By George Matlock
Andrew Haydon denied negligence and hit back at Londons High Court, October 31, 2000, on the second day of a legal action brought by Sir Elton John.
Sir Elton is suing Andrew Haydon, of Elton's former management company John Reid Enterprises (JRE), and City accountancy firm PricewaterhouseCoopers, which looked after his business interests. (See related stories 'Big £20M in a little suit' and Elton wants accountants' evidence of spending blocked )
Elton alleges Haydon was negligent in allowing JRE to charge him tour expenses - including booking agents, accountants and producers. Elton's case is that the "several millions" which he paid out in touring expenses should have been borne by JRE under a management agreement. PricewaterhouseCoopers (at that time called Price Waterhouse) are accused by Elton of negligence in managing his affairs. Both defendants are contesting vigorously Eltons legal action. The case is expected to last eight weeks.
Haydon was formerly managing director at JRE which oversaw much of Eltons tour business and manager of Eltons company Happenstance Ltd. For 17 years Haydon, aged 45, played a role in looking after Eltons financial affairs during the 1980s and 1990s.
On Monday, Gordon Pollock QC, appearing for Elton in Court 17, said ex-Elton manager John Reid shared in Elton's success, in one single year earning £15 million commission, or £73.5 million over 18 years. Reid reached an out-of-court settlement, now understood to have been £3.5 million (US$5 million), after parting company with Elton in 1998.
Elton is pursuing PricewaterhouseCoopers and Haydon for more of the money allegedly lost, which press reports have suggested to be £20 million in total - mostly expenses from North American tours - he says should not have been paid by his three companies W Bong Ltd, J Bondi Ltd and Happenstance Ltd. Elton is a director of these three companies.
Mr Ferris listened on Monday as Mr Pollock explained how a chain of local promoters, booking agents and tour producers were involved in the organisation of a major overseas tour, each of whom took their cut. "One wonders whether there is anything left over," said Mr Justice Ferris.
The court heard Monday the alleged discrepancy in Eltons income came to light only in 1998, when he parted company with long-time manager and friend Reid.
Mr Pollock said the problem started when the accountants PricewaterhouseCoopers were finalising accounts of his 1987 North American tour. The firm had taken on the Eltons business only a year before the alleged error.
In dispute, in particular, is clause 7.2, a sub-section of the 1986 new contract between Mr Reid and Elton. He said that under a new contract signed in 1986 and dating back to 1984, JRE had increased its commission to 20% of Elton's pre-tax earnings (previously it had been after-tax earnings) on the condition that the management company took on additional costs. But the team of three accountants at PricewaterhouseCoopers failed to implement the change in contract, leaving Elton paying hefty booking fees, travel expenses and accountancy charges while on tour.
Mr Pollock said PricewaterhouseCoopers had failed to contact Elton or his lawyers when initial concerns were noted. These concerns were not followed up despite being raised in the original assessment of Elton's accounts.
Mr Pollock told the court that PricewaterhouseCoopers would state that the contract would simply have been rectified if discussed earlier. The firm would also claim that the $5m settlement between Sir Elton and Reid settled any compensation for all parties.
"Your Lordship is now going to dive for the first time into the undoubted pleasures of Volume G," said Mr Pollock good humouredly, as he prepared to take the judge through a detailed account of PricewaterhouseCoopers 1989 audit one small part of the mountain of paper submissions with which both sides have prepared their cases.
Mr Pollock argued there was clear evidence that at least one of the accountants, Glyn Barker, had recognised the anomaly during their preparation of company accounts but no explanation had been given as to whether the matter had been satisfactorily resolved, and money due to Elton had continued to be paid to JRE over the succeeding years
Elton's claim had originally included a figure to account for the extra interest payments on his overdraft, on the grounds that these were far higher than they would otherwise have been. But after lunch Monday Mr Pollock told Mr Justice Ferris that this claim was being dropped. He understood, he said, that PricewaterhouseCoopers were preparing to call Elton's well-publicised capacity for shopping into evidence and had amassed a considerable body of evidence to demonstrate that the singer "always wanted to spend up to and beyond the limit of the money available to him".
Mr Justice Ferris asked mildly: "Money is to spend, isn't it? And the fact that you're disposed to spend rather than save does not disentitle you to what you are legally entitled to."
Turning to Haydons role, Mr Pollock said. "Mr Haydon effectively ran and was the driving force behind JRE. He received on top of his generous salary a bonus of 5% of the company's commission from Elton John's earnings.
"But the main issue of this case concerns certain costs when Sir Elton goes on tour, costs - which should have fallen to JRE."
But on Tuesday, Andrew Fletcher, the lawyer appearing for Haydon, argued that everything had been done in accordance with management contract terms and conditions.
Mr Fletcher told presiding judge, Mr Justice Ferris: "We say, given the complexity of these matters, it is quite clear it was not negligent of (Mr Haydon) to hold the belief which he held - that under these management agreements the expenses that we are concerned with were in fact for the account of the Elton John companies."
A crucial contractual clause showed it was "the clear intention of the parties that the relevant expenses were to be borne by the EJ companies.
The bottom line of the case against Haydon was that, acting in his capacity as a director, he was "negligent in failing to appreciate that the way these expenses were dealt with was inconsistent with the provisions of the management agreement" and should have alerted Elton or his legal advisers.
Rejecting that argument, Mr Fletcher said: "It is the case that my client believed for a period of some 14 or 15 years that the treatment of expenses which was being implemented by JRE was correct. It is also important to state that it is not challenged by the claimants that he honestly so believed. That is not in issue. What is said by the claimants is that my client should have appreciated that that treatment was incorrect."
The hearing was adjourned until November 1, 2000.
EJW.com court reporters will also continue to bring you the latest breaking news about this court case, and provide succinct context and relevant legal notes to guide you through a complex case, in the weeks ahead. Please be aware that EJW.com is unwilling to prejudice the court hearing, and its expert panel will therefore not offer any "what it all could lead to" analysis of the deliberations until the trial closes.