was granted but only on the terms that the interim injunction should in the first instance continue until the 12th December 1994 and even then subject to the express right of the defendants to apply to the court to discharge the said order on giving 24 hours notice to the solicitors for the applicant. The interim order – and the undertaking as to damages given on behalf of the applicant – was continued by consent to the hearing of the motion on the 9th January 1995 and thereafter by order of the court until the delivery of the judgment herein. In relation to the claim for an order that the first, sixth, seventh and eighth named defendants do make disclosure on oath of all assets held by them as of the 5th December 1994, it was ordered that such an affidavit should be made and delivered in a sealed envelope to the examiner of the High Court on or before 30 December 1994. A sealed envelope purporting to comply with that order was delivered to the Central Office of the High Court and remitted to the examiner of the High Court where it is at present retained unopened.
If the reports of the inspector could be summarised in a single sentence it might be said that he concluded that the transactions involving the purchase of shares in the companies known as Orbitron Capital Corporation and Laurence Trading Ltd were fraudulent and that the Carway family but particularly Mr John Carway was deeply implicated in the frauds which resulted in substantial loss to Countyglen plc. These proceedings are brought to recover damages or restitution in respect of that loss or alternatively, an order pursuant to s 12 of the Companies Act 1990 requiring repayment of the sums misapplied.
The injunction and ancillary relief is sought to preserve or ensure the preservation of the assets of the specified defendants within the jurisdiction pending the determination of those issues. It had been intended that those issues would be heard and perhaps disposed of on the 23rd January 1995 but it is now clear that that will not happen.
The affidavits on which the plaintiffs rely for the purpose of obtaining the Mareva injunctions are sworn by Mr Niall Duggan who is now the chief executive of Countyglen plc. The substance of the grounds on which the injunction is sought is set out in paragraph 7 of the affidavit sworn by Mr Duggan on the 28th November 1994 which contains the following averments:
I believe from my own inquiries that Mr Carway is a man with no apparent assets who nonetheless lives a high lifestyle and is involved in substantial business transactions. I believe that in Ireland he resides at Ballyvalley House, Killaloe, Co Clare. I believe that Warren Carway, Stephen Carway and Jane Carway also reside there. Indeed, in his affidavit sworn on 4 November 1994, Mr Stephen Carway describes himself as a company director of Ballyvalley House, Killaloe, Co Clare . While I believe that the house is in the name of a German registered company, Unigrund GMBH, I believe that this company is under the direct control of the Carway family, particularly John Carway and Jane Carway. Ballyvalley House is the only substantial known asset of the Carway family. I believe that they have lived there since late 1985. I believe that the very unusual form of ownership of the family home (through a German registered company) is simply an effort to obstruct legitimate creditors (such as my company) enforcing their rights against the Carway family. I have a very real fear and belief that should my company succeed in this action against the Carways (I believe that the inspector s report gives great support for my company s claim against them) then the assets of the Carway family or of Mr John Carway will simply be further dissipated or placed in a position where it is either difficult or impossible for my company to execute against them. Obviously, in the event that my company s claim against the Carways is unsuccessful, I am prepared to give an undertaking as to damages in respect of any interim or interlocutory injunction granted at this time.
This application poses the question In what circumstances should a Mareva type injunction be granted ?
Counsel on behalf of the applicant contends that the tests to be met for obtaining a Mareva injunction are similar in substance to those identified by the Supreme Court in Campus Oil Ltd v Minister for Industry and Energy [1983] IR 88; [1984] ILRM 45. In that case the Supreme Court concluded that it was the duty of a court exercising its jurisdiction in granting or refusing an interlocutory injunction to determine whether a fair bona fide or serious question had been raised to be decided at the trial by the party seeking relief. The Supreme Court pointed out that the court dealing with the matter ought not to weigh up the relative strengths of the parties cases on the evidence available at the interlocutory stage as that evidence would be necessarily incomplete. Once a fair or serious question has been raised, the court must then go on to consider where the balance of convenience lies.
Counsel on behalf of the respondents in the present motion contends that something more is required where a Mareva injunction is sought. In the Mareva case itself (Mareva Compania Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd s Rep 509), the burden was stated as follows (at p 510):
If it appears that the debt is due and owing – and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment the court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets.
In Rasu Maritima SA v Perusahaan Pertambangin Minyak [1978] QB 644, Lord Denning MR extended this – as he explained himself – to cases where the plaintiff could show that he had a good arguable case . In Z Ltd v A-Z and AA-LL [1982] QB 558, Kerr LJ in the course of his judgment expressed his view as to the circumstances in which a Mareva injunction should be granted in the following terms (at p 585):
It follows that in my view Mareva injunctions should be granted, but granted only, when it appears to the court that there is a combination of two circumstances. First, when it appears likely that the plaintiff will recover judgment against the defendant for a certain or approximate sum. Secondly, when there are also reasons to believe that the defendant has assets within the jurisdiction to meet the judgment, in whole or in part, but may well take steps designed to ensure that these are no longer available or traceable when judgment is given against him.
Indeed in Fleming v Ranks (Ireland) Ltd [1983] ILRM 541 (the only reported Irish case on the circumstances in which a Mareva injunction will be granted) McWilliam J decided that the plaintiff must show that he has a good arguable case .
I doubt that there is any significant difference between the expressions good arguable case and a substantial question to be tried but if such a distinction exists, I would prefer the latter criterion as the one approved by the Supreme Court in the Campus Oil case although not specifically related to the Mareva type injunction. What I reject emphatically is that a plaintiff seeking a Mareva injunction must establish as a probability that his claim would succeed. This probability test was rejected by the Supreme Court in the Campus Oil case as a matter of precedent and of principle. O Higgins CJ explained the position at p 61 of the report in the following terms:
The application of the criterion suggested by the appellants in this case would involve the court in a determination on an application for interlocutory relief of an issue which properly arises for determination at the trial of the action. In my view, the test to be applied is whether a fair bona fide question has been raised by the person seeking relief. If such a question has been raised, it is not for the court on an interlocutory application to determine that question; that remains to be decided at the trial.
In my view, it would be entirely inappropriate for the court on an interlocutory application to review such of the evidence as is available to it and attempt to forecast the outcome of the proceedings as a matter of probability or likelihood. What can and should be done is to determine that there is a fair, serious question to be tried.
In the present case there is evidence to support the serious allegations of fraud and breach of trust made against the defendants. At the same time I recognise that in the voluminous affidavits sworn by Mr John Carway the validity of this evidence and the weight to be attached to it has been challenged on numerous grounds and that those issues too are serious and bona fide. It is not my task, however, to assess which case is likely to prevail.
It is in relation to the risk of the defendants assets being dissipated in advance of any judgment in the matter with a view to defeating the same and also with regard to the general balance of convenience that considerations different from those pertaining in relation to the conventional injunctions arise. In Fleming v Ranks (Ireland) Ltd McWilliam J summarised the circumstances in which a Mareva injunction would be granted (at p 546 of the judgment) in the following terms:
I am satisfied that there is jurisdiction to grant such an injunction and that the cases in which it may be granted are not confined to cases in which a defendant is resident outside the State. From the cases cited I would accept that there must be a real risk of the removal or disposal of the defendants assets, that there must be a danger of default by the defendant, that the plaintiff must show that he has a good arguable case, and, weighing the considerations for and against the grant of an injunction, the balance of convenience must be in favour of granting it.
There were two further points to which the late McWilliam J drew attention. In my view both are important and it is proper that I should refer to them as follows:
(1)It was accepted in the Ranks case that the defendants proposed to dispose of its assets. What the judge accepted however was that there was no intention of disposing of assets with a view to evading any obligation to the plaintiff. It was for that reason that he declined to make the order sought.
(2)He accepted as correct the statement of Sir Robert Megarry VC in Barclay-Johnson v Yuill [1980] 1 WLR 1259 at p 1266. That statement was as follows:
I would regard the Lister principle as remaining the rule, and the Mareva doctrine as constituting a limited exception to it.
That rule or principle was to the effect that the court will not grant an injunction to restrain a defendant from parting with his assets so that they may be preserved in case the plaintiffs claim succeeds. The basis of the Mareva injunction is to prevent an anticipated abuse by a defendant of his legal rights so as to frustrate unjustly the anticipated order of the court.
The actual evidence adduced by the applicant in the present case as to the nature or extent of the assets of the defendants within the jurisdiction of this Court and of the danger of the defendants dissipating those assets or transferring them outside the jurisdiction is extremely limited. The only asset identified was the family home in Killaloe and whatever inference might be drawn from the statement that Mr Carway lives a high lifestyle and is involved in substantial business transactions . What emerges clearly from the affidavit of Mr Duggan and indeed the report of the inspector is that the nature of Mr Carway s business and his lifestyle is such as would facilitate the transfer of assets on an international basis. Indeed it is significant that Mr Carway now appears to be living in the Isle of Man whereas he was living in Co Clare when the investigation by the inspector took place.
The position now is that the defendants have had the opportunity of adducing such evidence as they think fit in relation to the matters in issue on this motion. Mr Carway has sworn three lengthy affidavits on this motion incorporating, as exhibits or by reference, numerous other documents. The averments contained in those affidavits are material in so far as they indicate the basis of the defendants challenge to the plaintiff s claim herein. However, what is striking is that in the lengthy and carefully prepared affidavits Mr Carway does not deal at all with the question of what assets he has within the jurisdiction of this Court or the allegation, suspicion or inference that the same may be dissipated so as to frustrate an order of this Court. Even more surprising is the fact that Mr Carway does not claim that the interim order or the interlocutory order claimed has caused or will cause any particular difficulty for him. Counsel on behalf of the defendants asserts that a Mareva injunction must of necessity impinge upon a defendant s constitutional rights in relation to private property and his or her right to earn his livelihood. However, that argument merely relates to the existence of the rights and the likelihood of some measure of inconvenience. Whether that inconvenience has any degree of significance cannot be assessed without the assistance of the defendants. It may be that the assets of the defendants in the State far exceed the amount which the plaintiff seeks to freeze. At the other end of the scale the defendants may have no assets available to them within the jurisdiction. In either case, the actual hardship or inconvenience would be little or none. If the defendants disclose the existence of some asset within the jurisdiction of this Court, then it might be anticipated in accordance with the guidelines indicated in the English cases and the practice adopted in this jurisdiction that the Mareva injunction, if granted, would be fine-tuned to ensure that the interest of the plaintiff would be protected without any unnecessary hardship to the defendants. However, on the basis of the evidence presently available to the court, it seems to me that the proper inference to draw is that the defendants do have assets in the jurisdiction; that there is a real risk that those assets will be dissipated and that the defendants are not apprehensive of any real inconvenience to them as a result of a Mareva injunction being granted.
In those circumstances I will make an order, a Mareva injunction, in the terms of paragraph (1) of the notice of motion herein. The order will be confined to assets within the jurisdiction of this Court. That a Mareva injunction should be so restricted appears to have been established by the decision in Allied Arab Bank Ltd v Hajjar [1988] QB 787. It is in any event the form of the order sought herein.
With regard to discovery, there is no doubt as to the power of the court to make an order for discovery as ancillary to a Mareva injunction. In my view, it is desirable that such an affidavit should be sworn in the present case. However, it seems to me that the order in that behalf should be restricted, like the injunction itself, to the assets of the defendants within the jurisdiction of this Court. The defendants have expressed concern as to the disclosure of the contents of the affidavit of discovery. In that regard I can only repeat what has been often stated, namely, that discovery is made solely for the purposes of the particular litigation in which the Order is made and that the use or abuse of the information obtained in discovery for any other purpose would be a clear contempt of the court and punishable accordingly.
With regard to the affidavits, it does seem to me that it would be appropriate that each of the defendants should make an affidavit and, having regard to the work already done in this regard, I assume that this documentation could be completed within 14 days from the date hereof. However, I will hear counsel on behalf of the defendants as to whether or not this creates any insuperable difficulty.
O Mahony v Horgan
[1995] 2 IR 411 (Supreme Court)
Hamilton CJ: The claimant/respondent herein (hereinafter called the liquidator ) is the liquidator of John Horgan Livestock Ltd (hereinafter called the company ).
The respondents herein are and were directors of the company which had been incorporated on the 13th February 1973.
The company s objects were to carry on business as importers and exporters of live cattle, pigs, sheep and horses, and dealers in cattle, pigs, sheep and horses generally and in all facets of such business.
An order for the winding up of the company was made on the 11th November 1991 following the presentation of a petition by the Revenue Commissioners on foot of a debt of 1,174,514.65 on the 8th November 1991.
On that date by order of the High Court, the liquidator was appointed liquidator of the company.
A statement of affairs was filed in the High Court in March 1992 showing an estimated deficiency of 11,653,992.00.
On the 18th June 1993, the liquidator caused to be issued a notice of motion which was served on each of the respondents named herein seeking against each of the said respondents:
(a)An order pursuant to the terms of s 298, sub-s (2) of the Companies Act 1963.
(b)A declaration pursuant to s 204 of the Companies Act 1990 declaring that the respondents as directors of the company are in breach of s 202 sub-s (10) of the Companies Act 1990 and are personally liable without limitation of liability for all, or such part, as the court may specify of the debts and other liabilities of the company, by reason of the fact that the contravention aforesaid of s 202 sub-s (10) has contributed to the company s inability to pay all of its debts and/or has resulted in substantial uncertainty to the assets and liabilities of the company and/or has substantially impeded the orderly winding up thereof.
(c)A declaration pursuant to ss 297 or 297A of the Companies Act 1963 (as inserted by s 138 of the Companies (Amendment) Act 1990) declaring that the respondents, as directors of the company will be personally responsible without limitation of liability for any of the extra liabilities of the company or for such part thereof as the court may direct or for such relief under s 139 of the Companies Act 1990 as to the court shall seem meet.
Other relief as sought in the notice of motion was claimed against the respondents.
The grounds upon which such relief was sought are set forth in detail in the notice of motion and the application was grounded on the affidavit of the liquidator sworn on the 17th June 1993 and the documents and correspondence therein exhibited.
On the 23rd June 1993 the liquidator caused to be issued a notice of motion claiming the following relief against the second named respondent in the said proceedings and the appellant herein:
(1)An interlocutory injunction restraining the second named respondent from collecting or receiving the sum of 71,000 with accrued interest representing monies payable under a policy of insurance with Norwich Union and the subject matter of proceedings entitled The High Court Record No 1992 No 5972P between James Horgan plaintiff and Norwich Union Fire Insurance Society and John Horgan Ltd (in liquidation) defendants .
(2)Alternatively, an interlocutory injunction restraining the second named respondent from disposing of or dissipating or charging the said sum of 71,000 with accrued interest thereon.
This application was grounded on the proceedings already referred to, the affidavit of the liquidator and one Tom Tobin.
By order dated the 28th June 1993, the learned trial judge, Murphy J ordered:
That the second named respondent, Jim Horgan, be restrained pending trial of this action or further order in the meantime from disposing of or dissipating or charging the sum of 71,000 with accrued interest thereon representing monies payable under a policy of insurance with Norwich Union Insurance Society and the subject matter of proceedings between James Horgan, plaintiff and Norwich Union Fire Insurance Society and John Horgan Ltd (in liquidation) defendants, and granted liberty to the said respondent to apply for the removal or variation of this order if and when so advised and on giving not less than 14 days notice to the claimant of any intention to so apply.
Counsel s note of the ex tempore judgment delivered by the learned trial judge was adopted by him as a proper transcript of the judgment herein.
In the course of this judgment he stated:
Mr O Mahony, in his affidavit, avers to a significant list of wrongdoings in particular the failure to keep proper or adequate records. On the financial side, he states that he estimates the deficiency at 11.6 million and he expresses the view that loans to directors amount to 2.4 million and after certain payments the balance due on foot of these loans is 1.9 million. There are a number of other matters queried. But for all of the detail in this affidavit, the crucial topic is dealt with in paragraph 47 where Mr O Mahony avers as follows:
I am naturally concerned having regard to the manner in which the affairs of the company were conducted to ensure that the said sum of 71,000 should be available to meet any decree which may be made in favour of the company in liquidation against the second named respondent and apprehensive that in the absence of such order the said sums will not be available.
In the course of his judgment the learned trial judge set forth the criteria to be taken into account in considering whether an injunction of the type sought, generally known as a Mareva injunction, should be granted and listed them as follows:
1.The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know.
2.The plaintiff should give particulars of his claims against the defendant, stating the grounds of his claims and the amount thereof and fairly stating the points made against it by the defendant.
3.The plaintiff should give some grounds for believing that the defendant has assets within the jurisdiction. The existence of a bank account is normally sufficient.
4.The plaintiff should give some grounds for believing that there is a risk of the assets being removed or dissipated.
5.The plaintiff must give an undertaking in damages, in case he fails.
It appears from his judgment that the learned trial judge was satisfied that the criteria set forth at 1, 2 and 3 had been met by the liquidator.
He then went on to say that:
The real issue is whether the plaintiff has given any grounds for believing that there is any risk of dissipation. All the plaintiff has said is that he is apprehensive in this regard. That is a far cry undoubtedly from evidence of conscious abuse.
He then went on to deal with the question of an undertaking and stated:
Mr O Mahony has, perhaps surprisingly agreed to do that because his personal liability will be indemnified by the Revenue Commissioners. I have stressed the infirmities in the plaintiff s application. Counsel for the respondents has analysed still further the weaknesses and contradictions but without providing any affidavit in reply. It seems to be that it must be recognised that the respondents, having been given notice and having been afforded an opportunity to adjourn the matter declined an invitation to put in such an affidavit. The respondents resist the applications on the basis of their submission. On the face of it, there is reason for considerable concern as to the manner in which the respondents carried on the business of the company. One may criticise the lack of detail given by Mr O Mahony in relation to the allegation. His computation of the directors indebtedness to the company may be criticised. But that criticism would be entertained more readily if there was a denial on affidavit. No direct evidence is given that monies would be dissipated but in the context of the sums involved and the parties obligations to the banks, the concern of the official liquidator has not been shown to be displaced. On the overall complexities of the matter, the probabilities that monies will cease to be retained is likely. It seems to be that the injunction should be granted in the specific circumstances of the case. The undertaking as to damages, however, should be limited to 25,000.
The appellant has appealed to this Court on a number of grounds which can be summarised as follows:
The learned trial judge erred in fact and in law in:
(a)holding that the respondent had made out a good arguable case against the appellant and in finding that the respondent had made a full and frank disclosure of all matters in his knowledge which it was material for the learned High Court judge to know,
(b)failing to have sufficient regard to the test to be applied with regard to the dissipation of assets, in particular the failure to give grounds supported by evidence for believing that there is a risk of the assets being removed or dissipated with a view to avoiding payment of any monies which might ultimately be found owing,
(c)in limiting the respondent s undertaking as to damages to the sum of 25,000 in advance of any enquiry as to damages which might ultimately be directed by the court.
Before dealing with these grounds of appeal however it is desirable to set forth the principles underlying the grant of Mareva injunctions.
The common law, traditionally, expressed the principle that the plaintiff is not entitled to require from the defendant, in advance of judgment security to guarantee satisfaction of a judgment that the plaintiff may eventually obtain.
This position was altered in the United Kingdom by two decisions of the Court of Appeal in 1975, viz Nippon Yusen Kaisha v Karageorgis [1975] 1 WLR 1093; and Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213.
These cases involved claims for damages arising from shipping contracts brought against foreign defendants. In both, the plaintiffs obtained orders (ex parte) restraining the defendants from removing their funds out of the jurisdiction pending the adjudication of the actions.
Injunctions of this type became known as Mareva injunctions. A Mareva injunction is an ad personam order, restraining the defendant from dealing with assets in which the plaintiff claims no right whatsoever. A Mareva order does not give the plaintiff any precedence over other creditors with respect to the frozen assets.
Because of the draconian nature of such orders, Lord Denning in Third Chandris Shipping Corporation v Unimarine SA [1979] QB 655 at pp 668-689, laid down the five criteria to be established before such injunctions are granted which are the criteria set forth in the learned trial judge s judgment.
In Z Ltd v A-Z and AA-LL [1982] 1 QB 558, Kerr LJ in the course of his judgment stated his view as to the circumstances in which a Mareva injunction should be granted in the following terms at p 585:
It follows that in my view Mareva injunctions should be granted, but granted only, when it appears to the court that there is a combination of two circumstances. First, when it appears likely that the plaintiff will recover judgment against the defendant for a certain or approximate sum. Secondly, when there are also reasons to believe that the defendant has assets within the jurisdiction, to meet the judgment in whole or in part, but may well take steps designed to ensure that these are no longer available or traceable when judgment is given against him.
Consequently a Mareva injunction will only be granted if there is a combination of two circumstances established by the plaintiff ie (i) that he has an arguable case that he will succeed in the action, and (ii) the anticipated disposal of a defendant s assets is for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.
In the course of his judgment in Fleming v Ranks (Ireland) Ltd [1983] ILRM 541 the late McWilliam J stated at p 546 of the report that:
I am satisfied that there is jurisdiction to grant such an injunction … From the cases cited I would accept that there must be a real risk of the removal or disposal of the defendant s assets, that there must be a danger of default by the defendant, that the plaintiff must show that he has a good arguable case, and, weighing the considerations for and against the grant of an injunction, the balance of convenience must be in favour of granting it. See Barclay-Johnson v Yuill [1980] 1 WLR 1259 at p 1265.
With regard to the facts in the Ranks case, he stated:
Although a special account has been opened by Ranks for the sums to which the plaintiffs are entitled under the Redundancy Acts, it appears to me that, if damages are awarded to the plaintiffs on the basis of their claims, there is a danger of default by Ranks through inability to pay the amounts of the awards. But I am of opinion that, to justify such an injunction, the anticipated disposal of a defendant s assets must be for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.
At the end of p 546, he went on to say that:
I would accept as correct the statement of Sir Robert Megarry VC at p 1266 of the Barclay-Johnson case, where he said: I would regard the Lister principle as remaining the rule, and the Mareva doctrine as constituting a limited exception to it . The Lister Rule refers to the case of Lister & Co v Stubbs mentioned above (1890) 45 Ch D 1 CA] and is that the court will not grant an injunction to restrain a defendant from parting with his assets so that they may be preserved in case the plaintiff s claim succeeds.
In Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769 both the Master of the Rolls and Scott LJ stressed that such relief is not intended to give security in advance of judgment but merely to prevent the defendant from defeating the plaintiff s chance of recovery by dissipation of assets.
Consequently, the cases establish that there must be an intention on the part of the defendant to dispose of his assets with a view to evading his obligation to the plaintiff and to frustrate the anticipated order of the court. It is not sufficient to establish that the assets are likely to be dissipated in the ordinary course of business or in the payment of lawful debts.
Has the liquidator in the instant case adduced evidence to show, or to entitle the learned trial judge to infer, that the appellant is likely to dissipate the asset referred to, viz the proceeds of an insurance policy, with the intention of evading his obligation (if any) to the liquidator?
In his affidavit sworn on the 17th June 1993 he states at paragraph 47(a) thereof that:
I am naturally concerned, having regard to the manner in which the affairs of the company were conducted to ensure that the said sum of 71,000 should be available to meet any decree which may be made in favour of the company in liquidation against the second named respondent and apprehensive that in the absence of order the said sum will not be available.
His apprehension may well be justified but he does not state or allege that the appellant would dissipate the asset with the intention of frustrating any order of the court that may be made.
The learned trial judge himself stated:
All the plaintiff has said is that he is apprehensive in this regard. That is a far cry undoubtedly from evidence of conscious abuse.
and
No direct evidence is given that monies would be dissipated but in the context of the sums involved and the parties obligations to the banks, the concern of the official liquidator has not been shown to be misplaced.
As appears from his affidavit, the liquidator s concern was to ensure that the said sum of 71,000 should be available to meet any decree which might be made in favour of the company in liquidation.
The learned trial judge does not appear to have considered the question whether the apprehended dissipation of the asset was for the purpose of evading any decree that might be made in the proceedings.
Before being entitled to the relief sought by him, the liquidator must establish that there was a likelihood that the assets would be dissipated with the intention that they would not be available to meet any decree or part of a decree ultimately made against the appellant in the proceedings.
In my view, no such intention was established in this case. The entitlement of the appellant to the proceeds of the policy of insurance issued by the Norwich Union Fire Insurance Society arose because of a fire on the appellant s property which destroyed a shed thereon.
While the use of such proceeds to replace the shed, or in the ordinary course of his business as a farmer, or to pay his lawful debts, would mean that such asset would not be available to meet any decree which the liquidator might obtain against the appellant, that fact does not entitle the liquidator to the injunction sought. He must further establish that such utilisation of the asset was made with the intention of evading payment to the liquidator.
As no such intention was established in this case, the appellant s appeal in this case must be allowed on this ground.
Being of this view, it is not necessary for me to consider whether or not the learned trial judge was entitled to place a limit of 25,000 on the undertaking required to be given by the liquidator and I will reserve for future consideration the powers of the court in this regard should it arise in the future. I incline however to the views in this regard expressed in the judgment about to be delivered by O Flaherty J.
O Flaherty J: I agree with the judgment of the Chief Justice that the order of the High Court should be reversed and the appeal allowed.
I wish to add some brief comments only. The absence of any remedy for a creditor against a debtor who was prepared to depart the country or dissipate his assets in defiance of the creditor s rights was a serious defect in our law twenty years or so ago. Practitioners had been very conscious of the injustices that were often perpetrated because no remedy had been developed to meet this situation.
At around the same time as the first applications were brought before the Court of Appeal in England (Nippon Yusen Kaisha v Karageorgis [1975] 1 WLR 1093, and Mareva Compania Naviera SA v International Bulkcarriers SA [1980] 1 All ER 213) the same remedy was allowed in our courts by the invocation of s 28(8) of the Judicature Act (Ireland) 1877, which provides:
A mandamus or an injunction may be granted or a receiver appointed by an interlocutory order of the court in all cases in which it shall appear to the court to be just or convenient that such order shall be made, and any such order may be made either unconditionally or upon such terms and conditions as the court shall think just; and if an injunction is asked, either before, or at, or after the hearing of any cause or matter, to prevent any threatened or apprehended waste or trespass, such injunction may be granted, if the court shall think fit, whether the person against whom such injunction is sought is or is not in possession under any claim of title or otherwise, or (if out of possession) does or does not claim a right to do the act sought to be restrained under any colour of title, and whether the estates claimed by both or by either of the parties are legal or equitable.
In its original manifestation, the remedy was used in clear cases where a debt was established and the debtor was about to abscond or to dissipate his assets.
As the jurisdiction has developed it appears now to be sufficient to establish that the plaintiff has a good arguable case and for a diverse series of cases. I would have preferred that the remedy should have been confined to situations where there was a clear case involving a claim for a definite sum of money or, otherwise, for some tangible object – where the claim was more or less certain, in so far as there is ever certainty in any litigation. It may now be too late to put that particular clock back.
Nonetheless, it needs to be emphasised that the Mareva injunction is a very powerful remedy which if improperly invoked will bring about an injustice, something that it was designed to prevent. It may put a person or a company out of business. It may contribute to delay in bringing litigation to a head. It may be used as a diversionary tactic and be a part of the skirmishes that increasingly occur in much litigation. It may – as is the case here – take on a life of its own while the main litigation is becalmed. I glean that a sense of urgency is not affecting the main litigation and will not do so while this sideshow is running.
Further, on the facts of this case, the remedy is neither appropriate nor relevant. The amount that it is sought to freeze is but a tiny fraction of the millions of pounds that it is said are involved in the main action. It has to be reiterated that the Mareva remedy is to protect assets that may be dissipated in which case the judgment that the plaintiff gets will go unsatisfied. A Mareva injunction is not appropriate to enforce a claim to the assets themselves.
Since the assets in question here are of little or no relevance to the amount at stake – which runs into many millions of pounds – aside altogether from the fact that the case in regard to dissipation of assets has not been made out even to a prima facie extent – there is not here a situation where Mareva relief should be granted.
As regards the undertaking as to damages, I know of no case where a limit has been put on the amount that may be required to be paid, if it is held that the injunction was improperly obtained, nor do I think it right in principle that such a limit should be placed in view of the far-reaching implications involved in any restraint that is imposed on a party by reason of such an injunction prior to judgment.
Blayney J: I agree with both judgments.
