In the matter of Tipperary Fresh Foods Limited (in liquidation) and in the matter of Section 150 of the Companies Act 1990 and Section 56 of the Company Law Enforcement Act 2001; William O'Riordan (Applicant) v. Joseph Coleman O'Connor, Joseph Peter O'Connor and Donal O'Connor (Respondents).
Company law - Application to restrict as director - Costs of application to restrict as director - Costs incurred in investigating restriction application - Whether costs of investigation would be retrospective - Whether presumption against retrospectivity applies to costs of investigation - Companies Act 1990 section 150(4B) Company Law Enforcement Act 2001 section 41(2).
The High Court (before Ms Justice Finlay Geoghegan): judgment delivered March 18th, 2005.
Applying the provisions of a statute to a procedure initiated prior to the commencement of that statutory provision gives retrospective effect to the statutory provision. The presumption against retrospective construction does not apply to enactments which affect only the practice and procedure of the courts.
Section 150(4B) of the Companies Act 1990, insofar as it gives to the court a power to make an order against respondent directors that they bear "any costs incurred by the applicant in investigating the matter", is not only of a procedural nature, as it involves more than the costs of legal proceedings.
Even where the presumption against retrospectivity applies to a statutory provision, the presumption can be overcome by clear and unequivocal declaration of the Oireachtas.
The High Court (Ms Justice Finlay Geoghegan) so held in granting the application for costs by the liquidator pursuant to s.150(4B) of the Companies Act 1990.
David Barniville BL for the applicant; Brian Kennedy BL for the respondents.
Ms Justice Finlay Geoghegan began her judgment by outlining the background to the case. The applicant is the official liquidator (hereafter 'the liquidator') of Tipperary Fresh Foods Limited (in liquidation) (hereafter "the company") having been so appointed by order of the High Court on March 26th, 2001. On April 26th, 2004, the liquidator issued a motion seeking declarations of restriction pursuant to section 150 of the Companies Act 1990 in respect of the three respondents.
The first and third named respondents did not oppose the application and on October 11th, 2004, a declaration of restriction was made in respect of both of them. The liquidator now seeks, pursuant to section 150(4B) of the 1990 Act (as amended) both the costs of the application and the costs incurred in investigating the matter. It is undisputed that the court has jurisdiction to make an order for the costs of the application under Order 99 of the Rules of the Superior Courts. On behalf of the respondents it is contended that the liquidator is not entitled to rely on s.150(4B) in this liquidation as the liquidation commenced before the subsection came into force, and such reliance would give section 150(4B) a retrospective application which, it is contended, is not warranted.
The first named respondent was appointed a director of the company on November 18th, 1988. The third named respondent appeared to have acted as a director at the latest in 2000. The company appeared to have ceased trading on March 12th, 2000. The company's premises were sold in July, 2000. A petition was presented for the winding up of the company on February 9th, 2001. The winding up order was made and the official liquidator appointed on March 26th, 2001.
The Company Law Enforcement Act 2001 was passed on July 9th, 2001. Section 41 of the 2001 Act, which inserted section 150(4B) of the 1990 Act was brought into force on March 1st, 2001, by SI No. 53 of 2002. Section 56 of the 2001 Act was applied to this liquidation with effect from June 1st, 2003, by S.I. 217 of 2003. The liquidator made his report as required by s.56 of the 2001 Act on November 27th, 2003. The liquidator asserts that much of the investigation for which he now seeks an order for costs was carried out after March 1st, 2002, when s.150(4B) came into operation.
The liquidator was not relieved by the Director of Corporate Enforcement of his obligation to bring an application under section 150 of the 1990 Act against the respondents. Accordingly, pursuant to section 56 of the 2001 Act, he did so by motion issued on April 26th, 2004, in the winding up proceedings which had commenced on February 9th, 2001. The application under section 150 of the 1990 Act was brought after section 150(4B) came into force but in liquidation proceedings which commenced prior to that date.
