Shareholder dismissed appeal for lack of reasonable cause of action as claim was reflective of company.

THE SUPREME COURT

RECORD NO. 322 of 2003

DENHAM J.

McCRACKEN J.

KEARNS J.

BETWEEN

LIAM MADDEN

PLAINTIFF/APPELLANT

AND

ANGLO IRISH BANK CORPORATION PLC AND

WILLIAM LACEY

DEFENDANTS/RESPONDENTS

Judgment delivered on the 17th day of December, 2004 by Denham J.

1. Liam Madden, the plaintiff/appellant, hereinafter referred to as ‘the appellant’, has brought an appeal to this Court from the

judgment of the High Court (Ó Caoimh J.) delivered on the 23rd day of July, 2003.

2. Anglo Irish Corporation PLC and William Lacy are the named defendants/respondents. The first named defendant/respondent

is referred to hereinafter as ‘the bank’.

3. On 23rd July, 2003, the High Court held:

“Mr. Madden has instituted a claim against Anglo Irish Bank Plc. The Bank seeks an Order from this Court dismissing

the claim on the basis that it is one that is bound to fail, and that it is one that the plaintiff simply cannot succeed

on.

The Court approaches this matter with the guidance of a number of authorities that have been opened to the Court

by Counsel on behalf of the Bank, by looking at the Statement of Claim itself, and the evidence put before this

Court in relation to the history of the matter, both by reference to the affidavit of Mr. Spillane, and the affidavit of

Mr. Madden himself. The nature of the claim brought by Mr. Madden is that set forth in the Statement of Claim. Mr.

Madden seemed to express some surprise in relation to the terms of it, but the existence of the Statement of Claim

as having been served I think is clearly denoted by the terms of the affidavit of Mr. Spillane, who makes specific

reference to it. In it, it can be seen that the Plaintiff, Mr. Madden, has advanced this claim as against the Bank in

his capacity as a shareholder and creditor of the Company.

His complaint, as pleaded in the Statement of Claim, is one in which he contends that the Company acted ultra

vires and in breach of Section 60 of the Companies Act in entering into an agreement on or about the10th

September 1992, which is the subject matter of the action.

The Court has had the benefit of the evidence put before the Court of Mr. Spillane in relation to the history of this

case and the history of the various applications to this Court and on appeal therefrom to the Supreme Court,

indicating the limits to which the Court permitted the matters to be advanced. It is quite clear on the basis of the

history and the number of Orders that have been made to date by the Supreme Court, that the only issue really

that survives is whether Mr. Madden is entitled to maintain his claim for damages as against the Bank.

The submissions that have been advanced by Counsel, have been made on the basis of an assumption that the

plaintiff can prove the matters pleaded by him in the Statement of Claim, served on the Bank, and that if there is

any dispute raised on the affidavit put before the Court by Mr. Spillane, that I should prefer the version of events

put forward before the Court by Mr. Madden in his replying affidavit. This is the precise basis upon which I assess

this matter.

The essential issue that comes before the Court is whether the claim is maintainable. Mr. Madden suggests that the

Statement of Claim might be amended in some fashion, but he has failed to indicate in any clear fashion how it

could be amended to sustain a claim that is made on the Pleadings. Reference has been made to fraud today, but

even in that regard, it is quite clear that any fraud alleged by Mr. Madden would itself be wrongdoing alleged to

have occurred well in excess of six years, the relevant statutory period and could not be maintained by him, but as

indicated by Mr. Madden, he was not precise in any manner in relation to these matters, and it is quite clear that he

has failed to indicate any precise amendment that might be made to the claim such as to overcome the submissions

that have been made on behalf of the Bank by Counsel.

The Court has been assisted by reference to a number of authorities which indicate that on an application such as

this, the Court may consider what amendments could be made to a Statement of Claim to overcome a submission

that a claim is unsustainable in one form or another, but this is something that the plaintiff clearly is unable to do,

to show in any substantive manner how this Statement of Claim could be amended to overcome the essential

submissions that have been advanced by Counsel on behalf of the Bank.

