THE COURT OF APPEAL Neutral Citation Number:  IECA 74
Finlay Geoghegan J.
[2015 No. 512]
JOHN FLYNN AND BENRAY
FIRST NAMED DEFENDANT/APPELLANT
SECOND NAMED DEFENDANT
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 8th day of March 2017
1. This appeal raises important questions in relation to the proper approach to the interpretation of and implication of terms into an agreement between shareholders.
2. The appeal is against a judgment of the High Court (Haughton J.) delivered on the 13th August 2015, and the order made pursuant thereto on the 11th September, 2015.
Relevant background facts
3. The facts relevant to the contractual issues in the appeal are not, and for the most part, were not, in dispute in the High Court. They are set out in full in the High Court judgment. They may be briefly summarised as follows.
4. In 1983, BUPA Insurance with Drs. Joseph Sheehan, James Sheehan, George Duffy and Maurice Neligan put together an investment package to build and develop what is now known as the Blackrock Clinic.
5. Blackrock Hospital Limited (“BHL”) operates the hospital. The original promoters were the initial shareholders. In 2005, BUPA sought to sell its shares. The original shareholders agreed initially to purchase the BUPA shares. Finance was being obtained from Anglo Irish Bank (“Anglo”). Ultimately, Drs. Duffy and James Sheehan arranged for some or all of their allocation of the BUPA shares to be taken up by third parties.
6. It was at this point, in March 2006, that Benray and Breccia acquired their shareholdings in BHL.
7. Benray is owned by Mr. John Flynn who is the first respondent and a property developer. Breccia is stated to be ultimately owned by the Goodman Family Trust associated with Mr. Laurence Goodman.
8. In March 2006, Breccia, Benray, Joseph Sheehan and George Duffy each drew down loans from Anglo to finance the purchase of their respective allotment of shares.
9. On the 28th March 2006, the shareholders, James Sheehan and Rosemary Sheehan, Joseph Sheehan, George Duffy, Breccia, Benray, Irish Agriculture Development Company (as guarantor of Breccia) and Mr. Flynn (as guarantor of Benray) entered into a shareholders agreement (the “Shareholders Agreement” or “Agreement”). BHL and Blackrock Clinic Limited were also parties to the Agreement. The first recital indicates that the purpose of the Shareholders Agreement is to facilitate the subscription for and redemption of circa 56% of the shares in BHL and the future management and development of the Blackrock Clinic.
10. On the 28th March, 2006, agreements were also entered into between the borrowing shareholders and Anglo in relation to borrowings and also granting mortgages creating a first legal charge over the shares acquired in BHL. All shareholders provided guarantees or indemnities to Anglo as well as certain other documents.
11. In 2008, Benray borrowed a further €2 million from Anglo. The 2006 Anglo loan agreements required each of the parties to repay their loans in December 2010. Breccia has repaid its debt, but Benray has defaulted.
12. The loan and security agreements with Anglo in 2006 included cross security arrangements. The effect of these arrangements was that if one shareholder defaulted, Anglo had a right to force the sale of every shareholder’s shares. As a condition, furthermore, of the loans being advanced, each shareholder was required to give Anglo a formal assurance that if Anglo enforced its security and sold any of its shares in BHL they would waive any pre-emption rights that might arise.
13. The evidence before the High Court was that from 2008/2009 on, disagreements began to emerge amongst the shareholders.
14. Following the collapse of Anglo, Benray’s loan agreement along with guarantees and share charges securing same became vested in National Asset Loan Management Ltd. (“NALM”). This was notified to BHL on the 28th February 2014.
15. Breccia subsequently made an offer to purchase the Benray loans at par value from NALM which was accepted. The loan acquisition was completed by way of a loan sale deed dated the 23rd May, 2014. The consideration for the loans was €9,104,616.41.
16. On the 8th August, 2014, Breccia served on Benray a demand notice for repayment of €8,744,853 pursuant to the two loan agreements. It sought immediate payment and discharge. Benray did not pay. On the 11th August 2014, Breccia appointed Michael McAteer, the second named defendant (“the Receiver”) as receiver over the shares of Benray in BHL. On the same day, it demanded payment under the guarantee from Mr. Flynn. The Receiver sought a valuation of the Benray shares and by an advertisement in the Sunday Business Post on the 31st August, 2014, sought expressions of interest in the shares. The only expression of interest received was in a letter dated the 3rd September 2014, from Yalart Holdings Limited (“Yalart”), a sister company of Breccia controlled by Mr. Goodman.
17. The plaintiffs then commenced these proceedings and on the 12th September, 2014, sought and obtained ex parte an interim injunction from the High Court (Hogan J.). This was initially returnable to the 16th September and then extended to the 30th September, 2014, where the proceedings were admitted to the Commercial List. Subsequently the interlocutory application was adjourned to the trial of the action on the basis that, on consent, the interim order would remain in place.
18. Meanwhile, in 2014, steps were taken by or on behalf of Dr. Joseph Sheehan and Dr. Duffy, both of whose Anglo loans (by then held by Irish Bank resolution Corporation (in special liquidation)) (“IBRC”) were in default to offer them for sale. The facts relating to that attempted sale and involvement of a hedge fund called Talos Capital Limited (“Talos”) are for the most part not relevant to the resolution of the contractual issues on appeal. Dr. Duffy repaid his debt to IBRC on the 4th April 2014, using monies loaned him by Breccia. The attempts made by other shareholders, including Dr. Joseph Sheehan, to refinance their loans with Anglo and a potential concern as to the impact of the offer-round provisions in Clause 8 of the Shareholders Agreement appears to have given rise to separate proceedings initiated by Dr. Joseph Sheehan, (High Court, Record No. 2015/27 SP). Those proceedings were, in substance, a construction summons by which a declaration was sought to the effect that the holder of a charge over the shares in BHL did not require the consent of the other shareholders to transfer such shares following an enforcement of security in the shares. On the 13th May 2015, Haughton J. made the following declaration by consent in those construction summons proceedings:-
That consent declaration is of some relevance to the issues to be resolved on the appeal
“The Court doth declare that the provisions of the Shareholders’ Agreement dated the 28th day of March 2006 (as amended, varied or supplemented from time to time) between the shareholders of BHL and in particular Clause 8 thereof do not require a holder of a charge over the Shares (as therein defined) to obtain the consent of any other Shareholder (as therein defined) in BHL in order to transfer the legal and beneficial ownership of the Shares following an enforcement of security over the Shares.”
19. Although the plaintiffs advanced multiple claims in the present proceedings, the trial judge identified the most fundamental aspects of those claims at paras. 21 to 29 of the judgment. Insofar as the contractual claims were concerned, the fundamental contention of the plaintiffs was that there was an implied term in the Shareholders’ Agreement that each of the shareholders owed one another a duty of good faith and fair dealing and/or that they would take no steps, the effect of which would be to cause the shares of other shareholders to be alienated, save in accordance with the Shareholders’ Agreement. They claimed that no shareholder could acquire and/or exercise the rights of a lending institution in relation to the shares. They, accordingly, challenged the validity of the loan sale deed from NALM to Breccia in relation to the Benray loan and associated security over Benray’s shares in BHL.
20. The trial judge identified the issues (at para. 48 of the judgment) which he considered required determination by the court. Insofar as relevant to the contractual issues on appeal, they were:-
21. The trial judge set out and considered in some detail the principles applicable to the construction or interpretation of contracts and those applicable to the circumstances in which a court will imply terms into a contract. The trial judge in his judgment refers interchangeably to “shareholders” and “promoters” and I am doing likewise. No distinction is intended. Having done so, and having set out the relevant contractual terms, he reached his first conclusion on the construction of the Shareholders Agreement at para. 237 where he stated:-
“ (1) How is the Shareholders’ Agreement to be construed; and
- are any terms to be implied?
(2) What are the consequences of such construction/any implied terms? In particular:-
(a) Did Breccia validly acquire Benray’s loan and the security over its shares in BHL and the benefit of the related guarantee of Mr. Flynn?
(b) Were the loan and guarantee validly ‘called in’?
(c) Was the Receiver validly appointed?
(d) Is the Receiver entitled to sell Benray’s shareholding in BHL on the open market?
