Crown Dilmun and Another v Sutton and Another

Hearing dates: 21 st, 24 th, 25 th, 26 th, 27 th, 28 th November and

st, 2nd, 3rd, 4th, 5th, 8th, 9th and 10th December 2003

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.

Mr Justice Peter Smith:

INTRODUCTION

This Judgment arises out of the trial of the above action. The first Claimant ("CD") is a property developer. The Second Claimant ("DIL") acts as a service company in the group of which CD and DIL are subsidiaries. CD is a wholly owned subsidiary of Crown Dilmun (UK) Holdings Plc ("CDH") and CD's only director is CDH.

The First Defendant Mr Sutton was employed by DIL (formerly known as Dilmun Investment and Advisers Limited) under a written service agreement dated 4 ^th October 1994 ("the Service Agreement") originally as an Assistant Director but subsequently as a Director. Part of his responsibilities required him to act as a Director of CD. The terms of the service contract will be set out further in this Judgment.

Mr Sutton was also a Director of DIL and CDH.

The group of the UK companies are part of the Bahrain International Bank (EC) ("BIB") group of companies. Placed between BIB and CD (UK) Holdings Plc is a further company Crown Dilmun Holdings (CI) Limited, a company registered in Jersey. One hundred percent of its shareholding was held by BIB. The latter provided equity investment of £60 million, ultimately to enable CD to acquire properties within the United Kingdom. The corporate structure, is in cases like this, as usual, complicated and I append to this Judgment a copy of the corporate structure.

It will be seen that one of the parallel strands of the structure involves serviced apartments through Crown Dilmun Serviced Apartments (CI) Limited (another Jersey registered company) which itself had a fifty percent holding in Ascott Dilmun Holdings Limited another Jersey company. The other fifty percent was owned by the Ascott group, whose ultimate beneficial ownership, as I understand the position, is in Singapore. Both CD and Ascott Dilmun have a large number of subsidiaries as shown in the attached copy of the corporate structure. The subsidiaries generally relate to separate developments; the policy being that where a development is required it is taken in a separate company, a special purpose vehicle ("SPV"), solely for the purposes of that particular development. The reasons for this are readily understood and do not need setting out in this Judgment.

The Second Defendant was incorporated on 5 ^th September 2002. It was incorporated by a firm of solicitors Forsters. A number of partners within Forsters were involved in the matters the subject matter of this dispute, the Senior Partner being Ms Sophie Hamilton ("Ms Hamilton"). The Second Defendant ("FRP") had at all material times only one director namely Ms Hamilton.

Its total issued share capital is one hundred shares of £1.00 each. Of those shares fifty-one A shares were issued to a company Worldmade Limited ("WL") and forty-nine B shares were issued to Ottoman Homes Limited ("Ottoman"). Ottoman is a one hundred percent subsidiary of Imperial Property Company Holdings ("IHL"). IHL's shares are owned equally between Mr Sutton and his wife.

Worldmade is a company through which a Mr Mark Neil Steinberg, a Mr Steven Collins and a Mr Terence Cole in effect invested in FRP. Mr Cole and Mr Steinberg have been established together in the property business for approximately twenty-five years and have created a substantial property investment and development group. Together with Mr Collins they own a number of companies that have been used as vehicles for holding interests in a number of property developments and transactions. They have known Mr Sutton since 2001 (they did some transactions with him then). They understood him (as indeed is the case) to be well known in the property world, enjoying a high reputation and further he was voted Young Property Personality for 2002.

The claim arises out of a contract ("The Agreement") dated 18 ^th September 2002 and made between (1) Fulham Stadium Limited ("the Seller"), (2) Harrods Holdings Limited ("the Seller's Guarantor") and (3) FRP.

That is a conditional contract whereby Fulham Stadium Limited agreed to sell the property known as Craven Cottage Football Stadium, Stevenage Road, London SW6 to FRP for £50 million exclusive of VAT plus an Overage Payment (if any) exclusive of VAT.

