Seyfried v Euro-IB Ltd.

The Claimant (“Dr Seyfried”) claims a total of €263,831, together with interest, as remuneration for services rendered to the Defendant (“EuroIB”) between March 2004 and March 2007. The principal basis of the claim is a series of alleged oral agreements. So far as the first and most important such agreement is concerned, EuroIB admits that there was an agreement, but disputes the terms alleged by Dr Seyfried. In most of the other cases, EuroIB disputes that there was even an agreement. Both parties must rue the fact that they never reduced the terms of their relationship to writing. I have little doubt that the costs of this litigation are significantly disproportionate to what is at stake. I would add that I do not understand why the claim was brought in this Court. In my view it would have been eminently appropriate for the London Mercantile Court.

Dr Seyfried is a German citizen who is, and was at all material times, resident in Frankfurt am Main in Germany. He has over 20 years’ experience in the financial services sector. During that time he has worked for Credit Suisse First Boston, Salomon Brothers, McKinsey and Arthur D. Little. Prior to the events which gave rise to this dispute, he had acquired some experience in real estate, both as a result of his own private activities in that field and as a result of consultancy work.

EuroIB is an English company which since March 1999 has carried on business as an investment banking “boutique”. It has been regulated by the Financial Services Authority since March 2000. It provides general and real estate investment banking advice and services to clients, in particular arranging debt and equity finance and marketing real estate portfolios. Most, but not all, of EuroIB’s work is on projects in Germany. Since 2007 EuroIB has had a wholly-owned German subsidiary called Euro-IB GmbH (“EIBG”).

The Chief Executive Officer, and the owner of the entire issued share capital, of EuroIB is Alexander von Ungern-Sternberg (“Mr Sternberg”). Mr Sternberg is a German citizen who has been resident in London since at least 1999. He previously worked for Deutsche Bank for 10 years in a number of senior positions. Thereafter he worked for Barclays Bank’s BZW division and Rabobank International in senior positions.

The principal witnesses were Dr Seyfried and Mr Sternberg. Many of the issues in this case involve a conflict of evidence between these two men as to what, if anything, was agreed between them during various conversations. Both men spoke fluent English and both were intelligent and articulate. In terms of their demeanour and general credibility, there was little to choose between them. Both gave every impression of trying to tell the truth. Neither gave evidence which was unimpeachable: both counsel were able to point to matters which called into question to a greater or lesser degree the reliability of aspects of the other party’s witness’ evidence. For reasons that will appear, there were certain aspects of Dr Seyfried’s evidence that I consider particularly unconvincing. Nevertheless, I have not approached this judgment on the basis that it is possible to express a general overall preference for the evidence of one witness to that of the other, and resolve the conflicts on that basis. Accordingly, in resolving the conflicts of evidence I have attached importance to (i) the contemporaneous documents, (ii) the undisputed facts, (iii) the evidence of the other witnesses and (iv) the inherent probabilities. Where I refer to documents written in German, I shall quote from the agreed English translations without further acknowledgement.

The only other witness called by Dr Seyfried was Can Vardar. Mr Vardar is the founder of, majority shareholder in, and geshäftsführer of Advantage Corporations Communications Gmbh, a financial and corporate communications company which trades as “Advantage Doremus” (“Advantage”). I shall explain Advantage’s role in the matter below.

EuroIB called the following additional witnesses:

No criticism was made of the evidence of any these other witnesses. I consider that they were all reliable witnesses, although in Mr Vardar’s case I have reservations about the accuracy of his witness statement.

EuroIB is remunerated for its work in two main ways. First, in some but not all cases, it receives a retainer. This may be a one-off fee (referred to as a “kick-off” fee) or it may be a regular (e.g. monthly) retainer. Secondly, it receives a success fee, usually calculated as a percentage of the transaction in relation to which it has been retained, in the event that the transaction is successfully completed. The latter type of remuneration is much the more important of the two.

EuroIB’s turnover in the accounting period ending on 31 December 1999 was £10,000. Its turnover in the years ending on 31 December 2000 and 31 December 2001 was just over £455,000 and £400,000 respectively. In the years ending 31 December 2002 and 31 December 2003 its turnover was just under £120,000 and a little over £102,000 respectively. The main reason for this decline during this period was that Mr Sternberg was working for 2-3 days a week for a German internet company. By early 2004 Mr Sternberg was looking for someone to assist EuroIB with various projects.

At the time the relationship between Dr Seyfried and EuroIB commenced, Dr Seyfried was employed by Advantage as a geshäftsführer. This expression has no precise equivalent in English. It is often translated as “managing director”, which gives the wrong impression. In these proceedings, it was usually translated as “managing partner”, which is closer. For my own part, I think that the simplest and best equivalent is simply “director”.

Dr Seyfried had known Mr Vardar since 1986 when Dr Seyfried was working at CSFB. In around 1989 Dr Seyfried introduced Mr Vardar to Mark Vogelgesang when Dr Seyfried and Mr Vogelgesang were both working for Salomon Brothers. In 1998 Mr Vardar recruited Dr Seyfried to develop Advantage’s business in connection with Initial Public Offerings (“IPOs”).

Dr Seyfried was employed with effect from 1 January 1999 under a contract of employment dated 28 October 1998. §2 of the contract provided inter alia:

“Mr Seyfried shall conscientiously dedicate his entire professional efforts (with express exclusion of any secondary employment) to the company…”

It is common ground that it is clear from the original German that the parenthesis means that Dr Seyfried was prohibited from undertaking secondary employment.

Under the contract, Dr Seyfried received a monthly salary. He was also entitled to a performance bonus. The performance bonus was to be calculated on a sliding scale as a percentage of Advantage’s annual operating profit over DM 1 million subject to an overall cap. In addition, Dr Seyfried was to be given the option to purchase shares in Advantage. He did subsequently acquire a small shareholding and received dividends on the shares.

Although the IPO business initially proved successful for Advantage, this work suffered a significant downturn in late 2001 onwards due to the “dot.com” crash at that time. This led to Dr Seyfried seeking other business opportunities.

