Supreme Court

Allied Irish Coal Supplies Ltd v Powell Duffryn International Fuels Ltd

19 December 1997

 
MURPHY J (Lynch J concurring): 

This matter comes before the court by way of notice of appeal dated 23 July 1996 from the order and judgment of Laffoy J given and made herein on the 19 July 1996. A motion on notice dated 11 November 1997 seeking liberty to adduce further evidence at the hearing of the appeal was heard in conjunction therewith. The latter application was refused and the reasons for so doing are included in this judgment. 

The substantive proceedings herein have a distressingly long history. They were commenced by a plenary summons issued on 20 July 1984. Nearly six years elapsed before the statement of claim was delivered on 2 January 1990. In its statement of claim the Plaintiff claims damages in excess of L1.9 million for an alleged breach of contract in the delivery of coal and for fraudulent misrepresentations alleged to have been made by Powell Duffryn International Fuels Ltd (PDIF) inducing the Plaintiff to enter into the alleged contracts. 

A defence (and a counterclaim for the price of the coal sold and delivered) was delivered by PDIF on 13 November 1990. 

On 12 January 1996 the Plaintiff brought a motion claiming: 

An order joining one Powell Duffryn Public Limited Company, Company Registration Number 298073, a limited liability company, having its registered office at Powell Duffryn House, London Road, Bracknell, Berkshire RG122AQ, England as a Defendant in these proceedings. 

The background to the application heard by Laffoy J, and in particular the relationship between the existing Defendant PDIF and the intended Defendant Powell Duffryn plc (plc) was distilled by the learned trial judge from the affidavit of Edward Braham Henry Sutton sworn on 17 January 1996 and an affidavit of David Wesley-Rogers incorporated by reference therein: a further affidavit of Simon Varley sworn on 22 February 1996, and an affidavit sworn on behalf of PDIF by Thomas Brassey sworn on 22 February 1996. For the purposes of this appeal the history of the matter may be abbreviated further as follows. 

PDIF is one of 25 companies which are wholly owned by plc. The parent, subsidiary and associated companies together form the Powell Duffryn Group which is an industrial enterprise with interests in providing and distributing specialist engineering services primarily for the transport and energy markets. PDIF itself is involved in the international coal trade and is part of the distribution network of plc. Mr Rogers who had been formerly employed by plc averred that PDIF was not financially or otherwise independent of plc but operated essentially as a department of it and not as a separate entity either as regards control, finance or operations. Mr Sutton swore that PDIF operated from various premises around the world using both the staff and premises of plc and in particular it was emphasised that PDIF was 'run merely as a department of plc and not as an independent or stand alone entity in any respect'. Again it was said by Mr Sutton that everything of any significance which PDIF did had to have prior authorisation of plc. In his affidavit, Mr Simon Varley on behalf of PDIF explained that plc was directed from small headquarters in Berkshire in England whereas PDIF operated from Hedfordshire and did so as an independent legal entity which reported only to the parent company on a financial basis. Mr Varley contended that PDIF functioned with its own board and prepared its own annual accounts in the usual way. 

There are certain facts which would appear to be in dispute between the deponents but more particularly differences of emphasis or differences in the inferences which might be drawn from substantially the same facts. 

In addition, the Plaintiff/appellant sought by the motion already referred to to introduce further evidence in this Court consisting of returns made to the Companies Registration Office in the United Kingdom in respect of PDIF for the purpose of showing that the deponents, who had described themselves as directors of PDIF, had ceased before the date of the affidavits to be directors of that company. The purpose of introducing this information was to add emphasis to the contention that those who were or should have been involved in the management of PDIF were indifferent to the separate legal status of that company. It was conceded that the returns which would have disclosed that information were available for public inspection before the hearing before the learned trial judge but it was contended that the particular matter had not been investigated at the time because of the positive averment by each of the deponents that they were in fact directors of the subsidiary company. 

