High Court of Ireland Decisions

1. The Plaintiff is now beneficially entitled to 49.5% of the shareholdings in Esat Digifone Limited ("the Company"); the first named Defendant is now beneficially entitled to 1% thereof and the second also to 49.5%.

2. The principal issue arises in this case between the Plaintiff and the first Defendant. I made an Order joining the second Defendant on its application to have a say in this interlocutory application. The primary dispute between the Plaintiff and the first Defendant relates to the interpretation and implementation of a shareholding agreement ("the agreement") relating to the shares in the company.

3. The agreement is dated the 16th of May 1996 and under it the parties to these proceedings agreed to contribute to the company amounts of capital as follows:-

4. The first Defendant £3,000,000; and

5. The second Defendant £6,000,000.

6. The first Defendant's £3,000,000 investment entitled it to 20% of the share capital of the company: of this it subsequently sold all but 1% of its shareholding to the other two parties in equal shares resulting in the present percentage shareholdings set out at the commencement of this judgment. The company has done well and the sales of shares referred to achieved multiples of the original cost price.

7. Clause 7.4 of the agreement provides as follows:-

8. Clause 14 deals with the consequences of failure by one of the parties to pay all or part of the capital agreed to be paid by it.

9. The Plaintiff says that Clause 7.4 clearly and demonstrably means that once the shareholding of an individual party falls below 10% not only does that party lose the right to nominate a director but also the right to maintain its nominee on the board. In this Motion the Plaintiff seeks an Interlocutory Order directing the first Defendant to take steps to cause its nominees to resign or, alternatively, to restrain them from acting pending the determination of the dispute.

10. This interpretation of Clause 7.4 is disputed by the first Defendant which submits that it has a right to maintain its nominees on the Board in the absence of an explicit provision in the agreement requiring their resignation in these circumstances. The respective Counsel of these parties have made submissions to me which appeared to satisfy themselves at any rate of the utter absurdity of the interpretation advanced by their respective opponents.

11. Apart from the foregoing Motion for interlocutory relief, however, a further Motion has been brought by the first Defendant seeking a stay on all proceedings by the Plaintiff upon the basis that the dispute between them is the subject of an arbitration agreement.

12. The arbitration clause in the agreement, where relevant, provides as follows:-

13. The Clause goes on to adopt the rules of the International Chamber of Commerce in the English language as governing the procedure of this arbitration.

14. Logically, of course, I must first deal with the application for a stay.

15. After some adversarial skirmishing the parties appeared to me to accept that the Arbitration (International Commercial) Act, 1998 does not apply to the agreement and this is the basis upon which I proceed in this judgment.

16. Furthermore both Counsel for the Plaintiff and the first Defendant relied on the Arbitration Act 1954 as amended by the Arbitration Act 1980 - albeit on different sections of these Acts.

17. Counsel for the Plaintiff submits that there is no reference to arbitration and therefore the Court has no jurisdiction to grant a stay under Section 5 of the 1980 Act. In the alternative he submits that if Section 5 does apply then that is because the Act of 1954 and the Act of 1980 apply so that I have jurisdiction under Section 22(1)(h) of the 1954 Act to grant the relief sought on this interlocutory application. Section 22(1)(h) of the 1954 Act provides as follows:-

18. I do not propose to burden this judgment with a full citation of Section 5(1) of the Arbitration Act 1980 save to say that it includes the following:-

19. The first Defendant relies on Section 5 of the 1980 Act and submits that I should grant a stay pure and simple and that any interim relief (as contemplated by Section 22(1)(a) if it applies) can only be such as to maintain the status quo and preserve the present situation between the parties pending final determination of the issue between them by the arbitrator.

20. The Plaintiff for his part has another string to his bow: he submits that quite apart from the dispute relating to the interpretation of Clause 7.4, he also has a cause of action against the first Defendant based on estoppel and a further cause of action based on collateral agreement which are independent of the Clause 7.4 issue and which he has not agreed to submit to arbitration and which therefore should be dealt with by the Court now regardless of what is done in relation to the primary issue. In response to this the first Defendant says that these additional disputes are secondary and subsidiary and that the main dispute relates to the interpretation and implementation of Clause 7.4 of the agreement and that it would be wrong for a party such as the Plaintiff to an arbitration agreement to avoid the full implication of that agreement by praying in aid ancillary and subsidiary matters.

21. In my opinion the agreement is indeed an agreement within the meaning of Section 2 of the Act of 1954 and Section 2 of the Act of 1980.

