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Cite as: [1995] IESC 6, [1995] 2 IR 411, [1996] 1 ILRM 161

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O'Mahony v. Horgan [1995] IESC 6; [1995] 2 IR 411; [1996] 1 ILRM 161 (7th November, 1995)

Supreme Court

In the matter of John Horgan Livestock Limited (In liquidation), And in the matter of the Companies Act,

1963 – 1990.

Val O’Mahony

(Plaintiff)

John Horgan, James Horgan and Peter Horgan

(Defendants)

No. 219 of 1993

[7^th of November, 1995]

Status: Reported at [1995] 2 IR 411; [1996] 1 ILRM 161

Hamilton C.J.

1. The applicant herein (hereinafter called “the liquidator”) is the liquidator of John Horgan Livestock Limited (hereinafter called “the company”).

2. The respondents herein are and were directors of the company which had been incorporated on the 13th February, 1973.

3. The company’s objects were to carry on business as importers and exporters of live cattle, pigs, sheep and horses, and as dealers in cattle, pigs, sheep and horses generally and in all facets of such business.

4. An order for the winding up of the company was made on the 11th November, 1991, following the presentation of a petition by the Revenue Commissioners on foot of a debt of £1,174,514.65 on the 8th November, 1991.

5. On that date by order of the High Court, the liquidator was appointed liquidator of the company.

6. A statement of affairs was filed in the High Court in March, 1992, showing an estimated deficiency of £11,653,992.00.

7. On the 18th June, 1993, the liquidator caused to be issued a notice of motion which was served on each of the respondents named herein seeking against each of the said respondents:-

(a) An order pursuant to the terms of s. 298, sub-s. 2 of the Companies Act, 1963.

(b) A declaration pursuant to s. 204 of the Companies Act, 1990, declaring that the respondents as directors of the company are in breach of s. 202, sub-s. 10 of the Companies Act, 1990, and are personally liable without limitation of liability for all, or such part as the court may specify, of the debts and other liabilities of the company, by reason of the fact that the contravention aforesaid of s. 202, sub-s. 10 has contributed to the company’s inability to pay all of its debts and/or has resulted in substantial uncertainty to the assets and liabilities of the company and/or has substantially impeded the orderly winding up thereof.

(c) A declaration pursuant to s. 297 or 297A of the Companies Act, 1963 (as inserted by s. 138 of the Companies (Amendment) Act, 1990) declaring that the respondents, as directors of the company will be personally responsible without limitation of liability for any of the extra liabilities of the company or for such part thereof as the court may direct or for such relief under s. 139 of the Companies Act, 1990, as to the court shall seem meet.

8. Other relief as sought in the notice of motion was claimed against the respondents.

9. The grounds upon which such relief was sought are set forth in detail in the notice of motion and the application was grounded on the affidavit of the liquidator sworn on the 17th June, 1993, and the documents and correspondence therein exhibited.

10. On the 23rd June, 1993, the liquidator caused to be issued a notice of motion claiming the following relief against the second respondent in the said proceedings and the appellant herein:-

(1) An interlocutory injunction restraining the second respondent from collecting or receiving the sum of £71,000 with accrued interest representing monies payable under a policy of insurance with Norwich Union and the subject matter of proceedings entitled “The High Court, Record No. 1992 No. 5972P, Between: James Horgan, Plaintiff, and Norwich Union Fire Insurance Society and John Horgan Ltd. (in liquidation), Defendants”.

(2) Alternatively, an interlocutory injunction restraining the second respondent from disposing of or dissipating or charging the said sum of £71,000 with accrued interest thereon.

11. This application was grounded on the proceedings already referred to, the affidavit of the liquidator and one Tom Tobin.

12. By order dated the 28th June, 1993, the learned trial judge, Murphy J., ordered:-

“That the second respondent, Jim Horgan, be restrained pending trial of this action or further order in the meantime from disposing of or dissipating or charging the sum of £71,000 with accrued interest thereon representing monies payable under a policy of insurance with Norwich Union Fire Insurance Society and the subject matter of proceedings between James Horgan, plaintiff, and Norwich Union Fire Insurance Society and John Horgan Ltd. (in liquidation), defendants, and granted liberty to the said respondent to apply for the removal or variation of this order if and when so advised and on giving not less than 14 days notice to the claimant of any intention to so apply.”

13. Counsel’s note of the ex-tempore judgment delivered by the learned trial judge was adopted by him as a proper transcript of the judgment herein.

