The background and principal witnesses

Mr Miller

“I guess the Japanese would call it a keiretsu, a group of companies with interests and trusts with similar interests, commonalities but separate shareholdings and they do absolutely work with each other and I encourage that.”

Part of the reason for the complexity of the structures through which Mr Watson does business is no doubt a desire to avoid paying tax; part of it is what was euphemistically called “optical reasons”, that is that Mr Watson did not want his interests in a particular matter to be too visible to others.  Mr McCaughran submitted that there was nothing sinister in the way in which he operates.  I accept that a desire to keep things confidential is not necessarily sinister, but it is also true that the use of nominees and the like is something that can be used to conceal and mislead.  But I do not propose to conduct a lengthy investigation into Mr Watson’s general style of doing business.  I propose to concentrate on such matters as I need to in order to decide the claims made in the present case.

Mr Leahy

Factual narrative – down to Project Edsel

“The existence and subject matter of this document are strictly confidential to the parties, as is the involvement of Eric Watson (either directly or indirectly) in the business, other than as lead investor.  This duty of confidentiality applies in all respects unless disclosure to any person is authorised in advance by Eric Watson.”  

“The business will operate primarily as an Asset Management company and the partners will share a pro-rata (relative to their shareholdings / interests as stated above in the Management carry achieved on all deals).”

“(i)    NMC will commit, on an in-principle basis subject to final discretionary approval of specific transactions originated by Management Co, a minimum of £100m of equity within 12 months of the formal legal agreements; and

(ii)  The Founder Investors have the right to participate in up to 20% of the Asset and Project Co capital contributions,

(together “Affordable Housing Commitment”)”

Under “Asset/Project Co Return waterfall”, it provided for cash receipts to be applied first to repayment of capital contributions from Investors, then to interest at 8% pa on the capital contributions, with the balance to be split between Investors and Management, with Management taking 20%, or once investors had received a net return of 1.35 times their invested capital 25%, by way of management carry. 

Mr Watson interests Sir Owen in property opportunities

“Subject to Mancap closing I am looking to invest 50m Pounds in this venture – and subject to our due diligence.”

Sir Owen was also interested in acquiring a share of the management company: on 2 September he e‑mailed Mr Watson with a proposition he wanted to discuss with him and Mr Astor as follows:

“IF – after we do the current deal I put in a further PDS50 million would the following be acceptable:

1.      Glenn or his interests to receive 40% of the management company.

2.      You to put up as much as you wish and take up a percentage equal to my proposal on the same formula but be a part of the 40% eg. If we both put up PDS25 million each we get 20% each-pro rata

Apart from our agreement on the first deal and your kind offer to watchdog my investments I would seek to appoint a Director to the management company’s Board.”

Mr Astor had in fact already suggested to Mr Gibson that Sir Owen would be looking for 25% of the management company.  Mr Miller reverted to this on 20 September telling Mr Watson and Mr Gibson that one of the big picture issues was what overall share of the management company they would be entitled to if they invested a further £50m; Mr Watson passed this on to Mr Astor who replied “On the 50m not sure, but assume the same deal as Hutch.” 

Project Edsel

“Had a chat with David about a UK govt housing deal you can participate in if you want.  It is very good.”  

Sir Owen asked Mr Miller to have a look at it. 

“is this really him or is he selling down some of his equity? If so we need to know asap for bank and jersey kyc etc, also the IM Miles had is not for Investors but was a bank memo, it would have to be edited and full disclaimers added before it could go anywhere.  We also have some confidentiality issues.”

(the reference to “kyc” or KYC being to know your customer checks).  Mr Gibson’s response was that he would have to check with Mr Watson about the 20%.  He then e‑mailed Mr Leahy (copying in Mr Watson) saying he would need to have some sort of answer for Mr Astor when he called him that night.  Mr Astor also e‑mailed Mr Leahy on 10 January asking him to confirm that they were not intending to circulate the IM to any external third parties, as the information was highly confidential and they would need to have very strict confidentiality agreements signed beforehand.  Mr Leahy’s immediate response was that he was not 100% sure on Mr Watson’s intentions, and later that:

“I have confirmed this is just for internal use – Cullen and Cullen’s lenders/advisors.”

Mr Leahy’s evidence in cross-examination was that he thought his intention here was to use “Cullen’s lenders” to refer to the loan Mr Watson’s vehicle would be getting from Sir Owen.  But it was plainly misleading to refer to it as just for internal use, as (as he accepted) he was intending to produce a pack of information to send to a third party.  Mr Leahy’s explanation was in effect that it was not his role to decide what Mr Watson did or did not disclose to Mr Astor: he was very conscious of the fact that in Mr Watson’s business relationships were very important, so he wouldn’t want to go and put his foot in it and go into more detail than was his place to do. 

“Key story to Will Astor and Co. is Eric is simply looking to raise some debt capital off the vehicle he is using to invest in this opportunity and that there are no other equity investors coming in.  No need to mention O. Glenn etc – not relevant.”   

Mr Watson, Mr Leahy and Mr Gibson were all asked about this.  Mr Watson, having pointed out (correctly) that he wasn’t copied in to the e‑mail, said that it was possible that Mr Leahy was looking at bringing Sir Owen’s investment in as debt rather than a co-investment.  (In fact Mr Leahy had sent him that morning the draft Term Sheet referring to OGV having an effective 50% participation in the net equity of EWV post repayment of the Funding Arrangement).  Mr Leahy, in answer to the suggestion he was asking Mr Gibson to tell Mr Astor something that was untrue, accepted that the draft Term Sheet at the time contemplated that effectively Sir Owen’s vehicle would be taking an equity interest, and that “that was not what was being communicated at that point in time”, and said that he was suggesting to Mr Gibson that he not give the full picture at this stage; Mr Gibson, rather more simply, said that he had to accept that the explanation wasn’t true, and that the arrangement in the Term Sheet was one that did contemplate Sir Owen as an equity investor. 

“This document records the key terms regarding the arrangements described below. The parties each agree to use good faith, best commercial endeavours to seek to agree, execute and deliver as soon as possible long-form documentation necessary to provide for those arrangements.  Such documentation will not include terms inconsistent with the terms set out in this document except where the parties otherwise mutually agree.  In any event the provisions set out in this document relating to the foregoing and to parties & interest, future assurances, confidentiality, costs and governing law are legally binding.”

Mr Watson accepted in cross-examination that Sir Owen would have understood from that that he (Mr Watson) was going to deal with him in good faith.

“I have read the paperwork on the new venture in East London--some concerns

1.      I am putting in a dis-proportion amount of the investment for only 50% of the return.  I would like to discuss a proportionist formula into an investment in Soul’s and/or the Warriors…

3.      What happened to the other property venture with Bill Astor—ie Govt and Uni properties. The return was much better and quicker with the added blue chip guarantee of the properties”

The reference to Soul’s was to a restaurant in New Zealand, and to the Warriors was to a New Zealand rugby league team, both of which were ventures which Mr Watson was interested in and which he had suggested Sir Owen might invest in. 

“If Owen does invest, then I think it is bound to come out over time your involvement in the Management Company, and it should probably be covered off sooner rather than later, with a take it or leave it on this basis…don’t you agree?”

Mr Watson agreed, and in a reply to Sir Owen’s e‑mail on 1 February included the following:

“3/   This is the evolution of the deals with Astor, ground rents and govt properties.  This deal is the first of the govt/local authority residential property deals. HWL (Hutchison Whampoa listed hk group market cap $40b) have committed to fund the equity for the rollout.  Oxford University funds are funding the capital for the ground rent investments.  I have a right to co invest in both, and given the quality and pipeline of deals and co investors plus, the fact that all the equity and debt is arranged I am very keen to do so.  We also have a small stake in the management carry for pulling the deal together.” 

(1)                   The preamble referred to it as recording the key terms, and to the parties agreeing to use good faith, best commercial endeavours to agree long-form documentation in exactly the same terms as in the previous draft (paragraph 104 above).   

(2)                   The parties were Kea (referred to as “KIL”) and Clearview (referred to as “CT”), instead of Sir Owen and Mr Watson personally as in the previous draft.  It provided that in signing the document they did so

“as a commitment of intent to invest in Project Edsel.”

(3)                   Under “Business Purpose”:

“The parties wish to enter into a Funding Arrangement and Equity Arrangement in relation to Project Edsel.  Details of Project Edsel are set out in the documents attached to this document.”

(4)                   Under “Funding Arrangement”:

“KIL will provide funding to Copperstone Property Investments Ltd (“CPIL”) equal to 20% of the total transaction equity, currently anticipated at [£5.3m] (“Funding Amount”).  KIL will receive a preferred return amounting to an 8.0% annual interest rate, calculated quarterly and compounded.  The funding will be secured over the CPIL shares.  The Funding Arrangement will only become repayable as CPIL receives income or capital profits from Project Edsel.

KIL will be funded 90% by its corporate parent or nominee and 10% by CT or nominee.  Should a shortfall arise on repayment in relation to the Funding Arrangement between KIL and CT it will be deducted off the CT or nominee share in the first instance.”

(5)                   Under “Equity Arrangement”:

“KIL will have an effective 50% participation in the net equity of CPIL post repayment of the Funding Arrangement.  Any payments under the Equity Arrangement will only become payable if the Funding Arrangement has been fully repaid and CPIL receives additional income or capital profits from its participation in Project Edsel.”

(6)                   Under “Future Assurances”:

“The parties agree that the structure of the investment is not yet finalised.  Subsequent to the signing of this document and to further the subject matter hereof, they will each engage in good faith endeavours to agree the ultimate structure for the business.”

(7)                   Under “Other Terms”:

“The long-form documentation will include other terms which are not included in this document but which are necessary or desirable to the parties.”

“you may or may not be aware, that as part of the deal, Eric Vehicle will contribute 10% of the equity required for the investments into “Atlantic Regeneration Investment 1 LP”, and it has been proposed that this come in at the “Kea Investments Limited” level.  Kea will invest 100% into Copperstone Investments Limited.”

That accords with what the Term Sheet provided, namely that Kea would provide funding to Copperstone of £5.3m, Kea being funded 90% by its corporate parent or nominee and 10% by Clearview or nominee.  But by an e‑mail of 15 February, Mr Gibson told Mr Miller and Mr Dickson that Clearview’s 10% would now be coming by way of a loan from J P Morgan directly into Copperstone.  He said this was on the advice of Grant Thornton and asked them to urgently advise if this was not to be the case.  

“As discussed the amount that was invested in the first traunche, pro-rata with HWL was £1,901,546.80 broken down as follows:

A Limited Partner £1,894,501.81

B Limited partner £7,045.00”

Mr Gibson accepted in cross-examination that this was not quite right as only the £1.894m was pro rata with HW. 

Claims in relation to Project Edsel

(1)                   Mr Watson acquired the B interest in breach of a fiduciary duty which he owed to Sir Owen or Kea.

(2)                   Kea has a claim to the B interest because its money was used in breach of trust to acquire it.

(3)                   The Term Sheet for Project Edsel provided for Kea to share in the B interest, and by giving up that right in the long-form agreements Mr Dickson acted in breach of his fiduciary duty to Kea, to the knowledge of Mr Watson.

I will consider the question of breach of fiduciary duty first. 

Fiduciary duties – (i) the law

(1)                   There are a number of settled categories of fiduciary relationship.  The paradigm example is that of trustee and beneficiary; other well-settled examples are solicitor and client, agent and principal, director and company (subject to the impact of the Companies Act 2006), and the relationship between partners: Snell’s Equity (33^rd edn, 2015) at §7‑004.

(2)                   Outside these settled categories, fiduciary duties may be held to arise if the particular facts warrant it.  Identifying the circumstances that justify the imposition of fiduciary duties has been said to be difficult because the courts have consistently declined to provide a definition, or even a uniform description, of a fiduciary relationship: ibid at §7‑005.

(3)                   Fiduciary duties will not be too readily imported into purely commercial relationships.  That does not mean that fiduciary duties do not arise in commercial settings – indeed they very frequently do, as the example of agency illustrates – but that outside the settled categories, this is not common, it being normally inappropriate to expect a commercial party to subordinate its own interests to those of another commercial party: ibid.

“Yes, I am promoting deals, selling deals, recommending deals to them, yes.”

That looks much more like an acceptance that what he was doing was pitching opportunities to Sir Owen, rather than advising him.  It does not follow from the fact that Mr Watson was recommending deals in this way that Sir Owen was relying on Mr Watson to advise him, or entrusting him with discretions, or otherwise placing himself in Mr Watson’s hands, or trusting him to act with single-minded loyalty in his (Sir Owen’s) interests rather than his own.  And I also accept Mr Watson’s explanation of the offer to “watchdog” Sir Owen’s investments: if Sir Owen were persuaded to invest alongside him, his and Mr Watson’s interests would be aligned and it would be natural for Mr Watson to keep an eye on how they were performing.  That does not seem to me to amount to the assumption of a responsibility to put Sir Owen’s interests first, or turn the relationship into one where fiduciary duties were owed.

“This document outlines the specifics of a proposal in which an Owen Glenn Investment Vehicle (“OGV”) will partner with an Eric Watson Investment Vehicle (“EWV”) in a Funding and Equity Arrangement in relation to Project Edsel.”

There are other examples which I need not refer to.  I do not think that any weight can be attached to this at all: “partner” is one of those words which can have a technical meaning but is very commonly used in a looser sense.  It is not suggested that any of the arrangements between Mr Watson and Sir Owen amounted to a partnership governed by the Partnership Act 1890, and I do not see that Mr Watson meant anything other than that he and Sir Owen (or their vehicles) were participating in a number of joint ventures together.  That was true, but, as set out above, it is common ground that a joint venture is not without more a relationship that gives rise to fiduciary duties.  In those circumstances I do not consider that for Mr Watson to refer to Sir Owen as a “partner” in the sense of co-venturer takes matters any further. 

Did Sir Owen have any sufficient interest in Kea to support a fiduciary duty?

If Mr Watson owed a fiduciary duty was he in breach of it?

The Term Sheet

“KIL will have an effective 50% participation in the net equity of CPIL post repayment of the Funding Arrangement.”

            In her submission this provision is straightforward to construe: it entitles Kea without qualification to a 50% interest in the equity of Copperstone, and hence, since Copperstone in fact acquired through Streamside a B interest in Atlantic 1, Kea was entitled to 50% of that as well.  In other words “the net equity of CPIL” means the whole of Copperstone’s equity, not one class of Copperstone’s equity, there being nothing in the Term Sheet to support such a construction. 

The use of the £7,045

“I confirm the funds were held for Copperstone.  As the note mentions, the funds were from Kea and Clearview for their respective investments in Copperstone.”

(The reference to “the note” is to a statement of movement of funds which Mr Reuben had sent to Ms Huggett in March 2012 (and Mr Gibson had sent to Mr Miller, also in March 2012): this showed receipts (£5.3m from Kea, £530,000 and £7,045 from Clearview) and payments (£1,901,546.81 completion monies paid to K&L Gates and £80,000 for Fladgates’ fees) but did not give the dates of the respective receipts and payments.)  I do not think Mr Reuben’s confirmation in 2014 takes matters much further, as what he was asked to confirm was that the money was held for Copperstone rather than Clearview, and he was not asked the question precisely when and how he thought that Kea’s money became Copperstone’s.   

“A. My Lord, I meant that Fladgate would be handling the escrow instructions to further invest or to further place those monies in the investment vehicles.

Q.     Right, so you regarded it as an escrow account?

A. Er ‐‐

Q.     You use the word “escrow” throughout the rest of your ‐‐

A. Yes, I noticed that they had used that word. I believe they would have had a client escrow account.

Q.     What do you mean they used that word?

A.  In correspondence I had seen that word used in the Fladgate correspondence.

Q.     Right. Now, you see paragraph 97 has been drafted to make it look as if you were saying you were intending to transfer property in the money to Copperstone at the point where you transferred it to Fladgate, but that’s not right, is it?

A. No, we were just looking to get our funds into the project on time.

Q.     Yes, so you sent it to Fladgates on the basis that they would use it for the purpose of the termsheet that you had signed ‐‐

A. Yes.

Q. ‐‐ and if the transaction fell through for some reason that they would give it back to you?

A. That’s correct.”

Mr Miller’s reference to the word “escrow” being used in the Fladgates correspondence is not supported by any of the documents I have seen, but this evidence demonstrates that Mr Miller’s understanding was precisely what I have suggested above would be the normal inference in the case of a payment by A to B in anticipation of an intended transaction, namely that the monies were not being advanced to Copperstone to do what they liked with, but were being paid to Fladgates for the specific purpose of being used for the purposes of Project Edsel, and if not used for that purpose were to be returned to Kea.  Mr Miller’s own understanding is not of course determinative of the terms on which the money was paid, but there was no evidence from Mr Dickson or Mr Reuben to suggest that their understanding was any different. 

“Q.     …I just want to check that you are not suggesting there that you thought that Kea was paying for Mr Watson to make a payment in respect of his share in the management carry, whatever that was; you thought you were paying his share in the investment?

A. It is related to the investment.”

“if the trustee purchases assets for his own benefit wholly or partly out of trust money, and the assets increase in value, the trustee cannot free the assets from the beneficiary’s claim to beneficial ownership or a proportionate share in them by restoring the trust money wrongly applied in their purchase after the purchase has been made and the assets increase in value.”

That is supported by a decision of the High Court of Australia, Scott v Scott (1962) 109 CLR 649, a case where a trustee mixed £1,014 of trust money with his own and bought a property for £1,700 which had increased in value by the time of the action to nearly £5,450.  It was held that the trustee could not avoid accounting for a proportionate share of the profits by repaying the £1,014 to the trust fund.  That seems plainly right.  But it can be seen that that is very different from the proposition that the trustee could not have made good his breach of trust by accounting for the £1,014 four days after the misappropriation and at a time when the house had not increased in value at all.  There is some indication that the High Court thought he would have been able to do this (at para 12):

“Clearly enough the estate was entitled as against W. H. Scott to seek an order for sale to enforce its lien and upon any such sale the profit would have been realized. It is true, no doubt, that if the property had not increased in value the trustee, in his lifetime, might have chosen to avoid a sale by repayment of the amount for which the lien subsisted. But no such choice can be said to have been open to him in this case for he could not be allowed to escape his liability to account merely by repayment of the amount of trust moneys misapplied.”

