High Court of Ireland Decisions

1. The Plaintiff Company has since 1989 engaged in the business of purchasing and supplying aircraft parts and components for airlines in various parts of the World. It conducted that business mainly from Shannon until it ceased trading in February 1998. The deponent in this application on behalf of the Plaintiff is Barry McGovern, a Director of the Plaintiff Company

2. The first named Defendant joined the company in 1989 and in July 1993 became a Director. He is also a shareholder in a parent company Aerospares Industries plc. Until he resigned as Director in October 1997 he was Sales and Operations Director with day to day responsibility for running the Plaintiff's operations. He resigned in November 1997 at which time he indicated to Mr McGovern that he would be working in the Spares business himself from that point onwards. This resignation took place against a background where the Plaintiff Company had, because of difficulties associated with the Gulf situation run into serious financial difficulties. Efforts by the first three named Defendants to take over the plaintiff company had not been conclusive in which context, it is quite clear that personal relations between Mr McGovern and the first three Defendants had deteriorated significantly towards the end of 1997.

3. The second named Defendant joined the company in 1989 and became a Director. He was also given shares in the company in the parent company. He resigned in February 1998.

4. The third Defendant joined in 1991 and was trained by the second named Defendant. He became Sales Manager for the Middle East and African markets and was also given shares in the parent company. He also resigned in February 1998 and, like the second named Defendant joined Aviation Displays, the fourth Defendant, which had been established by the first named Defendant for the purpose of conducting business in the procurement and supply of aircraft parts, that is to say, an identical business to that carried on by the Plaintiff.

5. It is common case that the business of the supply of aircraft parts is not an exclusive one. Neither the Plaintiff or fourth named Defendant manufacture or design the parts they supply. The market is highly competitive and any customer anywhere in the World can be targeted by any trade competitor.

6. The contracts of the first three named Defendants did not limit their opportunity to apply their skills elsewhere after severance of connection with the Plaintiff. In fact, the contracts of the first and third named Defendants were terminable by either side giving one month's notice.

7. The Plaintiff's case is that the first three Defendants perpetrated a fraud on the Plaintiff by causing monies properly due and owing to the Plaintiff from its customers and trading connections to be channelled to the fourth named Defendant, using an account at a branch of Barclays bank in London in the name of the fifth Defendant, a company incorporated in the Seychelles and having exactly the same name as the Plaintiff. In addition, the Plaintiff claims further as yet unascertained losses for business allegedly poached by the first three named Defendants, both whilst still working for the Plaintiff and thereafter.

8. At the inception of these proceedings it was not suggested that these activities were responsible for the financial difficulties which the Plaintiff Company encountered in the period 1996-1997, although by the time of swearing of Mr McGovern's third Affidavit, this case began to be made. However, a financial report from Mr Kenny dated 17th September 1997 on the affairs of the Plaintiff Company would suggest that the Plaintiff had major problems of a financial nature well before the present difficulties arose.

9. The matter came before Laffoy J. on the 18th December 1998 when she directed that the intended Defendants and each of them be restrained (a) from disposing of, mortgaging, assigning, charging, dissipating, diminishing or in any other way dealing with any monies the property of the said intended Plaintiff which had been received by the second intended Defendants from Nigeria Airways Limited or from Turkmenistan Airlines Air Company "AKHAL" or any third party or any assets acquired directly or indirectly with the proceeds of such monies and (b) that the said intended Defendants whether by themselves their agents or otherwise be restrained until after the 21st December 1998 or until further Order in the meantime from dealing in any way with or disposing of their assets where ever situated save in so far as the same may exceed the sum of £500,000.

10. On the 21st December 1998, the said Order was varied by Mr Justice Kelly who joined the parent company, Aerospares Industries plc to the undertaking as to damages given by the Plaintiff and further directed that the Order already made be varied to the extent that each of the first, second and third named Defendants might expend no more than the sum of £5,000 each from their assets to meet day to day expenses and that the fourth named Defendant might pay each of said first, second and third named Defendants up to the said sum of £5,000 each and may discharge any ordinary trading expenses of the company falling due between the 21st December 1998 and the 7th January 1999.

11. The Plaintiff now seeks a continuance of the Mareva Injunction until the trial herein, an Order which they say should be world wide in its effect, and for certain ancillary orders of disclosure and discovery as detailed in the Notice of Motion.

