England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		14/03/2007

Mr Justice Briggs:

1. This is a claim for compensation for breach of an alleged bare trust of shares in a private company. It is based upon an oral agreement alleged to have been made on or about 25^th June 1996 between the claimant Michael Leonard Harris and the first defendant Roy Steven Kent whereby, in consideration for the provision of further loan finance to the company, Mr Kent agreed to transfer sufficient shares in the company to Mr Harris so as to bring their respective shareholdings into equality. Mr Harris claims to have performed his side of the bargain by the making or procuring of further substantial loans to the company, but it is common ground that no shares were ever transferred to him. In fact, the whole of Mr and Mrs Kent's legal and beneficial interests in shares in the company were transferred to a holding company on the occasion of its flotation in July 1999, without reference to Mr Harris. Rather than pursue a proprietary claim into Mr Kent's shareholding in the holding company, Mr Harris has elected to treat that transfer as a breach of trust, and seeks compensation equivalent to the then market value of his alleged beneficial share holding in the company.
2. Upon it being pleaded by way of defence that Mr Kent's wife Dena Kent had at all times been a substantial shareholder in the company in her own right, she was added as a defendant to the proceedings, upon the basis that she had either held her shares in the company as her husband's nominee, or that, if she had been a beneficial owner, Mr Kent acted on her behalf in making the alleged agreement with Mr Harris.
3. In a common defence, Mr and Mrs Kent deny that any such agreement as is alleged by Mr Harris was made. Separately they deny that, if made as alleged, he performed it. It is however accepted on their behalf that if it was both made and performed as alleged, then because the subject matter consisted of shares in a private company not available on the market, then the availability of specific performance meant that a bare trust of sufficient shares for Mr Harris arose in his favour upon his performance of the agreement. Mrs Kent denies that she was either a nominee for her husband in respect of her shareholding in the company, or that he acted as her agent in making the alleged agreement, although she admits that she was present on the occasion when the agreement is alleged to have been made. It is common ground that if a bare trust of the shares was created as alleged, then the transfer of the shares to the holding company in July 1999 was a breach of it. Separate issues arise both as to the value of the shares at that date, and as to the measure of compensation.
4. Subject therefore only to the issues whether Mrs Kent was her husband's nominee in relation to her shareholding in the company or, if not, whether he acted as her agent, and to the issue as to quantum, this case therefore turns in essence upon a single factual question, namely what was said and (if anything) agreed between Mr Harris and Mr and Mrs Kent at their meeting on or about the 25^th June 1996. It is common ground that the meeting took the form of a dinner attended by Mr and Mrs Harris and Mr and Mrs Kent at the Camden Brasserie. No notes of the meeting were taken, nor was the alleged agreement reduced to writing, so that, at first sight, the case turns upon the recollection by four witnesses of a primarily social event which took place over ten years ago.
5. The parties have not however confined their forensic endeavours to the deployment of the evidence of the Harrises and the Kents. Mr Harris called four supporting witnesses, and the Kents called six. The evidence of the supporting witnesses did not, of course, bear directly on what took place at the Camden Brasserie. It was deployed to illustrate aspects of the conduct of Mr Harris and Mr Kent respectively, alleged to be probative or dis-probative of the making of the agreement.
6. At the end of his lengthy cross examination, Mr Harris was asked, no doubt rhetorically, why he thought the court should be disposed to believe his account. His short answer was "because I've got evidence and you haven't". This was a reference to what Mr Harris evidently regarded from start to finish as conclusive proof of his case, in the form of transcripts of two secretly taped conversations, in which Mr Kent is said to have made damaging admissions, both as to the making of the agreement and as to its consequences in terms of the re-distribution of the shareholding in the company in favour of Mr Harris. After forensic examination, transcripts of these amateur tape recordings were substantially agreed, although their precise dates remain to some extent a matter of conjecture. Ironically, those transcripts depict Mr and Mrs Harris pressing upon Mr Kent a quite different and indeed more ambitious case in relation to Mr Harris's alleged beneficial shareholding in the company than that which is now advanced on his behalf. Their importance lies however in what Mr Kent is recorded as having described as the true nature and origin of Mr Harris's continuing interest in the company.
7. In addition to those transcripts, Mr Harris relies also upon the text of a confidential information memorandum professionally prepared in about April 1997 for the purpose of seeking venture capital investment in the company upon the instructions of the company's two-man management team, one of whom was Mr Kent. It is said that the document (described in the proceedings as the "Project Lincoln Plan") demonstrates that it was by then accepted that Mr Harris had, pursuant to the June 1996 agreement, become an equal beneficial shareholder in the company with Mr Kent.
8. It will be necessary for me to describe both the tape recordings and the Project Lincoln Plan, and their respective contexts, in some detail. First I must say something about the reliability and weight of the oral evidence.

The Witnesses

9. Mr Harris was, by the time he gave his evidence, a highly experienced businessman, whose long career had its conspicuous ups and downs. By 1996 he had been for many years the apparently successful managing director of a public company carrying on business in the clothing trade, Helene Plc. The failure of that company in the late 1990s led to his personal financial ruin, and was followed by a bankruptcy order against him in September 1999. His activities as a director of Helene Plc led to his disqualification on the application of the Secretary of State for Trade and Industry in March 2001, upon the basis of allegations which, as Mr Harris accepted, amounted to a serious case of dishonesty against him, if true. Following his automatic discharge from bankruptcy, Mr Harris told me that he had re-established himself in business.
10. Mr Harris did not attend to defend himself at the hearing of the Secretary of State's application, pleading ill-health and lack of financial resources, while at the same time denying the allegations against him. He told me that he had, upon legal advice, spent substantial funds in the early stages of the case, and simply ran out of money. The fact remains however that the circumstances in which Mr Harris was disqualified for two years short of the maximum available period for his dishonest misconduct of the affairs of a public company inevitably cast a grave shadow over the reliability of his evidence, requiring the court to think carefully before accepting his testimony, where it is both challenged and uncorroborated.
11. More generally, Mr Harris was a vigorous, outspoken but intelligent witness. He made no secret of a more or less complete inability on his part to remember dates, or even the precise order of related events. He came across as a person habituated to focusing on the big picture rather than upon detail, and my impression to that effect was confirmed by the evidence of other witnesses who had dealt with Mr Harris in the past.
12. There was throughout his evidence a persuasive strain of down to earth common sense. Little that he said was obviously or demonstrably wrong. In the general context of a person who came across as having neither a head for detail, nor a particularly precise memory of events taking place long ago, his apparently clear recollection of the dinner at the Camden Brasserie, and of certain other specific events, created a rather uncomfortable contrast. I gained the impression that where he felt that, for example, the Project Lincoln Plan or more importantly the recorded conversations supported him, he had allowed his imagination to out-perform his memory. Nonetheless, all in all, he came across as someone with a genuine belief that he had been wronged, a determination to put it right regardless of expense, and as a witness telling what he believed to be true, rather than seeking to mislead the court. But that appearance (which can be deceptive) by no means rescued his evidence from the background which I have described. In the result, I have not placed reliance on Mr Harris's oral evidence, save where corroborated by documents (including the transcripts of the tape recordings) or by other credible testimony.
13. Mrs Jeannette Harris was an articulate and intelligent witness, whose evidence was not significantly shaken by cross-examination, albeit that on occasion she gave less than wholly careful attention to the questions being asked. Her recollection of the 1996 meeting at the Camden Brasserie was less precise than that which her husband purported to recall. There were aspects of her explanation in evidence of what she had said during one of the tape recorded conversations with Mr Kent which I found difficult to reconcile with the transcript of that conversation. As a result I have not found it possible to place complete reliance on her evidence, although in general I consider that she was seeking honestly to assist both the court and her husband. Generally, her evidence tended to corroborate her husband's case that from mid 1996 he was treated by Mr Kent as having the beneficial interest in the company which he now claims. I have not treated her evidence as of sufficient reliability for me to decide issues of fact on it alone, but as will appear, it was corroborated by evidence other than from her husband.
14. Mr Harris called his brother Howard to prove a conversation which he overheard in September 1997 which, if it occurred, contained a further admission by Mr Kent of Mr Harris's claim. Like his brother, he was a forthright, clear witness who spoke common sense, but unlike his brother there was no evidence calling his integrity into question. Like Mrs Harris, he spoke of an understanding that in 1996 to 1997, his brother and Mr Kent had become 50/50 partners of Accidentcare. The reliability of his evidence was a little undermined when in cross examination he purported to be able to remember the precise words used by Mr Kent in the conversation in 1997 which he had been called to prove. Again, while he was not a witness upon whose contribution or reliability Mr Harris's case can stand or fall, there was nothing inherently incredible or unreliable about his evidence.
15. Mr Harris called John Christopher Forsyth, who was the Group Finance Director of Helene Plc until April 1997. He was called to prove that Mr Harris had in mid 1996 told him about an agreement he had made with Mr Kent to become an equal partner in Accidentcare. That evidence does little more than prove that Mr Harris's case is not a recent fabrication. Nonetheless I found Mr Forsyth to be an honest and straightforward witness, albeit one with little to contribute.
16. Mr Harris called Timothy John Drukker, a solicitor who was in 1997 a partner in Jay Benning & Peltz, who acted for him in negotiations in 1997 which led to Mr Harris parting with the 25% of the shareholding in Accidentcare which he already beneficially owned prior to the 1996 meeting at the Camden Brasserie. He was called to prove and explain some hand-written notes which he made during the course of those negotiations. He was a quiet and cautious witness who did not pretend to have a precise recollection of the events to which his notes related. He was plainly an honest witness seeking to assist the court, and he displayed no signs of any inappropriate partiality towards his former client. While acknowledging under cross examination that the interpretation which he had placed on some of his notes in his witness statement may have been incorrect, he nonetheless held firm to a recollection that Mr Harris had instructed him that he was then entitled to a 50% interest in the proceeds of any sale of the Harrises' and the Kents' shareholdings in Accidentcare. His evidence was therefore, being no more than a form of self-corroboration of his client's case, of some but strictly limited assistance.
17. Finally, Mr Harris called Harold Levenson, a friend of his, to prove how, just before Mr Harris was made bankrupt, he had at his request sought to obtain a payment in respect of his continuing interest in Accidentcare, in the context of having discovered that it was about to be floated. Mr Levenson's evidence was challenged by evidence both from Mr Kent and from a Mr Miller, to both of whom he had spoken on that occasion. I have not found it easy to resolve that conflict. It requires a comparison to be made between the relative credibility of Mr Levenson and Mr Miller, neither of whom (unlike Mr Kent) has a stake in the outcome of this action. I found Mr Levenson to be a straightforward and clear witness, seeking honestly to assist the court from what appeared to be a clear recollection of the relevant events, unshaken by cross examination.
18. Mr Kent provided three witness statements, and was cross examined for most of two days and part of a third. He was a very intelligent, highly articulate, careful and precise witness who had clearly given great thought and careful preparation to his evidence. But in cross examination he was defensive, evasive and calculating, in each respect to a marked degree. By 'calculating' I mean that, rather than provide a ready and straightforward answer to a question, he evidently weighed a range of possible answers and chose the one which he considered most likely to assist, or least likely to damage, his case. A straightforward yes or no was a last resort.
19. He appeared to have a better than average recollection of past events, and in areas where it did not damage his case he made full use of it. In other more difficult areas he sought refuge in a lack of recollection. In the end I found it difficult to distinguish between recollection, reconstruction and skilful but downright fabrication. In numerous respects his case and his evidence in support of it was simply contradicted by the plain meaning of the documents or by his previous statements recorded on tape and transcribed. He went to great lengths to provide explanations of those materials which made them consistent with his case, but in doing so I am afraid that process took him further and further into the world of imagination, make-believe and falsehood.
20. In important respects Mr Kent made changes to his evidence between his first and later witness statements, and between his witness statements and his evidence in cross examination. While this does not necessarily detract from the reliability of evidence, where for example recollection improves under pressure or the memory is refreshed, in Mr Kent's case the changes were I regret to say the result of having to re-tell parts of a false story rendered incredible by documents or cross examination, or to put it bluntly, lying his way out of a tight corner. This was in particular true of an occasion in 1997 when, as I shall later describe, he found it necessary to deny that Mr Harris had a 50% interest in the company to a creditor of Mr Harris who was seeking to take over that interest in part settlement of Mr Harris's debt.
21. I make allowance for the fact that Mr Kent's defensive and evasive attitude to cross examination may owe its origin to the experience of having had previous unguarded utterances secretly recorded and used against him. Nonetheless I regret to say that, weighing his evidence against the evidence as a whole, I have come to the conclusion that his evidence on the critical factual issues was wholly unreliable. While it is possible that he may by the time of trial have come to persuade himself to believe that his carefully prepared re-writing of events was true, on balance I doubt it.
22. Mrs Kent was a refreshing contrast. She gave her evidence with simplicity, openness and a determination not to invent, guess or reconstruct that which she could not remember. In fact she could not remember anything of what happened at or just before the all important meeting at the Camden Brasserie, although she provided a vivid and credible description of the place as busy, noisy and unsuitable for long, serious business discussions. She professed no knowledge or understanding of the business affairs of the company, or of what she regarded as the impenetrable world of share capital, conversion of debt into equity, or the comparison of percentages.
23. On one issue, namely the question whether she held the shares registered in her name as nominee for her husband or beneficially, her evidence was clear, consistent and credible. Generally I found her to be a reliable witness in relation to the matters where she had something of value to contribute.
24. The first of the Kents' supporting witnesses to be called was Mr Neil Miller, to whom I have already referred. He was a long standing friend of Mr Kent, and described himself as a financier by profession, and the author of the successful flotation of the company in 1999. He was called to describe Mr Levenson's visit to the company's offices in August 1999. Generally he appeared to be an honest and straightforward witness, although his reliability was slightly undermined by defensiveness while being cross examined, and by what I can only describe as a rather passionate dogmatism. In terms of demeanour, I found him a little less persuasive than Mr Levenson, but would be disinclined to choose between their different accounts of their meeting on that ground alone. As will appear, the objective probabilities favour Mr Levenson's account, and since Mr Miller was not an obviously more credible witness than Mr Levenson, those probabilities prevail.
25. The defendants called Nick Michaels, a chartered accountant and the auditor of Accidentcare at the material time, to prove that he had not been told of, or discovered, any agreement to increase Mr Harris's shareholding to parity with that of the Kents. He was a precise and honest witness, although momentarily defensive. I accept that he could not by the time of trial recall being told of such an agreement. But that does not of itself prove even that he was not in fact told. Even if he was not told, it may well be that no-one considered it necessary to tell him, so his evidence on this point was not of primary significance to the issues which I have to decide.
26. Next to give evidence was Mr James Terry, who as a director of Beechcroft Associates Limited was the author of the Project Lincoln Plan. He was called to prove that he had been instructed that the "effective 50% interest" of Mr Harris in Accidentcare referred to in the Plan was still contingent on Mr Harris first converting his loans (other than the first £100,000) into equity. Mr Terry was apparently a frank and honest witness with no agenda other than to assist the court. Far from being defensive, he was forthcoming to the point of verging on the garrulous.
27. The difficulty with his evidence was (as I shall later explain) its complete incompatibility with the Plan which he prepared at the time. It took a lengthy cross examination before he was even prepared to recognise that, and when he did he could offer no explanation for it. In the end I have been unable to believe that Mr Terry was so instructed. I readily put that down to a defective recollection rather than to dishonesty on Mr Terry's part.
28. Mr Norman Goldfoot is an accountant who qualified in South Africa, and was engaged as a consultant to provide accountancy services to the company from its inception and throughout the material time. He gave his evidence by video conference. He was called for two purposes; first to prove that he could not recall having been aware of any rights of Mr Harris to more than 25% of the company's shares, and second to prove, by reference to records originally prepared by him at the time, the amount and timing of Mr Harris's loans to the company. In both those tasks Mr Goldfoot succeeded. He was plainly honest, and a faint sense of partiality towards Mr Kent came nowhere near dispelling the clear impression of a witness seeking to assist the court. He was realistic about his lack of detailed recollection of matters occurring long ago, but he persisted in the view that if he had been told of Mr Harris becoming entitled to more than 25% of the shares he would have remembered, because of its effect on the dynamics of the company. In cross examination he admitted that a change in the dynamics had occurred from mid 1996 due to the increase in the level of Mr Harris's financial support. It is not critical to the outcome of this case whether Mr Goldfoot was or was not told of that which I accept he cannot now recall. On balance, I consider that he probably was not.
29. Mr Michael Scodie of Scodie Deyong was Mr Michaels' predecessor as the company's auditor, the change-over occurring in late 1996. Mr Scodie's last task was therefore the auditing of the company's accounts for its 1994-5 year. He was called first to assist in verifying Mr Goldfoot's evidence about the amount and timing of Mr Harris's loans, and secondly to prove receipt of two comfort letters from Mr Harris about his commitment to support the company, in 1995 and 1996. He was a plainly honest and careful witness, but since (no doubt with his assistance) the pattern of Mr Harris's lending had become largely a matter of agreement by the time of the trial, his evidence did not impinge critically on the main factual issues.
30. The defendants' final witness was Mr Nicholas Brand, who described himself as a motor industry professional. He became increasingly involved in the company's business during the 1990's but mainly in and after 1998, becoming a director in 1999 upon its flotation. He was called to prove that he was unaware of Mr Harris's claimed interest in the company. It soon became apparent during cross examination that his recollection of personal knowledge of the affairs of the company did not date back before 1998, and that his evidence about Mr Harris's lack of an interest in the shares related to the period after the flotation, and after the present dispute had arisen. Although an honest witness, his evidence was therefore of no significant assistance.