. . .
(7) Did the acts or omissions of Breccia have the effect of triggering a Deemed Transfer Notice under the Shareholders’ Agreement?”
22. He then considered whether the court should imply two terms which the plaintiffs sought to be implied into the Shareholders’ Agreement which he identified at para. 240 as being:-
“For these reasons I conclude that the Shareholders’ Agreement should be construed as firstly limiting a Promoter’s right to recover monies pursuant to another Promoter’s loan facility to the express powers conferred in sub clauses 3.4.3 and 3.4.5, and secondly, as limiting a Promoter’s right to enforce a sale of another Promoter’s shareholding to the terms of sub clause 3.4.5 and a Deemed Transfer Notice to which the pre-emption provisions of clause 8 apply.”
23. The trial judge’s conclusion on the first term sought to be implied at para. 250 was:-
“(1) A term that no Promoter could acquire another Promoter’s loan, or the security for that loan.
Alternatively, and in the event that a Promoter is entitled to acquire the loans/security of another Promoter:-
(2) A term that a Promoter cannot take steps to enforce recovery of another Promoter’s Anglo Facility or enforce the sale of the other Promoter’s secured shareholding otherwise than in accordance with sub clauses 3.4.3 and 3.4.5 of the Shareholders’ Agreement.”
24. Then at para. 252 he concluded that the shareholders agreement should be read in the light of the second implied term identified (at para 240(2)) namely:-
“Accordingly, I find that there was no term or implied term in the Shareholders’ Agreement that prevented Breccia purchasing and taking an assignment of Benray’s loan from NALM, and acquiring the benefit of the Mortgage of Shares, Mr. Flynn’s guarantee, and any other security for that borrowing.”
25. He then continued to consider insofar as it might be necessary whether there was also an implied term in the Shareholders’ Agreement that Breccia and Benray owed each other mutual duties of good faith and fair dealing. Huaghton J. ultimately reached a conclusion at para. 264 that such a term was implied.
“A term that a Promoter cannot take steps to enforce recovery of another Promoter’s Anglo Facility or enforce the sale of the other Promoter’s secured shareholding otherwise than in accordance with sub clauses 3.4.3 and 3.4.5 of the Shareholders’ Agreement.”
26. Those conclusions on construction and implication of terms led the trial judge to make consequential findings in relation to the validity of the steps taken by Breccia subsequent to the acquisition of Benray’s loan from NALM in May 2014. The trial judge made a finding that Benray was in default in the repayment of the Anglo loan from the 13th January 2011. Notwithstanding that and the validity of the acquisition of the loan by Breccia, the trial judge concluded that as a matter of law, Breccia could not simply demand payment from Benray and sue for the amount due. This conclusion he considered followed from his determination that Breccia was not entitled as a promoter to enforce collection of the debt otherwise than in accordance with the powers conferred on promoters in sub-clauses 3.4.3 and 3.4.5 of the Shareholders’ Agreement. At para. 430 he concluded that Breccia could only sue once it had redeemed the Benray loan (in accordance with clause 3.4.3) and then and only then could Breccia demand payment of Benray and seek to recover by way of simple contract debt. He, accordingly, dismissed Breccia’s counterclaim for judgment against Benray.
27. Ultimately the trial judge determined that he would make a number of declarations and orders, but gave the parties an opportunity of considering the final terms of same.
28. The declarations made relevant to the contractual issues as set out in the order of the 11th September 2015, are:-
29. There was also a restraining order made consequential on the above declarations:
“THE COURT DOTH DECLARE
I. that the acquisition on 23rd May, 2014 by Breccia from NALM of Benray’s Anglo Facilities and Security under Loan Sale Deed and Deed of Transfer both dated 23rd May, 2014, including the acquisition by assignment of any right interest or entitlement to receive or be paid dividends declared by Blackrock Hospital Limited, was valid and lawful.
II. that upon the true construction of the Shareholders’ Agreement dated 28th March, 2006 (as amended) and/or pursuant to an implied term to like effect and/or pursuant to an implied term that Breccia and Benray as Promoters and shareholders owed each other mutual duties of good faith and fair dealing, Breccia as a Promoter is not entitled to demand or recover monies from Benray as another Promoter or John Flynn as Guarantor of Benray in respect of monies that are due and owing under Benray’s Anglo Facilities dated 28th March, 2006 and 19th February 2008 and/or to enforce a sale of Benray’s shareholding in Blackrock Hospital Limited otherwise than in accordance with sub clauses 3.4.3 and 3.4.5 and sub clauses 8.2 to 8.4 inclusive of the Shareholders’ Agreement.
III. that the purported calling in by Breccia of Benray’s Anglo Facilities dated 28th March, 2006 and 19th February, 2008 by letters of demand dated 8th August, 2014 and 12th August, 2014 to Benray and John Flynn (as Guarantor), respectively, was invalid.
IV. that the purported appointment on 11th August, 2014 of the second named defendant as Receiver was invalid.
V. that as against Benray and John Flynn, Breccia as a Promoter/shareholder is not entitled to the benefit of the Letter of Waiver of Pre-Emption Rights executed by Benray/John Flynn in favour of Anglo on 28th March, 2006.”
“that Breccia, its servants or agents be restrained permanently from offering for sale and or effecting a sale or other disposal of Benray’s shareholding in Blackrock Hosptial Limited otherwise than pursuant to and in accordance with sub clause 3.4.5 and clause 8 of the Shareholders’ Agreement dated 28th March, 2006 (as amended) provided always that this injunction shall not prevent the sale or assignment by Breccia of the Loan Sale Deed and Deed of Transfer dated 23rd May, 2014 or the benefit thereof.”
30. There were other orders and determinations made by the trial judge to which I do not propose to refer at present as they are not relevant to the contractual issue, save for the dismissal of the counterclaim.
31. The judgment of the trial judge is extremely lengthy running to 431 paragraphs and198 pages. Not all of the judgment is concerned with the contractual issues now being dealt with in this part of the appeal. Nevertheless, a significant part does so relate.
32. The grounds of appeal and written submissions of the appellants are likewise lengthy. I do not propose considering each and every ground or indeed setting them out. I have fully taken them into account and both the written submissions and the oral submissions help identify the primary contractual issues which must be resolved by this Court.
33. The first issue is whether or not the trial judge was correct in the conclusion he reached on the interpretation of the Shareholders’ Agreement at para. 237 of his judgment. That gives rise to the following questions:-
34. Prior to considering those questions it is necessary to set out the relevant terms of the Shareholders’ Agreement. The Shareholders’ Agreement, as already stated, in Recital A states that its purpose is to facilitate the subscription for and redemption of the 56% of the shares in BHL held by BUPA and the future management and development of the Blackrock Clinic. It records the shareholdings and a proposed bonus issue of shares and the fact that the promoters will subscribe for new shares in certain proportions and then for the passing of resolutions. Recital C then states:-
35. There are then a series of definitions in Clause 1.1 and further definitions in Clause 1.2. Reliance was placed by Breccia upon Clause 1.2.4 which provides:-
“The promoters have agreed to enter into this Agreement for the purpose of regulating the relationship between them as the holders of the entire issued share capital of BHL, and Mr. Flynn enters into this agreement so as to covenant to procure performance by Benray of its obligations hereunder and IADC enters into this Agreement so as to covenant to procure performance by Breccia Limited of its obligations hereunder.”
36. Particular reliance was placed upon the inclusion of “permitted assigns of the foregoing” in relation to references to Anglo in the Agreement.
“Any reference to a person shall be construed so as to include any individual, firm, company, corporation, government, state or agency of a state or any joint venture, association, partnership, works council or employee representative body (whether or not having separate legal personality) and the successors, personal representatives and permitted assigns of the foregoing.”
37. A “promoter” is defined as including holders of shares of the same Class holding together more than 15% or more . . . of the nominal value of the issued share capital of the Company, who aggregated their holdings and act together as a single promoter for the purpose of the Shareholders’ Agreement. Nothing turned on this definition in the submissions made to us and it is not in dispute that both Benray and Breccia are promoters as defined and as that term is used throughout the Shareholders’ Agreement.
