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1. The
plaintiff seeks interlocutory injunctions restraining the defendants from
taking any further steps to terminate his employment, re-instating him pending
the trial of this action, directing them to pay his salary and emoluments until
the trial of the action, restraining them from taking any steps removing him as
a director of the first defendant or from removing him from his position as
commercial director with the first defendant, directing the defendants to
provide the plaintiff with unrestricted access to his place of work and to the
books, records and information (including electronic) of the first defendant,
restraining them from holding a meeting affecting the plaintiff’s
position as director and shareholder (47.75% or 42.75%) of the first defendant,
restraining the defendant from excluding the plaintiff from all board meetings
of the first defendant and further orders until the hearing of the action
relating to the bank mandates of the defendants.
2. The
first defendant company was co-founded by the plaintiff and the second
defendant in 1995. They hold an equal amount of shares in the company (being
either 47.75% or 42.75%). The plaintiff and the second defendants were boyhood
friends and have remained close personal friends until their recent falling
out. While at school together they discussed the possibility of going into
business and after third level education remained in contact and were best men
at each other’s weddings.
3. In
1995 the Internet was coming into vogue as a means of communication and both
felt the growth potential was enormous and that they could exploit it. They
agreed to set up business together and despite early setbacks did so providing
a “data storage”
service.
They agreed at the outset that the business would be conducted on 50/50 basis
as regards risk, rewards and decision making elements. They acquired the first
defendant and it was agreed that each would have a 50% shareholding in the
first defendant. Each held one of the two issued shares in the company. They
both became directors of the company and the plaintiff was its secretary. The
first defendant commenced business in early 1996. The plaintiff lent it
£20,000 and for the first six months the plaintiff and the first defendant
effectively lived off this loan. Both were involved in sales. The plaintiff
took responsibility for the accounts and the second defendant concentrated on
the sales.
4. The
company’s philosophy was to expand aggressively by re-investing profits.
It encountered a difficult patch from May to September 2001 but is now at the
bottom of a downward curve and is anticipating a return to profitability and
expansion.
5. The
first defendant employed its first member of staff in November, 1997 when the
plaintiff and the first defendant began to divide their responsibilities. The
plaintiff took responsibility for supporting customers and for accounts, the
second defendant for personnel and overall responsibility for sales. Neither
had the title of “Managing Director”: both were directors of the
company. In January, 1999 the third defendant was employed as technical
consultant. In 1998/9 it was decided that the second defendant would be the
“public
face
”
of
the company and that he would be entitled to call himself
“Managing
Director
”.
The
plaintiff was to be called “Operations Director”
which
was subsequently changed to
“Commercial
Director”
.
Mr. Roberts on appointment was designated “Technical Director”.
He eventually took over the day-to-day running of the company. The fourth
defendant was brought into the company as an non-executive director in March
2000. He had been a former managing director of Cable and Wireless Ireland
Limited and it was thought that he would enhance the profile of the company.
The plaintiff and the second defendant agreed around this time that they would
transfer some of the small amount of shareholding (no more than 10%) to staff
members. Ultimately 10% would be divided among staff, 10% amongst other
directors of the company, the plaintiff and the second defendant holding 40%
each. Mr. Roberts came to hold 3% (1.5% from each of the plaintiff and the
second defendant) of the shares under this arrangement. It was agreed that the
fourth defendant would hold 2.5% of the shares in the company.
6. Some
twelve months ago the plaintiff and the first defendant acquired a premises of
6,200 sq. ft in Bray, County Wicklow, each holding a half interest. Sums were
borrowed and each went guarantor for repayments. An annual rent is payable to
the plaintiff and the second defendant. These were personal borrowings by the
plaintiff and the second defendant. A further sum was lent to the company by
way of development loan. The plaintiff and the second defendant shared in this
transaction on an equal basis. The transaction was completed in May, 2001.
The plaintiff was married in the same month.
