Oval Topco Ltd v Health Service Executive

• Jurisdiction: Ireland
• Judge: Mr. Justice Denis McDonald
• Judgment Date: 20 September 2022
• Neutral Citation: [2022] IEHC 522
• Year: 2022
• Court: High Court
• Docket Number: [No. 2020/5180 P.]

Between

Oval Topco Limited, Mater Private Hospital Unlimited Company, Mater Private Cork Limited and Spireview Equipment Unlimited Company

Plaintiffs

and

Health Service Executive

Defendant

[2022] IEHC 522

[No. 2020/5180 P.]

THE HIGH COURT

COMMERCIAL

Payment – Depreciation – Interest – Plaintiffs seeking payment from the defendant under the terms of an agreement between the parties – Whether monies were overpaid to the plaintiffs

Facts: The plaintiffs were members of the Mater Private Hospital Group (the Group). The first plaintiff, Oval Topco Limited, was the parent company of the Group. The second plaintiff, Mater Private Hospital Unlimited Company, was the operating company of the Mater Private Hospital in Eccles St. in Dublin. The third plaintiff, Mater Private Cork Limited, was the operating company of the Mater Private Hospital in City Gate, Cork. The fourth plaintiff, Spireview Equipment Unlimited Company, was the operating company of a radiotherapy centre in Dooradoyle in Limerick. The plaintiffs claimed that they were entitled to payment of €6,629,000 from the defendant, the Health Service Executive (the HSE), under the terms of an agreement between the parties concluded in April 2020 under which the HSE procured the availability of additional hospital capacity in order to deal with the COVID-19 pandemic. The agreement was described as “Heads of Terms” but both sides accepted that it was a legally binding agreement. The HSE denied that any sum was due by it to any of the plaintiffs. Furthermore, the HSE brought a counterclaim for monies which it claimed were overpaid to the plaintiffs principally in respect of interest on a loan owed by the Group to a syndicate of banks (the Syndicated Loan). The net amount claimed to be due by the HSE was €673,187.

Held by the High Court (McDonald J) that the following orders should be made: (a) an order dismissing the plaintiffs’ claim for payment of €830,634 in respect of depreciation; (b) a declaration that the plaintiffs were entitled to advance a claim in the sum of €377,072 in respect of the interest payable under a finance facility agreement with Oval Healthcare Infrastructure S.á.r.l. (the Related Party Loan) and to advance a claim in the sum of €116,695 in respect of the interest payable under the Syndicated Loan; (c) an order dismissing the balance of the plaintiffs claim for payment of interest under the loans; (d) a declaration that the HSE was entitled to the repayment from the plaintiffs of €1,050,258 previously paid by it in respect of interest arising under the Syndicated Loan (after due allowance for the sum of €116,695); (e) judgment for the HSE in the sum of €673,186 (being the balance due on foot of its counterclaim after setting off the sum of €377,072); and (f) a declaration that the HSE acted in breach of clause 11.2.1 of the Heads of Terms in so far as the HSE refused to agree to the appointment of an independent firm of accountants to determine the claims made by the plaintiffs in respect of depreciation and the interest payable under the Related Party and Syndicated Loans.

McDonald J would hear the parties as to the precise form of the orders to be made and, in so far as necessary, in relation to costs. He listed the matter before him remotely for mention on Friday 28 October 2022 at 10.30 a.m.

Claim dismissed. Counterclaim granted.

JUDGMENT of Mr. Justice Denis McDonald delivered on 20 ^th September 2022

Index

Introduction	2
Relevant principles governing the interpretation of the Heads of Terms	7
The relevant provisions of the Heads of Terms	11
Relevant factual and legal background	29
Consideration of the issues	35
The “use of infrastructure” claim	35
Decision in respect of the “use of infrastructure” claim	51
The interest payable under the Related Party Loan	52
The Ringmahon decision	80
Decision in respect of the interest payable under the Related Party Loan	85
The interest claimed under the Syndicated Loan	86
Decision on the HSE's counterclaim for repayment of interest under the Syndicated Loan	89
The plaintiffs' claim based on the Expert Determination clause	89
The plaintiffs claim that the HSE acted in breach of clauses 5.6 and 6.1 in unilaterally refusing to pay the monies claimed	92
The contention that the HSE acted in breach of the good faith obligation	93
Conclusion and Order	93
High Court Practice Direction HC 101	95

