Blackrock Hospital v Sheehan

• Jurisdiction: Ireland
• Judge: Mr Justice Robert Haughton
• Judgment Date: 14 June 2017
• Neutral Citation: [2017] IEHC 387
• Docket Number: Record No. 2017/32 SP
• Court: High Court
• Date: 14 June 2017

[2017] IEHC 387

THE HIGH COURT

(COMMERCIAL COURT)

Haughton Robert J.

Record No. 2017/32 SP

BETWEEN:

BLACKROCK HOSPITAL

Applicant

-and –

JOSEPH SHEEHAN, JAMES SHEEHAN, ROSEMARY SHEEHAN, GEORGE DUFFY, ROSALEEN DUFFY, TULLYCORBETT LIMITED, BRECCIA UNLIMITED COMPANY, BENRAY LTD, IRISH AGRICULTURAL DEVELOPMENT COMPANY UNLIMITED COMPANY, JOHN FLYNN,

AND

BLACKROCK CLINIC LIMITED

Respondents

Company – Companies Act 2014 – Shareholders agreement – Transfer of shares – Deed of adherence – Equity's attitude to contracts

Facts: The applicant had filed the present proceedings for seeking the Court's assistance in the construction of certain provisions of the shareholders' agreement. The applicant had asked the question as to whether the applicant and each of the respondents must execute a deed of adherence in the form set out under that agreement before the registration of family transfer of shares to the proposed transferee. The first named respondent claimed that the applicant had no standing to file the present case under the relevant clause of the said agreement, which prohibited the promoters to commence any legal proceedings without the written consent of the other promoters.

Mr. Justice Robert Haughton held that the applicant and each of the respondents had a legal obligation under the shareholders' agreement to execute a deed of adherence in relation to the valid family transfer of shares. The Court held that such a deed of adherence must be executed in relevant form that was set out under the shareholders' agreement before the applicant proceeded to register the family transfer of shares. The Court noted that the intent of the parties could be construed by ascertaining the meaning of the documents. The Court observed that words should be given plain and natural meaning to ascertain the true intent.

Judgement of Mr Justice Robert Haughton delivered this 14th day of June 2017

Paragraph	Title
1.	Introduction
4.	Preliminary Objection
16.	Additional Issue
20.	The Primary Issue
23.	Principles of Interpretation
27.	The Main Arguments
33.	Decision
40.	Right of Veto or Obligation to Execute
44.	Deed of Adherence Enforceable Without Execution?
49.	Conclusion

INTRODUCTION

1 The applicant (‘BHL’) brings these proceedings as the owner of the premises comprised in and known as the Blackrock Clinic by way of Special Summons asking the court to construe certain provisions of a Shareholders' Agreement dated 28 March, 2006 (‘the Agreement’). BHL and all of the respondents, other than the sixth named respondent, Tullycorbett Limited, were parties to the Agreement. The first named respondent owns 28.07% of the shareholding in BHL and the second, third, fifth, sixth, seventh and ninth named respondents are currently the other shareholders. The fourth named respondent, George Duffy, held shares at the time of execution of the Agreement but his shares are now held by the fifth and sixth named respondents. The tenth named respondent John Flynn was and remains a party to the Agreement but is not a shareholder or promoter. The eleventh named respondent is a wholly owned subsidiary of BHL and is identified with and supports BHL in these proceedings.

2 The question posed for the determination of the court is the following: –

‘Whether, having regard to the provisions of the Shareholders' Agreement dated the 28 ^th day of March 2006 to which the applicant and each of the respondents are parties, and to the provisions of the applicant's constitution within the meaning of Part 2 of the Companies Act 2014, the applicant and each of the respondents must execute a deed of adherence in the form of Schedule 6 to the Shareholders' Agreement before the applicant may proceed to register a Family Transfer of shares by entering the name of a proposed transferee in the register of members of the applicant.’

3 This question is posed in the context of two transfers. On 15 September, 2015, BHL was notified by the second named respondent that following a meeting with his financial advisers it had been recommended that he transfer the shares held by him and his wife, the third named respondent, to Dornway Limited, a family holding company. On 20 September, 2015, BHL was notified by the fourth named respondent on behalf of Tullycorbett Limited that that company wished to transfer a number of its shares to Xroon Limited. The Board of directors of BHL (‘the Board’) approved the Dornway Limited transfer on 28 July, 2016, and approved the Xroon Limited transfer on 25 October, 2016, by a majority, the first named respondent objecting. BHL's view is that the Agreement requires that the deeds of adherence in respect of the two proposed transfers are required to be executed by all parties, but certain parties disagree and assert that only the transferee must execute the deed of adherence.