Dr Seyfried’s recollection, although not Mr Sternberg’s, is that he was introduced to EuroIB by Mr Vogelgesang, who by then was a director of EuroIB based in Frankfurt, in late 2003. There was a meeting in Frankfurt at which Mr Vogelgesang and Mr Sternberg said that they were looking for someone to work with EuroIB with expertise in real estate investment banking. No agreement was reached, however. There was then another meeting, also in Frankfurt, in late winter or early spring 2004, but again nothing came of it.

What is referred to in these proceedings as “the First Conversation” took place at a meeting between Dr Seyfried and Mr Sternberg over dinner at a restaurant in Elz on 17 March 2004. It is common ground that an oral contract was concluded during the First Conversation for Dr Seyfried to provide services to EuroIB, which for convenience I shall refer to as “the consultancy contract”, but there are disputes as to (i) the parties to the consultancy contract and (ii) the terms of the consultancy contract.

So far as (i) is concerned, Dr Seyfried’s case is that he personally entered into the consultancy contract with EuroIB, but it was agreed that he could render invoices through a nominee, and subsequently agreed that the nominee would be Advantage. EuroIB’s case is that Dr Seyfried entered into the consultancy contract on behalf of Advantage. It is common ground that this dispute does not affect Dr Seyfried’s title to sue in these proceedings, since it is agreed that, even if the contract was originally between Advantage and EuroIB, it was subsequently novated so as to substitute Dr Seyfried for Advantage in the circumstances described below. Nevertheless, the dispute is of considerable evidential significance.

In my judgment, the correct position is that Dr Seyfried entered into the consultancy contract on behalf of Advantage. My reasons are as follows.

First, Mr Vardar accepted that Dr Seyfried had authority to enter into contracts on behalf of Advantage, although, as an internal matter, he had to have his fellow directors’ consent.

Secondly, Dr Seyfried was a salaried employee of Advantage, as Mr Sternberg was aware. Furthermore, Dr Seyfried’s contract of employment prohibited him from working for anyone else. It is fair to say that the evidence of both Mr Vardar and Mr Sternberg was that Mr Sternberg checked with Mr Vardar that the latter knew about Dr Seyfried’s involvement with EuroIB and had no objection. Nevertheless, it does not appear that Dr Seyfried was authorised by Advantage to enter into a contract on his own account.

Thirdly, Advantage invoiced EuroIB and was paid by EuroIB. Furthermore, the revenue which Advantage received in this way was treated in the same way as other income. It was not simply remitted to Dr Seyfried, as one would expect if Advantage were a pure nominee. Indeed, Dr Seyfried received little direct benefit from the income even though Advantage invoiced EuroIB for more than double Dr Seyfried’s salary in 2005.

Fourthly, in addition to invoicing EuroIB in respect of Dr Seyfried’s services, Advantage invoiced EuroIB for regular amounts, initially of €1,000 a month and later €3,000 a month, generally described as “telecommunications and other services”. EuroIB’s case is that this was a fee for use of office space provided by Advantage, but Dr Seyfried disputes this. It is common ground, however, that during this period Dr Seyfried did work for EuroIB from his office at Advantage and that Mr Sternberg occasionally used an office there. Although Mr Vardar supported Dr Seyfried’s case in his witness statement, in cross-examination he ultimately said “maybe it is for use of the office”. Furthermore, it appears from Mr Vardar’s evidence that the reason for the wording of the invoices was probably that the consent of Advantage’s landlord was required for sub-letting, but had not been obtained. Dr Seyfried’s attempts to explain these entries on the invoices were deeply unconvincing. I have little doubt that the payments were for use of the office space. As such, the contract can only have been entered into by Dr Seyfried on behalf of Advantage.

Fifthly, on Dr Seyfried’s account it was only later in 2004 that it was agreed that Advantage would be the nominee. This makes no sense. Dr Seyfried was employed by Advantage. Mr Sternberg knew that, and so Dr Seyfried’s position with regard to Advantage would have been bound to be discussed during the First Conversation. Furthermore, there is no suggestion that there was any possibility of another nominee. Still further, it appears that Mr Sternberg’s conversation with Mr Vardar took place not long after the First Conversation.

Sixthly, on 23 May 2008 Mr Vardar executed on behalf of Advantage a “confirmation” (more accurately, a release) in favour of Dr Seyfried which was drafted (in English) by Dr Seyfried. This provides:

“(1)

In or around April 2004 Advantage, as nominee of Dr Seyfried, and Euro-IB Limited ('the Company') entered into an agreement ('the Agreement') pursuant to which Dr Manfred Seyfried would provide services to the Company.

(2)

The Agreement was concluded orally between Dr Seyfried acting as managing partner of Advantage, and Mr Alexander von Ungern-Sternberg, Director of the Company.

(3)

The Agreement between Advantage and the Company was terminated on 30 September 2006 when Dr Seyfried left Advantage and sold his share in Advantage. It is also Advantage’s understanding that the Agreement ended on 30 September 2006; on that date all contractual obligations between Advantage and the Company from the Agreement were fulfilled, i.e. all services commanded by the Company had been delivered by Dr Seyfried up to this date on behalf of Advantage and the Company had paid all invoices which Advantage was entitled to render under the Agreement.

(4)

No further claims outstanding debits against the Company by Advantage resulting from the work of its former managing partner, Dr Seyfried, do exist. ”

Even though it includes the words “as nominee” in paragraph (1), I consider that this document is more consistent with the contract being between Advantage and EuroIB than between Dr Seyfried and EuroIB. Counsel for Dr Seyfried relied on the fact that the document was executed just after the claim form was issued in these proceedings, and submitted that Dr Seyfried would hardly have drafted a document contrary to his primary case in these proceedings at such a time. I am not persuaded by this. The clear purpose of the document is to make sure that Advantage has no claim to any monies recovered by Dr Seyfried in these proceedings in respect of services rendered by him to EuroIB prior to 30 September 2006. If Advantage was a mere nominee, Advantage would have no such claim anyway.

Finally, I am satisfied that Dr Seyfried’s evidence on this topic in his witness statement was materially inaccurate. By way of example only, he said that he “agreed with my partners that I would channel the income I generated in this way through Advantage”. That was not a correct statement of the position.