Introduction

1 . The plaintiffs are members of the Mater Private Hospital Group ( “the Group”). The first named plaintiff ( “Topco”) is the parent company of the Group. The second named plaintiff ( “the Dublin company”) is the operating company of the Mater Private Hospital in Eccles St. in Dublin. The third named plaintiff ( “the Cork company”) is the operating company of the Mater Private Hospital in City Gate, Cork. The fourth named plaintiff ( “Spireview”) is the operating company of a radiotherapy centre in Dooradoyle in Limerick. The plaintiffs claim that they are entitled to payment of €6,629,000 from the defendant ( “the HSE”) under the terms of an agreement between the parties concluded in April 2020 under which the HSE procured the availability of additional hospital capacity in order to deal with the COVID-19 pandemic. The HSE denies that any sum is due by it to any of the plaintiffs. Furthermore, the HSE has brought a counterclaim for monies which it claims were overpaid to the plaintiffs principally in respect of interest on the Syndicated Loan described in para. 3(c) below. The net amount claimed to be due by the HSE (after giving credit in respect of the matters described in para. 5 below) is €673,187.

2 . The agreement in question was entered into on 3 ^rd April 2020. For completeness, it should be noted that the plaintiffs are not the only private hospital operators who are parties to the agreement. Part 1 of Schedule 1 identifies twenty additional parties. The agreement is described as “Heads of Terms” but both sides accept that it is a legally binding agreement. In due course, it will be necessary to examine the terms of the agreement in some detail. At this point, it is sufficient to note that, as outlined in para. 1.1, the purpose of the Heads of Terms was to record the principal terms and conditions under which the plaintiffs (and other operators of private hospitals in the State) were to provide hospital capacity and services in the hospitals owned by them for the treatment of public patients on behalf of the HSE. In turn, clause 2.1 of the agreement provided that the HSE would reimburse the “operational costs” of the plaintiffs (and the other private hospital operators) on an open book accounting basis. As outlined further below, it was envisaged that this would be subject to an assessment and verification process involving accountants appointed on both sides.

3 . The plaintiffs claim that the HSE is liable under the Heads of Terms to make a number of payments to them as part of the “operational costs” contemplated by the agreement. The plaintiffs claim a total of €6,629,000 which relates to the following:-

• (a) First, the plaintiffs claim €830,634 which is said to be due in respect of “use of infrastructure”. This is one of the headings of operational costs addressed in Schedule 2 to the Heads of Terms. This claim is advanced on the basis that it forms part of the budgeted costs of depreciation of the plaintiffs at the time the Heads of Terms were executed. The plaintiffs contend that the Heads of Terms used budgeted depreciation rather than actual depreciation as the relevant metric for the cost of infrastructure. In broad terms, the HSE resists this claim on the basis that the plaintiffs should be confined to the actual depreciation recorded by them in their financial statements;

• (b) Secondly, the plaintiffs claim reimbursement of interest costs payable under a finance facility agreement with Oval Healthcare Infrastructure S.á.r.l. (which is not part of the Group as such; as the owner of the shares in Topco, it sits above the Group). The precise amount claimed in respect of this interest has not been separately identified in the Statement of Claim. The facility in question was entered into in connection with the acquisition of the Group. The plaintiffs claim that the facility in question ( “the Related Party Loan”) was partly used to pay a proportion of the consideration due to the exiting shareholders in connection with the acquisition of the Group, partly to refinance existing debt within the group at the time of acquisition and also partly for working capital requirements. The plaintiffs maintain that, at the time the Heads of Terms were entered into, it was publicly known that the group was indebted under a facility of this kind;

• (c) The plaintiffs also claim that they were properly reimbursed by the HSE under the Heads of Terms to the tune of €1.151 million in respect of interest costs arising on a loan owed by the Group to a syndicate of banks ( “the Syndicated Loan”). The plaintiffs claim that this loan was necessary for the acquisition of the Group, to refinance existing financial debt and also to finance capital expenditure and working capital.

4 . In addition to these monetary claims, the plaintiffs also allege that the HSE is in breach of the Heads of Terms in a number of respects. Although counsel for the plaintiffs made clear in the course of the hearing that no general damages are claimed by the plaintiffs in respect of these alleged breaches of the Heads of Terms, the plaintiffs nonetheless allege the following breaches:

• (a) the HSE acted unilaterally in refusing to make the payments outlined in para. 3 above. The plaintiffs claim that, under clause 5.6 of the Heads of Terms, it was for the accountants appointed by the parties to assess the payments to be made...