Deutsche Bank Aktiengesellschaft v Murtagh
[1995] 1 ILRM 381
Costello J:
Introduction
The plaintiff company (a bank incorporated and carrying on business in Germany) has claimed against the defendants 1,000,000 DM (one million Deutschmarks) due, it is said, on guarantees in writing executed by each defendant on the 2nd April 1993, together with appropriate interest. The contract of guarantee was executed in Germany, it is subject to German law, it was to be performed in Germany and neither of the defendants are Irish citizens. The defendants entered an appearance to the plaintiff s summary summons on a without prejudice basis, asserting that the Irish courts have no jurisdiction to adjudicate on the plaintiff s claim. Having instituted the proceedings the plaintiff moved immediately for a Mareva injunction restraining the defendants from dealing with their assets in the jurisdiction and in particular, the property known as Olde Court Castle at Nenagh, County Tipperary in which they presently reside. The motion was adjourned generally, the defendants having given certain undertakings to the court, pursuant to which affidavits were filed. This new motion to restrain dealing with extra-territorial assets was then brought. The parties have agreed that I should determine as a preliminary issue, for the purposes of this motion and the action itself, the issue of the court s jurisdiction to adjudicate on the claim. Should I decide in the defendants favour that will end the proceedings. Should I decide in the plaintiff s favour then I will consider the claim that the injunction should be extended to prohibit the dealing by the defendants with certain specified assets outside the jurisdiction.
The jurisdiction of the Irish Courts
The issue of jurisdiction depends primarily on a construction of the Jurisdiction of Courts and Enforcement of Judgments (European Communities) Act 1988 and the Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters of 27 September 1968. The 1968 Convention was given the force of law in this country by s 3 of the 1988 Act. Should I decide, as the plaintiff asks me to decide, that the courts have jurisdiction if it can be established that the defendants are ordinarily resident in the State then the facts as deposed to on affidavit must be considered to see whether they are so resident.
Briefly, the defendants case is that the courts only have jurisdiction in these proceedings if it can be shown that the defendants have an Irish domicile (in accordance with well established common law concepts) as well as being ordinarily resident in the State. The plaintiff s case is that the test is an ordinary-residence one and that on the evidence ordinary residence has been established and so the court has jurisdiction.
(a) The 1988 Act and the 1968 Convention
(1)Article 2 of the convention provides that persons domiciled in a contracting state shall, whatever their nationality, be sued in the courts of that state.
(2) Domicile is not defined but Article 52 provides that in order to determine whether a party is domiciled in the contracting state whose courts are seized with the matter the court shall apply its internal law .
(3)The 1988 Act defined domicile for the purposes of the convention. It provided in s 13 that:
Subject to article 52, Part 1 of the Fifth Schedule to this Act shall apply in relation to the text in the English language of the 1968 Convention … in order to determine for the purposes of the 1968 Convention and this Act whether an individual is domiciled in the State …
And Part 1 of the Fifth Schedule, headed domicile , provides that:
An individual is domiciled in the State, or in a state, other than a contracting state if, but only if, he is ordinarily resident in the State or in that other state.
The plaintiff argues that the Irish courts obtain jurisdiction under the convention when it can be shown that a defendant is ordinarily resident in the State. In support of this construction the plaintiff called in aid the Schlosser Report (which, by s 4 of the 1988 Act, is admissible as an aid in construing the convention) which specifically referred to the need to change the common law concept of domicile both in this country and in the United Kingdom and which recorded that it was a condition of the accession of this country to the convention that implementing legislation would provide for a concept of domicile which would depart from traditional concepts (that is, those of domicile of origin and domicile of choice ). Specifically, paragraph 73 of the report refers to the fact that a working party had requested Ireland and the United Kingdom to provide in legislation implementing the convention for a concept of domicile which would depart from their traditional rules and would tend to reflect more the concept of domicile as understood in the original States of the EEC .
The defendants have submitted that these provisions are to be construed as providing that there was superimposed on the Irish rules relating to domicile a further requirement, that of ordinary residence. It is said that this arises because s 13 of the Act is introduced by the phrase subject to article 52 of the convention (that is, the article which provides that the courts in contracting states are to apply their own internal laws in order to determine where a party is domiciled) and it is urged that if it had been intended to substitute an entirely new definition of domicile the section would have read to give effect to article 52 of the convention or in pursuance to article 52 of the convention or words to similar effect. It is claimed this construction obtains support from the words in the Fifth Schedule to the Act which provides that an individual is domiciled in the State if, but only if he is ordinarily resident in the State.
I am satisfied that the plaintiff s construction is the correct one and that the Oireachtas has effectively carried out the request of the working party referred to in the Schlosser Report. Section 13 is quite clear – in order to determine for the purposes of the 1968 Convention and the 1988 Act whether an individual is domiciled in the State the court must apply the provisions of the Fifth Schedule to the Act. This means that the traditional common law principles relating to the concept of domicile are not to be applied; instead the court will consider whether the defendant is ordinarily resident in the State. If he is and if he is a national of a contracting state then the court has jurisdiction in accordance with the convention and the Act.
What then falls for consideration is whether it has been shown that the defendants in this case are ordinarily resident in Ireland.
Ordinarily resident
The Supreme Court has shown how the courts should approach the task of construing the meaning of the words ordinary residence or ordinarily resident when they appear in, but are not defined in, a statute. In State (Goertz) v Minister for Justice [1948] IR 45 the Chief Justice (at p 55) stated:
Cases have been cited to us in which the meaning of the words, resident and ordinarily resident , have been considered. In my view they are of very little help They are of assistance, however, in showing that the word resident , not being a term of art, must be construed by reference to the statute in which it is found. The cases of Levene v Inland Revenue Commissioners and Lysaght s case which deal with the meaning of the term in the Income Tax Act 1918, afford no sure guidance as to the meaning of the term in the Act under consideration here. Neither does the interpretation placed on the term, resident , in cases under the Children Act 1908, of which Stoke-on-Trent Borough Council v Cheshire County Council is an example. Still less assistance is to be got from the case of Berkshire County Council v Reading Borough Council, which is a case concerning the meaning of the term in the Mental Deficiency Act 1913. In these cases and others it appears clear, however, that the words, ordinarily resident , should be construed according to their ordinary meaning and with the aid of such light as is thrown upon them by the general intention of the legislation in which they occur and, of course, with reference to the facts of the particular case.
I must therefore give to the words ordinarily resident in the 1988 Act their ordinary meaning in the light of the general intention of the 1988 legislation.
The facts in this case are not in dispute. In an affidavit sworn by Mr Murtagh on the 24th October 1994 it is stated:
I am a British citizen and have been born and raised in the United Kingdom and I hold a British passport. I have lived much of my adult life in Germany and have moved backwards and forwards between the United Kingdom and Germany a number of times. While I have been living with my family (my wife and four children) in Terryglass for the last twelve months I cannot say with any certainty that I would remain in Terryglass or even in Ireland. As in the past, it is likely that, should a business opportunity arise in Germany, the United Kingdom or elsewhere, I will move my family to that country in order to exploit such opportunity. My wife is a German national and I believe and hope that it is her intention to reside where I reside.
It is to be noted that neither of the defendants have suggested that they have any residence outside Ireland and it is clearly established that since October 1993 the defendants have been resident in a substantial property (which they value at 300,000) at Terryglass and they have no other residence in any of the other contracting states. Furthermore, the evidence establishes that the defendants children attend school in the State and that the defendants have a number of bank accounts in the State. The defendant adverts to the possibility that he may change his residence should a suitable business opportunity arise.
This state of mind may be relevant if the court was determining whether the defendant had acquired an Irish domicile of choice according to common law principles, but it is not relevant on the facts of this case when the court is deciding whether the defendant is ordinarily resident in the State.
I must hold, therefore, that, giving the words ordinarily resident their ordinary meaning and bearing in mind the context in which they appear in the 1988 Act, it has been established that when these proceedings were instituted the defendants were ordinarily resident in the State and they continued to be ordinarily resident here. It follows, therefore, that the Irish courts have jurisdiction to adjudicate on the plaintiff s claim in these proceedings.
Interlocutory relief
I turn now to consider the plaintiff s motion for interlocutory relief.
By motion of the 17th October 1994 the plaintiff sought an order restraining the defendants from dealing with assets held by them in the jurisdiction and in particular the property known as Olde Court Castle . On the 24th October the defendant Mr Murtagh swore an affidavit in which he stated that the property was subject to a charge to secure a loan of 50,000, and that it was also subject to a further charge securing a loan of 200,000. Instead of an order being made on the plaintiff s motion the defendants gave undertakings and the motion was adjourned. One of the undertakings which the defendants gave was to swear an affidavit identifying their assets within the jurisdiction. The affidavit sworn pursuant to this undertaking disclosed that the second charge was a charge in favour of John Mansfield of 140 Borough Road, Middlesboro, England, in the sum of Stg 200,000 ranking in priority behind the building society s mortgage. The plaintiff, not surprisingly, was concerned to learn about the second charge as (a) it had written a letter of demand on the 7th October 1994 and the charge had, apparently, been executed five days later on the 12th October 1994 and (b) the charge was not in favour of a financial institution but of a private individual.
Accordingly, it applied for and obtained on the 22nd November 1994 an interim injunction restraining the defendants from dealing outside the State with monies received in consideration for the execution of the second charge and other relief. A motion for an interlocutory injunction seeking a similar order until the trial of the action followed and ancillary orders were also sought.
I am satisfied that the plaintiff is entitled to the relief it claims. In my opinion the court has jurisdiction to restrain the dissipation of extra-territorial assets where such an order is warranted by the facts. The basis on which a Mareva injunction is granted is to ensure that a defendant does not take action designed to frustrate subsequent orders of the court. It is well established in England that a Mareva injunction may extend to foreign assets and I believe that the Irish courts have a similar power in order to avoid the frustration of subsequent orders it may make. The court has ancillary powers also and in suitable cases it may grant a disclosure order requiring a defendant to swear an affidavit in respect of assets outside the jurisdiction (see Derby & Co Ltd v Weldon (Nos 3 and 4) [1989] 2 WLR 412).
I propose, therefore, making an order in the terms of paragraph 1 of the notice of motion of 22 November restraining the dealing, outside the jurisdiction, with any money, assets or other valuable things received in consideration of the execution of the second charge, and a further order as requested in paragraph 2 ancillary to this order. I will also make an order requiring the defendants to disclose on affidavit the information requested in paragraph 3(2) and (3)(a) and (b) of the notice of motion, that is information concerning the making of the loan which was secured by the second charge and how its proceeds have been utilised.
I will reserve the question of costs.
In the Matter of the Companies Acts 1963–1990 and
Countyglen plc v. John Carway and Others
1994 No. 339 Cos
High Court
16 January 1995
[1995] 1 I.L.R.M. 481
MURPHY J
delivered his judgment on 16 January 1995 saying: This is an interlocutory application for a Mareva type injunction. Orders are sought in the following terms:
1. An order restraining John Carway, Stephen Carway, Jane Carway and Warren Carway, whether directly or indirectly or through any other person associated with them or through any company and in particular through a German registered company known as Unigrund GMBH from in any way whatever disposing of, transforming, charging, dissipating, diminishing or in any way howsoever dealing with any of their assets within the jurisdiction so as to reduce the value of such assets within the jurisdiction below the sum of £1,145,500 and in particular that none of the said persons or company in any way whatsoever dispose of, transform, charge, dissipate, diminish or in any way howsoever deal with the property known as Ballyvalley House, Killaloe in the County of Clare.
2. An order directing that the defendants and each of them do upon oath disclose all assets held by them, their associates or associating companies, whether within this jurisdiction or elsewhere.
The application arises against a novel and complex background. By order of the High Court made on 19 January 1994 pursuant to s. 8 of the Companies Act 1990, Mr Frank Clarke SC was appointed to investigate the affairs of the above named Countyglen plc with particular reference to the matters set out in paragraphs (a) to (n) in the said order. On or about 7 July 1994 Mr Clarke *484 produced an interim report and on 17 October 1994 he presented his final report.
S. 22 of the Companies Act 1990 contains the following important provision, namely:
A document purporting to be a copy of a report of an inspector appointed under the provisions of this Part shall be admissible in any civil proceedings as evidence:
(a) Of the facts set out therein without further proof unless the contrary is shown ….
By notice of motion dated 15 December 1994 and returnable before the High Court at 2 pm on 23 January 1995, Countyglen claim as against the defendants orders which include the following:
(1) A declaration that the defendants and each of them have been guilty of fraud and/or conspiracy to defraud in or about the unlawful and wrongful removal of the sum of £541,000 from the plaintiff for the purpose of the purchase of shares in a company known as Orbitron Capital Corporation.
(2) A declaration that the defendants and each of them have been guilty of fraud and/or conspiracy to defraud in or about the unlawful and wrongful removal of the sum of £603,448 from the plaintiff for the purpose of the purchase of shares in a company known as Laurence Trading Ltd.
(3) Further, or in the alternative, an order that the first, fourth and fifth named defendants have been guilty of breach of duty and breach of trust in and about the transactions described in (1) and (2) herein.
(4) A declaration that the first, second, third, sixth, seventh and eighth named defendants hold the sum of £1,144,448 or some part thereof jointly or severally in trust for the plaintiff, the said sums having been fraudulently and/or in breach of duty or in breach of trust removed from the plaintiff company and subsequently held by the said defendants to their use or to their benefit.
(5) An order pursuant to s. 12(1)(b) of the Companies Act 1990 directing that the respondents and each of them pay the company the sum of £541,000 unlawfully and wrongfully removed from the company in the course of the Orbitron transaction.
(6) An order pursuant to s. 12(1)(b) of the Companies Act 1990 directing the respondents and each of them to restore to the company the sum of £603,448 unlawfully and wrongfully removed from the company in the course of the Laurence/Wyndhan transaction.
The company also claims an order requiring the defendants to indemnify it against the costs or expenses of the inspectorship which the company may be required to pay to the Minister for Justice.
On 5 December 1994 an application was made ex parte for an interim order in the terms now set out in the motion seeking the interlocutory relief. That order *485 was granted but only on the terms that the interim injunction should in the first instance continue until 12 December 1994 and even then subject to the express right of the defendants to apply to the court to discharge the said order on giving 24 hours notice to the solicitors for the applicant. The interim order — and the undertaking as to damages given on behalf of the applicant — was continued by consent to the hearing of the motion on 9 January 1995 and thereafter by order of the court until the delivery of the judgment herein. In relation to the claim for an order that the first, sixth, seventh and eighth named defendants do make disclosure on oath of all assets held by them as of 5 December 1994, it was ordered that such an affidavit should be made and delivered in a sealed envelope to the examiner of the High Court on or before 30 December 1994. A sealed envelope purporting to comply with that order was delivered to the Central Office of the High Court and remitted to the examiner of the High Court where it is at present retained unopened.
If the reports of the inspector could be summarised in a single sentence it might be said that he concluded that the transactions involving the purchase of shares in the companies known as Orbitron Capital Corporation and Laurence Trading Ltd were fraudulent and that the Carway family but particularly Mr John Carway was deeply implicated in the frauds which resulted in substantial loss to Countyglen plc. These proceedings are brought to recover damages or restitution in respect of that loss, or alternatively, an order pursuant to s. 12 of the Companies Act 1990 requiring repayment of the sums misapplied.
The injunction and ancillary relief is sought to preserve or ensure the preservation of the assets of the specified defendants within the jurisdiction pending the determination of those issues. It had been intended that those issues would be heard and perhaps disposed of on 23 January 1995 but it is now clear that that will not happen.
The affidavits on which the plaintiffs rely for the purpose of obtaining the Mareva injunctions are sworn by Mr Niall Duggan who is now the chief executive of Countyglen plc. The substance of the grounds on which the injunction is sought is set out in paragraph 7 of the affidavit sworn by Mr Duggan on 28 November 1994 which contains the following averments:
I believe from my own inquiries that Mr Carway is a man with no apparent assets who nonetheless lives a high lifestyle and is involved in substantial business transactions. I believe that in Ireland he resides at Ballyvalley House, Killaloe, Co. Clare. I believe that Warren Carway, Stephen Carway and Jane Carway also reside there. Indeed, in his affidavit sworn on 4 November 1994, Mr Stephen Carway describes himself as a ‘company director of Ballyvalley House, Killaloe, Co. Clare’. While I believe that the house is in the name of a German registered company, Unigrund GMBH, I believe that this company is under the direct control of the Carway family, particularly John Carway and Jane Carway. Ballyvalley House is the only substantial known asset of the *486 Carway family. I believe that they have lived there since late 1985. I believe that the very unusual form of ownership of the family home (through a German registered company) is simply an effort to obstruct legitimate creditors (such as my company) enforcing their rights against the Carway family. I have a very real fear and belief that should my company succeed in this action against the Carways (I believe that the inspector’s report gives great support for my company’s claim against them) then the assets of the Carway family or of Mr John Carway will simply be further dissipated or placed in a position where it is either difficult or impossible for my company to execute against them. Obviously, in the event that my company’s claim against the Carways is unsuccessful, I am prepared to give an undertaking as to damages in respect of any interim or interlocutory injunction granted at this time.
This application poses the question ‘In what circumstances should a Mareva type injunction be granted’?
Counsel on behalf of the applicant contends that the tests to be met for obtaining a Mareva injunction are similar in substance to those identified by the Supreme Court in Campus Oil Ltd v. Minister for Industry and Energy [1983] IR 88; [1984] ILRM 45. In that case the Supreme Court concluded that it was the duty of a court exercising its jurisdiction in granting or refusing an interlocutory injunction to determine whether a fair bona fide or serious question had been raised to be decided at the trial by the party seeking relief. The Supreme Court pointed out that the court dealing with the matter ought not to weigh up the relative strengths of the parties’ cases on the evidence available at the interlocutory stage as that evidence would be necessarily incomplete. Once a fair or serious question has been raised, the court must then go on to consider where the balance of convenience lies.
Counsel on behalf of the respondents in the present motion contends that something more is required where a Mareva injunction is sought. In the Mareva case itself (Mareva Compania Naviera SA v. International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509, the burden was stated as follows (at p. 510):
If it appears that the debt is due and owing — and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment — the court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him disposing of those assets.
In Rasu Maritima SA v. Perusahaan Pertambangin Minyak [1978] QB 644, Lord Denning MR extended this — as he explained himself — to cases where the plaintiff could show that he had ‘a good arguable case’. In Z. Ltd v. A-Z and AA-LL [1982] QB 558, Kerr LJ in the course of his judgment expressed his view as to the circumstances in which a Mareva injunction should be granted in the following terms (at p. 585): *487
It follows that in my view Mareva injunctions should be granted, but granted only, when it appears to the court that there is a combination of two circumstances. First, when it appears likely that the plaintiff will recover judgment against the defendant for a certain or approximate sum. Secondly, when there are also reasons to believe that the defendant has assets within the jurisdiction to meet the judgment, in whole or in part, but may well take steps designed to ensure that these are no longer available or traceable when judgment is given against him.
Indeed in Fleming v. Ranks (Ireland) Ltd [1983] ILRM 541 (the only reported Irish case on the circumstances in which a Mareva injunction will be granted) McWilliam J decided that the plaintiff must show that he has a ‘good arguable case’.
I doubt that there is any significant difference between the expressions ‘good arguable case’ and a ‘substantial question to be tried’ but if such a distinction exists, I would prefer the latter criterion as the one approved by the Supreme Court in the Campus Oil case although not specifically related to the Mareva type injunction. What I reject emphatically is that a plaintiff seeking a Mareva injunction must establish as a probability that his claim would succeed. This ‘probability’ test was rejected by the Supreme Court in the Campus Oil case as a matter of precedent and of principle. O’Higgins CJ explained the position at p. 61 of the report in the following terms:
The application of the criterion suggested by the appellants in this case would involve the court in a determination on an application for interlocutory relief of an issue which properly arises for determination at the trial of the action. In my view, the test to be applied is whether a fair bona fide question has been raised by the person seeking relief. If such a question has been raised, it is not for the court on an interlocutory application to determine that question; that remains to be decided at the trial.
In my view, it would be entirely inappropriate for the court on an interlocutory application to review such of the evidence as is available to it and attempt to forecast the outcome of the proceedings as a matter of probability or likelihood. What can and should be done is to determine that there is a fair, serious question to be tried.
In the present case there is evidence to support the serious allegations of fraud and breach of trust made against the defendants. At the same time I recognise that in the voluminous affidavits sworn by Mr John Carway the validity of this evidence and the weight to be attached to it has been challenged on numerous grounds and that those issues too are serious and bona fide. It is not my task, however, to assess which case is likely to prevail.
It is in relation to the risk of the defendants’ assets being dissipated in advance *488 of any judgment in the matter with a view to defeating the same and also with regard to the general balance of convenience that considerations different from those pertaining in relation to the conventional injunctions arise. In Fleming v. Ranks (Ireland) Ltd McWilliam J summarised the circumstances in which a Mareva injunction would be granted (at p. 546 of the judgment) in the following terms:
I am satisfied that there is jurisdiction to grant such an injunction and that the cases in which it may be granted are not confined to cases in which a defendant is resident outside the State. From the cases cited I would accept that there must be a real risk of the removal or disposal of the defendants’ assets, that there must be a danger of default by the defendant, that the plaintiff must show that he has a good arguable case, and, weighing the considerations for and against the grant of an injunction, the balance of convenience must be in favour of granting it.
There were two further points to which the late McWilliam J drew attention. In my view both are important and it is proper that I should refer to them as follows:
(1) It was accepted in the Ranks case that the defendants proposed to dispose of its assets. What the judge accepted however was that there was no intention of disposing of assets with a view to evading any obligation to the plaintiff. It was for that reason that he declined to make the order sought.
(2) He accepted as correct the statement of Sir Robert Megarry VC in Barclay-Johnson v. Yuill [1980] 1 WLR 1259 at p. 1266. That statement was as follows:
I would regard the Lister principle as remaining the rule, and the Mareva doctrine as constituting a limited exception to it.
That rule or principle was to the effect that the court will not grant an injunction to restrain a defendant from parting with his assets so that they may be preserved in case the plaintiff’s claim succeeds. The basis of the Mareva injunction is to prevent an anticipated abuse by a defendant of his legal rights so as to frustrate unjustly the anticipated order of the court.
The actual evidence adduced by the applicant in the present case as to the nature or extent of the assets of the defendants within the jurisdiction of this Court and of the danger of the defendants dissipating those assets or transferring them outside the jurisdiction is extremely limited. The only asset identified was the family home in Killaloe and whatever inference might be drawn from the statement that Mr Carway ‘lives a high lifestyle and is involved in substantial business transactions’. What emerges clearly from the affidavit of Mr Duggan and indeed the report of the inspector is that the nature of Mr Carway’s business *489 and his lifestyle is such as would facilitate the transfer of assets on an international basis. Indeed it is significant that Mr Carway now appears to be living in the Isle of Man whereas he was living in Co. Clare when the investigation by the inspector took place.
The position now is that the defendants have had the opportunity of adducing such evidence as they think fit in relation to the matters in issue on this motion. Mr Carway has sworn three lengthy affidavits on this motion incorporating, as exhibits or by reference, numerous other documents. The averments contained in those affidavits are material in so far as they indicate the basis of the defendants’ challenge to the plaintiff’s claim herein. However, what is striking is that in the lengthy and carefully prepared affidavits Mr Carway does not deal at all with the question of what assets he has within the jurisdiction of this Court or the allegation, suspicion or inference that the same may be dissipated so as to frustrate an order of this Court. Even more surprising is the fact that Mr Carway does not claim that the interim order or the interlocutory order claimed has caused or will cause any particular difficulty for him. Counsel on behalf of the defendants asserts that a Mareva injunction must of necessity impinge upon a defendant’s constitutional rights in relation to private property and his or her right to earn his livelihood. However, that argument merely relates to the existence of the rights and the likelihood of some measure of inconvenience. Whether that inconvenience has any degree of significance cannot be assessed without the assistance of the defendants. It may be that the assets of the defendants in the State far exceed the amount which the plaintiff seeks to freeze. At the other end of the scale the defendants may have no assets available to them within the jurisdiction. In either case, the actual hardship or inconvenience would be little or none. If the defendants disclose the existence of some asset within the jurisdiction of this Court, then it might be anticipated in accordance with the guidelines indicated in the English cases and the practice adopted in this jurisdiction that the Mareva injunction, if granted, would be fine-tuned to ensure that the interest of the plaintiff would be protected without any unnecessary hardship to the defendants. However, on the basis of the evidence presently available to the court, it seems to me that the proper inference to draw is that the defendants do have assets in the jurisdiction; that there is a real risk that those assets will be dissipated and that the defendants are not apprehensive of any real inconvenience to them as a result of a Mareva injunction being granted.
In those circumstances I will make an order, a Mareva injunction, in the terms of paragraph (1) of the notice of motion herein. The order will be confined to assets within the jurisdiction of this Court. That a Mareva injunction should be so restricted appears to have been established by the decision in Allied Arab Bank Ltd v. Hajjar [1988] QB 787. It is in any event the form of the order sought herein.
With regard to discovery, there is no doubt as to the power of the court to *490 make an order for discovery as ancillary to a Mareva injunction. In my view, it is desirable that such an affidavit should be sworn in the present case. However, it seems to me that the order in that behalf should be restricted, like the injunction itself, to the assets of the defendants within the jurisdiction of this Court. The defendants have expressed concern as to the disclosure of the contents of the affidavit of discovery. In that regard I can only repeat what has been often stated, namely, that discovery is made solely for the purposes of the particular litigation in which the Order is made and that the use or abuse of the information obtained in discovery for any other purpose would be a clear contempt of the court and punishable accordingly.
With regard to the affidavits, it does seem to me that it would be appropriate that each of the defendants should make an affidavit and, having regard to the work already done in this regard, I assume that this documemtation could be completed within 14 days from the date hereof. However, I will hear counsel on behalf of the defendants as to whether or not this creates any insuperable difficulty.
In the Matter of John Horgan Livestock Ltd and
Val O’Mahony v. John Horgan, Jim Horgan and Peter Horgan
1993 No. 219
Supreme Court
7 November 1995
[1996] 1 I.L.R.M. 161
(Hamilton CJ, O’Flaherty and Blayney JJ)
HAMILTON CJ
(Blayney J concurring) delivered his judgment on 7 November 1995 saying: The claimant/respondent herein (hereinafter called the liquidator) is the liquidator of John Horgan Livestock Ltd (hereinafter called the company).
The respondents herein are and were directors of the company which had been incorporated on 13 February 1973.
The company’s objects were to carry on business as importers and exporters of live cattle, pigs, sheep and horses, and dealers in cattle, pigs, sheep and horses generally and in all facets of such business.
*163
An order for the winding up of the company was made on 11 November 1991 following the presentation of a petition by the Revenue Commissioners on foot of a debt of £1,174,514.65 on 8 November 1991.
On that date by order of the High Court, the liquidator was appointed liquidator of the company.
A statement of affairs was filed in the High Court in March 1992 showing an estimated deficiency of £11,653,992.
On 18 June 1993, the liquidator caused to be issued a notice of motion which was served on each of the respondents named herein seeking against each of the said respondents:
(a) An order pursuant to the terms of s. 298(2) of the Companies Act 1963.
(b) A declaration pursuant to s. 204 of the Companies Act 1990 declaring that the respondents as directors of the company are in breach of s. 202(10) of the Companies Act 1990 and are personally liable without limitation of liability for all, or such part, as the court may specify of the debts and other liabilities of the company, by reason of the fact that the contravention aforesaid of s. 202(10) has contributed to the company’s inability to pay all of its debts and/or has resulted in substantial uncertainty to the assets and liabilities of the company and/or has substantially impeded the orderly winding up thereof.
(c) A declaration pursuant to ss. 297 or 297A of the Companies Act 1963 (as inserted by s. 138 of the Companies (Amendment) Act 1990) declaring that the respondents, as directors of the company will be personally responsible without limitation of liability for any of the extra liabilities of the company or for such part thereof as the court may direct or for such relief under s. 139 of the Companies Act 1990 as to the court shall seem meet.
In addition other relief as sought in the notice of motion was claimed against the respondents.
The grounds upon which such relief was sought are set forth in detail in the notice of motion and the application was grounded on the affidavit of the liquidator sworn on 17 June 1993 and the documents and correspondence therein exhibited.
On 23 June 1993 the liquidator caused to be issued a notice of motion claiming the following relief against the second named respondent in the said proceedings and the appellant herein:
(1) An interlocutory injunction restraining the second named respondent from collecting or receiving the sum of £71,000 with accrued interest representing monies payable under a policy of insurance with Norwich Union and the subject matter of proceedings entitled ‘The High Court Record No. 1992 No. 5972P between James Horgan plaintiff and Norwich Union Fire Insurance Society and John Horgan Ltd (in liquidation) defendants’.
