"'The balance of probability standard means that the
court is satisfied that an event occurred if a court considers that, on the
evidence, the occurrence of the event was more likely than not. When assessing
the probabilities, the court will have in mind as a factor, to whatever extent
it is appropriate in the particular case, that the more serious the allegation the
less likely it is that the event occurred and, hence, the stronger should be
the evidence before court concludes that the allegation is established on the
balance of probability. Fraud is usually less likely than negligence…Built into
the preponderance of probability standard is a generous degree of flexibility
in respect of the seriousness of the allegation.'"
"… I have found it essential in cases of fraud, when considering
the credibility of witnesses, always to test their veracity by reference to the
objective facts proved independently of their testimony, in particular by
reference to the documents in the case, and also to pay particular regard to
their motives and to the overall probabilities. It is frequently very difficult
to tell whether a witness is telling the truth or not; and where there is a
conflict of evidence such as there was in the present case, reference to the
objective facts and documents, to the witnesses’ motives and to the overall
probabilities can be of very great assistance to a judge in ascertaining the
truth.”
"It would not, I think, be difficult to say that in most
cases a prediction about the future (particularly in the context of contractual
negotiations) would necessarily be understood as implicitly representing that
the maker of the prediction had an honest belief in it. The existence (or
otherwise) of a belief is a present fact at the moment that the prediction is
uttered. If, therefore, the maker of the prediction does not have an honest
belief in the prediction at the time when he makes it, he will have made a
false representation of fact. In other cases, further implications may be
appropriate. It may be that the representation would necessarily be understood
as meaning that the prediction is based on reasonable grounds; or that the
maker of the prediction has the present intention to do what he can to make it
come true."
(iii) The Greenwich
Peninsula development
(a) The
Masterplan: April 2012
29.
The Land Deal concerned the possibility of the parties participating in
some aspect of the Greenwich Peninsula development. During 2010/2011 Greenwich
Borough Council (“Greenwich” or “the Council”) began work on a Masterplan (“the
Masterplan”) for the development of industrial land on the west side of the Greenwich
Peninsula close to the O2 entertainment venue.
30.
In April 2012 the Council published a Masterplan for the development.
This envisaged the construction of a mixed-use area including leisure,
education, employment and housing. The Masterplan constituted a “Supplementary Planning
Document” (“SPD”). The status of the Masterplan as an SPD meant that, whilst
not amounting to adopted Council policy, it nonetheless could be used as a
material consideration when assessing planning applications. It amounted to a
development framework which was, as stated in the Masterplan, intended “… to
steer development in this part of the Royal Borough for years to come.” The
Masterplan described the area to the west side of the Greenwich Peninsula
as a relatively underdeveloped area that had been held back by two century old
factors: the remnants of its industrial history and the southern approach to
the Blackwell Tunnel. The site was described as having “huge potential”.
Implementation of the Masterplan would create a new “world class district
for London”. The Masterplan set out the relevant “Objectives”. The
first objective was in the following terms:
“To transform the contribution of the area to the Royal
Borough and the sub-region by focusing development and regeneration around a
new multi-purpose sports/entertainment/education facility that links with, and
complements the offer at the O2 Arena.”
31.
Later in the Masterplan under the heading “Sports/Leisure/Education
complex” the following was stated:
“A multi-use facility is to be
centrally positioned within the Masterplan. A key role for it would be to
provide outdoor entertainment linking with and complementing the offer at the
O2 Arena. The complex could also be integrated with an elite sports facility or
university. At ground level the complex could contain retail and hospitality
uses creating an active edge when not in use.
The western edge of the complex
could be quite low lying, perhaps initially simply a land form. Lowering the
western edge allows for views out towards Canary Wharf, and access by
pedestrians along the river walk.
Any development of the complex will
be dependent on the release of the safeguarded Tunnel Wharf.”
(b) The Lisney advice:
February 2013
32.
Mr Michael Slater (Chairman of the Club and significant minority
shareholder) sought professional advice on the potential for the Club to
relocate from its existing stadium at the Valley to a new facility potentially
to be built on the Greenwich Peninsula. Advice was given by Lisney, Chartered Surveyors,
(“Lisney”), in a letter dated 13th February 2013. The advice was
said to be preliminary to the carrying out of a more detailed report. The
advice was based upon the Masterplan but also upon attendance at a meeting with
the Leader of the Council and its head of regeneration in January 2013, during
which the Council apparently emphasised the desirability of a stadium to be
constructed on part of the site. The purpose and function of the stadium from a
planning perspective was to provide a buffer between the safeguarded Victoria
Deep Water Terminal to the north of the site and development land to the south.
33.
A complication in any redevelopment of the site lay in the fact that a
part of the land was owned by Morden College. The college is a Christian-founded
charity established in the early 18th century, its purpose being to
assist elderly people by the provision of homes for independent and supported
living and residential care facilities. The freehold owned by Morden
College extended to 34.7 acres. Lisney, on behalf of the club, met with
representatives of Morden College and the Council in January 2013. During this
meeting the Council explained their intentions for the site and their hope that
a stadium would be constructed on part of the site. They hoped that the Club
would commence a dialogue with Morden College to see if there was a way to
advance the development with the construction of a stadium as an early step. Of
relevance was the fact that Morden College had leased the majority of the site
to Cathedral Properties (“Cathedral”) on a 50-year lease from 1994 and a
further part of the site to Hays Chemical Distribution Limited on a lease
expiring in 2037.
34.
One advantage
of the construction of a stadium on the site would be to release approximately
10 acres of land at the south of the stadium which the Council had identified
as suitable for a high-density river-front residential development. The
existing Valley site could also be brought into the deal and be used for social
and affordable housing. The summary to the advice given to the Club was in the
following terms:
“There is a very strong
relationship between CAFC and the Royal Borough of Greenwich and in my view it
is clear that the local Authority would like to see proposals brought forward
showing a relocation of CAFC’s ground to the site they have identified in their
master plan.
The local authority have made it
clear that if economically viable proposals are brought forward which show the
provision of a stadium that they are prepared to robustly defend their master
plan and may use other powers available to them including compulsory purchase
powers to ensure that their vision for the Peninsula becomes a reality.”
(c) Documents prepared for
prospective buyers: February 2013
35.
At around the time when the sale of the Club was being contemplated
(late 2012/early2013) various documents were prepared to provide information to
prospective purchasers. These included information about the possible
development on the Greenwich Peninsula. For instance in one document providing
general information about the Club, there is a description of the Council’s
plan to develop the Greenwich Peninsula site. It is stated that within the Peninsula there was the “Syral Site” and that the Council had made it clear that only if
CAFC was involved and the development included a new football stadium would the
Council support a change in planning status from the current low value
industrial status to the more valuable mixed residential/commercial/ leisure
status. The document stated:
“CAFC hopes to be able to
leverage this opportunity to get a new stadium built for the club free of
charge and then develop the land the existing stadium and training ground sit
on. The existing owners of CAFC would like to become involved at an early stage
of further developments of Greenwich Peninsula.”
36.
A more detailed document relating to the proposed development was
produced in about February 2013. One significance of this document is that it
was provided to the Claimant by the First Defendant during the meetings in Los
Angeles in September 2013 and therefore stands as a fair reflection of the
Land Deal that was being discussed. The document described the position of Morden
College as freeholder and the long leases that it had entered into. There is a
general description of the development potential of neighbouring sites. The
document described the Masterplan. In relation to the possibility of a new
stadium being located within the site the following is stated:
“The area of the proposed stadium
site is c.12 acres. Stadiums are difficult buildings to make work, the most
obvious fit for the stadium is as a football stadium with additional use for
concerts. The only club that could realistically use the stadium is CAFC as it
is in the heart of the core Charlton area and it would be political suicide for
the local council to build a ground to host another team. The Materplan
proposes a 40,000 seater stadium with the ability to increase the capacity.”
37.
The document later proceeds to set out three potential options. The
first would involve the Club acquiring the site from Morden College.
This option contemplated, in substance, the wholesale taking over of the entire
development at a cost of approximately £2 billion. The option postulates that
on such cost a profit of c£0.8 billion could be available. The second option entailed
the Club obtaining a stadium constructed for free and the mortgage on the
existing stadium being repaid. It is stated that the Club maintained a close
relationship with the Council and supported the Council in its belief that a
stadium as part of the overall development was viable. It is stated that the Council
could insist that Cathedral develop the site in line with the Master Plan. The
following is then stated:
“CAFC can make this more
palatable to Cathedral by offering its Existing Stadium to site a large
proportion of the social housing requirement. This would free up an additional
1.3 m sq ft of residential development for sale on the river, adding an
addition £245m profit to the development.”
The third option was that CAFC
would obtain a substantial fee to drop its interest in the site.
38.
It can be seen that a commitment to relocate into the Greenwich
Peninsula site could have unlocked a substantial development potential. However,
the realisation of this potential was contingent upon the Club and/or London
Borough of Greenwich agreeing terms with the freeholder and long-leaseholders.
In addition, detailed and complicated planning permissions would be required.
And, at least if option 1 was pursued, a total development finance of
approximately £2 billion would have had to be secured. If such a development
was to come to fruition it would have taken a considerable period of time.
(iv) The financial crisis
at the Club: 2012/2013
39.
As of 2012/2013 the Club had more or less exhausted its usual lines of
credit. A major obstacle to those involved in the Club, including in particular
the Defendants, becoming involved in the Greenwich Peninsula development arose
from the fact that in 2012 the Club’s finances were weak. The additional
revenue which the Club expected from promotion did not materialise and players’
wages had escalated. The Club was trading at a loss of approximately £5.5m per
annum. The Rose Trust declined to offer additional funding. It became clear to
the directors of the Club that it was in the best interest of the Club for it
to be sold. This meant that any future involvement in the Greenwich Peninsula development
would not be undertaken by the present owners of the Club but would, if there
was to be involvement at all, have to be undertaken by a new owner.
Whether or not the Defendants were able to retain an interest in the
development would therefore become a matter of negotiation during the
course of the sale process.
40.
As I explain below, the Defendants formed the intention to use the sale
of the Club as a lever to secure their continued interest in the Greenwich
Peninsula development post-sale. But of course, if the Club went into
administration, their ability to achieve this goal was severely prejudiced and
in all probability, fatally so.
(v) Potential
buyers of the club. The importance of “skin in the game”
41.
Michael Slater, a qualified lawyer and the Club’s Chairman, always had
at the back of his mind the prospect of the Club being put into administration.
Indeed, the documents reflecting the position at the end of 2013 indicate that
it was only the imminence of the sale to Mr Duchatelet in December 2013 that
held administration at bay (see eg the email at paragraph [62](vii) below). The
need for a quick sale was pressing. As 2013 progressed, potential buyers came
and went. In Summer/ early Autumn it appeared as if a sale of the Club coupled
to a Land Deal would be signed with the US investors Blackstone. However, in
mid-September 2013 a team from Blackstone came to the UK
to conduct due diligence. It became apparent then that the Blackstone team were
divided as to the merits of the transaction. And in fact they did in due
course withdraw.
42.
What is evident from the documentation is that the possibility of being
involved in the Greenwich Peninsula development was of interest to the
prospective purchasers. Mr Slater explained that the way that the team would
approach the buyer was to offer an equity stake in any future development deal.
It is his view that this was a “big selling point”. In his evidence he
explained how one Kuwaiti investor informed him that this would be a “very
attractive plus”. Another potential purchaser engaged in discussions with
Council. Mr Slater also referred in his evidence to the approach made, via an
agent, by one anonymous property developer who appeared more interested in the
development than the football club.
43.
The Defendants fully understood that it was their ability to leverage
their ownership of the Valley stadium that was the key to their being able in
the long term to have a seat at the negotiating table in any major development
on the Greenwich Peninsula. They therefore had to devise a vehicle which
enabled them to sell the Club but retain an interest in the stadium upon
completion. If they failed to do this then they handed all of their leverage
over to the new Club buyer.
44.
The basic model devised for the sale of the Club would leave the
Defendants “with skin in the game” following the sale of the Club to the
new owner. The sale would be implemented through a “Special Project Vehicle”
(“the SPV Ltd”). A draft SPV agreement was before the Court. The drafting of
the model was relatively straightforward. Boiled down to essentials the SPV
agreement with the new owner would commit that new owner (i) to a stadium
relocation and (ii) to dealing only with the Defendants in relation to
the implementation of the stadium relocation.
45.
Of course, to have a chance of retaining “skin in the game”
following the sale of the Club, the Defendants had to be in a position to sell
the Club as a going concern. And therein lay a major problem. As Autumn 2013
progressed, the club’s finances were deteriorating and a financial crisis
loomed. The need for short term finance was critical.
(vi) The September 2013
meetings between the Claimant and First Defendant
46.
This is the context to the meetings that occurred between the Claimant
and the First Defendant, Mr Jimenez, in Los Angeles on the 15th- 17th September
2013. This case turns in large part on what was or was not said during these
meetings. During cross-examination, the course of these three days was explored
and included such issues as the time spent in hotel lobbies engaged in
discussing the deal, which restaurants the parties went to for dinner, what
they ate, who they sat next to, whether Mr Khakshouri took notes during the
dinner, whether they visited the site of a project the Claimant was interested
in, etc. The subtext to this was to either establish or undermine the
credibility of the competing versions of Mr Khakshouri and Mr Jimenez as to
what was said (or not said). I must come to a decision about what was said. I
have set out my conclusions on the evidence in Sections D and E (paragraphs [75]-[117])
below. For present purposes it suffices to set out the competing contentions as
to what transpired as between Mr Khakshouri, and Mr Jimenez. Both individuals
gave detailed oral evidence in the course of this trial. Their respective
positions may be summarised as follows.
47.
Mr Khakshouri said that during these meetings he was persuaded to make a
loan of £1.8m to the Club because Mr Jimenez told him that he and Mr Cash were
the majority shareholders in and controllers of the club, that they were endeavouring
to sell the Club and that the Club needed a short-term loan to ease urgent cash
flow problems. Mr Khakshouri was however reluctant to advance the loan because
such cash as he had available was tied up in the LA Deal that was imminently,
on 18th September 2013, to complete and which was expected to be
highly profitable because he had acquired the development property at what he
considered to be an extremely good price indeed. In order to induce Mr
Khakshouri to advance the loan, Mr Jimenez explained that he and Mr Cash, as
the majority controllers of the Club, had put together a project for the
construction of a new stadium and adjacent mixed residential accommodation and
commercial premises on the Greenwich Peninsula. They would give to Mr Khakshouri
a share of their interest in the deal (i.e. the Land Deal) if he advanced the
Loan.
48.
Mr Khakshouri was ultimately persuaded to make the Loan because Mr
Jimenez promised and assured him that it was the Defendants’ intention, as
majority controllers of the Club, to make the Land Deal a certainty
by ensuring that the Club would not be sold without a property
development agreement being into place with a new purchaser. Mr Khakshouri knew
that what was being promised was no more than an agreement to secure a seat at
the table after the sale of the Club had been completed. But the
potential upside of the Greenwich Peninsula development project was very high
indeed, as the documents provided to him by Tony Jimenez during the discussions
demonstrated. Option 1 (see paragraph [37] above) contemplated a profit of
£0.8b. A slice of that pie- even small slithers- might be very lucrative
indeed. He knew however that for such a project to come to fruition could take
8 or 9 years.
49.
Mr Khakshouri is adamant that it was the express statements and
representations that Messrs Jimenez and Cash were the majority shareholders and
the fact that those two men, with whom he held a relationship of complete
trust, intended to ensure that the Club would not be sold without a
linked Land Deal that made him relent and agree to advance the Loan. The key
fact for him was that his two very close friends were controllers of the Club
and could ensure and guarantee that it would not be sold without the Land Deal
being put into place.
50.
Mr Khakshouri says that in direct consequence of, and reliance upon, the
representations being made to him he then sold part of his interest in the LA Deal
to his brother-in-law (Mr Isaac Cohanzad) and he used the proceeds to make up
£1m of the loan. The balance of 0.8m was then borrowed from his other
brother-in-law, Mr Fred Nayssan, and by drawing upon his other lines of
credit.
51.
It is not disputed that on 16th September 2013 Mr Jimenez
sent, by email, to Mr Khakshouri three documents which set out the details of
the Greenwich Peninsula development and described the options open to the
Defendants (see paragraphs [35] – [38] above). At a meeting on 17th
September Mr Jimenez took him through the proposed Land Deal. Mr Khakshouri made
detailed notes (which were disclosed and were in Court). That meeting lasted
about two and a half hours.
52.
For his part Mr Jimenez explained that in mid-September 2013 he happened
(perchance) to be visiting Las Vegas with his son and brother-in-law to see a
boxing match. He took the opportunity to invite Mr Khakshouri to invest and as
part of the investment to advance the required short-term loan. He says that
the three meetings that he had with Mr Khakshouri between 15th- 17th
September 2013 were essentially social occasions. In total the business
discussions lasted only about 30 minutes. It was all very simple. The Club’s
finances were in crisis. Mr Khakshouri was a very close and dear friend and he
wished to help out. Mr Jimenez stated that he could not recollect all of the
details but he was clear in his own mind about a number of matters. He says
that he explained to Mr Khakshouri that there might be a real estate
opportunity in relation to the Club and that the Council was keen to regenerate
the Greenwich Peninsula and would support a move by the Club to relocate its
stadium to the Peninsula. This was notwithstanding that the Club did not
currently own land in that area and there was no extant planning application or
permission. Mr Jimenez recalls that he described the deal in terms of its
potential and that, although it would be difficult to implement, if it could be
“pulled off” it could be very lucrative. He explained that he emphasised
that it might not materialize but that he would nonetheless be happy to include
Mr Khakshouri in the potential deal as a bonus for making the Loan to the Club.
In his witness statement Mr Jimenez stated as follows:
“67. I explained that it was our
intention to try and secure agreement from the purchaser of the Club that they
would in principle take part in the Potential Land Deal if it proceeded, which
was entirely true and is what we tried to do. I did not say that no sale of
the Club would take place unless the Potential Land Deal was in some way part
of the sale, since we could not foresee what would happen.
68. I recall that Darius was keen
on the 12% return but did not show any particular interest exploring the
details of the Potential Land Deal. He did not ask me to provide further
information about it, did not say he would need to do any due diligence before
making the loan (and indeed never showed any interest in doing so afterwards)
and did not ask to visit the site of the Potential Land Deal, either at the
time or on subsequent visits to London. Darius came to the UK
on at least two occasions after having made the loan. During these visits he
never expressed a wish to visit the site and never did so. My view at the time
was that he understood the speculative nature of the Potential Land Deal and
therefore feels the need to waste time looking at loads of detail, conducting
any due diligence, insisting the deal took centre stage in the loan
documentation or indeed even visiting the site.
69. I did not explain exactly
what role and interest Darius would have in the Potential Land Deal because the
project was still at such an early stage. However, I remember that I made it
abundantly clear to Darius that it was merely a potential project, with no
certainty whatsoever.
70. Although, as I have said, it
was my intention at the time that we would sell the Club to a buyer who would
be committed to the Potential Land Deal (financially and/or in respect of
moving the stadium in due course), and I explained that to Darius. I did not
say to Darius that the Potential Land Deal was certain to proceed because the
Club would not be sold without it. That would have been a ridiculous thing to
say, particularly to an experienced property developer, because it would have
been obvious to him that even if the buyer of the Club was committed (either
financially and in respect of moving stadium, or just in respect of moving
stadium) the project would remain very far from being a certainty. As an
experienced property developer, Darius was well aware that the Potential Land
Deal was in its infancy and would remain very far from being a certainty even
if the buyer of the club was supportive. The Summary Document which I had sent
him on 16 September 2013 also made this very clear.
71. In addition, I did not say
that a lot of progress had been made in the months since the Summary Document
had been produced or that we were certain that the Potential Land Deal would
proceed. We were not, and nothing I could have said could have given Darius, an
experienced property developer, any such impression. I did not provide Darius
with any details suggesting that any progress had been made beyond that. I do
not believe that in those discussions I said that [the Second Defendant] and I
were the controllers of the Club (and certainly did not go into details or
suggest our control was through direct or indirect shareholdings), although as
I have explained Darius had been aware for some time that we effectively
controlled the club. I did say that [the Second Defendant] was aware of and
supported the proposal that I had made to Darius.”
53.
