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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Avoca Capital Holdings v. Companies Acts [2005] IEHC 302 (29 July 2005) URL: http://www.bailii.org/ie/cases/IEHC/2005/H302.html Cite as: [2005] IEHC 302 |
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Neutral Citation No: [2005] IEHC 302
Case No. 251/2005 Cos
PLAINTIFF
DEFENDANT
MR. JUSTICE CLARKE DELIVERED JUDGMENT AS FOLLOWS ON FRIDAY, 29 JULY 2005
The parties to these proceedings have been involved in litigation since just before Christmas. In plenary proceedings, in which the Petitioner was Plaintiff and a subsidiary of the company was Defendant, the Petitioner sought injunctive relief arising out of disciplinary procedures invoked against him as an employee. A number of separate applications came before me in those plenary proceedings and in three cases there is a transcript of the judgment which I delivered from which the background to the disputes between the parties can be seen. It is not, therefore, necessary to revisit that history.
As appears from those judgments the principle allegation made against the Petitioner concerned a contention that he had improperly accessed electronic records of senior management, ("the IT issue"). A further set of issues concerning his performance, ("the performance issues"), also arose. During the course of the various applications referred to above the petitioner was under suspension on pay and was seeking at various times the removal of that suspension and access to certain computer records.
In order to bring the history, as previously set out, up to date, it should be noted that the Petitioner has since been dismissed because of findings against him by a disciplinary committee. The findings were made on the IT issue. He continues to challenge his dismissal both on the grounds originally advanced, which focussed principally on an allegation that the whole disciplinary process is contrived, and other grounds including what he says are procedural irregularities in the manner in which the disciplinary committee dealt with his case. These disputes will fall to be resolved when the plenary proceedings come to trial. Before passing from the plenary proceedings, I should note the argument of counsel for the company to the effect that, relying on certain comments in the Petitioner's affidavit, it is said that no claim is now made which seeks to render the dismissal invalid. In the light of the pleadings in the plenary proceedings, I should state that the position is not as clear as was suggested.
The Petitioner, as well as being an employee of the Defendant in the plenary proceedings, is also a shareholder and director of the company, the subject matter of this petition. That company is the ultimate holding company for all operating companies within a group. It is in the context of a proposal to remove the Petitioner as a director of the company that the application currently before me arises.
The Petitioner seeks a variety of orders under section 205 of the Companies Act 1963 arising out of a contention of oppression. Many of the grounds advanced are similar to those which are already before the Court in the plenary proceedings. In addition, grounds based on an alleged exclusion, including withholding of information, are relied on. As with the issues that were already before the Court these latter issues are also the subject of significant conflicts on the evidence, which it is impossible to resolve on affidavit at this interlocutory stage. What brings the case before the Court as a matter of urgency is the stated intention of the company to hold an Extraordinary General Meeting at which it will consider a resolution to remove the Petitioner as a director. The Petitioner seeks, in this interlocutory application, to restrain such removal and , if necessary, to restrain the holding of the Extraordinary General Meeting. The EGM has in fact been adjourned pending this decision on the interlocutory application.
Before going on to consider the legal issues involved, it is necessary to say something about the company. The company was incorporated in the State on 30 November 2004 under the provisions of the Companies Acts. The authorised share capital of the Company is 10 million Euro divided into 900 million ordinary shares and 100 million A ordinary shares of one cent each. The issued share capital of the company is €720,102 being 71,810,200 A ordinary shares and 199,998 ordinary shares which are divided amongst the shareholders in a manner which gives the Plaintiff 7% of the ordinary shares. The members of the company also entered into a shareholder's agreement dated 27 November 2002.
The company was established to carry on a fund management business earning advisory fees on investments and leveraged loans, and also to carry out the business to the advantage of the company and in the promotion of its objects. The variety of objects set out in the Memorandum of Association are suitable to the carrying on of such a business.
It should also be noted that in the petition it is claimed that the company essentially operated as a partnership between the members and as such required the existence of good will, understanding and trust between all members. It would also appear that since its date of incorporation the company has, through its wholly owned subsidiary Avoca Capital Holdings, carried on business as a fund management company earning advisory fees on investments in leveraged loans. The company just mentioned, Avoca Capital Holdings, is the Defendant in the plenary proceedings.
