Sheehan v Breccia
| Jurisdiction | Ireland |
| Judge | Mr. Justice Quinn |
| Judgment Date | 06 June 2019 |
| Neutral Citation | [2019] IEHC 410 |
| Docket Number | [2014/10816 P.] |
| Court | High Court |
| Date | 06 June 2019 |
AND
[2019] IEHC 410
[2014/10816 P.]
THE HIGH COURT
THE COMMERCIAL COURT
Dividends – Shareholding – Mortgage – Plaintiff claiming that as the holder and registered owner of a 28% shareholding in the third defendant, he was entitled to be paid directly all and any dividends declared on those shares – Whether as the holder of a mortgage over the shares and dividends, the first defendant was the only party entitled to receive the dividends
Facts: The plaintiff, Mr Sheehan, alleged that by certain transactions and conduct the defendants had been party to a conspiracy to damage his economic interests (the Conspiracy Claim – Claim 3). The plaintiff also claimed that a change of control had occurred in the ownership of the first defendant, Breccia, which under the terms of the Shareholders’ Agreement triggered an obligation on Breccia to offer its shares to all other shareholders, which it failed to do (the Change of Control Module – Module 2). Breccia counterclaimed against the plaintiff for judgment in the amount of €26,862,530 together with interest, being the balance it alleged it was owed under loan agreements and a related guarantee for the purpose of funding the acquisition of shares in the third defendant, Blackrock Hospital Ltd (BHL), in 2006 (the Repayment Claim), which would be heard together with the Conspiracy Claim as Module 3. In Module 1, (the Dividend Claim), the plaintiff claimed that as the holder and registered owner of a 28% shareholding in BHL, he was entitled to be paid directly all and any dividends declared on those shares. Breccia asserted that as the holder of a mortgage over the shares and dividends, it was the only party entitled to receive the dividends. At the time of the hearing, the High Court was informed that a sum of approximately €4.1 million in dividends had been declared in respect of the years 2014 to 2017 inclusive, which was held in escrow pending the outcome of Module 1. BHL said that it was ready and willing to proceed with the payment out of those dividends once the module had been determined. It protested that it ought not to have been joined in these proceedings and that it was not in a position to and did not have the authority or jurisdiction to definitively determine what was essentially a legal issue.
Held by Quinn J that the definition of shares in the mortgage extended to shares in issue after the 2009 reorganisation of BHL. He held that the plaintiff charged to Anglo Irish Bank Corporation plc (the Bank) inter alia the shares (as defined), the account (as defined) and all dividends. He held that those were charges on distinct things and the charge on dividends stood as a continuing charge. He held that its effect was to irrevocably confer on Breccia a clear proprietary interest in dividends declared by BHL. He held that the closure of the account which had been established for receipt of dividends as part of the 2006 transaction terminated that particular mechanism for securing payments to the Bank but did not have the effect of vitiating the charge on dividends. He held that by Clause 10.1 (c) of the mortgage the plaintiff contracted that after a default, which had occurred, the right to receive and retain dividends paid by BHL vested in the Bank and Breccia.
Quinn J held that he would refuse the reliefs sought by the plaintiff in paragraphs 15 and 19 of the plenary summons, and declare that Breccia was the party to whom BHL should pay dividends.
Reliefs refused.
This judgment relates to one module in these long running proceedings, the court having previously determined that the remaining issues in the proceedings be heard in three modules including this module. (See order of 4 May, 2018, of Twomey J. in Sheehan v Breccia & Ors). The long history and the acrimonious character of the disputes between the parties in this matter has been recited in the judgment of Twomey J. and in several other judgments of the court and it is not necessary to repeat it here.
The proceedings concern disputes between the shareholders of the Third Named Defendant, Blackrock Hospital Limited, (‘BHL’), which owns and operates the private hospital in Dublin known as the Blackrock Clinic. The plaintiff, Joseph Sheehan, alleges that by certain transactions and conduct the defendants have been party to a conspiracy to damage his economic interests, (the ‘Conspiracy Claim’ – Claim 3). The plaintiff also claims that a change of control has occurred in the ownership of Breccia, the First Named Defendant, which under the terms of the Shareholders” Agreement triggered an obligation on Breccia to offer its shares to all other shareholders, which it failed to do, (the ‘Change of Control Module’ – Module 2).
Breccia counterclaims against the plaintiff for judgment in the amount of €26,862,530 together with interest, being the balance it alleges it is owed under loan agreements and a related guarantee for the purpose of funding the acquisition of shares in BHL in 2006, (the ‘Repayment Claim’), which will be heard together with the Conspiracy Claim, as Module 3.
