O'Donoghue & Anor v Murphy & Ors (Approved)

This action arises out of a failed investment that was made by the plaintiffs and the defendants in a property development project in San Francisco in 2007.

Stripped to its essential elements, the plaintiffs' claim can be summarised as follows: a company had been set up in the US to develop the project in San Francisco. The defendants, through their US company, was the majority shareholder in the US company, in which all the investors were shareholders.

The claim centres on a settlement that was reached by the investment company with one Mr Joe Cassidy, who had bought the loan note and underlying securities held by a bank in the US in respect of a loan made by the bank to the company. He also held personal guarantees that had been executed by the individual investors in the company in respect of that loan.

It is alleged by the plaintiffs, who represented themselves in the litigation, that in using their majority shareholding in the company to get the company to conclude the settlement agreement with Mr Cassidy, the defendants fraudulently used their majority shareholding to cause the company to give up legal actions which the company had in the US against Mr Cassidy and others, so that he would release the defendants from their liability under their personal guarantees.

The plaintiffs allege that by so doing, the company suffered the loss of valuable choses in action against Mr Cassidy and others. It is alleged that in doing so the defendants perpetrated a fraud on the company and on the minority shareholders, including the plaintiffs.

The defendants admit that a settlement agreement was made between the company and Mr Cassidy. They state that that was done following a general meeting of the members of the company at which they exercised their vote through their investment vehicle, a company called Dunne Enright LLC. They deny that in so doing they perpetrated a fraud on the company, or on the minority shareholders, as alleged or at all.

In order to properly understand the dynamics of the relationship between the various parties in the saga that will unfold presently, it is necessary to say something about the background to the parties to these proceedings. In or about 1995/1997, the three defendants and the second named plaintiff formed a partnership called Westside. The first named defendant is a businessman. The second named defendant is a financial expert, who was working with a large company at that time. The third named defendant is an auctioneer. The second named plaintiff describes himself in the statement of claim as being a musician. He is connected to the first named defendant by marriage, in that they are married to two sisters.

In or about 1995, the three defendants and the second named plaintiff decided to set up a partnership to dev elop certain property projects in the Munster area. Their usual modus operandi was that they would identify sites which were ripe for development. They would obtain a loan from the bank which they would use to purchase the site and develop it either as a retail or residential development. They would normally sell off some of the units as a way of repaying the loan. This would mean that the remainder of the rent roll on the property would be pure profit.

As the three defendants were all engaged in full-time employment, the second named plaintiff was the partner who looked after the day-to-day management of the various projects that were ongoing at any given time. It was common case between the parties that their experience in the property development sector had been largely successful in the ten years between the commencement of the partnership and the investment that was made by them in the US development in or about 2007.

The first named plaintiff is an Irish busi nessman and property developer. He had been in business in the US in property development, in particular in the San Francisco area, for a number of years prior to 2006.

In or about 2006 an Irish gentleman, who worked in property development in the US and who had had dealings with the first named plaintiff, returned to Ireland. He will be referred to in this judgment as M. The court has redacted his name due to the fact that serious allegations of inappropriate financial behaviour and mismanagement of funds have been made against him. As he was not a party to the proceedings and did not participate in them, it would be unfair to identify him, given that he is an Irish national, with out giving him the opportunity to defend his good name. M and the first named plaintiff had known each other for many years as they had gone to school together in Ireland.

Reference will also be made to a Mr James Nunemacher and to his company Vanguard Inc, who were the agents responsible for selling the property in San Francisco.

Finally, reference has already been made to Mr Joe Cassidy, who was an Irish property developer and building contractor who had had extensive interests in the US. He was brought in at one stage when the development was not going well to conduct a survey of it and to furnish an estimate as to what it might cost to put the project back on track and to complete it. He ultimately ended up buying the loan note and underlying securities from the bank in the US which had lent funds to the company for the purpose of purchasing the property and developing it. He then instituted civil actions against the company and against the personal guarantors in respect of that debt. It was the ultimate settlement of that suite of litigation that gives rise to the dispute which is at the centre of these proceedings.

