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Greendale Developments Ltd., Re [1997] IEHC 162 (28th October, 1997)

THE HIGH COURT

133 COS 1995

IN THE MATTER OF GREENDALE DEVELOPMENTS LIMITED (IN LIQUIDATION) AND

IN THE MATTER OF THE COMPANIES ACTS 1963 - 1990

Judgment of Miss Justice Laffoy delivered on the 28th day of July 1997

1. The Applicant in this application is Liam McQuaid ("the Liquidator"), the Official Liquidator of Greendale Developments Limited ("the Company"), which is being wound up by the Court. The Liquidator seeks to have an application which is pending before the Court heard in camera. In the substantive application, the Liquidator seeks directions in connection with the liquidation of the Company and, in particular, an Order pursuant to Section 231 of the Companies Act, 1963 granting him liberty to continue two plenary actions which were commenced by the Company before the winding up Order was made, one being an action against a bank and firm of chartered accountants and the other being an action against a firm of solicitors. The Act of 1963 does not confer any power on the Court to hear an application under Section 231 otherwise than in public. Not being satisfied that authority exists which permits the hearing of the substantive application in camera, I adapted the approach adopted by Murphy J. in In Re: Countyglen Plc [1995] 1 I.R. 220 and I directed that the Attorney General should come into the proceedings as legitimus contradictor to argue that the substantive application must be heard in public.

2. Subsection (1) of Section 231 empowers the liquidator in a winding up by the Court to do various acts with the sanction of the Court or of the committee of inspection, including the bringing or defending of any action or other legal proceedings in the name and on behalf of the company. Subsection (3) of Section 231 provides as follows:-

"The exercise by the liquidator in a winding up by the court of the powers conferred by this section shall be subject to the control of the court, and any creditor or contributory may apply to the Court in relation to any exercise or proposed exercise of any of those powers."

3. Counsel for the Liquidator has intimated that one creditor which is on notice of the substantive application does not object to leave to continue the proceedings being granted. Another creditor of the Company has filed an Affidavit in the substantive application strenuously objecting to the proceedings being continued. It is against this background that the preliminary issue as to whether the Liquidator's application to have the substantive application heard in camera must be considered.

4. Article 34.1 of the Constitution provides that justice shall be administered in court established by law by Judges appointed in the manner provided by the Constitution, and, save in such special and limited cases as may be prescribed by law, shall be administered in public. It is well settled that the effect of Article 34.1 of the Constitution is that justice must be administered in public in the absence of a statutory provision enacted or re-enacted or applied by a law enacted by the Oireachtas subsequent to the coming into force of the Constitution ( In Re: R. [1989] I.R. 126; Irish Press Plc -v- Ingersoll [1993] I.L.R.M. 747). The essential question which falls for consideration on this application is whether the making of a decision to grant or refuse leave to continue proceedings in the circumstances of the substantive application is an administration of justice.

5. On behalf of the Liquidator, Mr. Trainor submitted that such a decision is not an administration of justice, rather it is an administrative function which the Court performs in a compulsory winding up which is analogous to administrative functions which the Court performs in the administration of the estates of deceased persons and the exercise of jurisdiction over minors and wards of court. Moreover, it was submitted on behalf of the Liquidator that such a decision does not manifest any of the five features which were identified in McDonald -v- Bord na gCon [1965] I.R. 217 as being characteristic of the administration of justice. On the other hand, Mr. Clarke submitted on behalf of the Attorney General that all of the five characteristic features identified in McDonald -v- Bord na gCon are present in an adjudication under Section 231 in the circumstances which arise on the substantive application and that in dealing with the substantive application this Court will be administering justice.

6. I propose considering the arguments advanced in relation to each of the five features individually. These features are:-

(1) A dispute or controversy as to the existence of legal rights or a violation of the law.

