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O'Mahony v. Horgan [1995] IESC 6; [1995] 2 IR 411; [1996] 1 ILRM 161 (7th November, 1995)
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[1995] 2 IR 411,
[1996] 1 ILRM 161,
[1995] IESC 6
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O'Mahony v. Horgan [1995] IESC 6; [1995] 2 IR 411; [1996] 1 ILRM 161 (7th November, 1995)
Supreme
Court
In
the matter of John Horgan Livestock Limited (In liquidation), And in the matter
of the Companies Act,
1963
– 1990.
Val
O’Mahony
(Plaintiff)
v.
John
Horgan, James Horgan and Peter Horgan
(Defendants)
No.
219 of 1993
[7th
of November, 1995]
Hamilton
C.J.
1. The
applicant herein (hereinafter called “the liquidator”) is the
liquidator of John Horgan Livestock Limited (hereinafter called “the
company”).
2. The
respondents herein are and were directors of the company which had been
incorporated on the 13th February, 1973.
3. The
company’s objects were to carry on business as importers and exporters of
live cattle, pigs, sheep and horses, and as dealers in cattle, pigs, sheep and
horses generally and in all facets of such business.
4. An
order for the winding up of the company was made on the 11th November, 1991,
following the presentation of a petition by the Revenue Commissioners on foot
of a debt
of
£1,174,514.65
on
the 8th November, 1991.
5. On
that date by order of the High Court, the liquidator was appointed liquidator
of the company.
6. A
statement of affairs was filed in the High Court in March, 1992, showing an
estimated deficiency of £11,653,992.00.
7. On
the 18th June, 1993, the liquidator caused to be issued a notice of motion
which was served on each of the respondents named herein seeking against each
of the said respondents:-
(b) A
declaration pursuant to
s. 204 of the
Companies Act, 1990, declaring that the
respondents as directors of the company are in breach of
s. 202, sub-s. 10 of
the
Companies Act, 1990, and are personally liable without limitation of
liability for all, or such part as the court may specify, of the debts and
other liabilities of the company, by reason of the fact that the contravention
aforesaid of
s. 202, sub-s. 10 has contributed to the company’s inability
to pay all of its debts and/or has resulted in substantial uncertainty to the
assets and liabilities of the company and/or has substantially impeded the
orderly winding up thereof.
(c) A
declaration pursuant to
s. 297 or 297A of the
Companies Act, 1963 (as inserted
by s. 138 of the
Companies (Amendment) Act, 1990) declaring that the
respondents, as directors of the company will be personally responsible without
limitation of liability for any of the extra liabilities of the company or for
such part thereof as the court may direct or for such relief under
s. 139 of
the
Companies Act, 1990, as to the court shall seem meet.
8. Other
relief as sought in the notice of motion was claimed against the respondents.
9. The
grounds upon which such relief was sought are set forth in detail in the notice
of motion and the application was grounded on the affidavit of the liquidator
sworn on the 17th June, 1993, and the documents and correspondence therein
exhibited.
10. On
the 23rd June, 1993, the liquidator caused to be issued a notice of motion
claiming the following relief against the second respondent in the said
proceedings and the appellant herein:-
(1) An
interlocutory injunction restraining the second respondent from collecting or
receiving the sum of £71,000 with accrued interest representing monies
payable under a policy of insurance with Norwich Union and the subject matter
of proceedings entitled “The High Court, Record No. 1992 No. 5972P,
Between: James Horgan, Plaintiff, and Norwich Union Fire Insurance Society and
John Horgan Ltd. (in liquidation), Defendants”.
(2) Alternatively,
an interlocutory injunction restraining the second respondent from disposing of
or dissipating or charging the said sum of £71,000 with accrued interest
thereon.
11. This
application was grounded on the proceedings already referred to, the affidavit
of the liquidator and one Tom Tobin.
