Supreme Court: Assignee of company’s interest in proceedings may be permitted to litigate in lieu of company

About this case:

• Citation:
  [2024] IESC 5
• Judgment:
  External link
• Court:
  Supreme Court
• Judge:
  Mr Justice Séamus Woulfe

Delivering judgment for the Supreme Court, Mr Justice Seamus Woulfe stated that “if an order for substitution is made following an assignment of the type in question here, the rule in Battle is no longer engaged. The rule relates to representation of a limited company by someone who is not a party to the proceedings, but post-assignment and substitution these factual circumstances are simply not applicable…”

Background

The company, McCool Controls and Engineering Ltd, was the sole plaintiff when proceedings issued in 2005 in respect of €11 million in losses that it suffered when it was allegedly cut out of a tendering process by the respondent, in breach of an agreement between them.

The appellant, the former managing director and majority shareholder of the company, sought to be joined as a co-plaintiff before the Master of the High Court in 2017. Prior to the hearing, the company purported to assign its interest in the proceedings to him by resolution, a course of action apparently having been suggested by the Master as the appellant had no personal claim against the respondent which he could litigate himself.

When the matter came back before the Master, it was concluded that the company could no longer be a plaintiffhaving assigned its interest in the proceedings. Accordingly, on 8 November 2017 an application was successfully made to the Master to substitute the appellant in place of the company. The respondent sought to discharge the order.

The High Court

Mr Justice Seamus Noonan held the assignment invalid and an abuse of process. The court firstly took issue with the assignment, which it said was not absolute in circumstances where it contained a clause which allowed the appellant to reassign the transferred rights at any time.

Secondy, the court found the assignment to be an impermissible attempt to circumvent the rule in Battle v. Irish Art Promotions Centre Limited [1968] I.R. 252 that a company must be represented by a lawyer and not by a director or shareholder.

Mr Justice Noonan also found that as the assignment provided for the onward transfer of the action to a disinterested third party, it savoured of champerty.

The appellant appealed to the Court of Appeal, and whilst awaiting hearing brought a second application to be substituted as plaintiff into the proceedings which was grounded upon a new resolution which omitted the onward transfer of the assignment to a disinterested third party.

Mr Justice Garrett Simons refused that application having found that an issue estoppel arose on the basis of the previous findings of the Mr Justice Noonan. This decision was also appealed to the Court of Appeal.

The Court of Appeal

The Court of Appeal refused both appeals, finding that the appellant had not addressed Mr Justice Noonan’s concern that the assignment was a device to circumvent Battle and so was an abuse of process, and that ample evidence supported Mr Justice Simons’ conclusions that the issues before him were not materially different from those determined by Mr Justice Noonan.

The Supreme Court granted the appellant leave to appeal on 13 December 2022. The court felt that the question of whether an assignee of a corporate body’s interest in litigation can pursue the action by being substituted as a plaintiff instead of the company, irrespective of the purpose of the assignment, was one of general public importance concerning the right of access to the courts.

The Supreme Court

Mr Justice Woulfe set out that the starting point in assessing the validity of an assignment of any legal chose in action was s.28(6) of the Supreme Court of Judicature Act (Ireland) 1877, with Waldron v. Herring [2013] 3 I.R. 323 setting out the four main conditions to be satisfied.

The court noted that there was “…no reference to the “purpose” or “intention” of the assignment in s. 28(6). It seems to me that there is some limited authority, albeit not authority in this jurisdiction, to support the appellant’s submission that the purpose behind an assignment of a cause of action by a company is irrelevant in determining the validity of the assignment, (or, more correctly, the prima facie validity, subject to public policy considerations…”

Mr Justice Woulfe considered that notwithstanding the prima facie validity of any assignment, it could still be treated as invalid and unenforceable if considered contrary to public policy. The judge reflected upon the appellant’s submission that the policy concerns underlying the rule in Battle, that a limited company cannot be represented by its officer or servant. are only relevant where an individual seeks to represent the company as a non-party thereby avoiding giving security for costs.

Finding the submission of the appellant to be correct, the court observed that “The inescapable fact is that if an order for substitution is made following an assignment of the type in question here, the rule in Battle is no longer engaged. The rule relates to representation of a limited company by someone who is not a party to the proceedings, but post-assignment and substitution these factual circumstances are simply not applicable: the company is no longer a party to the proceedings requiring any representation…The reality is that the individual is, by virtue of substitution, then exposed to all the personal risks associated with the litigation…”

Mr Justice Woulfe concluded that he could not see any public policy justification for expanding the rule in Battle to the case before him.

Conclusion

Accordingly, the court was satisfied that an assignee of a company’s interest in litigation could in principle be permitted to pursue the actions by being substituted as plaintiff in lieu of the company, irrespective of whether the purpose of the assignment was to avoid the rule in Battle.

The court allowed the appeal on that ground, but noted that whether any such assignment would be valid would depend on the assignment complying with the 1877 Act, and with any applicable rules of champerty and of company law.

McCool Controls and Engineering Limited  v. Honeywell Control Systems Limited [2024] IESC 5