Re Via Net Works (Ireland) Ltd

• Jurisdiction: Ireland
• Judge: Keane C.J.
• Judgment Date: 23 April 2002
• Neutral Citation: [2002] IESC 24
• Court: Supreme Court
• Docket Number: [S.C. No. 172 of 2001]
• Date: 23 April 2002

[2002] IESC 24

THE SUPREME COURT

Keane C.J.

Murphy J.

McGuinness J.

172/01

VIA NET WORKS (IRL) LTD (FORMERLY MEDIANET (IRL) LTD), RE

IN THE MATTER OF VIA NET WORKS IRELAND LIMITED

FORMERLY MEDIANET IRELAND LIMITED

AND

IN THE MATTER OF THE COMPANIES ACTS 1963– 1999

Citations:

COMPANIES ACT 1963 S205(3)

JODIFERN LTD V FITZGERALD 2000 3 IR 321

COMPANIES ACT 1963 S205(1)

O'NEILL V RYAN & ORS 1993 ILRM 557

ARBITRATION ACT 1980 S5(1)

WILLIAMS V ARTANE SERVICE STATION LTD & ANOR 1991 ILRM 893

VOCAM EUROPE LTD, RE 1996 VCC 396

CHANNEL TUNNEL GROUP LTD V BALFOUR BEATTY CONSTRUCTION LTD 1993 AC 334

HORGAN V MURRAY 1998 1 ILRM 110

ARBITRATION ACT 1980 S5

RSC O.19 r10

FOSS V HARBOTTLE 1847 2 HARE 461

O'NEILL V RYAN 1990 1 ILRM 140

Synopsis:

COMPANY LAW

Oppression of minority

Practice and procedure - Arbitration -Interpretation of shareholders" agreement - Contract - Conflict of laws - Abuse of process - Whether petition should be dismissed - Whether petitioners had necessary locus standi - Companies Act, 1963 section 205 - Arbitration Act, 1980 (172/2001 - Supreme Court - 23/04/2002) - [2002] 2 IR 47

In re Via Net Works Ireland Ltd

Facts: The respondents and the appellants were shareholders in Via Net Works Limited ("the company"). The respondents had brought a section 205 petition to the High Court alleging that the affairs of the company were being conducted by the appellants in a manner oppressive to them. The appellants had purchased shares in the company from the respondents representing 60 per cent of the issued shared capital. The appellants sought to have the respondents' petition dismissed on the grounds of abuse of process or alternatively staying the petition pending a referral to arbitration. Mr. Justice Lavan refused the orders sought and the appellants appealed the judgment to the Supreme Court. It was submitted that the respondents did not have the necessary locus standi to bring a section 205 petition as they were obliged to transfer all their shares under the shareholders' agreement. In addition it was contended that the issues raised were governed by the law of the State of New York and that the proceedings should be referred to arbitration as the matter was within the scope of a valid arbitration clause.

Held by the Supreme Court (Keane CJ delivering judgment; Murphy J and McGuinness J agreeing) in allowing the appeal. Persons such as the respondents who had voluntarily disposed of their entire shareholding in a company could not conceivably have been contemplated by the legislature as persons who would be entitled to relief under section 205. Under the terms of the agreement the respondents were contractually bound under the law of New York to divest themselves of their rights as shareholders. The proceedings should either have been struck out by the High Court as disclosing no cause of action or as constituting an abuse of process. In addition the dispute that had arisen was manifestly encompassed by the terms of the arbitration clause and the proceedings should therefore have been stayed.

1 23rd day of April. 2002 by Keane C.J. [nem diss]

2 The respondents to this appeal, Stuart Fogarty and Aubrey Fogarty Associates Limited, presented a petition to the High Court, in which they claimed to be members of the company named in the title of the proceedings (hereafter "the company") and sought relief pursuant to s.205(3) of the Companies Act 1963(hereafter "the 1963 Act") on the ground that the affairs of the company were being conducted and the powers of its directors exercised in a manner oppressive to them or in disregard of their interests. The appellants are a Dutch company called Via Net Works Europe Holding BV, formerly Via Net Works Inc. who own a majority of the shares in the company. They applied in the High Court by way of notice of motion for an order dismissing the petition as an abuse of process or, alternatively, an order staying the proceedings pending a referral to arbitration. Both reliefs were refused by the High Court (Lavan J) in a brief extempore judgment.

3 The history of the matter, insofar as it is not in dispute, is as follows. The company was incorporated on the 12th June, 1995, with the object of carrying on the business of designing, operating and servicing computer networks. The capital of the company, paid up or credited as having been paid up, is £30,000 divided into 30,000 ordinary shares of £1.00 each which, at the time of the hearing in the High Court, according to the petition, were held as follows.

