Supporting Documents:

THE SUPREME COURT

DETERMINATION

IN THE MATTER OF ELST AND IN THE MATTER OF SECTION 205 OF THE COMPANIES ACT, 1963 AND IN THE MATTER OF SECTION 213 (F) OF THE COMPANIES ACT, 1963 AND IN THE MATTER OF THE COMPANIES ACT, 1963-2012

BETWEEN

RESULT: The Court grants leave to the First Second and Third named Respondents and to the Petitioner to appeal to this Court from the Court of Appeal

REASONS GIVEN:

1. There are two applications for leave to appeal. Both are concerned with what is commonly called a suit under s. 205 of the Companies Act 1963, related to a company called ELST. Relief was also sought under s. 213(f) of the Act. The parties are in each case shareholders in that company. This is a composite ruling. The 1st matter is an application in which Danbywiske and other parties seek to appeal from the decision of the Court of Appeal of 8th June 2016, Finlay Geoghegan, Hogan and Cregan JJ, [2016] IESC 193. This was an appeal from an order of the High Court, McGovern J, of 16th January 2015, and judgment of 5th December 2014 [2014] IEHC 615. That High Court judgment fixed the price at which Danbywiske should buy the shares of the petitioner, Donegal Investment Group Plc, should that be the appropriate remedy on this section matter. That valuation hearing lasted 16 days and was heard by special order prior to the issue as to whether there were grounds to require a share buy out. There was also another hearing by McGovern J whereby on 5th June 2015, pursuant to judgment of 21st May 2015, he ordered that Danbywiske purchase the Donegal Investment shares in Elst. The judge regarded this as the appropriate remedy and there is no appeal on this. That hearing lasted 2 days. McGovern J had fixed the share price, in particular the relevant multiplier to be applied, in relation to transaction comparables exclusively. The decision on appeal of the Court of Appeal was that the High Court orders of 16th of January 2015 and 5th of June 2015 should be vacated and that Danbywiske should purchase Donegal Investment’s 30% shareholding and ruled as to the calculation of the price at which that should occur. The Court of Appeal gave certain directions which were that the price should be the full current market value of the shares and that the appropriate multiplier should be determined after consideration of both relevant transaction and trading comparables. The trial judge had fixed the multiplier of 6:1 on the basis of transaction comparables only. That, the Court of Appeal held, was a finding based on no evidence. Danbywiske seeks to uphold the trial judge’s finding by appealing the Court of Appeal judgment and essentially claim that there was evidence upon which McGovern J could have based his judgment. It seems that one possibility of returning to the High Court, pursuant to the Court of Appeal judgment, is an increase in the multiplier, and hence a higher price for the Donegal Investment shares.

2. The 2nd application is brought by Donegal Investment and relates to the costs order arrived at by the same panel of the Court of Appeal, judgment of Cregan J of 27th of July 2016 [2016] IECA 226. The order of the court dated 4th of August 2016 states that Danbywiske had appealed the order of McGovern J made on the 5 June 2015. The order of the High Court appealed against was that Donegal Investment should recover as against Danbywiske the cost of the petition, that is the valuation module including both the costs of the remedy module and reserved costs, such to be taxed in default of agreement. That order was overturned by the Court of Appeal, vacating the costs order of McGovern J and making no order on the costs of the appeal. Donegal Investment seeks to appeal that Court of Appeal judgment.

3. It is unnecessary on this application for leave to appeal to detail the background whereby Donegal Investments, as shareholders in Elst became unhappy with the various decisions that were made in the context of company management. That is detailed in the amended petition presented in December 2013. It is sufficient to quote from the judgment of Finlay Geoghegan J, referencing an attempt to seek agreement from the shareholders on a global review, at para 9 of the Court of Appeal judgment of 8th June 2016:

By this stage, however, there had been significant disagreements between the shareholders, so one of the options considered in the course of the Investec process was possible exit strategy for Donegal. The Chairman suggested a buyout of Donegal’s shareholding be considered. The respondents offered a sum of €25,000,000, upon the basis of a 30% shareholding. That was refused. Donegal, by letter from its solicitors, sought the price of €34,000,000 for a claimed 35% shareholding in the company in default of which it was stated a petition would issue.

