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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Gerard Dowling & Ors v Alan Cook & Ors [2013] IEHC 406 (23 August 2013) URL: http://www.bailii.org/ie/cases/IEHC/2013/H406.html Cite as: [2013] IEHC 406 |
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Judgment Title: Gerard Dowling & Ors v Alan Cook & Ors Neutral Citation: [2013] IEHC 406 High Court Record Number: 2013 36 COS Date of Delivery: 23/08/2013 Court: High Court Composition of Court: Judgment by: Laffoy J. Status of Judgment: Approved |
Neutral Citation: [2013] IEHC 406 THE HIGH COURT [2013 No. 36 COS] IN THE MATTER OF PERMANENT TSB GROUP HOLDINGS PUBLIC LIMITED COMPANY AND IN THE MATTER OF THE COMPANIES ACTS 1963 – 2012 AND IN THE MATTER OF SECTION 205 OF THE COMPANIES ACT 1963 AND IN THE MATTER OF SECOND COUNCIL DIRECTIVE 77/91/EEC AND IN THE MATTER OF DIRECTIVE 2001/34/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL AND IN THE MATTER OF DIRECTIVE 2009/101/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL AND IN THE MATTER OF DIRECTIVE 2004/25/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL AND IN THE MATTER OF DIRECTIVE 2004/39/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL AND IN THE MATTER OF ARTICLE 63 OF THE TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION AND IN THE MATTER OF ARTICLE 267 OF THE TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION BETWEEN GERARD DOWLING, PADRAIG McMANUS, JOHN PAUL McGANN, TIBOR NEUGEBAUER, PIOTR SKOCZYLAS, MURIEL SCORER AND GEORG HAUG PETITIONERS AND
ALAN COOK, JEREMY MASDING, EMER DALY, MARGARET HAYES, SANDY KINNEY, RAY MacSHARRY, PAT RYAN, KEVIN MURPHY, DAVID McCARTHY, BERNARD COLLINS, ROY KEENAN, THE MINISTER FOR FINANCE OF THE REPUBLIC OF IRELAND RESPONDENTS Judgment of Ms. Justice Laffoy delivered on 23rd day of August, 2013. The main proceedings
2. The company in respect of which the s. 205 Proceedings are brought is named in the title: Permanent TSB Group Holdings Plc (Holdings). It is a public limited company which is listed on the Enterprise Securities Market of the Irish Stock Exchange. According to the evidence before the Court it has over 135,000 shareholders. Another company which is involved in the Related Proceedings, Permanent TSB Plc (the Bank), is a wholly owned subsidiary of Holdings. 3. Two orders made by the Court pursuant to the Credit Institutions (Stabilisation) Act 2010 (the Act of 2010) are at the core of the s. 205 Proceedings and the Related Proceedings The first in time was a direction order made by the Court pursuant to s. 9 of the Act of 2010 on 26th July, 2011 (the July 2011 Direction Order), in consequence of which the twelfth respondent (the Minister) became the owner of 99.2% of the issued share capital in Holdings. While the Minister is a respondent on the s. 205 Proceedings, he is not a party to, and was not heard on, the application to which this judgment relates. The second was an order made by the Court on 28th March, 2012 (the March 2012 Direction Order), the consequence of which was that Irish Life Group Limited (the Insurance Company), which, in broad terms, was the company through which the Permanent TSB group of companies carried on its insurance business, and of which the Bank was the sole shareholder, was sold by the Bank to the Minister for the sum of €1.3bn. 4. Among the Related Proceedings are the following applications and actions:
(b) an application to the High Court (Record No. 2012/116 MCA) (the 2012 Application) brought by some of the petitioners and another corporate party of which the fifth petitioner (Mr. Skoczylas) is Managing Director seeking to set aside the March 2012 Direction Order; and (c) two plenary actions (the Plenary Actions) challenging the constitutionality of certain provisions of the Act of 2010, the proceedings under Record No. 2013/2708P having been initiated by some of the petitioners and the proceedings under Record No. 2013/2709P having been initiated by other petitioners.
