High Court allows default surcharge interest but excludes prior enforcement costs from loan redemption figure.

[2016] IEHC 68

THE HIGH COURT

COMMERCIAL

[2015/5122P]

BETWEEN

JOHN FLYNN

AND

BENRAY LIMITED

PLAINTIFFS

AND

BRECCIA

DEFENDANT

JUDGMENT of Mr. Justice Haughton delivered on the 5th day of February, 2016

Introduction

1. In these proceedings, commenced by Plenary Summons on 24th June, 2015, the first named plaintiff (“Mr. Flynn”) and the second

named plaintiff (“Benray”) seek declarations and orders in relation inter alia to the redemption figure that should be paid to the

defendant in order for certain loans to be redeemed. A modular hearing on the redemption figure, with witness evidence and legal

argument, was heard before me on 20th, 21st and 22nd October, 2015. Central to the issue is whether the defendant is entitled to

include default surcharge interest and the costs of enforcement in the redemption figure.

Background

2. Benray and the defendant are shareholders in Blackrock Hospital Limited (“BHL”), the operating company of the Blackrock Clinic.

Benray’s shareholding is 8.02%, and the defendant’s holding is 28.08%.

3. Benray financed the purchase of its shares in BHL by way of a loan provided by Anglo Irish Bank Plc. (“Anglo”) pursuant to a Loan

Agreement dated 28th March, 2006 (“the 2006 Facility”) secured by way of a mortgage of shares dated 28th March, 2006 (the

“Mortgage”) and a Guarantee and Indemnity also dated 28th March, 2006 (the “Guarantee”) from Mr. Flynn. Benray entered into a

further loan facility with Anglo on 19th February, 2008 (“the 2008 Facility” – the two facilities will jointly be referred to as “the Loan

Facilities”) – secured in the same way.

4. On 28th March, 2006 the defendant, and two other parties Dr. Joseph Sheehan and Dr. George Duffy who were existing

shareholders in BHL, also borrowed money from Anglo, on similar terms, to purchase shares in BHL. Benray furnished a further

Guarantee dated 28th March, 2006 in respect of the borrowers’ liabilities under those further loans (the “cross guarantee”). Similar

cross guarantees were entered into by the other shareholders concerned save that the defendant did not enter into a cross

guarantee, but instead executed a Deed Covenant dated the 28th of March, 2006 such that if one of the other borrowers defaulted

the second named defendant would receive notice and have 45 days to remedy the default or deal with its shareholding in BHL as

Anglo might direct.

5. The relationship between the shareholders and BHL and the shareholders inter se was governed by a shareholders’ agreement also

dated 28th March, 2006 (“the Shareholders’ Agreement”).

6. The Loan Facilities were acquired under the National Asset Management Agency Act 2009, and became vested in its wholly owned

subsidiary National Asset Loan Management Limited (“NALM”), and that acquisition was notified to BHL on 28th February, 2014.

7. In March/April, 2014 with funding from a third party Talos LLC (“Talos”) the plaintiffs and Dr. Joseph Sheehan attempted firstly to

purchase through a special purpose vehicle company firstly the Anglo loans of Dr. Joseph Sheehan and Dr. George Duffy from the

Special Liquidators of the Irish Bank Resolution Corporation Plc. (“IBRC”), in who such loans were then vested, and secondly to

redeem Benray’s indebtedness with NALM. This transaction (“the Talos transaction”) did not proceed to completion because before it

could be completed Dr. Duffy’s debt with IBRC had been redeemed by Tullycorbett Ltd., a company controlled by Dr. Duffy, using

funds provided by the defendant.

8. Thereafter the defendant offered to NAMA to purchase Benray’s loan from NALM, and by Loan Sale Deed, and Deed of Transfer

both dated 23rd May, 2014 the defendant purchased Benray’s indebtedness under the Loan Facilities, and the associated security.

9. By letter of demand dated 8th August, 2014 sent as a precursor to the appointment of a receiver, the sum of €8,744,853 was

demanded by the defendant from Benray under the Loan Facilities. Following non payment the defendant purported to appoint a

receiver on 11th August, 2014.

10. These events led to litigation in proceedings entitled John Flynn and Benray Ltd. v. Breccia and Michael McAteer, High Court

Record No. 2014/7900P which were heard by me and the subject of a judgment dated 13th August, 2015 and reported at [2015] IEHC

547 (“Flynn No.1”). In Flynn No.1 I held that the acquisition of the Loan Facilities and security by the defendant on 23rd May, 2014

was valid, but that the purported calling in of the loans and the appointment of the receiver in August, 2014 were invalid. I held that

as a party to the Shareholders’ Agreement the defendant was not entitled to demand or recover monies from Benray, or Mr. Flynn as

guarantor, otherwise than in accordance with sub clauses 3.4.3 and 3.4.5. I will refer later to relevant parts of that judgment. In a

follow up judgment (Haughton J., ex tempore, 11th September, 2015) in relation to costs, I declined to award any costs to Breccia,

and awarded the plaintiff’s 70% of their costs and made no order as to costs as between the plaintiffs and the receiver.

11. On 27th May, 2015 the plaintiffs’ solicitors Downes wrote to the defendant’s solicitors Matheson seeking the following

information:-

A. The redemption figure in respect of the Loan Facilities as at close of business on Friday 29th May, 2015.

B. The daily rate of interest accruing on the redemption figure.

No substantive reply was received and a reminder was sent. Matheson responded on 9th June, 2015 stating that the total amount

due and owing to the defendant was €13,074,142.78, and that interest continued to accrue at a daily rate of €1,730.75. As this was

considerably more than the figure that had been demanded by the defendant on 8th August, 2014, the plaintiffs’ solicitors by a letter

dated 9th June, 2015 sought a breakdown, which was furnished by the defendants’ solicitors Matheson by letter dated 19th June,

2015. This letter recited the Loan Facilities and the amounts advanced, and referred to clause 5 of the General Terms and Conditions

which it was claimed entitled the defendant to add a surcharge interest at a rate of 4% from the due date. In addition, the defendant

pursuant to clause 6.2 of the General Terms and Conditions sought to recover the costs of enforcement. The letter stated:-

“The amount of €9,104,616.41, excluding surcharge interest, was due and owing from Benray under the Facility Letters

(the “Loans”) as of the date of acquisition of the Loans by our client. Our client has calculated the amount of surcharge

interest which accrues on the Loans from 31 December 2010 to the date of acquisition of the loans to be €1,312,933.62

in accordance with Clause 5 of the General Terms. Accordingly, as at the date of the acquisition of the Loans, the

amount required to be paid in order to redeem the Loans was €10,417,550.04.

Interest continued to accrue and capitalise on the Loans from the date of acquisition such that the amount due in

respect of the Loans as of the end of the most recent Interest Period, i.e., 31 March 2015 was €10,952,208 (inclusive of

principal and interest). Additional interest in the amount of €119,422 accrued between 31 March 2015 and 8 June 2015.

Interest is currently accruing on the amount due and owing at a daily rate of €1,730.75.

Pursuant to Clause 6.2 of the General Terms Benray must pay all costs, charges and expenses (including, but not limited

to, legal and other professional fees and expenses) incurred in connection with the enforcement of the Facility Letters

and the General Terms and the security comprised in the Security Documents (as defined in the General Terms) are

payable by Benray. Our client has incurred relevant costs and expenses of, not less than, €2,002,512.43 since the date of

acquisition of the Loans up to 8 June 2015.

Yours faithfully”

12. The plaintiffs’ joined issue with the claims in this letter and these proceedings were commenced. In the Witness Statement of Mr.

Declan Sheeran on behalf of the defendant the figure sought for “costs of enforcement” is itemised as follows:-

Costs of Enforcement

Description €

Matheson professional fees 682,251.81

Disbursements 26,141.03

Receiver’s costs 680,448.59

Counsels’ fees 613,401.00

Total €2,002,512.43

13. In his Witness Statement (para. 34) Mr. Sheeran indicates that these costs “include the costs of defending the proceedings” in

Flynn No.1, but “are wholly separate and distinct from the adjudication of costs made by Mr. Justice Haughton in the context of

[Flynn No.1]”. As my decision in Flynn No.1 is under appeal, the costs incurred by the defendant in that case are, it is argued, a

“contingent liability” of the plaintiffs that fall within the definition of “Secured Liabilities” in the Mortgage, and as such “entirely

separate from the entitlement of a litigant to costs if successful from an opponent in civil litigation, when taxed and ascertained”.

14. The plaintiffs assert that default surcharge interest cannot be contractually claimed by the defendant because on the state of

the account none was claimed by NALM at the date of assignment of the Loan Facilities to the defendant, or alternatively that any

such interest claim is circumscribed or constrained by reference to sub clauses 3.4.3 and 3.4.5 of the Shareholders’ Agreement, as

construed by this court. Alternatively, they assert that surcharge interest is an unlawful “penalty”. As a further alternative they

assert that the right to a surcharge has been waived or that the defendant is estopped from claiming a surcharge. The plaintiffs

contest the defendant’s entitlement to charge enforcement costs, or that they should include costs incurred in their defence of the

proceedings in Flynn No.1. They seek the court’s determination of the correct redemption figure, and they seek injunctive relief.

15. There is a broad measure of agreement that the following issues arise for determination in this modular trial:-

A. Can the defendant contractually claim “surcharge” interest?

B. Is the “surcharge” an unlawful “penalty”?

C. Has the defendant waived its right to the “surcharge”?

D. Is the defendant estopped from claiming “surcharge”?

E. Can the defendant charge “enforcement” costs, charges and expenses, and if so, how much?

F. If the defendant is entitled to charge “enforcement costs”, does its defence of Flynn No.1 fall within the definition of

“enforcement” costs?

G. What is the correct redemption figure at today’s date?

H. What injunctive reliefs, if any, are the plaintiffs entitled to in respect of the redemption issues?

Any other issues arising on the pleadings, such as negligent misstatement and the claim as to damages, do not fall to be decided in

this modular trial.

16. In a modular hearing in parallel proceedings entitled Joseph Sheehan v. Breccia & Ors High Court Record No. 2014/10816P (“the

Sheehan case”) Dr. Joseph Sheehan sought similar determinations in the context of his desire for a redemption figure to facilitate him

in redeeming his Anglo/IBRC loans now also vested in the defendant. Because of the overlap and coincidence of much of the

background fact and legal argument, and the existence of cross guarantees which create an interdependence between the

borrowings in each case, with the concurrence of the parties in both cases the modular hearings were scheduled to take place one

after the other and judgments deferred until both had been heard.

17. The hearing in the Sheehan case was listed after this case and completed on 5th November, 2015. During the course of that

hearing the judgment of the UK Supreme Court in Cavendish Square Holding BV v. Talal El Makdessi; ParkingEye v. Beavis [2015] UKSC

67 delivered on 4th November, 2014 came to hand, and was prominent in legal argument made on behalf of Breccia in respect of the

surcharge “penalty” issue. For that reason I decided that it was more appropriate to deliver the judgment in the Sheehan case first.

That judgment seeks to deal fully with the arguments made in that case, and it is not therefore necessary to deal with certain similar

arguments in the same depth in this judgment.

Issue A: Can the defendant contractually claim “surcharge” interest?