It should finally be noted that the Petitioner places reliance, in both these proceedings and in the, plenary proceedings, on the fact that he left secure employment with a major employer to take up what he says was "the package of shareholding, directorship and employment" which he received in the company. He contends that the actions of, in particular, the joint Managing Director, Mr. Daly, are designed to invoke the provisions of the shareholder agreement which specify an entitlement to buy out any shareholder who leaves employment with the company. However, the terms of any such buy-out depend on whether the person concerned is a "good leaver" or a "bad leaver" as defined. As might be expected the terms available to a bad leaver are significantly less favourable than those available to a good leaver.
A bad leaver is defined in the shareholder's agreement as follows:
"A shareholder who has ceased at the relevant time to be engaged full-time to the extent required by hid/her service agreement with the company by reason of:
1. The termination of his/her service agreement pursuant to clause 14 thereof provided that if the shareholder has brought a claim for wrongful or unfair dismissal in relation to such termination it has not been adjudged as such. His/her resignation as an employee of the company other than for any reasons specified in clause 3.2.4."
A good leaver is simply defined as someone who leaves and who is not a bad leaver.
The Law.
It is clear from the decision of the Supreme Court in McGilligan & Another –v- O'Grady & Others [1999] 1ILRM 303 that the enactment of section 205 of the Companies Act 1963 enables the Court, in an appropriate case, to restrain a company from removing a director pending the hearing of a petition under that section. Keane J. said, at page 319:
"Why then should the Court on an application for an interlocutory injunction be unable to restrain the company from removing a director pending the hearing of a petition under section 205 where he has established that there is a serious question to be tried as to whether his exclusion from the affairs of the company constitutes conduct which would entitle shareholders to relief under section 205?
It should be noted that in Bentley Stevens –v- Jones there do not appear to have been any proceedings in existence under the English equivalent of section 205 at the time the application for an interlocutory injunction was made.
However, apart from that consideration I am bound to say, with all respect, that I do not understand why it should be thought that because the relief sought in the interlocutory proceedings is not the same as the relief which will ultimately be sought in the section 205 proceedings. An interlocutory injunction should not be granted on that ground alone. If it is desirable in accordance with the principles laid down in the American Cyanamid Company and Campus Oil cases to preserve the Plaintiff's rights pending the hearing of the section 205 proceedings, and the balance of convenience does not point to a different conclusion I see no reason why interlocutory relief should not be granted.
To cite but one example the relief granted in many Mareva cases is very often not the relief which is sought in the substantive proceedings. I am satisfied that, to the extent that Bentley Stevens –v- Jones and Feighery –v- Feighery suggest a different view of the law, they should not be followed."
It seems clear, therefore, that the principles applicable to the grant or refusal of an injunction seeking, as here, to restrain the removal of a director pending the hearing of a section 205 petition are no different from those applicable in any other case and are as authoritatively set out in Campus Oil Ltd. –v- Minister for Industry and Energy (No. 2) [1983] IR 88.
I am required, therefore, to consider in turn:
I deal with each in turn.
Fair issue to be tried.
In Murphs Restaurants Ltd. [1979] ILRM 141 this Court Gave recognition to cases where the relationship between the parties was in substance, though not in form, a partnership. It is also clear from McGilligan that a Court can, in section 205 proceedings, consider the terms agreed between the shareholders in any shareholder agreement in judging the oppressiveness or otherwise of the conduct of a majority.
I have already noted that there is a wide area of significant disagreement on the facts. On an application such this I must, however, have regard to the possibility that any areas of disputed fact, where there is a reasonable basis for the petitioner's contentions, may be resolved at trial in his favour. On that basis, I am forced to conclude that there are fair issues to be tried. While the Petitioner was under suspension as an employee he was not suspended as a director. While the focus of section 205 proceedings is oppression against a shareholder, I am satisfied that it is arguable that where, as here, the shareholders have agreed that each of them should be directors it is appropriate for the Court to have regard to how such shareholders were treated as directors in assessing whether oppression has occurred. Clause 4.3 of the shareholder's agreement provides as follows:
"Each shareholder shall, for so long as he/she holds his/her interest and remains an employee of the company, be director of the company and to remove and/or replace any such person from time to time."
