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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> FHR European Ventures LLP & Ors v Mankarious & Ors [2011] EWHC 2308 (Ch) (05 September 2011) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2011/2308.html Cite as: [2012] 2 BCLC 39, [2011] EWHC 2308 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		05/09/2011

Mr Justice Simon:

Introduction

1. In this action the Claimants claim €10 million as undisclosed commission received by the Defendants in breach of their duty as fiduciary agents not to profit from their position or to put themselves in a position where their interest and duty were in conflict. The Defendants contend that they are entitled to retain the commission the payment of which was known to the Claimants and counterclaim for sums due from the Claimants in respect of work done on their behalf.
2. At the centre of this dispute is the sale of a long leasehold interest in the Monte Carlo Grand Hotel ('the Hotel') in December 2004. The vendor of the Hotel was a company, owned or controlled by Mr Toufic Aboukhater, and the purchaser was the first Claimant ('FHR'), a Limited Liability Partnership incorporated in England and Wales. The price paid for the Hotel was €211.5 million.
3. In July 2004 the first Defendant ('Mr Mankarious') established a new business venture, Cedar Capital Partners ('Cedar'), with the intention of providing consultancy services to the hotel industry. Among Cedar's clients were the 6th Claimant ('BoS') and the 4th Claimant ('Fairmont'). BoS funded and invested in hotel businesses; and Fairmont owned and managed a number of hotels.
4. Acting on behalf of BoS and Fairmont Mr Mankarious negotiated a non-binding Memorandum of Understanding with the vendor on 5 October 2004. This recorded proposed indicative terms by which a joint venture company would acquire the exclusive right to purchase the vendor's interests in the Hotel for €215 million. It was intended that there should be other investors in the Hotel; and subsequently the 2nd claimant ('Kingdom') became an investor. Kingdom, which represented the commercial interests of Prince Alwaleed bin Talal bin AbdulAziz al Saud ('the Prince'), was a well-established investor in luxury hotels around the world. Kingdom and the Prince were advised by an independent advisory business, Hotel Capital Advisers ('HCA') whose President was Mr Chuck Henry.
5. The vendor regarded secrecy and confidentiality as important; and the Memorandum of Understanding contained terms covering confidentiality as well as exclusivity. At a late stage in the due diligence enquiries carried out on behalf of the purchasers, an unforeseen liability for costs was discovered; and Mr Mankarious negotiated a reduction in the purchase price from €215 million to €211.5 million. 75% of this sum was financed by debt and 25% by the equity participations of the Joint Venture participants (BoS 50%, Fairmont 25% and Kingdom 25%).
6. On 21 December 2004 BoS, Fairmont and Kingdom agreed terms by which their subsidiaries, the 7th, 5th and 3rd Claimants became shareholders in FHR. The joint venture had a potential investment capacity of £800 million with £600 million of financing provided by BoS, and equity funding of £200 million which would be provided in the proportions used in the funding of the purchase of the Hotel. Cedar was to be appointed as manager and investment advisor to FHR.
7. Following the successful acquisition of the Hotel, Cedar continued to work on other potential projects on behalf of FHR and its backers, and rendered invoices in respect of the work it had done. In April 2005 Kingdom discovered that Cedar had been paid a fee by the vendors in relation to the sale of the Hotel. After some equivocation Mr Mankarious revealed that the fee was €10 million. Kingdom and Fairmont took a strongly adverse view to this discovery and declined to pay Cedar's invoices. The view of BoS seems to have been less an objection to the payment of a fee than to its amount. The reason for this was that it is common ground that Mr Middleton and Mr Shankland of BoS had been told by Mr Mankarious, in terms which are disputed, that he was to be paid a fee by the vendor if the Hotel were sold to the joint venture purchasers.
8. On 15 September 2005 Dundas & Wilson CS LLP wrote on behalf of FHR to Cedar complaining about the fee and bringing to an end the business dealings between FHR and Cedar, making clear Cedar's invoices would not be paid and reserving the right to bring proceedings to recover the €10 million payment.
9. On 23 November 2009 the Claimants issued proceedings for the recovery of €10 million on the basis that it had been paid to the Defendants at a time when they were acting as the Claimants' agents.

The chronology in outline

10. From 1995 until 30 June 2004 Mr Mankarious was employed by Kingdom to look into opportunities for acquisition and investment in hotels. In that capacity he had come into contact with Toufic Aboukhater in late 2002, and had looked into the possibility of Kingdom acquiring the Hotel. These negotiations, which also involved Fairmont as the potential operator, had reached the stage of a non-binding Letter of Intent dated 21 March 2003 for the acquisition of the Hotel by a Kingdom subsidiary for US$215 million. In the event the sale did not proceed due to Kingdom's discovery of adverse trading results and the vendor increasing the price.
11. At a meeting with the owners of the Hotel on 19 May 2004, Mr Mankarious learned that they were again prepared to sell the Hotel, for a price in excess of €200 million.
12. After the establishment of Cedar on 1 July, Mr Mankarious was retained by Kingdom in connection with its proposed purchase of the Savoy Hotel in London. This involved work with BoS (as funders of the acquisition) and Fairmont (as operator). Among those who were involved in the purchase of the Savoy Hotel and in the later purchase of the Hotel in Monte Carlo were Mr Peter Cummings (the Managing Director of BoS's Corporate Banking arm), Mr Douglas Middleton (the Director in the Joint Venture Division at BoS) and Mr Andrew Shankland (who was Mr Middleton's subordinate in the Joint Venture Division), Mr Bill Fatt (the CEO of Fairmont) and Mr John Johnston (the Executive Vice President of Development at Fairmont).
13. At the same time as the Savoy Hotel deal transaction was going ahead, Mr Mankarious was continuing to make contact with the owner of the Hotel who seemed, at least at the early stages, equivocal about selling.
14. On 10 August Mr Mankarious had a meeting with Bassam Aboukhater, the son of Toufic Aboukhater, and noted his agreement (subject to confirmation from his father) that Cedar would represent the owners in selling the Hotel at a minimum price of €225 million, and his agreement that Cedar would also be permitted to represent the purchasers.
15. In the light of this understanding with the owners and in the course of finalising the Savoy Hotel transaction, Mr Mankarious wrote on 11 August to Mr Cummings of BoS about the possibility of a purchase of the Hotel and indicating Fairmont's interest in operating and investing in the Hotel.

I have an excellent relationship with the owner and he has finally agreed to sell the property.

16. Mr Mankarious invited Mr Cummings to join him and Mr Fatt on a visit to Monte Carlo to view the Hotel. Mr Cummings was unable to join them on the visit, but expressed BoS's interest and suggested that Mr Mankarious make contact with Mr Middleton.
17. Mr Mankarious's notes show that a set-back to his plans occurred on 14 August when he was told by Bassam Aboukhater that his father was no longer interested in selling the Hotel. However, by 26 August he (Toufic) had changed his mind and indicated to Mr Mankarious that he wanted to sell for around €225 million, although this was subject to an interest from another prospective purchaser.
18. In the meantime Mr Mankarious continued to encourage BoS and Fairmont to buy the Hotel. Discussions took place about a Joint Venture funded by BoS with equity provided by participating joint venturers; and it is clear that Mr Mankarious was keen to promote both the concept of the joint venture and the acquisition of the Hotel once the Savoy Hotel transaction was concluded.
19. On 16 September Mr Mankarious wrote to Mr Fatt suggesting ways in which Cedar might be able to assist Fairmont, both in relation to the acquisition of the Hotel and the proposed joint venture which would acquire further hotels; and referred to his extensive discussions with BoS.
20. In early September Mr Mankarious and his assistant Mr Phil Golding, who had joined Cedar on 7 September, prepared the first of a number of drafts of a document headed, 'Investment Memorandum'. The document, which was sent by Cedar to BoS and Fairmont in slightly different forms, described the Hotel and its prospects. Both versions had an initial note about confidentiality.