Ms Justice Finlay Geoghegan said that having regard to the submissions of counsel, the following appear to be the issues to be considered:
1. If the court now makes an order for the costs of investigation pursuant to section 150(4B) of the 1990 Act in this application, is it giving to that subsection a retrospective application?
2. If so, does the presumption against retrospectivity apply to section 150(4B), it being a provision relating to costs?
3. If the presumption against retrospectivity does apply then is such retrospectivity dictated or warranted by section 41 of the 2001 Act?
The nature of retrospective legislation was considered by the Supreme Court in Hamilton v. Hamilton IR 466. In his judgment O'Higgins C.J. at pp. 473 to 474 adopted the definition provided by Craies on Statute Law (7 th Ed., p.387) of legislation operating retrospectively where it "takes away or impairs any vested right acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability in respect to transactions or considerations already past".
Counsel for the liquidator accepts this definition but submits that as the liquidator is now only claiming the costs of investigations carried out after the commencement of section 150(4B) of the 1990 Act that if the court now makes an order against the respondents in respect of the costs of investigation that section 150(4B) would not be operating retrospectively within the meaning of the above definition.
In the application under section 150 at issue primarily is the conduct of the respondents as directors of the company. The onus is on the directors to satisfy the court that they acted honestly and responsibly and if they fail to do so, the court is bound to make the declaration of restriction. At latest on the making of the winding up order on March 26th, 2001, the respondents became persons to whom section 150 applied and they were then at risk of facing the consequences of section 150 as then enacted by reason of their conduct as directors of the company prior to March 26th, 2001. Those potential consequences were a declaration of restriction and an order to pay the liquidator's costs of the application under section 150. The latter consequence was not then expressly provided for in section 150 but arose by reason of the courts' jurisdiction under Order 99 of the Rules of the Superior Courts, 1986.
It is common case that the costs of investigation now sought would not come within the ambit of an order for costs under Order 99. Hence, at the date upon which the respondents became potentially liable to the consequences of s.150, the court could not have made an order that they pay to the liquidator the costs of his investigating the matters raised in the section 150 application. Section 150(4B) has now given the court such power where it makes a declaration of restriction. Ms Justice Finlay Geoghegan said that that appeared to her to be the creation of "a new obligation" in respect to "transactions . . . already past" and as such to be legislation which operates retrospectively within the meaning approved by the Supreme Court in Hamilton (above). The power given to the court to make an order in respect of the costs of investigation only arises if the court decides to make a declaration of restriction which decision will primarily depend upon the conduct of the respondents as directors of the company prior to the date of the making of the winding up order on March 26th, 2001. The potential obligation to pay the cost of the investigation is imposed in respect of the respondents conduct as directors prior to the commencement of winding-up and by reason of the fact that the respondents became subject to section 150 on the date of the commencement of the winding-up of the company.
Ms Justice Finlay Geoghegan said that in reaching that conclusion, she had not ignored the fact that the court may on occasion consider actions of the directors after the commencement of the winding-up for the purpose of considering under section 150 whether there exist any other reasons for which it would be just and equitable to make the declaration of restriction. However, this is a subsidiary consideration and there is no suggestion on the facts of this case that the matters being investigated by the liquidator took place after the commencement of section 150(4B).
Ms Justice Finlay Geoghegan said that she concluded that if section 150(4B) is now applied in this application it will be giving it a retrospective application.
Counsel for the liquidator also submitted that section 150(4B) is a statute affecting costs and as such is considered to be of a procedural nature for the purpose of the rules relating to retrospective legislation.
It appears well established that the presumption against retrospective construction does not apply to enactments which affect only the practice and procedure of the courts. See Maxwell, The Interpretation of Statutes (12th Ed. 1969, p.2322). In Re Hefferon Kearns Limited (No. 1) 3 IR 177, Murphy J. at p.184, having referred to the approval in Hamilton (cited above) of the definition of retrospective legislation, stated:
"The Chief Justice was thus distinguishing retrospective legislation properly so called from other statutes having a retroactive effect such as statutes dealing with the practice and procedure of the courts which enabled procedures to apply to actions arising before the operation of the statute."
