Mr Ran Avrahami and Others v Mr Doron Biran and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Newey |
| Judgment Date | 25 June 2013 |
| Neutral Citation | [2013] EWHC 1776 (Ch) |
| Docket Number | Case No: HC09C04299 |
| Court | Chancery Division |
| Date | 25 June 2013 |
[2013] EWHC 1776 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building, Royal Courts of Justice
7 Rolls Buildings, Fetter Lane
London, EC4A 1NL
Mr Justice Newey
Case No: HC09C04299
Mr Tim Penny (instructed by Asserson Law Offices) for the Claimants
Mr Saul Lemer (instructed by DAC Beachcroft LLP) for the First and Second Defendants
Hearing dates: 5–8, 11–15 and 18–21 February and 12–13 March 2013
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.
This case arises out of the development of a site at 17–23 Farringdon Road in London. The development was undertaken by the third claimant, a Gibraltar-incorporated company called Carlton Landmark Properties Limited ("CLP") which was beneficially owned by the first and second claimants, respectively Mr Ran Avrahami and Be-Ready Limited ("Be-Ready"), and the first defendant, Mr Doron Biran. The project was managed by Mr Biran, whose idea it had originally been to purchase the site.
The present proceedings are principally concerned with whether, as the claimants say, Mr Biran perpetrated a fraud on them in the course of the Farringdon Road project. According to the claimants, Mr Biran was responsible for large-scale misappropriation. Mr Avrahami and Be-Ready also allege that they were induced to enter into the agreement governing their joint venture with Mr Biran by deceit or culpable non-disclosure on his part. Complaints of negligence have been made as well.
Factual history
Mr Avrahami is an Israeli citizen and served in the Israeli air force before becoming an airline pilot, first for Arkia Israel Airlines and then for El Al. While working for Arkia Israel Airlines, Mr Avrahami obtained first a law degree and then an Executive MBA from Tel Aviv University. He has been on unpaid leave from El Al since late 2009.
It was while studying for the MBA in 1999 that Mr Avrahami met Mr Rami Lerner ("Mr Lerner"), whose family owns and controls Be-Ready and who was taking the same degree course. Mr Lerner, who is also an Israeli citizen, served in the Israeli Prime Minister's Office for more than two decades and then, from 2003 to 2005, as the chief executive officer of the Society for the Protection of Nature in Israel. His father, Mr Dov Lerner, was a businessman with interests in construction and, to a lesser extent, real estate in Israel.
Mr Avrahami has known Mr Biran since 1991 or 1992. They met through their wives, who had been friends for many years, and became close friends themselves.
Mr Biran served in Israeli army intelligence between 1984 and 1988 and was commissioned in 1986. On leaving the army, Mr Biran obtained a degree in insurance from Tel Aviv University and then set up an insurance brokerage business. He sold this in 1994 and studied law and business at the London Guildhall University from 1994 to 1998. It was also during this period that Mr Biran first became involved in property development, and he has now been involved in more than 50 projects. Mr Biran moved to England with his family in 2001 and acquired British (as well as Israeli) citizenship in 2007. He has lived in Switzerland, however, since 2010 or 2011.
Mr Avrahami introduced Mr Biran to Mr Lerner and Mr Dov Lerner in about 1999. The four met at Mr Dov Lerner's flat in Israel. They proceeded to invest in a portfolio of properties in Britain through a company called Lab Holdings Limited ("Lab Holdings"), whose name was derived from the first letters of the participants' surnames (Lerner, Avrahami and Biran). The project was a great success.
By 2002 Mr Biran was interested in purchasing the Farringdon Road site. He initially agreed a joint venture with a Mr Edward Azouz. Their plans proceeded far enough for Mr Azouz to supply money for a deposit. The Farringdon Road site was to be purchased by "Carlton Landmark Properties Limited" and A. R. & V. Developments Limited, a company associated with Mr Azouz. A. R. & V. Developments Limited was to provide 75% of the required equity and "Carlton Landmark Properties Limited" the remaining 25%. Profits and losses were to be shared between the companies on an equal basis.
In the event, however, Mr Biran decided to undertake the Farringdon Road project with Mr Avrahami and the Lerner family rather than Mr Azouz. The money Mr Azouz had provided was returned to him in mid-December 2002.
