Jafari-Fini v Skillglass Ltd & Ors

This is an appeal against a judgment of Mr Stuart Isaacs QC (sitting as a Deputy High Court Judge), on preliminary issues directed by the Court of Appeal.

The judgment followed a 7 day trial between 13^th and 21st December 2005, during which the deputy judge heard evidence from nine witnesses, and reviewed copious documentary material. Mr Jafari-Fini (“the Claimant”) conducted his case in person. He had been represented by solicitors until January 2005, but apparently he could not afford legal representation thereafter. He has been represented in the appeal by leading and junior counsel, with the support (so we were told) of an unnamed third party.

The case arose out of his acquisition in 2003 of control of Chesterton International Plc ("Chesterton"), the well-known commercial and residential estate agency, and its subsequent collapse in March 2005. The history is complex, but the aspects with which we are concerned fall within a relatively narrow compass, relating principally to the consequences of a bribe allegedly paid by the Claimant in on 27th June 2003 in connection with the acquisition.

The judgment below is available on BAILII ([2006] EWHC 77 (Ch)), to which those interested may refer for a detailed account of the facts. For a shorter account of the factual context reference may be made to the judgment of Chadwick LJ in this court given in March 2005 ([2005] EWCA Civ 356), from which I shall draw gratefully in the course of this judgment.

It is important at the outset to identify the key players in the action, and the main supporting roles.

Mr Jafari-Fini has been involved in the United Kingdom property market since 1989. He became interested in acquiring Chesterton in early 2003, when he already owned about 11% of its shares. He acquired Phoenix Acquisitions Ltd (“PAL”), the second defendant, as a vehicle for the acquisition. His investment advisers were Babcock & Brown. The other main party was David Rowland, a wealthy financier in Guernsey. He agreed to help fund the proposed acquisition. He has a family company, Rowland Capital CI Limited ("Rowland Capital").

The funding was effected through a company called Resurge Plc, and its wholly owned subsidiary Skillglass Limited. Resurge (since renamed Adeste Investments Plc) and Skillglass were respectively first and third defendants to the action. Resurge was publicly quoted on the London Stock Exchange’s Alternative Investment Market (“AIM”). Its joint managing directors at the material times were Jonathan Rowland (David Rowland's son) and (until he resigned on 8^th April 2004) Jamie Constable. Skillglass was a wholly-owned subsidiary of Resurge. Its sole business was to borrow money from Resurge and Rowland Capital and lend money to PAL.

Mr Constable was also a director of Skillglass. He became a director of PAL on 27^th June 2003 immediately following the acquisition, and of Chesterton from 12^th December 2003. It was he who, on 19^th January 2004, allegedly confessed to David Rowland that he had received a bribe from the Claimant. He resigned from all three directorships on 8^th April 2004.

Although Mr David Rowland provided the funds, and was understood by the Claimant to be the “controlling hand” behind Skillglass and Resurge (see, for example, his third witness statement para 107), his own perception was rather different. He regarded his own role as subsidiary to that of his son and Mr Constable. Thus, when asked by the judge why in January 2004 he did not take immediate steps to remove Mr Constable (after he had confessed to accepting the alleged bribe), he said:

Against that background, it is an unusual feature of the case that, in spite of their central role on the Defendants’ side, neither Mr Constable nor Mr Jonathan Rowland was called as witnesses by them. There was a written statement made by Mr Constable in other proceedings, but his account of the relevant events was supported by neither party. Mr Jonathan Rowland was called as a witness at the request of the Claimant, who was also allowed to cross-examine him. The judge found him an unsatisfactory witness and placed no reliance on his evidence (judgment para 130).

Supporting roles were played by various associates of the main players. The three most important were:

Mr Ted Webster was an experienced Chartered Surveyor, who became involved as a consultant to the Claimant from the end of 2002. He became a director of PAL in 16^th April 2003. He became a director and Chief Executive of Chesterton on 27^th June 2003, at the request of the Claimant, immediately following the acquisition. Mr Webster was described by the judge as “an honest and straightforward witness”. His evidence was important to the judge’s findings both as to the fact of the bribe, and as to PAL’s knowledge of it.

Mr Graham Robeson was a close business associate of Mr David Rowland. He became a director of PAL on 27^th June 2003 and of Chesterton from 12^th December. He was directly involved on behalf of David Rowland in the events leading up to the acquisition.

Mr Anthony Brierley was a Chartered Accountant. At the material times he was a director of both Resurge and Skillglass. He became a director of PAL from 2nd September 2003. His evidence was given in the form of a witness statement, and related principally to the meeting of Skillglass on 27^th June, and the potential significance of the alleged bribe.

