England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ON APPEAL FROM MASTERS COURT
MASTER EYRE
HQ04 X00713

		Royal Courts of Justice Strand, London, WC2A 2LL
		28th January 2005

Mr Justice Nelson :

1. This is an appeal against the decision of Master Eyre of 7 October 2004 by which he dismissed the Claimant's application for summary judgment under Part 24 CPR, but ordered the Defendant to make a payment into court of the sum of US $2.5 million in default of which judgment would be entered. Mr Justice Hodge gave permission to appeal limited to the amount of any payment into court. The Appellants seek to extend that permission in order to appeal, not merely the conditional order, but the whole of the order which Master Eyre made. There is no appeal against the refusal of the Claimant's application for summary judgment.

The background facts.

2. The Claimant operates a motor racing team which competes in the Formula 1 Grand Prix Championship. The Defendant specialises in telematic products and in particular, electronic tracking systems. Its subsidiary, known in early 2003 as Gametrac Europe Limited, but which has now changed its name to Gizmondo Europe Limited, has developed a hand held games console which also has GPS, GPRS, camera, music player, movie player, messaging and 'blue tooth' functions. Some US $ 54 million has been raised by equity investment for the launch and manufacture of this new product which was to be on the market at the end of 2004 but is now scheduled for later.
3. In 2003 the Defendant was looking for advertising opportunities for the new product and the Claimant was looking for sponsors. Initially it was agreed between the parties that there would be sponsorship for a single race at the British Grand Prix on 20 July 2003. On 17 July 2003 the parties signed an agreement to that effect, and in addition an agreement for sponsorship throughout the 2004 season. After the British Grand Prix the Defendant agreed to sponsor the Claimant for the remainder of the 2003 season. This agreement was by letter dated 30 July 2003.
4. Under the agreement for the 2004 season Jordan were to display the Defendant's and its subsidiary's logos on, amongst other things its cars and its website, provide corporate hospitality, a replica car for promotional and display purposes and grant a free licence to the Defendant to use the term 'an official sponsor of Jordan Grand Prix' in connection with promotional material. In consideration of Jordan's obligations the Defendant, as sponsor, agreed to pay 'the sum set out in schedule 2 to be received by Jordan on the date set out in schedule 2..'. These sponsorship fees totalled US $2 million with four due dates for payment on 1 January, 1 April, 1 July and 1 October 2004.
5. The 2004 agreement required that Jordan would enter not less than two cars in each of the races and provide the necessary equipment and services for the team to compete in the World Championship. Jordan would not however be in breach of any its obligations if either of the cars failed to qualify, or if the cars or their drivers did not meet the sponsor's expectations of success or performance in races or tests. The Defendant acknowledged Jordan's 'absolute right to manage its racing affairs as Jordan sees fit and, without limitation, to change its cars, team personnel and suppliers at any time.' (Clause 2.1, 2.2 and 2.3)
6. By Clause 13 of the 2004 agreement Jordan agreed to use its reasonable endeavours to ensure that the team and team personnel did nothing to harm the reputation, image or goodwill of the sponsor, the logo or the product. The sponsor also agreed to use reasonable endeavours to ensure that it did nothing to harm the reputation of Jordan.
7. By Clause 16 of the agreement the sponsor agreed to pay 'the sum set out in schedule 2 to be received by Jordan on the dates set out in schedule 2 subject to the sponsor having received an invoice from Jordan in respect of the sum due.' All sums not paid by the sponsor to Jordan by the due date were to incur interest.
8. Either party 'may', by Clause 17 of the agreement, terminate the agreement with immediate effect on the giving of written notice to the other party, if the other party, amongst other things, fails to pay any sum due under the agreement, 'within ten business days of the due date'. (17.2) By Clause 17.4 the parties agreed that:-

"If this agreement is terminated in accordance with its terms, all rights and obligations of the parties will cease immediately, except for those provisions expressly stated to survive termination of this agreement. Termination of this agreement will not affect any rights or liabilities arising prior to termination."