On 20th September 2013 the Claimant advanced £1m to Charlton
Athletic Football Company Limited, the operating company of the Club, and on 23rd
October 2013 he advanced a further sum of £0.8m to the same company. The Loan
was subsequently documented by a written agreement dated 4th
November 2013 (“the Side Letter”- see paragraphs [57]- [59] below). The
borrower upon this occasion was specified as Charlton Athletic Holdings
Limited, the owner of the Valley. It is said that this company was, in fact, a
more secure counter-party for the Claimant.
54.
It is an obvious point, but nonetheless relevant to the analysis, that
the Second Defendant, Mr Kevin Cash, was not physically present at these
meetings in LA, though he was in regular telephone contact with Mr Jimenez. The
Claimant’s case against the Second Defendant relies upon the proposition that
the First Defendant was acting as the Second Defendant’s agent when he made the
impugned representations with actual authority.
(vii) The McGlynn
Restructuring Agreement
55.
I need at this stage to refer briefly to an unrelated transaction. The Defendants
relied upon an agreement concluded with Mr Neil McGlynn which was also designed
to assist to alleviate the Club’s cash flow difficulties. It is relied upon
because it is said that this was essentially the same arrangement that the Defendants
concluded with the Claimant and reflects how much of a “long shot” the Greenwich
Peninsula development was considered to be.
56.
Mr McGlynn had, pursuant to an earlier loan agreement, provided the Club
with a term loan facility of £3m in September 2012. As part of that arrangement
the parties granted to Mr Glynn 10% of such interest as the Defendants held in
the proposed Greenwich Peninsula development. The net effect of the new
agreement was to defer repayments of the loan. Under a heading “Development”,
at clause 4.1, the parties acknowledged that the “Development Parties” (i.e. in
substance the Defendants) were involved in “discussions with various
individuals and companies in relation to the Development but no terms have been
agreed or finalised at the date of this agreement.” In consideration for
the deferment of the repayments that Mr McGlynn was “… entitled to an equity
interest equal to 10% of whatever interest the Development Parties have in the
Development…” The clause goes on to make it clear that the interest being
conferred upon Mr McGlynn was contingent upon the development being carried
out. In his witness statement Mr Jimenez states the following in relation to
this transaction:
“79. The agreement specifically
provided that Neil would not have to pay for his shares or provide any finance
for the development if the Potential Land Deal progressed. Although we did not
go into that detail with Darius, this was essentially the same arrangement that
was envisaged with Darius and reflects how much of a long-shot the Potential
land Deal was considered to be, given that in return for relatively modest
short-term loans paying a generous return we were prepared to give away a
potentially valuable interest in the Potential Land Deal for nothing. If Neil
or Darius had become a shareholder in any development company then, as is
normal, each would have been expected to stand as a party to any guarantee or
indemnity required from shareholders as part of the financing that would be
required for the Potential Land Deal, but we were not expecting them to put up
their own financing.”
(viii) The Side Letter: 4th
November 2013
57.
As explained above Mr Khakshouri advanced the Loan prior to completion
of relevant documentation. Draft documentation was prepared by Mr Graeme Muir,
a colleague of the Defendants. He had not been involved in the negotiations
between the Claimant and First Defendant. He therefore necessarily prepared
documentation upon instructions from the First Defendant.
58.
The draft was sent to all of the parties, including the Claimant, for
comment. It is apparent and not disputed that Mr Khakshouri reviewed the
documentation and sent comments back to the Defendants about its drafting. The
documentation included terms for the Loan, and the Side Letter. The Side Letter
is an important document. Its terms, in full, are as follows:
“Dear Darius
CAFC Property Agreement
We refer to the recent loan of
£1,800,000 (the “Loan”) that you have provided to Charlton Athletic Holdings
Limited of which we are the majority shareholders.
As discussed and in consideration
for you providing the Loan, we have agreed to grant to you (or any other entity
that you may nominate) 30% of the Residual Property (as defined below) that we
hold in Charlton Athletic following the disposal of Charlton Athletic to a
third party purchaser (your “Interest”).
For the purpose of this Agreement,
the “Residual Property” shall mean any interest whatsoever that we hold in the
proposed property development deal for the construction and delivery of a new
football stadium for Charlton Athletic Football Club and other residential
property development at the Syral site on the Greenwich Peninsula in London.
We hereby undertake to hold your Interest
for you (or any other entity that you may nominate) on trust and to provide to
you with all and any profit (after the deduction of reasonable expenses and
government taxes, if any) whatsoever that derives from your interest from time
to time.
As trustees of your Interest, you
agree to allow us to decide how to deal with your Interest (provided always
that we deal with your Interest in exactly the same manner in which we deal
with our own 73% interest). Therefore, and for the avoidance of doubt, you
hereby provide us with permission to utilize and, if thought prudent by us,
dispose of your Interest in any way that we see fit. Our ultimate aim for your Interest
(as it is for our own interest is to maximise profit.
We trust that this letter
Agreement incorporates all the elements of our discussions. If you agree to the
above, please sign each copy and return one to us thereby making the contents
legally binding on all of us.
This letter Agreement shall be
governed by English law and the signatories hereto agree to submit to the
exclusive jurisdiction of the English Courts in case of any dispute.”
59.
It was signed by the Claimant and both Defendants. There is no
indication that the parties were acting other than in their personal
capacities.
(ix) Sale of the Club
60.
An approach was made to the Defendants in November 2013 by Mr Roland
Duchatelet with an expression of interest in purchasing the Club. Mr Duchatelet
is a Belgian national who already owned a number of European football Clubs.
Negotiations were handled by Michael Slater and Max Deeley and progressed with
rapidity. On the 17th December 2013 a Share Purchase Agreement
relating to the acquisition of shares in Baton 2010 Limited was agreed (see the
corporate ownership and control diagram at paragraph [28] above). There was an
intended completion date by 2nd January 2014. It is apparent from
the documentation before the court that, whilst Mr Duchatelet was interested in
the potential Greenwich Peninsula development, it was not an imperative
for him. As Mr Deeley put it in his witness statement, Mr Duchatelet “was
not fixated on it”.
61.
It is also clear from the written and oral evidence that there was a
divergence of view between the Defendants and others acting for the Club as to
the extent to which they could pressurise Mr Duchatelet into acquiring some
form of an interest in the Greenwich Peninsula development as part of an
agreement to sell the Club (i.e. a Land Deal). The view of those negotiating
directly with Mr Duchatelet, and in particular Michael Slater, was that this
would be counter-productive. So far as Mr Duchatelet was concerned, the Valley
was the stadium that the Club owned and would, on any view, be using for a
number of years, even assuming the construction of a new structure within the Greenwich
Peninsula development site. Mr Duchatelet was clear that acquisition of the Club
had to occur prior to the conclusion of the January 2014 transfer window. There
was therefore no time to consider complex property deals. To the extent that
there was any serious value in the Greenwich Peninsula development project, it
was something which could be addressed in the fullness of time. The view was
that Mr Duchatelet might respond to additional pressure to conclude a side
agreement i.e. (the Land Deal) by walking away completely.
62.
An exchange of emails between Tony Jimenez and Michael Slater shows just
how fractious their relationship became over this issue. Mr Slater was,
manifestly, not an enthusiast of a strategy of selling the Club only
with a Land Deal. The exchange provides context to the possible reasons why, in
the Side Letter, the Defendants represented (falsely) that they were majority
shareholders. Had Mr Slater been identified as a significant shareholder then
the picture presented to Mr Khakshouri would have been very different. It was
not suggested to Mr Khakshouri during the trial that, had it been presented to
him that Mr Slater was a substantial minority shareholder, and had Mr
Khakshouri then contacted Mr Slater, the Claimant would have obtained from him
any reassurance that a Land Deal could be guaranteed. The exchange is also
significant because it highlights an important factual reality, namely that, if
the Club was sold without a Land Deal, then the prospect of the Defendants
being able to retain locus after the sale “skin in the game” was remote.
It also highlights just how serious and acute the Club’s finances were at the
time:-
i)
Email 27/12/2013 (23:21:06) Kevin Cash to Max Deeley and Tony Jimenez: “Gents,
Tony and I had a chat this evening regarding the Greenwich peninsula deal. We
are worried that if we leave the agreement of this to after completion there is
a chance that it might not fall our way. He will be totally in the driving seat
and could dismiss any of our proposals. We need to address this now and we need
to decide who and how this conversation takes place. Michael Max you have the
dialogue with Roland so I think you’re best placed to suggest the approach.
Ideas thoughts please.”
ii)
28/12/2013 (14:20:01): Michael Slater to Kevin Cash and Tony Jimenez
with Max Deeley cc’d: “Given that Tony is denying that I had a conversation
with him in the hotel bar on Tuesday 17th to the effect that we
would deal with the Peninsula after completion because Roland wasn’t interested
in dealing with it that day, I feel compelled to give advice in writing so
there are no misunderstandings. If Roland walks away because we side track him
regarding the Peninsula, nobody is going to point their finger at me. Roland
isn’t interested in the Peninsula. He wouldn’t want to move. He made that clear
on 17th. He’s perfectly happy with the Valley and showed much more
interest in the previous planning consents to develop the ground. Max tells me
he said the same thing during an earlier telephone conversation. So we took the
view that the best thing to do was to exchange and get the deposit. I am 100%
sure that we did the right thing. How else would we have put money into the
club and Les Bordes this month. Having met and spoken to Roland many times now
I have a decent idea as to what he’s like. He will do a deal with us in
relation to the Peninsula on 31st January just as easily as 31st
December. Raising it now distracts him and us from the main challenge- RBS. In
any event, nobody but Max should try to deal with him regarding the Peninsula. I think it would be a big mistake to push this before completion. We’ve already
lost at least one (much bigger) deal because of things being said to buyers. We
can’t afford to lose this one.
iii)
28/12/2013 (14:40); Tony Jimenez to Michael Slater: “I have no such
recollection as to the conversation you say happened and neither does Kevin.
It’s somewhat odd that if I did, I would call you having already texted you
yesterday and specifically ask you to make sure it featured in the deal on completion.
My recollection was that it would be dealt with between exchange and
completion. You also both received an email from Graeme where this featured and
you have yet to reply to him on any of the matters raised. I immediately
called Kevin straight after our chat given that I didn’t agree with the
approach you were suggesting. I would have done that last week, let’s put it
down to lost in translation, but I feel very strongly that we should push for
this now. For the record, I believe we are in a much better position to agree
this property deal before Thursday when we have leverage and still in control
than once we have sold out and Roland has Richard Murray, The Community Trust
and potentially others suggesting other advice to him. If you don’t feel like this
should be raised by you or Max, as you clearly don’t, then we will need to
consider who else should. Thank you for the advice you’ve set out but we are at
liberty to take it or not, or try ourselves given that we are not prepared to
leave this to chance. This is a massive aspect of the deal for us and we don’t
believe it should be left for a discussion down the road. He may not even agree
to meet after completion. If he’s not at all bothered about it why would he care
now or in Jan about agreeing to entering into this? Your line earlier to me is
he won’t agree to anything on the peninsula now- well why would he later? Far
more chance now. So please let us have your comments as to how we achieve out
objectives and who should go into bat on that front.”
iv)
28/12/2013 (14:59:48) Michael Slater to Tony Jimenez, (Kevin Cash, Max
Deeley and Graeme Muir cc’d): “Tony, Your recollection (as you explained it
to me earlier) is that we did have this conversation but it was over the phone
yesterday. We didn’t. You don’t have a recollection. I do and mine couldn’t be
clearer. You haven’t met or spoken to Roland. Max and I have. It’s the middle
of the night in Sydney, so I don’t expect to have Max’s input for a few hours
but I would be amazed if his view was radically different to mine. You seem to
be assuming that we haven’t tried to put this onto the table. We have. He said
“no”. Anyone other than Max dealing with this now would be madness. Any deal
we tried to put in place now would (a) in effect be an agreement with
ourselves and (b) would most likely be so vague as to be unenforceable. Think
back to the WMG deal. To pursue in a meaningful way Max would have to persuade
him to vary the SPA to require him to grant us an option on the Valley. It will
never happen before 2nd January. We’re trying to remove hurdles not
put up new ones.”
v)
28/12/2013 (14:47) Tony Jimenez to Michael Slater: “Michael, Ben
Kensall issued an email earlier this morning about the press release in The
Daily Mail and the speculation I specifically replied to that saying we shouldn’t
respond until the deal was completed. You were copied into this email and yet
you have done this without consulting me. In future DO NOT issue any press
releases without running them past me !!!”
vi)
28/12/013 (14:57:35) Michael Slater to Max Deeley and Kevin Cash: “Kev,
You’re the only one he’ll listen to. Have a word asap please because he really
won’t like the next thing I say to him. We’re in a china shop. We don’t want to
let a bull in.”
vii)
28/12/2013 (15:01:24): Michael Slater to Tony Jimenez (Max Deeley and
Kevin Cash, Graeme Muir cc’d): “Tony, I don’t act for you”
viii)
28/12/2013 (15:45:42): Tony Jimenez to Michael Slater, Max Deeley and
Kevin Cash, Graeme Muir cc’d): “Michael, Do not issue anything without my
agreement at the football club again. You didn’t have any permission from Kevin
or I in this regard. You are behaving like a method actor who has believed the
role he is playing. If you don’t act for me then supply those who do with what
we’ve asked for immediately otherwise I shall be dealing with this by
instructing lawyers on Monday.”
ix)
30/12/2013 09:00: Michael Slater to Graeme Muir: “Graeme, The reason
you haven’t heard from us is because we’ve been very busy. I won’t bore you
with the details. I attach the SPA. After the celebratory drinks and
backslapping on 17th I’m puzzled by the implication that Tony may
not be satisfied and may scupper this deal by refusing to complete. Let’s not
forget that the only reason we avoided admin this month (and were able to
provide essential funds to Les Bordes) was because we exchanged and were able
to use the buyer’s deposit. Also let’s not forget that loads of people have
tried to sell the club but until now all attempts have failed. Incidentally
the fact that Tony isn’t personally guaranteeing the warranties in the SPA (as
he agreed to do on the WMG deal) isn’t a mistake. It’s the deal Max and I
negotiated. Warranty claims can only be made against the seller, a BVI SPV.
Also, there was no requirement for the deposit to be held by the solicitors
until completion. Hard to believe isn’t it? That’s how good this deal is for
the seller. There will be adjustments between the seller and RM over the
proceeds because he is owed £600k, although I’m pretty sure he will write off
£250k and only require a £100k adjustment on completion. Again, another really
good deal. I trust you’ll forgive me but I now need to focus on negotiating
with RBS which will probably then involve Max and me re-negotiating with the
buyer. This is of paramount importance.”
x)
30/12/2013 10:31: Graeme Muir to Michael Slater: “As far as
completion is concerned, Tony is as keen to complete as anyone. If you note my
words, I state that completion will not take place until Tony is satisfied with
the documentation- it is not unreasonable that Tony (as a major shareholder) is
happy with what is being entered into. Had he been provided with all the
documents earlier and been kept informed on a regular basis by you, we would
not be discussing this. I cannot see why there is any reluctance on your part
for disclosure. As you are aware, there are a number of issues that need to be
dealt with prior to completion. These also affect you- including ensuring that
all principals are protected in terms of their tax position regardless of their
jurisdiction. I have also been informed that there is an outstanding issue
regarding the Dutch tax authorities, which Tony wrote to you about on 23rd
December regarding a player at the Club. He has not had a reply. Please confirm
that this is a matter for the previous owner- Richard Murray- as it relates to
a time before Tony and Kevin bought the Club (2008). You will agree that
$129,000 is not an insignificant amount and needs to be dealt with. What is the
status on this? Was this taken into account when discussing what RM is owed?
Well done on the negotiations regarding the deposit and warranties, although
these are matters that Tony should have been informed about at the time, if not
before. Please ensure that all matters and correspondence from now on is copied
to Tony and I. Please advice Teacher Stearn to do the same. On that note (and
given the work you have been doing over the last few days), please can we have
an update when you can on where we are with RBS, etc. I would like to speak to
you later this afternoon when you have had your negotiations with RBS.”
(x) Post-Sale discussions about the stadium
relocation
63.
The sale to Mr Duchatelet completed on 3rd January 2014. The
sale was not linked to a Land Deal. Following completion discussions continued
with Mr Duchatelet to see if he remained interested in the “stadium swap”. A
meeting occurred between Mr Deeley, Mr Slater and Mr Duchatelet on 23rd
January 2014. For whatever reason, interest on the part of Mr Duchatelet
petered out. It had become clear by March 2014 that matters were not
progressing, and were unlikely to in the future. Standing back, and as a matter
of commercial common sense, it is hard to see why Mr Duchatelet would ever have
been interested in bringing the Defendants back into the fold after the Club
had been sold to him without a Land Deal. If there was to be some future
benefit in the Club participating in the Greenwich Peninsula development, then
Mr Duchatelet was capable of exploiting that opportunity for himself and without
the Defendants. Indeed Mr Cash and Mr Jimenez well understood this to be the
case as the email exchange set out at paragraph [62] above demonstrates.
(xi) Post-sale discussion
between the Claimant and the Defendants
64.
Mr Khakshouri states that on 7th January 2014 he received a
text message from Mr Jimenez that informed him that “the deal has been
signed, completed and announced but the football authorities haven’t rubber
stamped it yet…” The monies were due to “drop in” tomorrow. Mr
Jimenez explained that Roland Duchatelet was “completely straight and
professional and when he says we are done then we really are. It has been so
refreshing having someone like him at the end after all these time wasters.”
The text message from Mr Jimenez did not explain that no Land Deal had been
completed. Mr Khakshouri assumed that the sale of the Club had included a
Land Deal, just as Mr Jimenez had promised it would.
65.
Mr Khakshouri spoke with Mr Jimenez on the phone on 19th
January 2014, during which Mr Jimenez informed him that he planned to repay
only $2m of the Loan, even though the terms of the Loan provided the Loan would
be paid on the earlier of 31st December 2013 and the sale of the Club.
Mr Jimenez explained that he could only repay $2m as 40% of the proceeds of the
sale of the Club were deferred until May 2014 and a significant portion of the
residual 60% had to be allocated to redemption of the mortgage. He added that
the deferred payment in May 2014 would be further reduced if the Club was
relegated. He asked Mr Khakshouri to agree to the variation of the terms of the
Loan.
66.
In paragraph 63 of his witness statement Mr Khakshouri stated the
following about this conversation. His oral evidence was to the same effect:
“63. Tony then said that Mr Duchatelet was not interested in
“participating” in the Land Deal so that we had effectively “inherited” 100% of
the Land Deal to use his words. All we needed to do was to provide the Club
with a new stadium via the land deal. Tony made out that this was an incredible
coup. I of course was delighted. The clear implication in what he was telling
me was that the Land Deal was proceeding following the sale of the Club and
that the only thing which had changed was that we stood to take a 100% interest
in the Land Deal rather than the 50% previously indicated (with Blackstone).
What he did not tell me was (as I now know) that the sale of the Club had made
no provision for the Land Deal at all, as Mr Duchatelet was not at that time
(or indeed thereafter) interested in moving from the club’s current ground at
the Valley Stadium to the Greenwich Peninsula. I had no idea that the
defendants had decided not to make the Land Deal any part of the sale of the
club, as Tony had promised me they would, and he was in this call content to
give me the clear impression that the Land Deal had been part of the sale of
the club and so was very much on foot.”
67.
On 20th January 2014, the Claimant sent an email to Mr
Jimenez stating:
“Needless to say, I’m very happy
that you were successful in the timely sale of Charlton Athletic FC and that
you are in a position to be repaying me. I am also very appreciative and
thankful that you and Kevin included me in the “property deal” which you both
believe to have tremendous potential.”
68.
The £2m part repayment of the Loan was transferred into the Claimant’s
account on 22nd January 2014.
69.
On 5th February 2014 the Claimant signed a letter amending
the terms of the Loan.
70.
Subsequently there was a break in email communication between the
Claimant and First Defendant. Mr Khakshouri’s evidence was that there was no
need for communication because his approach was to permit the Defendants to “get
on with it” ie continue to work on their collective participation in the Greenwich
Peninsula development project.
71.
On 5th June 2014 the sum of $1,057,121.41 was paid to the
Claimant comprising the balance of the principal on the Loan and the accrued
interest to 2nd June 2014.
72.
