England and Wales High Court (Chancery Division) Decisions

i)                   By an agreement in writing dated 5 June 2006, made between Blackpool FC, VB Football Assets, Segesta and Mr. Owen Oyston, VB Football Assets acquired 7,500 newly issued ordinary shares in Blackpool FA for a consideration of £1,800,000 (or £240 for each new share) (the “Subscription Agreement”).

ii)                 The Subscription Agreement thus gave VB Football Assets a 20% stake in Blackpool FC. On 7 July 2006, Blackpool FC issued 7,500 new shares to VB Football Assets. The shares in Blackpool FC were thus held:

a)                  1,393 (or 3.71%) by 192 individual Minor Shareholders.

b)                 28,607 (or 76.29%) by Segesta.

c)                  7,500 (or 20%) by VB Football Assets.

iii)               By an agreement in writing dated 5 June 2006, made between Ms. Vlada Belokon (Mr. Belokon’s daughter) and Segesta, Ms. Belokon agreed to lend to Segesta the sum of £1,000,000 (the “First Vlada Loan Agreement”).

iv)               By an agreement in writing dated 14 April 2007, made between Ms. Belokon and Segesta, Ms. Belokon agreed to lend to Segesta the sum of £1,700,000 (the “Second Vlada Loan Agreement”).

v)                 There were other agreements between the parties, which will be referred to in due course. However, it was common ground that these three agreements constituted the written basis on which VB Football Assets became a shareholder in Blackpool FC, albeit that the Second Vlada Loan Agreement was concluded some months later.

vi)               What was controversial was whether these three agreements set out the entire agreement between the parties or whether they were supplemented by an oral understanding (legally binding or otherwise) reached between Mr. Owen Oyston and Mr. Belokon. This is one of several difficult factual questions that will have to be resolved in the course of this Judgment, and I will not anticipate the point, save to observe that Mr. Belokon, if no-one else, was under the impression that there was at least a “gentleman’s agreement” between himself and Mr. Owen Oyston along the lines that, in return for the total of £4.5 million that he had paid over (i.e., £1.8m pursuant to the Subscription Agreement, £1m pursuant to the First Vlada Loan Agreement and £1.7m pursuant to the Second Vlada Loan Agreement), he would, in due course, receive a shareholding on a par with that of Segesta and that, in the meantime, Blackpool FC would be run jointly. I shall refer to this supplement to the written agreements as the “gentleman’s agreement”. This sub-paragraph is intended to do no more than identify the fact that Mr. Belokon considered such an agreement to exist: this is important in terms of understanding the sequence of events. I stress that this sub-paragraph says nothing about whether there in fact was a gentleman’s agreement or, if there was such an agreement, what its terms were. However, I do find that Mr. Belokon subjectively had that belief.

i)                   Mr. Karl Oyston (chairman);

ii)                 Mr. Owen Oyston;

iii)               Mrs. Vicki Oyston;

i)                   Mr. Owen Oyston. Mr. Owen Oyston is a businessman, and the majority shareholder of a number of companies, including Segesta. I shall refer to these companies as the “Oyston Group”. They include Blackpool FC and Segesta, as well as other companies described more fully in the course of this Judgment. Mr. Owen Oyston is, as I accept, a long-time supporter of Blackpool FC.

ii)                 Mr. Karl Oyston. Mr. Karl Oyston, Mr. Owen Oyston’s son, is also involved in the Oyston businesses, in particular as a director and the chairman of Blackpool FC.

iii)               Mrs. Vicki Oyston. Mrs. Oyston is the wife of Mr. Owen Oyston. Although nominally a director of Blackpool FC, and of other companies within the Oyston Group, her role was generally an inactive one.

iv)               Mr. Howard Belton. Mr. Belton is a tax advisor of some 50 years’ experience. He has provided tax advice to Mr. Owen Oyston, and companies within the Oyston Group, since 1985. Between 1985 and 2000, Mr. Belton was a senior consultant with KPMG. Between 2000 and 2008, Mr. Belton worked with Baker Tilly. He now works through his own business, Howard Belton & Associates. Notwithstanding his moves between firms, Mr. Belton has advised Mr. Owen Oyston for over 30 years.  

v)                 Mr. Anthony Dempsey. Mr. Dempsey is a solicitor and a member of Atticus Legal LLP, a firm of solicitors. Prior to that, he was a partner in another firm of solicitors, Wacks Caller. He has acted for Mr. Owen Oyston, and companies within the Oyston Group, since the 1990s.

vi)               Mr. Anthony Cherry. Mr. Cherry is a chartered accountant and chartered arbitrator. He is the director and shareholder of AI Cherry Ltd. He is – and has for a number of years been – the auditor of Blackpool FC, Segesta and of a number of other companies within the Oyston Group, and prepared the corporation tax returns for Blackpool FC, Segesta and other Oyston Group companies. As will be seen, his role went well beyond this, and he acted as a tax and business adviser of Mr. Owen Oyston and the Oyston Group.

vii)             Mr. Roderick Dyer. Mr. Dyer is the financial controller of Blackpool FC and its company secretary. He also has or has had this role within Segesta and other Oyston Group companies. He is a qualified management accountant.

viii)           Mr. James Rawlinson. Mr. Rawlinson was a former solicitor, who provided Mr. Owen Oyston with business and legal advice.

i)                   Mr. Valeri Belokon. Mr. Belokon is a businessman. He was originally the owner of 100% of VB Football Assets, and is now the indirect owner (through AS BFFH) of 50% of VB Football assets, the other 50% being owned by his brother, Vilori. He is the founder, and chairman of the council, of JSC Baltic International Bank (“Baltic International Bank”) and the founder of Belokon Holdings. He was, as will be described, a director of Blackpool FC.

ii)                 Ms. Vlada Belokon. Ms. Belokon is the daughter of Mr. Belokon. She features as a named party to various of the agreements between the Oyston Side and the Belokon Side, but does not appear to have played an active role at all. 

iii)               Mr. Normunds Malnacs. Mr. Malnacs is a former employee of Mr. Belokon or one of his companies. Mr. Malnacs was employed by Mr. Belokon as a director of Blackpool FC between July 2006 and August 2008 and again between November 2009 and March 2013.

iv)               Mr. Kaspars Varpins. Mr. Varpins is employed by AS BFFH. As such, he has, amongst other things, been a director of Blackpool FC, a role he took up in succession to Mr. Malnacs in March 2013.

v)                 Ms. Anita Lase. Ms. Lase – who also goes by the name Ms. Matisone – is a senior lawyer employed by Belokon Holdings.

vi)               Ms. Anda Beinare. Ms. Beinare is a lawyer, working under Ms. Lase, employed by Belokon Holdings.

vii)             Mr. Michael Sheitelman. Mr. Sheitelman is an employee of Mr. Belokon or one of his companies, who was involved in the negotiation of Mr. Belokon’s purchase of a 20% shareholding in Blackpool FC.

i)                   £17,600,000 (2011-2012);

ii)                 £14,400,000 (2012-2013);

iii)               £8,000,000 (2013-2014)

iv)               £8,000,000 (2014-2015).

These payments (including the £42,995,000 received during the course of the 2010-2011 season) total £122,995,000.

i)                   First, came a payment out of Blackpool FC in the amount of £4.2m. This payment was made on 17 September 2010 and was (according to VB Football Assets) done without the consent of, and was objected to by, the Belokon Side.

ii)                 Secondly, at a meeting between Mr. Owen Oyston and Mr. Belokon, in or around May 2011, Mr. Belokon adverted to the gentleman’s agreement and its performance. This, again, is a matter that is controversial between the parties, on which specific factual findings will have to be made. For present purposes, it is sufficient to note that Mr. Belokon considered that Mr. Owen Oyston was reneging on the gentleman’s agreement. Mr. Owen Oyston, of course, denies the existence of any such agreement and accordingly denies the “breach” even of a non-legally binding agreement. Again, this sub-paragraph says nothing about what agreement (if any) was, or was not, reached between Mr. Owen Oyston and Mr. Belokon and whether it was or was not breached. What is important is that the mismatch between the respective understandings of Mr. Owen Oyston and Mr. Belokon effectively brought the previously good relationship between them to a more-or-less abrupt end.

i)                   A significant withdrawal from the affairs of Blackpool FC by Mr. Belokon – during which time, Mr. Belokon sought to negotiate an exit from the club. Such an exit was not, however, concluded with either a third party or with the Oyston Side;

ii)                 Increased hostility between the Oyston and Belokon Sides, manifesting itself in acrimonious communications between the parties, disagreement at board meetings and briefings through the media.

i)                   Further payments out of Blackpool FC were made, to which it is said the Belokon Side did not consent. No dividends were paid.

ii)                 It is said by VB Football Assets that it was excluded from decisions of Blackpool FC and from information regarding Blackpool FC.

iii)               In 2014, over the objections of VB Football Assets, the board of Blackpool FC adopted amended articles of association which – so it is said by VB Football Assets – was an act unfairly prejudicial to VB Football Assets.

(2)       The allegations of unfair prejudice made in the Petition

“(1)   A member of a company may apply to the court by petition for an order under this Part on the ground-

(a)     that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or

(b)     that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.

(1A)  For the purposes of subsection (1)(a), a removal of the company’s auditor from office-

(a)     on grounds of divergence of opinions on accounting treatments or audit provisions, or

(b)     on any other improper grounds,

shall be treated as being unfairly prejudicial to the interests of some part of the company’s members.”

“(1)   If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.

(2)     Without prejudice to the generality of subsection (1), the court’s order may-

(a)     regulate the conduct of the company’s affairs in the future;

(b)     require the company-

(i)      to refrain from doing or continuing an act complained of, or

(ii)     to do an act that the petitioner has complained it has omitted to do;

(c)     authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct;

(d)     require the company not to make any, or any specified, alterations in its articles without the leave of the court;

(e)     provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company’s capital accordingly.”

i)                   First, there is the question of whether the court is satisfied that the Petition is well-founded. In essence, the question is whether the affairs of Blackpool FC have been conducted in a manner by the Respondents that is unfairly prejudicial to the interests of VB Football Assets as a member of Blackpool FC.

ii)                 Secondly, assuming that the Petition is well-founded, what is the appropriate form of relief?

i)                   Section B considers the evidence of the witnesses of fact called by each party. It does not consider the evidence of the experts called by the parties: this expert evidence was relevant only to the question of relief, and is considered in Section J.

ii)                 Section C is a necessarily lengthy statement of the relevant facts, in broad chronological order. Where necessary and appropriate during this Section, I make specific determinations of the factual disputes between the parties. However, this Section makes no effort to grapple with the questions of the existence of unfair prejudice or relief: Section C is intended to be factual only.

iii)               Section D considers in general terms what must be established by VB Football Assets in order for the Petition to succeed. Sections E to H then consider the broad allegations of unfair prejudice advanced by the Petitioner, namely:

a)                  Section E considers, in fairly general terms, the relationship between Blackpool FC and the other companies in the Oyston Group. It is necessary to do so, because that relationship informs two of the three allegations of unfair prejudice made by VB Football Assets, namely the allegation that there were substantial payments out of Blackpool FC that were improper (see paragraph 24(i) above) and that VB Football Assets was excluded from the management of Blackpool FC (see paragraph 24(ii) above). Section E considers the nature of the cash flows between the companies within the Oyston Group, and the extent to which certain of these were unfairly prejudicial.

b)                 Section F considers, in rather greater detail, certain specific payments out of Blackpool FC which are said to be improper, as well as the failure by Blackpool FC to pay dividends.

c)                  Section G considers the allegation that the Petitioner was excluded from Blackpool FC.

d)                 Section H considers the allegation that the alteration of the articles of association of Blackpool FC was unfairly prejudicial.

iv)               Section I considers the contention advanced by the Respondents that VB Football Assets should, in any event, be denied relief (were the granting of relief otherwise to be appropriate) on various grounds, which are pleaded in paragraph 42 of the Amended Points of Defence.

v)                 Section J considers the question of relief. This Section contains my assessment of the expert evidence that was adduced before me. As I have noted, the expert evidence only went to the question of relief and I do not need to consider it at any earlier stage.

