THE COURT OF APPEAL
[2015 No. 170]
[2015 No. 487]
Finlay Geoghegan J.
Hogan J.
Cregan J.
IN THE MATTER OF ELST AND
IN THE MATTER OF SECTION 205 OF THE COMPANIES ACT 1963 AND
IN THE MATTER OF SECTION 213(F) OF THE COMPANIES ACT 1963 AND
IN THE MATTER OF THE COMPANIES ACTS 1963 - 2012
BETWEEN
DONEGAL INVESTMENT GROUP PLC
PETITIONER/APPELLANT
AND
DANBYWISKE, RONALD WILSON,
THE GENERAL PARTNERS OF THE WILSON LIMITED PARTNERSHIP 1,
MONAGHAN MUSHROOMS IRELAND AND ELST
RESPONDENTS
JUDGMENT of the Court delivered by Ms. Justice Finlay Geoghegan on the 8th day of June 2016
1. This judgment is given in two appeals, which in chronological order are:-
(i) An appeal against an order of the High Court (McGovern J.) of 16th January 2015, made pursuant to a judgment delivered on 5th December 2014, on a discrete issue fixed for determination by order of the High Court (Kelly J.) of 11th April 2014 which fixed the price at which the respondent should purchase the petitioner’s shares upon the basis of a then assumed 35% stake in the company at €30.6 million (“the valuation appeal”); and
(ii) An appeal against an order of the High Court (McGovern J.) of 5th June, 2015, made pursuant to a judgment delivered on 21st May 2015 which ordered that the respondents purchase the petitioner’s shares in Elst for €26,228,571 (“the remedy appeal”).
2. The above appeals were heard one after the other. They both arise in the same High Court proceedings [2013 No. 591 COS]. For reasons which will become apparent, this judgment considers, first, the remedy appeal and then the valuation appeal. There are certain background facts and a history of the proceedings which are common to both appeals.
Background Facts
3. The petitioner (“Donegal”) is a public limited company registered in the State. It is now a 30% shareholder in Elst (The Company”.) The first named respondent, Danbywiske, is an unlimited company associated with the second, third and fourth respondents and those four respondents together now hold 70% of the shares in the Company. They will collectively be referred to as the “Wilson Shareholders” or the respondents.
4. The Company was incorporated as a holding company in a group restructuring to indirectly hold the entire issued share capital of Monaghan Middlebrook Mushrooms (“MMM or Monaghan”). MMM carries on the businesses of manufacturing compost and the growing and selling of mushrooms. Prior to 2002, Mr. Ronnie Wilson held an approximate 50% stake in MMM. Prior to 2004, the petitioner and Connaught Gold Cooperative Society Limited were the sole shareholders in a competing business, Carbury Mushrooms Limited (“Carbury”).
5. In 2004, it was agreed that the business of MMM and Carbury would merge and that MMM would be the vehicle for the merged business. The terms of merger and future conduct of the business was agreed in a “Share Exchange and Shareholders Agreement” dated 1st June 2004 (“SESA”). In 2007, the shares of Connaught Gold were bought out and certain changes agreed pursuant to a document entitled “Heads of Agreement”. That document gave rise to the dispute as to whether Donegal, at the time of the commencement of these proceedings, held 35% of the shares or, alternatively, whether Danbywiske was entitled to acquire 5% pursuant to an option agreement. This latter dispute was the subject of separate plenary proceedings determined by the High Court (McGovern J.) in January 2015, in favour of Danbywiske and which decision is not the subject of an appeal. Hence, the undisputed current position is that the petitioner holds 30% of the Company and the first four respondents 70%.
6. In 2010, there was a further restructuring pursuant to which the Company became the ultimate holding company of MMM. The parties hereto were allotted shares in the Company commensurate with their then shareholding in MMM.
7. At all material times, the executive directors of the Company, (and previously MMM), were Wilson shareholder nominees and the Company was managed by executives who include the second named respondent, Mr. Ronnie Wilson. Donegal nominated non- executive directors who have changed from time to time. There was, in 2013, an independent chairman of the Company, Mr. James Osborne.
8. By 2013, substantial disputes had arisen between the shareholders. At the instigation of Mr. Osborne, Investec Corporate Finance was appointed by the Company to conduct a global strategic review of the business of the Company and as part of the process to seek agreement between the shareholders. This has been referred to as the “Investec Process”.
9. By this stage, however, there had been significant disagreements between the shareholders, so one of the options considered in the course of the Investec process was a possible exit strategy for Donegal. The Chairman suggested a buyout of Donegal’s shareholding be considered. The respondents offered a sum of €25m, upon the basis of a 30% holding. That was refused. Donegal, by letter from its solicitors, sought a price of €34m for a claimed 35% shareholding in the Company in default of which it was stated a petition would issue.
Proceedings
10. Shortly after the Investec process concluded, a petition was presented on 22nd December 2013, primarily alleging acts of oppression since 2009 and seeking the following reliefs:-
“(1) An order that the company be realised in accordance with Clause 10 of SESA and the intention and agreement of the Shareholders, by the providing for the sale of the entire issues share capital and with each share being valued pro rata;
(2) Alternatively, an order that the company be wound up pursuant to s. 213(f) of the Companies Act 1963 upon the grounds that it is just and equitable to do so;
(3) Further or alternatively an order that the shares of the company be valued as if the acts of oppression had not occurred;
(4) Alternatively, an order that the first, second, third and fourth respondents do purchase your petitioner’s shares at their true value and without any discount to reflect a minority interest and valued upon the basis that the acts of oppression had not occurred;
(5) Alternatively, an order that the company purchase your petitioner’s shares upon the same basis as set out in para. (4) of the prayer and further that all necessary orders of the court be obtained under the Companies Acts to render such purchase lawful.”
11. An application was made to enter the proceedings in the Commercial List and an order to that effect and giving initial directions was made by the High Court (Kelly J.) on 27th January, 2014. Those directions included an opportunity for mediation. It appears that the parties have entered a mediation process on two separate occasions with a view to a mediated settlement, but the Court was told these attempts were unsuccessful.
12. In March 2014, the respondents applied to vary the directions and to seek an early hearing of a discrete issue “to determine the price at which the respondents might purchase the petitioners shares”. By order of 11th April 2014, Kelly J. fixed the trial of such discrete issue and gave directions. There were further delays, and ultimately the hearing of the discrete issue commenced on 23rd July 2014; it had an estimate of four days and ultimately took sixteen days until November 2014.
13. Judgment was delivered by McGovern J. on the discrete issue “to determine the price at which the respondents might purchase the petitioner’s shares” on 5th December 2014. On the assumed 35% holding in the Company, he fixed, at para. 49 of his judgment, “the price at which the respondents should purchase the petitioner’s shares at €30.6 million”.
14. In the separate plenary proceedings, McGovern J. gave judgment on 16th January 2015 in favour of Danbywiske on the alleged option to purchase 5% of the shares of Donegal in the Company.