On 21st June 2014 Tony Jimenez visited Los Angeles. On 24th
June 2014, he informed Mr Khakshouri that the Land Deal had not been secured
upon the sale of the Club. According to Mr Khakshouri Mr Jimenez explained that
the sale of the Club had happened extremely rapidly, the new owner was intent
on doing a deal “on the spot” and there was insufficient time for the
Land Deal to be concluded. Mr Khakshouri says that Mr Jimenez told him that the
Land Deal had been discussed and agreed. However, for a variety of reasons, no
Land Deal had been concluded and, although the deal was not “dead”,
there was no such deal “for the time being”. Mr Khakshouri explained
this was a “complete shock” to him. He asked Mr Jimenez how this had
come about. It was explained to him that the sale had been negotiated by Kevin
Cash’s professional team but that they had mishandled and mismanaged this important
part of the transaction. Mr Jimenez said Mr Khakshouri had no reason to be
upset or angry since his main objective and motive for lending the money to the
Club had been to help him and Kevin Cash out, because they were friends. The
transaction was “friendship based” and not “deal based”.
73.
According to Mr Khakshouri, Mr Jimenez suggested he speak to Kevin Cash.
A telephone conversation ensued on 17th July 2014. Mr Khakshouri
says that during that call Mr Cash acknowledged that, in order to be fair to
him, they needed to compensate him to take account of his lost opportunity. He
was asked to calculate the loss that he had suffered by pulling out of the LA
Deal in order to lend money to the Club. On 19th August 2014 the
Claimant informed Mr Cash that his losses were in the region of $2m and rising.
Mr Cash was “taken aback” by the figure. Mr Cash then explained to Mr
Khakshouri that, according to Mr Jimenez, the transaction was based essentially
upon the attractive interest rate attached to the Loan. The Land Deal was
nothing more than an “upside” for the Loan but had never been assured,
promised or guaranteed.
74.
There followed a series of increasingly acrimonious exchanges between
the Claimant and Defendants. In a text message exchange between Mr Jimenez and
the Claimant on 24th September 2014 Mr Khakshouri posed the clear
and unequivocal question to Mr Jimenez: “did you or did you not promise me a
land deal in exchange for the £3m that I gave you? That’s a yes or no answer”.
Mr Jimenez reply was “yes.” The full details of this exchange are set
out at paragraph [ 111] below.
D Deceit- First Representation: The Defendants had
majority control
75.
As set out in paragraph [7] above the Claimant alleges that 2 deceitful
representations were made. Mr Atkins for the Claimant stated that both had to
be established for Mr Khakshouri’s case to succeed. In the text below I
consider each representation separately.
(i) Did the First Defendant represent that he
and the Second Defendant were the majority shareholders in and controllers of the
Club?
76.
The first question concerns the allegation that the First Defendant
represented that he and the Second defendant were majority shareholders in and
controllers of the Club.
77.
In my judgment, the First Defendant, Mr Tony Jimenez, did
represent to the Claimant during the September 2013 meetings that he, along
with Mr Cash, were the majority shareholders in the Club. I thus find as a
fact that the representation was made. I make this finding upon the basis of
the high standard of proof required in fraud cases.
78.
Mr Leech QC (for the First Defendant) argued that I should pay attention
to the way in which the representation was pleaded by the Claimant. I do: Mr
Khakshouri pleaded that:
“Mr Jimenez said that he and Mr Cash were controllers of the
Club. Mr Jimenez said that he and Mr Cash controlled the Club by holding
indirect majority shareholdings in the companies which owned the business and
assets of the Club. Mr Jimenez also said that Mr Cash was able to keep his
interest in the Club opaque by holding his shares through a web of nominee
companies, each of which held less than 10% of the shares in the companies
which owned the business and assets of the Club."
(APOC, paragraph [4])
"The Defendants thus represented to the Claimant that
(i) they were the controllers of the Club and that, as such (ii)(a) it was
their intention to make the Land Deal a certainty (b) by ensuring that the Club
was not sold without it."
(APOC paragraph [7])
79.
The nub of the averment was, hence, that control over the Club was
vested in Tony Jimenez and Kevin Cash by virtue of their “holding indirect
majority shareholdings”.
80.
Mr Khakshouri’s evidence in Court was consistent with his pleaded case.
I set out below some illustrations from the answers he gave during cross examination
which reflected the clarity of his recollection:
(1) “Yes, he told me
that they were the legal owners, him and Kevin were the legal owners, and
that's how he assured me, or absolutely convinced me that the land deal would
be included in the sale.”
(2) “He categorically
stated that he was the legal owner, with Kevin, of the club. This is my word,
"control", yes, I used that word, but clearly what he stated to me on
those days in September was that he and Kevin were the legal owners of the
club.”
(3) “There were two key
elements: one, that he and Kevin owned the football club, and two, that he was
not going to sell the football club unless it included the land deal. So I'm
very clear about that and he very much promised and in no uncertain terms
absolutely told me that the sale would not be made unless it included the land
deal.”
(4) “I remember this detail is because Tony took the
time to explain how Kevin was actually holding his interest in the club through
a series of, you know, majority shareholdings, and, you know, indirect majority
shareholdings in the club, all less than 10 per cent.”
(5) “We were talking
about who the owners were and who controlled the club and who the owners were,
and the legal owners, the way he explained it to me was he and Kevin were the
legal owners, and that Kevin's shares were somehow in these less than 10 per
cent shareholdings and in the club.”
(6) “Q. So that's the
expression he used? He said that he and Kevin were the legal owners of the
club and controllers of the club?
A. “Yes. And the
majority shareholders.
Q. “Well it's not the
same thing, is it, to be the majority shareholders? You don't say
"majority shareholders" in this paragraph, do you?
A. “Well, I recall that
he did tell me that they were the majority shareholders and that was reflected
in the side letter which confirmed it to me.”
(7) “When I asked him if
Kevin knew about the conversations that we were having, he again repeated that
they were the majority shareholders of the club.”
(8) “I recall that he
did say they were the owners, that was for sure. As far as majority
shareholders, I -- I'm sure that that was also told to me and it was certainly
stated in the side letter, but to me it -- yes, that's -- you know, I took them
to be the owners of the football club, the legal owners of the football club.”
(9) “It was critical
because, like I say, I had two things to work on: that they did have the
control of the club and that they were not going to sell the club unless it
included the land deal. Those were the two pivotal, absolutely key elements to
why I loaned the money.”
(10) “And Tony had assured
me, as owner, and he and Kevin being the owners, they would be able to ensure
that the club wasn't sold without the land deal in place.”
81.
In oral evidence Mr Jimenez (in contrast to Mr Khakshouri) said the
following, about his recollection of events:
“I don’t remember speaking to him about … you see, this is
when it clouds for me. Darius’s recollection of what was said at specific
times, my memory isn’t that good. I can’t remember whether I spoke to him on 15th,
the 16th or the 17th about which items, because I saw a
lot of him. So for me to be specific, I would have to sort of embrace it
across a number of days rather than say I just spoke about that during that
dinner, and something else the next day. Unfortunately I haven’t got such a
clear memory of what happened four years ago.”
He accepted that in answering
questions he was trying to work out what he would have said, but he did not
recall what he had actually said at the time. In response to a question
from the Court to Mr Jimenez asking him whether he was: “…trying to work out
now what probably happened,” he responded “yes”. It is an obvious
point to make but any judge tasked with evaluating the weight to be attached to
oral evidence will be astute to the possibility that a witness, in the
pressured crucible of a court, will fashion his answers to fit his legal case,
consciously or unconsciously. And that risk is all the greater when the witness
acknowledges that in giving his evidence he is trying to work out and
reconstruct – some years later - what he would have said, and not simply
recollecting from memory what he did say.
82.
I am bound to accept Mr Khakshouri’s account. I find that the First Defendant
did make the representation alleged. There are six reasons for this.
83.
First, in choosing between the competing versions of the Los
Angeles discussions between 15th - 17th September 2013
I must accept the account of Mr Khakshouri. He was cross-examined for just
short of two court days. He was a calm and thoughtful witness throughout. He
gave an unwaveringly consistent account of events. He had a detailed
recollection and memory of what occurred during the meetings. He was described
by other witnesses (for the Defendants) as “meticulous” in his attention
to detail, a fact which was evident from many documents before the Court. He
demonstrated a command of the details of the documents. He did not seek to
argue around difficult points but accepted several propositions put to him
which were not entirely in his favour. His account was balanced. His version
of events, moreover, was consistent with both the documentary evidence and the
essential logic and commercial realities behind the case. To use the
vernacular his case “stacked up”. So far as Mr Jimenez was concerned,
he accepted, as set out above, that his memory of the details of the September
meetings was hazy. He had no clear recollection of who said what, where and
when. His answers to questions were, as he acknowledged, his attempt, some
years later, to work out what he would have said and his ability to answer
questions about specific documents or aspects of the financing of the sale of
the Club was often imprecise. In a number of critical respects (as I explain
in below), I also found his answers to be most unsatisfactory.
84.
Second, the account of Mr Jimenez changed significantly over the
course of the proceedings, and in particular from the early days of the litigation
when he denied making any representation at all about control (when his
memory should have been sharpest) to the later stages of the litigation when he
suddenly accepted that he did in fact make a representation about
control (but when on his own account his memory was at its least reliable).
In paragraph 11(5) of his Amended Defence Mr Jimenez explained that he had no
beneficial interest or direct or indirect shareholding in the Club (paragraph
[3]) and he denied representing “…he and Mr Cash controlled the club or that
… Mr Cash had an interest in the club”. Following disclosure, the Claimant
sought further and better particulars of the First Defendant’s averment in the
light of both the Side Letter and a letter from his solicitors which implied
that prior to the sale of the Club Mr Jimenez did exercise control (see
paragraph [89] below). Mr Jimenez responded (29th July 2016) saying
that the Side Letter was incorrect and the solicitor’s letter was “imprecise
and informal”. In his witness statement (4th August 2017) Mr
Jimenez again denied having told Mr Khakshouri that he and Kevin Cash were the
controllers of the Club, though he does state that he believed that Mr
Khakshouri would have been aware that “we effectively controlled the Club”.
85.
Under cross-examination Mr Jimenez changed his position. He now accepted
that the question of control was “for sure” material to Mr Khakshouri’s
decision to make the Loan. He was interested in control because “…Darius
would have wanted to know that he was going to get his money back”. He
accepts that he gave that assurance by reference to control. Mr Khakshouri says
that the need for clarity over legal ownership was because he needed certainty that
a linked Land Deal could be secured on sale of the Club. He did not accept that
the need for certainty over control was related to the repayment of the Loan.
But it suffices, for present purposes, that Mr Jimenez accepted that there was
a powerful reason for him to satisfy Mr Khakshouri about the control structure
and it follows that for both parties legal control / ownership was
an issue. Mr Jimenez’s evidence has thus been inconsistent on this key issue
throughout the litigation. By contrast Mr Khakshouri’s evidence has been wholly
consistent, to the point whereby Mr Leech QC accused him of having a “mantra”
which he kept repeating. If it was a mantra then it was because he was asked,
repeatedly, more or less the same question, to which he gave the same reply. A
mantra can simply be the truth consistently reiterated.
86.
Third, compelling corroborative evidence is found in the Side
Letter (see paragraph [28] above). This was drafted for the Defendants by
their own employees and colleagues upon the express basis that it accurately
reflected the discussions which had occurred between Mr Khakshouri and Mr
Jimenez during the September 2013 meetings. In it both Mr Jimenez and Mr Cash represent,
as fact, that they were the majority shareholders in the Club. These
express representations are consistent with the evidence of Mr Khakshouri. For
Mr Jimenez’s alternative version of events to be accepted: (a) I must find
that four senior executives on the Defendant’s side of the Court room (Messrs
Muir, Deeley, Cash and Jimenez), all of whom knew better, made a simple yet
glaring error when they (variously) drafted, approved and signed the Side
Letter; (b) once I have discounted and ignored the Side Letter I must then
proceed to prefer the account of a witness who on his own acknowledgement has a
serious difficulty in recalling what he actually said and what was said to him;
(c) I should then accept Mr Jimenez’s version of what he thinks he said
even though his account from the witness box was at variance with his position in
pleadings and in his witness statement, all signed by him; and (d), I must also
reject the consistently advanced account of a witness (Mr Khakshouri) whose
evidence was cogent and consistent with the underlying logic of the case and
with the documents. Viewed thus I do not find the First Defendant’s evidence
remotely convincing.
87.
Fourth, Mr Khakshouri’s evidence makes commercial sense. The
Side Letter makes it expressly clear that the Loan was in consideration for the
Land Deal. If the Land Deal was to be delivered, it is entirely credible that Mr
Khakshouri would have asked Tony Jimenez to guarantee to him how he was
to bring it about. If the answer had been merely “I will do my best but no
promises …” then that is a very far cry from “I promise to you that I
will ensure the coming into being of the Land Deal by refusing to sell the Club
without a Land Deal being in place”. Counsel for the Defendants argued that
there was very little between the parties and it was a question of “nuances”
only. I disagree. Even on the Defendant’s own best endeavours only case, they
were seeking to secure a sale of the Club simultaneous with securing
participation in a Land Deal which would survive the sale. They proposed to do
this through the joint SPV structure described at paragraph [44] above. I have
also set out above (paragraph [62]) the email exchange during which Kevin Cash
and Tony Jimenez both expressed the view that without a linked sale (the Land
Deal) they had no leverage at all. And they were right. For the Defendants to
remain “with skin in the game” (as it was put) they simply had to have
an agreement in place which outlived the sale of the Club. And they could only
do this through a linked Land Deal. There is also evidence before the court which
shows that as of September 2013 the Defendants were extremely confident that
they would secure a linked sale, i.e. a Land Deal (see eg the duration
of the evidence of Michael Slater set out at paragraph [114] below). It stands
to reason that Tony Jimenez would have been confident in putting to Darius
Khakshouri that he (and Kevin Cash) had the legal power to ensure that
the Club would not be sold absent a linked Land Deal. There was a sound
commercial reason why the first representation would be made, even on the
Defendant’s own case.
88.
Fifth, the identification of Messrs Jimenez and Cash as the
majority shareholders, and not anyone else, was also critical. The short
point is that a representation that it was Messrs Jimenez and Cash who jointly legally
controlled the Club was, in my judgment, the sole permutation of legal
ownership that would have satisfied the Claimant and induced him to make the Loan.
Had the representation been that other natural or legal persons or
entities (for example Mr Slater and/or the Cavansa Trust and/or a slew of
unknown Spanish minority shareholders) were in legal control of the Club then
the all-important personal dynamic would have evaporated from the equation.
There is a plethora of evidence to support this proposition. Mr Jimenez in his
witness statement said: “… our discussion about the loan was informal and
relaxed, it was a discussion between close friends, with Darius eager to help
and support. It was not like a business negotiation – Darius’s attitude was that
he was happy to provide whatever we needed, as he trusted Kevin and me totally”.
He repeated as much in oral evidence, as did Mr Cash. Mr Khakshouri also
considered trust to be pivotal. He was being invited to raise funds and lend
them on (more or less) 48 hours notice, with no documentation, and he did so because
of his personal relationship with the Defendants and their stated ability to
control the Club via their joint majority shareholdings. Mr Khakshouri
made this clear on multiple occasions in his evidence. For instance:
(1) “I was committed to
this project, the project being the land deal, the land deal being that, you
know, originating from the fact that the club wouldn't be sold without it, and
the people that could make that possible were the owners. The owners were Tony
and Kevin. So everything was, in my mind, lined up the way it should have
been, and so now we're generating paperwork and it's after the fact and I still
don't bring in an attorney and try to change anything because I trusted and
believed that we were all working towards that same goal.”
(2) “Yes, I asked him "Who is the owner of --
how is the club owned?" and he was very specific in telling me that, you
know, he and Kevin owned the football club. There wasn't anybody else involved
in this. I needed to know that I was loaning this money to Kevin and Tony, and
that there was nobody else involved and that it was -- that had to be very
clear in my mind because there was very little time. Very little time and no
documentation.”
(3) “That was part of it, but also I wanted to make
sure that, you know, Tony was telling me exactly -- when he was telling me that
they were the owners I was sure that that would be the same thing that I would
hear back from Kevin Cash if I needed to confirm that.”
I accept the evidence of Mr
Khakshouri.
89.
Sixth, it is also relevant that the Defendants repeated or made,
or at the least authorised the making or repetition of, similar
representations, including to third parties. The representations were that
either they collectively or Tony Jimenez on his own were majority shareholders
or owners. The following are contemporaneous illustrations:
i.
In July 2013 both Defendants were copied in on an email drafted by Mr
Deeley to a prospective purchaser of the Club which said that the First
Defendant “…owns 90% of Charlton Athletic” as he is “…the majority Shareholder
at Charlton Athletic controlling 90% of the share capital.” The
representation as to ownership was quite plainly false. This was just two
months prior to the meetings in September 2013 in Los Angeles.
ii.
In addition, there is an email from Mr Cash to Mr Jimenez and to Mr
Deeley in December 2013 which contains suggested answers to questions from a
potential purchaser of the Club which also states, again inaccurately, that the
First Defendant is the 90% controller of the Club.
iii.
In addition there is an email from the Defendant’s solicitor to the
Claimant sent on 30th January 2014 (after the sale of the Club) explaining
that the reason for switching the borrower on the Loan was that the Defendants
(i.e. Mr Jimenez and Mr Cash) “…no longer control” the Club. The clear
implication intended to be drawn was that Mr Jimenez and Mr Cash had been the
controllers, but were no longer.
iv.
This position was repeated subsequently in a letter from the Defendants
themselves to the Claimant’s solicitors dated 31st July 2015 where
the Defendants explained that the switch in the borrower was again because “we
no longer controlled” the Club.
(ii) Was the representation false?
90.
I turn now to the second question: Was the representation about majority
control false? The answer is that the representation was false. This
is now common ground between the parties. Neither Mr Jimenez nor Mr Cash are
shareholders at all. This is clear from the diagram at paragraph [28]. The
true position can be summarised very shortly.
91.
Mr Jimenez is one of more than 20 beneficiaries in the Cavansa Trust.
He is not employed by the trust and nor does he have any formal power of
attorney or other authority to act for the trust or bind it in any way. He did not
personally hold any shares in any company which directly or indirectly owned
shares in the Club. Mr Jimenez does have a position of informal influence in
the Cavansa Trust. He can bring projects to the attention of the trustees.
They might or might not proceed with such a recommendation.
92.
Mr Cash does not hold, nor has ever held, shares in the Club or in any
entity or company which directly or indirectly holds shares in the Club. He is
a beneficiary under a Letter of Wishes which governs distribution to
beneficiaries under the Rose Trust. The Rose Trust did not hold any shares in
the Club, directly or indirectly. It provided a loan facility of up to £8.5m
to CAFC Holdings (BVI). As of September 2013, that facility had been
exhausted.
(iii) Did the First Defendant know that the representation
was false or was he reckless as to whether it was true or false?
93.
The First Defendant knew that the representation was false. In cross-examination
both Defendants accepted that the representation was false.
94.
In advancing any sort of justification for this conduct the
Defendants are in the obvious difficulty that it was their case throughout that
no such representation had been made at all so to articulate any sort of
a good faith justification is problematic. What do the Defendants therefore say?
95.
First, they argue that the Side Letter of November 2013 is irrelevant
because it post-dates both the date upon which the representation was alleged
to have been made (September 2013) and the date of the making of the Loan
(September/October 2013). But this argument does not withstand scrutiny since
it was drafted and signed by them and their team upon the express basis that it
was a fair and accurate reflection of the discussions between Mr Jimenez
and Mr Khakshouri in September 2013.
96.
Second, they argue that the representation made in the Side Letter was
an unfortunate mistake. What they intended to say was that they were “stakeholders”.
This is untenable. If it was merely an honest mistake it was one made by four
individuals all of whom knew better. The argument that this is a coincidence
also does not stand up to serious scrutiny. Mr Graeme Muir had the
responsibility for preparing the initial draft of the Side Letter. He
necessarily drafted it upon the basis of instructions given to him by Mr
Jimenez. It was intended to reflect the substance of the meetings between the
Claimant and First Defendant in September 2013. Mr Muir did not give evidence.
