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1988 No. 10882P

1.1 The twelve plaintiff companies, referred to as Master Meat Group by the parties though legally separate, traded in meat in the 1980’s.

1.2 The first named defendant was the controlling shareholder. On the 15th of October 1986 he sold 50% of his interest in the group to Mr Zacharia El Taher. Within six months Mr El Taher, unknown to Mr Phelan and in breach of the joint venture agreement of the 10th of October 1986 (as so found by this Court on the 11th of September 2001), sold his interest to Mr Laurence Goodman.

1.3 The group underwent certain difficulties in 1988 when bank borrowings reached £20m. Negotiations between agents (normally acting for Mr El Taher but in reality acting on behalf of Mr Goodman) and Mr Phelan resulted in the latter invoking certain deadlock provisions contained in the joint venture agreement of the 10th of October 1986, following the issue and service, but not the hearing of injunctive proceedings against Mr. Phelan. Mr Phelan nominated a price of £2.5m for the group. As provided for in the agreement, this was countered by a counteroffer of £2.75m which was deemed binding on the parties and was subject to an agreement of September, 1988.

1.4 Mr Phelan commenced proceedings against Mr Goodman and Mr El Taher; following that agreement; later against the companies and the companies, in turn, commenced the present action against Mr Phelan and Master Cut Foods Limited, (the second named defendant herein) which was controlled by Mr Phelan.

1.5 It was agreed between the parties and so ordered by O’Donovan J., on the 27th of July 2000, that these actions be heard together. Furthermore it was agreed that documents, as discovered, would be deemed to prove themselves.

1.6 The hearing of the action commenced in May 2001. It was agreed that certain issues should be tried as preliminary issues before the Court. In order to facilitate this, it was agreed between the parties and by the Court that each of the cases would be opened to the Court and that submissions would be made in relation to the issues which the Court deemed appropriate.

1.7 After thirty-six days hearing over the period from May to July 2001 the first case was opened extensively and a summary of the present case, dealing with fifteen alleged misappropriations (out of a total of thirty-two claimed) where made in relation to the documents and accounts discovered, most of which had already been opened to the Court.

1.8 By judgment dated the 11th of September 2001 the Court determined certain preliminary issues.

1.9 When the hearing recommenced in October 2001 the present action was opened fully to the Court. The remaining allegations of misappropriation, seventeen in all, were dealt with in the context of supporting documentation.

1.10 A motion to strike out the companies’ claim, was formally moved on the 1st of November 2001, the forty-fifth day of the hearing.

2.1 That motion, heard over four days from 1st November to 7th November sought the following orders:-

(1) An order for the trial of an issue as to the entitlement of the plaintiff to maintain the above entitled proceedings having regard to the wrongdoing alleged and/or found against Laurence Goodman.

(2) An order staying and/or striking out these proceedings for abuse of process.

(3) Further and other reliefs.

(4) Costs.

The application was grounded upon the affidavit of Paschal Phelan of 16th October 2001. A replying affidavit of Anita Kerrigan, solicitor for the respondents, was sworn on the 26th October, 2001. A further affidavit of Mr. Phelan was sworn on the same date.

3.1 Mr Phelan referred to the following which are detailed in paragraph 3 of his affidavit as follows:-

(a) that Laurence Goodman procured Zacharia El Taher to enter into a sale in April 1987 which sale was in breach of the contract between Mr Paschal Phelan and Mr El Taher. It follows, in the light of the admissions made by Mr Goodman, that he wrongfully induced such sale;

Paragraph 4 and 5 of Mr Phelan’s affidavit deals with the effect of the actions above mentioned. In those circumstances he believes and is advised that it is inappropriate that this action proceeds. He deposes as follows:-

3.2 The replying affidavit of Anita Kerrigan, Solicitor for the company plaintiffs, and respondents in this motion, believes the application to be wholly misconceived and to further delay the progress of the proceedings. Ms. Kerrigan says that almost all of the matters upon which Mr Phelan purports to rely must await further evidence and adjudication. She says she is advised that the defence of ex turpi causa non oritur actio has no application to the situation where the alleged wrong is not attributable in any way to the plaintiff companies. There is no basis for the contention that the fact and legal personality of the plaintiff companies, the respondents to this motion, can be ignored. The claim made by the companies are of deliberate, widespread and systematic fraud and unlawful dissipation of assets, affected by the applicant in relation to the assets of the companies.

