5
March 1998
HAMILTON
CJ:
I
agree with the judgment to be delivered by Keane J
BARRINGTON
J:
I
also agree with Keane J
KEANE
J:
The
factual background
The
background to these proceedings is so well known to the parties and has been so
frequently set out in detail in judgments of the High Court and of this Court
that the briefest of summaries will be sufficient for the purposes of this
judgment.
More
than a quarter of a century ago, four people, associated with one another
through business or marriage, bought lands near Navan under which there lay a
vast and valuable ore body. They are the personal plaintiffs and defendants in
these proceedings. That ore body extended under adjoining lands and it had been
discovered by an exploration company, Tara Mines Limited ("Tara"), who had been
granted a lease for the purpose of exploiting it by the Minister for Industry
and Commerce, as he was then styled. An unsuccessful effort having been made by
the Minister compulsorily to acquire the minerals under the lands purchased by
the plaintiffs and the first and second defendants, he decided to acquire a 49%
interest in Bula Limited, the company formed by those two groups, with a view
to the exploitation of the ore body ("Bula").
The
development of the ore body by Bula entailed borrowing on a substantial scale
by Bula from a number of banks. As security for the loans, the banks took
mortgages and charges over the lands of Bula and, in addition, personal
guarantees by the four personal plaintiffs and defendants in these proceedings.
Since,
until such time as the mine was in production, Bula would have little or no
cash flow, it was obvious that it should get into production with the minimum
delay. It is one of the remarkable features of the case that some fourteen
years after the lands had been acquired by Bula, no mining whatever had taken
place. During all that time, of course, interest had been accumulating on the
large borrowings, and on the 8th October, 1985, the banks appointed Mr Laurence
Crowley to be receiver and manager of Bula. At this time, the banks also
obtained judgment against the personal plaintiffs and defendants on foot of
their guarantees. An order was also made for the winding up of the company by
the High Court, but set aside by this Court on appeal.
In
1986, Bula, and an associated company called Bula Holdings ("Holdings"),
together with the four personal plaintiffs and defendants in the present
proceedings, began an action against Tara and a number of other defendants,
including the Minister for Energy, the successor of the Minister for Industry
and Commerce. These proceedings are hereafter referred to as "the Tara
proceedings". The same plaintiffs also began proceedings at that time against
the receiver, four of the banks concerned and a firm of consultant mining
engineers. Those proceedings are hereafter referred to as "the bank
proceedings".
In
the Tara proceedings, the plaintiffs made a number of claims against the
defendants, including claims that they conspired with each other to cause
economic loss to the plaintiffs and, in the case of Tara, a specific allegation
that they had trespassed on to Bula's ore body and unlawfully extracted and
converted to their own use a significant part of that ore body. In the bank
proceedings, claims were made that the receiver had acted negligently and that
he and the bank who had appointed him were liable in damages to the plaintiffs.
It was also claimed against the Northern Bank Finance Corporation that they
were bound to continue interim finance until long term finance was available
and that they and the other banks conspired with the Minister and Tara to bring
about economic loss to Bula.
Even
by the standards that we have become unhappily accustomed to, the delay in
bringing both cases to trial was inordinate. This was not least because of the
enormous number of interlocutory applications (almost invariably followed by an
appeal to this Court) and the avalanche of documentation which the proceedings
generated.
Thus,
it was not until towards the end of 1993, that the trial of the Tara
proceedings began at long last before Lynch J The case was at hearing before
him for 277 days, and in a reserved judgment delivered on the 6th February,
1997, he dismissed all the claims made by the plaintiffs in those proceedings
and awarded the costs to the defendants. A notice of appeal has been served on
behalf of the plaintiffs and the appeal awaits hearing in this court.