In this Module 1, (the ‘Dividend Claim’), the plaintiff claims that as the holder and registered owner of a 28% shareholding in BHL, he is entitled to be paid directly all and any dividends declared on those shares. Breccia asserts that as the holder of a mortgage over the shares and dividends, it is the only party entitled to receive the dividends.
At the time of the hearing, the court was informed that a sum of approximately €4.1 million in dividends has been declared in respect of the years 2014 to 2017 inclusive, which is held in escrow pending the outcome of this module. BHL says that it is ready and willing to proceed with the payment out of these dividends once this module has been determined. It protests that it ought not to have been joined in these proceedings and that is not in a position to and does not have the authority or jurisdiction to definitively determine what is essentially a legal issue.
The plaintiff was a founding shareholder and director of the hospital, and is still a director and shareholder.
In March 2006, BUPA Investments Limited., which was a subsidiary of British United Provident Association (‘BUPA’) sold its shareholding in the hospital to a number of the original shareholders, including the plaintiff, and to two new investors including Breccia.
The new shareholding was regulated by a Shareholders” Agreement made on 23 March, 2006, between James Sheehan and Rosemary Sheehan, the plaintiff, Dr. George Duffy, Breccia, Benray Limited and others.
The plaintiff and others financed their acquisition of the BUPA shares by way of loans from Anglo Irish Bank Corporation plc, as it then was (referred to in this judgment as ‘Anglo’ or later, ‘IBRC’ or the ‘Bank’).
The original facility drawn by the plaintiff was for an amount of €11,188,256 million, stated to be for the purpose of enabling the plaintiff to subscribe for new shares in BHL and to facilitate the redemption of the shareholding of BUPA.
In addition to their loan obligations, the plaintiff, James Sheehan, Rosemary Sheehan and Dr. George Duffy entered into a Guarantee and Indemnity in favour of Anglo, guaranteeing the obligations of all the borrowers to the bank. Breccia, for its part, entered into a separate Deed of Covenant to co-operate in any sale of shares in BHL on the occurrence of default by any of the other shareholders.
The loan and the obligations under the Guarantee and Indemnity were secured by a Mortgage of Shares, Deposit Account and Assignment of Agreements (‘the Mortgage’). The Mortgage is stated to create a charge, inter alia, over ‘Shares’, ‘Dividends’, and an ‘Account’. The precise terms of the Mortgage and their meaning and effect are examined later in this judgment as they are central to the determination of the plaintiffs” claim in this module.
Also on 28th March 2006, the plaintiff gave notice to the secretary of BHL of the creation of the Mortgage and requested that all dividends that may become due from time to time or payable on the shares be paid directly into a designated account at AIB, being account number 1403/506743/01 (‘the Account’).
On 28th March 2006, BHL issued to Anglo Irish Bank Corporation plc. an ‘Acknowledgment of Charge’ referring to the Mortgage and agreeing that all dividends and other sums referred to in the Mortgage in respect of the shares should be paid directly into the Account.
The Facility Letter to the plaintiff dated 28th March 2006 provided for a facility in the sum of €11,188,256 ‘ to enable the borrower to subscribe for new shares in Blackrock Hospital Limited. and facilitate the entire shareholding of BUPA Investments Limited to be redeemed.’ It provided for security comprising the following: -
A First Legal Charge over the Borrowers” shareholding in BHL being 28.07% of the total issued share capital as follows
Joseph Sheehan
Description of shares, (collectively, ‘the Shares’):
€49, 061,144 ‘D’ Ordinary Shares
€891,479 ‘P’ Priority Cumulative Ordinary Shares
€896,145 ‘M’ Priority Cumulative Ordinary Shares
€62,920,676 ‘B’ Ordinary Shares
€247,653 ‘Q’ Priority Cumulative Ordinary Shares
‘including but not limited to a charge over all dividends paid on those shares’.
The Facility Letter also provided for a ‘Charge over a deposit account’.
The Letter also required security in the form of assignments of interest of the plaintiff in the Shareholders” Agreement, a certain Tax Deed of Indemnity and a Competition Unwind Agreement with BUPA and other documents associated with the buyout of BUPA.
The Facility also provided...
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Sheehan v Breccia
...and now held by Breccia should be paid to the plaintiff. This claim was dismissed by me and is under appeal ( Sheehan v. Breccia & Ors. [2019] IEHC 410) (Module 1). (3) That certain changes affecting the shareholding of Breccia and of the group of companies ( “Parma”) of which it was a memb......