​Speed Read

In Clarke v Colorman (Ireland) Ltd [2019] IEHC 50, the Commercial Court determined that an expert determination clause in a Shareholders' Agreement could be enforced through the granting of a stay on Commercial Court proceedings on the basis that expert determination would protect confidential commercial information.

The court found that this consideration justified the granting of a stay, even where the dispute was so complex, and the expert determination clause was so vague, that resolution through expert determination was unlikely to be any quicker or more efficient than resolution through the Commercial Court.

The court indicated a willingness to grant the stay sought on the condition that the respondents to the proceedings were willing to give an undertaking to the court in the terms of the interlocutory injunction sought by the applicant (not to progress the sale of shares to a third party pending determination of the expert determination of the dispute).

Background

The parties were in dispute as to the correct interpretation of a clause in a shareholder's agreement dealing with share transfers and pre-emption rights. The applicant alleged that the manner in which the respondents had engaged in negotiations with a third party for the sale of the company constituted oppression under s. 212 of the 2014 Act. The respondents claimed that the applicant was obliged to refer the dispute to binding expert determination pursuant to the dispute resolution clause in the Shareholders Agreement, and sought a stay on proceedings to facilitate that determination. The applicant sought an interlocutory injunction restraining the progress of the sale/negotiations for the sale.

Decision

The court found that although the discretion of the court was not circumscribed by statute, as in the case of an arbitration clause, there still arises a presumption that an expert determination clause should be enforced, and the party opposing its enforcement bears the burden of persuading the court to depart from that presumption.

It reviewed three leading Irish authorities on the enforcement of expert determination clauses and concluded that none of the Irish decisions provided any guidance as to what factors should be considered in the exercise of the court's discretion.

The court noted that the expert determination clause was sufficiently broad to include an oppression claim under s.212 of the 2014 Act. It noted further that the clause was silent as to procedural issues such as the powers of the expert to require document disclosure by the parties and the consequences of non-cooperation. Mc Donald J. found that neither the breadth nor the vagueness of the clause were sufficient to render the clause unenforceable, but that the latter consideration was relevant to the question of whether the expert determination process would, as a matter of fact, result in a more efficient resolution than Commercial Court proceedings.

The court also found that a four week delay on the part of the respondents (from the threat of litigation by the applicant) in invoking the expert determination clause was a relevant consideration. McDonald J noted that by the time the clause was invoked, the proceedings were already 'up and running with a very full affidavit having been sworn and served on behalf of the applicant'.

Notwithstanding its concerns as to the potential delays associated with an expert determination of the dispute, the court declined to accede to the respondents' request that he tailor an order granting a stay by fixing a time limit for resolution, holding that to do so would amount to a re-writing of the clause. The court commented instead that when a clause of this nature is silent as to time for performance, it is usual to imply a term that performance will be completed within a 'reasonable time'.

The court thus concluded that 'f speed and efficiency were the only relevant considerations, I would be inclined to refuse the application for a stay', but in circumstances where it is extremely difficult to satisfy the requirements for an in camera hearing under s.212(9) of the 2014 Act, the privacy afforded by expert determination mitigated in favour of the grant of a stay.

However, McDonald J went on to hold that the provisions of the expert determination clause did not exclude applications to the court for injunctions or orders which an expert would have no power to grant. Thus, even if the court were to order a stay, it would be open to the applicant to proceed with his application for an interlocutory injunction.

Such an application would, of necessity, require the court to open the parties' affidavits, thus putting the commercially sensitive information that expert determination protects into the public domain. Given that that privacy consideration was the basis upon which the court was minded to grant a stay, it would be nonsensical to do so in circumstances where that privacy would be lost in an ancillary application. Thus, the court indicated that it would only be willing to grant the stay sought if the respondents gave undertakings to the court in the terms of the interlocutory injunction sought by the applicant.