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Cite as: [2007] 4 IR 134, [2006] IEHC 329

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Judgment Title: Brosnan & Ors v Sommerville

Neutral Citation: [2006] IEHC 329

High Court Record Number: 2005 1287P

Date of Delivery: 03 October 2006

Court: High Court

Composition of Court: Smyth J.

Judgment by: Smyth J.

Status of Judgment: Approved

Neutral Citation Number [2006] IEHC 329

THE HIGH COURT

DUBLIN

TIM BROSNAN, PAUL MAGOWAN AND PATRICK Plaintiff

GLEESON

Defendant

ANNE SOMMERVILLE

1287P/2005

APPROVED JUDGEMENT OF MR. JUSTICE T.C. SMYTH

DELIVERED ON TUESDAY, THE 3RD DAY OF OCTOBER 2006

JUDGMENT OF MR. JUSTICE T.C. SMYTH, DELIVERED ON

TUESDAY, THE 3RD DAY OF OCTOBER 2006

By Notice of Motion dated 12th April 2005 the

Plaintiffs seek orders that -

1) the Defendant be compelled to sign the bank enquiry

letters furnished to her on behalf of the Plaintiffs

for the purpose of allowing the Plaintiffs to obtain

access to the bank accounts of

(a) Mars 2112 Group Ltd (the Group) and

(b) Mars 2112 Global Ltd ('Global') which is a wholly

owned subsidiary of the Group pursuant to Section

202 of the Companies Act, 1990 and/or Section 371

of the Companies Act, 1963.

2) The Defendant be compelled to deliver up to the

Plaintiffs and/or the Plaintiffs' nominated

Accountant/s all books and records (to include

invoices, receipts and all documentation) in relation

to the operation of the bank accounts held by the Bank

of Ireland Global Markets (formerly Bank of Ireland

Treasury and International Banking) ('the Bank') in

respect of the Group and Global.

3) The Defendant be ordered and directed to authorise

the bank to provide the Plaintiffs and/or the

Accountants with whatever bank details and documents

they require in respect of the bank accounts of the

Group and Global pursuant to the provisions of the

statutes aforesaid.

authorisations required by the Plaintiffs and/or the

Accountants in respect of any other bank account(s)

relating to the Group or Global.

The Facts

The Plaintiffs are directors of the Group of which

Mr. Brosnan is Chairman of the Board of Directors.

Global and a company called Mars 2112 Woodfield Corp.

('Woodfield') are both wholly owned subsidiaries of the

Group. Mr. Gleeson is known as the 'Investor Director'

in Global. Mr. McGowan is known as the 'Subscriber

Director' in Global. Messrs. Gleeson and McGowan

together respectively own approximately 63% of the

shareholding of the Group.

All three Plaintiffs are in dispute with a brother of

the Defendant, one Paschal Phelan who is a director of

the Group, Global and Woodfield. He controls

approximately 37% of the shares in the Group although

it is through a nominee company Arkvale International
Ltd. The Defendant, Mr. Phelan's sister was up until

31st August 2004 (when she resigned) Secretary to both

the Group and Global prior to the institution of these

proceedings.

A considerable amount of the material in the affidavits

is taken up with the conduct of Mr. Phelan and the

manner in which he is said to have constructed and

managed a venture in Chicago in the United States of

America. It went very seriously over budget and very

substantial losses were incurred and apparently

unaccounted for or not accounted for properly. The

dispute of the Plaintiffs with Mr. Phelan is the

subject of separate litigation (Record No.

2004/106968).

The accountant for the Plaintiff directors to both the

Group and Global required certain books and documents

to enable him to prepare a report for the directors,
and difficulties arose in the attempt to obtain and

inspect the relevant books and records of the

companies. The Defendant perceived herself as 'caught

in the cross-fire' between the Plaintiffs and Mr.

Phelan and further that their pernicious view of her

was and is grounded on her relationship to Mr. Phelan

and that she had been obstructive and acting in

interests inimical to those of the Group and Global.