B.        THE FACTUAL WITNESSES

(1)        VB Football Assets’ witnesses

i)                   Mr. Belokon. Mr. Belokon gave a single witness statement dated 8 March 2017 (“Belokon 1”). Belokon 1 was given in Russian – Mr. Belokon’s first language – and translated into English – Mr. Belokon’s second language. Mr. Belokon gave evidence over three days, on 13, 14 and 15 June 2017 (Days 2, 3 and 4 of the trial). Mr. Belokon was an affable witness, who gave his evidence with the assistance of an interpreter. Although Mr. Belokon’s English was undoubtedly good – indeed, outstanding for conversational purposes – it rapidly became clear when he came to give evidence that Mr. Belokon’s original plan of giving evidence in English, with occasional interpreter support, lost a great deal of the nuance that Mr. Belokon was trying to convey. With my active encouragement, and certainly for the second and third days of his evidence, Mr. Belokon essentially gave his evidence in Russian, which was translated for him into English. Although this inevitably slowed the proceedings down, it was in my judgment necessary in the interests of receiving Mr. Belokon’s evidence properly.

There are two other points of detail about Mr. Belokon’s practice that I should note, for they are relevant in terms of evaluating the evidence he gave:

a)                  First, and unsurprisingly for a Latvian businessman, many of Mr. Belokon’s employees were native Latvian speakers. Latvian was Mr. Belokon’s third language, and he tended to speak to his employees either in Russian or in English, but not in Latvian. They, in turn, would write to Mr. Belokon in either Russian or English, which would not have been their first language. There was thus some potential for points to be “lost in translation”, particularly in communications with the Oyston Side, which spoke only English.

b)                 Secondly, Mr. Belokon transacted orally. By this, I mean that he did not tend to author documents, nor did he tend to read them. Rather, he gave his instructions orally and, when a document had to be brought to his attention, it was either summarised or broadly translated for him by one of his employees.

I consider that Mr. Belokon gave his evidence honestly. He was very clear when he could not remember something; and equally clear when – a document, for example – might have passed under his nose with only the broadest of explanations as to what was going on. Mr. Belokon was, as I accept, a busy businessman, with multiple interests, who delegated the detail and outlined what he wanted his staff to achieve. Because Mr. Belokon was clear in demarcating what he knew as opposed to what his staff knew, I consider that I can place considerable reliance on what, strategically, Mr. Belokon thought he was achieving in his dealings with the Oystons. Of course, whether his subjective intentions were in fact realised in the communications crossing the line between the Belokon Side and the Oyston Side is an altogether different matter, which goes to the heart of the issues that were before me.

i)                   Mr. Belton. Mr. Belton gave a single witness statement dated 18 April 2017 (“Belton 1”). He gave his evidence on 20 June 2017 (Day 7). Subject to the qualification I have made, he was an entirely straightforward witness. His recollection of events of long ago, where he had had a second-order (albeit nonetheless important) involvement was understandably hazy, but he was careful to differentiate between what he knew or remembered, and what he accepted he must have known, but had forgotten (because, e.g., a letter, whose content he had forgotten, was addressed to him).

ii)                 Mr. Dempsey. Mr. Dempsey gave a single witness statement dated 24 February 2017 (“Dempsey 1”). He gave evidence on 20 June 2017 and 21 June 2017 (Days 7 and 8). Like Mr. Belton, he was a straightforward witness. He had an impressive command of the documents, and a singular knack of reconstructing from the documents what he thought must have happened. But he had a significant, and I am sure unconscious, bias towards the interests of the Oyston Side.

i)                   Mr. Karl Oyston. Mr. Karl Oyston gave a single witness statement dated 9 March 2017 (“KO 1”). He gave evidence on 23 and 26 June 2017 (Days 10 and 11 of the trial). He was an argumentative witness, who gave speeches rather than answering questions. I found him generally incapable of answering a question straightforwardly. He had a marked tendency, not to give evidence, but to advocate. This was not aided by the fact that his actual recollection of events was extremely poor. Although, therefore, I consider that he sought to tell the truth as he saw it, he was an unimpressive witness, and I cannot place very much weight on his evidence. As a person, Mr. Karl Oyston seemed to me to be a forceful character, capable of firm and probably harsh leadership. When crossed, he could react badly and be quite rude, as his documentary exchanges with Mr. Malnacs show. Fundamentally, however, it was not he, but his father, who set the strategic direction for Blackpool FC (and, indeed, for the Oyston Group as a whole), with Mr. Karl Oyston implementing the strategy determined upon by Mr. Owen Oyston. To this extent, Mr. Karl Oyston was subordinate.

(2)        The Oyston Group

“Blackpool [FC’s] occupation of the Stadium at Seasiders Way, Blackpool owned by [Segesta]. The occupation falls into 2 categories: –

1)      Serviced Accommodation permanently occupied listed as follows:

i)       ticket office

ii)      shop

iii)     gold bond offices as defined on the plan (form part of the rear of the shop/ticket office)

iv)     changing rooms and offices

v)      Squires Gate training ground, pictures, pavilion, gym and offices

vi)     seating area of the stadium

vii)    football pitch (NB Blackpool [FC] has committed to allowing the use of its facilities at minimum/nil cost to the local community for a small number of local football finals)

viii)   car parking sufficient for customers using the ticket office and shop during business hours

ix)     groundsman’s store both internal and external

x)      ground maintenance store both internal and external (NB the football club currently utilises space at homefarm, Lytham for storage on a rent free basis, this arrangement will continue at the discretion of Oyston Estates unless of course [Blackpool FC] wish to terminate)

NB [Segesta] to have the right to use the pitch, seating area and changing rooms for non football events in return for payment to [Blackpool FC] of 1/3 of the profit for the event, provided that the event does not interfere with the scheduled or ongoing use of such facilities by [Blackpool FC]

2)      Areas [Blackpool FC] has a right to occupy on a match day:

i)       the concourse for spectators

ii)      the Board room and directors box

iii)     North Stand car park (such areas that do not form part of the serviced office accommodation agreements and reserved to the Primary Healthcare Trust/social services/nursery/drop in centre)

iv)     all other areas of car parking available and required for use by directors and customers on a match day

v)      [Blackpool FC] will have a match day access to all areas of the Stadium other than those areas occupied by external parties currently being Primary Healthcare trust/social services/nursery/Blackpool and Fylde college…

(NB it is envisaged that Travelodge/Primary Healthcare Trust/Social Services/BFCP offices, London Clubs/resort casinos will occupy further areas in the near future).

If requested by [Segesta], [Blackpool FC] will relocate any or all of its football club activities to such alternative location(s) within the Fylde coast with improved or enlarged facilities as may be required by [Segesta] (for example if [Blackpool FC] is promoted to the Premiership).

The above rights are to be exercised by [Blackpool FC] on the basis of that no rental payments or service charge payments are payable by [Blackpool FC]’s to [Segesta]. Maintenance, staffing and utility costs are covered elsewhere in this Agreement in Clause 8(i) and schedules 3 and 4. This Agreement has no term.”

(4)        Financial support by Mr. Owen Oyston

i)                   In the balance sheet, that Blackpool FC owed £5,415,200 (these amounts falling due within one year).

ii)                 Note 12 to the accounts provided a breakdown of this figure. The bulk of the debt comprised “[a]mounts owed to group undertaking”: £3,784,890. Additionally, £400,137 was “[d]irectors’ accounts and unsecured loans”. The note went on to provide:

“The amount owed to group undertaking represents the amount due to the parent, [Segesta]. The maximum balance outstanding during the year was £3,931,716.

Directors’ accounts and unsecured loans includes £400,137 (2004: £400,137) owed to the director, Mr. OJ Oyston. The maximum balance owed to Mr. Oyston was £603,539. During the year a loan in the amount of £200,000 was taken from the director Mr. OJ Oyston, this amount was fully repaid during the year ended 31 May 2005 stop the company was charged interest of £3,403 on the loan of £200,000 from Mr. OJ Oyston.

The unsecured loans are interest free and repayable on demand.”

(5)        Mr. Belokon is introduced to Mr. Owen Oyston

(6)        The Subscription Agreement

i)                   Blackpool FC would increase its ordinary share capital from £30,000 to £37,500 by issuing 7,500 new shares of the same class. These new shares would be subscribed to VB Football Assets for a total consideration of £1,800,000 (clauses 1 to 3).

ii)                 Blackpool FC undertook to use the subscription price of £1,800,000 “only for purposes of acquisition of new players and for their salaries appearance money bonuses and other benefits” (clause 4).

iii)               Blackpool FC undertook to elect the representative of VB Football Assets – Mr. Belokon – as Blackpool FC’s president. The role of president was a limited one, confined to consultation and acting as a spokesperson (clause 5).

iv)               Save in relation to a short-term loan in the amount of £210,000 advanced by Mr. Owen Oyston to Blackpool FC, Segesta and Mr. Owen Oyston undertook as follows as regards the indebtedness of Blackpool FC described in paragraph 46 above (clause 6(a)):

a)                  Blackpool FC would not be required to repay these loans from any of the revenues generated by Blackpool FC’s football team. Rather, the loans would be repaid out of the income derived from the occupation of the stadium by third parties.

b)                 Apart from the right to use this income to repay the loans made to it, in accordance with a schedule of repayments set out in Attachment 5 to the Subscription Agreement, Blackpool FC derived no claim to these revenues, which would be the property of Segesta.

c)                  If the schedule of repayments set out in Attachment 5 was not complied with, with the result that the loans remained outstanding, then these would be waived.

v)                 There was a provision (in clause 6(b)) to ensure that VB Football Asset’s 20% shareholding was not diluted.

vi)               There was a provision (in clause 8) to ensure that conference/catering and stadium overheads would not be borne by Blackpool FC.

vii)             Clause 9 provided:

“[Blackpool FC], with [Segesta’s] approval, confirms that, subject as referred to below and are subject to the disclosures in the attached documents (1)-(7), to the best of its knowledge, information and belief, there are no additional obligations of [Blackpool FC] which have not been disclosed in these documents. In the event that there is any breach of this confirmation by [Blackpool FC/Segesta], then [Segesta] will make good to [Blackpool FC] any costs suffers as a result of such obligations (provided that in any such case there shall be offset against such costs any benefits or assets of [Blackpool FC] which are not contained in the disclosed documents). In keeping with a practice over the years, Owen Oyston has recently made a short-term loan of £210,000 to [Blackpool FC] which loan it is intended will be repaid by [Blackpool FC] by the end of May 2006. The [Blackpool FC]’s financial statements (comprising its audited accounts for the year ending in May 2005 (1), its management accounts for January 2006 (including balance sheet) (2) and schedule of football club costs for February 2006 (3 and 4)) which are attached to this agreement form an integral part of this agreement. [Blackpool FC], with [Segesta’s] approval, confirms that such financial statements show all the liabilities and commitments of [Blackpool FC].”

viii)           Clause 10 provided as follows:

“Save as previously disclosed in and save as provided for by this Agreement, [Blackpool FC] undertakes to keep the business of the [Blackpool FC]’s as practised over the years.”

ix)               Clauses 11 and 12 made provision in the event of a “change of control” of Segesta (clause 11) or VB Football Assets.

x)                 Clause 13 provided:

“The parties hereto hereby confirm that they will act with all good faith with regards to each other in relation to all aspects of this Agreement. The present agreement may not be altered, modified or amended in any way, except by mutual written agreement signed by the parties.”

xi)               Clause 16 provided that all correspondence between the parties in relation to the Agreement should be in English.

