Supreme Court refused interim injunction against director removal due to balance of convenience favoring company stability.

THE SUPREME COURT

[2013] IESC 25

126/2013

Hardiman J.

Clarke J.

MacMenamin J.

DOWLING & ORS

v.

COOK & ORS

JUDGMENT of Mr. Justice Hardiman delivered the 16th day of May, 2013.

1. This is the appeal of the petitioners against the judgment and order of the High Court (Mr. Justice Gilligan) delivered the 27th

March, 2013 whereby he refused the petitioners the relief which they sought. The relief sought was as follows, according to the High

Court Order:

(1) An order by way of an interlocutory prohibitary injunction restraining the respondents or any of them whether by

themselves or by their servants or agents or plenipotentiaries from undertaking any action to terminate Piotr Skoczylas

Directorship at Permanent TSB Group Holdings PLC until the adjudication upon the within the proceedings and in particular

the adjudication upon reliefs 11 and 12 sought in the Petition dated the 25th day of January 2013 has been concluded.

(2) Further and without prejudice to the foregoing an order pursuant to Article 267 of the Treaty on the Functioning of

the European Union that the questions raised in the Schedule hereof be referred to the European Court of Justice for

preliminary ruling pursuant to Article 267 of the Treaty on the Functioning of the European Union, if the Honourable Court

is uncertain regarding the interpretation of the respective provisions of European Union Law and if the Court considers

that the relevant matters raised by the petitioners to enable the Court to give judgment.

2. For the purpose of this appeal hearing, it was conceded that the appellants had shown a serious issue to be tried, and therefore

met the first of the Campus Oil tests.

3. On the hearing of this appeal, the real focus was on the third test, relating to the Balance of Convenience in granting or

withholding interlocutory relief. It became clear that the petitioners’ claim was urgent because the Annual General Meeting of the

Company is due to take place on the 22nd May and the petitioners apprehend that Mr. Skoczylas, the fifth-named petitioner, will be

voted off the Board on that occasion. This seems likely, though the Respondents suggest that it is an open question.

4. Having regard to this time constraint the Court has decided to give a short judgment confined to the interlocutory aspects of the

case.

Background.

5. The background facts in this case are clear enough, although not uncontroversial. Mr. Skoczylas was elected to the Board of the

Company on the 4th April, 2012. The other Director defendants who were already members of the Board were reappointed in that

capacity on the 22nd May, 2012. The Company is the Holding Company for the entity conducting business of ILP Bank, a notoriously

troubled Corporation. Mr. Skoczylas makes various claims in relation to what he said was a determined campaign by the other

Directors and those to whom they are responsible to ensure that he was in no real sense allowed to discharge the functions of a

director of the Holding Company. Moreover, he claims that he was not appointed a director of the Bank, whereas all the Directors of

the Holding Company were so appointed and that he was therefore excluded from the induction process made available to such

Directors. He says it was clearly envisaged by the Scheme of Arrangement which led to the adoption of the present corporate

structure of the Holding Company and the Bank that Directors of the Holding Company would be made Directors of the Bank. The

respondents, on the other hand, say that that situation was only envisaged “for a single moment in time”, the moment immediately

after the Bank’s new structure came into being.

6. Mr. Skoczylas, who was supported in this regard by the other petitioners, says he was given no proper information, attended only

three full meetings of the Board, and was excluded, physically on occasion, from the relevant premises. He claims, in general, that his

election as Director was resented by those in charge of the Company who did their best to undermine his position. These and sundry

other complaints are the subject of the petition pursuant to s.205 of the Companies Act which he and the other petitioners have

brought and which awaits hearing in the High Court.

7. Article 87 of the Companies Memorandum and Articles is in the common form. It provides for the retirement of Directors at each

Annual General Meeting starting with the Director who is longest serving from his most recent appointment. The High Court judge held

that Mr. Skoczylas:

“is strictly the longest serving director and therefore, in accordance with the Articles, must retire.”

8. Other Directors retired as well and put themselves forward for re-election. The Company first decided, at a Board meeting on the

27th March (the day of the High Court judgment) that the Board would support the re-election of all retiring Directors. On the next

day it changed its mind and declined to support the re-elections of Mr. Skoczylas.

9. The respondents claim that Mr. Skoczylas’s action in putting himself forward for election has made the present proceedings moot.

The Court cannot endorse this approach and indeed it smacks of a “Catch 22”. Once the Company had been successful in the High

Court Mr. Skoczylas had to either put himself forward for re-election or acquiesce in his departure from the Board. His action in going

forward for re-election was one forced upon him and the correspondence makes it quite clear that he did not acknowledge that he

was, in point of law, obliged to retire.

10. It is, however, quite clear, to say the least of it, that there is a strong case to be made from the point of view that Mr. Skoczylas

was obliged to retire as a Director, and this case indeed found favour with the learned High Court judge and is expounded in his

judgment.

11. Mr. Skoczylas is manifestly entitled to appeal from this judgment and the question is whether interlocutory relief should be

accorded him pending the appeal.

12. In support of this application for interlocutory relief the plaintiff relies very largely on two cases, McGilligan v. O’Grady & Ors.

[1999] 1 IR 346 and Avoca Capital Holdings and The Companies Act [2005] IHEC 302.

13. It will be noted that Mr. Skoczylas conducted his case personally and did so with conspicuous ability, advancing an elaborate

scholarly argument in favour of the positions he put forward. Indeed, he received the unique compliment of having his argument

gratefully adopted by counsel for some of the other petitioners who advanced no additional argument.

