Mr Justice Newey :
- This case concerns a nightclub ("the Scotch") at 13 Masons Yard in London of which a company called Great Club Limited ("Great Club") held an underlease until last year. In 2011, Great Club's shares were bought in the name of the third defendant, Alula Leisure Limited ("Alula"), from a Mr Nick Smart. Alula's shares are held by the first and second defendants, Mr Tihomir (or "Tim") Lalic and Mr Vahram Papazyan.
- When Mr Smart owned Great Club, the Scotch was known as "Director's Lodge". In earlier years, however, the site had housed a fashionable club called "The Scotch of St James". Once Alula had acquired Great Club, the Scotch was re-opened under that name.
- In the present proceedings, the claimants maintain that they are entitled to 50% of the shares in Great Club (and of the Scotch venture more generally). More specifically, it is alleged that Alula holds 33% of the shares in Great Club (and the Scotch venture) on trust for the first claimant, Mr Frederic Achom, and 17% on trust for the second claimant, Mr Alex Nicholl. In turn, Mr Achom is said to hold part of his 33% (representing 6% of Great Club's shares) as nominee or trustee for the third claimant, Mr Anthony Grant.
- The claimants assert that they are entitled to a 50% interest in Great Club (and the Scotch venture) as a matter of contract or, failing that, because there was a partnership or on the strength of a "Pallant v Morgan equity" or proprietary estoppel. The claimants' fallback position is that they have restitutionary claims in respect of money and effort they put into the Scotch venture. Economic torts (viz. procuring breach of contract and conspiracy) are also alleged.
The parties
- Mr Achom and Mr Grant both have chequered pasts. In 2000, they were convicted of conspiracy to defraud and sentenced to a year's imprisonment on the strength of their involvement in a wine business. Their conduct in that company also led the Secretary of State for Trade and Industry to bring proceedings against them, as a result of which they were each the subject of a lengthy order under the Company Directors Disqualification Act 1986: they were barred from being directors of a company or involved in the management of one until July of last year. Early in 2002, the Secretary of State had further obtained, on public interest grounds, an order for the winding-up of Boington & Fredericks of London Limited, a company dealing in wine that was run by Mr Achom and Mr Grant.
- In subsequent years, however, Mr Achom and Mr Grant both seem to have enjoyed considerable success. In 2010, when he was aged 36, Mr Achom was listed as one of London's 1,000 most influential people. By then, he was well-known as an owner and operator of nightclubs: in particular, for his involvement in the Jalouse club in Mayfair. When giving evidence, Mr Achom said that he might be worth £10 million. He evidently, moreover, has a wide network of celebrity friends and acquaintances. For his part, Mr Grant is an investor and managing partner in a wine broking business and has also had an interest in, among other things, Jalouse. By his own account, the £56,500 he spent in relation to the Scotch was relatively small by his standards: he described his investment as "really quite minimal".
- Mr Nicholl, who is in his thirties, has worked in the nightclub industry for some eight years. He first met Mr Achom in 2008 and has worked with him in the period since then. He became the manager of Jalouse and was given a 5% interest in it for his work there.
- Mr Lalic came to the United Kingdom from Croatia aged 11 in 1994. After leaving school, he became involved in managing bars in Oxford. He also, in 2004, entered Oxford Brookes University, and it was there that he met Mr Papazyan. Mr Papazyan, who is three years younger than Mr Lalic, is Armenian, but his family has been based in Dubai for some time. He was educated in the United Kingdom from 2000.
- While still at Oxford Brookes University, Mr Papazyan set up Oxford Martial Arts Academy (OMAA) Limited to operate a martial arts club. At Mr Papazyan's suggestion, Mr Lalic became involved in the venture as well. In time, the company changed its name to FeelFit Gym Limited and acquired new premises in Oxford. Funding was provided by a company called Arempa International Limited ("Arempa"), which is owned by Mr Papazyan's family.
- By 2011, Mr Lalic and Mr Papazyan were looking for investment opportunities in London. In July 2011, they acquired Alula as an investment vehicle. Mr Lalic and Mr Papazyan became the company's only directors and shareholders (with 50 shares each). The plan was again for Arempa to supply finance by way of loan.
Factual history
Events up to the acquisition of the Scotch
- During July 2011, Mr Lalic and Mr Papazyan were put in touch with a Mr Jack Cardenas-Storey, a business consultant. Having been told that Mr Lalic and Mr Papazyan were interested in investing in nightclubs or bars in London, Mr Cardenas-Storey arranged for them to meet Mr Achom. The meeting took place at Home House in London on 1 August.
- Mr Achom seems to have met Mr Cardenas-Storey again on 3 August 2011, but he was then away for a month or so. By the time he returned, Mr Lalic and Mr Papazyan had been told of a number of businesses that they could buy by a Mr Jonathan Moradoff, a commercial property agent employed by Davis Coffer Lyons to whom they had been introduced by a friend, Mr Vladimir Gelev. On 29 August, Mr Moradoff emailed Mr Gelev information about a bar in Soho called Amuse Bouche. On 31 August, Mr Moradoff sent Mr Lalic an email with details of three clubs in Mayfair of which Mr Smart was the ultimate owner: Director's Lodge (as the Scotch was then called), Gaslight and Portland Club.
- By 2 September 2011, Mr Lalic and Mr Papazyan had decided to make an offer for Amuse Bouche. At much the same time, they completed the purchase of the Match Bar, a bar near Oxford Circus. The acquisition of the Match Bar had taken, I gather, no more than about ten days. The purchase of Amuse Bouche (which was renamed 52 North) also proceeded to completion, but somewhat less fast.
- On 6 September 2011, Mr Cardenas-Storey met Mr Lalic and Mr Achom at 118 Piccadilly to view a possible site. It proved not to be of interest, but later that day Mr Lalic chased Mr Moradoff for further information about Director's Lodge. He explained to Mr Moradoff:
"The wrong file has been sent, we are not interested in the Gaslight. We are interested in the Directors Lodge."
- Mr Achom first saw Director's Lodge the next day when he went there with Mr Lalic (and perhaps also Mr Papazyan). They appear to have visited together again on 13 September 2011. They (at least sometimes with Mr Papazyan as well) clearly also met on other occasions during September. Further, Mr Lalic would often forward information about Director's Lodge to Mr Achom. On 8 September, for example, Mr Lalic sent on to Mr Achom both lease documentation that he had received from Mr Moradoff and the licence for the premises that he had been sent by the solicitors instructed, Bower & Bailey.
- A meeting with Mr Smart was arranged. This was to take place at Mr Moradoff's offices in Portland Place at 6pm on 13 September 2011. Mr Lalic and Mr Achom agreed to meet for lunch earlier in the day: as Mr Lalic had said in a text to Mr Achom, "to finalise the deal between us and to discuss the approach in closing the deal for 6pm". In the event, Mr Smart was taken ill and could not attend, but that does not appear to have emerged until the evening. Mr Lalic and Mr Papazyan did not remember Mr Achom being present at the meeting, but I think he probably was. That was Mr Moradoff's recollection, and, as it was not known that Mr Smart would not be able to be there, I cannot see why anyone would have told Mr Achom that he need not be present. Mr Papazyan was inclined to think that Mr Achom was out of the country, but, as I have indicated, he in fact appears to have met Mr Lalic in London that same day.
- The meeting with Mr Smart was rearranged, seemingly for 20 September 2011. On 21 September, Mr Moradoff reported to Mr Lalic in a text, "Spoke with him [i.e. Mr Smart] at 300k to complete in a day". Mr Lalic told Mr Moradoff, "We can transfer the cash today." Mr Lalic explained in evidence that, in the event, money was put on deposit with Bower & Bailey so that Mr Smart could "smell" it. On 23 September (a Friday), Mr Lalic told Mr Achom in a text:
"Hey, we made an undertaking to exchange on Monday and complete by mid week subject to the search."
