McMahon v Larkin
| Jurisdiction | Ireland |
| Judge | Mr. Justice David Keane |
| Judgment Date | 11 August 2016 |
| Neutral Citation | [2016] IEHC 496 |
| Court | High Court |
| Docket Number | [2015 No. 98 COS] |
| Date | 11 August 2016 |
[2016] IEHC 496
THE HIGH COURT
Keane J.
[2015 No. 98 COS]
IN THE MATTER OF PAURAIC LARKIN AND ASSOCIATES LIMITED
(IN VOLUNTARY LIQUIDATION)
AND IN THE MATTER OF THE COMPANIES ACT 1963 – 2013
AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT 1990
AND IN THE MATTER OF SECTION 56 OF THE COMPANY LAW ENFORCMENT ACT 2001
AND
Practice & Procedures – Award of costs – S. 150 of the Companies Act 1990 – Whether costs should be awarded on a restriction declaration application – Identification of event.
Facts: The applicant/liquidator had filed the present application seeking costs on behalf of the second named respondent though the applicant contended that the Court should make no order for costs. The second named respondent contended that she was entitled for costs as the application filed against her by the liquidator for a declaration of restriction of directorship under s. 150 of the Companies Act 1990 was unsuccessful.
Mr. Justice David Keane made no order for costs. The Court, in conformity with the judgment of Finlay Geoghegan J. in McCarthy v Gibbons (Kranks Corner Ltd) [2009] IEHC 423, held that the Court should not tempt to award costs to a successful respondent under s. 150 of the Act of 1990 as such an application was neither a claim nor a counter-claim. The Court found that there had been unnecessary delay in providing the relevant details by the second named respondent, which if provided timely, could have entirely avoided the bringing of the restriction application and for which it was not appropriate to hold the liquidator personally responsible.
This ruling concerns the costs of an unsuccessful application for a declaration of restriction under s. 150 of the Companies Act 1990 (‘the 1990 Act’) against the second named respondent, Ms Gorman.
In a judgment delivered on the 24th June 2016, I declined to make a declaration of restriction against Ms Gorman on the ground that I could not be satisfied, on the balance of probabilities, that she was a director of Pauraic Larkin and Associates (‘the company’) within 12 months prior to the commencement of its winding up.
It was a close run decision. Ms Gorman relied upon a copy of a handwritten letter of resignation, dated the 19th December 2011, in circumstances where there was some doubt concerning whether the general meeting at which the members of the company resolved to wind up the company took place on the 18th or the 19th December 2012. Resolving that doubt in favour of Ms Gorman, I concluded that I could not be satisfied that the resolution had been passed prior to the 19th December 2012 and, in consequence, that Ms. Gorman's resignation had not taken effect on the day prior to the first day of the 12 month period prescribed under s. 149 of the 1990 Act. This meant that, by the narrowest of margins, the liquidator had failed to prove that Ms Gorman was a person to whom, under the provisions of s. 149 of the 1990 Act, Chapter 1 of Part VII of the 1990 Act (on the restriction of directors of insolvent companies) applies.
I pause here to note that Ms Gorman had not raised the point in the course of the application. The Court addressed it of its own motion. Ms Gorman had exhibited her letter of resignation in support of the quite different argument that, since she had taken up a directorship of the company in or about 2007 on the basis of advice that this was solely to enable the company to comply with a legal requirement that it have two directors; since she had not had any involvement whatsoever in the affairs of the company save to sign the company's accounts when requested to do so; and since she had played no part in the day to day running of the company and had, indeed, resigned in late 2011, she was entitled to rely on the defence under s. 150 (2) of the 1990 Act that she has acted honestly and responsibly in connection with the conduct of the company's affairs.
In light of my finding already described, it was not necessary to consider that argument. In the recent decision of the Court of Appeal in Director of Corporate Enforcement v Walsh [2016] IECA 2, which is of course binding upon this Court, the point is forcefully made that it would be contrary to the whole notion of proper corporate regulation that passive directors would be exonerated from liability or relieved from restriction on the basis of the passive nature of their role. To that point I would only add that it seems absurd to imagine, much less accept, that the blunt requirement of s. 174 of the Companies Act 1963 (‘the 1963 Act’) that “every company shall have at least two directors”, permits the appointment of a particular species of director who owes no duty or obligation to the company, its shareholders or creditors beyond that of facilitating or enabling pro forma compliance with the requirements of the Companies Acts.
Ms Gorman now applies for her costs of the unsuccessful application against her, whereas the company liquidator, Mr McMahon, who brought that application, submits that the Court should make no order for costs.
The principles that govern such applications are clearly established.
While it would be wrong to say that s. 150 of the 1990 Act, as amended, makes no provision as to costs, it is true to say that s. 150 (4B) directly deals only with the nature and scope of those costs orders that a Court can make against directors in respect of whom a declaration is granted. In Luby v McMahon (G.M.T. Engineering Services Ltd) [2003] 4 IR 133, Finlay Geoghegan J. held that, by necessary implication, the effect of that provision is that no order for costs can be made against any respondent in respect of whom a declaration is not granted.
But what of situations like this one, where a respondent in respect of whom a declaration is not granted seeks an order for her costs against the liquidator who brought the application?
In Murphy v Murphy (Visual Impact and Displays Ltd) [2003] 4 IR 451, Finlay Geoghegan J. held that the provisions of O. 99, r. 1 of the Rules of the Superior Courts (‘the RSC’) apply to such applications, that is to say, that the costs of the application are in the discretion of the Court.
In McCarthy v Gibbons (Kranks Corner Ltd) [2009] IEHC 423, Finlay Geoghegan J. expanded upon that analysis in concurring with the view expressed by O'Leary J. in Stafford v Beggs & Ors [2006] IEHC 258 that a restriction declaration application is neither a “claim” nor a “counterclaim” and, thus, does not attract the application of the usual rule under O. 99, r. 1(4) that costs should follow the event. As O'Leary J. pointed out, “[t]he liquidator is merely the presenter of the application not a claimant or party with any interest in the outcome either for himself or on behalf of the parties.”
Having concluded that, in dealing with the costs of an application under s. 150 of the 1990 Act, the Court should not start from the position that a respondent who makes out a defence under s. 150 (2) is entitled to the costs of the application against him or her, Finlay Geoghegan J. went on to express disagreement with any suggestion there might be in Stafford that there exists a “normal rule” to the converse effect i.e. that the court should start from a position that the “normal rule” is that a respondent against whom such an application fails is not entitled to his or her costs of that application. As Finlay Geoghegan J. went on to note, the true position is...
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