High Court of Ireland Decisions

1. The Defendant seeks an Order striking out the Plaintiff's claim pursuant to Order 19 Rule 28 of the Rules of the Superior Courts or alternatively pursuant to the inherent jurisdiction of the Court on the basis that it discloses no reasonable cause of action, and that it is frivolous or vexatious.

2. It is clear on the authorities that the Court should be slow to exercise the jurisdiction invoked but that in a clear case an Order will be made. Furthermore, if the Statement of Claim admits of an amendment which could save it, so to speak, and the action founded upon it, then the action should not be dismissed. These principles have been asserted by the Supreme Court, for example in Sun Fat Chan v. Osseous Limited (1992: 1 IR: 425).

3. The Court will approach an application such as the present one by studying carefully the statement of claim and, it seems, in so far as its inherent jurisdiction is invoked,

4. I propose to approach the present Motion, accordingly, as therein indicated.

5. The Statement of Claim asserts that the Plaintiff is a businessman and was formerly a Director of Grangerock Investments Limited ("the Company"): the Defendant is a Chartered Accountant and at all material times acted in his professional capacity as Accountant and/Auditor to the Company.

6. Paragraph 4 of the Statement of Claim pleads:-

7. The Statement of Claim goes on to assert that it was a term of an agreement between the Defendant and the Company (set out at paragraph 3) that the Defendant would exercise all reasonable care in the preparation of a Declaration of Solvency, the provision of a Report under the Companies Act, 1990 in the context of a members voluntary winding-up and a statement of the companies assets and liabilities so as to ensure that such documentation would not give a misleading impression of the financial position of the Plaintiff's business.

8. It is pleaded that due to negligence and breach of this agreement the said declaration, report and statement were not correct and were inaccurate and in particular undervalued the Company's property, wrongly included a Ms Byrne as a Director and wrongly excluded the Plaintiff as a Director.

9. It is asserted that the declaration, report and statement wrongfully caused or permitted the Directors and/or purported Directors to make a declaration of solvency on foot of which the Company went into a members voluntary winding-up. The Company went into such a liquidation in or about the month of May 1994.

10. It is alleged that the Defendant knew that the Company was proposing to develop certain lands at Harold's Cross, Dublin, that he failed to ascertain that the Plaintiff in these proceedings and not Ms Byrne was the duly and correctly appointed Director and that the valuation of the Company's site at Harold's Cross failed to take account of an increase in value since the Company purchased it. Accordingly it is asserted that the Defendant "facilitated a premature winding-up" of the Company as a result of which the Plaintiff

11. The Statement of Claim sets out these losses seriatim. It is common case that these were losses of the Company. There is a claim for damages for negligence and breach of fiduciary duty and interest.

12. There was considerable debate in the proceedings before me as to whether or not, and if so in what manner, the rule in Foss v. Harbottle (1843: 2 Hare: 461) applied to the Plaintiff's claim. Counsel for the Defendants said it did, but submitted, in the alternative, that the Plaintiff's claim was not maintainable on the basis that no personal cause of action vests in a shareholder by reason of the diminution of the shareholder's interest in the Company. In this connection Counsel referred to Prudential Assurance Company Ltd v. Newman Industries Limited (No.2) (1982: CH 204) which was adopted and approved by the Supreme Court in O'Neill v. Ryan and Others .

13. In accordance with the correct approach that should be adopted by the Court to this Motion, I propose first to deal with the Defendant's application exclusively on the basis of the pleadings by reference to the jurisdiction conferred in Order 19 Rule 28 of the Rules of the Superior Courts. After that I propose to consider the Defendant's submission in relation to the alleged vexatiousness and/or frivolity of the Plaintiff's claim with reference to the pleadings and evidence adduced in affidavits filed by both parties.

14. With the exception of paragraph 4 of the Statement of Claim which is cited in extenso above, it is clear that the Plaintiff's claim is an allegation against the Defendant that the Defendant was in breach of his agreement with the Company. The particulars of loss set out at paragraph 12 thereof all relate to losses of the Company. Counsel for the Plaintiff accepted as much in the hearing before me and concentrated his submissions almost exclusively on the claim made at paragraph 4. In this I think he was correct and in the absence of paragraph 4, insofar as the Statement of Claim is concerned, I would have struck it out for failing to disclose a reasonable cause of action.