The essential situation that is faced by Mr. Madden, is that he seeks to advance, in his capacity as a shareholder

and creditor of the Company, a claim which in fact can only be maintained by the Company itself or someone acting

in its shoes, such as the Liquidator of the Company, and I fully accept the submissions of Counsel in this regard. He

has advanced to this Court a number of authorities, including authorities of Courts in England which have been

followed in this jurisdiction. I think the most notable authority advanced was the Prudential Assurance v Newman

Industries case and this indicates the essential difficulty faced by Mr. Madden and the fact that as a creditor and

shareholder of the Company, he cannot maintain the claim in question which he seeks to maintain. As has been

indicated by Counsel on behalf of the Bank, this authority has been approved in this jurisdiction by the Supreme

Court in the case of O’Neill v Ryan [1993] 11 L.R.Y. 557.

In light of these matters, I am quite satisfied that the Bank is entitled to succeed on its motion. I accept fully the

submissions that have been made by Counsel on behalf of the Bank. Mr. Madden is left in a situation where he

simply cannot succeed in resisting the claim assuming that he could establish, as a matter of fact, everything set

forth in the Statement of Claim. He would find himself in a situation where, as a matter of law, he would not and

cannot succeed in any claim for damages and it is in those circumstances that I will make an Order granting to the

Bank the relief which it seeks at this stage and I will dismiss this claim.

I should say that were this matter allowed to proceed, it could only result in a huge increase in costs with no better

prospect ultimately to Mr. Madden of succeeding, because it could only give rise to a situation of proving facts

which have been assumed to be capable of proof on the basis of a claim which has been noted and which is

addressed by the Court as a claim, which in relation to he facts in one that could be proved but which as a matter

of law could never succeed.”

4. The High Court ordered, pursuant to Order 122 Rule 11 of the Rules of the Superior Courts, that the appellant’s claim be

dismissed for want of prosecution on the ground that there had been no proceedings for a period in excess of two years from

the last proceedings, and it was ordered pursuant to Order 19 Rule 28 of the Rules of the Superior Courts, that the appellant’s

claim for damages be struck out on the ground that it disclosed no reasonable cause of action and was frivolous and vexatious.

5. The applicant has appealed against the judgment of the High Court. The applicant filed seventeen grounds of appeal, as

follows:

1. The Honourable High Court Judge was wrong in Law

2. The said Order is a bad Order

3. The granting of this Order is a Tort in Law

4. The Honourable High Court Judge failed to exercise the discretion available to him in the pursuit of Justice

5. The Honourable High Court Judge failed to strike out these proceedings which were intentionally and positively

grounded on the premeditated, fraudulent misstatement and misrepresentation of the facts in Anglo’s pleadings in

order to pervert the course of justice

6. The Honourable High Court Judge failed to give weight to the fact that Anglo Irish Bank CORP. as a matter of

form intentionally grounded it’s pleadings on the premeditated, fraudulent misstatement and misrepresentation of

the facts at issue

7. The Honourable High Court Judge failed to ensure my Right to Fair Procedures

8. The Honourable High Court Judge entertained proceedings which were intentionally and positively grounded on

the premeditated, fraudulent misstatement and misrepresentation of the facts by Anglo in it’s pleadings in order to

pervert the course of justice

9. The Honourable High Court Judge erred in accepting an unsigned (draft) statement of claim as the factual basis

of my claim

10. The Honourable High Court Judge failed to negate the impact of my previous Solicitor, Jim Murphy of Henry

Commerford & Co. Solicitors malicious removal of my Rights before the Honourable High Court

11. The Honourable High Court Judge failed to address the issues surrounding the intentional Abuse of Process

12. The Honourable High Court Judge failed to address the breaches of Banking Law by Anglo Irish Bank CORP.

13. The Honourable High Court Judge failed to address the issues surrounding the intentional contempt of Court, by

(i) Anglo Irish Bank CORP. Plc

(ii) By Beauchamps, Solicitors to Anglo Irish Bank CORP.

(iii) By Lyndon McCann Senior Counsel to Anglo Irish Bank CORP.

14. The trial Judge did not allow for the fact this Appellant did not have the benefit of legal advice on the 10th

September 1992

15. The failure of the trial Judge to address the fact that Anglo have breached the terms of their own Debenture

16. The Honourable High Court Judge did not as the Order states read the Affidavits

17. The written Order made by the Honourable High Court is not in keeping with the stenographers transcript of the

case

6. When this appeal commenced the applicant moved three motions before the Court. These motions were heard and considered

by the Court and were refused. By notices of motion in this appeal, and appeal no. 223 of 2004, the appellant sought to have

produced documents in a notice to produce served on the bank prior to the hearing of the action in the High Court. The

documents sought were not produced in the High Court. Given the nature of the proceedings and the issues before the High

Court, and this court on appeal, these matters are not appropriate or relevant for consideration by this appellate court on this

appeal. The appellant also sought by notice of motion dated 1st October, 2004, to seek declaratory relief in regard to certain

letters and facts regarding the lands in folio no. 48205F Co. Cork. Having regard to the appeal before the court and the legal

issues to be determined, this relief was refused.

