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You are here: BAILII >> Databases >> Supreme Court of Ireland Decisions >> McGilligan v. O'Grady [1998] IESC 38; [1999] 1 IR 347 (5th November, 1998)
URL: http://www.bailii.org/ie/cases/IESC/1998/38.html
Cite as: [1998] IESC 38, [1999] 1 IR 347
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McGilligan v. O'Grady [1998] IESC 38; [1999] 1 IR 347 (5th November, 1998)
1. This
is an appeal from a judgment and order of the High Court (O’Donovan J.)
of the 24th July last. The learned trial judge granted an interlocutory
injunction restraining the defendants pending the trial of the action from
removing the first named plaintiff as a director of the third and
2. The
facts, in so far as they are not in dispute, are as follows. The first named
plaintiff is the managing director of Business and Trading House Investment
Company Limited (hereafter “BTH”). This is a company which at the
relevant times was engaged in arranging the investment of funds on behalf of
various people under what was known as the Business Expansion Scheme (hereafter
the “BBS”). It was decided to make such an investment in the third
named defendants, Premier International Trading House Limited (hereafter
“PITH”). As a result an agreement was entered into between BTH, the
Bank of Ireland and PITH on the 25th July 1989 (hereafter “the 1989
agreement”) under which the bank were to apply for 571,428 ordinary
shares of £1 each at a premium of 5p (representing a total investment of
£600,000) on behalf of a number of investors. Under the terms of the 1989
agreement, to which it will be necessary to refer in more detail at a later
point, BTH was to be kept fully informed of the progress of the business of
PITH and its financial affairs. In
3. The
first named defendant is the chairman, chief executive and secretary of the
third named defendants (hereafter “PIM”) and is one of the two
executive directors of the company, along with the second named defendant. It
would appear that, between them, the first and second named defendants were
4. The
investors in BTH had to hold their shares for a minimum period of five years in
order to avail of the tax relief under the BBS scheme. There was no mechanism
provided in the 1989 agreement enabling the investment to be terminated. As the
bank and BTH wished to realise their investment, a sub- committee was formed by
the board of PITH with a view to establishing an “exit mechanism”,
as it was called. With that in mind, the sub committee had discussions with
Seamar Limited, a company which manufactured hotel, amenity and airline
products of a nature similar to those marketed by PITH, the object being a
possible acquisition by PITH of Seamar Limited or the acquisition of PITH by
Seamar Limited. The first named plaintiff at this stage was a non-executive
director of Seamar Limited. Far from this proposal
5. It
should also be pointed out that on the 22nd February
1995,
the
shareholders in PITH accepted an offer by PIM to exchange their share holding
in PITH for an equivalent share holding in PIM together with a loan note for
£2.38 in respect of every seven shares held by them in PITH. As a result,
PITH became a wholly owned subsidiary of PIM and the first named plaintiff was
appointed a non-executive director of PIM.
6. The
disagreements between the first named plaintiff and the first and second named
defendants ultimately led to the convening of an extraordinary general meeting
of PIM for the purpose of considering a resolution that the first named
plaintiff be removed, pursuant to
s.
182
of the Companies Act 1963 from his office as a director of that company. That
notice led to the institution of these proceedings and also to the presentation
of a petition by the plaintiffs pursuant to
s.205
of
the Companies Act 1963 claiming that the affairs of PIM were being conducted in
a manner oppressive to the plaintiffs and in disregard of their interests and
an order directing PIM to purchase the beneficial
7. Numerous
affidavits were filed on behalf of the plaintiffs and the defendants in the
High Court in which allegations and counter-allegations were made as to the
conduct of the respective parties. While it was not possible for the High
Court, or this court on appeal, to resolve the various conflicts of evidence
involved, the respective positions of the parties can be summarised as follows.