PRELIMINARY OBJECTION

4 Preliminary objection is taken by and on behalf of the first named respondent to the court determining this issue on the basis that BHL has no standing or entitlement to bring these proceedings having regard to certain provisions of the Agreement.

5 Reliance was placed on clause 5.11 of the Agreement, headed ‘Restricted Transactions’ which provides, so far as relevant: –

‘Each of the Promoters undertake with the other Promoters he/it will at all times (save as may be required by law) exercise all voting and other rights and powers available to him/it from time to time so as to procure that each company shall not without the prior written consent of each Promoter or combination of Promoters for so long as such Promoter or combination of Promoters hold not less than 25% of the nominal value of the issued share capital of the company take or agreed to take any of the following actions:

5.11 8 commence any legal or arbitration proceedings (other than routine collection of trade debts) or settling any proceedings taken against it.’

In this clause the reference to ‘company’ is a reference to BHL, and the reference to ‘Promoter’ includes shareholders such as the first named respondent. BHL is not a ‘Promoter’.

6 Counsel for the first named respondent characterised this provision as a promise to shareholders willing to invest in the purchase of 25% or more of the share capital of BHL that the other promoters would not take certain decisions at Board level, including a decision to commence proceedings such as the present Special Summons in the face of opposition from the first named respondent. Counsel then relied on in clause 5 headed ‘COVENANTS CONCERNING THE COMPANY’, and in particular clause 5.2: –

‘5.2 Necessary Actions

Each of the parties hereby covenants with each other that he or it shall take all necessary actions and exercise all such voting rights as he may have from time to time so as to procure (insofar as lies within his or its power of procurement individually or collectively with others) that the Companies shall comply in full with the provisions of this Agreement.’

Counsel emphasised the opening reference to ‘Each of the parties…’ included BHL as a party to the Agreement, and therefore BHL had an obligation to comply ‘in full with the provisions of [the] Agreement’. Counsel argued that BHL breached this covenant in bringing these proceedings in the face of opposition from the first named respondent as the holder of 28.07% of the shares. In support of his contention that a shareholders' agreement could override the freedom of the board of directors to make a decision in the exercise of their business judgment to authorise the bringing of proceedings, or take other decisions in the best interests of the company, counsel relied on dicta from Fulham Football Club & Others v. Cabra Estates [1994] 1 BCLC 363 and Ontario Inc v Platinum Wood Finishing Inc 96 O.R. (3d) 467. Counsel further argued that as any one of the shareholders could have issued a construction summons asking the court to determine the issue, the bringing of these proceedings by BHL was not a ‘necessary action’.

7 While these proceedings undoubtedly constitute ‘legal…proceedings (other than the routine collection of trade debts)’, the court does not consider that there is any substance or merit to this preliminary objection for a number of reasons.

8 Fundamentally the objection conflates the issue of whether this court has jurisdiction to hear the case, with an alleged breach by BHL of the Agreement. In clause 10.7.1 the Agreement expressly provides that it is to ‘… be governed by and construed in accordance with the laws of Ireland and the parties hereto agree to submit to the exclusive jurisdiction of the Irish courts.’ Under Order 3 of the Rules of the Superior Courts instituting proceedings by special summons may be adopted in certain classes of claims including –

‘7. The determination of any question of construction arising under any deed…’

This procedure allows the High Court (or the Master in cases which he may decide) to determine such proceedings on affidavit in accordance with Order 38. As BHL is a party to the Agreement it clearly has sufficient interest to bring these proceedings. There is no provision in the Agreement that ousts the jurisdiction of this court to hear and determine these proceedings. There is a provision allowing for arbitration of disputes (clause 10.7.2), but this is couched in terms of ‘… may be referred’ and accordingly the parties cannot be obliged to resort to arbitration. This court therefore has jurisdiction to hear and determine these proceedings.

9 Taken at its height - and assuming that the jurisprudence relied upon by the first named respondent would be accepted by an Irish court - the objection is that BHL may be in breach of the Agreement in bringing these proceedings. Any such breach is denied by BHL, but even if there was a breach it is trite law that it does not necessarily give rise to any...