The Facts

31. Before stating my conclusions on the factual issues, it is necessary to describe the background in some detail, not merely to provide a context for the meeting at the Camden Brasserie, but also so that the subsequent conduct of the parties, including the tape recorded conversations, can be properly understood and evaluated, as tending to support or detract from the parties' cases as to what happened at that all important meeting.
32. The company Accidentcare Ltd was incorporated in May 1992 as the vehicle for a new business venture conceived by Mr Kent, namely (as he described it) the provision of a "complete one – stop accident management service" to be sold by way of subscription to individual car owners and fleet owners, through insurance brokers. Mr Kent was already the proprietor of an existing car repair business based at Aerodrome Road, London NW4, and Accidentcare began trading from those premises.
33. It was through Mr Kent's car repair business that he had first met Mr Harris. By 1992 they had known each other for over ten years and become firm friends. Mrs Kent, who had married Mr Kent in 1989 (after meeting in 1985), had also become friendly with Mrs Harris. Each of Mr and Mrs Kent had been married before and by their previous marriages had three and two children respectively. They did not have any further children themselves.
34. By the date of Accidentcare's first annual return, signed on 23^rd April 1993, Mr and Mrs Kent were described as the registered holders respectively of 97 and 69 of the company's 200 issued £1 shares. There is an issue whether Mrs Kent was her husband's nominee or the beneficial owner in relation to her shares. The Kents' case (and evidence) is that she was at all time the beneficial owner of shares registered in her name, and that she and Mr Kent had divided the shareholdings between them in proportions reflecting their different numbers of children with a view, if the company prospered, to their passing their respective shareholdings to those children in due course. I have to decide whether that evidence is consistent with the way in which Mr Kent subsequently behaved in relation to company's shareholdings, and with the understanding as to his beneficial ownership in the company entertained by those who dealt with him.
35. It is evident from draft accounts prepared for the company (the equivalent audited accounts being for some unexplained reason omitted from the court bundles) that by its first accounting date of 30^th September 1993 the company had exhausted its initial working capital and incurred a loss in excess of £150,000 for the period from 8^th May 1992 to 30^th September 1993. The Company's initial funding was supported by a personal guarantee from Mr Kent, although not, at that stage, by a charge on his house.
36. It is common ground that towards the end of that period Mr Kent approached Mr Harris to invite him to provide financial assistance to the company. Mr Harris was then, (and had been for some time) the successful managing director of Helene Plc ("Helene"), enjoying both a substantial income and significant accumulated wealth. It is also common ground that Mr Harris agreed to assist to the tune of £100,000, although there are issues whether this was provided simply by his guaranteeing a loan to the company by its bankers National Westminster Bank Plc ("NatWest"), or by him borrowing from the bank and on-lending that money to the company. It is however common ground that as the quid pro quo for that assistance, Mr Harris was to receive 25% of the company's shares, that this was agreed orally between them in July 1993, and that Mrs Kent also agreed to this. Solicitors were instructed to prepare a written agreement, but this came to nothing. 50 Shares were however transferred to Mr Harris on 24^th February 1994. 19 of those shares were contributed by Mrs Kent, and the remainder by Mr Kent.
37. Notwithstanding that further injection of loan capital, the company's affairs did not prosper. For the months of October 1993 to January 1994 inclusive, the company made a further loss of just under £20,000. For the year ended 30^th September 1995, audited accounts show that the company made a further loss of £123,281, bringing its accumulated deficit to £287,923. Audited accounts for the year ended 30^th September 1996 show that the rate of losses increased during that year to £261,204, leading to an accumulated deficit as at the accounting year end of £549,127.
38. The steadily deteriorating state of the company's affairs, and in particular its deepening balance sheet insolvency, led its auditors Messrs Scodie Deyong to seek assurances from Mr Harris as the main provider of loan finance to the company, as to his continued commitment to support the company in the future. Mr Harris provided assurances by letters to the auditors dated respectively 18^th July 1995 and 20^th May 1996. I shall refer to them as the 1995 and 1996 comfort letters. The first of those recorded that Mr Harris had made a loan £100,000, as showing his personal commitment to the continued success of the company, contained a statement that he was prepared to make arrangements for further financial support over the following year of £250,000, either by supporting the company's bank or with actual cash, as and when required. In the 1996 comfort letter Mr Harris recorded that of the £250,000 previously "pledged" he had injected an aggregate of £80,000, and stated that he was prepared to make any necessary arrangements to support the company with a further £170,000 during the course of the following year by the methods already described in the earlier letter.
39. It was common ground that neither of the comfort letters gave rise to any contractual or other legal obligation on Mr Harris, either to Accidentcare or to Mr Kent. Mr Harris described them in evidence rather disparagingly as, like any other similar letter, not worth the paper they were written on. Mr Scodie admitted that their effect was essentially cosmetic.
40. By mid 1996, notwithstanding the continued support of Mr Harris, and Mr Kent's charge of his matrimonial home together with Mrs Kent to support bank lending, the company remained in need of substantial further financial assistance. Its bank statements show that it was significantly in excess of its agreed borrowing limit from NatWest of £100,000, and liable to pay interest on the excess at a penal rate of 29.5%. It was also in arrears with its obligations to the Inland Revenue in respect of PAYE and NIC, in respect which Mr Kent was in correspondence with the Inland Revenue Enforcement Office.
41. There is an issue to which I shall return as to whether the company's need for further finance was by June 1996 anticipated and planned, or whether it was in a state of unplanned financial emergency. Either way, it is clear that without further financial support, the company was at risk of collapse, and that one of the consequences of such a collapse would be to expose Mr and Mrs Kent to a risk of the loss of their home. Since the beginning of 1996, it is common ground that Mr and Mrs Harris had between them provided funding in the aggregate of £52,885 in seven uneven tranches by the beginning of June. The pattern of payment leads me to infer that the money was provided to meet immediate and urgent needs for cash from time to time, as they arose.
42. By June 1996 the registered shareholdings in the company were as follows. Mr Kent held 86 shares. Each of Mrs Kent and Mr Harris held 50 shares. The remainder were held as to 10 and 4 shares respectively by a Timothy Meyer and a Stephen Munn. Mr Harris was therefore a 25% shareholder in the company, and Mr and Mrs Kent held, between them, 68%. Minority share holders held 7%.
43. I shall at this stage merely summarise the parties' respective cases as to what occurred at the meeting at the Camden Brasserie on or about 25^th June 1996. Mr Harris's case is that Mr Kent and he agreed that, in consideration of Mr Harris providing a further US $150,000 by way of loan to the company, Mr Kent would transfer to him sufficient shares so as to equalise their respective shareholdings, it being Mr Harris's understanding that Mr Kent was agreeing to equalise between them all the shares in the company other than the minority 7%, it being his assumption that he and Mr Kent between them beneficially owned the balance of 93%. Following the Kents' pleading of their case that Mrs Kent was the beneficial owner of the shares registered in her name, Mr Harris by amendment alleged in the alternative either that Mrs Kent was Mr Kent's nominee, or that Mr Kent acted as his wife's agent for the purpose of making the agreement which I have described.
44. The Kents' case is that they made no request for further funding from Mr Harris at the meeting, since they regarded Mr Harris as having already committed himself to substantial further funding as recorded in the 1996 comfort letter. Rather, Mr Kent signified to Mr Harris his agreement in principle to Mr Harris approaching the company with a proposal to convert his loans into equity, so as to equalise their respective shareholdings and become equal partners in the business. Mr Kent acknowledged in cross examination that he had shortly before the meeting informed his wife of his intention to make such a proposal, but that he had neither sought nor obtained her consent to it. Mr Atkins submitted that I should find that Mr Kent's proposal was intended by him to relate only to an equalisation of the shares then held by him and Mr Harris, excluding Mrs Kent's shares.
45. Mr Harris's originally pleaded case was that he performed his part of the alleged agreement in full by paying sums of US $75,000 on 26^th and 28^th June 1996, i.e. immediately after the meeting. Both these payments were originally admitted by the Kents, but it is now common ground that only one such payment was made to the company. A cursory review of the statements of the bank account from which the sum was paid suggested that two payments had been made. In fact, as is now agreed, the first payment was returned due to the incorrect provision of details of the payee, and US$75,000 successfully paid only on 28^th June.
46. It is however common ground that Mr Harris paid or arranged for the payment of amounts substantially in excess of a further $75,000 by June of the following year, and by the end of September 1997 Mr Harris's total contributions by way of loan finance (whether direct, from Mrs Harris or from entities controlled by him and treating the original £100,000 lent or guaranteed as a loan) exceeded £0.5 million. He had therefore lent or procured the making of loans to the company in excess both of his alleged contractual commitment and in excess of that to which he committed in the two comfort letters.
47. In or shortly before April 1997 Mr Kent and a Mr Sachel Singh, another director of the company, jointly retained Beechcroft Associates Ltd (Beechcroft) a firm of corporate financiers to advise and assist them in attempting a buy–out of the company with the assistance of venture capital investment. Beechcroft produced a document entitled "Project Lincoln - April 1997" setting out a business plan and funding proposal for distribution to potential venture capital investors on a confidential basis. Although the copy of that document in the trial bundle is unsigned, Mr Terry of Beechcroft told me that his firm had in fact distributed it to at least two potential investors. On its first page after an index, readers were notified that :

