McCool Controls and Engineering Ltd v Honeywell Controls Systems Ltd

• Jurisdiction: Ireland
• Judge: Mr Justice Peter Charleton,Mr. Justice Gerard Hogan,Mr. Justice Brian Murray,Mr. Justice Woulfe
• Judgment Date: 27 February 2024
• Neutral Citation: [2024] IESC 5
• Court: Supreme Court
• Docket Number: Supreme Court appeal number: S:AP:IE:2022:0000064 [2022] IECA 56 High Court record number: 2005/2747P [2019] IEHC 695 and [2019] IEHC 749

Between

Eugene McCool (substituted as plaintiff for McCool Controls and Engineering Ltd by order of the Master of the High Court made on 8 November 2017)

Plaintiff/Appellant

and

Honeywell Control Systems Ltd

Defendant/Respondent

[2024] IESC 5

Charleton J

O'Malley J

Woulfe J

Hogan J

Murray J

Supreme Court appeal number: S:AP:IE:2022:0000064

Court of Appeal record number: 2018/213 and 2019/0505

[2022] IECA 56

High Court record number: 2005/2747P

[2019] IEHC 695 and [2019] IEHC 749

An Chúirt Uachtarach

The Supreme Court

Substitution – Abuse of process – Estoppel – Appellant seeking to be substituted as plaintiff – Whether an assignee of its interest in litigation by a corporate body may be permitted to pursue the action by being substituted as plaintiff in lieu of that company, irrespective of the purpose of the assignment

Facts: McCool Controls and Engineering Ltd (the Company) claimed that the respondent, Honeywell Control Systems Ltd, successfully tendered for a potentially lucrative project, in which the Company had hoped to be involved, by cutting the Company out, in breach of an agreement made between the Company and the respondent in 1998, and that this had resulted in substantial losses to the Company. The Master of the High Court, on the 8th November, 2017, made an order substituting the appellant, Mr McCool, for the Company as plaintiff in the proceedings. The respondent brought an application to have the substitution order discharged. The High Court (Noonan J) held that the assignment to the appellant was invalid and an abuse of process. Simons J refused the appellant’s second substitution application on the basis that an issue estoppel arose. The appellant unsuccessfully appealed to the Court of Appeal against both decisions of the High Court. The appellant appealed the order of the Court of Appeal, following a judgment of Haughton J. The Supreme Court granted the appellant leave to appeal by a determination dated the 13th December 2022 ([2022] IESCDET 135). The Court considered that the question of whether an assignee of its interest in litigation by a corporate body may be permitted to pursue the action by being substituted as plaintiff in lieu of that company, irrespective of the purpose of the assignment, did raise a matter of general public importance concerning the right of access to the courts. The Court stated that there was some uncertainty regarding the legal import of the actual intention of the assignment on the entitlement of an assignee to continue litigation commenced by a corporate entity. The Court therefore proposed that leave to appeal be afforded on that narrow ground only. It did not propose to grant leave in respect of the general argument sought to be made by the appellant, regarding the right of a corporate entity to be represented other than by counsel or solicitor. The appellant submitted that the Court of Appeal erred in law for the following reasons: (i) the validity of an assignment of a chose in action, including the assignment of a cause of action, is determinable by reference to objective criteria only; and (ii) an assignment maybe treated as void on public policy grounds only if it is capable of offending the public policy concern arising – in the circumstances of the case, no question of abuse of process arises where an order for substitution grounded on a valid assignment removes any possibility of engaging (much less offending) the rule in Battle v Irish Art Promotions Centre Limited [1968] I.R. 252.

Held by Woulfe J that an assignee of a company’s interest in litigation may in principle be permitted to pursue the action by being substituted as plaintiff in lieu of that company, irrespective of whether the purpose of the assignment is to avoid the rule in Battle. Woulfe J therefore allowed the appeal on that narrow ground.

Woulfe J held that the wider issue of whether such an assignment can ultimately be valid will be dependent on the assignment complying with the conditions in s. 28(6) of the Supreme Court of Judicature Act (Ireland) 1877, and any applicable rules of public policy regarding champerty and any applicable rules of company law. As regards those matters, Woulfe J read a draft of the judgments delivered by Hogan and Murray JJ. Woulfe J was in broad agreement with their judgments in relation to those matters.