15. In the meantime, Donegal issued a motion in the s. 205 proceedings (filed on 22nd December 2014) seeking to amend its petition and points of claim so as to seek the following additional relief:
“(6) Further and in the alternative, an order that the Petitioner purchase the Respondents’ shares at their true value as if the Company was to be sold on the open market, without any discount and valued upon the basis that the acts of oppression had not occurred.”
That application was acceded to without objection from the respondents.
16. Thereafter, directions were given for the hearing of the petition, which included additional discovery, a notice to admit facts and preparation of witness statements.
17. As appears from the judgment of 5th December 2014 on the discrete issue, the Wilson shareholders admitted “a non-specified ground of oppression so as to give the Court jurisdiction to make an order that the Wilson shareholders purchase the Petitioner’s shares at a valuation to be determined by the Court”. Until shortly before the hearing of what came to be known as the “remedy module”, it appeared that Donegal was required to adduce evidence of and prove the acts of oppression alleged in the petition and points of claim. The solicitors for Donegal, by a letter of 16th March 2015 wrote, seeking admission of specific grounds of oppression, primarily to shorten the proposed remedy hearing. Having set out a history of exchanges and other matters, they then stated:
“Since the date of issue of the Petition, the Respondents have endeavoured to convince the Court to make an Order directing the Respondents to purchase the Petitioner’s shareholding, and it has repeatedly been stated by you and your Counsel that the Respondents are ready and willing to purchase the Petitioner’s shareholding at the price fixed by the Court. However, by denying the alleged acts of oppression, you are denying the Court jurisdiction to make an Order under s. 205. This position is entirely irrational. In order to allow the Court to proceed to a hearing on the appropriate remedy to be made under s. 205, we now call on you to admit specific grounds of oppression by 5pm on 20 March 2015.”
18. William Fry responded by letter of 26th March 2015 in which, in relation to the request for admission of facts of oppression, they stated:
“Moreover, you have repeatedly requested that our clients concede the acts of oppression which your client has alleged. Our clients have repeatedly refused to do so and they continue to refuse to do so. If your ‘concern’ is that the general concession of technical oppression is not sufficient to confer jurisdiction on the Court, then our clients are prepared to concede a single ground of technical oppression to invoke the jurisdiction of the Court in respect of the ground pleaded at paragraph 44(1) of the Points of Claim. This relates to the Company acquiring a mushroom business in Canada. Your client pleads that while it was aware of the negotiations to purchase the business, the transaction closed without having been brought to the board for actual approval. It is quite clear to us, however, that that is not your client’s real concern.”
19. There matters appear to have rested until the first day of the hearing of the remedy module on 21st April 2015. On that day, the High Court was informed that the respondents had admitted to “unspecified acts of oppression”, and that on that basis it was intended to proceed with the remedy hearing without any further evidence being adduced. The hearing was in the s. 205 proceedings in which the High Court had already heard significant evidence in the discrete valuation module and which it is agreed was to be taken into account by the trial judge. The remedy hearing then proceeded on submission only over one day.
20. The unusual manner in which the entire of the s. 205 proceedings came to be heard and determined is relevant to the approach of this Court to the appeal, in particular, against the judgment and order of the High Court on the remedy. That appeal is first considered as the approach of the Court to the valuation appeal depends in part on the outcome of the appeal against the remedy granted by the High Court.
High Court Judgment on Remedy
21. The trial judge identified, at para. 4 of his judgment, three possible remedies which the Court could grant:
22. The trial judge, for the reasons set out in his judgment, rejected the remedies identified at paras. (iii) and (i) in that order and ultimately concluded that he should exercise his discretion to make an order directing the respondents to purchase Donegal’s shares in the Company at the valuation identified in the judgment given on 5th December 2014.
23. Whilst Donegal, in its notice of appeal, set out a number of grounds of appeal, at the hearing, the principal submission was that the trial judge erred in law in the manner in which he reached his conclusion that the appropriate remedy was to direct the respondents to purchase the shares of Donegal in the Company. It was also submitted that he failed to have sufficient regard to what the parties had agreed in clause 10 of the SEFA in rejecting the remedy of an IPO. Donegal submitted further that he incorrectly considered, in accordance with the case law on a purchase by a minority of a majority interest, that his discretion was fettered due to the absence of the type of wrongdoing referred to in para. 6 of his judgment.
24. The first submission is dependent upon the terms of s. 205 of the Companies Act 1963 (“the 1963 Act”). Insofar as relevant, it provides:
“205.—(1) Any member of a company who complains that the affairs of the company are being conducted or that the powers of the directors of the company are being exercised in a manner oppressive to him or any of the members (including himself), or in disregard of his or their interests as members, may apply to the court for an order under this section.
. . .
(3) If, on any application under subsection (1) or subsection (2) the court is of opinion that the company's affairs are being conducted or the directors' powers are being exercised as aforesaid, the court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether directing or prohibiting any act or cancelling or varying any transaction or for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise.”
25. Counsel for Donegal submitted that in accordance with the case law and the terms of subsection (3), whilst the Court is given a wide discretion in relation to the remedy, it is one which should be directed to “bringing to an end the matters complained of”. The jurisdiction to grant a remedy only exists where “the Court is of opinion that the company’s are being conducted or the Director’s powers are being exercised as aforesaid” i.e. in a manner oppressive to the petitioner or any of the members (including the petitioner).
26. Counsel for Donegal drew attention to the consideration given to the section by Murphy J. in the Supreme Court In the matter of Murray Consultants Ltd.: Horgan v. Murray & Ors. [1997] 3 IR 23 at 41. That appeal concerned a refusal by the High Court (Barron J.) to dismiss a petition pursuant to s. 205 of the Act of 1963 as an abuse of process where the petitioner alleged acts of oppression; his primary relief was to be bought out and the respondents disputed the acts of oppression, claimed a breakdown in relations between the shareholders and contended that the reliefs sought by the petitioner could be more beneficially achieved by adopting a procedure for valuation of shares contained in the Articles of Association, but which related to a voluntary transfer of shares. At p. 41, Murphy J. referred to the petitioner’s disputed claim of acts of oppression and continued:
“. . . It seems to me that there is an issue to be tried, first as to whether there was oppression and, if there was, the appropriate remedy or solution for the court to provide. Whilst the petitioner has indicated in some detail the remedy which he believes is the one appropriate ‘with a view to bringing to an end the matters complained of’ it is by no means certain that the judge hearing the application would accept that this is so. The function of the court is to resolve an existing problem. It goes without saying that the function must be exercised without creating injustice for either party.”
27. Counsel for Donegal also drew attention to the judgment of Arden L.J. in the English Court of Appeal in Re Tobian Properties Ltd: Maidment v. Attwood [2012] EWCA Civ 998, [2013] BCC 98, in relation to the proper approach of the Court to determining a petition pursuant to the analogous provision, namely, s. 994 of the UK Companies Act 2006. This permits of a petition by a member of a company where it is contended that the affairs are being conducted in a manner “that is unfairly prejudicial to the interests of members . . .” Section 996 similarly grants to the Court a wide power to fashion appropriate relief, and in particular, s. 996(1) provides:
“(1) If the court is satisfied that a petition under this part is well-founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.”