Certain other provisions of the shareholder's agreement are relevant. Clause 4.1 gives to the shareholders rights of access to information which would, in the ordinary way, only be available to directors. Subclause 1 of that clause provides:
"Each shareholder shall be entitled at all reasonable times to free and full access to inspect, examine and/or copy any books, files records and/or other documents belonging to or maintained by or on behalf of the company, to seek and to obtain explanations of any matter including access to the company's bankers, auditors and financial advisors, and to free and full access to the properties, buildings and other assets of the company provided always that all confidential information thereby obtained shall be preserved as confidential to the company."
Certain supplemental provisions follow.
It is clear, therefore, that prima facie the Petitioner is entitled under the shareholder's agreement, to remain a director as his own nominee for the purposes of clause 4.3.1, as long as he remains a shareholder and employee. The definition of bad leaver referred to above makes it clear that a person successful in unfair or wrongful dismissal proceedings cannot be regarded as a bad leaver. It seems to me to be arguable that the Petitioner might succeed in his wrongful dismissal proceedings to an extent that renders his dismissal void. In those circumstances he would become entitled to be a director and indeed would have established that he would at all material times have been so entitled under clause 4.3.1.
It also seems to me to be arguable that the Petitioner has been excluded from receipt of information to which he is entitled under clause 4.1.1. I am, therefore, satisfied that the Petitioner has established that he has a serious issue to be tried. In the special circumstances of this case the remaining two questions seem inextricably linked even though in the ordinary way it is necessary to determine them in sequence. I propose, therefore, to deal with both together.
The real question is to why it might be said that it is necessary to preserve the Petitioner's rights pending trial. In this regard it seems to me that clause 4.1.1 is key. The Petitioner is and remains a shareholder. He is, therefore, entitled to full information. The only added entitlement which he would have as a director is to participate in decision making. Given the fraught relations between the parties, I am not satisfied, on the evidence before me, that requiring the Petitioner to be involved in decision making would be in overall interests of the company. In saying that, I am not suggesting that the Petitioner would deliberately obstruct. It is merely that the relations between the parties necessarily will lead to significant difficulties. Unless there was a countervailing prejudice to the Petitioner, the balance of convenience would, therefore, necessarily favour the company.
I can find nothing in the evidence which might support a contention that the directors are intent on directing the business of the company in any way which would be detrimental to the interests of the company in general or the interests of the Petitioner as shareholder in particular. In those circumstances it seems to me that the inconvenience to the company of having its board meetings conducted in a fraught atmosphere outweighs any inconvenience to the petitioner in not being involved in decision making, particularly having regard to the entitlement of the Petitioner as shareholder to significant information.
I would, therefore, refuse the current application. If, however, the company were to refuse a specific application for information, which comes within the ambit of clause 4.1.1, or if it appeared that the company intended to make decisions which could have a significant and material effect on the Petitioner's interests as shareholder, the situation might change. I will, therefore, give liberty to apply.
THE JUDGMENT CONCLUDED
THE FOLLOWING SUBMISSION WERE MADE TO THE COURT
MR. QUINN:
I am obliged to your Lordship. I am not sure if Mr. Keane is in a position to deal with the costs today.
MR. KEANE:
I am, my Lord. Mr. Horan unfortunately is detained.
MR. QUINN:
Mr. Keane, you are not in a position?
MR. KEANE:
I am, yes.
MR. QUINN:
You are in a position to deal with it. My instructions are to apply for costs, my Lord. I know it's an interlocutory application of sorts, but I think it is a discrete issue that will not change irrespective of the outcome of the litigation. His application to remain as a director has been refused, notwithstanding the establishment of a fair case. As your Lordship is familiar there have been a number of other interlocutory applications in the other case, two of which were fairly substantive, and the costs were reserved in those in circumstances where the Plaintiff had been unsuccessful in restraining the suspension.