"The information in this business plan has been provided and approved by Roy Kent and Sachel Singh (together "the Management Team")

48. There are issues to which I will have to return as to the identity of the provider of the information recorded in the document, as to its accuracy and meaning, as to Mr Terry's instructions and as to the extent of Mr Kent's involvement in its preparation. It is sufficient for the purposes of this summary of the background for me to note that the document (which I will call the "Project Lincoln Plan") describes Mr Harris as having become by April 1997 entitled to "an effective 50% interest", having previously been a 25% shareholder, and that it identifies as a major object of the proposed scheme enabling Mr Harris to have loans of around £500,000 repaid in full and to sell his 50% shareholding for £1,500,000 in cash plus 20% of the ordinary shares of Newco, a company to be formed to take over the business of Accidentcare, its other shareholders being Mr Kent, Mr Singh and the chosen venture capitalist, in the proportions 40%, 15% and 25%. The Project Lincoln Plan makes no mention of any conversion by Mr Harris of loans into equity in Accidentcare, as either having taken place or being planned as part of the scheme. The registered shareholdings in the company had not changed in any way between June 1996 and April 1997, except that Mr Harris had on 25^th October 1996 transferred his original 25% shareholding to his wife, to hold as his nominee.
49. Meanwhile, storm clouds were gathering over Mr Harris's wider business affairs, due to the failure of Helene Plc. He had given a personal guarantee of Helene's liability on its trading account with Eagleton Direct Export Ltd ("Eagleton"), another clothing company owned by a Mr Bruce Franks. After Helene went into receivership in May 1997 Mr Harris's guarantee was called. Eagleton issued proceedings against him in the Queen's Bench Division, in respect of which Mr Harris obtained conditional leave to defend, on payment into court within 7 days of £700,000 by an Order made on 15^th July 1997. Mr Harris was in no position to make that payment into court.
50. There then ensued detailed negotiations between Eagleton, represented by Mr Franks, Mr Harris and Mr Kent, representing both himself and Accidentcare, during the course of which Eagleton entered, but took no steps to enforce, judgment against Mr Harris for DM 2,271,750.04 together with interest and costs. Mr Kent and Accidentcare were drawn into those negotiations because of the threat that if Mr Harris were pursued into bankruptcy by Eagleton, repayment of his very substantial loans to the company would be demanded, leading to the inevitable insolvent demise of the company and Mr Kent's financial ruin. Save for the original investment of £100,000 all Mr Harris's lending to the company had been interest free, but repayable on demand.
51. As owner of Eagleton, Mr Franks' objective in the negotiations was to obtain and maximise the value of Mr Harris's substantial investment in Accidentcare. Mr Kent's objective was to minimise the threats both to Accidentcare's survival and to his continued control of its affairs constituted by Mr Franks' ability to step into Mr Harris's shoes as the company's principal investor. The relevance of those negotiations to the issues which I have to decide is that they have been relied upon by both sides as shedding light on the true beneficial ownership of the share capital of Accidentcare at the time of the negotiations.
52. It is now common ground that at the outset of the negotiations Mr Harris told Mr Franks that he owned half the company. In cross examination, Mr Kent accepted that, in all probability, Mr Harris believed that at the time, but Mr Kent maintained that in reality Mr Harris had failed to avail himself of the opportunity to increase his shareholding to parity with that of Mr Kent, because he had not converted any of his loans into equity.
53. Due diligence by solicitors instructed by Eagleton quickly revealed that the registered shareholding did not reflect a 50% entitlement of Mr Harris. It was common ground at a negotiation meeting on 14^th July 1997 attended by Mr Kent, Mr Franks and others that the registered shareholding was 86 shares for Mr Kent, 50 shares for Mrs Kent, 50 Shares for Mrs Harris, 10 shares for Mr Meyer and 4 shares for Mr Munn. Mr Franks' initial negotiating position was that he would require transfer to Eagleton of 46.5 % of the company's shares, and all Mr Harris's loans to the company, as part of the terms of a moratorium which would allow the company to continue to trade. By Mr Harris's loans I include the loan made by Mrs Harris and the substantial loans contributed at Mr Harris's direction by his company Realhurst Holding inc. In cross examination Mr Kent said that the reason why Mr Franks sought 46.5% rather than 25% of the company's shares was because he then believed that 46.5% was the amount of Mr Harris's true beneficial interest in the company.
54. It is common ground that thereafter Mr Kent sought with apparent success to convince Mr Franks that Mr Harris was not a 46.5% shareholder in the company, but only a 25% shareholder. The best evidence of the explanation given is contained in a letter from Mr Kent to Mr Franks dated 12^th August 1997 in which he said this:

"As I explained to you from the beginning, Michael Harris only had an equal profit share as myself and not a shareholding in the company. If I am to transfer shares to him, that is a major concession on my part."

