Sheehan v Breccia and Others

• Jurisdiction: Ireland
• Judge: Mr. Justice Haughton
• Judgment Date: 04 March 2016
• Neutral Citation: [2016] IEHC 120
• Date: 04 March 2016
• Court: High Court
• Docket Number: [2014/10816 P] [2015/5122 P]

BETWEEN

JOSEPH SHEEHAN

PLAINTIFF

V.

BRECCIA, IRISH AGRICULTURAL DEVELOPMENT COMPANY, BLACKROCK HOSPITAL LIMITED, GEORGE DUFFY, ROSALEEN DUFFY

AND

TULLY CORBETT LIMITED

DEFENDANTS

BETWEEN

JOHN FLYNN

AND

BENRAY LIMITED

PLAINTIFF

V.

BRECCIA

DEFENDANT

[2016] IEHC 120

[2014/10816 P]

[2015/5122 P]

THE HIGH COURT

COMMERCIAL

Contract – Practice & Procedures – Perfection of order – Interlocutory injunction – Balance of convenience test – Legitimate concerns

Facts: Following the judgments of High Court in both proceedings that the plaintiffs could redeem their loan at a redemption figure determined by the Court and that the plaintiffs were entitled to their costs of the modular hearings, the defendant in the second named proceedings sought an order for stay of the aforesaid orders pending the outcome of the appeal before the Court of Appeal or in the alternative an order requiring the plaintiffs to pay the disputed amount in an escrow account.

Mr. Justice Haughton refused to grant stay on the said judgments subject to the conditions that the plaintiff in the first named proceedings after redemption of his loan and redemption of mortgage of shares with the defendant in the second named proceedings would give an undertaking that he would execute a second mortgage in favour of the said defendant as security for any sums that would become due depending upon the outcome of the appeal before the Court of Appeal, and that a similar undertaking would be provided by the said defendant in relation to its shareholding. The Court granted a short stay on the said judgments subject to the furnishing of the said undertaking both by the said plaintiff and the said defendant so as to enable the said defendant to apply for a longer stay before the Court of Appeal. The Court granted stay on entry and execution in relation to its order for costs in both proceedings until the disposal of the appeal. The Court refused to grant stay on its order for costs in relation to modular hearing on the basis that modular hearing was a final disposal of an action. The Court observed that before granting an interlocutory injunction, the Court should conduct a balance of convenience test because the grant of stay would be prejudicial to the interests of the successful party while an order for not granting stay would cause the unsuccessful party to suffer loss in case it managed to succeed on appeal. The Court opined that the interest of justice would be served by determining a form of injunction which to a greater extent would meet the legitimate concerns of both parties.

COMBINED JUDGMENT of Mr. Justice Haughton delivered on the 4th day of March, 2016

Introduction

1 This judgment is supplemental to the judgments which I delivered herein on 5th February in 2016 in the above matters. In both cases I made orders establishing the redemption figures that would have to be paid to Breccia in order for Dr. Joseph Sheehan and Benray Ltd respectively to redeem their loans held by Breccia. In both cases I held against Breccia in determining firstly that Breccia was not entitled to add default surcharge interest of 4% on the basis either that such charges were an unlawful penalty or alternatively that Breccia was estopped from adding such charges for any period prior to June 2015, and secondly that Breccia was not entitled to add ‘enforcement costs’ being the costs of proceedings which were not awarded to Breccia, or the contingent costs of any appeal.

2 At a follow up hearing before me on 18th February 2016 I determined that the plaintiffs were entitled to their costs of the modular hearings related to the redemption issues as against Breccia.

3 On that date counsel for Breccia, Mr. Rossa Fanning BL indicated that Breccia would be appealing both judgments and he applied for orders that would protect his clients pending the final determination of those appeals in the event that the plaintiffs redeemed their loans in the meantime based on the redemption figures determined by this court. Having heard submissions from both parties I reserved my ruling on these applications.

The Arguments

4 Counsel for Breccia aruged that the court should make an additional order in each case requiring that, pending the final determination of any appeals, and in the event that Dr.Sheehan and Benray seek to redeem their loans on the basis of the figures set out in my judgments, they be required to pay the disputed amounts i.e. the difference between the redemption figures as found by me and the redemption figures claimed by Breccia, into an escrow account pending the outcome of the appeals. A variation on this was that the plaintiffs be required to post security for the additional disputed amounts in the event of the plaintiffs redeeming their loans.

