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When is hardball played too hard in the eyes of the Court?

27/03/2018 | Nick Leigh

The case of Al Nehayan v Kent

The recent case of Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Ioannis Kent (AKA John Kent) [2018] EWHC 333 (Comm) recounts the breakdown of a friendship as well as a business worth tens of millions of euros amongst acrimony, back-stabbing and even threats of personal violence. Yet it is made particularly notable by the judge’s comments on where the line should fall between the acceptable and unacceptable pursuit of commercial self-interest.

In 2008, Sheikh Tahnoon, an Abu Dhabi royal, and John Kent, a Greek businessman, entered into a joint venture [the “JV”]. Mr Kent had set up the Aquis group. Sheikh Tahnoon acquired 50% of Aquis Cyprus, the holding company, paying 4m euros, leaving Mr Kent owning the remaining 50%. The business purchased two hotels in Crete, along with the YouTravel website (via the purchase of Stelow Limited [“Stelow”], in which the Sheikh owned 60% and Mr Kent owned 40%).

In 2009, problems arose. Mr Kent sought cash injections from the Sheikh which meant that, by 2012, the Sheikh’s investment had ballooned to more than 31m euros. With the strain on the business causing a strain on their friendship, the Sheikh passed the matter over to his advisors, whose attempts to extricate their boss from the worsening financial problems included using Mr Kent’s fear that the business was about to fail as a means of getting him to sign a new agreement that left the Sheikh with the only assets of real value (the Crete hotels) [the “Framework Agreement”]. During the negotiations for the Framework Agreement, the Sheikh’s advisors made comments that Mr Kent took – and the Court found – to be veiled threats of serious physical violence against him if he did not sign up. Ultimately, the business failed anyway. Sheikh Tahnoon sued Mr Kent under the Framework Agreement for 15m euros. Mr Kent issued a counterclaim stating that the Sheikh had breached the fiduciary and contractual duties he owed Mr Kent under the original JV agreement.

Lord Justice Leggatt found that the Framework Agreement did not entitle Sheikh Tahnoon to the damages he sought. As well as concluding that Mr Kent entered into the agreement under duress (no great surprise in light of the threats of violence), the Judge also found that, whilst the Sheikh was not a fiduciary of Mr Kent’s, he nonetheless owed him a duty to act in good faith, and that by using Mr Kent’s fear that the business was about to fail as a means of extracting a better arrangement from the situation, the Sheikh (acting through his advisors) had breached this duty also.

The Judge found particularly egregious what he considered to be double-dealing by the Sheikh’s advisors in respect of FTI Touristik GmbH [“FTI”], a German tour operator that looked like it might provide help at a crucial juncture. Mr Kent spoke with FTI’s chief executive to discuss whether or not it (FTI) would be willing to accept delayed payment of sums it was owed by YouTravel. This evolved into a rescue plan for the JV, which would see FTI extend credit in return for two call options: one to buy the hotels in Crete for 40m euros (less liabilities) and the other to buy 40% of Stelow for £1. Mr Kent recommended to the Sheikh’s advisors that the FTI offer be accepted. However, whilst the Sheikh’s advisors did not oppose it, they would not agree to include in the Framework Agreement a clause that allowed Mr Kent to negotiate and conclude this deal. It was not until disclosure was provided by the parties in these proceedings that Mr Kent learned why: the Sheikh’s advisors were themselves negotiating with FTI at the same time without his knowledge, to sell them the Sheikh’s 60% shareholding in Stelow. Had the sale gone through, FTI would have become the majority shareholder, leaving Mr Kent still the minority. The judgment reports the Framework Agreement said that Sheikh Tahnoon “agreed to transfer to Mr Kent any remaining shares in Stelow once the “YouTravel solution” was concluded with FTI”, not that Mr Kent was sure to conclude the Framework Agreement as Stelow’s majority shareholder. Similarly, there is no reference to documents before the Court that precluded the Sheikh from entering into separate, secret negotiations with FTI in order to recover more of his money than he would otherwise receive. This did not prevent the Judge from finding this double dealing reprehensible, and a breach of a duty to act in good faith.

Was the Sheikh’s play hardball, but business is business? Or was Lord Justice Leggatt right to perceive such behaviour as being the untrammelled pursuit of his own best interests, which the Court had to prevent? This is not the first case in which the Judge construed the obligations between contractual parties as having, if not an actual fiduciary nature, then a wider obligation than may otherwise have appeared. In his judgment, he quoted from an earlier case of his, saying “[in Yam Seng Pte Ltd v International Trade Corp [2013] EWHC 111 (QB)] I drew attention to a category of contract in which the parties are committed to collaborating with each other, typically on a long term basis, in ways which respect the spirit and objectives of their venture but which they have not tried to specify, and which it may be impossible to specify, exhaustively in a written contract. Such ‘relational’ contracts involve trust and confidence but of a different kind from that involved in fiduciary relationships. The trust is not in the loyal subordination by one party of its own interests to those of another. It is trust that the other party will act with integrity and in a spirit of cooperation. The legitimate expectations which the law should protect in relationships of this kind are embodied in the normative standard of good faith.”

In Al Nehayan v Kent, Lord Justice Leggatt acknowledges that his construction of the terms of the Framework Agreement involves “some fairly muscular manipulation of the wording”. Whether or not this amounts to steering the outcome of the proceedings in equally robust fashion, the direction of the Judge’s thinking is clear: the Court is within its powers to take a view on whether or not business really is just business. Players of hardball should keep this in mind.

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