7. In
his affidavit, the plaintiff describes how his influence and functions in the
company were gradually reduced by the second, third and fourth defendants
during the past twelve months. The fourth defendant had advised the plaintiff
and the second defendant to delegate every possible task to others so that they
could keep themselves free to manage and plan for the company. A great deal of
the plaintiff’s time was taken up with ensuring that the company would
not collapse as a result of cash flow difficulties when he returned from his
honeymoon in June, 2001. He had to deal with the Revenue Commissioners and did
so. In hindsight he sees that a trend had developed whereby he was excluded by
the second and third defendants from certain aspects of the running of the
company. Since September the sales in the company began to pick up, it opened
a branch office in Belfast in October and took a ten year lease. He and the
second defendant took a 50/50 shareholding in a new Northern Ireland business
for this purpose. Ultimately this new company was not used.
8. In
his affidavit the plaintiff says that on Friday, the 7th of December, 2001
there was a meeting between the second and third defendants and the plaintiff.
The second defendant sat down, took a deep breath and then said in an angry
tone “this is your last day in Xnet, you’re out”.
The
second defendant was trying to fire the plaintiff from the company. He told
him that the board had resolved that he must go because of
“gross
incompetence”.
He
then made certain offers, told him he had legal advice, that he was only
entitled to £7,000, there were discussions which the second defendant
claimed
were
“without
prejudice”.
It
emerged that the second defendant and the other defendants had been planning
this for some time according to the plaintiff. The second defendant referred
to the plaintiff’s brilliant strategic insights but his failures and
inability to execute. It was the first time that any one had suggested to the
plaintiff that he was
“grossly
incompetent
”.
The
plaintiff was subsequently informed by the third defendant that the second
defendant spoke for the board.
9. The
7th of December was a Friday. The following Monday, the 10th the plaintiff
received a voice mail message from the second defendant to tell him that he had
been made officially redundant as of Friday, the 7th December, 2001.
10. The
plaintiff decided to visit the company’s premises in Glencormack Business
Park, Bray, on the afternoon of the 10th December. When he went out at 2 p.m.
he met the second and third defendants, there was a confrontation, some
conversation and the plaintiff failed to gain entry. Codes and keys had been
altered. On Tuesday the 11th December, the second defendant left a telephone
message for the plaintiff giving him notice of a meeting of the board of
directors for the 13th December “for the purpose of proposing that (the
plaintiff) be removed as a director”.
On Wednesday the 12th December, a notice was put through his door entitled
“notice of proposed dismissal for redundancy”.
The
notices were dated the 11th of December and referred to redundancy as of the
7th. The reason given was that the role performed by the plaintiff was now
performed by other employees of the company. The matter went into the hands of
solicitors and there is correspondence passing between them. The plaintiff
says that he is dependant on his salary from the first defendant to survive.
His remuneration apart from salary covers pension, life assurance, health
insurance, motoring expenses, parking and a sailing club subscription, together
with the use of a company car. His salary barely meets his outgoings, in fact,
his outgoings routinely exceed his income.
11. The
plaintiff says that as guarantor, not only of the company’s debt with the
bank but also for the loan (taken out personally by himself and the second
defendant) for the premises in Bray leased to the company, he has great
exposure and needs to be involved in the running of the company as a director
to protect his exposure as guarantor, his interest as shareholder, together
with his position as commercial director.
12. In
a replying affidavit the second defendant says that the shareholding of the
plaintiff and himself is now 42.75%. He says much of the meeting on the 7th of
December with the plaintiff was without prejudice and that the plaintiff had
agreed to this. He denies absolutely that he ever advised the plaintiff that
he was dismissed by reason of “gross incompetence”.
He
has never used that phrase and at all times he told the plaintiff that his
employment was being terminated by reason of redundancy. That is the true
position. The first defendant has been seeking to reduce costs. Whilst no
other employee has been made redundant, a number have resigned and have not
been replaced. The plaintiff’s remuneration package constitutes
approximately 10% of the total cost base of the first defendant and given the
limited amount of work which he performed which can adequately and easily be
absorbed by other members of the staff, it was entirely appropriate that he be
made redundant. He does not dispute the general history of their business
relationship given in the plaintiff’s affidavit and says that he and the
plaintiff jointly worked in developing the business of the first defendant. He
avers that the only ongoing work performed by the plaintiff is management of
the company’s payroll and other minor administrative functions: following
the plaintiff’s redundancy these have been taken up by other employees.
