CEO must pay €9m after ‘sharp practice’

Avolon Airspace CEO Domhnal Slattery is liable for more than $10m (€9m) to Friends First under a personal guarantee following a Court of Appeal finding “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, of 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 $180m.

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 $14.05m loan and also took personal loans, in Mr Slattery’s case for $1m, 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 that 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’s 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 that 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 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.