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Archive for March 19th, 2012

“Your Lordship will be familiar with the ancient case of Pot versus Kettle” One of the defendant barristers speaking in court in London today, claiming that Paddy McKillen has acted in no better a manner than the Barclay brothers or Derek Quinlan in dealings related to the Maybourne group of hotels

It wasn’t a Bank Holiday in the UK today where the court case between Paddy McKillen on one side and the Barclay brothers, Sir Frederick and Sir David being the principal players on the other. The case centres on the billionaire 77-year old Barclay twins – pictured here – and their avowed intention to take control of the Maybourne group of hotels – three 5-star hotels in central London, Claridges, the Connaught and the Berkeley. Our own Paddy McKillen is, reasonably enough, trying to maximise the return from his 36.32% share on the hotel group which he bought with a group of investors led by Derek Quinlan in 2004. NAMA has been dragged into the case because it was NAMA that sold loans in the group to the Barclays last September 2011 for GBP 660m (€800m) and Paddy is claiming NAMA didn’t have the right to sell the loans in the way it did, and that Paddy was entitled to be consulted on the sale. Also dragged into it is former tax inspector, turned property magnate turned consultant, Derek Quinlan who entered into an agreement with the Barclays to sell his 33% share in the group. The case commenced in the Royal Courts of Justice today and is scheduled to last for three weeks. Today saw the opening statements by the lead barristers in the case.

Just to paint the scene in Court 26 today, I counted 14 bewigged barristers on the defendants’ side plus at least nine solicitors seated plus an estimate of 5-10 legal operatives. So about 30+ on the defendants’ side. Paddy had a much smaller contingent of barristers and solicitors. But it was truly wondrous to see the might of the legal profession deployed in this case. The case is being heard before a single judge, Mr Justice David Richards. Derek Quinlan himself turned up in the afternoon, full of the joys of Spring with trademark red pocket hankerchief, highly polished loafers and priest-black socks. Paddy McKillen himself was not in court today but is scheduled to start giving his evidence tomorrow first thing. The Barclay twins are not named respondents in the case, but their company is and it will be the company directors, which don’t include the Barclays themselves, who show up to give evidence. Paddy’s barrister took three hours to outline the opening arguments and the four lead defending barristers took two hours to outline their own opening arguments. NAMA’s barrister spoke for just over 60 seconds confirming NAMA’s interest in the proceedings.

It would be a joy to follow this case closely for its entire duration but alas, NAMA’s interest in the case is quite limited. NAMA just wants a declaration that it operated properly last year when it sold the Maybourne loans for €800m. What NAMA wants to avoid is a judgment which finds the transfer of the loans was improper, find the transaction reversed and possibly face damages. However listening to the opening arguments today, it seems that there are two issues which may deserve further attention and possibly involvement on NAMA’s part (1) might NAMA have been able to sell the loans for more than €800m and (2) did the company to whom the loans were advanced act in such a way as to compromise NAMA’s rights as a creditor. NAMA has previously said that it sold the loans for €800m and that was the maximum it could achieve. That is patent rubbish. The loans, if enforced, would allow NAMA to take control of shares in the Maybourne group, which may have been worth considerably more than €800m. In my view NAMA has a case to answer here to justify the sale price and to demonstrate it has maximised returns for the taxpayer. NAMA might also not be happy to learn of the way in which Maybourne apparently sought to deter other interest in the hotels in favour of the Barclays.

As for Paddy’s side’s opening statement, there are accusations that Derek Quinlan acted in bad faith in agreeing to sell his shares to the Barclays and suggestions Derek had been bought with gifts and loans. There were constant referrals in evidence  to “DQ” for Derek Quinlan, but somehow I had the strong impression they wanted to dub him “BBB” – Barclay Brothers’ Bitch, because the narrative was that Derek and his wife were being supported from at least October 2010 by the Barclays who had set about “procuring” (!) Derek to assist them in their plans to take control of the Maybourne group. There was also mud thrown at the Barclays themselves and it was dwelt upon that even though Frederick and David Barclay were pivotal to this case, that neither would be attending to give evidence; in David’s case because he’s sick with angina and in Frederick’s case because he doesn’t want to and thinks the court can’t order him to attend because he is out of the country. It was claimed that David Barclay was too sick to travel but evidence was adduced that he had recently written to a potential investor inviting a meeting and stating David could “travel anywhere inEurope” to accommodate such a meeting. And Paddy’s side even resurrected a 2004 court case inDelaware,USAwhere David Barclay also pleaded illness as a reason for non-attendance and the American judge drew an adverse conclusion from his absence. David Barclay doesn’t have an email address but apparently uses his wife’s, Lady Barclay’s and there was a suggestion that her emails may be sought in disclosure on the basis that she acts as an agent for her husband. In January 2011 after the Barclays had acquired a 28% stake in Maybourne through acquiring shares from two other investors, Misland (owned by the Manchester Green family) and our own Kyran McLoughlin of Elan, the Barclays had their appointee to the Maybourne board put a stop to attempts by the company to get third party investment, through closing off a so-called “Data Room” , a facility whereby potential investors could access information about Maybourne. The final strand, it seems, to Paddy’s case was that Derek Quinlan’s loans in respect of his Maybourne shareholding were enforceable from 2010, though the implication from that assertion wasn’t immediately obvious today. There was precious little in opening statements on Paddy’s side about NAMA’s dealings, and remember it is being  claimed that NAMA improperly sold the loans last September 2011 without consulting Paddy.

On the defendants’ side, they were not at all kind about Paddy. They claimed the case was the usual – “misconceived” and “an abuse of process” and riddled with “glaring inaccuracy” and claims “made up on the hoof”.  And as for poor Paddy, they claimed he “would make avarice itself blush” and that it was Paddy himself who acted in bad faith by soliciting offers for his own shares with secret side agreements purportedly to enrich Paddy. Details of two deals were referred to in which Paddy was to take away personal rewards and continuing involvement in the hotels. Whilst the Barclays had 40 years experience in the hotel business, Paddy had just come in as an investor in 2004 when Derek Quinlan was buying the original Maybourne hotels – theSavoywas subsequently sold for GBP 230m. And it was suggested Paddy’s expertise in hotels was confined to choosing “soft furnishings and bedspreads” during the refurbishment of theConnaughthotel. Ouch, and meow! It is accepted that the Barclays want to acquire the three hotels in the Maybourne group, but there is nothing commercial improper in that. However it was claimed that Paddy was adopting a tactic of slinging mud at the respectable and knighted Barclays in the hope that they might relent in their pursuit of the hotels, with the implication that Paddy will make more money on his investment. It was claimed that Paddy was only able to realise his plans for the Maybourne hotels which includes a redevelopment of both Claridges and the Berkeley with “other people’s money because he didn’t have any of his own” and that although Paddy had referred to potential Asian, Middle Eastern and US investors, none had materialised. It was claimed that Paddy “himself is heavily under water”. Poor old Paddy was accused of having “gall”, “face” and of fielding “arrant nonsense”

The gossip: the only time in the proceedings when Derek Quinlan leaned forward in intense concentration was to hear if a confidentiality order covering payments by the Barclays to Derek and his wife Siobhan, an order which was due to expire today would be continued, and in the event it was continued but only to close of business tomorrow pending submissions from Derek’s barrister – in other words, the world might find out what the Barclays have been giving the Quinlans. Paddy has had to disclose details of his wealth and those details are subject to a confidentiality order but it was strongly hinted that the confidentiality order might be challenged during the course of the hearing. Paddy was worth about €75m according to the Sunday Times Richlist – on paper it seems the Barclays are far wealthier than Paddy, but as Paddy has demonstrated in his case with NAMA, he is formidable and that is why he is termed an “irresistable force” above. And lastly, there’s a far better standard of debate in English court-rooms and where else would you hear Owen Glendower from Henry IV being quoted on a Bank Holiday Monday, in this case to take a pop at poor Paddy.

Glendower

I can call spirits from the vasty deep.

Hotspur

Why, so can I, or so can any man;

But will they come when you do call for them?

Meaning Paddy McKillen can claim he can source investment for the Maybourne group, but when push comes to shove, can he really?

It is not expected that detailed blogposts will be brought to you on proceedings in this case because NAMA is really peripheral to the case and the main focus appears to be set on alleging conspiracy, bad faith, breach of implied partnership rules and suchlike, but an eye will be kept on it for developments which might affect NAMA’s biggest single transaction to date. It’s a pity because it looks set to be a titanic clash involving ego, money (and lot’s of it), power and reputation.

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