England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Mr Justice David Richards
[2013] EWHC 2191 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		8th July 2014

Lord Justice Rimer :

Introduction

1. This appeal is against an order made by David Richards J on 31 July 2013 in proceedings in the Chancery Division, Companies Court. The citation number of his judgment is [2013] EWHC 2191 (Ch). His order reflected his ruling on 'the Investment Issue' that arose in the wake of an 'unfair prejudice' petition presented under section 994 of the Companies Act 2006 by a Cypriot company, Caldero Trading Limited ('Caldero'), the respondent. Caldero is wholly owned by Zoran Becirovic, a citizen of Montenegro, who was one of the two crucial witnesses at the trial of the issue.
2. Caldero is a minority shareholder, holding just over 25% of the shares, in the company the subject of the petition, Beppler & Jacobson Limited ('BJUK'), a company incorporated in England and Wales. BJUK has a wholly owned Montenegrin subsidiary, Beppler & Jacobson Montenegro D.O.O. ('BJM'). Leibson Corporation Limited, a British Virgin Islands company ('Leibson'), is the majority shareholder in BJUK, holding just under 70% of the shares; and Belinda Capital Limited, a Nevis company ('Belinda'), holds 5% of BJUK's shares. Igor Lazurenko, a Russian citizen, owns Belinda; and either he (or perhaps an unidentified principal) owns and controls Leibson (see [5] of the judge's judgment), although in [63] the judge appears to have found that there is no such principal. Mr Lazurenko was the other crucial witness at the trial.
3. The petition was presented on 3 May 2012. Its expedited trial was due to start on 13 July 2012. On 16 July 2012, it was, however, settled on agreed terms contained in an order made by Newey J. That order recited that the court was satisfied that it was just and equitable to wind BJUK up and that its affairs had been conducted in a manner unfairly prejudicial to Caldero. The order provided for Leibson to buy Caldero's shares in BJUK at a price to be fixed by an expert as their fair value in accordance with the terms of schedule 1 to the order. That valuation required a prior determination of the Investment Issue, namely 'whether any sum invested in [BJUK] and/or [BJM] was invested (or was agreed to be invested) by way of loan or capital …'.
4. All money invested in BJUK and BJM came, one way or another, from companies on what might be called Leibson's side (in one instance, by repaying a bank loan to BJM). The commercial significance of the issue is that if, as was originally Leibson's case, every euro it invested was agreed to be, and was, by way of loan, then all such loans were repayable before the profits of the two companies were split between BJUK's shareholders in the agreed proportions. If, on the other hand, as was Caldero's case, all Leibson's investments were agreed to be, and were, payments of a capital nature, they were not so repayable before the split of any profits but were treated between the shareholders as capital subscribed by them in proportion to their shareholdings.
5. As all the money invested in BJUK came from Leibson, it might be thought that Caldero's case was an improbable one. But Leibson itself departed from its own original extreme position (which the judge found Mr Lazurenko had advanced dishonestly) and accepted that at least a material part of its investment was agreed to be, and was, invested as capital, just as Caldero had claimed. The remaining issue was whether all Leibson's investments were agreed to be and were so invested. After a 13-day trial at which the judge heard evidence from the two protagonists, Mr Becirovic and Mr Lazurenko, the judge gave his reasons for preferring and accepting Caldero's case that all Leibson's investments in the companies were by way of capital. The commercial significance of that is, the judge said, that it was likely to make a difference of at least €10 million to the fair value of Caldero's shares.
6. The appellants are Leibson, Belinda, Mr Lazurenko, Lawson Trading Limited ('Lawson'), and Sergei Scheklanov, all of whom were respondents to the petition. Since the buy-out order imposed the buy-out obligation only upon Leibson, I do not understand what interest the other appellants claim in the appeal and none was apparent from Mr Kitchener QC's presentation of it. That is particularly so in relation to Lawson, which Mr Lazurenko had dishonestly asserted was the beneficial owner of BJUK's assets; and in relation to Mr Scheklanov, whom the judge also found to have no interest in the venture, rejecting as lies Mr Lazurenko's assertions that Mr Scheklanov was his principal. None of the judge's findings in relation to Lawson and Mr Scheklanov are challenged.
7. With the permission of Gloster LJ, the appellants challenge the judge's finding as to the nature of the investments. The appeal is purely fact based. Bearing in mind that the judge found that Mr Lazurenko's evidence was 'shot through with dishonesty', the claim that the judge should nevertheless have preferred his case on the key factual point at issue might be thought to be a challenge for any advocate, notwithstanding that the judge was also unimpressed in material respects by the reliability of Mr Becirovic's evidence. The case advanced by Mr Kitchener was, nevertheless, that the judge was: (i) wrong not to find that Mr Becirovic's account of the parties' agreement was so commercially improbable that it should be rejected; and (ii) wrong not to regard certain of the documents in evidence as showing that Mr Lazurenko's revised account of the agreement was what had in fact been agreed. Mr Hollington QC, for Caldero, submitted that the judge's findings were unimpeachable and that there was nothing in the appeal.
8. The appeal was listed for three days, apparently because it was foreseen that we would be treated to a wide-ranging review of the evidence before the judge. In the event, the argument lasted for only about four hours. We were presented with some 17 lever arch files of documents and authorities. Only one authority was actually cited to us and I doubt if we were referred to more than about 24 of the thousands of pages that were copied. I regarded the skeleton arguments on both sides as too long, the appellants' (which included a schedule and four appendices) occupying 72 pages, and Caldero's (with no schedule, but also four appendices) 67 pages. The requirements of CPR Practice Direction 52C, paragraph 31, are that skeleton arguments should not 'normally' exceed 25 pages. Caldero, however, defended the length of its skeleton by saying that this was not a 'normal' appeal, and that it had answered the grounds of appeal in 22 pages, with the bulk of the balance devoted to its cross-appeal, which in the event formed no part of its oral argument to us. I nevertheless still regard both skeletons as having been too long. It is a travesty to call such written submissions 'skeleton' arguments.