Under subsection (2)(e), the Court is given specific power to provide for the purchase of the shares of a member by any other member or the company.
28. Arden L.J. considered the power granted to the Court pursuant to s. 996 as follows:
“26. An order for the purchase of the non-controlling shareholder's shares by the respondents to the petition is commonly called a ‘buyout order’. It affects a divorce of the parties' interests in the company. For the purpose of establishing the price payable under a buyout order, the courts have adopted a flexible attitude to share valuation. Notably, actual share values can be adjusted to reflect the effect on the company of all or any wrongs which the wrongdoer respondents have committed against it.
27. Unfair prejudice proceedings generally raise numerous factual issues entailing examination of events over a considerable period of time. Just as defended divorces used to raise numerous issues, making trials long and complex, so trials of section 994 petitions can be long and complex. Thus a high degree of case management is required if the case is not to get out of hand. Effective case management means that, where possible, the court prevents unnecessary court time being spent on issues that are not capable of giving rise to relief. Thus a court will generally determine the issues necessary to determine whether a buyout order should be made at one hearing (‘the liability hearing’) and only proceed to a second hearing (‘the quantum hearing’), at which evidence would be given relevant to establishing the value of the petitioner's shares, once it has determined that a buyout order should be made. Case management, however, must be consistent with both parties' right to a fair hearing.
28. The dominant characteristic of the unfair prejudice remedy, both in statute and case law, is its adaptability. This enables the courts to produce a just remedy where minority shareholders can show wrongdoing that prejudices their interests. It also makes the unfair prejudice remedy important as a means of encouraging proper corporate behaviour in the management of smaller companies and building up the confidence of investors in them. This policy aim is as important today as it has always been since the original version of what is now the unfair prejudice remedy was introduced in the Companies Act 1947.”
29. As appears, the approach of both Murphy J. and Arden L.J. is that the first issue to be determined by the Court is whether the alleged acts of oppression or unfair prejudice have been made out and in doing so to make findings as to what are the relevant acts of oppression or unfair prejudice. It is only when this is done that a remedy which is to bring to an end the matters complained of can be fashioned. However, in these proceedings, the High Court judge was not asked to make any findings in relation to any alleged acts of oppression. As appears from the facts set out above, the respondents only admitted one specific act of oppression, namely, a failure to formally bring to the Board a particular purchase in Canada, notwithstanding that notification had been given to Donegal of certain facts relating to the purchase. There were admissions of other unspecified acts, but, as counsel for the respondents submitted on appeal, the Court was not made aware whether this was admission in relation to two acts or 102 acts of oppression alleged.
30. Prior to the remedy hearing, Donegal made a decision not to adduce any evidence of alleged acts of oppression and not to require the trial judge to make findings in relation to the alleged acts of oppression which were contested by the respondents. This may have been a decision taken in order to obviate the necessity for a further lengthy hearing which had been estimated at eight days. As Arden L.J. pointed out in Maidment, trials of these petitions can be long and complex, and indeed even the valuation module of this case in the High Court, which had been estimated for four days, ultimately took 16 days. The decision made by Donegal was probably a wise decision in the interests of the saving of costs. However, by not adducing evidence of oppression and not requiring the trial judge to make relevant findings in relation to contested alleged acts of oppression, it cannot now, on appeal, contend that he failed to fashion a remedy appropriate to bringing to an end acts of oppression which were merely alleged, but in respect of which no evidence was adduced and no findings were made. It cannot seriously be contended that the single act admitted could form the basis of fashioning any of the remedies which it now seeks.
31. Accordingly, whilst the Court agrees with the submission that the approach identified by Murphy J. in the Supreme Court in Horgan v. Murray (which is consistent with the approach of Arden L.J. in Maidment v. Attwood) in relation to the remedy to be granted is the one which should normally be followed in deciding a s. 205 petition, it considers that on the particular facts of this case, having regard to the procedure adopted by the parties, and, in particular, the agreed approach to the remedy module, that Donegal cannot pursue as a ground of appeal a failure by the trial judge to fashion a remedy to bring to an end oppression. There were no findings in relation to the alleged acts of oppression which would permit of this. The trial judge correctly, in this Court’s view, attempted to fashion a remedy which was fair and just for the parties on the particular facts of this case, as disclosed by the evidence given during the valuation hearing, and, indeed, had particular regard to the Investec process and other events prior to presentation of the petition. The evidence disclosed the breakdown in relations between the parties and a need for parting of the ways.
32. McGovern J. first considered the third remedy identified and rejected it in two paragraphs, 5 and 6:
“5. If the court were to order the petitioner to purchase the respondents’ shares, it would amount to an order directing a minority to purchase the shares of the majority. The petitioner has informed the court that it is willing and able to do so and invites the court to make such an order. It is clear on the authorities which have been opened to the court that such a remedy would be exceptional. In Re A. Company (No. 006834 of 1988) ex parte Kramer [1989] B.C.L.C. 365, Hoffman J. (as he then was) stated:-
‘I think it must be very unusual for the court to order a majority shareholder actively concerned in the management of the company to sell his shares to a minority shareholder when he is willing and able to buy out the minority shareholder at a fair price. I am not going to exercise my imagination to suggest circumstances in which this might happen, but I am quite sure this is not such a case. Mr. Kramer founded the company and has at all times been the person principally concerned in its management. Mr. Kay’s contribution to the company’s growth measured in both time and degree of responsibility has been relatively small. I think it inconceivable that a court would order Mr. Kramer to be compulsorily expropriated’.
6. The circumstances outlined by Hoffman J. in that extract closely mirror the circumstances of this case. The evidence in this case establishes that Mr. Ronnie Wilson was the driving force behind the company (and its predecessor) and that he and other members of his family have been actively engaged in the day to day management of the company. While the petitioner has a substantial shareholding in the company and has members on the board, the evidence shows that the representatives of the petitioner adopted a fairly passive role in the day to day running of the business and were content that Mr. Ronnie Wilson would manage and largely control the business since they were satisfied as to his competence and expertise notwithstanding their various complaints giving rise to this petition. There is no evidence of dishonesty or fraud, divesting of assets, illegal use of company funds or other serious misbehaviour by Mr. Ronnie Wilson or other members of his family, or the respondents in this petition which would entitle the court to treat this as such an unusual case that the petitioner should be directed to buy out the respondents in circumstances where they do not wish to dispose of their interest.”
33. The facts referred to and relied upon by the trial judge in para. 6 are not in dispute. It is submitted that the trial judge incorrectly considered that in the absence of evidence of “dishonesty or fraud”, as referred to in para 6, the Court did not have jurisdiction to make an order that the petitioner, as minority shareholder, buy out the respondents. Whilst it is noted that the trial judge used the phrase “which would entitle the court to treat this as such an unusual case . . .” (emphasis added), it does not appear that he was intending to indicate that he did not consider that he had jurisdiction to make such an order. Rather, he was expressing a view that in the absence of such evidence, the Court should not exercise its discretion to make an order that the minority buy out the majority whose representatives were the executives running the Company.
