Jersey Unreported Judgments

[2006]JRC141

royal court

(Samedi Division)

11^th October 2006 

Before     :

M. C. St. J. Birt, Esq., Deputy Bailiff, and Jurats de Veulle, and Newcombe.

 

Advocate M. L. Preston for the Plaintiff.

Advocate M. C. Goulborn for the first and second Defendants

judgment

the deputy bailiff:

1.        In this case the plaintiff sues as assignee in respect of a loan agreement which it alleges was entered into on 22^nd October 2003 ("the first loan") in the sum of US$2.5 million with the first defendant ("Dr Haden-Taylor") as borrower and it also alleges that it subsequently entered into a second loan agreement dated 12^th November 2004 ("the second loan") with a company called Cayman Island Yacht Club Limited which was guaranteed by Dr Haden-Taylor and the second defendant.  It further alleges that, subject to credit for some US$420,750, Dr Haden-Taylor has not repaid the first loan and Dr Haden-Taylor and the second defendant have not paid up under their guarantees.

2.        Dr Haden-Taylor contends that the first loan was not in fact a loan and that the guarantees entered into by him and the second defendant in respect of the second loan are not valid and enforceable for a number of reasons.  He also brings a counterclaim on grounds we shall describe shortly for some US$30 million. 

3.        The Court heard orally from two witnesses, namely Mr Keith Laker on behalf of the plaintiff and Dr Haden-Taylor on behalf of the defendants.  The case turns substantially on the Court's assessment of their evidence in conjunction with the available documentary evidence.  The Court also received two written statements under the Rule governing the admissibility of hearsay evidence, namely one from Mr Gustav Charpentier on behalf of the plaintiff and one from Mr Barrie Foley on behalf of the defendants.

4.        We propose to set out the general factual background to this dispute before summarising each party's case and then giving our decision.  Although all the parties referred during the hearing to the first loan and the second loan and we shall use the same expressions for convenience, it is of course understood that the defendants do not accept that the first loan was in fact a loan.  This is therefore an issue which we must resolve in due course. 

The factual background

 

(a)     The first loan

5.        Mr Laker and his wife live in Guernsey.  They are and were at the material time (although they were not then married) the main shareholders in a registered trust and company administration business in Guernsey.  One of the companies in that group is Willow Trustees Limited ("Willow Trust").  Mr Laker and his wife are also the controlling shareholders and directors of the plaintiff, Willow Millenium Holdings Limited ("Holdings").  However that is a company which they use for their own private investments and it is not part of the registered trust and company administration business. 

6.        Dr and Mrs Haden-Taylor live in Jersey.  In 2003 Mrs Haden-Taylor met Mr Laker through mutual charitable activities in the United Kingdom and subsequently Mr Laker met Dr Haden-Taylor on a sailing trip to Jersey in the summer of 2003.  They met on a couple of occasions and it is clear that they got on extremely well.  Dr Haden-Taylor was very open about his business affairs. 

7.        Because these form an essential part of the background to this dispute, we shall take a few moments to describe them, as told to us by Dr Haden-Taylor.  It would seem that he had two main business interests which are relevant to this case.  The first was his interest in the second defendant Recycled Refuse International Limited ("RRI").  This is a Jersey company which was involved with waste to energy technology and Dr Haden-Taylor was anxious to develop its business.   We were told by Dr Haden-Taylor that RRI is owned by a Swiss company Baufinanz und Treuhand AG as trustee of a discretionary trust established by Dr Haden-Taylor's father, of which he is one of the beneficiaries.  However it is clear that Dr Haden-Taylor tended to give the impression that RRI belonged to him.  To take one example, in his affidavit sworn in October 2005 for the proceedings before the Grand Court of the Cayman Islands, he refers to RRI as "my company". 

8.        His second business interest related to Cayman Island Yacht Club Limited ("CYC") a company incorporated in the Cayman Islands.  Dr Haden-Taylor visited the Cayman Islands in 2001 with a view to trying to obtain a contract for RRI in connection with the collection, treatment and disposal of the island's municipal solid waste.  Whilst there he discovered that some American purchasers had pulled out at the last moment from the purchase of some land adjacent to the Yacht Club because of the 9/11 terrorist attack in New York.  He immediately formed the view that there would be a crisis of confidence in external investment by American investors which meant that such investments could be acquired cheaply at the time but would increase in value as confidence returned.  He therefore stepped into the breach and, through CYC which was incorporated specifically for the purpose, he agreed to purchase the same ten parcels of land that the American purchaser had pulled out of for about a quarter of the price.  The vendor, Pan-Am Developments Limited, was owned by Japanese investors and they accepted a price of US$14 million spread over eight years.  The Pan Am contract was signed on 27th November 2001 and provided for stage payments in exchange for each of which one parcel of land would be conveyed by Pan- Am to CYC.  Each payment date could be put back by up to nine months upon payment of interest for the period, but if the payment was not made by the latest deferred date then Pan-Am could cancel the contract and CYC would lose the right to purchase the remaining parcels of land.  However it would of course retain those which it had already acquired.  Once it had purchased all the parcels of land CYC would be the owner of a substantial area of developable land adjacent to a marina. CYC had the right to accelerate the contract by purchasing all the remaining parcels at any time.  According to Dr Haden-Taylor, he was advised that the projected profits following development could be as high as US$200 million. 

9.        Although the issued share capital of CYC was registered in Dr Haden-Taylor's name, he gave evidence that he held these as nominee for RRI.  Certainly Mr Foley, who was employed by RRI from 1st April 2005 until March 2006, stated that CYC was the jewel in RRI's crown and its disposal was the plan upon which all future growth and expansion of RRI depended.  It is clear that, throughout the relevant period, Dr Haden-Taylor was short of liquid resources and much of his energy was devoted towards raising funds in order to realise the potential of both CYC and RRI.

10.       Returning to October 2003, Dr Haden-Taylor told Mr Laker of an opportunity to make very substantial returns.  The Court was not given any detail of the scheme but it appears to have involved the placing of funds in a blocked deposit with Pershing Nominees Limited, a subsidiary of the Bank of New York.  These funds would apparently allow the bank to purchase US Government Securities which, according to Dr Haden-Taylor, would in turn be used to securitize large substantially leveraged loans for dealing in bank paper.  Dr Haden-Taylor had been told about this scheme by Mr Joerg Heidenreich of Park Row GmbH and had in turn been put in touch with Mr Deitmar Horman of Advice Capital Management GmbH ("Advice") who appears to have been the main organiser of the scheme.  Dr Haden-Taylor had been told that returns of up to 20-25% per month could be achieved on sums in the region of US$2.5 million and he had passed this on to Mr Laker. 

11.      Mr Laker gave evidence that he had heard of such schemes before but had always understood that they were limited to persons with US$100 million to invest.  The difference with this scheme was that it was apparently available for much smaller sums. 

12.      After obtaining the consent of the settlor of a particular trust which Willow Trust administered, he decided that Willow Trust should invest US$2.5 million as trustee of the settlement.  Mr Laker asserted - and Dr Haden-Taylor accepted - that Dr Haden-Taylor said at the time that he was also going to invest either US$5 or 7.5 million alongside Willow Trust.  However Dr Haden-Taylor did not tell Mr Laker that he was negotiating to borrow this sum on the security of CYC.  This attempted borrowing was unsuccessful and accordingly he never did contribute any funds to the project.  The mechanics of the transaction were that the sum would be placed in a blocked deposit with Pershing in the name of Dr Haden-Taylor. 

13.      It appears that, unfortunately, Mr Laker carried out comparatively little due diligence.  He described in evidence that he trusted Dr Haden-Taylor.  He had met him through Mrs Haden-Taylor in connection with charitable activities, he found Dr Haden-Taylor to be articulate and intelligent and he was impressed by Dr Haden-Taylor's demeanour, ability and apparent wealth.    He said that he also drew comfort from the fact that Dr Haden-Taylor was going to be investing two to three times the amount which Willow Trust was contributing to the scheme.

14.      He did however take some modest precautions.  First, he asked for confirmation that the sum would be placed in a blocked deposit and on 21^st October Mr Heidenreich e-mailed such confirmation.  Mr Heidenreich also explained that the money would initially be placed for a 30-day period but that the deposit could be repeated a further two times for an aggregate three month period. 