(b) The 2012 Application has been determined by the High Court. In a judgment delivered on 28th June, 2012 (Neutral Citation [2012] IEHC 436), Peart J. refused to set aside the March 2012 Direction Order. The position when this application was heard was that the Court was told that those petitioners who were applicants on the 2012 Application intend appealing the decision of Peart J. to the Supreme Court. For present purposes, I am assuming that there will be such an appeal, so that the proper course is to treat the 2012 Application as not having finally been determined, as I did in Dowling & Ors. v. Minister for Finance [2013] IEHC 299 (at para. 9), those proceedings having been initiated on the day after the application to which this judgment relates was heard. (c) The Plenary Actions are still going through procedural steps, one procedural step which has yet to be dealt with by the Court is an application by Holdings and the Bank to be joined as parties in the Plenary Actions. 7. The petitioners in the s. 205 Proceedings are members of Holdings and, in fact, in the petition they are described as “registered members and small minority shareholders” of Holdings. They are all personal litigants. As has happened on other applications in the s. 205 Proceedings and in the Related Proceedings, Mr. Skoczylas has sworn affidavits on behalf of all of the petitioners. Mr. Skoczylas has made written and oral submissions to the Court on this application. 8. The first eleven respondents to the petition (the Director Respondents) are current or former directors of Holdings. The first to seventh inclusive Director Respondents were directors of both Holdings and the Bank when the petition was originally presented on 25th January, 2013. Two, the fourth and the sixth Director Respondents, ceased to be directors of Holdings in May 2013. The eight to the eleventh inclusive Director Respondents are former directors of Holdings. 9. As has been recorded, as a consequence of the July 2011 Direction Order, the Minister is the owner of 99.2% of the issued share capital of Holdings and it is principally in that capacity that he is joined in the s. 205 Proceedings. 10. Mr. Skoczylas was a director of Holdings until 22nd May, 2013. Some of the allegations made in the petition in the s. 205 Proceedings relate to the treatment of Mr. Skoczylas as a director of Holdings. After the s. 205 Proceedings were initiated, the petitioners sought interlocutory relief seeking an order restraining the Director Respondents from undertaking any action to terminate Mr. Skoczylas’ directorship at Holdings until the adjudication of the s. 205 Proceedings. Judgment on the application was given by the Court (Gilligan J.) on 27th March, 2013 (Neutral Citation [2013] IEHC 129), in which he refused the reliefs sought. An appeal to the Supreme Court was dismissed on 16th May, 20213 (Neutral Citation [2013] IESC 25). I have considered it appropriate to refer to that interlocutory application, which has been determined, because of the emphasis attached by Mr. Skoczylas to the judgment delivered in the Supreme Court by Hardiman J. At the end of the judgment, Hardiman J. stated:
The application
(b) that the Director Respondents or any of them be precluded from utilising the resources of Holdings or the Bank or any of its subsidiaries to aid their defence of the s. 205 Proceedings; and (c) that the Director Respondents reimburse any monies that Holdings or the Bank or any of its subsidiaries has paid on behalf of or for the Director Respondents or any of them regarding the s. 205 Proceedings. 13. Even in relation to the first two reliefs, the application was not made on the basis that it was an interlocutory application which would endure only until the determination of the s. 205 Proceedings. It was heard on affidavit evidence. No undertaking as to damages was proffered by the petitioners. The evidence adduced on the application consisted of the following affidavits:
(b) an affidavit sworn by Mr. Long on 22nd April, 2013; (c) an affidavit sworn by Mr. Skoczylas on 26th April, 2013; (d) an affidavit sworn by Mr. Long on 3rd May, 2013; (e) an affidavit sworn by Mr. Skoczylas on 8th May, 2013; (f) an affidavit sworn by Mr. Long on 17th May, 2013; (g) an affidavit sworn by Mr. Skoczylas on 27th May, 2013; (h) an affidavit sworn by Mr. MacCarthy on 31st May, 2013, in the absence of Mr. Long who was on annual leave; and (i) an affidavit sworn by Mr. Skoczylas on 31st May, 2013. Reliefs sought in petition 16. Paragraphs (1) and (2) are framed in general terms. Paragraph (1) seeks a declaration that the powers of the Director Respondents while directors of Holdings “are being and/or have been exercised in a manner oppressive to the members” of Holdings “and/or in disregard of their interests as members”. In paragraph (2) a declaration is sought that the affairs of Holdings, by virtue of the conduct of the Minister in his capacity as a 99.2% majority shareholder of Holdings, “in addition to his capacity as the Minister”, have been conducted in a manner oppressive to the members of Holdings and/or in disregard of their interests as members. 17. Paragraphs (3), (4) and (5) relate to the July 2011 Direction Order and invoke the various EU Directives and Treaty provisions set out in the title to the petition. The relief sought in paragraph (3) is that the July 2011 Direction Order “be declared incompatible with the said provisions of European Union law”, which on a plain reading one is entitled to construe as a challenge to its validity, and that it is oppressive to the members of Holdings and in disregard of their interests. Paragraph (4) alleges breaches of EU law by Board members of Holdings or some of them, which are itemised, in relation to the July 2011 Direction Order and seeks a declaration that the impugned acts “be declared incompatible” with “the provisions of EU law” and oppressive to the members of Holdings and in disregard of their interests as members. Paragraph (5) is in terms broadly similar to paragraph (4) but focuses on resolutions of the Board of Directors of Holdings of 26th July, 2011 which were filed with the Companies Registration Office on 8th August, 2011. 