Monday 21 May 2018

INM challenging watchdog over decision to seek appointment of inspectors

Independent House, Talbot Street, Dublin
Independent House, Talbot Street, Dublin
Shane Phelan

Shane Phelan

Independent News & Media (INM) has begun its High Court challenge to the decision by the corporate watchdog to seek the appointment of inspectors to the company.

The Office of the Director of Corporate Enforcement (ODCE) is seeking approval for inspectors, with far-reaching powers, to be appointed to investigate a range of corporate governance issues at the country’s largest media group.

But in judicial review proceedings which began today, the company has argued the decision by the ODCE to seek inspectors was unfair and that INM was not afforded fair procedures.

Paul Gallagher SC, counsel for INM, told the court that despite the ODCE conducting a 14-month-long inquiry, the application for the appointment of inspectors on March 23 last came as “a bolt out of the blue”.

He told Mr Justice Seamus Noonan the company should have been given the opportunity to make submissions to the ODCE in advance of that date so it could address some of the issues raised.

These were outlined in an affidavit filed by ODCE director Ian Drennan in support of the inspectors application.

INM has argued the issues of concern can be dealt with without the appointment of inspectors.

Among other issues, the concerns the ODCE wants inspectors to investigate include a major suspected data breach at the company in 2014, where an “interrogation” of data was apparently directed by former INM chairman Leslie Buckley.

The ODCE is also concerned that “inside information”, within the meaning of EU market abuse regulations, may have been passed to INM’s largest shareholder Denis O’Brien by Mr Buckley.

The ODCE also raised concerns over the content of whistleblower disclosures in relation to the proposed deal for INM to buy Newstalk and a proposed success fee for a company owned by Mr O’Brien in connection with the sale of INM’s shares in an Australian media group.

The ODCE is also concerned with how INM handled those protected disclosures.

Mr Gallagher said Mr Drennan expressed “serious criticism” of INM but the company had not been in a position to address some of the concerns as it was not made aware of them prior to the application by the ODCE.

He said, for example, INM was not aware before then of the existence of a list of 19 names discovered by the ODCE in connection with the suspected data breach.

The company did not know that this document suggested an explanation for the interrogation of data put forward by Mr Buckley to INM’s board and consultants Deloitte was “incorrect”.

Mr Gallagher said the fact this matter was disclosed for the first time in the application was “very damaging” as it prevented INM from reporting it before then to the Data Protection Commissioner and from informing employees involved.

He also said it was “extremely damaging” for a media company where the trust of its employees by the public was “of paramount importance”.

Mr Gallagher said the “inside information” issue had not previously been brought to the company’s attention.

He also described as “factually wrong” a claim by Mr Drennan that the first thing a board committee did when it met to investigate a protected disclosure by former INM chief executive Robert Pitt was to discuss how he might be sacked.

The barrister argued that Mr Drennan was under a duty to afford INM the right to make representations.

But instead there was a process that was “inherently unfair”, he said.

Mr Drennan’s decision to seek the appointment of inspectors had “very serious” consequences for INM, Mr Gallagher argued.

The barrister said this damage was not just reputational.

Mr Gallagher said the court had received credible evidence of “significant damage” in terms of the company’s share price.

He said the court would hear of the impact on the company of not only dealing with the ODCE application, but also in dealing with it at a time when media companies are under severe stress due to changed market conditions.

Mr Gallagher said the company accepted that ultimately it was a decision for the director to seek the appointment of inspectors, that this had to be based on relevant considerations, and that it was a considerable step.

But he said these these were also three reasons why there should be a right to fair procedures.

The director, he argued, had precluded himself from receiving very relevant information. This justifies the quashing of Mr Drennan’s decision, he said.

Mr Gallagher is making submissions to the court today. Brian Murray SC, for the ODCE, will address the court tomorrow.

The ODCE’s application came before High Court President Mr Justice Peter Kelly last month, but will not be able to proceed if INM’s judicial review is successful.

Mr Justice Kelly observed a success for INM in the judicial review proceedings would deal “a knockout blow” to the application.

In an affidavit, Mr Drennan expressed concern that the company’s affairs may have been conducted in “an unlawful manner” and “for an unlawful purpose”.

He also had concerns that certain actions had taken place that were unfairly prejudicial to some shareholders in INM.

The ODCE fears the range of “potentially unlawful conduct” that may have taken place within the company is “extensive” and that there are “compelling public interest” grounds for inspectors to be appointed.

In an affidavit opposing the appointment of inspectors, INM non-executive director Dr Len O’Hagan said the company was not afforded an opportunity to address specific matters which Mr Drennan says are a cause of concern.

He said he believed a number of Mr Drennan’s concerns were based on a misunderstanding or an incomplete understanding of important facts and that “incorrect statements” by Mr Drennan were damaging to INM.

Dr O’Hagan observed that Mr Drennan had said the decision to seek the appointment of inspectors was not taken “lightly or precipitously”.

The INM director said this averment made the decision by the ODCE not to afford INM an opportunity to address concerns or to make submissions regarding the necessity for the appointment fo inspectors all the more difficult to understand.

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