Oppression Process
Cases
Dowling & ors v Cook & ors
[2013] IESC 25
“It appears to the Court, as it appears in relation to the domestic law issues, that the jurisdiction which the Court enjoys under s.205 is broad enough to allow the Court to put in place any appropriate remedy that may be necessary to provide a remedy for any breach of European Law which may be made out. Thus, there does not appear to be any remedy which might be given at this stage that could not also be given after the trial so that the only issue that arises is one of a delayed rather than a refused remedy. “
Donegal Investment Group Plc
[2015] IEHC 439
McGovern J.
“3. This final module arises in order to determine the appropriate remedy to be granted to the petitioner under s. 205 of the Act, having regard to the fact that the respondents have admitted to unspecified acts of oppression, although they have conceded as a sample act of oppression, the purchase by the company of a mushroom business in Canada without the matter having been brought to the board for approval. The unspecified admission of acts of oppression was given for the purpose of granting the court jurisdiction to deal with the matter under s. 205. Under that section, the court is given a wide discretion as to what it may do with a view to bringing to an end the oppression complained of.
4. For the purposes of this case there are three possible remedies which the court can grant:-
(i) an order directing the realisation of the company in accordance with clause 10 of the Share Exchange and Shareholders Agreement (SESA) of 1st June, 2004;
(ii) an order directing the respondents to purchase the petitioner’s shares in the company; and
(iii) an order directing the petitioner to purchase the respondents’ shares in the company.
5. If the court were to order the petitioner to purchase the respondents’ shares, it would amount to an order directing a minority to purchase the shares of the majority. The petitioner has informed the court that it is willing and able to do so and invites the court to make such an order. It is clear on the authorities which have been opened to the court that such a remedy would be exceptional. In Re A. Company (No. 006834 of 1988) ex parte Kramer [1989] B.C.L.C. 365, Hoffman J. (as he then was) stated:-
“I think it must be very unusual for the court to order a majority shareholder actively concerned in the management of the company to sell his shares to a minority shareholder when he is willing and able to buy out the minority shareholder at a fair price. I am not going to exercise my imagination to suggest circumstances in which this might happen, but I am quite sure this is not such a case. Mr. Kramer founded the company and has at all times been the person principally concerned in its management. Mr. Kay’s contribution to the company’s growth measured in both time and degree of responsibility has been relatively small. I think it inconceivable that a court would order Mr. Kramer to be compulsorily expropriated.”
6. The circumstances outlined by Hoffman J. in that extract closely mirror the circumstances of this case. The evidence in this case establishes that Mr. Ronnie Wilson was the driving force behind the company (and its predecessor) and that he and other members of his family have been actively engaged in the day to day management of the company. While the petitioner has a substantial shareholding in the company and has members on the board, the evidence shows that the representatives of the petitioner adopted a fairly passive role in the day to day running of the business and were content that Mr. Ronnie Wilson would manage and largely control the business since they were satisfied as to his competence and expertise notwithstanding their various complaints giving rise to this petition. There is no evidence of dishonesty or fraud, divesting of assets, illegal use of company funds or other serious misbehaviour by Mr. Ronnie Wilson or other members of his family, or the respondents in this petition which would entitle the court to treat this as such an unusual case that the petitioner should be directed to buy out the respondents in circumstances where they do not wish to dispose of their interest.
Charles Kelly Ltd -v- Companies Acts
[2011] IEHC 349
Laffoy J. wrote
“Counsel for PLC submitted that the transfer of the shares was an inadequate remedy and that the companies should be entitled to compensation for the losses they had suffered. He argued that compensation had been awarded in other cases brought under s. 205 and cited as authorities the decisions of Keane J. In re Greenore Trading Co. Ltd. [1980] I.L.R.M. 94 and of the House of Lords in Scottish Co-Operative Wholesale Society v. Meyer [1959] AC 324.
In In re Greenore Trading Co. Ltd. [1980] I.L.R.M. 94, Keane J. found that there had been oppression and directed the oppressor to purchase the shares of the party who had been oppressed. In fixing the price to be paid he added to the par value of the shares so much of a sum wrongfully applied by the oppressor as was proportionate to the equity of the oppressed shareholder. Keane J. said in his judgment at p. 102:”
“That, however, does not conclude the matter, since it is clear that in prescribing the basis on which the price is to be calculated, the court can, in effect, provide compensation for whatever injury has been inflicted by the oppressors. (See Scottish Co-Operative Wholesale Society v. Meyer [1959] A.C. 324).”
In the Scottish Co-Operative case the oppressor was also directed to purchase the shares of the oppressed shareholder. Lord Denning said in his judgment at p. 369:”
“One of the most useful orders mentioned in the section ” which will enable the court to do justice to the injured shareholders ” is to order the oppressor to buy their shares at a fair price: and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive. It can continue to operate. That is a matter for him. It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is in effect money compensation for the injury done to them: but I see no objection to this. The section gives a large discretion to the court and it is well exercised in making the oppressor make compensation to those who have suffered at his hands.”
The provision in s. 210 of the English Companies Act, 1948, dealing with the purchase of shares, to which Lord Denning was referring, is exactly similar to the provision in our section 205. It provides that one of the reliefs which the court may give is an order “for the purchase of the shares of any members of the company by other members of the company.”
Irish Press plc v. Ingersoll Irish Publications Ltd.
[1995] 2 I.R. 190
Blayney J. in the Supreme Court wrote
“While compensation was included in the relief given in each of these two cases, it was given in an extremely limited context ” where the oppressor had been directed to purchase the shares of the oppressed shareholder, and where the compensation resulted from the court’s determination of what would be a fair price for the shares in the particular circumstances. The element of compensation was incidental to the main relief which was the purchase of the shares. The cases are not authority for a general right to compensation for loss resulting from oppression, which is what is being contended for, and in my opinion this submission is not well-founded.
It was also submitted that the provisions of s. 205, sub-s. 3 were so wide that they would permit damages to be awarded. I am unable to agree. Firstly, an award of damages would not satisfy the condition that the order be made “with a view to bringing to an end the matter complained of”;secondly, an award of damages is a purely common law remedy for a tort, breach of statutory duty or breach of contract, and acts of oppression would not come within any of these categories; and finally, if the Oireachtas had intended to include the remedy of damages as one of the reliefs which could have been granted, there would have been no difficulty in doing so, and it is quite clear that this was not done.
I would adopt as a correct statement of the law the following passage from Gower’s Principles of Modern Company Law (4th edition) at p. 630:”
“In talking about the duties of shareholders, whether they be to refrain from fraud on the minority or to refrain from oppression, the duties differ markedly from those of directors and officers ” and not only because they fall short of those of a fiduciary. The duties of directors, as such, are owed only to the company; those of members may be owed either to the company or to their fellow shareholders. The remedies for a breach of the members’ duties are much more restrictive. There is no duty in the sense of an obligation giving rise to damages or compensation in the event of breach; the duties can be enforced only by injunction, declaration, winding-up or a regulating order under section 210.”
…..For all these reasons I am satisfied that the appeal against the order directing payment of £6 million to IPN and IPP and £2.75 million to PLC must succeed and that this order must be set aside. In the circumstances it is not necessary to consider the other issue referred to earlier, namely, whether the learned trial judge was correct in finding that the losses sustained by the companies were due to the oppression.”
Kelly -v- Kelly & Anor
[2012] IEHC 330 (19 June 2012)
Judgment of Ms. Justice Laffoy delivered on 19th day of June, 2012.
1. Having on 9th February, 2011 found-
(a) that the first respondent had exercised his powers as a director of the company in a manner oppressive to the petitioner within the meaning of s. 205(1) of the Companies Act 1963 (the Act of 1963), and
(b) that there had been a total breakdown in the relationship of the petitioner and the first respondent, that they were deadlocked to the extent that they were incapable of running Charles Kelly Limited (the Company) properly together and that the situation was irretrievable,
in my judgment of 31st August, 2011 (2010 IEHC 349), I outlined the orders to be made to remedy the situation. These included:
(i) an order that the Company purchase the 3,968 shares of the first respondent in the Company at fair market value and that the share capital of the Company be reduced proportionately and the necessary consequential matters be addressed, for example, the alteration of the memorandum and articles of association of the Company; and
(ii) subject to Deloitte & Touche being willing to take on the appointment, an order that Deloitte & Touche be appointed to carry out a fair market valuation of the said 3,968 shares as at 31st August, 2011, the remuneration to be paid to Deloitte & Touche for performing the said task to be discharged by the Company; and
(iii) an order that there be set-off against the value of the shareholding of the first respondent in the Company so much of the sum of €180,000 taken by him from the Company to discharge legal fees as has not been reimbursed to the Company, which in the event is the sum of €165,000, so that the purchase price to be paid by the Company for the said shareholding of the first respondent will be the value so determined less the amount of the set-off; and
(iv) an order that the first respondent resign as a director of the Company forthwith, which has occurred.
2. Mr. David O’Flanagan, who is a Fellow of the Institute of the Chartered Accountants in Ireland and a Corporate Finance Partner in Deloitte & Touche, assumed the task of carrying out a fair market valuation of the first respondent’s beneficial shareholding as at 31st August, 2011. He has furnished his report dated 1st May, 2012 to the Court. Mr. O’Flanagan, before finalising his report, had sent it in draft form to the petitioner and the first respondent on 24th April, 2012 for their observations on its factual content and both the petitioner and the first respondent responded to him with their observations. Those observations have been made available to the Court.
3. The Court has had the benefit of written submissions on behalf of the petitioner and written submissions on behalf of the first respondent and heard oral submissions on 22nd May, 2012. In reaching the conclusions hereinafter set out, I have taken account of all of the submissions made by the parties.
4. The following general observations in relation to the overall approach adopted by Mr. O’Flanagan in his report are appropriate:
(a) I consider that Mr. O’Flanagan was correct in not applying a minority discount to the shares beneficially owned by the first respondent. The reality is that the petitioner and the first respondent have had an equal beneficial shareholding in the Company equivalent to 49.99% each of the issued share capital of the Company for approximately twenty years. Further, in effect, as Mr. O’Flanagan pointed out, the business of the Company was operated as a quasi-partnership. I have recently had occasion to consider the law in this jurisdiction in Skytours Ltd. [2011] IEHC 517, in which judgment was delivered on 29th July, 2011, as to when the value of a minority shareholding should be discounted in the context of an application under s. 205 of the Act of 1963. I am satisfied that, on the basis of the principles outlined in that judgment, as a matter of law, for present purposes the value of the shareholding of the first respondent should not be discounted on the basis that it is a minority shareholding.
(b) I consider that Mr. O’Flanagan’s approach to the valuation of the shares of the first respondent was the appropriate approach. In particular, having regard to the data available in relation to the business of the Company over the five years prior to the valuation date, that is to say, 31st August, 2008, Mr. O’Flanagan was obviously correct in concluding, as he has done in his report at para. 4.5, that there are limitations in valuing the Company using a methodology based solely on current or future earnings. The Company has been loss making since 2006 and, as Mr. O’Flanagan has pointed out, due to the continued uncertainty facing the construction sector, it is difficult to estimate when a return to profitability might occur. Therefore, I consider that adopting an asset approach to valuing the Company, in order to assess what the purchaser of the shareholding in the Company might pay by reference to the value of the assets on a going concern basis, is the most reliable approach to valuing the Company, as a preliminary to valuing the shareholding of the first respondent in it. In my view, the approach adopted by Mr. O’Flanagan is the approach which produces a fair and just outcome as between the first respondent, on the one hand, and the petitioner, on the other hand.
5. Turning to the specifics of the valuation, the crucial table in Mr. O’Flanagan’s report is Table 6.1 (on page 28), which contains a Summary Balance Sheet as at 31st October, 2011, to which, some adjustments have been made to adjust the value of fixed assets to market value and to roll back to the date fixed by the Court for the valuation, that is to say, 31st August, 2011. In addition, Mr. O’Flanagan has tabulated contingent assets and contingent liabilities in Table 6.3 (at page 38) and has addressed those issues in paragraphs 6.32 to 6.41 (at pages 35 to 38) of the report.
6. The area of contention between the first respondent and the petitioner which has the greatest impact on the outcome of the exercise of valuing the shareholding of the first respondent relates to the valuation of the various properties owned by the Company.
7. As I recorded in my judgment of 31st August, 2011, there had been put before the Court prior to the delivery of that judgment a comprehensive report of 14th March, 2011 prepared by Trevor Porter of Property Partners Paul Reynolds & Co. Ltd., Auctioneers, Estate Agents and Valuers (Property Partners), a firm carrying on business in Letterkenny, which put an aggregate value of €4,314,000 on the twelve properties owned by the Company. I am somewhat perturbed by the fact that the petitioner, in his observations stated 27th April, 2012 on Mr. O’Flanagan’s draft valuation report, stated that Property Partners had kept the March 2011 valuation on the “high-side” at the time, given that they would be used in a viability review of the Company. That valuation was put before the Court on the basis that it represented the true market value of the properties.