15.      Secondly, Mr Laker said that he considered that there must be appropriate paperwork to reflect the transaction.  He therefore drew up a short loan agreement which he e-mailed to Dr Haden-Taylor who was in Dubai at the time.  He made it clear that the US$2.5 million would not be contributed until the loan document was completed.  The loan agreement was between Willow Trust and Dr Haden-Taylor and was expressed to be governed by the law of Guernsey.  The two relevant paragraphs stated as follows:-

"Whereas the lender has deposited with the borrower the sum of US$2.500.000 (two million five hundred thousand US Dollars) on or before the 25^th October 2003, the receipt of which is hereby acknowledged.

NOW THIS DEED WITNESSETH that the above mentioned deposit shall constitute a loan from the Lender to the Borrower which shall be repayable together with interest of US$250,000 (Two Hundred and Fifty Thousand US Dollars) on or before the expiration of a 90 day period from the date of depositing funds with the Borrower."

16.      On receiving these documents Dr Haden-Taylor commented by e-mail "The $250,000 looks a bit high since this is for you! But the concept is certainly short and sweet.  Presumably you have decided it is worth trying and if we can sort out the documentation then the money will transfer and the action starts.  There is not a lot to lose and what must be a good deal to win......"   Mr Laker replied the same day by e-mail stating that the $250,000 was for the client, not him.

17.      In evidence Mr Laker said that it was he who had inserted the figure of $250,000 in the loan agreement and this was chosen as being, on the basis of what he had been told, a 'cautious base-line figure' for the return which should be achieved.  From the information which he had been given, he and the settlor of the relevant trust expected the returns to be much higher.  He said that he had agreed with the settlor that any return over and above the sum of US$250,000 over the 90 day period would be paid to Holdings and he and the settlor would then discuss how to divide these extra profits i.e. some would go to the trust and some would be retained by Holdings for the benefit of Mr and Mrs Laker.  He admitted that he had not told the third director of Willow Trust (who was non-executive) of the arrangement but felt that this was not necessary as the director was due to leave shortly. 

18.      In any event, Dr Haden-Taylor signed the loan agreement, which is dated 22^nd October 2003, and Willow Trust transferred the sum of US$2.5 million into Dr Haden-Taylor's account with Pershing for value on 29^th October.

19.      We have two very different versions of what followed.  Essentially, Mr Laker says that he regularly made enquiries as to when the US$2.5 million and the anticipated return thereon would be paid back.  Thus he sent e-mails to Dr Haden-Taylor on some eight occasions between 1^st December 2003 and 29^th January 2004 seeking information as to the performance and/or the return of the money.  On 29^th January he e-mailed Dr Haden-Taylor as follows:-

"I gathered from Joerg a couple of days ago that the deposit was due to mature yesterday with a performance very much as anticipated.  Assuming this to be the case, would you kindly please arrange for Pershing to remit funds back to the trust account as follows:- ........"

There followed the account details.  He sent a chasing e-mail on 3^rd February and a further e-mail to Dr Haden-Taylor on 4^th February which read as follows:-

"Forgive me for pressing you, but we now urgently need news of the capital repayment.  We had originally believed that the 90 days would be more than adequate, and those same funds are now required for a property completion - now overdue - in Iceland.  We are now beginning to lose considerable face with the vendor and I urgently need the capital element repatriated to the original trust account.  I appreciate that you are still awaiting a closing statement, but Joerg assures me that the capital sum mentioned in my earlier message can in theory be moved without delay."

20.      Mr Laker says that at some stage thereafter he was informed on the telephone by Dr Haden-Taylor that there was some dispute with the bank, which now claimed that the funds had to remain on deposit for a full twelve months until November 2004.  He says that he accepted this explanation and believed therefore that the money remained in the blocked account at Pershing in Dr Haden-Taylor's name.  He says that his understanding was confirmed by an e-mail dated 17^th March 2004 from Dr Haden-Taylor the relevant parts of which read as follows:-

"Am back to day and off after a shower to go to Germany to see the funds people and then I am scheduled to be in New York on Monday to get to the bottom of this.  I have hinted that the time is right for gloves off and I have widened the net to cover Oliver, Joerg and everyone else including Pershing. 

Between them I have told them that I want a resolution to this mess.  I have continued to say that the money can remain for a while working provided they give me clear evidence and guarantees that a definite return will be given that will compensate us for forex losses and also some reward on the monies. 

As an inducement, I have indicated that the money can stay for one month only if they are to compensate me (us).  Joerg and Oliver are clearly worried and I have said that every stone will be lifted to get the bottom of this as promises and dates have been broken repeatedly.

I will speak to you on Friday or otherwise on Tuesday of next week.  Be assured that I am working for both of us in a firm but quiet manner and am confident that they now realise that I am not a pussycat and I am about to eat them all if they do not put matters right to my (our) satisfaction............."                                  [Emphasis added]

It is to be recalled of course that at this stage Dr Haden-Taylor had not contributed any money of his own.  As he conceded in evidence, he was therefore not entitled to any share of the profits; the deposit and any interest or profit earned thereon was entirely due to Willow Trust.  The emphasised references might be thought therefore to be somewhat misleading and we shall revert to this in due course.

21.      We should interpose at this stage to say that by an e-mail dated 26^th February 2004 Mr Laker wrote to Dr Haden-Taylor stating that he required £225,000 in relation to an unrelated property deal and requesting whether Dr Haden-Taylor would be able to provide this.  He says that he received no response to his e-mail but on about 3^rd March 2004 US$420,750 was credited to Holdings' account.  He sent a further e-mail to Dr Haden-Taylor the same date stating that he was not sure whether these funds had been sent from the Pershing account or not and he sent a further e-mail on 10^th March seeking clarification of the source of the funds.  However he received no response and he assumed that this was a separate loan to Holdings from Dr Haden-Taylor in relation to this unrelated property transaction and not part repayment of the funds loaned to Dr Haden-Taylor by Willow Trust.  Nevertheless it has been agreed that that payment will be treated as such part repayment for the purposes of this litigation.

22.      In fact, the Pershing account was not blocked for 12 months and the funds did not remain there. 

23.      According to Dr Haden-Taylor he was informed by Mr Heindenreich in December 2003 that the deposit had not performed as anticipated and that the amount was down to something over US$2.3 million.  Statements supporting this and the transactions to which we will refer shortly, were disclosed by Dr Haden-Taylor only a few days before the hearing. Mr Laker had not seen them previously.  Dr Haden-Taylor said that Mr Horman suggested that the US$2.3 million should be invested in a different scheme in Amsterdam which would double the money over the course of January and February 2004.  He says that he discussed this with Mr Laker who agreed to it and accordingly US$2.3 million was invested in the Amsterdam scheme.  Certainly the statement of the Pershing account for the month of December 2003 appears to show US$2.3 million being paid out, although there is no indication of the destination of that payment. 

24.      Dr Haden-Taylor said that he pressed Mr Horman repeatedly and was given rather evasive answers as to what had happened to the money in Amsterdam but eventually it came back to the Pershing account in March in the exact same sum of US$2.3 million.  There was no interest or profit.  When pressed by Dr Haden-Taylor Mr Horman apparently said that there had been a profit but that it might take sometime to obtain it. 

25.      What is quite clear is that, during the course of March 2004, on the instructions of Dr Haden-Taylor, the vast majority of the funds in the Pershing account were paid out for Dr Haden-Taylor's benefit.  On 2^nd March US$420,750 was paid away and this eventually found its way to Holdings as described in para 21. On the same date US$280,500 was paid out to Harris Bank International.  According to Dr Haden-Taylor this represented a payment to Sepco, the agent in respect of a project being undertaken by RRI in Thailand.  A further payment of US$155,000 was paid out on 22^nd March and he thought that that was also in respect of the Thailand project.  On the same date a sum of US$1,450,000 was transferred to Dr Haden-Taylor's personal account at Clariden Bank in Switzerland.   We were told by Dr Haden-Taylor that this was spent during the course of 2004 in supporting the proposed projects of RRI in Thailand and South Africa. 

26.      Dr Haden-Taylor said that when the US$2.3 million returned from Amsterdam he discussed with Mr Laker whether Mr Laker would like the sum returned to Willow Trust.  He says that Mr Laker was adamant that he did not want the reduced sum back as he could not disclose a loss from the investment because he had used client's money.  He said that Dr Haden-Taylor must re-invest the funds and must not return them until he had made a profit of significantly more than could have been earned on an ordinary deposit account.  Dr Haden-Taylor then said that he would be able to re-invest the funds in two RRI projects, one in Thailand and the other in South Africa.  He believed that these would be very profitable although they both required upfront funding for expenses.  He says that Mr Laker agreed to go ahead with re-investment in these projects and that accordingly he felt entitled to make the payments out of the Pershing account in March, although he did not clear the specific payments with Mr Laker.  He said that unfortunately both projects had subsequently collapsed and accordingly the money had been lost, although both projects remained viable and money might be recovered in the long term. 

