An application under s 212 of the Companies Act 2014 - Brock Delappe Ltd

• Jurisdiction: Ireland
• Judge: Mr Justice Mark Sanfey
• Judgment Date: 18 April 2023
• Neutral Citation: [2023] IEHC 318
• Court: High Court
• Docket Number: [Record No. 2021/104COS]

In the Matter of Brock Delappe Limited

and

In the Matter of an Application Under Section 212 of the Companies Act 2014

Between

Kevin Delappe

Applicant

and

David Brock, Declan Cosgrave and Brock Delappe Limited

Respondents

[2023] IEHC 318

[Record No. 2021/104COS]

THE HIGH COURT

JUDGMENT of Mr Justice Mark Sanfey delivered on the 18 ^th day of April 2023 .

Introduction

1 . This judgment relates to an application by the respondents, David Brock, Declan Cosgrave and Brock Delappe Limited (‘ the company’), in relation to documents which have come into the possession of the applicant, Kevin Delappe, and have been exhibited by him to an affidavit sworn in the course of the proceedings. While a wide variety of reliefs is sought by the respondents in their notice of motion, the essential relief sought is an injunction restraining the use or dissemination of, or reliance upon, these documents on the basis that they are the subject of litigation and/or legal advice privilege. The respondents maintain that the documents were improperly obtained by the applicant, and should not have been exhibited. The applicant's position is that, for a number of reasons, the court should not regard the documents as privileged.

2 . This dispute takes place in the context of proceedings pursuant to s.212 of the Companies Act 2014. The applicant, a director, employee and 33% shareholder of the company, considers, inter alia, that the affairs of the company have been conducted by the first and second named respondents in a manner oppressive to him and in disregard of his interests as a member of the company. The role of the company as a respondent to the s.212 application was a matter of some debate at the hearing; the applicant contended that the company was joined as a respondent solely to render it amenable to any orders the court might make, such that there was no hostile litigation between the applicant and the company, a contention relevant to an issue as to whether legal advice sought on behalf of the company on certain issues could be privileged.

3 . As we shall see, David Brock swore an affidavit in the substantive proceedings replying to the grounding affidavit of the applicant, to which Mr Delappe replied in turn by an affidavit of 8 July 2021. It was in this latter affidavit that the documents the subject of the respondents' application were exhibited. The respondents immediately took exception to the affidavit, and promptly issued the present application for injunctive relief on 15 July 2021. There followed an extensive exchange of affidavits, and lengthy written submissions. The hearing was held over three days after which, in circumstances where I shall explain, further affidavits of the parties were necessary.

4 . The issues were complicated, and require close examination of the facts and documents at the heart of the dispute. I have considered all of the voluminous papers and written submissions for the purpose of this judgment, and had access to the digital audio recording of the hearing where necessary.

The company

5 . The company is an estate, letting and property management agency which trades and operates from a number of locations in Dublin. The company was incorporated on 17 November 2004 and is a private company limited by shares. Mr Delappe, the applicant in the proceedings, and Mr Brock and Mr Cosgrave, the first and second respondents respectively, each own 33.3% of the company's shares, and each is a director of the company (I propose in this judgment to refer to Mr Delappe as ‘the applicant’, and to Mr Brock and Mr Cosgrave as ‘the first respondent’ and ‘the second respondent’ respectively, notwithstanding that the application the subject of this judgment is that of the respondents rather than the applicant in the substantive proceedings, Mr Delappe).

6 . On the company's incorporation, Mr Delappe and Mr Brock took up employment positions with the company, and between them have been responsible for different aspects of its operations. Mr Cosgrave is a non-executive director who, following the incorporation of the company, invested €150,000 into the company in order to support its establishment. Mr Delappe avers at para. 17 of his grounding affidavit that Mr Cosgrave “had no operational or day-to-day involvement in the Company's business, and instead simply took dividends and had some limited participation in the strategic direction of the Company…Mr Brock and Mr Cosgrave are well-acquainted with one another and have overlapping social circles”.

