Supreme Court of Ireland Decisions

1. This appeal is taken against the refusal of O’Donovan J to strike out, on the ground of delay, an application brought by the liquidator of an insolvent company pursuant to section 150 of the Companies Act, 1990 for an order restricting its directors from acting as director or secretary or otherwise participating in the promotion of a company for a period of five years.

2. That section applies, by virtue of section 149, to any company shown to be unable to pay its debts either at the commencement or during the course of its winding-up and to any person who was a director at the date of or within twelve months prior to the winding-up. It can be assumed, for the limited purposes of this appeal, that the section applies.

3. The most material potential relieving provision is that in section 150(2)(a) which permits a court to decline to make a declaration if it is satisfied by a director that he “has acted honestly and responsibly in relation to the affairs of the company and that there is no other reason why it would be just and equitable that he should be subject to the restrictions imposed by this section.”

4. Furthermore, the severity of the restrictions mandated by the section is significantly ameliorated by section 150(3). They do not affect participation in any public company with an allotted share capital paid up in cash of £100,000. In the case of other companies, the qualifying figure is £20,000.

5. The liquidator, in the present case, (the Applicant, Respondent on the appeal) having brought the application required by the section allowed it to lie in abeyance for more than five years, before reactivating it. I will refer to him as the liquidator. Accordingly, a chronology of the relevant facts is essential to an appreciation of the present application.

6. The liquidator by Notice of Motion dated 6 ^th December 1994 returnable for 16 ^th January 1995 gave notice to each of the directors of his intention to ask the High Court to make an order pursuant to section 150. In his grounding affidavit, he certified the insolvency of the company pursuant to section 149(1)(b) of the act.

7. The application did not proceed in 1995. Two sets of legal proceedings between the parties supervened.

8. Firstly, the directors mounted a constitutional challenge to the relevant legislation and in particular the power of the liquidator to certify insolvency. This was done by means of a motion within the liquidation. In November 1995 an order was made for the trial of this issue which was heard by Carroll J on 18 ^th June 1996 and was determined by her against the directors in her judgment dated 3 ^rd July 1996. (See Carway v Attorney General [1996] 3 I.R. 300.)

9. Secondly, the liquidator brought proceedings against the directors described variously as being based on a fraudulent preference and for mismanagement of the company (which I will call the damages claim). These proceedings were clearly serious. They were also protracted and appear to have involved several interlocutory motions and appeals to the Supreme Court. They were compromised on the agreement of the directors to pay £500,000 and the costs of the proceedings to the liquidator. The implementation of the settlement led to some further difficulties which were not fully resolved until mid 1999.

10. The liquidator gave notice on 10 ^th March 2000 of re-entry of the Notice of Motion of 6 ^th December 1994. The directors brought the present motion on 21 ^st March 2000 to have that motion dismissed on the ground of excessive delay. They said that the liquidator had delayed excessively. There was no reason for the delay after the judgment of Carroll J in July 1996 and the liquidator had given no satisfactory explanation for his subsequent delay of three years and nine months. They also said that they had assumed that the matter of the declaration was no longer being pursued especially after the December 1998 settlement.

11. O’Donovan J noted that the directors accepted that the delay during the currency of the constitutional proceedings was excusable. He also held that the delay during the period of processing of the damages claim was totally reasonable. If the directors had successfully defended those proceedings, they would probably have succeeded also in resisting the section 150 motion.

12. The directors have not contested that aspect of the decision of the learned trial judge. Thus the crucial period is that between the conclusion of the damages claim and the notice of re-entry. In this respect, the liquidator accepted that the delay was inexcusable, but said that it was not inordinate. The learned trial judge disagreed. He held that this period of delay was both inordinate and inexcusable. The liquidator has not challenged that conclusion.

13. The learned trial judge cited the decision of this Court in Primor plc v Stokes Kennedy Crowley [1996] 2 I.R. 459 to the effect that “even where the delay has been both inordinate and inexcusable the court must exercise a judgment on whether, in its discretion, on the facts the balance of justice was in favour of or against the case proceeding.” Pointing out that this passage showed that he had to exercise a discretion which required him to take into account a number of considerations relevant to where that balance of justice lay, he posed the question as to whether “the delay has given rise to a substantial risk that it is not possible to have a fair trial or is likely to cause or has caused serious prejudice to the Respondents.” In his conclusion on this issue, the learned trial judge observed the very general nature of the prejudice relied upon by the directors and referred to the public interest, admitted by the directors, in seeing that unsuitable persons should not be directors of companies. He did not consider the defendants right to a fair trial had been compromised and dismissed the motion.

14. The directors, in their appeal make two essential points:

15. It is common case that, in an appropriate case, the Court has jurisdiction to dismiss an application of the sort at issue here on the ground of excessive delay. The criteria are those laid sown in Primor, and in particular in the following passage from the judgment of Hamilton C.J. (Page 475):

16. One of the particular considerations to be taken into account in the present case is the intrinsic character of the proceeding itself. It is right to point to the mandatory character of the court’s jurisdiction. (See the judgment of Murphy J in Business Communications Limited v Keith Baxter and another, unreported 21 ^st July 1995.) The use of the word, “shall” connotes an obligation to make the declaration in the ordinary case, though the relieving provision of section 150(2) significantly qualifies that. It was fairly and properly accepted on behalf of the directors both in the High Court and at the hearing of the appeal that the section gives effect to a public interest in seeing that persons should no longer enjoy the unqualified right to become involved in the formation of companies, where they have been directors of companies which have failed due to insolvency. That public interest diminishes, it was said, when there is excessive delay such as in the present case. That proposition was contested by counsel for the liquidator, though he ultimately accepted that the public interest in question may be outweighed if there is such delay as to put a just and fair hearing at risk.

