England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		04/12/2013

Sir William Blackburne :

Introduction

1. The claimant, Palmer & Harvey McLane Limited ("P&H"), supplies confectionery to retailers. It claims to be the UK's leading delivered wholesaler of tobacco, confectionery, soft drinks, crisps and snacks, chilled and frozen foods and convenience products. It distributes these products both to smaller independent retailers (i.e. independently-owned, single outlet undertakings) and also to larger organisations with multiple retail sites (including such well-known stores as Tesco and Sainsbury's). It has 13 main distribution centres around the UK from which it provides nationwide distribution of its listed products. Its business model is focused on the wholesale and distribution of a wide range of established products for which there is a known demand and where profit is made by selling very large volumes of product at a low profit margin. The emphasis is on order-taking and account management rather than on the vigorous promotion of particular products: it provides a distribution and not a negotiation service to its suppliers. It makes available the products that it sells by means of an order form, published every two months, listing the very many products that it distributes (approximately 7,000 in December 2012). Given that it mostly deals in established products for which there is a known market it is in general prepared, when buying its products from the manufacturers or suppliers, to bear the risk attendant on the possibility that those stocks might not sell. In some cases, by contrast, for example seasonal items where there is a finite period for selling them and where demand for them fluctuates from year to year, it will only purchase to meet a pre-existing order or on the basis that the manufacturer or supplier agrees to take back any unsold stock and credit P&H for the amount paid for it (i.e. on sale or return).
2. In the financial year ending on 7 April 2012, P&H's turnover was £4.2 billion, its operating profit (before exceptional items) was £33.2 million and it employed more than 3000 staff. It is, and was at the material time, in a very major way of business.
3. This litigation has as its background certain business arrangements entered into by P&H with Maritime Sales Limited ("Maritime") and subsequently with Sweet Cred Limited ("Sweet Cred"). The initial arrangement ("the Original Arrangement") was in the nature of a joint business venture involving the supply to retailers of children's items. The arrangement which was never reduced to a formal written agreement was made in early 2003. Its terms have since become a matter of dispute. The venture was not a success: sales of the items were not at the volumes expected. The Original Arrangement was succeeded by a written agreement dated 11 September 2003 ("the September 2003 Agreement") between P&H and Maritime. That agreement was followed later by a further written agreement dated 21 April 2005 ("the April 2005 Agreement"), this time between Sweet Cred and P&H. By then Sweet Cred, which had been set up by the defendants Clive and Susan Garrad ("Mr and Mrs Garrad"), had taken over and assumed responsibility for this aspect of Maritime's business. The April 2005 Agreement was followed by the agreement which lies at the heart of these proceedings and which P&H sues to enforce. It is an agreement in writing entered into on 31 January 2007 and made between P&H, Mr and Mrs Garrad, Sweet Cred and Maritime. It is styled "Settlement Agreement." I come later to its detailed terms. I should first say something more about Maritime and Sweet Cred.
4. Mr Garrad held no shares in Maritime and only preference shares in Sweet Cred. He appears to have been influential in the operation of both companies at the times relevant to these proceedings. Mrs Garrad, by contrast, held shares in both companies but was uninvolved in the running of either of them.
5. She had a 50% shareholding in Maritime until early 2010 when she sold out to Mr Tim Bertin (the other 50% shareholder and at all material times a director of that company). She was a director of it between September 2002 and 15 December 2009. Mr Garrad stated that he was neither a shareholder nor a director of Maritime but accepted that he was a de facto director of it and its business development manager until 2004. To all outward appearances he seems to have controlled what Maritime did. In its audited annual statements at the time relevant to these proceedings Maritime described its business as simply that of food distribution. By that I understood wholesale distribution. In his evidence Mr Garrad described how he and Mr Bertin ran Maritime and a related company called Maritime Foods Limited. He said that they had only a few, but large, customers and that whereas the function of Maritime Foods was to supply own-label products to supermarkets, Maritime supplied non-food items such as Christmas gifts, gardening tools, sports equipment and the like and that their goods were sourced from all over the world. It would seem that in 1999 Maritime became the distributor in this country of an energy drink and that in this enterprise it was very successful, widening its customer basis from just supermarkets to include independent retailers, pub groups, nightclubs, off-licences and a variety of other like outlets. A new company was later formed to handle the business. In the course of trading Mr Garrad came into contact with P&H. Eventually the new company was sold. The terms of sale prohibited Mr Garrad from being involved for a number of years in the drinks trade. The result was that Maritime looked at chocolate, crisps and snacks and other ranges. As he put it in his witness statement: "We saw a weakness in children's confectionery, there was no large powerful player in this market so to speak" and the decision was made to select for distribution to the retail market a range of children's sweets with a toy mounted on top, plus other children's confectionery. They were to be sourced from China and elsewhere. The upshot was the development of what Mr Garrad described as a new brand to handle these products, namely "Sweet Cred".
6. In due course a company was acquired and its name changed to exploit the Sweet Cred brand: hence the company of that name. According to Mr Garrad Sweet Cred took an assignment from Maritime, effective as from 1 January 2004, of the Sweet Cred business and assumed responsibility for all liabilities incurred by Maritime in connection with it. Mrs Garrad was a 50% shareholder of the new company. Mr Bertin held the other 50%. Mrs Garrad retained her shareholding until 2 March 2007. Between 17 November 2003 and 2 March 2007 she was a director as well. Mr Garrad became a director of Street Cred in 1 December 2005 and remained a director for the rest of its trading life. He held no ordinary shares in the company; he held a large number of preference shares instead. It went into administration in May 2011 and into voluntary liquidation in October 2012.
7. I can conveniently say something more about P&H at this point. In late 2006 P&H approached Close Brothers Corporate Finance ("Close Brothers") for advice on a proposed re-financing and re-structuring of its business by way of a management buy-out. (There had been an earlier management buy-out in 2002.) An engagement letter for the work was issued in December 2006. It resulted in an options paper which was presented to P&H's board in early March 2007, a presentation to the board later that month and a great deal of subsequent communication and discussion between the board and Close Brothers. A valuation of P&H was an integral part of the work that was carried out. The upshot of this activity was that on 28 January 2008 an announcement was made to P&H's shareholders that negotiations for a recommended buy-out ("the MBO") of the company were underway. It was to be by way of a scheme of arrangement. It involved the interposition of a new ultimate parent company, albeit with the same name, Palmer & Harvey (Holdings) Plc, as its predecessor. On 4 February 2008, the scheme documents were issued. The scheme became effective on 28 March 2008. It resulted in the interests of some of the existing shareholders being either bought out or reduced. Others were increased. Among those whose shareholdings were reduced (in return for significant amounts for their shares) were the then (part-time) executive chairman, Christopher Adams ("Mr Adams"), who on completion of the MBO became non-executive chairman of both P&H and the new parent company, and Graham McPherson ("Mr McPherson"), who had been managing director until 5 June 2006 when he was succeeded (as chief executive) by Christopher Etherington ("Mr Etherington") but who stayed on as a non-executive director. Mr McPherson died on 15 April 2009. He had been ill for many months and his death was not unexpected. Mr Etherington led the MBO assisted by another director called Christopher Little ("Mr Little"). Mr Etherington's shareholding was among those that increased as a result of the MBO. The details do not matter. Indeed, P&H says that the fact of its occurrence is wholly irrelevant to this litigation. Rather, it is Mr and Mrs Garrad who attach significance to it. This is because the MBO was in contemplation, to put the matter neutrally, at the time that the Settlement Agreement was made, and had reached an advanced stage when a significant payment was made by Mr Garrad in accordance with the terms of that agreement.

The Settlement Agreement

8. The Settlement Agreement is a carefully worded document which was drafted by P&H's solicitors. Its recitals set out what the parties to it evidently considered to be the relevant background:

"(A) Pursuant to a letter dated 17 November 2006, Sweet Cred alleged that P&H owes Maritime sums totalling £3,667,393.10, by way of 3 invoices, each also dated 17 November (the Maritime Debt).

(B) P&H refutes this allegation and in turn believes that pursuant to the Buy-Back Agreements, Maritime and Sweet Cred owe P&H the sum of £1,274,405 (the P&H Debt).

(C) By way of a letter dated 7 December 2006, P&H advanced to Mr Garrad, by way of loan, the sum of £200,000, on terms set out in that letter (the Loan Letter).

(D) The parties to this Agreement wish to settle all claims between them (including the Maritime Debt), to novate the P&H Debt to Mr Garrad personally and, in addition, P&H has agreed to advance a further sum by way of loan to Mr Garrad on the terms of this Agreement."

9. In recital (A) the reference to "the Maritime Debt" is to three invoices in the name of Sweet Cred, each dated 17 November 2006 ("the November invoices"). They were sent without prior warning to P&H under cover of a letter addressed to Mr Little (as P&H's then Group Finance Director) with a copy sent to Mr Etherington (as P&H's chief executive), claiming in total £3,667,393.10. These invoices, although emanating from Sweet Cred, purportedly related to items which were said to have been supplied by Maritime for sale to P&H in 2003. This can only have been pursuant to the Original Arrangement. In recital (B) the reference to "Buy Back Agreements" is to what I have earlier referred to as the September 2003 Agreement and the April 2005 Agreement. Its precise definition is set out in the Settlement Agreement as I will shortly mention. The reference in recital (D) to "a further sum by way of loan" is to a further loan to Mr Garrad of £500,000. P&H had already lent him £200,000 early the previous month, in December 2006, as mentioned in recital (C).
10. After setting out, in clause 1, a series of definitions and aids to interpretation, the Settlement Agreement provided, by clause 2, that "in consideration of Mr Garrad agreeing to assume all the outstanding obligations of each of Sweet Cred and Maritime to repay P&H an aggregate amount of £1,274,405 under the Buy Back Agreements in place of Maritime and Sweet Cred" P&H released and discharged Maritime and Sweet Cred from all obligations and liabilities "of any nature whatsoever subsisting or outstanding under or in connection with the Buy Back Agreements (the Release)." For his part Mr Garrad consented to the Release and acknowledged "that he owes the aggregate amount of £1,274,405 to P&H in place of Sweet Cred and Maritime and undertakes to be bound by the Loan Terms in place of the Buy Back Agreements." The Buy Back Agreements are defined as "all agreements between P&H on the one hand and Sweet Cred and/or Maritime on the other hand for the purchase of any products by Sweet Cred and/or Maritime from P&H including the agreements (whether by way of letter or otherwise) dated 11 September 2003 and 21 April 2005" (i.e. the September 2003 and April 2005 Agreements).
11. Clause 3 provided that, with the exception of certain balances (which are referred to as "Excluded Balances" and are irrelevant to these proceedings) the parties agreed "that the terms of this Agreement shall constitute full and final settlement of all and any liabilities (whether actual, contingent, or prospective) and obligations of each member of the P&H Group on the one hand to or from the Garrad Associates on the other hand…" Garrad Associates was defined to mean each of Mr Garrad, Mrs Garrad, Sweet Cred and Maritime and any person, firm or company which was a connected person as therein defined. The clause went on to provide that each party acknowledged and agreed that, save as set out in the Settlement Agreement and any agreement or document entered into pursuant to it, "there is no agreement or arrangement outstanding under which any member of the P&H Group has or could have an obligation to any of the Garrad Associates whether now or in the future and whether for the payment of money or otherwise." The clause went further: it provided that except for the Excluded Balances and except as otherwise provided by the Settlement Agreement, each of Maritime, Sweet Cred, and Mr and Mrs Garrad irrevocably and unconditionally waived, released and forever discharged each member of the P&H Group from "all liabilities and obligations (whether actual or contingent or prospective or arising on or before [the making of the Agreement]) that any member of the P&H Group has or may have subsisting or outstanding" to any of Maritime, Sweet Cred, Mr and Mrs Garrad (and any connected person as earlier defined) as at the making of the Settlement Agreement, including in particular the Maritime Debt (i.e. the £3,667,393.10 claimed by the November invoices). There was a similar waiver, release and discharge by each member of the P&H Group in respect of liabilities and obligations owed by Sweet Cred, Maritime and Mr and Mrs Garrad (and any connected person) except as regards his obligations in respect of what is referred to as "the Loan".
12. The "Loan" is dealt with by paragraph 4. This is defined as (a) the liability for £1,274,405 assumed by Mr Garrad under clause 2, (b) the sum of £200,000 lent by P&H to Mr Garrad pursuant to the Loan Letter (as mentioned in recital (C)) and (3) the further loan to Mr Garrad of £500,000 mentioned (though not in amount) in recital (D). The aggregate of those three sums, namely £1,974,405, was agreed by paragraph 4 to be subject to the terms set out in schedule 1 to the Settlement Agreement and to no others. For good measure the clause went on to provide that Mr Garrad acknowledged that he owed such amount and covenanted to pay it in accordance with the terms of schedule 1.
13. Clause 5 provided for the sums due under the Settlement Agreement (i.e. the amounts due under clause 4) to be secured by Mrs Garrad by (a) a charge on shares held by her in New Century Group Holdings Limited and (b) a personal guarantee. Clause 9, headed "Support Provisions", set out an agreement by P&H to "list on its order from, for a period of two (2) years beginning on the Completion Date and ending on the second anniversary thereof, not less than 30 lines of product supplied by Sweet Cred on such terms as may be agreed from time to time between P&H and Sweet Cred". Clause 11 set out obligations of further assurance, warranties by the Garrads and a provision whereby, among other safeguards, no variation to the Settlement Agreement was to be valid unless in writing and signed by or on behalf of each of the parties to it. Clause 12 was an "entire agreement" provision.
14. Schedule 1 to the Settlement Agreement set out the terms on which the loan of £1,974,405 was to be repaid. These provided (so far as material) (a) that it carried interest at 6% per annum from the date of what was described as "the first Repayment Date", (b) that it (and any accrued interest) was to be repayable by four equal annual instalments starting on the first anniversary of the making of the Settlement Agreement (i.e. 31 January 2008) each such anniversary being a Repayment Date and (c) that it (and any accrued interest) was to be immediately due and repayable in full upon the occurrence of one or more events ("Events of Default") there set out (including non-payment of what should be due on any Repayment Date) following service on Mr Garrad of a written notice declaring the loan to be immediately due and repayable.

The claims and counterclaims

15. As I have mentioned, P&H now sues to enforce against the Garrads the terms of the Settlement Agreement. After allowing for a payment of £493,601.25 made on 8 February 2008 P&H seeks judgment for £1,764,572.65 together with interest. It does so against both of the Garrads.
16. It is not disputed by the Garrads that the Settlement Agreement was entered into in the sense that it was executed by each of the parties to it. Nor do they dispute that the further loan of £500,000 was advanced by P&H to Mr Garrad. Nor do they dispute that Mrs Garrad entered into a personal guarantee for the loan and executed a charge as security for it. What they contend - I confine myself to the matters relied upon in the closing submissions made on behalf of the Garrads rather than the many matters extensively pleaded in the re-amended defence - is (a) that, with the possible exception of clause 9, there was never any intention on the part of the parties to it that the Settlement Agreement should give rise to legal relations, in other words it was a sham, and (b) that, presumably with the same exception, it is "illegal" (the expression used) as being for a "tax-loss purpose and valuation purpose."
17. Instead, the Garrads counterclaim for the amount of the November invoices, adjusted upwards however to £3,797,176.25 to take account of an error in its original computation, less (a) £249,064.47 paid by P&H for the some of the items in question in June 2003, (b) the £700,000 lent to Mr Garrad by P&H in December 2006 and at the time of the Settlement Agreement, and (c) the sum of £493,601.25. Thus, the overall sum claimed by them is £3,341,713.03. They also counterclaim for what they say were the costs incurred by Sweet Cred "by reason of the non-acceptance of the items since 5 January 2004…" The reference to "the items" is, as I understood it, to the Sweet Cred products which they say that P&H was committed to purchasing from Maritime in early 2003. The costs claimed are broken down into (a) those incurred up to 9 February 2008 and "in respect of known heads of costs thereafter" (which are said to amount to exactly £1,800,000 but are otherwise wholly unparticularised), and (b) "unknown heads of costs after 9^th February 2008" particulars of which were promised "as soon as practicable" but which, in the event, were never provided. This is a reference to what was alleged to have been agreed by Mr Garrad with Mr McPherson on or about 9 February 2008. They related to what Mr Garrad claimed were the costs of storing the goods which, he maintains, P&H was committed to taking and paying for but which P&H refused to accept. The Garrads also give credit for £1,000,000 "paid to Maritime towards the start up costs of the Sweet Cred business…" I take this to be a reference to the sum which P&H advanced to Maritime pursuant to the September 2003 Agreement as I shall explain when I come to that agreement. (In fact the sum paid, inclusive of VAT, was £1,172,601.68 although that amount was subsequently increased very slightly owing to the discovery of a £3 accounting error.) There was also a counterclaim for damages for breach of an alleged oral marketing agreement but this was abandoned by Mr Garrad in the course of his evidence.
18. Before coming to the question of the enforceability of the Settlement Agreement and to the Garrads' counterclaims it is appropriate that I say something about the unusual course that these proceedings took at the start of the trial. It is also appropriate that I give my assessment of the witnesses who gave oral evidence.

