Both sides seek silver lining in ongoing battle for control of London hotels

Dozens of lawyers filled the benches of the High Court last year when property developer Paddy McKillen went head-to-head with the billionaire Barclay brothers over control of three luxury London hotels.

Yesterday, by contrast, Court 69 in London's Royal Courts of Justice was near-empty, bar a filled press bench, when Lord Justice Rimer handed down the judgment of the Court of Appeal – one that came down strongly on the side of the Barclays.

By 2pm, however, the two sides were back in the same complex of buildings off the Strand – this time arguing over whether an entirely separate legal action initiated by the Barclays against McKillen should be heard in Dublin, or in London. That action will be heard in October, though any result will be challenged.

Meanwhile, McKillen must decide whether he will seek Supreme Court permission to appeal yesterday’s judgment, since the Court of Appeal refused him leave to do so.

So far, £20-£25 million in legal bills has been accumulated. McKillen has already paid £6 million of the Barclays’ bill; he will know how much more he will have to pay once the taxing master in London has inspected the bills lodged.

The Court of Appeal’s action costs for both sides – the latest phase in the war of attrition for control of Claridge’s, the Berkeley and the Connaught hotels – will be approximately £1 million, with McKillen having to pay four-fifths of it, the judges ruled yesterday.

However, he remains undeterred, insisting he will one day take control of the hotels' holding company, Coroin: "I will continue to fight the Barclay brothers by any legal means to protect our staff, guests, and our rights."

His words came in a statement that began with the headline: “Court of Appeal confirms that McKillen can call for Derek Quinlan’s shareholding to be offered to the other shareholders, giving McKillen control of Coroin.”

However, the judgment from Lady Justice Arden, Lord Justice Moore-Bick and Lord Justice Rimer rejected every point that could have overturned last year's High Court ruling argued on his behalf by former Labour attorney general Lord Peter Goldsmith.

His interests had not been unfairly prejudiced, they said. Control over Quinlan’s shares had passed to the Barclays in 2011 but ownership had not – so pre-emption rights included in the shareholders’ agreement when the hotels were bought did not come into play.

'Cheshire Cat'
Lord Goldsmith had argued that Justice David Richards had been wrong last year on this point, saying that McKillen "has seen Quinlan's ownership over his shareholding disappear like the Cheshire Cat until only the smile is left".

Lady Justice Arden rejected his argument that the Barclays and Quinlan had not acted in good faith, saying that could not “impose a binding general obligation to act in a manner outside the terms of the shareholders’ agreement”.

In McKillen’s view, the Barclays have invested over £300 million in a company they will never be able to control permanently since Quinlan’s shares will have to be divided up once they finally come into play.

For now, there is no sign of that happening, since Quinlan is being funded by the Barclays, but McKillen clearly believes eventually it will – though that would require a volte-face by Nama, since it could have sought Quinlan’s bankruptcy before now and has not done so.

The next step for McKillen is to call a meeting of Coroin’s directors and propose that Quinlan’s shares are offered for sale to both himself and the Barclays proportionally – this which would give him majority control, if it happened.

Fiduciary duties
Since the Barclays control the board, this is a vote that he will lose. Then, he will have to decide if he can take a case in London arguing that the directors have failed in their fiduciary duties – though it would appear that he would first need Quinlan to default on a new debt.

The Barclays can argue that his near-€300 million debt to the Irish Bank Resolution Corporation – soon to be morphed into Nama – has become enforceable, an event that would trigger the sale of his shares in Coroin, if that was judged to be so by the courts.

Given that relations between McKillen and the Barclays are poisonous and that they agree on nothing, it was hardly surprising that a gulf existed between the two sides in how they interpreted yesterday’s ruling.

"This is a complete and total defeat for McKillen. He has had numerous judgments against him in this case and has lost every major point on which he has appealed," said Barclay director Richard Faber, who was one of those who gave evidence.

The short hearing in Court 69 yesterday was not the end of the war between the sides, even if it might looked like it was to observers. Months, if not years of legal wrangling lie ahead before the hotels will finally know their future.