17. While it is true that there are a number of significant differences between section 150 and the provisions of the Companies Directors Disqualification Act 1986 in England, none of them seems to me to affect the appropriateness of the approach adopted in the Court of Appeal to the exercise of the jurisdiction to strike out an application for a disqualification order under the legislation on the grounds of delay. In Re Manlon Trading Ltd. [1995] BCLC 578, Staughton L.J. (at page 592) said that “the public interest in the disqualification of unfit directors may ...... have to yield to the lapse of time.” The question he posed was “whether that public interest is outweighed by the requirements of justice in the particular circumstances of the particular case.”

18. However it is expressed, I think the result is the same. There is a public interest represented by the section. However, excessive delay may render it unjust to permit the liquidator to proceed with his application.

19. I turn then to address the two propositions advanced by the directors.

20. It cannot be contested that the directors have had at all material times a right to a fair and speedy trial of the issue as to whether their normal rights to become directors and promote and take part in the formation of companies should be limited restricted or taken away. It is unnecessary, in order to establish the existence of this right, to resort to the European Convention, however undisputed the value of the rights guaranteed by that instrument at international level may be. It is inherent in the notion of fair procedures guaranteed by the Constitution, as is clear from the passage from Primor cited above, and identified in a long line of cases. (See, for example, in the field of criminal justice, S.F. v Director of Public Prosecutions [1999] 3 I.R. 235.)

21. In the present case, it appears to me that the real question is not the existence of the right but whether it has been violated. A court will not so readily infer a violation of a right where its beneficiary had at his disposal the means for its protection and failed to avail of them. This is apparent from several of the subheadings, in particular (d) of the passage quoted above from Hamilton C.J. Litigation, and more particularly civil litigation in our system of law is, as the learned Chief Justice said “a two party operation.” It is notorious that a defendant, in making the finely balanced decision as to whether he should bring a motion to dismiss, is conscious on the one hand of the possible preference for “letting sleeping dogs lie” and, on the other, that he may be accused of lack of vigilance in the protection of his own rights when he brings such a motion after a long delay by the opposing party. Finlay P, as he then was, said in his judgment in Rainsford v Limerick Corporation (unreported judgment of July 1979, but now reported at [1995] I.L.R.M. 561]):

22. When considering, in this context, decisions of the European Court of Human Rights, it is important to recall that the parties in our adversarial system enjoy greater rights to take the initiative to protect their interests than may in some cases arising from legal proceedings in contracting states outside the common-law tradition. For example, in Capuano v Italy [ 13 E.H.R.R. 271] a first instance court was considered responsible for a three year delay in the preparation of experts’ reports. Nonetheless, where the relevant codes of civil procedure leave matters to the initiative of the parties, that will, in fact, be taken into account by that court. (See Vernillo v France E.H.R.R. ?? Reference) Needless to say, it is also important to remember that the decisions of the European Court concern the responsibility not of individuals but of contracting states under the Convention. The court does not concern itself with whether particular proceedings should be dismissed by reason of delay.

23. In the present case, the relevant period of delay is either from December 1998 or mid- 1999 to March 2000. The directors, through the affidavit sworn by their solicitor, claim merely to have taken for granted that the matter was not being pursued. They made no enquiry from the liquidator, who had been pursuing them for substantial damages for several years, as to whether this was correct. They furnish no rationale for this conclusion. Indeed, to the extent that any rationale can be deduced, it would seem to run to the contrary of this argument. However, any comment on aspect of the matter should be reserved so as not to prejudice the hearing of the motion. I am satisfied that this argument is without merit.

24. The other issue is prejudice. Only the most general prejudice is alleged. Firstly, the allegation of the existence of prejudice by reason of the pendency of the proceedings seems contradicted by two matters. Firstly, during the greater part of the period, the liquidator was pursuing serious claims for damages against the directors personally. That would appear, on the facts of this case, likely to have been at least as prejudicial to their reputations as the effect of the pendency of the section 150 motion, indeed probably more so. In any event, prejudice arising from the pendency of the application is so some extent the inevitable result of the expectation, even if an obligation is not to be presumed, of the liquidator to bring an application under the section (admittedly the section is silent on this – see Murphy J in Business Communications, cited below ). It is only to the extent that the application is pending for an excessively long period, that relevant prejudice can be invoked. Peter Gibson L.J. stated in Manlon Trading: “Prejudice resulting from the mere pendency of proceedings if not caused by such delay, seems to me to be irrelevant.” In the result , the relevant period in the present case, is that which occurred after the conclusion of the settlement of the damages claim. In respect of that precise period, the directors have in fact said not that they were prejudiced but that they had taken for granted that the application was not proceeding.

25. The remaining matter is the claimed general prejudice necessarily occasioned by delay in any civil action and consisting of the dimming of memories, the loss of evidence and any other elements tending to compromise the fairness of the hearing. Here, it is notable that the directors enjoy the right to seek to persuade the court of their effective stewardship of the affairs of the company – that they acted “honestly and responsibly.” They may bring forward evidence to establish that fact. If they were truly placed at a disadvantage in attempting to exercise that statutory right, that would be a most relevant consideration on the hearing of a motion to dismiss the liquidator’s application, but it is clear from the cases that the burden of proof of that fact lies on the applicant, in this case the directors. As is admitted, they have produced no such evidence. That is not surprising. The directors were on notice from an early date of the existence of the application. They were fully aware of its importance to the extent of bringing a constitutional challenge to the validity of the section. Furthermore, they were engaged for some four to five years in protracted litigation with the liquidator about their management of the company. There is, in short, no basis for presuming prejudice. In my view, prejudice will not be presumed.

26. That is enough to dispose of the application. I believe the learned trial judge correctly identified the discretion he had to exercise and correctly exercised it. I would dismiss the appeal.