Neutral Citation: [2011] IESC 24. Supreme Court Record Number: 25 & 26/08. High Court Record Number: COS. Date of Delivery: 14/07/2011

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1 Page 1 of 18 Judgment Title: In re Bovale Developments DCE v Bailey & anor Neutral Citation: [2011] IESC 24 Supreme Court Record Number: 25 & 26/08 High Court Record Number: COS Date of Delivery: 14/07/2011 Court: Supreme Court Composition of Court: Denham J., Hardiman J., Fennelly J., Macken J., Finnegan J. Judgment by: Hardiman J. Status of Judgment: Approved Denham J. 25 & 26/2008 Hardiman J. Fennelly J. Macken J. Finnegan J. THE SUPREME COURT IN THE MATTER OF BOVALE DEVELOPMENTS IN THE MATTER FOR THE COMPANIES ACTS 1963 to 2006 IN THE MATTER OF AN APPLICATION PURSUANT TO S.160(2) OF THE COMPANIES ACT, 1990 Between: THE DIRECTOR OF CORPORATE ENFORCEMENT Appellants/Respondents

2 Page 2 of 18 and MICHAEL BAILEY and THOMAS BAILEY Respondents/Appellants JUDGMENT of Mr. Justice Hardiman delivered the 14 th day of July, This case features an application, brought by Notice of Motion dated the 8 th August, 2006, seeking a disqualification order pursuant to the Companies Act, 1990 against Michael Bailey and Thomas Bailey, which would preclude them inter alia from acting as Directors of a company. The grounds of this application were set out in affidavits sworn by Peter Lacey, a partner in PricewaterhouseCoopers and by Dermot Madden, an accountant in the office of the Director of Corporate Enforcement. The applicants brought a Notice of Motion dated the 22 nd November, 2006, seeking an order striking out various paragraphs of the said affidavits and were in part successful in this in the High Court. The Baileys appealed this order which refused them relief on eight specific grounds, set out in the judgment of Denham J. in the present case and the Director of Corporate Enforcement filed a Notice of Cross-Appeal on the grounds also set out in the judgment of Denham J. The two appeals were heard together. In relation to the contentions raised in the Baileys appeal, I am in agreement with the judgment of Denham J. and need say no more about it. I am also in agreement with the order proposed by Denham J. in relation to the Cross-Appeal but I desire to give my own reasons for this. The Tribunal Issue. The Director of Corporate Enforcement appealed, inter alia, those parts of the judgment of the High Court which ruled that: - The Director of Corporate Enforcement could place no reliance on hearsay evidence in his grounding affidavits in the disqualification proceedings.

3 Page 3 of 18 - The report of a Tribunal of Inquiry has no evidential value in disqualification proceedings but can merely be used as a source to assist in the finding of other evidence. The Baileys were the subject of serious allegations made against them before a Tribunal of Inquiry, namely the Mahon Tribunal formerly the Flood Tribunal. Certain of the findings of the Tribunal were set out or summarised in the Affidavits filed in the disqualification proceedings, and the Baileys took exception to this. This objection is based very largely on the characterisation of the Tribunal of Inquiry as a legal entity contained in the judgments in the High Court and in this Court in the leading case of Goodman International and Lawrence Goodman v. The Honourable Mr. Justice Liam Hamilton, Ireland and the Attorney General [1992] 2 IR 542. Significance of Goodman. I wish to repeat what I said in the course of my judgment in Murphy and Ors. v. Flood (Supreme Court, unreported 21 st April, 2010) in relation to the context and significance of Goodman: certain persons have in the past been heard to complain, and to take their complaint to the courts, that the enormous prerogatives of a Tribunal of Inquiry is capable of destroying them, financially and in terms of reputation, much more obviously than even a criminal court could do, but that the tribunal s procedures afford them few or none of the protections which would be available to them in the court forum. This contention has always been rejected. It was rejected in strong terms by this Court in Goodman v. Hamilton. This