14. In the course of this judgment he stated:

“Mr. O’Mahony, in his affidavit, avers to a significant list of wrongdoings, in particular, the failure to keep proper or adequate records. On the financial side, he states that he estimates the deficiency at £11.6 million and he expresses the view that loans to directors amount to £2.4 million and after certain payments the balance due on foot of these loans is £1.9 m. There are a number of other matters queried. But for all of the detail in this affidavit, the crucial topic is dealt with in paragraph 47 where Mr. O’Mahony avers as follows:-

I am naturally concerned, having regard to the manner in which the affairs of the company were conducted, to ensure that the said sum of £71,000 should be available to meet any decree which may be made in favour of the company in liquidation against the second respondent and apprehensive that in the absence of such order the said sums will not be available.”

15. In the course of his judgment the learned trial judge set forth the criteria to be taken into account in considering whether an injunction of the type sought, generally known as a Mareva injunction, should be granted and listed them as follows:-

“1. The plaintiff should make full and frank disclosure of all matters in his knowledge which are material for the judge to know.

2. The plaintiff should give particulars of his claims against the defendant, stating the grounds of his claims and the amount thereof and fairly stating the points made against it by the defendant.

3. The plaintiff should give some grounds for believing that the defendant had assets within the jurisdiction. The existence of a bank account is normally sufficient.

4. The plaintiff should give some grounds for believing that there is a risk of the assets being removed or dissipated.

5. The plaintiff must give an undertaking in damages, in case he fails.”

16. It appears from his judgment that the learned trial judge was satisfied that the criteria set forth at 1, 2 and 3 had been met by the liquidator.

17. He then went on to say that:-

“The real issue is whether the plaintiff has given any grounds for believing that there is any risk of dissipation. All the plaintiff has said is that he is apprehensive in this regard. That is a far cry undoubtedly from evidence of conscious abuse.”

18. He then went on to deal with the question of an undertaking and stated:-

“Mr. O’Mahony has, perhaps surprisingly, agreed to do that because his personal liability will be indemnified by the Revenue Commissioners. I have stressed the infirmities in the plaintiff’s application. Counsel for the respondent has analyzed still further the weaknesses and contradictions but without providing any affidavit in reply. It seems to me that it must be recognised that the respondent, having been given notice and having been afforded an opportunity to adjourn the matter, declined an invitation to put in such an affidavit The respondent resists the applications on the basis of submission. On the face of it, there is reason for considerable concern as to the manner in which the respondents carried on the business of the company. One may criticise the lack of detail given by Mr. O’Mahony in relation to the allegation. His computation of the directors’ indebtedness to the company may be criticised, but that criticism would be entertained more readily if there was a denial on affidavit. No direct evidence is given that monies would be dissipated, but in the context of the sums involved and the parties’ obligations to the banks, the concern of the official liquidator has not been shown to be displaced. On the overall complexities of the matter, the probabilities that monies will cease to be retained is likely. It seems to me that the injunction should be granted in the specific circumstances of the case. The undertaking as to damages, however, should be limited to £25,000.00.”

19. The appellant has appealed to this Court on a number of grounds which can be summarised as follows:-

20. The learned trial judge erred in fact and in law in:

(a) holding that the respondent had made out a good arguable case against the appellant and in finding that the respondent had made a full and frank disclosure of all matters in his knowledge which it was material for the learned High Court Judge to know;

(b) failing to have sufficient regard to the test to be applied with regard to the dissipation of assets, in particular the failure to give grounds supported by evidence for believing that there is a risk of the assets being removed or dissipated with a view to avoiding payment of any monies which might ultimately be found owing;

(c) limiting the respondent’s undertaking as to damages to the sum of £25,000 in advance of any enquiry as to damages which might ultimately be directed by the court.”

21. Before dealing with these grounds of appeal however, it is desirable to set forth the principles underlying the grant of Mareva injunctions.

22. The common law, traditionally, expressed the principle that the plaintiff is not entitled to require from the defendant, in advance of judgment, security to guarantee satisfaction of a judgment that the plaintiff may eventually obtain.

23. This position was altered in the United Kingdom by two decisions of the Court of Appeal in 1975, viz. Nippon Yusen Kaisha v. Karagerogis [1975] 1 W.L.R. 1093 and Mareva Compania Naviera SA v. International Bulkcarriers SA [1980] 1 All E.R. 213.

24. These cases involved claims for damages arising from shipping contracts brought against foreign defendants. In both, the plaintiffs obtained orders (ex-parte) restraining the defendants from removing their funds out of the jurisdiction pending the adjudication of the actions.

25. Injunctions of this type became known as Mareva injunctions. A Mareva injunction is an ad personam order, restraining the defendant from dealing with assets in which the plaintiff claims no right whatsoever. A Mareva order does not give the plaintiff any precedence over other creditors with respect to the frozen assets.

