The High Court 

O'Gorman and Others v Kelleher and Others

1999/6587 P 

19 July 1999 

CAROLL J: 

This action has been precipitated by a falling out among members of the second generation of a family in relation to the running of a substantial business founded by the father of the family. It is not the first eruption of trouble. Another sister, Freda Hayes, who had been chief executive, left the Company in 1993. Michael O'Gorman, one of the Plaintiffs, applied for and got injunctive relief last year in connection with his removal as a director. 

There are now two actions in being, a section 205 Petition relating to the oppression of minorities, and a Plenary Summons seeking specific performance of an alleged agreement by the first Defendant to sell all his shareholding to the Plaintiffs. 

The directors of the Company are the Plaintiffs and the Defendants together with Pascal Kelleher, another brother, Margaret Kelleher, the wife of Patrick Kelleher, and Jim Houlihan, financial controller. Marian O'Gorman has been chief executive of the Company since July 1993. 

The Defendants are together entitled to 56.25 per cent of the shares and are therefore the majority shareholder. The Defendants offered to buy the Plaintiffs' shares and the offer was accepted on 1 December 1998. On 4 December 1998 the Defendants withdrew their offer as the financial arrangements had not come through. The Plaintiffs then offered to buy the first Defendant's shareholding and say that he agreed to sell his shareholding for £5.2 million on 5 March. This is disputed by the first Defendant. There are other allegations made by the Plaintiffs relating to the behaviour and performance of the Defendants, and the Defendants make allegations about the Plaintiffs. All of these allegations are contested. 

On 26 May 1999 the Defendants gave notice of intention to remove Michael O'Gorman, Pascal Kelleher and Jim Houlihan as directors. On 22 June 1999 the Respondents requisitioned an EGM for the 16 July 1999. This Motion was listed for hearing on 12 July but was not reached. The holding of the meeting was injuncted by interim injunction on 15 July and the matter came on for hearing on 16 July. 

The interlocutory relief sought on foot of the Plenary Summons is: 

1 An injunction restraining the Defendants from purporting to remove the first Plaintiff as a director of Blarney Woollen Mills Limited on foot of a purported notice of an extraordinary general meeting of the Company dated 22 June 1999. 

2 An injunction restraining the first Defendant from exercising voting rights attached to 160,000 ordinary shares the subject of an agreement between the first Defendant and the Plaintiff of 5 March 1999. 

3 An injunction restraining the Defendants from acting in pursuance of any secret agreement to exercise voting rights attached to shares in any particular manner. 

4 An injunction restraining the Defendants from conspiring or acting in concert with any third party for the purpose of removing the Plaintiffs as directors. 

The Notice of Motion in the section 205 proceedings seeks the following interlocutory relief: 

1 Directions. 

2 An injunction restraining the Respondents from exercising rights in respect of 160,000 ordinary shares the subject of an agreement of 5 March 1999. 

3 An injunction restraining the Respondents from taking steps to remove Michael O'Gorman, Pascal Kelleher and Jim Houlihan as directors. 

4 An injunction restraining the Respondents from acting in pursuance of a secret agreement to exercise voting rights in any particular manner. 

5 An injunction restraining the Respondents from conspiring with any third party for the purpose of removing the Petitioners, or Pascal Kelleher or Jim Houlihan as directors or from seizing control of the Company. 

There are 800,000 issued shares. The shareholding is held as to 25 per cent between Michael and Marian O'Gorman, the third Plaintiff holding 18.125 per cent. The first Defendant holds 20 per cent, the second Defendant 18.125 per cent, the third Defendant 18.125 per cent and Pascal Kelleher 625 per cent. The sale of the first Defendant's shares to the Plaintiffs will therefore shift the balance of the voting power from the Defendants to the Plaintiffs. 

Since the issue of specific performance of the contract for the sale of the shares is central, I decided to deal firstly with the Motion in the Plenary Summons. The existence or not of this contract is undoubtedly a serious issue to be tried. However, it was argued on behalf of the Defendants, that, even if the Plaintiffs were to succeed in the specific performance action, it was not open to the court to restrict the right of a registered owner to vote the shares whatever way he wanted. In other words, how a registered owner of shares exercises voting rights is not affected by an enforceable contract for sale. The authority quoted for this proposition is Musselwhite and Anor v CH Musselwhite & Son [1962] 1 All ER 201. In that case a vendor of shares was to be paid by instalments. The transfer was executed and was to be held by the company until the purchase money was paid, the vendor remaining on the register. It was held that the "unpaid vendors were entitled to exercise their voting rights in respect of the shares (it not being alleged that the rights would be exercised so as to damage the subject matter of the purchase)." 

Here it is clear that the voting rights attached to the shares, the subject matter of the alleged contract, are being used to oust Michael O'Gorman, one of the purchasers, which is damaging to the Plaintiffs' interests. If an unpaid vendor of shares were to vote deliberately so as to damage the purchaser, or contrary to the interests of the purchaser, who is the beneficial owner, it seems to me that he should be restrained by the court of equity. 

As to the power of the court to restrain the removal of a director, this has already been decided by Keane J, in a section 205 matter where interim relief was granted. 

It is also alleged that the existence of a pre-emptive clause in the Articles of Association weighs against granting the injunction. This clause requires a member who wants to sell to serve notice so that the other members of the Company can buy shares proportionate to their holding. It was submitted that the pre-emptive right renders the contract inoperable even if the contract is enforceable. This question has been dealt with in Lee & Co Dublin Ltd v Egan Wholesale Ltd by Kenny J, in an unreported judgment of 27 April 1978. Kenny held that the proper form of relief in such a case was to declare that the contract ought to be performed subject to the pre-emption rights of the members of the company. 

Delay was also raised as a ground for refusing relief but I do not consider it unreasonable to wait for an overt act such as the requisition for an EGM before moving in the matter. 

Neither side thought that damages would be an adequate remedy. 

As to the balance of convenience, the Plaintiffs say that the Defendants' campaign against them in conjunction with Freda Hayes would, if successful, irretrievably damage the Company. They claim that the Defendants do not have the experience or expertise to develop the Company and that this affects the value of the Company. If the first Defendant is permitted to vote so as to remove the first Plaintiff, the Plaintiffs claim that the Board will be unlawfully constituted. 

The first Defendant says that far greater detriment would be suffered if the injunction is granted in that the Company would continue to be mismanaged and the underlying problems would not be addressed. 

In my view the balance of convenience favours maintaining the status quo on the Board of Directors, at least for a limited period. I will therefore grant injunctive relief for six months or until the trial of the action, whichever is earlier, with liberty to apply. 

The six-month deadline will, I hope, help to focus the minds of the parties on trying to reach agreement. Family rows are often more bitter than those between strangers. Nevertheless, I think that some vestige of family feeling, if not self-interest, will help with reconciliation so that the business founded by their father will not be mired down by these disputes. 

The form of the order will be to restrain the first Defendant from exercising his voting rights in respect of the disputed shares contrary to the interest of the Plaintiffs or any of them. I will give liberty to plead during the long vacation, liberty to apply, and I will reserve the costs.