38. Clause 3 is central to the contractual issues on this appeal. Insofar as relevant it provides:-
39. Clause 8 is also relevant to the issues on the appeal. It is a lengthy clause relating to the transfer of shares. Clause 8.1 firstly restricts transfer or granting security over shares for a period of three years with certain exclusions. Clause 8.1.2 in summary entitles the Board notwithstanding compliance with Clause 8 to decline to register a transfer of shares where a transferee would in the reasonable opinion of the board breach or imperil (i) the ethical principles to apply to the hospital (ii) any legal authorisation required for the conduct of the hospital’s activities or (iii) the transferee being or having a material interest in a competitor
“3 AGREEMENT FOR FUTURE REGULATION OF BHL/BCL,
3.1 Agreement to co-operate
The Promoters hereby agree to co-operate as provided in this Agreement for the purpose of the operation and development of Blackrock Clinic as a first class medical facility aspiring to best medical practice in accordance with its mission statement as revised from time to time and approved by the Board.
3.2 The Companies
Co-operation shall be such that:
3.2.1 BHL will deal in and with the Clinic as provided herein,
(a) will be the manager and operator of the Hospital; and
(b) for this purpose may enter into any management agreements with an experienced hospital operator, as the Board of BHL shall decide;
(c) will also: arrange in conjunction with Rock for the management of the common areas of the Clinic Building subject to the payment by the owners of suites in the Clinic Building of a service charge relating to the maintenance and repair of the common areas therein….
3.4 Financial Obligations of the Promoters
3.4.1 Each of the Promoters will mortgage their shares in BHL as security in respect of various loans advanced to them or to third parties on their behalf by Anglo Irish Bank Corporation Plc (hereinafter called “Anglo”). In addition by way of further security each of the Promoters have granted or will grant Anglo a right by way of Guarantee and Indemnity or otherwise whereby Anglo will have recourse to each Promoters shares only in BHL for the purpose of a sale of the Shares in the event that a Promoter is in default of his loan but to the intent that the proceeds of sale of each Promoters shares shall only be applied against his/its indebtedness to Anglo.
3.4.2 Each Promoter covenants with the other Promoters to perform its obligations as set out pursuant to any facility made available by Anglo (or any other lending institution in substitution therefore) as set out in clause 3.4.1 above.
3.4.3 If and whenever a Promoter does not perform his obligations pursuant to a loan as set out in this Clause, one or more of the remaining Promoters may perform such obligations and the remaining terms of this Clause shall apply accordingly.
3.4.4 If and whenever a Promoter breaches his obligations under this Agreement then the Promoter shall indemnify and keep indemnified the other Promoters from and against all loss or damage and all actions, proceedings, costs, damages, expenses, claims and demands in respect of such breach.
3.4.5 If and to the extent a Promoter(s) (the Overpaying Promoter(s)) pursuant to the provisions hereof or by virtue of being called on by Anglo or any other lending institution to pay monies or incurs expenditure which should have been paid or incurred by another Promoter (the Underpaying Promoter) then;
(a) the Overpaying Promoter(s) shall be entitled to recover such amounts it has paid from the Underpaying Promoter, and the Underpaying Promoter shall be obliged to pay such amounts to the Overpaying Promoter, on demand of the Overpaying Promoter, as a simple contract debt;
(b) where the Underpaying Promoter does not pay the amount(s) demanded under paragraph (a), interest at 2% above the standard personal overdraft rate of Bank of Ireland (or if there is no such rate or the Underpaying Promoter disputes what such rate is, the rate which is 10% above the one-month base interest rate set from time to time by the European Central Bank) shall accrue on the demanded amount(s) from the time of demand to the date of payment and shall be payable by the Underpaying Promoter;
(c) where an Underpaying Promoter does not pay the amount demanded under paragraph (a) together with all interest accrued thereon within 6 months of the demand under paragraph (a), then at midnight at the end of that 6 month period, there shall be deemed to have been served a Transfer Notice in respect of all Shares of that Promoter, his Family Members and affiliates and the Specified Price (hereinafter defined) in respect of the Shares shall be the Fair Value of such Shares;
(d) the Specified Price (as defined in Clause 8.2.1) in respect of the Shares shall be the Fair Value of such Shares and the Company shall pay the sale proceeds of the Underpaying Promoter’s Shares to the Overpaying Promoter, to the extent required to reimburse the Overpaying Promoter.
(e) for the avoidance of doubt any transfer of shares which are the subject of a mortgage to Anglo shall be subject to the consent of Anglo.”
40. Clause 8.2 then provides:-
There then follows seven subparagraphs which provide for the giving of a Transfer Notice by the shareholder and the consequences of this occurring with typical offer round provisions. Nothing turns on the detail of these.
“If and whenever after the three years from the date hereof a Shareholder wishes to sell his Shares, Sub-Clauses 8.1.1(a) and (b) and 8.1.2 and the following provisions apply:”
41. Article 8.6 refers to Clause 3.4.5 and provides:-
42. Clause 8.9 provides for the provision of certain information by promoters, shareholders and guarantors. Clause 10.3 contains a provision that it is not to be deemed to create any partnership between the parties in relation to the Company or otherwise.
“Deemed Transfer Notice
8.6.1 a Promoter makes any voluntary arrangement or composition with its creditors;
8.6.2 in respect of a Promoter being a body corporate, an encumbrancer takes possession over all or any part of its assets or undertakings or an examiner is appointed to it or such Promoter enters into liquidation other than a voluntary liquidation for the purpose of a bona fide scheme of solvent amalgamation or reconstruction or there is a change of control in respect of such Promoter…or suffers in any jurisdiction an event or process analogous to any of the foregoing;
8.6.3 a Promoter or a Guarantor commits a material breach of this Agreement and in the case of a breach capable of remedy fails to remedy same within 21 days of receipt of a notice from any other Promoter requiring such remedy;
8.6.4 IADC ceases to be controlled by Laurence Goodman or the Goodman Family Trust established on 25 September 1991 or by any beneficiary of that trust who is a Family Member of Laurence Goodman;
8.6.5 Benray ceases to be controlled by John Flynn and his Family Members;
8.6.6 the provisions of Clause 3.4.5 are applicable
all Shares in the name of such Shareholder or beneficially owned by such Shareholder (or in the case of a breach by or change of control of a Guarantor, the shares of the Promoter the performance of whose obligations hereunder the Guarantor has covenanted to procure, and its Affiliates and family members) (including Breccia Limited or Benray, as the case may be) and any Affiliate or Family Member of such Promoter in question shall be deemed to have been the subject of a Transfer Notice, and the Specified Price in respect of the Shares shall be the Fair Value of such Shares. Such Transfer Notice shall be irrevocable.”
43. Breccia relied upon Clause 10.5 in its submissions against the conclusions of the trial judge on the implied terms of the Shareholders’ Agreement. This provides:-
44. A facility letter from Anglo dated the 28th March 2006, was accepted on behalf of Benray. That offered the loan in the sum of €7,298,489 on the terms and conditions set out and in the General Conditions. The Security Documents specified in the facility letter included a first legal charge over Benray’s shareholding in BHL and guarantees and indemnities from James Sheehan and Rosemary Sheehan, Joseph Sheehan and George Duffy. It also contained a lengthy list of matters which had to be received by Anglo as a condition precedent to the draw down of the loan. These included, at para. 5(xv), a letter of waiver from Benray waiving “all pre-emption rights in relation to the shares on any sale by the Bank on the enforcement of the security”.
“This Agreement, the Schedules to this Agreement and the documents referred to in this Agreement together embody the entire agreement and understanding between the parties hereto and supersedes and terminates all prior statements, representations, agreements, arrangements, employment and understandings relating to the Company, the subject matter of this agreement and the Business, and shall be amended or supplemented only by written agreement of all the parties hereto. For the avoidance of doubt, all previous agreements entered into by the shareholders of the companies are hereby terminated.”
45. Clause 19.2 of the General Conditions, which form part of the loan agreement, provides:-
46. The Agreement was defined as meaning the facility letter and the general conditions. The “Security Documents” is also defined as meaning the security documents set out in the Facility Letter, which included the legal charge over the shares in BHL. The letter of waiver is not listed as a Security Document but rather is a requirement which was a precondition to the drawdown of the loan.