The key financing agreements were entered into on 16 April 2003. They are described in detail in the judgment below (para 21-33). Chadwick LJ summarised their effect (para 3-7):

Of critical importance in the present appeal are the provisions dealing with Skillglass’s rights in event of default, including the restriction during the “Certain Funds Period” and the exception for “Major Default”:

I shall need to return to the detail of those clauses. Also important are the provisions for security:

On 1 May 2003 PAL made a public offer to acquire the shares in Chesterton for 12 pence per share in cash. The offer was conditional upon PAL receiving acceptances of not less than 90% (at which level of acceptances the minority interest could be compulsorily bought out under sections 428 to 430F of the Companies Act 1985), but PAL had the right to decide on a lesser percentage of acceptances of not less than 50%. The offer was initially open for acceptance until 22 May 2003 but the time for acceptance was extended by PAL until 30 June 2003.

In early June 2003 there were discussions about the possibility of the offer being declared unconditional, even though the level of acceptances was below 90%. A fee of £100,000 was negotiated for this concession, to be paid by PAL to Skillglass, with £85,000 going to Rowland Capital, but there was no commitment on either side. By 26 June 2003, the 90% acceptance level had still not been reached, and steps were put in hand to secure waiver of the condition and to declare the offer unconditional on 27^th June. On 27 June 2003, there was a meeting of the board of Skillglass to approve the documentation, including consent to waive the 90% acceptance condition. The two directors involved were Mr Constable and Mr Brierley, the latter by telephone.

The Claimant was unable to obtain the funding which he had anticipated to enable him to pay for the balance of his shares in time for the subscription on 27 June 2003. Accordingly, the option provided for by clause 2.4 of the Investment Agreement came into play. On 27 June 2003, a call option agreement was executed which entitled the Claimant to buy the additional shares from Resurge for £936,000 within a year. A side letter of the same date provided that, upon immediate payment by the Claimant of £50,000, the shares were transferred to him immediately and he became obliged to pay £936,000 within 365 days of the transfer, or £886,000 within 180 days of the transfer.

The arrangements as to the ownership of the shares and payment for them, following the offer becoming conditional, were somewhat complex. Again I quote from Chadwick LJ’s judgment (para 9-12):

It quickly became apparent that Chesterton’s financial condition was much worse than had been expected. The next important event for the purposes of the appeal was the serving of a notice of default by Skillglass on 27^th October 2003. Chadwick LJ described the background and the sequence of events (para 13-21):

During this period relations between the parties deteriorated and the Claimant himself showed serious signs of stress. He left for Iran on 7^th December and did not return until early January. The judge summarised the Claimant’s view of these events (para 65):

To complete the story I quote again Chadwick LJ (para 22-25):

On 14 May 2004, the Claimant had commenced the present proceedings, initially against Skillglass only, claiming various declarations relating generally to whether Skillglass was in breach of the Facility Agreement in serving the October notice and the December demand, and, if so, the consequences of the breach.

To understand the scope and context of the proceedings before the judge, it is necessary to refer again to Chadwick LJ’s judgment. That was given on the disposal of an appeal against a decision of HH Judge Rich QC dated on 26^th October 2004. He had refused permission to amend the claim to include a derivative action on behalf of PAL. Chadwick LJ summarised the elaborate form of the relief initially claimed by the Claimant himself, and the subsequent attempts to introduce claims on behalf of PAL (para 26-32). His problem was that in so far as he was relying on breach of a contract to which PAL, rather than he himself was a party, he was no longer in control.

As Chadwick LJ explained, this was not the normal context for a derivative action (para 36):

Judge Rich accepted that there was a good arguable case that the “Certain Funds Period” had not ended before 6^th December 2003, and that it was at least arguable that there had been a repudiatory breach by Skillglass. However, he determined that there was insufficient prospect of benefit to PAL to justify allowing the case to proceed in its name. That conclusion was upheld by this court. Chadwick LJ noted that whether or not the facility agreement had been repudiated, PAL had received substantial sums from Skillglass for which it had no apparent source of repayment, other than the Chesterton shares, and there was no reason to think they would be worth more in the hands of PAL under Mr Jafari-Fini than under Skillglass. It was more sensible therefore to wait and see if Mr Jafari-Fini were successful in his challenge to the validity of the notices and the continued enforceability of the Facility Agreement and security arrangements. (para 52).

Chadwick LJ concluded:

Accordingly the court dismissed the appeal, but gave permission for PAL to be joined as a defendant, in order to ensure that it would be bound by the decision. It directed that the action proceed to determine the preliminary issues as directed by the judge:

The commercial significance of the answers to those questions, following the collapse of Chesterton in March 2005 was not explored by Chadwick LJ, and has not been explored before us. Such practical issues seem to have been overtaken by a much more serious allegation against the Claimant which was at the centre of the case before the judge and in this court.

The primary issue identified by Judge Rich in October 2004 was whether the October notice was served during the currency of the “Certain Funds Period”. That was in due course resolved by the judge in favour of the Claimant. There is no appeal from that finding. It followed that the notice could not validly be served unless there had been a “Major Default”. PAL’s failure, as alleged by the notice, to fulfil certain financial requirements, did not qualify as a Major Default.

