Abbar & Anor v Saudi Economic & Development Company (Sedco) Real Estate Ltd & Ors [2013] EWHC 1414 (Ch)

[2013] EWHC 1414 (Ch)Case No HC09C04321
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, 7 Rolls BuildingDate 24/5/2013
London, EC4A 1NL
Before
MR JUSTICE DAVID RICHARDS
Between
(1) ABDELRAHMAN ABDULLAH ABBARClaimants(2) ABDULKARIM ABBARClaimant(1) SAUDI ECONOMIC & DEVELOPMENT COMPANY (SEDCO) REAL ESTATE LIMITEDDefendants(2) SAUDI ECONOMIC & DEVELOPMENT COMPANY (SEDCO) LIMITEDDefendant(3) THE PINNACLE HOLDINGS LIMITEDDefendant(4) THE PINNACLE LIMITEDDefendant(5) THE PINNACLE NO.1 LIMITEDDefendant(6) ARAB INVESTMENTS LIMITEDDefendant
Jonathan Crow QC, Juliette Levy and David Welford (instructed by Charles Russell LLP) for ClaimantsAli Malek QC, Rupert Reed and Emer Murphy (instructed by DAC Beechcroft LLP) for DefendantsHearing Hearing dates: 31 January, 4, 6-8, 11-13 February 2013
Judgment

Introduction

[1]In May 2007, the first claimant, Dr Abbar subscribed £500,000 for shares in a company incorporated in Anguilla, The Pinnacle Holdings Limited (PHL). A total of £120 million was subscribed by the promoters of the company and by institutional and individual investors. The stated purpose of the capital-raising exercise was to enable the company to purchase a site in the City of London, to demolish the existing buildings on the site and to sell the site, ready for redevelopment, within a period of 12 to 18 months. It is not in dispute that this was at that time the expectation of all parties. The site was purchased and the existing buildings were demolished, but the site was not sold. Instead, a decision was taken to retain it with a view to redevelopment. Attempts were made to raise new capital to buy out those investors who did not wish to retain their investment but these were only partially successful and a significant number of investors, including Dr Abbar, were unable to dispose of their shares and still hold them.[2]It is Dr Abbar’s case that it was a term of the contract by which he subscribed for his shares that the site would be sold within a period of not more that 18 months and that thereby, or possibly by other means, an exit from the investment would be available to the shareholders. Having abandoned any claim against the fourth and fifth defendants, he claims that some or all of the remaining four defendants were parties to the contract and that each of them is liable in damages for breach of contract, or alternatively that some or all of them are liable in damages for the tort of inducing a breach of contract. Alternatively, Dr Abbar claims that if the statements on which he relies did not have contractual effect, they were representations on which he relied and that the defendants or some of them are liable either in negligence for negligent statement or under section 2 of the Misrepresentation Act 1967.[3]The claim is made also by Dr Abbar’s son, the second claimant. Although the initial contact with Dr Abbar was made through his son, the evidence is clear that the investment was made by Dr Abbar, not by his son. No attempt was made at the trial to suggest otherwise, and I will proceed on the basis that the claim is maintainable, if at all, by Dr Abbar alone.[4]For convenience, the following is a summary table of contents. Content Paragraphs Introduction 1-4 The proceedings 5-7 The parties 8-21 The Pinnacle site 22-23 Outline of events 24-49 Information Memorandum 50-97 Claims in contract against SEDCO Anguilla and PHL 98-133 Breach of contract 134-138 Claims in contract against SEDCO and AIL 139-187 Procuring breach of contract 188-195 Misrepresentation claim 196-215 Damages 216-233 Illegality 234-243 Conclusion 244 The proceedings[5]The claim was commenced by a claim form issued in November 2009. The claims made in the lengthy particulars of claim went well beyond claims for breach of contract and negligent representation, and included claims for fraudulent misrepresentation, conspiracy and breach of trust. The proceedings were initially served only on the sixth defendant, Arab Investments Limited, which applied in February 2010 to strike out the claims made against it, on grounds which included that there was no evidence of any of the alleged frauds. The application was heard in July 2010. While the judge did not strike out the claims, he required the claim to be re-pleaded by 17 September 2010. The amended points of claim, not served until 2 December 2010, maintained the claims in deceit, conspiracy and breach of trust. Preparations for the trial proceeded on the basis of these claims, but, on 4 January 2013, only three weeks before the date fixed for the trial, all these claims were abandoned. Re-amended particulars of claim were served to which I shall refer later. The change in the claimants’ strategy may well owe something to a change of solicitors in or about August 2012 and to the instruction of leading counsel for the trial. I need say no more about it for the purposes of this judgment, although plainly it may have an effect on the appropriate orders for costs.[6]There is a highly unusual feature of the proceedings which I should mention. By an order dated 7 October 2010, Proudman J referred to the Attorney General for investigation and, in his discretion in the public interest, for prosecution of such individuals as may have been responsible for a criminal contempt of court, constituted by the creation and distribution of a forged version of the judgment given on the application for summary judgment. The judgment was altered to make it appear as if findings of fraud were made against the defendants. Copies of the altered judgment were distributed in Saudi Arabia to the press and others by Dr Abbar. Dr Abbar’s evidence, in an affidavit before Proudman J, was that while he accepted that he distributed the altered judgment, he did so in the belief that it was the genuine judgment. As the judgment of Proudman J makes clear, there are a number of persons who may have been responsible for the creation of the false judgment and Dr Abbar’s evidence may well be correct. So far as I am aware, the Attorney General’s enquiries are continuing. This serious matter is extraneous to the merits of the claims now made by Dr Abbar, which do not to any significant extent depend on his credibility, and I have disregarded it for the purpose of considering and ruling on those claims.[7]The defendants are overall highly critical of the manner in which the claimants have pursued these proceedings. They cite in particular the fraud, conspiracy and trust claims, made, they say, with a view to putting pressure on the defendants, only to be abandoned very shortly before the trial. They refer to delays in the progress of the proceedings and to the level of costs which the activities of the claimants have caused, citing in particular that at least five interim costs orders have been made against the claimants over the period of three years leading to the trial. Again, to the extent well founded, these matters may well be relevant to issues of costs but they are not in point as regards determining the merits of the claims as they are now formulated. The parties Dr Abbar[8]Dr Abbar is a Saudi Arabian national, with his own legal practice in Jeddah, founded by him in 1987. He holds post-graduate law degrees from the University of Georgetown, USA, as well as business diplomas from Boston University, Wharton School of Management and Harvard. His legal experience is principally in commercial oil transactions, corporate law, litigation and arbitration. He has extensive business experience. Before qualifying as a lawyer, he worked for his family’s business, a major business conglomerate in Saudi Arabia, dealing in petroleum trade, shipping and industrial construction and contracting. He has also been the general counsel to the Saudi Arabian Marketing and Refining Corporation, the downstream petroleum company owned by the Saudi government, and been a member of its corporate management committee.[9]Dr Abbar gave evidence, which was clear and convincing. He struck me as highly intelligent and as a skilled lawyer, with an eye for detail, as well as a shrewd investor. SEDCO[10]The second defendant, Saudi Economic & Development Company (SEDCO) Limited (SEDCO) is a company incorporated in Saudi Arabia. At all material times, it was a service company for a large privately-held investment group, owned and controlled by members of the bin Mahfouz family, a prominent Saudi family whose wealth is founded on banking. The bin Mahfouz family founded the National Commercial Bank of Saudi Arabia. The SEDCO group of companies was formed in 1994, bringing together various business interests inherited by the four sons of the late Sheikh Salem bin Mahfouz. Some of his grandsons are now actively involved in the business. Although initially a family investment group, it has over time invited non-family members to participate in some investments.[11]The SEDCO group comprises three divisions: the financial investment group, the direct investment group and the real estate group (REG). Each of these groups may comprise a number of corporate entities but each is managed on a unified basis, with its own management structure. Each group is in turn subject to overall management control by an executive committee for the entire SEDCO group and, above that, by the board of directors. Each tier of management has authority to commit the group up to specified financial limits. Any investment or expenditure above the relevant limit is referred to the next tier for recommendation or, as appropriate, decision. It is clear from the documentary and oral evidence that decision-making in the SEDCO group is a structured and well-documented process.[12]Two senior executives in the SEDCO group gave oral evidence. Yousuf Khayat had 11 years’ experience in private and corporate banking with the Saudi American Bank, followed by three years with a Jeddah-based private investment company, before joining SEDCO in 1996. For nearly 7 years from April 2004, he was the managing director of the direct investment group, becoming the Senior Adviser for SEDCO in January 2011. Since late 2011, one of his main roles has been the management and co-ordination of the project relating to the property indirectly owned by the company. He was a member of the executive committee of SEDCO in 2007-08.[13]SEDCO’s other witness who gave oral evidence was Ahmed Banaja. He also has a background in banking, having worked for Citibank in Saudi Arabia and then for the National Commercial Bank until 1996. He became the chief executive officer of SEDCO in January 2008 and a member of its board of directors in June 2008.[14]Like Dr Abbar, both these witnesses gave clear and convincing evidence, although their knowledge of the directly relevant events was limited. They struck me as highly intelligent, careful and sophisticated business executives.[15]The project involving the promotion of PHL and the purchase of the site in London was the responsibility, so far as SEDCO was concerned, of the REG. The role of the REG is to find real estate investment opportunities and to manage the investments which are made. The executive within the REG with principal responsibility for the project was at all material times Hamid Alqumairi. He left SEDCO in 2011. He was closely involved in the project and featured significantly in the relevant events. He did not provide a witness statement and did not give oral evidence. While that undoubtedly meant that the individual within SEDCO with the greatest personal knowledge of relevant matters did not give evidence and while his absence was commented on by Mr Crow QC for Dr Abbar, I was not invited to draw any adverse inference on any particular matter as a result of his absence as a witness. Mr Alqumairi reported directly to the managing director of the REG. This position was held by Sheikh Saleh bin Mahfouz (Sheikh Saleh), a son of the late Sheikh Salem bin Mahfouz, until 2008 when he was appointed chairman of the SEDCO group. SEDCO Real Estate Limited[16]The first defendant, SEDCO Real Estate Limited (SEDCO Anguilla), was incorporated in Anguilla on 11 May 2006. Although the initial instructions for its formation were given to the incorporation agents by Khalid Affara, to whom I will refer in greater detail below, those instructions were given at the request of Mr Alqumairi and there is no doubt that SEDCO Anguilla was incorporated in order to be essentially part of the REG. On 29 May 2006, Mr Alqumairi gave direct instructions to the incorporation agents that the board of directors was to comprise three individuals, including himself as chief executive officer, and that the registered shareholder was to be AGAR International Holdings Limited BVI (AGAR). AGAR is a company owned by the bin Mahfouz family. For all management purposes, SEDCO Anguilla fell within the REG. The Pinnacle companies[17]PHL was incorporated in Anguilla on 22 November 2006. The initial managing director was Fortis Intertrust (Curacao NV) a trust company incorporated in the Dutch Antilles. It was replaced as management director on 29 December 2006 by another trust company, United International Trust NV, which remained managing director and the sole director of PHL until 11 March 2009 when three individuals, including Mr Alqumairi, were appointed as directors.[18]Three further companies were incorporated in Anguilla on 22 November 2006 as subsidiaries of PHL. They were the fourth defendant The Pinnacle Limited (PL), the fifth defendant The Pinnacle No.1 Limited (P1L), and The Pinnacle No.2 Limited (P2L).[19]PHL, as the holding company of this group, was the company which issued shares to Dr Abbar and others for the purposes of the project. The other Pinnacle companies were used to acquire and hold interests in the site and I shall later set out, so far as necessary, the details of those arrangements. Arab Investments Limited[20]The sixth defendant, Arab Investments Limited (AIL), is a company incorporated in England. It is owned by Mohammed Affara and is run from London by his son, Khalid Affara (Mr Affara). Its business is to seek out property development opportunities and to act as the asset manager and development consultant in relation to such developments. It does not itself take ownership interests in the developments which it manages, but any such interests are taken by companies incorporated overseas and owned by Mohammed Affara. AIL is resident for tax purposes in the UK but, as I understand it, Mohammed Affara is not and therefore investments made by non-resident companies owned by Mohammed Affara will not be subject to UK tax. Caraways Holdings NV (Caraways), a company incorporated in the Netherlands Antilles, is owned by Mohammed Affara and holds 5% of the shares in PHL.[21]As will be seen, Mr Affara played a significant part in the steps leading up to the acquisition of the site by the Pinnacle companies, and AIL was thereafter appointed as the asset manager in relation to the site. Mr Affara gave evidence. He is a younger man than the other witnesses. Like them, he is intelligent and astute. He struck me as less cautious in his approach to business than the other witnesses. The Pinnacle site[22]The site, with an area of just over one acre, comprised four properties in Bishopsgate and Crosby Square. In April 2006, the Corporation of London resolved to grant planning consent for the demolition of the buildings on the site and for the construction of a tower, then called the Bishopsgate Tower but subsequently re-named the Pinnacle Tower. It is also known as the Helter-Skelter. If and when constructed, it would be, at 288 metres or 945 feet, the second tallest building in London. It would have 60 storeys, including 50 storeys of office space, and a net lettable area of 87,930 sq m or 946,000 sq ft. It would be the most prominent of a group of high-rise buildings in that part of the City of London, known as the Eastern cluster. It is clear from the computer-generated pictures appearing in the marketing brochures that it would be a very significant addition to the London skyline. Only a very small amount of construction work has taken place. Recent press reports suggest that the present proposal may be replaced by a more modest design.[23]By 2006, the Pinnacle site was owned by Deutsche Immobilien Fonds AG (DIFA). In the summer of 2006 it was put on the market by DIFA acting through its agents, Savills. Outline of events[24]In late June 2006, AIL approached Savills to express interest in the acquisition of the Pinnacle site. Over the following months Mr Affara, acting on behalf of AIL, and professional consultants engaged by AIL held extensive discussions with Savills and with professional consultants engaged by DIFA. Although Mr Affara presented AIL in these discussions as the potential purchaser, it would not in fact have the financial capacity either to purchase the site or to undertake its subsequent demolition and development.[25]Mr Affara was already working with SEDCO on other developments and he had it in mind to involve SEDCO as the financial backer of the purchase and development. He started discussions with Mr Alqumairi in September 2006. In late October 2006, AIL made a proposal to Savills to acquire the site for £220 million. AIL was selected as a preferred bidder in early November 2006 and it reconfirmed its offer in a letter dated 13 November 2006. This letter was sent in draft by Mr Affara to Mr Alqumairi and, on 20 November 2006, the internal process for seeking authority for investment by SEDCO was started by Mr Alqumairi. As earlier mentioned, the Pinnacle companies were incorporated on 22 November 2006. In December 2006, Mr Affara negotiated for bank finance. By the end of December 2006, he had agreed in principle with HSH Nordbank AG (Nordbank) for a site financing facility of £120 million or 55% of the pre-development site value.[26]The size of the investment to be provided or underwritten by SEDCO was such that it required the authority of the board of directors of SEDCO. Board approval was given on 20 February 2007. Although at an earlier stage in the decision making process, some consideration had been given to a long-term investment in the Pinnacle project, this was quickly discarded and it was pursued within SEDCO as a short-term investment. The proposal was summarised in a document sent on 16 February 2007 by Sheikh Saleh to the executive committee, which approved it on 18 February 2007 and recommended it to the board.[27]Sheikh Saleh’s covering email refers to it as a “short term investment expected to pay the investors targeted IRR of 36% over one-year holding period on most likely scenario”. The funds to be raised were stated to be £270 million, required as to £220 million for the site acquisition, £40 million for acquisition costs and site improvements and £10 million mark-up for the deal underwriters. The stated intention was to raise these funds, as to £120 million by a Sharia-compliant loan which would be non-recourse to investors, and £150 million of equity. The property-holding period would be one year and under the heading “Exit Strategy” the following was stated:
“○ REG strategy is to acquire the site; ○ Demolition and site preparation will be undertaken; ○ Cost of the construction will be fixed with reputable contractors; ○ The scheme will be improved to add 30,000 sq ft rentable area; ○ Make the project ready to proceed with no further lead in period; ○ Sale it to developers during the one-year holding period; ○ REG will keep eye on alternative exits with better return during the one-year;” ○ REG will keep eye on alternative exits with better return during the one-year;”