In the events she resigned both as company Secretary

and director of both companies on 31st August 2004.

Prior to that date she had been an authorised signatory

in banks with which the companies had accounts. It

would appear that both Mr. Phelan and herself, before

the present directors became more actively involved,

effectively ran the companies. However,

notwithstanding her resignation both of the companies

which are now effectively or in large measure the

concern of the Plaintiffs appointed a new secretary. A

Mr. Con Casey has been appointed as interim company

Secretary. He is the accountant appointed by the

Plaintiff directors to carry out the inspection they

require. However, since his appointment there does not

appear to have been any consequential advice to the

banks with a view to changing banking mandates or the

names on the accounts. However, notwithstanding her

resignation, the Defendant at the request of the

Plaintiff's solicitors signed two forms of

authorisation to the Bank of Ireland, Baggot Street,
Dublin enabling certain information to be given to the

accountants to the companies.

No reason has been set out in the affidavit for the

obvious omissions of notifying the banks of the change

of company Secretary or changing the banking mandates,

both or either of which could possibly have avoided the

present application or why the requirements of

alternative arrangements of the Plaintiffs and

companies were not made well in advance of 31st August

2004. However, I think it fair to infer that the range

of inquiries being made for and on behalf of the

Plaintiffs was of a continuing nature over a period of

time and at no stage was it indicated that the

inquiries were at an end, nor was advance notice given

of an intention to resign (by the Defendant).

A request was made dated 22nd December 2004 that the

Defendant do sign two further forms of authorisation in

relation to accounts held by the companies with the

Bank of Ireland, Treasury and International Banking

Division, Colville House, Talbot Street, Dublin. The

stated purpose of the request was so as to allow the

accountant mandated by the Plaintiff directors to

access the financial records of the companies, as they

are entitled to do pursuant to the Companies Acts. It

is common case that the Defendant refused to sign the

particular documents. It is essentially on this point

that the parties joined issue.

The contentions of the Plaintiffs were as follows: -

1) The refusal of the Defendant to sign/the documents

on the basis that she had resigned as Company Secretary

and Director did not inhibit her from signing other

like documents on 15th December 2004 (after she had

resigned); therefore to advance her resignation as

inhibiting her from signing the second set of documents

is not a genuine reason to tender for her refusal.

2) That the bank would not provide any details or

information to the Plaintiffs or the accountant

(Mr. Con Casey) until such time as letters of

authorisation are obtained from the authorised

signatories to the account for which information is

sought. In the circumstances where the Defendant is

refusing to execute the documents she is effectively

frustrating the Plaintiff's ability to exercise their

statutory rights under the sections referred to in the

Notice of Motion.

3) The Defendant is well aware that the board of the

company cannot, pending an expert determination of the

composition of the Board of Directors, take steps which

would involve the substitution of another signatory for

the Defendant in respect of those accounts. In the

circumstances the failure, refusal and neglect by the

Defendant to execute the documents, she must know has

the effect of frustrating the ability of the Plaintiffs

to exercise their statutory rights of access to

information in respect of both companies. [Paragraphs

20 - 22 (inclusive) of Mr. Brosnan's grounding

affidavit].

4) Mr. Phelan has signed documents, similar to those

the Defendant refuses to sign, but without both

signatures the probability is that the bank will not

make the information available. In effect her refusal

is a support to Mr. Phelan in his dispute with the

Plaintiffs.

The contentions of the Defendant were as follows: - 1)

The information being sought is for the purpose of

enabling Mr. Con Casey of Casey McGrath & Associates,

Chartered Accountants to finalise a report commissioned

in 2003, not by the companies as such, but by a number

of directors (the Plaintiffs) to review certain

transactions entered into by the Group and its

subsidiaries since their formation. The real focus of

the report was the Chicago Venture of which the

Defendant never was a director and not involved at all.

