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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> JD Wetherspoon Plc v Van De Berg & Co Ltd & Ors [2009] EWHC 639 (Ch) (31 March 2009)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2009/639.html
Cite as: [2009] EWHC 639 (Ch)
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| JD Wetherspoon PLC |
Claimant |
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| - and - |
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| (1) Van de Berg & Co Ltd (4) Aberdeen & Highland Estates Ltd (5) Fastbuck Ltd (6) Christian Michael Braun (9) Richard Harvey |
Defendants |
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| And Between (Case No: HC06C04095) |
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| JD Weatherspoon PLC |
Claimant |
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| - and - |
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| (1) Van de Berg & Co Ltd (2) Christian Michael Braun (3) Richard Harvey (4) George Aldridge |
Defendants |
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Mr Emerson (instructed by Turbervilles) for the First and Second Defendants
Ms Hoffmann and Mr Mather (instructed by Mundays) for the Third Defendant
Mr Blackwood (instructed on a Direct Public Access basis) for the Fourth Defendant
Hearing dates: 28th October – 12th December 2008, 14th, 15th, 22nd January and 25th March 2009
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Crown Copyright ©
- This judgment arises out of a 7 week trial on liability only in 2 actions. The first (HC05C00723) has 3 live Defendants namely Van de Berg & Co Ltd ("VDB") (D1), Christian Michael Braun ("CB") (D6) and Richard Harvey ("RH") (D9). Of the other Defendants New Aberdeen is so called to distinguish it from another company formerly known as Aberdeen & Highland Estates Ltd but now known as Coast & Highland Estates Ltd ("Old Aberdeen"). Fastbuck held the shares in old Aberdeen until they were sold in early 2005. Old Aberdeen is not a party to the proceedings. However the Claimant JD Wetherspoon Plc ("JDW") has been informed by the solicitors formerly acting for VDB and CB that new Aberdeen has been struck off the register and dissolved on 8th May 2008. It has taken no part in the proceedings.
- The second action (HC06C04095) is brought by JDW against (1) VDB, (2) CB, (3) RH and (4) George Aldridge ("GA").
- As I said the trial was estimated for 5 weeks but the hearing actually lasted 7 weeks. This was largely down to the lengthy cross examination of two witnesses. The first was Tim Martin ("TM"). He is the well known major shareholder and founder of JDW and is its Chairman. The second extended cross examination was that of CB. Originally his cross examination was estimated for 5 days but it stretched out to 15 days.
- In addition to the bundles of pleadings and witness statements I was provided with 6 lever arch files representing the core bundle. In addition there were 39 bundles of documents (the H files), 6 bundles (I and J files) comprising minutes of JDW and some records of VDB. At the start of the trial I indicated that it was unrealistic to expect me unaided to go outwith the core bundle. The reasons for this are obvious; without any analysis or assistance the documents would largely appear to be meaningless or alternatively it would be difficult for me to ascertain what the relevance of the document was. I indicated therefore that I would not consider any documents which were not referred to me either as being in the core bundle or during the course of the trial. Not withstanding that the parties could not resist the temptation when faced with a large number of documents of referring to them. This extended to the closing written submissions as well.
- Due to the overrun time was compressed. The evidence was finished by taking time out of another trial which was allocated to me at the end of the last term. The parties were given one week to provide written closing submissions and those were to be supplemented by appropriate oral submissions in January 2009.
- Despite the shortness of the time to prepare closing written submissions I received nearly 1,000 pages of written closing submissions. JDW's went to 597 close typed A4 pages with appendices attached. It supplemented that with a 50 page commentary on the closing submissions of all the Defendants. In that closing references have been made to documents not in the core bundle which were not even referred to in the trial.
- The Defendants themselves provided something of the order of 300 pages of written submissions. JDW added 50 pages in response to those submissions and they themselves added (modestly by this stage) another 30 pages in response to JDW's large closing.
- I was severely hampered in dealing with JDW's written closing submissions. They were mostly aimed at CB and whilst CB had the benefit of Counsel throughout the trial he apparently did not have sufficient funding to pay for Counsel to attend the oral closing submissions. CB therefore attended for the oral hearing in person without solicitors and Counsel. I should also add that the Defendants finances were such that they did not have solicitors present throughout the trial giving direct instructions to their Counsel. Given the nature of the allegations that whilst not satisfactory did not prevent them in my view presenting their case.
- JDW by contrast had a large team. That is well demonstrated by the fact that they were able to produce a 595 page written closing in over a week. During the course of evidence JDW's finance director after prompting estimated the costs incurred by JDW was £3,600,000. I suspect it was somewhat higher than that but it is fair to say that JDW has not left any stone unturned in this litigation nor considered whether any costs were proportionately exercised. Indeed TM even though he was the Chairman of a large PLC attended in Court everyday even when he was not giving evidence.
- I should also add that JDW's opening went to over 100 pages and the Defendants' openings in total matched that or even exceeded it. I have therefore received during the course of the trial in excess of 1200 pages approximately of closely argued written submissions.
- It is impossible to deal with each and every issue raised in these voluminous documents. Nor do I believe it is necessary for a Judge at first instance so to do. My task is to determine the factual and legal issues as I see them and that does not necessarily mean that I determine the relevant facts and issues are the same as the parties would urge upon me. Equally it does not follow (one would hope) that every point needs to be considered if only to be rejected. The same ought to be when it comes to assessing witnesses. For example it would be impossible to deal with each and every point made arising out of the 15 day cross examination of CB. The issue for me as trial Judge is to form a view as to the truth (as I see it) of his evidence in respect of the issues that I have identified.
- Of course disappointed parties may appeal. They may raise (indeed the Courts may raise) issues that they do not see featuring in the judgment. That is necessarily the case; to deal with every matter raised in thousands of pages of written submissions would lead to a judgment of inordinate length. The true role of the Court of Appeal has been set out in the judgment in Sibley v Reachbyte Ltd & Anr [2008] EWHC 2665 (Ch).
- JDW is a well known operator of public houses. It has expanded rapidly. Most of its pubs were found for it between 1989 and 2005 by VDB. The total number of pubs is approximately 655 as at 2008. The major issue in the 2 actions is over the titles acquired by JDW in respect of 12 properties and 4 others acquired by a rival Barracuda. There are other issues (which I shall set out when I come to analyse the two actions) but these transactions which total 12 in number are the major issue in the case. The actual transactions span the period 1993 to 1998. The relevant transactions are set out in appendix 1 attached to this judgment.
- The number is not necessarily finite. I say that because JDW has a third action which is not before me. That as I understand it is a general action requiring VDB to account as agent for JDW in respect 41 further transactions which it has conducted on behalf of JDW. There are well founded suspicions in my view on the part of the Defendants that the present action is being used as a stalking horse to gather further material for use in the 3rd action. I will not pre-empt my view about that because I intend at the end of this judgment to call in the 3rd action before me and give directions as to its further conduct.
- It will be seen therefore that the total number of impugned transactions is very modest indeed in relation to the totality of the transactions for which VDB acted.
- The JDW estate comprises approximately 40% freehold titles or long leaseholds at peppercorn or nominal rents and 60% where the properties are held on short leasehold terms namely 25-40 years with upwards only rent reviews approximately every 5 years.
- JDW has been a successful business. It floated on the stock market in 1992 with a capitalisation of about £44,000,000. Its capitalisation is now some £750,000,000 and has sales approaching £900,000,000 very roughly 5% of the British pub market with only ownership of 1% of the pubs.
- There is no doubt it has been successful. It employs 16,500 people and has won a large number of awards.
- Until the summary termination of its retainer on 30th March 2005 JDW's property finder and consultant was usually VDB. It introduced a large number of properties and over the period received some £14,000,000 in fees for its work. As will be seen later in this judgment there is an issue over the terms of the relationship between the parties. It is clear that the terms as regards remuneration did change at particular times but VDB has been paid handsomely for its work. VDB is a wholly owned subsidiary of Fastbuck. CB is its sole present director and its shares are owned by him and his family.
- The key to the relationship and the key to the present dispute is in reality the relationship between TM and CB.
- RH was an employee of VDB from November 1991 and a director between 5th January 1995 and 29th November 2004.
- GA was an employee of VDB from 1st December 1992 and a director between 5th January 1995 and 17th February 2000.
- Another company which features in the litigation is Bacchus Estates Ltd. A current company bears that name ("new Bacchus") which was formerly D3 in the first action. The name Bacchus Estates Ltd was previously borne by a company known as 3147398 Ltd ("old Bacchus"). The shares in old Bacchus were held by CB, RH and the former D7 to the first action Matthew Shute ("MS") until they were sold to Real Estate Investors Plc on 5th January 2005. Old Bacchus is not and has never been a party to the proceedings.
- The first action relates largely to two issues:-
- As a result of the discovery of what happened JDW contends it was entitled summarily to terminate VDB's contract in March 2005. VDB for its part contends the termination was wrongful and counterclaims for damages as a result. In addition JDW claims that two directors of VDB namely CB and RH owed and broke fiduciary duties owed to JDW directly as trust and confidence was reposed in them. GA it will be recalled had ceased to be a director two years before the events in question.
- The second action is larger and has featured more significantly in the trial than the first. It covers events earlier than the first action. It was brought as a result of JDW obtaining all of VDB's records in 2006 after the first action had commenced. As I said above it seeks to challenge transactions where JDW obtained a leasehold interest. It contends it ought to have obtained a freehold interest but did not do so as a result of wrongful actions on the part of the Defendants in that action. There are 13 properties referred to in this action. In 12 of them (those set out in appendix 1) financial loss is alleged. In the last one namely Glasgow this is put forward solely on the grounds of credit in respect of GA. No loss is alleged.
- JDW makes allegations of breach of contract (as against VDB) and conscious and deliberate breach of fiduciary duty against all 4 Defendants. In addition allegations of fraud and dishonesty are also made against all 4. JDW alleges that the Defendants advised JDW to enter into leases of the properties when they should have advised them to obtain freeholds which were available. Instead it is alleged that the Defendants diverted the freeholds to other purchasers whose principals or agents were known to the Defendants. These other purchasers made a large profit out of leasing to JDW or selling the freehold to third parties and to JDW.
- VDB and JDW historically enjoyed an extremely close relationship. This was clearly derived from the personal relationship that developed between JDW's chairman TM and CB in particular over the years. The relationship with RH and GA was nothing like as significant as with that of CB in my view. There was clearly a personal empathy between TM and CB. This is manifest in the way in which the decisions were largely made in respect of acquisitions as I shall set out further. Over the period of time VDB became known as the quasi outsourcing department of JDW and other organisations believed VDB was virtually part of JDW and at any rate the organisation to which properties had to be put with a view to obtaining JDW's involvement in them. As it developed JDW itself was able to have an impact on property acquisitions. It was often the case that if it became a tenant in particular for example that would have a significant beneficial factor on the valuation of the reversion expectant on JDW's lease. It is JDW's case that VDB had an exclusive arrangement with it namely it was bound by contractual terms to work virtually solely for JDW and no-one else. There was never a written contract between JDW and VDB although towards the end of the relationship terms were agreed for payment of fees on an annual basis. There were negotiations in the early 1990's for a written contract but these did not lead to a concluded agreement.
- VDB's role was to manage, analyse and advise JDW on its property acquisitions. JDW for these purposes meant TM. He personally dealt with and was the ultimate decision maker on each of JDW's property acquisitions. He did this after consulting with CB. The consultations between them appear to have been taken orally and no record has been kept of any of the decisions or the reasons for the decisions. It is by no means clear in respect of each transaction what was actually discussed. Unsurprisingly TM and CB have difficulties in recollecting the details of (in particular) the decisions for the 12 properties in the Second Action. The outcome of the decisions is known in the sense that JDW acquired leasehold interests in the 12 properties. JDW alleges that TM relied heavily on the advice of VDB and its directors CB, RH and GA. This is denied by them. Their case is that VDB was an information gatherer merely which gathered up the information in respect of particular properties and put it (almost silently) to TM who considered the information and then made the decision unaided by input from VDB and its officers.
- It seems clear that VDB did the following:-
- There is a dispute between the parties as to whether VDB did any more than that. It is certainly the case that VDB was provided with a lot of sensitive material about JDW's operations. In addition VDB invested in a specialised computer database (funded by JDW) the Van de Berg Information System ("VIS") this provided a large database of all properties JDW either had acquired, was considering acquiring or had in the past considered. It was also linked to third party demographics and financial databases. This provided VDB with a sophisticated amount of information for analysis as to the profitability of any proposed acquisition.
- As I have said there was no written contract. Initially VDB was paid a retainer fee of £20,000 per annum and a commission of £10,000 on each property acquired. An annual retainer by reference to VDB's operating costs was first considered in 1994 but nothing materialised. It was at this time also that the parties entered into negotiations to set out their relationship in writing but that too did not materialise. In late 1999 it was agreed that VDB would no longer be paid commission but would receive a flat annual fee payable in monthly instalments. These fees were negotiated annually. This benefited VDB in the sense that it had an income (subject to review in later years) irrespective of number of sales it actually achieved. By 1999 the number of acquisitions had seriously reduced and VDB perceived that it was vulnerable because its major source of income was JDW and that was not predictable being dependant on the completion of sales. The first annual fee was set at £2,000,000 in December 1999. In 2001 and 2002 the fees were agreed respectively at £1,980,000 and just over £2,000,000. In subsequent years the annual fee was reduced (for 2003 and 2004) to £1,750,000 and £1,650,000 respectively. In 2005 starting in March a reduced fee of £850,000 had been agreed. It was about this time of course that the present dispute arose. The total fee income earned by VDB over the period of its relationship with JDW was in excess of £14,000,000. There are issues over other businesses which VDB had and whether or not they were permitted. Even taking those into account in reality the vast bulk of VDB's income was derived from its relationship with JDW.
- The expressions between the parties when these negotiations for an annual fee were entered into demonstrates the close relationship between JDW and VDB and in particular between TM and CB.
- CB started the negotiations after a couple of conversations by his email of 12th December 1999 sent to TM. He set out the fact that acquiring fewer sites nevertheless took the same amount of effort. As fees were dependent on acquisitions in order to earn £2,250,000 VDB would have to ensure 120 successful acquisitions. If the number fell to 72 the fee income was reduced to £1,410,000 and it was asserted this would mean that VDB would be sustaining substantial annual losses. He therefore proposed an annual fee of £2,000,000 plus VAT paid monthly and that it would be a 12 month rolling contract terminated at any time by JDW giving 12 months notice. His reasons for this are significant "we had no support from our bank due to the inherent risks of only (emphasis added) working for JDW. We have in the last 2 months presented ourselves to at least 6 different banks all of which have taken the same view as our existing bank." Use of the word only according to the Defendants' case is difficult to explain. For example if one looks at the minutes of Bacchus Estates held on 15th September 1998 (a year before the fee letter) it was clearly up and running and considering acquisitions of properties. This does not rest easily with this opening email.
- Following the initial exchange further emails passed between TM and CB dated 24th December 1999 and 30th December 1999 respectively. It is quite clear from that exchange of letters (apart from the fixing of the fees) that JDW (in particular TM) conducted business with VDB (CB in particular) for over a decade on the basis of mutual trust and that he expected that to continue for the future. CB was not quite as fulsome but it is plain that he well understood that TM placed great reliance on him in their relationship. JDW contends that the trust and confidence was also extended to RH and GA. By this time they were directors on the VDB board and they were copied in to this exchange of correspondence.
- It is interesting to note that at this time (December 1999) there were suggestions that JDW had a cashflow problem. TM sent an email both to people within JDW namely Nick Graham ("NG"), Chris Payne ("CP"), Rosalyn Schofield ("RS"), Jim Clarke ("JC"), David Issacs ("DI") and Ilker Unlu-Soyer (IU-S). RS, DI, and IU-S were legal advisers for JDW over a period between 1994 and 2005 (not all at that time). JC was the finance director between 1998 and October 2007. NG was the director of property until 2000. The email was copied to RH, GA and CB.
- TM reported that he had had a call from VDB who were "very much in the dark about our desire to extend completion to after 1st August". TM urged JDW employees to keep VDB in the loop and to think through other possible ramifications "in this delicate area". CB wrote to TM on 23rd December 1999 setting out concerns over an incident that had occurred. He asserted that IU-S had told one of his surveyors that "JDW had run out of money" and that all completions had to be deferred until 1st August 2000. It was also suggested that there might be some renegotiation of existing deals. TM's email of 12th January 2000 was clearly responsive to this. He did not deal with this in his witness statement. In cross examination however he said the statement was wrong (T3/24/1). TM also said that there was a later letter from Ross Schofield ("RS") saying that I U-S was wrong. That letter was not referred to in re-examination of TM and no such letter was produced for the trial.
- This was a good example of TM's vigorous insistence that JDW was at all material times awash with cash and he (and JDW's other witnesses) would not brook any suggestion otherwise despite evidence to the contrary. It is significant (for example) that in his memo dated 12th January 2000 which was of course sent (inter alia) to CB he did not correct the "error" of I U-S. That was the time to do it if it was an error. It is plain in my view that for some reason of a financial nature JDW wanted a deferral of completions until 1st August 2000.
- This has nothing to do however with its inability to acquire the opportunities presented by the missing 12 in the second action as they all pre-date this period. I see nothing in the fact that JDW might for cash flow purposes wish to defer completions if it can. That might be because more acquisitions have come its way than expected. It is clear by 1999 the acquisitions were slowing down but there is no suggestion in the evidence that any transactions were lost during this period because of an inability on the part of JDW to pay.
- This malaise of insistence on a particular stance in the teeth of evidence to the contrary also affected JH who was the Chief Executive and JC who was the Finance Director. The latter claimed in cross examination that he was not aware of the exchange of correspondence (T10/149/22 and T10/151-153). Overnight JC clearly thought about the letter and when the letter was put to him by Ms Hoffmann for RH (T11/1) he said there was no moratorium on acquiring freeholds it was just that the business was acquiring and expanding quickly at the time. He did not recollect any financial crisis at that time despite CB's letter (paragraph 3) referring to JDW getting away with it earlier in the same year. JH's evidence was no better. Although he was the Chief Executive he affected not to recall anything about the moratoriums.
- I do not believe JC or JH on this point. These are some of the examples where I found their evidence to be untruthful. I will analyse this more when I come to deal with the evidence of the witnesses individually further in this judgment. I equally disbelieved TM's answers on this point and found them evasive.
- There was a similar attitude concerning suggestions of JDW at some time being in breach of banking covenants. JH in his witness statement (D2/81/19) suggested that the allegation that JDW had broken banking covenants "seems extraordinary to me…." He had joined JDW in 1991, the Board in 1996 and became MD in 1997. It was pointed out to him that JDW had broken its covenants as shown by its own board meeting dated 28th September 1994. It is true that that breach occurred before he was the MD. When confronted with the document JH suggested that his evidence was only intended to cover the period when he was MD. I do not accept that is the case. JC had a similar difficulty. His statement also stated that there were no breaches of banking covenants. When cross examined by Mr Emerson for CB and VDB (T13/146-151) his evidence became extremely evasive. First he tried to suggest that his statement was ambiguous because it was not intended to cover periods which pre-dated his appointment. His actual statement in his witness statement is "the allegation that we breached our banking covenants seems extraordinary to me since I attended all board meetings or at least read all board minutes for the period in issue…." That statement was plainly intended to cover not only the board minutes where he attended but those where he did not attend. The "period in issue" can only cover the period in respect of the property transactions under dispute. That period starts in 1993.
- I simply do not accept that neither JC nor JH when they prepared their witness statements prepared them in such an inept way that they did not go beyond the period of their membership of the board. They knew full well the whole period in question which was in dispute. JC effected not to recall the 27th September 1994 board minutes even though it was one of the few board minutes JDW disclosed. In my view their evidence was an attempt to mislead the Court by suggesting that JDW had not broken its covenants. JH was forced to admit that his evidence was misleading and untrue (T13/151/14 and T13/151/5-9). JH even attempted to suggest that the matter had been raised by him with Counsel (although I do not know the gist of the conversation between them).
- In the event none of this actually matters. First as I have said above even if JDW is shown to be unable to acquire the properties through lack of finance that will not absolve a fiduciary from liability for acting in breach of his duty. Second the issue concerns the acquisition of 12 properties over a period starting in 1993 through to 1998. During that period JDW acquired hundreds of properties. Third its accounts (including the interim reports) showed that there was no doubt in my view that in any given year in question if one or more of the disputed properties was available for freehold acquisition one way or another JDW had sufficient funds to acquire this relatively modest number of overall properties. The accounts are summarised in JDW's closing (paragraph 600-606). I had no credible evidence challenging the strength of those accounts. There may have been occasions when for cash flow or other purposes JDW might wish to defer completions. This in my view is what occurred in 2000. It does not mean JDW did not have the funds to acquire these properties.
- Finally CB in cross examination conceded that JDW could have afforded the sites if it had wanted to (T19/166/20 et seq). It is true that Mr Burns who was called by the Defendants and had worked for DTZ at Manchester at the time had a clear recollection of the purchase moratorium because he had lost his bonus entitlement. However that at best in my view shows a moratorium. It cannot begin to have any significance when looking at JDW's accounts and its huge acquisition programme over the years in question.
- I therefore reject any suggestion that JDW could not acquire any of these properties if it had wished so to do. In so doing I can only express my dismay however at the manner of the evidence given on this point by TM but more particularly by JH and JC.
- In the First Action it is to be noted that GA is not a party. The claim JDW brings against VDB in contract is an allegation that there was an implied term (1) to use reasonable diligence in identifying potentially suitable properties for consideration by JDW (2) to bring to JDW's attention and advise upon all potential suitable properties identified and (3) not to act as a property finder or consultant for any person other than JDW and to devote the whole time and resources of VDB to JDW save as expressly or impliedly agreed and not act for any other person whose interest might conflict with those of JDW.
- It will be seen that the original pleading alleged the terms were all implied terms.
- The Particulars of Claim also alleged that VDB owed by implication of law fiduciary duties to JDW namely:-
- It is alleged by way of amendment that that latter exclusivity obligation arose either by the implied terms or the fiduciary duty.
- As I have set out above the Particulars of Claim alleged it was an implied term. The same was confirmed in the opening both in writing and orally by Miss Newman QC for JDW. TM's witness statement for the trial (paragraph 28-29) appears to support this.
- He was cross examined on this by Mr Emerson for CB and VDB (T2/16-23). TM was firmly of the view that exclusivity was expressly agreed. When pressed with paragraph 29 of his witness statement he expressed the view that it was badly drafted. He suggested that he had overlooked the error in paragraph 29 which is surprising given the apparent significance of the exclusivity allegation. He was extremely firm in his belief that the agreement for exclusivity was orally and expressly agreed with CB at the start of their relationship. As I have said that is not the case that was pleaded nor did it appear from his witness statement.
- A different picture appears when one looks at TM's affidavit sworn in support of JDW's application for interim relief. It had summarily terminated VDB's retainer on 30th March 2005 alleging that VDB had an exclusive arrangement with JDW and arising out of that arrangement it owed fiduciary duty and that was broken by reference to the 4 properties referred to in the First Action. The letter also indicated that JDW was going to commence proceedings on that day (which it did). It did not inform VDB that it was intending to apply ex-parte to the Court that day (which it also did). The circumstances of this termination are extremely controversial as I will set out later in this judgment.
- TM swore an affidavit on 31st March 2005 in support of that application which was made before the late Mr Justice Laddie. TM's affidavit was only in draft form and JDW gave an undertaking to swear it. In paragraph 12 of the affidavit TM deposed that CB when he met TM for the first time in 1988 expressly agreed that he would work exclusively for JDW in locating suitable properties. At that time TM was 31 and CB was 20. In paragraph 13 TM deposed that there had never been any formal written contract between JDW and VDB although the basis of remuneration had been documented from time to time. The affidavit failed to make any reference to negotiations which took place in 1994. Despite TM's initial statement on the ex-parte that the agreement to exclusivity was expressly made JDW's case thereafter was entirely different until the matter was raised in cross examination. During the course of cross examination I pointed out to Miss Newman QC that that would raise a potential difficulty. If TM was correct and adamant in his answers that there was an express agreement as to exclusivity it was not pleaded. By way of contrast the claim for an implied term as to exclusivity was completely undermined by TM's insistence that there was an express agreement. Faced with that after much anxious consideration JDW produced an amendment which was not objected to pleading them in the alternative. It is submitted in CB's closing written submissions (paragraph 55) that it is "obviously" improper for JDW to seek to allege both express and implied terms. I do not see that it is improper but it does strain credibility that on the one hand it is alleged there was an express term but if the evidence fails to support it nevertheless there was an implied term.
- The documents that came into existence with the negotiations in 1994 for a written contract demonstrate conclusively in my view that there cannot have been an express agreement agreed by that time. On 11th August 1994 Ms McLellan one of the JDW in house lawyers attended on CB concerning the creation of a written contract. The approach was made by CB seeking security in the event of a change of policy at board level or a takeover of JDW. The note then sets out all the staff that are employed by VDB at that time and significantly says "in order to take account of work other than JDW work 75% of the overheads have been allocated to JDW (apart from the office rent where a higher proportion has been allocated to JDW) in reaching the above calculations". On the second page a section headed "Acting for the competition" the note recorded "in practice [VDB] do not act for pub competitors at all…. but would be happy to enter in to some sort of exclusivity agreement in return for a notice period which would give some security".
- Both the options proposed by Ms McLellan suggested a restrictive clause to be given by VDB. Four days after that note TM wrote to CB opening subject to contract negotiations with a view to an express agreement. That letter was presumably sent after a discussion between Mr McQuater (the then JDW MD), TM and Martin Scott (the then FD). They had a note from Ms McLellan which enclosed the note of 11th August 1994. The first point of her memorandum to the three board members was that whilst VDB voluntarily limited themselves to not acting for other pub companies they were highly geared and wanted a period of an agreement which would give them notice. This was put forward by Ms McLellan as an opportunity for JDW to impose a formal restriction. Of course if TM is to be believed there would be no question of imposing a fresh restrictive covenant as his case was there is already an express one in place. He did not say so at the time and could not explain this obvious oversight in cross examination.
- The negotiations continued on in to 1995. RS carried on the discussions on behalf of JDW. By 23rd May 1995 there was a limited restrictive clause in (9.2) which prohibited VDB from at any time during the term of employment from performing any services for any person, firm or company engaged in the license trade. VDB requested a corresponding exclusivity as against JDW (letter 30th May 1995). This latter point was expressly drawn to the attention of TM and Mr McQuater by a memorandum dated 12th June 1995. That was reiterated in a memo to the board of JDW dated 29th June 1995. The negotiations petered out because JDW was not prepared to match the exclusivity the other way.
- The only conclusion I can draw from this is that there was no exclusive agreement expressly agreed as alleged by JDW. These negotiations are completely at variance with it. Further this is reinforced by the fact that the draft covenant is less restrictive than the oral term TM contends was expressly agreed. I cannot imagine when all of the memos are suggesting that JDW's position should be firmed up that it is actually a weakening. Ms McLellan would not have prepared the memos for JDW's board if the plain fact was there was already a wide ranging exclusivity agreement. Second it is not supported by the facts JDW plainly knew in 1994 that 25% of VDB's time was apparently being spent on non JDW work. Given that knowledge it is also impossible in my view for JDW to assert there was an implied term which prevented this work being done.
- Faced with this JDW in its closing has suggested that the exclusivity issue only relates to the First Action. All of those property allegations there occur after 2000. Thus JDW in their closing (paragraph 211) suggest that its case primarily depends on CB's representation in December 1999 when negotiating a flat fee that VDB worked exclusively for JDW. It is then suggested that the earlier negotiations are background and nothing more. This is ingenious but fatally flawed in my view. There has never been any suggestion before this closing so far as I am aware that the contractual relationship as between the parties changed fundamentally in 1999/2000 when JDW negotiated with VDB for a flat fee to this extent. This is to elevate the word "only" in CB's email of 12th December 1999 to an offer of exclusivity or alternatively a representation of exclusivity. I do not accept that is the case for one minute. The reality (as shown as early as 1994) was that de facto VDB was devoting the bulk of its time to JDW. However it was not devoting its time exclusively to JDW. That was known to JDW in 1994 and it remained to be known after 1999. The September 2000 memo proclaimed that CB was only working 2 days a week on JDW business. The whole email (CB4/184) in July 2001 from CB shows the extent of his property portfolio. There was no suggestion that he was acting improperly in generating a property portfolio.
- As appears later in this judgment I determine that neither RH nor GA owed any fiduciary duty to JDW. They were employees and officers of VDB and and as such would owe duties to it but unlike (see below) CB I do not accept they had any positive duty to speak out to JDW. For the reasons I set out above I do not accept there was a representation as alleged in any event. Given the above matters there was in my view no misrepresentation or breach of fiduciary duty as alleged in paragraph 52 and 53 A of Re- Amended Particulars of Claim.
- In my view and I so conclude there was never any exclusive agreement expressly agreed. Nor do I accept that the indicia put forward by JDW (as set out in its closing paragraphs 209-223) justify implying an exclusive term whether at the commencement of the relationship or after the fee discussions in 1999. I am urged by JDW to look at the commercial reality. The commercial reality is that absent an exclusivity clause VDB obtained the vast bulk of its income from providing services to JDW. As there were no long term notice requirements (even after the renegotiation in December 1999) JDW could if it wished regulate what other work VDB did. It was aware in my view in a general way that VDB and CB were involved in other activities. I accept it was not aware of the full extent. I also accept that VDB received commercial information that was sensitive. I also accept that it would be extremely unlikely that JDW would sanction VDB acting for the Barracuda group (see below). This organisation was created in July 2000 by Mr McQuater the former Chief Executive of JDW. I cannot conceive that the relationship between JDW and VDB would permit the latter to act for Barracuda because of all the confidential and sensitive information it received from JDW.
- If one looks at the pleaded fiduciary duties set out in paragraph 15 of the re-re-re-re Amended Particulars of Claim in my judgment those duties would exist. In VDB's defence (paragraph 28) it admits the fiduciary obligations as pleaded but denies that those obligations bound it to act exclusively. That seems to me to be correct.
- It follows from that in my view that if JDW establishes that the transactions involving Barracuda were done without its informed consent there is likely to be a breach of those duties despite there being no exclusivity provision. I will analyse this further in the judgment when I come to assess the evidence.
- Further it is plain that in all the discussions TM had over the relationship with VDB he never once asserted to anybody that he had expressly agreed such a term at any time. That is of course particularly telling in respect of the negotiations in 1994. It is equally however pertinent in 1999. It is impossible for JDW on the one hand to lead evidence suggesting that there was an exclusivity term negotiated as long ago as 1988 and then dispose of that in its closing and instead try and concentrate on an implied term arising fully armed and phoenix like out of the ashes of its inadequate evidence in 1999. There is nothing in the 1999 documentation which would lead to a justification of an implied term. Nor of course is there anything in that correspondence which suggests an express term.
- VDB/CB were extremely critical of this in their written closing submissions. They submit with some force that JDW sought and obtained an ex-parte injunction on the basis of an affidavit which asserted there was an express term because that is far easier to allege on an ex-parte stage than to persuade a Judge on an ex-parte basis that there might be an implied term as to exclusivity. That tack was plainly abandoned when the Particulars of Claim was served and was equally abandoned in my view in TM's witness statement. It then had to be resurrected in the circumstances I have set out above. All of this destroys JDW's (and in particular TM's) credibility on this point completely.
- I do not know why it was alleged so vehemently that there was an express term at the ex-parte stage nor do I know why that stance was taken. I am invited to suggest that this was why Ms Schofield was not called. I have enough issues to decide without becoming involved in yet another satellite issue as to the reason for statements being made on the ex-parte application and the subsequent variance in the pleadings. I am quite satisfied on the material before me however for the reasons I have set out that there was no express term ever agreed for exclusivity and there is no evidence to justify from the relationship between JDW and VDB an implied term. It is not necessary for the relationship; the fiduciary duties provide more than ample protection for the matters complained of by JDW.
- In so concluding however I reject VDB/CB's closing submissions that the fiduciary duties would not restrict VDB acting for JDW's competitors. Given the large amount of material of a confidential nature which VDB obtained and its clear close relationship with JDW I cannot see how it could properly act for a competitor without becoming in a hopeless situation of conflict. In my view if it sought to act for such a competitor it could only do so on the basis of an informed consent on the part of JDW after full disclosure was made. In practice in my view that means full disclosure by CB to TM of the proposed transaction. That is the crucial interface between JDW and VDB.
- I do not accept for one minute that it is a discharge of a fiduciary duty to make full and frank disclosure to provide material (for example) to lawyers or surveyors which if seen by TM might suggest that what was proposed by VDB might be a breach of its fiduciary duties. It is not down to the person to whom the fiduciary duties are owed to have to look through all documents and other possible tasks and other material to check whether or not VDB is doing something that might breach its fiduciary duties. The burden is the other way round. Only therefore will a full express disclosure by CB to TM suffice. That flows from the self evidently close personal relationship between these two over the years. It will be therefore necessary to look at the evidence to see where in respect of any challenged transaction VDB is able to establish TM gave an express informed consent to enable VDB to enter into a transaction which would otherwise be in breach of its fiduciary duties.
- It is in that light that I approach the claims in both the First Action and the Second Action. As I said during the course of the trial and in the hearing on the closing submissions the case primarily has one major issue namely what was discussed between TM and CB in respect of any of the challenged transactions. It is that investigation which is the key. Unlocking that will lead to a resolution of a number of subsidiary issues but the primacy of that issue cannot in my view be understated.
- The claim in respect of the 4 properties in the First Action is that JDW became aware of a potential property for development as licensed premises which were suitable for acquisition by JDW. Instead of developing that opportunity for the benefit of JDW it is asserted that VDB, CB and RH in breach of their fiduciary duties diverted the opportunity to companies in which they were interested namely Old Aberdeen and Old Bacchus and those companies in turn leased them on to Barracuda a bitter rival of JDW for reasons that are obvious. Of the 4 properties it should be noted that the alleged breach in respect of Leominster property and the Dalkeith property was unsuccessful.
- JDW was informed of the alleged proposed breach in Dalkeith by an employee of VDB one Simon Maycock. As a result of that revelation JDW summarily terminated VDB's contract. It put a special effort in and secured the Dalkeith property in any event. I will deal with this further because the evidence of Mr Maycock to put it modestly was controversial and requires to be considered in detail with the evidence of TM and JH at the same time.
- The consequence of any breach if established is a matter for a further hearing.
- JDW assert that in addition to the fiduciary duty owed by VDB its 3 directors CB, RH and GA during the period that they were directors owed a direct personal duty to JDW. This is to be distinguished from an allegation that if they procure VDB to act in breaches of its duty they may be said to be assistors in a breach of fiduciary duty.
- JDW seeks to assert that the individual directors are fiduciaries relying upon the observations of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 18 "a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give arise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is loyalty. The principal is entitled to the single minded loyalty of his fiduciary....."
- Now there is no difficulty in that regard in the case of VDB.
- The basis for fixing liability on the individuals directly is said to arise from Satnam Investments Ltd v Dunlop Heywood & Co Ltd [1993] 3 All ER 652 at 64-65 per Nourse LJ. I do not think that the paragraphs cited are authority for the proposition in JDW's opening. It is true that the finding of Chadwick J (as he then was) (see page 662) was DH and Mr Murray (a director of DH) were in breach of fiduciary duties owed to Satnam. However it appears that the relief sought was on the basis of DH through Mr Murray was in breach of a fiduciary duty. Further at page 664 F it was determined that both DH and Mr Murray owed contractual and equitable obligations. It cannot be said that CB, RH or GA owed any contractual obligations. A stronger indication is to be found in the observations of the Court of Appeal in Conway v Ratiu [2006] 1 All ER 571 at 573 as follows:-
- Looking at the evidence about the relationships between JDW and VDB it seems to me clear that there has been one truly special relationship of trust and confidence and that is manifestly that between TM and CB. The personal relationship was clearly established and it seems to me that VDB was CB's vehicle for the purpose of discharging the close personal relationship he had with TM. The latter of course was representing JDW. In all the circumstances of the evidence of that close personal relationship I have no difficulty in finding that CB owed a direct fiduciary duty to JDW.
- The position of RH and GA is not the same in my opinion. Despite the valiant attempts by TM in his evidence I simply do not accept that he had the close relationship with RH and GA as he alleges. It is plain that even in the contracts where RH was primarily acting the final decision was made by TM as a result of discussions with and communications from CB. I do not see RH and GA being other than employees who joined VDB. As time went on they became directors. In my view the position of RH and GA is very different. It is true that they were directors for a period. After GA left in 2000 RH took on his duties and he continued to be a director until he was in effect removed by CB in 2004. In their witness statements CB and RH gave differing accounts as to the ending of RH's role in VDB. CB tried to give the impression that it was all very amicable where as RH said it was somewhat more confrontational than that. CB was cross examined about his failure to challenge the witness statement of RH. He accepted in cross examination that RH's recollection was correct. He tried to deflect that by suggesting that he had been mislead by SM as to the lack of work that RH was doing. (See generally JDW's closing paragraphs 129 – 136).
- A significant feature was the salary. The reality is that CB was drawing far more than RH via a management charge addressed to VDB from Fastbuck. Fastbuck was according to VDB's accounts its 100% shareholder (see for example accounts to 30th September 2004). Those accounts also suggested that CB by virtue of his 100% shareholding in Fastbuck was "the ultimate controlling party". There were suggestions that there had been an agreement for RH to have a 50% shareholding in VDB but once again the reality is that that never happened. It is true that CB asserted (for example in 2003 that RH was a 50-50 partner). I do not accept any of this having seen the documentation and the evidence. The reality is that VDB was CB's ship and RH and GA were passengers. They were obviously well remunerated as time went on but I do not believe they became directors in anything other than as a status symbol for them.
- I do not accept there was therefore the special relationship which operated between TM and CB as regards RH and GA. I do not accept that they owed a direct fiduciary duty for those reasons. In my view they were merely employees who were elevated in their status as a sop to them. VDB was very much CB's creature. I do not accept merely because they have participated in the correspondence that they assumed a personal responsibility to JDW and TM so as to create a special relationship as required (for example) to make a director personally liable for wrongs done by a company see Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 H.L. Different considerations apply in deceit. The starting point is the decision of the House of Lords in Standard Chartered Bank v Pakistan National Shipping Corporation (nos 2 and 4) [2003] 1 AC 959 at page 968. There Lord Hoffmann reviewed the decision of the Court of Appeal in the Standard Chartered case and its reliance on the Williams case. At paragraph 22 he says this :-
- Therefore assumption of authority is not necessary in deceit and an agent cannot in the case of deceit shuffle of the liability to the principal.
- It must be appreciated that all transactions were negotiated between TM/CB. It is those statements namely that the property being offered is the best property that is the key issue. I refer to JDW's closing (paragraphs 390-394). In my view the evidence there is not sufficient to establish a liability in deceit on the part of RH and GA where applicable. The deceits are in respect of various documents and communications and I am invited to infer that deceit occurred by them personally.
- In my view there is no difficulty in making CB liable for deceit in respect of all transactions where it is pleaded because it is inevitable that his discussions with TM and recommendation of the property carried with it a representation that the property is the best available to JDW. Thus CB is liable for deceit where it is pleaded. That appears to be Canterbury 1 (paragraph 76.2, Bournemouth (paragraph 138.2), Eastbourne (paragraph 151.2).
- In none of the other cases in the Second Action is an allegation of deceit made against CB.
- The position of RH on deceit is that both he and GA had roles in a number of transactions. For the purposes of the deceit liability those roles are summarised in the Claimant's closing paragraphs 389-394. In the case of RH in my view whilst he had a role in these he was not making any deceitful statements to JDW as those extracts show. There is no pleaded deceit in respect of Canterbury 1, Canterbury 2 nor Folkestone. With regard to the 3 transactions GA was involved in there is an allegation of deceit in respect of Rotherham (paragraph 24), but none in respect of Bedford or Burton. It follows therefore that the only deceit liability is that summarised above. In respect of the remainder of the actions of CB, RH and GA (outwith the fiduciary issues as to which see below) they have plainly aided and abetted VDB. However apart from the limited ones referred to above I can see no claim in deceit.
- That does not of course mean that RH and GA can have no liability. It is open to JDW to allege that they have provided dishonest assistance to breaches of fiduciary duties of VDB or CB. There is at present no such plea in the First Action however.
- In respect of the Second Action there is such a plea for 12 of the 13 properties (paragraphs 20,33,41,54,76,77,88,100.5,113.5,125,139 and 152) but for some reason no such plea in respect of Leamington. That might be an oversight.
- Subject to proof there is no reason why CB (as an alternative to his primary fiduciary duty) RH and GA cannot be held liable if they have enabled or assisted VDB to breach the fiduciary duty that it owed.
- In this action JDW sues (1) VDB (2) CB (3) RH and (4) GA.
- The duties alleged as against the Defendants is the same as that alleged in the First Action save that there is no plea for exclusivity (because there are no alleged breaches of that provision). Further the addition of GA simply put another individual Defendant potentially with exposure to personal liability on the basis that he owed a fiduciary duty.
- I have already set out above why in my view the allegation of a direct personal fiduciary duty fails as against RH and GA but not against CB.
- The issue in the Second Action is an allegation that VDB failed to introduce freehold interests to JDW in 13 transactions and instead advised it to enter in to leasehold transactions which were disadvantageous. Some of the transactions involved an allegation that a third party was interposed between the original seller and JDW which took advantage of the inflation in the price as between the required price of the original seller and the price obtained by the introduced third party from JDW.
- It is alleged that RH is involved in 4 of the transactions:- Leamington, Canterbury 1, Canterbury 2 and Folkestone.
- It is alleged that GA has a liability in respect of 3 properties:- Rotherham, Burton and Bedford. There is a strong complaint on behalf of GA that the Second Action was brought against him because he refused to provide assistance to JDW in the First Action. He was not a party to that action. I will deal with this further when assessing the evidence of witnesses.
- The bringing of the Second Action arose in the following circumstances. After the First Action had been commenced VDB and the other Defendants voluntarily provided all of their documentation to JDW. It then decided to review every transaction that VDB had been involved in. This involved analysing over 950 property transactions spanning a period of 1989 to 2005. It apparently engaged in excess of 12 lawyers from May 2006. This involved an analysis of over 3,000 files and 1,000 transactions. The extensive review has led to the Second Action which impugns 12 transactions and introduces a 13th (Glasgow) as similar fact evidence. That represents a modest percentage of transactions. CB makes the fair point in his opening and closing submissions that it is an odd fraud to allege when (for example) VDB reminded JDW of the existence of the files, provided the files in a complete form and thus it is alleged provided JDW voluntarily with information that would incriminate it. Further whilst this is a trial of liability only JDW has had great reluctance in identifying the size of its claim. The First Action was listed for trial on 4th December 2006 (its third trial window) on 17th November 2006 JDW commenced the Second Action making claims about the 13 properties and served it on 20th November 2006 without even a letter before action. That procured an adjournment of the First Action.