Whatever facts may be disputed or debated others are beyond question. It was Mr Rogers in his affidavit sworn on 30 November 1995, who identified the staff of the Defendant company as consisting of Messrs Loveridge, Varley, Brassey and himself together with two secretaries. In addition in his affidavit he identified his own activities on behalf of PDIF in the following terms: 

. . . as shipping and operations manager, where I was responsible for monitoring all contracts, chartered vessels, and monitoring the loading and discharge of cargos from these vessels and doing the accounting associated with this, I worked under the directions of and reported to the said Mr Varley and the said Mr Brassey who were both directors of the Defendant company (PDIF). Mr Varley was responsible for traded coal in Eastern Europe and Mr Brassey was responsible for traded coal in Western Europe, including, inter alia, Ireland. 

Whilst it was the interference by and assertion of Mr Rogers that PDIF was effectively a department of plc he expressly refers in his affidavit to a report prepared by Mr Brassey 

. . . recommending that the Defendant company strongly support and give full backing to the development of the industrial coal market by the Plaintiff. 

Again he refers to reports and memoranda produced by Mr Brassey 'for submission to the board of the Defendant company' though going on to say 'and also for the purpose of the board of the Defendant company to submit to the board of Powell Duffryn Group'. 

Again he speaks (in paragraph 13) of reports which were the basis for the monthly board of directors meetings of the Defendant company. 

These transactions unquestionably undertaken by PDIF -- albeit under a stern measure of control by the parent company -- reveal a very high level of commercial activity on the part of the subsidiary. The claim of the appellant itself reveals and confirms similar facts. The essence of the Plaintiff's claim against PDIF is that the Defendant entered into a contract with it for the sale of some 300,000 tonnes of coal in the years 1985 to 1987 and did so on the basis of a variety of undertakings and representations made by the servants and agents of PDIF. That PDIF is a separate legal entity is not open to dispute. That that company has through its own servants and agents engaged in very substantial commercial activities is fully substantiated by the Plaintiff itself. The question raised in argument was the extent to which those activities were controlled directly or indirectly by the parent company and the legal consequences of such control. 

In the motion to join plc as an additional Defendant the Plaintiff relied on O 15 of the Rules of the Superior Courts which, so far as relevant, provides as follows: 
  
13. No cause or matter shall be defeated by reason of the misjoinder or nonjoinder of parties, and the court may in every cause or matter deal with the matter in controversy so far as regards the rights and interests of the parties actually before it. The court may at any stage of the proceedings, either upon or without the application of either party, and on such terms as may appear to the court to be just, order that the names of any parties improperly joined, whether as Plaintiffs or as Defendants, be struck out and that the names of any parties, whether Plaintiffs or Defendants, who ought to have been joined, or whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all the questions involved in the cause or matter, be added. No person shall be added as a Plaintiff suing without a next friend, or as the next friend of a Plaintiff under any disability, without his own consent in writing thereto. Every party whose name is so added as Defendant shall be served with a summons or notice in manner hereinafter mentioned, or in such other manner as the court may direct, and the proceeding as against such party shall be deemed to have begun only on the making of the order adding such party. 
  
14. Any application to add or strike out or substitute a Plaintiff or Defendant may be made to the court at any time before trial by motion or at the trial of the action in a summary manner. 

As the first sentence of r 13 indicates this provision was originally made to alleviate the hardship which was caused by the rigid application of what might now he described as 'legal technicalities'. Whilst many of those problems were eliminated by the enactment of the Judicature Acts both here and in England, it has been held that the discretion conferred by r 13 should be exercised in those cases where, before the Judicature Acts, a plea of abatement would have succeeded (see Wilson Sons & Co v Balcarres Brook Steamship Co [1893] 1 QB 422). Furthermore the words 'cause or matter' in the rule mean the action as it stands between the existing parties (see Amon v Raphael Tuck & Sons Ltd [1956] QB 357 at p 369). Certainly the court has jurisdiction to refuse to add parties for the purpose of introducing a new cause of action. In Raleigh v Goschen [1898] 1 Ch D 73, Romer J explained why -- in that case at any rate -- such a course should not be adopted although he was careful to indicate that the Plaintiffs would have whatever rights were available to them in other proceedings against the parties whom they had sought to add. 