- By the evening of 25 September 2011, however, Mr Lalic had become concerned about a licensing issue. He therefore asked Bower & Bailey to make sure that contracts were not exchanged without further discussion. On 26 September, Mr Lalic explained to Mr Achom that he had told Moradoff that the price needed to come down to approximately £275,000 because "it would cost around 50k minimum to remove the restriction". In the late afternoon of 27 September, Mr Lalic texted Mr Achom to say:
"Done deal at 250k and agent fee 20k. Well done."
Mr Achom's initial response was to comment that the agent fee was too high, but later in the evening he said in a text:
"U played this deal very well. Well done. Gotta keep costs down on this project if we have to watch our capacity."
- The parties differ as to how far they can respectively take credit for the purchase price. Mr Achom's evidence was to the effect that he told Mr Lalic and Mr Papazyan how much they should pay and to make as much of the licence restriction as they could; without him, he said, the price might have been twice as high. In contrast, Mr Lalic said that Mr Achom had suggested that £350,000 would be a good price and that he and Mr Papazyan were responsible for pushing the price down. When, Mr Lalic said, he wrote "Well done" after summarising the agreed deal, he meant "Good job", not that Mr Achom had done well. While the point may not matter much (if at all), I am inclined to think that this version of events is broadly accurate. I imagine that Mr Lalic discussed both how much to offer and the significance of licensing matters with Mr Achom, but I suspect that he (Mr Lalic) was primarily responsible for limiting the price.
- The parties also disagree as to who first saw the potential of Director's Lodge. Mr Papazyan said that he did not much like the venue at first, but had been won round by Mr Lalic. Mr Lalic himself said that he was keen to buy Director's Lodge before Mr Achom even saw it and that he told Mr Achom when they met on 6 September that Director's Lodge was the best of the three sites put forward by Mr Moradoff. Mr Achom's recollection was that Mr Lalic and Mr Papazyan had written Director's Lodge off and that he had had to persuade them to pursue it. On balance, however, I prefer the evidence given by Mr Lalic and Mr Papazyan. It is significant that Mr Lalic told Mr Moradoff that he was interested in Director's Lodge (and not Gaslight) before Mr Achom had yet seen Director's Lodge.
- At the meeting on (I think) 20 September 2011, Mr Smart mentioned the past history of the Director's Lodge site. This prompted Mr Achom to investigate it, as a result of which he forwarded some links to Mr Nicholl (on 26 September) and Mr Lalic (on 27 September). The email to Mr Nicholl began:
"Maybe we rename back to its old name and that may bring back some old names too??"
- It was also, it seems, during September 2011 that Mr Achom first contacted Interior Desires UK ("Interior Desires"), which provides design services, in connection with Director's Lodge (and also Gaslight). Interior Desires had already done some work at Jalouse. Mr Achom called and said that he had some space he was working on and would like Interior Desires to look at it. Mr Achom subsequently walked the partners in Interior Desires around the premises and asked them to come back with a price for designing the interior. Mr Lalic was also present.
- At 1.12pm on 28 September 2011, Mr Achom sent Mr Lalic an email, which, given its importance, I should set out in full:
"Tihomir,
We will need to incorporate a new company that will act as the trading company for the project.
Also to let you know, I have calculated the value of this project to be approximately £780,000 (including my sweat equity), although what the project will cost will be in the region of £520,000. I can break that down when I see you.
The investment on your part for the 50% share works out at approximately £390,000 with the newly adjusted purchase price of £270,000.
The lease (asset holding) company will also need to be reassigned the share holdings accordingly but I understand for the sake of expediting the purchase we should do it under your already existing Alula company.
Let me know if the exchange will go ahead today."
Mr Lalic replied about half an hour later:
"Hi, ok no problem."
- The term "sweat equity" (which Mr Achom used in his email) refers to a person's entitlement to an interest in a project on the strength of a non-financial contribution to it.
- As was anticipated in Mr Achom's 28 September email, the transaction proceeded with Alula as the purchaser. What Alula bought was Great Club, a company owned by Mr Smart which held an underlease of the Director's Lodge premises. Bower & Bailey had drafted a share purchase agreement under which Mr Smart was to sell the issued capital of Great Club to Alula for £250,000. Contracts were exchanged at 5.05pm on 28 September 2011, and the transaction was completed on 3 October. Alula became Great Club's only registered shareholder, and Mr Lalic took Mr Smart's place as the company's director.
- Alula not only provided the purchase price, but met other costs associated with the acquisition (for example, Davis Coffer Lyons' fees and those of Bower & Bailey).
Acquisition to opening
- Following the purchase of the Scotch (as Director's Lodge was renamed), the premises were refurbished. The idea was originally to undertake more limited work than was in the event carried out. Asbestos was discovered, and Mr Lalic explained that there were other problems with the property as well. It was decided that it was best to renovate the property in a more radical way than had first been envisaged. Mr Achom commented in evidence that this made the works more expensive but would ultimately increase the value of the club.
- As had been contemplated in Mr Achom's 28 September email (paragraph 23 above), a "trading company" was set up. I gather that it is common practice with nightclubs for one entity to hold the assets and a separate company to undertake trading. The defendants had already, I understand, adopted such a structure with the Match Bar. With the Scotch, a company called Haycro Limited ("Haycro") was established as the operational company. Haycro was incorporated on 17 October 2011 with Mr Lalic and Mr Papazyan as its shareholders (with one share each) and directors. Mr Nicholl joined the company's board on 21 December, and Mr Papazyan resigned as a director on 13 June 2012. Mr Papazyan explained in cross-examination that he resigned because he felt that he did not have much of a say in the company.
- Mr Achom and associates of his had rapidly come to play a prominent part in matters relating to the Scotch. On the very day its purchase was completed (viz. 3 October 2011), Mr James Hoffelner, who was general manager at Jalouse, described himself as "the agent" for Great Club when emailing the head lessee of the premises to express interest in buying the head lease. By 11 October, Mr Nicholl was being spoken of as "Manager of Directors lodge", and by mid-October he had undertaken some research into the history of the "Scotch of St James" club. Mr Achom entered into email correspondence with Mr Lalic about what domain names should be bought, and on 11 October Mr Lalic wrote in an email to Mr Achom:
"Have you decide if we use scotch of st james, so that I can try to trade mark it."
Mr Achom was Interior Desires' main point of contact for the Scotch, and at the end of October he exchanged emails with Mr Wale Aderinokun of Interior Desires about the cost of works. When Mr Aderinokun gave a ballpark figure of "around 300k mark", Mr Achom responded:
"That is double and that is certainly not gonna fly.
So work it out and get back to me asap."
- On 26 October 2011, Mr Achom had sent information about the history of the Scotch (which he called "my new project") to Miss Yumi Futatsuka, a public relations consultant who was a close friend of his. Miss Futatsuka re-worked the material into the form found in business summary documents that Mr Achom circulated in November 2011. As Mr Achom explained in evidence, he was trying to create two versions of the summary: one for internal use and another that could be employed for briefing and marketing purposes. Both variants began with this text (composed by Miss Futatsuka):
"FREDDIE ACHOM, co-founder of Crystal, Jalouse and Bennett Oyster Bar & Restaurant is to re-launch THE Scotch at 13 Mason's Yard in Mayfair, the site of the legendary club formerly known as The Scotch of St. James, universally renowned as the playground of 60's Swinging London and the preferred hangout for just about every major music personality of the time ….
Drawing on the colourful energy of the original, the refurbished 120 capacity establishment will soon be unveiled as a discreet speakeasy-entry style home-from-home club for carefully selected guests, friends and family as a place to relax and socialise with like minded friends. Set across two floors, The Scotch will be reminiscent of the original with both bar and dining services and additional features including a private screening room and nightclub. The extended 7am licence will also permit for the club to be used as an after-hours venue …."