[28]The summary envisaged that the asset manager (AIL) and an “other investor” would take 10% of the equity, SEDCO would keep 10% of the equity and the balance of the equity would be placed among institutional and other investors.[29]The decision of the executive committee was that SEDCO or those associated with it should invest £20 million in the proposal and underwrite an offer of £115 million equity to third party investors, with £15 million being allocated to AIL and the other investor. The board approval given on 20 February 2007 was to the same effect, on the express basis that it was to be a short-term investment with a one-year exit strategy. Subsequently, it was agreed between Mr Alqumairi and Sheikh Saleh that the investment horizon should be subject to one six-month extension.[30]On 27 February 2007, PL exchanged contracts with DIFA for the purchase of the freehold interest in the Pinnacle site.[31]By 1 March 2007 an Information Memorandum and an Executive Summary had been prepared for distribution amongst potential investors in Saudi Arabia and the Gulf states. I shall refer later in detail to these documents, on which Dr Abbar bases his claim.[32]Dr Abbar was introduced to this investment opportunity by his son, the second claimant, who was approached by a friend, Dr Faisal Baassiri who was then employed by SEDCO. The Information Memorandum and the Executive Summary, together with a covering letter in Arabic from Mr Alqumairi and his business card, were sent to Dr Abbar’s son on 17 or 18 March 2007. Dr Abbar read the Information Memorandum and, on the basis of the information contained in it, decided to invest £500,000. His son had two telephone conversations with Mr Alqumairi but it is not suggested that anything was said in those conversations which added to or qualified what was stated in the Information Memorandum. Dr Abbar was attracted by the short term nature of the investment and the backing of the bin Mahfouz family. His evidence, that he would not have gone ahead with any investment if the stated intention had been to develop the site and construct the Pinnacle Tower, was not challenged and in any event I would accept it. Dr Abbar applied for 500 shares by signing and returning the shares application form included with the Information Memorandum. The application was accepted and on or about 13 April 2007 Dr Abbar paid £515,000, comprising £500,000 subscription for 500 shares and £15,000 in respect of fees.[33]It appears that approximately £67 million was raised by the issue of shares to 40-50 third party investors. A further £20 million was raised by the issue of shares to AGAR and £13 million by an issue of shares to a company associated with AIL and to another investor. The total of £100 million of equity was rather less than the figure of £150 million shown in the Information Memorandum as the target amount to be raised. The shortfall was met in the short term by an increase in the loan facility to PHL and later by a further issue of shares to which I shall refer.[34]On 29 May 2007, the contract for the sale of the freehold of the Pinnacle site to PL was completed. The agreed purchase price was a little over £201 million, exclusive of VAT and subject to adjustment to take account of costs incurred by the vendor in relation to works carried out in respect of the development after 1 January 2007.[35]On the same day, PL entered into a lease of the property to P1L for a term of 999 years at a premium of just £209.5 million. P1L was the borrower under the loan facility entered into with Nordbank, with PL as guarantor. The advance of £128.7 million was increased to £148.7 million under the terms of a letter agreement dated 14 May 2007.[36]On 29 May 2007, P1L entered into an agreement for the development and subsequent sale of its leasehold interest in the property to P2L, so that the beneficial interest in the long lease of the property passed to that company. The intention of these arrangements was that PHL would divest itself of PL and P1L to a charitable foundation so that the shareholders of PHL would not, even indirectly, own shares in the company receiving finance that was not Sharia-compliant.[37]On 31 August 2007, AIL entered into management agreements with PL and P1L (the management agreements). By the terms of these agreements, AIL was engaged to manage the property and the development, which was defined as the demolition and redevelopment of the property. Under the agreement with P1L, AIL was required to undertake the co-ordination and management of the development including appointment of contractors and dealing with third parties and to monitor the development. AIL was required to act in accordance with those companies’ instructions and the principles of good estate management. The agreement specified in some detail the services to be provided by AIL. It was entitled to receive fixed annual fees. The agreement provided that AIL was not the agent of either company, that the agreements did not constitute a partnership or joint venture and that they embodied the entire agreement between the parties. It will be necessary to look in a little detail at the role and functions of AIL in relation to the development, when considering Dr Abbar’s case that it acted as PHL’s principal or that it procured breaches of contract by PHL.[38]Demolition and site clearance began in or about June 2007. Although initially it was believed that this work would be completed by the end of 2007, it proved to be a far more protracted process. This was in part due to the method of construction of the existing buildings, which made demolition a difficult task. It was delayed also by complaints from the owners of adjoining buildings and proceedings were brought for injunctive relief to restrain alleged nuisance. Those proceedings were compromised on terms which restricted the hours during which demolition work could be undertaken.[39]By September 2007, SEDCO was giving active consideration as to how to fill the equity gap of £30 million, required to complete the demolition and site clearance process. Serious discussions began with Eurx Delta Investment SARL (Eurx), a real estate investment fund managed by Prudential of America, in which SEDCO had a significant, but not a controlling, interest. Eurx was interested in taking up this equity but only on the basis that it would also be involved in the further stage of developing the property and building the Pinnacle Tower. These discussions culminated in the agreement of Eurx to subscribe £30 million for equity in PHL on the terms of an Investment Agreement dated 4 December 2007 between Eurx and PHL (the Eurx Investment Agreement).[40]In accordance with the terms of the Eurx Investment Agreement, Eurx subscribed £30 million for shares in PHL representing 20.08% of the enlarged issued share capital. The agreement was drafted on the basis that PHL and its subsidiaries would pursue the construction and letting of the Pinnacle Tower. By clause 6.1.1 the company covenanted with Eurx to carry on “the Business”, defined as “that of a holding company involved in the development, construction and letting of the Premises as an investment”. Clause 4 envisaged that PHL would raise further equity capital for the purpose of the business, of up to £85 million in 2008/2010 and up to £40 million after practical completion. By clause 6.2 PHL agreed that it would not without the prior written consent of Eurx, not to be unreasonably withheld or delayed, dissolve, liquidate or otherwise wind-up or take any steps in connection with the same.[41]SEDCO was not at this stage committed to supporting any further capital raising by PHL. Its decision to do so was not made until approval was given on or about 10 February 2008 by its board of directors. In the intervening period there were significant internal communications and discussions at the levels of the REG, the executive committee and finally the board of directors, with some significant differences of view.[42]It was appreciated from the start that this change of direction was contrary to the basis on which investors, including SEDCO, had taken shares in the company. In an email on 10 December 2007 to the REG, Mr Alqumairi stated that:
“The current investors will have the option to exit with their net 33% profit after fees or retain in the second round that projected to pay net 25% IRR during the total 5-years holding period”
. All discussions thereafter proceeded on the basis that this option would be made available to investors.[43]In accordance with this proposal, a letter dated 11 February 2008 on SEDCO Anguilla-headed paper was sent by Sheikh Saleh to the investors in the company. The letter was written in Arabic but the following quotations are taken from a translation provided by the claimant. The letter referred to:
“Your participation with us in the Pinnacle Tower in London which was purchased on 30/05/2007 G., on the basis on its acquisition for a term of 12-18 months and is expected to yield revenue of 20% (IRR) annually.”
The letter referred to a rise in the value of the project following demolition of the buildings and signing contracts for the management and construction of the Tower. The letter continued:
“It has been agreed that the present participants shall have the opportunity of selecting one of the following available options: 1. Either to opt out during the anticipated original investment term for the acquisition of the property for a term of 12 to 18 months as of the purchase date, namely, 30/5/2007 G. and the realization of a net internal revenue (IRR) of 30% annually. 2. Or to invest in the second phrase of the Project that pertains to the development of the Tower, the acquisition of which is anticipated up to the year 2012 G. and the realization of a targeted net internal revenue (IRR) of 25% annually as of the date of commencement of the investment on 30/5/2007 G.”
The only references in the letter to the funding and mechanics of the acquisition of the shares of those investors wishing to sell are first “the selling of the remainder of the first phase of the Project will be effected through the formation of a second investment fund” and “We, therefore, hope you will provide us with the option you deem appropriate for you by placing ticking one of the options in the attached form, within two weeks, to enable us to complete the necessary formalities for the formation of the second participation for the acquisition of the first participation.”[44]Dr Abbar elected to realise his investment and ticked the appropriate box on the attached response form. His evidence, which I accept, was that he understood that he would be paid out at the rate indicated in the letter, the necessary funds to be raised by further investment from others. He accordingly appreciated that it might take some time before he received the money due to him. It was therefore not until the second half of 2008 that Dr Abbar started to make enquiries as to when the funds would be received.[45]The intention was to raise the funds needed to purchase the shares of exiting investors through a second capital-raising to be undertaken by a new company incorporated in Anguilla. An information memorandum and executive summary were prepared, containing an invitation to subscribe up to a total of £55.5 million for shares in the new company with a view to acquiring 30% of the Pinnacle Tower development. A marketing exercise was undertaken, involving an attempt to secure a large Kuwaiti investor as well as direct approaches to a number of potential investors and placing agents. It proved difficult to raise this new capital and by early July 2008 only about £5 million had been raised. Some investors were bought out but most, including Dr Abbar, were not. Conditions in financial and commercial property markets, which had been buoyant only a year before, were now affected by the gathering financial crisis. The crisis came to head after the collapse of Lehman Brothers in mid-September 2008 and from then on it was impractical to raise funds from outside sources either to purchase the shares of selling investors or to construct the Tower.[46]On 9 November 2008, Dr Abbar wrote to Mr Alqumairi. He referred to his letter dated 23 February 2008 “indicating my desire to opt out during the original investment period which is expected to realize from 12 to 18 months from the purchase date on 20/05/2009 G. a net annual income of 30%” (English translation of Arabic original). He stated that he had not yet received the invested sum nor the net internal income of 30% and requested payment.[47]On 30 November 2008 Mr Alqumairi sent a further letter to investors in the company, including Dr Abbar. It stated that “after offering your share for sale we have not found a buyer, in view of the current economic situation” (English translation of Arabic original). He went on to refer to “intensive studies with the Projects consultants, the Financing Bank and the main participants Sedco, The Arab Investment Company, Pramerica that is affiliated to Prudential) in order to consider the investment opportunities that are available to us as result of the present world economic conditions and the possibility of failure to obtain financing for the development”. He listed the options available as being to sell the project, to suspend development pending improvement of the economic condition, to complete the foundations and support works in order to secure the continuation of the licence pertaining to the construction of the Tower and continuing the development works within the limits of the project estimated budget. He further stated that “the main participants” had agreed to approve the fourth option “in view of the investment revenues they realised for the participants and in order to preclude the Project from facing any losses”. In the attached report, in relation to the option of an immediate sale, it was stated that “any sale in today’s market is a distress sale and will result in a loss that cannot be anticipated until it is realized”. The report went on to state that calls would need to be made on investors and that the percentage shareholdings of those who did not contribute to the new calls would be diluted.[48]On receipt of this letter and report, Dr Abbar again wrote to Mr Alqumairi, requesting repayment of his investment together with the promise of profit and stating that the delay was causing him loss and damage. Dr Abbar’s evidence was that the statement that no buyers had been found for his shares made no sense to him because he had understood that he had exercised an option to opt out, not simply an option to offer his shares for sale.[49]Dr Abbar still holds shares in the company and has not received any repayment of his investment or any income in respect of it. Information Memorandum[50]Dr Abbar’s claim that the failure to repay his investment was either a breach of contract or that he was induced to invest in the shares by negligent misrepresentations rests on the terms of the documents provided to him in March 2007. The main document was entitled Information Memorandum, and it both contained information and set out the contractual terms on which investors applied for shares.[51]The Information Memorandum, dated 1 March 2007, is a 28-page document, with the Bishopsgate Tower brochure included as an appendix. The principal parts of the document for the purposes of this case are the Glossary appearing on pages 6-8, a Summary on pages 9-10, a section headed “Offer and Payment” on pages 11-12, a section headed “The Property Company” on pages 15-16, “Additional Important Information” on page 19, the Shares’ Application Form on pages 21-23 and a section headed “Shares - Terms and Condition” on pages 25-27. Also of importance is a section, all of which is in capital letters, appearing on pages 2-4 headed “Important Notice”. There are short sections headed “Economic Analysis”, “London Office Market Analysis” and “Risk Factors”. At the end of the document there is page headed “Contact Details”. It lists SEDCO Anguilla with an address in Anguilla as the Portfolio Manager, SEDCO with an address in Jeddah as the Strategic Partner and AIL with an address in London as the Asset Manager.[52]The Information Memorandum is in many respects a most curious document. It is littered with mistakes of one sort or another and it is very unclear as to the respective roles of SEDCO Anguilla and PHL. In some cases, notably the section headed “Shares - Terms and Condition”, they appear to be muddled up. It is nonetheless the document on which investors, including Dr Abbar, agreed to take up shares and the court must do the best it can with it, just as the investors did. When quoting from the Information Memorandum and other documents in this judgment, I have done so verbatim, without correcting or identifying errors.[53]It should be noted that this was not an offer of shares to the public for the purposes of legislation in the United Kingdom or elsewhere. The document made clear that the offer and the Information Memorandum had not been registered under relevant legislation in the United States, the United Kingdom or France. It is common ground that the prospectus provisions of the Financial Services and Markets Act 2000 did not apply to the Information Memorandum or other documents or to the offer. Dr Abbar does not therefore rely on any statutory cause of action, except for section 2(1) of the Misrepresentation Act 1967.[54]The contract for the acquisition of shares in PHL by Dr Abbar was formed by the acceptance of the offer made by Dr Abbar when he signed and returned the shares application form, appearing on pages 20-23 of the Information Memorandum and addressed to SEDCO Anguilla at its registered address in Anguilla.[55]Clause 1 of the share application form states:
“I/we wish to subscribe for Shares in Pinnacle Holdings Limited (the “Property Company”) on the Terms and Conditions contained in this letter of agreement and the information memorandum relating to the Shares dated 1 March 2007.”
Consistently with what is stated in the Information Memorandum, the letter sets out the right of SEDCO Anguilla, in its sole discretion, to accept or reject the application in whole or in part and to allocate shares to and among applicants as it, in its sole discretion, may determine.[56]Clause 4 of the shares application form sets out a number of representations and warranties given by the applicant to SEDCO Anguilla. They include that the applicant had received a copy of the information memorandum in English and the executive summary in English and Arabic.

(b) contains the following representation:

“The Applicant has been offered and given access to and the opportunity to examine any and all of the Principal Documents and has had the opportunity to ask any questions of, and to receive all the required answers from, SEDCO Real Estate Limited management concerning the terms and conditions of the Offer and any other matter contained in the Information Memorandum, the Executive summary and the Principal Documents.”
Clause 4(i) provides:
“The Applicant has determined that the investment described in the Information Memorandum is suitable for its own financial condition and investments preferences.”
[57]Clause 7 of the shares application form provides:
“This letter agreement and the Information Memorandum constitute the entire agreement and understanding between the Applicant and SEDCO Real Estate Limited for the purposes herein recited and no provision contained in this letter agreement may be changed, amended, waived, discharged, or discounted except in writing signed by or on behalf of SEDCO Real Estate Limited and the Applicant.”
[58]Clause 8 provides that the agreement is to be governed by and construed in accordance with English Law and that SEDCO Anguilla and the applicant agree to submit to the exclusive jurisdiction of the English courts.[59]The shares application form is signed by or on behalf of the applicant. If accepted, it is countersigned on behalf of SEDCO Anguilla and immediately above such countersignature there is the following:
“The letter agreement of which this is a copy and the Information Memorandum contains the terms and conditions of an agreement SEDCO Real Estate Limited and the Applicant with which we agree to be bound in respect of Shares only.”
[60]On page 24 of the Information Memorandum, there appears what purports to be a standard form of share certificate for shares in PHL to be issued pursuant to the offering. It describes PHL as being “Established under the English Laws” and, a little more significantly, states that the shares are “subject to the Information Memorandum dated 1 March 2007”. This latter statement would be a very odd addition to a share certificate and did not in fact appear on the certificates which ultimately were issued. The erroneous reference to English law was also corrected.[61]The shares application form, read on its own, appears clearly to envisage an agreement between the applicant and SEDCO Anguilla for the subscription of shares in PHL. Whether this is an accurate or sufficient description of the agreement and its parties will depend on reading the shares application form in the light of the other documents with which it was sent to prospective applicants.[62]The shares application form was one of the two documents defined as “the Principal Documents”. The other was headed “Shares – Terms and condition” (Shares T&C), which appeared on pages 25-27 of the Information Memorandum.[63]The Shares T&C starts with the following statement:
“The Shares have been issued on behalf of SEDCO Real Estate Ltd pursuant to, and in accordance with, the terms of an information memorandum dated 1 March 2007 (the “Information Memorandum”).”
[64]The rest of the Shares T&C is divided into eight sections which, apart from definitions, deal with form, denomination and title; shares’ participation profits; transfers; payments; further issues; and governing law and jurisdiction. Terms defined in the glossary of the Information Memorandum have the same meaning in the Shares T&C unless otherwise expressly stated.[65]It is a confusing document, principally because in many places it refers to SEDCO Anguilla where it would seem that the reference ought to be to PHL. The reference in clause 2.2 to SEDCO Anguilla is accurate:
“The Shares do not constitute share capital of SEDCO Real Estate Limited, or/and the Share Holders do not, by holding one or more Share, acquire any right to: (a) receive dividends from SEDCO Real Estate Limited; or (b) share in any distribution of assets of SEDCO Real Estate Limited or the Company on liquidation or winding up.”
As the shares were to be issued by PHL, this is an accurate statement, save for the inexplicable reference to “the Company” (PHL) in sub-paragraph (b). It is not, I think, suggested that the shares were not intended to carry rights to a distribution on a liquidation, and this clause is to be read on the basis that the reference to “the Company” is a mistake.[66]Clauses 4 and 5 deal with the transfer of shares. These too may correctly refer to SEDCO Anguilla, in the light of the information on the transfer of shares given on page 19 to which I later refer, although at first sight they make more obvious sense if they are read as references to PHL.[67]In other clauses, it appears clear that references to SEDCO Anguilla should be references to PHL. Examples include:
“2.8 A certificate of title shall be issued on behalf of SEDCO Real Estate Limited to evidence title to each Share or number of Shares. 2.9 The Shares constitute direct unsecured obligations of SEDCO Real Estate Limited and rank pari passu without any preference among them.”
[68]Clause 7 dealing with further issues is in the following terms:
“7.1 SEDCO Real Estate Limited reserves the right from time to time, without the consent of the Unit Holders to issue additional Shares or other instruments of any description. 7.2 A Share does not confer any right upon the Share Holder who holds that Share to participate in any future issues by SEDCO Real Estate Ltd whether of equity, debt or any other type of security in any other investment.”
