High Court of Ireland Decisions

You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Geaney v. Elan Corporation Plc [2005] IEHC 111 (13 April 2005)
URL: http://www.bailii.org/ie/cases/IEHC/2005/H111.html
Cite as: [2005] IEHC 111

[New search] [Help]

[2005] IEHC 111

THE HIGH COURT

COMMERCIAL

DUBLIN

[2004 No. 19205P]

MR. DONAL GEANEY

PLAINTIFF

ELAN CORPORATION PLC

DEFENDANTS

APPROVED JUDGEMENT DELIVERED BY

MR. JUSTICE KELLY

ON WEDNESDAY 13TH APRIL 2005

MR. JUSTICE KELLY DELIVERED JUDGMENT AS FOLLWS ON WEDNESDAY 13TH APRIL 2005.

The Plaintiff is a former Chairman and Chief Executive of the Defendant. He was employed by the Defendant from the 1^st October 1987 until the 31^st July 2004. On or about the 8th July 2002, the Defendant decided to remove the Plaintiff from the position of Chairman and Chief Executive. He alleges that this decision was taken without cause and communicated to him without notice. He says he was immediately required to resign from all offices which he held with the Defendant. By an agreement of the following day, namely 9th July 2002, he was employed as a Senior Advisor to the Chairman of the Defendant until 31st July 2004.

As part of his remuneration, the Plaintiff was granted share options. Options over 1,150,000 shares were granted on 8th November 1999. Options over a further 150,000 shares were granted in February 2000. Employees whose service was terminated without fault had a period of 90 days during which to exercise their options post termination. That stipulation came from the terms of the plans under which the options were granted. This case concerns a dispute as to the length of time during which the Plaintiff can exercise his options. His case is that he is entitled to exercise his options for a period of 24 months since leaving the Defendant. That is to say he alleges that he is entitled to exercise his options until 30th July 2006. He contends that he has such an entitlement by contract or, alternatively, as a result of representations made to him by two named officers of the Defendant on the 8th July 2002. The Statement of Claim, insofar as it is relevant, reads as follows. I now quote from paragraphs 5 through 12 of the Statement of Claim.

"5. The rules of the said incentive plans provided for a variety of conditions associated with exercise periods in respect of share options. Between February and April 2002, the Senior Management Team and the Remuneration Committee of the Defendant were involved in a series of meetings. Arising out of the said meetings it was determined by the Defendant that, in respect of senior executives, the exercise period for share options under the Defendant's Share Option Plan would be extended to 24 months post termination.

6. At some time shortly prior to 8th July 2002 a decision was taken by the Board of the Defendant to remove the Plaintiff from the positions of Chief Executive Officer and Chairman of the Defendant. The said decision was taken without cause and was communicated to the Plaintiff on 8th July 2002 without notice and the Plaintiff was immediately required to resign from all offices that he then held with the Defendant.

7. On the evening of 8th July 2002, the Plaintiff attended at the Defendant's premises in Dublin. During the course of that evening, a telephone conversation took place between Mr. Dan Tully and Mr. Garo Armen of the Defendant's New York office, and the Plaintiff and his financial advisor, Mr. Jimmy Skehan. During the course of the said conversation, it was confirmed to the Plaintiff by the Defendant that he would be treated in the same manner as other Senior Executives who had exited or would be exiting the Defendant, i.e. that the Plaintiff would have a period of 24 months from the date of the termination of his employment in which to exercise his share options as referred to in paragraph 5 above.

8. The Plaintiff was required to execute an agreement governing the terms upon which he would continue to be employed by the Defendant. By agreement in writing dated 9th July 2002, the Plaintiff agreed that he would work with the Defendant in the capacity of Senior Advisor to the Chairman of the Board of the Defendant from 9th July 2002 until 31st July 2004 and that he would continue to be paid his remuneration as normal. It was further a term of the said agreement that awards that were previously made to the employee pursuant to the Defendant's equity compensation programmes would be governed in accordance with their existing terms.

