Southern Mineral Oil Ltd. (No.2) v. Cooney [1998] IEHC 67; [1999] 1 IR 237; [1998] 2 ILRM 375 (11th May, 1998)

JUDGMENT delivered by Mr Justice Peter Shanley the 11th day of May 1998. 1. On the 10th February, 1995, Mr Justice Murphy ordered that an issue be tried on oral evidence in respect of the reliefs sought in a Notice of Motion dated the 18th August, 1994. In the Notion of Motion relief was sought against the Respondents for Declarations pursuant to Sections 297 and of the Companies Act, 1963 and for an Order for the examination of the conduct of the Respondents pursuant to Section 298 (2) of the Companies Act, 1963 , and further for an Order compelling the Respondents to contribute to the assets of the companies, such sum as the Court might think just. It is common case that the events in relation to which the entitlement to relief is sought occurred in 1988, being the year in which each of the companies in the title to these proceedings was wound up. 2. After the issue of the Notice of Motion dated the 18th August, 1994, the Respondents sought (by way of a Notice of Motion dated the 7th December, 1994) an Order dismissing the Notice of Motion on the grounds of want of prosecution. Murphy J. refused to so dismiss the Motion as did the Supreme Court on appeal (Keane, Lynch and Barron J. J., unreported, 22nd July, 1997). In an obiter dictum, Lynch J said (at page 6 of his unreported Judgment):- "On my reading of Sections 297 and of the Companies Act, 1963 under which these proceedings are brought, neither the Revenue Commissioners nor the Liquidator are entitled to bring them in the name of the Companies". 3. Both Keane and Barron J. J. agreed that this question, as to whether the proceedings were properly constituted, was one which would have to be determined by the High Court . 4. The present application is one made by the Liquidator of each of the two companies to substitute himself as Applicant in place of those companies in respect of the issue ordered to by tried by Mr Justice Murphy on 10th February, 1995. This Court is not being asked to decide on the issue raised by the members of the Supreme Court in each of their Judgments of 22nd July, 1997. THE SUBMISSIONS OF THE PARTIES 5. Counsel for the Applicant relied on Order 15 of the Rules of the Superior Courts and in particular Rules 2 and 13 of that Order. The Court, said Counsel for the Applicant, had jurisdiction at any stage in any proceedings to join any party "who ought to have been joined or whose presence before the Court may be necessary in order to enable the Court to effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter". (Order 15, Rule 13). He also submitted that Order 15, Rule 2, of the Rules of the Superior Courts allowed for the joinder of a plaintiff where the Court is satisfied that the action was commenced in the name of the wrong person as plaintiff through a bona fide mistake and that it was necessary for the determination of the real matter in dispute so to do. Counsel for the Respondents, on the other hand, said that Order 15, Rule 2, had no application to the facts of the instant case being a rule intended to cover situations where a party was mistakenly described or named, such that the wrong party ends up suing or being sued. Counsel for the Respondents submitted that such circumstances do not exist in the present case and that no evidence has been led on behalf of the Applicant of any bona fide mistake so as to allow the Rule (Order 15, Rule 2) to be invoked. The Respondents also submitted that even if the Court was satisfied that a mistake had been made, it should not make an Order when to do so would contravene what was suggested was a well established rule of practice that a Court will not add a party after the expiry of the relevant limitation period. THE APPLICABLE LAW 6. The events which give rise to the claim for relief occurred in 1988 before the enactment of the Companies Act, 1990 : Therefore, the applicable sections of the Companies Act, 1963 , in respect of which relief is claimed, are Section 297 and of the 1963 Act. Section (1) provides:- "If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court, on the application of the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or liabilities of the company as the Court may direct". Section (1) of the 1963 Act provides:- "If in the course of winding up a company it appears that any person who has taken part in the formation or promotion of the company, or any past or present director or liquidator or any officer of the company, has misapplied or retained or become liable or accountable for any money or property of the company, or been guilty of an misfeasance or breach of trust in relation to the company, the Court may on the application of the liquidator or of any creditor or contributory, examine the conduct of the promoter, director, liquidator or officer, and compel him to repay or restore the money or property or any part thereof respectively with interest at such rate as the Court thinks just, or to contribute such sums to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the Court thinks just". 7. The first question that arises is what, if any, limitation period applies to the present claim? For present purposes it is sufficient to look at that part of the claim which is founded upon Section 297 of the Companies Act, 1963 : Section 297 (1) involves, inter alia, an assessment of the conduct of a director by a Court in consequence of which the Court may, in its discretion, declare the director to be personally liable for all or any of the debts of the company. It is the director's conduct which causes the discretion of the Court to be exercised. If as a result of the exercise of that discretion a sum of money becomes payable by the director, the cause of action is not founded upon the Declaration, but rather upon the conduct which gives rise to the Declaration in the first place. 