18. There is no dispute that under the Loan Facilities, both of which incorporate Anglo’s “General Conditions”, Anglo was entitled to

charge surcharge interest on the accounts in an event of default. The relevant part of General Condition 5 provides:-

“Default Interest

5.1 Any monies due by the Borrower to the Bank and for the time being unpaid will bare surcharge interest at the rate of

4% over the Facility Interest Rate or at the Bank’s discretion at a rate equivalent to the aggregate of 4% over the

Facility Interest Rate on the due date calculated on a daily basis from the due date to the date of actual payment after

as well as before demand is made, any judgment obtained hereunder or the insolvency of the Borrower.”

19. Under the 2006 Facility Benray borrowed €7,298,489, and clause 7(b) provided that “The Facility should be repaid on or before

the 30th December, 2010”. The 2008 Facility was a loan for €2,010,000. Under clause 7 this was stated to be “repayable on demand”,

but “Without prejudice to the demand nature of the Facility, the Facility shall be repaid on or before 31st December, 2010”. Both Loan

Facilities provided for an interest rate of 1.75% (the “Margin”) above the three month EURIBOR, plus RAC . The aggregate of the

Margin and EURIBOR may be referred to as “the normal rate”. The 2008 Facility in clause 9 also expressly provided that:-

“The Borrower shall also be liable to discharge all costs, charges and expenses detailed in Clause 6 of the General

Conditions. Default Interest shall be payable on unpaid amounts at the rates set out in Condition 5 of the General

Conditions.”

In the 2006 Facility clause 9 sets out “Events of Default” the first of which is worded as follows:-

“(i) If in respect of sums due under or in connection with this Facility Letter, the Borrower fails to pay any sum due from it

within 14 days of the due date in each case at the time, in the currency and in the manner specified in this Facility

Letter.”

This provision is not repeated in the 2008 Facility. However the second paragraph of the 2008 Facility Letter states:-

“This Facility is an addition to and not in replacement of the Bank’s Facility Letter to the Borrower dated 28th March,

2006.”

20. It is clear from the foregoing that the Loan Facilities matured on 30th and 31st December, 2010 respectively. As the 2006 Loan

Facility had not been repaid within 14 days of that due date, it went into default under clause 9(a) on or about 13th January, 2011.

With regard to the 2008 Facility, it also was not repaid on or before the 31st December, 2010, and also went into default.

21. Accordingly, unless it is struck down as an unlawful “penalty”, Anglo was contractually entitled to charge, in addition to the

normal rate, surcharge interest of 4% on a daily basis from the due date i.e. from 31st December, 2010 to the date of payment. That

contractual right arose under clause 5.1 notwithstanding that no demand was made.

22. The defendant also relies on certain provisions of the Mortgage as reinforcing its right to default surcharge interest, and to treat

that as part of the monies due by the plaintiffs and secured by the Mortgage. Under clause 2.1 of the Mortgage Benray covenanted

to pay “the Secured Liabilities…payable under the relevant Financing Agreements together with interest thereon at the Interest Rate

(after as well as before any judgment)”. The Secured Liabilities are defined in clause 1.1 as:-

“…all monies now or at any time hereafter and from time to time due or owing to the Bank by the Mortgagor including any

such monies due or owing to the Bank under or in respect of any Financing Agreement, whether on the balance of any

account or accounts of the Mortgagor or in any other manner including, interest discount commitment commission and

arrangement fees and banking and other charges incurred on its account (on a full indemnity basis) or in respect of

negotiable instruments drawn, accepted or endorsed by or on behalf of the Mortgagor and discounted or paid or held by

the Bank and whether the Mortgagor shall be liable therefore alone or jointly with any other person or persons and

whether as principal or surety or in any other capacity whatsoever, including for the avoidance of doubt, any other

monies due or to become due by the Mortgagor to the Bank under any of the provisions of this Deed and/or any other

Security Documents.”

23. “Interest Rate” is also defined in the Mortgage as follows:-

“…the applicable rate of interest in respect of the Secured Liabilities under the relevant Financing Agreement (as defined

in the Mortgage) including any additional interest payable thereunder in respect of any default in payment or other breach

of the terms of the relevant Financing Agreement…”.

24. These provisions are also relied upon by the defendant in support of its claim for the cost of enforcement which it claims to be

entitled to add to the redemption figure under clause 6.2 of the General Terms. It was not disputed that the Loan Facilities both come

within the definition of “Financing Agreements” under the Mortgage.

25. It was not contested that NALM as a group entity of NAMA acquired Anglo’s interest in Loan Facilities, and the security comprising

the Mortgage and the Guarantee entered into by Mr. Flynn. Furthermore, as none of the assets or security concerned land the

vesting procedure under s. 152 of the National Asset Management Agency Act, 2009 (“the NAMA Act 2009”) that allows NAMA or a

group entity to apply to court for vesting did not apply.

26. Section 99 of the NAMA Act 2009, so far as relevant provides:-

“99(1) After NAMA or a NAMA group entity acquires a bank asset, and subject to section 101 and any exclusion of

obligations and liabilities from the acquisition set out in the acquisition schedule —

(a) NAMA and the NAMA group entity each have and may exercise all the rights and powers, and subject to this Act

is bound by all of the obligations, of the participating institution from which the bank asset was acquired in relation

to —

(i) the bank asset,

(ii) the debtor concerned and any guarantor, surety or other person concerned…”

27. Under s. 99 NALM enjoyed the right to exercise all the rights and powers of Anglo under the Loan Facilities. Accordingly, NALM

was contractually entitled to charge default surcharge interest in like manner as Anglo after 31st December, 2010 in respect of all

amounts due under the Loan Facilities at that date.

28. Subject to the commentary that follows, I have no doubt that when the defendant purchased from NALM the Loan Facilities and

security, it acquired the contractual rights and powers previously enjoyed by Anglo/NALM. By Loan Sale Deed dated 23rd May, 2014

NALM agreed to sell and transfer to the defendant the Loan Facilities and the security, and by Deed of Transfer dated 23rd May, 2014

NALM transferred to the defendant:-

“subject to the subsisting rights of redemption of the Borrower and to the extent capable of assignment all its right,

entitlement, interest, benefit and obligation (past, present and future) in and under each of the Loan Assets”.

The definition of “Loan Assets” in the Loan Sale Deed, which was imported into the Deed of Transfer means inter alia:-

“(a) the principal amounts, accrued interest and any other amounts outstanding as at the date of this Deed or which

become due after the date of this Deed under or in connection with the loans and other credit facilities advanced to the

Borrower under the Loan Agreements;

(b) all other commitments, advances, other utilisations, claims and other rights of the Seller under the Loan Agreements

together with any and all corresponding rights and benefits under any guarantee or security relating thereto as set out in

the Credit Documents…”.

This clearly encompassed all NALM’s rights under the Loan Facilities and the “Credit Documents” listed in Schedule 2 of the Loan Sale

Deed as including the Loan Facilities, the Mortgage, the Guarantee of Mr. Flynn, and the cross guarantees.

29. I am satisfied that the defendant is entitled to rely on this documentation and this chain of title for its contractual entitlement to

seek surcharge interest under clause 5.1. However the plaintiffs make two arguments.

30. First, they assert that the defendant acquired the Loan Facilities and security “subject to the equities” and it is said that any

defences that could have been availed of by the plaintiffs as against Anglo or NALM can also be raised against the defendant. In

other words, they say that the defendant’s contractual right to recover surcharge interest is curtailed by “equities” that had arisen

before it acquired the loans. I have concluded that this point, which is more fully considered as part of the Waiver and Estoppel

issues, is well made. The defendant acquired the Loan Facilities and security “subject to the equities”.

31. Secondly, they assert that the defendants obligations as a shareholder under the Shareholders’ Agreement, as determined by this

court in Flynn No.1, trump the defendant’s rights and powers under the Loan Facilities and in particular they say the defendant is

constrained to follow the procedures set out in clause 3.4.3 and 3.4.5 of the Shareholders’ Agreement, which also constrain the

amounts that the defendant may recover.

32. The relevant part of the Shareholders’ Agreement is clause 3.4 which reads as follows:-

“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]. In addition by way of further security each of the Promoters

have granted or will grant Anglo 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 Shares in the event that a Promoter is in

default of his loan but to the intent that the proceeds 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 Fair Value of such Shares;

(d) the Specified Price (as defined in Clause 8.2.1) in respect of Shares shall be the Fair Value of such

shares and 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.”

33. These provisions were considered and construed by this court in Flynn No.1 in which I made inter alia the following declaration:-

“II. A Declaration 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.”

In para. 266 I stated:-

“266. Breccia’s primary relationship and dealings with Benray/Mr. Flynn (and other Promoters/shareholders) is first and

foremost as another Promoter and shareholder under the Shareholders’ Agreement. The terms of the Shareholders’

Agreement trump the powers of recovery and enforcement contained in the Facility Letters and Mortgage of Shares

relating to Benray. Breccia cannot act positively in a manner that conflicts with the provisions of clauses 3.4.3 and/or

3.4.5 and clause 8 in relation to pre-emption, and prevent the operation of those provisions.”

Counsel for the plaintiffs also quoted extensively from para. 267 of my judgment and relied inter alia on the sentence that reads:-

“Breccia could not simply ignore clause 3.4.3. Under that provision it could have performed Benray’s obligations i.e.

discharged Benray’s loan, and then followed the procedure mandated by clause 3.4.5.”

Counsel referred to para. 361 in which I noted that:-

“…while Breccia paid €9,104,616.41 to NALM on 23rd May, 2014, being the par value of the loans, Breccia only demanded

payment of €8,744,583 (which is the amount counterclaimed by Breccia in these proceedings) when it called in the loan

on 8th August, 2014.”

Counsel also quoted para. 430, including the following passage:-

“[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. Accordingly, as a matter of law it could not simply demand

payment and sue for the amount due. It could only sue once it had redeemed the Benray loan. Then and only then could

Breccia demand payment of Benray and seek to recover by way of simple contract debt. It follows that Breccia cannot

rely on the letters of demand for its counterclaim in these proceedings as Benray loan was not redeemed at that time.”

34. Based on this counsel for the plaintiffs argues that it is the amount that the defendant has paid “to remedy the default by the

other promoter” and no more, that is the amount that can be recovered under the procedure envisaged in clause 3.4.3 and 3.4.5. It

is argued that this leaves no scope for the addition of surcharge interest, because clause 3.4.5(b) has a specific provision covering

the payment of interest that it provides that interest is only due from the date of demand and at the rate specified in sub clause (b).

35. I note in passing that the interest rate provided for in clause 3.4.5(b) is high. It is 2% above Bank of Ireland’s standard personal

overdraft rate, or if there is no such rate, 10% above the base interest rate set by the ECB. Although evidence of these rates was

not adduced, it is probably higher than the normal interest rate applicable to the Loan Facilities plus a 4% surcharge.

36. In response to this argument counsel on behalf of the defendant sought to draw a distinction between the defendant’s

entitlement to take “positive action” to demand the debt and appoint a receiver – which the court held in Flynn No.1 was trumped by

the terms of the Shareholders’ Agreement – and the right of the defendant as the assignee of the Loan Facilities to specify a

redemption figure. He asserted that my decision confirmed the defendant’s right to acquire Anglo/NALM’s interests and rights in the

Loan Facilities and Security. This is indeed so and was the subject of the first part of my Order arising out of the Flynn No.1 decision

in which I declared such acquisition valid and lawful. While the defendant’s “primary relationship” (para. 266 of my judgment) was

“first and foremost as another promoter and shareholder under the Shareholders’ Agreement” this implied that there was a secondary

relationship in which the defendant is the repository of the bank’s entitlements. He referred to para. 267 in which I stated:-

“This conclusion does not leave Breccia without options: it means that if and insofar as Benray fails to perform its

obligations under the Facility Letters, Breccia has the option of doing nothing…”.

