Daniel McAteer v Senan Burke and Others

 
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[2015] IECA 215

THE COURT OF APPEAL

Kelly J.

Irvine J.

Hogan J.

Court of Appeal: 1184/2014
Appeal No. 137/2014
Daniel McAteer v Senan Burke & Ors.
DANIEL McATEER
Plaintiff/Respondent

- AND -

SENAN BURKE, MARK REGAN AND MILAN SCHUSTER PRACTISING UNDER THE STYLE AND TITLE OF ADAMS CORPORATE SOLICITORS
Defendants/Appellants

Shareholding – Breach of contract – Negligence – Plaintiff seeking damages for breach of contract and for negligence – Whether court should grant the plaintiff leave to amend the statement of claim

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JUDGMENT of Mr. Justice Gerard Hogan delivered on the 7th day of October 2015

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1. This appeal provides another example of the some of the legal difficulties which are presented where a private investor utilises a private company for investment purposes. It has been clear for over 170 years since the decision of Wigram V.C. in Foss v. Harbottle (1843) 2 Hare 461 that, generally speaking, shareholders cannot sue in respect of any loss caused to the company by the wrongful acts of another, even if such wrongful acts have the consequence of causing financial loss to the shareholders by bringing about a loss in the value of their shareholding.

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2. While the correctness of Foss v. Harbottle has never been doubted, a rigid and unyielding application of that rule sometimes causes unfairness to shareholders. In that respect, there have been some judicially created exceptions to the rule while in other cases the Oireachtas has intervened by statute to provide shareholders with a remedy. A further difficulty presented by the rule lies in the precise identification of where the supposed injury to the company begins and ends, as it is sometimes not easy to isolate any independent injury to shareholders (such as where a professional person gives negligent advice to a prospective investor in a company) from other losses which are properly regarded as occurring to the company caused by the wrongful actions of others. Many of these difficulties are illustrated by the issues arising in the present appeal.

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3. These proceedings were commenced in the High Court by the plaintiff on 29 th October 2009 in which he sued the defendant solicitors for damages for breach of contract and for negligence. While the background to the dispute is a complex one, it may, in essence, be summarised as follows: the plaintiff, Mr. McAteer, is a businessman and accountant residing in Co. Derry. The plaintiff claims that the defendant's solicitors were retained by him and his fellow investors in the summer of 2006 to draft and execute a share subscription and shareholder's agreement. He contends that this agreement envisaged that two new companies would be established and that the plaintiff (or his nominee) would be a director of the companies. He further contends that 12 new shares would be allotted to each company and that he in turn would receive three such shares in each company.

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4. The plaintiff then says that although these two companies (Ballinorrig Developments Ltd. ("Developments") and Ballinorrig Properties Ltd. ("Properties")) were duly incorporated, he later discovered that he had not been in fact appointed a director of the companies, nor had his shareholding been allocated to him. He further contends that the assets of both Developments and Properties were transferred to two other companies controlled by the defendants. He further contends that the first and second defendants appointed themselves as directors of both Developments and Properties.

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5. It appears that Developments and Properties were involved in a plan to develop certain lands at Tralee, Co. Kerry for the purposes of development of a medical centre. Although the lands were re-zoned from agricultural purposes by Kerry County Council in early 2007, the plan never came to fruition. This, the plaintiff says, was because the first and second defendants wrongfully involved themselves personally in these companies; wrongfully excluded him from these companies and then so mismanaged the affairs of both Developments and Properties that the plan failed. All of these events culminated in what the plaintiff claims was considerable financial loss.

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6. A statement of claim was delivered by the plaintiff as far back as April 2010 making allegations along these lines. The defendants delivered a defence on 7 th March 2011 in which they denied having acted for the plaintiff in relation to these matters, while also denying all allegations of wrongdoing.

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7. On 30 th July 2010 the defendants issued a notice for particulars in which they requested details on how the plaintiff maintained that he personally had sustained any loss. Although the plaintiff furnished replies to the notice for particulars on 20 th September 2010, the defendants contended that the particulars of loss were inadequate in that they did not identify with clarity which entity or entities had suffered loss. This prompted various applications to the High Court on the part of the defendants for an order compelling fuller replies to the particulars which it had raised.

The judgment of MacMenamin J.
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8. These matters were fully addressed by MacMenamin J. (then a judge of the High Court) in a reserved judgment delivered on 6 th March 2012. No appeal has been taken from that judgment. As will shortly become apparent, the present appeal has been taken against a subsequent decision of O'Malley J. (then a judge of the High Court) delivered on 13 th March 2013 which concerned itself with the question of whether the orders made by MacMenamin J. had been duly complied with by the plaintiff.

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9. In his judgment MacMenamin J. accepted (at para. 28) that the plaintiff had yet to provide a "satisfactory explanation of which party had allegedly suffered loss." While MacMenamin J. refused to strike out the claim as an abuse of process, he instead directed that it be stayed until the plaintiff, by way of notice of motion, brought forward a proper, full and comprehensive reply to particulars addressing the issues set out in that judgment, such motion to be brought within 12 weeks of the date of the order. The questions which MacMenamin J. considered had not been properly answered were as follows:

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(a) Who or what entity sustained loss?

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(b) Upon what basis was it contended that the plaintiff sustained the loss?

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(c) What loss precisely was the plaintiff claiming was attributable to him?

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(d) How was the loss calculated?

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10. MacMenamin J. also identified a further issue, namely, who precisely had been negligent and in breach of duty?

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11. In the wake of that decision the plaintiff then issued a notice of motion dated the 30th May, 2012. That motion was grounded on the affidavit of his then solicitor, which in turn exhibited a letter dated the 30th May, 2012, the terms of which are necessary to set out in full. The letter dealt with each of the issues identified by MacMenamin J. as follows:

"I refer to the above matter and in particular, the judgements and orders made by Mr Justice MacMenamin on 6th and 9th March 2012 in which he directed that the action be stayed pending production of further and better particulars in relation to (essentially) 5 issues identified by you. By way of further particularisation and in a genuine attempt to progress matters, I would like to comment as follows (using references that are now familiar to us):"

1. Who are or what entity sustained loss?

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The plaintiff will argue that the losses incurred, as set out in the plaintiff's statement of claim, were incurred by the plaintiff, Mr. Daniel McAteer, in his personal capacity. For the avoidance of doubt, the plaintiff does not seek to recover losses that may or may not have been incurred by or on behalf Ballinorig Properties Limited or Ballinorig Developments Limited.

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2. Upon what basis is it contended the plaintiff sustained a loss?

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The plaintiff, in his personal capacity, had been a client of Adams Corporate Solicitors and had dealt principally with Mr Senan Burke of that firm. The plaintiff claims that he has suffered loss, again in his personal capacity, as a result of breaches by the defendants in relation to this engagement; Further, the plaintiff claims that he was a partner/member of the joint venture that engaged and retained Adams Corporate Solicitors, and principally Mr. Senan Burke of that firm, to render services to the said partnership/joint venture. In the premises the plaintiff suffered loss in his capacity as a member of the said partnership/joint venture. Further, the plaintiff claims that he suffered loss in his capacity as shareholder of Ballinorig Properties Limited and/or Ballinorig Developments Limited. The plaintiff will argue, inter alia, that in their capacity as directors of those entities, the first and second named defendants owed each individual shareholder/member a fiduciary duty and a breach of the said fiduciary duties caused the plaintiff to suffer a loss. Accordingly, the plaintiff has a personal cause of action as against the said defendants; The plaintiff also claims that he suffered loss, in his personal capacity, for the loss of profit and opportunity in relation to the...

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