In these circumstances it seems to me distinctly arguable that if there was a breach of trust Mr Watson effectively accounted for the breach by repaying £7,045 to the Fladgates account four days later, a time at which the B interest cannot be supposed to have increased in value since he acquired it.  And it could perhaps be said that that would more closely reflect the nature of the breach of trust which (assuming there was one at all) did not consist of misappropriating £7,045 and pocketing it, but of the unauthorised borrowing of £7,045 from the fund for 4 days.  That is undoubtedly something a trustee should not do, but if the trustee restores the fund (with interest where appropriate, although the interest payable here for four days would be truly de minimis) and has not at the time of restoration made any profit for himself, it is not obvious that even the strict rules of equity require any more. 

Affirmation

Conclusion on Project Edsel

The background to the presentations of Project Spartan

(1)                   So far as ground rents are concerned, Mr Watson had an existing interest (through his vehicle Gaucin) in the ground rent portfolios held in Abacus.  That entitled him to 50% of the equity, but subject to loans outstanding to Berryblue (Mr Richardson’s vehicle) which as at March 2012 amounted to some £7.15m (“the Berryblue loan”).  Mr Watson also had what he referred to as the LH Investment Right, that is the benefit of the covenant by Messrs Astor and Aumonier (in cl 24 of the LLP Agreement for Abacus 1) that they would not, while interested in the business and for 12 months thereafter, be interested in any other ground rent business without the consent of Berryblue and Gaucin (paragraph 75 above); as the terms of this clause make clear, this did not in fact confer any positive right to invest on Mr Watson, but was in the nature of a non-compete clause, and was held jointly with Mr Richardson.  

(2)                   So far as affordable housing is concerned, Mr Watson had, through Ladoga, the Ladoga Investment Right conferred by the Ladoga JV Agreement (paragraph 91 above): this was a positive right to invest alongside HW in future investments in affordable housing.  (The Claimants’ case is that the Ladoga Investment Right was in fact held on trust for them, having been acquired by using Kea’s money as part of Project Edsel, but it follows from my conclusions on Project Edsel that I have not accepted this part of their case). 

(3)                   So far as residential property is concerned, Mr Astor had been discussing the possibility of a residential fund (also known as a REIT or real estate investment trust) with Mr Watson, saying in an e‑mail of 21 February that its investment focus would be 3-fold – acquiring distressed fully let secondary portfolios, acquiring distressed assets and refurbishing, and acquiring discounted stock from housebuilders – but Mr Watson did not have any existing rights in respect of such a fund.

“Project Spartan (“Spartan”) is an opportunity in which Eric Watson (“EW”) will take a number of established property investments and partnerships and contribute these to a 50-50 joint venture with Owen Glenn (“OG”).”

In his covering e‑mail, Mr Leahy told Mr Watson that the presentation was based on the structure they last discussed, but:

“if we are going down this route I think we probably have to have the presentation build up what you are contributing to the JV a little more than it currently does.”

He also commented that in terms of real assets being contributed, Mr Watson was effectively contributing his 50% of Abacus for a discount of about £8.1m (ie the value of £15.3m less the Berryblue loan paid off at £7.2m), and that:

“We could actually up the purchase value of Abacus even further – something to consider?”

As this suggests the figure for the value of Abacus in this draft, based on a 30x multiple, was not based on any actual negotiations with Mr Richardson (it is admitted in Mr Watson’s Defence that there had been no such discussions), but was a figure intended to be put forward to persuade Sir Owen of the value of what Mr Watson was proposing to contribute to Spartan.   

“Project Spartan (“Spartan”) is an established property investment opportunity, owned 50-50 between Eric Watson (“EW”) and another partner (“NR”), which is focused on building a substantial portfolio of UK and European property investments delivering superior risk-adjusted returns.”

Instead of providing that Sir Owen would provide a £75m investment to Spartan, it now proposed that Sir Owen would buy out Mr Watson’s existing partner for £22.5m, and provide a £50m five-year loan note.  It included statements that “Current discussions suggest” that NR’s 50% could be acquired for c. £22.5m, implying a valuation of £45m for Spartan; and that Spartan “is currently talking to a number of potential investors to provide a £50.0mn preferred note … to fund additional growth”.  It also omitted any reference to the Berryblue loan. 

The initial presentations to Mr Miller (29 March) and Sir Owen (1 April)

“What about my due diligence??

Eric tells me yesterday this investment could be worth billions -- Someone should take the time and effort to explain and not slap it on me at the 11th hour That’s your job David”

Mr Miller explained that the project was only presented to him on Thursday, and that having spent a couple of days with EW group and Will Astor group they reshaped the information and presentation so that it was readily understandable in advance of the meeting. 

(1)                   On page 2 of the 1 April presentation under the heading “Overview” (also in the 29 March presentation under the heading “Highlights”):

“Project Spartan … is an established property investment opportunity, owned 50-50 between Eric Watson (“EW”) and an additional partner (“PT”)…”

(2)                   On page 4 of the 1 April presentation under the heading “What is in Spartan” (also in the 29 March presentation under the heading “Strategy”):

“Spartan has a number of existing assets and opportunities…”

That is then followed by a list of the existing assets and opportunities (a largely similar list, although not including the opportunity to seed the residential fund, was in the 29 March presentation).  These include:

“Existing Ground rent portfolio…

Exclusive right to continue to work with Long Harbour Ltd on all future ground rent portfolios…[ie the LH Investment Right]

…the right to participate in up to 20% of all equity … in all future Affordable Housing projects… [ie the Ladoga Investment Right]

Opportunity to seed the first residential property fund and take share in the Fund Management Company… [identified on page 25 as a 33% stake]  

Homeground – (66% stake).  LH and Spartan have invested heavily …”

Those statements taken together are said to have amounted to a statement that all these assets and opportunities were jointly owned by Mr Watson and his existing partner through the business which they were said to own 50/50.

(1)                   I do not find the use of the word “opportunity” on page 2 of any assistance on this question: on any view Sir Owen was being offered an opportunity to invest.        

(2)                   The 29 March and 1 April presentations go to some trouble to refer to Spartan as something which already existed and had already done things, not just a vision of a future business.  The reference on page 4 to “Spartan has a number of existing assets and opportunities” is not easily understood as a reference to what it will have, especially as (i) in the 1 April version this is made more explicit by the heading being changed from “Strategy” to “What is in Spartan?”; (ii) under “Existing Ground rent portfolio” it states “Acquired ˜£50mn of ground rent assets over the past 18 months” which is clearly a reference to an established business; (iii) under “Future Affordable Property” it says “Spartan has the right to participate…”; and (iv) under “HomeGround” it says that “LH and Spartan have invested heavily in IT and personnel …”.  Similarly on page 17 under “Existing residential freehold portfolio” it says that “Spartan has consolidated 13,000 ground rents over the past 18 months” and gives an “Existing Portfolio snapshot”.  This last page was not in the 29 March presentation.  It must therefore have been added after Mr Leahy had explained the project to Mr Miller, as part of the redrafting that was carried out jointly by the two of them, which makes it unlikely that Mr Leahy explained that Spartan had not itself done anything over the past 18 months. 

(3)                   Moreover, the drafting history of the presentation shows that Mr Leahy initially drafted it as one where Spartan was presented as a new venture, to which Mr Watson would contribute various existing assets and opportunities.  This was the case with the 16 March, 17 March and 26 March versions.  These versions also explained that Spartan would acquire Abacus, by (i) buying out Mr Richardson’s 50% and (ii) Mr Watson contributing his 50% in return for Spartan paying off the Berryblue loan.  The version of 27 March, which formed the basis of the 29 March and 1 April presentations, was noticeably different.  Instead of referring to Spartan as an opportunity in which Mr Watson “will take a number of established property investments and partnerships and contribute these”, it now referred to Spartan as an “established property investment opportunity” and instead of listing the various assets and opportunities as ones which Mr Watson would assign to Spartan, listed them as existing assets and opportunities that Spartan had.  It also deliberately omitted any reference to the Berryblue loan.  Mr Watson admitted on the pleadings that on or about 27 March he and Mr Leahy decided to represent that he and Mr Richardson had equal interests in an existing business; and he confirmed this in oral evidence.  Having gone to the trouble of rewriting the presentation in this way, it would seem prima facie surprising if Mr Leahy then proceeded to undo the effect of this change by explaining that Spartan was not an existing business at all.

(4)                   The statements to the effect that Spartan was an existing business owned 50% by an existing partner and which owned the various assets and rights listed were intimately connected with the statements to the effect that what Sir Owen (or NP) was being offered was the opportunity to buy out the existing partner at a price of £22.5m and become a 50% owner of the business in his place (see below).  It would undermine the objective of persuading Sir Owen to do that if it were explained that Spartan did not yet exist and did not yet have any assets or rights. 

(5)                   Mr Leahy’s evidence in his witness statement was to the effect that he explained to Mr Miller that the idea was to pull together a collection of opportunities that sat outside Abacus and put them into Spartan; and that he remembered saying that the rights listed were sitting in different places and would have to be brought together.  He also said that he repeated the key issues discussed with Mr Miller when he met Sir Owen, and explained that after Mr Watson’s partner had been bought out, various assets and opportunities would be put into the new Spartan vehicle.  And in oral evidence he repeated that things would be pulled together and that the assets all sat in different places.  In relation to an issue like this (namely, what was said orally at a meeting more than 5 years before) witness evidence is necessarily of limited weight, but I will assume that Mr Leahy did explain that the rights were sitting in different places and would be all pulled together.  Nevertheless I accept Ms Jones’ submission that this is not inconsistent with, and does not take away the force of, the representations that Spartan was an existing business with existing assets which was owned 50% by Mr Watson’s partner.  A business can be carried on through a number of different entities, and as Mr Leahy himself said in his witness statement it is inevitable that behind an investment proposal there will be a large amount of complex moving parts, and the purpose of the presentation was not to deal with the complexities of the structure but to present the fundamentals of the proposal in a simplified form.  The fundamentals of the proposal that it presented were that Sir Owen should buy out Mr Watson’s existing 50% partner in a business which owned all the various rights and opportunities listed, and so replace him; and this is not affected by statements that the various rights and opportunities currently sit in different places and would all be pulled together into one place. 

(6)                   This last point can be simply illustrated.  After the presentation Mr Watson’s team started drafting a Term Sheet for Project Spartan.  One of the drafts (dated 12 April) made it clear that what was envisaged was a new vehicle (to be called at that stage Spartan Real Estate Ltd or SREL and initially to be wholly owned by an EW entity), and that this new vehicle would acquire the relevant assets and rights, such as the rights to Abacus, shareholding in Homeground, the Ladoga Investment Right and the like.  It provided that subject to due diligence and SREL successfully completing its acquisition of the required assets:

“Kea has agreed to purchase a 50% shareholding in SREL from EW Entity on the basis described in this terms sheet.” 

On 16 April Mr Leahy circulated his comments on the draft which included Comment M2 against this provision as follows:

“Can this be worded slightly clearer upfront that the cash is not going back to “EW Entity” but will be going to buy out an existing partnership in the Real Estate assets?” 

That shows that Mr Leahy saw nothing inconsistent between on the one hand Spartan being presented as a new vehicle which would be used to pull together a number of different assets which were currently sitting in different places, and on the other the cash that Kea was to contribute (the £22.5m) being used to buy out Mr Watson’s partner from an existing partnership in those assets.

(7)                   Any doubt as to what Mr Miller and Sir Owen in fact understood from the presentations is cleared up by their contemporaneous e‑mails.  When Mr Miller e‑mailed the presentation to Sir Owen (that is on 30 March, after his meeting with Mr Leahy and after revising the presentation with him) he described the proposal as follows:

“Spartan is a business owned 50% by EW interests and 50% by existing Partner.  The suggested deal is for the New Partner to take out the existing Partner by investing PDS 22.5 mil in the business (business then pays out existing Partner) and for the New Partner to provide PDS 50 mil in financing (3 year term at 8%) for start up financing.”

He also sent the same version of the presentation (on 31 March) to Mr Dickson (saying “Met with Eric Watson and his group and we came up with the attached revised presentation”) with an identically worded explanation.  These e‑mails make it clear that Mr Miller did indeed understand the opportunity that they were being offered as an opportunity to take out an existing partner who owned 50% of an existing business.  As for Sir Owen, he e‑mailed Mr Watson on 2 April saying:

“I have given my approval to proceed with the purchase of the existing partners shares and the initial note for the PDS50m”

It is apparent therefore that Sir Owen was also left with the impression that what was being proposed was the purchase of the existing interest of Mr Watson’s partner.

(8)                   I did not find Mr Miller’s evidence on this point reliable.  His witness statement supported Mr Watson’s case but in oral evidence he readily accepted that the presentation showed what it appeared to show. 

(1)                   On page 3 of the 1 April presentation under the heading “New Partner Proposal” (also in the 29 March presentation under the heading “Owen Glenn (“OG”) Proposal”) a diagram showed an arrow from a box marked “NP Vehicle” (“OG Vehicle” on 29 March) to a box marked “Spartan” with the legend:

“£22.5mn equity invested in order to buy out PT”

(2)                   The same diagram in each case showed an arrow from the box marked Spartan to a box marked “PT Vehicle” with the legend:

“£22.5mn paid out”

(3)                   On page 9 of the 1 April presentation (and also of the 29 March presentation):

“Current discussions suggest PT’s 50% can be acquired for ˜£22.5mn”

“Current ownership: 50% EW; 50% PT

Valuation: £45mn

NP to buy out PT for £22.5mn resulting in a 50-50 JV with EW”

the implication being that the £22.5m was an appropriate price to pay for half an interest in a business worth £45m.  It is also supported by a statement in a cash flow break down on page 7 that refers to the £22.5m as:

“Equity required to purchase 50%”

It is similarly supported by a statement on page 9 that £22.5m represented a:

 “˜60% discount to the NPV value at a 10% discount”. 

When read with the other statements on that page, what this refers to is a net present value (NPV) of Spartan calculated by taking discounted cash flows, based on the three asset classes of ground rents, affordable housing and the residential fund.  The NPV naturally depends on the discount rate selected, but at a 10% discount rate is shown as £118.4m, the reference being to the fact that £22.5m is at a c. 60% discount to the value of half this (£22.5m being 38% of £59.2m).  If the true expectation was that Mr Watson would have to pay £15.3m to Mr Richardson to acquire his 50% interest in Abacus and £7.2m to repay the Berryblue loan, then the £7.2m would not be being used to acquire his 50% of anything, but to benefit Mr Watson by discharging his liability.  There is not a hint of this in the presentation which had omitted any reference to the Berryblue loan.  Both Mr Watson and Mr Leahy accepted that Mr Watson had deliberately decided to omit any reference to the Berryblue loan, although they said that was because it would complicate matters and weaken his negotiating position.  The real reason in my judgment was that if it had been apparent that £7.2m of the £22.5m was being used to discharge the Berryblue loan, it would have shown that Mr Watson’s partner could be bought out of his 50% share for £15.3m, which would have exploded the idea that £22.5m was needed to acquire his 50%, or that the business which he was represented as owning 50% of was worth £45m. 

(1)                   In January 2012 Mr Astor was in discussions with a potential purchaser for the Abacus portfolio, M&G.  Mr Richardson’s reaction was that “This has got to work, it just has to”, and when Mr Watson commented that it did not look as if it was, Mr Astor replied that it was a long process and you had to expect a few ups and downs, and that “Neil is just a bit fixated at the moment”.  Mr Watson accepted in evidence, when shown this e‑mail exchange, that he believed Mr Richardson would be a seller.

(2)                   Mr Leahy’s first thoughts on 9 March suggested buying out Mr Richardson at a 23x multiple which would cost £8m, but convincing Sir Owen that the portfolio was worth £20m at a 26x multiple (paragraph 217 above).  Although the numbers were preliminary, it is noticeable that neither Mr Leahy nor Mr Watson suggested then that the true value of the portfolio was in fact more than £20m, and the 26x multiple was in fact itself more than Mr Astor was suggesting (see below). 

(3)                   Mr Leahy’s first draft of the presentation on 16 March proposed buying out Mr Richardson at £15.3m (a 30x multiple), but this figure was not derived from any discussions with Mr Richardson as there had been none.  Nor was it derived from any of Mr Leahy’s queries to Mr Astor.  On 5 March when he was trying to get some “Big picture numbers” he had suggested to Mr Astor an assumption that ground rents could be bought at 19x multiple and sold at 30x multiple, but Mr Astor had replied on 6 March with assumptions of a gross cost of 20x and sales at 25x.  On 8 March Mr Leahy had tried modelling with these figures and queried with Mr Astor that the returns looked too good, to which Mr Astor replied that the big questions included: “is the exit really there at 25x”. 

(4)                   After the presentation to Sir Owen, Mr Watson and Mr Leahy brought in Mr Flay and Mr Bruce Armitage of Cullen in New Zealand to assist with documenting the deal.  On 5 April Mr Flay asked Mr Leahy how the Berryblue loan was to be dealt with as part of the buyout of Mr Richardson, and what the current balance was.  Mr Leahy replied that the loan was £5m and now around £7.2m with interest, and that it was “included in the £17mn we have estimated to take NR out of the deal”.  Mr Watson’s immediate reaction was “That can’t be right” but very shortly afterwards he corrected himself as follows:

“Yes it can. 

His 5m plus my 5m plus 2.2 pref plus his share of profit 5m = 17m+”

In oral evidence Mr Watson said that this was the beginning of a negotiation with Mr Richardson, and a suggestion of how to approach him, but this is difficult to square with the statement that the £17m was what they had estimated to take him out of the deal.  As Mr Watson’s break down indicates, the £17m equated to paying him £10m for his 50% share of the portfolio, not £15.3m.    

(5)                   On 6 April Mr Armitage asked Mr Leahy if what he meant was that Sir Owen would acquire Mr Richardson’s interest in Abacus and the Berryblue loan so that Mr Watson would become indebted to Sir Owen.  Mr Leahy’s response to Mr Armitage (copied to Mr Flay, Mr Watson and Mr Gibson) was as follows:

“Hi Bruce – sorry this is quite complicated! No OG doesn’t purchase the loan but we are eliminating this loan as part of this transaction.  So, the £22.5mn will buy:

A)    NR’s 50% ownership in the ground rent business

B)     Will payback NR for the loan eric currently has outstanding to him.

C)     The balance we need to use to buy out NR from his position in the american apparel loan and use up the rest in fees etc. (Need to think about this).

The real challenge with this is that although we want to pay back NR his loan out of the funds from OG (hence eliminate [EW’s – it reads “OG’s” but I accept this must be a mistake for “EW’s”] liability), this should be irrelevant and separate to OG – we simply want him to see 22.5mn being paid out to buy NR’s 50% share and we then use those proceeds to buy NR out, clean up the Abacus loan and American apparel loan etc.”