This Investment Memorandum (the 'Memorandum') is being furnished to you on a confidential basis, solely for the purpose of soliciting interest in acquiring [the Hotel] ... It is not to be used for any other purpose or to be made available to any other person without prior written consent of [Cedar]. This document is designed to assist a potential investor in determining whether to proceed with an in-depth investigation of the Hotel.

There was also a legal disclaimer.

21. In the version which appears to have been sent to BoS sometime between 16 and 22 September there was a description of what was described as 'The Opportunity'.

The current owners are offering the Hotel for sale through Cedar Capital Partners on an 'off market' basis.

22. On 22 September there was a meeting between Mr Mankarious, Mr Middleton and Mr Shankland at the offices of HBOS in Bishopsgate. Although there are differences of recollection as to what was said at this meeting, it is common ground that BoS was told that Cedar would receive a fee from the vendors if it introduced a successful purchaser.
23. Five issues arise from this meeting: first, whether Mr Mankarious stated that Cedar would receive a 'flat fee'; secondly, whether Mr Mankarious's statement was a sufficient disclosure of Cedar's remuneration from the vendors; thirdly, whether Mr Mankarious specifically requested BoS's approval of the fee; fourthly, whether Messrs Middleton and Shankland said they would discuss the matter internally; and fifthly whether BoS was acting on behalf of any other party at the time. It is common ground that the size of Cedar's fee from the Vendor was not mentioned.
24. The basis on which the vendors granted Cedar the right to act as sole selling agent of the Hotel on behalf of the vendors was contained in an 'Exclusive Brokerage Agreement' dated 24 September 2004. The terms included the following

1.Term

This Agreement shall be in place as an exclusive right to sell the Property for a period which commences as of the date hereof and terminates on 31/12/05 PROVIDED THAT it is understood and agreed that if the Owner sells the property to the Investor Group (as defined below) or any member thereof on or before 31/12/05 the fee referred to in article 3 below shall remain payable to Cedar.

2. Responsibilities

Cedar's sole responsibility during the term of the Agreement is to identify and introduce prospective purchasers. Cedar shall not participate in any negotiations with the Purchaser on behalf of the Owner ...

3. Fee

In consideration of the services of Cedar hereunder in securing the Purchaser, and provided that the Purchaser and Owner close on the sale of the Property, Owner agrees to pay Cedar a fee ... equal to … €10 million. The fee shall be paid within 5 working days of receipt of funds from buyer.

4. Investor Group

Cedar intends to introduce Owner to a purchaser which is a group consisting of a number of investors, which shall include, but not be limited to the following companies/individuals: [ BOS], [Fairmont],[ Kingdom] and [the Prince] (or any one or more entities related or affiliated with such parties ('Investor Group').

There was also a provision (paragraph 5) for reimbursement of reasonable out-of-pocket expenses incurred pursuant to the terms of the Agreement, capped at €25,000 unless the Owners gave prior consent.

6. Terms of Agreement of Sale and Purchase

Owner acknowledges that Cedar shall have no involvement in the negotiation on behalf of the Owner of any terms relating to the sale of the Property. Owner acknowledges that Cedar intends to advise and be a member of the Investment Group purchasing the Property and pursuant to Paragraph 7 of this Agreement, Owner waives any conflict that may arise due to Cedar acting as a facilitator under this Agreement and as participating as part of the Investor Group ...

7. Conflict of Interest

The parties all understand that Cedar is only acting as a facilitator to introduce the Owner to the Purchaser. It is contemplated that Cedar will advise and be part of the Investor Group purchasing the Property. As part of the Investor Group, Cedar will be participating in the negotiations as a Purchaser. The parties all understand and waive any conflict of interest that may arise due to Cedar acting pursuant to this Agreement and Cedar's participation as an advisor and member of the Investor Group. Cedar shall disclose its appointment hereunder to the investor group.

The Governing Law was English Law (paragraph 11) and there was also a confidentiality clause which bound both parties (paragraph 15).

25. It is apparent, and could hardly have been concealed, that Cedar and Mr Mankarious fully informed the vendors of the role they intended to play as part of the Investor Group. The main question that arises is whether Cedar and Mr Mankarious disclosed to the Purchaser on behalf of whom they also acted the nature and extent of the remuneration that was to be paid by the vendors if the sale of the Hotel went ahead.
26. On 28 September Cedar sent a version of the Investment Memorandum to Fairmont. As already noted, the contents were different from the version previously made available to BoS. Information which had been derived from Fairmont was not included in the version that was sent to Fairmont and the heading 'The Opportunity' contained nothing about the basis on which Cedar were involved on behalf of the vendors.
27. On the following day and at the request of BoS, Cedar sent a revised version of the Investment Memorandum to BoS. This omitted the words quoted above in §21 and replaced them with:

The current owners have retained Cedar Capital Partners to advise them on value maximisation opportunities with respect to their hotel investments.

28. Mr Mankarious gave evidence that the change was made at the request of the vendors who were concerned to avoid giving the impression that they wished to sell the Hotel.
29. On 30 September Mr Mankarious sent the first of a number of draft proposals for the Joint Venture. At this stage the proposal was for a Joint Venture managed by Cedar which would acquire hotels across Europe, with a capital base of £200 million (funded as to 50% by BOS, 25% by Fairmont and 25% by another investor). Mr Mankarious also proposed a fee structure for Cedar based on an annual management fee, acquisition and disposition fees, and a share in the profits of the Joint Venture. By this stage Mr Mankarious had Kingdom in mind as the 'other investor'.
30. A number of meetings were held by Mr Mankarious on 4 October. One of these took place at approximately 12.30-1.00 pm at Cedar's rooms at Fairmont's offices in Soho Square. Mr Middleton and Mr Shankland were present on behalf of BoS, and Mr Mankarious and Mr Golding were there on behalf of Cedar. Two factual issues arise in respect of this meeting. First, whether the BoS representatives said that they had discussed Cedar's fee internally and had concluded that it did not give rise to a conflict of interest; and secondly, whether BoS were acting on behalf of anyone else at this stage. Again it is common ground that the size of Cedar's fee from the vendors was not mentioned.
31. On the following day Mr Mankarious held a meeting with Mr Johnston of Faimont. Unlike Cedar's meetings with BoS on 22 September and 4 October, there is a stark difference of recollection as to whether Mr Mankarious told Mr Johnston that BoS had approved Cedar's fee arrangement with the vendors. Mr Mankarious gave evidence that he did. Mr Johnston's evidence was that he did not.
32. On 5 October a Memorandum of Understanding was signed between the vendors on the one side and Mr Shankland and Mr Fatt, on behalf of the proposed joint venture purchasers, on the other. This provided for the sale of the Hotel at a price of €215 million during an 'Exclusivity Period' up to 31 December 2004.
33. In a letter dated 8 October, Mr Mankarious wrote to the Prince inviting Kingdom to participate in the Joint Venture. The proposal was that Kingdom should take a 25% (£50 million) equity interest. The Joint Venture was described as an equal partnership in which investment opportunities would have to be approved by all partners. The letter also referred to the recently signed Memorandum of Understanding for the sale of the Hotel, and proposed this as the first investment. On 26 October Mr Henry notified Mr Mankarious of the Prince's decision fully to back the proposal, with the Hotel as the Joint Venture's first investment.
34. Once Kingdom had agreed to participate, Cedar continued to act for the Joint Venture partners in negotiations with the vendors, including the €3.5 million reduction in the purchase price to take into account the cost of the necessary plumbing works. Cedar also carried out work for the Joint Venture in relation to the acquisition of three other hotel projects: the Hotel Danieli in Venice, the Hotel Intercontinental in Paris and the Hotel de l'Europe in Amsterdam.
35. The matter of Cedar's remuneration was addressed in the early part of 2005. The partners in FHR had entered into an agreement on 21 December 2004 to record the terms of their joint venture and, by clause 3.2(i), agreed that FHR would enter into 'the Investment Advisory Agreement' with Cedar. Cedar's intended role as 'managers and investment advisors for the joint venture' was also mentioned in a Press Announcement on 22 December.
36. No written agreement with Cedar was ever concluded, but it is Cedar's case that all the terms were agreed prior to the termination of Cedar's position as manager and investment advisor, by reference to Cedar's 'Role and Fee Term Sheet'. These terms were the subject of negotiation in the early months of 2005; and on 7 April Cedar sent invoices addressed to FHR representing (a) a success fee for the acquisition of the Hotel in the sum of £400,000 (+ VAT) and (b) 2 quarterly retainer fees of £81,250 (representing the period 5 October 2004 to 5 March 2000) in the overall sum of £162,500 (+ VAT). BoS and Fairmont were content with these figures. However, Kingdom (through Mr Henry of HCA) was not prepared to agree. Kingdom had earlier insisted that Kingdom's share of Cedar's fee be shared with HCA, and had more recently discovered that Cedar had been paid a fee by the vendor of the Hotel. As Mr Henry explained in an email on 11 April,