18. In my view, this Court is entitled to assume that the issues raised in paragraphs (3), (4) and (5), other than the oppression and disregard of interests as members claims which are included in each paragraph, will fall to be considered by the Court hearing and determining the 2011 Application. As has been recorded, the issue as to the extent to which Holdings (of which the Director Respondents were in 2011, and some still are, directors) and the Bank are entitled to participate in the 2011 Application has not been finally determined because it is under appeal. 19. Paragraphs (6), (7), (8) and (9) relate to the March 2012 Direction Order and its consequence, the sale of the Insurance Company to the Minister. Paragraph (6), invoking certain EU Directive and Treaty provisions, seeks a declaration that the March 2012 Direction Order is “incompatible with the provisions of European Union law”, which on a plain reading one is entitled to construe as a challenge to its validity, and that it is oppressive and in disregard of the interests of the members of Holdings. Paragraph (7) alleges that acts of the Board of Directors of Holdings in connection with the sale of the Insurance Company to the Minister were contrary to Holdings’ “statutes and instrument of incorporation” and should be declared incompatible with the provisions of European Union law and there should be a declaration of incompatibility with European Union law and of oppression and disregard of the interests of the members. Paragraph (8) and (9) seek to restrain or have declared illegal or void a “resale” of the Insurance Company. 20. Aside from the allegations of oppression and disregard of interests, again, it seems to me that it must be assumed that the issues to which reliefs sought in paragraphs (6), (7), (8) and (9) give rise will fall for consideration on an appeal to the Supreme Court against the decision of the High Court (Peart J.) in relation to the March 2012 Direction Order, which, for present purposes, it is assumed will be prosecuted. 21. Paragraphs (10), (11) and (12) relate to the treatment of Mr. Skoczylas as a director of Holdings. In paragraph (10) a declaration is sought that the matters complained of, including attempting to force Mr. Skoczylas off the board of Holdings, were oppressive to Mr. Skoczylas as a director of Holdings and oppressive to the members of Holdings, including the petitioners and in disregard of their interests as members and incompatible with European Union law. Paragraph (11) seeks an order that Mr. Skoczylas be “inducted to” Holdings and bona fide enabled to discharge his duties as director of Holdings on par with the other directors. Paragraph (12) requires an order that he be “nominated” to the Board of the Bank. 22. Paragraph (13) seeks an order referring fifty two questions outlined in the schedule to the petition to the Court of Justice of the European Union for a preliminary ruling under Article 267 of the Treaty on the Functioning of the European Union. 23. Paragraph (14) relates to proceedings brought by the Bank and all of the Director Respondents other than the eleventh Director Respondent against the petitioners and the corporate party of which Mr. Skoczylas is Managing Director in the High Court (Record No. 2013/569P). In those proceedings (Permanent TSB plc & Ors. v. Skoczylas & Ors.) an interlocutory injunction was sought against the defendants restraining the defendants until the trial of the action from issuing proceedings or presenting any application under s. 160 of the Companies Act 1990, as amended. Judgment on that application was given by the Court (Cooke J.) on 4th February, 2013 (Neutral Citation [2013] IEHC 42) wherein he granted the interlocutory injunction sought. The relief sought in the petition in relation to those proceedings is an order that the Director Respondents who were parties, as plaintiffs, to the proceedings reimburse Holdings of any monies that Holdings or its subsidiaries had paid on their behalf in relation to those proceedings. 24. In the petition the petitioners also seek damages for breaches of European Union law at paragraph (15) and such other order as to the Court may seem fit at paragraph (16). 25. It is only necessary to consider the Points of Claim briefly. Despite the relief sought in paragraph (3) of the prayer in the petition, as outlined earlier, in the Points of Claim, following reference to the 2011 Application, it is asserted that, while there is an overlap in respect of the relevant facts, the 2011 Application is different and independent from the s. 205 Proceedings and that the s. 205 Proceedings “are not aimed at setting aside” the July 2011 Direction Order. Similarly, following reference to the 2012 Application, it is asserted that the s. 205 Proceedings are not aimed at setting aside the March 2012 Direction Order. Under the heading “Misappropriation of [Holdings’] resources”, the allegation made on this application is introduced into the s. 205 Proceedings, in that it is alleged that the Director Respondents “have been illicitly expropriating the resources” of Holdings and the Bank to defend the s. 205 Proceedings. 26. Throughout the Points of Claim the Director Respondents are referred to as the “relevant director Respondents” and it is emphasised that they were directors of Holdings at the relevant time and participated in decision-making. In the Points of Claim it is stated that the s. 205 Proceedings are against the Minister primarily in his capacity as the majority shareholder, although it is asserted that it is relevant that the Minister utilised his ministerial powers to advance his interests as the majority shareholder of Holdings. 