7. In determining an application under Section 231, such as the application in the substantive application, it was submitted on behalf of the Liquidator, the Court arrives at an assessment of the appropriate course of action for the Liquidator to adopt having regard to certain variables, for example, the strength of the action which the Liquidator wishes to bring or continue as against the likely expense of the case and the level of costs to which the Company would be exposed if it were to lose the action. Such an assessment is not a dispute or controversy as to legal rights in the sense which that term is normally understood. The decision which the Court makes is no different in quality than that which the Board of Directors of a solvent company would make when determining whether to proceed with, or desist from, litigation.

8. Mr. Clarke argued that Section 231 itself recognises that the manner in which his powers may be exercised by a liquidator can have a serious effect on the rights of creditors and contributories. If the Court accedes to an application to continue proceedings and the liquidator loses the action and costs are awarded against him, the creditors will be worse off and their entitlement on distribution of the assets of the company may be significantly reduced. On the other hand, if the Court refuses to sanction the continuance of an action which would have been successful, the creditor who has urged that the action should proceed may end up with less on distribution than he would have received had on the action gone ahead. Mr. Clarke submitted that the combined effect of subsections (1) and (3) of Section 231 is to confer on a creditor or contributory a right to the best chance to optimum distribution. The test, in broad terms, it was suggested is whether the resolution of the matter results in the rights of one party being defined to his advantage while the rights of another party are defined to his disadvantage. That test is satisfied here, it was submitted, and there is a dispute or controversy which affects the legal rights of creditors and the resolution of that dispute will affect those legal rights.

(2) The determination or ascertainment of the rights of the parties or the imposition of liabilities or the infliction of a penalty.

9. It was argued on behalf of the Liquidator that the decision which will be made on the substantive application, whether to proceed with the litigation or not, is not one as to the rights of any parties. It is only indirectly that it has an affect on the rights of the creditors to the remaining assets of the Company but no actual determination of their rights is made.

10. Mr. Clarke submitted that there is a determination or ascertainment of rights - the rights of creditors who make opposing contentions.

(3) The final determination (subject to appeal) of legal rights or liabilities or the imposition of penalties.

11. It was submitted on behalf of the Liquidator that there is no final decision on an application such as the substantive application, in that there is no impediment to the Court reopening the matter at a future stage.

12. Mr. Clarke submitted that in the constitutional context "a final determination" does not imply such finality of process that the matter can never be revisited. On the contrary, he suggested that in this context "final determination" means a definitive settlement of the issue in the absence of some countervailing order of the Court.

13. In my view, the order which the Court will make on the substantive application must be a "final determination" of the substantive application in the sense in which that expression was used in the relevant passage from McDonald -v- Bord na gCon .

(4) The enforcement of those rights or liabilities or the imposition of a penalty by the Court or by executive power of the State which is called in by the Court to enforce its judgment.

14. The Liquidator's position is that the nature of the decision which will be made on the substantive application is such that it does not have this feature.

15. The Attorney General's position is that the order will be capable of enforcement and, if necessary, will be enforced, which, in my view, is undoubtedly the case.

(5) The making of an order by the Court which as a matter of history is an order characteristic of Courts in this country.

16. It was submitted on behalf of the Liquidator that the order which will be made on the substantive application is not an order that could be said to be characteristic of a Court, in that it involves no resolution of issues of fact and no determination of questions of law, but is merely an administrative decision made in the course of the Court's supervision of companies being wound up by the Court.

17. On behalf of the Attorney General, it was submitted that the order which will be made on the substantive application is an order of a type which has been made by the Courts since there has been companies legislation. It was not accepted that the substantive application would involve no resolution of issues of fact and no determination of questions of law. On the contrary, there might well be an issue as to the principles by which the Court should be guided in determining whether to grant or refuse the relief, which would be a mixed question of law and fact.