The affidavit then continues to deal with each of the allegations. She avers that it does not follow from the admissions of Mr Goodman that he wrongfully induced the sale of April 1987. It has not been established that Mr. Goodman’s intention was to procure or induce a breach of contract nor that Mr Phelan was tricked and deceived into exercising the deadlock provisions. Mr Phelan cannot complain where he invoked the deadlock mechanism and where he, as effective controller of the companies, put a value on the companies. There was no abuse of the Court by the inter parties injunction proceedings in September 1988 in circumstances were the ownership of Master Meat Anstalt was not a relevant consideration. Denial is not concealment. The companies are legal entities separate from their members and their rights are unaffected by the change in ownership of their shares. The company claims are central not only to these proceedings but also to Mr Goodman’s defence in the first named action Phelan v. Goodman and El Taher ([1989] No. 6960 p).

3.3 Mr Phelan’s supplementary affidavit of the 26th of October 2001 refers to the present position of the companies as having no active trading and having been struck off the register and reinstated shortly before the onset of the trial. Their continued existence is to maintain proceedings which can only be intended to benefit Mr Goodman personally.

3.4 Proceedings were referred to between the defendants on the first day of the hearing of this action before O’Higgins J. which were not opened to this Court. It is not appropriate that, given the circumstances of those proceedings, this Court should be referred to them in this way. They are not within the deponent’s own knowledge. Hearsay can only be considered by the Court in certain circumstances where the source of knowledge is given. Moreover, they were specifically heard by another court so as not to influence this Court.

4.1 Mr Phelan and Mastercut Foods Ltd. say that Mr Goodman is not entitled to maintain these proceedings which should be struck out as an abuse of process is because of the inducement by Mr. Goodman of the agreement of the 15th of April 1987 the admissions made by Mr Goodman on the 29th of September 2000 and the decision of this Court of the 11th of September 2001.

This led to a breach of the contract of the 10th of October 1986 (see 1.2 above) which was induced by Mr. Goodman. Machinery was put into place of a wrongful nature for the concealment of the transaction which led inexorably to the destruction of the Master Meat Group. A series of frequent tortuous deceits interfered with the economic interests of Mr. Phelan and the Master Meat Group of Companies. Wrongful disclosure of confidential information was made to a competitor. Messrs. Taher, as Directors of the Master Meat Group companies, were prevented from carrying out their duties and responsibilities towards those companies when Mr. Goodman became a shadow Director and controller.

4.2 The applicants also submit that in any event the books and records of the Company were available to Mr. Goodman.

4.3 The submission expressed doubts as to whether title to the shares in the companies passed to Mr. Goodman or to his nominees. There was deliberate deceit and misleading of a Government Minister, from whom a conditional consent was obtained in relation to the purchase of Mr. Phelan’s remaining 50% on or about the 16th of September, 1988. Moreover, Mr. Phelan was prevented after the 16th of September, 1988 from remaining with the companies for the purpose of the orderly transfer of the business and affairs for the Company.

The true nature of the 15th of April, 1987 transaction and the beneficial interest acquired by Mr. Goodman was concealed from the Court in the application for an injunction on or about the 5th of September, 1988. This constituted not only an abusive process but a contempt of Court.

4.4 The reality of the proceedings by the Company against Mr. Phelan and Master Cut Foods Limited is that Mr. Goodman personally would become entitled to the claim made by the companies.

Mr. Phelan’s amended defence of the 30th January, 2001 raised an objection to the maintenance of the present proceedings against him on grounds that the plaintiff Companies were acquired by Mr. Goodman by means of unlawful and improper activities and in breach of certain statutory and regulatory provisions. Those who were giving instructions on behalf of the plaintiff Companies, the objection continues, are persons who have achieved their position in those companies by reason of breach of contract, inducing breach of contract, conspiracy and/or other wrongful or unlawful acts.

The applicants, as defendants in these proceedings, say that the plaintiffs are estopped from maintaining such proceedings in that they are not brought in good faith but are brought at the instigation of Mr. Goodman who unlawfully acquired ownership of the plaintiff Companies and who would be permitted to obtain the benefit of his own wrongdoing in the event of the relief sought being afforded.