27.      On 21^st September 2004 Dr Haden-Taylor closed the Pershing account and the remaining sum of US$35,443 was paid to him by cheque.  He admits that he did not tell Mr Laker that the account had been closed.  Mr Laker only learned of this fact from Advice in January 2005.  He sought an explanation from Dr Haden-Taylor as to where the proceeds had gone but, according to him, he never received an explanation and there is no documentary evidence that he did.

(b)    The second loan

28.      There does not appear to have been much contact between Dr Laker and Dr Haden-Taylor in the summer and autumn of 2004 but on 10^th November Mr Laker sent an e-mail to Dr Haden-Taylor seeking an update on the position.  On 11^th November Dr Haden-Taylor sent an e-mail in response.  In effect, he made it clear that he needed the sum of £1 million within 24 hours in order to meet the next instalment due by CYC under the Pan-Am contract.  Relevant parts of the e-mail read as follows:-

"Dear Keith.  I am still struggling with this issue.  I have instructed lawyers and we are attempting to have the cash released.  We have no idea if the cash is still in place and I have to be delicate and patient.

The impact of not accessing the cash for both of us must be crippling.  I know from my part that it is killing me.  We have a completion date tomorrow for £1 million payment in Cayman for the second tranche of the land.  I have delayed and delayed it for seven months and Friday is the last day of the 14-day default notice. 

If I do not pay by close of business tomorrow, then I lose the yacht club and retain only the piece of land that I bought and paid for.  The small loan I have with Scotia Bank for US$175,000 would be called and I would have to find that or the bank would close on that piece and sell it back to the Japanese who sold the club too cheaply.  They are eagerly awaiting me to default and I hear on the grapevine that they have another buyer who has purchased all of the land around us and they are ready to re-sell it on Monday for a fortune.  That is why it is valued at over US$100 million today and I am about to lose it for a measly £1 million - if I had a gun I would shoot those b....y Germans. 

This is a huge shame since I have advanced negotiations with a Swiss Group who represent Arab investors where they will purchase 50% of the yacht club for US$50 million.  I need to find the £1 million and it would need to be around until mid-December.  The profit for the provider would be £1 million.  What the proceeds would also do is repay you with a profit so that we can then fight to get back our cash without pressure building up from behind you. 

Is there anything you can do?  I am at my wits end.  We have orders coming out of our ears.  We have signed a US$485 million order with Tehran and BNP confirmed yesterday that they will finance it!  The profit is over US$100 million in 15 months.  We have also signed a deal with Johannesburg for four plants with an aggregate value of £240 million.  The profit again is £60 million over the next eighteen months. 

If we can sort out the £1 million for tomorrow then well before Christmas we will all be straight.  Maybe even as soon as next week as the Swiss say they will complete........."

29.      Mr Laker said in evidence that he was aware of the Pan-Am contract and regarded it as a very advantageous arrangement.  He thought that there was considerable value in CYC.  The e-mail from Dr Haden-Taylor had in effect offered a return of 100% for a six week loan until Christmas.  He saw it as advantageous and also an opportunity of gaining some security in respect of the first loan by arranging for CYC to undertake an obligation to repay the first loan as well as the second loan when it obtained the promised re-financing in December.  Accordingly Mr Laker rushed around and procured a loan of £1 million within 24 hours.  In fact, Holdings provided £500,000 and a further £250,000 was provided by a client lending the money to Holdings and it was therefore aggregated with Holdings' own contribution of £500,000.  The remaining £250,000 was contributed by a Mr White who entered into matching arrangements with CYC.  Accordingly the loan from Willow totalled £750,000 and the 'return' or 'fee' was also for £750,000.  Mr Laker said that he wanted security for the loan and this in effect included security over Dr Haden-Taylor's shares in CYC coupled with guarantees from Dr Haden-Taylor and RRI.  The arrangements therefore were as follows:-

(i)        A loan agreement dated 12^th November was entered into between Holdings and CYC the relevant parts of which read:-

"Whereas the lender has deposited with the borrower the sum of £750,000 (seven hundred and fifty thousand pounds) on the 12^th November, two thousand and four

"NOW THIS DEED WITNESSETH that the above mentioned deposit shall constitute a loan from the lender to the borrower which shall be repayable on or before the 24^th December two thousand and four together with interest in the sum of £750,000 (seven hundred and fifty thousand pounds) and a further sum of £1,650,000 (one million six hundred and fifty thousand pounds) the receipt of which shall represent full repayment of a prior loan between Willow Trustees Ltd and Dr Haden-Taylor"

The agreement was executed by Dr Haden-Taylor on behalf of CYC.  Mr Laker accepted in evidence that it was his decision to describe the £750,000 as 'interest' rather than as a 'fee' or  a 'balloon payment'.  He merely wanted to differentiate it from the capital sum loaned.  Dr Haden-Taylor did not object to the description.

(ii)       Dr Haden-Taylor agreed to execute a stock transfer form transferring the one hundred shares of CYC registered in his name to Holdings on the basis that, if the outstanding sums due under either the first loan agreement or the second loan agreement were not repaid in accordance with the second loan agreement, then Holdings would be free to submit the signed stock transfer form to CYC to have the shares transferred.  The stock transfer form was duly completed by Dr Haden-Taylor and delivered to Mr Laker.

(iii)      Dr Haden-Taylor executed a personal guarantee on the same date of the sums owed by CYC to Holdings up to a maximum of £2,665,000.  According to Mr Laker this figure was calculated as follows.  The £500,000 loaned by Willow personally and the £500,000 fee or interest in respect of that sum, together with £1,650,000 (being the sterling conversion of US$2.5 million from the first loan agreement set out in the second loan agreement).   There was therefore a typographical error in the guarantee as the figure should have been £2,650,000 rather than £2,665,000.  As Mr Laker said in evidence, the guarantee was further in error in that it should have allowed for the additional £250,000 (and the matching fee) loaned through Willow to make up the total loan of £750,000.  However that was not done and the guarantee therefore stands in a maximum sum of £2,650,000 (allowing for the conceded typographical error).

(iv)      A similar guarantee was executed by RRI and the same comments apply to the maximum figure specified in the guarantee. 

On the basis of these documents a total of £1 million was advanced to CYC.

30.      Neither the first loan nor the second loan were repaid on 24^th December 2004 and Mr Laker began chasing Dr Haden-Taylor thereafter.  In paragraphs 36-38 of his affidavit he sets out all the steps he took to try and ascertain the position.  The relevant e-mails are annexed to his affidavit.  We do not propose to go through them all.  Suffice it to say that there are e-mails from Mr Laker repeatedly chasing Dr Haden-Taylor for information.  We set out below merely some of the responses to those e-mails from Dr Haden-Taylor:-

(i)        On 7^th January 2005 Dr Haden-Taylor said that he was hoping to obtain funds from a loan credit transaction and that he would provide further information the following week.

(ii)       On 21^st January he said that he would be in receipt of an £11 million l/c early the following week and that it would be negotiated for a profit of £5.2 million so that he hoped to be able to make a payment in about six weeks.  In response Mr Laker asked for CYC's lawyers to confirm this arrangement but such confirmation was never forthcoming. 

(iii)      On 14^th February 2005 Holdings registered a Stop Notice preventing the transfer of shares in CYC without Holdings' consent. 

(iv)      On 29^th March Dr Haden-Taylor said that he had been speaking to 'the people in Los Angeles' who had done due diligence on an Italian construction company which wished to invest US$100 million into the construction side of the development in Cayman and was also speaking to some Las Vegas developers who were backed by an Arab investment fund.  After mentioning other possibilities he also stated that he had been promised by the leader of government business of the Cayman Islands that a contract with RRI for US$77 million should be signed within three weeks. 

(v)       On 28^th May Dr Haden-Taylor e-mailed that he had received all the paperwork and paid commitment fees and that he was expecting formal underwriting/insurance guarantee in connection with the financing within a matter of days after which it would take ten days actually to obtain the cash. 

