McGilligan v O'Grady

• Jurisdiction: Ireland
• Judge: BARRON J.,KEANE, J.
• Judgment Date: 01 January 1999
• Neutral Citation: [1998] IESC 38
• Date: 01 January 1999
• Court: Supreme Court
• Docket Number: [S.C. No. 462 of 1997]

[1998] IESC 38

THE SUPREME COURT

Keane, J.

Lynch, J.

Barron, J.

McGILLIGAN v. O'GRADY, THORNTON & PREMIER INTERNATIONAL MERCHANDISING LTD

BETWEEN:

JOHN McGILLIGAN AND JAMES BOWEN

PLAINTIFFS

AND

WILLIAM O'GRADY, PETER THORNTON, PREMIER INTERNATIONALMERCHANDISING LIMITED

AND

PREMIER INTERNATIONAL TRADING HOUSELIMITED

DEFENDATANS

Citations:

COMPANIES ACT 1990 S202(8)

COMPANIES ACT 1963 S182

COMPANIES ACT 1963 S205

FEIGHERY V FEIGHERY UNREP LAFFOY 25.2.1998

AMERICAN CYNAMID CO V ETHICON LTD 1975 AC 396

CAMPUS OIL LTD V MIN FOR INDUSTRY 1983 IR 88

COMPANIES ACT 1963 S182(1)(7)

COMPANIES ACT 1963 S205(1)

COMPANIES ACT 1963 S205(1)(3)

EBRAHIMI V WESTBOURNE GALLERIES 1973 AC 360

MURPHS RESTAURANTS, IN RE 1979 ILRM 141

BENTLEY-STEVENS V JONES 1974 1 WLR 638

Synopsis

Company Law

Injunction; investment of funds by plaintiff's company in third-named defendant company; plaintiff appointed director under terms of investment agreement; subsequent share transfer agreement; second-named defendant became holding company of third-named defendant; plaintiff appointed director of second-named defendant; proposed removal of plaintiff as director; alleged oppression; failure to make available books of accounts; proposed alteration of objects of company; whether serious question to be tried; whether court can restrain removal of director pending hearing of oppression petition; whether plaintiff's right to relief under s.205 of Companies Act, 1963 affected by fact that he is not a member of company; whether interlocutory injunction can be granted where perpetual injunction not sought; s.182 & 205 Companies Act, 1963; s.202(8) Companies Act, 1990 Held: High Court Order affirmed in so far as it restrained removal of director and ordered compliance with s.208(8) of 1990 Act; Order discharged in so far as it restrained defendants from altering the objects of the Company McGilligan v. O'Grady - Supreme Court: Keane J., Lynch J., Barron J. - 05/11/1998 - [1999] 1 IR 346 - [1999] 1 ILRM 303

1 JUDGMENT DELIVERED THE 5TH DAY OF NOVEMBER 1998BY KEANE, J. [BARRON, LY AGR.]

2 This is an appeal from a judgment and order of the High Court (O'Donovan J.) of the 24th July last. The learned trial judge granted an interlocutory injunction restraining the defendants pending the trial of the action from removing the first named plaintiff as a director of the third andfourth named defendants. In addition, the third named defendants were ordered to comply with their obligations pursuant to s.202(8)of the Companies Act 1990to make available their books of account for inspection by the officers of the company and other persons entitled to inspect them. The third named defendant was also restrained pending the trial of the action from acting ultra vires the objects set forth in its memorandum of association and, in particular, from engaging in activities which did not come within those objects.

3 The facts, in so far as they are not in dispute, are as follows. The first named plaintiff is the managing director of Business and Trading House Investment Company Limited (hereafter "BTH"). This is a company which at the relevant times was engaged in arranging the investment of funds on behalf of various people under what was known as the Business Expansion Scheme (hereafter the "BES"). It was decided to make such an investment in the third named defendants, Premier International Trading House Limited (hereafter "PITH"). As a result an agreement was entered into between BTH, the Bank of Ireland and PITH on the 25th July 1989 (hereafter "the 1989 agreement") under which the bank were to apply for 571,428 ordinary shares of £1 each at a premium of 5p (representing a total investment of £600,000) on behalf of a number of investors. Under the terms of the 1989 agreement, to which it will be necessary to refer in more detail at a later point, BTH was to be kept fully informed of the progress of the business of PITH and its financial affairs. Inaddition, the agreement provided that the first named plaintiff and a Mr. Brian Joyce were to be appointed as directors of PITH.