9. In compliance with the said agreement, the Plaintiff worked in the said capacity full time until December 2003. Thereafter, by reason of the deterioration of his health, he performed his duties on a part-time basis.

10. Upon the expiration of the said agreement, the Defendant unlawfully terminated the Plaintiff's employment. The said termination is the subject of a claim under the Unfair Dismissals Act 1977 to 2001.

11. Wrongfully, and in breach of the above terms, the Defendant has purported to assert that the Plaintiff is not entitled to exercise the options held by him under the 1996 and 1998 plans with effect from the 29th October 2004.

12. Further or in the alternative, the Plaintiff was induced by the following representations of Mr. Dan Tully and Mr. Garo Armen to execute the agreement dated 9th July 2004:

(a) that the Plaintiff would have a period of 24 months post the termination of his employment in which to exercise any share options held by him in the Defendant.

(b) that the Plaintiff would be treated on no less favourable terms than other senior executives whose employment with the Defendant was to be terminated."

That concludes the quotation from the relevant parts of the Statement of Claim insofar as this application is concerned.

A lengthy Defence and Counterclaim was delivered on 4th February 2005. It appears to me that the following paragraphs of that document are relevant. paragraphs 2(b), (c) and (d) and paragraphs 5,8 and 9 and they read as follows.

Paragraph 2(b):

"On the 8th July 2002, the Plaintiff was informed that the Defendant had lost confidence in him as Chairman and Chief Executive and proposed to dismiss him from both positions in accordance with his contract. The parties entered into negotiations in respect of a termination of the Plaintiff's employment with the Defendant. The Plaintiff's primary concern at that time was to be allowed as long a period as possible to allow the share price an opportunity to recover so that the share or stock options would have some value. To that end, it was agreed that the Plaintiff be granted a new employment contract of two years duration, with its being terminated and the relationship being severed at the expiry of that term. At no stage did any negations take place in respect of extending the option exercise period post termination. The aforesaid negotiations resulted in the Plaintiff entering into a written agreement on 9th July 2004.

(c) The written settlement agreement comprised two documents, the agreement and the release agreement, which inter alia provided for the Plaintiff to remain as an employee on the same remuneration up to 31st July 2004 but in a different role.

(d) Any claim, cause or action or benefit in respect of the termination of the Plaintiff's employment effective on 31st July 2004 was compromised by virtue of the terms of the agreement, together with the associated release agreement. By the terms of the aforesaid agreements, the Plaintiff undertook not to sue inter alia the Defendant, its direct or indirect parents, its subsidiaries, affiliates and related companies in respect of the employment and its termination."

Paragraph 5:

"It is denied that between February and April 2002 or at any time, the Senior Management Team and the Remuneration Committee agreed and/or determined that in respect of senior executives the exercise period for share options under the Defendant's share options schemes, or plan, would be extended 24 months post termination whether as agreed or at all."

Paragraph 8:

"It is denied that the Defendant at any material time had in place any scheme for departing senior executives which provided that all such executives would, as a term and condition of leaving their employment with the Defendant, have a period of 24 months within which to exercise their share or stock options whether as pleaded at paragraph 7 of the Statement of Claim or at all."

Paragraph 9:

"It is denied that either Dan Tully or Garo Armen communicated and/or represented to the Plaintiff and/or reached any agreement with the Plaintiff that he would have a period of 24 months from the date of termination of his employment within which to exercise his share or stock options, whether on 8th July or at any time, whether as alleged at paragraph 7 of the Statement of Claim or at all."

That exchange of Pleadings was accompanied by requests for and replies to particulars in the usual way.

On 18th February of this year, I heard and determined a contested application for Discovery sought by the Plaintiff. Six categories of documents were sought. I ordered discovery to be made in respect of all of the categories sought. Four weeks was allowed for such Discovery. An affidavit in purported compliance with that Order was made by Mr. Liam Daniel, the Secretary of the Defendant, on 23rd March 2005. This is my judgment on an application which seeks to have the Defendant's Defence and Counterclaim struck out because of its alleged failure to comply with that Order.