13. In
the context of the plaintiff’s allegation that he was misled by the
second defendant when they each took a 50% share in the premises now leased to
the first defendant, he points out that the rent paid by the first defendant
meets their respective financial commitments in relation to the building itself
and he says that that is a business venture outside the business of the first
defendant. He says that as the business of the first defendant developed the
first of the plaintiff’s role was limited solely to administrative
functions which now can be done by somebody else. He says that all of the
defendants and not just the plaintiff were actively involved in seeking to
resolve the cash flow problems of the first defendant and all were aware that
significant costs had to be eliminated: hence the decision to eliminate the 10%
cost of the plaintiff’s remuneration. He says that the essential trust
and confidence which must exist between an employer and an employee has been
destroyed in the case of the plaintiff.
14. Further
affidavits were exchanged between the parties. The plaintiff refers to an
investment whereby the company (he insists it is in fact the first defendant,
although the second defendant says that it is his personal investment) has
agreed to contribute the sum of £350,000 stg to a company known as Xnet
U.K. in 2002. There is a reference to a draft minute stating that until a
decision has been reached relating to the share structure of this company
“A.H.” (which the plaintiff takes to mean the second defendant)
will hold the shares in this company and for all intents is “Xnet
Ireland”. He also refers to the fact that two of the employees of the
company have received improved remuneration packages. In this context he
challenges the assertion that the first defendant is in dire financial straits
justifying the saving involved in his own redundancy.
15. An
application was made for an interim injunction on the 13th December, 2001. It
was granted. Undertakings were given on behalf of the all the defendants on
the 17th December. There are allegations relating to breaches of these
undertakings and cross allegations in relation to breaches by the plaintiff of
legally privileged information given to the defendant in the course of this
case.
16. Neither
the plaintiff nor the second defendant have a written agreement with the first,
as has the third defendant, whose termination period is two months. The second
defendant offered to buy out the plaintiff’s shareholding in the first
defendant and this was taken badly by the plaintiff who saw in it an attempt to
oust his interest in that company. The second defendant says that this was an
above board
bona
fide
offer which the plaintiff was entitled to refuse if he wished.
17. The
second defendant says it would onerous if the first defendant had to pay the
plaintiff’s salary pending the trial of this action as its financial
position is extremely tight. An issue emerged in the affidavits relating to
the plaintiff’s access to a series of e-mails passing between the
defendants. The plaintiff claims that an arrangement had been reached
approximately twelve months ago allowing each of these individuals access to
each other’s electronic data. An affidavit is sworn by the third
defendant to say that the only access which these individuals enjoyed has been
access to each other’s diary (calendar) and not other information.
Access to legal advice (which the plaintiff denies he read) by the plaintiff
was particularly disturbing and the subject of objection.
18. The
above is a summary of the main positions of the parties. There are a number of
subsidiary assertions and counter assertions.
19. At
the hearing before me reference was made by Mr. Hanratty S.C. on behalf of the
plaintiff to a minute of the first defendant dated the 6th November, 2001 at
which the three other defendants voted to remove the plaintiff as director and
company secretary of the first defendant. He had no notice of such a meeting.
Mr. Nesbitt S.C. explains the existence of this document (or two versions of
it) as being a draft of an intended meeting which never happened because these
defendants realised that it was something that they could not do in the manner
suggested by these minutes. The meeting did not happen and it has no legal
effect. Counsel for the plaintiff points to the fact that these drafts
themselves appear to have come into existence on the 12th December that is some
days after the 7th when the plaintiff was purportedly dismissed. All of this,
submits counsel for the plaintiff, supports his client’s view that the
three individual defendants are conspiring behind his back to get him out of
the company and have been doing so, he says, since before May, 2001 when he and
the second defendant individually and on a 50/50 basis acquired their interests
in the property leased to the company and when the plaintiff got married (at
which event the second defendant was his best man). The plaintiff was misled
by the second defendant into believing that this huge financial commitment on
his part was in the context, as ever, of their sharing the future of the first
defendant between them on an equal basis.
