This is the third article in our five-part series of guides on Shareholder Oppression.
GUIDE 3: OPPRESSION PROCEEDINGS IN PRIVATE
Can litigants avoid a public hearing of a shareholder oppression action?
In many cases the minority shareholder complaining of oppressive behaviour and the majority defending the complaint, will each have an interest in avoiding the media attention around a public airing of their grievances. While it is often in the interests of both parties to seek to keep the proceedings out of the public eye, it is almost invariably a priority of the majority to seek to do so.
The Irish Constitution protects the public administration of justice. This means that, save in special cases provided by law, members of the public must be allowed access to court hearings.
The option of holding shareholder oppression proceedings in private (also known as "in camera") is not available in every case; a court must be satisfied that certain conditions are met. The decision to hear a case in private is at the sole discretion of the court; even if both parties consent to a private hearing the court must apply the requisite test and balance the constitutional rights of the parties and of the public.
What must the applicant show?
The statutory test to hear an oppression case in private is that the court must be satisfied that a public hearing would involve the disclosure of information, which if published, would be seriously prejudicial to the legitimate interests of the company in question. The requirement of 'serious prejudice' to 'legitimate interests' is a high threshold to satisfy, requiring a concrete assessment of the damage that might be occasioned. An example might be where a public hearing would unavoidably disclose confidential and commercially sensitive information, which in the hands of its competitors, would seriously prejudice the company's business interests; the disclosure of a trade secret being the most obvious and damaging example. Embarrassment of the parties is often the motivation for seeking a private hearing, but it does not meet the test.
Even if the statutory test can be considered satisfied, the judge still retains a general discretion in deciding whether or not to hear the case in private. In exercising this discretion, the courts have added an additional hurdle: it must also be convinced that a public hearing would prevent justice being done.
The rationale is that a private hearing involves a restriction of the collective constitutional right to the public administration of justice. On this basis, any departure from the norm of public hearings must be strictly justified.
What type of injustice must be caused?
The circumstances that might lead a court to conclude that a public hearing would cause an injustice cannot be defined in advance – each case will turn on its own facts. However, examples of circumstances in which a private hearing might be necessary include where:
- a public hearing would damage the value of the parties' shareholding to the extent that the court would be incapable of providing a just remedy on hearing the matter in public; or
- in order to protect their shareholding, either party would be obliged to abstain from giving evidence which might influence the resolution of the issues and the achieving of a just result by the court, so as to be hamstrung in pleading their case.
These examples should be viewed as additional to the statutory test. It is not enough for an applicant to show that they might suffer damage to the value of their shareholding because of a public hearing – they must also show that the publicity would cause serious prejudice to the company's legitimate interests.
In addition to the common commercial/trade secrets example, another case that might satisfy the twin test is one that features disagreements between shareholders as to litigation between the company and a third party.
- The company's legitimate interests in protecting the confidentiality of its strategy for the litigation would be seriously prejudiced by the publication of the oppression proceedings.
- Justice would not be done if, to protect the pending litigation, the majority would be compelled to abstain from giving certain evidence in the oppression proceedings that might adversely impact the company's third party litigation.
A balancing act
These examples relate to instances where the parties' property rights, which are also protected by the Constitution, would be adversely affected by prioritising the public's right to an open hearing. A court asked to rule on whether a shareholder oppression hearing should be held in private must therefore conduct a balancing act between the competing constitutional rights.
The court must be satisfied that the threat posed to private property rights as a corollary of a public hearing outweighs the national interest in the open administration of justice.
A party to oppression proceedings should aim to show the court that a private hearing is no more than is necessary to protect their constitutional interests which would otherwise be damaged by a public hearing. That said, a minority shareholder may have an interest in seeking a public airing, so that his/her rights are vindicated in public, which puts pressure on the majority shareholder as their conduct will become public knowledge. The hearing of an application to conduct a case in private can become a key pressure point in negotiations.
Shareholder Oppression series:
- Guide 1: Shareholder Oppression – An Introduction
- Guide 2: Shareholder Oppression in Quasi-Partnerships
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.