The
bank proceedings came to trial before Barr J in the High Court early last year
(1997). The plaintiffs in those proceedings were given leave by the court to
amend their pleadings so as to include a claim that the title of the various
banks concerned to Bula's lands and assets under their mortgages and charges
and to the principal sums and interests secured by those mortgages and charges
had been extinguished by virtue of the provisions of the Statute of
Limitations, 1957. When the action had been at hearing for seventeen days
before Barr J, he was informed by counsel for the plaintiffs that it was now
accepted on behalf of the plaintiffs that if the findings of fact made by Lynch
J in the Tara proceedings were upheld on appeal by this Court, the plaintiffs'
action against the bank would also fall to be dismissed, unless they could
succeed on the Statute of Limitations issue. In the light of that concession,
and having heard submissions from counsel for the plaintiffs and the defendants
as to what was the appropriate course in those circumstances, Barr J decided to
adjourn the trial to await the outcome of the appeal to this Court in the Tara
proceedings, subject to certain conditions and undertakings, including an
undertaking by the plaintiffs to prosecute their appeal in the Tara proceedings
diligently and expeditiously and not to institute any further proceedings
against the defendants in respect of any alleged wrongdoing of which they were
then aware or, in the opinion of the court, ought to be aware. On the
application for the adjournment, the court was informed by counsel on behalf of
the plaintiffs that his clients had resolved their differences with the firm of
consultant mining engineers and the proceedings against them were struck out.
The
s. 205 proceedings
A
serious divergence of view between the plaintiffs and the first and second
defendants as to the manner in which the litigation on behalf of Bula and the
other plaintiffs was being conducted, and possible compromises dealt with, led
ultimately in January, 1993, to the presentation of a petition to the High
Court under
s. 205 of the
Companies Act, 1963, in which it was claimed that the
affairs of Holdings were being conducted in an oppressive manner by the first
and second defendants and in disregard of the interests of the plaintiffs as
members of Holdings. (It should be observed in passing that the interests of
the plaintiffs and the first and second defendants in Bula are held through the
medium of their respective shareholdings in Holdings, the first and second
defendants owning 60% of the shares in Holdings and thus being in control of
that company.) Those proceedings, and the appeal taken by both parties to this
court from the order of Murphy J, were heard in camera, both the High Court and
this Court being of the view that the disclosure of information being presented
to the court would be seriously prejudicial to the legitimate interests of the
company and that justice required that the whole of the proceedings should be
heard otherwise than in public. For the same reasons, neither the judgment in
the High Court nor the judgments of this Court on the appeal were made public.
In
these circumstances, the summary of the conclusions of the High Court and this
Court on appeal cannot be as ample as it might in other circumstances. It is
sufficient to say, however, that Murphy J was satisfied in the High Court that
the action of the first and second defendants, then in control, in rejecting
particular offers of compromise in both proceedings constituted what he
described as "an improvident gamble" and, in the result, amounted to oppression
and a disregard of the interests of the other shareholders within the meaning
of
s. 205 of
the Act of 1963. Those conclusions were unanimously upheld by this
Court.
The
order of Murphy J, as varied on appeal, provided that the plaintiffs:-
"...
should be in control of any negotiations to be conducted on behalf of
(Holdings) for the settlement of the said action and be entitled to settle the
same by way of negotiation if that can be done on terms broadly similar to
those already offered but not on any less advantageous terms unless agreed by
all the members of the company or approved by the High Court."
Since
it had been made clear on behalf of the defendants in both the Tara proceedings
and the bank proceedings that they were unwilling to enter into any compromise
in either set of proceedings unless all the plaintiffs, including the personal
plaintiffs, were bound by the settlement, the plaintiffs in the present
proceedings also sought from the High Court an order requiring all of the
parties, whether as directors or as personal litigants, to join in the
acceptance of an offer which had then been made to compromise the proceedings,
provided it was still available. Murphy J declined to make such an order on the
ground that he was not satisfied that the court had power to make such an order.
That
conclusion was upheld on appeal to this Court, Finlay CJ saying:-
"The
claims made by the first and second defendants as plaintiffs jointly with the
company in the Tara action and in the banks action are claims of personal loss
and damage and personal liabilities incurred as a result of wrongful acts not
merely derivative from the allegations contained in the same proceedings that
wrongful acts were committed to the loss and damage of the companies. In
particular their claims are framed upon the basis of an unlawful interference
with their constitutional right of property and of the protection of their
individual property. It may well be, as it was asserted on behalf of the
petitioner, that it is difficult to see these claims succeeding were the claims
of the companies to fail. It is not, it seems to me, impossible to conceive of
these claims succeeding even if the claims of the companies were discontinued."
Having
pointed out that the petitioners were not in a position to assert that the
actual institution of these personal claims by the first and second defendants
was wrongful, since they had made identical claims themselves as individuals in
those proceedings, the learned Chief Justice continued:-
"The
complaint that is made is not that the first and second defendants would desire
to continue their proceedings irrespective of any settlement of the company's
proceedings against both Tara and the bank, but rather is that by reason of the
stipulation by the defendants in both these actions that they will not settle
with the company separately from settling with all the other parties involved
that it is impossible for the company to settle unless the first and second
defendants are forced to settle also.