This clause really only makes sense if references to PHL are substituted for SEDCO Anguilla.[69]Clause 3, dealing with the rights of shareholders to participate in profits, is particularly confusing, referring variously to “the company”, “the Property Company” (which is defined in the glossary as a subsidiary of PHL) and SEDCO Anguilla. It makes sense only if all these references are read as referring to PHL.[70]I turn to the rest of Information Memorandum, and I will summarise its parts in the order in which they appear in the document.[71]The “Important Notice” at the start of the document contains the following on page 2:
“Important Notice This information memorandum is furnished on a confidential basis for the purpose of evaluating an investment in the shares (“the shares”) of Pinnacle Holdings Limited (the “Property Company”). SEDCO Real Estate Limited (the Portfolio Manager) has established Pinnacle Holdings Limited with limited liability in Anguilla Islands to offer investors the opportunity to invest in UK real estate property. The Portfolio Manager will manage the investment shares. SEDCO Real Estate Limited will not accept any liability arising from the management of the investment shares of the property company. The information contained herein is intended solely for selected, sophisticated investors having the necessary expertise to determine whether to accept the risks inherent in such an investment. This information memorandum has been prepared for the purposes of a private placement that is being arranged by SEDCO Real Estate Limited & is not to be reproduced for redistribution without the prior written consent of SEDCO Real Estate Limited. The shares are being offered as a private placement to a limited number of investors. A prospective investor should not treat the contents of this information memorandum as constituting investment, tax or legal advice. All prospective investors must make their own investigation and evaluation of the opportunity to invest in the shares and should consult with their own advisors concerning the evaluation of the risks of the investment and its suitability for the individual requirements. In making an investment decision in relation to the shares, prospective investors must rely on their own examination of underlying investment and the shares and the terms of placement thereof, including the merits and risks involved. Investment in the shares will involve significant risks due to, amongst other things, the nature of the underlying investments. Investors should have financial ability and willingness to accept the risks and lack of liquidity, which are characteristics of the investment described herein. This information memorandum provides a summary of certain information relevant to an investment in the shares. It is not intended that this information memorandum be the sole document upon which prospective investors should rely in making a decision whether to invest in the shares. When it becomes available investors may, from time to time, be provided with additional information concerning the investment in the shares. No person has been authorized to give any information concerning the investment in the shares or to make any representations other than those contained in this information memorandum and if made or given such information or representations may not be relied upon as having been authorized by or on behalf of SEDCO Real Estate Limited. It is SEDCO Real Estate Limited Directors opinion that this information memorandum contains the information, which would be relevant for a investor (as contemplated by the shares) in determining whether to invest and that such information is to the best of their knowledge true and accurate in all material respects and is not misleading in any material respect. Any opinions, forecasts or intentions expressed in this information memorandum are honestly held or made and are not intended to be misleading in any respect. All reasonable enquiries have been made to ascertain or verify the foregoing.”
[72]The following points may be noted from the above extract: i) What is offered is an investment in the shares of PHL, which had been established in Anguilla “to offer investors the opportunity to invest in UK real estate property”. ii) SEDCO Anguilla was the portfolio manager and it would manage the investment shares, although the document does not give any indication as to how it will achieve that management. There is, for example, no provision for a discretionary management agreement made between investors and SEDCO Anguilla. iii) The Information Memorandum is expressly directed to “selected, sophisticated investors having the necessary expertise to determine whether to accept the risks inherent in such an investment”. iv) Prospective investors were not to treat the information memorandum as constituting investment, tax or legal advice and they were required to make their own investigation and evaluation of the opportunity to invest in the shares. v) Attention was drawn to the commercial risk involved in investment in the shares. vi) Although it is stated that the Information Memorandum is not intended to be the sole document on which prospective investors should rely in making a decision whether to invest in the shares, no further document was provided other than the executive summary, which did not contain any information not also stated in the Information Memorandum. vii) The information contained in the memorandum is stated to be, to the best of the knowledge of the directors of SEDCO Anguilla, true and accurate in all material respects and any opinions, forecasts or intentions expressed in the memorandum are stated to be honestly held or made.[73]Turning to the glossary, PHL is defined as both the “Company” and the “Issuer”, being the issuer of the Shares. It is elsewhere in the glossary described as “the company established by SEDCO Real Estate Limited to provide its clients with the opportunity to invest in UK property, via the participation in the Investment Shares”. The glossary also contains as defined terms “Property Company”, meaning the Property Company that will be owned by PHL and “Property Co”, meaning “any special purpose vehicle setup by the Pinnacle Holdings Limited to acquire property in UK”.[74]The glossary defines an “Applicant” as “any prospective investor that submits an application to SEDCO Real Estate Limited in the manner of this Information Memorandum” and “Investor” is defined as “any person whose Application to offer to acquire the Shares has been received and accepted by SEDCO Real Estate Limited”. “Shares” are defined to mean “the Shares to be issued by the Company [i.e PHL] in the manner described in this Information Memorandum”. “Shares’ Certificate” is defined as a certificate issued by PHL in the form set out in the document and “Shares’ Register” is defined as the register held and maintained by or on behalf of PHL. “Investment Shares” is defined to mean “the shares issued by the Company to raise funds for the acquisition of the Property”.[75]The glossary contains a number of defined financial terms. “Return on Equity” is defined to mean “the anticipated return to investors emerging from net sale income of the Property”. “Shares Profits” is defined to mean:
“the proceeds, net of all expenses including but not limited to operating expenses, taxes, financing costs and fees, expected to be received by the Property Company towards the Shares from the following sources:- • rental income from the Property, if any; and • proceeds received upon disposal of the Property at the time of exit, if any.”
[76]Importantly for the purposes of the claim made in this action, “Property Holding Period” is defined to mean: “the anticipated 1 to 1½ year holding period or such other period as may be determined in the manner of specified in the section headed “Summary - Property Holding Period””.[77]Immediately after the glossary there appears on pages 9 and 10 a Summary. The following statement appears immediately under the heading: “The following summary is qualified in its entirety by the detailed information included elsewhere in this Information Memorandum and should be read in conjunction with the full text of the Information Memorandum. Applicants are strongly recommended to review the sections of this Information Memorandum containing the terms and conditions of the Offer”.[78]Against “The Investment Shares and the Company”, it states; “Pinnacle Holdings Limited, Anguilla BWI (the “Property Company”) shall be the registered holder of total 150,000 Investment Shares worth £150,000,000 that will be issued by the Company to enable investors to invest in Property in London UK via the Company”. Even leaving aside the confusion of defining PHL as the “Property Company”, this description is inaccurate because PHL was to be the issuer, not the registered holder, of 150,000 shares.[79]Against “Shares”, the summary states:
“The Shares offer an opportunity for investors to participate in the Offer made by SEDCO Real Estate Limited in the Company, via its [their] investment in the Investment Shares and to share in any proceeds made by the Company from the investment. The Shares do not constitute any share capital of SEDCO Real Estate Limited (or of any other company). The Share Holders shall, in aggregate, be entitled to receive from the Company an amount equal to its share of the Investment Shares’ Profit net of all expenses including but not limited to operating expenses, taxes, financing costs but subject to profit Share.”
Again there are some obvious errors. In the first paragraph, the reference to “its investment in the Investment Shares” should be to their, i.e. the shareholders’, investment. The statement in the second paragraph that the shares do not constitute any share capital of SEDCO Anguilla “or of any other company” is obviously wrong. They do constitute share capital of the company. The reference in the third paragraph to the shareholders being entitled to receive an amount equal to “its share of the Investment Shares’ Profit” is puzzling. I take it that the shareholders were in aggregate entitled to receive the totality of that profit.[80]Against “Offer of Shares”, the summary states:
“The Offer is an invitation to prospective investors to acquire Shares subject to the terms of this Information Memorandum and the Shares’ Terms and Conditions which are set out in the section of this Information Memorandum headed “SHARES” – TERMS AND CONDITIONS”
. SEDCO Real Estate Limited is offering 150,000 Shares of £1,000 each.”[81]Against “Commitments”, it is stated:
“AGAR International Holdings Ltd, a subsidiary of SEDCO KSA has committed to invest £20,000,000 to acquire 20,000 shares at £1,000 each and the Asset Manager Arab Investments Ltd has committed to invest £7,500,000 to acquire 7,500 Shares at £1,000 each.”
[82]Against “Payment of Subscription Amount”, it is stated that each applicant is required to pay the Subscription Amount at the time of delivery of the application to SEDCO Anguilla, which reserves the right to reject, for whatever reason, in whole or in part any application.[83]It is against “Property Holding Period” that the statement is made that forms the centrepiece of Dr Abbar’s claim:
“The Property Company anticipates an investment horizon of one-year from the date of acquisition of the property, subject to one additional and optional six months extension. Beyond the one extension periods, the duration of the Property Company can only be extended pursuant to unanimous decision of the Investors.”
The first paragraph is consistent with the statement on the cover page of the Information Memorandum:
“Targeted Return on Investment (ROE) of Approximately 20% per annum Over the Anticipated 1 to 1½ Year Holding Investment Horizon.”
It is consistent also with one of the listed “Investment Features” appearing in the Summary:
“Excellent acquisition price comparing to an independent valuation that expected to pay Return on Equity of 20% per annum over the anticipated 1 to 1½ holding period.”
[84]Against “Principal Risk Factors”, the summary states:
“Investment in the Shares will involve certain risk and should only be made by Applicants who understand the risk involved and are able and willing to withstand the risk of the loss of the entire amount invested. No assurance can be given that the investment objectives will be achieved. Applicants are referred particularly to the section of this Information Memorandum headed “RISK FACTORS”.”
[85]The summary states that the Information Memorandum is governed by and will be construed in accordance with English Law and that applicants are required to agree irrevocably and unconditionally to submit to the exclusive jurisdiction of England.[86]The next section of the Information Memorandum, on pages 11-12, is headed “Offer and Payment”. Under a sub-heading “Terms of Offer”, it states: “Applicants are invited, subject to the terms set out in this Information Memorandum, to acquire the Shares, subject to and otherwise on, the terms set out in the section “Shares - Terms and Conditions” of this Information Memorandum”.[87]The investment structure is set out showing PHL as owning P1L and, through P1L, the site, and showing PHL’s shares being owned by Investors (81%), AGAR (14%) and AIL (5%). Under the sub-heading “Payment Amount and Conditions”, it is made clear that applications for shares are to be made to SEDCO Anguilla and that it is SEDCO Anguilla which will decide whether to accept or reject applications for shares in PHL. It also contemplates that SEDCO Anguilla is able to decide not to proceed with the issue of shares in PHL. Likewise, under the sub-heading “Acceptance”, it is made clear that it is SEDCO Anguilla which has responsibility for the allocation of shares to applicants. Details are also given of fees payable to SEDCO Anguilla in connection with the offer, being a placement fee of 1.5% of the subscription amount and a so-called “Structuring Fee” also of 1.5% of the subscription amount.[88]The sections headed “Economic Analysis” and “London Office Market Analysis” appear on pages 13 and 14 and both are entirely descriptive.[89]On pages 15-16 there is a section headed “The Property Company”. It contains a variety of information. It states that SEDCO Anguilla has created PHL which will own P1L, to offer investors the opportunity to invest in London real estate property. It sets out, in two tables, the items comprising the total costs of acquiring the property and associated costs at £270 million, and the sources of finance for the acquisition, being £150 million of equity and £120 million of Sharia-compliant loan finance. It states that the acquisition of the property will be subject to satisfactory due diligence to be conducted by an independent reputable international firm and it states that audited financial statements will be made available to SEDCO Anguilla as well as quarterly and semi-annual unaudited financial statements. It states that SEDCO Anguilla will make available to the investors quarterly and semi-annual financial reports. It states that SEDCO Anguilla will work with PHL’s tax and legal advisers to determine the optimal tax structure for the acquisition of the property. It sets out details of the professional advisers and the fee structure.[90]This section also contains a paragraph which is central to Dr Abbar’s case; “EXIT STRATEGIES It is intended that the owning Company will exit by sale of the property within 1 to 1½ years. ◦ The sell of the site will take place after completion of the following activities:-• Demolition and site preparation will be undertaken;• Cost of the construction will be fixed with reputable contractors;• Will try to improve the scheme to add 30,000 sq ft rentable area;• Make the project ready to proceed with no further lead in period; ◦ Sell the site to developers during the holding period; ◦ Alternative exits with better returns will be considered during the period;” ◦ The sell of the site will take place after completion of the following activities:-• Demolition and site preparation will be undertaken;• Cost of the construction will be fixed with reputable contractors;• Will try to improve the scheme to add 30,000 sq ft rentable area;• Make the project ready to proceed with no further lead in period; ◦ Sell the site to developers during the holding period; ◦ Alternative exits with better returns will be considered during the period;”[91]The section headed “Risk Factors” on pages 17-18 lists a number of the investment and other risks to which investors will be exposed. It is made clear that there is no guarantee that the company will be able to generate returns for investors and that they may lose some or all of their investment. There is a statement that “the Shares’ Participation Profits are dependent upon the return on equity made by SEDCO Real Estate Limited in respect of the Investment Shares”. This is confusing because the return would be made by PHL, although it might be said to be made by SEDCO Anguilla through its efforts as portfolio manager.[92]The section headed “Additional Important Information” on page 19 of the Information Memorandum deals with four separate topics. It states that SEDCO Anguilla will provide financial statements to investors upon request within 30 days of receiving them from the Asset Manager. It provides for the Information Memorandum to be governed by and to be construed in accordance with English law and for applicants to submit to the exclusive jurisdiction of the English court. Under the heading “Principal Documents” it states: “The Principal Documents relevant to the Shares and the relationships between the key parties involved in this investment and their respective rights and obligations are as follows:• Application; and• Shares’ Terms. This Information Memorandum should be read in conjunction with Principal Documents, which should be studied in detail by Applicants. To the extent that there is any inconsistency between this Information Memorandum and the Principal Documents, the Principal Documents shall prevail. Those concerned may inspect copies of these Principal Documents at the principal offices of SEDCO Real Estate Limited, by appointment, during normal business hours.”• Application; and• Shares’ Terms.[93]Finally, it contains provisions dealing with the transfer of shares in PHL. First, SEDCO Anguilla may require a compulsory transfer of any share upon the death or bankruptcy of the registered holder of the share. Secondly, a shareholder wishing to transfer any shares in PHL must first offer the shares to SEDCO Anguilla, leaving the shareholder to sell the shares to a third-party if it and SEDCO Anguilla are unable to reach agreement as to price. Further it confers on SEDCO Anguilla a right to refuse to register the transfer of shares as follows:
“SEDCO Real Estate Limited may refuse to register a purported transfer of any Shares(s) if, in its sole discretion, it considers that such transfer (i) would contravene any applicable securities laws of similar nature; (ii) would adversely affect the legal or tax position of SEDCO Real Estate Limited, the Company, any shareholder of the time being in the Company, or any Subsidiary; (iii) would be detrimental to the interests of SEDCO Real Estate Limited, the Company, any shareholder for the time being in the Company, or any subsidiary; (iv) would constitute a transfer to a Non-Qualified Person in accordance with the English law, or (v) would cause SEDCO Real Estate Limited, the Company, any shareholder for the time being in the Company or any subsidiary to incur materially increased tax or reporting requirements.”
This statement clearly suggests that SEDCO Anguilla is to be in control of the registration of the transfer of shares in PHL, having regard to the interests of, amongst others, both itself and PHL. It is largely, but not entirely, consistent with the corresponding provisions of the Shares T&C.[94]There are various statements in the Information Memorandum which describe or shed light on the respective roles of the major participants.[95]SEDCO Anguilla is listed in the contact details on page 28 of the Information Memorandum as the Portfolio Manager. In the Important Notice on page 2, it is stated that SEDCO Anguilla has established PHL and will manage the shares in PHL. In the section headed “The Property Company”, where details of professional advisers are given, there is a paragraph headed “Summary of the Portfolio Manager Profile”. This describes the SEDCO group, rather than SEDCO Anguilla. The details of the fee structure given on the same page state that 0.2% of the total property value will be paid annually to the Portfolio Manager and Asset Manager for composite list of tasks, without attributing particular tasks to either or both of those managers. They were in addition to be entitled to 25% of all profits in excess of the profits required to provide an IRR of 10% to investors.[96]AIL is described in the contact details as the Asset Manager. In the glossary, “Investment Advisor” is defined to mean:
“Arab Investment Limited, the firm appointed by SEDCO Real Estate Limited to advise on acquisition and disposal for the Property, as well as the management of the Property, or such other entity appointed to act in such capacity from time to time by SEDCO Real Estate Limited.”
