High Court of Ireland Decisions

Murphy v. Murphy & Ors [2003] IEHC 91 (11 December 2003)

 
THE HIGH COURT

2003 306 COS

IN THE MATTER OF VISUAL IMPACT AND DISPLAYS LIMITED (IN VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF SECTION 150 OF THE COMPANIES ACT, 1990 AND SECTION 56 OF THE COMPANY LAW ENFORCEMENT ACT, 2001

BETWEEN

STEPHEN MURPHY

APPLICANT

AND TOM MURPHY, BRIAN McGARVEY, SEAN FARRELL AND BERNARD HACKETT

RESPONDENTS

JUDGMENT of Ms. Justice Finlay Geoghegan given on the 11^th day of December 2003.

The applicant is the liquidator of Visual Impact and Displays Limited ("the Company") having been so appointed by a resolution of the members of the Company passed on the 26^th March, 2002.

By notice of motion dated the 30^th May, 2003 the applicant brought an application pursuant to s. 150 of the Companies Act, 1990, seeking a declaration of restriction in respect of each of the respondents.

On the 22^nd October, 2003, I heard the application in respect of the fourth named respondent Mr. Bernard Hackett. Following that hearing I concluded that the fourth named respondent was not a director of the company within twelve months of the date of commencement of winding up and accordingly having regard to the

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provisions of s. 149 of the Act of 1990, the provisions of s. 150 did not apply to the fourth named respondent. I dismissed the application in respect of the fourth named respondent.

Following my conclusion, an application was made on behalf of the fourth named respondent for costs against the applicant. I adjourned that application to permit the parties consider the question as to whether I had a discretion to award costs in favour of the fourth named respondent having regard to the provisions of s. 150 (4B) of the Act of 1990. Having heard the costs application I reserved my judgment until today.

The law in relation to costs

The general jurisdiction of the High Court in relation to costs is currently contained in Order 99 Rule 1 of the Superior Court Rules. This, insofar as relevant, provides:

"Rule 1: Subject to the provisions of the Acts and any other statutes relating to costs and except as otherwise provided by these Rules:

(1) The costs of and incidental to every proceeding in the Superior Courts shall be in the discretion of those Courts respectively.

(2) No party shall be entitled to recover any costs of or incidental to any proceeding from any other party to such proceeding except under an order or as provided by these Rules.

(3) …

(4) The costs of every issue of fact or law raised upon a claim or counterclaim shall, unless otherwise ordered, follow the event."

. . .

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The specific provision in relation to costs of an application under s. 150 of the Act of 1990 is contained in s. 150 (4B) which was inserted by s. 41 of the Act of 2001 and provides

"The Court, in hearing an application for a declaration under subsection (1) from the Director, a liquidator or a receiver, may order that the directors against whom the declaration is made shall bear the costs of the application and any costs incurred by the applicant in investigating the matter."

The first issue which I have to consider is whether or not s. 150 (4B) has restricted or excluded the discretion of the Court under Order 99 Rule 1 to make an order for costs in favour of a respondent in respect of whom an unsuccessful application for a declaration of restriction under s. 150 has been brought.

I have previously concluded that s. 150 (4B) of the Act of 1990 should be construed as limiting the discretion which the Court may otherwise have under Order 99 Rule 1 in relation to the orders it might make in respect of the applicant's costs when hearing an application under s. 150 (1). GMT Engineering Services Limited (in voluntary liquidation) Luby v. McMahon and Anor (30^th July, 2003).

The submission that this Court's jurisdiction and discretion to deal with the costs of a successful respondent in a s. 150 application under Order 99, Rule 1, is not interfered with by s. 150 (4B) is primarily based upon the principle in the following passage from Maxwell on Interpretation of Statute (11^th ed. at People. 78) cited with approval by Henchy J. in the High Court in Minister for Industry and Commerce -v- Hailes [1967] I.R.

"Presumption against Implicit Alteration of Law. One of these presumptions is that the legislature does not intend to make any substantial alteration in the law beyond what it explicitly declares, either in express terms or by clear

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implication, or, in other words, beyond the immediate scope and object of the statute. In all general matters outside those limits the law remains undisturbed…"

Section 150 (4B) was inserted by s. 41 of the Company Law Enforcement Act, 2001. At the date of the passing of that Act the costs of a s. 150 application were dealt with by the Court under Order 99. Section 150 (4B) makes no express reference to the costs of a respondent, whether successful or unsuccessful. There is nothing in the wording of the subsection which could be considered to include a clear implication that the Oireachtas intended that the Court's jurisdiction and discretion in relation to the costs of a respondent be restricted or interfered with.

