Court allows trustee to inspect solicitor-held documents to verify partnership instructions and prevent unauthorized conveyances.

THE SUPREME COURT

91/03

Denham J

Murray J

McCracken J

Between:

Bayworld Investments

Respondents/Plaintiffs

AND

Denis McMahon, Paul O’Brien, Seamus Downes and Aoibheann O’Connell practising under the style and title of McMahon

O’Brien and Downes Solicitors

Appellants/ Defendants

Judgment of Mr Justice McCracken delivered the 13th day of July 2004

Background

The plaintiff/respondent (hereinafter called “Bayworld”) was incorporated on 3rd May 1996 as a limited liability company. The issued

share capital was held in equal shares by Sean Cox, Kevin Fitzpatrick and Paul O’Brien, who were also appointed as directors. Paul

O’Brien is and was at all material times a partner in the defendants/ appellants. Bayworld was originally incorporated for the purpose of

holding land on trust for a partnership between Sean Cox, Kevin Fitzpatrick and Paul O’Brien, which became known as the “Cullenagh

Partnership”. McMahon O’Brien Downes (hereinafter called “the appellants”) are a firm of solicitors practicing in Limerick. The legal

status of the appellants in regard to their relationship with Bayworld is a matter at issue in these proceedings, but it is common case

that the appellants at all times acted as solicitors in the various transactions carried out by Bayworld both as trustee for the

Cullenagh Partnership and for other partnerships which subsequently came into being, and all of which would appear to have had Paul

O’Brien as a partner. In most cases formal declarations of trust were executed by Bayworld in respect of lands which it held as

trustee for the various partnerships.

In October 2000 Bayworld resolved that it be re-registered as an unlimited company and such registration duly took place. It is

alleged by Bayworld that, prior to such re-registration, Paul O’Brien resigned as a director and shareholder of Bayworld, which is

disputed by Paul O’Brien. The relevance of this dispute to this appeal will be dealt with later in the judgment.

One of the partnerships for which Bayworld subsequently acted for trustee was known as the “Cratloe Partnership”. By a declaration

of trust dated 1st February 2000 and made between Bayworld of the one part and Sean Cox, Tomas Healy and Paul O’Brien of the

other part, Bayworld acknowledged that it had entered into a contract to purchase certain lands on behalf of the Cratloe Partnership

and would hold the legal estate to the said lands in trust for the members of the partnership as tenants in common in equal shares. By

the same declaration of trust Bayworld was authorised to borrow up to £2 million to assist the finance of the purchase of such lands

and to grant a mortgage to Ulster Bank Limited to secure such borrowing. Subsequently Sean Cox appears to have sold his interest in

the Cratloe Partnership to the remaining partners, namely Paul O’Brien and Tomas Healy.

Events Leading to the Present Dispute

In December 2002 Bayworld purported to appoint Ivor Fitzpatrick & Co to be its solicitors. By letter dated 18th December 2002 Ivor

Fitzpatrick & Co wrote to the appellants in the following terms:-

“Re: Bayworld Investments (formerly Bayworld Investments Ltd)

Dear Sirs

We refer to the above company who has instructed this office to request you to immediately forward all of its files, title

documents, the company seal and correspondence and any documents relating to its business to this office. In this

regard, we enclose a copy letter of authority executed by directors of the company for your attention, the original of

which is being hand delivered to your office.

The directors have also requested that you would please confirm in writing by return that your office and any partner,

employee or agent thereof will not conduct any further business transactions on its behalf with immediate effect.

We will be obliged to receive this written confirmation by return and receipt of all files and documents within a period of

two weeks.

We await hearing from you.”

Enclosed with that letter was what was described as “letter of authority and instruction”, authorising the appellants to forward all

these documents and the company seal to Ivor Fitzpatrick & Co and directing the appellants not to carry out any transactions

relating to Bayworld. This letter was signed by Sean Cox and Kevin Fitzpatrick as directors of Bayworld. It is alleged by Bayworld that

at that time they were the only directors.

Correspondence then took place between Ivor Fitzpatrick & Co and O’Gradys Solicitors acting on behalf of the Cratloe Partnership,

largely concerning the position of Paul O’Brien in relation to Bayworld, which it is not necessary to particularise in this judgment,

except to say that, on a without prejudice basis, Paul O’Brien was invited to attend a meeting of the directors of Bayworld, but this

invitation was declined. The appellants refused to accede to Bayworld’s request for the documents and company seal and as a

consequence these proceedings were issued on 20th February 2003.

