“A radically different proposal” followed in June 2002, when the Court was told that “Mr Sutton was invited by Harrods Estates to become involved in another project involving Harrods Estates, in respect of the sale and purchase of Fulham football ground at Craven Cottage.”


Arrangements to Sell Craven Cottage

The Court heard that Nicholas Sutton was approached in the summer of 2002 by Mark Collins of Harrods Estates (who is also a director of Fulham) who told him, in the words of one counsel, that "Fulham had a problem, Fulham wanted money and they wanted it quickly." Mr Sutton was told he had five weeks to conclude a deal which, in the words of Mr Justice Peter Smith, was marked by "an exceptional upfront deposit."

Following a series of meetings with Harrods Estates, the Court heard that Nicholas Sutton approached many different potential sources of funding in August 2002, including the Royal Bank of Scotland, Bank of Scotland, Investec, Miller Group and Apollo Real Estate. Nicholas Sutton told the Court that none of these attempts were successful. "The proposal had been rejected by RBS and Miller Group. Bank of Scotland were not being overly positive, leaving a large equity requirement. Apollo Real Estate had rejected the deal and Investec were trying to rewrite the contract for the acquisition of the site.”

Nicholas Sutton expanded in his evidence on why some of these lenders refused to become involved in this project. He stated to the court that the Royal Bank of Scotland “were not interested at all, because they were the previous owner of the football club, when they put it into receivership, and had huge problems with it, so they had no interest.” Similarly Apollo Real Estate, Sutton explained to the Court, “was an extremely short meeting, because they said, without getting into appraisals or anything, there was no way they were prepared to get involved with a football club with the issues relating to fans and being the bad developer”

In the end, financing was produced by a Mr Mark Steinberg. In the words of Mr Justice Peter Smith, “We know that Mr Sutton probably knocked on every conceivable door in August to try to get the money, and ultimately he went down Mr Steinberg's road because there was nobody else. That is what his evidence was. It was not challenged.”

The Court was told of several significant details concerning the arrangements between Steinberg and Sutton. The Court heard that on 16th August 2002 Mr Sutton sent an email to Mr Steinberg, the first paragraph confirmed a conversation the day before, that he personally (i.e. Mr Sutton) had a contract to acquire the Fulham Stadium and that he was faxing the heads of terms to his office. He then summarised the terms and said this:

"Strategy is come in quickly now and secure site. Then asap sell out
for a profit which we roll over for equity and profit share into a JV
with a major developer. So far Miller Developments and Taylor
Woodrow via Hutchinson Whampoa very keen. We act as lead
developer but have no money left in the deal just profit.

Can you get this financed. Harrods will want a great deal of comfort
about ability to come up with balance of purchase price."

On 22nd August 2002 Mr Steinberg (himself an experienced property developer) wrote to Gary McCollum at Irish Nationwide Building Society outlining the transaction and including notes. He reiterated details of the scheme and attached a valuation valuing Craven Cottage at approximately £63 million. He wrote the following:

"A strategy to move quickly and secure the site off market,
thereafter either selling out the land in its entirety subject
to planning for a substantial profit or rolling the profit over
for equity and a substantial profit share into a joint venture
into a major development.

This seems an opportunity to secure a highly prominent site off
market which would enable a substantial profit to be earned with
minimal risk. We are prepared to place on deposit on day one
sufficient funds to fund the interests for two years (circa £2 million)".

Following negotiations Mark Steinberg persuaded the Irish Nationwide Building Society to arrange for the financing to be provided for the deal. Mr Justice Peter Smith stated about Nicholas Sutton “The probability is they would have needed somebody like Mr Steinberg to put the money up…. You only have the opportunity now because of Mr Steinberg's ability to conjure up £15 million to Irish Nationwide, through his own personal connections.”

Structure of Fulham River Projects Deal

The Court heard that Fulham River Projects was created to ensure that those behind the purchase of Craven Cottage could not be identified. Mr Justice Peter Smith stated “we know that the second defendant (FRP) was only incorporated to hide Mr Sutton and Mr Steinberg's involvement in the contract so that fans did not knock at their door.” In the words of Nicholas Sutton, “To safeguard ourselves, we would exchange through an off-the-shelf untraceable company. The vendor will front all planning discussions and we will remain entirely in the background."

