The High Court will next Wednesday hear a judicial review application from Independent News & Media (INM) aimed at stopping the appointment of inspectors to the newspaper publishing group.
The Office of the Director of Corporate Enforcement (ODCE), in an application lodged in March, is seeking the appointment of inspectors after an inquiry it conducted over the previous year and a half.
In an affidavit grounding the application, Ian Drennan, the Director of Corporate Enforcement, set out a a range of matters most of which have to do with the relationship between INM and its largest shareholder, the businessman Denis O’Brien.
Drennan set out a list of serious concerns he has which he believes require further investigation. INM has responded to Drennan’s affidavit with one from its senior independent director, Len O’Hagan, seeking to oppose the appointment.
O'Hagan, who has been on the INM board since 2012, swore his affidavit on behalf of the company and his fellow directors. A non-executive director, he played a central role in the INM response to protected disclosures made by former INM chief executive Robert Pitt and chief financial officer Ryan Preston, as well as in the company's response once the ODCE became involved.
The controversy at the media group involved a number of allegations against the former chairman, Leslie Buckley, who was O'Brien's nominee on the INM board and is a long-time business associate of the Irish billionaire.
Buckley stepped down on March 1st last, the same day that four new directors were appointed to the INM board. The new chairman is Murdoch McLennan, who is deputy chairman of the Telegraph Media Group and was previously its chief executive.
O’Brien has yet to comment on the INM controversy. Buckley has said he would defend himself from all allegations.
If the judicial review fails, then the president of the High Court, Mr Justice Peter Kelly, will hear Drennan’s application. When that will happen is not clear.
These are the five issues at the heart of the IDCE applicaiton for inspectors, and where both parties stand on them:
The back-up tapes
ODCE – Ian Drennan
Drennan said that what happened to back-up tapes from the INM computer system in late 2014 is one of the reasons for the appointment of High Court inspectors.
His inquiries have already established that, while Buckley told Drennan and INM that the tapes had been removed from INM and interrogated as part of a cost-reduction exercise, other evidence indicates that the data – which included emails and other data created by journalists and former INM executives – was “interrogated” for the presence of names of persons known to have had run-ins in the past with INM’s largest shareholder, Denis O’Brien.
Furthermore, bills of more than €60,000 associated with the work were settled by an Isle of Man company beneficially owned by O'Brien, called Blaydon Ltd. And the people and companies involved in the apparent data breach include people and companies that also work for O'Brien's Digicel group in the Caribbean. Buckley, who was O'Brien's nominee on the INM board, is vice-chairman of Digicel.
“Significant concerns [remain] as to the precise purpose of the data interrogation and as to what was done with INM’s data in the course of that interrogation,’ Drennan said in his submission to the High Court for the appointment of inspectors.
INM – Len O’Hagan
In his replying affidavit, opposing the appointment of inspectors, O’Hagan said that when it was told that INM data might have been improperly accessed, the board of the media group was “horrified”. Speaking on behalf of the board, he said that if what Drennan claimed turned out to be true, then it would appear that INM had been “intentionally misled” by its now former chairman, Buckley.
“The board believes that any person who facilitated or exploited such access should be required to account fully as to how and why they obtained access to such data, for what purpose and what use was actually made of such data.”
INM, he said, considers the protection of journalists’ sources and inquiries “a foundation stone of the operation of a free and effective press and is committed to protecting those fundamental principles”.
However, INM believes that the proper agency to conduct an inquiry into the apparent data breach is the Data Protection Commission, which has already been notified by INM of what has been alleged by Drennan. "It would be unnecessary and disproportionate to have two parallel inquiries into essentially the same matter being carried out at the same time," the affidavit states.
O’Hagan said the appointment of inspectors to INM would not necessarily give the ODCE powers over the companies that Buckley commissioned to examine the INM back-up tapes.
