Beyond Irish Borders: High Court Clarifies that Leave under Order 15 Rule 39 is Not Required for Derivative Actions Concerning Foreign-Registered Companies

1. Introduction

Case: O'Donoghue & Manning v. Murphy, Quigley & Walsh (High Court, [2025] IEHC 435, Barr J.)

Parties:

• Plaintiffs: Paraic O’Donoghue (minority shareholder in U.S. company 973MA) and Tony Manning (partner in “Westside”).
• Defendants: Seán Murphy, Enda Quigley, and Frank Walsh – majority controllers of Westside Partnership and, through it, of Dunne Enright LLC, the 53 % shareholder in 973MA.

Backdrop: All parties invested (2007) in a San Francisco property development vehicle—973 Market Associates LLC (“973MA”). When the venture collapsed, majority shareholders orchestrated a 2014 settlement with Mr Joe Cassidy (holder of the project’s loan and securities) that:

• Paid Cassidy US $420,000 (funded by the defendants personally);
• Released Cassidy’s €17 m claims on the company and personal guarantees; and
• Required 973MA to abandon/assign its litigation against Cassidy and the property vendors.

The plaintiffs, as disgruntled minority investors, alleged that the defendants abused their majority power, stripping 973MA of valuable choses in action for personal gain. They sued in Ireland for fraud, breach of fiduciary duty and oppression.

2. Summary of the Judgment

Barr J. dismissed the claim in its entirety. Key determinations were:

1. Procedural Standing: Although the first plaintiff could in principle pursue a derivative action (being a minority shareholder), he sued the wrong parties – he failed to sue the corporate shareholder Dunne Enright LLC. However, the Court still analysed substantive issues “lest I am wrong”.
2. Order 15 Rule 39 Not Engaged: The leave requirement for derivative actions in O.15 r.39 RSC applies only to Irish-registered companies; it does not restrict actions concerning foreign-incorporated companies such as 973MA.
3. No Fraud/Oppression on Merits: a. Meeting of 21 July 2014 was properly convened; b. 973MA was insolvent and unable to fund U.S. litigation; c. Choses in action surrendered were of negligible or no value; d. Payment of US $420,000 came from defendants personally; e. Overall, settlement benefitted the company and all guarantors. Hence, exercise of majority voting power was lawful and commercially rational.
4. Issue Estoppel & Res Judicata Arguments: The Court rejected defendants’ strict estoppel claim but treated earlier U.S. judgments (Kahn J.) as powerful evidential proof that the vendors’ liability was unlikely.
5. Costs: Full costs awarded to the defendants (subject to submissions).

3. Analysis

3.1 Precedents Cited and Influences

• Foss v Harbottle (1843) 2 Hare 461 – classic rule that a company, not shareholders, sues for its own wrongs. Barr J. accepts the “fraud on the minority” exception allowing derivative relief.
• Order 15 Rule 39 RSC (as amended by Companies Act 2014) – lays down a leave requirement for derivative actions involving “companies” as defined in Irish legislation. Court held the rule confined to Irish-registered entities.
• Invers v Commissioner of An Garda Síochána [2024] IEHC 626 – cited by defendants for issue estoppel reasoning; Court distinguished but used its evidential value.
• U.S. Superior Court (Kahn J.) Vendor Litigation Decision – not binding, but persuasive evidence negating value of the vendor claim.
• Ulmer J. (Cal.) Strike-out in Flood v Dunne Enright (2019) – referenced to show similar claims had previously failed in California.

3.2 Legal Reasoning

(a) Standing & Proper Defendant – The Court scrutinised the corporate chain. Because Dunne Enright LLC, not the three defendants personally, was the shareholder exercising the vote, the plaintiffs sued the wrong party. “It is not so much that the first plaintiff has sued the wrong defendants; rather, he has not sued the one essential defendant.”