The facts in outline

9. For the full facts, the interested reader can refer to David Richards J's typically careful, comprehensive and lucid judgment. What follows derives directly from it, but does little more than identify what is necessary in order to understand the appeal.
10. Mr Lazurenko is a Russian citizen, born in 1962, who had a successful business career in the oil industry, becoming employed ultimately in the TNK-BP group, in which he became the director of its logistics department. His boss there was German Khan, who has the reputation of being a wealthy and powerful businessman. Mr Lazurenko resigned from the group in April 2012.
11. Mr Becirovic is a Montenegrin citizen who started business in the late 1980s, trading in commodities. During the 1990s, he lived for a time in Cyprus where he had a business; and since the mid-1990s, he has also spent much time in Russia where he has various business projects. The majority of his present business interests are in Montenegro.
12. Both men have a good understanding of English, but both gave their evidence in Russian, although Mr Becivoric's first language is Montenegrin. The judge found that they were both intelligent but that Mr Lazurenko was by some margin the more sophisticated business operator.
13. The two men met in Moscow in late 2001, having been introduced by a mutual business contact. Mr Lazurenko was interested in exploring investment opportunities in land in Montenegro. His experiences in Montenegro had, however, taught him that anyone wishing to acquire land there would be assisted by someone with strong connections at local and state level. He had learnt that Mr Becirovic was well known and well connected there, and Mr Lazurenko regarded him as having the sort of connections he was looking for.
14. The two discussed the possibility of co-operating in making investments in Montenegro. In 2002, they agreed to make a bid for the Avala hotel, using BJUK as the purchasing vehicle. BJUK had been incorporated on 7 November 2001; and by 2002, Leibson held 80% of the issued shares and Mr Becivoric held 20%. Mr Becirovic believed that Leibson's shares were held as to 70% for Mr Khan and 10% for Mr Lazurenko, but he was wrong: Mr Khan had no interest in the Leibson shares. On 19 June 2002, BJUK filed a bid for the Avala, comprising a €3.2 million purchase price plus a commitment to spend some €9 million on its renovation. The purchase ran into legal difficulties, which there is no need to describe, but the outcome was that BJUK eventually signed a contract for the purchase of the Avala on 16 January 2004 for €3.2 million, plus a commitment to spend €9.032 million on renovation works.
15. Because of the hold-up in the purchase of the Avala, Mr Becirovic and Mr Lazurenko also looked for other investment opportunities, and Mr Becirovic suggested a bid for the Bianca hotel. In October 2003, BJUK bought the Bianca for €1.56 million, plus a commitment to spend €3 million on its renovation.
16. BJM was incorporated on 14 October 2003 as a wholly owned subsidiary of BJUK. BJUK transferred the title to the two hotels to BJM in December 2005, whilst retaining ownership of the land on which they stood.
17. On 4 October 2004, shares representing 5% of BJUK's issued capital, plus one share, were transferred by Leibson to Mr Becirovic, giving him just over 25% of the issued shares, with Leibson retaining just under 75%. There was disagreement as to the circumstances in which such transfer was made.
18. Mr Becirovic's contribution to the investments was his local knowledge and construction expertise: he was responsible for arranging and executing the purchases of the hotels and their renovation. Mr Lazurenko was to provide the money needed for the purchases and the renovations. The basis on which this would be provided was agreed at meetings in 2002. The judge found that it was common ground that by the time of the bid for the Avala:

'23. … the parties had agreed the basis on which finance would be provided for its purchase and renovation. There is very little further common ground on this central issue. Mr Becirovic and Mr Lazurenko differ markedly as to the time at which and the circumstances in which their agreement was made and, of course, they differ on the terms of the agreement.'

19. There was no doubt as to what Mr Becirovic's case was. His:

'8 … consistent position has been that it was agreed that all finance for the purchase and reconstruction of the hotels would be provided as capital. Even if any part of the finance was provided as a loan, as a matter of accounting between the parties, it would be treated as capital introduced by Mr Lazurenko.'

20. Mr Lazurenko's case was not consistent. Down to 11 July 2012 (two days before the trial of the petition), his case was that all the finance he provided was by way of loan. On that day, however, he changed his case, which became and remained that it was agreed that the first €8.2 million of funding for the Avala and the first €4.71 million of funding for the Bianca would be treated as capital, but that at any funding in excess of this would be by way of a loan. The judge said there was no written agreement governing any of the sums invested and that the determination of the issue depended ultimately on the credibility and reliability of the evidence of Mr Becirovic and Mr Lazurenko. The significance of the issue is that in the case of each hotel the renovation works cost more than was provided for in the original bids. The renovation works for the Bianca were carried out between September 2004 and July 2005, at a cost of a little over €6.9 million. The renovation works for the Avala took place between April 2006 and July 2011, at a cost of approximately €36 million.
21. In April 2008, Mr Becirovic transferred his BJUK shares to Caldero. In October 2010, Leibson transferred 5% of its shares in BJUK to Belinda. Mr Becirovic and Mr Lazurenko began to fall out in 2009/10. The petition was presented on 3 May 2012.

The judge's judgment

22. The judge pointed out, at [34], that in the absence of any record of the terms agreed between the two men on the Investment Issue, he was faced with the difficult task of deciding which of them was telling the truth. He referred for guidance as to the approach he should adopt to what Robert Goff LJ had said in The Ocean Frost [1985] 1 Lloyds Reports 1, at 57, namely to test the veracity of the witnesses by reference to the objective facts proved independently of their testimony, in particular by reference to the documents, and 'also to pay particular regard to their motives and to the overall probabilities.' The judge, however, noted that in the instant case there was 'precious little documentary evidence which bears at all on the [Investment Issue].' He said that there were no accounts for BJUK and that such accounts as did exist were inconsistent with the cases of both parties. He continued:

'36. The general absence of documents has perhaps led to exaggerated reliance being placed on the few documents thought to be in point. This is therefore a case, more than most cases of a commercial type, which turns on the credibility of the two principal witnesses. Their lack of credibility in other important respects and the overall commercial probabilities may be factors of great importance.'

23. The judge then dealt with issues of credibility on what he described as important, related matters. The first concerned what were alleged to be 'resolution and agency agreements', including assertions by Mr Lazurenko to the effect that since March 2002 BJUK had held all its assets as a nominee for Lawson, assertions which were eventually abandoned. The judge concluded his consideration of these matters by saying that:

'47. The position therefore is that Mr Lazurenko must be taken to be a man who will prepare documents with dishonest intent and will present a deliberately false case to the court in points of defence and witness statements.'

24. The judge turned to Mr Lazurenko's change of case in relation to the Investment Issue. I have summarised its essence in [5] above. Mr Lazurenko's explanation in evidence for his change of case was that at the earlier stages of the litigation 'he was not concentrating on the basis of the investment.' The judge said of that:

'50. I am wholly unpersuaded by this explanation, which I find incredible…. I find that the real reason for Mr Lazurenko's retreat from his originally stated position was that he realised that it was unsustainable. I am satisfied that his original case was deliberately false.'

