High Court to appoint two inspectors to INM

The president of the High Court has said he intends to appoint two inspectors to investigate the State corporate watchdog's concerns over the conduct of the affairs of Independent News & Media.

After lawyers for INM said it wanted to consider his judgment, Mr Justice Peter Kelly agreed to defer making formal orders for the appointment of inspectors until Thursday, when he hears arguments on whether there should be an effective stay on the appointment.

The judge said he was satisfied many questions “remain to be answered” about “disquieting” issues raised by the Director of Corporate Enforcement (ODCE), including the alleged removal from, and interrogation of, the data of 19 persons, including former INM employees and executives and two senior counsel for the Moriarty tribunal.

“There are a myriad of issues the answers to which are not known,” he said. “Considerable mystery still surrounds a number of the issues.”

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This was not a case of using a sledgehammer to crack a nut, he said. The information placed before the court “is no nut” and what is alleged “is very serious indeed”.

Appointing inspectors was in the public interest, particularly given the importance of a free press, he held.

Mr Justice Kelly said the evidence before the court suggested the rights and entitlements of some of those whose data was allegedly accessed may have been transgressed in “the most serious way”.

The evidence also suggested the bills for the data interrogation were paid by a company beneficially owned by INM’s largest shareholder, Denis O’Brien.

There was also evidence, based on texts exchanged between Mr O'Brien and then INM chairman Leslie Buckley, suggesting there may have been a breach of market abuse regulations, he said.

On foot of that and other material, he found INM had met certain criteria under Section 748 of the Companies Act 2014 for the appointment of inspectors.

Circumstances

The judge was satisfied there are circumstances suggesting the affairs of the company are being, or have been, conducted for a fraudulent or unlawful purpose other than an intent to defraud creditors.

He was also satisfied there are circumstances suggesting the affairs of the company are being, or have been, conducted in an unlawful manner or in a manner unfairly prejudicial to some part of its members.

These included the alleged data breach and alleged furnishing of certain information by Mr Buckley to Mr O’Brien, he said.

He rejected arguments by INM that appointing inspectors was unnecessary and/or disproportionate and should be refused. It is in the public interest the affairs of a public company are “conducted entirely above board”, he added.

INM occupies a dominant position in the media sector in Ireland and there is “an obvious public interest” in finding out if there was any wrongdoing by the company.

The proposed inspectors are barrister Seán Gillane SC, who specialises in criminal law, and Richard Fleck, a UK-based solicitor and corporate governance expert.

Mr Fleck was a director of the UK Financial Reporting Council between 2004 and 2014 and was involved in setting out the UK corporate governance code.

Reference

Their terms of reference would entitle them to investigate most of the issues raised by the ODCE, including the adequacy of the INM board's response to protected disclosures of its former chief executive Robert Pitt and chief financial officer Ryan Preston.

The judge upheld some of INM’s objections to the terms sought by the ODCE, including for a more roving review of its corporate governance. The inspectors will have liberty to apply to the court concerning their terms if they consider those inadequate.

Unless any stay is granted, the inspectors’ first report will be provided to the court by April.

Ian Drennan of the ODCE initiated his application earlier this year following his office’s year long investigation into matters raised in protected disclosures made in 2016 and last year by Mr Pitt and Mr Preston.

Arising from that investigation, the ODCE raised concerns about issues including an alleged data breach at INM in 2014. That involved data being exported from the jurisdiction and interrogated by third parties in what Mr Buckley, who stepped down last March, has said was a cost-cutting exercise called ‘Operation Quantum’.

Mr Drennan had said the purpose of the data interrogation remains unclear but “certainly appears to be suspect and requiring further investigation”.

Shares

Other issues included a proposed acquisition by INM of the Newstalk radio station from Mr O’Brien at a price that allegedly substantially overvalued the broadcaster and the proposed payment of a €1 million “success fee” to Island Capital, another company of Mr O’Brien’s, following the sale of INM’s shares in the Australian media group APN.

