Avolon chief liable for over $10m to Friends First

Court of Appeal finds ‘sharp practice’ lead to clause being ‘slipped’ into deed

Domhnal Slattery: sued Friends First arising from the unsuccessful purchase of the St Regis Hotel in Washington. Photograph: Matthew Lloyd/Bloomberg

Domhnal Slattery: sued Friends First arising from the unsuccessful purchase of the St Regis Hotel in Washington. Photograph: Matthew Lloyd/Bloomberg

 

Mary Carolan

Avolon Airspace chief executive Domhnal Slattery is liable for more than $10 million to Friends First under a personal guarantee following a Court of Appeal finding that “sharp practice” lead to a clause being “slipped” into a deed which, unknown to the lender, removed that liability.

That sharp practice and “chicanery” entitled Friends First to rectification of the deed, the three-judge court said.

It also ruled Mr Slattery is not entitled to €100,000 damages awarded by the High Court to him against Friends First arising from its parent company, Achmea, having, just after Mr Slattery launched Avolon in 2010, told CVC Capital Partners, a key investor in Avolon, about Mr Slattery’s conduct of his dealings with Friends First.

  Mr Slattery, Ailesbury Road, Ballsbridge, Dublin, had sued Friends First arising from the unsuccessful purchase of the St Regis Hotel in Washington DC. 

His private equity firm Claret Capital Ltd and Friends First were part of a consortium which bought the hotel for some $180 million. To complete the deal, Friends First agreed to advance loans to two Claret Capital-related companies. Mr Slattery and other directors of Claret entered in 2008 into guarantees of a $14.05 million loan and also took personal loans, in Mr Slattery’s case for $1 million, from Friends First Finance. 

Mr Slattery later argued a clause in a deed of pledge of July 2009 meant Friends First recourse to him was limited to the value of his 265 shares held in an airline company, Jetbird. Friends First said it was unaware until 2010 of that clause and sought rectification.

The High Court found Mr Slattery knew that Leon Atkins, then general counsel with Claret Capital, intended to “slip the clause” into the deed “by sleight of hand”. Mr Slattery responded “Good thinking” to Mr Atkins’ suggestion of inserting the clause, Mr Justice Brian McGovern noted.

The actions of Mr Atkins and Mr Slattery prior to the deed being signed was to get it signed when it appeared clear the clause had been missed by Friends First, he said. The facts established a “unilateral mistake” by Friends First concerning the deed and it was entitled to rectification with the effect Mr Slattery and his fellow signatories were liable under the personal guarantee.

Dismissing Mr Slattery’s appeal, the appeal court said “sharp practice may be a charitable description” of the conduct of Mr Atkins in slipping the clause into the 2009 deed. It was clear Mr Atkins intended to mislead Friends First as to the contents of the deed and Mr Slattery expressly agreed to the draft of the clause sent to to him by Mr Atkins, Mr Justice Sean Ryan said.

The clear implications from Mr Atkins emails to Mr Slattery and his colleagues was the proposed clause did not belong in the deed and the guarantors confirmed that understanding, he said.

It was “significant” the clause was not “redlined” as was normal practise among experienced commercial lawyers, the judge added. The clause was “no more than a try-on” but it fooled the recipients to the surprise, but clearly “the full knowledge”, of Mr Atkins’ side.

The appeal court also granted Friends First cross-appeal against the High Court’s €100,000 award of damages to Mr Slattery after disagreeing with the High Court Friends First had engaged in “deliberate and conscious breach” of his right to confidentiality.

Given the finding Mr Slattery did engage in “some chicanery” in getting the clause into the deed, and had misled Friends First into executing a deed containing a vital provision to which the company had not agreed, he was not entitled to €100,000 damages because Friends First told others about that, Mr Justice Sean Ryan said.

The court disagreed with the High Court such information, even if true, was protected confidential material. Neither Mr Slattery nor Claret had an account with Friends First and the information Mr Van den Heuvel revealed, which was intended to damage Mr Slattery’s business reputation, concerned Mr Slattery’s conduct, he added.

While understanding why the High Court criticised Mr Van den Heuvel’s behaviour and disbelieved his claim the disclosure to CVC was justified on grounds of due diligence procedures, that did not give rise to a claim for damages in breach of confidentiality. The High Court had found Mr Van den Heuvel was acting as agent of Friends First in an effort to put pressure on Mr Slattery to agree to correction of the 2009 deed.