(2) Alternatively, an interlocutory injunction restraining the second named respondent from disposing of or dissipating or charging the said sum of £71,000 *164 with accrued interest thereon.
This application was grounded on the proceedings already referred to, the affidavit of the liquidator and one Tom Tobin.
By order dated 28 June 1993, the learned trial judge, Murphy J ordered:
that the second named respondent, Jim Horgan, be restrained pending trial of this action or further order in the meantime from disposing of or dissipating or charging the sum of £71,000 with accrued interest thereon representing monies payable under a policy of insurance with Norwich Union Insurance Society and the subject matter of proceedings between James Horgan, plaintiff and Norwich Union Fire Insurance Society and John Horgan Ltd (in liquidation) defendants, and granted liberty to the said respondent to apply for the removal or variation of this order if and when so advised and on giving not less than 14 days’ notice to the claimant of any intention to so apply.
Counsel’s note of the ex tempore judgment delivered by the learned trial judge was adopted by him as a proper transcript of the judgment herein.
In the course of this judgment he stated:
Mr O’Mahony, in his affidavit, avers to a significant list of wrongdoings in particular the failure to keep proper or adequate records. On the financial side, he states that he estimates the deficiency at £11.6 million and he expresses the view that loans to directors amount to £2.4 million and after certain payments the balance due on foot of these loans is £1.9 million. There are a number of other matters queried. But for all of the detail in this affidavit, the crucial topic is dealt with in paragraph 47 where Mr O’Mahony avers as follows:
I am naturally concerned having regard to the manner in which the affairs of the company were conducted to ensure that the said sum of £71,000 should be available to meet any decree which may be made in favour of the company in liquidation against the second named respondent and apprehensive that in the absence of such order the said sums will not be available.
In the course of his judgment the learned trial judge set forth the criteria to be taken into account in considering whether an injunction of the type sought, generally known as a Mareva injunction, should be granted and listed them as follows:
1. The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know.
2. The plaintiff should give particulars of his claims against the defendant, stating the grounds of his claims and the amount thereof and fairly stating the points made against it by the defendant.
3. The plaintiff should give some grounds for believing that the defendant has *165 assets within the jurisdiction. The existence of a bank account is normally sufficient.
4. The plaintiff should give some grounds for believing that there is a risk of the assets being removed or dissipated.
5. The plaintiff must give an undertaking in damages, in case he fails.
It appears from his judgment that the learned trial judge was satisfied that the criteria set forth at 1, 2 and 3 had been met by the liquidator.
He then went on to say that:
The real issue is whether the plaintiff has given any grounds for believing that there is any risk of dissipation. All the plaintiff has said is that he is apprehensive in this regard. That is a far cry undoubtedly from evidence of conscious abuse.
He then went on to deal with the question of an undertaking and stated:
Mr O’Mahony has, perhaps surprisingly agreed to do that because his personal liability will be indemnified by the Revenue Commissioners. I have stressed the infirmities in the plaintiff’s application. Counsel for the respondents has analysed still further the weaknesses and contradictions but without providing any affidavit in reply. It seems to be that it must be recognised that the respondents, having been given notice and having been afforded an opportunity to adjourn the matter declined an invitation to put in such an affidavit. The respondents resist the applications on the basis of their submission. On the face of it, there is reason for considerable concern as to the manner in which the respondents carried on the business of the company. One may criticise the lack of detail given by Mr O’Mahony in relation to the allegation. His computation of the directors’ indebtedness to the company may be criticised. But that criticism would be entertained more readily if there was a denial on affidavit. No direct evidence is given that monies would be dissipated but in the context of the sums involved and the parties’ obligations to the banks, the concern of the official liquidator has not been shown to be displaced. On the overall complexities of the matter, the probabilities that monies will cease to be retained is likely. It seems to be that the injunction should be granted in the specific circumstances of the case. The undertaking as to damages, however, should be limited to £25,000.
The appellant has appealed to this Court on a number of grounds which can be summarised as follows:
The learned trial judge erred in fact and in law in:
(a) holding that the respondent had made out a good arguable case against the appellant and in finding that the respondent had made a full and frank disclosure of all matters in his knowledge which it was material for the learned High Court judge to know,
*166
(b) failing to have sufficient regard to the test to be applied with regard to the dissipation of assets, in particular the failure to give grounds supported by evidence for believing that there is a risk of the assets being removed or dissipated with a view to avoiding payment of any monies which might ultimately be found owing,
(c) in limiting the respondent’s undertaking as to damages to the sum of £25,000 in advance of any enquiry as to damages which might ultimately be directed by the court.
Before dealing with these grounds of appeal however it is desirable to set forth the principles underlying the grant of Mareva injunctions.
The common law, traditionally, expressed the principle that the plaintiff is not entitled to require from the defendant, in advance of judgment security to guarantee satisfaction of a judgment that the plaintiff may eventually obtain.
This position was altered in the United Kingdom by two decisions of the Court of Appeal in 1975, viz. Nippon Yusen Kaisha v. Karageorgis [1975] 1 WLR 1093; Mareva Compania Naviera SA v. International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509.
These cases involved claims for damages arising from shipping contracts brought against foreign defendants. In both, the plaintiffs obtained orders (ex parte) restraining the defendants from removing their funds out of the jurisdiction pending the adjudication of the actions.
Injunctions of this type became known as Mareva injunctions. A Mareva injunction is an ad personam order, restraining the defendant from dealing with assets in which the plaintiff claims no right whatsoever. A Mareva order does not give the plaintiff any precedence over other creditors with respect to the frozen assets.
Because of the draconian nature of such orders, Lord Denning in Third Chandris Shipping Corporation v. Unimarine SA [1979] QB 655 at pp. 668–689, laid down the five criteria to be established before such injunctions are granted which are the criteria set forth in the learned trial judge’s judgment.
In Z. Ltd v. A. [1982] 1 QB 558, Kerr LJ in the course of his judgment stated his view as to the circumstances in which a Mareva injunction should be granted in the following terms at p. 585:
It follows that in my view Mareva injunctions should be granted, but granted only, when it appears to the court that there is a combination of two circumstances. First, when it appears likely that the plaintiff will recover judgment against the defendant for a certain or approximate sum. Secondly, when there are also reasons to believe that the defendant has assets within the jurisdiction, to meet the judgment in whole or in part, but may well take steps designed to ensure that these are no longer available or traceable when judgment is given against him.
*167
Consequently a Mareva injunction will only be granted if there is a combination of two circumstances established by the plaintiff i.e. (i) that he has an arguable case that he will succeed in the action and (ii) the anticipated disposal of a defendant’s assets is for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.
In the course of his judgment in Fleming v. Ranks (Ireland) Ltd [1983] ILRM 541 the late McWilliam J stated at p. 546 of the report that:
I am satisfied that there is jurisdiction to grant such an injunction…. From the cases cited I would accept that there must be a real risk of the removal or disposal of the defendant’s assets, that there must be a danger of default by the defendant, that the plaintiff must show that he has a good arguable case, and, weighing the considerations for and against the grant of an injunction, the balance of convenience must be in favour of granting it. See Barclay-Johnson v. Yuill [1980] 1 WLR 1259 at p. 1265.
With regard to the facts in the Ranks case, he stated:
Although a special account has been opened by Ranks for the sums to which the plaintiffs are entitled under the Redundancy Acts, it appears to me that, if damages are awarded to the plaintiffs on the basis of their claims, there is a danger of default by Ranks through inability to pay the amounts of the awards. But I am of opinion that, to justify such an injunction, the anticipated disposal of a defendant’s assets must be for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.
At the end of p. 546, he went on to say that:
I would accept as correct the statement of Sir Robert Megarry VC at p. 1266 of the Barclay-Johnson case, where he said: ‘I would regard the Lister principle as remaining the rule, and the Mareva doctrine as constituting a limited exception to it’. ‘The Lister Rule’ refers to the case of Lister & Co. v. Stubbs mentioned above [1890 45 Ch D 1] and is that the court will not grant an injunction to restrain a defendant from parting with his assets so that they may be preserved in case the plaintiff’s claim succeeds.
In Polly Peck International plc v. Nadir (No. 2) [1992] 4 All ER 769 both the Master of the Rolls and Scott LJ stressed that such relief is not intended to give security in advance of judgment but merely to prevent the defendant from defeating the plaintiff’s chance of recovery by dissipation of assets.
Consequently, the cases establish that there must be an intention on the part of the defendant to dispose of his assets with a view to evading his obligation *168 to the plaintiff and to frustrate the anticipated order of the court. It is not sufficient to establish that the assets are likely to be dissipated in the ordinary course of business or in the payment of lawful debts.
Has the liquidator in the instant case adduced evidence to show, or to entitle the learned trial judge to infer, that the appellant is likely to dissipate the asset referred to, viz. the proceeds of an insurance policy, with the intention of evading his obligation (if any) to the liquidator?
In his affidavit sworn on 17 June 1993 he states at paragraph 47(a) thereof that:
I am naturally concerned, having regard to the manner in which the affairs of the company were conducted to ensure that the said sum of £71,000 should be available to meet any decree which may be made in favour of the company in liquidation against the second named respondent and apprehensive that in the absence of order the said sum will not be available.
His apprehension may well be justified but he does not state or allege that the appellant would dissipate the asset with the intention of frustrating any order of the court that may be made.
The learned trial judge himself stated:
All the plaintiff has said is that he is apprehensive in this regard. That is a far cry undoubtedly from evidence of conscious abuse.
and
No direct evidence is given that monies would be dissipated but in the context of the sums involved and the parties’ obligations to the banks, the concern of the official liquidator has not been shown to be misplaced.
As appears from his affidavit, the liquidator’s concern was to ensure that the said sum of £71,000 should be available to meet any decree which might be made in favour of the company in liquidation.
The learned trial judge does not appear to have considered the question whether the apprehended dissipation of the asset was for the purpose of evading any decree that might be made in the proceedings.
Before being entitled to the relief sought by him, the liquidator must establish that there was a likelihood that the assets would be dissipated with the intention that they would not be available to meet any decree or part of a decree ultimately made against the appellant in the proceedings.
In my view, no such intention was established in this case. The entitlement of the appellant to the proceeds of the policy of insurance issued by the Norwich Union Fire Insurance Society arose because of a fire on the appellant’s property *169 which destroyed a shed thereon.
While the use of such proceeds to replace the shed or in the ordinary course of his business as a farmer or to pay his lawful debts would mean that such asset would not be available to meet any decree which the liquidator might obtain against the appellant, that fact does not entitle the liquidator to the injunction sought. He must further establish that such utilisation of the asset was made with the intention of evading payment to the liquidator.
As no such intention was established in this case, the appellant’s appeal in this case must be allowed on this ground.
Being of this view, it is not necessary for me to consider whether or not the learned trial judge was entitled to place a limit of £25,000 on the undertaking required to be given by the liquidator and I will reserve for future consideration the powers of the court in this regard should it arise in the future. I incline however to the views in this regard expressed in the judgment about to be delivered by O’Flaherty J.
O’FLAHERTY J
(Blayney J concurring): I agree with the judgment of the Chief Justice that the order of the High Court should be reversed and the appeal allowed.
I wish to add some brief comments only. The absence of any remedy for a creditor against a debtor who was prepared to depart the country or dissipate his assets in defiance of the creditor’s rights was a serious defect in our law twenty years or so ago. Practitioners had been very conscious of the injustices that were often perpetrated because no remedy had been developed to meet this situation.
At around the same time as the first applications were brought before the Court of Appeal in England (Nippon Yusen Kaisha v. Karageorgis [1975] 1 WLR 1093, and Mareva Compania Naviera SA v. International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509) the same remedy was allowed in our courts by the invocation of s. 28(8) of the Judicature Act (Ireland) 1877, which provides:
A mandamus or an injunction may by granted or a receiver appointed by an interlocutory order of the court in all cases in which it shall appear to the court to be just or convenient that such order shall be made, and any such order may be made either unconditionally or upon such terms and conditions as the court shall think just; and if an injunction is asked, either before, or at, or after the hearing of any cause or matter, to prevent any threatened or apprehended waste or trespass, such injunction may be granted, if the court shall think fit, whether the person against whom such injunction is sought is or is not in possession under any claim of title or otherwise, or (if out of possession) does or does not claim a right to do the act sought to be restrained under any colour of title, and whether the estates claimed by both or by either of the parties are legal or equitable.
In its original manifestation, the remedy was used in clear cases where a debt was established and the debtor was about to abscond or to dissipate his assets.
As the jurisdiction has developed it appears now to be sufficient to establish that the plaintiff has a good arguable case and for a diverse series of cases. I would have preferred that the remedy should have been confined to situations where there was a clear case involving a claim for a definite sum of money or, otherwise, for some tangible object — where the claim was more or less certain, in so far as there is ever certainty in any litigation. It may now be too late to put that particular clock back.
Nonetheless, it needs to be emphasised that the Mareva injunction is a very powerful remedy which if improperly invoked will bring about an injustice, something that it was designed to prevent. It may put a person or a company out of business. It may contribute to delay in bringing litigation to a head. It may be used as a diversionary tactic and be a part of the skirmishes that increasingly occur in much litigation. It may — as is the case here — take on a life of its own while the main litigation is becalmed. I glean that a sense of urgency is not affecting the main litigation and will not do so while this sideshow is running.
Further, on the facts of this case, the remedy is neither appropriate nor relevant. The amount that it is sought to freeze is but a tiny fraction of the millions of pounds that it is said are involved in the main action. It has to be reiterated that the Mareva remedy is to protect assets that may be dissipated in which case the judgment that the plaintiff gets will go unsatisfied. A Mareva injunction is not appropriate to enforce a claim to the assets themselves.
Since the assets in question here are of little or no relevance to the amount at stake — which runs into many millions of pounds — aside altogether from the fact that the case in regard to dissipation of assets has not been made out even to a prima facie extent — there is not here a situation where Mareva relief should be granted.
As regards the undertaking as to damages, I know of no case where a limit has been put on the amount that may be required to be paid, if it is held that the injunction was improperly obtained, nor do I think it right in principle that such a limit should be placed in view of the far-reaching implications involved in any restraint that is imposed on a party by reason of such an injunction prior to judgment.
Bennett Enterprises Inc & Others v Lipton & Others
Bennett Enterprises Inc., Bonaire Enterprises Inc., Empresas Enterprises, de Bronce S.A., Empresas Capricornio Canal S.A., Harmony Services Inc., Karpus Enterprises Inc., Key Services Inc., Lloyds Enterprises Inc., Noble Tree Enterprises Inc., Orthomedia Foundation Inc., Panos Enterprises Inc., Penthouse Place Enterprises Inc., Piccolo Music Enterprises Inc., Pilot Enterprises Inc., Shamrock Guardian Inc., Wintergreen Enterprises Inc., Villa Catartata Azul S.A., Visoneer Enterprises Inc., Voyage Enterprises Inc. and Zanibar Enterprises Inc. v John Lipton, David Johnson, Tony Jones, J. Lashlee, Arnold Mitchell, Bill Nurick, William Kirkham, Victor Preston, Mike Puttinam, John Yu, Richard Leonard and Theresa Vogt (being sued as Trustees of and/or in a representative capacity on behalf of both the Genesis Trust Fund and the Exodus Trust Fund)
1998 No. 5663P
High Court
19 June 1998
[1999] 1 I.L.R.M. 81
(O’Sullivan J)
O’SULLIVAN J
delivered his judgment on 19 June 1998 saying: The plaintiffs are applying for an interlocutory worldwide Mareva type injunction restraining the defendants from reducing the monies in the two trust funds referred to in the title of these proceedings below $5 million, secondly, for the appointment of a new trustee of the said funds, and, thirdly, for an order joining a new party, Wintex Investment Corporation, to the proceedings.
Before briefly describing the factual background to these applications, I will deal with two preliminary points raised by the defendants.
The first is that the affidavits grounding the application have not been taken before an Irish representative or agent as required by O. 40, r.7 of the Rules of the Superior Courts. As will be seen by a perusal of r.7 where such a representative or agent is not conveniently available, the affidavits can be taken before the other categories of official referred to in r.7. The evidence is that an Irish representative or agent of the specified categories was not conveniently available and in these circumstances I consider that the affidavits filed are in order and comply with the aforesaid order and rule. A second preliminary point is that this Court has no jurisdiction to entertain the application.
The evidence shows that the instruments creating the trust funds already referred to specify that the funds are domiciled in Ireland and that they are subject to Irish law. Furthermore, the defendants have appeared on this application and argued the case on its merits. In these circumstances, I am satisfied that this Court has jurisdiction to entertain the plaintiffs’ application.
The factual background to this application is that save for the three mentioned parties in the next paragraph each of the plaintiff companies is an investment vehicle for a client or clients of a further company, namely, Privacy Consultants International Inc. (‘Privacy Consultants’), which is a company having *85 offices in both Panama and Costa Rica as well as a mailing address in Miami, Florida.
The principals behind Privacy Consultants are Mr George Sprague, who has sworn the principal affidavit on behalf of the plaintiffs in this application, and his wife Ms Rosibel Gonzalez Sosa. Privacy Consultants provides international off-shore and management investment services to its clients. Villa Catartata Azul S.A. is beneficially owned by Ms Sosa and Lloyd Enterprises Inc. and Orthomedia Foundation Inc. are beneficially owned by Mr Sprague. Each plaintiff is incorporated in either Panama or Costa Rica. The affairs of each plaintiff, including investments, are conducted by Mr Sprague.
During the period from 1994 to 1997, the plaintiffs invested various sums in the two funds referred to in the title of these proceedings. The founder of both these funds was the first named defendant, John Lipton, who owns houses in California and Costa Rica.
The two funds (hereinafter ‘Genesis’ and ‘Exodus’) are involved in foreign exchange cash currency trading. According to their prospectuses they are ‘Irish domiciled’. The difference between the two is that investments of less than US$100,000 are made through Exodus: larger investments are made through Genesis. Both funds have accounts with International Bright Investments Ltd (‘IBI’). There are two IBI companies, one in Macau and one in Hong Kong. Genesis and Exodus have master trading accounts with IBI. These accounts in turn contain sub-accounts representing the investments made by the clients, including the plaintiffs, of Genesis and Exodus.
Until December 1997, Genesis and Exodus furnished monthly statements of account to Privacy Consultants in respect of the investments of the plaintiffs in these two funds. Since then no statements of account have been forthcoming.
In May 1997 specific rules regarding withdrawal of monies from the Genesis and Exodus Trust Funds were put in place. The plaintiffs say that these rules were put in place unilaterally, the defendants say these rules were put in place by agreement. A number of investment programmes were introduced, some long term and some short term. Different notice periods for withdrawal applied. The plaintiffs opted for various investment programmes and in the case of five plaintiffs (Orthomedia Foundation Inc., Panos Enterprises Inc., Visoneer Enterprises Inc., Penthouse Place Enterprises Inc. and Bennett Enterprises Inc.) notice of withdrawal was given between May and August 1997 and it is common case that such notice complied with the new rules and that monies due to these plaintiffs amounting to some $300,000 became due in November 1997. These monies have not been paid.
The defendants say that the reason why these monies have not been paid is that they fear that Mr Sprague will not pay the appropriate beneficiaries entitled and they say that the plaintiffs would have to disclose the identity of the beneficiary before such payment is made.
*86
Relations deteriorated between the sets of parties and the defendants have stated that they will no longer accept instructions from Privacy Consultants but they have indicated that the plaintiffs’ funds would be ‘quarantined’ and inter-pleaded into a court system for adjudication and disbursement. At the hearing of this motion, this was clarified to mean that the defendants would not pay these funds forthwith to the plaintiffs but would make them available on a phased basis commencing with a payment of almost $1.8 million in mid-September of this year and comprising further periodic payments totalling just over $5 million in approximately 18 months time. The defendants have indicated that they would not pay out money direct to Privacy Consultants or any of its representatives or affiliates.
The plaintiffs say that the attempt unilaterally to impose new withdrawal conditions constitutes a fundamental breach of contract by Genesis and Exodus and they also say that the introduction of the quarantining provision, the refusal to accept instructions as before from Privacy Consultants, their failure to furnish statements of account and an apparent dissolution of Exodus referred to by Mr Lipton in his replying affidavit all constitute fundamental and repudiatory breaches of contract.
An interim Mareva type injunction was granted by me on the ex parte application of the plaintiffs on 8 May 1998 and on the following day, which was a Saturday, similar orders were granted to the plaintiffs by the court in Hong Kong and these orders in both jurisdictions are continuing in effect. The defendants say that it is onerous on them that they should be obliged to meet the plaintiffs’ cases in two jurisdictions but the plaintiffs respond that the curtailing of the initial and any subsequent orders (in line with the restriction adopted by the Court of Appeal in Babanaft International Co. SA v. Bassatne [1990] 1 Ch 13) implies that proceedings in one or more jurisdictions are likely if not inevitable. They also say that the Irish proceedings were instituted first in time and that the more appropriate jurisdiction is the one already chosen by the defendants themselves.
It is against this background that the plaintiffs now seek the orders referred to above. The defendants have raised a number of points in response to this application and I will deal with these one by one as follows.
In reliance on the tests set out by the Supreme Court in O’Mahony v. Horgan [1995] 2 IR 411; [1996] 1 ILRM 161 the defendants say, first, that the plaintiffs have failed to make full and frank disclosure of all relevant facts and that therefore they are not entitled to the relief claimed.
This point relates to two matters, namely, the fact that Mr Sprague, who has sworn the principal affidavit on behalf of the plaintiffs, is himself the subject of federal indictments in relation to alleged revenue offences committed in the early to mid-1980s in the United States.
This fact was, however, known to the defendants from the beginning of *87 their relationship with the plaintiffs and with Mr Sprague but despite this, they were prepared to deal with him and Privacy Consultants up to approximately November 1997. In these circumstances I am not satisfied that this is a non-disclosure which is relevant to the instant application.
Secondly, the defendants say that Mr Sprague’s affidavit failed to disclose either at all or with sufficient clarity the fact that the defendants’ refusal to pay the admittedly owing money (namely, the sum of $300,000 referred to above) was upon the basis that the identity of the beneficiaries was not being revealed to the defendants and that therefore this constituted a failure to make full and frank disclosure in the affidavit grounding this application. This matter is dealt with at paragraph 60 of Mr Sprague’s affidavit sworn on 5 May 1998 and, in my view, there is sufficient disclosure of this matter in what is a lengthy and complex affidavit accompanied by voluminous documentation. Accordingly, I cannot agree with the defendants that the application should be dismissed upon the basis that full and frank disclosure has not been made.
The second point taken by the defendants is that particulars of the plaintiffs’ claim have not been adequately set out. This point was not strenuously pressed by the defendants at the hearing before me, possibly because the application has been accompanied by voluminous documentation. I do not think that the application should be refused on this ground.
Thirdly, the defendants assert that the plaintiffs have not set out any evidence to show that the defendants have assets within the jurisdiction. This is true: it is clear that there are no assets within this jurisdiction. The plaintiffs respond, however, that if there were sufficient assets or any assets within this jurisdiction, this would eliminate or reduce the need for a worldwide Mareva type injunction or an injunction having extra territorial effect. Counsel for the plaintiffs relies in particular on the judgment of the Master of the Rolls, Lord Donaldson in Derby & Co. Ltd v. Weldon (Nos. 3 & 4) [1990] 1 Ch 65 at p. 79 as follows:
The normal form of order should indeed be confined to assets within the jurisdiction, although the practice has changed since the decision in the MBPXL case and such an order could well extend to the disposition of a freehold interest in a house. The reason why at present the normal form of order should be so confined is that most defendants operate nationally rather than internationally. But, once the court is concerned with an international operator, the position may well be different.
In my judgment, the key requirement for any Mareva injunction, whether or not it extends to foreign assets, is that it shall accord with the rationale upon which the Mareva relief has been based in the past … namely, that no court should permit a defendant to take action designed to frustrate subsequent orders of the court. If for the achievement of this purpose it is necessary to make orders con *88 cerning foreign assets, such orders should be made, subject, of course, to ordinary principles of international law ….
Returning to Mr Bompas’ submission, I can see neither rhyme nor reason in regarding the existence of some asset within the jurisdiction of however little value as a precondition for granting a Mareva injunction in respect of assets outside the jurisdiction. The existence of sufficient assets within the jurisdiction is an excellent reason for confining the jurisdiction to such assets, but, other considerations apart, the fewer the assets within the jurisdiction the greater the necessity for taking protective measures in relation to those outside it.
Earlier in the same judgment, the learned judge had said (at p. 77):
We live in a time of rapidly growing commercial and financial sophistication and it behoves the courts to adapt their practices to meet the current wiles of those defendants who are prepared to devote as much energy to making themselves immune to the courts’ orders as to resisting the making of such orders on the merits of their case. Hence it comes about that, as was pointed out by Neill LJ in Babanaft International Co. SA v. Bassante [1990] 1 Ch 13, 37F and by May LJ in Derby v. Weldon (No. 1) [1990] 1 Ch 48, 54 C–D, this is a developing branch of the law. To that I would add that a failure or refusal to grant an injunction in any particular case is an exercise of discretion which cannot, as such, provide a precedent binding upon another court concerned with another case, save insofar as that refusal is based upon basic principles applicable in both such cases.
I would point out that in the Babanaft case [1990] 1 Ch 13 Kerr LJ at p. 33 had noted that:
But it should also be said, with equal emphasis, that some situations, which are nowadays by no means uncommon, cry out—as a matter of justice to plaintiffs—for disclosure orders and Mareva type injunctions covering foreign assets of defendants even before judgment.
I should also point out that in O’Mahony v. Horgan the Supreme Court was not dealing with a claim for an order affecting assets outside the jurisdiction. In these circumstances I do not consider that the alleged failure of the plaintiffs to establish that there are assets within the jurisdiction is necessarily fatal to their application. On the contrary, I can see force in the observation of the Master of the Rolls, Lord Donaldson in Derby (Nos. 3 & 4) to the effect that the fewer the assets within the jurisdiction the greater the necessity for taking protective measures in relation to those outside it. Accordingly, I do not accept the defendants’ submission that the application must fail on this ground.
A further ground advanced by the defendants is that there is no evidence to *89 establish a risk of the assets being removed or dissipated by the defendants as contemplated by the Supreme Court in O’Mahony v. Horgan. The Chief Justice, Hamilton CJ at p. 418 said:
Consequently a Mareva injunction will only be granted if there is a combination of two circumstances established by the plaintiff, i.e. (i) that he has an arguable case that he will succeed in the action, and (ii) the anticipated disposal of a defendant’s assets is for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.
Later (at p. 419) the learned Chief Justice said:
Consequently, the cases establish that there must be an intention on the part of the defendant to dispose of his assets with a view to evading his obligation to the plaintiff and to frustrate the anticipated order of the court. It is not sufficient to establish that the assets are likely to be dissipated in the ordinary course of business or in the payment of lawful debts.