I turn therefore to issue (ii), the terms that were agreed. This is the single most important issue in the case. Dr Seyfried says that what was agreed was a revenue-sharing arrangement under which, save in exceptional circumstances, Dr Seyfried would receive 15-30% of all net revenue received by EuroIB (including retainers) in respect of projects Dr Seyfried worked on after the deduction of direct costs not paid for by EuroIB’s client. Dr Seyfried says it was also agreed that he would be paid a minimum of 15% on the first project, whatever it might be. In addition, EuroIB would cover his travel and other expenses. Mr Sternberg says that what was agreed was that Advantage would be paid a success fee in relation to projects to which Dr Seyfried made a material contribution. The amount of the fee, if any, would be decided by Mr Sternberg in his discretion, but would typically be in the region of 10-20% of the success fee (not any retainer) paid to EuroIB by its client less any expenses incurred by EuroIB. If Dr Seyfried originated a deal or found a buyer, then the success fee could be higher. If Dr Seyfried ceased working on a deal before the success fee was paid, Advantage would receive nothing.

There is no contemporaneous document which casts any light on what was agreed. Nor were there any other witnesses to the First Conversation. It is Dr Seyfried’s word against Mr Sternberg’s. Cross-examination did not reveal any major holes in either witness’s story. There is therefore no easy way to decide who is right. I have come to the conclusion, however, that Mr Sternberg’s account is more likely to be right. My reasons are as follows.

First, I have already decided that Mr Sternberg is right about the party with whom EuroIB contracted. This makes it more likely that he is right about the terms.

Secondly, counsel for Dr Seyfried submitted that it was inherently improbable that Dr Seyfried would agree to take the risk that he would get nothing from his work for EIB. I do not agree with this. Discretionary bonuses that are large in relation to an individual’s salary are common in investment banking. Furthermore, Ms Merica and Mr Vogelgesang (and subsequently Mr Jones and Mr Eckertz) benefited from broadly similar (although not identical) arrangements. In the case of Dr Seyfried, he was already in receipt of a salary from Advantage. Since he had little other work to do for Advantage, it was in both Advantage’s and Dr Seyfried’s interest to take the chance of earning success fees from EuroIB. Moreover, as counsel for EuroIB submitted, an element of discretion was implicit in Dr Seyfried’s original formulation of the agreement in his Particulars of Claim: “a reasonable proportion … which would, in exceptional circumstances, be between 15% and 30% of the fee received by the Defendant”.

Thirdly, an agreement that EuroIB should exercise a discretion would not be an agreement that exposed Advantage, let alone Dr Seyfried, to caprice on the part of Mr Sternberg. On the contrary, the discretion would have to be exercised in good faith, fairly and rationally: see Horkulak v Cantor Fitzgerald International [2004] EWCA Civ 1287, [2005] ICR 402. It should be noted that, although Dr Seyfried pleaded a challenge to the exercise of any discretion, counsel for Dr Seyfried did not in the end contend that, if EuroIB had a discretion, it was exercised in bad faith, unfairly or irrationally.

Fourthly, Mr Sternberg had sound business reasons for not agreeing to pay Advantage a minimum percentage of EuroIB’s success fee. No two deals were ever quite the same in terms of: (i) the nature of the transaction; (ii) the structure of EuroIB’s fees; (iii) the number of staff involved; and (iv) the nature and extent of their involvement. Furthermore, as at 17 March 2004 EuroIB was not in a strong financial position. Mr Sternberg would not have wanted to commit himself to a minimum percentage which EuroIB might have difficulty in paying.

Fifthly, Mr Sternberg also had sound business reasons for not agreeing to pay Advantage a percentage of EuroIB’s retainers. As Dr Seyfried’s own evidence shows, most of the projects Dr Seyfried worked on did not result in EuroIB earning a retainer, let alone a success fee. EuroIB needed the money from retainers to pay its overheads in respect of such projects. Counsel for Dr Seyfried argued that, if the payment was discretionary, it was immaterial whether EuroIB’s fee was a retainer or a success fee. As a matter of logic, this is correct, but it does not detract from Mr Sternberg’s evidence. This was to the effect that he told Dr Seyfried that the payment would be discretionary and explained to him the factors which he would take into account in exercising the discretion. One of these was that normally no payment would be made in respect of retainers (although, as discussed below, EuroIB did agree to pay Dr Seyfried a percentage of its retainers in a couple of exceptional cases).

Sixthly, Dr Seyfried’s case as to what was agreed has changed over time. I have quoted his original plea in paragraph 31 above. Subsequently, this was amended to allege that “it was expressly agreed that the applicable percentage would be 15% unless otherwise agreed”. I have summarised Dr Seyfried’s account in his witness statement in paragraph 28 above. In cross-examination, he had some difficulty in explaining how the saving for “exceptional circumstances” squared with his insistence that the minimum agreed percentage was 15%.

Seventhly, the parties’ subsequent conduct is more consistent with Mr Sternberg’s account than Dr Seyfried’s, in particular in two respects. First, the first successful project on which Dr Seyfried worked was called Project Hanse, which involved the sale of 7,500 flats in Wilhelmshaven by Deutsche Bank to Cerberus. As noted above, Dr Seyfried says that it was agreed that he would be paid a minimum of 15% in respect of the first project. It is common ground, however, that Advantage was in fact paid less than 15% of EuroIB’s fees. Advantage was paid €205,000. This is 10.87% of all the fees received by EuroIB, which totalled €1,885,000. It appears that Dr Seyfried may not have known at the time about one element of the fees received by EuroIB, but even if that is so, he was aware that EuroIB had received €1,705,000. €205,000 is 12.02% of this figure. It is common ground that at the time Dr Seyfried did not suggest that he had been underpaid. His explanation for this was tortuous and unconvincing. Furthermore, the fact that EuroIB paid Advantage significantly less than 15% leaves only two possibilities. Either EuroIB was not obliged to pay Advantage a minimum of 15% or Mr Sternberg deliberately decided to pay Advantage less than it was due. No reason has been advanced by or behalf of Dr Seyfried as to why Mr Sternberg should have deliberately decided to pay Advantage less than it was due. It should be noted that EuroIB paid Advantage and Dr Seyfried over €850,000 in respect of Dr Seyfried’s services, provided on a part-time basis, during the course of the relationship. This is despite the fact that Dr Seyfried did not introduce any new business to EuroIB, but only worked on projects introduced by others.

