Flynn v Breccia

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan,Mr. Justice Gerard Hogan
• Judgment Date: 08 March 2017
• Neutral Citation: [2017] IECA 74
• Date: 08 March 2017
• Court: Court of Appeal (Ireland)
• Docket Number: (Neutral Citation Number: [2017] IECA 74) [2015 No. 512] Record No. 2015/512

BETWEEN

JOHN FLYNN

AND

BENRAY

PLAINTIFFS/RESPONDENTS

AND

BRECCIA

FIRST NAMED DEFENDANT/APPELLANT

AND

MICHAEL McATEER

SECOND NAMED DEFENDANT

[2017] IECA 74

Finlay Geoghegan J.

Hogan J.

Finlay Geoghegan J.

Peart J.

Hogan J.

(Neutral Citation Number: [2017] IECA 74)

[2015 No. 512]

Record No. 2015/512

THE COURT OF APPEAL

Shareholdings – Shareholders agreement – Implied terms – Appellants seeking to vacate order of the High Court – Whether there was an implied term in a shareholders agreement

Facts: The second plaintiff/respondent, Benray, and the first defendant/appellant, Breccia, in March 2006, acquired shareholdings in Blackrock Hospital Ltd (BHL). Benray is owned by the first plaintiff/respondent, Mr Flynn. On the 28th March 2006, the shareholders entered into a shareholders agreement. BHL and Blackrock Clinic Ltd were also parties to the Agreement. On the 28th March, 2006, agreements were also entered into between the borrowing shareholders and Anglo Irish Bank in relation to borrowings and also granting mortgages creating a first legal charge over the shares acquired in BHL. In 2008, Benray borrowed a further €2 million from Anglo. The 2006 Anglo loan agreements required each of the parties to repay their loans in December 2010. Breccia repaid its debt, but Benray defaulted. The loan and security agreements with Anglo in 2006 included cross security arrangements. The effect of these arrangements was that if one shareholder defaulted, Anglo had a right to force the sale of every shareholder’s shares. As a condition of the loans being advanced, each shareholder was required to give Anglo a formal assurance that if Anglo enforced its security and sold any of its shares in BHL they would waive any pre-emption rights that might arise. Following the collapse of Anglo, Benray’s loan agreement along with guarantees and share charges securing same became vested in National Asset Loan Management Ltd (NALM). Breccia subsequently made an offer to purchase the Benray loans at par value from NALM which was accepted. The loan acquisition was completed by way of a loan sale deed dated the 23rd May, 2014. The consideration for the loans was €9,104,616.41. On the 8th August, 2014, Breccia served on Benray a demand notice for repayment of €8,744,853 pursuant to the two loan agreements. It sought immediate payment and discharge. Benray did not pay. On the 11th August 2014, Breccia appointed the second defendant, Mr McAteer, as receiver over the shares of Benray in BHL. It demanded payment under the guarantee from Mr Flynn. The Receiver sought a valuation of the Benray shares and expressions of interest in the shares. The only expression of interest received was in a letter dated the 3rd September 2014, from Yalart Holdings Ltd. The plaintiffs then commenced proceedings and on the 12th September, 2014, sought and obtained ex parte an interim injunction from the High Court (Hogan J). The proceedings were admitted to the Commercial List. Subsequently the interlocutory application was adjourned to the trial of the action on the basis that, on consent, the interim order would remain in place. The fundamental contention of the plaintiffs was that there was an implied term in the Shareholders’ Agreement. The trial judge determined that he would make a number of declarations and orders, but gave the parties an opportunity of considering the final terms of same. The appellants appealed to the Court of Appeal against the High Court judgment.

Held by Finlay Geoghegan J that: (1) the trial judge’s interpretation of the Shareholders’ Agreement as firstly limiting a Promoter’s right to recover monies pursuant to another Promoter’s loan facility to the express powers conferred in sub clauses 3.4.3 and 3.4.5, and secondly, as limiting a Promoter’s right to enforce a sale of another Promoter’s shareholding to the terms of sub clause 3.4.5 and a Deemed Transfer Notice to which the pre-emption provisions of clause 8 apply could not be upheld; (2) it was not permissible to imply into the Shareholders’ Agreement a term that a Promoter cannot take steps to enforce recovery of another Promoter’s Anglo Facility or enforce the sale of the other Promoter’s secured shareholding otherwise than in accordance with sub clauses 3.4.3 and 3.4.5 of the Shareholders’ Agreement; (3) the Shareholders’ Agreement did not include an implied term that the parties owe each other mutual general duties of good faith and fair dealing; (4) the demands made by Breccia by letters dated the 8th August, 2014 and the 12th August 2014, to Benray and Mr Flynn (as guarantor) respectively, and the appointment of the Receiver on the 11th August 2014, pursuant to the terms of the mortgage over the shares of Benray in BHL, were not invalid; (5) Breccia obtained the benefit of the Letter of Waiver of Pre-Emption Rights executed by Benray or Mr Flynn in favour of Anglo on 28th March, 2006 upon assignment to it of Benray’s Anglo Loan Facilities and related security; (6) Breccia was entitled to judgment against the plaintiffs on the counterclaim in the sum of €8,744,853 and interest.