12. By
order dated the 28th June, 1993, the learned trial judge, Murphy J., ordered:-
“That
the second respondent, Jim Horgan, be restrained pending trial of this action
or further order in the meantime from disposing of or dissipating or charging
the sum of £71,000 with accrued interest thereon representing monies
payable under a policy of insurance with Norwich Union Fire Insurance Society
and the subject matter of proceedings between James Horgan, plaintiff, and
Norwich Union Fire Insurance Society and John Horgan Ltd. (in liquidation),
defendants, and granted liberty to the said respondent to apply for the removal
or variation of this order if and when so advised and on giving not less than
14 days notice to the claimant of any intention to so apply.”
13. Counsel’s
note of the ex-tempore judgment delivered by the learned trial judge was
adopted by him as a proper transcript of the judgment herein.
14. In
the course of this judgment he stated:
“Mr.
O’Mahony, in his affidavit, avers to a significant list of wrongdoings,
in particular, the failure to keep proper or adequate records. On the financial
side, he states that he estimates the deficiency at £11.6 million and he
expresses the view that loans to directors amount to £2.4 million and
after certain payments the balance due on foot of these loans is £1.9 m.
There are a number of other matters queried. But for all of the detail in this
affidavit, the crucial topic is dealt with in paragraph 47 where Mr.
O’Mahony avers as follows:-
I
am naturally concerned, having regard to the manner in which the affairs of the
company were conducted, to ensure that the said sum of £71,000 should be
available to meet any decree which may be made in favour of the company in
liquidation against the second respondent and apprehensive that in the absence
of such order the said sums will not be available.”
15. In
the course of his judgment the learned trial judge set forth the criteria to be
taken into account in considering whether an injunction of the type sought,
generally known as a
Mareva
injunction,
should be granted and listed them as follows:-
“1.
The plaintiff should make full and frank disclosure of all matters in his
knowledge which are material for the judge to know.
2. The
plaintiff should give particulars of his claims against the defendant, stating
the grounds of his claims and the amount thereof and fairly stating the points
made against it by the defendant.
3. The
plaintiff should give some grounds for believing that the defendant had assets
within the jurisdiction. The existence of a bank account is normally sufficient.
4. The
plaintiff should give some grounds for believing that there is a risk of the
assets being removed or dissipated.
5. The
plaintiff must give an undertaking in damages, in case he fails.”
16. It
appears from his judgment that the learned trial judge was satisfied that the
criteria set forth at 1, 2 and 3 had been met by the liquidator.
17. He
then went on to say that:-
“The
real issue is whether the plaintiff has given any grounds for believing that
there is any risk of dissipation. All the plaintiff has said is that he is
apprehensive in this regard. That is a far cry undoubtedly from evidence of
conscious abuse.”
18. He
then went on to deal with the question of an undertaking and stated:-
“Mr.
O’Mahony has, perhaps surprisingly, agreed to do that because his
personal liability will be indemnified by the Revenue Commissioners. I have
stressed the infirmities in the plaintiff’s application. Counsel for the
respondent has analyzed still further the weaknesses and contradictions but
without providing any affidavit in reply. It seems to me that it must be
recognised that the respondent, having been given notice and having been
afforded an opportunity to adjourn the matter, declined an invitation to put in
such an affidavit The respondent resists the applications on the basis of
submission. On the face of it, there is reason for considerable concern as to
the manner in which the respondents carried on the business of the company. One
may criticise the lack of detail given by Mr. O’Mahony in relation to the
allegation. His computation of the directors’ indebtedness to the company
may be criticised, but that criticism would be entertained more readily if
there was a denial on affidavit. No direct evidence is given that monies would
be dissipated, but in the context of the sums involved and the parties’
obligations to the banks, the concern of the official liquidator has not been
shown to be displaced. On the overall complexities of the matter, the
probabilities that monies will cease to be retained is likely. It seems to me
that the injunction should be granted in the specific circumstances of the
case. The undertaking as to damages, however, should be limited to
£25,000.00.”