This e‑mail is very revealing and confirms both that what Mr Watson and Mr Leahy wanted Sir Owen to see, and believe, was that the £22.5m was going to be used to buy Mr Richardson’s 50% share, and that the reality was that they expected to be able to buy his share at a good deal less than £15.3m so that they would not only have the money to pay off the Berryblue loan but also money left over for other matters, including “cleaning up” the so-called American Apparel loan (it being admitted by Mr Watson that this related to separate dealings between him and Mr Richardson).

            I find that Mr Watson and Mr Leahy did not think Mr Watson would need to use £15.3m to buy out Mr Richardson’s 50% share, and that they expected he could do so for significantly less, around £10m.

 “As mentioned previously, deal with NR is YOUR deal, he can’t know that OG is involved and said you and I would figure out how to structure this so NR doesn’t realise.”

Sir Owen’s evidence was that Mr Leahy did say that he was not to be in touch with the partner and that Eric would deal with him.  I accept therefore that Mr Leahy told Sir Owen that Mr Watson would deal with his partner so as not to alert him to Sir Owen’s involvement. 

“If the total business is valued at PDS 45 mil and PDS 20 mil is recouped in year 2 then the hypothetical goodwill in the business is about PDS 25 mil, of which your 50% share would be PDS 12.5 mil.”

(I do not need to consider if Mr Miller was right to refer to the “goodwill in the business”; as this illustrates, in the context of Project Spartan “goodwill” was used to refer to what Kea would be paying for over and above existing assets, and in effect consisted of the right to access the various other opportunities which were presented as part of the Spartan business.)  Mr McCaughran said that that would obviously raise a question as to why all the goodwill payment was to be paid to the existing partner if it was known that the goodwill was made up of discounted cashflow values attributed to all three classes of investment (ground rents, affordable housing and residential), and that the existing partner did not own 50% of all the rights and opportunities to invest in those classes.  He said that Mr Miller knew as at 1 April that not all the rights were jointly owned by Mr Watson and his existing partner as he knew that the Ladoga Investment Right was owned by Mr Watson and not his partner.  I accept that the so-called goodwill was based on the £45m valuation which was itself based on discounted cashflows from all three asset classes; but I do not accept that Mr Miller understood at the time that Mr Watson’s partner had no rights in relation to the affordable housing.  Admittedly in his witness statement he said that the right to participate alongside HW in affordable housing projects was a right which Mr Watson owned (rather than being jointly owned with his existing partner) but his oral evidence on this point was a good example of how different his actual recollection was from what he had put his name to in his witness statement.  He first accepted that he understood that Spartan, a 50/50 business between Mr Watson and his partner, had the right to participate alongside HW; then that he took the presentation as it had been presented; and then when it was put to him that he did not know that Mr Watson himself owned one of the rights, namely the right to co-invest with HW, said:

“Only because I didn’t really understand what the relationship was between Mr Watson and his existing partner.  They were both operating out of offshore companies and structures, and to try and pin this down to this exact point, it was a grey area.”

(1)                   Mr Watson and Mr Leahy believed that the assumptions underlying the valuation of Spartan at £45m were justified.

This is admitted by Mr Watson in his Defence (although in general he does not plead as to whether any representations were made as to Mr Leahy’s belief). 

(2)                   The statement on page 9 of the 1 April presentation (and also in the 29 March presentation) that:

“The existing Ground Rent portfolio will likely be subject to a bond refinance in next 12 months at a ˜26x valuation, resulting in the release of ˜£20mn to the Spartan investors”

This is relied on as a representation that Mr Leahy and Mr Watson believed that such a refinance would be possible, and expected such a refinance to take place; Mr Watson admits only that it was represented that there was a realistic prospect that it would take place.  I do not think either is quite correct: the natural meaning of the statement is that Mr Leahy and Mr Watson believed that it was likely that such a refinance would take place, which is a more definite state of mind than a belief that there is a realistic prospect of doing so, but not so definite as an expectation that it would take place. 

(3)                   The statement on page 17 of the 1 April presentation (not in the 29 March presentation) that:

“Current offers on the table to securitize cash flows into a bond at 25-28x multiple

Proceeds will … deliver £20-23mn cash proceeds to Spartan partners”

These statements are admitted in Mr Watson’s Defence.

(4)                   The statement on p 18 of the 1 April presentation (also in the 29 March presentation) that:

“LH’s team can acquire and consolidate assets at ˜19x income and securitize the cash flows into a 60-year bond at 25-30x”

This is relied on as a representation that Mr Leahy and Mr Watson believed this to be correct; Mr Watson does not admit this but admits a representation that it was justifiable to model the numbers on this basis.  On this I prefer the Claimants’ case: the statement is not a statement of what might be possible but what Long Harbour is actually able to do, and in my view does include an implied representation that Mr Watson and Mr Leahy believed this to be something Long Harbour could do.

(5)                   The statement on page 2 of the 1 April presentation (not in the 29 March presentation) that:

“Affordable Housing:

►    Execute on £450m of projects over next three years – substantial opportunity to increase this”

and the statement on page 19 of the 1 April presentation (also in the 29 March presentation) under “Affordable Housing – asset overview” that:

“Longer term opportunity to expand commitment from HW or build larger fund”

These are relied on as representations that Mr Watson and Mr Leahy believed that there was a substantial opportunity to invest more than £450m in affordable housing over the next three years, and that there would be a longer term opportunity after that.  These are admitted in Mr Watson’s Defence.

(6)                   The statement on page 6 of the 1 April presentation (also in the 29 March presentation) in relation to the residential property fund that:

“Spartan will seed an initial acquisition with ˜£25mn of equity …”

and the statement on page 23 of the 1 April presentation (not in 29 March presentation) under “Project Royal Key statistics”:

“►    Equity required of ˜£23-£25mn”

These are relied on as representations that Mr Watson and Mr Leahy believed that the amount of equity required for Project Royal and to seed the proposed residential fund would be £23-25m.  Mr Watson points out in his Defence that the first statement is not a statement of what equity was required but simply what Spartan proposed to do; and that the second statement is on the same page as a box referring to the Property Fund investment as a flexible structure under which Spartan’s seed funding could either be provided by purchasing Project Royal, or by simply seed funding the property fund with c. £25m of equity.  That is true but it does seem to me that implicit in the statements is a representation that Mr Watson and Mr Leahy believed both that the equity required for Project Royal was £23-£25m, and that the amount required to seed fund the residential fund was £25m.   

“Basically Axa is a 50 yr bond at 22.5x exit but we keep reversion.  M&G is 25x but we lose reversion.”

There is no trace in the documentary record of Mr Leahy being told of any other offer on the table.  The statement that there were current offers (in the plural) to securitise at 25-28x was therefore false: there was one offer to securitise at 22.5x, and one offer to buy the business at 25x.  Mr Leahy accepted in cross-examination that the statement was probably inappropriate (and although he suggested in cross-examination that it would have been corrected in the meeting, it was admitted by Mr Watson in answer to a request for further information (an answer which was adopted by Mr Leahy) that Mr Leahy did not at his meeting with Sir Owen contradict or retract any of these statements).  Mr Watson, after referring to the fact that this was a sales pitch, suggested that Mr Leahy’s view was that they could get those sort of prices, but this is not the same as offers being on the table, and he accepted that that language was “very promotional”.  In fact it was plainly untrue and known to Mr Watson and Mr Leahy to be untrue.

“On the REIT funding – Will has sent me a little more information on this existing portfolio but the equity needed is £35mn – this takes our capital needs a little too high and I don’t think it will generate a great return as the JV only gets the expected 10% IRR on that money and is topped up with 50% of the REIT Mng.Co.  I haven’t used these numbers in this presentation – just gone with a seed 25mn financing into REIT.”   

That makes it clear both that Mr Leahy knew that the equity required for Project Royal was £35m, and that he had deliberately chosen to state that £25m was required to make the returns look better.  This was only an early draft but in the final 1 April presentation he kept a similar statement that the equity required for Project Royal was £23-£25m.  In his evidence Mr Leahy made the points that the equity required for Project Royal might change, and in any event that Project Royal was only one possible way for Spartan to seed the fund; neither of these however justify the specific statement as to what equity was required for Project Royal.  It was not suggested that there was any further information from Mr Astor that could justify that.  That was therefore a false statement and known to Mr Leahy to be false, and Mr Watson had no reason to think it was true. 

“Assume we spend £100 per annum for the next 3 years (we have already spent £80m this year)… This will only be a 3 year opportunity.”  

On 8 March Mr Leahy duly modelled the profits on affordable housing assuming £100m a year for 3 years only.  Then on 28 March he e‑mailed Mr Astor asking:

“What scale you comfortable on the Affordable?  Over and above Edsel, it is currently at 100mn of projects a year for three years (30mn of Hutch equity) – could we up that to 150mn or is that also not supportable?”

Mr Astor replied “£150m is target” and Mr Leahy responded:

“Ok, I will up that to an additional 150mn a year as opposed to 100mn – helps the numbers a bit.”

That is the source of the £450m figure which appears in the 1 April presentation.  There is however nothing from Mr Astor which suggests that there was a “substantial opportunity to increase this”; nor is there anything from Mr Astor about a “longer term opportunity”.  Mr Leahy said in oral evidence that Mr Astor was talking about the specific right to co-invest with HW, but HW did not come into deals to deploy £50m or £100m, they had billions of capital to deploy and although HW may have made an initial commitment of a smaller amount, their expectation was that the opportunity would be huge; and even if HW had decided to pull out after 3 years, Spartan would continue to be able to work with Long Harbour to deploy significantly more capital into that space, and that it was perfectly reasonable to suggest this opportunity.  I have my doubts as to whether Mr Leahy was really justified in asserting this, but I am prepared to give him the benefit of the doubt, and assume that he did believe this, which means that this representation was not untrue.

“Q:  Why does it say PT’s 50% can be acquired if what you really mean is: we can buy him out of all his interests, including a note?

A.  I think we felt at this point in time this was a simple way of presenting the way the deal was going to pan out, which was that 22.5 million had to go to Neil Richardson.

Q:  But it is not for his 50%, is it?

A.  It is to enable Kea to come to a position that they have 50% in this overall package of opportunities.  But the payment itself, you’re right, effectively an element of it was going towards paying down a liability, which had to also be bought out in order to get Kea to be a 50% partner in this venture going forwards.”

Paying £22.5m to acquire PT’s 50% may have been a simple way of presenting the proposal, but it was not a truthful one.

“Investors should not rely on the information contained in this document as various forward looking statements are based on internally completed analysis and real results could vary materially from those presented in this document.  No warranties of any kind are given with respect to the accuracy, appropriateness or completeness of information contained herein.  All investors should conduct their own due diligence as appropriate for an investment of this type.  No person or entity shall have any liability relating to or resulting from the use of the information contained in this presentation.  Only those representations or warranties which are made in a final definitive agreement regarding an investment in Spartan when, as and if executed, and subject to such limitations and restrictions as may be specified therein, will have any legal effect.”

The terms of this disclaimer are pleaded in Mr Watson’s Defence. 

From the presentations to Mr Leahy’s e‑mail of 28 May 2012 – the draft Term Sheets

“Per discussions with vendors, balance of value, which amounts to a total of £13.1mn, has been agreed to be paid to Berryblue as part of the JV’s purchase of 50% share in GR portfolio (“Goodwill Payment”), on the basis that value can be returned to appropriate parties through alternative means – ie Berryblue to receive £4.9mn + £13.1mn = £22.5mn in cash.”

Taking that at face value, it would suggest that the proposals had already been discussed with Mr Richardson and he was agreeable to them.   

“Due to ongoing circumstances, JV is unwilling to pay EW-associated vehicles any goodwill for any assets”

I accept Ms Jones’ submission that that reflects Mr Leahy’s (and Mr Watson’s) understanding that Sir Owen and his interests were unwilling to pay any goodwill money to Mr Watson or his vehicles.  That explains why what was proposed was to make it look as if the entire £22.5m was going to Mr Richardson. 

“We have convince JV trust that BB’s [ie Berryblue’s] interest in GR and HG [ie Ground Rents and Homeground] are worth £22.5mn”

Ms Jones suggested that this should be read as “We have convince[d]…”; I think what might in fact have been meant was “We have [to] convince…” as the other items on this list are things to do, but on either reading it is further evidence that Mr Leahy understood that the intention was that Messrs Miller and Dickson should believe that the £22.5m was going to pay out Mr Richardson for his interest in the assets.    

“general message that we probably have the ability to get NR across line in doing this deal in relation to our assistance on the structuring side”  

This indicates Mr Leahy’s confidence that Mr Richardson could probably be brought on side. 

(1)                   At 12.35pm on 9 May Mr Leahy produced another proposal document, headed “Strictly confidential and for discussion purposes only” and stating that the objective was “sale of BB via most efficient manner.  EW liquidity into New Venture”.  The proposal included (i) removing the Berryblue loan from Berryblue before Berryblue was sold and settling it, so that Mr Richardson would receive £7.5m; (ii) Park (as set out above, a trust associated with Mr Watson) acquiring Berryblue for £22.5m; and (iii) £13m of this to be held in escrow, with a mechanism to calculate final amount to be invested into “New Venture”.  What this therefore envisages is that Park would appear to acquire Berryblue for £22.5m, but up to £13m of this would be returned, thereby providing cash for a new venture of Mr Watson’s. 

(2)                   At 16.43 that afternoon, Mr Leahy produced another document.  This set out what the effect would be if the M&G deal were worth (i) £20m or (ii) £22m.  In each case the “Price paid by Spartan” would be £22.5m.  But if the M&G deal were worth £20m, the amount “due to Neil” would be £10m, and “Profit to Eric from NR” would be £12.5m, whereas if the M&G deal were worth £22m, the amount “due to Neil” would be £11m, and “Profit to Eric from NR” would be £11.5m.  In each case Mr Watson would also receive a “Profit from Spartan” (of either £10m or £11m, so making Mr Watson’s total receipts £22.5m in either case).  Mr Leahy said that he did not recall this spreadsheet specifically, but was sure that Mr Watson was wanting to analyse the different positions he would be in depending on where he ended up with Mr Richardson.  That is I think inaccurate: what the spreadsheet shows is the positions Mr Watson would end up in depending on what the M&G deal was worth.  But in each case the arrangement with Mr Richardson is the same: although the price paid is £22.5m, he only actually keeps half the value of the M&G deal, the balance being returned to Mr Watson.

(3)                   The next morning (on 10 May) Mr Leahy e‑mailed Mr Kevin Thorne of Grant Thornton, who were providing tax advice.  He said:

“NR is happy with our proposal and we need to discuss 2 parts of it...:

1.      The paydown of the Gaucin to Berryblue loan – approx. £7.5mn – needs to be done as step one, I think. Need to think about whether this occurs post transferring the note out and settling into another vehicle or if we settle into B.blue and then it dividends out the cash?

2.      Purchase of Berryblue by Park Trust.  NR has some tax planning considerations as to how this is structured.”

That clearly indicates that a proposal had been put to Mr Richardson in some detail and that he had said that he was happy with it subject to some structuring for tax planning purposes. 

(4)                   On the evening of 9 May Mr Leahy sent to Mr Miller and Mr Dickson the draft Term Sheet for Project Spartan.  This provided for Kea to lend £22.5m to Spartan, for Spartan to lend the £22.5m to Park, for Park to use its best endeavours to acquire the shares in Berryblue for £22.5m, and for Park to then transfer the Berryblue shares to Spartan for £22.5m (thus repaying the loan from Spartan to Park).   

“use its best endeavours to acquire the shares in Berryblue … for a total amount of £22.5 million”

Park would then transfer the shares in Berryblue to Spartan for £22.5m, which would repay the loan from Spartan to Park. 

 “use its best endeavours to procure that Newco acquires the Berryblue Assets … for a total amount of £22.5m” 

with Park then transferring the shares in Newco to Spartan for a nominal sum.  The change from acquiring the shares in Berryblue to acquiring Berryblue’s assets appears to have come from Mr Richardson’s tax advisers.  Mr Leahy met Mr Dickson and Mr Maislish on 15 May and went through the revised Term Sheet.  Mr Maislish’s notes of that meeting show that he understood that the proposal was that Newco would buy Berryblue’s assets for £22.5m. 

“4.  Newco will buy the Berryblue Assets from Berryblue for £22.5M.”   

On 21 May Mr Leahy sent back to Mr Maislish a further revision based on Mr Maislish’s draft.  This made a number of changes but left the description of transaction 4 unchanged, as it was in a further draft circulated on 23 May.

The M&G deal and its impact – Mr Leahy’s e‑mail of 28 May 2012

“I have got some good news re. the M&G deal on the ground rents — looks like it was finalized over the weekend - an agreement to purchase Abacus assets at 27x as well as substantial commitment of capital for more ground rents in the future which will deliver significant value into the Long Harbour ground rent management company, which Spartan will have the right to buy in at a substantial discount. I think this also delivers the opportunity to substantially simplify the Spartan deal and I am working on laying out exactly how I think that might work today — result will hopefully be less DD, simpler structure, less tax but same commercial outcome.

Slight irritating flip side of all this is that it might change the structure of the Spartan term sheet a bit (not commercially, just how things move around). As such — I think best if you meet with Eric and me tomorrow, before you meet with DMM, to discuss how we think the deal should now be structured before you meet with DMM to finalize a term sheet which will likely move around. After we have our meeting tomorrow, you and I can both go and meet DMM together (either later on Tuesday or on Wednesday) to lay out how the new structure will work and we can get the new term sheet finalized whilst you are here.”

“OG will want the flexibility to buy GRs through Spartan also – need to manage this”

and he also referred (under “More detailed discussion points”) to:

“General discussion around the actual ability / process in which LH could continue to buy GRs for the existing LLP partners (Spartan, post deal with M&G)”

and to:

“Timing of M&G versus OG – how can we manage this…Cannot really sign M&G up for exclusivity if we want to do a deal with OG?”

“These guys are very ready to go.  If we do the m&g deal, I reckon we could get them to buy 40% of LH GR management business at a 12mn valuation, if you wanted them to.. That would be almost 5mn off the table.  Peter is excited about this.”

That indicates, and I find, that Mr Leahy had already raised the possibility with Mr Dickson that Abacus might be sold to M&G, and that if that happened, it might be possible for Spartan to acquire a share of the management business.  That is consistent with a manuscript note (albeit undated) on a hard copy of the 1 April presentation, which Mr Miller thought was in Mr Dickson’s handwriting and which reads:

“Get big institution to bring on board and sell earlier + take a share in management company.”  

“We could see if we can get this across the line – would you do the deal?”