In moving these motions, the applicant made many assertions as to the conduct of the solicitors, the junior counsel and the

senior counsel for the bank. As the appellant is a lay litigant the court granted him a degree of lee-way to argue his motions.

However, I am satisfied that there was nothing before the court to raise any cause for concern as to the conduct of the legal

advisers for the bank in this protracted case.

7. The applicant filed extensive papers to ground his appeal including wide ranging written submissions. I have considered

carefully the papers in this appeal and the oral submissions made by the applicant and counsel for the bank.

8. The core of the case of the applicant on this appeal was fourfold. First, he distinguished between public and private

companies, and especially private companies established for a single joint venture, and he submitted that the law relating to the

corporate shield and the right to sue and be sued was affected by the nature of the company in this case. He submitted that

as it was not a public company the law relating to companies, such as the rule in Foss v Harbottle, should not apply, that the

joint venture should be considered rather as a partnership. Secondly, he argued that in certain situations, he referred to

Johnson v Gore Wood & Co. [2001] 2.W.L.R 72, an individual could take a personal action and he submitted that he came within

this law. Thirdly, he submitted that he had been deceived into this agreement, that there had been fraud and deception by the

bank. Fourthly, he submitted that the rules had not been complied with in relation to the charge. Also, throughout his

submission he made allegations of fraud and deception of many, including the bank, court officers and counsel. He submitted

that the statement of claim was not a valid document, that there was a series of deceptions and that his solicitor was party to

the deception.

9. This is a case which has already been before this Court on a number of occasions. On 29th day of June, 1998, in Liam

Madden v. Anglo Irish Bank Plc and Liam Lacy and Astra Construction Services Limited this Court directed that a contract dated

24th day of November, 1996, be completed forthwith notwithstanding the existence of the within proceedings and that the

relief, if any, of the appellant should be limited to a claim in damages against the defendants. Costs were awarded against the

appellant.

10. This case arises out of a motion by the bank to the High Court to strike out the plaintiff’s claim for damages.

11. The statement of claim which was delivered and which was considered the by High Court is before this Court. On the

statement of claim it is stated that the plaintiff is Liam Madden and that the defendants are Anglo Irish Bank Corporation Plc.

and William Lacy. The Statement of Claim sets out as follows:

“Statement of Claim

delivered on the 29th day of June,

1998 by Henry Comerford & Co.,

Solicitors for the plaintiff,

3 Montpelier Tce., Sea Road, Galway.

1. The plaintiff is a mason and resides at 1, The Circle, Owenabue Grove, Carrigaline in the County of Cork.

2. The Defendants are –

1st named: a licensed Bank with a registered address at Stephen Court, 18/21 St. Stephen’s Green, Dublin 2.

2nd named: an Accountant and professional Auditor, with an address c/o Ernst & Young, Barrington House

Limerick.

3. The plaintiff is a substantial shareholder in and also a creditor of Edenfell Construction Limited (in liquidation and

in receivership) (hereinafter “the Company”), which was incorporated in 1989 with a view to developing property at

the “Edenfell” site in Carrigaline, Co. Cork.

4. On or about 1989 the first-named Defendant lent Denis and Maeve O’Brien of Glanmire, Co. Cork, £165,000

approximately to purchase lands on or adjacent to the said site.

5. On or about 10th September 1992, at a meeting in the said Defendants’ solicitor’s officer in Limerick, the

company and the Defendant agreed as follows:

(i) Substantial indebtedness by the said O’Brien’s to the said Defendant would be discharged by, inter alia, the

Company taking over £400,000 of those debts.

(ii) Substantial indebtedness by the said O’Brien’s to other creditors be discharged (by way of compromise) by

the said Defendant paying them £100,000 approximately in aggregate and the Company assuming liability to

the Defendant for that sum;

(iii) A Debenture would be executed by the Company in favour of that Defendant securing repayment of inter

alia those liabilities;

(iv) Signed transfer forms in respect of the said O’Brien’s’ two shares in the company would be handed to the

plaintiff and to one Denis Barrett.

Debenture, as aforesaid.