34. The Court has concluded that the trial judge was correct in arriving at this conclusion. The evidence demonstrated the exclusive executive involvement in the running of the Company on the part of the Wilson shareholders. Donegal’s shareholding was, in essence, an investment on its part and its participation limited to non-executive directors. The Donegal witnesses, moreover, freely acknowledged that the Company was being well managed by the Wilson shareholders.
35. Next, the trial judge considered the first identified possible remedy, namely, realisation of the Company in accordance with Clause 10 of SESA of 1st June 2004. This provides:
36. “Clause 10.1 of the SESA provides that:-
“The Company and each of the Shareholders and the Management Team hereby covenant with and undertake to each of the Major Shareholders to use their reasonable endeavours to promote, enhance and improve the business of the Group with a view to obtaining a Realisation within six years following completion including without limitation the bona fide consideration of any proposal to appoint a corporate finance adviser to procure a purchaser for the entire issue shared capital of the Company.”
37. The trial judge then recorded that neither party had sought realisation within six years of 1st June 2004, but that a process of discussion known as the Investec process took place in 2013 with the final meeting on 26th November 2013. In the course of that process, the most likely options postulated being either share redemption by the respondents or an Initial Public Offering (IPO), but records “it was suggested that the Company would not be ready to go to the market for several years”. He then referred to the management and control of the Company by the Wilson family and ultimately rejected making an order for realisation, or more particularly an IPO, giving as his reason:
“. . . By the time of the hearing of the petition, the six year time limit referred to in clause 10.1 of the SESA had long expired and circumstances had changed to the extent that none of the parties were pressing for realisation. There is no evidence before the court which satisfies me that an IPO would achieve any greater value for the petitioner. The court has not received any evidence as to the effect of a forced sale of the company on its market value. I have already directed in the first phase of these proceedings that if the petitioner’s shares are to be purchased, such a purchase must take place without any minority discount having regard to the relationship of the parties. It is difficult to imagine circumstances in which the value of the petitioner’s shareholding would be any greater in the case of an IPO than a purchase of its shares by the respondents without discount. For this reason, and having regard to the background against which the Investec Process took place, I am not prepared to order that a realisation take place pursuant to the terms of the SESA”.
38. Donegal does not dispute any of the facts or the absence of evidence referred to by the trial judge. It submits, notwithstanding, that he failed to have sufficient regard for the agreement reached between the shareholders in para. 10 of SESA. The Court was referred to a number of authorities in which a court, in deciding upon remedy under s. 205 or the equivalent English section, had regard to what had been agreed between the shareholders, either in an agreement or in the Articles of Association, including Re A Company (No. 006834 of 1988) Ex parte Kremer [1989] BCLC 365 and Oak Investment Partners v. Boughtwood [2010] 2 BCLC 459.
39. The Court has concluded that no error was made by the trial judge in rejecting, as a remedy, an order that the Company engage in an IPO. He did have regard to Clause 10 of SESA. However, in the absence of evidence in relation to an IPO and the effect of a forced sale of the Company on its market value, this Court considers the trial judge correctly exercised his discretion in rejecting any order for an IPO or other realisation of the Company.
40. As appears from the above extract from the judgment, the trial judge took into account that he had determined, in the valuation module that Donegal’s shares were to be purchased without a minority discount. Further, as appears, he did not consider he had any evidence before him that an IPO would realise a greater value for Donegal for its shares than the valuation which he had placed on the shares. It is implicit in his judgment that he considered that he had valued the shares at full market value.
41. The final submission of Donegal in respect of the remedy appeal to which reference should be made is the submission that the trial judge erred in making an order that the respondents purchase the shares of Donegal as that relief, in effect, grants to the parties who are the oppressors the goal which they had been seeking from the outset of the litigation. The contention was that the Wilson shareholders had been seeking to purchase Donegal’s shares at an undervalue and that this was the effect of the remedy granted by the trial judge.
42. This Court considers that the trial judge did not intend, either by this judgment on the remedy or by his judgment in the discrete valuation issue, that Donegal’s shares be purchased at an undervalue or a discount. Rather, as is made clear by the judgment on the remedy issue, he considered that he had valued the shares without any minority discount and that Donegal would receive for their shares the same value which it might achieve on an IPO, i.e., a full market value.
43. Insofar as it is submitted that the trial judge failed to have proper regard for the fact that the Wilson shareholders were, by admission, the oppressors, this, again, on the particular facts of these proceedings, is not a sustainable ground of appeal. The trial judge was entitled to have regard to the difference in the nature of participation of the Wilson shareholders and Donegal in the management and governance of the Company. He was also entitled to have regard to the fact that in the correspondence immediately preceding the presentation of the petition, Donegal had sought to have its shares purchased by the respondents at the price indicated at the final Investec process meeting. This amount, allowing for the 5% adjustment subsequently made, which is not under appeal, was a sum of €30.6m. Undoubtedly, that was a higher amount than the amount determined in the valuation module, nevertheless, it was the remedy which Donegal was then seeking to avoid the threatened presentation of a petition.
44. For all those reasons, this Court upholds the determination of the trial judge on the remedy module, save in relation to the precise amount which falls to be determined in the appeal from the valuation module. The precise terms of a variation to the High Court order to take account of this is considered below.
Valuation Appeal
45. This judgment was given following a separate 16-day hearing during which the trial judge had complex evidence, both factual and expert in relation to multiple issues in dispute in relation to the discrete issue he was trying, namely, the price at which the respondents might purchase the petitioner’s shares. Certain of the issues decided by him have not been the subject of an appeal. This greatly simplifies and reduces the issues to be determined by this Court. It also, inevitably, means that certain issues have become the focus of submissions on appeal which may not have received the same attention during the trial.
46. Expert evidence was given on behalf of Donegal by Mr. Tom Lindsay of Spayne Lindsay. The expert evidence for the respondents was given by Mr. David Tynan of PricewaterhouseCoopers (“PwC”) and David O’Flanagan of Deloitte & Touche. The trial judge recorded, at para. 10 of his judgment that there was a general consensus, as between experts, that Mr. Lindsay had the most expertise in mergers and acquisitions relating to business in the food sector. However, he also determined that Mr. Tynan and Mr. O’Flanagan were partners in their respective firms which had extensive valuation experience “which cannot be likely overlooked”.
47. The methodologies employed by the experts in the valuation differed and were summarised by the trial judge as:-
“(a) Market Approach (Spayne Lindsay);
(b) Hybrid Approach - 60% Market Approach, 40% Discounted Cash Flow (“DCF”) (PwC) and
(c) Hybrid Approach - 50% Market Approach, 50% DCF (Deloitte).”
48. The trial judge decided a number of issues relating to the correct approach to valuation which are no longer in dispute. These included:-
(i) The market approach alone was the methodology to be used. At para. 41, he concluded “I prefer the evidence of Mr. Lindsay as to the appropriateness of the market approach in a case such as this . . .”
