Donegal Investment Group Plc v Danbywiske, Wilson

• Jurisdiction: Ireland
• Court: Supreme Court
• Judge: Mr. Justice Clarke
• Judgment Date: 27 February 2017
• Neutral Citation: [2017] IESC 14
• Docket Number: [Appeal Nos: 2016/95 and 2016/117]
• Date: 27 February 2017

In the Matter of Elst

And in the Matter of Section 205 Companies Act, 1963

And in the Matter of Section 213 F Companies Act, 1963

An in the Matter of the Companies Acts, 1963 – 2012

Between/

Donegal Investment Group plc

Petitioner/Respondent

and

Danbywiske, Ronald Wilson, The General Partners of Wilson Limited Partnership 1, Monaghan Mushrooms Ireland

and

Elst

Appellants

[2017] IESC 14

Clarke J.

Denham C.J.

O'Donnell J.

Clarke J.

MacMenamin J.

Dunne J.

Charleton J.

O'Malley J.

[Appeal Nos: 2016/95 and 2016/117]

THE SUPREME COURT

Company – Shareholding – Compulsory purchase of shareholding – Valuation of company

Facts: The appellants had been ordered by the High Court to purchase the shares held in a company named Elst. The valuation of Elst was ordered to be tried separately, and following consideration an order was made. The Court of Appeal overturned the judgment of the High Court as to price, and remitted the matter back to the High Court. The appellants now sought to challenge that decision.

Held by Mr Justice Clarke, the other Justices concurring, that the appeal would be dismissed. Clarke J stressed the way an appellate court should consider the decision of the Court at first instance, but also the need for a trial Judge to state clearly reasons for their decision. It was clear the judgment at High Court level did not state clearly sufficient reasons for the approach taken by the Judge, and the Court of Appeal could not be said to have erred by allowing the appeal from the High Court.

Judgment of Mr. Justice Clarke delivered the 27th February, 2017.

1. Introduction

1.1 At the heart of this appeal lie questions concerning the proper approach which a court should adopt to the valuation of a company and in particular the way in which both trial and appellate courts should consider and deal with expert evidence tendered by the parties in support of their respective cases on such valuation.

1.2 For reasons which are no longer relevant to the issues which arise on this appeal, it has been determined that the respondents/appellants (collectively ‘Danbywiske’) should purchase the shareholding of the petitioner/respondent (‘Donegal’) in the company named in the title of these proceedings (‘Elst’). On the 11th April, 2014, the High Court (Kelly J.) directed the trial of an issue as to the price at which Danbywiske might purchase the shares of Donegal in Elst. There were, at the same time, also issues as to the precise level of shareholding which Donegal held in Elst. That question depended on issues arising out of an option agreement. There was an order of the High Court (McGovern J.) in different proceedings (2014 47 COM) which resolved that question ( Danbywiske & anor v Donegal Investment Group plc [2015] IEHC 126) and also a separate order made by McGovern J. in these proceedings which found that the appropriate relief to which Danbywiske was entitled under this petition was an order compelling the purchase of the shares in Elst ( Re Elst, Donegal Investment Group plc v. Danbywiske & ors [2015] IEHC 439.

1.3 In passing, and so as to make sense of the numbers, it should be noted that the order of Kelly J. directing that the valuation issue, which is the subject of this appeal, should be separately tried required that the valuation exercise be carried out on the assumption of a 35% shareholding in Elst. As a result of the decision of McGovern J. on the option question, already referred to, it transpired that the proper valuation was required to be carried out on the basis of a 30% shareholding. The ultimate order required the purchase of the shares concerned for €26,228,571. The numbers which appear in the calculations of the High Court and in this judgment were, however, based on the larger assumed shareholding of 35%. It should be made clear that the difference in numbers simply reflects the change in the scale of the shareholding. The issues which arise in the valuation exercise are not in any way affected by that difference.

