FHR European Ventures LLP and Others v Ramsey Neil Mankarious and Others
| Jurisdiction | England & Wales |
| Judge | Master Clark |
| Judgment Date | 02 March 2016 |
| Neutral Citation | [2016] EWHC 359 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC-2009-000030 |
| Date | 02 March 2016 |
[2016] EWHC 359 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Master Clark
Case No: HC-2009-000030
Christopher Pymont QC (instructed by Hogan Lovells International LLP) for the Claimants
Matthew Collings QC (instructed by Farrer & Co LLP) for the Defendants
Hearing dates: 17 & 18 November 2015
This is my judgment on the claimants' application made by notice dated 26 March 2015.
The claim and the background to the application
The claim, commenced on 23 November 2009, was for undisclosed commission of €10 million ("the Fee") paid to the second defendant ("Cedar LLC") by the seller of (the issued share capital in the company that owned a long leasehold in) the Monte Carlo Grand Hotel ("the Hotel"), a luxury hotel in Monaco. The price paid was for the Hotel was €211.5 million. The first claimant was the purchaser, and the other claimants were interested in the purchase either as investors/joint venturers or as shareholders in the first claimant.
The first defendant, Mr Mankarious, was and is the moving force of both the second and third defendants (collectively "Cedar Capital Partners"), and the person by whom they acted in all material events in the claim. Cedar LLC is a Delaware company owned and controlled by a trust of which Mr Mankarious is a beneficiary, of which the third defendant ("Cedar Ltd") is a wholly owned subsidiary.
The Amended Particulars of Claim dated 23 November 2009 ("Amended POC") alleged that all 3 defendants owed all the claimants the following fiduciary duties:
(1) to act in their best interests and, in particular, to negotiate the best price at which the Hotel (or the shares in it) could be sold;
(2) not to put themselves in a position where their duty and interest conflicted;
(3) not to profit from their position.
These duties were alleged to arise from Mr Mankarious "through Cedar Capital Partners" (para 20) acting as agent of and advisor to the fourth and sixth claimants; and from Mr Mankarious personally conducting negotiations with the seller of the Hotel on behalf of all the claimants (para 26aa).
The Fee was payable under an agreement dated 24 September 2004 entitled "Exclusive Brokerage Agreement" between the seller and Cedar LLC, by which the seller granted Cedar LLC the exclusive right to secure a purchaser for the Hotel for a limited period, and provided for the payment of the Fee on completion of the purchase. The purchase completed on 22 December 2004, and the Fee was transferred into Cedar LLC's euro bank account with UBS in Jersey ("the euro account") on 7 January 2005. Before the transfer the balance in the account was zero. Transfers (including transfers to Mr Mankarious and the third defendant) were made out of the euro account, so that by 18 January 2007 the balance in it was again zero.
The claimants claimed that the receipt of the Fee by Cedar LLC was in breach of its duties set out above, and that it held the Fee as constructive trustee for them and was liable to account to them for it. Paragraph 30 of the Amended POC continues:
"To the extent that Cedar LLC has dealt with the €10 million or any part thereof:
a) the Claimants will seek an inquiry or account as to all such dealings and subsequent dealings;
b) the Claimants claim to be able to trace into the hands of any recipient in respect of its beneficial interest; and
c) in so far as any payment was made to Mr Mankarious or Cedar Ltd, that recipient is liable to account to the Claimants as a constructive trustee in respect thereof as having received it in breach of the said fiduciary duties, alternatively as having knowingly received it in breach of Cedar LLC's constructive trust."
The trial of the claim took place in July 2011 before Simon J, who held (in summary) that Cedar LLC was accountable for the Fee because it was received in breach of fiduciary duty, but that the Fee was not held, when received, on trust for the claimants. Simon J gave two judgments. In the first, dated 5 September 2011, he held that Cedar LLC would have received the €10 million Fee "subject to a Constructive Trust" in favour of the claimants (para 103); in the second, dated 15 November 2011, following further argument, he held that Cedar LLC was accountable in equity for the Fee, but that it was not subject to a constructive trust.