4 Page 4 of 18 decision is now the foundation, in Irish law, of the constitutionality of the Tribunal of Inquiry, as known in our law. But since that judgment was given, the nature of tribunals in themselves has been altered by legislation, by parliamentary resolution and by the exponential, and wholly unpredicted, expansion in the length of Tribunals of Inquiry and in the costs of them. It would be wholly unrealistic not to acknowledge that these costs can only be described as truly enormous. (Emphasis added) I also said, and also wish to reiterate, from my judgment in the Murphy case the following: Goodman is a decision of this Court, a case of high authority which we have not been asked to disapprove and which I propose to follow. It is true to say that Mr. Michael Collins S.C. who appeared for the Tribunal on this appeal said he would ask the Court if necessary to depart from Goodman. I take it however, that this is a reference solely to the dictum of McCarthy J. to be discussed below and not to the principal thrust of Goodman, which has been for almost twenty years every Tribunal of Inquiry s title to constitutionality. No argument was directed against any finding in Goodman except the dictum of McCarthy J. Nevertheless, it must be acknowledged that, in distinguishing the findings of a tribunal from the verdict of a court, the judges were obliged to make some rather subtle distinctions which one may take leave to doubt would count for much in the minds of ordinary people. I have to some extent explored this topic in my

5 Page 5 of 18 judgment in Maguire v. Ardagh [2002] 1 I.R. 385 at 669. Despite these acknowledgments of the canonical status of Goodman, it must equally be recorded that this is the second attempt in just over a year, Murphy being the first, to gloss, or to relegate to the status of mere obiter, or if necessary to overrule a portion at least of the findings of Goodman. In the Murphy case, this portion was a dictum of McCarthy J. in relation to the Tribunal s powers to award costs. In the present case it is a portion of the judgment of Finlay C.J., to be considered below. In Goodman, the former Chief Justice said at p.590: With regard to the suggestion that the findings of the Tribunal if not an impermissible administration of justice by a body other than a court, is a usurpation of the activities of courts in cases where either civil cases are pending or may be instituted, it seems to me that again this submission arises from a total misunderstanding of the function of the Tribunal. A finding by this Tribunal, either of the truth or of the falsity of any particular allegation which may be the subject matter of existing or potential litigation, forms no part of the material which a court which has to decide that litigation could rely upon. It cannot either be used as a weapon of attack or defence by a litigant who in relation to the same matter is disputing with another party rights arising from some allegation of breach of contract or illegal conduct or malpractice. I am, therefore, satisfied that the submission under Article 34 must fail. (Emphasis added)

6 Page 6 of 18 The Director of Corporate Enforcement says that in so holding, especially in the emphasised passage, Finlay C.J. went further than was necessary. He said that the passage was obiter on the basis that it was not necessary to go that far to decide the case. He said it was not necessary to overrule the judgment as a whole but it should be distinguished on the basis that it is not sought here to usurp the Court s functions. What the Director wishes to do. The Director of Corporate Enforcement first relied on the Tribunal material referred to in the affidavits filed on his behalf in general support of his application to disqualify the Baileys. Subsequent to the High Court decision, and just before the hearing of this appeal, by letter of the 24 th March, 2011, the Director informed the Court that he was restricting the ambit of his cross-appeal in a particular way. Essentially, the Director informed the Court that he was no longer seeking to rely at all on substantial parts of the Tribunal material referred to in his affidavits and that in relation to other parts (being paragraph of the Second Interim Report of the Tribunal) and paragraphs 7.08 and 7.09 of the Third Interim Report of the Tribunal, he appears to limit his contention to the proposition that this material is relevant to the Court s determination of the fitness of the applicants to be concerned in the management of a company on the basis that it should be admitted as prima facie evidence in the disqualification proceedings. This, it will be observed, is a considerable restriction of the scope of the Director of Corporate Enforcements contentions and clearly represents a significant rethinking of the Director s position. But that position is still an extremely novel and far reaching one. At least absent a specific statutory provision, a matter of fact requiring to be established before a court must be established by admissible evidence which is open to crossexamination and contradiction, and is given publicly before the Court. It is not normally an admissible form of proof to produce a statement by a third party whether a policeman, a

