Flynn v Breccia

JurisdictionIreland
JudgeMr. Justice Haughton
Judgment Date05 February 2016
Neutral Citation[2016] IEHC 68
Docket Number[2015/5122P]
CourtHigh Court
Date05 February 2016
BETWEEN
JOHN FLYNN
AND
BENRAY LIMITED
PLAINTIFFS
AND
BRECCIA
DEFENDANT

[2016] IEHC 68

[2015/5122P]

THE HIGH COURT

COMMERCIAL

Contract – Redemption of loan – Assessment of redemption amount – Inclusion of default surcharge interest

Facts: The plaintiffs sought orders and a declaration to the effect that the defendant was not entitled to include default surcharge interest and costs of enforcement in the redemption figure in relation to the redemption of loan.

Mr. Justice Haughton held that the defendant was estopped from claiming any surcharge upto a certain period and thereafter, the defendant was entitled to claim it on account balances. The Court held that the defendant was entitled to charge enforcement costs; however, in the present case, the defendant was prohibited from adding such costs in the redemption figure as the costs were already considered by the Court in the related matter. The Court found that the defendant could contractually claim surcharge interest unless it was struck down as a penalty.

JUDGMENT of Mr. Justice Haughton delivered on the 5th day of February, 2016
INDEX Page

Introduction - 2 -

Background - 2 -

Issue A: Can the defendant contractually claim ‘surcharge’ interest? - 9 -

Discussion - 20 -

Issue B: Is the surcharge an unlawful ‘penalty’? - 22 -

The Banking Evidence - 25 -

Discussion - 28 -

Issue C: Has the defendant waived its right to the ‘surcharge’? - 31 -

Issue D: Is the defendant estopped from claiming ‘surcharge’? - 31 -

Issue E: Can the defendant charge ‘enforcement’ costs, charges and expenses, and if so, how much? - 53 -

Issue F: If the defendant is entitled to charge ‘enforcement costs’, does its defence of Flynn No.1 fall within the definition of ‘enforcement’ costs? - 53 -

Issue G: What is the correct redemption figure at today's date? - 61 -

Issue H: What injunctive relief,s if any, are the plaintiffs entitled to in respect of the redemption issues? - 61 -

Summary of answers to the redemption issues - 62 -

Introduction
1

In these proceedings, commenced by Plenary Summons on 24th June, 2015, the first named plaintiff (‘Mr. Flynn’) and the second named plaintiff (‘Benray’) seek declarations and orders in relation inter alia to the redemption figure that should be paid to the defendant in order for certain loans to be redeemed. A modular hearing on the redemption figure, with witness evidence and legal argument, was heard before me on 20th, 21st and 22nd October, 2015. Central to the issue is whether the defendant is entitled to include default surcharge interest and the costs of enforcement in the redemption figure.

Background
2

Benray and the defendant are shareholders in Blackrock Hospital Limited (‘BHL’), the operating company of the Blackrock Clinic. Benray's shareholding is 8.02%, and the defendant's holding is 28.08%.

3

Benray financed the purchase of its shares in BHL by way of a loan provided by Anglo Irish Bank Plc. (‘Anglo’) pursuant to a Loan Agreement dated 28th March, 2006 (‘the 2006 Facility’) secured by way of a mortgage of shares dated 28th March, 2006 (the ‘Mortgage’) and a Guarantee and Indemnity also dated 28th March, 2006 (the ‘Guarantee’) from Mr. Flynn. Benray entered into a further loan facility with Anglo on 19th February, 2008 (‘the 2008 Facility’– the two facilities will jointly be referred to as ‘the Loan Facilities’) – secured in the same way.

4

On 28th March, 2006 the defendant, and two other parties Dr. Joseph Sheehan and Dr. George Duffy who were existing shareholders in BHL, also borrowed money from Anglo, on similar terms, to purchase shares in BHL. Benray furnished a further Guarantee dated 28th March, 2006 in respect of the borrowers' liabilities under those further loans (the ‘cross guarantee’). Similar cross guarantees were entered into by the other shareholders concerned save that the defendant did not enter into a cross guarantee, but instead executed a Deed Covenant dated the 28th of March, 2006 such that if one of the other borrowers defaulted the second named defendant would receive notice and have 45 days to remedy the default or deal with its shareholding in BHL as Anglo might direct.

5

The relationship between the shareholders and BHL and the shareholders inter se was governed by a shareholders' agreement also dated 28th March, 2006 (‘the Shareholders' Agreement’).

6

The Loan Facilities were acquired under the National Asset Management Agency Act 2009, and became vested in its wholly owned subsidiary National Asset Loan Management Limited (‘NALM’), and that acquisition was notified to BHL on 28th February, 2014.

7

In March/April, 2014 with funding from a third party Talos LLC (‘Talos’) the plaintiffs and Dr. Joseph Sheehan attempted firstly to purchase through a special purpose vehicle company firstly the Anglo loans of Dr. Joseph Sheehan and Dr. George Duffy from the Special Liquidators of the Irish Bank Resolution Corporation Plc. (‘IBRC’), in who such loans were then vested, and secondly to redeem Benray's indebtedness with NALM. This transaction (‘the Talos transaction’) did not proceed to completion because before it could be completed Dr. Duffy's debt with IBRC had been redeemed by Tullycorbett Ltd., a company controlled by Dr. Duffy, using funds provided by the defendant.

8

Thereafter the defendant offered to NAMA to purchase Benray's loan from NALM, and by Loan Sale Deed, and Deed of Transfer both dated 23rd May, 2014 the defendant purchased Benray's indebtedness under the Loan Facilities, and the associated security.

