High Court of Ireland Decisions

1. The plaintiff seeks interlocutory injunctions restraining the defendants from taking any further steps to terminate his employment, re-instating him pending the trial of this action, directing them to pay his salary and emoluments until the trial of the action, restraining them from taking any steps removing him as a director of the first defendant or from removing him from his position as commercial director with the first defendant, directing the defendants to provide the plaintiff with unrestricted access to his place of work and to the books, records and information (including electronic) of the first defendant, restraining them from holding a meeting affecting the plaintiff’s position as director and shareholder (47.75% or 42.75%) of the first defendant, restraining the defendant from excluding the plaintiff from all board meetings of the first defendant and further orders until the hearing of the action relating to the bank mandates of the defendants.

2. The first defendant company was co-founded by the plaintiff and the second defendant in 1995. They hold an equal amount of shares in the company (being either 47.75% or 42.75%). The plaintiff and the second defendants were boyhood friends and have remained close personal friends until their recent falling out. While at school together they discussed the possibility of going into business and after third level education remained in contact and were best men at each other’s weddings.

3. In 1995 the Internet was coming into vogue as a means of communication and both felt the growth potential was enormous and that they could exploit it. They agreed to set up business together and despite early setbacks did so providing a “data storage” service. They agreed at the outset that the business would be conducted on 50/50 basis as regards risk, rewards and decision making elements. They acquired the first defendant and it was agreed that each would have a 50% shareholding in the first defendant. Each held one of the two issued shares in the company. They both became directors of the company and the plaintiff was its secretary. The first defendant commenced business in early 1996. The plaintiff lent it £20,000 and for the first six months the plaintiff and the first defendant effectively lived off this loan. Both were involved in sales. The plaintiff took responsibility for the accounts and the second defendant concentrated on the sales.

4. The company’s philosophy was to expand aggressively by re-investing profits. It encountered a difficult patch from May to September 2001 but is now at the bottom of a downward curve and is anticipating a return to profitability and expansion.

5. The first defendant employed its first member of staff in November, 1997 when the plaintiff and the first defendant began to divide their responsibilities. The plaintiff took responsibility for supporting customers and for accounts, the second defendant for personnel and overall responsibility for sales. Neither had the title of “Managing Director”: both were directors of the company. In January, 1999 the third defendant was employed as technical consultant. In 1998/9 it was decided that the second defendant would be the “public face ” of the company and that he would be entitled to call himself “Managing Director ”. The plaintiff was to be called “Operations Director” which was subsequently changed to “Commercial Director” . Mr. Roberts on appointment was designated “Technical Director”. He eventually took over the day-to-day running of the company. The fourth defendant was brought into the company as an non-executive director in March 2000. He had been a former managing director of Cable and Wireless Ireland Limited and it was thought that he would enhance the profile of the company. The plaintiff and the second defendant agreed around this time that they would transfer some of the small amount of shareholding (no more than 10%) to staff members. Ultimately 10% would be divided among staff, 10% amongst other directors of the company, the plaintiff and the second defendant holding 40% each. Mr. Roberts came to hold 3% (1.5% from each of the plaintiff and the second defendant) of the shares under this arrangement. It was agreed that the fourth defendant would hold 2.5% of the shares in the company.

6. Some twelve months ago the plaintiff and the first defendant acquired a premises of 6,200 sq. ft in Bray, County Wicklow, each holding a half interest. Sums were borrowed and each went guarantor for repayments. An annual rent is payable to the plaintiff and the second defendant. These were personal borrowings by the plaintiff and the second defendant. A further sum was lent to the company by way of development loan. The plaintiff and the second defendant shared in this transaction on an equal basis. The transaction was completed in May, 2001. The plaintiff was married in the same month.

7. In his affidavit, the plaintiff describes how his influence and functions in the company were gradually reduced by the second, third and fourth defendants during the past twelve months. The fourth defendant had advised the plaintiff and the second defendant to delegate every possible task to others so that they could keep themselves free to manage and plan for the company. A great deal of the plaintiff’s time was taken up with ensuring that the company would not collapse as a result of cash flow difficulties when he returned from his honeymoon in June, 2001. He had to deal with the Revenue Commissioners and did so. In hindsight he sees that a trend had developed whereby he was excluded by the second and third defendants from certain aspects of the running of the company. Since September the sales in the company began to pick up, it opened a branch office in Belfast in October and took a ten year lease. He and the second defendant took a 50/50 shareholding in a new Northern Ireland business for this purpose. Ultimately this new company was not used.