8. In any event, a further report was obtained from Property Partners valuing the twelve properties as at 31st August, 2011 and the total value put on the twelve properties was €3,958,000. Mr. O’Flanagan retained CBRE to carry out “desktop” valuations of the twelve properties as of 31st August, 2011. The report of CBRE is appended to Mr. O’Flanagan’s report as Appendix 3. CBRE put a value of €2,213,000 on the twelve properties, which is €1,745,000 less than the valuation of Property Partners on the same day. In the written submissions on behalf of the first respondent, it is stated that there has been a recent valuation of the twelve properties by GVA Donal O’Buachalla, which was commissioned on behalf of the first respondent by his current solicitors, Purdy FitzGerald, and that that valuation valued the twelve properties, excluding the effect on valuation of special purchasers, as between €3,525,000 and €3,600,000. That valuation was proffered to the Court. However, it was submitted on behalf of the petitioner that the Court should not have regard to it. The property valuations set out in Table 6.2 of Mr. O’Flanagan’s report (at page 29) differentiate between properties which are core to the business of the Company and properties which are non-core to the business. Of the difference of €1,745,000 between the CBRE valuation and the Property Partners valuation as at 31st August, 2011, €902,000 is attributable to the two properties in Letterkenny and one property in Ramelton which are core to the business of the Company.
9. Another area of contention is the treatment of contingent assets and contingent liabilities. The only contingent asset is the amount payable to the Company by Donegal County Council on foot of a compulsory purchase order made in relation to land near Letterkenny as long ago as 1999. The amount ascribed by Mr. O’Flanagan in respect of the compensation is the figure €232,500 put on the property by a chartered valuation surveyor in a letter dated 10th December, 2010. The first respondent contended that the compensation will be higher and that, in addition, interest will be payable to the Company, which proposition, I assume, is based on Donegal County Council having taken possession of the property. It may be that the compensation which will eventually be forthcoming will exceed €232,500. As regards contingent liabilities, these are based primarily on potential claims which the Company may have to deal with in the future in relation to –
(a) the termination of the employment of former employees on reaching normal retirement age,
(b) redundancy costs in respect of employees made redundant in April, 2012,
(c) the cessation in October 2011 of salary payments to one employee who had been on sick leave since April 2010, and
(d) the making of the first respondent redundant.
Mr. O’Flanagan has estimated the liability which may arise from these claims as somewhere between €146,000 and €346,000.
10. The Summary Balance Sheet, prior to adjustment, is based on the audited accounts of the Company for the twenty two month period to 31st October, 2011, which were eventually produced. The adjustment made by Mr. O’Flanagan to roll back the balance sheet to 31st August, 2011, the date of valuation stipulated by the Court, is €120,000, that is to say, €60,000 in respect of October 2011 and €60,000 in respect of September 2011. I am satisfied to rely on Mr. O’Flanagan’s expertise in assessing the appropriate figure for roll back, although I note that paras. 6.42 to 6.43 referred to Table 6.1 are not in his final report.
11. The “bottom line” of the adjusted balance sheet in Table 6.1 shows net assets of the Company at €613,226 as at 31st August, 2010. The make up of that figure includes:
(a) the CBRE valuation of the twelve properties which replaces the book value in the accounts as at 31st October, 2011;
(b) the sum of €165,000 which the Court ordered the first respondent to repay to the Company, which appears as a debt due to the Company; and
(c) the sum of €120,000 representing the roll back to 31st August, 2011.
12. The valuation put by Mr. O’Flanagan on the beneficial shareholding of the first respondent as at 31st August, 2011 is €250,000, which after the set-off of €165,000, would leave a balance of€85,000 payable by the Company to the first respondent. The figure of €250,000 is based on the net asset value of the Company being €500,000 as at 31st August, 2011. That represents a reduction of approximately €113,000 from the net assets after roll back as shown in the Summary Balance Sheet (€613,266). Mr. O’Flanagan has explained this reduction on the basis that he has allowed some reduction in his valuation for a level of compensation for future losses. Mr. O’Flanagan had the benefit of the management budget for the Company for the year ended 30th December, 2012. In considering the question whether a buyer would need some compensation for likely future losses incurred until the Company should return to break even point, he stated that he considered that any buyer of the shares of the first respondent would only become involved if the losses could be stemmed more quickly than shown in the 2012 budget, in all probability through a combination of revenue generation and cost reduction measures. I consider that it is appropriate for the Court to defer to Mr. O’Flanagan’s expertise on this point.
13. That leaves the matter of contingent assets and contingent liabilities. As I have already indicated, the first respondent contends that the figure (€232,500) ascribed to contingent assets is too low, whereas it was submitted on behalf of the petitioner that the Company’s contingent liabilities in respect of the matters to which I have referred earlier will, in reality, be much higher than Mr. O’Flanagan’s assessment. While the true position in relation to the contingent asset (the CPO compensation) is easily ascertainable, the estimation of the contingent liabilities is much more difficult. The approach adopted by Mr. O’Flanagan was based on the proposition that a purchaser of the share capital of the Company would place some weight on the potential contingent assets and contingent liabilities and that he would assess, as best he could, the probabilities of different contingent gains and losses arising and in all likelihood he would assign different probabilities to each. Mr. O’Flanagan then stated:
“In my judgment, having considered the different nature and quantum of the contingent assets and liabilities in this case, I believe a buyer might reasonably offset the contingent gain against the contingent liabilities. As such I make no adjustment for these matters in arriving at my valuation opinion.”
Given the imponderable nature of the contingent liabilities, that pragmatic approach seems to me not to be unreasonable. Further, I am of the view that it is the approach which it is most probable will give rise to a fair and just outcome in valuing the beneficial shareholding of the first respondent in the Company.
14. However, there is a further major imponderable in this matter, which is more likely to impact on the ultimate fairness of the outcome of this matter, that is to say, the property valuation and, in particular, whether the difference between the CBRE “desktop” valuation, which Mr. O’Flanagan properly had regard to, on the one hand, and the Property Partners valuation, on the other hand, is justifiable. For instance, there are four non-core properties situate in Ramelton (Nos. 8, 10, 11 and 12 in Table 6.2 at page 29 of the report) which are valued at €640,000 by Property Partners at 31st August, 2011, whereas they are valued by CBRE on a “desktop” basis at €339,000. I have come to the conclusion that justice and fairness as between the petitioner and the first respondent would be best achieved if those four properties were transferred by the Company in specie to the first respondent as consideration for the shares of which he is beneficial owner, subject, however, to the first respondent remitting the sum of €165,000 to the Company.
15. That means that, while I am wholly in agreement with the approach adopted by Mr. O’Flanagan in his thorough and comprehensive report, to take account of the imponderable in relation to the property values, I am valuing the beneficial shareholding of the first respondent at €339,000 as at 31st August, 2011 on the basis that giving the first respondent such value is effected by transferring those properties to him in specie.
Dowling & ors v Cook & ors
[2013] IESC 25 (16 May 2013)
JUDGMENT of Mr. Justice Hardiman delivered the
16th day of May, 2013.
This is the appeal of the petitioners against the judgment and order of the High Court (Mr. Justice Gilligan) delivered the 27th March, 2013 whereby he refused the petitioners the relief which they sought. The relief sought was as follows, according to the High Court Order:
(1) An order by way of an interlocutory prohibitary injunction restraining the respondents or any of them whether by themselves or by their servants or agents or plenipotentiaries from undertaking any action to terminate Piotr Skoczylas Directorship at Permanent TSB Group Holdings PLC until the adjudication upon the within the proceedings and in particular the adjudication upon reliefs 11 and 12 sought in the Petition dated the 25th day of January 2013 has been concluded.
(2) Further and without prejudice to the foregoing an order pursuant to Article 267 of the Treaty on the Functioning of the European Union that the questions raised in the Schedule hereof be referred to the European Court of Justice for preliminary ruling pursuant to Article 267 of the Treaty on the Functioning of the European Union, if the Honourable Court is uncertain regarding the interpretation of the respective provisions of European Union Law and if the Court considers that the relevant matters raised by the petitioners to enable the Court to give judgment.
For the purpose of this appeal hearing, it was conceded that the appellants had shown a serious issue to be tried, and therefore met the first of the Campus Oil tests.
On the hearing of this appeal, the real focus was on the third test, relating to the Balance of Convenience in granting or withholding interlocutory relief. It became clear that the petitioners’ claim was urgent because the Annual General Meeting of the Company is due to take place on the 22nd May and the petitioners apprehend that Mr. Skoczylas, the fifth-named petitioner, will be voted off the Board on that occasion. This seems likely, though the Respondents suggest that it is an open question.
Having regard to this time constraint the Court has decided to give a short judgment confined to the interlocutory aspects of the case.
Background.
The background facts in this case are clear enough, although not uncontroversial. Mr. Skoczylas was elected to the Board of the Company on the 4th April, 2012. The other Director defendants who were already members of the Board were reappointed in that capacity on the 22nd May, 2012. The Company is the Holding Company for the entity conducting business of ILP Bank, a notoriously troubled Corporation. Mr. Skoczylas makes various claims in relation to what he said was a determined campaign by the other Directors and those to whom they are responsible to ensure that he was in no real sense allowed to discharge the functions of a director of the Holding Company. Moreover, he claims that he was not appointed a director of the Bank, whereas all the Directors of the Holding Company were so appointed and that he was therefore excluded from the induction process made available to such Directors. He says it was clearly envisaged by the Scheme of Arrangement which led to the adoption of the present corporate structure of the Holding Company and the Bank that Directors of the Holding Company would be made Directors of the Bank. The respondents, on the other hand, say that that situation was only envisaged “for a single moment in time”, the moment immediately after the Bank’s new structure came into being.
Mr. Skoczylas, who was supported in this regard by the other petitioners, says he was given no proper information, attended only three full meetings of the Board, and was excluded, physically on occasion, from the relevant premises. He claims, in general, that his election as Director was resented by those in charge of the Company who did their best to undermine his position. These and sundry other complaints are the subject of the petition pursuant to s.205 of the Companies Act which he and the other petitioners have brought and which awaits hearing in the High Court.
Article 87 of the Companies Memorandum and Articles is in the common form. It provides for the retirement of Directors at each Annual General Meeting starting with the Director who is longest serving from his most recent appointment. The High Court judge held that Mr. Skoczylas:
“… is strictly the longest serving director and therefore, in accordance with the Articles, must retire.”
Other Directors retired as well and put themselves forward for re-election. The Company first decided, at a Board meeting on the 27th March (the day of the High Court judgment) that the Board would support the re-election of all retiring Directors. On the next day it changed its mind and declined to support the re-elections of Mr. Skoczylas.
The respondents claim that Mr. Skoczylas’s action in putting himself forward for election has made the present proceedings moot. The Court cannot endorse this approach and indeed it smacks of a “Catch 22”. Once the Company had been successful in the High Court Mr. Skoczylas had to either put himself forward for re-election or acquiesce in his departure from the Board. His action in going forward for re-election was one forced upon him and the correspondence makes it quite clear that he did not acknowledge that he was, in point of law, obliged to retire.
It is, however, quite clear, to say the least of it, that there is a strong case to be made from the point of view that Mr. Skoczylas was obliged to retire as a Director, and this case indeed found favour with the learned High Court judge and is expounded in his judgment.
Mr. Skoczylas is manifestly entitled to appeal from this judgment and the question is whether interlocutory relief should be accorded him pending the appeal.
In support of this application for interlocutory relief the plaintiff relies very largely on two cases, McGilligan v. O’Grady & Ors. [1999] 1 IR 346 and Avoca Capital Holdings and The Companies Act [2005] IHEC 302.
It will be noted that Mr. Skoczylas conducted his case personally and did so with conspicuous ability, advancing an elaborate scholarly argument in favour of the positions he put forward. Indeed, he received the unique compliment of having his argument gratefully adopted by counsel for some of the other petitioners who advanced no additional argument.
Mr. Skoczylas submitted that the essence of the O’Grady case was epitomised in the final paragraph of the short concurring judgment of Mr. Justice Barron in that case. Mr. Justice Barron said:
“The essence of the instant case is that no absolute reliance can be placed upon a statutory right given to the general meeting of a company when the exercise of that right is alleged to be wrongful; in this case a breach of the provisions of s.205 of the Companies Act, 1963. In all such cases the determination of the issue as to the granting of interlocutory relief must be dependent upon the general rules applicable. Here they favour the granting of the relief allowed.”
He also relied, in particular, on the dictum of Keane C.J. at p.361:
“It is important to bear in mind the object of s.205 of the Companies Act 1963. Until its enactment, a majority of the shareholders in the Company could, perfectly lawfully, use their powers in a manner which was harsh and unfair to the minority and had no regard to their interests. Unless the aggrieved shareholders could point to some illegality, whether flowing from a breach of the Company’s constitution or the general statutory or common law applicable to Companies, the law could afford them no relief.
