Ferriter & Anor v. Gorzow Ltd & Ors

Merck Sharp & Dohme Corporation v. Clonmel Healthcare Ltd [2020] 2 IR 1 on fair issue applied: ‘it is plainly necessary that the party seeking an interlocutory injunction, should place sufficient evidence before the court to establish that the case meets that relatively low threshold.’ [51]

Betty Martin Financial Services Ltd v. EBS DAC [2021] IECA 327 on standard of appeal applied: ‘[G]reat weight is to be given to the views of the High Court judge, the ultimate decision on this appeal is for this Court.’ [35]

1. 2.1

   Fair issue a question of law: ‘question whether a fair issue has been established is a matter of law. For that reason, this Court is in as good a position as the High Court judge to consider this issue and no question of deference exists.’ [55]

Adoption of grounding affidavit by reference undisturbed: ‘I do not believe that there is any substance in the appellants’ complaints about the judge’s reliance on the amended points of claim.’ Affidavit grounding the section 212 application ‘effectively adopted as part of his evidence’ on the injunction application [53].

Crindle Investments Ltd v. Wymes [1997] IEHC 211 applied: ‘starting premise in a corporate situation is that the relationship between the participants in the corporation is governed solely by the terms of the corporation’s constitution, the provisions of the Companies Acts and any private agreements’ [40]

Strahan v. Wilcock [2006] 2 BCLC 555 adopted: ‘Mr. Ferriter bears the burden of establishing a fair issue to be tried that such an arrangement existed at the time these proceedings were commenced in June 2022. It is not enough that such a relationship existed at the outset of the company’s existence.’ [54]

Ebrahimi v. Westbourne Galleries Ltd [1973] AC 360 adopted: Indicia of quasi-partnership typically ‘one or more of the following’:

1. ‘an association formed or continued on the basis of a personal relationship involving mutual confidence’;
2. ‘agreement or understanding that all or some (as there may be “sleeping members”) of the shareholders are to participate in the conduct of the business’;
3. ‘restriction on the transfer of shares.’ [54]

1. 6.1

   Indicia found: ‘the evidence reflects two of the indicia identified by Lord Wilberforce in the Westbourne Galleries case namely the existence of a personal relationship and an understanding that Mr. Ferriter and Mr. O’Callaghan were to have a right to participate in the business.’ [58]

Death of a quasi-partner not necessarily fatal; section 33 of the Partnership Act 1890 not applied: ‘a quasi-partnership which may exist between the members of a company is not, in law, a partnership. For that reason, it does not automatically follow that the death of Mr. O’ Brien brought an end to any quasi-partnership that previously existed.’ [70] Later death of another member after institution of proceedings ‘does not seem to me to be immediately relevant’ [70].

1. 7.1

   Murray’s Judicial Factor [1992] BCC 596 distinguished: ‘[I]t is arguable that the approach taken in Murray’s Judicial Factor is not applicable to a claim by a living quasi-partner against the estate of a deceased quasi-partner.’ [72]

Courtney on the Law of Companies (4th ed., 2016) on inequality in quasi-partnership adopted: ‘at minimum, there is a good argument to make that equality is not a pre-requisite for the existence of a quasi-partnership.’ [39]

1. 8.1

   Loss of parity: ‘I do not believe that the inequality in shareholding that arose following Mr. O’Callaghan’s departure necessarily means that Mr. Ferriter’s claim as to the continued existence of a quasi-partnership relationship is frivolous or vexatious.’ [64]

Complex transfers of shareholding not necessarily fatal: Quasi-partnership must subsist ‘at the time these proceedings were instituted.’ [60] ‘[I]t would be going too far to suggest that a restriction on share transfers is a necessary pre-condition to the existence of a quasi-partnership.’ [54]

1. 9.1

   Twomey on Partnership (2nd ed., 2019) adopted: ‘it is possible, albeit unusual, for a company to be a party to a partnership relationship. If that is so, then it is at least arguable that a company can be a party to a quasi-partnership.’ [68]

2. 9.2

   Transfer to connected companies: ‘it is arguable that the transfer to DDI should not be treated in the same way as a transfer to an unconnected third party’ [66]

3. 9.3

   Sleeping member: ‘introduction of a 10% shareholder who is not a quasi-partner does not necessarily destroy a pre-existing quasi-partnership’ [61]

Pitfalls not fatal: ‘notwithstanding the many potential pitfalls facing Mr. Ferriter in pursuing his quasi-partnership claim, there is a fair issue to be tried as to the existence of such a relationship.’ [73]

Section 146 of the Companies Act 2014 applied, as interpreted by McGilligan v. O’Grady [1999] 1 IR 346: ‘s. 146 of the 2014 Act cannot be regarded as a bar to the grant of interlocutory relief in cases where there a fair issue is shown to exist that the removal of a director would be oppressive’ [88]