I fully accept these quotations. It is clear, of course, that if any dissipation of assets were to occur in the ordinary course of business, this of itself would not justify the granting of a Mareva injunction. The anticipated dissipation must be for the purpose of the defendant evading his obligation to the plaintiff. Equally, however, I consider that direct evidence of an intention to evade will rarely be available at the interlocutory stage. I consider it is legitimate for me to consider all the circumstances in relation to the case and I do not consider that this approach is in any way prohibited by or at variance with the principles set out in the Supreme Court judgment in O’Mahony v. Horgan. The plaintiffs point to a number of specific matters which, they say, give rise to a reasonable apprehension that the assets will be dissipated (or removed from the jurisdiction of the courts) with a view to depriving the plaintiffs of their monies in the event that they succeed in their action. I will not refer to all of the specific matters which are set out in extenso in the plaintiffs’ written legal submissions dated 11 June 1998. Some of these considerations are:
(a) the defendants have failed to repay five plaintiffs monies agreed to be owing since November 1997;
(b) they have sought to impose additional obstacles in the way of the plaintiffs withdrawing monies and in particular have insisted on an indication of the identity of the beneficiaries;
(c) they have refused to accept instructions from Privacy Consultants despite having done so up to 1997;
(d) they are ambivalent in their own description of the Genesis and Exodus Funds describing them as trust funds in the relevant prospectuses and cor *90 respondence but in other correspondence as an ‘equity partnership’;
(e) Mr Lipton, who swore the principal replying affidavit, has used and insisted on the use of aliases, namely ‘Dominique’ and ‘Vincenzo’. This is averred to by Mr Sprague in his affidavit and although denied by Mr Lipton, the plaintiffs say that there is internal documentary evidence, arising from correspondence signed ‘Dominique’ or ‘Vincenzo’ which make it more probable that Mr Sprague’s evidence on this point is correct;
(f) the defendants have failed to furnish the plaintiffs with monthtly statements of account since December 1997 notwithstanding the fact that their own documentation indicates that monthly accounts are available;
(g) the reason given for the refusal of the defendants to conduct an audit of the two trust funds, to the effect that this would be impossible, is unbelievable;
(h) the failure of the defendants to lodge the admittedly due monies in court or to ‘inter-plead’ same even in the course of these proceedings;
(i) the absence of any address for Mr Lipton in his own affidavit, the absence of any identifiable or tangible presence for Genesis and Exodus in any country, including the failure to identify trading addresses or offices for these funds;
(j) the furnishing of documentation to the plaintiffs which show IBI as having an address at premises which turns out to be a handbag shop and the vague existence of IBI as a currency trader trading in a premises which shows no signs of currency trading;
(k) the fact that the defendants have not exhibited any documentation to substantiate their claimed valuation of the overall Genesis and Exodus Trust Funds at $70 million;
(l) the intimation by Mr Lipton that the Exodus Fund never operated as a separate trust fund and has been dissolved;
(m) the fact that the responding affidavit sworn by Ms Lam with almost one month’s notice provides no information in relation to the value of these trust funds and exhibits no bank statements or anything which might allay the fears of the plaintiffs that these funds are in danger of being dissipated or removed from the jurisdiction of the courts;
(n) the claimed value of these trust funds at $70 million in Mr Lipton’s affidavit contrasts with an earlier estimate of a year ago of $29 million without any apparent explanation.
In addition to the foregoing, a consideration of the documentation generated by the operators of the Genesis (and Exodus) Funds leaves one with the impression that the whole arrangement is disturbingly vague and free of identifiable structures. For example, in a document entitled ‘Security with Genesis’ which is exhibited to an affidavit sworn by Edmund Fry on 27 May 1998, the following appears under the heading ‘Privacy and Asset Protection’: *91
Genesis is an Irish formation trust. All participants in Genesis are equity partners. Genesis has a contractual relationship with International Bright Investments Limited (‘IBI’), who is a Macau-based currency dealer (operating similarly to, but not quite the same as a commodities broker in the United States) …
The board acts as the fund’s fiduciary and directs the administrative responsibilities including the accounting which is performed by three accountants. Only one of these accountants, Centrix Management, a Vanuatu [in the South Pacific] based company, has the [confidential] detailed information about each participant in the fund. The other two US-based accountants have no participant detail available to them. The three accountants reconcile their records monthly with IBI which emulates a monthly audit.
The details of each participating account cannot be disclosed by IBI or by Hong Kong Shanghai Bank to any regulatory agency or judicial system since they have no such detail. The release of confidential information by Centrix could only be done under a Vanuatu court order. There is no reciprocal relationship between the United States and Vanuatu or Ireland and the United States, or Vanuatu and Ireland for that matter. If you want more information on Vanuatu and Ireland, you can get this easily through the Internet.
If some party wanted to seize your assets which included your holdings in Genesis, they would have no way of seizing those funds, since those finds belong to the Irish trust [Genesis], not you. The entity through which you participate [in Genesis] would be the only party under whose authority the release of your funds [held by Genesis] could be effected.
In my view the apprehensions of the plaintiffs that the assets will be either dissipated or removed from the jurisdiction of the courts with a view to depriving the plaintiffs of their money are reasonably founded and I consider that the plaintiffs have established sufficiently that there is a risk that the assets would be either removed from the jurisdiction of the courts or dissipated with a view to an evasion by the defendants of their obligations to the plaintiffs in the event that the plaintiffs succeed. Accordingly, I hold that the defendants have not established that the plaintiffs should fail to be granted relief on this ground.
The defendants further say that the plaintiffs have given no satisfactorily backed undertaking as to damages in the event that they fail at the hearing of the action.
It is true that the plaintiffs have no assets within this jurisdiction. On the other hand, they respond to this point by saying that the defendants admittedly are in possession of $5 million belonging to the plaintiffs. The defendants in return claim that a Mareva style injunction prohibiting the defendants worldwide from reducing their asets below $5 million could tie up the entire fund claimed to be valued at some $70 million with the result that losses in the order *92 of $15 or $20 million could be sustained. They have given no detailed or specific account as to how this might happen and, in my view, the defendants cannot be heard to say that the plaintiffs have given no adequate undertaking or security in the circumstances that the defendants are in possession, as they admit, of $5 million worth of the plaintiffs’ funds.
Apart from the foregoing defences, a general point is made by the defendants to the effect that it is only in very special circumstances that a worldwide Mareva type injunction should be granted by this Court.
The plaintiffs say that such special circumstances apply in this case. They say in the first instance that the very business of the defendants is to trade internationally, that the courts must adapt their practices to meet the current wiles of such defendants (to borrow the phrase of Lord Donaldson MR in Derby (No. 3 & 4)) and they point to the fact that the defendants have boasted that they can move funds internationally in nanoseconds. Accordingly, the plaintiffs say that in the particular circumstances of this case justice will be done and will only be done if a worldwide Mareva type injunction is granted.
The plaintiffs further offer the court undertakings that they will not issue proceedings in any other jurisdiction unless they first apply to this Court for permission so to do and they are also prepared to undertake to proceed against the defendants in the Irish proceedings (who are also defendants in proceedings in Hong Kong) in this jurisdiction and not to proceed against those defendants in the Hong Kong jurisdiction unless ordered or permitted so to do by the court in Hong Kong. They also accept that any order will be subject to the limitation which has come to be known as the Babanaft proviso.
Having considered the voluminous documentation and the lengthy and comprehensive submissions on behalf of both parties, my view is that I should give an interlocutory order in principle as sought by the plaintiffs and I will discuss with counsel the precise form of the order together with any limitations thereon and also the appropriate undertakings to be given to this Court on behalf of the plaintiffs.
With regard to the application to replace the trustee of the Genesis or Exodus Funds, I consider that at the interlocutory stage I should not do this even if I had power so to do because I think that the plaintiffs are sufficiently protected by the order which I will make as indicated in the foregoing.
With regard to the application to join Wintex Investment Corporation, I consider that once the solicitors for the defendants have formally stated that they have no instructions from this corporation that an appropriate order in relation to service of notice of motion seeking to join them to these proceedings should be made. Considerable difficulty relates to the specified address for Wintex in Limerick. Equally, I am not persuaded of the reality of serving this corporation at the address in California given. In light of the fact that Dick Leonard, on behalf of the Genesis steering committee in a letter dated 10 December 1997 *93 addressed to Mr Sprague, specified that:
Your office should know that any legal documents and/or formal notices that may affect any member of the steering committee individually and/or severally or any other person in a position of responsibility with or connected to Genesis in any way must be directed to Mr Curran, the fund’s solicitor.
I consider that I should make an order giving the plaintiffs liberty to substitute service on Wintex Investment Corporation by serving Mr Curran, solicitor, who is acting for a number of the defendants in these proceedings and who has sworn an affidavit herein.
Superwood Holdings plc v Sun Alliance and London Insurance plc
, unreported, High Court, July 25, 2002
Judgment of Mr. Justice Roderick Murphy dated the 25th day of July, 2002.
1. Application
This is an application nominally by all of the Plaintiffs but, as became apparent during the hearing, in reality by Superwood Holdings Pic, to vary the Mareva relief granted by Smyth J. on the 4th day May, 2001.
The Applicant seeks the release of the sum of almost €30,000 in order to pay the taxed costs and interest thereon of a third party, Coyle Hamilton Limited, on whom all the Plaintiffs, inter alia, had been allowed by the court to serve an amended statement of claim on terms that that party’s cost be paid. That order was dated 4th December, 2000. A certificate of taxation issued on 30th August, 2001.
The applicant says that these costs predated the Mareva injunction when the Plaintiffs had ample assets to discharge them. The Plaintiffs are anxious to comply with the order of the court and discharge the costs.
2. Grounding Affidavit
Mr. Richard John Bunyan, the chairman of each of the six Plaintiffs, referred to the background to the application.
On the 27th June, 1995 the Supreme Court remitted the appeal by the Plaintiffs against the decision of O’Hanlon J. to the High Court to “determine what were the Appellant/Plaintiffs losses arising after the fire of their premises in Bray on the 26th October, 1987 and what percentage of those losses were attributable to the fire, and such other matters as are relevant and in issue “.
That determination was heard over 281 days between November, 1996 and March, 2000. Judgment of April, 2001 held against the Plaintiffs awarding costs to the Defendants. A stay on the judgment was granted. Lloyds, the fourth named Defendant, settled with the Plaintiffs in 1998. The remaining Defendants immediately applied for an order restraining the Plaintiffs from reducing their assets below the sum of IR£5 million and an order for disclosure and discovery relating to accounts and lodgement held or made on behalf of the Plaintiff companies. Such order was granted on the 7th April, 2001. That interim order was confirmed by interlocutory order dated the 4th May, 2001.
The order and judgment were appealed to the Supreme Court by notice dated the 16th May, 2001, filed on the 30th May, 2001.
The assets of the Plaintiffs subject to the mareva injunction totalled almost €188,000, being €61,000 approximately, in the account of the first named Plaintiff and €127,000 held by McCann Fitzgerald, Solicitors for Lloyds.
By way of supplementary action dated the 12th August, 1997 the Plaintiffs and a subsidiary company of the first named Plaintiff, Duranna Limited, proceeded against Coyle Hamilton Limited who, in turn, brought a motion pursuant to Order 19 Rule 28 to strike out the said proceedings on the grounds that no reasonable cause of action had been disclosed. The Plaintiffs and Duranna Limited were granted leave to file an amended statement of claim, by order dated the 4th December, 2000. Costs were awarded against the Plaintiff which costs were taxed in the sum of almost €27,000 on the 30th August, 2001. Coyle Hamilton Limited demanded payment of the amount certified together with interest amounting in total to under €30,000. The Plaintiffs, the Applicants herein, wish to discharge those costs but are not in a position to do so because of the mareva injunction and apply to have a variation of the order of the 4th May, 2001 to discharge the said taxed costs and interest.
3. Replying Affidavit
Mr. Ivan Durcan, partner in Good and Murray, Solicitors for the first, second and third Defendants outlined the context in which the mareva order was made. The Plaintiffs claim was £92 million. The ultimate award of £315,000 which was reduced to nil because those Defendants were entitled to the credit of the lodgment paid by Lloyds, the fourth named Defendant, which the Plaintiffs received in settlement of their claims against Lloyds.
Mr. Durcan referred to all but the first named Plaintiff being in receivership. The first named Plaintiff, Superwood Holdings Pic, is, he deposes, not a trading company.
The amount due by the Plaintiffs to Coyle Hamilton arose out of proceedings which had been in abeyance during the main trial. Those costs arose from a liability which occurred, not in the ordinary course of trading, but in a satellite action to the main proceedings. In relation to those proceedings the trial judge found that the Plaintiffs had been the authors of their own misfortune and had presented a grossly exaggerated claim. The Plaintiffs application seeks to give a priority to the order for costs which Coyle Hamilton obtained against them whereas the Defendants’ costs were incurred long before the costs the subject matter of the application were incurred by Coyle Hamilton. It would be inequitable to give priority to the former.
Moreover, Mr. Durcan avers, the is no evidence to indicate when Coyle Hamilton has threatened to wind up the Plaintiff companies or one or more of them. The receiver of the other Plaintiff has not been put on notice of the Plaintiffs application.
Mr. Durcan said that the grounding Affidavit in respect of the security for costs motion before the Supreme Court referred to an original claim in the sum of £2 million in November, 1988. The sum was £5 million on the date of the commencement of the trial in June, 1989. At the conclusion of the trial of the action in July, 1990 the claim was in the sum of £8 m. Finally, in the aftermath of the Supreme Court judgment and order of June, 1995, a revised claim in excess of £92 million was presented in November, 1996 at the commencement of the action for assessment of damages.
That Affidavit also recited the conclusion of the trial judge that the Plaintiffs had, to a great extent, been the authors of their own misfortune; had shown a total lack of candour with the loss adjusters; had obstructed the flow of information to the said loss adjusters and prevented them from uncovering multiple weaknesses and efficiencies in the Plaintiffs business and its financial records. The trial judge found that there was a deliberate policy of non-cooperation by the Plaintiffs. It also found that the claim presented by the Plaintiffs was grossly exaggerated and overstated.
The fourth named Defendant, Lloyds, had lodged £1.6 m. Pursuant to the provisions of Section 17 (2) of the Civil Liability Act, 1961 the award, by the High Court, in assessing damages in the sum of £314,940, was reduced to nil. This was in the context of the lodgements made by the first three Defendants totalling over £3.15 m. The first three Defendants obtained an Order for the costs of the trial as against all of the Plaintiffs. The Plaintiffs had received sums in excess of IR£3 m. The first three Defendants, the deponent avers, are entitled to the credit of the lodgment of £1.6 million received by the Plaintiffs.
The Defendants cost drawer have estimated the costs of the appeal as being in excess of£5m.
The deponent avers that Mr. Bunyan and his wife directed the transfer of a sum of £60,000 from the accounts of the first named Plaintiff company to a deposit and current account of Mr. Bunyan on the 19th September, 2000, six months after the conclusion of the action but before the delivery of judgment by Mr. Justice Smyth.
It would appear that it was on this basis that the Supreme Court ordered security for costs.
The estimate of the Defendants’ probable party and party costs was £1,253,883 as of the 18th December, 2001.
4. Further Affidavits
Supplemental Affidavits were also filed by Mr. Durcan and Mr. Derek Burke solicitor for the Plaintiffs which exhibited, inter alia, previous proceedings and correspondence between the parties and the papers filed in the Supreme Court in the security for costs motion.
5. Correspondence
The notice of motion and the grounding Affidavit refer to the High Court order of the 4th December, 2000 in favour of Coyle Hamilton as being the basis of the application to the Court for variation in the mareva order. This is echoed in a letter dated the 9th May, 2002 from Mr. Bunyan to the Solicitors for Coyle Hamilton which is exhibited in Mr. Burke’s Affidavit sworn the 15th July, 2002.
Those Solicitors had written on the 7th February, 2002 stating that the payment set out in the Certificate of Taxation remained due and owing and informing the Plaintiffs’ Solicitors that they would not correspond further in the matter and were taking their clients instructions with regard to steps to enforce payment of the sum due. That letter concludes:
“The remedies which we may be instructed to follow to enforce payment will be undertaken without further notice “.
6. Applicants’ Submissions
Mr. James Salafia, S.C., on behalf of the Applicants, submitted that the variation sought was in respect of payment of legal fees to a third party the propriety of which could not be questioned given the Court order of Kelly J.
He believed that the test in Ireland differed from that in England as outlined in Courtney on Mareva Injunctions, paragraph 6.16. In this jurisdiction the Courts follow a subjective test with the focus on “intention ” (see the decision In re John Horean Livestock Limited: O’Mahoney -v- Horean (1995) 21.R. 411 at 418). The appropriate payments should be paid out according to that test.
There was a full disclosure of the asset by the Defendants: no issue taken with the correctness of that disclosure. Those assets were outlined in the Affidavit of Mr. Bunyan in paragraph 9. In that respect the case differs from D.P.P. -v-E.H., (unreported, High Court decision, 27 April 1997).
Counsel urged that it was necessary to discharge the debt in order to prosecute the Plaintiffs/Applicants appeal and to avoid the Plaintiff/Applicant being wound up.
The mareva injunction was granted in May, 2001 on the occasion of the judgment in the High Court proceedings which is subject to the appeal to the Supreme Court. In relation to that appeal security for costs has already been obtained making the Mareva Injunction superfluous.
7. Respondent/Defendants Submissions
Mr. John Gleeson, S.C. objected on the ground that the Court has to exercise its discretion on the basis of all the circumstances and be fair to both parties. The effect of the order is to preserve the assets of the Applicant/Plaintiffs.
The order for costs in respect of which the variation is sought, was made against all of the Plaintiff in relation to the costs of a third party. The security for costs order relates only to the costs of the appeal which is prospective not retrospective.
The payment of those retrospective costs does not arise in relation to “trading as a going concern”. AH but the first Applicant/Plaintiff are in receivership and the first named, Superwood Holdings Pic, is not a trading concern.
In his submission there is no reality to the winding up application. There is no reply by the Applicant/Plaintiffs to the letter of demand by the third party. A winding up order would require notice to be given. The Court would be reluctant to wind up any of the Applicant/Plaintiffs pending an appeal to the Supreme Court. There is, in fact, no threat that the winding up petition would be presented following the statutory demand of the 7th May, 2002.
The trial judge granted both an interim and interlocutory order.
The cost order was made against Duranna and against the Applicant/Plaintiffs. Duranna Limited was not caught by the mareva injunction. It was an additional Plaintiff in the Coyle Hamilton proceedings. There is no evidence given as to its assets nor to its ability to pay.
Moreover the judgment in D.P.P. -v-E.H., at pages 3 and 4 held that there was no difference between Irish and English legislation in this regard. Full disclosure is required to be made.
Mr. Ivan Durcan’s Affidavit at paragraph 16 avers to and exhibits correspondence in relation to the transfer of £60,000 from the first named Plaintiff’s bank account to the personal accounts of Mr. Bunyan, the deponent of the grounding Affidavit.
To grant the order would be the converse of the application for the injunction in that it would undermine the status quo now obtaining. There could be liberty to re-enter on adducing sufficient evidence as required in D.P.P. -v-E.H., in relation to the assets of Duranna and the purpose for which the transfer of £60,000 was made.
8. Case Law
8.1. Application can be made for a variation of such an injunction.
In D.P.P. -v-E.L, ex-temporare judgment of Kelly J., 22nd April, 1997 it was held as follows:
“The mareva orders were always subject to being varied by the Court so as to allow a Defendant to draw down from the frozen fund or assets, money sufficient to discharge legal and living expenses. The legislator, in an acting Section 24 (of the Criminal Justice Act, 1994), expressly recognised that the restraint which might be imposed pursuant to orders made under that Section could also be subject to variation so as to provide for living expenses and legal expenses (see subsection 2 of Section 24).”
8.2. A condition required for such variation is that the Applicant has no other funds
available.
Kelly J. referred to Robert Goff J. in A and Another -v- C. and Another (1981) 2 All ER 126 who held:
“Although the Court has jurisdiction to qualify a mareva injunction where the Defendant has satisfied the Court that assets subject to the injunction were required for a purpose which did not conflict with the policy underlined in the mareva jurisdiction, in order to satisfy that burden the Defendant had to go further than merely to state that he owed money to someone and had to show that he did not have any other assets available out of which the debt would be paid. Since the Defendants had failed to produce evidence to show that they had no other assets out of which they could pay the legal costs, their application was dismissed.”
8.3. Where funds have been withdrawn before the injunction the Court may decline to
vary the order.
In D.P.P. -v-E.H., unreported, High Court, 22nd April, 1997, the evidence established that since his release from Garda custody the Defendant had withdrawn substantial sums from accounts under his control which withdrawals ante-dated the mareva order. The Defendant stated that the moneys were used to repay a business associate but refused to identify that person. As the evidence which had been given on the application was unsatisfactory the application was refused.
8.4. In addition full and frank disclosure is required.
In O’Mahonv -v- Horzan, in the matter ofJ. Horgan Livestock Limited (in liquidation) (1995) 21.R. 211 Hamilton C.J., in allowing an appeal against the mareva injunction granted by the High Court, referred to five criteria which should be established to ground mareva type injunctions being granted. These require the Plaintiff to make full and frank disclosure of all matters in his knowledge which are material for the Court to know, among other criteria. A mareva type injunction, as stated, is not intended to give security in advance of judgment but merely to prevent the Defendant from defeating the Plaintiffs chance of recovery by disapprobation of assets (per Hamilton C.J. at 420). O’Flaherty J., at 422 added that, on the facts of that case, the remedy was neither appropriate nor relevant as the amount which it had sought to freeze was but a tiny fraction of the amount involved in the main action.
8.5. Notwithstanding, the Court may vary the injunction where there is hardship.
In Powerscourt Estates -v- Patrick Gallagher and Paul Gallagher (1984) I.L.R.M. 123 at 126, McWilliams J. held as follows:
“In the present case, the reluctance of the Defendants to disclose their assets and their dispositions and proposed dispositions of them, combined with the fact their businesses are not personal but conducted by a group of companies, indicates that they are probably mainly interested in depriving the Plaintiffs of the opportunity of recovering. Accordingly, I ought to continue the injunction, but this can be removed on application by the Defendants showing grounds of hardship either to themselves or to anyone else, including creditors of the Defendants who are entitled to be paid in the ordinary course of business. ”
8.6. Even where future legal expenses are concerned the Court may refuse to vary.
In relation to the legal expenses provision Atlas Maritime Company S.A. -v-Avalon (1991) 4 All ER 785 (The Carol Rose (No. 3)) the Defendant company sought to have a mareva injunction, which restrained it from dealing with all of its assets, varied an order to permit it to expend fund its legal expenses.
In refusing to vary the order, the Court of Appeal referred to the Defendant being a wholly owned subsidiary of another company who could pay the defendants legal expense. Lord Donaldson of Lymington M.R. at 790 G. stated:
“In the ordinary case of a wholly owned subsidiary company having a commercial, as distinct from a legal, existence involving some degree of independence from its parents, I would entirely agree with the (Trial) Judge. However, in citing the decision of this Court that there is no justification for piercing the corporate veil, i.e. challenging the existence ofAvalon as a separate legal entity, he failed to direct himself that he could and should “lift up or look behind it”…
Let me go back to the fundamental principle. There is no doubt that the variation ordered by (the trial judge) is “designed to ensure ” (in the sense that it will produce the results whether or not that is the object of the exercise) that, insofar as the frozen fund is used for the payment of Clyde and Companies Fees and Disbursements, any award in favour of Atlas is likely to be rendered less effective assuming, as for this purpose I must, that the award may well equal or exceed the amount of this fund.”
Lord Donaldson continued, at 791 F as follows:
“Leaving aside this unusual, and possibly unique, financial relationship, the fact that the variation of the injunction to enable legal costs to be paid would be likely to render any award in favour of Atlas less effective is not of itself a fatal objection because of the proviso built into what I have described as the fundamental principle. But this proviso only applies in cases in which the operation of the injunction would impede the person enjoined from defending himself against the claim. Would it be in this case? ”
…
With all respects I cannot accept that Clyde and Company minded from what fund their fees were paid. Their client is and was Avalon… But Avalon ‘s lack of unfrozen funds would in no way impede their defence of the claim against them if, nevertheless, they could obtain the necessary funds. (It was not ever said) that no such funds were obtainable in precisely the way in which Avalon ‘s funds always were obtained.”
9. Decision of the Court
9.1. This is not an application for a mareva injunction nor, indeed, an appeal against the order of Smyth J. granting the relief sought on a interlocutory basis. It is an application for variation of that order made the 4th May, 2001 and perfected on the 11th May, 2001.
9.2. In relation to the cases referred to, this Court must distinguish between those relating to the initial grant of injunctive relief and the more limited number of cases dealing with variation.
The five criteria set out by Hamilton CJ. in Horean at page 416 applies equally to a variation of injunction relief already granted. One of those is the full and frank disclosure of all matters in the knowledge of the Applicant which is material. Such must include the ability of each of the Plaintiffs in the action against Coyle Hamilton to make payment. In this regard the failure to advert to the assets (if any) of Duranna Limited, is significant.
9.3. Even more significant is the disclosure of the application of the funds transferred from Superwood Holding Plc bank account to that of Mr. Bunyan. It is clear that, from the decision of Kelly J. in D.P.P. -v- E.H. (unreported, High Court, Kelly J., 22nd April, 1997) that this is significant.
While there is no evidence that Superwood Holdings Pic. is trading, I do not believe this to be critical. Part of the business of a holding company includes all litigation which its directors deem appropriate.
More significant is, however, the timing of the debt. This is not an application for variation to enable the Applicants/Plaintiffs to pursue a legal appeal in the future. It is rather an application for payment of a debt incurred in relation to litigation against a third party in the past.
9.4. The general criteria with regard to the right of Applicants to the variation of over extensive mareva injunction relates to the ability of Appellants to pursue remedies in the Court and not to the payment of previous legal fees or costs awarded against them. The pleadings, and to some extent, the submissions made relate to the quality of the debt. While it is not submitted that the Court order of Kelly J. gives any priority such as would obtain in insolvency, there is the suggestion that, as the sum is taxed and made an order of the Court that it should be paid on application for a variation. This seems to me to be a misconception. The sum owed is not secured by way of judgment mortgage. Neither are any of the Applicant/Plaintiffs in liquidation.
As already stated Duranna Limited is not referred to and, it would appear, and is not controverted, that it is as much a debtor in respect of the said debt as the Applicants herein.
9.5.The application was made, in the pleadings, on behalf of all the Plaintiffs. The Application proceeded on the basis of a variation in respect of the assets of Superwood Holdings Pic. only. It does seem to me, in either event, that the Receiver of the remaining Plaintiffs should have been on notice. Whatever about Mr. Salafia’s submissions that this case should not be followed by the Irish Courts (see Courtney: at 9.21), the evidence in relation to the interrelationships between the Plaintiffs, the relationship to Duranna and, most particularly, the application of the funds transferred from the first named Applicant/Plaintiff to Mr. Bunyan should have been explained to the Court.
9.6.It should be made clear that this is not an application for the discharge of the injunction but simply for a variation. For the above reasons the application is refused on the basis of the evidence presently before the Court.
Tracey v Bowen
, unreported, High Court, Clarke J., April 19, 2005,
JUDGMENT of Mr. Justice Clarke delivered 19th April, 2005.
In this application the Plaintiff seeks a mareva type injunction against the Defendant.
There is much contention in the matters deposed to in the respective affidavits sworn on both sides. However the following brief facts would appear not to be in dispute.
The parties became acquainted when they came to reside in separate apartments within the same apartment complex in Blackrock. While there are disputes as to who instigated the possibility of investments being made by the Plaintiff on the advice of or with the assistance of the Defendant it is common case that the Defendant recommended to the Plaintiff a possible investment and identified to the Plaintiff where certain moneys should be transferred as a means of furthering the investment concerned. The Plaintiff then transferred the moneys in the manner which had been indicated to him by the Defendant.
Little more is common case save that the moneys have not yet been returned and that it had been anticipated, by all concerned, that the moneys would have been returned before now.
The key differences between the evidence of the parties concerning the investment would seem to concern the role of the Defendant. The Defendant has denied that any investment was made with him. His case is that he recommended to the Plaintiff an investment opportunity of which he had been appraised by a Mr. Ken Nunn who is, apparently, a retired property developer based in the United Kingdom. The Defendant’s case is that he was a co-investor in the scheme which he regarded as being low risk high yield and involving currency trading. He points to the fact that the moneys invested by the Plaintiff were in fact transferred directly by the Plaintiff from the Plaintiff’s account to a bank account in Spain in the name of the Wells Group. The Defendant’s case is, therefore, that he did nothing more than appraise the Plaintiff of an investment opportunity which he regarded as appropriate and attractive and in which he was himself to be a co-investor.
As against that the Plaintiff draws attention to the initial introduction by the Defendant of the investment opportunity which was by means of a note on a compliment slip describing the Defendant as “the James Bowen Company” and showing a business address at Foxrock Business Services, Cornelscourt, Foxrock and a Californian address together with a registered office at Herbert Street. He also draws attention to a second document inviting him to consider a separate investment which appears on headed notepaper with the same details as the compliment slip referred to above and which is dated 18th February, 2004. The initial compliment slip note contains writing in the following terms “Bob! I may have two units available – $50,000 x 2”.
In those circumstances the Plaintiff contends that the true construction that should be placed on the arrangements between him and the Defendant was to the effect that he was investing money with the Defendant and that the money was paid at the direction of the Defendant to the Spanish bank account concerned. It is not possible at this stage to resolve the conflicts of fact and inferences therefrom which arise from that evidence. There is therefore a fair issue to be tried between the parties as to whether the Defendant’s role was more central than that for which he contends to a sufficient extent so as to render the Defendant liable for the return of the investment. At the hearing of the interlocutory application before me it was not contended by counsel on behalf of the Defendant that there was not a fair issue to be tried though he strenuously maintained his client’s position that the Plaintiff’s proceedings herein were misconceived.