6. No formal resolution was passed by the Company then or thereafter approving the aforesaid entire transaction,

nor were the procedures set out in s.60(2) – (11) of the Companies Act 1963 complied with: further, at the time,

the Company either was not solvent or its creditors were in some jeopardy of not being paid in full., accordingly, the

said agreement by the Company accepting liability for the indebtedness of the O’Brien’s and its granting security

therefore was ultra vires the Company and further contravenes s. 60 of the Companies Act 1963, and accordingly is

null and void and does not bind the Company.

7. Purporting to act under the said Debenture, on or about 25th May 1995 the first-named Defendant purported to

appoint the second-named Defendant as receiver of the assets of the Company. Arising from inter alia the aforesaid

circumstances, that appointment was a nullity and ineffective.

8. Purporting to act as the Company’s receiver, on 25th day of November 1996 the second-named Defendant

purported to agree to sell the Company’s undertaking and/or property at Carrigaline, Co. Cork to the Notice Party.

Arising from inter alia the aforesaid circumstances, that transaction was a nullity and is ineffective.

9. By reason of the aforesaid, the plaintiff as a substantial shareholder in and creditor of the Company has suffered

loss and damage, and he claims

(i) Declarations that

(a) The Company’s taking over the liabilities of the O’Brien’s to the first-named Defendant and/or to

third parties was unlawful and ultra vires;

(b) The Debenture given to the Bank was unlawful and ultra vires the Company and accordingly

ineffective.

(c) The second-named Defendant is not lawfully a receiver of the Company’s assets and has no

authority whatsoever to act as such, inter alia, to agree to sell the Company’s said lands to the Notice

Party.

(ii) An injunction restraining the second-named Defendant from purporting to act as receiver of the Company’s

assets and enjoining him from conveying the said lands to the Notice Party.

(iii) Damages.

(iv) Further and other relief.

(v) Costs.”

12. I am satisfied that no relevant distinction may be drawn in law between a public company and a private company

established for a joint venture, so as to exclude the latter company from relevant principles in company law. In fact many of

the cases which have addressed the application of fundamental company law principles have related to private companies.

Indeed, the fundamental principle in issue was established in Foss v Harbottle (1843) 2 Hare 461. The principle rooted in Foss v

Harbottle – that where a wrong has been done to a company the correct plaintiff is the company - applies to both public and

private companies, including private companies established for a joint venture. Thus I would dismiss this aspect of the appeal of

the appellant.

Secondly, the applicant submitted that in certain situations an individual could take a personal action and that he fell within this

category. He referred to Johnson v Gore Wood & Co [2001] 2 W.L.R. 72. There is no doubt but that in certain circumstances

where a company has suffered loss and damage and a shareholder suffers a separate distinct personal loss, from that suffered

by the company, he may sue personally. In Johnson v Gore Wood, Lord Bingham reviewed relevant authorities and held that

these authorities support the following proposition:-

“(1) Where a company suffers loss caused by breach of duty owed to it, only the company may sue in respect of

that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution

in the value of the shareholder’s shareholding where that merely reflects the loss suffered by the company. A claim

will not lie by a shareholder to make good a loss which would be made good if the company’s assets were

replenished through action against the party responsible for the loss, even if the company acting through its

constitutional organs, has declined or failed to make good that loss. So much is clear from Prudential Assurance Co

Ltd v Newman Industries Ltd (no. 2) [1982] Ch 204, particularly at pages 222-3, Heron International, particularly at

pages 261-2, George Fischer, particularly at pages 266 and 270-271, Gerber and Stein v Blake, particularly at pages

726-729.

(2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the

company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a

diminution in the value of the shareholding. This is supported by Lee v Sheard [1956] 1 QB 192, at pages 195-6,

George Fischer and Gerber.

(3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and

distinct from that suffered by the company caused by breach of a duty independently owned to the shareholder,

each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss

caused to the other by breach of the duty owed to that other. I take this to be the effect of Lee v Sheard, at

pages 195-6, Heron International, particularly at page 262, R.P. Howard, particularly at page 123, Gerber and Stein

v Blake, particularly at pages 726. I do not think the observations of Leggatt L.J. in Barings at p.435B and of the

Court of Appeal of New Zealand in Christensen v Scott at page 280, lines 25-35, can be reconciled with this

statement of principle.

These principles do not resolve the crucial decision which a court must make on a strike-out application, whether on

the facts pleaded a shareholder’s claim is sustainable in principle, nor the decision which the trial court must make,

whether on the facts proved the shareholder’s claim should be upheld. On the one hand the court must respect the

principle of company autonomy, ensure that the company’s creditors are not prejudiced by the action of individual

shareholders and ensure that a party does not recover compensation for a loss which another party has suffered.

On the other, the court must be astute to ensure that the party who has in fact suffered loss is not arbitrarily

denied fair compensation. The problem can be resolved only by close scrutiny of the pleadings at the strike-out

stage and all the proven facts at the trial stage: the object is to ascertain whether the loss claimed appears to be

or is one which would be made good if the company has enforced its full rights against the party responsible, and

whether (to use the language of Prudential Assurance Co Ltd v Newman Industries Ltd (no. 2) [1982] Ch 204, at

page 223) the loss claimed is “merely a reflection of the loss suffered by the company.” In some cases the answer

will be clear, as where the shareholder claims the loss of dividend or a diminution in the value of a shareholding

attributable solely to depletion of the company’s assets, or a loss unrelated to the business of the company. In

other cases, inevitably, a finer judgment will be called for. At the strike-out stage any reasonable doubt must be

resolved in favour of the claimant.”

I would adopt and apply this analysis of the law. Thus it is necessary to make a close scrutiny of the pleadings, which in this

case is the statement of claim. Such a scrutiny is necessary to see whether the claim would be made good if the company had

enforced its full rights, and whether the loss suffered by the appellant is merely a reflection of the loss suffered by the

company. Considering the statement of claim it is clear that the action taken by the appellant is a reflection of the loss suffered

by the company. This is seen starkly in paragraph 9 of the statement of claim where the appellant pleaded that by reason of

the aforesaid paragraphs the plaintiff as a substantial shareholder in and creditor of the company has suffered loss and damage.

It is thus a reflective claim and as such the appellant is not entitled to sue, it is for the company to sue. Consequently I would

dismiss this aspect of the appeal also.

Thirdly, the appellant submitted that he had been deceived by fraud and deception by the bank. First, this was not pleaded in

the statement of claim so prima facie it is not a ground for this appeal. However, even taking a general, rather than a

technical, approach, the deception and fraud submitted by the applicant is not a ground apparent on the papers despite his

lengthy submissions. I find no basis for this aspect of the appeal.

At the core of this appeal is the fact that the High Court, quite correctly, proceeded on the basis that the facts as pleaded by

the appellant are correct (even though they were and are disputed by the bank). Insofar as there is any doubt this must be

and was determined in favour of the appellant. Taking that approach it is clear, on the pleadings, that the action pleaded by

the appellant is a reflective action, a matter more properly brought by the company. Thus I am satisfied the High Court acted

correctly in striking out the appellant’s proceedings and I would dismiss the appeal on this ground also.

The appellant made submissions as to the validity of the charge and the compliance with rules. However, this line of argument

does not affect the fundamental principle as to whether the plaintiff has a reasonable cause of action, whether his action is

reflective of a company action. In the circumstances it is clear that he has not such a reasonable cause of action. I would

dismiss the appeal sought on this ground also.

Throughout the proceedings the appellant made sweeping allegations of deception and fraud by the bank, solicitors and

barristers. While I listened carefully to these submissions they did not appear to have any substance and do not address the

issue of a reasonable cause of action in the circumstances where the appropriate litigator is the company. Thus I would dismiss

those submissions completely.

The plaintiff made submissions that the statement of claim was not correct and indeed made allegations against his then

solicitor. The statement of claim considered by the High Court, and by this Court on appeal, is the statement of claim delivered

by his solicitor and set out in this judgment. The appellant cannot succeed in this case by allegations against his then solicitor.

This case is grounded on the statement of claim delivered and filed. However, even if one took a wider approach, as the

appellant is a lay litigant, these pleadings do not raise such issues, or indeed even infer to such issues, as were submitted by

the appellant. I would dismiss the appellant’s claim on this aspect of the appeal also.

As the appellant is a lay litigant the Court gave him lee-way and did not enforce rules of procedure and pleadings. I listened to

the submissions carefully to ensure that this lay litigant did not obfuscate a good point. One matter, for example, was that at

one stage of the submissions he said he did not have a legal adviser at a critical time when the loan was being transacted.

However, even a cursory consideration of the documents indicates that legal advice was available to him.

All in all, having carefully considered the papers and the oral submissions I would dismiss the appeal of the appellant.