The Defendants’ answer to that is to allege that PAL did commit a Major Default, by failing to notify Skillglass of a “bribe” paid by the Claimant to procure its consent. Although the bribe allegation was first made in August 2004, the argument that failure to disclose it was a “Major Default” does not seem to have attracted attention before Judge Rich or in this court on the appeal. By contrast, most of the argument in this court has been taken up with a detailed investigation of the bribe claim. This is not surprising, in view of the seriousness of the charge. However, it is important to bear in mind the relatively narrow, and somewhat artificial, role this allegation played in the legal issues before the judge.

To understand that role it is necessary to refer in more detail to the relevant clauses. Clause 23.2 of the Facility Agreement provided that on an “Event of Default”, Skillglass could by notice -

This was subject to a proviso:

The expression "Major Default" was defined by clause 1.1 by reference to certain specified events of default under clause 23.1.3(b). The only event relied on for present purposes is under clauses 21.8.2:

The judge summarised the Defendants’ case:

Mr Malek for the Defendants gave the following helpful summary of the issues raised by the appeal:

The Bribe Whether the Judge was entitled to find that the Claimant bribed Mr Constable, and in particular whether he applied the correct standard of proof in respect of the bribery allegation.

Imputed knowledge Whether the bribe had “come to the attention” of PAL, so as to bring the Major Default provision into play.

Estoppel by convention - Whether PAL was estopped from disputing the validity of the October Notice.

Repudiation – Whether the Skillglass committed repudiatory breaches of the facility and other agreements.

Acceptance/Affirmation – Whether, if so, PAL accepted Skillglass’ repudiation, or affirmed the facility agreement by making repayments under it.

Procedure – Whether the Judge gave the Claimant a fair hearing.

Costs – Whether the Judge was wrong to award Skillglass and Resurge the whole of their costs of the action.

Issues (i) and (ii) understandably took up most of the time in appeal hearing. For reasons I will explain, I consider the Claimant’s case on those issues to be well-founded. However, I understand that I am in a minority in that respect. In those circumstances, I see no purpose in adding to the length of the judgments by considering the other issues in detail. I will however comment on issue (vi) (Procedure) which is closely linked to the first two points.

The Claimant’s criticism of the judge’s conclusion on the issue falls into two parts:

He adopted the wrong standard of proof;

The conclusion was against the weight of the evidence.

The judge directed himself that for an allegation of bribery a high standard of proof was required:

On the permission application, it was argued that this was a misdirection in the light of the House of Lords decision in R (McCann) v Manchester Crown Court [2003] 1 AC 787, according to which, it was said, the standard of proof should “be equivalent to the criminal standard, ie proof beyond reasonable doubt”. This argument was rightly not pressed by Mr Beazley. McCann was concerned with a particular category of case in the magistrates’ court, where “pragmatism” dictated a straightforward approach (see per Lord Steyn at para 37).

The authorities were exhaustively reviewed recently by this court in R(N) v Mental Health Review Tribunal [2006] 2 WLR 850. They showed that there could be no “straightjacket of classification”, and that –

As an experienced practitioner, the judge would undoubtedly have been aware that Hornal was not the last word on the subject. I take his reference to that case as no more than a convenient shorthand. He not only recognised that a high standard of proof was necessary, but also signalled his application of it, by listing the factors which led “inexorably” to his conclusion (para 129). In my view his formulation of the principle shows no misdirection in law.

Mr Beazley’s real complaint is that, when one looks in more detail at the individual factors which he took into account, the evidence did not support his conclusion, certainly not to a “high standard”. Indeed on many of the key issues the weight of evidence pointed to the opposite conclusion. To do justice to this submission it has been necessary to conduct a somewhat laborious review of the judge’s findings and reasoning, set against the extracts from the written and oral evidence to which we have been referred. (In order to avoid overburdening the main text, and since in the event my views are not shared by colleagues, I have presented this review as an Appendix to the main judgments.)

I confess that at the end of the hearing, although I had some unease about the judge’s conclusion on the bribe issue, I did not expect that we would feel able ultimately to depart from it. This court is acutely aware of the dangers of interfering with factual conclusions of the judge who heard the evidence and saw the witnesses; and also of the necessarily selective and imperfect nature of any review of the raw evidence conducted on appeal. On the other hand, we also bear in mind the words of the Court of Appeal in The Glannibanta (1876) 1 P.D. 283, 287 (cited as still “apposite” by Ward LJ, in the Assicurazioni case [2002] EWCA Civ 1642, para 197). Having acknowledged the “great weight” due to the decision of the judge whenever “the demeanour and manner of the witnesses who have been seen and heard by him are… material elements in the consideration of the truthfulness of their statements”, the court continued:

In adversarial proceedings there is a temptation to concentrate on the rival explanations, and to assume that disproof of one is tantamount to proof of the other. In The Popi M [1985] 1 WLR 948, 955-6, Lord Brandon cautioned against that approach. He recalled Sherlock Holmes’ famous observation to Dr Watson (In “The Sign of Four”):