Counsel argued that this meant the defendant could simply sit on its entitlements, but, it was argued, this did not mean that the

defendant must discount its entitlement to look for a full redemption figure. He also relied on para. 268, quoted above, where I stated

that:-

“…even though Benray was in default of the terms of the loan, until Breccia performs Benray’s obligations under the

Facilities i.e. discharges the Benray loan, it is not entitled to demand repayment from Benray under clause 3.4.5, or seek

to recover by way of a simple contract debt …”.

Discussion

37. When the wording of clause 3.4.3 is examined it says that a Promoter “may perform such obligations” of a non-performing

Promoter, and the remaining terms of clause 3.4 then apply. But has the defendant ever performed or sought to perform Benray’s

obligations? Strictly construed it did not do so in purchasing the Loan Facilities and securities. By that transaction the defendant

simply stepped into the shoes of Anglo/NALM. That transaction cannot be treated as invoking clause 3.4.5, or treated as the payment

of monies or incurring of expenditure “which should have been paid or incurred by another Promoter”.

38. Moreover the plaintiffs’ argument begs the question ‘what in this case are the “obligations” referred to in clause 3.4.3?’. Do they

include an obligation to pay surcharge interest? Similarly, what monies are comprised in the figure that “should have been paid or

incurred by another Promoter” mentioned in clause 3.4.5? Does this include, as no doubt the defendant would assert, surcharge

interest? In my view the ordinary meaning of the word “obligations” in the context of clause 3.4, and particularly sub clause 3.4.2

where each Promoter covenants “to perform its obligations as set out pursuant to any facility made available by Anglo…” refers to the

panoply of legal obligations of the Promoters as borrowers from Anglo and under the terms of their respective loan agreements. In Mr.

Flynn’s case it includes all its legal obligations under the Loan Facilities.

39. The question may then be asked how the defendant, if it wished to invoke clause 3.4.5, would now do so given that it stands in

the shoes of Anglo/NALM – something that I found the Shareholders’ Agreement never contemplated. It seems to the court that the

defendant would have to pay to itself the “monies or…expenditure which should have been paid or incurred” by Benray. In this case

this would have to be evident as a distinct or complete transaction for two reasons. First, because its effect would be the discharge

of Benray’s Loan Facilities, only then would the defendant be entitled to follow the procedures set out in 3.4.5(a)-(e) – to obtain

reimbursement and interest from Benray, or in default of payment directly from BHL following a forced sale of the shares. Secondly,

the discharge of Benray’s indebtedness under the Loan Facilities would have the effect of discharging Mr. Flynn’s Guarantee.

40. The plaintiffs argue that the “obligations” referred to in clause 3.4.3 are limited to the redemption figure excluding any surcharge

interest, and that this is reflected in the figure actually paid by the defendant to purchase the Loan Facilities on 23rd May, 2014

(€9,101,616.41), but that is a circular argument as it is the very issue that the court has to decide on these proceedings.

41. Accordingly, while there is a superficial attraction to the argument made by counsel for the plaintiffs in this regard (which is

greatly enhanced by the fact that no surcharge interest was mentioned as part of a redemption figure until June, 2015), I do not

consider it to have a sound legal basis and in particular it does not accord with the plain meaning of the wording in sub clauses 3.4.3

and 3.4.5.

Issue B: Is the surcharge an unlawful “penalty”?

42. The plaintiffs contend that the surcharge provision in clause 5.1 is unlawful because it constitutes a “penalty” clause, the

dominant purpose of which is to deter the borrower from breach of contract.

43. The legal principles bearing on this issue were argued before me in this case, but as I have indicated there was further argument

in the Sheehan case (where the relevant clause is identical) because on 4th November, 2015 being the second last day of that

modular hearing, the UK Supreme Court handed down its decision in two cases: Cavendish Square Holding BV v. Talal El Makdessi;

ParkingEye Ltd. v. Beavis [2015] UKSC 67. The court there revisited the broad question of when a contractual provision may be

struck down as a penalty and restated the law in the context of those cases. This fresh jurisprudence forms part of my consideration

in both cases. However, as fuller consideration of the legal principles and jurisprudence appears in my judgment in the Sheehan case

it is only necessary to summarise the position in this judgment.

44. The plaintiffs rely on the test enunciated by Lord Dunedin in Dunlop Pneumatic and Tyre Co. Ltd. v. New Garage & Motor Co. Ltd.

[1915] AC 79, where he states at p. 86 that:-

“2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of

liquidated damages is a genuine covenanted pre-estimate of damage…”.

They assert that this was adopted by the Supreme Court in the judgment of Barron J. in Pat O’Donnell & Co. Ltd. v. Truck and

Machinery Sales Ltd. [1998] 4 IR 191. Counsel then rely particularly on the decision of Finlay Geoghegan J. in ACC Bank Plc. v. Friends

First Managed Pension Funds Ltd. & Ors [2012] IEHC 435 where she applied these principles in the banking sector to default surcharge

interest. Having referred to Dunlop and Truck & Machinery Sales Finlay Geoghegan J. at para. 79 of her judgment said of these

principles:-

“In summary, they require the Court to determine whether or not the additional sum payable is a genuine pre-estimate of

the probable loss by reason of the breach. The principles apply more generally than to the imposition of default or

surcharge interest.”

45. Finlay Geoghegan J. went on to consider relevant and recent UK and Commonwealth jurisprudence, including extensive

consideration of the judgement of Colman J. in Lordsvale Finance Plc. v. Bank of Zambia [1996] QB 752. In that case an uplift of 1%

for late payment of a debt was held to be commercially justifiable and a genuine pre-estimate of loss on the basis that after default

the borrower was a riskier borrower.

46. Ultimately in ACC Finlay Geoghegan J. decided that (para. 84):-

“The onus of establishing that the imposition of surcharge interest at 6% pursuant to clause 2.7.1 of the General

Conditions is a penalty rests on Friends First. The parties to this agreement are both financial institutions capable of

protecting their own commercial interests. The question to be determined, in accordance with the applicable principles in

this jurisdiction i.e. Dunlop Pneumatic Tyre Company, is whether it represents a genuine pre-estimate of the bank’s likely

loss upon default at the time the Facility Letter was agreed i.e. November, 2007. Friends First contends that it cannot be

so considered on the evidence adduced and that the only reasonable construction is that it was intended as a deterrent

against default in the payment of interest or principal. The onus is on Friends First to so establish if it is to be considered

a penalty.”

This decision in the context of default interest was followed and applied by O’Malley J. in AIB Plc. v. Fahey [2014] IEHC 244 where a

surcharge of 12% was struck down.

47. Counsel for the defendant argue that the Dunlop test is broader and upholds the validity of the parties’ bargain in circumstances

where it is difficult or impossible to pre-estimate the loss arising on default, provided that the impugned clause is not extravagant or

unconscionable. They urged the court to adopt and apply the test as reformulated by the UK Supreme Court in Cavendish where it

was held (per Neuberger and Assumption L.JJ., with whom Carnwath L.J. agreed):-

“32. The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the

contract–breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary

obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance

or in some appropriate alternative to performance…”.

48. In my judgment in the Sheehan case, as I do in this case, I resolved this difference as to the applicable legal principles by

reference to the decision of Clarke J. In the matter of Worldport Ireland Ltd. (InLliquidation) [2005] IEHC 189. I took the view that I

should follow the decision of Finlay Geoghegan J. in ACC as a matter of judicial comity, particularly as that decision had been followed

and applied by O’Malley J. in AIB Plc. v. Fahey and may be described as the established jurisprudence of this court. In particular I

noted that Finlay Geoghegan J. conducted a review of significant relevant authority, and counsel for Breccia in the Sheehan case

were unable to point to any “clear error in the judgment”. Clearly also the decisions in ACC and Fahey are recent in origin. It is my

view that since Cavendish it has become apparent that in the UK courts the jurisprudence on penalty clauses involves a different

approach and a different emphasis. Whether this should now be applied in this jurisdiction is a matter that may fall to be considered

by an appellate court, but I have concluded that I should not depart from the jurisprudence established by judges of equal rank.

The Banking Evidence

49. The plaintiffs called Mr. John Costello who has worked in the financial services industry for 39 years, mainly with AIB. Although Mr.

Costello’s career with AIB did not include interest pricing, he was for several years the head of their Central Interest Unit, a forensic

investigative unit responsible for ensuring that the appropriate interest was applied to accounts, and that there was not

overcharging. I was satisfied that he had the appropriate experience and expertise to express opinions and give expert evidence in

this case.

50. In his evidence Mr. Costello referred to a document titled “Certified Redemption Figures – Benray Sale (CAP)” prepared by Capita

Asset Services (Ireland) Ltd., a service provider to NAMA, for the purposes of completion of the sale of the Facility Letters by NALM

to the defendant. This showed that on 22nd May, 2014 the par value of the loans – the consideration that the defendant paid to

acquire them – totalled €9,104,616.41, and in the Certificate under the heading Default Rate the letters “N/A” appear, denoting that

“Default Rate” is not applicable. Also in that spreadsheet is a column headed “Default Interest unpaid/Accrued CCY”, and again it is

indicated “N/A” denoting that default interest is not applicable. Indeed it was accepted that there was not in fact any default or

surcharge interest applied to the accounts at the date of that sale. In his Witness Statement at para. 5 Mr. Costello commented:-

“It is evident from the document…from Capita Asset Services to NAMA declaring the redemption figure that surcharge

interest was never applied since the date of default i.e. 31st December, 2010. As an experienced bank official I can

confirm that I have never encountered a situation where a lender would seek to retrospectively apply surcharge interest

having declared what the redemption figure was and I believe that a lender, once it has declared the redemption figure

could not thereafter seek to change that figure by applying penalty interest where no such step had been taken before

the redemption figure was declared.”

When asked to comment on his reference to “penalty interest” Mr. Costello replied (Day 2 p. 7):-

“Well, in this case it’s where the borrower has not lived up to the terms of the agreement and as such the lender has

added a penalty for not doing so. Penalties or excess surcharge, whichever name they come under, are usually a

deterrent for people not adhering to terms and conditions of the loans.”

51. In the context of clause 5.1 and the surcharge rate of 4% Mr. Costello was asked whether it was “a genuine pre-estimate of the

cost of making good any loss that the bank would suffer” and his initial response was that “in my view it was over and above the cost

of the lender for those funds that they would have had.” (Day 2 p. 8). After some debate with counsel over whether Mr. Costello

could give evidence as to rates of interest prevailing in 2006 and 2008, which was not part of his Witness Statement (and hence

disallowed), Mr. Costello on Day 2 at pp.16-17 reiterated his view that the surcharge interest in question should be described as

“penalty interest”. Then on Day 2 p. 17 the following evidence was given by Mr. Costello:-

“Q. Are you in a position whether that would have been your view throughout the period of time from 2006 onwards?

