Web Summit Litigation Puts Shareholder Oppression Claims in the Spotlight

The Web Summit litigation has put the spotlight on shareholder oppression – a complex and often misunderstood area of company law. In this article, our Commercial Disputes team explains what shareholder oppression looks like, the reliefs available, the benefits of resolution without a lengthy court battle, and the practical steps businesses can take to avoid it in the first place.

The recent high-profile litigation concerning Web Summit involved five separate sets of proceedings in which the relevant shareholders, Paddy Cosgrave, David Kelly and Daire Hickey, made various allegations. Before the much-publicised settlement reached following judicial suggestion, the cases were scheduled to be heard over nine weeks in the Commercial Court. Two of the proceedings involved claims of shareholder oppression, which, given the media coverage of the litigation and the resolution, has put oppression actions in the spotlight.

What is ‘shareholder oppression’?

Shareholder oppression happens when the rights or interests of minority shareholders are disregarded or treated unfairly by the majority of shareholders or the company’s directors. In cases involving these claims, there has typically been a breakdown of relations between the shareholders, and the minority may be excluded from general meetings or not given access to financial statements. In smaller companies, this can arise from a breakdown in personal relationships and can often result in a stalemate where the company cannot pass resolutions. Oppression can also arise where the directors are the majority shareholders and they raise their salaries or allot shares to themselves.[1] Destructive conduct[2], negligence[3] or criminal acts[4] can also constitute oppression. Although a series of oppressive acts may make it easier to demonstrate in legal proceedings, oppression can also be constituted by an individual act, which does not need to be ongoing.[5] It should be noted that bad faith is not required for oppression to arise[6], and even acts undertaken in good faith can constitute oppression.[7] Ultimately, although prior cases are illustrative, there is no definitive list of what will be considered oppressive conduct - each case will depend on its facts. However, any party who perceives they are being oppressed in their capacity as a member should keep a detailed list and retain any documentary evidence of this conduct.

Legal basis and remedies

The current legal basis for shareholder oppression actions in Irish law arises under Section 212 of the Companies Act 2014 which provides at sub-section (1) that a member “who complains that the affairs of the company are being conducted or that the powers of the directors of the company are being exercised (a) in a manner oppressive to him or her or any of the members… or (b) in disregard of his or her or their interests as members” may apply to the court for an order under that section.

Sub-section (2) provides that if the court is of the opinion that the conditions identified in sub-section (1) are satisfied, the court may make appropriate order(s) it believes are necessary to bring an end to the matters complained of. The broad and flexible powers of the court are given clarification by sub-section (3) which identifies, non-exhaustively, the types of orders which it is entitled to make. These include the making of orders:

• Prohibiting or cancelling any transaction
• Regulating the conduct of the company’s affairs in the future
• For the purchase of shares of members by other members or the company[8], and
• For the payment of compensation.

Conducting oppression actions

If the shareholders are not in a position to rely on a resolution process in a shareholders’ agreement or similar, litigation is the route by which issues are to be resolved. However, shareholder oppression actions can be expensive and disruptive to the operations of the company. In one regularly cited example, Mascarenhas v Karim & Anor[9], the issues arose in 2015 and proceedings commenced the following year. It was 2019 before the High Court decision issued and it took until 2022 for the Court to finally determine the matter. There is also the publicity which an oppression action can involve, as reflected by the high media profile Web Summit case. Although Section 212(9) does permit in camera or private hearings of oppression actions where the disclosure of information may be “seriously prejudicial” to the interests of the company, the general principle is that justice should be administered in public and it is rare for in camera hearings to be ordered. That applicants for private hearings face an uphill struggle is also clear from the recent decision in Re Glenman Corporation Limited.[10]

Alternative dispute resolution

Since oppression cases can be complicated, expensive, time-consuming, and often attract unwanted attention, they are well-suited to alternative dispute resolution methods like mediation or settlement negotiations. The advantages of mediating shareholder/director disputes were also remarked upon by Mr Justice McDonald in the context of the successful resolution of 2023 proceedings involving Walls Construction. In another case involving a shareholding in a pharmacy business, Mr Justice Sanfey commended the parties for reaching a resolution in late 2023 following an injunction application. Resolving a dispute without a court determination allows the parties to reach a resolution which is agreeable to them. Resolutions achieved without court proceedings can be other and more flexible than the remedies available in court. Agreed resolutions can be specifically tailored to the parties involved rather than those which would be imposed by the court in the event of litigation. It also allows the resolution to be confidential and achieved more quickly than having to wait for litigation and potential appeals to conclude. In that context, it was perhaps unsurprising that Mr Justice Twomey urged the parties in the Web Summit dispute to achieve an amicable resolution. A consensual resolution without fractious litigation may also mean parties can continue to work together and remain shareholders.

Avoiding oppression actions

The best course of action is to avoid shareholder disputes that may give rise to oppression actions to the extent possible. To achieve this, there are a number of steps companies and shareholders should take. Ideally, shareholders should seek to ensure that there is a shareholders agreement in place. That, and any related agreements, should set out a clear process to resolve disputes, and all agreements and policies should be well-documented and easily accessible. These can be an important reference point when disputes arise, especially in smaller businesses. Regular communication and transparent decision-making are critical. Importantly, the scope for disputes can be minimised if members know what is going on and why. An active and engaged board of directors can ensure priority is afforded to the company’s interests.

Conclusion

Irish law does provide for flexible remedies where oppression arises, so an affected minority can always seek protection. However, for various reasons, settling a dispute without going to court can often be a better option. As seen in the Web Summit case, the courts are also keen to encourage this approach.

For more information and expert advice on commercial disputes, contact a member of our Commercial Disputes team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] This may also give rise to claims for breach of fiduciary duties.

[2] E.g., Meyer v Scottish Co-Operative Wholesale Society Ltd [1959] AC 324

[3] Although one negligent act alone is unlikely to suffice, consistent mismanagement may result in a successful application- - Re Sam Weller & Sons Ltd [1989] 3 WLR 923

[4] E.g., Re Skytours Travel Ltd. [2011] IEHC 517

[5] Re Williams Group Tullamore Ltd [1985] IR 613

[6] Re Irish Visiting Motorists Bureau, unreported High Court, Kenny J., 7 February 1972,

[7] Re Emerald Group Holdings Ltd. [2009] IEHC 440

[8] This is not always the buy out of the minority shareholder by the majority - Mascarenhas v Karim & Anor [2022] IECA 48

[9] [2022] IECA 48

[10] [2024] IEHC 304