Four shortcomings in that affidavit have been identified by reference to four categories of documents. They were set forth in a letter which was sent by the Plaintiff's solicitor on the 1st April 2005. That letter reads as follows, insofar as it is relevant:

"In purported compliance with the Order, the Defendant has delivered an Affidavit of Discovery of Liam Daniel sworn on 23rd March 2005. This affidavit is deficient in a number of respects, most notably but not limited to the absence of:-
(i) documentation in relation to the termination of contracts of employment of senior executives in the Defendant or its associated or subsidiary companies since February 2002 to include, without prejudice to the generality of the foregoing, all severance agreements executed by such executives together with all correspondence to them concerning the period of time during which they were permitted to exercise their share options post termination."

That is a quotation from the Order which was made. The letter goes on:

"The only termination agreements discovered are those of Tom Lynch and Michael George. The Defendant has, at the very least, neglected to include documentation relating to the termination of Ms. Mary Prendergast and Mr. William Clarke.

(ii) All documents from the files of Sherman and Sterling.

(iii) All documents from the files of A&L Goodbody Solicitors.

(iv) Handwritten notes of the Secretary of the Board of Directors, Mr. Daniel.

That is an end of the quotation from the relevant part of the letter. It then goes on to indicate its disquiet at what has occurred and the fact that the instant motion was going to be brought.

On Monday and yesterday I heard this motion. Evidence was taken both by affidavit and orally from Mr. Daniel and from Mr. Ian Moore. The evidence of Mr. Daniel was taken by video link from New York and was taken viva voce from Mr. Moore, who is a partner in the firm of A&L Goodbody, the Defendant's Solicitors.

I will deal with each category in turn. The third category of documents in respect of which the Order for Discovery was made reads as follows:

"All documents, notes, minutes, instructions and correspondence from, to or taken by any third party in relation to the discussions referred to at paragraphs 6, 7, 8 and 12 of the Statement of Claim and paragraph 2(b) of the Defence and in connection with the agreement concluded as a result of those discussions."

1. A&L Goodbody files.

It was only on Wednesday last, 6th April 2005, that a substantial file which clearly had relevant documents on it was disclosed to the Plaintiff's solicitors. That disclosure was made after the present motion had been brought, opened before the Court in short form and adjourned in order to enable an affidavit from the Defendant to be filed. On Wednesday morning last, Counsel intimated what that affidavit would contain. I ordered cross-examination on foot of it. Only when that Order was made was the file disclosed. The affidavit from the Defendant, when it finally emerged, was quite different to what had been intimated to the Court on the morning of Wednesday last. The Plaintiff contends that this is quite extraordinary and in the light of other matters, to which I will turn later in this ruling, is no coincidence.

I had an explanation for all of this from Mr. Moore. Despite having made enquiries from the relevant personnel in his firm, no documents in excess of those disclosed in the Affidavit of Discovery had been found up to Wednesday morning last. However, on that day he made contact with a Ms. Hyde, who had been employed in A&L Goodbody Solicitors. She was very much involved with the transactions the subject of this action. She confirmed to him that she had made notes which had not been discovered. I am satisfied that the existence of those notes was not previously known by Mr. Moore. As a result of the information given by her, a line of inquiry was followed and the file in question was discovered in the archives of A&L Goodbodys within a short time. It goes without saying that this inquiry of Ms. Hyde should have been made long prior to last Wednesday afternoon, particularly as she was the member of staff in A&L Goodbodys who was intimately involved in this whole affair. The other Goodbody personnel had a lesser or more remote involvement. Mr. Moore had none, he was on holidays. Mr. Given's wife had an accident on the 8th July 2002 so he was not involved with matters on the 9th July 2002. Mr. O'Riordan's (another member of the A&L Goodbody firm) involvement took place whilst he was on holidays and he took no notes in respect of the matters that were addressed to him. It is not clear to me why an inquiry was not made of Ms. Hyde before last Wednesday, since she was readily contactable. The file, however, has now been disclosed to.