There was no doubt that a payment had been made, and the judge was entitled to take the view that some aspects of the Claimant’s case were unconvincing. But the burden was on the Defendants to prove, not simply the weakness of the Claimant’s case, but the strength of their own. Viewed in this light, there are at best serious doubts about the reliability of the Defendants’ case. Their fundamental problem was that they could not rely on the evidence of the two people who had engineered the whole transaction on their behalf, and who were most likely to be able to throw light on the affair – Mr Constable and Jonathan Rowland. There was of course no obligation to call them as witnesses, but without them there was a large gap at the centre of the Defendants’ case. The Civil Evidence Act 1995 has not changed the general rule that a case should where possible be proved by oral evidence (see CPR 32.2). Hearsay is admissible, but the court is required to weigh its reliability having regard to the circumstances, one being whether it would have been “reasonable and practicable” to call the maker of the original statement (1995 Act s 4). There was no evidence that it was unreasonable or impracticable to call Mr Constable as a witness, other than the obvious inference that his evidence would not have assisted the Defendants. I agree with Mr Beazley that this was a material factor, which the judge should have taken into account in assessing the weight to be given to the hearsay evidence of his alleged confession. Their submissions had to be based entirely on hearsay evidence or inferences from events. Set against the sworn evidence of the Claimant, this was a significant weakness.

The seriousness of the bribery allegation may have led to exaggeration of the differences between the two accounts: on the one hand, a dishonest bribe to achieve a commercial objective; on the other, an innocent loan for a private purpose. In reality, the two accounts were not in such sharp conflict. On any view, the payment was an unconventional and uncommercial transaction which required explanation. The judge was struck by the apparent implausibility of the Claimant’s explanation. However, in a contest of implausibilities, the Claimant’s case was more than matched by that of the Defendants.

There was no evidence that there was a need for a bribe to secure Skillglass’ consent. Still less was there any reason to think that, in a business transaction as important as this, either Mr Constable or Jonathan Rowland would have allowed their decision to be swayed by a dishonest payment of £150,000, or that the Claimant would have expected them to do so. To those considerations had to be added the improbability of Jonathan (assuming that he was a party to the payment) being willing to participate in a conspiracy against his own father. Looked at from the recipients’ point of view, the Claimant’s case becomes much more credible; they simply took advantage of the occasion to “pester” the Claimant into making available some cash for their motor-racing activities, money which they knew could in due course be set against sums payable by PAL under the transaction.

It was for the Defendants to prove that the purpose of the payment was not merely irregular, but specifically to procure Skillglass’ consent to the offer going unconditional. The judge made no finding on that crucial issue. That was a serious omission, which would justify Mr Beazley’s request for a new trial. However, on the basis of my review of the evidence, I would go further. If the judge had sought to reach a finding on this issue, he would have found little evidence to support the Defendants’ case, and strong reasons of probability against it. The Defendants failed to produce the evidence necessary to prove their case, let alone to the “high standard” required for an allegation of corrupt practice. I see no reason why they should be given a second chance. In my view, the judge should have rejected this part of the case, and held that there was no “Major Default”.

On the view reached in the previous paragraph, this issue does not arise. However, even if I am wrong on that point, there is a separate question whether knowledge of the bribe had come to the attention of PAL itself, so as to put it under a duty to give notice of the payment. Moore-Bick LJ has dealt in detail in his judgment with the relevant principles relating to the imputation of knowledge to a company. I agree generally with his analysis, and, specifically, that, if Mr Webster had the relevant knowledge, that was to be imputed to PAL. Where I disagree, with respect, is as to the extent and relevance of Mr Webster’s knowledge.

The Defendants’ pleading alleged that Mr Webster knew the purpose of the payment was “to cause the offer to be declared unconditional” (para 71) and that his knowledge of “the payment and its purpose” was to be attributed to PAL (para 76). The judge recorded and apparently accepted Mr Webster’s original evidence that he had been told that the cash payment was “in return for Skillglass’s consent to the offer going unconditional” (para 114, 129(1)). For the reasons I have explained in the Appendix (paras 30ff), I do not think that is a fair interpretation of his evidence taken overall. He was uncertain as to the precise purpose of the payment. I do not think that the pleaded allegation was established.

Mr Malek submits that this uncertainty does not matter: “it was clearly an illegitimate payment about which PAL and Skillglass were entitled to be informed”. That may be a fair comment in general, but it is not enough to establish the Defendant’s pleaded case. It was not enough to show that the payment was connected in some way with the transaction, or ought to have been disclosed under general principles of company law. It must have been material, in the sense at least that its purpose was materially to affect the outcome. That, in my view, is what the clause required, and in any event that was the pleaded case. No alternative case was pleaded, or advanced by a respondent’s notice.

I would have allowed the appeal on this issue.

