Appointment
Cases
ODCE v Darcy
[2005] IEHC 333
Mr. Justice Kelly
Section 160(2)(b)
This subsection applies to a person who has been guilty, while a promoter, officer, auditor, receiver, liquidator or examiner of a company, of any breach of his duty as such promoter, officer, auditor, receiver, liquidator or examiner.
The only way in which Mr. D’Arcy could come within the ambit of this subsection would be if he were “an officer” of either the bank or NIBFS.
The terms “officer” is defined in s. 159 as I have already pointed out. It is clear that the definition is non-exhaustive. An officer includes any director, shadow director or secretary of the company. As the definition is non-exhaustive it clearly covers other categories of person. The Director contends that a person in an elevated management position such as Mr. D’Arcy comes within the meaning of the term “officer”. In that regard he cites a number of English authorities supportive of that notion.
The principal authority relied upon is the decision of the Court of Appeal in Re: A Company [1980] Ch. 138.
There the Court of Appeal was dealing with an appeal from a decision of Vinelott J. who had refused an application made by the Director of Public Prosecutions under s. 441 of the Companies Act 1948. That section enabled the Director of Public Prosecutions to apply to a High Court judge where there was shown to be reasonable cause to believe that any person had, while an officer of a company, committed an offence in connection with the management of the company’s affairs and that evidence of the commission of the offence was to be found in any books or papers of or under the control of the company. The section provided that an application might be made in such circumstances for an order authorising inspection of the books or papers of the company. Lord Denning M.R. described such an order as being “analogous to a search warrant”.
In the course of his judgment he had to consider the meaning of the word “officer” in relation to a body corporate. He said:
“The word “officer” in relation to a body corporate is defined in
s. 455 of the Act. Not really “defined” for it only includes a director, manager, or secretary.”
Its meaning may depend on the context in which it is used and in this case on the whole phrase ‘while an officer of the company, committed an offence in connection with the management of the company’s affairs….’.
The officer here referred to is a person in a managerial situation in regard to the company’s affairs. I would not restrict these words too closely. The general object of the Act is to enable the important officers of the State to get at the books of the company when there has been a fraud or wrongdoing. It seems to me that whenever anyone in a superior position in a company encourages, directs or acquiesces in defrauding creditors, customers, shareholders or the like, then there is an offence being committed by an officer of the company in connection with the company’s affairs.”
The Director relies on this statement in support of his argument that a person in an elevated management position such as Mr. D’Arcy falls within the meaning of the word “officer” in the Companies Act 1990. He may very well be correct in that assertion but it must be borne in mind that the dictum of Lord Denning dealt with an admittedly non-exhaustive definition of “officer” but one which included a “manager.” The term “manager” is not included in the definition of “officer” in the Irish legislation. It is therefore arguable that having regard to this distinction Mr. D’Arcy does not fall within the definition of “officer” as prescribed by the Irish legislation.
In the concurring judgment of Shaw L.J. he said by reference to Vinelott J.
“He also considered that the party said to be an officer of the company of whom it was alleged that he had committed some offence in connection with the management of the company’s affairs was not to be regarded as an officer or a manager within the definition of s. 455 of the Companies Act 1948. The expression “manager” should not be too narrowly construed. It is not to be equated with the managing or other director or a general manager. As I see it, any person who in the affairs of the company exercises a supervisory control which reflects the general policy of the company for the time being or which is related to the general administration of the company is in the sphere of management. He need not be a member of the board of directors. He need not be subject to specific instructions from the board. If he fulfils a function which touches the central administration of the company, that is sufficient in my view to constitute an “officer” or “manager” of the company for the purposes of s. 441 of the Act.”
I do not think that this statement brings us any further since once again the court is dealing with a different definition of the term “officer”, that with which I am concerned.
If s. 159 of the Companies Act 1990 defined “officer” in the same terms as did the English Companies Act of 1948 as including a “manager” there would be no doubt but that Mr. D’Arcy would fall within that definition.