27. On this application it was emphasised from the outset by Mr. Skoczylas in his grounding affidavit that neither Holdings nor the Bank are parties to the s. 205 Proceedings. The application in the context of the petitioners’ case as pleaded 29. The Director Respondents are sued in their capacity as directors at the relevant time, not as shareholders. The current position is that only five of the eleven Director Respondents are directors of Holdings. The remainder of the Board members of Holdings and of the Bank are not before the Court, either in the s. 205 Proceedings or on this application. 30. The Minister who is sued as a shareholder, although a party to the s. 205 Proceedings, is not before the Court on this application. 31. There is inconsistency between what is pleaded in the Points of Claim and the reliefs sought in the prayer in the petition and the inconsistency was carried through in Mr. Skoczylas’ submissions. It would be inappropriate to attempt to unravel the inconsistencies on this application, the Minister, Holdings and the Bank, parties potentially affected by the reliefs sought, not being before the Court. 32. The principal ground on which the petitioners advanced this application, as deposed to in Mr. Skoczylas’ grounding affidavit, was that what the Director Respondents are doing “is an expropriation of the resources of the company that they control for their personal benefits and convenience”. That ground was expanded on in a document entitled the “Summary Oral Submissions of Piotr Skoczylas” furnished to the Court on the hearing of the application in which, having asserted that Holdings “is not the fiefdom of the Director Respondents”, it was asserted that –
(b) Mr. MacCarthy, as Chief Legal Office of Holdings, and his team must not act on behalf of the Director Respondents; and (c) Mr. Long, as Group Secretary of Holdings, and his team must not aid the defence of the Director Respondents. 33. The retention by all of the Director Respondents of Mr. MacCarthy and counsel instructed by him in relation to s. 205 Proceedings was ratified by the Board of Directors of the Bank at a meeting held on 25th January, 2013. The first to seventh Director Respondents, who were directors of the Bank at the time, attended that Board meeting. It was submitted on behalf of the petitioners that they should not have used their power as directors, as they did, to authorise Mr. MacCarthy and Mr. Long to organise, conduct and aid the defence of the Director Respondents in the s. 205 Proceedings. 34. It was submitted on behalf of the petitioners that this application is not concerned with how the Director Respondents fund and manage their defence, as long as it is not funded by Holdings or the Bank and as long as they do not utilise the resources of Holdings or the Bank to aid their defence. It was also submitted on behalf of the petitioners that the motion is not about the “main action” in the s. 205 Proceedings. That, in my view, is a wholly unrealistic proposition, as the reliefs sought against the Director Respondents on this application cannot be segregated from the totality of the claims made in the s. 205 Proceedings or the similar claims made in the Related Proceedings. Put another way, this application cannot be decided in vacuo. 35. Finally, and significantly, the petitioners appear to be asking the Court to make a determination of a pre-emptive nature as to by whom the burden of the costs should be borne at an interlocutory stage in the proceedings, at a point in time when it would be inappropriate, and, in any event, it is impossible, to form any view as to whether the petitioners will ultimately make out a case of oppression or disregard of interests against the Director Respondents or the Minister and for the various reliefs sought in the petition, as outlined earlier. That does not overlook the observations of Hardiman J. quoted at para. 10 above. Response of Director Respondents 37. The first strand is that, in essence, neither Holdings nor the Bank is funding the Director Respondents’ defence of the proceedings. Evidence has been put before the Court, to which I will return, for the purpose of establishing that the legal costs of the defence are being borne by an insurer, AIG, pursuant to an entirely lawful Director and Officers Liability Policy (the Policy) held by Holdings. Further, Holdings, the Bank and AIG have determined that the most appropriate and economically efficient legal representation of the Director Respondents for the purposes of the s. 205 Proceedings is representation by Mr. MacCarthy, as the Chief Legal Officer of the Bank. AIG has confirmed that it will discharge the costs of the Chief Legal Office, his support staff and counsel instructed by him as and when the costs are incurred. It was submitted on behalf of the Director Respondents that, in the circumstances which prevail, on this application the petitioners are trying to prevent AIG from meeting its obligations under the Policy. 38. The second strand is that, having regard to the unique circumstances of these proceeding and, in particular, the vital interest which Holdings and the Bank have in the outcome of the proceedings, Holdings and the Bank would, in any event, be entitled to fund the defence of the Director Respondents. It was submitted that the claim by the petitioners in the s. 205 Proceedings are completely different to the claims usually brought under s. 205 of the Act of 1963. The dispute between the petitioners and the Director Respondents is not a shareholder dispute. The claims against the Director Respondents relate to decisions taken by them in relation to the recapitalisation of the Bank and the July 2011 Direction Order and the March 2012 Direction Order. In particular, it was emphasised that the Director Respondents have no personal interest in the shares in Holdings and the decisions taken by them were the decisions of the Board as a whole, taken bona fide in the interests of Holdings and the Bank, which affected all shareholders equally. Further, it was submitted that the claims made in the s. 205 Proceedings are connected to the Related Proceedings. 