Section 205 was enacted primarily in order to remedy that defect in Company Law. Consequently, the fact that, in such a case as the present, the shareholders are perfectly entitled as a matter of law – s.205 apart – to remove a director even where that is in breach of a contract between him and them is not a material fact in considering whether that action, either taken in isolation or as part of a general course of conduct intended to exclude a particular body of shareholders from participation in the Company, is a ground for relief under the Section.”
The respondents did not dispute the authority of the case just cited. However they distinguished it on a number of grounds. They pointed out that what was restrained in the McGilligan case was progressing a motion brought under s.182 of the Companies Act for the removal of a director “before the expiration of his period of office”. Such a person was, absent such a motion, prima facie entitled to be and to function as a director. In the present case, having regard to the findings of the High Court, the interlocutory issues must be approached on the basis that Mr. Skoczylas is a person whose term of office as Director is about to expire so that he is not prima facie entitled to be or function as a director, but only subject to re-election.
I am by no means sure that that distinction be sufficient to allow one to distinguish McGilligan from the present case in point of law. The fact is that the actions sought to be restrained in both cases are prima facie lawful actions, that is to say, the passage of a motion under s.182 and the act of voting against Mr. Sckoczylas’s re-election as a director in the present case. What McGilligan establishes is that even a lawful action may be restrained due to the effect in law of s.205.
In the McGilligan case, however, the plaintiff had been elected a director of the Company by reason of an agreement between the parties interested in the Company, which was a Business Expansion Scheme funded Company. The plaintiff was to be appointed a director in order to represent the interests of investors. Persons interested in the Company had, accordingly, contracted to have and to maintain on the relevant Board or Boards a representative of a particular interest and this arrangement was being undermined by the s.182 motion. Similarly, in the Avoca case, the Company “essentially operated as a partnership between the members” and the conduct of the members was governed by a shareholders’ agreement. It thus appears that in each of these cases the relevant petitioner had what one might call an external title, deriving from the agreements between those interested in the Company, apart from the standing in Company Law.
This feature is absent from the present case.
The Court is further of the view that the relief sought, essentially preventing the major shareholder from voting his shares at the pending AGM is relief of a very radical kind and may, indeed, be essentially mandatory in its effect. The Court does not need to resolve that question because we are satisfied that, on the basis of the distinction set out above between the present case and the authorities relied upon, it is not appropriate to grant relief.
Mr. Skoczylas also claims that his treatment amounts to a breach of directly effective European Law, set out in some detail in the summary of his argument which he handed in on the morning of the hearing. In this connection it important to note the learned trial judge’s finding that there are indeed issues to be tried as to whether there is a breach of directly effective European Law. The Court must also acknowledge that, as a matter of European Law, a National rule cannot be used to deprive a party of interim relief where to do so would be to deprive that party of an effective remedy in respect of the relevant European Law issues.
It appears to the Court, as it appears in relation to the domestic law issues, that the jurisdiction which the Court enjoys under s.205 is broad enough to allow the Court to put in place any appropriate remedy that may be necessary to provide a remedy for any breach of European Law which may be made out. Thus, there does not appear to be any remedy which might be given at this stage that could not also be given after the trial so that the only issue that arises is one of a delayed rather than a refused remedy.
It is also worth pointing out that the Court was informed that the ordinary shareholders in the Company have until Monday next to grant proxies in respect of their votes to the Chairman of the Company. It is a significant consideration that, if relief were granted in the form which the petitioners seek against the Chairman of the Company, it would or might amount to an order which would have the effect of disenfranchising such shareholders who, quite voluntarily, would have given their proxy to him on the basis that he could exercise it as he wishes. Thus, though the form of order would be against the Chairman and Directors, the effect of it would be felt by such Directors as would give the Chairman their proxies: it is not possible to say how many such shareholders there are but it would seem very probable that there will be some such.
I may also say that I am not satisfied that the granting of relief is appropriate having regard to the balance of convenience. It is a grave matter for a company to have on its Board a person whom the Directors do not desire to have there and who may (or of course may not) be acting in a manner antagonistic to the interest of the Company. The Court is left to strike a balance between the respective convenience of having a person on the Board who may not be entitled to be there for a significant period of time, and, on the other hand, the exclusion of a person entitled to be on the Board if, as appears likely, (despite the protestations of counsel for the respondents and the Minister), he is not re-elected to the Board. In those circumstances, however, the Court believes that its powers under a s.205 application, if the petitioners are successful, are very wide and will enable it to take every possible step to compensate the petitioners for the wrong which will have been done to them if they are successful with their petition.
The Court will end with a reflection of what it said at the start. The petitioners have plainly shown a very serious issue to be tried being the issues raised in the s.205 Petition and it is manifestly necessary in the interest of the Company that its conduct during the probable period of exclusion of Mr. Skoczylas following the refusal of relief reflects the possibility that he will be successful in these proceedings.
The Court will refuse the application for interlocutory relief.
Elst Ltd & Cos Acts: Donegal Investment Group Plc -v- Danbywiske & ors
[2014] IEHC 615 (05 December 2014)
JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 5th day of December 2014
1. The petitioner is a minority shareholder in ELST (“the Company”) and claims various forms of relief under the Companies Acts arising out of alleged oppression of it by the majority shareholders including an order that the first, second, third and fourth named respondents purchase the petitioner’s shares at their true value and without any discount to reflect the minority interest and valued on the basis that the alleged acts of oppression had not occurred. By order made on 11th April 2014, the Court directed the trial of a discrete issue to determine the price at which the respondents might purchase the petitioner’s shares and it is on that matter that this judgment is handed down.
2. For the purpose of the discrete issue, the first, second, third and fourth named respondents (hereinafter referred to as “the Wilson shareholders”) admitted a non-specified ground of oppression so as to give the Court jurisdiction to make an order that the Wilson shareholders purchase the petitioner’s shares at a valuation to be determined by the Court.
3. The petitioner is a plc. registered in the State and is a minority shareholder in the fifth named respondent (“the Company”). There is a dispute as to whether it holds 30% or 35% of the issued shares and that is a matter to be decided at a later date. However, it is agreed for the purpose of determining this issue, the Court may proceed on the basis of the petitioner holding a 35% shareholding and any necessary adjustment can be made in due course, depending on the outcome of any further hearings. In the course of this judgment the fourth and fifth named respondents may, from time to time, be referred to as “Monaghan” as witnesses used that term interchangeably with “the Company” in evidence.
4. The first named respondent (“Danbywiske”) is an unlimited company owned and controlled by Mr. Ronald Wilson and the remaining Wilson shareholders are either owned by or associated with Ronald Wilson and/or Danbywiske.
5. Prior to 2004, the petitioner and Connacht Gold were the sole shareholders in a company called Carbury Mushrooms. The Wilson shareholders owned the majority of shares in Monaghan Middlebrook Mushrooms Ltd. (“MMM”) a competitor of Carbury. In 2004, it was agreed that the two companies would merge and that the Carbury shareholders would be entitled to 40% and Danbywiske to 60% of the merged business. A Share Exchange and Shareholder’s Agreement (“SESA”) was entered into on 1st June 2004, which affected both the allotment of shares in MMM and set out a Shareholder’s Agreement with regard to the future governance and management of MMM. In 2010, as part of a group reorganisation, the Company was incorporated, effectively in place of MMM, as the top level corporate vehicle of the merged business with shares being issued and allotted in the Company in accordance with the party’s previous shareholding in MMM.
6. Clause 10 of the SESA provides:
“The Company and each of the Shareholders and the Management Team hereby covenant with and undertake to each of the Major Shareholders to use their reasonable endeavours to promote, enhance and improve the business of the Group with a view to obtaining a realisation within six years following Completion, including without limitation, the bona fide consideration of any proposal to appoint a corporate finance adviser to procure a purchaser for the entire share capital of the Company.”
The petitioner claims that this should inform any decision as to how its shares are to be valued.
7. A number of issues arise in valuing the shares. The principal area of disagreement between the valuers is whether a minority discount should be applied to the shares. There are also variations in the methods used to value the shares by the three experts who gave evidence before the Court. Those experts were Mr. Tom Lindsay of Spayne Lindsay for the petitioner and Mr. David Tynan of PricewaterhouseCoopers (“PwC”) and David O’Flanagan of Deloitte & Touche (“Deloitte”) on behalf of the respondents.
8. These experts approached the valuation of the Company in two ways, namely:
(a) Group valuation (Spayne Lindsay and PwC) and
(b) Sum of the Parts (Deloitte).
9. The methodologies adopted by the experts in approaching the valuation of the Company can be summarised as:
(a) Market Approach (Spayne Lindsay);
(b) Hybrid Approach – 60% Market Approach, 40% Discounted Cash Flow (“DCF”) (PwC) and
(c) Hybrid Approach – 50% Market Approach, 50% DCF (Deloitte).
10. As between the experts, there was general consensus that Mr. Lindsay had the most particular expertise in mergers and acquisitions relating to businesses in the food sector. However, both Mr. Tynan and Mr. O’Flanagan were partners in their respective offices with extensive valuation experience which cannot be lightly overlooked.
11. In considering the correct approach to valuation of the petitioner’s shareholding, there are a number of legal issues which arise. The first is whether or not, as a matter of law, a minority discount should be applied to the value of the petitioner’s shareholding in the Company. The second issue is whether the use of the DCF as a method of valuation is an appropriate method. A third legal issue arises from the shareholders agreement between Monaghan and its minority partner, Walkro, and the fourth concerns the issue of marketability discount and whether, as a matter of law, it is appropriate to apply such a discount to the value of the petitioner’s shares.
12. The valuation put on petitioner’s shares by Spayne Lindsay is dramatically different from the value postulated by PwC and Deloitte. Mr. Tom Lindsay values the petitioner’s shares on the basis of a 35% interest in the Company with no minority interest applied at €63.5m. The PwC valuation, based on a 30% interest in Monaghan and a 17% discount for minority interest is €18.8m which should be rounded up to €26.4m based on a 35% shareholding with no minority discount. The Deloitte figure, based on a 30% shareholding and applying a 35% minority discount is €14.5m to be rounded up to €26m in respect of a 35% shareholding with no minority discount. In summary, therefore, by applying the same criteria, the Spayne Lindsay valuation is €63.5m, the PwC valuation is €26.4m and the Deloitte valuation is €26m.
13. From the evidence given to the Court and the expert reports furnished by the valuers, it is possible to establish the following matters as relevant:
(a) The comparables chosen and the selection of the appropriate multiple;
(b) Capital expenditure;
(c) Net debt and debt-like items;
(d) EBITDA adjustments and
(e) Acts of oppression affecting valuation.
14. On the issue of transaction comparables, Mr. Lindsay was criticised for not including Walkro as a comparable. Walkro was acquired by Monaghan and a private equity partner known as GIMV in January 2012 for a price of €82m. The multiple used to value Walkro for the purposes of that transaction was 4.75. The private equity partner has an option to exit and sell its interest in Walkro in 2017, and the price for its equity stake will be calculated by applying a multiple of 4.75 to Walkro’s then EBITDA. Mr. Lindsay ignored Walkro as a comparator because he said “. . . we tend not to include self-acquired businesses in our comparables”. He said the reason for this was because it influences the independent approach. However, the respondents argue that Walkro should have been included as a comparable and is significant for the following reasons:
(i) The purchase of Walkro was a relevant transaction completed recently in a relevant business;
(ii) Walkro was bought by Monaghan and formed approximately 50% of Monaghan’s profitability;
(iii) of all the comparable transactions considered by the valuers (or excluded in the case of Mr. Lindsay), the most relevant and comprehensive information is provided by the Walkro transaction.
15. The respondents argue that Mr. Lindsay’s multiple of 7.25 is called into question because he ignored Walkro as a comparable transaction. Applying a multiple of 4.75 to Walkro’s EBITDA in 2014 of €20.9m gives a value of approximately €99m to Walkro and that part of the Monaghan business. The respondents argue that applying Mr. Lindsay’s multiple of 7.25 to Walkro’s EBITDA of €20.9m would give rise to a value of approximately €152m equating to an 86% uplift in value in two years. Furthermore, the respondents argue that Walkro should not have been ignored because it produces compost, as does Monaghan and the majority of Monaghan’s profits are derived from compost production. The purchase was a recent transaction which took place after an extensive marketing campaign, and had Mr. Lindsay included Walkro in his comparable fruit and vegetable transactions, it would have reduced his average multiple to 5.9x and the median multiple to 6.1x.