ODCE – Ian Drennan
Pitt made a protected disclosure to the ODCE in which he said Buckley had pressed him in 2016 to approve the purchase of loss-making national radio station Newstalk at a price that was more than €12 million above the €14 million or so that Davy advised INM it was worth. (There were synergy possibilities for INM.)
When Pitt and Preston resisted the proposed deal, Buckley allegedly said: “Do you not get it, lads?”
Newstalk is owned by O'Brien's Communicorp radio group, which also owns 98FM and TodayFM. INM director Paul Connolly is also on the board of Communicorp and former INM director Lucy Gaffney is its chairwoman.
The claims by Pitt and Preston about Buckley were investigated by independent reviewers appointed by the INM board but the reviewers – then barrister, now High Court judge David Barniville, and Northern Ireland accountant Stephen Kingon – were unable to resolve a conflict of evidence between the two INM executives and Buckley.
“As such the matter remains unresolved and requires to be further investigated,” according to Drennan.
The director has also said that INM’s initial response to disclosures by Pitt and Preston about the Newstalk issue and a number of other matters, all of which involve proposed benefits for O’Brien, did not reflect the gravity of what was being alleged. He also said that the terms of reference given to the independent reviewers “limited their ability to reach conclusions on certain matters”.
Overall, Drennan said, the content of the disclosures raised a number of concerns including the potential running of INM’s affairs in a way that involves an “apparently substantial and inappropriate level of influence on, and interference in, INM affairs, on the part of [O’Brien] and his associates”, as well as matters that raise concerns about the rights of other shareholders.
“I say that these circumstances give rise to a range of substantial concerns regarding the general conduct of the affairs of INM.”
INM – Len O’Hagan
O’Hagan said the Newstalk deal did not happen. The board does not accept that “the fact that, in respect of a single aspect of the independent review, the reviewers were unable to resolve a conflict of fact could justify the appointment of inspectors”.
He also said the reviewers concluded that, if the INM executives had approved the proposed Newstalk deal, “the checks and balance and approval processes in place in INM would have prevented any purchase of Newstalk at an overvalue if that was intended by anyone involved in the process (the latter being the issue that was not possible to resolve)”.
O’Hagan said it was not clear to the INM board what purpose or objective would be achieved by the appointment of inspectors to INM to examine the matters raised in the Pitt and Preston disclosures, which have already been the subject of an “independent, lengthy and detailed investigation” by the independent reviewers.
“While there was no cross-examination as part of that process, I believe and am advised that, in itself, could not justify or necessitate the appointment of inspectors.”
ODCE – Ian Drennan
The Drennan affidavit includes a large number of text and email exchanges between Buckley and a number of parties, including O'Brien but also John Henry, a security consultant who works for Buckley and Digicel, and appears to have played an oversight role in the data issue, reporting to Buckley.
Drennan said that some of the communications with O’Brien may have involved breaches of the market abuse or insider information laws and that others, in his view, showed O’Brien being given information about aspects of the disclosures made by Pitt and Preston, that should not have been given to O’Brien.
Drennan cited possible breaches of the market abuse laws as a reason for the appointment of inspectors.
INM – Len O’Hagan
O’Hagan said that while the board is not asserting that all the communications between O’Brien and Buckley were appropriate, it does not believe that anything illegal occurred.
The materials on which the ODCE bases its concerns are in its possession and it can form a view as to whether any communication was unlawful.
“It is open to the ODCE, if it disagrees with INM’s view, to take any action it deems appropriate against the individuals involved in accordance with its own very extensive statutory powers,” O’Hagan says in the affidavit.
He confirmed the board would co-operate with any inquiry.
“These issues do not, however, disclose a valid basis for the appointment of inspectors to INM.”
He also said that INM, having taken advice, has a different view to that of Drennan as to the appropriate level of communication that should occur between a director of a plc and the shareholder who nominated him.
“A difference in view between the ODCE and INM as to the extent of permitted communications between a board member and [O’Brien] could not justify the appointment of an inspector. In any event, the person who is alleged to have made the communications is not longer part of the board.”
