WPP Holdings SRL and Others v Benatti

JurisdictionEngland & Wales
JudgeMr Justice Field
Judgment Date18 July 2006
Neutral Citation[2006] EWHC 1641 (Comm)
Docket Number2006 Folio No. 535
CourtQueen's Bench Division (Commercial Court)
Date18 July 2006

[2006] EWHC 1641 (Comm)

IN THE HIGH COURT OF JUSTICE

COMMERCIAL COURT

QUEEN'S BENCH DIVISION

Before:

Mr Justice Field

2006 Folio No. 535

Between:
1. Wpp Holdings Italy Srl
2. Wpp 2005 Limited
3. Berkeley Square Holding Bv
Claimants
and
Marco Benatti
Defendant

Mr Joe Smouha QC and Mr Nathan Pillow (instructed by Freshfields Bruckhaus Deringer) for the Claimants

Mr Dominic Chambers (instructed by Richards Butler) for the Defendant

Hearing dates: 20,21&22 June 2006

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.

MR. JUSTICE FIELD

Mr Justice Field

Introduction

1

This is an application challenging the jurisdiction of the court over proceedings brought against Mr Marco Benatti by WPP Holdings Italy Srl ("WPP Italy"), WPP 2005 Limited ("WPP 2005") and Berkeley Square Holding BV ("BSH").

2

Mr Benatti is an Italian national, domiciled in Italy. He is a successful businessman who by about 1997 had acquired numerous interests in companies in Italy active in the worlds of market research, advertising and media buying, including CIA Group plc (later renamed Tempus Group plc) and Inferentia-DNM Italia SpA .

3

WPP Italy is incorporated in Italy and is a subsidiary in the WPP group of companies which carries on business in the worlds of advertising, media buying, planning and public relations. WPP 2005 used to be called WPP Group plc ("WPP Group") but in October 2005 it swapped names with another WPP company, WPP 2005 Limited. BSH is incorporated in the Netherlands; it is another WPP company.

4

In February 2002 Mr Benatti entered into a written contract ("the Agreement"), the counterparty to which was WPP Italy. Under the Agreement Mr Benatti was appointed "as a consultant" of WPP Italy and WPP Group (now named WPP 2005) for an initial period of three years after which there could be termination on 12 months' notice. Clause 3.2 permitted Mr Benatti to have an interest in businesses not forming part of the WPP group and there were listed in Schedule 2 almost 80 companies which Mr Benatti represented to be all those in which he had an interest. By clause 3.2 Mr Benatti undertook "in good faith to keep the Chief Executive informed of his business activities which are not concerned with [WPP Italy], [WPP 2005] or any Group Company."

5

Clause 11 provided that the Agreement was governed by English law and any controversies arising from or related to the interpretation or enforcement of the Agreement were to be exclusively submitted to the Courts of England.

6

On 9 th January 2006 WPP Italy summarily terminated the Agreement. The claimants contend that this was because Mr Benatti had failed to disclose his interest in two Italian companies, Media Club SA ("Media Club") and Outdoor Visual Touch Srl ("OVT").

7

Media Club, an independent Italian media buying and planning agency, was acquired by the WPP group on 11 November 2002 under an agreement ("the MCSA") whereby Media Club's share capital was purchased by BSH from Callia Trading Investimentos Lda ("Callia"), Maria Letizia Zicolillo and Adriano Corbella for a fixed payment of €20,658,276, to be followed by three "earn-out" payments dependent on the profits of Media Club for the years 2001 to 2006. BSH made the first of these payments on 24 February 2003 in the sum of €2,073,229.00 and Mr Benatti was paid a 1% commission totalling €206,582 on 10 February 2003, this sum being paid by BSH to Blugroup.

8

Following the MCSA the operations of Media Club and another WPP entity, mediaedge:cia Italy Holdings SpA were combined to form a merged media buying and planning operation, mediaedge:cia Italy/Media Club. It was also agreed between Sir Martin Sorrell, WPP Group's CEO, and Mr Benatti that Mr Benatti should have a share in the profits of this merged entity just as he had in another WPP media buying and planning entity, Mindshare Italia SpA ("Mindshare Italy"). The thinking was that if Mr Benatti had a share in the profits in mediaedge:cia Italy/Media Club as well as in Mindshare Italy he would have no incentive to prefer one company over the other. A contract ("the Royalty contract") between BSH and Royalty Marketing e Investimentos Lda ("Royalty") was accordingly executed, the effect of which was to give Royalty (a Madeiran company owned by Mr Benatti) a 22.5% share in the increased profitability of the merged mediaedge:cia Italy/Media Club business.

