Sean Fay v Tegral Pipes Ltd and Others

• Jurisdiction: Ireland
• Judge: Mr Justice McCracken
• Judgment Date: 27 May 2005
• Neutral Citation: [2005] IESC 34
• Court: Supreme Court
• Docket Number: 136/04
• Date: 27 May 2005

FAY v TEGRAL PIPES LTD & ORS

Between:

Sean Fay

Plaintiff/ Respondent

AND

Tegral Pipes Limited, Brian Burnside Taylor, Michael Joseph McDonnell, William Samuel Goodwin, Liam Patrick Hughes, Maurice Lammerant and Jean Beeckman

Defendants/ Appellants

[2005] IESC 34

Denham J

Geoghegan J

McCracken J

136/04

THE SUPREME COURT

COMPANY LAW

separate legal personality Personal liability of directors - Declaration of solvency - Contingent debt - Whether legitimate for parent company to wind-up an insolvent subsidiary - Whether director of company could be personally liable to third party when company also liable - Whether action for negligence could lie against director for signing declaration of solvency - Whether company in liquidation must make provision for future claim which might be made against it - Purtill v. Athlone UDC [1968] IR 205 considered; Shinkwin v Quin-con Ltd [2001] 1 IR 514 approved - Companies Act 1963 (No 33 ), s 256 - Claim dismissed

Practice and procedure

dismissal of proceedings Frivolous and vexatious - Abuse of process - Principles to be applied - Inherent jurisdiction -Purpose of jurisdiction to dismiss proceedings - Access to courts - Rules of the Superior Courts 1986 (SI 15/1986), O 19, r 28 - Claim dismissed (136/2004 - Supreme Court - 27/5/2005) [2005] IESC 34Fay vTegral Pipes Ltd

The plaintiff was employed by a company called Tegral Pipes Limited (Oldco) until 1989 when he was made redundant. Subsequently a resolution was passed by Oldco to wind up the company in a members’ voluntary winding-up. Thereafter an associated company (Newco) resolved to change its name to Tegral Pipes Limited and Oldco took the name of Newco. In 1999 the plaintiff issued a plenary summons in these proceedings claiming damages for personal injuries against Newco and six named directors of Oldco. The defendants appealed from a decision of the High Court refusing to grant them an order pursuant to the inherent jurisdiction of the court striking out the plaintiff’s action on the grounds that the action was unsustainable, bound to fail, frivolous and/or vexatious and an abuse of the process of the court. Further or in the alternative the defendants sought an order pursuant to O 19 r 28 striking out the plaintiff’s summons and statement of claim on the ground that they disclose no reasonable cause of action against the defendants and further that the plaintiff’s action is frivolous or vexatious.

Held by the Supreme Court (McCracken, Denham, Geoghegan JJ) in allowing the appeal and striking out the proceedings:

1. That there was no improper motive in the winding-up of Oldco. By the time the plaintiff discovered his possible illness, Oldco had been wound-up and dissolved, and it was not possible for him to recover any damages against it. That would have been the case irrespective of whether Newco had changed its name or not. Accordingly the change of name could not give rise to a cause of action by the plaintiff.

2. That there could be no claim against the directors of Oldco for negligence on a personal basis, as the necessary proximity did not exist between those defendants and the plaintiff. Furthermore the directors were not negligent in signing the declaration of solvency nor were they guilty of reckless trading.

Reporter: L.O’S.

RSC O.19 r28

COMPANIES ACT 1963 S256

COMPANIES ACT 1963 S297(1)

BARRY v BUCKLEY 1981 IR 306

SHINKWIN v QUIN-CON LTD 2001 1 IR 514

ANNS v MERTON LONDON BOROUGH 1978 AC 728

PURTILL v ATHLONE URBAN DISTRICT COUNCIL (UDC) 1968 IR 205

COMPANIES ACT 1963 S256(1)

COMPANIES ACT 1963 S256(2)(C)

COMPANIES ACT 1963 S207(A)

COMPANIES (AMDT) ACT 1990

Judgment of

Mr Justice McCracken

delivered the 27th day of May 2005

1 This is an appeal from a decision of the High Court (Quirke J) refusing the following reliefs sought by the Appellants:-

2 2 "1. An order pursuant to the inherent jurisdiction of this honourable Court striking out the plaintiff's action herein as against the defendants or, in the alternative, dismissing the said action or staying all further proceedings therein on one or more of the grounds following:-

3 (i) The plaintiff's action is clearly unsustainable;

4 (ii) the plaintiff's action is bound to fail;

5 (iii) the plaintiff's action is frivolous and/or vexatious;

6 (iv) the plaintiff's action is an abuse of the process of the Court.