15. I turn now to consider paragraph 4.

16. Counsel for the Defendant submitted that side by side with the Defendant's obligations to the Company as its Accountant and Auditor, he the Defendant also owed an obligation to "warn" the Plaintiff of the impending liquidation so that the Plaintiff could take steps to prevent same and rescue the Company from liquidation with the result that it would have survived to avail itself of the benefits of the upturn in the market. Because this sequence of events did not happen, the Plaintiff lost out because his interest in the Company was diminished (or failed to achieve its potential).

17. In relation to the submission that the Defendant owes a duty of care to the Plaintiff (to warn him as aforesaid) Counsel for the Plaintiff asserted that if it could be shown that:-

18. In considering this submission I am clearly bound by the ruling of the Supreme Court in O'Neill v. Ryan . It is clear from the judgments therein and in particular from the judgment of Blayney J. (at page 571) that a plaintiff may not as a shareholder, sue in respect of alleged damage to his shareholding resulting from damage to the company.

19. In so asserting Blayney J. made it clear that he was not applying the rule in Foss v. Harbottle (where a plaintiff claims in respect of damage to the company) but that he was applying the decision of the Court of Appeal in England in Prudential Assurance Company Limited v. Newman Industries Limited, where it was held that a plaintiff may not bring an action for alleged damage, not to the company, but to his shareholding in the company as a result of damage to the company.

20. As was said in the Prudential Assurance Company Limited case:-

21. Earlier the Court of Appeal had said:-

22. And further on the Court said:-

23. This decision of the Court of Appeal in England was followed and applied by the Irish Supreme Court in O'Neill v. Ryan . Accordingly, I am bound by it.

24. The Plaintiff's claim as asserted on the pleadings merely refers to losses of the Company. However, I must bear in mind the observation of McCarthy J. in Sun Fat Chan v. Osseous Limited to the effect that:-

25. The Courts have insisted that they will be slow to invoke the jurisdiction to strike out a claim on the pleadings. If an amendment would save it, so to speak, then the action will not be struck out. Accordingly, in light of submissions made by Counsel for the Plaintiff, I am prepared to deal with this application upon the basis that the Statement of Claim could be amended to assert a loss in the Plaintiff which would be a diminution of his interest in the Company brought about by what he asserts to be a "premature" liquidation thereof, a consequent failure to benefit from a market increase in the value of the Company's assets, together with further loss incurred by way of expenses of the liquidation itself.

26. Even on this generous basis, however, these are clearly losses of the Company. They are not personal losses. The Plaintiff's shares are still his own "absolute unencumbered property" . Accordingly, in my view, the Statement of Claim does fail to show a reasonable cause of action and even if it were amended along the lines indicated by Counsel for the Plaintiff, it would still so fail.

27. In these circumstances it is not necessary for me to consider the interesting submissions made by the Defendant to the effect that because the Plaintiff had settled proceedings against his co-Director of the Company seeking declarations and reliefs for alleged fraud arising out of the events leading to the voluntary winding-up thereof, he was debarred by section 19 of the Civil Liability Act, 1961 from bringing the instant claim against the Defendant.

28. To the foregoing I must add the following: at the end of three days of legal argument Counsel for the Plaintiff asserted that the Plaintiff would also maintain a claim against the Defendant based upon his status as creditor of the Company which is acknowledged in the Statement of Affairs thereof. By reason of the Company's loss, it is asserted that it would be unable to pay the Plaintiff as its unsecured creditor or would be able to pay only portion of the debt resulting in loss to the Plaintiff..

29. In relation to this I would note that no developed argument was made in relation to it although I was informed, in virtually the dying moments of the submissions to me, that the Plaintiff's claim in the winding-up of the Company related to fees which had been accepted by the liquidator for services done by the Plaintiff in connection with the planning application. They are nowhere referred to in the Statement of Claim nor in the affidavits except by way of inclusion in an exhibit and no emphasis was placed on this claim in the course of the hearing before me. No submissions were made as to whether such a claim, all other things being equal as between the Plaintiff and the Defendant in these proceedings, was a head of damage which was too remote to become the subject of an award.