9. If the agreement was terminated by the sponsor in accordance with Clause 17 the sponsor would not be liable to pay any further fee instalments and the amount of the fees paid in the instalment period during which the agreement was terminated would be repaid pro rata.
10. Clause 21 stated that the document and side letter made up the entire agreement between the parties and superseded all other agreements, whether written or oral, express or implied and any variations to be effective had to be in writing. (Clause 21.1)
11. The sponsorship agreement dated 30 July 2003 which related to the remaining races in the 2003 season adopted amongst other clauses, Clauses 13, 17 and 21 of the 2004 and agreement. The 2003 agreement provided that the Defendant would pay 'the sum of US $ 1 million payable in four instalments of US $ 250,000 payable on the same dates in January, April, July and October 2004 as the payments to be made under the 2004 agreement.
12. The Defendant received legal advice as to the agreements and its solicitors negotiated that the sum of US $ 2 million due under the 2004 agreement was to be paid in four instalments rather than two.
13. Jordan complied with its obligations under the 2003 agreement by duly advertising Gametrac's branding. The team finished 9^th in the 2003 Championship but during the course of the season had won the Brazilian Grand Prix in April, after a revised result, and had done reasonably well in the British Grand Prix. The Defendant, after litigation against Gametrac Europe Ltd in the UK, had to change the name of its subsidiary to Gizmondo thereby diminishing the benefit of the advertising it had in fact received in 2003.
14. After the victory in the Brazilian Grand Prix in April the 2003 season did not end well for Jordan. There were thought to be problems with the Ford Cosworth engine and it was known by the end of June 2003 that Mercedes-Benz were proposing to provide McLaren engines for Formula 1 in 2004. Formula 1 is an extremely expensive sport and sponsorship is of great importance to all the teams. In June and July 2003, during the time that the agreements with the Defendant were being considered and negotiated, the Claimant was engaged in litigation against the Vodafone group. It was claiming US $ 150 million for alleged breach of a contract for Vodafone to provide sponsorship for the Jordan team for the seasons 2002 – 2004. Mr Justice Langley was requested by Jordan to delay sending out his draft judgment in the case but declined to do so. After the parties had collected it Jordan served a notice of discontinuance on Vodafone's solicitors and requested the Judge not to hand the judgment down. He rejected this application on 1 August 2003 and the judgment was duly handed down on 4 August 2003. The judgment contained strong criticism of Mr Eddie Jordan and Mr Phillips who had given evidence on behalf of Jordan. They were both found to be wholly unsatisfactory witnesses and the Judge said that the evidence they gave, and the claim Jordan made, became more and more contrived and unsustainable during the trial. The Judge found that important passages had been added by Mr Phillips to his notebook to what were otherwise contemporaneous notes. He concluded that Jordan's claim was plainly demonstrated to be without foundation and false and their attempt to prevent anyone being told of its outcome was designed to create a serious injustice which the court should not tolerate. Not surprisingly this judgment attracted considerable press attention. Jordan had not merely lost its action for substantial sponsorship but had been severely criticised in the process.
15. Mr Carl Freer, a major stockholder in the Defendant and Chief Executive of its subsidiary, Gizmondo Europe Limited was responsible for negotiating the 2004 and 2003 agreements on behalf of the Defendant. It is the Defendant's case that at a PowerPoint presentation which took place at the Defendant's offices on 2 July 2003 various representations were made, in particular by Mr Mike Jones of the Claimant, relating to the future potential of the Jordan team and why sponsorship of them was a sound marketing proposition for the Defendant. Witness statements from seven witnesses, served on behalf of the Defendant describe in varying terms the statements which it is alleged amount to representations. The representations, which it is contended the Defendant relied upon and which induced them to sign the 2004 agreement and the 2003 agreement are set out in the Defence and Counterclaim. They are in summary as follows:-

i) The Claimant had sufficient financial resources for the 2004 season to be able to compete competitively, to achieve a top five finish and afford the expenditure referred to in the other representations.

ii) The Claimant had secured a substantial sponsorship agreement with Vodafone for the 2003 and the 2004 seasons.

iii) The Claimant would secure two top drivers for 2004 and pay them.

iv) The Claimant would change its engines from Ford to McLaren from Mercedes, and had secured an agreement with Mercedes/McLaren for such engines.

v) The Claimant knew of no reason why its positive public profile and reputation would be damaged before the end of the 2004 season.

vi) The Claimant was bound to win the Vodafone case.

vii) The Claimant's lawyers had advised the Claimant that it was bound, or at least likely, to win the Vodafone case.

viii) Mr Eddie Jordan was personally paying the Claimant's legal costs of the Vodafone case.

16. The Defendant pleads that the alleged representations were false and the Claimant was negligent in making them. The Claimant denies making any of the representations.
17. Mr Freer says in his witness statement that he first learned that the Claimant was in dispute with Vodafone in litigation on 20 July 2003. Had he known before he signed the agreements on 17 July 2003 that the Claimant was actually in court in dispute with a significant sponsor he says he would not have entered the sponsorship agreements on the date and terms which he did. He was very upset when he learned of the dispute and raised the matter with Mr Hall-Taylor of the Claimant. Mr Hall-Taylor told him that the Claimant was '100% likely to win the case against Vodafone' and that their legal advice, which was the 'best of the best' had confirmed that they would win the case. On the strength of this Mr Freer was prepared to sign the 2003 agreement on 30 July 2003.
18. The press contained adverse publicity for the Jordan team after the judgment in the Vodafone case. There was speculation about members of the staff leaving, Mr Jordan abandoning the Claimant's racing team, and the suggestion that the Claimant would be in dire financial trouble by January 2004. Mr Freer states that he was unaware that Jordan were in the first season of a three year deal with Ford as to their engine and had not seen the BBC website article to this effect on 28 June 2003. If he had known that the Claimant's chances of obtaining a McLaren engine for the 2004 season were virtually nil he would not have offered any sponsorship. The Claimant did in fact use the Ford Cosworth engine in the 2004 season. They also engaged two drivers, Mr Heidfeld and Mr Pantano who were not paid but in fact made a financial contribution to the Claimant for the privilege of driving their car, a system which is apparently not uncommon in Formula 1 racing; indeed it is a route which has been taken by drivers who have gone on to be extremely successful. Jordan finished 9^th in 2004, one from bottom of the Constructor's Championship Table.
19. After Mr Justice Langley's judgment had been handed down Mr Freer agreed to carry out a joint interview with Mr Hall-Taylor of the Claimant with Marketing Magazine which had earlier written an article on the outcome of the court case and its implications. This interview was carried out on the basis that it would be good for Jordan to get some positive coverage and also good PR for Gametrac on the back of their relationship with Jordan. After the interview Mr Jones thanked Mr Freer stating that it was nice to generate some positive PR and he was pleased that the article focused on the Defendant rather than Jordan's response to the Vodafone story.
20. The e-mails from the Claimant to Mr Freer referring to this matter are dated 7 August 2003 and 15 August 2003.
21. On 8 August 2003 Mr Freer offered Mr Eddie Jordan a position on an advisory board to the Defendant companies. He declined on 4 September 2003.
22. The Defendant failed to pay the first instalment due on 1 January 2004 either in respect of the 2003 agreement for US $ 250,000 or under the 2004 agreement for US $ 500,000. The Claimant's solicitors wrote to the company on 13 January 2004 stating that it was in breach of the terms of the agreement and had had effectively 6 months of free sponsoring in 2003. The Defendant was given until 30 January 2004 to pay. No response having been received the Claimant's solicitors faxed a letter on 29 January 2004 notifying the Defendant that the sponsorship agreement would be terminated in accordance with Clause 17.2.3 without prejudice to Jordan's rights either under the sponsorship agreement or otherwise. On 29 January 2004 Mr Freer wrote to Mr Hall-Taylor referring to recent meetings they had had and stating as follows:-