As s. 159, although framed non-exhaustively, does not include the term “manager”, it is arguable that Mr. D’Arcy does not fall within it. In the present case he has chosen not to make any such argument. The Director has quite properly drawn my attention to English authorities of relevance. They were not confined to Re a Company but extended to In Re: Johnson and Co. Builders Limited [1955] Ch. 634 where Lord Denning M.R. said that the meaning of the word “manager” for the purposes of the Companies Act meant “a person who is managing the affairs of the company as a whole. The word “officer” has a similar connotation….” and R. v. Boal [1992] Q.B. 591 all of which dealt with the term as defined in the English Companies legislation. English authorities are at best persuasive but their persuasive value must be lessened when they are dealing with a different definition to that which obtains in the Irish legislation.
I think that the Director is probably correct in his submissions but I do not propose to make a finding on the issue since it is not necessary. Such a finding would be of little precedent value as the question was not argued before me. A point not argued is a point not decided.
I note that in the case of In Re A Company Queen’s Counsel appeared as amicus curiae to argue the matter. Such a facility is not readily available in this jurisdiction.
If Section 160(2)(b) were the only provision under which the Director was applying I would have to reach a conclusion on this question without the benefit of argument contra. I am satisfied that it is not necessary to do so here since Mr. D’Arcy is clearly covered by one of the other provisions relied on by the Director to which I will turn presently.
Section 160(2)(d)
This subsection deals with the conduct of any person as promoter, officer, auditor, receiver, liquidator or examiner of a company, where his conduct makes him unfit to be concerned in the management of a company. Again the success of the Director’s application turns upon him being able to satisfy me that Mr. D’Arcy was an “officer” of the relevant companies. This is the same issue which I have just considered. I will adopt the same approach to it.
Hayes -v- Kelleher & ors
[2015] IEHC 509
Barrett J.
17. The Defendants contend that even if Ms Hayes could, pursuant to Blarney’s articles, bring about an increase in the number of directors, this is of no use to her because Art.12(j) of Blarney’s articles of association contemplates that board appointments fall to be made by the board. Not to put too fine a tooth on matters, the Defendants contend that Ms Hayes, if she can vary the number of board positions, can do so all she likes: only the board can appoint persons to be directors.
ii. The natural and ordinary meaning of Blarney’s articles of association
18. As mentioned above,Art.12(j) of Blarney’s articles provides as follows:
“The Directors shall have power at any time and from to time to appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors, but so that the total number of Directors shall not at any time exceed the number fixed in accordance with these regulations.” (Emphasis added).
19. It will be recalled too that the court concluded above that the text shown in Bold format yields the conclusion that Art.12(j) must, on its own terms, be read as subservient to Article 12(a) of Blarney’s articles which makes over-arching provision as to the power of the company to appoint directors, stating:
“The number of Directors shall not be less than two nor unless and until otherwise determined by the Company by ordinary resolution, more than nine. A Director shall not retire by rotation but shall retire at an age as shall be predetermined by the Company or following eight years of service as a Director without eligibility for re-election and Regulation 110 of Table A Part I shall be modified accordingly.” (Emphasis added).
20. More fundamentally, it is in any event well established that a company in general meeting has an inherent power regarding the appointment of additional directors. So much so that, it seems to the court, considerable certainty and clarity of wording would have to be present before a set of articles could be read as displacing this power.
iv. Reference to learned commentary
25. The Defendants, in raising Blair Open Hearth, have sought to place some reliance on the proposition asserted by former Chief Justice Keane in his learned text, Company Law (4th ed., 2007) para. 27.29, that the decision of Eve J. supports the proposition that “Where the Articles provide that additional directors are to be appointed by the board of directors, the company in general meeting has no power to make such appointments; it can, however, amend the articles by special resolution to give itself such power.” It seems to the court, however, that there are a number of difficulties with the Defendant’s reliance on the observations of former Chief Justice Keane in this regard.
26. First, in the context of the within proceedings, Art.12(j) of Blarney’s articles (which gives a power of appointment to the board) does not sit alone; it sits in a document that also contains Art.12(a) which the court construes to give a concurrent power of appointment to the company; moreover, for the reasons stated previously, the court considers that Art.12(j), when given an ordinary and natural reading must be read as subservient to Art.12(a). So the within proceedings are not an example of the situation posited by former Chief Justice Keane in which a power is vested solely in the board, and the company must agree by special resolution to give itself a like power. Here, such a concurrency of power already exists.
27. Second, former Chief Justice Keane acknowledges that there can be concurrent powers of appointment; indeed, he identifies the means whereby such concurrency can be brought about where it does not already exist.