30. Lest I should be wrong in concluding on the foregoing basis that the last minute reference to this potential head of claim does not disentitle the Defendant to an Order striking out the Statement of Claim, I should deal, in addition, with the position of the Plaintiff vis-á-vis the Defendant in general under paragraph 4 of the Statement of Claim.

31. As I indicated at an earlier point in this judgment, the Plaintiff's Counsel accepted that it was necessary for the Plaintiff to show inter alia that it was reasonable for him to rely on the services of the Defendant as set out at paragraph 4 in all the circumstances.

32. Clearly it is not explicitly pleaded that it was so reasonable. In order properly to consider whether an appropriate amendment might "save" the Statement of Claim and the action, it is appropriate that I consider the evidence on this topic adduced on affidavit.

33. The relevant evidence appears to me to be as follows:-

34. It will be seen, from the foregoing, that the pleading at paragraph 4 of the Statement of Claim to the effect that the Defendant knew that the Plaintiff owned half the company, was a Director thereof and relied upon his services for information and guidance on his management and conduct thereof, was met by the Defendant in his affidavit with a clear assertion that the Plaintiff never contacted the Defendant nor requested any information from him or any advices.

35. In a subsequent affidavit, specifically dealing with this assertion, the Plaintiff does not deny that he never requested advices or information but simply refers to company documentation dealing with his appointment as a Director of the company upon which to found his re-assertion by inference that the Defendant was aware that he was a Director and shareholder or a shadow Director.

36. This involves, to my mind, a drastic and fatal watering-down of the crucial averment contained in paragraph 4 of the Statement of Claim to the effect that the Defendant well knew that the Plaintiff relied upon his services for information and guidance on his, the Plaintiff's management and conduct of the Company.

37. I am not holding or inferring that if such an averment were established by the Plaintiff that this would necessarily fix the Defendant with an obligation to keep him informed. I am holding, however, that in the absence of any evidence contradicting the Defendant's sworn averment to the effect that the Plaintiff neither requested information nor advice, then it seems to me that there is "satisfactory evidence" (to use the phrase of Costello J.as he then was) in DK v. AK (unreported: 2nd October 1992) as expressly approved by Blayney J. in O'Neill v. Ryan ) that the proceedings are unsustainable in the sense that they must fail. In these circumstances the Court must stay the action.

38. Accordingly, in my view the Defendant is entitled to succeed on this Motion primarily on the basis of the decision of the Supreme Court in O'Neill v. Ryan . To the extent that it is appropriate for the Court on this motion to have regard to the last minute reference to the Plaintiff's claim as unsecured creditor of the Company, I am further satisfied that the Defendant is entitled to succeed on the basis that the evidence demonstrates that the relationship between the parties fails to show a sufficient degree of proximity to entitle the Plaintiff to succeed. There is an uncontradicted sworn assertion by the Defendant that the Plainiff never asked him for information or advice, and that being the state of the evidence, in my view it is not possible that the Plaintiff could succeed upon the basis pleaded at paragraph 4 of the Statement of Claim.

39. I should refer, in conclusion, to a further submission made by Counsel for the Plaintiff to the effect that if I were to reach a conclusion adverse to the Plaintiff on the basis of the affidavits, I should permit the Plaintiff to file further affidavits.

40. I do not think I should accede to this request. It was not backed by any suggestion, for example, that the Plaintiff would assert, contrary to the explicit denial sworn by the Defendant, that he did in fact request information or advice from the Defendant or that he overlooked including such an averment in his affidavit. Counsel asserted merely that the Plaintiff was advised that in principle affidavit evidence was not admissible in dealing with such a Motion and that accordingly no further affidavit should be sworn following the supplemental affidavit sworn by each of the parties.

41. In my view, the Plaintiff specifically addressed the Defendant's denial that he approached him for advice or information in the paragraph of his subsequent affidavit to which I have already referred. Following this subsequent affidavit there were two further supplemental affidavits dealing with other matters, being a supplemental affidavit from each of the parties.

42. In my view, the Plaintiff has availed himself of an opportunity to deal with the Defendant's unqualified assertion that he was never approached by the Plaintiff for information or advice and has not contradicted that assertion. I assume that the Plaintiff has sworn the whole truth when dealing with this issue and accordingly I cannot see how a further affidavit could advance the matter.

43. In the circumtances, therefore, the Defendant's application succeeds and there will be an Order striking out the Statement of the Claim and the entire proceedings.