- Following orders for directions the issues of liability in the two actions were set down for trial in October 2008. On 3rd April 2008 JDW commenced a Third Action stating:-
- That action has been stayed pending the outcome of these actions. The Defendants maintain it is an abuse of process and JDW asserting by its solicitors that it is not predicated on any assertion of wrongdoing by JDW against the Defendants. It is said (and this was repeated in the course of argument before me) it is simply (if that is the right word) an action seeking that an accounting party accounts in respect of transactions.
- That matter is not before me but it seems to me there is a serious issue as to whether that action is an abuse of process in the light of the well known decision of Johnson v Gore-Wood [2002] 2 AC1
- JDW has spent in excess of £3,600,000 in costs in these two actions. JH when giving evidence effected not to know initially what the costs were and then produced a ludicrously low figure. (T13/152) Where he suggested initially that the legal fees for the previous year were £1,200,000/£1,300,000 and the costs schedule for the First Trial was £900,000.
- The litigation is plainly driven by TM. He gave the most significant evidence on behalf of JDW. Of course he is the key player in respect of the issue. Despite being the Chairman of a large organisation TM attended every day of the trial for 7 weeks. Of course he might have been working long hours outside the Court but it was a very impressive amount of time devoted by the Chairman of a PLC to a piece of litigation. TM might well say that this is an important piece of litigation. However whether it is a cost effective piece of litigation is of course a matter for JDW and its board and shareholders. At the moment it is by no means clear even if liability is established for all claims what the value of the claims will be. Miss Newman QC conspicuously declined to tell me what the figure was in her opening. Various figures over the years have been bandied about. Mr Blackwood who appears for GA in paragraph 25 of his submissions (echoed by Mr Emerson for CB) suggests that the figures might range from £50,000,000 down to £1,000,000. Mr Blackwood then opines that the amount actually recoverable from the Defendants might be as low as £3.50. JC in cross examination acknowledged that no cost benefit analyses had been conducted by the board of JDW in respect of this litigation. TM is a driven man. No doubt he feels very strongly that somebody in whom he reposed a significant amount of trust has allegedly defrauded him. The Court attendance is significant. JDW had 3 Counsel and number of solicitors there all the time. It was given a week to provide closing submissions and produced 595 pages. Clearly a lot of work had gone into the closing submissions before that allotted week.
- The Defendants appear to have little or no money. I accept that JDW will treat that assertion with scepticism and will undoubtedly seek to discover whether or not they have assets elsewhere in the event of a successful judgment or third parties are "minding" sums of money for them. Nevertheless on the open material it appears that the Defendants will not satisfy even a judgment for the costs. The corporate Defendants are not trading and have been valued at £0 in the light of the litigation. CB has sworn an affidavit of means which apart from money owed to him by companies that he says cannot pay him his only interest appears to be a half share in his matrimonial home (subject to valuation and further investigation) which might be worth about £750,000 in the current market that is subject to a claim by his wife in divorce proceedings. The Defendants claim that they had so little funding that the arrangements they had were that they dispensed with their solicitors attendance in Court so that the Defendants directly instructed Counsel. That generally appears to have worked satisfactorily but it creates extra pressures and a lay person might not realise what things have to be done for or said to Counsel. An example of that was the attendance (or rather non attendance) of Matthew Shute. I do not propose to go into that in the judgment but he was supposed to be a witness for CB and VDB but ultimately he never appeared. Different reasons were given by Mr Emerson as to his ultimate non attendance from that given by CB after the evidence had concluded.
- The Courts have no right to restrict a party in bringing an action vigorously because it believes it has been grievously wronged. Equally it has no right to prevent a party (subject to costs cap orders) from expending whatever it wants in respect of any litigation. It is not for the Court to assess whether a piece of litigation is cost effective; that is for the party who is paying. However one has to be alert to ensure that the disproportionate strength of the party's representation is not used oppressively. Equally the Court should be astute to ensure that it is not "steamrollered" into coming to a decision. In this context the delivery of a closing submission of 595 pages supplemented with a 50 page commentary on the other closing submissions certainly stretched the bounds of judicial tolerance.
- As I said above even though there was no contractual exclusivity as between JDW and VDB the close personal relationship between the companies via TM and CB governed the relationship. It was plainly a successful relationship irrespective of the present dispute. JDW expanded at a rapid rate throughout the 1990's to its substantial position in the market. It is now a FTSE-250 listed company with a market capitalisation of £326,000,000. VDB located some 600 properties which were subsequently acquired by JDW.
- VDB produced properties that were recommended to JDW. It was a sifter out of potential properties. Initially this undoubtedly involved an active role (both TM and CB participating) in searching out properties. As JDW developed the role clearly became more passive in that property agents throughout the country anxious to dispose of properties would target JDW as a potential target. Often they would send (for example) sales particulars to JDW. In that instance TM would pass them back to VDB for evaluation. Equally VDB was known as being associated with JDW so it would receive large numbers of property proposals.
- All of these would be evaluated. Over a period of time VDB and especially CB developed an innate expertise as to whether a property would be suitable for JDW. When a property was identified the negotiations with the agents were done by VDB not JDW. As part of that exercise it would instruct and co-ordinate architects, planning consultants and other professionals including liaising with conveyancing solicitors. Unsurprisingly over a period of years VDB acquired an enormous amount of information about JDW's operation which was plainly confidential. It used this (and in my view could only use this) for discharging its duties to JDW in seeking to acquire properties. Part of this consisted of the VIS system referred to above. The actual manner to which the operation was conducted is not seriously disputed. When TM started with JDW initially he was frustrated in his desire to expand rapidly because the majority of pubs were owned by brewers who did not want to sell to potential competitors. The only method he perceived of creating a large pub company which could open pubs in the best areas and therefore challenge the monopolies was to find shops, banks and other buildings that were redundant to obtain planning permission and new pub licenses so that they could be converted into pubs. JDW was the first to initiate such a procedure although it has been followed later by for example Barracuda Pubs and Bars Ltd, Regent Inns and Yates. The process involves persuading a seller to agree a conditional sale of the freehold or leasehold in respect of planning permission. Obtaining planning permission can be a difficult exercise. It can also be time consuming and expensive. TM not unnaturally developed a particular expertise in the licensing matters and was personally involved in virtually every planning application that was made for all of the pubs.
- Initially TM had difficulty dealing with established agents. He started JDW in 1979 and until 1989/1990 he had acquired 18 or 19 pubs. The difficulty was that the conventional estate agents dealt with pubs such as Fleurets and Christies did not have a supply of unlicensed properties on their books which were suitable for conversion. Also TM was concerned that big firms of estate agents acted for many different clients and he felt it was not a practical proposition to use them when JDW's expansion plans demanded the full attention of the agent. Initially JDW did acquire a few sites from these traditional sources but after about 10 years when TM decided he wished to expand out of its North London area he wanted an agent who would put (as he says) JDW's interest first and would clearly be focused on acquiring pubs for it.
- He met CM in about 1987 when he was a junior employee for a small firm of Harrow based estate agents (Ferrari Dewe & Co). Ferrari appears later in this litigation. He found CB to be enthusiastic, energetic and being desirous of setting up his own business. CB set up VDB in late 1989 when he was 21. He did not do any significant work before the relationship with JDW started via discussions with TM. From the outset it was plainly understood that he and TM would be the only point of contact in each company and deal with the transactions if not face to face but certainly on the telephone. It is not disputed that during the relationship certainly for many years TM and CB spoke on the telephone at least once a day. The content of those conversations were usually connected to specific properties that VDB had recommended to JDW that TM was interested in buying.
- There is a remarkable dearth of internal documentation both in JDW and VDB which addresses the fundamental issue in the litigation as to whether or not a particular property was considered to be suitable for freehold acquisition or leasehold or vice versa. It is true there are one page documents which in respect of any particular transaction which attempts to project the costs. These are project costing forms ("PCFs"). In the documents they set out the area of the property, the likely cost per area compared with averages with previous acquisitions, whether the interest is leasehold or freehold, the costs of acquisition, the costs of rent and fitting out costs and whether there is any rent free. An example is the one in respect of Rotherham dated 4th May 1995 (CB1/281). This form would be gestated initially by VDB instructing a chosen architect to prepare a feasibility study. It would also if there were planning issues address those with approved planning consultants. VDB would negotiate the terms of any acquisition with the selling agents or owners. It would also liaise with JDW's solicitors. There is no documentation in either JDW or VDB which has any analysis of any particular transaction on whether to carry out a transaction on a freehold or leasehold basis. Although there were committees that discussed particular properties TM never attended those and the reality is that TM made every decision to acquire property based on conversations that he had with CB.
- This might seem surprising in the light of the modern world obsessed with evidential trails of all transactions but one thing that came clear from seeing both TM and CB give evidence was that they were largely instinctive players. TM would be given figures by CB and he would agree them or not. In so agreeing them or rejecting them there were a number of factors which I set out below which are in his mind but it was clear to me that he formed an instinctive decision based view on the information provided by CB in the light of the general position of JDW at that time. CB also in my view formed an instinctive view about particular properties. There was no suggestion in any of the evidence that there was any serious discussions about whether or not a particular transaction was worthwhile on a freehold or leasehold basis between TM and CB. The latter had already evaluated the transactions and come to a view as to whether or not an acquisition should be freehold or leasehold and provided a proposal on a single basis. TM equally to my mind never questioned whether or not a freehold or leasehold alternative was appropriate.
- In my mind having seen him he adopted the well known Fisher modus operandi "you do not hire a dog and bark yourself".
- I have no doubt that over the years both TM and CB developed a further confidence based on their acquisitions. Whatever the result of this litigation it must not be forgotten that the operation was largely successful in that JDW expanded in accordance with TM's wishes. VDB's role in that must not be understated. The vast majority of transactions proceeded satisfactorily.
- Thus there are no records either at JDW or VDB of documents provided for the discussions between TM and CB and what was actually discussed. This might be surprising to some but given the personal relationship between TM and CB and the formers grip on JDW it is perhaps not so surprising.
- It means that there is no direct contemporary documentary evidence which addresses the fundamental issue in the Second Action namely whether an acquisition ought to be freehold as opposed to leasehold. There is nothing that records the thought processes of either TM or CB in respect of their discussions. Whilst TM claims to recall conversations I view that with scepticism (see below when dealing with the witnesses generally in more detail). Given the number of the transactions however good TM's memory is I would find it very difficult to believe he can recall conversations that stretch not merely years but decades in to the past and are surrounded by 600 plus similar other transactions.
- This means that I must assess their respective credibility by looking at the transactions and seeing whether I decide either sides explanation of the transaction as contended by JDW or as implemented at the suggestion of VDB/CB is more likely than not.
- Equally the issue of freehold/leasehold cannot be resolved by VDB pointing to the fact that other documents sent to the lawyers or the sub committees indicated a contemporaneous freehold acquisition. I say that because nothing in those communications themselves would alert JDW as to how the freehold came into the transaction. There is nothing to suggest that there was a possibility of the freehold being acquired and that was known by TM. I do not regard the fact that something could be discovered by asking appropriate questions of VDB as sufficient to put JDW on notice that a freehold was available to it. It should be remembered in this context that whilst JDW and VDB for that part had manuals and procedures in place they did not necessarily follow them or even implement them. As GA commented at the Bacchus board meeting dated 12th November 1998 (H23/102) JDW internally "are very dysfunctional with regards communicating with each other" TM was a big picture man. CB also was a big picture man and decisions were made by TM over the telephone after conversations with CB.
- As I have said it is easy to criticise such an informal method of decision making but that reflects the personality of successful doers in reality as opposed to less successful people who prefer to record things in great detail. At the end of the day the success of JDW cannot be denied.
- When assessing the viability of a transaction one of the tools that was used was the ROCE in respect of any such proposed acquisition. Both parties agreed that a leasehold acquisition had a target ROCE of 30% and a freehold one was set at 20%. The latter was lower because it reflected the fact that there would be a capital acquisition which it would be hoped would increase in value and therefore provide an extra capital figure for the benefit of JDW. By contrast the acquisition of a leasehold interest meant that there was no capital asset at the end of the lease. To the contrary of course the lease was a wasting asset. It was therefore required to produce a greater return and gradually became more expensive as the leases were usually FRI leases with 5 yearly upwards only rent reviews. Further if a reverse premium was obtained that was usually at the price of agreeing a headline rent which would be the base for all future reviews. JDW in its closings (paragraph 641) summarises the factual evidence of the ROCE calculations as contended for by JDW.
- It is common ground that JDW's ROCE targets were 20% for the freehold and 30% for the leasehold and that the ROCE was calculated by VDB (usually CB) I also accept that ROCE was not a tool designed to make a comparison as between freehold and leasehold. The reason for that is self evident. It was accepted that a lower ROCE for the freehold did not cause concern for the above reasons.
- I also accept (it makes sense) that the ROCE calculation was a tool set by TM to assist in working out whether a transaction was likely to be acceptable. In other words the ROCE was to be used to be measured against the required yardstick for either a freehold or leasehold; it was not to be used to set freehold against leasehold because it is an unfair competition.
- I do not accept that the rent compared with the interest payment on capital was the most important factor. I will explain this further when I deal with the interest calculations that TM provided in bulk of his evidence. The respective figures of 30% and 20% were not arrived at in a scientific way.
- It should be born in mind that JDW through VDB sought to ameliorate the disadvantage of wasting asset of a lease by negotiating incentives. These varied from property to property but included reverse premiums and contributions towards carrying out of either fit outs or even repairs of the buildings. All parties were generally agreed that the incentives were written off over 5 years.
- In addition to the ROCE providing a guide for TM as to whether or not a particular proposal was financially viable it also (at an earlier stage) governed what kind of offers VDB would make on behalf of JDW. A good example of that is CB's letter to Mr McQuater dated 9th August 1994 (H2/243). There CB analyses the fit out costs and the consequent level of trading required and explains why he is making an offer substantially below the quoting terms required by selling agents. In so working those calculations out VDB would clearly have access to JDW's financial information. The Defendants case is that all of the transactions were ROCE driven. They challenge JDW's case that every acquisition of freeholds was a matter of first and important priority. It should be noted in this context that the freehold element has never been the majority. This is also used by the Defendants to challenge JDW's case (via TM) that interest was always cheaper. Thus as shall be shown in respect of his evidence on the transactions he has produced calculations in each case which show that a freehold acquisition over the long term would have been cheaper.
- I accept the Defendants contention that this is hindsighting. I reject JDW's case that the interest calculations featured in every transaction. There is actually no evidence which showed that a calculation of the costs of financing a freehold acquisition on interest ever featured in any of the deliberations that TM and CB made as to whether a property should be acquired or not. I will analyse the evidence put forward by JDW to show this preference for freehold in a later section of the judgment. However in my view both sides are guilty of over stating their case.
- One needs to go back to the relatively informal method of decision making referred to above. ROCE in my view was a tool that TM used to ensure that any particular transaction was broadly viable. I do not accept that it was a rigid tool. There would be occasions when it suited him that he would "bust the matrix" i.e. take a property on even though its ROCE was low. This is because instinctively he thought the property in question might be a better prospect than the mere figures would show.
- ROCE is not a method of valuation. As I have shown above VDB also used ROCE calculations to determine what offers should be made. I do not accept however that a freehold was elevated to such a requirement as contended by JDW. Indeed I am firmly of the view having heard the evidence that the policy of JDW changed over the years.
- As Ms Hoffmann points out in paragraphs 32 and 45 of her closings on behalf of RH it was clearly cheaper to acquire a property by way of lease initially. It could be made even more cheap if incentives were obtained. In the expansion stage where JDW was going for numbers as she shows in her calculations the capital cost of acquisition of a freehold reduces the ability to expand. By taking more leases (and thus not incurring any capital expenditure financed by loans) JDW obtains more pub openings for the same money. This enables it to make greater profits at more sites. This in turn enables it to address the long term disadvantages of a leasehold acquisition. Over time the cost of acquiring sites by leases becomes progressively more expensive. The rents are going up, the value of any incentives are no longer there and there is no capital asset at the end of the lease.
- By contrast a freehold acquisition is front loaded because of the initial capital cost of acquisition which has to be financed but ultimately that would be repaid and there would be a capital asset at the end. It is in my view all a matter of cash flow and the policies of JDW over the period. Those policies might change. For example during some periods rent costs might be less than interest costs. On other occasions the converse might be true. In my view all of these possibilities were considered by TM on a case by case basis.
- However I am quite clear in my mind that the interest arguments raised by TM are hindsighting. I do not believe for one minute that every transaction was calculated on an interest basis. In my view that is reinforced by a question I put to him (T1/7/72). If his preference was for freehold in every case he must surely ask the question when offered a leasehold interest what had happened to the freehold? His answer was that he would assume that the freehold was not available which might well be right. However I do not accept that there was any such realistic enquiry of any proposal that was put forward by CB which happened to be a leasehold one. TM accepted whatever was offered as being the best that VDB had been able to obtain and I do not believe for one minute that he questioned CB about the freehold. JDW in my view (particularly in its early growth period) would be less concerned about acquiring freeholds as opposed to acquiring cheaper leaseholds and expanding quickly. The expansion would lead to more profits which would deal with the long term disadvantage of a leasehold property. As JDW developed of course it was in a better position to obtain finance and could then address the long term benefits of freeholds. It was more acceptable to the banks and therefore would have finance. A capital portfolio would provide security (see for example the sale and lease back transactions that took place later).
- ROCE was calculated at a figure that would cover interest exposure at whatever level but that was all. It was not done scientifically or on the basis of any calculation. TM based the ROCE requirements on an assumption they would cover the costs of financing any capital expenditure.
- I should mention the evidence of Mr Lillie a valuer who was called by the Defendants. I found his evidence of no use at all. There were a number of reasons for this. The most glaring was his admission that all of his ROCE calculations had been provided by GA. This was despite the fact that GA denied having had a role in preparing the report (T33/138/12). GA plainly told an untruth at that stage. He was cross examined briefly by Mr Evans (due to the shortage of time). His answers indicated a number of errors. For example he clearly used the wrong set of figures in his calculation of ROCE at Rotherham (using an earlier PCF rather than the latest) he double counted an £83,500 incentive from the landlord in respect of Rotherham also. He also acknowledged that a ROCE calculation was not a method of valuation.
- All of this leads me to conclude as I have said that the ROCE calculations were a yardstick used to aid TM's decision making process in respect of a particular transaction that was put before him by CB. It was never the intention to compare freehold or leasehold in ROCE terms. Mr Lillies analyses therefore are of little benefit.
- I do accept however the Defendants' contention that Mr Martin's use of interest to show in each transaction that a freehold was cheaper and therefore the transaction that JDW would have taken is hindsighting. It fails to give effect to the desire on occasions for expansion by numbers.
- Further detailed criticism of Mr Lillies evidence is set out in JDW's closing (paragraphs 662-703). This was not actually led in evidence. As the expert evidence was severely curtailed due to time constraints JDW put their criticisms of his evidence to him after the main evidence had been concluded. If it was challenged the Defendants were given liberty to recall Mr Lillie at the time of the oral final submissions. They chose not to do so. These criticisms therefore are a final destruction of Mr Lillies' evidence.
- In any event his evidence does not address the fundamental issue of the ROCE as determined by TM. For the reasons that I have set out above however I do not think that the ROCE is as determinative as the Defendants believe. Nor do I accept it should be treated as dismissively as JDW wishes. It was an acquisition tool and no more and I am provided with no help in determining the fundamental issues as to what was agreed between TM and CB by detailed examination of the ROCE whether as put forward by the original documentation or as recalculated by Mr Lillie. The main reason for that of course is the fact that the ROCE was not used as a comparison as between freehold and leasehold; they were used as a method of calculation of viability of a particular transaction. If that transaction was freehold the yardstick was a 20% ROCE; if it was leasehold it was 30%.
- A key point in the Second Action is JDW's contention that it had a preference for freeholds. This is a platform for its challenge to the 13 transactions. It contends that in each case it was never offered the freehold despite that preference and further (according to TM's evidence) an analysis of the costs of acquiring the freehold shows that it would have been a better proposition for JDW than the leasehold transaction that was offered to it by VDB.
- JDW in its closing (schedule C) sets out 4 pages of documents it contends evidence a preference for freeholds. Regrettably the vast majority of these documents was neither in the core bundle nor put to the Defendants in cross examination in the trial. It is of no great assistance to me to read these documents when their context has not been explored not has any evidence been led suggesting reasons why ultimately a leasehold decision was taken as opposed to a freehold decision. Many of them appear not to have proceeded to a conclusion anyway.
- It is true that there are many statements that on occasions JDW expressed a preference for freehold. That emanates not only from JDW but VDB when dealing with selling agents. Thus for example if one considers a letter 9th October 2000 from KW to selling agents about a new property (H28/95) the letter when fully read shows that the title offered was a leasehold but that it failed the ROCE requirements by 30%. Initially therefore JDW might have been interested in a leasehold acquisition had the figures been right. Similarly if one looks at the letter 4th May 2001 (H29/74) one needs to see the full context in which the statement is lifted out of the letter. It is true that SM (who gave evidence) in his memo to Neil Short (who also gave evidence) states that "unsurprisingly [JDW] would far prefer to do this on a freehold or long leasehold basis and I would be grateful if you could please try and establish terms in this direction firstly…."
- However the memo also goes on to say "I suggest that after you have had a couple of initial calls we forward the landlord a full leasehold proposal which I can provide you with a copy of and we will fill in the details as applicable to this site".
- This memo was not put nor investigated at trial. The quotation in schedule C of JDW's closing appears to me to be selective. In fact the preference for freehold was being overborne here by a suggestion that a leasehold acquisition was going to be put forward ultimately. I of course know nothing about this property as it does not feature in the trial. This presents me with an impossible task. Some of the un-put letters were written by RH, GA and CB.
- By contrast JDW appear to be suggesting a freehold policy to their bankers see the letter of 9th November 1993 (CB 247) where TM writes to RBS stating "as regard the freehold vs leasehold issue, I believe that we correctly focus this company on leasehold properties during a period of high interest rates which successfully improve the return on capital and the interest cover of the company. However with interest rates at low levels and the ability to fix rates well in to the future I believe the scenario has changed and this is best illustrated by our acquisition of the Brixton site……… In addition, we are finding that freehold reversions cost more as a result of our tenancy than if they were purchased with vacant possession- in effect, the price the freehold goes up when we obtain licensing and planning permission as a result of the strength of our covenant which is becoming increasingly attractive to investors. The attraction of freeholds is, of course, implicitly recognised by the bank in its desire to have 50% of security on a freehold basis".
- In fact JDW never achieved that 50% return and even now its leasehold portfolio exceeds its freehold portfolio.
- I do not believe that this was a policy which was paramount. For example TM accepted under cross examination that the policy was "freeholds if you can" (T6/119). That was in response to a question put by me after a long answer where I made this point :-
- Later on this point TM (T4/128-129) referred to the documents emanating from the Defendants showing that JDW had a preference for freeholds. As Ms Hoffmann sets out in her closing submissions (paragraphs 40 and 49) JDW's attitude appeared to be as follows as JC said in evidence:-
- In my view this accurately reflects the analysis of the freehold policy . Initially JDW went for growth. That involved obtaining as many properties as cheaply as possible. That invariably meant leasehold because there was no capital expenditure on the acquisition of the building. It may be that over a period of years the rent would be more expensive. However initially JDW's desire was for numbers and as the figures show in the exchange between TM and myself leasehold acquisitions were cheaper. They could be made even more cheap if the landlord made capital contributions either towards fit outs or rent freeze. I accept in the latter there is a price namely an agreement for a headline rent which arrives fairly rapidly at the end of the first five year upwards only review. Nevertheless the policy of growth on this analysis is to generate profits which can feed the increased rent demands. Against that there are other situations where the freehold might be more attractive. Thus in small towns freeholds of non public house buildings could be obtained relatively cheaply. In addition as TM pointed out to RBS JDW needed a capital base to obtain funding that necessitated obtaining freeholds. Further as JDW became more profitable and large it was more attractive to banks and therefore could find interest rates at a more attractive level. Interest rates of course go up as well as come down. Rentals for new lettings might go up and come down (I am not talking of course about the rent reviews on existing leases which were upwards only). The pattern of interest rate fluctuations and market rent fluctuations is not necessarily the same.
- Further instances occurred when a freehold was not taken when it was available (other than the disputed ones).
- This is introduced by TM in his evidence in the Second Action. For example in respect of Chingford he sought to demonstrate (paragraph 96 of his second witness statement) that if JDW had acquired the freehold the interest rate on the extra borrowings would have been less than the rent paid. Thus he contended JDW lost the opportunity of capital appreciation. He does this with each transaction. The purpose is to show that JDW has been sold a bad opportunity by entering in to a leasehold transaction.
- This is challenged vigorously by all Defendants. First it is contended that it was hindsighting and no such interest comparison was ever made in all of the meetings. I was not taken to any document during the course of the trial which showed any transaction was analysed on a freehold or leasehold basis as an alternative. I suspect that this is because when it came to analysing transactions as between CB/TM there was only one form of acquisition for discussion at that time. It is true that the relevant costings and the exercise would have been considered at the property meetings (called PRM or QAG meetings in the documents) but TM did not attend these. No minutes of those was ever disclosed but it has not been suggested that there was any comparison of freehold or leasehold in respect of any of the acquisitions. I do not overlook the fact that the VIS entries (bundles J1-J3) do appear to show in some cases ROCE returns on both a freehold and a leasehold basis. None of these were taken to any witness and none was referred to during the trial. I can therefore derive no significance from those. I accept the Defendants' evidence that interest did not feature in any of the ROCE calculations. That is not however to say that TM was not aware of the interest costs of any capital expenditure. JDW suggest in their closing (paragraph 645) "TM's evidence was that he ignores interest in calculating ROCEs. However, he takes in to account the interest costs on the borrowing necessary to purchase the FH for the purpose of a straight comparison between LH and FH if offered both" (Day 10/23/9 ff). No case was produced which exhibited an exercise of that nature. Consideration of the application of interest was brought out in the re-examination of TM on day 10. This flows from page 9 to 24. It is referred to in Ms Hoffmann's closing (paragraphs 41-68). His key answer in my view is at page 11 as follows:-
- Later Miss Newman QC asked this:-
- An example is then introduced which did not assist me.
- The conclusion I draw highlighted with those answers is that there was no express interest calculations considered at the time of the type which TM relies upon in his witness evidence. Nor was there any discussion in my view between TM and CB which involved analysing an acquisition in the terms of the interest cost of capital expenditure. All capital expenditure would have to be funded either by reserves or by borrowings. It seems to me that TM's answers shows that he built in to the ROCE calculation such a high return as would ensure interest would be covered whatever fluctuating rate was appropriate from time to time. As I have said I have been provided with no evidence of any discussions in respect of any property between TM and CB where there was a discussion between them as to whether a freehold or leasehold interest should be taken. Equally despite the overwhelming amount of documentation provided there is not one piece of paper recording any discussions between TM and CB about an acquisition let alone any record of an analysis on any site showing competing calculations as between leasehold and freehold interests. This applies both to JDW disclosure and VDB disclosure. As TM said in evidence there were very few alternatives. It seems to me that what actually happened in fact was that VDB as set out above analysed a particular acquisition and presented TM (via CB) with a preferred title acquisition. I am not aware of any instance where VDB/CB ever presented the alternatives to TM for him to decide. It seems to me that the selection process therefore was made by VDB for provision to TM to make a decision on the facts that they produced.
- There was plainly a preference for freehold but it was one factor in a number of factors which would determine the nature of the interest taken as set out above. TM in his evidence said that he assumed that when he was offered a leasehold interest the freehold was not available. I accept that.
- The key to the properties in the Second Action is therefore to consider the apparently rejected freehold prospect and analyse why that rejection occurred. If it was for perfectly acceptable commercial reasons then there can be no complaint. If on the other hand there appears to be no commercial sense in the rejection then there could be grounds for complaint. In that latter observation however I reject TM's reconstructed interest calculation as being a basis for challenging the decision. There must be more than that. The reason I say that is of course that whilst the freehold ROCE requirement is lower there were other factors as I have set out above which might dictate a leasehold acquisition rather than a freehold from time to time. The question therefore to be considered is what evidence is there which enables me to conclude what was decided between TM and CB in respect of these 13 properties. No contemporary document has been produced by JDW showing an interest calculation for ROCE purposes along the lines set out in TM's witness statement.
- The evidence is scanty in the extreme.
- There are 17 transactions under review. In the Second Action the periods in question cover 1994 to 1997. Further these transactions are out of a figure in excess of 600. There is nothing memorable in the transactions themselves in my view to set them apart from all the others. By that I mean there is nothing about them which either TM or CB or any of the other parties can recall as specifically being a factor which gives them an ability to recollect these individual transactions among the gathered clan of the numerous other transactions. To give an example there is no evidence that there was a fierce debate between TM and CB over any of these properties with TM accepting a leasehold interest despite his concerns. There is absolutely no evidence of a debate at all.
- When a witness cannot recollect an event because it is so long ago he can sometimes be assisted by recall in the light of contemporaneous documents. In the present case there are no contemporaneous documents which can assist a witness to have a reconstructed recall of the decision making process in respect of all the properties. One is therefore driven to try and reconstruct any such discussions by reference to documents that came into existence at the time of the transaction. It is essential to be careful not to over analyse documents in order to draw a conclusion from wording. I doubt whether any letters or other notes that were taken at that time were envisaged to be analysed word by word to find subtle nuances in litigation that takes place at least 12 and possibly 16 years later in a Court of Law. These are not strict legal documents to be construed in a legal sense. One has to bear in mind that they are written in the background of potential acquisition and no more.
- I view with considerable caution the evidence of any witness who claims to recall any of the transactions with specificity. I do not accept it can be done when they are buried in such a large number of other identical transactions and occurred so long ago.
- Thus TM in paragraph 86 of his second witness statement dealing with Chingford says that he remembers discussing "the exact rent, development costs and turnover with [CB] at great length…." This transaction took place in December 1995. I simply do not accept that TM has that detailed memory. By contrast for example, when dealing with St Albans (paragraph 119) he acknowledged that a switch from a freehold to a leasehold acquisition took place but "I cannot remember precise dates and times of the discussions, I must have taken the view that the financial arguments for a lease stacked up in this particular case…" The latter part of that statement is hindsighting. The reality is that TM simply cannot recall why a leasehold interest was taken.
- The Defendants are not immune from this "precise" recollection many years later. It is instructive to contrast with CB's evidence at trial with what he wrote in August 1998 when TM raised the Eastbourne and Folkestone transactions. I will deal with these letters in more detail under a separate heading below. The explanation of the transactions in the letters is completely at variance with his evidence before me. One would expect his recall in 1998 concerning these transactions which took place the year before (Folkestone) and 2 years earlier (Eastbourne) to be better in 1998 yet the explanation given in evidence was completely at variance with the letters and far more detailed. If the situation is as CB now contends for these properties in his evidence it would have been the simplest thing to set that out in the letters. Yet he does not do so.
- The reality is that the assessment of the case turns almost entirely on the credibility on TM and/or CB. Their evidence has been tested in strong cross examination but there is a dearth of documents to enable me to be assisted in assessing their evidence. The rest of the witnesses in my view are peripheral players.
- As I have said before many times in previous cases in assessing witness' credibility in the witness box one has to be careful even when a witness is found to be lying on one point to assess the overall impact of his evidence. Equally where there are multiple Defendants one must not (unless it is significant) allow evidence of one witness (and a bad performance) to contaminate the view of the evidence of another Defendant. This vital aspect of the first instance judge's unique opportunity has been recently reinforced by the House of Lords in Thorner v Majors [2009] UKHL 18 at paragraphs 16, 60, and 79-81 (cp Attorney General of Zambia v Meer Care and Desai & Ors [2008] EWCA Civ 1007 ).
- In whatever legally expressed cause of action that the various claims are dressed up in the reality is that the claims in all cases involve allegations of fraud and dishonesty.
- It also involves allegations of fraud and dishonesty in respect of a relatively small number of transactions conducted many years ago. The Defendants pressed me hard with three factors arising from that. First there is a question as to whether or not the Defendants given the lucrative nature of the relationship with JDW would jeopardise it with a small number of transactions.
- The second point that the Defendants prayed in their favour was that the documents relied upon by JDW were volunteered by CB and no attempt was made to destroy or hide documentation. The Defendants say with some force that such conduct is inconsistent with the actions of a fraudster.
- An allegation of fraud does not involve a change to the civil standard of proof see the observations of Lord Nichols in Re:H (sexual abuse: standard of proof) [1996] AC 563 at 586:-
- Ungoed-Thomas J expressed this neatly in In Re Dellows' Wills Trusts [1964] 1 WLR 451, 455:-
- Further where the explanations are put forward by the Defendants (especially third parties accused of assisting) a finding of liability involves rejection of these explanations as being inherently improbable see Gruppo Torras SA v AL-Sabah (No 5) [1999] EWHC 300 (Comm) at 1541 (a firm CA [2001] Lloyd's Rep Bank 36) and Attorney General of Zambia v Meer Care & Desai (a firm) & Ors [2007] EWHC 952 (Ch) paragraphs 90-92. Just as in the AGZ case some of the Defendants are professionals and one has to be careful where professionals are involved and of good character where a finding of dishonesty is a grave finding that requires careful assessing of the evidence against such a person before finding them guilty of dishonesty.
- The third point raised by the Defendants is that there is documentation in the transactions which showed that VDB made it quite clear to the lawyers that a freehold interest was being acquired simultaneously. Why they posed non rhetorically would they do that. It risks disclosure of the fraud at a very early stage. I am not convinced with that point for two reasons. First in fact there was not any detailed communication in my view between TM and the internal organs of JDW when he came to make a decision. When TM gave evidence he had an encyclopaedic knowledge of all the details of the case. He had a comprehensive grasp of all the documents in the trial and there was very little that he missed. However this in my view was not the real TM. When I read the contemporaneous documents from TM and when one analyses the informal way in which transactions were concluded in my view TM was "a big picture" man who made instinctive decisions on the basis of his instincts and experience with minimal recourse to detail in documents. I do not believe for one minute that the details of a conveyancing transaction provided to the in-house lawyers are anything like sufficient to alert TM that the transaction that he is being offered by VDB could have been a freehold offer instead by reference to the details of the information provided to the in-house lawyers. In my view this also disposes of the risk of disclosure argument. Given TM's approach to decision making and his lack of consideration of detailed information (and keeping records of decisions for that matter) there was a minimal risk in my view of him querying information given to him via the lawyers. This is demonstrated by the August 1998 correspondence (see below). It requires TM to be suspicious of VDB. The whole thrust of the relationship was one of unquestionable trust in my view and I do not think that TM was given anything other than a single proposed transaction. He then considered that transaction in the context of JDW's then position including its desire for freehold in preference to leasehold but I do not think that it ever occurred to him at any transaction stage that by the time CB was speaking to him there was any other feasible title acquisition. In other words CB came up with the single piece of paper (probably metaphorically as most of the discussions took place on the telephone) and on that single piece of paper exercise TM said yes or no. The complaint of course is one stage removed from that namely how was it that the freehold was eliminated from becoming part of the single paper exercise.
- There was a long roll of witnesses that could have been called by JDW viz RS, NG, CP, IU-S, CM to name but a few. The absence of these witnesses was severely criticised in CB's written closing.
- In addition GA criticised the manner of his joinder in the Second Action. I accept on the basis of the material before me that an attempt was made by JDW's representatives to brow beat GA in to giving evidence to support JDW's case. This was an interview without warning that lasted for 4 hours by a Ms Cooney and a Miss Caccioppo (JDW's legal director). Apparently neither is legally qualified. Neither gave evidence at the trial. GA was able to tape the proceedings and have it independently transcribed. JDW has their own tape but have refused to produce it (and the witnesses). In the former case they apparently asserted legal privilege. In the absence of those interviewers being called (and no explanation has been given by JDW) I find that there was an attempt to brow beat GA in to toeing the line in favour of JDW which he resisted.
- Nevertheless there is a failure on the part of JDW in not calling some of the other witnesses. The most significant one in my view is RS. I have not been provided with any credible explanation as to why RS in particular could not have given evidence.
- A failure to call a witness whose evidence is essential to the case can lead to an inference (if no reasonable explanation is given) that the reason the witness is not being called is that that witness would not give evidence to support the line taken by the party on that important issue see Lennox Lewis v Eliades [2005] EWHC 488 at paragraph 61. No reason has been given in respect of the absence of RS. Nevertheless I do not think it is appropriate to draw an adverse inference against JDW because her role is peripheral. She might have assisted the overall understanding in some parts of the issues (where her correspondence was germane) but I do not think she would give any assistance to determining the primary issues which I have to consider.
- A further complaint by the Defendants was the failure to call Mr McQuater. This in my view borders on the absurd. Mr McQuater left JDW and formed Barracuda. There is no realistic prospect of him being willing (and TM for that part wanting) Mr McQuater going anywhere near this litigation.
- Not to be outdone JDW criticised the Defendants for absent witnesses namely any of the parties to the transactions, Mr Paul Ferrari who features large in the various transactions, Mr Woodruffe who was important in the Dalkeith transaction and Mr Shute ("MS") who was in charge of Old Aberdeen and Old Bacchus.
- I can understand the difficulties the Defendants had in anybody giving evidence for them against JDW. JDW (and in particular TM's) approach as being "thorough" in relation to this litigation (i.e. Strafford like). I can well imagine no-one would want to become embroiled. That said the failure to call MS was somewhat unusual. He was originally scheduled as a witness. Mr Emerson (Counsel for CB) told me that he was travelling back from the USA (T31/264). When he did not become a witness I was promised a full explanation (T32/216) but none was ever given. Correspondence then was produced before the adjourned hearing which suggested that MS would not come because he insisted on being given various terms as to expenses (including extensive legal advise) which VDB/CB were not prepared to provide.
- His evidence would have been significant. In my view and I so conclude the reason MS did not give evidence was because he was not willing to support CB in his Defence. He therefore put up obstacles to giving such evidence which he knew would be insurmountable.
- Equally GA's concerns as to the interview are justifiable in the sense that it was an inappropriate way for JDW to conduct itself. TM subsequent abusive telephone conversation does not advance his case either. However this is not a criminal court and my duty is to decide the case on the basis of evidence such that it is deployed before me and the balance of probabilities. This also disposes of CB's analogy in his closing of a criminal court procedure. This was not a prosecution; it was a civil claim. There is no duty on a Claimant in civil proceedings to deploy every witness good, bad or indifferent in support of its case. It only has to adduce such evidence as it thinks is appropriate to establish its case on balance of probabilities. Of course if all evidence is not deployed it runs the risk of losing the case. That in reality is a judgment call by JDW's legal team.
- At the end of the day neither JDW nor VDB/CB have covered themselves in glory in the manner in which their evidence has been given. I am not of course privy to the gestation of that evidence by JDW and its representatives that observation however should be read in the light of what I say in paragraph 194 below. This has left me with a somewhat difficult task in some of the issues. However these absences do not in my view affect the main issues that I have to decide and the evidence (or rather the lack of it) that is before me to enable me to decide those issues.
- TM in many ways was a very impressive witness. He had a complete and comprehensive knowledge of the documents, the pleadings and all the witness statements. It is on his evidence in reality that JDW's case stands or falls. He has been subjected to sustained criticism by the Defendants both in their openings and closings. The thrust of this litigation is that TM is a driven man, has decided that the Defendants have defrauded JDW and is determined to pursue this litigation to the end until in effect they are crushed. It is said that the litigation is not proportionate in terms of cost for the likely recoveries. That appears to be the case at the moment but whether or not a party wishes to spend a large sum of money in respect of a litigation issue is entirely a matter for him. Provided it is not used in an improper or overbearing way there is nothing wrong with a party pursuing a case vigorously if it decides it wants to have its day in court.
- Nevertheless there is something in the Defendants' criticisms of TM in my view. He clearly strongly believes that the Defendants have substantially defrauded him. The amount of investigation gone into and the costs are quite staggering. In terms of return it is unlikely to be a cost effective exercise. TM in my view has over emphasised his case because of his belief. In some matters he has lost his objectivity. A number of instances demonstrate this.
- First his insistence there was an express term agreed at the start of the relationship with CB was quite extraordinary. The omission to deal with this in his witness statement (as opposed to his affidavit) was also extraordinary. It is such an important point that if it was genuine I cannot believe it would have been overlooked in the way TM suggested it was.
- Second the omission to deal with the attempts to vary the agreement in 1994 in the witness statements was a serious oversight. The documentation (as I have said above) completely destroyed any suggestion of there being any exclusive term agreed before that date.
- Confronted with the McLellan memo 11th August 1994 (CB/78-79) concerning the discussions about an agreement TM's evidence (T2/42-43) was simply nonsensical. His dogged insistence for an untenable position demonstrates his lack of objectivity to the realities of the documents that were presented to him. I do not propose to set them out in full in this judgment. I have already dealt with some of CB's complaints (summarised in paragraph 22 of Mr Emerson's written closings). TM surprisingly suggested that he had never heard of Aberdeen Estates (T2/72/18). Further he could not explain satisfactorily why in his affidavit sworn in March 2005 he deposed that VDB was working exclusively for JDW yet a month earlier had negotiated a reduction in the amount of time working (T2/93/20) which clearly assumed VDB was devoting time to other projects. Equally in his witness statement he asserted that the refusal of VDB to enter into an exclusivity agreement in negotiations was part of the plan to defraud JDW. That fell apart in cross examination (T3/30-34) and TM was forced to withdraw that allegation.
- Nevertheless I reject the suggestion of what is called the very odd fraud (CB closing paragraph 22 (K)). This was my observation based on the fact documents sent to JDW's professionals might expose the alleged fraud. TM accepted that but having seen all of the witnesses now it seems to me plain that VDB and CB in particular well knew that TM did not necessarily consult the in-house people in JDW about a particular transaction. I am quite certain that VDB and CB might take a chance with the transactions complained of in the confident expectation that TM would not be alerted because TM ordinarily would not enquire internally to verify what was being said to him by CB. Even if he did (say on the first time) I am quite sure CB could have bluffed it out if he was caught. Once successful then that provides the mechanism for exploiting further opportunities.
- RH also criticised his evidence in his closing (paragraph 22) as did GA (closing paragraphs 25-27).
- These criticisms in my view are justified. It follows I need to approach TM's evidence with caution especially when he gives evidence which is contradicted by documents as set out above and when he introduces hindsighting issues (interest calculations). Nevertheless those criticisms do not mean TM's evidence is rejected entirely. I accept the overall position of JDW about their desires to obtain freehold interests if possible. I accept his evidence on the ability of JDW to fund these acquisitions (as CB ultimately accepted). I accept TM's trust in and reliance on CB to such an extent that I do not believe as I have said TM ever questioned any proposal on the basis of there possibly being an alternative freehold title. I also accept TM's evidence that he did not consult internally as a method of verifying what CB was telling him. Finally I am firmly of the view that TM was not a documents man, not a details man but a big picture man. As I have said above that is not a criticism; it is a way of many successful businessmen. They can see things on a broader picture than many others. I do not see that TM can be criticised for trustingly accepting what CB was saying to him.