In or about 2006, M came back to Ireland. He pitched an investment opportunity in San Francisco to the Westside partnership. The property that he was hoping to obtain investment in in order to purchase it and redevelop it, was a property situate at 973 Market Street, San Francisco, California. It was a vacant property that had been used as retail and office space. It extended to seven storeys in height. The plan was to redevelop the property with commercial/retail units on the ground floor and with six floors of apartments above that.

Having received an initial pitch from M in relation to the investment opportunity, the third defendant travelled to America where he met M and Mr James Nunemacher. He was given a document referred to as an offering memorandum which set out the details of the property, a description of its location within the city and a broad outline of the yield that could be expected from the sale of apartments once constructed. In broad terms, the investment was pitched to the Westside partnership as being a very attractive investment which might yield a gross profit at the conclusion of the construction and sale of the apartments and retail units of somewhere in the region of $9m.

The partners in Westside, being the three defendants and the second named plaintiff, were impressed with the information that they had been given about the property. They decided to invest in the property. However, they were adamant that they would only do so if Westside had the controlling interest in the company that would be set up to purchase and develop the site.

When a sufficient number of investors was found, an investment company known as 973 Market Associates LLC (hereinafter '973MA') was incorporated in the US as the investment company that would purchase the site and develop it. The shareholding in that company was made up as follows: SF Market Investment Company LLC held 16.5% of the shareholding; the first named plaintiff as trustee of the O'Donoghue - O'Callaghan Living Trust held 16.5%; Dunne Enright LLC (the company set up to hold the Westside shareholding) held 53.51%; Dobby Investments Inc held 8.9%; and Christopher Flood held 4.4% of the shareholding.

Westside had obtained a loan from AIB to fund their investment in 973MA. Their shareholding was held through Dunne Enright, which was wholly owned by Westside.

An operating agreement dated 22 February 2007 was executed between the shareholders in 973MA to regulate the operation of the company. The property at 973 Market Street was purchased by 973MA, in February 2007.

973MA subsequently obtained a further loan from an American bank, United Commercial Bank (UCB), for the purpose of completing the purchase of the site and developing it as a retail/commercial/residential development. That loan was initially in the order of $14m, but it subsequently rose to circa $20m.

M had been appointed as manager of 973MA for the purpose of overseeing the construction project. Fairly quickly it became evident that the project had run into difficulty because (a) M had made payments that were not properly documented as being legitimate construction costs, as there had been a general lack of governance/accountability in relation to expenditure on the construction aspect; (b) the work carried out on site fell behind schedule; (c) it was alleged that the work that was carried out by the contractors was not of adequate quality; (d) it was alleged that there was no fire permit for the building. In addition, this project took place against the background of the property recession which began in 2008.

When it became apparent that the project had run into difficulty, the first named plaintiff was tasked with going out to the US to look at the project on the ground to see if it could be salvaged. He was paid €15,000 to cover his expenses on that occasion. He was not able to come up with any realistic plan to salvage the proj ect.

At a later stage it was suggested that Mr Joe Cassidy, who was a property developer and contractor of Irish heritage, might be able to assist with salvaging the project. To that end, he was retained to survey the work on the ground and to provide an estimate of what it would cost to complete the project. At that time, it was estimated that the construction work was 47% complete. It had been agreed that he would be paid $20,000 to provide this survey and estimate. He was never paid this sum.

At some time after he had provided the survey and estimate, Mr Joe Cassidy purchased the loan note from UCB, together with the underlying securities over the property and the personal guarantees that had been given by the personal investors in 973MA, who included the plaintiffs and the defendants in this action.

Multiple proceedings ensued in the US, where Mr Cassidy sued on the loan and on the securities. There were cross claims brought by multiple parties against Mr Cassidy and his company, Performing Arts, and against the vendors of the property, Nunemacher and Vanguard.

In April 2014, a mediation was held between all the parties who were in dispute over the project, being the investors in 973MA on the one hand and the Cassidy entities and the vendors of the property on the other side. This mediation was not successful. The only positive outcome was that in the course of the mediation Mr Cassidy indicated that he would not seek payment of the entire amount of the outstanding loan of circa $17m but would be prepared to settle for a sum in the region of $1m.