A. Yes. Excess interest, surcharge interest is considered a penalty. If you don’t adhere to the rules you suffer a penalty

for that.

Q. Can you say whether, and if you can’t say so can you say whether or not this would have been regarded as excess

interest or penalty interest as far back as 2006 or 2008?

A. Again if they hadn’t adhered, if the terms and conditions aren’t adhered to it would be, the excess is a penalty.”

52. Under cross examination Mr. Costello agreed that where there is default by a borrower the loss to a bank could be greater than

the interest applicable because of the default. However, he qualified this by stating (Day 2 p. 25):-

“…It depends on how long the default is. A default could be one day and it gets reorganised, the loan gets rescheduled. It

could be, if the level of security for the loan is over and above the value of the loan, well you may not suffer any, the

lender may not suffer any loss at all”. [Emphasis added]

53. It was then put to Mr. Costello that making a genuine pre-estimate of the loss if a loan goes into default is not an easy thing to

do. He responded (Day 2 p. 26):-

“A. I wouldn’t say it’s particularly easy. If you know, you can determine what interest is going to be on a date/day if you

apply a rate, but to envisage how long a default is going to be, what issues you are going to encounter, if you have to

borrow the money to service the other borrowing.

Q. Precisely. They are all variables, aren’t they?

A. They are all variables.

Q. And you don’t know them when you are fixing the default interest rate because they are variables into the future, isn’t

that so?

A. That is correct. If it ever happens.”

54. The evidence of Mr. Michael Hoey also has some relevance to this issue. He is a management accountant with 25 years

experience. He worked with Credit Suisse as a director before joining NAMA as an Asset Recovery Manager in February, 2013. He was

closely involved in the sale of the Loan Facilities. In his experience with NAMA he had never come across any account in which NAMA

sought to recover surcharge interest.

55. The plaintiffs also called as an expert Mr. Eddie Fitzpatrick who has an honours degree in banking and finance. Although he never

worked in a bank, Mr. Fitzpatrick was called to deal with the calculation of interest in this case because he works as an independent

expert specialising inter alia in the forensic analysis of interest rate charges. In his 19 years of experience in this field he had never

encountered a bank or institution, whether it was the original lender or a successor, trying to charge default interest retrospectively

to the date of first default in the manner that the defendant has sought to do in this instance. He had not even encountered this

where, as has become common over the past couple of years, he had worked on defaulting bank facilities acquired from NAMA or IBRC

by so-called ‘vulture funds’.

Discussion

56. That was the extent of the expert evidence on this issue, because no banking expert was called by the defendant. It is notable

that Mr. Costello was not challenged on his view that clause 5.1 and the 4% surcharge interest were designed to deter borrowers

from default instituted a penalty. He was clearly sceptical, and did not accept, that Anglo could have considered the “variable” issues

that could arise on default in setting the default rate. I also cannot ignore the fact that Anglo in similar circumstances utilised exactly

the same default surcharge clause and rate in the Loan Facilities entered into with Dr. Joseph Sheehan on the same date and for the

same purpose, namely to borrow to buy shares in BHL. Counsel for the defendant argued that the court needed evidence as to the

interest rates prevailing in 2006 and 2008 in order to determine this issue. I don’t agree. The Facilities Letters themselves contain the

critical information namely the “margin” rate of interest, which in both cases is 1.75%. There is an immediate and obvious disparity

between this margin rate and 4% surcharge. It also cannot be said that 4% is “a modest increase in the rate” (the term adopted by

Colman J. in Lordsvale).

57. In any event the applicable EURIBOR rates can be gleaned from Mr. Sheeran’s evidence and in particular Appendix 1 to his Witness

Statement in which he calculated the amount due since 2006 without regard to surcharge interest, and without regard to the “RAC”.

That Appendix under the column “Rate” provides the aggregate of 1.75% plus the applicable EURIBOR rate from 26th March, 2006 to

30th September, 2014. The combined rate on 26th March, 2006 was 4.566%, made up of 1.75% plus, one can deduce, EURIBOR of

2.816% approx. Thus at the time the 2006 Facility was entered into the surcharge rate (4%) was almost equal to the normal rate of

interest (4.566%) – so that if it were applied at that time it would have resulted in almost doubling the overall rate. Although not

relevant to the time the 2006 Facility Letter was entered into, I note that the combined Margin and EURIBOR rate peaked on 31st

December, 2008 at 7.027%, but in 2009 declined rapidly to 2.505%, and thereafter did not exceed 3.106%, and for the most part it

hovered around 2% since 31st December, 2008. This means that applying an additional surcharge rate of 4% would at least double

and for much of the relevant period treble the overall rate of interest.

58. I regard as important, in determining the purpose of such a clause, Mr. Costello’s evidence that in all his experience he had never

come across a situation where surcharge interest had been applied retrospectively in the manner in which the defendant seeks to

apply it in this instance. This was echoed by the evidence of Mr. Fitzpatrick and Mr. Hoey. This tends to confirm that such clauses

are generic and that their primary purpose is generally to deter the borrower from default.

59. I am also influenced by the fact that clause 5.1 is a blunt provision that takes no account of different reasons for default, or

personal circumstance, or the period of default. In particular the Facility Letters and General Conditions place no express legal

obligation on the bank/the defendant to call in or enforce the loan or security –the bank/the defendant can sit back and allow

surcharge interest to build up indefinitely, and in this case for over 5 years. Nor does it, as it might have done, provide for a minimal

or modest rate initially, with increases in the rate depending on the length of default. It also applies regardless of the value of

security held by the lender, which may be such that there will be no actual loss. Furthermore, insofar as one of the variable losses

that may arise when a loan goes into default is likely to be additional administrative and professional costs, it ignores the fact that

separately under clause 6.2 (the ‘enforcement cost’ provision), and 6.3 (under which the bank can engage the services of consultants

to review the security and bill the cost to the borrower), the bank already has the benefit of provisions that entitle it to recover

actual “costs, charges and expenses”. These factors all contribute to my view that I should follow ACC in this case.

60. Accordingly, I find that the default surcharge interest provision in clause 5.1 of the General Conditions that apply to the Loan

Facilities constitutes an unlawful penalty and is unenforceable. It follows that no surcharge interest can be included in the redemption

figure.

Issue C: Has the defendant waived its right to the “surcharge”?; and

Issue D: Is the defendant estopped from claiming “surcharge”?

61. These questions only arise if I am wrong in my determination that the surcharge interest is an unlawful penalty, and I treat them

as applying only to the surcharge claim and not to the issue of enforcement costs.

62. As in the Sheehan case it is convenient to take these two questions together. Whilst waiver may arise expressly or by agreement,

where either there is consideration or the waiver is contained in a deed, that is not the sort of waiver relied upon in this case. Waiver

may also arise by virtue of equitable or promissory estoppel, It is the defence of estoppel that is relied upon by the plaintiff. More

specifically, or as alternatives, the plaintiffs rely upon estoppel by silence or estoppel by convention. Moreover the plaintiffs rely upon

the same set of facts and inferences whether their argument is treated as one of waiver or estoppel.

63. In the Sheehan case I set out some of the relevant law relating to estoppel and it is not necessary to repeat all of that here.

Estoppel by representation is defined in Snell’s Equity, 32nd Ed., (London, 2010) at para. 12-009:-

“Where by his words or conduct one party to a transaction freely makes to the other a clear and unequivocal promise or

assurance which is intended to affect the legal relations between them (whether contractual or otherwise) or was

reasonably understood by the other party to have that effect, and, before it is withdrawn, the other party acts upon it,

altering his her position so that it would be inequitable to permit the first party to withdraw the promise, the party making

the promise or assurance will not be permitted to act inconsistently with it.”

This definition was adopted by Charleton J in NALM Ltd. v. McMahon; NALM Ltd. v. Downes [2014] IEHC 71.

64. While generally the representations that give rise to an estoppel will be express statements or unequivocal conduct, under certain

circumstances, acquiescence or pure silence may give rise to a representation. In Pacol Ltd. & Ors. v. Trade Lines Ltd. & Anor [1982]

1 Lloyd’s Rep 456 Webster J. stated:-

“[T]he duty necessary to raise an estoppel by silence or acquiescence arises where a reasonable man would expect the

person against whom the estoppel is raised, acting honestly and responsibly, to bring the true facts to the attention of

the other party known by him to be under a mistake as to their respective rights.”

65. This statement is referred to in The Law of Waiver, Variation, and Estoppel, Wilken & Ghaly (Oxford University Press, 2012) at

para. 9.57 where the authors comment that the Pacol test having been “approved in subsequent authorities…now appears to be a

correct general statement of the law”. I take this to be a principle that should also be applied in this jurisdiction.

66. As to when estoppel by convention may arise, in McMahon Charleton J. approved the following statement from Treitel’s The Law

of Contract, 13th Ed. (London, 2011) at para. 3.094:-

“Estoppel by convention may arise where both parties to a transaction “act on an assumed state of fact or law, the

assumption being either shared by both or made by one and acquiesced in by the other”. The parties are then precluded

from denying the truth of that assumption, if it would be unjust or “unconscionable” to allow them (or one of them) to go

back on it. Such an estoppel differs from estoppel by representation and from promissory estoppel in that it does not

depend on any “clear and unequivocal” representation or promise. It can arise where the assumption was based on a

mistake spontaneously made by the party relying on it, and acquiesced in by the other party, though the common

assumption of the parties, objectively assessed, must itself be “unambiguous and unequivocal”.

67. The plaintiffs also assert that insofar as NALM was estopped from recovering surcharge interest at the time of the assignment of

the Loan Facilities and security to the defendant, that was an “equity”, and the defendant acquired the loans ‘subject to the

equities’. This principle is succinctly stated in Treitel’s The Law of Contract, Peel (ed.), 14th Ed. (London: Sweet & Maxwell, 2015)

where it states at para. 15-067:-

“An assignee takes ‘subject to the equities’, i.e. subject to any defects in the assignor’s title and subject to certain

claims which the debtor has against the assignor. He takes subject to such defects and claims whether they arise at law

or in equity, and whether or not he knew of their existence when he took his assignment. And he cannot recover more

than the assignor could have recovered. The object of these rules is to ensure that the debtor is not prejudiced by the

assignment.”

This principle applies in this jurisdiction as it does in the UK – see McDermott, Contract Law (Dublin: Tottel, 2001) at para. 18.118 –

and was not disputed by the defendant. Moreover, in clause 4.1 of the Deed of Transfer dated 23rd May, 2014 NALM transferred the

Loan Facilities and security to the defendant “subject to the subsisting rights of the Borrower and any Obligor and to the extent

capable of assignment…”.

The effect of this law, and of this express proviso, was that the defendant acquired no greater right to sue for monies due under the

Loan Facilities than NALM enjoyed at the date of the Transfer, and insofar as NALM was estopped from asserting a redemption figure

that included surcharge interest, the defendant acquired the loans subject to the same estoppel.