8. While the cause of action accrues at the time of the act of fraudulent trading of the director, the next issue is, what is the period of limitation? Section (1)(e) of the Statute of Limitations, 1957 provides that: "The following actions shall not be brought after the expiration of six years from the date upon which the cause of action accrued. (e) Actions to recover any sum recoverable by virtue of any enactment ...." 9. While the proceedings brought pursuant to Section 297 of the Companies Act, 1963 are for a Declaration that the Respondents should be personally liable for the debts of the companies, they are nonetheless, in my opinion, "an action to recover any sum recoverable by virtue of any enactment" despite the fact that the Court has a discretion as to whether or not to make a Declaration and equally has a discretion as to what debts it will make the director liable for in the event of it making such a Declaration. Thus, if I am correct in the view that the cause of action is not founded upon the Declaration made pursuant to Section 297 of the Act but rather upon the conduct which gives rise to the Declaration in the first place, then the cause of action in the instant case accrued in 1988 prior to the winding-up of each of these companies. In the case of Re. Farmizer (Products) Limited, Moore & Anor v. Gadd & Anor BCLR 589 , the Court of Appeal in England and Wales had to consider a similar issue under similar but not identical legislation. Section 214 of the Insolvency Act, 1986 dealt with a form of fraudulent trading. It provided in sub-section (1):- "..... If in the course of the winding-up of a company it appears that sub-section (2) of this section applies in relation to a person who is or has been a director of the company, the Court on the application of the liquidator may declare that that person is to be liable to make such contribution (if any) to the company's assets as the Court thinks proper." 10. Section 9(1) of the Limitation Act, 1980 in England and Wales provided: "An action to recover any sum recoverable by virtue of any enactment shall not be brought after the expiration of six years from the dates on which the cause of action accrued......." 11. Peter Gibson L. J. giving his Judgment (with which the other members of the Court agreed) said at page 599: "Does the fact that the Court has a discretion whether to make a Declaration at all, even if it appears to the Court that Section 214(2) applies, and as to the amount of the contribution, if any, cause the claim made not to be an action to recover any sum recoverable by virtue of any enactment? I do not think so. If one asks, 'By virtue of what is the sum of £1.25 million recoverable?', the answer would surely be: 'By virtue of Section 214'. It is of course only capable of being recovered if the Court chooses to make the Declaration after the statutory conditions are shown to be satisfied, but I have no difficulty in holding that Section 9 of the 1980 Act applies to such a case. Mr Oliver accepted that the recoverable sum under the section could be damages. That the Court with jurisdiction to award the recoverable sum has a discretion was not a matter which deterred Lord Goddard C. J. in West Riding of Yorkshire C. C. v. Huddersfield Corporation 1957 1 All England Reports 669, 1957 1 QB 540, when he held that for the purposes of the predecessor to Section 9(1), proceedings for an Order for a financial adjustment under Section 151 of the Local Government Act, 1933 , were an action for the recovery of any sum recoverable by virtue of an enactment . I therefore agree with the Judge's conclusion that Section 9 (1) is the applicable provision of the 1980 Act." 12. Accordingly, I am of the view that the causes of action in relation to which relief is sought under Sections 297 and of the Companies Act, 1963 accrued in 1988, that the relief sought is for "the recovery of any sum recoverable by virtue of any enactment" (Section 11(1)(e) of the Statute of Limitations, 1957) and that the period of limitation is six years. 13. Order 15, Rule 2, of the Rules of the Superior Courts provides:- "Where an action has been commenced in the name of the wrong person as plaintiff, or where it is doubtful whether it has been commenced in the name of the right plaintiff, the Court may if satisfied that it has been so commenced through a bona fide mistake, and that it is necessary for the determination of the real matter in dispute so to do, order any other person to be substituted or added as plaintiff upon such terms as may be just." 14. Order 15, Rule 13, of the Rules of the Superior Courts provides:- "No cause or matter shall be defeated by reason of the misjoinder or non-joinder of parties, and the Court may in every cause or matter deal with the matter in controversy so far as regards the rights and interests of the parties actually before it. The Court may at any stage of the proceedings either upon or without the application of either party, and on such terms as may appear to the Court to be just, order that the names of any parties improperly joined, whether as plaintiffs or as defendants, be struck out and that the names of any parties, whether plaintiffs or defendants, who ought to have been joined, or whose presence before