Thereafter, various investors in 973MA commenced independent negotiations with Mr Cassidy. The first plaintiff negotiated a deal with Mr Cassidy whereby he would settle all his claims against 973MA if he was paid $700,000.

The first plaintiff approached the third defendant and told him that Mr Cassidy would settle for a payment to him of $700,000, which the first plaintiff said would have to be discharged by the defendants. In addition, the first plaintiff stated that he and the second plaintiff would only consent to this settlement on certain conditions: that the defendants would pay to the plaintiffs and to Mr Kitt Flood the sum of $500,000; that the defendants would cause 973MA to transfer to the plaintiffs the extant actions which 973MA had in the US against Mr Cassidy and against the vendors of the property; that the defendants would pay all future legal costs in the Nunemacher proceedings. These additional conditions were never put in writing by the plaintiffs.

The defendants did not agree to these terms. The third defendant went so far as to describe them as being a form of blackmail or extortion, whereby the plaintiffs had attempted to extract money from the defendants as the price of their agreement to settling with Mr Cassidy on the personal guarantees.

The defendants carried out their own negotiations with Mr Cassidy, which ultimately resulted in a second settlement agreement which was on broadly similar terms to that which he had agreed with the first named plaintiff, save that he had agreed to accept the lesser sum of $420,000 in full and final settlement of all his claims against 973MA and its members. The draft settlement agreement further provided that 973MA would withdraw all their claims against Mr Cassidy and his companies and that 973MA would assign to him its actions against the vendors of the property.

In order to formally conclude this settlement agreement with Mr Cassidy, three separate meetings were held on 21 July 2014. The first was a meeting of the Westside Partnership, where it resolved to exercise its ownership of Dunne Enright to pass a resolution that Dunne Enright would cast its vote in respect of its shareholding in 973MA in favour of the settlement agreement.

The second meeting held on 21 July 2014 was a meeting of Dunne Enright, whereby that company formally passed a resolution to exercise its shareholding in 973MA in favour of the settlement agreement.

The final meeting held on 21 July 2014 was a general meeting of the members of 973MA. A notice convening the meeting had been sent out to all the members of the company. The first plaintiff had indicated that due to a prior commitment he might not be able to attend the meeting. He stated that he might send a lawyer to attend the meeting in his place. However, he did not attend the meeting. The second plaintiff did attend the meeting, however, he did not stay for the vote in respect of the draft settlement agreement that had been negotiated with Mr Cassidy. He had been furnished with a copy of that agreement at the meeting.

The members of 973MA who were present at the meeting, voted to accept the proposed settlement terms with Mr Cassidy. The settlement agreement was executed by 973MA and by Mr Cassidy on 21 and 22 July 2014. The signed settlement agreement provided for the terms as set out above.

The three defendants carried out the terms of the settlement agreement by paying $420,000 to Mr Joe Cassidy. They also secured dismissal of the actions that had been brought by 973MA against Mr Cassidy and his companies. Finally, the company assigned its existing actions against the vendors to Mr Cassidy.

The gravamen of the plaintiffs' claim against the defendants is that in agreeing to the dismissal of 973MA's action against Cassidy and by assigning its actions against the vendors, the defendants had given away valuable assets of 973MA so as to extricate themselves from their liability under the personal guarantees.

The plaintiffs allege that the defendants had thereby misappropriated the company's assets, being the choses in action against the vendors and Cassidy, for their own personal benefit.

The plaintiffs allege that in order to carry out that strategy, the defendants had wrongly removed the second plaintiff as manager of 973MA and had wrongfully removed Ms Janet Brayer, a US lawyer who had been acting on behalf of the company in the actions against the vendors of the property, from her position as the company's lawyer on record in the proceedings and had replaced her with another lawyer for the purpose of having the dismissals of the company's actions against Mr Joe Cassidy and his companies ratified by the court in California, which was done on 7 January 2015.