The real issue between the parties on this application is as to whether the Plaintiff has met the criteria which are required to be established in order that the court might grant mareva type relief. In that regard the Defendant places reliance on O’Mahony v. Hogan [1995] 2 IR 411 in which the Supreme Court set out the criteria which need to be established prior to the grant of such injunctions in the following terms:-
(a) the Plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the court to know;
(b) the Plaintiff should give particulars of his claim and the amount thereof, fairly stating the points made against it by the Defendant;
(c) the Plaintiff should give some grounds for believing the Defendant has assets within the jurisdiction: the existence of a bank account is normally sufficient;
(d) the Plaintiff should give some grounds for believing that there is a risk of the assets been removed or dissipated; and
(e) the Plaintiff should give an undertaking in damages in the event that he should fail
In particular the Defendant contends that the Plaintiff has produced no or no sufficient evidence for suggesting that there are grounds for believing that there is a risk that his (the Defendant’s) assets might be removed from the jurisdiction or dissipated.
As appears from the judgment of Hamilton C.J. in O’Mahony at p. 417 much of the principles identified above stem from the fact that a Plaintiff is not, in the ordinary way, entitled to require from the Defendant, in advance of judgment, security to guarantee satisfaction of a judgment that the Plaintiff may eventually obtain. The precise issues in O’Mahony centered on whether the intended expenditure of certain moneys in that case by the Defendant for the purposes of replacing farm buildings, the burning down of which by fire had led to the entitlement to receive the moneys from the Defendants insurers in the first place, or otherwise in the ordinary course of the Defendant’s business as a farmer or to pay his lawful debts amounted to the sort of dissipation contemplated in the test established for the grant of mareva relief. On the facts of that case the Supreme Court held that an expenditure of the moneys concerned in the way contemplated by the Defendant in those proceedings would not amount to such a dissipation. No such issue arises in this case.
The only evidence of any intended or possible dissipation of his assets by the Defendant which the Plaintiff has produced concerns an alleged statement (which is strenuously denied) attributed to the Defendant by a named person whom the Plaintiff claims informed him that she was present in the Defendant’s golf club when he indicated an intention of emigrating to Spain where, it is alleged he claimed, he had bought an apartment. The Defendant appears to reside in an apartment in Dublin which he would seem to own and there is no suggestion of that apartment being put up for sale.
However counsel for the Plaintiff places reliance on Bennett Enterprises Inc. v. Lipton [1999] 2 IR 221 where O’Sullivan J. having conducted an extensive review of the authorities up to that time noted, at p. 228, relevant extracts from the judgment of the Supreme Court in O’Mahony and continued as follows:-
“I fully accept those quotations. It is clear, of course, that if any dissipation of assets were to occur in the ordinary course of business, this of itself would not justify the granting of a mareva injunction. The anticipated dissipation must be for the purposes of the Defendant evading his obligation to the Plaintiff. Equally, however, I consider that direct evidence of an intention to evade will rarely be available at the interlocutory stage. I consider it legitimate for me to consider all the circumstances in relation to the case and I do not consider that this approach is in any way prohibited by or at variance with the principles set out in the Supreme Court judgment in O’Mahony v. Hogan [1995] 2 IR 411.”
O’Sullivan J. then went on to identify a range of factors which had been urged on the part of the Plaintiff in that case as giving rise to a reasonable apprehension that the relevant assets would be dissipated or removed from the jurisdiction of the courts.
On the facts of that case O’Sullivan J. was satisfied that the Plaintiff’s apprehensions were reasonably founded. Subsequently in Aerospace Limited v. Thomson and Others (Unreported judgment of Kearns J. delivered 13th January, 1999) Bennett was followed and judicial approval was also given to a passage from Gee on Mareva Injunctions and Anton Piller Relief (4th Edition p. 198) to the following effect:-
“Good grounds for alleging that the Defendants have been dishonest is relevant. Dishonesty is not essential to the exercise of the jurisdiction and there is no need to show an intention to dissipate assets. But if there is a good arguable case in support of an allegation that the Defendant has acted fraudulently or dishonestly (e.g. being implicated in an ingenious scheme for the misappropriation of funds belonging to the Plaintiff) or has acted unconscionably, then it is unnecessary for there to be any specific evidence on risk of dissipation for the court to be entitled to take the view that there is a sufficient risk to justify granting mareva relief. Once this is shown, the limit of the mareva relief will take into account claims for which the Plaintiff has a good arguable case, including those which do not involve such an allegation. The fact that a Defendant is experienced in intricate sophisticated international transactions involving movements of large sums of money may also indicate that there is a real risk of dissipation”.
It seems to me therefore that Bennett and Aerospace are authority for the proposition that in assessing the risk of dissipation the court is entitled to take into account all the circumstances of the case which can include, in an appropriate case, an inference drawn from the nature of the wrongdoing alleged which if fraudulent or unconscionable may lead to the establishment of a risk that further fraudulent or unconscionable actions will be taken so as to place any assets of the Defendant outsides the jurisdiction of the court.
However it should be noted that the above principles require the court to look at all the circumstances of the case. Such factors are, therefore, likely to be of much greater significance in cases where the only assets of the Defendant within the jurisdiction are liquid assets capable of being moved about with great ease and in particular where the Defendant is, in the words of the passage quoted from Gee, “experienced in intricate, sophisticated, international transactions involving movements of large sums of money”. It seems to me that those considerations are of significantly less weight in cases where, as here, the Plaintiff would appear to have real property within the jurisdiction which at least prima facie seems sufficient to meet any claim which the Plaintiff might have.
In the course of an affidavit sworn on 18th February, 2005 the Plaintiff at paragraph 20 draws attention to a variety of factors which, he asserts, ought permit the court to infer that there is a significant risk of dissipation. I should set out those factors in full:
a) the defendant has failed to repay the monies pursuant to the terms of the investment or on foot of numerous promises to do so.
b) The Defendant has consistently failed to disclose the whereabouts and or fate of the monies.
c) It is significant that the Defendant has failed in his affidavit to set out the precise workings of the investment.
d) The Defendant has failed to disclose any transaction involving my money subsequent to the transfer made by me on the 21st January, 2004.
e) The Defendant’s claim that he was simply a co-investor and denial that he procured the monies for investment in his capacity as a financial advisor fly in the face of the documents provided by the Defendant and the statements made by him and are simply unbelievable.
f) The Defendant’s averment that he never solicited any other investment from your deponent is patently untrue having regard to the contents of the investment offer contained in the letter of the 18th February, 2004.
g) The Defendant has hidden behind the actions of Mr. Ken Nunn and Mr. Thomas Wells yet has never provided any clue to the real identity or background of these individuals.
h) Correspondence to Thomas Wells in July 2004, by registered post was returned.
i) I have never received any direct communication, information or explanation from Ken Nunn or Thomas Wells.
j) The Defendant’s explanation of how he came to be acquainted with Ken Nunn and the suggestion that the invitation to participate in the “investment” was in appreciation of previous assistance is both vague and unbelievable.
k) The Defendant has provided varying and inconsistent explanations as to the delay in returning the monies.
l) The Defendant has not exhibited a single document to substantiate his claims nor has he provided any evidence that would tend to corroborate his denial of an intention to dissipate his assets with a view to evading his obligations.
m) The one document exhibited by the defendant for the purpose of appraising the court of the up to date position with regard to the monies contains an incomprehensible explanation the gist of which appears to be that the monies are gone but shall be made good through some sort of bank guarantee.
n) It is noteworthy that neither of the Defendant’s associates has sworn an affidavit in support of the Defendant’s claim.
o) The Defendant has not denied having property in Spain and from his business paper it appears that he also operates from California which may explain his request for the money to be transferred in US dollars.
p) It is clear that the Defendant has the expertise and wherewithal to transfer and dispose of funds and assets internationally through his network of associates.
q) Notwithstanding that the defendant gave an undertaking on the 14th February, 2004, in terms of para. 3 of the notice of motion herein, he has failed to so account.
r) The Defendant has failed to exhibit bank statements or anything which might allay your deponent’s fears that the funds are in danger of being dissipated or removed from the jurisdiction of the courts.
Many of those assertions are highly contentious. For example the suggestions at sub- paragraphs (a) to (c) and (e) which concern the alleged failure of the Defendant to repay the moneys, to disclose the whereabouts thereof and the workings of the investment, and the Defendants denial that he procured the moneys for investment in his capacity as a financial advisor are dependent on a resolution of the issue concerning the status of the involvement of the Defendant in the Plaintiff’s investment in favour of the contentions put forwards by the Plaintiff. These factors are not inherently suggestive of fraud or unconscionable activity. Furthermore a number of the contentions are expressly dependent on the court being satisfied that, in the words of the affidavit, certain statements of or positions adopted by the Defendant are “unbelievable”.
In all the circumstances of the case I am not satisfied that any of those factors whether taken alone or collectively are sufficient to create a reasonable apprehension that the Plaintiff will dissipate his assets in an inappropriate fashion subject to one caveat to which I now turn.
It is correct for the Plaintiff to point out that the Defendant has not, in the course of these proceedings sworn any affidavit which deals with his assets other than a reference to his ownership of his apartment at Blackrock. It seems to me that the Defendant should make clear, on affidavit, that he is the owner of that apartment and give some reasonable estimate as to the net value thereof. Clearly the weight to be attached to the fact that he resides in a property which he owns in Ireland in an overall assessment of all of the circumstances concerning the risk of dissipation require such information to be available.
Subject to the Defendant filing a satisfactory affidavit in that regard it would not seem to be appropriate to grant interlocutory relief. However pending the receipt and consideration of such an affidavit this application should not be considered as being at an end and the undertaking previously tendered by the Defendant in terms similar to the mareva relief sought will continue.
I should not conclude this judgment without passing some comment on the highly argumentative manner in which both parties have presented their evidence in affidavit form. While acknowledging that there has been an increasing tendency on the part of deponents in many interlocutory matters to use affidavits as a means of putting forward argument rather than evidence I am particularly concerned that that practice should not be allowed extend to permitting highly contentious argumentative material to appear in a document which should only include evidence. In his replying affidavit the Defendant describes the Plaintiff’s claims as “wholly unsustainable” and “outrageous”, he suggest that it is “remarkable” that the Plaintiff could swear an affidavit making certain of the allegations. He further states that the bringing of the application concerned “is completely unacceptable”. Similarly in his supplemental affidavit the Plaintiff describes the Defendant’s claim that he has no responsibility in respect of the money as “outrageous” and goes on in a subsequent affidavit to describe explanations as “preposterous” and “an extravagant ruse”.
Furthermore it is difficult to escape the conclusion that some of the matters put in evidence in this case (to which I will not refer so as to avoid giving them any greater currency) were deposed to (certainly as to the detail provided) principally for the purposes of embarrassment rather than because they were matters which were material to the issues which the court had to decide. It is appropriate to reiterate that the primary purpose of an affidavit is to place evidence before the court. While it may be permissible and indeed in certain cases useful if the affidavit makes brief reference to the principal contentions which the party concerned seeks to make (in that it thereby puts the other side upon notice of the principal contentions that would be made) any such contentions should be expressed in unemotive terms. The purpose of permitting any latitude in the making of argument through affidavit is simply to permit a party to draw attention to the arguments that are intended to be made and not for the purposes of advocacy. If it is desired to reduce argument by way of advocacy to writing then same should be done by means of a written submission to the court rather than contained in flamboyant language in an affidavit. While neither side is without fault in the above matters I do have to say that I believe that the Defendant must bear a greater share of the blame.
Subject, therefore, to a consideration of the further affidavit referred to above concerning the Plaintiff’s residence I would propose making no order at this stage. I note that the undertaking previously given is to continue, but further indicate that in the event of a satisfactory affidavit along the lines indicated above being filed it would be not my intention to grant any interlocutory relief.
Approved: Clarke J.
Collins v Gharion
[2013] IEHC 316
JUDGMENT of Mr. Justice Birmingham delivered the 9th day of July 2013
1. In the application before the court the plaintiff is seeking two reliefs, on an alternative basis, namely a Mareva type injunction restraining the defendant from reducing the cash balance in a bank account below a particular figure and a declaration, pursuant to s. 3 of the Legal Practitioners (Ireland) Act 1876 and s. 21(7) of the Arbitration Act 2010 which extended the 1876 Act to arbitration, that the plaintiff is entitled to a charge upon the funds held by the defendant in respect of an unpaid balance of costs claimed to be due by the defendant to the plaintiff.
2. The background to these applications is that the plaintiff, the well known Dublin law firm, acted on behalf of the defendant an unlimited company, in relation to High Court proceedings, a petition under s.205 of the Companies Act, and also linked arbitration proceedings. The arbitration proceedings and the petition were compromised on terms which saw the defendant Gharion receive the sum of €5,350,000.00 in return for disposing of a shareholding.
3. While the defendant has made some criticisms of certain aspects of the service it received and in particular has been critical of certain tactical decisions taken by the plaintiff, it is not disputed that the plaintiff is entitled to be paid professional fees in respect of the services it provided. The plaintiff submitted a bill of costs in the amount of €463,935.99. However, on behalf of the defendant it is contended -and it appears this will be the key issue at trial -that it, through Mr. John Gilroy, director and shareholder of the defendant, reached an agreement with Mr. Terry Legget, partner in the plaintiff that the fees payable should be €335,000.
4. When regard is had to interim payments made during the course of the proceedings and to a payment made by the defendant following the issue and service of the notice of motion, the plaintiff is claiming that the sum of €253,047.77 is due to it in respect of fees and the orders sought now are in respect of that sum.
5. At this stage, it may be noted that Gharion, which I have pointed out is an unlimited company, acquired a 40% shareholding in Carton Group Holding in 2004. Gharion was described as a “Special Purpose Vehicle”, incorporated to hold the shares in Carton Group Holding. Under the settlement agreement which was arrived at, Gharion was required to sell its shareholding in the group to the other parties to the proceedings, the Carton shareholders. Its role subsequent to the settlement was to receive the proceeds of the settlement. It is not in dispute that Gharion intends to transfer the funds it has received unless restrained by order of this Court. Specifically, it intends to transfer the funds to a company called College Protein, also an unlimited company. It may be noted that the sole shareholders in Gharion are John Gilroy and his brother Martin Gilroy, with Mr. John Gilroy holding 99 shares and Mr. Martin Gilroy one share. The shares are held in trust for College Protein. College Protein it may be noted is engaged in and has for many years been engaged in the waste disposal business from its premises at Nobber, County Meath. It is a substantial undertaking. It has assets of approximately €44.6M and its turnover for 2012 was in the region of €19M. It employs 85 people.
6. So far as the Mareva injunction is concerned, where the plaintiff is seeking injunctive relief restraining the defendant from reducing the amount in its bank account below €253,047.77, the applicable tests for a Mareva injunction have been summarised in Kirwan, Injunction Law and Practice (2008) as follows (at 8.30):-
“Derived from case law, there a number of key tests which will have to be satisfied before the Mareva injunction will be granted:
• First, the applicant for such an order must demonstrate that he has a substantive cause of action.
• Secondly, he must show that has a good arguable case (which means that an apparently higher threshold is applied to Mareva injunctions, rather than the bona fide/serious question test used in other interim and interlocutory applications).
• Thirdly he must show that the defendant has assets. He must also show that the anticipated disposal of the defendant’s assets is for the purpose of preventing the plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.
• Fourthly, as with other interlocutory injunctions, the balance of convenience is a relevant factor.
• Finally the behaviour of the defendant will be considered by the court.”
7. In the present case it is clear that a number of these tests are met. There is no doubt that the plaintiff has an underlying substantive action in terms of its pursuit of the fees that it claims to be due to it. Equally, in my view there is no doubt the plaintiff comfortably crosses the threshold of having a good arguable case. The plaintiff’s claim is that the amount sought in respect of fees is actually due and is recoverable. In so far as the defendant has put forward a defence which is that an agreement was reached that the fees payable would not be the sum claimed but the lesser sum of €335,000, the plaintiff has pointed to a number of factors which go a distance towards undermining the credibility of the defendant’s position. At this stage it is neither possible nor desirable to reach a concluded view in relation to the disputed facts but that the plaintiff has a good, indeed a strong arguable case, seems to me to be beyond argument. Again, there is no doubt that the defendant has assets and in particular no doubt that the funds, the disposal of which are sought to be restrained, are lodged at Bank of Ireland branch at John Street, Kells, County Meath. Rather, in a situation where it is acknowledged that it is the intention of the defendant to dispose of the assets now to be found in Kells to College Protein, the question is whether the anticipated disposal of those assets is for the purpose of preventing the plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts. In that regard it may be noted there is no suggestion that Gharion is paying a debt due by it to College Protein. Indeed, quite the contrary, in that the defendant is owed €4,695,379.00in respect of loans which it advanced to College Proteins which loans are repayable on demand.
8. On the question of the nature of the anticipated disposal of funds, there has been reference to the observations of Hamilton C.J. in O’Mahony v. Horgan [1995] 2 IR 411 at 419 where he commented:-
“Consequently, the cases establish that there must be an intention on the part of the defendant to dispose of his assets with a view to evading his obligation to the plaintiff and to frustrate the anticipated order of the court. It is not sufficient to establish that the assets are likely to be dissipated in the ordinary course of business or in the payment of lawful debts.”
9. There has been much focus on the phrase that it is not sufficient to establish that the assets are likely to be dissipated in the ordinary course of business, with the plaintiff asserting that the proposed disposal of funds to College Protein cannot be said to be in the ordinary course of business. When one is dealing with an entity like Gharion, that has never traded, has never carried on a business as such but which was a “Special Purpose Vehicle” which came into existence for one reason only, then the phrase “ordinary course of business” may not be a particularly helpful one. Rather, it seems to me that the focus should be on whether the proposed disposal is with the intention to evade obligations to the plaintiff and to frustrate anticipated court orders. In Bennett Enterprises v. Lipton [1999] 2 IR 221, O’Sullivan J. having referred to the passage from the judgment of Hamilton C.J. made the following comment:-
“I fully accept these quotations. It is clear, of course, that if any dissipation of assets were to occur in the ordinary course of business this of itself would not justify the granting of a Mareva injunction. The anticipated dissipation must be for the purpose of the defendant evading his obligation to the plaintiff. Equally, however, I consider that direct evidence of an intention to evade will rarely be available at the interlocutory stage. I consider it is legitimate for me to consider all the circumstances in relation to case and I do not consider that this approach is in anyway prohibited by or at variance with the principles set out in the Supreme Court judgment in O’Mahony v. Horgan, [1999] 2 I.R 421” [Emphasis added]
10. In the case of Aerospares Limited v. Thompson [1999] IEHC 76 (Unreported, High Court, 13th January, 1999), Kearns J. (as he then was) quoted a passage from Gee on Mareva Injunctions and Anton Pillar Orders which referred to a defendant having acted fraudulently or dishonestly (e.g. being implicated in an ingenious scheme for the misappropriation of funds belonging to the plaintiff, or acting unconscionably). The passage quoted referred to the fact that a defendant was engaging in intricate, sophisticated, international transactions involving movements of large sums of money which may also provide an indication that there is a real risk of dissipation.
11. The equivalent summary in Courtney on Mareva Injunctions and Related Interlocutory Orders (1999) to the extract from Kirwan to which I have referred which is at para 1.15 (point 3) and states as follows:-
“There must be a risk that the defendant will remove his assets from the jurisdiction or otherwise dispose of them with the intention of defeating of his obligation to a plaintiff and frustrating the anticipated court order.”
12. In the opening paragraph of Chapter 6 of that textbook which is headed “The Risk of Removal or Disposal of Assets” Courtney comments:-
“Indeed, it can be said that a defendant’s nefarious intention has become the raison d’étre of the Mareva injunction in Ireland.”
13. It seems to me therefore from the review of the case law and from what the textbooks have to say that the question that needs to be considered in this case is whether the proposed disposal to College Protein is for the purpose of evading obligations to Eugene F. Collins or is it with a view to frustrating orders that may be made in the substantive proceedings.
14. It seems to me that the starting point for consideration of this issue has to be that Gharion is an unlimited company and that accordingly there is potential for making John and Martin Gilroy personally liable. They have not sought to provide themselves with the shield of limited liability. It is true that making John and Martin Gilroy personally liable may be a cumbersome procedure involving a liquidation, but there seems no reason to believe that the defendant, or the Gilroys would render themselves judgment proof or any real fear that the plaintiff would be left with a paper or worthless judgment.
15. I have commented that the phrase, “ordinary course of business” is of limited assistance when dealing with a “Special Purpose Vehicle”. However, it may be useful to substitute a phrase such as “in the ordinary way” or “in the ordinary course of events”. If one does that then one is pushed towards the view that there is nothing untoward, or nothing nefarious about the proposed transfer, it is precisely what was to be expected would occur. Had there never been a dispute between Eugene F. Collins and Gharion, or indeed any other dispute involving Gharion, then the likelihood is that the transfer to College Protein would have taken place as a matter of routine, entirely without controversy.
16. It seems to me that the plaintiff has not established an intention on the part of the defendant to put its assets beyond the reach or frustrate future orders of the court. Most fundamentally the proposed transfer will not have the effect of rendering Gharion or its members judgment-proof.
17. No doubt making the orders sought would smooth the path of the plaintiff. However, while there would be obvious advantages for the plaintiff and things would be more convenient, perhaps a good deal more convenient, it does not seem to me that this consideration would justify a Mareva injunction. The old legal principle that ordinarily an individual is not entitled to an order preventing another person from dealing with its own assets, known as the rule in Lister and Co. v. Stubbs [1890] 45 Ch. D1, has not been displaced.
18. On the question of the balance of convenience, the defendant has pointed to the fact that the funds proposed to be transferred are required by College Protein to aid a capital expenditure project involving the acquisition of a set of evaporators for the sum of €1.5M which would then be used to recycle and reuse waste energy. It is acknowledged that there are other options open to College Protein, whether by accessing a sterling account from which cash reserves could be drawn, but this would involve currency conversion costs or an alternative would see the use of an overdraft facility, but again there would be a cost involved in this. These considerations do not weigh particularly heavily on me. Nonetheless the fact that the funds to be transferred are earmarked for a particular purpose is a further indication that this is not a contrived transfer designed to defeat the plaintiff.
19. So far as the conduct of the defendant is concerned there is little to commend, the defendant paid the sum of €210,880.12 only on 26th March, 2013, after the motion before the court was issued and served. Even on the view of the facts most favourable to the defendant, this sum was always due and yet it was paid almost nine months after the plaintiff’s invoice was sent to the defendant and it was left unpaid until then even though the defendant had received a payment of €4.85M arising from the settlement.
20. This dilatory approach to the payment of substantial fee admitted to be due is far from impressive. The sense one has is not diminished by the approach that the defendant has taken to these proceedings. Although the Statement of Claim was delivered on 22nd October 2012, the Defence was not delivered until 22nd March, 2013 and then only after a motion for judgment in default of defence had been brought. While these factors certainly do not impress to my mind, they do not go so far as to justify the intervention of the court by way of a Mareva injunction.
Section 3 Declaration
21. So far as the s. 3 Legal Practitioners (Ireland) Act 1876 application for a declaration is concerned it seems to me that the structure of the section does not require that the amount of fees due to a solicitor has been quantified. That emerges from the reference in the section to the court making an order for taxation and it is also supported by decisions such as McGowan Roofing Contractors Limited v. Manley Construction Limited [2011] IEHC 317 (Unreported, High Court, Laffoy J. 25th, July 2011).
22. However, while it is not necessary that the amount of the costs has been determined, it seems to me to be clearly implicit in the section that it has to be established that there are some fees due. However that is precisely what is hotly disputed in the present case. The defendant says that a specific agreement in relation to fees was reached and that the amount agreed has been discharged in full, so that there are no sums whatever outstanding.
23. The plaintiff has suggested that there is nothing to prevent the court making the declaration sought and that the charge will bite when the amount due is determined. It is said that if it is determined at the end of the day that there is no sum due, then no harm has been done.
24. However, in my view where there is such a fundamental dispute on the facts, it would not be appropriate to make a declaration at an interlocutory stage. The order sought is by any standard a significant one. It has implications, not just for the solicitor and the client but also for third parties. In Mount Kennett Investment Company v. O’Meara [2012] IEHC 167 (Unreported, High Court, Clarke J. 29th March, 2012) commented as follows:-
“Finally, it is well established that a charging order under s.3 gives the relevant solicitor priority over all other creditors and all claims except that of a purchaser for value without notice of the right of the solicitor to a charging order.”
17. It seems to me that an order so potentially far reaching is not one that is appropriately made at interlocutory stage where there is a major disagreement as to fact which remains unresolved. I am of that view, even though I recognise that the only third party likely to be affected is College Protein. As that is my view I must refuse the order sought under this section. As I have already indicated that I do not regard this as a case for a Mareva injunction, it follows that both reliefs sought are refused.
Dowley v O’Brien
[2009] IEHC 566
Judgment of Mr. Justice Clarke delivered on the 21st of December, 2009
1. Introduction
1.1 The application to which this judgment relates arose from a number of injunctions granted on 15th December 2008 in the above action and in four related actions, being Daniel Maher v Breifne O’Brien, record number 2008 /10798P, David Bell and Paul Bell v Breifne O’Brien, record number 2008 / 10709 P, David O’Reilly v Breifne O’Brien , record number 2008/10710P and Evan Newell v Breifne O’Brien, record number 2008/ 10711P). In short, this court granted mareva type injunctions restraining the defendant, (“Mr O’Brien”), or his agents, from reducing his assets under the level of €20 million.
1.2 On 9th January, 2009, this court, (Kelly J), granted judgment in favour of the plaintiffs (“the Dowleys”) in this case in the sum of €3,065,350 and granted further effect to the mareva injunction given on 15th December, 2008.
1.3 Anglo Irish Bank Plc (“Anglo”), who provided Mr. O’Brien with various loan facilities, sought to vary the terms of the injunctions previously granted in this action. Anglo wished to exercise various rights over assets of Mr O’Brien available to it in one way or another and to have such assets realised or otherwise applied in reduction of Mr. O’Brien’s indebtedness to Anglo.
1.4 Having considered the matter it seemed to me that it was unnecessary to vary the terms of the injunctions previously granted in order that Anglo be entitled, in relation to Mr O’Brien, to exercise any rights which they might have and bona fide wish to exercise. I, therefore, gave a brief ruling in which I outlined that finding but further indicated that I would later give a judgment setting out my reasons for having come to that view. This judgment is directed towards setting out those reasons. In addition, as counsel for the Dowley’s questioned the standing of Anglo to make this application, I also deal with that question at para. 5.19 below. It is necessary to turn, first, to the factual background.
2 Factual Background
2.1 From time to time since 1992, Mr. O’Brien was provided with a number of loan facilities by Anglo’s Dublin and London offices in connection with various business activities and investments. Anglo now asserts that Mr. O’Brien has defaulted in repayment of all of his loans from Anglo which are now, it is said, repayable in full. The total indebtedness, under this heading, of Mr. O’Brien to Anglo, as of 9th February, 2009, was stated by Anglo as being €2,222,047.26 together with further interest on principal sums of €5,547.21. By letters of 6th February, 2009, Anglo called upon Mr. O’Brien to discharge the balances on the account in the outstanding sum but he has, it would seem, failed to do so.
2.2 Mr. O’Brien was also advanced £1,936,000 in order to buy property in Reading, London by Anglo’s London branch in 2006. Mr. O’Brien has defaulted in the repayment of this loan which has been called in and the current balance outstanding on the account is said to be £1,935,781.88.
2.3 Various other loans, including renewals of existing facilities, were made by Anglo to Mr. O’Brien over the years under the terms of written facility letters accepted by Mr. O’Brien. Loans were made on the basis of Anglo’s General Conditions for personal Loans. Paragraph 13 of the General Conditions deals with set-off and provides as follows:-
“Subject to Section 40 of the Consumer Credit, 1995, the borrower hereby agrees that the Bank may at any time notwithstanding any settlement of account or other matter whatsoever, combine or consolidate with any of the Borrower’s then existing accounts in whatever currency such accounts may be denominated and whatsoever their nature whether subject to notice or not wheresoever situate and may set-off or transfer any sum standing to the credit of any one or more of such accounts in to towards satisfaction of any obligations or liabilities of the Borrower to the Bank whether such liabilities be present, future , actual , contingent, primary, collateral, several or joint. For this purpose the Borrower hereby irrevocably authorises the Bank to purchaser with the monies standing to the credit of such accounts such other currencies as may be necessary to effect such set-off or transfer at the prevailing spot rate exchange of the Bank as conclusively determined by the Bank.”
Anglo wish to rely on this provision in order to facilitate set-off of the amounts due and owing.
