McDonald v McCaughey Developments Ltd & McCaughey

• Jurisdiction: Ireland
• Judge: Mr. Justice Gilligan
• Judgment Date: 31 July 2014
• Neutral Citation: [2014] IEHC 455
• Court: High Court
• Date: 31 July 2014

[2014] IEHC 455

THE HIGH COURT

[No. 3717 P/2014]

McDonald v McCaughey Developments Ltd & McCaughey

BETWEEN

DECLAN MCDONALD

PLAINTIFF

AND

MCCAUGHEY DEVELOPMENTS LIMITED AND MARTIN MCCAUGHEY

DEFENDANTS

BATTLE v IRISH ART PROMOTION CENTRE LTD 1968 IR 252

SECRETARY OF STATE FOR BUSINESS v UK BANKRUPTCY LTD 2009 GWD 15-241 2009 CSOH 50

DUBLIN CITY COUNCIL v MARBLE AND GRANITE TILES LTD UNREP LAFFOY 16.10.2009 2009/14/3186 2009 IEHC 455

COFFEY v TARA MINES LTD 2008 1 IR 436 2007/9/1857 2007 IEHC 249

COFFEY & ORS, IN RE UNREP SUPREME 26.2.2013 2013/10/2815 2013 IESC 11

ARBUTHNOT LEASING INTERNATIONAL FINANCE LTD v HAVELET LEASING LTD (NO 1) 1992 1 WLR 455 1991 1 AER 591 1990 BCC 627 1990 BCLC 802

LEGAL SERVICES ACT 2007 SCHED 3 PARA 1(2) (UK)

COURTS & LEGAL SERVICES ACT 1990 S27(2)(C) (UK)

WOOLF ACCESS TO JUSTICE: FINAL REPORT TO THE LORD CHANCELLOR ON THE CIVIL JUSTICE SYSTEM IN ENGLAND & WALES 1996 136

CIVIL PROCEDURE ACT 1997 S5(1) (UK)

CIVIL PROCEDURE RULES 1998 SI 3132/1998 RULE 39(6) (UK)

TRITONIA LTD & ORS v EQUITY & LAW LIFE ASSURANCE SOCIETY 1943 AC 584 1943 2 AER 401 1943 SC (HL) 88

EUROPEAN CONVENTION ON HUMAN RIGHTS & FUNDAMENTAL FREEDOMS ART 6

ULSTER WEAVERS HOME FASHIONS LTD v WATERFALL NI LTD UNREP BELL 12.2.2013 2013 NI MASTER 2

WING HANG BANK LTD v KIT CHOY DEVELOPMENT LTD & CHOY 2005 3 HKC 312 2005 HKCA 287

MANONG & ASSOCIATES (PTY) LTD v MIN OF PUBLIC WORKS & DIRECTOR GENERAL DEPARTMENT OF PUBLIC WORKS 2010 1 ALL SA 267 (SCA) 2010 (2) SA 167 (SCA) 2009 ZASCA 110

GJ MANNIX LTD, IN RE 1984 1 NZLR 309

B (PML) & ORS v J (PH) & ORS UNREP BUDD 5.5.1992 1992/10/3024

Company – Appointment of receiver – Representation by director – Fiduciary position – Legal persona of company

Facts: The second named defendant in the capacity of a director and principal shareholder of the first named defendant sought an order to represent the first named defendant for challenging the appointment of the plaintiff as a receiver over the assets of the first named defendant. The second named defendant contended that there existed exceptional circumstances in the form of lack of funds to engage a team of lawyers so that the second named defendant must be allowed to represent the company.

Mr. Justice Gilligan refused to grant an order to the second named defendant to the effect that the second named defendant could not legally represent the first named represent. The Court after examining the flexible approach adopted by the English Courts and Scottish Courts in relation to the right to conduct litigation on behalf of a company, and Courts of other jurisdictions, held that it was bound to follow the decision of the Supreme Court In the Matter of Applications for Orders in Relation to Costs in Intended Proceedings by Stella Coffey & Ors. [2013] IESC 11, that a company was a separate legal entity from its members, directors and shareholders. The Court found that the company being a pure legal or notional person could not be represented except through a solicitor and it would be an extremely rare case where an exception would be allowed.

1 1. The plaintiff in these proceedings, Declan McDonald, was appointed as receiver over the assets of the first named defendant by deed of appointment of receiver dated 20 ^th December, 2013. As appears from the deed of appointment, the appointment was made by Danske Bank in pursuance of powers contained in the floating charge dated 18 ^th December, 1998, and granted by the first named defendant in favour of National Irish Bank Limited over all of the property of the first named defendant whatsoever and wheresoever, both present and future, including its uncalled capital for the time being. Danske Bank is the successor to National Irish Bank Limited by virtue of a scheme approved by the Minister for Finance.