12. I should say at the outset that this is a case in which an account of profits received by the Defendants has been sought which, given the international nature of the activities in which the parties are involved , is undoubtedly bound to result in a lengthy inquiry prior to any final adjudication. The continuation, even in varied form, of the present injunction would in such circumstances have the most severe implications for the Defendants.

13. At this point in time, I have multiple Affidavits from both sides, some of which are argumentative to a significant degree of the facts in dispute. I am however mindful of the criteria which the Supreme Court has confirmed in Horgan Livestock Limited and Another v John Horgan and Others (1995 2 I.R.) and to the requirements further stated that a Plaintiff seeking such relief must establish (a) that he has an arguable case that he will succeed in the action and (b) that the anticipated disposal of a Defendant's assets is for the purpose of preventing a Plaintiff from recovering damages and not merely for the purpose of carrying on a business or discharging lawful debts.

14. A number of additional considerations arise in the instant case. It is submitted on behalf of the plaintiff that the threshold where a Plaintiff establishes an arguable case for a proprietary claim is not as strict as an in personam claim. This is very much part of the Plaintiff's claim in the present case. I was also, in the context of the alleged fraud and dishonesty on the part of the Defendants referred to a passage in Gee ...Mareva Injunctions and Anton Piller Relief (4th ed. p. 198) which states:-

15. The Plaintiff in these proceedings contends that this is an appropriate case for a World Wide Mareva Injunction as the Defendants have access to monies in other jurisdictions. The unreported judgment of O'Sullivan J. in Bennett v Lipton (delivered 19th June 1998) was cited in support, although clearly that case was one in which the Defendants had no assets within the jurisdiction, unlike the instant case.

16. I will now endeavour to extract from the welter of allegations and counter charges the essential facts which are pertinent to the making of an Order in this case.

17. On the 30th June 1996, the fourth named Defendant was incorporated in Ireland. The first named Defendant became a Director in November 1997. The second and third named Defendants were appointed Directors in March 1998. It is an interesting exercise to co-relate in time these developments with the working history and ultimate resignations of the individuals concerned in the Plaintiff company.

18. The fifth named Defendant was established in the Seychelles on the 8th April 1997. Its original Directors were Ms Reka Patczai and Mr Bella Mate from Budapest. Ms Patczai was at the relevant time responsible for running the Hungarian office of the Plaintiff , a position she continued to retain until mid 1998. She reported directly to the first named Defendant and would have been well known to the second and third named Defendants.

19. As previously stated, the Plaintiff Company ceased trading in February 1998 and thereafter commenced trying to collect outstanding accounts. In this context, the Plaintiff contacted Nigerian Airways Limited and discovered that a payment of $150,000 had been authorised by Nigerian Airways in favour of Aerospares Shannon Limited (which was the Plaintiff companies trading name) through an account at Barclays Bank at Heathrow in London in respect of six escape slides and in part payment of spares and components "already supplied". This payment took place on the 12th December 1997, but was only discovered in May 1998 by the Plaintiffs. At this point in time, Mr McGovern had already considerable anxiety about the activities of the first named three named Defendants because of certain faxes which had come to light during the time they had been working for the Plaintiff, but I think it is fair to say that the discovery of this payment in May 1998 came as a complete bombshell to the Plaintiff as it had no account at that particular branch of Barclays Bank and was unaware that the payment had been made.

20. There was thereafter an application to the High Court in London in October 1998 on behalf of the Plaintiff which resulted in an Order whereby Barclays were able to reveal that on the 8th May 1997 a sterling account had been opened in the name of the fifth named Defendant at that location. The third named Defendant had become a signatory in respect of that account on the 12th December 1997. On the 9th December 1997 Ms Patczai requested that a US dollar account be opened in the name of the Seychelles company. Into this account was paid the said sum of $150,000. Two days later a payment of $89,900 was made from that account to the fourth named Defendant.

21. The first named Defendants in essence says that this was an advance payment to the fourth named Defendant by Nigerian Airways so that Aviation Displays could commission and supply both the slides, and they say , a fuel control unit to Nigerian Airways and that they did in fact subsequently do so.