1. 11.1

   Bentley-Stevens v. Jones [1974] 1 WLR 638 and Feighery v. Feighery [1999] 1 IR 321 not applied: ‘Supreme Court has overruled these authorities’ [86]

Dowling v. Cook [2013] IESC 25 on standard of external title applied: ‘a party invoking s. 212 in answer to s. 146 must be able to establish a fair issue as to the existence of an “external title” supporting a right to participate in the management of the company concerned.’ [89]

1. 12.1

   Quasi-partnership external title: ‘While there is no written agreement here, Mr. Ferriter has established a fair issue to be tried that a quasi-partnership exists under which he has a right to participate in the management of the company. At this interlocutory stage of the proceedings, that seems to me to constitute a sufficient external title.’ [90]

Merck Sharp & Dohme Corporation v. Clonmel Healthcare Ltd [2020] 2 IR 1 at [65(1)] on generality of interlocutory injunction interpreted and McGilligan v. O’Grady [1999] 1 IR 346 affirmed: ‘guidance given by him in para. 65 is intended to be of general application.’ [77] ‘[T]he fact that a permanent injunction will not be granted is not an absolute bar to the grant of an interlocutory injunction. It follows from the decision in Merck that the court should always consider whether a permanent injunction would be available, and if it would not be available, whether the application falls within the relatively exceptional range of cases where it is, nonetheless, appropriate to grant an interlocutory injunction pending the trial.’ [82]

1. 13.1

   Merck guidance: ‘guidance given in para. 65(1) represents an important reality check in considering an application for an interlocutory injunction. … For example, there are cases where rights may expire by the time a trial can take place which a court might well be prepared to protect by means of an interlocutory injunction while the rights remain in being.’ [80]

2. 13.2

   Test to minimise injustice: ‘it would defeat the fundamental objective of the test to minimise injustice if an injunction were to be refused on the ground that a permanent injunction is unlikely to be granted at trial. That is not to suggest that a similar result would be available in every case of oppression based on an allegation of exclusion from management.’ [106]

Merck Sharp & Dohme Corporation v. Clonmel Healthcare Ltd [2020] 2 IR 1 on adequacy of damages applied: ‘While, technically, Mr. Ferriter’s claim is not for breach of contract, there is an obvious parallel between his case that his rights under the alleged quasi-partnership have been broken and a claim that a party’s contractual rights have been broken.’ [93]

1. 14.1

   Section 284(3) of the Companies Act 2014 on restriction of access to accounting records applied: ‘A director’s right to access to financial information is not restricted in the manner prescribed by s. 284(3). The proposal therefore represented a significant curtailment of the information that directors would expect to receive’ [97]

2. 14.2

   Financial information and audit claim, financial irregularities: ‘claim in relation to the diversion of assets significantly enhances the imperative, in the very particular circumstances of this case, that Mr. Ferriter should have ongoing and real-time access to financial information in relation to the Company and that he should have the opportunity to speak at directors’ meetings. … Mr. Ferriter will be exposed to irreparable harm if he is denied access to real-time financial information and prevented from attending board meetings.’ [98]

3. 14.3

   Reputational harm: ‘there is a real danger that his removal will be linked to the very serious allegations made by the respondents against the second applicant.’ [99]

Imposition of director unquantifiable: ‘if an interlocutory injunction is granted, the respondents will be exposed to unquantifiable damage in so far as they would be required to continue to deal with Mr. Ferriter as a director against their will.’ [100]

1. 15.1

   Pringle v. Callard [2008] BCLC 505 distinguished: ‘in many cases, it may be impractical and highly undesirable to effectively foist a director on a company pending trial … However, on the particular facts of this case, it seems to me that the approach taken by the High Court judge in this case was correct.’ [102] ‘[P]resence of Mr. Ferriter (as a minority of one) on the board has not prevented the board from taking decisions which the board believes require to be taken. The fact that the restatement of accounts has been approved provides very real evidence of that fact.’ [103]

2. 15.2

   Removal belated: ‘decision to take action to remove Mr. Ferriter as a director was only made many months after the events which are relied upon to justify his removal.’ [105] ‘[N]o reason why a trial date cannot be fixed for early 2027’ [104]

Status quo: ‘Mr. Ferriter would suffer a greater injustice if the current position was not maintained until the trial than the respondents will suffer if the injunction is continued until the trial.’ [106]

Appeals dismissed: Interlocutory injunction affirmed [107].

Liberty to discharge: Respondents/Appellants may apply to discharge it if First Applicant/Respondent in the appeal ‘delays in getting this case ready for trial or in the event that he seeks to unreasonably obstruct the conduct of business at board meetings.’ [108]

1. 18.1

   Presumptive costs: First Applicant/Respondent in the appeal, ‘having succeeded in full, is presumptively entitled to an order for costs as against both the shareholder respondents and the Company.’ [109]