Supreme Court allows injunction restraining winding-up petition where debt exceeds £1,000 but balance disputed.

THE SUPREME COURT

No. 109/01

McGuinness, J.

Hardiman, J.

Fennelly, J.

BETWEEN

MERIDIAN COMMUNICATIONS LIMITED AND CELLULAR THREE TELECOMMUNICATIONS LIMITED

APPELLANTS/PLAINTIFFS

AND

EIRCELL LIMITED

RESPONDENT/DEFENDANT

REASONS FOR THE ORDER OF THE COURT DATED 27TH APRIL 2001, DELIVERED BY MRS. JUSTICE McGUINNESS THE 10TH DAY

OF MAY 2001

This is an appeal from an order of Lavan J. whereby he refused the Appellants/Plaintiffs application for interlocutory relief.

By notice of motion dated the 18th April 2001 the Appellants/Plaintiffs, Meridian Communications Limited and Cellular Three

Telecommunications Limited (“Meridian”) sought the following injunctive reliefs:-

“(1) An injunction restraining the Defendant by itself its servants or agents or otherwise howsoever from terminating the

delivery of the supply of mobile telephony to the Plaintiff or any or its subscribers without the prior agreement of Meridian

Communications Limited the first named Plaintiff.

(2) An order directing Eircell to recommence provision of international call services and premium services to Meridian pending

further order.

(3) An order directing Eirecell to reconnect disconnected numbers pending further order.

(4) An order restraining Eircell from presenting a petition to wind-up Meridian without the leave of this honourable court.”

On 18th April 2001 the Plaintiffs made an ex-parte application to Herbert J. who made an interim order in the terms of paragraphs 1

and 4 of the Notice of Motion. The Plaintiffs gave the normal undertaking as to damages and in addition undertook not to transfer,

assign or otherwise dispose of all or any part of their subscriber base pending the hearing of the interlocutory application for an

injunction.

The matter then came on for hearing before Lavan J. on the 25th April 2001. The learned judge refused the relief sought and

discharged the interim order made by Herbert J. The Appellants/Plaintiffs appealed to this Court. The appeal was heard as a matter of

urgency on the 27th April 2001. Following the hearing the Court granted an interlocutory injunction in the terms of paragraphs 1 and 4

of the original notice of motion, such injunction to remain in force for a period of two weeks only expiring at 4 p.m. on Friday the 11th

day of May 2001. A number of conditions, as set out in the order of this Court, were attached to the injunction. The matter was

listed for mention on the 10th May 2001. Owing to the lateness of the hour when the hearing concluded and the order of this Court

was made, the Court reserved to a later date the statement of the reasons for its decision.

The dispute between the parties has been lengthy and complex. The original proceedings between them were at hearing before

O’Higgins J. in the High Court for ninety five days. Following a number of interim judgments the proceedings culminated in a lengthy

(158-page) judgment delivered by O’Higgins J. on 5th April 2001. The learned High Court judge then put the matter back for mention

to permit the parties and their legal advisers to read and study his judgment and to make submissions. On the 24th April it was agreed

that submissions on costs and other issues should be heard by O’Higgins J. on 15th May 2001. This Court is informed that it is the

intention of Meridian to appeal against a number of the aspects of the decision of the High Court in these proceedings.

In the meantime the events which gave rise to Meridian’s present application for injunctive relief occurred.

The background and history of the commercial relations between the parties is set out fully and with admirable clarity by O’Higgins J.

in his judgment of 5th April 2001. There is no need to repeat it here. For the purposes of the present dispute a summary of the bare

bones of the matter is sufficient. From in or about 1997 onwards a Volume Discount Agreement (VDA) existed between Meridian and

Eircell. This agreement enabled Meridian to rent mobile telephone lines in bulk from Eircell at a considerable discount. Meridian then

rented these lines on to individual subscribers at an overall price which was lower than that normally charged to subscribers by Eircell

but which enabled Meridian to make a profit on the transaction. It appears that at the time when the injunction proceedings came

before this Court Meridian had a base of some 20,000 subscribers.