(ii) No minority discount should be applied to the value of Donegal’s shareholding in the Company;
(iii) Discounted Cash Flow was not an appropriate method of valuation for shares in the Company;
(iv) A marketability discount should not be applied to the value of Donegal’s shares and
(v) Mr. Lindsay had incorrectly failed to include Walkro (another mushroom compost company based in Belguim acquired by MMM) as a transaction comparable in his assessment of relevant transaction comparables.
(vi) Mr. Tynan and Mr. O’Flanagan had incorrectly failed to include Hokuto Corporation (a Japanese mushroom company) (as a trading comparable) and Adelaide Mushrooms an Australian mushroom company (as a transaction comparable) in their consideration of comparables.
49. Accordingly, the submissions on appeal were made and are being considered in a context where there is no continuing dispute in relation to the trial judge’s decision that the market valuation approach is the correct approach to the valuation of Donegal’s shares in the Company to be purchased by the respondents. It was further submitted, and it is accepted by the Court that the other decisions (referred to above) are final and applicable. There are, however, continuing disputes in relation to the application of the market valuation approach by the trial judge, in particular to the determination of the multiplier to be used and certain deductions, primarily in relation to CAPEX. Prior to considering these, it is first necessary to consider the ground of appeal against the admissibility of the expert evidence given on behalf of the respondents.
Admissibility of Expert Evidence
50. Donegal pursued in its appeal a submission that the trial judge erred in law in considering as admissible the expert evidence given by Mr. Tynan and Mr. O’Flanagan, on behalf of the respondents. Donegal submits that by reason of what was openly acknowledged to have been interactions between Mr. Tynan and Mr. O’Flanagan with the respondents and discussions in relation to certain elements of their evidence, that their evidence should have been regarded as inadmissible. It submitted that the respondents’ experts allowed themselves to be overly influenced by the respondent, and as a result their evidence was not sufficiently independent to be admissible. It was, they submitted, tainted with bias and partiality.
51. Donegal submits that an expert witness must not only be independent, but that the product of his work must be solely of his independent judgment. Insofar as an expert witness prepares a report in which he expresses conclusions and offers expert testimony to the Court, this appears an uncontroversial and correct submission. In doing so, they relied upon a judgment of O’Donnell J. in Emerald Meats Ltd. v. Minister for Agriculture [2012] IESC 48 at para. 28, where he stated:
“In theory, expert witnesses owe a duty to the Court to provide their own independent assessment. It is only because of their expertise and assumed independence that they are entitled to offer opinion evidence on matters central to the Court’s determination.”
52. They also relied upon a more extensive list of duties and responsibilities of experts in civil cases set out by Cresswell J. in National Justice Compania Naviera S.A. v. Prudential Assurance Company Ltd. (“The Ikarian Reefer”) [1993] 2 Lloyd’s Reports. The respondents, in turn, relied on dicta of Charleton J. in James Elliot Construction Ltd. v. Irish Asphalt Ltd [2011] IEHC 269, the decision of Finlay C.J. in Best v. Wellcome Foundation Ltd [1993] 3 I.R. 421 and the statements of Stuart-Smith L.J. in Loveday v. Renton [1989] 1 Med. L.R. 117.
53. The trial judge made certain findings of the interaction between the experts retained by the respondents, and Mr. Ronnie Wilson in particular, in relation to the range of comparables to be included (para. 19) and what he termed a “conservative business plan” prepared by the Wilsons which had, to some extent, informed the views of Mr. Tynan and Mr. O’Flanagan (para. 41). The trial judge then stated, at para. 20:
“The evidence points to the fact that Mr. Tynan and Mr. O’Flanagan allowed their views to be informed to some extent by the Wilsons. This was not the case with Mr. Lindsay.”
54. Whilst the trial judge did not determine that the evidence of Mr. Tynan and Mr. O’Flanagan was inadmissible by reason of his above conclusion, he preferred the evidence of Mr. Lindsay to that of Mr. Tynan and Mr. O’Flanagan on a number of issues. The Court considers that, on the evidence before him in relation to the relevant exchanges between Mr. Tynan and Mr. O’Flanagan, on the one hand, and the Wilsons, on the other, he was entitled to admit their evidence, but very properly preferred, in most instances, the evidence of Mr. Lindsay which he considered to be entirely independent. He was not, on the evidence before him, obliged to declare the evidence of Mr. Tynan and Mr. O’Flanagan to be inadmissible or to ignore it in its entirety as relevant expert evidence. Rather, he properly attached less weight to it than that of Mr. Lindsay who was the truly independent expert witness. It is inevitable that an expert who is required to give expert evidence may have to have contact with the party by whom he is retained to obtain certain relevant facts for the purpose of giving evidence. The dividing line between being informed of relevant facts to take into account when forming one’s independent expert views, which is permissible, and being, as it were, lobbied with a point of view to be taken into account when forming an allegedly independent view is a difficult dividing line to draw both as a matter of principle and practice.
55. The Court does not consider that it would be appropriate to prescribe precise ex ante rules in relation to this matter. We rather consider that it should remain primarily a matter for a trial judge, by application of the above principles and commonsense, to make a decision on the particular evidence before him or her in relation to the nature of the allegedly inappropriate contact between an expert and the party by whom he was retained, either to reject the expert evidence in its entirety as inadmissible or to admit the evidence, but to attach lesser weight to it than to that of an expert who has formed his views without being influenced by such contact.
56. The Court concludes that on the evidence herein, the trial judge was entitled to take the approach he did.
Market Approach applied by Trial Judge
57. The trial judge, at para. 21 of his judgment, described the market approach in the following terms:
“. . . the market approach which requires a determination of a company’s EBITDA and the selection of a multiple which, when applied to the EBITDA, produces a value subject to some deductions. The multiplier selected by the valuer is based on an assessment of comparable transactions or multiples derived from the trading price of shares in the case of a public company. These are known as trading comparables.”
58. As appears, the market approach involves essentially three variables which must be decided to determine the valuation: (1) the EBITDA (2) the multiplier and (3) the deductions. Mr. Lindsay gave evidence that the 2014 normalised EBITDA of €44.9m was the most appropriate one for use. The trial judge used this figure and there is no appeal from that decision.
59. The primary focus of the appeal is against the multiplier decided upon and used by the trial judge and his approach to its selection for which it is submitted there was no expert evidence before him and further, that it was contrary to the consensus amongst the experts. There is also an appeal against certain of the deductions, and principally, CAPEX.
I propose, firstly, considering the appeal against the multiplier decided upon by the trial judge.
Multiplier
60. Each of the experts gave evidence in relation to the selection of a multiplier for use in the market approach. Donegal submits that the consensus amongst the experts was that the selection of the appropriate multiple was a question of expert judgment following, at least in the case of the valuation of the shares in the Company, an assessment of a range of multipliers from both relevant transaction comparables and relevant trading comparables and a consideration of factual matters pertaining to the Company in the context of the transaction and trading comparables considered.