16. Mr. Tynan admitted that Mr. Ronnie Wilson strongly suggested that Walkro should be included in comparables and that he only became aware of that transaction following his discussion with management. Mr. Tynan gave evidence that he was of the view that it was too narrow an example to use in its entirety, so it was included as half of two comparable transaction multiples and a 20% rating was applied to the overall valuation. Having considered the evidence on this point, I have come to the view that it is a valid transaction comparable, and that if it had been included it would have reduced Mr. Lindsay’s average multiple to 5.9x and the median multiple to 6.1x.
17. Having considered the evidence from the valuation experts, it seems to me that the Japanese mushroom producer, Hokuto, and also Adelaide Mushrooms, should have been considered by the respondents’ experts as comparables.
18. Mr. Ronnie Wilson had a dominant role in the running of the business. This is hardly surprising. From a former career as a teacher, he went into the mushroom business and has developed that business into one of the major players in the world of mushroom growing and mushroom compost manufacturing. He has shown extraordinary business acumen and has been the main driver behind the Company. It is hardly surprising that he has more than merely a financial stake in the business. He was clearly quite passionate about the business and his role and the role of his family in building the business and keeping it going. Naturally, this resulted in an emotional attachment to the business and a wish to see it kept in Wilson hands.
19. I am satisfied from the evidence that Mr. Ronnie Wilson did have strong views on the EBITDA multiples to be applied in comparable transaction and that he strongly suggested to Mr. Tynan that Walkro should be included in the comparables offered by him. Mr. O’Flanagan also acknowledged that he and his team would have discussed a range of comparables “. . . with the people in Monaghan to see what their view on comparability was”. He acknowledged that his view on comparables may have changed at different points as a result of those discussions. It seems clear that he took those views into account.
20. The evidence points to the fact that Mr. Tynan and Mr. O’Flanagan allowed their views to be informed to some extent by the Wilsons. This was not the case with Mr. Lindsay.
21. In paras. 8 and 9 above, I outlined the various approaches to valuation taken by the experts and the methodologies adopted by them. It is common case that there are at least two methods of valuation. The first is the market approach which requires a determination of a company’s EBITDA and the selection of a multiple which, when applied to the EBITDA, produces a value subject to some deductions. The multiplier selected by the valuer is based on an assessment of comparable transactions or multiples derived from the trading price of shares in the case of a public company. These are known as trading comparables. The second method of valuation is the DCF method which estimates the future income of a company in order to derive its value. In this case, all the valuers use the market approach and DCF in their valuation. Mr. Tynan used a blend of the market approach and the DCF approach. Mr. O’Flanagan used both methods separately and compared them to ensure that they corroborated each other. Although Mr. Lindsay was very critical of the approaches adopted by Mr. Tynan and Mr. O’Flanagan, he did use the DCF method in his own report and the respondents argue that respected commentators recommend the use of a DCF method in conjunction with a market approach. Mr. Tynan applied a marketability discount in reaching his valuation and Mr. O’Flanagan also recognised the validity of a marketability discount but off-set it against a control premium. For his part, Mr. Lindsay did not accept that a marketability discount should be applied to the sale of shares in a private company, notwithstanding the evidence contained in two publications put to him, both of which advocated the use of marketability discount when assessing the value of shares in a private company as opposed to a public company.
22. I am satisfied from the totality of the evidence given by the experts and from the numerous texts and commentaries produced in Court for their consideration, that there is no one particular way of valuing the petitioner’s shares in this case. It seems to me that there are a number of different approaches which can be taken, each of which, in their own way have merit. The disparity between Mr. Lindsay’s valuation at €63.5m, on the one hand and Mr. Tynan at €26.4m and Mr. O’Flanagan at €26m is so large as to be irreconcilable. In seeking to resolve this disparity, I must look to see if I can find any indicators which might tend to support one figure over the other. By that, I mean Mr. Lindsay’s figure, on the one hand or the figures of Mr. Tynan and Mr. O’Flanagan, on the other because they are broadly in the same range.
23. The respondents point to four fundamental points which they claim undermine the petitioner’s valuation. In the first place, both Mr. Tynan and Mr. O’Flanagan used different methods of valuation but reached their respective valuations of €26.4m and €26m wholly independently of each other and without consultation.
24. Secondly, Mr. Lindsay’s valuation of the petitioner’s 35% shareholding in the Company is greater than the market valuation for the entire issued share capital of the petitioner (being approximately €60.6m at the date of the hearing and €56m as of 3rd November 2014). In his evidence, Mr. Lindsay accepted that the market based approach to valuation which he adopted assumes that companies are correctly valued by the market.
25. Thirdly, quite apart from the disparity between Mr. Lindsay’s valuation, on the one hand and those of Mr. Tynan and Mr. O’Flanagan on the other hand, there is a similar disparity between Mr. Lindsay’s valuation and a number of published valuations from other independent analysts which were put to Mr. Lindsay in cross-examination. These included an Investec Report of February 2013; a Goodbody Report of 14th October 2013; Investec Process of 26th November 2013 and an Investec Report of June 2014. These show a consensus among a number of independent analysts as to the value of the petitioner’s 35% stake in the Company as being within the range of €26.8m and €37.5m. With the exception of the latter figure, all the others in the group are within €4m of the valuations of Mr. Tynan and Mr. O’Flanagan. They are all very far removed from the valuation of Mr. Lindsay. While these valuations are somewhat larger than those of Mr. Tynan and Mr. O’Flanagan, they are very far removed from the valuation of Mr. Lindsay.
26. Fourthly, in December 2014, and immediately prior to the commencement of these proceedings, the petitioner demanded that the respondents purchased their 35% stake in Monaghan for €34m.
27. While these facts do not corroborate the valuations of Mr. Tynan and Mr. O’Flanagan in a precise way, they do establish a consensus on a valuation of the petitioner’s stake in Monaghan at a figure which is significantly below that offered by Mr. Lindsay.
28. A number of legal issues arise for consideration in the valuation of the petitioner’s shares. The principal issue is whether or not a discount should be applied to the petitioner’s shareholding to reflect the fact that its holding is a minority interest. This petition is brought under s. 205 of the Companies Act 1963, and therefore the overriding objective for the Court is to determine a fair price in all the circumstances. See Re Clubman Shirts Ltd. [1991] ILRM 43, Re Bird Precision Bellows Ltd. [1986] Ch. 658, and Re London School of Electronics [1986] 1 Ch. 211.
29. In Re Skytours Travel Ltd.: Doyle v. Bergin [2011] 4 I.R. 651, Laffoy J. reviewed a number of decisions of the courts of England and Wales and said at p. 670:
“[35] I am persuaded by the decisions of the courts of the United Kingdom, to which I have referred above, that it is only in the case of a quasi-partnership company or where some other exceptional circumstance exists that a minority shareholding should be valued on a non-discounted basis where the court has directed that the petitioner’s minority shareholding should be purchased by the respondent shareholder or by the company pursuant to s. 205(3) of the Act of 1963.”
30. It is worth noting that the case of Skytours Travel Ltd. had two notable differences to the present case. In the first place, the petitioner was not part of a joint venture leading to his shareholding in the company. Secondly, there was no shareholder agreement in place to regulate the rights and obligations of the petitioner and respondent inter se.
31. Mr. Lindsay stated that the shareholder agreement was fundamental to his approach in valuing the shares. In making his valuation, he had regard to the SESA, and in particular, Article 10 which provides for rights of pre-emption and provided, inter alia, that if a shareholder wishes to sell his shares in the company, that he should first offer the same for transfer to the remaining shareholders, and if the transfer does not specify a price, that the deemed price shall be the “Market Value” as defined in Article 2. The parties expressly agreed, both in adopting the articles of Monaghan Mushrooms in 2004, and again on the restructuring in 2010, that on a disposal there was to be no minority discount applied. The petitioner argues that it would be extraordinary if it was placed in a worse position on an involuntary sale arising out of acts of oppression and would be the case if the sale was voluntary and the shareholding was valued in accordance with the pre-emption provision.
32. It is true that there is nothing in the nature of a personal relationship between Donegal and Monaghan and between the Donegal directors and Mr. Wilson or any of the Wilsons. It is also true that the petitioner has not had a significant role in the running of the business, although it has nominees on the Board of the Company, but while that is so, I am satisfied that the Company is the result of a merger between Carbury (as it then was) and Monaghan. Both companies were in difficulty and had similar interests. When they merged and ultimately became the Company, the business venture was very successful. The fact that the petitioner is a minority shareholder does not, in my view, alter the fact that it ultimately became a shareholder in the company as a result of a merger, and the company which arose out of that merger acquired a range of operations which were referred to in evidence, including Tunnel Tech North and South, Cambellville, Monaghan Champignons and Walkro.
33. I accept the submission of the petitioner that the relationship between the petitioner and the respondents was one involving a joint venture and a quasi-partnership. It is undoubtedly the case that for some time, the relationship between the Wilsons and the officers and senior executives of the petitioner has been poor. But that is almost always the case where a petition is brought under s. 205 of the Act. What is clear is that there was a shareholders agreement which did not envisage shares being bought out on the basis of a minority discount, and when the relevant businesses merged to form the Company, it was based on a relationship involving equality, mutuality, trust and confidence which are among the hallmarks of a quasi-partnership.
34. In any event, “exceptional circumstances”, as alluded to by Laffoy J. in the Skytours Travel case, exist in this case and can be found in the following:
(a) The non-application of discount in the Articles;
(b) the intention to realise the Company as reflected in clause 10 of SESA;
(c) the effect of SESA and the 2007 Heads of Agreement (“HOA”) on control of the Company, and
(d) the size of the shareholding and size and nature of the Company.
35. While it is true that clause 10 provided for a realisation to occur within six years of completion and that realisation is defined in the SESA as “an Asset Sale, a Share Sale or a Listing”, it seems to me that the shareholder agreement when looked at in its totality reflects a relationship involving equality, mutuality, trust and confidence. Therefore, as a matter of law, the shares should be valued without applying a minority discount.
36. The next legal issue concerns whether the use of Discounted Cash Flow (“DCF”) as a method of valuation is appropriate. In Taylor v. Cobham & Lifemarque [2009] EWHC 2650 (Ch). Newey Q.C. (sitting as a Deputy High Court Judge) at para. 34:-
“The discounted cash flow method focuses on future earnings: cash flow is for a number of years into the future, the resulting sums are capitalised by applying a discount rate and there is added a terminal value representing an estimate of the present value of the future cash flows beyond the explicit forecast period.”
37. He went to refer to a number of texts on the subject of the share valuation. The ‘International Private Equity and Venture Capital Valuation Guidelines’ state:-
“The Discounted Cash Flows (DCF) technique is flexible in the sense that it can be applied to any stream of cash flows (or earnings). In the context of private equity valuation, this flexibility enables the methodology to be applied in situations that other methodologies may be incapable of addressing. While this methodology may be applied to businesses going through a period of great change, such as a rescue refinancing, turnaround, strategic repositioning, loss making or is in its start-up phase, there is a significant risk in utilising this methodology.
The disadvantages of the DCF methodology centre around its requirement for detailed cash flow forecasts and the need to estimate the ‘terminal value’ and an appropriate risk-adjusted discount rate. All of these inputs require substantial subjective judgements to be made, and the derived present value amount is often sensitive to small changes in these inputs.”
38. The texts referred to in his judgment seem to suggest that a DCF valuation is likely to depend on subjectivity to a greater extent than other methods. At para. 37.2 he said:-
“I can also see the merit of using DCF methodology where ‘returns can be predicted with reasonable certainty’ (to use the words from Eastway’s Practical Share Valuation). Where, however, that is not the case, a DCF valuation would involve, as the International Private Equity and Venture Capital Valuation Guidelines, point out a ‘high level of subjectivity in selecting inputs’. It was doubted that the other valuation and techniques also involve matters of judgment or subjective elements, where a DCF valuation is likely to depend on subjectivity to a greater extent.”
39. The petitioner argues that the Company does not fit into the categories described in the Guidelines quoted above. In Doft & Co. v. Travelocity.com, Inc ([2004] Del. Ch. Lexis 75, [2004] WL 1152338 and [2004] WL 1366994, 20th May, 2004) where the experts of both parties made their valuation utilising the DCF analysis approach and a comparable company approach similar to that used by Mr. O’Flanagan, the court “. . . rejected the DCF because the most fundamental input used by the experts, the projections of future revenues, expenses and cash flows were not shown to be reasonably reliable”. In this case, Mr. Lindsay used the market approach to valuation whereas Mr. Tynan and Mr. O’Flanagan used market approach and Discounted Cash Flow. Mr. Tynan and Mr. O’Flanagan acknowledged that the DCF approach is sensitive to small changes in assumptions. Insofar as it has been used as the fundamental, or a primary methodology for valuation of the company, it is unsafe and should only be used as a cross check to support the market approach.