No one at Kingdom was aware of this during the deal or the negotiations of the Cedar Agreement ... I will not agree to the payment of the fee to Cedar until we have a more clear understanding of the fee agreement and whether Fairmont and BOS had approved it.

37. Mr Johnston of Fairmont immediately responded.

I was definitely unaware that [Mr Mankarious] was receiving a fee from the seller. I would not have agreed to our fee structure had I been aware.

38. On 3 May 2005, BoS circulated a further draft of the proposed agreement with Cedar prepared by Dundas & Wilson. This was said to encompass the 'commercial discussions' of which Mr Johnston would not have been aware, as well as some further amendments which were proposed by the lawyers after discussions with Mr Middleton and Mr Mankarious. Mr Mankarious responded to this draft on 11 May 2005; and at BoS's suggestion circulated his comments to Mr Henry (HCA) and Mr Johnston (Fairmont).
39. In the event, an agreement with Cedar became impossible after the discovery by Kingdom and Fairmont that Mr Mankarious had received a fee from the Hotel vendors. The Prince's advisor, Michael Jensen of Citigroup, spoke to Mr Mankarious about the issue on 27 June 2005 and reported the terms of their conversation to the Prince. This included,

[Mr Mankarious] believes he did right by informing the joint venture partners that he was to receive a finder's fee from the Monaco hotel seller ... although he admits that he should have remembered to tell [Mr Henry] when Kingdom joined the joint venture just before the deal was closing.

40. The Prince was annoyed by Mr Mankarious's failure to tell Kingdom about the fee; and refused to have any further dealings with him.
41. According to Mr Mankarious's personal note, he met Mr Middleton on 29 June to discuss the issue of the Vendor's fee.

I showed him my contract with the Aboukhaters and told him what I made on the transaction. He said that reading the contract reinforces his views that I did what I told them originally I was doing. He said he does not have any issues with this and while he was surprised about the amount I received, it does not change anything from their viewpoint. He suggested that I show the document and inform Kingdom & Fairmont about what I earned so that we can move forward.

42. After some equivocation, which may have been due to the effect of disclosure on a separate claim for commission brought against the Vendors in relation to the sale of the Hotel (see Aboualsaud v. Aboukhater [2007] EWHC 2122 (QB)), Mr Mankarious disclosed the Exclusive Brokerage Agreement to BoS, Fairmont and Kingdom .
43. The disclosure of the Exclusive Brokerage Agreement, and in particular the size of the fee, ended the negotiations about Cedar's services and remuneration. On 2 August 2005, Mr Mankarious sent to BOS four invoices addressed to FHR. These were the 2 unpaid previous invoices, a third invoice for the quarterly fee from 5 April to 4 July 2005 and a fourth invoice for 3 quarterly Asset Management Fees £37,000 (+VAT) at £12,500 per quarter.
44. On 15 September 2005 Dundas & Wilson wrote on behalf of FHR, terminating any further business connection of whatsoever nature between Cedar and FHR and giving notice that FHR would not pay any sums for services provided and would not enter into any agreement for the provision of services. This was said to be due to,

... the clear conflict of interest and breach of your duties to FHR in respect of your relationship with the seller and your receipt of [the] fee.

45. Following the issue of the Claim, the Defendants served a Defence and Counterclaim. In addition to resisting the claim and advancing a set off, the Defendants cross-claimed for what they claimed was their entitlement under the agreement on the final terms of the Role and Fee Term Sheet ('Term Sheet'). The counterclaim was based on the Acquisition Phase Consultancy Fee (£400,000 as the success fee for the acquisition of the Hotel), the Pre-Acquisition Phase Consultancy fee (£325,000 per annum) and the Asset Management Consultancy Fee (£50,000 per annum). In addition a claim was made which was based on an Asset Disposal Phase Consultancy Fee based on the later sale of the Hotel by FHR allegedly for €310 million.

The witnesses

46. It is convenient at this stage to set out my view of the witnesses in so far as their evidence bore directly on the important issues in the case.
47. Mr Shankland was disadvantaged by an almost complete failure by BoS to make contemporaneous notes of meetings. This is particularly striking when one considers that BoS had involved itself in potential financial commitments of up to £700 million. Although it is common ground that Mr Middleton and Mr Shankland were told that Cedar was receiving a fee from the Vendor, there is no record of this anywhere in BoS's records. This posed difficulties for Mr Shankland who had to recall two short conversations which occurred nearly 7 years before without the assistance of a contemporary record. Mr Middleton was not called to give evidence by either side.
48. Mr Johnston is an experienced businessman and was an impressive witness. He was clear and assured in his evidence, and emphatic and persuasive in his recollection of what occurred at the meeting with Mr Mankarious on 5 October 2005.
49. Mr Mankarious is an adroit businessman who had a bold vision for his newly-established company, Cedar. It was plain that he had thought very carefully about the case and was acutely aware of the implications of the evidence he gave. I accept much of his evidence; however, there were some parts which I was unable to accept. I did not get the impression that he was being deliberately untruthful: rather that over the years he has come to think that he had said more than he did.
50. Mr Golding struck me as an essentially truthful witness, although he made assumptions in the light of what he was told by Mr Mankarious.

The factual issues

51. There are two primary factual issues which arise for decision. The first concerns the extent of Cedar's disclosure of the Exclusive Brokerage Agreement with the vendors. The second, which is a matter of mixed fact and law, is whether there was a concluded contract between Cedar and FHR.