“The Bank may at any time transfer, assign or dispose of the benefit of the Agreement, and the Security Documents to any person on such terms as the Bank may think fit whether as part of a loan transfer or securitisation scheme or otherwise without notice to the Borrower or any other person.”
47. Benray also entered into a mortgage creating a first legal charge over the shares. That mortgage contains usual provisions in relation to the enforcement of the security when the money secured shall have become payable and giving to the Bank a power of sale and also a power to appoint a receiver and manager of the secured assets who is to be the agent of the mortgagor. Clause 18.2 of the mortgage provided:-
48. The final relevant documents, executed on the 28th March 2006, were the letters of waiver from each of the promoters/shareholders including Benray which were required as a condition precedent of the loans. The letter executed on behalf of Benray Limited was in evidence. It stated:
“The Bank may charge, assign, sell, transfer, novate, sub-participate or otherwise dispose to its interest and/or the benefit of this Mortgage to any person(s) on such terms as the Bank sees fit without any requirement to obtain the consent of or give prior notice to the Mortgagor or any other person whereupon all powers and discretions of the Bank herein contained shall be exercisable by such person(s).”
49. Breccia alone amongst the shareholders entered into a deed of covenant which was acceptable to Anglo instead of a cross guarantee. Whilst issues arose in the High Court as to whether or not Mr. Flynn was aware of this and its consequences for the documents executed it does not appear that it can have any bearing on the contractual issues on appeal.
“In consideration of the Bank advancing loan facilities to the Company [Benray] to facilitate subscription for shares in Blackrock Hospital Ltd the Company hereby waive(s) all pre-emption rights available to the Company in relation to all shares in BHL held by me (including but not limited to all shares, stocks, bonds, debentures and other instruments (“shares”) issued by BHL from time to time and legally or beneficially owned by the Company or any nominee of the Company’s at the date hereof or at any time hereafter, whether in certificated, dematerialised or uncertificated form whether or not held jointly with any other person) howsoever arising on the assignment, transfer or sale by the Bank of all or any of the shares in BHL on the enforcement by the Bank of any security held by it over any shares in BHL.”
Interpretation of Contracts – the Law
50. The trial judge carefully set out the well known principles applicable to the construction or interpretation of contracts. They are not in dispute. Nothing turns on whether one uses the word construction or interpretation and I propose using the word interpretation. In this jurisdiction they derive principally from the oft cited approval by Geoghegan J. in the Supreme Court in Analog Devices BV v. Zurich Insurance Company Limited  1 I.R. 274 of Lord Hoffman’s dicta in Investor Compensation Scheme v. West Bromwich Building Society  1 W.L.R. 896 at p. 912. Whilst they are now so well known I hesitate to quote them in full, but given that Breccia submits that the trial judge was in error in how he applied these principles which he had cited, I think it appropriate to do so.
51. The trial judge also referred to the statement of the principles by McKechnie J. in the Supreme Court in Marlan Holmes Limited v. Walsh and Another  IESC 23, which in turn refers to a statement from Lord Mustill as to the boundary between what is permissible and not permissible both of which are relevant to the appeal against how the trial judge sought to apply the principles. At para. 106 of his judgment the trial judge cited and agreed with these passages:
52. Counsel for Breccia stressed in accordance with the principles cited above the importance of the court commencing any interpretation of a commercial contract with the words used by the parties. They referred to the caveat added by Fennelly J. in ICDL v. European Computer Driving Licence Foundation  3 I.R. 327, where having referred to Lord Hoffman’s five principles he added “emphasis on those admissible aids to interpretation should not, however, mislead us into forgetting what a contract is, in the first instance composed of the words used by the parties”.
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’ but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammar; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meaning of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must for whatever reason, have used the wrong words or syntax; see Mannai Investments Co. Ltd. V. Eagle Star Life Assurance Co. Ltd.  A.C. 749.
(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Anntaios Compania Naviera S.A. v. Salen Rederierna A.V.  A.C. 191, 201:
‘If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.”
Application to Interpretation of the Shareholders’ Agreement
53. Counsel for Breccia submits that the trial judge having correctly set out the interpretive principles fell into error in his application of them. In particular, they submit that he failed to commence with the words used by the parties in the Shareholders’ Agreement and/or as put by Lord Mustill failed in the task of discovering “what the parties meant from what they said”. They further contend that in considering what he perceived to be the relevant background or context or matrix of facts, that the trial judge had regard to the negotiations of the parties and evidence of their intent. Those submissions are, it appears to me, justified from a full consideration of the approach of the trial judge as set out between paras. 172 and 217 and in relation to the conclusion reached at para. 225 of his judgment in relation to what the parties did or did not envisage at the time they entered into the Shareholders’ Agreement.
54. Applying the principles set out above, the first question is whether, starting with the words used by the parties in the Shareholders’ Agreement, the trial judge was correct in construing it as limiting a promoter’s right to recover monies pursuant to another promoter’s loan facility which had been validly assigned to it to the powers conferred in sub-Clauses 3.4.3 and 3.4.5.
55. I do not consider that when the Shareholders’ Agreement is interpreted in accordance with the above principles it has that meaning.
56. It is correct that as the trial judge concluded, the Shareholders’ Agreement does not in its terms expressly provide for a situation where one promoter takes an assignment from Anglo (or another lending institution) of its rights under a loan granted to another promoter which is secured upon shares in BHL. The trial judge, in my view, also correctly concluded that the terms of the Shareholders’ Agreement do not prohibit the acquisition by one promoter of the rights of Anglo under a loan agreement granted to another promoter and secured on its shares in BHL. Benray did not appeal the trial judge’s conclusion and declaration in respect of the validity of the assignment to Breccia by NALM of Benray’s loan and the related security of the mortgage over Benray’s shares in BHL.
57. The Shareholders’ Agreement at Clause 3.4.3 does envisage a promoter not performing its obligations under the loan advanced by Anglo to purchase the shares in BHL and, again, as correctly concluded by the trial judge permits - but does not oblige - another promoter to perform the obligations of the defaulting promoter. As stated by the trial judge at para. 226 of his judgment, “the use of the word ‘may’ shows that in the circumstances envisaged by the parties and on its natural and ordinary meaning, the intention of the parties was that this was not to be mandatory, it is a discretionary power”. As further stated by the trial judge, Clause 3.4.3 gives to a performing promoter the right to protect its own shareholding from a forced sale by reason of a default of another promoter. This arises in the context of Clause 3.4.1 which refers expressly to the intended cross-guarantees and indemnity and the fact that Anglo would have recourse to each promoter in the event that one promoter is in default to the extent only of the promoter’s shares in BHL.
58. Clause 3.4.5, again in accordance with the words used by the parties, only applies where one promoter either pursuant to the provisions of the Shareholder’s Agreement or having been called upon by Anglo to do so, incurs expenditure “which should have been paid or incurred by another promoter”. Where this occurs, then the subsequent provisions in the sub-clause in relation to recovering the amounts and further provisions where the amounts are not paid apply.
59. I cannot, however, agree with the trial judge that Clauses 3.4.3 and 3.4.5 should be interpreted as conferring on an “Underpaying Promoter” or defaulting promoter the right to have other promoters consider discharging its indebtedness and hence trigger Clause 3.4.5. The Clauses must be interpreted starting with the words used by the parties in the context of the entire of Clause 3.4; the contemporaneous agreements with Anglo; and the full Shareholders’ Agreement. Clause 3.4.3 grants to each performing promoter the discretionary power but not an obligation to step in; and the terms of Clause 3.4.1 make clear that its purpose is to enable a performing promoter protect its own shares from the powers given to Anglo on default of another promoter. Moreover, by its terms Clause 3.4.5 only becomes applicable in the event that a performing promoter decides in accordance with Clause 3.4.3 to make the payment which ought to have been made by a defaulting promoter or if required by Anglo (or its permitted assigns) pays the amount due by the defaulting promoter.
60. However, Clauses 3.4.3 and 3.4.5 simply have no application unless one promoter makes a voluntary decision to pay off to the then holder of the loan the amount due under a loan referred to in Clause 3.4.1 originally granted by Anglo and which is secured on shares in BHL or the then holder of the Anglo loan and related securities including guarantees and indemnities makes a demand under a guarantee or indemnity and payment is made. They cannot be interpreted as otherwise applying.
