Factual and Procedural Background
The Applicant seeks leave pursuant to Order 15, rule 39 of the Rules of the Superior Courts to bring a derivative action on behalf of Company A (Salumi Grazing Limited) against multiple respondents, including Company B (Cohesion Infheistíochtaí Limited), two individual directors of Company A, and others. Company A was incorporated in August 2020 and operated a small business selling charcuterie and related products from premises in The City during the COVID-19 pandemic. Company B owned the premises and had entered into a license agreement with Company A commencing September 2020.
The Applicant and one of the individual respondents each own 50% of the shares in Company A and serve as its two directors. No shareholders' agreement or mechanism for resolving deadlock exists between them.
The Applicant alleges that while he was imprisoned between October 2020 and April 2021 due to a conviction that was subsequently quashed and a retrial ordered, the other director wrongfully appropriated Company A’s business and transferred it to another company controlled by him and his spouse. It is further alleged that Company B and its director unlawfully facilitated this by terminating the license with Company A and immediately granting a new license on the same terms to the other company, which continued the business using Company A’s assets and goodwill.
Additional allegations include unlawful amendments to Company A’s constitution and banking mandates during the Applicant’s imprisonment, facilitated by other respondents including accountants and a bank, resulting in the Applicant’s removal from company roles and control over accounts.
Procedurally, the Applicant made an ex parte application for leave to bring the derivative action in January 2024, which was heard over three days in January 2025. Some respondents were legally represented and filed submissions, while others did not appear.
There are related interlocutory and plenary proceedings involving the same parties, including prior judgments addressing restoration of the Applicant’s company roles and shareholdings, and interlocutory injunctions related to the license and winding-up petitions.
The Applicant currently has plenary proceedings ongoing since 2021 naming the respondents, with interlocutory relief restoring his positions and shareholding. Company A is not trading since May 2021, has no assets aside from the potential claim, and there is deadlock between the directors.
Legal Issues Presented
- Whether the Applicant has established a derivative claim on behalf of Company A with reasonable prospects of success under the exceptions to the rule in Foss v Harbottle.
- Whether the fourth exception to the rule in Foss v Harbottle (fraud on the minority by wrongdoers in control) applies in this case.
- Whether the alleged wrongdoers had control of Company A sufficient to prevent the company from suing.
- Whether the Applicant made adequate internal efforts to cause the company to pursue the claim.
- Whether the potential claims against the various respondents are prudent and in the interests of Company A.
- Whether delay in bringing the application justifies refusal of leave to bring the derivative action.
- Whether the Applicant is an appropriate person to maintain the derivative action given his status as a lay litigant and conduct to date.
- Whether procedural requirements under Order 15, rule 39, including the exhibition of an opinion of counsel and draft pleadings, have been met or should bar relief.
- Whether claims against non-insider respondents, such as Company B and its director, can be maintained as part of the derivative action.
Arguments of the Parties
Applicant's Arguments
- The other director and related respondents orchestrated a fraudulent appropriation of Company A’s business and assets during the Applicant’s imprisonment.
- Company B unlawfully terminated the license and granted a new license to a company controlled by the other director, facilitating the transfer.
- The accountants and bank unlawfully facilitated amendments to the company’s constitution and banking mandates removing the Applicant’s control.
- The Applicant claims the company continues to suffer loss and damage and seeks leave to bring a derivative action for damages.
- The delay in bringing the application is explained by lack of knowledge of derivative actions and distractions from other legal proceedings.
- The Applicant acknowledges the need for legal representation but contends the lack of counsel opinion and draft pleadings should not be fatal given his lay status.
Respondents' Arguments
- The other director contends he acted prudently, accessing company accounts was necessary to keep the business afloat during the Applicant’s imprisonment, and denies fraud.
- Company B and its director argue the termination of the license was lawful or justified, did not benefit from wrongdoing, and that the claim is not prudent given the company’s deadlock and cessation of trading.
- Accountants contend they acted on instructions of the sole director at the relevant time and have no liability; they no longer act for the company.
- The bank argues it acted lawfully based on the sole director’s authority during the Applicant’s imprisonment and denies any claim for fraud or data protection violations by the company.