(vi)      On 2^nd August Dr Haden-Taylor e-mailed that he had spoken to DD (apparently David Dawkins of the firm Capital Investment Agency) who had confirmed that the funds would be transferred to Ince & Co and that Mr Laker should receive funds for the repayment of the loan by 12^th August. 

(vii)     On 26^th September Willow received a letter from Ince & Co acting for RRI stating that they had been instructed by Dr Haden-Taylor that RRI was involved in a transaction with a private investor which involved the amount of €100 million being transferred to RRI and that Capital Investment Agency was presently in discussion with other lenders about advancing a total US$150 million to RRI.  Ince & Co said that they had irrevocable instructions from Dr Haden-Taylor and RRI that, when available, the monies were to be used to repay the debt of US$3,250,000 owed to Willow.  On the same date Mr Laker received an e-mail from Dr Haden-Taylor saying that he had learned from Ince & Co that 'the cash is on the move'.  He also said that he had received a call from 'the American dentists' who were sending the heads of term tomorrow for the sale of the yacht club and that they were aware that they had to pay off certain liabilities.  Mr Laker said that, prior to that e-mail, he had no knowledge of any American dentists or any impending deal concerning them.  The e-mail also stated that CYC owned two pieces of land, which were mortgaged to Scotia Bank.  Mr Laker said in evidence that searches conducted at the Land Registry on 22^nd September 2005 revealed that there were no such mortgages with Scotia Bank on either of the parcels of land owned by CYC.  The e-mail went on to say '... any move at this stage will kill the whole project.  It will automatically call the loan from Scotia Bank and you will get no land at all.'

31.      On 3^rd October 2005 Willow Trust assigned the benefit of the first loan to Holdings and notice of the assignment and formal demand for repayment was given to Dr Haden-Taylor the same day.  Although it appeared to be accepted during the hearing that formal demand had not been made under the two guarantees, it would seem that by letter 4^th October 2005 from Maples & Calder to Dr Haden-Taylor (exhibited to the original Answer and Counterclaim) formal demand for payment of both loans and under the guarantee was in fact made.  The Order of Justice in these proceedings seeking payment of the first loan and payment of the guarantee obligations of Dr Haden-Taylor and RRI was issued on 4^th October 2005. 

32.      The position at this stage in relation to the Pan-Am contract was as follows.  CYC had acquired the first two parcels, namely Lots 239 and 240.   The next instalment of US$1.25 million was originally due on 1^st February 2005 in exchange for which CYC would acquire Plot 238.  Pursuant to a provision of the contract CYC had deferred payment of that instalment until the last possible date, namely 28^th October 2005.  If it was not paid by that date, Pan-Am could terminate the contract on 14 days notice.  In effect therefore, CYC had a further 14 days after such notice to try and salvage the position. 

33.      Mr Laker was aware that this was the position and, having failed to obtain repayment of either loan and having failed to obtain voluntary registration of the shares in CYC in its name, Holdings instituted proceeding on 20^th October 2005 before the Grand Court of the Cayman Islands seeking a declaration that it was the legal owner of the shares in CYC and that the Clerk of the Court should be appointed as Receiver in order to effect registration of the shares in the name of Holdings.   There was a hearing on 28^th October at which Dr Haden-Taylor and CYC were represented by counsel although Dr Haden-Taylor was not present personally.  The court made the order requested but suspended its operation until 1^st November in order to give Dr Haden-Taylor a final opportunity to repay the sums owing to the plaintiff.  Dr Haden-Taylor did not make the necessary payments and accordingly on 1^st November the shares were registered in the name of Holdings.  By then Pan-Am had given the relevant notice of termination with the result that the contract would be terminated on 15^th November unless CYC paid the necessary sum by then.  Unfortunately efforts to raise such sums were unsuccessful and accordingly the Pan-am contract has been terminated.  The result is that CYC owns only Plots 239 and 240 but has no right to acquire any further plots. 

(iii)     The defendant's case

34.      Dr Haden-Taylor's main defence in connection with the first loan is that the document does not reflect the true underlying transaction, which was that this was a risk investment by Willow Trust.  The funds were paid into Dr Haden-Taylor's account in Pershing for convenience but the transaction remained an investment by Willow Trust in the underlying investment scheme.  There was no loan to him. 

35.      He agreed that he had informed Mr Laker that he would be investing some US$7.5 million alongside Willow Trust but he had been depending for this purpose upon obtaining a loan from a German bank in Stuttgart secured upon CYC.  At the last moment the bank had decided not to proceed on the basis that it did not wish to accept security in the Cayman Islands.  He conceded that he had not informed Mr Laker of this immediately but said that he had done so approximately six months later. 

36.      He acknowledged signing the loan agreement but said that this was sent to him at the last moment when he was in Dubai.  He had spoken to Mr Laker who had assured him that it was purely cosmetic and would not be enforced against him.  It was merely to keep the books straight for Mr Laker's co-directors.  He only signed the document on the basis of this representation and accordingly Willow Trust was estopped from relying upon the loan document. 

37.      He said that, after the payment by Willow Trust to the Pershing account had been made, Mr Laker told him that he had used client's money and he intended to give the client a small return equivalent to deposit interest and to keep the balance of the anticipated profits for himself.  Dr Haden-Taylor also asserted in his evidence that the scheme was for an initial period of 40 weeks but that the profits could be paid out after 8 weeks.  The statement was of course inconsistent with the e-mail from Mr Heidenreich referred to earlier. 

38.      As described earlier, he said that he learned before Christmas 2003 that there had been a loss of some US$237,000 on the scheme.  Mr Horman of Advice offered to invest the remaining funds in a different scheme in Amsterdam which would double the money within a period of two months.  After discussion with Mr Laker, Dr Haden-Taylor agreed to this proposal.  It did not work but the US$2.3 million was returned.  He discussed this with Mr Laker who agreed that this sum should be invested in two projects of RRI with a view to recovering the anticipated profits.  The projects were in Thailand and South Africa.  He conceded that, as shown by the various documents which were disclosed a matter of days before the hearing, the US$2.3 million, which had been in the account in March 2003, was spent in pursuit of the RRI projects in Thailand and South Africa during the course of the next few months save for the sum of US$420,750, which had been returned to Mr Laker. 

39.      As to the second loan in November 2004, he accepted that this was a genuine loan to CYC which had been guaranteed by himself and RRI.  He acknowledged that he had been unsuccessful in obtaining the money to fund the next purchase instalment under the Pan-Am contract and had accordingly turned to Mr Laker on 11^th November with only one day to go.  He conceded that it was he who had offered the high return rate of 100% for a very short term loan (approximately six weeks); he had taken this as a commercial decision because of the considerable value in CYC; the vital importance of maintaining the Pan-Am contract and his confidence that he would be able to obtain re-financing by Christmas.  He contended that there was no 'cause' for CYC to undertake to repay the first loan, nor was there any cause for him (Dr Haden-Taylor) to give the guarantee or for RRI to give the guarantee.  They were therefore not valid and enforceable. 

40.      He accepted that CYC had not repaid the second loan by the due date in December 2004 but he had kept Mr Laker closely informed of all the efforts which he was making to raise money on the security of the undoubted value of CYC. 

41.      We turn next to summarise Dr Haden-Taylor's counterclaim.  This varied a little as between the pleaded case and the case as put during the trial but essentially it appears to be as follows:-

(i)        The sum of US$420,750 paid back to Willow should be offset against any claim.  That has been conceded. 

(ii)       During the summer and autumn of 2005 Dr Haden-Taylor was in negotiation with Paradigm Property Investments Limited ("Paradigm").  Following various meetings, heads of term for discussion were issued on 3^rd October.  Following further negotiations, revised and more detailed heads of terms were issued on 26^th October.  The proposed deal would involve the purchase of 50% of the shares in CYC for a price based upon a valuation of CYC to be between US$42 million and US$55 million, conditionally upon part of the consideration monies to be used to acquire all of the remaining plots of land under the Pan-Am contract, which totalled US$11 million.  Accordingly, if the agreement had proceeded, Dr Haden-Taylor would have been left with between US$31 million and US$44 million.  Mr Laker was aware of the negotiations but he nevertheless proceeded to institute proceedings to obtain the transfer of the shares in the Cayman Grand Court with the result that Paradigm pulled out of the proposed deal.  According to Dr Haden-Taylor he therefore lost US$30 million as well as the value of the remaining 50% of CYC, which he put at US$42 million.  The counterclaim is brought by Dr Haden-Taylor and is expressed to be a loss by him.  Given his evidence that he was in fact holding the shares in CYC as nominee for RRI, it would appear on the face of it that any loss must have been suffered by RRI.  However, that is a point of detail which could be cured by amendment if necessary. 