The plaintiffs allege that such actions on the part of the defendants as controlling shareholders of 973MA, caused a loss to the company and constituted a fraud on them as minority shareholders.

The defendants' case is that following the abortive mediation held in April 2014, the whole investment project was in dire straits. The company was bankrupt. The existing litigation in the US could no longer be funded because AIB in Ireland had made it clear that they would not permit payment of any more legal fees in the US. The other investors in the company, and in particular the plaintiffs, had refused to contribute to the legal fees; and while the defendants had personally funded the litigation for some time, they could no longer afford to do so.

In addition, Ms Brayer, the US lawyer who had been acting for 973MA up to the mediation, had made it clear that she would no longer act for the company as some of her fees remained outstanding. She handed back the files immediately after the mediation.

The defendants and the plaintiffs separately opened dialogue with Mr Cassidy to see if a settlement could be reached. The first plaintiff had come to the defendants with his version of the settlement agreement that Cassidy had been prepared to accept, whereby he would be paid $700,000, which was to be paid by the defendants. The first plaintiff had put that agreement to the defendants, but had also stated that there were conditions which the defendants would have to satisfy for the plaintiffs to agree to the settlement agreement being concluded. Those conditions have been set out earlier. The defendants were not amenable to these terms.

It is the defendants' case that following their negotiations with Mr Cassidy, they managed to secure his agreement to accept the lesser sum of $420,000, together with the assignment to him of the company's actions against the sellers and the company's agreement to dismissal of its actions against Mr Cassidy and his companies.

The defendants stated that having called all requisite meetings for 21 July 2014, 973MA had agreed by a majority vote of the members to accept the settlement agreement on those terms.

The defendants denied that they had perpetrated any fraud on the company or on the minority shareholders. They pointed to the following facts: all the individual investors had given personal guarantees, therefore the release of these guarantees did not solely benefit the defendants; the company had no funds, therefore it could not continue with its litigation against Mr Cassidy or against the vendors; the company's case against Mr Cassidy and the vendors was very weak and it was unlikely to result in any tangible benefit for the company, as such litigation had only been embarked upon as a means of slowing up Mr Cassidy's action on foot of the loan, which was perceived as being a strong case.

The defendants pointed to the fact that separate proceedings brought by the plaintiffs against the vendors in the US had been unsuccessful. Proceedings brought by the plaintiffs against Mr Joe Cassidy had been settled with Mr Cassidy making a contribution to their costs of $75,000. Accordingly, the defendants denied that the choses in action which the company had against Mr Cassidy or the vendors were of any real monetary value. Therefore, relinquishing such claims did not cause any loss to the company.

The defendants asserted that they had exercised their controlling interest in 973MA to conclude a settlement agreement that was of benefit to the company in that it brought all claims and cross claims against the company to an end, thereby relieving the company from exposure to a judgment against it for circa $17m.

The defendants accepted that the settlement agreement also had the benefit of relieving all the individual investors in 973MA from their personal guarantees. It was stated that the obtaining of that benefit had not caused the company any loss. All they had done was to give up litigation in which the company had little prospect of success and in respect of which it did not have the funds to pursue the litigation to finality. It was submitted that in these circumstances, bringing all the litigation to a conclusion was in the best interests of the company and its shareholders.

This case has many unusual features, not least the web of connections between the various participants in the drama. The common thread is that with the exception of Mr Nunemacher, the main actors were all Irish and were known to each other. The first defendant and the second plaintiff are also connected by marriage.

The other unusual feature of the case was that at the hearing of the action, the plaintiffs called the defendants as their witnesses. This was done despite the court pointing out the evidential dangers in so doing. It resulted in the evidence of the defendants effectively being part of the plaintiffs' case. This made the hearing of the action somewhat surreal, in that the defendants gave their evidence as part of the plaintiffs' case and were then cross-examined by their own counsel.

Before dealing with the merits of the case, I will deal with a number of technical defences that were raised on behalf of the defendants. The defendants argued that for a number of reasons the plaintiffs' action against them was bound to fail in limine . The first ground was that the plaintiffs lacked locus standi to bring this action against the defendants.

