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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		23/05/2008

The Hon Mrs Justice Swift DBE :

The claim

1. This is a claim by the claimant for loss and damage arising out of fraudulent misrepresentations alleged to have been made by the defendant to the claimant in June 2005. It is alleged that, in reliance on the misrepresentations, the claimant lent £150,000 to a company, Archangel Filmworks Limited (Archangel), of which the defendant was a director. The company was subsequently put into administration and neither the loan nor the interest payable thereon has been repaid, with consequent loss to the claimant.

The parties

The claimant

2. The claimant formerly ran a wholesale clothing supply company. In 2004, he retired from full-time business. He sold his shares in the company, intending to use the proceeds of sale to meet the financial needs of himself and his family in his retirement. Those needs included the costs of private secondary education for his two children. He paid his son's school fees in a lump sum in advance and intended to do the same for his daughter when she moved to secondary school in 2006. Meanwhile, he had some cash to invest. He was particularly interested in short term investments which would yield good returns. While it is clear that he was relatively well-off by ordinary standards, the claimant did not have unlimited funds and the failure to repay his loan has resulted in him having to sell his luxury car and remortgage his home.

The defendant

3. The defendant, who is Australian, has a background in advertising. After working as an advertising copywriter, she produced television commercials in Australia and later became Head of Television at the advertising agency, J. Walter Thompson, in Sydney. Later, she wrote for quality magazines. She came to England in 1987, after which she wrote and produced documentaries for Channel 4 and the BBC. In March 2002, she formed a company, Archangel, with a view to making feature films and television programmes for release and commercial exploitation. Initially, the defendant was the sole director and Chief Executive Officer (CEO) of Archangel.

The development of Archangel prior to June 2005

4. Before dealing with the matters at issue in the case, it is necessary to set out by way of background a short summary of the development of Archangel prior to June 2005.

'Tooth'

5. The first feature film produced by Archangel was 'Tooth', a film for children. 'Tooth' was released in the UK in February 2004. According to the defendant, the film was a success. However, because of the way the financing of 'Tooth' had been structured, Archangel received only a modest financial return, disproportionate (at least so the defendant considered) to its contribution to the successful making of the film. After her experience with 'Tooth', the defendant decided that, in the future, she must attempt to structure the funding of films in which Archangel was involved in such a way as to ensure that Archangel received a greater share of the available financial rewards.

Raising the Funding for 'Spirit Trap'

6. With that aim in mind, the defendant sought advice from various quarters. From 2004, Mr Andrew Nicholson (whose main employment was in risk analysis for Credit Suisse) acted as a de facto non-executive director of Archangel, although he was not formally appointed a director until February 2006. Mr Nicholson was a client of Mr Stephen McGuire, an Independent Financial Advisor (IFA) who had been involved in raising funding for the film 'Tooth', and in 2004 Mr McGuire also began to act as an adviser to and de facto non-executive director of Archangel. He was never formally appointed a director. With the help of these two advisers, the defendant set about raising the necessary funds to make Archangel's next feature film.
7. The fund raising campaign proceeded successfully and, during 2004, the defendant, with the assistance of Mr McGuire in particular, raised in the region of £2.6 million towards the production and pre-production costs of 'Spirit Trap'. Some of that money was advanced by way of short term loans and the remainder was advanced by way of long term investment in Archangel. The documentation contained within the trial bundles suggests that over £1.1 million was advanced in the form of short term loans. Of that sum, Mr Nicholson himself had advanced loans totalling £335,000, together with a further sum of 150,000 US dollars, advanced in October 2003, for the purchase of the rights in a novel, 'The Riders', which was to be Archangel's next project. The monies advanced for payment of the costs relating to 'Spirit Trap' were loaned either jointly to Archangel and Spirit Trap Limited (STL) or to Archangel alone, and were paid into a bank account under the name of STL. STL was a Special Purpose Vehicle (SPV), wholly owned by Archangel, which had been formed as a legal entity for the production of the film.
8. Those individuals who had advanced monies to Archangel by way of long term investment in the company entered into a shareholders' agreement based on Articles of Association purportedly adopted by Archangel in July 2004. The intention was that these individuals would hold shares in Archangel. However, the necessary legal formalities were never complied with and the shares were not registered. During 2004, a firm of solicitors, Mayer Brown, Rowe and Maw LLP (Mayer Brown), were instructed to advise Archangel. In a Memorandum dated 18 October 2004, they drew attention to the inadequacies of the existing legal arrangements, which meant that none of the "shareholders" (except the defendant) actually held any shares in Archangel at all. They also advised that the shareholders' agreement and Articles of Association were defective in a number of respects and that their terms were unlikely to be acceptable to any potential major investor. They recommended that proposed amendments to the terms of the shareholders' agreement and the Articles of Association should be agreed by the defendant, Mr McGuire and Mr Nicholson and put forward to the "shareholders" for approval.
9. Amended documents were subsequently prepared and, on 11 March 2005, Archangel held a meeting, to which all its "shareholders" were invited. A list of "shareholders" prepared for that meeting is contained within the trial bundle. By that time, the major "shareholders" (described in the list as "ordinary" shareholders) listed (in addition to the defendant) were Mr McGuire, Mr Nicholson, Mr Paul Brennan and Mr Satesh Mathura (these last two were later to become directors of Archangel), Ms Pippa Mitchell (who was the defendant's personal assistant) and Mr J Reggel. The eleven other "shareholders" had between them invested a total of £915,000 in Archangel.
10. At the meeting, a new company structure, with a new Board, was proposed and apparently approved by the long term investors who attended. They were offered a choice of owning "ordinary" shares" or "preference" shares in Archangel. I was told that all but a few of the "shareholders" opted for "ordinary" shares, in order to take advantage of the tax relief available for such shares pursuant to the Enterprise Investment Scheme (EIS). The EIS is intended to help facilitate the expansion of small companies by giving tax rebates to investors therein. Those attending the meeting on 11 March 2005 were told that Archangel was in the process of applying for registration under the EIS. In the event, EIS registration was never obtained and the legal formalities were never completed. I was told that this was because of difficulties in obtaining the co-operation of the shareholders in some of the SPVs co-owned by Archangel. Consequently, most of those persons who had made long term investments in Archangel, expecting to acquire shares in the company, never did so. When the company was put into administration in February 2006, they fell to be treated as unsecured creditors of Archangel, rather than as shareholders.

The licence agreement

11. In 2005, it was usual procedure within the film industry for a SPV to be created for the financing of the production of each individual film. This arrangement was required for the purposes of Department of Culture, Media and Sport (DCMS) certification of the film and in order to obtain certain tax and other financial advantages. As part of the arrangement, it was necessary for the rights to exploit the relevant film to be vested in the SPV.
12. At some time in 2004, therefore, Archangel and STL entered into a licence agreement, whereby Archangel granted to STL a licence of the "underlying rights" of the film, 'Spirit Trap'. By the agreement, "underlying rights" were defined as meaning:

"… any and all rights of copyright, trademark, patents or intellectual property rights or other rights of whatsoever nature in the Source Material [i.e."any and all literary, dramatic, musical material and artistic material incorporated in the Film including, without limitation the Script"] and any performances incorporated in the Film including without limitation any and all rights in the products of the services of the Contributors".

13. Clause 2 of the agreement provided that;

"In consideration for the payment [of] £1… Licensor hereby grants to Licensee such licenses of the Underlying Rights are necessary for Licensee to produce and deliver or procure the production and delivery of the Film in accordance with and subject to the terms of the Financing and Distribution Agreements together with the right pursuant to and subject to the terms of the Financing and Distribution Agreements to exploit or authorise the exploitation of the Film made based on the Underlying Rights in all media throughout the universe, whether now known or hereafter invented for the full period of copyright including all revivals, extensions and renewals thereof and the thereafter, insofar as legally possible, in perpetuity".

14. Archangel retained certain rights in connection with the film (e.g. merchandising rights). The intention was that, once the film had been completed and released, and all relevant costs paid, the rights in the film would be transferred back to Archangel.

The distribution agreements

15. On 4 November 2004, STL entered into an agreement with Cinemavault Releasing International Inc. (Cinemavault), whereby Cinemavault were to act as exclusive distributors for the film in all territories save for the UK and Russia. It was intended that STL would enter into separate distribution agreements covering those territories. The agreement was based on a minimum "take" which was projected by Cinemavault at about 6 million US dollars. Although the agreement was not to take effect until the film obtained its DCMS certification and was physically delivered to Cinemavault for distribution, Cinemavault at once began the process of marketing. Subsequently, STL entered into an agreement with a company named Revolver for the distribution of 'Spirit Trap' in the UK.

Future Financing

16. The film 'Spirit Trap' was completed in November 2004 and was scheduled for release in the UK in August 2005. At the end of 2004, the defendant and her advisers turned their attention once again to future projects. They decided that, in order to enable Archangel to have a rolling programme of projects in the future, they should seek further major investment of £3 million. In order to do that, further advisers were recruited.

The recruitment of further advisers

17. In March 2005, Mr Satesh Mathura (formerly Chief Operating Officer (COO) of several large international film companies) began to act as a consultant for Archangel. He was formally appointed as Archangel's COO on 20 July 2005 and as a director on 2 August 2005. On 5 April 2005, Mr Paul Brennan, who had been acting as de facto Chairman for some time, was formally appointed as Archangel's non-Executive Chairman.
18. In March 2005, Archangel engaged the services of Mr Julian Sturdy-Morton, a former banker who acted as an adviser through his company, the Rushton Partnership Limited (Rushtons). His role was to advise Archangel on devising a strategy for future development, to prepare a formal Business Plan and to assist in attracting investment. Mr Sturdy-Morton was contracted for a period of ten weeks after which his involvement with Archangel ceased.

Valuation of Archangel

19. In March 2005, it appears that the defendant discussed the current valuation of Archangel with a media lawyer, Sara Curran. Ms Curran had been Head of Business and Legals with the successful production company, Working Title, and could therefore be expected to have considerable expertise in the film business. I was shown no documentary evidence of her valuation. However, I was told that, on the basis of Archangel's "slate" of projects and the potential value of 'Spirit Trap', Ms Curran had valued the company at £4.3-4.8 million. Mr Sturdy-Morton carried out a discounted cash flow calculation which confirmed the valuation and it was used in the Business Plan.

