David Hughes v Worldport Communications Inc.

JurisdictionIreland
JudgeMr. Justice Geoghegan
Judgment Date16 December 2008
Neutral Citation[2008] IESC 68
CourtSupreme Court
Docket Number[S.C. No. 166 of 2005]
Date16 December 2008

[2008] IESC 68

THE SUPREME COURT

Hardiman J.

Geoghegan J.

Fennelly J.

Record No. 2005 No.166
Worldport Ireland Ltd, In re
IN THE MATTER OF WORLDPORT IRELAND LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF THE COMPANIES ACTS 1963 -2001
AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT, 1990 (AS AMENDED)

COMPANIES ACT 1990 S150

INTERPRETATION ACT 1937 S11(c)

COMPANIES ACT 1990 S149(5)

COMPANIES ACT 1990 PART VII CHAPTER I

COMPANIES ACT 1990 S150(1)

COMPANIES ACT 1963 S176

COMPANIES ACT 1990 S3

COMPANIES ACT 1990 S27

COMPANIES ACT 1990 S27(1)

COMPANIES ACT 1990 PART III

COMPANIES ACT 1963 S183

FYFFES PLC v DCC PLC & ORS UNREP HIGH LAFFOY 21.12.2005 2005 IEHC 477

COMPANIES ACT 1990 S149(2)

COMPANIES ACT 1990 S150(3)

COMPANY LAW ENFORCEMENT ACT 2001 S41

BRIGGS v GIBSON'S BAKERY LTD 1948 NI 165

LAW SOCIETY v UNITED SERVICE BUREAU LTD 1934 1 KB 343

COMPANY LAW

Directors

Shadow directors - Restriction order - Whether body corporate could be shadow director for purposes of application for restriction - Whether foreign body corporate could be shadow director for purposes of application for restriction - Whether contrary intention to displace statutory rule of interpretation that person included body corporate - Fyffes plc v DCC plc [2005] IEHC 477, (Unrep, Laffoy J, 21/12/2005) followed - Interpretation Act 1937 (No 38), s 11(c) - Companies Act 1963 (No 33), s 176 - Companies Act 1990 (No 33), ss 27 and 150 - Respondent's appeal allowed (155/2005 - SC - 16/12/2008) [2008] IESC 68

Re Worldport Ireland Ltd; Hughes v Worldport Inc

Facts: The issue rose as to whether a body corporate could be a shadow director for the purposes of a restriction order under s. 150 Companies Act 1990 and whether a body corporate, incorporated outside of the jurisdiction could be a shadow director for the purposes of the section. The appellant was incorporated in the USA. The appellant raised a preliminary objection to an application to make it a shadow director on the basis that s. 176 Companies Act 1963 prohibited a body corporate from being a director of a company incorporated under the Act and that the section did not apply to a foreign body corporate.

Held by the Supreme Court per Fennelly J. (Geoghegan, Hardiman JJ concurring) that the legislation evinced an intention contrary to the normal rule of including a body corporate within the meaning of a person. A key problem would be the form of the order envisaged by the section. The Court otherwise would be required to make orders in a form which would be directly inconsistent with an express statutory provision which prohibited corporate bodies from being directors, pursuant to s. 176 of the Act of 1963. The appeal would be allowed so as to substitute a negative answer to the first question. Since no body corporate foreign or not could be the subject of an order under the section, the second question did not arise.

Reporter: E.F.

1

Mr. Justice Geoghegan delivered the 16th day of December 2008

2

Judgment delivered by Geoghegan J. Hardiman J. concurred

3

Judgment delivered by Fennelly J. Hardiman J. concurred

4

I have read the judgment about to be delivered by Mr. Justice Fennelly and I am in full agreement with it. There are some further observations of my own which I would like to make. He has concluded (and I agree) that in section 150 of the Companies Act, 1990, notwithstanding the provisions of section 11(c) of the Interpretation Act, 1937, the word "person" in that section must be confined to human persons and does not include bodies corporate. Under that provision of the 1937 Act the word "person" would include a body corporate "unless the contrary intention appears". For the reasons given in the judgment of Fennelly J., it seems clear that "the contrary intention" does appear in section 150.