Having
regard to the constitutional right to litigate and having regard in addition to
the fact that the particular form of litigation with which we are involved in
this case in part at least is a claim, be it valid or otherwise, that
constitutional rights of property have been interfered with, it seems to me
that
s. 205 of
the Act of 1963, so clearly designed and expressed to deal with
the affairs of a company, could not by implication include the right to prevent
a citizen from litigation. If it were established in any case that members of a
company, in addition to acts of oppression or disregard of interest to other
members, were maintaining or intending to institute proceedings which
constituted an abuse of the process of the court in the sense that it was not
being done for a valid intention or hope of obtaining relief but rather for
some other indirect or improper motive, then it might well be that the court
might be entitled to intervene but, if it were, it would appear more probable
that it could be entitled to intervene in order to prevent abuse of its own
processes. However, I am not satisfied that it is possible on the facts in this
case and having regard to the terms of
s. 205 of
the Act of 1963 to grant the
additional relief sought by the petitioner."
O'Flaherty,
Egan and Denham JJ. agreed with the Chief Justice. Blayney J in a separate
judgment came to a similar conclusion, but for a somewhat different reason.
Since it is a necessary precondition to the making of an order under
s. 205(3)
of
the Act of 1963, that the company's affairs are being conducted or the
directors' powers being exercised oppressively or in disregard of the interests
of other members and since, in the instant case, the institution and
prosecution of the relevant claims was by the first and second defendants in
their personal capacities and not as directors of Holdings, it followed, in his
view, that the necessary condition for the making of an order under
s. 205(3)
of
the Act of 1963, had not been met.
The
personal claims
The
personal claims of the plaintiffs in the Tara proceedings and the bank
proceedings were withdrawn. The personal claims of the first and second
defendants in the Tara proceedings are primarily for monies which they have
lent to Holdings, but also include a claim that they have suffered "severe
embarrassment and loss of prestige in their personal lives as a result of their
inability to meet financial commitments," this being due, as they claim, to the
wrongdoing of the defendants. Their personal claim in the bank proceeding is to
have all the securities and guarantees on which the banks rely set aside,
including the judgments obtained on foot of them, and a claim for damages for
breach of their constitutional rights, including their rights to good name and
property.
It
is in the highest degree improbable that these claims, and the claims since
abandoned by the personal plaintiffs, would have been maintained in independent
proceedings if the Tara proceedings and the bank proceedings had never been
instituted. It is also clear, that the first defendant, has accepted that his
personal claims in the Tara proceedings are subsumed in those of the corporate
plaintiffs. Thus, on any view, these claims are somewhat exiguous. At the same
time, it cannot be plausibly argued that their status is so eroded that they
have ceased to have any viable independent existence. The second defendant, has
not made a similar concession to that made by the first defendant. So far as
the bank proceedings are concerned, it is undoubtedly the case that, in the
light of the concessions made at the hearing before Barr J if the plaintiffs in
the Tara proceedings fail in their appeal to this Court, the only issue
remaining to be determined by the High Court will be that arising under the
Statute of Limitations, 1957. It is, however, the case that if those
proceedings were compromised on terms acceptable to the plaintiffs and approved
by this Court, those terms might not include the total abandonment by the banks
of their claims on foot of the guarantees against the personal plaintiffs and
the personal defendants. In that event, the personal plaintiffs might wish to
be in a position to contest the Statute of Limitations issue on the basis that
it would, if successful, relieve them completely from their liability under the
guarantees.
The
plenary proceedings
The
orders of the High Court and the Supreme Court in those proceedings were made
while the Tara proceedings were at hearing before Lynch J Following the
determination of the Tara proceedings, the plaintiffs re-entered the petition
under
s. 205 of
the Act of 1963 and also presented a new petition. They no
longer claimed to be entitled to an order requiring the personal plaintiffs in
the Tara proceedings and the bank proceedings to join in any settlement
approved by the High Court. At the same time, however, they issued these
plenary proceedings, the statement of claim in which alleges inter alia that:-
"All
efforts by and on behalf of the plaintiffs to compromise the Tara proceedings
and the bank proceedings have been and are being frustrated and obstructed by
reason of the fact that the first and second defendants have continued to
maintain their personal claims in both the Tara proceedings and in the bank
proceedings and have refused to withdraw those claims notwithstanding that all
claims made by them in the Tara proceedings were dismissed by Lynch J in
categorical terms."