"Dear Michael,

I am writing to you with reference to the last conversation we had at the offices of Gametrac when I explained to you the reasons for my concern relating to the sponsorship of Jordan Formula One for the 2004 season, namely that as at 15 January 2004 there seemed to be no commitment for any drivers, even though we expressed a concern about the absence of news relating to commitment of drivers during the early part of December 2003.

After the disappointing conclusion of the 2003 season, it was made clear to us that in preparation for the new 2004 season, talks were initiated with Mercedes and the launch of the Smart brand as a brand sponsor entered Formula One. We understood there was a fallback plan to talk with Jaguar and obviously get their engine as backup. We have now read in the magazines that Ford is still with Jordan and that there will be no major engine improvements for 2004. This is disappointing as when Mike Jones visited us in the Gametrac offices back in April we were talking about the likelihood of Jordan being a top 5 contender in the Grand Prix and what was instrumental in achieving that goal was that there would be a new line up of drivers and a better engine for the 2004 season.

It seems that we are still on status quo and it disturbs me slightly that I am reading about all the news from magazines, rather than getting it fed back through the channels that should operate between Jordan and Tiger Telematics.

Furthermore, I was slightly surprised and disappointed to receive a letter from Fladgate Fielder, your solicitors, relating to the non-payment of funds for sponsorship of 2004. The reason for this non-payment is, as you know, the result of the numerous conversations we have had together during the last two months where I have expressed my concern about the future of the team. At our last meeting, in the presence of Dean Draper and Peter Ruth, we said that, provided that Jordan are able to satisfy us that it would be entering into the 2004 Grand Prix season with two drivers and a team and are able to satisfy us that there was a fair likelihood of them running both cars throughout the full Formula One season of 2004, we would be keen to move ahead.

Finally, I have to express concern on reading about takeovers of the Jordan team by certain business individuals whom have not disclosed any of the plans for the team if they take over with immediate effect.

In conclusion, I feel that what we were sold and what we thought we bought into is far from what we are seeing from the sidelines. Also, I am disturbed that the last conversation we had seemed worthless as I have now received the letter from your solicitors threatening us with something else.

I am therefore forced to hand this over to my attorneys in order for them to evaluate the situation and advise us how to proceed.

I sincerely hope we can resolve this situation and that our problems and queries will be dealt with properly by you so that we can restore the original business relationship. It would help if we could meet to see how we can resolve this between us.

Yours sincerely"

23. On 30 January 2004 Mr Freer wrote again to Mr Hall-Taylor expressing his concerns in relation to the engine and the driver and said that the Defendant was particularly concerned for some form of guarantee that Jordan would be able to enter two cars for each race during the season. On 30 January 2004 Messrs Berwin Leighton Paisner, the Defendant's solicitors, wrote to the Claimant's solicitors as follows:-

"..Jordan have been made aware of our client's concerns in relation to the forthcoming Formula One season. Our client, as sponsor, has legitimate concerns in relation to the engine and they had been told that talks had been initiated with Mercedes and that there was a fallback plan to talk to Jaguar with regards their engine as a backup. Our client has not been kept advised of the position but understands from articles that have appeared in various magazines that Jordan is still with Ford and that there are to be no major improvements to the engine for 2004.

The sponsor has also yet to see any firm commitment in relation to the drivers retained for the season.

Last, but not least, there is a concern that your client will not be able to ensure that two cars are entered for each race throughout the whole of the Formula One season.

All of these are legitimate and genuine concerns of any sponsor.

Our client has written to your client's Head of Marketing and requested that these concerns be addressed and also suggested that it will be sensible to meet to see if these problems can be resolved.

We would therefore suggest, with respect, that the issue of proceedings would be premature and we would be obliged for your confirmation that proceedings will not be issued without giving the parties an opportunity to see whether these matters can be resolved amicably and giving this firm an opportunity of meeting with you on a without prejudice basis as, of course, is recommended in the pre-action protocol.

Yours faithfully"

24. The matter was not resolved and on 26 February 2004 the Claimant's solicitors wrote to the Defendant's solicitors accepting 'the repudiation of contract' by the Defendant. On 9 March 2004 a claim form and particulars of claim were issued. The application notice under Part 24 was issued on 26 April 2004 and the matter was heard before the Master on three half days between 17 August 2004 and 19 August 2004.

The Master's Judgment.