(7)        The First Vlada Loan Agreement

“WHEREBY:

(1)     VB, or such other person, firm, company or corporation as he in his absolute discretion shall nominate, will within 14 days of the signing of this Agreement, loan to [Segesta] the sum of £1,000,000…interest-free (“the Loan”).

(2)     The Loan is to be used for the purpose of the construction of the South Stand at Blackpool [FC] (“the Stand”) by [Segesta] or by such other person, firm, company or corporation as it in its absolute discretion shall nominate and is for a term of 20 years (“the Term”) from the date of the 1^st repayment of the Loan referred to in clause 3 hereof.

(3)     When the Stand has been practically completed and when the Stand has achieved an annual occupancy of 75% for an annual serviced accommodation income of £600,000 (whichever is the lower), then [Segesta] will on each annual occasion on which such level of occupancy or income is derived, make a repayment of part of the Loan to VB or to such other person, firm, company or corporation as he in his absolute discretion shall nominate, in the sum of £50,000 provided always that the repayment of the Loan shall commence no later than the 3^rd anniversary of it being made.

(4)     [Segesta] and VB hereby agree that there is no right to any repayment in respect of the Loan or any part of it whether of capital or interest other than as set out in this Agreement.”

“WHEREBY:

(1)     VB, or such other person, firm, company or corporation as she in her absolute discretion shall nominate will, within 14 days of the signing of this Agreement, loan to [Segesta] the sum of £1,700,000…(“the Loan”) interest free for a term of 20 years (“the Term”) from the date of the first repayment of the Loan.

(2)     [Segesta] hereby undertakes that upon receipt of the Loan, [Segesta] will (i) transfer by way of gift, 50% of the Loan (i.e. £850,000) to Blackpool [FC]…and (ii) use the remaining 50% of the Loan (i.e. £850,000) for the purpose of the construction of the South and/or South-West Stands at [lack pool FC] by [Segesta] or by such other person, firm, company or corporation as it in its absolute discretion shall nominate.

(3)     When the South Stand has been practically completed and when the South Stand has achieved an annual occupancy of 75% or an annual serviced accommodation income of £600,000 (whichever is the lower), then [Segesta] will, on each annual occasion on which such level of occupancy or income is achieved, make a repayment of that part of the Loan which is not transferred to [Blackpool FC], (i.e. the capital sum of £850,000), to VB or to such other person, firm, company or corporation as she in her absolute discretion shall nominate, in the sum of £42,500 PROVIDED ALWAYS that, in any event, the repayment of the Loan shall commence no later than the 5 June 2009.”

(9)        The nature of the agreement reached between the parties

(i)         The rival contentions

“…was entered into, in the context and on the basis of a common understanding and intention shared by Mr. Belokon (on behalf of [VB Football Assets]) and [Mr. Owen Oyston] (on behalf of the First to Third Respondents) that: (1) Mr. Belokon would arrange the provision of loans in the sum of £2,700,000; and (2) pending the contemplated future conversion of those loans into a further tranche of shares in [Blackpool FC] to lead to parity between [VB Football Assets] and [Segesta], [Blackpool FC] would be run as a quasi-partnership between [VB Football Assets] and [Segesta]. Specifically, that quasi-partnership would involve: (1) [VB Football Assets] having equal rights in the management of [Blackpool FC] (including the right to appoint two of the five directors of [Blackpool FC]) and equal rights to profits generated by it; and (2) the business of [Blackpool FC] being conducted on the basis of mutual consultation and cooperation, and unanimity.”

i)                   First, that the loans advanced pursuant to the First and Second Vlada Loan Agreements were advanced in contemplation of the conversion of these debts into equity, such that there would be a parity of shareholding between VB Football Assets and Segesta.

ii)                 Secondly, pending that conversion of debt into equity, there would be a “quasi-partnership” giving VB Football Assets an equal share in the profits, and a say in the conduct of Blackpool FC’s business, which would be conducted on the basis of unanimity.

“10.   In the premises paragraph 17 is denied. In particular it is denied that the Subscription Agreement was entered into on any such “common understanding and intention” as to the matters then mentioned as is their stated. In particular the Subscription Agreement: –

a.       did not provide for the acquisition of any further shares in [Blackpool FC] by [VB Football Assets] or any other person. Accordingly the Respondents denied the assertion that the loans were in fact payments for further shares.

b.       did not provide for [VB Football Assets] being treated in any way other than as a 20% shareholder in [Blackpool FC]. Accordingly the Respondents denied the assertion that [Blackpool FC] would be run as a quasi-partnership equal powers and control.

c.       did not provide any right for [VB Football Assets] to appoint any directors let alone an equal number.

d.       is presumed to be an entire agreement and is not subject to any further terms or understandings or other agreement not contained within an expressed to be part of it.

11.     If the matters pleaded in paragraph 17 had been the intention of the parties to the Subscription Agreement they could and would have been readily expressed in that Agreement. Furthermore:

a.       If, which is denied, [VB Asset Holdings] held such understanding or intention as alleged paragraph 17, it was not an understanding shared by any of the other parties to that Agreement.

b.       In so far as [VB Asset Holdings] may claim that the omission of such terms from that Agreement was in order not to lose the tax benefits from substantial losses sustained by [Blackpool FC] is in previous years, and to defeat the Revenue, then such agreement would be tainted by illegality and would therefore be unenforceable.

c.       [Mr. Owen Oyston] was throughout the lengthy discussions and negotiations consistent in not jeopardising [Blackpool FC’s) tax losses and in not losing control of [Blackpool FC] without first having a public flotation of [Blackpool FC] to enable him to recover some monies for the millions that he had invested in it over the years to ensure its survival.

d.       [Mr. Owen Oyston] was clear in not offering parity of shareholding except in the case that a public flotation was possible and he referred to this in a letter to Mr. Belokon of the 3 April 2006…This was also reflected in a proposal (which did not come to fruition) dated 6 May 2006. It was made absolutely clear to [VB Football Assets] that utilisation of the tax losses and no parity until flotation upon a recognised stock exchange or AIM were ‘Red Line’ conditions.

e.       [VB Football Asset’s] case is that the ‘Original Loans’ were to be for the purpose of the acquisition of shares/options in [Blackpool FC]. However [VB Football Assets] agreed to invest these original loans in a 50:50 1000 year joint commercial venture with [Segesta] from which the potential revenues accruing to [VB Football Assets] from the joint venture would repay the loans to [VB Football Assets]. Accordingly [VB Football Asset’s] case that such loans were for the purchase of shares is not understood."

(ii)        Analysis: was there a wider agreement; and, if so, what was its nature and what were its terms?

i)                   Both loans are for substantial sums of money, yet they are (expressly) said to be “interest free”.

ii)                 There is, in the case of each of the loans, some uncertainty as to whether Segesta would even be obliged to repay the principal sum:

a)                  The repayments under the First Vlada Loan Agreement appear to be conditional both upon practical completion of the South Stand and upon the South Stand achieving either a certain level of annual occupancy or a certain level of annual serviced accommodation. Although, as I have said, the drafting of the First Vlada Loan Agreement leaves a great deal to be desired, the better construction of the agreement is that unless these preconditions are met, Segesta is not obliged to make an annual repayment of £50,000. Given the term of the loan and the no recourse provision in clause (4), unless in each of the 20 years of the term of the loan the preconditions are met, the full £1 million will not be repaid.

b)                 The provisions of the Second Vlada Loan Agreement are to similar effect. Moreover, Segesta is only obliged to repay that half of the loan that does not form part of VB Football Assets’ gift to Blackpool FC.

“Subject to contract

I have spoken to Owen and Karl to see how we can simplify an entity in which you can participate on a joint venture basis on known risk levels and which could have a very healthy and profitable future.

…

“1.     [“Belokon Holdings” – the name of the vehicle Mr. Belokon was then envisaging would be used to acquire his interest in Blackpool FC] will subscribe for new shares in [Blackpool FC] equal to 20% of the enlarged share capital, subject to compliance with rules relating to minority shareholders and such that [Segesta] retains at least 75% of the enlarged share capital. The total subscription price payable by [Belokon Holdings] will be £4,500,000.

The retention of a 75% holding by [Segesta] is necessary to enable the new venture to utilise the existing £10,000,000 worth of tax losses. These losses would not be available otherwise or to a newly established joint venture company as was initially proposed.

2.       [Blackpool FC] will grant [Belokon Holdings] an option to subscribe for further new shares, subject to compliance with rules relating to minority shareholders, such that BH’s total holding after such exercise will be the same percentage of the enlarged share capital of [Blackpool FC] as that held by [Segesta]. The total subscription price payable on the exercise of this option will be the nominal value of the new shares. (This will be approximately £15,714 on the basis of the current capital structure.) To preserve the tax losses, this option may only be exercised in the event of and conditional upon the admission of [Blackpool FC’s] entire share capital to trading on a recognised stock exchange or the Alternative Investment Market.

…

4.       [Belokon Holdings] and [Segesta] will enter into a shareholders agreement relating to the operation of [Blackpool FC]. Its provision will include agreements that:

…

4.4     [Belokon Holdings] will be entitled to appoint a director of [Blackpool FC] and for so long as that person is Valeri Belokon for him to hold the title of “President of Blackpool [FC]” or “Chairman” or such other similar title as is required by [Belokon Holdings] and agreed to by [Blackpool FC] (such agreement not to be unreasonably withheld or delayed).

5.       [Blackpool FC] will enter into an agreement with (XYZ) Limited under which (XYZ) Limited will provide the services of Valeri Belokon as a consultant to assist [Blackpool FC] with its business strategy and in particular the development of its relationships with overseas clubs and players. The fee payable to (XYZ) Limited will be an amount equivalent to 50% of the net profits of [Blackpool FC] each year (subject to the adjustments referred to at clauses 4.1 and 4.2 above and after deducting any dividends to [Belokon Holdings]).

6.       [Blackpool FC] will enter into an agreement with (ABC) Limited under which (ABC) Limited will provide the services of Karl Samuel Oyston as a consultant to assist [Blackpool FC] with its business strategy and in particular its UK operations. The fee payable to (ABC) Limited will be an amount equivalent to 50% of the net profits of [Blackpool FC] each year (subject to the adjustments referred to at clauses 4.1 and 4.2 above).

7.       The agreements referred to at paragraphs 4 and 5 above will include provisions that if (XYZ) Limited waives its consultancy fee (or any part of it) in any year, then (ABC) Limited will do likewise.”

i)                   The purchase of only 20% of the shares in Blackpool FC for the same (previously agreed) consideration (£4.5 million) together with an option to acquire further shares leading to parity between Belokon Holdings and Segesta for a nominal amount.

ii)                 The reference to a shareholder’s agreement between Belokon Holdings and Segesta.

iii)               The attempt to provide a 50% - 50% divide of the profits of Blackpool FC through the “consultancy” agreements in clauses (5) and (6).