26. Because of the draconian nature of such orders, Lord Denning in Third Chandris Shipping Corporation v. Unimarine SA [1979] Q.B. 645 at pp. 668-669, laid down the five criteria to be established before such injunctions are granted which are the criteria set forth in the learned trial judge’s judgment.

In Z Ltd. v. A-Z and AA-LL [1982] 1 Q.B. 558, Kerr L.J., in the course of his judgment, stated his view as to the circumstances in which a Mareva injunction should be granted in the following terms at p. 585:-

“It follows that in my view Mareva injunctions should be granted, but granted only, when it appears to the court that there is a combination of two circumstances. First, when it appears likely that the plaintiff will recover judgment against the defendant for a certain or approximate sum. Secondly, when there are also reasons to believe that the defendant has assets within the jurisdiction to meet the judgment, in whole or in part, but may well take steps designed to ensure that these are no longer available or traceable when judgment is given against him.”

27. Consequently a Mareva injunction will only be granted if there is a combination of two circumstances established by the plaintiff i.e. (i) that he has an arguable case that he will succeed in the action, and (ii) the anticipated disposal of a defendant’s assets is for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.

28. In the course of his judgment in Fleming and ors. v. Ranks (Ireland) Ltd. and anor. [1983] I.L.R.M. 541, the late Mr. Justice McWilliam stated at p. 546 of the report:-

“I am satisfied that there is jurisdiction to grant such an injunction • . . From the cases cited I would accept that there must be a real risk of the removal or disposal of the defendant’s assets, that there must be a danger of default by the defendant, that the plaintiff must show that he has a good arguable case, and, weighing the considerations for and against the grant of an injunction, the balance of convenience must be in favour of granting it. See Barclay-Johnson v. Yuill [1980]1 W.L.R. 1259 at page 1265.”

29. With regard to the facts in the Ranks case, he stated:-

“Although a special account has been opened by Ranks for the sums to which the plaintiffs are entitled under the Redundancy Acts, it appears to me that, if damages are awarded to the plaintiffs on the basis of their claims, there is a danger of default by Ranks through inability to pay the amounts of the awards. But I am of opinion that, to justify such an injunction, the anticipated disposal of a defendant’s assets must be for the purpose of preventing a plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.”

30. At the end of p. 546, he went on to say:-

“I would accept as correct the statement of Sir Robert Megarry, V.C., at p. 1266 of the Barclay-Johnson case ([1980] 1 W.L.R. 1259) where he said - ‘I would regard the Lister principle as remaining the rule, and the Mareva doctrine as constituting a limited exception to it’. ‘The Lister rule’ refers to the case of Lister and Co. v. Stubbs mentioned above, ((1890) 45 ChD 1 C.A.) and is that the court will not grant an injunction to restrain a defendant from parting with his assets so that they may be preserved in case the plaintiff’s claim succeeds.”

In Polly Peck International Plc. v. Nadir [1991] 4 All E.R. 769 both the Master of the Rolls and Scott L.J., stressed that such relief is not intended to give security in advance of judgment but merely to prevent the defendant from defeating the plaintiff’s chance of recovery by dissipation of assets.

31. Consequently, the cases establish that there must be an intention on the part of the defendant to dispose of his assets with a view to evading his obligation to the plaintiff and to frustrate the anticipated order of the court. It is not sufficient to establish that the assets are likely to be dissipated in the ordinary course of business or in the payment of lawful debts.

32. Has the liquidator in the instant case adduced evidence to show, or to entitle the learned trial judge to infer, that the appellant is likely to dissipate the asset referred to, viz, the proceeds of an insurance policy, with the intention of evading his obligation (if any) to the liquidator?

33. In his affidavit sworn on the 17th June, 1993, he states at para. 47 (a) thereof that:-

“I am naturally concerned, having regard to the manner in which the affairs of the company were conducted to ensure that the said sum of £71,000 should be available to meet any decree which may be made in favour of the company in liquidation against the second respondent, and apprehensive that in the absence of such an order the said sum will not be available.”

34. His apprehension may well be justified but he does not state or allege that the appellant would dissipate the asset with the intention of frustrating any order of the court that may be made.

35. The learned trial judge himself stated:-

36. “All the plaintiff has said is that he is apprehensive in this regard. That is a far cry undoubtedly from evidence of conscious abuse” and “No direct evidence is given that monies would be dissipated, but in the context of the sums involved and the parties’ obligations to the banks, the concern of the official liquidator has not been shown to be misplaced.”

37. As appears from his affidavit, the liquidator’s concern was to ensure that the said sum of £71,000 should be available to meet any decree which might be made in favour of the company in liquidation.

38. The learned trial judge does not appear to have considered the question whether the apprehended dissipation of the asset was for the purpose of evading any decree that might be made in the proceedings.

39. Before being entitled to the relief sought by him, the liquidator must establish that there was a likelihood that the assets would be dissipated with the intention that they would not be available to meet any decree or part of a decree ultimately made against the appellant in the proceedings.

40. In my view, no such intention was established in this case. The entitlement of the appellant to the proceeds of the policy of insurance issued by the Norwich Union Fire Insurance Society arose because of a fire on the appellant’s property which destroyed a shed thereon.

41. While the use of such proceeds to replace the shed, or in the ordinary course of his business as a farmer, or to pay his lawful debts, would mean that such asset would not be available to meet any decree which the liquidator might obtain against the appellant, that fact does not entitle the liquidator to the injunction sought. He must further establish that such utilisation of the asset was made with the intention of evading payment to the liquidator.

42. As no such intention was established in this case, the appellant’s appeal must be allowed on this ground.

43. Being of this view, it is not necessary for me to consider whether or not the learned trial judge was entitled to place a limit of £25,000 on the undertaking required to be given by the liquidator and I will reserve for future consideration the powers of the court in this regard should it arise in the future. I incline however to the views in this regard expressed in the judgment about to be delivered by Mr. Justice O’Flaherty.

O’Flaherty J.

44. I agree with the judgment of the Chief Justice that the order of the High Court should be reversed and the appeal allowed.

45. I wish to add some brief comments only. The absence of any remedy for a creditor against a debtor who was prepared to depart the country or dissipate his assets in defiance of the creditor’s rights was a serious defect in our law twenty years or so ago. Practitioners had been very conscious of the injustices that were often perpetrated because no remedy had been developed to meet this situation.

46. At around the same time as the first applications were brought before the Court of Appeal in England (Nippon Yusen Kaisha v. Karageorgis [1975] 1 W.L.R. 1093 and Mareva Compania Naviera SA v. International Bulkcarriers SA [1980]1 All E.R. 213) the same remedy was allowed in our courts by the invocation of s. 28, sub-s. 8A of the Judicature Act (Ireland), 1877, which provides:-

“A mandamus or an injunction may by granted or a receiver appointed by an interlocutory order of the court in all cases in which it shall appear to the court to be just or convenient that such order should be made, and any such order may be made either unconditionally or upon such terms and conditions as the court shall think just; and if an injunction is asked, either before, or at, or after the hearing or any cause of matter, to prevent any threatened or apprehended waste or trespass, such injunction may be granted if the court shall think fit, whether the person against whom such injunction is sought is or is not in possession under any claim of title or otherwise, or (if out of possession) does or does not claim a right to do the act sought to be restrained under any colour of title, and whether the estates claimed by both or by either of the parties are legal or equitable.”

47. In its original manifestation, the remedy was used in clear cases where a debt was established and the debtor was about to abscond or to dissipate his assets.

48. As the jurisdiction has developed, it appears now to be sufficient to establish that the plaintiff has a good arguable case and for a diverse series of cases. I would have preferred that the remedy should have been confined to situations where there was a clear case involving a claim for a definite sum of money or, otherwise, for some tangible object – where the claim was more or less certain, in so far as there is ever certainty in any litigation. It may now be too late to put that particular clock back.

49. Nonetheless, it needs to be emphasised that the Mareva injunction is a very powerful remedy which if improperly invoked will bring about an injustice, something that it was designed to prevent. It may put a person or a company out of business. It may contribute to delay in bringing litigation to a head. It may be used as a diversionary tactic and be a part of the skirmishes that increasingly occur in much litigation. It may – as is the case here – take on a life of its own while the main litigation is becalmed. I glean that a sense of urgency is not affecting the main litigation and will not do so while this sideshow is running.

50. Further, on the facts of this case, the remedy is neither appropriate nor relevant. The amount that it is sought to freeze is but a tiny fraction of the millions of pounds that it is said are involved in the main action. It has to be reiterated that the Mareva remedy is to protect assets that may be dissipated in which case the judgment that the plaintiff gets will go unsatisfied. A Mareva injunction is not appropriate to enforce a claim to the assets themselves.

51. Since the assets in question here are of little or no relevance to the amount at stake – which runs into many millions of pounds – aside altogether from the fact that the case in regard to dissipation of assets has not been made out even to a prima facie extent – there is not here a situation where Mareva relief should be granted.

52. As regards the undertaking as to damages, I know of no case where a limit has been put on the amount that may be required to be paid, if it is held that the injunction was improperly obtained, nor do I think it right in principle that such a limit should be placed in view of the far-reaching implications involved in any restraint that is imposed on a party by reason of such an injunction prior to judgment.

Blayney J.

53. I agree with both judgments.