The first factual issue: disclosure

22 September meeting

52. As already noted, it is common ground that BOS were informed of the fee from the Vendors. As Mr Shankland put it in §§16 and 17 of his first witness statement,

16. I did not make any written record of the meeting on 22 September 2004. However I do recall that Mr Mankarious mentioned, in very brief and general terms, that he/Cedar had an arrangement with [the Owners] of the Hotel ... Mr Mankarious indicated that Cedar had been retained by [the Owners] to identify potential investors in (or purchasers of) the Hotel, and that Cedar would receive a fee in the event that it introduced a successful purchaser.

17. At this stage in the joint venture and Hotel transaction, BOS had a good relationship with Mr Mankarious, partly built on our dealing with him on the Savoy [Hotel] Transaction. Mr Mankarious gave no indication that this fee was anything other than a minor issue, and we trusted him that this was the case.

53. Mr Mankarious's recollection was set out in §57 of his first witness statement.

57. During this meeting we initially discussed the ongoing Savoy Hotel transaction before moving on to discuss the purchase of the Hotel. I explained to Douglas Middleton and Andrew Shankland that Cedar had been retained by the Owner to identify potential purchasers for the Hotel. I explained that Cedar would be paid a flat introduction fee by the Owner if a purchaser was introduced. I asked them whether BOS had any concerns with this arrangement and whether BOS was of the view that the payment of the introduction fee to Cedar would create a conflict of interest which might threaten Cedar's participation in the forthcoming due diligence process or in the Joint Venture's prospective purchase of the Hotel more generally. I specifically requested BOS's approval of Cedar's position in this respect. Douglas Middleton and Andrew Shankland agreed to discuss the matter internally and revert to me in due course to confirm BOS's position. I remember distinctly their words that they would 'discuss it internally'.

54. In his second witness statement at §§7 and 8 Mr Shankland took issue with Mr Mankarious's description of what occurred.

7. Mr Mankarious then goes on to state at paragraph 57 of his witness statement that, during a meeting on 22 September 2004 between him, Douglas Middleton and me, he stated that Cedar would receive a flat introduction fee. I have no specific recollection of Mr Mankarious stating that Cedar's fee would be "flat". Instead, my recollection is that the clear impression given by Mr Mankarious was that any fee would be wholly immaterial in the context of the transaction. At no point did Mr Mankarious give any indication that a formal written agreement existed between the Defendants and the vendors of the Hotel nor that the amount payable to the Defendants under it was anywhere near €10million.

8. Also, in paragraph 57 of his witness statement, Mr Mankarious says that, during this 22 September 2004 meeting, Mr Middleton and I agreed to discuss the issue of Cedar's fee 'internally'. While there were meetings going on at that time, the purpose of BoS' meetings with the Defendants in August and September 2004 was to plan the purchase of the Hotel and the structure of the joint venture. No 'internal discussions' took place in the BoS regarding Cedar's fees from the Hotel vendors. If they had done so, these would have involved senior management and the quantum of any fee would have been questioned.

Both witnesses were cross-examined about their recollection and each largely maintained his evidence.

55. I have concluded that Mr Shankland is correct in saying that Mr Mankarious was playing down the significance of the fee. Although Mr Mankarious recognised the importance of telling BOS that there was such a fee, he did not wish to tell them how much it was. As he said in evidence,

I think I knew that they might object to €10 million, but that wasn't the reason I didn't disclose it.

56. In my judgment Mr Mankarious knew very well that the Joint Venture partners would object to the size of the fee and this was why he did not tell them. This meant that what he told BoS about the fee had to be said in such a way that he would not be asked questions which might oblige him to reveal the amount. It seems to me that the strong likelihood is that Mr Mankarious wished to give the impression that the fee was an immaterial or 'minor issue' in the overall context of the transaction, and that he succeeded in conveying this impression.
57. I am also satisfied that Mr Mankarious did not say he was receiving 'a flat fee'. At this stage he would not have thought it either necessary or desirable to elaborate on the nature of the fee. The importance of the fee being a flat fee emerged when the potential conflict of interest was brought into the open, and was raised by him in order to answer the argument that Cedar did not have an interest in negotiating a purchase price which was as low as possible.
58. Mr Mankarious may have received the impression that the issue of the fee was going to be discussed internally by BoS, but nothing said by Mr Middleton or Mr Shankland justified this impression. They were not being asked to give their consent. It is likely that BoS indicated that they would reflect on what they had been told rather than that there would be internal discussions within BoS; but this observation may have been said in the context of Cedar's proposal for its fees from the Joint Venture.

4 October meeting

59. The evidence about this meeting was contained in the statements of Mr Mankarious and Mr Golding. Mr Mankarious's 1st witness statement described the meeting in §§63-64.

63. ... This was the meeting I had sought at which Douglas Middleton and Andrew Shankland were due to report back to Cedar as to the outcome of their 'internal discussions' regarding Cedar's fee arrangement with the Owner. This was therefore an important meeting for Cedar and I remember it vividly. It was a sunny day and the meeting was held in our boardroom. I was sitting on one side of the rectangular table with Douglas Middleton sitting at the head of the table. Andrew Shankland was sitting next to Douglas Middleton opposite me on the table and Phil Golding was sitting next to me (also facing Andrew Shankland).

64. During this meeting Douglas Middleton and Andrew Shankland explained that they had discussed Cedar's fee arrangements internally at the bank. It was not explained to me with whom they had discussed this situation, although I had presumed that they would have discussed the matter with the persons to whom they reported at the bank. They explained that, further to these internal discussions, BOS did not consider that the payment of an introduction fee to Cedar gave rise to a conflict of interest. They explained that the bank was satisfied that Cedar could proceed to work with the Joint Venture as planned. The meeting lasted around 30 minutes ...

60. In §65 of his statement Mr Mankarious describes his reasons for not telling BOS about the amount of the fee adding,

66 ... Also, I did not raise the amount of the introduction fee during my meetings with BOS as I considered the amount itself to be a matter between Cedar and the [Vendor]. Having disclosed at the outset to BOS, the lead partner in the Joint Venture, the existence and nature of the agreement with the Owner, I was satisfied that Cedar's obligations of disclosure as anticipated in clause 7 of the Brokerage Agreement had been discharged.

61. Mr Golding gave evidence about this meeting in §§9-10 of his 1st witness statement.

9. … Both Ramsey Mankarious and I were aware that, if BOS considered Cedar's arrangement with the Owner to be an insurmountable conflict of interest for BOS (as the lead member of the proposed Joint Venture), then this might bring an end to Cedar's role in the transaction.

10. I recall that we discussed this potential conflict of interest. Douglas Middleton and Andrew Shankland reported that the issue had been discussed internally by BOS, following Ramsey Mankarious' meeting with them on 22 September 2004 in Bishopsgate. They explained that it had been agreed that the arrangement would not be a problem for BOS. In addition, we discussed transactional issues, including how the acquisition would be structured by the Joint Venture.

62. Both witnesses gave oral evidence which accorded with their statements. Mr Shankland had no recollection of the meeting.
63. The meeting was primarily concerned with transactional matters and not with discussions about Cedar's fee. I accept that Mr Mankarious may have been apprehensive at the beginning of this meeting about BoS's reaction to what it had been told about the fee; but his apprehensions were more based on what he knew than on what he had told BoS. Although Mr Golding describes the BoS executives saying the issue had been discussed internally, it is clear from Mr Shankland's evidence that any discussions would have been between Mr Middleton and him, in the light of what they had been told. Having considered the evidence I have concluded that Messrs Middleton and Shankland indicated that the fee was not a problem. Although this was probably said in the context of Cedar receiving a fee from the vendor, it is at least possible that it referred to Cedar's proposed fees from the Joint Venture participants.