But the other witnesses accepted that he was aware that Mr Cash and Mr Jimenez
were not shareholders, direct or indirect, in the Club. Mr Muir sent a draft of
the letter of agreement to Mr Max Deeley. He is a chartered accountant. He was,
and remains the in-house accountant to the Rose Trust. He has worked closely
with Mr Cash. He knew that Mr Cash was not a shareholder. He knew that Tony
Jimenez was not a shareholder. In evidence he explained that Mr Muir sent to
him a draft in order to provide wording to describe the potential Land Deal. Mr
Deeley reviewed the draft agreement and plainly knew that it represented that
Mr Cash and Mr Jimenez were shareholders. Mr Deeley is silent about this in his
Witness Statement. He does not explain whether he raised the error with the two
Defendants. And the Defendants of course signed the Side Letter.
97.
Third, the Side Letter was an important document not to be signed
lightly or without due care and attention. Mr Jimenez described the Land Deal
as “massive”. This is not the sort of document that four immensely
experienced businessmen would make a silly error about. It affected the
involvement of both Defendants in a potentially important venture and it also
affected the sale, and saleability, of the Club which was an issue of urgent concern
to both Defendants. Both Defendants reviewed the draft of the Side Letter. The
document is short and a review would have taken minimal time and effort. The
error in question is stark and is contained in the first sentence thereof.
98.
I therefore conclude on the evidence before the Court that the First
Defendant made the representation untruthfully, knowing that it was false i.e. it
was a deliberate lie. I deal with the position of the Second Defendant at
paragraphs [199 ff].
(iv) Did the First
Defendant intend the Claimant to act in reliance upon the representation?
99.
If a false representation is deliberately made then there is a strong
presumption that it is intended to be relied upon (see paragraph [20] above).
In the present case I am sure that Mr Jimenez made the representation because
it was necessary to induce Mr Khakshouri to make the Loan. Mr Khakshouri was a
property developer, not a lender. He would not have agreed to lend the money
had it not been represented to him by two men he trusted that they,
collectively, could guarantee that they controlled the Club so that, in due
course, they could ensure that the Land Deal was brought into effect. This was
Mr Khakshouri’s clear, and oft-repeated, position in evidence.
100.
Although it is not strictly relevant to the analysis, I should add (for
the sake of completeness) that it was not put to Mr Khakshouri that he would
have adopted the same position had he known that Mr Slater was a significant
minority shareholder in the Club. Mr Khakshouri did not have a personal
relationship with Mr Slater. Moreover, as I set out in greater detail above, there
was no inevitable community of thinking between Mr Jimenez and Mr Slater as to
the mechanics or modalities of the sale of the Club. In particular, they
disagreed fundamentally as to the necessity of linking the sale of the Club to
the Land Deal. Had Mr Jimenez represented to Mr Khakshouri that the Chairman,
Mr Slater, was a shareholder and had Mr Khakshouri then contacted Mr Slater to
obtain comfort, then there is no guarantee at all that Mr Slater would have
conveyed the same message to Mr Khakshouri as had Mr Jimenez.
(v) Arguments
advanced by the Defendants.
101.
I should, for the sake of completeness, set out the main submissions of
the Defendants. During the course of the trial a variety of points were
advanced. I will refer briefly to three such points.
102.
First, it was argued that the sole motivation for the Claimant to
advance the Loan was the high interest rate payable thereupon and the Land Deal
was, for the Claimant, very much a secondary “bonus”. This argument was
not supported by the evidence. For Mr Khakshouri the possibility of entering
the Land Deal was pivotal; and the Defendants’ argument is expressly contradicted
by the Side Letter, which was drafted by the Defendants and their team, and which
expressly states that the Loan is in consideration for the Land Deal i.e. the
two were inextricably linked.
103.
Second, it was argued that the Claimant had been largely responsible for
drafting the Loan and the Side Letter documentation and that the absence of any
express reference to a conditional Land Deal in either was deliberate (because
it did not exist) and this undermined the Claimant’s case. As to this, as the
evidence plainly shows: (i) it was the Defendants and their colleagues who were
responsible for preparing the documentation relating to the Loan and the Side
Letter; and (ii) the Side Letter is not inconsistent with the Claimant’s case
since the second paragraph thereof is drafted in a way which contemplates and
presupposes that the Defendants would still have an interest in the Greenwich
Peninsula development plan “following” the sale of the Club to a third
party purchaser, which is the gravamen of the Land Deal.
104.
Third, it is said that a draft letter that had been prepared by Mr
Khakshouri with the intention of it being sent to the Defendants setting out,
in emotional terms, why he felt so badly let down by them and why they should
compensate him, did not refer to the conditional Land Deal or any statement
that the Defendants controlled the Club through a majority shareholding. Mr Leech
QC invited the Court to conclude that from this omission I should draw the
inference that if such a conditional deal had been agreed it would have been
referred to in this letter. He argued that this draft letter was more
probative than the Side Letter. The draft was in fact never sent to the
Defendants. It was composed circa October - December 2014, following the
revelation to Mr Khakshouri by Mr Jimenez in June 2014 that in fact there was
no Land Deal and in the light of some and bad-tempered conversations occurring
subsequent to that revelation during which the Defendants had roundly and
personally criticised the Claimant. The letter was, quite obviously judging by
its terms, drafted by Mr Khakshouri in a fit of anger and indignation. It only
came to light when Mr Khakshouri referred to in cross-examination. It was then
disclosed and Mr Khakshouri was questioned about it. He explained that instead
of sending it to the Defendants he had sent it to his lawyers to act as a form
of briefing paper when he sought advice about a possible claim. The letter
comprises 22 pages of single spaced text. On a number of occasions it refers
to the Land Deal and makes plain that it was the quid pro quo for the Loan.
For instance, on page 12, Mr Khakshouri wrote: “You had convinced me that
you would successfully sell CAFC and be in a position to repay me all my money
(plus interest) before the end of the year (2013). You also guaranteed, assured
and promised me that there would be a land deal opportunity attached to the
sale of the CAFC of which I would be allotted a 30% share. You made it very
clear to me that you were in control of the land deal and that you would make
sure that you were assigned and granted the interest you were seeking in the
land deal through the sale of the club”. I can find no support for the
Defendants’ position in this document. It is consistent with the Claimant’s
interpretation of the Side Letter. In so far as documentary evidence
significantly post-dating the actual events in issue is relevant, this document
supports the Claimant’s case.
(vi) Did the Claimants
suffer loss in consequence of the representation?
105.
I address the issue of loss and damage at section G below.
E Deceit- Second
Representation: The Club would not be sold without a Land Deal
(i) Did the First
defendant make the representation?
106.
I turn next to the second alleged representation. The second
representation concerns whether the First Defendant promised to ensure
that the Club would not be sold without a linked Land Deal. Mr Khakshouri is certain
that such a promise was made to him about the intention of the Defendants. Mr
Jimenez says that, whilst he was very keen on securing a linked Land Deal, his
representation to Mr Khakshouri was no more than that he would use best or reasonable
endeavours. He had no intention of ever ensuring that such a Land Deal
would come about and he made no such promise.
107.
I should start by saying a word about “intentions”. It is not in
dispute that in law an intention to do something may be actionable in deceit because
it is capable, in principle, of incorporating a representation about a fact,
namely the state of the representor’s mind. It is common sense that intentions
may come in many shapes and sizes. A “present” intention may be
ephemeral and change overnight. A firm intention to do “all that one reasonably
can” is not an intention to guarantee or ensure a particular outcome. Nor
is an intention to use “reasonable “or “best” endeavours. In this
case the Claimant’s case is that the intention expressed by Mr Jimenez was firm
and unequivocal. The Defendants would ensure that the Club would not
be sold absent a Land Deal. That was the representation which induced the Loan.
On the facts of this case, however, the evidential dispute between the parties
is not about the Mr Jimenez’s intention. This is because his case is that he
only ever promised to use best endeavours and this necessarily meant that he never
had any intention of “ensuring” linkage.
108.
It follows however that if I find as a fact that Tony Jimenez did
make the representation that is alleged that he made he does not, indeed
cannot, argue that he did make the representation alleged but it was
only a present intention, or one to which only reasonable or best endeavours
attached and that he (a) (quite legitimately) changed his mind or (b) did use
reasonable or best endeavours.
109.
In my judgment I accept the Claimant’s account. I find as a fact that
the First Defendant represented that he and Mr Cash, (qua majority
shareholders), would ensure that the Club would not be sold without “a”
Land Deal of some description. My reasons for this conclusion are as follows.
110.
First, I simply accept Mr Khakshouri’s evidence. I have set out various
portions of Mr Khakshouri’s evidence at paragraph [80] above in which he states
that this representation was made. I set out below a selection of further
answers he gave to questions put to him in cross-examination about this matter:
(1) “A. He did tell me that he wasn't going to sell the club
unless it included the land deal.
Q. That's not quite the question I asked you, Mr Khakshouri.
A. Sorry.
Q. The question I asked you was whether Mr Jimenez actually
used those words. (Pause).
A. Yes, pretty much those words. Yes.
Q. Well -- A. I mean, not word-for-word -- yes, those
words. Q. He did use those words?
A. Yes.
Q. And you can remember him using those words even though
it's four years ago now?
A. I had to be pretty certain that what he was saying was
that, yes. I mean, I was -- I am certain that that's what he said, yes.
Q. On that occasion?
A. On that occasion.
(2) “The land deal was a key part of the transaction because
there was no reason for me to actually lend the money unless there was going to
be a land deal, and the land deal had to be for sure, and I needed to be sure
about that and that's -- you know, I proceeded on that premise.”
(3) “I -- like I said before, Tony stated to me in no
uncertain terms that the sale of the club would include the land deal.”
(4) “Yes, obviously for the fact that they owned the club
they would be able to ensure that when the sale takes place it would or would
not include the land deal, and of course they promised me that it would include
the land deal, and so that's how they would ensure, or it says here, secure our
interest.”
(5) “There were two key elements: one, that he and Kevin
owned the football club, and two, that he was not going to sell the football
club unless it included the land deal. So I'm very clear about that and he
very much promised and in no uncertain terms absolutely told me that the sale
would not be made unless it included the land deal.”
(6) “No, at that stage we weren't talking about a joint
venture. He simply stated that when he sells the club we would have an
interest in the land deal. In the -- you know, in the land deal because the
sale of the club would include the land deal. He didn't detail the joint
venture or anything like that.”
(7) “No. No. No, not persuade the club, because whoever was
going to be the buyer was going to agree to the sale -- to purchase the club
with the land deal intact so that, yes, they would be agreeable to moving the
stadium, so that had to be in place.”
(8) “No, there were going to be obstacles, but there was
going to be a land deal at the end of it all, meaning that at the time of the
sale there was going to be the prospect of a land deal.”
(9) “My risk was -- yes, this was the risk of the project,
but what I wasn't risking is the fact that Tony had told me that he wouldn't
sell the club without including the land deal.”
(10) “As I stated before in my witness statement, there were
going to be obstacles, but there had to be a land deal. When the club was to
be sold, there had to be a land deal for us to proceed with.”
(11) “Well, this document may be saying that. As I
understood it, Tony was giving me the most up-to-date and most current
information, and the information he provided me with was, like I say, I mean,
in the notes that I took on 17 September, so those notes were more relevant to
me and very compelling, very -- I was very -- I was somewhat convinced - well,
not somewhat; I was very convinced that there was a land deal and that this
project was going to proceed.”
(12) “But my goal, again, was always to trust in Tony and
Kevin, and when Tony told me that this was a wonderful opportunity, a great
opportunity, and that he could for sure include the land deal when he sells the
club, that convinced me, that was what I needed to know and needed to
understand.”
(13) “He gave me this document on 16 September and then
talked to me on 17 December. We had a long discussion, lengthy discussion, and
at that point it was already understood that the land deal was going to be a
certainty, it the only reason we were discussing the land deal.”
(14) “Q. Do you suggest that he said that to you again on 16
or 17 September?
A. I know that he said that definitely on the 16th, because
by that point I had to -- you know, it was a very short time, and I had to
start making a decision, and I needed to have known that in order to proceed.”
(15) “I had left that to Tony and Kevin. I didn't know
exactly the mechanism of the -- I didn't know exactly what they were going to
incorporate with the new owner in terms of the mechanism or structure, but I
-- I believed that they were going to protect our interest and enable us to
proceed with the land deal.”
(16) “Well, there was two things. Like I say, he absolutely
assured me that there was going to be a land deal when the club was sold. So
now there's no land deal, so yes, I was upset, very upset. I didn't know
exactly the terms and conditions of the land deal, in other words, how they had
been agreed, but I understood that there was a land deal, in other words, the
new owner was agreeable to moving Charlton Athletic to a new stadium and that
we would be able to proceed with working on the land deal and providing for
that situation.”
(17) “He told me that the club would not be sold unless there
was a land deal. There was a clear indication to me that there was going to be
a land deal regardless, no matter what, and that was the only way that he was
going to sell the club, and that was -- that's what satisfied me.”
(18) “I didn't really consider that that was an option
because that's not what we were talking about. At the time that we talked,
well, Tony was explaining he was very select and very careful in telling me
that the club would not be sold without the land deal in place and that we
would be able to proceed with the project. That was really the plan and that's
what we were discussing throughout the time that he was in Los Angeles.”
(19 “I was only going to give that up knowing two things:
that one, Tony and Kevin owned the football club, and; two, that they would
only sell the football club with the land deal to be included. I was very
clear on those two items. There would be no way, as an experienced developer,
that I would give up something on the off-chance that there might, or somebody
might try to make a deal that might happen. I mean, it's just --that's just
not the way I do business.”
(20) “Q. So when he said to you, "I will not ..."
assuming he used words, or something like these words, "We will not sell
the club unless the new owners of the club enter into the land deal",
"the sale of the club will include the land deal", let's focus on
that, let's use that formulation, if we can agree, because it's one you've used
a number of times, "the sale of the club will include the land
deal". First of all, do you accept that that's a fair way of describing
what Tony told you?
A. The club would not be sold.
Q. Without including the land deal?
A. If the land deal was not included, yes.
Q. If the land deal was not included. Okay, so when he said
that, you took that to mean that he would under no circumstances sell the club
unless the land deal was included?
A. Yes.
Q. And if the new purchaser simply said: no, I will not
sell -- will not enter into the land deal, whatever that was, but I will buy
your club, he was bound to refuse to sell the club altogether?
A. That's what he presented to me, because for him also, and
for Kevin, the land deal was all-important and they weren't going to sell the
club unless it included the land deal.
Q. So in your mind it was an absolute assurance that the
club would simply not be sold unless the land deal was included?
A. Yes.
Q. And even if it involved you -- him being unable to repay
your loan?
A. Well, at the time they had -- they were actively trying
to sell the club. Tony didn't present to me that there was any major difficulties
in selling the club; he had a very strong buyer for the club that had a very
good understanding or appreciation for the land deal. Yes, I -- and the fact
that Tony was asking for a very short term loan gave me the idea that this was
just a matter of time, and that's what he said to me. He said: I just need
this money to hold me over while I sell the club.
Q. You knew at the time that there had been no -- there was
no identified purchaser and no agreement with the purchaser when you were
speaking to him on 15 September, didn't you? You knew that he had Blackstone
in mind but that Blackstone had not signed up. That's the position?
A. Yes, he did not present to me that he had a signed
agreement with Blackstone.”
111.
Second, in a text message exchange between the Claimant and First
Defendant on 24th September 2014 Mr Jimenez described the Claimant
as being “like a broken record”. The exchange is of some significance.
Mr Khakshouri invited Mr Jimenez to confirm whether he had “promised”
him a Land Deal in exchange for the Loan. Mr Jimenez said “yes”.
“9/24/14, 7:05:51 AM: Tony Jimenez: Darius, you are like a
broken record. You were promised to be in a specific property deal with no
downside but you knew we were intent in selling the football club. You also
knew we had several prospective buyers for the club and that the property deal
would need to be negotiated. What we gave you, and by the way you drafted a
great deal of the documentation was a personal guarantee of all your money back
with a 12% coupon. That was your downside and your upside could have been huge.
I would love you to offer me that deal every time you need money. Now if you’ve
been so hard done by, why were you complaining that Kohler wouldn’t let you in
his fund at 8%. You were devastated at the time. Also Darius you told Kevin and
me that the buildings you did in Sawtelle generated a 5% return. Every
investment is a gamble yet you had no gamble. A total guarantee. You don’t stop
complaining on a perceived deal that hasn’t generated a single dollar yet. You
don’t like to use other examples that didn’t go so well. How about losing the
architectural plot, how about losing the YMCA building, how about having to
sell Pico. Every single deal you do there are recriminations Darius. You really
don’t need to stop this behaviour. You are right, it is humiliating and you
should be far better than what you are presenting here.
9/24/14, 8:22:26AM: Dar: Tony just answer the
question. Did you or did you not promise me a land deal in exchange for the $3m.
that I gave you? That’s a yes or no answer.
9/24/14. 8:30:00AM: Yes. Now answer my questions
Darius. What I’ve said above. Point by point please.”
112.
The Claimant was indeed like a “broken record” but the
consistency of an account over an extended period of time is one indication
that the author feels strongly that his version is the true version of events.
Such a person may, of course, be genuinely mistaken but the genuineness of a
belief is nonetheless some proof that it is true.
113.
The affirmative answer from Mr Jimenez, namely that he had promised
a Land Deal, is consistent with the first part of the text in which Mr Jimenez,
again, acknowledged that the Claimant was promised to be in a specific property
deal with no downside. In my judgment this exchange reflects the First
Defendant’s frustration with the Claimant taking a legalistic view of life as
opposed to a more pragmatic, commercial, win some/lose some, approach. Whilst I
understand Mr Jimenez’s frustration, his answers confirm the Claimant’s account
that the First Defendant had promised him that he would be in a “specific
deal” i.e. the Land Deal.
114.
Third, the linkage of the sale of the Club and the Land Deal was, at all
times, a very real possibility. It is entirely credible that the Defendants
would offer this linkage. Mr Slater, who was intimately involved in
negotiations over the sale of the Club, felt able to say in his Statement:
“…we never doubted that we
would find a buyer who would not, at the very least, agree to move the Club to
a newly designed stadium.”
The evidence before the Court
supports the proposition that the possibility of being involved in the erection
of a new stadium on the Greenwich Peninsula was a major selling point for the
Club which otherwise presented as an escalating financial problem.
115.
Fourth, Mr Khakshouri’s evidence is consistent (and certainly not
inconsistent) with the Side Letter, which proceeds upon the premise that following
sale of the Club the parties will still have “skin in the game”. This could
only be ensured through a Land Deal.
(ii) Was the
representation untruthful?
116.
I can deal with this point briefly. The Claimant says that, since at
the time the representation was made, the First Defendant had no intention of
granting linkage his representation was therefore false. Mr Jimenez has never
said that he ever intended to ensure or guarantee a Land Deal. Since I find however
that he did make such a representation or promise, I am bound to find
that the promise was false and untruthful when made and, obviously, deliberately
so. In any event all of the evidence points in this direction.
(iii) Did the First Defendant intend the Claimant to
act in reliance upon the representation?
117.
There is no doubt that Mr Jimenez made the representations intending them
to induce Mr Khakshouri to rely upon them and make the Loan and that they were
in fact relied upon by Mr Khakshouri. I rely upon the facts and matters
referred to at paragraphs [80] and [110] above.
F Conclusion
118.
In conclusion the First Defendant is liable to the Claimant for deceit.
G Vicarious liability of the
Second Defendant
(i) The issue
119.
The case of the Claimant is that Mr Cash, the Second Defendant, is
vicariously liable for the conduct of the First Defendant. The case is put upon
the basis of actual (not ostensible) authority. Mr Cash was not present during
the September 2013 meetings but he had given Mr Jimenez actual authority to
negotiate on his behalf. The Second Defendant however denies that he gave
actual authority to the First Defendant, who he says was acting on behalf of
the Club, but not him. Alternatively, he argues that his involvement in the
transaction was in any event on behalf of the Rose Trust, which is therefore
the proper Defendant, and (once again) not him personally.
(ii) The Claimant’s case
120.
The Claimant’s case is that Mr Cash was aware that Mr Jimenez was going
to the US and would meet or speak to Mr Khakshouri about making a loan and that
in consideration for the Loan Mr Khakshouri was to be offered the Land Deal.