For reasons which can readily be appreciated Eircell was not particularly happy with the expansion of Meridian’s business which had

occurred from November 1998 onwards and sought to bring the VDA to an end when the then current agreement expired. Meridian

brought proceedings to require Eircell to continue to supply air time at a discount on the expiry of the VDA. A number of other issues

also arose in the proceedings. In the first judgment of O’Higgins J. which was delivered on 4th April 2000 he held inter alia that the

Plaintiffs were not entitled to enforce the renewal of the VDA. The proceedings before O’Higgins J. continued at hearing to deal with a

number of other issues including breach of contract and breach of competition law. In his judgment of the 5th April 2001 O’Higgins J.

held for the Plaintiffs on some of the breach of contract issues but against the Plaintiffs on the main competition law issue.

In the interim Eircell had continued to supply mobile telephone services to Meridian on the basis of an undertaking given to this Court

in October 1999 that they would continue the service until the determination of the proceedings in the High Court.

Over time and during the currency of the proceedings in the High Court there have been continuing disputes between Eircell and

Meridian over levels of billing for the lines operated by Meridian subscribers. Meridian allege that there is a high level of error in billing

and that virtually all such errors have been in favour of Eircell. Meridian also assert that billing difficulties have been exacerbated by

Eircell’s refusal to bill Meridian electronically and its insistence on issuing individual paper based bills in bulk. Eircell on the other hand

assert (which is admitted) that a number of recent direct debit payments due to them by Meridian have remained unpaid due to

cancellation by Meridian of the direct debits involved. At present the level of indebtedness of Meridian to Eircell for telephone services

remains in dispute.

During the Easter Vacation Eircell moved against Meridian by terminating the ability to send international calls on their lines or to ring

premium numbers. Correspondence, which it is unnecessary to detail here, was exchanged between the parties and there was some

direct contact between executives of the two companies. On 13th April 2001 (Good Friday) Eircell issued a letter pursuant to Section

214 of the Companies Act 1963 (as amended) in preparation for bringing a petition to wind-up the Plaintiff company. On Tuesday 17th

April 2001 Eircell cancelled a proposed meeting with Meridian and indicated that termination of telephone service to Meridian

subscribers was imminent. Meridian made enquiries and confirmed that Eircell intended to terminate service the following day.

Termination of lines to some subscribers began on 18th April.

On 18th April 2001 Meridian applied for and obtained the interim injunction from Herbert J. (sitting in the Vacation). As has already

been mentioned, on the 25th April Meridian’s application for an interlocutory injunction was refused by Lavan J.

By the time the appeal from this refusal came on for hearing before this Court the factual situation had somewhat changed. It was

acknowledged by Meridian that its business as dependant on the VDA could not continue. Senior Counsel for Meridian, Mr Gordon,

explaining the situation, said that it was Meridian’s intention to wind-up this business and to sell the one major asset which Meridian

still possessed - its “subscriber base”. This had already been somewhat reduced by Eircell’s action in cutting off international and

premium calls but was, he submitted, still worth up to ten million pounds. Negotiations to sell this subscriber base to one of Eircell’s

competitors were at an advanced stage; a contract for sale could be signed virtually immediately if Meridian were to be released from

the undertaking given to by Herbert J. and the process of the transfer of the business to the new owners could be completed in two

weeks. Any indebtedness to Eircell and other creditors could be met from the proceeds of sale following negotiations to establish the

true amount of monies owed. It would then also be possible for Meridian to pursue their appeal to this Court against the judgment and

orders of O’Higgins J.

Mr Gordon submitted that Eircell’s action in endeavouring to terminate service to Meridian subscribers and in bringing a petition under

the Companies Acts was aimed (a) at preventing a sale to competitors and (b) at reducing Meridian to a position where it could not

pursue its appeal in the main proceedings.