The exclusion of statutes affecting only procedure and practice of the courts from the presumption against retrospective construction is explained by Maxwell (op. cit. at p.222) in the following terms:
"No person has a vested right in any course of procedure, but only the right of prosecution or defence in the manner prescribed for the time being, by or for the court in which he sues, and if an Act of Parliament alters that mode of procedure, he can only proceed according to the altered mode."
In submitting that section 150(4B) could be considered as a section which only effects the procedure and practice of the courts, counsel for the liquidator relies upon the following statement in Maxwell, op. cit. at p.224:
"Statutes affecting costs are of a procedural nature for the purposes of the rules about retrospectivity. Section 34 of the Common Law Procedure Act 1860, which deprived a plaintiff in an action for a wrong of costs if he recovered by the verdict of a jury less than £5, unless the judge certified in his favour, was held to apply to actions begun before the Act had come into operation, but tried afterwards, (Wright v. Hale 30 LJ Ex. 40) and a similar effect was given to section 10 of the County Courts Act 1867 which dealt with orders for security for costs in county court actions (Kimbray v. Draper) LR 3 QB 160)."
Ms Justice Finlay Geoghegan said that she had considered the judgments referred to in the above passages. Whilst undoubtedly Wright v Hale is authority for the proposition stated in Maxwell, in Kimbray v Draper considerable doubt was expressed by the members of the court as to the correctness of the view formed in the earlier case. Blackburn J. at p. 162 expressed the reservations in the following terms:
"The cannon of decision in Wright v. Hale is, that when the effect of an enactment is to take away a right, prima facie it does not apply to existing rights; but where it deals with procedure only, prima facie it applies to all actions pending as well as future. Whether the Court of Exchequer applied that test properly, in holding it was a matter of procedure where a statute enabled a judge to deprive a plaintiff of costs in a case where but for the statute he would have been absolutely entitled to them, may be questionable, but for the decision in that case I certainly should have been inclined to think this was taking away a right. The present case, however, is far more clearly a matter of procedure, as the statute only imposes on the plaintiff the alternative of giving security for costs or proceeding in the county court. That is certainly much more matter of mere procedure than was the case in Wright v. Hale, and we are bound by the principle of that case, and the rule must therefore be absolute."
Ms Justice Finlay Geoghegan said she did not consider that section 150(4B) insofar as it gives to the court a power to make an order against respondent directors that they bear "any costs incurred by the applicant in investigating the matter" is only of a procedural nature. Firstly, these are not the type of costs which appeared to the court to have been included in the previous principle, which were costs of legal proceedings. Costs incurred by the liquidator in investigating the matter are not such costs. For that reason the costs of the application are separately referred to in s.150(4B). Ms Justice Finlay Geoghegan said that rather, as she had already stated, it appeared to the court to potentially create a new monetary obligation in respect of transactions past and as such benefited from the presumption against retrospectivity.
The final question is whether, notwithstanding the presumption against retrospectivity, section 41 of the 2001 Act must be construed as applying section 150(4B) to liquidations which had commenced prior to the coming into force of section 41. Murphy J in Re Hefferon Kearns Limited 3 IR 177 determined that the proper approach to determining such an issue (in that case section 33 of the Companies (Amendment) Act 1990) in accordance with the decision of the Supreme Court in Hamilton (cited above), is:
". . . section 33 must be construed on its own terms and in the context in which it appears to see if the legislation has clearly and unequivocally declared its intention that this legislation should take effect retrospectively."
The question which must now be determined by the court is whether construing section 41 of the 2001 Act in its own terms and in the context in which it appears the legislation has clearly and unequivocally declared its intention that this legislation should take effect retrospectively in the sense of applying at a minimum to an application made after the commencement of the section but brought in a liquidation which commenced prior to the operation of the section.