The
plaintiffs say that, in so acting, the personal defendants are acting in breach
of their fiduciary and other duties to the personal plaintiffs; are acting
negligently and in breach of their duty of care to Bula, Holdings and the
plaintiffs; and, are acting in disregard of the plaintiffs' constitutional
rights, including their rights of property, their rights to earn a livelihood
and their good name. They then claim inter alia :-
"(e)
An order restraining the first and second defendants or either of them from
frustrating any attempts made by or on behalf of the plaintiffs to compromise
the Tara proceedings and the bank proceedings by continuing to maintain their
personal claims in both or either of the Tara proceedings and the bank
proceedings.
(f)
An order directing the first and second defendants to withdraw their personal
claims in the Tara proceedings and in the bank proceedings in order that
further attempts may be made by or on behalf of the plaintiffs to compromise
both the Tara proceedings and the bank proceedings on behalf of all the
plaintiffs in those proceedings (if necessary) subject to the supervision and
approval of the court;
(g)
An injunction restraining the first and second defendants or either of them
from acting or continuing to act in breach of their fiduciary duties as
directors of Bula and of Holdings by maintaining and continuing to maintain
their personal claims in the Tara proceedings and in the bank proceedings ...
(i)
In the alternative, an order directing the first and second defendants to
confer upon the plaintiffs authority to negotiate on behalf of all the
plaintiffs in the Tara proceedings and in the bank proceedings with the
defendants in those proceedings with a view to attempting to compromise both
the Tara proceedings and the bank proceedings and to accept any reasonable
offer made on behalf of the defendants in the Tara proceedings and in the bank
proceedings to compromise both sets of proceedings, if necessary, subject to
the supervision and approval of this honourable court."
The
plaintiffs having brought a motion for interlocutory relief of this general
nature, Murphy J directed that the hearing of the motion be treated as the
trial of the action. Having heard the
s. 205 proceedings and these proceedings,
he gave written judgments in both on the 27th March, 1997. In the
s. 205
proceedings, he made an order in broadly similar terms to the order made by
this Court on the appeal from the hearing of the first petition.
In
these proceedings, Murphy J summarised the case being made on behalf of the
plaintiffs as follows.
First,
in maintaining and pursuing the bank proceedings and the Tara proceedings on
behalf of Holdings and Bula, the first and second defendants owed a fiduciary
duty to the plaintiffs in these proceedings, and that the maintenance and
perseverance in the individual claims on behalf of the first and second
defendants in those proceedings to the detriment of the claim of Bula and
Holdings constituted a breach of that trust. Secondly, it was contended that
the exercise by the first and second defendants of their constitutional rights
to assert individual claims flowing from or dependent upon the rights of Bula
and Holdings constituted an abuse of the constitutional rights of the
plaintiffs.
Having
reviewed the authorities, Murphy J summarised his view of the first limb of the
plaintiffs' claim as follows at p. 575:
"At
the present time, I have no doubt that the continuance of the litigation
without exploring fairly and fully the prospects of settlement is wholly
irresponsible. On the other hand, I cannot find sufficient material from which
to infer the existence of duties in the nature of a trust imposed on the
defendants or either of them above or beyond such duties as they would have in
their capacities as directors of the companies concerned ...
Whilst
I have already indicated that I accept that duties may be imposed or accepted
by parties above and beyond those derived from particular offices or status, I
believe that the presumption must be that parties who elect to have their
relationship governed by corporate structures rather than, say, a partnership
intend their duties - and where appropriate their rights and remedies - to be
governed by the legal provisions relating to such structures and not otherwise.
It would require, in my view, reasonably clear evidence to impose obligations
on directors or shareholders above and beyond those prescribed by legislation
or identified by long established legal principles. In my view, the requisite
evidence is not forthcoming in the present case and accordingly the claim under
this heading must be dismissed."
As
to the second limb, Murphy J, having pointed out that the plaintiffs and the
first and second defendants had entered into orthodox commercial transactions
involving the exercise by them of their constitutional rights and the necessary
limitation of those rights by the commercial commitments they had made, went
on:-
"Such
restrictions may be so extensive as to amount to the abandonment of a
particular constitutional right - a gift would fall into that category - or the
transaction may be such, as is the case here, that the constitutional rights of
the parties have been so intertwined as a result of arrangements freely entered
into by them as to make it difficult, if not impossible, for them to exercise
their individual rights otherwise than in conjunction with their associates ..."