Senior Counsel for Eircell, Mr Brady, pointed out that Eircell had succeeded in the major issues in regard both to the VDA and to

competition law in the main proceedings in the High Court. They were faced with a situation where they were providing services to

Meridian at a loss. Meridian had repeatedly cancelled direct debit payments and appeared to be insolvent. It was therefore both

logical and reasonable that Eircell should move to terminate the service provided and to bring a petition under the Companies Acts in

order to recover as much as possible of the monies owed. He evinced considerable scepticism as to the possibility of Meridian meeting

the demands of all its creditors from the proceeds of sale of the subscriber base. He was extremely critical of the fact that Eircell had

given little or no information by way of exhibited accounts or other detailed figures in regard to its present finances. He argued that in

their original application to the High Court for an interim injunction Meridian had not fully disclosed the financial facts in the affidavit

grounding their application. In particular they had not revealed the fact that they themselves had cancelled direct debit payments.

In the court below Lavan J. rejected the Plaintiffs application for an interlocutory injunction on equitable grounds. He was strongly of

the opinion that the Plaintiffs did not come to the Court with “clean hands”. He correctly pointed out that “the first proposition of law

is that on any application made ex-parte the utmost good faith must be observed and the Applicant is under a duty to make a full

and fair disclosure of all of the relevant facts which he knows. And where the supporting evidence contains material misstatements

of fact or the Applicant has failed to make sufficient or candid disclosure the ex-parte order may be set aside on that very ground.”

He felt that the Plaintiffs had failed this test.

This Court accepts that the financial information provided by the Appellants/Plaintiffs in their affidavits is sparse enough, and that the

original grounding affidavit on behalf of 1Meridian contains only an oblique and obscure reference to the fact that Meridian had

deliberately failed to meet direct debit payments. This failure might well have grounded an initial application by Eircell to set aside the

interim injunction granted by Herbert J. At the interlocutory stage, however, the learned High Court judge appears to have been very

heavily influenced by the unfavourable view of Meridian’s case which he seems to have formed at an early stage of the proceedings

before him. While towards the end of the transcript of his decision he refers to the fact that he was not satisfied that there was a

serious issue to be tried, by far the main ground for his decision appears to have been the lack of “clean hands” on the part of

Meridian. It should perhaps be added that the application before the High Court seems to have suffered from unavoidable pressure of

time both in its preparation and in its hearing.

This Court has had the advantage both of an opportunity to read fuller background papers (including the transcript of the proceedings

in the High Court) and of being able to provide the equivalent of a full day’s hearing. It seems to the Court that in the events which

had transpired since the judgment of O’Higgins J. on the 5th April 2001 neither party has been entirely free of fault. This is a business

which has been for some time carried on contrary to the clear wishes of one of the parties. The parties have engaged in lengthy,

complex and no doubt extremely expensive litigation, which appears to be going to proceed further through an appeal to this Court. It

is scarcely surprising that they are slow to co-operate and that each side may try to “take advantage” from time to time. In the

circumstances this Court would not refuse the relief sought on the grounds which were relied on by the learned High Court judge.

The Court must therefore approach the matter in the light of the well known principles set out in the case of Campus Oil Limited v

Minister for Industry and Commerce (No. 2) [1983] IR 88. In so doing it must also be borne in mind that what is primarily sought -

the continuation of telephone service - amounts in practical terms to a mandatory injunction rather than a mere prohibitory

injunction. The standard therefore must be a strict one. In that case Griffin J. , at page 111 of the report states:

“In a number of cases in recent years this Court has applied, as the true test, the test of determining whether a fair or

serious question has been raised for decision at the trial and, if so, whether the balance of convenience was in favour of

granting or refusing the interlocutory injunction sought.”

The question must also arise as to whether damages would be an adequate remedy for the Applicant in each case.

An application which bears some similarities to the present application was recently considered by this Court in the case of Noel Ó

Murchú trading as Talknology v Eircell Limited (Supreme Court) unreported Geoghegan J. 21st February 2001). In his judgment (with

which both I and Hardiman J. agreed) Geoghegan J. set out the “three well known factors” to be considered as follows:-

“1. Is there a serious issue to be tried?