These Proceedings

These proceedings were initiated were initiated by way of special summons claiming:-

“1 An order directing the defendants and each of them their servants and agents to release and deliver up to the

plaintiff or such other person or persons as may be nominated by the plaintiff all files, title documents, books, records

and correspondence pertaining to the plaintiff and its affairs, the corporate seal of the plaintiff and all other property of

the plaintiff in the possession, custody or control of the defendants, their servants or agents.

2 In the alternative to the relief claimed at 1 above, an order directing the defendants and each of them their servants

and agents to permit the plaintiff, its servants or agents to inspect and make copies of all files, title documents, books,

records and correspondence pertaining to the plaintiff and its affairs in the possession, custody or control of the

defendants, their servants or agents.”

By order of Kelly J of 20th February 2003, it was ordered that the summons should be returnable for 24th February 2003 and

directions as to service were given. A number of affidavits were then filed by both parties and by order of 9th April 2003 of Kelly J the

Court refused to join Tomas Healy as a defendant but ordered, in the absence of objection by the appellant, that Bayworld should be

entitled to inspect and make copies of certain documents but not those relating to the Cratloe Partnership. By the same order the

hearing of the special summons was fixed for 7th May 2003.

Subsequently the appellants served notice to cross-examine Kevin Fitzpatrick and Sean Cox, and Bayworld served notice to cross-

examine Paul O’Brien. The matter ultimately came on for hearing before Smyth J, and the three deponents were cross-examined on

their affidavits, and by order Smyth J dated 24th June 2003 it was ordered:-

“1 That the defendants do deliver up to Messrs Ivor Fitzpatrick & Co Solicitors the corporate seal of the plaintiff and all

other property of the plaintiff within their possession custody or control including all documents title documents books

records and correspondence pertaining to the plaintiff and its affairs and prior to the handing over of such documents

may make and retain copies thereof.

2 That the plaintiff shall not pledge or otherwise deal with any of the title documents referable to the Cratloe lands save

with the consent of the second named defendant and/or the leave of the court.”

A stay of execution was granted in the event of the appellants serving notice of appeal on or before 14th July 2003, which notice

was duly served.

Form of Procedure

Order 3 Rule 19 of the Rules of the Superior Courts provides that procedure by special summons may be adopted in a claim for delivery

by any solicitor of deeds, documents and papers where there is no pending proceeding in which the application may be made. That

rule clearly authorises the present proceedings, although the use of the word “may” in the rule would have permitted Bayworld to

proceed by way of plenary summons had it chosen to do so.

Order 38 of the rules provides for the hearing of proceedings commenced by special summons. Rule 3 provides that the proceedings

shall be heard on affidavit, subject to the right to cross-examine and rule 9 provides:-

“On the hearing of any special summons, the Master, in a case within his jurisdiction, or the court, as the case may be,

may give judgment for the relief to which the plaintiff may appear to be entitled or may dismiss the action or matter or

may adjourn the case for plenary hearing as if the proceedings had been originated by plenary summons with such

directions as to pleadings or discovery or settlement of issues or otherwise as may be appropriate, and generally may

make such order for determination of the questions in issue in the action or matter as may seem just.”

The appellants contend that the learned trial Judge ought to have adjourned the case for plenary hearing. At page six of his

judgment, dealing with this point, the learned trial Judge said:-

“On any view of the documentation the affidavits are extensive. Furthermore, each of the parties have served notice

and did in fact cross-examine the other on his or their affidavits. At no stage in the proceedings did it appear to me that

the determination of any question or questions of fact required to be deferred for more ample pleadings. The issues

between the parties are amply set out in the affidavits which ultimately became argumentative. Cross-examination was

not curtailed and the hearing before me was in effect a plenary hearing.”

It should be noted that the appellants did not request a plenary hearing prior to the case commencing on 7th May 2003, but in fact

served notices to cross-examine Bayworld’s witnesses a few days before that hearing. An order to remit the special summons

proceedings to a plenary hearing is in any event a discretionary order, and having read the affidavits and the transcripts of the cross-

examinations, I am quite satisfied that the learned trial Judge was correct in determining the issues on the evidence before him. One

of the principal purposes of proceedings by way of summary summons is to ensure a speedy determination of issues which may have a

degree of urgency. The question of the entitlement of a client to see files in the possession of his solicitor clearly comes within this

category. There was a full cross-examination of witnesses and the appellants were not curtailed in any way from raising any relevant

points, nor were they in any way precluded from filing affidavits from other witnesses had they wished to do so. The learned trial

Judge was clearly correct in determining the proceedings under the special summons procedure.

