High Court: Injunction refused in €40m property dispute regarding alleged shareholder oppression

Killian Flood BL

About this case:

• Citation:
  [2021] IEHC 473
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Denis McDonald

The applicant alleged that there was serious mismanagement of the company which constituted oppression under section 212 of the Companies Act 2014.

Giving judgment in the case, Mr Justice Denis McDonald held that the applicant had established a fair issue to be tried in the proceedings, but that the balance of justice weighed against the grant of the injunction.

In particular, the court noted that damages, while not a perfect remedy, would be an adequate remedy for the applicant.

Background

The background to the proceedings was complex and the following is a highly abridged version of the case. The company, Oviedo Limited, had been set up following approval of shareholders at an AGM in December 2020. The company was incorporated in order to receive assets from another company, DHP (IOM) Limited. DHP held significant property assets and it was resolved at the AGM to realise these assets by transferring them to Oviedo and selling them. The shareholders would receive the benefits of the sale.

The Board of DHP was the same as Oviedo and were minority shareholders in the companies.

The applicant, Fulman Holdings Limited, was the holder of approximately 33 percent of the shares in both Oviedo and DHP. The applicant had previously been successful in opposing a resolution by the DHP Board in which Mr Brendan Hickey (a board member and shareholder) would buy out the other shareholders and receive the properties.

The applicant subsequently brought a resolution at an EGM in October 2020 for an independent external valuation of DHP’s assets. This was rejected by the majority of shareholders. Then, in December 2020, the majority of shareholders voted to transfer the assets to Oviedo and sell them.

It was expected that asset sales would lead to approximately €40 million for the shareholders. However, the applicant complained that the company was worth more if sold as a going concern rather than in a piecemeal manner. It was argued that an independent valuation should be made for selling Oviedo as a going concern.

At the December 2020 AGM, the applicant had offered to buy the assets and business of Oviedo, which was considered by the Board. However, it was later decided that two substantial properties (knowns as the Leeson Street and Campus Freehold) would be hived-off from any sale to the applicant. No sale for the assets was ever agreed, partially because the applicant claimed that the Board prevented it from performing satisfactory due diligence investigations into Oviedo’s affairs.

Eventually, it was decided by the Board of Oviedo to proceed with certain asset sales and these were advertised in the Irish Times. The applicant decided to bring oppression proceedings against the Board and the companies. Further, the applicant sought an interlocutory injunction restraining the sale of the assets until the oppression proceedings were heard. Alternatively, it was submitted that the injunction could be granted to allow the company to obtain an independent valuation of Oviedo as a going concern.

In the injunction application, it was argued by the respondents that the applicant’s case fell well short of oppression and there was not a fair issue to be tried in the case. It was submitted, inter alia, that the proceedings were caught by the rule in Foss v. Harbottle (1843) 2 Hare 461 and that they were fatally undermined by not joining all shareholders to the proceedings.

Further, it was argued that the selling of assets of Oviedo was the natural democratic action of the shareholder votes. The entire purpose of the company was for assets to be sold and the applicant had simply failed to convince its fellow shareholders to veto the proposal.

It was also argued that damages would be an adequate remedy for the applicant, while Oviedo’s shareholders would suffer if the properties were not sold. The applicant had argued that damages were not adequate as it would be very difficult to assess any loss in value from individual asset sale if the properties were already gone.

Finally, the respondents relied on a period of delay by the applicant in bringing the proceedings. It was noted that the applicant waited weeks before bringing the oppression proceedings and even longer to bring the injunction.

High Court

The court began its analysis by citing Merck Sharp & Dohme Corporation v. Clonmel Healthcare Ltd [2019] IESC 65 which highlighted guiding principles in injunction applications. The court considered whether there was a fair question to be tried and, on balance, decided that there was such a question. The court was conscious of the force behind the Foss v. Harbottle point which was applied in Re Via Net Works (Ireland) Ltd [2002] 2 I.R. 47) to oppression proceedings.

However, the court held that it was arguable that the Supreme Court’s comments in Via Net Works were obiter. As such, the court could not definitively say that Via Net Works was binding in the case. It was also arguable that there were other conflicting judgments which stated that there was less scope for Foss v. Harbottle to apply in the context of oppression.

Further, the court noted that, on the evidence available, it was possible to argue that no advice was sought by the Board regarding the sale of the company as a going concern. The court held that it was possible the applicant could persuade a trial judge that there was an obligation to seek such advice, although the court noted “powerful factors” which would weigh against this, including the vast expertise of the Board itself.

The court then turned to consider the balance of convenience. It was accepted by the court that damages mould not be a precise remedy for the applicant because it would be difficult to calculate the exact losses if Oviedo sold the assets. However, the court said that the difficulty in calculation would not prevent a court from arriving at a fair valuation of Oviedo as a going concern.

Additionally, it was noted that the remaining shareholders might suffer significant damage if the injunction was granted. The property market was hard to predict and the shareholders would suffer similar losses to the applicant if the sales were restrained. As such, the court held that damages were not an adequate remedy for the respondents.

In balancing the factors in the case, the court held that the majority of shareholders had voted for the early realisation of assets. The court had regard for the purpose of Oviedo and the adverse consequences for shareholders if the sales were restrained. The shareholders would be bearing a substantial risk that the property market would change if the injunction was granted.

A further factor which weighed against the injunction was that the applicant waited a number of weeks before issuing the application. The court said that the applicant had not moved with the “level of dispatch” that it would have expected given the nature of the applicant’s concerns.

Even if the case was finely balanced (and the court did not think it was), it was held that the strength of the applicant’s case was not such to warrant the grant of the injunction.

Conclusion

Although there was a fair issue to be tried in the case, the court was not satisfied that the balance of convenience required the application to be granted. Accordingly, the court refused the application.