7 Page 7 of 18 government minister or a Tribunal of Inquiry and to claim that that has evidential effect, prima facie or otherwise. An exception to this arises, of course, where there is an issue which, by virtue of a decision of a court of competent jurisdiction, is res judicata between the parties; but such a decision of a court will itself have been reached on admissible evidence duly adduced in a hearing which observes all the parties procedural rights. Powers of a Tribunal of Inquiry. It has frequently been observed, specifically in the Murphy case cited above and in O Callaghan v. Mahon [2008] 2 IR 514, that the power of the modern Tribunal of Inquiry is truly awesome. The duration of some modern tribunals is nothing less than appalling: a recent tribunal has ended after about thirteen years and another seems likely to exceed even this enormous total. As a result, the expense of the participation in a tribunal of inquiry is nothing less than grotesque, beyond the means even of individuals or corporations who would normally be considered rich. Furthermore, Tribunals have now taken to sitting for very long periods in private so that the material which they gather is normally known only to themselves, except on these all too frequent occasions when portion of the material is leaked. This accumulation of material in secret has on a number of occasions created major injustice where material damaging to the account of an accusing witness has been quite deliberately withheld from the parties whom he accuses: see Murphy and O Callaghan. I will not expand further on the characteristics, enormous expense and dramatic effects of tribunals since they have already been amply discussed by me in the cases mentioned and in Maguire v. Ardagh [2002] 1 IR 385. Legal issues affecting Tribunals.

8 Page 8 of 18 Because of the matters just mentioned the Tribunal of Inquiry, especially in its modern form, has frequently been the subject of legal challenges by individuals and even by the government itself. These aspects do indeed give rise to very serious legal and constitutional issues. By reason of the provisions of the Constitution, justice is to be administered by judges in public, in Courts established under the Constitution. But a simulacrum of the administration of justice often appears to take place in tribunals and people are prejudiced by the findings of tribunals at least as much as by the judgment of a court. There is manifest scope for conflict between a tribunal and the constitutional rights of the citizens especially in relation to the administration of justice, civil or criminal, and the trial of offences. The learned editors of Kelly on the Irish Constitution (4 th edition, Dublin 2003) at p.1040 say: Article 38.1 is plainly referable to the trial of offences, but the novel question of whether the Oireachtas is free to establish parallel procedures providing for the investigation of alleged criminal (or potentially criminal) conduct was examined by the Supreme Court in Goodman v. Hamilton. (Emphasis added) That, indeed, is the essence of the challenge mounted in Goodman. In that case Mr. Seamus McKenna S.C., leading counsel for Mr. Goodman, had previously put the issue in much the same way: The issue of the right of the Tribunal to investigate the truth or otherwise of allegations of criminal conduct or illegal activities, or fraud, is the core and fundamental constitutional question in this case.

9 Page 9 of 18 Against the background of this very powerful attack, the decisions of the High Court and of this Court in Goodman preserved the constitutionality of the Tribunal of Inquiry, but only by characterising and defining the legal nature of a tribunal in a very specific way. The details of this will shortly be discussed. The fundamental flaw in the argument that the passage cited above from the judgment of Finlay C.J. is obiter, because it goes further than is necessary, is that the argument fails to appreciate that the passage in question is a clear, obvious and unavoidable corollary of the characterisation of the legal nature of a tribunal whereby alone the constitutionality of the institution was preserved. The core of the challenged passage. There is no doubt that the core of the passage from Finlay C.J. to which the Director of Corporate Enforcement objects is the statement that: [the finding of a tribunal] either of the truth or the falsity of any particular allegation which may be the subject of existing or potential litigation, forms no part of the material which a court which has to decide that litigation could rely upon. It cannot either be used as a weapon of attack or defence by a litigant who in relation to the same matter is disputing with another party rights arising from some allegation of breach of contract or illegal conduct or malpractice. It is that passage, quite specifically, which prevents the deployment of the Tribunal s findings as a weapon of attack in the hands of any litigant, here the Director of Corporate Enforcement. Legal nature of a tribunal. In the words, not of Finlay C.J. but of Costello J. (as he then