AIL’s role as asset manager is further described in the section headed “The Property Company”. It states that AIL provides services in relation to the acquisition and disposal of the property and in relation to managing the property. The description in the fees structure shows that it also carries responsibility for managing the demolition and site preparation, the engagement of designers and other consultants, and negotiating a fixed price contract for the construction of the Tower, as well as general legal and accounting matters for the Pinnacle companies.[97]SEDCO is described in the contact details as the “Strategic Partner”. There is very little reference to SEDCO in the body of the document, save that in the section headed “Summary”, it is stated that AGAR, a subsidiary of SEDCO KSA, has committed to invest £20 million in PHL. Claims in contract against SEDCO Anguilla and PHL[98]The outline of facts given earlier, together with the contents of the Information Memorandum, are sufficient to determine whether Dr Abbar has a good claim for breach of contract, but are not sufficient to determine his case that SEDCO and AIL are liable as principals for the breaches of contract alleged by him or for procuring the breaches of contract. In the particular circumstances of this case, I consider that it is helpful to determine first whether Dr Abbar has good claims in contract against SEDCO Anguilla or PHL and then to consider the facts and legal principles relevant to his other claims.[99]It is clear that completion and submission of a shares application form constituted an offer by the investor which, if accepted, resulted in the formation of a contract, which, for want of a better expression, I will call the investment agreement. Performance of the investment agreement resulted in the investor becoming a holder of the fully paid shares in PHL. Three fundamental issues arise, to which the answers are less clear. First, what contracts were made in the course of this process? Secondly, who were the parties to such contracts, including the investment agreement? Thirdly, what were the terms of these contracts? Each of these issues is so closely linked to the others as to make it impossible to come to a final answer without at least considering the other issues.[100]The only communication between Dr Abbar and those involved in the share offering were the Information Memorandum, the executive summary and a couple of telephone conversations. As previously mentioned, there was nothing in the telephone conversations to add to or qualify the Information Memorandum. The same is largely true of the Executive Summary. It is common ground that the answers to the issues identified above must lie in the proper construction of the Information Memorandum set in its commercial context. The only exception to this is Dr Abbar’s claim that SEDCO and AIL were undisclosed principals of SEDCO Anguilla and PHL.[101]It is common ground that acceptance of an application for shares would result in, at least, two contracts. The first is the contract whereby the applicant becomes bound to take up the shares applied for and the second is the contract of membership of PHL constituted by the issue of shares in PHL to the applicant. The contract of membership would be governed by the terms of the articles of association and bye-laws of PHL, in accordance with section 13 of Anguilla’s International Business Companies Act (equivalent to section 33 of the Companies Act 2006). It has been made clear on behalf of Dr Abbar that he is not seeking to make any claim under that statutory contract. I accept the submission made on behalf of Dr Abbar that contracts may be made between a company and some or all of its members in an agreement distinct from the articles of association. Such agreements are by no means uncommon.[102]Dr Abbar’s case pleaded in his particulars of claim is that the contract constituted by the acceptance of his application for shares was made with, amongst others, both SEDCO Anguilla “pursuant to the terms and conditions set out in the Shares’ Application Form” and PHL “as the company allotting shares pursuant to the offer made by the claimants for subscriptions of its shares”. In the very lengthy and undated reply, it is alleged that SEDCO Anguilla “could only have been acting as an agent on a direct offer of securities/shares by PHL, and accordingly acted as the agent for PHL and not as principal” on the grounds that there was no agreement whereby SEDCO Anguilla could require PHL to issue shares pursuant to the offer.[103]Reading the Information Memorandum and its constituent parts as a whole, it is not in my judgment possible to conclude that SEDCO Anguilla was acting merely as an agent for PHL. The claimants are right to point to the curious feature that there does not appear to have been any agreement between PHL and SEDCO Anguilla whereby either PHL agreed to allot shares to SEDCO Anguilla which it could then place with applicants or PHL agreed with SEDCO Anguilla that it would allot shares directly to applicants. Nonetheless, the shares application form could hardly be clearer that the contract is being made by applicants with SEDCO Anguilla. Not only does it say so repeatedly in terms but it also draws a clear distinction between SEDCO Anguilla and PHL. While clause 1 states that the applicant wishes to subscribe for “Shares in Pinnacle Holdings Limited” the rest of the form lays emphasis on the rights and obligations of SEDCO Anguilla. In my judgment, the acceptance of an application for shares created a contract between the applicant and SEDCO Anguilla whereby the latter agreed to procure the issue of shares in PHL to the applicant. Strictly speaking SEDCO Anguilla was assuming a risk in that respect, on account of the apparent lack of an enforceable obligation as against PHL to give effect to it, but it was no doubt considered (in so far as it was considered at all) that in reality no risk existed.[104]In his closing submissions, Mr Crow QC submitted that SEDCO Anguilla was a party to the subscription agreement both as principal and as agent. First, SEDCO Anguilla bound itself to procure the allotment of shares and can only have done so as principal. Secondly, however, it was also inviting applications and accepting applications as agent for PHL. As SEDCO Anguilla was not offering shares in itself but shares in PHL it must, it was submitted, have been doing so on behalf of PHL. The subscription agreement was made when PHL agreed to accept the money paid by applicants and agreed to allot the corresponding shares. It was an agreement between the applicant and PHL.[105]I have great difficulty with this way of looking at the role of SEDCO Anguilla. There is no difficulty in finding either that there was agreement by SEDCO Anguilla to procure the allotment of shares by PHL or an agreement by SEDCO Anguilla as agent for PHL that such shares would be allotted. I do not, however, see how it can be both. For the reasons previously given, I consider that SEDCO Anguilla contracted as principal to procure the allotment of shares to successful applicants.[106]That does not, however, mean that PHL is not bound by the terms on which applicants were invited to apply for shares in PHL in so far as such terms would be applicable to PHL, rather than SEDCO Anguilla. For example, the terms set out in Shares T&C would, so far as they obviously relate to PHL rather than to SEDCO Anguilla, surely bind PHL whether or not they were set out in PHL’s articles of association. Mr Crow QC submitted that by accepting subscription monies and allotting shares pursuant to applications made under the terms of the Information Memorandum, PHL was thereby binding itself to deal with its own shareholders on those terms.[107]As a matter of commercial common sense, there is a good deal to be said for this approach. PHL must be taken to have known that the Information Memorandum was being issued in order to raise funds to be applied in the subscription of its own shares, even if SEDCO Anguilla was not issuing the document and inviting applications as agent for PHL. How could it be right in those circumstances for PHL to accept the monies paid by applicants and to issue shares to applicants without being bound by what, on a reasonable reading of the document, were obligations as to its own future conduct? But, if SEDCO Anguilla was contracting as principal and agreeing to procure the allotment of shares to successful applicants, by what means does PHL become bound by these statements of apparent obligations? As it seems to me, the clearest answer is that in permitting the Information Memorandum to be issued, PHL authorised SEDCO Anguilla to make statements as to the obligations which PHL would owe to successful applicants once they were shareholders. In so far as those obligations were not set out in the articles of association, a collateral contract would exist between PHL and the applicants to whom it issued shares. The applicants gave good consideration for these obligations by making the application and agreeing to be bound to subscribe for shares if the application was accepted. This approach is, I think, consistent with the way in which the claimants’ case is pleaded in paragraph 39 of the particulars of claim.[108]There was therefore, on a proper construction of the Information Memorandum, first, an investment agreement between each applicant and SEDCO Anguilla whereby the latter agreed to procure the issue of shares by PHL to the investor and, secondly, an agreement between the investor and PHL once shares were issued. The latter agreement, which was distinct from the statutory contract constituted by the articles and bye-laws of PHL, contained such obligations, if any, as were imposed on PHL by the terms, properly construed, of the Information Memorandum.[109]The issue then is whether either or both of these contracts contained the term or terms on which Dr Abbar’s claim is based.[110]It is submitted for Dr Abbar that the following were key terms. First, the purpose of the investment was for PHL or its subsidiaries to acquire the Pinnacle site and sell it on as a development project, but not to build the Tower. Secondly, the means for realising the subscribers’ investment would be collective (by PHL selling the property), not fragmentary (by individual investors trying to sell their separate minority shareholdings). Thirdly, PHL would not retain the property beyond 18 months without the unanimous consent of all the investors. These three elements were said to define the essential nature of the commercial bargain which prospective investors were being invited to make.[111]If there were contractual obligations to this effect, they were not so much three separate terms as elements of a single obligation. The aim of a short term investment, resulting in a return to investors within the period of 12-18 months, was to be achieved by limiting the project to purchasing the site and undertaking demolition and associated works, as opposed to building and letting the Tower. Assuming there to be a contractual obligation, the issue which emerged in the course of submissions was whether the core obligation was to sell the site and distribute the proceeds of sale among investors within 12-18 months or to provide an exit to investors within that period. It was clear from the evidence of Dr Abbar that he regarded the essential element of the bargain to be that his shares would be purchased by the end of the 18 month period. He did not regard it as essential that the site should be sold. His subjective understanding of the effect of the contract is not of course relevant to its proper interpretation, but looked at objectively from the point of view of hypothetical potential investors, their concern would be for an exit for themselves at the end of the 12-18 month period. As it seems to me, the wording of the Information Memorandum, particularly the Exit Strategy on page 15, makes clear that while a sale of the property was the default mechanism for achieving an exit, alternative exits would be considered. Mr Crow QC submitted that the unqualified obligation was to sell the site. If an alternative exit at full value were provided to investors, they would suffer no recoverable loss but there would still have been a breach of contract. This does not appear to me to be a sensible or reasonable reading of the document. To an investor wishing to realise his investment at the end of 12-18 months, it would matter not at all whether his return was provided by a sale of the site and the distribution of the surplus proceeds or by some other means.[112]In support of the submission that there was a contractual term or terms to this effect, Dr Abbar relies on the wording of the Information Memorandum and also on the wording of the Executive Summary and the factual context.[113]Central to this case is what is said against “Property Holding Period” in the Summary section of the Information Memorandum. I will repeat it:
“The Property Company [i.e PHL] anticipates an investment horizon of one-year from the date of acquisition of the property, subject to one additional and optional six months extension. Beyond the one extension periods, the duration of the Property Company can only be extended pursuant to unanimous decision of the Investors.”
Closely related to that statement is the definition of Property Holding Period in the Glossary:
“the anticipated 1 to 1½ year holding period or such other period as may be determined in the manner of specified in the section headed “Summary-Property Holdings Period.”
[114]While the first part of the statement against Property Holding Period in the Summary is expressed in terms of an anticipated investment horizon of one year, with an optional six month extension, the second sentence is expressed in mandatory and emphatic terms: the duration of the Property Company beyond 18 months can only be extended pursuant to the unanimous decision of the Investors. This is what the definition of “Property Holding Period” in the Glossary refers to as the means of extending the anticipated 1 to 1½ year holding period. Mr Crow QC submitted that it was a clear and explicit contractual commitment.[115]Reliance is also placed on the repeated references to an investment horizon or holding period of 12 to 18 months. The cover of the Information Memorandum refers to “the Anticipated 1 to 1½ Year Holding Investment Horizon”. One of the “Investment Features” identified in the Summary on page 10 is:
“Excellent acquisition price comparing to an independent valuation that expected to pay Return On Equity of 20% per annum over the anticipated 1 to 1½holding period.”
In the section headed “The Property Company” on page 15, it is stated under the heading “Exit Strategies” that “it is intended that the owning Company will exit by sale of the property within 1 to 1½ years”. I have earlier quoted this passage in full but, by way of summary, it goes on to refer to a sale of the site after completion of demolition and site preparation and after fixing the construction costs, and identifies as the exit a sale to developers during the holding period, although alternative exits with better returns would be considered during that period.[116]Mr Crow QC, on behalf of Dr Abbar, seeks to meet the point that each of these passages refers to an “intended” or “anticipated” holding period of 12 to 18 months, by submitting that these words reflect an understanding that realisation of the site might take a shorter time or a slightly longer time than the precise length of the holding period. Such references could not, however, qualify or dilute the unqualified condition that the holding period could be extended beyond 18 months only with the unanimous consent of the investors. In particular, the statement under “Exit Strategies” that “it is intended that the owning Company will exit by sale of the property within 1 to 1½ years”, properly construed, set out both the contractual obligation to provide an exit by means of selling the property and also a statement of intention to achieve that result within 12 to 18 months. This was subject only to the possibility of alternative exits with better returns during the holding period. The words “intended” or “anticipated” could not be interpreted as justifying a change in the nature of the bargain by allowing PHL to commit itself to building the Tower.[117]The limited purpose of the company, consistent with the short anticipated holding period, is set out on page 15 under the heading “Exit Strategy” and in the figures given on the same page. They include the costs of the site demolition, but importantly not any construction costs. The Exit Strategy section refers to a sale after demolition and fixing construction costs but not after any actual construction.[118]The Executive Summary also states on its cover that the “holding investment horizon” was anticipated to be 1 to 1½ years. The statement under the heading “Exit Strategy” was in rather more unqualified terms than the equivalent statement in the Information Memorandum. It contained no statement of intention but instead stated “the company will sell the site after completion of the following activities”, and then listed the demolition and other costs referred to in the Information Memorandum. It referred also to the possibilities of a sale of the site to developers during the holding period and that “alternative exits with better returns will be considered during the period”. I should say here that while I accept that the Executive Summary forms part of the context in which the Information Memorandum falls to be construed, and could therefore for example assist in resolving an ambiguity in the Information Memorandum, it cannot override the terms of the Information Memorandum and it does not seem to me to add much to the issue whether the duration of the project was intended to be the subject of a contractual obligation.[119]Looking more widely at the factual context, reliance is placed on the marketing of the investment to Dr Abbar as a short term investment. The fact that the investment was in shares in PHL with voting rights meant that there was readily available means whereby the requirement for unanimous consent could be achieved. I do not think that these matters add anything. The intention that the investment should be short term was crystal clear from the terms of the Information Memorandum.[120]For the defendants, Mr Malek QC stressed the general point that the document must show an intention that there should be contractual liability in respect of the relevant statement or statements. In submitting that there was no such intention to create contractual obligations in respect of statements concerning the duration of the investment, reliance was placed on the following matters.[121]First, the Information Memorandum contained a wide range of information, relating both to the business background and to the specifics of the project, in addition to stating the terms and conditions on which shares would be applied for and issued. The context in which the relevant statements appeared told against any intention that they be contractually binding. If they had been intended to constitute or to create contractual obligations, they were of such central significance that they would haven been spelt out in clear terms, most likely in the principal documents (as defined on page 19), that is to say the shares application form and the Shares T&C or perhaps in the statement of Additional Important Information on page 19. Instead, they appeared in parts of the document which would not obviously be read as including contractual obligations, but rather were descriptive of the project.[122]Secondly, the critically important statement against the heading “Property Holdings Period” on page 9 appears in the Summary, all of which is prefaced by the following:
“The following summary is qualified in its entirety by the detailed information included elsewhere in this Information Memorandum and should be read in conjunction with the full text of the Information Memorandum. Applicants are strongly recommended to review the sections of this Information Memorandum containing the terms and conditions of the Offer.”
This opening statement contains two important points. First, it is to operate as a summary of detailed information included elsewhere in the document. Secondly, the second sentence as good as states that the terms and conditions of the offer are not contained in the Summary.[123]Thirdly, the defendants rely on the terms in which the investment period is described throughout the document. The 1 to 1½ year holding period is consistently referred to as being either “anticipated” or “intended”. This is true of the cover page to the document, which refers to the “Anticipated 1 to 1½ Year Holding Investment Horizon”. The definition of “Property Holding Period” on page 7 refers to the “anticipated 1 to 1 ½ year holding period”, albeit that it goes on to refer “such other period as may be determined in the manner of specified in” the Summary. The Summary itself, against “Property Holding Period”, states that PHL “anticipates an investment horizon of one-year from the date of acquisition of the property…..” There is a similar reference to “the anticipated 1 to 1½ holding period” in the list of Investment Features on page 10.[124]Perhaps most important, because it is the fullest explanation of the proposals as regards the duration of the investment, is the section headed “Exit Strategies” on page 15. There are a number of points to be made about this statement. First, it appears in a section which contains a description of various matters relevant to PHL and the acquisition of the property, rather than obviously being a statement of contractual terms of the offer. Secondly, it is a statement of the issuer’s plans for the future, which are clearly of great importance to the investor. The statement of plans and the heading “Exit Strategies” do not suggest a contractual term, but a statement of a business plan. Thirdly, because it is a statement of intention, and not intended to have contractual effect as an obligation, the language used is descriptive and imprecise. Fourthly, the entirety of the statement begins with the words “It is intended that the owning Company will exit by sale of the property within 1 to 1 ½ years”. In short, this is a statement of intention, not of contractual obligation.[125]Mr Malek QC further submitted that the stated requirement of unanimous consent for any extension beyond 18 months was wholly unbusiness-like, a factor which itself militated against any intention to create a contractual obligation. It would mean that there had to be a sale of the site within 18 months, whatever the state of the commercial property market in London at that time and whatever the price which could then be obtained. It was entirely foreseeable that it could result in investors suffering a substantial loss on their investment. It might require a forced sale. This result could be avoided only if all investors agreed that there should not be a sale. It was envisaged that there would be a significant number of investors and in fact there were 40-50 investors who subscribed for shares. It is highly unlikely that the promoters of PHL or the investors taking shares in it would put themselves in the position of being at the mercy of a single, or small number of, recalcitrant or inactive investors. These factors all suggest that it would require clear language to commit the parties to a sale at the end of the 18 months period. The exit strategies were necessarily concerned with events taking place in the future and a commitment to act in a particular way in the future, irrespective of the circumstances as they might develop, was inherently improbable.[126]In considering these rival submissions, one starts with the obvious proposition that the relevant documents do not clearly state or identify all the terms and conditions of the contract or contracts which are made. The starting point is the shares application form which, in clause 1, provides that the applicant wishes to subscribe for shares “on the Terms and Conditions contained in this letter of agreement and the information memorandum”. Clause 1 is clearly not providing that everything in the Information Memorandum is to be treated as a term and condition, but it gives no indication as to where in the Information Memorandum those terms and conditions are to be found. The same is true of the statement contained at the end of the shares application form immediately below the applicant’s signature, and also in the opening words of Shares T&C which states that the shares had been issued to and in accordance with the terms of the Information Memorandum. The opening paragraph of the Summary on page 9 states that applicants are strongly recommended to review “the section of this Information Memorandum containing the terms and conditions of the Offer”. As well as the shares application form and the Shares T&C, the sections entitled “Offer & Payment” on pages 11-12 and “Additional Important Information” on page 19 recognisably contain terms and conditions. It is equally clear that there are significant parts of the Information Memorandum which are not intended to contain contractual terms and conditions but are either descriptive or contain warnings.[127]The strongest argument in favour Dr Abbar’s case that the duration of the project was the subject of a contractual term is the unqualified language in which it is stated against “Property Holdings Period” in the Summary on page 9 that:
“Beyond the one extension periods, the duration of the Property Company can only be extended pursuant to unanimous decision of the Investors.”