55. Mr Harris's evidence was that this was a deliberate deceit on Mr Kent's part against Mr Franks designed both to minimise Mr Franks' intrusion upon the company and to preserve from Mr Harris's otherwise complete financial ruin the 21.5% difference between his wife's registered shareholding and his beneficial interest of 46.5%.
56. Mr Kent's evidence was that in denying that Mr Harris had more than a 25% beneficial interest in the company, he was telling Mr Franks nothing other than the truth. It is to be noted however that the explanation given to Mr Franks, that Mr Harris had an equal profit share with Mr Kent, is not the same as Mr Kent's case as to what he had offered at the Camden Brasserie meeting or as to its consequences.
57. The outcome of the negotiation, reflected in a Moratorium Agreement dated 23^rd December 1997, is that Mr Franks gave way on his demand for 46.5% of the company's shares. Eagleton received an assignment of loans from Realhurst, Mr Harris and Mrs Harris in the aggregate sum of £477,000 and a transfer of Mrs Harris's registered 25% shareholding.
58. Thus far, there is no evidence that Mr Harris's misfortunes had soured his close friendship with Mr Kent. On the contrary, Mr Kent had, following the demise of Helene, allowed Mr Harris the use of an unused floor of the company's premises at Edgware Road, Colindale for a new business venture with his brother, and made available to him the use of one or more company cars and mobile telephones at the immediate expense of Accidentcare. In cross examination Mr Kent said that he had explained to Mr Harris from the outset that he would in due course have to pay for those benefits, but this was hotly denied by Mr Harris. In a letter to Eagleton's solicitors from Mr Drukker of Jay Benning & Peltz dated 10^th February 1998 (which shortly followed a complaint which Eagleton's solicitors had made to Mr Kent about these benefits), it was said that these were items of remuneration for Mr Harris's provision of consultancy services to the company. Mr Kent denied knowledge of or responsibility for the contents of that letter.
59. The parties' previously good relations broke down in the first half of 1998. One of the causes for the falling-out appears to have been a letter dated 9^th June 1998 from Mr Kent to Mr Harris in which, by reference to an enclosed schedule, Mr Kent sought to debit the cost of the company's provision of cars and mobile phones to Mr Harris and his family to a loan account between Mr Harris and the company, to demand immediate repayment and to threaten the recovery of the cars and phones.
60. For his part Mr Kent said that the breakdown was mainly due to endless broken promises by Mr Harris to provide further financial support, culminating in his failure to arrange for the payment of a debt of the company which he had promised to discharge, for which the company almost got wound up while the Kents were abroad on holiday.
61. Probably a larger reason for the breakdown lay in assertions made at meetings by Mr Harris, and (as would appear) by Mrs Harris that notwithstanding the Moratorium agreement with Eagleton, Mr Harris nonetheless remained an equal shareholder with Mr Kent in the company. This ambitious claim was alleged by Mr and Mrs Harris to have arisen out of agreements to that effect made between Mr Harris and Mr Kent during the negotiations with Mr Franks in the second half of 1997, and witnessed by third parties including members of Jay Benning & Peltz. Mrs Harris professed no knowledge of such an agreement beyond that communicated to her by Mr Harris. Mr Harris said in cross examination that he believed at the time that such an agreement had been made, but that Mr Kent had persuaded him that he had been mistaken.
62. It is against this background that the two conversations secretly taped by Mr and Mrs Harris, now relied upon by Mr Harris, took place. They both occurred shortly after Mr Kent's letter of demand to Mr Harris on 9^th June 1998. The first in time was a conversation between Mr Kent and Mrs Harris. The second was a conversation between Mr Kent and Mr Harris. I shall have to review them further when expressing my conclusions on Mr Kent's endeavours to explain them, both in a supplementary witness statement and in cross examination. Read objectively, the transcripts of the tapes record two spirited arguments, with the Harrises on one side and Mr Kent on the other side, advancing conflicting cases and explanations about Mr Harris's then (that is in June 1998) beneficial entitlement to shares in the company.
63. I have described the Harrises' case above. Mr Kent's recorded response may be summarised as containing statements that Mr Harris's then entitlement or ownership was of a share variously described as "your having twenty one and a half percent", "as near dammit 20%" and "your 20%", and that Mr Harris's entitlement prior to the Moratorium agreement with Bruce Franks was to 46.5% of the shares, held not in his own name, but in the names of Mr and Mrs Kent and Mrs Harris.
64. The fortunes of Accidentcare finally began to turn during 1999, when steps were taken to float the business on OFEX on the recommendation of Mr Miller. For that purpose, it was necessary for the company's existing shareholders to sell all their shares to a new holding company then named Finlaw 156 in exchange for shares in that company. This was accomplished on 8^th July 1999, and Finlaw was renamed Accidentcare Group Plc ("Plc") on 15^th July. An offer document detailing the placing on OFEX of 2.4 million new 1p ordinary shares in Plc at 50 pence per share was issued 15^th July 1999 and the subscription list opened on 19^th July. The offer was over-subscribed within 2 weeks of opening, and this became public knowledge not later than 1^st September 1999, but must already have been known some time before that to the company's directors, even though the subscription list was only closed on 3^rd September. The terms of the flotation prohibited the founder shareholders (who included Mr and Mrs Kent) from disposing of their shares within one year of listing.
65. Mr Harris had in the meantime had little to do with the Kents or with the company since the arguments in June 1998, and Mr Kent did not inform him of the planned flotation of the company. Mr Harris found out about it in July from reading the newspapers. He was by then facing a bankruptcy petition which, although for less than £20,000, represented only a modest proportion of his then indebtedness. The bankruptcy order was made on 7^th September 1999.
66. Mr Harris's case is that Mr Levenson offered to go and talk to Mr Kent to seek payment in respect of his interest in the company's shares. It is common ground that Mr Levenson did visit Mr Kent at the company's offices in August 1999, and was asked by Mr Kent to speak to Mr Miller, and that he came away empty handed. Mr Miller's evidence was that without making any reference to an interest in shares, Mr Levenson demanded £100,000 for Mr Harris, which he said arose from an unspecified personal obligation of Mr Kent in relation to the funding of the company, of which he said that he had evidence, and threatened physical violence against Mr Kent if Mr Harris was not paid. Mr Levenson said that he asked for payment specifically in respect of the 21.5% of the company's shares which Mr Kent held for Mr Harris, but stated no specific value or sum required as their value, although he mentioned a separate £5,000 loan by Mr Harris, repayment of which was a low item on the agenda. Mr Miller said that Mr Levenson made a later visit to deliver transcripts of the mid 1999 recorded conversations, which he found unconvincing. Mr Levenson denied any second visit.
67. To the extent that their accounts differ, I find Mr Levenson's to be the more likely on the balance of probabilities. In particular, if Mr Miller had read the transcript of Mr Kent's conversation with Mrs Harris as he alleges, he cannot have been unaware that Mr Levenson's visit and therefore Mr Harris's claim related to the company's shares. For present purposes, all that matters is, as I find happened, that Mr Harris made, through Mr Levenson, a demand for payment in respect of his alleged interest in the shares to a person nominated by Mr Kent, and that he was rebuffed. By then of course all the shares in Accidentcare belonged to Plc.
68. Mr Harris did not, following the bankruptcy order, immediately disclose his alleged beneficial interest in the company to the Official Receiver. His evidence was that he did disclose it to his trustee Mr Bramston at his first meeting with him on or about 15^th February 2001. It was clearly the subject of detailed discussion at a meeting between Mr Harris and Mr Bramston on 17^th May 2001, of which there was an attendance note made by Mr Bramston's assistant and initialled by Mr Harris. Mr Atkins made much of this non-disclosure, but it was both preceded and followed by claims by Mr Harris to third parties that he had the interest which he now claims. In particular it is not now in dispute that he made such a claim to Mr Franks in mid 1997.
69. Meanwhile, a further placing of Plc's shares took place on 21^st December 2000, of 1.1 million shares at 50p per share. Again, it was fully subscribed. Both Mr and Mrs Kent placed part of their shares at that time, and Mr Kent became the non-executive chairman of Plc. In mid 2002 Plc was the subject of an agreed reverse take-over by Ecom Group, and the merged entity changed its name to Aquilo Plc. Mr Kent resigned as a director but both he and Mrs Kent have remained significant shareholders in the company.
70. By deeds of assignment dated 25^th January and 5^th April 2005 Mr Harris's trustee assigned to Mr Harris the claims on which he now sues. The assignments were duly notified to Mr and Mrs Kent.

The Factual Issues

71. Chronologically, the first major issue is whether immediately prior to the Camden Brasserie Meeting in June 1996 Mrs Kent held a registered shareholding in the company as a nominee for Mr Kent, or beneficially. There is a wealth of documentary and other evidence showing that, for the whole of the period under review until at least June 1998, Mr Kent habitually described himself as if he were the owner of the whole of his and Mrs Kent's registered shareholdings. For example, the attendance notes made and draft shareholders' agreement prepared by Mr Rex Newman, a partner in Wallace & Partners, instructed by Mr Kent and Mr Harris to put the oral 1993 agreement into writing, uniformly referred to Mr Kent as an intended owner of 60% of the shareholding in the restructured company, and Mr Newman's letter to Mr Scodie of Scodie Deyong on 3^rd October 1994 reports him having been informed by Mr Kent and Mr Harris that the then current shareholding in the company was "Roy Kent: 68%, Tim Myers: 5%, Michael Harris: 25% and Mr Munn 2%".
72. Secondly, a subject to contract offer to purchase 51 % of the company by Apax Partners & Co in July 1995 referred to a proposed purchase of 26% of Mr Kent's shareholding, leaving him with a stake of 34% within the company and referring to all the other shareholders in terms which made no mention of Mrs Kent.
73. Thirdly, the Project Lincoln Plan in 1997 described Mr Kent as having "retained 68% of the shareholding" after Mr Harris had obtained 25% and Messrs Myer and Munn had between them obtained 7%. Again, no mention is made anywhere in that document of Mrs Kent's shareholding. Mr Kent's evidence and Mr Atkins' submissions on the Kents' behalf urged me to treat the Project Lincoln Plan as a wholly unreliable document for any purposes. In summary, I reject that evidence and those submissions. I set out my reasons for doing so at length when addressing the issue as to what occurred at the Camden Brasserie meeting, below.
74. Fourthly, a Business Plan for the company prepared for its 1995-1996 trading again described Mr Kent having "retained" 68% of the shareholding after Mr Harris and the minority had respectively acquired 25% and 7% each. It stated that "the shares are currently controlled as to 75% to Roy Kent and 25% to Michael Harris." In cross examination Mr Kent acknowledged having prepared that document. He said that he regarded it as inappropriate to refer to his wife in a document which might be shown to investors, and stated that he always told customers of the company that he was its majority shareholder.
75. Finally, no reader of the June 1998 transcripts could come away with any impression other than that Mr Kent treated the Kent family shareholdings as beneficially his.
76. By contrast, Mr and Mrs Kent's evidence was unanimously to the effect that, as between them, Mrs Kent was the beneficial owner of her own shares, having received an initial allocation which bore the same proportion to her husband's shares as the disparity in number between their respective children. She told me that after an unfortunate experience during her first marriage, she had resolved with Mr Kent's consent once they married to retain separate ownership of cash and other assets distinct from Mr Kent, mainly for the protection of her children. She said that, whereas he and she were one, her children were not Mr Kent's children. Her evidence was that when, for example, she transferred part of her shareholding in early 1994 to Mr Harris, she did so after being invited rather than told to do so by her husband, and after consulting Mr Scodie. She did however say in cross examination that she had been told rather than consulted by him about his agreement in 1993 to give 25% of the company's shares to Mr Harris.
77. Mrs Kent professed to have very little understanding of the affairs of the company, and not to understand concepts such as share capital or detailed percentage breakdowns involving minority shareholdings and the like. Nonetheless her evidence that she had throughout regarded herself as the beneficial owner of the shares for which she had obtained a certificate was clear and consistent. In her will dated 15^th May 1998 she left those shares to her children.
78. Having regard to Mr Kent's conduct towards third parties in relation to this issue, I place little reliance on his evidence in this regard. Mrs Kent's evidence is however a different matter. The only occasions suggested to Mrs Kent in cross examination upon which she might have appreciated that her husband tended to treat her shares as beneficially his in his dealings with third parties were the various dinner parties and other social occasions involving the Harrises and the Kents. Her response was that, although their husbands apparently discussed business matters including the company's affairs from time to time in their presence, she and Mrs Harris tended to ignore them, and to discuss matters of mutual interest of their own.
79. The objective probabilities of the matter seem to me marginally to support Mrs Kent's case about this. I find it difficult to conceive any logical reason for Mr Kent arranging for his wife to hold an unequal proportion of the company's shares in her name if she was merely to be his nominee. There is a logical similarity between the proportions in which those shares were originally issued to them and the number of children which they each brought to their relationship from previous marriages. On the balance of probabilities I accept Mrs Kent's evidence on this issue.
80. It by no means follows that Mr Harris appreciated either that Mrs Kent was a registered shareholder or, if he did, that she was the beneficial owner of those shares. His evidence was to the contrary, and that it is no recent fabrication is evidenced from the transcript of the conversations in June 1998, and from the fact that when commencing these proceedings, Mrs Kent was not joined as a defendant at all.
81. Mrs Kent's evidence was that, in her view, Mr Harris must have known that she was the beneficial owner of the shares, but she could provide no specifically recalled instances of events involving Mr Harris on which she based that assumption. Furthermore, the extent to which Mr Kent portrayed himself to third parties as the beneficial owner of the whole of the family's shareholding came as a considerable surprise to Mrs Kent when it was put to her in detail in cross examination.
82. Furthermore, it does not appear that Mr Kent thought it necessary to explain to his wife in any detail his stewardship of the company's affairs, even when, no doubt at his request, she joined with him in charging their matrimonial home as support for lending to the company. In the course of a thorough cross examination, it became apparent that she had been wholly unaware of the company's serious financial predicament during 1996, of the extent to which its survival was dependent upon Mr Harris's demand loans, and of the risk of loss of the matrimonial home created by that predicament by mid 1996. She did not know how much, when or by what means Mr Harris had assisted the company, or of the large disproportion in financial terms between his support and that of Mr Kent.
83. It follows that on this question, I believe Mr Harris and reject the conclusion which I was invited to draw from Mrs Kent's honest but in my view misplaced assumption that he knew otherwise.
84. Logically, the next issue is as to the extent (if any) of Mr Kent's authority to make representations, promises or agreements binding his wife at the June 1996 meeting at the Camden Brasserie. Since it is rather artificial to address that question in the abstract, I shall first state my conclusions as to what actually occurred both at and immediately before that meeting, starting with the common ground.
85. Both sides invited me to assume that there was indeed a dinner attended by the Harrises and the Kents probably but not certainly at the Camden Brasserie in Mid June 1996, and that the 25^th June is the most probable date upon which it occurred, although there were other similar dinners both there and at other restaurants during the same period. It is also common ground that there was a discussion between Mr Kent and Mr Harris about Mr Harris becoming an equal partner in the company with Mr Kent. There the common ground ends.
86. Notwithstanding their evidence to the contrary, I do not accept that either Mr or Mrs Harris retained by the time of the trial any independent reliable recollection of what took place on that occasion. They may, in particular after participating in and listening to the tape recordings of the June 1998 conversations, have come to persuade themselves that they had an independent recollection. The transcripts of the June 1998 conversations do not suggest that they had any such recollection then, although they were pursuing a very different agenda at that time.
87. In particular, I do not accept that there was a specifically agreed quid pro quo for Mr Harris being given an equal shareholding with Mr Kent in the company in the form of a promise to lend a further US $150,000. On this, Mr Harris's evidence was not corroborated by any other evidence, oral or documentary. It is in my judgment a construct which Mr Harris has placed upon his misreading of the bank account statements from which it appeared that two payments of US $75,000 were made shortly after the meeting. This mistaken reading of the documents was shared by both sides and their legal teams until 2006, and was even the subject of pleaded admissions, later withdrawn. The reality was that, upon analysis, only one such payment was made, or even intended to have been made. I can well understand how, putting the tape recordings together with the bank statements in attempting to refresh his memory, Mr Harris may have come to associate what appeared to be the immediate provision of US $150,000 with the meeting at the Camden Brasserie, and to conclude that the payment was the quid pro quo for the increased shareholding. But poor historical research produces poor history, and in my judgment there was no such specific agreement.
88. I have even less hesitation in rejecting Mr Kent's account of what occurred, and in particular the cornerstone of his case that the proposed 50/50 partnership depended upon Mr Harris converting his loans to the company into equity. His evidence was that he suggested that Mr Harris "approach the Company with a view to discussing terms for converting certain of his existing loans to the Company into equity in the Company" and that his proposal depended upon the Company agreeing to such a change. In my judgment that explanation is so artificial as to be incredible, even without regard to the further evidence to which I shall shortly refer. In terms of management, Mr Kent was the alter ego of the company. The only other significant shareholders were Mr Harris and Mrs Kent, both of whom were at the dinner. Nothing remotely approaching such formality had ever taken place between Mr Harris and Mr Kent with regard to the company in the past, nor did it in the future.
89. In any event, Mr Kent's assertion that his proposal of a 50/50 Partnership depended upon Mr Harris first converting his loans into equity is inconsistent with the whole of the relevant evidence of their subsequent conduct, and is not supported by anything other than Mr Kent's evidence and Mr Terry's misguided and (as appears to me) incomprehensible attempt to explain that those were his instructions when preparing the Project Lincoln Plan, to which I now turn.
90. Under the heading "Outline Of Proposed Transactions", paragraph 1.6.1 of the Project Lincoln Plan stated as follows:

"Michael Harris has agreed in principle to sell his 50% interest in the Company and CLUB Co and to have his loans repaid for total of £2,000,000 together with a 20% interest in the Ordinary Shares of Newco. Roy Kent and Sachel Singh, who effectively own the remainder of the Company and Club Co, would roll their interests into Newco…"

91. Under the heading "Objectives of the parties", Mr Harris's objectives were identified as repayment of loans, value for equity stake, and significant "Carry" in Newco. Under an indistinct heading which was probably "Preferred deal for each party" the benefit for Mr Harris was summarised as follows:

"Loans of around £500,000 repaid. This represents £400,000 already loaned plus £100,000 committed to working capital.

Shares purchased for £1,500,000 in cash plus 20% of Newco Ordinary Shares.

No ongoing involvement in management."

92. Under the heading "Background Information" Paragraph 3.1.5 provided as follows:

"At this time (a reference to the 1993 agreement.) The shareholding and financing of the company was restructured. Michael Harris, a friend of the Managing Director, acquired a 25% shareholding with 5% and 2% of the shares going to Timothy Myer and Steve Munn respectively. Roy Kent retained 68% of the shareholding. Sachel Singh has an option over the shares held by Messrs Myers and Munn. Michael Harris has continued to support the Company financially and now has an effective 50% interest."

93. In my judgment, an objective reading of the Project Lincoln Plan as a whole and in particular the passages which I have quoted above, shows without any ambiguity that the proposal which Beechcroft were instructed to communicate to venture capital investors involved Mr Harris receiving repayment in full of all his actual and projected lending, and in selling a 50% effective share (rather than a 25% share) in the company's share capital for the aggregate of £1,500,000 and 20% of Newco. The categorisation of his 50% interest in the company as "effective" was in my judgment a passing reference to the existence of the 7% minority interest which for valuation and restructuring purposes was of little consequence. The notion that the proposal involved Mr Harris first converting all or even part of the lending into equity is in my judgment irreconcilable with the whole thrust of the Project Lincoln proposal.
94. I must however deal with Mr Kent and Mr Atkins' valiant attempts to persuade me to a different view of, or to ignore, the Project Lincoln Plan. This was based firstly upon Mr Terry's evidence that his firm had actually been instructed that Mr Harris's "effective 50% interest" depended upon his first converting his loans into capital. Mr Terry's working papers had been routinely destroyed before he was asked to give evidence, but this is something which in his witness statement he claimed to be able to remember. He said that his understanding was not that the conversion was to be achieved by the company issuing shares to Mr Harris (as Mr Kent told me it was to be), but by Mr Kent transferring shares to him in exchange for the writing off rather than assignment of the loans.
95. Under cross examination, it took a considerable time before Mr Terry was prepared to recognise the difficulty of reconciling any such instructions with the clear terms of the document, which provided for Mr Harris to be repaid in full, not merely in relation to loans already made, but in relation to loans yet to be made. Having recognised that inconsistency, he was quite unable to explain how the document could have been prepared in the way it was, if his recollection as to his instructions was correct. I found myself unable to place reliance upon Mr Terry's recollection of his instructions, nearly 10 years later, and I reject it.
96. Next, both Mr Kent and to a lesser extent Mr Terry suggested that Beechcroft's main port of call at Accidentcare had been Mr Singh rather than Mr Kent. In cross examination Mr Kent went so far as to say that he had never seen the project Lincoln Plan before it surfaced in the context of this litigation, had never approved it, regarded it as inaccurate and unreliable, and considered it outrageous that Mr Terry has sent it to potential venture capital investors without his approval.
97. While I have no reason to doubt the assertion that Mr Singh may have been a prime mover in the giving of detailed instructions to Beechcroft in advance of the firm's preparation of the Project Lincoln Plan, I reject Mr Kent's evidence that he neither considered nor approved it. The general impression which I gained of Mr Kent as a businessman was of someone with a disposition towards the application of care and attention to matters of detail. In my judgment he must have approved the dissemination of the document to potential investors and, even if he did not himself scrutinise it line by line, had satisfied himself that it was a proper presentation of information about the company to third parties with whom, if the plan succeeded, he would in due course have to deal. Equally, it must have been apparent to Beechcroft that Mr Kent rather than Mr Singh was the prime mover behind the company, and the person whose approval and consent was essential before the dissemination of the document.
98. To the extent that Mr Singh rather than Mr Kent may have provided particular matters of detail subsequently recorded in the Project Lincoln Plan, it seems to me that for present purposes it provides no assistance to the defendants, for the simple reason that in relation to matters concerning the ownership of the company's share capital Mr Singh is likely to have obtained such information as he passed on to Beechcroft from Mr Kent.
99. Finally, Mr Kent sought in cross examination to explain the incompatibility between the form of the Project Lincoln Plan and any unperformed requirement by Mr Harris to convert loans into equity by saying that for tax reasons the intention was that the obtaining by Mr Harris on an effective 50% beneficial interest in the company should somehow be merged or subsumed in the specific proposals contained in the plan. I reject that evidence as a valiant but incomprehensible attempt, after the event, to fit a square peg into a round hole. It is also irrelevant that, as Mr Kent also pointed out, no interest from potential investors was received in response to the dissemination of the Project Lincoln Plan. Its relevance to the issues in this action arises from the circumstances in which the document was prepared. I find that, as reflected in the document, Beechcroft were instructed that by April 1997 Mr Harris was already an "effective" 50% owner of the company, that Mr Kent knew that Beechcroft were so instructed, and that he approved the statement to that effect in the document.
100. Mr Kent's account of what occurred at the Camden Brasserie is also inconsistent with his stance in the negotiations with Mr Franks later in 1997. It will be recalled that after Mr Harris told Mr Franks that he owned half the company, Mr Kent succeeded in persuading Mr Franks otherwise by saying that Mr Harris had an equal profit share with him rather than an equal shareholding in the company. This was an attempt to contrast an alleged existing interest with an existing interest of a different kind rather than, as Mr Kent now suggests, an alleged existing interest in shares with a future interest dependant upon a conversion of loans which at the time of the negotiations with Mr Franks had not taken place.
101. Mr Kent dealt with this episode in a highly unsatisfactory part of his evidence. In his first witness statement, made in January 2006, he denied any knowledge that Mr Harris had asserted an interest in more than 25% of the company's shares, and denied that Mr Franks had discussed such a claim with him. In his fifth witness statement, made in February 2007, he said that Mr Harris had made a claim to Mr Franks that he owned half the company, and that he had met Mr Franks on a number of occasions in an endeavour to persuade him that Mr Harris owned only 25%, the first of which took place while Mr Franks was undergoing chemotherapy in the Harley Street Clinic. This unexplained about-face was necessitated by Mr Kent's need to explain a passage in his taped conversation with Mrs Harris, where he described himself as "playing the bluff" with Mr Franks about the extent of Mr Harris's interest.
102. In cross examination he went even further, describing Mr Harris's claim to Mr Franks as creating a situation that would live with him forever, and having to:

"fight for my own – to retain my own shares because of something that he'd told Bruce"

Plainly, a vivid recollection of that type is inconsistent with Mr Kent's original account. I do not believe either account.

103. I am satisfied that Mr Kent was telling Mr Franks a deliberate untruth when he persuaded him that Mr Harris's interest was limited to 25%. Far from fighting for his own shares, he was seeking to pretend that Mr Harris was only a 25% beneficial shareholder in order to prevent Mr Franks obtaining a 46.5% stake in the company. In his mid 1998 tape recorded conversation with Mrs Harris, Mr Kent clearly told her that he had been playing the bluff with Mr Franks, rather than telling him the truth. He had every incentive to lie because otherwise Mr Franks would have insisted on obtaining the full 46.5% of the company which, after learning about the 7% minority, he correctly concluded was the precise meaning of Mr Harris's assertion that he owned half the company. Had Mr Franks insisted, Mr Kent would have lost control of the company. I am equally satisfied that Mr Harris well knew that Mr Kent had lied to Mr Franks, despite his attempt in evidence to minimise his role in the negotiations.
104. Finally, that part of Mr Kent's account of the Camden Brasserie meeting which suggests that Mr Harris's equal share depended on conversion of loans to capital is both absent from and inconsistent with Mr Kent's account of the relevant history in the tape recorded conversations, read objectively. Mr Kent went to great lengths both in his fifth witness statement and in cross examination to explain those conversations (once the accuracy of the transcripts had been professionally confirmed) in a way that was not destructive of his case. The main thrust of his explanation was that on the second and third of the three separate occasions during those conversations when he referred to Mr Harris as then (i.e. in mid 1998) still owning 21.5%, 20% or "as near as dammit 20%" of the shares, he was referring not to an entitlement derived from the Camden Brasserie meeting which had survived Mr Harris's enforced transfer of 25% to Franks, but to what he described as his gratuitous decision to provide Mr Harris with 20% of the company at a later date in recognition of his past contribution to its affairs, even if he provided no further finance. I reject Mr Kent's explanation.
105. In my judgment, taking the recorded transcripts together with Mr Kent's evasive evidence about them, they clearly demonstrate that the essential thrust of his explanation to Mr and Mrs Harris, by way of parrying their assertion that Mr Harris was even then a 50/50 partner with him, was that he had moved from 25% to 46.5% as a result of the Camden Brasserie meeting, lost 25% to Mr Franks and thereafter remained the beneficial owner of 21.5% of the company's shares. That is precisely encapsulated in the following two quotations from the transcript of the conversation between Mr Kent and Mrs Harris:

Mr Harris: "At that point, (meaning just before the Moratorium agreement with Mr Franks) at that point we had equal shares, right? We had forty six and a half per cent of the shares each. Michael then got your shares, your 25%, and then went to Bruce (Franks). Now, had I not been able to negotiate that, we'd have lost the lot."