“If you still want to form a new company, we will try to accommodate this but you will now know that there are some intrinsic problems which are difficult to overcome. Firstly in the history of the football industry no one has ever transferred players from one company to another in the circumstances that we are discussing. To attempt to do so would be costly and ultimately, we are advised by the Football League’s lawyers, unsuccessful. Secondly we do have a serious problem where we may not be able to exploit the very substantial tax losses that currently exist within Blackpool FC. We believe we have a very good chance of using these tax losses if we do our venture within the Football Club. Any withdrawal of these tax losses will affect us both adversely, although we are still attempting to find a route through this.

…

May I stress, if I was in your position with any significant reservations about a transaction or deal, then I simply wouldn’t do it. So I fully understand your stance and should this prove to be a stumbling block to our joint venture, it certainly will not affect our friendship or the prospect of our doing other business in the future. Both Karl and I are very comfortable and happy with you, your colleagues and your organisation and furthermore we trust you. It is unlikely that we can have such a relationship with another buyer and it is almost certain that we will not do business with anyone else if we cannot do business with you. Therefore there is no pressure upon you to make a quick decision. The only pressure upon us all is the pressure of the fans and the media.

…

If the current proposals which I faxed to you on Friday [This is the draft agreement described at paragraph 69 above] were to materialise, then on flotation you would enjoy the same number of shares and the same capital gain as myself, even though our total investments would be substantially unequal. I have agreed to this because I really believe that you and your team and Karl and I can work together and create an exciting outcome and if we were successful in reaching the Premier League, the sums would be so substantial that I would not be concerned about the extent of my past investment. I was able to confirm with Karl and advise your colleagues over the weekend that on joining the Premier League each club receives approximately £37m from television rights alone. This includes two parachute payments in the event that the club is relegated after one season. This figure of £37m does not take into account the increase in sponsorship, ticket sales and other associated revenues which would increase dramatically. It is my view in these great circumstances that Blackpool Football Club would be worth not less than £100m and probably a great deal more. I stress this is my opinion. I have never mentioned this potential before because I am sure, like me, you are aware of it and also aware of what our relatively modest investments could produce if we are successful.”

As I have noted, Mr. Owen Oyston is capable, when he wants to be, of both charm and persuasion, and this is an example.

“As a result of our negotiations on purchase of shares of Blackpool [FC] we would like to agree on the following terms.

As we have already discussed [Belokon Holdings] will purchase shares of [Blackpool FC] equal to twenty per cent of the share capital. At the same time [Belokon Holdings] and [Segesta] would conclude the Intent agreement about purchasing the additional amount of [Blackpool FC] shares. So the amount of bought shares of [Blackpool FC] and the amount of shares going to be purchased by [Belokon Holdings] would constitute the total amount of shares mutually agreed going to be the property of [Belokon Holdings].

[Belokon Holdings] would like to pay for twenty percent of [Blackpool FC] shares proportionately to the amount of these shares taking into consideration the total price of [Blackpool FC] shares mutually agreed.

At the same time [Belokon Holdings] would issue a long-term credit to [Segesta]. This credit would be issued in the amount of the rest sum of the total price of [Blackpool FC] shares determining the obligation of [Segesta] to use this credit as payment for purchasing rest of [Blackpool FC] shares according to Intent agreement.

So the price of the purchased shares of [Belokon Holdings] and the credit amount issued to [Segesta] together would constitute the total price of [Blackpool FC] shares mutually agreed.

In order to secure the credit obligations [Segesta] should issue a pledge in favour of [Belokon Holdings]. Besides that [Belokon Holdings] would like to receive from [Blackpool FC] and [Segesta] approval that there are no additional obligations of [Blackpool FC] not announced to [Belokon Holdings].

“We can confirm that there are no off balance sheet liabilities of [Blackpool FC].

All the assets and liabilities are clearly disclosed on the balance sheet on the sets of financial statements that you have received. There are a number of post balance sheet events which will/have affected [Blackpool FC] which are:

1.       [Mr. Owen Oyston] has made an additional temporary loan to [Blackpool FC] of £210,000 which is to be repaid by the 31^st May 2006.

…

4.       The overdraft facility of £250,000 is in place until the end of June 2006. This is currently fully utilised but will be repaid by the 30^th June 2006. This is a working capital arrangement.

On the balance sheets you have received, you will have noted the loan between [Blackpool FC] and [Segesta] and the loan to [Mr. Owen Oyston]. The current arrangements under which [Blackpool FC] is entitled to retain income of serviced accommodation are terminable at any time at the sole election of [Segesta]. In the interim the property related income will be used to repay the loan to [Segesta]. There will be no call upon the football, shop or Gold Bond revenues detailed on the schedule to repay the [Segesta] loan. Owen Oyston will not seek repayment of his loan (other than the temporary loan of £210,000) unless agreed by the Board.”

i)                   Provides for the purchase of 20% of the enlarged share capital in Blackpool FC for £900,000. This is a figure that is one-fifth of the original £4,500,000 consideration agreed. It is unclear why a figure of one-fifth (rather than two-fifths) was selected.

ii)                 Provides for an option to subscribe for further shares so that, after exercise of the option, Belokon Holdings’ share in Blackpool FC “will be the same percentage of the enlarged share capital of [Blackpool FC] as that held by [Segesta].” The price of the option, on exercise, was £2,600,000. This would – on the exercise of the option – give a total consideration of £3,500,000. The option was only exercisable on the satisfaction of certain conditions, notably the utilisation of the Tax Losses and the listing of Blackpool FC’s shares.

iii)               However, pending the exercise of the option, with immediate effect, Belokon Holdings would lend £2,600,000 “which shall be interest free and repayable only on the completion of the exercise” of the option. The money lent was to be used solely for the purposes of Blackpool FC.

iv)               Provides for an additional loan, in the amount of £1,000,000 made by Belokon Holdings to Segesta “for construction purposes”. The aim was to use the money to construct the South Stand at the stadium, and the draft agreement envisaged repayment of the loan over a 20 period out of the serviced accommodation at the South Stand.

“We are incorporating the points you have raised within the existing agreement and we will let you have a copy of this amended agreement, incorporating your points, as soon as possible.

I left a hand written document with Valeri for his consideration. Valeri promised to send a copy of it as I did not retain one for myself. Could you please fax a copy to me? Does Valeri wish to incorporate my proposal also within the terms of the agreement of not?”

This “hand written document” is also referred to in the next communication described. It has not been possible to identify the document.

“Tomorrow Valeri will arrive in Riga and I hope he will give me the handwritten document you have mentioned in your letter.

Today I have conversation with him. He is interested to start the process as soon as possible. In such order he think that better is to separate the purchasing process in steps. Valery’s idea is that these steps wouldn’t be compulsory connected one with other. In first step he would like to buy 20% of Football club shares in way of taking part in new shares emission. After that you and Valeri would look at the results of first step and make decision about way and urgency of next steps.

Before starting to prepare any documents connected with upper mentioned Valeri’s idea I would like to know how do you feel about such schedule of deal.”

“The story continues…please see the attached email below. Could you call Owen on his mobile when you receive this email…”

“Needless to say in answer to your question we feel entirely relaxed about your proposals of proceeding step by step in order to achieve the fulfilment of our agreement.

The whole of the Oyston family are delighted to embrace Valeri and his colleagues into this exciting venture.”

i)                   Just as suggested in Ms. Lase’s letter of 8 May 2006, the parties were proceeding step-by-step, agreeing what could be agreed, and continuing to work on that which was not yet agreed – namely, the option and option-related loan.

ii)                 Secondly, unless seen as two parts of the triptych of agreements described in paragraphs 69 to 79 above, with a third instalment to come, the agreements make no sense:

a)                 There is the sheer uncommerciality of the First Vlada Loan Agreement.

b)                 There is the fact that, when one compares the deal that was reached on 5 June 2006 with what was proposed early on in negotiations, Mr. Belokon got very much the worse of the bargain. Early on in the negotiations, Mr. Belokon was paying £4.5 million for just under 50% of Blackpool FC; by this stage, viewed on the face of the documents, he was paying £2.8 million for 20% of Blackpool FC, with the dubious prospect of receiving £1 million back after many years assuming the First Vlada Loan was repaid. Looking at the price Mr. Belokon was paying for each percentile of Blackpool FC:

i)                   Under the original proposal, Mr. Belokon was paying about £98,000 for each percentage share in the company (i.e. £4,500,000 / 46%).

ii)                 Under the Subscription Agreement and the First Vlada Loan Agreement, Mr. Belokon was paying about £140,000 for each percentage share in the company (i.e. £2,800,000 / 20%).

i)                   In an interview with the Blackpool Gazette dated 8 July 2006, Mr. Karl Oyston described the deal with Mr. Belokon as “an initial 20% investment, a take of the football club shares, with an option to take 50%”. There is also an interview with Mr. Belokon in the Gazette of 12 June 2007, where Mr. Belokon is quoted as saying:

i)                   As at the conclusion of the Subscription Agreement and the First Vlada Loan Agreement, the parties had in mind the agreement of an option to the benefit of VB Football Assets for the purchase of further shares in Blackpool FC so as to give VB Football Assets a parity of interest with Segesta. I infer that the consideration would have been £1,700,000 and that there would  have been an option-related loan in this amount.

ii)                 In addition, either as part of this option agreement or as a separate self-standing shareholders agreement, VB Football Assets’ position was going to be protected by the granting of certain powers.

iii)               The parties’ intentions in regard to the option were thwarted by the advice that the granting of such an option and the granting of such powers (whether in a shareholders agreement or otherwise) might cause the benefit of the Tax Losses to be lost.

iv)               The parties therefore decided that the deal would continue, but informally, in order to preserve the Tax Losses. There was a gentleman’s agreement along the lines of that pleaded in paragraph 17 of the Petition. Contrary, however, to what is pleaded in paragraph 17, I do not consider that this gentleman’s agreement was concluded at the time of the Subscription Agreement. For at least a couple of months, the plan was for there to be a third agreement in the form of an option and option-related loan. It was only when it was clear that the option would be unwise in terms of Blackpool FC’s Tax Losses that the parties chose another course. That course was to execute the Second Vlada Loan Agreement which brought the consideration up to £4.5 million, but to leave all other matters – like the option and the restrictions on Segesta - at an informal level. I consider that that decision was reached at the meeting that took place at the Fenwick Arms “just before Karl’s significant birthday”.

i)                   Mr. Belokon would advance the sum of £5,750,000.

ii)                 This money would be used solely and exclusively for the construction and fitting out of the South Stand.

iii)               The profits of the South Stand – from football revenue, commercial revenue and all other sources – would, after payment of 10% of the profits to Blackpool FC, be split equally between Mr. Belokon and Segesta for a term of 99 years.

i)                   Referenced in the recitals the Subscription Agreement, the First Vlada Loan Agreement and the Second Vlada Loan Agreement. The South Stand Agreement stated that, under these agreements, the sum of £1,850,000 remained to be repaid by Segesta. (This figure was calculated as the £1,000,000 due under the First Vlada Loan Agreement, and the £850,000 due under the Second Vlada Loan Agreement. Although the Second Vlada Loan Agreement was in the amount of £1,700,000, half of this was a gift to Blackpool FC and not repayable by Segesta: see Section C(8)).

ii)                 Identified as its purpose an agreement “to fund future development of the South Stand and South West Corner Stand at Blackpool [FC]”.

iii)               Provided that the sum of £4,750,000 would be advanced by Ms. Belokon for this purpose, while Segesta would commit £1,000,000.

iv)               The agreement contained the following profit share provision:

“The Parties together agree that after the deduction of (i) all items of revenue expenditure (and any expenditure of a capital nature in excess of the amounts provided by the parties pursuant to this agreement) in relation to the South Stand and South West Corner and (ii) all such monies as are required to repay monies to any Mortgagee on the terms of a mortgage advance made to Segesta in connection with the South Stand and the South West Corner or either of them and (iii) any corporation or other taxes that may fall due, from all income of the South Stand and the South West Corner (including income from football revenue, commercial revenue and all other revenue sources), that the remaining income (“the Income”) shall be divided annually between the Parties on a 50/50 basis for a term of 1000 (on thousand) years from the date of this Agreement, such equally divided payments to be made within 21 days of the certification of Income by [Blackpool FC’s] Auditors. The share of such net income that would otherwise be an entitlement of [Ms. Belokon] shall be treated as a repayment of the [sums due under the First and Second Vlada Loan Agreements] until satisfaction, and shall then be treated as repayment of the South Stand Loan until satisfaction and then the remainder shall be treated as income of [Ms. Belokon].

v)                 Clause 18 provided that:

“This Agreement supersedes all previous Agreements between the Parties and in the case of any conflict between this Agreement and any other Agreement between the Parties, this Agreement shall prevail save that insofar as the previous Agreements between the Parties have not been varied or modified by this Agreement, then the previous Agreements shall remain in full force and effect.”