The course of these proceedings: trial dates and representation

19. The trial was originally fixed for February of this year. It was vacated pursuant to the order of Sales J on 15 February 2013, shortly before it was due to start. This was on account of Mrs Garrad's then mental state which, it was alleged on her behalf, prevented her from understanding the significance of issues arising in the litigation or from providing a witness statement or participating in the trial process. Psychiatric evidence was produced in support of the application to vacate. The matter was hotly contested but, in the result, the trial was vacated and a new trial ordered on the basis that it should be completed before the end of the Trinity term of this year. This step involved what the order described as "a final adjournment." The new trial was later fixed to start on 24 June 2013.
20. On 7 June, just over two weeks before the new start date, the Garrads informed P&H's solicitors that their legal representatives had come off the record. They had had legal representation throughout the proceedings until then. They said that thenceforward they would be representing themselves.
21. On 24 June, the first day of the trial, a most unfortunate event occurred: Mr Garrad was involved in a car accident on his way to court. He had to be hospitalised. Fortunately he sustained no serious injuries but was concussed and suffered considerable pain and bruising. That day his son, Paul, appeared in court to explain matters. Having, as I have mentioned, lost or dispensed shortly beforehand with the services of solicitors and counsel the Garrads were otherwise unrepresented. Paul Garrad knew very little of what had happened to his father, knew nothing of the issues in the litigation but was present to see what assistance he could offer. The upshot was that I adjourned the case to the following day to enable Mrs Garrad to appear. I made clear that, given the previous adjournment, the terms of the adjournment order and the understandable concern of P&H that there should be no further delay, I would need to be provided with detailed medical evidence if there was to be any further significant adjournment on account of Mr Garrad's condition. The afternoon of the following day Mrs Garrad duly appeared. She was accompanied by Paul Garrad. She was naturally very distressed at what had befallen her husband. Although Mr Garrad was in a state to be discharged from hospital it was likely, I was told, that he would need a little time to overcome the effects of the accident. Quite how long this would take and what the medical justification for this would be were unknown at that stage. I was told that Mr Garrad's GP would be providing a medical report.
22. In these circumstances of uncertainty, I decided that I would allow the case to be opened on the basis that a transcript of what was said would be provided to Mr Garrad to read so that he would know what was being said, notwithstanding his (and Mrs Garrad's) physical absence from the courtroom. As the trial bundles had been prepared and the Garrads had their own copies, they could follow, if they chose, precisely what was being said. (In the event Mrs Garrad was to take practically no part in the trial: apart from her appearance on the second day and when she later gave some oral evidence and was cross-examined she was absent from the court room.) I made it clear that I would decide later, after I had seen the medical report, what course should be followed once P&H's opening had been completed. My concern was not to allow the inevitable delays occasioned by the accident to pre-empt the chance of completing the trial that term if it should turn out, as happened, that Mr Garrad's state of health did not justify any lengthy adjournment.
23. On that basis Mr Stephen Rubin QC, who with Mr Edward Levey and Mr Nico Leslie, appeared for P&H, opened P&H's claim. On the third day of the trial (and the second day of the opening) Mr David Nathan QC appeared in court to address me on behalf of the Garrads. It seems that he had represented Mr Garrad in some criminal proceedings brought against Mr Garrad arising out of events concerned with this dispute (and which, it is to be noted, resulted in an acquittal). A medical report on Mr Garrad by his GP was available. It indicated that Mr Garrad would need two to three weeks to recover and return to normal activities. Mr Nathan indicated that it might be possible for him to represent the Garrads, or to secure other legal representation of them, although some adjournment would be needed to enable him to read into the matter. I adjourned the matter for a further day. In the meantime arrangements were made for P&H's medical expert to examine Mr Garrad.
24. The following day, 27 June, Mr Nathan was again present, this time with a junior, Mr Andrew McGuinness. After considering the medical evidence and what was said on both sides I allowed Mr Rubin to resume his opening: it concluded the following day. I then adjourned the trial until Monday 15 July. This was to enable Mr Garrad to recover sufficiently to appear in court and for his new legal team to acquaint themselves with the trial bundles and prepare such opening remarks as they might wish to make after which I would proceed to hear the oral evidence. In the meantime transcripts of the proceedings would continue to be made available to the Garrads and their new team. Although far from ideal I am satisfied that in the circumstances the Garrads and their new representation had sufficient opportunity to acquaint themselves with the trial documentation, absorb and be in a position to respond to Mr Rubin's opening and deal with the oral evidence which, in the usual way, was by signed witness statements followed by oral cross-examination. In the event it was Mr McGuinness who represented the Garrads as Mr Nathan was unable to appear owing to other commitments. He had the assistance from time to time of another junior. He also had assistance from a firm of solicitors (Bark & Co) although, as I was later told, they were never on the record. Indeed, I understood Mr McGuinness to say that he was not actually instructed by solicitors but took his instructions directly from the Garrads (essentially Mr Garrad personally). Mr Garrad was well enough to appear when the trial resumed on 15 July and was present for the remainder of the hearing until it concluded on 24 July.
25. I am extremely grateful to Mr McGuinness for taking up the representation of the Garrads at such short notice. It has made the task of trying this case very much easier than at one stage it threatened to be.

P&H's witnesses

26. The principal witness for P&H was Mr Adams. As I have mentioned he was the non-executive chairman of Palmer & Harvey (Holdings) Plc, P&H's parent company, and also of P&H. Previously, until June 2006, he had been the full-time executive chairman of P&H. Thereafter, until the MBO completed in March 2008, he served in the same capacity but on a part-time basis. From and after the MBO his chairmanship continued on a non-executive basis until he retired from that role in January 2011. He was therefore the executive chairman of P&H at the time the Settlement Agreement was entered into. Indeed he was the key figure from P&H's side in the negotiation of it. His evidence was crucial to my evaluation of the claim by Mr Garrad that there was never any intention that the Settlement Agreement should have legal effect. I say straightaway that I found Mr Adams to be an entirely honest witness. On the issues that matter I found his evidence to be credible and reliable. Indeed, there was practically no challenge to any of the material contents of his detailed witness statement dealing with those issues.
27. Other witnesses called by P&H were (1) David Buchan ("Mr Buchan") who was Finance Director of P&H from August 2002 until his retirement in March 2010 (after June 2006 he was styled Finance Director - Commercial but this did not involve any effective change of role), (2) Wilfred Slee ("Mr Slee") who was a longstanding former employee of P&H and at all material times until his retirement in April 2007 its Trading Manager (Confectionery), (3) Michael Tunaley ("Mr Tunaley") who prior to June 2007 was P&H's "Category Director" (in charge of so-called impulse products, that is items such as confectionery, crisps, snacks and soft drinks which consumers buy on impulse) and from June 2007 P&H's Director of Buying (in charge of determining P&H's range of products, managing the supply of that stock to P&H's branches and managing any excess stock) and (4) Timothy Evans ("Mr Evans") who until shortly before the trial had been an Executive Director of DC Advisory, a corporate finance advisory firm and the name under which Close Brothers Corporate Finance, by whom Mr Evans had previously been employed, operated following its acquisition in May 2010 by Daiwa SMBC.
28. Mr Buchan's evidence dealt with the manner in which, during the time that he was responsible as P&H's Finance Director, the commercial position under what he referred to as the Sweet Cred Venture was reflected in P&H's accounts. This covered the period from the time that Maritime and P&H first entered into their trading relationship in early 2003 up to and following the making of the Settlement Agreement in January 2007 and its subsequent implementation. Mr Buchan impressed me as a careful and wholly reliable witness. I have no reason to question anything he said. I will come to his evidence when I come to narrate what happened after the Settlement Agreement had been entered into. Mr Slee's evidence went mainly to the circumstances in which P&H began trading with Maritime in 2003. He too struck me as an honest and reliable witness. I come to his evidence, in so far as it is relevant, when I consider the Original Arrangement.
29. Mr Tunaley's evidence was mostly concerned with the operation of the trading arrangement which was entered into as part of the terms of the Settlement Agreement. In the light of the Garrads' abandonment of their counterclaim based on that arrangement Mr Tunaley's evidence was relevant only, and then only marginally so, to the terms of the Original Arrangement. So far as his evidence went I had no reason to doubt what Mr Tunaley had to say.
30. Mr Evans was part of the Close Brothers team advising P&H in connection with what became the MBO which involved a re-financing and restructuring of the company's business by means of a management buy-out. He led the team working on the valuation of the business. He too came across as an entirely honest and credible witness. I will summarise his evidence when I come to consider the Garrads' contention that the Settlement Agreement was a sham.

The Garrads' witnesses

31. Mr and Mrs Garrad and five others gave evidence in defence of P&H's claim. Those five others were Kevin Foster, Martin Armstrong, Malcolm Guscott, Tom Miller and Lisa Marraffa. I will deal with their evidence and my assessment of the relevance and reliability of what they had to say later in this judgment. At this stage I confine myself to Mr Garrad whose evidence was critical to the defence and counterclaims which he and his wife have mounted.
32. Mr Garrad was a thoroughly unconvincing witness. Rarely in the course of his evidence (he was in the witness box several hours) could I feel confidence in the reliability of what he was saying. For much of the time it was difficult to know whether he was even attempting to tell the truth. Frequently it was quite apparent that he was not. A common response to questions directed to communications (which on their face had been sent to him) was often a denial that the particular communication, for example an email, had reached him (although offering no good reason why it should not have done) or that he had no recollection of it or, in the case of more than one document bearing his signature, that the signature was not his. In this way, he sought to distance himself from documents which were inconsistent with his defence to P&H's claims. Time and again he would respond to a straightforward question by asking one himself, or by launching into a lengthy answer which bore little or no relationship to what he had been asked. Sometimes this was because he had not listened carefully to what he was being asked. On occasions, however, he was deliberately evading the question. From time to time his answer was simply impossible to follow. The result is that where his testimony was in conflict with that of a witness whom I have found to be credible and reliable I have had no difficulty in preferring the evidence of that other witness. Where I had no more than Mr Garrad's testimony about some matter or about the actions or remarks of someone who was not before the court, I have not felt able to accept that testimony unless the matter related to something which was not in dispute or there was otherwise no reason to question what he was saying.

The facts

33. I now set out what happened. I begin with what I have described as the Original Arrangement. This deals with the nature of the trading venture which P&H set up with Maritime in early 2003. I deal next with the September 2003 and April 2005 Agreements and then with the events which prompted the making of the Settlement Agreement. I then cover what happened subsequent to the making of the Settlement Agreement.

The Original Arrangement

34. The Original Arrangement, entered into by P&H with Maritime in early 2003, was variously described: joint venture, informal partnership and agency venture were three of the expressions used. It differed from the usual relationship P&H enjoyed with its suppliers in that, unlike the usual relationship, it was envisaged that P&H might eventually acquire an interest in the Sweet Cred brand name. It differed also in that the terms negotiated were less rigorously commercial than with its ordinary suppliers. It was negotiated on P&H's side principally by Mr Slee whose responsibilities extended to negotiating trading terms with suppliers and manufacturer. Mr Slee reported to Michael Tunaley (the then Category Manager) and Peter Austen (the then Commercial Director) who in turn reported to Mr McPherson who was the then Managing Director. When the Original Arrangement was agreed, Maritime was already a supplier to P&H of chilled and frozen goods. Moreover Mr McPherson and Mr Garrad were friends of longstanding.
35. I accept Mr Slee's evidence which was supported by the evidence of Mike Tunaley and by the contents of contemporary e-mails (although none set out the terms of business with any precision) that, among other matters, irrespective of the quantities of Sweet Cred stock ordered by P&H and supplied to a warehouse called Boughey for storage until they were called off for delivery, P&H would only be obliged under the Original Arrangement to pay for what it asked to be delivered to one of its branches and the items in question were delivered. This is consistent with an email which Mr Garrad sent to Mr Slee on 17 February 2003 (when the terms of the Original Arrangement were under discussion) in which he stated: "We at Maritime would prefer you to over-estimate your requirements, as the lead time is initially so long and any stockholding that P&H do not require once the goods have arrived in the UK can be absorbed by Maritime." It is also consistent with the Garrads' re-amended defence where, at paragraph 9, the terms of the Original Arrangement (described there as its express terms) are set out. The pleaded terms read as follows:

"9.1 Maritime would not sell the same products to any United Kingdom distributor or other purchaser save for [P&H].

9.2 Maritime would caused the items to be imported and thereafter stored at warehouse premises within the United Kingdom pending a request made by [P&H] for the call off of items.

9.3 [P&H] would call off items for delivery whereupon Maritime would arrange for delivery to [P&H's] nominated warehouse.

9.4 Maritime would be entitled to raise an invoice for items delivered as at the time of delivery.

9.5 [P&H] would be liable to pay for all items purchased within 40 days of an invoice being raised."

36. I also accept that P&H understood that it was open to P&H to require Maritime to take back and credit P&H for stock which had been delivered to one of P&H's branches but which P&H had been unable to dispose of. That was the evidence of Mr Slee and Mr Tunaley. The Original Arrangement caused Mr Slee anxiety on three main scores. In paragraph 30 of his witness statement he set out what they were. In summary, they were that (1) P&H had been encouraged by Mr Garrad to place large orders of stock, ostensibly as a result of the lead-time required to source the products from China, and the stocks so ordered were far in excess of what P&H would otherwise have ordered, (2) it was difficult to identify accurately how much stock would in fact be called off by P&H branches, and (3) it was difficult to know how successful P&H's sales team would be in generating demand for the stock. The Original Arrangement led to P&H placing two particular orders: an order dated 26 February 2003 for stock to the value of £521,350 and another dated 14 April 2003 for stock to the value of approximately £2.7 million.
37. It quickly became apparent that Mr Slee's anxieties were justified: the level of sales to retailers was significantly less than had been initially expected. The issue that arose was over who bore the risk of the non-disposal of the unsold stock. In paragraph 10 of their re-amended defence and counterclaim the Garrads pleaded that it was an implied term of the Original Arrangement that P&H "would call off items for delivery within a reasonable period of time". It was pleaded that such a term was to be implied as a matter of law or to give business efficacy to it. P&H denied that such a term was to be implied. It contended that no such term was asserted until very much later, long after the Original Arrangement had been entered into and overtaken by subsequent events, and that it only really surfaced when Mr Garrad served on P&H the November invoices. Mr Garrad sought to say, when cross-examined about the matter, that Maritime was entitled to invoice P&H for any stock six months after its arrival in the United Kingdom. This was unsupported by anything in his witness statement or even in the Garrads' pleaded case, let alone in any of the contemporary documentation.
38. On the view I take of the subsequent history of the parties' dealings, culminating in the Settlement Agreement and its aftermath, it is not necessary to come to any final view of the precise terms of the Original Arrangement, in particular whether P&H could be made liable to pay for the balance of the Sweet Cred stock which had not been called off and delivered to it. Nor, for that matter, do I need to consider another issue between the parties which was the extent to which P&H enjoyed the exclusive right to sell the Sweet Cred stock to anyone in the United Kingdom. I do not need to come to any definite view on these and other issues associated with the Original Arrangement because the parties agreed to resolve the problems thrown up by the fact that the Sweet Cred stock was selling so slowly by entering into what was in essence a stock financing agreement designed, as it would seem to me, to ease Maritime's cash flow difficulties resulting from the sourcing of too much Sweet Cred product. That financing agreement was embodied in the September 2003 Agreement to which I now turn.