Mr Cash left it to Mr Jimenez to agree the terms of the Land Deal, whatever it
might be. He also authorised Mr Jimenez to offer to Mr Khakshouri a percentage
of the Land Deal (be that an equity stake in a SPV or in some other appropriate
form). Mr Cash knew that, in conferring authority upon Mr Jimenez to agree
terms with Mr Khakshouri, any interest that he personally would otherwise have in
the Land Deal could be diluted materially. Subsequently, Mr Cash signed the
Side Letter confirming that he had given express authority to Mr Jimenez to
negotiate the deal with Mr Khakshouri. The representations made by Mr Jimenez
were squarely within the authority conferred by Mr Cash. They were necessary to
persuade Mr Khakshouri to enter into the Loan which kept the Club afloat and
enabled him and Mr Jimenez to pursue the Land Deal which was for their personal
benefits.
121.
Mr Atkins questioned Mr Cash about this. There was – as it turned out- no
significant dispute between them over the position:
“Q. Can you put away file E1. I just want to talk to you
briefly about Tony’s visit to see Darius in LA. I know you weren’t there, but I
think I’m right in thinking the following: firstly, you knew that Tony was
going over to LA to try and persuade Darius to make a loan to the club;
correct?
A. I knew that – I knew that Tony was going to talk to
Darius. I didn’t know he was going to LA to see him.
Q. Right, I see. But you knew that he was going to talk to
Darius about getting a loan for the club; correct?
A. Yes
Q. And you knew that Tony was going to offer Darius a share
of your interest in the property deal if you could make it happen?
A. Yes.
Q. In order to get the loan?
A. Yes.
Q. Yes. And you knew that there was likely to be some
negotiation between them about that; yes?
A. No.
Q. You didn’t know that?
A. No. I had – I had a simple call with Tony who – the club
clearly needed money.
Q. Yes.
A. He mentioned that he was going to talk to Darius and others
regarding this, and he asked me if we were okay if we offered Darius part of
the potential property deal—
Q. Yes.
A. – as part of him making a loan to the club.
Q. Right. So Tony asked you that before he went?
A. Yes.
Q. Right. And so you knew he was going to offer you part of
the interest you and Tony would take in the land deal if it happened, as an inducement
for the loan?
A. I knew he was going to ask Darius if he wanted to get
involved in the potential property deal.
Q. Land deal, right. But you didn’t discuss with Tony the
amount of the interest you were willing to share with him?
A. No. Tony called me afterwards and said it’s probably going
to be 30 per cent.
Q. 30 per cent.
A. And we were fine with that.
Q. But you left that up to him?
A. Yes. I should just add that – one thing, my Lord, if I
may.
MR JUSTICE GREEN: Of course.
A. Everybody’s talking about this potential property deal and
who’s got what shares as if that’s how its going to end up, the reality of it
is, the best position we were ever going to be in would be promoters of that
deal with a shareholding with the club, or whoever, to promote that deal. The
eventual shareholding of a project of such a size would have changed
dramatically from what we were talking about, and what we were really offering
here was whatever share we ended up with, the Rose Trust and Cavansa Trust, we
were willing to share that with Darius, but that did mean that there would be,
in order to stay in at sort of pari passu, as that moved up the line of the
cost curve, everybody would have to either pay into that situation or be
diluted by funds as they came in through the capital structure.
So its – I know earlier you sort of made a point that it was
such a big inducement. Its actually – it was the opportunity to have an
opportunity, is what I’m trying to say.
Q. I accept that. I know what the letter says. We’ll look at
it in a moment, actually, but the point is that you knew when – that Tony was
going over to LA to try and persuade Darius to make a loan to the club and you
knew that to persuade him to do so he was going to offering Darius a share of
the interest, whatever it would be in the end, that you and Tony would take in
the deal; yes?
A. Yes.
Q. And you didn’t discuss with Tony how much he was going to
offer him; you left that up to him to negotiate?
A. Yes.
Q. Right
A. He came back to us and said: we’ve offered Darius 30 per
cent, are you okay with it? And I said: we’re okay with it.
Q. You’re okay with it, right. Did the trustees of the Rose
Trust know that Tony was going over to LA to share the interest - -?
A. No, but I did talk to them thereafter for the decision on
the 30 per cent”
122.
This exchange shows: that Mr Cash knew that Mr Jimenez was going to
meet with Mr Khakshouri with a view to securing a loan to the Club; that the
Club needed funding; that the Land Deal would be part of the discussion; that a
portion of the interest that Mr Cash and Mr Jimenez would otherwise hold would
be offered to Mr Khakshouri as part of the inducement to secure the Loan; that
Mr Cash did not know what share would be offered by Mr Jimenez but he left that
up to Mr Jimenez; that at the time the Rose Trust was unaware of this
discussion or the offer by Messrs Jimenez and Cash to cede a part of the Land Deal
to Mr Khakshouri. In that exchange Mr Case refers to the use of the collective
pronoun “we” when referring to both the discussion and the offer: “… what
we were talking about, and what we were really offering here…”
(emphasis added).
(iii) The Second Defendant’s
case
123.
Mr Kenny QC, for Mr Cash, accepted that Mr Cash, in signing the Side
Letter, was acknowledging that he had authorised Mr Jimenez to conclude the
Land Deal with Mr Khakshouri. But he nonetheless advanced two principal
arguments to refute the Claimant’s case. First, that when Mr Jimenez went to Los
Angeles to negotiate with Mr Khakshouri he was acting on behalf of the
Club to negotiate a loan, and not Mr Cash, and the extent to which Mr Cash
was involved in the negotiation was therefore extremely limited if not
non-existent. Second, and in any event, any involvement by Mr Cash was on
behalf of the Rose Trust and that, in consequence, it was the trust and not Mr
Cash who was the proper Defendant. I can summarise the nub of Mr Kenny’s
arguments as follows:
i)
The authority conferred by Mr Cash was no more than to “convey to DK
agreement to his being cut in for a share of the "residual interest"
in the [Land Deal]”. Such was the extremely limited actual authority
conferred it is artificial to consider its "scope"; there is
no penumbra of apparent authority to consider. Mr Jimenez was authorised to do
one thing: there was really no scope to the doing of that thing. It is almost
exaggeration to call this "authority": no further "acting
on behalf of" him or it was necessary. The task of Mr Jimenez as
"agent" was simply communication of that conditional offer.
Any representation made by Mr Jimenez which was as to the likelihood of a Land
Deal coming about or as to the benefits of any such deal or how it was to come
about were outside of the (limited) authority conferred.
ii)
The basis on which a principal becomes responsible for the statements of
an agent (who is neither an employee or partner stricto sensu) is, as Bowstead
& Reynolds on Agency 20th ed) observes at paragraph 8-182,
"somewhat limited" and is confined to cases where: "… the
function entrusted is that of representing the person who requests his
performance in a transaction with others, so that the very service to be
performed consists in standing in his place and assuming to act in his right
and not in an independent capacity.": cf Colonial Mutual Life
Assurance Society Ltd v Producers and Citizens Cooperative Co of Australia Ltd
(1931) 46 CLR. 41 per Dixon J at pages. [48] – [49]; Kwei Tek Chao v British
Traders [1954] 2 QB 459 at page [470] (Devlin J); The Litsion Pride
[1985] 1 Lloyd's Rep. 437 at pages [513] – [514].
iii)
Mr Kenny QC encapsulated the argument on the issue of authority in the
following way tying together the law with his analysis of the evidence:
“To render
a principal liable for the representations of his agent, therefore, the agent
must, when making the relevant statements, have been "standing in his
place and assuming to act in his right" i.e. representing the principal in
the performance of the very act that he was authorised to perform. But that
does not describe TJ in the course of negotiating for a loan to the Club. He
was not then representing KC/ the Rose Trust: he was representing the Club. He
was not then assuming to act "in right of" KC/ the Rose Trust: he was
acting in right of the Club. He was not then performing "the very service
to be performed" for KC/ the Rose Trust, namely communicating its
conditional offer. Rather he was acting in a capacity independent of KC/ the
Rose Trust, namely as a director of the Club.”
iv)
In relation to the argument that the Rose Trust was the proper Defendant
it was argued that, on the assumption that liability would otherwise accrue,
the real principal of the First Defendant was the Rose Trust and not Mr Cash.
This arose even if (as the evidence indicated) Mr Khakshouri was clear in his
own mind that the persons with whom he agreed were Messrs Jimenez and Cash, and
not the Rose Trust. The correct analysis is not to be determined by the
Claimant’s perception, but by analysing where true authority lay. On the facts,
in authorising the making of a conditional offer Mr Cash was acting not in his
personal capacity, but on behalf of the Rose Trust and his actions in
authorising the making of that offer, even if not authorised by the Trust in
advance, were ratified and adopted by its trustees subsequently. He was thus,
properly analysed, to be regarded merely as an intermediary in the
authorisation of Mr Jimenez. Therefore, upon the hypothesis that liability
accrued Mr Cash was not the relevant principal, and could not be liable to the
Claimant.
(iv) Analysis / Actual
authority
124.
I start by considering the question of actual authority. In my
judgment, on the evidence Mr Cash quite plainly authorised Mr Jimenez to
negotiate a Land Deal with Mr Khakshouri and this included all of the
representations made by Mr Jimenez. The suggestion that the interest of Mr Cash
in the negotiation was strictly limited flies in the face of the evidence and
the commercial reality: (i) Mr Cash was not interested in football; his
interest in the Club was because of the potential link to the Greenwich
Peninsula development; (ii) the Club urgently needed bridging finance and,
absent such support, administration was a possibility; (iii) if administration
occurred then the prospect of any Land Deal evaporated; (iv) the need for a
loan from the Claimant was therefore urgent and was necessary to enable the
Defendants, personally, to have the chance to exploit opportunities
arising out of the Greenwich Peninsula development; (v) in an ideal world (ie but
for the financial crisis at the Club) Mr Cash and Mr Jimenez would have
exploited the Land Deal by themselves, but they both knew that, to secure the Loan
from Mr Khakshouri, the quid pro quo was his participation in the Land Deal;
(vi) to secure the Land Deal Mr Cash thus had to confer upon Mr Jimenez
authority to negotiate whatever he (Mr Jimenez) considered appropriate to
secure the Loan; (vii) the representations made by Mr Jimenez in furtherance of
that joint objective or enterprise were four- square in the middle of the
authority so conferred by Mr Cash and were essential to the Defendants being
able, on their own account, to participate in the Greenwich Peninsula
development.
125.
Ultimately this issue boils down to findings of fact, not points of
law. In my judgment Mr Jimenez was wearing Mr Cash’s boots and standing “in
his place” when he was in negotiation with Mr Khakshouri and more
particularly when he made the representations that I have found were in fact
made and which found the claim for liability.
(v) Analysis: Proper defendant
126.
I turn now to the question of the proper defendant. I reject the
argument that Mr Cash is not a proper defendant.
127.
The starting point is that the Rose Trust point was not pleaded by way
of Defence on behalf of the Second Defendant. The Defence, in its initial and amended
form, was drafted upon the basis that Mr Cash was the proper Defendant and that
the claim against him was personal and stood or fell upon its merits. In the Defence
Mr Cash does address the relationship between Mr Jimenez and the Cavansa Trust.
He is however silent as to his own relationship with the Rose Trust. In the
Amended Defence Mr Cash denied that Mr Jimenez acted as agent for him but he
did not plead in the alternative that if authority had been conferred
that it was the Rose Trust on whose behalf Mr Jimenez acted. Subsequently, when
in a request for further and better particulars he was asked about the issue of
control, and the apparent inconsistency between Mr Cash’s pleaded denial that
any representation of control had been made by Mr Jimenez and the Side Letter, again
no reference was made to the Rose Trust. In his witness statement dated 4th
August 2017, signed very shortly prior to trial, Mr Cash does for the first
time introduce the Rose Trust as a “stakeholder” in the Club by virtue of
the loans provided by it to the Club. Here he explains that he “acts as an
informal advisor to the Rose Trust and from time to time I recommend certain
investments to the Trustees”. He says that a loan facility was made
available to the Club by the Rose Trust because the Land Deal could amount to a
potentially lucrative opportunity, if achieved. He also says that he does not
“believe the Rose Trust’s loan was repaid in full”. Nowhere in his
witness statement however does he say that he joins issue with the Claimant
upon his status as a Defendant. In that part of the statement in which the Loan
from the Claimant is discussed no mention is made at all of the Rose Trust.
Moreover, it transpired in cross-examination that Mr Cash did not go to the
Rose Trust in advance of his conferring authority upon Mr Jimenez to negotiate
and conclude the Land Deal with Mr Khakshouri; though he said that he obtained
ratification afterwards, no disclosure has been given of this. Indeed there is
a gaping hole in the disclosure in so far as the Rose Trust is concerned.
128.
Elementary fairness demands that this point should have been raised at
the outset. It was, if it had forensic legs, an obvious point for Mr Cash to take.
But he did not. It was never pleaded. The existence of the Rose Trust came
into view only weeks before the trial started upon service of witness statement
but even then the point of law now said to arise was not brought into play. And
even as the point was being advanced in the course of the trial it was not
accompanied by any application to amend the pleading. No doubt had such an
application been made it would (a) have risked the Claimant seeking
consequential disclosure and (b) risked the trial being adjourned with the
Second Defendant being exposed to the possibility of costs thrown away. I am
bound to try this case according to the overriding objective which is to do
justice to all parties. It would in my judgment run counter to that objective
if I now allowed such an elementary point to be argued.
129.
In any event, I am not satisfied on the evidence as it stands that the
point is arguable. There are a number of points to make.
130.
The first point is that Mr Cash has business interests of his own that
he pursues independently of the Rose Trust. It is not therefore the case that all
of Mr Cash’s interests are wrapped up in the Trust. Much of the gist of the
evidence given was that once the Club was sold, Mr Cash and Mr Jimenez would
then be at the Greenwich Peninsula development project table, in essence as
individuals with personal skills and knowledge, which they could bring to that
table. Mr Cash did not seek the approval of the Rose Trust in advance when he
authorised Mr Jimenez to negotiate the Land Deal with Mr Khakshouri. Though he
says that he obtained ratification afterwards, the terms of that ratification
are not before the Court. The 30% interest that he and Mr Jimenez ceded to Mr
Khakshouri was not an interest that the Rose Trust owned or held by virtue of
its status as a creditor and the Rose Trust had declined to advance further
funds to the Club, so what it was that was supposedly ratified is opaque. And
even if the Rose Trust had approved Mr Cash’s position, there is nothing to
suggest that this was other than a quite separate agreement between Mr Cash and
the Rose Trust which did not alter Mr Cash’s relationship with the Claimant.
No disclosure has been given to establish the true facts. The evidence adduced
throughout the trial has focused upon the interests of the Defendants as
individuals and not as representatives of their trusts. If the converse
were the true position I would have expected evidence to have been tendered to
establish this.
131.
The second point is that, on its face, the Side Letter was signed by Mr
Cash in his personal capacity. This is supported by the fact that in signing he
personally agreed to stand as trustee in relation to the Claimant’s interests
under the Land Deal: See text at paragraph [58] above. This was acceptable to
Mr Khakshouri because of the strong personal relationship between the parties and
no one has suggested that Mr Khakshouri would have taken the same stance had he
been told that it was not Mr Cash, but the Rose Trust, that was to act as
trustee for his interest. In my view this supports the conclusion that Mr Cash
was acting for himself.
132.
Third, it was put to Mr Khakshouri in cross-examination by Mr Kenny QC
that in fact it was known to Mr Khakshouri that Mr Jimenez was negotiating on
behalf of the Rose Trust and the same would have been understood by him when
the Defendants signed the Side Letter. Mr Khakshouri was incredulous at the suggestion;
he had no knowledge of the Defendants’ family trusts. I accept his evidence on
this. Subsequently, when Mr Cash was cross-examined he did not materially quarrel
with the proposition that Tony Jimenez negotiated the agreement on his behalf (see
paragraphs [121] and [122] above) but he nonetheless repeated that he entered
into the Side Letter on behalf of the Rose Trust. He was challenged on this
during questioning. He said that the way in which the agreement was drafted
was a (yet further) mistake. The Side Letter was really only an informal “comfort”
letter and when “finally” the “deal” was to be drawn up, which
would involve lawyers, then it would have been drafted with “the relative
holdings and trusts represented”. On analysis, if Mr Cash’s intention had
been that in due course the Side Letter was to be replaced with a new fuller
form agreement which introduced new parties, then the new agreement itself could
only have replaced the Side Letter with Mr Khakshouri’s consent since it would
have amounted to an amendment of the Side Letter which, otherwise, had full
legal force and effect. The introduction of specific new replacement parties
(the trusts) would clearly have needed Mr Khakshouri’s consent because it would
amount to a variation to the agreement. The necessary implication of Mr Cash’s
evidence is that, pending such new agreement, the Rose Trust was not a party
and had no rights in relation to the Side Letter.
133.
Fourth, there were inconsistencies in Mr Cash’s account which undermine
its credibility. In relation to the point in time when Mr Cash first raised the
Side Letter with the Rose Trust, at one point he said that he “already”
had agreement from the Trust to cede 30% to the Claimant. But later when
pushed in cross-examination, he said that he only sought agreement afterwards
so that, as Mr Kenny QC put it, the Side Letter was ratified by the Trust after
the event (see quotation from cross-examination set out at paragraph [121]
above). This inconsistency is a matter I take (negatively) into consideration in
my conclusion on the reliability of this evidence.
(vi) Conclusion
134.
I reject the submissions advanced by way of defence. Mr Cash, the Second
Defendant, is vicariously liable for the deceit of the First Defendant.
G Damages
(i) Basic principles: the purpose behind an
award of damages
135.
Having found that both Defendants are liable to the Claimant I must turn
next to consider damages. This is a case where it is helpful to start with a
reminder of first principles. This is because the Claimant resorts to the
basic tenets of compensation when he argues that the position prior to the
deceit was that he had a 55% interest in the LA Deal. He was induced to move
away from this status quo ante by the deceitful representations which he
relied upon. But for the tort he would have left his money in the LA Deal and
he would, in the fullness of time, have realised a return on that investment of
approaching 400%. This defines the computation of his loss.
136.
The Defendants, however, argue that this mis-states the point in time at
which damages should be calculated. They say that the relevant date for
assessment is not the maturity of the LA Deal but the date upon which the
Claimant was repaid the Loan and thereby extricated himself from the adverse consequences
of the deceit. The Claimant’s retort to this is that the date of extrication is
irrelevant because, on the particular facts of the case, the repayment of the
Loan did not enable him to recover losses due to the dilution of his holding in
the LA Deal.
137.
The object of an award of damages is to compensate a claimant for
losses, pecuniary and non-pecuniary, sustained in consequence of the tort. The
general principle is that the Court should award “… that sum of money which
will put the party who has been injured, or who has suffered, in the same
position as he would have been in if he had not sustained the wrong for which
he is now getting his compensational reparation.” (Livingstone v
Rawyards Coal Company (1880) 5 App. Cas. 25 at page [39]).
138.
The tort of deceit is not actionable per se and proof of damage
is a necessary component of the action. It is for a claimant, in the ordinary
way, to prove his loss. Authority indicates that where a claimant proves that
he has been deceived into spending money, the burden shifts to a defendant who
wishes to contend that the expenditure did not in fact amount to a loss to the
Claimant. The measure of damages in deceit is the loss directly flowing from a
claimant’s reliance on the defendant’s statement. This is, generally speaking,
the sum that will put the claimant in the same position as if he had not relied
upon the deceitful representation. Credit must be given for any gains made by
the claimant.
139.
The position that would arise had the representation been true is
irrelevant. The claimant’s right is to be put in the position he would have
been in, had he not relied upon the defendant’s representation, and it follows
that no account is taken of what the (hypothetical) position would have been
had the representation been correct.
140.
In Clerk & Lindsell on Torts (21st Edition) at paragraph
18-43 (page [1334]) the authors state the following in relation to “claims
for would-be profits”:
“Although the “reliance measure” outlined above precludes the
recovery of stated profits as such, this does not necessarily mean that the
claimant is limited to out-of-pocket losses, or that all claims for lost
profits are precluded. Suppose a claimant is deceived into entering into a
transaction by a fraudulent statement as to the profits to be made, and can
show in addition that if he had not relied on the defendant’s statement he
would have made some other gainful investment (or for that matter would have laid
his money out at interest). In such a case it is clear he can recover the
would-be profits or interest, as the case may be, that he would have made from
that other investment. Indeed, an action may lie for deceit even in respect of
a transaction which turned out highly gainful for the claimant, if by reason of
the deceit he was prevented from investing his money elsewhere so as to turn an
even greater profit.”
