Cavendish Square Holdings Bv and Another v Talal El Makdessi
| Jurisdiction | England & Wales |
| Judge | Mr Justice Burton |
| Judgment Date | 14 December 2012 |
| Neutral Citation | [2012] EWHC 3582 (Comm) |
| Docket Number | Case No: 2010 FOLIO 1499 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 14 December 2012 |
[2012] EWHC 3582 (Comm)
Mr Justice Burton
Case No: 2010 FOLIO 1499
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
7 Rolls Buildings
Fetter Lane
London, EC4A 1NL
Joanna Smith QC and Richard Leiper (instructed by Squire Sanders) for the First Claimant
Michael Bloch QC and Camilla Bingham (instructed by Clifford Chance) for the Defendant
Hearing dates: 12, 13,14, 15 & 16 November 2012
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Claimants, Cavendish Square Holdings BV ("Cavendish") and Team Y&R Holdings Hong Kong Ltd ("the Company") are companies in the WPP group of companies, which is reputedly the world's largest advertising and marketing communications group. The Defendant, Mr Makdessi, was the founder and owner, latterly with Mr Ghossoub (colloquially "Joe"), of what became by the late 1990s, and remained, the largest advertising and marketing communications group in the Middle East ("the Group"). The business of the Group was vested by 2008 in the Company, and Cavendish had acquired 12.6% of the Company. By an agreement dated 28 February 2008 ("the Agreement"), Cavendish agreed to purchase from the Defendant and from Joe in the first instance 47.4% (so as to total 60%) of the shares in the Company, and provision was made for its subsequent purchase (by virtue of put and call options, to which I shall refer below) of the remaining 40%. These proceedings arise out of the (now admitted) breach of fiduciary duty by the Defendant which, if the relevant covenants in the Agreement are, as Cavendish asserts, valid and enforceable, would also constitute breaches of those covenants.
By the terms of the Agreement, and a Service Agreement which he signed contemporaneously, Joe agreed to remain as an employee and director of the Company, as he continues now to do. The Defendant, during the course of the negotiations leading up to the Agreement, made it clear that he did not wish to remain an employee, and what was intended to be a Service Agreement for him was replaced by an agreement also in the event simultaneously signed ("the Appointment"), by which he was appointed a non-executive director of the Company and non-executive chairman, for the initial term of eighteen months renewable, by which he agreed, in Clause 2.2 that "in addition to the requirements of all directors [his] role as a non-executive director has the following key elements", namely identified specific obligations by way of ongoing support of the Company. The Appointment was specifically provided for in the Agreement (Schedules 9 and 12), as was Joe's Service Agreement.
The consideration for the purchase by the Claimant of the 47.4% shareholding in the Company was very substantial. By Clause 3.1 of the Agreement Cavendish agreed to pay to the two Sellers, the Defendant and Joe (who were to share the consideration in the proportions 53.88% for the Defendant and 46.12% for Joe):
i) the sum of $34 million on completion;
ii) the sum of $31.5 million ("the second payment") to be paid in accordance with the terms of Clauses 3.6 to 3.12;
iii) a further Interim Payment, which was to be payable thirty days after determination of the defined "OPAT" (audited consolidated operating profit of the Group), calculated as 47% of 8 times the average OPAT for 2007 – 2009, giving credit for $63 million (namely all the earlier payments save for $2.5 million, being interest);
iv) a Final Payment, payable thirty days after determination of the relevant OPAT, calculated as 47.4% of an agreed multiplier (apparently in the event 7) times the average OPAT for 2007 – 2011, giving credit for the $63 million and the Interim Payment.
It was provided by Clause 3.2, that if the Interim Payment and/or the Final Payment turned out to be a negative figure then it/they should be treated as zero, but there was to be no clawback of the earlier payments; and by Clause 3.3 the aggregate amount of all payments was subject to a maximum of $147.5 million.
The price was justified in the Agreement itself as follows:
i) "11. PROTECTION OF GOODWILL
11.1. Each Seller recognises the importance of the goodwill of the Group to the Purchaser and the WPP Group which is reflected in the price to be paid by the Purchaser for the Sale Shares. Accordingly, each Seller commits as set out in this Clause 11 to ensure that the interest of each of the Purchaser and the WPP Group in that goodwill is properly protected."