(iii)      Holdings is said also to be liable to Dr Haden-Taylor on two additional grounds in respect of the transfer of the CYC shares into its name:-

(a)       Dr Haden-Taylor alleges that there was a specific oral agreement between him and Mr Laker at the time of the second loan agreement that, in the event of default, Holdings would not exercise its security over the CYC shares without giving 28 days notice of default.  This had not been done.  Formal notice of default had only been given on 3^rd October 2005 and proceedings seeking the transfer of the shares were instituted in the Cayman Grand Court on 20^th October. 

(b)       It is alleged that Holdings obtained the order for the transfer of shares by misrepresentation to the Cayman Grand Court in that it said that it would be able to inject the US$1.25 million to purchase the next parcel of land and preserve the Pan-Am contract.

(c)       Once the CYC shares were registered in its name as lender, Willow was under a duty of care towards Dr Haden-Taylor to take all reasonable steps to preserve the value of the shares.  On the facts of the case this included procuring that CYC should fund the purchase of the next parcel of land for US$1.25 million so as to preserve the Pan-Am contract.  Holdings failed to do this and is accordingly liable for the consequential loss in the value of the CYC shares. 

(d)       In his evidence in chief Dr Haden-Taylor also referred to the fact that during the summer of 2005 he was introduced by Mr Heidenreich to a Mr Gustav Charpentier.  Coincidentally Mr Charpentier was a beneficiary of a trust of which Willow Trust was the trustee.  However the negotiations which ensued between Mr Charpentier and Dr Haden-Taylor did not at that stage involve Mr Laker.  According to Dr Haden-Taylor, he reached an agreement in principle whereby Mr Charpentier would sell three technology companies to RRI and would subscribe for US$100 million worth of new shares in RRI.  Dr Haden-Taylor alleges that once Mr Laker discovered of these negotiations in the autumn of 2005, he (Mr Laker) informed Mr Charpentier that he intended to bankrupt Dr Haden-Taylor and offered to sell Mr Charpentier the CYC shares.  This led to Mr Charpentier losing confidence in Dr Haden-Taylor and deciding not to proceed with the proposal.  The witness statement from Mr Charpentier, which has not been tested by cross examination, disputes Dr Haden-Taylor's version of events.  Mr Charpentier says that, as a result of various matters which he refers to in his statement, he started to suspect that much of what Dr Haden-Taylor had told him was untrue and that Dr Haden-Taylor's whole business was based upon his over optimistic assumptions.  It seemed to Mr Charpentier that Dr Haden-Taylor equated mere business plans with firm deals.  It was for these reasons that Mr Charpentier had not proceeded with the arrangement rather than the fact that Mr Laker had contacted him to say that the CYC project might still be available for someone willing to invest funds. 

(iv)   The plaintiff's case

42.      Essentially, Holdings relies upon the documents.  In relation to the first loan agreement Mr Laker says that he had made some enquiries from Mr Heidenreich and had satisfied himself that the money would be placed in a blocked account in Dr Haden-Taylor's name; but essentially he was proceeding upon the basis of his trust in Dr Haden-Taylor, by whom he was very impressed.  However it was essential that there was a clear basis for the advancement of funds and Willow Trust would not have advanced the money unless the loan agreement had been signed.  He strongly denied having said that it was only cosmetic and would not be enforced.  He accepted that he had inserted the figure of US$250,000 as interest, basing this upon what he had been told by Dr Haden-Taylor about the minimum rates of return.  He accepted that he was expecting a greater rate of return.  Nevertheless this was a genuine loan to Dr Haden-Taylor in whose name the money was being placed.  The loan agreement was required in order to establish clearly the legal position in relation to the money.

43.      The various documents which showed what had happened to the money in the Pershing account during late 2003 and 2004 had only been disclosed a day or two before trial and he had never seen them before.  He strongly denied that he had ever agreed to the money being invested in the Amsterdam scheme or, following that, in RRI's projects in Thailand and South Africa.  So far as he was concerned, he relied upon Dr Haden-Taylor's assurances that, due to some technical problem, the money was now tied up for 12 months in the Pershing account.  He had remained under the firm belief that that was where the funds were.  He had had no idea that they had in fact been used by Dr Haden-Taylor for his various projects and that the Pershing account had been closed in September 2004.  If he had known that this was the case on 11^th November 2004, it would have put a very different complexion upon Dr Haden-Taylor's request for an additional £1 million. 

44.      As to the second loan agreement, he saw this as an opportunity of improving the position.  He knew that CYC was a valuable asset because of the advantageous terms of the Pan-Am contract and he therefore saw little risk in the investment, particularly given the very high return which Dr Haden-Taylor had offered.  Holdings accepted that the parties to the second loan agreement were not the same as to the first loan agreement and could not therefore vary the rights of the parties under the first loan agreement.  However it was contended that there was no reason why CYC could not agree, in exchange for the substantial last minute funding which would enable it to preserve the Pan-Am contract, to pay the sum due under the first loan agreement.  There was proper 'cause' for CYC to enter the loan agreement and equally there was 'cause' for the guarantees given by Dr Haden-Taylor and RRI because of the benefit which they would each derive by reason of CYC being able to preserve the Pan-Am contract.  He denied that there had been any oral agreement for a 28-day default period before Holdings could exercise its rights over the CYC shares.

45.      The stories from Dr Haden-Taylor as to how the funds were to be repaid always seemed to be changing and eventually he felt that he had no alternative but to get the CYC shares into Holdings' name so that it could take steps to try and preserve the value of those shares by ensuring that the next instalment under the Pan-Am contract was paid.  Unfortunately, the company registrars had refused to act upon the share transfers without a court order and accordingly Holdings had had to institute proceedings before the Cayman Island court.  A hearing could not be obtained until the 28^th October and then there was a further delay until 1^st November because the court decided to suspend the order in order to give Dr Haden-Taylor one final chance to repay the loan.  Holdings then only had 14 days to find the necessary funds.  He explained the efforts which they had made in some detail but said that events had conspired to prevent them from raising the necessary monies, with the result that the Pan-Am contract had been cancelled. 

46.      As to the counterclaim, he had not deliberately interfered with any negotiations which Dr Haden-Taylor had been carrying on.  On the contrary it was in Holdings' interests for Dr Haden-Taylor's fundraising efforts to be successful so that it could be repaid.   

(v)     The Court's assessment of the evidence

47.      Mr Goulborn submitted that Mr Laker was a man who was willing to make a secret profit on trust monies and keep a fellow director in the dark as to the anticipated profits.  We accept Mr Laker's evidence that he had agreed with the settlor of the relevant trust that any 'super profit' on the first loan above US$250,000 would be shared between the trust and Mr and Mrs Laker and that the settlor continued to the present day to be supportive and Willow Trust continued to be trustee of that trust with the agreement of the settlor.  Having said that, although the matter was not before us and the parties have not concentrated on this aspect, we feel compelled to comment that it seems surprising that a trustee should think it appropriate for itself (or some of its directors) to take part of the return earned on the investment of trust monies.  Even if the settlor agreed to this course of action, he could not speak for other beneficiaries who would remain ignorant of the position.  But Mr Laker was very forthcoming about this aspect of the matter and about the fact that the third director of Willow Trust was not informed of the proposed additional profit.  We have no doubt that Mr Laker was extremely naïve.  The old maxim - that if something seems too good to be true it probably is - is a very valuable principle and was clearly ignored by Mr Laker in this case.  Nevertheless, even allowing for these matters, the Court has no hesitation in assessing Mr Laker as being a truthful witness.  He was unshaken in cross-examination and accepted that he had made errors of judgment.  The Court has no hesitation in accepting the essence of his evidence. 

48.      Conversely, the Court found Dr Haden-Taylor to be an unsatisfactory witness.  Rather as in his contemporaneous correspondence, he was inclined to bandy large sums of money about and mention a large number of names, all in very vague terms.  We were driven to the conclusion this was frequently done with the intention of misleading and obfuscating.  He did not stand up well to cross-examination.  A few of the matters on which we found his evidence particularly unsatisfactory are as follows:-

(i)        On 9^th December 2003 Dr Haden-Taylor, on CYC notepaper, sent a letter to a Mr Schmidt of Conti Consult in connection with a loan that he was seeking to raise.  The relevant paragraph of the letter reads:-

"My information is that you are able to provide a loan based upon own equity being introduced at 5%.  In my case I have available funds in excess of that amount and I enclose for your information a copy of my Pershing account where money is held at the Bank of New York.  You will see that I have close to US$2.5 million of which I can make available US$1 million to trigger the US$20 million loan." 