Having
referred to the fact that
s. 205 of
the Act of 1963 is a recognition that such
difficulties may arise as a result of commercial transactions, he concluded:-
"However,
even in that case the legislative remedy cannot be invoked unless some wrongful
element is identified. In my view, the conduct of the defendants in the present
action in refusing or declining to co-operate with Bula and Holdings in
negotiating a settlement at the instigation of the plaintiffs amounts to folly
in the extreme and a course which I believe they will have every reason to
regret, but that does not give me the right to restrain it. Indeed, the nature
and essence of a constitutional right is the freedom to exercise it in a way
which popular and expert opinion may regard as ill-advised.
In
the circumstances, it seems to me that the claim based on the constitutional
arguments likewise fails."
Submissions
of the parties
On
the hearing of the appeal in this Court, counsel for the plaintiffs submitted,
in the first instance, that, apart from any damage caused to the plaintiffs as
shareholders in Holdings, the maintenance by the personal defendants of their
individual claims was causing damage to Holdings itself and that the present
proceedings were being prosecuted by the plaintiffs on behalf of Holdings. He
submitted that, while such an action would normally be precluded because of the
general principle of law that a person cannot bring proceedings for damage
caused to someone else, applied in particular to companies by the decision in
Foss v Harbottle
(1843) 2 Hare 461, the present proceedings came within the
ambit of one of the exceptions to that rule, since the conduct complained of
constituted a fraud on the minority perpetrated by the majority who are in
control of the company. Counsel for the plaintiffs acknowledged that this
argument had not been advanced to the learned trial judge and was not reflected
in the written submission furnished on behalf of the plaintiffs on the hearing
of the appeal.
Counsel
for the plaintiffs further submitted that the trial judge erred in law in
holding that a fiduciary relationship between the first and second defendants
and the plaintiffs did not exist in the present case: he said that, in the
exceptional circumstances which had arisen in this litigation, the first and
second defendants did owe a duty of a fiduciary nature to conduct the
litigation with due regard to the interests of the plaintiffs and that they
were in breach of that duty by persisting with the personal claims, thereby
rendering a reasonable compromise impossible.
Counsel
further submitted that in so acting, the first and second defendants were in
breach of a duty of care which they owed to the plaintiffs, that this amounted
to actionable negligence on their part and that the conduct in question could
be restrained by the court. He cited in support of this proposition the
judgment of this Court in Ward v McMaster [1988] IR 337.
It
was further submitted on behalf of the plaintiffs that the constitutional
rights of the plaintiffs to their good name, their property rights and their
livelihood, were being infringed by the maintenance of the personal claims.
Counsel submitted that those claims were wholly dependent on the success of the
corporate claims and that, accordingly, the admitted constitutional right of
the first and second defendants to access to the courts should be modified so
as to protect so far as practical those constitutional rights of the
plaintiffs. He cited in support the decisions of this Court in The State
(Quinn) v Ryan [1965] IR 70; Meskell v Coras Iompair eireann [1973] IR 121;
Hanafin v Minister for the Environment
[1996] 2 IR 321; and, the decision of
Costello J (as he then was) in P.H. v John Murphy & Sons Limited [1987] IR
621. He submitted that the right of access to the courts did not have as its
corollary an absolute right to pursue a particular claim in all circumstances,
as witness the dismiss of otherwise valid claims under limitation statutes and
the striking out of proceedings where there has been inordinate delay or where
no cause of action is disclosed or the proceedings are frivolous or vexatious.
He also referred to the provisions of the
Companies (Amendment) Act, 1990,
under which, in the course of the rescue of a company, a litigant may not only
be prevented from pursuing proceedings or enforcing judgments but litigants and
potential litigants may be required to accept the compromise of a claim. The
decision of this Court in Tuohy v Courtney [1994] 3 IR 1, demonstrated, he
said, that the constitutional right to litigate had to be balanced against
other constitutional rights and duties and said that the result of such a
balancing exercise in the present case pointed clearly to the necessity to
restrict to some extent the right of the first and second defendants to pursue
the personal claims.
On
behalf of the defendants it was submitted, first, that the institution and
prosecution of the present proceedings was precluded by the principle of res
judicata. The issue as to whether the personal defendants could be restrained
from maintaining their claims had been resolved, he said, by the High Court and
this Court in the proceedings under the first s. 205 petition and could not now
be reopened.