ii) There were restrictive covenants imposed on the Defendant and Joe by Clause 11.2 as follows (I shall set them out, incorporating their appropriate relevant definitions taken from Schedule 12 of the Agreement):
"11.2. Until the date 24 months after the Relevant Date [being the later of the date of termination of employment by the Group (not relevant in the case of the Defendant), the date that he no longer holds any Shares or the date of payment of the final instalment of the Option Price pursuant to Clause 15.5(b) — which I set out below], no Seller will directly or indirectly without the Purchaser's prior consent:
(a) carry on or be engaged, concerned or interested in competition with the Group, in the Restricted Activities [being the provision of products and/or services of a competitive nature to the products and/or services provided by the Group Companies in the twelve months prior to the date of the alleged breach of Clause 11.2] within the Prohibited Area [being any countries in which the Group Companies have carried on the business of marketing communications and ancillary services at any time in the period of twelve months prior to the date of the alleged breach];
(b) solicit or knowingly accept any orders, enquiries or business in respect of the Restricted Activities in the Prohibited Area from any Client [being a client or potential client of any Group Company which has placed any order in connection with the Restricted Activities during the twelve months prior to the date of the alleged breach or which was in discussions with and Group Company in relation to such provision in such period];
(c) divert away from any Group Company any orders, enquiries or business in respect of the Restricted Activities from any Client; or
(d) employ, solicit or entice away from or endeavour to employ, solicit or entice away from any Group Company and senior employee or consultant employed or engaged by that Group Company."
There were additional obligations on the Sellers in Clause 11.3 relating to passing off and confidential information, which are not relevant to these proceedings. By Clause 7.5 ("the Carat Clause") the Defendant and Joe agreed to dispose of any shares held by them in Carat Middle East, and would procure that a joint venture agreement (as defined), to which Group Carat (Nederland) BV and the Defendant were parties, would be terminated. Carat is defined on its website as "the world's leading independent media planning and buying specialist…Owned by global media group Aegis Group Plc… [with] more than five thousand people in seventy countries worldwide", and is admittedly a competitor of the Claimants/WPP.
iii) There was a further covenant provided in Clause 11.7 restrictive of the Claimant:
"The Purchaser recognises the importance of the Group to the Sellers and to the value of the Interim Payment and the Final Payment. Accordingly, the Purchaser commits as set out below to ensure that the interests of each Seller in that goodwill is properly protected.
The Purchaser will not (and will procure that no other member of the WPP Group will) at any time until the end of the last financial period relevant to the calculation of the Consideration without the Sellers' prior written consent other than within the Group Companies, trade in any of [twenty three identified] countries…using [specified] names."
The Defendant resigned as non-executive chairman in April 2009, and on 1 July 2009, at the Company's request, resigned as non-executive director of all companies, save the Company itself, from whose board he was removed on 27 April 2011, after the commencement of these proceedings.
What was discovered by the Claimants by December 2010 was that the Defendant had acted in breach of his duties to the Company as Director and, as Cavendish contends, thus also in breach of his obligations under Clause 11.2 of the Agreement. These proceedings were commenced on 15 December 2010, in which Cavendish sues for breach of the Agreement, and the Company for breach of fiduciary duty. The Defendant eventually admitted, only as recently as October 2012, when with my consent his Amended Defence and Counterclaim was reamended, that he was in breach of duty to the Company. Very substantial allegations had been pleaded, and were to be the subject of evidence, in respect of the Defendant's alleged breaches. The Defendant admitted (without accepting all such factual assertions by the Claimants) that he had in fact (in breach of the Carat Clause) continued to be involved and interested in Carat. A Part 36 offer was made by the Defendant to the Company in respect of the Company's claim for breach of fiduciary duty in the sum of $500,000, and was accepted by the Claimant on 8 October 2012. The proceedings have continued in respect of the Claimant's claim for breach of the Agreement (together with certain other matters relating to dividends, which are not before me at this stage).
As a result of this slimming down of the case, to avoid any need for proof of the alleged breaches at this stage, the issues before me have been effectively ones of law in relation to the...
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Lecture
...Pictures[2004] 1 CLC 401; Murray v Leisureplay plc[2005] EWCA Civ 963. 20Cavendish Square Holdings BV v Talal El Makdessi[2012] EWHC 3582 (Comm). 21Talal El Makdessi v Cavendish Square Holdings BV[2013] EWCA Civ 1539. 22Cavendish Square Holding BV v Talal El Makdessi[2015] UKSC 67 at [36]–[......
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Case Note
...663 at [175]. 8 [2016] AC 1172; [2015] 3 WLR 1373 at [116]. 9 [2016] SGHC 144. 10 Cavendish Square Holding BV v Talal El Makdessi [2012] EWHC 3582 (Comm). 11 Talal El Makdessi v Cavendish Square Holding BV [2013] EWCA Civ 1539. 12Cavendish Square Holding BV v Makdessi; Parkingeye Ltd v Beav......