4 (a) The appellants - 18,000 shares

5 (b) Stuart Fogarty - 2,940 ordinary shares

6 (c) Aubrey Fogarty - 3,825 ordinary shares

7 (d) Thomas Kelly - 5,235 ordinary shares

8 (It would appear that the shares of Aubrey Fogarty were in fact vested in the second named respondent but nothing turns on this.)

9 Until the 15th March 1999, there were 10 shareholders in the company. On that day, the appellants entered into a share purchase agreement with the existing shareholders, under which the latter agreed to transfer 18,000 ordinary shares, representing 60% of the issued and outstanding share capital of the company, to the appellants. The consideration paid by the appellants was

10 (a) the sum of £840,502 to the shareholders, made up of £119,392 each to Mr. Stuart Fogarty and Mr. Thomas Kelly and £601,718 paid to the other shareholders;

11 (b) the sum of £200,000 subscribed to the company for 5% redeemable preference shares.

12 It is not in dispute that, at the time of the purchase, the company was in an insolvent position and in need of cash to fund its ongoing operations. This transaction was duly completed and it is also not in dispute that, since that time, the appellants have advanced £2,156,549 by way of loans to the company with a view to ensuring the survival and continued operations of the company.

13 On the same day, i.e., March 15th 1999, a further agreement was entered into, called "the Shareholders' Agreement", between Thomas Kelly, Stuart Fogarty and Aubrey Fogarty Associates Limited, who were described as the "existing shareholders". This agreement, according to the recitals, was intended to clarify the respective rights and obligations of the existing shareholders with respect to the management, capitalisation and operation of the company. Clause 7.1 provided that, within a specified period, the appellants were to have the right, but not the obligation, to purchase all the shares held by the existing shareholders on giving them at least 30 days prior written notice. The clause provided a mechanism for determining the price to be paid for the shares.

14 Clause 11.1 of the Shareholders' Agreement under the heading "Law" provides that

"THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, USA, WITHOUT REGARD TO ITS PRINCIPLES REGARDING CONFLICT OF LAWS (OTHER THAT SECTION 5 - 1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK)."

15 Clause 11.2, under the heading "Arbitration of Disputes" provides that

"Any and all disputes between or among the buyer and the sellers (individually a "party" and collectively the "parties") arising under or related to the transaction documents including, without limitation, the interpretation of the transaction documents or the breach, termination or invalidity thereof (a "dispute ") shall be resolved exclusively and finally by binding arbitration among the parties. It is specifically understood and agreed that any dispute may be submitted to arbitration regardless of whether such dispute would otherwise be considered justiciable or ripe for resolution by a court."

16 The "transaction documents" referred to in clause 11.2 are the Shareholders' Agreement, the share purchase agreement and a service agreement entered into with Thomas Kelly.

17 There was exhibited with the affidavit of Mr. Nydell an opinion of Hogan and Hartson LLP, Attorneys in the City of New York, which states:-

"It is our understanding that after VIA provided its VIA Call Notice, but before the transfer date, the Fogarty shareholders filed a proceeding in the High Court of Ireland alleging, among other things, oppression by the majority shareholder. We have been asked to provide an opinion under New York law as to the standing of the Fogarty shareholders to maintain such action..."

"Under the circumstances presented here, the Fogarty shareholders were divested of their shareholder status as of March 8th, 2001, and any rights they had as shareholders, including the right to maintain any judicial proceedings requiring shareholders' status, ceased at that time."

18 In March, 2000, the appellants acquired the shares of Thomas Kelly, who until that time had been the managing director of the company. As a result, their interest in the company increased to 77.45%. On the 5th February 2001, the appellants gave notice to each of the respondents that, under the provisions of s.7(1)(i) of the Shareholders' Agreement they would purchase the remaining shares on March 8th 2001. The letter also stated that, as of the transfer date, the price calculated in accordance with the Shareholders Agreement would be a negative amount, but that they were agreeing to purchase the shares at a price of 0.0lp per share.

19 The grounds on which the respondents seek relief pursuant to s.205(3) can be summarised as follows. They say that the appellants are responsible for a state of affairs in which the managing director of the company, Thomas Kelly, has been wrongfully dismissed at what they claim to be considerable cost to the company, where debts of the company have not been collected in a timely fashion, again at considerable cost to the company, and where they have been excluded from any prospect of real participation in the affairs of the company. They further say that their...