61. Insofar as I have referred to Anglo in the above, I have done so for convenience. I accept the submission made on behalf of Breccia that in accordance with Clause 1.2.4, any reference to Anglo in the Shareholders’ Agreement includes its permitted assigns. It follows, accordingly, that the reference to Anglo in the Shareholders’ Agreement also applies in relation to the loans and mortgage held by a permitted assignee of Anglo, including Breccia. I respectfully disagree with the trial judge that the references to “Anglo or any other lending institution” in Clauses 3.4.2 and 3.4.5 restricts Breccia (which is not a lending institution,) as a permitted assignee of Anglo from calling in the loan and enforcing its validly acquired security over the shares in BHL following a default by Benray in respect of its obligations under the terms of the loan and security documents. Those clauses do indicate that the parties envisaged that there might be refinancing with an alternative lending institution in substitution for Anglo. In a context, however, where, on the same day, the borrowing promoters entered into loan agreements and mortgages with Anglo which expressly permitted assignment to any person, such an interpretation is not consistent with the words used in the Shareholders’ Agreement.
62. Having regard to the submissions made on appeal, I would add that I accept that the reasoning of the trial judge in interpreting the Shareholders’ Agreement relies in part upon evidence of the negotiations between the parties and of the then intentions of the parties, something which is not permissible in accordance with the principles approved in Analog Devices.
63. In his interpretation of the Agreement the trial judge also relied upon his conclusion that the effect of the enforcement of the security over Benray’s shares in BHL by Breccia by appointment of a receiver was to deprive promoters (other than Benray and Breccia) of their entitlement to step in under Clause 3.4.3 to repay Benray’s debt and the right of Benray to be rescued by another promoter. I cannot agree with these conclusions, either on the facts or having regard to the terms of the Agreement.
64. Each promoter has an option to step in, as the trial judge held, but it is not obliged to step in. As also held by the trial judge, Benray was in default in its loan since early 2011. No promoter had opted to step in. Breccia gave notice to Benray of the assignment in May 2014. It gave formal notice to BHL at latest in July 2014 (in relation to dividend payment). No promoter sought to step in. Even after the commencement of these proceedings no other shareholder or promoter offered to step in and repay Benray’s loan or make any claim that he/it was prevented from doing so by the appointment of the Reciever. Clause 3.4 cannot be interpreted as giving to a defaulting promoter an entitlement to have other promoters consider stepping in and repaying its loan during any specified period.
65. The trial judge, correctly, in my view, interpreted the Shareholders’ Agreement as not preventing Breccia from purchasing and taking an assignment from NALM of Benray’s loan (originally given by Anglo) and acquiring the benefit of the mortgage of shares in BHL granted by Benray to Anglo; Mr. Flynn’s guarantee and other security for the borrowing. Nothing in Clause 3.4.3 or 3.4.5 can be interpreted as applying to a demand made by Breccia, albeit then both a promoter and permitted assignee of Anglo (via IBRC and NALM) to Benray to repay the assigned Anglo loan and, in default of repayment, enforcing the security pursuant to the terms of the mortgage of the shares by appointing a receiver. Breccia has not made any decision pursuant to Clause 3.4.3 to repay (to itself) Benray’s liability to it under the assigned Anglo loan and not having done so and not having made demand on itself as a guarantor of Benray, Clause 3.4.5 does not apply.
66. Finally, so far as issues of interpretation are concerned, the declaration granted at para. II of the order of the High Court declares, inter alia, that Breccia as a promoter is not entitled to “to enforce a sale of Benray’s shareholding in Blackrock Hospital Limited otherwise than in accordance with sub clauses 3.4.3 and 3.4.5 and sub clauses 8.2 to 8.4 inclusive of the Shareholders’ Agreement”. The reason for the references to sub clauses 8.2 to 8.4 of Clause 8 is not entirely clear. However the restraining order made refers simply to Clause 8. The trial judge analysed Clause 8 from paras 230 to 235 where he concluded there were four circumstances a promoter’s shareholding could be sold;
67. He then continued:
“(1) a forced sale by Anglo qua “bank” or any other ‘lending institution’ on foot of the Mortgage of Shares, in which case the pre-emption rights in the Shareholders’ Agreement did not apply;
(2) a ‘voluntary’ sale by a Promoter of their shares under clause 8.2, in which case the pre-emption provisions of clause 8 applied;
(3) a forced sale resulting from an Overpaying Promoter choosing to ‘step in’ under clause 3.4.3, in which case after six months from demand a transfer notice is ‘deemed’ to be served under clause 3.4.5 and the pre-emption provisions of clause 8 apply; and
(4) other circumstances provided for in clause 8 (e.g. an encumbrancer taking possession of share security, bankruptcy or liquidation of a Promoter, or material breach by a Promoter) resulting in an irrevocable Deemed Transfer Notice, in which cases the pre-emption provisions also apply.”
68. The references by the trial judge to a “Deemed Transfer Notice” and Clause 8 in para. 237 appear to follow from his conclusion in para. 236 that a promoter could not step into the shoes of Anglo (as a permitted assignee) and the restriction on enforcement by Breccia of its mortgage over the shares of Benray in BHL to doing so in accordance with Sub-Clause 3.4.5. For the reasons already set out such interpretation is not in my view permissible having regard to the terms of the Shareholders’ Agreement. Also, Clause 1.2.4 expressly provides that any reference to a person in the Shareholders’ Agreement includes a permitted assign of that person. The reasoning of the trial judge is not based on any freestanding restriction on enforcement in Clause 8.
“236. The terms of the Shareholders’ Agreement therefore never envisaged a forced sale by a Promoter standing in the shoes of Anglo or a successor bank or lending institution, or otherwise operating outside of the pre-emption provisions. Such a process would be contrary to the presumed intention of the parties, established from the context and the words used in the Shareholders’ Agreement, that all sales of shares by a Promoter would be subject to the pre-emption provisions, and allowing for a Promoter to ‘step in’ to cover the default of a borrowing Promoter.
237. For these reasons I conclude that the Shareholders’ Agreement should be construed as firstly limiting a Promoter’s right to recover monies pursuant to another Promoter’s loan facility to the express powers conferred in sub clauses 3.4.3 and 3.4.5, and secondly, as limiting a Promotor’s right to enforce a sale of another Promoter’s shareholding to the terms of sub clause 3.4.5 and a Deemed Transfer Notice to which the pre-emption provisions of clause 8 apply.”
69. Counsel for Breccia submitted on appeal that in the High Court no submission was made to the effect that Clause 8 independently of Clauses 3.4.3 and 3.4.5 restricted Breccia from appointing a receiver over Benray’s shares in BHL or the Receiver from selling the shares. However on appeal, counsel for Benray submitted in support of the High Court order that the Receiver is subject to Clause 8.2 on any sale of Benray’s shares. By reason of that submission and the declaration that Breccia is precluded from enforcing the sale of Benray’s shares in BHL “other than in accordance with sub clauses 3.4.3 and 3.4.5 and sub clauses 8.2 to 8.4 inclusive of the Shareholders Agreement” I would add the following. Clause 8.2 applies, after three years, where “a shareholder wishes to sell his shares”. Although a receiver appointed over Benray’s shares in BHL is, under the terms of the mortgage, an agent for Benray, it cannot be concluded that where a receiver proposes to sell the shares that Benray “wishes to sell its shares”. The sale is by a receiver for the purpose of realising the security. Benray has not made a decision to sell its shares. The decision to sell is that of Breccia in enforcing its security and is being carried out by the Receiver. Benray cannot be considered to be desirous of selling its shares with the meaning of clause 8.2. Hence clause 8.2 does not apply to a sale by the Receiver.
70. No submissions were made in relation to Clauses 8.3 or 8.4 on this appeal. I do not wish to express any view on whether or not following a sale by a receiver as agent for Benray a proposed transferee is bound to execute a deed of adherence referred in sub-clause 8.4.
71. It does not appear to me necessary to consider the remaining provisions of Clause 8 having regard to the conclusions reached already in this judgment and the declaration made on consent of all parties in the Construction Summons proceedings.