8. In his affidavit the plaintiff says that on Friday, the 7th of December, 2001 there was a meeting between the second and third defendants and the plaintiff. The second defendant sat down, took a deep breath and then said in an angry tone “this is your last day in Xnet, you’re out”. The second defendant was trying to fire the plaintiff from the company. He told him that the board had resolved that he must go because of “gross incompetence”. He then made certain offers, told him he had legal advice, that he was only entitled to £7,000, there were discussions which the second defendant claimed were “without prejudice”. It emerged that the second defendant and the other defendants had been planning this for some time according to the plaintiff. The second defendant referred to the plaintiff’s brilliant strategic insights but his failures and inability to execute. It was the first time that any one had suggested to the plaintiff that he was “grossly incompetent ”. The plaintiff was subsequently informed by the third defendant that the second defendant spoke for the board.

9. The 7th of December was a Friday. The following Monday, the 10th the plaintiff received a voice mail message from the second defendant to tell him that he had been made officially redundant as of Friday, the 7th December, 2001.

10. The plaintiff decided to visit the company’s premises in Glencormack Business Park, Bray, on the afternoon of the 10th December. When he went out at 2 p.m. he met the second and third defendants, there was a confrontation, some conversation and the plaintiff failed to gain entry. Codes and keys had been altered. On Tuesday the 11th December, the second defendant left a telephone message for the plaintiff giving him notice of a meeting of the board of directors for the 13th December “for the purpose of proposing that (the plaintiff) be removed as a director”. On Wednesday the 12th December, a notice was put through his door entitled “notice of proposed dismissal for redundancy”. The notices were dated the 11th of December and referred to redundancy as of the 7th. The reason given was that the role performed by the plaintiff was now performed by other employees of the company. The matter went into the hands of solicitors and there is correspondence passing between them. The plaintiff says that he is dependant on his salary from the first defendant to survive. His remuneration apart from salary covers pension, life assurance, health insurance, motoring expenses, parking and a sailing club subscription, together with the use of a company car. His salary barely meets his outgoings, in fact, his outgoings routinely exceed his income.

11. The plaintiff says that as guarantor, not only of the company’s debt with the bank but also for the loan (taken out personally by himself and the second defendant) for the premises in Bray leased to the company, he has great exposure and needs to be involved in the running of the company as a director to protect his exposure as guarantor, his interest as shareholder, together with his position as commercial director.

12. In a replying affidavit the second defendant says that the shareholding of the plaintiff and himself is now 42.75%. He says much of the meeting on the 7th of December with the plaintiff was without prejudice and that the plaintiff had agreed to this. He denies absolutely that he ever advised the plaintiff that he was dismissed by reason of “gross incompetence”. He has never used that phrase and at all times he told the plaintiff that his employment was being terminated by reason of redundancy. That is the true position. The first defendant has been seeking to reduce costs. Whilst no other employee has been made redundant, a number have resigned and have not been replaced. The plaintiff’s remuneration package constitutes approximately 10% of the total cost base of the first defendant and given the limited amount of work which he performed which can adequately and easily be absorbed by other members of the staff, it was entirely appropriate that he be made redundant. He does not dispute the general history of their business relationship given in the plaintiff’s affidavit and says that he and the plaintiff jointly worked in developing the business of the first defendant. He avers that the only ongoing work performed by the plaintiff is management of the company’s payroll and other minor administrative functions: following the plaintiff’s redundancy these have been taken up by other employees.

13. In the context of the plaintiff’s allegation that he was misled by the second defendant when they each took a 50% share in the premises now leased to the first defendant, he points out that the rent paid by the first defendant meets their respective financial commitments in relation to the building itself and he says that that is a business venture outside the business of the first defendant. He says that as the business of the first defendant developed the first of the plaintiff’s role was limited solely to administrative functions which now can be done by somebody else. He says that all of the defendants and not just the plaintiff were actively involved in seeking to resolve the cash flow problems of the first defendant and all were aware that significant costs had to be eliminated: hence the decision to eliminate the 10% cost of the plaintiff’s remuneration. He says that the essential trust and confidence which must exist between an employer and an employee has been destroyed in the case of the plaintiff.

14. Further affidavits were exchanged between the parties. The plaintiff refers to an investment whereby the company (he insists it is in fact the first defendant, although the second defendant says that it is his personal investment) has agreed to contribute the sum of £350,000 stg to a company known as Xnet U.K. in 2002. There is a reference to a draft minute stating that until a decision has been reached relating to the share structure of this company “A.H.” (which the plaintiff takes to mean the second defendant) will hold the shares in this company and for all intents is “Xnet Ireland”. He also refers to the fact that two of the employees of the company have received improved remuneration packages. In this context he challenges the assertion that the first defendant is in dire financial straits justifying the saving involved in his own redundancy.

15. An application was made for an interim injunction on the 13th December, 2001. It was granted. Undertakings were given on behalf of the all the defendants on the 17th December. There are allegations relating to breaches of these undertakings and cross allegations in relation to breaches by the plaintiff of legally privileged information given to the defendant in the course of this case.