the Court may be necessary in order to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter, be added. No person shall be added as a plaintiff suing without a next friend, or as the next friend of a plaintiff under any disability without his own consent in writing thereto. Every party whose name is so added as defendant shall be served with a summons or notice in manner hereinafter mentioned, or in such other manner as the Court may direct, and the proceedings as against such party shall be deemed to have begun only on the making of the Order adding such party." In O'Reilly -v- Granville , 1971 IR 90 , the Supreme Court was dealing with an application by a plaintiff to add a defendant, pursuant to the provisions of what is now Order 15, Rule 13. The Court allowed the plaintiff add the defendant although the limitation period had expired as against that defendant. O'Dalaigh C. J. said at pages 93 and 94:- "Counsel for the proposed new defendant has supported the Order of the High Court because as he urged, the effect of adding his client as a defendant would be to deprive the client of his right to raise the Statute of Limitations. The underlying basis of this submission is that, if added now, the proposed defendant would be treated as if he had been a party when the proceedings were first issued. I have already cited the concluding words of Order 15, Rule 13, which purport to fix the date of service of the originating summons as the date of the beginning of the proceedings against the new defendant. Even if these words of Order 15, Rule 13, were intended only to regulate procedural matters - e.g. to fix a date as from which an appearance shall be entered - in my opinion the position will be substantially the same as a matter of substantive law. An added party cannot be considered to have been a party to the proceedings earlier than the Order giving leave to add. It would be contrary to the fact to hold otherwise; to operate retrospectively the Court's Order would, in my opinion , require statutory support. I find nothing in the rules or in substantive law which would restrict the proposed defendant's right to raise the Statute of Limitations if added as a party and by this I mean that the defendant's rights to plead the statute (such as they are) cannot be affected adversely by being added as a party now." 15. Later, again at page 94, O'Dalaigh C. J. observed:- " First, the statute is not disregarded because the added party's rights are not affected and, secondly, the statute is required to be specifically raised by pleading - the rules say so. It is well established law that a Statute of Limitations which merely bars the plaintiff's remedy must be disregarded unless pleaded in a defence; it is only a Statute of Limitations which extinguishes the plaintiff's right which can be relied upon without being pleaded." 16. Budd J. agreed with the Chief Justice: He said at pages 109-110 as follows:- "Rule 13 of Order 15 does not in any way render it pointless to add the proposed defendant as defendant, nor does it destroy his right to rely upon the statute if and when pleaded. The learned Judge did not have before him the full facts (which have yet to be determined) and was not entitled to refuse the Order sought on such material as was before him, particularly as the facts were in dispute. The plaintiff has made a strong prima facie case to support his contention that the statute does not apply against him by reason of an implied agreement not to rely on it or by reason of waiver or estoppel and he is entitled to have the matter determined at the hearing of the proceedings. Moreover, the ruling of the learned Judge was premature. The statute is a matter of defence and does not arise as such until pleaded and it was not open to the Judge to rule as he did at this stage of the proceedings - particularly when the facts were still in issue." 17. Whilst the views of Budd J. were stated clearly, namely, that the statute is a matter of defence and does not arise as such until it is pleaded, nonetheless at page 106 of the same Judgment he said as follows:- "If it were apparent beyond doubt that the statute applied to this case, an application to add the proposed defendant as a party might very well be refused as being a futile operation; but that is not the position here." 18. The attitude of the Supreme Court, as expressed in 1971 by O'Dalaigh C. J. and Budd J. in O'Reilly -v- Granville (that the statute was a matter of defence and does not arise until pleaded) to applications to join parties to proceedings has changed somewhat as can be seen from the decision of the present Supreme Court in Allied Irish Coal Supplies Limited -v- Powell Duffryn International Fuels Limited , (unreported Judgment, 19th December, 1997) . In that case, Mr. Justice Murphy delivered a Judgment (with which Lynch and Barron J. J. concurred). One of the matters in issue was an application by the plaintiff to add a party as a defendant. The trial Judge had refused to add the party as a defendant and the Supreme Court affirmed that decision. Murphy J. said at page 8 of his unreported Judgment:- "It is a well established rule of practice that a Court will not permit a person to be made a defendant in an existing action at a time when he could rely on the Statute of Limitations as barring the plaintiff from bringing a fresh action against him." 19. It appears to me that I am bound to follow the later decision of the Supreme Court in Allied Irish Coal Supplies Limited , supra. 