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	High Court of Ireland Decisions
You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Afric Sive Ltd. & Anor v. Oil and Gas Exploration plc & Ors [1988] IEHC 21 (10 May 1988) URL: http://www.bailii.org/ie/cases/IEHC/1988/1988_IEHC_21.html Cite as: [1988] IEHC 21

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THE HIGH COURT

1988 No.4319P

BETWEEN

AFRIC SIVE LIMITED AND ALTA PETROLEUM INCORPORATED

PLAINTIFFS

and

OIL & GAS EXPLORATION PLC,

KEVIN NORTON, FRANK COLTHURST

AND EILEEN MONAHAN

DEFENDANTS

JUDGMENT

DELIVERED BY THE HONOURABLE MR JUSTICE DECLAN COSTELLO

ON 10TH MAY 1988

APPEARANCES

For the Plaintiffs Mr Murphy, BL

Instructed by Thomas Montgomery & Son

For the Defendants Peter Shanley SC Michael Collins, BL

Instructed by Arthur Cox & Co.

This is an application for interlocutory relief. At the outset I wish to stress that the principles upon which the Court grants relief at the interlocutory stage are not the same as those on which it acts at a full hearing.

The facts of this case which are relevant for today's purposes can be briefly stated. A company called Oil & Gas Exploration pie is an Irish company with a nominal share capital of 500,000 ordinary 10p shares and of these 834,000 have been issued. A Canadian registered company called Alta Petroleum Incorporated is the registered owner of 200,000 of these issued shares, representing 23.97 per cent of the company's issued capital.

An agreement was entered into between Alta Petroleum Inc. for the sale of its shares to an Irish registered company called Afric Sive Limited. There has been exhibited a document of 29th September 1987 which indicates that a sale had taken place and appointing Messrs Thomas Montgomery & Son attorneys for the purposes of the transfer.

It is relevant to some of the issues in this case that, in fact, no transfer document has been stamped and presented to the company, and the agreement which has been entered into has not yet been given effect to by having Afric Sive Limited registered as a shareholder in the company. I am, however, quite satisfied that Afric Sive Limited have an equitable interest in the shares owned by Alta Petroleum Inc.

The problems that have arisen in this case have arisen because Oil& Gas Exploration pic decided to effect a rights issue for the purpose of raising capital. It is quite clear that the company had been minded to do so for some time past, and when representatives of Afric Sive Limited met representatives of Oil & Gas Exploration pic in the Autumn of last year it was then known that the company was considering taking this step. It was, however, postponed because of conditions on the Stock Exchange at that time and later it was postponed because of the illness of the chairman and principal shareholder in Oil & Gas Exploration pic, Mr Doyle. The company, however, finally decided to go ahead with its rights issue and on 15th April issued a letter to its shareholders which announced a rights issue of 834,000 shares at 30p each and that the shares would be payable on acceptance not later than 3 p.m. on 10th May 1988, which is today's date.

The terms under which the allotment was to be effected included, inter alia, a term that the provisional allotment was being made to all share holders who were registered on 29th March 1988. In effect this meant that if there were no further provisions in the allotment, Alta Petroleum Inc. would be entitled to an allotment of 200,000 of the new shares. The letter, however, referred to a document headed "Further Information" and in that document there were two paragraphs which are of importance for present purposes. Paragraph 4 of the document referred to an agreement of 23rd March 1988 by which the directors and their associates had underwritten the issue and were obtaining a commission of 0.5 per cent for this service, and paragraph 9 made specific reference to overseas shareholders and provided that the provisional allotment letter was not being sent to shareholders in Canada and in the United States for reasons stated in it. It went on to provide that when shares were allotted to overseas shareholders and not taken up, as happened in the case of Canadian and United States overseas shareholders, then arrangements concerning the new ordinary shares not taken up will apply, that is to say, they would then be available to the directors and their associates under the underwriting arrangements. The result of the proposed arrangements would be this:

if the issue went ahead then the issued share capital of the company would be doubled, but the principal shareholder in the company, Alta Petroleum Inc., who would be precluded from taking up any of the shares, would, in fact, have their shareholding in the company diluted in that they would then end up with 12 per cent of the issued share capital of the company instead of 24 per cent. Furthermore, the result would be that the directors would control about 24 per cent of the new issue, that is to say, the portion of the new issue which would not have been allotted to Alta Petroleum Inc. It is these consequences of which the Plaintiffs complain, and. proceedings have been instituted m and an application brought for interlocutory relief arising from the circumstances which I have just outlined.

