Shelbourne owners claim hotel is ‘mismanaged’

THE owners of the Shelbourne Hotel believe the landmark five-star Dublin hotel is being “seriously mismanaged” by an arm of the Marriott International hotel group and wants to terminate the management agreement, the Commercial Court has heard.

The owners said the level of alleged mismanagement identified to date, if it remains uncorrected, will tarnish the hotel’s reputation and iconic status, the court was told.

Pending the outcome of the procedure to terminate the management agreement the owners — Shelbourne Hotel Holdings Ltd (SHHL), who acquired the hotel in 2004 — want a court order allowing them access to the books and records of the hotel kept by Torriam Hotel Operating Co Ltd, a company within the Marriott group.

SHHL claims its auditors have identified a “systemic breakdown” in the financial controls at the hotel due to “serious mismanagement” by Torriam resulting in alleged significant direct financial loss to them. SHHL says it is not interested in Torriam’s offer of €1.2 million in an effort to resolve the dispute.

Yesterday, Brian O’Moore SC, for SHHL, said his clients had spent €125m on refurbishing the hotel, excluding the cost of purchase.

Torriam denies any default of agreement has occurred justifying termination of the management agreement and it wants a stay on the SHHL application for access to the books and records so the dispute may be referred to arbitration under the management agreement.

Mr Justice Peter Kelly yesterday admitted the proceedings to the Commercial Court and directed the application for a stay be heard on December 2 in tandem with SHHL’s application for access to the hotel’s books and records.

In an affidavit, John Sweeney, a director of SHHL, said it has spared no expense to ensure the Shelbourne was refurbished and fitted out to the highest possible standards prior to reopening in 2007. The owners in 2006 had negotiated a 20-year management agreement with Torriam under which it was to act as a reasonable and prudent operator of the hotel.

However, in subsequent meetings with the owners, Marriott continuously defended operational decisions which made “no sense”, he said. The owners became concerned margins did not seem to be improving over 2007 and 2008 was “looking no better”.

The owners now know that figures presented by Torriam at the meetings “had no basis in reality”, he said. The owners had tried to get details of items such as the bar figures but never received “straight answers”.

SHHL had organised an audit for the year 2007 but, after just two weeks’ work, the auditors withdrew from the hotel due to difficulties accessing information, Mr Sweeney said. The auditors initial assessment was the financial controls and accounting function within the hotel were “weak”.