Dear all,

In the recent case of Flynn v Breccia [2015] IEHC 547 the Irish High
Court extensively sited from and applied the judgment of Leggatt J.
in Yam Seng Pte Ltd. v. International Trade Corporation Ltd. [2013] 1
CLC 662. The Court was prepared to imply a duty of good faith into a
shareholders agreement, if necessary. The result was that one
shareholder, which had acquired the debts of another shareholder,
through a company which it controlled, could not exercise rights to
appoint a receiver over the debtor's shares which were enjoyed by the
original lender.

The Court's actual decision appears not to turn on any implied duty of
good faith. Applying traditional principles at paragraphs 251 and 252,
the Court was prepared to imply a term into the shareholders agreement
that: “a Promoter cannot take steps to enforce recovery of another
Promoter’s Anglo Facility [Anglo being the lender]or enforce the sale
of the other Promoter’s secured shareholding otherwise than in
accordance with sub clauses 3.4.3 and 3.4.5 of the Shareholders’
Agreement”. (The clauses referred to being 'step in' provisions which
allowed the other shareholders to pay off borrowings of a defaulting
shareholder, in circumstances where each shareholder's borrowings,
which were made for the purposes of the company were cross guaranteed
by each other shareholder, and thereafter to acquire their shares pro
rata.)

However, at paragraph 264 the Court expressly held that: "264.
Accordingly, insofar as it is necessary to make such a finding it is
my decision that it is implied in the Shareholders’ Agreement that
Breccia and Benray owed each other mutual duties of good faith and
fair dealing." So while the recognition of an implied duty of good
faith is perhaps not part of the binding reasoning in the decision (as
the Court seems to have recognized itself) the possibility that such a
term could be implied was acknowledged.

The judgment is lengthy.

The key passages concerning good faith are from paragraphs 111 to 165
(largely a consideration and copious quotation from the English
decisions on the issue, starting with Yam Seng) and from paragraphs
253 to 264.

One is struck by the level of factual evidence which seems to have
been heard and considered by the Court in considering whether an
implied term of good faith should be recognized, evidence which must
have made the litigation more expensive for all parties and by the
uncertainty to which consideration of whether there is such an implied
term may give rise, in future cases.

Kind regards

Ger

http://www.bailii.org/ie/cases/IEHC/2015/H547.html