14. Mr. Skoczylas submitted that the essence of the O’Grady case was epitomised in the final paragraph of the short concurring

judgment of Mr. Justice Barron in that case. Mr. Justice Barron said:

“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 the determination of the issue as to the granting of interlocutory

relief must be dependent upon the general rules applicable. Here they favour the granting of the relief allowed.”

15. He also relied, in particular, on the dictum of Keane C.J. at p.361:

“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.

Section 205 was enacted primarily in order to remedy that defect in Company Law. Consequently, the fact that, in such a

case as the present, the shareholders are perfectly entitled as a matter of law - s.205 apart - to remove a director even

where that is in breach of a contract between him and them is not a material fact in considering whether that action,

either taken in isolation or as part of a general course of conduct intended to exclude a particular body of shareholders

from participation in the Company, is a ground for relief under the Section.”

16. The respondents did not dispute the authority of the case just cited. However they distinguished it on a number of grounds. They

pointed out that what was restrained in the McGilligan case was progressing a motion brought under s.182 of the Companies Act for

the removal of a director “before the expiration of his period of office”. Such a person was, absent such a motion, prima facie

entitled to be and to function as a director. In the present case, having regard to the findings of the High Court, the interlocutory

issues must be approached on the basis that Mr. Skoczylas is a person whose term of office as Director is about to expire so that he

is not prima facie entitled to be or function as a director, but only subject to re-election.

17. I am by no means sure that that distinction be sufficient to allow one to distinguish McGilligan from the present case in point of

law. The fact is that the actions sought to be restrained in both cases are prima facie lawful actions, that is to say, the passage of a

motion under s.182 and the act of voting against Mr. Sckoczylas’s re-election as a director in the present case. What McGilligan

establishes is that even a lawful action may be restrained due to the effect in law of s.205.

18. In the McGilligan case, however, the plaintiff had been elected a director of the Company by reason of an agreement between the

parties interested in the Company, which was a Business Expansion Scheme funded Company. The plaintiff was to be appointed a

director in order to represent the interests of investors. Persons interested in the Company had, accordingly, contracted to have and

to maintain on the relevant Board or Boards a representative of a particular interest and this arrangement was being undermined by

the s.182 motion. Similarly, in the Avoca case, the Company “essentially operated as a partnership between the members” and the

conduct of the members was governed by a shareholders’ agreement. It thus appears that in each of these cases the relevant

petitioner had what one might call an external title, deriving from the agreements between those interested in the Company, apart

from the standing in Company Law.

19. This feature is absent from the present case.

20. The Court is further of the view that the relief sought, essentially preventing the major shareholder from voting his shares at the

pending AGM is relief of a very radical kind and may, indeed, be essentially mandatory in its effect. The Court does not need to

resolve that question because we are satisfied that, on the basis of the distinction set out above between the present case and the

authorities relied upon, it is not appropriate to grant relief.

21. Mr. Skoczylas also claims that his treatment amounts to a breach of directly effective European Law, set out in some detail in the

summary of his argument which he handed in on the morning of the hearing. In this connection it important to note the learned trial

judge’s finding that there are indeed issues to be tried as to whether there is a breach of directly effective European Law. The Court

must also acknowledge that, as a matter of European Law, a National rule cannot be used to deprive a party of interim relief where to

do so would be to deprive that party of an effective remedy in respect of the relevant European Law issues.

22. It appears to the Court, as it appears in relation to the domestic law issues, that the jurisdiction which the Court enjoys under

s.205 is broad enough to allow the Court to put in place any appropriate remedy that may be necessary to provide a remedy for any

breach of European Law which may be made out. Thus, there does not appear to be any remedy which might be given at this stage

that could not also be given after the trial so that the only issue that arises is one of a delayed rather than a refused remedy.

23. It is also worth pointing out that the Court was informed that the ordinary shareholders in the Company have until Monday next to

grant proxies in respect of their votes to the Chairman of the Company. It is a significant consideration that, if relief were granted in

the form which the petitioners seek against the Chairman of the Company, it would or might amount to an order which would have the

effect of disenfranchising such shareholders who, quite voluntarily, would have given their proxy to him on the basis that he could

exercise it as he wishes. Thus, though the form of order would be against the Chairman and Directors, the effect of it would be felt

by such Directors as would give the Chairman their proxies: it is not possible to say how many such shareholders there are but it

would seem very probable that there will be some such.

24. I may also say that I am not satisfied that the granting of relief is appropriate having regard to the balance of convenience. It is

a grave matter for a company to have on its Board a person whom the Directors do not desire to have there and who may (or of

course may not) be acting in a manner antagonistic to the interest of the Company. The Court is left to strike a balance between the

respective convenience of having a person on the Board who may not be entitled to be there for a significant period of time, and, on

the other hand, the exclusion of a person entitled to be on the Board if, as appears likely, (despite the protestations of counsel for

the respondents and the Minister), he is not re-elected to the Board. In those circumstances, however, the Court believes that its

powers under a s.205 application, if the petitioners are successful, are very wide and will enable it to take every possible step to

compensate the petitioners for the wrong which will have been done to them if they are successful with their petition.

25. The Court will end with a reflection of what it said at the start. The petitioners have plainly shown a very serious issue to be tried

being the issues raised in the s.205 Petition and it is manifestly necessary in the interest of the Company that its conduct during the

probable period of exclusion of Mr. Skoczylas following the refusal of relief reflects the possibility that he will be successful in these

proceedings.

26. The Court will refuse the application for interlocutory relief.