7 . It appears that, particularly given the crash in the Irish property market which occurred shortly after the establishment of the company, the applicant and first respondent concentrated on providing letting and property management services on behalf of landlords, and notwithstanding the crash were able to grow the company's business considerably. The company is profitable, and has never made a loss. The company does offer residential sales, particularly in respect of the letting properties managed by the company when the landlord decides to sell, but letting and property management remains the core business of the company.

8 . The company acquired a retail office in Inchicore, and ultimately a second sales office in Kilmainham. The company opened a third office in Cabra, Dublin 7 in early 2020. The opening and maintenance of the Cabra office has been a source of disagreement between the parties, and I will refer to this issue below. It appears that the company employs sixteen staff, including Mr Delappe and Mr Brock, across the three offices. Mr Delappe, at paras. 26 and 27 of his grounding affidavit in the substantive proceedings, sets out some of the financial details in relation to the company, and exhibits management accounts from December 2019 and December 2020 in relation to the financial state of the company. Mr Delappe avers that the company is “very healthy financially”, with very significant cash reserves, substantial recurring monthly income, and “…an active sales pipeline from both Kilmainham and Cabra [para. 26]…”.

9 . Mr Delappe, Mr Brock and Mr Cosgrave executed a shareholders' agreement on 21 December 2004. This agreement is exhibited to Mr Delappe's affidavit. He contends that “…as a matter of law, the company is and always has been a quasi-partnership between the three of us, and has operated as such” [para. 4]. Mr Delappe relies on certain clauses of the shareholder's agreement, and in particular clause 13 thereof, which provides that, if the employment of either Mr Delappe or Mr Brock with the company ceases, the two remaining shareholders must be given an option to purchase the entire shareholding of that employee. He contends that the first and second respondents intend to terminate his employment on the grounds of redundancy, and proceed to exercise their option to acquire his shares pursuant to clause 13 of the shareholders' agreement and remove him as a director of the company: see para. 15 of the grounding affidavit.

10 . In his replying affidavit, Mr Brock denies that the company was in reality a quasi-partnership, “…an assertion that I believe is plainly incompatible with the dealing of the parties, the existence of the shareholders agreement and, indeed, the contents of that document, in which the parties expressly ruled out the possibility of the company being construed as a partnership” [para. 14 replying affidavit].

Dispute in the substantive proceedings

11 . In order to understand the application presently before the court, it is necessary to have a grasp of the issues in the substantive proceedings. While there are many issues ventilated in the respective affidavits, the resolution of them is solely a matter ultimately for the trial judge. I shall attempt therefore to summarise the issues in the substantive proceedings as concisely as possible.

12 . The originating notice of motion, issued on 24 May 2021, seeks a declaration that the affairs of the company are being conducted by the first and second respondents in a manner oppressive to the applicant and/or in disregard of his interests in his capacity as a member of the company. At para. 2 of the notice of motion, the following relief is sought:

“2. An order (pursuant to s.212(3) of the Act of 2014) restraining the Respondents, and each or either of them from conducting the affairs of the Company and/or exercising their powers as directors in a manner oppressive to the applicant and/or in disregard of his interests and in particular, restraining them from:

(i) Taking any steps to remove the plaintiff from his employment with the Company;

(ii) if necessary, proceeding with the purported directors' meeting scheduled to take place on 25 May, 2021;

(iii) excluding the applicant from the day to day management of and or participation in the affairs of the company;

(iv) taking any steps to oust the Applicant as a member and shareholder of the company;

(v) utilising the resources of the company against the interests of the applicant”.

13 . At para. 5 of his grounding affidavit of 24 May 2021, Mr Delappe sets out the essence of his case as follows:

“5. In recent weeks, it has become clear to me that Mr Brock and Mr Cosgrave are engaged in a scheme, the object of which is to oust me from the Company. In outline, this scheme will involve the termination of my employment with the company on the purported and entirely false basis of redundancy, following which Mr Brock and Mr Cosgrave will exercise an option available to them under a Shareholders' Agreement to acquire my shares. The option in question allows the remaining shareholders of the Company to acquire the shareholding of any member of the Company whose employment with the Company ceases (for any reason). My purported redundancy is a sham, designed to make the said option exercisable by Mr Brock and Mr Cosgrave as against me and my shareholding…”.

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