(ii) Time for assessment
141.
As explained above, there is a dispute about the point in time that damages
are to be calculated. Prima facie, in cases of deceit, damages are
reckoned as at the time of reliance on the representation (Clerk & Lindsell
(ibid) paragraph 18-44 page [135]). The Claimant’s position is that the
investment in the LA Deal was to realise the value of the project upon maturity.
The date of reliance is not an appropriate starting point on the facts of this
case. The correct date is value of the project upon completion, which was in
August 2017.
142.
Case law makes clear that rigidity and inflexibility are to be eschewed.
Depending upon the facts it might well be necessary to compute damages by
reference to a date considerably later than the date of reliance or even the
date upon which extrication was first possible. The parties agree that the
judgment of the House of Lords in Smith New Court Securities Limited v
Citibank NA [1997] AC 254 accurately sets out the broad principles
governing the payment of damages arising from a fraudulent misrepresentation.
Reference is made to the judgment of Lord Browne-Wilkinson at pages [265] –
[266]. There his Lordship rejected the old “inflexible rule” which had
been established by the Court of Appeal in the 19th century which
was that the asset acquired had to be valued at the transaction date. The old rule
was “both wrong in principle and capable of producing manifest injustice”.
Lord Browne-Wilkinson emphasised that a defendant’s fraud: “may have an
effect continuing after the transaction is completed, e.g. if a sale of gold
shares was induced by a misrepresentation that a new find had been made which
was to be announced later it would plainly be wrong to assume that the
plaintiff should have sold the shares before the announcement should have been
made”. He gave another example: the acquisition of an asset may lock a
purchaser into continuing to hold the asset until he can affect a resale. In
such a case to contend that the claimant had obtained the value of the asset at
the transaction date: “…flies in the face of common sense: how can he be
said to have received such a value if, despite his efforts, he has been unable
to sell”. It is apparent that at the heart of the objection of Lord
Browne-Wilkinson to any inflexible rule was that it failed, very simply, to do
justice. At page [265H]- [266A], he observed:
“Turning for a moment away from damages for deceit, the
general rule in other areas of the law has been that damages are to be assessed
as at the date the wrong was committed. But recent decisions have emphasised
that this is only a general rule: where it is necessary in order adequately to
compensate the plaintiff for the damage suffered by reason of the defendants
wrong a different date of assessment can be selected. Thus in the law of
contract, the date of breach rule is not an absolute rule: if to follow it
would give rise to injustice, the court has power to fix other date as may be
appropriate in the circumstances…”
143.
Elsewhere he reiterated that the governing approach was to “…give
adequate compensation for the wrong done to the plaintiff.” The law is
sufficiently flexible to take account of different circumstances. He wove
together the various threads into a series of seven basic principles (ibid page
[267]):
“(1) the defendant is bound to make
reparation for all the damage directly flowing from the transaction; (2) although
such damage need not have been foreseeable, it must have been directly caused
by the transaction; (3) in assessing such damage, the plaintiff is entitled to
recover by way of damages the full price paid by him, but he must give credit
for any benefits which he has received as a result of the transaction; (4) as a
general rule, the benefit received by him include the market value of the
property acquired as at the date of acquisition; but such general rule is not
to be inflexibly applied where to do so would prevent him obtaining full
compensation for the wrong suffered; (5) although the circumstances in which
the general rule should not apply cannot be comprehensibly stated, it will
normally not apply where either (a) the misrepresentation has continued to
operate after the date of the acquisition of the asset so as to induce the
plaintiff to retain the asset or (b) the circumstances of the case are such
that the plaintiff is, by reason of the fraud, locked into the property; (6) in
addition, the plaintiff is entitled to recover consequential losses caused by
the transaction; (7) the plaintiff must take all reasonable steps to mitigate
his loss once he has discovered the fraud.”
144.
Subsequently, Lord Steyn, in his judgment (at p. 282D-E), emphasised
that damages in a case of deceit were not tied to any process of valuation as
of the date of the transaction but were “squarely based on the overriding
compensatory principle, widened in view of the fraud to cover all direct
consequences.” He emphasised that the legal measure of compensation was “to
compare the position of the plaintiff as it was before the fraudulent statement
was made to him with his position as it became as a result of his reliance on
the fraudulent statement.”
145.
The Defendants place reliance on a statement of Mr Justice David
Richards (as he then was) in 4 Eng Limited v Harper [2009] Ch 91 at
paragraph [55]. In that case the defendant sold the share capital of E Limited,
a company they owned and managed, to the claimant. The claimant brought
proceedings for deceit arising out of their alleged knowledge of the falsity of
a number of express representations contained in the sale agreement on which
the claimant alleged it had relied. The claimant sought damages for loss of the
chance to earn income and profits from T Limited which, the claimant argued, it
would have acquired had it not been induced by the defendants’ deceit to buy E
Limited. Summary judgment was entered upon their behalf with damages to be
assessed. Upon the quantification of damages, the judge stated as follows:
“55. The date on which the claimant is or could be extricated
from the transaction induced by the deceit is important in a case where it
relates to readily marketable asset. The usual rule would be that the loss is
fixed as at the date of transaction because the claimant could immedaitely have
sold the asset and any deferment in a sale is his own choice. This will not be
the case, even with readily marketable asset, where the claimant is in effect
locked into the transaction. In such a case, the appropriate date for
assessment of the loss is the date on which he could extricate himself from the
transaction.”
146.
In the event the Judge rejected the date of extrication as relevant. As
of that date the claimant was “…no more able then to make an alternative
acquisition than it had been in the past or would be in the future.” The “consequences
of the defendant’s deceit did not stop then but continued until trial.” He
rejected the earlier date upon the basis that it would be “arbitrary and
unconnected with [the claimant’s] loss.”
(iii) The Claimant’s evidence on loss
147.
It is necessary now to set out the facts relevant to damages.
148.
The time elapsing from the first request made by Mr Jimenez to Mr
Khakshouri to make a loan until the transmission of the first tranche of the Loan
by the Claimant was four days (16th-20th September 2013).
As Mr Khakshouri explained in his witness statement and in oral evidence,
during those four days, and in reliance upon the representations made to him by
Mr Jimenez, he managed to obtain funds by reducing his stake in the LA Deal in
relation to property at 11628- 11650 W. Pico Blvd in Los Angeles (“the
Property”). Mr Khakshouri disclosed documents relating to the acquisition of
the Property, including the Title Company Settlement statement, the Hampstead
Heath Bank Register (“the Register”), relevant bank statements, and the cheque
signed by the Claimant’s brother-in-law pursuant to which he acquired his stake
in the LA Deal.
149.
The vehicle used for the acquisition of the Property was a company
called Hampstead Heath LLC (“Hampstead Heath”). The participants in the LA Deal
were to hold their interests in the Property indirectly through Hampstead
Heath.
150.
As at 13th August 2013 the Claimant was set to acquire 35% of
the LA Deal through Hampstead Heath. He and his wife (Mrs Mehrnaz Khakshouri)
held a joint interest of 35% therein. On 27th August 2013 the
Claimant and his wife acquired an additional 20% of Hampstead Heath from Peter
Wilson and Alison Wilson. As at 17th September 2013 the Claimant had
an expectation to acquire 55% of the LA Deal via Hampstead Heath.
151.
On the 17th September 2013, in the midst of the Claimant’s
discussions with Mr Jimenez, the Claimant deposited a sum of $1,525,000 in an escrow
account prior to completion in order for Hampstead Heath to complete the LA
Deal. Upon completion on 18th September 2013 the Claimant held a 55%
share. However, on that same day the Clamant disposed of 30% of his interest in
Hampstead Heath. The sale was to his brother-in-law (Isaac Cohanzad). This
disposal occurred upon the payment by Mr Cohanzad of $1,650,000, being 30% of
the purchase price of $5,350,000 amounting to $1,605,000 plus a float
contribution of $45000. This float was intended to cover unforeseen or
additional expenses paid by each Hampstead Heath partner in the same proportion
as their shareholding.
152.
Put shortly, on the 18th September the Claimant first
acquired a 55% share in the LA Deal but that was subsequently, on the same day,
reduced to 25%.
153.
The deposit of $1,525,000 in the Hampstead Heath account to enable the
LA Deal to be closed was described in the Register as a “temporary loan” because,
as Mr Khakshouri explained in oral evidence, he hoped that Mr Cohanzad would
transfer the money the next day; but he did not wish to rely upon that
expectation given his obligations to his partners in Hampstead Heath. He was
conscious of the possibility that Mr Cohanzad might, at the last moment, change
his mind. In fact, Mr Cohanzad effected the payment and upon payment Mr
Khakshouri repaid himself the “temporary loan” of $1,525,000. He then
took another temporary loan for $100,000 against the float in the Hampstead
Heath account as it was not required for closing. This was subsequently repaid
to Hampstead Heath in November 2013. These transactions are shown on the Register.
The further temporary loan was, as Mr Khakshouri explained, to supplement the
monies that he required to provide the full £1m that Mr Jimenez required.
154.
I should, briefly, refer to the way in which interests in Hampstead
Heath were acquired. The Property was first acquired by Hampstead Heath.
Thereafter the company transferred the Property to six Californian limited
liability companies (“LLC’s”), each one owned by the six individual
participants in the LA Deal. The limited liability companies own the Property
under a Tenancy in Common agreement dated 13th December 2013. Copies
of these agreements were before the Court. The company relevant to the Claimant
was HH8 LLC. HH8 LLC owns 25% of the Property (via Hampstead Heath). The
members of HH8 LLC were the Claimant and his wife. They hold their interest
under an Operating Agreement dated 22nd November 2013. This
agreement was drafted on the Claimant’s behalf by his accountant and he
explained in evidence that its purpose was to ensure that he and his wife
jointly owned 100% of the LLC and in the event of the death of one of them the
interest therein would pass automatically to the survivor.
155.
The project which was the subject of the LA Deal commenced in the summer
of 2015 and was completed on 24th August 2017. The Notice of
Completion and Certificate of Occupancy both dated 24th August 2017
were before the Court. There was also before the Court a schedule entitled “cost
breakdown at completion of construction” dated 7th June 2017.
This schedule was produced in the report of an expert instructed by the
Claimant shortly prior to completion. It was at this point that the Claimant
was able to anticipate with certainty what the final development costs would
be. These were estimated at $21m. The contributions made by the participants in
the LA Deal to the acquisition cost of the Property and its development were
$5,866,322. The balance was funded by means of construction loan finance
provided by East West Bank (in excess of $15m). The bank loan was secured by
way of a charge over the Property. It was explained that the loan was to be
converted into a permanent financing loan to secure a more favourable rate of
interest which would be serviced by the rental stream from the Property in due
course.
156.
Also before the court was a letter from East West Bank dated 1st
September 2017 enclosing the final (i.e. closing), the “Construction Budget
Disbursement Schedule” dated 15th August 2017. This spreadsheet indicated
that the total cost for the project, including acquisition, was $20,908,973.83.
The loan money dispersed to contractors for construction amounted to
$15,042,651.83. This, when combined with the participants’ contribution of
$5,866,322 gave “Total Project Costs” of $20,908,973.83. An dispute arose as to
the actual costs used to calculate the profits on the LA Deal which are the
basis of the First Claim. The Claimant disclosed the spreadsheet as a
reasonable and fair statement of those costs. The Defendants argued however that
it was unreliable. I propose to set out here my conclusions on this point of
evidence. It is of course conceivable that there are some items in the
spreadsheet which are not exact. It is quite impossible to know. But it remains
the best evidence that there is before the Court and it certainly meets the
threshold of reasonable reliability. There is no reason to doubt its overall
accuracy or that it reflects in a sufficiently fair way the costs which are the
basis of the Claimant’s claim:
(i)
Mr Kenny QC accepted that the spreadsheet was an “independent”
document and that it was “likely to have captured most of the hard
costs … with reasonable accuracy”. He did not suggest it was a “made up”
document. His argument was simply that it was unreliable. His case on this was
fleshed out for the first time in closing submissions. It was not set out in
his skeleton argument where it was said only that this was a point to be
explored in cross examination.
(ii)
Mr Kenny QC argued that whilst it was agreed that the August 2017
valuation of the Property lay in the range $35.2m to $35.5m there was
nonetheless uncertainty as to the costs incurred by investors to bring the
Property to its present state. He argued that the total costs of construction
could be higher than those advanced and that the resultant profits therefore
much lower and the damages claim consequentially inflated.
(iii)
In closing Mr Kenny QC suggested that the Defendants could have no “confidence”
that the spreadsheet captured all "Borrower Equity Funds" ie
the investors' own expenditure prior to the bank loan coming into operation on
17th July 2015. This expenditure was put at $5,866,322 in the
spreadsheet. Mr Kenny QC argued that the figure might not be accurate because
the Bank had no interest in verifying that all such expenditure had been
incurred. This was because it was not itself funding that expenditure. The
cross examination on this point was brief. Mr Khakshouri disagreed and said
that the Bank had an interest in ascertaining that the sums represented had in
fact been spent. For instance, when it was put to him that various land taxes
might not have been paid Mr Khakshouri responded by saying that the Bank had in
fact reviewed the documents and that was why the items were included. The
spreadsheet did reflect the results of a verification exercise.
(iv)
Mr Kenny QC also questioned whether the "soft” construction
costs were properly accounted for. He argued that there was a significant
undershoot on budgeted expenditure, and it was suggested to Mr Khakshouri that
this was because some expenses were paid for by the investors other than
through the loan. Mr Khakshouri accepted that some of the costs would have
been paid for at the outset and not by means of the loan. Mr Kenny took this as
an indication of unreliability of the spreadsheet. He did not however suggest
that the expenditure would nonetheless not have been incurred and was not a
cost and there was no evidence to suggest that as a matter of practice the
costs reflected in the spreadsheet were out of kilter with what would
reasonably be expected on a project such as this.
(v)
Mr Kenny also raised a point about tenant’s improvements which were
budgeted at $150,000. They would not yet have been incurred but would have to
be, to bring the Property into a tenantable condition. The Property had been
valued upon the basis of income capitalisation so that it had to be tenantable
to generate the assumed revenue. This again was suggested as a reason why the
spreadsheet was not reliable. Mr Khakshouri accepted that it was a cost that
would in principle have to be paid and therefore a cost to be incurred.
He said it was “a very marginal cost”. There is no suggestion that this
is not a valid cost to be incurred or that the scale of the cost is inaccurate.
(vi)
At the end of the day the spreadsheet is accepted as having been
prepared by an independent party and it is also accepted as a fair reflection
of (at least) one major portion of the costs. It is not said to be a sham or a
fabrication. There is also evidence that the figures do in fact reflect a
process of verification by the Bank. It is the best evidence available. The
Defendants whilst generally seeking to suggest that it was unreliable in
certain respects have not sought disclosure of the matters that they now seek
to cast doubt upon and nor have they sought to adduce their own substantive
evidence to counter the facts set out in the spreadsheet. The cross
examination on unreliability was brief and light touch. Mr Khakshouri did not
accept that the spreadsheet was inaccurate or unreflective of the costs
incurred or to be incurred to bring the Property to the point where it was
income generating.
157.
As to the valuation of the Property upon completion the parties, for the
purpose of this litigation, instructed valuation experts. The valuers arrived
at almost identical figures. The Claimant’s expert valued the Property at
$35.2m. The Defendant’s expert valued the Property at $35.5m. The parties
agreed to put before the Court a range between the two figures in order to save
the costs of attendance of the experts at trial. The Claimant suggests that the
pragmatic approach is to simply split the difference leading to a figure for
valuation of the Property at $35.35m. There is no material opposition to this
approach and I adopt it.
158.
The loss claimed by the Claimant is calculated as 30% of the profit on
the now finished LA Deal being the Claimant’s net loss on the 30% that he
transferred to his brother-in-law in order to make the Loan.
159.
The loss on the first part of the claim is, accordingly, calculated as
follows.
|
Value of the Property
Less total project costs
|
US$
35, 350,000.00
20,908,973.83
____________
|
|
Net profit on
project
|
14,441,026.17
_____________
|
|
x 30%
|
4,332,307.85
|
|
Less interest on
loan
|
151,681.41
____________
|
|
Total claimed
|
4,180,626.44
|
(iv) The Claimant’s inability to buy back into the
LA Deal: The evidence of Mr Cohanzad
160.
I should also address the evidence given by Mr Cohanzad, the Claimant’s
brother-in-law. He produced a witness statement dated 26th July
2017. His evidence is consistent with the evidence given by Mr Khakshouri. Mr
Cohanzad did not appear to give evidence at trial. There was however no
objection to the admissibility per se of the statement. The Defendants made clear
however that they reserved the right to criticise the evidence. I accepted
their position on this. Mr Cohanzad gave evidence as to the circumstances in
which he came to acquire his interest in the LA Deal. He is a professional real
estate developer. He had, in the past, undertaken several joint venture
developments with the Claimant. He purchased his 30% share in the LA Deal in
September 2013. His evidence as to the way the investment came about may be
summarised as follows. He was called by the Claimant on 16th
September 2013 who put a business proposition to him. The Claimant had been
offered the chance to acquire an interest in a property development in London.
He said it was an “outstanding opportunity”. He did not tell Mr Cohanzad
of the details though he said that he needed to raise funds urgently, within a
matter of days, and that the only way this could be achieved was by diluting
his share in Hampstead Heath. Mr Cohanzad was asked whether he was interested
in becoming a partner in Hampstead Heath by buying a portion of the Claimant’s
share therein. Mr Cohanzad expressed interest but said that given the extreme
short notice, and to make it worth his while, the Claimant would need to
transfer a “substantial share” in the project to him. There followed a
number of telephone conversations that day and on 17th September
during which it was agreed that Mr Cohanzad would acquire 30%. This was subject
to a site inspection which occurred that same day.
161.
On 18th September 2013 Mr Cohanzad met with Mr Khakshouri. He
was aware that the Claimant was closing the LA Deal that same day. He provided
him with a cheque for $1,650,000 made out to Hampstead Heath. A copy of the
cheque was before the court. The agreement was completed and Mr Cohanzad
acquired the 30% share.
162.
Subsequently in October 2013, the Claimant asked Mr Cohanzad if he could
provide him with a short-term loan of $1m. Mr Cohanzad agreed. A copy of the
cheque dated 21st October 2013 was before the court. Mr Cohanzad
explained that this was connected with the “property deal in London” that the Claimant was engaged in. He was informed that he would be repaid
within a couple of months.
163.
In or about mid-August 2014 the Property had been, what was described
as, “entitled for development”, i.e. it had requisite planning consents.
The local real estate market was buoyant and the Property appreciated in value
substantially. Mr Cohanzad expressed himself “delighted with the deal I had
made with Darius”. In August 2014 Mr Cohanzad was therefore “surprised”
when the Claimant approached him to see whether he could re-acquire his 30%
interest. Mr Cohanzad stated in his witness statement as follows:
“I had put myself out for him at short notice and was now
sitting on a considerable upside and profit. Things had gone exactly how Darius
had outlined the projects potential when he had told me about it and taken me
to the site in September 2013. This put me in an embarrassing and awkward
situation. Family is one thing but we are both professional developers and this
was business. I had taken a considerable risk buying into Hampstead Heath the
previous year. As a result, I said, somewhat reluctantly, I would sell him back
my 30% share but in view of the appreciation of the property I could not do so
simply for the acquisition price; I would want a realistic profit on top of the
$1,650,000 purchase price I paid. I told him I would want my acquisition price
plus $2,000,000 (“Two Million $) profit which was a realistic and fair price at
that time. Darius informed me that he was not in a financial position to do
that. He never mentioned buying me out again and we remain on good terms and
partners in the Hampstead Heath project which, so far as I am aware, has
continued to greatly appreciate in value.”
(v) Conclusion on probative weight to be attached to
Claimant’s evidence
164.
