Meridian Communications Ltd and Cellular Three Telecommunications Ltd L (appellants/ plaintiffs) v Eircell Ltd (respondent/ defendant).

Equity - Mandatory interlocutory injunction - Principles applicable to grant of relief - Substantive proceedings already determined - Preservation of right of appeal - Whether dam ages an adequate remedy - Balance of convenience.

Company Law - Winding up by the court - Principles applicable to restraining of presentation of petition - Companies Act 1963, section 214.

The Supreme Court (before Mrs Justice McGuinness, Mr Justice Hardiman and Mr Justice Fennelly); judgment delivered 10 May 2001 giving reasons for the order of the court dated 27 April 2001.

Where proceedings have al ready been determined by the High Court, the Supreme Court will, where there is a serious issue to be tried, grant a short term mandatory interlocutory injunction on the basis of the balance of convenience, even if damages are an adequate remedy, and will exercise its equitable jurisdiction to restrain the presentation of a winding up petition for the duration of that injunction.

The Supreme Court so held in granting relief to the appellants.

John Gordon SC, Richard Law Nesbitt SC and Brian Cregan BL for the appellants/ plaintiffs; Paul L Sreenan SC, Rory Brady SC and Maurice Collins BL for the respondent/defendant.

Mrs Justice McGuinness set out in her judgment the reasons for the order of the court dated 27 April 2001. Mrs Justice McGuinness stated that the dispute between the parties had been lengthy and complex The original proceedings between them were at hearing in the High Court for 95 days. Following a number of interim judgments the proceedings culminated in a lengthy judgment delivered on 5 April 2001 by Mr Justice O'Higgins, who then put the matter back for mention to permit the parties to read and study the judgment and to make submissions. On 24 April it was agreed that submissions on costs and other issues should be heard by the High Court on 15 May 2001. The Supreme Court was informed that it was the intention of the first appellant to appeal against a number of aspects of the decision of the High Court.

The facts of the case were that from in or about 1997 onwards, a volume discount agreement existed between the first appellant and the respondent, which enabled the former to rent mobile telephone lines in bulk, at a considerable discount, and to then rent these lines, to individual subscribers, at an overall price which was lower than that normally charged to subscribers by the respondent, but which enabled the first appellant to make a profit on the transaction. The respondent sought to bring the agreement to an end and the first appellant brought proceedings to require the continued supply of air time at a discount on the expiry of the current agreement.

The High Court held that the appellants were not entitled to enforce the renewal of the volume discount agreement. It held for them on some breach of con tract issues but against them on the main competition law issue in the proceedings. In the interim, the respondent had continued to supply mobile telephone services to the first appellant, on the basis of an undertaking, given to this court in October 1999, that they would so do until the determination of the proceedings in the High Court.

During the proceedings in the High Court there had been continuing disputes over the level of billing between the parties, with the first appellant alleging, inter alia, a high level of error, with virtually all such errors in favour of the respondent. The first appellant also asserted that these difficulties had been exacerbated by the refusal of the respondent to bill electronically and its insistence on issuing individual paper based bills in bulk. It was admitted that a number of recent direct debit payments due to the respondent remained unpaid and the present level of indebtedness remained in dispute.

During the Easter vacation the respondent had moved against the first appellant by terminating the ability to send international calls on their lines or to ring premium numbers. On 13 April 2001 the respondent had issued a letter, pursuant to section 214 of the Companies Act 1963, in preparation for bringing a petition to wind up the first appellant. On 17 April the respondent indicated that the termination of telephone service to the subscribers of the first appellant was imminent. Termination to some subscribers began on 18 April. On the same day the first appellant applied for and obtained an interim injunction from the High Court; however its application to the High Court for an interlocutory injunction on 25 April was refused and it was from this refusal that it appealed to this court.

It was submitted, on behalf of the first appellant, that it was its intention to wind up its business and to sell the one major asset which it still possessed - its subscriber base. This had al ready been somewhat reduced by the respondent's actions but was still worth up to £10 mil lion. Negotiations to sell this asset to the respondent's competitors were at an advanced stage, a contract for sale could be signed virtually immediately (if the first appellant were released from the undertaking it had given in seeking the interim injunction) and the transfer of the business could be completed within two weeks. Any indebtedness to the respondent, and other creditors, could be met from the proceeds of sale, following negotiations to establish the true amount of moneys owed. It would then be possible for the first appellant to pursue its appeal to this court against the judgment and orders of the High Court in the main proceedings. The first appellant submitted that the respondent's action in terminating services to subscribers of the first appellant and in bringing a winding up petition was aimed at preventing a sale to competitors and at reducing the first appellant to a position where it could not pursue its appeal in the main proceedings.

