Joseph Sheehan v Talos Capital Ltd

JurisdictionIreland
CourtCourt of Appeal (Ireland)
JudgeMr Justice Maurice Collins
Docket NumberCourt of Appeal Record No 2019/152

[2021] IECA 316

THE COURT OF APPEAL

CIVIL

Whelan J.

Collins J.

Binchy J.

Court of Appeal Record No 2019/152

Between
Joseph Sheehan
Plaintiff/Appellant
and
Talos Capital Limited
Defendant/Respondent
Unapproved
No redaction needed

JUDGMENT of Mr Justice Maurice Collins delivered on 26 November 2021

BACKGROUND
1

This is an appeal brought by the Appellant, Dr Joseph Sheehan, ( “Dr Sheehan”) from the judgment and order of the High Court (Twomey J) of 20 June 2018 dismissing his claim against the Respondent, Talos Capital Limited (“ Talos”).

2

The circumstances in which that claim arose are set out in detail in the Judgment of the High Court Judge ( [2018] IEHC 361). While there are some aspects that will require more detailed discussion, the following summary (which no doubt simplifies the background excessively) will suffice at this stage.

3

Dr Sheehan was one of the founders of the Blackrock Clinic, a well-known private hospital in Dublin, and, during the time-period relevant to these proceedings, he continued to be (directly or indirectly) a significant shareholder in Blackrock Hospital Limited (“ BHL”), the company that (through a further company) owned and operated the Clinic. As of 2014, however, his shareholding was encumbered by charges securing loan facilities that had originally been provided by Anglo Irish Bank and that by then were owned by the Irish Bank Resolution Corporation (“ IBRC”). A fellow shareholder, Mr Duffy, was in a similar position and a third shareholder, Mr Flynn, had significant indebtedness to the National Asset Loan Management Limited (“ NALM”) which was also secured over his shareholding (all of these shareholdings being held through corporate vehicles). These three shareholders between them held some 56% of the shares in BHL (28% held by and/or on behalf of Dr Sheehan and 20% and 8% held by and/or on behalf of Mr Duffy and Mr Flynn respectively).

4

As anyone with an interest in the recent work product of the Superior Courts in this jurisdiction is aware, the Blackrock Clinic has been a much fought-over prize and disputes over its ownership and control have generated very significant litigation, much (though by no means all) involving Dr Sheehan as either plaintiff or defendant. It will be necessary to say something more about this litigation later in this judgment given the observations that the Judge made about it. However, it has no direct bearing on any of the substantive issues arising in this appeal.

5

In 2014 Talos agreed to lend up to €45 million to Dr Sheehan, Mr Flynn and Mr Duffy (and/or to companies controlled by them) for the purpose of funding the acquisition of their respective loans from IBRC and securing the release of the charges over their shareholdings in BHL. Talos (now Talos Capital DAC) is an investment subsidiary of the Children's Investment Fund Foundation, a charity registered in England and Wales and described in evidence as “ one of the UK's largest philanthropic organisations.” A series of agreements was entered into in March 2014 in connection with this lending. While the borrower was originally intended to be Medfund, a Cayman SPV controlled by Dr Sheehan, it was subsequently agreed that the borrower would instead be an Irish SPV. That SPV was JCS Investments Holdings XIV Limited (“ JCS”). The terms of the agreed facility were set out in the schedule to an Amendment and Restatement Agreement dated 17 March 2014 (which restated facility I shall refer to as “ the Facility Agreement”). These included, by way of security for Talos, a requirement that a share charge be granted in its favour over the entire share capital of JCS and a requirement that a personal guarantee be entered into by Dr Sheehan and Mr Flynn. These were conditions precedent to the advancing by Talos of the “ Deposit Loan”. The purpose of the Deposit Loan was to enable JCS to pay the deposit that would have to be paid to IBRC under the loan sale deed that was being negotiated at that time (“ the Deposit”). It had been originally intended that Medfund would fund the deposit but subsequent to the signing of the original facility agreement on 13 March 2014, it emerged that Medfund was not in a position to do so and Talos agreed (“ reluctantly”, it was said) to fund the deposit also and that was one of the factors that led to the agreement of a restated facility by means of the Amendment and Restatement Agreement a few days later. The Amendment and Restatement Agreement “and any non-contractual liabilities arising from it” was governed by English law (clause 8), as was the Facility Agreement itself (clause 33).