A theme running through the original grounds of appeal (drafted by the Claimant himself), and a number of Mr Beazley’s submissions, has been that the Claimant, as a litigant-in-person, was put at an unfair disadvantage, which the judge failed to redress. Reliance is placed on the “overriding objective” defined by CPR Rule 1.1, of “enabling the court to deal with cases justly”, including “ensuring that the parties are on an equal footing”.

The most specific complaint related to the absence of Mr Constable as a witness. This was supported by a witness statement of the Claimant admitted without objection at the hearing before us. As far as one can judge from that statement taken with the transcript, the sequence of events seems to have been as follows:

Once it had become apparent that the Defendants were not planning to call either Jonathan Rowland or Mr Constable as witnesses, the Claimant raised the question of issuing witness summonses. He told the judge that the Master had adjourned this question to him. At the end of the first day he told the judge that he had prepared witness summonses against both Mr Jonathan Rowland and Mr Jamie Constable, and that he wanted the Judge to give him permission to issue both summonses. The judge said he would deal with the matter the next morning.

According to the Claimant, he prepared, and passed to the usher to give to the judge, witness summonses for both Mr Rowland and Mr Constable. At the start of the second day, the judge discussed the summons in respect of Jonathan Rowland. It was agreed that he would prepare a statement on topics indicated by the Claimant, and that he would be made available for cross-examination by the Claimant. The Claimant indicated that he was content with that course.

As far as appears from the transcript, there was no further reference to Mr Constable. According to the Claimant the judge handed back both summonses. He says:

The complaint, as I understand it, is that the judge should not have accepted the offer of Mr Rowland’s evidence as in any way diminishing the need for Mr Constable’s evidence. The importance of Mr Constable’s evidence should have been obvious, and, since the Claimant had made clear that he wanted a witness summons for him, the judge should have dealt with it specifically. A further refinement of this point was put forward by Mr Beazley. Since Mr Constable’s hearsay “confession” was being relied on by the Defendants, there was technically no need for a witness summons. The Claimant was entitled to serve notice under CPR 33.4 asking for him to be made available for cross-examination. As a litigant-in-person, the judge should have ensured that he was made aware of this possibility.

I do not think this complaint is justified in the terms in which has been put. Although it is uncertain precisely what happened to the proposed summons in respect of Mr Constable, it is clear that the Claimant was aware of the point and able to pursue it if he wished to. He did not do so either then, or at any time subsequently during the trial. Nor did he make any protest about it. A litigant-in-person is not free from the ordinary responsibility to take procedural objections promptly, at a time when they can be corrected with minimum disruption to the proceedings and the other parties.

Reference to CPR 33.4 adds nothing to the point. The problem was not procedural. The Defendants and the judge acquiesced in arrangements for the Claimant to be able cross-examine Mr Rowland, even if technically he was his own witness. If the Claimant had pressed for Mr Constable to be made available as a witness, there is no reason to think he would have been treated differently. The decision whether to press for Mr Constable was one which only the Claimant could make. He was a potentially important witness, but it was far from obvious that it would be to the Claimant’s benefit for him to be called. The likely content of his evidence was very uncertain. The judge cannot be criticised in my view for assuming that the Claimant was content with the arrangements made. In any event, it is far too late to raise an objection by way of appeal.

A number of points have been made about the judge’s handling of the trial, such as the pressure of time placed on the Claimant, inadequate allowance for the quantity and timing of disclosure by the Defendants, prevention of lines of cross-examination, and “undue deference” shown to Mr David Rowland. We have not been able to examine all these complaints in detail. In so far as we have been referred to specific parts of the transcript, the complaints seem to me unjustified. Conducting a complex case of this kind, where one party is unrepresented, is never easy for the judge or the parties. It requires skill and sensitivity on the part of the judge, who must also take account of the objective that cases should “dealt with expeditiously and fairly”.

As far as can be judged from what we have seen, the Claimant, although untrained, was an unusually skilful and effective advocate, but the judge was ready to assist when necessary. The examination of Mr Webster is a good illustration. It was the Claimant’s cross-examination which first raised doubts as to his understanding of the purposes of the payment, but the judge helped to clarify that point by pressing him on how far he was prepared to go “hand on heart”. On that point, the real complaint against the judge is not in the way in which he handled the trial as such, but in his failure to take forward the implications of that questioning into his judgment.

There is no doubt, however, that a litigant-in-person can be at a serious disadvantage in a complex case such as this. It becomes particularly difficult when it includes a charge of corruption. It is not surprising that, in his anxiety as a witness to rebut the charge of dishonesty against him personally, he may not have had the objectivity necessary to see the wider picture. That put a particular burden on the judge. For the reasons I have explained in the Appendix, I believe that the judge failed in this regard. That, however, is a criticism not of his handling of the trial, but of his assessment of the evidence thereafter. In my view, this aspect of the grounds of appeal adds nothing to the substantive issues.