Your Lordship has clearly a discretion in relation to it, but in view of the fact that this decision effectively will not unravel and reform at the trial, I think the decision not to allow him to remain as a director pending the hearing is discrete in that regard, my Lord. In view of the number of applications that there has been to the Court, I would be applying for the company's costs.
MR. KEANE:
My Lord, I would say that this matter is predicated on the outcome of the main issue, which is the employment issue, Judge. I say that the Plaintiff had no option but to take this course of action in relation to the actions of the company, Judge, and I would respectfully suggest that the matter is tied up with the substantive issue of the case. I would ask you to reserve the costs in the matter of the hearing of the issue.
MR. JUSTICE CLARKE:
With some reservations I think I will reserve the question of costs. I am inclined to deal with costs whenever I can, but I am concerned with the fact that there is the potential that further information might come to light in one or other of the substantive matters which could cast a new light on all of these events. Therefore, I think it would be better that the judge having carriage of the trial should deal with the costs.
Therefore, so far as the Order is concerned, I will simply refuse the relief and reserve the costs to the judge having carriage of trial of the petition.
I suppose I should also note that it seems to me logical that the plenary proceedings and the petition should be tried by the same judge. They can't formally be linked because they are a different of procedure, but clearly if there is not a totality of commonality between the issues there is certainly a very large overlap and it would seem irrational to have different judges dealing with different parts of them.
MR. QUINN:
I think that makes sense, my Lord, that the two cases would be tried at the same time and by the same judge. It can give directions then as to how it might operate in practice, but I think that would make sense that they would move forward ... (INTERJECTION)
MR. JUSTICE CLARKE:
If the parties are agreeable what I might suggest is that the two proceedings be linked and give liberty to -- I suppose probably it's really the Petitioner and the Plaintiff who has carriage of them to bring a motion returnable. I am happy that at least at this stage it should be returnable before me given that I probably know more about the cases than anybody else at this stage, but not necessarily indicating that I should deal with the trial, a motion for directions as to how both proceedings should progress so as to ensure that that they can be dealt with efficiently and that both trials can come on together. Perhaps if it were possible to bring such a motion say for the second Tuesday of next term, for 11 October?
MR. KEANE:
Yes, my Lord.
MR. JUSTICE CLARKE:
I would be happy to hear such a motion and deal with any further interlocutory matters and ensure both are ready for trial in as quick a time as possible. MR. QUINN: Yes, my Lord. I think the Petitioner does have a second motion, a more straightforward ... (INTERJECTION)
MR. JUSTICE CLARKE:
The ordinary motion for directions in the petition.
MR. QUINN:
Your Lordship might recall Mr. Horan, I am not sure if a formal order was made, but Mr. Horan was suggesting two weeks and two weeks. He was saying from the Petitioner's point of view he didn't anticipate they would need discovery. I don't know if your Lordship want to make an order along those lines to get the proceedings on the petition side ... (INTERJECTION)
MR. JUSTICE CLARKE:
I think we might as well. So points of claim within two weeks, points of defence within two weeks. Then the motion for directions that I am suggesting for 11 October can seek any further matters that are necessary to bring the petition up to date and also any matters that are necessary in respect of the plenary proceedings. We can then consider exactly how the trial of all matters can be effectively dealt with.
MR. QUINN:
I should just flag we haven't written to the Petitioner in relation to discovery, but we have considered it since Tuesday and we do anticipate we probably will seek some discrete discovery, my Lord, and we can raise that in the usual way in advance.
MR. JUSTICE CLARKE:
Exactly. Can I suggest that any matters such as discovery or further particularisation should at least be raised in a sufficient way so that a motion can be brought for 11 October and it can be resolved at that stage so that at least hopefully all interlocutory matters will be completed within that timeframe. MR. QUINN: We will write in relation to discovery perhaps in early September when we close the pleadings on the petition.
MR. JUSTICE CLARKE:
Very good.
MR. QUINN:
I am obliged to your Lordship.
MR. KEANE:
I am obliged, my Lord.
MR. JUSTICE CLARKE:
I will give back the papers in this matter.
THE HEARING WAS ADJOURNED TO TUESDAY, 11 OCTOBER 2005
Approved: Clarke J.