4.5 The applicant refers to the admissions made by Mr. Goodman on the 29th of September, 2000 and the Judgment of this Court on the 11th of September, 2001 with regard to the reality of the agreement of the 15th of April, 1987 and concludes that the admission and findings of the Court tarnish Mr. Goodman with such wrongdoing and illegal activity on the basis of his behaviour to date amounting to an abuse of process and that Mr. Goodman necessarily is relying on his procurement and inducement of the breach of the agreement between Mr. Phelan and Mr. Taher in order to maintain the plaintiff’s action. The Court was urged that no action could be based on a disreputable cause and the Court should not lend its aid to one who founds his cause of action upon an immoral or illegal act.

4.6 It was submitted that it followed from Mr Goodman’s affidavit of the 31st of October 2001 (sworn not in this motion but in the discovery motion) where he stated at paragraph 5 that he gave instructions with regard to all proceedings that discovery be made, that these proceedings are for his benefit and not for the benefit of the companies. Persons acting on the respondent’s behalf got an indemnity from Mr Goodman. This demonstrated a continuum in the implementation of the agreement of the 15th of April 1987.

4.7 It was further submitted that Mr Goodman was asking for a recasting of the agreement of the 15th of September 1988 and that the Court should not be moved to improve his bargain. There was no complaint made from the 15th of April 1987 when Mr Goodman, in the applicant’s submission, was a shadow director and that Mr. Goodman is the real plaintiff in this action. The applicants say that Mr Goodman had abused the legal process by swearing an affidavit in injunction proceedings in September 1988 (which was not opened) which deliberately misled the Court with regard to those injunction proceedings. Moreover, the suppression of facts and the false facts given to the Fair Trade Commission were further evidence of abuse of process.

4.8 The applicants submit that the judgment of the Court on the 11th of September 2001 established wrongdoing and illegality. This was a case where the Court should lift the corporate veil. Moreover the admissions, the finding of the Court, the operation of the deadlock agreement and the letter from Rory O’Donnell, Solicitor, to Mr El Taher of the 19th of May 1989 referred to in that judgment, disentitle Mr Goodman from proceeding with this claim. There was wrongdoing in concealment and in the indemnity given to Mr Zacharia El Taher which amounted to a bribe, a promise of payment for award.

4.9 The Court was urged that this wrongdoing constituted fraud and was a factor the Court must consider in lifting the corporate veil. Reference was made to Cummings v. Stewart [1911] 1 I.R. 236 at 240 where Meredith MR referred to the Companies Act, 1908, as imbodying a code framed ( inter alia ) for the purpose of preserving and enforcing commercial morality. He continued:-

“... and it would be strange, indeed, if that code could be turned into an engine for the destruction of legal obligations, and the overthrow of legitimate and enforceable claims. The most casual reader of the speeches of the law lords in the case of Salomon v. Salomon and Company cannot fail to observe that there is nothing in any of those speeches contrary to the view I have just expressed.”

4.10 It is submitted that further authorities establish that the court should disallow the respondents claim.

In Cavern Systems v. Clontarf Residents [1984] ILRM 24 the defendants had instituted but not served High Court Proceedings challenging the validity of the planning authority’s decision. Costello J., dismissed their claim with the following admonition (at 29, 30):-

In Euro Diam Ltd. v. Bathurst [1990] QB 1 at 36 the court decided that it would not aid illegality. The court was also referred to Chitty on Contract 28th edition, Volume 1 Para 17-005.

Where parties were in pari delicto, as occurred in Sherry v. Haddock [1980] Q.B. 647 (h) the Court will not assist.

The applicants submit that the first question to be asked is should the plaintiff be heard at all given that their position springs from the unlawful contract of the 15th of April 1987. Reference was made to Brown Jackson v. Versey [1957] 2 Q.B. 621 and to Bigos v. Bigousted [1950] and to Byrd v. Saddler and Moore 166 -167.

4.11 The applicants also referred to Scott v. Browne, Douring McNab and Company (1892) 2 QB 724 - in that case Lindley J. stated:

“The plaintiffs purchase was an actual purchase (of shares) not a sham purchase; this is true, but it is also true that the sole object of the purchase was to cheat and mislead the public ... the plaintiff must look elsewhere than to a Court of Justice for assistance as may require against a person he employed to assist him in his fraud, if the claim to such assistance is based on his illegal contract ... any rights that he may have irrespective of his illegal contract will be recognised and enforced.”