28. Third, although former Chief Justice Keane does not consider Blair Open Hearth in any detail, it seems that he (in this Court’s respectful opinion, rightly) does not consider that case to rest on the proposition that one can never have concurrent powers of appointment; otherwise why would he refer to it as a supporting authority in the context of text in which he identifies how to establish concurrent powers of appointment? Had former Chief Justice Keane meant to invoke Blair Open Hearth as an authority supporting only the first part of the above-quoted text, he would surely have placed the footnote reference to that case at the end of the first part of the quoted text and not at the very end of same, where it now appears.
v. Some English and Australian authorities
29. Even if Blair Open Hearth was authority for the proposition that one cannot have a power of appointment vested in directors and shareholders concurrently (and, for the reasons stated, the court does not consider that it is as definitive on this point as the Defendants have urged), later English and Australian case-law positively endorses the notion that there can be such a concurrency of power. The court turns now to consider three cases of relevance in this regard.
a. Worcester Corsetry, Limited v. Witting [1936] 1 Ch. 640
30. In Worcester Corsetry, the Court of Appeal considered articles of associationthat provided in Art.12 that the number of directors should be not less than two or more than seven, and also adopted certain standard articles in the Companies (Consolidation) Act, 1908 whereby, inter alia, (a) a general meeting could vary the number of directors, (b) casual board vacancies could be filled from time to time by the board, and (c) additional directors could, on certain terms, be appointed by the board. The action involved a challenge against the appointment of certain directors at a general meeting of the company.
31. Although the Court of Appeal did not overrule Blair Open Hearth, the Court placed significant emphasis on the need to consider whether the articles of association of a company go so far as to exclude the inherent power of the general meeting to appoint directors. Distinguishing the decision of Eve J. in Blair Open Hearth, Lord Hanworth, M.R. observed, at p.645 of his judgment, that he had “some little difficulty in seeing that the power [of appointing directors] must be either in the one or in the other; but be that as it may, we have to interpret the articles of association as we find them” – this last task in truth being all that Eve J. had done.
32. Lord Hanworth went on to acknowledge that the power to appoint additional directors was an inherent power of the company. Thus, at p.647 of his judgment, he describes the issue before him as being “whether or not there is excluded from the powers of the company in general meeting a power which would otherwise appertain to the general meeting.” And he concluded his judgment by posing, at p.648, what he saw as the pertinent question, viz. “[I]s it possible to hold that there has been a complete exclusion of the powers of the general meeting and an entrustment to the directors, and only to the directors, of the power of appointing additional directors?” Having regard to the purpose of the articles, and the fact that they were different in form to those that were before Eve J. in Blair Open Hearth, Lord Hanworth concluded that the powers of the company in general meeting had not been so circumscribed as to prevent their being exercised.
33. Lawrence L.J., in his concurring judgment, indicated as follows at p.650 of his judgment:
“The company has an inherent power to nominate and appoint its own directors unless that is in any way restricted by the contract contained in the articles of association. Unless you can find that that inherent power has been handed over by the company to the directors, I think they retain that power as a natural result of their having the power to increase their board of directors.”
34. It will be recalled that Art.12(a) of Blarney’s articles of association provides, inter alia, for such a power to increase the number of directors, stating in this regard that “The number of Directors shall not be less than two nor unless and until otherwise determined by the Company by ordinary resolution, more than nine.”
35. Notably, Lawrence L.J. rejected the very point that the Defendants in the within proceedings seek to make, stating, at p.649 that: “Art 83 of the Table A shows in the plainest terms that the company has the power to increase or reduce the number of its board. It is said that does not involve the nomination and appointment of particular gentlemen or ladies as directors, but it seems to me that that is necessarily implied in the provision of Art.83.”
36. As it was with Worcester Corsetry, so too the court concludes it must be with Blarney, save that in our, happily more egalitarian, times all suitably qualified persons are welcome to be directors, not just those who have classist pretensions to being “gentlemen or ladies”.