2. Sherman and Sterling papers.

Mr. Moore contacted the three partners in Sherman and Sterling and explained to them that the Discovery Order in suit had been made. He told them of the obligation to discover not merely any documents in their possession but also any that had been and were since destroyed. Apparently, that firm has a policy of destroying notes, etc., taken or made by its personnel. He was told that there were no documents generated by that firm. It is clear that Sherman and Sterling was involved in the matters which will be enquired into at trial of this case. Even though standard form documents were apparently used by Sherman and Sterling in preparing severance agreements, nonetheless that firm had to take instructions as to what was to go into them. I, like Mr. Moore, would have expected that the personnel of Sherman and Sterling would have notes on their dealings with their client. In fact, I am astonished that they say that they did not. Indeed, it is also clear from what has now been disclosed in Ms. Hyde's papers that Sherman and Sterling did indeed have relevant documents. This aspect of the matter is quite unsatisfactory.

3. Category 4 of the Order for Discovery reads as follows:

"All documentation in relation to the termination of contracts of employment of senior executives in the Defendant or its associated or subsidiary companies since February 2002 to include, without prejudice to the generality of the foregoing, all severance agreements executed by such executives, together with all correspondence to them concerning the period of time during which they were permitted to exercise their share options post termination."

It is now quite clear from the evidence given by Mr. Daniel that the pleas at paragraphs 5 and 8 of the Defence cannot be stood over. On the 18th August 2002, the Remuneration Committee agreed in certain circumstances that the share option period would be increased from 90 days to 24 months. Documents were not disclosed evidencing this. In my view, they ought to have been. Even if they do not fall within the precise terms of category 5 of the Order for Discovery, which was date, time and venue specific, they were clearly, in my view, captured by the language of category 4.

It is also clear that on the basis of legal advice, the Defendant decided not to disclose agreements and other documents concerning terminations subsequent to the 9th July 2002. This is so despite the specific pleas at paragraph 7: "who had exited or would be exiting" (my emphasis) and 12(b): "no less favourable terms than the other senior executives whose employment with the Defendant was to be terminated" (my emphasis) in the Statement of Claim. In my view, this approach to the obligations of Discovery was incorrect. There was and is an obligation to discover the documentation in respect of exiting employees who left subsequent to 9th July 2002. There was, in my opinion, no justification for the unilateral temporal limitation of 9th July 2002 being placed on the ambit of the discovery obligation.

It was also, in my opinion, quite incorrect not to disclose the agreement with Mr. Clarke who, on the present state of the evidence, although he left the Defendant's employment on 19th July 2002, was given a 24 month option period. Were this information, and the document which was executed by Mr. Clarke, not in the Plaintiff's possession we might never have known of it.

4. There is also a question with regard to Mr. Daniel's notes of the relevant meetings. He appears to have been advised by Sherman and Sterling to keep his notes short but not to destroy them. His oral testimony on this topic has not been very satisfactory. He cannot recall what happened to his notes prior to October 2002 at which stage a new system of retaining them in a ring binder fashion was begun.

The position is, therefore, as follows:-

(A) The A&L Goodbody file was not dealt with in an appropriate way. Apology has now been made and the file has been disclosed.

(B) In the light of the documents from Sherman and Sterling which have emerged in Mr. Hyde's papers, and indeed the normal practice of such firms, I do not accept that they do not have and never had any disclosable papers.

(C) The failure to disclose documents concerning the Remuneration Committee's decision of 18th August was not correct.

(D) The failure to disclose documents concerning those employees who left employment with Elan subsequent to 9th July 2002 was wrong. It is hard to see how this decision was arrived at, given the clear language of the relevant paragraphs from which I have quoted.

(E) The position of the notes taken by Mr. Daniel is unsatisfactory.

Overall, I regret to say that I am not impressed with the Defendant's discharge of its Discovery obligations.