10 Page 10 of 18 was) who gave the judgment of the High Court in Goodman, the finding of a Tribunal of Inquiry is: - not imposing any liabilities or effecting any rights (p.557), - its conclusions merely have the status of opinion and this opinion is devoid of legal consequences (p.557), - a body whose findings are sterile of legal effect 562 and - whose purpose is merely to enquire and report (ibid). Elsewhere it is found that the function of a tribunal of inquiry is: To make a finding of fact, in effect, in vacuo and to report it to the legislature (590). The dangers and conceptual difficulties to which a tribunal which lacked these characteristics would give rise are amply considered in an Australian case referred to by several of the judges, in Goodman, viz: Victoria v. Australian Building Construction Employees Federation (1982) 152 CLR 25. I wish to emphasise my agreement with the whole of the citation from the judgment of Murphy J. in that case, which is set out in the judgment of Hederman J. in Goodman. He said, in particular: The authority given to the Commissioner to exercise such an important ingredient of judicial power as finding a person guilty of ordinary crimes, is itself an undermining of the separation of powers. It is a fine point to answer that the finding is not binding and does not of itself make the person liable to punitive consequences. It is by fine points such as these that human freedom is whittled away. I conclude, accordingly, that the decisions in Goodman

11 Page 11 of 18 provide the only conceivable basis on which the constitutionality of a tribunal of inquiry could be preserved. All the constitutional guarantees in relation to the administration of justice and fair procedures would be vain if it were possible for the government to set up simulacrum or a parallel process which would have all the consequences of criminal conviction other than actual imprisonment. I repeat that the passage from the judgment of Finlay C.J. to which exception is taken is in my view entirely unexceptionable. So far from going further than is necessary, so as to be a mere obiter, the entire of the passage is, as I have said, the inescapable corollary of the findings that a tribunal operates in vacuo that it is sterile of legal effect and that its report is simply an opinion and is devoid of legal consequences. If the report could be used, on a prima facie basis or otherwise, as a weapon or a shield in the hands of a litigant it would manifestly not be devoid of legal consequences or sterile of legal effect. Whether a body which is so sterile is worth having in the first place is a question for the judgement of those who establish tribunals, and not for the Court. But once established it is established with those qualities, and not otherwise. It is worthy of note that the Attorney General did not support the contention of the Director of Corporate Enforcement but supported, as I understood it, the sterility of the Tribunal s findings. Though the findings in this case were adverse to the Baileys, the report of any particular tribunal might be adverse to any party at all, or even to the State itself. In such circumstances the State would be entitled to take the point now taken by the Baileys, and to the same extent, neither greater nor less. Ex post facto There is another point which in my view is absolutely fatal to

12 Page 12 of 18 the contentions of the Director of Corporate Enforcement in the present case. Through all the long years of the Baileys involuntary interactions with this Tribunal of Inquiry, as a result of which they incurred expense which would have crippled poorer men, they did so on the basis that the nature of a tribunal of inquiry was that set out in Goodman, a decision of the country s Court of Final Appeal, unchallenged throughout their very prolonged appearances before the Tribunal. In those circumstances it is simply not open, in my view, to the State or any emanation of the State to execute a complete change of front and declare that now, so far from being devoid of legal consequence or sterile of legal effect the findings of the Tribunal are prima facie evidence against them in the present disqualification proceedings in which serious allegations are made against them. It is not open to a party, and particularly a party in a dominant position such as the State, to approbate and reprobate, as the old phrase, originating in a different context, has it. I take this to mean, in more contemporary language, the State cannot bring about or permit a particular state of the law and then, without notice, to take up an entirely different posture and to seek to deprive a person of property or other advantage acquired under that state of the law by declaring that it never existed at all, or was it wrong, or mistaken, or by changing it in a manner inimical to a course of conduct lawfully and prudently followed under the law as it stood. This is certainly the case in relation to property rights. In Cox v. Ireland [1992] 2 IR 503, the plaintiff challenged the provision of an act of 1939 whereby, as a public servant, he could on conviction of a scheduled offence in the Special Criminal Court forfeit his employment, be disqualified from the like employment for seven years and be disqualified from being granted out of the central fund any pension, superannuation or allowance in respect of service rendered by him before the date of such

