Re Cedarlease Ltd

• Jurisdiction: Ireland
• Judge: MR. JUSTICE T.C. SMYTH
• Judgment Date: 27 February 2007
• Neutral Citation: [2007] IEHC 69
• Court: High Court
• Docket Number: [2005 No. 23 COS],RECORD No: 2005/1528P
• Date: 27 February 2007

[2007] IEHC 69

THE HIGH COURT

DUBLIN

RECORD No: 2005/1528P

EARL v CREMIN

IN THE MATTER OF THE COMPANIES ACT 1963 -2003

BETWEEN

DEREK EARL, LIQUIDATOR FOR CEDARLEASE LIMITED, IN LIQUIDATION

Plaintiff

-V-

PATRICK CORNELIUS CREMIN, ALEX CREMIN, JOHN SINCLAIR WILLIAMS, JUSTIN SINCLAIR WILLIAMS AND GARETH SINCLAIR WILLIAMS

And by Order

McLEAN & APPLETON (HOLDINGS) LIMITED AND ROBERT (OTHERWISE BOB) CLEMINSON

Defendants

COMPANIES ACTS 1963 TO 2003

COMPANIES ACT 1990 S27

COMPANIES ACT 1963 S298

COMPANIES ACT 1963 S297(a)

RSC O.74 r49

RSC O.74 r136

RSC O.124 r1

RSC O.70 r1

PRITCHARD (DECEASED), RE 1963 CH 502 1963 1 AER 873

CROKE v WATERFORD CRYSTAL LTD & IRISH PENSIONS TRUST LTD 2005 2 IR 383 2005 1 ILRM 321 2004 11 2418

RSC O.70 r68(UK)

MEARES v CONNOLLY 1930 IR 333

BANK OF IRELAND v LADY LISA (IRL) LTD 192 1 IR 404 1993 ILRM 235 1992 5 1414

O'DONNELL v DUN LAOGHAIRE CORPORATION (NO 2) 1991 ILRM 301

RSC O.84 r21

CONTRACT CORPORATION, RE GOOCH'S CASE 1872 8 CH APP 266

ADAMS v DPP & ORS 2001 2 ILRM 401 2000 1 52

TIMBERLAND LTD, RE 1979 4 ACLR 259

CAVERN SYSTEMS LTD v CLONTARF RESIDENTS ASSOCIATION 1984 ILRM 24

COMPANY LAW

Directors Reckless trading - Misfeasance - Proceedings instituted by plenary summons instead of notice of motion -Whether proceedings complied with the Rules - Distinction between nullity and irregularity - Whether prejudice to defendants - Discretion to strike out - McDonnell v Dun Laoghaire Corporation [1991] ILRM 301 applied; Re Prichard (deceased) [1963] Ch 502 considered; Meares v Connolly [1930] IR 333 and Bank of Ireland v Lady Leesa (Ireland) Ltd [1992] 1 IR 404 distinguished - Proceedings stayed and time limit set for plaintiff to provide information to defendants (2005/1528P - Smyth J - 27/2/2007) [2007] IEHC 69 - [2008] 1 ILRM 226 Earl v Cremin

The plaintiff instituted proceedings by way of Plenary Summons claiming declaratory relief against the defendants pursuant to sections 297(a) and 298 of the Companies Acts, 1963. However, under O.74 rules 49 and 136 RSC, such an application ought to have been brought by way of originating Notice of Motion supported by affidavits. Consequently, the defendants submitted that the proceedings were improperly constituted and should be struck out. The defendants alleged that the proceedings were a nullity or in the alternative were an irregularity and should be struck out due to the deliberate decision of the plaintiff to adopt the wrong procedure to the prejudice of the defendants.

Held by Smyth J.: That under O.74 r.49 and 136 the plaintiff's application was directed to be brought by way of originating Notice of Motion and no express provision was made for such relief to be sought by way of Plenary Summons. However, those rules provided direction and did not apply an exclusively mandatory procedure. Accordingly, it was permissible for these proceedings to have been instituted by way of Plenary Summons. The decision to proceed by way of summons was taken in order to prevent the claim from being barred by the Statute of Limitations. No injustice would be done to the defendants by the court ordering that these proceedings be stayed until the plaintiff provides to the defendants within a given limited time the documentation envisaged and provided for under O.74 rules 49 and 136 not already provided to them.

Reporter: L.O'S.

1 JUDGMENT OF MR. JUSTICE T.C. SMYTH DELIVERED ON TUESDAY, THE 27TH DAY OF FEBRUARY 2007

Introduction:

2 These proceedings were commenced by Plenary Summons issued on 29th April 2005. That Plenary Summons was amended on 1st June 2005 pursuant to an Order made by Mr. Justice Clarke on 31st May 2005 and again on 11th April 2006 pursuant to an order made by Ms. Justice Finlay Geoghegan on 7th April 2006. The effect of the amendments made on 1st June was to add the Sixth and Seventh Named Defendants to the proceedings whereas the effect of the amendments on 11th April 2006 was to abandon the claim for certain reliefs which had been advanced against the Defendants. A conditional appearance was entered on behalf of the 3rd, 4th, 5th and 6th Defendants on 12th May 2006 and 25th May 2006. The Plaintiff purported to serve a Statement of Claim and Notice For Directions returnable before the Court on 20th May 2006.