25. On 1 October 2004 Master Eyre distributed his draft judgment. During the course of argument in August 2004 the Master had raised the question of making a conditional order requiring the Defendant to pay money into Court. No evidence had been adduced by the Defendant on their finances in response to that statement of what was in the Master's mind. In his draft judgment of 1 October 2004 the Master's ruling stated that summary judgment ought not to be granted provided the Defendant paid the amount claimed into Court. On 7 October 2004 further argument took place before the Master on the order to be made and the draft judgment. By this time a statement had been served as to the Defendant's financial position from Mr Carter-Silk their solicitor on 6 October 2004. He states that the Defendant had raised US $35 million by way of investment funds to both launch and manufacture the consoles for distribution. There was concern that if this process was disrupted by reason of cash shortage the Defendant might fail. It was still short of approximately US $ 1.9 million to complete the launch. The statement does not make clear the precise amount spent on the launch and production or what was yet to be spent on producing the consoles.
26. After hearing the parties on 7 October 2004 the Master prepared another judgment which was e-mailed to the parties on 7 October 2004 after the hearing. The two judgments are not precisely the same. In the grounds for appeal and for permission to appeal drafted by Mr Platt-Mills QC on behalf of the Defendant, it is contended that in so far as there is a material difference the Defendant will rely on the first judgment. In his submissions before me Mr Platt-Mills QC submitted that both judgments should be considered and contrasted so as to demonstrate that the Master's decision was flawed. The mere existence of two different judgments in different terms in respect of the same matter showed that this was so Mr Platts-Mills submitted.
27. The Master set out the factual background in his reasons for decision and then recited the Claimant's contentions and the Defendant's contentions. These are set out somewhat differently in each version of the judgment though there is an overlap between the two. The Defendant's reference to Mr Jordan's statement to the press that he 'sold the dream to the sponsors' was a Defence contention that was omitted. The Master's 'Rulings' are also different, reaching the same conclusion for reasons which are somewhat differently expressed. One particular difference is that in the judgment of 7 October 2004 the Master includes as paragraph 15(3) of his ruling a finding on the evidence served on 6 October 2004 from the Defendant's solicitor as to their financial position that the Defendant's approach to the possibility of a payment into Court was the 'opposite of straight forward' in its dealings with the Court as well as the Claimant.
28. In each version of the judgment the Master accepts the Claimant's contentions and rejects the Defendant's contentions save in two respects; firstly the Master accepts that the terms of the agreement do not appear to have the effect of ousting reliance on misrepresentation and secondly it is possible, 'though barely so' that one or more of the assurances allegedly given might be shown to be misrepresentation (1.10.04) or it is not possible summarily to determine that none of the representations alleged could even conceivably afford support for a defence of misrepresentation (7.10.04).
29. The Master formed a clear view on the strength and merit of the Defendant's case as to misrepresentation, describing its factual case as 'vague and utterly unconvincing' and describing the Defendant as 'evasive' and its defence as 'shadowy' in the first judgment and describing the Defendant as 'evasive' and its defence as 'shadowy' in the second judgment. I understand the use of the word 'shadowy', in this context to mean, as the Claimant submitted to me it did, insubstantial rather than any more sinister meaning. The word 'evasive' appears to be a direct reference to the Claimant's contention that the Defendant was seeking to evade meeting its obligations or at any rate postponing them for as long as possible.
30. In accepting the Claimant's contentions the Master was accepting, amongst other things, that the Defendant had already taken legal advice in late December 2003, that the letter of January 2004 mentioned only three of the seven misrepresentations later alleged and only then as 'concerns'; that the language of the misrepresentations used was too vague for such statements to amount to misrepresentations; that the alleged reliance on the assurance that the Claimant was 100% bound to win the Vodafone action was ludicrous; that the Defendant's assertions were without independent support and that the Defendant was simply evading meeting its obligations or postponing them. These contentions are set out in each version of the judgments.
31. On the basis of these findings the Master determined that summary judgment was inappropriate as the defence of misrepresentation could not be excluded, but it was nevertheless so 'vague and utterly unconvincing' or 'evasive' and 'shadowy' that it was appropriate to make a conditional order requiring a substantial payment into Court.

The nature of the appeal and the proper approach to it.

32. I heard the appeal against the amount of the conditional order and the application for permission to appeal the remainder of Master Eyre's order together. This involved consideration of the whole of Master Eyre's judgment and in particular whether a conditional order should have been made against the Defendant at all and, if so, in what amount. A conditional order can only be made in circumstances such as these where it appears to the Court that it is possible that the Defence may succeed but it is improbable that it will do so. (Practice Direction 24 PD.4 and 24.6.6) I note the warning given by Lord Justice Simon Brown (as he then was) in Olatawura v Abiloye [2002] EWCA Civ 998, [2003] 1 WLR 275 where he said, in relation to applications for security for costs, that it would not be appropriate to make such a conditional order in every case where a party appears to have 'a somewhat weak claim or defence'. (Paragraphs 22 – 26). It is of course necessary where deciding whether a conditional order is appropriate, for the Court to form a view as to whether a defence may succeed but it is improbable that it will. Such a process involves making an assessment of the strength of the defence on the material then before the Court. Clearly if a Court concludes that a defence is possible but improbable that it will succeed, it is concluding, not merely that a defence is 'somewhat weak' but that it is so weak that it is unlikely that it will succeed.
33. Permission to appeal is only given where the Court considers that the appeal will have a real prospect of success or there is some other compelling reason why the appeal should be heard. (CPR 52.3(6)) An appeal, once permission has been granted, will be allowed where the decision of the lower court was wrong, or unjust because of a serious procedural or other irregularity in its proceedings. (Order 52.11(3)) When considering whether a Court has made an error sufficient to warrant interference by an Appellate Court the following dicta should be borne in mind:-

"..The Appellate Court should only interfere when they consider that the Judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible." (Tanfern Ltd v Cameron-MacDonald [2000] EWCA Civ 183, [2000] 1 WLR 1311 cite Lord Fraser in G v G [1985] 1 WLR 647).

