Lee v Buckle
| Jurisdiction | Ireland |
| Judge | Miss Justice Laffoy |
| Judgment Date | 30 July 2004 |
| Neutral Citation | [2004] IEHC 146 |
| Court | High Court |
| Docket Number | [2003 No. 82 MCA] |
| Date | 30 July 2004 |
[2004] IEHC 146
THE HIGH COURT
AND
AND
Citations:
RSC O.46 r5
RSC O.46 r6
RSC O.46 r7
RSC O.46 r8
RSC O.46 r9
RSC O.46 r10
RSC O.46 r11
RSC O.46 r12
RSC O.46 r13
RSC (1905) O.XLVI r5
RSC (1905) O.XLVI r6
RSC (1905) O.XLVI r7
RSC (1905) O.XLVI r8
RSC (1905) O.XLVI r9
RSC (1905) O.XLVI r10
RSC (1905) O.XLVI r11
RSC (1905) O.XLVI r12
RSC (1905) O.XLVI r13
RSC (1905) O.XLVI r4
CHANCERY (IRL) ACT 1867 S171
STATUTE LAW REVISION (NO 2) ACT 1893
WYLIE JUDICATURE ACTS (1906)
CHANCERY (IRL) ACT 1867 S172
CHANCERY (IRL) ACT 1867 S173
CHANCERY (IRL) ACT 1867 S174
O'MAHONY V HORGAN 1995 2 IR 411 1996 1 ILRM 161
POLLY PECK INTERNATIONAL PLC V NADIR 1992 4 AER 769 1992 142 NLJ 671
CAMPUS OIL LTD V MIN FOR INDUSTRY & ENERGY (NO 1) 1983 IR 822
JUDGMENTS (IRL) ACT 1844 S10
LIS PENDENS ACT 1867
FLYNN V BUCKLEY 1980 IR 423
O'CONNOR V MCCARTHY 1982 IR 161
Synopsis:
- [2004] 3 IR 544
Facts: The applicant was the President and Chief Investment Officer of Lee Overlay Partners Limited. The respondent ceased employment with that company in July 2003. At the date of cessation the respondent possessed a number of shares in the company. Ownership of shares in the company was regulated by an agreement. The agreement detailed different procedures to be applied regarding the ownership of shares depending on the method of cessation of employment. Accordingly a vital issue for determination was the method of the respondent's termination and the dispute between the parties centred on the quantum of the purchase price of the shares. The applicant maintained that the respondent terminated his contract of employment and therefore he was entitled to exercise a 'call right', which permitted him on giving not less than one month's notice in writing to the respondent to purchase the respondent's shareholding at a price being the lesser of par and 'fair value'. Subsequently the respondent served notice on the Company in accordance with Order 46, rule 6 of the Rules of the Superior Courts, 1986 that his shareholding in the Company was subject to the provisions of the Shareholders Agreement and 'to stop the transfer' of the shares to the applicant following the purported use of the applicant's 'call right'. On this application before the Court the applicant sought an order ceasing the operation of 'the Notice to Restrain Transfer of Stock' in respect of the respondent's shares in the Company.
Held by Laffoy J in granting the relief sought: 1. That what was in dispute between the parties was the quantum of the purchase price of the shares as the respondent was obliged to sell his shares to the applicant once the applicant had exercised his call right. Whatever the outcome of the dispute between the parties, the respondent would not have been entitled to retain the shares in specie.
2. That the ultimate outcome of the respondent's claim, if he were successful, would be a monetary award and not the retention of the shares, accordingly he was not entitled to have the stop notice continued. The rationale for continuing the stop order no longer existed when the claimant ceased to be entitled to the shares in specie, as had occurred in this case.
Reporter: L.O'S.
Miss Justice Laffoy delivered on 30th July, 2004.
Lee Overlay Partners Limited (the Company) is a company limited by shares which was incorporated in the State on 4 th March, 1999. The applicant is the President and Chief Investment Officer of the Company. On 26 th June, 1999 the respondent accepted an offer of employment with Adrian Lee Services Limited (the Services Company), which was then known as Babol Limited and which is incorporated in the Isle of Man. The respondent contends that the Services Company was only a payroll company and that, in that, in reality, his employer was the Company. The issue of the respondent's employment ceased with effect from 25 th July, 2003. There is a dispute as to the basis of such cessation: the applicant contends that the respondent voluntarily left his employment; the respondent contends that he was constructively dismissed. There are proceedings pending before the Employment Appeals Tribunal in relation to the issue of the cessation of the respondent's employment. The basis of such cessation is not a matter for determination on these proceedings.