The major shareholder
ODCE – Ian Drennan
In his submission in support of the appointment of inspectors, Drennan said he had “very significant concerns” about the role played by Buckley as O’Brien’s nominee on the INM board and of “INM’s perception as to the consequences of nominee status”.
“It cannot be . . . that a nominee chairman/director is permitted to override the interests of the company to further the interests of his nominating shareholder.
“There are circumstances suggesting that the interest of INM and its other shareholders have been, at the very least, at risk of prejudice by the nominee chairman’s interactions with his nominating shareholder, the major shareholder. The interests of INM also appear to have been actually prejudiced at least by the data interrogation, insofar as same appears to have resulted in unlawful processing of personal data under INM’s control.”
Drennan said that his concerns persist, despite the fact that Buckley left the INM board at the beginning of March. Buckley’s resignation “does not diminish my concerns, nor does it diminish the necessity that these matters [outlined in his affidavit] be further investigated”.
INM – Len O’Hagan
INM has said it is clear from Drennan’s affidavit that “the focus of the majority of the matters of concern identified by the ODCE as justifying the appointment of inspectors relate to the alleged individual wrongdoing by the former chairman of INM, Mr Buckley, and/or the major shareholder”. But Buckley is no longer on the INM board and it is difficult to understand Drennan’s assertion that this does not diminish the need for inspectors.
“As Mr Buckley is no longer chairman or a director of INM, there is no prospect that any alleged wrongdoing on his part will continue or that anything will be done which is unfairly prejudicial to any of INM’s members.”
There is no reason, O’Hagan said, for any concern in relation to the ability of the INM board to manage and conduct its affairs properly and in accordance with the highest standards of corporate governance.
There is no need for inspectors to be appointed to form a view as to whether the relationship between the former chairman and the major shareholder was appropriate, or for any concern about overall standards of corporate governance at INM.
The public interest
ODCE – Ian Drennan
Drennan has said that the private inquiry conducted in the period up to March of this year by his office has produced concerns that are “numerous and multifaceted”. The range of potentially unlawful conduct that has taken place within INM is “extensive” and transcends various regulatory regimes from company law to market abuse to the protected disclosures laws to the data-protection rules.
“As such, and having regard to the nature of INM’s business together with the fact that it is a publicly-listed company, there is a compelling public interest case for these matters to be fully investigated by court-appointed inspectors possessing the requisite powers of investigation to establish the full facts.”
Any report produced would assist relevant statutory authorities to assess the extent, if any, to which further action may be required.
INM – Len O’Hagan
The INM group goes back to Independent Newspapers Ltd, founded in 1904 by William Martin Murphy, and has, throughout its history, “published articles by independent and professional journalists who provide important and diverse Irish voices in a crowded media market, often dominated by global and international media outlets”, according to O’Hagan.
“The Independent group of newspapers makes a significant contribution to the maintenance of a free and independent press in Ireland as an important indicator of a democratic society and a bulwark against the improper use of power.” The group employs about 815 people directly.
INM operates in a difficult market and has seen both profits and turnover fall during 2017. For the past year and a half, INM has devoted time, resources and attention to the ODCE’s investigation and the board is now “extremely anxious” to have the space and time in the period ahead to develop the INM business.
The announcement in March that the ODCE was seeking the appointment of inspectors to INM sparked a share price fall and an unusually high volume of trading in the group’s shares.
“The risk to shareholder value if inspectors are appointed is all the more serious, especially with the kind of wide-ranging commission proposed by the ODCE, notwithstanding that the ODCE itself has already subject INM to a protracted investigation process for more than a year.”
If inspectors are appointed, the resultant disruption would affect the ability of board to pursue the growth strategy required to reverse the recent adverse trading trend.
“I can say without reserve that the making of this application alone has already had a very significant disruptive effect on INM’s conduct of its business and I would expect such disruption to worsen considerably were inspectors to be appointed”, O’Hagan said.