34. Lord Woolf in AEI Redifussion Music Ltd v Phonographic Performance Ltd [1999] EWCA Civ 834, [1999] 1 WLR 1507 laid down an alternative formulation of the threshold test for interfering with the exercise of the discretion of the Appellate Court. He said:-

"Before the Court can interfere it must be shown that the Judge has either erred in principle in his approach or has left out of account or has taken into account some feature that he should, or should not, have considered, or that his decision was wholly wrong because the Court is forced to the conclusion that he has not balanced the various factors fairly in the scale."

35. A Judge is required to give reasons for his decision so that the parties can know why he made the order he did. An unsuccessful party should not however seek to overturn a judgment for inadequacy of reasons unless, despite the advantage of considering the judgment with knowledge of the evidence and submissions at trial, that party was unable to understand why the Judge had reached an adverse decision. English v Emery Reimbold & Strick Ltd [2002] EWCA Civ 605, [2002] 1 WLR 2409.

The submissions.

36. It was submitted to me on behalf of the Defendant that the Master's approach to the case was flawed and that his conclusions were confusing and wrong. The existence of two different versions of the judgment compounded the confusion. The Master had correctly dismissed the Claimant's application for summary judgment under CPR 24, but having found that the Defendant had a real prospect of success on his defence he should not have made a conditional order. He applied the test of weakness of the defence when that was inappropriate. The Defendant had served a detailed defence, numerous witness statements and a skeleton argument. In such circumstances, and having found that the defence had real prospect of success, it was inappropriate for the Master to make a conditional order on the basis that the defence was weak. Indeed there was no basis for any finding that it was possible that the defence might succeed but improbable that it would. The Master in effect conducted a mini trial in order to look at the merits of the case when it was inappropriate to do so. There had been no cross-examination and where the defence and numerous witness statements were available such an exercise was incorrect.
37. As to the merits, the Master's findings that the Defendant's case as to misrepresentation were wrong. It was likely in the circumstances that representations would have been made. The Claimant was desperate for sponsorship and the Defendant wanted to be reassured of the strength of the Jordan team and that they were going for someone with a chance. It is now known from the judgment of Mr Justice Langley in the Vodafone trial that the Claimant's witnesses were prepared to lie in order to win a false and misconceived action against Vodafone. Mr Jordan had been reported in the press on the need to 'sell the dream' to potential sponsors, and the question had to be asked how that was done in this case. Why was it that the sponsorship by the Defendant was only to be for one race, namely the British Grand Prix, in 2003 yet a few days later they suddenly signed up for the whole of the 2004 season? It is probable that representations were made as to drivers, engine, sponsorship and the availability of money. The representations alleged were not mere 'puffs' but misrepresentations. Mr Platts-Mills QC drew the analogy with an athlete who claims to be as 'clean as a whistle' when he knows that he has had a drug test which he is bound to fail. Such a statement is a misrepresentation he submits.
38. There is support for the Defendant's case not merely in the statements of its employees but also that from Miss Fairburn, a witness of some independence who gives an account of what one of Jordan's current drivers said at the end of a 2003 season dinner party both in relation to the use of the McLaren engine in the following year and the engagement of new drivers. Furthermore, Mr Platts-Mills QC submits, the statement of the Claimant's own witness Mr Michael Hall-Taylor supports the Defendant's case to some extent in that it states that if he talked with Mr Freer about the Vodafone case he probably said that he understood that Jordan had a strong case or they would not be pursuing it. It was something he did not have much knowledge of.
39. Mr Platts-Mills QC places particular reliance upon the fact that whilst Mr Michael Jones, who is the Claimant's new Business Manager, says what he did not say i.e. in denying the representations, he does not state what he did say in order to persuade the Defendant to sponsor the Claimant. This is a surprising omission, Mr Platts-Mills submits, when set against the likelihood of such statements being made. It is because the terms of contract give the Claimant such wide discretion as to how to operate its business that it is likely the Defendant would have asked what the Claimant's plans were for the 2004 season. The representations made were not inconsistent with the terms of the contract it was submitted.
40. The Claimant knew that they were doomed in the Vodafone litigation, that they had lied, and that the Judge would so find. The need for sponsorship from the Defendant in the absence of any from Vodafone created the need for audacious lies to be made. The letter of 29 January 2004 was not in reality inconsistent with the Defendant's case as to misrepresentations. It was written at a time when Mr Freer still hoped that the arrangement as to sponsorship would work. Hence his main concern at that time was to ensure that two cars would actually be competing. The letter was in any event a layman talking about representations; hence the reference to the Defendant not being sold what they had 'bought into'. The latter phrase referred to what they were told they were going to be getting. Nor is the letter of 30 January 2004 from the Defendant's solicitors inconsistent with their case. It was another gentle letter trying to preserve the status quo rather than following a request from the Defendant to get out of the sponsorship. The solicitors had not had a lot of time to consider the matter and had not at that stage received full instructions.