The document said this under the heading "Company Ownership":
"The owners
- Freddie Achom is former co-owner of the hugely successful London nightclub Crystal which turned over £8.6million in first year and is the current owner of Jalouse Club in Mayfair's Hanover Square.
- Alex Nicholl launch of Amika Nightclub in December 2006. It was his first night club venture which thrived on his fresh approach to club management. In one year, Amika successfully became one of the city's hottest clubs, making new ground in West London and turning over more than 7million. Along with Freddie Achom and Moruf Yoozooph launched Jalouse a club in 2008 which to this date continues to lead the industry by example. Jalouse under the management of Alex Nicholl is one of the leading nightclubs in the west end, having received accolades including Best New Club in 2009 and Best Club in 2010.
The remaining shareholders are Private Investors and will be silent partners and not operational partners."
- The version of the document intended for internal use also included this (under the heading "Financial Plan"):
"The financial projections for this plan are presented in the accompanying documents.
At the valuation of £1.125m for the overall corporate entity owning The Scotch with a total project estimate of approximately £750,000 (premises purchased £300,000, refurbishment circa £300,000 and further £150,000 start-up additional costs).
Total Investment Breakdown and Share ownership
- Freddie Achom is to receive 33% Sweat equity (equivalent to £371,250 @ £11,250 per share) and is to also purchase 7% at £11,250 per share £78,750.
- Alula Ltd is to purchase 50% stake @ £11,250 per share – a total investment of £562,500 (£250,000 + £22,800 already paid for the property purchase) remaining £289,700.
- Alex Nicholl is to purchase 10% @ £11,250 per share, a total investment of £112,500.
Alex Nicholl will receive a further 7% sweat equity from Freddie Achom for concept development and consultancy, giving him a total of 17% ownership and Freddie Achom 33%.
If we are to offer 5% ownership to Tinie Tempah or any other celebrity this will be deducted equally across all parties.
Salaries for operational directors/ owners must be agreed by all parties prior to commencement and will only take affect 3 months after opening date."
- There had been reference to the Scotch's ownership during discussions at a coffee shop in Dover Street which took place following a visit to the Scotch premises during, it would seem, October 2011. Mr Achom, Mr Nicholl, Mr Lalic and Mr Papazyan were all present. Mr Achom said relatively little about the meeting in his evidence, but Mr Nicholl's recollection was that there was reference during the discussions to the business being split on a 50:50 basis between, on the one hand, Mr Lalic and Mr Papazyan and, on the other, Mr Achom and himself. Mr Lalic and Mr Papazyan did not, Mr Nicholl said, dissent. For their part, Mr Lalic and Mr Papazyan spoke in evidence of a "sales pitch" by Mr Achom.
- Early in November 2011, Mr Achom and Mr Nicholl exchanged emails about what stake the latter should have in the Scotch. On 8 November, Mr Achom referred to Mr Nicholl buying a 10% interest for £112,500 and receiving "a further 5 % sweat equity" from Mr Achom. In response, Mr Nicholl said that what was proposed was "slightly different to how [he] had personally believed the company make up would be, based on a couple of other previous discussions" and suggested "approx 7.5 – 9% in sweat equity". Mr Achom and Mr Nicholl both noted that the amount of "sweat equity" Mr Nicholl was to have had not really been discussed before, and agreement was reached between the two of them on a 7% figure.
- Mr Achom had already, it appears, agreed with Mr Grant that he (Mr Grant) should have a 6% share in the Scotch. Mr Grant explained the position as follows in his witness statement:
"[I]n or around mid-October 2011 … I agreed with Mr Achom that in exchange for me providing monies to invest in the Venture …, he would hold 5% out of his 50% equity in the Venture as nominee/trustee for me. In addition, in return for me agreeing to introduce to the Venture as potential clientele my said connections in the British rock and 'indie' band scene, Mr Achom would hold a further 1% of his equity in the project as nominee/on trust for me."
- Early in November 2011, Mr Achom, Mr Lalic and Mr Papazyan met two people from PricewaterhouseCoopers ("PwC"), following which one of them, Mr Bob Singh Sagoo, sent Mr Achom and Mr Lalic a note outlining their "proposal for structuring your proposed business venture". The document stated by way of background:
"There are 2 separate parties entering into a business venture to acquire and operate night club and bar business in London."
Mr Achom said in evidence that Mr Sagoo had been asked to consider, not just the Scotch, but the possibility of further ventures being undertaken jointly. Matters were not, however, progressed with PwC. Mr Achom spoke of the proposal just fading into the background.
- Mr Achom sent Mr Lalic versions of his business summary on 9 and (apparently) 23 November 2011. Both emails contained text similar to that quoted in paragraph 31 above. Mr Lalic and Mr Papazyan said in evidence that they did not know how to react. According to Mr Lalic, what they received was a "big shock". Mr Lalic consulted his sister and friends. One of them, a Dr Samir Bhatt, while not disputing that Mr Achom's approach was technically viable, referred to the "proverbial wool" having been pulled over Mr Lalic's eyes. Mr Papazyan said in evidence that he expressed the view that Mr Achom had to be challenged, but that it was very difficult when Mr Achom was already working in the venue.
- It was arranged that Mr Lalic and Mr Papazyan would meet Mr Achom for dinner at the China Tang Restaurant in the Dorchester Hotel. The meeting took place on 28 November 2011, with Miss Futatsuka present for the latter part of it. In the course of the evening, there was discussion of the Scotch, of Gaslight and of the possibility of Mr Lalic and Mr Papazyan (or Alula) investing in Jalouse. The extent (if any) to which Mr Achom should have "sweat equity" was hotly debated. Mr Lalic and Mr Papazyan were averse to Mr Achom having any (and, in particular, 33%) "sweat equity" and concerned to define what he should have to do in return for any he was allowed. In contrast, Mr Achom was insistent that he was entitled to 33% "sweat equity". It was not an enjoyable occasion. Mr Lalic said in evidence that it was a very long and frustrating meeting, Mr Papazyan said that ultimately he just wanted the meeting to end. Miss Futatsuka had the impression that an agreement was finally achieved, but there is no consensus as to what the terms might have been. Pressed in cross-examination, Miss Futatsuka reckoned that it was agreed that Mr Achom would have "sweat equity" of around 3-5%. Mr Achom, on the other hand, maintains that Mr Lalic and Mr Papazyan accepted that he should have 33% "sweat equity" in the Scotch, but that the position would be different with Gaslight. Mr Lalic said that he and Mr Papazyan had agreed in principle to Mr Achom having a small percentage of "sweat equity" (perhaps 5%), but subject to written agreement and to terms being settled as regards Gaslight. Mr Papazyan's recollection was that Mr Lalic had proposed that Mr Achom should have a small level of "sweat equity", but that any such arrangement would be linked to Jalouse and Gaslight as well as the Scotch and would need to be documented. He thought that Mr Achom had muttered something and walked away. He also described the meeting as "more of an argument".
- On 2 December 2011, Mr Lalic sent Mr Achom a text in which he said:
"We have accepted terms on the scotch. [T]he gaslight have to be done differently as at the moment we don't wish to put that amount of money in for gaslight."
In a text to Mr Achom of 9 December, Mr Lalic said:
"we have already made a big compromise on scotch."
- On 6 December 2011, Mr Lalic had sent Mr Achom an email detailing the sums that the defendants had so far paid in relation to the Scotch. The total was given as £606,000. Up to this point, Mr Achom had himself made only one payment: of £5,220 to Interior Desires on 5 October. When Mr Lalic forwarded a contractor's invoice for £24,000 to him on 12 December, Mr Achom asked Mr Nicholl to pay on the basis that it would "go towards your investment to the project", and Mr Nicholl did so. On 22 December, Mr Achom asked Mr Nicholl to deal with an invoice from Interior Desires, and Mr Nicholl made a payment of £67,367.28. At much the same time, Mr Lalic raised a number of queries relating to Jalouse with Mr Achom.
