Edward Gerard Kelly v Charles Kelly Ltd and Another

JurisdictionIreland
JudgeMiss Justice Laffoy
Judgment Date31 August 2011
Neutral Citation[2011] IEHC 349
CourtHigh Court
Date31 August 2011
Kelly v Kelly & Charles Kelly Ltd
IN THE MATTER OF CHARLES KELLY LIMITED AND IN THE MATTER OF THE COMPANIES ACTS 1963 - 2006 AND IN THE MATTER OF SECTION 205 AND SECTION 213(F) OF THE COMPANIES ACT 1963

BETWEEN

EDWARD GERARD KELLY
PETITIONER

AND

WILLIAM KELLY AND CHARLES KELLY LIMITED
RESPONDENTS

[2011] IEHC 349

[No. 402 COS/2008]

THE HIGH COURT

Abstract:

Company law - Oppression - Affairs of the company - Fair market value - Standing to bring action - Purchase order - Survival of company Companies Acts 1963-2006

Facts: The petitioner alleged that the first respondent had engaged in conduct that amounted to oppression within the meaning of ss. 205 or 213 Companies Acts 1963-2006. The Court had made determinations in earlier proceedings ([2010 IEHC 38] on the share capital and legal and beneficial ownership of shares. The petitioner alleged in particular that he had been suspended and excluded from the company. The defence claimed that the petitioner had not been involved in the trading affairs of the company. The question arose as to whether the applicant had standing to bring the application, whether oppression had been established and what orders were appropriate to be made.

Held by Laffoy that an order would be made amending the petition inter alia to incorporate a claim that the company be directed to purchase from the first respondent his shareholding, as well as an order that the company purchase the shares of the first respondent at fair market value. Until such time as the first respondent was divested of his interest, the affairs of the company could not be stabilised. The only path to the survival of the company was that the first respondent should cease to be a shareholder and director of the company. The company would be ordered to purchase the share of the first respondent at fair market value.

Reporter: E.F.

1

Judgment of Miss Justice Laffoy delivered on the 31st day of August, 2011.

1. Background
2

2 1.1 The background to these proceedings, in which the petitioner seeks relief under s. 205 or s. 213(f) of the Companies Act 1963 (the Act of 1963), is outlined in the judgment I delivered on 12 th February, 2010 ( [2010] IEHC 38) (the 2010 judgment) on the first module of the proceedings. In the first module the Court determined the issues which had arisen when the matter first came on for hearing, namely, whether the petitioner was a member of Charles Kelly Ltd. (the company) and, if he was, the extent of his shareholding in the company. Having addressed those issues, I found as follows:

3

(a) that the current issued share capital of the company is represented by 7,938 shares at the Euro equivalent of IR£1 (€1.27) each;

4

(b) that the petitioner and the first respondent are the legal and beneficial owners jointly of 7,936 shares; and

5

(c) that the remaining two shares form part of the estate of the mother of the petitioner and the first respondent, Margaret Mary Kelly (Mrs. Kelly), who died on 22 nd October, 2006, but whose will had not at that stage, and still has not been, admitted to probate.

6

3 1.2 As outlined in the 2010 judgment, the company was incorporated on 18 th July, 1932. It carries on the business of builders merchant and retail hardware at Letterkenny in County Donegal. Both in connection with, and distinct from, that business the company has a substantial property portfolio. However, since these proceedings commenced in September 2008 the turnover of the business and the value of the property portfolio has diminished considerably. Nonetheless, the company still has between forty and fifty employees.

7

4 1.3 As also outlined in the 2010 judgment, the petitioner and the first respondent are brothers. Both are qualified accountants but they have worked exclusively for the company for most of their working lives, in the case of the first respondent since 1980 and in the case of the petitioner since 1984. Each has had three distinct roles in relation to the company. First, each has been, and is, either an employed executive or a self employed executive of the company. On the evidence, it would appear that for most of the period during which they worked in the company, they were treated and remunerated as employees of the company, although in the recent past an issue has arisen as to their proper classification for the purposes of Pay Related Social Insurance (PRSI), which had not been finally resolved when the matter came on for hearing. Secondly, they are shareholders of the company, jointly owning 99.975% of the issued share capital of the company. The Court has directed that they be registered in the register of members of the company in accordance with the Court's finding in the 2010 judgment. Thirdly, they are directors, and since 2004, they have been the only directors of the company. In that capacity they have been paid directors' fees annually.

8

5 1.4 A brother of the petitioner and the first respondent, George Kelly, has been employed by the company since 2000. He is neither a shareholder nor a director of the company. In the dispute between the petitioner and the first respondent, which is the subject of these proceedings, he has aligned himself with the first respondent. An affidavit sworn by him on 5 th December, 2008 was filed in response to the petition and he was called by the first respondent to testify on the hearing of the second module of the proceedings.

9

6 1.5 On the basis of the findings made in the 2010 judgment and the procurement of the stamping of the various share transfers which had not been stamped, and the steps being taken to update the register of members, I am satisfied that the petitioner has established that he has standing to bring the substantive proceedings.