41. The Master's judgment was confusing, and the two versions inconsistent, permission should be granted in respect of the whole decision to make a conditional order, not merely the quantum of such order as Mr Justice Hodge had given leave for. Paragraph 14(3) of the Master's ruling on 1 October 2004 was different to his ruling under paragraph 15(1)(b) of 7 October 2004. He had effectively reversed the onus and hence made it unclear as to what test he was applying. He had also omitted in the second ruling the reference to the Defendant's factual case being 'vague and utterly unconvincing'. Paragraphs 14(2) and (6) of 1 October 2004 appear to have been amalgamated into one paragraph namely 15(2) in the judgment of 7 October 2004. 'Shadowy' and 'evasive' were neither defined nor explained. Neither finding was justified on the evidence. The new paragraph 15(3), finding that the Defendant's dealing with the Court and the Claimant were the opposite of straightforward in its approach to the possibility of a payment into Court was unjustified on the evidence and, if it was relied upon in support of the Master's conclusion that a conditional order should have been made, was impermissible as the evidence upon which that finding was made was only available on 6 October 2004, after the Master had already made his decision.
42. Permission should therefore have been given to appeal the whole judgment of Master Eyre, not merely the quantum of the conditional order Mr Platts-Mills submitted. The appeal should be allowed as no conditional order should have been made in the circumstances.
43. If however it was appropriate to make a conditional order then the payment in ordered by the Master was excessive. Firstly he had failed to take into account at all in either of his rulings the Defendant's arguments as to Clause 17 of the agreement and secondly he had not considered the Defendant's financial position and hence had not properly exercised his discretion upon the matter. Such finding as he did make on the Defendant's evidence as to its financial position, namely that it was not straightforward in its dealings with the Court, the Master was wrong.
44. The Clause 17 point was clearly arguable. The clause provided a full and complete code agreed by the parties as to how termination should be dealt with. It excluded the right to repudiate, and even if it did not, whether or not there was repudiation on the facts of this case had to be determined. On termination everything came to a halt for both parties and only that which had already accrued was due on termination under the agreement. No sum was due until the payment date was reached. That was the sensible construction of the 2004 agreement and the necessary construction of the 2003 agreement. There was in addition a duty to mitigate by the Claimant and that, together with the savings which were made on termination by reason of not having to advertise the Defendant's product, should also have been taken into account by the Master.
45. The Master failed to take into account the Defendant's true financial situation. Whilst it was correct that it had raised a considerable sum of money, namely US $54 million that money was specifically for investment in the launch and manufacture of the console. There was cash, but it was not available for making a payment into Court in litigation as opposed to being spent upon the purpose for which it had been raised from investors. The Defendant did not want to divert cash from the manufacturing process and could not raise further cash without issuing shares under a new prospectus in order to comply with the SEC. Mr Carter-Silk's evidence to this effect has been confirmed by the evidence of Mr Khan which has been served since the Master's hearings.
46. In the circumstances the Defendant has offered shares instead of cash to be held in escrow in lieu of a payment in. If the value of the shares fell, further shares could be put in. It is a particularly sensitive time for the launch of the product and the Defendant is concerned that a request for US $ 2 million from investors at this point in time for the purposes of a payment into Court might be very damaging to the product. As the product is about to be put into mass production and there should be cash available from March or April of 2005 the Defendant acknowledged that it might be possible for them to place shares in escrow now and then pay cash at a somewhat later stage. The Master paid insufficient heed of the risks to the Defendant's whole project were they to be required to raise a substantial sum of cash from investors now.
47. Both the Claimant and the Defendant made open offers to each other during the course of the hearing before me and informed the Court of the nature of these offers. The Defendant offered to place US $ 2 million worth of shares in escrow and the Claimant said that it would accept US $ 1 million in cash provided that were to be made available in a very brief period of time.
48. Mr Tregear QC on behalf of the Claimant submitted that the Court should have firmly in mind that this is a review not a rehearing and that the Court should only interfere with the Master's decision if it could properly be satisfied that that decision was wrong. This is not the case, however, Mr Tregear submits, as there was ample justification for the Master's decision and it was well within the 'generous ambit of discretion' permitted to the Master in accordance with the principles referred to in Tanfern Limited. Whilst the two versions of the judgment created confusion there was no change in the decision nor in the weight of the reasoning. It is clear that what the Master was deciding was that although it was possible that the defence might succeed he considered it improbable that it would do so. The necessary test for the making of a conditional order was therefore satisfied.
