Something smelly at Barclays…

Amanda Stavely has had half a last laugh in her unsuccessful litigation against Barclays. She lost on causation but the court found material dishonesty on the part of her nemesis, Roger Jenkins, former Chairman of the Bank’s Middle Eastern business. The judgment is a monster (PCP Capital Partners v Barclays [2021] EWHC 307 (Comm) at over 200 pages). I have had a good go at pulling out most of the relevant bits from a professional responsibility perspective and I am working on an analysis with Trevor Clark which we hope to produce soon. In the mean time for those interested, a review of the case with a professional ethics lens being readied….

The case relates back to 2008 and the banking crisis. Barclays wanted to avoid taking a government Bailout to meet its capital requirements post-Lehman. As the Mr Justice Waksman puts it, “Quite how desperate it was, and what the consequences were, is one of the issues in this case.” It had already raised £4.5bn in June 2008, and needed to raise a further £6.5bn (£3bn by the end of the year) if it was to achieve this.

A state-owned entity and a Qatar company agreed to invest £2.3bn. PCP, Stavely’s business with a partner, himself a former solicitor, acting through wholly-owned special purpose vehicles (“the SPVs”) agreed to invest £3.5bn representing the beneficial interests of HH Sheikh Mansour Bin Zayed Al Nahyan” (of the UAE). Late on, but prior to the completion, Ms Staveley’s PCP agreed to transfer its ownership of the SPVs losing control of the intended investment into Barclays. Nevertheless, PCP obtained a fee of £30m in respect of its services relating to the investment in Barclays in the Spring of the following year.

PCP’s case was that Roger Jenkins had on three occasions said PCP would get “the same deal” as Qatar in respect of the investments. 5 years later, Staveley discovered as a result of the Serious Fraud Office (“SFO”) investigation into the deals that payments in excess disclosed commissions payable to the investors had been paid. Qatar had got a better deal because of these (allegedly) disguised fees paid to Qatar by Barclays in exchange for its investment and a £3bn loan made at around the same time as the second investment by Qatar. Ergo, Jenkins’ representation that the terms of the deals would be the same was “knowingly false”.

The loan is especially interesting because of the potential that it represented unlawful financial assistance by Barclays for the purchase of its own shares, something the SFO dropped from its prosecution of the Bank and several of the key players, including Jenkins, which was ultimately unsuccessful. I should note here PCP did not need to prove unlawful financial assistance to win its case. The disguised fees, if that is what they were, also may have breached the Companies Act which inhibited the payment of commissions to subscribers for shares.

PCP’s claim was that had Jenkins not lied to Staveley, she would have got a better deal and higher fees. It was this last bit that PCP’s/her case failed on. The court was not satisfied her chances, or the loss of her chance, of doing so were sufficiently strong. Her claim at its height had been £1.6bn, by trial it had shrink to £660m, and by the end (unless PCP successfully appeals) it was zero.

Whilst various criminal and FCA charges have been dismissed against individuals at the heart of this case, FCA proceedings “remain on foot so far as Barclays is concerned.” 

My interest is, though, not in the central players but in the lawyers. They had important roles in advising on the deals, and in drafting various documents, including the one page service agreements (the court called these ASAs) which are at the heart of the disguised commissions point. These agreements were very short. ASA1 was an agreement for three years, with all instalments of £42m to be paid within the first year. The services to be provided were described like this: “We have discussed the type and scale of services you will provide to deliver value in exchange for this fee and we know this will need to be refined by mutual agreement as our relationship develops further.”

The genesis of the agreements is that Michael Todd QC was instructed by Clifford Chance, acting for Barclays. A consultation note records that he, “was uncomfortable with BB paying the finders fee to Q” And that, “great care would need to be taken in determining the quantum of the finders fee”:

Counsel suggested that ensuring that the fees were well within the expected limit [of 10%, required under s. 97  of the Companies Act 1985] would be a practical way forward. Instructing Solicitors proposed that an initial fee that was well within the anticipated limit could be paid, and topped up with the remainder at the time the shares are in fact issued, to the extent required. Counsel agreed that the finders fee could be paid in tranches in this way. Counsel’s view was that the “price at which the ordinary shares of B are issued” for the purposes of calculating the 10% limit must be the “value of the consideration” set out in the section 103 report.