5 October meeting

64. Mr Mankarious described the meeting in his 1st witness statement.

69. On 5 October 2004 I attended a meeting with John Johnston. The purpose of this was to inform John Johnston of BOS's approval of my arrangement with the Owner; it was not to seek specific approval from Fairmont (which I did not think was necessary for the reasons I explain below). We met at Fairmont's sales office in London (which was at the time also the offices of Cedar). The meeting lasted around 20 minutes. A copy of my email to Phil Golding about this meeting is at [C1/131]. I also made a number of preparatory notes in my electronic diary in advance of the meeting, to serve as a planner and draft agenda, a copy of which is at [C1/133]. According to this, John Johnston and I were to discuss 'Monaco, Cedar Fees – Fund – Office Space'. As part of our discussion on the acquisition of the Hotel and other matters such as Cedar's sharing of office space with Fairmont, I informed John Johnston of BOS's approval of Cedar's fee arrangement with the Owner.

70. I did not feel that there was the same need for Fairmont to provide their formal approval in the same manner as that provided by BOS. This reflected the fact that BOS was the lead partner in the Joint Venture. BOS headed up all negotiations with Cedar and with the other advisors involved and made all the important decisions in the Joint Venture. The formation of the Joint venture, as well as all the key decisions in the formation, was driven by BOS and not by Fairmont. This was primarily due to the fact that BOS was to provide 87.5% of funding for the Hotel, compared to Fairmont's 12.5% (later 6.25%). Therefore BOS led all negotiations and approved all key terms. Fairmont was very much the junior partner. The nature of the working relationship between Cedar and Fairmont was such that Cedar would always run everything by BOS prior to approaching Fairmont. Once BOS had approved something, Cedar would then inform Fairmont if necessary. Cedar never approached Fairmont for a business decision because it was always necessary, first, to receive BOS's approval on anything in order to move forward.

65. Surprisingly Mr Johnston did not deal with this meeting in his 1st witness statement. However he did so in §§8-10 of his 2nd witness statement,

8. It is true that I met with Mr Mankarious on 5 October 2004 but it is wholly inaccurate to describe the purpose of this meeting as being to inform me of 'BoS's approval of my arrangement with the [Hotel] Owner' as is suggested in paragraph 69 of Mr Mankarious's statement.

9. As Mr Mankarious's agenda indicates, at that meeting we discussed the Monaco transaction generally. Cedar's fees (to be paid from the fund or joint venture) and Cedar sharing Fairmont's office space. There was no discussion of Cedar's fee arrangement with the Hotel vendor. If there had been, this would immediately have raised in my mind the prospect of Mr Mankarious having a conflict of interest and I would have investigated the issue thoroughly.

10. In the event, I was not made aware of Cedar's arrangement with the Hotel vendors until April 2005, well after the completion of the transaction in December 2004 ...

66. Mr Johnston's oral evidence was that there had been a discussion about Cedar's fees but no discussion about its arrangement with the Vendors. He was challenged in cross-examination as to what he would have done if he had been told.

A ... I would have asked him what the arrangement was. I wouldn't have assumed anything. I would have asked him to explain to me what was the nature of the arrangement and what was the fee, and then we would have had a discussion about it ... I would have tried to understand what the arrangement was, how it affected the price of the transaction, how it would have affected our investment and we would have had a discussion.

67. Having heard the witnesses give their evidence (including Mr Golding's evidence as to what Mr Mankarious told him after the meeting), I have concluded that Mr Mankarious did not raise Cedar's fees with Mr Johnston, or at least not in a way from which he could be expected to understand that Cedar was to be paid a fee by the Vendor if the sale went ahead, and that BoS had agreed to this. Mr Mankarious's note referring to 'Cedar fees' is equivocal and is most likely to have been a reference to the fees that Cedar was expecting from Fairmont and the proposed Joint Venture. There are 3 further points which reinforce this conclusion. First, if Mr Mankarious thought that BoS was the lead partner and that disclosure to BoS was sufficient, it is unclear why he thought it necessary to disclose Cedar's arrangement with the Vendors to Mr Johnston at all. Secondly, if Mr Mankarious had made disclosure that BoS had approved Cedar's fee arrangement in anything other than clear terms, Mr Johnston might easily have misunderstood him to be referring to Cedar's fees from the purchasers. Thirdly, there is the immediate reaction email response from Mr Johnston, when told on 11 April 2005 that Mr Mankarious was saying that BoS and Fairmont were aware of the fee arrangement and had agreed to it,

I was definitely unaware that [Mr Mankarious] was receiving a fee from the seller. I would not have agreed to our fee structure had I been aware.

68. His evidence was that this was the first time that he was aware that Cedar was being paid a fee by the vendors. I am entirely satisfied that if Mr Mankarious had told Mr Johnston on 5 October 2004 that Cedar was receiving a fee from the Vendors, Mr Johnston would have immediately wanted to know how much it was. He struck me as likely to have been much more alert to the implications of such a fee than the BoS employees were.

The second factual issue: whether a contract was concluded

69. It is clear that Mr Mankarious had been putting forward Term Sheets as a basis for Cedar's remuneration from as early as 26 September 2004. In a version (described as 'Agreed Term Sheet') dated 28 January 2005 the fee structure was proposed on the basis of (1) an annual pre-acquisition and management fee of £375,000, (2) an acquisition or success fee of 0.5% of the purchase price of the Hotel with a minimum of £200,000 and a maximum of £400,000 per transaction, (3) an asset disposal success fee of 0.2% of the Joint Venture equity proceeds on re-sale, and (4) a profit share on a sliding scale based on the Investment Rate of Return. Among the terms was a provision for the 'Termination of Contract',

Contract can only be terminated 'for Cause'. For Cause to be defined as wilful or gross misconduct [This definition needs to be elaborated further].

70. The commercial terms were agreed by each of BoS, Fairmont and Kingdom, and a draft Consultancy Services Deed was prepared by Dundas & Wilson, described as 'Draft for Discussion'. The parties were Cedar, Mr Mankarious and FHR. This document was sent to BoS and HCA on 7 February on the factually correct assumption that the commercial terms in the draft were the outcome of discussions between BoS and HCA (acting on behalf of Kingdom).
71. On 1 April 2005 Cedar emailed invoices to BoS for £400,000 (+VAT) in respect of the acquisition fee and £162,500 (+VAT), representing half of the annual pre-acquisition and management fee of £375,000. On 6 April BoS and Fairmont agreed that the payments should be made. The invoices were then resubmitted to FHR. It was shortly after this that HCA discovered that Cedar had been paid a fee by the Vendor. On 3 and 10 May Dundas & Wilson produced further draft Consultancy Services Deeds, each again described as a 'Draft for Discussion'. In the middle of May an issue arose as to what was to happen to Cedar's entitlement if the Agreement were terminated before the fifth year. Mr Mankarious proposed a sliding scale of entitlement to the fee which would be earned; and Mr Middleton suggested a different sliding scale. The issue had arisen in the context of the possibility of Mr Mankarious simply deciding to stop work within the 5 year operative period of the Deed.
72. On 2 August a further invoice was rendered in respect of the outstanding fees and in respect of the third quarterly payment of the annual pre-acquisition and management fee.
73. Mr Mill submitted that this was an example of an agreement where the parties had shown an intention to be bound by clear commercial terms in advance of the conclusion of a signed written agreement dealing with other issues which might arise. Mr Pymont submitted that it was clear from the terms of the Term Sheet relied on by Cedar that no agreement had been reached on how the Agreement might be terminated 'For Cause'; and what might happen if Mr Mankarious ceased working within the period of the Deed, but without giving rise to a termination for cause. He argued that this was a case where the parties intended that their contract should not become binding until all the terms of had been agreed, reduced into writing and signed.