25. The judge turned next to the question of whether Mr Lazurenko had invested in the hotels as principal or agent. His case was that he was acting as an agent, and Mr Becirovic's evidence was that Mr Lazurenko had told him he was acting as agent for Mr Khan, who had been his boss for many years. Mr Lazurenko, however, maintained in the proceedings that his principal was Mr Scheklanov, whereas Mr Becirovic's case was that Mr Lazurenko had no principal. The judge explained the story relating to Mr Scheklanov, who did not give evidence, and concluded by saying:

'63 … I accept that [Mr Lazurenko has no principal]. Nothing is known about Mr Scheklanov or any means or ability on his part to invest the sums amounting to approximately €50 million which have been invested in these hotels. Not a single document has been produced to support the case that he had any part at all in the project, not even any document supporting a transfer of funds for investment in the project. No documents have been produced supporting his allegation that he is the beneficial owner of Leibson and Lawson. His failure to give evidence at the trial is totally at odds with his alleged role as Mr Lazurenko's principal. I conclude therefore that Mr Scheklanov was not Mr Lazurenko's principal and that Mr Lazurenko has been repeatedly lying in his evidence to that effect. I am also satisfied that in 2002 Mr Lazurenko told Mr Becirovic that he was acting for Mr Khan.'

26. The judge's next sub-heading was 'Commercial probabilities'. As Mr Kitchener's submission was that the judge was wrong in his assessment of this aspect of the case, I shall set out what the judge said about it:

'65. In a case such as the present, where there is a direct conflict of oral evidence and very little documentary evidence, Mr Kitchener QC … submitted that the court should attach weight to the inherent commercial probabilities. He submitted that this commercial factor strongly supported the account given by Mr Lazurenko. It was, he submitted, inherently improbable as a matter of commercial reality that Mr Lazurenko would have agreed that Mr Becirovic should have a 20% interest, later increased to a 25% interest, not just in the net profit of the venture but in the total value of the hotels with no deduction for the cost of their purchase and renovation. This would involve the investor in effect making a gift to Mr Becirovic of 20% or 25% of all the sums invested in the purchase and renovation and it was simply unrealistic to think that any investor would agree to such a deal.

66. I do not consider that I can approach the determination of this issue on the basis that Mr Becirovic's case is commercially improbable.

67. It takes no account of the role which Mr Becirovic was to play. I have earlier quoted from Mr Lazurenko's witness statement where he sets out his understanding at the relevant time of the influence which Becirovic had in Montenegro. He plainly regarded that influence as critical to his decision to invest in the acquisition and refurbishment of the Avala hotel. Moreover, Mr Lazurenko had no means of doing business in Montenegro. He needed a local partner. Mr Becirovic was to be responsible for all steps taken in Montenegro as regards the purchase of the hotels and to have overall responsibilities for their subsequent refurbishment, while not playing a day-to-day project management role. In effect, Mr Becirovic's role was as an active local partner while Mr Lazurenko was to be a more passive, financing partner.

68. It is common ground that Mr Becirovic's only return would be by virtue of the agreement he made with Mr Lazurenko. He was to receive no remuneration. It does not appear to me to be commercially implausible that he would stipulate for a return which was not restricted to net profit. It is not difficult to think of ventures where one partner provides the basic finance and another partner provides the contacts and undertakes all or most of the work where it is not just the profits but the partnership property and capital which is held on behalf of the partners in agreed proportions. As to the scale of reward to be provided to Mr Becirovic, there is no objective yardstick available to the court to determine what might be considered reasonable by a Russian investor agreeing to invest in Montenegro shortly after the end of hostilities in the former Yugoslavia.

69. I could nonetheless see some force in the submission of commercial improbability if Mr Lazurenko had been bound to provide an unlimited amount of capital. There was, however, no such obligation on Mr Lazurenko, at any rate perhaps beyond the sums provided for refurbishment by the bids for the two hotels. It is I think clear that the amounts ultimately invested in the two hotels considerably exceeded what either of the parties contemplated at the time of their acquisition. The extent of reconstruction and the amount spent was a matter for the two parties to agree. It was always open to Mr Lazurenko to scale back any proposals for reconstruction and to impose costs controls. There is abundant evidence that he did so. Simply by way of example, reference can be made to an email sent by Mr Lazurenko to Mr Becirovic on 16 March 2007 in which he directed that no further payments should be made and no contracts signed until there was a clear financial picture. Equally, he could determine that he would provide no further funds, as he did in an email sent on 17 November 2007, or determine that he was not prepared to provide further sums except on terms that they were to be provided by way of loans, to be repaid before any division between the partners as such. This follows from the absence of a commitment to provide unlimited funds.

70. I conclude that this is not a case where the commercial plausibility of either side's case will assist me in determining the issue which requires to be decided.'