- In my view I measure the generality of TM's evidence above and in that context look at the transactions and see whether there is any aspect of the transactions and CB's conduct in particular which would mean that it would be unlikely on the balance of probabilities that TM would have allowed the transaction to proceed in the way it did.
- JH was a completely unsatisfactory witness. The more his evidence went on the more it seemed to me that he was put up not because he had something to say but because he had nothing to say. As a Chief Executive he appeared to know so little about the history of JDW and its actual operations that I could not believe what he was saying to me. His evidence on the moratorium document (CB/4/16 A (T14/19)) was quite extraordinary. I reject JDW's suggestion in its closing (paragraph 613) that it was misleading to talk about delay on property acquisitions as opposed to completions. It is self evident that the two words are interchangeable; it was a delay on completing acquisitions thus a delay in completing property acquisitions. I found the fact that he had not seen the document before coming to Court and after swearing his witness statement quite extraordinary. Given the nature of the allegations by the Defendants concerning JDW's finances I would have expected him to have researched it fully and deal with the documents even if they did not occur at a time when he was already the Managing Director. In the event his ignorance has had no impact on the issue but it demonstrates the fact that JDW put up witnesses who were obfuscating the issues rather than providing evidence that assisted me in determining them. Equally I reject the suggestion in JDW's closing (paragraphs 1506-1515). It is not surprising that JH performed better in cross examination when recalled but even that evidence was not satisfactory. I agree that JDW has chosen not to stretch out its already lengthy closing by reference to these despite the fact that none of them is essential for determination of the questions lying at the heart of the case. However I reject the premise. JH's evidence was of no assistance in determining the issues of the case. Yet he was called and when he was called he was demonstrated to be a completely inadequate witness for a chief executive of a large company. The vagueness of his evidence and his inadequacy is best demonstrated by analysing what evidence he gave about the termination of VDB's contract which I will set out below.
- A good example of the inadequacy of his evidence was his assertion that he understood there was always an exclusive agreement. That fell apart in questioning (T13/33-37). His answers at T13/136-140 show an unwillingness to face up to what his witness statement was meant to say when pressed.
- I have already commented on his evidence about the banking covenants and the costs of the litigation. I accept the detailed criticisms of his evidence set out in CB's closing (paragraphs 74-99). He was either extremely badly prepared on the basis documents were not given to him which would have shown his evidence on several significant aspects was nonsensical or he was aware of he documents and attempted to mislead me. It is futile to try and analyse which of those versions is correct but I am firmly of the view having seen him and the inadequacy of his performance when cross examined that I cannot accept any evidence Mr Hutson puts forward unless it is supported by documentation.
- There was no purpose to calling JC as he was not the finance director at the time in question. His evidence about banking covenants was plainly wrong and he was forced to admit that. I could see no point of him being called and his evidence was of no use whatsoever. Once again I cannot believe he knew so little.
- His evidence showed that he was a solicitor who apparently asked very little questions about matters which he was asked to implement. The total purpose of his evidence was to demonstrate that he knew absolutely nothing about the issues in the case. I could not understand why he was called and he was of no assistance.
- NS was called mostly to give evidence about the Dalkeith transaction. This led to the termination of the retainer of VDB and I will deal with that in more detail further. I found NS to be a truthful witness and I accept what he says. There is an implicit suggestion of criticism by CB in his closing (paragraph 106) because he discussed his evidence with TM. This is one of the criticisms of TM where it is suggested by CB in his closing (paragraph 8.3) that witnesses were "beefed up as a result of discussions with TM. Such pressure might well be a fact in modern litigation but in the context of this crusade it shows a man driven by a desire to obtain judgment regardless of what the truth is one has to wonder what other corners have been cut in an attempt to achieve the desired and expensive results".
- That is a very serious allegation to make against TM but it was never put to him. I reject it. As I said at the start of the trial I would not accept criticism of a witness in closing not put to him in cross examination. This is just such a case.
- A similar broad allegation was made against anybody associated with the JDW case in paragraph 8.2. This too was not put and CB (in person) withdrew it. I saw no evidence of any misconduct on the part of JDW's legal advisors throughout the trial. It is true that they were vigorous in pursuit of their client's case and perhaps fought more interim issues than were in reality necessary. Those are judgment calls; to fight them is not misconduct.
- I reject the criticism implied in the suggestion (not put) that TM beefed up witnesses outside court. I am satisfied that JDW had selectively put up witnesses of little use. This I put down to the size and personality of TM who rightly or wrongly believes this case is in effect a serious breach of trust against him personally as well as against JDW. I have already commented about the consequences of this belief and its impact on my acceptance of TM's evidence. The allegation of beefing up witnesses off screen as it were is not new see "Easing The Passing" (Devlin p220 n.173). Beefing witnesses up is usually counterproductive because they usually fall apart in cross examination. I did not see any witness who was beefed up. I saw inadequate witnesses but that is an entirely different matter.
- Mr Beaumont gave his evidence in a credible way. I accept his evidence. His evidence was not criticised by the Defendants in closing.
- I did not find his evidence of assistance in dealing with important matters in issue in this case. He gave some very general evidence as to time spent by CB and RH on non JDW matters but it was in my view wholly speculative and of little use. Equally he gave evidence about the other companies. There was no attempt in reality to hide the presence of the other CB companies Bacchus and Old Aberdeen within the office which was JDW's office. It is hardly surprising. Mr Beaumont for example started working for Bacchus. I do not see that Mr Beaumont can assist me in relation to what JDW knew about Bacchus and Old Aberdeen. I find his observations (see paragraph 24) about what RH might have said to him when he was asked to attend the odd meeting as ambivalent.
- In short I find his evidence truthful but not helpful.
- He gave his evidence honestly but it was mostly directed to the QAG meetings and the later CRM meetings. As I have said earlier in this judgment I do not find what was discussed in those meetings significant in enabling me to decide what was discussed and agreed as between TM and CB. He was one of several witnesses who gave evidence about what was or was not seen on a VIS screen. There are suggestions by the Defendants that it is clear that it can be seen on the screen that there are folders which relate to other business operations of VDB such as Bacchus. I am by no means convinced about this. Even if that was the position it does not help me to determine as I have said the fundamental discussions between TM and CB. Mr Broome therefore does not assist me in the determination of the issues.
- SM's main evidence was in relation to the termination. It was unsatisfactory in some aspects (as was TM and JH on this topic). He was alleged to be a dishonest man by CB in his witness statement (paragraph 111). He was equally described in strong terms in the very first paragraph of CB's closing "the First Action started because the unhappy and unappreciated Mr Maycock wanted to obtain recognition and live his dream by having the JDW work for himself". That may well be true but it does not follow that SM's self interested motivation vitiates what he has to say about Dalkeith and other transactions. It is another classic example of the need to approach criticism of a witness with care so as to ensure that the successfully criticised aspects of the evidence do not obscure or undermine the uncriticised and clearly established aspects of evidence. This is part of the well known sifting out procedure required of Judges when hearing witness evidence. In cases which turn on facts it is the essential tool of the trial Judge and cannot (contrary to belief expressed elsewhere) be successfully replaced by reading of transcripts elsewhere selevtively or otherwise. They do not tell the whole story. They go no way towards communicating the demeanour and the performance of the witness in response to questions such as hesitation, evasiveness and the like which can only be assessed by the trial Judge.
- CB was projected to spend 5 days in the witness box. It stretched to 15 days. Self evidently that is an ordeal by any standards. Given the length of course it was essential that his demeanour was monitored closely to ensure that he was not oppressively questioned. That is a role which the Judge has to ensure aided by his own Counsel. CB found the giving of evidence an ordeal. However in my view the nature of the ordeal did not stem from the length of the cross examination; it stemmed from the repeated destruction of his evidence on crucial issues in cross examination. His credibility was comprehensively destroyed in cross examination.
- JDW summarised in general terms the criticism of his performance (paragraphs 1516-1521). However that is the briefest of summary.
- CB's evidence in my view fell apart in significant areas. I will set them out below when I deal with them in the areas. However I can particularly say that his evidence in relation to the August 1998 letters was completely unsatisfactory. His evidence about the Ferrari 5 properties ("the Ferrari 5") was similarly unsatisfactory and untruthful as was his evidence of his knowledge of Paul Ferrrari's companies. I found his evidence about the conflict of interest especially in relation to Barracuda unconvincing. It is also fair to adopt JDW's criticism that he was dishonest about the sacking of RH.
- RH was involved in 4 of the transactions Leamington Spa, Canterbury 1, Canterbury2 and Folkestone. I will analyse his evidence separately in respect of those transactions when I come to deal with them.
- A big handicap is his conduct over the Kettering acquisition. He dealt with this finally in his second witness statement in the Second Action dated 27th October 2008. This was in response to paragraph 228 of TM's second witness statement where he adverted to the fact that the property was acquired by a firm called Rican Securities for £250,000 and rented to JDW for £50,000. RH ultimately admitted he received £24,200 in cash in respect of this transaction from a Mr Blakely which he never disclosed either to VDB or more importantly to JDW. The details of this transaction had to be extracted painfully from RH first in correspondence with his solicitors then in his witness statement and finally in cross examination. There is no claim in the present action arising out of this payment.
- In 1996 according to CB RH had a salary of £36,000. He received the payment in April 1997 and credited them to 2 accounts with the Halifax Building Society (H16/33A and 33B). He declared tax on the monies as being self employed consultancy fees. In the course of the correspondence between the solicitors RH's solicitors said in their letter dated 10th January 2008 that the sums were not substantial. In fact the sums were the ones disclosed with the Halifax by that letter and RH acknowledged in cross examination that the sums (totalling £24,200) were substantial. If this was Mr Blakely splitting his commission on a 50/50 basis it means that Mr Blakely obtained a commission of close on £50,000 for the transaction whereby Rican ended up with the freehold of the Kettering property with a benefit of a JDW lease. RH was of course involved in the acquisition of the leasehold interest by JDW and it appears that simultaneously he received fees from either Mr Blakely sharing his commission or indirectly from Rican the freeholder. He was extensively cross examined on this point (T28/77 and following). His answers were completely unsatisfactory and I do not believe RH told a full and accurate picture even now as to how he came to have possession of this large sum of money. I cannot see any honest basis for it and he did not put one forward. Merely saying as he did was that it was greed and was taken on the spur of the moment is insufficient. It seriously colours in my view his credibility as a witness as a whole. This is further reinforced by the reluctant way in which it was disclosed and in my view (as demonstrated in his cross examination) he maintained a deceptive air about the circumstances which led him to receive this money. What is significant is that occurred at around the same time as several other transactions. Thus RH was acting dishonestly at a significant time.
- I will deal with RH's evidence in more detail when I analyse his role in the transactions. I am mindful that I have already determined in this judgment that he did not owe a fiduciary duty but he can of course be liable as a dishonest assister in respect of VDB and CB if the evidence satisfies the requisite tests to make somebody a dishonest assister.
- GA was as JDW says in its closing (paragraph 1526) a clever man with a careful choice of words. His evidence too was unsatisfactory in relation to the transactions which I will deal with below. The most significant deception in my view was whether or not he had a role in preparing the ROCE calculations for Mr Lillie. He denied this (T32/18) after inadvertently using the word "we". The exchange (T32/18) was quite clear:-
- When the experts gave evidence (T33/145) the following exchange took place between Mr Evans and Mr Lillie.
- Further in cross examination this exchange took place (T5/149):-
- In paragraph 8.3.7 of his report Mr Lillie identifies that the ROCEs were provided by GA but he failed to identify that they were created by GA for the purpose of this action and that they were not contemporaneous documents in respect of the transactions under review. As I have said Mr Evans for JDW in cross examination identified a number of significant errors in the figures anyway and there was no attempt by the Defendants to recall Mr Lillie to sustain his report. In my view the failure to disclose the true author of these ROCE forms openly and frankly (i.e. GA) was seriously misleading. Further in my view GA lied when he denied that he had any role in the preparation in these figures when he clearly was the author. This affects GA's credibility also. I will assess the truthfulness of his answers when I come to review his role in the transactions. He does not however owe a primary duty as I have determined earlier in this judgment.
- The Defendants called a number of other witnesses but none of them assisted me in the primary issue. It is clear that some witness statements (i.e. Mr O'Brian and Mr Sutton's) have been prepared for them by the Defendants' solicitors. Had their evidence been significant that might have been a cause for concern but the evidence is not significant and therefore I attach no weight to their evidence. I will say very little about Mr Kavanagh's evidence except that his evidence showed that he was prepared to be deceptive and dishonest in property transactions. In (for example) the Buxton property where he complained that JDW had exerted pressure on an unfortunate widow selling a property in fact the converse was the case. He was exerting the pressure and he was trying to maximise the return for him at the expense of the widow. His evidence was called for the purpose of attempting to show that JDW bullied and were aggressive but all the evidence showed in cross examination was that he was like that and he assumed everybody else was the same. His evidence was of no use but was instructive in the morals and conduct of people operating in the property market. It goes beyond the old phrase about "gentlemens agreements being made by people who turn out subsequently not to be gentlemen". I am however no longer surprised at the antics people indulge in (even the most respectable of people) to maximise their return in property transactions at the expense of anybody else.
- None of this gathered clan of evidence assisted me in the issues before me.
- That is a general review of the specific evidence of the witnesses of both parties but there will be more detailed observations when I analyse the respective transactions.
- In February 2005 JDW had negotiated new terms of remuneration with VDB. JDW's original proposal had been £823,000 for the year. TM (email 13.2.05) asked him to trim it to £600,000. He also in effect told VDB to sack KW. These figures represented a substantial reduction in fees to VDB but reflect also the fact that JDW was reaching the peak of its expansion. CB replied 17/2/05 (CB5/129). He raised the question of existing liabilities of £250,000 which they could not pay off at that level. In effect he threatened JDW with an insolvency of VDB if this payment was not made. He accepted what was said about KW and also reduced his time. A telling paragraph in the email is as follows:-
- TM agreed to pay the extra £250,000 in 3 instalments commencing on 1st March.
- JDW "discovered" that VDB were proposing to act in diverting a property at 5 New Mills Road Dalkeith ("Dalkeith") to New Aberdeen and/or New Bacchus. JDW had been seeking to acquire this property since October 2002. KW was acting in the transaction. On 8th March 2005 the solicitors acting for the vendor of the property (Lidl) informed the solicitors acting for JDW that Lidl was no longer interested in disposing of any interest in Dalkeith other than a short lease and so unless JDW was interested in acquiring such a lease then they would withdraw from the negotiations. The discussions had centered around a 125 year lease at an annual rent of £10 subject to a premium of £400,000. On 25th February 2005 DI noted TM agreeing to an exchange to take 3 months to complete. Lidl responded as I have said above. This was passed on to KW on the same day who by then was working for New Aberdeen/New Bacchus. On 9th March 2005 JDW allege that KW and CB instructed MS to inform Lidl's agents that JDW was not interested in acquiring a short lease and that he did so. On 10th March 2005 KW on behalf of New Aberdeen and/or New Bacchus wrote to Barracuda saying they were negotiating to acquire the freehold and offered a lease of Dalkeith to Barracuda at a rent of £60,000 per annum. He also enclosed a plan which was a JDW plan. That letter was written on Bacchus notepaper. The import was that KW by that time (following the February fee renegotiations) was working for New Bacchus.
- NS refers to this in his second witness statement (paragraph 10 and following). He recounts that KW (by then working for Bacchus) directed him to inform Lidl as above. He said in evidence (paragraph 10.6) that he called CB personally and he was told to make the call to Lidl's agent. He also spoke to SM and asked his opinion. He said that as CB was his boss he had no choice.
- CB in his third witness statement dated 2nd October 2006 (paragraph 183) does not deny the general gist but takes issue with the communication. His case is that he instructed NS to inform Lidl that JDW did not take short leases (meaning 1-5 years). He did not dispute that he told KW to take over the property on behalf of New Bacchus although he denied telling him to make an offer on behalf of New Bacchus to anybody else. This gives a lie to the suggestion vis a vis JDW that the deal had gone dead because of the willingness only to grant a short lease. New Bacchus is an investment company; it is not in the market of acquiring pubs. A short lease would have been no interest to it. It follows that when KW made the offer that he did on the 10th March 2005 he cannot have been contemplating a short leasehold interest. He at worst would have been contemplating a virtual freehold ("VFH") i.e. a lease of such length and nominal rent as to be realistically a freehold. The 125 year lease contemplated initially was a VFH.
- Equally CB apparently had discussions with KW but by the 8th March KW was working for New Bacchus. If Dalkeith was to be kept alive for JDW he had no business being involved in it. It appears that JDW had not been told that KW was no longer working for them (T27/182). I accept of course that KW was contemplated to be outwith the budget as discussed in February. It also appears that to be accepted by CB that TM was not aware of the events that were happening in respect of Dalkeith at that time.
- The switch to New Bacchus was rapid. There is a dispute between NS and CB as to the tenor of the conversations that took place before then. That dispute is whether or not CB told him to tell Lidl JDW was no longer interested. The fallacy of this approach by CB is that there is no evidence to show that Lidl was asked what term of years was contemplated by their expression "short" lease. It seems to me that the precise words are not important; it is a question of impression. Whether or not NS spoke to Lidl and said point blank JDW will not take a short lease or whether he went one further and said JDW was pulling out is perhaps a matter of form rather than substance. If Lidl proposed a short lease and were told JDW would not take a short lease (subject to the usual bluff that appears to take place in property transactions at the death) they might assume that was the end of the matter.
- However it ought not to have been the end of the matter. What happened was that KW made a proposal on behalf of New Bacchus to Barracuda using JDW documentation. It is plain that letter does not square with CB's evidence. In the third sentence it said (on 10th March) that "we are in negotiations to purchase the building so that we may offer you a new full repairing insuring lease at a rental of 60,000 pax". The only negotiations were on behalf of JDW. That was untrue.
- Having seen NS and CB on this point I unhesitatingly prefer the evidence of NS. I also reject CB's evidence to the effect that KW was on a frolic of his own. That in my view is an invention by him because he knows KW's actions as shown by the letter of 10th March 2005 cannot be supported especially in the light of NS's evidence. It is clear that CB was involved and I simply do not accept that he was doing anything other than seeing an opportunity for Dalkeith to disappear from JDW and re-emerge in New Bacchus and thus Barracuda.
- He hoped that he would get away with it because the only parties who were in the know were KW, NS and SM.
- Unfortunately he underestimated SM who proved to be a cuckoo in the nest. He was plainly dissatisfied with his role and rewards in VDB to put it mildly. He saw an opportunity to damage VDB's relationship with JDW and then exploit it for his own benefit. He did not present an attractive picture in his evidence. This was further compounded by the actions of JDW in relation to the evidence at trial. It was extremely reluctant to produce the evidence about the termination. The argument put up for justifying not producing evidence was that there was no allegation on the part of VDB which justified it. I do not accept that. There were issues whether or not JDW was entitled to terminate. The actions in relation to Dalkeith are the most recent and are one of the four grounds relied upon by JDW as terminating the agreement summarily. The full circumstances surrounding the termination and the way in which SM stepped into VDB's shoes with such speed are relevant to assessing the credibility of the witnesses in my view.
- Once again JDW did not do their case justice in my view by the manner in which the case was presented. I will not go into detail but an attempt was made first to hide the evidence from the Court and second to give vague and misleading evidence. The precise number of meetings that took place between SM and TM and JH and what documents were sent by what party remained obscure. I am not convinced even now I am being told the full picture of the discussions between SM, JH and TM and in particular whether those discussions took place before early March 2005. I accept the criticism of JH's evidence in particular as summarised in CB's closing paragraph 82 and following. Equally it is plain that SM was assisting JDW in preparation for the proceedings that were to commence on 30th March. On that day JDW terminated the agreement by letter summarily and applied to Court ex-parte for injunctive relief. SM had also fortuitously typed a letter sometime in March 2005 setting out his disaffection. JH initially when he gave evidence said there were no communications but when JDW's lawyers effected a full search this and other documents came out.
- It is clear that JDW saw this as an opportunity to get rid of VDB and reduce the fees. JH even laughed in Court about reducing the fees for SM when he had to confess to having participated in another misleading transaction.
- However distasteful this is the key issue is the fact that VDB (and CB) delivered up the opportunity for JDW to terminate the relationship because of their own misconduct. It is plain on the evidence in my view that an attempt was made to divert Dalkeith to New Bacchus and pass it on to Barracuda. That is a breach of VDB's and CB's fiduciary duty. It is clear that it cannot be said that the property was not suitable given the length of negotiations and the fact that after the contract of VDB was terminated the transaction was salvaged for JDW by subsequent negotiations. It obtained a lease of 25 years at a rent of £60,000 per annum which is what I suspect Barracuda were going to be offered. The opportunistic conduct of JDW and SM does not matter as there had been a plain breach of the fiduciary duties referred to above.
- This activity is of itself in my view sufficiently serious as to entitle JDW summarily to terminate VDB's contract. It was a brazen attempt to exploit a stall in the negotiations and to take the property for the benefit of New Bacchus. Further I do not believe for one moment even if the property had been rejected by JDW it would have accepted that VDB could then market it to Barracuda. That finding means that VDB's counterclaim fails and is dismissed.
- I have observed earlier in my judgment that I do not accept that VDB could discharge its duties of good faith by passing on opportunities to Barracuda. The danger of conflict is self evident. KW by his letter of 10th March 2005 demonstrated the difficulties because he used information and drawings which belonged to JDW and were confidential. I cannot conceive of any circumstance where it would be proper for VDB to give any opportunity to Barracuda. This is not an exclusivity issue; it is a conflict of fiduciary duty issue. Barracuda was operated by Mr McQuater. He was a former Property Director of JDW and it was a major rival. Whatever else might be possible by transactions outwith JDW I do not accept doing business with Barracuda was one of them. If TM had found out it is not difficult to imagine his reaction. CB would know this. Hence the concealment.
- In so concluding I unhesitatingly prefer NS's key evidence on what happened in relation to Dalkeith and reject CB's evidence. I could have been assisted by KW giving evidence but neither side has chosen to call him. He was a party (as a Defendant) in the First Action. JDW discontinued those proceedings against him. I was initially told that the terms were simply a discontinuance with a payment of his costs. That was later corrected as there were confidential terms set out in a schedule which I have not seen. The Defendants have not called KW either. None of this in my view is surprising and I do not draw any conclusion as against any of the parties arising out of the failure to call KW. I cannot conceive for one minute that he would willingly become a witness in this trial. Either party is willing to conclude that as well and thus justify his non calling.
- I propose to examine the individual transactions dealing with the Second Action first, then the First Action. I will examine the transactions in relation to the allegations against VDB and CB and then revisit them when I come to consider the position of RH and GA. I propose to analyse what happened in each transaction and then consider the JDW complaints and the Defendants' answers.
- I propose to start with the Ferrari 5 first and in particular Folkestone and Eastbourne. I do that for a number of reasons. First the 5 transactions involve the introduction of a third party investor to enable it is said by the Defendants the transaction to proceed. Second they have a common theme in that the third party was a company incorporated by Paul Ferrari of Ferrari Dewe a firm which CB used to work in before he formed VDB. Third (and most importantly) JDW raised questions about properties with third party investors involved and in particular Eastbourne and Folkestone. It raised in particular the fact that Ferrari Dewe were involved. This was all raised in correspondence in 1998 which CB replied to. Neither RH nor GA participated in the correspondence but they were aware it was taking place.
- It is a useful tool in my view in analysing these transactions to see what complaints were made in 1998, how they were answered and whether the complaints and the explanations now given differ in any way which is significant. The transactions took place between 1996 and 1997 so the reaction of the parties in this correspondence is virtually contemporaneous. It is certainly a lot more contemporaneous than the evidence before me.
- This property (the Baptist Galleries) was notified by Cluttons (subject to contract) to NG JDW's Development Manager on 3rd January 1997. He passed it on to VDB. There is a hand written note "KH (interpolation Karen Hay a surveyor in VDB) see me with RAH" (i.e. RH). CB acknowledged that was his note. The property was a former Baptist church and was the type of property which was unusual and which was attractive to JDW. The sales particulars indicated that offers in the region of £150,000 were being sought for the freehold. TM in his evidence (paragraph 194 of his second witness statement) said that NG referred the particulars to VDB (the notes on it show that). The practice was that JDW received a large number of sales particulars and passed them all on to VDB to sift. I can well understand (and accept) that the fact that that sales particulars showed a freehold would not have registered with TM or anybody else later in the transaction.
- Karen Hay instructed architects on 10th January 2007. The first PCF was sent by Appleyard and Trew to NG copying in KH on 13th February 1997. The PCF of the same date showed a freehold acquisition at £150,000. On that same day Cluttons faxed the sales particulars to PF. I accept JDW's contention that PF did not apparently receive them by mailshot and must have asked Cluttons to fax them to him. I accept JDW's contention that PF must have been told of the availability of the property by CB or RH. Although RH denied it was the practice of particulars to be forwarded after the flotation of JDW the Cluttons letter has a date stamp which is apparently a VDB received stamp. RH accepted that was the position (T30/51).
- PF moved extraordinarily quickly. JDW obtained by third party disclosure notes and other documentation from PF. They obtained hand written notes of his visit to the property on 13th January 1997 to view the condition. On the fax transmission document from Cluttons to PF dated 13th January 1997 there are hand written notes which refer to a telephone conversation that plainly took place between PF and Cluttons. PF sought a lock in agreement for 3 weeks from Cluttons. The identity of the proposed purchaser Belvedeer Holdings is also noted. The next day Paisners on behalf of Belvedeer Holdings offered £150,000 subject to contract. On 17th January 1997 KH wrote to Lawrence Tring asking them to make an inspection. The details once again refer to a freehold position at a price of £150,000. On 28th January 1997 KH sent a holding letter to Cluttons. On 22nd January 1997 PF had increased his offer by a modest £5,000 to £155,000 subject to contract with a 3 week exclusivity again. The agents on that day wrote to Coopers and Lybrand the Receivers who were selling the property recommending an acceptance of the offer as it was in excess of the anticipated return. On 28th January 1997 Coopers and Lybrand sent a fax to Cluttons accepting that offer. On 31st January 1997 Cluttons sent Heads of Terms to PF the Heads of Terms recording the increased price from £150,000 to £155,000, subject to contract and that it was subject to planning consent for A3 use and grants of appropriate justice licences. Finally there was the 3 week exclusivity. The significance of all this is that there was no question of PF seeking the licences and planning consents. JDW would do that at its cost and risk. Thus PF's acquisition is being achieved by JDW's efforts at its cost to acquire the licences. He has also obtained the 3 week exclusivity period. However it must be observed that all PF had was a subject to contract agreement. If JDW wanted the freehold I have no doubt VDB spurred on by JDW if it had known about all of this could have easily out bid PF. However nothing like that happened. PF acknowledged the Heads of Terms on 31st January 1997.
- On 12th February 1997 Cluttons wrote to KH at VDB "the property is now under offer…." There is a CB note on that "KH see me".
- Subsequently RH wrote to Sophie Hawkes at Taylor Joynson Garrett Solicitors (acting for JDW). In that letter he said "I have just agreed the acquisition of [Folkestone] for [JDW] and have pleasure in enclosing the Heads of Terms". TM, RS and NG (all of course at JDW) were included in that correspondence. The proposed arrangement was a leasehold interest from a property company called Peachy Investments in Jersey for a 40 year lease with 5 year upward only reviews at a rent of £40,000 per annum. The transaction was subject to JDW obtaining the requisite consents. Peachy Investments had been incorporated on 12 March 1997. Paisners revealed to Taylor Joyson Garrett (7/4/97) that Peachy Investments were the proposed purchasers and the present owner was still the original Cluttons' clients Portfolio Property Investments Ltd. The incorporation of Peachy was an example in my view of PF disguising from JDW that companies controlled by him were buying freeholds up in anticipation of either selling them on to JDW or them being leased to JDW. This is evident by two handwritten letters obtained by JDW dated 22nd August 1995 and 18th July 1996. In the latter letter Julian Ferrari (PF's father) pointed out that the acquisition for Canterbury (see further in this judgment) was his third letting to JDW. The letter stated that his agents had told him that their negotiating position with JDW would be weakened if JDW began to realise that a single client of theirs was keen to repeatedly secure their covenant. The agent was not identified. This letter was sent to a firm of Jersey solicitors.
- Although the Heads of Terms as between Peachy and JDW were for a leasehold interest what actually happened is that on 8 September 1997 Peachy exchanged contracts to sell the freehold to JDW for a price of £400,000. The agreement was subject to obtaining the requisite licence. That was obtained on 16th September 1997.
- There is no documentary evidence which shows why VDB did not pursue a freehold offer with vigour from the start. Further there is no evidence recording any discussions with VDB and JDW about the decision not to pursue a freehold offer nor is there any evidence showing how the leasehold terms were apparently agreed by RH with VDB. Finally there is no evidence showing why JDW moved from a leasehold interest to a freehold interest. The net result was to give an immediate profit to Peachy of £245,000. It did this at no cost to itself. Peachy did not actually exchange until 8th September 1997 i.e. the same day it exchanged to sell on to JDW. All the expenses of obtaining the planning permission was JDW's. Of course the freehold would presumably have increased in value once JDW obtained the planning permission as it would have ennured for the benefit of the freehold interest. However that is an effort on the part of JDW not Peachy.
- The consequence is that the failure to obtain the freehold has cost JDW at least £245,000. It cannot be expressed in any other way.
- It should be noted that at a project meeting of VDB dated 5 June 1998 (item 12.2) it was noted "the development process, TRM is not always aware of what is happening at the QAG meetings and the legal process so if there is a major problem he can be made aware by GA or CB". This reflects what VDB perceived in my view about TM.
- Two months later TM wrote to CB raising a number of concerns in a letter dated 19/8/98. The first was returns on capital. The second is more germane to the present matter:-
- He then expressed the view that agents were surprised at the high level of prices being paid by JDW. He then continued:-
- CB replied on 26th August 1998. In his second numbered paragraph headed "Property Dealers" he observed:-
- I observe that none of that generalised answer has any application to the facts of Folkestone. In my view it was designed to put JDW off the scent and suggested wrongly that dealers had acquired a prior interest in the property to JDW.
- In section 3 he dealt with Eastbourne and Folkestone.
- Under Folkestone he said:-
- Under paragraph 5 he dealt with Ferrari Dewe:-
- I observe in that latter point he failed to reveal the fact that FD were involved in Folkestone.
- Somewhat surprisingly in my view TM did not take the matter any further. The letter in my view does not begin to answer questions raised by the transactions as set out by me above. The lack of action really shows the trust TM placed in CB. He cannot be criticised by the Defendants for accepting the explanations.
- The Folkestone property transaction is set out paragraph 124 of the Re-Amended Particulars of Claim. This attracted a bare denial and an issue as to limitation from VDB and CB (paragraphs 173-175 of the Re-Amended Defence). RH in his Amended Defence (paragraph 68) asserted that JDW knew that Peachy did not have an interest in the property other than being an intended purchaser, knew that the original asking price was £150,000 and denied that he offered the freehold to Peachy or Ferrari.
- The pleadings therefore do not provide any justification for the transaction.
- CB dealt with Folkestone in paragraphs 303-322 of his second witness statement dated 25th April 2008.
- First he asserted that TM would have been aware of the availability of the freehold because he would have had discussions with NG when the particulars were received and as a result of the information provided by the architects. In my view this is unlikely. I have already accepted TM's evidence that large numbers of particulars would have been received and sent as a matter of standard procedure to VDB. I am not convinced TM had any discussions as asserted speculatively by CB.
- CB (in paragraph 309) stated that after KH had received the Cluttons letter 12th February 1997 informing her that the property was now under offer that he discussed this with TM who was very disappointed and asked him to find out more details. CB then recounted that he spoke to Cluttons who told him the proposed purchaser was a client of PF. CB then deposed that he spoke to PF who stated that he would be willing to grant a lease to JDW having decided to buy the property as an investment.
- CB (paragraph 310) then deposed that he relayed this to TM who was still very keen. Further conversations apparently ensued between CB and PF which led to the latter speaking to RH to inform him that his client was a company called Peachy Investments and it would be willing to offer JDW a lease for 40 years at an initial rent of £40,000 per annum subject to JDW's usual conditions.
- CB then deposed that he was not then aware that Peachy was beneficially owned by PF and that he telephoned TM around 3rd March 1997 who agreed the leasehold terms. RH informed PF and wrote to him.
- He next deposed (paragraph 314) that he was telephoned by PF in July 1997 who indicated that Peachy would be willing to sell the property immediately to JDW for £400,000. CB deposed that he spoke to TM who agreed that despite the fact that the price was substantially higher than JDW had anticipated paying originally. He referred to an internal memo on title 20th August 1997 which was passed on to JDW's internal lawyers which state that the vendors Peachy Investments are buying from the receiver and in turn are selling on directly to the company. TM's approval is noted on that memo dated 29th August 1997.
- RH dealt with it in his witness statement 25th April 2008 (paragraphs 111-121). The main thrust of his evidence is for him to distance himself from any of the decisions. He makes no positive case.
- CB was extensively cross examined on this property (T27). I do not propose to go through that cross examination session in detail but I am satisfied that CB's answers were all deceptive in relation to this transaction. His evidence was incredible. The following questions were not answered satisfactorily:-
- A number of his answers demonstrate his untruthfulness. For example on being questioned as to why a rent of £40,000 was contemplated his answer was (T27/26/25):-
- It is clear that it was an extremely attractive property at an extremely attractive price. The only conclusion I can draw as to how PF got involved so quickly was that he was told by CB of its availability. He therefore rushed in ahead of JDW and secured his subject to contract offer at a modest increase above the price that was being sought. I cannot accept that TM had he known that the freehold was available would not have done something about it. There were other occasions where JDW bid against competitors (Bass for example). PF would only be interested in my view in doing a turn on the property. It is unlikely that he would have bid for the property without the fact that JDW was going to be used to enhance the value of the property by getting the requisite consents. I find also that CB told him of the offer and provided the JDW documentation to assist him. I also find that he told TM that the freehold was already obtained by someone. I do not believe that he told him that it was still subject to contract. In my view he plainly knew that or else he deliberately chose not to investigate what the position was with Cluttons so as to give PF a clear run at the property. It was then that the lease terms were "negotiated". I do not believe there was any negotiation as such. Even if the freehold had not been sold by PF later to JDW it would have made a very handsome return for PF. For a capital cost of £155,000 PF would have obtained a property which had a JDW lease at an initial rent of £40,000 per annum. This would have been achieved at no cost at all (it did not even incur any expenditure in the planning process). It did not put any money up front as the contracts for acquisition for the freehold and the sale of the freehold were done simultaneously. Peachy was incorporated specifically for this transaction and was not contrary to CB's answers an experienced property developer. The experienced property developer was PF. I find also that CB knew full well that Peachy was a front acquisition for PF and his family.
- In truth had there been any genuineness about this transaction CB would have told TM when he replied by his letter 26th August 1998. Yet he mentioned none of the factors that he purported to rely upon when being cross examined. That in my view is incredible if they were genuine.
- Had VDB/CB been genuinely interested in JDW's interests I have no doubt that he would have vigorously pursued normal JDW policy through VDB of trying to acquire properties. I have little doubt that he would have successfully seen off PF if there had been a bidding war. JDW had the planning and licensing expertise. Peachy had none and no money. However there would have been no bidding war because PF was only interested if JDW was kept out of it. It was kept out of it because it was not put in the picture by CB/VDB. At any time until 9th September 1997 JDW would have been in a position to have made a bid for the freehold. Instead it was sold a leasehold interest and then acquired a freehold interest at a cost of £400,000. I simply find that incredible. It must not be forgotten that the sellers were administrative receivers. They would be under a duty to seek to obtain the best price reasonably obtainable. There is no doubt (and CB conceded this) that there would be no downside to him writing to Cluttons to attempt to get the property for £200,000 for example. I have no doubt Peachy could not have competed.
- I therefore accept completely all of JDW's closing submissions (paragraphs 1332-1361) criticising CB's evidence. Accordingly I conclude that VDB/CB diverted this opportunity to PF. In so acting they acted fraudulently in deliberate and conscious breach of their fiduciary duty and preferred their own interests or the interests of PF and/or Peachy to the detriment of JDW. The allegations set out in paragraph 124 of the Amended Particulars of Claim are therefore made out.
- This was in my view a very dishonest transaction. There is no conceivable reason if TM had been informed as CB alleged that he would ever have agreed in effect to give £245,000 to PF. It does not make commercial sense and it is not the kind of conduct which is that of a successful businessman like TM. The only conclusion I can draw is that the whole freehold position was deliberately concealed from him by VDB/CB so as to enable PF to intervene take the freehold and make a profit either on the rental (when compared with the cost of acquiring the property) or on a freehold when PF doubtless decided to make a quick turn not having spent any money on making the profit. No other explanation stands scrutiny.
- I have chosen this property first for a number of reasons. First it is the most obvious example of fraud and dishonesty on the part of VDB/CB. Second it is the most obvious case where CB needs to explain (and fails) why TM would ever agree to the transaction. Third CB had been challenged about the transaction and in the light of the above told lies to TM in August 1998. Fourth it provided an indicator as to how other transactions (especially the balance of the Ferrari 5) need to be reviewed. Once there is a clear case of fraud by a professional man all the concern as to the need for caution when condemning a professional man of dishonesty becomes less significant. It is therefore probative evidence of a possibility of fraudulent conduct being found in other cases of a similar nature. That is not to say that caution is thrown to the winds but it enables me to be more willing to accept JDW's explanation than possibly VDB/CB's.
- The significance of the Ferrari 5 transactions is that they took place within a very short time span between late 1995 and early 1997. Within a 4 week period JDW bought freeholds of 3 PF properties (Bedford for £1,250,000 on 6th August 1997, Eastbourne for £600,000 on 19th September 1997and Folkestone for £400,000 on 9th September 1997).
- In my view the Ferrari 5 are significant transactions therefore in themselves.
- In the light of the evidence and the answers given by CB in cross examination it is instructive to revisit the answers given by him in his letter 26th August 1998. Under the heading Property Dealers it is quite plain that it cannot be suggested that PF was there before JDW because of the reasons set out in that paragraph. It is a complete deception. JDW was there before PF and the circumstances are plain that PF was passed the property by CB.
- Equally his explanation for Folkestone simply does not address the issue. He refers to the leasehold offer by "successful purchaser". The patent dishonesty of that answer is demonstrated by the facts that I have summarised above. As pointed out in cross examination JDW moved from the position of being a potentially successful freehold bidder to an apparent competitor tenant with Yates. Even then there is no evidence to show Yates was ever on the scene and in my view it was a pure invention and deception by CB to explain what was a serious breach of duty.
- This is the second property identified in TM's letter of 19th August 1998. As I have said above TM stated in his letter that Eastbourne had been acquired from Steamboat Holdings Ltd for £600,000 (correct) when it had acquired the property for about £325,000 (incorrect: the actual cost was £525,000).
- This property first came to the attention of JDW and VDB in 1995. Ultimately JDW on 2nd April 1996 exchanged contracts to take a lease of the premises from Steamboat Holdings Ltd. That is a PF company. The proposed term was 50 years at an initial rent of £100,000 per annum subject to review. The lessor is identified as being Steamboat. However there is a reference to a vendor as being Guardian Assurance PLC. Anybody reading that agreement would therefore know that Steamboat did not yet own the freehold. However merely by that reference they would not know what the contractual relationship between Guardian and Steamboat was if any. The agreement was subject to the usual conditions JDW sought in respect of planning and change of use.
- The correspondence exchanged immediately before that agreement showed that Steamboat were to contribute £200,000 towards rectification and fit out costs by way of reverse premium. There is an incomplete copy of the agreement for lease between Steamboat and JDW at H11/86. On 2nd April 1996 Galsworthy & Stones the solicitors acting for Steamboat informed Messrs Crill Canavan of the exchange for purchase and lease. That is the only evidence I have which shows that Steamboat contractually committed itself to purchase the freehold from Guardian Assurance for £525,000. I do not know whether it paid a deposit. Normally one would expect a 10% deposit to be provided at that time. If so that represents the totality of the commitment of Steamboat to the transaction. I also assume that the contract was conditional in the same way as the agreement for lease. JDW exchanged to acquire the freehold for £600,000 on 7th August 1997 (H18/56). I have not seen the agreement but I discern from the correspondence that JDW paid a deposit of £60,000.
- That contract completed on 19th September 1997. Steamboat's acquisition from Guardian Assurance completed on the same day and the transfer to JDW took place by a transfer from Guardian Assurance direct to JDW in exchange for £525,000 with JDW paying Steamboat £600,000.
- At first blush it seems difficult to justify Steamboat in effect making £75,000 at the expense of JDW. It had of course acquired a contractual entitlement to the freehold on 2nd April 1996 when JDW agreed to take a lease of the premises.
- JDW denies it ever knew of the availability of the freehold. VDB/CB contend JDW (and in particular TM) well knew that the freehold was available at all times.
- The property first came to the attention of GA at the latest 20th February 1995 when the agents enclosed particulars. They suggested a preference for a leasehold acquisition but stated that the freehold was an option that would be considered. VDB prepared a yellow PCF form dated 28th February 1995 (H3/266) where it was suggested that the interest JDW was taking was a leasehold at £125,000 per annum with a reverse premium of £100,000. However by 20th April 1995 the position was unclear as the next document shows.
- Costings prepared by Mr Barnes one of JDW's surveyors dated 21st April 1995 (sent to NG at JDW and copied to CB) showed that no definitive decision had been made at that time as to whether it would be a freehold or leasehold acquisition. A revision of his costings dated 30th June 1995 has the leasehold box ticked. Prior to that the meeting between Guardian and its selling agents Churston Heard 23rd May 1995 recorded a verbal offer from JDW of £500,000 on the basis that it could not go higher due to the extra costs in conversion. TM denied that he made such an offer and further denied that he authorised VDB to make such an offer. I find it was not made on behalf of VDB but on behalf of PF as I set out below.
- A further Churston Heard note dated 5th June 1995 recorded a meeting. JDW obtained this from CH. CB was at that meeting and was representing JDW apparently. There are two proposals discussed. First there is a possible reduction in size. It appears that produced a 28% ROCE and CB is recorded as revealing that to the sellers. A freehold offer of £500,000 is stated to be the preferred route. There are also discussions of a lease at £100,000 per annum with a reverse premium of £400,000/£500,000. Reference is also made to 4/5 regular investors. As I have said by 30th June 1995 the leasehold box had been ticked. CB during cross examination (T24/83) could not explain why the freehold option had been removed between 20th April 1995 and 30th June 1995. This is significant bearing in mind the relative cheapness of the freehold compared with the expense of the leasehold (even if a reverse premium can be obtained).