That contract is a conditional contract whereby (clause 2.1) the entry into force of the obligations (other than specified ones) is conditional upon the Unconditional Date occurring on or before the Termination Date. The unconditional date is the latest of a number of dates all linked to the obtaining of a satisfactory Planning Permission as defined in the Agreement. A satisfactory planning permission, means a planning permission which is not subject to an onerous condition steta in the The development is the most controversial aspect, being the demolition of the existing Football Stadium and other buildings on the site and the construction thereon of residential units comprising not less than two hundred and forty thousand square feet of net saleable space.

An unusually large deposit of £15 million was payable on the signing of the Agreement.

The litigation arises out of FRP entering into the Agreement. I will set out the allegations in the pleadings further in this Judgment. For present purposes the allegation is that the opportunity to enter into the Agreement conferred on FRP was obtained by Mr Sutton, CD contends, in breach of the fiduciary duties he owed as a director to the Claimants, CDH and the other companies in the group and in breach of his fiduciary duty. It was an opportunity, which instead of seeking to obtain for the benefit of CD, he caused to be diverted to FRP.

As I shall set out further in this Judgment, FRP, which had no capital at all beyond its £100.00 issued share capital, was able to enter into the Agreement by reason of a loan made to it of £15 million from the Irish Nationwide Building Society. That loan was secured through the efforts of Mr Steinberg. In addition to that loan WL lent an interest free loan to FRP of £1.7 million, as to £1.3 million being provided on the date of the shareholders agreement, which was entered into between WL (1) and Ottoman (2) on 18 ^th September 2002, the same date as the Agreement. Mr Sutton contributed £100,000.00 as an interest free loan to FRP as his contribution.

The claims against Mr Sutton are damages for breach of contract and fiduciary duty and alternatively, at the Claimants' option, a claim that he is liable to account to them for any profits made from the Agreement or alternatively that the Claimants are entitled to elect that he holds the benefit of the Agreement on constructive trust.

As against FRP the allegation against it is a claim for damages in respect of dishonest assistance in breach of trust and/or knowing receipt of trust property with the same alternatives as are sought against Mr Sutton.

DRAMATIS PERSONAE

I should at this stage say something about the witnesses who appeared before me. The Claimants called four witnesses. First there was Mark Minashi who is the finance director of CD, having held that post since August 1999. Initially, he reported to Mr Sutton. The second witness called was Ibrahim Aladwani. He is the managing director of DIL, a post which he occupied since 24 ^th June 2002. His role was somewhat controversial. He was "parachuted" into that post on 24 ^th June 2002 with little or no warning to Mr Sutton and all of the other people concerned in CD. His appointment certainly caused friction between the Claimants and Mr Sutton and it is quite clear that there was, what might neutrally be described as, an initial antipathy as between Mr Aladwani and Mr Sutton, which developed over the period until November 2002 to outright hostility. The third witness called by the Claimants was Simon Gawthorpe, who is a development director, employed by CD. I should say that virtually everybody concerned with the company appears to have been called a director, but the only actual relevant holders of the office of director at all relevant times were Mr Sutton, Mr Aladwani (who was a director of Dilmun Holdings) and Mr Gawthorpe (who was a director of CDH). Mr Gawthorpe was initially a project management director having been responsible for that role since April 2001 and is now a development director of CD. He reported too Mr Sutton and he was a close friend and confidant of Mr Sutton.

The fourth witness called by the Claimant was Stephen Mallet, a director of DIL, having joined the board on 15 ^th October 1997. The decision of the Claimants to call him arose as a result of a ruling I made on the pleadings during the course of the trial, to which I shall make reference further in this Judgment.

Mr Sutton gave evidence for himself. Mr Steinberg gave evidence for FRP as did Ms Hamilton. In addition another partner in Forsters, Michael David Cunliffe, was called on behalf of FRP as a result of evidence Mr Sutton gave during his cross examination by Mr Hochhauser QC,...