Seeking further investment

20. Between April and June 2005, the Business Plan was drafted and finalised by Rushtons, with input from the defendant, Mr McGuire and Mr Mathura. The Business Plan was designed to attract funding to enable Archangel to finance the development of its existing "slate" of projects, which included (through its SPV, The Riders Film Limited) the film rights to 'The Riders' and (through Archangel itself) the right to two film scripts for 'The Riders'. (These rights had been purchased with the assistance of the loan of 150,000 US dollars made by Mr Nicholson in October 2003.) The Business Plan explained that the intention of seeking investment was to put Archangel into a position whereby it was able to finance a rolling programme of film productions, and to exploit to maximum advantage all available sources of income from each production. The Business Plan stated that the intention of the management of Archangel was to sell the company within three to five years, having increased its value significantly by that time. Thereafter, the Business Plan was used as the basis of "pitches" to potential investors by the defendant, Mr McGuire, Mr Sturdy-Morton and others.

Demands for repayment of loans

21. By the Spring of 2005, repayment of many of the short term loans advanced to cover the production and pre-production costs of 'Spirit Trap' was overdue. On 14 April 2005, the defendant wrote to those individuals who had advanced short term loans, reporting on the progress of the company and assuring them that Archangel was "going from strength to strength" and that their loans and the premiums thereon would "all be repaid in full, in the near future".
22. That letter may well have been prompted by pressure for repayment being exerted by a group of six lenders whose interests were represented by Mr Malcolm Coomber. Between them, the six lenders had advanced a total of £275,000 and, by April 2005, accrual of interest and premiums had resulted in a total debt of over £350,000. A statutory demand for repayment, dated 15 April 2005, was made on their behalf. As a result of that demand, an agreement for staged repayments to each lender was made between Archangel and Mr Coomber. Repayments totalling £100,000 were made in May 2005. The balance of the loans remained outstanding.
23. Apart from the £100,000 repaid to Mr Coomber's clients and the sum of £10,000 repaid to Mr Nicholson in October 2004, it appears from the documents in the trial bundle that the remainder of the loans previously advanced to Archangel (i.e. about £1,060,000, excluding interest and premiums) remained outstanding as at June 2005.

The agreement to arrange a sale and leaseback agreement

24. In May 2005, the defendant, acting on behalf of both Archangel and STL, was in the process of negotiating with Ms Mary Booth, acting on behalf of Kingston Film and Finance Limited (Kingston), terms on which Kingston would arrange a sale and leaseback (SLB) agreement of the film 'Spirit Trap'. A SLB was necessary in order to obtain certain tax advantages. The intention was that Kingston would negotiate a SLB agreement with its financial arm, the Northern Ireland Partnership, to purchase and then lease back to STL the master print and certain other rights and interests in the film 'Spirit Trap', and that this agreement would result in the payment, within a few months, of a substantial sum (estimated by Archangel's accountants at £360,000) to STL and thence to Archangel. The SLB agreement would be subject to, inter alia, the film acquiring a certificate of British nationality from the DCMS. The negotiations between the defendant and Ms Booth resulted in the signing on 9 June 2005 of an offer letter setting out the terms on which Kingston would arrange a SLB.

Cash flow problems

25. By May/June 2005, Archangel was in need of cash. It was coming under pressure to repay its outstanding short term loans, in particular those owing to Mr Coomber's clients. In addition, monies were urgently required to pay for the costs associated with the delivery of the film 'Spirit Trap' to the UK distributor. Those costs amounted to about £100,000 and it was essential that they were found quickly if the UK release planned for August 2005 was not to be delayed. The defendant was therefore seeking a short term loan. It was against this background that her dealings with the claimant took place.

The introduction of the claimant to the defendant

26. On 31 May 2005, Mr Ben Mulroney, an investment manager employed by a firm specialising in film finance, sent an email to Mr John Harris, an IFA whom he knew to be looking for short term investments for clients. It is clear from the email that it was following up a previous conversation between the two of them. In the email, Mr Mulroney told Mr Harris that Archangel was looking for a loan of £150,000 to be repaid at 10% (or 1% per month compounded) for up to 12 months. He said that the loan was needed in order to release a film. Mr Mulroney told Mr Harris that the "principals" in Archangel fully expected to repay the loan within the first three months, when cash flow was expected to be "good". He said that the loan would be "secured against the company" which represented a security of £4.8 million against an outlay of £150,000. The figure of £4.8 million, representing the value of the company, was that apparently given by Sara Curran, and confirmed by Mr Sturdy-Morton: see paragraph 19 of this judgment. It had been quoted by the defendant in an email sent to Mr McGuire on 26 May 2005.
27. Mr Harris knew the claimant socially. He was not the claimant's financial adviser but, being aware that he had money to invest, Mr Harris would from time to time inform the claimant about investment opportunities that he thought might be of interest to him. By 31 May 2005, Mr Harris had already told the claimant about the investment opportunity in Archangel. The claimant said that Mr Harris had told him that he understood that a loan to Archangel would give a sound, quick return. It seems, however, that, at that time, the claimant had taken the view that the rate of interest being offered was insufficient.
28. Mr Harris sent the email communication from Mr Mulroney (who was already known to the claimant) to the claimant and suggested that the claimant might have misunderstood the amount of interest being offered. The claimant replied, seeking clarification that the interest on a loan of £150,000 would be £15,000 (i.e. 10%) after three months. The following day (Wednesday, 1 June 2005) Mr Harris confirmed that the claimant's understanding was correct. In an email timed at 8.18 am, he said:

"… I am seeing them today at 2 pm at the Club to negotiate higher penalty interest if monies held or part held after the three months … would you like to attend and meet principles [sic]…".

29. In the event, the claimant was not present at the initial meeting, which took place at the Capital Club, London, and was attended by the defendant, Mr Mulroney, Mr Harris and Mr McGuire.

The meeting at the Capital Club

The timing of the meeting

30. In his written evidence, Mr Harris stated that he had met Mr Mulroney on 1 June 2005, to discuss the Archangel investment. He did not mention at that stage that the defendant and Mr McGuire had also been present. In his oral evidence, however, he agreed that they were. He produced his diary, which showed a meeting with "Ben" (i.e. Mr Mulroney) at 2 pm (the time had been changed, possibly from 3 pm) at the "Cap Club" on 1 June 2005. He was adamant that the meeting had taken place on 1 June 2005, as shown in his diary and as intimated in his email to the claimant earlier that day.
31. The defendant said that the meeting took place, not on Wednesday, 1 June, 2005, but on Friday, 3 June. Her work diary contained no relevant entry for 1 June, although she said that the commitments that were noted there would not have permitted her to attend a meeting at the Capital Club that day. Instead, she insisted that the meeting had taken place on 3 June 2005. There was an entry in her diary for that date which said "Noon". She suggested that might relate to the meeting. Mr McGuire had some recollection of the meeting, although he believed that it took place towards the very end of May 2005. Mr Mulroney did not give evidence.
32. The date of the meeting at the Capital Club is not of itself material although it does have a "knock-on" effect on the timing of the later meeting at the Landmark Hotel. I consider that it is probable that Mr Harris kept his appointment with the defendant for 2 pm on 1 June 2005 (which he mentioned in his email to the claimant of the same date) unaltered and that the meeting went ahead on that day, as his diary suggests.
34. The content of the meeting
35. Mr Harris gave no details of what was said at the Capital Club meeting. The defendant and Mr McGuire told me that the defendant gave Mr Harris her "usual pitch", based on the contents of Archangel's Business Plan, setting out Archangel's plans for the future and its financial requirements. The defendant said that, because the final version of the Business Plan was still being completed, she had been unable to take a copy with her to the meeting. Instead, a copy was delivered by minicab in the course of the meeting, Mr McGuire collected it and gave it to Mr Harris and Mr Harris took it away with him. Mr Harris said that he had been given some promotional material in an envelope, but not the Business Plan. He had no interest in the Business Plan and did not ask for a copy. Mr McGuire remembered being asked to go and collect a document (which he had been told was the Business Plan) that was being delivered by minicab. He collected the envelope containing the document and gave it to Mr Harris.
36. I accept that Mr Harris was given some promotional material at the meeting. I regard it as improbable that he was given a copy of the Business Plan. If he had received it, I think it likely that he would have handed it over to the claimant. It is plain from subsequent events that the claimant did not receive a copy of the document until after his second meeting with the defendant.

The Landmark Hotel meeting

The timing of the meeting

37. In his Particulars of Claim, the claimant stated that this meeting, attended by himself, the defendant and Mr Harris, was held on or about 10 June 2005. However, in his witness statement, he changed the date of the meeting to Friday, 3 June 2005, at 12 noon. Mr Harris' evidence was that the meeting took place on 3 June 2005. His diary contained an entry for 3 June 2005:

"12.00 Susie Brooks-Smith. Landmark"

38. It seems likely that the claimant based his changed evidence about the date of the meeting on this diary entry. His own electronic diary entries for the period are no longer available and he plainly did not have any independent recollection of the date of the meeting.
39. The defendant's evidence was that the meeting at the Landmark Hotel took place on Monday, 6 June 2005. Her diary shows no record of a meeting with the claimant on that date. The sole entry for 3 June 2005 is the word "Noon", which was, according to Mr Harris' diary, the time of the meeting at the Landmark Hotel. As I have said, however, the defendant believed that that entry related to the meeting at the Capital Club. In support of her contention that the meeting took place on 6 June 2005, she relied on an entry made in a notebook (her red and black notebook) in which she recorded on a daily basis things she had to do, notes of telephone calls and meetings and other matters. On a page bearing the date 6 June 2005, written in manuscript, she had recorded:

"Jerry Matthews: ½ company JH [John Harris] SBS [the claimant] June 6

£150,000

Said to him "NO"

Looking for security".

40. This entry reflects the fact that, at the time of the Landmark Hotel meeting, the claimant wanted security for his loan in the form of a charge over half of Archangel and the defendant was unwilling to agree to this. The defendant told me that she would have made this entry on the day of the meeting. In the early evening of 6 June 2005, the defendant emailed Mr Harris, suggesting alternative means of security for the proposed loan which she might be prepared to offer to the claimant. Her evidence was that she sent this email within a few hours of her first meeting with the claimant, having thought over their discussions.
41. Nothing much turns on the date of the Landmark Hotel meeting. However, it is in my view probable that it took place on Friday, 3 June 2005. That timing is supported by the entry in Mr Harris' diary and is consistent also with the single entry, "Noon", in the defendant's diary. The notes in the defendant's notebook for Monday, 6 June 2005 may well have been by way of points to be dealt with arising from the previous Friday's meeting or may have been made as a result of a subsequent telephone discussion between herself and Mr Harris on 6 June.