22. Both sides accept that invoices would not necessarily be sent in advance of a payment and that Nigerian Airways operated a rolling account for goods supplied so it is not easy to resolve the conflict of fact by reference to any documentation which may have preceded the payment. It is further conceded by the Plaintiff that they cannot prove that six slides were ever supplied by them but they point, however, to the description contained in the second part of the payment instruction as being for " spares and components already supplied" as giving the lie to any suggestion that this was either the fourth Defendants contract or any supplier other than the Plaintiff.

23. I do not have to make any sort of final adjudication on this issue, but it strikes me as extraordinary that such a contract could have been placed in position by any of the first three named Defendants at this point in time, when two of the three Defendants were still working for the Plaintiff Company an the first named Defendant had resigned a mere few weeks previously. It is equally extraordinary that such circuitous steps required to be taken by the Defendants to receive these monies if they were acting bona fide . I am told that the fifth named Defendant acted as a convenient agent for the fourth named Defendant and had at that point in time an account in London, something the fourth named Defendant did not have, but I am not given any good reason why it was necessary for an identically named company to be set up in the Seychelles involving Hungarian trading contacts for the purposes of receiving in London payments destined either for Aviation Displays or persons connected with it. Equally, no explanation has been given as to why Aviation Display Limited could not itself have opened its own London account. As far as any overseas customer was concerned, it could still reasonably believe it was dealing with the Plaintiff through its Barclays' account in London.

24. I might further add in this connection that documentation obtained from Barclays on foot of the Court Order in England reveals that £14,100 was paid out of the fifth named Defendant's Barclays account to the second named Defendant on the 5th August 1997 at a time when that Defendant was still employed by the Plaintiff. Furthermore, in the process of setting up the US dollar account in December 1997 Ms Patczai indicated to the official in Barclays Bank who was dealing with the transaction that one of the two signatures on the new US dollar account would be the first named Defendant. She further enquired if the first named Defendant could pick up the necessary papers at Barclays Bank in Dublin. While Mr Thompson did not subsequently become a signatory on that account, this communication is relevant at showing the close connection between the first three named Defendants, the fourth named Defendant and the fifth named Defendant.

25. Even if the Plaintiff Company cannot establish that they did in fact supply the slides in question to Nigerian Airways, this seems to me somewhat immaterial. Nigerian Airways were, at a critical point in time, clearly given to understand that they were still dealing with the servants or agents of the Plaintiff Company and there is nothing in the contemporaneous documentation to indicate that Nigerian Airways believed that there had been a parting of the ways between the Plaintiff and its employees. On the contrary, all of the contemporaneous documentation, including, in particular, the documentation supplied from Barclays Bank in London, supports the Plaintiff's interpretation of events at this time.

26. I am satisfied therefore that the Plaintiff has made out a good arguable case both for a proprietary claim and for the proposition that the first three named Defendants acted dishonestly in breach of contract and in breach of fiduciary duty in relation to this particular payment, and that they diverted monies wrongfully from the Plaintiff.

27. There is a further unexplained payment of £32,229.76 sterling paid by Nigerian Airways to the account of the fifth named Defendant in Barclays Heathrow account on the 2nd June 1997 at a time when all three Defendants were still working for the Plaintiff. No explanation of any sort has been furnished in relation to the circumstances in which this payment was made, so that similar conclusions or inferences may well be appropriate in this instance also.

28. It may well be that the first three named Defendants felt they had to act swiftly to get off a sinking ship, but, if that was their agreed course of action, the evidence presently available would indicate to me that they choose very underhand means of realising that goal. The Plaintiff in this case can point to many apparent breaches of fiduciary duty, not least of which are the sending of certain faxes damaging to the Plaintiff Company by or on behalf of the fourth named Defendant. In November 1997, a fax was sent to Syrian Arab Airlines from the premises of the fourth named Defendant stating that the Plaintiff was unable to meet further Orders and that further sales Orders should be replaced with Aviation Display Limited. This fax was sent on the Plaintiff's notepaper and was a forgery. Another fax, sent by the first named Defendant in August 1997 to Czech Airlines purported to represent that the fourth named Defendant was part of the Plaintiff's group of companies, an assertion which was blatantly dishonest.

29. The Plaintiff also claims that a payment of US $74,965 was made on the 9th June 1998 into the same London account from Turkmenistan Airlines Air Company (TAA) and that this payment was "virtually identical" to an unpaid debt due to the Plaintiff by TAA. The documentation from Barclays would suggest the intended payee, at least in so far as the Bank records go, was the Plaintiff whose Dublin address appears on the Branch Referral Report. However, on the 16th June 1998 this sum, less US $5.13 was paid to Aviation Displays.