72. Accordingly I have concluded that the appeal must be allowed against trial judge’s interpretation of the Shareholders’ Agreement as firstly limiting a Promoter’s right to recover monies pursuant to another Promoter’s loan facility to the express powers conferred in sub clauses 3.4.3 and 3.4.5, and secondly, as limiting a Promoter’s right to enforce a sale of another Promoter’s shareholding to the terms of sub clause 3.4.5 and a Deemed Transfer Notice to which the pre-emption provisions of clause 8 apply and the declarations and restraining order made pursuant thereto.
73. As I have concluded that the trial judge was incorrect in his interpretation of the Shareholders Agreement, it is necessary to consider as a second issue whether or not he was correct in implying the term already set out, namely:
74. The trial judge’s consideration of the applicable legal principles in relation to implied terms falls into two parts. First, he considered the well-established general principles and then, specifically, principles which might apply to the implication into a contract such as this of a duty of good faith and fair dealing. For this latter purpose the trial judge relied principally on what he referred to as “the ground-breaking judgment” of Leggatt J. in Yam Seng Pte. Ltd. v. International Trade Corporation Ltd.  1 CLC 662.
“A term that a Promoter cannot take steps to enforce recovery of another Promoter’s Anglo Facility or enforce the sale of the other Promoter’s secured shareholding otherwise than in accordance with sub clauses 3.4.3 and 3.4.5 of the Shareholders’ Agreement.”
75. The parties do not dispute that the trial judge correctly set out the law in this jurisdiction in relation to the tests for the implication of terms at paras. 122 to 124 of his judgment:
76. The trial judge ultimately decided to consider and determine whether the above term should be implied into the Shareholders’ Agreement principally by reference to the five conditions identified by Lord Simon of Glaisdale in BP Refinery (Westernport) Pty. Ltd. v. Shire of Hastings  180 CLR 266, approved of by Lord Hoffmann in Attorney General of Belize v. Belize Telecom Ltd.  1 W.L.R. 1988. The appellants also relied upon a more recent decision of the United Kingdom’s Supreme Court on implied terms, Marks & Spencer Plc. v. PNB Paribas Security Services trust Company (Jersey)  A.C. 742 and, in particular, the judgment of Lord Neuberger.
“122. In support of these contentions counsel relied on the decision of the Supreme Court in Sweeney v. Duggan  2 I.R. 531 setting out the accepted test for the implication of terms. The principles are set out by Murphy J. at p. 538:-
‘There are at least two situations where the courts will, independently of statutory requirement, imply a term which has not been expressly agreed by the parties to a contract. The first of these situations was identified in the well-known case, The Moorcock (1889) 14 P.D. 64 where a term not expressly agreed upon by the parties was inferred on the basis of the presumed intention of the parties. The basis for such a presumption was explained by MacKinnon L.J. in Shirlaw v. Southern Foundries (1926) Ltd.  2 K.B. 206 at p. 227 in an expression, equally memorable, in the following terms:—
In addition there are a variety of cases in which a contractual term has been implied on the basis, not of the intention of the parties to the contract but deriving from the nature of the contract itself. Indeed in analysing the different types of case in which a term will be implied Lord Wilberforce in Liverpool C.C. v. Irwin  A.C. 239 preferred to describe the different categories which he identified as no more than shades on a continuous spectrum. . . Whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable category of contract it must be not merely reasonable but also necessary. Clearly it cannot be implied if it is inconsistent with the express wording of the contract and furthermore it may be difficult to infer a term where it cannot be formulated with reasonable precision.’
‘Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course’.’
123. Counsel also relied on the decision of O’Higgins J. in Meridian Communications & Anor v. Eircell Ltd.  1 I.R. 17, where after a review of the case law in Ireland and England, he distilled the following principles on the implication of contractual terms:-
‘- before a term will be implied in a contract it must be necessary to do so, and not merely reasonable;
- the term must be necessary to give business efficacy to the agreement;
- it must be a term which both parties intended, that is, a term based on the presumed common intention of the parties;
- the court will approach the implication of terms into a contract with caution;
- there is a presumption against importing terms into a contract in writing and the more detailed the terms agreed in writing the stronger is the presumption against the implication of terms;
- if the term sought to be implied cannot be stated with reasonable precision, it will not be implied’.
124. Counsel emphasised the cautious approach, also relying on an obiter dictum of Fennelly J. in the Supreme Court decision in Dakota Packaging v. AHP Manufacturing  2 I.R. 54, at p. 106:-
‘…I think it desirable to state that the cases on the topic - indeed the cases which were very properly cited by the trial judge - do not warrant at least some of the language used in the judgment. In particular, the courts do not have ‘a broad discretion’ to imply terms. It is not enough that a term to be implied is ‘fair and reasonable’. It is true that the trial judge went on to hold that the term must also be necessary, but it is important to bear in mind that the courts will not lightly infer terms’.”
77. The conditions identified by Lord Simon (which may overlap) which should be satisfied before a term can be implied as set out by the trial judge at para. 126 are:
The parties are in agreement that the possibility that (2) and (3) may be alternatives (and not necessarily cumulative) accords with the law in this jurisdiction as set out in Sweeney v. Duggan.
“ (1) it must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3) it must be so obvious that ‘it goes without saying’;
(4) it must be capable of clear expression;
(5) it must not contradict any express term of the contract…”
78. Part of the trial judge’s reasoning at para. 251 of his judgment as to why he considered in application of the above principles that there is an implied term restricting the right of a promoter to take steps to enforce recovery of another promoter’s Anglo facility or enforce the sale of its shares given as security other than in accordance with Sub-Clauses 3.4.3 and 3.4.5 of the Shareholders Agreement is his conclusion that the venture to which the Shareholders’ Agreement applied was not purely commercial, but was motivated in part by other considerations. I cannot share this view of the Shareholders’ Agreement in the light of its terms and the context in which it came into being. As already stated, its purpose was to facilitate the subscription for and redemption of approximately 56% of the shares in BHL which was then held by BUPA, an insurance company. It was also to provide for the future management and development of the Blackrock Clinic, a private hospital which, whilst intended to be run in accordance with a specified Catholic ethos, is nonetheless intended to operate as a profit-making venture. Furthermore, the two new shareholders introduced at the time of the Shareholders’ Agreement, namely, Benray and Breccia, were respectively associated with persons with commercial interests outside of the medical sphere. In both instances the investment being made was clearly a commercial investment. With one exception, the promoters were, moreover, obtaining commercial loans from Anglo for the purpose of taking up their respective shares and entering into purely commercial arrangements in relation to the loans and security therefore. One might also observe that the Promoters had expressly agreed at Clause 10.3 that the Shareholders’ Agreement was not to be “deemed to create any partnership between the parties hereto in relation to the Company or otherwise”.
79. It must be recalled in considering whether the trial judge was correct to imply such a term in the Shareholders’ Agreement that it is in a context where he has correctly interpreted the Agreement as not prohibiting the acquisition by a promoter for valuable consideration of rights in relation to one of the loans granted by Anglo to another promoter referred to at Clause 3.4.1 and the security and guarantees connected therewith. The term the trial judge implied as necessary to give business efficacy to the Shareholders’ Agreement was a term which significantly restricts the right of a promoter to demand repayment of loans from another promoter or to recover under an associated guarantee and enforce security which it had acquired for valuable consideration, in this instance, a sum in excess of €9m.
80. As already noted, the Shareholders’ Agreement does not contain any term specifically addressed to the recovery of the Anglo loans referred to in Clause 3.4.1 or the enforcement of related security over shares in BHL by an assignee of Anglo who is also a promoter. The reasoning of the trial judge as to why it was necessary to imply the restrictive term in order to give business efficacy to the Agreement cannot, in my view, be upheld. He gave two reasons. The first was:
81. For reasons already set out in this judgment, it was factually incorrect to conclude that a calling in of Benray’s loan by Breccia in August 2014 and the enforcement of its security over Benray’s shares by the appointment of a receiver deprived other shareholders in BHL of their right to step in pursuant to Clause 3.4.3 following the default by Benray in repayment of the Anglo loan, which had occurred as long ago as early 2011. Also, insofar as the trial judge referred to Benray being deprived of the possibility of rescue by another shareholder, as already concluded, there is no such right in Benray under the terms of the Shareholders Agreement. The option given under Clause 3.4.3 is to non-defaulting promoters, the purpose of which is to enable them to protect their own shareholding and avoid recovery by Anglo or its assignee from them under cross-guarantees and/or a sale of their shares in BHL. The question as to whether a receiver could or could not subsequently sell Benray’s shares without regard to the pre-emption provisions of the Shareholders’ Agreement depends both on the construction of Clause 8 and, possibly, the consent declaration made in the construction summons proceedings. Clause 3.4.5 insofar as it refers to a Deemed Transfer Notice does not apply.