68. The plaintiffs point to the fact that, notwithstanding the default that occurred on 31st December, 2010, no demand was made

and no surcharge interest was ever applied to these accounts by Anglo or NALM. They then rely on the statement of Benray’s

liabilities on foot of the Loan Facilities provided by Mr. Michael Hoey of NALM/NAMA to Mr. James Flynn, and to his father Mr. Flynn,

by email sent on 13th March, 2014. This was sent in response to Mr. James Flynn’s request for a redemption figure, and was sought in

the context of the attempt being made by Dr. Joseph Sheehan and Mr. Flynn to purchase Dr. Sheehan’s and Dr. Duffy’s IBRC loans,

and at the same time to redeem Benrays NALM loans, under the Talos transaction. The spreadsheet furnished by Mr. Hoey gives

figures in respect of the Loan Facilities as of 9th March, 2014. Under the column headed “Connection Name” reference is made to

“Duffy & Goodman & Flynn & Sheehan & Shee”, reflecting the fact that all those parties along with Benray were parties to the original

Anglo lending/security in March, 2006. Another column gives the “Base Rate” of interest, being the EURIBOR rate at the time of the

statement (0.29300 for the 2006 Facility and 0.26700 for the 2008 Facility), and the next one gives the “Margin Rate” of 1.75%. The

loan maturity dates are given as 31st December, 2010. A column headed “Repayment Type” states “Interest Only”, and then there is

a column headed “Current Total Par Debt CCY” showing the amounts due on 9th March, 2014 as €7,364,917.03 and €1,700,867.25,

the sum of which is €9,065,784.28. There is then a column headed “Default Interest Unpaid/Accrued CCY” under which “0.00” is

displayed. Next to that is a column giving the figures for the daily accrual of interest – in respect of the 2006 Facility €416.33 per

day, and in respect of the 2008 Facility €94.93 per day.

69. It will be recalled that Mr. Hoey was an ‘Asset Recovery Manager’ with NALM at the time. He was the person in charge of the

“Connection”. In his evidence he was asked about the Default Interest column, and said (Day 2 p.36):-

“That means that at that point in time no default interest had been applied to these loans.”

He also said that at that point in time there was no suggestion that surcharge interest would be imposed, but equally when cross

examined agreed that no assurance had been given to the plaintiffs that surcharge interest would not be applied. He also agreed that

there was no conscious decision made by NALM not to apply surcharge interest.

Under re-examination Mr. Hoey agreed that borrowers frequently have to organise alternative lending to redeem facilities, and he

agreed that the information in the spreadsheet was supplied “…in good faith to Benray to tell them what they would need to arrange

for by way of alternative facilities to pay off this loan”(Day 2 p. 41). He also confirmed that the figures for the daily accrual of

interest were given to show the borrower what additional interest would have to be paid if the loan were to be discharged over the

ensuing days.

70. In the context of this evidence clause 16.2 of the General Conditions is relevant:-

“A certificate by any director, associate director or manager of the Bank as to the amount due from the Borrower

hereunder or pursuant to any of the Security Documents or the amount of any interest, commission or other sums owing

hereunder or pursuant to any of the Security Documents shall save for manifest error be conclusive evidence thereof.”

This type of ‘conclusive evidence clause’ is frequently relied upon by banks in debt collection proceedings, where a certificate of the

balance due is exhibited as evidence of the balance claimed to be due and owing on foot of an account. That such clauses are

contractually binding and that a bank can rely in court on such certificates against a debtor or guarantor is well established. See for

example AIB Plc. v. Yates [2012] IEHC 360 in which Dunne J. approved the decision of the Court of Appeal in Bache and Company v.

Banque Vernes [1973] LLR 437 in finding that such a clause can be relied upon by a bank against a surety. As Dunne J. stated:-

“The reliance on such a clause does not oust the jurisdiction of the courts – it simplifies the proofs in respect of the

amount alleged to be due. It is also clear that in certain cases the certificate can be challenged, for example, in

circumstances involving illegality or fraud.”

71. It should be noted that clause 16.2 is not limited to certificates furnished for the purposes of court proceedings. It will frequently

happen that a certificate of balance will be required for other purposes, the most obvious example being where it is required to

facilitate redemption or refinancing. Solicitors acting for banks or borrowers will regularly call for such a certificate in order to

complete sales or before the release of security. Indeed it was in this context that Mr. Hoey provided the spreadsheet. While it is not

in terms described as a certificate, there is no requirement in clause 16.2 that a particular form be utilised, or that the word

“certificate” be used. Mr. Hoey was in the position of a manager at the time. It is also significant that Mr. Hoey knew that the figures

were required in the context of a possible redemption of the Loan Facilities, and that the plaintiffs were likely to rely on them. It is

also notable that the spreadsheet was supplied without any reservation of NALM’s rights or entitlements.

72. It is doubtful whether the spreadsheet in the circumstances constituted a waiver, or ‘an account stated and settled’, because

the traditional requirements were not present: there was no consideration moving from the plaintiffs to NALM, and it was not in the

form of a deed. However it was a clear, unequivocal and unconditional representation of what was due on the Loan Facilities as of 9th

March, 2014. In my judgment its status is elevated by clause 16.2 to that of “conclusive evidence” of the amount due in the absence

of “manifest error”. On its face default interest was “not applicable” and not added; no argument was made that this was a “manifest

error”. It was a representation as to existing fact. If the plaintiffs had immediately tendered €9,065,784.28 plus the appropriate daily

interest, NALM could not have declined to redeem the loans. It was also clearly intended to be the basis for redemption – that is to

say, it was intended to affect legal relations by setting out the figure which, if paid, would redeem the Loan Facilities.

73. The defendant’s response was to rely on a reservation of rights expressed on NALM’s behalf in an emailed letter dated 4th April,

2014 sent by its solicitors Matheson to Beauchamps who were acting for the plaintiffs. This letter arose in the context of the Talos

transaction and the need for the plaintiffs to know in early April, 2014 the outstanding balances required to discharge the Loan

Facilities. Matheson stated inter alia:-

“Upon receipt by NALM of cleared funds sufficient to repay in full the Loans plus all accrued and unpaid interest (the

“Outstanding Amounts”), NALM will apply such funds in repayment of the Outstanding Amounts. Upon repayment of the

Outstanding Amounts in full, the Guarantors will no longer have any liability under the Guarantees. For this reason we do

not think it is necessary to execute release documents in respect of the Guarantees. If you think it is necessary to

discuss this, please let us know.

The amount required to repay the Outstanding Amounts on 9 April 2014 (which I understand is the intended repayment

date) will be provided to you/your clients very shortly.

NALM will confirm to Benray when it has received cleared funds and all of the Outstanding Amounts have been repaid.

Please be advised that each of NAMA and NALM expressly reserves all of its rights and remedies arising now or

subsequently under any facility agreement, or related security document (the “Documents”) and neither the issue of this

letter nor any discussions leading to the issue of this letter constitute a waiver or amendment to the terms of (or the

rights or any party under) any of the Documents or otherwise under any applicable law and all such rights held by them

are expressly reserved and may be exercised without further notice. Any time, indulgence, delay or failure to take any

action by NAMA or NALM shall not constitute any waiver of any contravention of the Documents or any waiver of any

such rights.

….

Yours sincerely,

Patrick Molloy”

Mr. Molloy followed this up with the following email later the same day:-

“NAMA have now provided me with redemption figures for full redemption on 9 April 2014. Insofar as the two loan facilities

are concerned, the redemption figure as at that date (including accrued interest up to and including that date) are

€7,377,088 and €1,703,699. Interest is currently accruing at a daily rate of €418.46 (on the larger facility) and €97.16

(on the smaller facility).

Let me know if you need any further information.

Regards,

Patrick Molloy”.

74. The figures given in this email broadly reflected the figures provided by Mr. Hoey in his spreadsheet of 13th March, 2014, and I

find that as a matter of probability they did not include any surcharge interest. I do not accept that this emailed letter of 4th April,

2014 could retrospectively have had the effect of rendering conditional or subject to reservation of rights the information provided

unconditionally by Mr. Hoey in the spreadsheet provided by him on 13th March, 2014. The representations in that spreadsheet as to

the redemption figures were clear and unequivocal, and represented that no default interest was due or owing at that point in time.

75. The next question is whether the plaintiffs relied on the representations made by Mr. Hoey on 13th March, 2014, and if so

whether they did so to their detriment.

76. The plaintiffs were cooperating and working with Dr. Sheehan in relation to the Talos transaction in March/April, 2014. A Term

Sheet with Talos Capital Ltd. was signed by Mr. Flynn on 2nd March, 2014, setting out the terms upon which Dr. Joseph Sheehan and

Mr. Flynn or companies on their behalf could borrow up to €45 million for the Talos transaction. This was a non-binding commitment

from the funder, save in respect of an “expense deposit”, “exclusivity” for 60 days, and “confidentiality”. In other words financially it

did not commit Talos to lending, or commit Dr. Sheehan and Mr. Flynn to expenditure beyond Talos’ out of pocket expenses.

77. The Term Sheet indicated that the collateral required would be “56% shareholding in Blackrock Hospital Limited.” I am satisfied on

the evidence that this reference to a 56% holding must have included the 8% shareholding in BHL of Mr. Flynn.

78. This Term Sheet was signed on 2nd March before the spreadsheet was obtained from Mr. Hoey on 13th March, 2014 providing the

redemption figure. I find however that the redemption figures sought from NALM and provided by Mr. Hoey were provided in the

context of the plaintiffs deciding to commit to the Talos transaction, and before executing any binding documentation.

79. Some time after Mr. Hoey’s spreadsheet came to hand Mr. Flynn executed a guarantee, guaranteeing to Talos the repayment of

the deposit lent by Talos to JCS, the special purpose vehicle established to carry out the Talos transaction. The fact of that

guarantee was not in issue. I am satisfied that in so doing Mr. Flynn acted to his detriment because deposit monies were drawn down

on or about 7th April, 2014 and paid over, to IBRC, and when the transaction ultimately fell through (and the deposit was lost) Talos

obtained judgment against Mr. Flynn (and Dr. Joseph Sheehan) for in excess of €2 million.

80. A number of points were made by the defendant. It was argued that Benray assumed no liabilities under the Term Sheet, and the

Talos transaction was, to use counsel’s word, ‘neutral’ as far as Benray was concerned because the end result would be that Benray

would simply owe the same money to another funder. Then it was argued that in entering into the contractual arrangements in the

Talos transaction there was no evidence that the plaintiffs actually relied on the par figure of €9,065,784.28 provided by Mr. Hoey, or

that they would have acted any differently if a redemption figure of something over €10 million that included surcharge interest had

been provided.

81. Mr. Flynn did not give evidence, but his son Mr. James Flynn, who is a director of Benray Ltd. – a point of significance as he gave

evidence on behalf of both plaintiffs – did provide a witness statement and give oral evidence. He accepted that most of the

negotiation over Talos was done by Dr. Sheehan and his father, but he confirmed that once he had been emailed the redemption

figures by Mr. Hoey “we then went on to process the loan from Talos” (Day 1 p. 142) and “Mr. John Flynn signed guarantees as part

of the process” (Day 1 p. 143). He said that the main loan that was to be provided by Talos was never drawn down, but the deposit

was – on 7th April, 2014. I accept this evidence, which was not contradicted. Under cross examination he gave evidence that of the

€45 million loan referred to in the Term Sheet €35 million was to acquire Dr. Sheehan’s and Dr. Duffy’s IBRC loans, and he stated “The

35 consisted of nine in relation to Benray” (Day 1 p.153). He said that of the €45 million €10 million was to pay rolled up interest on

the loan. This is borne out by the Term Sheet which indicates that:-

“[€35 million] to be drawn to purchase the Existing Facility.