Beyond the finder’s fee, Todd agreed cooperation agreements entered into if on “normal commercial arm’s length terms” would be unproblematic in terms of financial assistance. The judge shows how this unfolds:

In the evening, Mark Harding, Barclays’ Group General Counsel, spoke to Patrick Sarch of Clifford Chance. According to his manuscript notes, he had told him that there was a proposal to pay the Qataris “£120m approx.”…“quite separately and not connected” and “not for the capital raising”. In an email to Matthew Dobson, Barclays’ Senior Legal Counsel, Mr Harding said that he had spoken to Mr Sarch who was comfortable with a separate fee being paid for: 

“other services rendered or in respect of other transactions on the basis that they would be on a normal commercial basis and not connected with the capital raising (albeit they did result from the overall relationship). I explicitly mentioned that the arrangement fee might be £65m. I also mentioned that the other fees might be at the level of 120m.”

According to the judgment the Qataris had at about this time threatened to walk away from the deal. A day or two later on Monday 27th October

Mr Dobson sent the following email to Mr Boath, Mr Jones, Judith Shepherd, Barclays’ Deputy Group General Counsel and Victoria Hardy, another Barclays’ Senior Legal Counsel:

“There is as yet no mention of commissions in the subscription documents. We probably ought to start putting on paper for the deal teams at the investors what we expect to see in Thursday morning’s signed docs. May we go ahead and do that? Secondly, we have not seen but will need to review whatever agreement is being produced to deliver Q value for services to be supplied by Q. When can we expect this document, or is it one that we should draft and, if so, can we have instructions during Tuesday, please?”

However, at 8.53 a.m. the following day, 28 October, Mr Dobson sent a further email as follows:

“Just to clarify, we in group will not draft or review any contracts for services – there will just be the 2% RCI and 4% C-bond commissions plus the £65m arrangement fee (the latter will for Companies Act purposes be classified as an additional element of Quail’s equity-linked commission to be disclosed on a Companies House form 97). Any other contract is essentially a BAU [business as usual] matter”.

PCP make something of this apparent volte face and the fact that:

In the event, instructions were sent to Jonathan Hughes, BarCap’s Global General Counsel based in New York to draft what became ASA 2.

It does seem strange. By November 9 the Qataris insist that the loan they are seeking must be from Barclays and not simply syndicated by them.

On 12 November:

“Linklaters were instructed to advise about the Loan because of concerns as to unlawful financial assistance. Later that day, Mr Jones told Mr Lejeune that he needed to tell Mr El-Khair that a representation would be needed that the proceeds would not be used to purchase Barclays shares. “ A meeting took place where it was said, “the loan would be used for the “general budgetary needs of the Qatari government. The Qatari government has recently committed $5 billion to recapitalise its banks and will also need $2 to $3 billion to support a likely bid to acquire Gatwick airport in the UK.”

It was noted that Linklaters had asked for the following in the “purpose” clause of the loan document, namely that   “the Qatari authorities could show that they had an alternative financing source for their subscriptions, that the use of the proceeds was specifically identified within the loan documentation and that the use of the loan would not leave Barclays in breach of section 151…” 

Linklaters later emphasised the importance of those points to L&W and BarCap.

On 13 November, Linklaters resigned. According to Mr Jones, they had done so “ostensibly on conflict grounds. Clearly very concerned about being able to control where the cash ends up. We are seeking to get CC instructed.” Clifford Chance were duly instructed.

On the same day, at the EGM, the relevant resolutions were passed by 85% of Barclays’

The implication seems to be, although we cannot be sure, that Linklaters were worried that the risks that unlawful financial assistance was being engaged in were too high. It is worth noting that the deals were approved by the shareholders whilst the doubts about legality of the side deals were very live.

Into the meat of the case: disguise and dishonesty

It is worth, by way of background but also of specific interest, to note that the judge found Ms Staveley’s evidence was mostly reliable, if there was some inaccuracy and exaggeration.

“I do not consider that the above matters affect the essential truth of her evidence on the core matters.”

Of Messrs Jenkins and Varley of Barclays, “It was clear to me that in relation to ASA 1, ASA 2 and the Loan, that their evidence was very carefully expressed in their WSs – almost too carefully – and in their oral evidence they came across as knowing very well the script to which they had to adhere.” This is an interesting choice of words. Is the judge suggesting that they have been prepared, by advice or by circumstance, on the giving of their evidence? It is something that we often seem to see judges in commercial litigation hinting at. The judge offers some kinder explanation, “I have no doubt at all that on the issues …they both felt acutely sensitive. And one can understand why, since such questions were very serious and went to their own personal integrity. But once cross-examination moved to the counterfactual, and in particular the provision or otherwise of AV they were both – almost visibly – much more relaxed. As a result their evidence flowed more naturally…” Perhaps this is the judges way of signalling his later findings on credibility. 