At the date of the cessation of his employment the respondent was the owner of 1,502 "A" ordinary shares of €1 each and 845 "B" ordinary shares of €1 each in the capital of the Company. His shareholding represented 21.45% of the share capital of the Company. It is common case that the ownership of shares in the Company is regulated by the agreement mentioned in the hereof, namely, an agreement of 30 th July, 1999 (the Shareholders Agreement) made between Warburg Pincus Ventures International, Lp. and others of the first part, the persons named as Management Shareholders in Schedule 1 to the Agreement, who include the applicant and the respondent, of the second part, and the Company of the third part. The governing law of the agreement is English law.
The provisions contained is sub-clauses 15 to 21 inclusive of clause 9 of the Shareholders Agreement regulate what is to happen to the shares of a Management Shareholder who ceases to be employed by the Company or the Service Company, as the case may be. In summary, the provisions deal with four different scenarios in which such employment may cease, namely:
(1) where it is the result of the Management Shareholder terminating his employment:
(2) where it is the result of the Management Shareholder having been dismissed from his employment;
(3) where it is the result of death, illness or disability; and
(4) where it is the result of some other circumstance.
The applicant contends that the respondent comes within the scenario set out at (1) above, having terminated his contract. The respondent contends that he was constructively dismissed and that he comes within the scenario referred to at (4) above. If the applicant is correct, then he has a right, referred to as a "Call Right" in the Shareholders Agreement, on giving not less than one month's notice in writing to the respondent to purchase the respondent's shareholding at a price being the lesser of par and "Fair Value", as defined. If the respondent is correct, then, while the applicant has a Call Right it is exercisable at Fair Value and the respondent has a right, referred to as a "Put Right", which is exercisable by one month's notice in writing and obligates the applicant to purchase all of his shares at Fair Value. Fair Value, in default of agreement, is open market value determined by an independent investment bank or corporate finance house appointed by agreement or, in default of agreement, by the Director General of the London Investment Banking Association. In the event of a Call Right being exercised and the respondent failing or refusing to do all acts or things necessary to effect the transfer of the shares, the respondent is deemed to have conferred an irrevocable authority on the Company to appoint a person to execute on his behalf a transfer of the respondent's shares in his favour.
On 9 th July, 2003 the applicant served notice in writing on the respondent under the Shareholders Agreement of his wish to exercise his Call Right on the basis that the cessation of the respondent's employment fell within the scenario set out at (1) above. The applicant enclosed with the notice a cheque for €2,347, representing the par value of the shares, and a stock transfer form for execution An issue arose as to whether the Call Right could be exercised prior to the termination of the respondent's employment and a similar notice was served by the applicant on 5 th September, 2003 "to put the matter beyond doubt" and a further cheque for €2,347 was proffered, the previous cheque having been cancelled.
The respondent, not accepting that the applicant is entitled to exercise a Call Right at a lesser of par and Fair Value, has not negotiated the applicant's cheque, nor has he executed the stock transfer form. On 22 nd October, 2003 David J. Kirkpatrick, who was expressed to be acting pursuant to the irrevocable authority granted under the Shareholders Agreement, executed a stock transfer form transferring the respondent's shares to the applicant. On this application the applicant has averred that the transfer was subjected to a mortgage and charge in favour of Warburg Pincus Equity Partners Lp. of 7 th January, 2003 on foot of which in excess of USS1.85 million is secured.
On 21 st November, 2003 the respondent served notice on the Company in accordance with Order 46, rule 6 of the Rules of the Superior Courts, 1986 that his shareholding in the Company is subject to the provisions of the Shareholders Agreement and "to stop the transfer" of the shares.
Following the cessation of his employment, the respondent took up employment with Merrill Lynch Investment Management. The applicant contends that the respondent's new employer is a competitor of the Company, but this is disputed. That dispute cannot be resolved in these proceedings.
In outlining the background to this application, I have recorded what has happened. For the avoidance of doubt, nothing in this judgment is to be taken as the expression of a view as to the proper compliance with the formalities prescribed in the Shareholders Agreement in relation to the exercise by the applicant of, and compliance by the respondent with, the Call Right.
On this application the applicant seeks...
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RBC Dominion Securities (Global) Ltd and RBC Dominion Securities Inc. v Alliance Investment Management Ltd and Akers Bioscience, Inc.
...The effect of a Stop Notice on the transfer of shares was discussed by Laffray, J. in The Irish case of Lee v. Buckle (2004) 1 EHC 148; (2004) 3 IR 544. In that case there was a dispute on the quantum of the purchase price of the shares. 99 (99) A Stop Notice was served pursuant to Order 46......