FHR European Ventures LLP and Others v Mankarious and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Simon |
| Judgment Date | 05 September 2011 |
| Neutral Citation | [2011] EWHC 2308 (Ch) |
| Docket Number | Case No: HC09CO4439 |
| Court | Chancery Division |
| Date | 05 September 2011 |
[2011] EWHC 2308 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Simon
Case No: HC09CO4439
Mr Christopher Pymont QC (instructed by Hogan Lovells International LLP) for the Claimants
Mr Ian Mill QC and Ms Shaheed Fatima (instructed by Farrer & Co LLP) for the Defendants
Hearing dates: 4-8, 11, 13-14 July 2011
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.
Introduction
In this action the Claimants claim €10 million as undisclosed commission received by the Defendants in breach of their duty as fiduciary agents not to profit from their position or to put themselves in a position where their interest and duty were in conflict. The Defendants contend that they are entitled to retain the commission the payment of which was known to the Claimants and counterclaim for sums due from the Claimants in respect of work done on their behalf.
At the centre of this dispute is the sale of a long leasehold interest in the Monte Carlo Grand Hotel ('the Hotel') in December 2004. The vendor of the Hotel was a company, owned or controlled by Mr Toufic Aboukhater, and the purchaser was the first Claimant ('FHR'), a Limited Liability Partnership incorporated in England and Wales. The price paid for the Hotel was €211.5 million.
In July 2004 the first Defendant ('Mr Mankarious') established a new business venture, Cedar Capital Partners ('Cedar'), with the intention of providing consultancy services to the hotel industry. Among Cedar's clients were the 6th Claimant ('BoS') and the 4th Claimant ('Fairmont'). BoS funded and invested in hotel businesses; and Fairmont owned and managed a number of hotels.
Acting on behalf of BoS and Fairmont Mr Mankarious negotiated a non-binding Memorandum of Understanding with the vendor on 5 October 2004. This recorded proposed indicative terms by which a joint venture company would acquire the exclusive right to purchase the vendor's interests in the Hotel for €215 million. It was intended that there should be other investors in the Hotel; and subsequently the 2nd claimant ('Kingdom') became an investor. Kingdom, which represented the commercial interests of Prince Alwaleed bin Talal bin AbdulAziz al Saud ('the Prince'), was a well-established investor in luxury hotels around the world. Kingdom and the Prince were advised by an independent advisory business, Hotel Capital Advisers ('HCA') whose President was Mr Chuck Henry.
The vendor regarded secrecy and confidentiality as important; and the Memorandum of Understanding contained terms covering confidentiality as well as exclusivity. At a late stage in the due diligence enquiries carried out on behalf of the purchasers, an unforeseen liability for costs was discovered; and Mr Mankarious negotiated a reduction in the purchase price from €215 million to €211.5 million. 75% of this sum was financed by debt and 25% by the equity participations of the Joint Venture participants (BoS 50%, Fairmont 25% and Kingdom 25%).
On 21 December 2004 BoS, Fairmont and Kingdom agreed terms by which their subsidiaries, the 7th, 5th and 3rd Claimants became shareholders in FHR. The joint venture had a potential investment capacity of £800 million with £600 million of financing provided by BoS, and equity funding of £200 million which would be provided in the proportions used in the funding of the purchase of the Hotel. Cedar was to be appointed as manager and investment advisor to FHR.
Following the successful acquisition of the Hotel, Cedar continued to work on other potential projects on behalf of FHR and its backers, and rendered invoices in respect of the work it had done. In April 2005 Kingdom discovered that Cedar had been paid a fee by the vendors in relation to the sale of the Hotel. After some equivocation Mr Mankarious revealed that the fee was €10 million. Kingdom and Fairmont took a strongly adverse view to this discovery and declined to pay Cedar's invoices. The view of BoS seems to have been less an objection to the payment of a fee than to its amount. The reason for this was that it is common ground that Mr Middleton and Mr Shankland of BoS had been told by Mr Mankarious, in terms which are disputed, that he was to be paid a fee by the vendor if the Hotel were sold to the joint venture purchasers.
On 15 September 2005 Dundas & Wilson CS LLP wrote on behalf of FHR to Cedar complaining about the fee and bringing to an end the business dealings between FHR and Cedar, making clear Cedar's invoices would not be paid and reserving the right to bring proceedings to recover the €10 million payment.