5

I am inclined to go one step further. When interpreted in context, it would seem to me that the provision contained in section 149(5) that "This Chapter applies to shadow directors as it applies to directors" refers only even on a proper interpretation of that provision alone, though in context, to human shadow directors and not to corporate shadow directors. I am of this view because of the words "as it applies to directors". The heading of the chapter, i.e., Chapter I of Part VII reads "Restriction on directors of insolvent companies". The form of order contemplated by section 150(1) includes a prohibition against acting as a director and indeed that is the first prohibition. As pointed out by Fennelly J., section 176 of the Companies Act, 1963 prohibits bodies corporate from being company directors. I think that neither the Oireachtas nor the draftsman of the Act ever adverted to the issue of whether a company could be a shadow director. It has since been held by O'Leary J. and by Laffoy J. that it can be and I agree. But I am reasonably satisfied that even in section 149(5), it was not intended that the chapter would in any way apply to corporate shadow directors. If it were otherwise, it is difficult to see how the chapter could apply the same way as it applies to directors, as companies cannot be directors.

6

A second point which seems to me to be relevant and in support of the judgment of Fennelly J. is the form of order which would be appropriate under section 150(1) in the case of a human shadow director. There is nothing in the wording of section 150(1) to indicate or indeed permit that the court order would in addition to prohibiting a shadow director from being a director for the specified period should also prohibit him from being a shadow director. If, however, the respondent is correct in arguing that an adapted order can be made under section 150(1), the logical adaptation would be to prohibit the company from being a shadow director. But if it would never have been contemplated that a human shadow director or indeed a director should be expressly prohibited from being a "shadow director", then it would be completely inconsistent to make such an order in relation to a corporate shadow director. This would seem to me to further reinforce the view adopted by Fennelly J.

7

The only alternative argument might be that in the case of a corporate shadow director, the prohibition would be confined to its acting as secretary or being concerned or taking part in the promotion or formation of any company unless it met the statutory requirements, but that would seem to be a major alteration to the intention of the subsection given that it is primarily directed towards acting as director. Admittedly, O'Leary J. did seem to hint that that might be appropriate. I use the word "hint" because one of the difficulties in this case is that inevitably O'Leary J. did not have to draft an order. This is because he was merely asked to decide the two issues. Presumably, no order has ever in fact been made pending the final outcome of these proceedings.

8

Some of the problems in determining this appeal arise from the way "shadow director" has been defined in the Companies Act, 1990. In the first place, it is defined in section 3 which is the main definition section but that merely says that "shadow director" has the meaning assigned to it by section 27. Section 27 does not strictly speaking contain a definition. Subsection 1 of that section reads as follows:

9

2 "(1) Subject to subsection (2), a person in accordance with whose directions or instructions the directors of a company are accustomed to act (in this Act referred to as 'a shadow director') shall be treated for the purposes of this Part as a director of the company unless the directors are accustomed so to act by reason only that they do so on advice given by him in a professional capacity."

10

There seems to be no reason why a body corporate cannot be a shadow director for the purposes of Part III which is the Part referred to in section 27, though again even in the case of section 27 the question of whether a company could be such a shadow director may not have been considered by the draftsman. It becomes wholly inappropriate when the section 27 definition is applied to section 150 or even as I have suggested, section 149.

11

For all the reasons given by Fennelly J. and these added reasons which seem to me to reinforce his views, I would allow the appeal.

12

Worldport & Cos. Acts

13

1. This is an appeal on two preliminary points of company law. The principal question is whether a body corporate can be a shadow director for the purposes of an application for a restriction order under section 150 of the Companies Act 1990. The second preliminary question concerns whether a body corporate, incorporated outside the jurisdiction, can be a shadow director for the purposes of an application under the section.

14

2. The applicant is the official liquidator of Worldport Ireland Limited ("the company"), an insolvent company. In that capacity, he made an application to the High Court for an order, inter alia, declaring that the appellant is a shadow director of the company and for an order pursuant to section 150 of the Companies Act, 1990 ("the Act of 1990") that the appellant be restricted from being appointed or acting in any way, whether directly or indirectly as a director or secretary or being concerned in the promotion or formation of any company for a period of five years.

15

3. The appellant is incorporated in the United States of America.

16

4. The appellant raised a preliminary objection in the High Court that it could not be a shadow director of the company on the ground that section 176 of the Companies Act 1963 prohibits a body corporate from being a director of any company incorporated under that Act. It also argued that the section did not apply to a...

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