And later:

Mrs Harris: "Okay, so what percentage does Michael own now?"

Mr Kent: "as near as dammit, 20%"

106. Mr Kent made much of the following extract from a conversation between Mr Kent and Mr Harris:

Mr Kent: "I know one thing, that in my mind I never even thought about it being anything other than you having 21.5% … value. It never in my mind occurred to me any different"

The words in the gap in the above quote are unclear and may have been either "redemption" or "potential share".

107. Mr Kent said that he made a distinction in his explanations to Mr Harris and Mrs Harris between 21.5% redemption or potential share value, by which he said that he meant to refer to the need for Mr Harris to convert loans to equity, and 20% or as near as dammit 20%, by which he said he was referring to a future gratuity. I reject that as a long considered, ingenious but untruthful reconstruction. It finds no reflection anywhere else in the evidence. It is inconsistent with the whole thrust of the transcripts, and 21.5% is, as near as dammit, 20%.
108. In my judgment, in mid 1998, Mr Kent well knew that Mr Harris remained a 21.5% beneficial shareholder in the company. In that conversation, by contrast with his evidence in this case, he was honestly setting out both that belief and his reasons for it in order to rebut what he then correctly regarded as wholly excessive claim being put forward by Mr and Mrs Harris. In the mistaken belief that he was having a private conversation for the content of which he could not be brought to book, he had no hesitation in stating the truth as he believed it, despite his earlier lies to Mr Franks, who in mid 1998 remained a substantial shareholder in the company, upon whose continuing goodwill its (and his) financial survival depended.
109. It almost inevitably follows from that analysis of the taped conversations that they constitute the best surviving evidence of what occurred at the Camden Brasserie in June 1996. The event was only two years old in mid 1998, and the prospect of any of the participants at the Camden Brasserie meeting having a distinct recollection of it then is immeasurably greater than it is now. Of course, there is no reason to suppose that Mr Kent's description of it in mid 1998 was full or complete, and it may be that in giving a graphic explanation of what he believed to be the true position to Mrs Harris, he fell into the common mistake of describing it a little more vividly and precisely than his recollection permitted. Nonetheless, it is worth quoting his transcribed description in full, leaving out Mrs Harris's cross-examination:

"About a year/ year and a half into the business we realised that we had a bigger business than we thought we had, we needed more money, blah blah, blah and Michael's attitude at the time was "okay, fine, but I am not going to put it in now, I'll put it in as you need money." By the time we got to, I don't know, 250,000 or 300,000 or whatever the figure was at the time, I can't remember what it was at the time, Michael was a mench; he never said to me "Roy, I've put me money, I want my shares," right?

"… so, you know he was a mench he never ever mentioned it to me, and I said on one night we were going out and I think we either went to Maxims or we went to, I think it was the Camden Brasserie, and I said to him, I said, you know "Michael, you've been a real friend, a real pal you've never asked for any shares."

….let me just finish the story, it's important. So, I said to Dena, I said, "look, I've got to do something for Michael, he's never asked, you know, but we're good pals and I think the right thing for me to offer him is a 50/50 Partnership effectively." Now, I had, there were 7% of the shares that weren't held by either of us… so, I said to him-so, we came to the restaurant with a view- you were already there.

… Alright. And I said to Michael at the time, I said, "Michael, I've been thinking about the situation with the business, blah, blah, blah, you've been a real pal, you've never asked me for any shares [other than the shares you've had], and from here on in, whatever we've got, we've got 50/50." "Thank you very much. Very nice of you. Appreciated." And that was the end of it."

110. That in my judgment is the nearest it is now possible to get to what happened. There was no specific bargain made that in return for a loan of $150,000 Mr Kent would make Mr Harris a 50/50 partner. Nonetheless, the then predicament of the company, well known to both Mr Kent and Mr Harris at the time, means that the conversation must be seen in the light of an implicit recognition that the company needed further substantial financial support. It was in my judgment implicit in what Mr Kent said that he was inviting Mr Harris to treat the increased shareholding as an incentive to continue with further financial support. Since the loans were interest free and unsecured there was no other incentive.
111. To my mind, the principal feature of the discussion was that Mr Kent was promising or representing to Mr Harris unconditionally that he was there and then to regard himself as a 50/50 Partner in the business. I have no doubt that Mr Kent meant, and Mr Harris understood him to mean, that he was to regard himself as the beneficial owner of half a 93% shareholding, rather than, as pleaded in the alternative by the defendants, half a 68% shareholding, treating Mrs Kent's then 25% of the shares as separate and unaffected. That much is crystal clear from the passages in the transcripts quoted above. It was a promise made unconditionally, but one intended by Mr Kent to be relied upon by Mr Harris as the basis for his further financial support to the company.
112. I have no doubt that Mr Harris did rely on Mr Kent's promise, when subsequently making loans to the company well in excess of his outstanding commitment in the comfort letters. This is best illustrated by reference to the last three loans made by Realhurst at Mr Harris's direction, in 1997. They were (in sterling equivalent) £21,942.95 on 7^th August, £21,949.84 on 10^th September and £13,798.35 on 19^th September. I will call them loans A, B and C. By the beginning of August 1997 it is clear that it was common ground in the negotiations with Mr Franks that Mr Harris would be giving up the 25% interest which he had acquired in 1993. Mr Franks had given way on the additional 21.5% by 15^th August. Yet Mr Harris continued to pour money into the company. The natural inference is that he regarded himself as having a continuing interest, one which Mr Kent was skilfully concealing from Mr Franks.
113. Mr Kent sought to explain this away in cross examination by saying (for the first time) that by this stage, Mr Harris was having substantial personal expenses paid for him by the company on the basis of an agreement that Mr Harris should re-fund the company, and that at least loans B and C were not loans at all but repayments. Again I do not believe that explanation. By the time Mr Kent was cross examined it had long previously been agreed in this litigation that those payments were loans. Correspondence in 1997 shows that they were among the loans to be assigned to Eagleton, although in the event only loans A and B were in fact assigned. The company's nominal ledger shows that by the time loan C was made, Mr Harris's 'expenses' amounted only to £16,746.
114. Nor do I believe that there ever was an agreement that Mr Harris should re-fund the company for his expenses. His solicitors described them as remuneration for consultancy services in early 1998, when Eagleton complained about them to Mr Kent. It is true that when the relationship soured later in 1998 Mr Kent alleged an obligation on Mr Harris to re-fund in a letter dated 9^th June 1998, enclosing a (now lost) schedule of expenses. That letter makes clear that Mr Kent's stance was the result of further pressure from Mr Franks, and Mr Kent apologised to Mr Harris for sending the schedule, in his taped conversation with Mr Harris shortly afterwards. In my judgment Mr Kent's case that the expenses were re-fundable was an invention originally designed to extricate him from what he described to me as another uncomfortable position in between Mr Harris and Mr Franks, and the letter in which he first alleged it was designed primarily for Mr Franks' consumption.
115. Returning to the Camden Brasserie meeting, another important feature of the taped account of what occurred is that Mr Kent did discuss with Mrs Kent in advance of the meeting his intention to confer upon Mr Harris that 50/50 status. It is hardly surprising, having regard to Mr Kent's general attitude toward his wife's shareholding when dealing with third parties that Mr Kent did not in terms say to Mrs Harris in mid 1998 that he had sought and obtained Mrs Kent's permission. But in my judgment that is probably what occurred.
116. Mrs Kent had no recollection of any discussion in advance of the Camden Brasserie meeting, or for that matter, any discussion about shares at the meeting itself. But once in cross examination she fully appreciated that it is a non sequitur to think that if something cannot be remembered it did not happen, she readily acknowledged that it was possible or even probable that a conversation along the lines described by Mr Kent in the tape recorded conversation occurred, and that she gave her consent. She was fulsome in her expression of complete trust in her husband in matters of business, and I have no reason to doubt that if it was necessary for Mr Kent to obtain his wife's consent to making Mr Harris a 50/50 Partner with them in the business, (in the sense of being beyond that which he had her standing authority to do), she provided it.
117. In reaching those conclusions on the main factual issue I have taken into account the evidence of Messrs Miller, Michaels, Goldfoot and Brand that they knew nothing of Mr Harris' promised interest, and the evidence of Messrs Forsyth, Drukker and Howard Harris that they did. My conclusion that the evidence of these witnesses adds little of real weight to the analysis does not involve disbelieving their statements as to what they could recall by the time of trial.
118. The above analysis substantially deals with the only outstanding factual issue in the proceedings, namely whether Mr Kent had Mrs Kent's authority to commit her shares, to the extent necessary for any promise made by him to Mr Harris at the Camden Brasserie meeting. In my judgment the promise which I find that he did make was either within the standing authority which he had from Mrs Kent, or, more probably, an authority which she gave him immediately prior to the meeting, having heard his explanation of what he intended to do.