16. Neither the plaintiff nor the second defendant have a written agreement with the first, as has the third defendant, whose termination period is two months. The second defendant offered to buy out the plaintiff’s shareholding in the first defendant and this was taken badly by the plaintiff who saw in it an attempt to oust his interest in that company. The second defendant says that this was an above board bona fide offer which the plaintiff was entitled to refuse if he wished.

17. The second defendant says it would onerous if the first defendant had to pay the plaintiff’s salary pending the trial of this action as its financial position is extremely tight. An issue emerged in the affidavits relating to the plaintiff’s access to a series of e-mails passing between the defendants. The plaintiff claims that an arrangement had been reached approximately twelve months ago allowing each of these individuals access to each other’s electronic data. An affidavit is sworn by the third defendant to say that the only access which these individuals enjoyed has been access to each other’s diary (calendar) and not other information. Access to legal advice (which the plaintiff denies he read) by the plaintiff was particularly disturbing and the subject of objection.

18. The above is a summary of the main positions of the parties. There are a number of subsidiary assertions and counter assertions.

19. At the hearing before me reference was made by Mr. Hanratty S.C. on behalf of the plaintiff to a minute of the first defendant dated the 6th November, 2001 at which the three other defendants voted to remove the plaintiff as director and company secretary of the first defendant. He had no notice of such a meeting. Mr. Nesbitt S.C. explains the existence of this document (or two versions of it) as being a draft of an intended meeting which never happened because these defendants realised that it was something that they could not do in the manner suggested by these minutes. The meeting did not happen and it has no legal effect. Counsel for the plaintiff points to the fact that these drafts themselves appear to have come into existence on the 12th December that is some days after the 7th when the plaintiff was purportedly dismissed. All of this, submits counsel for the plaintiff, supports his client’s view that the three individual defendants are conspiring behind his back to get him out of the company and have been doing so, he says, since before May, 2001 when he and the second defendant individually and on a 50/50 basis acquired their interests in the property leased to the company and when the plaintiff got married (at which event the second defendant was his best man). The plaintiff was misled by the second defendant into believing that this huge financial commitment on his part was in the context, as ever, of their sharing the future of the first defendant between them on an equal basis.

20. Counsel for the plaintiff submits that he has made out an arguable case for a declaration that his clients’ purported dismissal is invalid and for an order that his client should be reinstated in his position as commercial director of the first defendant at the hearing of the trial. He says that his various interests in the company as director, shareholder, guarantor of the company’s debt with the bank, guarantor of the monies funding the premises leased to the company and as commercial director must be seen for what they are, namely that he together with the second defendant have on an equal basis been involved as co-founder and developer of the company and that it would be artificial simply to regard him in this application as merely an employee of the company with his rights as director to be dealt with under company law, his rights as shareholder similarly and his rights as guarantor merely on a contractual basis. Counsel for the plaintiff submits that all these must be viewed together and that if this is done there is an arguable case, at the very least, to support a claim for a declaration of invalidity of his dismissal and an order that he be reinstated as commercial director of the first defendant.

21. The ancillary reliefs dealing with access to the premises, information and the maintenance of the status quo regarding the bank mandate follow from this.

22. Furthermore, Irish jurisprudence now establishes, he submits, that in the event of an employee being left without a significant portion of his income then a court will direct continued payment until the trial of the action by the employer if the plaintiff (as in the present case) relies solely on this income.

23. In addition there is a serious question, he submits as to whether the real reason why the plaintiff was dismissed was redundancy or whether it was in fact gross incompetence. If it was for the latter then the cases show that he was entitled to fair procedures which were denied and therefore, again, he has made out a fair question for trial at the hearing of the action. Apart from this there was in fact complete disregard for the provisions of the Redundancy Payments Acts and Regulations which of themselves would entitle him to a declaration that his dismissal was ineffective. Furthermore the plaintiff, as office holder with the first defendant, was entitled to fair procedures which were denied.

24. Counsel for the defendant submits as follows:

25. Irish cases where salary or reinstatement were granted to a plaintiff at the interlocutory stage either involved plaintiffs who were office holders denied fair procedures (the present plaintiff is not an office holder) or plaintiffs against whom allegations of wrongdoing were made (this is not so in the present case) but not cases of pure employee contracts because in such circumstances the plaintiff’s remedy is damages alone. Accordingly damages is an adequate remedy and the balance of convenience runs against granting an injunction.

