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Let battle commence

18 Apr 2019 / courts Print

Let battle commence

As we all no doubt recall from our ‘introduction to company law’ days, the principle of separate legal personality was established in the 1897 case of Salomon v Salomon.

That is, the legal personality of a company is separate and distinct from that of its members, subscribers, and office-holders.

What has become clear over the last 50 years is that the corollary of this rule is that a member, subscriber, or office-holder may not represent a company in legal proceedings. This was first considered by the Supreme Court in Battle v Irish Art Promotion Centre Limited (1969).

Briefly, Battle concerned an application by a managing director of a defendant company for liberty to conduct the defence of the action on behalf of the company.

The single judgment, delivered by Ó Dálaigh CJ (with whom Haugh J and Walsh J concurred), found that the right to represent a company was limited to counsel instructed on the company’s behalf: “This is an infirmity of the company which derives from its own very nature.

The creation of the company is the act of its subscribers; the subscribers, in discarding their own personae for the persona of the company, doubtless did so for the advantages which incorporation offers to traders. In seeking incorporation, they thereby lose the right of audience which they would have as individuals; but the choice has been their own.”

This is the starting point: a company cannot be represented by one other than a lawyer. The difficulty therein being that there is no exception to the rule – it is absolute.

This absolute rule remained the status quo until the Supreme Court revised the issue in 2014 in Coffey v The Environmental Protection Agency.

Residual discretion

Coffey identified the jurisdiction of the High Court to permit an exception to the rule against layperson representation of a company. The exception identified was that that the High Court has an inherent jurisdiction to manage and control its own proceedings and “in rare and exceptional cases to permit an unqualified advocate to represent another litigant”.

In coming to his conclusion, O’Neill J relied on a passage from the Court of Appeal of New Zealand in Re GJ Mannix Limited (1984), where it was held: “But I consider the superior courts to have a residual discretion in this matter arising from the inherent power to regulate their own proceedings. Cases will arise where the due administration of justice may require some relaxation of the general rule.

The occurrence is likely to be rare, their circumstances exceptional or at least unusual, and their content modest. Such cases can confidently be left to the good sense of the judges.”

From that point on, the rule in Battle was subject to the ‘rare and exceptional circumstances’ exception.

The rationale for the exception was set out by Fennelly J at page 24 of the Coffey judgment. In essence, owing to the ethical and professional restrictions that applied to lawyers, litigation was best conducted through them and their offices.

The court was careful to note that this was not an attempt to protect the work of the profession, but rather to safeguard the administration of justice.

In a judgment delivered in October 2018, this question of lay representation of companies was again considered by Supreme Court in Allied Irish Bank plc v Aqua Fresh Fish Limited.

The plaintiff had issued a special summons seeking an order for possession and sale of lands owned by the defendant company arising out of funds advanced and a mortgage created over certain lands.

The managing director and principal shareholder of the company sought to enter an appearance to the proceedings on behalf of the company. In an interlocutory motion, leave to enter an appearance in those terms was ultimately refused by the High Court. The Court of Appeal dismissed the managing director’s appeal.

The managing director contended that the rule in Battle was at odds with the State’s obligations under article 40.3 of the Constitution and article 6 of the European Convention on Human Rights.

Girding for Battle

In the majority judgment of the Supreme Court, delivered by Ms Justice Finlay Geoghegan, the court reviewed the decision in Battle and the developments in the years following, including Marble and Granite Tiles Limited, Coffey v Tara Mines, PMLB v PHJ, and Coffey v Environmental Protection Agency.

The court considered the opportunity afforded to the legislature through the Companies Act 2014 to make provision for lay representation of companies, and noted that it opted not to. It is noted in the judgment (see paragraph 224) that provision is made in section 868(5) of the Companies Act for a person appointed to represent the company on indictment.

However, section 868(6) states: “A representative of a company shall not, by virtue only of being appointed for the purpose referred to in subsection (5), be qualified to act on behalf of the company before any court for any other purpose.”

