Property agents face uncomfortable scrutiny following yesterday's High Court victory by managed pub group JD Wetherspoon over its former property advisor Van de Berg.
After a three-year-long legal battle, and in a judgment running to 136 pages, Justice Peter Smith ruled that Van de Berg and its managing director Chris Braun had breached their fiduciary duty to Wetherspoons by concealing the fact that freeholds on new pubs were available and advising it to take leases on the properties instead.
Van de Berg then secretly arranged for the freeholds to be sold to other clients and associates at a large profit once Wetherspoons had committed to taking the lease, because the properties instantly became much more valuable when a tenant was signed up.
In some cases Wetherspoons later went on to buy the freeholds from the property investors at prices that had been inflated by the strength of its own covenant.
One legal source said: "This case shines a spotlight on a part of the property world where a lot of surveyors would rather it wasn't shone."
Van de Berg advised Wetherspoons in the opening of around 600 new outlets between 1989 and 2005 and received some £14m in fees before its contract was abruptly terminated.
Wetherspoons submitted 12 examples of Van de Berg's double-dealing to the court, which it said cumulatively added some £5.5m to its property costs.
For example, in 1994 Wetherspoon leased a pub in Bournemouth from Forte at a rent of £125,000. Unbeknown to Wetherspoons, the freehold had been available for around £1.35m a few months before it took the lease.
Later that same year the freehold was sold by Forte to Prudential, with Wetherspoons installed as the tenant, for £1.7m. Wetherspoons eventually bought the freehold from Prudential in 2001 for £2.8m.
It believes it could have saved itself £1.35m on the property if it had been correctly advised by Van de Berg back in 1994. Forte and Prudential are not accused of any wrongdoing.
Tim Martin, founder and chairman of Wetherspoons, said: "We are delighted with this result. The defendants were dealing with us on the basis of trust and received fees of many millions of pounds over a long period.
"It was astonishingly greedy to divert properties to third parties. A lot of people think that anything goes in the property market and this case shows that that's not true."
Chris Braun was cross-examined for 15 days in the witness box, which Justice Peter Smith said had been necessary "to break down Mr Braun's dishonesty". A separate legal action will determine how much compensation must now be paid to Wetherspoons by Van de Berg.
Speaking in court yesterday, Catherine Newman QC for Wetherspoons said that Van de Berg is likely to be wound up "in due course". During the trial Wetherspoons revealed that it had already incurred £3.6m in legal costs.
Judge Smith ordered that Van de Berg and its directors pay 80 per cent of the £5.5m losses cited by Wetherspoons into court by April 22, 2009, plus 80 per cent of the £2.8m in legal costs to date.