The maxim ex turpi causa and the maxim ex dolo malo non oritur actio are founded upon general principles of policy. The Court refuses to go to the aid of such a person.

The applicant submits that the ownership of the companies was acquired through fraud, a concealment being a badge of deceit.

5.1 Mr Gleeson S.C. in reply submitted that the maxim ex turpi causa was not a one way street. The Court must look at all the circumstances: the evidence of the documents and the acknowledgements of some of the alleged misappropriations. The impact of the misappropriation on valuation is central to a claim for damages in adjusting the purchase price of £3.75m to £5.5m. If some misappropriations were found or sustained then the accounts are shot through with deceit, fraud and dissimulation. The fatality in the plaintiff’s claim is the acknowledgement of some misappropriations.

5.2 Moreover a motion to strike out close to the 50th day of the hearing is unprecedented.

The veil to be removed from the companies and designed to expose Mr Goodman cannot be used to wrap Mr Phelan from the effects of the courts determination. That would be an abuse of process and contempt of court. At no times does Mr Phelan say that there was no grounds for the claims. On the 26th of October 2001 in his second affidavit (after Mr Gallagher, SC for Mr Goodman, had opened all thirty-two misappropriations to the court) there is a conspicuous absence of denial.

The authorities relied on related to artificial companies. The Court must assume the validity of the plaintiff’s assertions and the evidence put in with regard to the misappropriations. The companies are real, have assets and funds in Court and have claims amounting to some £15m. These companies also feature in the second action in the claim by Mr Phelan against all the companies and Master Meat Anstalt, Zachariah and Nasser El Taher.

Murphy J., in Allied Irish Coal Supplies Ltd. v. Powell Duffryn International Fuels Ltd. [1998] 2 IR 521 at 535 upheld the principle in Salomon v. Salomon.

5.4 In their submission the respondents say that the Application misapprehends and misrepresents the law underlying the arguments advanced in an unprecedented way under the heading of “the abuse of the process” and “ ex turpi causa ”.

Mr. Phelan lists what are alleged to be abuses by Mr. Goodman of the process of the Court: these allegations are denied.

Mr. Phelan relies on the Court’s jurisdiction to dismiss proceedings for abuse of process, to punish for contempt of Court, to strike out proceedings which disclose no cause of action and to strike out proceedings where there has been no proper discovery (which is the subject of a separate application). Underlying this is the proposition that a party who is perceived as having misbehaved is liable to have his proceedings dismissed on that account and to justify a demand that the Court now conduct an inquiry into his conduct, so far as to decide whether that jurisdiction should be exercised.

5.5 The jurisdiction of the Court to dismiss proceedings as an abuse of process arises only when the proceedings themselves constitute an abuse. See McCabe v. Harding Investments [1984] ILRM 105. This case involved a claim that the defendants’ planning permission was invalid because they had failed to comply with planning regulations. The claim was struck out because any failure was regarded as minor.

In O’Neill v. Ryan, [1993] ILRM 557 the claim of a shareholder was struck out because the shareholder was not entitled to pursue the same as a matter of law. In Barry v. Buckley [1981] IR 306, a claim for a specific performance of contract for sale of land the claim was stuck out because there was clearly no agreement. In Tassan Din v. Banco Ambrosano [1991] 1 IR 570 a claim was struck out because the matters were already decided by the Court.

5.6 The respondents submit that the most striking feature of the submission of Mr. Phelan is that nowhere in the course of a lengthy thirty-six page submission is there any substantive defence as to the various claims made in the present proceedings advanced. This was an opportunity which was strikingly missed by Mr. Phelan in his most recent affidavit of the 26th of October, 2001. Mr. Phelan, it was submitted, is not claiming that the facts as alleged did not occur, nor that they did not disclose a cause of action in law. He is simply asserting that, because of the alleged wrongdoing by a shareholder in the plaintiff Companies, the claims should be halted.