“It really is critical that we have this in an agreed form by Monday [ie 28 May] … as we need to sit down with Peter in order to try and re-hash the Spartan deal in light of M&G.” 

On 27 May Mr Leahy e‑mailed Mr Astor again to the effect that Mr Watson wanted him and Mr Aumonier to agree in principle to Spartan acquiring 40% (disproportionately as discussed), “assuming we could get it across the line on these terms”, and on the morning of 28 May reiterated that it was “key for us to get sign off on that 40% so we can pitch it to Peter this afternoon”. 

“Think we can get you and James your 1mn each, without selling more shares.”

He followed that up on 30 May with a spreadsheet showing Spartan acquiring 40% (26.7% from Mr Watson and 6.7% from each of Messrs Astor and Aumonier) for £6m (a valuation of £15m), which would deliver £4m to Mr Watson and £1m to each of the others, describing it in the covering e‑mail to Mr Astor as “what we are shooting for”.  In the event the proposal put to Kea (Mr Dickson and Mr Maislish) on 30 May was that 40% of LHRF be acquired for “up to £8m”; and by 8 July when a draft of the Project South Sea Term Sheet was provided to Messrs Miller and Dickson, the proposal was that 40% be acquired for £7m.

From 28 May 2012 to signature of Spartan Term Sheets on 7 June 2012

“Implied goodwill being paid by Spartan - £24mn (50% to be paid in cash and 50% in form of EW ownership in Spartan)”

Under “Spartan proposal adjustments” it explained that Spartan would no longer buy Abacus 1, 2 and 3 but that Mr Watson and Kea would each put the cash equivalent (£10.5m) into Spartan, and continued:

“2.  Separate out Goodwill and purchase that separately – avoids potential stamp duty issues with attaching Goodwill to Berryblue and Gaucin purchases (Risk that HMRC attributes total value to assets as opposed to some to goodwill as a result of ‘market value’ approach)

3.  “Project South Sea” – deal papered to grant the right to buy into LH GR Company at substantial discount to future value along with incremental rights to continue Ground rent deals post M&G capital is deployed

4.  Spartan to buy South Sea from holders for the goodwill component of the original proposal…”  

and under “Do not buy Abacus 1, 2 and 3 – why?” it referred among other things to:

“Buying Berryblue assets for £22.5mn (including the goodwill price) potentially creates a ‘stampable’ purchase price for the assets of 22.5mn instead of the rightful true asset value (excluding goodwill) of £10.5mn…

Before selling something to Spartan for 45.0mn and then essentially sell for 20.0mn – aesthetically doesn’t look great.  Now goodwill attached to purchase of Project South Sea – far more robust structure for beneficiaries.”

The document contained a diagram which showed Newco (labelled “Newco – “Goodwill” Owns South Sea”) as owned as to 50% by each of two owners, Holder 1 and Holder 2; Mr Watson as contributing £10.5m cash to Spartan (in lieu of his interest in Abacus) and Kea as contributing £22.5m; and Spartan acquiring Newco at a total value of £24m, in the shape of £12m of the cash from Kea which would be paid to Holder 2, and £12m in shares in Spartan which would go to Holder 1, such that “Post deal, Kea and EW Entity will have 50-50 holding” in Spartan.

“1    Form Newco (BVI) – owned by Park + another

        Will have in it Ladoga co-invest + new JV Agreement (right to buy up to 40% of Long Harbour Ground rent co for up to £8M)

        Kea 12.5M loan (terms as 10M)

2    Spartan acquires Newco from Park + another for £45M less net received consid by Gaucin & Berryblue from M&G – prob about £25M – 50% cash + 50% outstanding [?] as a loan”

This confirms that Mr Leahy explained Holder 1 as intended to be Park.  Mr Maislish’s written evidence was that he had a clear recollection of raising with Mr Leahy at the meeting who the “+ another” was, and that Mr Leahy told him that he was deliberately referring to Mr Watson’s partner as “another” rather than by name to ensure that it was not possible for Kea and the partner to get in touch; they (by which he assumed Mr Leahy meant Mr Watson and himself) were concerned that if the partner became aware of the Spartan deal, he might either not want to sell or would seek to do so at a different price.  Mr Maislish added that Mr Dickson indicated to him at the meeting that he was already aware of this and it was acceptable.  His oral evidence was to the same effect and was unshaken in cross-examination.

(1)                   First, he said that Mr Maislish already knew the identity of Mr Watson’s partner, namely Mr Richardson.  For this, Mr McCaughran referred to a document which Mr Maislish produced from his files.  This is a copy of the first draft of the Term Sheet for Project Spartan (as sent by Mr Leahy to Mr Dickson and Mr Miller on 9 May) with extensive manuscript markings, one of which identifies Berryblue as “Neil Richardson” and another of which notes “NR selling assets of Berry Blue Not Berry Blue – no legacy issues as buying assets”.  Mr Maislish’s evidence was that the writing was not his; he thought that it was either Mr Dickson’s or Mr Miller’s and that it was likely he had swept up the notes at the end of one of the meetings he had had on 11, 14 or 15 May.  Mr McCaughran suggested that that meant that Mr Maislish had been at a meeting at which Mr Richardson’s name had been mentioned and therefore that he already knew the name.

(2)                   I do not accept this suggestion.  The handwriting appears in fact to be that of Mr Dickson (this was not disputed).  He was noting on a copy of the first draft Term Sheet the change to purchasing the assets of Berryblue as opposed to its shares.  In an e‑mail to Mr Dickson of Sunday 13 May Mr Leahy referred to this change and said “we went through that in our meeting” and given the timing, that must I think be a reference to a meeting that Mr Dickson had with Mr Leahy on 11 May (before meeting Mr Maislish).  In the circumstances I think it most likely that Mr Dickson made the manuscript notes at that meeting on 11 May.  Mr Maislish was not present at that meeting.  Accepting therefore that this document shows that Mr Dickson knew the name of Mr Richardson, and that Mr Maislish probably swept it up at the end of one of his meetings with Mr Dickson, I nevertheless agree with Ms Jones that it does not establish that Mr Maislish was present at a meeting at which Mr Richardson’s name was mentioned, or undermine Mr Maislish’s evidence, which was to the effect that he did not recollect the name being said and that he did not recall the name Richardson at all. 

(3)                   Nor was there in fact any evidence that Mr Miller knew the name of Mr Watson’s partner: when asked in oral evidence, he said he did not think he did, but he might have done; it is also not clear if he was at the meeting on 11 May.  I find therefore that all that has been established is that Mr Dickson (and possibly Mr Miller) knew Mr Richardson’s name, not that Mr Maislish did.   It might seem odd that Mr Dickson knew Mr Richardson’s name and did not tell Mr Maislish, but Mr Maislish’s account of Mr Dickson telling him not to concern himself about it (in oral evidence he said that Mr Dickson, who was sitting on his left, obviously knew all about it because he raised his hand and said “David, it is okay” and so he moved on) rings true and is consistent with his evidence that in both Project Edsel and Project Spartan his instructions were not to get involved in the commercial merits of the transactions.  I accept that this however does not affect the point that it would have made no sense for Mr Leahy to say that they did not want Kea knowing the name of the partner when Mr Dickson already knew it.  This is a point I come back to below.

(4)                   Mr McCaughran’s next point was that Mr Maislish could not have understood that Mr Watson and his existing partner were each contributing half the business that Kea was funding Spartan to acquire, and that the £12m shown on the document (or £12.5m as it in due course became) was going to the partner.  He knew that Spartan was a new joint venture company being set up to acquire assets; that Gaucin and Berryblue owned the Abacus assets, but the Ladoga Investment Right was owned by an Eric Watson vehicle (and Mr Dickson had told him this was very valuable); that it was intended that Spartan would invest in residential property with Long Harbour using Mr Watson’s relationship with Long Harbour; and that the £12m (or £12.5m) was for goodwill, which would have included the goodwill for the Ladoga Investment Right and the access to residential property deals.  He cannot therefore have understood that the goodwill payment would be going to Mr Watson’s partner as on the information he had, that partner had no apparent interest in the rights and opportunities that were the subject of the revised Spartan deal.  Although he had said in his witness statement that he understood that after the revision to the deal to take account of the sale of the Abacus assets to M&G, Kea would pay some £12.5m to enable Spartan to acquire assets from a third party, in oral evidence he said he could not remember what assets he was referring to as he did not have the transaction in his head any more; and when it was put to him that it must have occurred to him that the £12.5m payment could not all be going to the owner of Berryblue, he said that he did not remember what occurred to him. 

(5)                   I accept that Mr Maislish had material, had he thought it was a matter he needed to concern himself with, which might have given him reason to query why the £12.5m was still going to Mr Watson’s partner.  But I do not think that is a reason to reject his evidence that he thought the payment was still going to Mr Watson’s partner.  I do not find it surprising that he could not when giving oral evidence reconstruct what he understood would be acquired from the partner; indeed he said at one point that when Mr Leahy explained why the revised proposal was really the same, “it was going, as far as I was concerned, at 100 miles an hour”.  What appears however from Mr Leahy’s “Changes to Proposal” document – and hence what Mr Leahy would, I find, have explained at the meeting – was (i) that previously the £22.5m was going to Berryblue, of which part represented payment for the Abacus assets and part for goodwill; (ii) that the Abacus assets would no longer be acquired but the payment for goodwill would still be made; (iii) that the goodwill payment would now be used to acquire Project South Sea, that is Newco (or its assets); (iv) that Newco was owned by two 50% owners, of whom Holder 1 was a Mr Watson entity (identified as Park, as Mr Maislish wrote down) and Holder 2 was not identified as such.  I see nothing improbable in Mr Maislish understanding from this that the payment of £12/£12.5m for goodwill going to Holder 2 was going to Mr Watson’s partner, just as it would have done when the payment of £22.5m was going to go to Berryblue. 

(6)                   I can deal with Mr McCaughran’s next point very briefly.  This relied on a typed note that Mr Maislish made in preparation for the meeting on 15 May which referred to Park incorporating Newco, which would acquire an investment right (that is the Ladoga Investment Right) and enter a joint venture (that is Project South Sea with LHRF) and that Spartan would buy Newco or its assets.  This note therefore is completely silent as to the involvement of Berryblue, and Mr McCaughran said it suggested that Spartan would acquire Newco or its assets from Park.  But whatever Mr Maislish might have understood or thought when he prepared his typed note, by the time of the meeting on 30 May the proposed transaction was clearly presented as one under which Newco would have two separate owners, who were indeed to be treated differently. 

(7)                   Mr McCaughran also made the point that Mr Miller’s evidence did not support Mr Maislish’s account.  Mr Miller was not at the meeting on 30 May but in his witness statement he said that Mr Dickson updated him after the meeting and that one of the key points was that Mr Watson’s partner would be removed from the transaction and all the goodwill value would be going to Mr Watson’s interests.  I am however unable to place any reliance on this evidence.  First it was not Mr Leahy’s evidence that he had expressly said this – what he said was that it was “inherent” in the discussion, which I take to mean that it was not expressly said.  Second, when Mr Miller was asked in oral evidence whether he recalled Mr Dickson passing on to him what Mr Maislish said had been said, he answered “Generally that’s the context of what my understanding was”.  Mr McCaughran said that no attempt was made to explore this further or put to him clearly that his witness statement was wrong, but I am satisfied that this is an example of how little reliance can be placed on Mr Miller’s written evidence. 

“Park vends in its half of Newco for 12.5mn also, left in as vendor loan.”

This is pleaded as a further representation that by the time Spartan acquired Newco, Newco would only be half owned by Novatrust, the other half being owned by some third party.  I agree that it clearly represents that Park will only own half of Newco, and the other half would be owned by someone else.  That was saying no more than the diagram on Mr Leahy’s “Changes to Proposal” document with its depiction of Holder 1 and Holder 2.  The 7 June e‑mail however by itself said nothing about who the owner of the other half would be.  I do not think it can be treated as a representation that the owner of the other half would be Mr Watson’s existing partner, although it is undoubtedly consistent with the statement to that effect at the meeting on 30 May.

“A new company (“Newco”), to be incorporated in The British Virgin Islands or some other location agreed by the parties and intended initially to be owned by Park Trust, will by the time this Terms Sheet becomes unconditional own (i) the Investment Right; and (ii) the benefit of a joint venture agreement to be entered into by Newco with the company to be established by the owners of Long Harbour Limited (“Long Harbour”), which joint venture agreement will include certain rights relating to deployment of capital and the right for Newco to acquire up to 40% of Long Harbour for up to £8 million.”

(The Investment Right was the Ladoga Investment Right).  The Term Sheet provided for the following: (1) Spartan would acquire Newco (or its assets) for a consideration equal to £45m less the net sale proceeds received by the respective owners of Gaucin and Berryblue from the sale of them (or their assets) to M&G; (2) the consideration would be satisfied in part in cash and in part by way of vendor’s loan (see below for the precise terms of this provision); (3) Kea would lend the required cash to Spartan (in the same sum as the vendor’s loan); (4) Kea’s loan and the vendor’s loan would be on the same terms as the Kea and Summit loans in Term Sheet 1.  As in Term Sheet 1, there was then provision in respect of Spartan’s business, for Kea to carry out due diligence and confirm that it was satisfied, and for the parties to negotiate documentation in good faith.

“2. The consideration for the acquisition of the Newco Shares or the Newco Assets by Spartan will be satisfied in two equal parts; one will be cash paid by Spartan and the other will be a loan made by one of the owners of Newco to Spartan (“Vendor's Loan”).”

This is relied on as containing a further misrepresentation, the pleaded case being that it represented that the money (c. £12.5m) cash which Kea was to pay Spartan if the M&G transaction went ahead would be used by Spartan to acquire the shares or assets of Mr Watson’s business partner, a third party.

From the Term Sheets to the July agreements

Newco

(1)                   Mr Watson and his business partner (accepted by Mr Watson in his Defence to be a reference to Mr Richardson) wished to set up a JV company (ie Newco) to hold an agreement that delivered a right to buy into a property management company (ie LHRF), but currently Mr Watson’s partner did not have an offshore structure so the suggestion was that he become a client of EH&P and EH&P set one up for him.

(2)                   The rights would have been obtained by Mr Watson and:

“given the size of the transaction, EW wants to spread the value of these between two entities of which he is the Settlor. Through Park Trust and Munil Developments Inc.”

(3)                   He then suggested:

“Given timing, and wanting to show consistency of EW JV partner throughout the transaction, I believe it best that the initial company is set up as 50% Park Trust and 50% Munil held in EH&P Nominee company.  Once the rights are vested into the entity, and EW JV partner has his structure sorted, the balance of the shares are sold to EW JV partner.”

(4)                   He then set out the 4 steps which he envisaged.  Step 1 was that EH&P set up the new entity with 50% for Park and 50% for an EH&P nominee on behalf of Munil, giving the explanation:

“(require anonymity of Munil in the transaction at time of sale in step 4 below)”

(5)                   Step 2 was for the new entity to acquire the rights in LHRF.

(6)                   Step 3 was:

“Munil will sell 50% to EW JV partner for circa US$12m, with loan back to Munil (or EH&P Nominee for Munil).”

Mr Gibson accepted that he here meant to refer to £12m rather than $12m, and to a vendor’s loan (by Munil) rather than a loan to Munil. 

(7)                   Step 4 was the subsequent sale of the new entity with the proceeds to go to Park and Mr Richardson’s trust.

(1)                   Mr Watson admitted in his Defence that the effect of Mr Gibson’s 4 steps, if they were implemented (which they were not) would have been that Kea would have seen the c. £12m paid by it to Spartan then being paid on by Spartan to a vehicle owned by Mr Richardson (Mr Gibson himself said much the same in cross-examination, accepting that the scheme would mean that Kea would see the goodwill payment going to Mr Richardson to purchase his half share in Spartan).  Ms Jones said that in reality the c. £12m would have flowed on to Mr Watson’s vehicle Munil; subject to the qualification that the actual amount passed on would depend on negotiations with Mr Richardson, that too is effectively admitted by Mr Watson.

(2)                   Mr Gibson’s e‑mail shows a desire to hide the involvement of Munil from Kea.  That is why he suggested a nominee company to hold the other 50% and said that he required “anonymity of Munil” at the time of the sale (to Spartan). 

(3)                   That also explains why he referred to “wanting to show consistency of EW JV partner throughout the transaction” or in other words that he wanted it to look as if Mr Richardson had been involved from the outset.

Personal benefits or incentives

(1)                   On 7 June 2012 (that is the same day as he signed the Spartan Term Sheets), Mr Dickson e‑mailed Mr Leahy (copying in Mr Watson) attaching information about his daughter Katrina and saying “I appreciate your kind assistance”.  Ms Dickson, then aged 22, wanted to become a solicitor.  She had a non-law degree and had recently completed a Graduate Diploma in Law, and was looking for a training contract with a firm of solicitors that would enable her to start the Law Practitioners Course (LPC) in October 2012 for which she had a place.  She provided background information which explained that the firms which offer training contracts pay for the LPC fees and then train graduates for two years; that although they did not automatically guarantee a job to trainees at the end of the two years, most trainees are given the option if they impress the firm; that a training contract was essential to become a fully qualified solicitor; and that she needed a training contract to start the LPC in October.  Failing that, she would like work experience with a firm over the summer or through to January. 

(2)                   On 8 June Mr Watson forwarded Mr Dickson’s e‑mail to Mr Leahy and Mr Gibson, saying “Make this happen” and suggesting that Mr Reuben was the best option.  Mr Leahy approached Mr Reuben; but Mr Reuben said he could not help: in large firms it was virtually impossible to get people through like this and proper applications had to be made.  He suggested a smaller firm might be easier, although this would only be work experience, not a training contract. 

(3)                   On 9 June Mr Leahy asked Mr Gibson to try Macfarlanes saying “Would be good if we can help Peter here”.

(4)                   On 11 June Mr Leahy asked a contact at Graubard Miller (a firm of US lawyers in New York), saying “We would really like to help out this colleague of ours” but the response was that they were unable to help.  

(5)                   On 18 June Mr Dickson e‑mailed Mr Watson (copying in Mr Leahy) with information about his daughter, saying that she had a place for the LPC (year 2):

“...but needs a Training Contract with a Law Firm to commence Year 2.

I would be most appreciative if you could help in any way with this.”

(Emphasis in original).  Mr Gibson passed the details on to a contact at Macfarlanes but they were unable to help either. 

