In re Via Net Works (Irl) formerly Medianet (Irl) & Cos Acts, [2002] IESC 24 (2002)

Reporting Judge:Keane C.J.
Docket Number:172/01
 
FREE EXCERPT

THE SUPREME COURT

Keane C.J.

Murphy J.

McGuinness J.

172/01

IN THE MATTER OF VIA NET WORKS IRELAND LIMITED FORMERLY MEDIANET IRELAND LIMITED

AND

IN THE MATTER OF THE COMPANIES ACTS 1963 - 1999 JUDGMENT delivered the 23rd day of April, 2002 by Keane C.J.

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.

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.

(a) The appellants - 18,000 shares

(b) Stuart Fogarty - 2,940 ordinary shares

(c) Aubrey Fogarty - 3,825 ordinary shares

(d) 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.)

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

(a) 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;

(b) the sum of £200,000 subscribed to the company for 5% redeemable preference shares. 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.

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.

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)."

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."

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.

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:-

1 "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...

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