7 2. Further, or in the alternative, an order pursuant to the provisions of Order 19 Rule 28 of the Rules of the Superior Court, striking out the plaintiff's summons and statement of claim herein or, in the alternative, dismissing the plaintiff's action or staying all further proceedings therein on the ground that the same disclose no reasonable cause of action against the defendant and, further, that the plaintiff's action is frivolous or vexatious."

8 The Plaintiff was employed by a company called Tegral Pipes Limited (which for reasons which will become obvious I will hereinafter refer to as "Oldco") from July 1965 until June 1989, when he was made redundant. During that period he worked in Oldco's factory premises at Drogheda where they manufactured cement pipes. In the course of his employment during this period he was exposed to asbestos fibres.

9 On 23rd December 1994 a resolution was passed by Oldco to wind-up Oldco in a members” voluntary winding-up. On 29th December 1994 an associated company called Tegral Pipes (Trading) Limited (hereinafter referred to as "Newco") resolved to change its name to Tegral Pipes Limited and on 30th December 1994 the liquidator of Oldco resolved to change its name to Tegral Pipes (Trading) Limited.

10 At some stage in late 1998 or early 1999 the Plaintiff was advised that he had symptoms indicative of significant asbestos scarring in the lungs and that there was a real risk of the development of either of the two cancers associated with asbestos exposure. He issued a plenary summons in these proceedings on 25th March 1999 claiming damages for personal injuries against Newco and six named directors of Oldco.

11 The claim against Newco is based on the allegation that Newco has succeeded to and is liable for the liabilities, debts, obligations and duties of Oldco and that Newco had been a party to the use of the privileges of incorporation for an improper purpose, namely to deprive the Plaintiff of his right to compensation. There were three bases set out for this allegation which can be briefly summarised as follows:-

12 (a) By adopting the name used by Oldco, Newco assumed the identity of Oldco and misrepresented itself as Oldco and conveyed the impression that Oldco remained in existence and continued to trade.

13 (b) Newco and Oldco in effect operated as a single entity and the business carried on by one would be regarded as the business of the other.

14 (c) Newco was a party to a series of transactions which had the object of facilitating the liquidation and dissolution of Oldco without this coming to the attention of all of its former employees, including the Plaintiff, and with the effect of placing Oldco beyond the reach of potential claimants when it was known to the directors of both companies that claims for compensation were likely to be made.

15 As against the personal Defendants, a number of causes of action are pleaded. These can be summarised as follows:-

16 (a) The second, third, fourth, fifth and seventh named Defendants were directors of Oldco during the Plaintiff's employment and are liable to the Plaintiff for negligence in exposing him knowingly to the risk of injury and illness.

17 (b) The second, third and fourth Defendants are signatories to the statutory declaration of solvency executed pursuant to s.256 of the Companies Act1963, which declaration was made for the purpose of the members” voluntary winding-up of Oldco, and made the said declaration without any or any reasonable belief in the truth of the matters set out therein, thus rendering them personally liable for the deaths of Oldco.

18 (c) As against all the personal Defendants, as directors of Oldco in the period prior to its winding-up, a claim pursuant to s.297A of the Companies Act1963that they knowingly carried on the business of Oldco in a reckless manner and were party to putting it into members” voluntary liquidation when they ought to have known it was unable to pay its debts, and consequently were liable personally for the debts of Oldco.

19 (d) As against all personal Defendants, as directors of Oldco in the period prior to its winding-up, for negligence and breach of duty in failing to make any adequate provision for likely claims against Oldco, including the Plaintiff's claim, and for continuing to allow Oldco to trade when it was unable to pay its debts as they fell due.

20 There is no serious dispute between the parties as to the principles applicable to motions of this nature. It is accepted that there are two bases upon which such an application may be brought. The first is pursuant to the provisions of Order 19 Rule 28 of the Rules of the Superior Courts which reads:-

"The Court may order any pleading to be struck out, on the ground that it discloses no reasonable cause of action or answer and in any such case or in case of the action or defence being shown by the pleadings to be frivolous or vexatious, the Court may order the action to be stayed or dismissed, or judgment to be entered accordingly, as may be just."

21 In addition to this provision, the Court has an inherent jurisdiction to stay, strike-out or dismiss pleadings where no cause of action is disclosed or if the claim is frivolous or vexatious. This was explained by Costello J inBarry v. Buckley [1981] IR 306 at page 308 where he said:-

"But, apart from order 19, the Court has an inherent...