B e f o r e :
THE HON. MR JUSTICE PATTEN
|| (1) ALESSANDRO BENEDETTI
(2) M FINANCE SA
||- and -
||(1) NAGUIB ONSI NAGUIB SAWIRIS
(2) APRIL HOLDING
(3) OS HOLDING
(4) CYLO INVESTMENTS LIMITED
Mr Geoffrey Vos QC, Mr Joe Smouha QC and Mr Andrew Twigger (instructed by Herbert Smith LLP) for the Claimants
Mr Laurence Rabinowitz QC, Mr Richard Hill and Gregory Denton-Cox (instructed by Kirkland & Ellis International LLP) for the First and Fourth Defendants
Mr Adrian Beltrami QC and Mr Fred Hobson (instructed by Simmons & Simmons) for the Second and Third Defendants
Hearing dates: 26th & 27th February and 2nd, 3rd, 4th, 5th, 6th, 9th, 10th, 11th, 12th, 13th, 16th, 17th, 18th, 19th, 20th, 23rd, 24th, 25th, 26th, 27th & 31st March, 1st, 2nd, 3rd & 6th April 2009 and 7th, 8th, 11th & 12th May 2009
HTML VERSION OF HANDED DOWN JUDGMENT
Crown Copyright ©
|The First Closing (11 August 2005): purchase of 62.75% Wind
|The Second Closing (8 February 2006
|2002 – January 2004
|The December 2002 meeting
|The preparation of the Acquisition Agreement
|The 22nd April 2003 meeting
|The May 2003 meeting
|Conclusions on the Understanding
|Other possible investors
|The November 2003 meeting in Paris
|The signing of the Acquisition Agreement
|The construction of the Acquisition Agreement
|The Brokerage Fee
|The period from the signing of the Acquisition Agreement to the incorporation of Weather I
|The IPE Collaboration Framework Agreement
|The incorporation of Rain
|The July 2004 meeting in Cannes
|November 2004 – IPE prepare a draft offer for Wind
|December 2004: the draft Memorandum of Understanding
|The 16th December 2004 offer
|The period leading up to the signing of the SPA
|The 11th February 2005 offer
|The 15/16th March 2005 meeting in Rome
|The transfer of the shares in Weather I
|The First Brokerage Agreement
|The March and April 2005 offers
|Mufasa and Super Mufasa
|Agreeing the Premium
|The meetings on 16th to 18th May 2005
|The assignment of the Brokerage and Support Agreements
|The position after the signing of the SPA
|The June 2005 e-mails
|The First Closing
|The €67 million brokerage fee
|The January 2006 meeting in Cairo
|St Tropez: August 2006
|The October draft agreements
|The contractual claims
|Breach of contract
|The claim under clause 7.3.1
|The Hellas and Enel acquisitions
|Breach of fiduciary duty
|The Constructive Trust Claim
- On 26th May 2005 Enel S.p.A. ("Enel"), the largest energy company in Italy, and its holding company, Enel Investment Holding BV ("EIH"), entered into a sale and purchase agreement ("the SPA") for the disposal of 62.75% of the issued share capital of its subsidiary, Wind Telecomunicazioni S.p.A. ("Wind"), for the sum of €2.986 billion. The SPA also contained an option enabling Enel to dispose of a further 6.23% of the shares in Wind for €328 million which it subsequently exercised.
- Wind (as its name suggests) is a leading Italian telecommunications company. The acquisition of Wind is said to have been at the time it took place the largest leveraged buy-out ever carried out in Europe. The purchase price of €2.986 billion for the 62.75% of Wind was financed by a variety of bank borrowings including a €1.2 billion collateralised loan arranged by Banca IMI S.p.A.; €294 million from Weather Investments II S.A.R.L. ("Weather II") on behalf of the family of the First Defendant, Mr Naguib Sawiris ("Mr Sawiris"); €206 million from various Middle Eastern investors brought into the transaction by Mr Sawiris following the signing of the SPA; and with a €305 million contribution from Enel in return for 5.2% of the shares in Weather Investments S.r.l. ("Weather Italy"). In addition, some €6.8 billion of Wind debt was refinanced as a term of the SPA by a syndicate of banks made up of Banca IMI, Deutsche Bank and ABN Amro.
- Weather Italy became the ultimate holding company of Enel's 62.75% of Wind acquired under the SPA and also of the remaining 37.25%: i.e. the 6.23% sold under the option and a further 31.02% which (as explained below) Enel exchanged for a total stake of 26.1% in Weather Italy. It was also used in the acquisition structure as the investment vehicle which accommodated the interests of the Sawiris family, the third party Middle Eastern investors and Enel itself in a 50.1% majority interest in Orascom Telecom Holding S.A.E. ("Orascom") which was transferred by the Defendants into the structure as part of the acquisition arrangements.
- Orascom is an Egyptian company owned and controlled by members of the Sawiris family including Mr Sawiris. It operates a mobile telecommunications business concentrated in the Middle East, Africa and South East Asia. At all material times Mr Sawiris was the chairman and CEO of the company. Orascom is quoted on the Egyptian Stock Exchange and (through Global Depositary Receipts) on the London Stock Exchange. References later in this judgment to its shares should be read as including the GDRs.
- At the time of closing Mr Sawiris had a personal holding of 4.1% in Orascom through his BVI registered company, Cylo Investments Limited ("Cylo"). The remainder of the shares were held by two Cayman Island companies, April Holding ("April") (34.6%) and OS Holding ("OSH") (17.7%), on behalf of two trusts for the benefit of members of the Sawiris family, with 43.6% of the shares being publicly held.
- The transactional arrangements for the acquisition of Wind under the SPA are complicated and involved a series of transfers and payments through a network of companies set up for the purposes of the acquisition which were spread over two closings held on 11th August 2005 and 8th February 2006. The explanation for the transactions used and the companies set up to carry them out is partly fiscal. For the purposes of this introduction it is unnecessary to go into the precise details of each of the transactions involved but, since a number of the issues in the action appear to centre on the complexity of the banking and other arrangements which were required to be put in place in order to carry out the acquisition, some account needs to be given of what took place. For this purpose the parties have very helpfully provided me with an agreed statement of the transactional steps taken at the first and second closings. Largely based on that document they can be summarised as follows.
- The First Closing (11 August 2005): purchase of 62.75% Wind: April, OSH and Cylo sold GDRs in Orascom, representing 50% + one share ("the Orascom stake") to a Luxembourg company, Weather Capital S.A.R.L. The Transfer Agreements provided that the proceeds of the sale were to be used to subscribe for shares in Weather Italy.
- The stated consideration payable by Weather Capital was €3.5 billion, made up of:
(a) €1.2 billion paid in cash, which was obtained by Weather Capital from various lenders (with Banca IMI as arranger) by way of collateralised loan secured over the whole Orascom Stake (and over shares in Weather Capital). The €1.2 billion loan was also guaranteed by Weather Italy and there were provisions restricting changes to Weather Italy's interest in Wind and Enel's interest in Weather Italy. (In fact the cash raised was paid directly to Weather Italy as part of the capitalisation of Weather Italy); and
(b) €2.3 billion by way of subordinated loan granted by April, OSH and Cylo to Weather Capital.
- April, OSH and Cylo contributed to Weather Italy, in return for shares in Weather Italy:
(a) €1.2 billion in cash (paid directly to Weather Italy by Weather Capital as described in 8(a) above); and
(b) Their interest and rights as lender under the subordinated loan, which were assigned to Weather Italy.
- The number of shares in Weather Italy received by April, Orascom and Cylo as a result of these contributions was determined on the basis of the agreed value for the Orascom Stake of €5.05 billion; the equivalent in May 2005 of about US$58 per GDR (i.e. not on the basis of the €3.5 billion formal sale price).
- Weather II on behalf of the Sawiris family contributed approximately €294 million to Weather Italy in return for shares in Weather Italy. This investment was funded (at least in part) by OS Ventures, a subsidiary of OSH, which had entered into a derivative agreement with Bear Stearns in June 2005 involving a portion of OSH's shares in Orascom.
- Enel contributed €305 million cash to Weather Italy in return for shares in Weather Italy.
- The Middle Eastern Investors contributed approximately €206 million cash to Weather Italy in return for shares in Weather Italy.
- As part of the continuous sequence of transactions, April, OSH and Cylo contributed their shares in Weather Italy to Weather II, in return for shares in Weather II.
- At this point, the structure and shareholdings in Weather Italy were:
- As can be seen from the above, Weather Italy had by this stage received in total €2,005 million in cash: €1.2 billion from April, OSH and Cylo; €305 million from Enel; €294 million from Weather II; and €206 million from the Middle Eastern Investors. Weather Italy used €1,445 million of this cash to subscribe for shares in "Pikco" (Wind Acquisition Holdings Finance S.p.A. ("WAHF") – incorporated in Italy), and loaned a further €560 million to Pikco/WAHF.
- Pikco/WAHF subscribed for shares in "Bidco" (Wind Acquisition Finance S.p.A. ("WAF") – incorporated in Italy) paying €2,480 million in cash. This amount was made up of the €2,005 million received from Weather Italy by way of subscription for shares and loan, and €500 million borrowed from lending banks, less €25 million transaction costs.
- In addition to the €2,480 million in cash received from Pikco/WAHF, Bidco/WAF borrowed €1.25 billion from lending banks.
- The result is that Bidco/WAF received in total €3.73 billion (€2.48 billion from Pikco/WAHF, and €1.25 billion from lending banks). Bidco/WAF used these monies, amongst other things, to pay the seller (EIH) the purchase price of €2.986 billion. EIH released its shares in Wind (62.75%) from escrow to Bidco/WAF.
- Senior lenders (ABN Amro as Issuing Bank, Facility Agent, and Security Agent) advanced €6.8 billion to Wind to repay Wind's existing debt. This was secured by a pledge over the shares in Wind held by Bidco (62.75% of the shares in Wind), guarantees given by Wind, and pledges over Wind subsidiaries.
- Accordingly, the corporate structure after First Closing was:
- The Second Closing (8 February 2006): Enel S.p.A. sold its remaining stake in Wind (37.25%) as follows:
(a) Enel sold 6.23% of the shares in Wind to Bidco/WAF under the Put and Call Option Agreement for a purchase price of €328 million.
(b) Enel contributed 31.02% of the shares in Wind to Weather Italy in return for €1.655 billion worth of shares in Weather Italy.
(c) This took Enel's stake in Weather Italy to 26.1%.
- Weather Italy contributed the Wind shares that it received from Enel (31.02%) to Bidco/WAF so that Bidco/WAF then held 100% of Wind.
- Accordingly, the corporate structure after the Second Closing was:
- The effect of the Defendants contributing a controlling interest in Orascom into Wind's ultimate holding company, Weather Italy, was that Orascom and Wind became sister companies. As mentioned above, this enabled finance to be raised by Cylo, April and OSH on the security of the Orascom shares in the form of the €1.2 billion collateralised loan arranged by Banca IMI. The inclusion of 50.1% of Orascom into the acquisition structure was the product of negotiations with Banca IMI which were given the codename Mufasa (and latterly Super Mufasa) and represented a compromise between Mr Sawiris's willingness to offer the Orascom shares as security for the loan and the bank's initial desire for the complete integration of Orascom into the structure as a subsidiary of Wind. The structure which was eventually implemented gave the bank the security it required whilst preserving to the Defendants a controlling interest in Orascom through their 71% holding in Weather Italy.
- But the inclusion of the Orascom shares had other important consequences for the financing of the transaction in the light of the decision by Enel to retain an interest in Wind through its 26.1% stake in Weather Italy rather than to dispose of 100% of the shares. The most important of these for the Defendants, once it was agreed that a controlling interest in Orascom should be contributed by them into the structure, was the need to value the Orascom shares for the purpose of fixing the size of Enel's holding in Weather Italy. The equity value of Wind had been fixed for the purposes of the SPA at €4.759 billion. This meant that the higher the valuation placed on the Orascom shares the greater would be the value of Weather Italy. It was therefore very much in the Defendants' interests to agree as high as possible a value for the Orascom shares because this would determine the size of the stake in Weather Italy which would have to be exchanged for Enel's 31.02% in Wind. The value of the Orascom shares was agreed in May 2005 at US$58 per share, compared to their London quoted price at the time of US$42 per GDR; a premium of about 38% over their traded value. The effect of this was that fewer shares had to be transferred to Enel and the Defendants through Weather II were able to obtain 71.1% of the shares in Weather Italy.
- The transaction was therefore both very complex and an extremely successful one for Mr Sawiris and his family. They were able to obtain control of Wind through Weather Italy with a minimum of cash whilst retaining a majority interest in the 50.1% stake in Orascom. It is said on behalf of the Claimant that for a businessman from an emerging market to have acquired control of a subsidiary of one of Italy's largest quoted companies was in itself a remarkable achievement even without taking into account the cost of the purchase. It required considerable skill and effort to persuade Enel to do business with Mr Sawiris and to overcome the political and other hurdles involved in securing the closure of the deal.
- The success of the acquisition in terms of the financial and business rewards it has brought to Mr Sawiris and Orascom are for the most part a given in this litigation. What is in dispute is the contribution which Mr Benedetti made to this and whether he is entitled to shares in Weather II or to a further payment for his services beyond the €67 million which it is now accepted that he received under a brokerage agreement entered into in July 2005 between Weather Italy and International Technologies Management Limited ("ITM"), a company controlled by him.
- He says (as recorded in his counsel's opening submissions) that the acquisition of Wind was his brainchild. To use the words of one of the witnesses, he was, he says, the architect of the deal. It was masterminded by him and he remained the driving force behind the acquisition from its inception when the opportunity was first identified in about May 2002 to the signing of the SPA on 26th May 2005.
- Mr Benedetti says it was he who introduced the deal to Mr Sawiris; worked out how it might be achieved; had many meetings with the management of Wind to secure their support for the deal; negotiated with the management of Enel for the sale of its subsidiary; obtained the support of the Italian government; arranged the financing of the acquisition during lengthy negotiations with the representatives of various banks; devised the highly innovative structure (Project Mufasa) under which the controlling interest in Orascom was introduced and the acquisition was able to proceed despite Mr Sawiris's unwillingness or alleged inability to invest any substantial amount of cash in the purchase; engaged a large number of professionals and experts to advise on the acquisition and personally (including through the companies he controlled) provided substantial sums to cover the expenses incurred in the course of the bid.
- Mr Benedetti's pleaded case (as set out in the amended Particulars of Claim ("APC") served on 24th October 2008) is that by December 2002 he was seeking investors to participate as partners in the proposed acquisition of Wind and that on 25th and 26th December 2002 he met Mr Sawiris in Cairo as a result of an introduction by Mr Rami Antaki ("Mr Antaki") who was a long-standing friend and business associate. At these meetings Mr Benedetti introduced the proposed acquisition of Wind to Mr Sawiris who had no relevant contacts with Wind, Enel or the Italian government and no direct experience of or standing in the Italian telecommunications market. He therefore needed Mr Benedetti's assistance if he was to participate in the purchase.
- It is alleged that by about May 2003 Mr Benedetti and Mr Sawiris had reached an arrangement or understanding (referred to in the pleading and in this judgment as "the Understanding") as to the basis on which Mr Sawiris would participate. This was that in consideration of Mr Benedetti's introduction of the purchase opportunity and the investment of his skills and time in arranging and negotiating the acquisition, Mr Sawiris would acquire shares in Wind (through whatever special purpose vehicle was used) and one-third of any sums invested by Mr Sawiris in the purchase was to be treated as invested on Mr Benedetti's behalf.
- As originally pleaded (in August 2007) this one-third interest was to have been acquired by Mr Benedetti without any suggested payment by him but in the APC there is a new paragraph 12(1A) in which it is now asserted that the investment made by Mr Sawiris on Mr Benedetti's behalf was to involve the transfer to Mr Benedetti of one-third of any shares acquired as a result of that investment on terms that Mr Benedetti would repay to Mr Sawiris the sums invested on his behalf together with interest at the prevailing Euro LIBOR rate. Such repayment was to be made upon (but not earlier than) Mr Benedetti's exit from the investment which was likely to occur on a public offering or other disposal of the shares in Wind.
- What, however, remains unchanged is paragraph 12(2) of the pleading which confirms that the interest in Wind would be acquired through an SPV and that the Understanding was that Mr Benedetti would receive one-third and Mr Sawiris two-thirds of the shares in that acquisition vehicle. It is also alleged to have been agreed as part of the Understanding that, separately and in addition, all the investors in the acquisition vehicle would pay to Mr Benedetti in cash as a transaction cost a brokerage fee. This was originally to have been 1% but was eventually reduced by Mr Benedetti to 0.55% of the transaction amount.
- The Understanding is said to have arisen out of the first meetings between Mr Benedetti and Mr Sawiris on 25th and 26th December 2002; a draft of an acquisition agreement sent to Mr Sawiris on 7th January 2003; a series of further meetings between the two men which it is said took place on 22nd April 2003 in Cannes (at which the one-third/two-thirds split of the shares was agreed) and on 5th, 6th and 7th May 2003 in Rome (when Mr Sawiris is said to have confirmed that he was willing to invest between €200 and €300 million in the acquisition with one-third being on Mr Benedetti's behalf); a draft term sheet dated 19th November 2003 (referring to a 1% brokerage fee) and an e-mail to Mr Benedetti from Mr Hassan Abdou who is now on the board of directors of Orascom but who had begun working for Mr Sawiris as an investment adviser in November 2003.
- It is important to note that the Understanding is not alleged to have amounted to a contract. Indeed, it is clear from the matters relied upon as supporting its existence which I have just summarised that it is said to have arisen out of negotiations between Mr Benedetti and Mr Sawiris about the basis of Mr Sawiris's investment in the acquisition of Wind which in fact eventually resulted in a concluded contract signed on 31st January 2004 in Paris.
- This was a professionally drafted document entitled "Acquisition Agreement" and I shall refer to it by that name in this judgment. It is common ground that it put Mr Benedetti and Mr Sawiris into a contractual relationship and required them by 31st January 2004 to nominate their own companies to carry out their obligations under the agreement without prejudice to their remaining contractually liable personally in accordance with its terms. The agreement is not alleged to have amounted to a partnership but it does set out in some detail the basis upon which Mr Sawiris was to invest in the acquisition of Wind and what Mr Benedetti's rights were to be in relation to the company designated as the acquisition vehicle. The agreement in terms provided for the establishment by February 2004 of a new Italian company, Rain Investments S.p.A. ("Rain"), in which Mr Sawiris would initially be a two-thirds shareholder and Mr Benedetti's company (AB Co) the initial holder of the remaining one-third of the share capital. The Acquisition Agreement contains detailed provisions about the control and capitalisation of Rain but limits the financing obligations of Mr Sawiris (through his company) to the provision of €200,000 for the initial equity of Rain (which, according to the agreement, was to be used to fund initial expenses incurred in the negotiations to acquire Wind (clause 5.1)) and a further €50 million which NS Co was to contribute into the capital of Rain as part of the funding of the acquisition (clause 5.3).
- Clause 5.1 expressly provides for the initial share capital of Rain subscribed for by the €200,000 provided by NS Co to be split in the proportion of two-thirds/one-third between NS Co and AB Co with the one-third representing the latter's initial capital contribution. But the Acquisition Agreement makes no similar provision in respect of the €50 million investment referred to in clause 5.3 and in fact provides (in clause 5.5.2) for the dilution of the original shareholders' rights of NS Co and AB Co on a pari passu basis in relation both to the €50 million investment by NS Co and in relation to any third party investments in the acquisition through Rain. In relation to that, the Agreement provided in clause 5.4 for both NS Co and AB Co to use their best endeavours to raise between €1 billion and €1.2 billion to complete the acquisition of a controlling stake in Wind.
- The meaning and effect of a number of these provisions is in dispute and it will be necessary for me to refer to them in more detail later in this judgment. But it remains Mr Benedetti's primary case that the Acquisition Agreement has continued in force and that, on its true construction, it entitles him to an order requiring Mr Sawiris to procure April, OSH and Cylo (which I will refer to as the "Holding Companies") to transfer one-third of the shares in Weather II to him or the Second Claimant, M Finance SA, which is the company which Mr Benedetti nominated to perform the Acquisition Agreement and which has been joined to avoid any dispute as to whether it or Mr Benedetti is the appropriate claimant to seek specific performance of the Agreement.
- The Holding Companies were not, of course, original parties to the Acquisition Agreement. They were joined to meet the claim for specific performance and some alternative claims for breach of fiduciary duty and knowing receipt on the basis that they were each, at all material times, controlled by Mr Sawiris who is described as their guiding mind and will. It is said that he was acting on their behalf for all purposes connected with the acquisition of Wind. In the pleading as originally served, it was not, however, alleged that Mr Benedetti had any contractual claims under the Acquisition Agreement against the Holding Companies as such.
- However, by amendment, it is now claimed that they are bound by the Acquisition Agreement on the basis of an implied variation of the Agreement which took place in May 2005 when it was decided to change the acquisition vehicle to Weather II. In paragraph 31A of the APC it is pleaded that this had the effect of impliedly varying the Acquisition Agreement not merely by substituting Weather II for the references in the Agreement to Rain but also by making the three Holding Companies actual parties to the Agreement. It is also said to have been a term of this variation that Mr Sawiris or the Holding Companies would hold one-third of the shares in Weather II on trust for Mr Benedetti as his nominee once the proposed acquisition of Wind had been completed. In the alternative, the events of May 2005 are said to have given rise to a collateral contract between the First Claimant and the Defendants in the same terms.
- The facts relied upon as giving rise to the implied variation are set out in paragraph 31B of the APC. It is not necessary at this stage to consider them in detail. They centre on the allegation that the change to Weather II was largely for tax purposes and took place against the background of assurances by Mr Sawiris that he controlled the Holding Companies; that their beneficial owners were members of his family; and that he would guarantee that this would not change. Mr Vos said in opening that, in these circumstances, it was not surprising that Mr Benedetti did not object to the change in the identity of the acquisition vehicle and it is to be inferred that he understood or believed that, notwithstanding the change, his rights under the Acquisition Agreement would remain the same.
- The pleaded case on implied variation is not uncomplicated because it relies in part on the events surrounding an earlier proposal in 2005 to use a Luxembourg company called Weather Investments SA ("Weather I") as the acquisition vehicle. Weather I was incorporated in January 2005. I shall come to these events in detail later in this judgment but in February 2005 it was used to submit to Enel a non-binding letter of interest relating to the acquisition of 100% of Wind's shares followed in March by an irrevocable offer to purchase 62.75%. In March Mr Benedetti transferred the shares in Weather I to Mr Sawiris who subsequently replaced him as a director of the company.
- As recognised in paragraph 26(2) of the pleading, neither the offer of 28th March 2005 nor the subsequent variations of it envisaged the participation of Rain in the acquisition structure. It is common ground that by then its proposed use had been abandoned in favour of Weather I (and subsequently Weather II). Mr Benedetti alleges that when he transferred the shares in Weather I to him Mr Sawiris said "You held the shares for me and now I will hold them for you". This statement (which is strongly denied) is relied on with other material as supporting an implied variation of the Acquisition Agreement at that time to substitute Weather I for Rain but not to add the Holding Companies as additional contracting parties. The ultimate variation of the Agreement based on the events of May 2005 is, however, founded in part on this earlier background and Mr Benedetti's alleged willingness to waive his objections under the Agreement to the use of Weather II on the basis of the assurances received.
- Whatever may be the position in relation to Cylo (which it is accepted was owned and controlled by Mr Sawiris), both April and OSH strongly deny that they were, so to speak, the creatures or nominees of Mr Sawiris and that their separate legal identity is immaterial to the relief sought in the action. They contend that they were set up as part of an earlier and unrelated tax and estate planning exercise for the benefit of the Sawiris family and operate independently of Mr Sawiris himself. So far as relief is sought against them indirectly (i.e. by an order for specific performance of the Acquisition Agreement requiring Mr Sawiris to procure them to transfer the Weather II shares), they contend that this is something which Mr Sawiris has no power to do and that the Weather II shares are their property for which they gave valuable consideration.
- The alternative basis for the contractual claim against the Holding Companies is also strongly resisted. Mr Beltrami emphasised the lateness of the amendment and the absence of any reliance on an actual discussion or consideration by either Mr Benedetti or Mr Sawiris of the need to change the terms of the Acquisition Agreement in order to accommodate the use of Weather II as the acquisition vehicle. At the risk of over-simplifying his submissions, he contends that the parties never intended to modify it in the manner alleged and that the Holding Companies are not alleged to have been involved at all in the variation which is said to have imposed on them a direct contractual obligation to hold one-third of the shares they were acquiring in Weather II for Mr Benedetti. There are, he submits, both factual and conceptual difficulties about what amounts to a novation of the Acquisition Agreement based on the decision to use a more tax efficient structure for the acquisition. In particular, Mr Benedetti's case ignores the fact that since the making of the Acquisition Agreement the form and structure of the acquisition had been radically altered by the decision to introduce into the acquisition arrangements the 50.1% interest in Orascom. This necessitated the use not of a single acquisition vehicle as contemplated by the Agreement but, rather, the two-stage corporate structure illustrated in paragraph 24 above under which the Holding Companies held shares in Weather II which, along with Enel and third party investors, took shares in Weather Italy as the ultimate holding company of the shares in both Orascom and Wind. It was never (as Mr Benedetti confirmed in his oral evidence) the intention under the Acquisition Agreement that he should receive part of the shares in Orascom yet that would be the effect of the Acquisition Agreement being applied to the shares in Weather II.
- All of this is relevant to the assessment of the parties' actual or imputed intentions at the time when the offers to Enel were made and the form of the acquisition structure had to be finalised. The critical question for me to resolve is whether the Acquisition Agreement with its own defined plan for the purchase of the Wind shares was effectively abandoned by the parties or at least treated as redundant or whether they intended or are to be taken as having agreed to vary their existing contractual relationship so as to accommodate the changed structure which was by then proposed. Perhaps the most significant change in that structure was, of course, the transfer to the subsidiary of Weather Italy and therefore ultimately to Weather II of a controlling stake in Orascom.
- The argument that the Acquisition Agreement had ceased to apply to the changed nature of the acquisition structure set up for the purchase of Wind is, of course, central to Mr Sawiris's own defence to the contractual claim. If Mr Benedetti fails to make good his case on implied variation he is left with the contention that, on its true construction, the Agreement, as originally entered into, was sufficient to comprehend the circumstances prevailing at the time when the SPA was eventually entered into in May 2005.
- This involves treating the references in the Acquisition Agreement to Rain as including whatever company was ultimately used to acquire Enel's interest in Wind. In his opening submissions, Mr Vos suggested that the parties cannot have intended that Mr Sawiris should be able to avoid the consequences of the Acquisition Agreement simply by incorporating a company with a different name and that confirmation of this can be found in clause 7.3.1 of the Agreement which contains an undertaking by Mr Sawiris for himself, NS Co and all other entities and persons associated directly or indirectly with him to refrain for a period of three years from the date of the agreement from entering "into any direct or indirect discussions or negotiations towards attaining any part of the ownership of Wind other than through Rain".
- The Defendants submit that far from confirming that the obligation to carry out the acquisition through Rain was intended to include any company used for that purpose, clause 7.3.1 in fact suggests the contrary and re-inforces the obligation to operate through Rain by making the use by Mr Sawiris of any other company a breach of contract.
- An important point to be taken into account when deciding this point of construction is that Rain was in fact incorporated on 19th July 2004 and capitalised in accordance with clause 2 of the Agreement. 66.5% of the shares were issued to Mr Sawiris and the remaining 33.5% to M Finance. It is common ground that until then and for some time thereafter both Mr Sawiris and Mr Benedetti contemplated that it would be used as the acquisition vehicle. The later switch to Weather I and ultimately to Weather II therefore involved the use of a company which had not been set up in the manner identified in the Acquisition Agreement and whose use was not contemplated at the time the Acquisition Agreement was entered into. This is said by the Defendants to be different in substance from a mere change of name. In any event, clause 7.3.1, they say, provided Mr Benedetti with all the protection which he needed in respect of any attempt by Mr Sawiris to avoid the consequences of the Agreement by seeking to purchase the shares in Wind through a different company. One of the alternative claims in the action is, of course, a claim for damages for breach of clause 7.3.1.
- The principal alternative claims to the ones in contract are two claims in equity and a claim for a quantum meruit. The first of the equitable claims consists of an allegation of breach of fiduciary duty based on Mr Sawiris having profited at the expense of Mr Benedetti by acquiring the Wind shares from Enel otherwise than in accordance with the terms of the Acquisition Agreement as subsequently varied. The other claim is that Mr Sawiris and/or the Holding Companies hold the shares on a constructive trust based on the Understanding which it is said was reached between Mr Benedetti and Mr Sawiris by May 2003 under which Mr Benedetti would acquire one-third of any shares in the acquisition vehicle purchased by Mr Sawiris subject to repayment with interest of the capital cost of the initial investment. The principal source of the fiduciary duties which it is alleged have been broken is the Acquisition Agreement itself. In these circumstances (except in relation to remedy), the allegation of breach of fiduciary duty adds nothing to the contractual claims and stands or falls with my determination of whether or not the Acquisition Agreement continues to be effective between the parties. But the other equitable claim is different. Mr Benedetti's case is that an equity arose in his favour based on the Understanding which survived the subsequent execution of the Acquisition Agreement and continues to remain enforceable. Although reliance on the Understanding is academic if Mr Benedetti is right in his primary case that the Acquisition Agreement has not been abandoned and either, on its true construction, applies to the use of Weather II or has been subsequently varied to include it, Mr Vos does accept that this argument amounts to asserting an alternative cause of action which is capable of co-existing with a contract covering essentially the same subject matter.
- The juristic basis of the claim is said to be a constructive trust (of which the Holding Companies had notice) based on the line of authorities beginning with Pallant v Morgan  1 Ch 43 where the plaintiff agreed not to bid at an auction against the defendant, his neighbour, for some adjoining land on the basis of an assurance from the defendant's agent that some of that land would be conveyed to him if the defendant was successful in purchasing it.
- Mr Sawiris contests Mr Benedetti's claim on the facts. The meeting or meetings held in December 2002 (Mr Sawiris says there was only one) were, he said, short and extremely preliminary and he denies that any meeting took place on 22nd April 2003 at all. There were meetings in Rome in May when Mr Sawiris met Mr Tommaso Pompei (the CEO of Wind) but Mr Sawiris denies that he told Mr Benedetti that he was willing to invest between €200 and €300 million in the acquisition of Wind. It is said that the fact that the Acquisition Agreement which came to be executed was in very different terms is strong evidence in itself that no Understanding of the kind alleged can have arisen out of the same pre-contractual negotiations.
- But the Defendants also rely on two points of principle, each of which they say is fatal to the enforcement of a prior equity of this kind.
- The first is derived from the decision of the House of Lords in Cobbe v Yeoman's Row Management Limited  1 WLR 1752 in which Lord Scott held that a Pallant v Morgan claim was precluded where both parties knew that the arrangements discussed between them were not legally enforceable and the claimant did not expect to acquire an interest in the property in question otherwise than under a legally enforceable contract.
- Over and above this, Mr Rabinowitz submits that where the parties have chosen to define their legal relationship by means of an enforceable contract, they should be held to the bargain which they have made.
- The claim to a quantum meruit gives the Court a wide discretion to award what it considers to be a fair and reasonable sum for the services which Mr Benedetti provided. The Defendants do not dispute that he played an important role in relation to the purchase of Wind and that he deserves to be properly remunerated for the work that he carried out. What is in issue is whether that work justifies the payment of an amount in excess of the €67 million which he has already received under the brokerage agreement and, if so, by how much.
- Mr Benedetti's approach to this issue is that the amount of any quantum meruit should correspond to what he bargained for and he says obtained in the Acquisition Agreement or the Understanding: i.e. one-third of the shares in the acquisition vehicle together with cash compensation in the form of the brokerage fee. In terms of principle, this is based on the reference in Lord Atkin's speech in Way v Latilla  3 AER 759 to the Court being able to take into account "the bargainings between the parties not with a view to completing the bargain for them, but as evidence of the value which each of them puts upon the services".
- The issue of a quantum meruit would, of course, only arise if Mr Benedetti fails to establish either his claim to enforce the Acquisition Agreement or to obtain the shares (or their monetary equivalent) on the basis of a Pallant v Morgan equity. One question therefore will be whether any assessment of the bargainings between the parties must take into account what (if anything) actually remained agreed at the time when the transaction was concluded. Mr Vos contended in opening that events subsequent to the performance of the services are irrelevant to the determination of a fair value for those services and that the only admissible material is the Acquisition Agreement itself and any arrangement or understanding which preceded it. But, if correct, it would still be necessary to consider in remedial terms how an agreement that Mr Benedetti should receive one-third of Rain can be related to the transaction which in fact took place and to the shares in Weather II.
- If, for whatever reason, it is not appropriate to award Mr Benedetti one third of the shares in Weather II then it may be necessary to consider objectively what would constitute a fair reward for the work done. There are major factual issues about this both in relation to how critical Mr Benedetti's role was in bringing about a successful conclusion to the deal and as to what someone performing those services could reasonably expect to have been paid at the time. I have heard expert evidence from two bankers who have expressed very different views on this subject. Mr Reynolds (the Claimants' expert) supports the idea of someone whom he described as a "promoter" receiving at least 20% of the profits of a transaction through an equity stake and says that 33% of the shares in the acquisition vehicle (subject to the obligation to repay the sums invested to purchase the shares) is in line with the fees charged by hedge funds and private equity funds.
- Mr Sottile (the Defendants' expert), on the other hand, rejected the concept of a promoter and likened Mr Benedetti's role to that of an M&A broker or investment banker who might expect to receive a success fee of between 0.1% and 0.3% of the transaction value.
- The twist in the tale on this issue is that in negotiations between Mr Sawiris and Mr Benedetti in 2006 (which Mr Benedetti says took place at a time when Mr Sawiris knew about his receipt of the €67 million) Mr Sawiris offered Mr Benedetti a cash payment of €75 million and the withdrawal of his right of pre-emption over Enel's remaining 26.1% of Weather Italy in order to settle his claim for remuneration. Ultimately this did not result in a contractual agreement and the position at the start of the trial was that neither side wished to contend that this was a proper basis for assessing the quantum meruit claimed. Mr Vos has now changed his position on that and suggests that the Court can look at it but mainly in order to use it as a check on its assessment of quantum based on the approach in Way v Latilla.
64. The Witnesses
- Before coming to the evidence in more detail I want to say a little about the principal witnesses and my approach to their evidence.
- Although the period of time which has elapsed since the relevant events took place is not unusual or excessive by the standards of most major litigation, one is nevertheless dealing with events which occurred a number of years ago. The dealings between Mr Benedetti and Mr Sawiris leading up to the execution of the Acquisition Agreement in January 2004 are the furthest away in point of time but account for a major part of what is issue in the action.
- Experience teaches one that, in hard fought litigation of this kind where the parties have taken up entrenched positions in relation to the merits of the dispute, apparently clear recollections of conversations and other key events (however sincerely held) are inevitably influenced by the parties' current perception of where they stand. Often things said in quite casual conversations are elevated subsequently into statements of far greater import than they were intended to have at the time when they were spoken. The task of the Court is therefore to approach the evidence of meetings and other discussions with a fair degree of caution placing them in the context in which these events occurred and evaluating the personal recollections of the witnesses in the light of all the evidence including, in particular, the documentary and other objective evidence in the form of e-mails, letters and other communications which came into being both before and after the events in question. Objective evidence of this kind may often prove to be the only safe guide to what is likely to have occurred at meetings where there is an acute conflict of evidence between those who attended them.
- This case has produced voluminous disclosure on all sides, much of which has inevitably proved to be of only marginal assistance. But there is a considerable volume of highly relevant correspondence and other contemporaneous material which, as I shall indicate later, has enabled me to obtain a much clearer view of the principal matters in issue in the proceedings.
- The negotiations leading up to the SPA, particularly in their later stages when it became necessary to carry out due diligence on Wind and to work out and agree the detailed terms of the funding and the structure of the transaction, obviously involved the participation of a large number of highly qualified professionals including bankers, lawyers and accountants. Some of these are unlikely to have had much direct contact with Mr Benedetti so as to be able to give an accurate overview of his role and the scale of his personal participation in the critical aspects of the acquisition. But of those who could probably give such evidence, a number have either declined to do so or have not been called.
- Whilst therefore I heard evidence from representatives of some of the banks involved (Deutsche Bank, Rothschild and ABN Amro) and from witnesses associated with other potential investors at one time interested in participating in the acquisition, I heard no evidence, for example, from any of the lawyers who worked on the SPA or the earlier agreements such as the Acquisition Agreement and the brokerage agreement and who must have had direct communication with Mr Benedetti about the preparation of these documents. Mr Scaroni, the CEO of Enel at the time, signed and submitted a witness statement but was not cross-examined.
- Most of that evidence is directed to Mr Benedetti's claim for a quantum meruit. In relation, however, to the earlier history including the period leading up to the Acquisition Agreement when the Understanding is said to have come into existence, everything really turns on the view which I form of the evidence of Mr Benedetti, Mr Sawiris and, to a lesser degree, Mr Abdou. The involvement of the bankers and Mr Scaroni came much later. Mr Benedetti and Mr Sawiris gave extensive oral evidence about the events of 2003 and 2004 and were cross-examined about them in some detail. Mr Benedetti was in the witness box in total for some 9 days. There was also live evidence from Mr Abdou and Mr Antaki who were also cross-examined on behalf of the Claimants at some length. Although the cross-examination was at times clearly arduous for the witnesses involved, it was conducted extremely professionally on both sides (as one might expect) and it did not become either unfair or oppressive.
- I will set out my views of this evidence and the conclusions I have reached on the facts in dispute shortly but, before I come to the specific evidence in detail, it may be useful to make one or two more general observations about the principal witnesses and my impression of them.
72. Mr Benedetti
- Mr Benedetti is an Italian citizen resident in Switzerland. He is now 48 years old. He describes himself in the APC as a businessman with a variety of business interests. He says that he has considerable experience and knowledge particularly in the telecom industry and in relation to finance.
- In the appendix to his first witness statement he gives particulars of his business career from the 1980s onwards. This has a somewhat chequered history. During the 1980s he was the controlling shareholder of the Gefco Group which distributed chemical products imported from Russia and Eastern Europe.
- In 1988 the Gefco Group was placed into liquidation as a result of losses suffered from what Mr Benedetti describes as an aggressive and unjustified investigation by Italy's Guardia di Finanza but Mr Benedetti's brushes with the Italian authorities did not end there.
- In 1989 he acquired a dormant company, Magnetofoni Castelli ("MC"), which was financed and became controlled by Gruppo Ligresti, a large group of property and construction companies owned by Mr Antonio Ligresti. In the 1990s Gruppo Ligresti was investigated as part of a nationwide judicial inquiry into political corruption and in 1992 Mr Ligresti was arrested and subsequently imprisoned for bribery. MC was placed into liquidation in 1993. Mr Benedetti was himself the subject of a criminal investigation in connection with MC which led to his arrest on charges which included false accounting. He entered into a plea bargain with the prosecuting authorities under which he entered a guilty plea and accepted a sentence of imprisonment. Although when asked about this in cross-examination he suggested that this did not amount to and should not be treated as a criminal conviction, it seems obvious to me that the opposite is the case.
- Although these events are relied on by the Defendants as part of their attack on Mr Benedetti's credibility, my purpose in referring to them at this point is simply to explain Mr Benedetti's track record at the time when he became involved in the Wind transaction.
- More recently, prior to his involvement with Wind, he had a number of business projects in the telecommunications field. In 1999 he was given a mandate (with a Professor Prevost) to sell a minority stake in an East European mobile telephone company. He says he also came up with the idea of establishing a business in telephones and calling cards involving religious orders within the Roman Catholic Church. This needed an investor in the telecommunications industry to make it viable and led to his making contact with Mr Jan Stenbeck of Tele2 AB, a Swedish telecommunications company listed on the New York stock exchange. This was a fast-growing telecom company with a €5 billion capitalisation. Mr Benedetti says that with Tele2 he set up a joint venture company called Managest Media SA in 2002 in which (through M Finance) he had a 60% stake and Tele2 held the remaining 40% interest. Tele2 provided the start-up costs and lent €5 million for its initial capitalisation.
- This venture is cited by Mr Benedetti as an example of a joint venture with a wealthy financial partner which he says has been a feature of his business career since the 1980s.
- It is clear from this summary that, on any view, some of Mr Benedetti's business background was highly controversial and it is indeed part of his own case that his role in the subsequent acquisition of Wind was deliberately down-played so as to avoid the potentially unfavourable press coverage which would have followed from any disclosure that he was to be an investor in Wind.
- But if one ignores the controversial aspects of his various business ventures, what is clear from his own evidence is that Mr Benedetti does not claim to be (and clearly was not) an investment banker or someone with an established business as an adviser or broker in relation to mergers and acquisitions. In 1998 he had established another company, Managest Gestioni Immobiliari (later called SAE S.p.A), and had a proposal to enter into a real estate transaction with the Vatican. This was followed in 1999 by work on a deal whereby a US financial institution was seeking to acquire two Italian banks. In 2003 he says he was representing Israeli Military Industries Limited in discussions with Italian companies and politicians.
- His business activities therefore continued to be extremely varied and largely opportunistic. The evidence gives one the strong impression that his strengths lie (as he says in his witness statement) in his ability to identify good business opportunities of many kinds and to negotiate the transactions which follow from them. This has sometimes landed him in difficulties of the kind described with the Italian authorities. But, as the Wind transaction itself demonstrates, he could also become involved in much more substantial negotiations with significant companies given the involvement of more conventional and specialised advisers such as investment bankers who had the expertise and standing to put flesh and credibility on the basis of the original business idea. Mr Benedetti does not claim to have that specialised type of skill. His case is that his talents lie in recognising suitable opportunities as they occur and in being able to bring together the investors, lenders and others necessary to realise them.
- One constant feature of the dealings referred to in his evidence is that he was only ever able to progress the business venture in question by involving an investor to finance it. Mr Benedetti (certainly up to the completion of the acquisition of Wind) does not appear to have had any significant capital of his own to invest. Mr Sawiris put it bluntly by saying that Mr Benedetti was broke when he first came across him and was trying to make a living selling antiques. Whether or not this is accurate does not matter. The impression I have gained is that Mr Benedetti simply took whatever suitable business opportunity presented itself to him and obviously had the personality and ability necessary to attract the participation of much more established and successful businessmen and advisers. Although Mr Sawiris now describes Mr Benedetti's circumstances in 2003 in somewhat derogatory terms, the fact remains that when Mr Benedetti visited him in Cairo at the end of 2002 he was able to interest him in the Wind project and to persuade him subsequently to enter into the Acquisition Agreement.
- As indicated earlier, Mr Benedetti was cross-examined for many days and in some detail on his account of the history of the transaction. He is obviously an intelligent man with a near fluent command of English who could clearly understand the questions put to him and was obviously able to appreciate their significance. Yet (and perhaps because of this) during much of his cross-examination he was highly defensive. On some occasions he gave explanations for documents and other evidence which appeared to contradict his own version of events that I found to be unconvincing and, to some extent, contradictory.
- An example was his claim in his witness statement to have drafted certain documents in the lead-up to the SPA such as the offer letter to Enel of 28th March 2005. When it was put to him that the document in question had obviously been drafted by one of the members of the various teams working on the project he said that what he meant by "draft" was that he provided the ideas to the person responsible for the document. A more serious example of this tiresome lack of accuracy relates to a memorandum which he prepared for the Italian Public Prosecutor in late 2005 in connection with an inquiry into the sale of Wind. An important aspect of the inquiry concerned allegations that bribes had been paid to secure the deal. When certain discrepancies between the contents of that memorandum and his evidence in these proceedings were pointed out to him, Mr Benedetti said that the memorandum was a document prepared for a meeting with the Prosecutor and not a recollection of fact entirely it seems to me ignoring its obvious purpose.
- On other occasions his answers were, I think, evasive and Mr Rabinowitz was forced to repeat relatively obvious questions which, even then, were not fully answered. His account of a number of aspects of his dealings with Mr Sawiris has also changed materially during the course of these proceedings. Most obvious is the late amendment to plead that the agreement or understanding for him to have one-third of the shares in the acquisition vehicle was to be on terms that he ultimately reimbursed Mr Sawiris for their original cost.
- When Norris J gave Mr Benedetti permission to amend the Particulars of Claim to introduce his revised case about the terms of the Understanding he said that the amendment represented a substantial change from the position adopted in the original pleading and directed that, as a condition of the grant of permission, Mr Benedetti should make a witness statement to explain (subject to questions of legal professional privilege) why the new allegations were not contained in the original pleading.
- That explanation was given in paragraphs 485 to 496 of his first witness statement and comes down to the following three points:
(a) He considered that he had persuaded Enel to pay a premium for the shares it acquired in Weather Italy by agreeing a value for the Orascom shares at US$58 per share compared to their quoted price at the time of US$42;
(b) At the time when the original Particulars of Claim were settled he said that he "considered that the greater shareholding which Weather II retained in Weather Italy as a consequence of my negotiating the premium should be treated as if it were my own equity contribution in kind";
(c) For this reason, when he signed the statement of truth in the original Particulars of Claim, he believed that he had in effect already repaid the loan which arose pursuant to the Understanding. He said that "the understanding in relation to the loan did not seem as central an element of my claim as the Defendants had suggested in the context of my application to amend. I believed that the Loan had already been repaid and I believed that the facts stated in the original Particulars of Claim were true".
- One obvious comment on this suggested explanation is that the negotiation of the value to be placed on the Orascom shares, although highly important to the Defendants in determining the size of their own shareholding in Weather II, was arguably part of the role which Mr Benedetti undertook in return for the alleged loan of the cost of his shares. His belief that the loan had been repaid in this way could not in any case render it unnecessary to plead it as a term of the alleged Understanding. But in fact Mr Benedetti gave in cross-examination what appears to be a different explanation for the omission; namely that he believed it was possible that Mr Sawiris's financial investment had been made in the form of a shareholders' loan to Weather II which would have had to be repaid with interest before any dividend would become payable to either himself or Mr Sawiris as shareholders.
- If this had been the case and the shares held in Weather II by Mr Sawiris and Mr Benedetti had been issued for a nominal consideration then Mr Sawiris's outlay would have been repaid by the company in due course rather than by Mr Benedetti.
- The provision of shares for a "promoter" by an investor in an acquisition on these terms is one of the methods referred to by Mr Reynolds by which those in a similar role to Mr Benedetti are sometimes, he says, rewarded and the Defendants submit that this idea was simply borrowed by Mr Benedetti from Mr Reynolds who said that he was instructed in May 2008 and gave an initial view on the matters raised in his instructions a few weeks later. As appears from Mr Reynolds' report, one of the issues he was asked to consider was whether it would be entirely uncommercial for Mr Benedetti (who was making no investment of his own) to receive free of any payment one-third of the shares in Weather II for the services he had undertaken to perform. This was the point taken by Mr Sawiris and Cylo in paragraph 21.3 of their Defence to the original claim that Mr Benedetti was entitled to the unconditional transfer of one-third of the shares. Mr Benedetti referred in his Reply to there having been a discussion with Mr Sawiris about a loan for one-third of the €50 million investment which Mr Sawiris was to make but in his witness statement Mr Benedetti says that the Reply did not say anything further about the loan because he remained of the view that it was to be regarded as having been repaid by his efforts in respect of the premium; i.e. the explanation departed from during his cross-examination.
- Mr Reynolds said that he would have regarded an outright transfer of one-third of the shares in Weather II as uncommercial in relation to the transaction as it completed in this case, although he could not be sure when he finally came to that view. Mr Rabinowitz submitted that it is likely that this opinion informed the Claimant's own thinking on what was clearly an exaggerated claim and that this was the real reason for the change in his case and the July 2008 application for permission to amend. In closing Mr Vos assured me on instructions that this was not the case and, in the circumstances, I of course accept that.
- I shall come later in this judgment to consider what was agreed between the parties about a loan to Mr Benedetti of the cost of purchasing shares in Weather II. For present purposes it is enough to observe that even putting aside the suggestions made by Mr Rabinowitz, Mr Benedetti's explanation for the change in his case is contradictory. The explanation offered in cross-examination is nowhere mentioned in his witness statement, despite that having been made a condition of his being given permission to amend. Nor is it consistent with his amended pleading. It has never been his case that Mr Sawiris was to provide the capital for the acquisition of Wind by means of a loan to Rain or later to Weather II. His case in its amended form is that the agreement between them was that Mr Sawiris would lend to him (not to the company) the cost of acquiring the shares which he would have to repay to Mr Sawiris on exit. Consistently with this, it is difficult to understand why he believed that it was necessary to check whether the indebtedness had been repaid to Mr Sawiris by the company.
93. Mr Sawiris
- Mr Sawiris is a confident businessman who is both proud and protective of the telecommunications business he has built up. He is a national of both Egypt and the USA and is a fluent English and French speaker. His father, Mr Onsi Sawiris, began a construction business in Egypt in about 1950 which was nationalised in 1971. When his father returned to Egypt in 1976 he founded Orascom as a general trading company which in time expanded its business into different fields.
- Mr Sawiris has worked for Orascom since 1979 and was responsible for establishing its IT and telecommunications business. In 1997 Orascom was split into several different companies including Orascom Telecom Holding SAE and Orascom Construction Industries which is run by his brother.
- By the time he came to meet Mr Benedetti, Orascom was already a successful company but with a limited market. Although Mr Sawiris saw it initially as a personal investment by him, the opportunity to acquire a controlling interest in Wind presented him with the obvious possibility of substantially extending the business of Orascom and its value.
- Mr Sawiris's first witness statement contains a relatively brief account of the events leading up to the execution of the SPA. He said in evidence that he had a fairly good recollection of what occurred at particular meetings but was bad on remembering dates. This became evident during the course of the trial when, on being cross-examined about his account of events, he accepted that they could well have occurred on different occasions from the ones mentioned in his written evidence. Equally he was dogmatic about and often insistent that certain of the meetings described by Mr Benedetti (for example, the 22nd April 2003 meeting in Cannes) did not occur even though other evidence, as I shall indicate later, shows that they almost certainly did.
- Despite this lack of accuracy, I believe that he did attempt to provide the court with his best recollection of the events in issue. At times (when pushed on to the defensive in cross-examination) he did resort to bluster and, on one occasion, told what can only be described as a deliberate lie about his involvement in other litigation. For this reason, I have approached his evidence with caution. But it has, for the most part, proved to be consistent with the other objective evidence.
98. Mr Abdou
- Mr Abdou, by contrast to Mr Sawiris, has produced some very long and detailed witness statements about the events in question. As in his oral evidence, he has used these to reconstruct in some detail the history of the transaction and Mr Benedetti's involvement in it even though some of the events in question were not ones of which Mr Abdou has any direct personal knowledge.
- Mr Abdou is obviously both intelligent and very able and enjoyed the confidence of Mr Sawiris from late 2003 when he began to work for him. For much of the time until the transaction was reasonably well advanced Mr Sawiris was preoccupied with family problems which made it difficult, if not impossible, for him to take much part in the day-to-day progress of the project. The e-mail traffic shows that Mr Abdou was often Mr Benedetti's first port of call when decisions needed to be made and documents were required to be discussed or approved. In the later stages in 2005 Mr Abdou was sent to Rome to take part in the due diligence carried out in respect of Wind and therefore had more close contact with Mr Benedetti. It is, I think, common ground that they became very friendly with each other and their e-mail exchanges are often the best indications of what was taking place and, more particularly, of the thinking and background behind various aspects of the transaction.
- In many ways the e-mails speak for themselves but Mr Abdou has provided me with his own explanations for various events. Some of this was helpful but he tended on many occasions when giving evidence to assume the role of an advocate for Mr Sawiris's cause. I have attempted to discount these contributions and to concentrate instead on the matters on which he could give direct evidence which is supported by what was written at the time. As I shall explain later in this judgment, some of this material provides critical insights into the basis of the relationship between the parties and what occurred at a number of key meetings.
101. 2002 – January 2004
- This is the first period to consider which extends from the first meeting between Mr Benedetti and Mr Sawiris in December 2002 until the execution of the Acquisition Agreement on 31st January 2004. It therefore covers the negotiations leading up to the Acquisition Agreement which are said to have given rise to the Understanding which forms the basis of the constructive trust claim and also provides the background to the Acquisition Agreement itself and any issues about the construction of that agreement.
102. The December 2002 meeting
- I have already set out Mr Benedetti's career leading up to his first meeting with Mr Sawiris. It is common ground that in September 2002 Enel announced that it wished to concentrate on its core business which would involve the disposal of its interest in Wind. On 18th September Mr Benedetti met Mr Pompei, the CEO of Wind, for the first time, although he already had a business relationship with a Mr Mauro Miccio, a board member of Enel, in connection with Tele2. Mr Pompei, he says, was interested in putting together a group of investors to support a management buy-out of the 26.575% minority stake in Wind held by France Telecom. They met three times between September and December 2002 and it was out of these discussions that the idea of acquiring control of Wind developed.
- Mr Benedetti says in his witness statement that he found a team to start working on the bid and funded the initial expenses. But, prior to January 2004, this seems to have been limited, on his own evidence, to at most three people: Mr Andrea Filipetti (who worked as the CEO of Tele2 in Italy); Mr Nicola Zucchet (Mr Benedetti's accountant); and Mr Giuseppe Calo (an employee of SAE Capital). There is no evidence of any significant expenditure on their services in this period.
- Therefore, when Mr Benedetti arranged to visit Mr Sawiris in Cairo in December 2002, things were still at a very preliminary stage. The evidence is that Mr Benedetti went to Egypt to spend a holiday with Mr Rami Antaki who had been a long-standing friend and associate of his since about 1982. Mr Antaki had also known Mr Sawiris for a long time and in 1998 had participated in a joint venture with Orascom concerning the development in the Congo of a mobile telecom licence known as Libertis Telecom. Orascom provided the capital for the venture (about US$15 million) and, in return for Mr Antaki's efforts in obtaining the licence, lent him money to acquire capital in the joint venture company. It was subsequently sold in December 2005 to a South African telecoms group for US$102 million.
- Mr Antaki's evidence (which is not challenged on this point) is that he was asked by Mr Benedetti if he could identify a strategic investor who might be both interested and able to fund the acquisition of Wind. He suggested Mr Sawiris. At that time Mr Benedetti's idea as expressed to him was to obtain control of Wind without having to purchase a majority stake in the company. The plan was to copy the take-over structure apparently used to acquire control of Telecom Italia which involved a private investment vehicle controlling several layers of subsidiaries through appropriately drafted management and shareholder agreements and ultimately, through them, the target company. But this was achieved with a minority stake of as little as 5% or 10% of the equity of the holding company.
- Mr Antaki says that when he first spoke to Mr Sawiris about the proposal his reaction was that it could not succeed. But Mr Antaki was able to get Mr Sawiris sufficiently interested to agree to a meeting with Mr Benedetti which he says took place at Mr Sawiris's home and lasted about an hour.
- The evidence of both Mr Benedetti and Mr Sawiris was that the meeting on 26th December 2002 was extremely preliminary. Mr Sawiris said that it was not like a business meeting and Mr Benedetti accepted that he simply outlined his proposals in general terms to see if Mr Sawiris might be interested.
- The Particulars of Claim attribute very little to this meeting but Mr Benedetti says in his first witness statement that he explained the structure he had in mind for acquiring a controlling stake in Wind of 51% or more which would require at least €1 billion in cash. They were to form a fund into which Mr Sawiris would invest at least €50 million and other investors would be invited to participate. Mr Benedetti and Mr Sawiris would share voting control, with the other investors being issued with non-voting shares. In addition, there would be a management company which would charge investors an annual management fee equal to a percentage of the equity; a one-off finder's fee; a one-off arrangement fee for structuring the transaction; and a carried interest in the form of a percentage of the profit made on the transaction.
- Mr Benedetti also says that he proposed to Mr Sawiris that there should be a 50/50 split of the voting shares but that this was rejected. Mr Benedetti says that he accepted this but wished to retain equal shareholders' rights. Mr Sawiris is also said to have indicated that he would lend to Mr Benedetti the cash for his share of the equity along the same lines as he had done with Mr Antaki in relation to Libertis.
- Some of these points are common ground. Mr Sawiris accepts that he was told that he would only be required to invest a limited amount of money yet the investment could be structured so as to obtain control of Wind through a suitable management agreement and a series of subsidiaries into which outside investors would provide the finance necessary for the acquisition. He also accepts that both he and Mr Benedetti were to benefit from fees payable by investors to the company which they formed. There is, however, disagreement as to the detail in which they discussed the size of Mr Sawiris's investment and the size of the stake in the joint venture company which they would need in order to secure control of its subsidiaries and ultimately of Wind. Mr Sawiris says in his witness statement that there was no discussion of figures at the meeting. Mr Benedetti said in cross-examination that Mr Sawiris was unwilling to commit more than €50 million at that stage.
- My own impression of the meeting is that Mr Benedetti was obviously anxious to convince Mr Sawiris that it would be possible to acquire control of Wind through what Mr Sawiris describes as a pyramid structure with only a limited share of the equity in the holding company but with control vested in Mr Sawiris through management agreements with the subsidiaries who would ultimately own a controlling stake in Wind. In that context, I think it is probable that the figure of €50 million was mentioned as a suggested level of investment, although I am equally satisfied that Mr Sawiris made it clear that he would not be prepared to consider an investment in excess of that. This is, I think, consistent with a document in Mr Benedetti's handwriting which seems to date from around the time of the meeting in which he has sketched out what he describes as a GP scheme with him and Mr Sawiris as general partners and the other investors as limited partners in a fund controlling Wind through a series of Holding Companies. The obligations of Mr Sawiris (referred to as NS Co) include the subscription of €50 million.
- What I am not satisfied about and reject is the suggestion that Mr Benedetti at that very first meeting proposed a 50/50 split between himself and Mr Sawiris. This is not only denied by Mr Sawiris (and also by Mr Antaki) but would have been an unlikely gambit even for Mr Benedetti to attempt at his very first meeting with Mr Sawiris who had to be persuaded to participate in what he thought was an unlikely scheme. Nor am I persuaded that Mr Sawiris indicated that he would lend Mr Benedetti the cash for his equity share, whatever it might be. When pressed about this, Mr Benedetti said that he did not have a precise discussion on this point and the draft agreements produced after the meeting contain no such provision.
- Mr Benedetti places some reliance on a draft Memorandum of Understanding dated 26th December 2002 which was produced by Mr Benedetti's solicitor, Mr Richard Schiffer, of Wallace & Partners in London, before the meeting but amended by Mr Benedetti with his comments afterwards. This document was not shown to Mr Sawiris but it was obviously prepared as a first draft of a proposed agreement between them which would form the basis on which they could pursue a controlling stake in Wind. It therefore confirms that from the very first occasion on which he met Mr Sawiris, Mr Benedetti always contemplated that the arrangements between them would be contained in a contract.
- The Memorandum states that AB will be responsible for the negotiation of the acquisition and that NB (an obvious error for NS) will be responsible for arranging the finance. Mr Benedetti has noted that this should be amended to read that they would both work to arrange the finance and that he would be able to introduce Enel as one of the investors.
- It then sets out a proposal for the setting up of an offshore management company to be owned and directed equally by them which Mr Sawiris will finance with €1 million in working capital to cover expenses during the acquisition process. Mr Benedetti has written: "I believe that we have to keep it simple as he already did in the past with Antaki": a reference presumably to the Libertis joint venture. Clause 6 then states that:
"The finance will be organised through an investment company to be formed in a manner acceptable to both NB and AB and suitable for the acquisition process ("Invest Co") and NB will provide the first €50 million of capital into Invest Co. MUST BE A STRONG COMMITMENT."
- The words in capitals are Mr Benedetti's comment on the draft which again would tend to confirm that the €50 million figure was the subject of discussion at the meeting. Clause 7 then sets out the proposals for a management agreement with the investment company under which Mr Benedetti was personally to receive a finder's fee equal to 1% of the total acquisition price and an annual management fee.
- But, whatever may have been the precise boundaries of the discussions, it seems clear, and I find, that the meeting consisted of nothing more than an explanation by Mr Benedetti of his ideas for the acquisition and control of Wind and that it was not seen by either him or by Mr Sawiris as amounting to a firm set of proposals still less an agreement as to the basis on which they would proceed.
118. The preparation of the Acquisition Agreement
- Following the December meeting, Mr Schiffer produced a number of further drafts of what eventually became called the Acquisition Agreement. These begin with a new version of the Memorandum of Understanding sent by Mr Benedetti to Mr Antaki on 6th January 2003. It has been expanded to include Orascom as a party and provides for a structure under which Mr Sawiris and Mr Benedetti would set up a Luxembourg holding company ("Holdco") whose ownership and control was to be split between them. Mr Sawiris was to subscribe €2 million for the initial capital of Holdco to be used to fund the expenses of the acquisition. In addition, he was to subscribe a further €50 million in equity capital with an additional €500 million coming from third party investors. These additional subscriptions were not to dilute the original shareholders' rights of Mr Sawiris and Mr Benedetti except on a pari passu basis.
- Holdco was to incorporate a wholly owed subsidiary for the purpose of raising additional capital of €450 million from private investors for up to a maximum of 50% of the voting rights in the subsidiary. In addition, Mr Benedetti was to receive an annual management fee of 2.5% of the total capital of both companies.
- A second draft of what was then entitled the Acquisition Agreement was sent out by Mr Schiffer later on 6th January 2003 presumably following comments by Mr Benedetti. This draft no longer included Orascom as a party and still left open the size of the respective shareholdings in Holdco. It contains the same provisions for Mr Sawiris to subscribe €2 million as working capital and a further €50 million in equity capital with a further €500 million in Holdco and €450 million in its subsidiary coming from private investors. The principal changes are the deletion of the clause entitling Mr Benedetti to a management fee of 2.5% and the inclusion (in clause 7.3.1) of the covenant by Mr Sawiris not to seek to obtain ownership of Wind other than through Holdco.
- The Defendants emphasise that neither of these drafts (or indeed any of the subsequent drafts up to and including the Acquisition Agreement itself) provides for Mr Benedetti to receive any of the capital subscribed for by the €50 million contributed by Mr Sawiris. This I accept is not consistent with Mr Sawiris having offered to lend Mr Benedetti the cost of acquiring an interest in the company at the 26th December meeting. It is unlikely that Mr Benedetti would not have asked for its inclusion in the draft agreement had it been on offer.
- There is some dispute as to whether Mr Sawiris had any input into these drafts. Mr Antaki said that the e-mail addresses used to transmit the 6th January drafts were incorrect but the Claimants rely on the file name of the first draft ("detailed MOU 6.1.02 per Ns Rami discussione 6 1 2003 doc") as suggesting otherwise. Nothing I think really turns on this because on 7th January 2003 Mr Antaki did send to Mr Sawiris a further version of the Acquisition Agreement and stressed to him a number of points in favour of the proposed deal. These included Mr Benedetti's Italian political connections; the support he enjoyed from the management of Wind; his ability to find financial institutions and private investors for the deal and the ability to acquire Wind at a price well below its market value.
- The draft of the Acquisition Agreement attached to the letter was substantially the same as Mr Schiffer's second draft of 6th January. Mr Sawiris says that he received and read the letter but did not study the enclosure. I doubt whether this is accurate particularly if (as the Defendants assert) this was the first draft of the Acquisition Agreement which he had seen. But if, as Mr Benedetti contends, the draft sent to Mr Sawiris on 7th January incorporated what had been discussed or agreed prior to that time and was part of the material on which the Understanding was based then it does not really assist him.
- The draft does not commit Mr Sawiris to anything more than the funding of the €2 million working capital of Holdco together with a further €50 million of the €1 billion investment contemplated as the cash funding required for the acquisition. It also provides for AB Co to have a percentage of the initial €2 million share capital of the company at a nominal value subject to dilution on a pari passu basis with Mr Sawiris in relation to the further €1 billion to be contributed by him and the other third party investors. It therefore says nothing about Mr Benedetti becoming entitled to a share of anything but the €2 million of original capital contributed by Mr Sawiris or of any agreement by Mr Sawiris to lend him the cost of any such additional shares.
125. The 22nd April 2003 meeting
- Mr Benedetti says that on 22nd April 2003 he met Mr Sawiris on his yacht in Cannes and agreed that the split in the initial share capital of Holdco under the Acquisition Agreement should be one-third/two-thirds between him and Mr Sawiris. Mr Sawiris does not deny that that was the division eventually agreed in respect of the initial share capital of Rain but he says that it came much later. His evidence is that he does not recall a meeting taking place between them on 22nd April.
- Mr Benedetti's case is that at the meeting on that date he told Mr Sawiris that Enel had bought out France Telecom's stake in Wind for €1.4 billion thereby valuing the whole company at a minimum of €11.9 billion and that he was therefore looking at the possibility of acquiring 100% of Wind rather than the 51% mentioned earlier.
- He says that he went through the draft of the Acquisition Agreement sent to Mr Sawiris on 7th January by Mr Antaki and that Mr Sawiris marked it up with a green pen indicating that Mr Benedetti should have one-third of the initial shares. The draft used no longer survives and Mr Benedetti says that he thinks he threw it away once the annotations had been incorporated into a new draft of the Agreement.
- Mr Benedetti says that he was unhappy about receiving only one-third of the shares and hoped eventually to persuade Mr Sawiris to increase his proportion to something nearer 50%. But he accepted it because of the veto on reserved matters contained in the First Schedule to the Agreement. He also recalls discussing with Mr Sawiris the fact that he would advance money by way of loan to him to acquire shares in the acquisition vehicle. The loan would be repayable on exit with interest at Euro LIBOR. The discussion was short but made him think that they had, he said, a real partnership.
- Mr Sawiris's passport entries and the manifests of his private jet indicate that he was in Cannes on 22nd April. Mr Antaki's evidence was that he was told by Mr Benedetti that he had arranged an appointment with Mr Sawiris at this time and that he gave him a report about it. Mr Sawiris, as mentioned earlier, is not by his own admission good at remembering dates and I am satisfied on the evidence that a meeting did take place between him and Mr Benedetti on the 22nd. But what I am not satisfied about is Mr Benedetti's account of what was discussed.
- This was only the second meeting between the two of them and there had been no significant developments in the project beyond the preparation of the drafts of the Acquisition Agreement in January. Apart from the purchase of France Telecom's interest, there was nothing to report. Mr Benedetti's pleaded case is that all that came out of the 22nd April meeting was the agreement on the one-third/two-thirds split of the shares. Given that this was undoubtedly a term of the Acquisition Agreement as finally executed, the dispute on this point is ultimately no more than a question of timing. But I am afraid that I regard Mr Benedetti's account of the discussion at the meeting as unreliable.
- It was put to him in cross-examination that it was not until late 2004 that the possibility of buying a 100% stake in Wind was seriously contemplated. The draft Acquisition Agreement speaks only of a controlling stake and there is no other documentary material at this time which contains any reference to the acquisition of a 100% interest. Mr Benedetti put it no higher than that the purchase of 100% was one of the possibilities but his evidence seemed to me to indicate that he had no real recollection of it being discussed at that time and that his apparent recollection on this point is, in reality, no more than an attempted reconstruction of what took place at the meeting.
- I also reject the suggestion that Mr Sawiris marked up the draft. The subsequent draft of the Acquisition Agreement produced at the beginning of May still has the percentages of the shareholdings left blank and contains no significant changes from that sent to Mr Sawiris on 7th January. As already mentioned, the proposal that Mr Benedetti should repay the capital costs of his shares as a loan is not referred to. In a document prepared by Mr Antaki in January 2004 containing some proposed answers to an e-mail from Mr Abdou the date of the agreement on the one-third is given as May not April based on what Mr Benedetti had told him.
- Any discussion on 22nd April was therefore, in my judgment, no more than routine. It is possible that Mr Benedetti discussed the draft sent to Mr Sawiris and perhaps outlined what he had in mind for the meetings in Rome in May but I do not accept that this resulted either in an agreement on the one-third/two-thirds share capital split or, indeed, anything else. The position remained that Mr Benedetti was working on a draft agreement and was seeking to keep Mr Sawiris interested in the project.
134. The May 2003 meeting
- The next event to be considered is the May meeting. It is common ground that Mr Benedetti and Mr Sawiris met in Rome between 5th and 7th May and that, during that time, a series of meetings took place, including ones with Mr Pompei and Mr Miccio. Mr Benedetti pleads that he introduced Mr Sawiris as his partner in relation to the acquisition of Wind. The other events of significance he relies on are the indication which he says Mr Sawiris gave of his willingness to invest between €200 and €300 million in the acquisition, of which a third would be invested on behalf of Mr Benedetti by way of loan, and the execution by Mr Sawiris of a power of attorney enabling Rain to be incorporated as the acquisition vehicle.
- In his witness statement, Mr Benedetti says that the introduction of Mr Sawiris as his partner took place at a lunch with Mr Pompei. The same thing occurred at a subsequent dinner with Mr Miccio. Although I am prepared to accept that Mr Benedetti may have used this term in reference to Mr Sawiris, it seems to me to be of no significance whatsoever. I cannot see how the description which Mr Benedetti chose to attach to Mr Sawiris can be said to have given rise to any equitable obligations by Mr Sawiris towards him.
- The important event is the meeting between Mr Sawiris and Mr Benedetti which took place after the lunch with Mr Pompei. Mr Benedetti says that at this meeting he attempted to re-negotiate a 49/51% split in respect of Rain but that Mr Sawiris rejected this on the basis that he was providing all the capital. Mr Benedetti then accepted that he would have the one-third proposed at the April meeting. Mr Sawiris is also said to have indicated that he was willing to invest between €200 and €300 million in the new company and that, if necessary, he could provide all the money required for the acquisition. Mr Benedetti said that he inferred from what Mr Sawiris said that this would include providing one-third of any increased sum for him by way of loan as agreed at the April meeting.
- It is not entirely clear what this evidence is said to amount to. Mr Sawiris is not alleged to have undertaken in terms to increase his investment to between €200 and €300 million or to transfer to Mr Benedetti one-third of the shares purchased with that money subject to the repayment on exit of the cost. Mr Benedetti accepted in cross-examination that Mr Sawiris had not made any commitment beyond the €50 million but had said in May that he could always find the money for good deals. From these words he says that he inferred that one-third of any increased investment would be allocated to him as a loan. When asked specifically to confirm whether he suggested to Mr Sawiris in terms that he should have this percentage of everything that Mr Sawiris invested as a loan, he said that he did not put it in that way. They discussed a 50/50 split which was rejected and then he settled on a third. His belief that he was to get one-third of everything that Mr Sawiris might put in as a loan was, he said, founded on what was discussed in April.
- Mr Rabinowitz challenged the truth of Mr Benedetti's alleged belief that he was to get one-third of everything invested as a loan by reference to a subsequent draft of the Acquisition Agreement dated 12th May 2003 which was prepared by a lawyer from EY Law called Francesco Cerasi who had been given the power of attorney to incorporate Rain. This is in a different form from the previous drafts of the Acquisition Agreement prepared by Mr Schiffer but it was put to Mr Benedetti that it must have been based on information received from him. Like the other drafts, it does not provide for Mr Benedetti to take a share of the €50 million to be invested in the acquisition by Mr Sawiris or provide for any further investment by Mr Sawiris on those terms.
- Mr Benedetti dismissed the document as an attempt by Mr Cerasi to obtain further business from him by producing a draft agreement and said that it was not based on any detailed instructions from him. But even if one ignores this document, it remains the position that neither of the principal points which Mr Benedetti said emerged from the May meeting found their way into the Acquisition Agreement. Indeed, in its final form, the Agreement in clause 5.2 expressly provided that NS Co was to have no obligation to advance additional funds to AB Co for subsequent capital contributions called for by Rain beyond the initial €2 million working capital.
- Although Mr Sawiris denies making any commitment to invest more than €50 million in the project or that he ever promised to lend Mr Benedetti one-third of any sum invested in the acquisition and although he says that he only had one discussion with Mr Benedetti about the Acquisition Agreement which was when he signed it, the outcome of the May meeting can be determined, in my judgment, on Mr Benedetti's evidence alone. It seems clear to me that the question of the split in the initial share capital of Rain was still a matter of negotiation at that meeting and remained so for some time. It is also evident that Mr Benedetti did not raise the question of the loan with Mr Sawiris at the meeting, still less that Mr Sawiris committed himself to lending him one-third of whatever he might ultimately put in. I am prepared to accept that Mr Sawiris may well have said something to the effect that more money could be forthcoming for a good deal. That seems to me to be very much in character. But there was no agreement or mutual understanding to that effect reached at the May meeting and, on Mr Benedetti's evidence, Mr Sawiris did not make a statement of intention in that regard which Mr Benedetti could reasonably rely on.
141. Conclusions on the Understanding
- Mr Benedetti's pleaded case is that, by May, he and Mr Sawiris had reached the Understanding he relies on as the basis of his claim in equity to one-third of the shares in Weather II. I am asked to find that there was an understanding between them in terms of paragraph 12 of the APC to the effect that one-third of any sums invested by Mr Sawiris in the proposed acquisition was to be invested on Mr Benedetti's behalf. I decline to do so. I will come later in this judgment to the more general issue of whether an equity of this kind can arise at all in the context of pending negotiations for a contract but, for present purposes, I am not satisfied on the evidence that any such understanding was in fact reached as alleged.
- The terms of the Acquisition Agreement were still not settled and the parties were clearly still in negotiation about them. In particular, there was no commitment by Mr Sawiris to invest more than the €50 million and no undertaking by him to lend Mr Benedetti the cost of one-third of anything in excess of that.
- Although Mr Sawiris accepts that he did in time agree that Mr Benedetti should have one-third of the €50 million share capital on the terms of a loan, there is no evidence that this arrangement was ever extended to cover the totality of Mr Sawiris's eventual investment and there was certainly no agreement to do so by May 2003. This, I think, brings into focus again the circumstances in which Mr Benedetti came to amend his case on the Understanding and the unsatisfactory nature of his explanation for the lateness of the change.
- There is, however, a more general and, I think, fundamental objection to the suggestion that what was said at these meetings created an arrangement or understanding capable of giving rise to a constructive trust on the terms pleaded in paragraph 12 of the APC. In reality, the viability of such a claim does not turn on whether there was a meeting on 22nd April or on what was said then or on the other occasions when Mr Benedetti and Mr Sawiris met in the run-up to the Acquisition Agreement. Although I have attempted to resolve some of the factual disputes about these events, it remains the position that, throughout this period, those discussions were never more than negotiations about the terms of the Acquisition Agreement and it was to that document that the parties looked for a definitive statement of their respective legal rights and obligations.
- Mr Benedetti envisaged from the date of his first meeting with Mr Sawiris that their relationship in connection with the acquisition would be contractual. For understandable reasons, he wanted to tie Mr Sawiris into a binding arrangement which would set out their respective positions and prevent Mr Sawiris from taking advantage of Mr Benedetti's efforts by seeking to acquire Wind other than through Rain.
- The intention of both parties to bind themselves to a contract in the form of the Acquisition Agreement and their execution of that agreement is, in my judgment, the strongest evidence against their having treated any pre-contractual negotiations as giving rise to some form of enforceable obligations. This could not have been put more clearly by Mr Benedetti than in the following passage from his cross-examination by Mr Beltrami:-
"Q. It is right, isn't it, that your case is that you were at all times clear as to the importance of protecting your rights under a contractual agreement?
Q. And that you did so by entering into the acquisition agreement with Mr Sawiris?
Q. And that at all times thereafter, you believed you had important rights under the acquisition agreement?
Q. And as far as you understood it, your rights were very clear -- I think you have said that a number of times -- and did not need amending in any way?
Q. And you never believed, this is right, isn't it, that you had some separate rights arising out of an understanding which was different to the acquisition agreement?
A. I do not understand the general -- I mean, which other rights?
Q. You never believed you had different rights other than under the acquisition agreement?
A. I think I had an understanding and I had the acquisition agreement, yes.
Q. But you didn't believe they were different, did you?
- I am not surprised by this evidence because it corresponds to what one would expect the position to be in relation to pre-contractual negotiations of this kind. But it exposes what, in my judgment, is the complete artificiality of relying on a random selection of statements and events as giving rise to an enforceable arrangement entirely divorced from the context in which those statements were made.
148. Other possible investors
- It is agreed that between May and October 2003 there was no real contact between Mr Sawiris and Mr Benedetti. Mr Benedetti says in his witness statement that, following the May meeting, Mr Sawiris's interest had lessened and that there had been very little contact with him. But, by October, he had found other investors and it would not have been a major problem had Mr Sawiris dropped out. This was because Mr Benedetti was by then pursuing discussions with an Italian financier, Mr Francesco Micheli, to whom he had been introduced by Mr Pompei. Mr Micheli was the major shareholder in Fastweb S.p.A., a listed Italian telecommunication company. Mr Benedetti says that he thought that Mr Micheli could provide an Italian presence in the consortium and act as a figurehead for the bid.
- Mr Micheli sent his business partner, Mr Gianluca Di Nardo, to a meeting on 24th September 2003 to explore the possibility of forming a consortium with Mr Benedetti to acquire control of Wind. This led to what Mr Di Nardo recalls were about 20-30 meetings at which the structure of an acquisition was discussed under the code name "Project Olanda". The basic scheme was that there would be a 50/50 partnership between Mr Micheli and Mr Benedetti and that each would bring in outside investors and take fees and carried interest through the SPV used to execute the deal.
- This was not, of course, the same sort of transaction as the one envisaged by the current drafts of the Acquisition Agreement with Mr Sawiris under which there would be lead investors, including Mr Sawiris and Mr Benedetti, with other investors taking shares in a subsidiary and paying fees to the holding company. But, more importantly, it was an entirely separate arrangement from the Acquisition Agreement involving a different partnership between Mr Benedetti and Mr Micheli and on different terms.
- The proposed arrangements with Mr Micheli eventually came to nothing because Mr Micheli was unwilling to proceed with the acquisition without involving Fastweb in some form of merger with Wind. This would have involved the replacement of Mr Pompei and the existing management of Wind and Mr Di Nardo said that Mr Benedetti was not willing to go ahead on that basis. What emerges from this is that, by September 2003, Mr Benedetti was actively pursuing alternative possible arrangements for the acquisition of Wind which would have provided him with a form of insurance should his venture with Mr Sawiris not in fact have gone ahead.
- One obvious difficulty about pursuing alternative arrangements of this kind at the same time was that Mr Benedetti would not be able to complete the acquisition with more than one set of investors unless steps were taken to amalgamate them into a single enterprise. When this point was put him in cross-examination and he was asked about the inconsistency in his position and the obvious difficulties which these potentially rival entities presented, his answer was always to say that he was entering into the alternative arrangements on behalf of himself and Mr Sawiris and fully intended to share any profits with him.
- But my conclusions on the evidence, as we shall see, are that Mr Benedetti did not disclose to Mr Sawiris the fee arrangements which he made with these other groups of investors and never really revealed to Mr Sawiris the full details of the contingency arrangements that he had made.
154. Project Alizes
- Although it was put to Mr Sawiris (and denied by him) that there had been a meeting between him and Mr Benedetti in Rome in September, there is nothing in Mr Benedetti's witness statement to support this and, indeed, it is inconsistent with his evidence in his first witness statement that there was virtually no contact between them until October. There is, however, an email dated 26th September to Mr Sawiris which encloses electronic copies of a document described as "Presentation Alizes" which the e-mail describes as the document discussed in Rome on 18th September. It therefore looks from this as if a meeting did take place but it was clearly not one of any great import and there is really no evidence to indicate what the discussion was about.
- The Alizes document was prepared by a French private equity firm called Investors in Private Equity ("IPE") on 15th September and sets out a possible structure for the acquisition of Wind in which Mr Benedetti and Mr Sawiris are 50/50 partners in a general partnership which, with investors in a limited partnership, then owns a company which acquires the shares in Wind.
- Mr Benedetti says that he also saw Mr Sawiris in Rome on 8th October at the GSM conference but that there was nothing more than an informal discussion at which he gave him, he says, a quick update.
- Mr Benedetti had, on his evidence, been introduced in July to Mr Philippe Nguyen who was the CEO of IPE. Mr Nguyen came to see him, he says, in Monaco on 22nd July to discuss the acquisition of Wind. IPE had ties with the WL Ross Group which was a New York-based investment group led by Mr Wilbur Ross, an American billionaire investor. In time, Mr Benedetti entered into a further agreement with IPE in relation to the acquisition of Wind which I will come to but Mr Benedetti says that he made Mr Sawiris aware of the possible participation of IPE at a meeting on 25th July. Mr Sawiris disputes this and says that he had not heard of IPE prior to the signature of the Acquisition Agreement. That seems unlikely in the light of the e-mail of 26th September but the real issue is how much he was told.
- Some indication of what passed between them during this period can be derived from an e-mail sent by Mr Benedetti to Mr Sawiris on 16th November 2003 in which he said this:
"As you will have noticed since the meeting with the Management and E's representatives held on the 5th of May I have not disturbed you further, as I feel to have the capacity of undertaking the task. Now time is really playing against us, and we have to act quickly. You must institute the companies and make them operative now (the notary is waiting data of the transfers for the two company Rain and the NEWCO for the shops network). I must permit the legal, with whom I have already spoken various times, to start acting and must see you as soon as possible where you prefer in order to withdraw the maximum benefit from this operation and in getting better terms, conditions and synergies from the acquisition.
I would kindly ask you to communicate your action plan fixing regular meetings every 10 days to verify the progress until the closing.
It is important to discuss the terms of the agreement done with our potential investors and for this it is necessary that we meet personally.
You will be pleased to know that the scenario that I have seen developing in the last two weeks seems even more favourable for us than what we believed in the first place.
I confirm that based on the plan I gave you, 400 M are already committed for the deal."
- The e-mail certainly does not suggest that Mr Benedetti had bothered to update Mr Sawiris on everything he had in fact been doing. But issue is also taken with his reference to €400 million being already committed to the deal. When asked about this, Mr Benedetti said that this was a reference to Mr Micheli which was not a binding commitment on his part but one which he was taking seriously. Curiously, however, in his second witness statement he denies ever saying that he had €400 million committed from other investors.
160. The November 2003 meeting in Paris
- The real significance of the e-mail is in explaining the background to the next meeting between Mr Benedetti and Mr Sawiris which took place in Paris on the 19th or 20th November. By then, Mr Sawiris was in the process of engaging Mr Abdou to work for him and he took him to the meeting. Mr Benedetti says that at the meeting he explained to Mr Sawiris and Mr Abdou about Project Olanda which involved acquiring between 70% and 79% of Wind for €850 million plus debt. The idea was to get Enel to provide a vendor's loan of €3.5 billion repayable in three to five years.
- Mr Benedetti says that under Project Olanda Mr Sawiris would have had to commit about €450 million in cash in order to obtain a controlling stake in the consortium and that Mr Sawiris confirmed at the meeting that he was able to put up this amount. He said he recalled Mr Sawiris asking whether it was 450 million euros and not dollars. Mr Sawiris's evidence is different. He says that €450 million was mentioned as the figure which might give him management control but that the plan was for him to provide a maximum of €50 million and for the remaining €400 million to come from the other investors whom Mr Benedetti had said in his earlier e-mail were committed in that sum.
- I do not accept that at this meeting Mr Sawiris offered to increase his personal investment to €450 million. This is inconsistent with the terms of the Acquisition Agreement executed only two months later. There is also an e-mail sent by Mr Abdou to Mr Benedetti on 22nd November which refers to the meeting and summarises the steps which needed to be taken following it. In it he says this:
"To sum up, the next steps are:
1. We must get comfortable with the current valuation of Olanda and more importantly, the future plan.
2. We must get comfortable with the planned spinoffs of the businesses, including call centre, fiber optic, fixed line, retail shops. I need detailed numbers to properly analyze this.
3. If after receiving 1 and 2 above and analyzing it, it is necessary to meet with you and your team in Rome, then I will do so (maybe Mr Sawiris will join), around Dec 2 to 3.
4. Assuming the above is satisfactory, we then can prepare a Shareholder's Agreement between Mr Sawiris, yourself, the management and the shareholders we bring into the Euro 450 M tranche."
- Mr Rabinowitz submits that point 4 clearly indicates that the €450 million was to be made up of contributions from both Mr Sawiris and other investors and was inconsistent with the suggestion that Mr Sawiris was to finance the total amount. I accept that. But although a considerable amount of time and effort has been spent analysing these points, not much ultimately turns on them. Mr Benedetti accepts that the discussion at the 19th November meeting was largely confined to a consideration of the responses of outside investors and did not extend to the terms of the Acquisition Agreement. Project Olanda as such eventually came to nothing and no changes were made to the Acquisition Agreement in terms of the scope of Mr Sawiris's funding obligations. Under the Acquisition Agreement the basis of the arrangements between him and Mr Benedetti remained that Mr Sawiris would have no obligation to raise more than €50 million for the acquisition and that the balance of the €1-€1.2 billion required for the acquisition would be raised by them from third party investors.
- One of the findings of fact which I am asked to make by Mr Benedetti is that at the meeting on 19th November he discussed IPE's proposals with Mr Sawiris and that either at that meeting or at the meeting on 31st January 2004 he showed Mr Sawiris a copy of a Project Alizes document dated 19th November 2003 which he had been given by Mr Nguyen that day.
- The Project Alizes document contains the terms of a partnership between Mr Benedetti and IPE under which they would set up a management company which would in turn create an investment fund using a Jersey limited partnership into which outside investors would contribute. The management company would be entitled to various fees (including an annual fee of 1% of the sums under investment) and carried interest equal to 20% of the proceeds of any realisation of capital and income which would be split equally between Mr Benedetti and IPE.
- This term sheet is, as I have said, dated 19th November 2003 but appears to have been sent to Mr Benedetti by IPE by e-mail at 4.15pm on 21st November. This is accepted in his first witness statement. However, an investigation carried out into the file properties of the document indicates that it was printed out on 19th November and could, therefore, have been given to Mr Benedetti in hard copy by Mr Nguyen when they met that day. In cross-examination, he departed from what he said in his first witness statement and said that he was sure that he showed the term sheet to Mr Sawiris probably when they met on 19th November in Paris. He is not, however, certain about the timing and in his third witness statement he says that it could have been as late as the 31st January when the Acquisition Agreement was signed.
- I am not sure that these disputes about timing matter very much. The term sheet is, however, significant because it is relied on in the Particulars of Claim as contemplating the payment to Mr Benedetti of a brokerage fee of 1% of the transaction value which is alleged to have been a term of the Understanding derived from this document. Given the findings of fact which I have already made about the Understanding, this is probably no longer of any real significance, although the practical purpose of including it in the pleading was clearly to justify the retention by him of the €67 million paid to ITM in addition to his claim for one-third of the shares in Weather II.
- I am not persuaded that Mr Benedetti did produce the term sheet at the 19th November meeting. He obviously had no recollection of doing so when his first witness statement was prepared and signed and there is no other objective material upon which the change in his evidence can be based. Mr Sawiris and Mr Abdou say that they have no recollection of the document being produced or discussed on 19th November and I prefer their evidence on this. My assessment of the evidence is that although the question of outside investment was obviously raised at the meeting, it was discussed only in general terms. I am satisfied that Mr Micheli and Project Olanda were mentioned in the context of the €400 million said to be committed to the project but that there was no real mention of IPE as such and certainly not in terms of an alternative structure under the term sheet in which Mr Sawiris could only have participated as an investor in a fund managed by IPE and Mr Benedetti. It needs, I think, to be remembered that these discussions took place in the context of the arrangement set out in the draft Acquisition Agreement under which Mr Sawiris and Mr Benedetti were controlling the investment and receiving fees for doing so. Mr Sawiris's interest in outside investors was in relation to that structure. Given that Mr Benedetti obviously wished to keep him on side, it seems to me most unlikely that he would have revealed that the investors to whom he had been talking each contemplated separate arrangements of their own under which they could acquire control of Wind and become entitled to fees and carried interest from the investors they bought into the consortium. Mr Benedetti is likely to have been asked where his loyalties lay.
169. The signing of the Acquisition Agreement
- Between the November meeting and the signing of the Acquisition Agreement on 31st January 2004, one of Mr Abdou's primary concerns was to establish the terms to be entered into. In his e-mail of 22nd November, he had asked Mr Benedetti to send him "a copy of your proposed deal with Mr Sawiris" and this request was repeated on 14th December. Mr Benedetti did not respond. He says in his witness statement that he already had an oral agreement with Mr Sawiris and that Mr Abdou had obviously not been told about it. He regarded the arrangement as something between himself and Mr Sawiris and therefore did not reply to Mr Abdou.
- This explanation is difficult to square with the e-mail itself which shows that Mr Sawiris was copied into the request and also with the fact that Mr Abdou had accompanied Mr Sawiris to the 19th November meeting and had been introduced as someone who Mr Sawiris obviously felt able to involve in the discussions about the Wind transaction. The explanation for the absence of any response probably lies elsewhere.
- It is clear that at this time Mr Benedetti continued to pursue alternative deals in connection with Wind. He sent a term sheet to Mr Di Nardo on 16th January 2004 setting out a proposed deal involving Fastweb and Millicom and in December IPE devised an alternative structure sent to Mr Benedetti on 21st January. When it was put to him that these were inconsistent with the Acquisition Agreement, he said this:
"No, because we was always with Mr Sawiris. I never had any discussion with an investor thinking that Mr Sawiris would not have been part of my partners in this story. I just run different investors, I work with different investors because I did not know if at a certain point in time he could have stepped out."
But, in my judgment, only the second half of that answer is true.
- On 15th January 2004 Mr Benedetti sent to Rami and Paul Antaki a new draft of the Acquisition Agreement "with changes share premium" for their comments. This version of the Acquisition Agreement contained the one-third/two thirds split in the initial share capital of Rain as well as clause 5.2 in the form adopted in the executed agreement. Similarly, clause 5.3 limited NS Co's contribution to the equity to the sum of €50 million. The only structural change over previous versions was that there was to be no subsidiary and, instead, all the investors, including Mr Sawiris and the Wind management, would subscribe for shares in Rain at values to be agreed.
- Mr Benedetti was cross-examined about this draft. When it was put to him that clause 5.2 limited Mr Sawiris's financial obligations to €2 million for the start-up capital of Rain and €50 million for further equity and, in particular, excluded any obligation on his part to fund AB Co for subsequent capital contributions beyond its one-third share of the €2 million, he accepted that this was the effect of the clause but said that it was incorrect and did not reflect what was intended. The drafting was down to the solicitor. He was then forced to concede that he had worked on the draft with Mr Schiffer. When it was then suggested that clause 5.2 was inconsistent with his whole case, he said that it had later been changed. When it was then pointed out to him that it had not in fact been changed, he said this:
"If I understand well, it has changed, because me and AB Co and NS Co were both responsible in contributing ... even if he does not have any obligation to advance more than 50 million, Mr Sawiris would have worked with me to raise the other funds."
- On 25th January Mr Benedetti sent Mr Antaki a further draft of the Acquisition Agreement by e-mail in which he said:
"This is the last protocol between me and NS
I cat the link for capital injection with NS and the management because the management put too much money." (sic)
- This was a reference to clause 5.3 which no longer contained any mention of the executives of Wind investing in Rain but simply provided that NS Co would contribute the €50 million. The absence of any further changes is, of course, relied upon as inconsistent with the suggestion of Mr Benedetti that the earlier draft did not accurately reflect what was intended. It is clear to me from his evidence that he was involved in the changes to the agreement (even if the drafting was left to Mr Schiffer) and obviously understood what the meaning and effect of the provisions were. There is no claim in this case for rectification of the Acquisition Agreement and the final form of the document is, as stated earlier, compelling evidence that there was no agreement along the lines of the Understanding.
- On the same day Mr Abdou sent to Mr Antaki a list of outstanding items which Mr Benedetti had yet to deal with. The e-mail was copied to Mr Sawiris and asks as questions 4 and 5:-
"4. What is the final structure of the vehicles we will use? Who are the shareholders? Who is committed in cash and who is still debating?
5. What is the personal deal for Mr Alessandro if this is successful?"
- Mr Antaki forwarded the e-mail to Mr Benedetti with some proposed answers in French which he had drafted. His e-mail (as translated) read as follows:
"4. What is the final structure of the vehicles we will use? Who are the shareholders? Who is committed in cash and who is still debating?
(Redo the RAIN INVESTMENTS and HOLDCO charts if these are still the two current vehicles, and clearly specify for each of them the input of the private equity investors and the amounts)
5. What is the personal deal for Mr Alessandro if this is successful?
The first request related to 50% of Rain Investments Spa;
At Mr Sawiris' request I agreed in May 2003 to decrease my shareholding to 1/3, as stated in my "ACQUISITION AGREEMENT" drafts and its amended version.
In the event of a merger between W. and OTH, an added 20% on the creation of wealth for OT, with the valuation based on the last Stock Exchange listing for OT the day before the merger."
- Mr Benedetti e-mailed his responses to the questions to Mr Sawiris later that evening and, despite his evidence that he regarded this as confidential between himself and Mr Sawiris, copied Mr Abdou in. The e-mail states:
"4. What is the final structure of the vehicles we will use?
As agreed, the vehicle will be Rain Investments S.p.A.
Who are the shareholders?
Yourself (I don't know if personally or through one of his holdings, I would suggest not with OTC at this stage)
Myself through a Luxembourg Soparfi
Who is committed in cash and who is still debating?
Various investment funds through a French/Suisse Private Equity firm.
One of the 10 richest men in the UK.
One of the major Italian investors (Mr Micheli)
The management team.
5. What is the personal deal for Mr Alessandro if this is successful?
I believe that I can play a role representing Rain Investments S.p.A. in this deal as long you believe that I can bring added value.
I don't impose anything. Anyways we will discuss this point at the first occasion."
- It is clear, as Mr Benedetti accepted in evidence, that the investors were not committed in any legal sense and, as mentioned earlier, the arrangements so far discussed with them were not in fact those under the Acquisition Agreement. But the most significant part of the e-mail is undoubtedly the answer to question 5.
- Mr Benedetti could not have responded to Mr Sawiris in these terms if there was already an informal agreement between them that he would be lent one-third of any sum which Mr Sawiris might put into the acquisition. In his first witness statement he says that he thought that Mr Antaki had misunderstood question 5 which he believed related to whether he was going to have an executive role in the management of Wind. He did not think that he was being asked about his proposed shareholding because that had already, he said, been agreed with Mr Sawiris back in May and was very clear. When cross-examined about this, he gave a different explanation: namely, that he did not want to discuss it with Mr Abdou. His answers to Mr Rabinowitz were both contradictory and unconvincing and I think that the explanation he gave was simply invented to deal with a piece of objective evidence which is impossible to reconcile with his pleaded case.
- On 31st January Mr Benedetti and Mr Sawiris met in Paris and signed the Acquisition Agreement. Mr Benedetti took to the meeting a new draft of the Agreement which included the one-third/two-thirds split of the initial share capital of Rain but left blank the amount of such capital to be inserted in clause 5.1. There was a further blank in respect of the monthly fee to be paid to Mr Benedetti for his work on the acquisition of Wind. Mr Sawiris put in €200,000 as the initial capital (a reduction from the €2 million referred to in earlier drafts) and reduced Mr Benedetti's monthly fee to €5,000 (from €10,000). Mr Benedetti says in his witness statement that he attempted to get Mr Sawiris to agree to a monthly fee of between €70,000 and €80,000 but was persuaded to accept the lower figure of €5,000 on the basis that he was Mr Sawiris's partner in the venture.
- This evidence was challenged in cross-examination and my view is that it is unlikely that Mr Benedetti would have asked for €70,000 when in an earlier draft sent to Mr Sawiris he had asked for only €10,000. But I am not sure that it matters very much. Mr Benedetti accepted that he backed down in the face of Mr Sawiris's opposition and the figure of €5,000 was agreed. Apart from the substitution of €200,000 for €2 million, the provisions of clause 5 remained the same. Mr Sawiris (who remained insistent that this was a personal investment by him) removed all references in the recitals and in clause 6.3 to a merger with Orascom and crossed out clause 7.3.2 which contained a covenant by him and NS Co and their affiliates not to enter into any business relationship with Wind for a period of three years without first informing Mr Benedetti and paying him reasonable compensation for the additional business opportunity in question. Clause 7.3.1, which contains the covenant not to attempt to acquire Wind except through Rain, remained in place.
- Mr Sawiris said that Mr Abdou remained doubtful about the viability of the proposal to acquire Wind but his attitude was, in effect, to give it a try. He had been told by Mr Benedetti that some €400 million of outside investment was available and, in one sense, there was, of course, no downside. The agreement did not commit him to investing more than €50 million in the acquisition so that unless the additional finance was forthcoming from third parties or he was willing to substantially increase his own commitment, the transaction would not proceed.
- One of the points pressed by Mr Vos on Mr Benedetti's behalf is that he would not have been prepared to commit himself to work for the acquisition of Rain under the Acquisition Agreement if all that he was likely to receive was the small percentage of Rain (based on one-third of the initial share capital) provided for under clause 2.2 of the Agreement together with one-third of the additional shares issued in return for Mr Sawiris's investment of €50 million.
- But this was not, of course, all that was contemplated. Although the agreement contained no provision for Mr Sawiris to pay Mr Benedetti anything beyond the monthly fees he and Mr Sawiris contemplated that they would also be able to get fees and carried interest from the other investors they brought in. Mr Benedetti's reluctance to press for more at this time as exemplified in his e-mail of 25th January has also to be viewed in the light of the other potential arrangements for the acquisition which he had already negotiated with Mr Micheli and IPE and his own evidence that he remained unsure as to whether Mr Sawiris would in the end be prepared to go ahead. Although the Acquisition Agreement bound Mr Sawiris and his affiliates to acquire Wind through Rain, there was no equivalent provision which tied Mr Benedetti's hands. He remained free after 31st January 2004 to exploit any alternative possibilities open to him and the evidence is that he took such opportunities.
- These circumstances provide, in my view, the answer to Mr Vos's submission about the unlikely nature of the Defendants' case as to what was and was not agreed. His submission also takes no account of an important piece of objective evidence in the form of three e-mails from Mr Abdou dated 11th and 12th June and 13th September 2005 which were sent at a time after the signing of the SPA when Mr Sawiris was seeking an agreement with Mr Benedetti about what he should receive for his role in the transaction.
- In the first of these e-mails, Mr Abdou wrote:
"I had two discussions with Naguib regarding your deal. I will tell you exactly his response.
First of all he very much appreciates all what you have done and he acknowledges that without you, there would be no deal. However, he feels he has been clear with you from the beginning that the deal was never meant to be this big and that when you two signed the agreement over one year ago, the deal has totally changed. But even then, he told you and the agreement says, that he will not pay commissions etc. for a deal that merges or has OT as a party and rather the intent and spirit of the deal was that he would lend you your 1/3 of the Euro 50M target capital to be repaid with interest after exit so that you would not have to put in money yourself and that you would look to raise money for a deal that had his investment maximum at 200 to 300 million euro.
Today, Weather is no longer a passive investment for Naguib but rather a vehicle which he put in all his value that he owns (and a part of his family's wealth). He very much wants you involved in the BOD of the company and to be able to do other deals in the future. He sees the relationship between you two as strong and positive but he asks for you to be reasonable in what you ask. When I told him your request and the logic, he was quite upset as he did not expect you to ask for so much.
While of course he sees that the original agreement needs to change, he does not agree with your request. In addition, while many positive things happened to improve the deal, a few serious restrictions arose such as the need for Euro 500M cash (vs 200 to 300) and the limited financial partners and the somewhat restrictive IMI loan. The only reason he says this is to make the point that the deal today is totally different than the original and as such what he is prepared to offer you is 1% of Weather for free and he can pay it to you in shares or give you a put option to take it in cash. If you choose cash, he wants to agree with you a timetable so that he can plan his cash sourcing."
- In the second e-mail, he said this:
"I talked to Naguib again. He wanted me to tell you that he feels 1% (which is Euro 75M today and may double if we succeed in Wind), is by far more than what you two had agreed to in the beginning when the deal was simple to lend you Euro 17M in cash to invest. As I mentioned before, he even crossed out all the sections related to OT and fees in the original deal because that was never his intention. He insists that he is being very generous with his offer and again wants to continue the relationship for a long time. He told me that if he really thought that you wanted hundreds of millions compensation, he would not even have done the deal at all.
Alessandro, please look at the initial deal and the current offer. We are talking about Euro 75M versus Euro loan plus interest. Think strategically, long term. I am telling you as a friend that Naguib truly believes this is a very generous offer and this is not an attempt to negotiate with you."
- Finally, on 13th September Mr Abdou wrote:
"Also, have you concluded the issue of the 1% of free shares in Weather? Let me advise you with something and I refer to what I told you months ago about Naguib. I have talked to him many times on this point and I have succeeded (in my opinion) to get you the 1% free shares even though Naguib has never in his life given free shares to anyone and certainly not an amount of Euro 75 M. He had offered this willingly to you because of what you have done and he has repeatedly thanked you for it. But I must tell you, he is quickly getting upset because he does not understand why you are not happy. The original deal was to loan you 1/3 of Euro 50M which was to be repaid. The original deal never included OTH (and in fact he crossed out the reference to paying a success fee on integrating OTH). The deal was to have other financial partners … you know how that ended. In any case, never was the amount paid to you supposed to even get close to 75M. In addition, the fact that they are free and not a loan is a really big deal that you seem to be underestimating. I know Naguib and I am telling you that he will not increase the offer ever and the longer things drag on, the higher the probability that this ends badly. He wants to have a strong relationship with you in the future as he values you highly. However, he can not do anything that will put his family's interests at risk, either financially or otherwise."
- These e-mails were written at a time when there had been a successful conclusion to the negotiations in the form of the SPA and long before any suggestion of litigation had emerged. Whether or not one regards the offer of €75 million as sufficiently generous to compensate Mr Benedetti for the work he had done, there is no reason to doubt the account of the agreement reached in January 2004 which the e-mails contain. It would have been pointless for Mr Abdou to have written them in this form had the Agreement or Understanding been in the terms alleged by Mr Benedetti and it is significant that his account of that agreement was not repudiated by Mr Benedetti at the time. This is therefore strong confirmatory evidence in my judgment that there was never an agreement that Mr Benedetti should be lent one-third of whatever Mr Sawiris ultimately invested in the purchase.
191. The construction of the Acquisition Agreement
- It is convenient at this point in the judgment to deal with the issues of construction which arise in relation to the Agreement executed on 31st January 2004. Mr Benedetti's case as pleaded in paragraphs 18 and 19 of the APC is that, on its true construction, the Agreement provided for NS Co and AB Co to own respectively two-thirds and one-third of the shares in Rain or in the acquisition vehicle if it was a company other than Rain. This argument is advanced separately from the alternative case that the same result was reached by a process of implied variation or novation based on the parties' subsequent decision in 2005 to substitute, first, Weather I and, subsequently, Weather II for Rain and I will consider that issue once I have dealt with the events on which the implied variation is based.
- Mr Benedetti also contends that the Agreement (and not just the Understanding) does provide for him to have one-third of the €50 million and any further sum which might be invested in the acquisition through Rain by Mr Sawiris. There is a dispute as to whether this claim forms part of the pleaded case but I will deal with it as one of the issues of construction.
- As stated earlier, the Acquisition Agreement in its final form was the result of a lengthy drafting process by Mr Schiffer in consultation with Mr Benedetti which lasted a year. In terms of the evidence admissible on the issue of construction, most of the cross-examination of Mr Benedetti and Mr Sawiris about the meaning of the terms of the Agreement must be excluded and the evidence of earlier negotiations is only relevant and admissible so far as it assists to establish the general factual matrix necessary to understand any provisions which might, on a literal reading, appear to be ambiguous. A minor issue is whether deleted terms can be taken into account as an aid to construction. Since nothing in my view turns on the provisions which Mr Sawiris crossed out during the 31st January meeting, I propose to take an uncontroversial approach and ignore them for these purposes.
- Clause 1 of the Agreement contains the provision for Mr Benedetti and Mr Sawiris to nominate companies to perform their obligations under the Agreement. Mr Benedetti nominated M Finance but Mr Sawiris amended clause 1 to state that "NS Co will be Naguib Sawiris personally". It seems to be common ground that the effect of clause 1 in the case of Mr Benedetti is that he remains the proper claimant but any right which he has to a transfer of the shares in Weather II is one to have those shares transferred to M Finance and not to himself personally.
- Clause 2 provides that:
"2. ESTABLISHMENT OF A SPECIAL PURPOSE COMPANY FOR THE ACQUISITION
2.1 NS Co and AB Co will establish as soon as possible but by not later than February 2004 a new company in Italy, Rain Investments S.p.A. ("Rain").
2.2 The shareholdings in Rain will initially be as follows:
2.2.1 NS Co will own 2/3 (two thirds) of the issued share capital of Rain; and
2.2.2 AB Co will own 1/3 (one third) of the issued share capital of Rain.
2.3 The share structure of Rain, including the classes of shares to be issued and the rights attaching thereto, will reflect the aforesaid division of the equity ownership, voting and all other shareholder rights."
- Despite the February date in clause 2.3, Rain was not incorporated until 18th May 2004 but I agree that nothing turns on this. What, however, is important about clause 2.1 is that it identifies a specific company by name which is to be incorporated and the references to "Rain" which follow in the Agreement are defined to mean Rain Investments S.p.A. There is no express provision in the Agreement which directs them to be read as including any other company which might in the future be substituted for Rain as the acquisition vehicle.
- Clause 2.2 is also important because, as recognised in his closing submissions, this provision is central to Mr Benedetti's claim to one-third of the shares in Weather II. The use of the word "initially" indicates that this is not to exclude any subsequent increases in capital to accommodate further investments but any further shares have to be issued in accordance with clause 5 of the Agreement. This picks up the references to initial capital in clause 2 and needs to be read in conjunction with it.
- 79,800 shares were in fact allocated to Mr Sawiris (66.5%) and 40,200 to M Finance (33.5%). This left Mr Benedetti (through M Finance) holding 200 too many shares but he accepts that he holds the surplus for Mr Sawiris.
- Clauses 3 and 4 of the Agreement deal with the constitutional documents and the conduct of the company's business through the board of directors. The constitutional documents were to be agreed before the incorporation of Rain and were intended to embody the provisions of the Acquisition Agreement so far as legally possible. Any provision which could not be accommodated in those documents was to be included in a shareholders' agreement. No shareholders' agreement was ever made but no point is taken about that.
- Clause 4 provides for a board of four members with two directors to be appointed by Mr Sawiris and two by AB Co. Mr Sawiris was given the power to appoint the chairman who was to have a casting vote. A positive vote of three directors was required in order to pass a resolution of the board but the powers of the board were limited and could not be exercised in relation to the matters set out in the First Schedule without the prior consent of both Mr Sawiris and M Finance.
- The First Schedule sets out matters reserved for the approval of the parties to the Agreement and includes the redemption or purchase of any shares or any other re-organisation of the share capital of Rain; the modification of any of the rights attaching to the shares or the creation or issue of any shares; any proposed alteration of the constitutional documents; the declaration of a dividend; the sale or disposal of any substantial assets and "any transaction or dealing of a unusual nature which might be prejudicial to the financial or other interests of either party".
- The Agreement therefore gave Mr Benedetti a veto over such matters, including the issue of any new shares but, with an initial capitalisation of only €200,000, the increase in its share capital was inevitable if it was to fund the acquisition of Wind. This is clear from clauses 4.6 and 4.7 which provide that:
"4.6 The negotiation of the Acquisition will be handled by Benedetti, with the support and advice of Sawiris, but under the overall supervision of the Board.
4.7 Each of Sawiris and Benedetti shall use their best endeavours to obtain all finance required from third parties for the Acquisition and Benedetti shall use his best endeavours to obtain the necessary co-operation and approvals of the Italian government and Wind's Management."
- Assuming that additional investment was forthcoming then the two-thirds/one-third split created under clause 2.2 in respect of the initial capital of the company would obviously have to yield to the further investments. Clause 5 therefore provided as follows:
"5. CAPITALISATION AND OTHER FINANCE
5.1 In order to begin the Acquisition process NS Co will subscribe €200,000.00 for the initial equity capital of Rain upon its incorporation pursuant to Clause 2.1. Two thirds of that initial capital will represent the initial capital contribution of NS Co and one third will represent the initial capital contribution of AB Co. These funds will be used as working capital to fund the initial expenses incurred in the negotiation of the Acquisition and shall be put at the disposal of the Board for that purpose.
5.2 Beyond that initial capitalisation NS Co shall have no obligation to advance additional funds to AB Co for subsequent capital contributions as called for by Rain and the Board and AB Co shall be responsible for its contributions as set out in the Constitutional Documents.
5.3 As part of the funding of the Acquisition, however, NS Co will contribute €50 million into the capital of Rain.
5.4 NS Co and AB Co shall then each use their best efforts to raise between €1 bn and €1.2 bn to complete the Acquisition.
5.5 The capitalisation of Rain will be organised in such manner through the use of various classes of shares that:
5.5.1 Notwithstanding that NS Co has initially contributed €200,000.00 to the equity of Rain for 2/3 of the shares and AB Co will initially contribute only nominal amount for 1/3 of the shares, their rights with respect to such shares shall be equal except for their respective percentage rights to dividends and other distributions from Rain.
5.5.2 The additional subscriptions provided for in clauses 5.3 and 5.4 from NS Co and third party investors shall be at values to be agreed however they shall not in any event dilute the original shareholder rights of NS Co and AB Co other than on a pari passu basis.
5.6 Arrangements concerning the payment of dividends shall provide that:
5.6.1 Rain shall reimburse NS Co through dividends for two thirds of all monies advanced for initial capital contributions pursuant to clause 5.1 before dividends are paid to any other shareholders; and
5.6.2 The first distributions of dividends due to AB Co shall go to NS Co until such time as NS Co has recovered in full the one third capital contribution which it has advanced for AB Co pursuant to clause 5.1 plus interest at the current Euro Libor rate from the date the funds were advanced until they are repaid."
- The capitalisation of Rain was therefore to be a two-stage process. The initial working capital required to fund the expenses of the acquisition was to be provided by Mr Sawiris. Of the shares issued, one-third was to be treated as representing the initial capital contribution of Mr Benedetti even though they were issued to AB Co for a nominal amount (see clause 5.5.1). Mr Sawiris was to be reimbursed through dividends from Rain for the full amount of the initial capital including the one-third attributed to AB Co. It is not clear what clause 5.6.2 adds to clause 5.6.1 except to entitle Mr Sawiris to recover interest at the current Euro Libor rate on the one-third capital contribution in respect of AB Co. But it is worth noting that these provisions do not incorporate a loan arrangement between Mr Benedetti and Mr Sawiris or postpone payment in respect of AB Co's shares until exit from the investment.
- Nor is the two-thirds/one-third split in the share capital of Rain under clause 2.2 immutable. As between Mr Sawiris and Mr Benedetti, clause 2.3 of the Agreement seems to require that division of ownership was to be preserved in the share structure of the company by the issue of different classes of shares in respect of subsequent capital contributions made to Rain to fund the acquisition. This is spelt out in clause 5.5 which refers again to the use of different classes of shares for the capitalisation of Rain. Clause 5.5.1 indicates that, in respect of the shares originally issued, the rights of Mr Benedetti and Mr Sawiris should be equal except in relation to dividends and distributions. The reference to equal rights would apply most obviously to voting rights attaching to the shares which would enable them to retain control of the company and is consistent with the control by Mr Benedetti and Mr Sawiris of the reserved matters specified in the First Schedule which were to be incorporated as far as possible into the constitutional documents of the company.
- It is, however, clear from clause 5.5.2 that the shares issued in return for Mr Sawiris's capital contribution of €50 million under clause 5.3 and the further €1 to €1.2 billion of equity referred to in clause 5.4 were to dilute the rights of both Mr Sawiris and Mr Benedetti in respect of their initial capital holdings, albeit only on a pari passu basis. This applies whether or not one reads clause 5.5.2 as contemplating additional capital contributions from Mr Sawiris in excess of the €50 million. In his closing submissions, Mr Benedetti argues that no modification of his rights could occur without his consent. This is correct in so far as the modification of rights attaching to any shares is concerned. Indeed, paragraph (b) of the First Schedule extends Mr Benedetti's veto to the issue of shares so that, theoretically, he could have prevented any increase at all in the share capital of Rain. But it does not follow from this that Mr Benedetti had an entrenched right under the agreement to one-third of the share capital in respect of anything ultimately invested by Mr Sawiris.
- Ex hypothesi an increase in share capital following such an investment would necessitate Mr Benedetti consenting to the issue of the additional shares. Clause 5.5.2 makes this clear with its reference to the additional subscriptions provided by NS Co and third party investors under clauses 5.3 and 5.4 and with the reference to such additional subscriptions being at values to be agreed. Those words cannot mean at no value. They did not entitle Mr Benedetti to have it both ways. Once he agreed to Rain accepting further investment by Mr Sawiris or from the third parties he could not then refuse to attribute any value to those contributions and had to agree to the issue of shares accordingly. His right to object to the increase in capital had gone at this point. It is arguable that the court will treat the obligation as one to agree a fair and reasonable price and, so far as necessary, will provide the machinery for its determination: see Sudbrook Trading Estate Ltd v Eggleton  1 AC 444. In these circumstances the provisions of clause 5.5.2 would come into operation to dilute his shareholding accordingly. These provisions would be triggered both by outside investment and by the €50 million (or any greater sum) injected by Mr Sawiris. It is not therefore possible in my judgment to read the Acquisition Agreement as giving Mr Benedetti a right to a guaranteed one-third of any share capital contributed by Mr Sawiris in excess of the €200,000 referred to in clause 5.1.
- Nor is there any provision at all in the Agreement for Mr Sawiris to lend to Mr Benedetti the cost of any such additional shares. Clause 5.2 expressly negatives any obligation on the part of Mr Sawiris to advance funds to AB Co for further capital contributions called for by Rain. As mentioned earlier, there is evidence that Mr Sawiris did offer or agree to lend Mr Benedetti one-third of the €50 million which he was to invest in Wind but this arrangement remained outside the Acquisition Agreement and was, of course, dependent upon that investment being made in accordance with the Agreement. Mr Vos submits that even if the Agreement between Mr Sawiris and Mr Benedetti never extended to anything more than the proposed €50 million investment (which is my finding) it would still have been open to Mr Benedetti to have vetoed any capital contribution by Mr Sawiris in excess of that except on terms that he was lent one-third of the total amount involved. Whilst that is theoretically true, it is irrelevant. Mr Benedetti's power to force Mr Sawiris to enter into some different arrangement does not assist me to construe the contract which they entered into on 31st January and, in the event, that power was never exercised.
- That leaves the other issue of construction which is whether the references in the Acquisition Agreement to Rain should be read as including any other company which was subsequently used as the acquisition vehicle.
- Mr Vos submits that, aside from any question of implied variation, the word "Rain" was plainly intended by the parties to refer generically to whatever company was ultimately used to acquire Wind. This proposition can, he says, be tested by asking what the outcome would have been if Mr Sawiris had simply incorporated and used another company to acquire Wind. The parties cannot have intended that Mr Sawiris should be able to avoid his obligations under the Acquisition Agreement in this way. Clause 7.3.1 is a clear indication, he says, that they did not.
- This argument, as set out in Mr Benedetti's closing submissions, also seeks to overcome the inclusion of the Holding Companies as shareholders in Weather II. Because clause 7.3.1 indicates that Mr Sawiris should not be able to transfer the benefits of Mr Benedetti's work to other entities associated with or controlled by him, it must have been intended, it is argued, that Mr Sawiris's obligations would apply in respect of the Holding Companies to which the shares in Weather II were transferred.
- I do not accept any of this. Looked at simply as a question of construction, the issue has to be whether "Rain" includes any other company used as the acquisition vehicle and whether the references to NS Co or Mr Sawiris have likewise to be read as including the Holding Companies. If they are (as alleged) mere nominees for Mr Sawiris then this issue becomes irrelevant. Their ownership of the shares is his and, if bound to do so by the Acquisition Agreement, he can compel them to transfer the relevant shares to Mr Benedetti. The construction argument has therefore to be considered on the hypothesis that they (or at least two of them) are legally independent of him.
- As mentioned earlier, "Rain" is a defined term. Clause 2.1 says that it means Rain Investments S.p.A. which is the only company which the Agreement refers to and which, as we know, was intended at the time to be the acquisition vehicle and was set up as such.
- Clause 2.1 does not qualify the definition of Rain by words such as "or whichever company shall be used to complete the acquisition of Wind". It is quite specific and, as a matter of language, unambiguous. If therefore it is to be given the wide meaning for which Mr Benedetti contends then that can only be done by the implication of suitable terms.
- The older cases differ on whether the implication of terms is properly to be regarded as a question of construction but the modern view is that it is. The traditional formulation of the conditions for a term to be implied is that it must be necessary to give business efficacy to the contract; be obvious; and must not contradict the express terms of the agreement. In particular, the Court will not imply a term simply because it appears reasonable. A useful summary of the law on this point can be found in the speech of Lord Wilberforce in Liverpool City Council v Irwin  AC 239 at page 253 E to 254 A:
"To say that the construction of a complete contract out of these elements involves a process of "implication" may be correct: it would be so if implication means the supplying of what it not expressed. But there are varieties of implications which the courts think fit to make and they do not necessarily involve the same process. Where there is, on the face of it, a complete, bilateral contract, the courts are sometimes willing to add terms to it, as implied terms: this is very common in mercantile contracts where there is an established usage: in that case the courts are spelling out what both parties know and would, if asked, unhesitatingly agree to be part of the bargain. In other cases, where there is an apparently complete bargain, the courts are willing to add a term on the ground that without it the contract will not work—this is the case, if not of The Moorcock (1889) 14 P.D. 64 itself on its facts, at least of the doctrine of The Moorcock as usually applied. This is, as was pointed out by the majority in the Court of Appeal, a strict test—though the degree of strictness seems to vary with the current legal trend, and I think that they were right not to accept it as applicable here. There is a third variety of implication, that which I think Lord Denning M.R. favours, or a least did favour in this case, and that is the implication of reasonable terms. But though I agree with many of his instances, which in fact fall under one or other of the preceding heads, I cannot go so far as to endorse his principle: indeed, it seems to me, with respect, to extend a long, and undesirable, way beyond sound authority."
- In the recent decision of the Privy Council in Attorney General of Belize v Belize Telecom Limited Lord Hoffmann treated this categorisation of the circumstances giving rise to an implied term:
"27. … not as a series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of "necessary to give business efficacy" and "goes without saying". As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant."
- The key question is set out in the following paragraphs of the judgment:
"16. Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896, 912-913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.
21. It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?"
- This test is not satisfied in this case. We are dealing here with a professionally drafted document which was intended to provide for the acquisition of Wind through subscription in a single company identified by the parties prior to the contract. The use of a specified company with the provisions for control and the share structure specified in clauses 4 and 5 provided a formula which could have worked had the parties adhered to it and had the necessary additional finance been provided. The expansion of the reference to Rain to include Weather II and of that to NS Co to include the Holding Companies is not the product of any inherent defect in the machinery provided by the contract. It is the consequence of the parties having subsequently chosen to switch to a scheme devised by IPE and ultimately to adopt a very different structure for the acquisition (as described in paragraph 24 above) which was necessitated by the retention of Enel as a shareholder in Wind and the inclusion into the arrangements of the 50.1% of Orascom. None of this was contemplated by the parties in January 2004 and, had it been, it would have necessitated far more than the expansion of the meaning of the references to Rain and NS Co.
- A major difficulty, as I see it, with the Claimants' arguments on construction is that they assume that only those provisions need to change in order to accommodate the transaction eventually completed. But, as Mr Benedetti himself accepted when cross-examined on this point by Mr Beltrami, it was never the intention that his one-third shareholding should extend to the shares in Orascom so that the transition from one-third of Rain to one-third of Weather II would on one view give him far more than he was ever intended to have.
- But, even if one ignores these obvious difficulties and concentrates on the internal provisions of the Agreement, the argument for implying the terms sought is unconvincing. The answer to Mr Vos's point that the parties cannot have intended that Mr Sawiris should be allowed to take advantage of the work done by Mr Benedetti by purchasing Wind through a company other than Rain and so avoiding the terms of the Acquisition Agreement is that the parties did not intend that and made express provision to deal with it. Clause 7.3.1 is, in my judgment, fatal to the construction argument in favour of expanding the meaning of Rain and NS Co. Had Mr Sawiris or a company associated with him sought to acquire Wind other than through Rain he would have been in breach of clause 7.3.1 and Mr Benedetti could have sought an injunction to prevent him from doing so or damages for the financial loss he would suffer as a consequence. There was therefore no need for the implied term sought. The agreement contained its own provisions for dealing with this problem. By the same token, to construe the agreement in the way contended for by Mr Benedetti would render clause 7.3.1 nugatory.
- As I shall come to later in this judgment, Mr Benedetti in fact did not object to the use of Weather I or Weather II as the acquisition vehicle because, following the change in the structure of the acquisition, the arrangements set out in the Acquisition Agreement based on Rain ceased to be appropriate. The only contractual issue therefore is whether, in agreeing to these changes, Mr Benedetti (and Mr Sawiris) are to be taken as having, by implication, agreed to vary the terms of the Acquisition Agreement so as to apply to the acquisition in its final form or whether (as the Defendants contend) the agreement was effectively abandoned because it had ceased to apply to the very different transaction which was by then envisaged.
222. The Brokerage Fee
- For completeness, I need to mention at this stage the other aspect of the Understanding alleged in paragraph 13 of the APC: i.e. that Mr Benedetti would (in addition to one-third of the shares in the acquisition vehicle) be entitled to a brokerage fee of 1% of the transaction value.
- Confirmation of this is said to be contained in the Alizes term sheet dated 19th November 2003 which I referred to earlier in paragraph 166. There is an issue as to whether, and, if so, when, this was shown to Mr Sawiris and I have set out my conclusions on that. But, as indicated, the evidence fell short on any view of an allegation that this formed part of an agreement with Mr Sawiris and the term sheet was, of course, referring to a quite different transaction from the one recorded in the Acquisition Agreement.
- The very early drafts of the Acquisition Agreement (i.e. the Memorandum of Understanding dated 26th December 2002 and the January draft of the Acquisition Agreement) did contain provisions for Mr Benedetti to receive a finder's fee of 1% and an annual management fee of 2.5% but these provisions were dropped from later drafts and not included in the Acquisition Agreement which was signed.
- I am not therefore satisfied that this was ever a term of any arrangement or understanding between Mr Benedetti and Mr Sawiris.
226. The period from the signing of the Acquisition Agreement to the incorporation of Weather I
226. The IPE Collaboration Framework Agreement
- I mentioned earlier that the execution of the Acquisition Agreement did not prevent Mr Benedetti from discussing or negotiating other possible arrangements for the acquisition of Wind and, as early as 31st January itself, he appears to have been considering a further Alizes memorandum which contemplated the acquisition of 30% of Wind through a Private Equity Fund set up by himself and IPE into which investors (including those brought in by Mr Sawiris) would participate. This was followed on 2nd February by the execution of a Collaboration Framework Agreement between IPE and M Finance for a joint venture using a company called IPE Italie in which they would each be 50% shareholders. Mr Benedetti was to use his contacts necessary for the negotiation of the transactions brought in and he and IPE would share equally in the management fees and charges and any profit shares allocated to the management team for the transactions except in relation to the first transactions brought in exclusively by Mr Benedetti in respect of which he would receive 75% of the profit. The agreement (with its reference to Alizes) makes it clear that one of these transactions was to be the acquisition of Wind.
- Mr Benedetti originally suggested in cross-examination that the agreement was concerned only with other projects but eventually accepted that it also applied to Wind. When it was put to him that the agreement was inconsistent with the Acquisition Agreement he said that the vehicle could have been changed. But it is clear to me that this was a quite different project from the Acquisition Agreement and was intended to provide Mr Benedetti with an alternative route to the acquisition of Wind on potentially better terms than Mr Sawiris was prepared to agree.
- Mr Sawiris's evidence is that he was never shown the agreement with IPE and this is accepted by Mr Benedetti. The Defendants' case is that this arrangement with IPE was effectively the beginning of the end for the Acquisition Agreement and that most of Mr Benedetti's efforts in the months which followed were, in truth, related to his agreement with IPE.
- On 25th February IPE sent to Mr Benedetti a copy of what they described as the latest Alizes memorandum which seems to have contemplated the Private Equity Fund becoming co-owners of Wind with Enel. The executive summary refers to Enel remaining a significant minority shareholder and to the IPE managed fund raising between €725 million and €1.025 billion from a group of identified international investors and Wind's management team.
- Mr Benedetti accepted that the IPE structure was really an alternative to the one contemplated with Mr Micheli but the reality was that it was also an alternative to the Acquisition Agreement. His answer to the obvious conflicts and inconsistencies between the various schemes was always to say that he regarded both Mr Sawiris and Mr Micheli as his partners along with IPE in pursuing the transaction. But this conveniently ignores the obvious differences between the schemes and the fact that Mr Micheli and Mr Sawiris were kept largely in the dark about what had been arranged with IPE. I do not accept that Mr Sawiris was ever made aware of the fact that Mr Benedetti had organised an alternative deal to the Acquisition Agreement with IPE in the form of the Collaboration Framework Agreement, although (as I will come to) he did eventually come into contact with IPE as the potential source of investors in the acquisition of Wind. I also reject Mr Benedetti's suggestion that Mr Sawiris was a partner in the arrangements with IPE in the sense that Mr Benedetti would have shared with Mr Sawiris the carried interest he received under the February 2nd agreement. In his first witness statement Mr Benedetti makes no reference to sharing those fees and his conduct in minimising the role of IPE in his dealings with Mr Sawiris is inconsistent with this.
- On 16th April Mr Sawiris met Mr Nguyen in Rome. Mr Sawiris does not remember much about the meeting but Mr Benedetti says that Mr Nguyen explained his background and IPE's relationship with Mr Ross. By then Mr Nguyen and Mr Benedetti had met in London with Mr Costamagna (the head of European Banking at Goldman Sachs) who had expressed the view that the transaction was not viable. Mr Benedetti says that he told Mr Sawiris about this on the 16th but that they decided nonetheless to continue.
- Mr Abdou e-mailed Mr Benedetti on 19th April asking for the final version of the statutes of incorporation for Rain so that the company could be set up. In the same e-mail he referred to unifying the strategy with the other investors including the final structure, carried interest, management stake and voting rights. The reference in the e-mail to Goldman Sachs being instructed to carry out due diligence on Wind is said by Mr Benedetti to show how out of touch with things Mr Abdou was.
- Mr Sawiris was asked about this e-mail. His position ultimately was that the emergence of IPE and its investors did not mean that the Acquisition Agreement was dead provided that those investors were brought into Rain as it envisaged. And, indeed, Mr Abdou was, as indicated, pressing for the incorporation of Rain so that an agreement could be reached with Wind's management tying them into its acquisition by Rain.
- Shortly after this, while Mr Benedetti was still in communication with Mr Abdou about incorporating Rain and engaging the management of Wind, he had a three-day meeting with Mr Micheli. As mentioned earlier, Mr Micheli was keen throughout to involve Fastweb as the industrial partner in the acquisition of Wind and Mr Pompei was, according to Mr Benedetti, equally keen that this should not happen. It is also obvious that the involvement of Fastweb which Mr Micheli contemplated would merge with Wind would also have been unacceptable to Mr Sawiris because it would involve a link-up between Wind and an obvious competitor with Orascom for a market share. The Fastweb proposal was not therefore taken forward and Mr Micheli dropped out of the picture by the end of 2004.
- It was put to Mr Benedetti that while he was pursuing these discussions with Mr Micheli he was still being pressed by Mr Sawiris and Mr Abdou to make some progress with the arrangements under the Acquisition Agreement. He described the position as he saw it as follows:
"A. I remember I had a meeting with an investments bank, I went to them to Cairo to refer about this meeting with this investment bank and that is it. But it was still very passive, Mr Sawiris and his team, in this transaction.
So passive that at that time, we didn't even have, I think, incorporated still Rain despite he signed the agreement in January and find an understanding in April the year before. So I was, of course, running my option.
Q. Running your option?
A. If he was going to pull out, I was going to continue pursuing the acquisition of WIND. He could have dropped out any time...."
236. The incorporation of Rain
- Rain was eventually incorporated on 18th May and registered with the Chamber of Commerce on 19th July. Mr Sawiris in fact provided only €120,000 of the €200,000 referred to in the Acquisition Agreement and the shares were issued and divided in the proportions described in paragraph 51 above. Mr Benedetti said that he did not query the amount because it was not important. What mattered was the shareholdings and the reserved matters.
- Mr Benedetti sent an e-mail to Mr Sawiris and Mr Abdou informing them that Rain had been incorporated. In the e-mail he referred to the rather discouraging response to the deal from various merchant banks he had approached but continued to express his confidence in the outcome. Mr Abdou's response was that he had spoken with Mr Sawiris who was becoming increasingly concerned about the time which had passed and the prospect of competition from other parties interested in acquiring Wind.
- On 20th June Mr Abdou sent an e-mail to Mr Benedetti asking about the current status of the deal. Mr Benedetti's response was to say that he was in Paris working on the deal and that it was important for them to find an Italian investor in order to avoid adverse comment in Italy on their bid. He also said that "We have to equilibrate a little bit more, the equity with the voting right, in fact NS control the company with a too small equity compared to the other funds". Mr Abdou understood this to mean that Mr Sawiris was being asked to increase his capital contribution because on 29th June he sent an e-mail to him summarising the position as follows:
"The status is now at the point where it is a final go/no go and we will have to commit significant time and money from now if we choose to go. The highlights are:
1. All senior Wind management is with us assuming we agree to their 3-year packages as per the previous email.
2. Alessandro has the investors from his side ready but they insist that we increase our consortium investment (to about Euro 300M) to balance the voting rights.
3. There is still tough competition for Wind as they are being pursued by several banks because they are outperforming the business plan.
4. The Managing Director of Enel seems to have his own personal interests and looks like he will be a problem for us.
5. Casse de Depoux is interested in doing something with us if they can be involved in restructuring the Wind debt and do the IPO in end 2005/6.
Alessandro will probably propose to you to be a silent partner in Wind if we fail to get more money to invest. Please remember, from the beginning, the whole point of this deal was based on 2 issues. The first is that it is an attractive investment (IRR ~25%). The second is that we will control management and be able to do what we want with the company. If we fail to get the second point, I believe there is no reason at all to continue. The amount of investment is just too high and more importantly, you can do equal or better IRRs in OT and at the end of the day, OT is under your control."
239. The July 2004 meeting in Cannes
- The request from Mr Benedetti is, of course, inconsistent with his case that Mr Sawiris was already committed to an investment of between €200 and €300 million but it also confirms that Mr Abdou still considered that the deal was of only marginal benefit in financial terms at the levels of investment by Mr Sawiris which were now proposed. This led to a further meeting between Mr Sawiris and Mr Benedetti in Cannes which took place on 9th July. Mr Abdou did not attend. Mr Sawiris seems to have had very little recollection of these events at the time of preparing his first and second witness statements but disputes Mr Benedetti's account of the meeting in his third witness statement. Mr Benedetti says that the meeting took place in the evening over a drink on the yacht and lasted about two or three hours of which the discussion about Wind took some 20 minutes. He thinks that he told Mr Sawiris about a meeting he had earlier that day in Rome with Mr Cesare Romiti, the former CEO of Fiat, whom Mr Benedetti thought would be a suitable person to replace Mr Micheli as the Italian figurehead in the deal and to give the consortium the necessary credibility with the Italian authorities. Mr Romiti had some money of his own which he could invest and was prepared to become involved.
- According to Mr Benedetti, Mr Sawiris said that he had to have control of Wind and could put more money in to achieve that. In his third witness statement Mr Sawiris disputes that he agreed to increase his investment but, when cross-examined, he largely accepted Mr Benedetti's account of the meeting including that Mr Benedetti had suggested an increase in his investment. This is, I think, illustrative of a number of occasions, as I mentioned earlier, when Mr Sawiris has made categorical denials of events in his witness statements only to have to concede, on further reflection, a less absolute version of events.
- At the same time Mr Benedetti continued to press Mr Sawiris to offer the management of Wind a guarantee of 3 years' employment at their current salaries in return for their support. On 13th July Mr Abdou e-mailed Mr Sawiris about this raising a number of concerns about any such agreement. His e-mail contains the following paragraph:
"Finally, I would have agreed to this IF we were the controlling partner in the deal and made the decisions on management and strategy. However, the way things are going, this will not be the case. Yes, we may have preferential terms in the deal, but we are not in control. How can we as OT (or you as Naguib) take on such a personal liability when we do not control the company? Are the other investors paying their pro-rata share?"
- It is obvious that Mr Abdou remained considerably less enthusiastic about the deal than Mr Sawiris but it is also clear from these exchanges and from Mr Benedetti's own evidence about the 9th July meeting that it remained critical to Mr Sawiris that he should have control of Wind if he was to remain involved. If, of course, the structure envisaged by the February co-operation agreement between Mr Benedetti and IPE were to be implemented, that would not be possible. Mr Sawiris would simply have been one of a number of investors with a share in Wind.
- On 16th July Mr Calo sent to Mr Sawiris a note of some points which looked from the e-mail to have emerged from the 9th July meeting which were to be used for the purposes of a forthcoming meeting which had been arranged with the Italian Ministry of Finance. The document is obviously slanted in a way which was designed to elicit support from the Italian government and it was followed on 11th September with a copy of the presentation made to the Ministry of Finance which had been prepared by Mr Calo, despite Mr Benedetti's statement in his e-mail that it had been prepared by him. In his covering e-mail Mr Benedetti told Mr Sawiris that it contained "a lot of cinema": (i.e. spin) designed to convince the Minister about the operation and to obtain his support. Mr Benedetti went on to say that they (including, presumably, Mr Romiti) had got the agreement of the Prime Minister and the Governor of the Bank of Italy "so I really feel that we are close to the end". Mr Sawiris forwarded the document to Mr Abdou.
- One of the points pursued by Mr Rabinowitz with Mr Benedetti in cross-examination was that, whilst the document lists the investors including the Sawiris family, the Romiti Group, IPE, Mr Ross and David and Simon Reuben, it makes no mention of Mr Benedetti as an investor. His response was that this was a deliberate strategy in order to avoid any adverse publicity which would accompany his participation in the acquisition. This, I accept, is difficult to square with his evidence that he was very much involved in the discussions with politicians, Enel and the banks in which he had a very high profile and I will come back to this point later.
245. September-October 2004
- In September Mr Benedetti introduced Mr Sawiris to Mr Romiti. The only real significance of this meeting is that it was another occasion on which Mr Benedetti says that he introduced Mr Sawiris as his partner. For the reasons stated earlier, I attach no significance to the way in which Mr Sawiris may have been introduced. There was no discussion of the acquisition and Mr Benedetti did not meet Mr Sawiris again until 15th March 2005.
- Mr Benedetti's case is that from September until at least 28th February 2005 when Mr Abdou arrived in Rome, he handled the negotiations for the acquisition more or less alone. His evidence was that on 6th October he and Mr Romiti met Mr Scaroni and then had a second meeting with Mr Piero Gnudi, Enel's president. Enel, he said, reacted negatively to the proposed bid and was apparently upset that they had approached the Minister of Finance before talking to the company.
- Mr Scaroni told him that it was no good approaching politicians because Enel was a private company and would do what it wanted. At present it did not wish to sell its stake in Wind. Mr Benedetti says that he took this as a negotiating tactic and that Mr Scaroni added that Enel would, however, consider a sale if a good price was offered and there was proof of the consortium's ability to finance the deal. He was only interested in a cash sale for a good price and hostile to any other form of transaction.
- Mr Scaroni's evidence, which was not challenged, is that he had never heard of Mr Sawiris and that Mr Benedetti appeared to be the head negotiator. Although (as I shall come to) the company in due course received a rival bid for Wind from the Blackstone Group, the fundamental reason for choosing the Weather consortium was that they offered a higher price.
- By the time of the meeting with Mr Scaroni, Blackstone had already begun work on its own bid and had been granted access to perform due diligence on Wind. There was therefore by this time something of a race to acquire that company.
250. November 2004 – IPE prepare a draft offer for Wind
- In early November Mr Marc Philippe of IPE began to send Mr Benedetti draft offer letters which IPE had prepared after discussions with him. The first of these was for 100% of Wind at an offer price of €5.4 billion based on net debt of €6.778 billion. This put a value on Wind of €12.178 billion. The letter envisages a structure under which an SPV (NEWCO) owned by funds managed and advised by IPE will acquire Wind. IPE was to act as a fund manager and not as a broker or agent for anyone else. NEWCO would be financed by equity provided by a group of financial and industrial investors who were then listed. They included the Sawiris family and the other investors mentioned in IPE's earlier material. Mr Benedetti is listed not as an investor but as a member of IPE's transaction team after Mr Nguyen.
- The acquisition was therefore not to be carried out by Rain but by a new company under the control of IPE with Mr Sawiris as one of a number of investors. This was followed by a second draft on 4th November which offered €1.2 billion for 18.2% of Wind (i.e. giving Wind the same enterprise value) but with a call option for a further 32%. The purchaser would be the NEWCO described in the earlier offer letter and, pending the exercise of the call option, it would enter into a shareholders' agreement with Enel and EIH to give it effective control of Wind.
- At the same time Mr Philippe produced a number of alternative drafts catering for acquisitions of varying amounts of Wind's share capital. Each of them utilises the NEWCO described above. Mr Philippe had begun working on the transaction in June 2004 and was asked by IPE to design a structure that would work. He says that he was told by Mr Benedetti what Enel would or would not accept and that Mr Benedetti gave him the feedback from Enel on his ideas. But the drafting was left to him. He says that one of the difficulties was that IPE had no investors who were yet committed to this particular deal. The reference in the documents to the Sawiris family rather than to Mr Sawiris personally was put in to make the consortium sound more impressive. There is no suggestion in any of this that Mr Philippe was asked to model his structure on the Acquisition Agreement or that he was even told about it.
- Although Mr Benedetti was not the draftsman of the offer letters, he forwarded them on to Mr Sawiris on 8th November. The e-mail in the court bundles appears to be one which Mr Benedetti has adapted from that received from Mr Philippe. It was sent as an original to Mr Sawiris rather than being forwarded in the form in which it was received from Mr Philippe and, although he explained in his e-mail to Mr Abdou of 9th November that the offer letters had been prepared by IPE, he says in his first witness statement that he had drafted them, which is clearly untrue.
- Faced with these documents, it must have become apparent to Mr Sawiris (if it was not before) that the investors such as Mr Ross who were to be brought in by IPE were not to be accommodated as shareholders in Rain. NEWCO was to be an IPE company. Mr Sawiris said that he sought Mr Abdou's advice on the drafts which is contained in an e-mail of 25th November. Mr Abdou remained sceptical about what was proposed and, as he put it, felt that it was not a "wow" deal at an equity value of €5.4 billion, although he was "Ok with it assuming our terms are met". Mr Abdou also drafted a copy of a response which Mr Sawiris subsequently sent on to Mr Benedetti the same day which read as follows:
"The time has come for us to ensure that the consortium is ready to take the next step and submit a bid to Enel. Before doing so, it is imperative that we are comfortable that all consortium members have a unified strategy and share the same goal. As such, I am writing you this letter to outline our terms for the deal.
1. In our opinion, the scenario of buying today 25% of Wind with a call option on 30% is the most appropriate.
2. An equity valuation of Euro 5.4 billion should be our bid with an understanding that it is contingent on due diligence. Assuming positive outcomes of the due diligence, this number can be raised to Euro 6.0 billion but more than that we walk away.
3. We need to sign a Shareholder's agreement that ensures our consortium has operational control of Wind and that our group has operational control through the consortium. As the strategic partner in the deal, we aim to add additional value to Wind through our operational expertise, synergies in both equipment purchases and retail distribution as well as fresh, new approaches to market share growth and ARPU enhancement. To do so, we need a free hand at management. Our plan is to submit a detailed strategy to the consortium for approval prior to execution. All major decisions will require consortium majority approval.
The moment of truth is upon us. While this deal is becoming more and more interesting, we are prepared to walk away if it is not concluded on the terms we discussed."
- Mr Abdou had already expressed his reservations about the IPE proposals in an earlier e-mail to Mr Sawiris sent on 10th November. After commenting on the various alternative offers, he said this:
"6. MY BIGGEST PROBLEM WITH THE DEAL IS that I do not know how CYLO will rank amongst the other investors. Will we be controlling the consortium? If not then why are we doing this deal? How much money will we put in? Do the other members share our vision? This must be a contractual shareholder's agreement among the investors. It can not be based simply on meetings or verbal discussions. My understanding is the real value in this deal is for the OT upside. Not as a financial investment only. If the reason is purely financial, I vote strongly against it. This should be cleared before we proceed, otherwise, the consortium will spend a few million dollars on due diligence and we may end up disagreeing with each other."
- Mr Benedetti says that he was the other member of "our group" referred to in the e-mail of 25th November. It seems to me that this is likely to have included any other investors who Mr Sawiris had brought into the consortium. But the important point about these two e-mails is that they show that by late November Mr Abdou and Mr Sawiris appreciated that by going into the arrangement proposed by IPE it would be necessary to set up a new shareholders' agreement to maintain their control of the acquisition. This would, of course, be inconsistent with the terms agreed between IPE and Mr Benedetti under their Collaboration Agreement but the use of an IPE company was also a complete departure from the Acquisition Agreement. It was suggested during the hearing that there was no reason why Rain could not have invested in NEWCO. In theory that may be true. But that is not what the Acquisition Agreement provides for nor is it what Mr Sawiris appears to have been contemplating at this time. Mr Abdou clearly thought that Mr Sawiris would make his investment through Cylo which was, of course, what he eventually did.
257. December 2004: the draft Memorandum of Understanding
- On 12th December Mr Benedetti sent to Mr Sawiris a draft of a Memorandum of Understanding prepared by IPE. The intended parties were a Romiti company, a Sawiris company, the IPE consortium and a management company which was to act as an investment vehicle for the Wind executives. Each of these entities was to subscribe for shares in NEWCO which would be set up for the purpose of acquiring Wind.
- Apart from the management company, each of the investors was to have equal representation on the board of NEWCO and to be entitled to receive dividends pro rata to their shareholdings. They were also to have pre-emption rights over each other's shares in the event of a proposed transfer. Resolutions of the board required to be passed by a 60% majority of votes cast.
- It is clear from this document that IPE was operating on different lines from Mr Sawiris and Mr Abdou. An IPE company was to act as the acquisition vehicle and there was no provision for Mr Sawiris to exercise any form of control over such things as the admission of new shareholders or the issue of further shares, both of which were, of course, reserved matters under the Acquisition Agreement. There was also no provision for Mr Sawiris to benefit from any carried interest or management fees from the other investors. These would now go to Mr Benedetti and IPE under the terms of their Collaboration Agreement.
- The other document sent to Mr Sawiris and Mr Abdou by Mr Calo on 15th December was the draft of an offer letter which he said had been agreed with Mr Benedetti. It contained two alternative proposals for the acquisition of either 80.1% of Wind or for 27.1% with an option to acquire up to 77.1%. The offers were made on the basis of an equity value for Wind of €5.4 billion and an enterprise value (including debt) of €12.178 billion. The offer letter also envisaged the use of a new company financed by a consortium of investors comprising IPE, W.L. Ross & Co and the Sawiris family. Mr Romiti was named as the representative of the consortium and Mr Benedetti as one of the transaction team.
- Mr Sawiris was pressed by Mr Calo at 10:21 am on 16th December to let him have any comments by 10:30 am that morning. He responded at 10:35 am saying that he was in agreement with both the offer letter and the Memorandum of Understanding. He then sent an e-mail to Mr Abdou and Mr Trujillo saying what he had done but still asking for their comments on the documents "as we can always exit later if needed".
- Mr Benedetti says very little about the draft Memorandum of Understanding in his witness statement. When cross-examined about it, he accepted that it was an alternative proposal to the one involving Rain but emphasised that it was a proposal from IPE. That is, of course, correct but it was nonetheless a proposal which had Mr Benedetti's approval. Mr Sawiris, on the other hand, said that he saw it in terms of Mr Benedetti having taken the deal to IPE who, in the last quarter of 2004, were trying to form a consortium and to lead the acquisition process. Mr Benedetti disputed this. He said that he was running the consortium by talking to Mr Romiti and to Enel. IPE were not talking to anyone. But this really misses the point. Although I accept that it was Mr Benedetti and Mr Romiti who were discussing the proposed offer with Enel, the structure involved in that offer was being dictated by IPE, albeit with Mr Benedetti's approval. That structure was, for the reasons already mentioned, fundamentally at odds with what was envisaged by the Acquisition Agreement but, of course, consistent with the arrangements contained in Mr Benedetti's February collaboration agreement with IPE.
- Mr Sawiris was asked whether he regarded the approval of the Memorandum of Understanding as, in effect, putting an end to the Acquisition Agreement:
"Q. Mr Sawiris, I just want to ask you to think about this. Your case, as I understand it, is that when you approved this draft document at page 166, the acquisition agreement was dead, right?
Q. So at this stage, you say you had no further obligation to Mr Benedetti at all?
A. No, that is not correct to say. I had always intended to reward Mr Benedetti for the actual work he has done. My case is not in this court to say that Mr Benedetti didn't do anything and this deal fell into our laps by chance. This would be extremely unfair and incorrect. My case is that the major ingredient of my agreement with him was that I would put 50 million in a deal, other investors would come to my camp, not the IPE camp, we would then make money on different valuations because they would come with a different valuation and we would make an upside there and we would make more money also on the fees that we would accumulate.
This transaction here is a NewCo, completely new company that includes me alone; no Rain, no arrangement with Mr Benedetti, as IPE with all the other investors.
So it is a completely different transaction than what have discussed.
So, there are two facts here I want to state: yes, I felt that the Rain agreement is not any more valid because it's not workable and it's completely inconsistent with this agreement but no, I had no intention to deprive Mr Benedetti from what I felt would be fair to compensate him for the effort that he has done. At none of any point of my relation with Mr Benedetti, had I had -- I was actually the one wanting to sort out that and have clarity on that, most of the time…..
But the Rain deal for me was dead at that moment, yes.
Q. And you say it was dead, Mr Sawiris, because of a draft that was never entered into. Is that what your case is?
A. No, my case is that at that time and point, the following facts were clear.
Fact 1, as you correctly said, counsel: 50 million euros are not going to do the deal. Fact 2: no more investors to join me and Mr Benedetti in a Rain group. I will call it now the Rain group. Point 3: we don't make any upside ourselves. Point 4: we have to bring other partners that are substantial and the clarity of me controlling the entity has not been established yet as we have not written any shareholders agreement between all of us, which would also have been an important part of the Rain agreement."
264. The 16th December 2004 offer
- Enel rejected the 16th December offer on the ground that it undervalued Wind. On 26th December Mr Calo sent to Mr Benedetti an update on the deal which contained information about the Blackstone bid. They had been given access to Wind and had presented an offer to Enel based on a valuation of €5.6 billion. On 15th January 2005 they were due to be given exclusivity for their bid which gave the IPE consortium until then to prepare a new offer.
- On 30th December Mr Nguyen wrote to Enel indicating that the consortium would prepare a further offer. The indications from Enel were that it was open to such an offer but would expect it to be based on an enterprise value of at least €13 billion. At about this time it was felt necessary to replace Mr Romiti. Mr Benedetti says that an investigation had begun into his business affairs and he agreed to step down and withdraw as an investor. Mr Benedetti sent an update on the deal to Mr Sawiris on 11th January which explained that Blackstone was still the most active player and that the strategy was to present the consortium's offer one minute after Blackstone's final bid on 19th January. The plan was to make a high offer which could then be reduced after due diligence. In the meantime, Mr Romiti was to give an interview confirming that he was to step down as the head of the consortium.
- On 13th January Mr Nguyen received an e-mail from Mr Paolo Lo Bascio, who had been one of the directors of Wind, which suggested that, as part of the strategy for the acquisition, they should give the consortium "its own personality as a Fund by creating and then communicating the Weather Fund". Mr Benedetti says that this was his idea which he had previously discussed with Mr Sawiris.
The incorporation of Weather I
- On 19th January Weather I was incorporated by IPE. Mr Benedetti says in his witness statement that this was on his instructions. Weather I was a Luxembourg company. IPE held 309 of the 310 issued shares with the remaining share being held by a nominee (Realest Finance SA). The directors included Mr Nguyen. Mr Benedetti says in his witness statement that there were tax advantages in using a Luxembourg company and that Rain was no longer to be used as the acquisition vehicle. He said that he told Mr Sawiris that they would invest in Weather I through Rain but that, after IPE dropped out, they decided to continue to use Weather I themselves as the acquisition vehicle.
- The suggestion that Mr Sawiris would still have used Rain as the company to invest in Weather I as contemplated by the Memorandum of Understanding is disputed. Mr Benedetti relies on the fact that finance support letters from various banks written in February were all addressed to Rain and that Mr Nguyen wrote to Mr Conti, the CEO of Enel, on 22nd February in connection with a confidentiality agreement indicating that Rain would be used for the investment by the Sawiris family. This information looks to have been provided by Mr Benedetti rather than by Mr Sawiris but, even if the possibility of using Rain for this purpose remained, it does not help Mr Benedetti.
- It is clear on his own evidence that Rain was abandoned as the acquisition vehicle from this point. He says so in terms in his witness statement. It must also have been obvious to Mr Benedetti if it is true that he still contemplated an investment by Mr Sawiris in Weather I through Rain that any such arrangement would not give effect to the Acquisition Agreement which envisaged direct investments by third parties in a company controlled by him and Mr Sawiris. Whether Mr Sawiris invested directly in Weather I or used Rain to do so he would still have been only one of a number of investors on the model contained in the Memorandum of Understanding and would not have had control of the acquisition unless he could obtain it through negotiations with the other parties.
- It was therefore put to Mr Benedetti that the use of Weather I as the acquisition vehicle was consistent with the Memorandum of Understanding:
"Q. And a structure involving a NewCo into which all the investors in the consortium invest, with the NewCo making the bid for WIND, is a very different concept from the Rain structure that you had discussed and agreed with Mr Sawiris?
A. No. The vehicle could have been Weather with two investors at that stage or three investors. One could have been the IPE consortium with the different investors that were behind IPE and the second one Rain, with the investors me and Mr Sawiris.
Q. In the Rain structure, Mr Benedetti, you and Mr Sawiris, you say agreed that you would have control of Rain and the other investors would come in below you and have to negotiate for control. That is right, that was the Rain structure you envisaged?
A. Eventually, investors would have had to discuss and negotiate control. It would have had the control and the investors would have been behind us, yes.
Q. This was a very different structure because you were setting up a different company, NewCo, into which all the investors would invest together and it would be this NewCo that would make the bid, not Rain?
A. No, because we would have imposed to have the control of this new company, this Weather. Because it was obvious from everywhere and to every discussions with the IPE fund and the other investors, that those - IPE and the other investors would have been behind - would have let have the control to Mr Sawiris."
- Mr Benedetti was, of course, forced to concede that under these arrangements Mr Sawiris would not have control of the acquisition unless he could persuade the other investors to agree to it. There is no evidence that such agreement would have been forthcoming from investors such as Mr Ross or on what terms.
272. The period leading up to the signing of the SPA
272. The 11th February 2005 offer
- On 19th January Mr Calo sent to Mr Sawiris and Mr Abdou a copy of the new offer letter which he was working on. This again consisted of two alternative proposals: the acquisition of 65% of Wind for €8.45 billion with €900 million payable in the form of vendor loan notes subscribed by Enel and the remainder in cash or the acquisition of 100% for €13 billion of which €1.5 billion would be deferred in the form of loan notes. The offer document refers to the purchase being by the Weather Fund through a newly created company which it owned and which would be financed by investors comprising IPE, W.L. Ross & Co, Gruppo Romiti and the Sawiris family. As in the earlier offer letter, Mr Benedetti was named as one of the transaction team.
- The offer letter as supplied was subsequently re-formulated as a letter from IPE (to be signed by Mr Nguyen) containing an offer from Weather I rather than the Weather Fund and as an offer for 62% of Wind as an alternative to 100%. Although Mr enedetti says in his first witness statement that an offer for 62% was made to Enel on 21st January, it is now common ground that this is incorrect. Mr Rabinowitz suggested to Mr Benedetti that he had deliberately relied in his evidence on the 21st January draft of the offer letter because it has the words "on behalf of Rain Investments" inserted above the name of Mr Sawiris in the section of the letter containing the contact names for the investors. I agree that this is extremely odd. But whatever the explanation may be, the reference to Rain disappeared from the next version of the document created only a few hours later and the next offer actually made to Enel was in the form of a term sheet dated 27th January 2005.
- This contemplates an acquisition of Wind by Weather I using a newly formed subsidiary. It is for 62.75% of Wind with an option to acquire a further 37.25% in 2006. It is based on an equity value of €5.8 billion and assumes a net debt on completion of €6.7 billion. The 62.75% was to be purchased for a consideration of €10.34 billion (i.e. €3.64 billion plus the debt) of which €1.3 billion was to comprise loan notes issued by the acquisition vehicle.
- It looks as if the constant re-formulation of the offer in the period up to 27th January was due, in large part, to Mr Nguyen's refusal to make an offer at all until the necessary financial backing was in place. This was spelt out to Mr Benedetti in an e-mail on 23rd January which begins:
"A decisive line has been crossed that may potentially lead to us obtaining an exclusive agreement with Enel. It is all your talent and persistence that made it happen.
One prerequisite for entering into an exclusive relationship is now the consortium's ability to stabilise equity levels at at least €2,000 million.
At 5pm today (23 January), we received the possible debt-equity structure from ABN, showing €2,300 million in equity (€1,900 million less costs). Last night we understood that the 38% hoped for by Enel could be included in a 100% acquisition structure as from 1 January 2006, leading to an equity outflow of €1,600 million in mid-2005 and €700 million in January 2006.
We are now in a position to offer our large investors (WL Ross, Access, etc.) the broad lines of a concrete investment opportunity, with a financial structure, scenarios (very basic at this stage), financial performances and a basic assessment of the overall risks involved in the operation, something that was not possible in the past. We are doing our utmost to obtain specific commitments on these bases for Thursday 27 January, which is particularly tight."
- The e-mail goes on to indicate that the Reuben brothers were not going to invest and that IPE would look into the possibility of obtaining €1 billion from Mr Ross. But this needed to be in place before the letter could be sent.
- The Defendants accept that by the end of 2004 it was obvious to Mr Sawiris and Mr Abdou that an investment of only €50 million would not be sufficient and that by 23rd January Mr Nguyen was telling Mr Ross that after taking into account bank finance the consortium needed to raise equity of €2.175 billion of which €700 million was the subject of "strong indicative commitments" from Orascom. Mr Sawiris disputed this but Mr Philippe gave evidence that when the Reuben brothers dropped out, Mr Benedetti had called Mr Sawiris in his presence to obtain some kind of confirmation that he was prepared to invest up to €700 million and this was embodied in a draft commitment letter sent to him by Mr Benedetti on 8th February. Mr Philippe accepted that the reference to Orascom was probably an error because it was not at that time envisaged that the company would become involved. But it seems unlikely to me that the reference to the €700 million in the commitment letter would have been included without some prior indication from Mr Sawiris that it was acceptable.
- When the term sheet was presented to Enel on 27th January Mr Conti is recorded by Mr Benedetti as having stressed the need "to prepare a clear and substantive description of who the investors are and relative credentials". It is clear from this that Enel's main concerns were price and the ability of the consortium to come up with the money. To Enel Mr Sawiris was a relative unknown and it is a significant part of the Claimants' case that one of his major achievements was to be able to overcome Enel's concerns in this regard and persuade them to treat Mr Sawiris as a serious player.
- On 3rd February Mr Conti told Mr Benedetti that Enel were now considering retaining a 38% stake in Wind. The next steps were to be the presentation of the offer through the financial advisers which the consortium appointed and to obtain the approval of Enel to commence due diligence. This was to be conducted by Deloitte, A.T. Kearney and Dewey Ballantine (the consortium's solicitors) with Orascom providing staff to carry out the technical due diligence.
- On 8th February Mr Benedetti sent to Mr Sawiris drafts of an offer letter to Enel and a commitment letter from Mr Sawiris in the sum of €700 million subject to due diligence and the final approval of the board of Weather I. It is, however, clear that Mr Sawiris, on Mr Abdou's advice, was still by no means committed to the transaction because the following day Mr Abdou sent an e-mail to Mr Trujillo á propos of the note which they had received from Mr Calo giving details of what had been discussed at the 3rd February meeting.
- In this e-mail Mr Abdou said this:
"We have been relatively outside the day to day interaction so far to see how far they get. We also told them that if this deal will happen now it must be on our terms or we are happy to walk away. Our terms, other than the price, is to be more involved within the consortium and be more active in the negotiation of the deal. As the technical expert, we will insist on setting the strategy of Wind over the next five years.
I have insisted for quite sometime now that we, as a consortium, need a strong shareholder's agreement detailing all these points because, from an ownership perspective, we will be the minority vs IPE and WL Ross. I personally think it is very risky to begin spending due diligence time and money without a binding/favourable shareholder's agreement .... and it is certainly wrong, to make any formal legal commitments without it. What do you think?"
- The latest version of the offer contemplated an equity investment of some €2.2 billion. IPE had obtained a commitment letter from W.L. Ross & Co on 9th February for up to €1 billion and on 10th February Mr Benedetti asked Mr Sawiris and Mr Abdou to provide a similar letter for a higher amount. The purpose of these letters was to provide Enel with evidence that IPE had substantial investors ready to commit to the deal and Mr Sawiris obliged by providing a letter in the same terms as Mr Ross but undertaking to provide up to €1.2 billion in equity capital.
- These commitment letters were used to support a further offer letter sent to Enel by Weather I on 11th February. The offer was for 62.75% of Wind with an option to purchase the remaining 37.25%. It attributed an enterprise value to Wind of €12.5 billion or an equity value of €5.7 billion. The purchase price would be payable as to €3.576 billion in cash, of which €1.3 billion would be deferred on the terms of loan notes issued by the acquiring company (Newco) which would be a wholly owned subsidiary of Weather I. The equity would be provided by the shareholders in Weather I in the form of IPE, W.L. Ross & Co and the Sawiris family supported by a consortium of banks led by ABN Amro. Mr Benedetti (as in the earlier offer letters) is named as a member of the transaction team.
- The e-mail of 10th February indicates that Mr Benedetti had received positive responses from the banks in relation to the grant of a loan on the security of Mr Sawiris's shares in Orascom. Mr Benedetti said during the case that he had always assumed that Mr Sawiris was good for the money and was horrified when he subsequently discovered that he had had difficulty in raising even the €294 million necessary to complete the transaction. But it seems relatively clear in the light of this e-mail that Mr Benedetti did realise that Mr Sawiris needed to raise loan finance for his share of the transaction and would use Orascom's shares as security. The suggestion is made in the Claimants' closing submissions that it was dishonest for Mr Sawiris to sign the commitment letter in these circumstances but this seems to me to be far fetched. Mr Sawiris made no representations in his letter as to the source of the funds and the bankers to whom Mr Benedetti had been speaking certainly realised that Mr Sawiris wanted to fund the acquisition in part (at least) using borrowed money.
- The offer was discussed at a meeting with Mr Conti on 11th February which was attended by Mr Nguyen, Mr Benedetti and representatives of Rothschild, ABN Amro, UBS and IMI. The feedback was that Blackstone continued to be perceived by members of the board of Enel as the better purchaser and that some concerns had been expressed about the size of the vendor's loan contained in the offer letter. The next steps were to commence due diligence including the technical due diligence to be carried out by Orascom. Enel insisted on the financial due diligence being completed by the end of March and Mr Benedetti says that one of his achievements was to persuade ABN Amro and the other banks to accept this timetable. This enabled the consortium to begin due diligence on 25th February.
286. Due Diligence
- Mr Benedetti says that he liaised with Dewey Ballantine and the other professionals working on the due diligence but he does not suggest that he was personally involved in carrying it out. As one might expect, it is a highly complicated review process which calls for specialist skills of analysis. Mr Sawiris asked Mr Abdou to come to Italy once due diligence began and he arrived in Rome on 28th February. Mr Benedetti says that the process of due diligence was run by Mr Philippe and Mr Nguyen in conjunction with Mr Fienga and Mr Lo Bascio, who had by then left Wind but were able to provide specialist knowledge on the workings of the company. Mr Philippe moved to Rome and worked out of offices which Mr Benedetti had leased for SAE Capital. His evidence (which I accept) was that he was given responsibility by IPE for due diligence and that Mr Nguyen was little more than a point of contact for Enel and the investors. He was based in Paris and rarely came to Italy.
- During the due diligence process there were daily debriefings involving all the advisers but Mr Philippe does not recall Mr Benedetti attending them. These were obviously what might be termed the nuts and bolts sessions. Mr Benedetti instead confined his attention to dealing with Enel and was obviously more concerned with strategic questions arising from the negotiations and the general structure of the deal. But the transaction could not proceed until at least preliminary due diligence was complete sufficient to enable the proposed purchase price to be confirmed and the banks to obtain their own internal approvals for the loans that would be required. Into this framework IPE also had to fit the technical due diligence being carried out by Orascom under Mr Abdou and his team. This was to comprise a technical review of the adequacy of such things as Wind's network, potential new developments and the company's capital expenditure requirements which Mr Philippe asked Mr Abdou to carry out in conjunction with the review by Deloitte and A.T. Kearney respectively of Wind's IT and business strategy.
- Preliminary due diligence was completed by 15th March, although it obviously continued thereafter for certain purposes and Deloitte produced a second report on 21st June 2005. Some of the documentation produced at this time is relied upon by each side as containing a degree of confirmation that Mr Benedetti either was or was not intended to be a shareholder in the acquisition vehicle. I put it in those terms because, as mentioned earlier, Mr Benedetti places some reliance on a draft of the confidentiality agreement prepared by Mr Speroni of Dewey Ballantine, which Enel required Weather I to enter into before due diligence began. A version of this agreement dated 22nd February refers to Rain as the investment company of the Sawiris family but the undated mark-up of the agreement sent to Mr Abdou also on 22nd February for Mr Sawiris's approval simply refers to the investors as including Mr Sawiris with no mention of Rain. There is also a reference to Rain in a letter from Mr Nguyen of the same date confirming that Mr Sawiris would buy his shares in Weather I through Rain. But, again, there is no evidence that Mr Sawiris saw or approved this.
- Mr Sawiris, for his part, relies on the complete absence from this and other documentation of any reference to Mr Benedetti as an investor or shareholder in the company. This is said (as mentioned earlier) to have been part of a deliberate strategy designed to avoid any adverse press criticism of the purchase of Wind based on Mr Benedetti's participation. But there were obvious difficulties in this approach if in fact the strategy was as alleged. An example relied on by Mr Sawiris is an information request from UBS which was sent to Mr Calo on 23rd February. This asked for information on Weather I including details of all directors and all current beneficial owners and shareholders. It also contained the following request:
"Since the shareholding of Weather Investments S.A. has yet to be finalized, we require:
- a Director of Weather Investments S.A. to confirm, in one or more letters, the individuals, and their current positions (i.e. CEO of xxx) which on the basis of their current equity commitments for this transaction are likely to have an equity interest, either directly or indirectly, of 20% or more in Weather Investments
- all the companies, that based on the current equity commitments are likely to have an equity interest of 20% or more in Weather Investments, to provide us with all the information requested to the current shareholders of Weather Investments…."
- Mr Benedetti explained his failure to provide details of his intended shareholding in Weather I in terms of the strategy described above and also by saying that UBS already knew that the ownership of Rain was split between him and Mr Sawiris. But this is not in fact apparent from UBS's own structural diagram which shows Rain as a shareholder in Weather I on behalf of the Sawiris family and Mr Benedetti's involvement being confined to SAE Capital as the management company of Rain. This evidence is not, of course, conclusive of the Defendants' case that Mr Benedetti was not intended to be a shareholder in Weather I. But, equally, it is not supportive of Mr Benedetti's case that the Acquisition Agreement was intended to apply to Weather I and Weather II.
- The references to Rain participating as a shareholder in Weather I are indicative (if anything) of a different structure to that proposed by the Acquisition Agreement and would (if implemented) have given Mr Benedetti at best one-third of Rain's shareholding in Weather II: not one-third of Weather II. I will therefore need to consider whether they really assist Mr Benedetti in his case that, during the course of 2005, the parties are to be taken as having varied the Acquisition Agreement by substituting first Weather I and then Weather II for Rain in the agreement and by including a term that Mr Sawiris should hold one-third of the shares in those companies as a nominee for Mr Benedetti or M Finance.
292. The 15/16th March 2005 meeting in Rome
- On 15th March a series of meetings took place with the banks, the Minister for Communications and, finally, with Mr Scaroni, Mr Conti and Mr Gnudi of Enel. Mr Sawiris flew to Rome for these meetings. Mr Ross was invited to and was expected to attend these meetings as well as a breakfast meeting with Mr Pompei arranged for 16th March. He failed to show up and when Mr Sawiris then flew to New York on 16th March to try to meet him, Mr Ross refused to see him. Suggestions have been made that there was a concern on the part of Mr Ross that investors whom he represented would disapprove of any connection with Mr Sawiris because of his links with the Palestinian Investment Authority. The reasons do not matter. What is important is the effect which Mr Ross's apparent withdrawal from the transaction had on Mr Sawiris and Mr Benedetti at a discussion which took place between them during the afternoon of 15th March.
- The morning meetings held on 15th March are not controversial. Mr Sawiris and Mr Benedetti (together with Mr Nguyen) met representatives of UBS and later of Deutsche Bank at Mr Benedetti's offices in Rome. This was the first opportunity for the banks to meet Mr Sawiris whose daughter had been very ill since the start of the year and who had not therefore been very much involved in the transaction during that time. There was then a lunch with Mr Gasparri followed by further meetings with representatives from ABN Amro and Banca IMI. According to Mr Benedetti, it was after these meetings but before the meeting with Enel that he and Mr Sawiris had what Mr Benedetti describes in his witness statement as a hard talk.
- Mr Benedetti says in his witness statement that the immediate reason for this discussion was the absence of Mr Ross. Although the meeting with Enel had yet to take place, it had by then become apparent that he was not going to turn up.
- His evidence is that the discussion lasted only about 5 minutes and that Mr Zucchet was present. Mr Zucchet has not given evidence. Mr Sawiris became agitated on the subject of Mr Ross and complained that he was "exposed" if Mr Ross pulled out. He is then alleged to have said that: "We are partners" and that "because Ross won't show up I have to put €2.2 billion. Because I'm putting up money also for you, you have to help me to find the rest of the money". Mr Benedetti says that he went on to say that he would only accept other investors in place of Mr Ross if "we" retain full control over Wind. This indicated, he said, that Mr Sawiris intended any additional equity for the purchase of Wind to be subject to the Acquisition Agreement and therefore that one-third would belong to Mr Benedetti subject to a loan.
- Mr Sawiris's account of his personal dealings with Mr Benedetti at this time is different. He believes that he had a conversation with Mr Benedetti after the meeting with Enel and recalls being very upset with Mr Benedetti because they were now faced with a large funding deficit despite Mr Benedetti having previously assured him that he had various investors committed to the project. But he says that it was much later in March (once it was finally clear that Mr Ross had in fact pulled out) that he had a conversation with Mr Benedetti in Rome about the changed nature of the deal and his remuneration. In his first witness statement Mr Sawiris says that at this meeting he told Mr Benedetti that the deal had radically changed and that the structure contemplated in the Acquisition Agreement was being abandoned. Instead of the outside investors promised, he was having to contemplate a huge financial commitment which would involve borrowing against the Orascom shares. According to Mr Sawiris, Mr Benedetti said that he accepted that it was now a new deal which was different from what they had originally contemplated. Mr Sawiris told him that he would still compensate him for his services and Mr Benedetti said that he was not to worry and that they would agree something.
- Mr Benedetti's response to this evidence in his second witness statement is that the late March meeting never took place. He says that Mr Sawiris's daughter remained very ill and that he and Mr Sawiris did not meet again in March.
- Nothing much, I think, turns on whether the conversation between Mr Sawiris and Mr Benedetti on 15th March took place before or after the meeting with Enel. The purpose of that meeting was to introduce Mr Sawiris to Enel's board and to enable them to assess the consortium's business and financial credibility. There is an issue as to whether Mr Abdou was present. He does not mention the meeting in any of his three lengthy witness statements but both he and Mr Sawiris said that they thought he was in fact present. Mr Abdou was argumentative about this point and I was unimpressed by his oral evidence that he attended. There is also a minor issue as to whether Mr De Bustis of Deutsche Bank handed Mr Sawiris a note during the meeting with Enel telling him what he thought Mr Scaroni needed to be told. Mr Sawiris was somewhat dismissive of the suggestion that he needed a prompt from Mr De Bustis but it seems to me that this is not an issue of any real significance.
- On balance, I think that it is more likely that Mr Benedetti and Mr Sawiris would have had a conversation about the problem which Mr Ross had created after the meeting with Enel. I accept Mr Sawiris's evidence that he was embarrassed to be thrust into a meeting with Enel in the expectation that Mr Ross would be there only to find that he no longer had the support of a major funder. But a more important issue is not the timing of the conversation but what was said.
- Despite having placed the conversation with Mr Benedetti at which it is said that they effectively agreed to abandon the Acquisition Agreement in late March, Mr Sawiris said in cross-examination that the discussion could have occurred after the meeting with Enel on 15th March accepting that it was unlikely that he would have returned to Italy later that month. Mr Vos submits that the change in timing makes the conversation unlikely because it was not until later that month that it became clear that Mr Ross had pulled out.
- We know that on 17th March Mr Benedetti received from Mr Lo Bascio a draft of a letter to be sent to Mr Ross giving him a deadline for confirming that he remained in the consortium. But Mr Benedetti was clearly pessimistic about the chances of persuading him to remain because on the same day he sent an executive summary of the transaction to Mr Filippo Bruno of Banca IMI which stated that the majority equity partner was anticipated to be Mr Sawiris. The document contains a structure chart showing NS Co as the 100% shareholder in the company formed to acquire Wind with NS Co subsequently reducing its debt by raising cash from minority investors at a premium.
- On 21st March Mr Abdou sent to Mr Benedetti and a number of other recipients including Mr Nguyen, Mr Philippe and Mr Speroni an e-mail about the next steps. This indicates that, subject to the satisfactory resolution of various points which emerged during the due diligence process, Mr Sawiris was agreeable to an offer being submitted to Enel based on a valuation of €11.5 billion. The email concludes:
"6. It is unfortunate that we have come so far only to have disappointing events in the last few days including indecision by some equity sponsors. However, we are keen to make this happen and with the support of the banks and those equity partners who still agree, we would like to give this one last try".
- Mr Abdou accepted in his evidence that there was still a possibility at this stage of Mr Ross being included and one is therefore left with the position that the size of Mr Sawiris's financial commitment was still uncertain at this time. Although this is relied on as inconsistent with Mr Sawiris's belief that the conversation about abandoning the Acquisition Agreement probably took place on 15th March, it is, of course, equally inconsistent with Mr Benedetti's own version of what was discussed. Both versions are based on the parties assuming at the time that Mr Ross was no longer involved.
- In the APC no mention is made of the 15th March meeting but in his Reply Mr Benedetti says that he was told by Mr Sawiris at the meeting that he expected Mr Benedetti to find the equity necessary to fill the funding gap. There is no mention of any reference to this being done because Mr Sawiris was putting up the money for Mr Benedetti.
- In the light of Mr Sawiris's oral evidence, it seems now to be common ground that any discussion in March about what to do in the light of Mr Ross's apparent withdrawal took place on the 15th. In these circumstances, the assumption that Mr Ross was likely to withdraw was necessarily provisional but the documentary evidence I have referred to indicates that both Mr Benedetti and Mr Sawiris probably thought it more likely than not that Mr Ross would withdraw from the consortium.
- Both Mr Benedetti and Mr Sawiris are agreed that this caused Mr Sawiris to raise the issue of funding and to express his disappointment (perhaps anger) that the investment originally promised had not materialised. It also opened up the prospect that Mr Sawiris (using the Orascom shares as collateral) was likely to be the major investor if the IPE consortium's bid for Wind was to proceed. In these circumstances, I do not believe that Mr Sawiris expressed his concerns about having to find €2.2 billion in terms of his putting up a third of such an investment for Mr Benedetti whether on the terms of a loan or otherwise. Not only is this inconsistent with what they had in fact agreed back in 2004 in the Acquisition Agreement but it would also have involved Mr Sawiris in a significant additional commitment to Mr Benedetti which he had no reason to make given that all the additional investment was likely to come from him. It seems to me much more likely (and I find) that the conversation was confined to a complaint by Mr Sawiris that the major investor was about to pull out and a request that Mr Benedetti should start to make some effort to find alternatives. This is the case presented in Mr Benedetti's own pleadings.
- But I am also not persuaded that in a conversation which Mr Sawiris now says took place on 15th March there was something amounting to an express agreement to abandon the Acquisition Agreement. I think that it is unlikely that the realisation that Mr Ross might have pulled out of the deal led to any immediate discussion about their contractual relationship. Both Mr Sawiris and Mr Benedetti were having to digest the consequences of Mr Ross's possible departure from the transaction and Mr Sawiris's primary concern (as to which there is common ground) was to attempt to avoid the loss in funding either by persuading Mr Ross to stay in (which is one of the reasons he went to New York the following day) or to bring in some other investors. I also think that a discussion in terms about the Acquisition Agreement is unlikely. It was already apparent to Mr Sawiris that he had moved away from the structure envisaged by the Acquisition Agreement and was now contemplating an investment in a new company (Weather I) set up by IPE as part of the consortium bid in which, as Mr Abdou had said in his earlier e-mails, he would only obtain personal control of Wind if he could persuade the other investors to agree to that. I do not believe that he would have felt the need to stress to Mr Benedetti that, absent Mr Ross, it would be a new deal. It was already in a sense a new deal. The principal question for him was how to pay for it.
308. The transfer of the shares in Weather I
- What is not in dispute is that on 25th March Mr Benedetti transferred to Mr Sawiris his 99% shareholding in Weather I. Mr Benedetti relies in the APC on Mr Sawiris having told him at the time of the transfer that: "You held the shares for me and now I will hold them for you". It is not suggested that this statement created in itself some kind of trust for Mr Benedetti. Rather, it is relied on as confirmation that the terms of the Understanding and the Acquisition Agreement were not to be adversely affected or cease to apply simply by reason of the transfer.
- Mr Sawiris denies ever having said this and I accept that evidence. It is important to remember that the shares were held up to this time by a subsidiary of IPE. It seems to be common ground that Mr Sawiris asked Mr Benedetti to get IPE to transfer the shares to him because Mr Ross had dropped out. According to Mr Benedetti, Mr Nguyen was not prepared to transfer the shares directly to Mr Sawiris because of Mr Ross's desire to avoid being seen to associate with him. IPE therefore transferred 99% of the shares to Mr Benedetti on 24th March and the one remaining share to Mr Abdou. On 25th March Mr Benedetti transferred them on to Mr Sawiris. He says that it was then that the conversation about Mr Sawiris holding the shares for him took place. Mr Benedetti says that he trusted Mr Sawiris to honour the Acquisition Agreement they had signed and that the transfer was also designed to avoid the possible negative media comments referred to earlier.
- Mr Sawiris's case is that the transfer of the shares was simply the consequence of Mr Ross dropping out. Mr Ross was represented by IPE so that, on his departure, IPE no longer had any justification to be running the transaction. He therefore requested that the shares be transferred to him. He says that he never agreed to hold any of the shares for Mr Benedetti or considered that he did so.
- Mr Philippe confirmed that towards the end of March he began to have difficulty in contacting Mr Stephen Toy who was one of W.L. Ross & Co's investment directors and the point of contact with IPE. Enel were also pressing the consortium to provide unconditional commitment letters from Mr Ross and Mr Sawiris to confirm that the money was available for the purchase. Mr Benedetti and the banks pressed Mr Nguyen for the letter from Mr Ross and it eventually emerged that he was no longer willing to be part of the consortium. Mr Philippe says that Mr Benedetti was very angry and even threatened to sue IPE. He and Mr Sawiris allowed IPE to remain involved for a few weeks longer to see if they could bring in the Reuben brothers or find other suitable investors to plug the funding gap but that because no agreement could be reached with the Reuben brothers (partly, Mr Philippe says, because of their unwillingness to pay any significant share of profits or fees) by early to mid April IPE was forced to pull out.
- This evidence, I think, confirms what I said earlier about the time lag between the 15th March meeting and the final confirmation that neither Mr Ross nor an alternative IPE investor would be involved in the acquisition. But the transfer of the shares is only consistent with a recognition by Mr Sawiris (and Mr Benedetti) as of then that the idea of a purchase by an IPE-led consortium was effectively a dead letter.
- Mr Sawiris in his witness statement links the transfer with the alleged conversation in which he and Mr Benedetti are said to have agreed that the Acquisition Agreement should be replaced by a new arrangement and clearly, if any such conversation had taken place, it is much more likely to have been at this time. The contemporaneous documents show that Mr Benedetti was telling the banks that Mr Sawiris was now to be the only shareholder in Weather I. An e-mail to this effect was sent to Mr Bruno of Banca IMI on 24th March and UBS were given similar information. There is also an unsigned letter to Mr Nguyen from Mr Benedetti of the same date (which must have been drafted on Mr Benedetti's instructions, even if not sent) in which he says:
"Although we have appreciated your continued efforts and support to submit the offer, the fact that the equity commitments that you undertook to be procured from your side were not available by the deadline for the offer has created significant difficulties for the Consortium.
In order to be in a position to present timely the Offer within the scheduled time (which constitutes a key element to maintain the chances of success), Mr Naguib Sawiris has undertook the relevant equity commitments entirely and personally (by also agreeing to countersign the Offer as a direct obligor).
As a consequence of the above, Mr Sawiris has also taken the entire share-control of Weather Investments S.A."
- None of this evidence is consistent with Mr Sawiris having in effect confirmed to Mr Benedetti that he would implement the Understanding or the Acquisition Agreement in relation to Weather I. There is no obvious reason why Mr Benedetti should conceal his involvement as a potential shareholder from Mr Nguyen with whom he had worked already on the deal and had signed the February collaboration agreement. The comment attributed to Mr Sawiris also seems to me a rather odd and stilted remark for him to have made given that Mr Benedetti had only held the shares for one day and then only to accommodate IPE's concerns to distance itself from Mr Sawiris.
- But it is also, I think, an unlikely arrangement for them to have made if what they in fact now intended was simply to replicate the arrangements under the Acquisition Agreement. It is worth remembering that when Rain was incorporated the shares were in fact issued in accordance with the one-third/two-thirds split provided for under the Agreement. Had the intention been for Mr Benedetti to have one-third of any investment by Mr Sawiris then this should have resulted in his retaining one-third of the Weather I shares transferred to him on 24th March. By then it was clearly contemplated that Mr Sawiris was likely to be the only investor in Weather I.
- Mr Benedetti suggests that this was not done in order to avoid adverse press comment. But, in my judgment, this is largely a convenient fiction used to explain why various stages in the transaction did not correspond to what Mr Benedetti claims was the true agreement between him and Mr Sawiris. If this had been a genuine concern it would have been a consideration when Rain itself was incorporated and capitalised. No such concerns were evident at that time. The change to Weather I is not alleged to have been prompted by the same concerns. As explained earlier, it was simply the consequence of Mr Benedetti switching to an arrangement with IPE who had Mr Ross as a significant investor and were prepared to offer Mr Benedetti generous terms in relation to profit share and fees.
- As has also been pointed out (and was put to Mr Benedetti), he was, on his own case, extremely prominent in the transaction and any concerns about his suitability as a person to do business with on the part of Enel or the Italian government are likely, in my view, to have applied with equal force to his involvement in the negotiations for the purchase. In fact (according to his evidence in cross-examination) a number of the people involved in the transaction already knew. When it was put to him that he was misleading Enel by not disclosing his alleged ownership of part of Weather I in the offer letters he said that Enel did not have a problem with him as a shareholder and that some of the banks also knew. At other times in his evidence he maintained that disclosure would have been a problem. Mr Scaroni, on the other hand, says in his witness statement that he got the impression at the meeting in October 2004 that Mr Benedetti was to be a partner and shareholder in the consortium and he gives no indication that this was a matter of concern.
- I therefore reject Mr Benedetti's explanation for the transfer of all of the shares in Weather I to Mr Sawiris and his evidence about what was said at the time. But it is also important to consider the transfer of the shares in conjunction with the evidence about the First Brokerage Agreement and the Support Agreement which Mr Benedetti says that he signed on 24th March.
319. The First Brokerage Agreement
- As part of the share transfer arrangements Mr Benedetti was appointed a director of Weather I in place of Mr Nguyen on 23rd March. The following day the shares were transferred to him. Mr Benedetti says in his first witness statement that he formalised a brokerage agreement (which I will refer to as "the First Brokerage Agreement") on behalf of Weather I with ITM, of which Mr Benedetti was the principal employee. He says that Mr Sawiris was aware of the agreement which was drafted by Mr Speroni and which had been budgeted for as a transaction cost since November 2004 in discussion with IPE and Mr Micheli. Mr Benedetti says that IPE had not got round to formalising agreements with all the service providers involved in the acquisition and so he took the opportunity to do so when he became a director and the shareholder of Weather I on 24th March. Brokerage fees are, he said, always paid by the purchaser in an acquisition as a transaction cost even when the recipient is a principal.
- I will deal with whether brokerage fees are commonly paid in this way when I come to consider the issue of quantum meruit but, for the moment, I want to concentrate on the circumstances in which the First Brokerage Agreement came to be made.
- The agreement is dated 24th March but also bears the date in manuscript of 2nd April when it appears to have been signed by a Mr Nounou on behalf of ITM. Under the agreement Weather I appointed ITM to provide brokerage services on behalf of Weather I in accordance with instructions from the company. In return for the provision of these services ITM was to receive 0.7% of the Transaction Value as defined which included the total amount paid to acquire Wind at its enterprise value including the amount necessary to refinance its debts.
- "Brokerage Services" are defined in the agreement to mean:
"the effecting of transactions of and/or relating to the purchase of and dealing in Securities in the name and for the account of the Company as well as the assistance in the negotiation with the prospective seller, raising of acquisition debt and further raising of financial debt for Wind."
- Mr Benedetti says that although the agreement with IPE had envisaged payment of a fee of 1%, he decided to reduce the fee to 0.7% due to the escalating costs attributable to finding cash to replace Mr Ross's intended investment.
- The Support Agreement, also dated 24th March 2005, provides for Managest to provide Weather I with support and logistic services in connection with the acquisition in accordance with instructions from the company. For this Managest was to receive a flat fee of €3.4 million plus expenses. The Defendants' case is that neither of these agreements was executed until about June 2005 once it was made clear to Mr Benedetti by Mr Abdou that he was not to receive anything more than 1% of Weather Italy (or €75 million) for his efforts in the transaction.
- Mr Benedetti accepts that a second brokerage agreement (referred to as "the Revised Brokerage Agreement") was executed either in July or early August 2005. This provided for a fee of 0.55% of the transaction value and was back-dated to conform with the SPA but he denies that there was any back-dating in respect of either the First Brokerage Agreement or the Support Agreement.
- This issue goes mainly to credibility because it is common ground that the brokerage fee of €67 million paid to Mr Benedetti after closure is referable to the later agreement. I propose therefore to take it quite shortly.
- Both Mr Sawiris and Mr Abdou deny being told about a brokerage fee in March 2005. Mr Benedetti accepted that he did not send them a copy of the agreement and I accept their evidence that they were not made aware that Mr Benedetti was to receive a brokerage fee until much later. He says that the fee originated from his arrangements with IPE but, as I have already found, those were also concealed from Mr Sawiris and Mr Abdou.
- The reduction of the fee from the original 1% to 0.7% is said to be related to IPE's withdrawal from the transaction. The Defendants submit that the timing is wrong for this to be correct. As mentioned earlier, IPE were kept in the frame until April to see if they could bring the Reuben brothers and any other investors into the consortium in place of Mr Ross. As late as 13th April there were still negotiations with Aldersgate Investments (the Reuben brothers' investment company) about fees. It is therefore said that the change to 0.7% must be based on something else and that the only plausible explanation for it lies in a table of fees sent to Mr Benedetti and Mr Abdou on 25th May which included an entry for "M&A and arranging equity fees" in the sum of €87.76 million. This figure was not based on any valuation of time spent but simply represented the difference between the other fees and the total sum budgeted for fees of €400 million. The suggestion is that Mr Benedetti drafted the First Brokerage Agreement in late May or June in order to justify the payment of the balance of the fee budget to him.
- The back-dating of the First Brokerage Agreement is not alleged in the pleadings and I admitted some late evidence about the drafting of that and the Support Agreement. This was in the form of witness statements from Mr Aimone Beretta of Merrill Lynch International Bank Limited and from Mr Giuseppe Casagrande who was until 2004 a colonel in the Guardia di Finanza but then in January 2005 became the chairman of Managest.
- Mr Beretta previously worked for UBS and since 2005 has been an investment adviser and manager to Mr Benedetti. His evidence is that he recalls meeting Mr Benedetti at a hotel in London after the signing of the SPA on 26th May. This was his first meeting with Mr Benedetti and he says that he recalls discussing the Wind transaction and being told by Mr Benedetti that he was receiving a brokerage fee. He recalls Mr Benedetti showing him a copy of the brokerage agreement which he says was a signed copy. In preparing his witness statement he says that he was shown by Herbert Smith copies of both the First and the Revised Brokerage Agreements and is confident that the agreement he saw on this occasion was the First Brokerage Agreement. It specified a fee of 0.7%.
- Mr Casagrande says that he signed the Support Agreement in Mr Benedetti's offices in Rome on 24th March and that he would not have signed a document with a date other than the signing date.
- Mr Beretta was cross-examined to the effect that he attended the meeting on 26th May with no prior documentation. It is said that had he in fact seen the agreement it would have raised a number of obvious questions about ITM and the terms of the agreement. Mr Casagrande said in cross-examination that he signed an agreement with a cover page which he initialled. The extant version of the document has a cover sheet which is the only page bearing a date. It is, however, the only page which is not signed or initialled by Mr Casagrande. On this basis it is suggested that the original cover page has been replaced subsequently with one bearing the 24th March date and that Mr Casagrande's evidence of dating is dependent on one accepting that the cover sheet he in fact signed was (like the present version) dated 24th March.
- As with the First Brokerage Agreement, the suggestion is that the €3.4 million figure was extracted from some fee spreadsheets produced on 25th May which contain an entry of €6.9 million for "other advisers" of which €3.4 million would have remained uncommitted after deducting the €3.5 million to be paid to Mr Lo Bascio and Mr Fienga. Once again this was Mr Benedetti in effect helping himself to the balance of the sum estimated in respect of fees and expenses.
- Although the evidence about the dating of these agreements has been subjected to detailed analysis by reference to the drafts of the First Brokerage Agreement and the subsequent fee schedule, I am not able to conclude simply from this that the evidence of Mr Beretta and Mr Casagrande is unreliable. They both made what I took to be honest attempts to recall the documents they saw and I propose to decide this case on the basis that those recollections are accurate. If that is right then on 24th March Mr Benedetti responded to the prospect of Mr Ross's and IPE's departure from the transaction by using the opportunity presented by his appointment as director of Weather I and the transfer of shares to procure two agreements for his own benefit without the prior approval of Mr Sawiris and without disclosing to him or Mr Abdou the fact that he would receive a substantial fee from the transaction. As mentioned earlier in this judgment, the payment of a brokerage fee in addition to the shares received under the Acquisition Agreement was not a term of that agreement or part of the alleged Understanding and if the First Brokerage Agreement was signed on 24th March it, of course, gave Mr Benedetti the security of a payment out of the transaction that was not dependent on any agreement with Mr Sawiris about the terms of his remuneration or on IPE remaining involved in the transaction so as to give him a return under the February collaboration agreement. His own evidence is that the First Brokerage Agreement amounted to the implementation of his arrangements with IPE rather than a term of the Acquisition Agreement and this is something which needs to be borne in mind when considering whether he and Mr Sawiris are to be taken as having amended the Acquisition Agreement to include the completion of the purchase of Wind by either Weather I or Weather II.
335. The March and April 2005 offers
- Towards the end of March Mr Benedetti sent to Mr Sawiris further drafts of the offer letter based on a purchase of 62.75% of Wind including a put and call option over the remaining 37.25%. The draft sent on 25th March refers to "Bidco" being formed by Weather I before closing as a wholly owned subsidiary and to the beneficial owner of Weather I being Mr Sawiris. The only reservation in respect of beneficial ownership was the reference to the possibility that Weather I might, between the submission of the offer and closing, include three other groups of minority investors. These were named as investors affiliated to Mr Sawiris; IPE (particularly in relation to the funds of Caisse de Depot et Placement du Quebec) and Apax or funds managed by Apax.
- This was followed by a further version of the offer letter sent to Mr Sawiris and Mr Abdou on 26th March which was based on the same structure but, this time, named Mr Sawiris as an investor for between 51% and 100% of Weather I with IPE and Apax each taking up to 25%. The offer letter contains a provision stating that:
"Should investors other than the Equity Sponsors wish to join Weather, before doing so Weather will disclose the relevant ultimate beneficial shareholder to Enel and such new investor be subject to the approval of the latter (which should not be unreasonably withheld and, if denied, will be accompanied by written and objective motivation".
- Mr Abdou provided comments on the draft on 26th March which were confirmed by Mr Sawiris the following day. It seems clear that Mr Benedetti looked to them for approval of the draft offer letters and there is, of course, nothing in the drafts I have mentioned to support Mr Benedetti's case that it remained their common intention that he should have one-third of anything which Mr Sawiris put into the acquisition.
- On 28th March Mr Benedetti delivered to Enel what was stated to be Weather I's firm and irrevocable offer to purchase up to 100% of Wind at a value of €11.9 billion using a wholly owned subsidiary as the purchasing entity. As in the draft offer letters, the proposal was to acquire 62.75% of the company for a mixture of cash and loan notes and to enter into a put and call option in respect of the remaining 37.25%. In the offer letter the beneficial owners of Weather I were named as Mr Sawiris (60-100%); IPE (up to 15%) and Apax (up to 25%). The letter was signed by Mr Sawiris who also provided a commitment letter which refers to the offer and confirmed his equity commitment to fund the transaction up to €2 billion subject to the finalisation of the documentation; the unconditional availability of the bank finance set out in the banks' own commitment letters attached to the offer; and the satisfaction of all stated conditions precedent.
- Enel responded on 29th March offering non-exclusive negotiations on the agreements to be entered into including as to the terms of the equity commitments from the proposed investors. The point was taken that the letters from Apax and IPE were addressed to Weather I and did not contain the level of obligation required and expected by Enel. Mr Sawiris's letter was taken as conditional on a call being made by the board of Weather I. If Mr Sawiris was in control of Weather I he could prevent any such call being made. There were also issues to discuss on the vendors' loan and the SPA.
- Mr Bruno of IMI prepared a memorandum on 31st March which he sent to Mr Sawiris and Mr Abdou (copied to Mr Benedetti) summarising these recent developments. The informal indications from Enel were, he said, that they wanted the offer to be as firm as Blackstone's by 6th April. They also had issues about the equity investment and funding:
"… they have clearly some problems in terms of visibility (who is behind IPE), stability of the ownership structure (is APAX in our out) and comfort about the funding of the committed equity.
Concerning the funding of the equity: signing will obviously be subject to a bank's guarantee. At the present stage, however, that would not be reasonable to ask, not even as against exclusivity. We and the advisors are thinking about a possible format of a "comfort letter" that you may wish to seek from one of your bankers. We realize that you may feel uncomfortable about this issue, but we think this is standard procedure when the Vendor's counterpart is not a corporate entity with audited accounts, or a reputable investment fund."
- Funding was clearly a major concern for Mr Sawiris. He did not have realisable assets of anything like the value needed to fund €2 billion of the purchase but was being pressed by Enel to make an unqualified commitment to do so. On 1st April Mr Benedetti e-mailed to Mr Carlo Corradini of Banca IMI what is stated to be a script for a phone call to Mr Sawiris. Neither Mr Sawiris nor Mr Benedetti could shed much light on this and it is unclear whether the call took place but the e-mail contains a number of points for Mr Corradini to put to Mr Sawiris including a suggestion that Banca IMI would be able to provide a loan of between €800 million and €1 billion to fund part of the equity subject to Mr Sawiris providing cash of about €500 million with the remaining €700 coming from other investors. A comfort letter to Enel could be provided by Banca IMI subject to evidence of the availability of the cash from Mr Sawiris and such a letter could then "buy (a) few extra days to syndicate the remaining equity".
- A certain amount of time was taken up with the issue of whether the 25th March commitment letter was intended to be conditional or fully binding. Although not directly relevant to any of the real issues in the action, it is a sensitive topic because in the letter accompanying the claim Herbert Smith alleged dishonesty and fraud on the part of Mr Sawiris in making a promise to commit €2 billion to the transaction which he knew he could not honour. This seems to me to be an exaggerated and unfounded allegation which has not been pursued during the hearing. Since, however, nothing turns on it, I do not intend to go any further into that issue. The only relevance of these attempts to sort out what needed to be said to Enel is that they brought to a head the question of how the purchase of Wind was to be funded. Mr Sawiris accepts that by 1st April he knew that his ability to provide the necessary finance was heavily dependent upon bank support which would at minimum involve using the Orascom shares as collateral. This, in turn, brought into focus the position of the Holding Companies whose consent would be necessary for this purpose. Mr Sawiris said that by 1st April he must have asked his father about using the shares although, in his witness statement, he suggests that the use of the shares did not become a real issue until May. This is confirmed by the fact that on 4th April Mr Sawiris and his father signed a letter to Mr Bruno formally requesting IMI to provide a letter of comfort to Enel regarding their ability to finance the purchase by Weather I of up to 100% of Wind and undertaking not to sell, assign or dispose of any of the Orascom shares before 1st August 2005. The letter included the shares held by April and OSH of which Mr Sawiris and his father were, of course, directors.
- The comfort letter was provided on 6th April confirming that Mr Sawiris and his father were the beneficial owners of at least 50.1% of Orascom, the market value of which was approximately €3 billion. It was sent to Enel together with a re-stated offer for Wind containing revised terms for the vendors' loans and a new commitment letter from Mr Sawiris. This was expressed to be subject only to the satisfaction of all the conditions precedent provided for in the offer and the SPA with draw down to be on the earlier of 15 days from the call of the board of Weather I or closing.
- On 9th April Enel was sent a "Final Offer" and "Supplemental Final Offer" for Wind. The Final Offer was for 62.75% of the company based on an enterprise value of €12.16 billion with an option to purchase the remaining 37.25%. The Supplemental Final Offer contained a "roll-up" allowing Enel to retain an interest in Wind by taking shares in Weather Italy.
- Mr Benedetti says that he had a discussion with Mr Sawiris prior to 9th April about the price. Mr Sawiris wanted to offer €11.9 billion but Mr Benedetti says that his response was that there would be no deal at less than €12 billion. Mr Sawiris therefore suggested offering €12.01 billion but was unwilling to go further. Mr Benedetti says that he was heavily involved in drafting the offer and decided to create two offers: one at the price agreed by Mr Sawiris and a higher (unofficial) one. He got Mr Abdou to sign both offers in Mr Sawiris's name. They then went to meet Enel in Milan.
- At this meeting Mr Scaroni told them that Enel wished to retain a minority shareholding in Wind and that the offer would have to be re-structured so that it was for only 62.75% of Wind rather than for an initial stake of 62.75% in an overall offer for 100%. Mr Benedetti says in his witness statement that Mr Abdou got angry and left the meeting but that he remained and discussed the matter with Mr Scaroni and Mr Conti. He says he decided to revise the offer to comply with Enel's new requirements and devised a solution to the debt financing problem created by a purchase of only 62.75% of the company by allowing Enel to roll-up its 37.25% interest in Wind into an Italian holding company (Weather Italy) which would own 100% of Wind.
- Mr Abdou's evidence is that he and Mr Benedetti in fact anticipated that Enel might decide to retain a stake in Wind and that his departure when this was announced was a pre-arranged piece of theatre designed as a negotiating tactic. There is also some dispute about how the offer price came to be agreed. The only offer which was ever presented to Enel was one in the sum of €12.16 billion. It was accepted by Mr Benedetti that no €12.01 billion offer was ever put and it is difficult to see why it should ever have been prepared. In cross-examination he also suggested that the €12.16 billion offer resulted from an earlier phone call from Mr De Bustis who told him that Blackstone was going to increase its bid. There is also a suggestion that Mr Benedetti in fact proposed making an offer of €12.15 billion but was told by Mr Trentino of ABN Amro that it should be €12.16 billion.
- Mr Abdou's evidence was that he and Mr Benedetti thought that Blackstone would offer €12 billion and that they should offer €12.2 billion. In the event, they settled on €12.16 billion after getting Mr Sawiris's permission to go as high as €12.2 billion. As with many other factual issues in this case, the question of precisely how the bid came to be formulated at €12.16 billion is not critical to the determination of the case and I do not intend to attempt to resolve it.
- The 9th April offer resulted in Weather I being granted exclusivity by Enel. Mr Scaroni says in his witness statement that the main reason why Enel chose the Weather consortium over Blackstone was that it had offered a higher price. Blackstone had offered €12.01 billion. The grant of exclusivity was, however, subject to the provision of a €100 million performance bond which Enel required to be delivered within two working days.
- Mr Benedetti says that he was telephoned by Mr Conti with this request on the evening of 9th April and told Mr Abdou about it the next morning while they were in a taxi on the way to the airport. Mr Abdou's response was that Mr Sawiris could not provide the bond within that time or at all and would need the assistance of his father. They rang Mr Sawiris who is said to have confirmed this in fairly forthright terms. Mr Benedetti says that he considered the requirement for the bond to be a standard condition for a deal of this type and was shocked to hear that Mr Sawiris did not have the means to provide it. However, rather than allow the deal to collapse, he contacted IMI and eventually was able to persuade Mr Corradini after what he describes in his witness statement as many hours of conversation over the course of the day to provide the bond within the time limit against cash collateral of €50 million which was already on deposit with the bank and a commitment from Mr Sawiris to transfer a further $89 million worth of Orascom shares held by J.P. Morgan. This is cited by Mr Benedetti as a further example of how his introduction was crucial to the success of the deal.
- Although Mr Benedetti downplayed the risks attached to the bond in some of his evidence, there clearly was some danger that Mr Sawiris could lose the €100 million if he failed to provide the finance he promised and Mr Reynolds described the requirement for the bond as unusual. But the Defendants say that Mr Benedetti has exaggerated his efforts in obtaining the bond because Mr Speroni was able to send an e-mail to Enel by 3.00 pm that afternoon confirming that IMI was ready and prepared to issue the guarantee subject to agreement on the wording. When cross-examined about this, Mr Benedetti said that he had a telephone conversation with Mr Corradini while waiting in Milan airport which lasted an hour or two.
- There is no evidence from Mr Corradini but the timing suggests that IMI put up no serious obstacles to the provision of the bond subject to Mr Sawiris finding additional security in the form of the shares. This is not, of course, to say that no powers of persuasion were called for but it is, I think, going too far to say that the provision of the bond was down solely to Mr Benedetti. Banca IMI had by then obviously made an assessment of Mr Sawiris's financial worth and were content to provide a guarantee against what amounted to full security.
- On 13th April Enel received Weather I's definitive offer incorporating the bid for 62.75% of Wind at an enterprise value of €12.16 billion together with the roll-up option. In section 9 of the offer document the details given of the equity sponsors are Mr Sawiris in respect of 85% and up to 100% and IPE for up to 15%. The offer goes on:
"Should investors other than the Equity Sponsors wish to join Weather at any time up and until an IPO is completed, before doing so Weather will disclose the relevant ultimate beneficial shareholder to Enel and such new investor will be subject to the approval of the latter (which should not be unreasonably withheld and, if denied, will be accompanied by written and objective motivation). It is hereby agreed and understood that Apax is already approved by Enel for a participation of up to 25% in Weather."
There is, of course, no reference to Mr Benedetti in this nor was Enel ever formally notified that he was to be one of the beneficial shareholders in Weather I.
354 Mufasa and Super Mufasa
- It is convenient at this stage to say something about the discussions relating to the incorporation of the 50.1% Orascom shareholding into the acquisition structure which came to be known as Project Mufasa and Super Mufasa. The evidence is primarily relevant to Mr Benedetti's alternative claim for a quantum meruit.
- In summary, his case is that he was deeply involved in the negotiations with Banca IMI and others from mid-April onwards in connection with what became the €1.2 billion collateralised loan facility. I am asked to find that Mr Benedetti was instrumental both in devising and developing the Mufasa/Super Mufasa ideas and in persuading Enel to agree to it. The Defendants say that it was a team effort.
- The possibility that Mr Sawiris might require to use Orascom shares as collateral for a loan was recognised by him early in 2005 as soon as he began to be asked to consider committing large sums of money towards the purchase. A transaction of this kind would have been routine and uncomplicated and Mr Benedetti does not suggest that it required any input from him.
- Project Mufasa was coined as a name for the idea of bringing the shares into the ownership of a company within the acquisition structure which would then use them as collateral for a loan. The first suggestion of this kind seems to have been made by Mr Abdou in a draft letter to Bear Stearns which he sent to Mr Benedetti on 17th March. This talked of Weather I raising a loan of €1.5 billion and using as collateral Orascom and/or Wind shares which it would obviously have to own for that purpose.
- Mr Benedetti forwarded Mr Abdou's e-mail (without attribution) to Mr Bruno of IMI and Mr Friedman of Bear Stearns. Mr Bruno e-mailed his reply to Mr Benedetti on 18th March in the form of a note summarising possible financial arrangements under which Mr Sawiris would place the 50.1% Orascom stake into a new company with €600 million in cash and Enel would sell to this company 62.75% of Wind. This would result in both Orascom and Wind coming under the control of the new company but the note then contemplates a merger between the two. This was followed by a further e-mail from Mr Bruno on 20th March containing "Highlights of Project Mufasa" in which the 50.1% of Orascom was to be used to capitalise Holdco to enable it to acquire control of Wind and would then become an asset of Wind thereby making Orascom its subsidiary.
- Revised versions of this document were prepared by Mr Bruno and Mr Lo Bascio and Mr Benedetti forwarded the letter to Mr Abdou. On 25th March Mr Abdou sent to Mr Benedetti a further document containing his ideas for the Mufasa structure. This contemplated 56% of Orascom being transferred to Holdco to which Banca IMI would make a loan against the Orascom shares. Holdco would then use the loan to acquire 63% of Wind thereby making Orascom and Wind sister companies. The document contemplated that Mr Sawiris would then have the option during the following year to transfer the Orascom shares from Holdco to Wind at a pre-agreed formula with Enel in return for the issue of further shares in Wind so that Mr Sawiris would end up with a controlling stake in Wind and, through it, control of the 56% of Orascom then owned by Wind.
- Mr Benedetti responded late that evening by sending Mr Abdou an amended version of the document he had produced. In paragraph 3 (which dealt with the valuation of Wind for the purposes of the acquisition by Holdco) he added a comment that "we can recognise to Enel a higher value and get a premium on the OTH share of 20% or more"; a reference to the increased value of the shares attributable to their being a majority stake.
- On 31st March Mr Bruno of IMI sent to Mr Sawiris and Mr Abdou (with a copy to Mr Benedetti) a short memorandum (referred to earlier) summarising recent developments, including Project Mufasa. This revealed that Mr Bruno and Mr Corradini had met Mr Conti of Enel and told him that in the bank's opinion the conditions were right for the immediate integration of Orascom and Wind. Mr Bruno attached a copy of the document he had given to Mr Conti which refers to an initial purchase by Holdco of 50%+ of Wind in cash following by an increase in the share capital of Wind based on the transfer to the company of the Orascom shares. This would leave Holdco owning about 70% of Wind with Orascom as its subsidiary and it is not dissimilar to the idea for the possible integration of the companies contained in Mr Abdou's document of 25th March. The timing is, however, different. The integration of Orascom into Wind would, of course, require Wind and the Orascom stake to be valued and Mr Bruno's memorandum also refers to a premium in this context.
- It is clear that Banca IMI were keen that after the acquisition of Wind Orascom should be integrated into the structure as a subsidiary of Wind so that any lending to Holdco would have the benefit of its interests in both companies. The offers made to Enel do not, however, contemplate an arrangement of this kind and, as described earlier, the roll-up option envisaged Enel using its remaining shareholding in Wind to acquire shares in Weather I or its subsidiary. Added to this, it seems to be common ground that Mr Sawiris's preferred option at the time was not to bring the Orascom shares into the structure but to use them simply to provide collateral for a loan.
- On 15th April Mr Fabio Pappalardo of IMI sent to Mr Abdou and Mr Benedetti a document on the integration of Wind and Orascom (referred to in the e-mail as "Mufasa/Super Mufasa"). This was a document produced by IMI which shows two alternative possible approaches. The first (described as "Super Mufasa") envisages Weather I establishing a subsidiary (Newco) to purchase 62.75% of Wind from Enel. Enel would then roll-up its stake in Wind into Newco in return for shares leaving 100% of Wind in Newco which would be owned 70/30 by Weather and Enel. Then, over a two year period, Orascom would be combined by Mr Sawiris and/or Weather transferring the controlling stake in Orascom into Newco thereby making both Orascom and Wind subsidiaries of Newco and sister companies.
- The second approach (described as "Mufasa") was for Weather to establish Newco and to transfer the Orascom shares to it. Newco would then acquire 62.75% of Wind from Enel and a few months later sell the Orascom shares to Wind in return for cash and shares issued by Wind based on the market price of Orascom. This would result in Weather (through Newco) owning between 70% and 80% of Wind which would in turn control Orascom.
- Mr Benedetti says that this was IMI's proposed structure for Project Mufasa and Super Mufasa. The document itself refers to the objective being the finalisation of a document on the Wind/Orascom integration for presentation to Enel. This would be the responsibility of Mr Pappalardo and Mr Francese of IMI together with Mr Brocchieri of Deutsche Bank.
- It was put to Mr Benedetti that what he says in his second witness statement was his own structure for Super Mufasa bears a striking similarity to the step 2 illustration for Super Mufasa contained in Banca IMI's document of 15th April. They are in fact identical. Mr Benedetti's response was that Mr Pappalardo was working for him and was simply carrying out what he and Mr Bruno had come up with. This seems to be a more realistic description of the process than the suggestion in Mr Benedetti's written evidence that he and the banks somehow trod separate paths to the structure ultimately employed under which Orascom and Wind became sister companies under Weather Italy with Enel exchanging its shares in Wind for shares in Weather Italy.
- One can see from the documentation after 15th April that on 22nd April Mr Pappalardo sent an e-mail to Mr Sawiris and Mr Abdou (copied to Mr Benedetti) attaching an "Orascom Integration Overview". On the same day Mr Abdou sent to Mr Speroni, Mr Sawiris and Mr Trentino (with copies to Mr Benedetti and Mr Bruno) a note summarising the discussions he had had with Mr Sawiris. His position was:
"1. The deal we are doing now is the Wind deal. Period.
2. We should not be talking to Enel, or anyone else, about any scenario to integrate OT at this point.
- The most Mr Sawiris was prepared to do at that stage was to tell Enel (and any other investors) that he would be prepared to contribute his stake in Orascom to Wind in the future at a pre-agreed multiple. Mr Speroni was asked to prepare a memorandum of understanding along these lines and one exists dated 10th May which sets out terms for the integration of Wind and Orascom at some point after the acquisition of Wind by Newco and the exercise of the roll-up option.
- By then the focus had in part shifted to the terms upon which Enel's remaining 37.25% of Wind would be exchanged for shares in Weather Italy. On 14th May Mr Benedetti sent an e-mail to Mr Abdou saying that he had had a final round of very positive negotiations with Mr Conti and had agreed a valuation of the Orascom shares at between $57 and $60 a share. This was clearly on the basis of the Super Mufasa structure. This is confirmed in an e-mail from Mr Bruno to Mr Trentino and others which states that Mr Benedetti presented Mr Conti at the meeting with a copy of a briefing memorandum on the structure prepared by IMI showing Enel exchanging its remaining shares in Wind for shares in Weather Italy based on an Orascom share price of $60 and Orascom and Wind becoming sister companies. Mr Bruno says in his e-mail that Mr Conti's response to this was that the price of $60 per share was "very high, hard to justify" and that Enel also wanted a "divorce put option" in case things did not work out well. But that apart, the structure based on the roll-up was agreed.
- Mr Bruno's comments on these points were that Mr Benedetti had agreed a range of value for the Orascom shares of between $57 and $60 per share but that the divorce option was a non-starter as far as Mr Sawiris was concerned. Later on 14th May Mr Bruno sent to Mr Abdou and Mr Benedetti a revised version of the briefing memorandum showing Mr Sawiris contributing the 50.1% Orascom stake into what became Weather Italy at a price of $57 per share plus €600 million in cash and raising a term loan collateralised using the Orascom stake.
- Following the acquisition of 62.75% of Wind, Enel would exercise the roll-up option by contributing the remaining 37.25% at an agreed value of €1.773 billion against the issue of shares in Weather I based on an agreed value for the Orascom shares of $57 per share.
- Mr Abdou e-mailed Mr Benedetti on 15th May to say that Mr Bruno's proposal seemed to be on the right track but that there were two problems: the loan was too high at €1 billion and the suggested cash contribution from Mr Sawiris was impossible. Mr Sawiris was not willing for it to exceed €200 to €300 million and this was a deal breaker.
- The real contest for authorship of the sister company structure which was eventually adopted appears to lie between Mr Benedetti and IMI. It is clear that the bank's original idea was the integration of Orascom into the structure as a subsidiary of Wind but Mr Pappalardo's e-mail of 15th April shows that, by then at least, it had adopted the idea of Orascom and Wind becoming sister companies under the same control and it was this structure which Mr Benedetti got Mr Conti's agreement to when they met on 13th May. Neither Mr Pappalardo nor Mr Bruno was called to give evidence. I am prepared to accept that Mr Benedetti certainly contributed to the thinking which came up with the sister company structure. But what is less certain is whether it is possible to say on the evidence that it was, so to speak, his invention for which he can claim sole credit. The documentary evidence suggests that it arose out of discussions with Banca IMI who were to organise the collateralised loan and who appear to have come up with the idea of an integration along these lines but being achieved at a much later date rather than as part of the acquisition. This is the e-mail of 15th April.
- The idea of using essentially the same structure but promoting it in time to form the basis of the roll-up option must have grown out of these earlier discussions. I accept Mr Benedetti's evidence that in discussions with Mr Bruno he suggested the idea of utilising it in this way and that this was then incorporated into the briefing memorandum presented to Mr Conti. It is not, I think, necessary for me to decide whether that degree of originality is sufficient to separate it from the prior art.
375. Agreeing the Premium
- As with Super Mufasa, the issue here is whether Mr Benedetti is entitled to claim most of the credit for negotiating the agreed value of Orascom at US$58 per share or whether, as the Defendants claim, this was the result of a team effort.
- As already explained, the valuation of the Orascom shares was relevant to their acquisition by Weather Italy and ultimately therefore to the number of shares which Enel was to receive for the transfer of the remaining 37.25% of Wind. Mr Benedetti's evidence in his first witness statement is that over several meetings in May he persuaded Mr Conti and Mr Tamburi of Enel that, due to the potential of the project, the shares in Weather Italy should be valued at far more than the price at which the shares in Orascom were then trading. At the relevant time, this was only about $42 per share. The $58 per share price therefore represented a premium of about 38% over market price. Mr Benedetti says that he was able to achieve this price partly by salesmanship based on extolling the synergies and other advantages that would come from the transaction and partly by preying on what he says was Mr Conti's reluctance to see the deal fail.
- The discussions with Mr Conti did not involve either Mr Abdou or Mr Sawiris. Mr Sawiris said that he had told Mr Benedetti that he required a control premium for the Orascom shares but not that he had put any particular figure to him. He did, however, suggest that Mr Abdou had sent to Mr Benedetti a calculation of the price which they expected. The only e-mail that might arguably fit this description is the one that Mr Abdou sent to Mr Benedetti on 25th March which I referred to earlier in connection with Project Mufasa. This referred to 56% of Orascom having a value of €3.5 billion. But this was in the context of the transfer of the shares into what became Weather Italy in connection with the IMI loan and does not in terms amount to a suggestion of the price at which Weather Italy should be valued for the purposes of the exercise of the roll-up option. There are, however, obvious connections between the two and Mr Benedetti in his comments on Mr Abdou's 25th March document referred to a 20% premium on the Orascom shares to take account of the fact that it was a majority stake.
- In his first witness statement Mr Benedetti says that he considered the true value of Orascom at the time to be at most €1.2 billion. He corrected this in cross-examination by saying that the €1.2 billion figure was his view of what the 50.1% stake was worth. But it is difficult to see how Orascom's shares were worth less than their traded value so that the real point for discussion with Mr Conti was always likely to be as to the size of any premium which should be attached to this being a controlling interest in Orascom having regard to the prospects for future growth following its integration into the acquisition structure.
- At the first meeting with Mr Conti on 12th May it appears that the idea of a phased integration was rejected and this led to the further meeting on 13th May at which a value within the range of $57-$60 per share was agreed. On 13th May the shares in Orascom were trading at about $42 per share so that even if Mr Abdou had given Mr Benedetti an instruction (as he alleged) to value the shares at $58 per share (based on €5.6 billion for 56% as in his e-mail of 25th March) it was still down to Mr Benedetti to persuade Mr Conti to accept that figure.
- Obviously, as the Defendants stress, Mr Benedetti had the benefit of whatever analysis had been carried out by the auditors and others to substantiate the price. Mr Conti was also in possession of a significant amount of information about Orascom and it is reasonable to assume that a similar analysis was carried out on Enel's side. Indeed Mr Benedetti's evidence in cross-examination confirmed that the $58 per share value was agreed after Enel's advisers had checked the calculations being put forward by the Weather team. Part of this probably involved Enel applying the same multiple to Orascom's projected EBITDA (earnings before interest, tax, depreciation and amortisation) as was applied to that of Wind as illustrated in a power point presentation attached to Mr Benedetti's e-mail of 14th May, although Mr Benedetti said at one point that this was not how he and Mr Conti reached agreement on the range of values.
- During his cross-examination Mr Benedetti appeared to accept that Mr Conti probably agreed a value of $58 per share because, on the basis of the analysis carried out, that was what he believed the shares were worth. That said, it would be unrealistic and wrong, I think, to attach no real weight to the value of Mr Benedetti's skills as a negotiator. Both Mr Sawiris and Mr Abdou accepted that it was a very good deal from their point of view and that Mr Benedetti deserved to be given credit for what was achieved. Mr Sawiris (according to Mr Benedetti) told Mr Abdou that he was so pleased with the outcome that he was going to build two statues of Mr Benedetti in Cairo and in a subsequent television interview he was able to say that the result of the premium was that he was able to buy Wind for free. The agreement on the price was by no means a certainty and this, I think, needs to be reflected when I come to consider what it would be appropriate for Mr Benedetti to receive as a quantum meruit.
382. The meetings on 16th to 18th May 2005
- These were meetings with Mr Modiano and Mr Corradini of IMI about the collateralised loan. Mr Benedetti says that he negotiated the increase of the loan from €1 billion to €1.2 billion. The meeting was attended by Mr Benedetti, Mr Sawiris and Mr Conti. Mr Benedetti's evidence in his first witness statement was that he persuaded Mr Corradini to increase the loan from €1 billion to €1.1 billion and that later on the 18th Mr Conti and he persuaded IMI to increase it further to €1.2 billion.
- In his second witness statement, however, he says that Mr Sawiris helped him and Mr Conti to negotiate an increase to €1.1 billion but that Mr Sawiris was not responsible for its subsequent increase to €1.2 billion.
- Mr Abdou's evidence was that Mr Conti persuaded IMI to increase the loan to €1.1 billion and that the increase to €1.2 billion really followed a half joking suggestion by Mr Sawiris.
- It seems to me that on the basis of these recollections no one person can claim the credit for the increase in the loan and nothing further needs to be said about that. But the meeting is significant according to Mr Benedetti because Mr Sawiris told him after the meeting that "when the deal to acquire Wind is finished and the situation has calmed down, I will transfer your shares to you". A little later he is said to have assured Mr Benedetti that they had a "contract together" and that "my word is my bond and I always keep my word".
- The first of these conversations is relied on by Mr Benedetti as supporting an implied variation of the Acquisition Agreement by the substitution of Weather I for Rain and the insertion of a term that Mr Sawiris would hold one-third of the shares in Weather I on trust for Mr Benedetti once the acquisition had been completed. Mr Sawiris denies that he said this and I am unconvinced that they had a conversation in which Mr Sawiris, in effect, promised to transfer to Mr Benedetti one-third of the shares in Weather I. By 18th May Enel had agreed to the roll-up option and to pay a premium on the introduction of the Orascom shares. It was clear therefore that one-third of Weather I would have given Mr Benedetti a significant stake in a controlling interest in Orascom: something which he himself accepts he was never intended to have. It therefore seems to me most unlikely that Mr Sawiris would have made any such promise to him, however pleased he may have been about the outcome of the negotiations with Mr Conti and IMI.
- It is, I think, entirely plausible that Mr Sawiris may have made some assurance to Mr Benedetti that he would be properly rewarded for his efforts but that is not what is alleged.
388. Weather II
- Weather II was incorporated in Luxembourg on 24th May. The shares were issued to April (60%) and OSH (40%). Mr Benedetti's case is that he was told on 20th May by Mr Speroni that Weather I was to be replaced by a new company for tax reasons. He says that he knew he had the protection of clause 7.3.1 of the Acquisition Agreement and believed that Mr Sawiris would be the 100% effective owner of Weather II as he had been of Weather I. The change therefore did not seem significant and he did not object to it. He says that he believed that his agreement with Mr Sawiris related equally to Weather I and to Weather II as it had to Rain.
- As of 19th May Enel and the banks required some assurance that the Cayman trusts behind April and OSH would be brought into the SPA and (as part of its due diligence) it wished to have access to the documents relating to the Cayman trusts and the beneficial owners behind the Holding Companies. Mr Abdou sent an e-mail to Mr Speroni (which he copied to Mr Benedetti) summarising the steps being taken to comply with Enel's various requests for information. In relation to the trusts, he wrote:
"….Third, Kevin Struve and the Trust lawyer (Astrid Owen of Withers) have just been instructed by Naguib that they have to be much more flexible and efficient. Naguibs position is simple. He controls the entities involved in the transaction. The beneficial owners are his family. He will guarantee that the beneficial owners do not change. He will guarantee that the trust will not remove him as a sole director. In case of his death the structure continues, beneficial owners don't change and his father then brother becomes director. These guarantees can be for 5 years or 10 years whatever makes Enel happy.
Dissolving the existing trusts and creating new ones is not impossible, but complicated and time consuming and logically, Enel can be satisfied with the existing structure. The Trusts own shares of Weather. Weather owns shares of Newco. Newco owns shares of OT and Bidco. In the end, Newco is italian. Newco has the IMI loan. Newco owns the OTH shares that were contributed in kind through the system. The country of domicile of Weather should be worked out with Naguib lawyers to ensure proper tax treatment. Naguib as an individual should not own shares anywhere in the system……".
- It was therefore clear to Mr Benedetti at this stage that Mr Sawiris was not the beneficial owner of the companies (April and OSH) which would be contributing the bulk of the 50.1% of Orascom but it is said that he proceeded on the assumption that the Acquisition Agreement would apply to them as much as it did to Mr Sawiris. It is not clear to me why Mr Benedetti made this assumption based on the 19th May e-mail which was not addressed to him; was directed solely to Enel's concerns about the willingness of the Holding Companies to bring their Orascom shares into the transaction; and which in terms confirmed that Mr Sawiris was not the beneficial owner of most of the shares. But what Mr Abdou said in this e-mail is relied upon as supporting the second of the implied variations of the Acquisition Agreement to substitute Weather II for Rain or Weather I and to include the Holding Companies as parties to the agreement.
- On 20th May Mr Speroni e-mailed Mr Benedetti and Mr Abdou to say that: "for tax reasons of Naguib, Weather Investment SA will be killed and replaced by a new lux co. New lux co will then buy shares of Newco (being formed today as an Srl in Italy)". This was followed by an e-mail from Mr Dezzani of Dewey Ballantine later that day on the subject of a tax efficient structure for the investors. This stated that a direct investment by April and OSH in what became Weather Italy was not tax efficient because it would expose them to a withholding tax on Weather Italy's dividends and to Italian CGT on any eventual sale.
- Mr Abdou's response to this e-mail was to limit the circulation of any further communications about the trusts and their tax position to himself, Dewey Ballantine and the representatives of the trustees. Mr Benedetti was therefore excluded.
- Finally on 23rd May Mr Speroni circulated a "Summary of Transactions/SPA" to Mr Abdou with copies to the other lawyers, representatives of the banks and to Mr Benedetti. This describes the acquisition vehicle as:
"A newly formed chain (for financing purposes) of Italian Holding Companies ultimately owned by a Lux Holding Company (Weather Investments S.A to be replaced for NS tax reasons).
LuxCo owning 100% of Weather Investments S.r.l, and LuxCo owned in turn by OS Holding, April Holding, Cylo S.A. (Sawiris Family) and Tommaso Pompei investment holding."
- Weather II was then incorporated.
- It seems clear from these e-mails that the major consideration behind the change to Weather II was the tax position of the Holding Companies. Mr Sawiris, Mr Abdou and Mr Nasr, one of the Orascom team who was working in Rome in the financing of the deal, said that another reason for the change was that the banks wanted to use a clean company which had no previous relationship with IPE or the investors who were no longer involved in the acquisition and I accept that this was also a consideration even though the tax advantages were sufficient in themselves to justify the change.
396. The SPA
- This was signed on 26th May at Dewey Ballantine's offices in London. Mr Benedetti, who had been appointed a director of Weather Italy, signed on behalf of the company. In the first part of this judgment I have summarised the principal terms of the agreement and the structure which it brought into existence and it is unnecessary to repeat the detail of that here.
- The Defendants rely in part on the warranties by Weather II, April and OSH contained in clause 9 of the agreement that the entry into the SPA did not conflict with any agreement to which they were bound and did not require them to obtain the prior consent of any third party: see clauses 9(ii) and (iii). Mr Benedetti did not suggest that there was any difficulty about this and initialled every page of the agreement notwithstanding his case that clause 7.3.1 of the Acquisition Agreement continued to apply. I shall come back to these points later in this judgment when I come to consider whether the Acquisition Agreement was impliedly varied as alleged.
- At the time of the signing of the SPA Mr Benedetti was the sole director and shareholder of Weather Italy having been responsible for the incorporation of the company. Soon after the signing of the SPA he transferred the shares for a nominal sum to Weather II. He says in his first witness statement that at the time he held two-thirds of the shares for the benefit of Mr Sawiris and that the transfer was made in the belief that Mr Sawiris would subsequently transfer to him one-third of the shares in Weather II. But it is clear that there was never any question of Mr Benedetti being entitled to any of the shares in Weather Italy. This company was formed as the acquisition vehicle for Wind in accordance with the structures devised in the run up to the SPA and was intended initially to be a wholly owned subsidiary of Weather II and thereafter to accommodate the interests of Enel following the exercise of the roll-up option. Mr Benedetti's claim to shares has never extended beyond Weather II and, despite what he says in his witness statement, he cannot ever have believed that he had a direct interest in Weather Italy.
399. The assignment of the Brokerage and Support Agreements
- Both the First Brokerage Agreement and the Support Agreements contain manuscript addenda indicating that they were assigned from Weather I to Weather Italy on 26th May. Although the annotations do not say so in terms, I am asked to assume that they involved a novation of the agreements so as to pass to Weather Italy the liability for the fees.
- As mentioned earlier, the Defendants contest the date of both Agreements and suggest that they did not come into existence before the purported date of the assignment on 26th May and probably before June. This is based partly on the suggestion that the figures were derived from fee schedules which were not prepared until May and partly on a draft of the Brokerage Agreement which Mr Dezzani of Dewey Ballantine produced and e-mailed to Mr Benedetti on 14th June. The Defendants say that there is no evidence of any drafts of the First Brokerage Agreement and the Support Agreement being circulated prior to 14th June and that this draft was prompted by Mr Benedetti's realisation at that time that he was unlikely to receive remuneration from Mr Sawiris in the form of a significant shareholding in Weather II.
- They point to a number of features of the First Brokerage Agreement which they say suggest that it was produced by Mr Benedetti based on the 14th June draft and then back-dated to March. Against this is the evidence of Mr Beretta and Mr Casagrande which I have referred to earlier. I have already given my reasons why I propose to decide this case on the assumption that the agreements were executed on the date they bear and this applies equally to the assignments.
402. The position after the signing of the SPA
- On 30th May Mr Sawiris sent an e-mail to everyone involved in the acquisition congratulating them on what had been achieved. The e-mail began:
"Thanks to the hard work, dedication and incredible efforts of all of you, we have been able to sign this historic deal. Congratulations on this wonderful job!
I would like thank all the team members of Weather and SAE-Capital, with very special thanks to Alessandro Benedetti and Hassan Abdou who were the key people in making it all happen."
- The e-mail was drafted by Mr Wafaa Lotaief, Orascom's Head of Human Resources, and then slightly amended by Mr Abdou to put Mr Benedetti's name first in the second paragraph. Mr Abdou in his evidence was asked about this:
"Q. And I suggest, Mr Abdou, that this shows that you personally at this stage, thought that Mr Benedetti had indeed been central to making the deal happen.
A. Yes. And in addition, if I may add, I respected a lot of what Mr Benedetti did in this deal. We were a team. I felt we had a very strong relationship. I felt we were very close, even personally insofar as -- basically, we were living together on this deal; meetings every day, seeing each other every day, travelling together. Dinners, lunches, you name it. We were very much a team, and not just the two of us but also Speroni and Filippo Bruno and these other guys, but me and Alessandro particularly."
- Mr Benedetti confirmed in his first witness statement that with the signing of the SPA his role in the acquisition was, for all practical purposes, over. Although detailed work remained to be done by the lawyers and the banks in relation to the closing arrangements, these were matters of detail with which Mr Benedetti was not concerned. The subsequent history of the transaction is therefore relevant only to two issues: the discussions which took place with Mr Abdou and Mr Sawiris about remuneration and the payment to Mr Benedetti of the €67 million brokerage fee.
405. The June 2005 e-mails
- Mr Abdou's evidence was that there had been a number of conversations with Mr Benedetti prior to the signing of the SPA in which Mr Benedetti sought assurances that Mr Sawiris would compensate him for his work. On one occasion he is said to have produced a piece of paper on which there were calculations leading to a fee of between €200 and €300 million based on various percentages of the total value of the transaction. None of these, according to Mr Abdou, were based on the Acquisition Agreement.
- Mr Benedetti denies having these conversations. He says that he had no discussions about remuneration before the signing of the SPA and that the only conversation afterwards related to an additional payment for negotiating with Enel the premium on the Orascom shares. In particular, he says that he did not mention a figure of between €200 and €300 million to Mr Abdou. The only discussion he had was with Mr Antaki during which he calculated possible brokers' fees for purposes of comparison. There is, however, a measure of common ground in that both Mr Abdou and Mr Benedetti seemed to accept that the discussions which they did have did not involve any mention of or reference to the Acquisition Agreement.
- I have some difficulty in accepting that any discussion between Mr Benedetti and Mr Abdou about remuneration in late May or June 2005 would realistically have been confined to a discussion of an additional payment for negotiating the premium even if this had been the purpose of Mr Benedetti's request. Once the SPA had been signed and Mr Benedetti's task was completed, it seems to me almost inevitable that he would have discussed with Mr Abdou the arrangements which were to be made for his remuneration.
- Some indication of what discussions in fact occurred can be obtained from the June e-mails. It is clear from the first e-mail of 11th June (quoted in paragraph 187 above) that the conversation between Mr Benedetti and Mr Abdou had caused Mr Abdou to talk to Mr Sawiris about Mr Benedetti's "deal". The terms of Mr Abdou's response based on what he had been told by Mr Sawiris indicates, in my judgment, that the discussions with Mr Benedetti cannot have been confined to his alleged request for some additional payment based on the premium and I prefer Mr Abdou's evidence that what they had discussed was what he described as Mr Benedetti's total package.
- He said that Mr Benedetti gave him alternative calculations of how the value he added to the transaction could be assessed and this undoubtedly included some reference to what commissions would produce. It is also clear from the e-mail that Mr Benedetti had asked for a significant sum of money on this basis: hence the reference to Mr Sawiris not expecting Mr Benedetti to ask for so much. The sum requested was obviously well in excess of what would be produced by a loan of one-third of €50 million which Mr Sawiris referred to as the original deal under the Acquisition Agreement.
- Mr Benedetti says in his witness statement that at a meeting with Dewey Ballantine in June he was told by Mr Camille Abousleiman and Mr Speroni that, after signing the SPA on 26th May, Mr Sawiris had produced a copy of the Acquisition Agreement and asked whether he was still bound by it. Mr Abousleiman is said to have expressed the view that he was. Mr Sawiris denies this but, according to Mr Benedetti, this was the first occasion on which he discovered that Mr Sawiris was seeking to query his obligations under the Acquisition Agreement.
- Mr Benedetti says that he decided not to confront Mr Sawiris about what he saw as his attempt to re-negotiate his contractual commitment to deliver one-third of the shares of Weather II. This was out of respect for the Enel management. I do not entirely follow this but it gives rise to two possibilities. If it is true that Mr Benedetti was told this in June then he either knew what Mr Sawiris's position was before he received the 11th June e-mail or he learnt about it from that e-mail. In his witness statement he suggests the former was the case and that his conversation with Mr Abousleiman had led him to expect Mr Sawiris to try to re-negotiate their agreement.
- It seems to me that this makes it more rather than less likely that any discussions with Mr Abdou prior to 11th June would have included some reference to the position of his remuneration overall. This is consistent with the references in the e-mail to the size of the fee he was requesting and with Mr Sawiris's stated response.
- Mr Benedetti replied to Mr Abdou's e-mail the following day. As mentioned above, he was clearly responding to a suggestion by Mr Sawiris that he should receive 1% of Weather as his total remuneration for the deal and not simply to some suggestion that there should be a success fee for negotiating the premium. Mr Abdou's e-mail cannot sensibly be read in any other way. Mr Abdou says that the reference to "Weather" was intended to be to Weather Italy because this (rather than Weather II) was the vehicle which was likely to be the subject of a future IPO whereas Weather II was a Sawiris family investment vehicle. 1% of Weather Italy was also worth about €75 million based on an equity value of €7.51 billion. Mr Benedetti says in his witness statement that he took the reference to be to Weather II but I accept Mr Abdou's evidence that this was actually not what was intended for the reasons he gives.
- Mr Benedetti's e-mail of 12th June puts it beyond doubt that he was by then communicating with Mr Sawiris through Mr Abdou about his total remuneration package. He says in the e-mail:
this surprise me a lot.
as you know very well, this aren't commitions but just a small portion of the upside i have created from the binding offer we have done. in fact you know all so it is a waste of time repet all those points."
"you told me many times that naguib was more than ready to recognize my job and to share the upside created. Your idea 1% + 1% + 1% was already a bad surprise for me.
it is not a question to pay commitions it is a question to rispect partnership, i have done all the necessary things to perform starting to get the bid bond, enel inside and so on!!
The merget with OTH has been chosed to alow Naguib to take the control of Wind with no money!!
the deal is changed only in his favour, honestly my porposal to you was, in my view a last cut to close the subject in a very honest and more than reasonable way.
This persentage is for somebody which indicate deal not make it fining the money and all the other thinks i have done.
I'm realy surprise. I tought the mail point that in our venture i was a partner not a shity middle man and i have act as a partner without asking protections or commitions.
this is a 17.2B deal and for oth the best partership he could ever dream.
as you know I respect you and naguib in profond manner let us keep this. I'll forgot your mail as never received.
Let me remember your word when you candidate yourself to be my best lawyer and ambassador."
to me it look that everythings are already been forgot!
- There are a number of points to be made about this. The reference to Mr Abdou having suggested 1% + 1% + 1% confirms that there had been discussions between them about the whole deal. This makes no sense if confined simply to an issue about additional remuneration in connection with the premium. The second point is that Mr Abdou looks to have suggested that Mr Benedetti should get a limited percentage of Weather Italy. He says in his witness statement that this was a reference to a 1% fee; the right to buy a further 1% at closing at the deal value; and an option for a further 1% at the deal value to be paid in the future. Mr Benedetti does not explain in his witness statement what precisely he was referring to. But in his second witness statement he denies Mr Abdou's account of how the 3% was made up and says that no proposal for 3% was ever made to him. He also denies Mr Antaki's recollection that in June 2005 Mr Benedetti showed him a document which proposed a commission of 3% comprising a 1% introduction fee; a 1% fee for structuring the deal; and a 1% fee for raising funds.
- Instead, it is suggested that the reference in his e-mail to Mr Sawiris being prepared to "share the upside created" was again a reference to the premium and that the 3% was a bad surprise because Mr Benedetti had originally believed this was a negotiation about the premium but, following the 11th June e-mail, he now realised it had been an attempt to compromise his claims under the Acquisition Agreement.
- I do not accept any of this. I am afraid that I regard this as an attempt by Mr Benedetti to construct a version of events designed to avoid the obvious comment that he became engaged in negotiations with Mr Abdou and Mr Sawiris about his remuneration without any apparent complaint that Mr Sawiris was seeking to abandon what, on Mr Benedetti's case, remained a binding contractual commitment to transfer one-third of the shares of Weather II to him. The e-mails in fact indicate the opposite. They demonstrate that there had been negotiations about the whole deal which resulted in a claim being made by Mr Benedetti which Mr Sawiris considered to be excessive. The 3% suggestion canvassed by Mr Abdou must have been a suggestion for his total remuneration and the upside which Mr Benedetti refers to is obviously the upside created by the transaction as a whole and not simply by his negotiation of the premium.
- The reference later in his e-mail of 12th June to "our venture" and to his being a partner and not a middle man are also obviously arguments deployed to obtain a percentage of the shares rather than a commission. It is, however, significant that he says that he has acted as a partner "without asking for protections or commitions" which, on the face of it, is inconsistent with his having continued to regard himself as protected by clause 7.3.1 in the way he now alleges. In short, this has all the appearance of an attempt by Mr Benedetti to persuade Mr Abdou to seek an improvement on what Mr Sawiris had indicated he was prepared to offer: not a response from someone who believed that Mr Sawiris was contractually committed to give him one-third of Weather II and was intent on reneging on their contract.
- Mr Abdou responded about 20 minutes later. He had talked to Mr Sawiris further. The e-mail is quoted at paragraph 188 above. It provides further confirmation that Mr Benedetti almost certainly did request something in the region of the €200 to €300 million figure which Mr Abdou speaks of. Mr Benedetti accepted when cross-examined that this did refer to his total remuneration but says in his first witness statement that he did not respond to the e-mail because it would have been counterproductive to upset the transaction. He therefore let it go ahead on the basis, he says, that Mr Sawiris would realise that he could not negotiate and would have to honour their original agreement. But both Mr Abdou's first and second e-mails made it clear that Mr Sawiris's view of what they had originally agreed in the Acquisition Agreement was very different from what Mr Benedetti says he thought he was entitled to and it seems to me most unlikely that Mr Benedetti can possibly have thought that if he said nothing he would receive one-third of the shares in Weather II.
- At this time he and Mr Abdou were on good terms and it is clear from Mr Benedetti's e-mail to him of 12th June that he trusted Mr Abdou to negotiate in his best interests. The exchange of e-mails between them are not therefore in any sense contrived or tactical. They represent, in my judgment, an honest exchange of views effectively between friends and colleagues who had no reason not to be frank with each other. I think that they represent probably the best evidence of what negotiations there had been and what Mr Benedetti's real position was at the time. The reality was that he and Mr Sawiris had simply reached a stalemate in the negotiations unless Mr Benedetti was prepared to accept the 1% on offer.
421. The First Closing
- This took place on 11th August 2005. On that day or very soon afterwards Mr Benedetti resigned as a director of Weather Capital and Weather Italy. He said that he offered to resign because of allegations of corruption which were being made in the media and both Mr Abdou and Mr Sawiris recall being told that it was thought that it would be bad for the company if he remained on Weather Italy's board. Mr Benedetti says that when he agreed to step down he made the offer on the basis that he would be re-instated once the controversy was over but it is not in terms alleged that this was agreed to and I am not sure that any of this really assists me. Enel was obviously concerned to minimise any adverse publicity there might be.
422. The €67 million brokerage fee
- On 26th July Mr Franzo of Dewey Ballantine sent to Mr Abdou a spreadsheet containing details of the fees payable as the costs of the transaction. As mentioned earlier, the parties had budgeted for costs of €400 million and the spreadsheet included an entry for a brokerage fee for ITM of €87.76 million. The spreadsheet indicated total fees and expenses in excess of €460 million. Mr Abdou's evidence was that the ITM brokerage fee was in the same amount as a "Success low" fee shown as due to SAE Capital in a fee schedule circulated by ABN Amro on 25th May. ITM appeared simply to have replaced SAE Capital.
- Mr Abdou says that he does not recall turning his mind to the entry for ITM on the spreadsheet but can see, with the benefit of hindsight, that the change must have come from Mr Benedetti. However, on 27th July he sent an e-mail to Mr Nasr in connection with the Know Your Client checks being carried out by IMI in which he refers to steps which could be taken to plug a cost overrun. These included "postpone some expenses for a few weeks (Alessandro fee)".
- It therefore seems tolerably clear that, as of 27th July, Mr Abdou was aware that the ITM fee was one which would go to Mr Benedetti. He says in his witness statement that he believed that the figure represented costs which Mr Benedetti had incurred or owed to third parties and that this is what he told Mr Sawiris who was very angry about the scale of the expenses.
- On 28th July Mr Nasr replied to Mr Abdou in these terms:
"Here is an idea to resolve the issue of the Euro 50 million missing. As you know there is an 83 million fee payable to MKTS (Alessandro I presume) by Bidco. I understand from Trentino that the discussion was to pay part of this fee in share of either Weather II or Weather Investments srl. In that case, the fee (or part of it) can be paid in escrow by the banks and then used to subscribe in equity of Weather Investments and pay the upfront fee of the Weather Capital loan."
Mr Abdou responded:
"Confidential. Alessandro claims that the majority of that fee is real cash costs to third parties. So we can't do that. This will take a few days to sort out."
- Mr Trentino of ABN Amro e-mailed Mr Abdou and Mr Nasr that evening suggesting that the shortfall in funding for the expenses could be met by additional equity of €50 million from Mr Sawiris and Enel pro rata to their shareholdings in Weather Italy. Mr Abdou responded by saying that before agreeing to this:
"Naguib is asking what comprises the 87M in JTL brokerage fees. What needs to be paid now and what can wait. I have tried to call Alessandro and sent him an sms. Speroni also will call him. After Naguib and Alessandro settle this, we will know what we are short."
- Mr Abdou then received a text message from Mr Benedetti which is referred to in the e-mail he sent to Mr Bruno and Mr Speroni just after midnight:
"The only change I anticipate to this sheet is the resolution of the payment of any cash shortage. I think the best solution is to first minimize the cash needed now (ie delay payments of fees that can wait ... ie brokerage fees. I just received an sms from Alessandro who said the min fee at Closing must be 67M with another 20M payable in 30 days). Second option is Naguib to subscribe to Tranch A now, at an amount equal to the cash shortage in exchange for IMI to increase the loan by the same amount. This avoids capital increases, dilutions and need to repay shareholder loan. I hope Banca IMI can agree to this."
- Mr Abdou then informed Mr Nasr and the banks that "67 m is all we need now for "brokerage"" and that amount was paid to ITM on closing.
- Mr Abdou's evidence is that he believed that the brokerage fee could be postponed because it related only to the reimbursement of expenses and the payment of third parties. It was more important that the banks should be paid their fees since a failure to do so could interfere with the completion of the transaction. He also says that when he spoke to Mr Benedetti about deferring payment of the fee he was told that Mr Benedetti needed a minimum of €67 million at closing to pay the people working with him and that none of the money would be kept by him.
- Mr Benedetti's evidence in his second witness statement is that he did not tell either Mr Abdou or Mr Sawiris that the €67 million was going to third parties. He told them that he needed €67 million in cash and that it could not be deferred. He relies on the First Brokerage Agreement and the Revised Brokerage Agreement, both of which provide that the fee was payable in respect of the brokerage services as defined.
- Mr Abdou said in cross-examination that he assumed that a significant portion of the money (perhaps up to €40 million) was going to Mr Fienga and Mr Lo Bascio even though he had seen entries in the schedule prepared by Mr Franzo which indicated that they would receive €1.75 million each separately from the payment of the €87 million to ITM. I am therefore asked to find that he and Mr Sawiris must have known or believed by about 29th July that the money was likely to be going to Mr Benedetti.
- It seems clear to me from the e-mails if nothing else that Mr Abdou and Mr Nasr originally understood that the €87 million figure was not intended as a payment to Mr Benedetti for his brokerage services but was to be used to discharge his liabilities to third parties. There is no reason to treat Mr Abdou's e-mail to Mr Nasr of 28th July as anything but an accurate reflection of what he had been told. I do not therefore accept Mr Benedetti's evidence that at no time did he indicate who the recipients of the €67 million were to be. I find that he did lead Mr Abdou and Mr Sawiris to believe that the money was to be used to pay third parties who had assisted in the transaction. But I do also accept (as Mr Sawiris admitted) that when Mr Benedetti was asked to identify precisely who was going to receive the money he did not answer.
- Mr Sawiris said that this caused him to have doubts about the story that the money was needed to pay third party advisers but that as he intended to reward Mr Benedetti for his efforts and owed him money, he was content to let the €67 million be paid and to sort it out later. This is consistent with Mr Benedetti's own evidence that Mr Sawiris called him around 29th July to discuss the need to reduce the transaction costs and said to him words to the effect: "You are my partner. Reduce the cash, we fix this later". Mr Benedetti says that he therefore agreed to reduce the payment from 0.7% (€87 million) to 0.55% (€67 million). He then arranged for the Revised Brokerage Agreement to be prepared which was identical in terms to the First Brokerage Agreement except for the fee. As mentioned earlier, it is common ground that this Agreement was executed in July or August but backdated to 26th May.
- The €67 million fee was paid on 12th August after the first closing along with the €3.4 million in expenses to Managest. Mr Benedetti was cross-examined about this payment for expenses and accepted that part of the money was spent on items such as antique candlesticks which were used to furnish his office. Although this has a certain resonance with other recent events, there is, as Mr Vos pointed out, no counterclaim for the recovery of these sums on the grounds that they were in some way misappropriated and the issue of expenses is not, I think, ultimately relevant to what I have to decide.
435. September 2005
- On 12th September Mr Sawiris and Mr Benedetti had a meeting with the Mayor of Rome, Mr Veltroni. Mr Benedetti's evidence was that this was a pleasant and friendly occasion and that there was no further discussion about the offer of 1%.
- But the next day Mr Abdou sent Mrs Shimi, an employee of Orascom, an e-mail asking her to print off the Revised Brokerage Agreement which he sent as an attachment in readiness for Mr Sawiris's return from Rome. Later that day he sent the e-mail to Mr Benedetti, part of which is quoted at paragraph 189 above. It began:
"… Naguib told me that he had asked you for a letter saying that you have received the fees of the Euro 67M for concluding the deal. Given that the contract is with International Technologies Management Ltd and given the recent negative articles in the Italian press on this point, even though we and Enel have both responded, we will need to know the exact shareholders of ITM to avoid problems."
- Mr Benedetti says in his witness statement that he did not respond because he thought that this was an attempt to trap him so that Mr Sawiris could try to escape his obligations under the Acquisition Agreement. Mr Sawiris said that he wanted confirmation that the €67 million had gone to meet legitimate expenses. Mr Vos submits that the first paragraph of the e-mail is confirmation that Mr Sawiris and Mr Abdou knew by then that the €67 million was to go to Mr Benedetti personally. I am not convinced about that. What I think it does indicate is that they had their suspicions (as Mr Sawiris admitted) and were perhaps keen to flush Mr Benedetti out on the point. If he had received the money for his personal use this might go someway to answering the suggestions in the press that bribes had been paid. Alternatively they would know who had received the money if it was not Mr Benedetti himself. In addition to this the second part of the e-mail certainly suggests that the sum of €75 million was intended to be the total amount paid to Mr Benedetti for his work. On this basis it would have been relevant for Mr Sawiris and Mr Abdou to have known whether the €67 million was to be retained by Mr Benedetti or used to defray his expenses and liabilities.
- Mr Benedetti relies on an article which appeared in "L'Espresso" magazine on 3rd February 2006 as indicating that Mr Sawiris did know that Mr Benedetti had received the brokerage fee when he subsequently came to attempt to negotiate a settlement with him. The relevant passage in the article is the following question and answer:
"You paid 400 million Euro in commissions including banks and the advisor Alessandro Benedetti. "L'Espresso" calculated that Benedetti received 90 million, although he denied it. Doesn't that seem like a high price to pay?
When it came to discussing the fee, I went to a bank that wasn't involved in the operation. I paid 50 thousand Euro for them to give me an opinion on the fee structure because I had the same feeling. They told me it was alright. On the other hand Benedetti worked for me for two and a half years without asking for anything, he took on costs at his own risk, so the bill at the end wasn't too much."
- Mr Sawiris was asked in cross-examination (based on the article) whether he believed Mr Benedetti had received the fee. He said that he always felt that Mr Benedetti was lying about the €67 million and that he had received the fee.
440. October 2005
- On 12th October Mr Benedetti and Mr Sawiris met again in Rome to visit a possible new headquarters building for Wind. Mr Benedetti says that on this occasion he did raise the issue of the 1% which Mr Abdou had offered in June. According to his witness statement, Mr Sawiris as good as dismissed this as something for which Mr Abdou was responsible and said that he would transfer the shares and restore Mr Benedetti's directorships once the Public Prosecutor's inquiry into the Wind transaction was over. He suggested that they should meet to "fix it" after the second closing.
- Mr Sawiris denies this and, consistently with my other findings, I am not persuaded that any such promise was made. It seems to me most unlikely that Mr Sawiris would have dismissed the offer communicated to Mr Benedetti in June when it so clearly had been made on his instructions.
442. November 2005
- In his first witness statement Mr Benedetti mentions an e-mail which he sent to Mr Sawiris on 20th November. This said that he had been approached by some investors who were interested in purchasing Wind. He asked if Mr Sawiris wished to take it further. He did not. He replied on 23rd November saying:
"Thank you for letting me know that an interest in purchasing Wind has developed so soon! Thanks again but I am not interested. I do not flip; I planned long and worked hard for his operation and intend to continue and make a success out of it."
443. The January 2006 meeting in Cairo
- Mr Benedetti's evidence is that he flew to Cairo at the end of January to insist upon receiving his one-third shareholding plus his share of the profit generated from negotiating the premium on the Orascom shares. He and Mr Sawiris met together on 30th January. The meeting was arranged by Mr Antaki. According to his evidence, he had had a number of conversations with Mr Benedetti, both before and after the signing of the SPA, about re-negotiating the arrangements with Mr Sawiris. Mr Benedetti's strategy was, he said, to use the Acquisition Agreement to see what could be achieved but he was seeking 3% of the transaction value which was about €200-€300 million.
- Mr Benedetti says that there were two meetings. The first took place in Mr Sawiris's office and, later that day, they met in the bar of the Four Seasons Hotel. Prior to the first meeting he spoke to Mr Abdou who also told him how badly he had been treated since the acquisition by not being paid the extra remuneration which Mr Sawiris had promised. They then went into the first meeting which Mr Benedetti says lasted about 40 minutes. Mr Abdou was present throughout. Mr Benedetti says that he told Mr Sawiris that he had come to claim his shares under the Acquisition Agreement. There was then a discussion in which Mr Sawiris said that he had risked everything in the deal and that Weather II was all that he now had. Mr Benedetti said that he had risked losing the entire €3.4 million he had spent in expenses. Mr Sawiris is said to have accused him of bribing Enel in order to obtain the premium, which Mr Benedetti denied. There was then talk of sorting everything out in court.
- Mr Benedetti says that Mr Sawiris argued that the deal had fundamentally changed from what was envisaged by the Acquisition Agreement and that he had put up all the money. Mr Benedetti is said to have offered to repay the loan for one-third of his equity contribution if necessary. At this point the discussion ended but Mr Sawiris told Mr Benedetti to meet him that evening in the hotel.
- Mr Abdou was not present at the second meeting. Mr Benedetti's evidence is that Mr Sawiris became very dramatic and gave a number of reasons why he could not transfer the shares. He suggested using his 71.1% stake in Weather Italy to force Enel to sell its 26.1% and said that he would not exercise his pre-emption rights if Enel was prepared to sell the stake to Mr Benedetti. He also indicated that he could adjust the shareholding if Mr Benedetti had to pay a higher price than Mr Sawiris had paid for his shares. He is said to have become very agitated and to have asked Mr Benedetti to agree to take 1% on that basis. Mr Benedetti says that he made it clear to Mr Sawiris that it was not a done deal and that he would have to speak to Enel first. The meeting ended with Mr Sawiris saying that he would send Mr Benedetti a written proposal.
- Mr Sawiris says in his witness statement that by the time of the Cairo meeting he suspected that Mr Benedetti had taken either the whole or a substantial part of the €67 million brokerage fee. When they met Mr Benedetti told him that they had to "finish this" and he agreed. He asked Mr Benedetti again about the €67 million but got no satisfactory answer. Although he thought that Mr Benedetti had had the money, he decided to take him at his word and to finish the matter there and then. He repeated the €75 million offer. He made points about his having ended up as the principal investor; about his having used the Orascom shares to finance the deal; and about Mr Benedetti having failed to bring in other investors. By the end of the meeting Mr Benedetti had agreed to accept the €75 million. The meeting broke up on the basis that it would be put into writing.
- There are obvious differences between these accounts of what happened but I am not sure that they matter very much. Mr Sawiris accepted in cross-examination that he did agree to give Mr Benedetti the chance to make money on the 26.1% of Weather Italy retained by Enel and, on Mr Benedetti's account of the meeting, there was discussion about the 1% and a proposal that Mr Benedetti should accept this together with an agreement by Mr Sawiris not to exercise his pre-emption rights over the 26.1% if Enel was willing to sell it to him. Mr Benedetti does not suggest that he would have rejected this as a settlement of his claims had it been possible to purchase Enel's stake on acceptable terms.
- On 8th February the Second Closing took place and Enel exchanged its shares in Wind for shares in Weather Italy. Mr Benedetti says that in April or May he had a further discussion with Mr Antaki about how he should get Mr Sawiris to transfer his shares. Mr Antaki said that he should attempt to get something in writing and progress matters from there. What emerged from these discussions was the draft of a letter to Mr Abdou which Mr Antaki prepared and sent to Mr Benedetti on 3rd May. Further drafts of the letter were then passed between Mr Antaki and Mr Benedetti but, as finally sent to Mr Abdou on 8th May, it read as follows:
"On December 15th I was in Naguib's office to congratulate him about Libertis sale; on this occasion, he kindly asked me to talk to Alessandro and try to make him accept his proposal "Rami, Alessandro is not reasonable to ask me more than 1%. I must admit that Alessandro has done an unexpected job, and that you introduced me to a very nice man, nevertheless you know like me that this is a very generous offer, and if the IPO is successful he can make it double. Try to convince him to accept my offer." I answered: "Ok Naguib, I promise you I will do my best."
And that is what I have done.
On January 31st Alessandro came in Egypt to meet Naguib and define the transaction on his success fees in the Wind deal.
An agreement was reached between them ; finaly , Alessandro accepted Naguib's initial offer: 1% of Weather plus the greenlight for buying a stake from Enel's shares with the agreement that Naguib will not exercise its pre-emption right and will support and help the transaction.
After this meeting Alessandro was expecting to receive the draft Agreement.
On March 7th, so five weeks after, during a meeting at your office, I told you Alessandro was wondering how come he hadn't received any document from your side , and you answered me: "Before proceeding Naguib is waiting for a phone call from Alessandro, to settle the deal is fair and that he is fully satisfied."
Alessandro was very surprised when I reported back my conversation with you, retorting that at the end of his meeting with Naguib they shook hands and the deal was done."
- The letter confirms the basic agreement which was reached at the 30th January meeting. Although Mr Benedetti said in evidence that it was not accurate to say that he had accepted Mr Sawiris's offer of 1%, this is difficult to reconcile with the fact that the letter went through a number of drafting changes, all of which were commented on and approved by Mr Benedetti. The only complaint evident from the letter was Mr Sawiris's failure to put the agreement into writing as promised at the end of the January meeting.
- Mr Vos stressed that Mr Benedetti's acceptance of the 1% or €75 million was very much dependent upon his being able to negotiate acceptable terms with Enel for the purchase of their 26.1% of Weather Italy. I certainly accept that this was the position as at the end of the January meeting. But it is much less clear how things stood in May. The letter to Mr Abdou refers to Mr Sawiris waiving his pre-emption rights over the Enel stake but Mr Benedetti's evidence was that he approached Mr Conti in February and was told that Enel wanted a high price of €2.6 billion. There is no suggestion either that this position had changed by May or that Mr Benedetti made any further attempts to negotiate with Enel. His evidence in his witness statement is that the discussions between May and September really amounted to nothing more than Mr Sawiris attempting, without success, to persuade Mr Benedetti to take the 1% and Mr Benedetti asking for considerably more. The possibility of Mr Benedetti buying the 26.1% (whether alone or with the assistance of other investors) had really fallen away due to Enel's position on the price.
- It is common ground that these negotiations did not produce an enforceable settlement of the dispute and, on one view, they are simply irrelevant. But because I have been invited by Mr Vos to pay some regard to them on the issue of quantum meruit, I propose to deal shortly with the remaining history.
- Mr Abdou responded to Mr Antaki on 9th May saying that he should contact Mr Sawiris directly. It is not clear whether this happened but on 10th May Mr Abdou sent a further e-mail to Mr Antaki saying that there was nothing new from Mr Sawiris's side and that if Mr Benedetti wanted his 1% in shares he would get them on an IPO. Mr Sawiris's position was always that he did not really want Mr Benedetti as a shareholder and preferred to give him cash.
- On 24th May Mr Antaki wrote to Mr Sawiris again complaining about his failure to send Mr Benedetti the written agreement that was promised. Two days later he sent an e-mail to Mr Benedetti saying that he had written to Mr Sawiris but that: "I have come to understand that with this versatile Gemini, unfortunately it is the person who had the last word who is right". On 30th May Mr Sawiris e-mailed Mr Antaki to say that he was going to telephone Mr Benedetti and that he had a solution. The evidence is that he did not call.
455. St Tropez: August 2006
- The next time Mr Benedetti met Mr Sawiris was in St Tropez in August. They met briefly at a party and then the next day in a coffee shop. Mr Benedetti says that Mr Sawiris was late for the second meeting and apologised that the matter had not been resolved. He says that Mr Sawiris encouraged him to take the cash so that he could buy a house and a boat. Mr Sawiris gave the impression that he was not taking the matter seriously and when Mr Benedetti said that he no longer trusted his promises Mr Sawiris made a joke by saying "I tried". The meeting got nowhere and Mr Benedetti returned to the house where he was staying.
- Two of his guests were Mr Darsham Desai and Mr Subodh Agrawal, both bankers. They gave evidence that Mr Sawiris and Mr Antaki (who was also staying there) had a number of rather intense discussions (mostly in French) about Mr Sawiris and how, according to Mr Benedetti, he had stolen his shares. They were not party to these discussions but overhead various things that were said. I have no doubt that Mr Benedetti was angry that Mr Sawiris had not chosen to be more generous and that he and Mr Antaki may have spoken about him in unflattering terms. But none of this really helps. Mr Benedetti's anger at being denied more generous remuneration is a given. The issue for me is whether he has a legal entitlement to that in the form of one-third of Weather II and nothing that was said in St Tropez in August really bears upon that.
457. The October draft agreements
- Late in September Mr Sawiris left a message on Mr Benedetti's phone apologising for being late with his proposals. On 18th October Mr Abdou sent Mr Benedetti two draft agreements. One was a Supplemental Agreement to the Revised Brokerage Agreement which provided for Weather II (rather than Weather Italy) to pay ITM a €75.1 million success fee for additional services not covered by the brokerage fee of €67 million already paid. The other agreement was a Termination Agreement between Mr Sawiris and Mr Benedetti terminating the Acquisition Agreement and releasing and discharging both parties from their obligations under that agreement.
- Mr Benedetti did not respond to Mr Abdou's e-mail. He says in his witness statement that he regarded the offer as insulting and proceeded to consult his lawyers.
- In December 2006 Enel sold its 26.1% of Weather Italy to Weather II and WAHF for a total of €1.96 billion.
- The claim form was issued in August 2007.
461. The contractual claims
- As mentioned earlier, Mr Benedetti's primary claim has always been a contractual one based on the Acquisition Agreement to one-third of the issued share capital of Weather II. On my construction of the Agreement, this requires him to establish that it has been varied to substitute Weather II for Rain and to include the Holding Companies as parties to the Agreement. In response to this, the Defendants deny that any such variation can be implied and further contend that the Acquisition Agreement has, in any event, been abandoned.
- I propose therefore to consider these two issues before turning to the question whether and, if so, what relief Mr Benedetti should be entitled to on this part of his claim.
463. Implied variation
- The question whether the Acquisition Agreement has been varied in the manner alleged in the APC is different from but obviously related to the issue of abandonment. Much of the relevant evidence is common to both issues and centres on the events which occurred between the beginning of 2005 and the signing of the SPA on 26th May. It would not, I think, be possible to find that the parties had both agreed to vary the Acquisition Agreement and to abandon it. The two findings would be inconsistent arising, as they do, out of essentially the same facts. But, conversely, if the correct view is that the parties did not vary the Agreement, it does not necessarily follow that they are to be taken as having abandoned it. That finding will require me to be satisfied that I can infer from their conduct an intention to rescind the Agreement for all purposes.
- With the advent of Weather II, the question whether the Acquisition Agreement was first varied (as pleaded) to accommodate Weather I is, in one sense, academic but the events on which the first alleged variation is based remain relevant and are relied upon by Mr Benedetti in relation to his case on Weather II. They have therefore to be considered as a sequence which is said ultimately to support not only the inclusion of Weather II in place of Rain, but also the addition of the Holding Companies as contracting parties once they were identified as the intended shareholders in Weather II.
- The pleaded case is therefore based on events spread out over a period of several months during which the acquisition arrangements underwent a process of considerable change. Weather I was incorporated in January 2005 and, as explained in paragraph 267, was owned and controlled by IPE. It was in no sense a Sawiris company and Mr Sawiris was intended to be merely one of a number of investors brought into the transaction under the structure devised by IPE.
- Mr Benedetti relies on (and indeed pleads) an intention at the time to continue to use Rain as the company through which to channel Mr Sawiris's investment in Weather I and I have referred earlier to some of the documents which contained references to Rain following the incorporation of that company. But even had any such intention been carried through it would not have involved using Rain as the acquisition vehicle. Nor would it have given Mr Sawiris the control over Wind and the other investors envisaged by the Acquisition Agreement.
- The creation of Weather I and the possible use of Rain as an investment vehicle for Mr Sawiris are relied on in paragraph 27B of the APC as among the facts which it is said necessarily give rise to the inference of a variation of the Acquisition Agreement to substitute Weather I for Rain and for Mr Sawiris to be obliged to hold one-third of the shares in Weather I on trust for Mr Benedetti. Taken alone, they cannot possibly have that result. What is said to make the difference and to create the necessary inference is the transfer of Weather I to Mr Sawiris on 25th March following the withdrawal of IPE (and its investors) from the transaction and the representations allegedly made by Mr Sawiris both on 25th March and later on 17th May about holding and transferring the shares in Weather I to Mr Benedetti.
- My rejection of Mr Benedetti's evidence about what is alleged to have been said on these occasions effectively undermines any case based on the implied variations to the Acquisition Agreement pleaded in paragraph 27A of the APC. But my reasons for rejecting this part of Mr Benedetti's case go beyond what passed between him and Mr Sawiris at those two meetings. As explained earlier, I reject Mr Benedetti's case that there was ever an understanding or agreement that he should receive one-third of any shares that might be issued to Mr Sawiris (or his company) in Rain or any other acquisition vehicle whether on the terms of a loan or otherwise. Nor was any such term included in the Acquisition Agreement. In these circumstances there is no basis, in my judgment, for inferring that the Acquisition Agreement was amended to include in relation to Weather I (and subsequently Weather II) an obligation which Mr Sawiris had never previously agreed to and which would constitute a significant increase in his liabilities towards Mr Benedetti.
- Mr Benedetti's case is that the events of March to May 2005 amount to Mr Sawiris agreeing to transfer the arrangements which subsisted under the Acquisition Agreement and the Understanding from Rain to Weather I, not to increase them. The subsequent alleged variation to substitute Weather II for Weather I and to include the Holding Companies as parties are likewise pleaded as necessary to bring the Acquisition Agreement and the Understanding in line with changes in the acquisition structure but not to change the substance of what had previously been agreed.
- Mr Vos relied on the decision of Hart J in Godsmark v Greenwich LBC  EWHC 1286 as an example of a case where the court treated a contract as varied by necessary implication from the conduct of the parties. Mr Godsmark was employed by the council to work at a school which catered for children with special educational needs. He was required as a term of his contract of employment to reside in a bungalow on the site described in the agreement as "2 Bungalow, Brantridge School". Later he moved to live in another property on the site called The Cedars. A trust took over the running of the school and Mr Godsmark's contract of employment was transferred to the trust. He subsequently claimed to be a secure tenant of The Cedars under the Housing Act 1985. He could not enjoy that protection if he was required as an employee of the landlord to occupy the property in question for the better performance of his duties. One of the questions which his claim therefore raised was whether the terms of his original contract which named "2 Bungalow" as the property he was required to occupy had been varied by implication to apply to The Cedars when he later moved there.
- Hart J (upholding the decision of the County Court judge) set out his conclusions as follows:
" Mr Havenhand on behalf of the appellant has submitted that the Judge here applied the wrong test. His submission was that a conclusion that there was a term requiring the appellant to reside in The Cedars for the better performance of his duties could only be implied if such occupation were essential for the performance of his duties under the contract, rather than merely conducive to the better performance of them, relying for this purpose on the test applied by the House of Lords in the Hughes case (see in particular the speech of Lord Lowry at p 177C-H, and his approval of the comment of Balcombe LJ, (1992) 24 HLR 605, 609, at p 178C).
 In my judgment, the difficulty with this argument is that the present case does not concern the implication of a term into a written contract which is silent upon the point, but the question of what variation to an existing express term is to be inferred from the conduct of the parties. There can be no doubt that what happened was a consensual variation of the terms of the contract: the requirement that he live at the Bungalow plainly did not remain live following his move (whether permitted or required) to the Lodge and then to The Cedars. The issue is whether the consensual variation was that the requirement to live in accommodation provided by the respondent at the Bungalow was expunged entirely, or whether the variation was simply to substitute the Lodge for the Bungalow (and later The Cedars for the Lodge).
 The Judge's conclusion, applying an officious bystander test, was that it was obvious that the latter was intended. That seems to me to be an inference which the Judge was entitled to draw from the circumstances. Slender as the available evidence appears to have been, it is difficult to envisage the circumstances of the first move as having been other than either an offer by the respondent to the appellant to make available to him the Lodge in place of the Bungalow and an acceptance by him of that offer; or, alternatively, an offer by the appellant to live in the Lodge instead of the Bungalow, and an acceptance by the respondent of that offer. The same possibilities exist in relation to the second move. On either of these hypotheses the offer, as a matter of construction, would appear to be an offer to substitute the Lodge for the Bungalow in the existing terms of employment. For those reasons, in my judgment the Judge was entitled to come to the conclusion which he did on this issue."
- It is not difficult to see why that conclusion was reached on the facts of that case. To hold otherwise would involve the proposition that Mr Godsmark was in breach of his contract of employment from the time that he left 2 Bungalow and moved to the other accommodation provided by his employer. Apart from the change in the property he physically occupied, everything else remained the same. But there is nothing in the objective facts of this case which should cause the court to conclude that the Acquisition Agreement should be varied to include the changes contended for by Mr Benedetti.
- By May 2005 when Weather II was incorporated and identified as the investment vehicle for the Holding Companies, the structure of the acquisition had changed to include Weather Italy as the acquisition vehicle which was to accommodate the interests of Weather II, Enel and the other investors in what had become a differently structured and much larger transaction involving both Wind and Orascom as subsidiaries of Weather Italy.
- In concentrating on the evidence which is said to support the implied variation contended for, it is important in my view not to lose sight of what is perhaps the most striking piece of evidence. This is the complete absence of any request or attempt by Mr Benedetti to seek an express variation of the Acquisition Agreement so as to include Weather I or Weather II. It is, I think, significant that at no time did he (even on his own evidence) raise this as an issue with Mr Sawiris despite the ready access he had to lawyers and his ability to produce and enter into a number of other agreements such as the brokerage and support agreements and the collaboration agreement with IPE. This evidence shows that Mr Benedetti well understood the importance of legal protection in the form of such agreements and was very ready and able to seek such protection when he felt that he needed it.
- It seems to me impossible to infer from an objective view of all the material circumstances as at 24th May 2005 that the parties are necessarily to be taken to have intended to apply to the transaction in its final form an agreement which expressly contemplates the acquisition of a controlling stake in Wind using a single company with €1 billion worth of outside investment and which, on the Claimants' case, is to be amended so as to give Mr Benedetti an unqualified right to receive one-third of the shares in a company controlling not only Wind but also Orascom. This is a very long way from the simple facts of the Godsmark case and would involve effectively re-writing the Acquisition Agreement to give to Mr Benedetti something which he never previously enjoyed. My findings in relation to the Understanding and what was and was not agreed between Mr Benedetti and Mr Sawiris about the shares in Rain are really conclusive of this issue. It is not possible, in my view, to infer an agreement about an amended Acquisition Agreement which contradicts what the parties in fact intended and which is not therefore the necessary consequence of the changes which had occurred.
- Mr Vos says that an analogy can be drawn with the facts and reasoning in Godsmark in that here Mr Sawiris, absent the variation, would undoubtedly have been in breach of clause 7.3.1 when he completed the acquisition through Weather II rather than through Rain. The obvious inference, he says, is that the parties agreed to treat the Acquisition Agreement as applying to Weather I (and later Weather II) thereby avoiding any breach.
- That argument, if correct, would not support either the addition of the Holding Companies as parties or the inclusion of the new term requiring the Holding Companies to hold one-third of the shares in Weather II on trust for Mr Benedetti. A breach of the agreement would be avoided merely by substituting Weather II for Rain with the consequence that Mr Benedetti would be entitled to no more than one-third of €200,000 worth of the shares as provided for by clause 5.5.1 of the Acquisition Agreement. It would not alter the fact that he has consented to the acquisition by the Holding Companies of the shares in Weather II in exchange for the shares in Weather Italy as part of the SPA which he himself signed on behalf of the latter company. My own view therefore is that the substitution of Weather II for Rain (or Weather I) cannot be divorced from the other terms of the alleged variation and, when considered together, cannot be explained simply on the basis that they were the price to be paid for Mr Benedetti's consent under clause 7.3.1. The reality of the situation was that Mr Sawiris would never have agreed to amend the Acquisition Agreement to include the term alleged and Mr Benedetti (doubtless encouraged by the First Brokerage Agreement and the Support Agreement entered into on 24th March) had a significant interest in continuing with the transaction even if he did not achieve the one-third interest which he now seeks. If one takes all these circumstances into consideration no necessary implication of the kind alleged is made out.
- These conclusions make it unnecessary for me to deal with the particular issues which arise in relation to the claim that the Holding Companies also became parties to the Acquisition Agreement in its varied form. The concept of an implied novation is a difficult one involving as it does the imposition on non-parties of contractual obligations which they have not expressly assented to. In this case the difficulties are compounded by some of Mr Benedetti's evidence (relied on by Mr Beltrami) which suggests that he never regarded himself as dealing with any one but Mr Sawiris. Perhaps in the light of these and other difficulties, Mr Vos in both his opening and closing submissions has concentrated on a process of ratification which is said to follow from the Holding Companies taking advantage of Mr Benedetti's performance of his obligations under the agreement when they took the shares in Weather II on completion of the transaction. It is said that they are unable to take the benefit of these services without also implicitly ratifying the undertaking by Mr Sawiris in clause 7.3.1 of the Agreement which was in terms given by Mr Sawiris for himself and for all affiliates and other entities associated with him. The result, so the argument goes, is that the companies have been in breach of clause 7.3.1 by impliedly taking an assignment of the benefit of the Acquisition Agreement under clause 11 which would entail (again by implication) their agreeing to be bound by the obligations it contains. This would include the obligation to transfer to Mr Benedetti the shares to which he claims to be entitled.
- Because this argument is only relied on if I find that the Acquisition Agreement was varied to substitute Weather II for Rain, it is unnecessary for me to go into it in any great detail. But there are a number of points of difficulty about it. The rule that a principal cannot both approbate and reprobate the actions of its agent is well established. Where the agent's conduct involves the making of an unauthorised contract the principal has a choice. He can either reject it as unauthorised or he must ratify it in full. What he cannot do is to choose to ratify only the parts which are favourable to him.
- For there to be implied ratification the contract must therefore be one purportedly made on the principal's behalf; the person ratifying the agent's conduct must know of all the material circumstances; and his conduct in order to amount to ratification must be unequivocal.
- Mr Beltrami makes a number of submissions on these points. The case of ratification now advanced against the Holding Companies is not pleaded. The undertaking contained in clause 7.3.1 is not, when properly construed, an undertaking by Mr Sawiris purportedly on behalf of the Holding Companies but rather one by himself that he and those associated with him will not acquire Wind other than through Rain. There was no unequivocal conduct which could be said to amount to ratification of the undertaking. The Acquisition Agreement including the undertaking was entered into by Mr Sawiris in January 2004 not as an agent for the Holding Companies but as a principal. In my judgment most of these points are well founded.
- For the same reason, the alternative claim based on a collateral contract also fails. That argument must depend on the same evidence and result in the same conclusion. Mr Benedetti also relies on an estoppel argument based on Mr Sawiris's representations that he controlled the Holding Companies thereby, it is said, giving him comfort that the Acquisition Agreement would apply also to Weather II. It is not alleged that any representation was made in these terms and I cannot see how the statement which was made about the Holding Companies can be translated into a representation about the application of the Acquisition Agreement to Weather II. It is also difficult to see how any statement made to third parties about the control of those companies (such as that contained in Mr Abdou's e-mail of 19th May) could found an estoppel in Mr Benedetti's favour so as to prevent Mr Sawiris from relying on the actual terms of the Acquisition Agreement. These subsidiary points do not, I think, assist Mr Benedetti.
- I have rejected Mr Sawiris's contention that the Acquisition Agreement was expressly abandoned at his meeting with Mr Benedetti on 15th March 2005 but the Defendants also rely on an implied abandonment of the contract based on the conduct of the parties during the first half of that year.
- Many of the points made are common to both this issue and the question of implied variation I have already dealt with. These include the changes to the structure of the acquisition from that envisaged by the Acquisition Agreement; the incorporation of the Orascom shares; the increase in the scale of Mr Sawiris's financial commitment; and the inclusion as shareholders of the Holding Companies.
- But there are also a number of specific matters which perhaps bear more directly on the issue. Mr Rabinowitz emphasised Mr Benedetti's admitted concerns towards the end of 2004 as to whether Mr Sawiris would in fact go ahead with the acquisition and the switch to the arrangements put together with IPE under the terms of the draft MOU and the collaboration agreement. As explained earlier, these were separate from and inconsistent with the proposals enshrined in the Acquisition Agreement and could not have been carried through under the terms of that Agreement.
- It seems to me that the critical question is whether the withdrawal of IPE and its investors and the recognition that Mr Sawiris would have to go ahead (if at all) as the principal investor led, in effect, to the re-adoption of the Acquisition Agreement as the basis of the legal relationship between Mr Sawiris and Mr Benedetti or whether the changed circumstances (including the use of Orascom and the introduction of the Holding Companies) meant that the Agreement remained consigned to history at least in so far as it created rights in respect of the acquisition vehicle. I have already set out the reasons why I consider that the parties cannot be taken to have agreed to substitute Weather I (and later Weather II) for Rain in the Agreement and the only remaining issue is whether these and any other factors should also lead me to conclude that the Agreement was not merely parked, so to speak, but was actually abandoned for all purposes.
- One of the features of the Acquisition Agreement which is relevant to this question is clause 7.4. This provides that:
"The provisions of this clause 7 shall survive the winding up of Rain and the termination of the Shareholders Agreement or any other agreement between the parties resulting from this Agreement and the relationship being established hereby for any reason whatsoever and shall remain in full force and effect for either an indefinite period or the specific period so provided."
- The importance of this provision is that it confirms that Mr Sawiris's covenant in clause 7.3.1 not to seek to acquire Wind except through Rain was intended to remain enforceable even when an acquisition using Rain had ceased to be possible. The defence of abandonment therefore requires me to infer that Mr Sawiris and Mr Benedetti agreed to rescind these provisions which, following the decision to use Weather I and Weather II in place of Rain, remained the only part of the Acquisition Agreement which continued to have any effect.
- Mr Rabinowitz submits that a number of matters point to the conclusion that the Acquisition Agreement was abandoned in toto. The shares in Weather II were allocated and transferred to the Holding Companies without any objection by Mr Benedetti or any claim by him for one-third of the issued shares. As already mentioned, he was a director of Weather Italy and signed the SPA on behalf of that company. No attempt was made by him to enforce his rights under clause 7.3.1 and there has been no assertion of any such rights prior to the issue of this claim. All this points, he says, to Mr Benedetti having ceased to rely on the Acquisition Agreement as the basis of his legal relationship with Mr Sawiris.
- Considerable reliance is placed on the decision of Cooke J in Krasner v Machitski  EWHC 1787 where the judge held that a memorandum of agreement relating to the acquisition of the shares of a Romanian company (Alro) had not only ceased in terms to apply to the transaction in the form in which it was eventually concluded but had also been impliedly abrogated by the parties' conduct. At paragraph 254 the judge said this:
"It is in my judgment also clear on the evidence that neither party treated the MOA as continuing to apply after early 2000. By their conduct, they recognised that it was no longer effective to govern their relationship and the purchase of any Alro shares which might be made. On the basis of the findings of fact I have set out, I conclude that Mr Machitski and Mr Krasner by their conduct agreed that it was no longer to apply. In para 109 of the Re-amended defence and counterclaim, Mr Machitski pleaded that the MOA had no application to the actual events which took place and/or that it was terminated by agreement. As the parties did plainly treat it as inapplicable, in so doing, by their conduct they impliedly, if not expressly, agreed that it was at an end and no longer effective to govern their relationship whilst the obligations under it were no longer to be performed."
- Both sides have drawn my attention to particular facts in the case which are said to make the judge's reasoning either applicable to or distinguishable from the facts of this case. I do not consider that a comparative exercise of this kind would be useful. Inevitably each case has its own particular facts which need to be looked at in conjunction with the terms of the contract in issue.
- Mr Vos relies on a number of specific matters in this case which he says negative any presumed intention to abandon the Acquisition Agreement. These include the reference in Mr Abdou's e-mail of 11th June 2005 to Mr Sawiris accepting that "the original agreement needs to change"; the alleged conversation with Mr Abousleiman after the signing of the SPA in which Mr Sawiris is said to have asked whether the Acquisition Agreement was still binding; and the inclusion in the draft termination agreement of provisions rescinding the Agreement. He submits that Mr Benedetti did not take any steps to assert his rights under clause 7.3.1 in relation to the use of Weather II because he believed that the change was of no significance and that he trusted Mr Sawiris to honour their agreement. None of this, he says, is consistent with an intention to abandon the Acquisition Agreement.
- I disagree. Statements such as that contained in the 11th June e-mail were not framed with this issue in mind and the preparation of the termination agreement seems to me to be no more than a lawyer's natural caution. Although I accept that contracts do not simply die but have to be put out of their misery by the parties, the evidence in this case points, I think, largely one way. During 2005 the proposed transaction moved away from the structure contemplated in the Acquisition Agreement and the original position was never restored. Rain ceased to be the acquisition vehicle and no attempt was made by Mr Benedetti to amend the Agreement to include either Weather I or Weather II. Although the provisions of clause 7 of the Agreement were intended to survive even the liquidation of Rain, it is clear that Mr Benedetti consented to the acquisition of Wind using Weather Italy and Weather II and did not regard Mr Sawiris as in breach of their agreement. His conduct first in negotiating the terms of the structure of the deal and secondly in signing the SPA on behalf of Weather Italy admits, in my view, of no other explanation. One possible analysis is to say that Mr Benedetti waived any breach of clause 7.3.1 by acting in this way rather than abandoned the Agreement. The practical effect is, of course, the same. But it is difficult to see what purpose clause 7.3.1 could continue to have once Wind had been acquired by Weather II and so, on balance, I am inclined to regard the parties' conduct in completing the acquisition under the terms of the SPA as an implicit acknowledgement that the Acquisition Agreement had ceased to be of any contractual effect.
494. Breach of contract
- My conclusions on the issue of variation and abandonment are, of course, fatal to Mr Benedetti's claim to enforce the Acquisition Agreement against Mr Sawiris and the Holding Companies. But I would have reached the same conclusion even had I accepted that the Acquisition Agreement remains in force and has been varied to substitute Weather II for Rain.
- Putting aside the alleged variation of the Agreement to include an express obligation to transfer one-third of the shares to Mr Benedetti, the case for a transfer of that proportion of the shares turns on the provisions of clause 2.2. Although the share capital of Weather II exceeds €200,000, Mr Vos submits that the excess capital over that figure contributed by the Holding Companies has never been valued in accordance with clause 5.5.2 and that, as things stand, Mr Benedetti is therefore entitled to one-third of the shares. It is also said that any valuation of the additional shares issued to Mr Sawiris or the Holding Companies (as opposed to outside investors) was not under the terms of clause 5.5.2 to dilute the rights of Mr Benedetti and Mr Sawiris other than on a pari passu basis. This, it is said, does not allow Mr Sawiris to squeeze Mr Benedetti out even if it might allow another investor to do so.
- I do not accept either of these arguments. The shares in Weather II were acquired by the Holding Companies for value as part of the acquisition arrangements which Mr Benedetti says that he was responsible for negotiating. They were not, of course, issued by the company pursuant to a resolution of Mr Benedetti and Mr Sawiris as shareholders because the provisions of the Acquisition Agreement were never applied to Weather II. But to say that the shares were not issued and transferred to the Holding Companies at values which were agreed seems to me to be untenable. The company has been capitalised in accordance with a scheme which Mr Benedetti participated in and approved. On the non-dilution point, as stated earlier, clause 2.2 deals only with the initial capital of Rain: i.e. the €200,000 subscribed for by Mr Sawiris under clause 5.1. Clause 5.5.2 operates in relation to both the €50 million which Mr Sawiris was to contribute under clause 5.3 and the €1-€1.2 billion from outside investors referred to in clause 5.4. It makes no distinction between the two and must operate in the same way in respect of both. The effect of additional capital contributions from either of these sources would therefore dilute the original shareholder rights of Mr Benedetti and Mr Sawiris, albeit only on a pari passu basis. In the event that Mr Sawiris were to provide all the additional capital required (which would be under clause 5.4 rather than clause 5.3), dilution would, in my judgment, follow in precisely the same way as if the money had come from an outside investor. I do not see how the same provision can be construed so as to produce different results depending on who the investor turns out to be.
- The contractual claim for one-third of the shares will therefore be dismissed. In these circumstances, it is unnecessary for me to deal with the Claimants' arguments for an order for specific performance against the Holding Companies on the basis that they are controlled by Mr Sawiris. The point does not arise.
498. The claim under clause 7.3.1
- This claim also fails. For the reasons set out earlier, the Acquisition Agreement was either abandoned or any breach of clause 7.3.1 was waived by Mr Benedetti's consent to the purchase of Wind through Weather II.
499. The Hellas and Enel acquisitions
- One of Mr Benedetti's contractual claims is for damages for the loss in value of the shares in Weather II caused by the Defendants' management of the company and its investments. Two particular acquisitions are relied on: the purchase of Enel's 26.1% of Weather Italy in December 2006 for €1.96 billion and the acquisition in February 2007 of TIM Hellas, a Greek telecommunications company, for €3.4 billion. In both cases it is said that Mr Benedetti's consent should have been obtained to the acquisition in accordance with clause 4.5 and the First Schedule to the Acquisition Agreement.
- On 15th October 2008 Norris J ordered the determination at the trial of this action of the question whether the Claimants' consent to the two acquisitions was required. All other issues are postponed to a further hearing.
- The Claimants' argument is that the acquisitions fell within paragraphs (d), (e), (f), (h) or (m) of the First Schedule to the Acquisition Agreement. On the basis that the acquisitions were not within the company's ordinary course of business (paragraph (m)), that may well be correct. But the claim is obviously dependent upon the terms of the Acquisition Agreement becoming applicable to Weather II. In the light of my earlier conclusions on that issue, the answer to the preliminary issue is "No".
502. Breach of fiduciary duty
- The allegations of breach of fiduciary duty are based on duties arising out of the Acquisition Agreement itself (APC paragraph 20) and from Mr Sawiris's alleged undertaking to hold the shares in Weather I and Weather II for Mr Benedetti. My earlier findings of fact exclude any fiduciary duties based on the latter. The claim for breach of fiduciary duty based on the Acquisition Agreement adds little to the contractual claim. It is now well established that where a contract is the source of the fiduciary relationship, the latter "cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction": see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at page 97. It therefore fails for the same reasons.
- It follows that the proprietary claim and the claim for knowing receipt against the Holding Companies must also be dismissed.
504. The Constructive Trust Claim
- This claim falls away with my rejection of Mr Benedetti's evidence about the Understanding but I wish to set out the other reasons why I consider that the claim has never been viable.
- In terms of authority, the claim is based on the line of cases beginning with Pallant v Morgan  1 Ch 43. All these cases concern what might be described as joint ventures where an agreement short of a contract has been reached in relation to the acquisition of property and one of the parties acquires the property but then subsequently refuses to implement the terms of that agreement.
- In Pallant v Morgan (the facts of which I set out earlier) the plaintiff had withdrawn from the auction to allow his neighbour to bid on the basis of an understanding that he would acquire part of the land which the neighbour successfully purchased. In Banner Homes Group plc v Luff Developments Ltd  Ch 373 the two companies involved reached an agreement in principle that they would each own 50% of the shares in a company which was to be used to purchase and develop a site in Berkshire. The company (Stowhelm Limited) was incorporated as a subsidiary of Luff and negotiations began about a shareholders' agreement. Before the site was acquired by Stowhelm Luff began to have second thoughts about going into the joint venture with Banner Homes, but said nothing because it was afraid that Banner Homes might otherwise emerge as a rival purchaser for the site. The property was purchased before any shareholders' agreement had been entered into and Luff then refused to enter into any such agreement. Blackburne J held that there was no binding contract based on the negotiations for the shareholders' agreement and that no constructive trust had arisen in respect of the shares in Stowhelm because, although Luff gave Banner Homes to understand that there would be a joint venture and that it intended to enter into the agreement, Banner knew that neither side was legally committed until the shareholders' agreement had actually been executed.
- The Court of Appeal reversed this decision. After reviewing the various authorities at first instance, Chadwick LJ set out the conditions necessary for the operation of the equity:
"(1) A Pallant v Morgan equity may arise where the arrangement or understanding on which it is based precedes the acquisition of the relevant property by one of those parties to that arrangement. It is the pre-acquisition arrangement which colours the subsequent acquisition by the defendant and leads to his being treated as a trustee if he seeks to act inconsistently with it. Where the arrangement or understanding is reached in relation to property already owned by one of the parties, he may (if the arrangement is of sufficient certainty to be enforced specifically) thereby constitute himself trustee on the basis that "equity looks on that as done which ought to be done"; or an equity may arise under the principles developed in the proprietary estoppel cases. As I have sought to point out, the concepts of constructive trust and proprietary estoppel have much in common in this area. Holiday Inns Inc v Broadhead 232 E.G. may, perhaps, best be regarded as a proprietary estoppel case; although it might be said that the arrangement or understanding, made at the time when only the five acre site was owned by the defendant, did, in fact, precede the defendant's acquisition of the option over the 15-acre site.
(2) It is unnecessary that the arrangement or understanding should be contractually enforceable. Indeed, if there is an agreement which is enforceable as a contract, there is unlikely to be any need to invoke the Pallant v Morgan equity; equity can act through the remedy of specific performance and will recognise the existence of a corresponding trust. On its facts Chattock v Muller, 8 Ch.D. 177 is, perhaps, best regarded as a specific performance case. In particular, it is no bar to a Pallant v Morgan equity that the pre-acquisition arrangement is too uncertain to be enforced as a contract – see Pallant v Morgan  Ch. 43 itself, and Time Products Ltd v Combined English Stores Group Ltd., 2 December 1974 - nor that it is plainly not intended to have contractual effect – see Island Holdings Ltd v Birchington Engineering Co Ltd., 7 July 1981.
(3) It is necessary that the pre-acquisition arrangement or understanding should contemplate that one party ("the acquiring party") will take steps to acquire the relevant property; and that, if he does so, the other party ("the non-acquiring party") will obtain some interest in that property. Further it is necessary, that (whatever private reservations the acquiring party may have) he has not informed the non-acquiring party before the acquisition (or, at the least, before it is too late for the parties to be restored to a position of no advantage/no detriment) that he no longer intends to honour the arrangement or understanding.
(4) It is necessary that, in reliance on the arrangement or understanding, the non-acquiring party should do (or omit to do) something which confers an advantage on the acquiring party in relation to the acquisition of the property; or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms. It is the existence of the advantage to the one, or detriment to the other, gained or suffered as a consequence of the arrangement or understanding, which leads to the conclusion that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself, in a manner inconsistent with the arrangement or understanding which enabled him to acquire it. Pallant v Morgan  Ch. 43 itself provides an illustration of this principle. There was nothing inequitable in allowing the defendant to retain for himself the lot (lot 15) in respect to which the plaintiff's agent had no instructions to bid. In many cases the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market. That will usually be both to the advantage of the acquiring party – in that he can bid without competition from the non-acquiring party – and to the detriment of the non-acquiring party – in that he loses the opportunity to acquire the property for himself. But there may be advantage to the one without corresponding detriment to the other. Again, Pallant v Morgan provides an illustration. The plaintiff's agreement (through his agent) to keep out of the bidding gave an advantage to the defendant – in that he was able to obtain the property for a lower price than would otherwise have been possible; but the failure of the plaintiff's agent to bid did not, in fact, cause detriment to the plaintiff – because, on the facts, the agent's instructions would not have permitted him to outbid the defendant. Nevertheless, the equity was invoked.
(5) That leads, I think, to the further conclusions: (i) that, although, in many cases, the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market, that is not a necessary feature; and (ii) that, although there will usually be advantage to the one and co-relative disadvantage to the other, the existence of both advantage and detriment is not essential – either will do. What is essential is that the circumstances make it inequitable for the acquiring party to retain the property for himself in a manner inconsistent with the arrangement or understanding on which the non-acquiring party has acted. Those circumstances may arise where the non-acquiring party was never "in the market" for the whole of the property to be acquired; but (on the faith of an arrangement or understanding that he shall have a part of that property) provides support in relation to the acquisition of the whole which is of advantage to the acquiring party. They may arise where the assistance provided to the acquiring party (in pursuance of the arrangement or understanding) involves no detriment to the non-acquiring party; or where the non-acquiring party acts to his detriment (in pursuance of the arrangement or understanding) without the acquiring party obtaining any advantage therefrom."
- In London & Regional Investments Ltd v TBI Plc  EWCA Civ 355 the Court of Appeal again considered a claim to a Pallant v Morgan equity where TBI had entered into an agreement to sell to London & Regional some of its property owning subsidiaries. The sale agreement contained a provision requiring the parties to use their reasonable endeavours to agree the terms of a joint venture agreement regarding some land at Belfast and Cardiff airports having regard to the principles set out in an agreed note. This note was headed "subject to contract". Eventually TBI refused to proceed with the joint venture.
- The Court of Appeal upheld a decision giving summary judgment in favour of TBI on London & Regional's claim for a Pallant v Morgan equity based on an assurance derived from the sale agreement that a joint venture would be entered into. Mummery LJ said that:
"42. The "subject to contract" state of the joint venture negotiations at the date of the Sale Agreement indicates that there is nothing unconscionable in TBI's subsequent refusal to proceed with the joint venture after the Sale Agreement was completed. The validity of this conclusion can be tested by asking this question: when did the trust and the estoppel take effect? It is accepted that no constructive trust or estoppel could have arisen after 13 May 1999 when the parties expressly agreed in the Sale Agreement that the joint venture was "subject to contract". In general, it is not unconscionable for a party to negotiations, which are expressly stated to be "subject to contract," to exercise a reserved right to withdraw from the negotiations before a final agreement has been concluded. If that was the effect of the agreement between the parties on 13 May 1999 I do not see how the conduct of TBI before that date can now be relied on to establish unconscionable conduct giving rise to a constructive trust or an estoppel. For the court to hold that a constructive trust existed in those circumstances would be contrary to what the parties had expressly agreed was to be subject to the making of a future agreement…..
47. It is true that Banner Homes was a "no contract" case in which the equity was invoked; but it was not, as Mr Howard attempted to argue, the same as a "subject to contract" case in which it is part of the bargain between the parties that specific matters remain in a state of negotiation until a future agreement is made. Banner Homes is distinguishable from a case such as this, in which the two large legally represented commercial organisations have negatived an intention to create obligations in respect of the relevant joint venture land (the Belfast Land and the Cardiff Land) and have done so explicitly in a legally drafted, formal agreement (the Sale Agreement). The recorded intentions as to the joint venture implicitly proceeded on the basis that no concluded agreement had been reached and contemplated that such an agreement might never be reached.
48. Nor was Banner Homes a case, such as this, in which the person sought to be held liable as a constructive trustee has an existing entitlement to the land in question and the claimed agreement to dispose of it, in this case to a joint venture, is too uncertain and vague to be enforced. The effect of accepting L&R's submissions would be that the Belfast Land and Cardiff Land would be held on a constructive trust for L&R and TBI in equal shares, even though the parties have expressly agreed that the joint venture in respect of that land was still in negotiation. L&R seeks to invoke equity not to counter unconscionable conduct by one party which would defeat the informal understanding of both parties, but to reverse the effect of the express agreement they have made and replace it with state of affairs (joint ownership of the land with no joint development) which was never contemplated."
- In Kilcarne Holdings Ltd v Targetfollow (Birmingham) Ltd  EWHC 2547 (Ch) Lewison J also had to consider a joint venture case involving a site in Birmingham. He rejected the claim that a binding and enforceable joint venture agreement existed and was therefore left to consider the alternative case based on Pallant v Morgan. One of the findings made by the judge was that, if a binding joint venture agreement had come into existence, it was in any event discharged by the issue of some loan notes and an accompanying floating charge. This led to a submission by the defendants that the existence of a contract between the parties in the form of the loan notes precluded any equity based on the constructive trust.
- Lewison J dealt with this argument in the following passages from his judgment:
"231. Nr Nugee emphasises Chadwick LJ's statement that the equity is invoked because there is no bargain which is capable of being enforced; if there were an enforceable bargain there would have been no need for equity to intervene. He submits, therefore, that because there was an enforceable bargain (namely the Birmingham loan notes) which gave Kilcarne a return on its money, and the possibility of participation in future profits, equity need not, and therefore should not, intervene. The parties must have chosen to define their legal relationship by means of contractually enforceable rights and obligations, and they should be held to their bargain. The very reason why people enter into written contracts (particularly contracts affecting land) is so that their rights and obligations can be definitively recorded. If the written contract inadequately records what has actually been agreed, then equity can intervene through the remedy of rectification. But rectification does not alter the bargain itself; it merely alters the written record of the bargain. Kilcarne does not claim, in the present case, that the written contractual arrangements should be rectified. Rather, its claim is to alter the bargain itself. In order to leave the starting gate Kilcarne must show that TBL or TGL has been guilty of unconscionable conduct; and it is not unconscionable for TBL and TGL to rely on the contractually binding agreements made between them and Kilcarne. The basis of the equity is trust; not contract.
232. In the paradigm Pallant v. Morgan case the claimant has no entitlement at law. If equity does not intervene, he is left with nothing. It is that which makes it unconscionable for the legal title holder to deny the beneficial interest of the person who trusted him. That is not the position in the present case. In return for making £1.4 million available to TGL, Kilcarne got:
i) A promise to repay £1.83 million;
ii) Security for the promise in the shape of a legal charge over the hotel and a floating charge over TGL's assets together with Mr Naghshineh's personal guarantee.
233. In return for making £1 million available to TBL, Kilcarne got:
i) A promise to repay £1 million plus interest and 50 per cent of the Net Proceeds of Sale of Baskerville House (if a sale takes place before the maturity date);
ii) Security for the promise in the shape of a floating charge over TBL's assets and Mr Naghshineh's personal guarantee.
236. In essence, therefore, I accept Mr Nugee's submission. The existence of the complex network of contracts between the protagonists precludes, or renders unnecessary, the intervention of equity. A similar thought process, I think, underlies the decision of the Court of Appeal in Lloyds Bank plc v. Carrick  4 All ER 639 (discussed by Robert Walker LJ in Yaxley v. Gotts  Ch 162, 178)."
- The Court of Appeal dismissed an appeal from his decision largely on the facts: see  EWCA Civ 1355. But at paragraph 12 of his judgment, Sir Martin Nourse said:
"I agree with Mr Nugee that, as the case has been put in this court, the key finding has become that made in para. 245 of the judgment, where the judge said:
"To put it positively, what Kilcarne relied on in entering into the transaction was the form of the written documents embodying the contractual arrangements (which it may not fully have understood), rather than any oral discussions between Mr Singh and Mr Naghshineh or Mr Singh's emails recounting those discussions."
Although the judge was there dealing specifically with the question of reliance in relation to a Pallant v Morgan constructive trust, it follows inevitably from his finding that, in relation to the £1m lent by Kilcarne to TBL, the parties intended that their rights and obligations should be governed simply by the instrument creating the Birmingham loan notes."
- A common feature of most of the cases in which a claim has been made based on Pallant v Morgan is the absence of a concluded contract embodying the terms of the proposed joint venture or acquisition. In all these cases the disappointed party, which is denied its expected participation in the property acquired, seeks to make good the absence of a contractual entitlement to that interest by asserting an equity based on the failure of the other party to adhere to the informal bargain previously made.
- Although there can be no doubt that the defendant in many of these cases has behaved in a way which might be regarded as discreditable, there is also much to be said for the view that those who enter into commercial negotiations with knowledge of the risks they run if no contract is entered into should be left to bear the consequences of that failure. A distinction can therefore be made between cases like Banner Homes where, on the judge's findings, those risks were always appreciated by the claimant and a case like Pallant v Morgan itself in which the parties (who were not dealing with each other in a commercial context) never expected to enter into any kind of complex or detailed contractual relationship but simply agreed that they should not bid against each other at the auction and should divide up the property which the defendant was able to acquire free of any rival bid from the plaintiff.
- In some of the cases an attempt to give effect to the pre-contractual arrangement through the medium of a constructive trust has failed because of the express inclusion of the subject to contract formula. London & Regional Investments is the leading example of this. But where the parties know that as a matter of law their agreement will remain unenforceable unless incorporated into a formal agreement, it is difficult to see why the presence or absence of the subject to contract label should make any difference. In neither case can the disappointed party claim to have been relying on the arrangement as giving rise to any form of legal right.
- This point has now arisen for consideration by the House of Lords in the recent case of Cobbe v Yeoman's Row Management Ltd  1 WLR 1752. Mr Cobbe, an experienced property developer, agreed to purchase a property from the defendant company for £12 million for development into six town houses. In addition to the £12 million purchase price, the defendant was to be entitled to an overage payment equal to 50% of the gross proceeds of the completed development over £24 million. These arrangements were never converted into a written contract but the claimant went ahead in reliance on what had been agreed and spent 18 months obtaining planning permission for the development. Immediately after the planning permission was granted, the defendant demanded £20 million for the property and refused to sell at the price originally agreed.
- The primary claim was one based on proprietary estoppel which is not part of this case. But relief was also sought on the basis of a constructive trust relying on Pallant v Morgan. Etherton J upheld the claim based on proprietary estoppel but also indicated that he would have accepted the claim based on a constructive trust despite having found that Mr Cobbe knew that the agreement was binding in honour only. The Court of Appeal dismissed the defendant's appeal.
- The House of Lords came to a different conclusion and dismissed all of Mr Cobbe's claims except that for a quantum meruit. In relation to the claim based on a constructive trust, Lord Scott fastened on two features of the case which made it impossible in his view to impose the equity sought. The first was the fact that the defendant already owned the property in question: a point dealt with by Chadwick LJ as the first of his general principles in Banner Homes. The second was the effect of Mr Cobbe's knowledge that the agreement in principle was binding in honour only. These are dealt with in paragraph 37 of his speech:
"The unconscionable behaviour of Mrs Lisle-Mainwaring is, in my opinion, not enough in the circumstances of this case to justify Mr Cobbe's claim to have acquired, or to be awarded by the court, a beneficial interest in the property. The salient features of the case that preclude that claim are, to my mind, that the appellant owned the property before Mr Cobbe came upon the scene, that the second agreement produced by the discussions between him and Mrs Lisle-Mainwaring was known to both to be legally unenforceable, that an unenforceable promise to perform a legally unenforceable agreement - which is what an agreement "binding in honour" comes to - can give no greater advantage than the unenforceable agreement, that Mr Cobbe's expectation of an enforceable contract, on the basis of which he applied for and obtained the grant of planning permission, was inherently speculative and contingent on Mrs Lisle-Mainwaring's decisions regarding the incomplete agreement and that Mr Cobbe never expected to acquire an interest in the property otherwise than under a legally enforceable contract. In these circumstances the imposition of the constructive trust on the property and the pro tanto divesting of the appellant's ownership of it seems to me more in the nature of an indignant reaction to Mrs Lisle-Mainwaring's unconscionable behaviour than a principled answer to Mr Cobbe's claim for relief."
- Lord Walker took a similar view. He thought that a decision in favour of Mr Cobbe would introduce considerable uncertainty into commercial negotiations. He also thought that there could be no difference in principle between a case where the subject to contract formula was used and one in which the parties were aware (even absent its use) that the arrangements between them were not legally binding:
"91. When examined in that way, Mr Cobbe's case seems to me to fail on the simple but fundamental point that, as persons experienced in the property world, both parties knew that there was no legally binding contract, and that either was therefore free to discontinue the negotiations without legal liability—that is liability in equity as well as at law, to echo the words of Lord Cranworth quoted in para 53 above. Mr Cobbe was therefore running a risk, but he stood to make a handsome profit if the deal went ahead, and the market stayed favourable. He may have thought that any attempt to get Mrs Lisle-Mainwaring to enter into a written contract before the grant of planning permission would be counter-productive. Whatever his reasons for doing so, the fact is that he ran a commercial risk, with his eyes open, and the outcome has proved unfortunate for him. It is true that he did not expressly state, at the time, that he was relying solely on Mrs Lisle-Mainwaring's sense of honour, but to draw that sort of distinction in a commercial context would be as unrealistic, in my opinion, as to draw a firm distinction depending on whether the formula "subject to contract" had or had not actually been used."
- In this case the shares in Weather II were obviously not acquired before the joint venture was agreed. Mr Vos also submits on behalf of Mr Benedetti that it cannot be said that he did not believe that he had a legally enforceable agreement. I do not accept that. As explained earlier, Mr Benedetti always intended his relations with Mr Sawiris to be governed by the Acquisition Agreement which was refined over a period of a year by reference to a series of negotiations with Mr Sawiris. Mr Schiffer was responsible for making the changes in the Agreement and these continued right up to and including the meeting at which it was eventually signed. To suggest that Mr Benedetti thought that one or other of the drafts was already contractual in effect is implausible and his evidence (as recorded in paragraph 146 above) was that any legal rights which he expected to obtain would come out of the Agreement.
- But this case differs from most of the authorities I have considered including Cobbe v Yeoman's Row Management Ltd in that the proposed joint venture agreement did become contractual in the form of the Acquisition Agreement. In these circumstances, the Defendants rely on the same argument as that accepted by Lewison J in Kilcarne: i.e. that the parties should be kept to the contract which they have made which of itself excludes the operation of any prior equities.
- Further support for this view can be found in the judgment of Chadwick LJ in Banner Homes (at page 400E):
"The Pallant v Morgan equity does not seek to give effect to the parties' bargain, still less to make for them some bargain which they have not themselves made, as the cases to which I have referred make clear. The equity is invoked where the defendant has acquired property in circumstances where it would be inequitable to allow him to treat it as his own; and where, because it would be inequitable to allow him to treat the property as his own, it is necessary to impose on him the obligations of a trustee in relation to it. It is invoked because there is no bargain which is capable of being enforced; if there were an enforceable bargain there would have been no need for equity to intervene in the way that it has done in the cases to which I have referred."
- Similarly in Krasner v Machitski Cooke J, having found that the contract between the parties had been abandoned, dismissed an alternative claim based on Pallant v Morgan for these reasons:
"265. The claim for unjust enrichment and a Pallant v Morgan equity must fail however for essentially the same factual reasons as the contractual claim. Once it is recognised that the MOA is inapplicable in its terms to the acquisition of the Alro shares in the circumstances of which both parties were aware, namely the inability to obtain external funding and the need for Mr. Machitski to finance the acquisitions in a sum vastly in excess of $20M, it is hard to see how there can be any pre-acquisition arrangement or understanding that Mr. Krasner would obtain a shareholding in Alro without providing funding, as the MOA had originally envisaged."
- Mr Benedetti's primary case is, of course, based on the Acquisition Agreement. But his constructive trust claim is pleaded as an additional and not an alternative claim. Mr Vos submits that the Understanding was distilled into the Acquisition Agreement but that the Agreement did not capture all the elements of the Understanding. It omitted, most obviously, any reference to any agreement that Mr Sawiris would lend to Mr Benedetti one-third of any investment which he made in the acquisition. Mr Benedetti continued, it is said, to rely on the complete Understanding up to the time of the SPA and this gave rise to a constructive trust as claimed in respect of the shares of Weather II even if the Acquisition Agreement had by then been abandoned or had simply ceased to apply to the transaction which eventually took place.
- But this ignores the effect and the realities of the contract. Even if the terms of the Understanding had included an agreement to lend Mr Benedetti one-third of anything invested by Mr Sawiris (rather than one-third of the €50 million), those arrangements were clearly not intended to be included in the Acquisition Agreement and gave rise to no legal obligation on Mr Sawiris's part to implement them. As explained by Chadwick LJ in the passage quoted above, the terms of the joint venture are those contained in the contract and it has never been the function of equity to re-model the bargain which the parties have made absent a claim for rectification in cases where the documentation has failed accurately to record what was in fact agreed. There is no such claim here and any arrangement with Mr Sawiris for the loan to Mr Benedetti of one-third of the equity invested in Weather II which was not intended to and did not become contractual cannot in my judgment have a superior status to an agreement in principle of the pre-contractual kind considered by Lord Scott and Lord Walker in the passages from their speeches in Cobbe v Yeoman's Row quoted above.
- The Acquisition Agreement was, therefore, conclusive of the parties' rights and obligations as of January 2004 and precluded any claim based on some kind of prior Understanding. Nor can the subsequent abandonment of the agreement operate in my judgment to revive any such equity. The changed circumstances which are relied on by Mr Sawiris as giving rise to a departure from the Acquisition Agreement were independent of anything discussed before January 2004 and did not on Mr Benedetti's case involve any new affirmation by Mr Sawiris of an intention to lend him one-third of the value of Weather II's shares. Nor would the abandonment of the agreement create a contractual vacuum. As already mentioned, abandonment as a matter of law signifies an agreement to rescind the existing contract. Such an agreement would of itself negative the revival of any prior equity.
527. Quantum Meruit
- In the absence of any contractual or equitable entitlement to the one-third of Weather II which is claimed, it is common ground that Mr Benedetti is nonetheless entitled to receive reasonable remuneration for the services which he has performed. The task for the court is to put a value on those services.
- Some of the parameters for this exercise are not, I think, in issue. The valuation has to be carried out as at the date when the services were rendered and should, as a general rule, approximate to market value. But regard must also be had to any prior negotiations or agreement between the parties which indicate that they put a particular value on the services in question. This may be the best evidence of what constitutes reasonable remuneration for the services rendered and, as a matter of principle, there is some judicial support for the view that the price agreed should be the ceiling for any award: see Pavey and Matthews Property Ltd v Paul (1987) 162 CLR 221 at page 257; Lachhani v Destination Canada (UK) Ltd (1997) 13 Const. LR 279.
- In Scarisbrick v Parkinson (1869) 20 LT 175 the Court of Exchequer held that an oral contract under which the defendant agreed to employ the plaintiff (a minor) as his clerk for a term of 3 years for the sum of £60 which was unenforceable for lack of writing under s.4 of the Statute of Frauds could nonetheless be admitted in evidence on a claim for a quantum meruit. Kelly CB said (at page 177):
"The only question is whether or not the agreement which could not be recovered on by reason of its coming within the prohibition of the Statute of Frauds could be referred to on the trial of the action for any other purpose. It was contended by the counsel for the defendant that it could not, for that to do so was to charge the defendant by means of it. But I do not think that that is the case. Suppose, for instance, that an agreement to precisely the same effect as the one in the present case had been made between the defendant and a third person, another person altogether than the plaintiff, but a young man of the same age and position, it is quite clear that the plaintiff could not have recovered, in the present action, upon that agreement; but can it be said that he could not have referred to it for the purpose of showing the value which the defendant had put upon his services, and so of enabling the jury to estimate such services? Surely not. I think, therefore, that the assessor was right in leaving to the jury what was the value of the services of the plaintiff, and in telling them that, in order to arrive at a proper estimate of such value, they might have recourse to the agreement for the purpose of seeing what the defendant himself had valued such services at, although such agreement for the reason above mentioned, could not be used for any other purpose."
- In Way v Latilla  3 All ER 759 the plaintiff agreed to provide the defendant with information about gold mines and concessions in West Africa in return for the defendant paying a reasonable sum for the information and giving the plaintiff a share of the concessions. In an action for breach of contract it was held that the agreement did not result in a concluded contract but that Mr Way was entitled to a quantum meruit in the form of reasonable remuneration for the services he had performed. Mr Way gave no evidence about the value of his services and in the Court of Appeal he was awarded 500 guineas on the basis of evidence that was called at the trial from a consulting mining engineer that this sum was a proper fee for the work done.
- In the negotiations between the parties Mr Way's remuneration had been discussed not in terms of a fee but as a "participation" which amounted to a commission. Lord Atkin held that this evidence was admissible in determining what would constitute reasonable remuneration for the plaintiff:
"There are many employments the remuneration of which is, by trade usage, invariably fixed on a commission basis. In such cases, if the amount of the commission has not been finally agreed, the quantum meruit would be fixed after taking into account what would be a reasonable commission, in the circumstances, and fixing a sum accordingly. This has been an everyday practice in the courts for years. But, if no trade usage assists the court as to the amount of the commission, it appears to me clear that the court may take into account the bargainings between the parties, not with a view to completing the bargain for them, but as evidence of the value which each of them puts upon the services. If the discussion had ranged between 3 per cent on the one side and 5 per cent on the other, all else being agreed, the court would not be likely to depart from somewhere about those figures, and would be wrong in ignoring them altogether and fixing remuneration on an entirely different basis, upon which, possibly, the services would never have been rendered at all. That, in fixing a salary basis, the court may pay regard to the previous conversation of the parties was decided by the Court of Exchequer in 1869, in Scarisbrick v Parkinson, where the terms of an agreement, invalid under the Statute of Frauds, were held to be admissible as evidence in a quantum meruit. This seems to me to be good law, and to give effect to a principle which has been adopted regularly by the courts not only in fixing remuneration for services but also in fixing prices, sums due for use and occupation, and, indeed, in all cases where the court has to determine what is a reasonable reward for the consideration given by the claimant. "
- In B.P. Exploration Co (Libya) Ltd v Hunt (No. 2)  1 WLR 783 the contract between the parties relating to an oil concession in Libya had been frustrated by the nationalisation of the field. Robert Goff J (in the context of a claim for the award of a just sum under s.1(3) of the Law Reform (Frustrated Contracts) Act 1943) had this to say (at page 805) about the relevance of the terms of the contract to this issue:
"A crucial question, on which the Act is surprisingly silent, is this: what bearing do the terms of the contract, under which the plaintiff has acted, have on the assessment of the just sum? First, the terms on which the work was done may serve to indicate the full scope of the work done, and so be relevant to the sum awarded in respect of such work. For example, if I do work under a contract under which I am to receive a substantial prize if successful, and nothing if I fail, and the contract is frustrated before the work is complete but not before a substantial benefit has been obtained by the defendant, the element of risk taken by the plaintiff may be held to have the effect of enhancing the amount of any sum to be awarded. Secondly, the contract consideration is always relevant as providing some evidence of what will be a reasonable sum to be awarded in respect of the plaintiff's work. Thus if a prospector, employed for a fee, discovers a gold-mine before the contract under which he is employed is frustrated (for example, by illegality or by his illness or disablement) at a time when his work was incomplete, the court may think it just to make an award in the nature of a reasonable fee for what he has done (though of course the benefit obtained by the defendant will be far greater), and a rateable part of the contract fee may provide useful evidence of the level of sum to be awarded. If, however, the contract had provided that he was to receive a stake in the concession, then the just sum might be enhanced on the basis that, in all the circumstances, a reasonable sum should take account of such a factor: cf Way v Latilla  3 All ER 759. Thirdly, however, the contract consideration, or a rateable part of it, may provide a limit to the sum to be awarded. To take a fairly extreme example, a poor householder or a small businessman may obtain a contract for building work to be done to his premises at considerably less than the market price, on the basis that he cannot afford to pay more. In such a case, the court may consider it just to limit the award to a rateable part of the contract price, on the ground that it was the understanding of the parties that in no circumstances (including the circumstances of the contract being frustrated) should the plaintiff recover more than the contract price or a rateable part of it. Such a limit may properly be said to arise by virtue of the operation of s 2(3) of the Act. But it must not be forgotten that, unlike money, services can never be restored, nor usually can goods, since they are likely to have been either consumed or disposed of, or to have depreciated in value; and since, ex hypothesi, the defendant will only have been prepared to contract for the goods or services on the basis that he paid no more than the contract consideration, it may be unjust to compel him, by an award under the Act, to pay more than that consideration, or a rateable part of it, in respect of the services or goods he has received. It is unnecessary for me to decide whether this will always be so; but it is likely that in most cases this will impose an important limit on the sum to be awarded: indeed it may well be the most relevant limit to an award under s 1(3) of the Act. "
- It is, however, important to note that these are all cases where the agreement between the parties could not be enforced either because it failed to attain the degree of certainty and finality necessary to create a binding contract (Way v Latilla); or because of some formal defect (Scarisbrick v Parkinson); or due to some supervening event (B.P. Exploration Co v Hunt). But for these problems, the agreements would have been enforceable between the parties according to their terms and it is not difficult to see why, in these circumstances, the value placed upon the services by the parties themselves should be given great weight in any determination by the court of the value which should be attributed to the arrangements between those same parties.
- But in a case where the evidence shows that the contract or agreement was abandoned as the basis of the parties' dealings then the reasoning in Way v Latilla ceases to apply. If the correct view is that the parties ceased to regard the original contract price as an appropriate value for the services then there is no justification for the court imposing it as a measure of value unless it can be justified by other evidence as the market value of the services at the time when they were performed. There is a clear difference between an ineffective agreement and one which the parties have effectively jettisoned.
- During the course of this judgment I have identified a number of key areas in which it is clear that Mr Benedetti played an important part. There is, I think, no real doubt that he identified the opportunity to Mr Sawiris (although it was in the public domain at the time) and came up with the reasons why Wind would be an attractive and valuable target for an acquisition. It is accepted that he developed close ties with the management of Wind which, although not critical to the success of the bid, were useful in its early stages and provided (through Mr Fienga and Mr Lo Bascio) insights and information which assisted the formulation of the bid.
- Mr Benedetti also seems to have developed a good relationship with Mr Conti. Again it cannot be said that this was critical to the bid in the sense of ensuring that it succeeded against that of Blackstone. The evidence is that Enel chose the Weather Consortium because they offered a higher price. But it was obviously important to maintain favourable relations with Enel particularly when it came to the negotiation of the premium on the Orascom shares. Mr Sawiris can say with some justification that Mr Conti would not have been prepared to agree to a figure in the $57-$60 per share range unless he had some support for such a value from his own advisers. But, as I said earlier, it would be wrong to assume that Enel's agreement was a given. Mr Benedetti was left to negotiate the price on his own and it is clear from Mr Sawiris's reaction at the time to what was achieved that his efforts in this regard were very much valued.
- Where I think Mr Benedetti's role has been exaggerated is in relation to the more technical aspects of the bid. At various points in his evidence he claimed almost sole credit for things such as the negotiation of the IMI loan and the Project Mufasa concept when (as I have explained) it was clearly a much more collaborative effort. Mr Benedetti does not claim to have (nor does he possess) the expertise necessary to devise the complex financial structures which had to be put in place to manage the re-financing of Wind's existing debt and the leverage necessary to complete the purchase.
- I heard evidence from bankers such as Mr Joubert who worked for Rothschild on their advisory and restructuring team. His evidence (which I accept) was that Mr Benedetti appeared to have no prior experience of M&A transactions of this complexity nor any technical expertise. When he attended the technical meetings at which Mr Joubert was present he made no real contribution to the detail of the discussion and his primary concern appeared to be to ensure that those with the necessary expertise were addressing the problems which needed to be solved. The detailed banking arrangements were put together by Rothschild and the other banks (IMI, ABN Amro and Deutsche Bank) for which they were paid a fee.
- This evidence is consistent with my own impression of the way in which Mr Benedetti operated. There is no doubt that he was extremely active throughout the period leading up to the signing of the SPA. He attended most (if not all) of the meetings with Enel and the politicians and obviously liaised closely with senior representatives of the banks such as Mr Bruno and Mr Trentino who were involved in providing the finance. But he was not (and could not be) the author of all of the draft memoranda, offer letters and other documents which the transaction generated. These were the responsibility of members of the project team (including IPE) who were brought in to do this work. Mr Benedetti's role was at most supervisory and it is clear that he was copied in to most of the important e-mails as things progressed.
- He was therefore essentially a facilitator and organiser. He had put the idea to Mr Sawiris and he saw it through to a conclusion. When things occasionally got to an impasse he remained committed to the project and his commitment overrode loyalties to any individual investor including Mr Sawiris himself. Mr Benedetti's primary concern was to get the deal completed and if that necessitated using a different set of investors (as he clearly thought it did in late 2004) then he had no hesitation in switching his allegiance to those people. In the end, the acquisition of Wind was achieved but Mr Benedetti was not able to bring in the other investors which he and IPE had promised and Mr Sawiris was left to go it alone with the assistance of the Holding Companies and the benefit of their shares in Orascom.
- Various witnesses sought to describe Mr Benedetti's role in the transaction. Mr Daffina said that he was neither a financial adviser nor a full principal but was something in between. Mr Joubert, when this description was put to him, said Mr Benedetti was an extraordinary adviser:
"He had a role which was wider that a simple investment banker or adviser because he kind of championed the deal initially. He knew about the opportunity, he had all the right contacts at the seller and within the political circles. What he needed was the equity to perform that transaction and he assembled a consortium to buy the company.
"It turned out that the consortium ended up being one single person. In this respect, he was more than an adviser. He was more of maybe a broker of the whole deal. But for me, a principal is the person who chips in the money and therefore can make the decisions for their own money."
- One thing which is, I think, clear is that Mr Benedetti was never a principal. Although he chose in his evidence to describe himself as Mr Sawiris's partner, that was never true in any financial sense. It was never envisaged that he would provide equity for the acquisition and it is clear that he never had the authority to commit Mr Sawiris to the deal without his express consent.
- Mr Reynolds likened his role to someone he described as a promoter who would be entitled to share in the equity or its equivalent value. Mr Sottile, on the other hand, said that his role was that of a broker/adviser often carried out by an investment banker.
- Ultimately, however, these descriptions may not be critical. Mr Benedetti has not attempted in his evidence to provide an account of all the time spent on the transaction with details of precisely what he did at any one time. Nor has he adduced expert evidence as to what the services which he actually performed would have been valued at in the market at the time. In his Supplemental Report Mr Reynolds contrasts the difference in approach between himself and Mr Sottile. He has, he says, started from the position that the Acquisition Agreement shows the structure of the remuneration that Mr Benedetti and Mr Sawiris were willing to agree. He has then gone on to consider whether the level of remuneration which this produces is reasonable when compared with a range of remuneration structures found in the market. Mr Sottile, by contrast, has sought to identify the tasks which Mr Benedetti performed and has then stated what he considers to be the most typical form and level of remuneration paid to those performing such tasks.
- In practical terms, this has resulted in Mr Reynolds identifying various types of transaction in which a "promoter" typically receives a share of the equity on the completed acquisition. Looked at against these comparables, he expresses the view that for Mr Benedetti to receive one-third of the equity in Weather II on loan terms would not be unreasonable. Mr Sottile, on the other hand, analyses all of the services which Mr Benedetti says he carried out as ones which are frequently undertaken by an investment bank in return for a fee of between 0.1% and 0.3% of the transaction value. On this basis he considers that Mr Benedetti's services, when carried out, would not have justified remuneration in excess of this amount.
- Mr Vos therefore submits that it is not necessary for the court to attempt to resolve every factual dispute as to what Mr Benedetti did or did not do. His claim for a quantum meruit is not based on valuing the particular tasks he carried out. Because both parties contemplated that Mr Benedetti's services were worth one-third of the shares in the vehicle which acquired Wind (subject to the loan plus interest), all that the court needs to do, he says, is to be satisfied that Mr Benedetti in fact carried out the services which he undertook under the Acquisition Agreement. These were the negotiation of the acquisition (clause 4.6); the use of his best endeavours with Mr Sawiris to obtain all finance required from third parties and to obtain the necessary co-operation and approvals of the Italian government and Wind's management (clause 4.7); and the use of his best endeavours (again with Mr Sawiris) to raise between €1 and €1.2 billion to complete the acquisition (clause 5.4).
- Although no outside investment was in fact obtained by Mr Benedetti, it is not suggested that he failed to use his best endeavours to acquire it and I will proceed on the basis that he did carry out the obligations I have referred to. I also accept that there is no reason in principle not to award Mr Benedetti remuneration in the form of an equity share if that is properly to be regarded as what would constitute reasonable remuneration for the work which he did. There are, however, a number of points of difficulty about the Claimants' approach given my earlier findings about the construction and subsequent status of the Acquisition Agreement.
- The first point to make about the Agreement is that (as explained earlier) it nowhere provides for any part of the capital of Rain to be transferred to Mr Benedetti on the basis of a loan. If Mr Benedetti had been entitled to one-third of the capital of Rain or Weather II it would have been an entitlement to that percentage of the issued share capital outright. This would have produced a level of remuneration which Mr Reynolds was forced to concede was uncommercial. For this reason, Mr Vos does not press for the one-third share other than on the terms of the loan even though, on a strict Way v Latilla approach, the contractual measure of recovery would be in excess of this.
- Conversely it might be said that the application by analogy of the Acquisition Agreement on its true construction would in fact entitle Mr Benedetti to no more than one-third of €200,000 worth of the equity given that he did agree to the shares in Weather II being issued and transferred to the Holding Companies at values which reflected the amount of their investment. But, again, Mr Rabinowitz does not press this. He accepts that Mr Benedetti is entitled to receive up to 0.3% of the transaction value as remuneration for his services subject to giving credit for the €67 million already received through ITM.
- The status, however, of the Acquisition Agreement as a guide to the correct value to be placed on Mr Benedetti's services is undermined in my view by the fact that it was abandoned as the basis of the arrangements between him and Mr Sawiris during the course of 2005. By abandonment I include their failure to update the agreement so as to include Weather II regardless of whether that also amounted to a rescission of the contract. It seems to me wrong in principle to impose upon the parties by way of quantum meruit a measure of remuneration which they declined to apply to the transaction in its final form. While it is obviously right to apply an agreement which the parties reached about remuneration and which, but for some legal obstacle, would have governed the matter, it must follow that an agreement which the parties decided to abandon or not to apply should be disregarded for these purposes.
- Both experts gave their evidence and were cross-examined in some detail. Putting aside the differences in their approach, they were essentially divided on whether Mr Benedetti should receive some form of equity share or carry as his reward. Mr Sottile's evidence was that Mr Benedetti's role was essentially that of a broker/adviser. In the market this work is typically and predominantly carried out by M&A specialists or investment banks. It would include acting as a deal broker between the client and those representing the target company as well as raising finance from banks and other equity providers. This can, he said, include the broker/adviser taking a wide responsibility for the negotiations, although the decision whether to proceed on the terms available would always be a matter for the client principal.
- Brokers/advisers (according to Mr Sottile) bring a number of particular capabilities to the transaction. They have an in depth knowledge of the market, high level contacts and intermediary skills; technical know how; and a strong track record, expertise and reputation. On some occasions they bring potential acquisitions to the attention of would-be investors. Due in part to the competitive nature of the market, they are compensated for their services by transaction fees (normally success fees) and are not typically granted equity incentives. Such fees vary between 0.1% and 0.3% of the transaction value for transactions of the size of the Wind acquisition and include all ancillary services.
- Mr Sottile takes issue with Mr Reynolds's description of Mr Benedetti as a promoter and the attachment to what he refers to as that "label" of a remuneration package relevant to other types of market participants such as private equity firms and hedge funds. Private equity firms are different, he says, from the broker/adviser and from the role which Mr Benedetti claims to have performed because they operate what amounts to an asset management business in which they use the investment funds under their control in the acquisition and remain responsible for the funds for the duration of the investment. This, he says, justifies the payment of equity incentives which align the interests of the firm with those of the investors. The same applies to hedge funds.
- Mr Reynolds's description of Mr Benedetti as a promoter is also challenged by Mr Sottile. He disputes that any such role is recognised separately in the market and it is useful to identify what Mr Reynolds means by this term. In his report he says that a promoter identifies the investment opportunity and how it will create value and then approaches the investors. The promoter may also play a key role as a negotiator and in the identification of finance and may lead the transaction in place of the investor. In return, the promoter will generally expect to receive a return from the economic value created by the transaction in the form of a promote. This is a percentage of the equity (typically 20%) which is usually subject to some form of performance threshold in the form of a loan which must be repaid before the promoter can benefit from the promote. He may also in addition receive a bonus fee, although this is not routine.
- If one looks at his description of the role of an investment bank or adviser he accepts that the same tasks may be included. During cross-examination he also accepted that the role which Mr Benedetti claims to have performed and for which he seeks a quantum meruit could have been performed by an investment bank. That leads inevitably to a consideration of whether Mr Reynolds is correct in his identification of a separate category of promoter and how, if at all, this differs from the broker/adviser role described by Mr Sottile.
- In paragraph 4.2.1 of his Supplemental Report Mr Reynolds says that:
"… in many cases the Promoter is offering something which goes beyond the services provided by an investment bank and can be seen by the Sponsor as essential to conclude a transaction (on acceptable terms). The Promoter is able to unlock a transaction in a way that no one else can and is thus irreplaceable in the way that for an investment banking adviser would be unusual. In my experience Sponsors are prepared to pay Promoters in cases where they see a unique capability to unlock an opportunity."
- It seems to me doubtful whether this could properly apply to Mr Benedetti in relation to the Wind transaction. There is no specific evidence from Mr Scaroni or anyone else at Enel that, but for Mr Benedetti's participation, no sale would have gone ahead. His evidence is that they were open to bids for their subsidiary and chose the Weather Consortium as the highest bidder. But, when cross-examined about this, Mr Reynolds accepted that an investment bank would also have the capacity to unlock such an opportunity. The role of a promoter was, he said, ill-defined and the transactions involved were not well disclosed.
- Mr Reynolds gives four examples in his report of such transactions. The first was one in which Mr Reynolds says that he acted as a promoter and agreed an incentive structure based on a ratchet of up to 20% of the profits from the transaction which involved an investment in a quoted company. But, as part of these arrangements, it was envisaged that he would bring a management plan for the company and be CEO following the acquisition. The second example was a transaction which did not in fact materialise but concerned the acquisition of a quoted UK company by three promoters who stood to receive an aggregate of 25% of the company if successful. Again they were to take the lead role in managing the company following the acquisition.
- The third example was the acquisition of Mid Kent Water plc by an SPV controlled by a German bank. An individual with a background in management in the water industry received 20% of the equity for identifying the transaction and assisting in valuation and due diligence. But he became the company's non-executive chairman. The fourth example was not of a promoter but of a case where the chairman of a company received an equity incentivisation for restructuring the company.
- What I think these examples show is that genuine cases of a promoter (as defined by Mr Reynolds) being rewarded with an equity share vary considerably and are a-typical. None of the three examples of a promoter cited by Mr Reynolds seem, on the face of it, to come within the description of the role contained in his Supplemental Report and in each of them the reward in the form of equity can be explained by the managerial role which they undertook post-acquisition for which the equity stake gave them an obvious incentive. This evidence does not suggest that there is a generally recognised role of a promoter in the market for whom a promote in the form of equity is regarded as an accepted and typical form of reward. Clearly there will always be individual cases in which, for reasons particular to the transaction, such a form of remuneration will be agreed. But Mr Reynolds' evidence (like that of Mr Sottile) in fact confirms, in my judgment, that equity-based rewards are only typically available when the person involved will continue to have some part to play in the management of the company or the investment after the transaction completes. Obvious examples of this are the hedge funds and private equity firms described by Mr Sottile. It is clear from the Acquisition Agreement itself that it was never the intention that Mr Benedetti should assume that role and he does not seek remuneration on that basis.
- My view, having heard the expert evidence, is that an equity share was not the standard or usual form of remuneration in the market for the tasks which Mr Benedetti carried out. I think that they all fall within the agreed scope of the broker/adviser role and some confirmation of this is provided by the definition of brokerage services contained in the First and Revised Brokerage Agreements. At one point in his evidence Mr Reynolds appears to have accepted that transaction fees of the kind described by Mr Sottile were the most typical form of remuneration for the services performed by Mr Benedetti and this accords with my own conclusions on this issue.
- It was, of course, put to Mr Sottile and he agreed that the Acquisition Agreement did have many of the attributes of an equity partnership and could not be regarded simply as a broker/adviser agreement. Clause 2 clearly did provide for Mr Benedetti to have a limited share of the equity. But this point is of little value unless the Acquisition Agreement can serve as a template for the assessment of the remuneration due to Mr Benedetti. I have given my reasons why I do not believe as a matter of principle that it can. But, as explained earlier, its admission would not help him. Under that agreement he was never entitled to more than one-third of €200,000 which I suspect is less than the €12-€36.3 million which a 0.1%-0.3% fee would produce.
- Mr Rabinowitz submits that I should therefore assess the value of Mr Benedetti's services at the usual market rate. It seems to me that he should on any view be entitled to a fee at the top end of the scale suggested by Mr Sottile, which would be €36.3 million. I am not persuaded that any reduction should be made on the ground that some of Mr Benedetti's work was duplicated by that carried out by Rothschild. There was inevitably some overlap between the various banks and the other advisers but their fees were not reduced on account of this. The Defendants do, however, submit that credit needs to be given for the €67 million brokerage fee paid to Mr Benedetti through ITM. Mr Beltrami also resists any payment by his clients on the ground that they did not freely accept the benefit of Mr Benedetti's services.
- Mr Vos submits that anything which I award to Mr Benedetti by way of quantum meruit should be in addition to the €67 million which he has already received under the Revised Brokerage Agreement. He says that that contract was made between different parties and covered different services from those specified in the Acquisition Agreement. The definition of "brokerage services" did not include bringing the investment opportunity to Mr Sawiris or obtaining the co-operation of the Italian government and the management of Wind. Over and above this, it was a transaction cost payable by all the investors in Weather Italy including Enel and the Middle Eastern investors brought in by Mr Sawiris.
- Although the Revised Brokerage Agreement clearly was made between different parties, that is not a complete answer to the suggestion that Mr Benedetti should have to give credit for the payment received under it. His claim for a quantum meruit is based on the premise that he was entitled to be compensated for the value of the services he has performed because it would be unjust for those who have received them to take them without payment. If such compensation has in fact been provided as a cost of the transaction I can see no reason in principle why Mr Benedetti should not be required to bring that into account in any determination of what is the fair reward for the services he has performed, assuming of course that the payment relates to the same services. It is difficult to see how that conclusion would be unjust. I accept that if it had been agreed between the parties that Mr Benedetti's remuneration from the Defendants should not take into account the sums received under the brokerage agreement then the position would be different. But that is not this case. There was no agreement with Mr Sawiris that Mr Benedetti should be paid a brokerage fee in addition to what he received under the Acquisition Agreement. As explained earlier, the signing of the First Brokerage Agreement was essentially a piece of opportunism on the part of Mr Benedetti and, in so far as it had any historical justification, that lay in the arrangements between Mr Benedetti and IPE. When the fees schedules were prepared and it became clear that ITM was to receive the brokerage fee the original assumption on the part of Mr Abdou and Mr Sawiris was that the money would be used to pay Mr Benedetti's costs and other liabilities to third parties.
- The definition of "brokerage services" in the Revised Brokerage Agreement makes it clear that the €67 million was paid in respect of the work carried out by Mr Benedetti in the negotiation of the purchase of Wind from Enel and the raising of the acquisition debt from the banks. Mr Benedetti is not entitled, in my judgment, to seek a quantum meruit for this work when he has already been paid for it. The sum of €36.3 million which, on the evidence, would be the market rate for the services he performed ought therefore to be apportioned to take account of this. Being generous to Mr Benedetti, I think that a fair apportionment would be to attribute 60% of the €36.3 million fee to the work covered by the brokerage agreement and the remaining 40% to the services not obviously within the agreement. On this basis, Mr Benedetti would be entitled to receive €14.52 million in addition to the €67 million brokerage fee.
- That is not, however, the end of the matter. These calculations assume that Mr Benedetti is entitled to a quantum meruit based on the €36.3 million market rate for his work. But Mr Vos now submits that I am entitled to have regard to the subsequent negotiations between Mr Sawiris and Mr Benedetti in determining what value the parties in fact placed upon the services which Mr Benedetti performed. If this is right then the issue about giving credit for the €67 million also largely disappears. It is clear from the evidence and the terms of the draft Supplemental Agreement prepared in October 2006 that by then Mr Sawiris was aware that Mr Benedetti had received the €67 million and the €75.1 million success fee was to be an additional payment.
- The position of both parties at the start of the trial was that evidence of the post-acquisition negotiations was not admissible on the question of the value to be attributed to Mr Benedetti's services. That remains the Defendants' position. There are, of course, obvious dangers in looking at negotiations between parties to a dispute particularly once the threat of litigation has been made. The would-be defendant may choose to make a much more generous offer to the claimant in order to settle the dispute than he would have agreed to pay when the services were actually performed. But that said, I cannot see why in principle the court cannot receive post-transaction evidence of the parties' dealings with each other if and so far as that evidence does show the value which the paying party (albeit with the benefit of hindsight) considered that the services were actually worth. The reason for the admission of the parties' pre-service agreements as set out in cases such as Way v Latilla is that they provide strong evidence of the value which they put upon the services. Subject to the safeguards I have mentioned, the post-acquisition dealings may do the same.
- Most of the controversy about the later negotiations centres on Mr Sawiris's willingness to waive his pre-emption rights in respect of the 26.1% Enel stake in Weather Italy. Mr Benedetti contends that, on the basis of the post-acquisition negotiations, he should receive some additional payment to take account of this. I disagree. The evidence suggests that Mr Sawiris was willing to allow Mr Benedetti (if he wished and was able) to purchase the 26.1% free of his pre-emption rights. Mr Vos submits that this should be treated as a recognition by Mr Sawiris that Mr Benedetti should receive an additional amount for his services calculated by reference to the profit which would have been made on the purchase of the shares had they been available at an attractive price. This seems to me to be a distortion of what in fact occurred. Although Mr Sawiris was willing to waive his rights in order to assist Mr Benedetti, that cannot be equated with an additional payment by him for Mr Benedetti's services. The only payment which he was ever willing to make was the €75.1 million which, according to the evidence, he considered to be generous. In fact, as stated earlier, Mr Benedetti's evidence was that Enel wanted too high a price and the proposal came to nothing. In the circumstances, there is no basis in my view for treating the waiver of the pre-emption rights as the giving of additional value.
- The real issue is whether I should increase the fee payable to Mr Benedetti to take account of the €75 million which Mr Sawiris offered to pay under the October agreement. Although Mr Benedetti clearly believes that he is entitled to more, it is difficult to ignore the fact that Mr Sawiris was prepared to pay him considerably more for his efforts than a strict application of market rates would produce. Mr Sawiris says in his witness statement that he regarded the €75 million figure as generous but that is not inconsistent with it representing what he considered Mr Benedetti's services to be worth. These negotiations did not take place under the shadow of threatened litigation and can properly be considered in my view as a genuine attempt by Mr Sawiris to pay to Mr Benedetti a proper value for what he had achieved.
- The best evidence of Mr Sawiris's thoughts on this matter is contained in the June and September e-mails from Mr Abdou quoted in paragraphs 187-189 above. They indicate both the importance which Mr Sawiris attached to Mr Benedetti's role and the reasons why his remuneration should be limited to the payment of a fee. I think that it would be wrong to ignore this evidence when considering the value to be attributed to Mr Benedetti's services. He is entitled, in my judgment, to the €75.1 million in addition to the brokerage fee which he has already received.
- The only remaining issue is whether this sum should be paid by Mr Sawiris alone or by all the Defendants. In Goff & Jones: The Law of Restitution (7th edition) at paragraph 1-019 there is the following statement of principle on which Mr Benedetti relies:
"…the common law originally concluded that a defendant could be said to have benefited from the receipt of services only if he had requested them. A true request will normally lead to the conclusion that the defendant who requested the services has contractually bound himself to pay for them. But a defendant, who is not contractually bound, may have benefited from services rendered in circumstances in which the court holds him liable to pay for them. Such will be the case if he freely accepts the services. In our view, he will be held to have benefited from the services rendered if he, as a reasonable man, should have known that the claimant who rendered the services expected to be paid for them, and yet he did not take a reasonable opportunity open to him to reject the proffered services. Moreover, in such a case, he cannot deny that he has been unjustly enriched."
- There is no doubt that the Holding Companies were the beneficiaries of Mr Benedetti's services in the sense that they acquired shares in Wind through Weather II and Weather Italy which were purchased from Enel as a result of the negotiations and financing arrangements which he assisted in. But Mr Beltrami argues that his clients had no real option whether to accept or refuse the services. When they came on the scene much of Mr Benedetti's work was effectively done and the only way in which they could have declined to benefit from his services was by not acquiring the shares in Weather II.
- The question whether there has, properly speaking, been a free acceptance of the services is likely in practice to be the determining factor as to whether it is regarded as unjust for a defendant to retain the benefit of the services without paying for them. These principles were considered recently by the Court of Appeal in Chief Constable of the Greater Manchester Police v Wigan Athletic FC  EWCA Civ 1449 where the issue was whether Wigan Athletic should be required to pay for additional policing at its ground without which it could not hold matches except in breach of the safety certificate issued under the Safety of Sports Grounds Act 1975. The Court of Appeal (by a majority) held that it was not unjust for the football club to refuse to pay for policing at the additional level stipulated by the Chief Constable because (per the Chancellor):
" As the passages in Goff & Jones on restitution to which I have referred make clear, a benefit from services rendered which is neither "incontrovertible" nor requested may be established by their "free acceptance". But the concept of free acceptance, as explained in para 1-019, requires that the recipient "did not take a reasonable opportunity open to him to reject the proffered services". The relevant services were the supply of special police services at the level, in excess of that provided in the season 2002/03, to which the Club objected. The Club was unable to reject those services unless it also rejected the services which it did want and had requested. To do that would have meant that the Club could not play their home matches in the Stadium at all. In my view it is clear that there was no free acceptance of the services in dispute because the Club were, in practice, unable to reject them alone.
 The third necessary ingredient is an "unjust factor". Given the unusual circumstances of this case I do not think there is one. There was, as Mann J observed, an impasse. Neither Mr Mason nor the Club would back down. But whereas Mr Mason might, at least experimentally, have reduced the level of policing, for the Club it was all or nothing. Either they accepted policing at the level Mr Mason required and paid for it or they stopped playing their home matches at the Stadium. Even if policing at the higher level Mr Mason insisted on is regarded as a benefit to the Club I do not consider that the Club should be made to pay for it given the "Hobson's Choice" with which it was faced."
- Speaking for myself, there is, I think, a lot to be said for the view of Maurice Kay LJ that it was unjust for the club to receive the benefit of the policing it required under its safety certificate without paying for it. He refers to a passage in Goff & Jones (at paragraph 1-026) where the authors express the view that it is not necessary to establish a free acceptance of the services in cases where they confer an incontrovertible benefit on the defendant. But even applying the decision of the majority, it seems to me that the Holding Companies in this case are not in precisely the same position as the football club. The requirement for additional policing came at a time when it already had its safety certificate and was established in its use of the stadium. To refuse the additional policing would have meant closing the ground and effectively ceasing business. But, in this case, the Holding Companies were introduced to and became parties to the transaction which they knew that Mr Benedetti was working on and in respect of which he expected to be paid for his services. They were not in the position of subsequent purchasers of an asset with no connection to what had gone before. They were not required to enter into the acquisition and their decision to do so, although necessary for the completion of the transaction, had a sufficient degree of freedom in my judgment so as to make it unjust for them subsequently to decline to pay Mr Benedetti for what he had done.
- There will therefore be judgment against all the Defendants in the sum of €75.1 million with interest. It remains only for me to express my gratitude to counsel and their solicitors for the assistance I have received.