Mr Daniel Donovan v Grainmarket Asset Management LLP
| Jurisdiction | England & Wales |
| Judge | Pearce |
| Judgment Date | 08 January 2020 |
| Neutral Citation | [2020] EWHC 17 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: LM-2017-000087 |
| Date | 08 January 2020 |
[2020] EWHC 17 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (QBD)
Rolls Building.
Fetter Lane
London
EC4A 1NL
HIS HONOUR JUDGE Pearce
Case No: LM-2017-000087
Andrew Green QC and Dominic Howells (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the Claimants
Jonathan Seitler QC and James Kinman (instructed by Howard Kennedy LLP) for the Defendant
Hearing dates: 13 th, 14 th, 15 th, 16 th, 17 th May 2019, 1 st July 2019 Judgment handed down at Manchester Civil Justice Centre on 8 th January 2020
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
The First Claimant, Mr Daniel Donovan, has a history of working in the finance industry. He and members of his family are the beneficial owners of the Second Claimant, NALED Ltd.
The Defendant, Grainmarket Asset Management LLP (“GAM”), is a limited liability partnership engaged in the business of property development, investment and management. It is controlled by Mr Mark Crader.
During (approximately) 2013 to 2015, Mr Donovan and Mr Crader (through the vehicle of GAM) worked together in the development of property. It is Mr Donovan's case that he and his company, the Second Claimant, are owed money by GAM pursuant to an agreement entered into by the three parties relating to property development and investment.
Background
Mr Donovan and Mr Crader both worked for Lehman Brothers in the 1990s. They jointly invested in several properties but, in 2001/2002, Mr Donovan left Lehman Brothers and started his own fund, Front Point Partners; Mr Crader bought him out of their joint investments and thereafter they went their own separate ways for a while, in what appears to have been an amical parting.
Subsequently, Mr Crader incorporated two entities: in 2003, a company called Optimum Property Management Limited, which was concerned with the day to day management of properties (rent collection, service charge management, facilities management and maintenance and the such like); and, in 2005, GAM, a company whose business involved raising funds from investors and investing them, it being concerned with asset management at a strategic level.
One of the funds raised by GAM was held via a Luxembourg entity, PGF II SA (“PGF”). The relationship of GAM and PGF became difficult leading to litigation which Mr Crader describes in his witness statement as having involved “ detailed and acrimonious correspondence” and having been “ heavily contested.”
The PGF dispute involved an office development at Lime Street in the City of London. Ultimately Mr Donovan and Mr Crader jointly acquired the property at Lime Street. That was a separate venture to the one that is central to this litigation. It is peripherally relevant in so far as it was an independent need for the men to maintain a professional working relationship.
In around 2012, Mr Crader and Mr Donovan began to discuss forming a joint venture to take advantage of the opportunities presented by a change in planning law by which it had become easier to convert property from commercial to residential usage. This was known as “ Permitted Development” and on occasions is referred to as “ PD”. It was Mr Crader's evidence that the PGF experience had led him to be reluctant about managing other people's money, but that Mr Donovan was enthusiastic for this.
Eventually, they agreed that Mr Donovan and GAM would enter into a joint venture agreement (“the JV agreement”) in which money would be raised from investors and used to purchase and convert such properties. Each intended development project within the joint venture would be purchased by a limited partnership (a “JVLP”) made up of companies in the GAM group, Mr Donovan (through NALED) and other investors that had entered into a limited partnership agreement (“ LPA”). The JVLP would enter into a Property Management Agreement (“PMA”) with GAM pursuant to which GAM would redevelop the property and thereafter manage it (with some facilities management jobs subcontracted to another company associated with GAM, Optimum). Investors would pay GAM an administration 1 fee calculated as a percentage (between 0.8% and 1%) of their investment in the JVLP. Of this fee, GAM would retain 90% and pay 10% to Mr Donovan. This split reflected the fact that Mr Donovan was acting on his own account, whereas GAM had a team of around 28 people 2, with the overheads of premises in London.