- Churston Heard wrote further on 1st August 1995 proposing a purchase at £550,000 or with an adjoining property at £725,000. CB replied on 9th August 1995 offering £525,000 subject to conditions. The interesting point is who are "my clients"? referred to in the letter. One would expect it to be JDW but in my view and I so find CB was then writing on behalf of PF. On 8th August 1995 Steamboat Holdings Ltd was incorporated by Crill Canavan pursuant to instructions given by Julian Ferrari. Their attendance note (undated but before 8th August 1995 self evidently) recorded a conversation between Julian Ferrari and them which refers to a property in Eastbourne at £500,000. There was to be a purchase of the freehold title and a grant of a lease to Wetherspoons. In his evidence CB (T24/70) suggested that this was made on behalf of JDW. In fact he retracted this and acknowledged that the offer was not made by JDW (despite its misleading appearance) and that TM was not aware of the letter having been sent. There is a somewhat unique (in the context of CB) file note dated 17th August 1995 where CB reported approaching Steamboat about this property. He was forced to conclude that he must have told PF about the property before 8th August 1995. Thus PF was brought in before any transactions were concluded and indeed before Churston Heard had replied to his offer of 9th August 1995 when the offer of £525,000 was accepted. Crill Canavan record a purchase of £500,000 again with a standard form of lease to JDW on 15th August 1995. The Churston Heard letter to their clients dated 17th August 1995 is instructive. It refers to a sale of the property to JDW at £525,000. It then says "you may recall when we met with Wetherspoons' agent he did indicate that they may look into the possibility of funding the deal themselves and taking a lease back and I confirm that they have now decided on this course of action.
- Faced with the above documentation CB had to admit that Steamboat had been introduced by him and that the offer at £525,000 had been made by him on behalf of Steamboat. It is self evident again that Steamboat would not be interested in making that offer unless it had the comfort of a JDW lease for the property.
- CB repeatedly changed his evidence in cross examination over this issue and I accept JDW's detailed criticism of his evidence and its analysis in its closing (paragraphs 1068-1096).
- All these twists and turns about the freehold and leasehold are simply an attempt by CB to reconcile documentation after the event. There is no evidence showing any of it was ever discussed with TM and I do not accept it was.
- All of this in my view was a charade. CB was attempting to jockey the arrangements so as to create an opportunity whereby the freehold could be purchased by PF and he could make a profit by inducing JDW to take a lease of the premises. In short I reject all of CB's evidence about this transaction as being lies. I should also remind myself of course that Julian Ferrari had written to his solicitors on 22nd August 1995 requesting anonymity at all time as regards JDW. I also reject CB's evidence that he did not know what the Ferraris were doing. I find that CB was in cahoots with PF to put this property into a PF company so it could make a profit at the expense of JDW. The arrangement is exemplified by a file note 6th December 1995 (H9/5). It is headed "Cornfield Road, Eastbourne" item 2 then continues "spoke to [CB] and he is going to chase GRE [interpolation sellers of the property] [CB] said that they have offers in and half a dozen freeholds for our venture but he is not going to tell me what they are so that I don't chase him!". CB was cross examined on this (T25/42). It was put to him that the venture referred to was a venture between him and PF. He denied it. I disbelieve him. He was unable to offer any other explanation as to what the venture was. There is nothing to suggest there was a venture (for example) between JDW and PF. It is also significant of course that at this time Steamboat had still not secured a contract to acquire the freehold. That occurred as I have said on 2nd April 1996 when it conditionally exchanged presumably with Guardian. On the same day JDW exchanged with it to take a lease.
- CB was unable to explain why in all of this period he never had any discussions with TM about it acquiring the freehold. At any point in time during the entirety of this period he knew that Steamboat had only a subject to contract offer at £525,000.
- The freehold then suddenly became available in 1997 when GA telephoned TM and told him. The price however was £600,000. I accept TM's evidence that he thought that was a low price given the passing rental under the proposed lease of £100,000 per annum. It is clear in my view that PF through Steamboat had a change of mind and instead of taking the benefit of an increase in the value of the freehold over a longer term period because of the JDW lease decided simply to do a quick turn on this property and make £75,000 profit which it duly did. Its minimal outlay during this whole period can at best have been at 10% deposit. I do not believe for one minute that TM would have agreed a lease on the terms that he did had he known the freehold was available at £525,000. The first proposal was a return of £125,000 per annum on a capital outlay of £500,000. The one that was agreed was a freehold purchase at £525,000 with a lease at a rent of £100,000 with (presumably) the usual 5 year upwards only reviews. There was a reverse premium but the effect of that reverse premium simply provides JDW with a rent free of 2 years. It represents a minimum 20% return on capital.
- TM had written to CB on 19th August 1998. His complaint about Eastbourne was part of the general concern about Property Dealers (and therefore attracted the same generalised and irrelevant answers from CB on this point) and the fact that JDW paid Steamboat £600,000 when it acquired for about £325,000. His response refers the year it took allegedly to negotiate £100,000 per annum with a reverse premium of £235,000. He correctly then identified that there were licensing appeal delays and then said:-
- It is difficult to see what the last sentence actually means.
- The essence of CB's case at trial was that all of this was done with TM's agreement. Thus it was asserted that TM knew of Steamboat and its acquisition costs and the uplift to it when JDW agreed to buy the freehold (ignoring of course the generous terms of the lease agreed a year earlier). If that were the truthful explanation one would have expected less than a year after completion of the transaction that CB would simply remind TM of what he had agreed the previous year. He was unable to explain (T25/52) why he did not remind TM of this simple fact. That would have obviated the need for a long and irrelevant explanation. He could have simply reminded TM of his beneficial approach to investors who helped him out by acquiring freeholds and making a profit at the expense of JDW. He chose not to do so. The reason for this in my view is plain obvious. It is a lie. He acknowledged the final sentence in the answer was meaningless. He attempted to blame his lawyers for this because the letter was drafted with the assistance of lawyers (T25/55/1). He suggested that the payment was part of the building up of a relationship with PF by JDW when he assisted when JDW was unable to complete. However there was absolutely no evidence to suggest that JDW was not in a position to acquire this freehold. After all it did acquire it a year later at an increased price of £600,000. Further it does not rest easily with the desire on the part of Julian Ferrari (H6/245) to keep his dealings with JDW anonymous. If it was part and parcel of a warm and careful relationship whereby JDW passed large sums of money towards PF for his assistance I cannot understand the desire on the part of Julian Ferrari to be anonymous. The anonymity is to hide the fact that PF's companies are in a number of transactions appearing to have the freehold and are selling it on to JDW for a profit.
- That was CB's first attempt to explain the Eastbourne transaction and it was patently dishonest in view of the facts set out above.
- The next opportunity for CB to state his case was in his Amended Defence (paragraphs 191-207). In that part of the pleading he asserted that JDW well knew of the proposal to acquire the freehold by Steamboat. This was because JDW could not afford the capital outlay and required a substantial reverse premium and that JDW and TM constantly evaluated and re-evaluated both possibilities. It was asserted that Steamboat was one of a regular number of investors whom it used to purchase freehold interests with whom it was interested in property with which it wished to trade. He asserted that the letter 9th August 1995 offering £525,000 for the acquisition for the freehold was an offer sent by CB on TM's instructions. The Defence did not explain how JDW and TM changed by the 17th August 1995 to introduce Steamboat to acquire the freehold.
- In his witness statement (15/04/08) CB revealed the flesh to his skeletal Defence. It was comprehensively destroyed in cross examination. I accept and agree with JDW's criticisms set out in its closing.
- As set out above I reject his evidence entirely on this area.
- CB's closing (paragraphs 218-232) simply fails to address the fundamental difficulties and inconsistencies of CB's evidence exposed in cross examination by JDW.
- It also contains a number of errors. First the preferred offer sought was a leasehold interest not a freehold although that was stated to be a possibility. Second TM's evidence is not confusing about the leasehold interest; it was quite clear that was what was put forward to him by CB. Meanwhile it is self evident that CB is keeping both options open in his discussions with Churston Heard. That is the explanation for the meeting note of Churston Heard (which are to be contrasted with the PCF 30/6/95) which refers to a leasehold interest. CB admitted that the offer made by him on 9th August 1995 was on behalf of Steamboat and not JDW. Steamboat had already been brought in to the position by him before that date as appears from the PF documents referred to above.
- I have already dealt with the suggestion that TM would find out about the availability either from sales particulars or discussions with RS in the legal department. I do not accept that. Nor does CB's closing address why TM would gift a profit to PF either by entering in to an onerous lease (in contrast to the available freehold price) or by agreeing to pay an uplift on the freehold of £75,000.
- I therefore conclude that VDB and CB have acted in breach of their fiduciary duty as alleged by JDW in respect of Eastbourne.
- This was the earliest PF involvement property. The events concerning St Albans start with an offer on behalf of JDW sent by CB 22nd May 1995 to acquire the freehold at a price of £600,000. This TM agreed to. JDW had first sought the property in 1993. It turned into a leasehold interest. TM says in his second witness statement (paragraph 119) that this was on CB's recommendation but he could not remember the precise dates and times of the discussions but he must have taken the view that the financial arguments for the lease stacked up. In other words TM cannot recall how it came to be changed to a leasehold interest.
- JDW became interested seriously when CB submitted that offer on its behalf (5/12/94; H3/88). There is a file note of PF dated 3/1/95 which refers to St Albans and is headed "Olem Ltd". CB in cross examination suggested that it was wrongly dated and it should actually be 3/1/96. There is in my view some force in that. Olem was not incorporated until 28/3/95 pursuant to an application made on 21/3/95. I cannot see PF talking about Olem 2 months before it was incorporated. The sellers agents wrote to CB 25/4/95 (H4/160) indicating that they had received an offer of less than £600,000 but the person who made that offer was willing to go forward immediately without the right of way matter being resolved (that was one of the conditions referred above). There was a conversation between them which is referred to in a letter 9/5/95 (H4/190). That letter gave CB a period to make a further offer. On 11/5/95 CB received a PCF form from Mr Barnes in respect of the property. The interest indicated is a leasehold interest with a projected acquisition cost of £600,000. On 17/5/95 CB wrote to the agents saying the right of way was not resolved so JDW would not proceed. Despite the pessimistic tone of that letter CB on 22/5/95 (H4/218) made an offer of £600,000. That was tentatively accepted on 23/5/95. CB informed various people on 30/5/95 of the acceptance of that offer.
- Despite that on 2/6/95 (CB2/1) CB wrote to the selling agents informing them that as JDW were currently in negotiations to acquire various other freehold properties they did not wish to acquire this property freehold. It was proposed then to introduce an investor which was Olem. A document disclosed by FD is a letter dated 6/6/95 to UCB Bank Plc. This refers to a meeting that had taken place the day before and set out Olem wishing to arrange a mortgage on the St Albans property once JDW completed a 35 year FRI lease at an initial rent of £75,000 per annum with upward only 5 yearly reviews. It also suggested that UCB would lend 85% of the valuation against the security Hillier Parker having already given an indication in the range of £850,000 to £900,000. The amount sought was £680,000 for a mortgage term of 25 years. Olem is described as being a Jersey registered shell company set up for the explicit purpose of creating this investment.
- There are a number of question marks over this matter. First the change as regards JDW appears to have taken place only a couple of days earlier and in that short time they have apparently negotiated the proposed lease. Second Olem was created in March 1995. If it was for the purpose of this investment it is somewhat premature on CB's version of events. Third the valuation of the property is stated to be £850,000-£900,000. JDW had been negotiating (via VDB) apparently at £500,000. It may be that the higher valuation is based on the existence of the JDW lease. Finally the minimum required was to be £680,000. That would give Olem £80,000 more than its total expenditure in acquiring the property. One has a suspicion as to the valuation figure being inflated to achieve a requisite LTV of 85% to secure 100% finance via the loan which does not necessarily reflect the true value of the property. That is not an infrequent occurrence regrettably but I cannot say whether that is actually the position. Finally I note that PF was able to provide all of JDW's documentation for its proposed fit out. Reference was made to JDW's standard form lease (one was provided using a property at Bournemouth as a precedent on 5/6/95). On 5/6/95 the seller's agents agreed reluctantly but were only encouraged because JDW were applying for a license. They demanded a £60,000 deposit instead of £30,000. On the same day CB sent on the standard form of lease to PF. In addition on that date he informed PF of the increased deposit.
- Matters did not proceed as expeditiously as required by the selling agents and they gave a deadline on 20/6/95 for exchange by 23/6/95. On that date CB wrote to Sophie Hawkes JDW's solicitors setting out the terms of the proposed lease as set out above and including £125,000 from Olem as a contribution to the fitting out works. On 28/6/95 she in turn provided RS at JDW with a full Report on Title in respect of the proposed lease. It also quite openly referred to the current freehold owner being Frogmore Estates (Invesments) Ltd and that Olem would register the transfer of the freehold to itself. Contracts were exchanged on 29/6/95 both for the freehold and for the agreement for lease. Both the transfer to Olem and the lease to JDW completed on 29/12/95.
- Subsequently Olem marketed the property. It had acquired it for a price of £600,000 on 29/12/95. That was financed 100% by UCB (in the circumstances set out above). It had also granted JDW a rent fee of £125,000. Prior to the completion it entered into a contract to buy the property on 29/6/95. However that was conditional on planning matters being satisfied and it had the back to back lease from JDW. It of course had the cost and expense of procuring the planning permission. If it was not successful the deposit would have been returned. Olem's maximum exposure therefore was the outlay of £60,000 deposit. A long completion date was negotiated (despite the seller's agents concerns). That was almost entirely achieved because the sellers knew JDW was there as a potential lessee.
- After completion the property was marketed and ultimately sold on 11/9/96 (i.e. 8 months later). It was sold to an independent company for £850,000. The DLA letter of completion of that date (CB2/299A) shows that £687,623.97 was remitted to UCB to discharge its mortgage and the balance (£73,882.87) and the earlier deposit of £85,000 was remitted to Olem. Taking in to account the outlay of £725,000 Olem had made £125,000 in 8 months. It should be noted that the borrowings from UCB exceeded the purchase price by £87,623.97 which was the first tranche of money taken out by Olem in this transaction.
- It must be appreciated that this transaction is different from the ones already considered in 2 respects. First VDB had made initial approaches with the agreement of TM in late 1994 at around £600,000 to by the freehold. Second TM agreed with CB for a third party to acquire the freehold and to grant a lease. Third JDW entered into the lease knowing full well that a third party Olem was going to acquire at the same and grant the lease. TM knew that arrangement (although he denied he knew the identity of Olem). Nevertheless he knew a third party was to be introduced. Fourth there was no sale on to JDW whereby the third party made a profit. It is not suggested that the property was bought cheaply by the third party and it is not suggested that the lease was disadvantageous.
- In his evidence TM frankly acknowledged that he could not remember the precise dates and times of discussions but that he must have taken the view that the financial arguments for the lease "stacked up". Thus JDW agreed to purchase the freehold but then switched to a leasehold interest.
- JDW's complaint is that the freehold acquisition was passed on to Olem by CB. He also provided confidential information to Olem which was then passed on to his bankers to enable it to raise finance (in excess of the purchase price). A lease was then sold to TM and the high rent demanded (£75,000) was sweetened by the contribution of £125,000. At the very worst JDW contends it could have acquired a capital asset for £600,000 which with its presence would have been worth £850,000 on a sale and lease back transaction.
- Further the position is aggravated JDW says because VDB its agent who was paid a fee to act for it also acted for Olem when the acquisition by Olem was contemplated and when Olem subsequently marketed the property.
- CB denied that latter point in cross examination but his position is hopeless. For example he introduced Geoffrey Warner & Co who were the agents for the ultimate purchasers to the property on 21/5/96 (CB2/251). When there were delays that firm wrote to CB complaining about it (letter dated 14/8/96; H3/73). They asked CB "perhaps you would be kind enough to speak with your clients and then revert to me?" Further on the Heads of Terms before exchange VDB was identified specifically as being Olem's agent.
- The primary thrust is what was called the "White Knight Defence" in the trial. In essence VDB/CB asserted that on occasions JDW for financial reasons desired to acquire a property but could not acquire the freehold. In those circumstances it is alleged that TM asked CB to find a friendly investor who would buy the freehold and then grant a lease to JDW. The letter dated 2/6/95 when the transaction was switched to Olem is said to be such an instance.
- VDB/CB admitted that after the acquisition by Olem they were retained to negotiate a sale of the freehold on behalf of Olem (paragraph 74 of Amended Defence). Other than that (an apart from the limitation point) the Defence makes no positive case.
- In his second witness statement 25/4/08 (paragraph 190) CB stated that at some point between 30/5/95 and 2/6/95 TM told him that JDW were unable after all to proceed with its proposed acquisition of the freehold because it was committed to a number of other freehold acquisitions during that financial year and could not guarantee to be able to go ahead with the purchase of St Albans. Thus CB stated that TM instructed him to find an investor who would take over the proposed freehold acquisition in his place. This was not unusual CB said because it had happened in the past. Thus PF was called who happened to have an investor. There are two immediate difficulties with this version. First PF seems to have acted with prescience because Olem was incorporated in March 1995. Second PF told UCB Bank on 6/6/95 that Olem had been set up for an explicit purpose of creating the investment. Third his timeframe for negotiating the terms of the lease (late June paragraph 200) do not rest easily with the same PF letter which already apparently has the lease terms in place before he has ever discussed them with TM.
- The most obvious difficulty is the premise namely that JDW was unable to finance the transaction with a short completion. The difficulties are twofold. First CB accepted in cross examination that at no time having seen JDW's accounts would JDW not have money to acquire any of the properties the subject matter of this action. It is true as I have set out above there were occasions when short term it sought deferrals of completion but there is nothing as I have already determined to suggest it never could have afforded to acquire a property. The second is that in fact the short deadline which the sellers agents were seeking to impose then was stretched out for the benefit of Olem until December 1995 and there is no reason to suppose that JDW could not have achieved an identical lengthening of the period of completion.
- As I have set out above TM has no recollection of this transaction. He freely acknowledged that JDW was interested in acquiring at £600,000 and then reverted to a leasehold transaction. He cannot now understand why he did that. I can well understand that position.
- Against that I find the white knight theory highly improbable. Further the PF documents show that this transaction was being nurtured for PF somewhat earlier than CB suggested. In addition I find CB's behaviour quite extraordinary. He was retained to act as a property finder. There is an issue as to whether he gave advice but the reality is that VDB was retained to sift out properties. Having sifted out the properties and targeted particular ones it then conducted negotiations on behalf of JDW to acquire the best interest it thought it could obtain for JDW. Sometimes that might be a freehold interest sometimes a leasehold interest. However as I have said above so far as I can see I have not been shown any occasion when in effect TM was given both and said "choose". It follows therefore that if property is finally offered by VDB it is after it has done all the work and negotiated the best terms. The final decision is of course with TM but it is impossible for CB to down play his role to that of a mere collator and passer on of information.
- This then puts VDB and CB in an impossible position. I do not see how he can represent Olem and JDW as prospective lessee in dealings with Olem. It is plain from the evidence that PF/Olem wanted £75,000. That was never challenged or negotiated by CB. It will be remembered that one of the JDW standard ploys was to attempt to renegotiate matters downwards. CB denies that he obtained a fee from Olem. What is somewhat surprising however is that within two months or so of the completion of the acquisition by Olem he felt able to market the self same freehold with a mark up of £250,000. That is an opportunity in my view which JDW could have had.
- I simply do not accept the version of events put forward by CB has any credibility. Once again in my view he was comprehensively destroyed in cross examination by JDW. It seems to me that it was contemplated that Olem would be introduced as early as March 1995. I have accepted CB's evidence that the document CB1/165 was wrongly dated but this does not make any difference.
- Equally I reject that CB's evidence that he did not understand PF to be behind Olem. He could have had no confidence in Olem if he did not know who was behind it. This might have been disastrous otherwise. It would not have assisted JDW to have entered into a contract to acquire premises from Olem if Olem for some reason did not complete the freehold acquisition. This could have been especially disastrous if in the meantime JDW had incurred significant expenditure in acquiring planning permission which would then ennure for the benefit of someone else. It only makes sense in my view if CB knew the companies being introduced were PF nominees.
- I reject the suggestion that the letter 2/6/95 genuinely reflected the situation. In my view it was a false introduction to justify to the sellers the switch to Olem. Equally I find his willingness to pass on JDW confidential information to PF a breach of his and VDB's fiduciary duties owed to JDW. I cannot believe that JDW would ever have agreed to such a disclosure. When it was disclosed the agreements had not been concluded and the last thing JDW would want the prospective lessor to know is how much he was spending in detail in fitting out.
- In conclusion despite TM's lack of recollection of the details of this transaction I am satisfied having seen what actually happened and CB's inadequate explanation for what went on that VDB and CB acted dishonestly and in breach of the fiduciary duties they owed. In my view this was another transaction that was set up and then Olem was interposed with the result that it was enabled to make a profit in a matter of months of £125,000 at very little cost and virtually no risk to it. JDW on the other hand agreed to a lease (where the rent had been increased beyond that originally negotiated at the instigation of PF with CB's connivance) instead of the freehold. Once again the circumstances are so unusual and CB's explanation so inadequate there can be no other conclusion other than the one I have set out above.
- It might be suggested that there was no profit in it for VDB/CB. There is evidence to suggest that Olem transferred £45,024.72 to Gecko a Jersey Company and that was immediately paid on to Old Bacchus. It is at least arguable that that is a payment of a fee for this dishonest transaction. However I do not intend to come to any definitive conclusion as regards the financial consequences and liabilities for any of the breaches. That in my view is stage 2 and I should not at this stage attempt to decide any of those issues in advance of a full investigation at that secondary stage.
- JDW exchanged contracts to acquire a leasehold interest under this property on 16/10/96. The proposed lessor was Belvedeer Holdings Ltd (a Ferrari company). The lease was completed on 14/1/97. On the same day Belvedeer completed the purchase of the freehold for a price of £810,000 (it having exchanged around 16/10/96). The term granted by the lease was 40 years at an initial rent of £100,000 per annum but subject to 5 yearly reviews (upwards only). A rent free of just over 6 months was agreed (£58,333).
- On 6/8/97 Heads of Terms were agreed between JDW and Belvedeer to purchase the freehold at a price of £1,250,000. That ripened into an exchange of contracts on 29/9/97. It was completed on 3/2/98. JDW had therefore paid £1,250,000 for a freehold which Belvedeer had acquired a year earlier for £810,000. In order to raise finance from UCB Belvedeer suggested that the purchase price of the property was £900,000 and that it required an advance of £900,000 from UCB. Once again that was more than the actual purchase price and that the property had been valued at £1,125,000. The lease proposed in favour of JDW was also referred to (letter 11/12/96). The completion of the freehold acquisition by JDW was deferred until 3/2/98 at the behest of Belvedeer to avoid early repayment charge on its borrowings.
- The sequence of events at first blush seems suspicious. JDW's case is that TM was not aware that the freehold was available. However the correspondence in July/August 1996 is even more curious. On 31/7/96 GA wrote to Colin Smith of Mann Smith & Partners the selling agents offering on behalf of JDW to acquire the freehold for £810,000. That letter was accepted by a letter sent back to GA dated 5/8/96. A flurry of letters on 7/8/96 ensued with a letter from GA writing back to Colin Smith as follows:-
- The letter was copied to TM, RS and NG. GA also wrote to RS on the same day. On 13/8/96 CB telephoned Simon Locke and informed him that JDW had decided to take a lease rather than purchase it and it had found a developer namely Belvedeer. Mr Locke returned the papers to Steele Raymond as a result of that conversation.
- TM's evidence was that he was completely unaware of all of this. Indeed his evidence was that he was not even aware that GA had offered to buy the freehold on behalf of JDW for £810,000. He did not recall receiving the letter copied to him. In any event his evidence was that it would not have been significant because it was not a frequent occurrence that JDW was involved with developers. Similarly he acknowledged that he would have been aware that the freehold was being acquired simultaneously when RS provided her Report on Title 9/10/96. He acknowledged having had discussions about acquiring the leasehold interest with CB and GA but did not recall the discussions.
- CB's evidence is that the project started initially as a leasehold interest but when he was told by GA in July 1996 that the vendor might be willing to sell at £810,000 he spoke to TM who authorised him to make the offer made by GA. He then deposed that the costs where higher than required (the PCF forms are missing). He accordingly telephoned TM who said that he no longer wished to go ahead with a freehold purchase but that he was still keen for JDW to secure the property and asked CB to find a developer who would take over the purchase and grant a lease. As a result of that CB said he approached PF who found Belvedeer. CB denied that he was aware of the Ferrari interest in Belvedeer. PF required a lease for 40 years at £100,000 per annum with a 4 month rent free. This was reported back to TM by CB who agreed it.
- As the correspondence above shows these conversations must have taken place between the 7th-13th August 1996.
- CB stated in his evidence that the subsequent acquisition of the freehold by JDW was because of the weekly turnover increasing beyond expectations.
- The letter 7/8/96 (CB2/287) sent to the selling agents is important. It was sent by GA but signed by CB. It contains 2 oddities. First it described Belvedeer as being a joint venture partner. Second it asserted that Heads of Terms were already in place for a lease. Both statements were untrue as GA and CB both admitted. No reason for these untruths has been put forward. It could be part of an attempt to assuage the sellers as a result of a decision by JDW to go leasehold rather than freehold. The other and more likely possibility is it was just a deception to justify the switch to Belvedeer. If it is the latter explanation both CB and GA are involved. Whether or not GA would have the requisite level of knowledge to make him liable for dishonest assistance is something I shall consider when I review his role in this transaction.
- It is accepted that the initial proposed acquisition in May 1996 was considered on a leasehold basis. According to the exchange of correspondence in August 1996 JDW then switched to freehold and then switched back to leasehold in a matter of days. It then entered into a lease shortly afterwards and then of course purchased the freehold somewhat expensively later. It should also be born in mind that it seems very odd that JDW (via CB/GA) was writing to the freeholder saying that there are extensive demolition and rebuilding work which need the involvement of a developer yet Belvedeer contributed nothing beyond the very modest rent free.
- None of this in my view makes commercial sense for JDW. Nor of course can there be any commercial justification for JDW paying £1,250,000 for a property which was available at all material times for £810,000. If the value of the freehold had been enhanced during that intermediate period that was entirely down to JDW first obtaining the requisite consents, then signing a lease and then commencing profitable trading. The white knight scenario seems equally improbable in my view. I have considered this earlier in my judgment and I simply cannot accept that that reason put forward by the Defendants for JDW pulling out of the freehold proposal a matter of days after it was apparently put forward has any credibility.
- The only difficulty is the letter 7/8/96 (CB2/289) which was copied to TM. He was cross examined on this (T5/100). However the answers are not clear. In any event what would alert TM upon examining the copy letter provided to him? First it is by no means clear that he received any of the Heads of Terms. Second those Heads of Terms show a leasehold acquisition on the part of JDW not the freehold which was the subject matter of the offer withdrawn on 7/8/96. Similarly the letter to RS of the same date enclosed the leasehold terms so the only person who needed to be corrected was Simon Locke who had received the communication from the sellers solicitors dated 7/8/96 for a freehold sale. CB corrected that on the telephone on 13/8/96.
- When one analyses it that way it is clear that nobody within JDW is aware on paper that there is a freehold offer made on its behalf. It can be said that is a risky action on the part of CB/VDB for a fraud but I have already commented on the lack of communication between the parties and JDW internally and if there was a query raised over the freehold because somebody took it up with Simon Locke and he revealed it, it could easily have been bluffed out in my view.
- No freehold Heads of Terms were ever prepared. On CB's case JDW had decided to move from a freehold offer to a leasehold interest before he had received a reply to the freehold offer. This seems to me to be extremely unlikely. The wording of the various letters is also curious. The one sent to the vendor's selling agents (CB2/286a) goes into details of the relationship supposedly between Belvedeer and JDW. The letters to Simon Locke and RS only refer to a leasehold acquisition; do not refer to a joint venture partnership and fail to refer to the switch. It is true that is referred to in the telephone conversation with Simon Locke but that has to be done in my view given the fact that he has already received correspondence from the seller's solicitors. I cannot understand why there is not one simple standard letter copied to everybody. It is actually harder to create different letters saying different things than to do that exercise. This is not a case of ex post facto detailed analysis of a letter. There is no apparent point in sending our different letters in this way.
- The fact that this is a secret transaction is reinforced in my view by the Ferrari letter 27/8/96 asking his solicitor to keep the ownership of Belvedeer and PF's involvement confidential. This is hardly the action of someone who CB asserted was in a good relationship with JDW and with whom JDW wanted to build their relationship. Further it is clear that VDB acted for PF. The changed offer to buy the freehold in the name of Belvedeer is plainly made on behalf of Belvedeer by VDB. It is not made on behalf of JDW. There is a similar difficulty of course to the other transactions about the role VDB is playing in simultaneously involving Belvedeer as a freehold acquirer and then "negotiating" terms of a lease by Belvedeer to JDW. Finally in this context GA marketed (inter alia) the Bedford freehold subject to a JDW lease on 29/1/97 (less than 2 weeks after Belvedeer had acquired the freehold and granted the lease to JDW). Cryptically in the last paragraph he says "we are unfortunately not retained in this instance and will therefore have to share fees on the usual understanding". It is extraordinary that VDB/CB think it is appropriate for them to have acted when JDW acquired a lease and the freehold is not taken at £810,000 and then it felt able to market the freehold reversion (suitably increased in value by JDW's efforts) as soon as the transaction completed. It is quite plain that GA was seeking to market the freehold reversion on behalf of Belvedeer. How he/VDB was going to be remunerated by this is not clear at the moment. At the very least he sought to share fees with the agents he wrote to. Finally the sale of the freehold to JDW at £1,250,000 is incredible if JDW had known if the freehold was available less than a year earlier for £810,000. Yet CB did not raise that with JDW apparently when the freehold was offered by Belvedeer. The reason for that is obvious; JDW did not know the property had been available for a price of £425,000 less than it was now being marketed to it.
- My conclusion therefore in respect of Bedford is that this too is a fraudulent dishonest breach of fiduciary duty by VDB and CB. They enabled Belvedeer to be introduced surreptitiously for the sole purpose of creating a vehicle that would make a profit at the expense of the efforts of JDW. I am quite satisfied that TM was never told of the availability of the freehold and in reality the risk of him finding out about what went on in August 1996 is minimal.
- This is the last of the Ferrari 5 transactions.
- JDW acquired a 50 year under lease in respect of this site (5-9 Burgate Canterbury "Canterbury 1") at an initial rent of £120,000 per annum. It obtained a rent free of £40,000. The Under lease was created on 4/12/96. On the same day the Dean & Chapter of Canterbury Cathedral exchanged contracts with Nickleby Holdings Ltd for a sale of a long leasehold interest of 125 years at £1000 per annum. This is regarded as a Virtual Freehold ("VFH"). Nickleby completed that head lease on the same day.
- Nickleby paid £950,000 for the VFH.
- JDW complains that it was not told that the VFH was available. RH submitted a subject to contract offer on behalf of JDW to acquire a freehold interest for £725,000 subject to JDW's usual terms of conditions. CB submitted a revised offer 12/2/96 subject to contract on behalf of JDW for £950,000. As part of that offer letter he set out details about the strength of JDW and their ability to obtain licenses. TM in his witness statement (paragraph 154) denied that he was aware of the availability of the VFH and further denied those offers were made on behalf of JDW at his suggestion. He stated that JDW had entered into a lease on the recommendation of VDB but was unable with the passage of time to say whether it was either CB or RH who advised him. The latter of the offers was put forward following a rejection of earlier offers by Cluttons on behalf of the proposed lessor (letter 7/2/96). There had been a rival bid which exceeded the earlier JDW offer of £850,000 (Scottish & Newcastle for £900,000 on 8/1/96). The sellers then invited fresh offers by 12/2/96 in the letter dated 7/2/96. VDB bid £950,000 by the letter 12/2/96.
- The offer to take the VFH was accepted by Cluttons as set out in their Heads of Terms on 29/2/96. The proposed lessee identified is JDW but the lessee's solicitors are DJ Freeman & Co who were not its solicitors. The formal acceptance by Cluttons was by a letter dated 15/2/96 sent to RH. When Cluttons were so writing they were plainly accepting CB's (wrongly named as Chris Brown) offer of 12/2/96. That was an offer on behalf of JDW. However on 15/2/96 (following communication of the acceptance to RH) he wrote to PF informing him that his bid had been successful. It was still subject to the same conditions of JDW obtaining a license and changing of use. On a copy of the Heads of Terms dated 29/2/96 the name of Nickleby Holdings has been written alongside the name of JDW as lessee. This according to the evidence was a note written by Cluttons. It presumably followed RH's letter to them 4/3/96 introducing Nickleby Holdings as the lessee of the VFH. When so writing RH did not copy JDW in on that letter.
- However he did write to Sophie Hawkes of Courts & Co (JDW's solicitors as opposed to DJ Freeman) on the same date. In that letter he recounted having agreed for JDW to take a 50 year FRI lease with a break at 25 years at an initial rent of £120,000 per annum. The landlord was identified as Nickleby with its correct solicitors "on this occasion" as being DJ Freeman. RS, NG and TM in particular are copied into that letter. There is nothing on its face to show that Nickleby has merely a subject to contract position transferred to it by his letter of the same date. Nor is there anything to show that JDW made an offer 12/2/96 which was apparently abandoned before the offer was accepted 16/2/96. I say that because Cluttons can only have obtained the name DJ Freeman from CB or RH. They can only have been informed of that before 15/2/96 i.e. before the Heads of Terms were sent out dated 29/2/96. I have already observed that PF was appraised of that acceptance on the same day. PF informed DJ Freeman on 19/2/96 enclosing a copy of RH's letter of 15/2/96.
- It follows from that that for some reason JDW changed its mind (if CB and RH are to be believed) between 12/2/96 and 15/2/96. The change was to give up a VFH interest and allow Nickleby to acquire that interest. That is the only timeframe that is possible on the Defendants case because PF was told that in effect he was the successful in acquiring the VFH on 15/2/96. That is a quite extraordinary state of affairs. TM denied it ever happened. There is one difficulty about TM's evidence to be considered. There are no less than 4 offers for the freehold/VFH. In addition to the 2 set out above RH on 20/10/95 made an offer on behalf of JDW of £725,000. He increased that to £850,000 on 2/1/96. Against that the PCFs at best show either no tenure or a leasehold interest. Thus for example the one dated 14/8/95 has "TBC" in the leasehold box. That seems to me to show that what was contemplated was a leasehold interest. There is reference to an earlier PCF dated 26/5/95 but that has not been produced.
- RH submits in his closing (paragraph 117 et seq) that there was a VFH bidding war and TM knew it. TM accepted there was a competition situation (T7/84). He was clearly unsure in his evidence and I conclude it is possible that he was aware of the bids made in 1995. I am not convinced he was aware of the final one on 12/2/96.
- However that does not take the matter much further. The question then is why the change? In my view the reason for the change was false. What happened was that the final bid 12/2/96 was in reality put forward in disguise on behalf of Nickleby. TM did not know about it. At this time or possibly before it was made he was persuaded by CB to take a leasehold interest but cannot recall the reasons now (the events are more than 12 years ago and there are no contemporary documents on this issue to aid recollection).
- The comparison figures are shown in the later PCF. They show the costs of fitting out falling from £1,272,000 to £991,000.
- Much was made of these offers by CB in his closing (paragraphs 258-264) to suggest that TM knew that freehold offers were being made and participated in the process. I am not convinced. The reasoning falls apart in my view on paragraph 264. The timeframe in that paragraph is incorrect. Cluttons accept the offer on 15/2/96 and PF is informed of his "success" on the same day. It is not correct as set out in paragraph 264 that JDW had found an investor by 29/2/96. The RH letter to PF dated 15/2/96 in my view gives the game away. That demonstrates that PF was interested before 15/2/96. That makes a nonsense of an offer 12/2/96 purportedly made on behalf of JDW. The 12th February 1996 was a Monday. The 15th February 1996 was therefore a Thursday but the RH/PF letter refers to a telephone conversation on 14th. The PF letter to DJ Freeman 19/2/96 refers to the terms having "finally been agreed". The inevitable conclusion that I draw from this is that PF was in the background well before this slender period between 12-14 February 1996. My conclusion is that I accept TM's evidence that he was unaware of the offer of 12/2/96. I conclude that the offer was made secretly from JDW with a view to interposing a PF company which would acquire the VFH and the reasons put forward for the switch to a leasehold were false.
- Once again the arrangements in place were only subject to contract until the binding commitments were entered into 4/12/96. There was therefore a long period when VDB/CB and RH well knew that the VFH was always available if JDW had wished to bid for it.
- What reason did the Defendants give for the apparent and sudden change of heart between 12/2/96 and 14/2/96? One must also appreciate that during this period the lease terms had apparently been negotiated and agreed (presumably between RH/CB and PF). There is no evidence of any JDW/TM involvement in that exercise. This is extremely unlikely. In VDB/CB's Defence (paragraphs 104-117) it was asserted that JDW knew about all of the freehold offers. Apart from that no positive case was put forward in particular explaining why JDW would switch from the VFH as suddenly as it did in February 1996.
- CB in his witness statement (paragraph 241) suggested that the estimated cost of the project was affecting him but he was anxious not to lose the opportunity of obtaining a pub on this prestigious site. The difficulty with this stance is that the costings 29/2/96 (CB2/213X) show a figure of £848,000. That is a reduction from the earlier ones of £1,272,000 and £991,000 (see above). CB's evidence is therefore false; the costings are falling not increasing. Costings cannot possibly have been a reason for JDW not wanting to proceed. I should also add that it was not suggested that JDW could not afford to acquire the VFH. By the time of 29/2/96 the interest of the VFH had allegedly been and gone. The reality and I so find is that the later attempts to acquire the freehold were carefully orchestrated offers purported to come from JDW but actually coming on behalf of PF and that they were concealed from TM. When the matter finalised in the acceptance 15/2/96 Cluttons were told that JDW's lawyers were DJ Freeman. That too in my view was a deception so as to ensure that no correspondence went inadvertently to JDW's lawyers referring to the potential acquisition of the VFH. On 4/3/96 as I have set out JDW's lawyers were informed of a leasehold acquisition. I can see no reason why JDW would want to interpose Nickleby. It is also significant that RH did not issue Heads of Terms from JDW to Nickleby. He could not explain this (T29/164).
- The completion was simultaneous on 4/12/96 without any prior exchange of contracts. Of course by then the conditions had been satisfied so JDW was interested in completing. Once again this is an acquisition by a Ferrari company on the back of the expertise and expenditure of JDW. Between February 1996 and December 1996 nobody was contractually bound and it would have been open at time if JDW's interests were being looked at for it through VDB to attempt to acquire the VFH itself. The failure on the part of VDB is stark. The only reason that can seriously explain this is the fact that VDB/CB and RH were all actively involved in ensuring that the VFH went to Nickleby and did not go to JDW. It is difficult to conceive that that action is anything other than a serious breach of the fiduciary duties owed by VDB and CB. I will consider the consequences to RH further in this judgment.
- It will be recalled that in this context PF had written to Crill Canavan on 18/7/96 seeking to ensure that JDW's negotiating position would not be enhanced if they realised a single client of theirs is keen to repeatedly secure their covenant. That is somewhat disingenuous in my view because not only is the PF group of companies acquiring a freehold whose value has increased because of the strength of the JDW covenant but also they are having assistance from JDW's own agents VDB. There can be no genuine suggestion of a white knight because JDW does not need a white knight and Nickleby would in any event not satisfy that description. It contributed nothing towards the acquisition of premises for the use by JDW beyond interposing itself between JDW and the Dean & Chapter of Canterbury and then as we shall see shortly thereafter making a substantial profit on a sale on of that interest.
- I do not accept that the Report on Title 10/10/96 provided to RS suggests anything which would put JDW on inquiry. I accept TM's evidence that JDW has many off shore landlords. I have already accepted that TM did not query the final tenure that was offered to him for consideration by VDB (although he was aware of the earlier competing bids several months earlier). Either he forgot them or assumed that by the time of the discussions with CB because of his silence in that respect that they were no longer an issue. I do not believe for one minute he was offered the VFH and there was nothing to suggest from the Report on Title that Nickleby did not have an existing contractual entitlement to acquire the VFH so as to be able to grant the under lease to JDW. It may be said that TM was too trusting but so be it. JDW is paying a large sum of money to VDB and given the length of the relationship I do not think it is appropriate to criticise TM because he accepts the truth of what his agents are putting forward to him when it is false.
- On 29/1/97 GA marketed Canterbury 1 to Alder King along with the Bedford property. This was with the benefit of the JDW under lease. In so marketing Canterbury 1 he gave details of the timeframe when JDW was hoping to open. Although he said he was not retained I cannot see what else it can be said that he was doing when he was marketing this title. Further he can only be doing it on behalf of Nickleby. The last sentence of his letter "we are unfortunately not retained in this instance you will therefore have to share fees on the usual understanding" is in my view a naked attempt to extract yet more fees. On 12/3/97 RH reported to PF "I refer to our telephone conversation earlier today and am pleased to confirm that I have received an offer from clients of Alder King of Bristol to purchase [Canterbury 1] at a price of £1,300,000 exclusive of VAT…." he confirmed it to DJ Freeman the same day and sent out Heads of Terms. The transaction completed by a transfer dated 23/5/97 in favour of a company called Third Argyll Ltd. Nickleby transferred the reversion expectant on the JDW lease (i.e. the VFH) for a price of £1,300,000. It follows therefore that in a period of a little over 5 months Nickleby laid out £950,000 and obtained £1,300,000. Although GA and RH denied it, it is plain that the marketing exercise was being done by VDB on behalf of Nickleby selling on that interest. There is no other sensible conclusion can be drawn from the letters referred to above. The only additional cost to Nickleby was a rent free period of 4 months. Thus before the VFH was sold on it did not receive any money. Nevertheless it still made £350,000 (exclusive of fees) over a 4 month period. As there had been no exchange of course it had no financial commitment before its completion on 4/12/96.
- I conclude therefore that VDB and CB acted dishonestly in breach of fiduciary duty and in the case of VDB in breach of contract in respect of this transaction. RH and GA were clearly involved but I will deal with the extent of their involvement further in this judgment separately.
- In all cases I have determined that VDB and CB acted dishonestly and in breach of fiduciary duties. A number of other matters should however be noted.
- First whilst I have determined that liability it should be born in mind that I have not heard any evidence from PF. None of my findings in respect of the Defendants has any binding effect as against him and his companies. Nor have I found that he has acquired properties with knowledge that it was being acquired through his companies as a result of the fraud and breaches of fiduciary duty that I have determined VDB and CB have committed. It would be quite wrong in my view to express any view about PF and their companies conduct without having heard him.
- Second as I have made clear in this judgment on a number of occasions this is a trial for liability only. I do not intend to make any observations as to whether or not the financial claims are made out nor the basis of any financial claims. That is at the second stage of this dispute.
- Third I have not at this stage despite their involvement in some of the transactions expressed any decided view of the liability of RH and GA save to observe that for reasons I have already given I do not believe either of them owed fiduciary duty to JDW.