In addition, Advantage did not render any invoice to EuroIB in respect of retainers received by EuroIB in respect of two projects called Project Wolfsburg and Project Neckar which were paid in early 2006 to summer 2006. Dr Seyfried’s only explanation for this was that he “forgot to enquire” whether the sums had been paid. This is implausible. It is clear from the evidence that Dr Seyfried is a man who pays close attention to detail and has a keen interest in the financial bottom line. It is fair to say that EuroIB did pay Advantage a percentage of EuroIB’s retainer on two projects, Project Vision and Project Heidi. Mr Sternberg’s evidence was that he agreed to do this for specific and exceptional reasons connected with those projects which he explained. I accept that evidence. It is also fair to say that Advantage’s first invoice to EuroIB in respect of Project Hanse dated 14 December 2004 for €25,000 was described as for “Advisory fee (retainer)”. Mr Sternberg’s evidence was that this was a concession to allow Advantage to recognise some income from EuroIB during the calendar year 2004, and was not calculated by reference to the amount of EuroIB’s retainer. Again, I accept that evidence.

Eighthly, the “confirmation” executed by Advantage expressly confirms that EuroIB has paid all invoices that Advantage was entitled to render to EuroIB and that Advantage has no further claims against EuroIB as a result of Dr Seyfried’s work for EuroIB. Despite this, Dr Seyfried’s claim in these proceedings includes a claim for sums said to be due in respect of services rendered while Dr Seyfried was employed by Advantage prior to 30 September 2006. It is theoretically possible that Dr Seyfried’s claim in these proceedings is well-founded and that the “confirmation” misrepresents the position. I consider it more likely, however, that the “confirmation” is accurate.

Finally, there are the circumstances in which Dr Seyfried parted company with EuroIB and rendered an invoice for the disputed fees. I shall discuss these below.

Dr Seyfried contends (by an amendment to his Particulars of Claim) that on about 2 or 3 December 2004 he and Mr Sternberg had a conversation (referred to as “the Second Conversation”) in which it was (i) confirmed that Dr Seyfried’s level of remuneration in respect of the first project, Project Hanse, would be 15% and (ii) agreed that for future projects the applicable percentage would be 20%. Mr Sternberg disputes this account. He accepts that he spoke to Dr Seyfried regularly during this period about Project Hanse. He also accepts that, as discussed above, he agreed that Advantage could render an invoice for €25,000 plus expenses on 14 December 2004 in respect of an acceleration fee which EuroIB expected to receive even though it was not actually due. Mr Sternberg denies that there was any agreement to pay Advantage either 15% for Project Hanse or 20% for future projects.

Again, I consider that Mr Sternberg’s account is more likely to be correct. My reasons are much the same as those I have already given in relation to the First Conversation.

Dr Seyfried also contends that on 16 March 2005 he and Mr Sternberg had a conversation (referred to as “the Third Conversation”) in connection with a project called Project Vision after a meeting at Richter & Partner (a firm of accountants and lawyers) in Munich in which it was again agreed that for future projects, including Project Vision, the applicable percentage would be 20%. Mr Sternberg again accepts that there was a conversation, but denies that there was any such agreement.

Again, I consider that Mr Sternberg’s account is more likely to be correct. Again, my reasons are much the same as those I have already given in relation to the First Conversation.

On 22 May 2005 Mr Sternberg wrote on behalf of EuroIB setting out the terms on which Dr Seyfried was to be appointed as a director of EuroIB. Mr Sternberg requested Dr Seyfried to countersign a copy of the letter if the terms were acceptable to Dr Seyfried, which he duly did. The terms of this contract include the following:

“2.

Generally, you will be required to attend Board Meetings four times per annum or as required from time to time during the year…

3.

Whilst the appointment will not be of a full-time nature, you will be required to devote such of your time to the appointment as is deemed necessary to perform your duties to the satisfaction of the Board. I anticipate your duties will necessitate you being available for an equivalent of five meetings per year….

4.

You will at all times be expected to comply with the lawful and reasonable requests of the Board, to act in the best interests of the Company and not do anything which is harmful to the Company or its business.

5.

The fee for your services will be €5,000 per annum payable as agreed between the Company and yourself, such fees to be paid less any tax and national insurance contributions the Company is obliged to deduct.

…

9.

Notwithstanding the provisions of this letter, your appointment may be terminated in accordance with the provisions of the Articles of Association of the Company and on such termination no notice or fees (other than those already accrued) will be due to you. The appointment and the payments will also cease if you commit a serious or persistent breach of your duties or any of the obligations set out in this letter. If for a reason related to your illness, disability or injury, you are unable to carry out your duties, payment of any fees during any period of incapacity will be at the discretion of the Board.

…

11.

If any time you are considering taking up a post with any other Company in competition with the Company, you must first discuss the matter with the Board and must not take up the post without prior Board approval.

Counsel for Dr Seyfried submitted, and I agree, that the directorship contract was clearly separate from the consultancy contract. They were concluded at different times, between different parties and in respect of different services. I shall consider the effect of this below.

Counsel for Dr Seyfried also submitted that Dr Seyfried’s directorship of EuroIB was in the nature of a non-executive directorship. I do not accept this, but it would make little difference if counsel were right. So far as is relevant to this case, there is no material difference between the duties of a non-executive director and those of an executive director: see Commonwealth Oil & Gas Company Ltd v Baxter [2009] CSIH 75, [2009] SLT 1173 at [9]-[13] and [71]-[80]. Accordingly, Dr Seyfried owed fiduciary duties to EuroIB, and in particular the duty not to put himself in a position where there was a real possibility of a conflict between his interests and those of EuroIB: see Bhullar v Bhullar [2003] EWCA Civ 424, [2003] BCC 711.