(6)                   On 19 June Mr Leahy told Mr Watson they had run out of options, although he had told Mr Dickson that Fladgates could not help but they were exploring some other options; Mr Watson suggesting trying K&L Gates, and on 21 June, after Mr Leahy had forwarded Ms Dickson’s explanation of the difference between a training contract and work experience, asked Mr Gibson to push for a training contract.  Mr Gibson contacted Mr Astor who told him on 22 June that a solicitor at K&L Gates would be happy to spend a morning with her to guide her through what needed to be done to get a training contract.

(7)                   On 17 July Mr Leahy reverted to the question of a training contract with Mr Reuben, saying that “it is becoming increasingly material and it would help hugely if we could deliver something here.”  He told Mr Watson whose response was “We need a positive answer on this ideally before 24th” (24 July being the date for signing of the July agreements), and when Mr Leahy said that he thought it was unlikely, his reaction was “In that case we will be talking to new lawyers”, suggesting a probable move before Christmas, to which Mr Leahy responded “Ok, let’s see if Richard can get us this training contract as a start.  We will make it clear how important it is.”  Mr Watson replied “We will definitely move the business.  I want a firm that partners us.”

(8)                   That was how matters stood at 24 July when Mr Dickson signed the July agreements.  Mr Watson had not succeeded in procuring a training contract for Ms Dickson, although he had evidently been keen to do so, to the extent of suggesting moving business away from Fladgates. 

(9)                   In September 2012 Mr Watson tried again.  On 21 September when Mr Leahy and Mr Gibson were due to attend a meeting with Stonehage, Mr Watson asked them to ask Stonehage what lawyers they recommend and whether they could orchestrate a job for Ms Dickson. 

(10)               On 24 September Mr Gibson met Mr Dan Morrison of Grosvenor Law, a firm of solicitors that was later instructed on behalf of Spartan.  Mr Gibson mentioned that Ms Dickson was looking for a training contract and put the two in touch; Mr Dickson then suggested to Mr Watson that he meet Mr Morrison before Ms Dickson attended for an interview so that Grosvenor Law appreciate the potential of business opportunities, in the hope that might smooth the way.  Mr Gibson told Mr Dickson that he would help prepare his daughter for a potential interview for a training contract at Grosvenor Law, and arranged to do so, Mr Watson telling him to “get her prepped well”; she told Mr Gibson that she had not yet arranged an interview as her father would tell her when it was best to do so as Mr Watson might meet with Mr Morrison beforehand.  Mr Gibson’s advice to her was to contact Mr Morrison straight away but ask for an interview at the end of the next week so that Mr Watson could see him first, a suggestion endorsed by Mr Dickson himself who said that it would “allow Eric to set the stall earlier next week”.  

(11)               By 11 October however Mr Morrison had not responded to her request for an interview and Mr Dickson raised the issue again; Mr Watson’s reaction to Mr Leahy and Mr Gibson was “This is now totally pissing me off guys.  I’ve STRESSED you follow this up” and himself spoke to Mr Morrison and ascertained that she would be offered an interview.

“It was getting embarrassing as Eric had promised to deliver a training contract, as he would with any friend or business partner, and a man of influence who can’t manage to get a training contract at two or three law firms, it was rather embarrassing.” 

(1)                   Mr Miller and Mr Dickson were due to meet Mr Watson and Mr Leahy in Los Angeles on 10 and 11 July, and on 2 or 3 July he asked Mr Watson to keep a couple of hours free to meet him about an alternative energy project in Indonesia that needed a financing plan and financial assistance.  This was a project to produce energy from biomass, and Mr Miller, who had helped fund working capital for the venture, had a 5% interest in it.  Mr Watson did meet Mr Miller on 11 July, a meeting for which Mr Miller prepared a detailed presentation.  After the meeting Mr Watson put Mr Miller in touch with his brother Richard Watson and Mr Vassilakos, said that as discussed they would start to work with him to fully understand the technology and business opportunity, and suggested they meet at Cullen’s farms in Georgia.

(2)                   Mr Richard Watson told his brother that he thought the science behind the proposal was sound, and he and Mr Vassilakos duly met Mr Miller at the farms in Georgia and spent some time going through the deal.  Mr Vassilakos reported back to Mr Watson on 21 July with a summary focusing on financials and structure with the comment:

“Please note, due to outside circumstances I purposely avoided some harsh/contentious questions that should eventually be asked should we decide to proceed.”

That I infer is a reference to Mr Watson wanting Mr Vassilakos to give a positive response to Mr Miller and not be too discouraging.  Mr Vassilakos reported that their involvement would be to advise on the appropriate capital raising method and help create a viable business plan, financial model and fund raising models and the like; and that Mr Miller would like them to visit Indonesia with him in the first week of September.  On 23 July Mr Vassilakos followed up on this suggestion by e‑mailing Mr Miller and asking him about the possible Indonesia trip.

(3)                   That was how matters stood at 24 July when the July agreements were signed.

(4)                   The trip to Indonesia took place in late September.  Mr Noble agreed to join in the meetings in Jakarta by telephone but told Mr Watson beforehand that it looked like “extreme investing” to him with a number of significant risks; Mr Watson’s response was that his summary was likely to be correct, but they had an important relationship with Mr Miller and wanted to help him as much as they could; Mr Noble replied that he understood the sensitivities and would behave himself. 

(5)                   Mr Vassilakos reported back to Mr Watson on the trip on 3 October (in an e‑mail for internal use only).  He said that if the purpose of the trip was to maintain and build their relationship with Mr Miller, the trip was a success, Mr Miller being very appreciative of his coming and thankful for business advice.  If the purpose of the trip was to find and investigate a potential opportunity it was a waste of time and money, for numerous reasons which he gave.  He then sent a version of the report, omitting these comments, to Mr Miller.

(6)                   On 1 November Mr Watson was meeting Mr Miller to discuss Spartan but also had a meeting with him about the biomass project.  Mr Watson told Mr Leahy the next day that they would help fund £8m for the biomass project and help prepare an investor proposal.  He also told Mr Leahy that they would employ Mr Miller’s son Addison for a year or so.  The natural inference is that in both respects he was relaying what he had told Mr Miller at the meeting; both Mr Miller and Mr Watson disputed this in oral evidence but I prefer the contemporaneous material to their recollection, and find that is what happened. 

(7)                   Mr Watson and Mr Vassilakos continued to show interest in the biomass project: later in November Mr Watson told Mr Leahy that Mr Miller wanted to meet him about it in Los Angeles; Mr Miller met him for lunch on 9 January 2013 and showed him an organisation chart for the project, and later that month met Mr Vassilakos in London, who asked him to keep him up to date on progress and let him know how they could help formalise the structure and business plan. 

(8)                   Mr Miller brought his son Addison to the lunch on 9 January.  He had recently graduated with a degree in International Business.  After the lunch Mr Watson sent an e‑mail to Mr Justin Davis-Rice, the Managing Director of Bendon (one of Mr Watson’s businesses in Australia) introducing Addison Miller to him and suggested to Mr Addison Miller that he travel to Sydney the following next week; on 12 January he e‑mailed Mr Vassilakos and Mr Leahy saying:

“Also fyi…will likely employ addison at bendon in Sydney. Quality kid actually!”

(9)                   Mr Addison Miller did start work at Bendon shortly thereafter and spent a couple of years there.  

Obtaining more money from Kea; Voltaire

(1)                   Mr Krishan Rattan, a banker, was in 2012 Managing Director and Global Head of Alternative Capital Solutions and Head of Emerging Markets Structuring at Société Générale in London.  He and two of his colleagues at the bank (Mr Anuar Ushbayev and Mr Vladimir Diminic) and another man (Mr Fulvio Dombrich) had for some time been interested in developing their own fund for second tier sovereign debt financing, the plan being to establish a business which would create a lending platform to operate as an intermediary between issuers of sovereign debt and investors. 

(2)                   The idea was to buy sovereign and similar debt through partner banks, the purchase being financed in part by a bank loan (using a so-called “repo”, a form of short-term borrowing under which bonds would be sold to the bank with an obligation to repurchase them), most likely although not necessarily from the same partner bank, and in part by private capital put up by investors; (possibly) hedge the transaction with credit default swaps; and sell the bonds to institutional investors again through the partner bank.  The anticipated revenue streams included an upfront fee from the bank on acquisition of the bonds, interest while the bonds were held, and gains on bond sales.  If the investment were profitable, management would receive a management carry.

(3)                   Mr Rattan and his colleagues had originally been introduced to Mr Watson and Mr Astor in connection with an approach by Long Harbour which was seeking possible sources of finance, initially in a telephone call in February 2012 and then at a meeting in April.  In early May, they had another meeting with Mr Watson and discussed their business idea with him.  He was interested and offered to assist, both by providing working capital and by introducing them to potential investors; in return he would want an equity interest in the business. 

(4)                   By 10 June 2012 the name Voltaire had been picked for the fund (probably by Mr Watson although possibly by Mr Rattan), and by 13 June Mr Idicula had produced drafts of a presentation for Voltaire, and of a JV agreement between Mr Watson on the one hand and Mr Rattan and his colleagues on the other.  This provided for Mr Watson to own 50% of the business, and for all income to be split equally.  On 19 June Mr Diminic confirmed that their side were all happy with the JV agreement.

“Have you carefully studied the investment opportunity offered by Spectrum?  Since I have been excluded from any involvement I caution you to protect Trust funds

The “Voltaire” investment as referred to needs to be examined carefully

I have only had a 10 minute conversation with Eric Watson and on face value I would not proceed without thorough due diligence.

I am concerned”          

That is consistent with an e‑mail from David Brownbill QC dated 17 July 2012 in which he referred to a call that day in which Sir Owen had said that he was surprised to hear that Project Voltaire was going ahead.

Los Angeles meetings on 10 and 11 July

“I think because of what was going on with Owen we were aware there were potential issues there and we wanted to get the capital safe, yes.”

            That is a reference to the fact that Mr Watson and his team knew that Sir Owen was contemplating litigation over the trust (see below).  I accept Ms Jones’ submission and find that there probably was discussion at the meetings in Los Angeles about the potential difficulty with KYC on Kea being that Sir Owen was still shown as the UBO, and that no-one at the meetings wanted to keep him informed in case he intervened. 

Mr Watson raises Fladgates conflict issue

“If we feel that Richard is conflicted then Richard will step out and David Way will run with Owen as a client.”

 Mr Gibson said that he thought Mr Reuben should attend the meeting as he would:

“still have the ability to direct this to an amicable solution”

and Mr Watson agreed.  Although Mr Gibson was reluctant to accept this, that is fairly clearly a reference to Sir Owen’s dispute with Messrs Miller and Dickson, and confirms that both Mr Gibson and Mr Watson understood that there was such a dispute which might not be resolved and which might end in litigation.

“Eric’s point of view is that as you represent him in the property deals that the trust is investing in – they will likely use this factor to withdraw.”

There was subsequently a dispute about paying for Fladgates’ fees and in a letter of 7 September 2012 from the finance partner, Fladgates said that for their part they did not think there was a professional conflict that prevented them from acting; Sir Owen told Mr Watson that it was his contention that Mr Watson had pressured Fladgates into dropping their representation of him.

The July agreements – 24 July 2012

(1)                   The Spartan Term Sheet 1 had provided for Kea to fund Spartan to the extent of £50m by way of preferred note, £25m to be paid on initial funding and £25m after 6 months (or earlier if requested by Spartan) at an interest rate of 8% pa, to be repaid as cash flows permitted and in full after 4 years.  That was given effect to by a Loan Facility Agreement which was one of the July agreements, although in this the original proposal for a straightforward loan had been replaced by a loan facility for 4 years under which any amounts repaid could be redrawn by Spartan, the first £25m to be advanced within 40 days and the second £25m after 6 months or 40 days after Spartan requested a drawdown.

(2)                   The first element of Mr Leahy’s proposal was that the first £25m be deposited within 40 days as agreed (and start incurring the 8% coupon), but that the second £25m be deposited as soon as possible in a Spartan bank account.  While in the account Spartan would pay over to Kea whatever interest it in fact received (expected to be about 0.5% to 1%), and would only incur the 8% when Spartan drew on the account.  Any monies repaid by Spartan within the 4 year term would be re-deposited on similar terms in a Spartan bank account.  All of this was agreed.

(3)                   The second element of Mr Leahy’s proposal was for Kea to make a second £50m facility available on the same structure but for a term of 6 years and at a coupon of only 5% rather than 8%.  This was agreed subject to the term being 7 years and the coupon 6%.  

(4)                   Mr Miller’s note indicates that there was also discussion of the £50m being increased to £55m to provide a £5m “fighting fund”, although he noted that this was something to discuss with Mr Maislish.  I accept that that shows that what was being suggested was that a £5m fighting fund should be created in Spartan, and that that indicates that all those at the meeting were conscious that litigation was a real possibility.  In the event, in his e‑mail that evening to Mr Dickson (below) Mr Miller suggested that they forget the fighting fund. 

(5)                   The third element of Mr Leahy’s proposal was for Kea to invest £100m in Voltaire (by way of a similar loan facility to a new vehicle).  This was not agreed, but Mr Miller’s note indicates that he and Mr Dickson were considering a smaller sum, to be added to the second £50m facility for Spartan – perhaps £20m, or perhaps extending the facility to £80m to include Voltaire. 

(6)                   Mr Miller sent an e‑mail that evening to Mr Dickson in which he said that he was a projecting a cash balance of about $75m at the end of 2012 and $50m at the end of 2013 (before the Voltaire investment) and they were leaving themselves short; he therefore suggested that Mr Dickson go back to Messrs Watson and Leahy with a maximum investment of £15m ($23m) in Voltaire.  Mr Dickson duly sent an e‑mail to Mr Watson saying that the maximum the trust could commit to Voltaire would be $20m, as the second £50m Spartan loan had denuded the ability to invest any more at that time; Mr Watson replied that $20m was fine and they would do their best to keep the opportunity open to allow him to increase the $20m, to which Mr Dickson said that “If we can squeeze out more later, we will.”

“must include the key transactions set out in Schedule 2, which have been agreed between the parties involved in Project Spartan.”

Clause 4.1 provided that the parties would procure that Mr Dickson would be appointed as a Kea Director, and Chaumont (Directors) Ltd (a Stonehage company, “Chaumont”) would continue as director.  Clause 4.2 provided that Nucopia would be appointed under a separate agreement to provide advisory services to Spartan.  Clause 5 provided for the management of the company in terms that effectively required the agreement of Kea and Park through their respective directors to decisions.  Thus it provided among other things for: a minimum of two directors (cl 5.1); equal numbers of Kea Directors and Park Directors, to be nominated by, and capable of being removed by, Kea and Park respectively (cll 5.2, 5.3 and 5.4); a quorum of at least one Kea Director and one Park Director (cl 5.5); and that decisions of the directors would only be effective if approved by at least one Kea Director and one Park Director (cl 5.12).

(1)                   Paragraph 2 referred to it being intended that M&G acquire Gaucin and Berryblue (or their assets), and that if M&G did complete such acquisitions paragraphs 4, 5 and 6 would take place.

(2)                   Paragraph 3 provided:

“It is further intended that Newco will acquire or own the benefit of a joint venture agreement to be entered into by Newco with a company (Long Harbour Subsidiary) to be established by the owners of Long Harbour Limited, which joint venture agreement will include certain rights relating to deployment of capital and the right for Newco to acquire up to 40% of Long Harbour Subsidiary for up to £8 million.”

That rather vague wording reflected the fact that at this stage, as Mr Leahy accepted, Newco did not have any enforceable rights – they were still in the middle of negotiating them.

(3)                   Paragraph 4 provided that if the M&G acquisition completed, Park would procure Summit to make a loan to Spartan of “up to” the net sale proceeds received by Summit for the sale of Gaucin (or its assets), and Kea would make a loan of an equal amount (the Second Kea Loan), the precise amount of the loans to be agreed by Park and Kea (although it will be recalled that the figure discussed in Los Angeles on 10 and 11 July was £3.5m).

(4)                   Paragraph 5 provided that once Newco owned the Newco Assets (defined as the assets intended to be acquired by Newco as set out in paragraph 3) Spartan would acquire Newco (or the Newco Assets) for a consideration equal to £45m less the net sale proceeds received on the sale of Gaucin and Berryblue (or their assets) by Summit and the owner of Berryblue, 50% to be paid by Spartan in cash and:

“50% in the form of a loan from one of the owners of Newco, to [Spartan] (Vendor’s Loan) …”

(5)                   Paragraph 6 provided that Kea would lend Spartan the money needed to provide the cash required under paragraph 5 in a sum equal to the amount of the Vendor’s Loan (the Third Kea Loan).

(6)                   Paragraph 8 provided that Spartan would acquire Atherton (that is Atherton Property Holdings Ltd) which held the Investment Right (that is the right to co-invest alongside HW previously referred to as the Ladoga Investment Right) for a nominal sum.

(7)                   Paragraph 9 provided, in line with the side letter entered into contemporaneously with the Term Sheets, that if the M&G acquisition did not complete Spartan would acquire Gaucin’s and Berryblue’s assets (their partnership interests in Abacus, all other rights in relation to working with Long Harbour, and the 66.6% shareholding in Homeground) for £45m.   

Claims in relation to July agreements

(1)                   The agreements were induced by fraudulent misrepresentations.

(2)                   The agreements were entered into in breach of the fiduciary duty that Mr Dickson owed to Kea and the Corona Trust, to the knowledge of Mr Watson and Mr Leahy.

(3)                   The agreements were entered into in breach of a fiduciary duty owed by Mr Watson to Sir Owen and/or Kea.

(4)                   The agreements were entered into in circumstances where Mr Watson had offered personal incentives to Mr Dickson and Mr Miller.

For one or more of these reasons the agreements are said to be voidable (and Kea elects to rescind them), or void, with the result that the payments received by Spartan have at all material times been held on trust for Kea.

Deceit

“based on the value of the existing ground rent portfolio plus a proposed value for the pipeline deal-flow, or goodwill, which Park / Novatrust (through Mr Watson and his net work of connections) would bring to Spartan (“the Goodwill Value”)”

and that:

“Although not all explicitly spelled out in the original proposal, from Novatrust’s and Mr. Watson’s perspective the original proposal had been premised as follows: Corona acquiring 50% of Spartan for a loan of £22.5 million, with it separately lending Spartan £50 million for investment purposes. The value of the existing ground rent portfolio was around £20 million. Accordingly, the original deal had Corona / Kea paying £10 million for 50% of that portfolio, with the balance of the £22.5 million (£12.5 million) being an agreed payment for its 50% share of the Goodwill Value which Novatrust (through Mr. Watson and his network of connections) was bringing to Spartan.”