“. . . Were it otherwise, and were a Promoter standing in the shoes of Anglo entitled to ignore clause 3.4.3/3.4.5, then other shareholders would be deprived of their right to ‘step in’. Benray would be deprived of the possibility of rescue by another shareholder under those clauses, and Benray’s shares could be sold without regard to any of the pre-emption provisions of the Shareholders’ Agreement.”
82. The second reason given related to the position of a guarantor, such as Mr. Flynn, who, by his guarantee and indemnity signed on 28th March 2006, guaranteed to Anglo and expressly its successors and assigns the repayment of Benray’s loan. The trial judge stated:
83. I cannot agree that this is a permissible reason to imply the terms sought in application of the above principles. On behalf of Breccia, it was submitted that this was not a matter relied upon before the trial judge. Independently of that issue, it cannot justify the implication of the identified term as necessary to give business efficacy to the Shareholders’ Agreement. Contemporaneous with the Shareholders’ Agreement, Mr. Flynn entered into a guarantee and indemnity in writing to Anglo, its successors and assigns, in relation to the loan to be granted to Benray. Under Clause 17.2, he expressly permitted Anglo to assign the benefit of the guarantee “to any person (f) on such terms as [Anglo] sees fit without any requirement to obtain the consent or give prior to notice to the guarantors or any person whereupon all powers and discretions of [Anglo] herein contained shall be exercisable by such person(s).”
“. . . If a Promoter avails of its right to ‘step in’ under clause 3.4.3 and the loan is repaid in full then this Guarantee is discharged (this is the effect of clause 2.1 of the Guarantee) and the guarantor is relieved of this particular guarantee obligation. It would be quite wrong if Breccia were able to avoid this result by seeking to enforce against Benray and Mr. Flynn as guarantor outside of the terms of the Shareholders’ Agreement, as this is not contemplated by clause 3.4.5.”
84. The evidence given by Mr. Flynn in the High Court was that Benray was an “off-the-shelf” company”, with no assets other than the shares. The guarantee was required by Anglo as a condition of the loan. The implication of a term into the Shareholders’ Agreement which would restrict a promoter - who validly purchased for significant sums the rights of Anglo under the loan and related security, including the guarantee from Mr. Flynn - to a recovery process against Benray, the effect of which would be to discharge Mr. Flynn’s liability under the guarantee, a term never agreed to by the parties, cannot be considered objectively as one necessary to give business efficacy to the Shareholders’ Agreement.
85. The trial judge also considered the question as to whether the proposed implied term was so obvious that it goes without saying, and his conclusion was:
86. Counsel for Breccia submitted, in my view, correctly, that the trial judge was in error in his approach to the question. First, they submit that a “compelling case” is not sufficient to warrant the implication of a term. They submit that obviousness requires the Court to be satisfied that, firstly, reasonable people in the position of the parties would all have agreed to make provision for the contingency in question, and second, that they would “without doubt”, or with something approaching certainty, have accepted the term proposed by the officious bystander.
“. . . an officious bystander understanding the necessity for such an implied term would recognise a compelling case for it and the answer to this question must be that the parties would have agreed that it was obvious.”
87. That submission appears justified on the authorities. In Marks & Spencer v. PNB Paribas Security Services, Lord Neuberger, at para. 21, commenting on the summary given by Lord Simon in the BP Refinery case already referred to, stated:
88. A little earlier, in the same judgment, Lord Neuberger summarised and in part quoted from the judgment of Sir Thomas Bingham MR in Philips Electronic Grand Public SA v. British sky Broadcasting Ltd.  EMLR 472, 481 which appears supportive of the submission made on behalf of Breccia and helpful in identifying the difficult task facing the Court when asked to imply a term in relation to a matter for which no provision has been made in the contract. Lord Neuberger stated at para. 19:
“. . . First, in Equitable Life Assurance Society v. Hyman  1 A.C. 408, 459, Lord Steyn rightly observed that the implication of a term was ‘not critically dependent on proof of an actual intention of the parties’ when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional, reasonable people in the position of the parties at the time at which they were contracting. . .”
89. The eventuality for which no provision is made in the Shareholders’ Agreement is the purchase by one promoter of the rights to the loan granted by Anglo to another promoter and related security and guarantees and default. The Shareholders’ Agreement does not, however, prohibit such a purchase and assignment.
“In Philips Electronique Grand Public SA v British Sky Broadcasting Ltd  EMLR 472, 481, Sir Thomas Bingham MR set out Lord Simon’s formulation, and described it as a summary which “distil[led] the essence of much learning on implied terms” but whose “simplicity could be almost misleading”. Sir Thomas then explained that it was “difficult to infer with confidence what the parties must have intended when they have entered into a lengthy and carefully-drafted contract but have omitted to make provision for the matter in issue”, because “it may well be doubtful whether the omission was the result of the parties’ oversight or of their deliberate decision”, or indeed the parties might suspect that “they are unlikely to agree on what is to happen in a certain … eventuality” and “may well choose to leave the matter uncovered in their contract in the hope that the eventuality will not occur”. Sir Thomas went on to say this at p 482:
‘The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong. [He then quoted the observations of Scrutton LJ in Reigate, and continued] [I]t is not enough to show that had the parties foreseen the eventuality which in fact occurred they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred …’”
90. Approaching the matter, as suggested by Lord Bingham, it is not sufficient to show that if the parties had foreseen this eventuality they would have wished to make provision for it, or, indeed, that there were compelling reasons to make provision for it “unless there was only one contractual solution or that one of several possible solutions would, without doubt, have been preferred”.
91. It does not appear to me that a Court could conclude, without doubt, that if reasonable persons in the position of these parties when negotiating the Shareholders’ Agreement had been asked the question as to “what is to happen if one promoter acquires the Anglo interests in the loans granted to another and that other is in default?” the answer would have been that the purchasing promoter would, firstly, have to pay off the loan to itself under Clause 3.4.3 and then could only pursue the defaulting promoter and enforce security over the shares in accordance with Clause 3.4.5.
92. I cannot conclude that the implied term identified by the trial judge meets the test of obviousness such as would warrant the implication of such a term into the Shareholders’ Agreement. The implication of such a term severely restricts the rights of a promoter who purchases for valuable consideration to whom another promoter’s Anglo loan and related security is assigned. If reasonable persons in the position of the parties at the time of the Shareholders’ Agreement were asked what was to occur on the happening of such an assignment and default by the promoter whose loans had been assigned, it cannot be concluded “without doubt” that the single answer would have been the inclusion of the term implied by the trial judge.
93. Accordingly, I have concluded that the judgment and order implying the terms set out above into the Shareholders’ Agreement must be vacated and set aside.
Implied Term of Good Faith and Fair Dealing
94. As already stated, the trial judge considered in some detail that he termed to be a ground breaking judgment of the English High Court in Yam Seng Pte. Ltd. v. International Trade Corporation Ltd.
95. In that judgment Leggatt J. stated (at para. 131):-
96. The trial judge gave much greater consideration to the judgment of Leggatt J.and the submissions made on behalf of the appellant to the effect that there is no general duty of good faith in Irish or English contract law. In particular, they relied upon the statement of the English Court of Appeal in Mid Essex Hospital v. Compass Group  EWCA Civ. 200, where it stated:-
“I doubt that English law has reached the stage, however, where it is ready to recognise a requirement of good faith as a duty implied by law, even as a default rule, into all commercial contracts. Nevertheless, there seems to me to be no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty in any ordinary commercial contract based on the presumed intention of the parties.”