Dr Seyfried contends that on 11 October 2005 he and Mr Sternberg had a conversation (referred to as “the Fourth Conversation”) in connection with Project Heidi at the Expo Real trade fair in Munich in which it was again agreed that for future projects the applicable percentage would be 20% and the possibility of a higher fee for smaller transaction was discussed. Mr Sternberg again accepts that there was a conversation, but denies that there was any such agreement.

Again, I consider that Mr Sternberg’s account is more likely to be correct. Again, my reasons are much the same as those I have already given in relation to the First Conversation.

As a separate matter, Dr Seyfried says that it was also agreed during the Fourth Conversation that his directors’ fee would be increased to €10,000 per annum and that Dr Seyfried would invoice EuroIB for the “first half of 2005”. Mr Sternberg disputes this account, and says that he simply invited Dr Seyfried to invoice EuroIB for the whole of his 2005 fee straightaway.

On this occasion I consider that Dr Seyfried’s account is more likely to be correct. First, it is common ground that at the time of the conversation Mr Sternberg felt that things were going well, since EuroIB had just been instructed on Project Heidi. As Dr Seyfried says, increasing Dr Seyfried’s directors’ fee was a cheap way for Mr Sternberg to reward him with a large percentage increase. Secondly, Dr Seyfried’s invoice dated 30 November 2005 in sum of €5,000 reads “Director’s Fees 07-12/2005”. This is more consistent with Dr Seyfried’s account than Mr Sternberg’s. Although it relates to the second half of the year rather than the first, that is simply explained by the fact that Dr Seyfried was only appointed a director in the middle of the year. I think Dr Seyfried made an understandable slip in referring to the first half of the year. EuroIB paid the invoice without questioning this wording. Thirdly, Mr Sternberg’s account cannot be reconciled with the fact that Dr Seyfried was only appointed as a director in the middle of the year, and so in the absence of any increase was only entitled to a fee of €2,500.

It is common ground that EuroIB has not paid Dr Seyfried any director’s fees for 2006 or the first quarter of 2007. EuroIB admits that it owes €6,125. Dr Seyfried claims €12,250. I conclude that Dr Seyfried is entitled to the latter sum.

On 9 June 2006 Dr Seyfried and Advantage entered into a contract terminating Dr Seyfried’s employment by Advantage with effect from 30 September 2006. This contract provided inter alia as follows:

“2.

Up until 30.09.2006, the person appearing at 2 [i.e. Dr Seyfried] is bound to the obligations ensuing from his managing director's contract of employment and from the company’s statute. The person appearing at 2 gives his assurance that he will have earned fees of EURO 150,000.00 (‘target earnings’) from his activities until 15.09.2006 (‘closing date’). The term fees means billed consultancy fees; outside services, sales from advertising, travel costs and production sales are not included and not considered in the target earnings. Only those consultancy fees paid, or at least accepted, by the customer up until 15.9.2006 will be considered.

The person appearing at 2 is permitted to expedite the founding of a financial consultancy business, the aim being that said company is able to commence its business activity after 30.09.2006. Up until 30.09.2006, however any secondary professional activity for the account of the company to be founded or for his own account is impossible.

…

6.

The party being represented by the person appearing at 1 [i.e. Advantage represented by Mr Vardar] assures the person appearing at 2 that he will be relieved of his duties for the financial year 2006, insofar as he fulfils the points of this Agreement and he performs his activity with the due diligence of a prudent businessman up until his departure.”

It is common ground that, in consequence of Dr Seyfried’s departure from Advantage, it was agreed that Dr Seyfried would thereafter provide services directly to, and render invoices directly to, EuroIB.

EuroIB contends that upon this novation of the consultancy contract, the terms of the directorship contract become incorporated into the consultancy contract. No basis for this contention was pleaded in EuroIB’s Defence. In his closing submissions, counsel for EuroIB accepted that this had not been agreed between Dr Seyfried and Mr Sternberg orally or in writing, but submitted that it had been agreed by conduct. I do not accept this. As discussed above, the consultancy contract and the directorship contract were two separate contracts. All that changed upon the novation was that Dr Seyfried was substituted for Advantage as the contracting party in the consultancy contract.

As discussed above, Project Hanse had involved the sale of a property portfolio. Project Heidi concerned the sale by the purchaser, Cerberus, of the same portfolio together with other property. It is common ground that the project was successfully completed in May 2006, that Dr Seyfried made a material contribution to the project and that EuroIB rendered its invoice to its client in the sum of €2,473,700 on 24 June 2006.

Advantage submitted an invoice to EuroIB for €127,000 on 17 August 2006, having previously rendered other invoices, bringing the total invoiced by Advantage for this project to €175,000 plus expenses. On 9 October 2006 (i.e. not long after 30 September 2006) Dr Seyfried submitted an invoice for €164,606. This timing is clearly not a coincidence, and Dr Seyfried gave two inconsistent, but equally implausible, explanations for it. Dr Seyfried rendered two further invoices to EuroIB, one for €100,000 on 22 November 2006 and one for €90,000 on 29 December 2006. All three invoices were duly paid by EuroIB. It is not necessary for me to decide whether, as counsel for EuroIB contended, this represents a breach of Dr Seyfried’s contract with Advantage.

Dr Seyfried contends that he is owed a further €8,081 by EuroIB in respect of Project Heidi, which he invoiced on 19 May 2007. This is disputed by EuroIB.

It is common ground that:

Dr Seyfried says that it was agreed during the meeting that EuroIB would pay him the sum of €98,081. Mr Sternberg says that it was agreed that EuroIB would pay Dr Seyfried the sum of €90,000. In my judgment Mr Sternberg’s account is more likely to be correct. First, it is more consistent with the fact, and content, of the annotations to the print-out and with a further typed or printed sheet of calculations which Mr Sternberg appears to have prepared at about the same time. Secondly, it is supported by the wording on Dr Seyfried’s invoice dated 29 December 2006, namely “As agreed Success fee”. Thirdly, it is inherently plausible that Mr Sternberg should agree to pay Dr Seyfried a round sum. Fourthly, Dr Seyfried’s account of how it came about that (a) he invoiced EuroIB for only €90,000 at that stage and (b) he did not invoice EuroIB for the balance of €8,081 until after his departure from EuroIB was implausible and unconvincing.

