Clarke v Colorman (Ireland) Ltd

JurisdictionIreland
CourtHigh Court
JudgeMr. Justice Denis McDonald
Judgment Date11 July 2019
Neutral Citation[2019] IEHC 507
Docket Number[2019 No. 181 COS]
Date11 July 2019

[2019] IEHC 507

THE HIGH COURT

COMMERCIAL

McDonald J.

[2019 No. 181 COS]

IN THE MATTER OF COLORMAN (IRELAND) LIMITED AND IN THE MATTER OF THE COMPANIES ACT 2014 AND IN THE MATTER OF SECTION 212 OF THE COMPANIES ACT 2014

BETWEEN
GARY CLARKE
APPLICANT
AND
COLORMAN (IRELAND) LIMITED, CLARE NIXON, DAVID CLANCY

AND

ANDREW DUNNE
RESPONDENTS

Expert determination – Shareholders’ agreement – Stay of proceedings – Respondents seeking an order striking out or staying the proceedings – Whether the applicant was obliged to refer the dispute between the parties to binding expert determination pursuant to a shareholders’ agreement

Facts: The respondents, Colorman (Ireland) Ltd, Ms Nixon, Mr Clancy and Mr Dunne, applied for an order, under the inherent jurisdiction of the High Court, to strike out or stay the proceedings on the basis (so it was claimed) that the applicant, Mr Clarke, was obliged to refer the dispute between the parties to binding expert determination pursuant to Clause 7.09 of a shareholders’ agreement dated 6th December, 2000. The application was brought pursuant to a motion dated 21st May, 2019, in relation to the proceedings instituted by the applicant on 16th May, 2019. The respondents said that the applicant, as one of the parties to the shareholders’ agreement, was bound by its terms. They said that it was a matter for the applicant to show that there were sufficient reasons in the case to justify the court exercising its discretion against a stay of the proceedings and that, on examination, none of the arguments put forward by the applicant were sufficient to justify the refusal of a stay. In the course of the written and oral submissions of the applicant, a number of individual points were raised which, it was argued, when viewed collectively and in their entirety, justified a refusal of the stay.

Held by McDonald J that the factors in favour and against a stay were evenly balanced. He held that if a stay had to be granted, it could only be granted if the respondents were prepared to give an undertaking to the court in the terms of the interlocutory relief sought by the applicant pending (a) the determination of the merits of the dispute between the parties by the expert to be appointed by the President of the Law Society, or (b) if earlier, a determination by the expert that any complaint relevant to the interlocutory relief sought, was not maintainable in law by the applicant. That seemed to McDonald J to be the only way in which the privacy consideration could be maintained.

McDonald J proposed to give the parties an opportunity to consider his judgment and in particular to give the respondents an opportunity to confirm whether such an undertaking would be forthcoming. If such an undertaking was forthcoming, he proposed to grant a stay on the proceedings (including the application for an interlocutory injunction); if the undertaking was not forthcoming, the application for a stay should be refused. If any issues arose in relation to the form of the undertaking, McDonald J held that he would hear the parties to the extent that it may be necessary to do so.

Judgment approved.

JUDGMENT of Mr. Justice Denis McDonald delivered on 11 July, 2019
Introduction
1

This is an application by the respondents for an order, under the inherent jurisdiction of the court, to strike out or stay these proceedings on the basis (so it is claimed) that the applicant is obliged to refer the dispute between the parties to binding expert determination pursuant to Clause 7.09 of a shareholders” agreement dated 6th December, 2000. The application is brought pursuant to a motion dated 21st May, 2019, in relation to the proceedings instituted by the applicant on 16th May, 2019.

2

Each of the applicant and the respondents are directors of Colorman (Ireland) Limited (‘the Company’) which is based in Broombridge Industrial Estate near the Royal Canal in Dublin. The Company was established in 1959 and is well known for its high quality printing and packaging services.