I turn now to set out my conclusion on the Claimant’s evidence. I accept
this evidence. I have no reason to doubt the veracity of Mr Khakshouri’s
account as to how he raised the funds for the Loan by diluting his interest in
the LA Deal. It is consistent with the documentary evidence which I have no
hesitation in treating as genuine. The sequence of events described by Mr
Khakshouri is also consistent with the financing arrangements in question
having been arranged within an extremely short period of time. When Mr Jimenez
first broached the question of Mr Khakshouri advancing the Loan on 15th
September 2013, the LA Deal was scheduled for completion just three days later
on 17 September 2013. Mr Khakshouri agreed to help his close friends out of
their crisis but to do this he had to engage in rapid financial juggling to
release the necessary funds from other sources. In 48 hours he was never
realistically going to be able to raise funds through more traditional means
such as a bank or through the sale of assets. At such short notice Mr
Khakshouri needed to turn to close friends or family to do him a favour. And
that is what he did in approaching his brother in law, Mr Cohanzad.
165.
I am also satisfied that, as Mr Khakshouri explained in evidence, he
relayed to Mr Jimenez in the course of their conversations between the 15th
- 17th September 2013 that he would have to speak to his
brother in law, Mr Cohanzad, to see if he would be prepared to acquire part of
his holding in the LA Deal in order to release funds. This finding of fact
undermines the suggestion (which I address below) that the deal with Mr
Cohanzad was a sham or fiction dreamt up to engineer an inflated claim for
damages. If in fact Mr Khakshouri mentioned to Mr Jimenez during his
discussions 15th – 17th September 2013 that he was going
to have to turn to his family to unlock funds, this strongly militates against
that being some later-fabricated invention. Although it was put to Mr
Khakshouri in cross-examination that no such conversation had occurred, when Mr
Jimenez gave evidence he: repeatedly stated that his recollection was very
vague and unclear; did recall however that Mr Khakshouri referred to approaches
he would have to make to his brother in law (though Mr Jimenez could not recall
which brother in law); accepted that Mr Khakshouri explained that he would need
to engage in financial juggling in order to raise funds to make the loan; and,
accepted that Mr Khakshouri could well have had the conversation with him that
Mr Khakshouri described in his evidence. Mr Jimenez thus recalled the bare
bones of the conversation which Mr Khakshouri says that he had with Mr Jimenez.
It was also apparent to me during the trial that Mr Khakshouri’s recollection
was far superior to that of Mr Jimenez.
166.
I also accept on the evidence that upon repayment of the Loan in 2014 Mr
Khakshouri was, in a normal commercial sense, locked out of the LA Deal and it
was not sensibly open to him to use the repaid funds to buy his way back in. He
could not, therefore, restore the status quo ante and his losses
directly flowing from the deceit continued. I accept that the date of
completion in 2017 is the appropriate date for calculation (and as to this the
experts have largely agreed the calculation) – see paragraph [157] above. This
is the date upon which the loss crystallised.
(vi) Defendant’s case on the probative value of the Claimant’s
quantum evidence: A fraudulent sham
167.
I now turn to consider the Defendant’s arguments. In closing submissions
the Defendants described the Claimant’s quantum case as a “fraudulent sham”.
This was not a pleaded position, nor was it advanced in witness statement
evidence, nor was it used as a basis for seeking specific disclosure of those
aspects of the transaction which it was (later) alleged showed the sham and nor
was it put to Mr Khakshouri in these terms in questions by counsel for either
Defendant. The precise nature of this alleged fraud or sham remained unclear as
at the end of the trial. On one basis the alleged fraud involves Mr Khakshouri
and Mr Cohanzad engineering the alterations in the shareholding in Hampstead
Heath to convey the false impression that the Claimant always wanted a 55%
shareholding, whereas in truth he only ever wanted a 25% shareholding. In other
words, the 55% figure was a fiction and could not in law properly stand as a
basis for the quantification of loss. Although not specifically articulated
this analysis assumes that at some point between 15th - 17th
September 2013 the Claimant and Mr Cohanzad created a sham transactional trail
because they knew that, at some unspecified and undetermined point in time in
the future, the Claimant would wish to rely upon this sham to pursue a fraud
claim against the Defendants, his close friends, with whom he had yet to fall
out. And it also assumes that upon this basis Mr Khakshouri persuaded a family
member, his brother-in-law, to collude in this plan. The premise behind this
hypothesis is in my judgment, far-fetched and I reject it; Mr Khakshouri had no
notion that he would wish to sue the Defendants when he reduced his
shareholding in the LA Deal in September 2013. It is evident from the
documents in the case that for many months afterwards he remained friends with
the Defendants and continued to trust them and the advice they gave to him.
There is no credible basis upon which it could ever have been in Mr
Khakshouri’s mind in September 2013 that he would in the future need to bring a
claim for damages. And if this is so there is no basis upon which he would have
been motivated to create a false financial trail to support litigation that was
not on his radar nor seek a co-conspirator in his brother-in-law.
168.
The only alternative is that the Claimant and Mr Cohanzad constructed
the sham transaction much later, at or about the time the Claimant decided to
bring proceedings against the Defendants (late 2014 / early 2015). But for this
to be so the Claimant and Mr Cohanzad must necessarily have forged documents
relating to the shareholding in Hampstead Heath at some stage in late 2014 or
2015, and backdated them to 2013. Again, in my judgment, this is fanciful and
not consistent with the evidence and was not a proposition put squarely to the
Claimant in questioning.
169.
The approach that the Defendants adopted to advance this argument was to
cross-examine the Claimant upon the disclosed documents relating to the LA
Deal. They focused upon the financial records of the transaction. The thrust
of the questioning was to establish a series of propositions including that the
Claimant had ample spare funds to make the Loan and his explanation given in
court that he was, as of September 2013, illiquid and needed to approach third
parties such as Mr Cohanzad, was an after the event invention. The Defendants also
attempted to establish that the record of payments in and out of his bank
accounts and as recorded in various company documents and registers was
illogical or only consistent with the manipulation of funds to create a false
impression of a liquidity shortage. It is argued that in truth Mr Khakshouri
had ample alternative funds available to him which he could have called upon at
any point in time to fund the Loan to the Club. His explanation to the contrary
was designed to support the sham and fraud that he was perpetrating to the
effect that he was forced to dilute his holding in the LA Deal to fund the Loan.
170.
In closing submissions Mr Kenny QC submitted that: “The Court should
not find as a fact that DK sold a 30% interest in the LA Deal in order to fund
the initial tranche of the loan to the Club. The evidence in support of that
assertion is unsatisfactory”. As already observed, Mr Kenny QC did not
specifically allege fraud but nonetheless invited the Court to reject the
Claimant’s version and, by implication, the genuineness of his account and of
the supporting documents. There was a strong element of “willing to wound
and yet afraid to strike[1]”
about this stance. Mr Kenny QC took responsibility for the damages side of the
case on behalf of the Defendants but it was Mr Leech QC who was prepared to concede
in the course of his closing submissions, in response to my question, that the
Defendant’s case necessarily was, in substance, that the Claimant was
guilty of a “fraudulent sham”.
171.
I next summarise the arguments advanced in support of the contention
that Mr Khakshouri and Mr Cohanzad colluded to fabricate a story intended to
mislead the court:
(i)
It was not Mr Khakshouri’s practice to take stakes as high as 55% in
any development project. The LA Deal was one among several projects the
Claimant had been pursuing in 2013. Three had already closed and in none had
he taken a stake exceeding a 50% stake. The LA Deal was originally structured
for the Claimant to have a 35% interest. If the Claimant had genuinely wished
to obtain a stake exceeding a 35% interest, he could and would have structured
it accordingly.
(ii)
A 55% holding involved a greater commitment of funds than originally
anticipated, and a greater exposure to risk than Mr Khakshouri had accepted on
any other deal in which he was involved. The absorption of funds involved
would have imposed a restriction on investment in later opportunities.
(iii)
Ignoring the benefit of hindsight, there was no intrinsic reason why the
LA Deal was bound to be either less risky or more profitable (and therefore
more attractive) than any of the other deals that the Claimant has been
involved in.
(iv)
The evidence given by Mr Khakshouri that he had held a 55% share in the
LA Deal only since 23rd August 2013 (or whenever Peter Wilson's 20%
was transferred to him) rather than from the original establishment of
Hampstead Heath was to be rejected since it had not been mentioned in evidence
by Mr Khakshouri before and only surfaced in a response to an RFI on 14th
September 2017. Previously the Claimant had referred only to his 55% interest,
giving the impression that this interest was the interest he had originally
held and had always been intended to hold. This important detail was “therefore
very late to emerge”.
(v)
There was evidence before the Court that Mr Khakshouri would not have
wished to be over-exposed, as he was with a 55% holding. Reference was made
to other investments made by the Claimant which had not been successful. The
Claimant himself in evidence accepted that nothing could therefore be
guaranteed: "I do developments. You know, there’s a chance that I don’t
make any money on a four or five-year development. That’s the risk that I run.
When I buy a property in Los Angeles and I do all the work and, like I say, the
project could take four to five years, there’s no surety that at the end of it
I’m going to make money." And according to Mr Cohanzad, the
investment he had made in September 2013 had involved a "considerable
risk".
(vi)
There were therefore good reasons why Mr Khakshouri would not have
wished to be over-exposed to the LA Deal, and would have been looking to reduce
his share/commitment in that Deal, from the end of August 2013 or earlier.
(vii)
Mr Cohanzad did take a 30% share; but when precisely he committed to that
share is not the subject of any documentary confirmation. There are no emails
or text exchanges produced to support the story that Mr Cohanzad had only been
introduced to the Property on 16 September 2013. Mr Cohanzad had partnered-up
with the Claimant on other projects. He was therefore always a likely partner
to replace Mr Wilson, not a lender of last resort, in extremis. The
Claimant’s evidence as to how many times previously he had partnered with Mr
Cohanzad was not satisfactory.
(viii)
The fact that Mr Cohanzad had committed, at least by 10th
September 2013, to taking a 30% interest is suggested by the second entry on
the Register. There were many oddities and unexplained circumstances
surrounding the chronology of events as explained by the Claimant. The
Claimant’s explanation of how moneys in an out were recorded in the company
records and the Register and as to why the dates might not have been accurately
recorded was not creditable.
(ix)
The explanation that Mr Khakshouri had to turn to Mr Cohanzad on 16th
September 2016 because he did not have funds of his own to take both a 55%
share in the LA Deal and to fund the first tranche of the Loan to the Club is
belied by the clear fact that the Claimant had substantial funds coming into
his personal account throughout September 2013 ($5,838,465.85 by 18th
September 2013). This sufficed to cover: the $1,650,000 needed for an
additional 30% interest in the LA Deal; the $1,608,000 required to buy £1m to lend
to the Club; and, the $1,337,500 needed for the Claimant’s own 25%
contribution.
(x)
The conclusion to be drawn was that the Claimant did not need to turn to
Mr Cohanzad for funds. He had the necessary funds himself, but chose not to
commit so much money to the LA Deal (and assume the corresponding risk).
Sharing the load with Mr Cohanzad was part of a plan that long predated 16th
September 2013. The Court should be very sceptical of the suggestion that the
Claimant did not have the funds to acquire a 55% share in the LA Deal and make
the Loan to the Club, in the absence of proper disclosure of his financial
position. The documents show that in all sorts of ways the Claimant had access
to funds which he could have used to fund the Loan. The suggestion that he had
to juggle finances to raise the moneys is to be rejected.
(xi)
The Court should also accept Mr Jimenez’s evidence which was that,
although they may have been reference to a brother-in- law in the September
2013 discussions, he had no recollection of the Claimant telling him that he
needed to sell an interest in a deal to his brother-in-law in order to fund the
Loan to the Club. The Court should accept Mr Jimenez’s evidence that he that
he did not believe that Mr Khakshouri had come out of the LA Deal to fund the
loan. Mr Kenny QC referred to the following exchange which the Court was
invited to treat as “compelling”:
"Q … can you think of any reason why he would have been happy
to take his money out of this deal in LA that we can all see has been extremely
profitable to make this loan for the sake of just a few months’ interest. It
doesn’t make any commercial sense, does it?
A. No, he shouldn’t
have taken his money out of the thing. He should have bridged it. He should
have easily had an agreement with his - he’s a very smart property developer.
Q. Yes.
A. I actually don’t believe he came out of that property deal
Q. You don’t believe he came out of that property deal?
A. No. Nobody would -- no one would exit a deal you’ve been working
on for six or seven months on the basis of two months on a bridge of 12 per
cent and forego that whole deal."
(xii)
The Court should not place any reliance on the evidence of Mr Cohanzad.
He was asked to attend to be cross-examined and has not done so. No
explanation for his absence has been given. His evidence should not be treated
as corroboration of the Claimant’s evidence and jointly their accounts “invite
scepticism”. The suggestion that the Claimant approached Mr Cohanzad to
re-acquire his 30% interest only after planning consents had been given, and
not at any time before, was highly implausible. Mr Khakshouri expected
co-investors to sit silently by, and let him manage his projects, and
approaching a co-investor to sell his interest only after he had advised of
planning consent would inevitably be counter-effective. The suggestion that Mr
Cohanzad required a premium of US$2m to re-transfer his 30% share because
"family is one thing but … this was business" is extortion of
man who had brought the whole deal "to the table" in the first
place. In any event the premium (over the original US$1.65 payment) valued the
LA Deal as of August/ September 2014 at above US$12m, which figure gains no
support from the expert valuers (who have valued the property in June 2014 at
no more than US$6.3m). Yet both the Claimant and Mr Cohanzad agreed that a
value of US$3.65m for Mr Cohanzad's 30% share was, in August/ September 2017
realistic. The Court should reject the Claimant’s evidence that this
conversation ever took place.
172.
Mr Atkins attacked the Defendants’ case as innuendo coupled to an
invitation to the Court to treat odd inconsistencies here and there and occasional
gaps and lacuna in the evidence as a basis for rejection of the Claimant’s case
as a sham. There were, Mr Atkins argued, no proper grounds upon which to
advance such an argument “and it should never have been made”:
(i)
The Claimant’s consistent evidence was that the LA Deal was a rare
chance to acquire a property with considerable potential at a very good price.
There is no evidence, at any time before he was able to increase his share from
35% to 55%, that he was looking to reduce it or hold it at 35%. Mr
Khakshouri’s evidence was to the contrary. As he said when the point was put
to him: “…when you have a good opportunity, especially in development, you
try to take that opportunity as big as you can”. Both the
Claimant and Mr Cohanzad were proceeding upon the basis that this was a unique
opportunity which was likely to get planning permission. Their conduct is
entirely explicable upon that basis.
(ii)
Mr Cohanzad was clear that he was introduced to the LA Deal on 16th
September 2013 and not beforehand and there is no reason to doubt that evidence
and no need for him to have produced any documents to support it. No positive
case was ever advanced by the Defendants that Mr Khakshouri contacted Mr
Cohanzad about the LA Deal before that date. The evidence was that the
Claimant first contacted Mr Cohanzad about the LA Deal by telephone which
explains why there was no documentary record to disclose. The Defendant’s case on
disclosure is that Mr Khakshouri should have given disclosure to prove a
negative. The suggestion seems to be that the Claimant should have disclosed
all his written communications with Mr Cohanzad in 2013 to prove that he had
not contacted him about the LA Deal until he telephoned him on 16th
September 2013. Such would have been neither necessary nor proportionate.
(iii)
As to the intricacies of the various book entries and how they fitted
together and inconsistencies in the manuscript Register, the Claimant’s
evidence was that entries were often made days or a week after the relevant
payment and they were made long before he knew that the ledger was being
challenged. His book keeper most likely made all these entries after the LA
Deal had closed which explains the entries that the Defendants challenge. The
book-keeper’s primary concern was to record the final percentage
contributions from each of the participants by reference to the dates of the
deposits in each case. Moreover, if it was clear as early as 10th
September 2013 that the Claimant was taking just a 25% interest, this would not
explain why Mr Cohanzad did not come until 18th September 2013. As a
result of his coming in late, the Claimant had to make the provisional payment
of $1.525m to cover the possibility that he may not come in at all. None of
this would have been necessary, had it been clear that he was taking over the
30% as early as 10th September 2013. But anyhow the disparate
points made about the consistency of the book entries came nowhere close to
showing any sort of wrong-doing or fraud and Mr Khakshouri’s explanations were
detailed, entirely credible and should be accepted.
(iv)
As to the suggestion that the Claimant was so wealthy that he could
and would have obtained funds from elsewhere to fund the Loan, the theory made
no sense. It was not disputed that prior to the events in dispute the Claimant
had engaged in a disastrous loan to a family member, and that this had impacted
very negatively upon his overall liquidity. If Mr Khakshouri was as wealthy as
portrayed, he would not have wished to divest 30% of his interest in the LA
Deal to Mr Cohanzad. But the theory was not in any event supported by the
evidence. When the financial details were examined properly, the accounts
established that Mr Khakshouri had $2,000 at the beginning of September 2013
and $7,630 at the end of that month. There were credits of $5,980,465.85 and
debits of $5,974,835.85 in the meantime. These include the payments of
$1,525,000 and the $1,077,500 made by the Claimant toward the LA Deal, as was
confirmed in evidence. The Claimant’s evidence that he called in more than $2m
of family loans and drew on lines of credit in order to make the payments
accorded with the relevant bank documents. When cross-examined on this he gave
accurate and credible explanations.
(v)
The allegation of inadequate disclosure is misconceived. No positive
case was ever advanced to dispute the Claimant’s position here. He was simply
put to proof of his loss.
(vi)
The hazy recollection and unsubstantiated conjecture of Mr Jimenez could
not trump the Claimant’s clear first-hand evidence.
173.
I have no hesitation is accepting Mr Khakshouri’s evidence. The
Defendants contrary case, that the claim is a fraudulent sham, comes nowhere
close to being established.
(vii) The Defendant’s case on the point in time for
calculating damages
174.
If I did not reject outright the Claimant’s damages case as a sham the
Defendants then argued, in the alternative, that the fair and proper date for
the calculation of any loss, bearing in mind that the Claimant was only out of
his money for a few months, was 22nd January 2014 when he received
back US$2m.
175.
Mr Kenny QC argued (for both Defendants) that when a wronged party was
in a position reasonably to mitigate the consequences of the wrong, e.g. by
selling or re-investing in an available market, then the law invariably
selected that date as at least the prima facie date for the assessment
of loss. He relied upon by way of example upon sections 50(3), 51(3), 53(3) of
the Sale of Goods Act 1979. The "reasonable mitigation date"
was also supported by Johnson v Agnew [1980] AC 367 at 400-401; and by The
Elena D'Amico [1980] 1 Lloyd's Rep. 76 where, at page [89], Robert Goff J
said:
"… generally speaking, the decision not to take
advantage of the available market is the independent decision of the innocent
party, independent of the wrongdoing which has taken place. It takes place in
the context of a pre-existing wrong but it does not, to use Viscount Haldane's
expression, "arise out of the transaction"."
176.
In a case of diversion of investable funds, any other approach would, it
was argued, require the Court to investigate what had been done, and what could
have been done, with the diverted funds after they or their value had been
restored to the victim: “Otherwise, the Claimant will both have his cake and
eat it”. Where returned funds are readily capable of reinvestment, that
course should be avoided as a matter of legal principle, by assessing loss at
the reasonable mitigation date: here 22nd January 2014. In any
event, the Court was in no position in this case to form a fair view as to what
was in fact done with the funds returned on 22 January 2014; and it should not
do so. It should assess loss as at 22 January 2014 in any event. Any
other approach would mean that damages could only be assessed when the
alternative investment(s) (from which the funds were diverted) could be valued
upon "maturity", a valuation which might depend on the
fortuitous state of the market at that time (or if trial came first, the
predicted the value of the alternative investments at maturity).
177.
I do not accept this analysis. In my judgment on the facts the
correct time for assessing compensation is the date upon which the LA Deal
matured i.e. 2017. There are a number of points I would make in this regard.
178.
First, that was the first point in time in which the full value of the
opportunity lost by the Claimant could be assessed. It just so happens that the
development has proven to be successful. Of course, it could have failed and
been loss making in which case there would be no loss to compensate for.
179.
Second, I have accepted the evidence of the Claimant that upon repayment
of the Loan he was not able to use this to re-acquire his interest in the
LA Deal. He was “locked out” of that deal: see paragraphs [160]–[163]
above. Mr Cohanzad made clear that he would re-sell the interest but
only at a substantial premium which Mr Khakshouri did not have nor would
(rationally) have wished to pay (even the Defendant’s accept that the premium
demanded by Mr Cohanzad was over the odds: see paragraph [171 (xii)] above. Mr
Khakshouri was not under any legal obligation to leverage himself back into a
55% holding in the LA by succumbing to terms that were, on any sensible view,
unrealistic. I accept that the Claimant acted reasonably in not accepting or
exploiting this re-acquisition offer.