19. The
appellant has appealed to this Court on a number of grounds which can be
summarised as follows:-
20. The
learned trial judge erred in fact and in law in:
(a) holding
that the respondent had made out a good arguable case against the appellant and
in finding that the respondent had made a full and frank disclosure of all
matters in his knowledge which it was material for the learned High Court Judge
to know;
(b) failing
to have sufficient regard to the test to be applied with regard to the
dissipation of assets, in particular the failure to give grounds supported by
evidence for believing that there is a risk of the assets being removed or
dissipated with a view to avoiding payment of any monies which might ultimately
be found owing;
(c) limiting
the respondent’s undertaking as to damages to the sum of £25,000 in
advance of any enquiry as to damages which might ultimately be directed by the
court.”
21. Before
dealing with these grounds of appeal however, it is desirable to set forth the
principles underlying the grant of
Mareva
injunctions.
22. The
common law, traditionally, expressed the principle that the plaintiff is not
entitled to require from the defendant, in advance of judgment, security to
guarantee satisfaction of a judgment that the plaintiff may eventually obtain.
23. This
position was altered in the United Kingdom by two decisions of the Court of
Appeal in 1975,
viz.
Nippon Yusen Kaisha v. Karagerogis
[1975]
1 W.L.R. 1093 and
Mareva
Compania Naviera SA v. International Bulkcarriers SA
[1980]
1 All E.R. 213.
24. These
cases involved claims for damages arising from shipping contracts brought
against foreign defendants. In both, the plaintiffs obtained orders
(ex-parte)
restraining
the defendants from removing their funds out of the jurisdiction pending the
adjudication of the actions.
25. Injunctions
of this type became known as
Mareva
injunctions.
A Mareva injunction is an
ad
personam
order,
restraining the defendant from dealing with assets in which the plaintiff
claims no right whatsoever. A Mareva order does not give the plaintiff any
precedence over other creditors with respect to the frozen assets.
26. Because
of the draconian nature of such orders, Lord Denning in
Third
Chandris Shipping Corporation v. Unimarine SA
[1979]
Q.B. 645
at
pp. 668-669, laid down the five criteria to be established before such
injunctions are granted which are the criteria set forth in the learned trial
judge’s judgment.
In
Z
Ltd. v. A-Z and AA-LL
[1982]
1 Q.B. 558, Kerr L.J., in the course of his judgment, stated his view as to the
circumstances in which a
Mareva
injunction
should be granted in the following terms at p. 585:-
“It
follows that in my view Mareva injunctions should be granted, but granted only,
when it appears to the court that there is a combination of two circumstances.
First, when it appears likely that the plaintiff will recover judgment against
the defendant for a certain or approximate sum. Secondly, when there are also
reasons to believe that the defendant has assets within the jurisdiction to
meet the judgment, in whole or in part, but may well take steps designed to
ensure that these are no longer available or traceable when judgment is given
against him.”
27. Consequently
a
Mareva
injunction
will only be granted if there is a combination of two circumstances established
by the plaintiff i.e. (i) that he has an arguable case that he will succeed in
the action, and (ii) the anticipated disposal of a defendant’s assets is
for the purpose of preventing a plaintiff from recovering damages and not
merely for the purpose of carrying on a business or discharging lawful debts.
28. In
the course of his judgment in
Fleming
and ors. v. Ranks (Ireland) Ltd. and anor.
[1983] I.L.R.M. 541, the late Mr. Justice McWilliam stated at p. 546 of the
report:-
“I
am satisfied that there is jurisdiction to grant such an injunction • . .
From the cases cited I would accept that there must be a real risk of the
removal or disposal of the defendant’s assets, that there must be a
danger of default by the defendant, that the plaintiff must show that he has a
good arguable case, and, weighing the considerations for and against the grant
of an injunction, the balance of convenience must be in favour of granting it.
See
Barclay-Johnson
v. Yuill
[1980]1 W.L.R. 1259 at page 1265.”
