Hayes v Kelleher & Reardon
| Jurisdiction | Ireland |
| Judge | Mr Justice Max Barrett |
| Judgment Date | 31 July 2015 |
| Neutral Citation | [2015] IEHC 509 |
| Court | High Court |
| Date | 31 July 2015 |
[2015] IEHC 509
THE HIGH COURT
BETWEEN:
AND
Company – Shareholder agreement – Power to appoint additional directors – Concurrency of power – Articles of association
Facts: The present proceeding concerned the power of the plaintiff to requisition an extra general meeting (EGM) of the company of which she was the largest shareholder for the purpose of increasing the number of directors and the appointment of additional directors. The plaintiff contended that she enjoyed 51 percent of the voting rights on any resolution put before a general meeting by virtue of her ownership of special shares and ordinary shares.
Mr. Justice Max Barrett granted an order to the effect that the number of directors on the company's board might be increased by an ordinary resolution of the company, that the plaintiff's ordinary shares and special shares carried not less than 51 per cent votes casted on any resolution put before a general meeting and that the shareholders of the company enjoyed an inherent power to appoint directors that had not been displaced by the articles of association and/or shareholder agreement. The Court granted an order to the effect that the plaintiff could exercise her minimum 51 percent voting rights at a general meeting of the company for increasing the number of directors on the board and the appointment of directors to that board. The Court observed that there was no clear language or implication that called for the exclusion of general meeting for the appointment of additional directors. The Court observed that the proper interpretation of the shareholder agreement and the articles of association revealed the existence of concurrency of power and that the company had an inherent power to nominate and appoint its own directors unless restricted in any way by the contract contained in the articles of association.
Ms Hayes is the CEO of, and the largest shareholder in, The Blarney Woollen Mills Group ("Blarney"). Governance of Blarney operates pursuant to its articles of association and a shareholder agreement that its present shareholders have executed between themselves. That agreement came into existence as part of a plan whereby Ms Hayes (who left the well-known 'Blarney Woollen Mills' business in 1992 and went on to establish the equally well-known 'Meadows and Byrne' business as an independent concern) re-joined 'Blarney Woollen Mills', which was merged with 'Meadows and Byrne', with Blarney being used as the corporate vehicle through which this was achieved. As explained by Ms Hayes in her grounding affidavit of 11 th May:
"While I readily accepted that profits would be distributed according to the amount of equity ultimately held by the respective stakeholders in the new combined business, in the light of my previous experience of how disharmony among family could hinder effective management and decision making I was adamant that I was not prepared to contemplate involvement in this venture unless I had control over 51% of shareholder voting rights and the power to nominate five out of nine directors on the board. In short I regarded my ability to control the management and overall direction of the Company free from internal wrangling as a sine qua non of my participation and this was accepted by all concerned."
The share capital of Blarney is divided into different classes. The 'A', 'B', and 'C' shares are voting shares. The 'A1', 'B1' and 'C1' shares are non-voting shares. Ms Hayes is the holder of 1,813,911 'B' Ordinary Shares (comprising 66.7 per cent of those shares) and 5,441,734 'C' Ordinary Shares (comprising all the shares of that class). She is also the holder of a single so-called 'Special Share' which is provided for in Art.5 of Blarney's articles of association and cl.2.8 of a shareholder agreement of 3 rd March, 2000. The balance of the 'B' Ordinary Shares is divided between Mr Reardon (the second-named Defendant) and a Mr Archie McLoughlin and Ms Brid McLoughlin.
The within proceedings have been commenced because an impasse has arisen between Ms Hayes and the Defendants, all shareholders, concerning the interpretation of certain provisions of the above-mentioned shareholder agreement and of those articles of association that deal with shareholder voting rights. The issue recently came to a head as a consequence of Ms Hayes requisitioning an EGM of Blarney for the purpose of increasing the number of Blarney's directors from nine to 13 and nominating and appointing additional directors. Ms Hayes contends that, by reason of her ownership of the Special Share and ordinary shares, she enjoys 51 per cent of the voting rights on any resolution put before a general meeting of Blarney. This is denied by Mr Reardon and the other Defendants, for reasons that are detailed later below. Needless to say, Ms Hayes disputes the approach to matters that is contended for by the Defendants.
