McCarthy v Keane

• Jurisdiction: Ireland
• Judge: FENNELLY J
• Judgment Date: 16 December 2004
• Neutral Citation: [2004] IESC 104
• Court: Supreme Court
• Docket Number: [S.C. Nos. 317 and 335 of 2003]
• Date: 16 December 2004

[2004] IESC 104

THE SUPREME COURT

Murray C.J.

Geoghegan J.

Fennelly J.

No 317/2003

McCARTHY v. KEANE & ORS

BETWEEN

JOHN McCARTHY

Plaintiff/Applicant

and

ENDA KEANE, EIREANN INTERNATIONAL FINANCE BROKERS LIMITED, WARRANTELL LIMITED and DES PEELO

Defendants/Respondents

Citations:

ARBITRATION ACT 1954 S37

ARBITRATION ACT 1954 S38

ARBITRATION ACT 1954 S36

COMPANIES ACT 1963 S205

COMPANIES ACT 1990 S31

ARBITRATION ACT 1954 S36(1)

ARBITRATION ACT 1954 S38(1)

WILLIAMS V WALLIS & COX 1914 2 KB 478

BRIEN & BRIEN, RE 1910 2 IR 84

KEENAN V SHIELD INSURANCE CO LTD 1988 IR 89

MCCARRICK V GAIETY (SLIGO) LTD 2001 2 IR 266 2002 1 ILRM 55

KING V THOMAS MCKENNA LTD 1991 2 QB 480

MOUNTAIN, THE 1985 1 AER 520

Synopsis:

ARBITRATION

Award

Challenge to award - Remittance of award - Application to remove arbitrator - Power to set award aside - Misconduct - Whether procedures adopted by arbitrator consistent with terms of reference - Whether grounds to remit award limited to error on face of award, mistake, new material evidence and misconduct - Whether behaviour of arbitrator constituted misconduct - Whether award to be set aside - Keenan v. Shield Insurance Company Ltd. [1988] I.R. 89; King v. Thomas McKenna Ltd. [1991] 2 Q.B. 480 and Mutual Shipping v. Bayshore Shipping [1985] 1 W.L.R. 625 followed - Arbitration Act 1954 (No 26), ss 36(1), 37 and 38(1) - Plaintiff's appeal dismissed (317/2003 & 335/2003 - Supreme Court - 16/12/2004) [2004] IESC 104; [2004] 3 I.R. 617

McCarthy v Keane - [2004] 3 IR 617; [2005] 2 ILRM 241

The fourth defendant arbitrator made an award determining the price of the appellant's shareholding in the second respondent company. The appellant alleged misconduct by the arbitrator and sought to have the award set aside pursuant to s. 38 of the Arbitration Act 1954 or to have it remitted to the arbitrator for reconsideration in accordance with s. 36. The High Court (Lavan J.) dismissed the claim.

Held by the Supreme Court (Murray CJ, Geoghegan and Fennelly JJ) in dismissing the appeal that the arbitrator conducted the arbitration properly and made rulings within the scope of his discretion.

Reporter: R.W.

1 JUDGMENT delivered on the 16th day of December, 2004 by FENNELLY J.

2 The fourth-named respondent (hereinafter "the arbitrator") made an award determining the price of the Appellant's shareholding in the second-named respondent (hereinafter "the company"). The Appellant alleges misconduct by the arbitrator and seeks to have the award set aside and to have the arbitrator removed pursuant to sections 37 and 38 of the Arbitration Act, 1954. (hereinafter "the 1954 Act"). Alternatively, he seeks to have the reward remitted to the arbitrator pursuant to section 36 of the Act. His claim was dismissed by Lavan J in the High Court and he now appeals to this court.

The Facts

3 The Appellant acquired a 39% shareholding in the company in about 1998. The first-named respondent (hereinafter "the Respondent") was already a shareholder. At that time and up to the commencement of the section 205 proceedings to be described below, the Respondent held 59% of the shares; the remaining 2% were held by a person who is not a party to the proceedings. The Appellant also held shares in a number of associated companies.

4 In the year 2000, the Appellant instituted proceedings in the High Court in which he alleged that the Respondent was conducting the affairs of the company in a manner oppressive of him and in disregard of his interests. He also alleged that the company had been operated as a quasi-partnership. The proceedings were brought by way of Petition pursuant to section 205 of the Companies Act, 1963.

5 When those proceedings came on for hearing before McCracken J in the High Court, the parties reached a settlement, which is comprised in three documents.