The general content of the meeting

42. The meeting at the Landmark Hotel, attended by the claimant, the defendant and Mr Harris, is central to the case. It is at this meeting that it is alleged that the fraudulent misrepresentations on which the claimant relies were made.
43. In his written evidence, the claimant described how, at the meeting, the defendant spoke of her connections with rich members of the aristocracy, of her children's education at public schools and her hobby of playing polo. She gave the impression of having an affluent lifestyle. She laid emphasis on her background in global publications and merchandising. She spoke of Archangel's past projects, including the film 'Tooth' (which he understood to have been a financial success for Archangel) and her projects for the future, including the film 'The Riders', for which she had acquired the book rights. In oral evidence, he said that she produced promotional literature in connection with 'The Riders' and other projects contained on Archangel's "slate". He said that she made no mention of anyone else involved with the company at Archangel and he understood her to be the sole owner thereof.
44. The claimant said that the defendant told him that Archangel had short term cash flow problems and therefore needed a short term loan. His main concern at the meeting was to find out about the financial position of Archangel and its ability to repay his loan within three months. He said that he emphasised to the defendant that he could not afford to lose his funds or to have late repayments. In his written evidence, he said that he had wanted to ensure that Archangel would be able to repay the loan within three months. He made no mention in his written or oral evidence of any discussion at the Landmark Hotel meeting to the effect that Archangel might need a period longer than three months in which to repay the loan.
45. Mr Harris told me that the claimant made it clear at the Landmark Hotel meeting that he was only interested in making a short term loan to Archangel. He mentioned the fact that the money to be loaned was earmarked for his daughter's schooling. Mr Harris said that the initial proposal had been for the loan to be repaid after three months. However, by the time of the Landmark Hotel meeting, it was clear that Archangel may not be in a position to repay the loan within that time, so an extension to six months was discussed. The claimant emphasised that he could only commit his funds for a limited period. Mr Harris said that the defendant had assured the claimant that there would be no problem with this.

The alleged misrepresentations

46. I come now to deal with the evidence relating to the representations alleged to have been made by the defendant in the course of the Landmark Hotel meeting. The claimant's Particulars of Claim allege that, at the Landmark Hotel meeting, the defendant made five specific representations in relation to Archangel. Those representations are set out at Paragraph 5 of the Particulars of Claim:

"5. At the meeting referred to above, the Defendant made the following oral representations:

5.1 The Defendant informed the Claimant that Archangel had assets worth in the region of £6 million and that she was in the process of negotiating a sale of Archangel at that value.

5.2 The Defendant told the Claimant that notwithstanding the sale of Archangel, she would retain a 25% sharehold interest in Archangel with a value of £1.5 million which would be enough to repay the proposed loan of £150,000 tenfold.

5.3 As security for the proposed loan the Defendant [this should clearly be the claimant] would be given rights to the sale proceeds of the film thereby impliedly representing that Archangel owned the rights to that film.

5.4 The Defendant stated that Archangel had already paid all outstanding fees in connection with and that the additional funding was required to meet the costs of distributing the film.

5.5 The Defendant informed the Claimant that Archangel had no secured or major creditors."

47. Paragraph 8 of the Particulars of Claim alleges:

"8. In fact the representations made by the Defendant as set out above were false in that

8.1. Archangel did not have assets worth £6 million.

8.2 Archangel had creditors in significant amounts and/or not solely in respect of the distribution costs. On or about 14 February 2006 Archangel was placed in administration by the Defendant owed [sic] debts of approximately £3 million.

8.3 Archangel did not own the rights to the film which were instead owned by a separate company called Spirit Trap Limited."

48. As the defendant's counsel pointed out, the pleading is unsatisfactory in that there is not a precise correlation between the representations and the allegations of falsity. Indeed, in the case of some of the representations or parts thereof, no allegation as to falsity is made.
49. It is necessary to examine in some detail the evidence relating to each of the alleged representations, and any allegation as to its falsity. It is also necessary to consider the evidence as to any reliance which the claimant might have placed on each representation when deciding whether to advance a loan. Since the only representations relied on are alleged to have been made at the Landmark Hotel meeting, it is important also to distinguish between information that was given orally at that meeting and information provided to the claimant or others before that meeting or subsequently.

The value of Archangel

50. At paragraph 5.1 of his Particulars of Claim, the claimant alleges that the defendant informed him that Archangel had assets worth in the region of £6 million and that she was in the process of negotiating a sale of the company at that value. Paragraph 8 alleges that the first part of that representation (i.e. as to the value of Archangel's assets) was untrue. It is not alleged that the information about the projected sale was false.
51. In his evidence, both written and oral, the claimant said (contrary to what appears at Paragraph 5.1 of the Particulars of Claim) that the defendant had not told him that Archangel had assets of £6 million. Instead, what she told him was that she had a buyer for 75% of Archangel at a valuation of £6 million. She said that this would leave her with a 25% share of the company worth £1.5 million, which she was prepared to put up as security for his loan. The claimant said that she also told him that Archangel had assets valued at £4.3-£4.8 million, which was consistent with the figure quoted in her email of 26 May 2005 and with the valuation by Ms Curran.
52. The claimant said that his main concern at the Landmark Hotel meeting was to ensure that he would get adequate security for his proposed loan. He had first asked the defendant for a charge over her house, but she said that would take too long. He then asked for a charge over the company. His evidence was that she told him that she could not give him that because she was in the process of selling 75% of it. The most she could offer him was a charge over the 25% shareholding which would remain to her after the sale. The claimant said that he had not asked the identity of the potential purchaser because he was not interested. He went on to say that the defendant's valuation of her business was "immaterial" to him. He was only interested in the security which would be available for his loan.
53. Mr Harris' evidence was to the same effect. He said that the claimant had sought a charge over the defendant's main residence and, failing that, over Archangel. When that was refused, he asked for a charge over 50% of the company. Mr Harris said that, by the end of the Landmark Hotel meeting, the offer of a charge over 25% of the company as security for the loan was "on the table".
54. The defendant denied that she had ever told the claimant that Archangel had assets worth in the region of £6 million, or that she had a buyer for 75% of the company at that valuation. She pointed out that the contemporaneous documents referred to the company having being valued at £4.3-4.8 million. Moreover, she had no intention of selling a large proportion of the company at that time. The Business Plan referred to the management's intended "exit strategy" by means of a sale in three to five years' time. She said that it was inconceivable that she would have given the claimant information that was directly contrary to that contained in the Business Plan and to her actual intentions for Archangel. In any event, since there were investors who were only waiting for ELIS registration in order to be registered as shareholders, she did not regard herself as the sole owner of Archangel and would not have represented herself as such.
55. The defendant said that the only context in which the figure of 6 million was mentioned at the Landmark Hotel meeting was when she told the claimant about the agreement with Cinemavault (see paragraph 15 of this judgment), which had been based on a projected "take" of almost 6 million US dollars. She suggested that the claimant may have misunderstood that figure. The claimant, however, denied that the agreement with Cinemavault had been mentioned at the meeting and was adamant that he had correctly understood what had been said to him.
56. The defendant's evidence was that the offer of a charge over 25% of her shareholding in Archangel was not put forward at the Landmark Hotel meeting, but was first advanced by her in her email of 6 June 2005. Her notebook entry for that date (see paragraph 37 of this judgment) refers only to the defendant's refusal of the claimant's request for a charge over 50% of Archangel. That entry supports the defendant's evidence that the suggestion of a charge over 25% of her shareholding was a counter offer made by her after the Landmark Hotel meeting and not – as the claimant suggested – at the meeting itself.
57. The defendant also pointed out that there was no reference in any of the claimant's subsequent communications with her (or with the administrators of Archangel) to enquiries by him about the progress of the sale to which she is alleged to have referred. Such a sale could have been expected to generate funds from which the claimant's loan could have been repaid. The defendant suggested that, had the claimant really believed, as a result of what was said at the Landmark Hotel meeting, that a sale of a large part of the company was imminent, he would have been asking questions about it subsequently, particularly when his loan was not repaid promptly.
58. The claimant alleges that the representation made by the defendant as to the value of Archangel was false. Curiously, as I have pointed out, no allegation of falsity is made in relation to the alleged representation that the defendant claimed to have a buyer for 75% of Archangel at a valuation (for 100% of the company) of £6 million. Such a representation, if made, would have been false since there was no prospective buyer at the time. Since no falsity is alleged, however, it cannot be relied upon as an operative fraudulent misrepresentation.
59. I shall set out my findings in connection with this and the other alleged representations later in my judgment.

The value of the defendant's remaining shareholding

60. At paragraph 5.2 of his Particulars of Claim, the claimant alleges that the defendant told him that, notwithstanding the sale of Archangel, she would retain a 25% sharehold interest in Archangel with a value of £1.5 million which would be enough to repay the proposed loan of £150,000 tenfold. I have largely dealt with this alleged representation in the preceding paragraphs. Paragraph 8 of the Particulars of Claim does not allege that the representation was false (although, since no sale was planned, it would have been) so it cannot form the basis of an operative fraudulent misrepresentation.
61. The claimant and Mr Harris were adamant that the representation was made. The defendant denied that it was. It was her case, as I have said, that the offer of a charge over 25% of her shareholding was not discussed at the Landmark Hotel meeting but was made by her subsequently. She said that she intended that, when Archangel was eventually sold, the sale would include her interest in the company. She did not contemplate retaining an interest in Archangel following such a sale. Thus, she would not have made the statement attributed to her. As to the value of her shareholding, she pointed out that, in her email of 6 June 2005, she had not put a valuation on the 25% of her shareholding which she was offering as security. She said that she would not have done so at the meeting, even had it been discussed.