For reasons I have endeavoured to explain, I have concluded that the bribe allegation was not made out on the evidence. Unfortunately, I find myself in a minority on that issue. Accordingly, it is unnecessary to consider the consequences of that conclusion for the case more generally. I should make clear that I am far from satisfied that this conclusion would in the end have helped the Claimant to escape his liabilities under his personal guarantees. In particular, I see no reason to disagree with Moore-Bick LJ’s views on the effect of an unauthorised notice of default. I understand, however, that it was of great importance for the Claimant to seek to rebut the charge of bribery. On that issue, while respecting the contrary views of my colleagues, I consider that the Claimant has suffered an injustice, and to that extent I would have allowed the appeal.

This is an appeal by the claimant, Mr. Mohammad Jafari-Fini, against the decision of Mr. Stuart Isaacs Q.C. sitting as a Deputy Judge of the High Court on the trial of certain preliminary issues. The facts giving rise to the proceedings are set out fully in the judgment of Carnwath L.J. and the earlier judgment of Chadwick L.J. to which he refers. It is unnecessary to repeat their accounts which I gratefully adopt. In this judgment I shall refer to Mr. Jafari-Fini by name but otherwise I shall use the same designations and abbreviations as Carnwath L.J.

Following the hearing of the appeal by Mr. Jafari-Fini against the judgment of H.H.J. Rich Q.C. this court directed that a number of preliminary issues be tried. They were worded in the form of questions whether Mr. Jafari-Fini was entitled to various declarations which he is seeking in the proceedings, but for the purposes of this judgment I think they can be conveniently summarised as follows:

whether Skillglass was entitled to serve the notice of default dated 27^th October 2003 (“the October notice”) or the notice of demand dated 11^th December 2003 (“the December demand”);

whether Skillglass’s actions in serving the October notice and the December demand constituted a breach of the Facility Agreement, the Debenture and the Nominee Declaration;

whether Skillglass’s action in enforcing the Facility Agreement and Debenture constituted a breach of the Facility Agreement, the Debenture and the Nominee Declaration;

if so, whether PAL is discharged from liability under the Facility Agreement and the Debenture;

if so, whether Mr. Jafari-Fini is in consequence discharged from liability under his guarantee and the security given in support of it;

whether Skillglass was entitled to enforce the claimant’s guarantee in accordance with its letter of 11^th December 2003;

whether by making that demand and seeking to enforce Mr. Jafari-Fini’s guarantee Skillglass committed a breach of the guarantee, of the security given in support of it and of the Nominee declaration dated 27^th June 2003;

if so, whether Mr. Jafari-Fini is in consequence discharged from liability under his guarantee and the security given in support of it;

whether Mr. Jafari-Fini is entitled to have his guarantee and its supporting security discharged;

whether Mr. Jafari-Fini is entitled to have the shares charged to Skillglass in support of his guarantee transferred to him free of any encumbrance in favour of Skillglass.

The trial of the preliminary issues, at which Mr. Jafari-Fini represented himself, occupied seven days in December 2005 and gave rise to a large number of issues of both fact and law. To conduct a trial of that length and complexity was undoubtedly an onerous task for someone in Mr. Jafari-Fini’s position, but to judge from the transcripts he proved himself to be a capable advocate. The judge was well aware of the difficulties faced by any litigant in person conducting a case of this kind and both he and counsel for the defendants sought to ensure that Mr. Jafari-Fini received the assistance to which he was entitled. Nonetheless, Mr. Beazley Q.C. placed at the forefront of his case before us the submission that in a number of important respects Mr. Jafari-Fini had not been given adequate assistance and that as a result the hearing had not been conducted fairly. It is convenient to consider this aspect of the appeal first.

The matter on which Mr. Beazley placed most emphasis was the judge’s failure to issue a witness summons to compel the attendance of Mr. Constable to give evidence at the trial. Carnwath L.J. has described in some detail the circumstances in which the application was made, originally to the Master and then to the judge, and how it came about that it was not pursued. I agree for the reasons he gives that they do not give rise to grounds for complaint. It is clear from the exchanges between the judge and Mr. Jafari-Fini that although draft witness summonses had been prepared in respect of both Mr. Jonathan Rowland and Mr. Constable, Mr. Jafari-Fini chose not to pursue his application in relation to Mr. Constable. It is certainly possible to imagine circumstances in which there might be a risk of misunderstanding and in which the judge might therefore be expected to protect the interests of a litigant in person by taking active steps to ascertain whether he wanted to compel the attendance of a particular witness, but this was not such a case. Mr. Jafari-Fini gave every impression of being, and in my view was, quite capable of deciding what course to take and of pressing his application if it seemed likely to go by default. He did not attempt to do so and I can see no grounds for saying that the judge wrongly failed or refused to deal with it or that it was disposed of unfairly.