2) She gave all the information available to her to

Mr. Casey. In an e-mail of 3rd June 2004 she stated: -

"The build out of Chicago was completed
from an admin and financial point of
view in the US. As I remember at the
time the funds were transferred
directly at the time by the
shareholders to the USA."

3) I read paragraph (7) of the Defendant's affidavit

sworn on 13th June 2005 as meaning that other than the

accounts in the Bank of Ireland (in respect of which

she signed an authority on 15th December 2004) and

those held by the Bank of Ireland, Treasury and

Internal Banking Division (in respect of which she

refused to sign an authority on 5th January 2005) she

is not aware of any accounts held by any bank within

the State.

4) The court ought not to grant the Plaintiffs relief

unless and until the Plaintiffs seek the information

from the banks that would have been available to

Mr. Con Casey had she (the Defendant) signed the

documentation submitted to her on 22nd December 2004.

While there are several matters of concern raised in

the affidavits it is inappropriate at this stage, in my

opinion, to seek to make specific findings on them. It

is trite to note that a company has an independent

legal personality, that with the benefits conferred by

limited liability comes a duty of directors to

creditors and shareholders and to each other.

The Statutory Framework

Section 202 of the Act of 1990 imposes a duty on every

company to cause to be kept proper books of account,

whether in the form of documents or otherwise which

will (inter alia) enable the accounts of the company to

be readily and properly audited. What the make up of

the information may be is indicated by the type of

underlying documentation referred to in subsection (3)

of the Section.

Subsection 4 provides that: -

"For the purposes of subsections (1),
(2) and (3), proper books of account
shall be deemed to be kept if they
comply with those subsections and give
a true and fair view of the state of
affairs of the company and its
transactions." (Emphasis added)

It is not sufficient to provide minimal information -

it must be such as to render the companies'

transactions explicable. Thus if (as was referred to

in paragraph (9) of Mr. Brosnan's affidavit sworn on

28th May 2005) "payments were made out of company funds

through the intermingling of a company credit card and

the Defendant's brother's personal credit card" the

credit card and the credit card accounts of both the

company and the Defendant or Mr. Phelan, if it be him,

as well as the docket, invoice, statement, VAT

statement, VAT returns and receipt of payment of VAT

would all be embraced to enable a true and fair view of

the affairs of the company to be obtained and explain

its transactions.

Subsection 6 emphasises the position or entitlements of

directors, thus: -

"If books of account are kept at a
place outside the State, there shall be
sent to and kept at a place in the
State and be at all reasonable times
open to information by the directors
such accounts and returns relating to
the business dealt with in the books of
account so kept as will disclose with
reasonable accuracy the financial
position of that business at intervals
not exceeding six months and will
enable to be prepared in accordance
with the Companies Acts, the company's
balance sheet, its profit and loss
account or income and expenditure
account and any document annexed to any
of those documents giving information
which is required by the said Acts and
is thereby allowed to be so given."

The failure to comply with the terms of the section

attracts serious legal sanctions, not only for the

company but also for a director. Subsection 10

provides: -

"(10) A company that contravenes this
section and a person who, being a
director of a company, fails to take
all reasonable steps to secure
compliance by the company with the
requirements of this section or has by
his own willful act been the cause of
any default by the company thereunder,
shall be guilty of an offence."
(Emphasis added).

The enforcement of the duty to comply with the

provisions of the Companies Acts is provided for in

Section 371 of the Act of 1963 as follows: -

"(1) If a company or any officer of a
company having made default in
complying with any provision of this
Act fails to make good the default
within 14 days after the service of a
notice on the company or officer
requiring it or him to do so, the court
may, on an application made to the
court by any member or creditor of the
company or by the registrar of
companies, make an order directing the
company and any officer thereof to make
good the default within such time as
may be specified in the order."
(Emphasis added).