26. He submitted that the argument apparently accepted by Laffoy J. In Harte v. Kelly and Another [1997] E.L.R.125 to the effect that the common thread in Fennelly, Shortt and Boland was that the plaintiff was totally dependant on his income, was not so: the common thread was that these were exceptions to the general rule identified. In Harte, Laffoy J. had said at p. 130:

27. The issue as to whether the court will direct payment of an employee’s salary pending the trial simply on the basis of the plaintiff’s sole reliance on salary as distinct from the existence of an exceptional circumstance which takes the case out of the “normal” cases of their employee contract cases was touched on by Macken J. in Lonergan v. Salter - Townshend and Others unreported, High Court, Macken J. , 9th February, 1999 but, counsel for the defendant submits, not really dealt with. Rather, he submits, the true position was as acknowledged by Barrington J. delivering the Supreme Court Judgment in Parsons v. Iarnrod Eireann in the unreported decision of 24th April, 1997 when he said at p. 9:

28. To similar effect, submits counsel for the defendant, the decision of Murphy J. in the High Court in Philpott v. O’Gilvy and Another [2000] 3 IR 206, where it was held that in the absence of a claim for damages for wrongful dismissal the ruling of the Supreme Court in Parsons applied to the effect that the common law remedy for unfair dismissal was a claim in damages. There was no serious issue, accordingly, that the termination was in breach of the rules of natural justice and therefore invalid. This was unlike Hickey v. Eastern Health Board [1991] 1 IR 208 where it was held that the rules of natural justice apply if a managing director is dismissed for misconduct .

29. I was referred to Glover v. B.L.N. Limited [1993] IR 388 following without this case being opened. The reference was in the context of counsel for the plaintiff’s submission that the plaintiff in all the circumstances was an office holder. Counsel for the defendant submitted that he was not, and that office holders were individuals who held positions designated by statute or other instrument governing the basis of their tenure.

30. He indicated from recollection that the characteristics of office holders were set out in Glover.

31. In fact at page 414 Kenny J. said:

32. Kenny J. went on to express the view that Mr. Glover’s position as director and employee of the operating company and of two other companies resembled that of a holder of an office because his directorship of and his contract with these companies could be terminated by the directors of another company. His pension rights were enforceable against the employer company and had been created before his contract, whereas the directors of the holding company had power to deprive Mr. Glover of his rights against the operating company. Furthermore the decision (that his alleged misconduct had damaged the holding company or the employer company) had to be unanimous. In regard to these provisions Kenny J. said at p. 146:

33. On appeal Walsh J., upholding this conclusion of Kenny J., rested his decision on this point on his interpretation of the relevant clause in the contract of employment which he said implied a term that the inquiry and determination (leading to dismissal) should be fairly conducted .

34. Furthermore Walsh J. expressly reserved his opinion on the correctness of a statement of Lord Reid in Ridge v. Baldwin [1964] AC 40 (see 427)

35. In my opinion the plaintiff has raised the following three fair questions for determination at the trial, namely

36. It is indeed common case that the first defendant has gone through a very straightened financial period. However, it is apparent that the company is now once again on the road to expansion having committed itself to subscribing £350,000 stg to its U.K. venture. In this regard it is true that there is a further issue as to whether this is the private interest of the second defendant or an expansionary venture undertaken by the first defendant. It appears from the evidence before me that a decision in this regard is awaited. I do not think I can simply ignore this substantial financial expansion as if it did not exist. Furthermore the plaintiff also relies on the fact that two employees of the first defendant have received increases in salary. There is, on the other side, of course, evidence that a number of employees have resigned without being replaced. In my opinion the balance of convenience favours the granting of an order directing the first defendant to continue paying the plaintiff’s salary and other remuneration and benefits until the trial of the action, subject, of course, to the usual undertaking and also an undertaking by the plaintiff to do any work of the variety that he used to carry out for the first defendant as commercial director that he is required to do by the first defendant (as distinct from work that he wishes to do of his own accord).

37. Relations between the plaintiff and defendant have irretrievabley broken down. He seeks reinstatement pending the hearing of his case. I have held that he has made out a fair argument for a declaration that he has been wrongfully dismissed but I do not think that the balance of convenience favours an order at this interlocutory stage directing the first defendant to reinstate him to his position as commercial director. Relations between the parties have broken down to a significant degree and I decline to make an order reinstating him pending the hearing of the case.

38. It goes without saying, I think, that the plaintiff is entitled to all information and to have access to all data relevant to his status as director and shareholder of the company and in the absence of an undertaking or assurance from the company that this will be furnished an order should be made. In addition I think he should be given all information which is relevant to the position of commercial director on the same basis as has applied prior to 7th December 2001.

39. One final area of concern pending the trial of the action is the plaintiff’s position as guarantor of the company’s debt with the bank. I am declining to reinstate the plaintiff pending the trial of the action but it does seem to me that some limits should be put on the plaintiff’s exposure in this context if he is not involved in the day to day business of the company perhaps limiting his exposure to what it was on the 7th December, 2001. This precise point was not canvassed before me and accordingly I am prepared to hear counsel on this point and on the precise formulation of the orders required to reflect my conclusions.