The first issue for consideration by the court was whether the rule in Battle should remain, subject to the inherent jurisdiction to make exceptions where the interests of justice necessitate.

Ms Justice Finlay Geoghegan held that changing the rule at this stage would represent “a fundamental change to the general rule in relation to rights of audience before the courts” (paragraph 29). The court further recognised that the rule “exists in the interests of the administration of justice and serves the public interest”.

As to whether such a rule was constitutional, Ms Justice Finlay Geoghegan held that “provided that there is an inherent jurisdiction to make exceptions to the general rule in Battle, justified in the interests of the due administration of justice, such a restriction is not then, in my view, prohibited by the Constitution”.

The justification appears to be one within the category of ‘you can’t have your cake and eat it’. The court noted: “As pointed out in many decisions, companies are used by persons to conduct business or other activities without the risk of being liable for losses incurred, and thereby create advantages for such persons.

The use of a separate legal personality may also, however, have disadvantages. One such disadvantage is the inability of a company to represent itself in legal proceedings. It is, however, as stated by McKechnie J in the Court of Appeal, ‘the logical corollary of the Salomon principle’.”

Aqua Fresh Fish thus confirms that the rule in Battle remains and, once subject to potential exceptions in the interests of justice, is not unconstitutional.

Via negativa

What of these exceptions? The court went on to consider whether it should provide guidance as to what might, in any individual case, constitute exceptional circumstances. While the court declined to offer guidance as to what might be an ‘exceptional circumstance’, it did comment on what would not be an exceptional circumstance.

Rare

It is worth noting that Ms Justice Finlay Geoghegan suggested the ‘rare’ element of the “rare and exceptional circumstances” was essentially surplus to requirements and that, really, the court only had to consider whether exceptional circumstances existed.

In terms of what would not be considered exceptional, the court found that “unfortunately, the impecuniosity of a company or the lack of available funds in a company to procure legal representation is not in any sense exceptional or even unusual … a view expressed on behalf of a company that it has a good arguable defence or even the putting up of facts, which objectively suggest an arguable defence, is not of itself an exceptional set of circumstances … the fact that Mr Flynn is the principal shareholder and a director of the company is similarly not, in my view, an exceptional circumstance … nor do I consider that all of the above in combination are exceptional, as they are a combination of facts which often occur”.

So, impecuniosity, a good arguable defence, being the principal shareholder, or a combination of the foregoing do not amount to exceptional circumstances such as would displace the rule in Battle.

What should be considered?

The court found that “it is probably relevant for a court to consider, when asked to exercise this jurisdiction, to identify the nature of the claim, the type of proceedings, and the representation sought”.

Further, it found that “whether or not the person by which the company seeks to be represented is already a party to the proceedings or is willing to be joined and has an interest such as would permit joinder, pursuant to order 15 of the Rules of the Superior Courts, may be a relevant circumstance to be taken into account in determining whether or not the overall facts and circumstances are such as to amount to exceptional”.

Is there a solution to the problem faced by companies that can’t or won’t appoint legal representation and members or officers who wish to represent them?

The court considers the merits of the proposed representative being joined to the proceedings (paragraph 46). This protects the opposing party, in the sense that there is a person who can be made liable for the costs of the case should the company’s case fail.

Fairness

Ms Justice Geoghegan relies on the judgment of Bingham MR in Radford, wherein it was held that part of the fairness and justice of the rule of limited representation, certainly in relation to limited companies, relates to their separate legal personality from their directors and shareholders, and the absence of any risk either by reason of the company’s debts or costs of the proceedings to the directors and shareholders.

A person who is already a party to the proceedings is probably at risk of an adverse order for costs if unsuccessful in the claim or defence.

As is clear from the foregoing, it was held that the managing director was not entitled to represent Aqua Fresh Fish Limited.

No such exceptional circumstance had been established. More fundamentally, the court confirmed that the rule in Battle remains, subject to the inherent jurisdiction of the court to waive the rule in exceptional circumstances.

 

Emma Slattery
Emma Slattery
Emma Slattery is a barrister