40. For the DCF to work, the terminal value of capital expenditure (“CAPEX”) is critical. Mr. Lindsay expressed the clear view, based on his considerable experience, that in the Mergers and Acquisition world (M&A), it is the multiple of EBITDA which is the most common approach taken by valuers. They look at comparable companies. I accept his evidence that, in looking at terminal value, it was possible to get a good forecast for the following year, but thereafter, assumptions would have to be made so far as the Company is concerned. The commercial business plan which he saw had been prepared by Monaghan, and essentially by the Wilsons. In his view, it was a conservative plan but it was important because it involves looking into the future and is highly significant if one adopts a DCF approach of valuation. So far as the use of Weighted Average Cost of Capital (“WACC”) was concerned, he said this involved estimating the cost of capital for the Company based on a combination of the cost of its debt and the cost of equity, and even a modest change in WACC would have a significant change for the enterprise value.
41. Mr. Lindsay expressed the firm view that the Wilsons had presented a conservative business plan which, to some extent, informed the views of Mr. Tynan and Mr. O’Flanagan. Having considered the evidence of the valuers, I have come to the conclusion that there was an over-reliance on DCF by Mr. Tynan and Mr. O’Flanagan. I prefer the evidence of Mr. Lindsay as to the appropriateness of the market approach in a case such as this.
42. This brings me to the issue of marketability discount.
43. Mr. Lindsay did not apply a marketability discount. Mr. Tynan applied a marketability discount of 20% to his valuation and Mr. O’Flanagan applied a marketability discount as a factor of his trading multiple calculations. The petitioner argues that the issue of marketability discount should not arise in this case as the Court is being asked to determine the price at which the respondents might purchase the petitioner’s shares. Mr. Lindsay says that the reason he did not refer to a marketability discount is because it is irrelevant in the context of M&A transactions, which involves the buyout by a major shareholder of a minority shareholder. While the respondent drew the Court’s attention to a number of authorities in support of its position of applying a marketability discount, the facts of these cases are different and they did not involve a situation which was analogous to a Merger and Acquisition or the assuming of 100% control on the purchase of the relevant shares. Mr. Lindsay had extensive market experience and he said that the market, when considering the acquisition of the entire shareholding of a company of this scale and nature would simply not apply a marketability discount. I accept his evidence. I also take the view that it is not applicable because of the discrete issue which is before the Court, namely, a determination of the price at which the respondents might purchase the petitioner’s shares.
44. Evidence as given on a number of matters alleged to amount to oppression. These included:-
(a) the acquisition of the trade and assets of Tyholland Mushrooms Limited for €1.4m in 2009 without Board approval;
(b) the participation and investment of €775,000 in a Film Tax Relief scheme in 2012 without Board approval;
(c) the entry into derivative interest rate instruments without Board approval; and
(d) the payment of an annual dividend in lieu of rent due to Mr. Ronnie Wilson in relation to the Fenton Barnes & Langford Farms which deprived the company of a tax deductible expense (and thereby used up tax losses) and, therefore, was not cash neutral as indicated to the Board.
Since non-specified oppression is conceded by the respondents for the purpose of the case and to enable the Court to carry out the share valuation exercised, I do not propose to deal with the controversy which arises under each of these points, except insofar as it may be said to have had a material and financial impact on the value of the Company.
45. Mr. Lindsay made some net debt and debt-like adjustments which are items to be taken off the enterprise value of the Company. The adjustments made by him under that heading came to a figure of €114.3m. It seems to me, however, that he did not make a sufficient deduction for CAPEX. The capital expenditure is divided by the Company into normal income-enhancing CAPEX (approximately €64.6m) and environmental or non-earning enhancing CAPEX (approximately €42.4m). Mr. Tynan and Mr. O’Flanagan made no adjustments in their valuation for income-enhancing CAPEX, but did make adjustments for environmental and non-income enhancing CAPEX by treating them as debt-like items. They adopted this approach independently of one another and without consultation. Mr. Lindsay made no adjustment at all for CAPEX in his valuation. The evidence established that the Company has had to spend an ever-increasing sum on dealing with environmental issues such as odour abatement measures. Historically, the Company has spent more on CAPEX than its peers, and I think this is likely to continue in view of ongoing requirements to meet environmental standards and dealing with objectors.
46. Having heard the evidence on this issue, I conclude that it is appropriate to treat environmental or non-earning enhancing CAPEX as a debt-like item, and accordingly, the figure of €42.2m should be added to the figure of €114.3m of debt in Mr. Lindsay’s calculations. That gives a figure of €156.5m. A further adjustment of €26.2m must be made to provide for the buyback of the Walkro minority interest, and a figure of €3.5m for the buyout of the minority equity interest in Tunnel Tech. Mr. Lindsay has assumed that the minority shareholder in Walkro will exercise his put option in 2016, and that the buyout of Tunnel Tech will occur in 2014. His view on this point concerning Walkro seems reasonable, but it is unlikely that the Tunnel Tech buyout will take place in the current year. I am not sure how much turns on this. But in the absence of any evidence to the contrary, I am assuming that this figure is unlikely to alter significantly.
47. Evidence was given on a number of peripheral issues including the value of land at Tyholland in County Cavan. While there were significant differences expressed as to the value of the lands, this topic really went to the issue of oppression. Most of the other issues became subsumed, either in the oppression issue or in the overall valuations expressed by the three valuers in this case.
48. Valuation of a shareholder’s interest in a case such as this is not an exact science. There is a discrete issue before the Court, namely, a determination of the price at which the respondents might purchase the petitioner’s shares. Having regard to what I have said in paras. 45 and 46 above, my determination on the valuation is as follows:-
Normalised 2014 EBITDA €44.9m
Applying a Median Multiplier of 6.1 (see para. 15) €273.9m
Net Cash (Debt Adjustments) €114.3m
CAPEX Debt-Like Adjustment €42.4m
Buyout of Minority Shareholders:
GIMV 45% in Walkro €26.2m
David Johnson 40% in Tunnel Tech €3.5m
Equity Value of Monaghan Mushrooms €87.5m
Equity Value of Petitioner Shareholding 35% €30.6m
49. Therefore, on the discrete issue fixed for determination by the Order of 11 April, 2014, I fix the price at which the Respondents should purchase the Petitioner’s shares at €30.6m. This figure is based on an assumed 35% stake in the Company and may be subject to adjustment depending on whether the interest of the petitioner is ultimately found to be 35% or 30%.
O’Flynn & Ors -v- Carbon Finance Ltd & Ors
[2014] IEHC 439 (06 October 2014)
BETWEEN
MICHAEL O’FLYNN, JOHN O’FLYNN, MICHAEL O’FLYNN, JOHN O’FLYNN, BRABSTON LIMITED, BROOMCO (4102) LIMITED, CESIUM LIMITED, COLEBRIDGE INTERNATIONAL LIMITED, CRESTOR LIMITED, DEANSHALL, DELLACOURT LIMITED, EASTGATE DEVELOPMENTS (CORK), FAIRBURY UNLIMITED, FTG PROJEKT KERPEN GMBH & CO. KG, GALILEO RESIDENZ BREMEN GMBH & CO. KG ACTING BY ITS GENERAL PARTNER GALILEO RESIDENZ GMBH, GRAIGUEMORE LIMITED, JELTON LIMITED, LAMADA LIMITED, LITTLE ISLAND PROPERTY LIMITED, MAGNUM FREEHOLDS LIMITED, MAGNUM PROPERTY NOMINEES 15 LIMITED, MEDALLION INVESTMENT LIMITED, MILLINGTON PROPERTIES LIMITED, O’FLYNN CONSTRUCTION (B.T.C.), O’FLYNN CONSTRUCTION (LAPPS QUAY), O’FLYNN CONSTRUCTION (ROCHESTOWN), O’FLYNN CONSTRUCTION (TECHNOLOGY PARK), O’FLYNN CONSTRUCTION CO., O’FLYNN CONSTRUCTION HOLDINGS, PRECIS (2111) LIMITED, PRECIS (2110) LIMITED, PRECIS (2102) LIMITED, PRECIS (2103) LIMITED, PRECIS (1672) LIMITED, PRECIS (2175) LIMITED, PRECIS (2176) LIMITED, PRECIS (2112) LIMITED, RESIDENCIES UNIVERSITARIAS, S.A., ROSE CASTLE, SENTINEL NUMBER TWO LIMITED, SHELBOURNE SENIOR LIVING LIMITED, TIGER ATRIUM LIMITED, TIGER BREMEN ONE GMBH, TIGER BREMEN TWO GMBH, TIGER COWLEY LIMITED, TIGER DEVELOPMENTS, TIGER DEVELOPMENTS GMBH & CO KG, TIGER DEVELOPMENTS (JERSEY) LIMITED, TIGER GUILDFORD LIMITED, TIGER HANNOVER GMBH & CO. KG, TIGER HARBOUR ISLAND LIMITED, TIGER HAYMARKET LIMITED PARTNERSHIP, TIGER 4 LIMITED, TIGER 55 LIMITED, TIGER 130 LIMITED, TIGER (DOMINION) LIMITED, TIGER HAYMARKET NO. 1, LIMITED (AS GENERAL PARTNER FOR TIGER HAYMARKET LIMITED PARTNERSHIP), TIGER (IOM) LIMITED, TIGER (RETAIL DOMINION) LIMITED, TIGER NO. 1 GENERAL PARTNER LIMITED FOR ITSELF AND AS GENERAL PARTNER OF TIGER NO. 2 LIMITED PARTNERSHIP, TIGER NO. 1 LIMITED PARTNERSHIP AS LIMITED PARTNERSHIP ESTABLISHED UNDER THE LIMITED PARTNERSHIP ACT 1907, TIGER NO. 2 GENERAL PARTNER LIMITED FOR ITSELF AND AS GENERAL PARTNER OF TIGER NO. 2 LIMITED PARTNERSHIP, TIGER NO. 2 LIMITED PARTNERSHIP A LIMITED PARTNERSHIP ESTABLISHED UNDER THE LIMITED PARTNERSHIP ACT 1907, TIGER NO. 5 LIMITED, TIGER PROPERTIES LIMITED, TIGER ST MICHAEL’S LIMITED, TIGER TEESDALE LIMITED, TOPWELL NO. 1 LIMITED, TOPWELL NO. 2 LIMITED, TOPWELL NO. 5 LIMITED, TOPWELL NO. 6 LIMITED, MAGNUM PROPERTY NOMINEES 3 LIMITED, MAGNUM PROPERTY NOMINEES 4 LIMITED, MAGNUM PROPERTY NOMINEES 14 LIMITED, MAGNUM PROPERTY NOMINEES 16 LIMITED, MAGNUM PROPERTY NOMINEES 43 LIMITED, GODALMING TRUSTEE COMPANY LIMITED, TIGER ENTERPRISE NO. 2 LIMITED, STOCKLEY PARK TRUSTEE COMPANY LIMITED, STOCKLEY PARK TRUSTEE COMPANY NO. 2 LIMITED, THE LIVINGSTONE TRUSTEE COMPANY LIMITED, LIVINGSTONE TRUSTEE COMPANY NO. 2 LIMITED, VALDES PPROPERTY LIMITED, VICTORIA HALL CONSTRUCTION LIMITED, VICTORIA HALL LIMITED, ZONA GASTRONOMICA SLU
PLAINTIFFS
AND
CARBON FINANCE LIMITED, PAUL MCCANN, PATRICK DILLON, MARK BYERS, MARCUS WIDE, THE BLACKSTONE GROUP LLP AND THE BLACKSTONE GROUP INTERNATIONAL PARTNERS LLP
DEFENDANTS
JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 6th day of October, 2014
1. There are two motions before the court in these proceedings. The first is an application by the sixth named defendant for an order discharging the order of O’Malley J. made on 26th August, 2014, whereby she granted leave to the first and second named plaintiffs to issue and serve proceedings on the sixth named defendant out of the jurisdiction. The sixth defendant brings the application on the grounds that the affidavit sworn on behalf of the first and second plaintiffs grounding the application did not meet the requirements of the O. 11 of the Rules of the Superior Courts and did not set out the requisite material and facts to justify the relief sought. (“The first motion”)
2. The second motion is brought by the first, sixth and seventh defendants for an order striking out para. 11 of the statement of claim on the basis that they referred to various facility agreements which are subject to the exclusive jurisdiction of the English Courts and for other ancillary orders striking out the proceedings on the basis that inadequate particulars of the claim have been furnished. (“The second motion”)
The First Motion
3. A number of affidavits were filed in the motion and extensive written and oral submissions were presented to the court. The motion is brought pursuant to O. 12, r. 26 which states:-
“A defendant before appearing shall be at liberty to serve notice of motion to set aside the service upon him of the summons or of notice of the summons, or to discharge the order authorising such service.”