180.
Third, cases such as 4 Eng Ltd,
(ibid), upon which the Defendant’s lay great weight, do not assist. The facts of
that case were different. The case refers to the “usual rule [which] would
be that the loss is fixed as at the date of the transaction because the
claimant could immediately have sold the asset and any deferment in a sale is
his own choice” (ibid paragraph [55]). The case is not authority for a return
to the Victorian penchant for inflexible rules (see paragraph [142] above). The
judge in that case accepted that the “usual” rule did not apply where
the claimant was in effect locked into a transaction. In the present case the
Claimant is locked out of the transaction that he would otherwise have
been in. To obviate his loss he needed to be able to return to that
transaction at neutral or reasonable cost. But that was not possible. David
Richards J stated in 4 Eng Ltd that case:
“I could follow the defendants' submission if on 6 January
2006 4 Eng recovered substantial funds which it could then invest in an
alternative acquisition. In fact, of course, Excel was insolvent and 4 Eng
recovered nothing. It was no more able then to make an alternative acquisition
than it had been in the past or would be in the future. The consequences of the
defendants' deceit did not stop then but continued until trial. The choice of 6
January 2006 would be arbitrary and unconnected with 4 Eng's loss."
181.
I accept that upon return of the funds the Claimant could, in
principle, then have used those funds to invest elsewhere such that,
ultimately, he might not have suffered any overall loss at all. This goes to
mitigation, which I address below
(viii) Mitigation
182.
I turn now to mitigation. There is no material dispute about the
principles governing mitigation. The parties have relied upon as accurate, the
account in Clerk & Lindsell. It is worth restating some basic points.
183.
A claimant is under a duty to mitigate his loss. Damages are not
recoverable for losses which a claimant could reasonably avoid by taking action
subsequent to the commission of the tortious act. It is a question of fact and
evidence in each case whether a benefit which has accrued to a claimant as a consequence
of his action is sufficiently closely related to a particular head of damage so
as to warrant and justify a reduction: See Clerk & Lindsell paragraph
[28-09] and footnote [52]. Not all steps taken to offset loss will invariably
count to reduce the damages. The taking out of an insurance policy prior to the
loss which would offset it, for instance, may be treated as collateral to the
defendant’s liability and will not affect it (ibid).
184.
The onus is on the defendant to show that the claimant failed to
mitigate: Clerk & Lindsell (ibid) paragraph [28-09] page [2012].
185.
Much will depend upon “…what the court regards, in the circumstances,
as being reasonable. Judges are reluctant to impose excessive demands on
claimants” (ibid). Court do not, for instance, require a claimant to “…risk
capital in a speculative venture” (citing Jewelowski v Propp [1944]
KB 510).
186.
The Claimant’s evidence was as follows. There was no possibility to
mitigate by buying back into the LA Deal. There were no other similar deals to
be done at the time: “The LA Deal was unique”. Such deals: “do not
grow on trees”. The Claimant managed to secure that deal by purchasing the
Property in a run down and derelict condition: “at the right price. The
property never even came to market”.
187.
He was at the time short of cash. He had no apartment buildings at that
time which were generating revenues. He had substantial outstanding debts at
the time, including to Mr Cohanzad and to others. The repaid funds were therefore
used to repay some higher interest loans and to advance money to his brother
who was bankrupt and going through a divorce. He disclosed a schedule of the
loans. He did not charge interest.
188.
The Defendant’s case was again largely advanced by Mr Kenny QC on behalf
of both Defendants’. As set out above, the thrust of the argument was that the
Court should choose to measure quantum as of the date of extrication /
repayment of the Loan because this would do away with any need to consider
mitigation which, it was argued, was an overly complex and uncertain task. Other
than this there was no sustained challenge to Mr Khakshouri’s evidence
as to the disposition of the repaid funds. The Claimant’s case on mitigation
was (relatively briefly) explored in cross examination. The following reflects
the questioning with regard to the use of the repaid funds:
Q.I put the
point in relation to the 2 million that came
in in January. The rest comes in June, by which time
you've got $3 million. You now have 2 million coming in
in January and just over 1 million coming in from the
club in June. You now have $3 million. Why don't you
go then to Mr Cohanzad and say: look, I really like this
deal. He says in his own evidence that he regarded it
as having taken a considerable risk in investing, why
don't you say to him, "I'll buy you out"?
A. Okay, maybe you are having a math problem, but I did
state already that I owed a tremendous amount of money
in January, and starting January, I did start loaning
money to my brother –
Q.Yes.
A. -- who was going through a divorce, as well as a
bankruptcy. But you're not making any attention to the
fact that I had borrowed $1 million from Mr Cohanzad
already.
Q. But presumably you were in a position to pay him back
immediately
A. But that wouldn't have left me with $3 million, would
it?
Q. No, it would have left you with 2.
A. It wouldn't have left me with 3, and then there's also
my brother-in-law, there's also my lines of credit,
there's also my living expenses, there's also my
brother.
Q. Are you saying you had no other sources of income at all
over this period?
A. At that point I didn't have apartment buildings that
generated income.
Q. Well, we will have to take your word for that.
Now, what you say you did is -- well, let me put
this to you: once you've got this $3 million back, you
wouldn't have let it sit idle, would you? I mean, you
would have paid back who you had to pay money back to,
but you would then have got it to work.
A. If there was a deal, possibly, but yes, I mean it's --
you know –
Q.Well, we've seen that these deals come along two or
three in a year that you can do. In a good year it may
be four.
A.That –
Q. Would you not have invested this money into one of those deals as soon as
you could?
A.No, not necessarily. 2013 was an exceptional year where
I was very active.
Q. And, what, 2014 was an absolutely duff year in which
there were no opportunities?
A. Well, I didn't have the money, and the opportunities
like the ones that I had in 2013, they just don't grow
on trees. These are properties -- I mean, two or three
of the sites that I -- well, three of the four sites
that I acquired didn't even come to the market. So
these are properties that, you know, come available or
come to me from time to time. It's not like they're
just -- you just go back to the market and buy another
property.
189.
No dent was made in the Claimant’s account. As Mr Kenny QC conceded, the
Defendants “… would have to take his word” on this. Mr Kenny QC also questioned
Mr Khakshouri as to whether he had provided proper disclosure of documents
relevant to mitigation. Mr Khakshouri stated that there were no other
documents of relevance that had not been disclosed and that in effect he was
being asked to identify document which did not exist. There was no challenge
to this explanation:
“Q.
Now, with the exception of that press document we were
just looking at, the documents we have been looking at
in relation to your supposed lost opportunity to invest
in the LA deal, they are all documents disclosed by you
and I think they are all, almost all, documents referred
to in your witness statement, and I therefore imagine
that these are documents on which you wish to rely; you
disclosed them because you wish to rely upon them in
support of your case.
Mr Khakshouri, you must know that your obligation of
disclosure is not simply to search for and disclose
documents that you wish to rely on, but also to search
for and disclose documents that harm your case or that
may support the defendants' case. I just wonder to what
extent you have undertaken any search for documents that
undermine your case on loss. For example, documents
that tend to show other sources of funds, where your
monies came from, what your wealth consisted of
in September and October 2013. Documents that tend to
show what you did with the money that came back
in January and June 2014. Where did that money go.
Have you looked for documents that show what you did
with it, and have you considered searching for and
disclosing documents that might indicate what other
business you did and have been involved with since 2014,
and including 2014? I mean, what's happened? Where are
all these documents?
A. I -- there's -- I mean, you're asking me to provide
documents about September, that there's other monies or
that I had more wealth. I tried to explain to you that
I was borrowing from my lines of credit, so how would
I -- I mean, you want me to produce documents about
accounts that ...
Q. Yes. Where are all these documents? Where are all the
documents that would tend to show what your wealth was,
your combined total wealth was in September/October
2014 -- sorry, 2013, and what you had been doing with
the money that was returned to you?
A. Okay. I thought -- well, first of all there are no
other documents. I mean, the documents are pointing to
the fact that I'm actually borrowing money from my lines
of credit. If I have money in other accounts available
to me, I would have used that money. So you're asking
me to find documents that don't exist.
Q. Right. I'm grateful.
Q.
Now, with the exception of that press document we were
just looking at, the documents we have been looking at
in relation to your supposed lost opportunity to
invest
in the LA deal, they are all documents disclosed by
you
and I think they are all, almost all, documents referred
to in your witness statement, and I therefore imagine
that these are documents on which you wish to rely;
you
disclosed them because you wish to rely upon them in
support of your case.
Mr Khakshouri, you must know that your obligation of
disclosure is not simply to search for and disclose
documents that you wish to rely on, but also to search
for and disclose documents that harm your case or that
may support the defendants' case. I just wonder to
what
extent you have undertaken any search for documents
that
undermine your case on loss. For example, documents
that tend to show other sources of funds, where your
monies came from, what your wealth consisted of
in September and October 2013. Documents that tend to
show what you did with the money that came back
in January and June 2014. Where did that money go.
Have you looked for documents that show what you did
with it, and have you considered searching for and
disclosing documents that might indicate what other
business you did and have been involved with since
2014,
and including 2014? I mean, what's happened? Where
are
all these documents?
A. I -- there's -- I mean, you're asking me to provide
documents about September, that there's other monies
or
that I had more wealth. I tried to explain to you
that
I was borrowing from my lines of credit, so how would
I -- I mean, you want me to produce documents about
accounts that ...
Q. Yes. Where are all these documents? Where are all
the
documents that would tend to show what your wealth
was,
your combined total wealth was in September/October
2014 -- sorry, 2013, and what you had been doing with
the money that was returned to you?
A. Okay. I thought -- well, first of all there are no
other documents. I mean, the documents are pointing
to
the fact that I'm actually borrowing money from my
lines
of credit. If I have money in other accounts
available
to me, I would have used that money. So you're asking
me to find documents that don't exist.
Q. Right. I'm grateful.”
190.
I accept Mr Khakshouri’s explanations as to what he did with the repaid
funds. The Defendants have not dented, undermined or thrown into doubt the
explanations provided, which are credible and backed up with documentary
evidence.
191.
It follows that on the evidence I find that the sum to be paid by way of
compensation is not to be discounted to take account of any failure on the part
of the Claimant to mitigate
(ix) The share of the LA Deal held by the Claimant’s
wife.
192.
An issue arose during trial whether, if he prevailed, Mr Khakshouri had
the right to recover 100% of the loss attributed to dilution of the interest in
the LA Deal; or, alternatively, only 51% of the loss by virtue of his joint
agreement with his wife, who would be the person who had locus to
sue for the remaining 49% and not the Claimant (see paragraphs [150] - [154]
above). Mr Atkins argued that the instrument in question was governed by US
(Californian) law and served to confer upon the Claimant the right to sue for
100% of the loss. The Defendants have not accepted that this is necessarily
so. Given that the issue arose very late on, they have reserved their
positions. The agreed position at the end of the trial was that I would decide
as much as I could and if I arrived (as I have) at the position that the
Claimant wins, then I should reserve the issue of Mrs Khakshouri’s interest to
be resolved either by agreement or, failing that, by me in accordance with such
procedure as I laid down to ensure a quick resolution of the point.
193.
The award of damages that I therefore make, in the first instance, is as
to 51% of the sum claimed by Mr Khakshouri. If the issue of the 49% is not
agreed as between the parties I will then resolve the issue of the remaining
49%.
H The Second
claim for damages: The Loan variation
(i)
The issue
194.
The Second Claim for damages (referred to in paragraph [11] above) is,
in relative terms, very minor. Mr Khakshouri contends that in early 2014 he
agreed to vary the terms of the Loan (by deferring repayment) because the
Defendants lied to him that the Club had been sold with the Land
Deal in place. The representation in issue was pleaded in the following terms,
in the APOC: "The Defendants thus represented to the Claimant that the
Land Deal had been part of the sale of the Club and was therefore proceeding".
195.
Mr Khakshouri says that he would not have agreed to vary the terms of
the Loan had he understood the true position. He agreed because he believed
that he stood to make more profit on the Land Deal than he might lose on a
variation of the Loan. Prima facie, he claims damages in the sum of
£65,298.59 for the loss suffered as a result. This loss arose when the currency
of the loan was switched from US Dollars to UK Sterling as part of the
variation agreed. The prima facie sum is however reduced because it is
accepted by the Claimant that any award in his favour based upon forex losses
must be offset against the extra interest earned on the Loan by reason of its
deferment. The total quantum figure is in the region of £30,000.
196.
The Defendant’s deny that they ever told Mr Khakshouri that the Club had
been sold with the Land Deal in place. They reiterate that it had never been
the case that they guaranteed that the sale of the Club would be inextricably
linked to the Land Deal (i.e. the First Claim). They argue that the reasons for
the Claimant agreeing to vary the terms of the Loan therefore, and in any
event, had nothing to do with the Land Deal. Mr Khakshouri was content to vary
the Loan (and in particular to extend its term) because he knew that the Loan would
be repaid shortly (as it was) and he would continue to earn the high
contractual rate of interest pro tem.
(ii)
Analysis: Position of the First Defendant
197.
I propose to deal with this relatively briefly. The answer flows from
the chronology. The basic facts are set out in paragraphs [64]- [74] above. The
key points in that chronology are as follows.
198.
As of the start of 2014 discussions were ongoing with creditors of the
Club to persuade them to agree to defer repayment of their debts until May 2014.
Four particular creditors were identified: (i) Mr McGlynn; (ii) Mr Khakshouri;
(iii) AtPledge; and (iv) “Jesus”.
199.
AtPledge and Jesus apparently agreed to defer. A debate occurred as
between Messrs Jimenez, Cash, Deeley and Slater as to who out of Mr Khakshouri
and Mr McGlynn could be most easily persuaded to vary the terms of their loans
by deferring repayment. Michael Slater in an email of 15th January
2014 set out the pros and cons. These included: (a) Khakshouri’s interest rate
was lower (12%) than McGlynn’s (20%); (b) McGlynn had a lawyer; (c) McGlynn’s
money had been out longer; (d) McGlynn had more security; (e) “Darius is a
mate”.
200.
In this context Tony Jimenez sent an email on 15th January
2014 to Messrs Slater, Deeley and Cash stating that any discussion with the
Claimant would be “…a very tough conversation”. Mr Jimenez explained
that Mr Khakshouri was short of cash and was “banking on getting this
money”. He said: “Darius is expecting to get paid back in full. He is
a close friend and I’m sure Kevin and I would hate to in anyway risk that
friendship. I would sooner piss off McGlynn although I take the point about
interest”
201.
Then he said this: “The part that could help either case is the
property deal at the Peninsular given that each of them (McGlynn and Darius)
expect to be in that deal. We could use that in the bargaining but we would
need to know we have it”.
202.
This shows Mr Jimenez’s state of mind immediately prior to his discussion
with Mr Khakshouri during which the Claimant was persuaded to vary the Loan. As
of 15th January 2014, Mr Jimenez knew (obviously) that there was no
linked Land Deal. Yet he still observed that both (Khakshouri/McGlynn) “expect
to be in that deal”, which presupposes that neither had been told that
there was no such deal for them to be “in”. He then stated that this
expectation (of being “in” a deal) could be used in the bargaining
process albeit that he qualified this with the recognition that “we would
need to know we have it”. He is plainly, when he says “it”, referring
to the Land Deal.
203.
In this connection it is clear from other evidence, for instance pre-xmas
2013 email traffic between the Defendants and the senior management of the Club,
that Mr Jimenez fully understood that if the Club was sold
without a linked Land Deal, that they (i.e. the Defendants) then lost all
their negotiating leverage. And it therefore follows that there could have been
no serious or rational expectation that any Land Deal was going to emerge or
that Mr Roland Duchatelet was, having acquired the Club, going to return to the
Defendants and allow them back into some deal whereby they re-acquired a degree
of influence over the future disposition of the stadium that they had just
sold. The brute truth was that with the sale of the Club having gone through without
a Land Deal there was no way in which any representation could honestly
have been made to creditors that such a Land Deal was still in the
offing and was therefore a valid reason why those creditors should defer
receipt of that which they were otherwise owed.
204.
Despite all of this, when, on 19th January 2015, Mr Jimenez
had what he originally believed would be a “very tough” call with Mr
Khakshouri, he knew that he had no Land Deal either in place nor on the horizon
which he could properly use as a bargaining counter.
205.
This is the context to the call on 19th January 2014. And
that context leads to the conclusion that (a) Mr Jimenez knew that he had to
perpetuate the fake belief in Mr Khakshouri’s mind that he had a genuine
expectation of being “in” the Land Deal and (b) he also knew that to justify
perpetuating that belief he had actually to have a Land Deal in place. Yet, of
course, he did not have such a deal in place and there was no real expectation
or belief that any such deal would fall into his lap, then or indeed ever.
206.
The Claimant and Mr Jimenez spoke on the phone on 19th
January 2014 and the Claimant agreed to defer repayment of the Loan. It is
common ground that Mr Jimenez did not explain that no Land Deal had been
concluded as part of the sale of the Club.
207.
How did Mr Jimenez square this circle and avoid the “tough
conversation”? Mr Jimenez said to Mr Khakshouri during this discussion that
the new owner was not interested in the Land Deal, but he also
represented that this meant that the benefit of that Land Deal now inured 100%
to the Claimant and Defendants. The clear inference conveyed, and intended to
be conveyed, was that there was still a Land Deal on the table and it
was now more valuable than before the sale of the Club.
208.
In view of the earlier email exchange it is in my judgment clear that Mr
Jimenez was less than candid. He deliberately perpetuated in the Claimant’s
mind the false idea that there was a Land Deal in place that the Claimant would
be “in”. This was the “expectation” that he had referred to in
the email of 15th January and that expectation was not disappointed
during the conversation. That much is evident from the response of Mr
Khakshouri following the conversation. On 20th January 2014, Mr
Khakshouri emailed Mr Jimenez saying: “Needless to say, I’m very happy that
you were successful in the timely sale of Charlton Athletic FC and that you are
in a position to be repaying me. I’m also very appreciative and thankful that you
and Kevin included me in the ‘property deal’ which you both believe to have
tremendous potential” (emphasis added). Mr Khakshouri believed that the
Land Deal was still a live project. The use of the definite article “the”
as in “the property deal” supports the conclusion. He did not know that
in fact the Land Deal was effectively dead. The representation made by Mr
Jimenez that the Land Deal now inured 100% to the benefit of the Defendants and
the Claimant was falsely made, and knowingly so. And Mr Jimenez (nor anyone
else connected with him) did not put Mr Khakshouri straight until June 2014
(see paragraphs [72] – [74] above) .
209.
There can be no doubt but that what was said during that telephone call
was said with the specific intent of inducing the Claimant to agree to vary the
terms of the Loan. The Claimant has suffered some (modest) loss by virtue of
this deceit.
210.
For these reasons the First Defendant is liable to the Claimant the
Second Claim.
(iii)
Position of Second Defendant
211.
As to the Second Defendant, Mr Cash, the position is less clear. He was
not party to the conversation on 19th January 2014. He was however
copied in on the emails which preceded it. However, those emails do not spell
out precisely how Mr Jimenez was intending to engage with Mr Khakshouri to
persuade him to vary the Loan, so it would not be right to infer from that
earlier email exchange that Mr Cash necessarily knew what Mr Jimenez was going
to say or that it involved the making of a false representation. I suspect
that Mr Jimenez reported back to each of Messrs Cash, Slater and Deeley on his
successful conversation with Mr Khakshouri. Certainly, Mr Cash did not
disabuse Mr Khakshouri of his misconceptions. But I cannot be confident about
this to the requisite degree. I therefore do not find Mr Cash liable on this
aspect of the case, either as principal or upon the basis of vicarious
lability. There is not enough evidence to support such a conclusion.
(iv)
Conclusion
212.
In conclusion the First Defendant is liable to the Claimant on the
Second Claim. The Second Defendant is not liable. The Claimant and First
Defendant will seek to agree the relevant figures, failing which the Court will
resolve any outstanding dispute.
I Overall conclusion
213.
The First and Second Defendants are liable to the Claimant on the First Claim.
The First Defendant is liable to the Claimant on the Second Claim. The parties
will seek to agree an order to reflect this outcome which will include
proposals for resolving the outstanding matters relating to damages.