The September 2003 Agreement

39. On 11 September 2003 P&H and Maritime entered into the September 2003 Agreement. It was signed on behalf of P&H by Christopher Little, who at the time and until March 2007 was Group Finance Director of the P&H Group, and on behalf of Maritime by Mr Bertin who at the time, as I have mentioned, was one of Maritime's two directors (the other being Mrs Garrad) and the holder of 50% of its issued shares. There is no reason to think that this agreement was not freely entered into by Maritime. I reject Mr Garrad's suggestion, for which there was no basis in the evidence, that the agreement was abandoned by the parties very soon after it was entered into or that Mr Bertin was pressured into signing it and that it is therefore to be ignored in some way. Not the least of the reasons for rejecting any suggestion that the parties agreed to its abandonment is that, as I have already set out, it is referred to in recital (B) to the Settlement Agreement: there would have been no point in doing so if it had been abandoned soon after it had been made.
40. The September 2003 Agreement provided that (1) P&H would purchase from Maritime approximately £1 million of the Sweet Cred products that were being held in Boughey's warehouse, (2) Maritime would insure the stock at its own expense and pay all storage costs, (3) Maritime would endeavour to sell the products so purchased by P&H, (4) as and when the stock so purchased by P&H was sold by Maritime, P&H would invoice Maritime for that stock at the same price as Maritime had paid for it and, importantly, (5) if any stock so purchased by P&H remained unsold on 31 December 2003 P&H would invoice Maritime for such stock at the price at which the stock had been sold to P&H, and Maritime would immediately pay this amount to P&H.
41. Further to the September 2003 Agreement Mr Bertin on behalf of Maritime invoiced P&H for products totalling £997,958.88 plus VAT, making a total of £1,172,601.68. P&H paid this amount to Maritime. Following discovery of a minor error in the pricing for the stock the invoice was cancelled by a credit note. A fresh invoice was issued on 21 November 2003 for £1,172,604.22. This amount was shown in Maritime's books and records and in its year-end accounts. It was carried into Sweet Cred's equivalent records when Maritime transferred to Sweet Cred that part of the business. I reject any suggestion by Mr Garrad that the two invoices related to different goods. I also reject his assertion that the payment made by P&H was in truth a contribution to what he referred to as the "start-up costs" of the business venture set up under the Original Arrangement. That contention is not maintainable in the face of the terms of the September 2003 Agreement.
42. The goods so invoiced and paid for by P&H under the September 2003 Agreement were part of the goods which had been acquired under the Original Arrangement but which had remained unsold and were stored at Boughey's warehouse. It is evident therefore that the very basis of the September 2003 Agreement was that stock at the warehouse was owned, and was available for disposal, by Maritime, not by P&H. That and the fact that any stock invoiced to P&H under this agreement but unsold by 31 December 2003 was to be re-invoiced by P&H to Maritime are inconsistent with any suggestion that under the terms of the Original Arrangement P&H could be made to pay for any of the stock remaining unsold.
43. None of the stock invoiced to P&H under the September 2003 Agreement was sold and, accordingly, Maritime became liable for the value of the stock at the price invoiced to P&H. After 31 December 2003, correspondence ensued between P&H and Maritime, acting by Mr Bertin, for payment of the resulting £1,172,604.22 liability. It was supposed to be paid by three instalments between 30 January and 6 April 2004. Those instalments were not paid. P&H continued to chase for payment. There is not a single suggestion in any of the replies to P&H's chasing communications that the September 2003 Agreement was other than valid and enforceable. This brings me to the next written agreement between the parties.

The April 2005 Agreement

44. This was entered into on 21 April 2005. By this time, indeed with effect from the start of 2004, Sweet Cred had assumed responsibility for payment of what was due under the September 2003 Agreement. A further liability to P&H had also arisen, so P&H claimed, as a result of the return by P&H to Sweet Cred of certain stock in March 2005. The outstanding liabilities were the subject of two separate invoices: one for £1,172.604.22 in respect of the amount owed pursuant to the September 2003 Agreement, and the other for £101,801.35 in respect of the stock returned to Sweet Cred. The obligation to pay these amounts was reflected in the terms of the April 2005 Agreement. This recorded £1,274,405.57 (the sum of the two invoices) as the "Total Debt Outstanding" owed by Sweet Cred to P&H. It provided that Sweet Cred would pay the first £190,000 by 18 August 2005 and the balance by P&H retaining 50% of the price due to Sweet Cred for the sale of sweets distributed by P&H after that date until "such time as the whole of the Total Debt Outstanding is eliminated". This new agreement was signed by Mr Garrad on behalf of Sweet Cred.
45. Until he gave evidence Mr Garrad's case was that he had not signed the April 2005 Agreement. He alleged that his signature had been forged. In the course of his cross-examination, however, Mr Garrad changed his position and accepted that his signature on the agreement was indeed his. He was at a loss to explain why he had earlier confirmed as accurate his witness statement which had continued to assert, in line with his and his wife's pleaded defence, that the signature on the Agreement was not his, or why indeed at the start of his cross-examination he had again confirmed that he continued to maintain that his signature on the agreement was, in effect, forged. His change of position on the point was accompanied by a wholly new and hitherto unheralded explanation. This was that Mr Little, P&H's Group Finance Director, had turned up one morning and asked him to sign a blank piece of paper which, according to this new account, Mr Garrad obligingly proceeded to do. He said that Mr Little assured him that the resulting document would be no more than "window dressing".
46. I reject this explanation as utterly implausible and thought up on the spur of the moment to explain his belated acceptance, in line with the clear evidence of the handwriting expert to this effect, that the signature on the agreement was indeed his. Moreover, P&H's board of directors had specifically approved the April 2005 Agreement. No attempt was made by Mr Garrad to call Mr Little or serve a witness summons on him to enable him to verify this extraordinary assertion.
47. In any event, there is plenty of evidence that the parties to it treated the April 2005 Agreement as valid. Thus, P&H acting both by Mr Little and Mr McPherson pressed for payment of what was due under it. Mr Garrad gave undertakings that he would effect payment. The agreement is referred to in recital (B) of the Settlement Agreement. The debt outstanding under the April 2005 Agreement is the same as the sum for which Mr Garrad was to assume personal responsibility to repay, together with the two loans to him of £700,000, under the Settlement Agreement. In addition, Sweet Cred's own accounting records for the year ending 31 December 2005 and 31 December 2006 show the two elements of that indebtedness, namely £1.172 million and £101,801, as sums owed to P&H.
48. The scene was thus set for what was to become the Settlement Agreement.

The circumstances which led to the making of the Settlement Agreement

49. Out of the blue, so far as P&H was concerned, Mr Garrad wrote on 17 November 2006 to Mr Little, with a copy to Mr Etherington, to complain of P&H's failure (as he saw it) to discharge its obligations arising out of the Original Arrangement. (Mr Garrad claimed that he had raised the matter with Mr Little, and also with Mr McPherson, shortly before sending the letter.) In his letter Mr Garrad referred to the Sweet Cred products which Maritime had purchased. He stated that the products had been to supply orders made by P&H under the Arrangement. He expressed himself to be "bitterly disappointed" with P&H's response, complained that P&H's conduct had given rise to an exposure of some £4 million (towards which, he accepted, P&H had paid £1 million plus VAT), said that his bankers could not understand why steps had not been taken to recover that amount, and enclosed three invoices "for the full amount of your confirmed orders." He accepted that "a small element of purchases made by P&H…will need to be carefully calculated and deducted from the outstanding balance" but that "in addition, there will be interest, storage and disposal costs to be addressed."
50. The letter made no reference to the September 2003 Agreement or to the April 2005 Agreement. The mention of a £1 million payment by P&H could only have referred to the £1 million or so paid pursuant to the September 2003 Agreement (since there was no other such payment by P&H) but the letter ignored entirely the terms of that Agreement, describing that payment as "a contribution towards [P&H's] exposure." (In his evidence Mr Garrad referred to the payment as a "contribution towards the start-up costs" of the Sweet Cred venture.) The three invoices are the November invoices. They are on Maritime headed notepaper but, as Mr Foster (Maritime's accountant) confirmed in cross-examination (he was called by the Garrads but in connection with other matters), the invoices could not have come from Maritime's accounting system. The references on the invoices were not in a sequence which he recognised (they are respectively numbered "SCPH01", "SCPH02" and "SCPH03") and there are other features about them which strongly suggest that they were put together by Mr Garrad or someone acting at his behest at or about the time they were sent. Indeed Mr Foster thought that they might be "pro forma" which I understood to mean that they were for information only. There is no indication on them (or in the accompanying letter) that that was their nature. On the contrary, each is headed "sales invoice." Each includes the appropriate amount of VAT. No previous demand had been made for payment of the invoiced sums. They related to the goods which had been sourced by Maritime over three years earlier.
51. Mr Little referred the invoices and letter to Mr Adams who was puzzled by them. His understanding, consistent with what I have narrated above, was that so far from P&H owing anything arising out of the Original Arrangement the position was the other way round: P&H was owed money. Mr Etherington, who had not even been at P&H at the time the liability was supposed to have arisen to which the invoices related, referred the matter to Mr Adams. Mr Little was asked to investigate the claim. Mr McPherson, by now P&H's deputy chairman and no longer holding any executive role within the company, was also involved.
52. Mr Adams was asked in cross-examination about Mr McPherson's opinion of the invoices. Although Mr Adams could not precisely recall what Mr McPherson's reaction to them was he was clear that Mr McPherson never indicated that the sums claimed were due. This is to be contrasted with Mr Garrad's evidence. He claimed that at a meeting at Gatwick Airport on 3 December 2006 Mr McPherson reminded him of P&H's MBO and said that the invoices would have what he described as a "multiple impact" on P&H's overall valuation.
53. On 4 December 2006 Mr McPherson and Mr Little met Mr Garrad to discuss the claim. Mr Garrad indicated that he was keen to see Mr Adams. Mr Garrad's witness statement was, at this point, in something of a muddle over dates. He made no reference to meeting Mr Little at this time. The upshot, according to Mr Adams, was that, when told that Mr Garrad wanted to meet him and although initially anxious to avoid doing so, he changed his mind and agreed to a meeting. This was fixed for 21 December 2006. Mr Garrad, by contrast, originally thought that this meeting took place on 6 December. He stated that he had no recall of a meeting on 21 December. He later accepted that he was wrong about this and that the meeting was in fact on 21 December.
54. Before the meeting took place, the matter was discussed at a meeting of P&H's board of directors. The meeting was attended by, among others, Mr Adams, Mr McPherson, Mr Etherington, Mr Little and a Mr Bedford. The relevant board minute was in the following terms (the initials are of those who attended):

"GSMcP reported that Maritime/Sweet Cred is making a claim for £3.1m for stock allegedly ordered three and a half years ago. GSMcP and CWL had already met with Clive Garrad ("CG") of Maritime/Sweet Cred and CBA and GSMcP would meet him later today with a view to reaching an agreement. CBA referred to an older agreement for Sweet Cred to pay 50% of the value of stock sold to offset the £1m already paid by P&H. It is believed that CG has some issues with his personal financing so that he is unable to fulfil his side of this older arrangement. CG feels he is entitled to some rebate but CBA believed that the claim has no foundation. GSMcP reminded the Board that CG is a personal friend but the Board noted that the matter is being dealt with in an objective manner taking legal advice as is necessary.

CWL reminded the Board that the £1m debtor has been fully provided against. CG is arguing that P&H had enticed him to buy stock for its orders. CBA suggested that either P&H helped CG to get back on track or refute the claim and invite a legal challenge. CBA added that at the time, P&H was looking to enter into the agency business with Maritime providing a low price entry point and the opportunity to work with a very entrepreneurial person. With hindsight the venture for P&H has not been successful. MB noted that KPMG had commented on this debt in the final audit meeting. MB suggested it would be advisable to let CBA lead the negotiation and this was agreed."

55. Later that day Mr Adams and Mr McPherson met Mr Garrad. Mr Adams and Mr Garrad had very different accounts of the meeting.
56. Mr Garrad maintained that he told the other two that he was under great pressure from his bank and that he had no other option than to sue P&H for what he claimed was due. He said that this was a threat which Mr Adams responded to by saying that any such claim would be disputed, that P&H would refuse to deal with him in the future if he brought a claim and that the matter would take a long time to come to court. He claimed that Mr Adams and Mr McPherson both referred to the MBO and begged him not to take any action against P&H "as it would kill the MBO". He said that Mr Adams refused to take delivery of the unsold Sweet Cred items that were still in storage but suggested that a way to resolve his (Mr Garrad's) cash needs would be to advance to him a sum against P&H's liabilities for the items but on the basis that it would be accounted for as a loan to him personally. Mr Garrad said that he was "not impressed" with the suggestion and left the meeting "extremely unhappy". He claimed that shortly after the meeting he spoke to Mr McPherson and that the two met at a hotel in East Grinstead where Mr McPherson begged him to help saying that he wanted the MBO to go through so that he could retire and leave P&H "before it became worthless" and that he would arrange for an immediate payment of £200,000 to be made to him as an interest-free loan repayable on demand. He said that Mr McPherson promised to speak to Mr Adams to "sort something out regarding more money being paid to him but I should keep calm until we find out what is happening with the MBO".
57. It is clear that Mr Garrad's subsequent meeting with Mr McPherson at which an advance to him of £200,000 was agreed did not take place after the meeting with Mr Adams and Mr McPherson on 21 December but was on or about 6 December. Indeed, I understood Mr Garrad to accept that this was so. At all events, it is common ground that a £200,000 advance was made by P&H to Mr Garrad on 7 December 2006 as I mention in more detail a little later. The dispute is as to the nature of that payment. P&H claimed that it was a loan whereas Mr Garrad maintained that it was a part-payment of the debt owed to him by P&H and, what is more, that Mr McPherson assured him that the money would not be repayable. Mr Garrad claimed that some days later - as I understood his evidence this was after the meeting on 21 December - Mr McPherson called him to say that Mr Adams had agreed to pay £500,000 but it would have to be shown in the accounts as a loan and that Mr Adams would arrange for all the documentation to be drawn up so that it could be "dressed" as a loan. He said that Mr McPherson reassured him that the £700,000 (the sum of the two payments) would never have to be repaid and that once the MBO was complete "all the outstanding monies that were owed to me would be repaid (less the £700,000)".
58. His evidence of what subsequently happened, leading to the execution of the Settlement Agreement, was as follows (I take it verbatim from his witness statement):

"162. Graham and I had several conversations over the next week or so whereby he said that in order for this 'loan' to pass the stringent due diligence tests it would require 'security' to make it look convincing. He suggested that as a token to demonstrate that the loan was authentic an unregistered charge, over Susan's shares in her own business, needed to be made available.

163. I said that this was becoming ridiculous, but Graham once again gave me his assurances that this had to be done and the 'loan' needed to be robust enough to withstand due diligence for the MBO. He said I would be compensated for the outstanding balances, interest, storage charges, disposal costs and other losses. He said that even though I would need to sign 'official documents' it was just a device to allow them to get maximum reward from the MBO.