The Law

74. The nature of an agent's fiduciary duty is conveniently summarised in a passage from the judgment of Millet LJ in Bristol and West BS v. Mothew [1998] 1 Ch at 18.

This leaves those duties which are special to fiduciaries and which attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory. A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations ... where the fiduciary deals with his principal. In such a case he must prove affirmatively that the transaction is fair and that in the course of the negotiations he made full disclosure of all facts material to the transaction. Even inadvertent failure to disclose will entitle the principal to rescind the transaction. The rule is the same whether the fiduciary is acting on his own behalf or on behalf of another.

75. It follows that an agent may not put himself in a position or enter into a transaction in which his personal interest, or his duty to another principal may conflict with his duty to his principal, unless his principal, with full knowledge of all the material circumstances and of the nature and extent of the agent's interest, consents, see Bowstead on Agency (2006) 18th Ed. §6-055, approved by Atkinson J in Hindmarsh & anor v. Brigham & Cowan Ltd (1943) Ll L Rep 141 at 151.
76. The principle may be stated in the form of a general rule and an exception. So far as the general rule is concerned, it has been stated to be an 'an inflexible rule of a Court of Equity', see Bray v. Ford [1896] AC 44 at p.51 per Lord Herschell, a rule which applies not only to cases of actual conflict but also where the fiduciary's interest may possibly conflict with his duty, see Aberdeen Railway Co v. Blaikie Bros (1854) 1 Macq 461 at p.471 per Lord Cranworth LC, and a rule which applies even where the fiduciary's conduct has benefited the principal, see Regal (Hastings) v. Gulliver [1967] 2 AC 134 at p.153 per Lord Macmillan.
77. The exception applies where the principal has given fully informed consent. There is ample authority for this proposition which was accepted as a matter of principle by the Privy Council in N Z Netherlands Society 'Oranje' Inc v. Kuys [1973] 1WLR 1126 p.1131h-1132a. The point was stated succinctly, and by reference to the statement of principle of Lord St Leonards LC in Murphy v Shea (1845) 8 J & Lat 422, by Sir George Jessel MR in Dunne v. English (1874) LR 18 Equity Cases 524 at 533,

It is not enough for an agent to tell the principal that he is going to have an interest in the purchase, or to have a part in the purchase. He must tell him all the material facts. He must make a full disclosure.

78. The agent who relies on the exception of informed consent must prove it. The editors of Bowstead set out the principle at §6-057.

Consent of the principal is not uncommon. But it must be positively shown. The burden of proving full disclosure lies on the agent and it is not sufficient for him merely to disclose that he has an interest or to make such statements as would put the principal on inquiry: nor is it a defence to prove that had he asked for permission it would have been given.

This passage was described as a correct statement of the law by the Court of Appeal in Hurstanger Ltd v. Wilson [2007] EWCA Civ 299 at [35], per Tuckey LJ, with whom the other members of the court agreed; and Tuckey LJ added, again at [35],

Whether there has been a sufficient disclosure must depend on the facts of each case given that the requirement is for the principal's informed consent to his agent acting with a potential conflict of interest.

79. The materiality of what must be disclosed is to be assessed on the basis of whether it might have affected the principal's decision and not whether it would have done so, see for example Andrews v. Ramsay & Co [1903] 2 KB 635 Lord Alverstone CJ at 637-8 and Johnson v EBS Pensioner Trustees Ltd [2002] EWCA Civ 164 Dyson LJ at [71].
80. In Hurstanger the Court of Appeal also considered whether the agent's duty of disclosure requires disclosure of the amount of the commission. On this question the Tuckey LJ at [36] cited with approval a further passage from Bowstead at 6-084,

... where the [the principal] ... knows that [the agent] will receive something from the other party, he cannot object on the ground that he did not know the precise particulars of the amount paid. Such situations often arise in connection with usage and custom of trades and markets. Where no usage is involved, however, the principal's knowledge may require to be more specific.

In that case the particular status of the principal required a statement of the amount of the commission.

81. Since the sufficiency of disclosure is dependent on the facts of particular cases, previous decisions will be of limited assistance. However, it is convenient at this stage to refer to a line of cases relied on by the Defendant:

i) There may be circumstances in which the payment of commission is wholly immaterial since it does not give rise to any conflict of interest and duty and therefore the application of the 'inflexible rule', see for example Anangel Atlas Compania Naviera AS and ors v. Ishika Wajima-Harima Heavy Industries Co. Ltd [1990] 1 Ll. Rep 167.

In cases in which a conflict an interest and duty may arise,

ii) Where the principal knows the agent will receive a commission and could have discovered what the commission was, but did not take the trouble to enquire, a misapprehension as to the amount of the commission will not mean that there has been no informed consent, see for example Great Western Insurance Co of New York v. Cunliffe (1874) LR 9 Ch App 525 at 539 and Baring v. Stanton (1876) 3 Ch D 502 at 505.

iii) The Court will not regard there being a lack of consent where the principal knows that commission will be paid, but wrongly assumes that it is an annual retainer rather than the 'standard and usual brokerage', see Hindmarsh v. Brigham & Cowan Ltd [1943] 76 Ll.LR 141 at 152r.

82. The latter two categories illustrate a consistent approach: where the agent can show a customary usage or that the amount of the commission is standard and ascertainable on enquiry, the failure of the principal to make enquiries as to the amount of the commission is fatal to a contention that there has been insufficient disclosure. They do not assist where there is no customary usage of which the principal is deemed to have notice, or where the amount of the commission is not easily ascertainable from an available source which the principal has failed to take the trouble to discover.
83. Where the agent has more than one principal the disclosure must be made to each principal unless one principal is (expressly or implicitly) authorised by another principal to receive disclosure on behalf of that other principal. Mr Mill argued that BoS was 'the lead partner' and that it was sufficient to make disclosure to 'someone who is the leader'. He He relied on a short passage in the judgment of Briggs J in Ross River Ltd and anor v, Cambridge City Football Club [2007] EWHC 2115 (Ch) at [215]. The passage illustrates that Briggs J was dealing with a different type of case.

It may be that where a payee is not the managing director or (as here) the chief executive, the payee may make sufficient disclosure by telling the MD or CEO. As [Counsel] put it in closing: 'If you disclose to someone who is the leader, that is good enough. But if you are the leader, merely disclosing in a vague way to a follower is not good enough.'