6 Firstly, the Court made an order reciting that the settlement had been reduced to writing in the form of a consent executed by the parties. The order went on to provide that the consent be received and filed and that the proceedings be stayed except as might be necessary for enforcing the agreement. It then stated that:

"...pursuant to Section 205 of the Companies Act 1963 Warrantell Limited shall purchase the shareholding of the Petitioner [the Appellant ] in [the company] in the manner set forth in the said consent."

7 The consent began by stating that, since the institution of the proceedings, the Respondent had transferred his shareholding in the company to Warrantell Limited (hereinafter "Warrantell"). It was agreed that Warrantell would be joined as a party to the proceedings. This device appears to have been adopted by reason of concern that there might be a breach of section 31 of the Companies Act 1990, but the Court has not been asked to enter into that aspect of the matter.

8 The key provision of the consent was that Warrantell was "subject to an order of...[the] Court made pursuant to Section 205 of the Companies Act 1963 [to] purchase the shareholding of [the Appellant] in [the company]..." " and the associated companies...."

9 The parties agreed to the appointment of the arbitrator, by name, though originally he was to be "the Accountant." The consent provided:

"The Accountant shall value [the Appellant's] shareholding in the said companies on the basis of a willing seller and a willing purchaser and as so doing shall act as an expert and not as an arbitrator. Account shall be taken of...the sums due and owing by [the Appellant] and [the Respondent] by way of director's loans to the companies. The valuation date shall be 21st July 2000."

10 The parties later agreed that the fourth-named respondent would act as an arbitrator with the powers conferred by the 1954 Act. I have treated the consent as if that word were substituted for Accountant.

11 The consent provided that the parties should "exchange and submit to [the arbitrator] written submissions in relation to all issues arising on the said valuation...." While the consent also fixed times for this and other matters, it allowed that the arbitrator "at his sole discretion....... [should] be at liberty to extend the time limits...." No issue is taken with the performance by the arbitrator of this function. The consent also provided for the convening of a meeting or meetings "for the purpose of hearing oral submissions..." The parties were to furnish to the arbitrator by return any information sought by him. It provided also that "without fourteen days of the date of the meeting convened for the purpose of hearing oral submissions [the arbitrator]... [should]...publish his determination as to the value of [the Appellant's] shareholding in the said companies." It then provided: "The said determination shall be final and binding on the parties."

12 Following detailed consequential provisions for giving effect to the determination by means of the purchase by Warrantell of the Appellant's shareholding and the payment of the purchase price, the consent went on to state:

"This agreement is confidential to the parties and their advisors and its terms shall not be disclosed by the parties, their servants or agents save as may be required by law or Court order. In particular, there shall be no disclosure of its terms to [the arbitrator]."

13 The third relevant document, signed by the Appellant and the Respondent, is a side agreement as follows:

"I, John McCarthy hereby agree that when making submissions to [the arbitrator] regarding the valuation of my shareholding......no reliance will be placed by me on or my behalf upon the fact that the High Court may have made an order pursuant to Section 205 of the Companies Act 1963. I reserve the right however, in so far as it may be relevant, to point to the fact that the purchase of my shareholding in the said companies has been made in the context of Section 205 proceedings instituted by me."

14 The solicitors for the Appellant and the Respondent on 25 ^thand 26 ^th October 2000 wrote to the arbitrator in virtually identical terms. The opening paragraph of the letters differs only in so far as necessary for the solicitors to identify their respective clients. Notably, neither letter mentions Warrantell, which, as stated above, now owned the Respondent's former shareholding in the company. In fact each letter inaccurately ascribes this shareholding to the Respondent. These letters contain the terms of reference of the arbitrator, since, according to its terms, he was not to see the consent. The crucial paragraph read as follows:

"It has been agreed between the parties that Mr McCarthy shall dispose of his shares in the above companies. The purchase and sale of the shares is to be conducted on the basis of there being a willing purchaser and a willing seller...."

15 It went on to deal with certain procedural matters based on the contents of the consent. These included a specification of the "valuation date" as 21 ^st July 2000. This aspect of the matter presented some practical difficulties, which are indirectly related to one of the items in dispute. The consent had provided that the respondents were to have the accounts audited up to the valuation date by one of a number of named firms of auditors.

16 The arbitrator accepted the assignment and proceeded immediately to propose a timetable for the exchange of submissions and meetings. The original timetable turned out to be too ambitious. Procedural disputes developed between the parties, particularly about the Appellant's solicitors' demands for extensive documents and information from the Respondent and the company and the response that the Appellant had been the Finance Director of the company and was privy to most of the information in any event.

17 Whatever the rights and wrongs of these disputes, the arbitrator extended times and regulated procedures....