Finlay Geoghegan J held that she would allow the appeal and vacate so much of the order of the High Court of 11th September 2015 as comprises the declarations at paras II,III,IV and V and the order restraining Breccia from offering for sale or effecting a sale or other disposal of Benray’s shares in BHL. Finlay Geoghegan J held that she would grant Breccia judgment against the plaintiffs on the counterclaim in the sum of €8,744,853 and interest. Finlay Geoghegan J held that she would hear the parties in relation to any precision required in relation to the date or terms of interest.

Hogan J also handed down judgment in the matter.

Appeal allowed.

JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 8th day of March 2017

1 This appeal raises important questions in relation to the proper approach to the interpretation of and implication of terms into an agreement between shareholders.

2 The appeal is against a judgment of the High Court (Haughton J.) delivered on the 13th August 2015, and the order made pursuant thereto on the 11th September, 2015.

Relevant background facts

3 The facts relevant to the contractual issues in the appeal are not, and for the most part, were not, in dispute in the High Court. They are set out in full in the High Court judgment. They may be briefly summarised as follows.

4 In 1983, BUPA Insurance with Drs. Joseph Sheehan, James Sheehan, George Duffy and Maurice Neligan put together an investment package to build and develop what is now known as the Blackrock Clinic.

5 Blackrock Hospital Limited (‘BHL’) operates the hospital. The original promoters were the initial shareholders. In 2005, BUPA sought to sell its shares. The original shareholders agreed initially to purchase the BUPA shares. Finance was being obtained from Anglo Irish Bank (‘Anglo’). Ultimately, Drs. Duffy and James Sheehan arranged for some or all of their allocation of the BUPA shares to be taken up by third parties.

6 It was at this point, in March 2006, that Benray and Breccia acquired their shareholdings in BHL.

7 Benray is owned by Mr. John Flynn who is the first respondent and a property developer. Breccia is stated to be ultimately owned by the Goodman Family Trust associated with Mr. Laurence Goodman.

8 In March 2006, Breccia, Benray, Joseph Sheehan and George Duffy each drew down loans from Anglo to finance the purchase of their respective allotment of shares.

9 On the 28th March 2006, the shareholders, James Sheehan and Rosemary Sheehan, Joseph Sheehan, George Duffy, Breccia, Benray, Irish Agriculture Development Company (as guarantor of Breccia) and Mr. Flynn (as guarantor of Benray) entered into a shareholders agreement (the ‘Shareholders Agreement’ or ‘Agreement’). BHL and Blackrock Clinic Limited were also parties to the Agreement. The first recital indicates that the purpose of the Shareholders Agreement is to facilitate the subscription for and redemption of circa 56% of the shares in BHL and the future management and development of the Blackrock Clinic.

10 On the 28th March, 2006, agreements were also entered into between the borrowing shareholders and Anglo in relation to borrowings and also granting mortgages creating a first legal charge over the shares acquired in BHL. All shareholders provided guarantees or indemnities to Anglo as well as certain other documents.

11 In 2008, Benray borrowed a further €2 million from Anglo. The 2006 Anglo loan agreements required each of the parties to repay their loans in December 2010. Breccia has repaid its debt, but Benray has defaulted.

12 The loan and security agreements with Anglo in 2006 included cross security arrangements. The effect of these arrangements was that if one shareholder defaulted, Anglo had a right to force the sale of every shareholder's shares. As a condition, furthermore, of the loans being advanced, each shareholder was required to give Anglo a formal assurance that if Anglo enforced its security and sold any of its shares in BHL they would waive any pre-emption rights that might arise.

13 The evidence before the High Court was that from 2008/2009 on, disagreements began to emerge amongst the shareholders.

14 Following the collapse of Anglo, Benray's loan agreement along with guarantees and share charges securing same became vested in National Asset Loan Management Ltd. (‘NALM’). This was notified to BHL on the 28th February 2014.

15 Breccia subsequently made an offer to purchase the Benray loans at par value from NALM which was accepted. The loan acquisition was completed by way of a loan sale deed dated the 23rd May, 2014. The consideration for the loans was €9,104,616.41.

16 On the 8th August, 2014, Breccia served on Benray a demand notice for repayment of €8,744,853 pursuant to the...