2 2. Pursuant to the floating charge it is alleged that facilities in excess of €8m were advanced to the first named defendant, and it is pursuant to this indebtedness that the plaintiff was appointed receiver.

3 3. The second named defendant contends, inter alia, that the floating charge was altered, amended or changed to suit the Bank but only after the appointment of the plaintiff as receiver. It is further alleged that the actual charge registered was a collateral stamped deed and not the original charge.

4 4. A preliminary issue arises because the second named defendant wishes to represent the first named defendant company on the basis that he is a director and principal shareholder of the first named defendant, but accepting that he is not a solicitor or a barrister instructed by a solicitor. The second named defendant contends that the probity of the Bank is in question and the company is at risk if it has no representation to highlight material facts, and that if the company is not represented it cannot rebut the validity of the appointment of the receiver and the company will lose by default. Neither the company or Martin McCaughey have sufficient funds to retain lawyers to represent the company in the situation that has arisen.

5 5. The second named defendant in his submission raises the position as set forth in Battle v. Irish Art Promotion Centre [1968] I.R. 252, wherein Ó Dálaigh C.J. refused an appeal by a company director who was also majority shareholder for liberty to conduct the defence of the company. In the High Court the company was represented by legal counsel. However, the director applied ex parte to the President of the High Court for liberty to conduct the defence of the company on its behalf at the plenary hearing. The director appealed the High Court's refusal to the Supreme Court and argued that the company did not have sufficient assets to engage legal counsel for the hearing. In refusing the appeal the court held:-

"The creation of the company is the act of its subscribers; the subscribers, in discarding their own persona of the company, doubtless did so for the advantages which incorporation offers to traders. In seeking incorporation they thereby lose the right of audience which they would have as individuals; but the choice has been their own. one sympathises with the purpose which the appellant has in mind, to wit, to safeguard his business reputation; but, as the law stands, he cannot as major shareholder and managing director now substitute his persona for that of the company. The only practical course open to him would, it appears, be for him personally to put the company in funds for the purpose of presenting its defence."

6 6. The first named defendant refers in submissions to a 2010 case Secretary of State for Business, Enterprise and Regulatory Reform v. UK Bankruptcy Limited. The second named defendant refers to three particular paragraphs as follows:-

" Opinion of Lord Hodge"

30. In relation to the first issue, I consider that in exceptional circumstances it may be necessary for the court to ensure a fair hearing to allow a director or other representative appear on behalf of a company, for example, to defend its interests against a winding up application which might result in its dissolution. But the circumstances in which that will be necessary will be very severely circumscribed both because those who trade through registered companies must accept the disadvantages of doing so as well as the benefits and also because the court is entitled to regulate its procedure to ensure that unqualified persons do no misuse its processes or cause avoidable delay. Where a company is pursuing a claim in the ordinary course of business or where the company has sufficient funds to pay for legal representation, it does not appear to me that the requirement of legal representation would breach Article 6.

31. Thus, turning to the second issue, where a company has insufficient funds to employ lawyers to oppose an application to wind it up, a question of the fairness of the proceedings might arise if the court were not to allow the company's position not be articulated by a representative, subject to suitable safeguards to prevent delay, the raising of irrelevant issues or unreasonable behaviour. There may be other occasions when this question of fairness would arise. Those occasions might include analogous insolvency proceedings, such as an application for an administration order, and a hearing in relation to diligence on the dependence of an action."

7 7. The second named defendant submits that there is a practice in the small claims court in Ireland permitting representation of limited liability companies by officers of the company, and that there are a number of unreported cases where directors have been allowed to represent companies.

8 The second named defendant submits that the current position is that the company does not have sufficient funds to engage a team of lawyers and is doomed to a fate of being dissolved if not allowed to be represented by an officer of the company. Further, it is contended that this is an exceptional set of circumstances and the second named defendant believes it is necessary for the court in order to ensure a fair hearing to allow a director or other representative to appear on behalf of the company and to defend its interests against a receiver being appointed, which might result in the company's dissolution.

9 9. In reply counsel for the plaintiff contends that as appears from Battle, the court expresses the view that the only course open to a company director in this scenario, is to personally put funds into the company in order to allow it to fund litigation. Mr. McCaughey states that he attempted to engage previous solicitors who acted for the company but they refused to act in circumstances where the company had failed to discharge previous invoices. Clearly, it is open to Mr. McCaughey to rectify this situation by discharging the outstanding...