8. The
first named plaintiff claims that, following the share exchange already
referred to, the investment of the BTH investors, represented by the bank,
effectively became an investment in PIM. He says that the first and second
named defendants are conducting the affairs of that company without regard to
the legitimate interests of those investors, that they have been deliberately
frustrating the proposed merger with Seamar Limited which would provide those
investors with an appropriate exit mechanism and that they are doing so in
order to further the acquisition by themselves, through the vehicle of a
company called Tippser Limited, of as many shares as possible in PIM, thereby
effectively organising a management buyout of the company. They were also
intent, he claims, on converting the business of PIM into manufacturing,
although hitherto its business had merely involved the selling on to customers
at a profit of goods which had already been manufactured by other companies,
thereby, as it was said, obviating manufacturing costs and overheads, and
which, the first named plaintiff claimed, had been an attraction
9. For
their part, the first and second named defendants say that Seamar Limited, of
which the first named plaintiff was until recently a director, has been in
direct competition with PITH and PIM and has been undermining the interests of
those companies in breach of an agreement with them. The first named plaintiffs
interests as a director of Seamar Limited were thus, it was claimed, in
conflict with his interests as a director of PITH and PIM and the latter
companies were entitled to withhold sensitive commercial information from him,
particularly having regard to the litigation actually existing between the
companies and Seamar Limited. They also said that in these circumstances the
shareholders in PIM, if so minded, were perfectly entitled to remove the first
named plaintiff as a director of PIM.
10. The
provisions of the 1989 agreement must now be considered in more detail. As
already noted, the parties to the agreement were BTH, the Bank of Ireland and
PITH. PITH is referred to in the agreement as “the company” and
s.
1.01
provides that that expression in the agreement means:-
11. The
correspondence exhibited in the affidavit of the first named plaintiff includes
letters from the plaintiff in which he complained that neither financial
12. There
appears to have been no reply to this letter. The bank, which, as already
noted, was the nominal holder of the shares of the BBS investors, also wrote on
the 27th May 1997 to PIM stating that they had not yet received a copy of the
audited accounts of the company for the year ended 31st December 1996 nor had
they received notice of an annual general meeting to approve same. The bank
pointed out that the relevant statutory time limits in relation to these
matters had now expired and requested a copy of the accounts by return and
confirmation of whether it was proposed to hold the annual general meeting. It
would appear that no reply was received by the bank to this letter.
13. In
a further affidavit, the first named plaintiff deposed that the first named
defendant was a joint beneficial owner of a company called Cornforth Limited, a
company which had a 10 percent beneficial holding in Seamar
15. As
to the issue which arose in relation to the carrying on by PIM of a
manufacturing business, the position appears to be as follows. Clause 2 of the
memorandum of association of PIM sets out a number of objects for which the
company is established, none of which expressly refers to any manufacturing
process. There is, however, a sweeping up provision at clause 13 as follows:
16. At
the hearing in the High Court, and again in this court, it was argued on behalf
of the defendants that PIM could not be restrained from removing the first
named plaintiff as a director, having regard to the provisions of s.182 of the
Companies Act 1963 which empowers a company to remove a director before the
expiration of his period of office “notwithstanding anything in its
articles or in any agreement between it and him”. It was also submitted
that
s.205
of
the same Act, entitling the court to grant certain reliefs to shareholders who
are being treated oppressively or whose interests were being disregarded did
not entitle the court to enjoin the removal of a director in violation of s.182
and, in this context, they relied on the decision of the High Court (Laffoy J) in
17. On
the hearing of the appeal, Mr Hugh O’Neill SC on behalf of the defendants
submitted that the granting of an injunction to restrain the removal of a
director was clearly irreconcilable with s.182 and that
Feighery
& Ors
was
authority for the proposition that it could not be circumvented by a claim,
such as that being made in the present case, that the removal constituted
oppressive treatment entitling the plaintiff to relief under s.205.
18. Mr
O’Neill further submitted that, in any event, the plaintiffs had not
established even an arguable case of oppressive treatment under s.205. Although
the first named plaintiff had a one per cent shareholding, it was not suggested
that he had been oppressively treated in his capacity shareholder: the real
complaint was that the BES investors were being as a
19. Mr
O’Neill further submitted that, even if the alleged breach of the
agreement constituted a ground for granting relief, such relief was not
available to the plaintiffs who were not parties to that agreement. Moreover,
PIM, against whom the relief was sought, were not parties to the agreement.