3

The company was established by the late Mr. Bob Burke. Following his death in 2000, the then management team bought out the business and together entered into a shareholders” agreement dated 6th December, 2000, (‘ the shareholders” agreement’). The agreement in question is in relatively short form. Clause 1.04 provides that it is to be governed by and construed in accordance with the laws of Ireland. Clause 1.05 identifies that the purpose of the agreement is ( inter alia) to deal with the management of the Company's affairs and the regulation of the future conduct and the relationship of each of the parties. The provisions dealing with subscription for shares are contained in Clause 2.01 of the agreement. Business management is addressed in Clause 4.01 which also provides that no material alteration is to be made to the nature of the business unless unanimously agreed between the parties.

4

Clause 4.05 deals with transfers of shares and also provides for pre-emption rights in the event that any shareholder wishes to dispose of shares. There is a significant dispute between the parties as to the interpretation of Clause 4.05. Of central importance to the present application is Clause 7.09 which envisages that disputes in relation to the agreement or the conduct of the Company's affairs will be referred by the parties to an independent expert for determination. The text of Clause 7.09 is set out further below.

5

I do not propose to set out the nature of the dispute in any detail. It would be inappropriate and potentially unhelpful to do so. A broad outline of the dispute is sufficient in order to understand the context in which this application falls for consideration. The applicant holds a significant number of shares in the Company. The balance of the shares are held as between the respondents. In the course of 2018, it was decided by the parties to explore the possibility of a management buyout. At some point during that year, an offer was received by a US company but, ultimately, in February 2019, the proposed purchaser withdrew. There is a dispute between the parties as to what happened next. It is unnecessary, for present purposes, to go into detail in relation to the nature of that dispute. It is sufficient to record that, subsequently, a further prospective purchaser emerged, namely Ryhall Limited (‘ Ryhall’) which is incorporated in Malta. However, the applicant contends that negotiations were conducted by the respondents with Ryhall over the course of several months without reference or notice to him and he alleges that this was done without any attempt being made to offer the respondents” shares to him in the manner required by Clause 4.05 of the shareholders” agreement. He also argues that, in addition, this alleged behaviour on the part of the respondents constitutes oppression or conduct in disregard of his interests within the meaning of s. 212 of the Companies Act 2014 (‘ the 2014 Act’).

6

The applicant also complains that the respondents have entered into heads of terms with Ryhall which includes an exclusivity clause which purports to be legally binding on the parties thereto and which obliges the respondents not to engage with any third party whatsoever with respect to a possible sale of their shares in the Company, other than Ryhall. Again, the applicant contends that this alleged conduct on the part of the respondents constitutes a breach of the shareholders” agreement and is oppressive to him and in disregard of his interests within the meaning of s. 212 of the 2014 Act.

7

The applicant also alleges that a valuation of shares was carried out by the Company's auditors without his knowledge or consent and that there had been a failure to circulate a draft record outlining the auditor's provisional view on valuation prior to finalising the valuation. The applicant also complains that the valuation provided by the auditors does not comply with the requirements of the shareholders” agreement insofar as it states that the value could lie anywhere within a range of figures (with a margin between them of €2.5 million).

8

A further complaint made by the applicant as against the respondents is that they have wrongfully (so he contends) sought to suggest that the time periods under the pre-emption provisions of the shareholders” agreement had commenced to run notwithstanding his complaint that the valuation had not been carried out in accordance with the requirements of the shareholders” agreement. The applicant makes the case that this is further conduct in disregard of his interests and/or constitutes oppression within the meaning of s. 212 of the 2014 Act. He also alleges that there is a deliberate attempt to frustrate a due diligence exercise which he seeks to carry out and he alleges that this is designed to ‘ frustrate’ the exercise of his right of first refusal under the shareholders” agreement and is done for the benefit of Ryhall and to his detriment.

9

All of the allegations made by the applicant are strenuously rejected by the respondents who have said on affidavit that the complaints made are without foundation and untrue. On the basis of the affidavits filed by the respondents, there is a significant factual dispute between the parties and, in circumstances where I heard no argument on the merits, it would be impossible at this stage to form any view as to the validity of the respective positions of the parties in relation to the substantive matters in dispute.

The Initiation of the Proceedings by the Applicant
10

A formal letter of complaint was written on behalf of the applicant on 22nd April, 2019, by Crowley Millar, solicitors. In their written response of 24th April, 2019, the respondents rejected the allegations against them and indicated that if the applicant intended to acquire their shareholding in accordance with Clause 4.05 of the shareholders” agreement,...

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