20. Counsel
for the plaintiff submits that he has made out an arguable case for a
declaration that his clients’ purported dismissal is invalid and for an
order that his client should be reinstated in his position as commercial
director of the first defendant at the hearing of the trial. He says that his
various interests in the company as director, shareholder, guarantor of the
company’s debt with the bank, guarantor of the monies funding the
premises leased to the company and as commercial director must be seen for what
they are, namely that he together with the second defendant have on an equal
basis been involved as co-founder and developer of the company and that it
would be artificial simply to regard him in this application as merely an
employee of the company with his rights as director to be dealt with under
company law, his rights as shareholder similarly and his rights as guarantor
merely on a contractual basis. Counsel for the plaintiff submits that all
these must be viewed together and that if this is done there is an arguable
case, at the very least, to support a claim for a declaration of invalidity of
his dismissal and an order that he be reinstated as commercial director of the
first defendant.
21. The
ancillary reliefs dealing with access to the premises, information and the
maintenance of the status quo regarding the bank mandate follow from this.
22. Furthermore,
Irish jurisprudence now establishes, he submits, that in the event of an
employee being left without a significant portion of his income then a court
will direct continued payment until the trial of the action by the employer if
the plaintiff (as in the present case) relies solely on this income.
23. In
addition there is a serious question, he submits as to whether the real reason
why the plaintiff was dismissed was redundancy or whether it was in fact gross
incompetence. If it was for the latter then the cases show that he was
entitled to fair procedures which were denied and therefore, again, he has made
out a fair question for trial at the hearing of the action. Apart from this
there was in fact complete disregard for the provisions of the Redundancy
Payments Acts and Regulations which of themselves would entitle him to a
declaration that his dismissal was ineffective. Furthermore the plaintiff, as
office holder with the first defendant, was entitled to fair procedures which
were denied.
25. Irish
cases where salary or reinstatement were granted to a plaintiff at the
interlocutory stage either involved plaintiffs who were office holders denied
fair procedures (the present plaintiff is not an office holder) or plaintiffs
against whom allegations of wrongdoing were made (this is not so in the present
case) but not cases of pure employee contracts because in such circumstances
the plaintiff’s remedy is damages alone. Accordingly damages is an
adequate remedy and the balance of convenience runs against granting an
injunction.
26. He
submitted that the argument apparently accepted by Laffoy J. In
Harte
v. Kelly and Another
[1997]
E.L.R.125 to the effect that the common thread in
Fennelly,
Shortt and Boland
was that the plaintiff was totally dependant on his income, was not so: the
common thread was that these were exceptions to the general rule identified.
In
Harte,
Laffoy J. had said at p. 130:
27. The
issue as to whether the court will direct payment of an employee’s salary
pending the trial simply on the basis of the plaintiff’s sole reliance on
salary as distinct from the existence of an
exceptional
circumstance
which takes the case out of the “normal” cases of their employee
contract cases was touched on by Macken J. in
Lonergan
v. Salter
-
Townshend
and Others
unreported, High Court, Macken J. , 9th February, 1999 but, counsel for the
defendant submits, not really dealt with. Rather, he submits, the true
position was as acknowledged by Barrington J. delivering the Supreme Court
Judgment in
Parsons
v. Iarnrod Eireann
in the unreported decision of 24th April, 1997 when he said at p. 9:
28.
To similar effect, submits counsel for the defendant, the decision of Murphy J.
in the High Court in
Philpott
v. O’Gilvy and Another
[2000] 3 IR 206, where it was held that in the absence of a claim for damages
for wrongful dismissal the ruling of the Supreme Court in
Parsons
applied to the effect that the common law remedy for unfair dismissal was a
claim in damages. There was no serious issue, accordingly, that the
termination was in breach of the rules of natural justice and therefore
invalid. This was unlike
Hickey
v. Eastern Health Board
[1991]
1 IR 208 where it was held that the rules of natural justice apply if a
managing director is dismissed for
misconduct
.