Project Neckar was a project undertaken by EuroIB mainly in May/June 2006. EuroIB was paid a retainer, but no success fee. It is common ground that Dr Seyfried worked on this project. Dr Seyfried claims he is entitled to 20% of EuroIB’s retainer, amounting to €10,000. As noted above, Dr Seyfried did not render an invoice for this at the time. He only did so on 19 May 2007, after he had left EuroIB. Since I have concluded that the agreement reached between Dr Seyfried and Mr Sternberg during the First Conversation was that any payment by EuroIB was discretionary, and that generally no payment would be made in respect of retainers, it follows that Dr Seyfried is not entitled to this sum.

The position in respect of Project Meistersinger is the same. Dr Seyfried’s claim is for €5,000. He is not entitled to this sum.

The position in respect of Project CBB is the essentially same, although the timing differs since this project only came to an end in spring 2007. Dr Seyfried’s claim is for €10,000. He is not entitled to this sum.

Dr Seyfried contends that, during a telephone conversation with Mr Sternberg on 27 September 2006 (referred to as “the Fifth Conversation”), it was agreed that Dr Seyfried would assist EuroIB with locating premises for and establishing an office in Frankfurt in return for a fee of €2,000 per day (referred to as “the Frankfurt Office Contract”). Mr Sternberg accepts that Dr Seyfried did assist EuroIB to locate and establish an office in Frankfurt, but disputes that he agreed to pay Dr Seyfried a fee of €2,000 per day.

In my judgment Mr Sternberg’s account is more likely to be correct. My reasons are as follows.

First, it is plausible that Dr Seyfried should have carried out this task without being paid (other than his remuneration as a director of EuroIB). Advantage was moving to a new office in an inappropriate location, and Dr Seyfried was to be the principal beneficiary of the new office since he was the only director who would be based there. Indeed, the first premises suggested by Dr Seyfried were located close to his home, which Mr Sternberg did not consider suitable.

Secondly, no such agreement is mentioned in Dr Seyfried’s resignation letter dated 21 March 2007 (quoted below) when discussing his work on the Frankfurt office.

Thirdly, the suggested agreement is inconsistent with Dr Seyfried’s invoice dated 19 May 2007, which refers to a “Flat fee” of €25,000 and not to a daily rate of €2,000. It is also inconsistent with an email from Dr Seyfried to Mr Sternberg dated 22 May 2007 seeking to justify this and other invoices, in which Dr Seyfried said “As to the services rendered to you and your company in setting up an office in Frankfurt the flat fee reflects a quite moderate rate per day.” Indeed, the email suggests an ex post facto attempt to justify the fee by reference to a daily rate. Mr Sternberg replied on 6 June 2007 saying “you suggested a fee after the event and after your resigned! which I immediately rejected”.

Project Wolfsburg involved the sale of a shopping centre and some flats in Wolfsburg. It is common ground that the person who did most of the work on this project was Mr Pins. Dr Seyfried contends that he nevertheless made a material contribution to the project, and claims to have spent 25 days on it, although he accepts that that is an estimate made after the event. The evidence of Mr Sternberg and Mr Pins was that Dr Seyfried had relatively little involvement in the project, although he did do some work on it. Not only did Mr Sternberg and Mr Pins corroborate each other’s accounts, but also their account appears to be supported by the documents (although I have borne in mind that these may be not be complete). I therefore prefer the evidence of Mr Sternberg and Mr Pins.

Dr Seyfried also contends that it was agreed in a conversation with Mr Sternberg in early December 2006 (referred to as “the Sixth Conversation”) that he would receive 10% of EuroIB’s success fee in respect of Project Wolfsburg and 30% of EuroIB’s fees in respect of a project called Project Funkschneise. Mr Sternberg disputes this.

Once again, I think Mr Sternberg’s account is more likely to be correct. My reasons are as follows.

First, in so far as Dr Seyfried’s claim in respect of Project Wolfsburg is predicated on the underlying agreement reached in the First Conversation, I have already concluded that what was agreed was that any payment by EuroIB would be discretionary.

Secondly, in the light of the evidence as to the slight contribution to the project made by Dr Seyfried, it is implausible that Mr Sternberg would have agreed to pay him 10% of EuroIB’s fee.

Thirdly, the deal was only completed on 29 March 2007, after Dr Seyfried had resigned from EuroIB, and EuroIB only rendered its invoice to its client on 5 June 2007. This makes it implausible that Mr Sternberg would have agreed to pay him any success fee.

Fourthly, Dr Seyfried’s email dated 22 May 2007 is again quite telling. In it he said:

“I applied the agreed general 20% rule and as you see, only deviated for Funkschneise and Wolfsburg, reflecting the degree of my activities.”

There is no suggestion here that there was an agreement for 10% in respect of Project Wolfsburg.

Dr Seyfried claims €67,500 in respect of Project Wolfsburg. For the reasons given above I conclude that he is not entitled to this sum.

Project Funkschneise involved arranging a loan of €8 million to finance the purchase of a 51% share in a company that owned a logistics centre near Bremen. EuroIB’s client was the borrower. It is common ground that EuroIB and its client encountered difficulties with this project and that, as a result, there were professional disagreements between Dr Seyfried and Mr Sternberg during the course of it.

Dr Seyfried contends that it was agreed between himself and Mr Sternberg during the Sixth Conversation that he would be paid 30% of EuroIB’s fees in respect of this transaction. Mr Sternberg disputes this, although he accepts that he did discuss paying a total of 30% of the success fee to all of the people involved, who included Ms Merica from the start. I have already concluded that I consider Mr Sternberg’s account of this conversation more likely to be correct than Dr Seyfried’s account. I also regard it as implausible that Mr Sternberg would have agreed to pay Dr Seyfried as much as 30% of EuroIB’s fees for this project, particularly at that point in time.