Section 2 of the Act of 1963 defines "officer" in

relation to a body corporate as including a director or

secretary. Section 31 of the Act of 1963 defines a

member by reference to the subscribers to the

memorandum and then -

"(2) Every other person who agrees to
become a member of a company, and whose
name is entered on its register of
members, shall be a member of the
company."

The Case Law

A director's right of access to books of account may be

enforced by injunction: Healy -v- Healy Homes Ltd.

[1973] IR 309. Furthermore a director is entitled to

be accompanied by his/her accountant for the purpose of

inspecting the books of account, and to make copies

thereof. This action was based on the provisions of

Section 147(3) of the Act of 1963 which was amended in

the terms of the Act of 1990, the provisions of which I

have already referred to.

Mr. Howard, SC for the Plaintiffs also relied on the

authority of Burn -v- The London and South Wales Coal

Company and the Risca Investment Company, TLR (1890)

vol. 7 p.118 which considered the right of a director

to inspect and take copies of documents in the custody

of a Mr. Flux, who was the solicitor of both companies.

It was considered immaterial, so far as the principle

of the decision is concerned, for whom he held the

documents. The constitution of the Risca Company and

the relationship between the two companies were of a

peculiar and intimate character. The members of the

two companies were to a large extent the same. The

Plaintiff was the holder of a large stake in the Risca

Company.

The Plaintiff had made an application as a director of

the coal company to see the documents in question, but

his co-directors passed a formal resolution that he

should not see them. North J. held that a director has

a right to see and take copies of documents belonging

to his company. With regard to the Risca Company, he

considered that the Plaintiff had no right,

independently of the Conveyancing Act of 1881, Section

16 to see their documents and the title deeds. [This

latter refinement has no relevance to the instant

case].

It is possible for a director, whether he or she has

retired from office to be guilty of misfeasance

committed even after they have retired from office

(Curtis's Furnishing Stores Ltd. (in liquidation) -v-

Freedman [1966] 1 WLR 1219).

Applying the Law to the Facts

On the basis of the undisputed relevant facts the

Defendant as of 5th January 2005 ceased to be the

Company Secretary and a Director and therefore was no

longer an officer (as defined in Section 2 of the Act

of 1963) and accordingly is prima facie not a person

against whom an order under Section 371 of the Act can

be made. However, as the nature of the inquiries was

ongoing since 2003 and the request in December 2004 was

a mere continuum of same, notwithstanding that it had

not been an enumerated document earlier sought, as of

the date of the request of the Plaintiffs first made

the Defendant was an officer and she then had a

statutory duty under the provisions of Section 202(10)

of the Act of 1963 as a person who being a director of

a company was obliged to take all reasonable steps to

secure compliance by the company with the requirements

of Section 202(6) to enable inspection by the directors

of such proper books of account as would give a true

and fair view of the state of affairs of the company

and explain its transactions.

The question arises can that duty be terminated by a

form of resignation so as to render compliance with the

obligation continuing.

The letters of Mr. Con Casey to the Defendant of 25th

May 2004 and 17th June 2004 clearly indicate the

concern of Mr. Casey to have available to him within

the State for inspections the documentation referable

to the Chicago Venture per Section 202(6). The

documentation sought (which would include banking

records) may or may not have been in the name of the

Group or Global, but if accounts or records are not in

the names of the companies or either of them, that is

not the end of the matter. If accounts are opened,

maintained or conducted in the name or names of a

person or persons in relation to the business of a

company and as such would assist in giving a true and

15

fair view of the state of affairs of the company and

explain its transactions then it seems to me such

documentation is within the contemplation of the

sections.

At first sight this may appear as an unwarranted

intrusion into the private affairs of a director or

other person. In my judgment it is not. It is the

consequence of a director or person's intermingling

their own affairs or funds and those of the company.

In small family companies such practice, however

undesirable may occur as a matter of convenience, but

it can and often has serious consequences.