- Respondents submit the application should be refused on discretionary grounds including delay, absence of internal efforts by the Applicant, lack of prudence, and the Applicant’s conduct and lay status.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Foss v Harbottle [1843] 2 Hare 416 |
General rule that a company must sue for wrongs done to it; exceptions permit derivative actions in certain circumstances. |
Applied as the foundational rule governing derivative actions; the court considered whether exceptions apply. |
| Glynn & McCabe v Owen & Ors [2007] IEHC 328 |
Exceptions to the rule in Foss v Harbottle and burden on applicant to establish reasonable prospects of success. |
Used to outline the strict approach and burden on the Applicant to justify derivative action. |
| Fanning v Murtagh [2009] 1 IR 551 |
Four recognized exceptions to Foss v Harbottle; procedural requirements for derivative actions. |
Set out the four exceptions, including fraud on the minority, and the requirement for reasonable prospects of success. |
| Connolly v Seskin Properties & Ors [2012] IEHC 332 |
Definition and application of the fraud on the minority exception. |
Clarified that fraud includes breaches of fiduciary duty benefiting wrongdoers; applied to assess Applicant's claims. |
| Kenny v Eden Music Ltd & Ors [2013] IEHC 628 |
Further principles on derivative actions and exceptions to Foss v Harbottle. |
Referenced in submissions and analysis of the legal framework. |
| DPP v Almasi [2020] IESC 35 |
Criminal law precedent relevant to quashing of Applicant’s conviction. |
Contextual background for the Applicant’s imprisonment and subsequent quashing of conviction. |
| Battle v Irish Art Promotion Centre Limited [1969] I.R. 252 |
Rule restricting non-lawyers from representing companies in litigation except in exceptional circumstances. |
Considered in relation to Applicant’s lay status and representation issues. |
| AIB v Aqua Fresh Fish Ltd [2018] IESC 49 |
Confirmation of the rule in Battle and discretion to allow lay representation in exceptional cases. |
Applied in assessing the Applicant’s ability to bring the derivative action as a lay litigant. |
| Board of Management v Burke [2023] IEHC 41 |
Case management powers relevant to conduct of litigation. |
Referenced regarding court’s case management powers over derivative actions. |
| JON v SMcD & Ors [2013] IEHC 135 |
Approach to pleadings by lay litigants and avoidance of dismissal for technical deficiencies. |
Applied in considering the Applicant’s draft pleadings and lack of counsel opinion. |
| Fisher v St John Opera House Co [1937] 4 DLR 337 |
Doctrine that it is idle to seek company approval to sue where wrongdoers control the company. |
Applied to justify why internal efforts to cause the company to sue were unnecessary. |
| Crindle Investments v Wymes [1998] 4 I.R. 567 |
Explanation of fraud on the minority in derivative actions. |
Used to clarify that fraud includes breaches of fiduciary duty benefiting wrongdoers even without criminal fraud. |
| Burland v Earle [1902] AC 83 |
Limitation of derivative actions to cases involving fraudulent or ultra vires acts. |
Referenced in defining scope of fraud exception. |
Court's Reasoning and Analysis
The court first examined whether the Applicant had established a derivative claim with reasonable prospects of success under the fourth exception to the rule in Foss v Harbottle concerning fraud on the minority by wrongdoers in control.
The court found that the Applicant established a plausible claim against the other director for breach of fiduciary duty relating to the alleged wrongful appropriation of Company A’s business and assets in May 2021, including a de facto transfer of the business to a company controlled by that director. The court accepted that the alleged collusion with Company B and its director in unlawfully terminating the license and granting a new license to the other company likely caused damage to Company A and benefited the wrongdoers.
The court rejected claims against the other director concerning use of company accounts during the Applicant’s imprisonment, finding no realistic prospect of success as the company could not have operated without such access and the Applicant had vacated office by operation of law during that period.
The court also found no sufficient basis to sue the spouse of the other director, who was briefly company secretary but owed no fiduciary duties akin to directors.
Regarding Company B and its director, the court accepted the Applicant had established a case with reasonable prospects of success that Company B unlawfully terminated the license and facilitated the transfer of business to the other company. The court rejected arguments that Company B was not a wrongdoer or did not benefit, finding multiple benefits accrued to Company B from the termination and new license arrangement.
The court found no case to proceed against the accountants or the bank on behalf of Company A, as the accountants acted on instructions of the sole director at the time and no plausible claim arose, and the bank acted lawfully given the Applicant’s imprisonment and legal vacancy of office.
The court addressed discretionary factors, rejecting arguments that the Applicant lacked control or minority status, finding that deadlock and negative control by the other director sufficed for the exception to apply.
The court found the Applicant was not required to demonstrate internal efforts to cause the company to sue, as it would have been futile given the control of the alleged wrongdoers.
Delay was acknowledged but not sufficient to refuse relief, with the court noting explanations for delay and absence of demonstrated prejudice beyond the sale of premises narrowing relief to damages.
The court found the derivative action against the other director and Company B to be prudent and in the company’s interests, given the alleged wrongful appropriation of assets and business.
The court rejected contentions that the Applicant pursued the action for improper purposes, accepting that the relief sought was to vindicate Company A’s rights.
Concerns regarding security for costs were noted but not determinative to refuse relief at this stage.
Regarding the Applicant’s lay status and representation, the court held that the application itself was not barred, and any issues about representation in subsequent proceedings could be addressed as they arise.
The court did not refuse relief based on the Applicant’s conduct to date, finding that despite prolixity, the Applicant’s arguments were navigable and that future case management could address any difficulties.
The failure to exhibit a counsel opinion and draft pleadings was not fatal, with the court recognizing the challenges faced by a lay litigant and allowing latitude to remedy deficiencies.
The reliance on draft accounts prepared by the Applicant without an expert report was noted but not determinative of the primary question of reasonable prospects of success.
Holding and Implications
The court GRANTED LEAVE to the Applicant to bring a derivative action on behalf of Company A claiming damages against the other director and Company B.
The derivative action is limited to claims for damages relating to:
- Against the other director: breach of fiduciary duty for wrongful appropriation of Company A’s business, goodwill, and assets in May 2021, and conspiracy with Company B to effect this transfer.
- Against Company B: unlawful termination of the license, conspiracy to facilitate the transfer of business to the other company, and wrongful retention of the deposit and fixtures and fittings.
No leave was granted to pursue claims against the other director regarding use of company accounts during the Applicant’s imprisonment, or claims against the accountants or the bank on behalf of Company A.
The court proposed to list the matter for mention to allow preparation of draft plenary summons and statement of claim limited to the permitted claims, with opportunity for parties to be heard on those drafts and on costs.
The decision does not establish new precedent but allows the Applicant to proceed with a derivative action focused on the alleged May 2021 wrongs, subject to procedural and substantive requirements in subsequent litigation.