22. In the absence of authority to the contrary, and despite submissions by Counsel on behalf of the first Defendant, I consider that the application of Section 22(1)(h) of the 1954 Act has not been suspended in relation to what are termed "foreign agreements" by necessary implication of the enactment of the Act of 1980. I do not think that the fact that the Act of 1980 provides for the enforcement of what are called "New York Convention Awards" means by necessary implication that the jurisdiction conferred on this Court by Section 22(1)(h) of the 1954 Act has been repealed or abrogated in relation to foreign arbitration agreements. The authorities cited to me disclose a spectrum of judicial opinion none of which, on this side of the Atlantic at any rate, appears to me to go as far as asserting a want of jurisdiction in the ordinary Courts to provide interim relief in this case.

23. Furthermore in this context I note that Section 4 of the Act of 1980 enacts an explicit repeal of Section 12 of the 1954 Act. The law makers considered repeal of the 1954 Act and decided to repeal Section 12 but did not decide to repeal Section 22(1)(h).

24. No authority was submitted to me to the effect that in this country and in the context of an arbitration governed by the Acts of 1954 and 1980 the jurisdiction conferred on the Court by Section 22(1)(h) does not apply at all or has been curtailed. In these circumstances I consider that while it may well be appropriate to grant the first Defendant a stay on part of the Plaintiff's proceedings that this in no way trammels the Courts' jurisdiction to afford interim relief (which clearly includes what is usually termed interlocutory relief) to the Plaintiff pending the determination of the dispute.

25. I am satisfied that there is a substantial question to be tried in relation to the interpretation and application of Clause 7.4 of the agreement: I do not think that the resolution of this question is so clear as to prohibit substantive argument on both sides.

26. Because the issue involves the governance of the company pending the final determination of this substantial question I am satisfied, further, that damages cannot be an adequate remedy for either the Plaintiff or the first Defendant. The Plaintiff asserts an entitlement to its correct proportionate share in the management of the company at Board of Director level pending the determination of the issue relating to Clause 7.4 of the Agreement and the first Defendant likewise claims its own entitlement in this regard. Because the company is active in a growing and dynamic sector of the economy I consider that damages could not be said to be an adequate remedy for depriving either one of these parties of their share in such management.

27. The matter must, accordingly, be determined by reference to the balance of convenience. In this context I note that there is no accusation of any kind of mis-management or inappropriate management by the nominee directors of the first Defendant. One or two points have been made which I should deal with.

28. It is said by the first Defendant that the Plaintiff's application is an unwarranted attempt to ask the Court to interfere in the running of the company. With due respect to this argument I consider that it is based on the pre-emptive assumption that the interpretation of Clause 7.4 submitted by the first Defendant is correct. It is further suggested that any Order made in favour of the Plaintiff could be interpreted as a criticism of the nominee directors of the first Defendant. Any such interpretation would be completely ill founded because any observer with the slightest familiarity with the evidence in this case would have to acknowledge that all sides agree that the pre-eminent contribution of these directors is beyond question.

29. The Plaintiff relies on the following passage from the judgment of Lord Diplock in American Cyanamid Co v Ethicon (1975: AC: 396 at pp 408/9):-

30. It seems clear to me that the extent to which the disadvantage to the Plaintiff as a 49.5% shareholder is incapable of being compensated in damages far outweighs the same extent in the case of the first Defendant as a 1% shareholder.

31. The first Defendant says, however, that it holds the balance between the Plaintiff and the second Defendant and that if the Plaintiff is granted the relief sought there will be deadlock on the board of the company. The Plaintiff in reply says that its 49½% shareholding entitles it not to have visited upon it management decisions with which it disagrees from now until the determination of the dispute between the Plaintiff and the first Defendant. If it is indeed true that the first Defendant does hold the balance between the Plaintiff and the second Defendant on the Board of Directors then the first Defendant by exercising its vote would enjoy a power on that Board pending the determination of the dispute which would be wholly disproportionate to the percentage shareholdings of the contesting parties.

32. It appears to me that the balance of convenience favours the granting of an Interlocutory Injunction restraining the Defendant from causing or permitting its director nominees on the board of the company from acting in that capacity pending the determination of the dispute relating to the interpretation of Clause 7.4 of the agreement.

33. I think the first Defendant is entitled to a stay of the Plaintiff's proceedings in this Court in so far as they relate to that dispute.

34. I will hear Counsel as to the precise wording of the Injunction and any other matters arising.