Dr Haden-Taylor accepted in evidence that this was the very US$2.5 million which had been contributed a few weeks earlier by Willow Trust.  On the case he is presenting to the Court, this money was not loaned to him and did not belong to him.  In effect it was only in his name as nominee for Willow Trust.  When pressed in evidence about the contents of the above paragraph, he accepted that he was being economical with the truth in writing it.  We would go further and say that the letter amounts to a clear misrepresentation that the US$2.5 million belongs to him, that it is available and that he would therefore have no difficulty in introducing the US$1 million of equity apparently required by the proposed lender.  This letter, together with a number of other documents, was disclosed by Dr Haden-Taylor only days before the hearing.  We accept Mr Laker's evidence that he had never seen it before and had no idea that Dr Haden-Taylor was apparently seeking to use the monies in the Pershing account in this manner.  In the Court's judgment, this letter is very indicative of Dr Haden-Taylor's attitude towards the truth.

(ii)       The Court was also referred to a document entitled 'Sworn statements and assets' dated 20^th October 2003 in which Dr Haden-Taylor, in a document expressed to be under penalty of perjury, confirmed that he had US$10 million under his control at the Pershing account, that the funds were completely free and clear of any liens or encumbrances or any rights of third party interests, that he had full legal title and authority over the funds and that the funds were freely transferable.  In fact, at that time, he did not have any funds in the account.  He was expecting US$2.5 million from Willow Trust and was hoping to borrow the balance from a German institution. 

(iii)      Dr Haden-Taylor admitted that he had not told Mr Laker immediately that, contrary to what he had represented, he had not in fact invested any money of his own in the Pershing account, let alone US$7.5 million.  He said in evidence that he thought that he had informed Mr Laker of this approximately six months later.  Mr Laker denied this and we accept his evidence.  The contemporaneous documents are inconsistent with Dr Haden-Taylor's evidence.  Thus, the emphasised passages in the e-mail of 17^th March 2004 from Dr Haden-Taylor (as set out in para 20 above) give the clear impression that he is out of pocket in the same way as Willow Trust.  Even more starkly, the e-mail of 11^th November 2004 (when Dr Haden-Taylor seeks the loan of £1 million) contains the passage 'the impact of not accessing the cash for both of us must be crippling, I know from my part that it is killing me'.  This gives the clear impression that Dr Haden-Taylor's cash was similarly locked up when in fact that was not the case.  When this point was put to him in evidence, his explanation was that he was referring here to the time which he was spending on trying to recover the missing profit because of the sense of moral obligation he felt towards Mr Laker.  That was what was 'killing' him.  The Court was un-impressed by that explanation. 

(iv)      Dr Haden-Taylor's evidence was to the effect that he had told Mr Laker that all had not gone well with the original investment and he had secured Mr Laker's approval to re-invest the Pershing money firstly in the Amsterdam scheme and thereafter in RRI projects in Thailand and South Africa.  In our judgment, that evidence is quite inconsistent with the terms of the e-mails whereby Mr Laker was chasing and making enquiries as to the position and it is also inconsistent with Dr Haden-Taylor's e-mails of 17^th March and 11^th November 2004.  Let us recall that by 17^th March, Dr Haden-Taylor had already paid out US$280,500 towards the Thailand project and he was about to make two further payments only five days later on 22^nd March which would essentially clear out the Pershing account.  Yet the e-mail of 17^th March clearly suggests that he is going to New York in order to sort out the position but that he has agreed that the money can remain for a while provided they give guarantees of a definite return.  The money of course was in truth not going to remain there as it was all being paid out by Dr Haden-Taylor.

(v)       Similarly, in his e-mail of 11^th November he says '...... we are attempting to have the cash released.  We have no idea if the cash is still in place .......'  In fact, as he knew, the cash was not still in place.  All the money (save for US$420,750) in the Pershing account had been paid out for his benefit and the account had been closed on 21^st September 2004.

(vi)      Dr Haden-Taylor's explanation in evidence for these two e-mails was that he was referring here to the 'profit' which should have been earned on the original US$2.5 million and which he was seeking to extract from Mr Horman.  We are not impressed by that explanation.  In our judgment the clear meaning and intent of these two e-mails was to reassure Mr Laker that the funds were still in the Pershing account and that he, Dr Haden-Taylor, was doing his best to extract the money from that account. 

(vii)     It is to be recalled that the essence of Dr Haden-Taylor's evidence was firstly that Mr Laker knew that the money was no longer in the Pershing account but had instead been invested in the Thailand and South African projects of RRI; and secondly, that about six months after the initial contribution of the money by Willow Trust in October 2003, Dr Haden-Taylor had told Mr Laker that he (Dr Haden-Taylor) had not in fact contributed any funds to the scheme as originally envisaged.  In our judgment this evidence is severely damaged by the contents of an e-mail sent by Mr Laker to Mr Imbusch of Advice on 7^th January 2005 in response to an e-mail earlier that day from Mr Imbusch informing Mr Laker that the Pershing account had been closed in September at the request of Dr Haden-Taylor as account holder.  Mr Laker's response reads:-

"Many thanks for this.  This is interesting.  You are aware perhaps that part of the original credit to this account was US$2.5 million from a trust under our management.  We were under the impression that the funds were still on deposit with you.  Can you tell me where the proceeds were remitted when the account was closed?" 

(viii)    This suggests that Mr Laker at that stage believed (a) that the funds were still on deposit and (b) that the US$2.5 million was only part of the funds contributed i.e. that Dr Haden-Taylor had contributed the additional money as he had promised.  The e-mail is wholly consistent with and supportive of Mr Laker's evidence and wholly inconsistent with Dr Haden-Taylor's version of events.  We regard it as inconceivable that Mr Laker would have sent this e-mail if, as Dr Haden-Taylor alleges, he knew by then that the US$2.5 million was no longer on deposit and that Dr Haden-Taylor had not in fact contributed any funds to the deposit. 

(ix)      In his affidavit sworn for the purposes of the Cayman Island court proceedings in October 2005, Dr Haden-Taylor said at paragraph 8 that the net balance of some US$2 million which remained after the repayment of US$420,750 to Willow remained with Advice until some time during late 2004.  The documents produced just before the trial show of course that this assertion was untrue and that in fact the monies had all been dispersed for Dr Haden-Taylor's benefit in March 2004 with the small balance in the account being paid to him in September 2004.  When asked about this in evidence, Dr Haden-Taylor was unable to give any explanation for what he had said in the affidavit.

(x)       In his affidavit for these proceedings and in his affidavit for the Cayman proceedings, Dr Haden-Taylor gave the clear impression that the 100% return stipulated in the second loan agreement was originally suggested by Mr Laker.  In fact, as he conceded when giving evidence, this was not correct and the proposal originated from him, being offered in his e-mail of 11^th November which initiated the discussion about the loan.  It was simply accepted by Mr Laker. 

(xi)      Dr Haden-Taylor now asserts that the first loan was not a loan; it was merely a risk investment on the part of Willow Trust.  We have not been referred to any document prior to the institution of proceedings in which this was said.  We would refer to two particular documents which are inconsistent with it:-

(a)       The second loan agreement itself, signed by Dr Haden-Taylor on behalf of CYC, refers to £1,650,000 as constituting '............ repayment of a prior loan between Willow Trustees Limited and Dr Haden-Taylor'.  It is hard to see why Dr Haden-Taylor should have agreed to this if he thought that the first loan was not in fact a loan but merely an investment by Willow Trust wholly at its own risk.

(b)       The letter dated 26^th September 2005 from Ince & Co (acting on behalf of both defendants) to Holdings contained the following passage:-

"We have irrevocable instructions from our clients, Dr Haden-Taylor and RCR, but those monies, when available, are to be used to repay the debt of £3,250,000 owed to Willow."

This figure is agreed to be a total of the first and second loans.  Dr Haden-Taylor's explanation for this letter is that he felt a moral obligation in respect of the first loan.  We do not accept this explanation.  In our judgment the letter is a clear indication that Dr Haden-Taylor accepted that he was indebted in respect of the first loan as well as the second loan. 