It was submitted that given the structure of 973MA, whereby neither the defendants, nor the second plaintiff, were shareholders in the company, this meant that the second plaintiff lacked locus standi to bring any action based on an alleged loss said to have been suffered by the company.

Further, it was submitted that the defendants were not shareholders in 973MA. The relevant shareholder was Dunne Enright, which was wholly owned by Westside. Accordingly, it was submitted that the plaintiffs had sued the wrong defendants.

It was submitted that the first plaintiff could perhaps be seen as being a shareholder in his capacity as trustee of his 'living trust', but his claim was likewise brought against the wrong defendants. If he had any action against the majority shareholder, that was an action against Dunne Enright.

It was submitted that insofar as the plaintiffs' claim was that there was a breach of the operating agreement in relation to the holding of the general meeting of 973MA on 21 July 2014; they could not bring that claim against the defendants because (a) the plaintiffs were not parties to the operating agreement for 973MA, and (b) nor were the defendants.

The defendants' submission in this regard is well made. The company, 973MA was a Californian registered company. It was subject to the rules of that State. Its majority shareholder was another Californian company, Dunne Enright LLC. If the first named plaintiff could be regarded as a shareholder of 973MA, his complaint is against the majority shareholder in respect of the way in which it cast its vote at the meeting held on 21 July 2014. He has not sued that company. Instead, he has sued three of the four partners in Westside, which was the holder of 100% of the shareholding in Dunne Enright.

It is not so much that the first named plaintiff has sued the wrong defendants; rather, he has not sued the one essential defendant, being Dunne Enright. The same reasoning applies to the second named plaintiff, although his position is even weaker as he is not even a shareholder in 973MA. In these circumstances, I am satisfied that the plaintiff's action against the defendants must fail in limine on this ground. Lest I am wrong in that conclusion, I will deal with the other legal submissions made on behalf of the defendants. I will also deal with the action on its merits.

The second ground of defence put forward concerned issue estoppel and proof of loss. It was submitted on behalf of the defendants that the plaintiffs and a Mr Kitt Flood had sued Mr Nunemacher and others for fraud and misrepresentation in their capacity as vendors of the property . The action had been heard over 11 days. After a full hearing, Kahn J. had dismissed the plaintiffs' action against the vendors on two grounds: firstly, that the claim was out of time; and secondly, that the claim had not been established on the merits. He held that the vendors had done nothing to conceal any information or details about the property that had been put up for sale. He held that the project had failed as an investment due to the mismanagement by M and due to the onset of the property recession in 2008. He also held that the investors in 973MA had failed to carry out proper due diligence prior to making their investment.

The defendants relied on the decision in Invers v Commissioner of An Garda Síochána [2024] IEHC 626 , as support for the argument that as the issue of the liability of the sellers had already been determined by a court of competent jurisdiction in the US, this issue was res judicata or covered by issue estoppel. This meant that the company would likewise not be successful in any action that it could have brought against the sellers.

I do not think that that argument is well-founded insofar as it rests on the principle of res judicata or issue estoppel. The fact that others may have unsuccessfully sued the sellers does not establish some sort of estoppel that would prevent any other third party, such as 973MA, suing the sellers.

This is because the company was not a party to the previous action. Therefore, it is not bound by any decision given in those proceedings. The reason for that is that it would be unconscionable to bind B by a finding in an action brought by A against C, when B had no control over that litigation. B was not dominus litus . He could not direct what investigations were carried out, nor what evidence was led at the trial of the action. In these circumstances, it would be unconscionable to bind B by any findings made in litigation over which he had had no control.

In order for issue estoppel to arise, there must have been previous litigation between the parties where the issue was determined by a court. In such circumstances, that issue cannot be re-ventilated by the parties in subsequent litigation.

I hold that issue estoppel does not prevent an argument being made that the company could pursue an action against the sellers because a separate third-party had unsuccessfully pursued a similar action against the sellers previously. The plaintiffs' action does not fail in limine on this ground.