The remaining [€10 million] will be available to be drawn up in amounts of [€1 million] until the fourth (4th) anniversary of

the first funding under the Loan. Such amounts may only be used to pay cash interest which would otherwise have

become PIK (i.e. in addition to the Cash Dividend Amount)”.

82. I am satisfied that although Benray was not an actual party to the Term Sheet, or even expressly mentioned, it was centrally

implicated in that its director and shareholder Mr. Flynn was a party. Secondly, that the purpose of the loan was inter alia to enable

the redemption of Benray’s Loan Facilities. Thirdly, Benray’s 8% shareholding in BHL was to be pledged as part of the collateral. The

fact that, if the Talos transaction had proceeded successfully, Benray would no longer have owed money on foot of the loan facilities

to NALM would have had the obvious advantage that it would no longer be a defaulting borrower. I therefore reject the

characterisation of the intended outcome to the Talos transaction as being ‘neutral’ for Benray. Accordingly, counsel’s contention

that simply because Mr. Flynn may have acted to his detriment there was no disadvantage to or detriment suffered by Benray, a

limited company with separate legal personality, does not stand up to scrutiny. Benray’s future debt status would have altered if the

Talos transaction had proceeded to completion.

83. So far as Mr. Flynn is concerned, he stood to benefit personally from the Talos transaction. Had it proceeded to a successful

conclusion Benray’s Loan Facilities would have been redeemed and, firstly, he would have been released from Guarantee, and,

secondly, he would no longer have been in the position of a guarantor of loans in default. But, in the events which happened,

committing to the Talos transaction proved to be disadvantageous, and he therefore altered his position and acted to his detriment.

84. I am satisfied from Mr. James Flynn’s evidence that before receipt of Mr. Hoey’s spreadsheet the plaintiffs considered that Benray

owed in the order of €9 million on foot of the Loan Facilities, and that the Term Sheet was signed on that understanding. I am

satisfied that it was only after receipt of Mr. Hoey’s email and spreadsheet of 13th March, 2014, and based on its representation as

to the redemption figure of a total of about €9,065,784, that Mr. Flynn was induced to enter into binding contractual relations in

furtherance of the Talos transaction. This confirmation induced the plaintiffs to proceed.

85. In circumstances where the representation as to the outstanding balance relates to information that any reasonable borrower

looking to refinance would require before proceeding, if a general reliance on that information is evident then in my view that will

suffice to create an estoppel. I am to that extent satisfied that both plaintiffs did place reliance on this information before the first

named plaintiff became contractually committed. In becoming contractually committed (with the backing and support of Benray) by

way of guarantee of the deposit Mr. Flynn altered his position, and did so to his detriment. It is not necessary for the plaintiffs to go

further and satisfy the court that they would not have proceeded further with the Talos transaction after 13th March, 2014 if Mr.

Hoey had represented that Benray owed in excess of €10 million, and/or that default surcharge interest fell to be added to the

redemption figure. I therefore do not accept as correct counsel for Benray’s submission that the plaintiffs must further prove that the

difference between the two potential redemption figures is what led the plaintiffs – or at any rate Mr. Flynn – to proceed further with

the Talos transaction. It is sufficient that they acted on the representation made. In any event I regard it as inherently likely that if

Mr. Hoey’s spreadsheet had included default interest of 4% and given an outstanding balance of over €10 million it would have

prompted the plaintiffs to query the figures and reappraise the Talos transaction.

86. Counsel for the defendant then argued that there could have been no reliance on Mr. Hoey’s spreadsheet because of the letter

from Matheson to Beauchamps emailed on 4th April, 2014, a paragraph of which reserved NALM’s rights under the Loan Facilities –

some three days before the drawdown was complete. Mr. James Flynn did not recall reading it but he agreed that this letter would

have been brought to his notice. That email was closely followed by the email with redemption figures stated to be applicable for 9th

April, described in the letter as “the intended repayment date”.

87. These emails were provided in the context of the imminent redemption of the Loan Facilities, and the letter contained an express

undertaking by NALM on receipt of the ‘Outstanding Amounts’ (in the amount specified in the second email) to “apply such funds in

repayment of the Outstanding Amounts”, and expressly committed that upon such repayment “...the Guarantors will no longer have

any liability under the Guarantees”.

88. Notwithstanding the reservation of rights paragraph, NALM and its solicitors must have known and intended that the plaintiffs and

their solicitors would rely on this further statement of the outstanding amounts up to and including 9th April, 2014 as forming the

basis for redemption on or before that date, and that it would be relied upon in arranging refinancing. I am indeed satisfied that the

plaintiffs did rely on the redemption figure so provided in proceeding to draw down the monies, the repayment of which was

guaranteed inter alia by Mr. Flynn, for use as a deposit in the Talos transaction. NALM cannot have intended that the clear

undertaking and commitments in Matheson’s letter, stated to prevail up to and on 9th April, 2014, would be contradicted or set at

nought by the later part of the letter. I do not consider that the inclusion of the reservation of rights paragraph in that letter could

have had the effect of nullifying the fundamental representations made earlier in that letter (and completed in the ensuing email). Nor

can it have had the effect of retrospectively cancelling out the unconditional representations made on 13th March by Mr. Hoey. In my

view on reading this letter as a whole it was intended to give unequivocal and binding commitments by reference to the figures to be

“provided…very shortly”, up to and including 9th April. NALM could not have relied on the reservation of rights to decline redemption

on or before 9th April on the basis of the figures provided on 4th April.

89. No default surcharge interest was claimed by NALM after that date. NALM then proceeded to sell the Loan Facilities to the

defendant on 23rd May, 2014. The plaintiffs rely on representations made by NALM/NAMA and its solicitors to the defendant on

22nd/23rd May, 2014 in the context of that sale, as establishing an estoppel. In emails dated 22nd May, 2014 from Cian Fenton of

Matheson, solicitors then acting for NALM, to Mr. Sheeran representing the defendant, it was stated that the correct figure for

inserting in the Loan Sale Deed and Deed of Transfer, being “par value”, was €9,104,616.41. In addition, Capital Asset Services,

acting for NAMA, sent “Certified Redemption Figures – Benray Sale (CAP)” to NAMA as at close of business on 22nd May, 2014. Their

spreadsheet, not dissimilar to the one produced for March, 2014, shows columns headed “Default Rate” and “Default Interest

Unpaid/Accrual CCY” with “N/A” entries, which I take to denote “not applicable”, and then gives outstanding loan figures which (as is

not disputed) did not include surcharge. The figure of €9,104,616.41 then appears as the consideration for purchase in both the Loan

Sale Deed and Deed of Transfer. Mr. Sheeran accepted under cross examination (Day 2 p.54) that he (and therefore the defendant)

knew from this figure that no default interest had been applied to the accounts at the date of purchase.

90. The immediate difficulty with the plaintiffs’ contention is that these emails were confidential to NAMA and the defendant, and

neither they, nor the Capita spreadsheet, were communicated to the plaintiffs. Indeed this documentation only emerged on discovery.

It was not relied upon by the plaintiffs. It cannot therefore form the basis for an estoppel.

91. Next the plaintiffs rely on the letters of demand dated 8th and 12th August, 2014 whereby the defendant formally demanded from

Benray and Mr. Flynn respectively the sum of “€8,744,853 in respect of principal properly due and owing under or in connection with

the Loan Agreements”, adding in the last paragraph:-

“This demand is without prejudice to and shall not be construed as a waiver of any other rights or remedies which we may

have including, without limitation, the right to make further demands in respect of sums owing to us.”

92. The purpose of these demands was to put the plaintiffs on notice of the defendant’s intention to appoint a receiver. The

explanation for the low figure given by Mr. Sheeran on behalf of the defendant in his Witness Statement was that the defendant

deliberately demanded less than “the amount that Breccia believed to be due” because it was aware that Mr. Flynn had previously

made claims in unrelated proceedings that Anglo had applied incorrect rates of interest to other facilities. He stated:-

“20. In order to pre-empt and avoid, as far as possible, a legal challenge to the validity of the Demand on the basis that

the interest claimed was unlawful, Breccia made demand for an amount which it believed would not be capable of being

contested, but which it regarded as a lower amount than that which was in fact owing to it as of the date upon which

the Demand was made….

21…Whilst Benray could have ensured that the appointment of the receiver did not proceed by discharging the sum

demanded, the payment of that sum would not, of itself, have resulted in an automatic entitlement to the release and

discharge of the Mortgage and /or the Security, particularly in circumstances where Benray’s shareholding in BHL is

pledged as security for the debts of Mr. Joseph Sheehan, a co-shareholder in BHL, in connection with his participation in

BHL [which] was…funded by loans from the Bank.”

93. Under cross examination Mr. Sheeran said (Day 2 p. 57):-

“It was…sorry, it was clear to us from the loan documentation and the conditions, the general conditions thereto, that

surcharge interest was applicable.”

He then agreed that he never communicated to the plaintiffs that the defendant proposed to charge surcharge interest – indeed he

said that he did not calculate the surcharge interest until June, 2015, after a redemption figure was sought. He also agreed that the

manner in which the figure of €8,744,853 was calculated by him was as set out in para. 23 and Appendix 1 of his Witness Statement,

that is to say, a recalculation of principal (as drawn down) and interest, at the rate of EURIBOR plus 1.75% only, accruing from

March, 2006 to September, 2014, on the assumption that Benray’s share of the quarterly dividends paid by BHL were applied towards

interest, and, if there was a surplus, applied towards principal.

94. Mr. Sheeran, who is business graduate and qualified as an accountant in 2001, was then cross examined as to whether, if there

was any intention to charge surcharge interest, it was unethical or unfair to make demands in August, 2014 without any reference to

this, or any possible future retrospective application of the charge. His response was to rely on the reservation of rights in the

letters. When pressed he then said:-

“We didn’t intend on applying surcharge interest at that point in time…we reserved our right to do so.” (Day 2 p. 70)

He also said (Day 2 p. 74) that he didn’t believe that “…we were under any obligation to…” tell the plaintiffs of the surcharge until a

redemption figure was sought in June, 2015. It was repeatedly suggested to Mr. Sheeran that a bank demanding payment, or an

accountant putting their name to a letter of demand, has an obligation to state what is truly due, and not to conceal or “keep up

their sleeve” additional claims. Mr. Sheeran stood over the letters and continually side-stepped the obligation/ethical question by

relying on the reservation of rights, and suggesting that in view of that it was “…incumbent of the borrower to perhaps write to us

earlier than 27th May, 2015” (Day 2 p.77). He did accept that with “a few hours” work he could in August, 2014 have calculated the

surcharge interest now claimed to be applicable. When pressed as to the first time a decision was made by the defendant to apply

surcharge interest he agreed that it was June, 2015 “…Following the request by the borrower for a redemption figure.” (Day 2 p. 79).

Mr. Seeran was asked what would have happened if the €8.744 million had been paid, and he answered that “the receivership would

not have proceeded”, but he could only speculate as to whether there would have been a further demand for monies (Day 2 pp. 88-

89). He said there was no discussion of surcharge interest with the receiver.