Assets held by Anglo
2.4 Anglo holds security over various assets of Mr. O’Brien. The first asset is the current balance in an Anglo deposit account which, as of 22nd July, 2009, was in the amount of €545,683.14 (the “deposit account”). The credit balance in the account is the residual element of “block funds” held “back to back” with various loans advanced to Mr. O’Brien by Anglo. Mr. O’Brien was precluded from accessing the deposit account without the consent of Anglo. From time to time various accounts were substituted for, replaced or superseded the initial deposit account. Provisions for set-off were agreed in the following clause of a deposit agreement entered into between Anglo and Mr. O’Brien on 26th June, 2002:
“4. Set-off
In addition to any right of set-off or any similar right to which the Bank may be entitled at law, in equity or otherwise howsoever arising, the Depositor hereby authorises the Bank to (but without obligation on the part of the Bank) and agrees that the Bank may at any time and from time to time and without the necessity to provide notice to the Depositor-
(a) combine and consolidate all or any accounts of the Depositor with the Bank in any jurisdiction including, without limitation, the Depositor Account;
(b) set-off and apply any credit balance in any currency standing upon any account of the Depositor with any branch of the Bank including without limitation, the Deposit Account (and whether such account is current or deposit or otherwise and whether or not any period of any such deposit , or by reference to which interest thereon is calculated, had elapsed) in or towards satisfaction of the Indebtedness or any part thereof (whether or not such Indebtedness or any part thereof is at such time, actual or contingent);
(c) in the name of the Depositor the Bank to do all such acts and execute all such documents as may be required to effect such application.”
2.5 The next item held by Anglo as security for Mr. O’Brien’s liabilities is an investment property acquired by Mr. O’Brien in Monkstown Grove, Monkstown, Co Dublin with facilities provide by Anglo (the “Monkstown Property”). Anglo’s security over this property is a Deed of Mortgage dated 24th March, 2006 between Mr. O’Brien and Anglo. The Monkstown Property was purchased by Mr. O’Brien with the assistance of a loan facility of €385,000 first advanced by Anglo under the terms of a facility letter dated 9th December, 2004. Anglo suggests that the current approximate value of the Monkstown Property is €400,000.
2.6 The next item which Anglo holds as security is a charge over 4066 shares in the issued share capital of Bank of Ireland and 440 shares in the issued share capital of AIB plc (together the “Bank Shares”). Anglo suggests that the value of the relevant shares is in the order of €6,299.60. The charge over these shares is dated 27th November, 2006.
2.7 Anglo further holds security over a share portfolio managed by a separate department in Anglo, Anglo Irish Private Banking, on behalf of Mr. O’Brien (the “Share Portfolio”). This portfolio consists of Mr. O’Brien’s interests in a fund called Newbury Street Property Geared Fund, which was established by Anglo to allow for investment in mixed use properties in the Newbury Street area of Boston. Anglo holds security over this Share Portfolio by virtue of a charge instrument dated 27th November, 2006. The portfolio is currently valued at €1,468,862. As appears from the charge instrument, Mr. O’Brien has charged the Share Portfolio as security for the repayment of his liabilities and Anglo is given, in the event of delay of payment on demand, powers of sale and realisation of the Share Portfolio to apply the proceeds of disposal towards discharge of the relevant liabilities. In addition Anglo has a pledge and security agreement dated 27th August, 2007 over the assets held by a nominee consisting of the investment in the Newbury Street Geared Property Fund.
2.8 As set out in a facility letter of 20th April, 2006, Anglo also holds a charge over a property purchased by Mr. O’Brien at Broad Street, Reading, England with an approximate value of £1,275,000, (the “Reading Property”) together with a charge over a deposit account with a minimum balance of £200,000.
2.9 Anglo further advanced loans, through its subsidiary, Anglo Irish Assert Finance plc, to Mr. O’Brien and Zollinger Investment Limited, a Jersey company linked to Mr. O’Brien, to acquire property on Rue de l’Université, Paris and the ASL Car Showroom, Munich, Germany (respectively the “Paris Property and the “Munich Property”). The facility letters relating to these loans date from 20th December, 2008 for the Paris Property, and 21st December, 2007 for the Munich Property. As security for these loans, Anglo was granted mortgages over these properties. The estimated value of the properties as of 13th July, 2008 was said to be €875,000 for the Paris Property and €8,000,000 for the Munich Property. The loans are, it is said, in default and the amounts currently outstanding are €875,000 and €7,857,863.59.
2.10 It is next necessary to turn to the relevant procedural history.
3 Procedural history
3.1 A notice of motion was filed on 23rd September, 2009 by Anglo. The notice of motion sought variation of the terms of the injunctions granted on 15th December, 2008 in order to permit the reduction of loan liabilities owed to Anglo by Mr O’Brien by the following operations:-
a) Set-off of the Deposit Account;
b) Realisation of the Bank Shares;
c) Realisation of the Share Portfolio held by Anglo;
d) Exercise of rights of mortgagee to sell the Monkstown Property;
e) Exercise of power of sale of the Reading Property ; and
f) Realisation of security held by Anglo Irish Asset Finance plc over the Paris Property and the Munich Property.
3.2 Notice of the injunctions, given on 15th December, was served on Anglo by the solicitors for the Dowleys by letter of 17th December, 2008. By letter of 13th November, 2009, the solicitors for the Dowleys notified the solicitors for Anglo of their intention to object to the application to vary the terms of the injunctions. The letter set out that, in particular, the plaintiffs questioned the level of rents being received on the Paris and Munich Proprieties. The Dowleys’ solicitors also sought an updated valuation of the Share Portfolio.
3.3 A letter from Mr O’Brien to Anglo’s solicitors, dated 13th November, 2009, was included in the papers handed into court by Anglo. In this letter, Mr. O’Brien, who at the present time has no legal representation, requested that the Court’s attention be drawn to his assertion of the following, viz that:-
a. The Reading Property, the Paris Property and the Munich Property were each producing an income in excess of their servicing costs with this rental going directly to Anglo,
b. The Monkstown Property is also the subject of a lease with the rent currently going to an account in National Irish Bank,
c. Mr. O’Brien disputes the values placed on the Reading Property and the Monkstown Property by Anglo. Mr O’Brien claims that Anglo undervalued the capital values of these properties by at least €4.78 million;
d. Mr O’Brien met with certain creditors in January 2009 and handed over his financial statements to an accountant.
e. Mr. O’Brien further set out that his creditors would be best satisfied if his entire asset portfolio held at Anglo was disposed of in an orderly fashion without the sale being the subject of a court order.
Mr. O’Brien did not appear in person during the heading of this motion.
4. Submissions of Anglo and the Dowleys
4.1 Anglo submitted that by virtue of the provisions of paragraph 13 in their General Conditions of loan and clause 4(b) of the deposit agreement, they have a contractual right to apply the credit balance in the deposit account in reduction of Mr. O’Brien’s various liabilities.
4.2 Anglo submitted that circumstances have arisen entitling them to liquidate the securities charged by the various charge instruments granting security over the various assets of Mr. O’Brien, as listed above, and to apply the proceeds in reduction of Mr. O’Brien’s liabilities to Anglo. Anglo further claims that it is entitled to a banker’s lien over securities which are held by it for Mr. O’Brien and that Anglo is then entitled to realise those securities and apply them in reduction of the liabilities owed to it by Mr. O’Brien.
4.3 Anglo submitted that, while it may be entitled to act to enforce its securities without any variation in the relevant injunctions, it had brought this application in case a variation was necessary.
4.4 The Dowleys argued that a variation in the injunction already in place was neither necessary nor appropriate. Attention was drawn to the fact that in a previous application brought by a separate financial institution this Court (Kelly J.) had declined to make the variation sought. Against that background it was necessary to consider the position of third parties in respect of mareva injunctions. I now turn to that question.
5. Third Parties and Mareva Injunctions
5.1 In general terms, a mareva injunction, such as has been granted in these proceedings, affects the assets of the party against whom it is granted, so as to prevent that party from placing such assets (save for assets in excess of any value threshold specified in the relevant order) beyond the reach of the court in the event of a successful action. In O’Mahony v Horgan [1995] 2 IR 411, the Supreme Court, per Hamilton CJ, held that a mareva injunction will be granted only if the plaintiff establishes that, (a) he has an arguable case that he will succeed in the action, and (b) the anticipated disposal of the defendant’s assets is for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts. As such, a mareva injunction will not ordinarily prevent the defendant concerned from continuing his lawful business and a defendant is usually allowed to apply his assets to pay his ordinary business debts in the same way as he would if not restrained by injunction.
5.2 A third party who, knowing of the terms of a mareva injunction, willfully assists in the breach of that injunction, or in its frustration, is liable for contempt of court. However a third party, such as a bank, may have a legitimate right to deal with an asset covered by a mareva injunction and such rights have been the subject of some debate. In Z Ltd v A –Z and AA-LL [1982] QB 588, Lord Denning M.R. suggested that, whenever an asset was subject to a mareva injunction, a third party who held the asset ought not to dispose of it at all. This view was subsequently rejected by the Court of Appeal in The Law Society v Shanks [1988] 1 FLR 504, where Sir John Donaldson M.R. found that handing to a defendant an asset that belonged to him did not amount to assisting in dissipation or disposal unless it was known that the purpose of the handing over of the relevant asset was to facilitate a dissipation of that asset. In relation to the relevant paragraph in Z. Ltd, Sir John Donaldson M.R. stated:-
“I know of no authority other than this particular passage for the proposition that it prevents anybody handing the asset over to the owner of the asset, in this case the defendant. That does not of itself amount to dissipation or a disposal of any kind whatsoever. In special circumstances, where it is known that the sole purpose of requiring the asset to be handed over to the defendant is to facilitate a dissipation of that asset, different considerations may arise, but that is not suggested in this case. That would be a very peculiar case indeed.
So, while I quite understand the attitude of the Ministry based on these two passages, and whilst they are entitled to the greatest possible respect as coming from Lord Denning, they do not, in my judgment, represent a general statement of the law which is applicable in any ordinary case.”
5.3 In Bank Mellat v Kazmi [1989] Q.B. 541, Nourse L.J. accepted that Sir John Donaldson’s view represented the correct approach, stating at page 547 of his judgment that:-
“I respectfully agree that mere notice of the existence of a Mareva injunction cannot render it a contempt of court for a third party to make over an asset to the defendant direct. Otherwise it might be impossible, for example, for a debtor with notice to pay over to the defendant even the most trivial sum without seeking the directions of the court. A distinction must be drawn between notice of the injunction on the one hand and notice of a probability that the asset will be disposed of or dealt with in breach of it on the other. It is only in the latter case that the third party can be guilty of a contempt of court.”
It would appear that no general test has been formulated for determining what constitutes ‘notice of a probability that the asset will be disposed of or dealt with in beach of the order’. Each case will, therefore, turn on its own facts.
5.4 In Oceanica Castelana Armadora SA v Mineralimportexport [1983] 1 W.L.R. 1294, it was held that the function of a mareva injunction was not to interfere with the exercise of non-party banks to their own right of set-off in respect of any facility which it had given to the party against whom the injunction has been granted. Referring to the ordinary business proviso, Lloyd J. stated at page 1300:
“It is now firmly established that a defendant who is subject to a Mareva injunction can apply to the court to vary the injunction, so as to enable him to pay his ordinary debts as they fall due. If the defendant can thus, in a suitable case, draw on his bank account to pay his ordinary creditors, notwithstanding a Mareva injunction, why should he not be free to pay his bank? Why should the bank be in a worse position than other ordinary creditors, just because it is the bank which holds the funds in question?”
5.5 Since Oceanica Castelana Armadora SA, it is no longer necessary in the United Kingdom for a bank to apply to court to confirm a right of set-off of loans made by the bank concerned to a defendant against the sums affected by a mareva injunction, as the standard form mareva injunction in the United Kingdom now specifically exempts set-off by banks from the effect of the injunction. There is no such standard form in operation in this jurisdiction.
5.6 In Gangway Ltd v Caledonian Park Investment (Jersey) Ltd and Anor [2001] 2 Lloyds Rep 715, the court held that a bank has a right of set-off against a credit balance in an account covered by a mareva injunction where that right was granted to the bank concerned before the bank was notified of the injunction, and as set out in the guidelines to the standard form for mareva injunctions in the Civil Procedure Rules, it could exercise that right without the need to apply to the court for variation of the injunction. However, the court held that there was no similar right to realise tangible assets over which the bank had a charge granted before the notification of the injunction and, therefore, the bank must apply to the court as an intervener to obtain an order varying the injunction to permit disposal, as there was no provision in the relevant guidelines covering the realization of tangible securities. As a non-party to the injunction, a bank had, therefore, to apply to court for a variation of the injunction to enable it to exercise such rights. In reaching this decision, the court relied on the analysis of mareva injunctions in Z Ltd. As mentioned at paragraph 5.2, this analysis was subsequently disapproved in The Law Society v Shanks [1988] 1 FLR 504. It has been suggested that, because Shanks was not cited in Gangway, the view expressed to the effect that the bank, as a non-party, had to apply for a variation to enable it to exercise its own rights of security was incorrect.
5.7 The court in Gangway further held that the duty of a bank in relation to a disposal was no higher than to act in good faith in the ordinary course of business. It was said that a bank should not have to justify its commercial judgment to the court in the absence of evidence that the disposal was collusive or was aimed at circumventing the injunction in the interests of the defendant. The court held that to impose any more stringent fetter on the right of a bank to realise security would represent an unwarrantable interference in the management of the bank’s security interest and would elevate the claimant’s interest in property covered by such an injunction to one almost analogous to that of a chargee. It has been emphasised that a mareva injunction is not intended to give security to a plaintiff in advance of judgment, Polly Peck International plc v Nadir [1992] 4 All ER 769, cited with approval in O’Mahony v Horgan.
5.8 In summary, United Kingdom case law, which has not as yet been followed in this jurisdiction, sets out that a third party need not apply to court to have an order varied so as to exercise rights to set off, as it is provided for in the standard form mareva injunction. There is a debate as to the extent to which a bank may have a right extending to the realization of a tangible asset potentially covered by a mareva injunction. Finally, the duty of a third party realizing assets is not higher than one of acting in good faith in the ordinary course of business.
5.9 In identifying the position of a third party in this jurisdiction in relation to a mareva injunction it seems to me that it is important to note that, unlike in the United Kingdom, no guidelines are typically attached to a mareva type injunction. Any distinction which, at least on one view, may exist or may have existed in the United Kingdom between, on the one hand, a bank exercising a right of set-off and, on the other hand, a bank enforcing a security, which derives from the relevant United Kingdom guidelines, could, in those circumstances, have no application in this jurisdiction.
5.10 The starting point for any consideration has to be the fact that a mareva type injunction, in the standard form, simply does what the order says. It restrains the defendant from removing his assets from the jurisdiction, at least to the extent that assets remaining in the jurisdiction cannot thereby be reduced below a threshold normally estimated by reference to the claim in respect of which the plaintiff has established a prima facie case, together with costs. Strictly speaking, the injunction does no more than that. While such injunctions are frequently referred to as freezing injunctions, a typical mareva injunction does not, in fact, freeze the assets of the defendant concerned. Rather, it, as the terms of the order states, prevents the removal of assets from the jurisdiction such as to leave an insufficient sum of assets within the jurisdiction to meet the possible claim. As was made clear by the Supreme Court in O’Mahony v. Horga, a mareva injunction does not prevent a party using its assets in the ordinary course of business or paying its lawful debts provided that payments made are bona fide for the purposes of that ordinary business or the payment of those ordinary debts and are not a device for removing relevant assets from the jurisdiction of the Court.
5.11 In addition, it is clear that, strictly speaking, the only party bound, directly, by a mareva type injunction is the defendant or defendants named in the proceedings. A third party (such as a bank) is not directly the subject of the mareva injunction. In principle, therefore, any third party (including a bank) can only be affected by a mareva injunction if it could be said that an action taken by that party amounted to either aiding and abetting a breach of the order (of which the bank had notice) or frustrating the effect of such an order (again where the bank had notice). In passing it should be noted that, in cases where the relevant plaintiff claims an interest directly in funds standing to the credit of a defendant in a bank, different considerations apply. In those circumstances the plaintiff, if correct, owns the funds. It follows that it would be open to the plaintiff concerned to obtain a true freezing order in respect of the relevant funds for, if that plaintiff be correct, the actual funds standing to the credit of the defendant in a bank are properly the funds of the plaintiff. If the plaintiff is correct, then the bank concerned could not have any interest in the relevant funds for they are not the defendant’s funds (who was the bank’s customer) but rather the plaintiff’s funds. However, the form of injunction which would ordinarily be granted in such a case would be entirely different from the form of injunction granted in a mareva type case and it is likely that the bank itself would be made a direct notice party as the bank would hold the funds which the plaintiff asserts to be its own.
5.12 However, it is clear that the obtaining of a mareva type injunction does not give the plaintiff in the relevant proceedings any particular interest in or charge over specific property of the defendant concerned. The purpose of the mareva injunction is not to give security to the plaintiff. Rather it is to prevent the defendant from acting improperly so as to place his funds outside the control or jurisdiction of the court so as to frustrate execution of any judgment which might ultimately be obtained. However, a plaintiff who successfully obtains a mareva injunction and ultimately goes on to secure a judgment has no greater entitlement than any other party to assets which may, in substance, have been affected by the mareva order. The successful plaintiff who obtains a mareva injunction does not, by obtaining that injunction, move any further up the queue for payment. Such a plaintiff simply improves the chances of there being funds available, in the ordinary way, to meet any judgment which might ultimately be obtained. A plaintiff who obtains a mareva injunction does not, therefore, obtain any additional interest in any particular asset of the defendant.
5.13 It should also be noted that financial institutions have, over recent years, become understandably conservative about the way in which they are prepared to deal with accounts of persons in respect of whom mareva type injunctions have been granted and where the bank concerned has notice of the making of the relevant injunction. In such circumstances it has been the experience of the court that banks frequently are unwilling to release any funds held in accounts in the name of the defendant concerned without some form of court order. For example, addenda are frequently made to mareva injunctions specifically permitting a particular periodic sum to be paid for living expenses or for legitimate business purposes. The position of banks in such circumstances is understandable. The whole reason why a plaintiff, who successfully obtains a mareva injunction, may seek to give the defendant’s bank notice of the making of that injunction is to put the bank on notice of the fact that the defendant concerned is constrained in the manner in which he can deal with his assets and also to preclude the bank (by reason of notice) from acting in any way that might be said to aid or abet a breach of the order or to frustrate its operation. In such circumstances it is understandable that banks will take a conservative approach. Where a defendant is (say) constrained by order from removing assets so as to bring their assets within the jurisdiction below €1m, a bank which has €500,000 in an account in the name of the defendant concerned would be understandably reluctant to allow that defendant, after notice of the order, to withdraw €250,000 because the bank might feel that it might be open to a suggestion that it had, thereby, knowingly facilitated a breach of the order if it should transpire that the assets were then moved outside the jurisdiction or otherwise placed outside the reach of the court.
5.14 The fact that a defendant can, undoubtedly, carry on its business in the ordinary way provided it does so bona fide and pay its lawful debts provided it does so bona fide, notwithstanding the existence of a mareva injunction, might provide some comfort to the bank concerned but only if the bank could be absolutely sure that no suggestion might be made that it had, by permitting a payment or withdrawal, have facilitated a breach of the court order rather than facilitated the carrying on of bona fide business or the payment of bona fide debts. Given that the bank may not have complete information about its customers’ affairs, it is understandable that a bank may choose to err on the side of caution in such circumstances.
5.15 However, that analysis does not take away from the fact that it is not a breach of a typical mareva type injunction for a party to pay its debts or to make payments bona fide required for the ordinary carrying on of its business. The fact that there may be practical difficulties which may cause concern to third party financial institutions in having sufficient comfort that any relevant transaction is truly bona fide does not take away from the undoubted limits of the mareva injunction. In addition, it should be noted that a bank obtaining additional security or an additional contractual entitlement to set-off after it had notice of the making of a mareva type injunction would run the risk that any such transaction might itself be in breach of the mareva injunction such that it would be invalid and render reliance by the bank on the security or set-off concerned equally invalid. Where, however, a bank has already in place a right of set-off or security in advance of the notification of the existence of a mareva injunction against the bank’s customer, then the mareva injunction concerned could have no effect on the validity of the right to set-off or security concerned.
5.16 In what way, then, could the exercise by the bank concerned of its right to set-off or enforcement of its security be regarded as being impaired by a mareva injunction in typical form? The defendant concerned could not be said to be dissipating his assets in any way precluded by the order. The defendant is, in fact, taking no action at all, in that the bank is imposing on the defendant concerned a set-off or realization of security, because of the defendant’s default. It seems to me to follow that a typical mareva injunction places no barrier in the way of a financial institution in making a bona fide exercise of any power of set-off or security realization which it may have had in place prior to it being notified of the existence of a mareva injunction. In order for the bank to exercise any such rights it is clear that same needs to be bona fide exercised. However, provided that such rights are bona fide exercised it does not seem to me that any mareva injunction places a barrier in the way of the bank concerned.
5.17 It was for those reasons that I indicated to the parties that it did not seem to me that it was necessary for this court to vary the mareva injunction in place in these proceedings so as to enable Anglo to exercise any bona fide entitlement which it may have to set-off or the realization of any security which it might hold in respect of Mr. O’Brien.
5.18 Before concluding this judgment however two further points need to be mentioned.
5.19 First there is the question of the jurisdiction of the court to entertain an application on the part of a financial institution, such as Anglo, who feels that it may be affected by a mareva injunction. It seems to me that, at the level of principle, the court has such a jurisdiction. The whole point of notifying financial institutions of the existence of mareva injunctions (which is a process almost always engaged in by plaintiffs who secure such injunctions), is that the bank concerned may be affected by the relevant order and may, therefore, feel constrained as to the manner in which it may deal with the relevant defendant’s accounts. Where an injunction of any sort operates purely as between plaintiff and defendant, then it is difficult to see how the court would have a legitimate jurisdiction to entertain an application by any third party in respect of the injunction concerned. Where, however, it is asserted by a third party that it’s legitimate interests are affected by an injunction granted in proceedings to which it was not a party, then it seems to me that basic rules of procedural fairness require that a party who claims to be so affected has the entitlement to invite the court to revisit the question of the terms of the relevant injunction. It seems to me, therefore, that any party who feels that it may be adversely affected as to its own interests by the existence of a mareva injunction has, prima facie, an entitlement to invite the court to vary the injunction concerned. It seems to me that plaintiffs who seek mareva injunctions cannot have it both ways. They cannot want to notify wide and far the existence of the mareva injunction so as to protect their interests by preventing third parties from dealing with the assets of the defendant concerned, while at the same time resisting the entitlements of those third parties to invoke the jurisdiction of the court to vary, in an appropriate case, the injunction concerned. I was, therefore, satisfied that, at the level of principle, Anglo was entitled to seek a variation of the mareva injunction. My reason for not varying the injunction was not, therefore, because Anglo was not entitled to seek to have it varied but rather because I was satisfied that Anglo was not affected by the mareva injunction in the bona fide exercise of any legal entitlements which it might otherwise have.
5.20 The other matter on which I should comment stems from the fact that Anglo has put before the court very considerable detail as to the form of set-off or security realization which it would wish to enforce. It does not seem to me that it is any part of the function of the court to give a form of “pre-clearance” to the actions of financial institutions in the position of Anglo. If Anglo have a legally enforceable entitlement to do the things which they wish to do (which derives from the legal relationship between Anglo and Mr. O’Brien), if that entitlement pre-dates Anglo having any notice of the existence of the mareva injunction in these proceedings and if the purpose of Anglo in enforcing any entitlements which it might have is bona fide for its own interests and not in any way connected with facilitating Mr. O’Brien in acting in breach of, or frustrating the operation of, the mareva injunction, then it is clear that Anglo is, as a matter of law, entitled to exercise any such right of set-off or security realization. It is not for this court, on this occasion, however, to assess the bona fides of Anglo or its legal entitlements under any of the asserted headings. Anglo is in no different position to any other party wishing to enforce security in that regard. Provided Anglo does so bona fide (and only it can know its bona fides) and provided that it is legally entitled to do so (and any other party seeking to enforce security or set-off is subject to the same limitation), then it is free to do so unaffected by the mareva injunction in this case. I do not, therefore, make any comment on the precise entitlements which Anglo has asserted.
6. Conclusions
6.1 It was for those reasons that I indicated to the parties that it did not seem to me to be appropriate to vary the injunctions in place in this case. Provided that it act bone fide and have the legal entitlements which it asserted, Anglo is entitled to carry out those transactions and would not thereby be in breach of the injunction already in place.
Hughes v. Hitachi Koki Imaging Solutions Europe & Anor
[2006] IEHC 233 (21 July 2006)
JUDGMENT of Mr. Justice Clarke delivered 21st July, 2006.
1. Introduction
1.1 The plaintiff (“Ms. Hughes”) is employed by the defendant company which is, I understand, now called Ricoh Printing Systems Europe (“Ricoh”). In the substantive proceedings Ms. Hughes claims that Ricoh has been guilty of a wrongful termination of a disability benefit payment to which, Ms. Hughes claims, she was entitled under the terms of her contract of employment. While such a payment was made for an initial period of time, the amount of the payment was subsequently reduced and ultimately the payment was discontinued. The payment was subsequently reinstated. Up to date there is, therefore, a claim which is based on the contention that Ms. Hughes should have been in receipt of full disability benefit from the time when she was first in receipt of same. The claim to date would appear to involve a sum of approximately €133,000.
1.2 Ricoh joined the third party (“Standard Life”) basing it’s claim on an agreement entered into between Ricoh and Standard Life for the provision of disability benefit to nominees of Ricoh. Ricoh’s claim against Standard Life centres around a contention that, in substance, the decision as to whether Ms. Hughes was to be treated as qualifying for disability benefit was made by medical assessors appointed by Standard Life. In those circumstances it is contended, that if those decisions were incorrect in a manner which entitles Ms. Hughes to compensation, Standard Life is obliged to indemnify Ricoh against any sums awarded. Ms. Hughes contends that there is no privity of contact between her and Standard Life and, for that reason, has not brought any direct claim against the third party.
1.3 The proceedings have been ongoing since 2001 but have now been complicated by the fact that Ricoh has made a decision to cease to trade and is in the course of winding down its business. In those circumstances Ms. Hughes contends that she is entitled to require that sufficient sums be retained by Ricoh to meet her potential claim and has brought an application for a mareva type injunction designed to secure that eventuality. In those circumstances it is necessary to turn to the procedural history of the application for a mareva type injunction.
2. The Mareva Application
2.1 In the grounding affidavit sworn in support of the application for an interlocutory injunction, Ms. Hughes’ solicitor deposed to the background matters referred to above and also referred to the fact that Ms. Hughes had a further claim in respect of what she contended was an ongoing disability. It was stated that a further sum of €500,000 should be retained to cover the eventuality that disability payments might be wrongly stopped in the future. As appears from that affidavit, Ricoh, on 3rd May, 2006, wrote to Ms. Hughes indicating that Ricoh’s operations in Ireland (and indeed Europe) would cease as of 30th June, 2006. The letter included a number of options in relation to redundancy. As a result of correspondence with Ricoh’s solicitors it was confirmed that it was not intended to seek to have Ricoh placed in liquidation at this time.
2.2 As a result of a replying affidavit, it is clear that Ricoh is part of a large group of companies. The relevant detailed corporate structure was deposed to in that affidavit by Mr. John Doyle the Finance Director of Ricoh. The ultimate parent company is called Ricoh Co. Limited and is a Japanese public company with, it would appear, assets of €13 billion and 75,000 employees in 318 companies across 150 countries. The immediate parent of Ricoh is Data Products (Santa Clara) which is in turn a subsidiary of Ricoh Printing Systems America Inc. Ricoh is an unlimited company having share capital and thus, in the event that it might be dissolved in circumstances of insolvency, its shareholders would be required, under the provisions of the Companies Acts, to contribute any shortfall (including the costs of liquidation).
2.3 It appears from the affidavit of Mr. Doyle, that while the operations of Ricoh ceased on 30th June, 2006, no decision has yet been made as to whether Ricoh is to be dissolved. The stated principal reason for that state of affairs centres around a defined benefit pension plan which Ricoh sponsors and which has assets of approximately €17 million. It is stated that there are many complex issues to be addressed relating to whether the pension plan should be wound up or not and that it is intended to keep the company in existence, at least until all such matters are resolved.
