Cullen Investments Ltd (suing on behalf of itself and all other shareholders in the Third Defendant) and Others v Julian Brown and Others
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Barling,Mr Justice Barling |
| Judgment Date | 05 July 2017 |
| Neutral Citation | [2017] EWHC 1586 (Ch) |
| Docket Number | Case No: HC2014-001021 |
| Court | Chancery Division |
| Date | 05 July 2017 |
[2017] EWHC 1586 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Barling
Case No: HC2014-001021
Timothy Collingwood (instructed by Grosvenor Law) for the Claimants
Edward Davies QC (instructed by Blacklion Law LLP) for the Defendants
Hearing dates: 21 October 2016 (reading), October 24, 25, 26, 27, 28, and 31; November 1, 2, 3, 4, 7, 10 (reading), and 11.
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.
INDEX
| Heading: | Paragraph: |
| DRAMATIS PERSONAE | |
| Introduction | 1 |
| The legal proceedings | 7 |
| The evidence | 11 |
| Factual background | 24 |
| The JV and related arrangements between Eric/Cullen and Julian | 25 |
| The HoA – main terms | 28 |
| The 2006 facility agreement and related securities | 33 |
| Role of and investments by the JV/KIL | 35 |
| The German Opportunity | 36 |
| The initial request for funding – March to June 2008 | 39 |
| Cullen's response to the request for funding – the June 2008 offer | 50 |
| Events after the 14 June offer of funding | 54 |
| The meeting in New Zealand on 15 December 2008 | 73 |
| Julian's 13 January 2009 email | 77 |
| Julian's 22 January 2009 email | 88 |
| Structure of the German Opportunity | 94 |
| Julian's personal interest; the email of 20 February 2009 | 97 |
| Subsequent events and the disclosure of Julian's interest | 109 |
| Issues of fact | 126 |
| (a) Use of SPVs: role of KIL | 128 |
| (b) Were the June 2008 terms ever accepted? Was funding actually available? | 137 |
| (c) Did Julian mention investing personally at the meeting in New Zealand? | 149 |
| (d) What did Mr Archer tell Julian on 19 or 20 January 2009? | 150 |
| (e) How should Julian's email of 22 January 2009 be understood? | 154 |
| (f) When was Julian committed to invest personally? | 160 |
| Contractual entitlement to invest personally and duty to disclose interest | 164 |
| Was Julian entitled to invest personally? | 165 |
| Cullen's decision "not to invest": same as KIL "declining"? | 167 |
| Was KIL given first right of refusal? | 171 |
| Did KIL decline? | 172 |
| Conflict of interest? | 174 |
| Entitlement to make a personal investment without consent: Conclusion | 186 |
| Was there consent? | 187 |
| Contractual duty to disclose personal interest? | 188 |
| Relief for breach of contact | 193 |
| Quentin's involvement in the JV/KIL | |
| Quentin's role in KIL | 195 |
| Quentin's involvement in the German Opportunity | 199 |
| Quentin's financial interest in the German Opportunity | 212 |
| The claims and the Claimants | 216 |
| Hierarchy of the various claims | 221 |
| The Claimants' primary case: breach of director's duties to KIL | |
| Nature and applicability of director's duties: the parties' submissions | 224 |
| Nature and applicability of director's duties: conclusions | 236 |
| Julian: Breach of duties owed to KIL | 243 |
| Julian: Relief for breach of director's duties | 248 |
| Quentin: Breach of directors' duties owed to KIL | 249 |
| Quentin: Relief for breach of director's duties | 254 |
| Fiduciary duties owed by Julian to Cullen/Eric | 255 |
| Fiduciary duties owed to Cullen/Eric: relevant principles and case law | 257 |
| Fiduciary duties owed to Cullen/Eric: the parties' submissions | 261 |
| Fiduciary duties owed to Cullen/Eric: conclusions | 266 |
| Unlawful means conspiracy | 268 |
| The elements of the tort | 270 |
| Application to this case | 279 |
| Summary of main conclusions | 283 |
| Next steps | 284 |
DRAMATIS PERSONAE
| Eric Watson ("Eric") | Second Claimant, executive chairman of Cullen, director of KIL, witness for Claimants |
| William Gibson ("Mr Gibson") | Executive of Cullen, CFO of KIL, witness for Claimants |
| Mark Flay ("Mr Flay") | Former director and CFO of Cullen, witness (via VCF) for Claimants |
| Leslie Archer ("Mr Archer") | Former investment director of Cullen, witness (via VCF) for Claimants |
| Andrea Scown ("Ms Scown") | Former Commercial Manager at Cullen, witness (via VCF) for Claimants |
| Bruce Armitage ("Mr Armitage") | Consultant to Cullen, witness (via VCF) for Claimants |
| Julian Brown ("Julian") | First Defendant, director of and shareholder in KIL, former Managing Director of Kauri CAB Management, brother of Quentin and Bede, witness for Defendants |
| Quentin Brown ("Quentin") | Second Defendant, director of KIL, former manager for Kauri CAB Management, brother of Julian and Bede, witness for Defendants |
