Paddy McKillen loses appeal over Barclay brothers’ control of three London hotels

Property developer Patrick McKillen has lost the latest chapter in his battle with the billionaire Barclay brothers over control of three of London's top luxury hotels, following the court of appeal's decision in London to reject his most recent challenge.

The court ruled his rights had not been prejudiced by a September 2011 deal when the Barclays took control, but not ownership, of Irish financier Derek Quinlan's key shareholding in the Coroin hotel group, which owns Claridge's, the Berkeley and the Connaught.

The Belfast-born businessman has been ordered to pay 80 per cent of the approximately £1 million costs of the appeal – bringing the cost of the fight between the two sides to £25 million, sources said last night.

Mr McKillen has repeatedly argued that a proportional share of Mr Quinlan’s 35.4 per cent shareholding should have been made available to him to buy – which would have given him a majority 56 per cent stake in the company.

Rejecting Mr McKillen's argument, Lady Justice Arden said the transfer of control of the Quinlan shares was not irreversible and it was "theoretically" open to Mr Quinlan to pay off the €71 million borrowings belonging to him now held by a Barclay-owned company, Ellerman, even if that is "unlikely".

“All that was achieved was control,” she declared, adding the power of attorney ceded by Mr Quinlan to the Barclays was “much more limited” than Mr McKillen suggests: “In particular, the attorney had to act in Mr Quinlan’s interests.

"The fact that Mr Quinlan kept his arrangements with the Barclay interests secret from Mr McKillen cannot turn the arrangements into something which they were not in law already," said Lady Justice Arden, who was joined by Lord Justice Rimer and Lord Justice Moore-Bick.

Pre-emption not triggered
The pre-emption rules contained in the shareholders' agreement – which would have required a sale to the other shareholders – were not triggered, "therefore the making of that agreement cannot give rise to any complaint of unfair prejudice".

Mr McKillen’s arguments that obligations to act in good faith had been breached were also dismissed since, the judge said, it had never been put to Mr Quinlan when he gave evidence that he “had not acted honestly”.

Two of the judges, however, found that a 2005 charge held by Bank of Scotland (Ireland) against Mr Quinlan's debts had become enforceable in 2009 because Mr Quinlan only paid interest due 60 days after the bank made a demand.

However, the directors of Coroin did not issue a transfer notice within the one-month period laid down because they were not aware that Mr Quinlan had failed to honour the terms of the security in time, so Mr McKillen “therefore cannot complain about the failure to exercise that power”. Equally, Mr McKillen had had the opportunity to call a board meeting to demand action and did not do so then or since, said the judge.

Directors' decision
However, a meeting could be held now if securities on Mr Quinlan's debts become enforceable, said Lady Justice Arden, though directors could then decide the reasons for that happening were "trivial, or technical", not justifying action.

“The court should not express a view on how the directors should make their decision before they have met to do . . . The decision is for them to take in the first instance.”

Lord Justice Moore-Bick found “no proprietary interest” in Mr Quinlan’s shares had been transferred to the Barclays – which meant the pre-emption process had never been triggered. Regarding the 2005 charge on Mr Quinlan’s shares, the judge found “no act or omission of Coroin in consequence of the enforceability of this charge amounted to the conduct of its affairs in a way unfairly prejudicial to [Mr McKillen’s] interests”.