61. As noted above, the trial judge, at para 21 of his judgment, set out an explanation of the market approach which appears to permit a multiplier to be selected following an assessment of transaction comparables or trading comparables, as distinct from both. This was the subject of some discussion during the appeal hearing. Nevertheless, the Court considers that the distinction was not relevant to the multiplier decided upon by the trial judge. Insofar as relevant, the Court accepts that the experts did, on a couple of occasions, refer to a theoretical approach of considering one or the other, but insofar as they were applying the market valuation approach to the valuation of shares in the Company, the Court is satisfied that they looked at both transaction comparables and trading comparables. Mr Lindsay certainly did so, as is set out in more detail below. Similarly, the approaches of Mr. Tynan and Mr. O’Flanagan, as disclosed both by their written reports/witness statements and oral evidence in relation to the market approach to valuation of shares in the Company, was to consider a range of multiples derived from comparable transactions and from comparable trading companies and then, having considered relevant facts in relation to the Company and its business, to use a professional judgment as to the multiple to be used for valuing the shares in the Company. In his decision the trial judge concluded that Hokuto Corporation (a Japanese mushroom company) (a trading comparable) and Adelaide Mushrooms (an Australian mushroom company) (a transaction comparable) ought to have been considered by Mr. Tynan and Mr. O’Flanagan amongst their comparables in respect of the valuation of the Company.
62. The multiplier selected by the trial judge and submissions on appeal must be considered in the context of the expert evidence given by both sides and, in particular, that of Mr. Lindsay whose evidence on market approach he preferred. Both sides agreed that the essence of the market approach in its application to the Company is to reach an EBITDA multiplier by selecting:
from which to derive a range of multipliers and then exercise a professional judgment as to where to place the Company in the range.
63. In assessing “transaction comparables”, Mr. Lindsay considered two broad categories of such transactions. The first category was ‘Selected Transactions’. Each selected transaction had a known EBITDA multiplier at which the business was bought and sold. The second category was what he called ‘Wider Comparables’. These included four sub-categories as follows:
(i) Branded v. private label transactions
(ii) “Scale” private label transactions
(iii) UK and European fruit and vegetable transactions and
(iv) Primary processing transactions.
64. Having considered both these categories (and sub-categories) of “transaction comparables”, Mr. Lindsay formed an expert opinion that these transaction comparables justified a range of 7.0-7.5 as an EBITDA multiplier.
65. In assessing “trading comparables”, Mr. Lindsay considered again two broad categories of such trading comparables. The first category was ‘Key Businesses’. The second category was a ‘Wider Comparable Set’. Having considered these trading comparables, Mr. Lindsay was of the opinion that these trading comparables justified a range of 7.0-8.5 as an EBITDA multiplier.
66. Having assessed the range of EBITDA multipliers for transaction comparables at 7-7.5 and having assessed the range of EBITDA multipliers for trading comparables as 7-8.5, Mr. Lindsay then concluded, as an expert assessment, that in fact the appropriate EBITDA multiplier to be used for the Company was a range between 7.0 and 7.5. He then chose the mid-point in this range as 7.25 as the appropriate EBITDA multiplier to be used in the valuation of the Company.
67. It must be noted that Mr. Lindsay’s assessment of the transaction comparables and trading comparables was essentially qualitative, not quantitative. It was not an arithmetical or mathematical calculation. He assessed a wide number of transactions and trading companies and from that derived a range of EBITDA multipliers. He then assessed the two ranges derived from each. He did not add them together and divide by two to get an average. Instead, he formed an expert opinion based on these ranges and the facts pertaining to the Company as to what an appropriate multiplier would be.
68. However, as stated above, part of the transaction comparables, which gave rise to Mr. Lindsay’s conclusion of a range of 7.0 to 7.5 for the EBITDA multiplier, was a basket of UK and European fruit and vegetables transactions. He produced, in his report at p. 79, a table of that basket which disclosed for all the transactions a mean of 6.0 and median of 6.3. Whilst he made reference to Walkro with a multiplier of 4.8, he did not include it within his basket, thereby giving rise to the median of 6.3. Following this chart in his report, and again for a given reason, he concluded that this particular basket of UK and European fruit and vegetables transactions, gave rise to an EBITDA multiple in the range of 6.0 to 8.0. That range and those comparables were part of what he took into account before making his expert assessment that the appropriate EBITDA multiple for use in valuing the Company was 7.25.
69. It is in the context of that expert evidence that the High Court judge’s conclusion on the multiplier selected and explanation therefore must be considered.
High Court Decision on Multiplier
70. The trial judge’s decision on the multiplier to be used is simply stated in his determination of the overall valuation at para. 48 ‘Applying a Median Multiplier of 6.1 (see para. 15)’. Whilst brevity in judgments is to be admired, in a context where no expert had given evidence that the use of an arithmetically derived median figure was an appropriate way to select the multiplier, and, on the contrary, the consensus was that professional judgment was required in the selection, this was a conclusion which did require explanation.
71. The trial judge referred to para. 15 of the judgment in relation to the choice made by him of this Median Multiplier to which para. 16 is also relevant:
“15. The respondents argue that Mr. Lindsay’s multiple of 7.25 is called into question because he ignored Walkro as a comparable transaction. Applying a multiple of 4.75 to Walkro’s EBITDA in 2014 of €20.9m gives a value of approximately €99m to Walkro and that part of the Monaghan business. The respondents argue that applying Mr. Lindsay’s multiple of 7.25 to Walkro’s EBITDA of €20.9m would give rise to a value of approximately €152m equating to an 86% uplift in value in two years. Furthermore, the respondents argue that Walkro should not have been ignored because it produces compost, as does Monaghan and the majority of Monaghan’s profits are derived from compost production. The purchase was a recent transaction which took place after an extensive marketing campaign, and had Mr. Lindsay included Walkro in his comparable fruit and vegetable transactions, it would have reduced his average multiple to 5.9 and the median multiple to 6.1.
16. Mr. Tynan admitted that Mr. Ronnie Wilson strongly suggested that Walkro should be included in comparables and that he only became aware of that transaction following his discussion with management. Mr. Tynan gave evidence that he was of the view that it was too narrow an example to use in its entirety, so it was included as half of two comparable transaction multiples and a 20% rating was applied to the overall valuation. Having considered the evidence on this point, I have come to the view that it is a valid transaction comparable, and that if it had been included it would have reduced Mr. Lindsay’s average multiple to 5.9x and the median multiple to 6.1x.”
72. It is common case that in closing written submissions in the High Court, the respondents had included a submission that the Walkro transaction ought to have been included by Mr. Lindsay in his basket of UK and European fruit and vegetable transaction comparables. Further, that the respondents reproduced in their closing written submissions in the High Court, Mr. Lindsay’s table with the addition of Walkro and showed that when Walkro was included, instead of the median multiplier of 6.3 in Mr. Lindsay’s original table, it gave a median of 6.1. There was a further figure included in relation to the exclusion of Fyffes for which the respondents contended which would have given a median of 6.0, but which was rejected by the trial judge.