37. Slesser L.J. in his concurring opinion, echoes the views of Lawrence L.J., stating, at p.654 of his judgment, that
“The more natural view of Art.83 [the provision whereby a general meeting could, inter alia, vary the number of directors] is that it is not redundant or merely introducing unnecessary machinery which is already provided for by Art.12 in dealing with the maximum and minimum, but, as Lawrence L.J. has indicated, is itself conferring a power not only to increase the number but to increase that number by itself appointing directors to the extent to which it is intended to increase the number.”
b. Integrated Medical Technologies Ltd v.Macel Nominees Pty Ltd & Anor (1988) 13 ACLR 110
d. Some conclusions
42. This Court considers that:
(i) although each case will fall ultimately to be determined on its own merits by reference to rules of contractual interpretation such as those identified in Appendix C to this judgment, the persuasive line of foreign authorities represented by Worcester Corsetry, Integrated Medical and Link Agricultural identifies pertinent issues and represents the correct approach to be adopted when it comes to determining whether the arrangement settled upon by certain shareholders in particular articles of association and/or a related document such as a shareholder agreement allows for the concurrent exercise by the board and the body of a company of the power to appoint directors;
(ii) any general scepticism that Eve J. evinced in Blair Open Hearth as to the possibility of the concurrent exercise by the board and the body of a company of the power to appoint directors was misplaced; and
(iii) a proper reading of Blair Open Hearth suggests that Eve J. does not entirelyexclude the possibility of such concurrency of powers, albeit that he finds it not to arise on the particular documentation and facts which presented before him.
43. The court would add by way of judicial gloss to the foregoing that to the twenty-first century eye there is clear reason why that concurrency of power which meets with approval in Worcester Corsetry, Integrated Medical and Link Agricultural is not just possible but desirable. As many of the all-too-many corporate scandals of recent years have shown, a board unchecked can pose a danger both to its shareholders and to society in general. So much so that nowadays it would perhaps take much to persuade a court, in cases where there is any ambiguity within articles and/or between articles and a shareholder agreement, that shareholders intended through their arrangements to avoid the useful check on excess that ought generally to ensue when the board and the body of a company each enjoy a concurrent power of appointing directors.
iv. Application of principle to the present case
44. Where does the foregoing leave matters as regards the contention made by the Defendants in the within proceedings that the power of nominating and appointing directors rests solely with Blarney’s board of directors? The court finds nowhere in the documentation before it that “clear language or unmistakeable implication” identified by Bryson J. in Integrated Medical as a prerequisite for finding that a general meeting has been excluded from the rôle of appointing additional directors. So, for example, it appears telling to the court that Art.12(a) of the articles of Blarney, as quoted above, expressly refers to the re-election of directors. If the intention of the articles had been to remove the power of the general meeting to elect directors, it would make no sense for Art.12(a) to make any provision dealing with re-election of directors. The reference to the re-election of directors in Art.12(a) seems to the court to be entirely consistent with Blarney qua company retaining powers as regards the appointment of directors.
45. Furthermore, the language used in Art.12(j) does not suggest that the power granted to the board of directors is exclusive. Had it been the intention to confer an exclusive power on the board to appoint additional directors, it would have been a very simple matter for the articles of association so to provide. It seems to the court that the articles in this regard fall well short of demonstrating that the intention underpinning them was that the inherent power of the general meeting to appoint directors should be removed from the general meeting and vested exclusively in the board.
46. In truth, the unrealistic nature of the proposition advanced on behalf of the Defendants, viz. thatonly the board can nominate and appoint persons to be directors, appears to the court to be exposed as entirely wrong when one has regard to Art.12(k) and (l) of Blarney’s articles of association. Article 12(k) sets out a number of situations in which the office of director shall be vacated, the last of these being where s/he “is removed from office by a resolution duly passed pursuant to Section 182 of the Act or under the provisions of the next succeeding Article hereof.” The “next succeeding Article” is Art.12(l) which states, that:
“In addition to and without prejudice to the provisions of the Act, the Company may by ordinary resolution remove any Director before the expiration of his period of office notwithstanding anything in these regulations or in any agreement between the Company and such Director may have for damages for breach of any contract of service between him and the Company. The Company may, by ordinary resolution, appoint another person in place of any Director so removed from office.”
47. It seems to the court that the combined effect of Art.12(k) and (l) yields a situation in which it is apparent that any power of appointment vested in the directors under Art.12(j) is necessarily eclipsed by the power of Blarney under Art.12(l) to remove some or all of the directors of Blarney and to appoint other directors in their stead; the contention that only the board can nominate and appoint persons as directors must therefore be wrong.