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.
