Breccia, a Larry Goodman company, is entitled to a €8.7 judgment and interest against developer John Flynn and his company Benray after winning an appeal in the bitter dispute over control of Dublin's Blackrock Clinic, the Court of Appeal has ruled.
The three-judge court also found a receiver appointed by Breccia in 2014 over shares of Benray in Blackrock Hospital Ltd (BHL) was validly appointed and was entitled to sell Benray’s shares in the clinic.
The court, which deferred making formal and costs orders in the appeal to April 5th, said it would overturn orders and declarations made by the High Court in favour of Mr Flynn and Benray because the High Court had misinterpreted provisions of the 2006 BHL shareholders agreement.
Ms Justice Mary Finlay Geoghegan agreed with Breccia there was no “general principle” of good faith and fair dealing in Irish contract law beyond recognised examples such as partnerships and in insurance law.
Even if there was, no “general” duty of good faith could be implied from the 2006 agreement, she held.
The court overturned the High Court findings that there was an implied term in the 2006 agreement the shareholders owe each other “mutual general duties of good faith and fair dealing” and the agreement limited a shareholder’s right to recover money under another shareholder’s loan.
The parties have until April 5th to consider the detailed judgment which may have implications for a separate decision by the High Court permitting Mr Flynn and Benray redeem their BHL loans for €9.3 million, not some €11 million sought by Breccia.
In a separate case by another shareholder, Dr Joseph Sheehan, the court ruled he could redeem his loans for €16.9 million, not some €20 million sought by Breccia.
Blackrock Clinic was co-founded in 1984 by Dr Sheehan with his fellow surgeons Jim Sheehan and Maurice Neligan, and Dr George Duffy. Dr Sheehan and Mr Flynn/Benray brought separate actions against Breccia over the price for redemption of loans made by the former Anglo Irish Bank from 2006 to buy shares in the clinic.
The Sheehan and Benray loans were later acquired by the National Asset Management Agency and sold on to Breccia (which also bought shares in 2006).
Today’s judgment concerned an appeal and counterclaim by Breccia – whose co-directors are Mr Goodman and Declan Sheeran – against orders and declarations made by Mr Justice Robert Haughton in August and September 2015.
Giving the main judgment, Ms Justice Finlay Geoghegan said the appeal raised important questions concerning the proper approach to interpretation and implication of terms into an agreement between shareholders.
In this case, Breccia demanded repayment, on August 8th, 2014, of €8.7 million of the Benray loans and, when Benray did not pay, appointed Michael McAteer on August 11th, 2014, as receiver over Benray’s shares and also demanded payment under the guarantee of Mr Flynn.
Duty of good faith
The judge rejected the fundamental claim by Mr Flynn/Benray there was an implied term in the 2006 shareholders’ agreement that the shareholders owed each other a duty of good faith and fair dealing and/or not to take steps which would cause shares of other shareholders to be alienated, save in accordance with the shareholder agreement.
While a duty of good faith applies to some types of agreement and contract, such as in a partnership agreement or certain principles of insurance contracts, this shareholders’ agreement was not an agreement to which any such “general” duty of good faith applied. While some of the parties were related to one another and/or were medical colleagues, the agreement expressly included a “no partnership” clause.
Benray’s Anglo loan was validly assigned to Breccia, Benray was in default of its obligations under that loan and Mr McAteer was validly appointed receiver over the Benray shares, he held.
In a concurring judgment, Mr Justice Gerard Hogan said it was unnecessary in this case to decide whether or not Irish contract law contained a general principle of good faith beyond the recognised examples such as partnership. Much depended on what was meant by “good faith”, he observed.
The Law Reform Commission had argued a principle of good faith originally applied to all contracts and dealings but English case law from the 19th century onwards largely confined its application to the insurance contract setting, he said. In this case, it was unnecessary to consider how the common law might or might not evolve.