164. He said that he would speak to Susan…

165. He then said that the 'loan' would have to portray an existing liability between the parties to which I would assume responsibility."

59. Mr Garrad then stated that Mr Adams insisted to Mr McPherson that the loan appearing in the agreement "should be made personally to me whereas the outstanding contractual arrangements were made with Maritime/Sweet Cred". (I assume that in saying this Mr Garrad was reporting what he had been told by Mr McPherson as what Mr Adams is reported to have said was on an occasion at which Mr Garrad was not present.) He then continued:

"167. Graham said that any loan to a supplier would be scrutinised in far greater depth than a personal loan to an individual.

168. I said that this doesn't make sense and it would just make them look like a bank, but he said that he and Adams would manage this…

170. In reality I was given no choice other than to agree. I still had a good business relationship with [P&H] in other matters and I did not want to jeopardise the other business I had with them.

171. There was no advantage to me or Susan agreeing to novate the alleged debt.

172. Graham and I discussed this issue over Christmas and the New Year. He re-iterated that everything could be taken care of by this loan. He was excited at the prospects of the MBO being completed by the same time next year."

60. Mr Garrad said that he, Mr McPherson and Mr Adams met early in January 2007 and agreed, as an addition to the loan, that Sweet Cred would be included in P&H's brochures by way of assistance in supporting and revitalising Sweet Cred's sales through P&H. He said that shortly after this he was given an agreement to sign. He said that he showed a copy of it to Martin Armstrong, a friend of many years, and to Kevin Foster (of Crouch Chapman, Maritime's and Sweet Cred's accountants) who both voiced concern at its terms. I come later to their evidence. He also said that he showed it to a Mr Selby. He said that he signed the agreement and sent it back, adding that his business was between "a rock and a hard place" and that if he did not take the loan he would have to sue P&H "which could take years and would bite the hand that feeds me."
61. He claimed that Mr Adams and Mr Etherington were the only two from within P&H who would agree to sign the Settlement Agreement. He said that Mr McPherson refused to do so and that Mr Little declined to do so on the footing that it would be inappropriate for him to sign it on account of his wife's friendship with Mrs Garrad. Importantly, he claimed (in paragraph 193 of his witness statement) that Mr McPherson and Mr Adams "were the only ones that knew of the true agreement". It is clear from his witness statement that, on Mr Garrad's account of events, it was Mr McPherson who took the lead in negotiating what he says were the terms of the true agreement. This was in contrast to his oral evidence according to which it was very much Mr Adams who took the lead.
62. Mr Adams' account of events was as follows. At the meeting he and Mr McPherson had with Mr Garrad on 21 December Mr Garrad recounted how he had been threatened by persons from whom he had borrowed money which he was unable to repay. Mr Adams described what he was told as "beyond his comprehension" and the like of which he had not heard in all his years in business. He said that at the time he believed what Mr Garrad told him. He said that, as regards the November invoices, Mr Garrad stated that he was in a desperate position and had no choice but to issue them, that he had shown the invoices to his lenders telling them that he believed that he was owed the amounts claimed and that the lenders had suggested that they take an assignment of them with a view to recovering the debt from P&H themselves. Mr Adams said that he did not commit himself to anything at his meeting with Mr Garrad but left it that he would consider what he had been told and come back to him with a proposal.
63. Although he believed that P&H owed nothing but instead was owed money by Maritime, Mr Adams nevertheless made a manuscript note of what he thought would be the way forward. The note was in evidence. I have no reason to doubt its authenticity which, moreover, was not challenged when Mr Adams came to be cross-examined. It recorded that Mr Garrad owed a third party £600,000 plus interest, that he was due to make repayments of £200,000 on each of 25 December 2006, 25 January 2007 and 25 February 2007, that he owed £200,000 in interest and that he could only pay the December instalment. Mr Adams said that he discussed his note with Mr McPherson and in the course of doing so learned of the £200,000 personal loan to Mr Garrad earlier that month. In his witness statement Mr Adams said that he was "not at all pleased" to learn of the loan. In cross-examination he expressed himself more forcefully over this payment: he described it as "a complete aberration", said that Mr McPherson realised that he was wrong to have agreed it and felt "chastised" over it. Taking into account the fact that Mr McPherson and he had together made P&H into the hugely successful business that it had undoubtedly become Mr Adams said that at that stage he "parked" the issue in the sense that the fact that the loan had been made and the manner in which it would be repaid became subsumed in the negotiation which he then had with Mr Garrad (and which was to lead to the making of a further advance) which resulted in the Settlement Agreement. Mr Adams was clear (and Mr McGuinness did not challenge him on this) that from 21 December 2006 onwards, although he kept him informed as to what was happening, Mr McPherson had no further influence on the decisions which led to the Settlement Agreement.
64. As a matter of record, it appears that Mr Garrad had signed a letter dated 7 December acknowledging that the loan of £200,000 was to him personally, was without any admission on P&H's part in respect of the claims set out in the November invoices and was interest-free and repayable on demand. The money was paid to him on 7 December 2006. At the least, therefore, the making and status of the loan were clear although Mr Garrad was later to claim that, despite his signed acknowledgement (and despite what was stated about it in the subsequent Settlement Agreement), the £200,000 was not a loan but was in truth a payment on account of the sums due under the November invoices and was not therefore repayable.
65. Faced with the November invoices, Maritime's failure to make any payment of the £1,274,405 due to P&H under the September 2003 and April 2005 Agreements, Mr Garrad's urgent need for further money and the making of the £200,000 loan to him, Mr Adams concluded that a potential solution to the situation would be a deal whereby P&H would be issued with a credit note for the November invoices and would receive an acknowledgement that it owed nothing in respect of previous orders. Under the deal a further loan of £500,000 would be made available to Mr Garrad on the same basis as the £200,000 and future trading terms would be agreed. These outline terms appear on the same manuscript note. It led in turn, according to Mr Adams, to a further handwritten note by him in which he set out a proposal to be put to Mr Garrad. That note was also in evidence. Once again, there was no challenge to its authenticity. The further note, which Mr Adams said was to serve as an aide memoire in advance of a telephone call he made to Mr Garrad early the following month (January 2007) to put his proposal, set out in summary form the key terms which were to feature in the Settlement Agreement which came to be signed at the end of that month. The only difference was that the note referred to a further loan of £300,000, not £500,000. This is because this was the amount which Mr Adams said that he would initially offer although, as he explained, he was willing to lend up to £600,000. In the event, a further £500,000 was advanced.
66. Mr Adams said that in early 7 January 2007 he rang Mr Garrad and put his proposal to him. He noted down Mr Garrad's response as the conversation proceeded. The handwritten note contains a summary of that response. The matters agreed included an interest-free and instalment-free period of 12 months following the signing of the agreement and P&H's support for the future sale of Sweet Cred products. This was to enable sales to be made which would generate the funds needed to repay the proposed borrowings.
67. Mr Adams said that on the following day, 8 January, he and Mr Garrad met briefly at P&H's offices. At that meeting Mr Adams said that he suggested that Mr Garrad send him a wish list of the support which he wanted for the Sweet Cred brand. Later that day Mr Garrad emailed to Mr Adams' secretary a list of the trading support he wanted. It went further than Mr Adams was willing to agree. The matter was left on the basis that as Mr Garrad was anxious to have the agreement in place by the end of the month (and with it the further £500,000) there would be a term that P&H would provide trading support but that the details of it would be agreed at a later date. This was later to be reflected in clause 9 of the Settlement Agreement.
68. Thereafter, said Mr Adams, negotiation of the precise terms of the agreement proceeded and did so without any problem. This included the supporting guarantee and charge of securities which Mrs Garrad was to provide. As to this Mr Adams said that Mr Garrad explained that any substantial assets that could be given as security for the obligations under the agreement were in his wife's name. He explained that the main asset was a 50% shareholding in a nursing home business. It was therefore agreed that Mrs Garrad would guarantee her husband's obligations and would grant a charge over her shareholding by way of security. For reasons connected with the trading position, and therefore the worth, of the nursing home company Mr Adams was concerned to obtain comfort over whether Mrs Garrad's shareholding was adequate to cover her guarantee liability. This led, he said, to correspondence with that company's auditors, Crouch Chapman, who were also auditors of Maritime and Sweet Cred. The necessary comfort was provided. Another P&H requirement necessitated by Mrs Garrad's participation was that she obtain independent legal advice on whether she should assume these obligations. Mrs Garrad duly instructed Mr Mark Edmondson of Edmondson Hall to advise her and had a meeting with him for this purpose on 29 January. Two days later, on 31 January, which was the date of the Settlement Agreement, Edmondson Hall wrote to Mr Adams to say that they had advised her in respect of the guarantee, charge over her securities and the Settlement Agreement. I come later to Mrs Garrad's evidence about her meeting with Mr Edmondson.
69. In his witness statement Mr Adams said, again without challenge when he later came to be cross-examined, that he conducted negotiations directly with Mr Garrad over the telephone with the aid of drafts prepared by P&H's solicitors and with the solicitors' advice. He said that as the matter proceeded amendments were made to the draft. All of this appears from the disclosed documentation. Also in evidence were the requirements for completion (board minutes and the like) which P&H's solicitors advised would be required. It would appear that P&H's solicitors were unhappy with the draft board minutes of Maritime and Sweet Cred which Mr Garrad supplied and that they therefore redrafted them in an acceptable form.
70. Faced with these conflicting accounts of the events which led to the making of the Settlement Agreement I have no hesitation in preferring Mr Adams's version. There was little or no challenge to it when he came to be cross-examined. It is supported by his notes and by other documentation.
71. On 31 January the Settlement Agreement, Guarantee and Charge were executed and the £500,000 additional loan duly made available. The Settlement Agreement was signed on P&H's behalf by Mr Etherington and Mr Adams. They were at the time P&H's chief executive and chairman. Mr Adams stated, and I have no reason to doubt, that he did not think it appropriate that Mr McPherson should sign in view of the latter's close friendship with Mr Garrad. He also stated, and I equally have no reason to doubt, that Mr Little was unwilling to sign on account of the close friendship between his wife and Mrs Garrad. I reject the insinuation by Mr Garrad that there was something significant in the fact that it was Mr Adams and Mr Etherington who signed rather than others. It was entirely appropriate that, as chairman and chief executive respectively, they should do so.
72. On 1 March 2007 Mr Adams reported to a meeting of P&H's board of directors that he thought that the agreement was "about as good an agreement [as] P&H could obtain in the circumstances." There can be little doubt that his colleagues attending that board meeting were under the impression that it was a fully enforceable agreement and that if necessary it and the accompanying guarantee and charge given by Mrs Garrad would be enforced. The minute reports Mr Adams to have stated, when responding to a question from a fellow director (Mr Bedford), that if the payments due under it were not made P&H would "make claims" (against Mr and Mrs Garrad) and threaten to use the security over the shares and that if funds were still not forthcoming "the security over the shares would be invoked." It was not suggested that this minute did not accurately record what occurred at the board meeting.
73. I have set out the terms of the Settlement Agreement earlier in this judgment and I do not need to repeat them. What I now come to are the steps taken to give effect to the Settlement Agreement and the light that they shed on the parties' intentions. Before doing so I mention that on 3 April 2007 a trading agreement was entered into between P&H and Sweet Cred to regulate their trading relationship going forward. The evidence of Mr Tunaley was mostly directed to this. Until it was abandoned by Mr Garrad in the course of the trial there had been a dispute over the operation of this agreement. It gave rise to one of the Garrads' two counterclaims. I do not need to say more about the matter except to note that the trading agreement gave effect to the 'agreement to agree' set out in clause 9 of the Settlement Agreement. It recognised, as did the provisions in the Agreement relating to "Excluded Balances", that ordinary trading continued between P&H and Sweet Cred unconnected with the joint venture in respect of the Sweet Cred products. The signed trading agreement was for two years. The trading continued for longer. There was some doubt as to precisely when it came to an end. Mr Tunaley said that it continued to March 2011. It had certainly ended by the time that the events occurred which led in May 2011 to the issue of these proceedings.