6

. In accordance with Clause 24 of the Facility Agreement, JCS acceded to it as the “ Acceding Borrower” in place of Medfund on 19 March 2014. On the same date, a Deed of Guarantee (“ the Guarantee”) was executed by Dr Sheehan and Mr Flynn. It guaranteed the punctual performance by “the Borrower” (by then JCS) of its payment obligations under the “ Finance Documents” subject, however, to a maximum liability of “€2,400,000 plus any accrued but unpaid interest under the Senior Facility Agreement” (clause 2.1(b)). The Senior Facility Agreement referred to here was the restated facility set out in the Amendment and Restatement Agreement. The amount of €2.4 million corresponded to the Deposit that would be payable to IBRC under the intended loan sale deed (that amount being 10% of the total consideration of €24 million). The Guarantee was governed by Irish law.

7

Pursuant to clause 17 of the Facility Agreement, JCS was liable for all costs and expenses of Talos (including legal fees) in relation to the negotiation of the loan transaction and also in respect of the enforcement of, and/or preservation of rights under, the Facility Agreement or associated transaction documents. As a result of the operation of this provision, JCS ended up with significant liabilities to Talos over and above its liability for the Deposit Loan.

8

A loan sale deed was executed on 7 April 2014 by IBRC and its Special Liquidators, JCS and Dr Sheehan personally as “ Purchase Guarantor”, (“ the Loan Sale Deed”) and the Deposit was paid on the same day. The deposit amount was transferred directly by Clifford Chance, the solicitors acting for Talos, to the Special Liquidators of IBRC but the payment was clearly made on behalf of JCS, whose payment obligation it was. The Loan Sale Deed provided for the sale of the relevant IBRC loans to JCS and was governed by Irish law.

9

It was at this point that serious problems arose. In brief, Talos learned that Mr Duffy's loans with IBRC had already been redeemed in full prior to the Loan Sale Deed becoming operative. From Talos' perspective, Mr Duffy's participation in the transaction was critical because his shareholding was needed to ensure that Talos would obtain security rights over a majority of the shares in BHL, thus giving it control over the payment of dividends (which were intended to fund interest payments to Talos). In that context, it was a further condition of the funding being provided by Talos that Dr Sheehan, Mr Duffy and Mr Flynn and their associated corporate vehicles would enter into a Framework Agreement with Talos which would regulate their rights as controlling shareholders, including as regards payment of dividends by BHL.

10

In Talos' opinion, the redemption of Mr Duffy's loans and the failure of Dr Sheehan and JCS to disclose that fact prior to draw down of the Deposit Loan gave rise to a number of material breaches of the Facility Agreement, each constituting an event of default for the purposes of clause 21 of that agreement. Consequently, on 6 May 2014 Talos issued a notice pursuant to Clause 21.18 which cancelled its commitments under the Facility Agreement, declared the Deposit Loan of €2.4 million, and accrued interest of €27,616.44, immediately payable and demanded payment of those amounts. On the same day, Talos demanded payment from Dr Sheehan and Mr Flynn pursuant to the Guarantee. A further demand followed on 15 May 2014 for payment of expenses incurred by Talos as lender, namely legal fees payable to Clifford Chance pursuant to an interim invoice. This demand was made on the basis of provisions contained in a Term Sheet that had been executed by Dr Sheehan and Mr Flynn in early March 2014.

11

In addition, Talos exercised its security rights under the Facility Agreement to take control of JCS. While there is a reference in the papers to a Deed of Charge over Shares which was apparently executed by Medfund over the shares in JCS on 19 March 2014, that Deed does not appear to be in the papers furnished to this Court. In any event, no issue arises in the appeal as to Talos' entitlement to take that step.

12

Difficulties also arose in relation to the Loan Sale Deed. On 21 May 2014 IBRC served a completion notice. In the absence of funding from Talos, JCS was not in a position to complete and on 26 June 2014 IBRC served a termination notice and it subsequently forfeited the €2.4 million Deposit.

13

Talos then sued Dr Sheehan (and Mr Flynn) in this jurisdiction on foot of the Guarantee. The claim was opposed but on 23 January 2015 the High Court (Ryan J) gave judgment upholding Talos' entitlement to summary judgment ( [2015] IEHC 27) and on 30 January 2015 judgment was formally ordered in favour of Talos in the sum of €2,788,671.53 (€2,400,000 plus interest of €388,671.53), subject to a stay of 6 months. Dr Sheehan appealed to this Court but on 27 July 2015, the day on which the appeal was listed for hearing, it was withdrawn. As a result, costs were awarded against Dr Sheehan and the stay on the High Court judgment was lifted with immediate effect.

14

On foot of this judgment, Talos obtained charging orders over Dr Sheehan's shares in BHL and a related entity, Blackrock Medical Partners Limited.

15

There was further litigation outside of this...

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