The impact of s. 150 (4B) upon the Court's jurisdiction to deal with the costs of a respondent must be distinguished from its impact upon the Court's jurisdiction to deal with the costs of an applicant as concluded in the case of GMT Engineering Services Limited (in voluntary liquidation) referred to above. As appears from my judgment in that case the subsection expressly refers to the costs of an applicant and provides that the Court "may order that the directors against whom the declaration is made shall bear the costs of the application". That was an order which the Court already had jurisdiction and discretion to make under Order 99, Rule 1, prior to the passing of s. 150 (4B). Accordingly to give those words any meaning and effect I concluded they must be construed as limiting the discretion conferred on the Court under Order 99, Rule 1, so as to exclude the Court from having a discretion to make any order for the applicant's costs other than against the persons expressly referred to therein.

I have concluded on this application that the Court does retain jurisdiction and a discretion to deal with the costs of the respondents under Order 99, Rule 1.

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Exercise of discretion under Order 99

The fourth named respondent was successful on the application made against him under s. 150 of the Act of 1990. It is necessary to consider the structure of s. 150 and the basis upon which the fourth named respondent was successful in order to determine how the Court should exercise its discretion on the application for costs.

Section 149 of the Act of 1990 applies the provisions of s. 150 to:

(i) A company which, it is proved to the Court, was unable to pay its debts either at the commencement of its winding up or in the course of its winding up.

(ii) A person who was a director, or shadow director as defined of such a company at the date of, or within twelve months prior to the commencement of its winding up.

In respect of each of the above matters the onus of proof lies upon the applicant for the s. 150 declaration, in this instance the liquidator of the company.

In his grounding affidavit the applicant liquidator deposed to the fact that the company was at the date of swearing of the affidavit i.e., in the course of the winding up unable to pay its debts within the meaning of s. 214 of the Companies Act, 1963 and exhibited a certificate from him to that effect. These facts were not contested and the applicant discharged the onus of proof resting on him to establish that s. 150 applied to this company.

In respect of the fourth named respondent, the only evidence offered by the applicant to the Court was the averment at paragraph 4 of his grounding affidavit in the following terms:

"Bernard Hackett to whom the notice of motion herein is also addressed was apparently appointed director of the company in or around October, 2000.

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However, no form B10 to this effect has been lodged in the Company's Registration Office."

The fourth named respondent in his replying affidavit stated inter alia:

"While I was familiar with the affairs of this company through my directorship of a related company, Van-Fit Limited I never became or acted as a director of this company."

The applicant did not respond to this affidavit and put no evidence before this Court to support the averment made by him as part of his sworn affidavit that the fourth named director "was apparently appointed director of the company…".

It was on the basis of the above evidence that I concluded that the applicant had not established that the fourth named respondent, was as a matter of probability a director of the company either at the date of commencement of the winding up or within twelve months thereof.

The applicant also deposed to the fact that he made a report pursuant to s. 56 of the Act of 2001 to the Director of Corporate Enforcement and was not relieved from his obligation to bring an application under s. 150 in respect of the four named respondents. He exhibited a letter dated the 7^th May, 2003 from the Director of Corporate Enforcement to that effect. No evidence was given of the content of the applicant's report to the Director. However, from the response it appears that the applicant must have included the fourth named respondent as a person who was a director of the company either at the date of commencement of the winding up or within the prior twelve months. Having done so then having regard to the contents of the Director's letter the applicant was obliged to bring the application under s. 150.

The origin of the obligation imposed on the applicant under s. 56 of the Act of 2001 to bring an application in respect of the fourth named respondent is the inclusion

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by the applicant of the fourth named respondent as a director in his s. 56 report to the Director. If a liquidator so includes a person then he must be able to foresee that if not relieved by the Director he will be obliged to bring the application under s. 150 in respect of that person and discharge the onus of proof placed on him to establish before the Court on credible evidence that as a matter of probability the named person was a director of the company at the date of commencement of the winding up or within the prior twelve months. In this instance the applicant liquidator has not put any such evidence before the Court. The consequence of including the fourth named respondent in the s. 56 report without evidence available to him to discharge the onus is that the fourth named respondent has been put unnecessarily to the expense of defending this application.