The Legal Consequences

119. It follows from the above findings that there was not the contract alleged by Mr Harris, upon his performance of which a trust of the necessary shares in his favour would have arisen under the principles in Walsh v Lonsdale. This is not because there was not a promise by way of consideration that Mr Harris would lend a specific US$150,000, but because the promise or assurance that Mr Harris was there and then to regard himself as an equal shareholder was not conditional in any way. Accordingly the question whether Mr Harris's subsequent lending constituted performance of the alleged contract does not arise. Mr Kent made much of the fact that the further funding of US$ 75,000 which followed shortly after the Camden Brasserie meeting had been anticipated in the company's then business plan for 1996, and that no significant further funding was provided until the end of the year. That may well have reduced the evidential and legal significance of the US$ 75,000 payment as apparent part performance of a contract. But it comes nowhere near depriving Mr Harris's very substantial further unsecured lending of its status as conduct reliant upon Mr Kent's promise.
120. At a late stage in the evidence I drew the parties' attention to the possibility (by then apparent to me) that there might arise a factual outcome of the type which I have now decided, lying between but not covered by the factual cases alleged in the pleadings. Mr Adair for Mr Harris responded with amendments designed to introduce a pleaded case of proprietary estoppel. After some adjustments of the draft to meet reasoned objections by Mr Atkins, I allowed those amendments.
121. In my judgment the facts which I have described include all the elements of a proprietary estoppel. Mr Kent's statement that from then on Mr Harris was to regard himself as a 50/50 partner in the business with him in terms of shareholding, in the context that the company needed and Mr Harris thereafter provided the large unsecured loans necessary for its survival in reliance on that statement makes it unconscionable for Mr Kent to have denied that entitlement when the company floated successfully in 1999, and for Mr and Mrs Kent (on whose behalf he spoke) to do so now.
122. The court has a discretion how to satisfy such an estoppel. The parties' cases in relation to relief proceeded on the assumption that there either was or was not a trust of the necessary shares affecting one or both of the Kents by the time when the shares in Accidentcare were sold to Plc in July 1999, and that if there was, that sale constituted a breach of it. Mr Adair submitted that a proprietary estoppel arising from his amended pleading would be appropriately satisfied by treating Mr and Mrs Kent as if they had in June 1996 declared themselves trustees of sufficient shares to increase Mr Harris's beneficial holding from 25% to 46.5%, leaving him a 21.5% beneficial owner from the date of the Moratorium agreement with Eagleton. Mr Atkins did not suggest any more persuasive alternative. I consider that I should accede to Mr Adair's submission. It would give, as nearly as possible, legal effect to that which Mr Kent conferred upon Mr Harris as a 50/50 partner in the ownership of the company.
123. I was not originally invited to prescribe, as between Mr and Mrs Kent, how that burden should lie, as beneficial owners of separate blocks of shares in the company. It is tempting but in my judgment wrong to treat them as jointly liable, as if they were co-owners of a single block. Perhaps more tempting, but also wrong, would be to treat Mr Kent as solely liable, on the basis that he had sufficient shares of his own, both in mid 1996 and until the shares were sold to Plc, to give full effect to his promise to Mr Harris, who received it without knowing or having any reason to believe that it involved any commitment by Mrs Kent at all. If Mr Kent has the means to compensate Mr Harris in full, it may not matter. But if it does matter, I would ascribe the burden of the trust obligation severally between Mr and Mrs Kent in the same 3 to 2 proportions as they held their shares. That is, broadly, how they split the burden of conferring upon Mr Harris his 25% shareholding in 1993, and how they split the smaller burden of conferring a shareholding on Mr Singh at the time of the flotation. It is a reasonable inference that, had they given effect in 1996 to the promise from which they are now estopped from resiling, that is how they would have done it. Having raised this issue with counsel, neither of them invited me to take a different course. In particular, Mr Adair did not pursue a submission that each would be liable as the accessory of the other since, as Mr Atkins pointed out, this had been neither pleaded nor investigated.
124. The parties were fundamentally divided as to the appropriate basis of quantifying equitable compensation for the breach of trust constituted by the sale to Plc of the shares beneficially owned by Mr Harris. There were also differences, necessitating the deployment of expert share valuation evidence, as to the value to be attributed to those shares, upon a range of possibly relevant dates.
125. Taking those issues in order, it was submitted for Mr Harris that the proper basis of compensation was by reference to the value of shares on the date of the breach, namely 8^th July 1999. Alternatively, it was submitted that compensation should be awarded by reference to the value of the shares in Plc which Mr and Mrs Kent had received in exchange for the shares in the company when Mr Kent, through Mr Miller, rejected Mr Harris's demand for the value of his shares, made on his behalf by Mr Levenson, in August 1999. Various other breaches of trust and potential valuation dates for the purposes of compensation were pleaded, but not pursued.
126. That basis of compensation was sought to be justified by Mr Adair on two alternative grounds. First he said it corresponded with the traditional basis of liability of a trustee who parts with the trust property to a stranger in breach of trust, namely to reconstitute the fund by reference to the value of its assets at the time of the breach. Secondly he submitted that since Mr and Mrs Kent had received for their own benefit the shares in Plc exchanged for the shares in the company which they held on trust, they should account for the value of that which they had personally received at the time of receipt. In particular, Mr Adair submitted that it would be quite wrong for the measure of compensation to be calculated by reference to the present value of the equivalent shareholding in the merged company Aquilo Plc, if lower than the 1999 value, because the Kents' choice to hold rather than realise the value of those shares in what may have proved to have been a falling market, and the diminution in value occasioned by that choice, should not be visited on Mr Harris at a time when, because the Kents' refusal to recognise his claim, he and his trustee in bankruptcy were disabled from exercising any choice as to the matter.
127. For the Kents it was submitted that the above analysis took no account of the fundamental reanalysis of the law of equitable compensation for breach of trust carried out by the House of Lords in Target Holdings Ltd v Redferns [1996] 1AC 421, in particular in relation to bare trusts. In such cases, said Mr Atkins, compensation is measured by reference to what Lord Browne-Wilkinson described as the "basic equitable principle applicable to breach of trust" namely that the beneficiary is entitled to be compensated for any loss he would not have suffered "but for the breach" in circumstances where in the present case, as is common ground, the shares would have been worthless had there been no flotation. Mr Atkins submitted that had the breach constituted by the sale not occurred, the shares would never have acquired any value. Alternatively, had Mr and Mrs Kent sought Mr Harris's permission to the share swap with Plc (without which the flotation would not have proceeded), Mr Harris would have given it. Either way, the breach therefore caused no loss.
128. In response to my expression of doubt as to whether such an outcome could reflect the justice of the case, assuming hypothetically that I were to find that there existed a trust at all, Mr Atkins submitted that Mr Harris's real loss was caused by his election at the outset of the trial to abandon any proprietary claim to the shares and money received by Mr and Mrs Kent in substitution for the trust shares in the company, in favour of an illusory claim for compensation. Mr Harris was therefore the author of his own misfortune.
129. While I admire the ingenuity of a submission which, if correct throughout, would have extricated Mr and Mrs Kent from any obligation to Mr Harris in respect of a trust which they had repudiated from start to finish, I do not accept it. Putting on one side the question whether Mr and Mrs Kent's true liability is to account for the profit which they received from being allocated shares in Plc in exchange for the trust shares in the company, a circumstance entirely absent from the facts of Target v Redferns, (where the defaulting solicitors derived no benefit of any kind from their breach of the bare trust upon which they have held their client's money), I consider that the true analysis arrived at by reference to Target v Redferns is as follows.
130. The first question is whether the basic equitable principle applies in preference to the traditional trust obligation to reconstitute the fund. Lord Browne Wilkinson's speech makes clear that the basic equitable principle is not a special rule applicable only to business trusts, or even to bare trusts, but to all trusts, unless there is good reason to require the reconstitution of the fund, rather than the simple short-cut of compensating the beneficiary: see pages 433 to 435. At page 435 B he leaves open the possibility that even in a case where the reconstitution of the fund is not necessary, it may still be appropriate.
131. In the present case it is not only unnecessary to reconstitute the trust fund. It is the last thing which the litigants would want, since it would force them back into a fiduciary relationship of which they are all no doubt heartily sick. Mr Adair urged me to approach the case on the basis that reconstitution was appropriate, but could not offer any persuasive reason why. Mr Harris has been looking for monetary compensation since August 1999, and in my judgment that is what he should receive. Accordingly I propose to apply the basic equitable principle, but mindful that if compensation for Mr Harris's loss leaves a profit in the Kents' hands as the result of their breach, then a different approach may be needed.
132. The "but for the breach" analysis called for by the application of the basic equitable principle requires the court to decide what would hypothetically have happened if, instead of committing the breach of trust, the Kents as trustees had in all respects complied with their fiduciary obligations. In this respect equity follows the law, in which for example damages are quantified by reference to the difference between the effect of the breach and the position which the claimant would have been in, had the defendant complied with his contract.
133. In the present case, Mr and Mrs Kent's duty to Mr Harris as bare trustees was to seek his permission before any disposition of the trust shares. Had they done so, then I agree with Mr Atkins that Mr Harris would probably have given consent to the share exchange, without which the trust shares would have remained as valueless as they had been ever since the incorporation of Accidentcare. The share exchange was probably a necessary first step in any flotation. But he would also have required them (and they would in any event have been obliged) to acknowledge their undoubted obligation as constructive trustees of the shares in Plc which they received in exchange, namely to ascertain his wishes with regard to those shares and then comply with them.
134. Mr Harris's overriding desire at that stage was to obtain cash to stave off his bankruptcy. But he would have been informed by Mr and Mrs Kent that it was a term of the share exchange (linked as it was with the flotation of the company) that they could not dispose of any shares in Plc for a year after the by then imminent listing of those shares. In those circumstances, Mr Harris would be faced with the unenviable alternatives of objecting to the share exchange or of accepting it on the condition necessarily attaching to it. In my judgment, notwithstanding his protestations to the contrary when cross examined about this, he would have had little alternative but to submit, unless he could extract some financial price by way of holding the Kents to ransom in connection with the flotation, or as he said persuading them to undertake some different kind of flotation, designed to yield immediate cash for his shares. That involves a pure speculation as to the outcome which the court is not obliged, and I was not asked, to undertake.
135. But the analysis does not end there. Assuming that Mr Harris had little alternative but to consent to the share exchange on terms which effectively froze the shares in Plc for a year, his rights would, as indeed they did, then have vested shortly afterwards in the Official Receiver, and later in Mr Bramston, as his trustee in bankruptcy. His duty would of course have been to realise the shares as soon as possible for the benefit of Mr Harris's creditors, and Mr and Mrs Kent would have been obliged as constructive trustees of the shares in Plc to accede to Mr Bramston's request to that effect as soon as the one year moratorium ended.
136. It therefore follows in my judgment that the "but for the breach" analysis leads to a conclusion that had Mr and Mrs Kent complied in all respects with their fiduciary obligations instead of repudiating them, the shares in Plc which they held on constructive trust for Mr Harris would have been realised in a professional and orderly manner by or at the direction of Mr Bramston during whatever period after the first anniversary of the flotation was necessary to take account of the relative illiquidity of the OFEX market.
137. Mr Atkins fought hard but in vain against this analysis, mainly on the ground that there was never any demand by Mr Harris or by Mr Bramston for a transfer or sale of the shares. A bare trustee is he said entitled simply to hold the trust property until instructed otherwise, and the shares in Plc were held by the Kents on the same terms. He submitted that since the only breach of trust (namely the share exchange in July 1999) caused an increase rather than diminution in the value of the trust property, there was no loss calling for compensation.
138. I reject that submission for the following reasons. The breach constituted by the share exchange was carried out without notice to Mr Harris, and permanently deprived him of the original trust property, namely the shares in Accidentcare which he had originally been content for the Kents to hold on bare trust, and on a concealed bare trust once Mr Franks came onto the scene. Thereafter the Kents held the substitute shares in Plc on constructive trust. It was a trust to which Mr Harris was not a consenting party at all, and from the outset it involved the Kents in a moratorium in dealing with those shares to which he would have been opposed, had he been informed about it in advance, even though there was little that he could have done about it. By the time he found out about the flotation, all this was a fait accompli.
139. When Mr Harris did find out about the flotation he demanded monetary compensation in respect of his shares, through Mr Levenson. Mr Kent's response, through Mr Miller, was not merely to refuse monetary compensation, but to deny that Mr Harris had any interest of any kind in the company. In the circumstances a formal demand for transfer or sale of the shares in Plc would have been an empty formality. I reject the submission that as constructive trustees the Kents could simply have held the shares in Plc until asked to do something else with them by Mr Harris. Their duty was to tell Mr Harris about the exchange and seek his instructions what to do with the shares in Plc. Once informed of the identity of his trustee in bankruptcy (which I infer they learned at the latest when Mr Bramston notified the Secretary of Accidentcare in May 2000) their duty was to tell him of his interest in the shares in Plc and to seek his instructions. Plainly, Mr Bramston would have sought an orderly sale as soon as possible.
140. The court applies the basic equitable principle by reference to what it knows at the date of trial. This appears from the following passages in the speech of Lord Brown- Wilkinson in Target v Redferns:

At page 437 C: "A trustee who wrongly pays away trust money, like a trustee who makes an unauthorised investment, commits a breach of trust and comes under an immediate duty to remedy such breach. If immediate proceedings are brought, the court will make an immediate order requiring restoration to the trust fund of the assets wrongly distributed or, in the case of an unauthorised investment, will order the sale of the unauthorised investment and the payment of compensation for any loss suffered. But the fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had their been no breach. I can see no justification for "stopping the clock" immediately in some cases but not in others: to do so may, as in this case, lead to compensating the trust estate or the beneficiary for a loss which, on the facts known at trial, it has never suffered."