4. The ex parte motion to join the sixth defendant was brought before O’Malley J. on 26th August, 2014. Prior to that date, a statement of claim had been delivered which was based on the inclusion of additional plaintiffs. It was delivered on 15th August, 2014. Particulars were raised by the existing defendants in the proceedings and were responded to on 24th August, 2014. The motion before O’Malley J. took place two days later. It is important to note that the motion was moved on consent of the parties proposed to be joined subject to the right of Carbon Finance Limited and the added defendants to raise jurisdictional issues canvassed in a letter from their solicitors dated 20th August, 2014, sent to the solicitors for the plaintiffs. In that letter, Arthur Cox on behalf of the first, sixth and seventh defendants stated:-
“However for the avoidance of doubt, our clients’ willingness to accept service of, and to plead to, the amended pleadings is entirely without prejudice to all of their rights and entitlements (contractual and otherwise) and is strictly subject to the ‘choice of law’ and ‘choice of jurisdiction’ clauses under any Finance Document, including the Corporate Facility Agreements and any other documents which afford the English Courts or any other courts (other than the Irish Courts) exclusive jurisdiction over any dispute relating to or arising under such documents and enter such disputes subject exclusively to the law and courts of such jurisdiction and all of our clients’ rights in this regard are fully reserved.”
5. On 26th August, 2014, the plaintiffs’ solicitors sent an email to the defendants’ solicitors in which they stated:-
“As I understand it, your clients’ consent to our clients’ application to amend pleadings pursuant to my correspondence of yesterday’s date (letter sent by email at 20:56 on 25.08.14) remains unchanged. It, therefore, remains as outlined in your dated 20 August 2014 and email of Friday last at 16:32.”
The solicitor for the defendants confirmed that this was correct in a replying email sent some five minutes later.
6. There is some confusion over the order made by O’Malley J. and in particular what provisions of O. 11 were relied on by the judge in granting leave to issue and serve proceedings out of the jurisdiction. The ex parte docket identified O. 11, r. 1(e) and/or O. 11, r. 1(f) of the Rules of the Superior Courts. However, para. 23 of the affidavit sworn by Mr. Michael O’Flynn in support of the application stated that “…Blackstone is a necessary and proper party to the within proceedings. Moreover, I say and believe and am so advised that the plaintiffs and the additional plaintiffs have good causes of action against the additional defendants.” It is clear that by making such a statement the plaintiffs sought to rely on Order 11, rule 1(h). Since the application was made ex parte, it does not seem to me to be essential that all the relevant constituents of O. 11 be set out so in the ex parte docket long as, at the hearing of the application, the applicant satisfies the judge that there are good grounds for permitting service outside the jurisdiction on the basis of one or more of the rules in Order 11. As it happens, when the order was drawn up it did not indicate on what basis the learned judge made the order. What comes before the court on this application is an application by the sixth named defendant to set aside the order on the basis that the requirements of the order were not met in the affidavit sworn on behalf of the first and second defendants.
7. This is not an appeal against the decision of O’Malley J. but rather an application to set aside that order on the application of an interested party who was not in court when the ex parte application was made. While the court is obliged to consider whether or not an order granted ex parte should be set aside, it should be slow to do so in the absence of new evidence, calling into question the basis on which the first order was made. The plaintiffs argue that no new evidence has been adduced by the sixth defendant to show that the learned High Court Judge should not have made the order which she did.
8. In McCarthy v. Pillay [2003] 1 IR 592, the Supreme Court considered an application to set aside the service of a third party notice on the grounds that the defendants had failed to comply with the requirements of O. 11 of the Rules of the Superior Courts and also on the basis of forum non conveniens. Although that was an application by a third party, the case has many features which are relevant to this application brought by the sixth defendant. At pp. 598 – 599, Hardiman J. set out the relevant provision of the Rules, which provides that applications to serve out of the jurisdiction shall be supported by affidavit or other evidence stating that in the belief of the deponent the plaintiff has a good cause of action and showing in what place or country the proposed defendant is or probably may be found and whether such defendant is a citizen of Ireland or not. Where leave is sought to serve under O.11, r. 1, the applicant must state the particulars necessary for enabling the court to exercise a due discretion in the manner required by rule 2 and no leave shall be granted unless it shall be made sufficiently to appear to the court that the case is a proper one for service out of the jurisdiction under Order 11. At p. 599, Hardiman J. said:-
“It appears to me that these provisions have been complied with. The affidavits on behalf of the defendants contain:-
(a) a summary of the plaintiff’s case against the defendants as it appears in her proceedings;
(b) a statement of the facts relied on in the application to join the third party, showing the involvement of that party including the antenatal book, a copy of which is exhibited: it is further stated that the information in this book was inaccurate and the implications of this fact for the treatment of the plaintiff are set out, together with a statement of the possible relevance of the anti-D issue;
(c) it is stated that in the belief of the deponent the third party was a concurrent wrongdoer;
(d) it is further stated that ‘The issues as between the plaintiff and the defendants are closely interwoven with the issues as between the plaintiff and the proposed third party and those between the defendants and the proposed third party.’”
9. Hardiman J. went on to say that it did not appear to him that any real issue was taken with the factual contents of the defendants’ affidavits. The plaintiffs argue that they have met the test set out by Hardiman J. in McCarthy v. Pillay and that the sixth defendant has not taken issue with any of the factual contents of the plaintiffs’ affidavits. I accept that submission.
10. In the statement of claim delivered on 15th August, 2014, (and prior to the application before O’Malley J.) the plaintiffs pleaded that the first named defendant (“Carbon”) is a limited company registered within the State and is a member of the Blackstone Group of companies. In his affidavit grounding the application to O’Malley J., Mr. Michael O’Flynn stated that Carbon appears to be a special purpose vehicle incorporated in Ireland for the purpose of Blackstone’s acquisition of the O’Flynn Groups loans from the National Asset Loan Management Limited. Paragraph 42 of the statement of claim sets out the claim of conspiracy and makes it referable to earlier acts of Carbon and the receivers (who have since been discharged from the proceedings). Paragraph 98 of a reply to a notice for particulars delivered prior to the application before O’Malley J. sets out in some detail the nature of the conspiracy alleged insofar as it is possible for the plaintiffs to do so at this stage. In my view, the plaintiffs have met the test of setting out a “good arguable case” as articulated by Fennelly J. in Analog Devices BV v. Zurich Insurance Company [2002] 1 IR 272. The statement of claim pleaded conspiracy and the affidavit of Mr. O’Flynn set out, in sufficient detail, the matters alleged to connect the sixth named defendant with the conspiracy alleged. The plaintiffs set out sufficient grounds for establishing that they were entitled to an order joining the sixth named defendant under O. 11, r. 1(f) and Order 11, rule 1(h). It is questionable whether there was sufficient information to enable the plaintiffs to obtain an order under O. 11, r. 1(e) so far as the sixth named defendant is concerned but the plaintiffs did not appear to press for an order based on that rule. Although the ex parte docket grounding the application before O’Malley J. refers to O. 11, r. 1(e) and O. 11, r. 1(f) of the Rules of the Superior Courts it is clear that the application was made on foot of an affidavit which included an averment by Mr. O’Flynn that Blackstone was a necessary and proper party to the proceedings and he set out the grounds on which he believed this to be so.
11. While the sixth named defendant complains that the plaintiffs did not produce the evidence required to entitle them to an order for service out of the jurisdiction, the plaintiff relies on the observations of Clarke J. in National Educational Welfare Board v. Ryan [2008] 2 IR 816. In that case, Clarke J. cautioned against requiring too much detail at an early stage of proceedings insofar as it is the nature of cases brought in fraud or conspiracy that the victim would not have the means of knowledge of the precise extent of what has been done to them until they have obtained discovery. He held that a balance has to be struck between competing considerations. At pp. 824 – 825, he said:-
“The balance must be struck on a case by case basis but having regard to the following principles. Firstly, no latitude should be given to a plaintiff who makes a bare allegation of fraud without going into some detail as to how it is alleged that the fraud took place and what the consequences of the alleged fraud are said to be. Where, however, a party, in its pleadings, specifies, in sufficient, albeit general, terms the nature of the fraud contended together with specifying the alleged consequences thereof, and establishes a prima facie case to that effect, then such a party should not be required, prior to defence and, thus, prior to being able to rely on discovery and interrogatories, to narrow his claim in an unreasonable way by reference to his then state of knowledge. Once he passes the threshold of having alleged fraud in a sufficient manner to give the defendant a reasonable picture as to the fraud contended for, and establishes a prima facie case to that effect, the defendant should be required to put in his defence, submit to whatever discovery and interrogatories may be appropriate on the facts of the case, and then pursue more detailed particulars prior to trial.”
12. In my view, the plaintiffs have set out their claim with sufficient particularity, at this stage, to entitle them to the order joining the sixth named defendant. Since the sixth named defendant has not challenged any of the factual evidence before O’Malley J., I see no reason to discharge the order which she made on the ex parte application.
The Second Motion
13. This motion is brought on behalf of the first, sixth and seventh defendants seeking two forms of relief. The first (items 1 and 2 in the notice of motion) seek orders striking out para. 11 of the amended statement of claim insofar as that paragraph makes reference to a number of facility agreements which, it is claimed, are subject to the exclusive jurisdiction of the English Courts. The application is made under O. 19, r. 27 of the Rules of the Superior Courts. In the alternative, an order is sought pursuant to the inherent jurisdiction of the court dismissing the plaintiffs’ claims insofar as they seek a determination of the construction of those agreements on the grounds that they are subject to the exclusive jurisdiction of the English Courts and/or that the plaintiffs’ claims were bound to fail. For convenience, I will refer to those claims in the notice of motion as “the jurisdiction claims”. The other reliefs sought in the notice of motion (set out in paras. 3 – 5) are orders requiring the plaintiffs to reply to particulars No. 33, 62, 64, 68, 70, 73, 76, 79 and 82 of a notice for further and better particulars delivered by the first, sixth and seventh defendants on 29th August, 2014. The plaintiffs seek an order staying the proceedings pending the delivery of such particulars. The plaintiffs also seek an order pursuant to O. 19, r. 5 and/or O. 19, r. 27 of the Rules of the Superior Courts striking out the claim of the plaintiffs against the first, sixth and seventh defendants for damages for conspiracy, and against the sixth and seventh defendants for damages causing loss by unlawful means; and damages for inducement to breach of contract and interference with contractual relations on the grounds that no particulars of same have been provided in the amended statement of claim or in the replies to two notices for particulars. I will refer to the reliefs sought in paras. 3 – 5 as “the motions for particulars”.
The Jurisdiction Claims
14. In these proceedings, the plaintiffs refer to eight corporate facility agreements (including a Spanish facility) which were entered into between various plaintiffs and the National Asset Loan Management (“NALM”) on 28th February, 2013. Seven of those facility agreements and the continued existing Spanish facility were assigned by NALM to Carbon on 16th May, 2013. In the proceedings, the plaintiffs seek certain declarations in respect of what is characterised as “the Loan Construction Issue” which is said to arise in respect of facility agreements between various plaintiffs and the first named defendant (Carbon) as assignee of NALM. The parties accept that all the agreements were dated 28th February, 2013, and are, broadly speaking, similar in their terms apart from jurisdiction clauses.
15. Five of the group facility agreements provide that they are governed by the laws of England and that the Courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with the agreement. In those agreements, the parties agreed that the Courts of England are the most appropriate and convenient courts to settle disputes and stated that no party will argue to the contrary. Three of the facility agreements are governed by Irish law and provide that the Irish Courts shall have exclusive jurisdiction to settle any dispute arising out of or in connection therewith and that the Irish Courts are the most appropriate and convenient courts to settle such disputes and no party will argue to the contrary.
16. The clauses in the agreements relating to jurisdiction are clear and unambiguous.
17. The plaintiffs argue that in entering a non-conditional appearance to the proceedings, Carbon waived any entitlement to claim English jurisdiction in those agreements which referred to the acquisition of the loans and the interpretation of clauses in the various loans. The first defendant entered a non-conditional appearance and the plaintiffs argue that it has abandoned its entitlement to rely on the English jurisdiction clauses by reason of:-
(i) the conduct of the first defendant in the course of correspondence between the parties prior to 29th July, 2014. In that correspondence no point was taken that a number of facility agreements referred to therein were subject to an exclusive English jurisdiction clause;
(ii) the entry by the first defendant of what they term a non-conditional appearance on 1st August, 2014; and
(iii) the participation by the first defendant in the application for an injunction brought by the first two plaintiffs against the first defendant heard by Irvine J. on 5th, 6th and 7th August, 2014.
18. On 29th August, 2014, the sixth and seventh named defendants entered an appearance: “…without prejudice and solely to contest the jurisdiction of the court.”