2. Are damages an adequate remedy?

3. Does the balance of convenience favour the granting rather than refusing of an injunction?”

In that case the Applicant sought a number of interlocutory injunctions the effect of which would have been to compel the

Respondent, until further order, to continue supplying or permitting the supply of “Ready to go mobile phones” to the Appellant and to

treat the Appellant as an authorised agent for this purpose. Geoghegan J. in his judgment held that there was a serious issue to be

tried between the parties but that damages would be an adequate remedy. He felt that any damages which fell to be assessed would

be within a limited period and would be ascertainable. He went on to say (at page 9 of the judgment):-

“But even if I had doubts as to whether damages were an adequate remedy I am satisfied that the balance of convenience

favours refusing the injunction. First of all there is the well known principle that in general the Courts will not grant an

injunction which would involve ongoing supervision. A Court, therefore, is very slow to grant injunctions in either service

contracts or trading contracts because it is very difficult to assess., at any given time thereafter, as to whether such

injunctions are being obeyed or not. It is also usually impracticable and undesirable that two parties be compelled to trade

with one another when one, for reasons which are perfectly rational, does not want to carry on such trading. The Appellant’s

bad debt situation and the unsatisfactory nature of his relationship with the Respondent make it prima facie reasonable that

the Respondent would not want to continue trading with him and I doubt that it would be practicable for a Court to force such

continued trading.”

The crucial difference between those cases and the instant case is that here the Court is being asked to grant an injunction where

the original proceedings have already been determined by the High Court. On Mr Gordon’s submissions, it appears that what the Court

is really being asked to do is to preserve Meridian’s right to appeal the decision of O’Higgins J. He assures the Court that serious and

substantive issues arise in this appeal, issues which will affect the structure and practice of the telecoms industry generally as well as

the private interests of the Appellants/Plaintiffs. I would accept this submission, based as it is on the lengthy hearing before O’Higgins

J. and on his judgments in the matter. The licensing issue, the VDA issue and the competition law issues are all of considerable

general importance.

There is, however, substance in the contention that damages would be an adequate remedy for the Appellants/Plaintiffs. The issue is

in essence a commercial one. It appears that the present business being carried on by Meridian must, even in the short term, cease

to exist. Many of the considerations referred to by Geoghegan J. in the Talknology case apply. Eircell and Meridian are clearly deeply

unhappy trading partners. It seems to me that there can be no question of this Court maintaining an injunction which would purport

to force the continuance of this business in the long term, or even until the determination of the appeal process. Should Meridian

succeed in its appeal there would be no insuperable difficulty in calculating a suitable award of damages.

Mr Gordon, however, argues strongly that the balance of convenience favours at least a short term injunction which would, with the

permission of the Court, permit the sale of Meridian subscriber base and the transfer of its subscribers to the new owner. The parties

should then endeavour to reach a conclusion as to the amount of money owed by Meridian to Eircell and any such debts could be paid

to Eircell out of the proceeds of sale.

Mr Gordon also submitted that Eircell would not in fact suffer any loss by being compelled to continue to supply airtime to Meridian

during the period of the injunction sought. Eircell would be more than compensated by the revenue received by it from the initiators of

calls to Meridian customers - revenue which would be lost to it if the service was definitively terminated. He offered, in addition,

undertakings to secure the payment to Eircell of amounts received by it during this period. Furthermore, he argued, Eircell would

benefit from the sale of the subscriber base, which would improve the financial position of Meridian as a debtor of Eircell. The essence

of these arguments was not seriously contested by Eircell, except in respect of the likely outcome of current attempts to organise

the sale, in circumstances where Meridian have maintained strict commercial confidentiality over these arrangements.