The rights to 'Spirit Trap'

62. At paragraph 5.3 of his Particulars of Claim, the claimant alleges that, at the Landmark Hotel meeting, the defendant represented to him that, as security for the proposed loan, he would be given "rights to the sale proceeds" of 'Spirit Trap' , thereby, it is alleged, impliedly representing that Archangel owned the rights to that film. At paragraph 8 of the Particulars of Claim, it is alleged that the second part of that paragraph (i.e. the implied representation that Archangel owned the rights to the film) was false.
63. In his written evidence, the claimant said that the defendant told him at the Landmark Hotel meeting that a SLB agreement for 'Spirit Trap' had been reached. In fact it had not. It was not until 9 June 2005 (a matter of days after the Landmark Hotel meeting) that the offer letter with Kingston was signed, and that offer letter related only to the terms for arranging the eventual SLB agreement. In oral evidence, the claimant was less definite about what he had been told. He said variously that the defendant had said that she "was arranging", "was organising", "had" or "had in effect" a SLB agreement. At one point in his evidence, the claimant accepted that the defendant may not have told him at the Landmark Hotel meeting that a SLB agreement had actually been signed. He said that she may have given him that information subsequently.
64. The claimant was however clear that it was at the Landmark Hotel meeting that the defendant proposed that the rights under the SLB agreement should be signed over to him by way of additional security for his proposed loan. He said that he understood that he was acquiring something of value, namely the rights in the sale of the film.
65. Mr Harris' evidence was rather different. His recollection was that the defendant told the claimant that Archangel was "going through the process of it ['Spirit Trap'] being sold" by way of SLB and that this would result in funds becoming available to repay the claimant's loan within about three months. Mr Harris did not mention any discussion at the Landmark Hotel meeting about the SLB agreement being used as security for the claimant's loan.
66. The defendant's evidence was that she had told the claimant at the Landmark Hotel meeting about the proposed SLB agreement with Kingston, which would provide revenue in the future from which his loan could be repaid. She said that the possibility of the claimant being offered rights in the SLB agreement as security for his proposed loan was not raised at the Landmark Hotel meeting at all. She said that this possibility was raised some time after that meeting. In her written evidence, she said that the suggestion came from the claimant. However, her email of 6 June 2005, which came to light only shortly before trial, made clear that it was her idea. In that email, she said:

"I would like to suggest that we offer Jerry [sic] first charge over the sale and leaseback raised – this should be completed in 6–8 weeks as it has to be sorted out BEFORE the theatrical release here – that is August 12 2005 – 9 weeks from now. This I would think be a the [sic] most tangible security. The sale and leaseback will be worth anywhere between £250,000 and £400,000.

Could you please put this to Jerry? ".

67. In oral evidence, the defendant said that the suggestion made in her email did not state or imply that Archangel owned the rights to the sale proceeds of the film or that such rights were being offered to the claimant. She said that what was being offered and what he eventually acquired, were Archangel's rights and entitlements to monies payable under the SLB agreement to be made in the future. She denied that she had ever said or implied to the claimant that, as at June 2005, Archangel owned the rights to 'Spirit Trap' or that he was being offered those rights as security. She said that she had not drafted the assignment document; that had been done by Archangel's solicitors.
68. The defendant's email of 6 June 2005 was sent to Mr McGuire and Mr Harris. The defendant sent a further email to Mr Harris the following morning, saying "What do you think John? Will this [i.e. the suggested security] appeal to Jerry?" The claimant accepted that the contents of that email were communicated to him, as were the figures mentioned in the email.
69. As his oral evidence progressed, the claimant appeared to become less confident that the offer of the SLB as security for his proposed loan was made at the Landmark Hotel meeting. He said that he was, however, sure that it had been made to him directly by the defendant at some point.

The purpose of the proposed loan

70. At paragraph 5.4 of his Particulars of Claim, the claimant alleges that, at the Landmark Hotel meeting, the defendant told him that Archangel had already paid all the outstanding fees in connection with 'Spirit Trap' and that the additional funding being sought was required to meet the costs of distributing the film. Somewhat curiously – since the claimant's case at trial appeared to be that both parts of the representation were untrue - Paragraph 8 of the Particulars of Claim does not allege in terms that either part of this representation was false. It was suggested that paragraph 8.3, which alleges, inter alia, that "Archangel had creditors not solely in respect of the distribution costs", constituted an allegation that paragraph 5.4 was false. However, paragraph 5.4 is dealing with the past payment of fees and the future payment of distribution costs while paragraph 8.3 is concerned with creditors. It does not appear to me that paragraph 8.3 is capable of constituting an allegation that paragraph 5.4 is false.
71. It is common ground that the defendant told the claimant at the Landmark Hotel meeting that Archangel required short term funding in order to pay the costs of getting the completed film 'Spirit Trap' to the distributors. The claimant said that the defendant told him that distribution agents were already in place, and that the film's premiere was due to take place in August, 2005. If Archangel was unable to deliver the film on time, these would be lost. That was why the defendant needed the money urgently.
72. However, the claimant's evidence went further than this. He said that the defendant told him at the meeting that the sole purpose of the loan she was seeking was to meet the distribution costs for 'Spirit Trap'. In the event, it appears that only a small proportion of the monies he loaned went towards the distribution costs. The sum of £100,000 was used to repay part of the monies outstanding to the creditors represented by Mr Coomber (see paragraph 22 of this judgment) and it seems that part of the monies was spent on development costs associated with 'The Riders'.
73. Again, Mr Harris' evidence differed somewhat from that of the claimant on this point. He said that his understanding from the meeting was that the proposed loan was to be used to get 'Spirit Trap' to the distributors, but also as working capital until a substantial amount of money (presumably from the SLB) came in.
74. The defendant's evidence was that she did not tell the claimant that the sole purpose for which Archangel required a loan was for the purpose of funding the distribution of 'Spirit Trap'. She said that she mentioned that funds were required for "working capital" and "development funds" (in particular for 'The Riders' project) as well. She pointed out that the loan agreement signed by the parties was headed "Working Capital Loan" and paragraph 1(b) of the agreement stated that the loan was to be used for "general purposes". Thus, she said, the claimant cannot possibly have believed that the sole purpose to which the monies loaned were to be put was the costs of distributing 'Spirit Trap'.
75. As to the alleged representation about payment of the outstanding fees in connection with 'Spirit Trap', the claimant's evidence was that the defendant told him that all those who were owed money for work on the film (e.g. actors, directors, producers and production houses) had been paid. He said that the defendant had told him that 'Spirit Trap' had been self-funded privately by her. In oral evidence, he said that the defendant had told him that 'all the production costs had been paid'. Mr Harris' evidence was that the defendant had told the claimant that "the costs of 'Spirit Trap' had all been met".
76. The defendant's evidence was that she had told the claimant that 'Spirit Trap' was a completed film and was ready for distribution. She told me that, before DCMS certification was granted, all production costs (save for certain allowable deferments) had to be paid and, by June 2005, this had been done. She said that she might have told the claimant this. The claimant denied that production costs were discussed in the context of DCMS certification.

The absence of creditors

77. At paragraph 5.5 of his Particulars of Claim, the claimant alleges that, at the Landmark Hotel meeting, the defendant informed him that Archangel had no secured or major creditors. At Paragraph 8 of the Particulars of Claim, it is alleged that, in fact, Archangel had creditors in significant amounts. The claimant's contention is that, although it was true that Archangel had no secured creditors at the time, the assertion that it had no "major creditors" was plainly false.
78. In his witness statement, the claimant referred to discussions about creditors at the Landmark Hotel meeting. He said:

"The creditor position of Archangel was most important to me as whilst the company may have been valued at £4.8 million if there were outstanding creditors and other secured creditors then the valuation may not have been relevant. I told [the defendant] of the importance of this information to me. I told her that I had paid my son's school fees in advance and that the monies I was lending to her were my daughter's school fees and I could not jeopardise them therefore if there were any other creditors I would not lend to her".

79. The claimant said that the defendant told him that all the creditors in respect of the production of 'Spirit Trap' had been paid and there were "no other creditors at all". He said that he was extremely pleased to hear this and told the defendant so. Elsewhere in his witness statement, he said that he had "specifically asked the defendant if Archangel owed any money at all to creditors which would jeopardise my loan and was categorically told "NO"". He also said that the defendant had told him there were "no major creditors or outstanding debts". He said that the defendant had told him that she would show him the balance sheet and other information which would show that there were no other creditors other than a few trading liabilities which could easily be met.
80. In oral evidence, the claimant said that he was told by the defendant at the Landmark Hotel meeting that there were "no issues" and "no outstanding issues that would prevent me from getting paid as soon as the money [from the SLB] came through" and "no secured or major creditors". He said also that he asked "if the company had anything he should be concerned about". He said that the defendant told him that she had creditors only "in the ordinary course of business". Later in his oral evidence, however, he said that he did not know whether he and the defendant had got as far as discussing the question of creditors at their first (i.e. the Landmark Hotel) meeting. He said that they may have done. However, he emphasised that he would not have invested in the company if he had thought that there were major creditors.
81. In his witness statement, Mr Harris said:

"[The claimant] made it clear to [the defendant] that he could not afford to lose the money and that the financial position of the company was extremely important to him as if there were major debts that it would restrict any payment on time and he would not be interested in lending".

82. Mr Harris said that the defendant told the claimant she had "very little debt" and "no secured or major creditors". In oral evidence, Mr Harris said that the claimant asked the defendant whether there were "any secured or unsecured creditors of substance – or any creditors". He said that, if the defendant had told him that there were such creditors, the claimant would have "walked out".
83. The defendant's evidence was that the question of whether Archangel had any "secured" or "major" - or indeed any - creditors did not arise at the Landmark Hotel meeting. She was not asked about it and she did not discuss it.

After the Landmark Hotel meeting

84. Although the claimant relies solely on the fraudulent misrepresentations which he alleges were made at the Landmark Hotel meeting, it is relevant to examine the events that followed insofar as they may tend to support or cast doubt on the evidence of either party in relation to the Landmark Hotel meeting.

Security for the proposed loan

85. I have already referred to the email sent by the defendant on 6 June 2005, to Messrs Harris and McGuire, the contents of which were communicated to the claimant by Mr Harris. That email suggested further security that might be offered by the defendant to the claimant.
86. The defendant's evidence was that she spoke to her solicitor, Mr Peter Dickinson, on 9 June 2005, and sought his advice about the terms of the proposed loan. She recorded in her notebook:

"Peter Dickinson

: S & L [sale and leaseback] – 1^st charge over benefit

: pre-emption clause

: 3 months 10%?

£150,000 Loan

: 25% of my shares".

87. It appears that Mr Dickinson must have given positive advice, since the defendant said that she then telephoned the claimant and told him what she was prepared to offer. He told her that he was very interested but wanted to visit Archangel's office at Pinewood. She said that it was agreed that he would come the following day, Friday, 10 June 2005. The claimant did not specifically recall that conversation although I did not understand him to be disputing that some such telephone conversation may well have taken place.

