McKillen’s claims against the the Barclay Brothers are dismissed

In McKillen v Misland (Cyprus) Investments Ltd [2012] EWHC 2343 (Ch) (10 August 2012) Mr Justice David Richards dismissed the claims brought by Patrick McKillen.

Patrick McKillen is the owner of a 36.2% shareholding in Coroin Limited (the Company) which owns and manages three hotels in London – Claridge’s, The Connaught and The Berkeley. Of the original members, Mr McKillen and Derek Quinlan (with 35.4%) remain. In January 2011, a company associated with Sir David and Sir Frederick Barclay bought Misland (Cyprus) Investments Limited (Misland) which then owned 24.7% and now owns 28.36%

Mr McKillen’s proceedings concern, principally, steps taken by Sir David and Sir Frederick Barclay and by companies associated with them (the Barclay interests) during 2011 to obtain control of the Company. Mr McKillen alleges that these steps involved breaches of an agreement among the shareholders and breaches of duty by directors of the Company appointed by the Barclay interests.

Mr McKillen commenced two related sets of proceedings. In one, he sought orders under sections 994-996 of the Companies Act 2006 on the grounds that the affairs of the Company had been conducted in a manner which was unfairly prejudicial to his interests as a shareholder. In the other, he sought damages in tort for conspiracy to cause loss by unlawful means and for inducing breaches of contract. The defendants to one or both sets of proceedings are Sir David and Sir Frederick Barclay, companies associated with them, directors appointed by those companies to the board of the Company and Mr Quinlan.

The principal allegations on which the claims are based fall into two broad categories. The first relates to provisions in the shareholders’ agreement which (a) require shares to be offered round to other shareholders before being sold elsewhere (the pre-emption provisions) and (b) require the shareholders to observe certain duties of good faith to each other. Mr McKillen alleged that agreements made by Sir David and Sir Frederick Barclay or their associated companies with Mr Quinlan were in breach of the pre-emption provisions. In addition he alleged that charges over Mr Quinlan’s shares to secure Mr Quinlan’s bank borrowings had become enforceable, which would also trigger the pre?emption provisions. In these and other respects Mr McKillen alleges that the contractual duties of good faith were broken.

The second category relates to alleged breaches of duty by three directors appointed by the Barclay interests. They are alleged to have promoted the interests of the Barclay brothers and their associated companies to the detriment of the Company. In particular it is said that they did so when one of those companies was negotiating with the National Asset Management Agency (NAMA), an Irish state?owned body, to purchase the Company’s £660 million bank facilities which had been transferred to NAMA under Irish legislation.

Richards J held:

No agreements were made with Mr Quinlan which triggered or breached the pre-emption provisions.

The security over Mr Quinlan’s shares had not become enforceable.

There were no breaches of the duties of good faith in the shareholders’ agreement.

The directors appointed by the Barclay interests did not breach their duties as directors of the Company, save that two of them breached the duty not to put themselves in the position where there was a conflict of competing duties (in this case their duties as directors to the company and their duties as executives of companies associated with the Barclay brothers) and one of them communicated with NAMA without disclosure to the Company.

Those breaches of duty caused no loss to the Company or prejudice to Mr McKillen as a shareholder.

It follows that both sets of proceedings failed and were dismissed.

This summary is based on that provided by Judiciary of England and Wales website.