Flynn & Benray Ltd v Breccia & McAteer

• Jurisdiction: Ireland
• Judge: Mr. Justice Haughton
• Judgment Date: 13 August 2015
• Neutral Citation: [2015] IEHC 547
• Court: High Court
• Date: 13 August 2015

[2015] IEHC 547

THE HIGH COURT

[7900P/2014]

Flynn & Benray Ltd v Breccia & McAteer

BETWEEN

JOHN FLYNN

AND

BENRAY LIMITED

PLAINTIFFS

BRECCIA

AND

MICHAEL MCATEER

DEFENDANTS

Banking & Finance – Non-payment of loan – Shareholder agreement – Good faith – Fair dealing – terms of contract – Inference of intention – Implied terms – Art. 43.1.1 of the Constitution

Facts: In the present proceedings, the plaintiffs sought various declarations in relation to the borrowings of the second named plaintiff to purchase the shares of ‘X’ company. The plaintiffs also challenged the appointment of the receiver by the first named defendant. The first named plaintiff being the shareholder, director of the second named plaintiff while guaranteeing the loan facility obtained by second named plaintiff alleged that the first named defendant breached the terms of the shareholder agreement by purchasing the aforesaid loan and security of the second named plaintiff from the lending institution and attempting to sell its shares through the receiver to the sister company of the first named defendant. The plaintiffs' also asserted breach of contract, damages, conspiracy against the defendants following which, the defendants filed counter-claim against the plaintiffs.

Mr. Justice Haughton granted various declarations to the effect that the acquisition of loan and associated security of the second named plaintiff by the first named defendant was valid and lawful, that the first named defendant being the promoter of the company ‘X’ was neither entitled to demand or recover monies from the second named plaintiff nor to the benefit of the Letter of Waiver of Pre-Emption Rights executed by the plaintiffs, that calling in of the aforesaid loan by the second named defendant was invalid, that the appointment of the receiver was invalid. The Court granted permanent injunction to the plaintiffs thereby restraining the defendants from offering or selling the shares of the second named plaintiff. The Court however, granted an order for dismissal of the plaintiffs' claim for damages for breach of contract, conspiracy and also the dismissal of the defendant's counterclaim. The Court observed that though the commercial transactions were largely based on good faith and fair dealing, such terms might be expressly excluded or its scope would be limited by particulars terms of the contract, and in such cases, the context had to be seen to infer the true intent of the parties. The Court opined that it must not substitute its own definition of fairness on the parties rather try to construe the meaning of the contract. The Court found that the terms of the shareholder agreement never envisaged a forced sale by a promoter standing in the shoes of a lending institution or operating outside the pre-emption provisions. The Court held that in order to presume the intent of the parties by implication, it had to be satisfied that the implied terms were reasonable and equitable, efficacious from business standpoint, clearly expressed and should not be contradictory to any express terms of the contract. The Court found that even using the officious bystander test that the implied term must be so obvious as to go without saying, in the present case, such bystander could have objected to the propriety of one shareholder to acquire the loan facility of another shareholder from the succeeding lending institution. The Court held such acts would be contrary to art. 43.1.1 of the Constitution recognising the right to private ownership. The Court found that there were no breaches of any material terms by the shareholders.

1 JUDGMENT of Mr. Justice Haughton delivered on the 13th day of August, 2015

Index	Page
Introduction	1
Parties	1
Background	2
The Plaintiffs' Claims	7
Resolution of the 'Veto' Issue	10
Resolution of Claims against the Receiver	12
The Defence and Counterclaim	13
Defendants did not go into Evidence	16
Issues	17
(1) How is the Shareholders' Agreement to be Construed; and are any Terms to be Implied	18
- The Shareholders' Agreement dated 28 th March 2006	18
- The Loan Facilities	36
- Mr. Flynn's Guarantee	43
- Mortgage of Shares	44

- Waiver of Pre-Emption Rights	48
- Legal Principles - Interpretation	48
- Legal Principles - Implied Terms	55
- Discussion	84
- Implied Term not to Take Steps Preventing Performance of the Contract	87
- The Approach of the Court	91
- Findings as to Context	91
- Construing the Shareholders' Agreement	109
- Implied Term that no Party can Take Steps that may Prevent Performance of the Contract	117
- Implied Term of Good Faith	124
(2) Consequences	131
- Breaches	132
- Non-Breach	133
(3) If there was Breach, should the Plaintiffs be Deprived of Relief on Equitable Grounds?	139
- Lack of Candour	141
- Diversion of Dividends	145
- Misleading Accounts in Relation to Involvement with JCS/the Talos Transaction	147
- The Talos Transaction	148
- Mr. Flynn's Involvement in JCS	151
- Signing of the Talos Term Sheet	153
- Advice of Mr. Dan O'Neill/Hypocrisy	156
- Circumstances of Receipt of Mr. Dan O'Neill's Advice	161