Section 41 of the 2001 Act provides: -
'(1) Section 150 of the Act of 1990 is amended -
(a) in subsection (3)(a)(i), by the substitution for "£100,000" of "£250,000",
(b) in subsection (3)(a)(ii), by the substitution for "£20,000" of "£50,000", and
(c) by the insertion of the following after subsection (4):
"(4A) An application for a declaration under subsection (1) may be made to the court by the Director, a liquidator or a receiver.
(4B) The court, in hearing an application for a declaration under subsection (1) from the director, a liquidator or a receiver, may order that the directors against whom the declaration is made shall bear the costs of the application and any costs incurred by the applicant in investigating the matter."
(2) The amendments made by paragraphs (a) and (b) of subsection (1) shall not have effect in relation to a declaration under subsection (1) of section 150 of the Act of 1990 made before the commencement of this section and, accordingly, the requirements of subsection (3) of that section 150 that shall apply in respect of a person who is the subject of such a declaration made before that commencement shall be those that applied before that commencement."
Ms Justice Finlay Geoghegan said that the first matter to be noted is subsection (2) which excludes the application of paragraphs (a) and (b) of subsection (1) to declarations made before the commencement of the section. There is no similar exclusion to the application of paragraph (c) to liquidations which started prior to the commencement of the section. Such exclusion was made for the application of section 150 at the time of its enactment by section 149(3) of the 1990 Act.
Ms Justice Finlay Geoghegan said that it appeared to her that the only proper construction of section 41(1)(c) is an intention that the provisions of subsection (4B) should apply to any application brought pursuant to subsection (4A) of section 150 of the 1990 Act.
The insertion of subsection (4A) into section 150 of the 1990 Act was the first time that there was express provision as to the persons by whom applications might be made under section 150. The Office of the Director of Corporate Enforcement ("the director") was established by section 7 of the 2001 Act. The Oireachtas must be presumed to have intended that the director be entitled to make applications under section 150(1) pursuant to section 150(4A) immediately after the commencement of that subsection. Considering section 150(4B) in the context of section 150(4A) there is an inescapable conclusion that the Oireachtas intended subsection (4B) to apply to all applications which might have been brought pursuant to subsection (4A). If one considers the position of the director alone inevitably it must be concluded that subsection (4B) was intended to apply to all applications brought by the director pursuant to subsection (4A). There does not appear any basis for reaching a different conclusion in relation to applications brought by a liquidator.
Further as was submitted by counsel for the liquidator it does not appear proper to consider section 41 in the context of the new scheme enacted by section 56 of the 2001 Act. That section has been treated as applying to liquidations commenced prior to the date of coming into operation of section 56. In the commencement orders it has been expressly applied to liquidations commencing on specified prior dates. It has not been suggested that it was not so intended by the Oireachtas. Section 56 came into operation as affecting the liquidation herein on June 1st, 2003. In accordance with section 56, the liquidator became obliged to make a report to the director within six months of June 1st, 2003, and subsequently, not having been relieved by the director, became obliged under subsection (2) to apply to the court under section 150. That application is brought inter alia pursuant to the provisions of subsection 150(4A).
Ms Justice Finlay Geoghegan concluded, notwithstanding that the presumption against retrospectivity applies to section 41 of the 2001 Act inserting section 150(4B) to the 1990 Act insofar as it authorises the court to make an order against respondent directors for the costs incurred by the applicant in investigating the matter, that the Oireacthas has clearly and unequivocally in terms of section 41 of the 2001 Act declared its intention that such section should take effect retrospectively in the sense of applying to a liquidation which commenced prior to the coming into operation of section 41 of the 2001 Act.
Ms Justice Finlay Geoghegan said she was aware that the final conclusion in this judgment is contrary to that reached in an ex tempore decision given by the court in the Monday motion list on July 26th, 2004, in Sarth Investments Limited (in receivership and liquidation). The issues were considered in greater detail in the submissions in this application and the court reserved its decision. Ms Justice Finlay Geoghegan said that whilst she regretted the inconsistency, having considered the submissions made and authorities to which the court was referred, the court was bound to so decide.
Solicitors: F.B. Keating & Co. (Limerick), for the applicant; Eugene F. Collins (Dublin), for the respondents.