- The significance of the Ferrari 5 is the system that operated in all of them. The freehold was transferred in each case to a PF company for no apparent commercial reason which led to that company making a profit at the expense of JDW at no risk to it. Within a 4 week period JDW bought in the freeholds of 3 of the Ferrari properties (Bedford for £1,250,000 6/8/97, Eastbourne for £600,000 19/9/97 and Folkestone for £400,000 30/10/97). The Ferrari 5 transactions occurred over a relatively short period of 18 months approximately. The Ferrari companies made profits on almost immediate re-sales of £1,360,000 approximately. To obtain that profit it contributed nothing to the transactions and provided no assistance to JDW. In four cases the profits were made at the expense of JDW because it bought the freeholds. In the other instance JDW remained the lessee but it made a profit at the expense of JDW in the sense that the freehold was plainly enhanced by the virtue of JDW's lease when it was sold on.
- These properties are different in that it is not suggested that the freeholders have any connection with any of the Defendants.
- This transaction opened with a letter from Davis & Coffer to CB 17/1/94 introducing the property on behalf of Forte. It stated that they were looking for a tenant at £120,000 per annum or alternatively would consider a freehold offer at the price of £1,300,000. There is a hand written note of £100,000 on this letter. On 26/1/94 CB put forward an offer subject to contract on behalf of JDW at a rent of £120,000 subject to the usual JDW terms and conditions. In addition there was reference to an insurance claim worth £400,000 and the letter suggested it should be paid to JDW on completion. That attracted an offer to grant a lease at £125,000. The insurance monies were stated to be worth only £350,000 and there was a hand written note "TRM" against that paragraph. CB was warned that there has been some very serious bidding on the site. There were discussions around this time between CB and TM but I am unwilling to accept that either of them can accurately recall any discussions that took place 15 years ago unaided by any notes. The only possible note is a figure of £100,000 which supports a suggestion that TM had sought that as a rental figure. That was plainly rejected however by Davies & Coffer.
- Various conversations ensued between CB and Davies & Coffer after he had put forward his offer of 26/1/94. It is plain during those conversations that he agreed to JDW paying a higher rent of £125,000 per annum and that led to a written recommendation from Davies & Coffer for their client's board to accept that JDW offer as set out in their letter of 31/1/94. The date stamp shows that letter was received 2/2/94. It was apparently faxed the previous day at 18.23.
- However before the hard copy had even been received and possibly before the faxed document had been received GA wrote to Dencora Plc (after telephone conversations between it and GA) drawing to its attention the availability of the freehold of this title. It referred to a quoted price of £1,300,000 but stated that the price would obviously achieve a higher figure once let to JDW and he would have estimated it would sell as an investment at £1,400,000. Although he stated that JDW had not yet agreed final Heads of Terms he confirmed that they were fully commited to the property adding "it may be possible however to take advantage while the offer is conditional". In so doing GA revealed confidential information about JDW's bid (which he acknowledged in cross examination). CB acknowledged he was aware of GA making the offer but thought there was nothing wrong with it. He expected GA to seek an introduction fee (T20/81). I accept the submission of JDW (paragraph 739) that this letter demonstrates precisely why JDW would be interested in acquiring the freehold at £1,300,000 for financial reasons. Neither CB nor GA thought there was anything wrong about their actions. I cannot see how they can properly be involved in seeking to market the freehold and seeking a fee for that when their own clients are in negotiations which are not yet finalised for acquiring the leasehold and would be interested in the freehold. The conflict of interest is obvious to see. If Dencora had purchased the freehold it would have undermined potentially the JDW position as regards the leasehold. It is further in effect inviting Dencora to try and make an immediate profit of at least £100,000 on the back of JDW acquiring a leasehold interest in the property. I do not see how any suggestion of that nature can be properly made by VDB and CB without breaching their fiduciary duty unless that prospect was revealed to JDW and they agreed to it. It is not suggested that occurred.
- Nothing came of the Dencora proposal. However on 16/2/94 CB made a similar proposal to a Mr Shah of Meghraj Estates. Once again he revealed confidential information and added that JDW (described as "my clients") intention was to spend approximately £1,000,000 on the fit out. He then said this:-
- He was thus committing himself to negotiate on behalf of Meghraj to buy the freehold over JDW before JDW has a contractual right to the leasehold interest. He was also suggesting that if he negotiated this before JDW were to acquire that would be at a lesser price. In dangling this proposal to Mr Shah as I have said he revealed JDW confidential information.
- He informed Mr Shah that he was not retained to dispose of the freehold and therefore would look to him to paying VDB 1% of the purchase price plus VAT. At a sale of £1,300,000 that would £13,000. In addition of course VDB was being paid £15,000 for introducing the leasehold interest to JDW.
- In my view this action if it had proceeded would have been a plain breach of VDB and CB's fiduciary duty. It uses JDW's confidential information, it introduces a third party and encourages that third party to seek to acquire the freehold over JDW's head before it has a firm contract and it suggests the third party acquires a property because it is attractive if bought before JDW commits because in effect a turn can be made on the increase in value which arise after JDW commits. It then sought a further fee for this exercise.
- It is the same in my view as the Ferrari 5 but at an earlier incohate stage. It is somewhat disturbing that neither CB nor GA thought there was anything wrong about this even when pressed in cross examination.
- This series of offers in my view is strongly supportive of the fact that VDB/CB did not tell TM about the availability of the freehold. If they had told him about the availability of the freehold and had pressed it in such advantageous terms as it was pressed first to Dencora and second to Meghraj I cannot believe JDW would not have bought the freehold. In that eventuality of course VDB would have achieved one fee only of £15,000. By separating off the freehold to a different purchaser VDB is enabled to seek a further fee of at least £13,000. In my judgment this demonstrates that VDB/CB did not reveal the freehold offer therefore. Had JDW been aware of the freehold offer I find and accept TM's evidence that it would have bought it. Further I cannot believe TM would sanction such an arrangement and give VDB a fee at the expense of JDW not seeking the freehold. I do not in so doing accept his interest rate calculations for that basis but rather the fact that it would be a valuable acquisition as demonstrated by these attempts.
- In the event neither third party proceeded. JDW were pressed by Davies & Coffer to proceed quickly (letter 7/2/94). This was because there were other bidders. On 24/2/94 CB wrote to Davies & Coffer again. On behalf of a Jersey based company Cridon Holdings Ltd he made an offer subject to the JDW lease of £1,300,000. CB acknowledged that all of these invitations to make bids were improper and using JDW's confidential information (T20/111). Cridon was an investment vehicle of Meghraj. That offer was not apparently accepted.
- JDW agreed to take a lease on 8/4/94 pursuant to an agreement between Fortes and it. Provisions in that agreement dealt with insurance monies. It completed the lease on 16/5/94. Shortly before that GA received a letter from Healy & Baker offering the freehold for £1,700,000 subject to JDW's tenancy. He replied on 9/5/94 "further to instructions from my clients, I confirm that we will not be putting in an early bid for the above property but would nevertheless like to receive further details for our clients' consideration". CB in his witness statement (paragraph 333) said that this letter was passed on to him by GA and he in turn told TM about it who declined to take any interest in the freehold. TM denied such a conversation took place. In my view had such a conversation taken place it would have been very odd given the fact that CB asserted that TM rejected the freehold a matter of months earlier at £1,300,000. In my judgment (although this was not explored in cross examination) Healy & Baker wrote to GA because of the previous offers that had been put forward by third parties. Thus I do not believe that the client identified in the letter is JDW. That then makes sense as regards the letter. The Healy & Baker letter is somewhat odd otherwise. I cannot see why they would write to GA giving details of a first class investment which is a freehold reversion expectant on a lease in favour of JDW. The letter would have said "our clients" are willing to sell the freehold reversion expectant on your clients lease or something of the like. That is why I conclude that this letter was written to elicit a third party freehold offer and not an offer from JDW. I do not accept this letter and the reply was disclosed to TM.
- Ultimately Forte sold the freehold to Prudential 5/10/94 for £1,700,000. JDW then purchased the freehold from Prudential for £2,800,000 on 31/5/01.
- I accept TM's evidence that he was not told of the freehold availability. Had he done so I accept his evidence that JDW would have acquired it. He was not offered the freehold because VDB/CB made an attempt to extract more money for their benefit by diverting the freehold to somebody else subject to JDW's lease. I accept the position is not as clear cut as the Ferrari 5 and I have to be careful given the age of the transaction.
- If I am wrong and that the freehold was offered to JDW and rejected it seems to me nevertheless that VDB/CB with the assistance of GA (although there is no allegation against him in this regard) were at the very least in breach of their duties in seeking to market the freehold using JDW's confidential information to obtain a further fee. Either way in my view VDB and CB's conduct is dishonest and in breach of the fiduciary duties they owed to JDW as set out in the Re-re-re Amended Particulars of Claim.
- This was a complicated transaction because the site that was offered (33-37 Bridgegate Rotherham) involved the acquisition of reversionary interest on a number of existing tenants as part of the building. JDW exchanged contracts for a lease on 14/9/95 from Appointshire Properties Ltd. The rent reserved under the proposed lease was £85,000 per annum. JDW was to receive a reverse premium of £100,000 and Appointshire agreed to spend £83,500 on the roof of the property. JDW's lease was subject to occupational leases of the first and second floors. On the same day Appointshire Properties Ltd exchanged to acquire the freehold from Keith and Rita Lambert for £800,000. That freehold transaction was completed 17/11/95. The lease between Appointshire and JDW was completed on the same day. JDW denies it was aware of the freehold being on offer and denies that (via TM) VDB was instructed (in a conversation with CB) to locate an investor to acquire the freehold and grant a long leasehold interest to JDW.
- The property first became known to VDB when GA received a letter 1/9/94 from Harper Dennis Hobbs on behalf of the owners. The offer was for a freehold subject to existing tenancies including one of Rank and other tenants which produced an income of £44,600. CB in his witness statement (paragraphs 155-157) could not recall any of the conversations and merely assumed that the usual conversations would have taken place between him and TM. He was firm that it was only offered as a freehold where as TM's evidence was that he was not aware of a freehold possibility.
- CB stated that during discussions with TM around 26/9/94 TM told him that the figures did not stack up to make a freehold purchase worthwhile. The customer area was too small and this could only be overcome by taking extra space which would mean one of the tenants would have to be persuaded to move out. TM denied there was any such discussion. CB then stated that in view of his conversation with TM he relayed that to GA. He told CB he knew of a contact in Dencora and he accordingly wrote to Dencora on 26/9/94 drawing to its attention the possibility of acquiring Rotherham. In so doing he enclosed rough calculations on the value of the property as existing and if JDW were to take a lease. Those calculations have not been produced. However it is plain that GA is dangling the increase in the freehold to Dencora because of the presence of VDB's actual clients. His and CB's evidence of course is that days earlier TM had told them that JDW only wanted a leasehold interest and could they could find an investor (all denied by TM).
- GA then wrote again to the letting agents on 19/10/94. This letter is dishonest whatever the factual scenario was. After apologising for the length of time in coming back he said "it had been necessary for my clients to give this project detailed and careful consideration.
- I say this letter is dishonest because if GA and CB's evidence is correct JDW by this time was only interested in a leasehold interest. This offer for the freehold on their case was not made by JDW but it was plainly intended to give such an impression. On the other hand if this offer was on behalf of JDW then both CB and GA are lying in their witness statements.
- CB does not do credit to his profession in paragraph 168 of his witness statement when he says GA was deliberately vague about the identity of the actual purchaser although he had made it clear from the outset that VDB represented JDW. According to the Defendants case the freehold negotiations ostensibly conducted on behalf of JDW were actually conducted on behalf of Dencora with TM's approval. Dencora informed GA on 1/11/94 that it could make an offer of £900,000 in view of the rejection of £875,000. It also pointed out that as the premises were likely to be worth £1,000,000 only following a letting to JDW a higher offer would not make the proposition viable. It also asked why the present vendors would not do a deal with JDW whereby they obtained vacant possession from Mr Harper (one of the tenants). GA passed that offer on to the vendors on 15/11/94. He replied to Dencora on 15/11/94. This letter in my view gives the game away vis a vis the Defendants. After stating that the vendors wished to dispose of their entire land holding and that they could put the deal together themselves when they realised that JDW was not buying the freehold it stated that JDW was happy for Dencora to purchase the building subject to a conditional lease and contract since it was their intention to establish a relationship with a number of developer interests to assist in similar situations in the future. The letter then went on to say that since VDB introduced the property to Dencora it was on the understanding that JDW (on CB's advice) would have a lease for a maximum rent of £50,000 per annum with a 6 month rent free. The letter continues "I trust you appreciate our involvement in this part of the transaction".
- The appreciation was at a price the next paragraph said:-
- This is breathtaking. GA graciously tells Dencora that it will not charge Dencora for the privilege of granting a lease to JDW. However he will seek to charge Dencora 1% of the purchase price for the privilege of introducing the freehold. Simultaneously of course VDB would obtain £15,000 from JDW for introducing the property to it. Once again this creates an extra fee for VDB in this case £9,000. Had of course JDW gone for the freehold there would have been but one fee of £15,000. I cannot believe that it can be seriously suggested by the Defendants that JDW/TM would be at all happy with their agents introducing the freehold to Dencora who would be their landlords and charging a fee in effect on the back of JDW.
- HDH (the selling agents) wrote on 25/11/94 accepting an offer subject to contract of £905,000.
- GA wrote another deceptive letter on 8/12/94 to HDH. It had to be read very very carefully. In my view anyone reading it would believe that the references to clients mean JDW. However in fact in the third paragraph he introduces a distinction between clients and JDW.
- It is plain when one analyses that correspondence in my view that VDB sought an extra fee for introducing the freehold. They did that at the expense of JDW. GA's request was done with the agreement of CB who once again could not understand what a conflicting situation VDB was in. Even if (which I do not accept) TM had rejected the freehold I do not see how VDB can properly act for JDW's prospective landlords and charge them a fee. The difficulty is demonstrated in this case because the rent was bumped up from £50,000 to £85,000 to make it work for Dencora. For the transaction to proceed Dencora wished to maximise the rent.
- Matters were then strung out for several months while the removal of one of the tenants was investigated.
- Then the finances of the transaction began to unravel. Dencora wrote to GA 16/2/95. In that letter having considered the rental of £50,000 per annum it expressed the view that the margin was insufficient on a purchase cost of £905,000. It proposed therefore that JDW would pay a rent of £60,000 with a 6 month rent free period. The letting agents were also anxious to progress matters at the same time. The actual agreed rent was increased to £55,000 per annum (GA letter 13/2/95). He omitted to mention the 6 month rent free and corrected that in a subsequent letter. GA wrote to HDH on 13/2/95 introducing Dencora as the buyer. He stated that JDW had become reluctant to purchase the entire property preferring to rent the ground floor. He therefore proposed that Dencora would buy the freehold subject to the other leases and subject to the usual JDW terms and conditions for £905,000.
- He copied JDW, Simon Locke and their lawyers into the letter he sent to Dencora 13/2/95 about the lease but he did not copy them into the letter of the same date that he sent to Dencora concerning its acquisition of the freehold. If all of this was taking place openly and above board there is absolutely no reason why this information would not have been combined in one letter. The Defendants case is that Dencora was introduced with the agreement of TM because he did not wish to acquire the freehold. That was a stance which according to their case first arose in late September 1994. The Dencora acquisition therefore is part and parcel of the JDW acquisition according to their case. Yet he studiously types up two separate letters and only copies JDW into the leasehold acquisition. This in my view is evidence of a deception on the part of GA.
- It is not suggested that Dencora has behaved improperly at any time. That is well understood given their query earlier on (see above) in the transaction as to why the sellers would not deal with JDW. The overwhelming conclusion in my view is that the sellers believed they were dealing with JDW until February 1995. That is an admitted deception on the part of GA/CB. In my view and I so determine the deception was perpetrated for their benefit. I do not accept that they were told by TM in September 1994 (or any later date) that JDW was not interested in acquiring the freehold. It does not make sense for JDW again to come to an arrangement whereby a third party is introduced and acquired the freehold at a price assessed without JDW being an occupational lessee and then immediately has the benefit of the uplift in the freehold when JDW is responsible for creating that uplift in value. JDW's efforts are first incurring the expense of obtaining planning permission, second agreeing to take a lease of part of the premises and third extensively fitting out those premises. This is another failed white knight scenario and is just as implausible as the other ones in my view. It appears that it was done for the creation of a second fee. HDH were led up the garden path until February 1995. By that time their clients had been committed for a long time towards the JDW acquisition and the acquisition of Dencora was smoothly slipped in at that stage to ensure that it happened.
- However as I have said the transaction began to unravel from Dencora's point of view. On 21/4/95 it wrote to GA. The end value it assessed at between £960,000 - £1,000,000. Costs would be £35,000. The calculations showed that the purchase price would have to come down to £830,000 to give Dencora its required profit (of £100,000). It expected that the vendors would not agree a price reduction of that measure. The only way out of that was "[to] achieve a high end value". That to my mind is an increase in the capital value which could only occur at the end game if JDW agreed to pay a higher rent. GA replied on 27/4/95 saying "as agreed I will try and renegotiate the freehold purchase price with the vendor's surveyors. Before approaching then (sic) on this basis I would like to receive an indication from JDW if they intend to use the first floor…. This will of course have an effect on the total value and the rent JDW will be prepared to pay.
- Thus GA is considering discussions with its client JDW with a view to increasing its rent. Simultaneously he is seeking to renegotiate the feehold. He is doing that on behalf of Dencora who are of course the prospective lessors to JDW. The conflict of interest to my mind are self evident.
- Dencora did not proceed but GA entered into negotiations with First London to take over the freehold. CB stated in his evidence that this move of prospective freeholder was done with the agreement of TM. He denies that. GA had to confess to HDH that there were difficulties. He wrote to them on 12/5/95 setting out the fitting out costs and introducing the new purchaser First London who would be in a position to proceed and exchange contracts within 2 weeks provided the purchase price could be reduced. GA obviously moved quickly because he was only copied in to Dencora's solicitors withdrawing by a letter of the same date. Doubtless out of the sense of desperation HDH attempted to market the property wider (their letter 22/5/95) at a price of £905,000 but subject to a rental of £85,000. The transaction was clearly stalled. However a "white knight" arrived on 9/6/95 when First London Holdings Ltd wrote subject to contract to GA (after telephone conversations) making an offer of £850,000. There had clearly been discussions of the licensing process as the third paragraph demonstrates. The white knight of course is to save the freehold transaction from VDB's point of view. Once again CB believed that he would have spoken to TM about this but TM denies it.
- There was a flurry of letters from GA 13/6/95. First he wrote to RS saying that he was pleased that he had cleared the way for JDW to take a lease. He also informed her that the property was currently owned by the Lamberts and First London had agreed to purchase this subject to an agreement for a lease from JDW. The lease terms were rent at £85,000 per annum, a reverse premium of £200,000 and a rent free of 4 months. Thus the rent has increased from the initial transaction suggested by VDB at £50,000. However a reverse premium of £200,000 is brought into play. I have no doubt that the reverse premium was negotiated as a way of JDW obtaining cash at the price of agreeing a headline rent. The value of the reverse premium is of course written off until the next review 5 years later. JDW is therefore taking a risk that the headline rent will not be an excessive rent at the review (which will upwards only) and that it can generate profit. This is not the first occasion where JDW when it takes a lease negotiates the capital benefit of a reverse premium or a contribution to fitting out as a price for paying a higher rent.
- GA wrote to First London saying that he had cleared the way for First London to acquire the freehold. The price stated was £850,000 subject to the JDW lease terms. Significantly once again he sought on behalf of VDB a fee of 1%. He wrote to HDH setting out the same terms as regards the freehold. The opening paragraph of each letter is identical. It shows however that GA carefully drafted 3 letters on the same day. If there was true openness between him, JDW and First London I cannot see why the letters have to be carefully split up as regards the 2 interests. The reason why he writes different letters of course is because he does not want JDW (when he informs RS) to see that he is seeking an extra fee for putting the transaction together in this way.
- The matter became even more protracted after substantial repairs were discovered to be required at a cost of £83,500. First London agreed to be responsible for those but the reverse premium was reduced to £100,000 so JDW bore the cost of them effectively. These negotiations were through CB. Ultimately contracts were exchanged to acquire the freehold in the name of Appointshire (a company associated with First London) at a price of £850,000. At the same time there was a conditional lease agreement with JDW. Completion took place on 10/11/95. According to a letter 10/10/96 from GA to RS JDW inexplicably forgot to invoice the landlords for the reverse premium on this property and another one.
- The Defendants' case is that all of this was done with the agreement of TM because for some reason JDW decided not to acquire the freehold. They contend that TM did all of this willingly. They do not of course say that TM knew about VDB's attempts via GA to seek fees for the acquisition of the freehold.
- Once again in my judgment the introduction of the freeholder at a time when JDW itself was able to bid for the freehold does not make commercial sense. The lease was clearly over rented but in my view that was TM's decision. As early as 1/9/94 HDH had written with particulars of a rent of £60,000. If that was all that JDW wanted there was no reason at all for the protracted negotiations in respect of the freehold. According to HDH's letter of 23/9/94 they were expecting an offer from JDW via VDB of both a rental and a freehold basis. According to CB's evidence shortly after that (a matter of days) he and TM had a discussion and TM rejected the freehold because the figures would not stack up. This is before any detailed costings had been obtained. CB wrongly stated in paragraph 165 of his witness statement that the property was only available on a freehold basis which led to the introduction of a third party. In fact if the conversation took place as he alleged all that was required was an offer from VDB on a leasehold basis. However the only offers that were put forward as I have set out above were for freehold basis. This demonstrates in my view that CB is lying when he says the freehold availability was discussed with TM and rejected. It reinforces the lack of commerciality of the transaction as they were ultimately completed from JDW's point of view.
- In addition to the dishonest way in which the freehold was kept alive by GA there is a severe question mark over his evidence in relation to the supposed reasons for JDW not proceeding. In his witness statement (paragraph 47) the reason allegedly communicated to him by TM was that JDW did not wish to become involved in a landlord on a multi let property. As JDW said in its closing this is actually a red herring because ultimately JDW took over two of the sub tenants the Gym and the Town Mission leaving First London with the large corporate entity Rank. The other reason put forward in his witness statement is that TM told him JDW found it difficult to justify freehold properties due to the high development costs and anticipated purchase prices. When he wrote to Dencora (29/9/94) the alleged reason put forward was that the property was too small for their operation. This letter included of course GA's calculations showing the advantage to Dencora (now lost). I reject its claim and accept TM's evidence the he knew nothing of the freehold being available and the negotiations to acquire it via a third party.
- The attitude of CB in this area is well illustrated by his response to a question I put arising out of the deceitful correspondence between GA and HDH (T22/36):-
- He was further unable to say that TM authorised him to tell lies to further JDW's aims (T22/38/12). Thus CB and accordingly VDB consider deception is part of the negotiating process and taking fees from both sides of a transaction is acceptable. I am therefore satisfied that VDB and CB are liable for breach of fiduciary duty, breach of contract in the context of VDB and in deceit. I will deal with GA's role in this when I come to deal with his position in the properties in which he was active. I am therefore satisfied that VDB and CB acted dishonestly in breach of their fiduciary duties as pleaded in the Re-re-re Amended Particulars of Claim.
- In this case the claim is against VDB and CB for breach of fiduciary duty but not fraud. A claim was also alleged against RH for breach of fiduciary duty but I have already determined he did not owe such a duty.
- The availability of these properties (112/114 The Parade) was communicated to RH by letter 6/12/94 from Wright Silverwood. The letter indicated that both properties were leasehold with a current rental of £71,000 per annum but the freehold could be made available. On 10/2/95 a PCF was produced which indicated a leasehold title was contemplated. The costings were £1,307,400. The complexity of the site is well illustrated by Wright Silverwood's letter to RH dated 15/3/95 in which they consider that the redevelopment of the property with 8 flats above was ambitious but the freeholds might be available for between £775,000 and £800,000 and that it is possible that 4 flats could be built in addition to combining the two properties together at ground floor level to build a larger pub. A further letter from Wright Silverwood 25/4/95 once again suggested that the freehold could be bought for £900,000 for the two properties and JDW might consider buying that or alternatively their client Lingfield Securities Plc would agree to undertake the development on behalf of JDW providing a suitable level of return could be agreed by rental income. The rent suggested was £110,000 per annum. CB's evidence is that he put this to TM who was not interested in either a freehold or leasehold basis but suggested he have a watching brief. No reply to that letter has been disclosed. It is clear that Wright Silverwood continued to market the property otherwise than in JDW's direction. They wrote to Whitbreads on 16/5/95 offering the property on similar terms. They also continued negotiations with a view to acquiring the freeholds as set out in their letter 14/6/95 to Knight Frank. There is no evidence showing any activity by VDB or JDW in this period but the file may well be incomplete.
- Suddenly a new potential investor arrived on the scene. RH wrote to a Mr Parker of Harrovian Property Holdings. He was well known to CB having been to school together and whom CB says he trusted. He was apparently he said suspicious of Lingfield Securities although there is no evidence to show why any such suspicion if any was justified. On 1/8/95 in his letter he referred to recent correspondence but none has been disclosed. Harrovian wanted an exclusivity agreement. CB was happy to oblige and in that same letter he said "I confirm that my clients are happy to proceed with you in this matter subject to planning and licensing and will not enter into negotiations with any other party on this property".
- It is not said that TM was aware of this. I cannot believe for one minute that TM would ever have authorised a lock in agreement like this. Putting aside the doubts about its legal effectiveness for a lack of consideration it makes no sense for JDW to be locked into Harrovian for an apparently unlimited amount of time when the agreement accrues no benefit to it. At this stage no terms are agreed for any lease which JDW might take. There was no corresponding lock in of Harrovian; it was free to do what it likes. It would benefit Harrovian because it would be strengthened in negotiations it would have with the freeholders.
- This agreement is completely inexplicable in my view and having seen RH and CB I find that they were not able to come up with any convincing reason as to why this document was created. Harrovian were brought in according to CB because TM asked him in some unidentified telephone conversation to find an investor or developer who might bid for the freehold and grant JDW a lease. CB stated that TM considered the advantage to JDW was that it would save it the cost and inconvenience of having to purchase the 2 freehold titles and undertake the necessary conversion work. It would also save JDW from having to negotiate the surrendering of the existing tenancies.
- TM denied there was any such discussion and further denied that he was ever aware of the freehold being available. The events in question are 14 years old. Unlike all the other cases there is no evidence of dishonesty and none is alleged against any of the Defendants.
- After signing the lock in agreement 5 days later (7/8/95) RH received a revised offer from Wright Silverwood. This proposed selling the freehold on for £1,300,000 or alternatively redevelopment with a lease to JDW of £105,000. The next day RH wrote to Harrovian saying JDW were going to go on with the procedure for obtaining the usual consents. CB's evidence is that having entered into the lock in agreement with Harrovian he discussed terms with Mr Parker. He was willing to offer JDW a 50 year lease with a 25 year break at a rent of £120,000 per annum. CB stated he discussed this with TM who said he was willing to proceed on the basis of a 6 month rent free. Mr Parker agreed this shortly thereafter CB stated that RH told him of the Wright Silverwood offer and that he discussed it with TM who told him that he did not wish to renege on the deal with Harrovian as he was concerned this might upset Mr Parker and limit JDW's ability to use the investor again. He said that TM expressed no desire to purchase the freehold for £1,300,000 because of its cost.
- I simply do not accept this evidence. I can see no reason why in reality TM would not wish to play off both potential developers in order to obtain the best deal possible. The evidence given generally by the witnesses was that VDB negotiated hard on behalf of JDW. It often attempted to renegotiate deals just before they were due to be finalised. The idea that TM and CB for that matter would feel honour bound to deal with Harrovian is nonsensical. Further I have already rejected the suggestion on other cases that TM was interested in having white knight investors he might wish to use. That makes no sense either.
- There is no evidence of reply to Wright Silverwood. On 18/8/95 Harrovian wrote to CB telling him that terms had been agreed for the purchase of the 2 freehold interests and it set out Heads of Terms for the proposed lease which was as set out above. The letter set a strict timetable. On 21/8/95 there was a flurry of correspondence from CB. First he acknowledged the terms but raised an issue over one of them. Second he instructed Lawrence Tring architects to prepare a plan indicating there was a very tight timescale requiring exchange by 8/9/95 with the planning application required to be submitted by 15/9/95. He also informed RS of the proposed transaction and the deadlines and Sophie Hawkes of Courts & Co who were to act for JDW. In none of the letters did he mention that Harrovian had only recently come into the frame and was not the existing freehold owner. He cannot have believed that Harrovian would have obtained a contract to acquire the freehold by that time as it would be dependant on securing the interest of JDW. The planning processes and the title investigations were somewhat more protracted than was hoped by the timetable as Court & Co's letter to RS dated 25/9/95 shows. RS went through the Report on Title with TM over the telephone. He accepted (paragraph 149 of his witness statement) that he was informed that the freehold was being purchased at the same time as the lease.
- Agreements were exchanged 2/10/95 for the lease. The lease was completed 7/2/96. On the same day Harrovian completed an acquisition of the freehold. Its total cost was £942,000 including buying out sub tenancies to redevelop.
- I found the evidence of TM, CB and RH very confusing on this transaction. This is hardly surprising. The events were 14 years ago and I cannot believe any of them really recall any of the details. Any evidence of any of them is entirely dependent on reconstruction based on the documents.
- I have come to the conclusion that in this property TM decided early on that he was only interested in a leasehold interest. That is why the matter drifted on and why JDW looked at other properties. The reason for that in my view was the complexity of the transaction namely buying in sub leasehold interests, redeveloping the site and being responsible for flats which might or might not be sold. Generally one would only proceed with such a development if the freehold was obtained. I accept that from a conveyancing point of view it would have been possible for JDW to take an overriding lease including the flats but that is most unlikely. I therefore conclude that he was always aware of the existence of the freehold but because of these complexities decided against it.
- I do not accept however that he asked CB to find an investor. That in my view was CB's invention like the other cases. In my view he introduced the property to Harrovian. Further more he favoured Harrovian by signing the lock in agreement which I find he did not tell TM about and TM would certainly not have agreed. This disadvantaged JDW because with two prospective developers interested both of whom wished to have JDW on board it would have been able to drive a bargain. I find the failure to consider even the Wright Silverwood offer of 7/8/95 surprising. At the very least CB could have gone back to Harrovian and sought a reduction of the rent of £120,000 including a rent free. I do not believe for one minute CB passed this on or discussed it with TM. I am quite sure had he done so TM would have insisted that the JDW position would be advanced by playing off the two developers against each other.
- I suspect (but there is no evidence to this effect) that CB hoped to obtain some form of benefit from finding the property for Harrovian. However as I have found that JDW was not interested in the freehold anyway merely introducing the freehold to Harrovian (without seeking any financial benefits or becoming involved in a conflict in contrast to the earlier decisions) it would not matter.
- Nevertheless CB's actions in signing the lock in agreement and preferring Harrovian and ignoring the other offers in my view is a negligent breach of duty by VDB. JDW has lost the opportunity to negotiate a reduced rent by that action.
- I do not find that breach is a breach of fiduciary duty owed either by VDB or CB; it is simple incompetence on the material before me. I have already determined that RH owes no fiduciary duty and there can be therefore no claim against him. In case I am wrong on the evidence before me I do not believe RH had any role in the decision making processes; he merely passed matters on to CB. I can see no breach of any duty on his part (if he owed one).
- CB was offered 2 potential properties in Chingford by a sub agent in late 1993 for rent. He replied (25/11/93) saying that JDW was unable to consider the location as they were already processing sufficient applications for the current financial year. Much is made of this in JDW's closing. It is stated that it was a lie because JDW would have been able to acquire the property. I cannot see that as part of a fraud action at this early stage CB would write something like this if it was not true. The fraud involves the acquisition of the properties not its rejection. I do not think the statement is particularly significant in my view. Probably JDW were acquiring enough properties at that time and would look at it in the future. I do not think the statement suggest any financial inhibition as such.
- I should observe of course that there was evidence that the banking covenants had apparently been broken in 1993 and 1994 as the board minutes of JDW of 28/9/94 show. This action might well have provided a limited but clearly temporary unwillingness on the part of JDW to take extra properties in for the immediate future beyond those which were already under serious acquisition.
- Nothing happened until the property interest was revived 12/9/94. CB decided at that stage to get Lawrence Tring in JDW's architects. On 25/10/94 CB offered to take an assignment of the existing lease but JDW required a reverse premium of £50,000 from the existing tenant. It was also subject to obtaining a new 40 year lease at a rent of £47,500 per annum. There is nothing to suggest that the freehold is available for this site that time. Some feasibility work had been done in September; Lawrence Tring had been instructed to prepare a feasibility report. Mr Barnes had prepared a PCF form by 17/10/94. No response to that letter is in the documents. It is clear that JDW's interest was a best luke warm at this stage. I am not sure why the matter was not proceeding but I am inclined to accept CB's evidence that the reversioner was unwilling to take a surrender and existing lease and re-grant and was holding out for more. The existing tenant was also seeking as I have set out above a premium for assignment whereas JDW was seeking a reverse premium from it. There are clearly difficulties all the way round. CB in his evidence suggests that he could provide a possible solution to the situation: JDW should withdraw from the transaction completely. He would then find a third party who would buy the freehold because the seller on account of the precarious position of the tenant might find an approach for the freehold attractive. On the other hand it was suggested there would be a difficulty if JDW approached because the reversioner would hold out for a greater fee. Such third party if it acquired the freehold successfully would then negotiate a fresh lease to JDW. CB said this discussion took place around 30/1/95 and as a result of that he was asked by TM to approach Jeremy Stevens. There is a note written in CB's handwriting dated 30/1/95 recording a conversation with Jeremy Stevens and offering the site at a 2% introduction fee. CB in his witness statement (paragraph 140) suggested this was a fee that would only be payable if Mr Steven's company Warrant Securities purchased the freehold but the lease with JDW did not materialise. This seems to me to be extremely unlikely and I do not accept it. In my view it was an attempt to obtain another fee. Mr Stevens was a friend of CB and I understand that they were colleagues together in a property firm Gross Finds. TM asserted that Mr Stevens had a number of property ventures with CB (paragraph 92 of his witness statement).
- I do not regard the mere request for a fee or delivery of confidential information which does not lead to a concluded transaction as being a breach of duty although I accept that an attempt to commit a breach of fiduciary duty (as occurs in Dalkeith) justifies termination of VDB's retainer. In any event no loss appears to have been incurred and no fee paid either.
- On 7/2/95 CB sent a fax to Mr Stevens comprising 3 pages. The fax header is in the bundle but the attachments were not. This maybe the documentation referred to in paragraph 103 of TM's witness statement. If it was the plans of the proposed development by JDW it would be a breach of confidence to reveal it to Mr Stevens to assist him in his possible acquisition of the freehold unless TM agreed. On 1/2/95 CB sent a fax (allegedly on behalf of JDW) to Dalgleish & Co who where handling the disposal. TM denies agreeing with this course of action.
- Nevertheless CB sent JDW's proposed plans to Mr Stevens on 20/2/95. Carrington Stevens applied for the planning application. The application (dated 4/8/95) shows a completion of certificate B namely that the applicant was not the owner and had given the requisite notice to the owner Belfry Investments Ltd. Prior to this on 25/5/95 Mr Stevens had written to CB confirming an agreement to acquire the freehold had been concluded and a surrender of the existing tenancy. He offered JDW a 50 year lease at an initial rent of £54,000 with a reverse premium of £50,000. CB said he telephoned TM who told him to proceed. On 31st May 1995 CB accordingly wrote to Courts & Co, RS and Mr Stevens. What is missing in the correspondence to Courts & Co and RS is any reference to the fact that the proposed landlord had only then acquired the freehold. It is quite possible that a recipient of the letter knowing the background might believe there had been successful negotiations involving the existing reversioner and the surrender of the existing lease and a consequential re-grant to JDW.
- The next event is the Report on Title from Courts & Co to RS dated 1/12/95. The opening paragraph says this:-
- The report then set out the terms of the proposed lease. TM in his witness statement accepted that he might have been informed by RS that the landlord was purchasing the property (paragraph 99). He said that would not have made him suspicious and it would not have indicated to him that the freehold was available. That cannot be correct as the preamble to that letter shows. The letter makes it clear that the proposed lessor has no contractual entitlement to the freehold at that time. Exchange took place on 5/12/95. Courts & Co on 6/12/95 confirmed some variances to the contract and pointed out that the landlords had actually exchanged agreements on their purchase on 4/12/95. The lease completed on 29/5/96. I assume the freehold acquisition completed on the same day although I have not seen the documentation. TM in his witness statement stated that Carrington Stevens Ltd paid £375,000 to acquire it and of course paid a reverse premium of £50,000 (total £425,000).
- There are several distinguishing features in my view. First there is nothing in the evidence that shows the freehold was ever on offer before Mr Stevens became involved. Second Mr Stevens' company incurred the expense of making the planning application (and of course the risk if it failed). When it did that it had no contractual commitment from JDW either to cover the expenditure or even take a lease. All it had was a subject to contract Heads of Terms. Third there is evidence on the Report on Title that RS knew that the freehold was yet to be gathered in and there is a good chance that was revealed to TM when she discussed the Report on Title with him. In her absence as a witness I will conclude in this particular case that was indeed the situation. Fourth Mr Stevens wrote in August (see above) when dealing with the planning application stating that JDW was the proposed end user was concealed so as not to alert the vendors. Fifth the planning permission was obtained (H11/127A/B) had a condition on it that it is enured for the benefit of JDW for 2 years. CB in his closing (paragraph 174) submits that this was because the planning process although in the name of a Stevens company was policed by a Mr Parr who was a planning consultant used by JDW for many years. There are 2 difficulties for CB however. First he requested a fee of 2% from Mr Stevens. As I said above I reject his evidence that this was a fee payable only if JDW did not complete. Second the easy way to deal with hiding JDW's presence was to use a nominee. CB (T23/47/11) said he never considered it. He also suggested that he was not aware of the practice of using nominees although he knew that special purpose vehicles were used to acquire properties (T23/50). His answer was that this is what he did. However the point is that it can be suggested that Mr Stevens acquired the property for its own benefit.
- JDW submits that this was not the actions of a canny advisor and that the reason why he did not suggest bidding through an SPV or nominee was because he wanted give the profit on the transaction to a third party.
- In my view JDW's case is not made out. For the reasons set out above the transaction is different from other ones. It was in my view a way out of the impasse that might be created by JDW being seen to be bidding for the freehold. In my view TM agreed to this course of action. For reasons which are now lost in history I find that JDW was not interested in acquiring the freehold interest of this site. There is no evidence which suggests that Mr Stevens made a profit on the transaction (unlike the Ferrari 5). I accept CB suggested a fee. If that had been paid that would have been a breach of VDB and his fiduciary duties in my view but there is no evidence to suggest that a fee was paid.
- For all those reasons (after admittedly some hesitation) I am of the view that JDW has not made a case out sufficiently strongly in respect of the Chingford property for the Defendants to be liable as alleged.
- On 7/11/95 a company River Investments exchanged contracts with British Gas Plc to purchase the freehold of this site for £1,300,000. On the same day it exchanged contracts to grant a lease to JDW. The proposed lease involved a rent of £150,000 and a reverse premium of £50,000. Both transactions were completed on 11/12/95.
- JDW's complaint is that it was never offered the freehold. Its case is it would have desired the freehold and made a bid for it.
- The particulars of the property were sent to RH on 16/6/95 inviting a tender for the premises on a freehold or leasehold basis. CB wrote on the particulars "preferably F/H" he submitted a tender on behalf of JDW 10/8/95 for the freehold for £1,250,000. TM's case is that he was never informed of the availability of the freehold and certainly never instructed VDB to submit a bid in these terms. In making that tender CB emphasised the attractiveness of JDW and its ability to obtain a license. Telephone conversations ensued with the selling agents and they wrote on 17/8/95 to CB accepting the tender subject to contract save for an increase in the price to £1,300,000. The next day CB wrote back and said:-
- TM once again denied there was any such discussion about introducing an investor and that this was agreed with him. On the following day CB wrote to Simon Locke of McLellans JDW's solicitors informing him that JDW had agreed to take a 50 year FRI lease with 5 yearly upward reviews with a 25 year break clause at a rental of £150,000 with a reverse premium of £50,000. The deal was subject to the usual conditions. There was no mention of the investor freehold acquisition in that letter. SL provided a Report on Title on 6/11/95. Paragraph 1 stated that the landlord was itself buying the freehold of the property from British Gas. The agreement for lease was exchanged on 7/11/95. RS went through the title with TM on 8/11/95. He acknowledged in his witness statement he was probably informed that the freehold was being purchased at the same time by RS. However he did not accept that would have made him suspicious and indicate that the freehold was available. The selling agents proposed a press release referring to the sale of the freehold and simultaneous let to JDW. CB wrote to them on 24/11/95 stating that JDW would prefer that the freehold element of the deal was not mentioned. CB's evidence is that shortly after writing the offer with TM's instructions on 10/8/95 he was telephoned by Mr Lyons of Davies and Coffer who told him he had a client who was very interested in buying the freehold and had been contacted by the vendors to inform of the offer that had been made by CB on behalf of JDW. Mr Lyons intimated that his client was extremely keen to purchase the freehold and would if necessary be prepared to out bid all other competition including JDW. He said he had been instructed to bid £1,300,000 for the freehold. I have some difficulty in believing that an offer of £50,000 greater than the JDW offer would have had any intimidatory effect on JDW.
- Yet CB's evidence is that he telephoned TM who was frustrated at Davies & Coffers position and told him not to become embroiled in a bidding war. His evidence is that TM told him to tell Mr Lyons that if JDW pulled out would they grant a lease to JDW? This then ensued. This too seems to me to be very surprising. JDW pulled out of the competition for the freehold on some vague basis that it might obtain a lease. As CB noted in his evidence the subsequent offer of £150,000 was "a rather high rental". However JDW could do nothing about it having pulled out of the freehold competition. CB said that he consequently negotiated a capital contribution of £50,000.
- Mr Lyons wrote to CB on 17/8/95 expressing delight that terms had been agreed for an acquisition of the freehold at £1,500,000 for River Investments Ltd and then setting out proposed Heads of Terms. The oddity is that Davies & Coffer did not appear to have submitted the bid on behalf of River Investments. CB submitted a bid on behalf of JDW on 10/8/95 in the sum of £1,250,000. That was accepted on 17/8/95 by the selling agents. They appear only to have been informed in writing of the switch to River Investments on 18/8/95. It seems an odd state of affairs that according to this analysis CB first submited a bid on behalf of JDW but then it transformed itself in to a bid by River Investments who were introduced by him on the telephone. Of course they were not referred to in CB's letter of 10/8/95. CB replied to Mr Lyons 18/8/95 confirming that he was involved in effect making the offer on behalf of his clients.
- According to this timeframe then JDW made an offer of £1,250,000 on 10/8/95. CB was then informed of the potential bidding war and TM backed off and by 17/8/95 had agreed lease terms without any appraisal or consideration of the property. The property was taken in the name of Morestown Properties Ltd an associated company of River Investments. It sold the freehold reversion expectant on JDW's lease to Scottish American Investment Company on 13/5/95 for a price of £1,650,000. It therefore (even taking into account the reverse premium of £50,000) made a profit of £300,000 in 5 months at the expense of JDW. I say at the expense because JDW of course incurred the expense of obtaining the planning permission; there was no risk to the prospective freeholders and no expense to them.