The course of the transaction was somewhat complicated, but for present purposes the key point is that the lender paid money into an escrow account in late 2006, but under the loan contract the release of this money to the borrower was subject to conditions precedent which could not be fulfilled. There was a first amendment to the loan contract in January 2007, but this did not succeed in securing the release of the funds. After Dr Seyfried’s resignation, Mr Sternberg, Ms Merica and Mr Eckertz reworked the deal. This involved bringing in additional security in the form of an office building, a shopping centre and a new Polish subsidiary. In addition, the purpose of the finance changed so that, by the time the funding was released, most of it did not relate to the purchase of the logistics centre. The funds were not released until June 2007, following a second amendment to the loan contract, and EuroIB only received full payment of its fee then. Mr Sternberg decided to make payments of £50,000 to Ms Merica and €22,000 to Mr Eckertz for their work on the deal.

Dr Seyfried’s claim is predicated not only on his claims that Mr Sternberg agreed to pay him 15-30% of EuroIB’s fees in the First Conversation and that Mr Sternberg agreed to pay him 30% in relation to this project in the Sixth Conversation, but also on the premise that the deal completed in January 2007. In my judgment that premise is incorrect. EuroIB’s mandate from its client dated 20 November 2006 provided that “in the event of agreement being reached on the finance of Funkschneise through the brokerage of Euro-IB, a performance fee of 5% of the finance sum is due, payable two weeks after receipt of the payment from the aforementioned agreement closure”. In January 2007 the money was in escrow and could not be accessed by the borrower as the conditions precedent could not be fulfilled. The borrower had not in any commercially sensible sense “received” the payment.

It is true that, as a result of the first amendment to the loan contract in January 2007, €100,000 was released from the escrow account which was paid to EuroIB. Mr Sternberg’s explanation was that he had persuaded both EuroIB’s client and the lender to agree to a payment on account to EuroIB. I accept that evidence, which fits with the documentation and the probabilities of the situation. By contrast, it may be noted that Dr Seyfried claims to have been involved in the first amendment, but he did not invoice EuroIB for a share of the €100,000 at that time. Furthermore, it is clear from an email which Dr Seyfried sent to Mr Sternberg and Mr Eckertz on 23 February 2007 that Dr Seyfried did not consider that the Funkschneise had completed at that date, and on the contrary was concerned that it would be a flop. Indeed, even in his resignation letter dated 21 March 2007 (quoted below), Dr Seyfried treated Project Funkschneise as a project which had not yet completed.

Subsequently, in early March 2007, EuroIB negotiated a further payment on account of €100,000. Only once the deal completed, however, did EuroIB become entitled to retain the payments on account and to payment of a further €200,000 for its performance fee. This was well after Dr Seyfried’s departure from EuroIB, and as I have explained by that time the structure of the deal was rather different to that which Dr Seyfried had worked on.

Dr Seyfried’s claim in respect of Project Funkschneise is for €126,000. For the reasons given above I conclude that he is not entitled to this sum.

There is a dispute between Dr Seyfried and EuroIB as to the reason for Dr Seyfried’s departure from EuroIB. Dr Seyfried says that he resigned because of ethical concerns about some of the people EuroIB was doing business with. EuroIB says that he resigned because Mr Sternberg had discovered that he had acted in breach of his fiduciary duty to EuroIB. The background to this dispute is as follows.

In January 2007 Dr Seyfried was engaged by an old school friend, Dr Reich, to advise on the sale of a portfolio of 246 flats in the Frankfurt area. On 4 March 2007 KWG advertised in a German newspaper called Welt am Sonntag for residential estates of 100 to 5,000 units in certain areas, not including the Rhein-Main area (i.e. the area around Frankfurt). The advertisement gave Mr Efremidis’s name as the person to contact. Mr Efremidis had recently joined KWG from Palu Suisse, which had been involved in Project Meistersinger. Dr Seyfried had been introduced to Mr Efremidis by Mr Sternberg during his work on Project Meistersinger.

On 4 or 5 March 2007 Dr Seyfried telephoned Mr Efremidis. Mr Efremidis said that KWG was also looking for property in the Frankfurt area, and Dr Seyfried mentioned that he was looking for investors to purchase a portfolio in that area i.e. Dr Reich’s portfolio. Mr Efremidis asked Dr Seyfried to send him some information, which Dr Seyfried did on 5 March 2007. Mr Efremidis’s evidence was that he asked Dr Seyfried whether the matter would be handled by EuroIB, to which Dr Seyfried said no, whereupon Mr Efremidis said that he would inform EuroIB about Dr Seyfried’s approach. Dr Seyfried accepted that Mr Efremidis said that he wanted to discuss the matter with Mr Sternberg. Dr Seyfried said that Mr Efremidis asked for his permission to do this, to which Dr Seyfried agreed. The evidence of both Mr Efremidis and Mr Sternberg was that between 4 and 7 March 2007 Mr Efremidis did speak to Mr Sternberg about the matter.

It is common ground that Dr Seyfried and Mr Sternberg discussed the matter on the telephone on 7 March 2007 and that Mr Sternberg asked Dr Seyfried to send him details of the portfolio, which Dr Seyfried did on the same day. There is a dispute as to who raised the matter during the conversation, but I do not think it matters much who is right on this point.

Mr Sternberg’s evidence was that he was incensed about what he regarded as a breach of Dr Seyfried’s duty to EuroIB in seeking to compete with EuroIB, and confronted Dr Seyfried about the matter on about 15 March 2007. Dr Seyfried disputed this.

On 19 March 2007 Dr Seyfried sent Mr Efremidis a proposed engagement agreement in relation to the sale of Dr Reich’s portfolio. The draft agreement is similar to those entered into by EuroIB.

On 21 March 2007 Dr Seyfried resigned from EuroIB. His resignation letter to Mr Sternberg, which he originally wrote in German and then translated into English for the benefit of EuroIB’s British directors, is a document of some importance. In it Dr Seyfried said:

“I hereby resign as a Director of Euro-IB Ltd., London. I ask you and Euro-IB to release me from my duties as of 30 April 2007, and to discharge me from my duties (ratify my acts) as a Director as provided by English law. As to any open issues I am sure that we will reach agreement in an amicable and professional manner.