The mandatory nature of this provision is supported by the definition of “Property Holdings Period” in the Glossary where it refers a 1 to 1½ year holding period “or such other period as may be determined in the manner of specified in the section headed “Summary – Property Holding Period””. Mr Crow QC relied also on the statement under “Exit Strategies” on page 15 that “the sell of the site will take place after completion of the following activities….” and on the reference to the “proceeds received upon disposal of the Property at the time of exit” in the definition of “Shares Profits” in the Glossary.[128]These words must, however, be set in the context of the document as a whole. The constant refrain of the document is that the holding period of 1 to 1½ years is an “anticipated” or “intended” period. These statements of intention are, as it seems to me, inconsistent with an intention to create a binding contractual term as to the duration of the investment. The text headed “Exit Strategies” on page 15 is the fullest statement in the Information Memorandum as to the proposed duration and means of exit from the investment. Its language and context is in my view inconsistent with an intention to create a contractual obligation. I am not persuaded by Mr Crow QC’s submission that the opening words “It is intended that the owning Company will exit by the sale of the property within 1 to 1½ years” should be construed as(i) an unqualified statement of an exit by means of a sale and(ii) an intention to achieve it within 1 to 1½ years. It seems to me that the entire sentence is qualified by the opening words of intention. The statements on which Dr Abbar relies are not in parts of the document which are clearly intended to state contractual terms and conditions, but rather in sections which are either, in the case of the Summary, explicitly summarising what is stated elsewhere or in sections which are on the face of them intended to be descriptive.[129]There is, in my judgment, considerable force in the submissions by Mr Malek QC as to the unbusiness-like nature of a contractual term of the sort proposed by Dr Abbar. Mr Crow submitted that this was not a point of substance. He submitted that it was not an uncommercial term from his clients’ point of view, because it gave teeth to the selling point of the shares offer that it was a short term investment. While this is true, it does not deal with the point that, from the point of view of a hypothetical investor, an obligation to sell could foreseeably lead to commercially undesirable results, such as a forced sale. Mr Crow QC submitted that there would not be a forced sale because marketing of the site leading to a sale should have started at least many months before the end of the period. The problem with this approach is that the intention was to undertake demolition works and so on and then sell the site. In any event, a downturn in the markets making a sale difficult or even impossible could occur at any time. Mr Crow QC submitted that the majority could raise funds needed to buy out the dissenting minority. This again does not provide an answer. The other investors had no obligation to buy out the dissenters and they might be unable or, for good reason, unwilling to do so. Finally, he submitted that the number of investors was unknown when the Information Memorandum was distributed in March 2007. It could have been as few as one or two investors or as many as one hundred. The fact that there were in the end 40-50 investors was unknown at that time and could not therefore be taken into account in interpreting the document. I do not find this a convincing argument. It was clearly contemplated that shares might be issued to a significant number of investors, and investors applying for shares would be likely to assume that this could well be the case. It is hardly likely that an Information Memorandum would have been distributed if it was envisaged that there would be only one or even a small handful of investors.[130]A further factor to be considered in deciding whether there was any contractual obligation as regards the duration of the investment is whether the parties to the contract had available to them any legal means of bringing about that result. Where a company is promoted on the basis that it will have a limited life, enforceable by the shareholders, the usual course would be to include provisions in the articles of association of the company or possibly in an agreement between the company and the shareholders providing machinery to ensure the sale of the company’s assets and either a liquidation of the company or a return of capital to enable a distribution of the proceeds of sale to be made, after paying or providing for all liabilities. No such machinery has been included in the articles of association of PHL or in any other agreement. While it is of course possible for a party to give an unqualified contractual undertaking to bring about a particular result, even if he lacks the legal means to ensure it, the lack of such means tells against the creation of a contractual undertaking. SEDCO Anguilla had no rights to procure PHL to take any particular course once the capital-raising exercise was complete and it had procured the purchase of the site, nor was it suggested by the Investment Memorandum that SEDCO Anguilla enjoyed any such rights. It was not to be shareholder of PHL and a majority of the shares were, and were intended to be, held by third party investors.[131]If PHL was a party to a contract containing the obligation for which Dr Abbar contends, it would clearly be able to procure the sale of the site within the 18-month period. That, however, is only half of what the investors would then require. A sale of the property would leave PHL or its subsidiaries with cash but the return of that cash to its shareholders could not be achieved by PHL save through a liquidation or a reduction of capital, neither of which it could achieve without a resolution passed by the shareholders of PHL. As discussed later in this judgment, there is nothing in the Information Memorandum which could be relied on as having the effect that the shareholders were under a contractual obligation, to each other or to PHL, to vote in favour of any such resolution.[132]My conclusion on this issue is therefore that, for the reasons given above and for the reasons advanced by Mr Malek QC, no contractual obligation as to the duration of the investment or a sale of the Pinnacle property was given, whether by PHL or SEDCO Anguilla.[133]It follows that the claim for breach of contract must fail. It is not strictly necessary to consider the issues which would otherwise have arisen, as to breach, the liability of SEDCO and AIL, procuring a breach of contract and damages. These matters were however fully argued and some of them involve findings of fact, and I will accordingly address them. Breach of contract[134]If, contrary to what I have held, the statements in the Information Memorandum relied on by Dr Abbar give rise to a contractual obligation, the questions would arise as to whether there was a breach of that obligation and, if so, when it occurred.[135]Given that Dr Abbar did not receive any return on his investment at the end of the period of 18 months, in November 2008 and has not done so since then, it is clear that there was a breach of the putative contractual obligation.[136]The question of when the breach occurred turns on the proper identification of the relevant obligation. Dr Abbar’s case is that the obligation was to sell the site, having done no more than undertake the demolition and site preparation works and having fixed the construction contracts. The obligation was to sell the site as soon as possible in the holding period or, alternatively, no later than the end of the 18-month period. It follows, it is submitted, that once PHL or those in control of it determined to retain the site and construct the Pinnacle Tower, there was a breach of the obligation. This occurred no later than the date in December 2007 when PHL and Eurx entered into the Eurx investment agreement. By that agreement, PHL covenanted to carry on the Business which was defined as the development, construction and letting of the Tower as an investment. While it is accepted that the obligation undertaken to carry on the business would probably not be capable of enforcement by an order for specific performance, it is submitted that by entering into the Eurx investment agreement PHL committed itself commercially, if not legally, to the retention and development of the site. There was no subsequent deviation from that cause. The breach, accordingly, occurred at the latest in December 2007. As to any alternative exit, such as a purchase of Dr Abbar’s shares at a price reflecting their full value, there would still have been a breach of contract but not a breach resulting in any loss to Dr Abbar.[137]I do not accept this analysis of the putative contractual obligation. As I have previously explained, any obligation was to provide an exit to investors by no later than 18 months after the acquisition of the site, either as a result of sale of the site or by some alternative means. If no steps were taken to sell the site during the 18-month period, PHL ran the risk the risk that if it would be unable to procure an alternative exit and would therefore be in breach at the end of the 18-month period.[138]It follows, in my judgment, that if there had been a contractual obligation the breach would have occurred in November 2008. Claims in contract against SEDCO and AIL[139]The claims in contract against SEDCO and AIL are put on two different bases. First, one or both of them were the undisclosed principals of SEDCO Anguilla and PHL under the relevant contracts. Secondly, there was an agreement among the shareholders by which each covenanted to give effect to the obligations as to the duration of the project, enforceable by any shareholder against the others. It is said that each of SEDCO and AIL took shares through nominees and are therefore liable to Dr Abbar and other shareholders on that contract.[140]I turn first to the claim that SEDCO and AIL were the undisclosed principals of SEDCO Anguilla and PHL. Mr Crow QC has made clear that this is very much a secondary case, the claimants’ primary case being that the relevant parties to the subscription contract were SEDCO Anguilla and PHL as principals. The claimants do not suggest that there was any express agency relationship. Rather, they submit that the agency relationship is to be inferred from the facts, particularly as they relate to the way in which the companies and the project were established and controlled.[141]For the purposes of this part of the case, it is necessary to look a little more closely at the chronology of events. To some extent this will involve a repetition of facts referred to in the outline chronology given earlier but with more focus on the roles of the relevant parties.[142]In the course of 2005, AIL gave consideration to making an offer to purchase a site known as 6-8 Bishopsgate, which is adjacent to the Pinnacle site and was also owned by DIFA. AIL decided against pursuing this opportunity, but Mr Affara informed Savills, DIFA’s agents, that if the Pinnacle site became available for sale then he might be interested.[143]In June 2006, Savills informed Mr Affara that DIFA was putting the Pinnacle site on the market. Mr Affara expressed serious interest and over the following months he and his professional advisers held discussions with Savills and DIFA’s other professional consultants. They conducted a due diligence exercise, studying the information made available in a data room, and discussions with professional advisers covered topics such as planning, costs estimates and legal issues. AIL’s professional advisers comprised solicitors (Davis Arnold Cooper), architects, quantity surveyors and project managers, consulting engineers and planning consultants. AIL also instructed Savills through a different partner and office from those acting for DIFA. Felix Rabeneck, a partner in Savills, had previously acted for AIL on other transactions and did so in relation to the Pinnacle site.[144]An offer, subject to contract, of £220 million was made in a letter dated 30 October 2006 from Mr Rabeneck to John Rigg, the partner in Savills acting for DIFA. The offer was made on behalf of AIL which was described in the letter as “a property investment, trading and development company run by Mr Khalid Affara from offices in Knightsbridge, London. We have acted for them on sales, acquisitions, development consultancy and leasing for approximately 10 years and would confirm that they have an exemplary track record”. It referred to development projects in which AIL was or had been involved. It referred to its investments in property, described as “substantial” and continued:
“It should be emphasised that Arab Investments put significant equity into each transaction and would only ever undertake to acquire a property if they alone would be able and willing to complete the purchase.”
[145]Mr Rigg on behalf of DIFA responded in a letter dated 7 November 2006. He stated that AIL had been selected to proceed through to the next round and invited AIL’s final bid proposal, specifically requesting that information on particular topics should be provided. One item of information was as follows: “Please confirm details of your acquisitions structure (companies to be established, including jurisdictions and processes involved etc) and the timetables for establishing any such companies and confirm such arrangements will not delay the transaction without our target timetable being exchange if possible in November but completion this calendar year”.[146]Mr Affara on behalf of AIL responded in a letter dated 13 November 2006, in which he reconfirmed the offer of £220 million. In answer to the question about the ownership restructure of the purchaser, he replied:
“A limited company registered in Anguilla will the purchase the property. This company can be incorporated within 48 hours. There are no lengthy offshore approval processes. Documents for signature can be dispatched by e-mail with originals generally returning within 3 working days. This structure is used for most of our acquisitions and we do not believe that it will jeopardise the acquisition timetable.”
[147]Following a further letter dated 14 November 2006 from Mr Rigg, Mr Rabeneck, on behalf of AIL, replied in a letter dated 16 November 2006 “Arab Investments consider terms agreed and are working towards the timetable set out in your letter”, subject to contract.[148]From the beginning of December 2006, or perhaps a little earlier, Mr Affara was in discussions with at least two banks with a view to raising loan finance for the purchase of the Pinnacle site. Both Deutsche Postbank and Nordbank proposed terms. The draft terms sheet produced by Deutsche Postbank identified the borrower as:
“[NewCo re Bishopsgate], registered in [ ] (the “Borrower”) which is owned by [ ]. Precise ownership and domicile is to be entirely satisfactory to the Bank”
The initial term sheet produced by Nordbank identified the borrower as “A new special purpose vehicle ultimately owned by [Arab Investments Limited]”. The decision was quickly made to proceed with Nordbank.[149]Discussions proceeded with DIFA and Savills on their behalf. DIFA was pressing for an early exchange but it is clear that it was aware that AIL needed to raise equity as well as loan finance for the acquisition. In an email dated 12 December 2006 from Frank Billand of DIFA to Mr Affara, he said that “we are confident you will raise the necessary financing” and “I hope this will be confirmed by your success in closing the equity gap”. This appears consistent with Mr Affara’s oral evidence that he told DIFA that there would be other investors. Nordbank was also aware there could be other investors. In an email dated 13 December 2006 to Mr Affara, Mr Grey of Nordbank stated:
“In order to ensure we are as advanced as we can be prior to approval being received I would be grateful if you could provide me with a structure chart for the Borrower to include full ownership. Also will the equity be provided by yourselves at this stage or will it be coming from BNP Paribas and NCB (or a combination thereof)?”
[150]On 22 December 2006, Nordbank sent a formal term sheet to Mr Affara. It identified the borrower as “A new special purpose vehicle ultimately owned by agreed investors acting through Arab Investments Limited”. Mr Affara on behalf of AIL was invited to agree and accept the terms and conditions, subject to contract and due diligence. Nordbank also raised the possibility of providing development financing for the project but this was no more than a feeler at this stage which was not pursued.[151]DIFA pressed for exchange during December 2006, without success, and renewed the pressure in January 2007. Mr Affara succeeded in keeping DIFA and its agent at bay. On 14 February 2007 he emailed to Mr Billand: “Since our last mails, we have been considering how to fulfil the potential equity shortfall left by [redacted]. They maintain that their investors will supply the equity by the end of this week. As you are aware, they have said this before though. Therefore, we are examining the feasibility of bridging the gap in equity left by [redacted] from our funds and will be able to confirm our ability to this by weekend”.[152]Contracts for the purchase of the Pinnacle were exchanged on 27 February 2007.[153]I turn now to the involvement of SEDCO and its discussions with Mr Affara in the period leading up to exchange of contracts.[154]Mr Affara was working closely with SEDCO on a different project during 2006. He dealt in particular with Mr Alqumairi. In September 2006 he raised with Mr Alqumairi the possibility of SEDCO investing in the purchase of the Pinnacle site. Mr Affara’s unchallenged evidence is that he had a number of discussions with Mr Alqumairi about this proposal between September and December 2006. On 10 November 2006, Mr Affara sent to Mr Alqumairi a draft of the letter sent by Mr Rigg on behalf of DIFA on 13 November 2006. On 1 November 2006, Mr Affara had sent to Mr Alqumairi a copy of the brochure concerning the Pinnacle site which had been prepared by Savills on behalf of DIFA. On being resent it on 13 November 2006, Mr Alqumairi replied that he would look at it and get back to Mr Affara. Mr Affara replied “look hard we have the deal”. By 19 November 2006, SEDCO had prepared its own cash flow based on information provided to it by Mr Affara and on information contained in the brochure.[155]The internal process for seeking authority for investment by SEDCO in the acquisition of the Pinnacle site began on 20 November 2006. On that day, Mr Alqumairi sent a summary to the members of the REG. Mr Alqumairi said in the accompanying letter that the investment was expected to pay investors a targeted internal rate of return of 25% over 5 years and continued:
“Because of the size of the deal, we would like to invite institutional co-investors to structure the deal with us during the due diligence stage. However, we will take risk of due diligence expenses totalling £200,000 incase we cannot manage the deal with co-investors.”