2.4 One aspect of Ms. Hughes concerns was resolved at the time of the swearing of Mr. Doyle’s affidavit. It was made clear in that affidavit that Standard Life has agreed to maintain Ms. Hughes’ disability cover beyond the 30th June, 2006, notwithstanding the termination of her employment on that date. That matter has been confirmed by Standard Life. It is clear, therefore, that with effect from 1st July, 2006 Ms. Hughes is entitled to claim disability benefit directly from Standard Life. If any dispute arises in the future as to whether she is entitled to the payment of any benefit, that dispute can be resolved in proceedings directly between Ms. Hughes and Standard Life. Any question of the necessity of Ricoh to make a provision in respect of a possible future claim no longer arises in those circumstances.
2.5 The affidavit of Mr. Doyle further makes clear the current financial status of Ricoh. He suggests that Ricoh has realisable assets of approximately €7,200,000 with liabilities of approximately €10,700,000. Those liabilities include the costs associated with the winding down of the business of the company. In his affidavit Mr. Doyle indicated that it was the company’s intention to meet the entire liabilities of €10,700,000 by the conversion of the assets into cash and by borrowing the deficit (which it would appear would be of the order of €3,500,000) from its parent Ricoh Printing Systems America. The affidavit also notes that Ricoh already owes that parent company €12,700,000 so that the debt, after the anticipated borrowing to meet the shortfall, would increase to €16,200,000. It was also indicated in the affidavit that it was the intention to make further borrowings above and beyond the above sum of €3,500,000 from the parent company in the event that further liabilities emerge (including any liabilities that might arise to Ms. Hughes).
2.6 At the time of swearing his affidavit Mr. Doyle was dealing with an application on behalf of Ms. Hughes to freeze €700,000 of assets to meet her claim (including the possible claim in respect of future benefit) together with costs. On the basis of such a claim he indicated that, if such an amount of assets were required to be frozen, it would be necessary for Ricoh to borrow an equivalent additional sum from its parent so as to allow it to meet all of its other liabilities while retaining the sum involved. It was asserted that the parent company would, in turn, have to borrow such a sum from outside banks at an interest cost of approximately €40,000 per annum. While that sum would obviously be significantly lower in the light of the fact that it is no longer sought, for the reasons which I have set out above, to freeze any moneys to meet possible future claims, nonetheless, it is said that it is inappropriate to require Ricoh to enter into such borrowing in all the circumstances of the case.
2.7 When the matter was first argued before me an issue arose which led to a suggestion that a further affidavit be filed. I will turn to that issue in due course. However, as a result, an affidavit of Bradley Fletcher, who is the secretary of the parent company of Ricoh, was put before the court at a resumed hearing. I will refer to the content of that affidavit in the context of dealing with some of the legal issues which have arisen.
2.8 In the context of the factual background which I have set out it is necessary to turn to the legal arguments.
3. The Law
3.1 In Bambrick v. Cobley [2006] ILRM 81 at p. 90 I noted the following:-
“It is trite to say that a plaintiff is not entitled to security for every claimed liability. The mareva injunction is not intended to provide plaintiffs with security in respect of all claims in relation to which they may be able to pass an arguably test. The true basis of the jurisdiction is the exercise by the court of its inherent power to prevent parties from placing their assets beyond the likely reach of the court in the event of a successful action”.
3.2 That passage was based, in part, on the judgment of Hamilton C.J. in O’Mahony v. Horgan [1995] 2 IR 411 at p. 419 from which it is clear that, before a plaintiff will be entitled to a mareva injunction, “there must be an intention on the part of the defendant to dispose of his assets with a view to evading his obligation to the plaintiff and to frustrate the anticipated order of the court.”
3.3 However it is clear that the jurisprudence in respect of what might be called the “requisite intention” has developed since O’Mahony. In Bennet Enterprises Inc. v. Lipton [1999] 2 IR 221 O’Sullivan J. acknowledged that direct evidence of an intention to evade will rarely be available at the interlocutory stage and concluded that it was legitimate to consider all the circumstances of the case in reaching a decision on whether to grant relief in the form of a mareva injunction.
3.4 In Tracey v. Bowen (Unreported, High Court, Clarke J. April 19th 2005) I considered the judgment of O’Sullivan J. in Bennet Enterprises and the judgment of Kearns J. in Aerospace Limited v. Thompson (Unreported, High Court, Kearns J. January 13th 1999) and expressed the view that those cases were authority for the proposition that:-
“In assessing the risk of dissipation the court is entitled to take into account all the circumstances of the case which can include, in an appropriate case, an inference drawn from the nature of the wrongdoing alleged, which, if fraudulent or unconscionable, may lead to the establishment of a risk that further fraudulent or unconscionable actions will be taken so as to place any assets of the defendant outside the jurisdiction of the court.”
3.5 I followed the same approach in McCourt v. Tiernan (Unreported, High Court, Clarke J. July 29th 2005).
3.6 While all of the above cases were concerned with circumstances where the court was invited to infer from the nature of the contended for cause of action that there was a real risk that assets might be placed beyond the jurisdiction of the court, those cases are, in my view, nonetheless examples of a more general consideration. For the reasons pointed out by O’Sullivan J. in Bennet Enterprises it will rarely be possible to produce direct evidence of the intention of a defendant against whom a mareva injunction is sought. The “requisite intention” will, therefore, in most cases, have to be established by inference from other facts. It will, therefore, in some cases be appropriate to infer the intention of the defendant concerned from what can be established about the way he has, or intends to, deal with his assets.
3.7 Most of the cases involve a situation where the contended for fear of the plaintiff is that the defendant will retain ownership of the assets concerned but move the assets to a place where they are outside the reach of the courts. It is, however, possible that assets might be placed outside the reach of the court by other means. While O’Mahony v. Horgan is clear authority for the proposition that the payment of lawful debts in the course of an ongoing business should not give rise to any inference sufficient to justify the grant of a mareva injunction, it seems to me that there is, at least in principle, a necessity to give different consideration to a corporate entity which may be insolvent. In Re Frederick Inns Limited [1994] ILRM 387 the Supreme Court had to consider the question of the duties of the directors in a situation where a company was being wound up or where any creditor could have it wound up on the ground of insolvency. Blayney J., in giving the judgment of the court, found that in such circumstances the directors owed a duty to the creditors to preserve the assets so as to enable them to be applied in pro tanto discharge of the company’s liabilities.
3.8 In the context of an application under s. 150 of the Companies Act 1990 in McLoughlin v. Lannon [2005] IEHC 341, and having referred to Frederick Inns I noted that:-
“there can be little doubt, therefore, that amongst the important duties of directors is to ensure that, when it becomes clear that a company is insolvent, the assets are preserved and dealt with in the way in which the Companies Acts require. There would not seem to be any real doubt but that the directors in this case did not comply with that obligation.”
3.9 It is, therefore, clear that the directors of any company are under a fiduciary obligation (which arises in circumstances where the company does not have sufficient assets to meet its liabilities) to have regard to the insolvency provisions of the Companies Acts in the way in which the assets are managed. While an inappropriate disposition of the company’s assets in such circumstances might not act for the benefit of the company itself, it seems to me that, nonetheless, in an appropriate case, it may be open to a plaintiff to seek mareva relief where it can be shown that an insolvent company intends to deal with its assets in a manner which would prevent those assets being dealt with in accordance with the provisions of the Companies Acts. In the ordinary way such a company must be taken, at least prima facie, to intend the natural consequences of its acts. Where it can be demonstrated that the company concerned intends to deal with its assets in such a manner as would be in breach of the obligations of the company and its directors under Frederick Inns and where such action would be likely to affect the position of the plaintiff, it seems to me that “requisite intention” required to justify the grant of a mareva type injunction would be established.
3.10 I am, therefore, satisfied that, in principle, it is open to a plaintiff to seek a mareva type injunction in circumstances where it can be shown that an insolvent corporate entity intends to deal with its assets in a manner which would be in breach of the obligations on the company and its directors to ensure that those assets are maintained in a fashion which would enable them to be applied in accordance with corporate insolvency law. This situation may arise even where the company proposes to pay its lawful debts. It should, however, be emphasised that the primary means available in law for the enforcement of any such entitlement is to seek to place the company in liquidation so that the assets would, then, be dealt with by the liquidator in accordance with corporate insolvency law. However where, for whatever reason, it may not be possible for the plaintiff to seek to have the company put into liquidation or where, for whatever reason, liquidation may not be appropriate at that stage, it seems to me that it is open to a plaintiff, in such circumstances, to seek a mareva type injunction.
3.11 Against that legal background it is now necessary to turn to the facts of this case.
4. Applications to Facts of Case
4.1 It is clear that Ricoh is insolvent in the sense that its assets are less than its liabilities by an amount of approximately €3,500,000. An additional shortfall will arise in the event that the plaintiff is successful. The stated position of Ricoh is that it intends to distribute all of its assets to its creditors (including paying liabilities arising to its workforce on the winding down of its business). In order to do this it will need to borrow a further sum of €3,500,000 from its parent to meet the existing shortfall. If there were no further factors involved, then it would seem to me that that intended action would be a clear breach by the directors of their obligations as defined in Frederick Inns in that the assets would not, therefore, be dealt with in the manner required by corporate insolvency law on the basis that no provision would be made for the contingent claim of the plaintiff in these proceedings (and, perhaps, for other contingent claims).
4.2 However there are other factors involved which require that the overall intent of Ricoh cannot be inferred from what is set out at par 4.1 above. The stated intention of Ricoh has to be seen against the background of two additional matters.
4.3 Firstly there is the claim as against Standard Life. I agree with counsel for Ms. Hughes that there was good reason for Ms. Hughes not suing Standard Life directly. The contractual documents entered into between Ricoh and Standard Life would appear, on their face, to exclude any direct contractual liability between Standard Life and the employees of Ricoh (such as Ms. Hughes). While there may be arguments which could be made to get around that difficulty, it seems to me to be reasonable for Ms. Hughes and her advisors to take the view that it is not incumbent upon them to engage in additional problematic litigation directly against Standard Life.
4.4 That being said the existence of the third party claim against Standard Life must, as cogently argued by counsel for Ricoh, be taken into account in assessing the intended actions of Ricoh. On the basis of my understanding of the substantive litigation (on foot of the submissions of counsel at the hearing before me) it would appear that, in practice, the decision to disallow disability benefit to Ms. Hughes was taken by medical officers of Standard Life. It is clear that the contractual decision to disallow disability benefit must have been taken by Ricoh (because that is what the contract of employment says). However, if it is established at the trial that any such decision was, in substance, taken by Standard Life, then it seems probable that, in the event that the decision may be taken to have been wrongful, and that Ricoh is, therefore, liable to Ms. Hughes, that Standard Life will, in turn, be liable to indemnify Ricoh. While it would be neither possible nor appropriate to reach any concluded view on that issue at this stage it does seem to me that the actions of Ricoh and its directors must be assessed in the light of all the circumstances (as noted by O’Sullivan J. in Bennett Enterprises) including the fact that they have every reason to believe that, in the event that a liability in favour of Ms. Hughes is established at the trial, Ricoh will be entitled to obtain an indemnity from Standard Life.
4.5 The second matter that needs to be taken into account is the stated position of the parent company of Ricoh to the effect that it will lend further sums to Ricoh, in the event that such sums are necessary to meet any liabilities which Ricoh may transpire to have above and beyond those presently identified. In the course of the initial hearing before me I queried the fact that only evidence of such an intention came from Mr. Doyle, who was an officer of Ricoh. Ricoh, of course, had no right to insist on a loan being made. It was in that context that the additional affidavit of Mr. Fletcher was filed which makes a clear and unequivocal sworn statement to the effect that it is the intention of Ricoh Printing Systems America to lend to Ricoh any sums that may be required to satisfy further legitimate liabilities that might arise, including any sums that Ricoh might be found liable to pay to Ms. Hughes. There is no reason to doubt that Ricoh Printing Systems America is a large and reputable company in an even larger and equally reputable group.
4.6 The existence of the indemnity claim as against Standard Life and the existence of the sworn statement on behalf of the parent company to advance further moneys do not provide an absolute guarantee that funds would be available in the event that Ms. Hughes should succeed. However, it is clear, as I pointed out in Bambrick, that a plaintiff is not entitled to absolute security. The very point at issue in O’Mahony v. Horgan was the entitlement of a corporate entity to pay its lawful debts for the purposes of carrying on its business. While slightly different considerations may arise where the corporate entity concerned is insolvent (for the reasons which I have sought to analyse) nonetheless the very fact that a corporate entity is entitled to carry on business, in an appropriate case, carries with it the risk that some of its assets may be lost in the ordinary way in the course of that business. That is a risk which any plaintiff must take.
4.7 Similarly it seems to me that the directors of a corporate entity which may appear to be insolvent, are entitled to exercise a reasonable judgment as to the availability of funds to meet liabilities. In much the same way as the directors may be absolved from a charge of reckless trading if they are demonstrated to have acted responsibly in circumstances where there was good reason to believe that further funding, sufficient to allow the company to continue, might be forthcoming, so also would directors be absolved from any breach of the obligations identified in Frederick Inns where they acted responsibly in circumstances where there was good reason to believe that funds would be available to ensure that no party was left worse off than the position that would obtain in the event of a liquidation.
4.8 In my view, as a result of the two matters identified above, the directors of Ricoh have ample reason to believe that funds will be available to meet any claim that Ms. Hughes may ultimately succeed in establishing. In those circumstances it does not seem to me that it can be said that it is appropriate to infer that it is the intention of the directors to deal with the assets of the company in a manner which would have the effect of defeating Ms. Hughes’ entitlement to recover any damages which she might be able to establish at the trial, or indeed, that their intended actions are likely to have that effect.
4.9 In those circumstances I am not satisfied that the conditions necessary for the grant of a mareva injunction have been established and I would, therefore, propose refusing the application.
Approved: Clarke J.
Moore v. XNet Information Systems Ltd.
[2002] IEHC 6 (8th February, 2002)
JUDGMENT of O’Sullivan J. delivered the 8th of February, 2002
1. The plaintiff seeks interlocutory injunctions restraining the defendants from taking any further steps to terminate his employment, re-instating him pending the trial of this action, directing them to pay his salary and emoluments until the trial of the action, restraining them from taking any steps removing him as a director of the first defendant or from removing him from his position as commercial director with the first defendant, directing the defendants to provide the plaintiff with unrestricted access to his place of work and to the books, records and information (including electronic) of the first defendant, restraining them from holding a meeting affecting the plaintiff’s position as director and shareholder (47.75% or 42.75%) of the first defendant, restraining the defendant from excluding the plaintiff from all board meetings of the first defendant and further orders until the hearing of the action relating to the bank mandates of the defendants.
Background
2. The first defendant company was co-founded by the plaintiff and the second defendant in 1995. They hold an equal amount of shares in the company (being either 47.75% or 42.75%). The plaintiff and the second defendants were boyhood friends and have remained close personal friends until their recent falling out. While at school together they discussed the possibility of going into business and after third level education remained in contact and were best men at each other’s weddings.
3. In 1995 the Internet was coming into vogue as a means of communication and both felt the growth potential was enormous and that they could exploit it. They agreed to set up business together and despite early setbacks did so providing a “data storage” service. They agreed at the outset that the business would be conducted on 50/50 basis as regards risk, rewards and decision making elements. They acquired the first defendant and it was agreed that each would have a 50% shareholding in the first defendant. Each held one of the two issued shares in the company. They both became directors of the company and the plaintiff was its secretary. The first defendant commenced business in early 1996. The plaintiff lent it £20,000 and for the first six months the plaintiff and the first defendant effectively lived off this loan. Both were involved in sales. The plaintiff took responsibility for the accounts and the second defendant concentrated on the sales.
4. The company’s philosophy was to expand aggressively by re-investing profits. It encountered a difficult patch from May to September 2001 but is now at the bottom of a downward curve and is anticipating a return to profitability and expansion.
5. The first defendant employed its first member of staff in November, 1997 when the plaintiff and the first defendant began to divide their responsibilities. The plaintiff took responsibility for supporting customers and for accounts, the second defendant for personnel and overall responsibility for sales. Neither had the title of “Managing Director”: both were directors of the company. In January, 1999 the third defendant was employed as technical consultant. In 1998/9 it was decided that the second defendant would be the “public face ” of the company and that he would be entitled to call himself “Managing Director ”. The plaintiff was to be called “Operations Director” which was subsequently changed to “Commercial Director” . Mr. Roberts on appointment was designated “Technical Director”. He eventually took over the day-to-day running of the company. The fourth defendant was brought into the company as an non-executive director in March 2000. He had been a former managing director of Cable and Wireless Ireland Limited and it was thought that he would enhance the profile of the company. The plaintiff and the second defendant agreed around this time that they would transfer some of the small amount of shareholding (no more than 10%) to staff members. Ultimately 10% would be divided among staff, 10% amongst other directors of the company, the plaintiff and the second defendant holding 40% each. Mr. Roberts came to hold 3% (1.5% from each of the plaintiff and the second defendant) of the shares under this arrangement. It was agreed that the fourth defendant would hold 2.5% of the shares in the company.
6. Some twelve months ago the plaintiff and the first defendant acquired a premises of 6,200 sq. ft in Bray, County Wicklow, each holding a half interest. Sums were borrowed and each went guarantor for repayments. An annual rent is payable to the plaintiff and the second defendant. These were personal borrowings by the plaintiff and the second defendant. A further sum was lent to the company by way of development loan. The plaintiff and the second defendant shared in this transaction on an equal basis. The transaction was completed in May, 2001. The plaintiff was married in the same month.
Plaintiff’s dismissal
7. In his affidavit, the plaintiff describes how his influence and functions in the company were gradually reduced by the second, third and fourth defendants during the past twelve months. The fourth defendant had advised the plaintiff and the second defendant to delegate every possible task to others so that they could keep themselves free to manage and plan for the company. A great deal of the plaintiff’s time was taken up with ensuring that the company would not collapse as a result of cash flow difficulties when he returned from his honeymoon in June, 2001. He had to deal with the Revenue Commissioners and did so. In hindsight he sees that a trend had developed whereby he was excluded by the second and third defendants from certain aspects of the running of the company. Since September the sales in the company began to pick up, it opened a branch office in Belfast in October and took a ten year lease. He and the second defendant took a 50/50 shareholding in a new Northern Ireland business for this purpose. Ultimately this new company was not used.
8. In his affidavit the plaintiff says that on Friday, the 7th of December, 2001 there was a meeting between the second and third defendants and the plaintiff. The second defendant sat down, took a deep breath and then said in an angry tone “this is your last day in Xnet, you’re out”. The second defendant was trying to fire the plaintiff from the company. He told him that the board had resolved that he must go because of “gross incompetence”. He then made certain offers, told him he had legal advice, that he was only entitled to £7,000, there were discussions which the second defendant claimed were “without prejudice”. It emerged that the second defendant and the other defendants had been planning this for some time according to the plaintiff. The second defendant referred to the plaintiff’s brilliant strategic insights but his failures and inability to execute. It was the first time that any one had suggested to the plaintiff that he was “grossly incompetent ”. The plaintiff was subsequently informed by the third defendant that the second defendant spoke for the board.
9. The 7th of December was a Friday. The following Monday, the 10th the plaintiff received a voice mail message from the second defendant to tell him that he had been made officially redundant as of Friday, the 7th December, 2001.
10. The plaintiff decided to visit the company’s premises in Glencormack Business Park, Bray, on the afternoon of the 10th December. When he went out at 2 p.m. he met the second and third defendants, there was a confrontation, some conversation and the plaintiff failed to gain entry. Codes and keys had been altered. On Tuesday the 11th December, the second defendant left a telephone message for the plaintiff giving him notice of a meeting of the board of directors for the 13th December “for the purpose of proposing that (the plaintiff) be removed as a director”. On Wednesday the 12th December, a notice was put through his door entitled “notice of proposed dismissal for redundancy”. The notices were dated the 11th of December and referred to redundancy as of the 7th. The reason given was that the role performed by the plaintiff was now performed by other employees of the company. The matter went into the hands of solicitors and there is correspondence passing between them. The plaintiff says that he is dependant on his salary from the first defendant to survive. His remuneration apart from salary covers pension, life assurance, health insurance, motoring expenses, parking and a sailing club subscription, together with the use of a company car. His salary barely meets his outgoings, in fact, his outgoings routinely exceed his income.
11. The plaintiff says that as guarantor, not only of the company’s debt with the bank but also for the loan (taken out personally by himself and the second defendant) for the premises in Bray leased to the company, he has great exposure and needs to be involved in the running of the company as a director to protect his exposure as guarantor, his interest as shareholder, together with his position as commercial director.
The defendant’s response
12. In a replying affidavit the second defendant says that the shareholding of the plaintiff and himself is now 42.75%. He says much of the meeting on the 7th of December with the plaintiff was without prejudice and that the plaintiff had agreed to this. He denies absolutely that he ever advised the plaintiff that he was dismissed by reason of “gross incompetence”. He has never used that phrase and at all times he told the plaintiff that his employment was being terminated by reason of redundancy. That is the true position. The first defendant has been seeking to reduce costs. Whilst no other employee has been made redundant, a number have resigned and have not been replaced. The plaintiff’s remuneration package constitutes approximately 10% of the total cost base of the first defendant and given the limited amount of work which he performed which can adequately and easily be absorbed by other members of the staff, it was entirely appropriate that he be made redundant. He does not dispute the general history of their business relationship given in the plaintiff’s affidavit and says that he and the plaintiff jointly worked in developing the business of the first defendant. He avers that the only ongoing work performed by the plaintiff is management of the company’s payroll and other minor administrative functions: following the plaintiff’s redundancy these have been taken up by other employees.
13. In the context of the plaintiff’s allegation that he was misled by the second defendant when they each took a 50% share in the premises now leased to the first defendant, he points out that the rent paid by the first defendant meets their respective financial commitments in relation to the building itself and he says that that is a business venture outside the business of the first defendant. He says that as the business of the first defendant developed the first of the plaintiff’s role was limited solely to administrative functions which now can be done by somebody else. He says that all of the defendants and not just the plaintiff were actively involved in seeking to resolve the cash flow problems of the first defendant and all were aware that significant costs had to be eliminated: hence the decision to eliminate the 10% cost of the plaintiff’s remuneration. He says that the essential trust and confidence which must exist between an employer and an employee has been destroyed in the case of the plaintiff.
14. Further affidavits were exchanged between the parties. The plaintiff refers to an investment whereby the company (he insists it is in fact the first defendant, although the second defendant says that it is his personal investment) has agreed to contribute the sum of £350,000 stg to a company known as Xnet U.K. in 2002. There is a reference to a draft minute stating that until a decision has been reached relating to the share structure of this company “A.H.” (which the plaintiff takes to mean the second defendant) will hold the shares in this company and for all intents is “Xnet Ireland”. He also refers to the fact that two of the employees of the company have received improved remuneration packages. In this context he challenges the assertion that the first defendant is in dire financial straits justifying the saving involved in his own redundancy.
The proceedings
15. An application was made for an interim injunction on the 13th December, 2001. It was granted. Undertakings were given on behalf of the all the defendants on the 17th December. There are allegations relating to breaches of these undertakings and cross allegations in relation to breaches by the plaintiff of legally privileged information given to the defendant in the course of this case.
16. Neither the plaintiff nor the second defendant have a written agreement with the first, as has the third defendant, whose termination period is two months. The second defendant offered to buy out the plaintiff’s shareholding in the first defendant and this was taken badly by the plaintiff who saw in it an attempt to oust his interest in that company. The second defendant says that this was an above board bona fide offer which the plaintiff was entitled to refuse if he wished.
17. The second defendant says it would onerous if the first defendant had to pay the plaintiff’s salary pending the trial of this action as its financial position is extremely tight. An issue emerged in the affidavits relating to the plaintiff’s access to a series of e-mails passing between the defendants. The plaintiff claims that an arrangement had been reached approximately twelve months ago allowing each of these individuals access to each other’s electronic data. An affidavit is sworn by the third defendant to say that the only access which these individuals enjoyed has been access to each other’s diary (calendar) and not other information. Access to legal advice (which the plaintiff denies he read) by the plaintiff was particularly disturbing and the subject of objection.
18. The above is a summary of the main positions of the parties. There are a number of subsidiary assertions and counter assertions.
19. At the hearing before me reference was made by Mr. Hanratty S.C. on behalf of the plaintiff to a minute of the first defendant dated the 6th November, 2001 at which the three other defendants voted to remove the plaintiff as director and company secretary of the first defendant. He had no notice of such a meeting. Mr. Nesbitt S.C. explains the existence of this document (or two versions of it) as being a draft of an intended meeting which never happened because these defendants realised that it was something that they could not do in the manner suggested by these minutes. The meeting did not happen and it has no legal effect. Counsel for the plaintiff points to the fact that these drafts themselves appear to have come into existence on the 12th December that is some days after the 7th when the plaintiff was purportedly dismissed. All of this, submits counsel for the plaintiff, supports his client’s view that the three individual defendants are conspiring behind his back to get him out of the company and have been doing so, he says, since before May, 2001 when he and the second defendant individually and on a 50/50 basis acquired their interests in the property leased to the company and when the plaintiff got married (at which event the second defendant was his best man). The plaintiff was misled by the second defendant into believing that this huge financial commitment on his part was in the context, as ever, of their sharing the future of the first defendant between them on an equal basis.
Submissions
20. Counsel for the plaintiff submits that he has made out an arguable case for a declaration that his clients’ purported dismissal is invalid and for an order that his client should be reinstated in his position as commercial director of the first defendant at the hearing of the trial. He says that his various interests in the company as director, shareholder, guarantor of the company’s debt with the bank, guarantor of the monies funding the premises leased to the company and as commercial director must be seen for what they are, namely that he together with the second defendant have on an equal basis been involved as co-founder and developer of the company and that it would be artificial simply to regard him in this application as merely an employee of the company with his rights as director to be dealt with under company law, his rights as shareholder similarly and his rights as guarantor merely on a contractual basis. Counsel for the plaintiff submits that all these must be viewed together and that if this is done there is an arguable case, at the very least, to support a claim for a declaration of invalidity of his dismissal and an order that he be reinstated as commercial director of the first defendant.
21. The ancillary reliefs dealing with access to the premises, information and the maintenance of the status quo regarding the bank mandate follow from this.
22. Furthermore, Irish jurisprudence now establishes, he submits, that in the event of an employee being left without a significant portion of his income then a court will direct continued payment until the trial of the action by the employer if the plaintiff (as in the present case) relies solely on this income.
23. In addition there is a serious question, he submits as to whether the real reason why the plaintiff was dismissed was redundancy or whether it was in fact gross incompetence. If it was for the latter then the cases show that he was entitled to fair procedures which were denied and therefore, again, he has made out a fair question for trial at the hearing of the action. Apart from this there was in fact complete disregard for the provisions of the Redundancy Payments Acts and Regulations which of themselves would entitle him to a declaration that his dismissal was ineffective. Furthermore the plaintiff, as office holder with the first defendant, was entitled to fair procedures which were denied.
24. Counsel for the defendant submits as follows:
This case is not about any threat to the plaintiff’s position as director (or, I assume, as company secretary). His position as such is dealt with under company law. He is prepared if necessary to give an undertaking that this position will not be altered pending the trial;
Nor is it about the plaintiff’s position as shareholder: in fact the perilous financial position of the company would be improved if it is spared the 10% outlayed on the plaintiff and the disruption caused by any order authorising the plaintiff to work: it is in everyone’s interest to assist the financial recovery of the first defendant;
This is a simple case of an employee’s contract being determined. There maybe an issue about length of notice which is remediable by damages. The contract was terminable and has been for reasons of redundancy. If the plaintiff is entitled to anything in this context it is to money, not reinstatement.
No allegation of wrongdoing has been made or is being made by the defendants. Accordingly the principles of natural justice, a fair hearing, and so on, do not apply.
Nor is the plaintiff’s position with the first defendant an office or analogous to an office such as would entitle him to fair procedures on dismissal.
He further submitted that cases such Fennelly v. Assicurazioni Generali Spa and Another (1985) 3 ILT 73, per Costello J. where the employer was ordered to continue paying the Plaintiff’s salary and bonus under his contract until the trial of the action were based on an exception to the general rule that the courts in common law will not direct specific performance of a contract of employment. The exception in that case was that the plaintiff had a twelve year contract and cases following Fennelly and indeed Hill v. C.A. Parsons Limited [1972]: Ch 305 which preceded it, can all be analysed to establish this principle. In Hill the exception was that the law in the U.K. was about to change before the trial in a way that supported the plaintiff’s claim for the relief granted.