- In giving his evidence CB repeated what was said in his witness statement. It was put to him that the words "preferably F/H" written on the selling agents letter of 16/6/95 was not recording TM's instructions but rather it was recording the preference of the selling agent. Although he denied that I find that was the reason for it and I reject his evidence. He confirmed in his evidence that he believed that Mr Lyons would out bid JDW.
- It was put to him that this was grossly implausible. There are a number of reasons why it appears implausible. First JDW was financially very successful and would be in a position to compete in bids and had done so before. Second the success of the acquisition and making a profit on a freehold would be dependant on a successful outcome of the change of use. Further there is nothing to suggest that River Investments would be in a position to compete with the financial strength of JDW. Indeed CB accepted that on completion it had requested 3 months rent in advance which would avoid the need for it to raise any funds to acquire the property (T5/60). Further it is clear that there was no discussion of terms and no attempt by CB to bargain the terms. Mr Lyons apparently put in his figure and CB meekly accepted it (although his evidence acknowledged that it was rather high). The lack of logic to the evidence of CB is demonstrated by the fact that he was forced to acknowledge that as JDW had no security of a guaranteed lease Mr Lyons was in a position to bid JDW against other competitors at the leasehold level. The idea that Mr Lyons was involved in a potential bid competition is further undermined in my view by the fact that he apparently had no sales particulars until CB sent them to him on 18/8/95. This demonstrates the untruthfulness of CB's evidence that Mr Lyons had separately sourced the property. It is quite clear in my view and I so find that CB introduced the freehold to Mr Lyons and indeed conducted the negotiations with the selling agents after they had written purportedly accepting the JDW offer. I find that offer was made without TM's knowledge and agreement.
- I cannot believe that there is any credibility to the suggestion that TM would simply back out of this transaction because somebody else telephoned CB intimating intention to bid against TM. I would have thought the opposite would be the case. TM did not strike me as a weak person who would in effect retreat to his tent Achilles like at the first whiff of opposition. The whole thrust of TM's acquisition policy involved robust and aggressive acquisitions of properties with negotiations taken to the wire. It is quite clear that CB agreed a price of £1,300,000 after submitting the purported JDW bid. Then having agreed that and then he revealed the proposed transferee was to be River Investments giving the bogus reason set out in his letter to the selling agents. This is reinforced by the fact that the offer of £1,300,000 was an acceptance on behalf of "your client". I do not believe for one minute that CB would have told the selling agents that bid was on behalf of River Investments because CB would have then submitted two bids on behalf of different clients.
- Further evidence of CB's duplicity is that suppression of the freehold part of the advertisement proposed. JDW can have no interest in suppressing that freehold interest. CB has plenty of interest however.
- I do not accept that TM was expressly put on notice that the freeholder was at the subject to contract stage when he discussed the Report on Title on RS.
- There is no evidence that VDB/CB has profited by this arrangement. However at this stage I do not think that is significant. There is no honest reason put forward by CB and I am firmly of the view that VDB/CB acted dishonestly and in breach of their fiduciary duties owed to JDW (as pleaded in the Re-re-re Amended Particulars of Claim) by interposing a freeholder who made a profit on re-sale at the expense of JDW. It was also a breach of contract by VDB.
- In this case Wing Properties/First London Holdings exchanged contracts to purchase the freehold on 3/6/96 at a price of £500,000. On the same day Wing Properties exchanged an agreement for lease with JDW. The rent proposed was £92,500. The prospective landlords under clause 2.1 of the agreement agreed to carry out the landlords works as specified in that clause but appointed JDW as its agents for obtaining all requisite consents and the carrying out of the works subject to a maximum of £175,000 plus VAT. There had been some antecedent discussion about the title between RS and TM on 31/5/96 but nothing turns on that. In addition clause 10 provided for a landlord's contribution of £100,000 towards the tenants' works. An extension of the long stop date for satisfaction of the conditions was negotiated in September 1996.
- The present claim is against VDB and GA. It is necessary to see how the acquisition of the property gestated. GA received an invitation to consider the property from Mason Owen on 24/11/95. The invitation appears to be for a leasehold interest. The yellow form site investigation dated 11/1/96 suggested a leasehold title with a rental of £50,000. The PCF was prepared and sent to NG on 9/2/96 also indicating a leasehold interest the costings were approximately £850,000. Two proposals were put to Mason Owen by GA on 14/2/96. Both were leasehold with rents of either £50,000 or £70,000 depending on which option against the usual 40 year leases with 5 year upward reviews. CB in his evidence said that in conversation with him in February 1996 TM decided which one he wished to proceed with. GA according to CB after the latter had had further conversations with TM sent a revised offer on 22/2/96 for a lease of part of the premises with a rental of £60,000 with a capital contribution in JDW's favour of £100,000. CB also stated that GA told him after that letter had been sent that the freehold might be available but CB considered it would not be appropriate because of the overhead commitments. Nevertheless he relayed it to TM who told him he was not interested. When GA was informed of that apparently he felt able to contact First London Holdings to see whether it might be interested in buying the freehold. CB said this was done without his instructions but he saw nothing wrong about it.
- CB asserted that at no time was VDB instructed or retained by First London or Wing properties and neither he or anyone else associated with VDB sought or received any fee from First London, Wing Properties or their controllers Jason Harris.
- He certainly became involved. GA noted an offer from FL to JDW to take either a lease of the entire property at £85,000 per annum with £100,000 reverse premium and 6 months rent free or alternatively take a single unit only at £75,000 per annum with 6 months rent free and £100,000 reverse premium. By 28/3/96 GA was in a position to write to Jason Harris setting out Heads of Terms following telephone conversations and a meeting on 25/3/96. The Heads of Terms proposed JDW with a letting of the whole for rent of £85,000 with a reverse premium of £100,000 and 6 months rent free. There is no break clause in this 40 year term and there were 5 yearly upward only reviews. This meant that there would be a sub letting of part by JDW and the proposal included an offer of a rent guarantee of £20,000. It was subject to the usual JDW planning conditions. On the same day he informed Sophie Hawkes of Courts & Co, RS and TM was copied in to the letter to RS. There is no mention of a freehold acquisition simultaneously.
- GA had written to Jason Harris on 7/3/96. The letter said as follows:-
- A Mason Owen (the sellers agents) internal note 7/3/96 is interesting. Note 2 says this "Paul (i.e. the seller) has suggested I try and get on board with Van de Berg however as you appreciate this is very difficult. [GA] and [VDB] is introducing the opportunity to one of his "tame" developers and will call you early Friday if there is an opportunity here we could follow….
- The question is why was it necessary for GA to introduce a "tame" developer? GA provided no evidence beyond saying that he believed that he discussed a freehold acquisition for JDW with CB. He (GA) said that he thought JDW would not be interested in purchasing the property part sub-let to a fashion retailer. This is incredible evidence given the facts that actually happened. JDW took an overriding lease subject to a sub-lease of part (albeit with a rent guarantee of £20,000 for the first year).
- Having allegedly been told by CB that JDW was not interested in a freehold acquisition GA wrote to Jason Harris. It will be seen from the letter that I have quoted above that GA is requesting fees again and further more asking to keep the fee arrangement confidential. I cannot see why he needs it to be confidential unless he wants it concealing from JDW. Once again when the transaction proceeded that way VDB make double fees as opposed to the one fee that would be payable by JDW of £15,000 for introducing its interest (whether freehold or leasehold). GA in his witness statement (paragraph 70) dealt with the two options (freehold/leasehold). It is of course not comparing like with like when the rental income of Ethel Austin is removed. JDW would obtain that whether it took an overriding lease of the whole or whether it took the freehold of the whole.
- GA's letter of 7/3/96 shows that CB is wrong (to put it mildly) when he said (paragraph 258) that no fee was ever sought. He speculated in paragraph 259 that Jason Harris contacted Mason Owen direct no doubt to avoid having to pay a fee to VDB. He then commented that "effectively by doing this First London had locked out the freehold by stealth by 19/3/96 at the latest without VDB or JDW knowing it." This is simply not correct. The best that First London would have had at that time was a subject to contract position. The one thing that this case has demonstrated to me is the willingness of property agents to do everything possible to extract the most favourable deal for their clients. I cannot believe for one minute that CB and GA believed if JDW wanted the freehold that the race had been won by First London on 19/3/96. It was only won by it because JDW did not participate. It did not participate because in my view it was not given an opportunity. I simply do not accept CB's evidence on this. It does not make sense. The freehold was acquired for £500,000 and JDW instead obtained a leasehold interest at a rental of £92,500 (less of course the Ethel Austin rent) in addition it achieved the capital incentives which would be written off over the next 5 years.
- Once again the correspondence to the various parts of JDW is carefully crafted to avoid revealing that the proposed lessor does not have an existing agreement to acquire the freehold.
- CB admitted in cross examination (T25/142/12) that VDB did not disclose to TM that the freehold was being offered to First London and it did not disclose seeking a fee for that introduction. I found his evidence that VDB did not know the freehold price (T31/178) completely unconvincing. There is no doubt that if he had made a bid for the freehold on behalf of JDW against First London he would have soon rapidly found out what the freehold was. In the event if there had been a genuine bid for the freehold on behalf of JDW First London would not be a problem; the property was drawn to their attention by GA on 7/3/96. Therefore JDW on a freehold scenario would not have been bidding against anybody. They could have bought the freehold for £500,000 and at that time would also have gathered in the £20,000 a year rental from the Ethel Austin part. It is true on that scenario it would have lost the capital incentives but as I have said before those are relatively short lived. CB sought to justify the situation (T31/181) by suggesting that the leasehold proposal showed a massive return on capital. However the rental return of the freeholder (£92.500 less the £20,000 contribution) on a £500,000 capital outlay is large also. In my view there is no sound commercial reason for JDW to have excluded a possible freehold acquisition at this time instead of a leasehold one. There is no honest reason for the transaction proceeding the way it did.
- My conclusion therefore is that once again as I have said I do not believe CB or GA offered the freehold to TM.
- As I have said the claim is against VDB and GA not CB. I conclude that VDB was dishonest and in breach of its duties owed to JDW. It was also quite wrong for GA on VDB's behalf to seek a separate extra fee.
- The question as to whether any profits or other payments have been received by VDB, GA or CB is for the second stage of this action. It is also possible of course that JDW will claim damages on the basis that it has lost an opportunity to acquire the freehold.
- Once again I accept TM's evidence that there was no clear material in the correspondence JDW received which identified that the freehold was not already gathered in contractually. Indeed CB and GA's evidence was to the effect that they believed the freehold was locked out from 19/3/96. In fact I do not believe them on that despite (for example) GA's denials in cross examination (T31/166/14).
- I will deal with GA's liability in a separate part of the judgment dealing with his position overall.
- This property (no 1-3 North Street Canterbury "Canterbury 2") was acquired by a lease dated 10th October 1997 between Warrant Investments Ltd (1) and JDW (2) the rent was £75,000 with a reverse premium of £175,000 and a rent free of £25,000. JDW had entered into antecedent agreement for the lease with Warrant on 8/8/97. On the same day Warrant exchanged contracts to buy the freehold and that transaction was also completed on 10/10/97. The price paid by Warrant for the freehold was £500,000.
- JDW's complaint is that it was not offered the opportunity to bid for the freehold by VDB. It contends that this arose as a result of fraudulent conduct by VDB, CB and RH. The freehold it contends was directed to First London at JDW's expense.
- On 13/1/97 RH received a letter from Core Commercial Ltd informing him that the freehold would be available for £425,000. Subsequent to that document being received by RH he had a discussion with Core Commercial and noted that there was a possibility of a £50,000 a year rental as an alternative as shown by his hand written note on the sales particulars. RH sent the details to Nicholson Partnership on 15/1/97. They were asked to prepare costings on an assumption of a rental of £50,000. Nicholson's returned preliminary sketch drawings on 10/2/97. There is a VIS entry which was obtained from JDW's central database in respect of this property which (inter alia) refers to an offer having been made on 20/2/97. There was much debate about this document at trial. VDB/CB's case was that the only offer made on that date for that property was a freehold offer to acquire at a price of £500,000. CB in his evidence (paragraph 292) stated that the offer arose after conversations with TM where he alleged that TM informed him he had changed his mind and now wanted an offer to buy the freehold. CB said that he asked RH to find out whether the freehold was still available and he came back after speaking with Core Commercial to say that although the freehold was available the vendor had in the meantime received an offer from Bass (CB believed) in excess of £500,000. He then said in the light of that he telephoned TM who told him to make the £500,000 offer because it would be more attractive than an offer from Bass.
- That offer was apparently accepted by Core Commercial's letter dated 25/2/97. The offer which was the subject matter of the acceptance was on behalf of JDW. The acceptance therefore would at first blush appear also to be on behalf of JDW
- Neither CB nor RH dealt with this letter properly in their witness statements. CB merely commented (paragraph 297) that Core Commercial had written to RH accepting JDW's (emphasis mine) original offer to buy the freehold for £500,000. RH did not deal with it at all in his witness statement.
- In the particulars of the transaction JDW are identified as the purchasers. However the solicitors given are Howard Kennedy (who turn out to be solicitors for Warrant). The last paragraph is also instructive:-
- The difficulty with this is that according to CB's evidence he spoke to TM on 24th or 25th February 1997. He stated (paragraph 293) that TM had decided to revert to a leasehold interest and asked CB to find an investor. TM did not explain why he had changed his mind but CB suspected he had been put off the freehold because of the anticipated costs. On 24/2/97 JDW's Quantity Surveyors produced anticipated costings of £828,600 as against JDW's target figure of £674,549.
- As a result of this conversation CB stated that he approached a Mr Stevens of Warrant. He had been involved in the Chingford transaction (see above) and he was approached to be asked whether he would be interested in acquiring Canterbury 2. CB spoke to Jeremy Stevens who apparently was immediately interested and discussions centered around £75,000 per annum rental from JDW. He relayed that to TM who said he was willing to proceed although he wanted Warrant to agree a reverse premium of £175,000 and a rent free of 4 months.
- Following this conversation CB stated that RH wrote to Kevin Healy of McLellans (JDW's actual solicitors) enclosing Heads of Terms for JDW to take a lease of Canterbury 2. That letter and the Heads of Terms were copied to TM, RS and NG. The Heads of Terms clearly stated that JDW would be taking a lease of the property from Warrant Securities and that was not queried. On the same day RH sent a fax to Warrant Securities enclosing a copy of VDB's offer letter to Core Commercial dated 20/2/97. On the same day RH also wrote to Howard Kennedy referring to the Heads of Terms agreed for the grant of the lease to JDW from Warrant Securities. There is a PCF (yellow form) prepared 24/2/97 which CB relied upon (see above). That appears to show a leasehold acquisition although the calculations talk about a figure excluding freehold. A further PCF of the same date prior to exchange identified a leasehold interest with a rental of £75,000 per annum.
- This in my view causes CB/RH great difficulties in their version of events. For the document to have been created on 24/2/97 somebody must have instructed the costings to be prepared before 24/2/97. The initial instructions to prepare the PCFs as I have said assumed a leasehold interest. Yet CB/RH's evidence is that the offer of 20/2/97 was made on a freehold basis. That appears to have been made without any costings received and appears contrary to the earlier yellow PCF. According to their evidence TM changed his mind at the latest 24/2/97 (before the yellow PCFs of that date can possibly have started to be created). Further more this decision was made before there had been any communication of a decision in respect of a freehold interest offer dated 20/2/97.
- Then CB's evidence is that TM changed his mind again and suddenly the property was switched to Warrant simultaneously. It happened so quickly that Warrant never actually made a bid but it "took over" JDW's offer (although Core Commercial did not know that). All on the same day TM apparently agreed to a change of lease and Warrant agreed lease terms simultaneously with CB including rent frees and reverse premiums without having seen anything about the property or the costings or even that there was a price on the table which had been accepted for £500,000. Equally TM it is suggested agreed the leasehold terms without having any costings and agreed a simultaneous introduction of the latest white knight because the project was becoming too expensive.
- CB and RH's evidence of TM's repeated changing of his mind in February was confusing and was untruthful. It did not survive a serious cross examination and I adopt JDW's criticisms of this in its closing. It was completely unconvincing. It is to be remembered that VDB issued a yellow PCF site investigation form 16/1/97 which specified a leasehold interest. NG referred to that in an internal JDW memorandum with a date stamp of 22/1/97. RH had written to the Nicholson Partnership on 14/1/97 for a costings assessment also based on a £50,000 letting. As I have set out above that was an alternative which he had written on original sales particulars received 13/1/97. Nicholson's warned RH (10/2/97) that the scheme would be more expensive than average because the front was part listed. According to CB and RH's evidence therefore TM despite having no costings decided to change from a leasehold offer to a freehold offer. The only indication that he could have had was that it would be more expensive than usual. This seems out of line with the thrust of the Defendants' stance in many cases that the freehold title was rejected by TM on occasions because of the extra costs associated with that acquisition. Then the only costings which arrived were those dated 24/2/97. TM might or might not have been in a position to discuss those on 25/2/97 when the apparent somersault occurred. This seems unlikely as the extra costs had already been flagged up before he apparently changed to a freehold offer 20/2/97. Even then however if there is any credibility to the Defendants' case that TM decided to abandon a freehold acquisition before even his offer had been accepted or rejected there was no reason why JDW through VDB could not have gone back to Core Commercial and asked for a lease at £50,000 per annum. That is what was put on the table in January 1997.
- Instead the transaction proceeded on the basis of the white knight of Warrant Securities being introduced at a rent of £75,000 per annum. That can be seen by the extensive notes on RH's copy of the freehold offer purportedly made on behalf of JDW 20/2/97. The notes appear to record a number of conversations perhaps. However it is clear there is a discussion of a leasehold rent of £75,000 with a reverse premium of £175,000 and the 4 months rent free and details of solicitors (Howard Kennedy) are noted on there. That appears to reflect discussions between RH and Jeremy Stevens on 25/2/97. The first document sent out by Mason Owen dated 25/2/97 (H15/143) has under the purchasers solicitors section "please advise". On that one as I have said RH has scrawled "J Stevens- please call me to discuss". That as I have said appears to have been faxed to Mr Stevens at 14.37. The notes on the letter 20/2/97 then reflect discussions between RH and Mr Stevens. In those very short discussions after 14.37 Mr Stevens appears to have agreed to take the freehold for £500,000 subject to contract without any information of any significant nature about the property. In addition RH appears to have negotiated terms with Mr Stevens for JDW to have the lease and if RH and CB are to be believed they had discussions with TM earlier in the day possibly about jettisoning a freehold bid (before it had even been accepted) and then had later discussions when Mr Stevens the white knight was introduced. As I have said by 15.00 RH was faxing out documents to the JDW lawyers and the like reflecting the done deal.
- As part of this RH had further discussions with Core Commercial because a second version of the acceptance letter was issued (which was date stamped received 26/2/97) which identified the purchasers solicitors as Howard Kennedy. In that RH plainly practiced a deception on Core Commercial. Howard Kennedy were not JDW's solicitors. It is quite plain that Core Commercial believed they were accepting a JDW offer hence the last paragraph.
- I can see no point in Mr Stevens' company coming in at this stage. If JDW were put off by the cost of the freehold acquisition they could have sought a leasehold one for the reasons I have set out above. Such a leasehold one could have been obtained direct from Core Commercial's clients. The evidence suggests a rental there would be £50,000. There is nothing to suggest it would be as high as £75,000 which appears to be an over renting. The effect of the over renting is ameliorated short term by the large reverse premium. It must be born in mind that reverse premium would need to address the extra costs of the fit out which were flagged up by Nicholsons in early February (see above). The PCF 24/2/97 suggested costs of £828,600 against a matrix target of £674,549. Those costings were prepared on a rent of £75,000. After completion of the transaction the pink form prior to appointing contractors 27/1/98 showed a modest reduction of costs to £813,200 but suggested the annual rent was £35,000. That is achieved by writing the rent free off at £40,000 per annum. That would take it just beyond the first review date. However it would be on the assumption that the total higher level costs are born by JDW. I do not accept the transaction is quite as attractive as RH said in his closing (paragraph 135). If the reverse premium is applied to the excess costs that brings it to within the matrix level but then leaves the property over rented. That is to be contrasted with the acquisition of a freehold for £500,000. I do not accept that the increased costings provides a justification for the quite extraordinary reversal of TM's mind which the Defendants allege occurred.
- I can see no basis of a commercial nature or any other for that matter as to why Mr Stevens has to be introduced in this transaction in this way. I should deal with one further point. CB said that the notes on the letter 20/2/97 showed that VDB considered another possible investor "Hazelbond" however this was another Mr Stevens company as CB admitted (T26/122).
- The fact is that Warrant did not know of the accepted offer when all of this took place. That is demonstrated by the fact that RH was only able to fax JDW's offer and not the acceptance to Warrant until later in the day. According to CB's evidence (paragraph 297) RH sent the original 20/2/97 letter to Warrant. The acceptance letter appears to have been sent by fax by Core Commercial on 25/2/97 (H15/139). The hard copy was plainly received on 26/2/1997 (date stamp to that effect H15/140). There is a hand written note on a copy of that acceptance letter "J Stevens – please call me to discuss" there is a fax transmission report (with an error) to Warrant timed 13.44 and a successful transmission 14.37. It appears therefore that the acceptance offer was sent to Mr Stevens at 14.37 by CB. The faxed letter of the Heads of Terms (see the one to McLellans for example H15/151) appears to have been sent out at 17.03 on 25/2/97.
- An examination of those documents then requires CB to have persuaded Mr Stevens that a freehold purchase at £500,000 was a good idea and he agreed it. It also means that he must have had discussions in that period with TM about the lease terms (having presumably discussed them with Mr Stevens beforehand) and he agreed it. This was also presumably at a time when TM knew that his "offer" of 20/2/97 had been accepted.
- This is an incredibly tight timescale. It is also a fantastical one. It does not actually make sense. For example for Core Commercial to refer to Howard Kennedy as being the JDW solicitors in their letter of 25/2/97 someone must have told them that before that time. It follows that there are communications about the freehold before the acceptance is received which involves someone on behalf of Warrant making a bid which appears to be a JDW bid.
- In reality the insertion of the "wrong" solicitors is to ensure in my view that there is no correspondence sent to McLellans so that they cannot be alerted that JDW's "offer" has been accepted.
- There is once again nothing in the correspondence that emanates from RH to the JDW parties which shows that there is a simultaneous subject to contract acquisition. There is absolutely no reason why once again all these letters if they are passing between all interested parties (including the white knight freeholder Warrant) could not be incorporated in one document.
- McLellans produced a Report on Title dated 25/6/97. When dealing with the agreement for lease it noted that it was conditional on the acquisition of the freehold by the landlords and they were under an obligation to use all reasonable endeavours to complete the freehold acquisition. The landlord is not identified and there is no suggestion expressly that the landlords did not already have in place a contract to acquire the freehold subject to those terms. In fact Warrant did not have any contractual rights at that time to acquire the freehold. I U-S sought authority to enter into that agreement for lease on 6/8/97. He received a response from TM that the proposal was acceptable as long as the question of guarantees was clarified. That does not affect the issues before me. The authority was provided to McLellans to exchange on 6/8/97. The agreement was then exchanged 8/8/97.
- Clause 10.5 of the Agreement for Lease contained a confidentiality clause. On 12/9/97 Core Commercial wrote to RH enclosing a draft press release referring to the sale of the premises for £500,000. RH replied on 16/9/97 saying his clients (unidentified) did not wish for any press releases to be made as regards to property transactions. JDW suggested that this action by RH was to suppress the sale at £500,000 so that JDW would not find out about it.
- Completion took place on 10/10/97 of the purchase of the freehold with a result that completion of the Agreement for Lease was due on 17/10/97.
- To put something in the timeframe it was about this time RH was corresponding with his accountants about how to treat the bribe he had taken of £24,200 (letter 15/10/97).
- The evidence about the confidentiality clause is in my view equivocal. JDW cannot use this as evidence of dishonesty on the part of the Defendants when all they are doing is insisting on a clause which is in the contract (presumably) for JDW's benefit being complied with.
- Much was made of this point as I have said because the only offer on 20/2/97 was an offer for the freehold. Further this document appears to have come from a JDW database. JDW attempted to deal with this by putting up JH as a witness. His evidence was to the effect that the data feed to the JDW computer had come from a VDB computer.
- Faced with the objections to JH purporting to give evidence about which he actually knew nothing JDW produced a witness statement of David Capstick dated 17/11/08. He is the Property Director of JDW. The thrust of his evidence (paragraph 9 D/127) was that in reality he had no idea where the entry of the offer of 20/2/97 had emanated from so as to appear ultimately in JDW's central database. JH was recalled to explain how he had prepared his witness statement. It was quite clear that JH in his original witness statement overstated what he had been told about the source of this entry (T33/42-53). This is another example of unacceptable evidence produced by JDW. JDW in its closing (paragraph 1324) suggest that the entry in JDW's central property database (CB5/271B) related to a leasehold offer. It does not actually say the nature of the offer that is made but the only possible one is a freehold offer 20/2/97. The question as to where that came from however is in my view unresolved. It does not clearly assist the Defendants.
- A more important point is whether or not I believe that TM was aware of that freehold offer. I am firmly of the view that he was not. When one looks at the other documents that were generated in February 1997 and the case put forward by CB and RH their story is so fanciful that I simply do not accept in the light of those documents there is any credibility to the suggestion that TM knew of a freehold offer at that time. The JDW central database entry is but one possible document to suggest that somewhere within JDW there was a freehold offer discussed at that time. I cannot be sure that is the case. It is possible that the entry had come from VDB documents which were put into the JDW database after the event. I can come to no clear conclusion on that and therefore this point based on this entry raised by the Defendants is of no significance. It is insignificant compared with the gymnastics the Defendants would have me believe they went into with TM in February 1997.
- I conclude therefore that the case is made out against VDB, CB and RH. Although I have determined that RH did not owe a fiduciary duty I am satisfied that in this transaction he acted dishonestly and is liable for dishonestly assisting VDB and CB in their dishonest breaches of their fiduciary duty as pleaded in the Re-re-re Amended Particulars of Claim. It will be seen from the above that RH is inexplicably involved in the discussions with Mr Stevens and his introduction. He also was involved in misleading Core Commercial as to the status of the would be purchaser providing the false solicitors name. None of this can be honest. He also in my view persisted in this at trial when he gave evidence about the transaction to sustain CB's and VDB's story. I will set out further in this judgment the requisite legal principles as I see them on dishonest assistance and draw this conclusion into the general conclusion I draw of RH's liability for the 4 transactions of which this is one.
- This transaction is pleaded against GA only in relation to credit and no damages are sought. There is enough material for me to come to a conclusion without this and there are certainly enough documents and written submissions for me to come to a conclusion without burdening this judgment with this transaction.
- I do not propose to come to any conclusion on Glasgow. If it becomes germane it is something that JDW will have to consider whether or not they wish to raise it in the third action (if they are allowed to). In view of the fact that there is no monetary claim I cannot see any point in this exercise in this action.
- As can be set out above as regards VDB and CB I have determined that the case is proven in respect of all the pleaded allegations of dishonest breach of fiduciary duties as set out in the Re-re Amended Particulars of Claim in respect of all transactions save one (Chingford) and Leamington Spa in negligence only as regards VDB.
- This is a theme which the Defendants have averted to on a number of occasions. There are instances where extra fees were sought. There are possible indirect financial benefits arising out of the Ferrari 5 transactions. I do not intend to investigate these matters. To do so would be premature in my view they should be the subject matter of the Accounts and Inquiries and assessments of damages which JDW will seek. It would be quite wrong for me to speculate (which is what it would be) as to possible benefits at this stage when there has not been full disclosure and when other parties who are affected by it have not been involved in this litigation nor called as witnesses.
- I have determined that they owe no direct fiduciary duty. That means that they can only be liable on the basis that they provided dishonest assistance to others (i.e. VDB/CB) in breach of their fiduciary duties.
- Only RH is a Defendant in the First Action. RH and GA were employed by VDB in November 1991 and December 1992 respectively. They were both appointed Directors on 5th January 1995. GA left VDB for practical purposes in November/December 1999 and his Directorship was formally terminated on 17th February 2000. RH's Directorship was terminated on 29th November 2004.
- The claim against RH is pleaded as a fiduciary duty on the basis of him being a director of VDB. There is no claim against him for dishonestly assisting any of the other Defendants in their breach of their fiduciary duty. Accordingly I shall dismiss the First Action against RH.
- I have already determined that RH and GA do not owe direct fiduciary duties alleged in paragraph 8 of the Re-Re-Amended Particulars of Claim in the Second Action. There are 4 property claims against RH namely Leamington, Canterbury 1, Canterbury 2 and Folkestone. There is no claim for dishonest assistance against RH in respect of Leamington but there is for the other three (paragraphs 76.5, 113.5 and 124.5 respectively) a claim for dishonest assistance in respect of Canterbury 1 against RH (paragraph 76.5). There is a claim against RH for dishonest assistance in Canterbury 2 (paragraph 113.5). There is a claim for dishonest assistance against RH re Folkestone (paragraph 124.6) I will consider whether there was an omission in respect of Leamington. I will consider any representations made in that regard when I hand down this judgment. In Leamington I have determined that VDB was negligent only.
- Claims are made against GA in respect of 3 transactions Rotherham, Burton and Bedford. There is a plea for dishonest assistance against GA in respect of all three (paragraphs 32.5, 87.5 and 100.5 respectively).
- In all such cases the allegations of dishonest assistance rely on the same factual allegations made against VDB and CB. The question to be considered in respect of the 7 properties (I will assume for these purposes that Leamington is a dishonest assistance claim) is to examine the extent of the involvement of RH and GA in those transactions respectively and to see whether in the light of the law on dishonest assistance any misconduct as such is such to render them liable for dishonest assistance.
- I recently reviewed this area in AG of Zambia v Meer Care & Desai [2007] EWHC 952 at paragraph 332 et seq. I repeat what I said in paragraph 357 that the test for dishonest assistance is "an objective one, but an objective one which takes account of the individuals in questions characteristics…. Is a test which requires the Court to assess the individual's conduct according to an objective standard of dishonesty. In doing so the Court has to take into account as to what the individual knew; his experience, intelligence and reasons for acting as he did. Whether the individual was aware that his conduct fell below the objective standard is not part of the test". That test was drawn from a paper put forward by Clarke MR in a paper "Claims Against Professionals: Negligence, Dishonesty and Fraud" [2006] 22 Professional Negligence 70/85.
- The Defendants appealed my analysis of dishonest assistance but it was not pursued see [2008] EWCA Civ 1007 paragraph 20.
- In the present case there is no question that the primary Defenders (VDB and CB) had dishonestly (save perhaps in the case of Leamington) broken fiduciary duties they owed to JDW. There is therefore no need to consider whether or not liability for dishonest assistance can arise without there being a corresponding breach of trust nor whether the breach of fiduciary duty itself arises as a result of a dishonest and fraudulent scheme. I answered both those questions in the affirmative (paragraphs 332 and 336 respectively in my judgment). As I have said the primary people in this case I have already determined acted dishonestly and in breach of their fiduciary duty.
- I will await further submissions (if any) on this point in respect of Leamington.
- An accessory can only be liable if he has been personally dishonest. Mere knowledge that the opportunity is being afforded in breach of someone else's fiduciary duty is not enough. That appears from the Court of Appeal decision Satnam Investments v Dunlop Heywood [1999] 3 All ER 652 at 671. This analysis is really to deal with somebody who is a third party who benefits from a breach of fiduciary duty. I have already stressed in this judgment that although there appeared to be third party companies which have benefited from the breach of fiduciary duty (in particular the Ferrari 5) I have made no finding as regards any culpability of such third parties. That part of the Satnam decision has been criticised see Goff & Jones "The Law of Restitution" 7th Edition at paragraph 33-020. I was uneasy about the Satnam decision when I delivered judgment in Crown Dilmun [2004] 1 BCLC 468 at paragraph 200 (see footnote 46a of Goff & Jones). I remain uneasy but I am bound by that decision as regards that requisite for dishonest assistance.
- I agree with the sentiment expressed in Goff & Jones at paragraph 33-020 "a person who acts unconscionably is consciously using and taking advantage of confidential information (The Court of Appeal acknowledged that M did have predatory intentions). They may not act dishonestly but he is not a person that is to be applauded even in a competitive and ruthless business environment. As Sachs LJ said in Schearing Chemicals Ltd v Falkman Ltd [1982] QB1 even in the commercial field ethics and good faith are not to be regarded as merely opportunist or expedient.
- Having heard extensive evidence of the parties and their witnesses in this case the level of ethics and good faith seems to be somewhat low in this area.
- Miss Hoffmann for RH in her opening in the Second Action (paragraph 55) submitted that claims in dishonest assistance cannot succeed unless there is property held on trust the breach of which would give rise to accessory liability relying on Goose v Wilson Sandford & Co (unreported) Chancery Division 1 April 1996 and Satnam at paragraph 671a per Nourse LJ.
- I do not accept that submission. I refer to my observations in the Zambia case at paragraph 332 et seq and the comments of Peter Gibson J as he then was in Baden v Societe Generale [1993] 1 WLR 509 at 573:-
- Toulson J in Fyffes Group Ltd v Templeman [2000] 2 Lloyd's Rep 643 at 668-670 was willing to impose accessory liability for dishonest assistance in a breach of a mere fiduciary duty at least where bribery was involved.
- I will leave open the question as to whether or not RH and GA might be liable as constructive trustees to the inquiry stage if it can be shown that they have acquired trust property see the competing arguments in Paragon Finance Plc v Thackerah & Co [1999] 1 All ER 400 at 409 per Lord Millett and the Privy Council decision in The Attorney General for Hong Kong v Reid [1994] 1 AC 324 (analysed in Goff & Jones 33/034).
- I am concerned at the moment with the accessory liability considered in the Paragon case.
- It is true that Nourse LJ expressed the view that before a case could fall into either category (talking about knowing receipt or knowing assistance) there must be trust property or traceable proceeds of trust property. It is clear that he contemplated that the Defendants in question were trustees of information. He rejected on the facts as being impossible that there was a claim in knowing receipt to hold that there was sufficient basis for subjecting the brewery site (which was said to have been acquired using confidential information) to a constructive trust. In the case of knowing assistance however provided dishonesty on the part of the accessory was identified he expressed the view that he would not have wanted to shut out the possibility of such a claim being successful.
- The Satnam case was considered by the Court of Appeal in Goose v Wilson Sandford & Co (a firm) (CHANF 1999/1015), [2001] Lloyd's Rep PN 189 The facts of that case are extremely complicated and do not have any real application to the present dispute. The claims like the present ones were however for false and fraudulent representations, breach of contract and that the Defendants had knowingly assisted in a fraudulent and dishonest breach of trust. The Defendants were accountants who were involved in the complicated transaction an in the course of which had written letters and attended meetings. The Claimant issued 2 sets of proceedings. In the first trial he was unsuccessful but the Court of Appeal allowed an appeal in part and there was a retrial (including an issue as to accessory liability of the Defendant Accountants). That action was heard and dismissed also. The Court of Appeal dismissed his appeal against the second trial.
- The question of the requirement for there to be trust property was considered by the Court of Appeal as follows:-
- In my view in a case for accessory liability there is no requirement for there to be trust property. Such a requirement wrongly associates accessory liability with trust concepts. That has led to difficulties which were addressed by Lord Millett in Paragon Finance. Accessory liability does not involve a trust. It involves providing dishonest assistance to somebody else who is in a fiduciary capacity has committed a breach of his fiduciary duties. The consequences of those breaches (as this case shows) might have different consequences. One might be that the fiduciary has received a bribe. Another is that the fiduciary has made a profit in breach of his fiduciary duty. Another possibility is that assets are available into which it can be shown were acquired in breach of the fiduciary duty. Third party recipients are also potential candidates. Finally the breach of fiduciary duty might only sound in damages. In all of those cases I can see no logic or grave difficulty where the fiduciary is involved who has committed a breach of his fiduciary duty that an accessory who acts dishonestly in relation to those breaches should not be liable. It must not be forgotten that in most cases the breach can only occur as a result of the activities of the assistor. See for example in AG of Zambia v Meer Care the Zambian parties were only enabled to steal large amounts of money from the Government because of the actions of (in view of the Court of Appeal decision) the Defendants other than Meer Care. It seems to me that it is appropriate that a liability should attach to such assistors.
- In case I am wrong I would adopt the Court of Appeal's analysis in Satnam that the information obtained was confidential and capable of being identified as property for the purpose of such a claim. I must confess I am uneasy about that because of the difficulties as identifying information as a species of property (see the analysis again in Goff & Jones paragraph 33/019). Nevertheless it seems to be plain that the Court of Appeal in Satnam would have found the stranger liable as an accessory if it had been established that he was dishonest in respect of a breach of fiduciary duty by the principle. Given that it seems to me that a finding of dishonesty against RH and GA in relation to the breaches of fiduciary duty of VDB and CB is sufficient to make them liable as accessories. In any event I have found that the misuse of confidential information would be a breach of fiduciary duty if it led to a successful property conclusion. Otherwise as I have set out earlier in this judgment the use of such confidential information was in every case preparatory to an unsuccessful attempt to commit a dishonest breach of fiduciary duty.
- Lewin on Trusts considers that the position is open at the level of the Court of Appeal (paragraph 40-16). It also refers to the first instance judgment in Goose which held that there must be a trust property. For the reasons I have set out above I do not accept that that is the correct decision and I decline to follow it.
- With the application of the above legal principles I now consider RH and GA's role in the 7 identified transactions.
- I have set out the facts above and the determinations in my view of the liability of VDB and CB. The claim against VDB was successful in negligence. The claim against CB failed.
- RH received the first details on 6/12/94 suggesting a rental of either £71,000 per annum or alternatively a freehold basis. RH had a meeting with the selling agents of Leamington Spa which led to their letter 10/1/95 which shows he was still involved on behalf of JDW on both a freehold and leasehold basis. The yellow site investigation form 11/1/96 completed by him did not commit to a tenure. He also asked Lawrence Tring on the same day to inspect the property. The PCF dated 11/2/95 elected for a leasehold title. Wright Silverwood made a second approach to RH on 15/3/95 offering a freehold interest at between £775,000 and £800,000 subject to consents. RH did not deal with this letter in his witness statement and he was extensively cross examined (T29). Ultimately he said he could not recall what he did with it.
- Wright Silverwood wrote a third letter to RH 25/4/95 suggesting the freehold could be had for £900,000 or JDW could take a lease direct from its client. I do not accept either was put to TM as CB asserted in his evidence (see above).
- I have set out above the sudden emergence of Harrovian as a prospective purchaser. RH had a significant role in that.
- In view of my findings above that there was no breach of fiduciary duty by VDB or CB in this case there is no such breach to which it can be said RH is a dishonest assistor. Nor can he be made liable (no such case is pleaded in any event) for the negligence or breach of contract of VDB merely because he was a director.
- The claim in respect of Leamington Spa therefore accordingly fails against RH.
- This is one of the Ferrari 5 properties. It is also one of the two properties referred to by TM in his letter 19/8/98 (above). This is where Peachy (a PF company) acquired a subject to contract right to acquire the freehold for £155,000 but did not exchange contracts to purchase until 8/9/97. On that same day it exchanged to sell it on to JDW for £400,000.
- This property was also referred to in TM's letter to CB dated 19/8/98. I have already observed that RH was copied into that letter and he did not separately reply to it. I have already set out above why CB's reply 26/8/98 was dishonest. RH claimed that the first time he saw the correspondence was in the course of the Second Action although as I have set out above he was copied into the correspondence and in any event it was disclosed in the first action. He dealt with the letter and the response in paragraphs 60 and 61 of his witness statement dated 25/4/08. He acknowledged that he was copied into the letter but stated that the relationship with TM was that of CB and it was his responsibility to answer. He plainly adopts the answers that CB gives in paragraph 61 of his witness statement. Unsurprisingly he was cross examined on this (T30/99 ff). It was put to him (T30/99/8) that when CB's letter was read it was not consistent with RH's recollection of what actually happened and not the full story. His answer was illuminating:-
- It is plain in my view that he cannot have honestly believed that CB's response was an honest reflection of what happened in respect of the transaction. I do not believe that the first time he saw that response letter was after disclosure in the First Action. Given the seriousness of the letter it is inconceivable CB would not have discussed it with RH and GA and formulated a response with their agreement. In any event RH still did not believe that there was anything wrong with the letter as his witness statement shows. The transcript (or at least my copy) has some errors in it. However the following exchange took place (T30/105/5):-
- It is insufficient for RH when dealing with these transactions and the fact that TM requests reasonably explanations as to what went on not to ensure that the truth is told about the transactions when CB replies. The fact that he did not in my view shows that he was willing to allow CB to lie on behalf of VDB, RH and GA when he replied to the letter. The only conclusion I can draw from that is that RH knew that the transactions were dishonest ones and he was willing to allow CB to attempt to fob TM off (in the event successfully albeit only for a short time) with an irrelevant answer to the questions posed. If RH had any honesty I do not believe he would have allowed CB to write the letter that he did.
- He compounds his dishonesty by seeking to maintain CB's response as genuine and in effect embracing the dishonest explanations put forward by CB. His only attempt to evade responsibility is to blame it on CB (see paragraph 115 for example). Yet even in that answer he does not explain the position satisfactorily. He was told by CB that clients of PF had agreed to purchase the freehold and that there would be a lease created in favour of JDW. I cannot understand how as an experienced property surveyor who had a task to obtain the best for JDW in acquisition he could ever believe the proposed transaction was in the best interests of JDW. He decided to ally himself with CB in his dishonest evidence to present a common front as against JDW. He was in addition prepared to go to Court and lie about the transaction in my view and that is what he did.
- Accordingly in my view RH knew the transaction was a dishonest breach of fiduciary duty on the part of VDB and CB. He had a role in that as set out in the summary of the transaction above. He embraced the lies CB told about it in August 1998 and he persisted in that stance in his evidence. In my view his conduct as such was dishonest and fell short of the standard required. He therefore provided dishonest assistance and I am quite satisfied that conduct satisfies the test for dishonesty summarised in law above.
- This too was another Ferrari property.
- I refer to the circumstances of the acquisition of the freehold of the property by Nickelby and the simultaneous grant to JDW. Of significance also as set out above is the involvement of RH and GA immediately after the completed sale of the reversion in making attempts to market the sale (with the benefit of the JDW completed lease) to third parties.
