Opening statements have taken place at the High Court in a major legal dispute between the founders of Web Summit.
Lawyers for founder and CEO Paddy Cosgrave told the court the five cases now before the court were “connected by a bitterness animating every aspect of the proceedings”.
The case involves five separate legal actions to be heard over an estimated nine weeks.
Paddy Cosgrave is suing former Web Summit director David Kelly, who holds a 12% stake in the business, for alleged breaches of duties as a director.
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He is seeking damages related to losses he alleges related to Mr Kelly’s role in the establishment of a venture capital fund separate from Web Summit.
Mr Kelly and former director Daire Hickey are also suing Mr Cosgrave, alleging shareholder oppression and an alleged breach of a profit sharing agreement.
In an opening statement to the court, Senior Counsel Bernard Dunleavy for Mr Cosgrave told the court that Mr Cosgrave’s case against Mr Kelly was the first in time, dating back to November 2021.
He described Mr Kelly’s oppression proceedings as a “response” to Mr Cosgrave’s action and said Mr Hickey’s case was an “opportunistic effort to piggy back on Mr Kelly’s claim”.
Mr Dunleavy said the circumstances of all of the cases bleed into each other and the five sets of proceedings were “connected by a bitterness which animates every aspect of the parties respective proceedings”.
He said there were probably times when the court on reading through the witness statements must have been “reminded of the more regrettable aspects of family law rather than the sort of claims you’d expect in the commercial court”.
In Mr Cosgrave’s case, it is claimed there was a breach of fiduciary duty by Mr Kelly to observe his obligations of loyalty and faithfulness and it was Mr Kelly’s infidelity that is at the root of the proceedings, Mr Dunleavy said adding that it was his “faithlessness to the company which generated the anger” that can been seen in the case.
Mr Dunleavy said there was “bitterness running like a spine through the action because the company was entitled to expect that Mr Kelly would be faithful and he was not”.
He described the Web Summit as a global event like no other, operating on a scale which was not comparable to anything else in the tech industry and one which regional and national governments spent significant sums of money to attract and maintain.
While Mr Kelly and Mr Hickey were deserving of a large measure of credit for the success of the Web Summit, there was only one person who had been there through it all, he said, and that was Paddy Cosgrave.
He said Mr Cosgrave had “an outsize public profile” and many people had an opinion about him without knowing anything about him.
Mr Dunleavy said he was the “engine of the business” who drives it forward and was the person constantly seeking to improve and innovate.
He said one of the ironic features of the proceedings was Mr Kelly’s and Mr Hickey’s complaints about the relentlessness of Mr Cosgrave’s work ethic and that he was never satisfied and never stops.
Mr Dunleavy said Mr Cosgrave was continually looking to generate new opportunities for the company which prompted him to enter the sphere of venture capital and starting their own venture capital fund.
He said the Web Summit was like a “Californian gold rush” but everyone was wearing “comfortable T-shirts instead of overalls”.
It was where “people with great ideas and no money pressed up against investors with lots of money looking for the next big thing,” he said.
He said only one entity controlled the information for perfect matches between capital and the ideas that converge at Web Summit and that was the company and that was the “unfair advantage” that Web Summit had over competitors in venture capital.
He said it was in a position to match great start ups with investment and as Mr Cosgrave was not an expert in venture capital, he reached out to another person with expertise, Patrick Murphy to set up a venture capital fund and Mr Kelly, as the other director of the company, took responsibility for this, he said.
Mr Dunleavy said there was a dispute between the parties as to when Mr Kelly resigned as a director and it was his client’s case that there was “real badness at work on the part of Mr Kelly” who he said “coopted an opportunity for his private profit”.
Mr Dunleavy said he regretted to say the court was faced with “a case of active deception” by Mr Kelly who had used an opportunity to roll out a second venture capital fund for his own profit.
He said Mr Kelly but virtue of his office had a duty of loyalty and faithfulness to the company but proved himself to be “disloyal and faithless”.
Mr Dunleavy said it was their submission that Mr Kelly’s conduct “flies full square in the face of the established case law in relation to the responsibility that comes with fiduciary duties”.
He said he would outline the court the case law on which he would be relying.
Earlier, Mr Dunleavy said while Mr Cosgrave’s action was the first in time and he would open that part of the case today, the court would not hear evidence on that part of the case until last but the case law he would outline today would have relevance to all parts of the proceedings.
This afternoon, Mr Dunleavy outlined a number of documents to the court which he said set out the role Mr Kelly was to play on behalf of Web Summit in setting up the venture capital funds.
He said it was clear from the outset that it was intended that Web Summit would be involved in a second fund and that the track record of success of the first fund would be used in marketing a second fund.
He said it was clear from correspondence between Mr Cosgrave and Mr Kelly that Mr Kelly had identified himself as Web Summit’s agent in relation to the venture capital fund and even before the first fund was raised they were focussed on the second fund and there was “absolutely no doubt about how uncomplicated Kelly saw his involvement in the fund from the very outset”.
Mr Dunleavy said a May 2018 email from Mr Kelly to Mr Cosgrave illustrated that Mr Kelly was “positioning himself to go” while Web Summit was in for the long term.
In the email, Mr Kelly described finding it challenging to work with Mr Cosgrave and that he found working on live events “super stressful”.
He spoke of a “personal toll” with “an assumption of a future exit being worth it”.
Mr Dunleavy said this was a completely different rationale to the consistent story put forward in these proceedings by Mr Kelly that Mr Cosgrave made his experience so stressful and miserable that he was ultimately obliged to leave.
Mr Dunleavy told the court that in correspondence in 2021 about his resignation Mr Kelly was officially telling Mr Cosgrave that he wanted to “step away from Web Summit and Fund 2” but had confirmed to Mr Patrick Murphy, a fund manager brought in to manage the first fund, that he would proceed with the second fund once he was “off the books” at Web Summit.
He said Mr Kelly in communication with a friend had commented that when Mr Cosgrave had tried to renegotiate the terms of Fund 2 he said “F*** you, I’m going ahead with Fund 2 without you”.
Mr Dunleavy said this showed “deep duplicity” on the part of Mr Kelly who absolutely had not said that to Mr Cosgrave.
He said in his resignation letter there was no mention of Fund 2 or his plans for it and when it was later launched, having been originally pitched as a Web Summit fund, it was a complete “smash and grab” by Mr Kelly and Patrick Murphy.
An expert report commissioned by Mr Cosgrave’s side claims the loss to the Web Summit at over €11m and the profits made by Mr Kelly at just over €1m.
David Kelly denies the claims and the court will hear evidence from him and Daire Hickey in the coming days.
The case continues tomorrow and is expected to last nine weeks.