Accordingly in the foregoing circumstances it appears to me that I should exercise my discretion by making an order for costs in favour of the fourth named respondent.

The last issue is the person against whom the order for costs should be made. The applicant is the liquidator of the company. Section 150 (4A) now expressly provides that an application for a declaration under subsection 150 (1) may be made to the Court by the Director, a liquidator or a receiver. Section 56 of the Act of 2001 imposes the obligation on the liquidator in the circumstances I have already described.

It was submitted that the order for costs should be made against the company in liquidation rather than the liquidator. Reliance was partly placed upon the judgment of McCarthy J. (with whom the other members of the Supreme Court agreed) in Comhlucht Páipéar Ríomhaireachta Teo v. Údarás na Gaeltachta [1990] 1 I.R. 320 and the authorities referred to therein. That case concerned an application for security for costs from a company in liquidation. The application had been refused by

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the High Court. On appeal the Supreme Court upheld the refusal but for a different reason to that relied on by the High Court Judge. The Supreme Court determined that where an action is brought by a company in liquidation the costs of a successful defendant (whether they fall within s. 281 or s. 285 of the Act of 1963) rank in priority to all other claims. In that liquidation the evidence was that there were sufficient funds to meet the costs provided for in s. 281 of the Act of 1963 and accordingly the refusal of the application for security for costs was confirmed.

It does not appear to me that the above decision assists the submission that the Order for costs in this case should be against the company in liquidation as distinct from the liquidator. Whilst McCarthy J. does refer at the end of p. 327 to the question raised as being "whether or not the costs of a successful defendant in an action brought by the liquidator of an insolvent company are deemed to be within the terms of s. 281 and/or s. 285", it is clear from the facts of the case as recited that at the time the matter was before the Supreme Court the company in liquidation was the plaintiff in the proceedings.

Counsel also sought to rely upon the extract from the judgment of Vaughan Williams J. in Re London Metallurgical Co. [1895] 1 CH 758 referred to at p. 329 of the judgment of McCarthy J. Undoubtedly that judgment in referring to the Companies Act, 1862 and the position of successful litigants in proceedings with the liquidator or with the company in liquidation and to the question of the fund out of which the successful litigants are to be paid, states "they are to be paid out of the assets of the company. That is the general rule though under exceptional circumstances an order may be made going beyond that and giving them the right to be paid by the liquidator personally".

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I do not consider that the principles stated in that judgment require me or indeed permit me to make an order for costs in this application against the company in liquidation. The only applicant before the Court is Mr. Stephen Murphy. Undoubtedly he is bringing this application in his capacity as liquidator of the company. However, it is clear from the provisions of s. 56 and in particular the potential offence created that the obligation to bring the application is an obligation personal on the liquidator. Further s. 150 (4A) refers expressly to the liquidator as a potential applicant. It does not refer to the Company in liquidation. Accordingly it is the liquidator as distinct from the company in liquidation which is the party to the application. The Company is a distinct legal person to the liquidator and is not a party to the application. The liquidator for this purpose cannot be considered to be the agent of the Company. Further a s. 150 application is not a proceeding of a type envisaged in s. 231(1)(a) (applied to this voluntary winding up by s. 276(1)(b)) namely a proceeding "in the name and on behalf of the company". Accordingly in exercising the Court's jurisdiction under Order 99 the order must be made against the person who is the applicant, namely Mr. Stephen Murphy.

I was also asked to make further consequential orders as to the priority of this order for costs in the liquidation. It does not appear to me that I can or should consider this issue as part of the s. 150 application. Section 281 of the Act of 1963 which applies to a company in voluntary liquidation provides that all costs, charges and expenses properly incurred in the winding up, including the remuneration of the liquidator shall be payable out of the assets of the company in priority to all other claims. If the order for costs against the applicant as the liquidator of the Company is an expense properly incurred in the winding up then it is payable in accordance with that section. Whether it is or is not is not an issue which the Court can determine on

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this application. If such a dispute were to arise then it would be a matter for the liquidator to bring that dispute before the Court, putting on notice an appropriate creditor who would be affected by the decision.

Accordingly I will make an order for the fourth named respondent's costs of the application under s. 150 (including the hearing on the costs issue) against the applicant and hear counsel as to whether they wish me to measure the amount of such costs.