20. Mr
O’Neill further submitted that, apart from these considerations, the
granting of interlocutory relief in the form of an order restraining the
company from removing the first named plaintiff as a director was
inappropriate, since that was not the relief which was being ultimately sought
by the plaintiffs in the proceedings under s.205 and it was wrong in principle
that an interlocutory injunction should be granted in circumstances where no
perpetual injunction in the same terms would be sought at the trial.
21. Mr
O’Neill finally submitted that, if the learned trial judge was correct in
holding that the plaintiffs had established a fair case to be tried, he had
erred in treating the balance of convenience as being in favour of the granting
of the injunction. Even if the alleged oppression of the plaintiffs or the BBS
investors was established at the hearing of the s.205 petition, the appropriate
relief would be the acquisition of their shares in the company and the fixing
of the price at which the shares would be purchased would not be affected by
the removal of the first named plaintiff from his office as a director.
22. On
behalf of the plaintiffs, Mr Ian Finlay SC submitted that the plaintiffs’
claim to an interlocutory injunction should not be defeated because of the fact
that the first named plaintiff was not a party to the 1989 agreement and was
not the shareholder in respect of whom the allegations of oppression were
principally made. The High Court had been informed, and it was still the
position, that counsel for the plaintiffs had instructions, if necessary, to
apply on behalf of BTH and the bank to have them joined as plaintiffs in the
proceedings.
23. Mr
Finlay further submitted that the crucial feature of the present case was that
the defendants were unquestionably proposing to commit a breach of the 1989
agreement by removing the first named plaintiff and by embarking on the
business of manufacturing and had already committed breaches of the agreement
by failing to supply financial information and audited accounts. In these
circumstances, it was quite clear that the plaintiffs had made out a fair case
under s.205 that the affairs of the company were being conducted oppressively
so far as some of the shareholders were concerned and in disregard of their
interests.
24. Mr
F inlay further submitted that s.182 meant no more than that a director of a
company could not rely on an agreement between himself and the company or a
provision in its articles to prevent the company from removing him: his only
remedy was in damages. It had nothing to say to a position such
25. Mr
Finlay finally submitted that the balance of convenience was clearly in favour
of the granting of the injunction. The relief ultimately sought by the
plaintiffs was not merely the purchase of the shares of the BBS investors: they
would also be entitled, if the allegations of oppression were made out and it
appeared to be the appropriate remedy, to an order for the winding up of the
company. They were, accordingly, entitled to protect their interests in the
assets of the company in the meantime by ensuring that the first named
plaintiff was not removed from his position as director in breach of the 1989
agreement.
26. Since
this is an application for an interlocutory injunction, I should refer to the
legal principles relevant to such an application. In
American
Cynamid Company .v. Ethicon Limited [1975] AC 396
,
Lord Diplock said:-
29. It
is beyond argument in the present case that the plaintiffs have established a
serious question to be tried as to whether there has been oppression or
disregard of the interests of members within the meaning of
s.205
(1)
so far as the bank, the nominee of the BES investors, is concerned. The
defendants are admittedly acting in breach of the 1989 agreement with the bank
and BTH in seeking to remove the first named plaintiff as director and the
withholding of relevant financial information from the first named plaintiff
and the failure to produce audited accounts is equally clearly a breach of that
agreement. That agreement was expressly intended to protect the interests of
the BBS investors and it could not seriously be disputed that these admitted
breaches of its terms would afford the bank, as the nominee of the investors,
not merely a case, but a strongly arguable case, for relief under the section.
30. Since
both the High Court and this court were informed that the bank and BTH could,
if necessary, be joined in the proceedings, it is quite clear that their
31. The
defendants, however, contend that, even allowing that to be so, it does not
entitle the court to grant an interlocutory injunction which effectively
deprives the shareholders of their statutory right, if they are so minded, to
remove a director. The only remedy available in such circumstances, it is
urged, is that afforded by s.205 where oppression is established, ie the
purchase of the shares of the petitioners or the winding up of the company on
the ‘just and equitable” ground.