- At the end of December 2011, Mr Lalic and Mr Nicholl met, at Mr Lalic's instigation, at the Lanesborough Hotel in London. Mr Lalic was concerned about costs. Between them, Mr Lalic and Mr Nicholl prepared a schedule with columns headed "Tim [Lalic] Paid" and "Alex [Nicholl] Paid". The latter column showed the sums of £24,000 and £67,367.28 that Mr Nicholl had paid.
- The Scotch opened for business on 19 January 2012.
From the opening to acrimony
- Just as the Scotch opened, plans to buy Gaslight foundered. In an email of 19 January 2012, someone acting for Mr Smart told Bower & Bailey:
"We have had enough of your clients.
The contract is now at an end (but without prejudice to our rights against your clients)."
As a result, the defendants lost a deposit they had paid. In evidence, they were inclined to blame Mr Achom for failing to come up with money that they had expected him to provide for the purchase. On 20 January, however, the defendants nonetheless made payments totalling £150,000 to Mr Achom in respect of their proposed acquisition of an interest in Jalouse.
- At this stage, Mr Achom and associates of his had a high degree of control over the day-to-day running of the Scotch. Mr Nicholl was described as "managing director"; Mr Hoffelner was the Scotch's "Designated Premises Supervisor"; Mr Piers Walker, who oversaw marketing at Jalouse, became the Scotch's public relations manager; and Miss "Pinky" Laing, a longstanding friend of Mr Nicholl who also knew Mr Achom, became events coordinator at the Scotch. Mr Lalic and Mr Papazyan found that they could not necessarily gain admission for their guests. Mr Walker explained that guests of Mr Lalic had been turned away on several occasions because they were "not right" for the club. When a party for Stella McCartney was held at the Scotch, guests of Mr Papazyan were not allowed in. There were occasions when Mr Papazyan himself had to stand outside the club while security staff checked whether he should be let in.
- The parties exchanged lists of payments they had made in connection with the Scotch. In April 2012, Mr Lalic sent Mr Achom a document detailing payments totalling about £657,000. In an email to Mr Achom of 31 March, Mr Lalic had observed:
"we have continuously through the period been paying for additional expenses including the rent, this was all supposed to be split between the partners. I have injected approximately 100k additionally."
The defendants were able, however, to recoup nearly £90,000 of their expenditure as a result of VAT repayments made to Alula and Great Club.
- On 3 February 2012, Mr Achom had sent Mr Lalic an email in which he gave the following information under the heading "Freddie investment to date":
"Interior Desires (Initial Design fee) - £5,000
Neon Sign - £9,000
Furniture - £900
Cash for opening - £3,000
Waitress' outfits - £1,800
Link - £30,000
Link £24,000
Pam Hogg Fees (party) - £2,500
£76,200"
- I mentioned the £5,000 (or, more precisely, £5,220) payment to Interior Desires in paragraph 39 above. No substantial issue now seems to arise, either, as regards the £1,800, £30,000, £24,000 or £2,500 items. The £30,000, £24,000 and £2,500 payments were made at Mr Achom's behest by Mr Grant to, respectively, Link2Build Limited ("Link") (a contractor that carried out work at the Scotch site), Interior Desires and a Miss Pam Hogg (who was also paid the £1,800 for waitress outfits). With regard to the £9,000 for "Neon Sign", Mr Lalic and Mr Papazyan accept that Mr Achom provided a neon sign and that Mr Achom has supplied an invoice for $14,800 in respect of it, but they question why Mr Achom has not produced evidence of actual payment. As for the £900 for furniture, Mr Achom said that he had bought the relevant items at a French market. Mr Lalic queried what furniture was referred to, but he noted the small amount involved and said that it was not really an issue. So far as the £3,000 is concerned, Mr Achom explained that he had provided a cash float of this amount when the Scotch opened. Mr Lalic considered this item "ridiculous": the defendants admit that a float of £200-250 would have been required, but take issue with the balance of the £3,000.
- In emails to Mr Lalic of 12 September 2012 and 10 January 2013, Mr Nicholl explained that he had made payments totalling £112,065.08 (including the two payments mentioned in paragraph 39 above) in relation to the Scotch. Mr Nicholl also noted that all the relevant invoices had been "transferred to Great Clubs" as a result of which Great Club had recovered VAT of about £19,000. As I understand it, the defendants do not dispute that Mr Nicholl made the payments listed. During the oral evidence, it was suggested that Mr Nicholl's net outlay might fall to be reduced by reason of a VAT repayment of some £5,700 to Haycro, but Mr Nicholl said in his 10 January email to Mr Lalic that this money had been used to reimburse him for other expenditure. There may be issues between the parties as to whether other payments alleged to have been made to Mr Nicholl should also be taken into account.
- By March 2012, Mr Nicholl and Mr Grant were keen to have shares in their own names. On 13 March, Mr Achom emailed Mr Lalic to say:
"Lets arrange for the stock transfer of the great club ltd shares this week and then we can draw up agreements over the next few.
Let me know if you can do that and I will inform Anthony [Grant] and Alex [Nicholl] immediately."
Mr Lalic, however, replied that it was necessary to "do an agreement before the transfer", that the "position on Jalouse" needed to be finalised and that he "didn't want to rush this as there are still many aspects that need to be addressed". Mr Achom insisted that he would "not sign any agreement until the shares are allocated as has been agreed", but Mr Lalic said that he had "mentioned so many times about doing the agreement". He also said:
"I have no problem in transferring share in the value of the investment that you have put in but there is no way that I will transfer the additional shares without a agreement in place."
In a subsequent email, Mr Lalic said:
"I think that the best would be that we meet today or tomorrow with our lawyers and either find a common ground [or] we go our separate ways and terminate the partnership."
In his response, Mr Achom reiterated that, in his view, shareholder agreements are "for the operations and various individual roles within the business and not for allocations of already agreed shares".
- At the end of March 2012, the parties agreed to go their own ways. The defendants decided not to proceed with any investment in Jalouse and asked for the return of the £150,000 they had paid. As regards the Scotch, Mr Lalic explained that the defendants could "immediately buy out the involved partners" or sell to Mr Achom. By 30 March, Mr Achom was referring in an email to Mr Lalic to "our agreement to buy you out of The Scotch".
- Work on such a buy-out proceeded for some time. In May 2012, Bower & Bailey prepared draft documentation. Soon afterwards, however, negotiations broke down.
- By this stage, an adjudicator had decided, on 18 May 2012, that Haycro should pay £30,616 plus interest to Link. Following this, steps were taken for a newly-incorporated company called Storm Lux Limited ("Storm Lux"), whose only shareholder and director was linked to the defendants, to replace Haycro as the operating company for the Scotch. By an agreement dated 30 July, Storm Lux was granted the right to operate the club. Haycro was put into creditors' voluntary liquidation on 20 November with an estimated deficiency as regards creditors of £260,369. Its main creditors were identified as Jalouse, HM Revenue & Customs, Great Club and Link.
- On 21 September 2012, Mr Lawrence Power, Alula's counsel before me, served on behalf of Mr Lalic and Mr Papazyan a notice purporting to dissolve "the partnership relating to 'The Scotch'". The notice recited that a partnership had been formed "in or around November 2011" between Mr Achom, Mr Lalic, Mr Papazyan and Mr Nicholl "to open and operate The Scotch". The notice proceeded to state that the "partnership" was dissolved as of 21 September 2012. Mr Achom was also banned from attending the Scotch at this point.
- Miramar Legal responded on behalf of Mr Achom and Mr Grant by a letter dated 24 September 2012. They disputed the validity of the notice of dissolution, stating that there "is not and has never been any partnership". They went on to say that "Mr Achom, Mr Nicholl and Mr Grant are 50% shareholders in the company which is the proprietor of the leasehold interest in the premises trading as 'the Scotch Bar'."
Subsequent events
- Mr Nicholl continued to work at the Scotch until February 2013. In an email of 7 January, Mr Nicholl told Mr Lalic that it would be great to have "a first offer for my investment, shares, work to date etc" and a "working offer for going forward in 2013". On 10 January, Mr Lalic made Mr Nicholl an offer of £145,000 and suggested that they discuss the level of salary he would want. Mr Nicholl replied that he would accept a payment of £195,000. Further email correspondence ensued, in the course of which the amount on offer to Mr Nicholl appears to have been reduced to £120,000. No agreement was achieved.
- A little earlier, on 12 November 2012, Alula, Great Club, Mr Lalic and Mr Papazyan had entered into an agreement with a company called Heaven Holding Limited ("Heaven") under which Heaven was granted an option to buy for £650,000 80% of the issued capital of Great Club and of a company Alula was to incorporate. Heaven is understood to be owned by a Mr Carl Hirschmann, who is associated with the "Le Baron" nightclub brand.
- A company called Hartanak Limited ("Hartanak") was formed on 3 December 2012 to be the new company for which the option agreement provided. Mr Lalic and Mr Papazyan were initially the only directors and shareholders. Heaven having, however, chosen to exercise its option, 80 of Hartanak's 100 issued shares were transferred to Heaven on 19 December 2012. 80% of Great Club's shares were also transferred to Heaven.
- On 14 February 2013, the head landlord of the Scotch (viz. Milestone Investments Limited) granted Hartanak a 20-year lease of the club. Both the existing head lease and the underlease held by Great Club were surrendered. At this stage, the Scotch closed for a short period for refurbishments. It reopened as "Le Baron at the Scotch of St James".
- Mr Achom had issued the present proceedings on 4 December 2012. On 14 January 2013, he applied for injunctive relief against the defendants, but the application was dismissed by Floyd J on 21 January. Mr Nicholl was added as a claimant in September, and Mr Grant was joined as the third claimant in November.
- In November 2013, Mr Lalic and Mr Papazyan presented an unfair prejudice petition in respect of Hartanak. By March of this year, it had been agreed that Heaven would transfer its shares in Hartanak to Mr Lalic and Mr Papazyan in return for payments totalling £930,000 over a two-year period. I gather that Heaven has not yet signed the agreement, but the Scotch has now reopened as "The Scotch of St James". On the face of it, Mr Lalic and Mr Papazyan stand to become the sole owners of the company holding the lease of the Scotch.
- Storm Lux went into creditors' voluntary liquidation on 14 June 2013. Its statement of affairs disclosed a deficiency as regards creditors of £67,637. £16,000 was shown as owing to Great Club and £21,138 to HM Revenue & Customs.
- The £150,000 paid to Mr Achom in January 2012 in connection with Jalouse has not been returned.
- It is common ground that any questions of quantum do not fall for determination at this stage. If necessary, they should be the subject of an inquiry.
The contractual claims
Legal principles
- Legal principles of relevance to the contractual claims are apparent from the decisions of Bingham J and (upholding him) the Court of Appeal in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601. When deciding whether a contract was formed, the Court is not concerned with what the parties may subjectively have intended. The Court's task is rather "to review what the parties said and did and from that material to infer whether the parties' objective intentions as expressed to each other were to enter into a mutually binding agreement" (Bingham J, at 610). There can be no binding agreement for so long as the parties "have not reached agreement on terms which they regard as essential to a binding agreement", and "it is open to parties by their words and conduct to make clear that they do not intend to be bound until certain terms are agreed, even if those terms (objectively viewed) are of relatively minor significance" (Bingham J, at 611). On the other hand, the parties "may by their words and conduct make it clear that they do intend to be bound, even though there are other terms yet to be agreed, even terms which may often or usually be agreed before a binding contract is made" (Bingham J, at 611). "[T]he more important the term is the less likely it is that the parties will have left it for future decision", but "there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later" (Lloyd LJ, with whom O'Connor and Stocker LJJ agreed, at 619).
The present case
- Although the claimants allege a series of contracts or understandings, the contractual claims depend, I think, on their establishing that a contract was concluded (a) in September 2011 or (b) when Mr Achom, Mr Lalic and Mr Papazyan met at the China Tang restaurant on 28 November 2011.
- With regard to the former possibility, the claimants' case is in broad terms that by 28 September 2011 Mr Achom, Mr Lalic and Mr Papazyan had entered into a contract under which, if Great Club was purchased from Mr Smart, Mr Achom would have a 50% interest in the venture (including Great Club's shares) and Mr Lalic and Mr Papazyan would between them be entitled to the other 50%. Mr Lalic and Mr Papazyan would pay sums equal to half the projected value of the Scotch in return for their stake. For his part, Mr Achom would be obliged to pay 17% of the projected value (i.e. just more than a third of what Mr Lalic and Mr Papazyan were to contribute) and would receive the balance of his 50% share because he was contributing "sweat equity". The claimants maintain that the emails Mr Achom and Mr Lalic exchanged on 28 September evidence an agreement that had already been reached orally or, if there was as yet no binding agreement, constituted one.
- Support for the claimants' case is to be found in evidence given by Mr Achom. His view was that he had reached agreement with Mr Lalic and Mr Papazyan before 28 September 2011. Mr Achom attributed the fact that he was not going to have to provide as much funding as Mr Lalic and Mr Papazyan to the value of the contacts and kudos that he was bringing to the venture: "sweat equity", Mr Achom explained, would have been required by any club owner and was in any event discussed with Mr Lalic and Mr Papazyan. Mr Achom said that, while a formal shareholders' agreement might have been needed at some point, the parties proceeded on the basis that that could come later.
- Mr Richard Fowler, who appeared for the claimants, also sought support for their case in the way in which, during September 2011, Mr Lalic consulted Mr Achom and forwarded him information relating to the Scotch. Mr Fowler relied, too, on the terms of the 28 September emails (as to which, see paragraph 23 above), and he made the point that there is no evidence that Mr Lalic dissented at the time from the contents of Mr Achom's email. Mr Fowler further argued that the parties' conduct following the acquisition of the Scotch lends support to the submission that a binding agreement had already been concluded.
- Mr Lalic and Mr Papazyan, in contrast, disputed that matters had got as far as a concluded agreement. Their position was essentially that they anticipated that Mr Achom would or might become a co-venturer but that no agreement to that effect was achieved by 28 September (or, in fact, ever). Mr Achom, they said, was a potential investor or business partner. They hoped to arrive at an agreement with Mr Achom, but did not do so. The terms were never defined, and they would in any event have wanted any agreement to be embodied in writing. "Sweat equity" had been referred to, but not discussed in detail, and the first time figures were set out was in Mr Achom's 28 September email. Mr Papazyan said that he never even saw this email at the time, and Mr Lalic explained his response to it as meaning no more than "I'll let you know if contracts are exchanged." Mr Lalic pointed out that, on 28 September, he was very busy.
- On balance, it seems to me that no contract was concluded in September 2011. I accept that Mr Lalic and Mr Papazyan saw Mr Achom at that stage as no more than a potential co-venturer, and it appears to me that a reasonable observer would have taken the same view. While the parties had evidently spoken about the basis on which they could join forces, it is striking that no emails, texts or other written communications dealt with the terms of such a deal before 28 September. It is noteworthy, too, that neither Bower & Bailey nor any other lawyers were instructed to advise on or document such an arrangement. Reference was made to evidence that Mr Papazyan gave to the effect that the business culture in Armenia and Eastern Europe is "primarily on trust", but (a) Mr Lalic and Mr Papazyan have entered into written documentation in respect of their own relationship and (b) they hardly knew Mr Achom in September 2011 and so are less likely to have left matters to trust. Moreover, even Mr Achom's 28 September email cried out for clarification on important points. For instance, what was Mr Achom to have to do to earn his "sweat equity"? Did he have to earn it by his own efforts or could he share the "sweat equity" with, or otherwise involve, other people? How far was he to be able to charge for services that he or those associated with him performed? When were the parties to provide their financial contributions? To what extent (if any) were the parties to be obliged to make available additional funding if the £520,000 mentioned in the 28 September email turned out to be insufficient? What was the position to be if, for one reason or another, it proved to be necessary or desirable to re-sell the Scotch premises quickly, before (say) Mr Achom had supplied any finance or much "sweat"?
- As to the last of these points, Mr Fowler said that, had there been a supervening event on, say, 4 October 2011 that prevented the parties from pursuing their plans for the Scotch, Mr Achom would still have had a 50% stake and so been able to claim 50% of the assets of the venture. In effect, Mr Achom would have become entitled to half of the money that the defendants had paid. As Mr Lalic and Mr Papazyan stressed, that would have made no commercial sense. As Mr Papazyan said in evidence, why would he have given his family funds to someone else for free?
- I have not forgotten the evidence of Mr Lalic keeping Mr Achom informed and consulting him about the purchase of the Scotch site. To my mind, however, Mr Lalic's behaviour is explained by the fact that he expected that Mr Achom would become a co-venturer in due course. That expectation also accounts for conduct post-acquisition.
- Turning to the meeting at the China Tang restaurant on 28 November 2011, Mr Lalic spoke afterwards of having "accepted terms on the scotch", and Miss Futatsuka had the impression that the parties had eventually arrived at an agreement. On the other hand, I do not think that Mr Achom will have meant to accept "sweat equity" of no more than 5% (he insisted that he was entitled to 33% "sweat equity" both before and after the China Tang meeting, and he had already agreed to give Mr Nicholl and Mr Grant "sweat equity" in excess of 5%), and I accept Mr Lalic's and Mr Papazyan's evidence (which derives support from Miss Futatsuka's) that they were not prepared to offer more than 5%. The likelihood is, I think, that the meeting ended without a true agreement, looking at matters either subjectively or, more importantly, objectively. The meeting was "more of an argument" (as Mr Papazyan said), and Mr Achom did not agree to take 5% "sweat equity" when he muttered something at the end of the meeting. In any case, a reasonable observer with knowledge of the context would have concluded that the arrangements between the parties (including the extent, if any, to which matters relating to the Scotch were tied to the proposals for Gaslight and Jalouse) remained to be fully defined and committed to writing. Viewed objectively, the parties had not yet settled all the essential terms of their agreement.
- Mr Fowler understandably stressed the texts that Mr Lalic sent following the China Tang meeting in which he referred to having "accepted terms on the scotch" and "made a big compromise on scotch" (see paragraph 38 above). Mr Lalic was, however, proceeding on the basis that he and Mr Papazyan had agreed in principle to Mr Achom having a small amount of "sweat equity" with the Scotch. Even that was, as Mr Lalic and Mr Papazyan saw things, a "big compromise", and Mr Lalic was concerned to emphasise that they were not prepared to agree to any "sweat equity" with Gaslight. Mr Lalic did not mean (and, in the context, a reasonable observer would not have understood him to mean) that a binding agreement had already been concluded, and Mr Papazyan was not even aware of Mr Lalic's texts at the time. In any case, the parties were at cross-purposes: the terms that Mr Lalic and Mr Papazyan perceived themselves to have accepted (in principle) involved "sweat equity" of no more than 5%, but Mr Achom did not consider himself to have settled for that: he still felt himself to be due 33% "sweat equity".
- In the circumstances, the claimants' contractual claims must fail. I do not think a binding contract ever came into being between Mr Achom and any of the defendants.
The partnership claim
- The conclusion I have just arrived at indicates the answer to another of the claimants' claims: that based on partnership.
- It is the claimants' case that, whether or not an effective contract was concluded between the parties, a partnership arose between Mr Achom, Mr Nicholl, Mr Lalic and Mr Papazyan. The contention is the more plausible because Mr Lalic and Mr Papazyan themselves asserted the existence of such a partnership when they served notice of dissolution in September 2012 (albeit that solicitors acting for Mr Achom and Mr Grant promptly denied that there had ever been a partnership). Other references to "partners" and "partnership" can also be found in the documents. The email from Mr Lalic quoted in paragraph 49 above provides an example.
- On the other hand, partnership depends on agreement. While partnership is "more than a simple contract", it is "a consensual arrangement based on agreement" (Lord Millett in Hurst v Bryk [2002] 1 AC 185, at 194). Co-ownership need not be the result of agreement, but "[p]artnership is" (to use words of Lord Lindley quoted in Lindley & Banks on Partnership, 19th ed., at paragraph 5-08). In McPhail v Bourne [2008] EWHC 1235 (Ch), Morgan J noted (at paragraph 256) that "it is a precondition to the existence of a partnership that there is a binding contractual relationship between the parties". If I am right in thinking that no binding contract was concluded between the parties, no partnership can have come into being either.
- In any case, the joint venture arrangement that the parties had in mind would not, as it appears to me, have involved a partnership. As I see it, Lindley & Banks on Partnership must be right that, "whilst it can properly be said that all partnerships involve a joint venture, the converse proposition manifestly does not hold good" (see Lindley & Banks on Partnership, 19th ed., at paragraph 5-06). In the present case, the idea was for the co-venturers to operate through a corporate structure which, in my view, would not have featured a partnership relationship.
- The partnership claim accordingly fails. I would add that, since the parties do not appear to me to have finally settled the terms of any agreement, I find it difficult to see how I could have determined the parties' respective rights and obligations as partners had I been persuaded that there was a partnership.
Procuring breach of contract
- It is convenient to deal at this stage with the allegation made by the claimants that Mr Lalic and Mr Papazyan procured Alula to breach a contract with Mr Achom and Mr Nicholl. The short answer to this suggestion is that no contract was concluded between Alula and Mr Achom or Mr Nicholl. There can therefore be no question of Mr Lalic or Mr Papazyan having committed the tort of procuring a breach of contract.
The Pallant v Morgan equity claim
- The claimants contend that, if no binding contract was concluded, a "Pallant v Morgan equity" arose. The equity takes its name from the decision of Harman J in Pallant v Morgan [1953] Ch 43.
- Lewison J summarised the principle briefly in these terms in Kilcarne Holdings Ltd v Targetfellow (Birmingham) Ltd [2004] EWHC 2547 (Ch) (at paragraph 219):
"Essentially, the principle is that (i) if A and B agree that A will acquire some specific property for the benefit of A and B, and (ii) B, in reliance on A's agreement, refrains from attempting to acquire the property, then equity will not permit A, when he acquires the property, to keep it for his own benefit, to the exclusion of B."
- The ingredients of a Pallant v Morgan equity were spelled out more fully in Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372. As Chadwick LJ there explained (at 398):
"It is necessary that, in reliance on the [pre-acquisition] arrangement or understanding, the non-acquiring party should do (or omit to do) something which confers an advantage on the acquiring party in relation to the acquisition of the property; or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms. It is the existence of the advantage to the one, or detriment to the other, gained or suffered as a consequence of the arrangement or understanding, which leads to the conclusion that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself, in a manner inconsistent with the arrangement or understanding which enabled him to acquire it."
- In the present case, the claimants' case is that there was an understanding that Great Club would be acquired for the benefit of Mr Achom as well as the defendants and that, in reliance on that, he (Mr Achom):
"to his detriment refrained from making his own bid for or seeking to acquire the Underlease of the premises or the Company [i.e. Great Club] for himself exclusively or otherwise competing with the Defendants or any of them in relation to the acquisition of the Underlease of the Premises or the Company".
- Mr Achom said in a witness statement that, if he had not thought that he had a binding agreement with Mr Lalic and Mr Papazyan, he would have sought to acquire Great Club himself or with other co-investors. I have not, however, been persuaded on this point. Several factors lead me to conclude that Mr Achom would not have attempted to buy Great Club (or its lease of the Scotch premises) independently of the defendants.
- In the first place, the claimants have not established that Mr Achom could have arranged the requisite funding. While Mr Achom estimated his net worth at £10 million, he did not show that he had the liquid resources necessary to undertake a purchase of Great Club (or its lease) in the autumn of 2011. Such evidence as there is casts doubt on Mr Achom's liquidity at the time. He committed relatively little money to the Scotch in the event; the money that Mr Lalic and Mr Papazyan expected Mr Achom to provide for the purchase of Gaslight was not forthcoming; and Mr Aderinokun explained that it was not until recently that Jalouse had discharged a debt to Interior Desires that had been outstanding since January 2012. Mr Nicholl said in a witness statement that he would have been happy to participate as an investor, but the money he provided for the Scotch venture, even if aggregated with that supplied by Mr Grant, would not have been sufficient to meet just the initial acquisition costs, let alone the costs of refurbishing the premises.
- A second point, compounding the first, is that there would have been very little time for Mr Achom to arrange a bid. Mr Achom first viewed Director's Lodge on 7 September 2011 and did not meet Mr Smart, Great Club's owner, before 20 September. Having funding in place, the defendants were nonetheless able to exchange contracts as soon as 28 September. It is not apparent that Mr Achom could have moved with comparable speed. Further, Mr Achom cannot have refrained from seeking to buy on the strength of an understanding with the defendants prior to the date on which any such understanding came into being, and I should not have thought that could have been before mid-September.
- Thirdly, I doubt whether Mr Achom would have had an appetite for attempting to acquire Great Club (or its lease) independently of Mr Lalic and Mr Papazyan. There is no evidence that he was anyway looking for the opportunity to buy another club, and, had he sought to buy Director's Lodge (or its lease) without the defendants, he could have faced the prospect of competing with them (and potentially pushing the price up). It is also open to question whether Mr Achom would have felt it appropriate to pursue Director's Lodge when he had only learned of it through the defendants.
- In short, the claimants have not proved that Mr Achom acted to his detriment as alleged (or to the benefit of the defendants) on the basis of the alleged understanding, and the claim that a Pallant v Morgan equity arose must fail for that reason.
The proprietary estoppel claim
- Next, the claimants advance a proprietary estoppel claim.
- As Lord Walker noted in Thorner v Major [2009] UKHL 18, [2009] 1 WLR 776 (at paragraph 29), proprietary estoppel depends on three main elements:
"a representation or assurance made to the claimant; reliance on it by the claimant; and detriment to the claimant in consequence of his (reasonable) reliance".
- In the present case, it is essentially alleged that the defendants represented to the claimants that they (the claimants) would have a 50% interest in the Scotch venture; that the claimants relied on that representation by making financial contributions as well as in other ways; and that they suffered corresponding detriment. The defendants, however, deny that any proprietary estoppel has been made out.
- Mr Lawrence Power, who appeared for Alula, placed at the forefront of his argument the decision of the House of Lords in Cobbe v Yeoman's Row Management Ltd [2008] UKHL 55, [2008] 1 WLR 1752. In that case, a property developer had put a considerable amount of work into obtaining planning permission for a development in the expectation that the site would be sold to him. The trial judge took the view that the developer was entitled to relief on the basis of proprietary estoppel, but the House of Lords held otherwise. It was fatal to the claim that, "as persons experienced in the property world, both parties knew that there was no legally binding contract, and that either was therefore free to discontinue the negotiations without legal liability" (Lord Walker, at paragraph 91). The claimant "ran a commercial risk, with his eyes open" (Lord Walker, at paragraph 91). It is "not enough," Lord Walker explained (at paragraph 65), "to hope, or even to have a confident expectation, that the person who has given assurances will eventually do the proper thing". In the same case, Lord Scott said (at paragraph 18):
"Mr Cobbe's [i.e. the claimant's] expectation, encouraged by Mrs Lisle-Mainwaring [i.e. one of the defendants], was that upon the grant of planning permission there would be a successful negotiation of the outstanding terms of a contract for the sale of the property to him, or to some company of his, and that a formal contract, which would include the already agreed core terms of the second agreement as well as the additional new terms agreed upon, would be prepared and entered into. An expectation dependent upon the conclusion of a successful negotiation is not an expectation of an interest having any comparable certainty to the certainty of the terms of the lessees' interest under the Taylor Fashions option [i.e. the option at issue in Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd (Note) [1982] QB 133]."
Later in his judgment, Lord Scott said (at paragraph 27):
"Mr Cobbe did not spend his money and time on the planning application in the mistaken belief that the agreement was legally enforceable. He spent his money and time well aware that it was not. Mrs Lisle-Mainwaring did not encourage in him a belief that the second agreement was enforceable. She encouraged in him a belief that she would abide by it although it was not. Mr Cobbe's belief, or expectation, was always speculative. He knew that she was not legally bound. He regarded her as bound 'in honour' but that is an acknowledgment that she was not legally bound."
- Mr Power argued that the present case is comparable. The analogy is by no means exact, however, since I consider that Mr Achom and Mr Nicholl came to believe that they had already acquired rights in the Scotch venture. As I have indicated, it seems to me that, viewed objectively, the parties never arrived at a binding agreement. I do not think, though, that that was the subjective belief of either Mr Achom or Mr Nicholl. On balance, I accept Mr Achom's evidence that he perceived himself to have an existing right to a 50% interest (or, once Mr Nicholl had become involved, a 33% interest): it was enough, as he saw it, that the parties had metaphorically shaken on a deal, paperwork could follow later. As regards Mr Nicholl, I am not sure that the defendants quarrelled with the proposition that he saw himself as an owner (and I in any event so find). Mr Papazyan said that Mr Nicholl had thought that Mr Achom had entered into a written agreement and was "very shocked" when he discovered that that was not the case. Unlike Mr Cobbe, neither Mr Achom nor Mr Nicholl, in my view, "ran a commercial risk, with his eyes open".
- On the other hand, the Courts must beware of accepting proprietary estoppel claims too readily in commercial contexts. In the Cobbe case, Lord Walker referred (at paragraph 81) to "the general principle that the court should be very slow to introduce uncertainty into commercial transactions by over-ready use of equitable concepts such as fiduciary obligations and equitable estoppel". In Crossco No 4 Unlimited v Jolan Ltd [2011] EWCA Civ 1619, [2012] 2 All ER 754, Arden LJ said (in paragraph 133):
"For the law in general to provide scope for claims in respect of unsuccessful negotiations that do not result in legally enforceable contracts would, in my judgment, be likely to inhibit the efficient pursuit of commercial negotiations, which is a necessary part of proper entrepreneurial activity."
- In any case, it seems to me that the better view is that, as regards both Mr Achom and Mr Nicholl, the defendants did no more than represent that he would have an interest in the Scotch venture once terms had been finally settled and committed to writing. I do not consider that the defendants represented that Mr Achom and Mr Nicholl already had interests, let alone interests of 50%. To establish a proprietary estoppel, there must have been an assurance that was "clear enough" (Lord Walker in Thorner v Major, at paragraph 56). I do not think there was in the present case.
- I have commented above (paragraph 73) on the texts Mr Lalic sent after the China Tang meeting. In the period that followed, Mr Lalic did not reject the payments that Mr Achom, Mr Nicholl and Mr Grant made in connection with the Scotch. To the contrary, he expressed unhappiness about the extent of the bills that the defendants were having to meet. Such conduct is, however, explicable on the basis that the defendants anticipated that a contract would finally be concluded under which the claimants would have to share the bills. As Mr Lalic noted in a 14 March 2012 email, he had "mentioned so many times about doing the agreement". The defendants' position is reflected, too, in another of the emails Mr Lalic sent on 14 March: it was necessary to "do an agreement" before any shares were transferred to the claimants, the "position on Jalouse" needed to be finalised and there were "still many aspects that need to be addressed". It is perhaps also relevant to note that the defendants felt themselves to be in a very difficult position during early 2012: Mr Achom had taken control of the Scotch to a substantial extent and appeared to Mr Lalic and Mr Papazyan to be using the £150,000 they had paid in respect of Jalouse to exert pressure on them.
- Even if, contrary to the conclusion I have arrived at, there was a sufficiently clear assurance to provide a basis for a proprietary estoppel, I should not have thought it appropriate to award the claimants anything like 50% of the Scotch venture on the basis of 33% "sweat equity". That would be to force on the defendants an arrangement to which they did not mean to agree and which, objectively speaking, was not agreed.
- As it is, the proprietary estoppel claim fails.
The conspiracy claims
- The claimants allege that Mr Lalic and Mr Papazyan committed the tort of conspiracy. Two species of conspiracy are actionable. They can be referred to conveniently as "conspiracy to injure" and "unlawful means conspiracy". The ingredients of each were summarised by the Court of Appeal in Kuwait Oil Tanker Co v Al Bader [2002] 2 All ER (Comm) 271 (at paragraph 108). As the Court explained, conspiracy to injure:
"is actionable where the claimant proves that he has suffered loss or damage as a result of action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him, where the predominant purpose of the defendant is to injure the claimant".
Unlawful means conspiracy:
"is actionable where the claimant proves that he has suffered loss or damage as a result of unlawful action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him by unlawful means, whether or not it is the predominant purpose of the defendant to do so".
- The complaint in the present case stems from the way in which Great Club, whose shares were held by Alula, surrendered its lease of the Scotch and the new lease of the premises was granted to a company (viz. Hartanak) in which Alula had no shares. To date, Hartanak's shares have been held by Mr Lalic, Mr Papazyan and Heaven, and there is no suggestion that Alula has ever had any interest in them. Moreover, it is now proposed (see paragraph 59 above) that Heaven should transfer its shares in Hartanak to Mr Lalic and Mr Papazyan personally, not to Alula. This is of concern to the claimants since the defendants maintain that they acted on behalf of Alula in their dealings with the claimants and, hence, that any claim the claimants might have must be against Alula rather than against them as individuals.
- Mr Fowler sought to rely on both species of conspiracy. With regard to unlawful means conspiracy, he suggested that the requisite unlawfulness is to be found in the breach by Alula of an equitable obligation owed to one or more of the claimants. It follows, however, from the conclusions that I have arrived at earlier in this judgment that Alula did not owe such obligations to any of the claimants. As I have explained, I do not consider that any property was held on trust for any of the claimants or even that they have established a proprietary estoppel.
- Turning to the other type of conspiracy, conspiracy to injure, this requires a predominant purpose to injure. In Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435, Viscount Simon LC explained (at 445):
"It is enough to say that if there is more than one purpose actuating a combination, liability must depend on ascertaining the predominant purpose. If that predominant purpose is to damage another person and damage results, that is tortious conspiracy. If the predominant purpose is the lawful protection or promotion of any lawful interest of the combiners (no illegal means being employed), it is not a tortious conspiracy, even though it causes damage to another person."
- Mr Fowler focused his attack on the fact that the lessee of the new lease of the Scotch premises granted in February 2013 was Hartanak. Why, he asked, was the lease granted to that company rather than the previous lessee, Great Club? Mr Lalic and Mr Papazyan were both insistent, however, that the identity of the lessee had nothing to do with the claims advanced by the claimants and that they were not trying to harm the claimants' interests. They each said that attempts to obtain a new lease were being made well before Mr Achom instituted proceedings. Mr Papazyan's recollection was that Mr Hirschmann had been keen for the lessee to be a brand-new company, and Mr Lalic said that it was preferable to use a company with a known history. Great Club, he pointed out, had previously been owned by Mr Smart and so could have produced surprises. This seems to me to chime with evidence Mr Achom gave. According to my note, Mr Achom spoke when giving evidence on 9 May of having discussed with Mr Lalic and Mr Papazyan the possibility of replacing Great Club with another company "given concerns about Smart".
- In all the circumstances, the claimants have not established that the defendants acted with the predominant purpose of harming them. I accept that the decision to take the new lease in the name of Hartanak instead of Great Club was made for proper commercial reasons.
Restitution
- The claimants' fallback position is that they are entitled to restitutionary relief in respect of the money they paid in connection with the Scotch and also, as regards Mr Achom and Mr Nicholl, the services they provided in respect of the venture. The claims are pleaded as arising from essentially mistake, failure of consideration and free acceptance.
- At first sight, the claims have considerable appeal. It follows from what I have said earlier that Mr Achom and Mr Nicholl made payments and provided services in the mistaken belief that they had acquired rights in the Scotch venture, and Mr Grant mistakenly believed that Mr Achom held an interest as nominee/trustee for him. The defendants did not share the claimants' misconceptions, but they considered that payments were being made and services supplied in the expectation that a contract would be concluded, and restitutionary relief can be available where an anticipated contract fails to materialise as well as where a mistake has been made (see e.g. Goff & Jones, "The Law of Unjust Enrichment", 8th. ed., at chapter 16, and Cobbe v Yeoman's Row Management Ltd, especially at paragraphs 40-44 and 93).
- However, the defendants, through Mr Jerome Wilcox (who appeared for Mr Lalic and Mr Papazyan) and Mr Power, denied any liability to the claimants. Mr Wilcox did not elaborate on the reasons. One point that Mr Power made was that the defendants had previously offered to repay Mr Nicholl, but, no repayment having actually been made, I do not see how the fact that there was an offer in the past can negate any liability. Mr Power also submitted that, when Mr Grant made his payments, the defendants did not know that he was expecting to be involved in the Scotch venture. That is probably right, but I do not think the point is of real importance. It cannot of itself mean that the money is recoverable neither by Mr Grant nor by Mr Achom (whom Mr Lalic and Mr Papazyan understood to be making the payments).
- Mr Power further argued that, as regards all or most of the liabilities relating to the Scotch that the claimants discharged, there can be no claim because the relevant invoices were addressed to Haycro rather than to any of the defendants. This contention strikes me as flawed as well as unattractive. In all or some of the cases, the payments seem to have been made at the express or implied instigation of the defendants and to have absolved the defendants from the need to defray the expenses themselves. It is significant, too, that at least some of the relevant invoices were evidently "transferred to Great Clubs", enabling VAT to be recovered (see paragraph 47 above). Moreover, the payments for the most part related to work at the Scotch premises that will have accrued to the benefit of Great Club (as underlessee) and the defendants (as Great Club's direct or indirect owners). In fact, Mr Lalic and Mr Papazyan presumably continue to benefit from the work in question through their shares in Hartanak.
- As, however, I have mentioned, it is common ground that questions of quantification are not to be decided at this stage. All, therefore, that I can or should determine now is that the claimants are in principle entitled to restitutionary relief. If the parties cannot agree on its extent, there will need to be an inquiry to work out how much is due to whom.
Conclusion
- The claimants are in principle entitled to restitutionary relief in respect of payments made and services provided in connection with the Scotch venture. In the absence of agreement, I shall direct an inquiry to determine the extent of such relief. The other claims advanced by the claimants fail.