29. I
was referred to
Glover
v. B.L.N. Limited
[1993]
IR 388 following without this case being opened. The reference was in the
context of counsel for the plaintiff’s submission that the plaintiff in
all the circumstances was an office holder. Counsel for the defendant
submitted that he was not, and that office holders were individuals who held
positions designated by statute or other instrument governing the basis of
their tenure.
30. He
indicated from recollection that the characteristics of office holders were set
out in
Glover.
32. Kenny
J. went on to express the view that Mr. Glover’s position as director
and employee of the operating company and of two other companies resembled that
of a holder of an office because his directorship of and his contract with
these companies could be terminated by the directors of another company. His
pension rights were enforceable against the employer company and had been
created before his contract, whereas the directors of the holding company had
power to deprive Mr. Glover of his rights against the operating company.
Furthermore the decision (that his alleged misconduct had damaged the holding
company or the employer company) had to be unanimous. In regard to these
provisions Kenny J. said at p. 146:
33. On
appeal Walsh J., upholding this conclusion of Kenny J., rested his decision on
this point on his interpretation of the relevant clause in the contract of
employment which he said implied a term that the inquiry and determination
(leading to dismissal) should be
fairly
conducted .
34. Furthermore
Walsh J. expressly reserved his opinion on the correctness of a statement of
Lord Reid in
Ridge
v. Baldwin
[1964] AC 40 (see 427)
35. In
my opinion the plaintiff has raised the following three fair questions for
determination at the trial, namely
36. It
is indeed common case that the first defendant has gone through a very
straightened financial period. However, it is apparent that the company is now
once again on the road to expansion having committed itself to subscribing
£350,000 stg to its U.K. venture. In this regard it is true that there is
a further issue as to whether this is the private interest of the second
defendant or an expansionary venture undertaken by the first defendant. It
appears from the evidence before me that a decision in this regard is awaited.
I do not think I can simply ignore this substantial financial expansion as if
it did not exist. Furthermore the plaintiff also relies on the fact that two
employees of the first defendant have received increases in salary. There is,
on the other side, of course, evidence that a number of employees have resigned
without being replaced. In my opinion the balance of convenience favours the
granting of an order directing the first defendant to continue paying the
plaintiff’s salary and other remuneration and benefits until the trial of
the action, subject, of course, to the usual undertaking and also an
undertaking by the plaintiff to do any work of the variety that he used to
carry out for the first defendant as commercial director that he is required to
do by the first defendant (as distinct from work that he wishes to do of his
own accord).
37. Relations
between the plaintiff and defendant have irretrievabley broken down. He seeks
reinstatement pending the hearing of his case. I have held that he has made
out a fair argument for a declaration that he has been wrongfully dismissed but
I do not think that the balance of convenience favours an order at this
interlocutory stage directing the first defendant to reinstate him to his
position as commercial director. Relations between the parties have broken
down to a significant degree and I decline to make an order reinstating him
pending the hearing of the case.
38. It
goes without saying, I think, that the plaintiff is entitled to all information
and to have access to all data relevant to his status as director and
shareholder of the company and in the absence of an undertaking or assurance
from the company that this will be furnished an order should be made. In
addition I think he should be given all information which is relevant to the
position of commercial director on the same basis as has applied prior to 7th
December 2001.
39. One
final area of concern pending the trial of the action is the plaintiff’s
position as guarantor of the company’s debt with the bank. I am
declining to reinstate the plaintiff pending the trial of the action but it
does seem to me that some limits should be put on the plaintiff’s
exposure in this context if he is not involved in the day to day business of
the company perhaps limiting his exposure to what it was on the 7th December,
2001. This precise point was not canvassed before me and accordingly I am
prepared to hear counsel on this point and on the precise formulation of the
orders required to reflect my conclusions.