(xii)     Dr Haden-Taylor says that he signed the first loan agreement against an assurance that it was purely cosmetic and would not be enforced.  It is hard to see why he should have done so. On his case, there was no particular reason for him to be desperate to secure the US$2.5 million from Willow Trust.  It was a risk investment by Willow Trust and they would keep any profits on it.  He hoped to borrow US$7.5 million and invest alongside but no reason had been advanced as to why Willow Trust's US$2.5 million was essential.  Although there was talk of a sum of US$10 million originally, it is Dr Haden-Taylor's case that the investment proceeded with US$2.5 million from Willow Trust even though he, Dr Haden-Taylor, never came up with the balance.  There is accordingly no good reason for him to have signed for a loan which he did not owe.  In our judgment, the reason that he signed the loan agreement was that that was the true nature of the transaction. 

(xiii)    In paragraph 21 of his affidavit to the Cayman Island Court, Dr Haden-Taylor swore on oath that he had specifically agreed with Mr Laker at the time of the agreement that Willow Trust could not assign the benefit of the first loan agreement to another party.  That assertion has not been maintained and Dr Haden-Taylor now accepts that the benefit of the first loan agreement was validly assigned by Willow Trust to Holdings.   His assertion on oath to the Cayman Island Court was therefore untrue. 

Conclusions

49.      Both loan agreements and the guarantees are expressed to be governed by the law of Guernsey.  However the defendants accept that the essential formalities for the execution of the various documents have been complied with and that the assignment dated 3^rd October 2005 operates as a valid assignment of any rights which may exist pursuant to the first loan agreement.  Furthermore, there has been no suggestion that there is any provision of Guernsey law which would affect the outcome of this case.  Accordingly, we proceed on the basis that the law of Guernsey is the same as the law of Jersey in relation to the matters covered by this judgment. 

(a)    The first loan

50.      For the reasons set out above, we accept the evidence of Mr Laker that the first loan agreement is a genuine document which means exactly what it says.  We find that there was no intention that the document was intended to mask some other form of transaction and we reject Dr Haden-Taylor's evidence that Mr Laker represented that it was purely for cosmetic purposes and would not be enforced.  Although there was a hope on the part of Willow Trust that there might be some form of additional profit, the matter was genuinely structured by way of a loan to Dr Haden-Taylor, in whose name the funds were to be deposited.  He also agreed to the interest figure.  We find therefore for the plaintiff in respect of the first loan and hold that Dr Haden-Taylor is indebted in the principal sum of US$2,329,250 (being US$2,750,000 less the sum repaid of US$420,750).

(b)    The second loan

51.      It was clearly very much in CYC's interest to enter into the second loan.  CYC was in desperate straits on 11^th November 2004.  It had an extremely valuable asset in the form of the Pan-Am contract which it was about to lose if it could not come up with £1 million within 24 hours.  Given the extremely short time span, CYC and Dr Haden-Taylor were clearly not in a strong negotiating position.  In recognition of this Dr Haden-Taylor, on behalf of CYC, offered the return of 100%, which Mr Laker described as 'interest' when he drafted the second loan agreement.  One of the terms demanded by Holdings for procuring the £1 million was that CYC should enter into an obligation to repay the amount due in respect of the first loan (US$2.75 million quantified as £1.65 million).  This was not a novation of the debt because none of the parties to the first loan (particularly Willow Trust) was a party to the second loan agreement.  However there was no reason why CYC should not have reached the reasonable view that, in order to secure the £1 million and retain its very valuable asset in the form of the Pan-Am contract, it was worth agreeing also to pay the sum due by Dr Haden-Taylor in respect of the first loan.  In our judgment there was valid 'cause' for CYC to enter into the second loan agreement and to agree to pay Holdings £1.65 million in addition to the amount borrowed under the second loan.  Payment of that sum was therefore a valid obligation as between CYC and Holdings and is to be taken into account when considering any amounts due under the guarantees.

(c)    Dr Haden-Taylor's guarantee

52.      It was submitted on behalf of Dr Haden-Taylor that there was no 'cause' for the personal guarantee and that accordingly it was not valid and enforceable.  In our judgment that submission is without merit.  CYC was at the time the owner of what was potentially an extremely valuable asset in the form of the Pan-Am contract.  It stood to make a very substantial profit if it could acquire the remaining land pursuant to the contract.  Such profit could be realised either by selling the land or by participating in its development.  However, in order to achieve this profit, CYC had to keep the Pan-Am contract in being.  That meant that it had to find £1 million within 24 hours to fund the next instalment.  It was clearly in CYC's interest to borrow that money as is shown by the fact that Dr Haden-Taylor was willing to offer a 100% return by way of inducement to a lender. 

53.      Just as it was in CYC's interests, so was it in the interests of any shareholder of CYC to preserve the potential value of such shares by securing the £1 million advance.  According to Dr Haden-Taylor, he is not the beneficial owner; he holds the shares in CYC as nominee for RRI.  He says further that RRI is in turn owned by discretionary trust of which he is a beneficiary.  Clearly the value of the trust fund of such trust would be greatly increased if CYC were to realise its profit from the Pan-Am contract.  It was therefore in Dr Haden-Taylor's interest, as one of the beneficiaries of that trust, for CYC to borrow the £1 million and accordingly there was ample 'cause' for him to give a guarantee so that CYC could obtain that loan.  Indeed, in cross-examination, Dr Haden-Taylor was forced to concede that perhaps it was to his benefit to give the guarantee. 

54.      Accordingly we find the personal guarantee to be valid and enforceable against Dr Haden-Taylor.  However, insofar as that guarantee was in respect of the first loan, it was in respect of an amount owed by Dr Haden-Taylor.  He cannot in our judgment be liable twice, once as borrower and once as guarantor.  Accordingly his liability under the guarantee is limited to that due in respect of the second loan i.e. the principal sum of £1.5 million. 

(d)    The corporate guarantee

55.      For the reasons given in the preceding paragraph, it was clearly in RRI's interest to secure the loan of £1 million to its wholly owned subsidiary CYC and therefore to give the guarantee which would enable this to occur.  RRI stood to benefit in two ways from the loan.  In the first place such a loan would hopefully enable CYC to profit from the Pan-Am contract and this would be reflected in the value of RRI's shareholding in CYC.  Secondly, as Dr Haden-Taylor's own witness, Mr Foley, said in his witness statement, CYC was the jewel in RRI's crown and its disposal was the plan upon which all future growth and expansion of RRI depended.  Dr Haden-Taylor accepted the accuracy of this assertion in evidence.  Accordingly it was clearly in RRI's interest to maintain the value of CYC so that RRI's own business plans could be funded.  All of these amounted to very good reason for RRI, in its own commercial interest, to enter into the guarantee.  There was therefore 'cause' for RRI to give the guarantee. The argument to the contrary is completely hopeless. 

56.      RRI guaranteed all liabilities of CYC to Holdings up to a maximum sum of £2.65 million.  CYC is indebted to Holdings in the sum of £1.5 million pursuant to the second loan and £1.65 million (the conversion figure agreed within the body of the second loan) in respect of the first loan; making £3.15 million in all.  Even allowing for the reduction of US$420,750 in respect of the first loan, the sum owed by CYC still exceeds the amount guaranteed.   Accordingly we give judgment against RRI for the maximum amount payable under the guarantee, namely £2.65 million. 

(d)    Counterclaim

57.      Insofar as the pleaded counterclaims are based upon assertions that the decision by Holdings to call in the loan and enforce transfer of the CYC shares into its name interfered with negotiations for further borrowings which Dr Haden-Taylor/CYC/RRI were conducting at the time, Mr Goulborn very realistically did not proceed with such an argument.  It was clearly untenable.  A lender, who, by reason of default on the part of the borrower, is entitled under his contract with the borrower to enforce his security, is entitled to do so even if the borrower is in the midst of negotiations which he thinks will enable him to pay off the lender.  The lender is entitled to choose what he considers to be in his best financial interests and he is acting perfectly lawfully if he exercises his contractual rights under the contract.  No cause of action can lie against him for exercising such rights, even if the consequence is to prevent the borrower from finding alternative funds with which to pay off the lender.  In any event Dr Haden-Taylor did not satisfy us on the balance of probabilities that any alternative funding would have been secured in time to avert termination of the contract by Pan-Am.  He had been unable to raise the funding from anyone except Holdings the year before and had only secured Heads of Terms from Paradigm on 26^th October.  He referred in evidence to a Cayman Island investor who, he said, would have advanced the US$1.25 million but produced no evidence to support his assertion.

