Donegal Investment Group Plc v Danbywiske

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 27 February 2017
• Neutral Citation: [2016] IECA 193
• Court: Court of Appeal (Ireland)
• Docket Number: [C.A. Nos. 170 & 487 of 2015]; [S.C. Nos. 95 & 117 of 2016],[2015 No. 170]
• Date: 27 February 2017

Finlay Geoghegan J.

Hogan J.

Cregan J.

IN THE MATTER OF ELST AND

IN THE MATTER OF SECTION 205 OF THE COMPANIES ACT 1963 AND

IN THE MATTER OF SECTION 213(F) OF THE COMPANIES ACT 1963 AND

IN THE MATTER OF THE COMPANIES ACTS 1963 - 2012

BETWEEN

DONEGAL INVESTMENT GROUP PLC

PETITIONER/APPELLANT

AND

DANBYWISKE, RONALD WILSON,

THE GENERAL PARTNERS OF THE WILSON LIMITED PARTNERSHIP 1,

MONAGHAN MUSHROOMS IRELAND

AND

ELST

RESPONDENTS

[2016] IECA 193

Finlay Geoghegan J.

[2015 No. 170]

[2015 No. 487]

THE COURT OF APPEAL

Valuation – Remedy – Shareholding – Appellant seeking to appeal against orders of the High Court – Whether the Court of Appeal should vacate the orders

Facts: The appellant, Donegal Investment Group Plc, is a public limited company and a 30% shareholder in Elst (the Company). The first respondent, Danbywiske, is an unlimited company associated with the second, third and fourth respondents, Mr Wilson, the General Partners of the Wilson Ltd Partnership 1, Monaghan Mushrooms Ireland and Elst (the Wilson Shareholders) and those four respondents together hold 70% of the shares in the Company. The appellant appealed to the Court of Appeal against an order of the High Court (McGovern J) of 16th January 2015, made pursuant to a judgment delivered on 5th December 2014, on a discrete issue fixed for determination by order of the High Court (Kelly J) of 11th April 2014 which fixed the price at which the respondents should purchase the appellant?s shares upon the basis of a then assumed 35% stake in the company at ?30.6 million (the valuation appeal). The appellant also appealed to the Court of Appeal against an order of the High Court (McGovern J) of 5th June, 2015, made pursuant to a judgment delivered on 21st May 2015 which ordered that the respondents purchase the appellant?s shares in Elst for ?26,228,571 (the remedy appeal). It was submitted that the trial judge failed to have proper regard for the fact that the Wilson shareholders were, by admission, the oppressors.

Held by Finlay Geoghegan J that, having regard to the procedure adopted by the parties, and, in particular, the agreed approach to the remedy module, that Donegal could not pursue as a ground of appeal a failure by the trial judge to fashion a remedy to bring to an end oppression; there were no findings in relation to the alleged acts of oppression which would permit this. The trial judge correctly, in the Court?s view, attempted to fashion a remedy which was fair and just for the parties on the particular facts of the case, as disclosed by the evidence given during the valuation hearing. In the absence of evidence in relation to an IPO and the effect of a forced sale of the Company on its market value, the Court held that the trial judge correctly exercised his discretion in rejecting any order for an IPO or other realisation of the Company. Finlay Geoghegan J held that the trial judge was entitled to have regard to the difference in the nature of participation of the Wilson shareholders and Donegal in the management and governance of the Company. The Court upheld the determination of the trial judge on the remedy module, save in relation to the precise amount which fell to be determined in the appeal from the valuation module. The Court concluded that, although there was before the trial judge significant complex evidence in relation to valuation, much of which he took into account and made decisions in respect of certain elements from which there is no appeal, there were, nevertheless, key elements of the expert evidence in relation to the proper approach to determining the multiple to be used with which he simply did not engage and in respect of which he gave no reasons for departing from what appears to the Court to have been a consensus amongst the experts, namely, the necessity to form a judgment or considered expert view as to the appropriate multiple following upon an assessment of multiples derived from relevant transaction and trading comparables.

Finlay Geoghegan J held that the Court must vacate the orders of 16th January 2015 and 5th June 2015 and make an order that the respondents purchase the appellant?s 30% shareholding in the Company and remit to the High Court the issue of the price at which the respondents should purchase the appellant?s 30% shareholding in the Company.?

Judgment approved.