On 23 November 2009 the Claimants issued proceedings for the recovery of €10 million on the basis that it had been paid to the Defendants at a time when they were acting as the Claimants' agents.
The chronology in outline
From 1995 until 30 June 2004 Mr Mankarious was employed by Kingdom to look into opportunities for acquisition and investment in hotels. In that capacity he had come into contact with Toufic Aboukhater in late 2002, and had looked into the possibility of Kingdom acquiring the Hotel. These negotiations, which also involved Fairmont as the potential operator, had reached the stage of a non-binding Letter of Intent dated 21 March 2003 for the acquisition of the Hotel by a Kingdom subsidiary for US$215 million. In the event the sale did not proceed due to Kingdom's discovery of adverse trading results and the vendor increasing the price.
At a meeting with the owners of the Hotel on 19 May 2004, Mr Mankarious learned that they were again prepared to sell the Hotel, for a price in excess of €200 million.
After the establishment of Cedar on 1 July, Mr Mankarious was retained by Kingdom in connection with its proposed purchase of the Savoy Hotel in London. This involved work with BoS (as funders of the acquisition) and Fairmont (as operator). Among those who were involved in the purchase of the Savoy Hotel and in the later purchase of the Hotel in Monte Carlo were Mr Peter Cummings (the Managing Director of BoS's Corporate Banking arm), Mr Douglas Middleton (the Director in the Joint Venture Division at BoS) and Mr Andrew Shankland (who was Mr Middleton's subordinate in the Joint Venture Division), Mr Bill Fatt (the CEO of Fairmont) and Mr John Johnston (the Executive Vice President of Development at Fairmont).
At the same time as the Savoy Hotel deal transaction was going ahead, Mr Mankarious was continuing to make contact with the owner of the Hotel who seemed, at least at the early stages, equivocal about selling.
On 10 August Mr Mankarious had a meeting with Bassam Aboukhater, the son of Toufic Aboukhater, and noted his agreement (subject to confirmation from his father) that Cedar would represent the owners in selling the Hotel at a minimum price of €225 million, and his agreement that Cedar would also be permitted to represent the purchasers.
In the light of this understanding with the owners and in the course of finalising the Savoy Hotel transaction, Mr Mankarious wrote on 11 August to Mr Cummings of BoS about the possibility of a purchase of the Hotel and indicating Fairmont's interest in operating and investing in the Hotel.
I have an excellent relationship with the owner and he has finally agreed to sell the property.
Mr Mankarious invited Mr Cummings to join him and Mr Fatt on a visit to Monte Carlo to view the Hotel. Mr Cummings was unable to join them on the visit, but expressed BoS's interest and suggested that Mr Mankarious make contact with Mr Middleton.
Mr Mankarious's notes show that a set-back to his plans occurred on 14 August when he was told by Bassam Aboukhater that his father was no longer interested in selling the Hotel. However, by 26 August he (Toufic) had changed his mind and indicated to Mr Mankarious that he wanted to sell for around €225 million, although this was subject to an interest from another prospective purchaser.
In the meantime Mr Mankarious continued to encourage BoS and Fairmont to buy the Hotel. Discussions took place about a Joint Venture funded by BoS with equity provided by participating joint venturers; and it is clear that Mr Mankarious was keen to promote both the concept of the joint venture and the acquisition of the Hotel once the Savoy Hotel transaction was concluded.
On 16 September Mr Mankarious wrote to Mr Fatt suggesting ways in which Cedar might be able to assist Fairmont, both in relation to the acquisition of the Hotel and the proposed joint venture which would acquire further hotels; and referred to his extensive discussions with BoS.
In early September Mr Mankarious and his assistant Mr Phil Golding, who had joined Cedar on 7 September, prepared the first of a number of drafts of a document headed, 'Investment Memorandum'. The document, which was sent by Cedar to BoS and Fairmont in slightly different forms, described the Hotel and its prospects. Both versions had an initial note about confidentiality.
This Investment Memorandum (the 'Memorandum') is being furnished to you on a confidential basis, solely for the purpose of soliciting interest in acquiring [the Hotel]…It is not to be used for any other purpose or to be made available to any other person without prior written consent of [Cedar]. This document is designed to assist a potential investor...
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