73. It is not disputed that the trial judge correctly identified that if Walkro was included in that particular table (which as explained above related only to a subset of the transaction comparables which had been considered by Mr. Lindsay), that it gave a median of 6.1 rather than 6.3 for all the transactions in the table relating to that basket in Mr. Lindsay’s report.
74. However, as the Court has already explained, the median figures which Mr. Lindsay set out in his assessment of this subset were merely but one element which he considered in ascertaining the relevant range of EBITDA multipliers to be 6.0 to 8.0 for this basket of transaction comparables. It was not a purely mathematical exercise. Indeed, he gave evidence that in his view, Monaghan Mushrooms could trade at a premium to this valuation range because none of the companies in the UK and European fruit and vegetable comparables (apart from Fyffes) had the scale market position or barriers to entry of Monaghan Mushrooms.
75. Donegal submits that there was no expert evidence given in the High Court which supported or even permitted the use of the arithmetically derived median of 6.1 of one subset of transaction comparables as the multiplier in valuing Donegal’s shares in the Company in accordance with the market approach.
76. The Court has concluded that it must uphold that submission. In its view, the trial judge’s finding of an EBITDA multiplier of 6.1 cannot be sustained on the evidence. There was no evidence to support the use of an arithmetically derived median of multipliers from a subset of transaction comparables as decided. Firstly, all the experts were agreed that arriving at the relevant EBITDA multiplier involves the exercise of professional judgment based on transaction and trading comparables and deriving a range of EBITDA multipliers based on these comparables. It is a qualitative not mathematical exercise. Therefore, the error of approach by the learned High Court judge, for which there was no evidential support, was to derive an EBITDA multiplier by reference to a purely mathematical approach, when all the experts agreed that this was not an appropriate manner in which to generate an EBITDA multiplier. Furthermore, all experts were also agreed that in arriving at the appropriate multiplier to be used in the valuation of shares in the Company using the market approach, it was necessary to consider and assess both transaction and trading comparables. The conclusion of the trial judge is, however, based only upon an assessment of one data set of the transaction comparables and does not make any assessment by reference to the trading comparables at all.
77. The Court, in reaching this conclusion, has considered carefully the respondents’ submission that the decision of the trial judge on the multiplier to be used is a finding of fact with which this Court should not interfere in accordance with the principles set out by the Supreme Court in Hay v. O’Grady [1992] 1 I.R. 210, and as further explained in Doyle v. Banville [2012] IESC 25. Insofar as the decision on the multiplier is either a finding of fact or inference drawn, this Court is of the view for the reasons explained it is one for which there was no evidence before the High Court and it therefore cannot be upheld in accordance with those principles.
78. Donegal also submitted that the trial judge failed to engage with the expert evidence of Mr. Lindsay, which he accepted, or explain his reasons for the use of the adjusted median as the multiplier. The Court does not consider it necessary to consider in detail this submission, but considers it well-founded, having regard to what was said by Clarke J. in his judgment in Doyle v. Banville [2012] IESC 25 at paras 2.3 and 2.4:
“2.3 . . . Any party to any litigation is entitled to a sufficient ruling or judgment so as to enable that party to know why the party concerned won or lost. . . . Where a judge decides the facts there will be a judgment or ruling whether orally given immediately after the trial, or in writing after a period. To that end it is important that the judgment engages with the key elements of the case made by both sides and explains why one or other side is preferred. . . . The obligation of the trial judge, as identified by McCarthy J. in Hay v. O'Grady, to set out conclusions of fact in clear terms needs to be seen against that background.
2.4 In saying that, however, it does need to be emphasised that the obligation of the trial judge is to analyse the broad case made on both sides. To borrow a phrase from a different area of jurisprudence it is no function of this Court (nor is it appropriate for parties appealing to this Court) to engage in a rummaging through the undergrowth of the evidence tendered or arguments made in the trial court to find some tangential piece of evidence or argument which, it might be argued, was not adequately addressed in the court's ruling. The obligation of the court is simply to address, in whatever terms may be appropriate on the facts and issues of the case in question, the competing arguments of both sides.”
79. The Court has concluded that, although there was before the trial judge significant complex evidence in relation to valuation, much of which he took into account and made decisions in respect of certain elements from which there is no appeal, there were, nevertheless, key elements of the expert evidence in relation to the proper approach to determining the multiple to be used with which he simply did not engage and in respect of which he gave no reasons for departing from what appears to this Court to have been a consensus amongst the experts, namely, the necessity to form a judgment or considered expert view as to the appropriate multiple following upon an assessment of multiples derived from relevant transaction and trading comparables. In those circumstances, consistent with the approach of the Supreme Court in Doyle v. Banville [2012] IESC 25 and Hay v. O’Grady [1992] 1 I.R. 210, it is a finding which cannot be upheld.
80. In reaching this conclusion, the Court is not intending to indicate that the trial judge was bound to follow the conclusion reached by expert testimony on the multiple offered by one or other party. As is clear from the judgment of Blayney J. in Irish Press plc. v. Ingersoll Irish Publications Ltd. [1995] 2 I.R. 175, a trial judge is entitled to reach his own conclusion, albeit that that is different to the conclusions reached by the expert evidence of either party. Nevertheless, in a matter such as this, where there has been a consensus of approach to market valuation as between the experts - albeit differing in its application to the particular facts - then if a trial judge is going to depart from and use a different approach, this is a matter must be explained and explained by reference to the key elements of the evidence before him.
81. In this instance, the trial judge did, later in the judgment at paras. 22 to 26, consider a number of other matters in respect of which evidence was given, which he considered called into question the overall valuation placed by Mr. Lindsay on the shares. Whilst there is some dispute about the detail of those matters, which is not now necessary to consider, nevertheless, certain of those may be matters which he could have properly taken into account in considering whether the multiple advanced by Mr. Lindsay was justified or should be further reduced. He did not, however, take these matters into account in deciding upon the EBITDA multiple to be used. He had already decided the multiple without reference to those matters. The trial judge was entitled, even when following the market approach, to bring to bear relevant evidence pertaining to the Company, and, indeed, open negotiations between the parties in determining the appropriate multiple. Donegal also objects to the fact that the trial judge failed to take into account an offer which it had made to purchase the shares in the Company of the respondents in a letter furnished during the trial on 24th October 2014, and which would have placed a valuation of approximately €50m on Donegal’s shares.
82. The determination of the appropriate multiplier is central to the valuation in accordance with the market approach. The Court has concluded that the trial judge’s decision on the EBITDA multiplier to be used in the valuation of the shares in the Company cannot be upheld for the reasons which have just been stated. Both parties were in agreement that if the Court reached such a conclusion, it was not a matter for this Court to determine the appropriate multiplier to be used and that, at a minimum, the question of the multiplier to be used in the valuation of the shares would have to be remitted to the High Court.
CAPEX
83. The second significant issue on this appeal was the reduction by the trial judge of a sum of €42.4m of CAPEX as a debt-like adjustment. Donegal did not dispute that exceptional CAPEX, which is non-earning enhancing or non-value enhancing should, in the market approach to valuation, be deducted as a debt-like figure. The grounds of appeal and submissions relate to the detail of both the evidence and figures in relation to elements of the actual sum of €42.4m deducted by the trial judge.