It is difficult to know what to make of this provision. Because there was some debate as to the effect of the First South Stand Agreement on the First and Second Vlada Loan Agreements, I should say that it is my concluded view that these agreements both remained in force, but their repayment provisions were varied so that they were to be repaid out of the profits of the stands as defined in this agreement.

(11)      The Second South Stand Agreement

i)                   VB Football Assets loaned £4,750,000 to Segesta “for the construction and fitting out of the South Stand and South West Corner” at Blackpool FC (Clause (1)).

ii)                 Segesta committed £1,000,000 to the construction and fitting out of the South Stand (Clause (2)).

iii)               The share in profits was as per the First South Stand Agreement (Clause (6)(A)).

iv)               The provision regarding the superseding of prior agreements is similar (Clause (23)).

The benefit of this agreement came to be assigned to Baltic International Bank in 2016. The importance of this will become apparent later on. For the present, all that needs to be noted is that there was litigation concerning the entitlements under the Second South Stand Agreement between Baltic International Bank and Segesta in the Queen’s Bench Division of the High Court (Manchester District Registry). That resulted in a judgment of Her Honour Judge Moulder (as she then was) under neutral citation [2017] EWHC 339 (QB). As I understand it, permission to appeal that judgment to the Court of Appeal has been given.

(12)     Ms. Beinare’s email regarding the ownership of Blackpool FC

“The initial intention of Valeri was to acquire in its ownership 50% of the share capital in [Blackpool FC]. At present he owns only 20% and all the other invested sums of money are not invested in share capital, but issued as loans. Such situation is because of UK legislation rules that allow to surrender the [Blackpool FC] losses to Segesta if Segesta owns not less than 75% in share capital of [Blackpool FC].

We understand the importance to preserve Segesta’s rights to use [Blackpool FC’s] losses, still we are thinking about legal ways how to change the present situation more closer to the initially planned one. We are having an idea that 30% of share capital of [Blackpool FC] could be pledged in favour of Valeri to ensure the loans. To my mind, in this situation, Segesta could still use the rights to have taxation relief due to surrender of losses. At the same time, the pledge of the shares would bring the present situation closer to the initial agreement between Valeri and Mr. Oyston.

I would like to get your opinion from legal point of view regarding possibility to pledge 305 of [Blackpool FC] share capital in favour of Valeri and at the same time to preserve Segesta’s rights to use the [Blackpool FC] losses.”

“When the initial, principal Agreement dated the 5^th June 2006 (“the Agreement”) was signed, there were exhaustive and detailed discussions about this point, over a period of many weeks.

When the Agreement was signed, it was not possible to accommodate what you are now proposing, either in writing or orally, as such an arrangement would have damaged the tax losses available and this would have caused Owen substantial losses and, indeed, would cause Mr. Belokon losses in the future from his income from the South Stand and the South West Corner.

The tax advice we received at the time of the Agreement, which Owen, Mr. Belokon and his advisers accepted, is that we could not give a written or even an oral agreement without losing the benefits of the accumulated tax losses, which would result in a very substantial loss of income for Mr. Oyston and so that is one of the reasons why the status quo was preserved on the signing of the Agreement. Indeed, as I said previously, Mr. Belokon will benefit substantially from these losses when the [South West Corner] and [South Stand] come on stream in terms of revenue.”

(13)     The player trust

(14)     The board meeting of Blackpool FC on 12 November 2009

(15)     The Zabaxe debt

“(a)    [Blackpool FC] enters into a novation agreement with [Zabaxe] and [Segesta] whereby [Zabaxe] releases [Blackpool FC] from its debt of £944,652.28 in consideration of [Segesta] accepting liability for the debt in place of [Blackpool FC] and promising to repay the same to [Zabaxe].

(b)     the Company Secretary and Directors are authorised to carry out such steps and execute such documents on behalf of [Blackpool FC] required to implement these resolutions.”

(16)     Blackpool FC’s promotion into the Premier League

(17)     The Enterprise Investment Scheme case

(19)     The Dorchester meeting: 23 May 2010

(i)        The minutes

i)                   Mr. Owen Oyston was under some financial pressure, if only because of the EIS Decision. He was concerned about having to realise assets, and wanted a loan from Blackpool FC. Mr. Belokon was “non commital”. I find that Mr. Belokon did not, on this occasion, agree to any loan or other payment out of Blackpool FC.

ii)                 Mr. Belokon’s disinclination to accede to a disbursement of significant monies out of Blackpool FC was something of critical importance to Mr. Owen Oyston, although I equally have no doubt that Mr. Owen Oyston did not let this show. As subsequent events demonstrate, Mr. Owen Oyston took steps, very shortly after this meeting, to progress payments out of Blackpool FC. As will be seen, the Belokon Side were not involved in these steps, and this was clearly deliberate on the part of the Oyston Side.

iii)               In his response to Mr. Belokon, Mr. Owen Oyston continued to use the Tax Losses as a reason for keeping Mr. Belokon’s shareholding at 20%. The Tax Losses, of course, were no longer a problem: Blackpool FC would itself be receiving monies from the Premier League in such an amount that the Tax Losses could be used in relief of the charge to tax on these sums. (In the event, that is exactly what happened.) I find that the reliance on the Tax Losses was nothing more than a device to avoid discussion of the point at this meeting.

(20)      Getting money out of Blackpool FC

“Can you let Owen and Ian Cherry have copies of the notes Owen gave you at the last meeting and the latest draft of the Trust document as soon as possible? Owen is wanting to meet with you, Ian and Rod on the 10^th June, probably at Sharrow Bay now, with an overnight. Is this ok for you? Ian will be contacting you today to discuss how Owen can pay the tax from the moneys coming into [Blackpool FC]. Ian thinks that [Blackpool FC] could buy the shares back and this would not have tax implications and be a simple way of sorting out the problem. Furthermore, the £944K that is now owed as a loan from Zabaxe to Segesta, could also be repaid with the money coming out of Zabaxe via Owen’s loan account. Please discuss these matters with Ian because Ian is having a tel con with Michael Sherry, our barrister, tomorrow and I am sending a copy of this note, in strict confidence, to Ken and to Rod asking them to be present at the tel con.”

“Howard, I forgot to mention to you and Ian about the £4,361,000 that is currently owing to Protoplan from [Blackpool FC]/Segesta. What would happen if this loan was repaid by [Blackpool FC] in one fell swoop and furthermore would it be possible to sell further shares to Valeri which of course would reduce my 75%?

As you will appreciate, Valeri is anxious to become a full partner in terms of shares, even though there is a contract signed which is valid for the next few years and which restricts him to 25%. Can you put this on the agenda as well please for our meeting at Sharrow Bay on the 10^th/11^th.

Also, Ian, can you ask Michael Sherry the ramifications of repaying this £4.36m and how would it affect my tax situation?

I am hoping Ian can put a note to Michael Sherry before the tele con setting out these various points. Which would include also, are there any grounds for appeal? I have told Carol to tell HMRC we are considering an appeal, but if they are realistic on the repayment programme of the tax, we might not appeal.”

“Owen

This loan is repayable by Segesta to Protoplan and  could be repaid by Segesta without any tax implications. However Segesta does not have any funds. It previously assigned the benefit of the stadium rental to [Blackpool FC] and this has reduced the loan due from [Blackpool FC] to Segesta to aound £2,000,000. You may wish to consider rescinding the arrangement and taking the rental receipts into Segesta immediately.

The overall problem is that any income from football will go into [Blackpool FC] and it is my understanding that you agreed not to take this money out when you agreed the loan arrangement with Valeri Belokon. However, this year’s income will almost certainly utilise all the tax losses available and leave [Blackpool FC] with a considerable profit. It will be possible to declare a dividend and pass 80% of the profit to the holding company. Thereby putting Segesta into funds. Not unreasonably when you consider that Segesta will have to build the Stadium to accommodate the Football Club. I have asked Rod to let me know when he has further details about the timing of the receipts.”

i)                   First, the Zabaxe debt described in Section C(15) in the amount of £944,642.28. It will be recalled that the discussions regarding this debt were that it should not be paid by Blackpool FC.

i)                   It is entirely unclear whether these were debts owed by Blackpool FC to Segesta, and I am not prepared (having seen no evidence on the point) to assume that they were.

ii)                 Even if they were, they were not disclosed by the Oyston Side as part of the disclosure preceding the conclusion of the Subscription Agreement, and the Subscription Agreement expressly regulated how the debts that were disclosed should be repaid.

iii)               Furthermore, the Subscription Agreement expressly provided that revenues generated by Blackpool FC’s football team should not be used to discharge such debts.

“With reference to your question about ‘drawing money out’, there is nothing I can see that would prohibit this. The loans are what they are – loans and they would not normally and do not contain any provisions preventing or restricting such a withdrawal. The [Subscription Agreement] deals with the acquisition of shares by VBFA and has nothing to do with distributions or drawing money out, which are considerations of the Board.”

“Jim

You said yesterday that there were no constraints. Is that not the case? If there are constraints it won’t prevent [Mr. Owen Oyston] taking out a loan against cash in the football club will it? Also will it prevent Zabaxe being repaid? Also will it prevent £4.m+ which is owed to Protoplan being repaid?”

Mr. Oyston was thus contemplating the payment out of Blackpool FC of around £10 million – about £1m to Zabaxe; a loan of about £5m to himself; and a payment to Protoplan of about £4m.

Mr. Cherry replied:

“The problem we face is that Segesta has no funds and therefore cannot pay any monies either as loan repayment, trade debt repayment or share repurchase. Any funds are likely to arise in [Blackpool FC]. Therefore we should immediately rescind the arrangement to let [Blackpool FC] have the use of the stadium income. This can then accrue in Segesta before being used to pay Protoplan as at present.

A separate agreement needs to be negotiated with Belokon Holdings to allow the repayment of the Segesta outstanding loan. This is I understand from Rod around £2,000,000.

A further method needs to be agreed to realise funds into Segesta from [Blackpool FC] both to facilitate the stadium development and the repurchase of [Mr. Owen Oyston’s] shares.

