Newgate Stud Co & Anor v Penfold & Anor [2004] EWHC 2993 (Ch) (21 December 2004) Source: http://www.bailii.org Cite as: [2004] EWHC 2993 (Ch) Neutral Citation Number: [2004] EWHC 2993 (Ch) Case No: HC03C02972 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION Royal Courts of Justice Strand, London, WC2A 2LL 21/12/2004 B e f o r e : THE HONOURABLE MR JUSTICE DAVID RICHARDS ____________________ Between: (1) Newgate Stud Company (2) Newgate Stud Farm LLC Claimants - and - (1) Anthony Penfold (2) Penfold Bloodstock Limited Defendants ____________________ Anthony Trace QC and Edmund Cullen (instructed by Baker & McKenzie) for the Claimants Jeremy Stuart-Smith QC and Graeme McPherson (instructed by Charles Russell) for the Defendants Hearing dates: 16, 19, 20, 21, 22, 23, 26, 27 and 29 July 2004 ____________________ HTML VERSION OF JUDGMENT ____________________ Crown Copyright © Mr Justice David Richards : 1. HRH Prince Fahd bin Salman al Saud was a prominent figure in the racing and bloodstock world. In the 1980s and 1990s he was acknowledged as one of the leading owners and breeders of high-class thoroughbred horses, achieving a number of notable successes. Prince Fahd was the nephew of King Fahd of Saudi Arabia. His father was governor of Riyadh and he himself held high office in Saudi Arabia. 2. The racing and bloodstock interests of Prince Fahd were organised in Europe through Newgate Stud Company (Newgate UK), an unlimited company formed in 1983 under the Companies Act 1948 to 1981. Newgate Stud Farm Inc was formed in 1985 in Kentucky to conduct his racing and bloodstock activities in the United States. In 1995 it changed its name to Newgate Holdings Inc and formed an operating subsidiary which was also given the name of Newgate Stud Farm Inc. In 2000 the parent and subsidiary were merged under Kentucky law and by a further merger in 2001 Newgate Stud Farm LLC succeeded to all their rights, assets and liabilities. I shall refer to these various Kentucky companies as Newgate US: nothing turns on the legal distinctions between them. Newgate UK and Newgate Stud Farm LLC are the claimants in this action. 3. Until 2000 Newgate UK and Newgate US were owned by Faal Racing Establishment (Faal Racing), an anstalt in Liechtenstein established by Prince Fahd. As I understand it, he was the beneficial owner of the assets held by the anstalt. On 25 July 2000 he established a trust under Jersey law for the benefit of his children, called the Black Type Trust. Ownership of the Newgate companies was transferred from Faal Racing to Allgreen Limited (whose name referred to his racing colours), a company incorporated in the British Virgin Islands and owned by the Trust. Until the death of Prince Fahd on 25 July 2001, at the age of 46, he was the effective controller of the Newgate companies. Sir William Young Bt, a banker, was appointed protector of the Black Type Trust in 2000 or 2001 and was succeeded in October 2002 by Peter Hodson, a solicitor based in Guernsey. 4. Anthony Penfold, the first defendant, has worked in the bloodstock industry since his early twenties. He began working for Prince Fahd in 1983 and was retained on a full-time basis in January 1985. He was the racing and bloodstock manager for the Newgate companies until January 2002. He was the sole director of Newgate UK until 1999 when Steven Lane, his assistant, was appointed to the board. He was also one of two directors of Newgate US, with William Bishop, a lawyer in Kentucky. There was a written contract with Mr Penfold covering the three years to 31 December 1987. A further written contract, for an initial period of two years and thereafter terminable on six months' notice was made with him on 1 January 1991 by the Newgate companies (described as the Owners). Clause 1 provided that Mr Penfold: "shall, as agent of the Owners, manage their thoroughbred horse breeding and racing activities and their bloodstock interests generally whether in the United Kingdom, Ireland, Australia, the USA or elsewhere". By clause 2 he was to report to such person as Newgate UK should nominate. At all times until his death this was Prince Fahd, although there was no formal nomination of which I am aware. Clauses 3 and 4 provided for Mr Penfold's remuneration, comprising an annual fee of £37,250, which was increased each year, and a commission on profitable sales of homebred colts or fillies. Clause 4(2) refers to the possibility of commission or other agreements with "any affiliated company or entity of the Owners or with their ultimate beneficial owner." It is clear from the evidence that until about 1995 Mr Penfold was receiving additional remuneration from Faal Racing. He was given express authority by clause 7(1) to make contracts on behalf of either of the Newgate companies in connection with their bloodstock interests but not otherwise. Clause 7(2) provided that he was engaged as an independent contractor, and not as an employee of either company. 