84. In the present case, as in most such cases, the question of whether the disclosure to one principal is sufficient disclosure to all principals raises an issue of authority. Thus in the present case the issue is whether BoS was conferred with actual or implied authority to be the recipient of disclosure on behalf of the co-principals (it being conceded that issues of ostensible authority do not arise here).
85. If the agent is in breach of fiduciary duty in relation to the receipt of commission he will be bound to account for such sum to the principal, see Snell's Equity 31st Ed. §7-127 and Bowstead §6-082. In addition, the principal is entitled to refuse to pay contractual commission in respect of the transaction as to which the agent is in breach, and can bring to an end the contract of agency summarily, see Bowstead §7-047. The case of Andrews v Ramsey & Co (above) at p.636-8, approved and applied in a number of subsequent decisions of the Court of Appeal is clear authority for both of these consequences of an agent's breach of fiduciary duty.
86. In Rhodes v. Macalister (1923) 29 Comm Cas 19 at 28 the Court of Appeal made clear that it makes no difference to the agent's position that no damage was caused, or that the principal may be advantaged by the agent's breach of duty in accepting secret commission. At p. 20 Bankes LJ said,

There seems to be an idea prevalent that a person who is acting as agent or servant of another is committing no wrong to his employer in taking a secret commission or bribe from the other side, provided that in his opinion his employer or principal does not have to pay more than if the bribe were not given. There cannot be a greater misconception of what the law is or what the duty of a servant or agent towards his master in reference to such matters is and I do not think the rule can too often be repeated or its application more frequently insisted on

87. The reason that Equity has adopted a strict approach to the payment of secret commission to an agent was explained by Jacob LJ in Imageview Management Ltd v. Jack [2009] EWCA Civ 63 at [50],

The policy reason runs as follows. We are here concerned not with merely damages such as those for a tort or breach of contract but with what the remedy should be when the agent has betrayed the trust reposed in him – notions of equity and conscience are brought into play. Necessarily such a betrayal may not come to light. If all the agent has to pay if and when he is found out are damages the temptation to betray the trust reposed in him is all the greater. So the strict rule is there as a real deterrent to betrayal. As Scrutton LJ said in Rhodes at p.28, 'The more that principle is enforced, the better for the honesty of commercial transactions.'

88. Although the general rule as stated above is said to be an inflexible rule of Equity, there will be cases in which the Court may adopt a flexible course, where the consequence of the application of an inflexible rule would result in inequity.
89. First, there may be cases where an agent effects severable transactions, and in such cases the rule will only apply to those transactions in respect of which he is in breach of duty, see Bowstead p.296 and cases cited.
90. Secondly, there are cases where the Court may make an equitable allowance in favour of the agent for expenditure incurred, and for work and skill applied for the benefit of the principal.
91. Thirdly, where there has been sufficient disclosure to negate the secrecy of the commission, but nevertheless the principal's informed consent was not obtained, see Hurstanger (above) at [39].
92. The basis on which an equitable allowance for skill and effort may be made is set out in Snell at §7-131, approved by the Court of Appeal in the Imageview case at [56]. Thus, omitting the authorities referred to in the footnotes,

... a fiduciary who has acted in breach of fiduciary duty and against whom an account of profits is ordered, may nevertheless be given an allowance for skill and effort in obtaining the profit which he has to disgorge where 'it would be inequitable now for the beneficiaries to step in and take the profit without paying for the skill and labour which has produced it.' [The quotation is from the judgment of Wilberforce J in Phipps v Boardman [1964] 1 WLR 993, 1018)]. This power is exercised sparingly, out of concern not to encourage fiduciaries to act in breach of fiduciary duty. It will not likely be used where the fiduciary has been involved in surreptitious dealing … although, strictly speaking it is not ruled out simply because the fiduciary can be criticised in the circumstances. The fiduciary bears the onus of convincing the court that an accounting of his or her entire profits is inappropriate in the circumstances.

93. The principle, which derives from the decision of Wilberforce J and the Court of Appeal in Phipps v Boardman [1964] 1 WLR 993 at 1018 and [1965] Ch 992, Lord Denning MR at 1020, was approved by the House of Lords in Boardman v. Phipps [1967] 2 AC 46.
94. In Guinness Plc v. Saunders [1990] 2 AC at 701E Lord Goff set out an important limit on an entitlement to an equitable allowance, confining it to,

... those cases where it cannot have the effect of encouraging trustees in any way to put themselves in a position where their interests conflict with their duties as trustees.

See also Imperial Mercantile Credit Association v. Coleman (1873) LR HL 189, Lord Chelmsford LC at 202.

95. Finally, on the subject of fiduciary duty, it is convenient to set out a passage from the judgment of Bankes LJ in Rhodes v. Macalister (above) at pp 23-24, cited in the Imageview case:

Under these circumstances what was [the agent's] position and what was his duty? Of course, as long as he was acting for the vendors of these properties only he was perfectly entitled to suggest to them that they should fix a price which would include a commission to himself, and he would be perfectly justified in receiving that commission or putting forward the price to an intending purchaser as the only price which he could persuade the vendors to give, so long as that was his real opinion. But the moment he accepted the position of agent for the intending purchasers his entire position in law changed. He could no longer consistently with his duty, unless he disclosed the facts, act as agent for the vendors to procure purchasers with the result of some commission or payment to himself. He could not retain that position consistently with his duty to the purchasers of obtaining these properties at as low a price as he possibly could … the moment he accepted the position of agent to procure these properties as cheap as possible for the intending purchasers his interest and duty conflicted, and he could no longer act honestly towards the intending purchasers without disclosing to them that in that figure of £8,000 to £10,000 which he had mentioned as the probable price of these properties he had included a figure which he intended should cover a commission to himself.

Although the figures in the present case are very much larger, the similarities are striking.

96. A further legal issue arises as to whether there was an enforceable contract between FHR, Mr Mankarious and Cedar in the spring of 2005. The issue of whether a contract is complete or incomplete is dealt with comprehensively in Chitty on Contracts 30th Ed. §2-112 and following. Although there are guiding principles which may be applied, whether an agreement is complete or incomplete can conveniently be tested by whether the parties intended to be contractually bound to ascertainable performance at a particular point, see also Pagnan SpA v. Feed Products Ltd [1987] 2 Lloyds Rep 601, Lloyd LJ at 619.

Expert evidence

97. Each side called expert evidence: Mr Frank Croston (on behalf of the Claimants) and Mr Peter Tyrie MBE (on behalf of the Defendants). Each was highly experienced and well-qualified to give evidence about the level of fees which might be expected to be paid to agents who were engaged to sell hotels. Each was also asked to express a view about an agent's disclosure obligations, while rightly accepting that this was a matter of law, rather than a matter of practice or custom.
98. In summary the experts agreed that a fee of 1.25% of the sale value represented a fair view of the average percentage fee for hotel transactions in 2004 (this would equate to €2,643,750 on a sale of €211,500,000). Mr Tyrie qualified this by saying that this would be the appropriate fee for a large broking firm acting on the open market. In Mr Tyrie's view there was no norm for off-market transactions. However he accepted that a fee of €10 million was exceptional and outside what might be considered to represent a normal level of fee.