However, the fact that other parties had unsuccessfully pursued the same cause of action against the sellers in the courts of California, is admissible evidence that on the balance of probabilities the company would have been unsuccessful in its claim against the sellers, meaning that that chose in action was not a valuable asset of the company. This will be dealt with later in the judgment when dealing with the merits of the case.

In the course of the hearing reference was made to the fact that Mr Chris Flood had instituted proceedings against Dunne Enright and against the present defendants in almost identical terms to those put forward by the plaintiffs against the defendants in the present action. The action brought by Mr Flood before the courts in California was struck out by Ulmer J. against the personal defendants on a demur application on 19 April 2019. He accepted that they had no case to answer. The decision in that case cannot give rise to any estoppel against the present plaintiffs, as they were not parties to that action.

Finally, it was submitted that under the rule in Foss v Harbottle [1843] 2 Hare 461 , the plaintiffs could not sue the defendants for a loss that had allegedly been suffered by the company. It was submitted that if any wrong had been committed against the company, thereby causing it a loss; only the company could sue in respect of that loss.

On behalf of the defendants, Mr McCullough SC accepted that an exception to the rule arose when it was contended that the majority shareholders had caused or permitted the loss to the company and by failing to take action in respect of it, they had effectively committed a fraud or oppression on the minority shareholders.

It was submitted that in these circumstances, while the minority shareholders might be permitted to bring a derivative action against the majority shareholders in respect of the loss allegedly suffered by the company; O.15, r.39 of the Rules of the Superior Courts provided that such a derivative action could only be brought with the leave of the court. As the plaintiffs had not obtained the leave of the court to bring the present proceedings, the present action should be struck out in limine .

I am satisfied that the plaintiffs' action does not fail i n limine under the rule in Foss v Harbottle because the first plaintiff is effectively a minority shareholder in 973MA. As assets of the company, being the extant litigation in the US against Mr Joe Cassidy and the vendors, was effectively alienated from the company by a vote of the majority shareholder, the first plaintiff is entitled to mount a derivative action on the basis that such action by the majority shareholder constituted a fraud on the company and on the minority shareholders. As such, the present proceedings can be seen as coming within one of the recognised exceptions to the rule in Foss v Harbottle .

I am not satisfied that the provisions of O.15, r.39 of RSC apply, as 'company' is defined therein as an existing company within the meaning of s. 2(1) of the Companies Act 2014, or a company capable of being wound up under that Act, which effectively refer to companies registered in the State.

As 973MA was not a company within the meaning of s.2 of the Companies Act 2014, I hold that the provisions of O.15, r. 39 do not apply to the present action. Accordingly, I hold that the rule in Foss v Harbottle does not prevent the plaintiffs from maintaining the within proceedings against the defendants, either in their own right, or on behalf of the company.

As with all complex cases, it is helpful to begin by looking at the facts that are not seriously in dispute between the parties. First, the three defendants and the second plaintiff had acted in partnership in the area of property investment/development in Ireland for approximately ten years before this investment opportunity in the US came along in 2006.

Having visited the property and having considered the offering memorandum, Westside decided to invest in the project. However, they were adamant that they would have a controlling interest in the investment vehicle. To that end, when other investors had been located, the company 973MA was formed, in which Westside had a 53% shareholding, which was held by their wholly owned American company, Dunne Enright LLC.

What is also clear is that by early 2008, things had gone wrong with the project. M had not kept proper documentary records of payments made. Some contractors complained that they had not been paid. The works were behind schedule. They were over budget. It later transpired that much of the work done, was sub-standard. All of this occurred on the eve of the financial crash.

By the time the mediation was held in April 2014, things looked very bad from the company's perspective. It was bankrupt. It was facing legal proceedings by Mr Joe Cassidy on foot of the loan for repayment of approximately $17m. The mediation held in April 2014 was unsuccessful; the only positive coming out of it being that Mr Cassidy indicated that he would accept $1m to settle all his claims against the company and on the guarantees. All of that is broadly accepted by the parties.

