UT (Tax & Chancery) UT-2022-0000150 - [2024] UKUT 00254 (TCC)

On 3 June 2008, Mr Jenkins, Mr Boath and Mr Kalaris attended a meeting with Dr Hussain, a lead negotiator for the Qataris, at which Dr Hussain said that “before committing” to the capital raising, the Qataris “need a fee of 3.75%”. Mr Boath did a note of that meeting, which ends with action points, including “decide on fee”. There was thus a gap between the fee the Qataris were looking for and the commission on which the Board had already decided. Mr Kalaris described this in his evidence as the “value gap”.

Mr Kalaris spoke to Mr Varley the same day, and then called Mr Boath to report that Mr Varley had said “he could live with 3.5% if he had to”, and that he had told Mr Varley that “the answer” was maybe “an agreed upon joint venture of some sort”. Mr Kalaris also spoke to Mr Diamond. Following those conversations, Mr Kalaris understood that the additional value would need to be provided by a side agreement.

On 5 June 2008, Mr Kalaris informed Mr Boath that Mr Varley had approved the 3.5% and at some point the Qataris agreed to a total of 3.5% rather than the 3.75% originally put forward by Dr Hussain.

Over the next few days, various ways of filling the “value gap” were considered. On 11 June 2008, Mr Jenkins suggested to Mr Kalaris that they use an agreement under which the Qataris would provide Barclays with access to their network of contacts and to sponsorship in the region, in exchange for the further money they required. Mr Kalaris agreed under cross-examination that this discussion was the origin of the idea to use an ASA.

Mr Kalaris had a telephone conversation with Mr Boath the same day. The transcript of that call incudes the following

“Mr Kalaris: I told him [Mark Harding, Barclays General Counsel] I expected him to review all these documents…[and that] I don’t want to go to jail, so Mark you’ve got to make sure you’re comfortable…

Mr Boath: What exactly are you going to propose to them?

Mr Kalaris: What we’re proposing to them is that we – that a week or ten days or whatever from now, once we sign the subscription, that we will then enter into an agreement where we pay for – we set up a joint venture and also paid for advice on the entire region.

Mr Boath: Right.

Mr Kalaris: And that that joint venture goes to [Paul] Emney and two or three other guys and their cost gets subtracted from the joint venture – sorry gets subtracted from the 35 [3.5].

Mr Boath: I see.

Mr Kalaris: And so what we have is that we have [inaudible] and that the joint venture is intended to advice [advise] and support our whole efforts in that region and frankly something, if you said to me pay the money and do it just on a pure arm’s length basis. Do I think I could make it work for the next, you know, the next two years, where if I had a commitment on the part of that client in that institution, absolutely right. I think I would do it at arm’s length.

…

Mr Kalaris: …You know, we need to think about what are the worst case scenarios, right. The worst case scenario is someone says well it’s not economic, and I say, bullshit, we’re paying this amount of money, in this relationship, with these guys, we’re delighted to do it.

Mr Boath: Yeah, I mean obviously the jeopardy is you know we’re rumbled and people say well that was bullshit, you know this is just a fee through the backdoor and ̶

Mr Kalaris: Yeah. But what would you say about Penguin [another potential investor]?

Mr Boath: I don’t know – It’s an MOU and its been disclosed…”

When asked about this exchange during cross-examination, Mr Kalaris said that he was American; that in the US the word “rumble” means “fight”, and that he hadn’t understand the word as used by Mr Boath to have “the British connotation” of “found out”.

We agree with Mr Stanley that this evidence was not credible, for two reasons:

Mr Boath and Mr Kalaris spoke again later on 11 June 2008; their conversation included the following exchange:

“Mr Kalaris: …what we’re paying for is we’re paying for the advice and other things like that, right, so we can make that clear and separate...

…

I mean I guess the question when we actually go down this path, you know…we need to make sure that [Mark Harding] is comfortable

…

Mr Boath: …he might say it’s okay, right, because whatever we do, right, you know, will not be related to this subscription agreement, but frankly we all know that whatever we enter into we are entering into in exchange for the subscription agreement. So, you know, he’s got to get his head round it.

Mr Kalaris: Yeah. Yeah that’s right. None of us wants to go to jail
here…”

In his oral evidence, Mr Kalaris said that Mr Boath “mis-spoke” when he said the extra 2% was “in exchange for the subscription agreement”. He added that “we all knew” the 2% was “part of an overall package with the Qataris”. When Mr Stanley asked “do you agree with me that it was a fact that the advisory agreement was connected with the Qatari investment in the first capital raising?”, Mr Kalaris replied “Yes, I do”.

A later exchange during Mr Kalaris’s cross-examination was as follows:

“Mr Stanley: The advisory agreement was the means by which Qatar would receive the value that it wanted as a result of its investment, albeit by providing services under the agreement. Do you agree with that?

Mr Kalaris: The Qataris had a view as to what they wanted to receive from the overall relationship with Barclays. That had two component parts to it. One was the participation at 1.5 per cent and the balance was the advisory service agreement. That provided the Qataris with the value that they wanted. The two were done in conjunction with each other.

Mr Stanley: It was the means by which Qatar would receive the value it wanted, correct?

Mr Kalaris: It was a means, yes. It was a legitimate means.”

Mr Stanley then put to Mr Kalaris that the ASA “secured…the Qataris participating in the subscription, because it delivered to the Qataris the further value which they were seeking while providing value for money for the bank at the same time?”, to which Mr Kalaris replied “that’s correct”.

When Mr Kalaris was asked to agree that the Qataris would not have participated in the capital raising had they not also received the 2% under the ASA, he said that it had been “evident from the beginning” that the Qataris “wanted extra value for the relationship with Barclays”. In his statement to the SFO, he had said in relation to his conversation with Mr Boath on 4 June 2008 that (our emphasis):

“…my understanding [was] that the Qataris wanted additional value for their investment to that paid into the first capital raise, and that the bank if it wanted to proceedwould need to consider a legitimate way of transferring added value to them.”

We find as a fact that the Qataris would not have participated in the capital raising had Barclays not agreed to pay the further sum under the ASA. This was clear from the first conversation with Mr Hussain; it underpins the entire approach taken by Barclays in response; and it is also explicit in Mr Kalaris’s evidence.

Mr Kalaris was not involved in working out the exact sum to be paid to the Qataris in order to fill the “value gap” between the 1.5% commission amount and the amount they were seeking. His consistent evidence, which we accepted, was that he considered that the 2% was worth paying in exchange for access to the Qataris’ network, and to obtain their support in developing Barclays’ presence in the Middle East, and he would have been open to doing the same deal on an arm’s length basis. That evidence is supported by his exchange with Mr Boath already set out at §90. We also accepted Mr Kalaris’s evidence that he had been looking for a method of filling the value gap which was “legal and commercial and practical”.