5 Counsel argued in the alternative that there should be a stay granted in respect of the orders pending the final determination of the appeals. It was contended that the issues were complicated and the appeals bona fide. In particular it was arguable that the 4% surcharge interest was not a penalty clause based on principles enunciated in the recent decision of the UK Supreme Court in Cavendish Square Holding BV v. Talal El Makdessi: ParkingEye Ltd v. Beavis [2015] UKSC 67 (see my judgment in the Sheehan case, para. 84 et seq). Counsel stated that there had been no proposal in relation to security pending the outcome of the intended appeals in relation to the disputed amounts, and expressed the concern that, in the absence of a stay, the plaintiffs could redeem their loans based on the redemption figures ordered by this court, and if Breccia won its appeals it would be unable to recover the balance as it would no longer be able to have recourse to the security which it now holds i.e. the borrower's shareholdings in Blackrock Hospital Ltd. Counsel's fallback position was to request a short stay, presumably to enable it to consider and possibly appeal any adverse ruling to the Court of Appeal.

6 With regard to the stay sought on the costs awarded in respect of both trials, counsel differentiated between the two cases. In the Sheehan case counsel accepted that the court had conducted a modular hearing, and suggested that there should be a stay on the costs because when the balance of the case is heard the trial judge might order costs against the plaintiffs, and a set off would apply. It was suggested that this was a further reason why there should be a stay in respect of costs in that case. In the Flynn case counsel did not accept that the hearing had been a modular one. He asserted that the case had effectively been decided in its entirety, and that because Breccia intends to appeal the stay should extend to the costs pending the determination of the appeal.

7 In contesting the application Mr. John O'Donnell SC on behalf of Dr. Sheehan protested that if the court granted the stay sought it would be a further clog on the plaintiff's right to redemption. In addressing the balancing of interests he pointed out that the court has established a redemption figure of approximately €16.585 million, whereas the addition of surcharge interest and enforcement costs claimed by Breccia would bring this up to approximately €21.370 million viz. a difference of about €4.8 million. If Dr. Sheehan had to pay this it would be an obstacle standing in the way of redemption. He argued that, soon after the defendant acquired Dr. Sheehan's loans, by letter dated 18th of December 2014, Breccia sought immediate payment and discharge of the sum of the €16,144,572 in respect of Dr. Sheehan's Loan Agreements, and that by its stay application Breccia is essentially seeking additional security. Counsel argued that Dr. Sheehan had already been damaged by the delay caused by Breccia in the redemption of his loans, and that an appeal that might not come on for in excess of one year would cause him further damage. He indicated that there is a history of difficulty in securing borrowing, and that the funder(s) and Dr. Sheehan currently has in place may disappear if there is a stay in place or Dr. Sheehan is required to lodge the disputed amounts into escrow pending determination of an appeal. It was asserted that this is exactly what Breccia wants to achieve, and that interest on a further borrowing for the additional amount (even if Dr. Sheehan could obtain it) would be a further source of damage to the plaintiff. It was argued that the application for a stay is a ‘cynical device’ calculated to aid Breccia in its pursuit of the shares held as security for Dr. Sheehan's loans. It was suggested that the intended appeals might not be bona fide– but might in fact be a ‘bargaining weapon’.

8 Mr. Michael Howard SC on behalf of the plaintiffs in the Flynn case adopted similar arguments, and suggested that his clients could suffer irreparable harm because of the risk of losing a funder currently in a position to fund the redemption of the relevant loan at the redemption figures directed by this court - approximately €9.34 million - because his clients would not be in a position to raise the disputed amounts in respect of surcharge and enforcement costs - which would add in excess of €4 million to the redemption figure, of which some €2 million relates to costs of earlier proceedings (see para. 12 of my judgment in Flynn). Counsel pointed out that after Breccia acquired Benray's loan facilities on 23rd May 2014, by letter dated 8th August 2014 it demanded the sum of €8.74 million, and on non- payment promptly appointed a receiver over Benray's shares in Blackrock Hospital Ltd, and that receiver was considering a sale of those shares to Yalart Holdings Ltd, a sister company of Breccia also controlled by Mr. Laurance Goodman, for €6.75 million. That putative sale was the subject of an injunction, and the receivership was later found by this court to be invalid (see my judgment in ...