This brings me to the first issue of contention between the parties, which is the status of Ms Brayer, as lawyer for 973MA after the mediation. I accept the evidence given by the defendants that while it was some months before she formally came off record for the company on 30 October 2014; she had indicated after the mediation that she would no longer act for the company as she had not been paid.

I accept the defendants' evidence that she returned all the files after the conclusion of the mediation. I accept their evidence that there was no funding available to continue to retain her on behalf of the company in relation to the ongoing litigation against Mr Cassidy and the vendors. In addition, she could not act in any litigation against Cassidy or his companies due to a conflict-of-interest.

I find as a fact that from the conclusion of the mediation, Ms Brayer effectively ceased to act for 973MA in any real sense. This is also reflected in her emails, which complained that she was getting mixed messages from the company, given that in the wake of the mediation, different groups of shareholders had approached Mr Joe Cassidy to see if they could negotiate a settlement with him.

The second main area of contention concerned the status of the second plaintiff. He maintained that upon the resignation or removal of M as manager of 973MA, he had been appointed as manager of the company in place of M. The second plaintiff's evidence in this regard is supported by the minutes of the meeting held on 2 April 2008 which read:

The defendants maintained that while the minutes of the resolution was in those terms, it did not reflect the true position, which was that it was resolved that Dunne Enright would be the manager of 973MA, with the second plaintiff being the representative of Dunne Enright. In support of that contention, they had referred to a number of court documents that had been filed in the US, wherein it had been accepted that Dunne Enright was the manager of 973MA.

The plaintiffs attach significance to this issue by reference to clause 5.5 of the operating agreement for 973MA, which provided that the manager could not take " major decisions " without first obtaining the consent of all the members. " Major decisions " were defined to include the selling substantially of all the assets of the company. It is submitted by the plaintiffs that in removing the second plaintiff as manager of the company and by subsequently alienating the only assets which the company retained, being its actions against Mr Cassidy and against the vendors; and by doing so based on the majority vote of the shareholding held by the defendants, rather than by obtaining the consent of all the members of 973MA, the defendants acted unlawfully and in breach of the operating agreement.

I do not regard this submission as well-founded. Clause 5.5 of the operating agreement clearly deals with the powers and authority of the manager to bind the company. It is a clause in a suite of clauses, which set out the authority of the manager of the company. It is designed to enable third parties who deal with the manager to know what authority he has to bind the company.

The clause puts a limit on that authority, insofar as it prevents the manager taking what are termed " major decisions " without the unanimous consent of the shareholders. The clause does not purport to restrict the power of the shareholders in general meeting to take decisions affecting the business of the company.

I hold that on a true construction of the operating agreement as a whole, the majority of the shareholders had authority to take decisions in a general meeting of the company, be they major decisions or other types of decisions.

Accordingly, I hold that it is not necessary for me to determine the exact status of the second plaintiff on or after April 2008. This is because the decisions that were taken by 973MA at the general meeting on 21 July 2014, were taken by the company in a meeting of its shareholders. It was not relevant whether the second plaintiff was manager of the company at that time.

This brings me to the heart of this case, which is whether the defendants acted in a way that was unlawful or oppressive of the minority shareholders when they used their controlling interests in Westside to cause Dunne Enright to cast its majority shareholding vote in 973MA in favour of the company concluding the settlement agreement with Mr Cassidy.

I am satisfied that the defendants did not act illegally, oppressively, or contrary to the best interests of the company, in casting their majority vote in favour of adoption of the settlement agreement.

I find that the meeting of 973MA held on 21 July 2014 was properly convened. Notice of the meeting had been given to all the shareholders. The agenda had made it clear that the company would decide on whether to agree to the draft settlement agreement with Mr Joe Cassidy. The first plaintiff was aware of the meeting. He had said that he might attend the meeting, or send his lawyer to it. He did not do so. The second plaintiff attended the meeting but left before the vote was taken on the settlement agreement. I hold that the meeting was properly held. I hold that the resolution adopting the settlement agreement on behalf of the company was properly passed by the company.