Reliance is placed by the applicants on Cavern Systems v. Clontarf Residents [1984] ILRM 24. This was a case in which the plaintiff had complied with the letter of the Local Government (Planning and Development) Act, 1976 in instituting proceedings to challenge the validity of permission. The Court held that their actions, in not advising the defendants of those proceedings within a period of six months, was inconsistent with the legislative intention that such proceedings be advised to developers and the planning authorities and be disposed of expeditiously. It was for that reason the respondents submit that the Court held that the proceedings should be dismissed.

6.1 The jurisdiction of this Court to strike out only arises in extreme circumstances: Murphy v. J. Donoghue Ltd and Others ([1996] 1 IR 123 Supreme Court, per Barrington J.) at 142 in the context of failure to discover. That plaintiffs are entitled to have their actions heard by the Court unless there are compelling circumstances which justify a strikeout in limine on the basis of undisputed and incontrovertible facts. ( LAC Minerals v. Chevron Mineral Corporation [1995] 1 ILRM 161)

6.2 Generally the Court should be slow to entertain an application to dismiss an action on the basis, or admitted facts, it cannot succeed! see McCarthy J. in Sun Fat Chan v. Osseous Ltd . [1992] 1 IR 425 at 428:

“Generally the High Court should be slow to entertain an application of this kind and grant the relief sought.

The critical relied on by the applicant are not admitted at this stage of the proceedings. Paragraph 3 of Mr. Phelan’s grounding affidavit categorise Mr. Goodman’s admissions as wrongful; the sale of shares as trickery and deceit; the organs of State being misled in a calculated and deliberate fashion the Court process being abused by concealment and the actions of Mr. Goodman being premeditated and deliberate. No question of intention has been admitted or determined.

6.3 It would appear, that the jurisdiction of the Court to dismiss proceedings as an abuse of process arises only where the proceedings themselves constitute such an abuse: McCabe v. Harding Investments [1984] ILRM 105 per O’Higgins J. at 108-109. In relation to Order 19 and 28, the relief claimed in that case, the abuse complained of was frivolous or vexatious pleadings. In the present case the abuse alleged refers, inter alia , to injunction proceedings issued and served but not heard in September 1988 which the applicants say was based on an illegal fraudulent or tainted contract on the 15th of April 1987.

The present proceedings concern an action by twelve plaintiff companies against a former Director and a company controlled by him. That claim has been opened but not proved to this Court and consists of thirty-two allegations of misappropriation in which the companies seek relief against the applicants in this case.

6.4 The respondent companies have not been in breach of any agreement, have not induced a breach of an agreement nor are in any way tainted with illegality, deceit or fraud. They are the proper plaintiffs in relation to the allegations that they make in these proceedings.

6.5 To visit the alleged illegality, conspiracy and/or fraud of Mr Goodman on the companies is not, in my view, supported by the authorities. The companies were not, at least for some period in which the misappropriations are claimed, in any way linked to Mr Goodman. Whatever about the inducement whereby Mr El Taher sold his shares on the 15th of April 1987 and used Mr El Taher as an agent until he acquired the entire shareholding of the companies on the 16th of September, it is the company and not its members who are entitled to prosecute this claim.

6.6 After the 16th of September 1988 the assets of the companies appear to have been disposed of and the companies where, apparently, struck off the Register of Companies. I am informed that the companies have lodged certain monies in Court in relation to this action. These are assets of the companies and, even if struck off, are available to the companies once they are restored to the Register.

The effect of restoration of the companies to the Register is provided for in Section 311 A of the Companies Act, 1963. Once restored the Company shall be deemed to have continued in existence as if its name had not been struck off. Subsection (3) of that Section further provides that, subject to any order made by the Court in the matter, the restoration shall not effect the rights or liabilities of the company in respect of any debt or obligation incurred, between the date of its dissolution and the date of such restoration.

There is no evidence that the formation or restoration to the register of the respondent companies was used as an engine for the destruction of legal obligations or the overthrow of legitimate or enforceable claims (see Meredith MR in Cummings v Stewart (1911) I IR 236 at 240 where a company was formed, not for the purpose of carrying on a patent licensee’s business of reinforced concrete but merely with a view to ridding himself of the liability to pay royalties (see 4.9 above).