19. So far as the sixth and seventh named defendants are concerned there cannot be any doubt but that they intended to contest the jurisdiction of the court to try any issues relating to the facility agreements which are subject to the exclusive jurisdiction of the English courts. They are entitled to do so. But it seems to me that the first defendant is also entitled to do so even though it entered an unconditional appearance. The exchange of correspondence between the solicitors for the parties makes it quite clear that the defendants were willing to accept service and to plead to the amended pleadings:-
“…entirely without prejudice to all of their rights and entitlements (contractual and otherwise) and is strictly subject to the “choice of law” and choice of jurisdiction” clauses under any Finance Document, including the Corporate Facility Agreements and any other document which afford the English courts or any other courts (other than the Irish courts) exclusive jurisdiction over any dispute…” (See letter from Arthur Cox to P.J. O’Driscoll & Sons, 20th August, 2014)
The plaintiffs cannot have been in any doubt that the defendants intended to raise these issues in the proceedings. In circumstances where the plaintiffs are relying on a number of facility agreements, some of which are subject to Irish law and jurisdiction and some of which are subject to English law and jurisdiction, the defendants cannot be precluded from raising these jurisdictional issues in the proceedings having entered an appearance. The conditional appearance on behalf of the sixth and seventh named defendants was entered on 29th August, 2014. The plaintiffs rely on the fact that the first defendant entered an unconditional appearance on 1st August, 2014, which was sometime prior to the letter from Arthur Cox of 20th August, 2014, in which they sought to reserve their client’s position on the jurisdictional issue. In Kelly v. Lennon [2009] 3 IR 794, Charleton J. held that where parties to a contract have agreed a choice of jurisdiction and have signed the document the “…Court is obliged to give effect to the choice of jurisdiction”. In Kutchera v. Buckingham International Holdings Limited [1988] I.R. 61, McCarthy J. considered that, “the correct legal principle is that the party’s choice of jurisdiction should be upheld and the necessary procedural orders granted unless there are strong indications to the contrary”. At p. 83 he said “In my view, it must be the policy of this and other courts to hold parties to the bargains into which they enter”.
20. The first defendant is domiciled in Ireland and the Irish Courts have jurisdiction over it and can hear issues arising in respect of the facility agreements which contain an Irish law and Irish jurisdiction clause. When the first defendant entered an appearance to the original plenary summons, it was by no means clear that the proceedings encompassed agreements some of which were subject to English law and English jurisdiction clauses. I am quite satisfied that in the circumstances of this case, the defendants are entitled to raise the jurisdiction point with regard to the agreements which were subject to English law and English jurisdiction.
21. I am also satisfied that I am obliged to give effect to the choice of legislation agreed by the parties. The plaintiffs cannot maintain those claims in this jurisdiction as not only did they agree that they were subject to the exclusive jurisdiction of the English Courts and were subject to English law, but they also agreed that in each of those agreements the courts of England are the most appropriate and convenient courts to settle disputes and accordingly, that no party to those agreements would argue to the contrary. In those circumstances the plaintiffs cannot maintain that the Irish Courts held jurisdiction to entertain those claims and they are bound to fail. Accordingly, I will grant an order pursuant to O. 19, r. 27 of the Rules of the Superior Courts striking out para. 11 of the statement of claim insofar as that paragraph makes reference to the facility agreements referred to in the notice of motion as agreements “CF03”, “CF04”, “CF05”, “CF07” and “CF08”. I do so on the basis that the reliefs sought with regard to those agreements will prejudice, embarrass and delay the trial of the action and on the basis that they are subject to the exclusive jurisdiction of the English Courts. I also make this order pursuant to my inherent jurisdiction on the basis that a determination by this Court of the construction of the said agreements which are subject to the exclusive jurisdiction of the English Courts are bound to fail.
The Motions for Particulars
22. The applicants seek an order requiring the plaintiffs to reply to particulars No. 33, 62, 64, 68, 70, 73, 76, 79 and 82 of the notice for further and better particulars delivered by the first, sixth and seventh defendants on 29th August, 2014.
23. The reply of 2nd November, 2014, to query number 33 is sufficient and adequate to enable the defendants to deal with the claim. Insofar as the “Corporate Facility Agreements” refer to all eight of the amended and restated facility agreements, many of those are no longer relevant as they have been struck out of the proceedings for the reasons set out in para. 22 above. With regard to particulars No. 62, 64, 68, 70, 73, 76, 79 and 82, the information furnished in para. 26 of the statement of claim contains sufficient detail of these matters to enable the defendants to meet the allegations made against them and I accept the submissions made by the plaintiffs that the information sought in these queries has been furnished not only in the statement of claim but also in replies to the notice for particulars of 20th August which replies were furnished on 24th August, 2014.
24. So far as the balance of the motion is concerned, I am satisfied that the claim in conspiracy, inducement of breach of contract, and interference with contractual relations is pleaded insofar as the plaintiffs are able to do so at this stage. The plaintiffs have met the test set out by Clarke J. in National Educational Welfare Board v. Ryan set out at para. 12 above. In Mooreview Developments v. First Active Plc [2005] IEHC 329, Clarke J. addressed the issue of whether a party can decline to answer a request for particulars in advance of discovery and said, at para. 7.4 that:-
“The fact that it may be possible, upon obtaining discovery, for a party to be able to give more detailed particulars does not absolve it from the obligation to particularise the claim as best it can when it makes that claim. One must presume that a claim would not have been included unless the plaintiff had some basis for believing that the claim was well founded. In those circumstances it seems to me that it is appropriate to require the plaintiff to deliver such particulars as it now can. It would, of course, be appropriate for it to reserve to itself the right to deliver such reasonable additional particulars as might become apparent when discovery has been obtained and considered.” [Emphasis added]
25. I am satisfied that the plaintiffs in this case have furnished reasonable particulars of the claim and have done the best they can at this stage. I am also satisfied that, on the basis of the particulars furnished, the defendants have reasonable knowledge of the nature of the conspiracy and related economic torts alleged against them.
26. I refuse the application for further particulars and the application pursuant to O. 19, r. 5 and/or O. 19, r. 27 of the Rules of the Superior Courts striking out the claim of the plaintiffs on the ground of no particulars or insufficient particulars.
Via Net Works Ireland Ltd., Re
[2002] IESC 24 (23rd April, 2002)
THE SUPREME COURT
Keane C.J.
Murphy J.
McGuinness J.
172/01
JUDGMENT delivered the 23rd day of April, 2002 by Keane C.J. [Nem Diss.]
1. The respondents to this appeal, Stuart Fogarty and Aubrey Fogarty Associates Limited, presented a petition to the High Court, in which they claimed to be members of the company named in the title of the proceedings (hereafter “the company”) and sought relief pursuant to s.205(3) of the Companies Act 1963 (hereafter “the 1963 Act”) on the ground that the affairs of the company were being conducted and the powers of its directors exercised in a manner oppressive to them or in disregard of their interests. The appellants are a Dutch company called Via Net Works Europe Holding BV, formerly Via Net Works Inc. who own a majority of the shares in the company. They applied in the High Court by way of notice of motion for an order dismissing the petition as an abuse of process or, alternatively, an order staying the proceedings pending a referral to arbitration. Both reliefs were refused by the High Court (Lavan J) in a brief extempore judgment.
2. The history of the matter, insofar as it is not in dispute, is as follows. The company was incorporated on the 12th June, 1995, with the object of carrying on the business of designing, operating and servicing computer networks. The capital of the company, paid up or credited as having been paid up, is £30,000 divided into 30,000 ordinary shares of £1.00 each which, at the time of the hearing in the High Court, according to the petition, were held as follows.
The appellants – 18,000 shares
Stuart Fogarty – 2,940 ordinary shares
Aubrey Fogarty – 3,825 ordinary shares
Thomas Kelly – 5,235 ordinary shares
(It would appear that the shares of Aubrey Fogarty were in fact vested in the second named respondent but nothing turns on this.)
3. Until the 15th March 1999, there were 10 shareholders in the company. On that day, the appellants entered into a share purchase agreement with the existing shareholders, under which the latter agreed to transfer 18,000 ordinary shares, representing 60% of the issued and outstanding share capital of the company, to the appellants. The consideration paid by the appellants was
the sum of £840,502 to the shareholders, made up of £119,392 each to Mr. Stuart Fogarty and Mr. Thomas Kelly and £601,718 paid to the other shareholders;
the sum of £200,000 subscribed to the company for 5% redeemable preference shares.
4. It is not in dispute that, at the time of the purchase, the company was in an insolvent position and in need of cash to fund its ongoing operations. This transaction was duly completed and it is also not in dispute that, since that time, the appellants have advanced £2,156,549 by way of loans to the company with a view to ensuring the survival and continued operations of the company.
5. On the same day, i.e., March 15th 1999, a further agreement was entered into, called “the Shareholders’ Agreement”, between Thomas Kelly, Stuart Fogarty and Aubrey Fogarty Associates Limited, who were described as the “existing shareholders”. This agreement, according to the recitals, was intended to clarify the respective rights and obligations of the existing shareholders with respect to the management, capitalisation and operation of the company. Clause 7.1 provided that, within a specified period, the appellants were to have the right, but not the obligation, to purchase all the shares held by the existing shareholders on giving them at least 30 days prior written notice. The clause provided a mechanism for determining the price to be paid for the shares.
6. Clause 11.1 of the Shareholders’ Agreement under the heading “Law” provides that
“THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, USA, WITHOUT REGARD TO ITS PRINCIPLES REGARDING CONFLICT OF LAWS (OTHER THAT SECTION 5 – 1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).”
7. Clause 11.2, under the heading “Arbitration of Disputes” provides that
“Any and all disputes between or among the buyer and the sellers (individually a “party” and collectively the “parties”) arising under or related to the transaction documents including, without limitation, the interpretation of the transaction documents or the breach, termination or invalidity thereof (a “dispute”) shall be resolved exclusively and finally by binding arbitration among the parties. It is specifically understood and agreed that any dispute may be submitted to arbitration regardless of whether such dispute would otherwise be considered justiciable or ripe for resolution by a court.”
8. The “transaction documents” referred to in clause 11.2 are the Shareholders’ Agreement, the share purchase agreement and a service agreement entered into with Thomas Kelly.
9. There was exhibited with the affidavit of Mr. Nydell an opinion of Hogan and Hartson LLP, Attorneys in the City of New York, which states:-
“It is our understanding that after VIA provided its VIA Call Notice, but before the transfer date, the Fogarty shareholders filed a proceeding in the High Court of Ireland alleging, among other things, oppression by the majority shareholder. We have been asked to provide an opinion under New York law as to the standing of the Fogarty shareholders to maintain such action…..
“Under the circumstances presented here, the Fogarty shareholders were divested of their shareholder status as of March 8th, 2001, and any rights they had as shareholders, including the right to maintain any judicial proceedings requiring shareholders’ status, ceased at that time.”
10. In March, 2000, the appellants acquired the shares of Thomas Kelly, who until that time had been the managing director of the company. As a result, their interest in the company increased to 77.45%. On the 5th February 2001, the appellants gave notice to each of the respondents that, under the provisions of s.7(1)(i) of the Shareholders’ Agreement they would purchase the remaining shares on March 8th 2001. The letter also stated that as of the transfer date, the price calculated in accordance with the Shareholders Agreement would be a negative amount, but that they were agreeing to purchase the shares at a price of 0.01p per share.
11. The grounds on which the respondents seek relief pursuant to s.205(3) can be summarised as follows. They say that the appellants are responsible for a state of affairs in which the managing director of the company, Thomas Kelly, has been wrongfully dismissed at what they claim to be considerable cost to the company, where debts of the company have not been collected in a timely fashion, again at considerable cost to the company, and where they have been excluded from any prospect of real participation in the affairs of the company. They further say that their interest in the company has been greatly diluted because of the activities of the appellants and will continue to be diluted because of the way in which the appellants are conducting the affairs of the company. In particular, they say that the making of cash calls by the company upon the shareholders is further diluting the respondents’ interest in the company and that, if they were to dispose of their shares in the company, the sale price which they would achieve would be very much reduced as a consequence of the appellants’ activities.
12. The averments to this effect in affidavits sworn by Stuart Fogarty in these proceedings are strenuously contested in affidavits sworn on behalf of the appellants by Matt Nydell and Declan Black. They say that Mr. Kelly left the company following the agreement of a severance package between him and the company and that his replacement was believed by the appellants to be in the best interests of the company. They say that the company suffered no loss as a result. They further say that the petitioners have not provided any funding for the company, in contrast to the substantial funding provided by the appellants, that they had been kept fully informed of all funding by way of cash calls, but that they declined the opportunity to participate in the funding. They also deny that the petitioners have been excluded from participating in the affairs of the company. They say that at its board meeting on the 7th June 2000, the first named petitioner attended but withdrew shortly after the commencement of the meeting after handing in a solicitor’s letter. They say that he attended and participated in further board meetings on the 11th September 2000, the 8th January 2001, and 5th February 2001. The appellants agree that they have funded the company to a significant extent since they made their investment in it, but do not accept that this gives the respondents any cause of complaint, since this has been done to ensure the survival of the company and at the request of the local management of the company.