| Bede Brown ("Bede") | Former employee of KIL, brother of Julian and Quentin |
| Hagen Kahmann ("Mr Kahmann") | German property investor |
| Jason Butler ("Mr Butler") | Friend of Julian, intended witness (via VCF) for Defendants (not called) |
| Alexandr Khytushko ("Sascha") | Investor into the German Opportunity with Mr Kahmann and Julian |
| Cullen Investments Ltd | ("Cullen") |
| First Claimant (suing on behalf of KIL) and Third Claimant, shareholder in KIL, investment vehicle for Eric | Kauri Investments Ltd |
| ("KIL") | Third Defendant, corporate vehicle for the joint venture between Julian and Cullen/Eric |
| CAB Invest GmbH ("CAB Invest") | Corporate vehicle of Mr Kahmann |
| Kauri Guernsey 1 Ltd | ("KG1") |
| Company incorporated in Guernsey by KIL. A vehicle used by Julian to hold his interest in the German Opportunity | Kauri Holdings Sarl |
| ("Kauri Holdings") | Formerly Kauri Capital 6 Sarl, company incorporated in Luxembourg by KIL, a vehicle used within the German Opportunity, shareholder of Kauri CAB Residential Properties |
| Kauri CAB German Residential Properties Sarl ("Kauri CAB Residential Properties") | Formerly Kauri Capital 7 Sarl, a company incorporated in Luxembourg by KIL, a vehicle used within the German Opportunity, shareholder in Kauri CAB Arminius Sarl |
| Kauri CAB Management GmbH ("Kauri CAB Management") | A company incorporated in Germany, a vehicle used within the German Opportunity |
| Avey GmbH ("Avey") | Corporate vehicle of Mr Kahmann used in the German Opportunity, shareholder in Kauri CAB Residential Properties |
| Witec GmbH | Corporate vehicle of Sascha, through which he made investments into the German Opportunity (via Avey) |
| Arminius Property Ltd | Property investor in the German Opportunity |
| Arminius KC Sarl | Formerly Arminius Hegelallee Sarl, a company incorporated in Luxembourg as a vehicle for an investor in the German Opportunity |
| Kauri CAB Arminius Sarl | Formerly Kauri Capital Pulheim Sarl, vehicle used in German Opportunity |
| Kauri CAB Arminius 1 Sarl | Formerly Kauri Capital Cologne Sarl, vehicle used in German Opportunity |
| Kauri CAB Properties GmbH | Formerly Kauri CAB Holdings GmbH, company incorporated in Germany, vehicle used in German Opportunity |
| Kauri CAB Valentina Sarl ("Valentina") | A company incorporated in Luxembourg, a vehicle used within the German Opportunity as part of a joint venture with Pramerica |
| Pramerica | Joint venture partner with Kauri CAB |
| Confiance Limited ("Confiance") | Trust and corporate service providers in Guernsey |
| Praxus Consulting Ltd | Consultancy company operated by Quentin |
Mr Justice Barling:
Introduction
These consolidated proceedings, seeking an account, damages and other relief, have been brought in the wake of the breakdown of a business relationship between the Second Claimant, Mr Eric Watson ("Eric" 1) and the First Defendant, Mr Julian Brown ("Julian"), which had been built on a friendship between the two men.
Eric is the founder and executive chairman of the First and Third Claimant, Cullen Investments Limited ("Cullen"). Cullen is a private investment company incorporated in New Zealand.
The Second Defendant, Mr Quentin Brown ("Quentin"), is Julian's brother, and worked alongside Julian in the business to which the proceedings relate.
The Third Defendant, Kauri Investments Limited ("KIL"), was incorporated in England on 22 March 2005 as the corporate vehicle for a joint venture which had been agreed between Eric/Cullen and Julian ("the JV"). Cullen and Julian are 50:50 beneficial owners of KIL, whose directors were Julian, Quentin and Eric. Julian was the CEO and an employee of KIL until mid-2012.
The breakdown in the relationship occurred as a result of Julian making a personal investment in a joint venture with a partner in Germany, Mr Hagen Kahmann ("Mr Kahmann"). This venture involved the establishment of a Berlin-based property management company and the redevelopment of residential sites in Germany, particularly in Berlin. The German joint venture was described during the trial as "the German Opportunity".
In these proceedings Eric and Cullen contend that Julian's personal investment in the German Opportunity was impermissible under the terms of his contractual relationship with Cullen/Eric, and/or constituted or resulted in a breach of Julian's and Quentin's obligations as directors of KIL and/or a breach of fiduciary duty owed by Julian to Eric/Cullen. It is also alleged that Julian and Quentin are guilty of an unlawful means conspiracy. The claims are disputed by the Defendants.
The legal proceedings
On 13 March 2013 Cullen issued a claim in the Queen's Bench Division against Julian alone ("the QBD claim"), to which Julian filed a defence on 12 June 2013.
On 22 November...
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