In the High Court the learned trial judge understandably inquired as to what amendments might be sought of the statement of claim as against the new Defendant. This Court was informed that it had been explained to Laffoy J that the only relief sought against plc was in the nature of a declaration. In this Court, in response to the same query, counsel for the appellant was in a position to hand in a draft of the amended statement of claim which it was proposed to deliver in the event of the application succeeding. The relief sought by the amendments as contained in that draft is as follows: 

A declaration that the first and second named Defendants be treated as a single economic entity and that the Plaintiff in the event of this Honourable Court awarding damages to the Plaintiff that the same be recoverable from the first and or second named Defendant or in the alternative that the first named Defendant in relation to the matters the subject matter of these proceedings was acting directly or indirectly as the agent of the second named Defendant. 

The allegation, implicit in that relief, that plc would be liable in contract or in tort as a result of the acts of its agents is clearly a new cause of action. But more than that it is one which arose, if at all, outside the time limited by the Statute of Limitations. It is a well established rule of practice that a court will not permit a person to be made a Defendant in an existing action at a time when he could rely on the Statute of Limitations as barring the Plaintiff from bringing a fresh action against him (see Liff v Peasley [1980] 1 WLR 781 and Ketterman v Hansel Properties Ltd [1987] AC 189). Accordingly the application in so far as it seeks to join plc for the purpose of maintaining an action against that company for breach of contract or fraudulent misrepresentation must be rejected. 

In so far as the Plaintiff seeks to join the parent company to obtain the other declaratory relief different considerations may apply. That would not appear to be a cause of action between the appellant and the existing or proposed Defendants. Whether the wholly owned subsidiary or any of its associates are together with the parent company a single economic entity of such a nature or conducted in such a fashion as to render any one or more of those companies liable for the debts of another forms no part of the cause or action between the Plaintiff and the existing Defendant. That is an issue which might arise in the event of the Plaintiff attempting to execute a judgment against the present Defendant or a problem which could arise if successful proceedings by the Plaintiff ultimately resulted in the liquidation of PDIF. On the pleadings as drafted and the amendments as proposed the Plaintiff's contractual and legal rights are asserted as against PDIF and refuted by that company. That is the issue and not a question as to what assets would be available to meet a judgment if and when obtained. 

In my view it would be inappropriate for the court in the exercise of its discretion to add a Defendant to a cause or action solely for the purpose of enabling the Plaintiff to have a determination as to the extent of the assets which would be available to it in the event of it being successful in that cause or action. For that reason alone I believe that the application was rightly refused. 

As considerable debate took place before Laffoy J and in this Court with regard to the relationship between PDIF and plc, I feel that I should comment on it. 

The cornerstone of company law was put in place just 100 years ago by the decision of the House of Lords in Salomon v Salomon & Co [1897] AC 22. Not merely did that case decide that a company incorporated under the Companies Acts is a legal entity separate from its promoters or members but it was recognised that this was so even though the company was incorporated for that purpose and with the result that the distinction operated to the manifest detriment of those dealing with the company in the ordinary course of its business. It is sometimes helpful to recall (as Barrington J did in IPBS v Cauldwell [1981] ILRM 242) that in laying down this principle the House of Lords unanimously reversed the decision of the Court of Appeal -- likewise unanimous -- which had utterly condemned the conduct of Mr Salomon and his family for the way in which they had incorporated and operated the family enterprise. Had not the pertinacious Mr Salomon mounted his appeal -- and that in forma pauperis -- to the House of Lords, the nature of the relationship between a company and its promoters would have remained as it had been described by Lopes LJ in the Court of Appeal as ([1895] 2 Ch 323 at pp 340-341): 

The incorporation of the company was perfect -- the machinery by which it was formed was in every respect perfect, even, detail had been observed; but notwithstanding, the business was, in truth and in fact, the business of Aron Salomon; he had the beneficial interest in it: the company was a mere nominis umbra, under cover of which he carried on his business as before, securing himself against loss by a limited liability of L1 per share, all of which shares he practically possessed, and obtaining a priority over unsecured creditors of the company by the debentures of which he had constituted himself the holder. It would be lamentable if a scheme like this could not be defeated. 