As an alternative [Mr. Owen Oyston] could consider the sale of some of his shareholding to [Mr. Belokon] to make him an equal partner in the whole business…”

“Furthermore I understand that Ken [Chadwick] and [Mr. Owen Oyston] and Ken and yourself had conversations yesterday, to which I was not a party and of which I was not aware when sending my reply to [Mr. Owen Oyston], but having spoken to Ken this afternoon, his understanding of the situation was that Segesta required monies to:

i)       fund the remainder of the construction of the Stadium and

ii)      re-purchase by Segesta of the shares it issued to [Mr. Owen Oyston] in December 1999, at the same consideration i.e. £4,147,413 and

iii)     repay to [Zabaxe] the loan due from [Segesta] under the Novation Agreement i.e. £944,653.28 and

iv)     repay in full the outstanding monies due to Protoplan.

These monies would presumably come from the funds to be received from the Premier League by [Blackpool FC] but the question is: How can this be done? Do you have any ideas?”

(21)     The tax meeting

“[Mr. Belokon] wants parity in shares although there is no agreement for this but no price agreed.”

“I intend to put this motion to the board for their approval. It is likely that there will be an attempt to control the payments made to Segesta which I will resist because it is important that we have unbridled access to funds in view of the urgencies involved and the new season moving ever closer.

It is likely that they will ask (a) why do we need to put the money into Segesta and (b) why can’t we control it as a board as payments are required etc etc

My answer is that Karl must be unfettered in terms of his right to his ability to sign contracts and daw down monies without having rigid control, although I am entirely relaxed that the board appoints an independent person (and Normunds) to oversee the spend and to report back to the board accordingly.

For possible inclusion to be discussed:

Furthermore should I say that Owen wishes to borrow up to £5m over a period of time for personal reasons and he would like to draw down part of the £5m from this first tranche of £13m (probably in the region of £2.5m - £3m).

Could Ian and Howard explain the implications of this; what interest I should pay for it (if any) and how we get the money to the IR tax free; and indeed do we advise them and get their agreement in advance?

The Appeal that we intend to make against the Tribunal’s decision will at least give us time and perhaps a chance to negotiate with the IR, so will be asking Ken to drive on with this appeal immediately.”

(v)        The “aide memoire” attached to Mr. Owen Oyston’s email of 22 September 2010

“Draft 1 : 30^th June 2010

My Dear [Mr. Belokon],

May I confirm the discussions and agreements that we reached in principle at our informal meeting at Claridge’s Hotel in London on the 25^th June 2010?

This is not a comprehensive list but covers some of the main points which will come into operation after receipt of sufficient monies coming into [Blackpool FC] from the Premier League.

1.      It was agreed to repay to [Mr. Belokon] or to his Companies certain monies as follows:

(A)  The sum of £1,000,000 loaned to [Segesta] under the short form of Agreement dated the 5th June 2006

(B)  The sum of £850,000 being part of the monies the subject of the loan to [Segesta] under the Agreement dated the 14^th 2007.

(C)  On releasing the South Stand and South West Corner Stands back to Segesta, Segesta will repay £4,750,000 subject to tax advice from Baltic International Bank (“BIB”) and [Mr. Cherry] and/or [Mr. Belton].

2.      It was agreed that Segesta will complete the South Stand and the South West Corner stand and erect the new temporary de luxe stand with roof etc to accommodate over 5,000 people and the media centre.

3.      [Blackpool FC] will loan £13,000,000 to Segesta to carry out the above and its other obligations agreed at the meeting.”

(vi)       Evidence given in cross-examination

(24)     Preparations for making payments out

“Can you confirm that everything is in order with this transaction and we can now proceed to draw out £6.9m from [Blackpool FC] to Segesta and other companies as on the 6^th August 2010?”

This email makes no mention of the intended purpose of the £6.9m drawing. It is addressed to no-one on the Belokon Side.

“Yes. Funds can be withdrawn from [Blackpool FC] to Segesta and then to the various companies but there should be letters between the companies asking for funds to be paid to them to show an audit trail”.

“Now that the time is upon us when the first receipt of monies from the Premier League will be forthcoming it is worth reiterating the strategy that we put in place in June.

As you remember we transferred your Protoplan shares into a trust. That triggered a capital gain at the favourable rates that existed of 18% before the budget. That gain will be due for payment on the 31^st January 2012.

The second part of the strategy was for Segesta to repay Protoplan the outstanding monies due of around £4.6million. [Mr. Dyer] has the exact amounts.

In addition Segesta was to repay around £900,000 owed to Zabaxe and £250,000 owed to [Mr. Owen Oyston] personally. Both of these amounts would be transferred to [Mr. Owen Oyston] in settlement of his loan accounts.

You would need to give [Mr. Dyer] instructions to make the transfers when the Premiership monies are received.”

“As you are aware, I have loaned to [Blackpool FC] various sums over the past few years. These loans were made because of my love for the Football Club without any thought of repayment.

Now that we have achieved our dream of entering the Premier League I am seeking repayment of the loan moneys totalling £275,942.28 and I therefore give notice of calling in the loan and would be pleased to receive the funds within the next thirty days.”

“…

6.       £4,200,581.63 owed to Protoplan for construction.

7.       £944,652 owed to Zabaxe.

8.       RD charged with raising these cheques after clearing with HB/JR.

…

10.     Have agreed to pay [Mr. Belokon] the money he put into the south stand over the year 2010/11 rather than from this first tranche.

11.     [Mr. Owen Oyston]/[Mr. Cherry]/[Mr. Belton]/[Mr. Dyer]/ to meet over dinner in private room next Thursday. Meet 2pm at Clifton Arms. [Mr. Dyer] will prepare an agenda for the meeting. [Mr. Rawlinson]/[Mr. Stephenson] to attend.

12.     All funds [Mr. Karl Oyston] needs must come out of Segesta apart from the bonuses. Segesta cannot pay these direct as in the future if there are problems creditors could come back against [Blackpool FC].”

(25)     The meeting on 12 August 2010

“Flip 850 (1), 1000 (1), 4750 (2), repayments to VB

Repayments to PP 4.2 (1), OJO/ZAB (2) – schedule staggered”

These lines appear to relate to the “strategy” of making repayments to VB Football Assets on the one hand and to Mr. Owen Oyston and his associated companies on the other.

(26)     Mr. Karl Oyston’s position as chairman

“…the remaining directors of [Blackpool FC] are yourself, [Mrs. Oyston], Gavin [Steele], Normunds [Malnacs]. Without a chairman it means the Oyston family no longer control this Board. You may wish to consider appointing a nominee as soon as possible.”

(27)     Mr. Malnacs’ query regarding the liabilities of Blackpool FC

“[BLACKPOOL FC]

£                                   

[Mr. Owen Oyston] Loan account                                                           275,942

SEGESTA

[Mr. Owen Oyston] Loan account                                                           562,506

[Protoplan] ([Mr. Owen Oyston])                                                            4,200,582

[Zabaxe] ([Mr. Owen Oyston])                                                                944,652

[Ms. Belokon] Loan account                                                                   1,850,000

[VB Football Assets] Loan account                                                                  4,750,000”

(28)      The payment of the £4.2 million Protoplan debt and the initial response of the Belokon Side

“Following our earlier discussions, this is a formal notification that on September 17, 2010 Blackpool [FC] has made a payment in amount of GBP 4,200,581.63 to Segesta…This transaction seems to be out of scope of the concluded agreements between the two major shareholders. Therefore, I would like to draw your attention for a need for a board meeting to resolve the issue and sign necessary agreement, if deemed necessary.”

“Hi all, please find below a schedule of the monies I wish to repay to the shareholders along with the timing of payments. This process will involve the dismantling of at least two of the shareholder agreements along with no doubt many other issues that Normunds, Rod and myself will work on so that solutions and ongoing policies can be agreed. To that end I have asked Rod to prepare a schedule of income that should rest with both [Blackpool FC] and Segesta along with a suggestion on how future joint costs should be apportioned. I have asked Rod to conduct an exercise to evaluate the best way to deal with the areas that [Blackpool FC] currently uses within the stadium that are also none match day income generators and I will formulate a strategy with Normunds regarding these.

1/    4,200,000 Segesta paid

2/    1,850,000 Vlada Jan 10^th 2011

3/    4,750,000 VBFA Jan 30^th 2011

4/    562,506 OJO Jan 30^th 2011

5/    944,652 Zabaxe Aug 15^th 2011

6/    275,942 OJO Aug 15^th 2011

The concept is relatively simple and the issues are also relatively easy to resolve. I would like to propose that following our internal deliberations we have a meeting to discuss the issues we identify along with any others we fail to.”

“Normunds [Malnacs] informed the other board members by way of a written memo that this payment had never been approved and was out of the scope of the [Subscription] Agreement. I then asked Karl and Owen to meet me in Latvia to discuss why this payment had been made…”

“Mr. Belokon arranged a meeting with Karl Oyston and Owen Oyston in Riga on 7 October 2010 to discuss the payment, which I also attended. It was clear to me before that meeting and at all times that Mr. Belokon had never approved the contents of Owen’s aide-memoire. It was during this visit that Karl and Owen Oyston explained that the purpose of the £4.2 million payment was to settle an undisclosed debt owed by Segesta to Protoplan Limited, a company owned by Owen Oyston. Mr. Belokon was not happy with the Oystons’ actions and made this clear at this meeting. The Oystons seemed to think that somehow the payment of £4.2 million was within the spirit of the agreements between [VB Football Assets] and [Blackpool FC] and Segesta.”

(30)     Debate regarding the nature of the Protoplan payment

(i)         Communications between the Oyston Side and the Belokon Side

“The balance sheet that I sent through does reflect reality and follows advice from the senior partner [that is, Mr. Cherry] at [Blackpool FC]’s external auditors. The amounts forwarded to Segesta, for payments and construction costs relating to the stadium development, are shown as advanced management fees.

This will have significant tax benefits to [Blackpool FC] when these fees are realised through the P&L as management charges from Segesta (subject to the Boards approval) as they will be taxable expenses and hence give [Blackpool FC] future savings in corporation tax.”

This email classified the Protoplan payment as an advanced management fee.

“Thank you for useful explanation. However, what is certain difference between 1,5M advance which was used for the construction of the East Stand and was approved the board and 4,2M payment whose status is still to be resolved.”

(ii)       Debate internal to the Oyston Side

i)                   The first email is from Mr. Cherry to Mr. Owen Oyston:

“Dear Owen

You have asked me to comment on the 2006 agreement between yourself and Valerie Belokon. As you have the time when the agreement was signed there were outstanding loans between yourself and BFC and also between Segesta (then BFC Properties Ltd) and BFC.

In addition there was an outstanding debt (not a loan) between Protoplan and Segesta for the building of the original two stands.

The loan agreement provided that no monies outstanding between BFC and Segesta should be repaid other than out of the proceeds of the rental income from the PCT. The mechanism was that the rental income belonged to Segesta but Segesta assigned the right to BFC which then used the money to repay the loan account between BFC and Segesta then use the monies to pay Protoplan. Unfortunately Protoplan was not party to the agreement and had always expected that Segesta would obtain bank borrowing to repay the cost of building the stadium. This proved difficult for Segesta and Protoplan was forced to take a long-deferred repayment of its debt. At May of this year Protoplan was still owed around £4.2 million.

When the club obtained promotion to the Premier League it was required to carry out in a very short time a number of building projects including building a new stand and upgrading certain facilities and finishing the fit out of the south and south-west stands. Due to the outstanding debt with Protoplan it was felt that it would be difficult if not impossible to find a firm willing to undertake this work if the previous construction work was not fully settled. The decision was made therefore to loan monies from BFC to Segesta to repay the Protoplan debt and fund the construction and upgrade of the stadium.

My understanding is that this does not contravene the 2006 agreement as all the loans outstanding at that time have been dealt with in accordance with the agreement.