As
to the plaintiffs' submission that the present proceedings came within one of
the exceptions to the rule in Foss v Harbottle
(1843) 2 Hare 461, counsel for
the defendants submitted that this could only arise if the conduct of the
personal defendants in maintaining their claims constituted a justiciable
wrong. Thus, it could be invoked to prevent the majority from wrongfully
converting to their own use benefits which should have been available to the
company. It could not be invoked, he submitted, to prevent the personal
defendants from pursuing their individual claims, since that could not be said
to constitute any form of wrongdoing.
Counsel
for the defendants further submitted that the trial judge was correct in
holding that the personal defendants did not owe any fiduciary duty to the
shareholders. That finding was in accordance with well established principles
of law but, in any event, a finding that such a fiduciary duty existed would be
peculiarly inappropriate in a case such as the present where the parties had
plainly entered into a commercial transaction on a voluntary basis and, with
that in view, had freely accepted that their rights would be regulated by the
principles normally applicable to companies.
It
was further submitted that, even if any fiduciary duty such as that relied on
on behalf of the plaintiffs existed, it could not be invoked to prevent the
plaintiffs from pursuing individual claims which were of substance and,
contrary to what was said on behalf of the plaintiffs, were not solely
dependant on the corporate claims.
As
to the argument based on the constitutional rights of the plaintiffs, counsel
for the defendants submitted that, far from bringing proceedings to vindicate
and protect constitutional rights, the entire object of the proceedings was to
frustrate the constitutional right of the first and second defendants to access
to the courts.
Counsel
for the defendants finally submitted that the plaintiffs in this case had
voluntarily joined in a corporate venture with the defendants and had, by
implication, accepted that if disputes developed between the members of the
company, they would be regulated by the company's constitution and the relevant
law. They had availed of that law to bring proceedings under s. 205 of
the Act
of 1963 and, having failed to secure all they sought in those proceedings, now
sought to circumvent the law by effectively obtaining the same relief in these
proceedings.
Conclusions
While
it was not the order in which the submissions were presented on behalf of the
plaintiffs, I propose in this judgment to consider first the question as to
whether Murphy J was correct in holding (a) that the maintenance by the
personal defendants of their individual claims did not constitute a breach of a
fiduciary duty owed by them to the plaintiffs and (b) that even if it did, the
plaintiffs were not entitled to the relief which they had sought.
There
can be no doubt that, in general, although directors of a company occupy a
fiduciary position in relation to the company, they do not owe a fiduciary
duty, merely by virtue of their offices, to the individual members. That was
the effect of the decision in the leading case of Percival v Wright
[1902] 2 Ch 421, but it has been emphasised in subsequent decisions that, in particular
circumstances, a company director may indeed be in a position where he owes a
fiduciary duty to individual shareholders. A helpful example is the decision of
the New Zealand Court of Appeal in Coleman v Myers [1977] 2 N.Z.L.R. 225, which
is referred to in the judgment under appeal.
In
that case, a defendant made a takeover bid for a company, and having gained the
requisite number of acceptances, sought to compulsorily acquire the shares of
the remaining members, the plaintiffs, under the New Zealand equivalent of s.
204 of
the Act of 1963. The plaintiffs, who had always relied on the advice of
the defendants (members of the same family) in, business matters, reluctantly
agreed. It transpired that the defendants had withheld information from the
plaintiffs which had a bearing on the value of the shares. It was held that, in
the particular circumstances, the defendants owed a fiduciary duty to the
plaintiffs, of which they had been in breach. The circumstances in which such a
fiduciary duty can arise were summarised as follows by Woodhouse J:-
"It
is ... an area of the law where the courts can and should find some practical
means of giving effect to sensible and fair principles of commercial morality
in the cases that come before them; and while it may not be possible to lay
down any general test as to when the fiduciary duty will arise for a company
director or to prescribe the exact conduct which will always discharge it when
it does, there are nevertheless some factors that will usually have an
influence upon a decision one way or the other. They include, I think,
dependence upon information and advice, the existence of a relationship of
confidence, the significance of some particular transaction for the parties
and, of course, the extent of any positive action taken by or on behalf of the
director or directors to promote it."
(See
also the decision of McWilliam J in Securities Trust Ltd. v Associated
Properties Ltd. (Unreported, High Court, McWilliam J, 19th November 1980).