1.4 However, for the purposes of this appeal, the key decision of the High Court was the judgment of McGovern J. on the 5th September, 2014 fixing the price at which Danbywiske might purchase Donegal's shares in Elst at €30.6m on the assumption that the relevant shareholding was 35%. I mention some of the other judgments given in these and related proceedings simply for the purposes of recording that there has been a lot of activity in this litigation but that the issue before this Court is confined to the valuation question.

1.5 On the 8th June, 2016 the Court of Appeal (Finlay Geoghegan J., Hogan and Creegan JJ.) overturned the judgment of McGovern J. in respect of price (see Donegal Investment Group plc v. Danbywiske & ors [2016] IECA 193). The Court of Appeal ordered that the matter be remitted back to the High Court and gave certain directions as to the proper approach to the calculation of amount to be paid for the relevant shares.

1.6 It is against that finding of the Court of Appeal that Danbywiske sought leave to appeal to this Court. In that context the Court, in a determination ( Donegal Investment Group plc v. Danbywiske & ors [2016] IESCDET 124), set out the basis on which leave to appeal was granted in the following terms:-

‘(a) Whether the principles set out in Hay v O'Grady as to the limits of an appellate court's review of fact apply both generally and to expert testimony and, as such, constitute a complete code which cannot be departed from?

(b) Whether these principles were departed from in the rulings of the Court of Appeal on the findings of fact in the High Court relating to share valuation?

(c) Does the costs order of the Court of Appeal require to be reviewed?’

1.7 The appeal is, therefore, concerned only with those issues.

2. The Position of the Parties

2.1 In order to specify with greater particularity the precise issues which arise on this appeal in the light of the written and oral procedure it may be useful to identify, at least in very broad terms, the position adopted by the parties.

2.2 On the first question of whether the principles identified in Hay v. O'Grady apply in respect of expert evidence, the parties adopted positions which did not differ to any great extent. At the level of principle it was accepted that Hay v. O'Grady did apply to expert testimony. It also seemed to be accepted by both parties that the proper approach which should be adopted by an appellate court in scrutinising a finding of fact by a trial judge, where that finding involved a consideration of expert evidence, might be somewhat different to that applicable in a case where an appeal related to a straightforward finding of fact. On one view it might be said that there was at least a difference of emphasis between the parties as to the proper approach in such circumstances and it will, therefore, be necessary in due course to touch briefly on the proper approach of an appellate court to findings based on expert evidence.

2.3 I now turn to the second issue. While it will be necessary to consider the judgment of Finlay Geoghegan J., speaking for the Court of Appeal, in due course, it is fair to say that a key finding of that Court is to be found at paras. 79 and 80 which are in the following terms:-

‘The Court has 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 this 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. In those circumstances, consistent with the approach of the Supreme Court in Doyle v. Banville [2012] IESC 25 and Hay v. O'Grady [1992] 1 I.R. 210, it is a finding which cannot be upheld.

In reaching this conclusion, the Court is not intending to indicate that the trial judge was bound to follow the conclusion reached by expert testimony on the multiple offered by one or other party. As is clear from the judgment of Blayney J. in Irish Press plc. v. Ingersoll Irish Publications Ltd. [1995] 2 I.R. 175, a trial judge is entitled to reach his own conclusion, albeit that that is different to the conclusions reached by the expert evidence of either party. Nevertheless, in a matter such as this, where there has been a consensus of approach to market valuation as between the experts - albeit differing in its application to the particular facts - then if a trial judge is going to depart from and use a different approach, this is a matter must be explained and explained by reference to the key elements of the evidence before him.’

2.4 The Court of Appeal then went on to analyse the way in which the trial judge had approached the question of determining the correct multiplier. For the reasons set out, most particularly at para. 76 of the judgment, Finlay Geoghegan J. came to the view that there was no evidence to support what she found to be the method adopted by the trial judge. It will be necessary to consider that aspect of the judgment of the Court of Appeal in due course. Clearly if that finding by the Court of Appeal is correct then this appeal would have to be dismissed and the order of the Court of Appeal affirmed.

2.5 Essentially the case made by Danbywiske in relation to this issue suggested that the Court of Appeal was wrong to regard the trial judge as having come to conclusions which were not...