Part of Stavely’s case was that the ASAs and the loan agreement were a sham. The judge spends sometime going through the tests for a a sham (which is difficult to prove). She loses here. The judge notes, “a number of Barclays’ in-house lawyers including Judith Shepherd, then Deputy Group Legal Counsel and Matthew Dobson, Senior Legal Counsel,” were involved in these.

On 12 June, Mr Boath produced a first draft of what was to become ASA 1 which was sent to Ms Shepherd as follows:

“Further to our recent conversations I have pleasure in confirming the understanding we have reached regarding the provision of advisory services by [QIA] to Barclays Bank. 

We are delighted and privileged that you have agreed to advise us on a range of issues that will enable Barclays to further develop its business and footprint in the Middle East. I believe that this cooperation between our organisations will lead to many opportunities for both of us to benefit in the years to come. 

The terms of the engagement will be contained in a letter to be signed in mid July. The letter will describe in more detail the precise nature of the engagement and the roles and responsibilities of the parties involved. A draft of this letter will be made available to you in the coming days. 

In return for these services Barclays will pay [QIA] advisory fees totalling [  mn]. These will be paid in three equal instalments commencing in mid July and in two quarterly payments thereafter. The exact dates of these payments will be set out in the engagement letter. 

It is a great honour for Barclays to be entering into this agreement with QIA and I am looking forward to working with you and your colleagues in the years to come.”


A memo was then circulated on 13 June by Mr Jenkins who said that Ms Shepherd had assisted him.

Ms Shepherd, of course, was not called as a witness. The memo read:

“Following my meetings in Doha with Sheikh Hamad and Dr Hussain, we discussed a different approach to the proposed Project Heron transaction. 

Upon reflection the QIA through, Qatar Holdings, would be content with the fees of 1.5% for their £2bn commitment to the conditional placing with claw back. 

Given the increasing strategic content of our discussions and the development of our relationship we agreed we should enter into a memorandum of understanding (“MOU”). This MOU would become the framework under which we would operate in the future. The basic tenets of the MOU are as follows:

With my recent appointment as Executive Chairman of IBIM in the Middle East I have asked the QIA to advise IBIM on the development of our strategy and contacts in the region. This would be in addition to the engagements we have with HRH Prince Turki for the Kingdom of Saudi Arabia and the engagement of Dr Al Muhairi for Abu Dhabi. 

QIA is an active investor in the GCC and emerging markets and will as appropriate, at their sole discretion, offer Barclays Capital co-investment opportunities as they arise. 

Barclays agreed to pay an advisory and introductory fee per quarter of £______ in advance. In addition, Barclays will provide secondments to assist QIA with the development of the infrastructure administration and investment review processes.”

Ms Shepherd emailed Mr Jenkins and others, saying, among other things:

“This reflects:

The acceptance by Quail that the placing commission is 1.5% only and that additional value must be provided for any additional payment

The advisory services agreement will be for 36 months at a fee of £1m per month payable in advance

Quail will deliver value for money by providing introductions, connections, local cultural advice etc to facilitate expansion of our business in the ME. We believe real and valuable opportunities will arise as a result. There will also be secondments and other items which may deliver more direct value back to us as well. 

If anyone disagrees with any of the above or the description of the arrangement is not accurate please let me know. When all is agreed I will then arrange for the wording to be dropped into the prospectus.”

There was an internal discussion as to whether Barclays could pay the whole £35m (as it was then, being 1.75% of £2bn) within 12 months, as Qatar had requested. Ms Shepherd said that she did not agree with this because it would be “a bit smelly”.

Mr Dobson had said that in the prospectus, the agreement for general advisory services would have to be disclosed but not the fee. As far as Barclays was concerned, and according to a conversation between Mr Jenkins and Mr Boath, Mr Lucas would tell the Board it was a three-year contract without disclosing the amount payable, but if he had to, he would give the impression (or not deny the assumption) that the payment would be spread over the whole 3 year period, as opposed to being made in the first year.

Here is an interesting sign of the two sets of difficulties. One if the question of whether the agreements are really being agreed on a commercial arms length basis or are in fact disguised payments of the kind Michael Todd QC was worried about. The second is the apparent, on these words, the way the legal work enables a strategy of misleading the Board. The Board, not the execs in the room, are, formally at least,  the closer personification of the client, to whom the lawyers owe their obligations of best interests.

Mr Dobson then produced a further draft. As to what he should say in the covering email to the Qataris, Ms Shepherd said that: 

“In everything you write, you must make that the paper – and I’m (inaudible) you must make sure that nothing implied that this advisory agreement is anything other than a separate arrangement – you know, that (inaudible) for money’s worth. Be careful when you package these things up that you just say, “We’ve now reached terms on the advisory agreement without implying in any way that it’s in exchange for any other concessions..”