3 The Amended Plenary Summons served on the 3rd, 4th, 5th and 6th Defendants set out the following reliefs against them:-

4 a "(a) A declaration that the Third, Fourth and/or Fifth Named Defendant and/or the Sixth Named Defendant and/or Seventh Named Defendant are directors and shadow directors within the meaning of that term pursuant to Section 27 of that the Companies Act, 1990.

5 (b) A declaration that the Defendants (and/or each of them) were knowingly a party to the carrying on of business of Cedarlease Limited in a reckless manner.

6 (c) A declaration that the Defendants should be made personally liable without any limitation of liability for all or part of the debts of Cedarlease Limited.

7 (d) Damages for misfeasance pursuant to Section 298 of the Companies Act 1963, and

8 (e) (An order directing the Defendants and/or each of them) to a repair or restore the money or property or any part thereof respectively with interest at such rate, or pay compensation in respect of the breach of Section 298 as the court thinks just."

9 The Plaintiff effectively seeks relief in these proceedings against the Defendants pursuant to Sections 297(a) and 298 of the Companies Act, 1963.

10 However, under Order 74 rules 49 and 136 of the Rules of the Superior Courts, an application for relief pursuant to those sections ought to be brought by way of originating Notice of Motion supported by affidavit(s) rather than Plenary Summons. Accordingly, it was submitted by all the Defendants that these proceedings are improperly constituted and should be struck out on that basis.

11 In summary, the submissions of the Defendants are that the proceedings are a nullity, not having been issued in accordance with the Rules of the Superior Courts and that the Court has no power under Order 124 r.1 or otherwise to cure that nullity.

12 Alternatively, if the Court decides that the proceedings are irregular rather than a nullity, then it was submitted that the proceedings should be struck out because of the deliberate decision of the Plaintiff to adopt the wrong procedure, a decision which has prejudiced the Defendants.

13 I am satisfied and find as a fact, on a consideration of the case as a whole and on the submissions made in court, that as at the time the various applications were made concerning the summons neither Counsel, the Court Registrar or the particular Judge adverted to the specific provisions of the rules and that this was a matter of oversight, not a matter of deliberate choice to place the Defendants or any of them at a disadvantage. There was certainly no mala fides of any description in this regard.

Factual Background:

14 The First and Second Defendants were at all material times the Directors of Cedarlease Limited ("the Company"). All reliefs sought by the Plaintiff in these proceedings as against these Defendants are pursuant to Sections 297(a) and 298 of the Companies Act, 1963 in respect of alleged reckless trading and misfeasance respectively, and the relief sought against the Seventh Defendant is of the like character.

15 The Company was one which was established in order to implement a VAT avoidance scheme (the details of the background of the scheme are set out in a letter dated 10th June 2005 from Eugene F Collins, Solicitors, to Lennon Heather & Company, Solicitors, exhibited as part of "TL" of the affidavit of Terry Leggett of 12th June 2006). The details of this complex and elaborate scheme are set out in extenso at paragraphs 11-19 of the Statement of Claim of 25th May 2006.

16 The scheme was challenged by HM Custom & Excise and VAT assessments were raised by it which were not discharged. The gravamen of the Plaintiff's claim is that the Company allowed payments to be made to Brog Leasing Limited, another company which participated in the scheme in February and September 2000 in the combined sum of Stg£1,326,100 in circumstances where the Defendants knew or ought to have known of a possible liability on the part of the Company to pay value added tax to HM Customs & Excise.

17 It is common case that the instant proceedings were issued by Plenary Summons which issued on 29th April 2005 but which was not served on the First and Second Defendants' solicitors until about 18th April 2006, and other Defendants were not served when the summons issued either. It is equally clear from the documentation that the decision to institute proceedings by way of Plenary Summons was a conscious one, which was made in an attempt to stop time running under the Statute of Limitations. I am satisfied that such was the purpose of the issue of the summons, but I am equally satisfied that there was no intendment to disadvantage the Defendants or any of them by reason of choosing the issue of Plenary Summons rather than a Notice of Motion grounded upon affidavit. In my judgment proceedings sanctioned by the court in accordance with the exact terms of the rule would be proceedings that would have had the self same effect as inhibiting the effect of the Statute of Limitations.

18 I am satisfied on the facts as disclosed to me in this case that there was no improper motive in the withholding of serving of the proceedings until all the requisite evidence was available to the Plaintiff to issue and serve the Statement of Claim. Indeed, the very proprietary of this conduct by the Plaintiff is illustrated by their omitting from the Statement of Claim certain charges which presumably on the state of the evidence as they then knew it at the time they...