39. In his submissions in reply, Mr. Skoczylas took issue with both strands. As regards the first strand, he alleged that the Director Respondents were misrepresenting the position in relation to the insurance cover and, in particular, he asserted that alleged “wrongful acts” committed by the Director Respondents after 27th July, 2011 are not covered by the Policy. As regards the second strand, he reiterated that the s. 205 Proceedings are not about the recapitalisation of the Bank. Moreover, he asserted that the Director Respondents have a “very important vested interest” in defending themselves, the clear implication being that they were doing what the Minister wanted them to do, because “otherwise they would not have been on the Board”. 40. Before considering each strand of the response of the Director Respondents in greater depth, it is appropriate to outline the relevant legal principles as discernible from the various authorities relied on by the parties. The relevant legal principles 42. The most recent decision of a U.K. court to which this Court was referred was a decision of the Chancery Division (Companies Court) of the High Court in Re a Company No. 001126 of 1992 [1993] B.C.C. 325. I have found the analysis contained in the judgment of Lindsay J. in that case of particular assistance in understanding the earlier authorities and the principles he identified from those authorities as very persuasive. The application before Lindsay J. was an application by a company in relation to which a petition under s. 459 had been presented, seeking directions permitting it actively to participate in the s. 459 petition, and as to the costs it would thus incur. On the issue in relation to costs, Lindsay J. identified the issue posed as whether some, and if so what, advance provisions should be made in connection with the costs of active participation. Having analysed the authorities, Lindsay J. stated their effect as follows (at p. 333):
Firstly, there may be cases (although it is unlikely nowadays when wide object clauses are the norm) where a company’s active participation in or payment of its own costs in respect of active participation in a s. 459 petition as to its own affairs is ultra vires in the strict sense. Secondly, leaving aside that possible class, there is no rule that necessarily and in all cases such active participation and such expenditure is improper. Thirdly, that the test of whether such participation and expenditure is proper is whether it is necessary or expedient in the interests of the company as a whole (to borrow from Harman J. in ex parte Johnson). Fourthly, that in considering that test the Court’s starting point is a sort of rebuttable distaste for such participation and expenditure, initial scepticism as to its necessity or expediency. The chorus of disapproval in the cases puts a heavy onus on a company which has actively participated or has so incurred costs to satisfy the Court with evidence of the necessity or expedience in the particular case. What will be necessary to discharge that onus will obviously vary greatly from case to case. Fifthly, if a company seeks approval by the Court for such participation or expenditure in advance then, in the absence of the most compelling circumstances proven by cogent evidence, such advance approval is very unlikely.” 43. On the facts in Re a Company, the company did not surmount the “rebuttable distaste” and “initial scepticism” hurdles. The Court made no order on the company’s application, the outcome being summarised as follows in the headnote:
46. The first in time was the decision of the Chancery Division of the High Court in Re Milgate Developments Ltd. [1991] BCC 24. As the headnote discloses, the petitioner had presented petitions against two companies under s. 459 alleging that he had been wrongfully excluded from the management of the companies. In the application under consideration the petitioner had sought an order that the respondent shareholders should not cause the companies to be involved in any way in the s. 459 proceedings save in respect of seeking relief under s. 127 of the Insolvency Act 1986, which is the analogue of s. 218 of the Act of 1963. Although this is not clear from the headnote, the s. 218 analogue was of relevance because the petitioner had sought, as alternative relief a winding-up order in relation to each company. The ground for the application was that the companies’ funds should not be expended in a dispute which was as a matter of substance one between the shareholders. What is also not clear from the headnote is that the order sought was an order “until after judgment on the petitions”, as appears in the judgment of the Deputy Judge (at p. 292), nor is it clear that the Deputy Judge was, in fact, applying the principles established by the House of Lords in American Cyanamid Company v. Ethicon Ltd. [1975] 1 All ER 504. What emerges from the judgment is that the application was novel. However, the companies, as well as the individual shareholders, had been put on notice of the applications and the Deputy Judge stated (at p. 296):
47. The last of the authorities considered by Lindsay J. was Re a Company No. 004502 of 1988, ex parte Johnson [1991] BCC 234. As was pointed out by Lindsay J. in his judgment (at p. 332), at issue there was an application by the petitioner under a s. 459 petition to restrain other directors from procuring the company itself to be represented on the petition. Harman J., having identified two exceptions, stated that a company itself had –