49. It would be quite inappropriate, the Claimant submits, to grant permission to appeal as to whether the conditional order should have been made. The Master's decision was comfortably within the generous ambit. The finding that the Defendant's factual case was vague and unconvincing, shadowy in the sense of insubstantial, and evasive in the sense of seeking to evade its responsibility, was entirely justified.
50. The letter of 29 January 2004 from Mr Freer did not refer to misrepresentations at all, but only 'concerns'. This was repeated in the letter of 30 January 2004 from the Defendant's solicitors, who had been consulted on the matter in December 2003 and were therefore well apprised of it. It is very strange in such circumstances Mr Tregear submits, that if representations were made to Mr Freer, rather than him having persuaded himself at a later date that's what must have been said, that they were not raised at the outset and very surprising that they were not adverted to in the solicitor's letter. The contention that Mr Freer's letter was a layman's letter, conciliatory, and trying to work things out, was not convincing nor was the suggestion that the solicitor's letter was borne of inadequate instructions considering that they had been discussing and advising the Defendant on the matter in December 2003.
51. Furthermore the statement in the letter of 29 January 2004 that talks were 'initiated with Mercedes..' was wholly inconsistent with a representation in July 2003 that the Claimant already had a contract with Mercedes.
52. The alleged Vodafone misrepresentation was unlikely on its face, given the circumstances of the trial. This representation, as with the other representations, it was submitted on behalf of the Claimant were all what Mr Tregear described as self-detecting. They were in other words representations which were bound to be revealed after they had been made as wholly untrue. The audaciousness required for them to be made in such circumstances made them extremely improbable. The Vodafone representation for example was bound to be revealed as untrue before any payment was due to Jordan. In so far as the 2003 season was concerned it was an impossible representation as Vodafone were already sponsoring Ferrari.
53. Mr Freer's reliance in his statement on the allegation that there was to be no payment made to the Claimant in respect of sponsorship until the product had been launched did not form part of the Defendant's case on the basis Mr Platts-Mills stated in argument that such a clause was not incorporated within the contract. The Claimant pointed out however that there was equally no claim for rectification which, on the basis of Mr Freer's statement, would have been expected.
54. The Defendant's conduct after knowing of the result of the Vodafone litigation was inconsistent with the claim that such a representation had been made or that the Defendant feared that its reputation had been damaged pursuant to Clause 13 of the 2003 and 2004 agreements. Firstly Mr Freer participated in an interview with Marketing Magazine with a representative of the Claimants and secondly he invited Mr Eddie Jordan to join a board of the Defendant companies. Such conduct was quite inconsistent with the shock and surprise which would have been expected had Mr Freer been lied to about Vodafone's sponsorship or the Vodafone litigation. It also suggests that the Defendant did not fear for their reputation as a result of their association with Jordan.
55. There was therefore Mr Tregear submitted ample material for the Master upon which he could reach the conclusion that he did that, the defence was 'shadowy' or 'vague and unconvincing' and that the Defendant's attempts to avoid their responsibility, particularly in relation to the 2003 agreement where the Claimant had already concluded its part of the bargain, could properly be described as evasive. There was no basis upon which permission could have been given for an appeal against the making of a conditional order in those circumstances.
56. As to the quantum of the conditional order the Claimant submitted that whilst Clause 17 was arguable it was another instance where the success of the Defendant's contentions could be described as possible but improbable. Clause 17 was not on its face a complete code. It did not prevent either under Clause 17.2 or 17.4 reliance upon the common law. The Claimant had, when it terminated the agreement relied on repudiation and the failure to pay of the sponsorship sums would plainly amount to repudiation. Nor could it be contended that the proper interpretation of Clause 17 meant that no sums were due until the payment date arose. This was a particularly absurd argument in relation to the 2003 agreement where the Claimant had already performed its part of the bargain and the season was over. Although the Master didn't deal directly with these contentions he clearly had them in mind as it was the only matter upon which he requested further argument from the Claimant's counsel in reply.
57. The Master was also entitled to conclude that the Defendant's evidence as to its financial affairs was incomplete. It gave no explanation as to how the US $35 million then raised had been spent and did not condescend to any true details. The finding that the Defendant was being the opposite to straightforward in their dealings with the Court was appropriate.
58. The Defendant clearly had cash, the risk to their launch venture was, this close to its achievement, remote, and the Master was right in the circumstances to order a payment into Court of the sum of US $ 2 million. This adequately represented the fact that the Defendant was capable of success but it was improbable that it would succeed.