The subsequent events

74. The first repayment instalment under the Settlement Agreement was due on 31 January 2008. The sum needed was £493,601.25. It was not initially paid. Instead Sweet Cred claimed, through Mr Garrad, that £116,901.14 was due to it. The details do not matter. Mr Tunaley investigated the claim and could find no basis for it. Mr Adams thought that the claim might relate in some way to storage charges. The view taken within P&H was that, with the exception of the so-called Excluded Balances (of which the sum claimed was not one), the Settlement Agreement had settled all liabilities. But it seemed that, excepting that amount, Mr Garrad was willing to pay the first instalment. Mr Adams, as he described it in his witness statement, took the commercial view that, given the prolonged difficulties that P&H had experienced in obtaining any payment from Maritime or Sweet Cred, payment of a significant portion of the first instalment under the Settlement Agreement would represent a relative success. He did not want to derail the chance of any payment at all by engaging in an argument over the £116,000 claim. He therefore authorised Mr Buchan, who by that time was the person who was dealing with Mr Garrad over these matters, to accept the deduction of the £116,901.14. The matter was structured on the basis that Mr Garrad would first make payment of the instalment in full (inclusive of interest), namely the £493,601.25 (which he did, although it was not paid until 8 February) and only then would P&H pay Sweet Cred the £116,901.14 that Mr Garrad was claiming. According to a detailed note which Mr Buchan made at the time, payment was structured in this way at the insistence of Mr McPherson. And this is how the matter was dealt with. On the face of it, Mr Garrad was giving effect to the Settlement Agreement. Indeed, on 18 July 2008 he wrote a letter to Mr Buchan in which he mentioned "the first payment of the Sweet Cred settlement" he had made earlier that year.
75. Mr Garrad's explanation for the payment was that he had been approached by Mr McPherson to make it. He claimed that Mr McPherson told him that "the loan needed to stack up on due diligence", that "everything needed to look 'kosher'," and that "the MBO was just around the corner and he was under pressure from [Mr] Adams who was panicking". He said that he was "pressured" by Mr McPherson to make the payment. He said that they met at Mr McPherson's home on or about 9 February - which was after the payment was made - when it was agreed that P&H would be responsible for the storage costs up to that time of the unsold items and that after some discussion those costs were estimated and agreed to be £1.8 million.
76. I think it most unlikely that these conversations took place, much less that they resulted in any agreement for the payment of storage costs. As will appear when I come to the evidence of Mr Evans, by 8 February 2008 the MBO was all but certain to proceed: due diligence had long since been completed, a valuation of the business had been agreed, commitments from the banks funding the buy-out had been secured, undertakings by those leading it to take up the buy-out were forthcoming and the scheme documentation had been sent out to shareholders. Moreover, the matters allegedly agreed were wholly inconsistent with the terms of the Settlement Agreement. Mr McPherson, as a non-executive member of P&H's board of directors, had no authority to commit P&H to any such massive payment. If he had sought in some way to commit P&H to such a payment he would surely have reported the matter to his colleagues in order to secure their approval. Even if, which I do not accept, there was some reason not to approach his colleagues in February or even March 2008, Mr McPherson had no conceivable reason not to do so thereafter. He remained a non-executive director (and deputy chairman of P&H) until 26 March 2008. His last (and terminal) illness was not diagnosed until towards the middle of 2008. Yet there is nothing in any of the voluminous documentation disclosed which even hints at the agreement which Mr Garrad alleges. I will come later to a letter dated 10 February 2008, purportedly written the day after he had his meeting with Mr McPherson, which Mr Garrad claims that Mr McPherson sent him. It is sufficient at this stage simply to note that the letter makes no reference to any agreement to pay anything towards storage charges, let alone £1.8 million.
77. That was the only instalment that was paid. Mr Garrad failed to pay the instalments due on 31 January 2009 or on subsequent anniversaries. But P&H pressed for payment. Again the matter was dealt with by Mr Buchan. As before he kept a detailed typed-up note of his communications with Mr Garrad and the action taken. On 15 January 2009, in advance of the second anniversary, he emailed to Mr Garrad a calculation of what would be due at the end of the month. Not having received payment, he rang Mr Garrad in early February to chase up the payment. Mr Buchan's note for early February recorded Mr Garrad telling him that he was unable to pay because, in the light of the then banking crisis, the bank had blocked payment of the dividends out of which the payment was to be made. The note went on to report that Mr Garrad "confirmed commitment to repay and expected to refinance the business elsewhere and resume payments." On 10 February Mr Buchan followed up what Mr Garrad had said by emailing him for "an update on your progress in arranging the settlement repayment as I need to appraise my colleagues on the status of your discussions with your financiers."
78. In evidence were a number of emails from Mr Buchan to Mr Garrad in the course of 2009 chasing for payment. In June 2009 he and Mr Garrad met at a coffee shop in Hove. The venue, away from P&H's offices, had been at Mr Garrad's insistence. At that meeting, according to Mr Buchan's typed-up note, Mr Garrad confirmed his commitment to repay, advised that he was unable to refinance as a result of the banking crisis, but agreed instead to "start feeding through a number of small payments from different sources to demonstrate continued commitment." No payments were made but, equally, at no stage was it suggested that payment was not due. Much less was any suggestion made that the Settlement Agreement could be ignored and that, far from owing money to P&H, it was P&H that was the debtor.
79. From August to the end of 2009 Mr Buchan was unable to make contact with Mr Garrad. Mr Buchan emailed him in mid-November to complain that he had failed to honour his promise to make small payments to demonstrate his commitment to honour his obligations under the Settlement Agreement but received no reply.
80. By January 2010 a further instalment was due. This too went unpaid. By this time Mr Garrad owed £1,171,089.93 by way of unpaid instalments plus interest under the Settlement Agreement. There was still no suggestion that payment was not due.
81. In the meantime some limited trading had continued between Sweet Cred and P&H. Given what he regarded as Mr Garrad's failure to honour his obligations under the Settlement Agreement Mr Buchan decided to block any further commercial payments to Sweet Cred resulting from this trading. This prompted Mr Garrad to ring Mr Buchan to complain that this was preventing him from paying the discount due to customers on sales made through Sweet Cred's trading with P&H. Mr Buchan reported the matter to his colleagues. Following discussions within P&H the decision was made to pay the discounts direct to the customer and not via Sweet Cred. Mr Buchan communicated this decision to Mr Garrad. It prompted a further meeting between Mr Buchan and Mr Garrad. As with their meeting of the previous June, they met at the same venue in Hove. Once again Mr Buchan made and subsequently typed up a detailed note of his meeting.
82. The meeting took place on 15 March 2010. It was on this occasion that, for the first time according to P&H's witnesses, Mr Garrad indicated to anyone in P&H that there was another dimension to the Settlement Agreement. This was not that the Agreement was not to be honoured, much less that it was in some manner a sham. Rather it was that he (Mr Garrad) had been assured by Mr McPherson on some earlier occasion that Mr McPherson would make good the losses resulting from the considerable quantity of unsold Sweet Cred stock left over from the joint venture, that this would happen once Mr McPherson had realised more of his investment in P&H (Mr McPherson being among those who sold a portion of their shareholdings on the occasion of the MBO) but that as Mr McPherson had since died he (Mr Garrad) realised that it was unrealistic to expect that he would recover the money which Mr McPherson had told him would be made good. Mr Buchan's note recorded Mr Garrad saying that, despite what he had agreed with Mr McPherson, he remained fully committed to meeting his repayment obligations under the Settlement Agreement, that the only issue was the timing of the payments and that he was intending to retire by the following September and would be selling his companies before then. I have no reason to doubt that the detailed note which Mr Buchan made accurately set out his understanding of what Mr Garrad had told him. It was typed up within a fortnight of the meeting and copies were sent to Mr Adams and Mr Etherington on 29 March 2010.
83. No payments were made. Instead, a series of unnerving incidents occurred. Mr Adams and Mr Etherington both reported that they had received menacing visits to their homes by unknown strangers. They took the view that Mr Garrad was in some way linked to this. The incidents caused Mr Adams, who had kept largely aloof from the matter during the previous two years or so, to look into whether Mr Garrad was honouring his repayment obligations under the Settlement Agreement. He was sent a copy of the note Mr Buchan had made of his meeting with Mr Garrad earlier that month. He took the view that in the light of the menacing visits to his and Mr Etherington's homes it was prudent to do nothing for a while.
84. The matter was taken up again when, ten months later, in late January 2011 he heard from Mr Little that Mr Garrad had been in touch and that he wanted to meet him. After consulting Mr Etherington, Mr Adams agreed to meet him. He rang him and was told by Mr Garrad that he wanted to sort out the arrangement he had with P&H. The upshot was that it was agreed that the two of them should have a face-to-face meeting. It took place at a London hotel on 10 February 2011. At that meeting Mr Adams was given to understand that Mr Garrad was seriously ill and that he wanted to settle his affairs. He repeated what he had said during their earlier telephone conversation (repeating what he had told Mr Buchan), namely that Mr McPherson had personally agreed to make good the losses which had resulted from the Sweet Cred venture with P&H. Mr Adams said to him that any arrangement with Mr McPherson was a personal one and that Mr Garrad should have brought his claim against Mr McPherson's estate. He said that P&H might not press its claims against him for what was owed under the Settlement Agreement but this would be dependent on there being no more intimidating behaviour of the kind that he and Mr Etherington had suffered at their homes. He also said that P&H would cease to have any further dealings with Mr Garrad or with any company in which he was involved. Mr Garrad countered by saying that he wanted to be repaid the instalment which he had paid in February 2008. Mr Adams refused and the meeting ended.
85. Mr Adams took the view that further intimidatory behaviour might occur. He consulted with colleagues to discuss security and other matters. The decision was made to bring proceedings to enforce the Settlement Agreement if further acts of intimidation occurred. Solicitors were instructed.
86. Further incidents occurred. I do not propose to go into them. They led to criminal proceedings against Mr Garrad who was arrested on 1 April 2011 and charged with blackmail. He steadfastly proclaimed his innocence. The proceedings resulted, after a lengthy trial in Guildford Crown Court, in Mr Garrad's acquittal on 19 December 2011. Mr Garrad claimed that P&H had "stage-managed" his arrest, that he was the victim of a widespread conspiracy and that P&H was guilty of perverting the course of justice. I am not concerned with the rights or wrongs of any of this. They do not shed any light on the issues I have to determine. I merely mention them to record Mr Garrad's resentment over his treatment. The fact of the matter is that while these events were unfolding P&H commenced these proceedings. They did so on 24 May 2011.

The Garrads' challenge to the enforceability of the Settlement Agreement

87. I come now to the central contention by the Garrads. This is that the Settlement Agreement was a sham and, what is more, was illegal as being for a tax-loss purpose or for some unlawful valuation purpose (or both). Without a defence along one or other of these lines there is simply no answer to P&H's claim. The Settlement Agreement was signed by all of its parties. Its terms are clear. P&H performed its side of the bargain by advancing the further £500,000 and by entering into the trading agreement provided for by clause 9.
88. What then of the contention that it was a sham? As Mr Rubin pointed out in his closing note on behalf of P&H this contention assumes that there was an undisputed liability on the part of P&H to one or other of Maritime and Sweet Cred in respect of the amount claimed by the November invoices. It also assumes that the Settlement Agreement was entered into in order to disguise from third parties the fact that this liability existed. Without the first, i.e. the existence of the underlying liability, the second cannot arise. Without the second, i.e. need to conceal the truth from third parties, there can be no point in entering into an agreement which neither side has any intention of honouring.
89. The existence of the first of those requirements – an underlying liability represented by the November invoices - is, in my view, impossible to maintain in the face of the following. First, it assumes that under the Original Arrangement P&H undertook a contractual obligation to pay for Sweet Cred stock even if that stock was not delivered to it. For the reasons set out in paragraphs 34 to 37 above the better view is that P&H was not subject to any such obligation. Second, for the reasons set out in paragraph 42 the September 2003 Agreement is inconsistent with the existence of a continuing liability to Maritime for the undelivered Sweet Cred stock. I have also explained (at paragraph 39) why I reject Mr Garrad's suggestion that that Agreement, although made, was abandoned soon after it was entered into. Third, the April 2005 Agreement is impossible to square with any notion that there co-existed some continuing underlying liability arising out of the Original Arrangement. In coming to that conclusion I have rejected (see paragraph 46) Mr Garrad's claim either that it was not his signature that appears on that agreement or, following his retraction of that claim, that he was somehow persuaded by Mr Little to sign a blank piece of paper around which the terms of the Agreement were later added. Fourth, the accounting records of Maritime and Sweet Cred are simply not to be reconciled with the proposition that the underlying liability ever existed. I deal with this in more detail when I come to the evidence of Kevin Foster. Fifth and for good measure, the November invoices purporting to establish the liability are little more than a sequence of three ill-constructed demands which, as Mr Foster's evidence indicated, are unlikely to have emanated from Maritime from whom they purport to come. They are likely to have been drawn up for the purpose of putting pressure on P&H to assist Mr Garrad at a time of acute cash need on his part.
90. Coming next to the supposed need to disguise the truth from third parties, the Garrads' contention was that the liability constituted by the sums claimed by the November invoices, if revealed to the banks and others, would have imperilled the MBO which became effective in late March 2008. The evidence does not begin to justify this claim. It does not do so either as a matter of substance, having regard to the nature of the MBO and the sums involved, or as a matter of chronology when a comparison is made of the key dates of the MBO process with the actions connected with the making and later implementation of the Settlement Agreement.
91. The material evidence was that of Mr Evans to which I now turn.
92. In his witness statement Mr Evans related how in 2006 P&H approached Close Brothers for advice on a refinancing and restructuring of the business. This resulted, he said, in a preliminary meeting on 12 October 2006 at which Mr McPherson, Mr Adams, Mr Little and Mr Etherington were present. On 5 December 2006 Close Brothers issued their engagement letter which outlined what they were to do. An options paper resulted from their initial investigation. This was presented to P&H's Board in early March 2007 and then underwent revision. The underlying aim was to recapitalise the company. Of the options considered the conclusion reached was that the recapitalisation could best be achieved by a sale to the management. It resulted in the MBO. A valuation was a necessary part of the process from the early days of Close Brothers' involvement. An initial valuation was followed, after discussion of various points at a presentation to the Board in mid-March 2007, by a further valuation which was presented to the Board on 17 April 2007. From this a price range for P&H's shares was produced on which the MBO could be based. On 9 May 2007 Mr Adams wrote to shareholders to inform them of what was afoot. Some delay then occurred until a tax clearance from HMRC was obtained and also until the sale of one of the company's key tobacco suppliers was completed and the new owner had time to consider and support the proposed MBO. The sale of the supplier had not been expected and had not therefore been factored into the original timetable. These matters were resolved by October 2007 whereupon the restructuring work restarted.
93. In the course of his cross-examination Mr Evans explained that, but for the sale of the key supplier, the MBO would probably have completed by the start of August 2007. So the sale had the effect of holding up the project by about nine months. Once the project had resumed there was a need for a fresh valuation to take account of a variety of factors which had occurred in the intervening period. It was presented to the Board in December 2007. On 28 January 2008, Mr Adams wrote to shareholders to say the company was in detailed negotiations with a view to a recommended management buy-out which would be led by Mr Etherington. He explained that the buy-out would increase shareholder liquidity and, as it was put, "realign the equity ownership of P&H with the ongoing management and employees." He stated that as the buy-out would involve an offer for the entire issued ordinary capital of P&H the transaction would be governed by the Takeover Code and, accordingly, that the matter would be considered by a committee of independent non-executive directors made up of himself, Mr McPherson and one other (whom he named) and advised by Dresdner Kleinwort. This was followed a few days later by the despatch to shareholders on 4 February 2008 of the proposed scheme of arrangement with letters of recommendation from both Mr Adams and Mr Etherington. The necessary irrevocable acceptances were forthcoming to ensure that the matter would proceed subject only to the completion of various legal formalities. In due course the necessary resolutions were passed and the MBO became effective on 28 March 2008.
94. All of this was set out in Mr Evans' witness statement and was not challenged. Of relevance to these proceedings, Mr Evans stated that if he and his colleagues had been made aware of the existence of an additional debt of £3.7 million owed by P&H he believed, based on how the December 2007 valuation for the MBO was conducted, that "it would not have had any impact on the achievability of the MBO, the ability to raise the necessary debt, the pricing of the required debt or the due diligence." He explained his reasons for this conclusion. In particular he stated that the £3.7 million liability, if it had been taken into account, would have been treated as a one-off trading debt and, as such, an exceptional item and irrelevant to the so-called enterprise value of the business. At most it would have caused a small reduction in the equity value of the company. That being so, he said, it would have had a small effect on the implied price range (a spread of 80p) for the company's shares but no impact on the equity value at which the MBO concluded. His witness statement gave persuasive reasons for this conclusion. In the course of his cross-examination Mr Evans described £3.7 million as "negligible" in the context of an enterprise valuation of over £300 million for the business, saying that it was "frankly…a trifling amount compared to the negotiations between the two parties" on where the deal would settle.
95. Much of the cross-examination of Mr Evans was focused on the position in February 2008 when Mr Garrad made the first payment due under the Settlement Agreement. Mr McGuinness's line of questioning presupposed that the payment was made to maintain the pretence that the Settlement Agreement was valid and enforceable having regard to the stage which the MBO had by then reached. It rather brushed over the greater question, fundamental to the Garrads' whole case, whether there was any need, given the timing and nature of the MBO, to enter into any kind of arrangement to conceal the existence of the claims of Maritime and Sweet Cred against P&H from Mr Evans and his colleagues and, I suppose, the bankers that were being asked to provide the facilities needed in connection with the buy-out. A further difficulty with this line of questioning was that by the time the first payment under the Settlement Agreement was due, which was on 31 January 2008, the MBO was for all practical purposes beyond recall. By the time the payment was made, on 8 February, it was effectively set in stone, or as Mr Evans was happy to describe it, "the die was cast." It would not have mattered therefore if the payment had not been made as there was no longer any need to maintain any pretence, assuming that there had ever existed any need to misrepresent the true position to outsiders. The evidence did not even suggest that Mr Evans and his colleagues (and the bankers) had any awareness of the Settlement Agreement, let alone that a payment by Mr Garrad was due under it. If they were not aware of it there could be no concern over whether Mr Garrad was making his payment. As it was, he made it a week late. In the meantime the scheme documentation was sent out. If, on the other hand, those concerned with the implementation of the MBO were aware of the Settlement Agreement the non-payment of the first instalment by Mr Garrad when due did not deter them from proceeding.
96. At the time of the MBO substantial banking facilities were arranged to assist with the funding of the MBO and to provide P&H with funding for its continuing needs. Mr Evans stated that if a £3.7 million debt had come to light, it is unlikely, given the other figures in play, that it would have been sufficiently material to have affected the banks' decision to lend. In cross-examination he pointed out that the banks had been carefully selected and were keen to lend. He said that the facility provided P&H with what he referred to as a "significant amount of headroom" so that the sudden appearance of £3.7 million additional indebtedness would not have affected the banks' willingness to lend even if, by then, the matter had not reached the point where the banks were committed and could not withdraw their support. That point, he explained, had been reached sometime before the scheme document was despatched to shareholders on 4 February 2008.
97. In these circumstances I consider that, if the Garrads had wanted to say that it would have affected to any material degree either the price at which the buy-out completed or the banks' willingness to lend, it was for them to adduce evidence to this effect. They did not. In any case, their approach assumed either that the Settlement Agreement was to be ignored and, quite contrary to the fact, the indebtedness represented by the November invoices was undisputed by P&H (when of course it was hotly disputed), or that the Settlement Agreement was in place and on the face of it gave rise to a valid and enforceable agreement in which event P&H was under no liability to Maritime, Sweet Cred or the Garrads (because any claims by them had been compromised under the agreement) and the only resulting liability was one owed to P&H by Mr Garrad personally. Either way, as it seems to me, the sudden discovery by the banks and others of P&H's entanglement with the Garrads and his two companies is most unlikely to have had any impact of the MBO, quite apart from the funding and pricing factors to which Mr Evans referred. Nor is it to be overlooked that those leading the buy-out (Mr Etherington and his colleagues) were aware of the claims that Mr Garrad was advancing. Copies of the November invoices had been sent to Mr Etherington, as Mr Garrad was at pains to point out. Mr Etherington signed the Settlement Agreement on behalf of P&H (together with Mr Adams). It was not suggested that he was party to any understanding that the Agreement was a sham and that it was to be ignored. Nor could it plausibly be suggested that he was. He, with others, was buying into P&H under the MBO; he would scarcely have done so on the terms that were negotiated (and which were set out in the formal documentation which went to the shareholders and had been approved by the banks) if he had known that the Settlement Agreement was a piece of window dressing to conceal a material liability which allowed P&H's true worth to be overstated. It is difficult therefore to see on what basis the fact that a minority of the members of P&H's board of directors (only Mr Adams and Mr McPherson were identified) might have understood and agreed with Mr Garrad that the Settlement Agreement was to be ignored (assuming they did) could deprive P&H of the right to enforce that Agreement according to its terms. To all of this I would only add that Mr Adams stated that the MBO was wholly irrelevant to the decision to enter into the Settlement Agreement. Nor was there anything in the very extensive disclosure made by P&H to suggest that any of the others involved in P&H's management had any concern about the Settlement Agreement's impact upon the MBO.
98. In my judgment, therefore, reliance by the Garrads on the steps taken in late 2006 and January 2007 to explore and, if feasible, enter into the MBO and the further steps taken in early 2008 to obtain the necessary approvals to enable it to proceed are irrelevant to the decision by P&H to enter into the Settlement Agreement and, having entered into it, to press Mr Garrad for payment of the first instalment due under it.
99. In short, I am not persuaded that there existed any underlying liability on P&H's part to either Maritime or Sweet Cred or, if there was (even if it was disputed), that there was any need for P&H to conceal that fact from those involved in the MBO. In the absence of either of those two requirements it is exceedingly difficult to see why anyone in P&H should have felt any need to enter into a sham arrangement of the kind alleged.
100. In any event, the claim that the Settlement Agreement was a sham rested very largely on no more than assertion by Mr Garrad coupled with some (but limited) support from Mrs Garrad and their other witnesses. I say "assertion" because Mr Garrad's account of how this came about was wholly contrary to the clear and convincing evidence of Mr Adams and the supporting testimony of Mr Buchan. With two possible exceptions which I will mention shortly it was unsupported by a single document. On the contrary, as Mr Rubin pointed out in his closing submissions, all of the contemporaneous documentary evidence leading up to the conclusion of the Settlement Agreement demonstrates that the parties to it were in the process of negotiating a genuine agreement. As Mr Rubin also observed, it is simply not credible that the process of negotiating and agreeing the form of contractual documentation would have occurred in the way that it did if the Settlement Agreement was intended to be no more than a sham arrangement.
101. Moreover, as Mr Adams explained in his witness statement, there was a powerful rationale for the Settlement Agreement. He considered that there would have been little to be gained by P&H bringing legal proceedings against either Maritime or Sweet Cred to enforce the September 2003 and April 2005 Agreements since he took the view that the main assets available to satisfy any claim would have been the (in his view) unsaleable Sweet Cred products. On the other hand, Mr Garrad's need for money, P&H's willingness to make a further loan to him of the further £500,000 (over and above the £200,000 already lent) and his belief that the Garrads had substantial assets of their own, provided grounds for persuading Mr Garrad to assume personal liability for the £1,274,405 that the two companies between them owed P&H as well as the two loans to him personally, all of which would be in return for a mutual release of all other claims (save for certain so-called "Excluded Balances" identified in the Agreement). He also reasoned, and I do not doubt, that as by the end of P&H's financial year ending 7 April 2007 all but £700,000 (the sum of the two personal loans to Mr Garrad) had been provided for in P&H's accounts, he considered that any failure by Mr Garrad to comply with the terms of the Settlement Agreement would have a minimal effect on P&H's accounts. In addition, he had negotiated for and obtained Mrs Garrad's personal guarantee backed by a charge over her shareholding in the nursing home company to give financial support for the personal obligations which Mr Garrad was assuming. This seems to me to be an entirely credible view of the matter.
102. From Mr Garrad's standpoint the Settlement Agreement provided him with the much needed £700,000 loan. It was made available on generous terms: interest-free for the first 12 months and to be repaid by four equal annual instalments starting only after the end of the interest-free first year.
103. All sides therefore stood to gain something. At all events it is not obvious that, looking simply at its terms, there could be any good reason why P&H should have gone to so much trouble to ensure that the transaction was legally watertight (even to the extent of redrafting the terms of the relevant Maritime and Sweet Cred board minutes and insisting that Mrs Garrad take independent legal advice before committing herself to it) if in truth the whole thing was no more than a charade.
104. What happened after 31 January 2007 is to the same effect. I have dealt at some length (at paragraphs 74 to 85 above) with what happened.
105. This brings me to the only two documents on which Mr Garrad did place any reliance which might be thought to lend support to his allegation of a sham arrangement. They both purport to be letters to him from Mr McPherson.
106. The first is dated 5 February 2007 which was shortly after the Settlement Agreement was entered into. Marked "Strictly Private and Confidential" it is typed and is on P&H's headed notepaper. It purports to bear Mr McPherson's signature. It reads as follows:

"Dear Clive

I would like to thank you and Sue for being so reasonable in accommodating Palmer and Harvey and in particular myself. As you know I am very anxious to exit the business and release my equity.

I know that we have been responsible for a huge amount of stress in your life cash flow and otherwise, and without your willingness to accommodate the payment programme it would certainly have damaged the chance of an early MBO and delayed my retirement plans.

Chris [Adams] has asked me to re-enforce (sic) our arrangement and keep it low key and private. You have our word that you will be fully compensated once we have finalised our exiting arrangements.

Jennai and I are really looking forward to joining you in Dubai for the world cup week and we have already asked Donna to arrange hotel and flights; hopefully Frankie will organise tickets for the races.

Looking forward to seeing you next week.

Best wishes,"

107. The unchallenged evidence of Mr Adams is that Mr McPherson would invariably write letters by hand. The unchallenged hearsay evidence of Tara Dallinson, who was Mr McPherson's secretary at the time, was that she did not type the letter. Moreover, the letter lacks a P&H reference (it leaves the reference blank) and places the words "Strictly Private and Confidential" in a place they would not occupy if typed in accordance with P&H's house style. Most tellingly, the name of Mr McPherson's partner, Jenai, is misspelt as "Jennai". Mr Garrad accepted in cross-examination that he did not know how her name was spelt. In his witness statement there are several references to Jenai. In every case Mr Garrad has spelt her name "Jennai".
108. Mr Garrad speculated that the letter had been typed by a temporary employee in the office. But that would scarcely explain Mr McPherson's carelessness in allowing the letter to go out without correcting the spelling of his partner's name.
109. The second letter is dated 10 February 2008 which was two days after Mr Garrad paid the first instalment due under the Settlement Agreement. This letter bears Mr McPherson's private address. Dated Sunday, 10 February 2008, it is in the following terms:

"Dear Clive,

We can't thank you enough for making the transfer, I know it has not been easy to arrange, and that Sue [Mrs Garrad] has lent you the money, please assure her that it will be returned as soon as the buyout is completed.

I have had unbelievable problems with Chris Little being fucking difficult he has turned out to be a greedy bastard, and at one point even threatened to destroy the MBO unless he received a larger slice of the new company. What with him and Adams panicking about the exit, and the bankers now only funding half of the initial valuation it's been a nightmare.

Adams has been driving me mad over the Sweetcred situation and he feels that unless this first payment is received there will be a big question mark over the loan and that would open over (sic) areas of examination which would have killed the deal.

I am really sorry that I have put you in this situation please give Sue my personal reassurance that once we have received the cash the whole situation will be rectified. If I had had the money I would put it in myself, but as you know with all that's going one in my life that was not possible.

Susan [Mr McPherson's former wife] is spending money like it's going out of fashion I am sure that it is her way of punishing me, the kids are settling okay in Aberdeen but Sue and Darren are still arguing constantly.

Hopefully when this deal goes through it should be, fingers crossed in the next six weeks or so maybe we can go away with the girls for a few days to celebrate.

I am sure that I will talk to you before you get this letter, I just feel that I wanted to tell you that you are the best friend that I have ever had and love you to bits.

Thanks, thanks, thanks but you are still a Sassenach bastard."

110. Although purporting to be a private communication between old friends, the letter is typed, even down to the "Dear Clive" at the start. Tara Dallinson and Jane Parker (another of the secretaries working for P&H's directors) – as they both confirmed in their hearsay evidence - denied typing the letter. The letter is signed with a single scribbled "G" (as I presume it to be). Tara Dallinson confirmed that she had not seen a document from Mr McPherson signed in this way.
111. Mr Rubin described the letter as "palpably fictitious" and as a "laughable forgery".
112. In his witness statement, Mr Adams stated, without challenge, that communications of a personal nature from Graham McPherson would invariably be hand-written. It is certainly odd that, if he was writing privately to Mr Garrad in the highly familiar style which the letter purports to exhibit, Mr McPherson should have gone to the trouble of typing it. But it is quite possible that he might. The factor which throws most doubt upon the authenticity of the letter is what Mr Rubin referred to as its "whole premise", namely that unless Mr Garrad made the first instalment payment under the Settlement Agreement "there will be a big question mark over the loan and that would open over areas of examination which would have killed the deal" as the letter put it in its third paragraph. Apart from the fact that there was no evidence that those advising P&H (Mr Evans and others) were even aware of the Settlement Agreement, let alone that under its terms an instalment was due to P&H from Mr Garrad at the end of January 2008, the whole tenor of Mr Evans' evidence was that by 4 February 2008 when the MBO scheme documentation was despatched to shareholders, indeed by 31 January 2008, the MBO was for all practical purposes beyond recall and that by 8 February, when the instalment was paid, it was effectively set in stone. In those circumstances it is simply not credible that Mr McPherson would have written on 8 February 2008 in the terms which he is supposed to have done.
113. No less tellingly the Garrads were unable to produce the originals of the two letters, merely photocopies. The originals were needed for the purpose of expert examination by the handwriting expert. P&H's solicitors called for their production at an earlier stage of these proceedings. The response from the solicitors then acting for him was that Mr Garrad was unable to find the originals, merely copies. The letter added that "copies" (not originals) were produced for the criminal proceedings.
114. I have come to the view that both letters were made up long after the dates that they bear and were put in evidence and relied upon by the Garrads even though Mr Garrad must have known that they were not genuine.
115. I can conveniently mention at this point an exchange of emails which, if their terms were genuine, lent powerful support to the Garrads' case but which, without adequate explanation, Mr Garrad said he was not relying upon at the trial. Both emails are dated 17 January 2007 which was at the very time that the terms of the Settlement Agreement were being negotiated. The first email ("the earlier email") purported to come from Mr Adams. It is timed 13.46. It was sent on Mr Adams' behalf by Jane Parker and was in the following terms. I have italicised certain passages.

"Dear Clive,

I am forwarding the draft legal documentation with regard to the arrangements we are entering into for your consideration which are pretty comprehensive and rather more complicated than one would have thought due to the shares in New Century Group Holdings Limited being in the name of your wife. As we have already discussed, it is imperative that this agreement stands up to scrutiny during the due diligence of the forthcoming proposed MBO.

I would point out the following with regard to the documentation:

1. We will need to exclude the current trading balances owing to and from Palmer & Harvey and Sweet Cred and I am having a schedule of these drawn up so that the appropriate "carve out" can be drafted to specifically exclude these amounts from the settlement as agreed with your good self.

2. We will need to obtain a certificate from your wife's lawyer to confirm that she has taken independent legal advice in entering into these arrangements. Although, it has been discussed between ourselves that we will immediately cancel this agreement in its entirety at the completion of the sale of the company.

3. We will need to hold your wife's share certificate(s) in New Century Group Holdings Limited together with a signed blank deed of transfer for her shares, although it is not the intention to register or record the share change.

We have obtained a copy of the accounts of New Century Group Holdings Limited dated 31st December 2005 which show a net asset position of some £23,000 with substantial investments and borrowings which presumably relate to the various nursing homes held by that company's subsidiaries at that date. In order for me to accept the security over the shares, I will need your accountants to give me guidance on how the valuation of the total group of £35.5 million is supportable and a certificate from them confirming that valuation.

Hopefully we can accommodate each other's requirements whilst moving forward with the exit plan.

Kind regards,

Christopher Adams"

116. The second email ("the response email") is timed 15.04. It purports to come from Mr Garrad and be in response to the earlier email. It is in the following terms.

"Dear Chris,

I am in receipt of your email of today and I have subsequently spoken to GM. I want to make it clear that I am not best happy with the way this situation has developed and changed since our meeting.

I understand your and GM'S situation in the exit plan from the business, but it is unreasonable for me/my company to have been denied payment for the stocks. It has gone on far too long and my cash flow has been seriously affected. If it wasn't for my close friendship with GM I would have taken a harder stance and commenced litigation, that said I as requested am trying to accommodate you.

I feel that your new "security requirements" are unnecessary but I will co-operate as GM has "begged" me to support your requirements.

I do require that I have your personal assurance, that on completion of the sale/deal I will be paid in full all outstanding monies nett of the £200,000 received in December and the £500,000 to be made ASAP. You and Graham have agreed to pay rolled up interest at 6% PA and all the disposal costs of the undelivered stock and all other associated costs. (To be calculated at a later date).

Susan will not be giving the unsigned share transfer for which you have asked. We also require that you undertake not to register a charge over Susan's shares. Paul would not allow her to do that anyway and it would have implications for her own banking arrangements.

Any and all costs for this "unnecessary agreement" are to be your responsibility.

I am concerned that you are keeping this transaction away from Chris Little, as I have already been in communication by mail and phone about this indebtedness and he has had the invoices. As he is your finance director I personally feel he should be kept in the loop.

Furthermore I expect payment as soon as practically possible and reserve the right to be paid in part or fully at my discretion. I would suggest that you, Graham and myself get together as soon as possible to resolve the situation.

