THE COURT OF APPEAL
Neutral Citation Number: [2019] IECA 186
Appeal No. 2017/368
Whelan J Baker J. Costello J.
IN THE MATTER OF THE COMPANIES ACT 1963-2009
AND IN THE MATTER OF ETEAMS (INTERNATIONAL) LIMITED (IN VOLUNTARY LIQUIDATION)
AND IN THE MATTER OF SECTION 280 OF THE COMPANIES ACT, 1963
BETWEEN
BY ORDER THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
-AND-
BY ORDER ETEAMS (INTERNATIONAL) LIMITED (IN VOLUNTARY LIQUIDATION)
(NO. 2)
JUDGMENT of Ms. Justice Baker delivered on the 4th day of July 2019
1. This judgment is supplemental to a judgment delivered on 14 May 2019, The Governor and Company of The Bank of Ireland v. Eteams (International) Ltd. (In Voluntary Liquidation) [2019] IECA 145 which dismissed the appeal of the appellant, Eteams (International) Limited (hereinafter and in the principal judgment referred to as "the Company"). The appeal raised a question concerning the proper characterisation of a debt sale agreement made between the Company and the respondent in the appeal, Bank of Ireland. The application commenced by originating motion brought by the Company of which Anthony Fitzpatrick was appointed liquidator on 27 March 2013. The matter was determined following the delivery of a written judgment by Keane J. on 15 June 2017.
2. The appeal having been dismissed, no real opposition was made by counsel for the Company regarding the identification of the "event" for the purposes of O. 99 of the Rules of the Superior Courts ("RSC"), and to the application that the costs of the appeal be awarded to Bank of Ireland against the Company.
3. However, Bank of Ireland has sought that the costs order be made against the liquidator personally and it is in regard to that application that this ruling is directed.
4. The primary argument made by Bank of Ireland is that the proceedings were not correctly constituted as the application for directions under the then relevant s. 280 of the Companies Act 1963 ("the 1963 Act") ought properly to have named the liquidator, and not the Company, as applicant. Counsel for Bank of Ireland argues, in those circumstances, that the correct approach to the question of costs is that it is to be assumed that the proceedings had been commenced by the liquidator.
5. Section 280(1) of the 1963 Act identifies the nature of an application for directions:
"The liquidator or any contributory or creditor may apply to the court to determine any question arising in the winding up of a company".
6. That an application for directions is to be brought in the name of the liquidator was considered by the Court of Appeal recently in Tucon Process Installations Ltd. (in Voluntary Liquidation) v. The Governor and Company of The Bank of Ireland [2016] IECA 211, per Costello J., affirming the judgment of Hunt J., Tucon Process Installations Ltd. (in Voluntary Liquidation) v. The Governor and Company of The Bank of Ireland [2015] IEHC 312.
7. Both Costello J. and Hunt J. relied on the decision of the Supreme Court in Southern Mineral Oil Ltd. (in Liquidation) v. Cooney [1997] 3 IR 549 and the observation of Lynch J., at pp. 568 and 569:
"None of these statutes provide that the application may be brought by the company in receivership or examinership or liquidation. They provide that the application shall be brought by the receiver or examiner or liquidator, as the case may be, and in all cases the application may also be brought by any creditor or contributory of the company in question. Nor do the provisions of O. 74, r. 49 of the Rules of the Superior Courts lend any support to bringing the application in the name of the company in receivership, examinership or liquidation.
The Revenue Commissioners are the real applicants in the proceedings brought against the respondents by the notice of motion dated the 18th August, 1994. In these circumstances it seems to me that it is wrong that they should be enabled to shelter against liability for the respondents' costs if the respondents succeed in the substantive trial of the motion by bringing the proceedings in the names of the two companies who have no assets. On my reading of ss. 297 and 298 of the Companies Act, 1963, under which these proceedings are brought neither the Revenue Commissioners nor the liquidator is entitled to bring them in the name of the companies."
8. Costello J. found the reasoning of Lynch J. in Southern Mineral Oil Ltd. (in Liquidation) v. Cooney to be compelling, although she noted that it was not binding on the Court as it did not involve a construction of s. 280(1) of the 1963 Act. She determined, in that appeal, that the company in liquidation did not have standing to bring an application under s. 139 of the Companies Act 1990 and her reasoning is equally applicable to an application for directions under s. 280 of the 1963 Act.
9. In the light of those decisions and, in particular, the rationale for the approach of the Supreme Court explained by Lynch J. in Southern Mineral Oil Ltd. (in Liquidation) v. Cooney , I consider that counsel for Bank of Ireland is correct and that, as the application for directions is one that may be brought only by a liquidator, creditor, or contributor of a company in liquidation, and not by that company itself, it follows that an application for costs is to be treated on the basis that a liquidator is not to be entitled to immunity from a personal costs order by having improperly constituted the application in the company's name rather than in his own personal name.
10. On account of the statutory provisions and the interpretation of the standing requirements derived therefrom by the Supreme Court and the recent judgment of the Court of Appeal in Tucon Process Installations Ltd. (in Voluntary Liquidation) v. The Governor and Company of The Bank of Ireland , the fact that the proceedings were commenced in the name of the Company in liquidation, and, in the somewhat unusual circumstances in the present case, continued against the Company in liquidation following directions by the High Court, does not preclude the making of an order that the liquidator be held personally liable for costs in the event that the appeal failed, as it did.