10

7 1.6 Unfortunately, prior to the commencement of the hearing of the second module, the solicitors previously on record for the first respondent and the company, Gibson & Associates, had applied, and were given liberty, to come off record. In consequence, the first respondent appeared in person and there was no legal representation on behalf of the company. An application made by the first respondent at the commencement of the hearing of the second module that he be at liberty to appoint lawyers to represent the company and to discharge the resulting fees out of the assets of the company was not acceded to on the basis that the issues which arose on the petition arose primarily between the petitioner and the first respondent. In ruling on the application, the Court noted that the legal position is correctly stated in Courtney on The Law of Private Companies (2 nd Ed.) at para. 19.052 where it is stated:

"Disputes under … s. 205 are typically between the members inter se or the members and the directors. The separate legal entity which is the company will usually not play an active part in the litigation, although for practical reasons they may be separately represented at a section 205 hearing. In the particular context of disputes involving the exclusion of quasi-partners from the company's management it would be wrong for the company's controllers to utilise the company's resources in connection with the proceedings."

11

8 1.7 The evidence at the hearing of the second module of the substantive proceedings was heard over seven days. It focused almost entirely on the allegations and counter allegations made by the petitioner and the first respondent against each other and only minimally on what the appropriate remedy would be, if the Court were to conclude that a case of oppression had been made out by the petitioner. Having reached the conclusion that the petitioner had made out a case of oppression and disregards of his interest against the first respondent, I informed the parties of that finding on the 9 th February, 2011 and gave directions and made orders with a view to obtaining the necessary information which would assist the Court in determining what the appropriate remedy was to bring that state of affairs to an end. The directions given and the orders made are outlined later in paragraph 13.1.

12

9 1.8 The structure of this judgment is as follows:

13

(a) paragraphs 2 to 12 deal with all matters relating to the allegations and finding of oppression and the difficulties encountered in dealing with the remaining issues in the case;

14

(b) paragraph 13 sets out the directions given and the orders made on 9 th February, 2011; and

15

(c) paragraphs 14 et. seq. deal with events subsequent to the 9 th February, 2011 and all matters dealing with the determination of the appropriate remedies to bring the oppression to an end.

2. The pleadings
16

2 2.1 A lot of the allegations and complaints made by the petitioner against the first respondent, on the one hand, and by the first respondent and George Kelly against the petitioner, on the other hand, related to matters which post-dated the petition. Therefore, I consider it appropriate to consider the case made by the petitioner and the answer of the first respondent to it on the pleadings, before outlining the allegations of oppression relied on by the petitioner at the hearing of the second module and the evidence adduced in relation thereto.

17

3 2.2 While the petition is not dated, it would appear that it was filed in this Court on 26 th September, 2008 and given a return date of 20 th October, 2008. In the petition it was expressly pleaded that the petitioner and the first respondent had over the years conducted and managed the affairs of the company on the basis of acknowledging their equal shareholding in the company and their entitlement to share equally in the management of the company's affairs and that they had at all times operated the company on the basis of a quasi-partnership existing between them. It was specifically pleaded that...

To continue reading

Request your trial
9 cases
  • Harrington v Harrington
    • Ireland
    • High Court
    • 20 December 2018
    ...At the hearing before me the position of the first respondent shifted. It is clear from the authorities, for example Charles Kelly Ltd [2011] IEHC 349 that while the court has an inherent jurisdiction to appoint a valuer to assist the court, the decision as to the value of the shares and t......
  • Gerard Dowling and Others v Alan Cook and Others
    • Ireland
    • High Court
    • 23 August 2013
    ...1975 1 AER 504 COMPANY, A (004502 OF 1988) IN RE EXPARTE JOHNSON 1991 BCC 234 KELLY v KELLY & ANOR UNREP LAFFOY 31.8.2011 2011/30/8160 2011 IEHC 349 BEDDOE, IN RE 1893 1 CH 574 DELANY EQUITY & LAW OF TRUSTS IN IRELAND 5ED 2011 447 FITZPATRICK v F K ORS 2007 2 IR 406 COMPANIES ACT 1963 S200 ......
  • Mascarenhas v Karim
    • Ireland
    • High Court
    • 23 May 2019
    ...membership.” (The Law of Companies, 4th ed., at p. 698) 110 In Charles Kelly Limited & Companies Acts: Kelly v. Kelly & Kelly [2011] IEHC 349, Laffoy J. considered a situation where it had been claimed the oppression manifested itself in the form of the suspension of the petitioner, the ex......
  • Tiago Mascarenhas v Rezaul Karim and Mahbuba Sultana
    • Ireland
    • Court of Appeal (Ireland)
    • 2 March 2022
    ...members in a manner that is “burdensome, harsh or wrongful” (see, Greenore Trading Limited [1980] ILRM 94 and Re Charles Kelly Limited [2011] IEHC 349 and [2021] IECA 244 and In the matter of ABC Limited (X v. Y) [2020] IEHC 179 The court adopts an objective standard when assessing whether ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT