Abbar & Anor v Saudi Economic & Development Company (Sedco) Real Estate Ltd & Ors

The court held that the claimant's case failed and the action was dismissed. The central legal issues were the proper construction of the Information Memorandum and the shares application form, the identification of the contracting parties, the existence (or not) of a contractual term requiring sale or investor exit within 12–18 months, and whether SEDCO or Arab Investments Limited (AIL) were principals or had procured breaches. The judge concluded that (i) the shares application formed a contract with SEDCO Real Estate Limited (Anguilla) whereby it agreed to procure allotment of Pinnacle Holdings Limited (PHL) shares; (ii) PHL could only be bound by such statements by way of a collateral contract or authorisation, but the Information Memorandum when read as a whole did not impose the alleged mandatory exit/sale obligation; (iii) there was no sufficient basis to treat SEDCO or AIL as undisclosed principals or to pierce agency from the degree of control; (iv) the inducing-breach claim failed for lack of knowledge that a contractual obligation would be breached; and (v) the misrepresentation claim in negligence under section 2 of the Misrepresentation Act 1967 lacked evidential foundation. The court also dealt with subsidiary points including Wrotham Park (negotiating) damages and the company law rule against unauthorised returns of capital, concluding that the pleaded contractual remedy would in any event raise illegality issues.

Background and parties. In 2007 Pinnacle Holdings Limited (PHL), an Anguilla company, issued an Information Memorandum and share application form to raise equity to acquire a City of London site (the Pinnacle). The first claimant, Dr Abbar, subscribed for shares on the basis of the documents. The stated objective in the marketing materials was acquisition, demolition and sale within an anticipated 1–1½ year holding period. The claim alleged breach of contract, inducing breach of contract, negligent misrepresentation (including under s.2 Misrepresentation Act 1967) and sought damages (including Wrotham Park damages) and exemplary damages.

Procedural posture. First instance trial in the Chancery Division. Claims in deceit and conspiracy were abandoned shortly before trial; the principal live causes were contractual breach, inducing breach, negligent misrepresentation and damages.

Issues the court framed.

• What contracts were formed by the share application and Information Memorandum, and who were the contracting parties?
• Whether the documents created a contractual term requiring sale or investor exit within 12–18 months or requiring unanimous investor consent for any longer holding period.
• Whether SEDCO or AIL were undisclosed principals or otherwise liable as principals, or whether they procured PHL or SEDCO Anguilla to breach any contract.
• Whether negligent misrepresentation was made and relied upon (s.2 Misrepresentation Act 1967).
• Quantum and remedies, including whether Wrotham Park damages or exemplary damages were available and whether any award would involve an unlawful return of capital.

Court’s reasoning and resolution. The judge construed the Information Memorandum and shares application form together. He found that (a) the application form contracted with SEDCO Real Estate Limited (Anguilla) which agreed to procure allotment of shares; (b) PHL could only be bound as to its conduct by a collateral contract or by authorisation of statements, but the Information Memorandum’s language of "anticipated" or "intended" holding periods and the contextual placement of those statements did not demonstrate an intention to create binding contractual obligations that the property be sold or that investors be given a forced exit within 18 months; (c) the unanimous-consent wording was unbusinesslike and inconsistent with a binding obligation; (d) the evidence did not support treating SEDCO or AIL as undisclosed principals or agents for PHL or SEDCO Anguilla—control and influence did not establish agency; (e) the tort of procuring a breach required actual knowledge that the act induced would be a contractual breach and the necessary knowledge was absent; (f) there was no adequate evidential basis for negligent misrepresentation and the documentary context and contemporaneous approvals showed no dishonest or negligent falsehood of intention; and (g) even if a contractual obligation had been established and breached, questions of quantification were unresolved and an award compelling repayment of capital would raise company law illegality issues (restriction on returning capital unlawfully). The judge therefore dismissed the claims.

The claim is dismissed. The judge found (i) the shares application formed a contract with SEDCO Real Estate Limited (Anguilla) to procure allotment, but the Information Memorandum did not create the alleged binding term obliging sale or investor exit within 12–18 months; (ii) there was no basis to treat SEDCO or AIL as undisclosed principals or to hold them liable for procuring breach (lack of requisite knowledge); (iii) the negligent misrepresentation claim under s.2 Misrepresentation Act 1967 was not supported on the evidence; and (iv) an award compelling return of capital would raise illegality issues under company law.