48. The analysis by Lindsay J. of the manner in which Harman J. dealt with an application by the company that it should “in blanket form” be given approval for its separate representation on the petition is informative. Lindsay J. did not read Harman J. as saying that active participation of a company under s. 459 was necessarily and in all cases improper. Lindsay J. stated (at p. 332):
49. The only Irish authority referred to by the parties was the decision of the High Court (Laffoy J.) in Re Charles Kelly Ltd; Kelly v. Kelly & Anor. [2011] IEHC 349. That was an application under s. 205 of the Act of 1963, which, because of the problems which were encountered, was dealt with on a modular basis. The first module addressed the ownership of the issued share capital of the company. While the company was named as a respondent, it was not represented as a party. After judgment had been given on the first module ([2010] IEHC 38), an application was made by the solicitors who had been previously on record for the shareholder respondent to come off record and that application was acceded to. Subsequently, the shareholder/ director respondent made an application to the Court that he be at liberty to appoint lawyers to represent the company and to discharge the resulting fees out of the assets of the company. As is recorded in the judgment (at para. 1.6), that application was not acceded to on the basis that the issues which arose on the petition arose primarily between the shareholder/director petitioner and the shareholder/director respondent. The Court stated:
‘Disputes under … s. 205 are typically between the members inter se or the members and the directors. The separate legal entity which is the company will usually not play an active part in the litigation, although for practical reasons they may be separately represented at a section 205 hearing. In the particular context of disputes involving the exclusion of quasi-partners from the company’s management it would be wrong for the company’s controllers to utilise the company’s resources in connection with the proceedings’.”
51. It is important to emphasise that the application of the legal principles summarised by Lindsay J. in Re a Company is only relevant insofar as the Director Respondents require and propose to access the resources of Holdings or the Bank to fund their defence of the s. 205 Proceedings. The Director Respondents have set out to prove that that is not the case. 52. The type relief under consideration on this application is the converse of the type of relief which was being considered by Lindsay J. in Re a Company, in that on this application the petitioners are seeking orders which will prohibit assets of Holdings or the Bank being used to fund the Director Respondents’ defence of the s. 205 Proceedings, whereas in Re a Company the company in the position of Holdings was seeking to be permitted to actively participate in similar proceedings and to fund that participation out of the company’s assets. Notwithstanding that difference, I am of the view that the principles identified by Lindsay J. and quoted earlier are, in substance, appropriate to resolution of the situation the Court is addressing on this application, adapted insofar as is necessary. Taking the principles consecutively, I would observe as follows: First principle There has been no suggestion on this application that the objects clauses in the Articles of Association of either Holdings or the Bank are limited in a manner which would render funding by either company of the Director Respondents’ defence of the s. 205 Proceedings, to use the expression used by Lindsay J., “ultra vires in the strict sense”. Second principle Leaving aside the ultra vires possibility, which cannot be ruled out in every case, no rule of Irish law has been pointed to which would necessarily and in all cases preclude a company from funding the defence of s. 205 Proceedings against its directors on the ground that such funding would be improper. Third principle Whether such funding is “necessary or expedient” in the interest of Holdings as a whole seems to me to be the proper test to apply in determining whether the funding of the Director Respondents’ defence of the s. 205 Proceedings is proper, or, as contended by the petitioners, is improper. Fourth principle In the situation which is the converse to the situation in Re a Company, where the petitioning shareholders are contending that the funding of the opposing parties’ defence of s. 205 proceedings, whether shareholders or directors, is improper because it is neither necessary nor expedient and should be prohibited by the Court, I do not think one necessarily starts with the sort of “rebuttable distaste” which Lindsay J. suggested was appropriate in Re a Company. On this application, I consider that the Court’s function is to assess all of the evidence and make a determination as to whether, in the particular circumstances of this case, the Court can conclude, on the balance of probabilities, that, in their response to the petitioners’ contention that the use of the resources of Holdings by the Director Respondents to fund their defence would constitute a misfeasance, the Director Respondents have met the necessity or expediency test. It is probably not an exaggeration to state that the s. 205 Proceedings are unique having regard to the existence of the Related Proceedings and the connection between some of the reliefs sought on the petition and the objective of the Related Proceedings. What cannot be gainsaid is that, in the overall context of all of the proceedings before the Court, the s. 205 Proceedings are very unusual. The fact is that Holdings and the Bank are participating in the 2011 Application, albeit for a “limited and specific role”, unless, in consequence of the appeal to the Supreme Court which is pending, that role is broadened. The Bank, which is the only asset of Holdings, was a notice party on the 2012 Application which, for present purposes, it is assumed will be the subject of an appeal to the Supreme Court. Irrespective of