Clive"

117. These two emails were disclosed by the Garrads on 11 July 2012. It is P&H's contention that the earlier email was a doctored version of an email ("the true email") which Mr Adams had indeed sent on 17 January 2007 and that the response email is entirely fictitious and was never sent.
118. The true email is identical to the earlier email except that it lacks the italicised passages. Those passages, if genuine, point clearly to an intention that the Settlement Agreement, then under negotiation, should be a sham. This is especially evident in the passage added to the end of the second numbered paragraph. This email - the true email - was disclosed by P&H on 24 July 2012. It was in the trial bundle at J3/-/93. It is dated and timed in the US style (as many of P&H's emails were) namely: Wed 1/17/2007. 1:45:52 pm. In cross-examination Mr Garrad appeared to accept that he received this email.
119. Interestingly, the Garrads themselves disclosed the true email. They did so initially on 30 November 2012. Much more telling is that on 19 January 2007 at 08.49 (i.e. two days after the earlier e-mail was supposed to have been received by Mr Garrad) Jane Parker, again acting on Mr Adams' behalf, re-sent the true email to Mr Garrad. This document appears at trial bundle J3/-/143. Even more telling is that on 24 January 2007 at 10.19 a Ms Faye Cowan (an employee of Sweet Cred) emailed the true email to Mrs Garrad. This document which was internal to Sweet Cred was disclosed by the Garrads. They did so initially on 11 July 2012 and again on 30 November 2012.
120. Mr Garrad was at a loss to explain how it came about that two emails existed which purported to come from Mr Adams on the same day and at the same time even though the one had more text than the other. It is not possible, and certainly not credible, that both are genuine. Mr Garrad ventured the opinion that it was P&H that had done the doctoring and had done so by deleting the italicised words from the earlier email. This is not a tenable explanation. It fails to answer how, if this was so, Sweet Cred (in the person of Ms Cowan) could have emailed a copy of the true email to Mrs Garrad on 24 January 2007. The explanation is obvious: the earlier e-mail was doctored by someone on the Garrads' side to bolster their defence to P&H's claim. There is no other credible explanation. In the circumstances, the Garrads were wise not to place any reliance on the earlier e-mail. The fact nevertheless remains that at an earlier stage of these proceedings the earlier email was doctored to the extent indicated by the italicised additions. That could only have been with the intention of relying on it in these proceedings. Quite with what intention it was disclosed, given the disclosure at the same time of the email of 24 January, I am unable to say.
121. If, as I have concluded, the earlier email was falsely doctored and that this was done much later than 17 January 2007, which is the date it bears, it follows that the response email of the same date which purports to take up and respond to the doctored passages must equally be false. No other explanation is possible. Needless to say P&H did not make any disclosure of the response email: it was not on P&H's file and was disclosed only by the Garrads.
122. The response email purports to come from Mr Garrad. The overwhelming probability must be that Mr Garrad made it up because it is not possible to think who else would have had any reason to do so. If he was the author of it, the great likelihood must be that it was he who composed the italicised parts of the earlier email. Again the question arises: who else would have had any reason to do so other than Mr Garrad?
123. Mr Rubin submitted, and I accept, that even though the Garrads did not place any reliance on the earlier and response emails the fact that they were concocted, as I conclude by Mr Garrad, illustrates powerfully how little faith can be placed in him as a witness of truth. The false letters from Mr McPherson of 5 February 2007 and 10 February 2008 upon which Mr Garrad did rely are all of a piece with the false emails. I make clear that I have no reason to think, and certainly no evidence to conclude, that Mrs Garrad was a party to any of this.

Mrs Garrad's evidence

124. This brings me to Mrs Garrad's evidence. She is a defendant to these proceedings because she signed in P&H's favour a guarantee of her husband's liabilities under the Settlement Agreement. She also executed a charge over certain shares as security for her guarantee liability but P&H does not seek to enforce that charge.
125. On 29 January 2007, which was two days before the Settlement Agreement was dated and took effect, Mrs Garrad had a meeting with Mark Edmondson, a partner in Edmondson Hall, solicitors of Newmarket. Two days later, Mr Edmondson faxed a letter to Mr Adams to say that he had advised Mrs Garrad on the guarantee, charge and Settlement Agreement. In his letter Mr Edmondson stated that Mrs Garrad had said that she understood her obligations and was not entering into those documents under any form of duress from her husband. In evidence was the attendance note made by Mr Edmondson of his meeting on 29 January. The note recorded that Mr Edmondson had carefully studied the guarantee, charge and Settlement Agreement which Mrs Garrad had made available earlier that day and that she "appeared to have a very good grasp" of what was going on. It recorded Mrs Garrad as saying that her husband had "done a settlement deal whereby the differences between Sweet Cred/Maritime & P&H had been settled on the terms of the Agreement" and that, with two further loans, his borrowings would be increased to £1,974,405. The note recorded that Mrs Garrad had already signed the Settlement Agreement but that P&H now required from solicitors, who would be advising her, a letter to the effect that she understood her obligations and was not under any form of duress. After relating how Mrs Garrad explained that she had "done this many times and the first time she did it she was very scared but is now more relaxed" the note continued:

"[Mr Edmondson] advised her that really if they could retain the deal without her having to be a personal guarantor and to give security of the shares then they should do so. She said that was not possible and Clive [Garrad] really needed to move forward and she was happy to support him. She was aware that she was a principal and could be sued for the debt with interest if the £1.9 million loan was not repaid over the 4 years as was being agreed…"

126. There is no dispute that P&H had indeed required Mrs Garrad to be separately advised before committing herself to the guarantee, charge and Settlement Agreement. There has been no suggestion that in fulfilling this role Mr Edmondson was other than a completely independent solicitor. The Garrads' account of this episode fails satisfactorily to explain why, if there was an agreement with P&H that the Settlement Agreement was not intended to have legal effect, would never be enforced and was no more than window-dressing to give the impression to those advising P&H on the MBO and to third party shareholders that P&H did not owe the amounts claimed by the November invoices, it was thought necessary by the persons involved in the deception to go to the trouble of arranging for Mrs Garrad to be separately advised. For if (as the Garrads contended) the common aim had been not to enforce the Settlement Agreement, then failing to ensure that Mrs Garrad was separately advised would surely have furthered this aim by rendering the Agreement vulnerable to the fact that she had not been separately advised. The very reverse occurred. The only purpose of arranging for a person in Mrs Garrad's position to obtain independent advice before undertaking obligations of the kind involved in the giving of the guarantee and charge is if there is a wish on the part of the party holding the guarantee and charge to be free to enforce the obligations so assumed if the need to do so should arise. The fact that P&H did require Mrs Garrad to obtain independent legal advice and that she obtained that advice could only sensibly have been because the Settlement Agreement was a genuine agreement which the parties to it, or P&H at the least, fully intended should have legal effect.
127. But I must deal with Mrs Garrad's evidence which, though very short, was fully supportive of the defence that the Settlement Agreement was not intended to have legal effect and that it and the guarantee and charge would never be enforced. I turn now to that evidence.
128. On 14 July 2013, which was after Mr Rubin had completed his opening and a day before the trial resumed on 15 July, Mrs Garrad signed a very short witness statement the narrative part of which is confined to just three paragraphs:

"Sometime in early February 2007, there was a conversation between myself and Graham McPherson. I was worried about the documents (Guarantee and Charge) which I had signed. After I had signed everything and sent them back to [P&H], this (sic) was before my lawyer Mark had advised me I should not have signed them. By then it had already happened.

I phoned Graham, he said words to the effect: 'Sue I really sorry (sic), it was my chairman who wanted [it], it will all get sorted out after the MBO. It will never get registered, we'll never rely on it.'

I had one or two further conversations with Graham all to the same effect, at least one of them in person when he came to my house for breakfast. I remember Graham telling me 'I have the documents and I am going to write on them so they will never get acted on.' I cannot remember the language he used, something like 'cancelled' or 'invalid.' He may have said he had already written on them, I am not sure. What was clear was that he was holding the originals for safe-keeping."

129. Having signed that witness statement so shortly before she gave evidence she could scarcely have forgotten it when she went into witness box six days later. In cross-examination Mrs Garrad was adamant that she had been given to understand by both her husband and Graham McPherson that the documents she had signed would never be enforced, that she trusted them both and had no reason not to, that it therefore did not occur to her that it might be desirable to get something to this effect in writing from P&H and that even when in February 2008 she provided her husband with the £493,601 needed to discharge the first instalment due under the Settlement Agreement she continued to believe that this was needed to enable the MBO to proceed. When taxed about this she said that "he [referring to Mr Garrad] said that the MBO…had been delayed and Graham [McPherson] needed us to make the payment to make sure it didn't flag up as a debt." Notwithstanding that she was aware at the time that Mr McPherson had received £12 million or so from the MBO in April 2008, it did not apparently occur to her to obtain reimbursement of the £493,601 which she had provided. She went on to say that after Mr McPherson's illness (a cancer) had been diagnosed at about that time (and from which he died a year later) she did not think it appropriate to bother him with such a matter or ascertain what he had done or should do to ensure that the Settlement Agreement and her guarantee and charge were or would be cancelled. Her constant theme was that she trusted her husband and also Mr McPherson who had been a close and valued family friend of her husband for nearly 30 years.
130. What Mrs Garrad failed satisfactorily to explain was why, if there was an understanding with P&H (through Mr McPherson) that the Settlement Agreement was in effect no more than window-dressing for the purpose of the MBO and would later be cancelled or treated as invalid and therefore that her guarantee and charge were never going to be enforced, she did not explain this to Mr Edmondson. The fact that she was seeing Mr Edmondson at all was at the insistence of P&H and was connected with the impending MBO. She said that to have explained this to Mr Edmondson "wouldn't have been the correct thing to do." When pressed why this should be so she could only suggest that Mr Edmondson "would think: what on earth is going on here?" I found it difficult to understand why she should have felt that it would have been incorrect to confide in her solicitor.
131. A further difficulty with Mrs Garrad's evidence was that according to her short witness statement she was "worried" about the documents which she had signed and that this concern arose after she had sent them back to P&H. This would suggest that when she signed the documents she did not have the kind of reassurance that the guarantee and charge would not be enforced which she evidently obtained when she later spoke to Mr McPherson. According to her witness statement it was only when she had her telephone conversation with Graham McPherson that she was given to understand that "it will all get sorted out after the MBO. It will never get registered; we'll never rely on it." She made a point of going on to say that her conversation with Graham McPherson took place before her meeting with Mr Edmondson. She then added that she had one or two further conversations with Mr McPherson "to the same effect." In cross-examination she gave an entirely different account. This was to the effect that it was only when she came home after seeing Mr Edmondson, by which time she was "really upset" and "pretty distraught" by what she had been told by Mr Edmondson, that she rang and spoke to Mr McPherson and was given the reassurance mentioned in her witness statement. She expanded on this in her oral evidence saying that he came to see her the next day and explained that "once the management buyout had gone through …the loan would go away, I would never hear anything about it again…" Aside from the fact that this important meeting is not mentioned in the statement she had signed only a few days earlier, Mrs Garrad failed to explain why she spoke so reassuringly to Mr Edmondson at their meeting on the 29^th (as recorded by him in his note, the accuracy of which was not questioned) when, as she maintained in her oral evidence, she emerged upset at what she had been told and it was only at that point that she had received the reassurance from Mr McPherson which, presumably, put an end to the feelings of upset and distress that she had felt as a result of what Mr Edmondson had advised. But all of this was contradicted by another passage in her cross-examination when Mrs Garrad insisted that her husband and Mr McPherson had both explained before she signed the documents that the "settlement loan" (as she described it) would be "cancelled after the management buyout had gone through." It was also inconsistent with her acceptance that she was well aware that the Settlement Agreement, guarantee and charge would not be relied upon by P&H (because P&H had agreed that they would not be) when she was being advised by Mr Edmondson.
132. At the end of Mrs Garrad's evidence I was left without any clear idea of what, according to her recollection of events, her understanding was of the Settlement Agreement, personal guarantee and charge when she went to Mr Edmondson for advice about them other than what is evident from the face of Mr Edmondson's note. That note does not suggest that she did not regard them as capable of enforcement. On the contrary, Mr Edmondson's note indicates that she was fully alive to the risk of enforcement but, for the reasons set out in that note, reassured him that there was no need for concern. He noted Mrs Garrad as saying that there had been a meeting with "some city investors who think that Sweet Cred may be worth £115 million in four years time and they therefore want to push forward as [Mr Garrad] has entered into a new distribution Agreement with P&H and this is all part and parcel of it." In other words, she and her husband would be well able within the four-year repayment period available under the Settlement Agreement to discharge the sums due under it without P&H having any need to enforce the guarantee and charge.
133. I have therefore concluded that Mrs Garrad's subsequent recollection of assurances which she said she had been given by her husband and the late Mr McPherson is not to be relied upon and that, even if by the time she gave evidence before me she had come to believe what she was saying about them, that recollection does not represent what she knew and believed at the time. I have dealt at some length with Mrs Garrad's brief evidence because she struck me as a fundamentally honest person who however found herself embroiled in her husband's business affairs and who naturally felt the need to be supportive of him.

The Garrads' other witnesses

134. I can mention these fairly briefly.

(i) Kevin Foster and the accounting position

135. The accounting records of neither Maritime nor after early 2004, when the business was transferred to it, Sweet Cred indicated that the stock, the subject matter of the November invoices, was sold to P&H. The £3.7 million value of those invoices is not included among their debtors. There is no note in the accounts of either company to indicate that there was a claim that for that amount even if the claim was disputed.
136. Mr Kevin Foster, a partner of Crouch Chapman, at all material times Maritime's accountants, and for each accounting period up to the year ended 31 December 2007, Sweet Cred's accountants, confirmed that this was the position. He was aware of a dispute over whether P&H should have taken delivery of the unsold stock. His understanding was that if this had happened an invoice for the stock so taken would have been issued and, if the invoice had remained unpaid at the year end, the amount would have been included among the company's creditors, subject to any dispute over whether it was payable or, even if payable, whether it was recoverable. On the contrary, because, as he understood matters, no stock delivery was taken and therefore no invoices for it were ever issued, his understanding was that the stock remained that of the accounting company (Maritime initially and, after the transfer in early 2004, Sweet Cred). As time passed, the value of the stock in question was progressively provided for in Sweet Cred's accounts and the value of it written down. By the end of 2007 it was wholly written off. The fact therefore that Mr Garrad felt, if he did, that P&H should have called down and taken delivery of the stock did not result in P&H appearing as a purchaser of the stock in either Maritime's or, later, Sweet Cred's journals and the amount in question recognised or even mentioned in the relevant accounts.
137. Mr Foster had no involvement in the preparation, and at the time no awareness, of the November invoices. They had not passed through Maritime's internal accounting system (the November invoices being in the name of Maritime) or, for that matter, Sweet Cred's.
138. As became evident when he came to be cross-examined, Mr Foster had some difficulty in recording the precise sequence of events. He acknowledged that his witness statement contained incorrect references to debt write-offs when the references should have been to stock write-offs. In his witness statement Mr Foster claimed to recall being told by Mr Garrad in early 2007 that he was considering entering into an agreement with P&H under which he would acknowledge that a claim against P&H for over £3 million would be written off (the statement refers to a "debt" but as Mr Foster explained this was not a debt recognised in Sweet Cred's accounts), that he would assume personal responsibility for a debt owed to P&H (identified in cross-examination as £1.172 million - a reference, therefore, to the debt owed to P&H under the September 2003 Agreement) and recognised as due in Maritime's and later Sweet Cred's accounts even though Mr Garrad did not believe that it was due. Mr Foster understood, he said, that under the agreement Mr Garrad would be paid money which he would promise to repay but which he would never be required to repay.
139. It emerged in the course of Mr Levey's careful cross-examination of him that Mr Foster had to some extent conflated events when in truth they were separated in time and occasion. Mr Foster said that for Mr Garrad to enter into a written agreement which denied the existence of the debt which, as a result of a separate oral understanding, would revive at a later date was extremely risky. He said that he did not ask Mr Garrad why he was thinking of entering into so extraordinary an agreement but, instead, was content to listen to what Mr Garrad had in mind on the basis that if this sorted out the long-standing dispute over the Sweet Cred stock then this was all to the good. In cross-examination, Mr Foster accepted that the £1,172,602 debt owed by Sweet Cred to P&H was a genuine debt. He accepted that Mr Garrad's assertion that he would never be required to repay it was probably made on a later occasion and not when the outline of the arrangement and the rationale for it were raised with him. He also accepted, given the available accounting entries and notes, that there was no basis for any contention that the monies advanced to Mr Garrad were disguised payments by P&H towards what it owed for the stock represented by the November invoices. The result of all this was that by the conclusion of Mr Foster's evidence it was far from clear what exactly Mr Garrad did say to him about the agreement he was intending to enter into with P&H. I doubt very much whether, although Mr Foster claimed to recall this, Mr Garrad maintained, at the time it was entered into, that the agreement of which he was being told was needed by P&H in connection with the MBO. I equally doubt whether Mr Garrad said to him that, irrespective of what the agreement provided, he would be entitled to pursue his claim against P&H for the stock represented by the November invoices. I do not accept that Mr Foster was given to understand that it was agreed with P&H that the amounts for which Mr Garrad was taking personal responsibility, including the loans to him, were not to be repaid. I strongly suspect that these contentions by Mr Garrad arose subsequently.
140. I have carefully reviewed Mr Foster's evidence because he did not strike me as dishonest or as somebody who had been coached to put forward a distorted account of what truly he had been given by Mr Garrad to understand. But Mr Foster was, at best, a bystander to the relevant events: he had no direct involvement in the dealings between Mr Garrad and P&H. What he claimed to recall derived entirely from what Mr Garrad told him. Quite what that was and when he had been told it were unclear. His evidence provides no basis for disregarding the documentary trail or the clear and credible evidence of those who were involved.