4 The first named defendant is the chairman, chief executive and secretary of the third named defendants (hereafter "PIM") and is one of the two executive directors of the company, along with the second named defendant. It would appear that, between them, the first and second named defendants were at all material times in a position to control the votes of at least a simple majority of the shareholders in PITH and PIM. The first named plaintiff has a small share holding in PIM, amounting to approximately one per cent of the issued sharecapital.

5 The investors in BTH had to hold their shares for a minimum period of five years in order to avail of the tax relief under the BES scheme. There was no mechanism provided in the 1989 agreement enabling the investment to be terminated. As the bank and BTH wished to realise their investment, a sub-committee was formed by the board of PITH with a view to establishing an "exit mechanism", as it was called. With that in mind, the sub committee had discussions with Seamar Limited, a company which manufactured hotel, amenity and airline products of a nature similar to those marketed by PITH, the object being a possible acquisition by PITH of Seamar Limited or the acquisition of PITH by Seamar Limited. The first named plaintiff at this stage was a non-executive director of Seamar Limited. Far from thisproposalproviding an exit mechanism for the BTH investors, it became a source of acrimony between the parties to these proceedings. Proceedings were also instituted by PITH against Seamar Limited.

6 It should also be pointed out that on the 22nd February 1995, the shareholders in PITH accepted an offer by PIM to exchange their share holding in PITH for an equivalent share holding in PIM together with a loan note for £2.38 in respect of every seven shares held by them in PITH. As a result, PITH became a wholly owned subsidiary of PIM and the first named plaintiff was appointed a non-executive director ofPIM.

7 The disagreements between the first named plaintiff and the first and second named defendants ultimately led to the convening of an extraordinary general meeting of PIM for the purpose of considering a resolution that the first named plaintiff be removed, pursuant to s.182 of the Companies Act 1963from his office as a director of that company. That notice led to the institution of these proceedings and also to the presentation of a petition by the plaintiffs pursuant to s.205 of the Companies Act 1963claiming that the affairs of PIM were being conducted in a manner oppressive to the plaintiffs and in disregard of their interests and an order directing PIM to purchase the beneficial share holding of each of the petitioners or in the alternative an order winding up thecompany.

8 Numerous affidavits were filed on behalf of the plaintiffs and the defendants in the High Court in which allegations and counter-allegations were made as to the conduct of the respective parties. While it was not possible for the High Court, or this court on appeal, to resolve the various conflicts of evidence involved, the respective positions of the parties can be summarised as follows.

9 The first named plaintiff claims that, following the share exchange already referred to, the investment of the BTH investors, represented by the bank, effectively became an investment in PIM. He says that the first and second named defendants are conducting the affairs of that company without regard to the legitimate interests of those investors, that they have been deliberately frustrating the proposed merger with Seamar Limited which would provide those investors with an appropriate exit mechanism and that they are doing so in order to further the acquisition by themselves, through the vehicle of a company called Tippser Limited, of as many shares as possible in PIM, thereby effectively organising a management buyout of the company. They were also intent, he claims, on converting the business of PIM into manufacturing, although hitherto its business had merely involved the selling on to customers at a profit of goods which had already been manufactured by other companies, thereby, as it was said, obviating manufacturing costs and overheads, and which, the first named plaintiff claimed, had been an attractionof the company as an investment from the point of view of BTH investors. The first named plaintiff claimed that he had been persistently denied the information as to the financial affairs of PIM to which he was entitled as a director and to which BTH were entitled by virtue of the agreement and, in particular, had not been furnished with the draft audited accounts of the company for the year ending 31st December1996.

10 For their part, the first and second named defendants say that Seamar Limited, of which the first named plaintiff was until recently a director, has been in direct competition with PITH and PIM and has been undermining the interests of those companies in breach of an agreement with them. The first named plaintiff's interests as a director of Seamar Limited were thus, it was claimed, in conflict with his interests as a director of PITH and PIM and the latter companies were entitled to withhold sensitive commercial information from him, particularly having regard to the litigation actually existing between the companies and Seamar Limited. They also said that in these circumstances the shareholders in PIM, if so minded, were perfectly entitled to remove the first named plaintiff as a director of PIM.

11 The provisions of the 1989 agreement must now be considered in more detail. As already noted, the parties to the agreement were BTH, the Bank of Ireland and PITH. PITH is referred to in the agreement as "the company" and s.1.01 provides that that expression in the agreement means:-

"The company and...