[156]The summary contained details of the property and the specification of the proposed development together with financial information relating to the development. It identified the professional advisers, including AIL as “Asset and Property Manager”. The recommendation was “to secure the deal and take the risk of the due diligence costs totalling £200,000 and in the mean time start communication with institutional co-investors to complete the deal with us” and “the ultimate recommended investment of SEDCO will be minimum based on the available cash from the sale of [redacted]”. The summary indicated that the total purchase costs of £228.5 million would be financed by equity of £150 million and a loan of £78.5 million.[157]On 21 November 2006, Mr Alqumairi wrote to a small number of potential institutional co-investors, to gain some indication as to whether they would have any interest in co-investing in the proposal. On 27 November 2006, he sent the summary proposal to Sheikh Saleh, inviting his comments. On the following day, Mr Alqumairi also sent the summary proposal to Abdelelah bin Mahfouz, Shuaib Ahmed, the CEO of SEDCO and Adnan Soufi, the managing director of the financial investment group.[158]In the early part of December 2006, Mr Alqumairi arranged for the preparation of the first draft of an executive summary document relating to investment in the company formed to acquire the Pinnacle site. It envisaged a placing of a 150,000 shares at £1,000 each, to raise £150 million, with a minimum subscription of £250,000. The front page referred to an “anticipated one-year holding investment horizon”. As well as giving some information concerning the site, there was included information concerning the investment structure. It stated: “Arab Investments Limited has created Pinnacle Holdings Limited (the “Company”), that will own Pinnacle Tower Ltd, incorporated with limited liability in Anguilla Islands. The objective of the company is to acquire Bishopsgate Tower, located at the heart of City of London”.[159]A structure chart showed the proposed investment structure. The shareholdings in Pinnacle Holdings Limited were divided into three: 85% being held by Investors, 10% being held by Strategic Partner and 5% being held at AIL. It stated that the offer was to be an invitation made to selected investors in states within the Gulf Co-operation Council. Under the heading Exit Strategy it stated: “Subsequent to the demolishment of the site to be undertaken, the Company will be preparing a blue print package for the site during the one-year holding period”.[160]On 12 December 2006 Mr Alqumairi sent the draft executive summary to Mr Affara, asking him to look at it and make any comments. On 13 December 2006, Mr Alqumairi sent to Mr Affara what he described as the final version of the brochure for his review. So far as relevant, it was in identical terms to the draft sent the previous day. There is no evidence that Mr Affara came back to Mr Alqumairi with any suggestions for changes to the draft executive summary and the evidence does not support the submission for Dr Abbar that Mr Affara and Mr Alqumairi collaborated in drafting this executive summary or any version of the Information Memorandum. It appears that the preparation of the document was wholly or largely undertaken by employees and advisers of SEDCO.[161]On 15 December 2006, Mr Alqumairi sent the Executive Summary to a number of potential investors. In his covering email, he made clear that the intention was to “acquire the site, improve the scheme, prepare a blue print development package and sell it”. This was designed to elicit expressions of interest, with Mr Alqumairi asking recipients to indicate whether it was “something that we can work together with you”. One recipient wished to know who the strategic partner would be, to which Mr Alqumairi replied:
“SEDCO will be strategic partner and we look forward for more strategic partners”
He confirmed that the intention was to sell the site prior to construction works on the new building.[162]In January 2007, Mr Alqumairi arranged for the preparation of a fuller information memorandum relating to the offering of shares and this was circulated to some potential investors on 14 January 2007. It related to an offering of 127,500 shares in Pinnacle Holdings Limited. There is no evidence that any applications for shares were made on the basis of this information memorandum and it differs in a number of respects from the information memorandum to which Dr Abbar and others responded. It was drafted on the basis that the allocation of shares was to be the responsibility of Arab Investments Holdings Limited. The asset manager is stated to be AIL.[163]The formal processes within SEDCO for authorisation of its investment and involvement in the acquisition of the Pinnacle site took place during the latter half of February 2007. On 16 February 2007, an email was sent by Sheikh Saleh to the members of the Executive Committee of SEDCO, enclosing the investment proposal summary and an independent valuer’s report. He described it as a “short term investment” expected to pay the investors targeted “IRR of 36% over one-year holding period on most likely scenario”.[164]The recommendation was to underwrite the deal, keep a minimum 10% of the equity and sell the rest to institutional and private investors. The executive committee approved the proposal on 18 February 2007 but as the amount of the proposed investment exceeded the limits of that committee’s authority, it also required board approval. The proposal was circulated to members of the board on 18 February 2007. The proposal approved by the executive committee was that, on the basis of a bank loan of £120 million, £20 million equity would be allocated to SEDCO, £15 million equity would be allocated to the asset manager and another party and that SEDCO would underwrite and syndicate the remaining £115 million of equity to third party investors. The opportunity was presented on the basis of a resale within one year, after demolition of the existing buildings, securing a guaranteed maximum price construction contract and assembling a team of consultants for the proposed construction. The managing director of REG acknowledged concerns that there could be an unexpectedly longer period before a resale.[165]On 20 February 2007, the board of SEDCO approved the proposal, on the basis that it would be a short term investment with a one-year exit strategy.[166]In my judgment, the events leading up to the agreement of SEDCO to proceed with the proposal may be summarised as follows. AIL had negotiated for the purchase of the Pinnacle site and had arranged loan finance to assist with the purchase. This was essentially a business opportunity available to AIL, which could not itself finance the purchase and could not therefore proceed to contract for its purchase. It took the opportunity to SEDCO which, having examined it carefully, decided to back it with its own money and with capital raised from third party investors. Apart from providing information when required, AIL took no part in raising the equity finance. The agreed roles and participation of SEDCO and its associates and AIL and its associates are set out in the Information Memorandum. AGAR would hold 14% of shares of PHL and a company associated with AIL would hold 5% of PHL’s shares. AIL and SEDCO Anguilla as asset and portfolio managers would share the fees and profit shares described on page 16 of the Information Memorandum.[167]The claim that SEDCO and/or AIL acted as undisclosed principals of SEDCO Anguilla and/or PHL in making the investment and other agreements is essentially based on the degree of control alleged to have been exercised by SEDCO and/or AIL over those companies and their lack of any apparent “independent existence”. The agency is to be inferred from these facts. As previously commented, there is no suggestion that either PHL or SEDCO Anguilla agreed to act as agents or were held out as agents. Equally, there can be no suggestion that either SEDCO or AIL expressly agreed to be their principals.[168]I will take first the position of PHL. PHL is said to have contracted with investors as an agent for SEDCO and AIL, either alone or acting together. The following matters are relied on. First, the Pinnacle companies, including PHL, were established on instructions given to the incorporation agents by Mr Affara himself acting at the request or on the instructions of Mr Alqumairi. Secondly, the Pinnacle companies only had corporate nominee directors, until March 2009 when Mr Alqumairi was appointed as one of the directors. There is no evidence that these directors ever took any decisions other than on instructions given to them by Mr Alqumairi or Mr Affara. Thirdly, the decisions on major transactions entered into by or on behalf of the Pinnacle companies were not made by its directors but by others. In this respect, reference is made to the contract to acquire the site, the internal agreements between the various Pinnacle companies, the loan finance agreements and the issue of the Information Memorandum. It is submitted for Dr Abbar that there is no evidence that anyone other than Mr Affara and Alqumairi gave instructions in relation to these transactions. Fourthly, consistently with the points just made, subsequent major decisions were clearly a matter ultimately for SEDCO, with AIL. Fifthly, reliance is placed on the negotiation of the Eurx Investment Agreement which was undertaken by Mr Alqumairi and Mr Affara.[169]As regards SEDCO Anguilla, it is submitted that it issued the Information Memorandum as agent for SEDCO, either alone or jointly with AIL. The facts relied on are as follows. First, the Pinnacle project-raising exercise was the product of the steps outlined above, involving AIL and SEDCO. SEDCO Anguilla did not play an independent part, or indeed any part, in the development of the project and its only function was, at most, to issue the Information Memorandum and deal with applications for shares in accordance with the provisions set out in that document. Secondly, it was incorporated on the instructions of SEDCO and was a member of the SEDCO group, and it appears to be a subsidiary of SEDCO itself. Thirdly, it had no separate office facilities or mailing address. Fourthly, its only active director was Mr Alqumairi, who reported in accordance with the management structure of SEDCO. Fifthly, the Information Memorandum was drafted by staff employed by SEDCO and was described to third parties as having been prepared by REG.[170]I have no difficulty in accepting that the corporate nominee directors of PHL never themselves took any decisions on behalf of PHL or any of the Pinnacle companies. The evidence overall satisfies me that, once SEDCO committed itself to the transaction, Mr Alqumairi and, where higher authority was required, others within the SEDCO management structure either made or were in a position to make all major decisions on behalf of PHL and to give instructions accordingly. The contract for the purchase of the site by PHL was made only after SEDCO had committed itself to the transaction and could not have been made without its approval. Likewise, the borrowing from Nordbank required SEDCO’s approval. SEDCO and AIL were co-operating in these and other matters relating to the project, but the major decisions were ultimately a matter for Mr Alqumairi and others within SEDCO. The evidence satisfies me that as a matter of practice Mr Alqumairi and others within SEDCO controlled PHL. They could not however have insisted on control, if the Gulf investors who comprised an absolute majority of the shareholders had exercised their voting power to appoint directors and to control the activities of PHL and its subsidiaries.[171]In my judgment, the evidence does not establish that PHL and the other Pinnacle companies were controlled by Mr Affara or AIL. Mr Affara was involved in making decisions and, as it seems to me, these decisions went in some cases beyond the confines of his role as asset manager for the property. He was not however in a position, either a matter of theory or practice, to insist on the acceptance of his views. Those associated with him had only a small minority shareholding and he had no contractual or other right to impose decisions on PHL. Like PHL itself, he was dependent upon the financial support of SEDCO and the Gulf investors that it had introduced. So far as the capital raising exercise was concerned, the part played by Mr Affara and AIL was confined to being consulted on the terms of the Information Memorandum. The Information Memorandum made clear that AIL was appointed as asset manager by SEDCO Anguilla and that it could be replaced with another asset manager by SEDCO Anguilla: see the definition of the “Investment Advisor” in the Glossary.[172]As regards SEDCO Anguilla, there is in my judgment no basis at all for regarding it as controlled by AIL. It was clearly part of the SEDCO Group and subject to its control. Reliance was placed on the identity of Mr Affara as the “Principal” under the management agreement with the Anguilla agents, but I accept his evidence that he was no more than a channel of communication with SEDCO.[173]The reported cases show that on a number of occasions attempts have been made to establish that a company is an agent on the basis of control of the company but, it may be noted, these attempts have rarely succeeded. In many of these cases, the same facts are relied on to establish, in the alternative, either that the corporate veil of the company concerned should be lifted or that it should be treated as an agent. As made clear in a number of cases, these are true alternatives. Lifting the corporate veil has the legal effect of disregarding the separate corporate existence of a company, whereas agency presupposes its separate corporate existence.[174]A leading case on both topics remains Salomon v A. Salomon and Co Ltd [1897] AC 22. In the course of those proceedings, various legal bases were put forward with a view to making Mr Salomon personally liable for the debts of the company, which he had formed to acquire his own business and of which he was the principal shareholder and managing director. It was held at first instance that the company carried on its business as agent for Mr Salomon, on the basis that he was the only substantial shareholder in the company and following the transfer of the business to the company, he remained in complete control of it. This finding of agency was rejected on appeal. The fact of ownership and control by Mr Salomon of his company did not result in the company being his agent.[175]A case based on agency was advanced in Yukong Line Ltd of Korea v Rendsburg Investments Corporation of Liberia [1998] 1 WLR 294. Having referred to Salomon v Salomon and Co Ltd, Toulson J continued at 303:
“That is not to say that a company may not act as agent for another company or for an individual, just as an individual may act as agent for another individual or for a company. Whether such a relationship exists in a given case had to be determined in accordance with the principle stated by Lord Pearson in Garnac Grain Co. Inc. v H.M.F. Faure & Fairclough Ltd. (Note) [1986] A.C 1130, 1137: “The relationship of principal and agent can only be established by the consent of the principal and the agent. They will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they have professed to disclaim it, as in Ex parte Delhasse (1878) 7 Ch.D. 511. But the consent must have been given by each of them, either expressly or by implication from their words and conduct.”
That principle applies as much in the case of one-man companies or wholly-owned subsidiaries as in any other case. It was applied by the Court of Appeal in relation to a one-ship company and its ultimate beneficial owner in Atlas Maritime Co. S.A. v Avalon Maritime Ltd. (The Coral Rose) (No.1) [1991] 4 All E.R. 769, where Staughton L.J observed, at p.779:
“The creation or purchase of a subsidiary company with minimal liability, which will operate with the parent’s funds and on the parent’s directions but not expose the parent to liability, may not seem to some the most honest way of trading. But it is extremely common in the international shipping industry, and perhaps elsewhere. To hold that it creates an agency relationship between the subsidiary and the parent would be revolutionary doctrine”.” “The relationship of principal and agent can only be established by the consent of the principal and the agent. They will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they have professed to disclaim it, as in Ex parte Delhasse (1878) 7 Ch.D. 511. But the consent must have been given by each of them, either expressly or by implication from their words and conduct.” “The creation or purchase of a subsidiary company with minimal liability, which will operate with the parent’s funds and on the parent’s directions but not expose the parent to liability, may not seem to some the most honest way of trading. But it is extremely common in the international shipping industry, and perhaps elsewhere. To hold that it creates an agency relationship between the subsidiary and the parent would be revolutionary doctrine”.”
[176]The claimant in that case relied on the approach adopted by Atkinson J in Smith, Stone and Knight Ltd v Birmingham Corporation [1939] 4 All ER 116. Atkinson J. said that it was a question of fact whether the subsidiary was carrying on business as its parent’s business or as its own and that the question of fact was to be addressed by reference to a number of questions, such as who was really carrying on the business, whether the persons conducting the business were appointed by the parent, whether the company was the head and the brain of the trading venture, whether the parent company governed the venture and so on. Toulson J rejected the submission that as a matter of general approach the court should ask whether the company was carrying on business as its owner’s business or as its own business using as guidance the various questions posed by Atkinson J. He said:
“Something quite different would need to be established in order to show that the company, in law an entity independent of its owner, was acting in some respect as agent for its owner, the necessary requirement being to show that the relationship of agency was intended to be created. Ordinarily, the intention of someone who conducts trading activities through the vehicle of a one-man company will be quite the opposite.”
[177]In J.H.Rayner (Mincing Lane) Limited v Department of Trade and Industry [1989] Ch 72 at 189-190, Kerr LJ said of Smith, Stone and Knight Ltd v Birmingham Corporation that its facts were so unusual that they could not form any basis of principle and that no conclusion of principle could be derived from the case. At p. 188, Kerr LJ said:
“The crucial point on which the House of Lords overruled the Court of Appeal in that landmark case [Salomon] was precisely the rejection of the doctrine that agency between a corporation and its members in relation to the corporation’s contracts can be inferred from the control exercisable by the members over the corporation or from the fact that the sole objective of the corporation’s contracts was to benefit the members. That rejection of the doctrine of agency to impugn the non-liability of the members for the acts of the corporation is the foundation of our modern company law.”
[178]It is, in my judgment, clear on these authorities that Dr Abbar cannot sustain his claim that either PHL or SEDCO Anguilla contracted with him as principal for either or both of SEDCO and AIL. The facts relied on to do so are precisely the sort of facts of control which have in almost all the cases been considered an insufficient basis for doing so. There is lacking the essential element of consent to the relationship of principal and agent which is necessary to a finding that the relationship has been established.[179]There are further features which are fatal to the case of agency sought to be made.[180]First, as regards PHL the offer and issue of shares in its capital was intended to produce a situation in which its shares were owned in the proportions set out on page 11 of the Information Memorandum, that is to say with 81% of the shares being owned by the third-party investors and the balance being owned by companies associated with SEDCO and AIL. The shares were offered in order to raise the funds required to purchase the Pinnacle site. It can hardly be Dr Abbar’s case that following the issue of shares PHL was acting as an agent for either SEDCO or AIL. If it were doing so, it would follow that it would have contracted to acquire the Pinnacle site as agent for either or both of those companies, with the result that Dr Abbar and his co-investors would have subscribed for shares in a company with no assets. The contract for the purchase of the Pinnacle site was made by PL on 21 February 2007, before the issue of the Information Memorandum. I do not understand it to be Dr Abbar’s case that in respect of that transaction either PL or PHL were acting as agent for anyone. If there was no agency relationship in respect of that contract, why should there be an agency relationship in respect of the issue of the Information Memorandum and the subsequent issue of shares? Equally, if PHL was acting as a principal after the shares were issued, so that SEDCO and AIL had only minority interest in it, why should it have been acting as an agent before the issue of those shares? In my view, there is no plausible answer to these questions. The reliance placed on the degree of control over PHL exercised by SEDCO and AIL following the issue of the shares raises precisely the same difficulty.[181]Secondly, there is no suggestion at all in the shares application form that SEDCO Anguilla was contracting in any capacity other than as principal. Likewise, there is no suggestion in any part of the Information Memorandum that in issuing its shares to investors, PHL would be doing so other than as principal. The recent case of VTB Capital Plc v Nutritek International Corporation [2013] UKSC 5, [2013] 2 WLR 398 was concerned with a claim advanced on the basis of piercing the corporate veil rather than agency. Nonetheless, relevant to the present issue is the following passage from the judgment of Lord Neuberger of Abbotsbury PSC:
“139. Subject to some other rule (such as that of undisclosed principal), where B and C are the contracting parties and A is not, there is simply no justification for holding A responsible for B’s contractual liabilities to C simply because A controls B and has made misrepresentations about B to induce C to enter into the contract. This could not be said to result in unfairness to C: the law provides redress for C against A, in the form of a cause of action in negligent or fraudulent misrepresentation. 140. In any event, it would be wrong to hold that Mr Malofeev should be treated as if he was a party to an agreement, in circumstances where (i) at the time the agreement was entered into, none of the actual parties to the agreement intended to contract with him, and he did not intend to contract with them, and (ii) thereafter, Mr Malofeev never conducted himself as if, or led any other party to believe, he was liable under the agreement. That that is the right approach seems to me to follow from one of the most fundamental principles on which contractual liabilities and rights are based, namely what an objective reasonable observer would believe was the effect of what the parties to the contract, or alleged contract, communicated to each other by words and actions, as assessed in their context – see e.g. Smith v Hughes (1871) LR 6 QB 597, 607.”