I find that the terms of the settlement agreement concluded with Mr Cassidy did not constitute a fraud on the company or on the minority shareholders. The company was bankrupt at that time. It could not afford to pursue the claims and cross claims that were in existence against Mr Joe Cassidy or the vendors or any of the allied companies. One estimate of the likely costs that would be incurred in bringing the various claims to trial was in the sum of $600,000. The company did not have access to that amount of money.

I am further satisfied that on the evidence before me, those claims were of little or no value to the company. When the plaintiffs and another person had sued M and the vendors, the Superior Court of California (Kahn J) had dismissed the case after an eleven-day hearing on the grounds that the claim was out of time. He had also dismissed the claim on the basis that there was no merit in it. He held that the vendors had not hidden any material facts. He held that the failure of the project was due to a combination of factors as follows: the failure of the investors to carry out adequate due diligence prior to the investment; the mismanagement of the project by M; and the onset of the recession in the real property market. In these circumstances, it was held that it would be inequitable to grant any relief to the plaintiffs.

I find that on the balance of probabilities any action by the company against the vendors would probably have had the same outcome. I find as a fact that the company did not have the funds to pursue such action to trial. I find that the alienation of this chose in action against the vendors did not cause any loss to the company.

In terms of the action against Mr Joe Cassidy, while 973MA and the plaintiffs may have been upset at the action of Mr Cassidy in buying the loan note and the securities from UCB after he had surveyed the project on behalf of 973MA, and while his actions may have been motivated by the fact that he was never paid his agreed fee of $20,000; there is no evidence before me that any action against him would have been successful, or as to what damages could have been secured by the company in such proceedings.

Such evidence as there was on this point, was that when the plaintiffs had sued Mr Cassidy and his company in the US on these grounds, those proceedings had ultimately settled with Mr Cassidy paying a contribution towards the plaintiffs' costs of $75,000.

In these circumstances, I hold that in concluding the settlement agreement with Mr Joe Cassidy whereby he would be paid $420,000, which was paid by the defendants; and whereby 973MA would forego all claims and cross claims against him and his companies; and that 973MA would assign to him its extant claim against the vendors; in return for which he withdrew all claims he and his companies had against 973MA and on the personal guarantees; the defendants in exercising their majority vote to effect that settlement on behalf of the company, cannot be said to have defrauded the company of any valuable assets in the form of valuable choses in action against Mr Cassidy or against other parties.

In reality, the company gave up claims that had little prospect of success and which claims the company did not have the funds to bring to trial.

That dismissal of the company's claims against Mr Cassidy was in the interests of the company, is shown by the fact that on 7 January 2015, the court in California ruled that dismissal of the actions was appropriate, despite an objection thereto brought by Mr Flood. The plaintiffs had notice of that application. They did not appeal that order or bring any application to have it set aside.

I hold that foregoing these claims did not constitute a fraud on the company or on its minority shareholders, nor was it oppressive on them. The fact that the individual investors in 973MA, including the defendants, obtained a material benefit in securing the release of their liability under the personal guarantees, does not render their actions in agreeing to the settlement agreement, a fraud on the company or on any of its shareholders. This is particularly so when the settlement figure of $420,000 was not paid by the company but was paid directly by the defendants.

For the reasons set out herein, the court holds that the plaintiffs' action against the defendants must be dismissed.

Having regard to the findings of the court in this judgment, the final order should provide as follows: dismiss the plaintiffs' action against the defendants.

In relation to costs, as the defendants have been entirely successful in defending the proceedings, the court's preliminary view is that they should be awarded the costs of the action against the plaintiffs jointly and severally, such costs to include all reserved and discovery costs and the costs of submissions; such costs are to be adjudicated in default of agreement by the Office of the Legal Costs Adjudicator. If any party disagrees with this proposed order on costs, they can make submissions on this in their written submissions.

As this judgment is being delivered electronically, the parties will have four weeks within which to deliver brief written submissions of not more than 1,000 words on the terms of the final order and on costs and on any other matters that may arise.

The matter will be listed for mention at 10.30 hours on 8 October 2025 for the purpose of making final orders.