Principal Shareholder of Company refused permission to legally represent Company in High Court Proceedings

The High Court in a recent decision has made it clear that only in exceptional circumstances will it exercise it's discretion to allow a shareholder to represent a company in legal proceedings.  It also made it clear that in exercising that discretion it will look to see whether the company has a real or bona fide case.

Facts
In Allied Irish Banks Plc -v- Aqua Fresh Fish Limited [2015] IEHC 184, High Court, Keane J, 27 March 2015 the Bank sought an order for possession and sale of certain mortgaged property.  The managing director and principal shareholder of the defendant company, Mr Flynn, then sought the permission of the court to legally represent and defend the company in the proceedings on the ground that neither the company nor its shareholders had sufficient funds to appoint lawyers to act on its behalf. 

In the course of the hearing Mr Flynn gave an outline of the defences upon which the company intended to rely however it was not denied that the company borrowed the monies at issue, mortgaged the lands at issue and failed to repay those monies.

Previous Case Law
The judge firstly considered the decision of the Supreme Court in Battle v Irish Art Promotion Centre Ltd [1968] 1 IR 252 where Ó Dálaigh CJ unequivocally held: “…in the absence of statutory exception, a limited company cannot be represented in court proceedings by its managing director or other officer or servant. This is an infirmity of the company which derives from its own very nature.”

The court also noted the Supreme Court decision in Coffey, NO2GM Ltd & Ors [2013] IESC 11, where Fennelly J stated:

“….the incorporated company is, as a strict matter of law, a legal person separate from its members and from its directors and management. Nonetheless, in practice, the courts have to deal on a daily basis with difficult cases involving unrepresented companies, frequently because there are simply no funds to provide for legal representation. The company, being a purely legal or notional person, cannot speak except through a representative of some kind. If it has no legal representation, it will not be represented at all. Although that is far from ideal, it represents the present law.”

Fennelly J. in that case, in explaining the rationale for the rule stated that the right of a party to plead his case is a matter of necessity as well as right but it is not desirable. He noted that the courts are better able to administer justice fairly and efficiently when parties are represented.

Mr Flynn sought to rely on the decision of the High Court in Coffey v Tara Mines Limited [2008] 1 IR 437 where the court concluded, in considering whether a lay person could represent a litigant in proceedings, that it had an inherent jurisdiction to manage and control its own proceedings and in rare and exceptional cases could permit an unqualified advocate to represent another litigant.

The court also considered the decision in McDonald v. McCaughey [2014] IEHC 455 where Gilligan J expressed sympathy for the plight of defendants in similar circumstances and stated: “It may be that the situation can be resolved whereby in certain exceptional circumstances a company director and significant shareholder on a valid bona fide arguable point at the discretion of the court could be allowed to represent the company’s interests, provided that the court was satisfied that the point was at least arguable on the known facts and the applicable law.”

Decision
Mr Flynn argued, inter alia, that his application to represent the company fell within that category of rare and exceptional circumstances that mandated a departure from the rule in Battle in the exercise of the court’s inherent jurisdiction.

The judge noted that the fact that the company and its shareholders lacked the funds to instruct counsel did not constitute exceptional circumstances (and indeed was all too common in the current climate).

The judge also noted that this impecuniosity would have implications for the bank if the application were granted.  As Mr Flynn was not a defendant to the action, he would have no potential exposure in costs. Similarly, he would not be subject to professional oversight or discipline in relation to his conduct of the defence. The bank, on the other hand, faced every prospect of incurring irrecoverable costs in meeting the defence, The judge also regarded it as appropriate to consider whether the company has made out a fair or reasonable probability of having a real or bona fide defence as part of the broader consideration of whether rare and exceptional circumstances had been established which would allow Mr Flynn to represent the company. In this regard the judge held that the company had failed to satisfy him that it had any defence with a reasonable chance of success.

The judge accordingly concluded that this case did not come within the category of rare and exceptional circumstances that would warrant a departure from the rule in Battle and the application was refused.

For further information please contact Paula Mullooly at pmullooly@algoodbody.com

Date Published: 21 April 2015