13. To the extent that any of these contested issues of fact are relevant to the granting or withholding of relief pursuant to s.205 of the 1963 Act, their resolution would have to await a plenary hearing. It is also clear that the test to be applied in considering the application to strike out the proceedings as being an abuse of process is whether, assuming the respondents succeed in establishing the facts as pleaded in their petition at such a plenary hearing, they would be entitled to relief under s.205. If they would, the pleadings cannot be struck out as being an abuse of process. (See the decision of this court in Jodifern Limited -v- Fitzgerald , unreported, judgments delivered 21st December 1999.)
14. On behalf of the appellants, Mr. Paul Gardiner SC submitted that the proceedings should be struck out as constituting an abuse of process on two grounds, i.e. ,
that the respondents had no locus standi to maintain the proceedings; and
that the facts as pleaded in the petition, even if established, did not constitute oppression or conduct in disregard of the respondents’ interests within the meaning of s.205(1) of the 1963 Act and that there is no reasonable prospect of the court finding that they constitute such conduct or of granting the reliefs sought by the respondents.
15. As to the first ground, Mr. Gardiner submitted that a petition under s.205(1) of the 1963 Act could be brought only by a member of the company. It had not been disputed by the respondents that they were obliged to transfer all their shares to the appellants pursuant to the Shareholders’ Agreement, that the terms of the agreement provided that it was to be governed by the law of the State of New York and that, under that law as set out in the opinion of the New York attorney, the respondents had been divested of their rights as shareholders as of March 8th 2001, including their right to maintain any judicial procedures requiring shareholder status. He cited in support of these submissions the decision of this court in O’Neill -v- Ryan and Ors [1993] ILRM 557.
16. As to the second ground, Mr. Gardiner submitted that, even if all the facts pleaded in the petition were proved and the court found that the company’s interests had been damaged and the value of the respondents’ shareholding, as a result, diminished, this would not constitute oppression or conduct in disregard of the respondents’ interests within the meaning of s.205(1). He also cited in support the decision in O’Neill -v- Ryan and Another .
17. Mr. Gardiner further submitted that the respondents were seeking to make use of the s.205 procedure in order to circumvent the provisions in the Shareholders’ Agreement under which the price of their shareholding was to be calculated and that, in the result, the proceedings were clearly an abuse of the process of the court.
18. Mr. Gardiner submitted that, in any event, the learned High Court judge had erred in law in refusing to stay these proceedings pursuant to s.5(1) of the Arbitration Act 1980. He submitted that the section was mandatory in its terms and that, where a dispute came within the scope of a valid arbitration clause and was not excluded by exceptions, the court was bound to make an order pursuant to s.5, citing in support the decision of the High Court (Lardner J) in Williams -v- Artane Service Station Limited and Another, [1991] ILRM 893.
19. He further submitted that the fact that the proceedings were brought under a statutory provision was of no relevance, since there was no express provision in the Arbitration Act 1980 or in the Companies Acts, 1963 – 1999, delimiting the applicability of the Arbitration Act 1980 in respect of an application for relief pursuant to statute. He cited in support Re Vocam Europe Limited [1996] VCC 396.
20. Alternatively, Mr. Gardiner submitted that the proceedings should be stayed in pursuance of the inherent jurisdiction of the court to stay such proceedings where the parties have expressly agreed a method of resolving their disputes, citing in support Channel Tunnel Group Limited -v- Balfour Beatty Construction Limited [1993] AC 334.
21. On behalf of the respondents, Mr. Shipsey SC submitted that the question as to whether the factual matters pleaded by the respondents amounted to oppression within the meaning of s.205 of the 1963 Act could only be resolved by the High Court at the plenary hearing of the petition, citing in support the observations of Murphy J in Horgan -v- Murray [1998] 1 ILRM 110.
22. As to the issue of locus standi , Mr. Shipsey submitted that since, at the date of the presentation of the petition and the hearing in the High Court, the respondents appeared in the register of members of the company as shareholders, they were entitled to bring the proceedings as such shareholders pursuant to s.205.
23. As to the submission by the appellants that the proceedings could not be maintained by the respondents because they were based on a claim that the company’s interests had been damaged by the actions of the appellants and that this was not actionable at the suit of individual shareholders, Mr. Shipsey submitted that this was essentially an issue which would have to be resolved at the plenary hearing. He said that it was clear from the petition and affidavits that the respondent’s claim rested, at least in part, on their being excluded from any participation in the company’s affairs and that this was clearly a ground which, if established, would entitle them to relief under s.205.
24. As to the claim by the appellants that the proceedings should in any event be stayed because of the arbitration clause, Mr. Shipsey submitted that, as a matter of public policy, an arbitration clause could not be availed of so as to deny a member of a company who claims to be the victim of oppressive and unreasonable behaviour by those in control of the company from invoking and relying on s.205 of the 1963 Act. He also submitted that the purported reliance by the appellants on s.5 of the Arbitration Act 1980 was inconsistent with their submission that the Shareholders’ Agreement was governed by the law of New York.
25. Section 205(1) of the 1963 Act provides that
“Any member of a company who complains that the affairs of the company are being conducted or that the powers of the directors of the company are being exercised in a manner oppressive to him or any of the members (including himself), or in disregard of his or their interests as members, may apply to the court for an order under this section.”
26. Under the Rules of the Superior Courts, a complaint under the section
by a member of a company is to be brought by petition.
27. It was not contended on behalf of the respondents in this case that the jurisdiction of the High Court to dismiss an action pursuant to Order 19 Rule 28 on the ground that the pleadings disclose no reasonable cause of action or one which is frivolous or vexatious or to strike out such proceedings as an abuse of process in the exercise of its inherent jurisdiction is inapplicable in the case of such petitions. I think that they were correct in adopting that approach, since it appears to be the clear implication of the judgments of this court in Horgan -v- Murray and Another [1998] 1 ILRM 110 that the jurisdiction is applicable in the case of such petitions, although one that should, in those cases as in all other cases, be exercised sparingly and, on the facts of that particular case, was unsuccessfully invoked.
28. As to the first ground relied on by the appellants, I am satisfied that the learned High Court judge was clearly wrong in treating the issue of locus standi in this case as one that could be resolved only at the trial. The argument advanced on behalf of the appellants was quite straightforward and grounded on undisputed facts, i.e., that at the date of the presentation of the petition and the hearing in the High Court the appellants were legally bound by the Shareholders’ Agreement to transfer all their shares to the appellants and, accordingly, could not be heard to complain that the affairs of the company were being conducted or the powers of the directors exercised in a manner oppressive to them or in disregard of their interests as members.
29. Section 205 is a valuable protection against the misuse by shareholders, usually constituting the majority, of their powers in a manner which is oppressive to the other shareholders or fails to have regard to their interests. Persons, such as the respondents, who have voluntarily disposed of their entire shareholding in a company could not conceivably have been contemplated by the legislature as persons who would be entitled to relief under the section. Nor is it any answer to say that, because the respondents have not transferred their shares, as they are contractually bound to do, they remain registered as members of the company. It is undoubtedly the case that a person who has become entitled to be registered as a shareholder may be unable to exercise any of his rights as a shareholder until his name has been entered on the register. But it does not follow that a person who, conversely, has voluntarily divested himself of all his shares in the company, but remains on the register must be treated as a member of the company for all purposes. I have no doubt that, when the legislature enacted s.205(1), it was not envisaged that persons without any interest in the company but who, for whatever reason, remained on the register as members would be entitled to present a petition grounded on alleged oppression of them as members.
30. The provisions of s.205 are, of course, to be construed solely in accordance with Irish law. The relevance of the opinion of the New York attorney is that it establishes beyond doubt that, under the terms of the agreement, the respondents, in the events that have happened, were contractually bound under the law of New York to divest themselves of their rights as shareholders and transfer them to the appellants as of the 8th March 2001. It follows that, as and from that date, whether registered as shareholders or not, they were deprived of any standing under Irish law to present a petition under s.205. It is, accordingly, clear that the proceedings should have been struck out in the High Court in exercise of the jurisdiction to strike out proceedings which disclose no cause of action or constitute an abuse of process.
31. In any event, it is difficult to see how the allegations made by the respondents, even if they were established, could constitute a case of oppression or disregard of their interests within the meaning of s.205(1). They are, in the main, claims that the appellants are running the company in a manner which is damaging to the interests of the shareholders. It has been the law, however, since the venerable decision in Foss -v- Harbottle [1847] 2 Hare 461 that only the company can maintain proceedings in respect of wrongs done to it and that neither the individual shareholder nor any group of shareholders has any right of action in such circumstances. That rule was emphatically reaffirmed by the decision of the High Court and of this court in O’Neill -v- Ryan [1990] 1 ILRM 140; [1993] ILRM 557. There are undoubtedly well established exceptions to the rule, but it is clear that this case does not come within any of them.
32. While the respondents also maintain that they have been excluded from participation in the company’s affairs – a plea which, if established, might amount to the sort of conduct aimed at by s.205 – the averment by Mr. Nydell that the first named respondent attended board meetings on the 7th June 2000, 11th September 2000, the 8th January 2001 and the 5th February 2001 has not been denied. Nor, it would seem, has he exercised his right pursuant to the Shareholders’ Agreement to request that further board meetings be called. I am satisfied that, in the result, if the petition were allowed to proceed, on the undisputed facts of this case, the respondents would not be in a position to establish that the affairs of the company were being conducted or the powers of its directors exercised in a manner oppressive to them and in disregard of their interests.
33. In the alternative, the appellants say that the High Court judge should have granted an order staying the proceedings, having regard to the arbitration clause in the Shareholders’ Agreement. I have no doubt that the High Court judge was wrong in law in treating this as an issue which should be decided at the trial of the action. Either the appellants were entitled as a matter of law to have the proceedings stayed at this stage so that any issues arising between them and the respondents could be referred to arbitration or they were not. There was no ground whatever for deferring that decision until the trial of the action.
34. I am also satisfied that the proceedings, even if properly instituted and not constituting an abuse of process, should in any event have been stayed having regard to the arbitration clause.
Section 5(1) of the Arbitration Act 1980 provides
“If any party to an arbitration agreement, or any person claiming through or under him commences any proceedings in any court against any other party to such agreement, or any person claiming through or under him, in respect of any matter agreed to be referred to arbitration, any party to the proceedings may at any time after the appearance has been entered, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings, and the court, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings.”
35. It is not in dispute that clause 11 of the Shareholders’ Agreement incorporates an “arbitration agreement” within the meaning of s.5(1). Nor has it been suggested that that agreement is null and void, inoperative or incapable of being performed. It is also clear that the Shareholders’ Agreement was voluntarily entered into by the parties with a view to governing the future management, capitalisation and operations of the company. The disputes, accordingly, which have subsequently arisen between the appellants and respondents are manifestly encompassed by the terms of the arbitration clause.
36. Mr. Shipsey has urged that it would be contrary to public policy to operate the arbitration clause in a manner which would deprive the respondents of their statutory right to have the oppression allegations determined by the High Court. I am satisfied that this argument is misconceived. When the respondents entered into the arbitration agreement, they were expressly waiving the right to have issues that arose between them arising out of the Shareholders’ Agreement litigated in any forum other than the arbitral tribunal: that is the essence of an arbitration agreement. It is irrelevant in this context whether the right of action they might otherwise have enjoyed was one which arose at common law or was statutory in origin. I think that that conclusion is borne out by the decision of the English High Court in Re Vocam Europe Limited .
37. Nor could the respondents successfully rely on clause 12.8 of the Shareholders’ Agreement which provided that
“the rights and remedies granted under this agreement shall not be exclusive but shall be in addition to all other rights and remedies available under law or equity.”
38. To treat that clause as entitling the parties to have recourse to the courts for the resolution of issues arising under or relating to the Shareholders’ Agreement would have been effectively to render clause 11.2 of the agreement meaningless. That cannot have been the intention of the parties. No doubt the parties to the agreement might have been in a position to institute proceedings relating to matters which were not within the scope of the arbitration clause, but no such issues have been identified in the present case.
39. I am also satisfied that the High Court enjoyed an inherent jurisdiction to stay the proceedings in this case having regard to the existence of the arbitration clause. I would adopt as a correct statement of the law in this jurisdiction the following passage from the speech of Lord Mustill in Channel Group -v- Balfour Beatty Limited [1993] AC 334 at p.353:
“I believe that it is in accordance, not only with the presumption exemplified in the English cases cited above that those who make agreements for the resolution of disputes must show good reasons for departing from them, but also with the interests of the orderly regulation of international commerce , that having promised to take their complaints to the experts and if necessary to the arbitrators, that is where the appellants should go.”
40. While, as the passage makes clear, in that case the contract was one which was more characteristic of the high level world of international commerce than the agreement now under consideration, I have no doubt that the general principle is equally applicable to the agreement in this case.
41. I would allow the appeal and substitute for the order of the High Court an order striking out the petition.