27. The judge's next sub-heading was 'The parties' accounts of the agreement'. The judge dealt with this between [72] and [85]. He noted the fundamental differences between the two men's evidence and the absence of any documentary record of the agreement between them, and then turned to consider the documents and events that each relied upon as supporting his case. I do not need to refer to most of such documents and events, but should record that the judge's consideration, between [91] and [99], of the circumstances relating to the increase in Mr Becirovic's shareholding caused him to conclude that Mr Becirovic's account of it cast doubt on the reliability of Mr Becirovic's own evidence. He continued:

'98. … Moreover, I do not think that the incident of the share certificate being handed over in the street in Moscow is a detail which Mr Becirovic simply had mis-remembered. I find that it involved a deliberate embroidering of his evidence.'

28. The document and events upon which Mr Kitchener focused in particular in advancing the appeal were (i) what was known at the trial as 'the Bianca spreadsheet', and (ii) certain bank loans to BJM made in 2007.
29. The Bianca spreadsheet was a document that Mr Lazurenko started to compile on 30 August 2004 and last modified on 27 September 2004. The judge said of it:

'106. The Bianca spreadsheet is a critical document in Mr Lazurenko's case. It was on the basis of this document that the respondents amended their points of defence to remove the allegation that all funds provided by the investors would be repaid before Mr Becirovic received any share of the profits and to substitute their case that no account would be taken of sums up to €8.2 million in respect of the Avala and €4.5 million in respect of the Bianca. The Bianca spreadsheet says nothing about the figures for the Avala but it appears to support Mr Lazurenko's case so far as it relates to the Bianca. Mr Kitchener QC … described it as the alpha and omega of his case.'

30. The judge described the spreadsheet at [108] to [109]; but beyond noting that it was headed 'Hotel "B" 5 year BP and shareholders agreement' and was stated at the top to be a 'Draft', I do not propose to repeat his description. It is agreed that it sets out alternative scenarios (optimistic and pessimistic) for BJUK's future performance that were consistent with Mr Lazurenko's case in relation to the financing for the Bianca. There was, however, much controversy at the trial about the spreadsheet. Mr Becirovic originally denied its authenticity, but at a late stage of the trial withdrew that assertion. He still denied that he had seen it before, let alone agreed it, whereas Mr Lazurenko's case was that he had sent it to Mr Becirovic by e-mail. Whilst the judge said it would be expected that Mr Lazurenko would have so sent it, there was no evidence that he had; and the judge found that it was not sent to Mr Becirovic. His conclusion on the weight to be attached to the Bianca spreadsheet in the execution of his task of ascertaining the parties' agreement as to the financing arrangements was as follows:

'144. I do not regard the Bianca spreadsheet as providing the level of support for which Mr Lazurenko contends. If it truly represented the shareholders' agreement, as its title states, it is inexplicable that it was not sent by Mr Lazurenko to Mr Becirovic or otherwise recorded in a document to which both were in some way parties. Mr Kitchener QC seized on Mr Becirovic saying that it was possible that he had fleetingly seen it on a computer screen in Mr Lazurenko's office in Moscow. But Mr Becirovic was clear that he did not remember seeing it and I am satisfied that he did not do so. I reject as entirely untrue Mr Lazurenko's case that the spreadsheet was modified by Mr Becirovic and himself over several weeks from the end of August 2004 and that some changes shown in red were made at Mr Becirovic's request.

145. If the spreadsheet genuinely reflected the agreement, it is extraordinary that Mr Lazurenko did not rely on it from the start of these proceedings or at the very least plead the agreement it is said to reflect. Given that the document is headed draft, and was sent to or given to Mr Becirovic, I am satisfied that it was at best nor more than a proposal being prepared by Mr Lazurenko. I have already found that Mr Lazurenko was entitled to control the level of expenditure by agreeing or not agreeing particular proposals for renovations. It follows that he was entitled to stipulate as a term for agreeing particular renovation plans that funding was to be provided not as capital but as a loan which would need to be repaid before Mr Becirovic received his share. It is entirely possible that it was such a proposal that Mr Lazurenko was putting down on the Bianca spreadsheet.'