Then when explaining the revised deal arising from the proposed M&G acquisition of Abacus, he said:

“The consideration for the acquisition of Rygen by Spartan from Park and Munil was to be £45 million less the price paid by The Third Party Purchaser for the acquisition of the existing ground rent portfolio (£20 million). That is, Spartan would pay Park £25 million. The net effect of these Schedule 2 Transactions was therefore that Park would still receive its approximately £12.5 million Goodwill Value payment.”

And after referring to a later e‑mail exchange with Mr Dickson (in December 2012) he said;

 “This exchange with Mr. Dickson clearly shows that Kea understood the purpose, nature and effect of the Schedule 2 Transactions, and Mr. Dickson’s specific reference to “the Goodwill” value of “an estimated UKP 12.5 m” shows that Kea was also fully aware that they were intended to ensure that Park would still receive its approximately £12.5 million Goodwill Value payment.”

“Neither Mr Watson, Novatrust, or any Watson entity, expected to receive any part of the purchase price (whether that was £22.5 million, or any other figure) paid to Mr Richardson in respect of Berryblue or its assets: in the event that Kea had invested in Project Spartan on the basis anticipated in the [1 April presentation], all monies it invested would have been paid to Berryblue.  No profit, secret or otherwise, would have been received by Novatrust, or Mr Watson, or any entity associated with either of them.” 

Mr Watson also pleaded that the Claimants had misunderstood the account given by Mr Leahy in his witness statement, and that he had not suggested that any part of the £22.5m would have been received by Novatrust rather than Berryblue “and it would not have been”.  This account is clearly inconsistent with any suggestion that Kea appreciated that any part of the £22.5m might go not to Berryblue but to Watson entities.

“it had been clear from the Spartan Term Sheets that the “Newco” to be purchased would “initially be owned by the Park Trust”.

From at least early June 2012, when the Spartan Term Sheets were executed, therefore, Mr Dickson, and therefore Kea, knew and understood that if the M&G sale completed, Kea’s portion of the payment by Spartan for “Newco” would be paid to Park/Novatrust”.

He repeated this later with a plea that Mr Watson and Mr Leahy had informed Mr Miller and Mr Dickson of this (that is that if the M&G sale proceeded Kea would fund a payment by Spartan to Park/Novatrust):

“through the revised wording of the Spartan Term Sheets.”

That was a reference to the fact that the revised Term Sheet 2 included a statement in recital (C) that Newco was intended initially to be owned by Park (paragraph 312 above).  And in response to a request for further information, Mr Watson pleaded that he and Mr Leahy understood from their discussions with Mr Miller and Mr Dickson that they clearly understood that it was a feature of the transaction that Kea would fund a payment by Spartan to Park/Novatrust, but could not plead any specific communication of that fact prior to October/November 2012.

(1)                   So far as the original proposal is concerned, Mr Watson’s evidence was that he explained to Mr Miller on 29 March, and again to Sir Owen when he was in the Dominican Republic, that he would deal  with his partner.  That does not seem to me to take away the force of the statement in the 1 April presentation that it was expected that the £22.5m would all go to buy out his partner, and indeed Mr Watson’s evidence at trial was that he did think it would cost that much to satisfy Mr Richardson.  For the reasons given above (paragraphs 234 to 235) I do not accept this evidence. 

(2)                   So far as the revised proposal is concerned Mr Watson said that it was clear from the revised Term Sheets that the Kea monies would be paid to an entity associated with him.  I do not accept this (paragraph 316 above), and the very fact that Mr Watson relied on this point tended to reinforce the point that there was nothing else that could be pointed to that could be said to have made it clear.

(3)                   In relation to the meeting on 30 May attended by Mr Maislish, Mr Watson said that he was not at the meeting but if Mr Leahy had said that the new company would have been jointly owned by him and his partner, it would have been correct as the structure was far from settled; his position with Mr Richardson needed to be resolved and that resolution might involve Mr Richardson obtaining an interest in Newco.  He gave a similar explanation as to the reference to the “owners of Newco” in the draft Term Sheets; and as to why Mr Gibson was instructed to have Newco set up with two owners.  I find it impossible to accept this explanation.  What Mr Leahy presented to Mr Maislish on 30 May (and to Mr Dickson on 29 May) was a proposal under which Newco would have two equal owners, one being Park.  Mr Watson’s explanation that having the second owner was to cater for the unlikely possibility of having to accommodate Mr Richardson makes no real sense, quite apart from the fact that I am satisfied that Mr Richardson had long since been brought on side anyway. 

(4)                   Finally Mr Watson said that he told Messrs Miller and Dickson prior to execution of the July agreements that the possibility of Mr Richardson retaining some interest was remote, and that it was far more likely that the shareholders in Newco would all be Park entities.  In the light of what I have already said about his evidence, I am cautious about accepting it on matters that are not reflected in the contemporary documents.  There is nothing in the contemporaneous documents which supports the idea that what Messrs Miller and Dickson were being told was that in all probability the £12.5m would be going to Kea entities.  The elaborate steps taken to make it look as if Newco had two equal owners would all have been unnecessary if the true position was as Mr Watson suggested.

(1)                   In relation to the original proposal he accepted in evidence that the 1 April presentation clearly said that the money was going to Mr Richardson (and hence that Sir Owen could not have understood that any part of it would be going to Mr Watson). 

(2)                   He accepted in terms that this is what “the team” were trying to do:

“Q.   …you set about arranging matters so that what Sir Owen would see was 25 million being paid out to buy NR’s 50% share?

A.    Yes.  22.5, yes.

Q     Yes, that is what you did.

A.    Yes.  Yes.”

(3)                   In relation to the revised proposal, he did not claim to be able to recall either the 29 May meeting with Mr Dickson or the 30 May meeting with Mr Maislish.  He did say that he might have mentioned that Mr Richardson might look to participate in Holder 2, but I do not accept this: I have found that what he told Mr Maislish was that the Newco would be owned by Park and another, and that the other was Mr Watson’s partner (paragraph 304 above). 

(1)                   He readily accepted that at the time of the 1 April presentation he believed Spartan to be an established property investment opportunity owned 50/50 by Mr Watson and an additional partner; that his understanding of the proposal at that stage was that £22.5m was going to be paid by Kea into Spartan which would then be paid out again to the partner’s vehicle to buy out his right; and that he believed there had been discussions which suggested that the partner was willing to sell his 50% for about £22.5m.

(2)                   That was directly at odds with his evidence in his witness statement where he had said that he knew that the £22.5m was not being paid to acquire the shares in an existing business from Mr Watson’s existing partner. 

(3)                   Again although Mr Miller was not at the 30 May meeting between Mr Leahy, Mr Dickson and Mr Maislish, he said that he spoke to Mr Dickson        afterwards, and accepted that Mr Maislish’s account was:

 “Generally that’s the context of what my understanding was.” 

(paragraph 301(7) above) although this was quite contrary to the evidence in his witness statement that he understood that it was likely that all of the goodwill value would be going to Mr Watson’s interests.  

(4)                   In relation to the draft revised Term Sheets, Mr Miller’s oral evidence, although confused, appeared to accept that his understanding was that Newco would be owned by Mr Watson and his partner and that the structure of the deal was that Newco would be sold into Spartan with Mr Watson getting a loan and his partner getting the cash.  Again that was at odds with the statement in his witness statement that he understood that it was possible that Mr Watson’s partner might have an interest in Newco although it was unlikely, and that it was likely that the goodwill would be paid to Mr Watson’s interests.

I have come to the conclusion that it is very difficult for me to place any weight at all on Mr Miller’s evidence as to his (or Mr Dickson’s) understanding of the goodwill payment. 

Autumn 2012

“Review of overall Spartan transactions left to complete – in particular the purchase of Newco and the fact that Park/EW entities were now the ultimate beneficial owner of all the cash proceeds being paid by Spartan for the purchase of Newco etc., given that Berryblue and former EW partners are now no longer part of these transactions.  Peter and David understood this…

…both Peter and David seemed excited to pursue all the opportunities we had on the table and were comfortable with all the remaining transactions to be completed including re-allocation of goodwill to EW entities.”

Mr McCaughran submitted that this was an internal e‑mail and there was no reason for Mr Leahy to have produced an inaccurate record; Ms Jones that it was a “window-dressing” e‑mail written for the file. 

“Most notably this section addressed the fact that the shareholders of Berryblue are no longer part of the deal and that a diagram in the new agreement clearly explained the flow of Goodwill back to Newco owners, which are part of the Park group.”  

I have found it difficult to be confident that this e‑mail does reflect an actual conversation to that effect with Mr Dickson, although it is possible that it does. 

“The Spartan structure and key transactions (as set out in Schedule 3) have evolved significantly since originally being presented in early 2012.  Substantial changes have occurred relating to what assets may be purchased, the partners involved, the structure of the transactions required to establish Spartan and the final structure of the vehicle itself.  Primarily these changes are that:

1.      the Loan facility has increased from £50m (fifty million pounds) to a total of £113m (one hundred and thirteen million pounds);

2.      Spartan is no longer buying Gaucin or Berryblue, as originally contemplated.  As a result, the original partners in the form of Berryblue and its shareholders are no longer part of the structure or transactions;

3.      Park has now delivered access to ground rent investments through the purchase of Rygen by Spartan.

...

Chart 1 below summarises the structure of Spartan post all transactions completing, including those currently described in Schedule 3.”

The diagram showed a box marked Spartan in the middle; a box on the right marked Park and Related Entities, which itself contained two boxes, one marked Summit (with an arrow to Spartan labelled “Summit Loan of GBP 3.5mn”) and the other marked Newco Owner (with an arrow to Spartan labelled “Vendor Loan of ˜GBP 12.7mn (50% of consideration for Newco)”); and a box marked Newco below Spartan, with an arrow to Spartan labelled “Sold to Spartan” and an arrow from Spartan labelled “˜GBP 12.7mn cash (50% of consideration)”. 

“Tel PD.  Just accept all this, he has agreed it.  DD? No, not me”  

            and there are no notes on the rest of the schedule.  I therefore accept Mr Maislish’s evidence that he did not in fact consider the revised Business Plan when first sent to him (and the redline version which he did consider did not in fact contain the relevant diagram in any event).  Mr McCaughran relied on the fact that Mr Maislish later passed on to Fladgates a minor textual amendment suggested by Mr Dickson to the revised Business Plan, and that he accepted that he would have checked that Fladgates had duly incorporated it (as they did), and submitted that it was more likely than not that he would have read through at least one version of the revised Business Plan.  I think that unlikely – it is a dense and detailed document and having been told it was not for him, I see no reason why he should have troubled to read through it, and it would have been easy enough to check that the minor amendment had been made without doing so.  That means that Mr Maislish’s acceptance of what the revised Business Plan shows is not a reflection of what he thought at the time, but what he now thinks it shows, and as such I do not regard it as carrying any particular weight. 

“Mr Dickson was provided with full disclosure of all matters in relation to the Transaction in [November] 2012…” 

Mr Leahy responded that he was fine with this draft.  Ms Jones made the point that these statements all read as if the revised Business Plan was the only relevant disclosure, and that it was up to Mr Dickson to query it; they are not written as if he and Mr Miller had appreciated in May, or at any time before the July agreements were signed, that the £12.5m would be very likely to go to Watson entities; or indeed as if there had been express discussions to this effect in October and November 2012.  There is I think considerable force in this.

“We are strengthening the Shareholders Agreement to make it more difficult to freeze or attack Spartan and its business in view of certain current litigation by Mr Glenn against DJM and potentially against the Trust that owns Kea Investments Ltd.”

In other words Messrs Miller and Dickson saw Kea’s interests as being to pursue Spartan, and the effect of Sir Owen’s litigation against Mr Miller had been to drive them to align themselves closely with Mr Watson and Mr Leahy who also wished to progress Spartan. 

“Yes I think the team would have set out a way of putting together a structure that enabled Mr Watson to have a negotiation around that price…”  

I do not think there is any doubt that any representations made by Mr Leahy throughout the period from the 1 April presentation to the signing of the July agreements were made on behalf of Mr Watson even once Novatrust had been identified as the other contracting party.

“did not want to put that loan into the presentation precisely because he thought it would upset the negotiation position with Owen.”

As Mr Leahy said, what they wanted Sir Owen to see was the £22.5m being paid out to buy Mr Richardson’s share, and they can only have wanted him to see that because they understood that that would help induce him to approve the transaction.  The suggestion that the £22.5m was expected and intended to be paid out to acquire his 50% share also indicated that Mr Watson’s 50% share was equally worth £22.5m, and hence that he would be contributing equally with Sir Owen.  Mr Watson and Mr Leahy knew that Sir Owen thought he had been too generous to Mr Watson on Project Edsel and wanted other deals to be done on a proportionist basis.  That was why Mr Leahy commented that the JV was unwilling to pay any goodwill to EW-associated vehicles (paragraph 256 above).  And the various steps taken to make it look as if the whole £22.5m was going to Mr Richardson (and later that the £12.5m was going to Mr Watson’s partner as one of the two 50% owners of Newco), including setting up Rygen with two equal owners, long after the July agreements had been concluded, only make sense if Mr Watson and his team continued to think it material to do that.  I have no doubt in the circumstances that Mr Watson and Mr Leahy understood their representations to be material and intended them to be relied upon.   

“Once it is proved that a false statement was made which is “material” in the sense that it was likely to induce the contract, and that the representee entered the contract, it is a fair inference of fact (though not an inference of law) that he was influenced by the statement, and the inference is particularly strong where the misrepresentation was fraudulent.”   

Affirmation

(1)                   On 13 February 2013, Benjamin J granted an injunction in the Nevis High Court (paragraph 43 above).  Among other things this appointed HNL as interim trustee and authorised it to administer the Corona Trust.

(2)                   Following this, Harlaw was appointed to the Spartan board as Kea representative.  Harlaw acted by Mr Munro.  Mr Munro first met Mr Leahy and Mr Watson in London on 8 April 2013, and then (with Sir Owen and others) at a meeting in Auckland on 21 April 2013.

(3)                   The agenda for the 21 April 2013 meeting was whether the schedule 2 transactions should go through. 

(4)                   On 24 April 2013, Mr Munro approved the completion of the Rygen and Atherton transactions.

(5)                   Mr Watson’s case is that Kea thereby affirmed the July agreements and the subsequent agreements.

Inducements

“The remedy is not confined to cases where the agent has taken a bribe or secret commission in the strictest sense. It is available whenever, without his principal’s knowledge and consent, the agent has put himself in a position where his interest and duty may conflict. A principal is entitled to the disinterested advice of his agent free from the potentially corrupting influence of an interest of his own. Any such private interest, whether actual or contemplated, which is not known and consented to by his principal, disqualifies him.”

Breach of fiduciary duty by Mr Watson

“Many many thanks for all you have done to support me in this period of turmoil”

to which Mr Watson replied:

“We have and are a winning team.”

Mr Watson accepted in oral evidence that Sir Owen’s e‑mail could be described as emotional, and that that was because Sir Owen was genuinely grateful for everything that Mr Watson had done to support him in this extremely difficult period of his life.

“certain rights relating to deployment of capital”

and:

“the right for Newco to acquire up to 40% of Long Harbour Subsidiary for up to £8 million.”

“they trusted Eric to go out and do the best job he could to negotiate that with Long Harbour.”

Breach of fiduciary duty by Mr Dickson

“Subject to this section, a director of a company, in exercising his powers or performing his duties, shall act honestly and in good faith and in what the director believes to be in the best interests of the company.”

It is common ground, as is apparent from its terms, that the question whether a director is acting in accordance with this section or in breach of it depends on his subjective belief as to whether what he is doing is in the best interests of the company.

“A director shall exercise his powers as a director for a proper purpose…”

Ms Jones submitted that Mr Dickson did not exercise his powers for a proper purpose because there was no need to enter into the July agreements in July 2012 at all: there was no imminent transaction, and there was a strong reason not to enter into the agreements at a time when the underlying rights contemplated by schedule 2 had not yet been agreed.  Her submission was that the real reason for going ahead with the July agreements was the desire to get money out of the trust and into Spartan before Sir Owen could take any steps to prevent it, and that that could not be a proper purpose.  There is I think considerable force in that submission: see Mr Leahy’s evidence in relation to the Los Angeles meetings on 10 and 11 July that they wanted to “get the capital safe” (paragraph 339 above).

“Alternatively the execution of the July 2012 Agreements was carried out contrary to the best interests of Kea and the Corona Trust and for an improper purpose namely to provide an unjustified benefit to Mr Watson and/or Novatrust and/or Munil alternatively to secure personal benefits for Messrs Miller and Dickson…”

That case is itself premised on the supposition that Messrs Miller and Dickson did know that the July agreements would transfer significant value to Mr Watson’s interests.  That seems to me something entirely different from the contention that the improper purpose was the desire to get the money out of the trust and “safe” (and the alternative suggestion that it was to secure personal benefits for Messrs Miller and Dickson, which would require it to be affirmatively proved that this was what was motivating Mr Dickson, has not been pursued).  In those circumstances I do not think it is necessary, nor would it be appropriate, to consider this claim either.

Conclusion on July agreements

Subsequent events

The Supplemental Loan Agreement

“YOU did not earn this money.  It is tatamount to stealing. Shame on you David” 

That appears to have marked the failure of Sir Owen’s final attempt to effect a reconciliation with Mr Miller, and from then on Messrs Miller and Dickson seem to have regarded litigation as increasingly likely (although as the discussion of a possible fighting fund on 24 July showed, they had already contemplated it as a possibility).  It was on 3 August that they paid themselves over $6m in fees (paragraph 39 above); and on 6 August that they transferred $200,000 to each of Ord & Norman (US lawyers) and Liburd & Dash (Nevis lawyers) as floats on account of legal fees (paragraph 41 above).

“Better to move now BEFORE anything comes against the trust directly.”

Mr Dickson signed the Deed of Loan Amendment and Restatement on 12 September 2012.  It provided for the loan facility to be increased to a total of £113m (that is the original £50m, the second £50m and the £13m (equivalent to $20m) that Messrs Miller and Dickson had agreed for Voltaire).  Of this the first two tranches (£100,000 and £24.9m) had already been paid, and the other two tranches (tranche 3 being the remaining £25m of the original £50m, and tranche 4 the balance of £63m) were now to be paid within 40 days of the date of the Deed of Amendment and Restatement, to be paid into holding accounts in the name of Spartan on terms that Kea would receive the interest paid on such accounts and that Spartan would only become liable to pay interest at 8% on tranche 3 after 6 months or earlier drawdown, and at 6% on tranche 4 only when drawn down.