84. The Court has concluded that it is not either necessary or appropriate for this Court to make determinations on these grounds of appeal having regard to the order it proposes to make for the further trial of the issue of the price at which Donegal’s shares should be purchased by the respondents as set out below. There will now be different facts upon which a decision as to the amount of any such exceptional CAPEX to be deducted will have to be made when the matter is ultimately re-heard by the High Court at the fresh hearing.
Remission to High Court
85. The parties were in agreement that if this Court did not uphold the decision of the trial judge in relation to the multiplier selected by him then, at a minimum, that issue had to be remitted to the High Court. The Court’s attention was drawn to Ord. 86A, r. 3 of the Rules of the Superior Courts which provides:
“3(1) Following the hearing of an appeal, the Court of Appeal may remit proceedings to the High Court with such directions as it considers just.
(2) If on the hearing of an appeal, it appears to the Court of Appeal that a new trial ought to be had, it may set aside the original decision or order and direct a new trial, which may be confined to a particular question or issue, without interfering with the original finding or decision on any other question or issue.”
86. Having regard to the history of the dispute between the parties, the Court was requested to remit to the High Court as narrow an issue as it considered possible and with directions in relation to matters which should no longer be considered as capable of dispute between the parties.
87. The Court agrees with the general approach of attempting to narrow the issues between the parties insofar as is feasible and consistent with certainty in remitting the relevant issues for determination by the High Court. The starting point must be the issue which was before the High Court for determination which is the subject of the judgment of 5th December 2014 and order of 16th January 2015. The issue which was before the Court for determination was “the price at which the respondents might purchase the Petitioner’s shares”. The issue proceeded upon an assumed 35% interest of the Petitioner in the Company. The determination of the Court in its order of 16th January 2015 was that the price (upon an assumed 35%) at which the respondents should purchase the Petitioner’s shares was to be €30.6m. That order must now be vacated.
88. Since that order, there have been two significant developments. First, in separate proceedings which are not under appeal (and which, therefore, have been finally determined), it was decided that the petitioner, Donegal, holds 30% of the shares in the Company. Second, the remedy to which Donegal is entitled pursuant to s. 205 of the 1963 Act has been determined and now upheld on appeal in this judgment. The relief granted under s. 205 is to the effect that the respondents are to purchase Donegal’s shares in the Company. As this Court has made clear in this judgment, that remedy has been upheld in a context where no evidence of specific acts of oppression (other than the one admitted non-disclosure to the Board) was given; no discount was applied in determining the price at which such shares were to be purchased by the respondents and there was no evidence that Donegal would achieve a higher value on an IPO than what the trial judge considered he had previously determined to be the market value for the purposes of fixing the price at which Donegal’s shares should be purchased by the respondents.
89. The Court has concluded that it must accordingly remit to the High Court the determination of the price at which the respondents should now purchase the 30% shareholding of Donegal in the Company. That price is now to be determined by the High Court in a context where it has been determined that the remedy to which Donegal is entitled is to have its shares purchased by the respondents at full market value.
90. There was some debate before this Court as to the date upon which the shares in the Company should be valued if this Court had to remit the matter for retrial before the High Court. Mr. Cush S.C. on behalf of the respondents submitted that in s. 205 proceedings where the remedy is a purchase of shares, the valuation may often be fixed as at the date of presentation of the petition. However, no authority was put forward in support of any principled approach to this effect. It appears to the Court that, rather, the question as to the date upon which shares should be valued when the remedy is the purchase of the petitioner’s shares depends upon the facts giving rise to the remedy. On the unusual facts of this case, where there is no evidence of specific oppression and where the petitioner appears to accept that the Company is being well managed and run, the Court considers that the price should be fixed at the current value of the shares after the remedy has been finally determined.
91. Upon an assumption that this judgment finally determines the remedy issue, it appears to follow that the remedy is that the respondents purchase Donegal’s shares at the current full market value. There was no submission that the admitted act of oppression had affected in any way the current market value of the shares. In another case, where proven or admitted acts of oppression are contended to have affected share value, the relevant date might have to be prior to any adverse effect of acts of oppression so found.
92. At the first valuation hearing in the High Court in July and October 2014, the price was fixed by reference to valuations carried out by the experts as of July 2014, with possibly some additional evidence in relation to one transaction comparable, Adelaide Mushrooms, taken into account in October 2014. For the purpose of the then market approach valuation, the 2014 normalised EBITDA was utilised and not appealed. It may well be that at the remitted hearing further evidence will be adduced as to the current valuation of the Company.
Conclusions
93. The Court considers that it must vacate the orders of 16th January 2015 and 5th June 2015 and make an order that the respondents now purchase the petitioner’s 30% shareholding in the Company and remit to the High Court the issue of the price at which the respondents should now purchase the Petitioner’s 30% shareholding in the Company. The directions which it proposes giving, having regard to this judgment on both the remedy and valuation appeals, are:
(i) That the price should be the full current market value of the shares without application of a minority discount, or discounted cash flow or marketability discount.
(ii) That the EBITDA to be utilised should the 2016 normalised EBITDA determined in the same manner in which the 2014 normalised EBITDA was determined at the first hearing by Mr. Lindsay and utilised by the trial judge.
(iii) That the appropriate multiple should be determined after consideration of both relevant transaction and trading comparables to include, inter alia, Walkro, Hokuto and Adelaide Mushrooms.
(iv) That the trial judge, in determining the appropriate multiple, should be entitled to take into account such other matters as on the evidence he considers appropriate, not inconsistent with this judgment.
(v) The deductions to be made from the gross value determined by applying the appropriate multiplier to the normalised 2016 EBITDA also remains a matter for determination by the new trial judge on the evidence before him or her. In particular, any appropriate CAPEX deduction remains to be determined without any issue being considered as res judicata between the parties by reason of the judgment of the trial judge of 5th December 2014.
94. The Court considers that it should add the following closing remarks.
95. The Company is obviously the holding company of a valuable business which is being well run. It is regrettable that the two groups of shareholders have fallen out to the extent that they can no longer work together. It is now finally decided that the parting of the ways is to be by a purchase by the respondents of the petitioner’s shareholding of 30%. These proceedings commenced in 2013 following an initial process of attempted resolution with external assistance, and have inevitably involved significant expense and time by those involved since that date.
96. The Court is aware that there have been several attempts at mediation and resolution without success. This judgment has nevertheless finally determined certain issues pertaining to this litigation and has accordingly reduced the range of issues currently in dispute. In the light of this, this Court would now urge the parties in their own interests to make a further attempt to resolve the single outstanding issue which now remains, namely, the price at which the respondents should purchase the petitioner’s shares without the necessity of further expensive and time-consuming litigation in the High Court. If that is not possible, then there should be case management by a High Court judge of the further trial of the price to be fixed in accordance with the directions in this judgment so that it may take place in a cost effective and expeditious manner.