(b) Applicability of Order 15 Rule 39 – Critical new principle. Barr J. parsed the definition of “company” in s.2(1) Companies Act 2014 and concluded that the procedural leave hurdle only bites where the underlying entity is capable of being wound up under Irish legislation. A foreign LLC is outside that scope; therefore, Irish minority shareholders may institute derivative proceedings without prior leave.

(c) Meeting Validity & Operating Agreement – Plaintiffs invoked cl.5.5 of 973MA’s operating agreement (manager can’t make ‘major decisions’ without unanimity). Judge ruled clause limits managerial authority only; it does not fetter the inherent power of shareholders in general meeting. Because the settlement was approved at a properly convened members’ meeting, unanimity was unnecessary.

(d) Commercial Reality & Loss – Applying a factual-economic lens, the Court held 973MA’s claims were:

• High-risk (weak merits proven by earlier Kahn J. decision);
• Unfunded (the bank and investors refused to bankroll); and
• Likely more costly to pursue (≈ US $600k) than any potential recovery.

Therefore, no “valuable asset” was surrendered and no cognisable company loss shown.

(e) Interplay of Personal Guarantees – Although release of guarantees benefitted individual investors (including defendants), that private benefit did not equate to corporate detriment. The payment came from defendants, and settlement extinguished a US $17 m exposure threatening company bankruptcy.

3.3 Impact of the Decision

1. Procedural Clarity for Cross-Border Derivative Actions
The judgment squarely addresses a gap: whether Irish procedural leave rules apply when the underlying company is foreign. Barr J.’s answer—they do not—provides certainty for litigants contemplating derivative actions relating to Delaware, Cayman, or other non-Irish entities but who choose the Irish forum (typically because defendants or minority shareholders are domiciled here).

2. Guidance on Operating Agreements vs Shareholder Powers
Contracts limiting a manager’s authority will not necessarily constrain shareholders acting collectively. This will influence drafting of U.S-style LLC agreements used by Irish investors.

3. Commercial Pragmatism Endorsed
Courts may treat majority decisions as valid where they realistically preserve or maximise company value—even where minority perceive unfairness—so long as due process is observed and no genuine loss is proven.

4. Litigation Strategy Lessons
(i) Sue the correct entity—piercing the corporate veil is not a given; (ii) Establish actual monetary loss; (iii) Anticipate that foreign judgments, though not binding, can be persuasive evidence on merits.

4. Complex Concepts Simplified

• Derivative Action: A lawsuit brought by a shareholder on behalf of the company to redress a wrong done to the company where those controlling the company will not sue.
• Rule in Foss v Harbottle: General principle that the company itself is the proper plaintiff; exceptions arise for fraud on the minority, ultra vires acts, or where justice otherwise demands.
• Order 15 Rule 39 RSC: Irish procedural rule requiring prior court leave before a shareholder can mount a derivative action in respect of an Irish company; intended to filter unmeritorious claims.
• Issue Estoppel / Res Judicata: Legal doctrines preventing re-litigation of issues already finally decided between the same parties.
• Chose in Action: An intangible personal property right that can only be claimed or enforced by legal action (e.g., a lawsuit or debt).

5. Conclusion

O'Donoghue v Murphy is significant less for its factual outcome (claim dismissed) than for the procedural gate it opens. Barr J. confirms that the Irish leave requirement for derivative suits—O.15 r.39—does not travel beyond indigenous companies. Irish courts can thus hear minority–majority disputes concerning foreign entities without the preliminary leave filter. In doing so, the Court restates the centrality of commercial reality: corporate litigation must be judged by its likely value and affordability. Majority shareholders who extinguish near-worthless claims to avert crippling liabilities will not be branded oppressive simply because personal benefits flow.

The decision will be cited whenever minority shareholders invoke Irish courts over foreign ventures, and when counsel debate whether procedural hurdles apply. Draftsmen of operating agreements may also revisit clauses to ensure clarity around shareholder versus management powers.