The provisions of Order 31 Rule 21 of the Rules of the Superior Courts provide for what is to occur in circumstances where a party fails to comply with a Discovery Order. That rule provides that the person who is in such default shall be liable to attachment, that is to say to attachment and committal to prison. He should also, if a Plaintiff, be liable to have his action dismissed for want of prosecution and, if a Defendant, to have his defence, if any, struck out and to be placed in the same position as if he had not defended.

In the present case, the Plaintiffs have not sought to attach or to commit to prison Mr. Daniel in respect of the failure by the Defendant to carry out its Discovery obligations. They do, however, seek an order striking out the Defendant's Defence and Counterclaim or, in the alternative, they seek that I make an order for further and better Discovery. There isn't the slightest doubt but that the Court does have power to strike out a defendant's defence and counterclaim for failure to comply with its discovery obligations. The circumstances in which that power can be exercised are, however, governed by the decision of the Supreme Court in the case of Mercantile Credit Company of Ireland Limited -v- Heelan & Others. In the course of his judgment, Hamilton C.J. said this:

"The power given by the said rule to the Court to strike out the defence of a defendant who has failed to comply with an Order for Discovery is discretionary and not obligatory and should not be exercised unless the Court is satisfied that the Defendant is endeavouring to avoid giving the Discovery and not where the omission or neglect to comply with the order is not a culpable one, For instance if it was due to loss of memory or illness. It should only be made where there is willful default or negligence on the part of the Defendant and then only upon application to the Court for an order to that effect. The powers of the Court to secure compliance with the rules and orders of the Court relating to discovery should not be exercised so as to punish a party for failure to comply with an Order for Discovery within the time limited by the Order."

Whilst I am quite dissatisfied with the way in which the discovery obligations of Elan Corporation plc have been met, and whilst I am satisfied that their approach is seriously substandard, I do not believe that I would be justified in making an order for the striking out of that Defendant's defence at this juncture. It appears to me that I should avail myself of the second alternative relief which is sought by the Plaintiff on this application, namely that an order for further and better Discovery be made. However, I wish to make it clear that in giving the following directions, I expect strict compliance with them and that any failure to comply to the letter and to the spirit of the Order that I now propose to make will have the most serious consequences for the Defendant. The directions that I give are as follows:

1. They Hyde papers which have been disclosed are to be the subject of a supplemental Affidavit of Discovery which is to be sworn by Mr. Ian Moore, the partner in A&L Goodbodys who gave evidence before me yesterday. He will have to satisfy himself as to the accuracy and the completeness of the documents which he is discovering in that Affidavit of Discovery and indeed if any further documents have since been disclosed to him or have come to his notice since the informal disclosure was made on Wednesday last, they will have to be incorporated in that Affidavit of Discovery.

2. Each of the three relevant partners in Sherman and Sterling must swear Affidavits of Discovery. If they had, but no longer have, any documents which are disclosable, then they must account for them. If they never had documents then they must say how this is so, since such a situation would be a departure from the norm insofar as Mr. Moore's and indeed my own experience in such cases in dealing with such firms is concerned.

3. A supplement affidavit will have to be sworn by Mr. Daniel dealing with all relevant documents in accordance with the terms of this ruling. He will also have to set out what steps he has taken to find his missing notes. If they are found in the meantime, they must be disclosed and if they are not found, then he will have to give an indication as to the steps taken to find them and also the general nature of those documents.

Finally, I propose to indicate the Court's displeasure at the way in which the Defendant has its obligations by way of a Costs Order. In the Order for Discovery which I made on the contested obligation in February, I place a stay on both execution and registration of that Costs Order until the ultimate disposition of this action. That stay is now lifted and the costs of that application will have to be paid by the Defendant. In addition, I propose to make an Order for the Plaintiff's costs of this application, to include all reserved costs and those costs will have to be paid by the Defendant on a solicitor and client basis. I see no reason why the Plaintiff should find himself out of pocket as a result of having to bring this application which has occupied the time of the Court over the last two days and during last week also. So the costs of this motion will be awarded to the Plaintiff, to include all reserved costs and to be taxed on a solicitor and client basis.

END OF JUDGEMENT

Approved Peter Kelly

15.iv.2005