29. With
regard to the facts in the
Ranks
case,
he stated:-
“Although
a special account has been opened by Ranks for the sums to which the plaintiffs
are entitled under the Redundancy Acts, it appears to me that, if damages are
awarded to the plaintiffs on the basis of their claims, there is a danger of
default by Ranks through inability to pay the amounts of the awards. But I am
of opinion that, to justify such an injunction, the anticipated disposal of a
defendant’s assets must be for the purpose of preventing a plaintiff from
recovering damages and not merely for the purpose of carrying on a business or
discharging lawful debts.”
30. At
the end of p. 546, he went on to say:-
“I
would accept as correct the statement of Sir Robert Megarry, V.C., at p. 1266
of the
Barclay-Johnson
case
([1980] 1 W.L.R.
1259)
where
he said - ‘I would regard the
Lister
principle
as remaining the rule, and the Mareva doctrine as constituting a limited
exception to it’. ‘The Lister rule’ refers to the case of
Lister
and Co. v. Stubbs
mentioned
above, (
(1890) 45 ChD 1 C.A.) and is that the court will not grant an
injunction to restrain a defendant from parting with his assets so that they
may be preserved in case the plaintiff’s claim succeeds.”
In
Polly
Peck International Plc. v. Nadir
[1991] 4 All E.R. 769 both the Master of the Rolls and Scott L.J., stressed
that such relief is not intended to give security in advance of judgment but
merely to prevent the defendant from defeating the plaintiff’s chance of
recovery by dissipation of assets.
31. Consequently,
the cases establish that there must be an intention on the part of the
defendant to dispose of his assets with a view to evading his obligation to the
plaintiff and to frustrate the anticipated order of the court. It is not
sufficient to establish that the assets are likely to be dissipated in the
ordinary course of business or in the payment of lawful debts.
32. Has
the liquidator in the instant case adduced evidence to show, or to entitle the
learned trial judge to infer, that the appellant is likely to dissipate the
asset referred to,
viz,
the
proceeds of an insurance policy, with the intention of evading his obligation
(if any) to the liquidator?
33. In
his affidavit sworn on the 17th June, 1993, he states at para. 47 (a) thereof
that:-
“I
am naturally concerned, having regard to the manner in which the affairs of the
company were conducted to ensure that the said sum of £71,000 should be
available to meet any decree which may be made in favour of the company in
liquidation against the second respondent, and apprehensive that in the absence
of such an order the said sum will not be available.”
34. His
apprehension may well be justified but he does not state or allege that the
appellant would dissipate the asset with the intention of frustrating any order
of the court that may be made.
35. The
learned trial judge himself stated:-
36. “All
the plaintiff has said is that he is apprehensive in this regard. That is a far
cry undoubtedly from evidence of conscious abuse” and “No direct
evidence is given that monies would be dissipated, but in the context of the
sums involved and the parties’ obligations to the banks, the concern of
the official liquidator has not been shown to be misplaced.”
37. As
appears from his affidavit, the liquidator’s concern was to ensure that
the said sum of £71,000 should be available to meet any decree which might
be made in favour of the company in liquidation.
38. The
learned trial judge does not appear to have considered the question whether the
apprehended dissipation of the asset was for the purpose of evading any decree
that might be made in the proceedings.
39. Before
being entitled to the relief sought by him, the liquidator must establish that
there was a likelihood that the assets would be dissipated with the intention
that they would not be available to meet any decree or part of a decree
ultimately made against the appellant in the proceedings.
40. In
my view, no such intention was established in this case. The entitlement of the
appellant to the proceeds of the policy of insurance issued by the Norwich
Union Fire Insurance Society arose because of a fire on the appellant’s
property which destroyed a shed thereon.
41. While
the use of such proceeds to replace the shed, or in the ordinary course of his
business as a farmer, or to pay his lawful debts, would mean that such asset
would not be available to meet any decree which the liquidator might obtain
against the appellant, that fact does not entitle the liquidator to the
injunction sought. He must further establish that such utilisation of the asset
was made with the intention of evading payment to the liquidator.
42. As
no such intention was established in this case, the appellant’s appeal
must be allowed on this ground.