5. Article 34 of the Constitution provides for the public administration of justice; describes the courts established by the Constitution and those which may be established by law; provides for the full and original jurisdiction of the High Court; and under Article 34.2 establishes the Court of Appeal and under Article 34.5.3° sets out its appellate jurisdiction. This reads:

4 1° The Court of Appeal shall—

i save as otherwise provided by this Article, and

ii with such exceptions and subject to such regulations as may be prescribed by law,

have appellate jurisdiction from all decisions of the High Court, and shall also have appellate jurisdiction from such decisions of other courts as may be prescribed by law.

3° The Supreme Court shall, subject to such

regulations as may be prescribed by law, have appellate jurisdiction from a decision of the Court of Appeal if the Supreme Court is satisfied that—

i the decision involves a matter of general public importance, or

ii in the interests of justice it is necessary that there be an appeal to the Supreme Court.

The decision of the Supreme Court under Article 34.5.6° is in all cases “final and conclusive.”

8. The Constitution has retained the entitlement of one appeal as of right from the High Court, subject to express exclusions or regulation by statute from the High Court to the Court of Appeal. What is sought here is a second appeal. The jurisdiction to bring an appeal to this Court is confined principally to cases where, as a result of the determination of the Court of Appeal, the decision of that court is such that the issues raised on a proposed appeal would involve a matter of general public importance or would be such that it is in the interests of justice that there be a further appeal to this Court.

9. Any ruling in a determination is between the parties. It is final and conclusive as far as the parties are concerned, and is a decision in relation to that application only. The issue determined on the application for leave is whether the facts and legal issues meet the constitutional criteria to enable this Court to hear an appeal. It will not, save in the rarest of circumstances, be appropriate to rely on a refusal of leave as having a precedential value in relation to the substantive issues in the context of a different case. Where leave is granted, any issue canvassed in the application will in due course be disposed of in the substantive decision of the Court

10. The submissions in this case are available on www.courts.ie in association with this ruling and it is only necessary to make brief reference to the case made on each side.

11. There is considerable disquiet expressed by Danbywiske as to the approach taken by the Court of Appeal in reviewing the findings of fact made in the High Court by McGovern J on the share valuation issue. Essentially, the case is made that three expert witnesses testified that it was possible to approach the proper valuation of the relevant shares on the basis of either transaction or trading comparables. Therefore, it is argued, McGovern J was at large in choosing as he did and in arriving at the multiplier which he decided upon. The applicant’s submissions point, in particular, to the overturning of his findings and reference paras 79 and 80 of the judgment of the Court of Appeal:

The Court has concluded that, although there was before the trial judge significant complex evidence in relation to valuation, much of which he took into account and made decisions in respect of certain elements from which there is no appeal, there were, nevertheless, key elements of the expert evidence in relation to the proper approach to determining the multiple to be used with which he simply did not engage and in respect of which he gave no reasons for departing from what appears to this Court to have been a consensus amongst the experts, namely, the necessity to form a judgment or considered expert view as to the appropriate multiple following upon an assessment of multiples derived from relevant transactions and trading comparables. In these circumstances, consistent with the approach of the Supreme Court in Doyle v Banville [2012] IESC 25 and Hay v O’Grady [1992] 1 IR 210, it is a finding which cannot be upheld.

In reaching this conclusion, the Court is not intending to indicate that the trial judge was bound to follow the conclusion reached by expert testimony on the multiple offered by one or other party. As is clear from the judgment of Blayney J in Irish Press plc v Ingersoll Irish Publications Ltd [1995] 2 IR 175, a trial judge is entitled to reach his own conclusion, albeit that it is different to the conclusions reached by the expert evidence of either party. Nevertheless, in a matter such as this, where there has been a consensus of approach to market valuation as between the experts – albeit differing in its application to the particular facts – then the trial judge is going to depart from and use a different approach, this is a matter must be explained and explained by reference to the key elements of the evidence before him

The decision of the Court of Appeal represents a radical departure from the traditional understanding of how the principles in Hay v O’Grady … ought to be applied. The departure represents a very significant expansion of the appellate jurisdiction of the Court of Appeal (and indeed the Supreme Court). If correct, the decision therefore has implications for a great many cases other than the one involving the parties before the court and indeed has applications for the courts themselves and the concept of finality in the administration of justice. Separately, the decision has profound indications for how a trial judge is required to engage with expert testimony.