58.      Mr Goulborn did however submit that, on Dr Haden-Taylor's evidence, there was an agreement made orally between Dr Haden-Taylor and Mr Laker on behalf of Holdings at the time of the second loan agreement to the effect that 28 days notice of default would be given by Holdings before it exercised its security by securing the transfer of the CYC shares into its name.  It was conceded that in this case less than 28 days notice had been given and accordingly Holdings was in breach of contract and liable accordingly.  We agree that if there were such a term and Holdings acted in breach of it, it would be liable for any damage caused by such breach of contract.  However, the Court has no hesitation in preferring the evidence of Mr Laker and finding that there was no such term.  It does not accept Dr Haden-Taylor's evidence on this point along with many others.  Accordingly, Holdings was not in breach of contract by seeking to procure the transfer less than 28 days after formal demand.  In any event, even if there were such a term, for the reasons mentioned in the preceding paragraph, we would not find that Dr Haden-Taylor had proved that, on the balance of probabilities, any loss had flowed from such breach.

59.      The final ground of the counterclaim was that, once the CYC shares were registered in its name, Holdings owed a duty of care to take all reasonable steps to preserve the value of such shares and that, on the facts, it breached this duty by failing to procure the funding of US$1.25 million to preserve the Pan-Am contract. 

60.      It is not clear to us that a duty of care in the terms suggested by Mr Goulborn exists.  We were referred briefly to only two cases.  In the first, Standard Chartered Bank v Walker [1982] 1 WLR 1419, the English Court of Appeal held that a receiver realising assets under a debenture owed a duty towards the borrower and the guarantor of the debt to take reasonable care to obtain the best price that the circumstances permitted.  However we are not here dealing with a debenture or a receiver. 

61.      In China and South Seas Bank Limited v Tan [1990] 1 AC 536, the guarantor sought to argue that his liability under his guarantee was extinguished or reduced because the creditor had been negligent in not exercising its power of sale promptly over the shares mortgaged to it by the borrower so that, whilst the shares had considerable value at the time of the borrower's default, they were valueless by the time the creditor sought to enforce the guarantee against the guarantor.  The Privy Council accepted the principle summarised by Pollock CB in Watts v Shuttleworth (1860) 5 H&N 235 to the effect that:-

"The substantial question in the case is whether the omission to insure discharges the defendant, the surety.  The rule upon the subject seems to be that if the person guaranteed does any act injurious to the surety, or inconsistent with his rights, or if he omits to any act which his duty enjoins him to do, and the omission proves injurious to the surety, the latter will be discharged...... the rights of a surety depend rather on principles of equity than upon the actual contract."

However the Privy Council held that a creditor owed no duty to a surety to exercise its power of sale over mortgage securities and could decide entirely in its own interest whether to sell and when to do so.  Lord Templeman put it this way at 545:-

"In the present case the security was neither surrendered nor lost nor imperfect nor altered in condition by reason of what was done by the creditor.  The creditor had three sources of repayment.  The creditor could sue the debtor, sell the mortgage securities or sue the surety.  All these remedies could be exercised at any time or times simultaneously or contemporaneously or successively or not at all.  If the creditor chose to sue the surety and not pursue any other remedy, the creditor on being paid in full was bound to assign the mortgaged securities to the surety.  If the creditor chose to exercise his power of sale over the mortgaged security he must sell for the current market value but the creditor must decide in his own interest if and when he should sell.  The creditor does not become a trustee of the mortgaged securities and the power of sale for the surety unless and until the creditor is paid in full and the surety, having paid the whole of the debt, is entitled a transfer of the mortgaged securities to procure recovery of the whole or part of the sum he has paid to the creditor."

62.      Neither party made any detailed submissions on the nature of any duty on the part of Holdings towards the guarantors in this case.  Mr Preston drew the conclusion from China and South Seas that there was no duty at all on Holdings; Mr Goulborn, on the other hand, drew the conclusion that the duty extended to ensuring that the Pan-Am contract remained in place no matter what. 

63.      Without having had the benefit of full argument, we are prepared to proceed on the assumption (without deciding the point) that, once the CYC shares were transferred into its name, Holdings was under a duty to take reasonable care to preserve their value.  However, even assuming the existence of such a duty, the Court has no hesitation in finding that Holdings did not breach that duty.  Our reasons are as follows:-

(i)        On any view the duty only extends to taking reasonable steps to preserve the value of the shares.  In our judgment that does not extend to procuring that the company whose shares are secured should enter into new borrowings.  Managing the assets of the company remains the duty of the directors, not of a lender who has simply acquired title to the shares with a view to securing his borrowing. 

(ii)       Even if we are wrong on that score, the duty certainly only extends to taking reasonable steps; it cannot extend to ensuring that the value of the shares are preserved.  We have considered the evidence of Mr Laker as to the steps which he took to try and secure a loan so that the Pan-Am contract might be preserved.  They are set out in detail in his affidavit and in the document annexed to it.  We accept that evidence.  It is clear that Mr Laker realised that it was in Holdings' best interests to procure the continuation of the Pan-Am contract.  It is clear to us that he went to great lengths to try and secure such funding.  He spoke to numerous institutions, and even went as far as sending a co-director of Willow Trust to the UK to meet with Mr David White in the hope of obtaining private finance.  It is clear that he was hampered by the short timescale because, pursuant to the order of the Grand Cayman Court, the shares were only put into Holdings' name on 1^st November and the final deadline for payment under the Pan-Am contract was 15^th November.  He appears also to have been hampered by the fact that Scotia Bank initially indicated that it would make such a loan but reversed its position on 7^th November.  We also accept that he ran into difficulties with some potential lenders because of the reputation of Dr Haden-Taylor.  In short we find that Mr Laker, on behalf of Holdings, took all reasonable steps to come up with the US$1.25 million and to preserve the value of the CYC shares and accordingly Holdings was not in breach of any duty towards CYC or the guarantors in this respect. 

64.      Mr Goulborn also relied upon an alleged misrepresentation.  According to Dr Haden-Taylor he had been told by his counsel - although there were no notes of the hearing - that Mr Laker had assured the Court that he would be able to find the necessary US$1.25 million in order to preserve the Pan-Am contract.  However we accept Mr Laker's evidence that there was no such misrepresentation.  It is clear that Holdings expected to be able to raise the necessary funds (e.g. para 7 of Mr Laker's affidavit to the Grand Cayman Court) but a combination of the delay in obtaining title to the shares and the change of mind by Scotia Bank meant that, at the end of the day, it was unable to raise the funds.  We do not find that there was any misrepresentation. 

65.      For the reasons given above we dismiss the counterclaim.

(f)     Interest

66.      In relation to the first loan, given that Holdings did not take any positive action to recover the loan until October 2005, we think that interest should be awarded from the date of the issue of the order of justice.  We award it at the Court rate of 2% above base rate save that, as the debts expressed in dollars, we think that the rate should be 2% above the dollar equivalent of base rate, which we assess as being LIBID. 

67.      In relation to both guarantees, a contractual rate of 10% per annum is provided for from the date of demand by the lender together with a rate after judgment of 4% above Barclays Bank base rate from time to time or 10%, whichever is the lesser.  Accordingly we award interest at the contractual rate from the date of demand, namely 4^th October 2005. 

Summary

68.      In summary, we award the following amounts:-

(i)        Against Dr Haden-Taylor:-

(a)       US$2,329,250 in respect of the first loan together with interest as described above from the date of the order of justice, namely 4^th October 2005;

(b)       £1.5 million in respect of his guarantee together with contractual interest as described above from 4^th October 2005. 

(ii)       Against RRI, the sum of £2.65 million under its guarantee, together with interest at the contractual rate as described above from 4^th October 2005. 

69.      The purpose of this hearing is to formally deliver judgment in this case.  The Judgment has been circulated in draft and we received one comment in respect of a typographical error which has been corrected.  So I now hand down the final and official copies of the Judgment.

70.      So for the reasons set out in that Judgment we find for the plaintiff and we give judgment as set out in paragraph 68 of the Judgment.

Authorities

Standard Chartered Bank v Walker [1982] 1WLR 1419.

China and South Seas Bank Limited v Tan [1990] 1 AC 536.

Watts v Shuttleworth (1860) 5 H&N 235.