The respondent argued that it had succeeded in the major issues in regard to both the volume discount agreement and to competition law in the main proceedings. The first appellant had repeatedly cancelled direct debit payments and appeared to be insolvent and the respondent was facing a situation where it was providing services to it at a loss. It was therefore both logical and reasonable that it should terminate the service provided and bring a winding up petition. The first appellant had given little or no information by way of exhibited accounts or other de tailed figures in regard to its present finances. In its original application to the High Court, for interim relief, the first appellant had not fully disclosed the financial facts in its grounding affidavit and in particular had not revealed that it had can celled direct debit payments. The respondent was sceptical as to the possibility of the first appellant meeting the demands of all its creditors from the proceeds of sale of the subscriber base.

Mrs Justice McGuinness noted that the main ground for the refusal of interlocutory relief in the High Court appeared to have been the lack of clean hands on the part of the first appellant and while the Supreme Court accepted that the financial information provided by the appellants in their grounding affidavits was sparse enough, it should perhaps be added that the application be fore the High Court seemed to have suffered from unavoidable pressure of time, both in its preparation and in its hearing. It seemed to the court, that in the events which had transpired since the judgment of the High Court in the main proceedings, neither party had been entirely free of fault. In the circumstances the Supreme Court would not refuse relief on the grounds which were relied on by the High Court.

Mrs Justice McGuinness stated that the court must there fore approach the matter in light of the well known principles set out in Campus Oil Ltd v Minister for Industry and Commerce (No 2) [1983] IR 88. In doing so it had to be borne in mind that what was sought - the continuation of a telephone service - amounted in practical terms to a mandatory injunction rather than a mere prohibitory injunction. The standard must there fore be a strict one. An application, which bore some similarities to the present one, had been considered by the Supreme Court in Noel O Murchu t/a Talknology v Eircell Ltd (unreported, Supreme Court, 21 February 2001). In that case the court had set out the three well nown factors to be considered as follows: (1) Was there a serious issue to be tried? (2) Were damages an adequate remedy? (3) Did the balance of convenience favour the granting rather than the refusing of an injunction?

The court observed that the crucial difference between those cases and the present case was that here the court was being asked to grant an injunction where the main proceedings had already been determined by the High Court. It appeared that what the court was really being asked to do was to preserve the first appellant's right to appeal the decision of the High Court. Counsel for the first appellant had assured the court that serious and substantive issues arose in this appeal; issues which would affect the structure and practice of the telecoms industry generally, as well as the private interests of the appellants and the court accepted this sub mission.

There was, however, sub stance in the contention that damages would be an adequate remedy for the appellants. It appeared that the present business being carried on by the first appellant must even in the short term cease to exist. The respondent and the first appellant were clearly deeply unhappy trading partners and there could be no question of the 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 the first appellant succeed in its appeal there would be no insuperable difficulty in calculating a suitable award of damages.

However, the first appellant argued strongly that the balance of convenience favoured at least a short term injunction which would, with the permission of the court, permit the sale of the subscriber base. The parties should then endeavour to reach a conclusion as to the amount of money owing to the respondent which could then be paid out of the proceeds of sale. It was further submitted that the respondent would not in fact suffer any loss by being compelled to supply air time during the continuance of the injunction as it would be more than compensated by the revenue received by it, from the initiators of calls to the subscribers of the first appellant. Furthermore, the respondent would benefit from the sale of the subscriber base, as it would improve the financial position of the first appellant, which was a debtor of the respondent.

The respondent opposed this solution largely on the grounds that neither it nor the court had sufficient information in regard to the first appellant's financial position to have any idea of whether the first appellant would in fact be able to satisfy the respondent and the other creditors. The respondent argued for an orderly and proper winding up of the first appellant.

Mrs Justice McGuinness stated that with some hesitation and bearing in mind the undoubted lack of financial information concerning the first appellant's financial position, the court was willing to grant a temporary injunction to enable the first appellant to sell its sub scriber base. In taking this step the court took some comfort from the fact that the respondent would not be at a significant loss. There could be no question of granting a further or continuing injunction. The balance of convenience would be served by permitting the pro posed orderly winding up of the first appellant's affairs by the company itself and the proper payment of the various creditors.

Mrs Justice McGuinness then turned to the petition under the Companies Acts, which the respondent had proposed to bring. The principles applicable where it was sought to restrain the presentation of a winding up petition had been fully and clearly set out in Truck and Machinery Sales Ltd v Marubeni Komatsu Ltd [1996] 1 IR 12. While it had been suggested that the errors in billing made by the respondent were so gross that it was possible that the first appellant in reality did not owe any money to the respondent, it seemed extremely unlikely that what purported to be a debt of some millions of pounds could be reduced below a figure of £1000 or even anything near that figure. If the proposed sale and settlement of indebtedness did not proceed in the near future, there would seem to be no proper grounds from restraining the respondent from bringing the proposed petition.

However it would seem to be a proper exercise of the equitable jurisdiction of the court to restrain the bringing of a winding up petition until after the expiry of the injunction already granted and the court granted relief in those terms for a period of two weeks.

Solicitors: Dominic L Dowling (Dublin) for the appellants/ plaintiffs; Arthur Cox (Dublin) for the respondent/defendant.