[182]This is consistent with the approach to the identification of the parties to a contract in writing adopted by Lord Phillips of Worth Matravers in Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 AC 919. In the case of a written contract the process of identifying the parties was a matter of construction of the contract. There can be no doubt that the relevant party to the contract created by the acceptance of offers made in the shares application form was SEDCO Anguilla, not SEDCO or AIL. I have already set out clause 7, which provided that the application form and the Information Memorandum “constitute the entire agreement and understanding between the Applicant and SEDCO Real Estate Limited” and that no amendment and so on would be effective unless signed by or on behalf of SEDCO Anguilla and the Applicant. Even if this provision does not totally exclude the possibility of an undisclosed principal, as was held to be excluded in Rayner v Department of Trade and Industry [1990] 2 AC 418 at 516, Dr Abbar would have to rely on SEDCO or AIL being an undisclosed principal in circumstances where there is no evidence of any agreement by either of those companies or SEDCO Anguilla that the relationship of principal and agent should exist between them.[183]For all these reasons, I conclude that Dr Abbar fails to establish that either SEDCO or AIL were liable as principals under any contract made by either SEDCO Anguilla or PHL with him.[184]The alternative basis on which it is sought to hold SEDCO and AIL liable in contract is that by becoming shareholders on the terms of the Information Memorandum, each shareholder agreed with every other shareholder to give effect so far as it could to the terms of the Information Memorandum. In fact, neither SEDCO nor AIL became a shareholder of PHL but, on the grounds set out below, it is submitted that they should be treated as if they were shareholders for this purpose.[185]Even if SEDCO and AIL were shareholders, a claim put on this basis cannot in my judgment succeed. The Information Memorandum nowhere states that those who become shareholders will be liable to other shareholders to give effect to any terms contained in the Information Memorandum and I see no basis for impliedly imposing such contractual responsibility on the shareholders.[186]I will deal briefly with the issues as to whether SEDCO or AIL should be treated as shareholders. As earlier mentioned, SEDCO did not acquire shares in PHL in its own name but an associated company, AGAR, subscribed for 20,000 shares. An internal SEDCO document dated 15 May 2007 establishes that AGAR held those shares as to 10,000 shares for SEDCO, 5,000 shares for a separate charitable foundation, 4,000 shares for members of the bin Mahfouz family and 1,000 shares for the SEDCO management team. SEDCO was therefore the beneficial owner of 10,000 shares and AGAR subscribed for those shares as agent for SEDCO.[187]As to AIL, the Information Memorandum stated in the summary at page 9 that it had committed to acquire 7,500 shares, although on page 11 those shares were shown as going to be issued to a company called Arab Investment Holdings Limited. When the shares were finally registered in the names of subscribers in December 2007, the relevant shares were at first put in the name of AIL but this was quickly corrected to substitute Caraway. I am satisfied on the evidence that, for the tax reasons earlier given, it was never intended by Mr Affara that shares in PHL should be subscribed by or issued to AIL. I find that it was always intended that such shares would be issued to an offshore company owned and controlled by Mohammed Affara, although it may well be that Caraway was not identified as the holder of the shares until late 2007. I also accept that SEDCO was anxious that investors should be given the impression that the asset manager was investing in the venture, and I think it likely that it was not regarded as significant from the point of view of investors that the shares in question would be taken by an offshore associated company rather than by the asset manager itself. In my judgment, on the facts, AIL was never a shareholder of PHL nor did it ever make an investment agreement nor can it on any basis be treated as a shareholder in PHL. Inducing or procuring a breach of contract[188]On the assumptions that(a) PHL and/or SEDCO Anguilla were contractually bound to sell or procure the sale of the Pinnacle site within a period of not more than 18 months after its purchase or to provide an alternative exit for investors who did not wish to remain as shareholders of PHL,(b) PHL and/or SEDCO Anguilla acted in breach of such contractual obligation, and(c) SEDCO and/or AIL were not parties as principals to the relevant contract, a claim is advanced that SEDCO and AIL induced or procured PHL and/or SEDCO Anguilla to act in breach of contract. On the basis of my decision that there was no such contractual obligation, it follows that this claim must fail. I will nonetheless consider its essential elements and make appropriate findings of fact.[189]It is well established that in order to be liable in tort for inducing or procuring a breach of contract, the defendant must know that he is procuring an act which amounts to a breach of contract, or is at least reckless as to whether it does so. It is necessary to cite only from the decision of the House of Lords in OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC. At [39], Lord Hoffmann said:
“To be liable for inducing breach of contract, you must know that you are inducing a breach of contract. It is not enough that you know that you are procuring an act which, as a matter of law or construction of the contract, is a breach. You must actually realize that it will have this effect.”
At [192], Lord Nicholls of Birkenhead said:
“The additional, necessary factor is the defendant’s intent. He is liable if he intended to persuade the contracting party to breach the contract. Intentional interference presupposes knowledge of the contract. With that knowledge the defendant proceeded to induce the other contracting party to act in a way the defendant knew was a breach of that party’s obligations under the contract. If the defendant deliberately turned a blind eye and proceeded regardless he may be treated as having intended the consequence he brought about. A desire to injure the claimant is not an essential ingredient of this tort.”
[190]In order to establish this necessary element of knowledge, Dr Abbar relies on documentary and oral evidence from Mr Affara and SEDCO and its officers that they knew that the basis of the investment was a short term holding period of 12 to 18 months and that the decision not to sell the property within that period created a problem or a dilemma as regards investors. Reliance is placed on the oral evidence of Mr Khayat that both SEDCO and the investors subscribed for shares on the basis of the statements made in the Information Memorandum that it was anticipated or intended that the property should be held for no more that 18 months. Reliance is also placed on an internal SEDCO document prepared in April 2008 in relation to a proposal for a European asset joint venture between SEDCO and AIL. Page 26 of that document refers briefly to the Pinnacle project. The last of five bullet points states:
“We promised our clients to pay them 20% return in 12-18 months, while we believe the returns will be more in less than 12 months.”
Reliance is also placed on an email sent on 31 December 2007 by one of the members of the executive committee who disagreed with the decision to continue with the investment in the Pinnacle project to the construction stage. He wrote:
“Although I respect the committee’s decision, but I still belief that we should stick to the original plan of selling the first round and to not to proceed with continuing in to the second round. Due to the following • We met the desired objective by acceding 40% return. We will enhance the other investor’s trust in SEDCO, which will increases our brand name in the market.”
Another member of the executive committee who was opposed to a continuation of the investment wrote to Mr Alqumairi in an email dated 29 December 2007:
“3 – Also exiting means respecting the Strategy, that led to this successful fund, which means, more Good Ones more to come.”
Other documents in early 2008 show that Mr Alqumairi envisaged that the investors who did not wish to remain in the project would have their shares purchased and that an offer for the shares would be underwritten by Eurx or AIL.[191]As for AIL, reliance is placed on evidence given by Mr Affara. He said that the requirement of Eurx that it would be able to invest in the construction of the Pinnacle Tower as a condition of providing £30 million of equity towards the first phase was a dilemma “because SEDCO promised the investors that they had a situation that they were going to be selling in one and half years, there was a shortage of cash to enable to fulfil the commit – a shortage of cash for them to be able to do that”. Elsewhere he referred to there being a conversation with Mr Ruppert of Eurx in which he said that there was a problem because “the situation that we have is that the project is committed to sell this within 12 to 18 months”.[192]I am entirely satisfied on the totality of the evidence that there was no understanding on the part of either SEDCO or Mr Affara that there was a contractual obligation to sell the Pinnacle site within the 18 months period or to provide an alternative exit. Clearly, it was understood that it had been represented to investors that the intention was to sell the site or provide an alternative exit within that period and that a failure to do so would be contrary to the expectations of the investors and therefore potentially damaging to the reputation of SEDCO. The reference to SEDCO having promised “clients to pay them 20% in 12-18 months” makes the point. There was clearly no promise, in any contractual sense, of a return of either 20% or any other amount. The couple of references in Mr Affara’s evidence to a promise and a commitment is by no means sufficient to establish that he understood and believed that PHL or SEDCO Anguilla were subject to a contractual obligation which would be breached if the site was not sold and investors were not provided with a guaranteed alternative exit.[193]Dr Abbar therefore fails to establish the essential element of knowledge of the existence of a contractual obligation and of its breach, and accordingly the claim for inducing or procuring a breach of contract against SEDCO and AIL must fail.[194]If PHL or SEDCO Anguilla had been under a contractual obligation either to sell the site or to ensure an alternative exit for investors, their failure to do so and hence the breach of such obligation was, in my judgment, caused by SEDCO. Without at this stage identifying precisely the steps which would on this hypothesis constitute a breach of contract, it is I think clear that the decisions to enter the investment agreement with Eurx and to continue to own the Pinnacle site rather than to sell it, were decisions taken by Mr Alqumairi and those to whom he was answerable within SEDCO. They were decisions, as a matter of law, of PHL or SEDCO Anguilla but the decisions were in reality made by Mr Alqumairi and others within SEDCO.[195]The position is different with regard to AIL. Mr Affara was certainly involved in discussions and negotiations with Eurx and in the steps towards raising finance for the purpose of construction of the tower. The evidence does not, however, establish that he was in a position to procure that PHL or SEDCO Anguilla took any steps said to be breaches of contract, and I am satisfied that neither AIL or Mr Affara can be said to have procured those steps. Accordingly, on any basis, this claim would fail as against AIL. Misrepresentation claim[196]Until their abandonment in December 2012, the claims based on allegedly fraudulent misrepresentations in the Information Memorandum were at the heart of the claimants’ case. In short, it was said that in representing their intention as being to hold the Pinnacle site for a period of 12-18 months, the defendants or some of them were deliberately misstating their true intentions, which were to retain and develop the site. As the claimants in effect acknowledged by abandoning them before the defendants’ witnesses had given oral evidence, these claims were on the evidence contained in the contemporary documents and in the witness statements entirely unsustainable.[197]The same statements of purpose and intention continue to form the basis of a claim in misrepresentation, but one based on negligence not deceit. As counsel for the defendants observed in their submissions, it is very difficult to understand how a party can negligently, as opposed to fraudulently, misrepresent his own intentions. The claimants nonetheless bravely attempt to advance such a case.[198]If the claim were well founded as a matter of evidence, there would arise a number of potentially difficult points as regards the claim, to which I will later briefly return. I am, however, satisfied that there is no evidential basis for the claim and would prefer to base my decision on that ground.[199]The re-pleaded case of negligent misrepresentation is lengthy and complex but the case was distilled in the closing submissions of counsel for the claimants to two allegedly false representations. First, the positive statement that the investment was to be short term, for a maximum of 12-18 months, was untrue because “in reality, the investment was capable of being extended for many years without the claimants’ consent”. Secondly, the statements were untrue in that the failure to disclose certain identified matters meant that the description of the proposed investment “was so partial and misleading as to be untrue”.[200]The matters relied on are stated in the claimants’ closing submissions as follows:
“1. AIL and SEDCO KSA acted pursuant to a common design to procure equity funding for their joint venture for the development of the Pinnacle site via the IM [Information Memorandum]; 2. AIL always intended to remain involved with the project beyond Phase I as developer and investor, and participate in the construction/development of the Tower (i.e not dispose of the site once it had been cleared ready for construction), not merely as “asset manager” under the Management Agreements, but as a party whose control over both the development, PHL and its subsidiaries enabled it to carry such intention into effect. 3. Sedco KSA was aware that AIL intended to construct/develop the Tower and had joint control of the project, PHL and its subsidiaries. Yet Sedco KSA permitted a short-term proposal to be promoted to prospective subscribers without any qualification. 4. Sedco KSA’s investment was not fixed and as joint venture partner it was at least open to the possibility of adopting the long term strategy of its co-partner, AIL. 5. There was a real prospect by March 2007 that Sedco KSA and AIL would use their de facto control over the management of PHL to cause it and/or its subsidiaries to commit to contracts for the construction of the Tower without obtaining the unanimous consent of all the shareholders in PHL. 6. There was a real prospect by March 2007 that Sedco KSA and AIL would use their de facto control over the management of PHL to change the nature and scope of the investment without obtaining the unanimous consent of all the shareholders in PHL.”
[201]I will take of each of these matters in turn.[202]I do not agree with the way in which the first point, that AIL and SEDCO acted pursuant to a common design to procure equity funding for their joint venture for the development of Pinnacle site, is phrased. I do however accept the broad point that SEDCO caused SEDCO Anguilla to issue the Information Memorandum for the purpose of raising equity funding for the acquisition of the Pinnacle site and that it did so with the knowledge and support of AIL.[203]As to the second point, I accept, and the evidence was clear, that AIL through Mr Affara had a consistent desire to remain involved in the development of Pinnacle site. He would have liked SEDCO to have committed in early 2007 to a project not only for the acquisition of the Pinnacle site but for its full development, and that is the basis on which he originally put it to SEDCO. Despite the decision of SEDCO to become involved only on a short term basis, he retained his ambition for a long term involvement and the AIL management agreements were made with Pinnacle subsidiaries so that, if those subsidiaries were sold, AIL would continue to be involved as the asset manager. Mr Affara no doubt also wished his family’s equity involvement to continue, but it must be appreciated that AIL and indeed Mr Affara’s family did not have the financial resources for a major equity investment.[204]As to the third point, I accept that Mr Alqumairi and therefore SEDCO knew that Mr Affara and AIL wished to have a long term involvement in the development of the site.[205]The fourth point is correct. Although SEDCO had taken a clear decision to invest on a short term basis, it was of course open to SEDCO at a later stage to adopt a long term strategy, as indeed in the end it did.[206]I am quite unable to accept the fifth and sixth points. There is no evidence at all that by March 2007 SEDCO had given any consideration to a long term involvement in the project. On the contrary, the evidence is clear that SEDCO had rejected a proposal for a long term involvement and had taken a firm decision to invest only in the short term basis. The fact that Mr Alqumairi had seen merit in a long term involvement and had sought to persuade the Executive Committee of its merits does not assist the claimants. What matters is that SEDCO through its Executive Committee and its board of directors had rejected this proposal.[207]I can see, theoretically at least, a basis for a claim for negligent misrepresentation where a party states that his intention is to invest for a short term and, while that is indeed his intention at the time the statement was made, he has nonetheless given consideration to a longer term strategy and has it in mind that he will revisit the issue and may well change the strategy to a long term investment. The failure to qualify the statement of intention by reference to the active consideration of the prospect of a subsequent change of policy may render the unqualified statement misleading. The failure to qualify the statement could arise as a result of negligence, rather than a deliberate intention to deceive. But there is no basis in the evidence for such a case here. In my judgment, it is on the evidence clear, and I find, that in March 2007 SEDCO was committed to a short term investment and did not have it in mind and had given no consideration to the possibility of a change in that commitment to a long term investment. Nor is there any basis for finding that AIL had any intention of trying to persuade or procure PHL to remain indirectly the owner of the Pinnacle site beyond the intended period of 12-18 months. Even if it had, it would have been in no position to procure such a result while SEDCO was committed to the short term investment.[208]In these circumstances, the statements of intention contained in the Information Memorandum were true and there is therefore no basis for a claim in misrepresentation.[209]I said earlier that there were a number of matters which would arise for consideration if the claimants established a factual basis for their claim in misrepresentation. I shall outline them and comment briefly on them.[210]First, it seems to me clear that as a matter of law those responsible for the issue of the Information Memorandum assumed a duty to use reasonable care to ensure that the statements of facts contained in the document were accurate. A statement of fact may be rendered misleading by the omission of a necessary qualification to it. The statements of intention that the investment was for a short period are statements of fact and are capable of being rendered less than wholly true if there were a real contemplation that the intention might change. A failure to add such a qualification would not, contrary to the submission of counsel for the defendants, be relevant only if there were a free-standing duty of disclosure of relevant facts. I should add that I accept that no such general duty of disclosure exists at common law and counsel for the claimants did not press the argument that any such duty did exist. It was common ground that the statutory duties and remedies in respect of prospectuses did not apply to the Information Memorandum.[211]Secondly, counsel for the defendants placed some reliance on the contents of the “Important Notice” on page 2 of the Information Memorandum. The warning that prospective investors must rely on their own assessment of the merits and risks involved is not relevant to whether a statement of fact contained in the Information Memorandum is actionable. It is clear from the penultimate paragraph on page 2 that the issuers of the document accepted that it contained representations. While it is possible to exclude liability for negligent misstatement, I would not read the following two sentences in the last paragraph on page 2 as having this effect. If anything, they have the reverse effect:
“Any opinions, forecasts or intentions expressed in this Information Memorandum are honestly held or made and are not intended to be misleading in any respect. All reasonable enquiries have been made or to ascertain or verify the foregoing.”
[212]Thirdly, I am satisfied on Dr Abbar’s evidence that he read the statements of intention in the Information Memorandum and that he relied on them in making his investment decision.[213]Fourthly, issues could arise as to the parties responsible if the Information Memorandum contained misrepresentations. The issuer of the document was SEDCO Anguilla and the last paragraph on page 2 of the Information Memorandum states: “It is SEDCO Real Estate Limited directors opinion that this Information Memorandum contains the information, which would be relevant for a investor (as contemplated by the shares) in determining whether to invest and that such information is to the best of their knowledge true and accurate in all material respects and is not misleading in any material respect”.[214]SEDCO Anguilla could therefore clearly be liable in respect of any representation. For the reason previously given, I have concluded that SEDCO Anguilla did not act as the agent of SEDCO or AIL in respect of the offer of shares in PHL. It does not however follow that other parties could not have liability in tort in respect of statements contained in the Information Memorandum. The Information Memorandum was issued with the knowledge of SEDCO and AIL and in so far as statements of fact contained in it necessarily related to one or both of them, they could, in my judgment, be liable in negligence if the statements were untrue.[215]It is, however, unnecessary to explore further any of these issues as, for the reasons already given, there is no factual basis for the claim in misrepresentation. Damages[216]Assuming that there was a relevant contractual obligation and a breach of it, the question of damages for breach would arise. Damages are claimed by Dr Abbar on three bases: conventional compensatory damages, alternatively damages on the so-called Wrotham Park basis, and in either event exemplary damages.[217]On the face of it, the alleged contract is one which would naturally lead to an award of conventional compensatory damages in the event of a breach. Dr Abbar subscribed for shares in PHL on the basis that he would realise his investment not more than 18 months after the purchase of the site, either by a sale of the site and the distribution of the proceeds of sale or by some alternative means. The starting point would therefore be to calculate the amount he would have received by no later than November or December 2008 if those steps have been taken. The difficulty for Dr Abbar is the international financial crisis which occurred in September 2008 and created great uncertainty in the commercial property market in the City of London. It is, I think, this factor which has dictated the way in which his claim for damages is put. First, his counsel has argued strongly that the date of breach occurred in late 2007 or early 2008 and that compensatory damages should be calculated as at that time. If that is not open to Dr Abbar, an award of substantial damages is sought by way of Wrotham Park damages. In addition, very unusually, exemplary damages are claimed.[218]There is a further striking feature to the claim for damages. In a claim of this sort for compensatory damages, where there has been no sale of the site which crystallises the value, one would normally expect to see the claimant adduce expert valuation evidence as at different dates for the assessment of damages. This claim however is not supported by any expert evidence. It is accepted for Dr Abbar that the burden of proving the amount of any loss rests on him and he seeks to discharge it by reference to various documents which have been disclosed by the defendants.[219]On the basis of Dr Abbar’s preferred date of breach in late 2007 or early 2008, it is submitted that the site had increased in value by £55-80 million. Reliance is placed on a number of documents: i) In September 2007, Savills sent to Mr Affara a draft letter in respect of a second round equity raising which was then at a very preliminary stage of discussion. In the draft letter it was stated that “provided the construction finance is formalised, we will be able to commence a second round of equity raising.” It went on to express the opinion that “for the purposes of raising additional, minority equity stakes, a site value in the order of £350 million (depending on final variables including financing costs) is realistic”. In a subsequent draft of this letter, the suggested site value was reduced to £325-350 million. For a number of reasons, in my judgment, this provides no reliable evidence of value of the site at the time. First, it is a draft letter. Secondly, it does not purport to be an open market valuation, i.e. an assessment of the price which PHL or it subsidiaries could realistically expect to achieve on an arms length sale. Thirdly, the figures given are conditional on the formalisation of construction finance and depend on final variables including financing costs. ii) There are two internal SEDCO documents in December 2007, both referring to an appreciation in the site value of £55 million, which appears to be based on a valuation report by Matthews & Goodman, which is not in evidence. These documents again do not seem to me to provide any substantial evidence of value. iii) There are some calculations prepared internally by SEDCO in March 2008 giving indicative sales prices on different assumptions. There is no evidence of the basis of these or the use made of them and they do not in my view constitute reliable evidence of the value of the site at that time. iv) In May 2008, a valuation was prepared by Matthews & Goodman. It gave a “net present value” of £325 million for the site. The valuation methodology is explained at pages 8-9 of the document and on the first page the valuation states “this is not a market valuation, but as discussed sets out the current net worth of the project, having regard to projections for rental values on completion, albeit based on present and anticipated market conditions”. It is not, and does not purport to be, an assessment of the price at which the site could be sold in May 2008 and it therefore provides no relevant evidence in support of Dr Abbar’s claim.[220]Dr Abbar also relies on the document sent to the investors in February 2008, putting forward the alternatives of remaining invested for the construction of the Tower or being bought out. The document states without qualification that “the site value has appreciated by £55 million in the first phase of the project”. This document can be taken to have been sent to investors with the approval of SEDCO Anguilla and PHL. It seems to me that this provides a rather more substantial basis for asserting a valuation of the site as at February 2008. Dr Abbar, as one of the investors to whom the document was addressed, is, I consider, entitled to rely on the statements of value contained in it as against those who authorised the statement. They can be taken to have believed, and to have had reasonable grounds for believing, that the statement was true. If they are now to say that it was not true, their denial should not be accepted without supporting evidence, of which there is none.[221]For reasons already given, the correct date for assessing damages, if there had been a relevant contractual obligation and a breach, would be November 2008. In view of the intervention of the international financial crisis, the documents relied on to support a claim assessed as at late 2007 or early 2008 provide no basis for assessing loss as at November 2008. Nor is it suggested for Dr Abbar that they do. Reliance is instead placed on a valuation report dated 31 December 2008 prepared by Matthews & Goodman for Eurx. The effect of the international financial crisis is made clear in the report. The Introduction contains the following:
“Property valuations reported at the present time contain guidance on the “Abnormal Uncertainty” caused by “Market instability”
. RICS Guidance (GN5) refers to such circumstances as follows:
“Unforeseen macroeconomic or political crises can have a sudden and dramatic effect on markets. This could manifest itself by either panic buying or selling, or simply disinclination to trade until it is clear how prices in the market will be affected in the longer term. If the valuation date coincides with the immediate aftermath of such an event, the data on which any valuation is based may be confused, incomplete or inconsistent, with an inevitable effect on the certainty that can be attached to it. The RICS considered that, where uncertainty could have a material effect on the valuation, the valuer should draw attention to this, indicating the cause and the degree to which this is reflected in the reported valuation.”
Accordingly please be advised that such circumstances exist and that we have advised you in the context of the above.” At a later point in the document, it is stated “that nobody can predict the outcome of the market dislocations currently being experienced as a result of the banking liquidity and credit crunch”. “Unforeseen macroeconomic or political crises can have a sudden and dramatic effect on markets. This could manifest itself by either panic buying or selling, or simply disinclination to trade until it is clear how prices in the market will be affected in the longer term. If the valuation date coincides with the immediate aftermath of such an event, the data on which any valuation is based may be confused, incomplete or inconsistent, with an inevitable effect on the certainty that can be attached to it. The RICS considered that, where uncertainty could have a material effect on the valuation, the valuer should draw attention to this, indicating the cause and the degree to which this is reflected in the reported valuation.”[222]The conclusion in the report was that the market value of the site with the benefit of the works undertaken to date was in the order of £320 million. The anticipated market rent for the completed development, if let on a full repairing and insuring lease, was in the order of £71.865 million, on the basis of which the market value of the completed property was given as £1.4 billion. As stated in the Introduction, the purpose of the report was to provide a current market valuation “for book purposes”. The estimate of market value was given “subject to the Special Assumption that the project is held to maturity, at which time it is considered that “normal” market conditions, including the basic requirements for a willing vendor and willing purchasers will again prevail”. An assumption is made that debt finance is available in the market on reasonable and acceptable commercial terms. The Introduction also makes clear that the valuation report is provided for the stated purpose and for the use of Eurx and that the report was not to be published without the valuer’s approval, save for distribution to connected parties and regulators subject to it being in the form of the entire report.[223]Reading the report as a whole, it is in my view clear that it is not, and does not purport to be, an estimate of the price at which the site could have been sold on arms length terms in or about December 2008. In the light of my decisions on prior issues, it is not necessary for me to assess the damages that would be payable as compensatory damages in respect of the loss suffered by Dr Abbar through a failure to sell the site or provide an alternative exit by November or December 2008. It does however appear to me that Dr Abbar has failed to put before the court the evidence which would be necessary for an assessment of compensatory damages. Wrotham Park damages[224]As an alternative to damages calculated on the conventional basis as the sum required to put the claimant in the position it would have been in if the contract had been duly performed, a claim is made for so-called Wrotham Park damages. For present purposes, such damages are to be taken as the sum which might reasonably have been negotiated between a claimant and a defendant as a quid pro quo for, in this case, Dr Abbar’s consent to the continued retention and development of the Pinnacle site. It is now clearly established that such damages, described as “negotiating damages” by Neuberger LJ in Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd [2006] 2 EGLR 29, are a form of compensatory damages available in cases of breach of contract, including non-proprietary breaches.[225]Negotiating damages have not, however, replaced the usual compensatory damages as the primary remedy in damages for breach of contract. It is a basis of assessment available where a breach of contract has been established but the claimant cannot establish any financial loss, assessed on the usual basis, flowing from the breach. In those circumstances, and where the defendant has proceeded to act without the consent of the claimant, justice requires that there should nonetheless be an award of substantial as opposed to nominal damages. That the inability to demonstrate identifiable financial loss of the conventional sort is a pre-condition to the award of such damages is made clear in a number of authorities, culminating in the decision of the Court of Appeal in World Wide Fund for Nature v World Wrestling Federation Inc [2008] 1 WLR 445. Chadwick LJ, with whose judgment the other members of the court agreed, said at [59]:
“When the court makes an award of damages on the Wrotham Park basis it does so because it is satisfied that that is a just response to circumstances in which the compensation which is the claimant’s due cannot be measured (or cannot be measured solely) by reference to identifiable financial loss. Lord Nicholls’ analysis in Blake’s case demonstrates that there are exceptional cases in which the just response to circumstances in which the compensation which is the claimant’s due cannot be measured by reference to identifiable financial loss is an order which deprives the wrongdoer of all the fruits of his wrong. The circumstances in which an award of damages on the Wrotham Park basis may be an appropriate response, and those in which the appropriate response is an account of profits, may differ in degree. But the underlying feature, in both cases, is that the court recognises the need to compensate the claimant in circumstances where he cannot demonstrate identifiable financial loss.”
This pre-condition is clearly demonstrated by the judgment of Brightman J in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] WLR 798 at 812 F-H and 815B and the judgments in Experience Hendrix LLC v PPX Enterprises Inc [2003] 1 All ER (Comm) 830 (see the judgment of Mance LJ at [14]-[15] and [34]-[35] and Peter Gibson LJ at [56]-[58]).[226]Mr Crow QC submitted that the lack of an identifiable financial loss was not a pre-condition to an award of negotiating damages and that the law provided or was capable of providing a more flexible response, awarding such damages in circumstances where it was just to do so. No doubt a substantial argument could be mounted in support of such a proposition, albeit at the risk of introducing greater uncertainty or unpredictability in this area of the law, but the passage cited above from the judgment of Chadwick LJ is binding on me.[227]Even if there were some flexibility, this would not seem to me an appropriate case in which to depart from the conventional measure of damages for breach of contract. The substance of Dr Abbar’s complaint is that, in breach of what he alleged was a contractual term, the Pinnacle site was not sold and its net proceeds of sale distributed amongst the shareholders of PHL. He advances a claim for compensatory damages in respect of that loss. It is not a loss which is incapable of quantification. It would require expert evidence to prove and it may not be an easy exercise, but it is no more difficult than many of the cases of quantification with which the courts have to grapple. Indeed, Mr Crow QC argued strenuously in favour of an award of compensatory damages by reference to late 2007 or early 2008 by reference to the various documents to which I have earlier referred.[228]If, therefore, I had held that there was a contractual term to the effect for which Dr Abbar contends, I would have rejected his claim for “negotiating damages”.[229]I turn finally to the claim for exemplary damages, introduced as a late amendment in January 2013. In the light of my findings that the defendants did not understand that there was a contractual term as alleged, this claim is unsustainable.[230]The claim was based on the second category of case in which it is or may be appropriate to award exemplary damages identified in Rookes v Barnard [1964] AC 1129 in the speech of Lord Devlin at 1226ff. This category was identified by Lord Devlin at p.1227 as follows:
“Where a defendant with a cynical disregard for a plaintiff’s rights has calculated that the money to be made out of his wrong doing will probably exceed the damages at risk, it is necessary for the law to show that it cannot be broken with impunity.”
At p.1228, Lord Devlin said that an award of exemplary damages was appropriate only if compensatory damages were “inadequate to punish [the defendant] for his outrageous conduct”.[231]Plainly, if the defendants did not appreciate that there was a contractual term which would be broken, there can have been no cynical disregard of the claimant’s rights nor any conduct which could properly be called outrageous.[232]No authority was cited to me in which an award of exemplary damages for breach of contract has been made in the United Kingdom, and there is a clear statement by Lord Steyn in Johnson v Unisys Ltd [2003] 1 AC 518 at [15] that “in English law such damages have never and cannot be awarded for breach of any contract”.[233]Compensatory damages for misrepresentation would have been a straightforward matter. Dr Abbar would have been entitled to damages equal to the sum paid by him in 2007, giving credit for the value, if any, of the shares held by him. Illegality[234]The issue here, which I raised in the course of closing speeches, is whether an award of damages for breach of the contract alleged by Dr Abbar would involve or amount to an unlawful return of capital of PHL. If PHL could not lawfully meet an award of damages, it appeared to me that the court could not properly make the award. This was not an issue which the parties could be expected to deal with in the course of their oral closing speeches, and accordingly I gave the parties the opportunity to consider it and I gave directions for further written submissions in the event that the defendants considered the points well-founded. In due course, written submissions were lodged by the defendants to the effect that an award of damages would require PHL to act unlawfully, to which contrary submissions on behalf of Dr Abbar were lodged.[235]The legal principle at issue is the long-standing rule of company law that a company cannot return capital to its shareholders save in one of the ways expressly permitted by statute, that is a reduction of capital, the redemption or purchase of shares in accordance with the relevant statutory provisions and a distribution in a winding up. For many years known as the rule by Trevor v Whitworth (1887) 12 App. Cas. 409, it has been repeatedly re-asserted by the courts, most recently in Progress Property Co Ltd v Moore [2010] UKSC 55, [2011] 1 WLR 1 at [1] and [15]-[16] per Lord Walker of Gestingthorpe. This is a rule of English company law, and PHL is an Anguillan company. But the parties have adduced expert evidence of Anguillan law from which it appears that there is no distinction in this respect between the laws of the two countries.[236]Mr Crow on behalf of Mr Abbar does not dispute the rule but he says that an award of damages against PHL would not offend it for two reasons. First, the rule is limited in its application to contracts which necessarily lead to unlawful distributions of capital. Secondly, an award of damages against a company payable to a shareholder, if based upon a properly constituted agreement, is not a distribution of capital but rather a permissible transfer of value.[237]Further, in any event, he submits that a finding that an award of damages would involve any illegality is not available on the evidence before the court.[238]For the purpose of all these submissions, Mr Crow says that it is necessary to focus on the underlying nature of the agreement, rather than simply on the effect of performance or breach at any given point in time. If a contract between a company and a shareholder is otherwise lawful, performance of the contract or an award of damages for its breach is not rendered unlawful because in the circumstances as they exist at that time, the performance or the payment of the damages would involve a payment out of the capital of the company. He submits that the rule applies only in cases where the transaction or contract in issue is one that, in and of itself, can only be performed in a manner that offends the capital maintenance principle. In broad terms this appear to me to be right and, in any event, I am prepared to assume that it is correct for the purposes of this case.[239]Turning to the terms of the alleged contract, Mr Crow submits that its terms establish a contractual entitlement in debt which is only triggered by the company generating profits and therefore does not offend against the rule. It is to my mind clear that this is not a correct characterisation of the contract alleged by Dr Abbar. He alleges that PHL contracted with the investors that no later than the end of the period of 18 months it would sell the Pinnacle site and distribute the net proceeds of sale, presumably after satisfaction of the liabilities of the property owning companies and PHL, among the investors. This obligation was not said to depend upon whether the site could be sold at a profit nor to be restricted to a payment of the profits realised on a sale of the site. The key term alleged in the particulars of claim is the right of investors following a sale of the site to receive “their original investment sum together with any profit thereon” (paragraph 40). The loss alleged to have been suffered by Dr Abbar accordingly includes the sum of £500,000 together with a return thereon (paragraph 103.6.1 of the particulars of claim and paragraph 67 of the closing submissions for Dr Abbar). The obligation is said to arise, whether the site would be sold at a profit or at a loss. Whether sold at a profit or at a loss, this would necessarily involve a return of capital. Except to the extent that the net proceeds of sale available for distribution among shareholders exceeded the paid-up capital of PHL, the full amount to be paid to shareholders under the alleged contract would constitute a payment out of capital. To the extent that the net proceeds of sale available for payment to shareholders exceeded the paid-up capital, the excess could lawfully be paid to shareholders as a dividend. But otherwise, the payments to shareholders could lawfully be made only through one of the legitimate routes by which capital may be returned to shareholders.[240]An award of damages to a shareholder for a failure to repay capital to the shareholder is equally a return of capital. It is for that reason that the statutory provisions in the Companies Act 2006 dealing with the redemption and purchase of shares by a company exclude damages as a remedy for breach. A redemption or purchase of shares by the company can be enforced only through the statutory mechanism. Likewise, the contract alleged against PHL could be enforced only through orders which ensure that the return of capital necessarily involved in it would be effected through a reduction of capital, a winding-up or such other statutory mechanism as might be available.[241]Mr Crow QC’s second submission starts with the proposition that it does not follow from the rule in Trevor v Whitworth that all transfers of value from a company to shareholder are distributions of capital and are therefore unlawful. While I have no difficulty with that proposition, it is not one which assists Dr Abbar in this case. This is not a case such as Progress Property Co Ltd v Moore which concerned a genuine sale of an asset at a price which the directors of the company believed to be market value, but which was subsequently alleged to be an undervalue. The contract there involved a genuine sale, not an attempt to return capital in a disguised fashion. For the reasons already given, the alleged contract in this case is overtly and in substance a contract to return or to make a payment out of capital, together with such profits if any as may arise from the net proceeds of sale of the Pinnacle site.[242]For these reasons, I consider that an award of damages for breach of the alleged contract is not permissible. I do not base this conclusion on any assumption as to the financial position of PHL. If it were dependent on PHL’s financial position, I agree with Mr Crow QC that the burden of establishing it and adducing the relevant evidence would rest on the defendants, which they did not seek to do.[243]If I had held that there was a contract made by PHL as alleged by Dr Abbar, I would have acceded to Mr Crow’s submission that I should consider what, if any, other remedies might be available to Dr Abbar. Conclusion[244]I have held that Dr Abbar’s claim fails, on the grounds that there was no contract to the effect he alleges and that there was no misrepresentation. Accordingly, I dismiss the action.

Cited in 3 later judgments