14. Regrettably, the submissions for both parties devote scant time to discussing why this appeal raises issues of general public importance. Rather, the arguments advanced focus on the issue of why the decisions of the Court of Appeal are either correct or incorrect. The traditional law on expert evidence appears to be that an expert witness is, firstly, entitled to express an opinion and perhaps even on occasion an opinion as to the ultimate issue, for instance the presence or absence of negligence. Secondly, expert witnesses are there to give to the court the benefit of expert learning so as to put the court in a position to apply that learning to the facts as found by the court. Finally, such witnesses can make available to the court the range of analysis of an arcane issue which is either possible or outside the relevant approach. Clearly, however, this is only a preliminary view and subject to submissions.

15. The issue as to costs is sought to be appealed by Donegal. It is claimed that it was necessary for Donegal as petitioner to have brought this suit in the High Court. In that regard, Donegal point to findings by McGovern J that he was satisfied that the value of the shares of the petitioner was greater than the value offered by the respondents prior to the commencement of the petition; that it was necessary to have a module to determine the reliefs to which the petitioner was entitled, that this was a consequence of the successful petition and that in the circumstances the petitioner was entitled to costs. The approach of the Court of Appeal to the issue of costs is noted above, namely the vacation of the costs order of McGovern J and there to be no order as to the costs of the appeal. Donegal argue, in essence, that the decision is invalid and that the issues involved represent a matter of general public importance. It is claimed by Donegal that the rule to be applied in considering an appeal on a costs matter is that the costs order from the court below should be left in place unless an error of principle is identified; in which case the appellate court is entitled to reassess the circumstances and to apply its own discretion as to costs. Here, Donegal claim that “the Court of Appeal simply substituted its own discretion for that of the trial judge. In doing so it did not engage with the trial judge’s reasoning nor, critically, make any finding that the trial judge had erred in the exercise of his discretion.” This is claimed to be a “radical departure from the approach which appellate courts take in respect of discretionary orders of the court at first instance”. Further they claim that the judgment is likely to be cited in argument in future cases. In response, Danbywiske claim that no legal issue of a novel kind arises in the decision, let alone an issue of general public importance. All that happened, it is claimed, was that the Court of Appeal vacated a High Court costs order and replaced it with its own costs order and that this was necessary in the context of a substantive ruling on the appeal.

16. Having carefully considered this matter, the Court is of the opinion that an issue of general public importance has arisen from the Court of Appeal judgment in relation to expert evidence and the role of such testimony in enabling a trial judge to make a choice as to varying opinions and as to the proper approach to determining issues of fact in that context. While some variation to a costs order where there has been success on appeal is the probable outcome, if there is an appeal taken to this Court then that costs issue is required to be considered again. An issue of general public importance does arise as to whether an error of principle should first of all be identified before a ruling as to costs in the High Court should be overturned. This, however, can be considered in the context of the outcome of this appeal.

17. Accordingly, the Court allows the application of the relevant applicants for leave to appeal to this Court. It follows that the Court should also allow the application of Donegal and the costs issue as integral to that appeal. The appeal is confined to the points on which leave is given. Subject to case management and the potential refinement of the grounds set out below, it is proposed that the appeal should be allowed on the following issues:

(a) Whether the principles set out in Hay v O’Grady as to the limits of an appellate court’s review of fact apply both generally and to expert testimony and, as such, constitute a complete code which cannot be departed from?

(b) Whether these principles were departed from in the rulings of the Court of Appeal on the findings of fact in the High Court relating to share valuation?

(c) Does the costs order of the Court of Appeal require to be reviewed?