(ii) Martin Armstrong

141. Then there was Martin Armstrong. He was a chartered accountant and a licensed insolvency practitioner holding the position of senior partner of Turpin Barker Armstrong. This was a practice he founded 27 years previously. Mr Armstrong said that he had known Mr Garrad for over twenty years and that from time to time he had provided him with what he described as "ad hoc" financial and insolvency advice. Mr Armstrong's evidence was concerned with what he has told by Mr Garrad at a meeting in Mr Garrad's office in January 2007. He claimed to recall Mr Garrad reading to him from a draft agreement. He assumed that this was a draft of what later became the Settlement Agreement. From his limited recollection of its contents, however, it would appear that it had provisions which were not in it in the form it took when it came to be signed. He did not himself read the draft, much less study its terms. The upshot of his understanding and recollection of its terms was that he felt able to advise Mr Garrad that the agreement appeared to be "incredibly risky" and that he, Mr Armstrong, would not enter into such an agreement as he did not consider it to be a "normal" commercial transaction. This was premised on his understanding that under the agreement a debt in excess of £3 million owed by P&H for stock supplied would be temporarily reversed and then recreated at a later date once a management buyout had been completed. He recalled Mr Garrad stating that Mr McPherson (with whom Mr Armstrong had never had any direct contact) had given him assurances that the agreement was to assist Mr McPherson and P&H during the management buyout, that Mr McPherson was trustworthy and that he (Mr Garrad) would be repaid.
142. I have no reason to think that Mr Armstrong was not trying honestly to recall what he had been told. It was clear that his recollection was at best somewhat hazy and that his understanding of the terms, read out to him by Mr Garrad at the meeting which he recalled attending, somewhat garbled. That is not intended as a criticism of Mr Armstrong as his witness statement was signed in December 2012, almost five years after the matters to which it related. Mr Armstrong took no notes of his meeting (or none relevant to this matter). At its highest his evidence was an account of how Mr Garrad was representing to others the nature of an agreement he was being asked by P&H to enter into. It sheds no light on how P&H viewed the agreement or even how Mr McPherson viewed it as it was not suggested that Mr McPherson ever spoke to him about it. Another significant factor in Mr Armstrong's ability to recall what he was told at the time of his meeting with Mr Garrad in January 2007 was that, much later, in May 2011, Mr Armstrong was appointed a joint administrator of Sweet Cred. His firm had been consulted the previous February to give insolvency advice. By then (indeed from the end of 2008) Mr Garrad had become Sweet Cred's sole director. It is inevitable that Mr Armstrong or members of his firm acting under his direction would have had detailed discussions with Mr Garrad about Sweet Cred's trading history. The fruits of this were set out at some length in a section headed "Circumstances leading to the appointment of the administrator" in the joint administrators' proposals (to creditors) of 1 June 2011. There is no mention at all of the supposed £3.7 million debt, notwithstanding that it was said by January 2007 to have become beneficially an asset of Sweet Cred, much less is there any mention of the Settlement Agreement. If the Settlement Agreement was genuine in all material respects and was intended to take effect according to its terms it is not in the least odd that the unpaid November invoices and the Settlement Agreement do not feature in Sweet Cred's insolvency: the indebtedness represented by the invoices, if it existed, had been compromised and the Settlement Agreement novated to Mr Garrad what Sweet Cred owed to P&H. If, on the other hand, the position was as Mr Armstrong seemed to recall Mr Garrad describing it to him, it is odd to say the least that none of this finds any mention in the joint administrators' history of the circumstances leading to their appointment. The conclusion that I draw is that it is not sensible to place any reliance on Mr Armstrong's attempted recollection of what was said when he met Mr Garrad in January 2007.

(iii) Malcolm Guscott

143. To somewhat similar effect was Malcolm Guscott. He too was a friend of Mr Garrad, going back many years. The two of them, with others including Mr McPherson, would socialise, usually over a drink or two. Mr Guscott's evidence was that on several of these occasions the topic of Mr Garrad's business relationship with P&H would feature in the conversation between Mr Garrad and Mr McPherson. Mr Guscott had no very clear idea precisely what this relationship was. There was no reason why he should since, as he himself observed, it was none of his business. He understood that a disagreement between Mr Garrad and Mr McPherson arose in 2006, that P&H owed Mr Garrad some money, that this arose out of some stock ordered from Mr Garrad's company and that "there were invoices outstanding to [Mr Garrad's] companies." He recalled hearing mention by Mr Garrad and Mr McPherson of an agreement which they made. This is how Mr Guscott described the agreement:

"I am aware of a loan note in which [Mr Garrad] would pay [P&H] a sum which I am not aware of other than it was more than £½ million and less than £1 million but that this was produced solely for the purpose of justifying giving [Mr Garrad] money during [P&H] Management Buy Out…and that no one ever intended to do anything with this note."

144. The gist of the matter, according to Mr Guscott's recollection, was that Mr McPherson had assured Mr Garrad that he (Mr Garrad) would not be left with certain stock and that the loan note was, as Mr Guscott described it in cross-examination, "…to balance the books purely for the management buy out" and that "after the management buy out it would be struck off". Mr Guscott had no clear idea of the amounts involved and was unaware of any payment later made by Mr Garrad. He was unclear about when it all arose except that the agreement to balance the books was sometimes in late 2006 or early 2007. He insisted that, as he described it in paragraph 15 of his witness statement, "…Graham McPherson always reassured [Mr Garrad] that he would never need to pay anything and that he would get this sorted out."
145. Assuming, which is questionable, that Mr Guscott was truly recalling what he had been given to understand in the course of casual conversations all those years ago and not just repeating what he had later been told by Mr Garrad, his understanding of the agreement to which Mr Garrad and Mr McPherson are said to have referred bore little or no relationship to the Settlement Agreement or to Mr Garrad's actions either at the time the Settlement Agreement was made or in the months that followed. It is difficult to see that Mr Guscott's evidence, even if I were to accept it in its entirety, really assists the Garrads.

(iv) Tom Miller

146. Tom Miller was another old friend of Mr Garrad. Through him Mr Miller had got to know and became friendly with Mr McPherson. The three of them met socially quite a lot, usually in a pub. The burden of his evidence was to the effect that Mr Garrad and Mr McPherson were persons who would feel bound by a deal which they had agreed with a handshake. I was unable to see that what Mr Miller had to say was of the least relevance to the issues I was being asked to try. That was not Mr Miller's fault.

(v) Lisa Marraffa

147. Lisa Marraffa's role within Maritime and, after early 2004, Sweet Cred was in sales and marketing. Her employment with Maritime had started in 1998. She attributed blame for the failure of the Original Arrangement (described by her in her witness statement as "a collaborative effort") entirely to P&H. She disclaimed any knowledge of the financing side of the Sweet Cred business. Although she claimed to know a lot about the circumstances in which Maritime's original venture with P&H came to be made and how it operated, she was unaware of the September 2003 Agreement. She was also unaware of the April 2005 Agreement. She never saw the Settlement Agreement. She did not speak to Mr McPherson about it and knew little or nothing about its terms. At the most, as she explained, she "overheard" conversations but she could not recall quite where. She did not know that Mr Garrad had been lent £700,000 under the terms of the Settlement Agreement and had no knowledge of his payment of £493,000 in February 2008. She was unaware of the correspondence passing between Mr Buchan and Mr Garrad in and after 2009 on the subject of Mr Garrad's failure to make payment of the further instalments.
148. All in all, though she was anxious to be helpful and believed that she could shed light on the true nature of the relationship between Mr Garrad and P&H, in truth Ms Marraffa's evidence did not in any way assist the Garrads to advance their case.

The "sham agreement" claim: conclusion

149. In his closing submissions Mr McGuinness fairly accepted that, although proof of a sham agreement is on a balance of probabilities, the legal burden of proof on the party alleging the sham is a heavy one where, as here, the allegedly sham document is an express written agreement. He did not question Mr Rubin's reliance on passages to this effect from Chitty on Contracts (2012 edition) at 2-162 and Treitel (13th edition) at 4-026. Indeed, he referred me to the onerous requirements, if a sham is to be established, enumerated in the judgment of Arden LJ in Stone v Hitch [2001] EWCA Civ 1224 at [62] to [69].
150. I have carefully reviewed all of the material evidence. In my judgment the Garrads' case came nowhere near to meeting these requirements. The claim that the Settlement Agreement was in any way a sham therefore fails.

Arguments based on alleged tax-loss and valuation purposes

151. I come finally to the other contentions advanced by the Garrads. On day six of the trial Mr McGuinness sought permission to amend their pleading to allege that the Settlement Agreement was void for illegality as having been created in order to generate a non-existent, and therefore a false, tax loss. He also sought permission to allege that the Agreement was intended to enhance the value of P&H by extinguishing the debt represented by the November invoices and the claims against it for storage, bank charges and the associated costs of carrying the stock and replacing it with a secured liability to P&H in the sum of £1,974,405 and interest. The allegation was that this was done with a view to deceiving potential investors in P&H and other third parties dealing with it. In a ruling which I gave after hearing Mr McGuiness I disallowed the amendment based on the alleged tax-loss point but allowed the amendment alleging the valuation purpose.
152. In his written closing submissions a new tax-loss point surfaced. This was to the effect, as I understood it, that P&H had no right to claim any set-off against profits of the sums which were due to it under the Settlement Agreement and which, as I have mentioned, had been the subject of provisions in P&H's accounts. It had no right to do so, according to the argument, as the liabilities in question were fictitious. The argument based on valuation purpose, which Mr McGuinness described as more serious than the tax-loss point, was similar in that the effect of the Settlement Agreement was to get rid of the November invoices and thereby cause P&H to be overvalued. It was necessary, Mr McGuinness submitted, to keep up the pretence that the Settlement Agreement was valid by the payment in February 2008 of the first instalment due under it. This was to avoid anyone investigating the genuineness of the Settlement Agreement and raising questions about the thoroughness of the due diligence which preceded the MBO. Such investigations and questioning might in turn have imperilled the MBO. In any event the Settlement Agreement assumed a value in P&H which was unjustified and this in turn could be to the detriment of third parties, whether investors or others, dealing with P&H. That was how I understood the argument.
153. As I mentioned to Mr McGuinness in the course of his closing submissions, the points he was urging assumed that the Settlement Agreement was a sham. If it was a sham, the Garrads had no need to rely on them: P&H would not in any event be entitled to enforce the Agreement and the matter would be at large. If, on the other hand, the Settlement Agreement was enforceable then there could be no basis for the wrongful claim to a tax-loss (because the liabilities set off against profits would be genuinely owed to P&H). Equally, there could be no basis for saying that the Settlement Agreement falsely allowed for a wrongful overvaluation of P&H to the extent of the indebtedness represented by the November invoices (because, having been compromised under the terms of that Agreement, the indebtedness no longer existed). In short, these points added nothing to the basic dispute. As I have found that the Settlement Agreement was fully valid and enforceable and there was no need to maintain any pretence in order not to imperil the MBO, the points simply do not arise.
154. In any event, aside from the fact that this new tax-loss contention had not been pleaded, both points assumed a dishonest purpose on the part of those who were parties to or procured the Settlement Agreement. But, as Mr McGuinness accepted (not least because he drew my attention to a recent authority on the point, namely Parker v NFU Mutual Insurance Society [2012] EWHC 2156 (Comm) at [6]) proof of the existence of a dishonest purpose requires a strength or cogency of evidence commensurate with the gravity of the allegation. Given my conclusion on the validity of the Settlement Agreement it follows that there was no evidence, let alone any cogent evidence, to justify the allegations.

The remaining counterclaim

155. This only leaves the Garrads' counterclaim for the £1,800,000 and further costs. It is impossible to give any credence to it. Beyond a single sentence in Mr Garrad's witness statement affirming what had been pleaded in respect of this matter (see paragraph 69 of the re-amended defence) there was nothing to support it. I was taken to no documentary evidence touching on it. The amount claimed was unparticularised.
156. There is a further point to be made. It arises in connection with Mr Garrad's claim to have received from Mr McPherson a letter dated 10 February. I have already commented on that letter. Aside from my earlier conclusion that the letter had been concocted by Mr Garrad long after the event to give support to his allegation that the Settlement Agreement was a sham, it is noteworthy that the letter makes no reference at all to the agreement on storage costs said to have been reached the previous day. The counterclaim was not mentioned in Mr McGuinness's closing submissions. Indeed it was far from clear if it was still being pursued.

Mr Garrad's true claim?

157. A recurrent them of Mr Garrad's evidence and, so far as it went, Mrs Garrad's as well was the repeated reassurance by Mr McPherson, their old family friend, that the losses from the failed Sweet Cred venture would be made good and that they would not be left out of pocket. Quite what may have passed between the Garrads and Mr McPherson on the matter (if anything) is a matter of considerable doubt. It is quite possible, though I think unlikely, that Mr McPherson was saying one thing to Mr Garrad and quite another to his colleagues at P&H. Consistent with this is that, according to Mr Garrad's witness statement, it was very much Mr McPherson who took the lead in agreeing to enter into a sham arrangement. (It is to be noted, however, that in the course of his cross-examination Mr Garrad claimed that it was Mr Adams who took the lead but when asked why this had not featured in his witness statement he was unable to provide a credible explanation.)
158. Mr McPherson, of course, had no authority to bind P&H to any assurance of the kind that the Garrads asserted. At the material time he occupied a non-executive role on P&H's board of directors. It is not without significance that the Garrads do not even suggest that, apart from Mr McPherson and Mr Adams, any of the other directors had any inkling that, as Mr Garrad claimed, it had been agreed that the Settlement Agreement should not be enforceable. It was not for example suggested that Mr Etherington had any idea that by signing the Settlement Agreement on P&H's behalf he was doing other than committing it to a genuine agreement intended to have legal force as between the parties to it. Much less was it suggested that by agreeing that P&H should enter into the Settlement Agreement any of the other directors (outside of Mr McPherson and Mr Adams) had any intention that it should not be fully binding. This was but another weakness in the Garrads' case.
159. What did eventually emerge in the course of Mr Garrad's cross-examination, as Mr Rubin and his team were quick to point out in their written closing note, was an exchange in which Mr Garrad appeared to accept that his claim for the debt represented by the November invoices lay not against P&H but against Mr Adams and Mr McPherson personally. This is what he said (on Day 10) in answer to questions put to him by Mr Rubin:

"Q: Well, let's just take it in stages. If it was the exiting shareholders that would be a personal payment from them. If it was Palmer & Harvey that would be the people – the company that I represent. Who did you believe you had a contract with or an arrangement with that they would pay you – pay this debt?

A: Christopher Adams and Graham McPherson and what guise – how they were going to pull the money together, I wasn't aware or interested –

Q: So is it your case that in fact it was a personal obligation of those two rather than a corporate obligation?

A: Yes."

160. I do not for one moment think that Mr Adams gave any such assurance to Mr Garrad. If Mr McPherson did, then, as his answer revealed, Mr Garrad was directing his fire at the wrong target in claiming that his arrangements were with P&H. The difficulty with all of this, of course, is that Mr McPherson was unable to answer what Mr Garrad was saying about him.

Result

161. P&H establishes its claim. The defences to it fail and I dismiss the counterclaims.