18. On this point also, I think the contention of the Attorney General is correct.

19. In his judgment in Keady -v- Commissioner of An Garda Siochana & Others [1992] 2 I.R. 197, having quoted the passage from the judgment of Kenny J. in McDonald -v- Bord na gCon in which the five characteristic features of the administration of justice are identified, O'Flaherty J. went on to say at page 212:-

"In turn it is possible to isolate two essential ingredients from these characteristics and they are that there has to be a contest between parties together with the infliction of some form of liability or penalty on one of the parties."

20. These essential ingredients correspond with features (1) and (2). In my view, when an application by a liquidator under Section 231 involves either of the following situations -

(i) the liquidator advocating that the relief sought be granted in the interests of the general body of creditors and of the contributories as a whole and one creditor or contributory disputing the appropriateness of granting such relief, or

(ii) the liquidator, as it were, "throwing in the ball" and individuals or factions proposing opposite points of view as to whether the relief sought by the liquidator should be granted,

there is a contest between parties. Moreover, in my view, although the consequences of the resolution of the contest cannot be defined with certainty at the time of resolution or, in certain circumstances, at any time, because there is inherent in the resolution a prediction as to the outcome of the proceedings sought to be continued, which outcome will only be known in the future if at all, nonetheless, the resolution does involve "the infliction of some form of liability or penalty on one of the parties". This can be illustrated by reference to the second scenario suggested above. If the proponent of the continuation of the proceedings loses the contest, he is deprived of the possibility of the assets of the Company being augmented by an award of damages to his advantage. If the proponent of abandoning the proceedings loses the contest, he has foisted on him the possibility of assets which would have been available for distribution to him and the other creditors being devoured by an award of costs if the action is unsuccessful.

21. The decision of the Court on a contested application to continue proceedings under Section 231 is qualitatively different from the decision of a Board of Directors of a solvent company in relation to prosecuting litigation. The decision of the Board of Directors should be informed by the interests of the company, not by the sectional interests of individual shareholders or creditors. Once a winding up Order is made, the company is doomed to extinction. The winding up process is the process of the administration of the assets of the company: their collection, realisation and distribution in discharge of the liabilities of the company to the creditors and of the entitlement of its contributories in accordance with the scheme of priorities prescribed in the Companies Acts. Insofar as the Companies Acts give an entitlement to a creditor or a contributory to be heard by the Court in relation to a matter arising in the winding up, in my view, the Court is required to have regard to the sectional interest of that creditor or contributory and, in particular, to the protection of his legal entitlement to a distribution from the assets of the company as defined by the Companies Acts.

In In Re: Countyglen Plc [1995] 1 I.R. 220, Murphy J. stated at page 225 that it is generally accepted in practice, though not tested formally, that many Orders made in the course of the winding up of companies by the Court are merely administrative directions and not the administration of justice. In that case, Murphy J. held that in dealing with an application by an Inspector for directions under Section 7(4) of the Companies Act, 1990 the Court is not administering justice. It has been urged by the Liquidator that this decision provides considerable authority for the proposition that the decision on the substantive application will not involve the administration of justice. It was urged that what is significant about the Countyglen case is that it was accepted by the parties to the issue as to the mode of hearing in that case (the Inspector and the Attorney General) that the Court Order would affect the interests of the creditors and members of the Company in that there would be a risk of depletion of the assets of the company by reason of costs incurred in consequence of the implementation of the directions. What distinguishes the Countyglen case from the instant case, in my view, is that in the Countyglen case there was no contest between parties, whereas in the instant case subsection (3) of Section 231 provides the machinery for the initiation of a contest. When a contest is initiated, its resolution must be a justiciable issue.

22. Finally, it is not difficult to envisage a situation in which the hearing in public of a disputed application for leave to initiate or continue proceedings under Section 231 in public would be seriously prejudicial to the legitimate interests of the Company in liquidation representing its creditors and contributories. However, in the absence of a statutory provision on the lines of Section 205(7) of the 1963 Act, the Court has no discretion to hear such an application otherwise than in public.