31. The other feature of the evidence to which I should refer, being another aspect of the case that Mr Kitchener relied on in the appeal, related to some Avala funding for reconstruction purposes provided to BJM on 24 April 2007 by two five-year loan agreements with Prva Banka. The loans were for €3 million each. They were secured over unrelated land held by another company that was owned by Leibson and Mr Becirovic on a 75/25% basis. The loans were, with effect from 25 July 2007, reduced to a loan of €1.05 million, and the balance of the loans was re-financed by a five-year loan from Hypo Bank secured against the, by then renovated, Bianca hotel. The purpose of the Hypo Bank loan was also for the reconstruction of the Avala. Capital repayments were due to commence in mid-2008, but BJM was unable to make the repayments from its operating profits and Hypo Bank was paid ultimately by funds provided by Mr Lazurenko.
32. Mr Lazurenko's case at the trial was that these loans showed that his agreement with Mr Becirovic was that funds in excess of the agreed capital amounts would be provided by loans, if possible by banks. It was said that Mr Becirovic's point that the loans were only 'formalistically', as the judge put it, to be repaid by BJM could not be reconciled with the terms of the loan agreements, which did envisage repayments by BJM. Mr Lazurenko also placed reliance on the security given for the repayment of the loans; and he relied on the absence of any e-mail evidence at the time that the need for the loans arose because of any cash-flow difficulties on Mr Lazurenko's side. In addition, the amount agreed to be borrowed was, as appeared from e-mails from Mr Lazurenko, limited to what BJM would be able to afford.
33. The judge said of these submissions:

'116 These are all substantial points but there are other matters that must be taken into consideration. First, the fact that the loans were to repaid in accordance with their terms, that is by BJM over the term of the loans, does not mean that as between Mr Becirovic and Mr Lazurenko's side the loans would not be treated when determining profits as having been contributed by Mr Lazurenko's side rather than being a deduction from profit.

117. Secondly, the absence of any direct reference by Mr Lazurenko or others to cash flow difficulties as a reason for the loans is not decisive. He indicated in one email that he wanted "all credit which we can afford". There is no evidence before the court as to the funding available to Mr Lazurenko in order to provide finance for the renovation of the Avala. There is no evidence as to whether he did or did not have access in April 2007 to funds which could have been provided instead of the two long term loans. Mr Lazurenko's emails which deal with proposals to take out the loans stress the need to control costs and to keep the amount of the loan within bounds that BJM was likely to be able to afford. This is not inconsistent with the provision of finance being his responsibility. If loans were to be taken by BJM, there had to be a proper regard for its financial circumstances.

118. Before the loans were agreed with Prva Banka in April 2007, Mr Lazurenko had emailed Mr Becirovic on 10 January 2007. Mr Kitchener placed some reliance on this email. It is an isolated email, with no prior or later communications of which this can be seen to be part. Mr Lazurenko referred to there being "a problem with taking a credit for reconstruction – we will not be able to return it". He referred to the Bianca's loss of €1.6 million in 2006 and the worsening situation in 2007 and continued "We should change dramatically situation with Bianca's occupancy to have zero Pnl [profit and loss] there and cover credit with Avala's positive revenue". He questioned the ability of the relevant manager to improve the Bianca's sales and continued "Nobody let us and we cannot afford to think about credit without understanding of way to return it and written description the funds which will cover the credit". Finally, he stated "Let's take in mind our only available €4.7 million and please let's think how improve dramatically sales situation in Bianca".

119. This is not an easy email to understand. In his witness statement, Mr Lazurenko states that there had been discussions between Mr Becirovic and himself before this email in which it had been agreed that he would procure a shareholder loan of €3.5 million and Mr Becirovic would obtain about €4.7 million from the local banks. Mr Becirovic accepted in evidence that he had agreed to try and raise local bank finance but he had no recollection of the figure of €4.7 million. There is no other evidence explaining that figure or supporting Mr Lazurenko's evidence about the shareholder loan of €3.5 million.

120. It is said on behalf of Mr Lazurenko that this email supports his case that he had agreed that €5 million of the funding required for the renovation of the Avala would be provided by way of capital. That is arrived at by deducting €5 million from the budgeted figure for phase 1 being discussed at about that time of approximately €13 million. Mr Lazurenko's evidence is that the difference of approximately €8 million was agreed to be funded by the shareholder loan of €3.5 million and bank finance of €4.7 million. There is little to support this beyond Mr Lazurenko's own evidence and whether I accept it or nor will largely depend on my overall assessment of his evidence.'