32. It
is undoubtedly the case that, if there is a relationship between shareholders
in a company indicating a degree of mutual confidence and trust,
33. The
learned judge in that case also referred to another English decision,
Bentley-Stevens
. v. Jones [1974] 1 WLR 638
where Plowman J refused to grant an interlocutory injunction in a case where
disputes arose between the three shareholders in a company which ran a nursing
home and two of the shareholders sought to remove the third shareholder as a
director. Plowman J said:-
34. It
should be noted that neither in that case nor in
Feighery
.v. Feighery & Ors
did
the plaintiff seek to rely on any express agreement, such as the 1989 agreement
in the present case. In the latter case, the plaintiff, who alleged that he had
succumbed to family persuasion to abandon a career in an accountancy
35. It
is important to bear in mind the object of
s.205
of
the Companies Act 1963. Until its enactment, a majority of the shareholders in
the company could, perfectly lawfully, use their powers in a manner which was
harsh and unfair to the minority and had no regard to their interests. Unless
the aggrieved shareholders could point to some illegality, whether flowing from
a breach of the company’s constitution or the general statutory or common
law applicable to companies, the law could afford them no relief
36. Why
then should the court, on an application for an interlocutory injunction, be
unable to restrain the company from removing a director pending the hearing of
a petition under s.205 where he has established that there is a serious
question to be tried as to whether his exclusion from the affairs of the
company constitutes conduct which would entitle shareholders to relief under
s.205?
It
should be noted that in
Bentley-Stevens
.v. Jones
.
there do not appear to have been any proceedings in existence under the English
equivalent of
s.205
at
the time the application for an interlocutory injunction was made. However,
apart from that consideration, I am bound to say, with all respect, that I do
not understand why it should be thought that, because the relief sought in the
interlocutory proceedings is not the same as the relief which will ultimately
be sought in the s.205 proceedings, an interlocutory injunction should not be
granted on that ground alone. If it is desirable, in accordance with the
principles laid down in the
American
Cynamid Compan
y
and
.
Campus
Oil
cases,
to preserve the plaintiffs rights pending the hearing of the
s.205
37. As
to the balance of convenience in the present case, it is clear that, if the
plaintiff is excluded from participation in the board meetings of PIM and is
denied the financial information and audited accounts pending the hearing of
the s.205 petition, the asset base of the company could be seriously damaged
and the efficacy of the winding up order to which the plaintiffs may ultimately
be entitled significantly affected. On the other side of the scales, the
interests of the defendants would not appear to be seriously affected by the
affording of the financial information in question or the presence of the first
named plaintiff at the board meetings, given his acceptance that he is bound by
a duty of confidentiality in relation to such information and, in any event,
has ceased to be a director of Seamar Limited.
38. I
am not satisfied, however, that the plaintiffs have established that the
balance of convenience requires that the company be restrained from becoming
involved in a manufacturing process. On the contrary, it may be that, if such a
decision was thought by the majority of the shareholders to be in the best
39. I
would, accordingly, affirm the order of the High Court insofar as it granted
the interlocutory relief at paragraphs 1 and 2, but discharge the interlocutory
injunction granted at paragraph 3.
41. I
would just add a few words.
In
re Westbourne Galleries Limited, [1970)’ AC 360
and
In
re Murph's Restaurants [1979] ILRM 141
are not strictly relevant to the present application. They establish that it
is just and equitable that a shareholder in a company which is a quasi
partnership should have the same right to dissolution as a shareholder in the
company as he or she would have had as a partner in a partnership. Although in
the
Westbourne
case,
the complaint started with the petitioner’s removal as a director, it is
not an authority touching on the instant case since relief by way of
restraining his removal was not sought.
42. The
essence of the instant case is that no absolute reliance can be placed upon a
statutory right given to the general meeting of a company when the exercise of
that right is alleged to be wrongful; in this case a breach of the provisions
of s. 205 of the Companies Act, 1963. In all such cases, determination of the
issue as to the granting of interlocutory relief
© 1998 Irish Supreme Court