Again this speaks to the need to unlawful payments point. A further draft was prepared. It was still short but specified the advice, introduction, support and assistance that would be expected under the agreement.

L&W, acting for the Qataris, then sent a revised draft. This removed most of the detail from the services set out in the previous draft. Ms Shepherd observed that they had removed:

“a whole raft of services they’re going to provide for us until in the end they’re providing us nothing more than cultural awareness.” 

L&W had added a termination provision that: “if Barclays terminates this agreement for any reason whatsoever, the balance of the total fee will become immediately payable.” They had also added an interest provision calculated on a ‘LIBOR plus’ basis.

That draft, the judge agreed, ensured that the obligation to pay would subsist even if for example, Qatar did not render any services. A further draft from Mr Dobson on 22 June, described by the judge as a “detailed four-page service agreement”.

However, this elicited a severe reaction from Mr Al-Sayed, who called Mr Boath who reported their conversation to Ms Shepherd. He said that Mr Al-Sayed was “spitting” about the agreement and wanted “a nice soft short letter”. His telephone conversation with Ms Shepherd included the following exchange:

“Shepherd: I do know what he’s getting at but he’s got to grow up. This is not how it’s going to be, he is going to have to give the services in exchange otherwise you are going to end up in front of the Fraud Squad explaining why. 

Boath: No. I’m not. 

Shepherd: Well I think you and I are on the periphery of it and knowing what everyone else is like it’s going to be you and me. 

Boath: No I’ve got a house in Brazil, there’s no extradition treaty, I’m off. 

Shepherd: Okay can I come and stay with you sometime?

Boath: Absolutely

Shepherd: But you know we’ve got to have something that looks as if on the face of it, it works. 

Boath: He hates it. 

Shepherd: I don’t care at this moment. (Laughter)

Boath: [Laughter] We do have an awful lot at stake here. 

Shepherd: I know we do but in the end there’s a limit beyond what I’m prepared to go. Now I will go a long, long way and I will try and make it work but – ”

The upshot was a much shorter letter agreement circulated by Ms Shepherd which, according to PCP’s submissions, reduced the contractual content to a (legally worthless) “agreement to agree”.

On its face, it did not contain any commitment to supply any particular services at all. Following amendments from L&W, a final version was produced. 

On 23 June, Guy Norman at Clifford Chance emailed internally to say that he did not like the lack of detail in the agreement which was now “an agreement to agree the services”, yet contained detailed payment provisions. He had discussed with Barclays that this could expose them to suggestions that it represented disguised commission in relation to the placing, but was assured that the services which were being agreed were genuine and valuable and the payments being made were justified by the benefits received. He said that Judith Shepherd had received firm assurances on this from the BarCap negotiators, as they had emphasised the need for this to be appropriate remuneration for the relevant services. Of course one recognises this concern and it was focused on value. But if in fact there was no true agreement as to the services to be provided, then the whole agreement (including the obligation to pay) would fail for uncertainty. However, that does not make it a sham. If there is in truth no binding agreement at all for that reason, it cannot be a sham.

On 24 June, Mr Al-Sayed agreed to release the subscription agreements signed by the Qataris in exchange for the signed advisory services letter. Ultimately, Mr Varley signed a version of ASA 1 in blank with no figure inserted and which Mr Dobson later inserted as £42m, the figure having changed because of the slightly increased subscription from the Qataris. It was subsequently countersigned by L&W on 28 July.

The judge seems to agree that the ASAs are, “a virtually worthless piece of paper, save for the payment of the £42m….” But they were not a sham for the purposes of PCP’s argument because the Qataris refused to accept the kinds of obligation that Barclays asked to be put in.

There was in truth no need for the parties to intend not to be bound by the agreement because Qatar barely had to do anything to perform it”. Barclays had to pay without having “much if anything by way of entitlement under the agreement anyway.

The agreement, as executed, may well be regarded as uncommon or artificial or even perhaps reflective of a breach of fiduciary duty on the part of those who were involved in its production on Barclays’ side including, perhaps, Mr Varley who signed it. It might be regarded as a transaction at an undervalue. On any view the whole process looked “smelly” or “dodgy”. But none of that meant that the parties each intended not to be bound by what they signed.

And he says this:

Nor did the fact that, as is manifestly the case, this was adopted as a way to conceal from other investors that Qatar was in effect receiving a higher fee and that ASA 1 was clearly part of the package deal for Qatar along with the subscription agreement. Concealment is not, without more, the same as a sham.

