Sheehan v Breccia

• Jurisdiction: Ireland
• Judge: Mr. Justice Gerard Hogan,Ms. Justice Finlay Geoghegan
• Judgment Date: 30 July 2018
• Neutral Citation: [2018] IECA 286
• Date: 30 July 2018
• Court: Court of Appeal (Ireland)
• Docket Number: Neutral Citation Number: [2018] IECA 286 [Record No: 2016/197]

[2018] IECA 286

THE COURT OF APPEAL

Finlay Geoghegan J.

Hogan J.

Finlay Geogehan J.

Peart J.

Hogan J.

Neutral Citation Number: [2018] IECA 286

[Record No: 2016/197]

Between/

Joseph Sheehan

Plaintiff/Respondent

and

Breccia and Irish Agricultural Development Company

First and Second named Defendants/Appellants

and

Blackrock Hospital Limited, George Duffy, Rosaleen Duffy

and

Tullycorbett Limited

Third, Fourth, Fifth and Sixth named Defendants

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.

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 could not seek to include litigation costs in a redemption figure where those costs were not awarded by the Court. Holding BV v. Talal El Makdessi; ParkingEye Limited v. Beavis [2015] UKSC 6 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.

1 This appeal brought by Breccia and Irish Agricultural Development Company as appellants (to whom I will simply refer as ‘Breccia’) is against the order of the High Court (Haughton J.) of the 12th April, 2016, made for the reasons set out in the written judgment of the 5th February, 2016.

2 The background facts to these proceedings are fully set out in the High Court judgment. Suffice it to say for the purposes of the appeal that the plaintiff, Mr. Sheehan entered into two facilities with Anglo Irish Bank (‘Anglo’), the first on the 29th March, 2006, (the ‘2006 facility’) and the second on the 12th November, 2008, (the ‘2008 facility’). I shall describe them simply in this judgment as the ‘facilities’. Mr. Sheehan, Breccia, Benray and others were shareholders at the time in Blackrock Hospital Limited (‘BHL’). They with other shareholders entered into a shareholders agreement on the 28th March, 2006. Each of the shareholders obtained facilities from Anglo at that time. The purpose of the facilities was to finance the purchase of shares in BHL from BUPA. The borrowings from Anglo were secured by mortgages over the shareholdings in BHL and there were cross guarantees and indemnities between the shareholders and Anglo. For the purposes of the appeal it is no longer in dispute that the contractual terms of the 2006 and 2008 facilities included Anglo's then general conditions for personal loans. The same general conditions applied in 2006 and 2008.

3 The facilities fell due for repayment on the 30th December, 2010. Anglo re-registered and its name was changed to Irish Bank Resolution Corporation Limited (‘IBRC’). On the 7th February, 2013, the special liquidators were appointed for the purpose of winding up IBRC. Prior to that date no demand had been made on Mr. Sheehan by Anglo or IBRC notwithstanding the due date for repayment, 31st December, 2010, had long since passed.

4 In November, 2013 Mr. Sheehan wrote to the special liquidators stating that he wished to redeem his loans and they responded indicating that he could redeem ‘at par at any time in the sale process’. In March, 2014 he made a bid to IBRC to buy his loans which was unsuccessful. The special liquidators initiated a further sales process, in which Mr Sheehan made a bid which was not accepted and ultimately Mr. Sheehan's loans were purchased by and transferred to Breccia in December, 2014.

5 Thereafter, in December 2014 Breccia issued a demand to Mr. Sheehan for immediate payment and discharge of a sum of €16,144,572 under the 2006 and 2008 facilities together with further sums under a guarantee. In response, these proceedings were commenced on the 22nd December, 2014.

6 In May, 2015 Mr. Sheehan's solicitors wrote to Matheson, solicitor for Breccia requesting a redemption figure in respect of the 2006 and 2008 facilities. In response they were given a figure of €19,663,673.88 with continuing interest accruing at a daily rate of €3,059.29. In response to a request for a breakdown Matheson informed them, inter alia, that surcharge interest at 4% from 31st December, 2010, amounting to €2,822,957.05 was due under clause 5 of the general conditions up to the date of acquisition. That was the principal explanation for the difference between the figure then given and the earlier demand which had been made in December, 2014. There was also a reference to the obligation under clause 6.2 of the general conditions to pay all costs, charges and expense incurred in connection with the enforcement of the facilities and a figure identified from the date of acquisition of the loans up to the 8th June, 2015, under this heading of €93,362.56.