The provision of financial documents

88. At this stage, the claimant had seen no financial documents relating to Archangel. His evidence was that, at the Landmark Hotel meeting, he had asked for copies of Archangel's accounts and management accounts, together with any other financial information that was available. Mr Harris said that the claimant asked the defendant for details of current bank balance sheets and bank statements and the defendant promised to forward them.
89. The defendant did not accept that the claimant had made any request for specific documents at the Landmark Hotel meeting. She accepted that he had indicated that, before making a decision as to whether to loan money to Archangel, he would want to visit Archangel's offices (to ensure that the company was "real") and to see various "paperwork". However, no specific request was made at that time.
90. I accept the defendant's evidence on this matter. She was plainly very anxious to obtain the loan. It seems unlikely that, if the claimant had requested specific documents at the Landmark Hotel meeting, she would have delayed until 14 June before providing them. It is far more probable that, as she says, the request for specific documents was not made until later.

The Pinewood Studios meeting

The timing of the meeting

91. It is agreed that, some time after the Landmark Hotel meeting, a further meeting took place between the claimant, his wife and the defendant at the defendant's office at the Pinewood Studios (Pinewood). The date of that meeting assumed some importance at the hearing because of the assertion made by the claimant's wife that, by the time the meeting occurred, she and her husband had received and examined the financial documents relating to Archangel and that those documents were discussed at the meeting.
92. The defendant's case was that the meeting took place on 10 June 2005, as agreed in the telephone conversation the previous day. Her work diary for that date had an entry:

"Gerry Matthews (John Harris Landmark Hotel)

Pinewood".

93. The defendant said that, at the meeting, the claimant asked her to provide certain financial documents, which she listed in her notebook under the date, June 10^th 2005, written in manuscript. The list appears under the words, "For Gerry". As further support for her evidence that the meeting took place on 10 June 2005, the defendant referred to an email sent by her to the claimant on the afternoon of 10 June 2005, attaching a document (the Business Plan). She said that she had promised to forward it at the Pinewood meeting. On 11 June 2005, the claimant emailed the defendant asking her to send the document in a different format as he could not open it. He added:

"Thanks for your time and hospitality yesterday".

94. In oral evidence, the claimant was unable to remember the date of the Pinewood meeting. Having been shown his email of 11 June 2005, however, he was prepared to accept that the meeting had taken place on 10 June 2005.
95. If the meeting did take place on 10 June 2005, the claimant and his wife would have had no opportunity to read the financial documents relating to Archangel before the meeting. This is because of the unchallenged evidence of the defendant's assistant, Andrea Simson, to the effect that she delivered the envelope containing the documents (including the Business Plan) personally to the claimant on 14 June 2005.
96. In evidence, the claimant said that he found the timing of the Pinewood meeting difficult to understand since he recalled having a face-to-face meeting with the defendant at which the financial documents were discussed.
97. In her written evidence, the claimant's wife did not specify the date of the meeting attended by herself and her husband at Pinewood. In oral evidence, however, she said that it had taken place on 15 June 2005. She said that she had definitely not attended a meeting on 10 June 2005. She described how the financial documents were delivered to her (not her husband) the day before the meeting and were discussed at the Pinewood meeting. She was adamant that the Pinewood meeting had taken place on 15 June 2005. She said that entries in her running diary (she is a marathon runner) would confirm this.
98. At my request, Mrs Matthews produced the relevant extracts from her running diary overnight. These contained no reference to a meeting with the defendant. Mrs Matthews was nevertheless adamant that the meeting must have been on 15 June 2005. She said that there would have been "no point" in having the meeting before the documents were received. She said that the fact that she appeared to have cancelled a three-mile run on 15 June 2005, and that she had noted, to the right of the page, "Out GM [i.e. out with the claimant]", made her believe that the meeting must have been on the 15 June 2005.
99. Mrs Matthews went on to say that her husband had visited the defendant at Pinewood on an occasion before the meeting which she attended. She said that the earlier meeting could have taken place on 10 June. She described how, when she accompanied her husband to Pinewood, he knew his way about and it was evident to her that he was familiar with the place. This was the first time Mrs Matthews had mentioned a previous meeting at Pinewood and the defendant had not suggested in his evidence that there had been two meetings at Pinewood, one before and one after the financial documents were provided.
100. By way of response to the suggestion made by Mrs Matthews, the defendant produced a series of documents that demonstrated - quite clearly to my mind - that she could not possibly have attended a meeting at Pinewood on 15 June 2005. Later in her evidence, Mrs Matthews suggested that it was possible that the meeting had taken place, not on 15 June (as she had originally said), but on 16 June. However, she remained adamant that it had taken place after receipt of the financial documents.
101. I am quite satisfied that this meeting took place on 10 June 2005. The defendant's diary and notebook entries and the claimant's email of 11 June 2005 provide strong supporting evidence of this. It follows that I do not accept Mrs Matthews' evidence on this point. I find that her evidence was motivated by a desire to establish that she and the claimant had been in the possession of the financial documents before the meeting took place. She realised that, if the meeting had been on 10 June 2005, this would have been impossible. Hence her insistence that it had taken place the following week. I found her evidence that the claimant had visited Pinewood on a previous occasion (a fact which he himself had never mentioned) wholly unconvincing. At best her evidence about the date of the meeting was entirely speculative; at worst, it constituted a deliberate attempt to deceive.

The content of the meeting

102. The claimant's description of the Pinewood meeting was very brief. He said that its purpose was to give the defendant the opportunity to explain her difficulties and to convince himself and his wife that she had an honest need for the loan. He said that, during the meeting:

"[The defendant] assured my wife and me that she had a very short-term cash requirement and there were no outstanding debts".

103. In oral evidence, the claimant said that his wife "grilled" the defendant. He agreed with the account given in his wife's witness statement to the effect that the defendant had:

"… clearly stated that there were no outstanding issues, she [the defendant] had funded all previous business operations either by herself or with the assistance of her bank facilities and these were at the top of her limits and to secure additional funds would take time which at the moment she did not have".

104. The claimant said that the defendant emphasised the need to get 'Spirit Trap' to the distributor if the UK release date was not to be lost.
105. In her written evidence, Mrs Matthews claimed that at the Pinewood meeting, the defendant repeated the representations previously made to the claimant at the Landmark Hotel meeting to the effect that a major investor was currently negotiating to buy 75% of Archangel at a value of £6 million which, since the defendant was the 100% owner of Archangel, would leave her with a 25% shareholding the value of which would be about £1.5 million, and that there were no outstanding debts (other than the bank facilities previously mentioned).
106. In her oral evidence, Mrs Matthews said that there was a discussion about where the defendant sent her children to school and the fact that she played polo. She talked about some of her rich and influential friends. That discussion, if it occurred, would have replicated a conversation which the claimant said had already taken place at the Landmark Hotel meeting.
107. Mrs Matthews said that she had gone to the meeting to satisfy herself that there was adequate security for the loan that she and her husband were proposing to make and to "verify the management accounts". She accepted that the information contained within her witness statement about what had been said at the Pinewood Meeting was a combination of what had actually happened at the Pinewood meeting and what her husband had told her the defendant had said to him on other occasions. She was adamant, however, that the defendant had told them that she had a buyer for 75% of her business and that Archangel had "no outstanding debts".
108. The defendant gave little evidence about what was said at the Pinewood meeting. She was, however, adamant that she had never told the claimant that she was selling 75% of the company or that it had a valuation of £6 million or that there were no "outstanding debts". She said that there was no discussion about the contents of the financial documents at this meeting or at any other time.

The financial documents

109. Archangel had no audited accounts but financial documents were prepared by Mr Edward Tombs, the company's book keeper, on the basis of information supplied to him. The documents provided to the claimant on 14 June 2005 comprised profit and loss accounts for the years ending July 2004 and May 2005, the balance sheet to May 2005, an ageing debt summary and several documents entitled "reconciliation" and "transaction" details.
110. The claimant makes no allegations of misrepresentation in relation to the information contained within the financial documents with which he was provided. It is therefore possible to deal with them quite briefly.
111. The profit and loss accounts revealed losses of about £58,000 and £46,000 respectively for the two years. There had been expenditure on legal fees of over £40,000 in the year to May 2005 which accounted for a large proportion of the loss for that year.
112. The balance sheet showed a relatively modest shortfall of current assets as against current liabilities of over £44,000. However, the other assets shown were substantial and included an outstanding loan to STL of over £118,000, together with investment in STL of £250,000. Shareholder investment of about £461,000 was also shown.
113. The Archangel ageing debt summary disclosed debts of just over £100,000, of which £85,000 had been owing for a period of only 1-30 days.
114. The financial documents did not disclose the whole story about Archangel's financial position. In particular, they did not show the short term loans which had been made to Archangel for the production of 'Spirit Trap' and which were still outstanding, or the investments made by "shareholders" whose shares had never been registered. Mr Tombs was asked about those omissions. He said that the monies advanced to fund 'Spirit Trap' were paid into STL's bank account and would appear in STL's accounts. He was not responsible for those accounts and knew little about 'Spirit Trap'. The figure for "shareholder investment" that appeared on the balance sheet was a 'snapshot' showing funds that had come into Archangel's bank account and had been identified by the defendant or one of her colleagues as being shareholder investment.
115. The claimant's evidence was that he concluded from the documents that there was nothing to cast doubt on Archangel's viability. He denied that the conclusions he had reached about the financial health of the company had been derived solely from the contents of these documents. He said that he had sought confirmation from the documents of the representations that had already been made to him by the defendant at the Landmark Hotel meeting.
116. The claimant insisted that, after receiving the documents and before signing the loan agreement, he had had a further meeting with the defendant at which the documents were discussed. He was unable to say where or when that meeting took place. At no time did he suggest (as his wife did in her oral evidence) that there had been two meetings at Pinewood with the defendant prior to the signing of the loan agreement. I regard it as unlikely that such a meeting took place, although it is possible that there was some discussion over the telephone about the contents of the documents. In any event, the claimant does not seek to rely on any misrepresentation made to him in any meeting at which the financial documents were discussed.

