Flynn v Breccia

CourtCourt of Appeal (Ireland)
JudgeMs. Justice Finlay Geoghegan,Mr. Justice Gerard Hogan
Judgment Date30 July 2018
Neutral Citation[2018] IECA 273
Docket NumberNeutral Citation Number: [2018] IECA 273
Date30 July 2018

[2018] IECA 273


Finlay Geoghegan J.

Hogan J.

Finlay Geoghegan J.

Peart J.

Hogan J.

Neutral Citation Number: [2018] IECA 273

[Appeal No: 2016/196]

John Flynn


Benray Limited

Contract – Banking – Loan facilities – Sale of loans – Transferee seeking to enforce loans and surcharge – Penalty clause

The first appellant together with the respondent and others were shareholders in a healthcare provider. The shareholders had each taken loan facilities out with Anglo Irish Bank (later IRBC). The special liquidators of IRBC had refused the respondent the chance to redeem his loans and sold the facilities to the first appellant. A demand for repayment was made including a surcharge sum. The High Court had considered the clause allowing surcharge interest to be a penalty clause and as such was unenforceable. The first appellant now sought to appeal. Similar proceedings were heard in Sheehan v Breccia [2018] IECA 286.

Held by Finlay Geoghegan J that the appeal would be dismissed. The true reading of the surcharge cost was that it was not a genuine method for liquidated damages and as such was a penalty clause. Further, the first appellant was entitled to seek to recover costs in defending earlier proceedings in the High Court. ACC Bank v. Friends First [2012] IEHC 435 considered.

Hogan J also handed down a judgment in the matter.

Judgment of Ms. Justice Finlay Geoghegan delivered on the 30th day of July, 2018.

This appeal is against an order of the High Court (Haughton J.) made 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 modular hearing had been directed and heard consecutively (first Flynn and then Sheehan) in the High Court with the judgments delivered on the same day ( Sheehan first) and for the most part the legal issues arising on the appeals are similar. There are certain factual differences which have a bearing on discrete issues and the evidence adduced in the High Court differed, so that accordingly separate judgments are being delivered in the two cases. This judgment is being delivered after the Sheehan judgment and it is not intended to repeat matters applicable to both. Thus a reading of the Sheehan judgment is necessary for a full understanding of this judgment.


Both appeals raise the issue as to what are the principles to be applied by the Court when determining whether a surcharge or default interest provision in a bank's loan agreement is enforceable or a penalty and hence unenforceable.

Factual Background

These proceedings and the Sheehan proceedings form part of a long running dispute between the shareholders in Blackrock Hospital Limited (‘BHL’), the operating company of the Blackrock Clinic. The plaintiffs in these and the Sheehan proceedings seek declarations and orders in relation, inter alia, to the redemption figure which must be paid to Breccia in order for certain loans to be redeemed. A modular hearing in the High Court on the redemption figure gave rise to the orders and judgment under appeal. Central to the redemption figure was whether Breccia is entitled to include default surcharge interests and costs of enforcement in the redemption figure.


There is no dispute in relation to the relevant background facts. It is agreed that they were correctly set out by the trial judge and it is only necessary to record for the purposes of the appeal the following summary.


Benray and Breccia are shareholders in BHL. 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 the 28th March, 2006, (the ‘2006 Facility’) secured by a mortgage of shares and a guarantee and indemnity from Mr. Flynn. There is a second loan facility between Benray and Anglo agreed on the 19th February, 2008, (the ‘2008 Facility’) secured in the same way. The two Benray facilities will be jointly referred to as ‘the loan facilities’.


Mr. Sheehan also entered into a loan facility with Anglo on the 28th March, 2006, on similar terms to purchase his shares in BHL. There was also a shareholders agreement and cross guarantees.


The Anglo 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’).


On the 23rd May, 2014, Breccia purchased from NALM Benray's indebtedness under the loan facilities and the associated security. This purchase was effected by a loan sale and deed of transfer of the same date.


On the 8th August, 2014, Breccia demanded a sum of €8,744,853 from Benray under the loan facilities. When this amount was not paid it appointed a receiver on the 11th August, 2014. That event led to separate proceedings brought by Mr. Flynn and Benray against Breccia and the receiver which were the subject of judgments of the High Court (Haughton J.) of the 13th August, 2015; [2015] IEHC 547 and on appeal to this Court: Flynn & anor v. Breccia & anor [2017] IECA 74. While those proceedings were pending the plaintiffs through their solicitors sought from Breccia through its solicitor the redemption figure in respect of the loan facilities as at 29th May, 2015, together with the daily rate of interest accruing. Matheson responded on behalf of Breccia on the 9th June giving as the redemption figure €13,074,142.78 with a daily interest of €1,730.75. This was considerably in excess of the amount demanded in August, 2014 and led to a demand for a breakdown. The explanation included a reference to clause 5 of the general terms and conditions of Anglo which it claimed entitled Breccia to add a surcharge interest at a rate of 4% from the due date which was identified as 31st December, 2010. In addition in accordance with clause 6.2 of the Anglo general terms the figure was stated to include enforcement costs from the date of acquisition of the loans to 8th June, 2015 then stated to be a sum of not less than €2,002,512.43.