I express no view given the limited form of relief

sought under statute as to whether the Defendant might

not on the state of the evidence as disclosed in the

affidavits be open to an action for misfeasance

notwithstanding her resignation on 31st August 2004.

When the Defendant resigned as a Company Secretary and

Director on 31st August 2004 she ceased to be an

officer of the companies but notwithstanding which she

signed the forms for the Bank of Ireland on 15th

December 2004. She refused to sign the forms submitted

to her on notice of 22nd December 2004, essentially not

because of her resignation but because she considered

the tenor of the request overbearing and was

apprehensive that it would lead to further requests

which were referable to extraneous matters.

The Defendant explained her position in paragraph (20)

of her affidavit sworn on 9th May 2005. Further in

paragraph (4) of the Defendant's affidavit of 8th July

2005 she avers as follows: -

"It appears that no letter has been
sent to the Bank of Ireland requesting
the release of the documentation and
that, in making the assertions which
they have, the Plaintiffs are in fact
relying upon something that Mr. Casey
has experienced in the past. It does
not appear to have occurred to the
Plaintiff or the Plaintiff's advisors
to undertake the very simple expedient
of writing to the bank as Secretary and
actually making a particular request.
This establishes in my mind two things,
one that the Plaintiffs has (sic)
sought to contrive a dispute and,
secondly, that the Plaintiff is not
being entirely frank as to what
documentation it is seeking".

In my judgment the Plaintiffs are, on a legalistic view

of the facts, not entitled to an order under Section

371(1) of the Act of 1963. However, the form of

inquiries being made in this instance have been of a

continuing nature over a period from 2003 onwards. The

Companies Acts are to be construed together and Section

371 is to be construed as a whole.

It is clear from the provisions of subsection (3) of

Section 371, which provides as follows:

"Nothing in this section shall be taken
to prejudice the operation of any
enactment imposing penalties on a
company or its officers in respect of

17

any such default as aforesaid".

The provisions of Section 202(10) of the Act of 2000

are clearly of a penalty character. It seems to me

that the provisions of subsection 3 of Section 371 are

to protect against a position where a duty is imposed

and that duty has to be viewed in the light of Section

202, which is the dominant provision as between the two

sections.

There is certainly no express waiver by the Defendant

in having signed the first of the two sets of

documentations submitted to her in more recent times.

It nonetheless is indicative in my judgment that the

point was only secondly taken on the basis that she was

concerned that the Plaintiffs or the company would seek

to rely on her signatures as entitling them to seek her

authority to investigate any accounts not only of the

companies but also relating to the companies.

The Acts are quite clear as to the entitlements of

directors. The Defendant by her own willful act in

resigning has effectively sought to deliberately

disable herself from being capable to take all

reasonable steps to secure compliance with the

requirements of Section 202(6). In my judgment a

director's fiduciary duty is coextensive with his or
her function of promoting the business interests of the

company which are not to be evaded by escape through

resignation. The business interests of the company are

not protected by the avoidance of a duty through

motives that inhibit the compliance with the provisions

of Section 202(6).

This, however, is not to say that if a person who is an

officer of a company has resigned for some appreciable

time that they can many years afterwards be asked and

obliged to comply with the provisions of Section 371

without more. On the particular facts as I find them

in this case, the inquiries were and are of a

continuing nature and it behoved the Defendant in my

judgment to have executed all such documents as were

necessary to clearly give the information being sought

by the accountant for and on behalf of the other

directors which had begun as far back as 2003.

The Defendant having resigned as Company Secretary and

Director is obliged nonetheless to deliver and make

available to the Secretary of the companies for the

time being the documentation referred to in paragraph

(2) of the Notice of Motion so as to permit the

Plaintiffs to inspect same in the terms of Section

202(6) of the Act of 1990. Therefore, until the

Plaintiffs seek to meet the challenge of the Defendant

to seek to alter the authority and mandates at the bank

no determination will be made under the provisions of

Section 371(2).

THE JUDGMENT WAS CONCLUDED

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