A large part of this judgment is concerned with the correct interpretation to be accorded to various of Blarney's articles of association, the correct interpretation to be accorded to certain provisions of the shareholder agreement, and the interaction between the two. For ease of reference, the relevant provisions are collated in Appendix A which forms a part of this judgment. They are also quoted, when and as appropriate at relevant points of the judgment.
5. The court has been furnished by the parties with an abundance of authorities concerning various principles of contractual interpretation. Those cases are considered in Appendix B hereto, which forms a part of this judgment. The court summarises in Appendix C various principles of relevance that this abundance of case-law appeal's to it to yield. Appendix B and C form a part of the within judgment. The court has sought to apply the various principles identified in Appendix C, when and as appropriate, throughout the within judgment.
6. It is an issue concerning shareholder voting rights that initially prompted the within proceedings. However, that issue is better understood if the court treats first the issues that have arisen concerning whether there is a limit on the number of Blarney's directors, and whether Blarney's board has exclusive control over the appointment of directors. In this regard, it is necessary to look first at the wording of Art. 12(a) and (j) of Blarney's articles of association. Art. 12(a) provides as follows:
"The number of Directors shall not be less than two nor unless and until otherwise determined by the Company by ordinary resolution, more than nine. A Director shall not retire by rotation but shall retire at an age as shall be predetermined by the Company or following eight years of service as a Director without eligibility for re-election and Regulation 110 of Table A Part I shall be modified accordingly." (Emphasis added).
Article 12(j) provides that:
"The Directors shall have power at any time and from to time to appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors, but so that the total number of Directors shall not at any time exceed the number fixed in accordance with these regulations." (Emphasis added).
The shareholder agreement at no point purports to override the provisions of Art. 12(a). Accordingly, it seems to the court that the starting-point is that the issue as to whether Blarney should have more than nine directors is a matter to be determined by means of ordinary resolution. As to Art.12(j), the words emphasised by the court appear to the court to signify clearly that the power of appointment given to the directors by that provision is subordinated to the power of the company in Art. 12(a) to decide how many directors there should be. All of this seems to the court to comport with the ordinary and natural meaning of the words used.
Ms Hayes' position is that, through the operation of a 'Special Share' that she holds in Blarney, she is entitled to cause an ordinary resolution varying the number of directors to be passed. The voting rights attaching to that Special Share are considered later below. For now, the court deals solely with the issue of whether, notwithstanding the above-quoted text from Blarney's articles of association, the shareholder agreement casts an immutable composition of power at board-level that cannot be upset. In this regard, the critical provision is c1.2.2(a) of the shareholder agreement. This provides as follows:
"The Board shall initially comprise of six executive directors and three non-executive directors and shall be constituted in accordance with the provisions of the Articles of Association and the provisions as set out hereunder."
As the court understands the Defendants' contentions concerning board composition, they are threefold. First, that as the shareholder agreement contemplates the appointment of directors at board level, the provisions in the articles as to appointment of directors fall by the way-side. Second, that as there is provision in the shareholder agreement (at c1.5.1) that the terms of the agreement prevail in the event of conflict with the articles, the arrangements in c1.2.2(a) apply. Third, that the change in composition contemplated by the use of the word " initially" in c.2.2(a) of the shareholder agreement is a change in the ratio of executive to non-executive directors, not a change...
To continue reading
Request your trial
-
O'Sullivan v Conroy Gold and Natural Resources Plc
...apply the well-established principles of contractual interpretation, as recently distilled by the High Court in Re Blarney Woollen Mills [2015] IEHC 509. The court notes, in particular, the following principles identified in Appendix C of that judgment: ‘(3) The exercise of construction is ......