Position of Paul O’Brien

An issue which received some prominence before the learned High Court Judge was whether Paul O’Brien had ceased to be a director

and shareholder of Bayworld. This of course could be relevant on an issue of whether authority was ever given by Bayworld for the

issue of these proceedings, as that authority was clearly only given by Mr Cox and Mr Fitzpatrick. However, that is not a matter

raised in the notice of appeal and therefore is not before this Court. The learned trial Judge found as a fact at page fifteen of his

judgment that Paul O’Brien had ceased to be a director or shareholder of Bayworld, and in the absence of an appeal on that point,

that is a fact which must be accepted by this Court.

The appellants have brought a notice of motion to the Court seeking to adduce additional evidence relating to this point. I do not

understand the averment in the affidavit grounding this application that the notice of appeal challenges the learned trial Judge’s

finding that Paul O’Brien was not a director or says that that finding was completely unjustified and unwarranted, as this finding is not

referred to at all in the notice of appeal. In any event, the only relevance which the position of Paul O’Brien could have to the issues

in the case would be as to whether the proceedings were ever authorised, and there is clearly no appeal on this point.

The appellants also take issue with the comments in the judgment in relation to the evidence of Paul O’Brien. There is no doubt that

the learned trial Judge took a view as to the attitude of Paul O’Brien under cross-examination and expressed it robustly. While it may

well be that the evidence in question of Paul O’Brien in the High Court could more readily be described as argumentative and unhelpful

rather than evasive in a dishonest way, the learned trial Judge was clearly entitled to express his views on the relative merits of the

several witnesses which he heard. In any event, this is not an issue which could possibly effect the matters argued in this appeal.

The Motives of the Plaintiff’s Directors

Under cross-examination Sean Cox acknowledged freely that he went to Ivor Fitzpatrick & Co because he had a grievance and

because he thought that Paul O’Brien had defrauded him in some way and he wanted to prosecute those proceedings, and he was

specifically asked:-

“That is what these proceedings are about, ultimately prosecuting other proceedings against Mr O’Brien?”

And he answered:-

“Sure, yes, I have no problem with that.”

This was to some extent confirmed by Mr Fitzpatrick in evidence, and there are other proceedings in being against Mr O’Brien. The

appellants seek to argue that the Court ought to have had regard to the motives of Sean Cox and Kevin Fitzpatrick in considering

whether to grant relief. While that is something which certainly may be taken into account in assessing their credibility as witnesses,

it cannot possibly affect the right of Bayworld to obtain documents or copies of documents from its solicitors. If Bayworld has that

right, then the motives for enforcing it are irrelevant. If the right exists, the Court must enforce it, and cannot withhold that remedy

simply because the Court disapproves of the motives of those seeking it.

Relationship Between Bayworld and the Partnerships

This is one of the real issues in these proceedings. Bayworld was set up solely for the purpose of acting as a bare trustee of lands,

and it is not in dispute that it never had any beneficial interest in those lands. Both under the terms of the declarations of trust, and

indeed on general principles, it was bound to act in accordance with all lawful instructions given by the partnerships, who were

beneficially entitled to the various lands. However, that does not mean that as trustee Bayworld has no rights in relation to the lands,

or documentation dealing with the lands, independently of the beneficiaries. It is acknowledged in this case that, as far as the world

at large was concerned, Bayworld was the owner of various properties. It signed contracts to purchase and sell the properties, it

borrowed money for the purpose of completing sales and it undertook obligations with vendors or purchasers of the properties. As far

as third parties dealing with Bayworld were concerned, obligations were owed to them by Bayworld, and they owed obligations to

Bayworld. For example, the primary obligation to repay monies borrowed from the bank was that of Bayworld, as was the obligation to

discharge stamp duties on the transactions which it carried out. No doubt it was fully indemnified financially by the partnerships, but

in many instances it would still retain its primary liability to third parties. In law, Bayworld, as a trustee, must be considered as a

separate legal entity from the partnerships which were the beneficiaries of the trusts.