34. The judge's overall conclusion on the impact of the 2007 bank loans to BJM in the assessment of the rival cases on the Investment Issue was as follows:

'146. The bank loans taken by BJM for the renovation of the Avala hotel, although capable of being consistent with and therefore providing support for Mr Lazurenko's case, do not in my judgment provide the level of support which may be derived from the Bianca spreadsheet. They constituted only about one-sixth of the total sum spent on the renovation of the Avala hotel and indeed represented only about a third of the costs for the phase to which they related. I consider it to be quite likely that the reason for raising the loans was that Mr Lazurenko did not have available to him the requisite funds. It is a difficult issue to test because Mr Lazurenko applied for and obtained an order that the source of funds for the investment in the hotels should not be an issue for this trial and he has not put before the court any evidence as to the funds which were available to him from time to time for this investment. If he had wished to establish that there were no cash flow difficulties, there was no reason why he (or Mr Scheklanov, if he had in truth been his principal) could not have put evidence before the court, but he chose not to do so. I consider it likely that the loans were prompted by financial constraints on him. It is clear that in late 2006 and early 2007 Mr Lazurenko was anxious that the company should take out short term loans pending the release of funds held to secure the performance bond which is at least indicative of financial constraints. Mr Lazurenko's clear concern to control expenditure on the renovation does not suggest limitless resources (and also undercuts his case that he was concerned that Mr Becirovic should have an interest only in the net profits because that would provide Mr Becirovic with a strong incentive to control costs).'

35. The judge's overall conclusion on the Investment Issue was expressed thus:

'148. Having considered all these various factors, and assessing the quality of the evidence of Mr Lazurenko and Mr Becirovic overall, I cannot accept the evidence of Mr Lazurenko that limits of €8.2 million and €4.7 million were agreed for the amount of capital or sums to be treated as capital to be provided by him in respect of the Avala and Bianca hotels. I find that the agreement reached between Mr Lazurenko and Mr Becirovic was that all the sums provided for the purchase and renovation of the hotels were to be treated as capital as between them and were not to be deducted before calculation of Mr Becirovic's share.'

The appeal

36. Mr Kitchener advanced a sustained submission to us that the judge had been plainly wrong in his assessment that Mr Becirovic's case was not commercially improbable. If the submission was correct, it might well be said to undermine a contributory factor that played a material part in the judge's overall assessment of the Investment Issue. The essence of the submission was that it made no sense that any businessman could or would, as Mr Becirovic asserted, give an open-ended commitment to provide the finance required for the renovation of these hotels on terms that all such finance would be provided as capital. If there were to be any such commitment, it would be a limited one.
37. With due respect to the argument, I regard it as wholly misdirected. The arrangement between Mr Becirovic and Mr Lazurenko in relation to the operations of BJUK was accepted to be that of quasi-partners, with each bringing his own contribution to the joint venture in which they were engaged. The judge described the important role that Mr Becirovic was to play in the venture and noted that he was to receive no remuneration for it, his only return coming from what he had agreed with Mr Lazurenko. It was Mr Becirovic's case, as summarised by the judge at [8] (see [19] above) that it was part of that agreement that all finance provided by Mr Lazurenko for the purchase and renovation of the hotels, including any loan finance provided, would be treated between the quasi-partners as capital introduced by Mr Lazurenko. It was also his case, as the judge accepted, that they never agreed to depart from such arrangement. Nor, in particular, was it any part of Mr Lazurenko's pleaded case that the making of the Prva Banka loans to BJM in 2007 marked any change or departure from the arrangement.
38. Moreover, the assertion that Mr Lazurenko had assumed an open-ended commitment was found by the judge to be wrong. I have, at [26], quoted what he said at [69], where the judge made it clear that it would always have been open to Mr Lazurenko to scale back any reconstruction proposals or to impose costs controls, or to indicate that he would not provide further funds. The judge's finding was, therefore, not that Mr Lazurenko had assumed a contractually binding commitment amounting to the giving of a blank cheque of an unlimited amount for renovation expenses. It was, as Mr Hollington characterised it, no more than a financing arrangement that was terminable on notice, which is just what one would expect between the quasi-partners of a joint venture such as this, in which there would be likely to be at least some degree of uncertainty as to the possible costs of renovation works.
39. Viewed in this way, there is no basis for a challenge to the judge's rejection of the claim that the arrangements were uncommercial. Both men were anxious to engage in land investments in Montenegro. Each was dependent upon the other for the success of their proposed venture, which they no doubt foresaw as having the potential to yield very considerable profit for them. The judge saw and heard them both give evidence. He made the findings that he did as to the nature of the arrangements between them. That was his job. His assessment was that, contrary to Mr Lazurenko's assertions, the particular financing arrangements to which the partners agreed were not commercially improbable. That was an assessment he was entitled to make on the evidence, and it is not for this court to second-guess the judge on it. There is nothing in this limb of Mr Lazurenko's appeal.
40. Mr Kitchener then submitted that certain of the documents also materially undermined the judge's overall assessment of the Investment Issue. Top of the list was the Bianca spreadsheet, which he said that the judge had assessed without paying due regard to certain e-mails written at the time it was created and modified, in particular e-mails of 21 September 2004, in which Mr Lazurenko expressed concerns to Mr Becirovic's lawyer, Mr Colovic, that the Bianca reconstruction works were exceeding the budget. He also placed reliance on the e-mail of 10 January 2007 (referred to by the judge at [118] to [120]: see [33] above) and the subsequent Prva Banka loans to BJM, later re-financed by Hypo Bank, as also undermining the judge's ultimate assessment.
41. Again, and with respect to Mr Kitchener's valiant forensic efforts, I regard these points as also hopeless. There is no doubt that the judge was aware of the September 2004 emails when he was considering the Bianca spreadsheet. I have set out his finding as to the weight to be attached to that spreadsheet in the fact-finding exercise in which he was engaged, and he explained why he did not regard it as bearing any significant weight. He was fully entitled to make the finding he did about it, and once again it is not for this court to form its own independent, different view of the spreadsheet. It was simply part of the material before the judge to which he had to, and did, have regard in weighing up the opposing cases, and he came to the conclusion on it that he did. I do not understand upon what basis it is thought that this court could conclude that it was not a conclusion to which he was entitled to come.
42. Mr Kitchener's reliance on the January 2007 email and the Prva Banka loans was, again with respect, similarly misplaced. The same points were made to the judge, he took them into account and he gave his reasons for coming to the, from Mr Lazurenko's viewpoint, adverse factual findings that he did. Again, it is not for this court to second-guess the judge on that.
43. This appeal should not have been brought. It amounted to nothing more than a challenge to a tiny selection of the many factors that the judge took into account, and assessed, in coming to his overall factual conclusion. The challenge in each case was groundless. I would dismiss the appeal.