On the illegal payments point the judge points out the ways in which the ASAs linked substantively if not formally to the capital raising. In relation to the ASA2::

On the face of it, the suggestion of a further advisory agreement (or as it became, an extension to ASA 1) only arose about after Mr Todd QC had said that a fee of £200m in exchange for the subscription could not be paid as such.

The judge criticised various untruths or exaggerations in the second agreement in particular, but was not willing to say they were of no commercial benefit or a commercial bet that the protagonists might have entertained.

I have found the assessment of the sham challenge to ASA 2 far from easy. However, I am not persuaded that it did amount to a sham. While some of Barclays’ evidence on this is unsatisfactory or disingenuous, it does not alter the fundamental reasons why, in my judgment, it is not a sham

Nevertheless, the judge clearly understands the ASA payments as

commercially linked” to the investment and a way of repackaging the finders fee they originally sought. Barclays “actions are wholly consistent with the Loan being part of the price for the deal and are not really consistent with any other scenario… it is incontestable on the facts that the Loan formed part of the price or consideration for the subscription which the Qataris sought and obtained.

The judge glides through the seriousness of this point from para 504.

A considerable amount of time was taken with this issue at trial. From Barclays’ point of view, this is understandable because a finding that the Loan was used or to be used to fund the subscription with Barclays’ knowledge would be a very serious matter indeed. It was its principal concern with the question of the Loan in my view.

In the end, however, I can take this matter quite shortly. First, and despite the highly suspicious confluence of dates, especially the drawdown on 17 November, the speed of the transaction and its orthodox features in particular a lack of knowledge as to the actual purpose of the Loan, I cannot be satisfied on the balance of probabilities that this is what the Qataris intended, still less what Barclays intended or knew.Mr Jenkins and Mr Varley, and others, may well have suspected that this was what was going on so far as the Qataris were concerned. Indeed, Barclays might have been well advised to prevent any drawdown in 2008 (as it originally wished) so as to eliminate this risk.

The resignation of Linklaters was itself a serious warning sign. But that does not equate to intention or knowledge on the part of Barclays. And it did at least manage to procure an agreement for the Loan which expressly addressed the issue of purpose and unlawful financial assistance even if it did not go as far as it might have done.

Secondly, I cannot safely conclude on the balance of probabilities that the Loan was in fact used to fund the subscriptions….

…This is not the more usual case of a financial assistance challenge where it may be possible to show the offending cash-flows directly, and where it is clear that without the funding, the borrower could not have afforded to enter into the relevant transaction. Here, Qatar was, in truth, cash-rich.

The point of interest here is that Linklaters felt the deal was too smelly to proceed with, Clifford Chance did not. The judge clearly thinks the deal smelly, but not smelly enough to find financial assistance. Did Linklaters dodge a bullet or did CC have a better gauge of the actual risks?

It is worth ending with one more nugget from this case before I make a closing point or two. At a very late stage in the case , December 2020, a letter from 31 May 2019 was disclosed, “intimating a claim against Barclays by Ms Shepherd. …[In which], her solicitors say that the dishonesty of senior employees of  Barclays in making ASA 2 was concealed from her. The claim is for substantial damages for breach  of contract and duty.” The lateness of the disclosure may be another point of contention which bears investigation. The judge merely notes, “It should have been disclosed earlier, given the role which  Ms Shepherd played (albeit that she was not called as a witness) and given Barclays’ general point  about the numerous lawyers being involved in ASA 2 so as to rebut the suggestion of a sham.”

We do not know if the claims was settled, dropped, or proceeds. For the latter bring popcorn, but from Brazil, perhaps with a Mexican Coke.

One point worth emphasising is that for all that I have focused on the lawyers, it is only Mr Jenkins honesty that is really the focus of the court here. The judge is clearly concerned though. Remember these words, “the [ASA] agreement, as executed, may well be regarded as uncommon or artificial or even perhaps reflective of a breach of fiduciary duty on the part of those who were involved in its production”. But he does not need to explore that in detail save to consider whether the agreement was a sham in the narrow sense of the word. He agrees Barclays agreed to pay the money, for not much in return, so it was not a sham, is perhaps the essence of the decision there. Or put another way, it was not a sham but it was concealment. The point we are interested in is different: was the nature of that payment disguised to avoid (evade?) the law, or even to mislead Ms Staveley? Was the client, in the shape of the shareholders, misled? Did the lawyers lack the requisite integrity? More on this soon.

One thought on “Something smelly at Barclays…

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