95. In assessing Mr. Sheeran’s evidence I have come to the conclusion that he was generally telling the truth, but in other respects I

found his evidence very unsatisfactory. He was astute not to proffer in his Witness Statement or oral evidence anything that might

undermine the defendant’s case, and he contrived to avoid giving positive answers where he knew this might be damaging. Unless

asked exactly the right question he would not give a plain answer. It was only when pressed under cross examination that he

admitted that the defendant had no intention of applying surcharge interest in August, 2014, and that the decision to charge it was

only made after a redemption figure was sought in May/June, 2015. Accordingly, in reserving the defendant’s rights in the demand

letters Mr. Sheeran/the defendant did not have in mind surcharge interest. I find that at most the reservation was intended to relate

to other interest comprised in the figure of €9.104 million being the par figure at which the loans were purchased on 23rd May, 2014. I

am also satisfied that the decision made in June, 2015 to add surcharge interest to the redemption figure was inspired by Mr.

Sheeran, and was intended, along with the claim to enforcement costs, to put obstacles in the way of redemption of the Loan

Facilities. Also Mr. Sheeran ultimately succeeded in avoiding answering the question whether there was an ethical obligation on the

defendant to advise the plaintiffs in August, 2014 or subsequently of a surcharge, or the possibility of it being applied.

96. I have come to the conclusion that, notwithstanding the reservation of rights, the letters of August, 2014 were representations

as to the amounts due that were capable of creating an estoppel at least in respect of the surcharge interest. Having regard to all

the circumstances, I am of the view that in order to later claim any surcharge interest there was an obligation on the defendant to

mention this – either by reference to specific amount or by appropriate words showing that this further claim was or might be made.

The defendant, having a duty to speak out, was silent. Accordingly, this is one of those rare instances in which estoppel by silence

arises under the principles enunciated in Pacol.

97. There is an alternative reason for this conclusion. I have already held in Flynn No.1 that the Shareholders’ Agreement was a

“relational contract” such that it was an implied term that Benray and Breccia as ‘promoters’ owed each other mutual duties to act in

good faith and with fair dealing (see para. 124 et seq). In light of this relational obligation the defendant had a duty to specify any

surcharge claimed in its letter of demand. The mounting of this claim only in June, 2015 retrospectively to 31st December, 2010 was

not a fair dealing.

98. The plaintiffs also relied as a further representation upon the fact that in its Defence and Counterclaim delivered in Flynn No.1 in

September, 2014 the defendant raised a counterclaim against the plaintiffs herein for €8,744,853 – the exact figure demanded in

August – and in so doing did not give any indication that there might be any greater claim, and it did not plead any claim to surcharge

interest. That pleading was never amended, and the claim was pursued before this court. Although no witnesses were called by the

defendant, Mr. Flynn was cross examined on the basis that such claim was being maintained (see para.s 414-430 of my judgment in

Flynn No.1, and in particular para. 418). I dismissed the counterclaim upon the basis that the defendant was not entitled to enforce

collection of the debt otherwise than in conformity with clauses 3.4.3 and 3.4.5 of the Shareholders’ Agreement.

99. In this case I asked Mr. Sheeran about this (Day 2 p.103):-

“Q. So are you saying that Breccia, if it succeeded in recovering €8.74 million on the Counterclaim, would have had a

further claim?”

A. Yes, it would have.”

Mr. Sheeran then confirmed that he personally on the defendant’s behalf had given the instructions in relation to the Counterclaim

and he was asked:-

“Q. And in giving those instructions did you give instructions to claim anything more than the €8.74?

A. Not at that point in time, as I recall.”

100. I find that the amount claimed in the Counterclaim was a further representation capable of giving rise to an estoppel in relation

to surcharge interest, and one that was intended to be relied on by the plaintiffs. It was clear and unequivocal, and never included

any claim to surcharge interest, and it was not subject to any ‘reservation of rights’ or other qualification. Moreover, in the course of

the hearing in Flynn No.1 the Counterclaim was never amended or expanded and it was never suggested to the plaintiffs’ witnesses

that surcharge was or could be applied. As a matter of law Mr. Sheeran was wrong in suggesting that if the defendant had obtained

judgment for €8.744 million on that Counterclaim it could have brought further proceedings for retrospective surcharge. Such a claim

would have been a clear abuse of the process of the sort that would be bound to fail under the rule in Henderson v. Henderson

(1843) 3 Hare 100 which requires that a party bring forward its whole case at the one time.

101. The defendant’s argued that the plaintiffs did not in fact rely on these representations. Counsel referred to Mr. James Flynn’s

evidence as to the demand letter of 8th August, 2014 that “the amount was curious…I was highly suspicious of it…” (Day 1 p.145)

and that, notwithstanding this view and the admitted fact that the letters were passed on to the plaintiffs’ lawyers, no queries were

raised. It was also argued that he did not in fact rely on the figures in the letters when he said that “in and around Christmas of

2014…I was still relying on the redemption figure provided by NAMA, adding a bit of interest and a little bit for relevant fees” – which I

understood to be a reference to the figures provided by NAMA in March or April of 2014.

102. Mr. James Flynn’s evidence was that his “ongoing understanding” was that the debt due was in line with the representations

made by NAMA in March, 2014, and reinforced by the figures set out in the August letters of demand and in the Counterclaim, and

that on foot of that understanding that it was the figure provided by NAMA “…adding a bit for interest and a little bit more for

relevant fees” (Day 1 p. 151) or “in or around €9.25 million” in December, 2014 (Day 1 p.159), when the plaintiffs set about trying to

borrow monies to refinance the Loan Facilities.

103. I am satisfied that the plaintiffs did place some reliance on the figure of €8.744 million in the letters of demand, and in the

Counterclaim – to the extent that these representations tended to confirm their understanding that the amount needed to refinance

was €9 million plus.

104. The defendants then contend that the reason that the plaintiffs could not refinance had nothing to do with any representations

as to amount – it was an entirely different reason, namely the perception that the meaning of the Shareholders’ Agreement was that

a lender (other than Anglo) to a shareholder could face a veto from another shareholder if it tried to enforce/realise any charge over

shares in BHL provided as security. The doubts over this, the defendants asserted, were not removed until an order was made on

consent by me on 13th May, 2015 in Construction Summons proceedings of Sheehan v. Breccia & Ors (High Court Record No.

2015/27SP). Indeed, Mr. James Flynn accepted that doubts over the so-called veto were an impediment to the plaintiffs progressing

with refinancing with HIG with whom they were in discussion around Christmas 2014.

105. This argument is misconceived because it seeks to equate actually obtaining refinancing, and only that, with reliance on

representations as to amount and consequent acting to detriment. While I accept that the perception or possibility of a ‘veto’ was an

impediment to the plaintiffs actually putting in place refinancing up to May, 2015, I am also satisfied that at least from December,

2014 onwards efforts were made by plaintiffs to put such finance in place based on the information provided by NAMA/the defendant

as to the outstanding balance, and that in so doing they suffered expense and detriment. This is sufficient to give rise to an estoppel

because the representation caused the plaintiffs to alter their position and act to their detriment. In particular in trying to arrange

finance the plaintiffs did not factor in surcharge interest – which, according to Matheson’s letter of 19th June, 2015, amounted to

€1,312,933 as of 23rd May, 2014, with the total amount outstanding (excluding enforcement costs) as of 8th June, 2015 claimed to

be €11,071,630 with interest (including surcharge) accruing at €1,730.75 per day. By most standards these are very different

amounts to what the plaintiffs reasonably considered was their approximate current indebtedness. I also have no hesitation in finding

that in attempting to add this surcharge in this fashion the defendant was acting unconscionably.

106. Accordingly, I find that even if clause 5.1 is not a penalty clause the defendant is estopped from adding to the redemption figure

surcharge of 4% calculated up to 19th June, 2015.

107. I also find, as I did in the Sheehan case and for reasons that apply equally in this case, that the estoppel is suspensory in its

effect, and the surcharge provision itself was not waived. Accordingly, but only if it is not a penalty clause, the defendant could claim

surcharge interest on the outstanding balance from 19th June, 2015, being the first date upon which a clear application of surcharge

interest to the account balance was articulated and communicated.

Issue E: Can the defendant charge “enforcement” costs, charges and expenses, and if so, how much?; and

Issue F: If the defendant is entitled to charge “enforcement costs”, does its defence of Flynn No.1 fall within the definition

of “enforcement” costs?

108. It is convenient to deal with these issues together. I have set out in para. 12 and 13 of this judgment the detail of the

defendant’s claim to be entitled to add €2,003,512.43 costs and charges to the redemption figure. This figure first appeared in

Matheson’s letter of 19th June, 2015, and the breakdown was given in Appendix 3 in Mr. Sheeran’s Witness Statement.

109. In his oral evidence Mr. Sheeran confirmed that these costs are the costs that were billed to the defendant arising out of Flynn

No.1; that the ‘Receiver’s costs’ element of €680,448.59 also arises out of legal costs incurred by Mr. McAteer, the second defendant

in Flynn No.1; that the defendant paid Mr. McAteer’s invoice because it agreed to indemnify him; that none of the invoices have been

queried or taxed; that they have been paid by the defendant; and that the fees are inclusive of VAT which is not recoverable by the

defendant because they didn’t arise out of a ‘vatable’ activity.

110. It should be recalled at this point that costs in Flynn No.1 were fully dealt with in the ex tempore judgment that I delivered on

11th September, 2015. In argument before me the plaintiffs had sought their full costs; Breccia asserted that the plaintiffs should

receive portion only of their costs, and it should receive portion of its costs, and ‘no order as to costs’ was suggested as the

appropriate outcome; and Mr. McAteer sought costs against the plaintiffs. My primary decision in arranging costs between the

plaintiffs and Breccia was to order that Breccia discharge 70% of the plaintiffs’ costs. My further decision as to costs arising between

the plaintiffs and Mr. McAteer was that each of these parties for differing reasons was entitled to some costs, and I concluded:-

“41…I believe the justice of the situation is met if I simply make no Order in relation to the Plaintiff’s and the Second

Defendant’s costs inter se effectively setting off the Plaintiff’s costs against the costs to which th[at] Defendant would

be entitled in respect of the failed and unmeritorious conspiracy claim.”

111. I do not readily understand the assertion in Mr. Sheeran’s Witness Statement (para. 34) that the enforcement costs which the

defendant seeks to add to the redemption figure “are wholly separate and distinct from the adjudication of costs made by Mr. Justice

Haughton in the context of [Flynn No.1]”. In his evidence he admits that all these costs and charges arise out of those proceedings,

and the effect of my order is that the defendant is not entitled to recover any of these costs from the plaintiffs.

112. As I understand the argument advanced by counsel it is not suggested that the defendant is entitled to recover these monies in

defiance, as it were, of my order in Flynn No.1. Rather it is contended that either under the general principle that a mortgagee is

entitled to recover the costs of enforcement out of the secured assets, or under clause 6.2 of the General Conditions the defendant

has a right to the enforcement costs/charges that it has paid. General Condition 6.2 provides:-

6.2. The Borrower shall pay to the Bank forthwith upon demand all costs, charges, and expenses (including legal and other

professional fees and expenses, stamp duties and registration or other duties and any V.A.T.) incurred by the Bank in

connection with the preparation and execution of the Agreement and the Security Documents and the obtaining of any

valuation required under any Security Document and all costs incurred by the Bank in the enforcement of the Agreement

(including any costs incidental to the sale of any assets held as security by the Bank) and the security comprised in the

Security Documents….