“On the subject of the Trust investment in the property project, you agreed to keep me advised on the close of legal proceedings.  I have heard nothing.  I am taking action to petition the court to freeze assets and stop any investment initiatives until a full audit is completed.”

Mr Watson replied:

“Legal proceedings are still bouncing around…Rome was built more quickly!  We feel as much pressure as possible has been applied and the deal is at risk.”

Mr Watson suggested in evidence that he was there referring to discussions with Long Harbour, but I accept Ms Jones’ submission that that cannot be right, and I regard it as a disingenuous answer.  Sir Owen was plainly asking what was happening with Spartan, and Mr Watson did not give him an honest update but a misleading one, suggesting that the deal (that is with Kea) had not yet been done and was at risk and that Mr Watson was having to put pressure (that is on Messrs Miller and Dickson).  

The Deed of Amendment to the Shareholders’ Agreement

The Nucopia Consultancy Agreement

(1)                   As early as 16 July Mr Leahy was asking for Mr Watson’s comments on a fee proposal of £250,000 a year and a 5% carry for Nucopia.  He also suggested that Mr Watson propose a “small” bonus of say £200,000 for getting the deal done, saying that he thought Messrs Miller and Dickson would be inclined “if they felt it was for me.”  He suggested putting something in legal form for the proposed meeting on 24 July and sending it to Mr Watson “as if I’m pitching it to you as well”; he could then bring it up at the meeting and Mr Watson could be supportive of it.  Mr Watson’s response was “£250k at least”.

(2)                   Mr Leahy in fact sent a first draft of the consultancy agreement (providing for an annual fee of £250,000 and a 5% carry) on 31 July, addressing it, as he had suggested, to Mr Watson as well as to Messrs Miller and Dickson as if he was pitching it equally to all of them.

(3)                   On 12 August Mr Watson continued the pretence by e‑mailing Mr Dickson saying he was being pressed by Mr Leahy over the consultancy agreement and:

“I’m ok with his proposal and if you are too, just confirm with Miles.”

(4)                   The pretence worked.  When (on 14 August) Mr Dickson e‑mailed Mr Miller with various minor points on the drafting, he said that they should run them by Mr Watson first before reverting to Mr Leahy.  That shows that as far as he was concerned Mr Watson was on the same side of the negotiation as them (and the other side from Mr Leahy).  However when Mr Dickson forwarded this to Mr Watson asking him if he had any comments, Mr Watson simply sent it straight on to Mr Leahy with the comment “Bingo”.

(5)                   There are further communications in the same vein which I need not set out.  It is plain that Mr Watson was pretending to negotiate with Mr Leahy for the benefit of Spartan but in fact assisting Mr Leahy in obtaining as much as possible for his own benefit.  Indeed Mr Leahy accepted in evidence that the more that Nucopia could get the better it was for Mr Watson.

“this might also help Peter and David get comfortable, seeing as DMM is not reviewing”

Mr Watson duly asked Mr Gibson (on 14 September), and Mr Gibson duly said it seemed ok from his perspective (on 17 September).  That was sufficient for Mr Dickson to agree with Mr Watson to go ahead.  Mr Maislish was never asked to look at it at all. 

Further proposed amendments to Spartan Shareholders’ Agreement

Project Royal

“For bridging the purchase of this portfolio Spartan expects to secure ˜33% stake in the property fund Management Company”

The business plan for the residential property fund showed this 33% stake as generating substantial returns, amounting after 5 years to £1.6m a year and then in Year 10 fees of £61.8m.  That made a significant contribution to the overall discounted valuation of £45m.  

“25.0% of all LH Management and performance fees (carry) generated on any future capital raised by EW/Nucopia”

In the event a Term Sheet signed on 8 January 2013 provided that Spartan would have a profit share equal to 16.67% of net recurring and performance fees earned by Long Harbour from any future capital raising, and 16.67% of net capital proceeds of any sale of the management vehicle, but excluding any fees and proceeds in respect of any investment made by HW, various Oxford University entities and Spartan itself.  

The Interim Arrangement  

The Nevis Injunction

(1)                   By paragraphs 8 to 10 (headed “Suspension of Powers”) the powers of Pizarro, Mr Miller and Mr Dickson were suspended.  Paragraph 10 was in this form:

“Until further order of the court the Third Respondent [ie Mr Dickson] shall not exercise any right of power vested in him by or under the Settlements [as defined, which included the Corona Trust] whether as emergency protector or emergency trustee thereof or otherwise.” 

(2)                   By paragraph 11 HNL was appointed as an additional trustee.

(3)                   By paragraph 12 Pizarro was ordered forthwith to transfer all assets held, whether directly or indirectly, under the Settlements to HNL; and by paragraph 13(1) HNL was to take all necessary steps to obtain a transfer or control of all such assets and have sole ownership, possession, custody or control of them.

(4)                   By paragraph 13(2) HNL was to administer the settlements in all respects, and exercise all trusts and powers under them as if it were sole trustee thereof, save that it was not permitted to exercise any power of investment thereunder.

(5)                   By paragraph 14 a proprietary injunction was granted against, among others, Pizarro, Mr Dickson and Mr Miller to the effect that they must not:

“without the prior consent in writing of the Applicant’s solicitors in Nevis, in any way dispose of, deal with or diminish the value of any assets that are held, directly or indirectly, on the trusts of the Settlements, including (without limitation) the following assets in particular:

(1)  the shares in and any rights or powers whether as shareholder or otherwise in or over:

…

(d)   Kea Investments Limited

…

                         (collectively referred to as the ‘Companies’);

(2)   any bank account or any other asset held by (whether directly or indirectly) or in the name of any of the Companies”

(6)                   By paragraph 15 a similar injunction was granted against Kea and the other Companies to the effect that they must not:

“whether through their shareholders, directors, employees, agents or otherwise, in any way dispose of, deal with or diminish the value of any assets that they hold (whether directly or indirectly)…”

(7)                   There were also provisions in the usual way requiring the respondents to provide information including orders (by paragraphs 17 and 21) that Pizarro, Mr Dickson, Mr Miller and Kea itself provide within 72 hours of service copies of all resolutions of Kea and all contractual documents relating to Kea. 

Second and Third Kea Loan Agreements

“Shareholder loans

o    2x ˜12.5mn loans from Kea and Park (Kea’s has already been funded to escrow) to close concurrent with Rygen purchase

o   2x 3.5mn loans to close immediately post sale of Rygen to Spartan”

This shows that when the slides were prepared the intention was that the loans would not be made until the completion of the purchase of Rygen; and also that the precise amount of the Third Kea Loan had not then been identified.  This is because it was intended to be exactly 50% of the purchase price of Rygen, and the purchase price itself depended on the identification of the net proceeds of sale of Gaucin’s and Berryblue’s interests in Abacus.  Back in October at the Paris meeting this had been estimated at £12.74m, and in an e‑mail of 14 December to Messrs Miller and Dickson Mr Leahy had explained the sequence of events that would take place as follows:

(i)         the completion statements for the sale of Abacus are sent to Fladgates for them to review and they confirm to the Spartan Board the final price for Rygen;

(ii)        a share purchase agreement is drafted between Spartan and Rygen;

(iii)       Rygen due diligence and KYC is completed;

(iv)       Kea signs the £12.7m “(or whatever final number is)” loan agreement with Spartan and money is transferred from Fladgates escrow “(where it sits now)” into Spartan; 

(v)        Spartan signs share purchase agreement to purchase Rygen;

(vi)       Rygen is sold to Spartan for £25.5m, £12.7m in cash and £12.7m by way of vendor’s loan from Park;

(vii)      Park and Kea’s £3.5m loans will be executed at the same time.

At this stage the first step had not happened.  Fladgates had however prepared drafts of the Second and Third Kea Loan Agreements and they had been circulated in December.  That for the Third Loan Agreement (sent by Fladgates to Mr Maislish on 18 December) was drafted by reference to a loan of £12.7m. 

(1)                   At 20.45 on the evening of Saturday 16 February Mr Leahy asked Ms Leonard of Fladgates to e‑mail the final £12.5m and £3.5m loan documents to Mr Dickson on the basis that they had been reviewed by Mr Maislish, saying:

“This has been discussed with Peter already, so he will be expecting them.”

(2)                   Shortly afterwards Mr Leahy sent another e‑mail asking her to hold off, but he spoke to her on the telephone on the morning of Sunday 17 February (apologising for disturbing her on a Sunday), and at 10.37 that morning she e‑mailed him pdfs of the two loan agreements.  These were similar to the drafts that had been circulated but were no longer marked “Draft” and the Third Kea Loan Agreement was now in the sum of £12.5m rather than £12.7m.  

(3)                   At 16.56 that day Mr Leahy e‑mailed the two agreements to Mr Dickson saying:

“As discussed, please find attached soft copies of the shareholder loan agreements”

(4)                   Mr Leahy accepted in a further witness statement made during the course of the trial that the version of the Third Kea Loan Agreement sent to him by Ms Leonard on the morning of 17 February and sent on by him to Mr Dickson in the afternoon appears to be the first version containing the figure of £12.5m instead of £12.7m, and that as the version signed by Mr Dickson itself was in the sum of £12.5m, it was almost certainly the case that what he signed was this version.  This means he cannot have signed it in Switzerland and that Mr Leahy cannot have witnessed his signature on 15 February in London.

(5)                   Instead Mr Dickson signed the agreements in Manila and sent them back in hard copy to Mr Leahy.  “Wet ink” versions were disclosed during the trial and on one of them imprints could be seen indicating that that they had been put in an envelope addressed to Mr Leahy at Nucopia and that they had come from Mr Dickson at an address in Manila.  The likelihood is that they were couriered.

(6)                   Mr Leahy had received them by 21 February as on that day he e‑mailed copies to Ms Huggett asking her to have the Spartan director execute them, and said he would put the originals in the post for execution as well.  When they arrived from Manila, they had only been signed by Mr Dickson and not by any witness, and Mr Leahy added his own signature as witness to Mr Dickson’s.  He accepted in evidence that that was “not best practice”, which is something of an understatement.     

(7)                   At 15.56 on 21 February Ms Huggett confirmed to Mr Leahy that they had been executed, that is by Chaumont, the Park Director of Spartan.

(8)                   At 01.26 (Manila time) on 22 February (which was 17.26 the previous day in London – see below), Mr Dickson sent an e‑mail to Mr Leahy asking him to put together a compilation of agreements and other documents as this was a mandate of the Court Order.  The terms of the e‑mail indicate that Mr Leahy was already aware that there was an Order, although there is no written communication of that in evidence.

“(1)  A company or a guarantor of an obligation of a company may not assert against a person dealing with the company or with a person who has acquired assets, rights or interests from the company that

(a)   this Act or the memorandum or articles of the company has not been complied with;

(b)   a person named as a director in the company’s register of directors

…

(iii) does not have authority to exercise a power which a director of a company carrying on business of the kind carried on by the company customarily has authority to exercise;

…

(e)   a document issued on behalf of a company by a director, employee or agent of the company with actual or usual authority to issue the document is not valid or not genuine;

unless the person has, or ought to have, by virtue of his relationship to the company, knowledge of the matters referred to in any of paragraphs (a) to (e).

(2)   Subsection (1) applies even though a person of the kind specified in paragraphs (b) to (e) of that subsection acts fraudulently or forges a document that appears to have been signed on behalf of the company, unless the person dealing with the company or with a person who has acquired assets, rights or interests from the company has actual knowledge of the fraud or forgery.”

“Chaumont (Directors) Limited will be authorised to sign any legally binding documentation solely on behalf of the Company, however prior to this, Peter Dickson must confirm that he has reviewed and approved the documentation for signing.”

That had the effect that Mr Dickson had to approve the documentation in his capacity as director of Spartan, and hence that his knowledge was to be attributed to Spartan.  That also seems to me to be right, and on that footing the agreements were not binding on Kea.

 Subsequent events

“There is a push to get these matters closed this week…”

He said that Mr Leahy would convene a board call for the directors of Spartan to approve the transactions in principle, and explained that they would not be completed until the agreements between Rygen and LHRF had been finalised and executed.  In a separate letter to the Board, Mr Reuben explained the calculation of the precise purchase price payable by Spartan for Rygen, which meant that the final amount of the Third Kea Loan and the Third Park Loan was quantified at £12,143,133 each.  Fladgates did not say anything about this Board meeting in their letter to Harneys. 

The 2014 Settlement with Messrs Miller and Dickson

“release, waive, discharge and relinquish any and all claims, demands, obligations and causes of action of any nature whatsoever, whether in tort, contract, under or by way of statute or any other theory of recovery, whether in law or equity, under any law or legal principle of any nation, foreign or domestic, arising anywhere in the World, for whatever form of remedy or relief, including without limitation, for actual, consequential, compensatory or punitive damages, equitable relief or otherwise, and whether now known or unknown, suspected or unsuspected, having accrued or which may accrue, no matter where any such claim, demand, obligation or cause of action may have arisen or accrued, and no matter where jurisdiction might lie, foreign or domestic, from the beginning of time to the Effective Date, which any of the Sir Owen Releasing Parties have or may have against the MDP Releasing Parties, or which any of the MDP Releasing Parties have or may have against the Sir Owen Releasing Parties, relating in any way to or arising from the Nevis Action, the California Action or under any other matter related in any way to Sir Owen’s Estate…”

The Effective Date does not appear to be defined as such but counsel were agreed that it was the date of the agreement (23 May 2014).  Sir Owen’s Estate was defined in cl 2.1 as:

“any trust, settlement, estate, entity or asset owned directly or indirectly at any time by Sir Owen or any trust, settlement, estate, entity or asset affiliated with him, or which was held at any time for the benefit of persons or entities that included Sir Owen or any member of Sir Owen’s family…”

There does not seem any doubt that the effect of cl 3.1 would be to preclude Sir Owen and HNL as trustee of the Corona Trust from bringing any proceedings against Messrs Miller and Dickson in respect of the matters complained of in these proceedings.

“There seems no reason to me why the principal should not be able to make his position clear in this regard, in that there are two distinct but connected contractual relations.”

The 2017 Settlement with Novatrust

(1)                   Paragraph 1 set aside all the agreements entered into between Kea and Spartan.  That comprised the following: (i) the two Spartan Term Sheets dated 12 June 2012; (ii) the July agreements dated 24 July 2012 (the Spartan Share Purchase Agreement, the Spartan Shareholders’ Agreement, the Loan Facility Agreement in the sum of £50m, and the Security Deed); (iii) the Deed of Loan Amendment and Restatement dated 12 September 2012 (and a further Security Deed entered into at the same time); (iv) the Deed of Amendment to the Shareholders’ Agreement dated 17 September 2012; (v) the Interim Arrangement purportedly dated 8 February 2013; and (vi) the Second and Third Kea Loans purportedly dated 11 February 2013.

(2)                   Paragraph 2 provided that that should be binding as between the Claimants, Novatrust and Spartan but not on the other Defendants and should not prejudice the Claimants or the other Defendants in respect of any issues between them.

(3)                   Paragraph 3 provided for a stay of the proceedings in this action as between the Claimants, Novatrust and Spartan on the terms of a settlement agreement dated 2 June 2017.

(4)                   Paragraph 6 provided that as between the Claimants, Novatrust and Spartan there should be no order as to costs.

(1)                   £356,867

This is the balance of the £12.5m Third Kea Loan which was in the event not needed for the purchase of Rygen and was repaid to Kea on 3 May 2013 (paragraph 513 above).

(2)                   £230,914.89

This is said to be the total amount of interest received by Kea from Spartan between January and October 2013.

(3)                   £50,000,000

This is said to have been paid on 24 July 2016.  It is not explained in the draft pleading.  Mr McCaughran’s closing submissions refer to it as the first repayment due under the Spartan Loan Facility Agreement (as amended by the Deed of Loan Amendment and Restatement); Ms Jones told me that it was repaid on the basis that it was either a repayment of that loan, or pursuant to the Claimants’ claims and so was due on any view.

(4)                   £80,037,607.67

This is the sum said to have been received by Kea on 13 July 2017 under the settlement with Novatrust. 

            Those four sums together total over £130m (£130,625,389.56 to be precise).  I do not think I have any evidence formally proving these amounts but there is no need at this stage to make any finding as to the precise amounts, and I am not at this stage aware of there being, or being likely to be, any significant dispute between the parties in relation to them. 

Relief

Questions 1 to 3: duty and breach

“1.    Whether Kea or Sir Owen succeed on any of the claims which they have brought to set aside the various agreements on any of the bases alleged (ie deceit, inducements, want of authority, breach of Mr Watson’s fiduciary duty) (this to include the issues of affirmation)”   

I have dealt with these matters above.  For the reasons given my conclusions are as follows:

(1)                   The July agreements are liable to be set aside for deceit.  The same applies to all the subsequent agreements between Kea and Spartan.

(2)                   The July agreements are also liable to be set aside as a result of the inducements.  Again the same would apply to all the subsequent agreements.

(3)                   The July agreements are liable to be set aside for breach of Mr Watson’s fiduciary duty owed to Kea.  Again the same would apply to all subsequent agreements.

(4)                   The Second and Third Kea Loans are liable to be set aside for want of authority by Mr Dickson and/or as having been executed for an improper purpose, in each case to the knowledge of Spartan.  I am conscious that I have not made any express findings as to whether other agreements are liable to be set aside on this basis but I do not see that anything of any significance turns on this.

(5)                   The defence of affirmation is not made out.

“2.    Whether Mr Watson owed a fiduciary duty to Kea or Sir Owen and if so what duty or duties and whether that duty or those duties were breached in relation to both Spartan and Edsel”

Again I have already dealt with these matters above.  For the reasons given my conclusions are follows:

(1)                   Mr Watson did not owe Sir Owen a fiduciary duty in relation to either Edsel or Spartan.

(2)                   Mr Watson did not owe Kea any relevant fiduciary duty in relation to Edsel.

(3)                   Mr Watson did owe Kea a fiduciary duty in relation to Spartan.  That duty included a duty to disclose his interest in the schedule 2 transactions.  

(4)                   Mr Watson was in breach in not providing full disclosure of his interest in the schedule 2 transactions.

“3.    What the consequences of those breaches of duty were”

Although this is an agreed item, I am not now sure what the parties intended by it.  The most obvious consequence is that Kea is entitled to avoid all the agreements between it and Spartan.  That has of course been achieved by agreement under the 2017 settlement with Novatrust as between Kea and Spartan themselves, but the effect of my findings above is that Kea has established this (that it is entitled to set aside the agreements) as against the other Defendants.  That is a necessary step in the relief which the Claimants seek against those Defendants. 

