City Diary: Van de Berg special II

By The PMA Team

- Last updated on GMT

Related tags Van de berg Freehold

Martin: driven man
Martin: driven man
The PMA Team takes a look at some of the detail from JDW's recent fraud case victory over Van de Berg.

Stalking horse accusations

The Wetherspoon versus Van de Berg fraud trial lasted seven weeks and centred on 12 properties where Wetherspoon claimed Van de Berg diverted freehold pubs and four others that were acquired by rival Barracuda. In total around 600 pubs were acquired for Wetherspoon by Van de Berg while it was its "out-sourced property department". However, Mr Justice Peter Smith's judgement also makes it clear that there is another action pending in which Wetherspoon wants to hold Van de Berg to account in respect of a further 41 transactions. Mr Justice Peter Smith said: "There are well-founded accusations in my view on the part of the defendants that the present action is a stalking horse to gather further material for use in the action."

Finally Sidcup gets a JDW

One bone of contention in the JD Wetherspoon versus Van de Berg fraud case was a pub in Sidcup. Wetherspoon discovered that Van de Berg principal Christian Braun was involved in offering the pub site, at 7-8 Elm Place, to arch rival Barracuda. Braun claimed the site was too small for Wetherspoon and he, therefore, decided not to pass the details to the chain.

But in his judgement Mr Justice Peter Smith said: "It is simply not correct to pass these opportunities on to a competitor of the nature of Barracuda." Seven years after its initial attempt to open a venue in Sidcup, Wetherspoon opens a pub on the High Street this week. The company has spent £500,000 renovating the former Hog's Head pub, which will be called the Tailor's Chalk, referring to the shop that existed at the site in the Victorian era.

The rising cost of exclusivity

In the early 1990s, Van de Berg was paid a fairly modest sum by JD Wetherspoon — a retainer fee of £20,000 per annum and a commission on each property acquired

of £10,000. In late 1999, it was agreed that Van de Berg would be paid a flat annual fee payable in monthly instalments.

The first annual fee was £1.9m in December 1999. In 2001 and 2002, the

fees were, respectively, £1,980,000 and just over £2m. In subsequent years the annual fee was reduced (for 2003 and 2004) to £1,750,000 and £1,650,000 respectively. In 2005, when eventually Wetherspoon terminated the contract, a reduced

fee of £850,000 had been agreed. The lump sum contracts were agreed originally

because Christian Braun insisted that the same amount of work was required regardless of the number of sites subsequently taken on by Wetherspoon. The arguments in the High Court case revolved, in part, around the degree to which Van de Berg worked pretty much exclusively for Wetherspoon. Mr Justice Peter Smith said that an email from Christian Braun requesting an annual fee in 1999 is significant. It states Van de Berg was finding it hard to get bank support "due to the inherent risks of only working for JDW".

Mystery of costs and benefits

The final amount that Wetherspoon recovers from its action against Van de Berg and its

director could be derisory. One barrister, acting for defendant George Aldridge, suggested "it might be as low as £3.50", judge Mr Justice Peter Smith noted. He added: "(Former Wetherspoon finance director) Jim Clarke acknowledged in cross-examination that no cost-benefit analysis had been conducted by the board of JDW in respect of this litigation. Tim Martin is a driven man. Tim Martin attended every day of the trial for seven weeks. Of course he might have been working long hours

outside the court, but it was a very impressive amount of time to be devoted by the chairman of a plc to a piece of litigation."

White Knight tripe

The main defence provided by Van de Berg for its action was what came to be known during the hearing as the "White Knight defence". Van de Berg and founder Christian Braun held that on occasions JDW could not afford to buy a freehold and Tim Martin would ask Christian Braun to find a friendly investor who would grant a lease to JDW. On five occasions a freehold was transferred to a company linked to Paul Ferrari, Braun's former employer at Ferrari Howe, an estate agent in Harrow. Mr Justice Peter Smith said: "I find the white knight theory highly improbable." He added: "The significance of the Ferrari Five is the system that operated in all of them. The freehold was transferred in each case to a Paul Ferrari company for no apparent commercial reason, which led to the company making a profit at the expense of JDW at no risk to it." Later JDW bought back a number of the freeholds from Ferrari companies. The judge notes the Ferrari companies made a profit on subsequent re-sale of £1,360,000."

Earning a very fast buck

Van de Berg, which is no longer trading, is a wholly-owned subsidiary of a company called Fastbuck — Van de Berg founder Christian Braun is the sole present director and its shares are owned by him and his family.

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