Nicholas Sutton, who stated to the Court that he was a multi millionaire, provided FRP with £100,000. The Court heard he could receive up to £5 million should the development be constructed. Mark Steinberg placed approximately £1.8m into FRP to pay for professional, lending and arrangement fees and provide security to the Irish Nationwide.

The parties to the action also confirmed in evidence that FRP has no assets other than the agreement to buy Craven Cottage and that no arrangements were in place to finance the remaining £35m plus amount payable in the event Fulham received planning permission for Craven Cottage.

Requirements for Confidentiality

The parties made clear to the Court the importance of confidentiality to these arrangements. Nicholas Sutton stated to the Court:

“We have a very strong confidentiality undertaking. Clearly the loss of the football stadium would cause a great deal of concern among Fulham fans. The fans will be sold on the move to a new site on the basis that the development of the existing site will cost 80 million and create only a 30,000 capacity stadium. This is unviable and would bankrupt the club. On a new site at cheaper land cost, the stadium could be built for 40 million, with ancillary facilities such as a Fulham superstore, which is a viable proposition for the overall future of the club in the Premiership. To safeguard ourselves, we would exchange through an off-the-shelf untraceable company. The vendor will front all planning discussions and we will remain entirely in the background."

He later stated “Fulham felt their chances of getting planning consent could be sold by them to the planners much better if the fact they had actually sold the ground on to a developer were kept confidential, because Fulham could make the argument that, "We need a bigger stadium, we cannot economically develop our existing stadium, and we need to find a new site".

Commercial Arrangements

The Court heard the following key details about the FRP deal:

• Fulham received £15m as an upfront deposit that the Judge described as being “desperately needed.”
  
• The £15m figure was a key issue for Harrods/Fulham throughout negotiations with Mr Sutton, with Nicholas Sutton being pressured to provide these monies by 31 July 2002.
  
• Fulham would receive an additional £35m should planning permission for luxury development with limited social housing before 30 September 2004 be received.
  
• The extremely high rate of interest payable by Fulham if the deposit monies need to be repaid was described in Court as “wildly in excess of the cost of borrowing”.
  
• Fulham have until summer 2004 to make a planning application or face having to repay the deposit monies.
  
• Nicholas Sutton testified that he expected it would take a total of 7 years from the submission of a planning application to the completion of the redevelopment of Craven Cottage.
  
• The price agreed by Harrods for the sale of Craven Cottage represented a minimum 20% profit for the developers of Craven Cottage. Nicholas Sutton estimated this at £35m.
  
• If Fulham Stadium did not repay the deposit monies paid by FRP that “the first point of call would be to Harrods Holdings” to collect these monies

Court View of Nicholas Sutton

The accuracy of Mr Sutton’s recollections of events was central to this case. A typical exchange on this issue included:

MR JUSTICE PETER SMITH: So you are not a man who can be relied upon then, contrary to what you said at the start of this cross-examination, is that right? Your word is not your bond, you do not tell the truth.

A. My word is my bond.

MR JUSTICE PETER SMITH: You just agreed with Mr Hochhauser you are willing to tell lies when it suits.

A. I am sorry, my Lord, I do not consider that to be --

MR HOCHHAUSER: A lie?

A. No, I consider it to be misleading, in terms of telling the world that --

MR JUSTICE PETER SMITH: You knew it was misleading. That makes it fraudulent in the law. You wrote something that you knew was untrue. That is the position, is it not?

Judgement

In January 2004 the Court found for the Claimants and against Nicholas Sutton and Fulham River Projects. The following comments were made about Nicholas Sutton: “Mr Sutton as I have already observed was demonstrated to have lied on a significant number of occasions…I am firmly of the view that Mr Sutton told lies…. It is a sorry story. Mr Sutton has to my mind repeatedly told lies”

This result means that the parties who created FRP had lost in Court and no longer controlled Fulham River Projects. In addition the objectives of secrecy to ensure that Fulham fans did not know what was going on with Craven Cottage had not been attained. It was now clear how FRP was created, who was behind it, and what the real state of this company’s financial strength was.

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