9

Mr Benatti first suggested that WPP Group should consider acquiring Media Club in 1999, before the Agreement was concluded. During the ensuing negotiations and due diligence it was represented to WPP Group that Media Club was owned and run by four of its employees, Mr Maino, Mr Salvaderi, Mr Corbella and Ms Zicolillo, and it was said that Mr Maino's and Mr Salvaderi's interests were held through Callia, a Madeiran company. Media Club was not included in the list of companies set out in Schedule 2 to the Agreement and it is alleged that at no stage did Mr Benatti inform Sir Martin Sorrell, or anyone else from WPP Group, that he had an interest in that company.

10

Witnesses for the claimants state that in November 2005 Mr Benatti told WPP Group that the second earn-out payment would be in the region of €8.9 million, whereas WPP Group had estimated that it would be about €300,000. Mr Benatti sought to justify his estimate on the basis that the sellers of Media Club's share capital were entitled to off-set certain tax losses against profits in calculating the earn-out. He also argued that such a large payment was needed to incentivise Mr Salvaderi. At around this time Deloitte, who were auditing the figures on which the earn-out was to be based, drew to Sir Martin Sorrell's attention what they regarded to be a suspicious transaction involving the sale by Media Club to Banca IFIS of a receivable owed to Media Club by OVT, a company that was in liquidation. In the light of this information an investigation was undertaken by the WPP group into Mr Benatti's interest in the acquisition of Media Club and the sale of the OVT receivable.

11

Sir Martin Sorrell says in his first witness statement that at the meeting he had with Mr Benatti on 9 January 2006 when the Agreement was terminated and at a subsequent meeting on 20 January 2006 Mr Benatti admitted that he had interests in both Media Club and OVT. Sir Martin says that Mr Benatti's admission was later confirmed by Mr Marco Girelli, the Vice President of Media Club and Chairman of FullSix SpA and Mr Gianni Bossi, the Chairman of WPP Italy, who is also Chairman of Banca IFIS and a long standing financial adviser to Mr Benatti. Sir Martin further states that Messrs. Salvaderi, Maffei and Rossotto, the latter being Mr Benatti's lawyer, also confirmed the failure properly to disclose the true ownership of Media Club.

12

Mr Benatti says that the allegations made against him are untrue and without substance; he absolutely denies any wrong doing. Acting on legal advice he has not set out his side of the story since the hearing before me is not the trial of the action. He accepts that the claims made against him by WPP Italy constitute serious issues to be tried.

13

On 11 January 2006 WPP Italy issued a Claim Form in the Queen's Bench Division against Mr Benatti claiming damages for breach of the Agreement, and declarations that: (i) the relationship between WPP Italy and Mr Benatti was not one of employer/employee; and (ii) Mr Benatti remained bound by post-termination covenants contained in clauses 6 and 8 of the Agreement. WPP Italy took the view that the court had jurisdiction over the claim under Article 23 of Council Regulation (EC) No 44/2001 ("the Judgments Regulation"). However, by mistake the Claim Form had inserted into it the wrong endorsement required by para 3.5A of the CPR Part 7 Practice Direction. Instead of referring to the Judgments Regulation it referred to the Brussels Convention.

14

On 1 st February 2006 Mr Benatti commenced proceedings in the Tribunal of Verona against WPP Italy and "WPP Group plc" seeking damages and declarations that: (i) he was an employee of those companies; (ii) he was not in breach of the Agreement; and (iii) the Agreement had been unlawfully terminated. Proceedings were brought against "WPP Group plc" because Mr Benatti and his Italian lawyers were unaware of the change of name from WPP Group plc to WPP 2005 Limited that had occurred in October 2005.

15

On 15 February 2006, Master Fontaine, on WPP Italy's application without notice to Mr Benatti, made an order ("the joinder order") joining WPP 2005 and BSH to the proceedings issued on 11 January 2006. The Master ordered that a sealed copy of the joinder order be served on Mr Benatti by 22 February 2006, but neither the order nor the application notice has ever been served in compliance with this order.

16

Pursuant to the joinder order on 15 February 2006 the claimants issued an Amended Claim Form which was served on Mr Benatti in Italy on 18 February 2006, together with Particulars of Claim. The Particulars of Claim allege Mr Benatti: (i) did not disclose a conflicting personal interest in Media Club and thereby made a secret benefit when that company was acquired; (ii) failed to disclose his conflicting personal interest in OVT and thereby made a secret profit; and (iii) circumvented budgetary restrictions on WPP Italy by causing various WPP group companies to enter into contracts with third parties, some of which were not in the interests of WPP Italy and from some of which Mr Benatti obtained a personal benefit.

17

WPP Italy claims damages for breach of the Agreement and also an account of profits and equitable compensation on the basis that Mr Benatti acted in breach of fiduciary duty. WPP Italy also seeks...

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