Mr Brady opposes this solution, largely on the grounds that neither Eircell nor the Court have sufficient information in regard to

Meridian’s financial position to have any idea of whether Meridian will in fact be able to satisfy Eircell and its other creditors, which

may, of course, include the Revenue Commissioners. He argues for an orderly and proper winding up of the Meridian company through

a petition to the High Court.

With some hesitation, and bearing in mind the undoubted lack of information concerning Meridian’s financial position, this Court was

willing to grant a temporary injunction in the terms of paragraph 1 of the Appellants/Plaintiffs notice of motion and to enable Meridian

to sell its subscriber base asset. The Court takes some comfort, in taking this step, from the arguments suggesting that Eircell will not

be at a significant loss. There can be no question of granting a further or continuing injunction.

The balance of convenience would be served by permitting the proposed orderly winding-up of Meridian’s affairs by the company itself

and the proper payment of the various creditors, in particular Eircell. It would also be to the advantage of Eircell if a relatively prompt

payment were to be made of the monies owing to it. It would be of immense advantage to all concerned if the parties could co-

operate reasonably in reaching a conclusion as to the amount of Meridian’s indebtedness to Eircell.

The granting of this injunction was accompanied by a number of conditions which have been set out in the order of this Court made

on the 27th April 2001. These conditions were directed towards protecting the position of Eircell and ensuring the proper disbursement

of any monies made from the sale of the subscriber base.

I now turn to the matter of the petition under the Companies Acts which Eircell have proposed to bring. The principles applicable

where it is sought to restrain the presentation of a winding-up petition have been fully and clearly set out by Keane J. (as he then

was) in the High Court in the case of Truck and Machinery Sales Limited v Marubeni Komatsu Limited [1996] 1 IR 12. These are set

out in the head note as follows:-

“(a) Since a winding-up petition was not a legitimate means of enforcing payment of a debit which was bona fide disputed, the

presentation of a petition would, in normal circumstances be restrained if the company, in good faith and on substantial

grounds disputed all liability in respect of the debt claimed.

(b) Where a company admitted its indebtedness to the creditor in a sum exceeding £1,000 but disputed the balance, even on

substantial grounds, the creditor should not normally be restrained from presenting a winding-up petition.

(c) Even where the company appeared to be insolvent, the Court, might in the exercise of its equitable jurisdiction, restrain

the presentation of the petition where it was satisfied that the petition was being presented for an ulterior or collateral

purpose and not in good faith; but that the Court must approach the position of such a company with the interests of the

creditors particularly in mind.

(d) the jurisdiction to restrain the presentation of the petition should be exercised only with great caution.

(e) Since an application to restrain the presentation of a winding-up petition involved not the restraint of an alleged violation of

a Plaintiff’s right but of the exercise by a creditor of his right of access to the Courts, the normal considerations of a fair

question to be tried, the adequacy of damages as a remedy and the balance of convenience did not arise; instead, it was for

the Plaintiff to establish at least a prima facie case, which would in many instances be established by evidence that the

petition was bound to fail or, at the least, that there was a suitable alternative remedy.”

This Court accepts that these are in principle the correct standards to be applied.

While it is suggested on the part of Meridian that the errors in billing made by Eircell are so gross that it is possible that Meridian in

reality does not owe any money to Eircell, it seems extremely unlikely that what purports to be a debt of some millions of pounds

could be reduced below the figure of one thousand pounds mentioned by Keane J., or even anything near that figure. If the proposed

sale and settlement of indebtedness does not proceed in the near future, there would seem to be no proper grounds for restraining

Eircell from bringing the proposed petition.

However, it would seem to be a proper exercise of the equitable jurisdiction of this Court to restrain the bringing of the Respondent's

petition until after the expiry of the injunction already granted. The Court therefore granted the relief sought in paragraph 4 of the

Appellants/Plaintiffs notice of motion for a period of two weeks to expire at 4 p.m. on the 11th May 2001.

The Court, therefore, for the reasons set out above allowed the appeal and granted limited relief as set out in the order of 27th April

2001.