JUDGMENT of the Court delivered by Ms. Justice Finlay Geoghegan on the 8th day of June 2016

1 This judgment is given in two appeals, which in chronological order are:-

(i) An appeal against an order of the High Court (McGovern J.) of 16th January 2015, made pursuant to a judgment delivered on 5th December 2014, on a discrete issue fixed for determination by order of the High Court (Kelly J.) of 11th April 2014 which fixed the price at which the respondent should purchase the petitioner's shares upon the basis of a then assumed 35% stake in the company at ?30.6 million (?the valuation appeal?); and

(ii) An appeal against an order of the High Court (McGovern J.) of 5th June, 2015, made pursuant to a judgment delivered on 21st May 2015 which ordered that the respondents purchase the petitioner's shares in Elst for ?26,228,571 (?the remedy appeal?).

2 The above appeals were heard one after the other. They both arise in the same High Court proceedings [2013 No. 591 COS]. For reasons which will become apparent, this judgment considers, first, the remedy appeal and then the valuation appeal. There are certain background facts and a history of the proceedings which are common to both appeals.

Background Facts

3 The petitioner (?Donegal?) is a public limited company registered in the State. It is now a 30% shareholder in Elst (The Company?.) The first named respondent, Danbywiske, is an unlimited company associated with the second, third and fourth respondents and those four respondents together now hold 70% of the shares in the Company. They will collectively be referred to as the ?Wilson Shareholders? or the respondents.

4 The Company was incorporated as a holding company in a group restructuring to indirectly hold the entire issued share capital of Monaghan Middlebrook Mushrooms (?MMM or Monaghan?). MMM carries on the businesses of manufacturing compost and the growing and selling of mushrooms. Prior to 2002, Mr. Ronnie Wilson held an approximate 50% stake in MMM. Prior to 2004, the petitioner and Connaught Gold Cooperative Society Limited were the sole shareholders in a competing business, Carbury Mushrooms Limited (?Carbury?).

5 In 2004, it was agreed that the business of MMM and Carbury would merge and that MMM would be the vehicle for the merged business. The terms of merger and future conduct of the business was agreed in a ?Share Exchange and Shareholders Agreement? dated 1st June 2004 (?SESA?). In 2007, the shares of Connaught Gold were bought out and certain changes agreed pursuant to a document entitled ?Heads of Agreement?. That document gave rise to the dispute as to whether Donegal, at the time of the commencement of these proceedings, held 35% of the shares or, alternatively, whether Danbywiske was entitled to acquire 5% pursuant to an option agreement. This latter dispute was the subject of separate plenary proceedings determined by the High Court (McGovern J.) in January 2015, in favour of Danbywiske and which decision is not the subject of an appeal. Hence, the undisputed current position is that the petitioner holds 30% of the Company and the first four respondents 70%.

6 In 2010, there was a further restructuring pursuant to which the Company became the ultimate holding company of MMM. The parties hereto were allotted shares in the Company commensurate with their then shareholding in MMM.

7 At all material times, the executive directors of the Company, (and previously MMM), were Wilson shareholder nominees and the Company was managed by executives who include the second named respondent, Mr. Ronnie Wilson. Donegal nominated non- executive directors who have changed from time to time. There was, in 2013, an independent chairman of the Company, Mr. James Osborne.

8 By 2013, substantial disputes had arisen between the shareholders. At the instigation of Mr. Osborne, Investec Corporate Finance was appointed by the Company to conduct a global strategic review of the business of the Company and as part of the process to seek agreement between the shareholders. This has been referred to as the ?Investec Process?.

9 By this stage, however, there had been significant disagreements between the shareholders, so one of the options considered in the course of the Investec process was a possible exit strategy for Donegal. The Chairman suggested a buyout of Donegal's shareholding be considered. The respondents offered a sum of ?25m, upon the basis of a 30% holding. That was refused. Donegal, by letter from its solicitors, sought a price of ?34m for a claimed 35% shareholding in the Company in default of which it was stated a petition would issue.

Proceedings

10 Shortly after the Investec process concluded, a petition was presented on 22nd December 2013, primarily alleging acts of oppression since 2009 and seeking the following reliefs:-

?(1) An order that the company be realised in accordance with Clause 10 of SESA and the intention and agreement of the Shareholders, by the providing for the sale of the entire issues share capital and with each share being valued pro rata;

(2) Alternatively, an order that the company be wound up pursuant to s. 213(f) of the Companies Act 1963 upon the grounds that it is just and equitable to do so;

(3) Further or alternatively an order that the shares of the company be valued as if the acts of oppression had not occurred;

(4) Alternatively, an order that the first, second, third and...