If we were to permit it to succeed, we should be authorising a perversion of the Joint Stock Companies Acts. We should be giving vitality to that which is a myth and a fiction. The transaction is a device to apply the machinery of the Joint Stock Companies Act to a state of things never contemplated by that Act -- an ingenious device to obtain the protection of that Act in a way and for objects not authorised by that Act, and in my judgment in a way inconsistent with and opposed to its policy and provisions. It never was intended that the company to be constituted should consist of one substantial person and six mere dummies, the nominees of that person, without any real interest in the company. The Act contemplated the incorporation of seven independent bona fide members, who had a mind and a will of their own, and were not the mere puppets of an individual who, adopting the machinery of the Act, carried on his old business in the same way as before, when he was a sole trader. To legalise such a transaction would be a scandal. 

There are some decisions of the courts, particularly in other jurisdictions, and much academic writing which would seem to advocate a restriction of the principles so clearly established by the House of Lords in the Salomon case and perhaps indicate a wish to resuscitate the views so trenchantly expressed by Lopes LJ. However I am in complete agreement with the comments made by the learned trial judge in the present case when she said: 

While not expressing any general view on the scope of the principle on which the Plaintiff relies, in my view, it cannot be utilised to render the assets of a parent company available to meet the liabilities of a trading subsidiary to a party with whom it has traded. The proposition advanced by the Plaintiff seems to me to be so fundamentally at variance with the principle of separate corporate legal personality laid down in Salomon v Salomon & Co Ltd [1897] AC 22 and the concept of limited liability it is wholly unstateable. 

Counsel for PDIF sought in argument in this Court and in the High Court to distinguish the facts of the present case and those in Power Supermarkets Ltd v Crumlin Investments Ltd High Court 1978 No 4539P (Costello J) 22 June 1981. There is little difficulty in making such a distinction. In that case Costello J drew attention to the fact that apart from its initiation, the company in respect of which it was proposed that the corporate veil should be pierced, had never held any board meeting. There had been no meeting of shareholders. The supermarket, the subject matter of the case, had been purchased without any approval of any meeting of the board of directors and no meeting thereof was ever held to make decisions on trading or commercial matters. In fact the stock sold by the company was purchased not by the directors as such but by a panel of the Dunnes Stores Group who apportioned liability for purchases to each trading company in the group to whom the goods were invoiced. In the instant case there was, as I have pointed out, a very substantial business carried on by the employees of PDIF who reported to monthly meetings of the board of that company. However, apart from the distinctions which may be drawn between this and other cases the crucial feature of the Power Supermarkets case is that Costello J did not purport to question the authority of Salomon v Salomon & Co Indeed no reference was made to that case in the course of his judgment nor, as far as I am aware, the argument on which it was based. Again it is clear from the judgment in Rex Pet Foods Ltd v Lamb Brothers (Ireland) Ltd High Court 1982 No 8937P (Costello J) 5 December 1985 that Costello J had not intended in the Crumlin Investments case to lay down any revolutionary principle of law. 

Subsidiaries, whether wholly or partially owned or controlled by the parent, are a well established feature of our company law. The Companies Act 1963, s 155, defines or identifies a subsidiary company. Ss 150-154 deal with the circumstances in which companies may be required to produce not merely annual accounts in relation to their own affairs but 'group accounts' which are required to give 'a true and fair view of the state of affairs and profit or loss of the company and the subsidiaries dealt with thereby as a whole'. 

The fact that the activities of subsidiaries may be reflected in the accounts of the group show the extent to which the legislature recognised how companies trading in this way may require to be viewed as an economic entity but there is no question of that legislation making the assets of one company within the group liable for the debts of another. Such a consequence could operate very unjustly to persons dealing, as they would be entitled to do, with any member of the group as a separate legal entity. 