As Carnwath L.J. has pointed out, Mr. Constable was at the very heart of the matter and was therefore a potentially important witness, but I do not think that the defendants can be criticised for not calling him. In an adversarial system each side is responsible for calling those witnesses whose evidence it thinks will support its case. There was nothing to prevent Mr. Jafari-Fini from calling Mr. Constable to give evidence, either voluntarily or if necessary under compulsion, and indeed that is what at one point he sought to do. He would not necessarily have been an easy witness for Mr. Jafari-Fini to examine in chief, but in the light of the approach taken in relation to Mr. Jonathan Rowland it seems likely that the judge would have allowed Mr. Jafari-Fini to cross-examine him. Whether his evidence would have assisted Mr. Jafari-Fini’s case or not is another matter, but his absence is not sufficient in itself to render the proceedings unfair.

Mr. Beazley also relied on various other occasions on which he submitted that the judge had conducted the proceedings in a manner which was unfair to Mr. Jafari-Fini and had caused him prejudice. They included a requirement to provide a further list of documents by the next morning, a refusal to allow a witness to be recalled for further cross-examination, a refusal to allow Mr. Jafari-Fini to put certain matters to witnesses in cross-examination and various examples of what was said to have been a general failure to provide him with adequate assistance. Our attention was drawn to various parts of the transcript which were said to support these complaints, but in my view they do not begin to establish errors of a kind that could be said to render the trial as a whole unfair. In a trial of this nature there is a constant need for the judge to ensure that the proceedings are conducted in a way that gives each party a fair opportunity to present its case while avoiding as far as possible wasting time or incurring unnecessary costs. Although with the benefit of hindsight some individual decisions may seem questionable, that will not normally be enough to render the trial unfair. Any decision which is thought to be of sufficient importance to have that effect can usually be recognised at once and made the subject of an immediate appeal. Nothing of that kind occurred in this case, nor is it said that the judge conducted the trial in a manner generally unfair to Mr. Jafari-Fini. In my view this ground of appeal fails and I therefore turn to consider the questions raised by the preliminary issues.

Clause 23 of the Facility Agreement dealt with default. Among the various events of default were the following:

Clause 23.2 of the Facility Agreement, defined the Lender’s rights on the occurrence of an event of default. It provided as follows:

By its letter of 27^th October 2003 Skillglass gave notice to PAL that it was in breach of the undertaking set out in clause 20.1 of the Facility Agreement and purported to exercise its rights under clause 23.2. accordingly. At the trial there was a dispute between the parties over whether PAL was in breach of that undertaking, but the judge decided that issue in favour of Skillglass and there has been no appeal against that part of his decision.

It was common ground before the judge that although a breach of the undertaking in clause 20.1 was an event of default, it did not itself constitute a ‘Major Default’ as defined in clause 1 of the Facility Agreement. I think that is correct, because, even if clause 23.1.3(b) could be construed as encompassing a breach of the undertaking in clause 20.1 (which I do not think it can), the breach of the undertaking in this case did not result from a breach of clauses 21.8.2, 21.8.5 or 21.8.9. The judge also held that the Certain Funds Period did not expire until 6^th December 2003 and there is no appeal against that part of his decision either. It was for these reasons that Skillglass contended that PAL’s failure to disclose the payment to Mr. Constable in breach of clause 21.8.2 (which it was accepted would constitute a Major Default) entitled it to exercise its rights under clause 23 before the Certain Funds Period had expired, whether in relation to that Major Default or some other default of a more minor nature. At the trial both sides appear to have accepted that that was correct and that if PAL had committed a Major Default in the form of an irremediable breach of clause 21.8.2, albeit unbeknown to Skillglass, Skillglass was entitled to serve a notice of default under clause 23.1.3 on the grounds of a breach of the undertaking in clause 20.1. Neither side sought to challenge that position before us and therefore, although I have reservations about whether that does represent the true construction of the agreement, I am content to proceed on that basis.

This makes it necessary to consider whether the payment which it is agreed Mr. Jafari-Fini made to Three V Corporate Venturing LLP (“Three V”) at the request of Mr. Constable was a bribe given to secure the agreement of Skillglass to waive one of the conditions of the offer and if so, whether PAL was aware of it and was in breach of clause 21.8.2 in failing to disclose that information to Skillglass.

It is now established that in civil proceedings of all kinds the standard of proof is the balance of probabilities, but it has long been recognised that cogent evidence is required to justify a finding of fraud or other discreditable conduct. The reason is explained in a passage in the speech of Lord Nicholls in In re H (Minors) [1996] A.C. 563 at page 586 in which he said

I agree with Carnwath L.J. that the decision in R (McCann) v Manchester Crown Court [2003] 1 A.C. 787 does not alter the law in this respect. It reflects, as Lord Steyn acknowledged, a pragmatic approach intended to ensure that magistrates, who are very familiar with the criminal standard of proof, do not become confused when dealing with applications for anti-social behaviour orders (which are a form of civil proceedings, albeit involving allegations of criminal behaviour) by the conceptual distinction between the standard of proof in criminal proceedings and the more flexible approach taken to the proof of fraud and other discreditable conduct in civil proceedings which in practical terms are often barely distinguishable.