20. As to Order 15, Rule 2, of the Rules of the Superior Courts there is a similar, but not identical, rule in the English Rules of the Supreme Court; Order 20, Rule 5(1), (2) and (3) provide as follows:- "(1) Subject to Order 15, Rules 6, 7 and 8 and the following provisions of this rule, the Court may at any stage of the proceedings allow the plaintiff to amend his writ or any party to amend his pleading, on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct. (2) Where an application to the Court for leave to make an amendment mentioned in paragraph (3), (4) or (5) is made after any relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in such circumstances mentioned in that paragraph if it thinks it just to do so. (3) An amendment to correct the name of a party may be allowed under paragraph (2), notwithstanding that it is alleged that the effect of the amendment will be to substitute a new party if the Court is satisfied that the mistake sought to be corrected was a genuine mistake and was not misleading or such as to cause any reasonable doubt as to the identity of the person intending to sue, or as the case may be, intended to be sued........" 21. The effect of these rules was considered in the English case of Evans Construction Company Limited -v- Charrington & Company Limited & Anor , 1983 1 AER 310 , where Donaldson L. J., in the Court of Appeal said:- "In applying RSC, Order 20, Rule 5(3), it is in my Judgment important to bear in mind that there is a real distinction between suing A in the mistaken belief that A is the party who is responsible for the matters complained of and is seeking to sue B but mistakenly describing or naming him as A and thereby ending up suing A instead of B. The rule is designed to correct the latter and not the former category of mistake. Which category is involved in any particular case depends on the intentions of the person making the mistake and they have to be determined on evidence in the light of all the surrounding circumstances." 22. In the more recent case of Re. Probe Data Systems , 1989, BCLC 561 , the Secretary of State for Trade and Industry in England Wales applied to the Court under RSC, Order 20, Rule 5(3) for leave to amend an originating summons to substitute himself as applicant instead of the official receiver. Millet J., refusing the application, said at page 563:- "At first sight it may appear that in order to substitute a new plaintiff there are two requirements which must be satisfied. First, that the mistake sought to be corrected was a genuine mistake; and second, that it was not misleading or such as to cause any reasonable doubt as to the identity of the intended plaintiff. That is not the case, for not every mistake can be corrected by amendment under Order 20, Rule 5(3). The mistake must have been at mistake as to the name or identity of the party." CONCLUSIONS 23. I deal firstly with the claim that the Liquidator can be substituted as Applicant pursuant to Order 15, Rule 2, of the Rules of the Superior Courts. In my view he cannot. The Applicant has not sought to lead any evidence of the occurrence of a bona fide mistake such as would be necessary to establish before the jurisdiction given by Order 15, Rule 2, could be exercised. The Liquidator clearly intended to institute the proceedings in the name of the companies in liquidation and he did so believing this was the correct way to proceed. As Millet J. said in Re. Probe Data Systems, supra, the intended Applicant and the actual Applicant were one and the same person. The Liquidator's mistake (if mistake it be) was to sue in the companies name in the mistaken belief that the companies were possessed of the cause of action as opposed to the Liquidator himself. This is not a category of mistake to which Order 15, Rule 2, applies. Equally, adopting the second of the requirements cited by Millet J., it seems clear that the Respondents at all material times were of the view that the Applicants were the companies in liquidation and not the Liquidator. To now allow an amendment would be to suggest that the Respondents at all material times were in no real doubt but that the intended Applicant was in fact the Liquidator. This is patently not the case and for these reasons liberty to substitute the Liquidator for the companies in liquidation pursuant to Order 15, Rule 2, will be refused. 24. If the observations of the Supreme Court are correct (as to who is the appropriate Applicant) then clearly the Liquidator is a party whom the Court would ordinarily consider adding as a party pursuant to Order 15, Rule 13, of the Rules of the Superior Courts: He is clearly a party who ought to have been joined in the action. However, it seems clear that, ten years after the alleged fraudulent trading and misfeasance of the Directors, any cause of action which the Liquidator has against the Directors is barred, having regard to the applicable six year period of limitation provided for in Section (1)(e) of the Statute of Limitations, 1957. There is nothing in the Affidavits which were before me which suggest that the limitation period has not expired. While it may be argued that the Court should allow the application and let the Directors plead the statute in their defence, the decision in Allied Irish Coal Supplies Limited, supra, requires that I do not allow the substitution of a plaintiff in circumstances where that plaintiff's cause of action is clearly barred. Accordingly, in the absence of any suggestion that the action is not barred, I refuse all the reliefs sought by the Liquidator in his Notice of Motion. © 1998 Irish High Court BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII