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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Wright v Rowland & Anor  EWHC 2478 (Comm) (09 October 2017)
Cite as:  EWHC 2478 (Comm)
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QUEEN'S BENCH DIVISION
7 Rolls Building
London EC4A 1NL
B e f o r e :
(Sitting as a High Court Judge)
| Michael Wright
|- and -
Mr Ali Malek QC and Mr James Evans (instructed by Forsters LLP) for the Defendants
Hearing dates: 3 6 July & 10 13 July 2017
Crown Copyright ©
Mr Christopher Butcher QC:
The nature of the claim
i) That the Rowlands (i.e. David Rowland and Jonathan Rowland) granted him an option to purchase up to 5% of the shares in BH for the same proportionate price that the Rowlands had paid to acquire the entire issued share capital of BH, i.e. 50 million ("the BH Option");
ii) That he would receive an annual fee of 50,000 for three years;
iii) That a loan would be advanced to assist him with the purchase of the freehold interest in a house at 25 Flood Street in Chelsea;
iv) That he would receive 10% or 33% (depending on whether the Rowlands had had to commit funds) of the profits made by the Rowlands from deals made by or through BH.
"David Rowland: No, I'm not giving you anything on the bank. I'm not giving you anything you've had it all on the f-----g bank. 'Cause this is why you got the bloody cut on the things in Denmark, this is why you're getting a cut on Hamleys . You know, I'm not I don't you're not having a carried position on the f-----g bank forever "
The nature of the defence
i) It was denied that there was any oral agreement in 2008 as to the basis on which Mr Wright would be remunerated, whether on or about 2 April 2008 or at all. It is also denied that there was any agreement by conduct of the terms said by Mr Wright to constitute the "2008 Agreement".
ii) It was pleaded that there were discussions between Jonathan Rowland and Mr Wright in that period, but they were intended, on both sides, to be friendly and informal, and not to create legal relations. Had it been intended that there was to be a legally binding agreement, it would have been embodied in a written contract. Furthermore, Jonathan Rowland had not had any authority to enter into any agreement on behalf of David Rowland.
iii) It was admitted that Mr Wright was included on the payroll listing of Blackfish Services Ltd ("Blackfish Services") from 6 April 2009 until 31 August 2010, and for this period was paid £100,000 per annum. Further it was admitted that, given Mr Wright's relocation to Monaco in about August 2010, from September 2010 until May 2013 he received monthly payments of 25,000 from HC1 Ltd, equivalent to 300,000 per annum.
iv) While it was admitted that Mr Wright was involved in "some discussion" in early 2009 with Mr Einarsson and representatives of Kaupthing Bank hf or its subsidiaries in relation to "a proposed transaction concerning bonds" which did not proceed, it was pleaded that the contact which led to the opportunity to acquire Kaupthing Luxembourg came "subsequently".
v) It was pleaded that there was no legally binding oral agreement, or indeed any "arrangements", entered into on 20 July 2009 on yacht 101. Further or alternatively it was said that any discussions were friendly and informal, not intended to create legal relations, and too uncertain and incomplete to be a binding agreement. Further, insofar as it was said that this was a free-standing agreement, there was no good consideration for it.
vi) There was no "part performance" of any such agreement, because no agreement had been made.
vii) It was not admitted that, even if Mr Wright had been granted the BH Option, he could have exercised it.
viii) It was denied that Mr Wright is entitled to claim any sum by way of a quantum meruit.
i) That Jonathan Rowland neither had nor was held out as having David Rowland's authority at any material time.
ii) There was no "2008 Agreement", and in any event Jonathan Rowland had no authority from David Rowland to engage Mr Wright.
iii) That it was denied that Mr Wright introduced to the Rowlands the opportunity to acquire Kaupthing Luxembourg.
iv) There was no discussion as to Mr Wright's remuneration, or any such matters, involving David Rowland on 20 July 2009.
Key areas of dispute
i) Did Mr Wright provide his services to the Rowlands pursuant to a contract formed orally in 2008 or by conduct under which he would be paid a monthly retainer, expenses, plus profit share of 10 or 33% depending on whether the Rowlands' money was at risk?
ii) Did Mr Wright source the opportunity to acquire BH for the Rowlands?
iii) What was Mr Wright's role in the BH Transaction?
iv) What, if anything, was agreed between the parties on board motor yacht 101 on 20 July 2009?
The Witnesses and my Approach to the Evidence
Legal Principles as to Contract Formation
"76. The general principles relating to contract formation are set out in the judgment of Lord Clarke in RTS Ltd v Milkerei Alois Muller GmbH and Co KG  UKSC 14;  1 WLR 753:"45. The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends on what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement."
As Lord Clarke made plain at paragraph 50 of his judgment in the same case, the governing criteria is the reasonable expectations of honest and sensible businessmen.
77. There are a number of important principles relating to the intention of the parties to create legal relations. In particular:
(a) Where there is express agreement, in an ordinary commercial context, the burden of disproving an intention to create legal relations is a heavy one: see Chitty on Contracts, 32nd Edition, 2-168;
(b) Where there is no express agreement, the onus is on the party claiming that a binding agreement had been made to prove that there was an intention to create legal relations: see Assuranceforeningen Gard v IOPC Fund  EWHC 3369 (Comm);
(c) One factor which may be relevant to the issue of contractual intention is the degree of precision (or otherwise) with which the alleged agreement is expressed. Vagueness/uncertainty may be a ground for concluding that the parties did not reach any agreement at all: see Chitty on Contracts, 2-147 and 2-194.
78. The court may conclude that there is no binding agreement because no definite meaning can be given to what was said: see Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD  2 Lloyds Rep 76. In this context I also note that:
(a) The more complicated the subject matter, the more likely the parties are to want to enshrine their contract in a written document, thereby enabling them to review all the terms before being committed to any of them: see Cheverney Consulting Ltd v Whitehead Mann Ltd  EWCA Civ 1303 and Benourad v Compass Group PLC  EWHC 1882 (QB) at paragraph 106(a);
(b) The express identification of a "trigger" event (upon which it is said, for instance, commission becomes payable) is something which the law regards as essential for the formation of a legally binding contract: see Luxor (Eastbourne) Ltd v Cooper  AC 108 and Wells v Devani  EWCA Civ 1106."
The Main Areas of Dispute
Was there a "2008 Agreement" and if so what were its terms?
The introduction of the opportunity to acquire BH
Mr Wright's role in the BH Transaction
Was there an agreement made on board yacht 101 on 20 July 2009?
The email of 2 June 2009
"Many thanks for the conversation this afternoon. I thought it would be useful to reflect in writing the principal terms of what we agreed with my participation in the entity Luton investments Sarl ("Luton") and the New Bank as a result of my introduction of the Kaupthing Luxembourg SA deal.
1) An option over 5% is to be granted to me or a nominee on the same subscription price of euro 50m as you and your father invest your funds this option is to vest immediately and as such is not related to performance or subject to any bad lever;
2) I will be given an opportunity to subscribe on terms compatible to those that are offered to the other board members;
3) I will also receive fees as a board director of the bank and in any committee(s) within the Bank, such as the SPV steering committee. Such fees have yet to be agreed; and
4) It is agreed that I will receive 10% of any profit made by the Rowland family and their various trusts or connected parties on any side deals or arrangements entered into with the New Bank, Luton or Luton group companies.
I am really excited at working with you and all members of the Rowland family on this new banking venture and to making it into a very successful investment. The first of many profitable and fun transactions together.
Please can you confirm your agreement to the above.
Mr Konig's attempts to secure an equity share
"BH/Luton have a separate agreement with me, on the following lines.
MK is entitled in 3 years time (or immediately payable if employment terminated earlier), to a cash payment or at MKs option only, shares to the value of the same in Luton SA or BH to be calculated as:
5% of (equity of the Bank at that time less the value of Rowland family equity investment plus any other new shareholder equity investment) This would effectively give me as we agreed a cash settled option on 5% of the growth of the equity in New bank over that 3 year period, over and above the Rowland family and any new investors equity investment.
Again, if in principle you are happy with this I suggest we get Loyens to draft something appropriate, maybe do something similar for MW [ie Mr Wright] also?".
"Michael, what position do you have to request anyone to act on your authority ???? Maybe a call to me first might have been a good idea?? And you are not going to short cut any procedures, I assume you are not aware that PWC acting on behalf of the CSSF are monitoring every single transaction, so all procedures must be followed, as I do not intend to take the flak for the consequences . can you pls wake up and realise this is nt a f (sic) sweet shop but a bank."
Communications with Richard Page
I do hope your fishing trip was a success?
I appreciate the potential conflict of interest raised but the commercial terms are sufficiently clear. I am back in London when perhaps we can talk about the agreement. David wants to grant the option from Braeston that holds Luton.
Will discuss terms with you at the end of the week
Emails of August 2010
"To date we have been very relaxed on terms as I feel we have a 100% trust I personally like that way of doing business and really enjoy our day to day activities. We seem to have the same aims and mindset. These financial terms are in addition to our existing historic arrangements of 10% on deals where money is put up; 33% on deals where no money invested or minimal investment, agreed 5% equity position with BH and fee of e50k annually. As we did last year, we will look at the deals completed at the end of each year and then agree the share of proceeds."
"Lets make the annual salry Euro 300k all in and then I will adjust the loan on the property to 2 over and no arrangement fee. In terms of paying down the loan it may have to be a bit more
On other subjects. We agreed 4% on BH and 50k per annum for 3 years "
Mr Wright responded:
"Are you free for a call now? This is all probably best talked through by phone so nothing is lost in wrongly nuanced emails.
The % in BH was definitely 5% that I agreed with both you and your dad on 101 boat on 20 July I remember the conversation clearly, where we ended up and what we shook hands on. That's the danger of not documenting it at the time so it's good we clarified now. I dug up an email where I had set out the original % that was the basis of our discussion and that's below". [There was then set out the text of the email of 2 June 2009, which I have quoted above.]
"To summarise our discussion, its agreed as follows:
Loan for 25 Flood Street freehold:
2% over 3mnts euribor (poss to fix, tbc) 20k per quarter repayment
Loan funds to be paid to solicitor account by end of the month.
E300k pa from 1 September
Equity in BH:
5%in bank at original subscription/purchase price
E50k for 3 years (1 year remaining)
10% on deals with investment; 33% on deals with no risk."
Later on the same day he resent this message to Jonathan Rowland, asking "Can you confirm below all agreed pls." There is no email response to this request for confirmation.
Other aspects of the evidence
"MW: And David, remember when we bought the bank, then we were sitting on the boat 101 in the harbour on July 20th
DR: Well yeah but look Jonathan says that Jonathan says that Look, you've had all that Michael.
MW: No, but, can I ..."
This was then followed by the passage which I have already quoted in paragraph 11 above.
Findings and conclusion
i) Had David Rowland said what Mr Wright alleges or something approximating to it, with a firm commitment on a series of points, I consider that it would have been documented. Had such words been spoken, I consider that it is likely that Mr Wright would have put them in an email, or at least to have made a contemporaneous note. Furthermore, what he did write on the next day, in his email to Mr Page, appears to me to be inconsistent with the suggestion that there had been any such firm commitment. If there had been, I consider that the email would have said that the terms of the agreement had been specifically and clearly stated by David Rowland the previous day. By contrast, the actual terms of the email, with a reference to "commercial terms" being "sufficiently clear" to proceed to the drawing up of a written contract appears to me more consistent with there having been no firm and binding oral commitment on the previous day.
ii) The issues of an option and a loan were ones which both sides would have expected to be the subject of written agreements, and, for there to be a binding commitment, to have involved more detailed terms than Mr Wright alleges were discussed. In particular, any binding agreement on an option would have been expected at least to include specific provision as to the company which was granting it, and as to its duration. In this regard, I consider that the contemporaneous attempts of Mr Konig to agree an option arrangement are significant. Both he, and indeed Mr Wright in the period up to at least 7 July 2009 while he was attempting to "piggyback" on Mr Konig's efforts, as well as the Rowlands and those representing them, envisaged that any agreement for an option had to be embodied in a formal agreement. I consider it unlikely that at almost exactly the same time as there were discussions as to whether the Rowlands would agree a formal written option agreement between the relevant company and Mr Konig, they would have entered into an undocumented personal option agreement, on more generous terms, with Mr Wright. Nor do I consider, especially in light of what he knew was happening in relation to Mr Konig's proposal, that Mr Wright or any honest and sensible businessman in his position, would have believed that there was a binding commitment to an option unless a written agreement was drawn up.
iii) The fact that Mr Wright gave the account which he did as to what David Rowland said is not of itself enough to persuade me that it occurred as he said. I have already given general reasons for why I treated Mr Wright's evidence with caution. In relation to the visit to the yacht specifically, I considered that he had in one clear instance sought to change and tailor his evidence to meet objections to it. Thus, as I have already said, his account in his oral evidence was initially that there had been a single conversation with David Rowland, which had occurred relatively early in the day. When reminded that in his witness statement he had referred to what David Rowland had told him "the night before", he said that there "could have been" a second discussion involving Braseton later. Furthermore his accounts of what exactly was said were imprecise and in some respects changed over time. Thus in his witness statement he had said that David Rowland had stated that he "would be" granted an option. In his oral evidence, however, he said that "it is from that very moment that I had an option", but did not clarify what words had been used to have this effect.
iv) The communications of 2 June 2009, and those dating from August 2010, to which I have referred above, do not persuade me that Mr Wright's account is correct. In relation to the email of 2 June 2009, there is a real doubt as to whether it was ever received by Jonathan Rowland. There is no evidence that it was shown to or known to David Rowland. It therefore provides only very limited support for Mr Wright's account of what David Rowland said on the boat on 20 July 2009. As to the emails of August 2010, these appear to me to indicate attempts by Mr Wright to obtain from Jonathan Rowland a written acknowledgement of terms which had not been formally or clearly agreed, but to do so without offending him or inviting a clear rejection by presenting the draft of a written contract. They were unsuccessful in the sense that Jonathan Rowland gave no such acknowledgement in response to the request made on 20 August 2010. Furthermore, it is to my mind significant that none of these emails was copied to David Rowland, notwithstanding that, even on Mr Wright's case, it was David Rowland who had agreed all the terms on 20 July 2009 and that no binding arrangement could have been made without his approval.
Determination of Mr Wright's contractual claim
The claim for a Quantum Meruit
"162. The leading case is Benedetti v Sawiris  UKSC 50. That makes plain that, in order to establish a claim for unjust enrichment, the claimant must prove that:
(a) The defendant has been enriched;
(b) The enrichment was at the claimant's expense;
(c) The enrichment was unjust; and
(d) There are no defences available to the defendant.
163. A claim for unjust enrichment is not a claim for compensation for loss, but for recovery of a benefit unjustly gained by a defendant at the expense of the claimant, which is sometimes referred to as a 'transfer of value': see Boake Allen Limited v MRC  STC 606, CA. The enrichment is valued at the time that it was received by the defendant. The starting point for identifying any benefit to the defendant is the objective market value, or market price, of the services provided by the claimant: see Cobbe v Yeoman's Row Management Limited  1 WLR 1753, HL. The defendant is entitled to prove that he did not subjectively value the benefit at all or that he valued it as less than the market price in order to reduce the quantum of the claim: see Sempra Metals Limited v IRC  1 AC 561, HL.
164. It has long been the case that, in certain situations, when considering a quantum meruit claim, the court can take into account any bargain or agreement reached between the parties which seeks to put a value on the services: see Way v Latilla  3 All ER 759, and Vedatech v Crystal Decisions  EWHC 818.
165. There was a dispute between the parties as to whether a remuneration agreement of the sort alleged by the claimant would, without more, represent the objective market value of the services provided, or whether it was only a factor for the court to take into account and that other material relating to the objective assessment of value would also be required.
166. For the reasons noted below, this is not a decision which, on my primary findings, I need to make in this case. But my conclusion on the principle, for what it is worth, is that, depending on the evidence, there may be cases in which an agreement between the parties as to remuneration may, without any further consideration, be taken as the best evidence of the objective market value of the services: see Lord Neuberger in Benedetti. However, such circumstances would be fairly unusual and/or limited, and it will usually be the case that the court will require other evidence relating to market value over and above the agreement reached between the parties."
Note 1 In fact Mr Taylor preferred to use a ratio of price to tangible book value, while Mr Andrews used price to book value. This made little difference. [Back]
Note 1 In fact Mr Taylor preferred to use a ratio of price to tangible book value, while Mr Andrews used price to book value. This made little difference. [Back]