This is an entirely new loan say the 2010 loan which will be shown as such in financial statements. It is up to BFC and Segesta to decide how the loan should be repaid and whether or not interest should be payable by Segesta. However I would point out that BFC are the main beneficiary of the work done initially by Protoplan and then later to complete the stadium as without this work they would not be able to play in the Premier league and qualify for the substantial broadcasting payments and prize monies of around £100,000,000 which will follow. As such the funding of the construction works and repayment of an outstanding trader debt to Protoplan seems a small price to pay.

I would also point out that when the original agreement was drafted in 2006 neither party envisaged that the club would reach the Premier league in 2010 nor that the prize for doing so would be so great.

Please let me know if I can assist further.”

ii)                 The second email is from Mr. Dyer to Mr. Owen Oyston:

“I currently have the amounts paid to Segesta of 4.2M and the 1.5M for the East Stand has separate loans to Segesta on the balance sheet.

Following recent discussions with [Mr. Owen Oyston] and an in-depth discussion with Ian Cherry, there have been suggestions on how these should be recorded in the accounts of [Blackpool FC].

Ian’s conclusion is that these should remain on the balance sheet as loans but should be consolidated into one low from [Blackpool FC] to Segesta of 5.7M titled ‘Stadium development loan 2010’ as Segesta needed these loans to complete paying for and constructing the Stadium for the benefit of [Blackpool FC].

Then Segesta can charge management charges for the stadium use, which can be used to offset elements of these loans or even be paid.

A loan agreement between [Blackpool FC] and Segesta therefore for the above amount to reflect this does need to be drawn up.

The East stand alone cannot be taken out of the balance sheet and put through the P&L as a management charge cost item as we had previously discussed, as these costs may be deemed to be of a capital nature.

In accordance with the above I have prepared the attached draft balance sheet, which after approval I will circulate to Normunds and the Board.

As far as effect on the profit forecasts I will also be circulating, I will make it clear that they could be subject to management charges from Segesta this year for use of the stadium which would reduce the profit, or shall I leave that out for now for the Board to discuss?”

iii)               The third email is from Mr. Cherry to Mr. Owen Oyston:

“Owen

1.  The [Blackpool FC] will receive at least £100,000,000 income from the Premier League in broadcasting rights and prize monies even if they finish last and are relegated after this year. That income is dependent upon the stadium meeting certain criteria. The monies advanced have enabled this to happen. And a relatively small at £6 Million in comparison to the rewards.

2.  Protoplan is a building company set up to develop the initial two parts the stadium which were completed in 2002. Any debt owed to Protoplan is a trade debt.

3.  Protoplan never received any interest on the outstanding debt.

4.  It would have been impossible to carry out the additional works with existing debt to the constructor of the stadium unpaid after 8 years.

5.  [Blackpool FC] has never paid any rental income to Segesta for the use of the Stadium.

Hope this is sufficient.”

i)                   The first concerned the extent to which Blackpool FC was restricted in dealing with the incoming funds from the Premier League.

ii)                 The second was whether there was any obligation upon Blackpool FC to share any of these funds with the Belokon Side.

Mr. Rawlinson’s conclusion was as follows:

“In summary, in my opinion and subject to [Blackpool FC] complying with normal Company Law requirements, it can lend whatever it wants, to whomsoever it wants, whenever it wants, without the concurrence, agreement or approval of VB [Football Assets] and neither [Blackpool FC] nor Segesta has any obligation under either the Principal Agreement or the Loan Agreement to share any of the Premier League funds with VB [Football Assets] or its Associates.”

“Further to our conversation I have asked Sarah to arrange a convenient time when Ian, you and I can sit down and formalise the way forward over the next 5 years. I know we have had various discussions on the subject but we now need Ian to produce a report which will spell out the best way forward (e.g. Segesta to be paid by way of management charges from Blackpool [FC] etc). You might also spell out that Segesta has every right to borrow money from its subsidiary (Blackpool [FC]) but in the interest of fairness and diplomacy (nothing to do with business) we will consider the various routes for the future which we can then discuss the next Board meeting.

What is nonsense, as we said, is that the minority shareholder should seek to control the company and the significant resources that have come into the company.”

(31)      A (further) proposal from the Belokon Side

“Investment restructuring/payment back to shareholders

You and your dad has repeatedly stated that you want shareholders investments paid back. The major disagreement is about what constitutes “investment”. Since Valeri became shareholder, the shareholders have made the following investments: Valeri: equity 1,8m, Vlada’s gift (payment for remaining 30% of shares) 850k, Vlada’s loan to Segesta 1,85m, SS construction 4,75m, Trust fund 1,5m; your dad (Segesta) has invested 1m in SS construction. Valeri and your dad agreed that they start at a blank sheet, with [Blackpool FC] without liabilities except loans to [Mr. Owen Oyston] (400,136) and Segesta (3,793,719) which should be repaid only from serviced income accommodation revenue.

The three payments you listed (4,2 to Protoplan, 562K to [Mr. Owen Oyston], 944 to Zabaxe) as “investments”, all incurred before Valeri’s involvement and are not mentioned in the signed agreements, hence they should not be repaid by the [Blackpool FC] football revenues. I understand your dad’s desire to cover all pre-Valeri football losses, but then it should be explicitly agreed with Valeri. Thus, at the moment, from Valeri’s point of view 4,2m [Blackpool FC] transfer to Segesta is a loan whose status and terms should be clarified.

From discussions with Valeri, I understand that he is ready for certain concessions. Prior to his involvement, [Blackpool FC] had accumulated transferable loss of 10,8m (in accordance to Rod) which could be considered your dad’s benefit. At 28% corporate income tax this would have brought 3,024m in tax savings to Segesta. Then it is no secret that [Blackpool FC]’s financial success is down to Valeri’s beliefs and readiness to risk money and your ability to fight players wages and agents. I think your dad and Valeri agreed to pay you a bonus of 1m. the two components together would constitute slightly over 4m. maybe with some bargaining Valeri would agree to declassify 4,2m as expense for [Blackpool FC]? This expense would also help us reduce your profit for the year, with no corporate tax payable assuming we stay up and pay bonuses.

But then your plans to repay the other two amounts should be scratched.

Valeri has stated that he does not wish to dismantle the existing agreement, but is happy to negotiate and conclude new agreements. This implies that Segesta would start repaying the loan to Vlada (2 x 92,500 for 2009 and 2010), and to VBFA for South Stand profit for season 2009/10 (estimated at 63,361). Segesta would also be entitled 63,361.

Shareholding

Since this season will definitely use up accumulated loss of the previous years, there is no reason why we should not formally increase Valeri’s shareholding to parity with your dad. We should set a timetable for this.

…

East Stand

East Stand is being financed with [Blackpool FC] money, with total cost estimate about 1,9 million. [Mr. Owen Oyston] insists that the stand should be the property of Segesta who owns the land and planning permission. In this case, from accounting point of view, this 1,9 million is considered [Blackpool FC] loan to Segesta. Since [Blackpool FC] is the only beneficiary, it would make sense that [Blackpool FC] “writes off” the debt. It could be done by Segesta invoicing [Blackpool FC] for management services in the amount of construction costs spread over say 5 years (roughly 400,000 a year). New agreement for this should be drafted. All income from East stand would be property of [Blackpool FC] (initial agreement Article 8(ii) and annex 6).

…

Liquidity management and investments

Good financial performance will leave us with spare cash.

We agreed to invest some company cash into investments. I think we already agreed that we will diversify our investments and avoid risky assets. Decisions would be made on each case separately.

It seems to me that the two shareholders are happy to take out some money in form of profit. We should find some ways to take profit out without tax and balance sheet implications – to reduce tax burden and do not spoil balance-sheet (create liabilities)”

“Normunds, before we go any further I want to take some strategic financial planning advice initially from Ian Cherry and thereafter from whoever answers the points that we need further advice upon. It seems nonsensical that we attempt to resolve any issue without being in possession of this information. I would suggest that we requested an adjournment of the board meeting pending this advice and I have asked for the meeting to be arranged by Rosemary.

I have read your first draft which perhaps underlines how far the board is split on where we go from now and how we deal with the massive influx of cash and unprecedented profits. My feeling is that it should be dealt with as the shareholders wish and neither should stymie or seek to control the other and I believe this is possible. Let me know if you agree to the advice prior to our meeting? I’m happy in the meantime to continue working on the draft.”

“Of course, advice from Ian Cherry is always useful and would be needed sooner or later. However, I am not sure what you mean by “strategic financial planning” advice? Ian cannot help us to decide on the future of trust fund, what we do with East stand, etc. I see more need for his advice on how to do transactions from tax point of view once we have agreed on key points.

I am not sure about delaying this process. As I said earlier, our financial year ends end of December, and we need to agree on things and make necessary transactions by then. Anyway, you do want to meet Ian, let’s do it together early next week.

Let’s try to talk today – I’m eager to know what you seem to be no happy about with my proposal.”

“Discussion with Karl [Oyston] on investment restructuring. He reiterated his vision to repay investments to shareholders. He considered there is no difference between [Mr. Owen Oyton] and [Mr. Belokon] investments and he wants everything to be paid back to investors. If [Mr. Belokon] gets back his 4,75 [South Stand] investment, he still would be entitled to [South Stand] profit. However, he suggested to draft new agreement outlining all revenue streams. Karl was quite hesitant to settle 50/50 shareholding parity now, but believed it could be done after the end of fiscal year. He emphasised that Segesta owns 80% and technically could do whatever they want. We agreed to pay back players trust fund asap – will do the calculations make payment on Wednesday. Karl did not like the idea of paying dividends, has then money should be paid also to the small shareholders (around 3% shares), he would rather prefer to return money to shareholders through management fees. This indeed will not be bad, as would decrease taxable income. He thought that all issues should be resolved on meeting with our auditor likely to scheduled December 17.”

(32)      The Belokon Side inquires about corporate governance

“Please do not respond to this until you have met with Owen with Ian Cherry on standby on the phone. We will say to Anda [Beinare] that any director who has support of over 75% of the shares can call for a special resolution and put forward this resolution is to the board. They need to understand that they have no control. Can you please tell [Mr. Owen Oyston]:

1.       If he can call an EGM with Segesta’s 76% share of [Blackpool FC]?

2.       What the quorum is in the Articles of Association?

3.       Highlight any restrictive clauses or clauses relevant to control in the Articles.

4.       Get a copy of the Memo & arts asap and take [Mr. Owen Oyston] through them when he comes in.”

(33)      The meeting on 17 December 2010

“1.  4,2m payment. The Oystons and Ian Cherry believe that the payment was valid and in spirit with the original agreement. Moreover, from the legal point of view, the original agreement does not preclude [Blackpool FC] to make the payment to settle [Blackpool FC] mother company traded debt which incurred to build the West and North Stands. This has allowed [Blackpool FC] to achieve Premier League status.

[Mr. Owen Oyston] reiterated that in his private conversation with Valeri [Belokon], Valeri wanted to get all his investment back – this is the reason why the 4,2m payment was made.

[Mr. Cherry] confirmed that the 4,2m payment can be classified as advanced management fee and written off as a cost about 1m a year. This would reduce [Blackpool FC] taxable income.

2.    East Stand

The Oystons propose the following:

-        [East Stand] is Segesta property,

-        Stand was financed by [Blackpool FC] and now Segesta owes [Blackpool FC] 1,5m

-        If Valeri agrees with other arrangments, then Segesta will get x% of East Stand revenues until debit is repaid and then all revenue is BFC revenue. If there are disagreements, Segesta might keep rights to get all East Stand revenue and just repay the 1,9m debt.