30. The Defendants strongly deny this assertion and claim that this particular payment was theirs in respect of a power unit supplied by them to TAA. TAA have since furnished a confirmation to that effect. The Defendants further contend that the debt for which the Plaintiff contends was in fact discharged by TAA to Ms Patczai as agent of the Plaintiff in Budapest who, at the time, was in dispute with the Plaintiff about arrears of salary and expenses due to her by the Plaintiff Company. They can point to a fax from the Plaintiff company agreeing the debt at $69,253.29 with Ms Patczai. The correspondence on file would suggest that Ms Patczai retained these monies herself. They have never been traced. If the payment of the 9th June 1998 was received by Ms Patczai the question must arise as to why an initial payment was made into the London account rather than Budapest and why no subsequent payment from that account appears to exist in favour of Ms Patczai. It may be that further evidence will emerge to clarify the facts of this particular allegation, but I cannot decide the probabilities one way or another on the evidence presently available, particularly having regard to the date of payment which was well after all three named Defendants had severed their connections with the Plaintiff Company.

31. Against this background, it is an impossible exercise to identify with any accuracy the probable or possible losses which the Plaintiff Company may have suffered as a result of the activities of the first three named Defendants.

32. It appears to be common case that the profit-margin on turnover on a typical transaction is about 25%.

33. An analysis of the two Barclays accounts indicates that in the period July 1997 to September 1998, the principal beneficiaries of the monies passing through the accounts in Barclays Heathrow was Aviation Display Limited. The receipts in the sterling account were £102,169 and on the US $ account US $751,982. In his first replying Affidavit, the first named Defendant admits that the fourth named Defendant had obtained orders from Nigerian Airways for approximately US $700,000 worth of business in spare parts. This is in respect of a thirteen month period. It is quite obvious that much or some of these receipts relate to the business activities of the first three named Defendants in their own right following severance of their contractual arrangements with the Plaintiff. Business to the value of US $138,000 and Stg. £63,000 is represented in cash receipts on the two accounts to the end of January 1998 when the Plaintiff ceased trading. It is difficult to avoid the impression that Aviation Display Limited was, for a period of time, being used as a parallel trading channel by the first three named Defendants herein.

34. It had been urged upon me that the injunction should be continued in this case because of the possible scale of damages to which the Plaintiff might be entitled. The Plaintiff, it is suggested, is entitled not merely to an account but to a return of any monies or profits wrongfully diverted and indeed of any profits which the Plaintiff itself might have made. It is submitted that this would embrace all profits obtained over a virtually indefinite period from a "poached" client. In this context I was referred to the case of Canadian Aeroservices -v- O'Malley [1974] SCR 592 (Supreme Court of Canada) where, following resignation, two senior officers established the benefit of a contract with a former customer of the employer. In that case, the officers were compelled to return to the company the profits they had made. In that case it was stated by the Court that a director or a senior officer of a company is disqualified from usurping for himself or diverting to another person or company with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.

35. That case concerned a specific contract for the topographical mapping of Guyana and was a situation in which the two Defendants had for some years been working up a detailed and complex project which had almost come to fruition, of which they had a particular and truly confidential knowledge.

36. That situation seems quite different on the instant case where two of the three first named three Defendants were on routine service contracts terminable by one months notice in writing, in a non-exclusive area of commercial trade and where in any event they could not have been restrained from competing for the same business either under the terms of their employment or under the Competition Acts. Accordingly, while the Plaintiff company may well recover damages in this case, it seems to me that such damages must in reality be confined to "poached" business in 1997 and in the early part of 1998 rather than the ongoing indefinite time contended for. This puts definite limits on the damages recoverable in this case, bearing in mind the profit-margins to which I have already alluded.

37. The Defendants contend that the requirements for a Mareva Injunction have not been met in this case.

38. They contend that the Plaintiff did not make full and frank disclosure of all matters in its knowledge which were material for the Court to know, in that Mr McGovern did not disclose that the TAA debt had already been paid by TAA to the Plaintiff's agent in Budapest and that the correspondence and communication of which it had in its possession passing between the Plaintiff and Ms Patczai provided a very real explanation for non-payment of the sum in question.