7 Mr. Sheehan disputed the claims to surcharge and costs of enforcement and it was agreed that that dispute would be determined in these proceedings and an amended statement of claim delivered and a modular trial agreed.

8 This modular trial was heard by the High Court immediately after the modular trial of similar issue arising in the proceedings between John Flynn and Benray Limited and Breccia (2015/5122P) (‘ Flynn No. 2’).

Modular Hearing and Judgment

9 At the modular hearing evidence was given by the plaintiff and a banking expert, Mr. Vincent Fennelly, on his behalf. Evidence was given on behalf of Breccia by Mr. Declan Sheeran, the company secretary and a banking expert, Mr. Conor O'Malley.

10 Notwithstanding that the modular hearing in Flynn No. 2 was first heard the trial judge delivered judgment in the modular hearing in these proceedings prior to the Flynn proceedings. Two factors appear to have contributed to that. First, on the 4th November, 2015, one day before closing submissions in this modular hearing, the UK Supreme Court delivered judgment in two cases: Cavendish Square Holding BV v. Talal El Makdessi; ParkingEye Limited v. Beavis [2015] UKSC 67, [2016] A.C. 1172, in which it revisited and restated the law as to when a contractual provision may be struck down as a penalty. Second, the evidence adduced relevant to the penalty issue was more extensive than in the Flynn No. 2 modular hearing.

11 The trial judge delivered a lengthy and detailed judgment on the 5th February, 2016. He conveniently summarises at its end what he terms ‘the redemption issues’ it was agreed should be determined at the modular hearing and his findings on each as follows:

‘Summary of answers to the redemption issues

A. Can Breccia contractually claim the redemption figures sought?

Yes, in so far as default surcharge interest may be contractually claimed under clause 5.1 of the applicable General Conditions, and further, in respect of the 2008 Facility Letter, under clause 9 of that Facility.

B. Is all or part of the redemption figure an ‘unlawful penalty’?

Yes – that part of it that purports to include default surcharge interest under General Condition 5.1.

C. Has Breccia waived its right to claim all or part of the redemption figure?; and

D. Is Breccia estopped from claiming all or part of the redemption figure?

These questions only arise if the default surcharge interest of 4% is lawful. In such circumstance the answer is that Breccia is estopped from claiming any surcharge interest arising up to 19th June, 2015, but is thereafter entitled to claim it on account balances.

E. Can Breccia charge ‘enforcement’ costs, charges and expenses, and if so, how much?

Yes, but not the sums notified in correspondence. Only such costs of the modular hearing as may be awarded to Breccia, the same to be taxed in default of agreement, may be charged and added to the redemption figure. Reserved costs, and other possible future or ‘contingent’ costs, may not be charged or factored into the redemption figure.

F. What is the correct redemption figure on 9th June, 2015 and as of today's date?

As of today's date - €16,985,929.21 being rolled up ordinary interest and principal on 29th October, 2015, together with daily interest from 30th October, 2015 to 31st December, 2015 at the rate of €770.64 per day, plus daily interest thereafter to be agreed/determined to reflect any change in the EURIBOR rate. In addition, in so far as any costs of the modular trial may be awarded to Breccia, such costs, to be taxed in default of agreement.

G. What relief, if any, is the plaintiff entitled to in respect of the redemption issues?

(1) An order stating the present day redemption figure in respect of the plaintiff's loans, together with the rate of daily accrual of ordinary interest based on the current EURIBOR rate.

(2) Such addition to the redemption figure in (1) as may arise when the court determines costs.

(3) No other order at present, apart from liberty to apply.’

12 Following the delivery of this judgment and the judgment in the Flynn No. 2 modular hearing on the 5th February there were further hearings in relation to costs and stays and the trial judge delivered a further written combined judgment in both proceedings on the 4th March, 2016. By this time Breccia had indicated an intention to appeal.

Appeals

13 The appeals in these proceedings and the Flynn proceedings were heard together. Whilst separate written submissions were filed by reason of differing factual and evidential issues...