INM says bid for inspectors came as 'bolt out of the blue', High Court hears

The application was based on a number of factual errors by the Director of Corporate Enforcement Ian Drennan (ODCE), including his assertion INM’s first reaction to a protected disclosure of its former CEO Robert Pitt was to terminate his employment, Paul Gallagher SC, for INM, said.

The ODCE was in possession from October 2017 of a spreadsheet containing the names of 19 people whose data may have been targeted in an alleged data breach at INM but it did not make INM aware of that “very critical” information until the application for inspectors was initiated last March, he said.

The ODCE had unfairly criticised INM over its response to the alleged data breach when the directors had said, had they been given this information earlier, they would have acted on it.

The ODCE was required to adhere to fair procedures in relation to his application for inspectors but failed to do so and had acted unfairly, counsel argued.

The ODCE failed to provide INM with important information at an earlier stage of his year-long investigation into issues at INM, failed to give INM prior notification of his intention to seek inspectors and failed to give it an opportunity to respond before going to court. The ODCE did not afford “even the most basic opportunity” to make representations, he said.

All of this must be seen in a context where the consequences of seeking inspectors is very significant for INM, he said. The making of the application had already done significant damage to the company’s share price and involved adverse criticism of issues at INM not just in the past but also issues of corporate governance said to be continuing.

The application also involves a serious impact on the company’s operations and ability to manage its affairs at a time when media companies are under severe stress because of the changed market conditions, he said.

The case is based on its own facts and that INM should have been told the ODCE was proposing to seek the appointment of inspectors and given an opportunity to respond to the concerns, including about issues of which INM was unaware and had never been notified, and about which the ODCE expressed serious criticism of INM.

INM objected to the fact the ODCE had reached conclusions of fact without giving INM any opportunity to address them, counsel said. Where the ODCE was proposing to reach damaging conclusions, he was required to give INM fair procedures.

The critical issue is this procedure began in January 2017, took 14 months, involved issuing 14 statutory requirements and requests under the Companies Act for minutes of meetings, he said. This process was dictated entirely by the ODCE in terms of the timeline, issues and information being sought.

When that process ended on March 24, 2018, INM learned for the first time, with no prior warning, an application had been or was about to be made to the court and that the ODCE had identified issues and concerns which he said required inspectors.

The consequences of making such an application, and any appointment, were foreseeable and the ODCE himself had acknowledged that, counsel said.

Mr Gallagher was opening INM’s application before Mr Justice Seamus Noonan for judicial review of the ODCE decision, made last March following the ODCE’s year-long investigation into matters at INM, to seek the appointment of inspectors.

Mr Drennan wants the appointment over concerns about an alleged data breach at INM over a period from October 2014 and other issues arising from protected disclosures made by Robert Pitt and INM Chief Financial Officer Ryan Preston on dates in 2016.

Mr Drennan says the range of “potentially unlawful conduct” that may have taken place within INM is “extensive” and an investigation by inspectors is necessary for reasons including to establish whether journalists' emails or other data was accessed over a period from October 2014, by whom, for what purpose and whether INM’s major shareholder, Denis O’Brien, benefited from that.

His concerns included circumstances suggesting INM’s affairs are, or have been, conducted in a manner unfairly prejudicial to some part of its members. He was relying on “multiple instances” demonstrating the influence of the major shareholder in the day-to-day affairs of INM.

In that regard, the ODCE noted the proposed acquisition by INM of Newstalk Radio from Communicorp, a company of Mr O’Brien’s and a proposed success fee payment by INM to Island Capital Management Ltd, another company of Mr O’Brien’s.

INM opposes inspectors on grounds including it was given no notice of, and therefore no opportunity to respond to the application for inspectors in breach of its right to fair procedures.

It says the appointment of inspectors is unnecessary, not in the public interest, disproportionate, expensive and would have a “significantly damaging” impact on INM, its employees, shareholders and others to whom it owes duties.

If INM succeeds in its judicial review, the ODCE application cannot proceed. If INM loses, a date for the hearing of the ODCE application will be fixed shortly after the judicial review outcome.

In his affidavit opposing the ODCE application, INM non-executive director Dr Len O’Hagan said INM is fully co-operating with an investigation by the Data Protection Commissioner into the alleged data breach and there was no need for a separate probe by inspectors into it.

INM will take action if it emerges it was “intentionally misled” by its former chairman Leslie Buckley about the purpose of a “data interrogation” exercise, he said. The Board was “horrified” and “deeply concerned” there may have been “improper searches by third parties of INM data in 2014, including targeted searches concerning 19 individuals including journalists, he said.

Dr O’Hagan also said there is no basis for any concern about the Board’s ability to conduct its affairs properly and in accordance with the “highest standards of corporate governance”. Any past wrongdoing was without the knowledge or approval of the Board which would take all necessary steps to protect INM’s interests, he said.

The fact of the application has already damaged INM, which directly employs 815 people with very many others relying heavily on it for their livelihoods, he said.

INM 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 ODCE also had no grounds for appointment of inspectors arising from the proposed purchase of Newstalk and proposed payment of a fee to Island Capital, he said.

Neither the purchase nor payment had proceeded and an independent review established by INM into the issues raised by the protected disclosures had found no wrongdoing by INM, he said.