39. Given my view that Ms Patczai and the first three named Defendants acted in concert throughout in this matter, I cannot believe the Defendants have been in any way prejudiced by this omission.

40. Furthermore, the Plaintiff has explained that all enquiries made by him on foot of the explanation tendered by Ms Patczai have failed to reveal the whereabouts of the monies in question and the Plaintiff therefore contends that the payment which appears in the records of the fifth named Defendant in Barclay's bank in June of 1998 does in fact represent his debt. On that account, I feel the Plaintiff's explanation in relation to this omission to refer to the role of Ms Patczai in this area of dispute is adequate.

41. The Defendants further contend that the Plaintiff has not given any particulars of its claim against Nigerian Airlines. They have not displayed any invoices or debts due and owing to it or any evidence of performance of the contract or services giving rise to the claim. However, given the manner in which Nigerian Airways conducts its business, I am satisfied that this objection also fails.

42. On the risk of dissipation of assets, the Defendant states that the only grounds for so alleging is the inherent nature of the Defendants alleged wrong doing and the fact that some of the Defendants have accounts abroad. In this context, it is pointed out that each of the first, second and third named Defendants all reside in Ireland. All are married with children. Two of them own their own homes.

43. Finally, the Defendants contend that damages are an adequate remedy and that the balance of convenience favours the lifting of the Mareva Injunction in this case. They point out that the Plaintiff is a non-trading company and so that it cannot suffer on-going damage to its reputation or goodwill. The status quo ante cannot be maintained. The Defendants have established the right to trade independently of the Plaintiff and in competition with the Plaintiff. The Plaintiff's claim, they say, is essentially about the recovery of monies due and owing to it which are easily quantifiable in terms of damages. There is no suggestion in this case that any of the Defendants diverted funds or misappropriated funds from any actual account of the Plaintiff company.

44. However, these considerations must all be weighed against my belief, on the evidence at this stage only, that the first three named Defendants behaved dishonestly, both in re-routing certain payments destined for the Plaintiff and in holding themselves out as working for the Plaintiff while in fact operating on their own account. They have easy access to overseas accounts. The cited passage in Gee to which I have referred seems very much in point in the present case and therefore on balance, in the absence of specific undertakings from the Defendants, my inclination would be to continue the Mareva Injunction to date of trial.

45. However, three specific undertakings have been offered to the Court. The first of these is an undertaking by the first four Defendants to lodge into Court the sum of £100,000 to meet any possible judgment which may be awarded against them in the case. This sum is offered without prejudice to the Defendants' defence. Secondly, the first three named Defendants are prepared to undertake not in any way to endeavour to dispose of 385,000 shares in the Plaintiff parent company, the assets of which I am told are in excess of US $2,000,000. This shareholding I am told, represents about 10% of the shares in the company.

46. Thirdly, the first four Defendants are prepared to give undertakings not to move any of their assets within this jurisdiction abroad nor to dissipate any assets which they have in their possession within this jurisdiction or any other jurisdiction for the purpose of defeating execution of any judgment obtained in this case. This undertaking is given on the assumption that the Defendants are entitled to reasonable living expenses and the cost of discharging legal fees and also that the fourth named Defendant can carry on its normal business. These undertakings, if clarified in a satisfactory way, go far enough in my view to meet the requirements of this case.

47. Naturally, the Plaintiff company must be somewhat apprehensive about general undertakings given by the aforementioned Defendants in view of their past experience. For that reason I propose adjourning this matter for two weeks to enable payment in to Court of £100,000 and to enable greater clarity and definition to be given to what the other undertaking must include and address.

48. In this context, I require that the Defendants file a further affidavit containing a schedule of available assets within the jurisdiction, excluding family homes, which would have a combined or total value of not less than £250,000. This is not in lieu of the undertaking offered which remains.

49. I will consider any other suggestions the parties may have to make the said undertakings as effective as possible in two weeks time.

50. I do not propose making any ancillary Discovery Orders. As I see it, much of the ground has already been covered by the voluminous affidavits already filed. Any remaining issues can be dealt with on discovery.

51. Subject to satisfactory clarification of the undertaking as indicated, I will discharge the Mareva Injunction in two weeks time. In the interim the existing Order and Plaintiff Companies undertaking will continue.