the contention of Mr. Skoczylas to the contrary, the reliefs which the petitioners seek in the s. 205 Proceedings are framed in a manner which it would appear is intended to impugn the validity of the July 2011 Direction Order, which is the subject of the 2011 Application, and of the March 2012 Direction Order, which is the subject of the 2012 Application. In those circumstances, it has to be expedient and it is probably necessary that Mr. MacCarthy, who has appeared for Holdings and the Bank on the 2011 Application and for the Bank on the 2012 Application, should appear for the Director Respondents in the s. 205 Proceedings. Fifth principle Lindsay J. was particularly forceful in identifying the standard which a company which wants to actively participate in oppression of a minority and disregard of interest proceedings must meet to get “advance” sanction from the Court, referring to the need for “the most compelling circumstances proven by cogent evidence”. Of course, a court is wary of giving approval in advance for company or trustee to embark on expensive litigation and to be indemnified against the costs of such litigation by the assets of the company or of the trust. Indeed, in analysing the specific orders in relation to costs which had been sought in the case before him, Lindsay J. referred (at p. 334) to –
In the converse scenario, where the petitioners on this application appear to be attempting to pre-empt the decision which would normally be made by the trial judge as to who should bear the burden of the costs of the s. 205 Proceedings, there seems to be justification for applying a similarly strict standard. As has been recorded, there emerged on this application a very fundamental controversy between the petitioners and the Director Respondents as to whether in the s. 205 Proceedings the petitioners are challenging the re-capitalisation of the Bank pursuant to the July 2011 Direction Order and are impugning the validity of the March 2012 Direction Order and seeking to undo its consequences. That controversy has not been, and probably could not be, resolved on this application. Insofar as that controversy subsists. I think it would be inappropriate for this Court to make any order which might have pre-emptive impact on how the trial judge might ultimately determine by whom and on what basis the costs of the s. 205 Proceedings are to be borne. 53. As regards the analysis of the petitioners’ application in the context of the fifth principle addressed above, my understanding of the petitioners’ position was not that they were seeking interlocutory relief pending the determination of the s. 205 Proceedings, but rather were seeking orders of a permanent nature. That certainly was what emerged in relation to the third order sought. If it were the case that the petitioners were merely seeking to preclude the Director Respondents from obtaining financial assistance from Holdings or the Bank in aid of the defence of the proceedings pending the determination of the s. 205 Proceedings, it would be necessary for the Court to determine whether the balance of justice favoured the grant or refusal of such a prohibitory order. I cannot see how the balance of justice would favour granting such an order, given that liability for costs would have to be determined by the trial judge in due course. If it is the case that the petitioners are successful against the Director Respondents in the substantive proceedings, insofar as it is necessary to do so, an application may be made to the trial judge at that stage for an order directing the Director Respondents to reimburse Holdings or the Bank as the case may be, as happened in the case of Charles Kelly Limited. Even treating this application as seeking interlocutory prohibitory injunctions and refusing the application, in such circumstances there would be no injustice to the petitioners. On the other hand, if the petitioners are unsuccessful and costs are awarded against them in favour of the Director Respondents, and the orders sought have been granted on an interlocutory basis, but without any undertaking as to damages having been proffered by the petitioners, the Director Respondents could suffer injustice by being without a remedy. If the circumstances were such that the Director Respondents would have required to have been funded by Holdings or the Bank but could not be so funded because of the existence of the prohibitory orders, and if they incurred loss in consequence in respect of which they would have no remedy against the petitioners, the Director Respondents would have been treated unjustly by the making of the prohibitory orders. However, all of that is hypothetical if the Director Respondents’ position that they do not have to have recourse to either Holdings or the Bank to fund their defence of the s. 205 Proceedings because they have insurance cover is correct. 54. Mr. Skoczylas submitted that the Director Respondents’ legal representation by Mr. MacCarthy involved a conflict of interest. In particular, he submitted that the resolution passed at the Board meeting of the Bank on 29th January, 2013 on which the seven Director Respondents who were on the board of the Bank at the time and two other directors, who are not parties to these proceeding, voted, gave rise to a conflict. Further, Mr. Skoczylas submitted that it was the Board of Holdings, of which he was a member at the time, which should have made the decision. Counsel for the Director Respondents disputed both propositions, although emphasising that he was doing so in the abstract because the insurance cover was in place. I do not think it would be appropriate on this application for this Court to express any definitive view on the submissions made by Mr. Skoczylas, which it is open to the petitioners to pursue in the course of the s. 205 Proceedings, if they so wish and are permitted to pursue them. However, I did have regard to those