13 Page 13 of 18 conviction. In finding the Section unconstitutional, this Court held that: It is clear that the provisions of s.34 of the Act of 1939, when it becomes applicable to any person convicted of a scheduled offence in a Special Criminal Court, potentially constitutes an attack, firstly on the unenumerated constitutional right of that person to earn a living and, secondly, on certain property rights protected by the Constitution, such as the right to a pension gratuity or other emolument already earned, or the right to the advantages of a subsisting contract of employment the unilateral variation and suspension of contractual rights, including rights which may involve the entitlement to a pension to which contribution over a period has been made, constitutes a major invasion of those particular property rights. I respectfully agree with the foregoing and see no reason why the prohibition against tampering with entitlements previously available should be confined to rights in the nature of property rights. Indeed, as can be seen, the judgment of the Supreme Court in Cox also extended to an unenumerated rights such as the right to earn a living. To be disqualified from being a Director or participating in the management of a company plainly tranches on such a right especially in relation to people who have been Company Directors for a lengthy period. That is not to say that they may not lose such a right: obviously they can. But it is emphatically to say that they cannot lose such a right on the basis wholly or partly of evidence, prima facie or otherwise, which they had previously been entitled to believe would not be available as evidence against them, and would be devoid of legal consequences, sterile of legal

14 Page 14 of 18 effect. The hearsay issue. The Director of Corporate Enforcements also wanted to rely in evidence on two different types of material which were undoubtedly in the nature of hearsay. These were, firstly, two memoranda from the Company s auditor and secondly, information which he had obtained from the Revenue Commissioners. He did this largely on the basis of various English authorities which are referred to in the judgment of Denham J. to the effect that hearsay evidence should be admissible in the disqualification procedures in the initial stages of the application. The point is well taken by Denham J. that the material in the English cases was all material arising out of statutory proceedings and fitting into a statutory scheme. In Secretary of State v. Aaron [2008] EWCA 1146, Thomas L.J. stated, having referred to earlier authority: the whole basis for the rationalisation in the cases is the statutory scheme. I cannot see any reason to hold that anything relied on by the Secretary of State is admissible in disqualification proceedings; the rationale for relying on the reports and other material fits into the statutory scheme, but there is nothing to suggest that the Secretary of State can go outside this scheme. If he could, it would be difficult to see what limits there could be to the materials to be relied upon. There is also good sense in restricting the material relied upon to material produced through the statutory scheme for investigation; this is understood by everyone and the procedure clear.

15 Page 15 of 18 It is, therefore, quite clear that the United Kingdom cases depend entirely on the existence of a statutory scheme which is absent here and that even in that context it does not open the door to the admission of anything at all which the applicant, here the Director of Corporate Enforcement, thinks relevant. In my view, in Ireland with its distinctive legal system and in particular the distinctive structure of rights arising out of the constitution, the position is still clearer. I wish to make it clear that in my view the fundamental objection to the admissibility of hearsay evidence in proceedings before a court is that, to the extent that it is admitted it deprives the applicant of his right to cross-examine. This case, like many of these applications, features allegations of a kind which, if they could be stood up in evidence, would amount to conduct disgraceful in a businessman and company director and would be gravely damaging to his reputation and his ability to earn a livelihood. Persons, official or otherwise, who makes such allegations must be prepared to stand them up in direct evidence. The person against whom they are made, if he contests them as the Baileys clearly do, is entitled to the rights identified in Re Haughey [1971] IR 217 including, vitally a right to confront and cross-examine the witnesses against him. This is not a technicality but the exercise of a right which, as I have observed elsewhere, has been the means of the vindication of innocent people. The Director argued that he must, even in the case of a contested case, first make some showing in affidavits; that he cannot compel any person, such for example the auditors or the revenue staff to swear an affidavit; and therefore he should be able to rely on these reports at least at an early stage. He did not say that any particular person had, in fact, refused to swear an affidavit. Certainly it is true that people against whom disgraceful

