THE OWNERS of the Shelbourne Hotel believe the landmark five-star
Dublin hotel is being "seriously mismanaged" by an arm of the Marriott
International hotel group and want to terminate the management
agreement, the Commercial Court has heard.
The owners
believe the level of alleged mismanagement identified to date, if
uncorrected, will tarnish the St Stephen's Green hotel's reputation and
iconic status, the court was told. Pending the outcome of the procedure
to terminate the management agreement of August 2006, the owners -
Shelbourne Hotel Holdings who acquired the hotel in 2004 – want a court
order allowing them access to the books and records of the hotel kept
by Torriam Hotel Operating Company, a company within the Marriott group.
The
owners claim its auditors have identified a "systemic breakdown" in the
financial controls at the hotel due to "serious mismanagement" by
Torriam, resulting in alleged significant financial losses.
Shelbourne
Hotel Holdings want to terminate the agreement with Torriam. The hotel
owners say they are not interested in Torriam's offer of €1.2 million
in an effort to resolve the dispute.
Yesterday, Brian O'Moore
SC, for Shelbourne Hotel Holdings, said his clients had spent €125
million on refurbishing the hotel and were seriously concerned about
the management of the hotel.
One of the matters of concern was
the resignation in June of the hotel's finance director and replacement
by a Marriott "task force".
Torriam denies any default of agreement justifying termination of the management agreement.
It wants a stay on the application for access to the books and records so the dispute may be referred to arbitration.
Mr
Justice Peter Kelly yesterday admitted the proceedings to the
Commercial Court and directed the application for a stay be heard on
December 2nd. The application for access to the hotel's books and
records would also be heard then.
In an affidavit, John Sweeney,
a director of Shelbourne Hotel Holdings, said no expense had been
spared to ensure the hotel was refurbished and fitted out to the
highest standards prior to reopening in 2007.
The owners in 2006
had negotiated a 20-year management agreement with Torriam. However, in
subsequent meetings with the owners, Marriott continuously defended
operational decisions which made "no sense", including not targeting
wedding business, he said.
The owners became concerned when margins did not seem to be improving over 2007 and 2008 was "looking no better", he said.
The
owners now knew that figures presented by Torriam at the meetings "had
no basis in reality", he said. The owners had tried to get details of
items such as the number of covers in the restaurant and the bar
figures but never received "straight answers".
The owners arranged for an investigation company to carry out covert observations.
Those
investigations had pointed to a number of practices which to some
extent explained the problems, including failures to provide receipts
to customers and flaws in reservations, restaurant, room service,
functions, bar and front desk, the owners said.
Shelbourne Hotel
Holdings had also organised an audit for 2007 but after just two weeks'
work the auditors withdrew from the hotel due to difficulties accessing
information, Mr Sweeney said.
The auditors' initial assessment
was the financial controls and accounting function within the hotel
were "weak" and a Marriott representative allegedly admitted to the
auditors the system breakdown at the hotel was the worst she had ever
seen.
After the auditors' work, the hotel owners were told by
Torriam the hotel sustained losses of €65,309 for 2007 although the
defendant had earlier indicated a net profit of €1.429 million.
Shelbourne Hotel Holdings was also concerned that Torriam had exposed it to unaccounted VAT liabilities.
By: MARY CAROLAN