9

By letter of demand dated 8th August, 2014 sent as a precursor to the appointment of a receiver, the sum of €8,744,853 was demanded by the defendant from Benray under the Loan Facilities. Following non payment the defendant purported to appoint a receiver on 11th August, 2014.

10

These events led to litigation in proceedings entitled John Flynn and Benray Ltd. v. Breccia and Michael McAteer, High Court Record No. 2014/7900P which were heard by me and the subject of a judgment dated 13th August, 2015 and reported at [2015] IEHC 547 (‘ Flynn No.1’). In Flynn No.1 I held that the acquisition of the Loan Facilities and security by the defendant on 23rd May, 2014 was valid, but that the purported calling in of the loans and the appointment of the receiver in August, 2014 were invalid. I held that as a party to the Shareholders' Agreement the defendant was not entitled to demand or recover monies from Benray, or Mr. Flynn as guarantor, otherwise than in accordance with sub clauses 3.4.3 and 3.4.5. I will refer later to relevant parts of that judgment. In a follow up judgment (Haughton J., ex tempore, 11th September, 2015) in relation to costs, I declined to award any costs to Breccia, and awarded the plaintiff's 70% of their costs and made no order as to costs as between the plaintiffs and the receiver.

11

On 27th May, 2015 the plaintiffs' solicitors Downes wrote to the defendant's solicitors Matheson seeking the following information:-

A. The redemption figure in respect of the Loan Facilities as at close of business on Friday 29th May, 2015.

B. The daily rate of interest accruing on the redemption figure.

No substantive reply was received and a reminder was sent. Matheson responded on 9th June, 2015 stating that the total amount due and owing to the defendant was €13,074,142.78, and that interest continued to accrue at a daily rate of €1,730.75. As this was considerably more than the figure that had been demanded by the defendant on 8th August, 2014, the plaintiffs' solicitors by a letter dated 9th June, 2015 sought a breakdown, which was furnished by the defendants' solicitors Matheson by letter dated 19th June, 2015. This letter recited the Loan Facilities and the amounts advanced, and referred to clause 5 of the General Terms and Conditions which it was claimed entitled the defendant to add a surcharge interest at a rate of 4% from the due date. In addition, the defendant pursuant to clause 6.2 of the General Terms and Conditions sought to recover the costs of enforcement. The letter stated:-

‘The amount of €9,104,616.41, excluding surcharge interest, was due and owing from Benray under the Facility Letters (the ‘Loans’) as of the date of acquisition of the Loans by our client. Our client has calculated the amount of surcharge interest which accrues on the Loans from 31 December 2010 to the date of acquisition of the loans to be €1,312,933.62 in accordance with Clause 5 of the General Terms. Accordingly, as at the date of the acquisition of the Loans, the amount required to be paid in order to redeem the Loans was €10,417,550.04.

Interest continued to accrue and capitalise on the Loans from the date of acquisition such that the amount due in respect of the Loans as of the end of the most recent Interest Period, i.e., 31 March 2015 was €10,952,208 (inclusive of principal and interest). Additional interest in the amount of €119,422 accrued between 31 March 2015 and 8 June 2015. Interest is currently accruing on the amount due and owing at a daily rate of €1,730.75.

Pursuant to Clause 6.2 of the General Terms Benray must pay all costs, charges and expenses (including, but not limited to, legal and other professional fees and expenses) incurred in connection with the enforcement of the Facility Letters and the General Terms and the security comprised in the Security Documents (as defined in the General Terms) are payable by Benray. Our client has incurred relevant costs and expenses of, not less than, €2,002,512.43 since the date of acquisition of the Loans up to 8 June 2015.

Yours faithfully’

12

The plaintiffs' joined issue with the claims in this letter and these proceedings were commenced. In the Witness Statement of Mr. Declan Sheeran on behalf of the defendant the figure sought for ‘costs of enforcement’...

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4 cases
  • Launceston Property Finance Ltd v Burke
    • Ireland
    • Supreme Court
    • 15 Marzo 2017
    ...in Cavendish should be preferred in a case of this nature.’ 41 In a related judgment delivered on the same date ( Flynn v. Breccia [2016] I.E.H.C. 68), Haughton J. stated at para. 48 that: ‘It is my view that since Cavendish it has become apparent that in the UK courts the jurisprudence on ......
  • Flynn v Breccia
    • Ireland
    • Court of Appeal (Ireland)
    • 30 Julio 2018
    ...on the 12th April, 2016, for the reasons set out in a written judgment delivered on the 5th February, 2016; Flynn & Ors v. Breccia & ors [2016] IEHC 68. The appeal was heard at the same time as the closely related appeal in Joseph Sheehan v. Breccia & ors [2016] IEHC 120. In both cases a ......
  • Sheehan v Breccia
    • Ireland
    • Court of Appeal (Ireland)
    • 30 Julio 2018
    ...interest, it is, in any event, estopped from doing so. 3 In the two judgments which he delivered in this matter, Flynn v. Breccia [2016] IEHC 68 and Sheehan v. Breccia [2016] IEHC 129 Haughton J. found in both instances that Breccia was estopped from endeavouring to charge surcharge interes......
  • Ethafil Ltd (in Voluntary Liquidation) v Express Bus Ltd
    • Ireland
    • High Court
    • 15 Agosto 2023
    ...on Cavendish in the High Court in Sheehan v Breccia [2016] IEHC 67 and in another judgment delivered the same day, Flynn v Breccia [2016] IEHC 68. At para 48 in Flynn, Haughton J stated: “ It is my view that since Cavendish it has become apparent that in the UK courts the jurisprudence on p......

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