Neither the Newstalk purchase nor fee payment proceeded, but Mr Drennan said he had concerns about them and about a number of corporate governance matters. He said his investigation had proceeded as far as it could and it was necessary to have inspectors with a range of powers to investigate matters further.

Brian Murray SC, for the ODCE, had argued their case was that, if what appears to have occurred in INM or what circumstances suggested did occur, that could only have happened because of a “culture of deference towards the major shareholder and his nominee, Mr Buckley”.

INM strongly opposed appointing inspectors, arguing that the Data Protection Commissioner’s (DPC) investigation into the alleged data breach is adequate, and that the Central Bank was the appropriate body to investigate any market abuse concerns. It said the appointment of inspectors would have significant adverse consequences for INM, its 815 employees, shareholders and pensioners.

INM insisted several issues raised by the ODCE were isolated and historic matters which have already been appropriately addressed by the company. It denied any “culture of deference” towards Mr O’Brien, said it maintains high standards of corporate governance, and denied any breach of the Market Abuse Regulations or the Protected Disclosures Act.

In his 76 page judgment, Mr Justice Kelly said there are 10 circumstances under which the court has power under Section 748 to appoint inspectors. The Act also conferred discretion on the court whether to appoint inspectors or not.

The ODCE contended he had provided evidence to justify appointment under six of the 10 circumstances. The court did not have to make findings about those issues but it had to find the ODCE had met the necessary burden of proof for inspectors to investigate.

Breach

The judge referred to the alleged data breach and the claim that Mr Buckley had instructed the head of IT at INM not to disclose the removal of the data to Mr Pitt.

He said Mr Buckley had told the ODCE this was part of a cost reduction exercise relating to a legal services contract with Simon McAleese Solicitors for some €600,000 a year. That five-year contract was due to expire in September 2016 and Mr Buckley had said the sum was significant and he needed to access emails and documents on INMs’ system to get details of it.

The judge noted the data included that of journalists Rory Godson, Maeve Sheehan, Brendan O’Connor and Sam Smyth and two senior counsel for the Moriarty tribunal.

It was “hard to see” what the interrogation of the data of some of those persons had to do with the services provided by Mr McAleese, he remarked. Some of the persons whose data was accessed were described as persons adverse to Mr O’Brien, he also noted.

Addressing INM’s arguments that its board had appropriately addressed the concerns raised in the protected disclosures and by the ODCE, the judge noted the board alleged any wrongdoing by Mr Buckley did not amount to the company’s affairs being conducted in an improper fashion.

The judge said he was unable to agree with that as a matter of law. Any wrongdoing by Mr Buckley was in his capacity as executive chairman and any wrongful acts by him were the conduct of affairs of the company.

Mr Buckley had “actual, ostensible or apparent” authority when engaged in the activities alleged, he added.

Activites

He rejected arguments the activities of Mr Buckley could not amount to conduct of the affairs of the company. He held Mr Buckley was a person involved in the management of the company and a “major player” in the circumstances contended for by the ODCE.

The ODCE had provided evidence under all six subsections relied upon by him such as to satisfy the court inspectors should be appointed, he said. He was also satisfied the DPC did not have the sort of powers necessary to answer many of the questions raised. He also noted the Central Bank had not yet said it would undertake any investigation and any such investigation would also be limited.

He did not think INM could effectively investigate the “disquieting” matters for reasons including the standoff between it and Mr Buckley and the fact it has taken proceedings against Mr Buckley. He also believed one of the other inquiries could address the public interest aspect in a satisfactory way.

Addressing INM’s claim any wrongful activity has ceased, he said that was not a basis to prevent inspectors being appointed. The fact the appointment is serious for the company was not a reason to refuse to appoint them and he was sceptical of any suggestion the appointment would raise any solvency issues.

Reputational damage has already occurred because of what has been disclosed to date, including from the protected disclosures by Mr Pitt and Mr Preston, and the fact of the DPC inquiry. It was also in the public domain that INM was facing litigation from many of the persons whose data was allegedly accessed.