- RH was plainly inextricably involved in the concealment of the freehold from JDW. He was also involved in the subsequent sale on behalf of Nickelby. His conduct in both areas cannot have any honest explanation. It is not sufficient for him to say that CB took personal responsibility for it and that he was not a party to the discussions between him and TM. He is clearly involved despite his attempts to distance himself from it. He received the acceptance letter 15/2/96 (despite it being a response to CB's letter 12/2/96). He sent it on to PF on 15/2/96. He cannot have omitted to notice that the purchaser's solicitors are named as DJ Freeman despite the fact that it is plainly an acceptance made on behalf of JDW. He is a director of VDB. He is a surveyor of experience and he must have asked the question as to how VDB's offer on behalf of JDW was transferred into an acceptance by Nickelby Holdings. He must also have questioned in my mind why having considered a freehold acquisition (ostensibly) for such a long time that JDW suddenly decided to take a leasehold interest. He did not question it. In my judgment this is because he all along dishonestly knew that JDW was never going to be offered the freehold. At the very latest the switch occurs after the offer is accepted. Even if he did not know that was the plan before that letter he cannot simply unquestioningly participate in a switch of the freehold to Nickelby in this way. It is further compounded when he participates in the subsequent sale on of the freehold by Nickelby which generates the profit it made.
- If I am wrong then RH has simply closed his eyes to everything that CB has done and has unquestioningly implemented the diversion of the freehold to Nickelby and its subsequent marketing without asking the obvious questions as to whether or not this transaction was proper and in the interest of JDW. Any surveyor in his position in my view if he was honest would not blindly accept that this transaction was something that JDW would have agreed to. On that basis RH is dishonest on the basis of wilfully shutting his eyes to something which is obviously improper and ought to be improper to him given his role on behalf of VDB acting supposedly in the best interests of JDW. This in my view is classic blind eye dishonesty see the Zambia case.
- In his cross examination (T29/144) he was taken to CB's letter of 12/2/96. His comment on it was that he thought the letter was a very good letter and it turned out to be a very successful letter. The difficulty about that answer of course is it proved to be successful for Nickelby because according to CB and RH before even the acceptance to that letter was received TM had changed his mind and decided to go leasehold.
- He was also cross examined about passing the acceptance letter on to PF having spoken to him on 14/2/96. He acknowledged that he did that and secured on a subject to contract basis the VFH for Nickelby before even there was any discussion as between it and JDW about the terms of the prospective JDW lease. He attempted (T29/154) to suggest that the increased price was the reason for changing but that does not square with the fact that the change occurred after the offer had been made when the increased price required was known.
- He acknowledged that he would have told Cluttons that JDW's solicitors were DJ Freeman (T29/159/14). His explanation namely that he believed he told them that the purchasers were Nickelby is completely unconvincing. I am firmly of the view that he inserted DJ Freeman so that there would be no writing to actual solicitors retained by JDW. This is a further act of concealment of the diversion of the freehold in my opinion and RH is dishonestly involved in that diversion by doing what he did. Given all of those in my judgment RH participated in the switch to Nickelby and he did so dishonestly and fell short of the standards required of him given his status and experience and was dishonest in the terms set out above that are required to make him liable for dishonest assistance. I therefore conclude he dishonestly assisted VDB and CB in the diversion of Canterbury 1 to Nickelby and its subsequent sale on for profit which he was also involved in.
- I have set out above the details of this transaction and my findings as regards VDB and CB. RH clearly had a significant role (as summarised above) in the transactions. The question for consideration is whether in so acting he dishonestly assisted VDB and/or CB in breach of their duty. RH attempts to portray himself as a mere postbox for the various parties (paragraph 103 of his witness statement). That is insufficient in my judgment. He is a director of VDB and he cannot absolve himself of his duties as a director (however he came to accept the office) to ensure that VDB behaves properly in relation to fiduciary duty it owes to JDW by abrogating it all to CB. That in my judgment would be clear blind eye dishonesty.
- It will be seen that the initial stages of the transaction RH was proceeding on the basis that the transaction would proceed with a leasehold acquisition. RH was put on notice by Nicholsons (letter 10/2/97) that the costs would be more extensive because of the listing of the front. Yet the earlier PCFs suggested a leasehold acquisition. Despite this warning RH's case is that TM reverted to a freehold offer by the offer 20/2/97. Initially in cross examination RH said that JDW after receiving the Nicholsons letter 10/2/97 decided to go for a leasehold solution (T29/189/8):-
- It was pointed out to him that the ensuing offer was a freehold offer. He acknowledged that the reference 20/2/97 in the JDW database did not assist because it was not made until at least 1999 (T29/192/18).
- Although he attempted to suggest he had discussed the leasehold possibility with Core Commercial he acknowledged that the documentation did not support that (T29/196). He could not satisfactorily explain how it came to be that Core Commercial thought (from him) that JDW's solicitors were Howard Kennedy when they were not.
- Later he suggested that Warrant was introduced so that JDW could control the transaction (T30/22/12). Despite the original early willingness on the part of the sellers to consider a leasehold interest he was unable to explain why JDW simply did not make a straightforward offer to the sellers for a lease as an alternative to the freehold. Further I do not see how handing the freehold to Warrant without a binding commitment from it either to acquire or (more pertinently) a binding commitment from it to grant a lease to JDW is giving JDW control. It actually exposes JDW to risk. It assumes the burden of obtaining the consents and does so without any guarantee that it will obtain any interest in the property let alone a leasehold interest even if its efforts bear fruit. There was no exchange until 8/8/97 so JDW were exposed for over 6 months.
- JDW in its closing extensively criticised RH's failure to negotiate a lease properly or look after JDW's interests especially in failing to negotiate the leasehold interest with Core Commercial as opposed to the more expensive one with Warrant. It is plain from the note on CB3/45 that RH discussed the rent and the reverse premium after the freehold offer comprised in that letter was made. The only justification given for the 50% increase in the rent from that which was available from Core Commercial's clients is that JDW wanted a reverse premium. The reverse premium of £175,000 plus the 4 months rent free represents nearly 3 years rent free but then has a debilitating effect starting with the first upwards only review. I cannot see that TM would have agreed a leasehold on the terms set out had he known that the freehold was there for £500,000.
- On 25/2/97 RH as I have said sent out a memorandum of terms of agreement to McLellans indicating correctly McLellans being JDW's solicitor. On the same day having received the blank offer of acceptance by Core Commercial on 25/2/97 he communicated to them that the solicitors for JDW were Howard Kennedy. RH attempted to justify this by saying he had the purchasers wrong but the solicitors right. I do not accept this. If he had introduced a third party purchaser the statement in the final sentence of the acceptance letter showing relief that JDW was involved would not have been written. It would have been concerned about an attempt to sell the reversion to Warrant a company which was unknown to Core Commercial and did not have JDW's expertise and probably could not demonstrate it had funds to complete any purchase.
- It cannot be that he put the solicitors name in by mistake because he sent out Heads of Terms under the lease correctly identifying the solicitors. In my view this was a deception perpetrated by RH on Core Commercial. He attempted to give them the impression that JDW was making an offer for the freehold when it was not and disguised Warrant's presence by putting Warrant's solicitors in the box so there would be no communication to McLellans by mistake. He wrote back deceptively on 25/2/97 thanking Mr Marriott at Core Commercial for the acceptance of their Heads of Terms in respect of Canterbury 2 "and my clients JD Wetherspoons Plc". This is a deception if his evidence is to be believed. It perpetuates the impression given to Core Commercial that JDW is buying the freehold when in my judgment it has not even made a bid for it.
- In my judgment this is part of the deception. The same thing happened in Canterbury 1 which had occurred the year before and RH was dishonestly (as I have found above) marketing Canterbury 1 on behalf of Nickelby at this time.
- I have no evidence showing a correction to the Heads of Terms. Warrant exchanged to acquire the freehold on 8/8/97 but I have not been provided with any details of that acquisition. I do not know when Core Commercial were told the freehold sale was switched to Warrant but I am quite satisfied it did not occur in February 1997. I do not believe for one minute that Core Commercial were informed of that switch until the transaction was well down the road. This is how the evidence emerged during cross examination. Although it is alleged that the matter was not pleaded to the level of dishonesty that emerged in my view it is plain that an amendment to allege it will be allowed as JDW will suffer unfairly if it is not able in this instance to establish a liability on the basis of the evidence which it could not have discovered until cross examination. If necessary I will entertain an application by JDW to amend its claim under this head to reflect the evidence as I have found it.
- I do not overlook the fact that in April 1997 RH received the Kettering bribe.
- It is clear in my view that RH participated fully in the dishonest actions of VDB and CB as set out earlier in this judgment. I have set out his role above. I do not see that this conduct is such as to lead to any other conclusion that he was a dishonest assistor in the terms required to make him so liable as set out in the authorities referred to above. Alternatively if his explanation (which I do not actually believe) is that he knew nothing about it and CB was the person responsible for it in my judgment that is blind eye dishonesty in any event.
- I therefore conclude that RH was dishonest in respect of Canterbury 2.
- I therefore conclude that RH provided dishonest assistance in respect of Folkestone, Canterbury 1 and Canterbury 2.
- The claims against GA are in respect of Rotherham, Burton and Bedford. I will deal with those in turn.
- I have set out above GA's role in the acquisition of the freehold. As I say there GA dangled the property in front of Dencora by enclosing rough calculations which are lost (26/9/94). He also deceived a letting agent dishonestly in his letter 19/10/94. I do not accept that this was an offer written on behalf of JDW. The evidence CB and GA provided was that JDW had a leasehold intent by this time. GA negotiated between Dencora and the Vendors. The letter 15/11/94 to Dencora demonstrates his dishonesty in my view he progressed the matter in favour of Dencora and asked them to "appreciate our involvement in this part of the transaction" he then sought a fee. I cannot as I have said earlier in this judgment understand how the seeking of a fee in these circumstances can be anything other than a dishonest breach by VDB and CB. GA is participating in it. GA carried on the deception in his letter 8/12/94 to HDH the selling agents carefully hiding the fact that the client did not necessarily mean JDW throughout the letter.
- GA further was deceptive in the correspondence as I have set out earlier in the judgment. I do not accept that the deception of HDH was done on behalf of JDW as I have said. After GA's attempts to renegotiate with HDH on behalf of Dencora failed GA then brought First London in to take over the freehold. GA then corresponded with HDH on behalf of First London (having said to them that he had cleared the way for it to acquire the freehold).
- I do not believe him when he says he sought First London at the behest of RS. I cannot see RS (although I have not heard from her) having any role in such an arrangement. The dishonesty is that according to their evidence CB and GA were told almost immediately by TM that the only option was a leasehold option. HDH as their letter of 23/9/94 shows were willing to consider either a freehold or a leasehold offer. Yet GA on 19/10/94 makes the first bid on behalf of "my clients" of £875,000. This is on the basis "we are interested in the freehold only…." In fact according to GA's evidence by that time the client meant Dencora.
- It certainly was not JDW for two reasons. First if JDW had an interest it was leasehold only. That is consistent with TM's evidence and also with CB and GA's evidence. It is quite clear from Dencora's letter of 1/11/94 that their only interest was on making a turn on the property. I have already commented on the statement in that letter but Dencora was intrigued to know why the present vendors would not do a deal with Wetherspoons whereby they obtained vacant possession from Mr Harper. The reason is of course because GA does not put forward any offer on behalf of JDW to HDH. If the position was that TM genuinely only wanted a leasehold interest there is no need for the convoluted introduction of Dencora; as HDH had shown in their initial letter an offer from JDW for a leasehold interest would have been considered. Yet no such offer was ever tendered to them. Quite the contrary GA wrote saying the only offer of his clients was a freehold one. There is no commercial or logical sense in the introduction of Dencora in my opinion. None was given by CB or GA. I do not accept again the white knight scenario portrayed as the introduction of Dencora.
- Second CB and GA's case TM rejected a freehold potential without knowing any price or costings as early as September 1994. This in my view is extremely unlikely.
- In addition GA admitted that requesting 2 fees without informing a client in writing was a breach of RICS rules.
- In the ensuing correspondence between GA and HDH he clearly gave a false impression that his client was JDW when all the correspondence was on behalf of Dencora unknown to HDH.
- GA introduced Dencora to HDH in his letter 13/2/95. The letter falsely suggested an agreement to lease had been entered into with Dencora by JDW. This was plainly done to assuage HDH. Further it falsely gave the impression that JDW had relatively recently become reluctant to purchase the entire property. According to the Defendants' evidence that had been JDW's position since September 1994. None of the earlier offers put forward by GA were on behalf of JDW in reality as GA admitted. The purpose of this was to introduce Dencora to the transaction by associating it with JDW. CB initially said this letter was sent without his knowledge (T22/18/18). When the falsity of the letter was put to him he considered it was "just a negotiating term" (T22/30) and that it was "Ok to mislead people" (T22/36). He did not understand that it was necessary that every representation made in negotiations should be truthful (T22/35). GA accepted that he had not come clean earlier with the switch to Dencora and accepted that there was no agreement for lease and that suggestion was untrue.
- On the same day GA wrote to Dencora setting out terms of the proposed lease to JDW. The rent had increased to £55,000 by this time. The earlier evidence suggested that rent increases would be necessary on a freehold price of £905,000 for Dencora to make a profit on the transaction. The opening paragraph is certainly ambiguous; it is not clear who GA is acting for when he wrote that sentence. It is doubtful that anybody reading it in JDW would understand that at that time GA had made an offer on behalf of Dencora to acquire the freehold on the same day. Once again it is a situation where double letters are sent out to people who are supposed to have a common interest when it could all be set out in one single letter addressed to both parties detailing the freehold offer and the corresponding leasehold offer.
- It is the Defendants' case that all of this was known to JDW but I am unable to accept any honest explanation as to why the letters were split in this way. It was in my view calculated to hide the existence of the concurrent offer to buy the freehold with the lease. It would have also of course in addition revealed the falsehoods in the HDH letter.
- Dencora pulled out in April 1995. By this time GA had become a director of VDB (5/1/95). The stated reason was that the rental being sought was too low in the context of the proposed purchase price and the desire to make a profit. Dencora suggested a reduction of the purchase price to £830,000. GA wrote to Dencora 27/4/95 saying he would try to renegotiate the freehold price. He is in that capacity of course not acting for JDW; he is acting for Dencora concerning their proposed freehold purchase. Dencora withdrew 12/5/95. On the same day GA wrote to HDH requiring on behalf of JDW a reduction of the purchase price by £100,000. He then dangled a new freehold purchaser First London stating "JDW have now teamed up with them". He further dangled the prospect of an exchange within two weeks provided the purchase price could be reduced.
- TM denied he knew about this. GA was copied into correspondence between RS and SL on 26/5/95. She was expressing anxiety about the delay in exchanging. He lied to her when he gave the reasons for the delay. First he said several tenants had to be relocated and second the high fit out costs meant that they were looking to redesign the scheme as best as possible. GA was unable to explain why he could not have renegotiated a reduction of the freehold on behalf of JDW. He repeated this in his letter of 12/5/95 when he sought a decrease in the purchase price not for JDW but the replacement white knight. He claimed in his witness statement that he had a conversation with RS (paragraph 55). She was said to be furious that Dencora had withdrawn and asked him immediately to find another investor. RS of course has not given evidence.
- That does not mean however that I accept GA's evidence. I cannot see that there is any point in having such a discussion with RS and I disbelieve him. She has no authority to get involved in matters like that and the reality is that if there were any such discussions it would have been between GA, CB and TM would be involved. I can find no credible reason once again when Dencora pulled out GA if he was acting honestly and properly for JDW would not have simply said to JDW that the freehold was available. The reason he did not do so (and the reason why for example he lied in the letter to RS above) is because he was concealing in my view the existence of the availability of the freehold from JDW. I accept JDW's criticisms of GA's answers in respect of RS in paragraphs 902-905 of their written closings. It is of course the first time that HDH are told in the letter to them of 12/5/95 that JDW is not going to be the purchaser but someone teamed up with it is. The reality is that if there is any genuiness in this anger on the part of RS over Dencora pulling out he (GA) would have given that as the reason to her in his letter of 25/5/95 referred to above namely the need to find a new White Knight.
- He clearly made no attempt to acquire the freehold on behalf of JDW. He plainly told HDH that JDW were not interested in the freehold as they prepared a marketing exercise for others on the basis that JDW would occupy part as a tenant. The draft letter dated 22/5/95 sought a price of £905,000 but subject to a JDW tenancy of £85,000 but with a reverse premium of £200,000 and a 4 month rent free. GA told SL that the problems were with the tenant on 24/5/95 (H4/2/266). That was after he had passed on RS's chaser to him. If everybody (including the white knight) were working together the wording of the correspondence is somewhat surprising. It is also surprising in the context of what GA said took place in conversations with him and RS.
- In fact nothing came of the marketing exercise by HDH and the transaction as I have set out above was strung out until exchange took place on 19/9/95. The purchase price had dropped to £850,000 by then but the rental had increased to £85,000 and the reverse premium had dropped to £183,500. Once again this was a simultaneous exchange so that for the whole of the period from October 1994 through to September 1995 JDW would have been in a position to bid for the freehold if it wished. GA knew this because of his intimate involvement in the transaction. Equally during the whole of that period there was no reason why JDW could not have negotiated direct with the sellers to take a lease and then have the property sold on. Once again of course the acquirers of the freehold contributed nothing towards the planning process. Also they put down no deposit until exchange. Completion took place on 17/11/95.
- Once again GA had requested a fee for introducing this transaction to First London (CB2/17). He plainly concealed that request from JDW. Once again on 13/6/95 there were separate letters written to the various parties by GA which (certainly as regards First London) could have been written in one letter as it and JDW were supposed to be working together. Although GA denied that any fee was obtained either by VDB or him that is a question for stage 2.
- Once again JDW is being charged for introducing First London and First London is being charged for introducing JDW. Although the latter is disguised by suggesting it is a fee for the introduction of the freehold First London is only interested if there is a JDW lease. GA acknowledged (inevitably in the light of his letter) that a fee was sought. He was unable to remember why it was not paid (T31/134/12).
- Further the transaction seemed to be very attractive for First London. The contractual purchase price apparently dropped to £800,000 and 3 months after completion (H9/193) they were told that the property was worth between £1,200,000 and £1,275,000. That increase in value is entirely due to the presence of JDW and the fit out it incurred. The maker of the report suggested the rent was over rented. That is down to the reverse premium and I am not convinced that was anything other than a deliberate decision by JDW to seek a reverse premium with the attendant risks to that exercise. Nevertheless First London by January 1996 on the basis of that contemporaneous valuation would have made a gross capital profit of £515,000 (less the deductions including of course the reverse premium). The valuation is a little over 2 months after First London acquired the property. Its only expenditure apart from costs would be the financing of the acquisition and the reverse premium. It is therefore making a very large profit in a very short time.
- GA's role in this is significant. He appears to be the person communicating with the freeholders and HDH. He sought the fees (twice). I reject his evidence that all of this was done with the knowledge and approval of JDW. In particular I reject as I have said his version of the evidence of RS. I cannot see the way in which the transaction was dovetailed towards these freeholders it can ever seriously have been argued to be beneficial for JDW. The point of the exercise is to steer the freehold to a third party who made a large profit at the expense of JDW. It also appeared to be to generate an extra fee for VDB. I cannot see how this can be said to be honest. GA's conduct as set out above seems to me to be dishonest within the meaning of the legal requirement for dishonest assistance as set out above. I conclude therefore that GA is liable for dishonest assistance to VDB and CB in breaching their duty owed to JDW. The transaction once again as I have said does not make sense from JDW's point of view. The attractiveness of the freehold was seen by First London almost immediately after they were brought in. An internal memorandum 11/7/95 (with a purchase price of £850,000 and a reverse premium of £200,000) showed a valuation of £1,350,000. I cannot see how it can be argued that those kind of figures would not have been attractive to JDW. I cannot see how anybody with GA's experience and background would not have seen that. Yet the one thing that does not happen is JDW making an offer for the freehold. This is because it was not aware of the freehold in my view.
- In so concluding I should make it clear that I reject CB's and GA's versions of events about discussions with TM and between themselves. I do not accept that there were any discussions between CB and TM as he says in his evidence. These are lies in my view. The availability of the freehold was concealed from JDW by the actions of CB and GA. He made a point in his closing based on the letter 13/2/95. However in my view it is one of many carefully crafted letters designed to hide the fact that (Dencora at this time) was acquiring the freehold at that time. He has to tell JDW's lawyers something. He therefore copies them into a letter which refers solely to the leasehold interest. I agree it refers to "agreeing terms with the vendors" but that is too subtle in my view. What GA concealed was the terms of his letter 13/2/95 to HDH expressing JDW's supposed reluctance to purchase the entire property and its agreement (already allegedly made) to take a lease from Dencora.
- As set out above Bedford is one of the Ferrari 5. GA was involved in making the original offer on 31/7/96 on behalf of JDW to purchase the freehold for £810,000. That was accepted by the letter dated 5/8/96 but then GA wrote 7/8/96 withdrawing the offer on behalf of JDW and putting Belvedeer in its place stating an agreement for lease was already in place with Belvedeer. GA was also responsible for simultaneously passing on the leasehold Heads of Terms to SL. CB telephoned SL on 13/8/96 informing him that JDW had decided to take a lease rather than a freehold purchase. GA wrote to the selling agents on 7/8/96 (CB2/287). It described Belvedeer as being a joint venture partner and wongly asserted that the Heads of Terms were already in place for a lease. Both CB and GA admitted those statements were untrue and no reason has been put forward for them. It is possible as I have said above that it might have been an attempt to assuage the sellers as a result of JDW's decision to go leasehold rather than freehold. In my view it was in fact a deception to justify the switch to Belvedeer. Once again the letters to the various interested professionals are separated out. The reason for that of course is to hide the statements in the letter to the selling agents. It is inconceivable that anybody within JDW (for example) had they seen that would have ever agreed to a suggestion that Belvedeer would be regarded as a joint venture partner.
- In addition of course GA has a direct role in marketing the property on behalf of Belvedeer less than 2 weeks after it had acquired the freehold and granted the lease to JDW. There was clearly a request for a share of fees "on the usual understanding". The sale of the freehold was effected to JDW at a cost of £1,250,000 as opposed to an acquisition by Belvedeer for £810,000. It had "accepted" GA's offer on behalf of JDW to acquire the freehold at that price.
- GA's evidence is that the apparent change of JDW in early August 1996 was communicated to him by TM and that a white knight was needed. CB was happy to oblige introducing PF. There is the splitting of the correspondence on 7/8/96 by GA. There was one slip in that Belvedeer solicitors had already contacted McLellans. GA corrected that on the telephone to SL on 13/8/96. I have already determined that there was nothing in that correspondence that would have put TM on notice that the freehold offer that GA had made on 31/7/96 had been accepted and that the freehold was available and a price subject to contract agreed. As I have said above there was nothing on a costing basis that would lead JDW to change its mind between 31/7/96 and 7/8/96. Neither CB nor (who signed the letter 7/8/96 to the selling agents) GA who's letter it was could explain the reference to the joint venture. This is extremely damaging because in my view it is a dishonest deception. The person deceived is of course the seller. The purpose of the deception is to smooth the way for Belvedeer to arrive by portraying it as a joint venture partner with JDW.
- If there was a genuine white knight arrangement then that could have been referred to in the other correspondence 7/8/96 and the acceptance of the offer by Belvedeer would certainly not have been described as a joint venture partner. It is impossible to believe that JDW would ever accept such a designation of a freehold purchaser. The second falisity in the letter is that statement that an agreement for lease was already in place. When that letter is written subject to contract Heads of Terms of a leasehold interest are sent out on the same day. It is not possible to believe that second sentence could have been honestly believed when it was sent. I do not accept that deception was made with the authority of JDW. In my view it was part of the smoothing process in respect of Belvedeer. GA and CB know it is untrue. Although the letter was signed by CB GA acknowledged he drafted it (T31/194). This is dishonest conduct on the part of GA in my view. There can be no honest explanation for this switch. GA is inextricably involved in it and I reject his suggestion in his evidence that he was merely implementing things told to him by CB. It does not excuse the lies in the letter he has drafted.
- His dishonest conduct is further exemplified by the fact that he felt quite able 2 weeks after the acquisition of the freehold by Belvedeer to attempt to market it on its behalf and seeking a fee.
- An attempt was made to suggest that the willingness of JDW to acquire the freehold at a largely increased price a year earlier was down to the increase in turnover. The evidence did not substantiate such a stance as set out in JDW's closing (paragraph 1199). The turnover showed an initial rise and then fell back to normal levels.
- Accordingly I conclude that GA was dishonest within the requisite level of dishonesty to make him liable for providing dishonest assistance to VDB and CB.
- In this case Winn Properties/First London exchanged contracts to purchase the freehold on 3/6/96 at a price of £500,000. Simultaneously it exchanged an agreement for lease to JDW at a rent of £92,500. In addition JDW was retained as its agents to carry out its landlord's works as defined subject to a maximum cost of 175,000 plus VAT and the landlord contributed £100,000 towards the tenant's works as defined.
- GA was acting on this transaction. It was first introduced to him by Mason Owen in late 1995. His evidence was that JDW was presented with 2 alternative leasehold proposals. CB's evidence was that GA told him that the freehold might be available but he (CB) considered it would not be appropriate because of the overhead commitments. Nevertheless he relayed it to TM who told him he was not interested. GA on being informed of that apparently felt able to contact First London to see whether it might be interested in buying the freehold i.e. interposing itself between the sellers and JDW. CB said this was done without instructions but he saw nothing wrong about it.
- GA corresponded as set out above with FL for the acquisition of a leasehold interest by JDW (letter 28/3/96). Earlier (7/3/96) he had introduced the property to FL. He indicated in that letter that he would wish to share the fees with Mason Owen although he would not require a letting fee for the part let to JDW. Of course VDB would obtain a letting fee from JDW however if it took place. I have already referred to the interesting Mason Owen internal notes 7/3/96. This makes referece to GA introducing one of his "tame" developers.
- As I have already set out GA provided no evidence for the need to introduce a developer tame or otherwise. The best he could say was that he did not think JDW would be interested in purchasing a property part sub-let to a fashion retailer. This is incredible because that is exactly what happened in any event. In his letter to First London he asked Jason Harris to keep the fee arrangement confidential.
- For the reasons I have set out above I do not believe CB or GA offered the freehold to TM. In so rejecting that evidence I also reject any suggestion that there were any discussions between CB and GA as they allege in their evidence. They do not give any reason for TM apparently rejecting the freehold without any knowledge as to what the freehold price would be and without any knowledge as to any possible rentals. GA made a handwritten note 19/3/96 recording FL offered a lease of the whole of the property at £85,000 or £75,000 for part. CB when shown this document said he did not recognise the handwriting. GA admitted it was his. I do not believe CB. There was a further handwritten note (undated) of GA working out calculations to bid for the property (CB2/207A).
- GA in his closing submissions (paragraph 83) refers to the cross examination of GA being "a wave and pass by" cross examination. It is fair to say that it was not as lengthy as some of the cross examination of the other Defendants in this case. However the introduction of the property to First London by GA and the request for fees and confidentiality are not actions in my view that are honest. It is not suggested that this was CB's idea (although he did not find anything wrong with it). No reason has been put forward of any credible nature as to why JDW would not bid for the freehold. The sole purpose of introducing the freehold again in my view is for a profit to be made on it. I cannot accept that if the freehold was known to be available JDW would not have at least attempted to acquire it.
- I therefore simply do not believe CB and GA in their evidence. Accordingly I am of the opinion and determine that GA has been dishonest to the requisite legal test so as to make him liable for dishonest assistance to VDB. There is no other explanation of any credible nature for the way in which he brought First London into this acquisition.
- I therefore conclude that he is liable for dishonest assistance in the 3 transactions where he was involved.
- A common theme in the Defendants' closing was that there is no evidence showing any substantial profits were made by reason of these breaches by VDB or others. Alternatively it is suggested that the Defendants (although fees were admittedly sought) would not have been dishonest for such a paltry level of fees. In my judgment there are two answers to that point. First as I have said on a number of occasions in the course of this judgment I am trying liability only. Whether or not profits have been made is for stage 2 after full disclosure. Second as regards the fees I am afraid there are occasions where professionals act dishonestly in transactions where they are retained merely for fees. I am not persuaded that the level of fees sought is necessarily unattractive. This therefore is a non point.
- As earlier summarised the First Action has allegations that VDB, CB and RH in breach of their fiduciary duty diverting opportunities to companies they were interested in namely Old Bacchus and Old Aberdeen and these in turn leased them to Barracuda a bitter rival of JDW. The 4 properties in question are Dalkeith, Sidcup, Maidstone and Leominster.
- I have already determined that RH and GA did not owe any fiduciary duties. I have dismissed the First Action against RH. There is as I have said no claim against him in the First Action for liability for dishonest assistance.
- These properties were not extensively touched on in the trial save Dalkeith it was an attempt to commit a dishonest breach of a fiduciary duty but was unsuccessful. However this property acted as the trigger for JDW bringing these claims. I have extensively examined the Dalkeith property transaction earlier in this judgment. I concluded that the attempt to switch Dalkeith to Barracuda was a breach of VDB's and CB's fiduciuary duties entitling JDW summarily to terminate VDB's contract.
- The reason for that is I do not accept (even if there is no exclusivity) it is proper to deal with Barracuda because of the clear conflict of interest which would inevitably ensue.
- The reason is there is such a conflict of interest if it purports to act for Barracuda that in my judgment it is not possible for it so to do. I do not accept that CB and RH's involvement in Old Bacchus and Old Aberdeen is of itself improper. What would be improper is if on behalf of those companies they either used confidential information acquired by VDB from JDW. Alternatively if they acquire business opportunities that come VDB's way when acting on behalf of JDW that is improper. Finally in addition for the reasons I set out above I do not see that it can be proper for those companies (with the share holder involvement of CB and RH) to be involved directly or indirectly in a situation where there would be a conflict on the part of VDB. I do not believe it would be proper for them to acquire properties in those company names and let them to Barracuda.
- Of the 4 properties Dalkeith and Leominster did not lead to a successful acquisition. Maidstone was going to lead to a successful acquisition but by reason of the injunction obtained by JDW on 30/3/05 Barracuda served notice of their intention to terminate the agreement for lease drawn up by Old Bacchus and Barracuda.
- All of these properties came to the attention of Old Aberdeen or Old Bacchus via VDB. It is VDB and CB's case that the properties were rejected as being unsuitable for JDW.
- In the case of Sidcup for example CB stated that the property was too small for JDW and he therefore decided not to pass the details to JDW but instead Aberdeen made an offer to purchase the freehold. As I have said I see nothing improper if such an occasion occurs provided it does not result in a transaction which puts VDB/CB in a conflict of interest. Once it is proposed by Old Aberdeen or Old Bacchus to let the premises to Barracuda that in my view is a breach of the fiduciary duties owed by VDB and CB. It is simply not correct to pass these opportunities onto a competitor of the nature of Barracuda.
- There is a dispute between JDW and VDB/CB as to whether these premises were suitable for JDW. It is impossible for me to come to a conclusion on that evidence. However it does not matter. For the reasons that I have already said I do not see how VDB/CB can be indirectly involved in an acquisition by Barracuda.
- In the case of Maidstone JDW accepts that this was presented to VDB and rejected. However that does not in my view enable VDB/CB to market it on to Barracuda. That in my view was a dishonest attempt to commit a breach of fiduciary duty.
- I do not see the case as being any different to that of (for example) Industial Development Consultants Ltd v Cooly [1972] 1 WLR 443. VDB is put in a position of conflict by the actions of its directors in diverting the opportunity away to a competitor of JDW. Thus VDB and CB breach their fiduciary duty. It will be appreciated that VDB was CB's company.
- I therefore conclude that in respect of the completed transaction of Sidcup there is a breach of fiduciary duty by VDB/CB. Whether that sounds in damages, account of profits or even a proprietory claim is a matter for investigation on the inquiry. In respect of the other 3 properties no completed transaction took place and therefore the requesting of the fee and the use of confidential information amount to an attempt to commit a breach of fiduciary duty but no actual breach occurred as the transactions did not conclude. As I have said above Dalkeith justified a termination of VDB's contract and Maidstone was terminated by reason of the injunction.
- That is my conclusion in respect of the First Action.
- The Claim Form in the First Action was issued on 30/3/05. The breaches must therefore have occurred after 30/3/99 for there not to be a prima facie limitation issue. The one viable claim in the First Action falls within that period so there is no limitation issue in the First Action.
- In the Second Action the Claim Form was issued on 17/11/06. Any claim must therefore have occurred after 17/11/2000 to avoid a limitation issue arising. The transactions in the Second Action fall in the period 1994 – 1997. They are all therefore prima facie statute barred.
- All Defendants in the Second Action raise a limitation issue in their respective Defences.
- JDW in its Amended Reply to the Re-Amended Defence of VDB and CB acknowledges that the cause of actions accrued more than 6 years before the proceedings but denied that they are statute barred for the reasons set out. First it is said that the claims in respect of all properties (save Leamington Spa which has failed) are subject to section 21 Limitatin Act 1980.
- Althernatively JDW contends that section 32 LA 1980 applies in that the action is based on the fraud of the Defendants or its right of action is being deliberately concealed from it for a number of reasons. First it is said the Defendants as fiduciaries had ongoing duty to disclose all or any of their breaches until at least the termination of their fiduciary duties. Second JDW relies upon the responses sent by CB in his letter 26/8/98 which concealed the breaches and gave a false and misleading position.
- JDW contends that it did not discover the fraud or could not with reasonable diligence have discovered it until 2006 when it obtained the Defendants' files.
- It repeats the plea in its Reply to the Defences of RH and GA.
- It must be appreciated that the successful claims against the Defendants are different. I have determined that VDB and CB owed fiduciary duties and broke those. I have determined that RH and GA did not owe fiduciary duties but that they dishonestly assisted in a number of transactions. It is necessary therefore to consider the limitation issue against the Defendants in a different light based on their different liabilities.
- On 4/5/07 Lewison J delivered a judgment on applications issued by VDB, CB and RH to strike out the Second Action on a number of grounds. One of them included contentions that all the cause of actions were statute barred. GA made no such application as Lewison J observed in paragraph 3 of his judgment. I have considered his judgment carefully. However it must be approached on the basis that it was in response to an application by VDB, CB and RH to strike out the claim on the grounds of limitation. What he concluded was that the case could not be said to be statute barred. He of course did not know the facts but assumed for the purpose of the present application that if the facts that were alleged by JDW were true there would be a response to the prima facie limitation point based on section 21 and section 32 LA 1980.
- As I said GA was not a party and I do not consider Lewison J's ruling as being definitive for the purpose of this judgment. In my view he was dismissing an application at the preliminary stage and did not intend to create an issue estoppel as between the parties on the limitation issue especially as GA was not a party which could have led to a different conclusion at trial.
- I therefore consider the limitation issue afresh.
- The relevant statutory provisions are as follows:-
- I accept the division of fiduciaries for the purpose of section 21 (1) (a) set out in the Court of Appeal in Gwenbe Valley Development Company Ltd v Koshy (No 3) [2003] EWCA Civ 1048, [2004] 1 BCLC 131 . For there to be an exception to the limitation period by virtue of section 21 there must be a pre-existing trust relationship or a pre-existing relationship analogous to a trust. In my view the fiduciary relationship owed by VDB and CB falls within section 21 (1) (a).
- By contrast dishonest assistors although sometimes called constructive trustees do not fall within that category (despite the expression "Trust" and "Trustee" extending to a Constructive Trustee under the LA 1980 (ibid section 38 (1) referring to Trustee Act 1925 section 68 (1) (17)). The position was reviewed by the Court of Appeal in Paragon Finance Plc v DB Thakerar & Co [1999] 1 All ER 400 C.A. Although the opinion was obiter it has been described as strong opinion (Lewin on Trusts paragraphs 44-49).
- I have determined that the conduct of VDB and CB was dishonest in respect of the surviving transactions in the Second Action. It was plainly also fraudulent. It follows therefore that I am of the view that Seciton 21 (1) (a) disallows any limitation period in respect of breaches of duty.
- This can apply both to people who commit breaches of fiduciary duty and dishonest assistors see AG of Zambia v Meer Care & Desai [2007] EWHC 952 (Ch) at [384]. This aspect of my decision was upheld by the Court of Appeal see above.
- Lewison J was of the opinion that the August 1998 correspondence amounted to a deliberate concealment. In my view that is correct. Further although the TM letter was sent by CB it was copied to RH and GA. At that time both were also directors of VDB. I have commented adversely on the letter already and in my view it was a dishonest response and was designed to conceal the dishonest and fraudulent breaches of duty specifically referred to. In my view it also has the effect of putting JDW off any further investigation.
- I refer to my analysis of section 32 in Zambia above at paragraphs 376-422.
- The Court of Appeal also approved this part of the judgment (see above).
- There are 4 matters to be considered:-
- The answers are as follows. First the action is plainly based on fraud. Second the action has been deliberately concealed in my judgment by VDB, CB, RH and GA. The deliberate concealment took two forms. First I have referred to the letter above in which all were involved. As JDW has shown in its closing the position of RH and GA in relation to this letter was devastatingly exposed in cross examination. The reality is that they received TM's letter and knew CB was going to reply and chose not to reply themselves. They plainly relied on CB to write a letter not only on VDB and CB's behalf but on their behalf also. I do not believe for one minute that they did not know what was written in the letter. Equally I do not believe for one minute that they believed that what the letter said was a truthful and honest account of matters raised by TM. Therefore they all deliberately concealed the causes of action against them.
- Second in this context it is to be noted that JDW and CB owed fiduciary duties. As fiduciaries they owed a duty to disclose their own breaches of duty and breaches of duties of other fiduciaries they became aware of (see AG of Zambia ibid paragraph 397). That too is deliberate concealment by them by reason of their failure to disclose the breaches.
- JDW for the third test discovered the fraudulent actions of the Defendants in question after the result of its lengthy investigation which commenced in April 2006. Time would run from the earliest April 2006 (although that is an extremely generous time from the Defendants point of view) it does not matter the Second Action was plainly commenced within the 6 year period from that date.
- Finally given the August correspondence I do not see how JDW could have discovered the frauds earlier without having access to VDB's files. They only obtained those when they were delivered in April 2006. The earliest they could have been put on alert as to possible fraudulent misconduct is as a result of the termination which took place in March 2005. If one backtracks to that date the Second Action was in any event brought within the 6 year limitation period as extended by section 32.
- RH and GA do not owe fiduciary duties however to JDW. They had no duty to disclose their own wrongdoings or the wrongdoings of VDB and/or CB.
- Further in the case of deliberate concealment it is the deliberate concealment of the particular Defendant in question. Thus deliberate concealment by VDB and CB will not prevent time running against the dishonest assistors RH and GA (Zambia ibid paragraph 399-402). Thus the failures of VDB and CB to disclose their own breaches would not amount to deliberate concealment for the purposes of postponing limitation against RH and GA.
- Nevertheless GA and RH are caught by section 32 because of their role in the deliberate concealment by the August 1998 correspondence.
- It follows from all of the above that none of the surviving claims in the Second Action is in my view statute barred against any of the Defendants where I have found them to be liable.
- I have found in the First Action VDB and CB in breach of their fiduciary duty in respect of Sidcup.
- The Leamington claim although in Contract and Tort only (as determined above) is not statute barred by virtue of section 32 (1) (b) LA 1980. If I had found that the Chingford claim had been made out I would have determined it was not barred by virtue of the operations of section 21 and 32 LA 1980.
- I have found them liable for breaches of the same duty in the Second Action in repect of all properties save Chingford but VDB liable in negligent breach of duty in respect of Leamington only.
- I have found RH and GA liable for dishonest assistance in respect of some of the properties as set out above namely Folkestone, Canterbury 1 and Canterbury 2 as regards RH and all 3 properties namely Rotherham, Burton and Bedford as against GA.
- I hope I have dealt with all of the live issues as between the parties. I cannot however deliver this judgment without commenting about the trial itself. It was originally estimated for 5 weeks. In my view it could never have been considered to be a trial of such short length. As the trial developed and extended into 7 weeks JDW's cross examination of CB extended to 15 days that is i.e. over half of the original trial estimate. That must have been known at the outset and I cannot accept therefore that a realistic assessment was originally given. Once the trial started pressure was then placed on the parties and myself to ensure that time was made to finish the trial in the Michaelmas term. The reasons for that are self evidenct. In cases like this where the issues largely turn on the assessment of the credibility of the witnesses in the witness box it is folly to split the hearing of the evidence over vacation periods. That meant that certain aspects of the trial were truncated. The expert evidence was not dealt with in any significant way at all but that did not for the reasons I have set out above have any significance.
- The timetable changed constantly and that too was unacceptable.
- The result of this was that a large amount of material was forced into the written closings (especially JDW's). A significant amount of material appeared in that for the first time. This was compounded by the fact that VDB/CB did not have lawyers at the time of the closing submissions. This meant that JDW's submissions were not subjected to a vigorous analysis by Counsel. Equally it meant I had no oral argument dealing with the strongly expressed submissions put in writing on behalf of VDB/CB.
- This caused me difficulties. It lengthened the time for delivery of Judgment. That in its turn caused logistical difficulties which meant that my sitting pattern had to be rejigged to accommodate the extended time this judgment has taken to write. Further the extended reading as a result of these closings meant that I had little choice but unaided by any kind of analysis or argument of a critical nature to examine a significant number of documents for the first time. None of this in my view is acceptable.
- To draw an analogy the trial was an attempt to force a quart into a pint pot.
- Further the logistical support of the JDW team was large. As a Judge of course I have no such logistical support. The written closing was plainly not created in the week allocated for the preparation of written submissions. As I have said above it was nearly an overwhelming document.
- The question is what can be done about these matters. I think it is appropriate for the Court to consider in the case of long trials holding parties strictly to their time estimates and timetables of witnesses. Of course exceptions might have to be made where something happens beyond a person's control but apart from that for the future I would not be inclined to allow cases to go beyond the allotted time and the timetables to be varied beyond their allotted time. If people run out of time cross examining witnesses then that is the fault of their estimate and the risk of that should fall upon them. One has to bear in mind that parties have to have equal treatment and if the Defendants in the first round of cross examination expand their cross examination (which happened in this case) the Claimants in their counter cross examination are equally entitled to put their case fully. It is fair to say however that they took liberal advantage of that.
- Equally there must be some limit on the size of written submissions. Written submissions of book length become oppressive. In my judgment I will in the future for long trials limit any opening or closing to 250 pages. Any documents exceeding that will simply be returned for re-writing.
- If a trial over runs then in my judgment the judge should stop the trial when the allotted time has run out. If that means there will be a long lead time before the trial can be resumed it might be better in the interests of justice to refix the trial and start it again. The consequences for that are likely to be expensive but I do not see that there is any other effective sanction that can be applied to people who exceed their estimates. If a continued exceeding of estimates is allowed the people who suffer are the other parties who lose their allocated time when a case overruns and the Judge who is put under enormous pressures by the overrunning.
- With regard to the Third Action I direct that the action be brought before me for further consideration as to its future state and progression.