Lord Justice Jackson :

44. I agree.

Lord Justice Aikens :

45. I completely agree with the judgment of Rimer LJ. The two arguments of Mr Kitchener, although presented with skill and tenacity, were doomed to failure. On the first point Mr Kitchener took, the judge had to take a view on the commercial probability of the deal that was orally agreed between Mr Lazurenko and Mr Becirovic. In my view this court is not entitled to take a different view unless it is shown that the judge's conclusion, on the evidence before him, was one no reasonable judge could take. Mr Kitchener tried to argue that was the case, but, for the reasons that Rimer LJ has given at [39] above, that was an impossible task. On the second point taken by Mr Kitchener, that the judge did not take proper account of the Bianca spreadsheet and various surrounding emails and the email of 10 January 2007, again the argument is hopeless once it is scrutinised. The judge did not neglect those documents. The significance to be given to them was for him, as trial judge, to decide and we are not entitled to put our own gloss on them unless it is clear that the judge misinterpreted them, which he plainly did not.
46. I also wish to endorse what Rimer LJ has said at [8] above. There are far too many appeals where the parties simply copy all the trial bundles without thinking out what is actually needed for the appeal hearing. This is not only costly and wasteful but it demonstrates that the parties have not actually thought about the issues on the appeal and how to deal with them. In this case the original 50 trial bundles were reduced to 17, but as Rimer LJ has pointed out, very few documents were actually referred to before us. Furthermore, there was no attempt to produce a "core bundle", which at least would have helped. The authorities bundles were also produced without any proper thought as to what actually might be needed in an appeal on fact, not a point of law. The so-called "skeletons" of both sides were disgracefully long and showed a disdainful regard for CPR PD 52C paragraph 31. In my view there was nothing in this appeal that required that the "normal" length of 25 pages to be exceeded by either side. It also seems that the parties had not given sufficiently serious thought as to how long the appeal would take. It is the duty of both parties to consider the time estimate, not just the appellants. As I said, somewhat ruefully, in Standard Bank plc v. Via Mat International Ltd [2013] EWCA Civ 490 at [29] – [30], the punishment for prolix pleadings (and nowadays "skeleton arguments") that was imposed on the miscreant in Mylward v. Weldon (1596) Tothill 102 ([1595] EWHC Ch 1) may no longer be available today. However, a wholesale failure to comply with the Practice Direction on written submissions and, I would add, failure to use common sense in working out more precisely what bundles are needed for the appeal, may well lead to strict adverse costs orders, which is something we shall have to consider carefully in this case.