Edmond Kenny v Eden Music Ltd and Others
| Jurisdiction | Ireland |
| Judge | Mr. Justice Michael White |
| Judgment Date | 06 November 2013 |
| Neutral Citation | [2013] IEHC 628 |
| Court | High Court |
| Date | 06 November 2013 |
[2013] IEHC 628
THE HIGH COURT
BETWEEN
AND
RSC O.15 r39(2)
RULES OF THE SUPERIOR COURTS (DERIVATIVE ACTIONS) 2010 SI 503/2010
CONNOLLY v SESKIN PROPERTIES LTD & WHELAN UNREP KELLY 27.7.2012 2012/7/1905 2012 IEHC 332
FANNING v MURTAGH 2009 1 IR 551 2009 1 ILRM 368 2008/23/5069 2008 IEHC 277
COMPANY LAW
Practice and procedure
Application for leave to commence derivative action - Exceptions to rule that company is proper plaintiff in respect of legal wrong suffered - Whether shareholder could sue on behalf of company action bona fide for benefit of company for wrongs to company for which no other remedy available - Prima facie case - Realistic prospect of success - Discretionary relief - Whether appropriate to grant leave to commence derivative action - Connolly v Seskin Properties [2012] IEHC 332, (Unrep, Kelly J, 27/7/2012); Foss v Harbottle [1843] 2 Hare 416; Barrett v Duckett [1995] 1 BCLC 243; Prudential Assurance Company Limited v Newman Industries Limited (No 2) [1982] 1 Ch 204 and Fanning v Murtagh [2008] IEHC 277, [2009] 1 IR 551 considered - Rules of the Superior Courts 1986 (SI 15/1986), O 15, r 39 - Relief refused (2013/96IA - White J - 6/11/2013) [2013] IEHC 628
Kenny v Eden Music Limited & ors
Facts: The first named respondent was a company that had been incorporated on the 13 th June 2007. The applicant, the second named respondent and the third respondent each held 500 shares in the company and were also its directors. The main purpose of the company was the operation of a wedding band titled ‘Eden’, which was a three piece band comprised of the three directors. The applicant”s relationship with the second and third named respondents irretrievably broke down and he left the band.
The applicant alleged that the second and third named respondents made payments from the company account without his authorisation, stopped paying his salary in full, and proceeded to replace him as lead singer by forming a new band called ‘The Eden Wedding Band’. It was also said that they acted in the detriment of the company by registering the business name of ‘Eden Band’, which was said to be an attempt to convert one of the Company”s principal assets to their own use. In response, the second and third named respondents argued that the applicant appropriated the company van without permission, removed them from the insurance, and reneged on a commitment to consent to the voluntary winding up of the company. They also denied acting to the detriment of the company. In this application, the applicant sought leave to commence a derivative action in the name of Eden Music Limited against the second and third named respondent and to be indemnified by the company in respect of the costs of the action.
Held by White Michael J. that Foss v. Harbottle [1843] 2 Hare 416 made it clear that where a company suffers a legal wrong, the company itself must sue in respect of the damage resulting from it. Nevertheless, four recognised exceptions were outlined in the case of Fanning v. Murtagh [2009] 1 I.R. 551: ‘(a) an act which is illegal or ultra vires to the company; (b) an irregularity in the passing of a resolution which requires a qualified majority; (c) an act purporting to abridge or abolish the individual rights of a member; (d) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company’. It was also pointed out in that case that the Court had a discretion to refuse to grant leave to commence a derivative action in the name of a company even where the applicant had established that one or more of the four exceptions applied.
It was held that although it could be said that the second and third respondents were at one point acting to the detriment of the company, it was clear that they had taken certain steps to rectify the damage that had been caused. This included restoring monies to the company, restoring the applicant”s salary, and hiring a musician to replace the applicant and fulfil the company”s obligations. It was also pointed out that the applicant had clearly reneged on an agreement to voluntary wind up the company. He also withdrew company assets (i.e. the company van) and removed the second and third named respondents from the insurance. It was also pointed out that the company only had limited assets. For these reasons, the Court found that it would be inappropriate to permit the applicant to commence a derivative action on its behalf and to indemnify him in respect of the whole or part of the costs and expenses incurred in conducting the derivative action.
Application dismissed.
1. By motion dated the 1 st August, 2013, returnable for that date the applicant, Edmond Kenny, applied for leave to commence a derivative action on behalf of Eden Music Limited, ("the Company"), and has exhibited a draft plenary summons.
2. The Company was incorporated on the 13 th June, 2007. It has an authorised share capital of one million shares. Fifteen hundred shares have been issued. There are three directors, the applicant and the second and third named respondents, having five hundred shares each.
3. The main purpose of the Company is the operation of a wedding band titled " Eden", a three piece band with the applicant as the lead singer and also playing drums, David Lynch the second named respondent, the keyboard player and Robert Pender, the third named respondent, the lead guitarist.
4. The band is popular and plays at wedding receptions around the Midlands and has bookings up to November 2014.
5. Unfortunately the relationship between the applicant and the second and third named respondents has irretrievably broken down.
6. The assets of the Company are a van and future bookings. The Court is not sure if any equipment is in company ownership.
7. There is a dispute about future bookings if any, made by the second and third named respondents which may not have been disclosed by them.
8. The applicant alleges that the second and third named respondents made payments from the company account without his authorisation, proceeded to replace him as lead singer and formed a new band called "The Eden Wedding Band". They also stopped payment to him.
9. The second and third named respondents allege that the applicant arbitrarily appropriated the company van and removed them from the insurance, and originally agreed to a voluntary winding up of the Company and then reneged on this commitment.
10. The applicant is no longer singing with the band but the second and third named respondents, with another lead singer, are fulfilling the engagements. The applicant's salary has been restored but the amount is in dispute. He is being paid €323 per engagement which the second and third named respondents state is the net amount of a gross payment of €440. The applicant alleges he is entitled to €440 net. The applicant...
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