5. Consistent with his position as an independent contractor, Mr Penfold was responsible for some of his expenses. He traded as Anthony Penfold Bloodstock until 2000 and bought and sold interests in mares. On 6 April 2000 he merged his interest with those of his wife trading as Mary Ann Clark Bloodstock. The merged business traded as Penfold Bloodstock which was incorporated as Penfold Bloodstock Limited, the second defendant, on 1 August 2002. The agency agreement contained an undertaking by Mr Penfold not to be engaged or interested in any other business, trade or occupation. There is a pleaded allegation of breach of this provision in relation to the dealings with the three horses in issue, but it adds little to the other causes of action and does not require separate consideration in this judgment. 6. Mr Penfold and Mary-Ann Clark were married in December 1996. They had been living together since June or July 1994, when he separated from his first wife. They moved to live with her parents, David and Elizabeth Clark in September 1995 and stayed there for about a year. As all the claims in these proceedings relate to events before their marriage, I will refer to her as Mary-Ann Clark throughout this judgment. 7. Prince Fahd was clearly passionate about racing and bloodstock. He took a keen and close interest in Newgate's operations and was highly knowledgeable about the horses owned by Newgate and generally about racing and bloodstock matters. The success of Prince Fahd's racing and breeding operations were achieved under Mr Penfold's management. It was an impressive record. His horses won eight European Classics and over 90 group and graded stakes races in Europe and the United States. In fourteen out of the sixteen years from 1985 to 2000 Prince Fahd was in the top twelve of the leading English owners table. His most celebrated horse, Generous, won the Derby convincingly in 1991 and went on to win the Irish Derby and the King George VI and Queen Elizabeth Diamond Stakes in the same year. He scored notable success with other horses. Fiji, which was homebred, was champion turf mare in the United States in 1999 and was sold for $3.1 million, the top price for a broodmare in the United States in 2002. Another homebred horse, Ramruma, was champion three- year old filly in Europe in 1999, having won the Oaks and the Irish Oaks that year, and set a new European record for a broodmare at auction when she was sold for 2,100,000 guineas in 2003. She was sold as part of the dispersal of the Newgate bloodstock following Prince Fahd's death. In 2002 Newgate UK's sales at auction totalled 5,343,000 guineas and Newgate US's sales totalled $7,679,500. The auction sales in 2003 were of a similar order, and its entire yearling crop in 2002 was sold by private treaty for a substantial sum, believed by Mr Penfold to be $10 million. 8. There was a close relationship between Prince Fahd and Mr Penfold, and it is clear that Prince Fahd valued and greatly appreciated the work and advice of Mr Penfold which had contributed so much to his success. There was considerable informality in their relationship and Mr Penfold speaks in his evidence of "a close personal friendship which ran in tandem with our working relationship". Without casting doubt on that assessment, but having read a considerable number of Mr Penfold's faxes and letters to Prince Fahd, it is also clear, as would be expected, that the relationship was nonetheless coloured by the fact of Prince Fahd's status both as owner and as a member of the Saudi royal family and by Mr Penfold's role as his racing and bloodstock manager. The evidence also shows that Prince Fahd could be very generous both to those working for him and to others. 9. Although there are many written communications from Mr Penfold to Prince Fahd in evidence, there are none, apart from a friendly message on a photograph, the other way round. Mr Penfold's evidence, which was not challenged and which I readily accept, is that Prince Fahd preferred to talk, not write, and used the telephone a great deal. They spoke on a very regular basis. 10. Mr Penfold's contract with the Newgate companies was terminated without notice, and he was removed as a director of the Newgate companies, on 22 January 2002, some months after Prince Fahd's death.