Whilst it would be impossible to say that there are no circumstances in which the members of a company -- whether corporate or individual -- could not conduct or purport to conduct the business of a company in such a way as to render their assets liable to meet claims in respect of the business nominally carried on by the company, I believe that this would be an altogether exceptional state of affairs and difficult to reconcile with the seminal judgment in the Salomon case. Moreover if it were sought to make this case it would have to be presented in circumstances in which creditors having conflicting claims on the assets of the different companies involved would have an opportunity of being heard. Apart from the inherent difficulty in sustaining the case, it seems to me that the joinder of plc for the purpose of seeking the relief which it is proposed to claim could operate as an injustice not merely to the existing Defendant but also to creditors or other persons interested in the assets and activities of the intended Defendant. 

For these reasons too I believe the learned trial judge was correct in refusing the application. 

Two other matters were canvassed before this Court. First, it was contended that PDIF had no locus standi to resist the application to the addition of a new Defendant and secondly, as already indicated, the claim to introduce new evidence for the purposes of the appeal. 

As to the issue of locus standi it should be noticed that r 14 of O 15 expressly provides that an application to add a Defendant must be made by a motion if not made at the trial itself. PDIF were accordingly properly served with the application herein and prima facie had a right to be heard in relation thereto. Indeed it was its rights rather than those of the intended Defendant which might have been prejudiced by the granting of the order sought. In general a Plaintiff may institute proceedings against any Defendants without seeking the permission of anyone. However the joinder of a Defendant in an existing action may well cause delay or add unnecessarily to the cost of the proceedings. The court undoubtedly has a discretion as to whether or not to order the addition of the new Defendant and, as the present case illustrates, the submissions of an existing Defendant may well be of assistance to the court in determining how such discretion should be exercised. I am satisfied that the requisite locus standi exists. 

Finally in relation to the admission of additional evidence, the general principles on which this may be permitted were set out in Murphy v Minister for Defence [1991] 2 IR 161 and repeated more recently in Smyth v Tunney [1996] 1 ILRM 219 at p 229 as follows: 
  
1. The evidence sought to be adduced must have been in existence at the time of the trial and must have been such that it could not have been obtained with reasonable diligence for use at the trial; 
  
2. The evidence must be such that if given it would probably have an important influence on the result of the case, though it need not be decisive; 
  
3. The evidence must be such as is presumably to be believed or, in other words, it must be apparently credible, though it need not be incontrovertible. 

It is admitted in the present case that the evidence which is sought to be introduced was available at the time of the hearing before the learned trial judge. In my view it could have been obtained by the exercise of reasonable diligence. As the appellant was making the case that PDIF was controlled and managed otherwise than by the directors of that company it followed that detailed investigations would be -- and indeed were -- carried out into the official returns made by the companies concerned to the Companies Registration Office in the United Kingdom. In that context the material which is now sought to be introduced should have been available to it. Furthermore, I am fully satisfied that the information now available and the inferences which it is sought to draw from them would only have a marginal value in relation to the issue which it has sought to raise. 

In the circumstances I would refuse liberty to introduce new evidence and I would dismiss the appeal. 

BARRON J: I agree that this appeal should be dismissed and that liberty to introduce new evidence was properly refused. The Defendant is clearly a properly run separate legal entity. 

Of course a subsidiary company may be dependent upon its parent company as regards control, finance and operations. But none of that prevents it from being a separate legal entity. The whole concept of limited liability is to enable some part of a person's affairs to be placed in a separate compartment. What is important is that having decided to carry out a business transaction by way of a particular legal entity such transaction remains solely the legal and financial concern of that entity. There must for example be no suggestion that the benefit of a transaction will be taken by one company and the liabilities under the same transaction borne by another. It is legitimate for individual transactions to be carried out through a medium of a limited liability company. What is not legitimate is for the person in charge to pick and choose which companies shall obtain the benefit of a transaction only when that transaction has been completed or is under way.