43. Being
of this view, it is not necessary for me to consider whether or not the learned
trial judge was entitled to place a limit of £25,000 on the undertaking
required to be given by the liquidator and I will reserve for future
consideration the powers of the court in this regard should it arise in the
future. I incline however to the views in this regard expressed in the judgment
about to be delivered by Mr. Justice O’Flaherty.
O’Flaherty
J.
44. I
agree with the judgment of the Chief Justice that the order of the High Court
should be reversed and the appeal allowed.
45. I
wish to add some brief comments only. The absence of any remedy for a creditor
against a debtor who was prepared to depart the country or dissipate his assets
in defiance of the creditor’s rights was a serious defect in our law
twenty years or so ago. Practitioners had been very conscious of the injustices
that were often perpetrated because no remedy had been developed to meet this
situation.
46. At
around the same time as the first applications were brought before the Court of
Appeal in England
(Nippon
Yusen Kaisha v. Karageorgis
[1975]
1 W.L.R. 1093 and
Mareva
Compania Naviera SA v. International Bulkcarriers SA
[1980]1
All E.R. 213) the same remedy was allowed in our courts by the invocation of s.
28, sub-s. 8A of the Judicature Act (Ireland), 1877, which provides:-
“A
mandamus or an injunction may by granted or a receiver appointed by an
interlocutory order of the court in all cases in which it shall appear to the
court to be just or convenient that such order should be made, and any such
order may be made either unconditionally or upon such terms and conditions as
the court shall think just; and if an injunction is asked, either before, or
at, or after the hearing or any cause of matter, to prevent any threatened or
apprehended waste or trespass, such injunction may be granted if the court
shall think fit, whether the person against whom such injunction is sought is
or is not in possession under any claim of title or otherwise, or (if out of
possession) does or does not claim a right to do the act sought to be
restrained under any colour of title, and whether the estates claimed by both
or by either of the parties are legal or equitable.”
47. In
its original manifestation, the remedy was used in clear cases where a debt was
established and the debtor was about to abscond or to dissipate his assets.
48. As
the jurisdiction has developed, it appears now to be sufficient to establish
that the plaintiff has a good arguable case and for a diverse series of cases.
I would have preferred that the remedy should have been confined to situations
where there was a clear case involving a claim for a definite sum of money or,
otherwise, for some tangible object – where the claim was more or less
certain, in so far as there is ever certainty in any litigation. It may now be
too late to put that particular clock back.
49. Nonetheless,
it needs to be emphasised that the
Mareva
injunction
is a very powerful remedy which if improperly invoked will bring about an
injustice, something that it was designed to prevent. It may put a person or a
company out of business. It may contribute to delay in bringing litigation to a
head. It may be used as a diversionary tactic and be a part of the skirmishes
that increasingly occur in much litigation. It may – as is the case here
– take on a life of its own while the main litigation is becalmed. I
glean that a sense of urgency is not affecting the main litigation and will not
do so while this sideshow is running.
50. Further,
on the facts of this case, the remedy is neither appropriate nor relevant. The
amount that it is sought to freeze is but a tiny fraction of the millions of
pounds that it is said are involved in the main action. It has to be reiterated
that the
Mareva
remedy
is to protect assets that may be dissipated in which case the judgment that the
plaintiff gets will go unsatisfied. A
Mareva
injunction
is not appropriate to enforce a claim to the assets themselves.
51. Since
the assets in question here are of little or no relevance to the amount at
stake – which runs into many millions of pounds – aside altogether
from the fact that the case in regard to dissipation of assets has not been
made out even to a
prima
facie
extent
– there is not here a situation where
Mareva
relief
should be granted.
52. As
regards the undertaking as to damages, I know of no case where a limit has been
put on the amount that may be required to be paid, if it is held that the
injunction was improperly obtained, nor do I think it right in principle that
such a limit should be placed in view of the far-reaching implications involved
in any restraint that is imposed on a party by reason of such an injunction
prior to judgment.
Blayney
J.
53. I
agree with both judgments.
© 1995 Irish Supreme Court