The first issue that is raised on this motion is the question of the locus standi of the Plaintiffs. It is quite clear that Afric Sive Limited were not entitled under the terms of the issue to obtain an allotment letter because they were not on the register, but Alta Petroleum Inc. were on the register and quite clearly, I think, have an interest in these proceedings. The question, however, arises as to whether proper authorisation was given to the Plaintiffs' solicitors to institute these proceedings because they were acting only pursuant to the Power of Attorney of 29th September 1987 and it is urged that that Power of Attorney did not authorise these proceedings.

I do not think I should refuse the Plaintiffs' application today on the grounds of lack of locus standi of either of the parties. It seems to me that at the trial of the action Afric Sive Limited will, if not before, be registered as owner of the shares and be able to show an equitable interest in the shares sufficient to give them a standing in respect of the claim they made in these proceedings. It would seem to me that Afric Sive Limited are certainly entitled to argue that Alta Petroleum Inc. should be made a party to these proceedings; should they not agree to be made a party to the proceedings then I think that steps could be taken in the course of the proceedings to have the situation rectified from the point of view of Afric Sive Limited. So I think that by the time this action comes on for hearing there will be a party or parties before the Court with sufficient standing to make the claim that will be before the Court of trial.

I then turn to what is the main legal issue in the case. What is urged on the Plaintiffs' behalf is that there has been an improper exercise of the powers of allotting shares by the directors. The impropriety arises from not sending an allotment letter to Alta Petroleum Inc. The first point that is taken is that the company and, in particular, its directors cannot rely on the provisions of section 24 of the Companies (Amendment) Act 1983. Although I am not deciding the matter now, it does seem to me that there is considerable force in the submission made by Mr Shanley on behalf of the company that section 24(1) has, in fact, been complied with and that the other provisions of the section on which Mr Murphy relied are irrelevant because they refer to a situation where the company may for some special purpose attempt to pass a special resolution. Be that as it may, assuming for the moment that it is established that the company has complied with the provisions of section 24 and the other provisions of the Act, the point raised on behalf of the Plaintiffs is that the powers in any event must be exercised in a bona fide way, and it is urged that there is a lack of bona fides in this situation. Again, I wish to stress that I am not deciding this issue. The Defendants' argument is that what they did in excluding the Canadian company was what other companies who issue shares do in a similar situation and because of the particular legal requirements in Canada and also, for that matter, in the United States, it is not unusual for companies to issue the shares in the way that the Defendants did in this case.

I will assume for the purposes of this motion that the point raised on behalf of the Plaintiffs is not a frivolous one and I will assume that they have raised a serious issue as to whether or not the directors did act bona fide in excluding the Canadian company from those obtaining letters of allotment, and that issue may well have to be determined by cross-examination at the trial. But that does not end the case because it does seem to me that the balance of convenience in this case lies strongly in the Defendants' favour against giving an order at this stage of the case.

The order that is being sought today is not an order against the whole allotment that is to take place today after 3 o'clock. The motion before the Court today is a motion which would stop the allotment taking place without making the offer to the Plaintiffs so that they .could take up their allotment in respect of 200,000 of the new shares. The Defendants have offered to make these 200,000 shares available to the Plaintiffs should they succeed in the claim. They have agreed not to allot them and have undertaken not to do so until the trial of the action, as they would be required to do under the terms the under writing agreement.

Bearing that fact in mind and bearing in mind the very considerable possible damages to the company should an injunction be granted today and should it subsequently transpire that it should not have been granted, I think that the balance of convenience is clearly on the Defendants' side. There was sworn testimony that the capital is needed for specific purposes and for the development of the company, and it does seem to me that I should not stop the issue of shares or steps being taken pursuant to the issue of shares because of the very considerable damage that could be done to the company should it transpire at the hearing that the injunction should not have been granted.

I have reached this conclusion, as I have said, because of the undertaking that is proposed to be given on the Defendants' behalf and I also base it on the fact that I think this is a case which should be heard at the earliest possible time. The Defendants wish to have an early trial and I think it is in the interests of both parties that there should be an early trial. So I am exercising my discretion in this matter bearing in mind that I propose to fix a date for trial in the month of July of this year. I think the parties should co-operate in exchanging pleadings and have discovery as soon as possible. And if the trial can take place in a couple of months1 time this will mean that within a couple of months it would be possible to ascertain whether or not the Plaintiffs' case is correct. If the Plaintiffs' case is correct, then the shares will be available to them. If it is not correct, then the company will not have suffered major loss by an order having been made today.

I wish to point out that in adjudicating on the motion before me I do not wish to preclude the Plaintiff from raising any other points on the Statement of Claim which they may be advised to raise, in particular, should they wish to raise the question that the whole issue is invalid and should be so declared by the Court, or, for that matter, to preclude the Defendants should they wish to raise anything by way of counterclaim. I will reserve the costs to the trial judge.