Since Mr Donovan (through NALED) and GAM would be liable to pay the administration fee but would be entitled to receive their share of the fee through
On sale of the property, GAM would receive a further fee from the investors, called a performance fee, calculated by reference to the JVLP's return on investment. Mr Donovan and GAM initially contemplated that Mr Donovan would be paid 45% of the performance fee. That figure was later reduced to 40%.
In all, five projects were acquired using JVLPs as part of the JV agreement. They are conveniently known by the names of the places in which they were located, namely Slough, Farnborough, Elstree, Reading and High Wycombe. York Capital (“York”) were investors in all but the first of the projects, that is Slough.
In around February 2015, the joint venture came to an end. Mr Donovan has subsequently worked as Chief Executive Officer of Core Industrial, an Irish real estate investment trust that is affiliated to York.
The claim in summary
By these proceedings, Mr Donovan seeks to recover:
(a) 40% of the performance fees received by GAM in respect of JVLPs, on the grounds that Mr Donovan was unconditionally entitled to such fees, alternatively
(b) 40% of the performance fee on the ground that Mr Donovan had wholly or substantially performed the work upon which payment to him was conditional; alternatively,
(c) A quantum meruit award in respect of the services that he provided to GAM by reason of GAM's free acceptance of his obligations; and in any event,
(d) The sum of £12,500, being the balance of the total sum that the Claimants contend were agreed to be due as administration fees.
The Second Claimant, NALED, contends that it is entitled to recover sums which have been deducted by GAM from its share of the proceeds of sale of the joint venture investments such sums reflecting performance fees that the Defendant contends were no longer subject to the rebate referred to at paragraph 10 above, once Mr Donovan had renounced the JV agreement.
The Defendant says Mr Donovan renounced this contract in or around January 2015, at a time when he had not performed all his duties under the joint venture, alternatively had not substantially performed those duties. Accordingly, he is not entitled to payment of the performance fee.
In its counterclaim, GAM seeks to recover from Mr Donovan the sum of £12,500, being the sum advanced to Mr Donovan by way of administration fee to which (on GAM's case) he is not entitled. GAM's claim is the corollary of the Mr Donovan's claim for £12,500. If he fails in his claim, this claim succeeds; conversely if he succeeds, this claim fails.
Further, GAM counterclaims against NALED in respect of performance fees that were not deducted from distributions made to NALED as an investor in the schemes, which sums the Defendant says should have been deducted once the JV was terminated.
The trial
At trial, the lay witnesses called by the Claimants were Mr Donovan himself and a business acquaintance, Mr Hall. The statement of his wife, Ms O'Donoghue, was admitted without challenge. The Defendant called Mr Crader and GAM's chief financial officer, Ms Morriss.
Both parties called expert evidence on the value of Mr Donovan's services. The Claimants called Mr Bell, the Defendant, Mr Virji.
Evidence was heard during the week of 13th to 17 th May 2019, with the service thereafter of written submissions. Oral submissions were heard on 1 July 2019 and judgment was reserved. After the judgement was sent out in draft, written submission were received from both parties setting out suggested corrections and from the Defendant seeking clarification on two issues. This judgment takes account of those matters.
The evidence
A very large number of documents and written communications have been created as part of the dealings between Mr Donovan and Mr Crader. The majority of these are emails and many have little if any significance to the dispute before the court. In this judgment, I quote from or summarise the key documents and the relevant evidence from the witnesses relating to those documents and associated events in chronological order.
As noted above, Mr Donovan and Mr Crader began to discuss a new joint venture in 2012. On 26 November 2012 ( G1/76 3), Mr Crader emailed Mr Donovan under the subject line “ Re: Malaysia” and referred to having “the capacity to manage another £300–£400m of active management stock… I would target active management opportunities…I would like a lock-in for 5 years but to operate a grey market depending on the shareholder make up. However happy to tailor as this would be your area.”
It was put to Mr Crader that this represented the reality of their relationship – he (through GAM) was to manage the stock and Mr Donovan was to deal with investment strategy. Mr Crader said that this was part of a discussion as to how they would work together, but that he wanted “ ...
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Daniel Donovan v Grainmarket Asset Management LLP
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