It may be that the concealment alleged with regard to the agreement of 15th April 1987 did mislead the public but there is no evidence before the Court that the sole object of the concealment was to “cheat and mislead the public” as was the case in Scott v Browne, Douring McNab and Company (1892) 2 Q B 724 referred to by the applicant at 4.11 above.

The legislative intention in the Local Government (Planning and Development) Act, 1976 which led Costello J. to dismiss the plaintiffs case in Caverns Systems v Clontarf Residents Association [1984] ILRM 24 (see 5.6 above) does not seem to be applicable.

6.7 It is significant that in both the grounding affidavit of Mr Phelan dated the 16th of October 2001 and the supplemental affidavit of the 26th of October 2001 that there is no denial of any of the extensive detail of the thirty-two allegations of misappropriation which have then opened in detail to this Court. The Court is, of course, aware of the general denial in the defence. The Court has been informed, and as such has not denied, that Mr Phelan accepts some of the allegations of misappropriation in his reply to the first fifteen allegations which were opened to the Court in July of this year.

Clearly the intention of the parties as to the purpose of transferring funds from one company to another or distributing such funds to members requires further evidence so does the allegation of illegality and fraud with reference to an acknowledged inducement. It does seem to me that it would be imprudent for the Court not to await that evidence.

6.8 The plaintiff’s claim in the first proceedings relates to the valuation of shares sold on the 16th of September 1988. That plaintiff is the moving party in this motion seeking to disallow the companies’ claim against him which affect the underlying assets of the companies whose shares he seeks to have revalued by this Court. It would seem improper for this Court to attempt such a valuation without dealing with the claims in these proceedings. This is especially so, it seems to me, where in the opening of the present applicant’s claim in the first action (Phelan v. Goodman and El Taher [1989/6960P]) Mr Phelan complains that he depletion of the companies’ assets was due to the conspiracy of Mr Goodman and Mr El Taher. Moreover the claim to interest on the resulting losses magnifies the claims made by Mr Phelan. To ignore the claims of the companies especially in respect of an earlier period would be improper.

6.9 The applicants seek an order for the trial of an issue as to the entitlement of the plaintiffs to maintain these proceedings. That application is based on the wrongdoing alleged and/or found against Laurence Goodman who is not a party to these proceedings. The applicant must overcome two hurdles to establish that the wrongdoing of Mr Goodman affects the entitlement of the plaintiff companies to maintain their proceedings. Firstly they must show that there are wrongdoings already found against Mr Goodman. Alleged wrongdoings require evidence as to intention. Neither the admissions nor the documentary evidence opened in this lengthy trial can lead to a finding, at this stage, of wrongdoing either of Mr Goodman nor, indeed, of Mr Phelan.

6.10 Even if such wrongdoing were to be found at this stage against Mr Goodman the second hurdle is to establish that this wrongdoing entitles the companies to maintain their action. Part of the allegations relate to a period before Mr Goodman indirectly acquired the first half interest in the companies. There has been no allegation with regard to wrongdoing of Mr Goodman before the 15th of April 1987.

6.11 The first order sought is an order staying and/or striking out these proceedings for abuse of process. It seems to me that an abuse of process can only relate to these proceedings themselves. The basis for the argument for abuse of process relates to an action for injunctive relief in 1988 which was not proceeded with. In relation to that action the issue of the ownership of the shares in Master Meat Anstalt and Tarsus Anstalt may very well have been an issue. Even if that were so it does not seem to me to affect the right of the plaintiffs in this case to pursue an action whoever their shareholders were.

6.12 The Court is also asked to order the trial of an issue as to the entitlement of the plaintiffs, the respondents to this motion to maintain these proceedings having regard to the wrongdoing alleged and /or found against Mr. Goodman.

Mr. Goodman is not a party to these proceedings. It is inappropriate to lift the corporate veil having regard to the documentary evidence presently before the Court.

The seven matters relied on in the grounding affidavit are not all established facts. To categorise some of them as wrongful, unlawful, premeditated, deliberate and procured by trickery and deceit require proof of intention which would require oral evidence. No oral evidence has yet been led let alone been subject to cross- and re-examination. Even if such evidence were to establish the necessary intention this would not disentitle the companies from maintaining their claim.

6.13 In the circumstances I must refuse the application to strike out the proceedings for abuse of process or to order the trial of an issue.