High Court: Galway Clinic succeeds in application to dismiss proceedings over board decision
The High Court has granted the pre-trial application of Galway Clinic, a private hospital, to dismiss proceedings related to a 2017 majority decision by its board to build a new €17 million medical facility which did not proceed to construction.
The proceedings were taken in the High Court by Blackrock Medical Partners Limited (Blackrock Medical) and Dr Joseph Sheehan against Galway Clinic Doughiska Limited (Galway Clinic Ltd) and Parma Investments Limited (Parma).
Galway Clinic Ltd is the operating company of Galway Clinic. The operating company is a wholly owned subsidiary of Marpole Limited (Marpole). At the time of the events giving rise to these proceedings, Blackrock Medical was the holder of a 25 per cent shareholding in Marpole and Parma was the holder of a 75 per cent shareholding. Blackrock Medical was a wholly owned subsidiary of BMPL Galway LLC and Dr Sheehan, who claims to be its beneficial owner.
On 11 June 2004, a ‘Subscription and Shareholder Agreement’ relating to Marpole was executed, which governed the arrangements for the subscription for shares and investor arrangements concerning Marpole and Galway Clinic Ltd. It regulated the conduct of the business of those companies.
The agreement contained covenants and contained clauses governing “restricted transactions” in which it was agreed that the companies would not do any of certain matters listed in the agreement without the prior written consent of both Parma and Blackrock Medical. The restricted transactions included the incurring of any borrowings or expenditure exceeding €250,000.
On 1 February 2017, the board of directors of Galway Clinic Ltd made a decision by a majority vote to approve a project to construct a new two-storey medical facility estimated to cost approximately €17 million. The decision was opposed by the nominees of Blackrock Medical, who were in a minority.
Blackrock Medical and Dr Sheehan initiated proceedings in March 2017, claiming that the board decision breached these restricted transactions clauses. They alleged that Galway Clinic Ltd and Parma had conspired against them. It was alleged that it is the aspiration of Larry Goodman, with whom Parma is alleged to be associated, that Dr Sheehan will not be in a position to redeem certain other loans in respect of which he is indebted relating to Blackrock Hospital Limited.
Galway Clinic Ltd and Parma denied all of the claims and sought to have the case dismissed, in a pre-trial application, on the grounds that the case was moot and an abuse of the court process.
Before the hearing, Dr Sheehan informed Galway Clinic Ltd and Parma, and the court registrar, by way of email that he had filed for a US Chapter 11 bankruptcy in a court in Illinois. He included emails from David K. Welch, an attorney in Chicago, to A&L Goodbody, asserting that the “global automatic stay applies worldwide (even to your Republic of Ireland) regardless of whether this is consistent with domestic law in the relevant foreign country.” He cited In Re Pro-Fit Holdings, 391 BR 850 (Bankr. C.D. Cal. 2008: See also, In Re Nakash, 190 BR 763 (Bankr SDNY 1996) “wherein the court held that the automatic stay applies to actions against a chapter 11 debtor and his property outside the United States.”
Mr Justice Michael Quinn held that no submission had been made to the court as to the effect of any stay under the Chapter 11 proceedings on the proceedings or the application. He noted that he had considered the correspondence from Dr Sheehan and from Mr Welch regarding the stay, and said that “the furthest Mr Welch goes is to submit that the stay applies to actions ‘against a Chapter 11 debtor’. These proceedings are an action by and not against Dr Sheehan.” The court said that nothing in the emails of Dr Sheehan or the attorney identified any impediment to the court proceeding with the hearing of the application.
The judge concluded that it was appropriate to dismiss the proceedings. Parma had acquired Blackrock Medical’s shares in Marpole, and so a court could not grant an injunction in favour of Blackrock medical restraining an alleged breach of the agreement. The proceedings were moot as the February 2017 decision was never implemented, and so there was no live controversy between the parties. The court cited the judgment of Mr Justice Frank Clarke in PV v The Courts Service  4 IR 264 where he stated: “…the starting point of any consideration of mootness has to be a determination as to whether the issue sought to be litigated is still alive in any meaningful sense”, and it cannot be, as noted by Chief Justice John Murray in O’Brien v Personal Injuries Assessment Board, “purely hypothetical or academic”.
The judge said that the “absence of any evidence by the plaintiffs before the court on this application is significant” having regard to the tests identified by the Supreme Court in Keohane v Hynes  IESC 66, in which Mr Justice Clarke considered that it “is important to emphasise that the extent to which it is appropriate for the court to assess the evidence and the facts on a motion to dismiss as being bound to fail is extremely limited.”
The judge said that the claims of conspiracy were bound to fail. The court cited Lopes v Minister for Justice, Equality and Law Reform  IESC 21, where Mr Justice Clarke said that in order to defeat a suggestion that a claim is bound to fail on the facts “all that a plaintiff needs to do is to put forward a credible basis for suggesting that it may, at trial, be possible to establish the facts which are asserted and which are necessary for success in the proceedings.” Mr Justice Quinn said the submissions on whether the decision amounted to a restricted transaction were “very limited.”
The judge considered the judgment of Mr Justice Declan Costello in McSorley v O’Mahony (Unreported, High Court, 6 November 1996) that it is an abuse of the process of the courts to “permit the court’s time to be taken up with litigation which can confer no benefit on a plaintiff. It is also an abuse to permit litigation to proceed which will undoubtedly cause detriment to a defendant and which can confer no gain on a plaintiff.”
The court, having found that the proceedings were moot and would amount to an abuse of process if continued, dismissed the proceedings.
© Irish Legal News Ltd 2020