Page 439 B " Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach."

141. In my judgment, the loss caused by the Kents' breach of trust was therefore that Mr Harris's trustee in bankruptcy (whose claim is being sued upon in this action by way of assignment) was deprived of the opportunity to realise the shares in Plc by then held by the Kents as constructive trustees by way of an orderly sale in the market commencing, but not necessarily concluding, on 19^th July 2000. The question what would have been obtained upon such an orderly sale is a matter for expert evidence. If the amount which would have been obtained is less than the value of the shares in Plc received by Mr and Mrs Kent as a result of the flotation, for which the share exchange was merely an inseparable preliminary, then Mr and Mrs Kent should be obliged to account, with interest, for the value so received. This is because there is in my judgment nothing in Target v Redferns (a case in which the defaulting trustee obtained no personal benefit) to displace the long established rule that a trustee must not be allowed to benefit personally from his trust, a fortiori from any breach of it.
142. On the face of it, and bearing in mind that Mr and Mrs Kent were in fact subject to the same one year restriction on selling shares that would have affected Mr Harris and his Trustee as beneficial owners, I would not expect a valuation as at the date of the flotation to produce a higher amount in terms of compensation than quantification based upon an orderly sale one year later, in each case adjusted by reference to interest payable from the valuation date until the date of this judgment. Happily, my expectation to that effect is largely confirmed by the expert evidence, to which I now turn.
143. Mr Harris called Mr Keith Eamer, a director in the Share and Business Valuation Department of BDO Stoy Hayward LLP, and co-author of Eastaway, Booth and Eamer on Practical Share Valuation. The Kents called a Mr Graham Platts, the forensic and investigations partner for the Southern Region of Mazars LLP. Although not a full time share valuer, Mr Platts said in cross examination that the bulk of his work consisted of share valuation in the context of various kinds of disputes, including matrimonial disputes and section 459 petitions. He said he was an approved valuation partner within his firm and had conducted hundreds of share valuations.
144. In accordance with case management directions, Mr Eamer and Mr Platts met to identify and if possible narrow the differences between them, and set forth their conclusions in a very helpful and concise joint statement dated 15^th February 2007. Unfortunately, neither of the experts was instructed to give their opinion as to the value of the shares on precisely the basis which I have identified above as being the appropriate basis for giving effect to the basic equitable principle. Mr Eamer valued the shares as at 8^th July 1999, late August/ early September 1999, and as at 27^th November 2000. Mr Platts valued the shares as at August 1999 and as at 25^th January 2005.
145. Extrapolating backwards from the joint statement into paragraph 2.1 (a) of Mr Eamer's report, it was common ground that following the capital restructuring in Accidentcare prior to the share exchange on 8^th July 1999, 4,300 1p Ordinary Shares were properly to be regarded as the subject of the alleged trust. That translated into 1,767,300 1p Ordinary Shares in Plc following the share exchange. It was also common ground that at all the relevant valuation dates in 1999, it was appropriate to make reference to the subscription price for the flotation of the shares in Plc on OFEX, since that would have been known to the parties to any notional sale of the shares in either Accidentcare or Plc. It was also common ground that although the fact that the public issue was fully subscribed came into the public domain only on 1^st September 1999, the fact of the over-subscription would have become known to the directors of those companies during August.
146. It became common ground during the cross examination of Mr Platts that a historical valuation (such as both experts had been instructed to carry out) required the valuer to abjure the benefits of hindsight, and to confine himself to the knowledge reasonably expected of the hypothetical parties to a notional sale of the relevant asset as at the valuation date. It also became common ground during the same cross examination that the existence of a disability preventing the owner of the relevant asset from selling it at the valuation date (such as the undertaking not to sell shares in Plc within a year of listing) was no impediment to a valuation of that asset. The task of the valuer is to assess what a notional willing acquirer would pay to step into the shoes of the incapacitated owner.
147. Cross examination of Mr Platts elicited a frank admission that his valuation report (just previously confirmed in his oral evidence as remaining his opinion) had failed to renounce the benefit of illegitimate hindsight. Furthermore, cross examination revealed that the part of the joint report which described his views after discussion with Mr Eamer involved discounts of 30-50% off the issue price of the shares in Plc substantially different from those which Mr Platts applied in his original report. Furthermore, his original report adopted as one basis for his valuation of the shares in August 1999 an approach which entirely ignored the planned flotation, contrary to his agreement that it was necessary to have regard to it, in paragraph 2 of the joint statement.
148. The cumulative effect of these differences revealed that while by the end of cross examination, there was in truth no difference between the experts as to the relevant principles to be applied, Mr Eamer had consistently applied those principles in his report, whereas Mr Platts had not. I was therefore inevitably driven to the conclusion that differences between the opinions of the two experts disclosed by a comparison between their two reports had to be resolved by preferring the approach of Mr Eamer to the approach of Mr Platts.
149. In paragraph 9.2.3 of his report, Mr Eamer valued the relevant shareholding in Plc as at late August/ early September 1999 by beginning with the flotation price of 50p per share, applying a 10% discount for lack of certainty and then a 10% discount for the size of the holding, necessitating in his opinion an orderly disposal over a number of months so as to avoid disrupting the market. His value per share was therefore 40.5 p., which produced a value for the relevant shares of £715,756.50.
150. In his evidence in chief he said that information obtained only after writing his report demonstrated that because trading in the shares had started on 1^st September rather than 9^th September as he had originally believed, there should be no discount for the lack of certainty as to whether the flotation was to go ahead. Since however he had at the same time learnt of the one year restriction on the sale of founder's shares, he applied an identical 10% discount for that reason, so that his valuation remained unchanged.
151. For his August 1999 valuation, Mr Platts identified in the joint statement an approach which also involved starting with the subscription price of 50p per share but then applying a discount ranging from 30% to 50% for issues including uncertainty whether the flotation would go ahead at that price, the 12 month moratorium on share disposals, the size of the shareholding, and uncertainties as to the company's future performance after flotation. His valuation therefore lay within a range £441,825 to £618,555.
152. After an unsuccessful attempt to defend his reference to uncertainty in paragraph 4a of the joint statement, which he eventually abandoned under cross examination, Mr Platts was forced to accept that it was wrong to include any discount for uncertainty in an August valuation of the relevant shares. I was left uncertain what effect that had upon Mr Platts' opinion save that by reference to Mr Eamer's 10% uncertainty discount in his original report, with which Mr Platts did not expressly disagree, that would appear to reduce Mr Platts' discount range from 30-50% to 20-40%. The bottom of his range therefore coincided with Mr Eamer's opinion, from which he did not depart under cross examination.
153. It is not for me to attempt my own discounting exercise in the face of the differing expert opinions of two experienced valuers, not least because for the reasons already given, I have formed a clear view that Mr Eamer's opinion is to be preferred to that of Mr Platts, because Mr Eamer consistently adopted disciplines which both of them agreed were appropriate while Mr Platts did not. Accordingly, I hold that the aggregate value of the relevant shareholdings in Plc, received by Mr and Mrs Kent in exchange for their trust holdings in the company was £715,756.50.
154. Furthermore, I consider it unnecessary to have regard to the slightly lower value attributed by Mr Eamer to the shares in the company at the moment prior to the share exchange on 8^th July 1999. That was a moment during a process in which the shares began with a nominal value, due to the negative net assets of the company and its consistent record of losses, and ended with the late August / early September value which I have just described, attributable to the successful outcome of the flotation process, once it became known that the public offer was fully subscribed. The fact that the share exchange occurred on a particular date during that process of flotation has no bearing in my judgment on the proper approach to a valuation in which the flotation was the principal driver of value, and to discount the shares by reference to an uncertainty which a strict historical valuation required to be built in during July, but not in August / September, would be to allow the technicalities of the flotation process to prevail over the substance of the matter. It follows therefore that for the purpose of ascertaining the value of the profit derived by the Kents from their breach of trust, in the form of the shares in Plc which they received, kept and thereafter exploited for their own personal benefit, the August / September valuation of £715,756.50 is the appropriate measure.
155. It remains for me to consider whether the application of the basic equitable principle enshrined in Target v Redferns in the manner which I have set out above produces any different figure, as the true measure of equitable compensation. Mr Eamer valued the same shares in Plc as at 27^th November 2000 at £795,285. This was based upon two substantial sales in the market on that date, which coincided with a further placing on OFEX of 1,100,000 new shares. Both the sale and the placing were at 50p per share. Mr Eamer applied simply the same large holding discount at 10%, since the Kents were by that stage freed of the 1 year moratorium on sale. That valuation was not successfully challenged in cross examination, or contradicted by any competing valuation by Mr Platts, and I accept it.
156. My analysis of the correct approach to the application of the basic equitable principle requires the hypothetical assumption that Mr Harris's trustee in bankruptcy would have sought to realise the shares once freed from the one year moratorium: i.e. starting in or about July 2000. It seems to me to follow that a prudent realisation starting on that date would have been unlikely to yield less than the value attributed by Mr Eamer to the shares as at 27^th November 2000, and I therefore conclude that the sum of £795,285 is the correct measure of compensation derived from the application of the basic equitable principle, as the closest reflection of the loss caused by the Kents' breach of trust, valued for the purposes of the running of interest as at 19^th July 2000.
157. It may be that Mr and Mrs Kent will harbour a sense of grievance at this outcome, since the amount so ascertained exceeds that which may be derived from a strict application of the rule against profits by trustees, or even from a strict application of the old pre Target v Redferns principle based upon the trustee's obligation to make restitution to the trust fund. It also substantially exceeds the amount which Mr Harris might have realised had he pursued a proprietary claim to the shares presently held by Mr and Mrs Kent in Plc, and to the proceeds of the intermediate sales which have occurred. In my judgment however, that sense of grievance is misplaced, for the following reasons.
158. First, the difference between a valuation of £715,756.50 at the end of August 1999, and a valuation of £795,285 as at the end of July 2000 would be substantially eaten into by the accrual of interest on the earlier amount between those two dates. Secondly, a beneficiary is entitled, as Mr Atkins acknowledged, to choose both between compensation and an account of profits, and between compensation and the pursuit of proprietary claims. Mr Atkins did not suggest that there was any rule which prevents a beneficiary from pursing a proprietary claim and seeking compensation for any shortfall. Thirdly, the pursuit of a proprietary claim on its own necessarily binds the beneficiary to the ups and downs, benefits or vicissitudes in the performance of the traceable assets between the date of breach and the date when they are finally returned to the beneficiary's control. As I have said, while the law entitles the beneficiary to take the benefit of the ups, there is no reason in principle while he should be shackled to the detriment of the downs, caused as it will have been by the trustee's refusal in the meantime to restore the traceable assets to the beneficiary. Finally, the law may occasionally operate harshly towards trustees, pour encourager les autres.
159. The outcome of this case therefore is that, in the proportions 3/2, Mr and Mrs Kent are obliged to pay equitable compensation to Mr Harris in the global sum of £795,285, together with interest accruing from 19^th July 2000 until judgment. I will hear submissions as to the appropriate rate of interest and as to whether it should be compounded.