-        There is a need to draw an agreement on [East Stand] loan.

3.    South Stand

The Oystons propose the following:

-        Valeri gets back his 4,75m investment

-        South Stand agreement is scrapped

-        Currently the [South Stand] fit-out is financed by [Blackpool FC] which will create [Blackpool FC] loan to Segesta

-        [South Stand] revenue is split into football and non-football revenue; football revenue is allocated to [Blackpool FC], non-football revenue to Segesta – first to repay [Blackpool FC] loan for fit-out, then profit

4.    Valeri’s investments repayment:

-        [Mr. Cherry] confirmed, in case Valeri chooses to get back his investments, both 4,75m to [VB Football Assets] and 1,85m to Vlada, there is no problem these monies to be repaid from Segesta.

-        Originally, Karl proposed the following payback schedule:

1/       4,200,000 Segesta paid

2/       1,850,000 Vlada Jan 10^th 2011

3/       4,750,000 VB [Football Assets] Jan 30^th 2011

4/       562,506 [Mr. Owen Oyston] Jan 30^th 2011

5/       944,652 Zabaxe Aug 15^th 2011

6/       275,942 [Mr. Owen Oyston] Aug 15^th 2011

Which is missing Vlada’s 850K payment (gift) to BFC. The Oystons are happy to repay this money as well.

…

6.    50/50 shares parity

[Mr. Owen Oyston] said he has never received any offer from Valeri about buying shares. Nobody wanted to comment on this and thought that [Mr. Owen Oyston] should speak with Valeri directly on this subject.”

“In summary the proposal is for both major shareholders to receive payment of the whole of the monies loaned to [Blackpool FC] (please set out the schedule as per Karl). Thereafter [Belokon Holdings] will be left with a 20% stake in [Blackpool FC] which has cost some £1.8 million. That shareholding would be worth considerably more than this cost in todays value. For example Blackburn Rovers FC recently sold for £50 million. The group as a whole would have no external debt. After the accumulated losses of £13.85 million have been wiped out [Blackpool FC] is free to declare a dividend which will accrue 20% to [Belokon Holdings]. At the current rate of profitability the club should make circa £20 million in 2012. Even if half of this amount is retained it will still leave [Belokon Holdings] with a potential dividend of £2 million in 2012. In addition [Belokon Holdings] benefits from the use of the stadium and all football related revenues even though it has not paid anything towards the construction of the stadium. By any reckoning this is a fair division of revenues. Furthermore Segesta will be responsible for the repayment of any loans advanced from [Blackpool FC] (subject to agreement on the East Stand). [Belokon Holdings] will continue to accrue the right to future dividends.”

(34)     The proposal to discharge the mortgage over the Travelodge

“You will recall that we were left with a Travelodge mortgage of £4.7m and the mortgage lasts for only 5 years which means we have probably just about 3 years to run. I think we should pay this mortgage off or reduce it dramatically in accordance with our wish to extricate ourselves from Banks.

Can you put your thinking hat on about how we best deal with it and I am sending a copy of this to Ian and Howard to seek their advice on how best to deal with it as the money would have to come from Segesta/[Blackpool FC].”

“Following our conversation yesterday, can I please set out what I understand to be what you want in this matter, to be put into a form of Agreement between [Blackpool FC], Segesta and [Mr. Owen Oyston].

[Blackpool FC] will loan Segesta c. £4,894,035 interest free (or whatever is needed to discharge the charge in favour of Lloyds TSB), to enable Segesta to discharge the outstanding Mortgage/Loan Lloyds has over the Travelodge.

Owen will enter into a Legal Charge of the Travelodge in favour of Segesta as security for the loan and the payment to Lloyds by Segesta.

Owen will then, at his absolute discretion, pay to [Blackpool FC], 22 equal annual payment of £222,446.14 (to equal the full amount of the loan of £4,894,035.18), such payment to be payable quarterly at £55,601.04 per quarter.

[Mr. Karl Oyston] suggested that the difference between the annual rent receivable from Travelodge) currently £451,448 p.a., which rent is subject to upward only review in accordance with the Index of Retail Prices) and the amount to be paid by Segesta to [Blackpool FC] under this arrangement (£222,446.14), with that difference currently being £228,991.86, should, at the absolute discretion of Segesta, be split equally between Segesta and [Blackpool FC].

I’m unclear as to whether or not that difference, in this example £228,991.86, i.e. c £114,000 each to [Blackpool FC] and Segesta, if the payment being made to [Blackpool FC] is in further accelerated payment/reduction of the Loan or is a gratis payment.

Can I please have comments and observations asap, so that I can prepare the required agreement?

I understand [Mr. Owen Oyston] wants to complete this by the end of the month and if I hear from you soon, I can deal with that time limit fairly easily.”

“[Mr. Stephenson] has advised [Mr. Owen Oyston] today that the hedging fund arrangement is with a third party and therefore Lloyds cannot negotiate a deal. In these turbulent times, Mr. Oyston is anxious. However, if the capital to Lloyds TSB is paid off, then, of course, there would be no further interest to be paid to Lloyds. We would then only pay the interest to the third party hedging fund which, this quarter, would be £25/27,000. If interest rates climb, these payments will reduce and if interest rates fall, the fund may even have to pay us interest. However, in such an uncertain world, [Mr. Owen Oyston] would like to pay off the mortgage completely and the hedging fund penalty of c. £131,000, which takes the repayment to c. £4,894,035.18 and he thinks we are well rid of them.

The other incentive to pay off the Lloyds mortgage/hedging fund arrangement, is that the £4.894 million would have a safe home. The information you gave your Dad over the phone, which apparently, you say, appeared in the Evening Gazette, should indicate caution, if you know what he means.

Therefore [Mr. Owen Oyston] is suggesting the following, which will not be documented or legally binding

1.       [Blackpool FC] loans Segesta c. £4,894,035.18, which includes the c. £131,000 to get rid of the hedging fund.

2.       Segesta then redeems the mortgage with Lloyds, including the hedging fund arrangement.

3.       [Mr. Owen Oyston] will not enter into a Legal Charge of the Travelodge site, in favour of Segesta…, or anyone else. The loans will be informal and effected in the next 2 or 3 days, without any written documentation. This will avoid the months and months of to-ing and fro-ing between the various parties.

4.       [Mr. Owen Oyston] will continue to receive the income from the Travelodge, as now and currently at £451,448 per annum, for a minimum of 25 years and a maximum of 50 years, as Travelodge have an option for a further 25 year term at the expiration of the first 25 year term.

5.       [Mr. Owen Oyston] proposes to pay Segesta the sum of £250,000 per annum which leaves £201,000 clear from the Travelodge income, before tax.

6.       [Mr. Owen Oyston] proposes that Segesta pays to [Blackpool FC], the sum of £200,000 p.a., At its discretion, which Segesta can then continue to pay, if it so wishes, for up to 50 years.

7.       Segesta retains the difference of £50,000 p.a. therefore Segesta and [Mr. Owen Oyston] will receive a total of £251,000 annually.

8.       Over the informal and potential 50 year repayment programme, which payments are at the discretion of Segesta, [Blackpool FC] will receive £10,000,000 plus a discretionary percentage increase, based upon the 5 yearly rent reviews.

9.       The £200,000 p.a. payment to [Blackpool FC] represents 4.09% on the loan of £4,894,038.18 which will increase as [Blackpool FC] receives its share of the rent reviews.

10.     Karl is to invest simultaneously in BIB, up to a maximum of £2 million (depending on funds) as a sign of our good faith and on the best terms possible, in accordance with Normund’s email.

11.     The whole of these arrangements are to be effected immediately and on an informal basis.”

“Just so that I’m clear on what you require.

As I see it, you want 3 documents/agreements as follows:

1.       An Agreement between [Blackpool FC] and Segesta under which [Blackpool FC] loans to Segesta the sum of £4,900,000, such loan to be repaid by Segesta to [Blackpool FC] by up to 50 years at the rate of 250,000 in respect of capital and interest. If the repayments are in respect of capital and interest, what is to be the interest rate applied and how with the annual payment of £250,000 to be apportioned between capital and interest?

2.       An Agreement between Segesta and [Mr. Owen Oyston] for an interest-free loan to be made from Segesta to [Mr. Owen Oyston] in the sum of £4,900,000 (or in the exact sum of the redemption monies to be paid to Lloyds??) For a period of up to 3 months.

3.       In the event that [Mr. Owen Oyston] makes the loan of £2,000,000 to Segesta set out below, an Agreement between Segesta and [Mr. Owen Oyston] that Segesta will repay the £2,000,000 within 4 months.

4.       An Agreement between [Mr. Owen Oyston] and Segesta for [Mr. Owen Oyston] to sell the Travelodge to Segesta for £6,500,000 (plus VAT of £1,300,000), totalling £7,800,000.

Unless and until I am instructed otherwise, all these agreements are presently to remain unsigned and undated.

I understand that to cover the difference between the initial loan of £4,900,000 and the sale price (including VAT), of £7,800,000 (the difference being £2,900,000), [Mr. Owen Oyston] it is prepared to loan Segesta up to £2,000,000 (I believe interest free) from his personal account, if [Blackpool FC] can loan to Segesta the balance of the difference, £900,000. When Segesta recovers the VAT, which is to be repaid to [Mr. Owen Oyston] within 4 months of it being loaned, Segesta repays the VAT to [Mr. Owen Oyston].

What about the difference between the loan from [Mr. Owen Oyston] of the £2 million and the VAT repayment of £1,300,000 i.e. £700,000? Where does this come from? Presumably from the monies which Segesta holds in its accounts?”

(35)     Payment of £4.9 million in respect of the Travelodge

“Howard,

As you know, [Blackpool FC] has loaned to Segesta £4.9m.

Segesta in turn has paid this £4.9m as part of the purchase price for the [Travelodge] from [Mr. Owen Oyston] as at price of £6.5m (subject to valuation) plus VAT. Stamp duty payable by Segesta must also be taken into account.

The difference between £6.5m and £4.8m is £2.6m.

As you also know, it is my intention to permit Segesta to owe me personally this £2.6m which will be reflected in my Segesta loan account. This money can then be paid in the future when Segesta is in funds.

I understand that the full VAT of £1.3m is payable when the transfer has been completed in order for it to be later refunded.

Can the completion date take place just before the VAT repayment date, so that the £1.3m will only be out for a short time ([Mr. Stephenson] says this can be done)?

…

[Blackpool FC] will loan the £1.3m to Segesta and receive it back on the VAT repayment date. [Blackpool FC] will also loan the Stamp Duty of £260,000.

I’m now leaving [Mr. Rawlinson] to finalise these negotiations and complete the various agreements on the basis as outlined already.”

(36)     Discovery of the payment

“On February 24, 2011 [Blackpool FC] made a transfer of 4.9 million to Segesta. I understand the monies used to refinance Segesta loan from a commercial bank and now Segesta owes money to [Blackpool FC]. I still have not been informed about the terms of the [Blackpool FC] loan to Segesta. It is disappointing and not in line with good corporate governance that the Club has provided a long-term credit without board’s approval and prior information.”

“As far as the funds utilised to provide [Blackpool FC] with a far higher return both immediate and longer term from removing the external funder from the Travelodge and Segesta taking ownership, I will provide a copy and details of the agreement as soon as I have finalised the finer points. Rest assured the return is substantially higher and more secure than any other use of money we have as yet identified.”

(37)     Further progression of the Travelodge transaction

“I thought you needed 4,9m to refinance bank loan? Now you want 8.06m?”