Those explanations give rise to these proceedings and in the course of same a modular hearing before Haughton J. on the issues required to determine the correct redemption figure by Benray to Breccia to redeem the loans in question. The issues for determination at the modular trial were set out at para. 15 of the High Court judgment:

(i) Whether clause 5.1 of Anglo's general conditions form part of the contract relating to the loan facilities;

(ii) If so, whether the surcharge interest provided therein was or was not unenforceable as a penalty; and

(iii) If surcharge interest applies contractually and is enforceable is Breccia estopped from claiming same; and

(iv) The entitlement of Breccia to charge enforcement costs and a number of issues relating to what might be included within the enforcement costs.


The High Court decided:

(i) Clause 5.1 of Anglo's general conditions do form part of the contract in relation to the loan facilities.

(ii) The surcharge interest provided therein is unenforceable as a penalty.

(iii) If the surcharge interest were lawful and enforceable Breccia is estopped from claiming any surcharge interest up to the 19th June, 2015, but thereafter entitled to claim same.

(iv) Breccia is entitled to charge enforcement costs but on the facts held only limited costs could be added to the redemption figure. In part those were informed by certain decisions in the High Court proceedings in Flynn No. 1 which this Court subsequently reversed on appeal.


Following further submissions, the High Court by order of the 12th April, 2016, declared that the amount required to redeem Benray's loans pursuant to facilities letters dated the 28th March, 2006, and 19th February, 2008, (excluding any liabilities of the plaintiff's pursuant to guarantees given in respect of indebtedness of Mr. Sheehan) to be €9,394,974.93 as at the 18th February, 2016, together with a daily accrual rate up to the 31st March, 2016, of €416.45 per day and thereafter at a rate of 1.75% above the EURIBOR rate.


On appeal the issues identified by Breccia as appellant are:

(i) Is the surcharge interest rate of 4% payable under the loan facilities an unlawful and unenforceable penalty clause?

(ii) If not, is Breccia estopped from applying surcharge interest between 31st January, 2010, the date of default, and the 19th June, 2014?

(iii) In what circumstances can ‘enforcement costs’ incurred in defending the plaintiffs' legal proceedings challenging Breccia's right as mortgagee be included in the redemption figures for the plaintiffs' mortgage?


There was broad agreement that these were the issues arising subject to one question sought to be raised as to the inclusion of general condition 5.1 as part of the contract relating to the 2006 facilities.

Surcharge Interest

The clause which is contended to be a penalty is contained in the applicable general conditions of Anglo (General Conditions Corporate Loans) at para. 5.1. This provides:

‘Default Interest

5.1 Any monies due by the Borrower to the Bank and for the time being unpaid will bear surcharge interest at the rate of 4% over the Facility Interest Rate or at the Bank's discretion at a rate equivalent to the aggregate of 4% over the Facility Interest Rate on the due date calculated on a daily basis from the due date to the date of actual payment after as well as before demand is made, any judgment obtained hereunder or the insolvency of the Borrower.’


On appeal it can no longer be disputed that the general conditions including clause 5 apply both to the 2006 and 2008 facilities. It was so held by the High Court and was not...

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1 cases
  • Allied Irish Banks Plc v McGowan
    • Ireland
    • High Court
    • 27 February 2020
    ...the standard rate of interest of 7.95% comes to almost 20%, and is at the level of an unenforceable penalty clause: see Flynn v. Breccia [2018] IECA 273 (Unreported, Court of Appeal, Finlay Geoghegan J. (Peart and Hogan JJ. concurring), 30th July, 2018). That also seems to me to be an argua......
2 firm's commentaries
  • Construction Arbitration: Ireland
    • Ireland
    • Mondaq Ireland
    • 19 August 2022
    ...debate would appropriately be left over for a more suitable case. The decision in Sheehan v Breccia was upheld in the Court of Appeal ([2018] IECA 273) and, to date, the appellate court in Ireland has not overturned the traditional Where there are delays prior to the completion date, it wou......
  • Penalty Clauses And Enforcement Issues
    • Ireland
    • Mondaq Ireland
    • 30 October 2018
    ...& Anor v Breccia [2018] IECA 273; Sheehan v Breccia & Ors [2018] IECA 286 In the recent linked decisions of Sheehan v Breccia and Flynn and Benray v Breccia the Court of Appeal upheld the High Court's finding that a surcharge interest provision in a loan agreement was a penalty clau......

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