The Business Plan

117. In correspondence between solicitors in October 2006, the claimant's solicitors stated that the claimant had been handed the Business Plan by the defendant after he had signed the loan agreement. They also said that, since he was not interested in making a long term investment in Archangel, he had read it only cursorily.
118. In his written evidence, the claimant accepted that he had in fact received the Business Plan before entering into the loan agreement and, far from claiming to have read it only cursorily, said that he had read it "with interest" and in the hope that it would assist him "in understanding the financial standing of the company". He then detailed, over two and a half pages of his witness evidence, the "matters of importance" which he claimed to have picked up from the document.
119. I do not accept that the claimant read the Business Plan before making the loan with great attention in the manner suggested by his witness statement. The fact that, in October 2006, he could not remember that he had received the Business Plan before entering into the loan agreement does not suggest that he had paid a great deal of attention to it. Moreover, at that time, he was claiming only to have read it "cursorily". The matter is not of great importance, however, (save as to the general reliability of the claimant's evidence) since the claimant is not relying on any misrepresentations alleged to have been contained in the Business Plan.
120. The Business Plan (which stated in clear terms that it was directed at investment professionals, certified "sophisticated" investors and high net worth individuals and companies) set out Archangel's strategy for the future. It explained the company's plans to attract investment in order to facilitate the development and commercial exploitation of its existing "slate", to acquire a library of new assets and to increase the valuation of the company with a view to an advantageous sale in three to five years' time.
121. Perhaps not surprisingly, since the Business Plan was designed for use as a tool for attracting investment, it presented the prospects of Archangel in an extremely positive light. However, at least one of the statements contained within it (the claim that Archangel owned the rights in several films and film scripts, including 'Tooth' and 'Spirit Trap') was not accurate. Others, in relation to the funding of film production costs, were opaque, to say the least, and may well have produced a misleading impression.
122. Although the claimant does not seek to rely on any misrepresentations contained in the Business Plan, the document is of some significance. The defendant and her witnesses made clear that their "pitch" to potential investors and lenders was always based on the information contained within the Business Plan. Thus, the contents of the Business Plan may shed light on what the defendant is likely to have said about Archangel during her discussions with the claimant.

The execution of the loan

123. Following the claimant's final decision to make the loan to Archangel, he sought and obtained legal advice in connection with the loan agreement (which was initially drafted by his solicitors) and the related documents. Archangel was represented by Mayer Brown. The documents were signed by the parties on 21 June 2005.
124. The loan agreement provided that the loan was for three months, with an option to Archangel to extend to six months. The annual rate of interest was 40%, and interest was to be paid at the end of each period of three months. The agreement provided, if there was failure to pay on the due date any amount payable under the agreement, the claimant had the option to declare the loan, interest and other monies owing payable immediately.
125. The parties signed an assignment of rights in favour of the claimant in respect of what were described as Archangel's rights under the proposed SLB between Archangel, STL and Kingston (or a third party), pursuant to the offer letter signed on 9 June 2005.
126. The parties also entered into an agreement for a charge up to £150,000 over 20,250 of the defendant's shares (i.e. 25% of her holding of 81,000 shares) in Archangel.

Meeting with the Bank on 24 June 2005

127. On 24 June 2005, the defendant, Mr Mathura and Mr Brennan met Archangel's bank manager. Notes of the meeting were recorded in the defendant's notebook. It is plain that the bank manager was very unhappy about the state of Archangel's finances and about its sustainability. A note recorded that the bank was "losing faith in the company" which was stumbling "from one crisis to another". There was discussion about the financial and cash forecasts. The note recorded that the bank manager eventually agreed to extend the company's overdraft facility until the end of October 2005.

The progress of negotiations of the sale and leaseback agreement

128. In the summer of 2005, there were email communications between the defendant and Ms Booth of Kingston, relating to completion of the proposed SLB agreement. Completion of the agreement was vital to Archangel since it would result in the payment to STL of a substantial sum which could then be used to repay some of the outstanding loans. In early September 2005, it appeared that Kingston would be prepared to make an advance of £200,000 once 'Spirit Trap' had obtained DCMS certification. That certification was obtained on 1 September 2005. By mid-September, it was plain that no advance would be forthcoming at that stage.
129. At that time, Ms Booth was contemplating completion of the SLB agreement, and payment of the monies owing under that agreement, in early November 2005. However, November came and she was unable to complete the agreement as planned. The completion date was postponed to late December 2005. By late January 2006, completion had still not been achieved and Ms Booth was seeking funding from an alternative source. At that stage, she told the defendant that she was hoping to complete the agreement within a week. However, completion had still not taken place on 14 February 2006, when Archangel went into administration.
130. Ms Booth was still attempting to reach completion in March 2006. The SLB agreement was eventually completed in July 2006 and yielded the sum of £75,000, plus VAT of £42,000, a much lower figure than had been expected. That sum was paid to STL and then on to Archangel.
131. The defendant's evidence was that, in June 2005, she had fully believed that the SLB agreement would be completed within a matter of a few months and that the fact that it was not was not attributable to any fault on her part.

Progress under the distribution agreement

132. Following the distribution agreement signed in November 2004, Cinemavault began to attempt to market 'Spirit Trap' along the lines of the projected 6 million US dollar 'take' on which that agreement was based. The agreement provided that no sale could be made by Cinemavault below the agreed minimum 'take' without the consent of the defendant on behalf of STL. It appears that the film did not attract a great deal of interest. Subsequently, Cinemavault tried to persuade the defendant that they should sell the film rights at a reduced "take". She did not agree, save in certain limited respects.
133. In November 2005, Cinemavault insisted on STL entering into a further agreement which required STL, inter alia, to make additional payments to Cinemavault and to agree to the distribution of 'Spirit Trap' to nine countries at a lower "take" than that initially agreed. Cinemavault were able to pressurise the defendant into signing the second agreement as a pre-condition of Cinemavault signing a certificate which was required for completion of the SLB agreement.
134. The defendant instituted proceedings against Cinemavault which went to arbitration. Pending the resolution of the arbitration, it was not possible to market 'Spirit Trap' further. The arbitration award, published on 30 April 2007, resulted in a finding that the imposition of such a condition for signing the certificate constituted a grave breach of Cinemavault's fiduciary duty to STL and amounted to coercion. The arbitrator found that, in entering into distribution licences in several territories without the defendant's free consent, Cinemavault had been in breach of duty. He found that the defendant was also in breach of the agreement by reason of STL's failure to deliver the film to Cinemavault on time. The financial consequences of the arbitrator's findings are not yet certain. This matter was relevant to the case because the defendant contended that Cinemavault's actions had resulted in the loss to STL (and therefore to Archangel) of substantial revenues which would otherwise have been earned as a result of the distribution of 'Spirit Trap' and which would have greatly improved Archangel's financial position.

The failure to repay the claimant's loan

135. In August 2005, 'Spirit Trap' was released in the UK. On 23 August 2005, there was an email exchange between the claimant and the defendant, in which the defendant told the claimant that DCMS certification was awaited and thanked him for "covering this position for me for a little while longer". At that time, no payment was due under the loan agreement. On 29 September 2005 (by which time over three months had passed and Archangel had not repaid the loan), the claimant proposed an arrangement whereby the sum of £65,000 should be paid by 11 October 2005, with the remaining £100,000 (plus an additional 15% premium to cover his costs) by 11 November 2005. It seems that the defendant agreed to that proposal since, on 11 October 2005, there was a meeting between the claimant, the defendant, and Mr Mathura. No cheque was forthcoming on that occasion, as had been promised and, in a subsequent email, the defendant said that she and Mr Mathura had been "mortified" that this was so. Payment of the sum of £65,000 was postponed to 31 October 2005. On that date, the claimant sent an email detailing additional penalty charges he proposed to impose (£1,000 per week) for late payment of the initial sum of £65,000 and of the balance. But, in mid-November 2005, no monies had been paid. There was further correspondence, in which the defendant told the claimant that she was attempting to negotiate a bridging loan and, in January 2006, a 'zero coupon bond' to raise the necessary funds to repay him. This correspondence continued right up to the date in which the company went into administration.

The administration

136. By February 2006, the SLB agreement was still not in place and funds from that source were not therefore forthcoming. No revenue had come in from the distribution of 'Spirit Trap'. Archangel was under increasing pressure from creditors (including the claimant) and its directors were advised that the company should be put into administration.
137. A statement prepared by the administrators in March 2006 showed that Archangel had total unsecured creditors of almost £2.978 million. The inter-company debt from Archangel to STL was over £2.2 million. The administrators' statement of July 2006 reported that the proceeds of the completed SLB agreement had been received by Archangel. Furthermore, Archangel's shares in "The Riders Film Limited", the SPV formed to produce the film 'The Riders', had been sold to Peninsula Media Limited, a company of which the defendant had by then become a director and the majority shareholder. It was still hoped that 'Spirit Trap' would produce income that would be realisable by Archangel in part repayment of its inter-company debt. The administrators stated their intention to place Archangel in liquidation. They subsequently did so. As at the time of the trial, no part of Archangel's debt to the claimant had been repaid and there appeared to be no prospect of repayment.

The law

138. I come now to deal with the law relating to the case. In order for the claimant to succeed in his claim for fraudulent misrepresentation, he must establish that the representations made by the defendant were false and that the defendant made the representations knowing them to be untrue, or recklessly, not caring whether they were true or false, or without honest belief in their truth: Derry v Peak (1889)14 App Cas 337.
139. A false statement made through carelessness and without reasonable ground for believing it to be true, may be evidence of fraud, but does not necessarily amount to fraud. If it was made in the honest belief that it was true, it would not be fraudulent. It is, however, important to consider in each case whether there were reasonable grounds for the maker of the statement to believe in its truth, and also to examine the means of knowledge that were possessed by the maker of the statement at the material time. If that person shut his eyes to the facts, or deliberately abstained from enquiring into them, he would be guilty of fraud, in just the same way as if he had made the statement knowing it to be false.
140. The claimant must also be able to establish that he acted in reliance on the defendant's misrepresentation(s). The misrepresentation(s) need not have been the sole cause of him acting as he did, provided that he was materially influenced by the misrepresentation(s).
141. The burden of proof is, of course, on the claimant. Given the seriousness of the allegations he makes, he must establish his case by reference to the high civil standard.
142. The issues to be decided are:

i) Did the defendant make any of the representations alleged?

ii) If so, was that representation false?

iii) If so, was it made fraudulently?

iv) If so, did the claimant rely on it when deciding to make the loan?

Discussion

The Landmark Hotel meeting

The witnesses

143. The claimant's case as to what was said at the Landmark Hotel meeting depends on his own evidence and that of Mr Harris. My impression is that the claimant's memory of the events of June 2005 – in particular his memory of what was said at the Landmark Hotel meeting - was extremely imperfect. On virtually every point when an assertion of his could be checked against a contemporaneous document, the documentary evidence did not support his recollection. Examples are his assertion (made in his solicitor's letter of October 2006) that he had not received the Business Plan until after he had entered into the loan agreement and his claim that he had made a request at the Landmark Hotel meeting for specific documents (whereas it is clear that his request was not made until the Pinewood meeting). There are other examples to which I shall refer later.
144. I am satisfied that the claimant's primary concern at the Landmark Hotel meeting (as he himself said) was to ascertain the nature and the level of security that would be available to safeguard a loan. In the event, he was unable to get the defendant's agreement to giving a charge on her house, or on the whole or half of Archangel, as security for the proposed loan. That being the case, it is probable in my view that, having heard the defendant's "pitch" and enquired about the available security, he lost interest in the proposal and that, consequently, any discussion that may have taken place was very limited. The fact that the claimant did not (as I have found) request any specific financial documentation at that stage supports my view that, by the end of the meeting, he was not seriously contemplating proceeding with the loan on the terms then available.
145. I found Mr Harris an unsatisfactory witness. I gained the impression that he felt a degree of responsibility for introducing the claimant to a potential investment that had turned out so disastrously for him. He was, in my view, attempting to make amends by saying all he could to support the claimant's account of what had occurred at the Landmark Hotel meeting. In cross-examination, he was asked about the commission of £4500 which he had been paid by the defendant for introducing the claimant to her and, in particular, his request that £2000 of this sum should be paid in cash and the remainder by means of a cheque made out to his wife. His insistence that this arrangement was necessary because he had recently closed a bank account, rather than a device to avoid paying tax, was frankly unconvincing. His manner in the witness box was uncomfortable and evasive. I was unable to place any reliance on his evidence, save where it was contrary to the claimant's interests.
146. The defendant is a fluent and articulate woman who would certainly be capable of delivering an impressive "pitch". In her evidence, she talked with apparent confidence about the intricacies of film finance and production. The impression I received, however, was that her knowledge of these matters was in fact fairly superficial. This became clear when she was questioned about matters of detail. Some aspects of the defendant's evidence were very unsatisfactory. Her account of the meeting with Archangel's bank manager on 24 June 2005, which she portrayed as a routine appointment arranged to enable him to meet Messrs Brennan and Mathura and to ensure that she was working with the "right people", was particularly unconvincing. It is clear from her own notes that the bank manager was expressing grave doubts (not, it appears, for the first time) about the viability of Archangel and, possibly, of STL also. Her insistence (see below) that, as at June 2005, she did not consider that Archangel had any "major creditors", was equally unconvincing. Furthermore, the contents of her email to Mr Harris dated 23 August 2005, in which she informed him that £100,000 of the claimant's loan was being used to "bridge" the SLB, were, if not precisely untrue, certainly misleading. These examples, together with others, make it impossible to regard the defendant as a reliable witness.
147. Because of the difficulties with all three witnesses who were present at the Landmark Hotel meeting, it has been necessary to examine the evidence about what was said at that meeting with particular care and to compare it with any other evidence (in particular documentary evidence) that is available in order to reach a view about what was said at the meeting.

The value of Archangel

148. Both the claimant and Mr Harris said that the defendant told the claimant that she had a buyer for 75% of Archangel at a valuation of £6 million. The defendant denies this. I have already referred to the fact that the claimant's evidence was not consistent with his pleaded case, which was that the defendant told him that Archangel had assets worth in the region of £6 million. I am satisfied that the defendant did not make the representation alleged in the claimant's pleading or in his oral evidence. A valuation of £6 million would have been inconsistent with information which she herself had supplied only a few days before the meeting, in her email to Mr McGuire of 26 May 2005. Furthermore, the suggestion that she intended to sell 75% of the company was inconsistent with the Business Plan, which was being finalised at the time. I note also, as the defendant pointed out, that there was no enquiry in any of the claimant's subsequent communications with her (or with the administrators of Archangel) as to the progress of the sale to which she is alleged to have referred. If the claimant had been told that a sale was imminent, that would have been an obvious source of funds for the repayment of his loan.
149. It seems to me that, in attempting to recall what was said at the meeting, the claimant may well have misunderstood the reference that the defendant would undoubtedly have made to her plans for raising a large amount of equity (in the region of £3 million) in the near future, and may have linked that reference to the information about the projected "take" of almost 6 million US dollars identified in the Cinemavault distribution agreement which I find was probably mentioned to him by the defendant. It may be it was that which gave rise to a misunderstanding. Be that as it may, I am confident that the alleged representation was not made. In any event, the claimant made it quite clear in his oral evidence that he regarded the valuation put on Archangel by the defendant as "immaterial". He cannot therefore claim to have relied, when deciding to make the loan, upon any representations made by her about the value of Archangel.
150. Moreover, I do not accept that there was any mention at the Landmark Hotel meeting (as both the claimant and Mr Harris claim) of the offer made by the defendant to give a charge over 25% of her shareholding in Archangel by way of security for the proposed loan. The defendant's email of 6 June 2005, coupled with the entry in her notebook for that date, entirely support her evidence that she made that offer subsequent to the meeting. I accept that that was the case.

The value of the defendant's remaining shareholding

151. I do not accept either that the defendant put a valuation on 25% of her shareholding in Archangel of £1.5 million. I note that no valuation of her 25% shareholding was put forward in her email of 6 June 2005.

The rights to 'Spirit Trap'

152. There is no dispute that the proposed SLB agreement was mentioned at the Landmark Hotel meeting. The defendant said that it was mentioned in the context that the monies payable under the agreement, when completed, would provide the funds from which the claimant's loan would be repaid. It is significant in my view that Mr Harris' evidence was that it was mentioned in that context. He made no mention of any discussion about the SLB agreement being used as security for the claimant's loan.
153. The claimant's evidence about what was said about the SLB agreement at the Landmark Hotel meeting was very uncertain. At times, he alleged that the defendant had told him that a SLB agreement was already in place. However, the wording of the assignment document signed by the parties on 21 June 2005 made it quite clear that no SLB agreement had yet been entered into and the claimant (whose solicitors had drafted the loan agreement) must have been aware that that was the case. The offer letter of 9 June 2005 was attached to that agreement. Furthermore, as I have already observed, the claimant became less and less confident during his evidence that the offer of the SLB agreement as security was made at the Landmark Hotel meeting. I am satisfied that it was not. I find that the suggestion that it might be used in this way was first raised by the defendant in her email of 6 June 2005 to Mr Harris and Mr McGuire, and subsequently communicated to the claimant.
154. Even when the possibility was raised of the rights in the SLB agreement being assigned to the claimant, I am satisfied that the defendant never represented to him that he would (as is pleaded) be "given rights to the sale proceeds of the film 'Spirit Trap'". I am satisfied that he was told, at a time after the Landmark Hotel meeting, that what he would be acquiring were rights under the proposed SLB agreement which were expected (according to the defendant's email of 6 June 2005) to be worth between £250,000 and £400,000.
155. By the licence agreement made between Archangel and STL in 2004 (see paragraphs 11-14 of this judgment), Archangel had granted to its 100% owned SPV, STL, a licence to exploit the rights in the film 'Spirit Trap'. The defendant's evidence was that Archangel retained some rights (e.g. merchandising rights) and that it was intended that, once all relevant costs had been paid, the rights would revert to Archangel. In June 2005, however, the rights to the sale and distribution of the film rested with STL.
156. Thus, although the offer letter for the SLB agreement was entered into by Archangel and STL, it was STL which would be selling the film and which would receive the proceeds under the SLB agreement when completed. Yet this was not reflected in the document for the assignment of rights under the SLB agreement signed by the parties on 21 June 2005. That assignment document was drafted on the basis that it would be Archangel which would be selling "the rights and interests" in 'Spirit Trap' under the SLB agreement and that it was Archangel that would be entitled to the monies payable under the agreement. It seems that there was an element of confusion on the part of Archangel and its advisers (including its legal advisers who drafted the assignment document) about the entitlement to the rights in 'Spirit Trap'. This confusion extended to the Business Plan which stated that 'Spirit Trap' was part of Archangel's "existing IP (intellectual property)". Elsewhere in the Business Plan, the role of SPVs was explained and it was stated that, once a film had been produced and released and after external finance had been repaid, ownership of the IP rights in each film would revert to Archangel. 'Spirit Trap' had not yet been released, so that statement would tend to suggest that the rights would not yet have reverted to Archangel.
157. In her oral evidence the defendant accepted that the statement in the Business Plan to the effect that Archangel owned the rights to 'Spirit Trap' was incorrect. Her own witness statement contained contradictory statements about the ownership of the rights to 'Spirit Trap', which confirms my view that there was confusion in her mind about the issue.
158. It was suggested on behalf of the claimant that the statement contained in the Business Plan – and the contents of the assignment document – made it highly likely, if not certain, that the defendant told the claimant at the Landmark Hotel meeting that Archangel owned the rights to 'Spirit Trap'. However, it is not alleged in the Particulars of Claim that the defendant made any express representation to that effect. What is said is that the defendant's offer to give the claimant rights to the sale proceeds of the film 'Spirit Trap' implied that that was the case. I have already found that that offer was not made in those terms.
159. I have also found that there was no discussion at the Landmark Hotel meeting about the use of the SLB agreement as security. It follows therefore, that I find that the defendant made no representations at that meeting about any rights that the claimant might acquire under the SLB agreement. If the SLB agreement was not being discussed as security, there would be no reason for her to do so. Nor do I accept that any implied representation to the effect alleged was made.
160. I accept that the contents of the assignment document would give rise to the inevitable inference that Archangel owned the rights to 'Spirit Trap' when that was not the case. However, the reality of the matter was that, if the SLB agreement had been completed and monies had been paid as expected, those monies would have been transferred to Archangel and would have enabled the claimant's loan to be paid. It seems to me that it was that fact that was of primary interest to the claimant, not the ownership of the rights in the film. It is clear from the claimant's witness statement (see paragraph 25) that he was well aware that the monies were to be paid to STL which would then pay them to Archangel. It is to be noted also that the claimant must (as I have found) have been aware at the time he signed the assignment document that the SLB agreement might never be executed. He did not seek any charge over the rights in the film 'Spirit Trap' itself. Consequently, even if this were a matter which was the subject of representations at the Landmark Hotel meeting (which I find that it was not) the claimant would not in my view be able to establish that he relied on the representation.
161. In addition, the claimant would have difficulty in establishing that the representation was fraudulent. As I have said, it seems to me that there was real confusion in the mind of the defendant and of those advising her about the rights to 'Spirit Trap'. Her evidence about this was inconsistent. Although at one stage in her evidence she claimed that IP was her field, I got the impression that her grasp of the subject was in fact somewhat tenuous. The solicitors acting on Archangel's behalf appear to have been under the impression (despite the fact that STL was a party to the offer letter of 9 June 2005) that Archangel had the rights to 'Spirit Trap' and to any monies under the SLB agreement. The defendant did not seek to conceal the offer letter or the fact that STL were a party thereto. The Business Plan, while misstating the position about the rights to 'Spirit Trap', nevertheless referred to the transfer of rights as between SPVs and Archangel after release of the relevant film. In all the circumstances I take the view that, even if the representation had been made expressly or by implication at the Landmark Hotel meeting, I could not have been satisfied to the required standard that it was made fraudulently.