Mr Biran had talked to Mr Avrahami about the Farringdon Road project by 11 October 2002, when he faxed to Mr Avrahami an "Appraisal Summary" that he had prepared in respect of the project. This included a section headed "Land" in which "2%" was shown in respect of "Agent". Percentage figures were also given as regards, for example, "Architect" (4.00%), "Quantity Surveyor" (1.50%) and "Project Manager" (1.50%). Towards the end of the document, "Gross Development Costs" were put at £10,830,781 and "Net Profit" at £3,213,542. As a result, "Profit on equity employed" (stated as "£3m-£4m") was calculated at 107.12%.
Mr Biran, Mr Avrahami, Mr Lerner and Mr Dov Lerner discussed the Farringdon Road project at a meeting in Mr Dov Lerner's flat in about November 2002. They agreed to pursue the project using a Gibraltar special purpose vehicle in which the Lerners (or a company nominated by them) would have a 50% interest with the other 50% shared between Mr Biran and Mr Avrahami. As regards funding, the Lerners were to provide 85% of the required funding and Mr Biran and Mr Avrahami 7.5% each.
There were very few further meetings between Mr Biran and Mr Lerner. Mr Biran suggested that there was another meeting at Mr Dov Lerner's flat in December 2002, but Mr Avrahami and Mr Lerner gave evidence to contrary effect, and they are probably correct. Mr Biran's recollection is that he saw Mr Lerner at a service held after Mr Dov Lerner's death in late 2003. Over the years, a small number of other meetings took place. At some point, there was also a conference call.
As already mentioned, it was decided at the November 2002 meeting that Mr Avrahami and Mr Biran would between them have a 50% interest in the company used for the Farringdon Road project. Following the meeting, Mr Avrahami and Mr Biran agreed that the former's share should be 17.5%% and the latter's 32.5%.
In late November 2002, CLP was acquired on an off-the-shelf basis for the purposes of the project, with companies in the Grays group ("Grays"), which provided corporate administration services, as its directors and registered shareholders. On 25 November, CLP resolved to change its name to "Carlton Landmark Properties Limited", which was also the name of a UK company through which Mr Biran operated. The UK company ("CLP (UK)") is the fourth defendant to these proceedings.
The parties differ as to how CLP's name was chosen. Mr Biran said that he thought that Mr Avrahami had suggested the name, whereas Mr Avrahami said that the name had come from Mr Biran. The likelihood, I think, is that it was Mr Biran who was responsible for the choice of name.
It is common ground that the parties agreed that Mr Biran (or CLP (UK)) would be entitled to management fees of £5,000 per month for the period from exchange of contracts on the site to the grant of planning permission and subsequently £10,000 per month. Mr Biran alleges that he was also to receive a finder's fee of £80,000 whereas Mr Avrahami and Mr Lerner deny that any finder's fee was agreed. I return to that issue below — see paragraphs 97–99.
On 26 November 2002, Be-Ready and Mr Avrahami transferred £170,000 and £15,000 respectively to Lawrence Graham, the solicitors instructed, by way of "shareholder" loans in preparation for exchange of contracts on the Farringdon Road site. On 28 November, Mr Biran also contributed £15,000.
Contracts for the purchase of the Farringdon Road site were exchanged on 6 December 2002. The purchase was conditional on the grant of planning permission. The price was set at £3,950,000, subject to adjustment upwards or downwards depending on the extent of the development for which planning permission was obtained. A £200,000 deposit was paid on exchange.
On 13 December 2002, Mr Avrahami sent an email to "Landmark Properties" in which he said that he was "expecting a founders agreement from you". Ms Sara Canning, Mr Biran's personal assistant, replied that she would "get [Mr Biran] to send [Mr Avrahami] the Agreement" when he came in. At 12.17 pm on 19 December, Ms Canning told Mr Avrahami in an email, "We are just finalising the contract agreement now". Later in the day, Ms Canning attached a draft agreement to an email to Mr Avrahami.
The draft agreement identified the parties to it as Mr Biran, Mr Avrahami and the "Lerner family". A recital stated that Mr Biran, Mr Avrahami and the Lerner family were the beneficial owners and shareholders in a new company, with 32.5% of the shares beneficially owned by Mr Biran, 17.5% beneficially owned by Mr Avrahami and 50% beneficially owned by the Lerner family. The company was to "act as nominee and as the Joint Venture vehicle for the Shareholders in the development and sale of" the Farringdon Road site. The draft agreement also provided as follows:
"2.5 Remuneration (management fee) shall be payable to [Mr...
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