- The draft judgment after a lengthy period of gestation was sent out for consideration by the parties in the usual way. The Defendants (save RH) had no comments to make (save typographical). JDW somewhat surprisingly in view of what ought to have been perceived as a substantial victory delivered 8 pages of suggested alterations. Some (a few) of these were typographical. Some were correction of factual errors. However the vast majority of them were challenges to the Judgment, attempts to re-argue issues and attempts to persuade me to reconsider issues. I remind the parties of what Lord Hoffmann said in R v Environmental Agency and Ors ex-parte Edwards [2008] UKHL 22 at paragraph 66:-
- I made reference to this increasingly fashionable practice of trying to rerun issues and pressure the Judge into reconsidering matters when a draft is sent out. This is unacceptable. This led to another half day hearing (at which the Defendants chose not to attend) to deal with all of these issues. Had JDW not withdrawn a large number of the "suggestions" it would have necessitated in my view the going back and starting the judgment again to deal with the matters raised. Given my sitting timetable that would have meant that the judgment could not possibly have been delivered before the end of July at the earliest. In that exercise I would have suffered the considerable disadvantage of having to revisit matters some of which I have not considered for several months. It is self evident that a judicial memory fades fairly rapidly after a case of this complexity has been heard when further cases (especially trials) are interposed between the hearing of the case and the draft judgment. Even going back to notes of course is a difficult exercise when the freshness of those notes has disappeared. I can only emphasise again what I said in the Masood case relying on what Lord Hoffmann said that this is an unacceptable practice.
- The final postscript is once again I have burdened my Clerk Miss Supriya Saleem with hours and hours of dictation in my personal style. The unpicking of corrections and incorporating them into the Judgment with the difficult task of re-numbering/re-indexing is a skill which requires particular attention to detail and great patience. I am grateful for her abililty to decipher my dictation and deliver a form of judgment which I intended. The responsibility of course is all mine for the final result.
| A | DRAMATIS PERSONAE |
| B | INTRODUCTION |
| 13 | GENERAL OVERVIEW |
| C | SUMMARY OF CLAIMS |
| 28 | RELATIONSHIPS BETWEEN DEFENDANTS AND JDW |
| 32 | FEES |
| 42 | BANKING COVENANTS |
| D | THE CLAIMS |
| 51 | EXCLUSIVITY EXPRESS OR IMPLIED? |
| 55 | NEGOTIATIONS FOR 1994 |
| 69 | KEY FACTUAL ISSUE |
| E | CLAIMS IN FIRST ACTION |
| 73 | FIDUCIARY DUTIES OWED BY CB, RH AND GA |
| 78 | POSITION OF RH AND GA |
| F | THE SECOND ACTION |
| 95 | EVENTS LEADING TO SECOND ACTION |
| 103 | ACQUISITION PROCEDURE |
| 107 | THE RELATIONSHIP DEVELOPS |
| 108 | LACK OF DOCUMENTS |
| 117 | RETURN ON CAPITAL EMPLOYED ("ROCE") |
| 130 | EXPERT EVIDENCE |
| 135 | PREFERENCE FOR FREEHOLD |
| 146 | INTEREST CALCULATIONS |
| 152 | KEY TO SHORTENING THE WAY TO SOLVE THE DISPUTE |
| G | EVIDENCE GENERALLY |
| 161 | NATURE OF THE ALLEGATION |
| 168 | ABSENT WITNESSES |
| 178 | SPECIFIC WITNESSES JDW |
| 201 | DEFENDANTS' WITNESSES |
| 206 | KETTERING AND RH |
| 212 | OTHER WITNESSES |
| 215 | EVIDENCE CONCERNING TERMINATION |
| H | PARTICULAR TRANSACTIONS |
| I | THE FERRARI 5 |
| 235 | FOLKESTONE |
| 243 | JDW RAISES QUESTIONS |
| 253 | FURTHER EXPLANATION – DEFENCES |
| 255 | WITNESS STATEMENT EVIDENCE |
| 262 | EVIDENCE AT TRIAL AND CROSS EXAMINATION |
| 274 | EASTBOURNE |
| 290 | CB'S EXPLANATION FOR THE TRANSACTION |
| 301 | ST ALBANS |
| 308 | JDW'S COMPLAINTS |
| 313 | VDB/CB'S DEFENCE |
| 325 | BEDFORD |
| 341 | CANTERBURY 1 |
| 358 | SUBSEQUENT EVENTS |
| 360 | CONCLUSION RE: FERRARI 5 |
| J | OTHER PROPERTIES IN SECOND ACTION |
| 366 | BOURNEMOUTH |
| 380 | ROTHERHAM |
| 406 | LEAMINGTON SPA |
| 422 | CHINGFORD |
| 434 | PORTSMOUTH |
| 447 | BURTON |
| 463 | CANTERBURY 2 |
| 465 | EVENTS LEADING UP TO ACQUISITION |
| 489 | JDW'S DATABASE ENTRY 20/2/97 |
| 493 | GLASGOW |
| K | CONCLUSION ON SECOND ACTION |
| L | NO LOSS/NO PROFIT |
| M | LIABILITIES OF RH AND GA AS PLEADED |
| N | CLAIMS IN THE SECOND ACTION AGAINST RH |
| 503 | LAW ON DISHONEST ASSISTANCE |
| 522 | LEAMINGTON SPA |
| 528 | FOLKESTONE |
| 534 | CANTERBURY 1 |
| 541 | CANTERBURY 2 |
| 554 | CONCLUSION AS REGARDS RH |
| O | CLAIMS AGAINST GA |
| 556 | ROTHERHAM |
| 576 | BEDFORD |
| 583 | BURTON ON TRENT |
| 590 | SUMMARY AS REGARDS GA |
| 591 | NOTHING IN IT FOR THE DEFENDANTS |
| P | THE FIRST ACTION |
| 592 | PROPERTIES |
| 593 | DUTIES |
| 596 | CONFLICT OF INTEREST |
| 603 | CONCLUSION |
| Q | LIMITATION |
| 613 | AN INITIAL CANTER |
| 616 | STATUTORY PROVISIONS |
| 617 | TRUSTEES UNDER SECTION 21 |
| 620 | EXTENSION UNDER S32 LA 1980 |
| R | CONCLUSION |
| S | POSTSCRIPT |
| T | APPENDIX 1: SCHEDULE E |
A DRAMATIS PERSONAE
JDW Staff
| TM | Tim Martin, Chairman of JDW |
| JH | John Hutson, Managing Director of JDW since 1997, Operations Director since 1996 |
| MS | Martin Scott, Finance Director of JDW until 31.03.95 |
| RP | Richard Pennycook, Finance Director of JDW from 03.04.95 until 10.03.98 |
| JC | Jim Clarke, Finance Director of JDW from 10.03.98 until 31.10.07 |
| NG | Nick Graham Development Director of JDW until 09.02.00 |
| CM | Christina McLellan, Legal Director of JDW until 11.94 |
| RS | Rosalyn Schofield, Legal Director of JDW from 11.94 until 31.07.01 |
| IUS | Ilker Unlu-Soyer, Legal Advisor to JDW from 09.97 until 06.04.05 |
| DI | David Isaac, Senior Legal Advisor, JDW Licensing Department until 30.04.05 |
| CY | Claire Yandell, Legal Advisor, JDW Licensing Department until 29.03.04 |
| NC | Norbert Colbert, Legal Advisor, JDW from 05.07.93 until 31.03.99 |
| TC | Tina Coppitters, PA to TM |
| Professionals acting for JDW | |
| TFT | Tuffin Ferraby & Taylor, Architects |
| HI | Harrison Ince, Architects |
| LT | Lawrence Tring Associates, Architects |
| BBJ | Brook Barnes James, Quantity Surveyors |
| A&T | Appleyard & Trew, Quanity Surveyors |
| MMS | Maclay Murray Spens, Scottish Solicitors |
| McLellans | Solicitors |
| CC | Courts & Co, Solicitors |
| Howletts | Solicitors |
| TJG | Taylor Joynson Garrett, Solicitors |
| SL | Simon Locke, conveyancing solicitor at McLellans |
| SH | Sophie Hawkes, conveyancing solicitor at Courts & Co |
| MC | Mary Cheves, conveyancing solicitor at Courts & Co |
| VdB, Bacchus and Aberdeen staff | |
| CB | Christian Braun, founder and director of VdB |
| RH | Richard Harvey, employee of VdB from 11.91 and director of VdB between 05.01.95 and 29.11.04 |
| GA | George Aldridge, employee of VdB from 01.12.92 and director of VdB between 05.01.95 and 17.02.00 |
| MS | Matthew Shute |
| KH | Karen Hay |
| AR | Anthony Ross |
| JChapman | John Chapman |
| Other | |
| WS | Wright Silverwood, sub-agents for VdB in West Midlands |
| JS | Jeremy Stevens, Warrant Securities |
| AL | Anthony Lyons, Davis & Coffer (later Davis Coffer Lyons), River Investments |
| AP | Andrew Parker, Harrovian Property Holdings |
| PK | Philip Kananagh, Winbest Ltd |
| PF | Paul Ferrari, former employer of CB at Ferrari Dewe |
| AF | Anthony Ferrari, brother of PF |
| JF | Julian Ferrari, father of PF and AF |
| DJF | DJFreeman, conveyancing solicitors to the Ferrari family |
| Crill Canavan | Jersey solicitors to the Ferrari family |
| GC | Geoffrey Crill, partner in Crill Canavan |
| FDA | Fiona Del Amo, solicitor, Crill Canavan |
| D&C | Dean & Chapter of Canterbury Cathedral, vendors of Canterbury 1 |
Peter Smith J :
B INTRODUCTION
GENERAL OVERVIEW
C SUMMARY OF CLAIMS
1) Whether VDB should have acted exclusively for JDW and whether it breached that duty.
2) Complaints about transactions concerning 4 properties at Sidcup, Maidstone, Leominster and Dalkeith. JDW claims that between 2002 and 2005 VDB wrongly introduced these properties to Barracuda a rival of JDW.
3) The Defendants counterclaimed for a large amount of damages on the basis that JDW had commited a repudiatory breach of their contract of retainer.
RELATIONSHIPS BETWEEN DEFENDANTS AND JDW
1) Located and introduced JDW suitable sites for acquisition.
2) Negotiated terms of acquisition with the vendors and or agents.
3) Monitored and analysed weekly turnover figures for existing JDW establishments.
4) Appointed and instructed and co-ordinated architects, planning consultants and other professionals and liaised with conveyancing solicitors during the acquisition process.
FEES
BANKING COVENANTS
D THE CLAIMS
1) A duty not without JDW's informed consent to make a profit out of its position other than by way of fees or of any other opportunity or knowledge resulting from that position.
2) A duty not without JDW's consent to place itself in a position where its duty and interest might conflict.
3) A duty not without JDW's informed consent to act to prefer its own interest or interest other than the interest of JDW.
4) Generally to act in good faith to the best interests of a single mind loyal to JDW.
5) Not to engage in any business or competition with JDW, to inform JDW of all matters coming to its knowledge of which was of concern to JDW and a duty to act exclusively to JDW.
EXCLUSIVITY EXPRESS OR IMPLIED?
NEGOTIATIONS FOR 1994
KEY FACTUAL ISSUE
E CLAIMS IN FIRST ACTION
FIDUCIARY DUTIES OWED BY CB, RH AND GA
"[78] there is, it seems to me, a powerful argument of principle, in this intensely personal context of considerations of trust, confidence and loyalty, for lifting the corporate veil where the facts require it to include those in or behind the company who are in reality the persons whose trust in reliance upon the fiduciary may be confounded.... "
"[80] nor in my view should it matter in principle where a fiduciary duty is engendered by a contractual relationship whether the client is entered into a direct contractual relationship with a fiduciary or through an agent or in the case of a corporate client through the use of a nominee company..... as in this case"
POSITION OF RH AND GA
"22 this reasoning [the avoidance of liability of an agent for personal statements that he has issued on behalf of another party in negligence] cannot in my opinion apply to liability for fraud. No one can escape liability for his fraud by saying "I wish to make it clear that I am committing this fraud on behalf of someone else and I am not to be personally liable"
F THE SECOND ACTION
EVENTS LEADING TO SECOND ACTION
"An account from the Defendants of their activities in relation to the [41] transactions generally by reference in particular but not limited to the questions raised by JDW's letter dated 31st July 2007 and 21st December 2007"
ACQUISITION PROCEDURE
THE RELATIONSHIP DEVELOPS
LACK OF DOCUMENTS
RETURN ON CAPITAL EMPLOYED ("ROCE")
EXPERT EVIDENCE
PREFERENCE FOR FREEHOLD
"MR JUSTICE PETER SMITH: The point that she is making is that £10,000,000 is being spent on an acquisition of 32 new pubs capital expenditure. If that is the analysis there is not necessarily going to be a majority of pubs on a freehold basis, if that is the figure, is there that would equate to £300,000 per pub and you don't seem to find many pub freeholds for £300,000.
A: (TM) No. That is true. I think that the position is, and I can't add to what you said earlier, my Lord, is that it was an estimate based on history. So that we could say now, we want 100 per cent freehold pubs, but it is pie in the sky because you aren't going to get them. The most we have ever got up to is 50 or 60 % in one year…….So certain sites aren't available as freeholds and you know that when you start out to make these plans."
"Our appetite for new freehold acquisitions would go up and down depending on market conditions and exactly where we were in our funding cycle so throughout my period at [JDW] we had varying appetites" JC (T2/11/1).
INTEREST CALCULATIONS
"MR JUSTICE PETER SMITH: the ROCE is calculated on the assumption of 30 or 20%. Why those figures?
A: because starting off on the freehold, if you make a 20% ROCE it is well above the costs of money. So if you can get 20% return on freehold property over the years, historically – the base rates go up and down a bit – you are always making money. And then in terms of 30% for a lease it has to be higher for a lease because it is a diminishing asset.
MR JUSTICE PETER SMITH: I thought that. I thought that. Because - but my question wasn't to explain why they are different. It is more why 20% and why 30% because that governs your figures entirely. If you have this £1,200,000 for example and your ROCE return was 25% the figures would come out very, very differently, wouldn't they?
A: It would be less attractive".
"MISS NEWMAN QC: Well, it has cropped up at various points in the cross examination, but one aspect of the calculation which Mr Martin would have done is to compare the interest cost of buying a freehold with the rent; yes?
A: Yes
Q: Is that also something you would have discussed with Mr Braun?
A: It would have been in circumstances a particular of buying in of freehold reversion, but it was rare that I had either/or for a leasehold or a freehold.
MR JUSTICE PETER SMITH: I mean, what was put to you was that in all the circumstances that were shown actual interest didn't feature as a calculation I think…..
A: Taking into account the cost of money and also some head office costs, which -.
Later MISS NEWMAN QC: So which way round does it go? Does ROCE bow to this interest calculation or is it the other way round?
A: The ROCE is set so as it would pay interest in all the circumstances…."
KEY TO SHORTENING THE WAY TO SOLVE THE DISPUTE
G EVIDENCE GENERALLY
NATURE OF THE ALLEGATION
"the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the Court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence…."
"the more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it. "
ABSENT WITNESSES
SPECIFIC WITNESSES JDW
TM
JH
JC
SL
NS
Michael Beaumont
ALISTAIR BROOME
SM
DEFENDANTS' WITNESSES
CB
RH
KETTERING AND RH
GA
"MR JUSTICE PETER SMITH: I don't understand the Claimant accepts these figures necessarily in G2 (interpolation i.e. Mr Lillies' ROCE figures in his report)
GA: Well, they are JDW figures, my Lord so they are from…
MR JUSTICE PETER SMITH: They are going to cross examine on those figures, I think, and suggest alternative ROCE figures.
GA: I feel it would be difficult, because we have simply used figures and information supplied by the Claimant.
MR JUSTICE PETER SMITH: You don't mean "we" do you?
GA: Sorry?
MR JUSTICE PETER SMITH: You don't mean "we" do you? You mean the experts.
GA: The experts produced them"
"MR EVANS: This at page 93 is your calculations of the ROCE of Rotherham, isn't it?
DL: It's the calculations which have been put to me, yes. Which I have been asked to comment on.
Q: You didn't prepare this calculation?
A: I didn't.
Q: You didn't prepare it?
A: No, I was given this to comment on, so in my – whatI've been asked to do on all these ROCE calculations is to look at the calculations and to comment whether, in my expert opinion, it is the correct way or a way of looking at acquisition of property from an operational perspective.
Q: Who actually - -
MR JUSTICE PETER SMITH: Who did prepare it, then?
A: This was prepared by, I think, Mr Aldridge, who was one of the Defendants.
MR EVANS: So you can't give useful evidence about whether this calculation is prepared in a recognised method?
A: Yes, I can because I've been involved with him in the past and I've also seen the bundle of documents to see where this information has come from. So I've been asked to comment as to whether, given what I've seen I believe this is an appropriate way of giving the property…"
"MR EVANS: Now, my first question on page 93 of the substance is if you look just at fitout costs, 781; do you see?
A: I do
Q: it says:
"I have relied on PCFs dated 2nd February 1996…."
Do you see that?
A: I do
Q: Who is the "I" refered to there?
A: Sorry, the?
Q: "I", "I have relied on"?
A: Well, I've seen all those PCF –
Q: Yes, did you type these words, "I have relied on"?
A: No, I didn't.
Q: So the "I" there is Mr Aldridge?
A: Correct.
Q: Where in your report have you explained that these documents weren't produced by you, but were produced by Mr Aldridge?
A: I'm pretty sure I mentioned the fact they were supplied by the Defendants, because I've never put them forward as a principal basis of valuation. I've been asked to comment on them as to whether or not, given the information I've seen, that they're an approach that would be adopted".
OTHER WITNESSES
EVIDENCE CONCERNING TERMINATION
"there is of course the argument that perhaps we should have built up a war chest in VDB for this type of situation but over the years we have always tried to stay one step ahead of the game in developing our business to better service JDW…. "
H PARTICULAR TRANSACTIONS
I THE FERRARI 5
FOLKESTONE
JDW RAISES QUESTIONS
"another area of concern relates to property dealers we are using on a frequent basis who appear to be making a lot of money in circumstances in which we should have been able to acquire freeholds ourselves.
For example we purchased the property in Folkestone for £400,000 and this had been recently acquired by Peachy Investments Ltd (from memory) for about £155,000 we similarly acquired a freehold in Eastbourne from Steamboat Holdings Ltd for £600,000 when, we believe they acquired the property for about £325,000." (I interpolate that TM conceded in his evidence that the actual acquisition cost of Eastbourne was £525,000.
"I am also concerned about the involvement of Ferrari Dewe, where you formerly worked, in transactions in Eastbourne, for example, in circumstances which appear to me to be highly unusual".
"the fact is that they use (JDW published information) to trawl and procure deals in target towns, before agents get started. The very nature of dealers requires them to be ahead of the game by having the freedom to roam and negotiate with site owners, in a very different way to established agents… to compete would require substantial increase in manpower and a change of policy involving an element of speculation.
..... a poor reputation or approach to property deals could see us last in the queue on a suitable target site, unless a substantial premium is paid, as word spreads very quickly in the property industry… this is normally undertaken on a speculative basis, before any approach is made to or by the trade and usually entered into by way of option contract with a site owner on an unconditional purchase which could take more than 6-12 months before any return is made by the dealer. Dealers underwrite significant expensive time without guarantee".
"we were offered this site on a leasehold basis at a rental of around £40,000 per annum by the successful purchaser. The dilapidations issue was raised by the architects and QS which was also in the transaction converting to a freehold purchase. At the time we were advised by the owners' agents that they had received an offer from Yates which was difficult if not impossible to verify but the indication was it might very well be a suitable site for Yates. Our projection showed a turnover of £18,000 per week (gross). We went ahead with the acquisition and from my records we can demonstrate that this site is not actually falling short of the turnover figure by very much and bearing in mind it is still at the early stage of trading. I am nonetheless confident we will get to this sort of turnovere."
"I left this company on very amicable terms and have always felt that dealing with agents acting for dealers or investors in a direct candid fashion places us on a better footing thatn anyone else in the trade.
I have commented on the Eastbourne deal in the paragraph above."
FURTHER EXPLANATION - DEFENCES
WITNESS STATEMENT EVIDENCE
EVIDENCE AT TRIAL AND CROSS EXAMINATION
1) How was PF appraised so quickly of the availability of this property?
2) How did PF find out about the identity of the architects retained by JDW?
3) Why were the JDW plans provided to PF?
4) Why did VDB meekly accept Cluttons' statement that another offer had been accepted and why did it not make a competing bid?
5) There was evidence in other transactions that JDW would bid against other competitors if the property was sufficiently attractive. The surveyor in this case had said that the property had a stunning potential. The offer price and the ultimate price was very modest indeed. Given those factors why was JDW not urged to bid for the freehold?
6) Why did JDW agree to take a lease at a rent of £40,000 per annum in respect of a property that was on the market for £150,000?
7) How was it that JDW agreed to pay £400,000 for the property when it was still a subject to contract situation?
8) Why did VDB not attempt to find out what the status was of the PF offer at that stage?
"MR JUSTICE PETER SMITH: can you just help me with this. How on earth could you ever consider that £40,000 a year rent would be a reasonable rent on a property which PF was buying for £155,000?
A: Once it gets into a competitive bidding situation £40,000 was still a very very low rent for this property.
MR JUSTICE PETER SMITH: What competitive bidding situation?
A: we knew about the competition i.e. Yates and once we started getting in to that bidding we don't know where the rent might end up or the price…"
MR JUSTICE PETER SMITH: (T25/29/13) ….So you have swapped JDW from being a freehold competitor to a leasehold competitor?
A: Sorry I do not understand My Lord
MR JUSTICE PETER SMITH: There is no reason why JDW could not have bid for the freehold is there?
A: No there isn't
MR JUSTICE PETER SMITH:IIIi Instead what you do is you say "take a lease from Paul Ferrari and by the way the rent has to be high because Paul Ferrari has other competitors in the bag"?
A: Yes that's basically what I was being led to believe
MR JUSTICE PETER SMITH: So it would have been far better for JDW on that analysis to gazump the freeholder wouldn't it?
A: In hindsight yes it would My Lord
MR JUSTICE PETER SMITH: You don't need much hindsight really do you £155,000 against £40,000?
A: Well it would have been better to do that but as I said it wasn't Wetherspoons' practice at the time to gazump particularly people who had been preferred investors in the past….
MISS NEWMAN: Wetherspoons didn't have a policy not to gazump in that situation that is complete nonsense Mr Braun
A: Not at all.
EASTBOURNE
The freehold will therefore be purchased by Steamboat Holdings directly from us they have a standard leasing arrangement with Wetherspoons who will deal with the planning and licensing themselves". Obviously the obtaining of the planning permission was important because the agreement was going to be conditional on that. JDW's role in obtaining that was therefore vital. It is self evident that Steamboat had neither the money nor the expertise to secure the planning permission. In other words once again a PF company was using JDW's skill and expertise to enable it to acquire a property in which it put no contribution.
CB'S EXPLANATION FOR THE TRANSACTION
"in effect the freehold price paid by us was £600,000 whereas our vendor paid a price of £525,000 not £325,000 as stated in your letter. I would agree that there is a marked difference, in circumstances where we (not a dealer) undertook to package the site."
ST ALBANS
JDW'S COMPLAINTS
VDB/CB'S DEFENCE
BEDFORD
"[JDW] have recently reappraised this project and given the amount of demolition and rebuilding involved have decided to work with a joint venture partner.
The freehold interest will therefore be purchased by [Belvedeer] ….
An agreement for lease is already in place with Belvedeer and in no way will this slow the purchase of the freehold…"
On the same day Steele Raymond the Sellers solicitors wrote to McLellans (JDW's solicitors) confirming the sale of the freehold to JDW for £810,000. On that same day GA wrote to Simon Locke at McLellans saying that JDW had just agreed terms and he enclosed the memorandum of Heads of Terms. By this time it was a proposed lease from Belvedeer to JDW for 40 years as set out above. In the second paragraph he said this:-
"Since this property requires extensive demolition and rebuilding [JDW] are now working with a developer to provide a suitable property finish to shell specification."
CANTERBURY 1
SUBSEQUENT EVENTS
CONCLUSION RE: FERRARI 5
J OTHER PROPERTIES IN SECOND ACTION
BOURNEMOUTH
"I would mention that the property was available freehold with full vacant possession at a price of £1,300,000 and I would hope that the property could be bought for something close to that figure on the basis that JD Wetherspoons have not yet exchanged contracts. You will appreciate therefore that time is of the essence and we are more likely to acquire the property at a good price if you are able to negotiate an acquisition prior to Wetherspoons exchanging contracts."
ROTHERHAM
I confirm that we are interested in the freehold only …. my clients are prepared to offer £875,000 subject to contract".
"since we have introduced this investment to Dencora Plc [VDB] will be seeking and introductory fee equating to 1% of the purchase price plus VAT. Naturally we will not be seeking a letting fee relating to JDW I trust you will find this in order".
"MR JUSTICE PETER SMITH: So that is acceptable is it, is it alright to mislead people to string them on in the negotiations?
A: to keep the deal alive, that is what Mr Aldridge took in his negotiation stance.
MR JUSTICE PETER SMITH: So you take the view it is ok to mislead people if it furthers the overall benefits Yes?
A: Try to act in the best interests of Wetherspoons yes".
LEAMINGTON SPA
CHINGFORD
"…as you know the landlord is being pressed to exchange as soon as possible by the vendors since there has been some delay in this matter while various problems have been resolved and I would be grateful if you could deal with this with some urgency".
PORTSMOUTH
"As discussed with you on the phone a couple of days prior to the informal tender date my clients have decided this property be bought by an investment company from whom they will take a new lease as they do not wish to spend this high level of capital on a freehold property
The company purchasing the property is River Investments Ltd and their solicitors are Messrs Brecher & Co…
I confirm that [JDW] will be the ultimate user and will [be] running the license application on this property."
BURTON
"I would like to take this opportunity to introduce this property to you along with Mason Owen & Partners. The property is potentially 100% pre-let to [JDW] and Ethel Austin PLC….
I confirm we will look to share these with Mason Owen although of course we will not require a letting fee for the part let to [JDW].
I would be grateful if you could keep any fee arrangements with our company confidential."
If you can resurrect this to any degree, i.e. to secure a fee on the purchase of the freehold for [VDB's] developer or alternatively on a letting to [JDW] under a joint venture between Richard and Paul Boyd.
If Paul Boyd does undertake a development, I do not believe he will pay a fee to us as letting agents"
CANTERBURY 2
EVENTS LEADING UP TO ACQUISITION
"I would advise that the offer submitted on behalf of your clients was not the highest bid that we received. My clients have however decided to proceed with Wetherspoons in the light of the professional and straightforward way in which the bid has been worked up and presented. Let us hope that matters can proceed to a speedy conclusion".
JDW'S DATABASE ENTRY 20/2/97
GLASGOW
K CONCLUSION ON SECOND ACTION
L NO LOSS/NO PROFIT
M LIABILITIES OF RH AND GA AS PLEADED
N CLAIMS IN THE SECOND ACTION AGAINST RH
LAW ON DISHONEST ASSISTANCE
"The trust need not be a formal trust. It is sufficient that there should be a fiduciary duty relationship between the "trustee" and the property of another person. The manager of a company may owe a fiduciary duty to that company in relation to information he acquires in that capacity such as to constitute the manager or trustee within the category "knowing assistance".
"86. Before the judge and before us there was some debate whether such a claim lies for breach of fiduciary duty generally or only those which also involve the misapplication of property. Counsel for Mr Goose relied on the reference in the advice of the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, which we have quoted in paragraph 81 above, to `fiduciary obligation' generally. Rimer J recognised the logic of the submission but did not find it necessary to decide whether to make the extension of the accessory liability he considered that it would involve. Counsel also relied on the view of Morritt LJ in Brown v Bennett [1999] BCC 525 that there was force in the argument.87. Since then the Court of Appeal has given further consideration to the point in Satnam Investments Ltd v Dunlop Heywood & Co. Ltd [1999] 3 All ER 652. In that case a firm of surveyors which had acted for the claimant and had in that capacity obtained confidential information of commercial importance disclosed such information to a competitor of the claimant which used it to its own advantage. One of the claims made by the claimant was to the effect that the competitor had dishonestly assisted the surveyors to break their fiduciary duty of confidence owed to the claimant. On this basis the judge held that the competitor held the property it had bought because of the information it had obtained from the surveyor on a constructive trust for the claimant. In the judgment of the Court delivered by Nourse LJ the judge's conclusion was described as surprising, unprecedented and contrary to commercial good sense. After referring to Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 and Barnes v Addy (1874) LR 9 Ch. App. 244 the court stated that "Before a case can fall into either category [knowing receipt or knowing assistance] there must be trust property or traceable proceeds of trust property". The Court was prepared to assume that confidential information may be treated as property yet, as it could not be traced into the property bought because of the disclosure of the confidential information, there could be no constructive trust of the property so bought. However the Court went on to say (p.671)
"As for knowing assistance, of which dishonesty on the part of the accessory is a necessary ingredient..we would not have wanted to shut out the possibility of such a claim's being successful if the judge had made a finding of dishonesty against [the competitor].."For Mr Goose it was submitted that, in the circumstances, the requirement for trust property or traceable proceeds of trust property was no more than a passing reference and did not reflect a decision of the Court binding on us.88. We agree that the statement that "there must be trust property or traceable proceeds of trust property" is not a decision binding on us. Moreover in view of our conclusion on when the fiduciary duty of Mr Bray arose we do not have to decide the question whether trust property or traceable proceeds thereof are essential ingredients of liability under this head. The sum of £130,000 transmitted to Banque Populaire and the Stones themselves would have been sufficient for that purpose. However we feel that the statement quoted above may be so compressed as to admit of misunderstanding. It applies to both the alternatives recognised by Lord Selborne in Barnes v Addy. In the case of the first, "knowing receipt" there must, by definition, be or have been trust property or its traceable proceeds of sale. But it is not a prerequisite of liability that it is still in existence at the time the claim form is issued. In the case of the second, "knowing assistance", it is not a requirement of liability that any property should have been received or handled by the defendant. The issue is whether the dishonest breach of trust in which the defendant assisted must have involved the misapplication of trust property or its proceeds of sale. The formulation of the principle by Lord Nicholls of Birkenhead (paragraph 80 above) does not embrace such a requirement. Whether or not such a requirement is an essential feature of this head of liability is not a point we have to decide and, like the Court of Appeal in that case, we would not like to shut out the possibility of such a claim in its absence.
LEAMINGTON SPA
FOLKESTONE
"A: I haven't overlaid the two. I don't remember specifically looking at this and then looking at the Folkestone file at the same time."
I have to say I find that an extraordinary response given the importance of the letter and the fact that he decided to refer to the letter in his witness statement and expressed the view that it was a fair reflection of the market in which they were operating in at that time. I have already commented on the deceptive nature of CB's response to TM's letter of 19/8/98.
"MR JUSTICE PETER SMITH: I will give you another chance to look at [CB's response] and you tell me where in the category on Folkestone it explains how it is that Peachy got it for £155,000 and JDW had to pay £400,000 a few months later? Show me where that is explained
A: I don't my Lord.
MR JUSTICE PETER SMITH: No and that didn't concern you at the time you saw the letter?
A: It was for CB to reply if there is any concern over property deals that was CB's responsibility"
CANTERBURY 1
CANTERBURY 2
"Q: In which way do you say the transaction went leasehold or freehold after the meeting?
A: Well Wetherspoons wanted to do a leasehold with a big capital contribution, and the way to do that was with an investor"
CONCLUSION AS REGARDS RH
O CLAIMS AGAINST GA
ROTHERHAM
BEDFORD
BURTON ON TRENT
SUMMARY AS REGARDS GA
NOTHING IN IT FOR THE DEFENDANTS
P THE FIRST ACTION
PROPERTIES
DUTIES
CONFLICT OF INTEREST
CONCLUSION
Q LIMITATION
AN INITIAL CANTER
STATUTORY PROVISIONS
"Section 21 Time limit for actions in respect of trust property
(1)No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—
(a)in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or
(b)to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.
(2)Where a trustee who is also a beneficiary under the trust receives or retains trust property or its proceeds as his share on a distribution of trust property under the trust, his liability in any action brought by virtue of subsection (1)(b) above to recover that property or its proceeds after the expiration of the period of limitation prescribed by this Act for bringing an action to recover trust property shall be limited to the excess over his proper share.
This subsection only applies if the trustee acted honestly and reasonably in making the distribution
(3)Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued.
For the purposes of this subsection, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.
(4)No beneficiary as against whom there would be a good defence under this Act shall derive any greater or other benefit from a judgment or order obtained by any other beneficiary that he could have obtained if he had brought the action and this Act had been pleaded in defence"
"Section 32 Postponement of limitation period in case of fraud, concealment or mistake
(1) Subject to [F1subsection (3)][F1subsections (3) and (4A)] below, where in the case of any action for which a period of limitation is prescribed by this Act, either—
(a)the action is based upon the fraud of the defendant; or
(b)any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or
(c)the action is for relief from the consequences of a mistake;
the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.
References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent.
(2)For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.
(3)Nothing in this section shall enable any action—
(a)to recover, or recover the value of, any property; or
(b)to enforce any charge against, or set aside any transaction affecting, any property;
to be brought against the purchaser of the property or any person claiming through him in any case where the property has been purchased for valuable consideration by an innocent third party since the fraud or concealment or (as the case may be) the transaction in which the mistake was made took place.
(4)A purchaser is an innocent third party for the purposes of this section—
(a)in the case of fraud or concealment of any fact relevant to the plaintiff's right of action, if he was not a party to the fraud or (as the case may be) to the concealment of that fact and did not at the time of the purchase know or have reason to believe that the fraud or concealment had taken place; and
(b)in the case of mistake, if he did not at that time of the purchase know or have reason to believe that the mistake had been made.
[F2(4A)Subsection (1) above shall not apply in relation to the time limit prescribed by section 11A(3) of this Act or in relation to that time limit as applied by virtue of section 12(1) of this Act.]
[F3(5)Sections 14A and 14B of this Act shall not apply to any action to which subsection (1)(b) above applies (and accordingly the period of limitation referred to in that subsection, in any case to which either of those sections would otherwise apply, is the period applicable under section 2 of this Act).]"
TRUSTEES UNDER SECTION 21
EXTENSION UNDER S32 LA 1980
a. Is JDW's claim based on fraud?
b. Has the cause of action been deliberately concealed?
c. When did JDW discover it?
d. Could JDW have discovered it earlier than the date on which it relies with reasonable diligence?
R CONCLUSION
S POSTSCRIPT
"On 23 January 2008 the hearing in this appeal was concluded. On Friday 4 April 2008, after the members of the Appellate Committee had prepared drafts of the speeches which they proposed to deliver, the solicitors to the parties were notified that judgment would be given on 9 April. In accordance with the practice of the House, copies of the draft speeches were provided in confidence with a request that counsel check them for "error and ambiguity". On Monday 7 April the appellant's solicitors notified the Judicial Office that they proposed to submit a memorandum pointing out errors in the judgments but that it could not be submitted until the following morning. Judgment therefore had to be postponed until 16 April. The memorandum when it arrived, consisted of 27 paragraphs of closely typed submissions referring to three directives which had not been mentioned in the appellant's lengthy submissions to the House and repeating other arguments which had already been considered. It contains nothing which causes me to wish to change the views expressed in my draft speech. In my opinion the submission of such a memorandum is an abuse of process of the procedure of the House. The purpose of the disclosure of the draft speeches to counsel is to obtain their help in correcting misprints, inadvertent errors of fact or ambiguities of expression. It is not to enable them to reargue the case"
T APPENDIX 1
SCHEDULE E:
FH COSTS AND DATES
Note. RF is rent free period saving. RP is Reverse Premium, including contributions to landlord's works. FOC is fit out costs given for latest dates available; may be different estimates at exchange or completion.
Fiscal 1993-1994
Bournemouth
17.1.94 DC offer sale of FH to VDB for 1.3m CB1/43, H1/266
Subsequent offer by 3rd party of £1.4m
FH cost £1.3-1.4m (assume £1.35m). No FOC.
Net additional cost to total: £1.35m
8.4.94 JDW exchange with Forte CB1/72A, H2/78, H2/81
6.5.94 FH investment offered by Healy & Baker for £1.7m CB1/76A, H2/161
16.5.94 JDW complete lease with Forte, rent £125,000 H2/172
5.10.94 Prudential complete FH purchase from Forte for £1.7m. H2/161 [Better proof believed to exist but not yet located in the bundles]
JDW's later FH purchase
31.5.01 JDW purchase FH from Prudential for £2.8m CB4/182A, H29/137
Fiscal 1994-1995
St Albans
29.6.95 Exchange by Olem for FH purchase
29.6.95 Exchange for lease between Olem and JDW CB2/36A, H5/202, 212
Rent = £75,000. RP £125,000
29.12.95 Completion of FH purchase by Olem
FH cost Olem/Ferrari £600,000. H5/29 [Likely best proof]
29.12.95 Completion of lease between JDW and Olem CB1/184Aff, H9/91ff
RP £125,000. FOC £723,575.
Net additional cost to total £725,000
Olem's FH sale
11.6.96 VDB issue HOT's for FH sale on behalf of Olem CB2/268A, H12/157
14.8.96 Olem exchange for sale of FH to Apriose H13/66ff
11.9.96 Olem complete FH sale for £850,000 CB2/299A, H13/148
Fiscal 1995-1996
Rotherham
14.9.95 Exchange by Appointshire Ltd for FH purchase
14.9.95 Exchange for lease between Appointshire Properties Ltd and JDW
CB2/99D, H7/92 and CB2/99E, H7/98
17.11.95 Completion by Appointshire Properties Ltd of FH purchase from Keith and Rita Lambert, for £800,000 CB2/141A, H8/149 and H8/204
17.11.95 Completion for lease between Appointshire and JDW H8/151 and H8/204
Rent £85,000 RP £183,500, RF. £28,333. FOC £781,717.
Net additional cost to total £1,001,833
Leamington Spa
2.10.95 Exchange for lease between Lanesdawn Ltd and JDW CB2/104A, H7/154 and CB2/104B, H7/197
7.2.96 Completion by Lanesdawn Ltd of FH purchase CB2/203C ff, H10/42ff
FH cost Harrovian/Lanesdawn, inc LH buyouts, £942,000. H10/42, 43, 46, 48.
7.2.96 Completion of lease between Lanesdawn Ltd and JDW CB2/203D, H10/51, and CB2/203E, H10/80
Rent £120,000 RF £60,000. FOC £997,600.
Net additional cost to total £1,002,000
Chingford
4.12.95 Exchange by Carrington Stevens Ltd for FH purchase CB2/178, H9/2
5.12.95 Exchange for lease between Carrington Stevens Ltd and JDW CB2/177, H9/1
29.5.96 Completion by Carrington Stevens Ltd of FH purchase
FH cost Warrant Securities/Carrington Stevens £375,000.
29.5.96 Completion for lease between Carrington Stevens Ltd and JDW CB2/63A, H12/24
Rent £54,000 RP £50,000. FOC £582,619.
Net additional cost to total £425,000
Portsmouth
7.11.95 (circa) Exchange by River Investments/Moorstown Properties Ltd for FH purchase from British Gas Plc
7.11.95 Exchange for lease between Moorstown Properties Ltd and JDW CB2/137A, H8/94 and CB2/138A, H8/100
11.12.95 Completion by Moorstown Properties Ltd of FH purchase
FH cost Lyons/River Inv/Moorstown Properties £1.3m [inference from eg H6/200]
11.12.95 Completion for lease between Moorstown Properties Ltd and JDW H9/18
Rent £150,000 RP £50,000. FOC £1.038m.
Net additional cost to total £1,350,000
Eastbourne
2.4.96 Exchange by Steamboat for FH purchase
2.4.96 Exchange for FH sale from Steamboat to JDW CB2/230B, H11/85
19.9.97 Completion by Steamboat of FH purchase from Guardian Assurance CB3/133A, H18/222 FH cost Steamboat/Ferrari £525,000
19.9.97 Completion of back to back sale of FH from Steamboat to JDW CB3/133A, H18/222 and CB3/133B, H18/228. JDW purchase for £600,000. RP £200,000 (not paid).
Net additional cost to total (£75,000)
Burton
3.6.96 Exchange by Wing Properties for FH purchase CB2/300, H13/150
3.6.96 Exchange for lease between Wing Properties Ltd and JDW CB2/266A, H12/58
24.12.96 Completion by Wing Properties of FH purchase from Anaid Holdings
FH cost First London/Wing £500,000 H14/227A
24.12.96 Completion for lease between Wing Properties and JDW CB3/11A, H14/226 and CB3/11B, H14/229
Rent £92,500 RP £275,000, RF £46,250. FOC £964,750
Net additional cost to total £821,250
Fiscal 1996-1997
Bedford
16.10.96 (circa) Exchange by Belvedeer for FH purchase
16.10.96 Exchange for lease between Belvedeer and JDW CB3/9A, H14/54 and CB3/9B, H14/87
14.1.97 Completion by Belvedeer of FH purchase CB3/24A, H14/287
FH cost Belvedeer/Ferrari £810,000
14.1.97 Completion for lease between Wing Properties and JDW CB3/24A, H14/265 and, CB3/26B, H15/19ff
Rent £100,000 RF £58,333. FOC £1,114,328
JDW's FH purchase
6.8.97 HOT for JDW to purchase FH from Belvedeer H18/52
FH £1.25m
29.9.97 (circa) Exchange of contracts between JDW and Belveedeer
3.2.98 Completion by JDW of FH purchase from Belvedeer CB3/131A, H20/144, and CB3/131B, H20/149
JDW purchase of FH for £1.25m,
Net additional cost to total (£381,667)
Canterbury 1
4.12.96 Exchange for VFH (long lease) between The Dean and Chapter of Canterbury Cathedral and Nickleby Holdings Ltd CB3/9C, H14/187
No exchange between Nickleby and JDW
4.12.96 Completion by Nickleby Holdings Ltd of VFH purchase CB3/9E, H14/202
VFH cost Nickleby/Ferrari £950,000
4.12.96 Completion for underlease between JDW and Nickleby Holdings Ltd CB3/9Dff, H14/191ff. Rent £120,000 RF £40,000. FO £848,000
Net additional cost to total £990,000
Fiscal 1997-1998
Canterbury 2
8.8.97 Exchange by Warrant Investments Ltd for FH purchase
8.8.97 Exchange for lease between JDW and Warrant Investments Ltd CB3/96, H18/62
10.10.97 Completion by Warrant Investments of FH purchase CB3/115A, H19/29ff
FH cost Warrant/Stevens £500,000
10.10.97 Completion for lease between Warrant and JDW CB3/115A, H19/29ff
Rent £75,000. RP £175,000 RF £25,000 FOC £1.3286m
Net additional cost to total £542,000
Folkestone
8.9.97 Exchange by Peachy for FH purchase CB3/106A, H18/131
8.9.97 Exchange for freehold sale from Peachy to JDW CB3/109A ff, H18/174ff and CB3/109D, H18/177
30.10.97 Completion by Peachy of FH purchase CB3/115B, H19/103
FH cost £155,000
30.10.97 Completion of back to back sale of FH from Peachy to JDW CB3/115C, H19/110
JDW purchase FH for £400,000. FOC £1,250,200
Net Additional Cost to total (£245,000)