The Supreme Court has ruled by majority that an assignee of a company can, in principle, pursue a court action in place of the firm.
In a lead judgment for the five-judge court, which ruled by four to one, Mr Justice Séamus Woulfe said an individual substituted in the place of a company becomes exposed to all the personal risks associated with the litigation, particularly the risk of losing the case and having an award of legal costs made against them.
Eugene McCool was previously the managing director and majority shareholder of McCool Controls and Engineering Limited, which was the sole plaintiff when it initiated its case – alleging the firm was cut out of a tendering competition and suffered €11 million associated losses – in 2005.
As the protracted litigation wore on, the company stopped being able to afford a legal team.
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Mr McCool submitted that small limited companies have difficulties accessing litigation funding and the courts have failed to protect their litigation interests
In 2017, a resolution of the board of the McCool firm assigned its interest in the legal suit to Mr McCool, who proceeded to successfully apply to the Master of the High Court to be substituted as plaintiff in place of the company.
He said he had “undertaken to diligently continue the proceedings, solely for the benefit of the company and at no cost to the company”.
The defendant firm, UK-based Honeywell Controls Systems Limited, which denies all of the claims against it, asked the High Court to discharge the Master’s assignment of Mr McCool. The High Court acceded to the request, finding the assignment was an abuse of process and invalid because it was incomplete and an impermissible attempt to circumvent the rule that a company must be represented in litigation by a lawyer.
Mr McCool brought a second substitution application to the High Court, which rejected it as an attempt to re-agitate a decided issue. He unsuccessfully appealed this to the Court of Appeal before the Supreme Court determined his case raised a matter of general public importance.
Mr McCool submitted that small limited companies have difficulties accessing litigation funding and the courts have failed to protect their litigation interests. This, he argued, facilitates the abuse of process by larger commercial entities and prevents the advancement of legitimate cases.
In his ruling, Mr Justice Woulfe said he could not find any public policy basis for treating such an assignment as invalid due to issues of security for costs, which is where a defendant can ask a company pursuing it through the courts to lodge potential legal costs ahead of the case.
The judge said a previous judgment states that the point of requiring a company to hand in security for costs is to protect against the potential abuse of the privilege of limited liability.
In the case of a substituted individual, there is no possibility of such abuse, he said. The personal assets of the appellant are now at risk, and any justification for ordering security for costs against the company no longer applies, he added.
He was satisfied an assignee of a company’s interest in litigation may, in principle, be allowed to pursue litigation by being substituted as a plaintiff in lieu of the company. He allowed the appeal on this narrow ground.
The wider issue of whether such an assignment can ultimately be valid will depend on the assignee complying with particular conditions, he added.
Mr Justice Brian Murray and Mr Justice Gerard Hogan gave judgments that agreed with the findings of Mr Justice Woulfe. Ms Justice Iseult O’Malley agreed with the majority decision.
In a dissenting ruling, Mr Justice Peter Charleton found public policy debars an assignment of a corporate entity’s right to litigate to a director.
He said a precedent would be set whereby in any instance where a company might be met with an application by a defendant for security of costs, or where a company cannot afford to be represented by a solicitor, all that would be required is for the company “by a sleight-of-hand”, to assign the suit to a director or member.
“This would strike fundamentally at the heart of both corporate identity and at the checks to limited liability whereby an artificial person is bounded by precisely constructed legal regulation against abuse.
A company cannot, chameleon-like, deform from what the law has made it to be into a human person for some purposes that might suit its directors while retaining, as a backstop, corporate privileges,” Mr Justice Charleton said.
Mr Justice Woulfe said he appreciated his colleague’s concern, but could not agree with his conclusions.
Honeywell denies the claims in full and pleaded that the plaintiff is stopped from maintaining the claim because of a compromise agreement entered into in 2002. It also has a counterclaim regarding goods allegedly sold and delivered to the McCool firm.
All of the allegations are denied.
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