The claimants appealed against this second judgment and, on 29 January 2013, the Court of Appeal allowed the appeal, declaring that Cedar LLC had received the Fee on constructive trust for the claimants absolutely, and was liable to account to the claimants for it. On 16 July 2014, the Supreme Court dismissed Cedar LLC's appeal from the judgment of the Court of Appeal.
So far as the consequential relief sought in paragraph 30 of the Amended POC was concerned, the Judge's order dated 15 November 2011 provided:
"(4) The Claimants be at liberty to apply against each of the Defendants for such accounts, inquiries, and directions as are necessary and/or appropriate."
The application
The application notice seeks in the usual way an order (and consequential directions as appropriate) for an account to be taken and/or an inquiry to be made against each of the defendants as to their dealings with the Fee. It also seeks:
"2(a) a declaration as to the extent of the claimants' equitable charge over the freehold property at Conduit Lodge, 41 Lyndhurst Road, London NW3 5PE ("the Property") or its proceeds of sale resulting from the claimant's entitlement to trace the Fee (or any part of it) into its purchase and/or improvement;
(b) an order for the sale of the Property under s.14(2)(a) of the Trusts of Land and Appointment of Trustees Act 1996 and such directions as the Court shall think fit for the distribution of the proceeds to discharge the claimant's equitable charge;
(c) an order joining Jennifer Lyn Mankarious as a defendant to this part of the claim under CPR r19.2(2)(a) as joint legal owner of the Property.
(d) declarations as appropriate upon the taking of the said account and/or the making of the said inquiry as to the extent of the claimant's equitable charge over any other property or asset into which it shall be determined that the claimants are entitled to trace the Fee or any part thereof together with such further directions as the Court shall think fit to enable such charge to be satisfied.
(e) monetary judgment as appropriate upon the taking of the said account and/or the making of the said inquiry against the first and third defendants respectively in the amount of all benefits received by them respectively from the Fee (save as already the subject of relief under paragraphs 2 and 3 above) on the basis of knowing receipt, alternatively equitable compensation for breach of fiduciary duty, alternatively liability to account as a constructive trustee;
(f) interest in equity or pursuant to statute on all sums found due from the first and third defendants …"
As a result of an agreement made on 1 May 2015 with Mrs Mankarious' solicitors, the claimants are not pursuing paras 2(b) or (c) of the application notice at this hearing. In addition, following the attendance and submissions made by Mr King of Mrs Mankarious' solicitors, Payne, Hicks, Beach, the claimants accepted that I should confine my declaratory relief to the extent of their interest in the property, with the issue of the extent of Mr Mankarious' interest to be determined at the adjourned hearing of the application to deal with the remainder of the relief sought in it.
Notwithstanding the terms of the application notice, the procedural course taken by the parties did not follow the relief sought in it. Even before the application was made, the defendants had given extensive disclosure of their bank statements, and the claimants used these documents to give an account (in the lay sense) of the various payments made using the Fee. These are set out in some detail in the first witness statement dated 23 March 2015 of Mr Shiu in support of the application. The defendants filed evidence in answer to Mr Shiu's evidence and the claimants filed evidence in reply.
At the hearing before me the claimants were not therefore seeking an order for an account or inquiry, on the basis that it was unnecessary to do so and, indeed, would only result in the replication of all the material already before the court. The parties also agreed that there were no factual issues requiring to be resolved, so that all the issues required to be determined by me were either legal issues, or issues as to the application of legal principles to the agreed factual position.
I therefore directed the parties to produce an agreed list of issues and an agreed statement of the facts relevant to those issues (the latter being lodged after the hearing).
Issues in the application
Taking the agreed list of issues as the starting point, I consider that the issues arising in the application are as follows:
Preliminary – the Fiduciary point
(1) Whether or not Mr Mankarious and Cedar Ltd are free to contend that they were not fiduciaries when receiving monies from or deriving from the Fee;
(2) If so, how that issue is to be resolved;
The Property
(3) The amount of the proportionate share in the Property which the claimants are entitled to claim:
(i) whether the £180,000 deposit was paid (or is to be treated as having been paid) with money derived from the Fee
(a) in full ( ...
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