16 Page 16 of 18 allegations of the sort the Director is making here are entitled to notice of the nature of the allegations and the evidence which is said to support them. But, on the basis of Re Haughey, they are entitled to have these allegations made viva voce and to cross-examine those who make them. Paper does not refuse ink; and for that reason it would be disgraceful in the Director to put on affidavit, on the basis of hearsay, an allegation which he lacks a witness to stand up, and I am sure he would not do so. But the nature of the evidence can be notified without putting it on affidavit on the basis of hearsay and it is wrong that evidence which may be wholly exploded in cross-examination should go on to enjoy a malign half life in hearsay affidavit form. There is in my view no reality in the Director s repeated suggestions that he would be in some way at a disadvantage if he could not put these allegations on affidavit: he would not and he can easily notify the persons against whom he is making accusations of the nature and substance of them in all necessary detail even though he cannot force such persons to make an affidavit. I am of the opinion that, in the absence of the Haughey rights, a person, a company director or not, simply cannot be put to answer. His right to have only admissible evidence deployed against him does not depend on what answer he makes to an ex parte statement of the case against him, made on the basis of hearsay. Procedural issues. Some of my colleagues have expressed understandable concerns about the procedures adopted in this case, and specifically about the bringing of an interlocutory motion to strike out certain evidence filed on behalf of the moving party. I wish to say that, in the most unusual circumstances of this case, I do not share these concerns. It is notable that the evidence which is the subject of the present appeal was clearly and manifestly inadmissible evidence. Portions of it were rank hearsay, other portions consisted of an attempt to deploy in

17 Page 17 of 18 litigation, as a weapon of offence, portions of the findings of a Tribunal of Inquiry. This is legally impossible by reason of a decision of this Court of the highest authority. In those circumstances, I would be extremely sorry to think that a person against whom this inadmissible evidence was sought to be deployed could do nothing about it until the trial of the action. If this were so, I believe it would confer a wholly unmerited tactical advantage on the party deploying evidence which he knows to be inadmissible. Firstly, the evidence would be on the record of the Court publicly available. Secondly, the person against whom it was deployed would have no certainty until the trial as to how the issue of its admissibility would be resolved. From this it follows that he would have to make his tactical and evidential preparations for the trial on the basis that the evidence to which he objected might nonetheless be admitted. This in turn might easily (and in the present case in my view would probably) involve him in answering material not properly deployed against him and perhaps in committing himself on matters which do not properly arise at all. It would add to the length and therefore to the expense of the hearing. I entirely agree with the finding of the learned trial judge that: It is clear that the evidence supporting any alleged wrongdoing at a hearing which is dealt with on affidavit must be just as inadmissible as evidence which would be given in court by a witness at an oral hearing. Equally, regard must be had to the provisions of Order 40, Rule 4: Affidavits shall be confined to such facts as the witness is able of his own knowledge to prove, and shall state his means of knowledge thereof, except on interlocutory motions. In this case, the Director of Corporate Enforcement filed

18 Page 18 of 18 affidavits which manifestly contain factual material which the witness is not able of his own knowledge to assert. He did this, quite clearly, for some litigious advantage to himself to which in my view he is not entitled. I consider it would be a considerable injustice to the respondents in the underlying action if there were no machinery for the excision of material which is clearly hearsay or otherwise clearly inadmissible, and I find sufficient warrant for the relief that this Court can entertain such an application in Order 40, Rule 4. I too would dismiss the appeal and the cross-appeal. Back to top of document