FORMER SMART Telecom chief executive Oisín Fanning has been refused permission by the High Court to bring a legal challenge to overturn the October 2006 buyout of Smart by a company controlled by businessman Brendan Murtagh.

However, Ms Justice Mary Irvine cleared the way for separate proceedings in which Mr Fanning claims the conduct of the Mr Murtagh and his sons, Alan and Fergal, was oppressive towards him in his capacity as a shareholder, director and chief executive of Smart and that, as a consequence, the value of his shares was severely damaged. The Murtaghs had asked the judge to halt that case as "opportunistic" but she declined.

Ms Justice Irvine yesterday gave her reserved judgments on two related applications arising from the buyout of Smart in October 2006 by Calally, now Smart Yuroe Broadband, a company controlled by Brendan Murtagh, Dunheeda, Kingscourt, Co Cavan.

In the first, the Murtaghs applied to dismiss Mr Fanning's proceedings under section 205 of the Companies Act alleging oppression of him as a director. The Murtaghs claimed Mr Fanning was seeking to derail highly sensitive talks related to a possible sale of Smart Yuroe, that his action was bound to fail, was vexatious and an abuse of court process.

Dismissing that application, Ms Justice Irvine said that however weak Mr Fanning's claim may appear to be, she could not deny him his constitutional right of access to the courts unless she was fully satisfied his claim was "bound to fail". The Murtaghs had not proven Mr Fanning's claim was "bound to fail" and, in those circumstances, she ruled he could proceed with that action.

She also noted that Mr Fanning would be exposed to an order for costs against him should he lose his case.

In the second application, the judge refused Mr Fanning permission to bring a derivative action (an action on behalf of a company where a company itself has declined to act) in which he sought an order to overturn the business purchase agreement of October 2006 under which Calally purchased the company.

Mr Fanning had applied to bring the derivative action on grounds alleging the Murtaghs had perpetrated a fraud on the minority shareholders of the company by procuring the buyout at an undervalue. He claimed the buyout was procured by undue influence, misrepresentation, negligent misstatement and conspiracy by Mr Murtagh and his sons, who in October 2006 were non-executive directors of Smart.

Smart Telecom had adopted a neutral position on that application but disputed some of his factual claims regarding the circumstances of the buyout and also disputed that Mr Murtagh controlled Smart at the time of the buyout.

In her 54-page decision, the judge set out the affidavit evidence from both sides concerning the buyout and the relevant law relating to derivative actions.

She also expressed her view that, where the court grants leave for derivative actions, that would almost inevitably lead to the company involved paying the costs of such actions even where such claims were unsuccessful.

She said it might be "safely concluded" the true purpose of Mr Fanning's application for a derivative action was to protect him against costs if he lost.

As Mr Fanning was claiming a fraud on the minority shareholders of Smart, the onus was on him to prove: (1) a wrong was done to Smart at a time when (2) the board and shareholders were controlled by the Murtaghs and (3) the Murtaghs benefited from their alleged wrongdoing. Mr Fanning had failed to discharge the onus of proof in relation to any of those three claims, she ruled.

In failing to show sustainable evidence to support his claim that Smart was sold at an undervalue, Mr Fanning had ignored the undisputed fact that the sale to Calally was on the basis of it taking over Smart's €50 million liabilities at a time when the company was facing liquidation with no prospect of creditors being paid, the judge noted.

Mr Fanning had argued a management buyout was a credible alternative to the Calally deal but had produced no evidence to show that he or other members of management could conclude a management buyout on foot of terms suggested by Davy stockbrokers in its report, she added.

Mr Fanning had also also failed to produce evidence to show Smart could have traded out of its difficulties.