Montagu to pay pounds 172m damages over B&C: Merchant bank to appeal against 'negligent misstatement' ruling in court action that has lasted six years

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The Independent Online
SAMUEL MONTAGU, the merchant bank bought as part of HSBC Holdings' takeover of Midland Group last year, will this morning pay out pounds 172m in damages to the creditors of British & Commonwealth Holdings, the collapsed finance group, following a six-year court action.

The bank, which is appealing against the ruling, has been found liable for negligent misstatement after its head of corporate finance, Ian McIntosh, said that his client, a US- based financial group, Quadrex Holdings, was 'good for the money' when trying to buy two moneybrokers from B&C for pounds 280m in 1987.

The statement was made in a meeting with Richard Heley, then with the merchant bankers Barclays de Zoete Wedd, in August 1987 and repeated in front of Quadrex's lawyers, Herbert Smith. In the end the deal fell through when Citicorp, Quadrex's bankers, refused to fund the takeover.

The award was described by John Gunn, the former chairman of B&C, as 'absolute vindication of my decision to take on the might of Midland Bank'. Midland was one of three banks whose refusal to support a refinancing proposal forced B&C into administation in 1990.

The victory is worth between 11p and 16p in the pound to creditors, who have now seen pounds 772m raised from the administration of B&C, which collapsed with debts of pounds 1.1bn with another pounds 300m of contested claims. A member of the creditors' committee, Oliver Greene, of Chase Manhattan Bank, said: 'We are very pleased that the damage done to B&C and its creditors has received recognition.'

Mr McIntosh, who also advised on the flotation of Mirror Group Newspapers, which is the subject of a Department of Trade and Industry inquiry, is out of the country on business this week.

Yesterday Mr Justice Gatehouse ruled that Montagu has to pay a minimum of pounds 101m of damages and pounds 71m of interest to B&C. The money will be handed over today and there is another hearing in December to determine whether it has to pay another pounds 8m in damages.

In addition it may be found liable for B&C's costs, which have been calculated by the joint administrator, Peter Phillips, of the accountants Buchler Phillips, at pounds 16m. Montagu's own costs are expected to exceed that amount.

About pounds 80m of the award will be covered by existing provisions and insurance taken at Lloyd's of London. The rest will be provided for in HSBC's accounts this year.

Quadrex, which was headed by the US financier Gary Klesch, was found liable for breach of contract and ordered to pay B&C pounds 182m, an award that overlaps with the Montagu award and so is largely cancelled out. However, Quadrex has run into financial difficulties and is now controlled by Citibank. In the ruling Mr Justice Gatehouse said: 'Quadrex would not be able to meet any substantial judgments.'

It also emerged that Montagu funded Quadrex's legal costs for the second part of the trial, giving it a non-interest-bearing, unsecured 'loan' with no repayment date. Neither side would say how large the 'loan' was, but informed sources estimated it could have been as high as pounds 5m.

Graham Watson, a spokesman for HSBC, said Montagu funded Quadrex's costs because 'it was in our interest to defend the case'.

He said he felt Montagu had been penalised so heavily in the case because it was the only party left that could afford to pay substantial damages. 'It is a case of hitting those with deepest pockets,' he added.

Montagu has appealed on the grounds that the case rests on a verbal assurance not backed by documentation and that the judge assumed B&C would have been able to sell the moneybrokers, WM Marshall and William Street, to a rival bidder, the Canadian group CrownX.

A date of January 1995 has been set for the appeal hearing, which means that the case will have taken seven years to pass through the court system, the original writ having been issued in April 1988.

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