25. Irish cases where salary or reinstatement were granted to a plaintiff at the interlocutory stage either involved plaintiffs who were office holders denied fair procedures (the present plaintiff is not an office holder) or plaintiffs against whom allegations of wrongdoing were made (this is not so in the present case) but not cases of pure employee contracts because in such circumstances the plaintiff’s remedy is damages alone. Accordingly damages is an adequate remedy and the balance of convenience runs against granting an injunction.
26. He submitted that the argument apparently accepted by Laffoy J. In Harte v. Kelly and Another [1997] E.L.R.125 to the effect that the common thread in Fennelly, Shortt and Boland was that the plaintiff was totally dependant on his income, was not so: the common thread was that these were exceptions to the general rule identified. In Harte, Laffoy J. had said at p. 130:
“In my view, the entitlement to the type of order granted in the Fennelly case is not limited to a situation in which the plaintiff can establish that he will face penury if such an order is not made. The rationale of the decision is that it is unjust to leave a person who alleges that his dismissal has been wrongful without his salary pending the trial of the action and merely with his prospect of an award of damages at the trial of the action”
In Harte the plaintiff was a director employee and minority shareholder of the employer company. There was, however, an allegation of wrongdoing that the plaintiff was involved in covert discussions with a customer of the company. It was conceded that there were fair issues to be tried. In Boland v. Phoenix Shannon Plc (1997 ELR 113; per Barron J.) again there were allegations of wrongdoing. Accordingly this was a case were the plaintiff was entitled to fair procedures and there was an issue in relation to this. The same applied inter alia, in Phelan v. Bic (Ireland Limited) (1997 ELR 208 per Costello P).
27. The issue as to whether the court will direct payment of an employee’s salary pending the trial simply on the basis of the plaintiff’s sole reliance on salary as distinct from the existence of an exceptional circumstance which takes the case out of the “normal” cases of their employee contract cases was touched on by Macken J. in Lonergan v. Salter – Townshend and Others unreported, High Court, Macken J. , 9th February, 1999 but, counsel for the defendant submits, not really dealt with. Rather, he submits, the true position was as acknowledged by Barrington J. delivering the Supreme Court Judgment in Parsons v. Iarnrod Eireann in the unreported decision of 24th April, 1997 when he said at p. 9:
“The traditional relief at common law for (unfair) dismissal was a claim for damages. The plaintiff may also have been entitled to declarations in certain circumstances such for instance that there was an implied term in his contract entitling him to fair procedures before he was dismissed. But such declarations were in aid of his common law remedy and had no independent existence apart from it. If the plaintiff loses his right to sue for damages at common law the heart has gone out of his claim and there is no other free standing relief which he can claim at law or in equity”.
28. To similar effect, submits counsel for the defendant, the decision of Murphy J. in the High Court in Philpott v. O’Gilvy and Another [2000] 3 IR 206, where it was held that in the absence of a claim for damages for wrongful dismissal the ruling of the Supreme Court in Parsons applied to the effect that the common law remedy for unfair dismissal was a claim in damages. There was no serious issue, accordingly, that the termination was in breach of the rules of natural justice and therefore invalid. This was unlike Hickey v. Eastern Health Board [1991] 1 IR 208 where it was held that the rules of natural justice apply if a managing director is dismissed for misconduct .
The Glover case
29. I was referred to Glover v. B.L.N. Limited [1993] IR 388 following without this case being opened. The reference was in the context of counsel for the plaintiff’s submission that the plaintiff in all the circumstances was an office holder. Counsel for the defendant submitted that he was not, and that office holders were individuals who held positions designated by statute or other instrument governing the basis of their tenure.
30. He indicated from recollection that the characteristics of office holders were set out in Glover.
31. In fact at page 414 Kenny J. said:
“But does the principle [the principle that before dismissal a person must have notice of the matters alleged against him and been given an opportunity of making his case] apply when a person holds the office of director and has a contract under which he is entitled to retain it for a fixed period? The defendants say that Mr. Glover was an employee of the companies and nothing more and that he cannot rely on the principle. The characteristic features of an office are that it is created by an Act of the National Parliament, charter, statutory regulation, articles of association of a company or of a body corporate formed under the authority of a statute, deed of trust, grant or by prescription; and that the holder of it may be removed if the instrument creating the office authorises this … the holder of an office does not hold under a contract: he holds it under the terms of the instrument which created it and so, if he has not a contract, he cannot recover damages if he is removed. So justice requires that he should not be removed until the body with the power to do this knows his answer to the case against him so that it can reach a correct decision. But as a holder of an office may have a contract, the presence or absence of it cannot be the feature which distinguishes an office from employment so far as the principle of natural justice is concerned. It follows, I think, that someone who has a contract of service may successfully invoke the principle of natural justice if his position under the contract resembles that of the holder of an office and the question in every case of this type is :- ‘should the person who has been dismissed be put into the category of the holder of an office or should he be regarded as an employee only?’”
32. Kenny J. went on to express the view that Mr. Glover’s position as director and employee of the operating company and of two other companies resembled that of a holder of an office because his directorship of and his contract with these companies could be terminated by the directors of another company. His pension rights were enforceable against the employer company and had been created before his contract, whereas the directors of the holding company had power to deprive Mr. Glover of his rights against the operating company. Furthermore the decision (that his alleged misconduct had damaged the holding company or the employer company) had to be unanimous. In regard to these provisions Kenny J. said at p. 146:
“All these considerations lead me to the conclusion that Mr. Glover’s position should be regarded as that of the holder of an office and not that of an employee only, and that the principle of natural justice applies to a termination under [the contract].”
33. On appeal Walsh J., upholding this conclusion of Kenny J., rested his decision on this point on his interpretation of the relevant clause in the contract of employment which he said implied a term that the inquiry and determination (leading to dismissal) should be fairly conducted .
34. Furthermore Walsh J. expressly reserved his opinion on the correctness of a statement of Lord Reid in Ridge v. Baldwin [1964] AC 40 (see 427)
“… If it is intended to convey that a court cannot make a declaration which would have the effect of reinstating a person wrongfully dismissed.”
Conclusions
Fair Question?
35. In my opinion the plaintiff has raised the following three fair questions for determination at the trial, namely
Was the plaintiff’s position in the first named defendant such that he was entitled to be treated as an office holder and afforded fair procedures which were denied him?
Was the reason for his dismissal, namely redundancy, the true reason? and
If it was, was his dismissal effective given the non-compliance with the relevant statutory provisions?
(In this last regard there was, in my view, a failure to observe the statutory redundancy requirements comparable to the same failure identified by Keane J. In Shortt v. Data Packing Limited [1994] ELR 251 as an issue which would have to be tried at the hearing of the action).
Balance of convenience
36. It is indeed common case that the first defendant has gone through a very straightened financial period. However, it is apparent that the company is now once again on the road to expansion having committed itself to subscribing £350,000 stg to its U.K. venture. In this regard it is true that there is a further issue as to whether this is the private interest of the second defendant or an expansionary venture undertaken by the first defendant. It appears from the evidence before me that a decision in this regard is awaited. I do not think I can simply ignore this substantial financial expansion as if it did not exist. Furthermore the plaintiff also relies on the fact that two employees of the first defendant have received increases in salary. There is, on the other side, of course, evidence that a number of employees have resigned without being replaced. In my opinion the balance of convenience favours the granting of an order directing the first defendant to continue paying the plaintiff’s salary and other remuneration and benefits until the trial of the action, subject, of course, to the usual undertaking and also an undertaking by the plaintiff to do any work of the variety that he used to carry out for the first defendant as commercial director that he is required to do by the first defendant (as distinct from work that he wishes to do of his own accord).
37. Relations between the plaintiff and defendant have irretrievabley broken down. He seeks reinstatement pending the hearing of his case. I have held that he has made out a fair argument for a declaration that he has been wrongfully dismissed but I do not think that the balance of convenience favours an order at this interlocutory stage directing the first defendant to reinstate him to his position as commercial director. Relations between the parties have broken down to a significant degree and I decline to make an order reinstating him pending the hearing of the case.
38. It goes without saying, I think, that the plaintiff is entitled to all information and to have access to all data relevant to his status as director and shareholder of the company and in the absence of an undertaking or assurance from the company that this will be furnished an order should be made. In addition I think he should be given all information which is relevant to the position of commercial director on the same basis as has applied prior to 7th December 2001.
39. One final area of concern pending the trial of the action is the plaintiff’s position as guarantor of the company’s debt with the bank. I am declining to reinstate the plaintiff pending the trial of the action but it does seem to me that some limits should be put on the plaintiff’s exposure in this context if he is not involved in the day to day business of the company perhaps limiting his exposure to what it was on the 7th December, 2001. This precise point was not canvassed before me and accordingly I am prepared to hear counsel on this point and on the precise formulation of the orders required to reflect my conclusions.
Daly v Killally
[2009] IEHC 172
JUDGMENT of Mr. Justice Kelly delivered on 27th day of March, 2009
Introduction
The first defendant (Mr. Killally) seeks the discharge or variation of a Mareva type injunction granted against him on 20th February, 2009. It restrained him and his co-defendant from disposing of assets so as to reduce their value to a sum below €8m. Mr. Killally’s co-defendant has since had that order varied so as to permit him to utilise funds in two bank accounts and his salary as a national school teacher.
The Proceedings
These proceedings arise from four partnerships of which Mr. Killally was allegedly a member. The plaintiffs allege that in breach of his obligations as a partner he made secret profits and thus unjustly enriched himself at the expense of the plaintiffs. In response to interrogatories, Mr. Killally admitted that he did indeed make secret profits in respect of two of those partnerships. A like admission was made by his co-defendant.
As the making of a secret profit is wholly inconsistent with the notion of partnership, the plaintiffs succeeded in obtaining judgment against the defendants for breach of their partnership obligations. Mr. Connors did not object to judgment being entered whilst Mr. Killally did so but unsuccessfully. Damages in respect of such breaches will be assessed at a later date.
Variation
The courts have long recognised that a Mareva injunction has the ability to cause considerable hardship. Thus, it is well settled that a court may vary such an injunction in order to allow access to funds to discharge ordinary living expenses and legal costs.
I had to consider such jurisdiction in the case of Director of Public Prosecutions v. E.H. (Unreported, ex tempore, 22nd April, 1997). There I followed the approach of Robert Goff J. (as he then was) in A. & Anor v. C. & Ors [1981] 2 AER 126. That judge held that:-
“Although the court had jurisdiction to qualify a Mareva injunction where the defendant satisfied the court that assets subject to the injunction were required for a purpose which did not conflict with the policy underlying the Mareva jurisdiction, in order to satisfy that burden the defendant had to go further than merely to state that he owed money to someone and had to show that he did not have any other assets available out of which the debt would be paid. Since the defendants had failed to adduce evidence to show that they had no other assets out of which they could pay the legal costs, their application was dismissed.”
The plaintiffs contend that Mr. Killally has not reached the appropriate threshold of proof in this case and that accordingly his application to vary the injunction should be dismissed.
Before considering that I ought to point out that the initial approach of Mr. Killally is to ask the court to lift the injunction in its entirety and instead to substitute a series of undertakings which he proffered in lieu of it. The plaintiffs are not happy to accept such undertakings and indeed neither am I. There are two principal reasons for that.
First, whilst an undertaking to the court binds Mr. Killally as if it were a court order it is not binding on any third parties who might have notice of it. From the evidence that I have heard from Mr. Killally, there are many financial institutions to whom he is indebted who would not be bound by any undertaking which he might proffer. It is desirable that they should be bound. Second, the making of a secret profit by a partner involves furtive behaviour of a dishonest hue. It is therefore not surprising that the plaintiffs are sceptical about any undertaking which Mr. Killally might proffer.
The Evidence
Mr. Killally swore an affidavit in support of this application. The plaintiffs sought and were granted leave to cross examine him upon it. Mr. Killally’s evidence bears out the accuracy of a comment made by his counsel to the effect that he “enjoyed the good life when times were better”.
He resides in a family home of some 7,000 – 8,000 sq ft with nine bedrooms. He contends that he has a monthly household expenditure of €15,767. He has invested in large numbers of properties, details of which I will turn to in a moment.
He does not appear to have acted wisely in relation to his fiscal affairs. To take a small example, midway through 2008 and despite the fact that he had closed his auctioneering offices at Tullamore and Portlaoise because of lack of business, he purchased a new Audi Q7 jeep.
His current position is that he has borrowing liabilities of some €10.7m. Judgment for €2.6m has already been entered against him by the Bank of Ireland. Thus, even without the complication of these proceedings, he has enormous debts in respect of numerous property investments.
These are not the only proceedings in which he is involved. He has a number of other actions pending or threatened against him.
Mr. Killally told me that his auctioneering business is effectively at an end. He is deriving no income from it and only one of his four offices remains open.
He has said on oath that he now has a single source of income namely an annual €17,038.64 gross which he earns as a county councillor.
To support a lifestyle which is now far beyond his means he has had assistance from his own family and from his wife’s family. He has had of the order of €40,000 from his own family and between €60,000 and €80,000 from his wife’s family.
Quite apart from these proceedings and the problems they present, it is clear that Mr. Killally will have to make a radical alteration to his lifestyle.
His Wife’s Assets
On the evidence before me, his wife is the owner of nine cottages at Clara Road, Tullamore. These cottages produce an income of between €800 and €900 per month each. Two of them have become unoccupied in recent times.
The rental funds derived from these cottages are paid into two accounts which are in the joint names of Mr. Killally and his wife. They are account Nos 04645030 and 04645113 both of which are held with Allied Irish Bank. The properties are mortgaged in favour of National Irish Bank and I.I.B. Bank and the mortgages are serviced from these accounts. As a result of the injunction, these accounts have been frozen.
Given that these properties are not in the ownership of Mr. Killally and that if the mortgages are not serviced they may be repossessed by the financial institutions, I propose to permit the two named accounts to be utilised so as to service the mortgages in question and to allow any surplus to be used for the purpose of household expenses.
Mrs. Killally is the joint owner along with Mr. Killally of Nos 80, 81 and 82 J.K.L. Street, Edenderry, Co. Offaly. They also jointly own the back gardens to those three premises and also to 83 and 84 J.K.L. Street, Edenderry. 50% of these properties appear to be owned by Mrs. Killally and the proposal put to me is that they should be sold so as to provide for the legal expenses of Mr. Killally and to provide sums towards household expenses. Subject to certain safeguards I propose to accede to that application. Mrs. Killally has consented provided that 50% of the proceeds, which appear to be her entitlement, are paid to her.
Mr. Killally’s Assets
Although not mentioned in the affidavit, he is the owner of a hotel site adjacent to the holiday cottages owned by his wife. The sum of €1.7m is owed to the Irish Nationwide Building Society in respect of that site.
He also owns property at French Church Street, Portarlington from which a rental income in the sum of €1,000 per month is derived and is used to pay a mortgage with the Irish Permanent/Permanent TSB. Similarly, a property at 1 Dublin Road, Portlaoise is leased by an internet café at a rent in the sum of €1,500 per month. An account has been used to pay a mortgage with the Irish Permanent/Permanent TSB. I am asked to vary the injunction so as to permit the servicing of those two mortgages and associated insurance payments from account No. 01263068. I propose to accede to that application since it is in nobody’s interest that these properties or the stream of income from them are jeopardised by the non-payment of a mortgage.
Mr. Killally also owns a property at 409 Longboat Quay, Dublin. That is apparently owned jointly with his wife. It produces a rental of €1,550 per month. It is subject to a mortgage with Permanent TSB and account No. 04645469 is utilised to service the mortgage. I propose to allow that mortgage to be serviced since it is not in anybody’s interest that this property should be lost either.
I propose to make a similar order in respect of the properties at the Mews, Mountrath, Co. Laois and the two bedroom house at French Church Street, Portarlington, Co. Offaly.
I propose to make a similar order in respect of the five bedroom house at Clara Road, Tullamore, Co. Offaly.
These are the properties and the accounts dealt with at paras. 13 and 14 of the affidavit. I make this order on the basis that it is not in the interest of either the defendant or the plaintiffs that assets be lost as a result of mortgages not being paid between now and the trial of this action on 30th June of this year.
Mr. Killally also appears to own a supermarket and commercial unit and two bedroom apartment at Main Street Rochford Bridge, Co. Westmeath. A rent of €2,000 per week was being paid but the tenant has now left. This property is mortgaged in favour of Ulster Bank Plc. The rental income is used to service the mortgage and if the properties are re-let, I see no reason why that should not continue.
There is also rental income of €120 per week in respect of 80 J.K.L. Street, Edenderry, Co. Offaly along with €200 per week in respect of office space rented at the same property. This property also appears to be mortgaged and I propose to take the same approach in respect of it.
From the above it is clear that I wish to insure that mortgaged property is not repossessed between now and the trial of the action by reason of a failure to discharge repayments on such property provided such repayments are derived exclusively from rental income. Thus I am freeing the accounts which service those mortgages as I have indicated.
Whilst I am permitting the sale of the premises at J.K.L. Street, Edenderry, I think it unlikely that they will be sold before this action comes to hearing on 30th June. If however they are I am directing that the proceeds of sale be paid into court in the first instance before any payment is made to Mr. and Mrs. Killally. Mr. Killally must have funds to enable him to defend these proceedings and the proceeds of sale of those premises will be the source of such funds.
Household Expenses
From what I have heard, most of the income derived from the various properties is being used to service mortgages on them. If there is any surplus it can be used to go towards household expenses. Likewise the income derived by Mr. Killally as a county councillor amounting to €17,038.64 gross per annum may be similarly utilised.
I cannot accept that household expenses of the magnitude sought namely €15,767 per month is appropriate. Regardless of this litigation Mr. Killally must come to his senses and radically reduce his living standards to take account of his indebtedness. Between now and the trial of the action on 30th June I will vary the injunction so as to enable household monthly expenditure of €10,000. That sum should be enough to support himself, his wife (who is pregnant) and two children. Moneys can be derived from the county council income, any surplus between rental income on the properties which I have identified after the mortgage payments have been discharged and any other funds which may be available to Mr. Killally. I doubt if there are such funds and he will probably be reliant on family or friends in this regard.
Criminal Assets Bureau v. S.H.
[2000] IEHC 26
JUDGEMENT of O’Sullivan J. delivered the 15th of March, 2000
INTRODUCTION
1. In this application the Defendants are seeking to vary a Mareva Injunction to allow for payment out of:-
(a) monies required for a business run by the second Defendant,
(b) monies for accountant’s fees required to challenge the Plaintiff’s tax and V.A.T assessment,
(c) monies to pay legal costs involved in these proceedings, and
(d) monies to pay for the valuation of goods purchased by the first Defendant after the Mareva injunction was made.
BACKGROUND
2. In these proceedings the Plaintiff claims some £1.7 million pounds from the Defendants for tax and V.A.T and the Marvea Injunction prohibits the Defendants from reducing their assets below that amount.
3. In fact the amount of assets actually “caught” by the Mareva Injunction is some £450,000. To date approximately £180,000 have already been paid out leaving a balance of some £270,000.
4. Against this background it is a small wonder that in response to this application the Solicitor for the Plaintiff avers:-
“The Plaintiff also believes that the Defendants are attempting to dissipate whatever liquid assets are available to them rather than have same taken
in satisfaction of tax.”
5. On the 1st of July, 1999 O’Higgins J. made an Order inter alia
“… that the Defendants are entitled to have the Order of Mareva Injunction made herein dated the 17th day of June, 1999 varied so as to allow for the payment out of monies to the Defendants for legal expenses limited to legal expenses incurred by them in respect of the interlocutory injunction proceedings… and the Court doth direct that this matter be listed before the Court on Friday the 23rd day of July, 1999 in relation to details of such payment…”.
6. At that time the interlocutory proceedings referred to were due for imminent hearing and the Legal Aid Scheme available for such cases was not operating satisfactorily so that the making of this Order was clearly appropriate in the circumstances and, as the transcript of the proceedings makes clear, were taken into account by my learned colleague.
7. The fact that the interlocutory hearing lasted for some 14 or 17 days (there is lack of agreement between the sides on this!) would not have been foreseen when this Order was made but I accept the submission of Counsel for the Defendants that the principle has been established and I am concerned, on this application, merely with its implementation.
8. Subsequently, on the 29th of July, 1999 O’Higgins J. made a further Order directing that the sum of £66,550 for legal fees be paid out to the Defendants. Counsel have explained to me that this sum was arrived at as a figure on account and was not intended to discharge the entire legal expenses incurred in respect of the interlocutory injunction proceedings.
9. In light of the foregoing, I accept that the Court has established as a matter of principle that the legal expenses for the interlocutory injunction are to be paid to the Defendant and therefore it is not necessary for me to decide, in this case, the question whether, and if so in respect of what categories of money, a Court should require an undertaking from the recipient lawyers (and others) to repay these monies if it should transpire subsequently that their client was not entitled to them. It came as no surprise to me to hear from Counsel that this may not be a simple issue: in the present case I do not have to consider it further.
10. I turn now to deal with the four categories of money sought by the Defendants on this application.
BUSINESS EXPENSES
11. Once again the principle of this has already been decided by my learned colleague and I respectfully agree with him.
12. However, the history of this litigation shows that the greatest care must be taken not only when the Court is dealing with such an application by these Defendants but also with the overseeing or management of the dispersment itself. I am prepared to accede to the request that the sum of 34,683.95 Dutch Guilders be made available to the Defendants for payment due by Euro Pigeon Feed to Allesterin and that the terms of the Mareva Injunction be varied accordingly subject to the following stipulations:
(a) the Defendants to present an invoice for this sum (or its equalivant)
(or for sums totalling but not exceeding this amount or its equalivant)
to the Solicitors for the Plaintiff or to a nominated agent of the
13. Plaintiff together with a cheque or appropriate instrument drawn
by or on behalf of Euro Pigeon Feed made payable to Allesterin
and that such payment or payments be made with the approval and
under the supervision of the Plaintiff’s agent.
(b) I will discuss with Counsel regarding any further details that may be required to ensure that the money is paid by the correct party, to the correct party, for the correct amount and in respect of the correct transaction.
ACCOUNTANT’S FEES
14. The “fee account” document is dated the 15th of July, 1999 but appears not to have emerged in this litigation until the proceedings before me: this notwithstanding the intense litigious activity involved in the Interlocutory Injuction proceedings in July 1999 and a further application in the long vacation to McGuinness J. seeking, inter alia, a payment out in respect of accountant’s fees. On that occasion a payment on account was authorised of £5,000 and my learned colleague stipulated I am informed, that appropriate documentation should be submitted for the balance.
15. Apart from the foregoing questionable context, the document itself, comprising all of 13 lines of script could in no sense be described as adequate or satisfactory information to the Court. The description of services rendered is vague in the extreme, for example, there is a reference to “numerous consultations with the client to establish V.A.T liability and income tax liability”. One does not know how many consultations, how long they were and what was the hourly rate charged. In regard to attendance at the High Court, again one does not know whether this was for a day or part of a day or for several days or what was the purpose of such attendance.
16. This document is phrased as if the work referred to therein had already been done. The Affidavit now before the Court, however makes it plain that a considerable amount of the work is anticipated in the future.
17. The basis of this part of the application is quite unsatisfactory and I am compelled to refuse it.
LEGAL EXPENSES
18. As already indicated, I am dealing under this heading merely with the application of a decision in principle already made by my learned colleague, O’Higgins J.
19. In support of this element of the application I am furnished with the Defendant’s Solicitor’s Bill of Costs, a document signed by both Defendants confirming that they agree with the amounts therein and that they waive their right to be independently legally advised. Furthermore, a legal cost accountant has assessed the Solicitor’s professional fee “… for all worked done in relation to the application s [plural] concerning the interlocutory hearings/Mareva Injunction…” and a further letter from the same firm of legal costs accountants approving Counsel’s fee as reasonable in the circumstance that it had been discussed with the Solicitor who considered it reasonable, that Senior Counsel discussed the matter with his colleagues who indicated that they would also mark a fee at this level “if not more” and that the fee was discussed with and approved of by the client.
20. The Plaintiff accepts the principle that the fee for the “Interlocutory Injunction (singular) proceedings” should be paid but questions whether 17 (or 14) days were fully taken up with this matter, submits that a substantial payment out on account of this matter has already been made and that the balance should be deferred until after the final hearing.
21. Counsel for the Defendants has submitted that I do not have jurisdiction to refer the amount of these legal expenses to a Taxing Master given that there is no dispute between the Defendants and their lawyers and given also that the Order of O’Higgins J. of the 1st of July, 1999 must be interpreted as intending payment of fees on a “Solicitor and client” basis. He did appear to me to concede, however, that I may have inherent jurisdiction to make such a referral. It is clear from the Order of the 1st of July, 1999 that the intention of my learned colleague was that the legal expenses for the Interlocutory Injunction proceedings (and not any other proceedings) should be discharged. The legal costs accountant’s letter dealing with the Solicitor’s professional fee refers to applications in the plural and specifically includes the Mareva Injunction. This certainly lends plausibility to the Plaintiff’s submission that more fees are included in this application than were authorised in the Order of the 1st of July, 1999. Furthermore, there was lack of full agreement as to whether the hearing went on for 17 or 14 days, although I accept that this is a relatively net matter which would not of its own justify sending the whole Bill off to be taxed in default of agreement.
22. There is the further matter as to whether my learned colleague’s Order must necessarily authorise legal expenses on a “Solicitor and client” basis which was itself the subject of debate between the parties before me. I do not accept that this is an inevitable reading of the Order of the 1st of July, 1999. That Order left over for later mention the “details” of such payment out but, as was explained to me, the hearing went on for much longer than anticipated and this matter was not formally dealt with subsequently.
23. I acknowledge that the intention of my learned colleague on the occasion in question was to ensure that the Defendants would have appropriate legal representation. The hearing was imminent and the Legal Aid Scheme was in abeyance. In those circumstances it seems to me more proper to interpret the Order of the 1st of July, 1999 as providing for legal expenses on a Solicitor and Client basis and that is the conclusion I now reach.
24. I direct that the Solicitor’s Bill of Cost be sent for taxation in default of agreement and that such costs be taxed on a Solicitor and Client basis. When such taxation is complete the amount is to paid out of the assets held by the Plaintiff and the Mareva Injunction varied to that extent.
VALUATION OF GOODS ABROAD
25. The amount (£300) is relatively minuscule in the context of this case. There is, however, a battle of principle in regard to it. The Defendants appear to acknowledge that a sum of STG £157,500 was removed by the first Defendant from a bank account in the Isle of Man after the making of the Mareva Injunction herein. The contention is made, however, that these monies were used to pay an initial payment for stock valued at Stg £210,000 and that therefore the assets were not “reduced” by any amount. This £300 will be used to enable two independent valuers to assess the value of the stock and thus facilitate the Defendants in satisfying the Court, it is contended, that there was no breach of the initial Order.
26. The Plaintiffs, refer me to an Affidavit of the first Defendant sworn on the 29th of June, 1999 which was used to support an application to the Court for payment out of the balance of the purchase monies for this stock. In the course of that Affidavit the first Defendant swore:
“At the end of April, 1999 I agreed to purchase a consignment of liquidated
stock from a Spanish wholesaler, Atlantis Trading Company. The stock consisted of costume jewellery, gift sets and other miscellaneous items.
The agreed price for the stock was STG £210,000. I made an initial payment
of STG £157,500 which monies were raised from the cashing in of three
Eagle Star Policies on the 28th day of April, 1999 which were referred to
in paragraph 31 of the Applicant’s grounding Affidavit. The total amount
(of) money resulting from the said policies was in the region of IR£193,000 ,
the said initial payment was lodged in the wholesaler’s bank account in the
Isle of Man. The balance of approximately STG £52,000 is outstanding
and failure to pay same will result in the initial payment of STG £157,000
being forfeited.”
27. Counsel for the Plaintiff informed me that the deponent was cross-examined on this averment and that it transpired that, contrary to the impression which this paragraph conveys, the deponent removed the monies from the Isle of Man account after the initial Order herein which was made on the 17th of June, 1999.
28. It came as no surprise to me, clearly, to be told that my learned colleague, O’Higgins J., was very concerned about this matter and refused to confirm the payment out of the balance.
29. In my opinion to approve this relatively trifling sum would offend against the same principle: it could be perceived as lending some kind of legitimacy to a money transaction which, even on the first Defendant’s own account, did not secure equivalent value. Furthermore, in my view the deponent’s Affidavit was misleading. I must refuse this element of the application.