- The Use of 'Knowingly Stolen Documents'	162
- Unsupported Criticism of the Receiver	164
- The Conduct of Breccia	166
- The 'Veto'	167
- The Purchase of the Benray Loan and Security	168
- 'Calling in' the Loan and Appointing the Receiver	169
- Tullycorbett Funding, the Effect on the Talos Transaction and the Ambition to Acquire a Controlling Interest in BHL	170
- Conclusion on the Equitable Discretion Defence	172
(4) The Legal Effect of the Tullycorbett Agreement	173
(5) Damages for Breach of Contract?	174
(6)(i) Are the Plaintiffs Entitled to Pursue the Claim of Conspiracy between Breccia and Dr. Duffy/Tullycorbett - when Dr. Duffy/Tullycorbett are not Parties to these Proceedings?	175
- The Tort of Conspiracy	175
- Dr. Duffy/Tullycorbett not Parties to the Proceedings	176
(6)(ii) Was there an Actionable Conspiracy by Breccia and Dr. Duffy/Tullycorbett?	179
(6)(iii) If so, what Damages (if any) have the Plaintiffs Suffered?	186
(7) Did the Acts or Omissions of Breccia have the Effect of Triggering a Deemed Transfer Notice under the Shareholders' Agreement, and if so, is such Notice Revocable?	187
(8) Is Breccia Entitled to Succeed on its Counterclaim for Judgment for Monies due under the Anglo Facility?	189
Declarations and Orders	196

Introduction

2 1. This case is one of a series of proceedings concerning disputes between shareholders in Blackrock Hospital Limited ("BHL"), and related matters. It is the first case in this series to have been heard at full hearing with oral evidence 1.

3 2. In these proceedings the first named plaintiff, as guarantor of borrowings of the second named plaintiff to purchase shares in BHL, and the second named plaintiff, as shareholder, seek various declarations in relation to that borrowing and the security for same, and in relation to the status of the second named defendant as receiver purportedly appointed by the first named defendant to enforce the security, and they seek damages for breach of a shareholders' agreement, breach of duty and conspiracy. The first named defendant has counterclaimed for certain declarations and judgment in respect of the borrowing.

4 3. At the outset it is appropriate to comment that these proceedings, and this judgment, will not have any impact on the day to day operation of the Blackrock Clinic which continues to provide hospital and health services which are to the forefront of Irish hospitals, and whose business, from the evidence put before the Court, continues to be run to a high standard and to show healthy profits year on year.

Parties

5 4. The first named plaintiff ("Mr. Flynn") is a businessman who resides in Florida and who is a director and shareholder of the second named plaintiff. The second named plaintiff ("Benray") is a private company limited by shares

6 incorporated in the State. It is the holder of 8.02% of the share capital in BHL. BHL, together with its subsidiary Blackrock Clinic Ltd., controls and operates the private hospital known as the Blackrock Clinic.

7 5. The first named defendant ("Breccia") is a private unlimited company which holds 28.08% of the share capital in BHL. Its directors are Lawrence Joseph Goodman ("Mr. Goodman") and Catherine Goodman. It was not contested that Breccia is a company controlled by Mr. Goodman, and "Breccia" and "Mr. Goodman" are used interchangeably in this judgment.

8 6. The second named defendant ("the Receiver") is an insolvency practitioner and partner in the firm of Grant Thornton. He was purportedly appointed as Receiver over all of the property and assets of Benray by deed of appointment dated 11 ^th August, 2014, which included its shareholding in BHL.

Background

9 7. In 1983, BUPA Insurance in conjunction with four doctors, namely brothers Joseph and James (Jimmy) Sheehan, George Duffy and the late Maurice Neligan, put together an investment package to build and develop the Blackrock Clinic. In 2005, BUPA offered for sale its shareholding of 55.92%. The surviving founders agreed to purchase BUPA's shareholding at approximately 0.91 cent per share, placing the total value of the clinic at the time at about €91 million. Financing for the purchase of the shares was obtained from Anglo Irish Bank ("Anglo"), now the Irish Bank Resolution Corporation ("IBRC"). Pursuant to the financing agreement, Anglo agreed...