In Peak Hotels & Resorts Ltd v Tarek Investments Ltd & Others (2015) The Chancery Division of the High Court recently held that applications for a payment out of court/interim payment should be dismissed.
Peak Hotels & Resorts Ltd (“Peak”) owns and runs a chain of small luxury hotels and resorts in Asia, Europe and the Americas under the brand name Aman Resorts.
In January 2014, Mr Amanat (who through a family trust controls Peak) and Mr Doronin (who controlled Tarek Investments Ltd (“Tarek”)) together acquired Aman Resorts through Peak Hotels & Resorts Group Ltd, set up as a joint venture company (“the JVC”).
Approximately 65% of the shares in the JVC were held by Tarek with the remainder held by Peak.
In April 2014 Mr Amanat and Mr Eliasch (who controlled Sherway Group Ltd (“Sherway”)) agreed that Sherway would lend Peak $50 million (“the Loan Agreement”).
A number of related agreements were entered into including provision for 53% of the loan to be converted into shares in a new intermediate holding company, PHRL Holdings Ltd (“Holdings”) to hold Peak’s shares in the JVC. This arrangement would result in Mr Eliasch (through Sherway) acquiring an indirect interest in the JVC of about 14%.
The loan amount was drawn down in full on 2 April 2014 and Mr Eliasch replaced Mr Amanat as one of the 2 directors of the JVC. However, the envisaged new shareholding structure through Holdings was not implemented.
Almost as soon as the JVC was formed relations between Mr Amanat and Mr Doronin began to break down. Mr Amanat and Peak alleged that Mr Eliasch falsely represented to Mr Amanat that he was not a close friend or business associate of Mr Doronin and would safeguard and promote the interests of Peak in the conduct of the JVC’s business whereas in fact they were good friends and their intention had always been to pursue a strategy designed to exclude Peak and those connected with it, and to assume control of Aman Resorts.
These allegations were denied by Mr Doronin, Mr Eliasch and their respective corporate vehicles. Instead, they contended they had done their best to run the JVC and its business in the best interests of all shareholders but had been faced with a strategy of disruption in the running and financing of the business.
The court proceedings
On 25 June 2014 Peak issued proceedings seeking declaratory and injunctive relief and claiming damages for breach of contract. On 17 July 2014 it issued further proceedings against Sherway seeking rescission of the loan and related agreements and claiming damages for, inter alia, misrepresentation. The two sets of proceedings have since been consolidated.
The trial of this claim is scheduled for November 2015. In the meantime, various interim applications have been determined. One condition of one of those applications had been a requirement for Peak to pay the sum of $10m into court in support of an undertaking that it had given in respect of damages following the injunction application for any losses suffered by the Defendants. Peak now sought repayment of most of these funds pursuant to an application for payment out.
By way of cross-application Sherway sought payment of some of these funds to it pursuant to an interim payment application.
The payment out application
Peak sought the payment out of $9million on the basis that funds at this level were no longer necessary to be held in court for damages.
The application was opposed, the defendants contending that Peak had not crossed the legal threshold necessary to justify variation of an undertaking previously given to the court.
Peak disagreed. It stated there had been a significant change of circumstances since the order was made, it now being clearer, according to Peak, that the likely maximum sum that may ultimately be awarded in damages was substantially less than $10million payment into court.
This, said Peak, was due to the fact that there had been no delay on the progress of a project involving the opening of a new hotel in Tokyo.
The court did not accept that there had been a material change of circumstances. The court stated that Peak had previously argued the launch of the new Tokyo project would not be delayed by Peak’s actions as other funds were available (Peak’s injunction application being to prevent the JVC from calling for further capital monies), and so the opening of the project on time could not represent a material change of circumstances. Indeed, the court was not even satisfied that there had not been any delay with the project.
The court was further satisfied that the evidence submitted by the defendants regarding alleged heads of loss caused by the injunction was sufficiently plausible to render it impossible for any determination to be made at this stage that the undertakings would not be called upon in significant amounts.
In all the circumstances the court refused to grant Peak’s application for a payment out.
The interim payment application
Sherway sought an interim payment from Peak of circa $23,426,041 on the basis that this sum plus interest was the irreducible minimum it could expect to receive at trial.
By letter dated 17 July 2014 Peak gave notice of rescission of the loan and other agreements. Sherway submitted that although the court could not at this stage determine whether or not Peak was entitled to rescind the agreement, there was only 2 possible outcomes at trial – either Peak’s claim would succeed or it would fail. If it succeeded then whilst Peak would be granted a declaration that the loan agreement had been rescinded thereby relieving it of the obligation to transfer the JVC shares to Sherway, it would also be ordered to repay the $50million loaned to Sherway by way of “counter restitution”, subject to the issue of Peak’s claim for set-off in respect of damages.
On the other hand, if the claim fails, Sherway contended it would be entitled either to receive Peak’s JVC shares at 80% of fair value or to repayment of the 1st tranche of monies loaned with interest together, in either event, with repayment of the 2nd tranche of monies loaned.
Peak contended that the application was precluded in view of its set-off claim for damages and was not in any event an order that the court had power to make under the relevant court rules. In this respect, Peak contended that any sum payable would be due on the basis of “counter-restriction” following an order for rescission but that this sum could not be considered as an order for “judgment” in Sherway’s favour, as required under the rules for any interim payment to be ordered.
The court did not agree that it could treat a declaration of rescission given on terms that counter-restitution be made by the applicant for rescission as “judgment for” a sum of money “against” the applicant. Accordingly, it found that it did not have jurisdiction to order an interim payment on jurisdictional grounds.
As further clarity for dismissal of the application the court went on to hold that it was not satisfied, on the balance of probabilities, that Sherway would at trial obtain final judgment for a substantial amount of money from Peak. As such, even if the court was wrong on jurisdictional grounds, then it would not have made an order for an interim payment in any event.
The parties were invited by the court to agree consequential orders. Given that the court dismissed both applications the exercise was an expensive one for all concerned with no party successful in achieving any benefit. Nonetheless this litigation looks set to be vigorously contested right up to the trial in November.
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