If we can find common grounds, then naturally I should be willing to continue collaborating with Euro-IB in the future. After all, after a long time of only marginal revenues Euro-IB has been able to generate sizeable fee income since 2004 when we began our cooperation through professional competition to find the best solutions. If Euro-IB were to ask me, I would be willing to serve as a Director until the end of June 2007. Naturally I am willing and prepared to complete the projects or the phazes of projects for which I am responsible, namely:

•

Funkschneise, as you know, I am quite close to the project, since I have been involved in it not only right from the beginning, but I was also instrumental in ensuring that the negotiations produced a transaction structure which will allow the transaction to succeed. Unfortunately we had differences of opinion about these matters. Time, however, has shown my views to be correct and fortunately this has assured our success fee of €400,000. This is surely worth a dispute on purely professional grounds.

•

CCB - purchase of commercial real estate portfolios, as you know, I had proposed pursuing the project from the very beginning. However, I have pointed out on several occasions that the current strategy and arrangements make a successful conclusion quite unlikely. It would be advisable to pursue the project combining Herr Kazinakis and a domestic industry insider. On principle Herr R. Faktor would be interested. As agreed I had approached him and discussed the fundamentals of such a project. I feel a personal obligation towards Herr Kazinakis and his team, and naturally, Herr Faktor.

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Purchase of and funding for Wassily Kandinski, Berlin Weissensee by Mr Kazinakis’ group.

•

…

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For the record please note that I had asked to be released from any obligations and further involvement in the projects ‘Union’ and those with Herr Werner Schmidt.

•

Last but not least the leasing and start of a Euro-IB-office in Frankfurt. Naturally, this project is also close to my heart. But I know that Euro-IB can start with a wonderful office as a German GmbH in Frankfurt. With a little sorrow I look at this wonderful office whose benefit I shall not be able to share. However, from a professionally [sic] viewpoint I am proud of my services in searching for, selecting, negotiating and overseeing the full refurbishment and furnishing of his [sic] office.”

There are a number of points of significance relating to this letter in addition to those noted above. First, it does not give any reason for Dr Seyfried’s resignation, although it does refer to the disagreements between Dr Seyfried and Mr Sternberg over Project Funkschneise. Moreover, Dr Seyfried‘s own evidence was that he did not give one orally. This is difficult to reconcile with Dr Seyfried’s evidence that his resignation was intended as a “wake-up call” to Mr Sternberg.

Secondly, the letter is inconsistent with Dr Seyfried’s evidence as to his concerns about the ethics of some of Mr Sternberg’s business associates. It is common ground that Dr Seyfried did have concerns about Mr Schmidt, although Mr Sternberg’s evidence was that he shared those concerns and as a result EuroIB did not do any deal with Mr Schmidt. However, another businessman about whom Dr Seyfried said he was concerned was Mr Kazinakis, yet in the letter Dr Seyfried says that he feels a personal obligation towards Mr Kazinakis.

Thirdly, I consider that it is significant that Dr Seyfried asks to be discharged from his duties as a director of EuroIB under English law. In my judgment this supports Mr Sternberg’s evidence as to the reason for Dr Seyfried’s resignation.

Fourthly, it is Dr Seyfried’s case that in this letter he was only resigning his position as a director and not terminating the consultancy contract. Although it is true that Dr Seyfried only explicitly resigns as a director, I consider that, read as a whole, the clear message of the letter is that the relationship between Dr Seyfried and EuroIB is at an end unless agreement can be reached on continued cooperation. Moreover, it is clear that that is how Mr Sternberg understood it.

Before turning to my conclusions, it is convenient to record at this point that it was only on 19 May 2007 that Dr Seyfried rendered the invoices to EuroIB which in due course gave rise to his claims in these proceedings. None of these sums had been invoiced before, and as noted above some were in respect of work which preceded Dr Seyfried’s departure from Advantage on 30 September 2006.

In my judgment the true reason for Dr Seyfried’s resignation was a combination of the disagreements over Project Funkschneise and Mr Sternberg’s accusation that he was in breach of his fiduciary duty, which I accept that Mr Sternberg made. For the reasons given above, I consider that the resignation letter terminated not only the directorship contract, but also the consultancy contract.

Counsel for EuroIB submitted that the resolution of this issue mattered for three reasons apart from Dr Seyfried’s credibility.

First, because after 30 September 2006 the consultancy contract incorporated clause 9 of the directorship agreement and hence no fees were due to Dr Seyfried after termination. I do not accept this argument. I have already concluded that the consultancy contract did not incorporate the terms of the directorship contract. In addition, I agree with counsel for Dr Seyfried that the argument depends on a misconstruction of clause 9. I consider that the fees referred to in clause 9 are the fees set out in clause 5 i.e. the directorship fee, and not Dr Seyfried’s fees for different services provided under another contract. I would also point out that clause 9 preserves Dr Seyfried’s right to fees which have already accrued by the date of termination.

Secondly, counsel for EuroIB submitted that Dr Seyfried’s alleged misconduct was material to the exercise of EuroIB’s discretion. Since there is no challenge to the exercise of that discretion, however, nor any counterclaim (or defence of set off) by EuroIB alleging breach of fiduciary duty by Dr Seyfried, it is not necessary for me to decide whether Dr Seyfried was actually in breach of his duties. It is sufficient for me to say that Mr Sternberg had reasonable grounds for believing, and did believe, that Dr Seyfried was in breach.

Thirdly, counsel for EuroIB argued the effect of Dr Seyfried’s resignation was to terminate the contracts, and therefore any right to payment which Dr Seyfried had not already unconditionally acquired at that date was discharged: see Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] AC 1056 at 1099. I agree with this analysis, but it does not depend on the reason for Dr Seyfried’s resignation and, given my other conclusions, it adds nothing to EuroIB’s defence.

Finally, I should mention that, in the alternative to the primary bases on which Dr Seyfried’s claims are put, which I have dealt with above, various alternative bases are pleaded, and in particular unjust enrichment. In the end, none of the alternative bases were pressed by counsel for Dr Seyfried, and in my judgment rightly so. Dr Seyfried either succeeds in his contract claims or not at all.

I shall now summarise the position in respect of each of Dr Seyfried’s claims:

Dr Seyfried is entitled to €12,250 in respect of unpaid directors’ fees. Otherwise his claims fail.