Relationship Between Bayworld and the Appellants

It is probably true that from the beginning the members of the several partnerships regarded Bayworld as simply a vehicle to further

their property transactions and paid little or no regard to its existence as a separate entity. The affairs of Bayworld were dealt with

very informally, and to a very considerable degree by Paul O’Brien alone. It is an unfortunate fact which gave rise to this situation

that Paul O’Brien was both a partner in each of the various partnerships in property transactions, and also was a partner in the

appellants who were the solicitors acting in relation to these transactions. Accepting that the reality is that Paul O’Brien was the

moving party in both capacities, the core issue arises as to who was the client of the appellants.

In their legal submissions the appellants have acknowledged that to some degree at least Bayworld was a client of the Appellants, but

they have used the phrase “nominal client”. It is not quite clear what is meant by this phrase, but if it means that a solicitor owes no

obligation to “a nominal client”, that view is clearly mistaken. One only has to look at the facts of this case.

On unappealed findings of the learned trial Judge, at the time Bayworld was registered as an unlimited company it had two members

only, namely Sean Cox and Kevin Fitzpatrick. In relation to some of the partnerships, including in particular the Cratloe partnership,

neither of these persons had any beneficial interest in the lands. As members of an unlimited company they had unlimited personal

liability for the actions and debts of Bayworld. Furthermore, company legislation in recent years has imposed ever greater personal

liabilities on directors of companies, and Sean Cox and Kevin Fitzpatrick were the only directors of Bayworld. They were bound to act

honestly and responsibly in relation to the conduct of the affairs of the company, or otherwise they might be debarred from acting as

directors of certain companies under s.150 of the Companies Act 1990. Had they conducted themselves in any of the manners set out

in s.160(2) of the Companies Act 1990 they are liable to be disqualified for life from ever being a director of a company. In my view

they would not be acting responsibility if they unquestioningly complied with all the requests of the members of the partnership,

conveyed to them through one member only.

It is argued that the reality was that Bayworld did not instruct the appellants, but rather the appellants instructed Bayworld. That is

only so because Paul O’Brien was a partner in the appellants. The appellants acted as solicitors in a continuous line of transactions in

which they bought, sold and mortgaged property which was in the legal ownership of Bayworld. They wrote letters to third parties

holding out Bayworld as their clients and they dealt with official bodies such as the Land Registry and the Revenue Commissioners as

solicitors for Bayworld. I have no doubt that the relationship of solicitor and client existed between Bayworld and the appellants.

The Right to Documents

As Bayworld carried out all its transactions on behalf or the partnerships as trustee for the partnerships, it must follow that all

documentation created in the course of these transactions, whether it be documentation as between Bayworld and the appellants or

as between the partnerships and the appellants, are the beneficial property of the partnerships. That being so, the partnerships are

ultimately entitled to possession of these documents. If authority be needed for that rather obvious proposition it can be found in ex

parte Cobeldick [1883] 12 QBD 149.

This is in effect recognised by Bayworld. While they have sought possession of the original documentation, they have also sought in

the alternative a right of inspection and the furnishing of copies. The position of Bayworld is undoubtedly that it must obey all lawful

instructions from the partnerships, but I would emphasise the word “lawful”. A trustee is not bound to comply with unlawful or

fraudulent instructions from its beneficiary, and while I am not for a moment suggesting that any unlawful or fraudulent instructions

have actually been given in the present case, the right of a trustee to inquire as to the lawfulness of its instructions and to determine

for itself whether it ought to carry out those instructions cannot be questioned. To enable it to do so, I am quite satisfied that even

a bare trustee is entitled to copies of all documents created by its own solicitor or in the hands of its own solicitor relating to

transactions carried out in its name by that solicitor. I reject the argument that any rights which Bayworld as a trustee may have are

only directly against the beneficiary. To so hold would ignore completely the duties of a solicitor to his client. There are clearly two

separate rights running parallel in the present circumstances, namely that of a trustee against a beneficiary and that of a client

against a solicitor. This case is concerned with the latter, and I would order that Bayworld be entitled to inspect the originals of all

documents relating to transactions carried out on its behalf which are in the hands of the appellants and are entitled to copies of all

such documents.

With regard to the motion to adduce additional evidence, I would refuse such motion.