Now
let us consider the facts of the present case. No doubt when this venture was
launched, far back in history, the plaintiffs and the first and second
defendants, with their close business and family ties, enjoyed a happy
relationship based, like all successful human relationships, on trust. That,
unfortunately, is all in the past. Since the abortive negotiations in the Tara
proceedings which led to the presentation of the petition under s. 205 of the
Act of 1963 on behalf of the plaintiffs, the relationship between the two
groups has been the very opposite of one of trust and confidence. The
description sometimes applied to business relationships as being "at arms'
length" is inadequate: in the case of these two groups, there has been, since
those events, an atmosphere of hostility and suspicion so pervasive that it
would be a misuse of language to say that either group reposed confidence or
trust of any sort in the other. If the conduct of the first and second
defendants in maintaining their personal claims is a violation of any legal
right of the plaintiffs, then the court would doubtless be vigilant to ensure
that relief was available. But, in the circumstances of this case, that
illegality cannot be founded on a breach of a mutual trust or confidence, since
that has not been a feature of the relationship between the parties at any
stage of the events which have led to the institution of these proceedings.
Confronted
with this difficulty, the plaintiffs have sought to argue that they could rely
on the damage allegedly caused to Holdings and Bula by the conduct of the first
and second defendants in pursuing their personal claims. They concede that
normally only the company itself is entitled to institute proceedings for
damage which it has suffered, or apprehends it will suffer, under the rule in
Foss v Harbottle
(1843) 2 Hare 461, the continuing relevance of which was
illustrated in the decision of this Court in O'Neill v Ryan [1993] ILRM 557.
The plaintiffs urged that they came within the ambit of the fourth exception to
the rule, which is normally said to arise where a controlling majority of the
company are alleged to be committing a fraud upon it or, somewhat more faintly,
the less solidly based fifth exception which suggests that the rule may be
relaxed where the interests of justice so require. Apart from any other
considerations, there are certain procedural difficulties attendant on this
aspect of the plaintiffs' case, which were not addressed in the course of
argument, and are dealt with at a later part of this judgment.
The
ambit of the fourth exception was stated as follows by Lord Davey, giving the
advice of the Judicial Committee of the Privy Council in Burland v Earle
[1902] AC 83 at p. 93:-
"The
cases in which the minority can maintain such an action are ... confined to
those in which the acts complained of are of a fraudulent character or beyond
the powers of the company. A familiar example is where the majority are
endeavouring directly or indirectly to appropriate to themselves money,
property, or advantages which belong to the company, or in which the other
shareholders are entitled to participate ..."
To
make out such a case it is not, of course, necessary to establish that there
was fraudulent conduct in the criminal sense. Doubts have even been expressed
as to whether fraud in any sense need to be established: thus, Templeman J, as
he then was, in Daniels v Daniels [1978] Ch. 406 at p. 413 said:-
"The
authorities which deal with simple fraud on the one hand and gross negligence
on the other do not cover the situation which arises where, without fraud, the
directors and majority shareholders are guilty of a breach of duty which they
owe to the company and that breach of duty not only harms the company but
benefits the directors ... If minority shareholders can sue if there is fraud,
I see no reason why they cannot sue where the action of the majority and the
directors, though without fraud, confers some benefit on those directors and
majority shareholders themselves. It would seem to me quite monstrous -
particularly as fraud is so hard to plead and difficult to prove - if the
confines of the exception to Foss v Harbottle
(1843) 2 Hare 461, were drawn so
narrowly that directors could make a profit out of their negligence."
In
the context of the present case, it is unnecessary to say whether that
interesting passage states the law too widely. Whatever be the confines of the
exception, the submissions on behalf of the plaintiffs in the present case
overlook one critical factor which renders the exception - and, for that matter
the less securely based fifth exception - inapplicable.
As
Finlay CJ indicated in his judgment on the appeal in the first petition under
s. 205 of
the Act of 1963, the claim of the plaintiffs to be entitled to a
similar form of relief was not, and could not be predicated, on the maintenance
by the first and second defendants of their proceedings irrespective of any
settlement (however reasonable) of the company's proceedings against Tara and
the Banks. It was based on the fact that the defendants in both actions had
expressly stipulated that they would not settle with Holding or Bula unless all
the other parties joined in the settlement. That remains the position. The
plaintiffs cannot point to any conduct on the part of the first and second
defendants which is causing, or will continue to cause unless restrained,
damage to the company except their actions as controlling majority shareholders
in failing to act reasonably in dealing with possible settlement proposals.