Appeal allowed.

Judgment ofMr Justice Peter Charletondelivered on Tuesday 27 February 2024

1 This judgment dissents from the majority. The analysis holds that public policy debars an assignment of a corporate entity's right to litigate, a chose in action, to a director. Even were such an assignment to take place, the majority judgment contemplates potential further issues should the director succeed in the action and recover damages. The analysis here is that the assignment of a chose in action by a company, being a bare right to litigate, is possible where the company has been taken into receivership or liquidation, circumstances where the obligation to achieve value for assets is vested in an independent person, the receiver or liquidator. In that instance, not only are decisions as to value made outside the corporate structure, but the disposal of assets will be done in good faith in order to benefit creditors of the distressed company.

2 Here, it is proposed that a company assign, for nominal value, speculative litigation to the company's director, intimately engaged in the management of affairs from which that legal controversy arose. The result would be that a precedent would be set whereby in any instance where a company might be met with an application by a defendant for security for costs under s 52 of the Companies Act 2014, or where a company could not afford the costs of being represented by a solicitor in an action, as opposed to on a limited application where the court may grant indulgence to hear briefly from a company director, all that would be necessary would be for the company, by a sleight-of-hand, to assign the suit to a director or member. This would strike fundamentally at the heart of both corporate identity and at the checks to limited liability whereby an artificial person is bounded by precisely constructed legal regulation against abuse. A company cannot, chameleon-like, deform from what the law has made it to be into a human person for some purposes that might suit its directors while retaining, as a backstop, corporate privileges.

3 Further, evasion of the limitation on recovery of costs in litigation bounded by a rule that security for costs may be secured where a company launches a suit is not to be elided through an utter contradiction of the rational behind that corporate burden, as explained by Lord Bingham MR in Radford v Freeway Classics[1994] 1 BCLC 445, 448:

A limited company, by virtue of the limitation of the liabilities of those who own it, is in a very privileged position because those who are owed money by it, or obtain orders against it, must go empty away if the corporate cupboard is bare. The assets of the directors and shareholders are not at risk. That is an enormous benefit to a limited company but it is a benefit bought at a price. Part of the price is that in certain circumstances security for costs can be obtained against a limited company in cases where it could not be obtained against an individual, and another part of the price is the rule that I have already referred to that a corporation cannot act without legal advisors.

4 In the background in this litigation are allegations, that are sought to resound in damages that McCool Control and Engineering Ltd, in 1998, entered into a sharing, or exclusive use, arrangement with Honeywell Control Systems Ltd, in respect of expertise in heating and ventilation control expertise or techniques. While what is alleged to be a binding agreement proceeded apparently satisfactorily for several years, it is claimed by McCool Ltd that when Honeywell Ltd achieved entry into a lucrative building scheme, obligations that were asserted to arise, as a contract as between two companies, pursuant to their arrangement were not honoured, resulting in what is asserted to be serious and actionable damage to the business of McCool Ltd. While not in a moribund state, McCool Ltd as a company now trades less profitably but has not been put into the examinership process and nor has it been wound up. For some years after the issue of proceedings in August 2005, McCool Ltd claims to have been targeted by Honeywell Ltd with procedural issues in the High Court, which unnecessary wrangling, it is asserted, depleted McCool Ltd's ability to pursue this action by reason of the cost and trouble involved.

5 No comment is here made on the merits in law of the proposed action and nor is anything written here to be taken as a ruling on any procedural motion or the justification, or futility, of same. What is obvious, in the light of the allegation by McCool Ltd of abuse of process, and because of the staggering level of delay, is that the case should be taken into case management under the control of a single High Court judge.

6 The core of this appeal is the two purported assignments of the entitlement of McCool Ltd to pursue the case against Honeywell Ltd to its director and majority shareholder Eugene McCool. While these assignments, of 28 September 2017 and 29 June 2018, have been abandoned as to their validity by the assignee in consequence of the earlier judgments of the High Court and Court of Appeal, what is at issue here is the legal validity of a proposed third assignment whereby Eugene McCool may pursue, as holder of the chose in action, being the right to sue Honeywell Ltd, the action instead of McCool Ltd. On the analysis which follows, any such assignment is more than problematic.

Chose in action

7 A chose in action is definable as: a legal right recoverable only by action at law or in...