113. It is then asserted that, as Flynn No.1 is under appeal, there is now a contingent liability – dependant on the outcome of the

appeal and the Court of Appeal’s decision on costs – that is part of the Secured Liabilities under the Loan Facilities. As such, it is

contended that the defendant is entitled to include provision for contingent enforcement costs in the redemption figure.

114. I have fully considered and analysed these arguments in the Sheehan case in the light of identical contractual provisions to

those in the Loan Facilities and security documentation in the present case, and the claim that the costs of that modular trial are

“contingent costs”. The conclusions that I reached there, and which I adopt here, and their application to this case, may be

summarised as follows:-

(i) In general the costs incurred by a mortgagee in defending before a court the validity or quantum of its core claim, are

costs that it is entitled to add to the debt or redemption figure. It does not logically make any difference that this

‘defending’ arises in a claim, defence or counterclaim.

(ii) In construing clause 6.2 I do not see any justification for the narrow interpretation of “enforcement” advocated by the

plaintiffs, that would limit the recovery of such costs in the context of court proceedings to the costs of the bank/the

defendant in claiming or counterclaiming the debt due under the Loan Facilities. The proper construction of the

Shareholders’ Agreement and the defendant’s defence of its position in Flynn No.1 were part and parcel of its broader

“enforcement” proceeding and defence of its rights under the Loan Facilities.

(iii) In principle “enforcement costs” are part of the “Secured Liabilities” as defined in clause 1.1 of the Mortgage of

shares, and are contractually recoverable under General Condition 6.

(iv) Where however a court has made an order directing that costs be paid by a bank, or has specified that there should

be no order in relation to such costs, as a matter of public policy contractual provisions in loan contract and security

documentation entitling a bank to add “enforcement costs” cannot be construed as entitling the bank to recover those

costs, or enforce against security, in defiance of the court order. Were the position otherwise the administration of

justice by the courts and the enforcement of its judgments would be seriously undermined, and it would open the door to

a multiplicity of different contractual provisions effectively ousting the jurisdiction of the courts or fatally undermining the

effectiveness of court orders.

(v) Accordingly, in the present case the defendant cannot seek to recover costs arising from Flynn No.1 in the face of my

order dealing with costs. It follows that prima facie such costs cannot be added to the redemption figure.

(vi) It also follows that, save and to the extent that they may be awarded to the defendant, the costs of this modular

trial cannot be added to the redemption figure.

(vii) As to the level of costs that a court could award to the defendant, General Condition 15 provides:-

“15. Indemnity.

The Borrower indemnifies and agrees to keep indemnified the Bank against all claims, demands, liabilities, losses,

costs (including legal fees on a full indemnity basis), actions, proceedings, charges and expenses whatsoever and

howsoever arising which the Bank may incur or suffer by reason of:-

…

(b) any default by the Borrower or any guarantor in the performance of any of the obligations expressed to be

assumed by it in the Agreement or any of the Security Documents…”.

As we have seen, “Secured Liabilities” is defined in the Mortgage to include “other charges incurred on its account (on a

full indemnity basis)”. Clause 7.1(b) also refers to a duty on the borrower to pay “and indemnify” the bank. Accordingly,

there is a contractual basis in the Loan Facilities and in the Mortgage for the court, if awarding any costs to the

defendant, to do so on an indemnity basis. I emphasise however that that is a matter for the court, which retains its

usual discretion in relation to costs.

(viii) As to the claim that the defendant is entitled to add to the redemption figure enforcement costs that might possibly

be awarded to it as a “contingent liability”, the terms of the Loan Facilities or Mortgage cannot be construed as extending

that far. Clause 6.2 applies only to “all costs incurred in the enforcement” – indeed “incurred”, past tense, is used twice

in the clause. It cannot refer to court costs where these have been considered and declined or made the subject of ‘no

order as to costs’. A plain reading of clause 6.2 does not show any intention to apply it to unascertained costs that might

be granted in futuro. As that clause contains the basic financial obligation in relation to enforcement costs the Mortgage

provisions should be read and construed consistently with it. “Secured Liabilities” so far as it is defined in the Mortgage to

mean monies “due and owing”, and “charges incurred on its account” does not extend to costs that might be awarded at

some future date. The definition does go on to include “…for the avoidance of doubt, any other monies due or to become

due…under…the provisions of this Deed and/or any other Security Documents”. In my view that wording is not sufficiently

explicit to encompass a possible future incidence of costs that is contingent on a court order.

(ix) Clause 7.1(b) does include an undertaking on the borrower/mortgagor’s part to:-

“promptly and duly pay, and indemnify the Bank…against all existing and future…charges…which now or at any time during

the continuance of the security constituted by or pursuant to this Mortgage are payable in respect of the Security Assets

or any part thereof or by the owner thereof or any person in possession thereof”. [Emphasis added]

In the Sheehan case I doubted that this wording could be construed to include enforcement costs because the undertaking relates

back to the main covenant to pay the Secured Liabilities in clause 2.1. More significantly, the words highlighted show that this sub

clause again only relates to charges that are actually payable, and does not encompass unascertained possible future charges.

(x) Although Australian case law (see particularly New Zealand Banking Group Ltd. v Mishra & Anor [2012] NSWSC 13333)

indicates that a reasonable sum by way of security for the costs of defending proceedings taken by a borrower against a

lender/mortgagee may be added to a redemption figure, this does not translate comfortably to this jurisdiction when

limitations on the circumstances in which security for costs may be awarded by an Irish court are taken into account.

(xi) The most important right that a mortgagor has is the right to redeem the mortgage, and the courts are vigilant in

their protection of this right. The plaintiffs’ right to know with certainty the amount of the redemption figure is inextricably

linked to this right. There is a further reason why Mr. Flynn is entitled to this information: if he obtains a redemption figure

and it is discharged, his guarantee of Benray’s liabilities under the Loan Facilities is discharged.

(xii) The contractual provisions, including clause 7.1(b), relied upon by the defendant for its claim to include possible

future enforcement costs as “contingent liabilities” must be considered in the light of the mortgagor’s right to redemption.

If the defendant is correct the availability of a definitive redemption figure could be significantly delayed while the appeal

is heard and determined, and could be delayed by a further appeal to the Supreme Court. This would be inconsistent with

the equitable right to redemption – it would be a “clog” or “fetter” on redemption in real terms – and it is easy to foresee

potentially serious consequences for the plaintiffs who claim to have funding in place to redeem the loans. As an incident

of the equity of redemption the plaintiffs are entitled to know (or be in a position to calculate on a daily basis) without

undue delay what must be paid to redeem the Loan Facilities, without reference to any “contingent liability”.

115. Accordingly, I conclude that the defendant is not entitled to factor in or include in the redemption figure the costs and expenses

incurred in respect of Flynn No.1 in correspondence on and since 19th June, 2015. Following this judgment and any submissions that

the parties may make I will deal with the costs of this modular issue. If, but only if, any such costs are awarded to the defendant,

then such costs (to be agreed or in default taxed) will fall to be added to the redemption figure. Other than this, reserved costs or

possible future or “contingent costs” of these proceedings or any appeal do not fall to be included in the redemption figure that must

be provided at this point in time.

Issue G: What is the correct redemption figure at today’s date?

116. At the close of submissions counsel for the plaintiffs handed into court a document setting out their calculation of the total

outstanding balance as of 20th October, 2015, in the sum of €9,342,716.21. This excludes any surcharge and enforcement costs. It

sensibly takes as its starting point the par value/purchase figure of €9,104,616.41 as of 23rd May, 2014, and I did not take that to be

disputed. The parties were invited to try and agree the figures, and I will hear them further on this.

As my decision is that clause 5.1 is a penalty clause, no surcharge interest should be included. The parties should also update the

figures and provide a daily accrual rate based on any interest rate of EURIBOR plus 1.75% so that the redemption figure due on any

particular day until the EURIBOR rate next changes can be declared in my order. Whether any costs of this modular trial will fall to be

added to that figure will depend on my decision on costs in due course.

Issue H: What injunctive reliefs, if any, are the plaintiffs entitled to in respect of the redemption issues?

117. The appropriate relief in this modular trial is a declaration as to the redemption figure, along with a daily accrual figure calculated

as indicated above. Insofar as further declarations are sought in the prayers in 1) – 5) of the Statement of Claim, these will then be

unnecessary.

118. The relief sought at 6) is:-

“6. An Order that on redemption of Benray’s secured indebtedness pursuant to clause 4.3 of the Mortgage, the Defendant

executes such documents as may be necessary to release any security which the Defendant has over the secured assets

of Benray pursuant to the Terms of the Mortgage.”

If the outstanding balances on the Loan Facilities are discharged then Mr. Flynn’s guarantee is discharged. However, it does not

follow that other security provided by Benray is automatically redeemed – because it may continue to secure the cross guarantee

executed by Benray which in turn is security for Dr. Joseph Sheehan’s loan facilities (also held by the defendant). Accordingly, I will

neither grant nor refuse this relief at the present time.

119. The account of interest sought at 7) should not be required.

120. The injunction sought at 8) seeks to restrain the defendant from taking any steps to assign/sell/alienate its interest in the debt

“and the shares upon which it is secured”. I did not get the impression that this was being urged on the court as requisite at the

present time. I would entertain considerable doubts that the plaintiffs have shown any entitlement to such orders, at least on this

modular hearing, but as I have not been addressed fully on this claim I would be prepared to hear counsel further.

121. I would consider granting liberty to apply to all parties limited to the redemption figure issues. The balance of the reliefs sought

relate to damages claims that do not arise on the issues raised in this modular hearing.

Summary of answers to the redemption issues

A: Can the defendant contractually claim “surcharge” interest?

Yes, under clause 5.1 of the applicable General Conditions.

B: Is the “surcharge” an unlawful “penalty”?

Yes.

C: Has the defendant waived its right to the “surcharge”?; and

D: Is the defendant estopped from claiming “surcharge”?

These questions only arise if the default surcharge interest of 4% is lawful. In such circumstances the answer is that the

defendant is estopped from claiming any surcharge interest arising up to 19th June, 2015, but is thereafter entitled to

claim it on account balances.

E: Can the defendant charge “enforcement” costs, charges and expenses, and if so, how much?

Yes, but not the costs incurred in Flynn No.1 as these were considered by the court and were not the subject of any

order in the defendant’s favour. “Contingent” enforcement costs cannot be added to the redemption figures. So far as

this modular hearing is concerned only such costs as may be awarded to the defendant, the same to be taxed in default

of agreement, can be added to the redemption figures.

F: If the defendant is entitled to charge “enforcement costs”, does its defence of Flynn No.1 fall within the definition of

“enforcement” costs?

In principle ‘yes’, but as these costs were considered by the court and no order was made in favour of the defendant

they cannot be added to the redemption figure.

G: What is the correct redemption figure at today’s date?

Subject to the parties agreement over figures or any further submission, €9,342,716.21 as of 20th October, 2015 to be

updated to the date of my order with interest at EURIBOR plus 1.75%, with interest accruing at a stated daily rate until

the next change in the EURIBOR.

H: What injunctive reliefs, if any, are the plaintiff’s entitled to in respect of the redemption issues?

None at present.

Accordingly, I will hear the parties further and determine costs of the modular trial before any order is perfected.