Conclusions.

59. The making of a conditional order under 24 PD .4 presupposes that the Court has or may have already dealt with an application for summary judgment under CPR 24 and may accordingly have determined that the Defendant, for example, has no real prospect of successfully defending the claim or issue. I am satisfied that a Court can quite properly dismiss an application for summary judgment by a Claimant and yet still find that it is possible that a defence may succeed but improbable that it will do so.
60. This process involves the Court coming to a view upon the papers before it as to the strength of a Defendant's case. A finding sufficient to justify a conditional order is not a finding that the defence is 'somewhat weak' but that it is so weak that it is improbable that it will succeed.
61. It is clear from Master Eyre's judgments that he found that the Defendant's case as to representations was so weak that it was improbable it would succeed. Hence his findings that the factual case was 'vague and unconvincing' and 'shadowy' in the sense that it was insubstantial. When one reads the account of the Claimant's contentions which he accepted it is quite clear in my judgment that he regarded the Defendant's case as to misrepresentations to be very weak but not so weak that he would give the Claimant summary judgment. He was not able, without hearing evidence, to exclude the possibility that such a defence might succeed.
62. The Master made no error in principle by reaching such a conclusion. He was not obliged to find that a conditional order was inappropriate simply because there was a defence, numerous witness statements and a detailed skeleton argument. He was still entitled to exercise his judgment on paper on the documents before him. He did not conduct a mini trial without cross-examination, but quite properly considered the written material before him. At a Part 24 application the Court does not hear any evidence; none of the witnesses are cross-examined, nor is there any argument based upon evidence actually given. The outcome of any trial is not being predicted by the decision in interlocutory proceedings such as these.
63. It was unfortunate that the Master produced two versions of his judgment both of which were somewhat different. This undoubtedly led to confusion, especially as he expressed his rulings in different terms and omitted some of the party's contentions in the second version of the judgment. I am however satisfied that his reasons expressed in either or both judgments are sufficient to justify the making of a conditional order. Whether the finding be that the factual case of the defence was vague and unconvincing, or merely shadowy in the sense of insubstantial, it is clearly a finding that the defence is so weak that it is improbable that it will succeed. This is clear from the recitation of the Claimant's contentions which the Master accepted, whether those be viewed either in the first or the second version of the judgment. The weight of reasoning in either judgment justifies the making of a conditional order. I am further satisfied that the finding in the second version at paragraph 15(3) was an additional finding based upon the statement of 6 October 2004 from Mr Carter-Silk, which may have reinforced the Master's belief that it was right to have made the conditional order, but did not affect the fact that he had already made such an order and given adequate reasons for doing so. Nor does the fact that the Master omitted to recite all the Defendant's contentions in the second version of the judgment indicate that he did not have those in mind when dealing with the matter and reaching his conclusions. He plainly did as the first version of the judgment shows.
64. Where the Master fell into clear error is in not dealing with the argument as to Clause 17 or considering the Defendant's need to protect the launch of its product as being part of its financial situation at the time. I will deal with that below.
65. The Master's findings as to the strength of the Defendant's case on misrepresentation were in my judgment well within the generous ambit of discretion allowed to his decision. The information before the Master entitled him to reach the conclusion he did. The representations alleged as to drivers and engine were inconsistent with the contract as signed. They were clearly inconsistent with Mr Freer's letter of 29 January 2004 and the Defendant's solicitor's letter of 30 January 2004. However one reads those letters, the absence of any reference to representation inducing the signing of the agreements, especially in the solicitor's letter, is inconsistent with such representations having been made. The letters are wholly inconsistent with a contract to obtain the McLaren engine from Mercedes-Benz having been agreed or signed by July 2003. The witness statements from employees other than Mr Freer do not support the Vodafone representations alleged. These representations, on their face, could well be thought to be unlikely. The representation that Vodafone were the Claimant's sponsors for the 2003 season when Vodafone were already sponsoring Ferrari for that year, could be said to be unlikely. Such representations were self detecting in the sense that the Vodafone judgment, known to be likely to go against Jordan, was imminent, and such representations made on or after 20 July 2003 were likely to be proved wrong in days. Of course it is possible that dishonesty and or audaciousness were used in the desperation to obtain sponsorship but the Master's view that the allegations were unconvincing or shadowy was open to him on the facts.
66. Furthermore the Defendant's conduct in participating in a joint interview on the fallout from the adverse publicity after the Vodafone judgment, and their invitation to Mr Eddie Jordan to join a board of the Defendant company does not fit easily with indignation at a serious misrepresentation about the Vodafone situation.
67. The failure of the Claimant to state what was said at the various meetings does not negate the Master's findings, or render them wrong. Mr Jones' statement, paragraph 11, does not merely deny the alleged representations, he endorses the contents of the Defendant's letter of 29 January 2004 stating what the Claimant 'made clear' to them.
68. Whether full trial of the matter results in a court coming to a different conclusion is not relevant. The fact remains that the material before the Master was sufficient to permit the conclusions that he reached.
69. There is no proper basis upon which permission against the granting of a conditional order could properly be given. I conclude as Mr Justice Hodge did, that it should be refused.
70. The Master should however have dealt with the Clause 17 argument. This is clearly open to the Defendant and may prove to be successful even though it may not be strong, and in respect of the 2003 agreement may be wholly unmeritorious. Nevertheless, had the Defendant's Clause 17 arguments been taken into account by the Master, as they should have been in his rulings and had the Master considered the need to protect the launch of the new product and the interests of its numerous investors a different quantum would or should have been ordered.
71. I am therefore satisfied that the Master's judgment as to amount should be set aside but equally satisfied that it was appropriate to make a conditional order. In these circumstances I am invited by the parties to consider the situation which has now developed. Mr Platts-Mills QC informed me that the Defendant has now raised from investors a further sum making a total of US $ 54 million. There is therefore no longer the shortfall of US $ 1.9 million which there was when Mr Carter-Silk made his statement on 6 October 2004. It is, nevertheless, a particularly sensitive time for the launch Mr Platts-Mills QC submits, and the Defendant is anxious not to have to go to investors to seek further cash specifically for the payment of the money into Court. Hence the open offer by way of shares with the possibility that cash could be raised by March/April 2005.
72. I am satisfied for the reasons given above that the Master's order of a payment into Court of US $ 2.5 million did not take adequate account of the Defendant's Clause 17 arguments or their sensitive financial situation. I have no doubt as Mr Justice Hodge found that the Defendant has money. The appropriate figure for payment into Court is in my judgment US $ 1.5 million. This takes into account the Defendant's contention that the figure which should be paid into Court, if anything, is US $ 750,000 and my view that the Defendant's Clause 17 arguments in relation to the 2003 agreement is particularly weak.
73. Whilst recognising the force of the Claimant's argument that the payment in should be by way of cash I consider that any threat at such a sensitive period in the launch process of the Defendant's new product would be inappropriate. I consider therefore that the payment should be made by the equivalent value of shares to be placed in escrow with the ability to realise the sale of such shares, if necessary, within three weeks. The parties have continued to progress towards trial in spite of Master Eyre's order and it is likely that such a trial will now take place in April 2005 or shortly thereafter. By this time the Defendant will have produced a substantial number of units, an example of which I was shown and had demonstrated to me in Court, and I see no reason why as Mr Platts-Mills indicated was likely, they should not be able to provide the appropriate sum in cash by April. Accordingly I order that the Defendant by no later than 15 February 2005 place shares in escrow to the value of US $ 1.5 million, and further that by 1 week before the commencement of the trial of this action in April 2005 or such later date as may be the case, the Defendant pay the sum of US $ 1.5 million into Court. In default of compliance with either of these orders there will be summary judgment for the Claimant for the sums claimed in the particulars of claim with interest and costs. It follows that once payment of the sum of US $ 1.5 million into Court is made the shares can be returned to the Defendant. There will be liberty to apply. I will hear arguments as to the precise form of the order and any application for costs on the handing down of this judgment.