Question 4: knowing receipt

“4.    Whether Mr Watson is potentially liable in knowing receipt of sums received from Munil, subject to the question (not for decision in the judgment) whether Kea can trace the Munil monies through Munil.”

This requires a little explanation.  Munil was not originally joined as a defendant but on 25 November 2016 I made an Order permitting Munil to be joined.  The Claimants re-amended their Particulars of Claim and included in the Re-amended Particulars of Claim allegations that Spartan paid the sum of £12,143,133 to Munil (“the Munil Money”); that Munil received the Munil Money on 26 April 2013 as nominee for Mr Watson and held the same on bare trust for him; and that Munil was obliged to account to Sir Owen and/or Kea in respect of the profits it received for Mr Watson.  The Claimants also advanced a separate tracing claim under which Kea claimed to be entitled to trace into and make a proprietary claim to such part of the Munil Money as was retained by Munil in its accounts and to any assets held by Munil which are the traceable product of any part of the Munil Money.  Kea also asserted tracing claims (i) against any assets obtained by use of the Munil money and held by Mr Watson and (ii) against a particular property in Richmond, Surrey said to have been acquired with the traceable product of the Munil Money and held by Mr Watson and Mr Gibson as trustees of a trust known as the Richmond Trust.  (Mr Gibson has not been joined to these proceedings but Mr Watson has been appointed to represent the trustees of the Richmond Trust). 

Questions 5 and 6: equitable compensation

“5.    Whether the amendment in relation to equitable compensation is necessary and if so should it be allowed

6.    Whether equitable compensation should in principle be awarded”

(1)                   The first head is “Avoidance of Agreements”.  This simply claims that Kea is entitled to set aside the various agreements it entered into with Spartan (or alternatively that they are void).  It makes no claim to monetary relief.

(2)                   The second head is “Proprietary and Restitutionary Claims”.  Here are found (i) a proprietary claim to monies held by Spartan; (ii) a proprietary claim to the investment made by Spartan in Project Royal and any profit realised from that investment (it appears from the draft pleading that Project Royal made a substantial profit); (iii) the tracing claims already referred to against Munil, Mr Watson and the trustees of the Richmond Trust in respect of any assets derived from the Munil Money; (iv) tracing claims to any other sums paid out of Spartan that have come into the hands of Mr Watson, Novatrust, Mr Leahy or Nucopia; and (v) a claim that since the agreements between Kea and Spartan are to be set aside, the consideration for the payment of the sums by Kea to Spartan has totally failed and Spartan is liable to make restitution to Kea.

(3)                   There are then claims for knowing receipt against Mr Watson, Novatrust, Mr Leahy, Nucopia and Spartan; and claims for an account of profits made by Spartan and Mr Watson.

(4)                   There is then a claim for equitable compensation pleaded (in paragraph 265) as follows:

“Insofar as any of the above sums claimed by way of proprietary or restitutionary claim or by way of account of profits or by way of personal claim against parties as constructive trustees cannot be recovered together with interest, then to the extent that Sir Owen and/or Kea has suffered loss Sir Owen and/or Kea are entitled to equitable compensation from Mr Watson in respect of his breaches of fiduciary duty. Sir Owen and Kea reserve the right to amend their pleading in this regard once further information has been received from the Defendants.”

(5)                   Finally there is a claim for interest pleaded (in paragraph 266) as follows:

“The Claimants are entitled to compound, alternatively simple, interest pursuant to the court’s equitable jurisdiction and/or section 35A of the Senior Courts Act 1981 on the sums found to be due to them at such rate as would have been obtained by Kea by investing in proper trustee investments, or at such other rate and for such period as the Court considers appropriate.”

(1)                   Where A has paid money under a voidable contract to B and the contract is later set aside, A is prima facie entitled to the return of the money from B.  That is the claim pleaded as a restitutionary claim by Kea against Spartan on the grounds of total failure of consideration.  This is a common law claim, traditionally called a claim for money had and received or a claim in quasi-contract but which is now regarded as a claim for restitution on basis of unjust enrichment. 

(2)                   I do not understand there to be any dispute as to the amounts actually paid by Kea under the various agreements which have been set aside.  Apart from the $1 payable by Kea to Novatrust to acquire 50% of Spartan’s issued share capital, Kea’s payments all took the form of advances to Spartan in the total sum of £129m (£113m under the terms of the Loan Facility Agreement as amended, and £3.5m and £12.5m under the Second and Third Kea Loan Agreements).   

(3)                   Such a claim would not carry interest at common law, but the Court can award interest under s. 35A of the Senior Courts Act 1981.  That section applies to proceedings “for the recovery of a debt or damages” but for these purposes the claim in restitution, being a claim for recovery of a defined sum, is regarded as a claim in debt.  It is not a claim in damages. 

(4)                   Interest awardable under s. 35A is limited to simple interest.  The rate is in the discretion of the Court.  Various factors may affect the rate that the Court may choose to award, but there is no question of a claimant being entitled to any particular rate.  The rate is often determined after judgment as part of the consequential matters. 

(5)                   The claim in restitution is the only common law money claim currently pleaded.  No claim for common law damages is pleaded although the Claimants seek to amend to introduce one as part of their proposed amendment (see below).

(1)                   Where A is able to and does set aside an agreement with B, the effect is to re-vest in A the equitable title to the moneys A paid to B under the agreement.  This may not be so in every case where A is able to avoid the transaction, but I need not consider whether this is so as there is clear authority that it does apply in cases where the ground for setting aside is fraudulent misrepresentation: see El Ajou v Dollar Land Holdings plc [1993] 3 AER 717 at 734c per Millett J:

“But if the other victims of the fraud can trace their money in equity it must be because, having been induced to purchase the shares by false and fraudulent misrepresentations, they are entitled to rescind the transactions and revest the equitable title to the purchase money in themselves, at least to the extent necessary to support an equitable tracing claim.”

“The reason for that, my Lord, is it has always been obvious that Spartan is insolvent.  That is why it is no good getting an order for 129 million plus interest against Spartan, because it hasn’t got it.  That is why the equitable compensation has always been in there: to recover from Mr Watson anything that couldn’t be recovered from other parties.”

“265A Sir Owen and Kea estimate the present value of their claim for equitable compensation is in an amount of £47,570,872, being the sum of:

265A.1      the capital sums of £100,000, £24.9 million, £25 million, £63 million, £12.5 million and £3.5 million paid by Kea to Spartan (and to Fladgates acting as solicitors to Spartan) as pleaded at paragraphs 119, 148 and 167 above; plus

265A.2      compound interest at 8% on the said capital sums with annual rests from the date of the respective payments until the transfer out of £34,197,800 in relation to Project Royal on 24 January 2013; plus

265A.3      compound interest at 8% on the outstanding balance of £94,802,200 with annual rests from 25 January 2013 to 24 July 2016; plus

265A.5      the profit earned from the investment in Project Royal in the sum of £9,631,647.43; but taking into account and giving credit for

265A.6      the Spartan receipts.

265A.7      Sir Owen’s and Kea’s claim for equitable compensation continues to accrue on this basis at a daily rate of £10,426.49.

265B         Alterantively Sir Owen and Kea estimate the present value of their claim for equitable compensation is a minimum amount of £23,361,156.40, being the same calculation as at 265A but with interest at a minimum rate of 3% above BBR on the said capital sums, and a claim continuing to accrue at a daily rate of £2080.10. Sir Owen and Kea will say that 3% above BBR is the minimum rate at which the Court should assess the loss to Kea and/or Sir Owen by being kept out of funds.”

“the Court adopts a broad brush.  For practical reasons it will not make an enquiry into the claimant’s actual loss; nor will it enquire or speculate as to what the claimant would have done with the money had he not been deprived of it.”  

See also [21(3)] where the claimants’ submission referred to what Forbes J had said in Tate & Lyle Food and Distribution Ltd v Greater London Council [1982] 1 WLR 149 at 154.  Forbes J said that in commercial cases the interest is intended to reflect the rate at which the plaintiff would have had to borrow money, but one should not look at any special position in which the plaintiff may have been, but take the rate at which plaintiffs with the general attributes of the plaintiff in the case could in general borrow money.  Hildyard J does not anywhere say he rejects these submissions, and when he came to set a rate in the case before him (where there were a number of different claimants) he said (at [37]);

“Again, a broad brush is required: in assessing any special rate the Court disclaims the task of determining what each claimant’s financial position is and at what rate that claimant could have borrowed money.” 

Questions 7 and 8: damages for deceit

“7.    Whether the amendment to claim damages for deceit is allowed.

8.    If so, whether damages should in principle be awarded for deceit.”

“251A         Further to the claim for rescission of the July 2012 Agreements pleaded in paragraph 245 above, Kea is entitled to and claims damages for deceit from Mr Watson in respect of the loss which it has suffered, giving credit for the sums that Kea has received and will receive from Spartan

251B         The best particulars that Kea is presently able to give of the amount of its loss are as follows:

251A         Kea transferred the sums of £100,000, £24.9 million, £25 million, £63 million, £12.5 million and £3.5 million paid by Kea to Spartan (and to Fladgates acting as solicitors to Spartan) as pleaded at paragraphs 119, 148 and 167 above.

251B         Kea has received:

251B.1 the sum of £356,867 repaid to Kea by Spartan on 3 May 2013 (being the unused balance of the Third Kea Loan Agreement);

251B.2 the cumulative sum of £230,914.89 received by Kea by way of interest from Spartan between January and October 2013 (Kea’s loss being calculated on the basis of receipt of the all sums on 16 June 2013);

251B.3 the sum of of £50,000,000 received by Kea from Spartan on 24 July 2016; and

251B.4 the sum of £80,037,607.67 that Kea received on 13 July 2017 following the the compromise it has reached with Novatrust and Spartan of the claims made in these and in all related proceedings (collectively with the sums in paragraphs 251B.1 to 251B.3 “the Spartan receipts”).

251C         Kea has suffered damage in the amount of £52,285,368.44 as a consequence of the loss of the use of its funds; calculated as the sum of £129m plus interest at 8%, compounded annually, being the rate of return that Kea would have expected to receive by way of investment of its funds, but taking into account and giving credit for the Spartan receipts;

251D         Kea’s loss on this basis will continue at a daily rate of £11,459.81, until payment of the same.

251E Alternatively Kea has suffered damamge in the minimum amount of £19,276,971.56 as a consequence of the loss of the use of its funds, calculated as the sum of £129m plus interest at such other rate as the Court may find that Kea would have received by way of return on the use of its funds, but at a minimum of BBR plus 3% compounded annually (being the minimum rate at which an investor such as Kea would be compensated for loss of the use of its funds by way of an award of interest by the Court), but taking into account and giving credit for the Spartan receipts;

251F Kea’s loss will continue on this basis at a minimum daily rate of £1716.44, until payment of the same.”

Question 9: interest

“9.    Whether the Claimants are entitled to interest at anything higher than BBR plus 3% either by way of damages or by way of equitable compensation.  If so, at what rate”

“10.  Whether Mr Leahy has received at least $363,566 from the Munil Money”

Although this is on the agreed list, it affects Mr Leahy rather than Mr Watson.  Mr Leahy was acting in person at the trial and did not take any part in the oral closing submissions, filing brief written submissions instead.  I cannot assume that he agreed to this issue being determined at this stage.  His submissions do not address this point at all.

Questions 11 to 13: Project Edsel

“11. Whether Kea is entitled to the B share in Edsel on the basis that its money was used to acquire it.

12. Whether Kea is entitled to claim a 50% share in the Edsel B share on the basis of the Edsel Term Sheet (including whether any such right was given away by the terms of the long form agreements)

13. Whether any claim in relation to Edsel has been lost by virtue of affirmation”

(1)                   Question 11: No.

(2)                   Question 12: No.

(3)                   Question 13: this does not arise.

Question 14: allocation

“14. Whether Kea is only entitled to allocate monies paid to it under the Novatrust Settlement to claims against Spartan and Novatrust which would have been likely to succeed”

This is not an agreed item but one of those suggested by Mr McCaughran.  Ms Jones said she did not feel strongly about it but pointed out that the Claimants have not yet allocated any of the monies to anything.  It was however fully argued and I agree with Mr McCaughran that I might as well deal with it now.   

“But granted for the moment that there may appear to be a question of apportionment of the sum between claims which are good, claims which are bad, and claims which are not concurrent, the mere fact that this may not be altogether straightforward does not, to my mind, absolve the Judge from attempting the task. It is said that the burden lies on the defendant to show that a part of the claim against him has already been satisfied, and to demonstrate the extent to which recovery has already been completed by the plaintiff; and reliance is placed on the decision in the case of The World Beauty [1970] P 144. Allowing this, however, it seems to me that that initial burden is discharged when the defendant shows acceptance of a payment in, in respect of causes of action where there are concurrent claims against him. If it is to be said that the payment in relates to some claims which are not concurrent, or which could not succeed against the defendant, the only person capable of providing that guidance is the plaintiff himself, who has accepted the payment. That the payment has to be taken into account in some way seems to me to be beyond doubt, and it is, of course, always open to a plaintiff who wishes to accept a payment in or thinks that its acceptance may cause him some embarrassment in the matter of apportionment to request an amendment of the notice of payment in to apportion the sum paid among the causes of action in respect of which it is paid. In the ordinary way that would, I think, solve any difficulty, though I would like to reserve the position — which of course does not arise here — where there may be grounds for asserting that the apportionment is collusive or is not made bona fide .

Where, however, the party who has to bring the money into account himself provides no material to show how any apportionment should be made (or, as in this case, invites the Judge to deal with it in a particular way) the Judge has to do his best with what material he has, and the only material that he had in this case was the claims themselves. What he had to ascertain was what the plaintiffs had lost, and to what extent that loss had been mitigated or satisfied by what had been received. There was really no other reliable way of doing this except by assessing the true value of the plaintiffs’ claims against Laings, and comparing it with the £30,000 received.”

         Purchas LJ agreed.  He said (at 51):

“If the appellants wished to appropriate the payment into Court against particular claims raised in their Statement of Claim, they could have required the payment into Court to be appropriated by Laings under the provisions of Order 22, rule 1, and then decided whether to accept the appropriated amounts or not.

The effect of the acceptance of the payment into Court in satisfaction of all claims between the plaintiffs and Laings must raise a prima facie presumption that where those claims overlap claims made against another defendant, that the latter claims have also been satisfied. The presumption is rebuttable by evidence led by the plaintiffs, and is no bar to their pursuing their claims if they can establish that that part of the payment into Court attributable to the “concurrent claims” does not fully satisfy the damage they have suffered under this head. Of course, if the payment exceeds the aggregate of damage suffered by the plaintiffs under both heads, i.e. the “concurrent claims” and claims against Laings alone, then no problem arises; both the second and third categories have received full compensation under the payment into Court and, therefore, in respect of the second category, the plaintiffs must give credit for the full value and there is nothing more to claim. The plaintiffs’ claim must be restricted to damages claimed under the first category.

Apart from the special cases where the Court orders trial on liability only or, having determined liability, orders an inquiry as to damages, in normal actions for recovery of damages it is for the plaintiff to prove both the liability of the defendants whom he sues, and the loss he has suffered. Qua the remaining defendant after the plaintiff has withdrawn, for whatever reason, his claim against a co-defendant, nothing has happened to alter this position. The plaintiff, in order to obtain a judgment for damages, must prove that there is still a quantum of damage which has not been satisfied by a previous recovery whether as a result of a payment into Court or a prior judgment, in respect of which he is entitled to recovery from the remaining defendant or defendants….

Where the previous recovery stems from the acceptance of a payment into Court made and accepted not only in respect of the claim for damages under consideration, but also in respect of other claims not relevant, the Court must decide, and it is for the plaintiff to establish, by how much that part of the payment attributable to the instant claim falls short of the total value of the claim itself. For my part I cannot see how this exercise can be done without an investigation of the other claims, unless it be for the Court to say that the plaintiff has failed to establish that there is any excess of damage suffered in respect of which he, the plaintiff, is entitled to continue his action for damages against the remaining defendant.”

Waller LJ agreed with both judgments.  He said (at 56) that:

“It is for the defendant to show, in the first place, a prima facie case that the plaintiff has been wholly or partially compensated for the loss he has suffered. In my opinion, however, once there is a prima facie case that the plaintiff has received a sum of money which reduces the loss he has suffered from that particular event, it is for him to show, if it be the case, that some part of that sum was for another, unrelated, cause of action.

In this case, in my opinion, there can be no possible doubt that some part of the £30,000 paid into Court and taken out by the plaintiffs comprised damages which were for injuries for which damage was also being claimed against the defendant in this action. It was then for the plaintiff to show which, if any, parts of the £30,000 were not so attributable.”

“1116  …The real issue is the level of that threshold: must the court decide whether the claims would have succeeded at trial, or is some lesser scrutiny required?

1117 Mr Brindle for BFS pointed out that, in Banque Keyser Ullman, Steyn J gave the judgment from which I have quoted above at the end of a full trial. He already had a clear and informed view on the strength of the costs claims which were in issue. He was therefore able to decide without any need for further evidence that the claim for disallowed costs referred to in the second passage would have failed at trial. Mr Brindle distinguished Townsend on the grounds that there was there only one claimant; the court there had been given no material at all on which to base an appropriation; and that the payment there was a payment into court, which is made under a special procedure and which it may be more difficult for a claimant unilaterally to appropriate to particular claims. By contrast, the general rule, where a creditor is owed two debts by a debtor and receives a payment which is not appropriated between them, is that the creditor may appropriate the payment between the debts as he thinks fit.

1118  Mr Brindle suggested that Steyn J would be horrified if he were told that his ruling required me to hear the full case against the Coopers defendants, over the course of several weeks, purely in order to decide this point. I agree with him, and would be very reluctant to make such a finding unless authority compelled me to do so. I do not think either Banque Keyser Ullman or Townsend do so compel me.

1119 Banque Keyser Ullman is explicable on the grounds suggested by Mr Brindle. In Townsend the Court of Appeal stated that even a payment into court may be appropriated to particular claims, by the claimant requesting an apportionment in the notice of payment in. That would be conclusive, as long as the apportionment were not collusive or not made bona fide (per Oliver LJ at page 41). In the case of a negotiated settlement, it seems to me that the normal rule allowing appropriation by the recipient should apply (Halsbury’s Laws, 4^th ed., volume 9(1) paragraph 956), subject to the sort of low-level threshold indicated by Oliver LJ. One of Mr Brindle’s formulations of that threshold was whether the claims were obviously unsustainable. That seems to me a preferable approach to his alternative approach, by analogy to the Civil Liability (Contribution) Act 1978, which would pay no regard at all to the chances of the claimant making out his claim at trial.”

Conclusion