11. Counsel for Bank of Ireland relies also on the recent judgment of the Supreme Court in Moorview Development Ltd. v. First Active Plc . [2018] IESC 33. The Supreme Court was hearing an appeal from a decision of Clarke J. by which he made an order that the costs incurred by First Active in defending an action brought by the plaintiff companies be paid by a shareholder and director who had funded and directed the litigation. McKechnie J. delivered the judgment of the Court rejecting the appeal and, at para. 125, set out the factors which should be taken into account when making an order of this type, although he did make the observation that the factors should not be "unduly prescriptive", as the discretion of the judge in the determination of whether costs should lie against a non-party is to be exercised in the overall assessment:
"a. The extent to which it might have been reasonable to think that the company could meet any costs if it failed
b. The degree to which the non-party would benefit from the litigation if successful, including whether it had a direct personal financial interest in the result
c. The extent to which the non-party was the initiator, funder and/or controller of, and moving party behind, the litigation
d. Any factors which may touch on whether the proceedings were pursued reasonably and in a reasonable fashion; the required assessment of the conduct of the proceedings may of course lean either in favour of or against the making of the order sought
e. There is no requirement that there be a finding of bad faith, impropriety or fraud, though of course the same, if present, will support the ordering of costs against the non-party
f. Whether the non-party was on notice of the intention to apply for a non-party costs order; at what point in the litigation such notice was communicated will also be a relevant consideration, as will the extent of the notice so provided
A further consideration to take into account, though rarely likely to be decisive in and of itself, will be:
g. Whether the successful party applied for security for costs in advance of the trial
Finally, and most importantly:
h. The Court's discretion is a wide one, but it must be exercised judicially and, in all the circumstances, must give rise to a just result."
12. It is argued that the liquidator must be seen to have initiated and controlled the application in the sense explained by McKechnie J. As Mr Fitzpatrick swore the affidavit grounding the application and was the only person competent to prosecute the application, albeit he did so wrongly in the name of the Company, that proposition seems to me to be correct. That is not, however, to say that the liquidator is to be merely on that account to be considered as having a direct personal financial interest in the result, one factor that might influence the exercise of discretion identified by McKechnie J. in Moorview Development Ltd. v. First Active Plc . In a strict sense, the liquidator of an insolvent company who brings an application for directions in his personal name is exposed to the costs of the proceedings, but has a right to be indemnified out of the assets in the winding-up, and, having regard to the statutory preference given to the costs of the liquidator, in many cases, the liquidator will, in fact, recover those costs from the company's assets.
13. What is known of the financial state of the Company in the present case is that it is insolvent, but the extent of the insolvency and whether any assets are available to meet the costs of the liquidator, should he be held personally liable to meet those costs, is unclear. In the absence of such evidence, I do not believe it is safe for me to conclude that Mr Fitzpatrick will financially benefit from the appeal, and that argument does not bear on my considerations.
14. For that reason, I consider that the decision of the Supreme Court in Moorview Development Ltd. v. First Active Plc. [2018] IESC 33 does not offer any guidance as in that case the Court was considering the proper approach to the question of awarding costs against a "professional funder" with a connection to the litigation.
15. It seems to me further that Mr Fitzpatrick is not, in the true sense, a "non-party", as was the 50% shareholder and director of the insolvent company, whom Gilligan J. refused to join as a defendant for the purpose of seeking costs in Used Car Importers of Ireland Ltd. v. Minister for Finance [2014] IEHC 256. Mr Fitzpatrick is not to be treated as an outsider, as had the proceedings, and later the appeal, been commenced or prosecuted in the correct manner and in accordance with the statutory provisions, he would have been the named applicant.
16. Counsel for Bank of Ireland also argues that the appeal was devoid of merit, was not reasonably made in light of the case law in other jurisdictions, no express clause in the agreement supported the argument advanced before the High Court and on appeal, and the judgment of the High Court was upheld on all grounds. Having regard to the fact, which was noted in the principal judgment and by Keane J. in the High Court, that there was no Irish authority directly on point, I do not consider that the decision to appeal is to be regarded as frivolous or unjustifiable in that sense.
17. My reluctance to rely on that ground stems from first principle, and the constitutional and common law right of access to the courts and the right to appeal should not be constrained by an approach to a costs application which takes as a point of departure an argument that a decision to appeal was unmeritorious. The provisions of O. 99 RSC adequately provide for the general principle that costs follow the "event", and that principle is sufficient to satisfy the requirements of justice that the losing party should pay.
18. I am also not persuaded that the decision regarding costs is to made on an assumption, which was never established, that the liquidator may not have consulted the creditors or the company before embarking on the litigation, or on in coming to the decision to appeal, or on the basis that the litigation, and especially the appeal, was not in the interest of the body of creditors as a whole. In the light of the view that I take that had the proceedings been properly constituted, Mr Fitzpatrick would have been a named applicant, it is not necessary to deal with the matter on that basis.
19. In conclusion, I consider that the question of the costs of the appeal is to be dealt with on the basis that, as the provisions of s. 280 of the 1963 Act, which establishes the jurisdictional basis on which the application for directions is brought, could have been properly commenced only by the liquidator in his personal capacity, the liquidator was in truth the correct party in the proceedings and to the appeal and ought to have been named as such, and was therefore as a matter of jurisdiction, the appellant who was unsuccessful in the appeal.
20. I would award the costs of the appeal against Mr Fitzpatrick personally on that basis.