97. The trial judge having considered in particular the nature and what he perceived as the “relational” nature of the Shareholders’ Agreement ultimately concluded “insofar as it is necessary to make such a finding it is my decision that it is implied in the Shareholders’ Agreement that Breccia and Benray owed each other mutual duties of good faith and fair dealing”.
“In addressing this question, I start by reminding myself that there is no general doctrine of ‘good faith’ in English contract law, although a duty of good faith is implied by law as an incident of certain categories of contract . . . if the parties wish to impose such a duty they must do so expressly.”
98. By reason of the interpretation placed by the trial judge on clauses 3.4.3 and 3.4.5 of the Shareholders’ Agreement and his conclusion on the implied term already referred to, the general implied term of owing each other mutual duties of good faith and fair dealing does not appear from his judgment to impose additional specific restrictions or obligations on Breccia. Nevertheless, as appears from the declarations ultimately made in the order of the High Court, the implied term that Breccia and Benray as promoters and shareholders owed each mutual duties of good faith and fair dealing is referred to as an alternative basis for the declaration made at para. II of the order of the High Court set out at paragraph 28 above. As the trial judge only relied upon such implied term to support the specific implied terms already considered, I only propose addressing the submissions on his conclusion briefly.
99. I accept the submission that there is no general principle of good faith and fair dealing in Irish contract law. There are, of course, certain types of agreements and contracts to which a duty of good faith applies, such as in a partnership agreement or the principle of uberrima fides in insurance contracts.
100. The Shareholders’ Agreement is not, however, an agreement of a type to which any such general duty of good faith applies in accordance with authority. I have already set out the commercial nature of the agreement. Undoubtedly, certain of the parties were related to each other, some were medical colleagues and they all for the most part relied upon a single solicitor to draw up the Shareholders’ Agreement. Nevertheless it is a Shareholders’ Agreement which expressly includes a “no partnership” clause in clause 10.3. A partnership would, of course, bind the parties by obligations of good faith. The parties in clause 3.1 furthermore agree “to cooperate as provided in this agreement for the purpose of the operation and development of Blackrock Clinic . . .”[emphasis added]. The Agreement includes at Clause 10.5 an “entire agreement” clause. The parties also expressly at Clause 10.9.2 identified one matter which they would do “in good faith” namely in the event that any provision of the agreement was found to be void, invalid or unenforceable that they would forthwith “negotiate in good faith” in order to agree terms of a mutually satisfactory provision . . .”.
101. The submissions on appeal on behalf of Breccia point out that at the time of the Shareholders’ Agreement in 2006 there was no decision of an English or Irish court which implies a general obligation of good faith and fair dealing into a Shareholders Agreement.
102. It must be recalled that even if the judgment in Yam Seng were to be followed in this jurisdiction (and I am not deciding that it should be) in accordance with the judgment of Leggatt J. such a term is to be implied “following the established methodology of English law for the implication of terms”. Having regard to the matters set out in the preceding paragraphs, it appears to me that the conditions identified by Lord Simon in BP Refinery already referred to in this judgment could not be satisfied by an implied term of a general duty of good faith and fair dealing in the Shareholders’ Agreement. It is not a term which could be considered necessary to give business efficacy to the Shareholders’ Agreement; it cannot be considered so obvious that “it goes without saying” and it is not capable of clear expression in the sense that it lacks certainty. In any event, I do not consider that in accordance with the well established principles set out and considered above, any such general duty of good faith and fair dealing could in turn form a basis for the specific implied term included in the declaration at para. II of the order of the High Court.
103. It follows from the interpretation of the Shareholders’ Agreement above; the absence of the implied terms contended for; the validity of the assignment of Benray’s Anglo loan to Breccia and the findings of fact made by the trial judge, and not disputed, that Benray was in default of its obligations under the Anglo loan that the demands made by letters dated the 8th August, 2014 and the 12th August 2014, to Benray and Mr. Flynn (as guarantor) respectively were not invalid. The further consequence is that the appointment of the Receiver on the 11th August 2014, pursuant to the terms of the mortgage over the shares was not invalid. Accordingly the High Court judgment and order to those effects must be vacated.
Letter of Waiver
104. The trial judge also granted a declaration “that as against Benray and John Flynn, Breccia as a Promoter/shareholder is not entitled to the benefit of the Letter of Waiver of Pre-Emption Rights executed by Benray/John Flynn in favour of Anglo on 28th March, 2006”. His reason for so doing appears from para.270 of his judgment to be the view formed on the interpretation of the Shareholders’ Agreement that Breccia as a promoter is bound by the offer round provisions and that it cannot upon the acquisition of the Benray’s Anglo loan and security enforce that security by selling Benray’s shares in BHL on the open market. That reason cannot be upheld for the reasons already set out in this judgment. Accordingly the declaration granted should be set aside and vacated.
105. The trial judge did not reach any decision on an issue in dispute before this Court as to whether the assignment by NALM to Breccia included the benefit of the Letter of Waiver. It is difficult to see that it remains of any practical significance having regard to the consent declaration in the construction proceedings and the appointment of the Receiver. I would conclude that notwithstanding the fact that there is no express reference to the Letter of Waiver in the Deed of Transfer - as it was a precondition to the drawdown of the loan by Benray from Anglo in accordance with the Loan Agreement - it did nonetheless form part of the benefit of the Agreement expressly assignable by Anglo pursuant to Clause 19.2 of the General Conditions, and which was ultimately assigned to Breccia.
106. By reason of the conclusions reached on the interpretation of the Shareholders’ Agreement; the absence of the implied terms and consequences for the steps taken by or on behalf of Breccia in relation to recovery of the loans and enforcement of security over the shares of Benray in BHL, it is unnecessary to address or determine the other issues raised in the notice of appeal.
107. The trial judge disallowed Breccia’s counterclaim by reason of his conclusions on the terms of the Shareholders’ Agreement and invalidity of the demand made for repayment of the loan by Breccia. On appeal, no substantive submission was made against the entitlement of Breccia to judgment in the event that its appeal on the contractual issues succeeded. It follows that Breccia is now entitled to judgment against Benray and Mr Flynn in the amount claimed namely €8,744,853 and interest.
108. In summary my conclusions for the reasons already set out are:
109. I would allow the appeal and vacate so much of the order of the High Court of 11th September 2015 as comprises the declarations at paras II,III,IV and V and the order restraining Breccia from offering for sale or effecting a sale or other disposal of Benray’s shares in BHL. I would grant Breccia judgment against the plaintiffs on the counterclaim in the sum of €8,744,853 and interest. I would hear the parties in relation to any precision required in relation to the date or terms of interest.
(1) The trial judge’s interpretation of the Shareholders’ Agreement as firstly limiting a Promoter’s right to recover monies pursuant to another Promoter’s loan facility to the express powers conferred in sub clauses 3.4.3 and 3.4.5, and secondly, as limiting a Promoter’s right to enforce a sale of another Promoter’s shareholding to the terms of sub clause 3.4.5 and a Deemed Transfer Notice to which the pre-emption provisions of clause 8 apply cannot be upheld.
(2) It is not permissible to imply into the Shareholders’ Agreement a term that a Promoter cannot take steps to enforce recovery of another Promoter’s Anglo Facility or enforce the sale of the other Promoter’s secured shareholding otherwise than in accordance with sub clauses 3.4.3 and 3.4.5 of the Shareholders’ Agreement.
(3) The Shareholders’ Agreement does not include an implied term that the parties owe each other mutual general duties of good faith and fair dealing.
(4) The demands made by Breccia by letters dated the 8th August, 2014 and the 12th August 2014, to Benray and Mr. Flynn (as guarantor) respectively were not invalid. Further the appointment of the Receiver on the 11th August 2014, pursuant to the terms of the mortgage over the shares of Benray in BHL was not invalid.
(5) Breccia obtained the benefit of the Letter of Waiver of Pre-Emption Rights executed by Benray or Mr. Flynn in favour of Anglo on 28th March, 2006 upon assignment to it of Benray’s Anglo Loan Facilities and related security.
(6) Breccia is entitled to judgment against the plaintiffs on the counterclaim in the sum of €8,744,853 and interest.
(7) It is not necessary to decide any remaining issues on the appeal.