JDW: Van de Berg battle details revealed

Full details of JD Wetherspoon's claim against its former property advisor Van De Berg have been revealed in the High Court.

Wetherspoon claims Van de Berg breached a contract of exclusivity and helped third parties profit at its expense. The managed operator is suing Van de Berg & Co Ltd — a former partner which found most of the chain's pubs during its rapid expansion period from 1989 until 2005 — claiming fraud and breach of contract.

The amount of money involved will be dealt with at a second trial, if Wetherspoon triumphs in this first round. But the figures claimed are expected to run into many millions of pounds.

Wetherspoon claims that, despite being handsomely rewarded with around £14m during that period, Van de Berg breached contract by introducing four properties at Sidcup, Maidstone, Leominster and Dalkeith to Weatherspoon's rival, Barracuda, between 2002 and 2005.

Wetherspoon terminated its agreement with Van de Berg in March 2005, and launched breach of contract proceedings in respect of these four properties. But in putting together its case, the pub chain claims to have discovered earlier "grave irregularities" in respect of 13 properties it bought between 1995 and 1998 to convert into pubs.

In the second part of its claim, it is suing Van de Berg and its directors Christian Braun, Richard Harvey and George Aldridge for fraud and breach of duty in respect of these properties in Burton, Chingford, Rotherham, St Albans, Portsmouth, Leamington Spa, Bedford, Bournemouth, Eastbourne, Glasgow and Canterbury (two properties).

Wetherspoon says that in most of these transactions Van de Berg advised it to enter leases of properties when it should have been advised that the freeholds were available to buy.

Instead, it claims, Van de Berg diverted the freeholds to other third party other purchasers whose principals or agents were known to the company or its directors. Wetherspoon alleges that those other purchasers made a large profit from leasing to it, selling the freehold on to third parties at an increased price, or even in some cases selling it to Wetherspoon.

In written submissions before the court, Catharine Newman QC, for Wetherspoon, said: "Wetherspoon is an operator of public houses. It has expanded rapidly, and most of its pubs were found for it between about 1989 and 2005 by Van de Berg & Co Ltd It introduced a large number of properties to Wetherspoon over the years, and received some £14m for its work.

"Van de Berg and Wetherspoon historically enjoyed an extremely close relationship, rooted in the close personal relationships of trust and confidence enjoyed between Wetherspoon's Chairman and Van de Berg 's directors.

"Wetherspoon viewed Van de Berg as an integral part of its business, as its "outsourced property department", and understood at all times that (with some trivial exceptions) the entirety of Van de Berg's efforts and resources were deployed for Wetherspoon's benefit. The fees paid to Van de Berg by Wetherspoon over the years reflected this belief.

"To outward appearances, the relationship between Wetherspoon and Van de Berg was an extremely successful one, enabling Wetherspoon to expand at a rapid rate throughout the 1990s to its present substantial position in the market. All told, Van de Berg located some 600 properties which were subsequently acquired by Wetherspoon."

She said that the role played by Van de Berg went far beyond that of a traditional property finder, and that Van de Berg managed, analysed and advised Wetherspoon on its property acquisitions, requiring it to be provided with a remarkable amount of confidential and market sensitive information by Wetherspoon on a regular basis.

She said: "The abuse made of that confidential information by Van de Berg is one of the issues in this litigation."

Unique relationship​

She continued: "The unique nature of the relationship between Van de Berg, its directors and Wetherspoon meant that the obligations owed by Van de Berg to Wetherspoon went well beyond what might be expected of an ordinary commercial property finder.

"In the first action, Wetherspoon alleges that Van de Berg had a contractual obligation of exclusivity, which it broke. Van de Berg's remuneration was at all times negotiated and agreed on the basis that Wetherspoon was Van de Berg's only client of substance.

"Van de Berg was accordingly under an implied contractual obligation not to act as a property finder or consultant for any party other than Wetherspoon, and to devote the whole of its resources to the performance of its duties to Wetherspoon, save as expressly or impliedly agreed with Wetherspoon.

"In practical terms, the service provided by Van de Berg for Wetherspoon went so far beyond that of the ordinary property finder as to make it essential it did not carry out work for third parties whose interests might conflict with Wetherspoon.

"Wetherspoon was able to expand at such a rapid rate during the 1990s not by buying existing pubs, but because it developed the practice of purchasing unlicensed premises such as banks, cinemas and bingo halls, obtaining licensing and planning permission for them, and converting them into pubs.

"The skills and advice of Van de Berg and its directors were central to this process, which required careful analysis of the likely trading prospects as public houses of properties which had not previously traded as such.

"The process of acquisition relied to a great extent on the role of Van de Berg and its directors in identifying suitable properties and negotiating to acquire them for appropriate sums.

"It was this necessary reliance on their expertise that opened the door to the frauds and breaches of fiduciary duty practised on Wetherspoon by the defendants."

She said that the frauds and breaches of duty alleged in the second part of the case all "depend on one central and incontrovertible fact, namely the immediate increase in value of the freehold reversion of premises upon Wetherspoon taking a lease of them".

Describing the alleged fraud in respect of the 13 properties, she said that the general pattern was that Van de Berg and its directors would know that a freehold of a property was available, but would recommend to Wetherspoon that it should take a leasehold interest in that property without explaining that the freehold was available.

She claimed that Van de Berg and its directors would then find a purchaser who was known to them for the freehold, which purchaser would make "a very large and immediate gain to the value of its freehold as a result of the strength of Wetherspoon's covenant".

She said: "Wetherspoon allege that Van de Berg and/or the directors must have profited from the transactions. In a number of cases, the purchaser of the freehold sold on the freehold to Wetherspoon itself, making a substantial profit.

"The effect of this process was to make Wetherspoon in effect pay for the enhancement of the freehold value which arose out of the strength of its own covenant. In one case, the freehold was sold on to Wetherspoon in a "back to back" sale, with the third party purchaser of the freehold making a substantial and immediate profit without ever having to take possession of the property - 'flipping' the freehold."

Van den Berg denies the claims and is counter-claiming that the termination of its contract by Wetherspoon was wrongful, and seeking damages. The hearing is scheduled to last five weeks.