The purpose of the proposed loan

162. I do not accept the claimant's evidence that the defendant told him that the sole purpose of the loan that she was seeking was to meet the distribution costs for 'Spirit Trap'. That would have been wholly inconsistent with the references to "working capital" and "general purposes" in the loan agreement signed by the parties. I note also that Mr Harris' evidence was that a need for "working capital" was mentioned at the Landmark Hotel meeting. Furthermore, in a document entitled "Proof of Debt – General Form", sent to the administrators of Archangel in 2006, the claimant referred to his loan as having been for "working capital awaiting sale and leaseback from Spirit Trap as agreed 21/6/05" and, later in the document stated that the debt had been incurred by "loan to fund leaseback". These entries do not appear to me to be consistent with a belief on the claimant's part that the sole purpose of his loan was to fund the distribution of 'Spirit Trap'.
163. I have no doubt that, at the Landmark Hotel meeting and subsequently, the defendant laid considerable stress on the urgency of the need for funds to distribute 'Spirit Trap'. However, I am satisfied that the claimant was well aware that her intention was to use the monies loaned for general purposes until the monies payable under the SLB agreement were available. He may not have envisaged that his loan would be used to repay a debt but that fact alone does not mean that the defendant was guilty of a fraudulent misrepresentation.
164. As to the alleged representation that "Archangel had already paid all the outstanding fees in connection with 'Spirit Trap'", I accept the defendant's evidence that this was not said in terms. However, it seems to me quite possible that the claimant may have gained the impression that this was the case. References to the fact that the film was "completed" and that those costs necessary for the purpose of DCMS certification had been paid (which I find were probably made by the defendant) may well have created that impression. Phrases such as the fact that the production costs had been "self-funded" may also have been used, and would have encouraged that belief. Whatever the truth of that, however, it is not alleged by the claimant that this representation was false or that the claimant relied thereon.

The absence of creditors

165. I come now to what is the most significant misrepresentation alleged, namely that the defendant told the claimant at the Landmark Hotel meeting that Archangel had no secured or major creditors. In his evidence, the claimant gave a number of different formulations by which he said that information had been given. The thrust of his evidence, however, was that the question of whether or not Archangel had creditors (other than in the ordinary course of business) was central to his decision to make the loan and that he had specifically asked the defendant about this. Mr Harris emphasised the point also by saying that, if the defendant had told the claimant that there were major creditors, the claimant would have "walked out". The defendant's case was that the issue of creditors did not arise at the Landmark Hotel meeting and that she made no representations about it at that meeting or subsequently.
166. The allegation that the defendant had told the claimant that Archangel had no major creditors (or made a similar statement) did not appear in the letter sent to the defendant by the claimant's then solicitors, Pitmans, on 21 February 2006, shortly after Archangel had gone into administration. Other representations which are still relied on were referred to in that letter.
167. Even more significantly, the letter sent to the defendant by the claimant's current solicitors on 20 July 2006 (by which time it had become evident that Archangel had substantial creditors) stated:

"You [the defendant] provided him [the claimant] with profit and loss accounts and cashbook transactions which showed that there were no secured and/or substantial creditors of AFL [Archangel]".

168. This indicated that it was from the financial documents that the claimant came to the conclusion that there were no major creditors. There is no reference to any oral representation made to that effect.
169. A further letter from the claimant's solicitors to the defendant's solicitors dated 18 October 2006 also made no mention of any oral representations relating to the absence of creditors. The first reference to such oral representations was in the Particulars of Claim served in May 2007.
170. Had oral representations been made to the claimant about the absence of creditors, I should have expected reference to those representations to have been made in his solicitors' letters, especially after the scale of the monies owing to Archangel was known. The fact that no mention was made of any such representations strongly supports the defendant's contention that the issue of creditors was never discussed at the Landmark Hotel meeting (or indeed subsequently) and that any view that the claimant may have formed as to the absence of major creditors must have been based – not on oral representations made by the defendant – but on his own examination of the financial documents relating to Archangel.
171. It is significant also that the claimant said at one point in his evidence that he was not certain whether he and defendant had got as far as discussing the issue of creditors at the Landmark Hotel meeting. I am quite satisfied that they did not. As I have already said, it seems to me probable that the meeting involved little discussion of detail, and that the claimant lost interest once he had failed to obtain the security he was seeking for his proposed loan.
172. The claimant's case is that, if the defendant had told him that Archangel had no major creditors (or words to that effect), that representation would have been false and the defendant cannot have had an honest belief in its truth. The defendant disputed this contention. She explained that many of those people who were eventually categorised by the administrators as "creditors" were in fact potential shareholders (subject to ELIS registration), so that she did not regard them as "creditors". Insofar as there were persons who had made short-term loans, she was confident that they could be repaid over time and she received no advice to the contrary. She did not believe that they represented a threat to Archangel's long term viability. Thus, she said, she honestly believed that there were no "major creditors" in Archangel.
173. In June 2005, Archangel was being pressed for repayment of the loans outstanding to Mr Coomber's clients. A statutory demand had been served and its consequences averted only by agreement to a schedule of repayments. The defendant had had to raise a personal loan from friends to make the first repayment. A further repayment of £100,000 was made from the claimant's loan on the very day the loan agreement was signed. Even then there remained substantial sums by way of short term loans outstanding. Even accepting that the defendant honestly believed that the potential shareholders should not be characterised as "creditors" of Archangel, it would not have been accurate by any standards to say the Archangel had no "major" or "substantial" creditors, still less "no creditors other than in the course of ordinary business". The defendant cannot honestly have believed that that was the case. The fact that she believed that there would be funds to pay the creditors in the future was not the point. A representation to the effect that Archangel had no major or substantial creditors, if made, would have constituted a fraudulent misrepresentation.
174. As I have said, however, I cannot be satisfied, to the high standard of proof required, that any such representation was made. Indeed, I am confident that it was not.
175. I did not get the impression that the claimant was attempting deliberately to deceive me in his evidence. The fact that, at times, he was prepared to concede that he may have been mistaken (e.g. as to whether the issues of the SLB agreement as security, and of creditors, were raised at the Landmark Hotel meeting or later) suggested to me that he was trying to given an accurate picture of what had occurred. I am sure that, having relived the meeting in his mind many times, he genuinely believes that he sought various assurances from the defendant and that she gave them. Having heard a great deal from other people about the defendant and her conduct, he has plainly formed the view that she is thoroughly dishonest and this has reinforced his belief that she made the representations he alleges. But, as I have said, his memory of events is poor and I have been compelled to reject his evidence in many respects.
176. The evidence relating to the Pinewood meeting cast further doubt on the claimant's account of events. He had difficulty in accepting that he could have had that meeting without having studied the financial documentation first. Yet that is plainly what happened. His wife also had difficulty in accepting this – hence her elaborate and, as I have found, inaccurate evidence about the claimant having had two meetings at Pinewood before the signing of the loan agreement.
177. In her written evidence, Mrs Matthews suggested that the discussions at the Pinewood meeting went over much of the same ground previously covered at the Landmark Hotel meeting. However, she conceded in oral evidence that the information contained in her witness statement referred partly to what her husband had told her that the defendant had said to him and partly to what had actually been said at the Pinewood meeting. I cannot place any reliance on what she said took place at that meeting. I have already rejected her evidence relating to the timing of the meeting as unreliable. In any event, I think she would have genuine difficulty now in distinguishing between what was said to her and what her husband had told her before the meeting and subsequently. I reject the suggestion that her purpose in attending the meeting was to "grill" the defendant about the security for the loan. Her contention that she went there "to verify the management accounts" cannot be right if, as I have found, she and the claimant had not received the financial documents at that stage. Her primary interest in attending the meeting was, I think, to meet the defendant, about whom the claimant had no doubt told her, and to visit the Pinewood film studios.
178. There is no allegation of operative misrepresentation at this meeting. Nevertheless, I make clear that I do not accept the evidence of the claimant and his wife that the defendant told them that she had no outstanding debts at this meeting. I find that they discussed her offer of security over 25% of her shares in Archangel and that the claimant, who was satisfied with the security that was then being offered, requested the documents listed in the defendant's notebook.
179. I am satisfied that it was the contents of those documents – not any representations made by the defendant – that led the claimant to conclude that Archangel, while having short-term cash flow problems, was not in any real financial difficulty and that his investment would be relatively safe. I say "relatively" safe since, given that the loan was made in the context of the film business and at an annual rate of interest of 40%, the investment could in reality never have been described as "safe".
180. I have some sympathy for the claimant. He invested money he could ill afford to lose, in the expectation of a quick and financially advantageous return. He was plainly impressed by the defendant's social credentials and her apparent prosperity. I have no doubt, despite his protestations to the contrary, that he was to some extent attracted by the glamour of being involved in the film industry. He agreed to make the loan on the basis of the unaudited financial documents that were provided to him, which persuaded him that the underlying financial position of the company was sound. This view was no doubt encouraged by the "pitch" that he was given about Archangel's future prospects. That "pitch" was doubtless somewhat over-optimistic. However, it fell short of amounting to fraudulent misrepresentation.
181. The defendant emerges from these events with no credit at all. She presided over what was a financial catastrophe for a number of people, some of them her friends, acquaintances and business associates. Over £2.5 million owing to investors in Archangel remains unpaid. While she is loath to accept responsibility for these events, it is clear that they were largely attributable to her own lack of experience and over-optimism. By June 2005, she was fighting for Archangel's survival and desperate to obtain an injection of cash. She did not inform the claimant of the true financial position of Archangel. She must have known, when she provided the claimant with the financial documents relating to Archangel, that they did not show the whole picture and may lead him to draw unwarranted conclusions about the company's financial health. I accept that, at that time, she genuinely believed that the loan would be repaid from the monies she was expecting to come in. Nevertheless, she must have been aware that there was at least a risk that it would not. If this action lay in negligence, the outcome might have been very different. As it is, it must fail.