Discussion and conclusion

99. There is no doubt that Cedar owed an agent's fiduciary duties to BoS and Fairmont in relation to the establishment of the Joint Venture and in negotiating the purchase and the price of the Hotel. These duties, which were owed from no later than 5 October (in the case of BoS and Fairmont) and preceded the duties owed to Kingdom from the time it agreed to join the Joint Venture on or around 26 October. These duties continued up until the time Cedar's retainer was terminated.
100. These duties were owed severally to each of the participants in the Joint Venture and there is no proper basis for finding that BoS was the 'leader', with actual authority to act on behalf of Fairmont or Kingdom in relation to commercial dealings with Cedar, or that they were conferred with authority which is to be implied from the role BoS undertook. Each of the Joint Venture participants acted independently of the others in relation to the commercial decisions that were being taken. As Mr Mankarious was aware there were potential conflicts of interests between BoS (as lender as well as participant in the Joint Venture) and Fairmont (as intended operator of the Hotel as well as participant in the Joint Venture) and Kingdom (as participant).
101. It is clear both from the Exclusive Brokerage Agreement (dated 24 September 2004) and from the Memorandum of Understanding (dated 5 October 2004) that the acquisition would involve subsidiaries or affiliates of BoS, Fairmont and Kingdom (or, in the case of the Memorandum of Understanding, affiliates of other potential investors); and Cedar's fiduciary duties to BoS, Fairmont and Kingdom extended to the subsidiaries or affiliates of those companies once the structure of the Joint Venture involved such subsidiaries or affiliates. Similarly it was well known by Cedar, not least from its own draft Term Sheets setting out the draft outline terms and conditions on which Cedar would provide services, that a Joint Venture would be established to which Cedar would owe fiduciary duties. I accept however, that Cedar's obligation of disclosure to the 1st, 3rd, 5th and 7th Claimants would have been discharged by disclosure to each of BoS, Fairmont and Kingdom.
102. I reject Mr Mill's submission that Cedar had no conflict of duty and interest. This was a case in which duty and interest were plainly in conflict in the course of Cedar's negotiation about the price. As Mr Pymont submitted, in circumstances where Cedar were engaged to negotiate the best price, at the very least it was material that the vendor was in fact prepared to receive a net sum of €201.5 million from the sale. That was material to be known by Cedar's principal and was not made known to them. In any event Mr Mill's submission seems to be founded on the misconception which Bankes LJ referred to in Rhodes v. Macalister (above) at p.20.
103. It follows that unless Cedar obtained the fully informed consent of BoS and Fairmont and Kingdom, it could not receive and retain the €10 million commission from the Vendors; and that if it did, it would hold the sum subject to a Constructive Trust, and would not be entitled to claim contractual commission for services in relation to establishing the Joint Venture and the purchase of the Hotel.
104. So far as BoS was concerned, the sending of the Draft Investment Memorandum, with its references to a sale 'through' Cedar 'on an 'off-market' basis', was not sufficient disclosure that Cedar would receive a commission from the Vendors. Although something may have been said before the 22 September to Mr Middleton and Mr Shankland about Cedar being retained to sell the Hotel by the Vendor, the meeting on 22 September was effectively the start of the disclosure of the Commission payment, since on Mr Mankarious's evidence this was the main purpose of the meeting. However what was said on 22 September and 4 October was not sufficient to discharge the duty of disclosure. Although it plainly did not need to enter into a formal agreement along the lines of its Exclusive Brokerage Agreement with the Vendors, it was incumbent on Cedar to inform BoS, not only that it was receiving a Commission payment but the amount, €10 million. It was an exceptionally large sum in proportion to the rewards that Cedar was likely to be able to negotiate from its acquisition work for the purchasers (in the event £400,000), and it was a significantly larger percentage than would have been expected. The Defendants' argument that the size of the fee might have been gauged by the expertise and connections of Cedar in effecting the sale in a discrete manner is unpersuasive: not least since Cedar's expertise and connections were those of Mr Mankarious acquired as an employee of Kingdom. It was neither a customary rate of reward nor a standard amount which BoS could have discovered upon enquiry. Mr Middleton and Mr Shankland appear to have been strikingly incurious and, on Mr Mankarious's evidence, complacent; but I am satisfied that this was because they were not sufficiently alerted to the significance of the terms of the commission by Mr Mankarious. It follows that there was not a sufficient disclosure of material circumstances as to the nature and extent of Cedar's interest in the sale to which BoS consented.
105. So far as Fairmont is concerned, I have reached the conclusion that Mr Mankarious failed to disclose that Cedar was acting as agent of, or receiving a commission from, the Vendors. So far as Kingdom is concerned it has never been contended that either Kingdom or HCA was told anything about the Brokerage Commission or its terms. It is striking that, when Fairmont and Kingdom were told about the payment, they expressed surprise and annoyance; and when Mr Middleton was told he was (according to Mr Mankarious's note) 'surprised' by the amount.
106. The fact that the commission was a flat fee is irrelevant. It meant little more than that the amount in respect of which the price paid by the Joint Venturers could be said to be too high was fixed at €10 million. It is unnecessary and unfruitful to speculate about what might have happened if the Joint Venture participants had been told about the payment of €10 million. At the very least it is likely that they could have used the information to their financial advantage in the course of negotiations.
107. Cedar has failed to discharge the burden of proving that BoS, Fairmont and Kingdom had the requisite knowledge; and in relation to the last two companies by a considerable margin.
108. This is not a case in which it is appropriate to make an equitable allowance. Cedar had opportunities to inform its principals of the important commercial terms of its Exclusive Brokerage Agreement with the Vendors but failed to do so. Cedar is in no position to say that an accounting to the Claimants of the entire amount of its commission is unjust or inappropriate in the circumstances.
109. Cedar's counterclaim was advanced on two bases: first on the basis of a claim in contract, secondly and alternatively, in restitution. At this stage of the argument, Mr Mill accepted on the basis of clear and emphatic authority that Cedar was not entitled to a claim in debt or for damages on the basis of the contractual remuneration that it would have obtained in relation to work done in the purchase of the Hotel. However he submitted that this should not preclude Cedar from recovering in respect of work done in relation to the 3 other hotels.
110. An analysis of the correspondence shows what the Claimants' witnesses were disposed to agree: that the commercial terms of a contract between FHR and Cedar and Mr Mankarious had been settled and that the parties had agreed to be bound at least by those terms from the beginning of April 2005 when it was agreed that Cedar could present its invoices to FHR for payment. There were further terms to be agreed and a formal agreement to be drawn up but that did not prevent a binding contract coming into existence, see Pagnan v. Feed Products (above) at 619r.
111. Although the law does not permit the agent to recover sums due under the contract in respect of which the agent has acted in breach of fiduciary duty (see Andrews v. Ramsey and the other cases cited above), the Claimants accepted that Cedar would be entitled to be paid in relation to the work they did on the other three hotels. The evidence of Mr Mankarious, which was not challenged, was that from August to December/January 2005 Cedar spent 10% of its time in relation to these hotels; and that from January 2005 until September 2005 when the contract was determined, Cedar spent 90% of its time on these hotels. On the basis that Cedar is only entitled to remuneration based on the annual pre-acquisition and management fee of £375,000, for only 11 months and only in respect of the proportions I have set out above, the total pre-acquisition fee to which Cedar is entitled to be awarded by way of counter-claim is £227,497 (+VAT).
112. In these circumstances it is unnecessary to decide whether, on the hypothesis that no contract had been concluded, Cedar could recover the like or similar sum by way of Quantum Meruit for what was valuable work albeit not work that led to an acquisition. In my view there is no authority or principle which would preclude such an award, where Party A has acted at the request of Party B in the common expectation that Party A's work would be remunerated and Party B has benefited from such work (cf Regalian Properties Plc v London Dockland Development Corporation [1995] 1 WLR 212). There is little reason why a principle which applies to discourage fiduciaries from putting themselves in a position where their interest conflicts with their duty should apply to unrelated work, where the conflict does not arise and in respect of which no dishonesty, bad faith or surreptitious dealing has occurred.

Order

113. I will hear from Counsel on the Order which should be made in the light of the Judgment.