They have, however, already been granted relief in respect of that conduct in
the proceedings under the old and the new petition brought under s. 205 of the
Act of 1963.
Should
there be no reasonable offer forthcoming and approved by the court, the
maintenance by the defendants of their personal claims will not constitute any
form of wrongdoing quoad the company or any one else. If there were such an
offer forthcoming and the defendants maintained their personal claims, no
benefits would flow to the individual defendants - an essential constituent of
the exceptions to the rule - since they would only derive such a benefit in the
event of a victory in the Tara and bank proceedings or a compromise of both. In
either event, far from any damage being caused to the company, benefits would
accrue to it as a result of the persistence of the first and second defendants
in maintaining their claims and declining to co-operate in any offers of
settlement, however ill-judged that course of conduct might now appear to be.
Thus, even on the widest construction of the exceptions to the rule in Foss v
Harbottle
(1843) 2 Hare 461, the maintenance of the personal claims does not
come within them.
When
these proceedings were originally instituted, neither Holdings nor Bula were
parties, but were subsequently added. The action, accordingly, is in substance,
although not in form, what has been described as a "derivative" suit: ie one
brought on the company's behalf. It has been held in England that, before such
an action can proceed, the fact of control by the alleged wrongdoers and a good
prima facie case must first be established: see Prudential Assurance v Newman
Industries [1982] Ch. 204. While the issue does not now arise in this case, it
should not be thought that the form of procedure adopted by the plaintiffs in
this case was necessarily appropriate.
As
to the claim based on negligence, it must also fail for the reasons already
stated. Proceedings in negligence, it is hardly necessary to point out,
invariably take the form of an action for damages suffered by the plaintiff as
the result of the breach by the defendant of a duty of care, in circumstances
where the law considers that such a duty arises. In the present case, any
damage that has been, is being or will be caused to the plaintiffs is the
result of the conduct of the first and second defendants, as the majority in
control of the company, in acting unreasonably or irresponsibly in relation to
the conduct or compromise of the Tara proceedings and the bank proceedings.
That has been remedied, so far as it can be, by the relief granted in the s.
205 proceedings. What they seek in these proceedings is, in effect, to avoid
the consequences of a stipulation imposed by the defendants in the Tara
proceedings and the bank proceedings by an order requiring the first and second
defendants to join in the settlement in their personal capacity. None of the
constituents of the action for negligence in our law - an existing duty of
care, the breach of that duty and resultant damage to the plaintiffs - are
present.
There
remains the case based on the alleged infringement by the personal defendants
of the constitutional rights of the plaintiffs. The existence of these
constitutional rights is not in issue. Nor is the principle stated on a number
of occasions in the recent jurisprudence of this Court, that circumstances may
arise in which the exercise of a particular right may not, in given
circumstances, be possible if the Constitution as a whole is to be upheld. It
is sufficient to say that the submission advanced on behalf of the plaintiffs
has as its necessary corollary, at the very least, the suspension of the
constitutional right of the personal defendants to litigate in circumstances
where the plaintiffs are unable to demonstrate that the exercise of that right,
in the circumstances now prevailing, is in any sense wrongful. That would
plainly be an impermissible violation of the personal defendants' right to
litigate.
Although
the plaintiffs have, with some ingenuity, sought to present this case in a
variety of different guises, ultimately it constitutes an attempt,
understandable but fundamentally flawed, to escape from the finding of the High
Court and this Court in the s. 205 proceedings that this form of relief was
simply not available to them.
When
the plaintiffs joined the defendants many years ago in forming these companies
and promoting their venture, they accepted not merely the benefits of the
corporate structure but also its disadvantages. Those who embark on such
enterprises, and for perfectly good reasons give them a corporate vesture, may
find themselves, with the passage of time, yoked together with their fellow
entrepreneurs in a continually worsening environment of distrust and
antagonism. The legislature has provided a framework for the resolution of such
problems, so far as it can be achieved in the judicial process. The fact that
it does not fully meet the particular problems in which the plaintiffs now find
themselves embroiled is, from their point of view, unfortunate: the fact
remains that that is as far as the law can go. The present proceedings are,
accordingly, fundamentally misconceived.
I
would dismiss the appeal and affirm the order of the learned High Court Judge.