arguments in reaching the conclusion that the Director Respondents have established that the “necessary or expedient” test is complied with. 55. Finally, it was submitted by Mr. Skoczylas that, if the Director Respondents’ defence was aided by Holdings, that would prejudice the petitioners’ position, one of the reasons advanced being that it would involve Holdings and its subsidiaries being engaged de facto in the s. 205 Proceedings against the wishes of the petitioners which it was submitted is impermissible, the decision of the High Court (Clarke J.) in Fitzpatrick & Ors. v. F.K. & Ors. [2007] 2 IR 406, being cited in support of that submission. The petitioners did not join either Holdings or the Bank in the s. 205 Proceedings and they are not parties thereto in any capacity. That remains the position. In any event, the position adopted by the Director Respondents is that they are not being aided by Holdings, but are relying on the insurance cover referred to earlier, which I will now consider. Director Respondents’ insurance cover 57. Article 139 of the Articles of Association of Holdings confers the entitlement to be indemnified by Holdings against certain liability set out on, inter alia, every director of Holdings. That Article also provides:
58. In his first affidavit sworn on 22nd April, 2013 in response to this application, Mr. Long averred that the Director Respondents’ costs of defending the s. 205 Proceedings are covered by AIG under the Policy. He also exhibited a letter of 19th April, 2013 from AIG to him, which referred to the Policy and to the s. 205 Proceedings, wherein it was confirmed that the Policy covers “the cost of the current and former Directors . . . in defending the above proceedings”. It was further confirmed that the costs include “Counsel, Solicitor and the Bank’s expenses in providing all necessary assistance to the Directors to enable them to defend the proceedings”. It was further stated that AIG has no objection to the Chief Legal Officer representing the directors. 59. In his next affidavit, which was sworn on 26th April, 2013, Mr. Skoczylas made certain assertions in relation to the Articles of Association of Holdings and the Bank and the terms of the Policy, which he exhibited, the thrust of which was that the Director Respondents had misled the Court in stating that their costs were covered by the Policy. Mr. Long responded to those assertions in his next affidavit, which was sworn on 3rd May, 2013, in which he exhibited a further letter dated 3rd May, 2013 from AIG to him. In that letter, after expressly referring to the affidavit sworn by Mr. Skoczylas on 26th April, 2013, AIG confirmed:
(b) that the s. 205 Proceedings attract indemnity under the Policy from 25th January, 2013, notwithstanding that a late notification of the claim was made; (c) that the coverage for the specific director or directors will only be retracted upon judicial determination of a wrongful act or indeed by way of an admission of the commission of a wrongful act by the beneficiary of the indemnification under the Policy and, until such an event occurs, full indemnity will be provided; and (d) that the Policyholder is required under Clause 5.22 of the Policy to act on behalf of all insureds in relation to matters relevant to the Policy and AIG expect Mr. Long, as the Company Secretary of the Policyholder, to be the person to liaise with during the course of the proceedings and expect full co-operation by the Policyholder with the underwriting insurers. 60. Notwithstanding the confirmation given by AIG in their letter of 3rd May, 2013, Mr. Skoczylas persisted in his contention that the Director Respondents were attempting to mislead the Court in respect of the Policy. His primary argument was that the Policy is a limited “run-off” policy which does not cover any wrongful act committed after 27th July, 2011. Mr. Skoczylas submitted that most of the wrongful acts alleged against the Director Respondents were committed after 27th July, 2011. As counsel for the Director Respondents pointed out, Mr. Skoczylas’ contention is at variance with the position which AIG has adopted as set out in their letters, the contents of which have been outlined above, in that AIG has expressly confirmed that there is indemnity in place in respect of the defence of the s. 205 Proceedings since 25th January, 2013. Moreover, having analysed the terms of the Policy and the claims in the petition, counsel for the Director Respondents submitted that matters which occurred after 27th July, 2011, which occurred directly as a result of events which occurred prior to 27th July, 2011, are not excluded from the Policy. Despite the position which has been adopted by AIG, Mr. Skoczylas persisted in his argument that claims made in the petition have no direct link to the events which occurred prior to 27th July, 2011. 61. It is not the function of this Court, in the absence of the insurer, AIG, and the Policyholder, Holdings, to construe the terms of the Policy and it would be entirely inappropriate to purport to do so. What it is appropriate for the Court to do on this application is to have regard to the unequivocal commitment of AIG in the letter of 3rd May, 2013 that, until there is a judicial determination against all or some of the Director Respondents, or an admission of a wrongful act by the beneficiary of the indemnification under the Policy, full indemnity will be provided so that costs of the defence of the s. 205 Proceedings will not be borne by Holdings, even in respect of the involvement of Mr. MacCarthy and his legal team. If it ultimately transpires that the trial judge determines that some or all of the Director Respondents have committed wrongful acts and, as between AIG and Holdings, the indemnity is withdrawn, at that stage the petitioners may apply to the trial judge for such order as may be appropriate for the proper protection of the assets of Holdings. Order |