On behalf of Mr. Jafari-Fini Mr. Beazley submitted that the judge had failed to direct himself correctly in this respect and as a result had made findings that were not supported by the evidence. However, I am quite unable to accept that submission. The judge referred expressly to the well-known case of Hornal v Neuberger Products Ltd [1957] 1 Q.B. 247 and clearly had in mind the need to be satisfied that the strength of the evidence was commensurate with the seriousness of the allegation before making any finding adverse to Mr. Jafari-Fini. The fact that he did not refer to any more recent authority does not support the suggestion that he was unaware of it, but in any event none of the later authorities indicate that since that case was decided there has been any significant change in the principles to be applied.

In relation to the appeal against the judge’s finding that the payment made by Mr. Jafari-Fini to Mr. Constable was a bribe I regret to find myself in disagreement with Carnwath L.J. Whenever an allegation of fraud or similar misconduct is made it is particularly important to consider the whole of the evidence before reaching a final conclusion, to test the oral evidence by reference to any contemporaneous documents and to consider the inherent probabilities. Having said that, however, it must be recognised that since the final conclusion must be capable of accommodating any facts which are admitted or which are established by evidence which is not capable of being seriously challenged, such facts provide a useful starting point for the assessment of the more controversial parts of the evidence.

In the present case a number of facts were common ground or established by reliable evidence. They included the following: that on the morning of 27^th June 2003 Mr. Jafari-Fini met Mr. Constable and Mr. Jonathan Rowland at Claridges, apparently by chance, and gave Mr. Constable a personal cheque for £150,000 drawn in favour of Mr. Constable’s investment vehicle, Three V; that the money represented part of a sum of £250,000 that Mr. Jafari-Fini had borrowed the day before from Mr. Webster at a very high rate of interest; that on 17^th July £75,000 was paid by Three V to Rowland Capital; that on 21^st January 2004 a sum of £165,000 (£150,000 plus £15,000 in interest) was paid to Skillglass as a credit towards sums due from PAL; that half of the money required for the repayment was drawn from a personal bank account of Mr. Jonathan Rowland; that on 21^st January 2004 Mr. Constable wrote to Mr. Jafari-Fini on behalf of Three V to confirm that “the security deposit held by us against a default on your loan has now been paid up to Skillglass Ltd”; that Mr. Jafari-Fini replied on 3^rd February 2004 saying that he was surprised to receive that letter “now that I have demanded the repayment of my personal loan of £150,000 to your company” and stating that “[t]his loan is now due for repayment . . . . .”; that no previous demand for repayment of a loan had been made by Mr. Jafari-Fini; that when Mr. David Rowland met Mr. Jafari-Fini on 17^th March 2004 he accused him of having given a bribe to Mr. Constable.

There was other evidence which, if accepted by the judge, provided strong support for the defendants’ case. Perhaps the most striking was the evidence of Mr. David Rowland that on 19^th January 2004 Mr. Constable had visited him in Guernsey and had told him that he accepted a payment from Mr. Jafari-Fini in June 2003 to allow the offer to go unconditional. Mr. Constable was not called as a witness, so the judge had to decide whether he accepted Mr. Rowland’s account of the meeting and, if so, how much weight he should attach to what Mr. Constable had said. In addition there was evidence from Mr. Rowland that when he learnt of the payment he had insisted that it be returned immediately with interest. (The payment of £165,000 was made to Skillglass two days later). Such a reaction is consistent with his being told that the original payment was improper, but is more difficult to reconcile with his being told that it was merely a loan, even if given for purposes of which he disapproved.

Mr. Rowland gave evidence and clearly made a favourable impression on the judge. Although the judge noted that he had displayed a degree of hostility towards Mr. Jafari-Fini in the witness box, he described him as a forthright, plain-speaking and truthful witness. He accepted his account of the meeting with Mr. Constable and in my view he was entitled to do so. Moreover, as the judge pointed out, it would have been a very serious matter for Mr. Rowland to invent a story of that kind and there was no obvious reason for him to do so. I quite accept that he may have thought that his son Jonathan was implicated in the payment and that he wanted to ensure that he did not become tainted by it, but I cannot see how his purpose would be served by making up a story of that kind about Mr. Constable. Moreover, I find it difficult to understand why Mr. Rowland should have accused Mr. Jafari-Fini of giving a bribe when they met in March 2004 (as it was accepted that he had) if he did not believe that he had done so. That fact itself tends to provide further support for his account of the meeting with Mr. Constable in January. Against that, however, there is the striking fact that, following his conversation with Mr. Constable, Mr. Rowland failed to take any of the steps that might ordinarily have been expected of him if he had learnt that a bribe had been paid.

It is necessary to bear in mind, however, that this is not one of those cases in which the accounts given by the witnesses can be tested by reference to a body of contemporaneous documents. As a result the judge was forced to rely heavily on his assessment of the witnesses and the inherent plausibility or implausibility of their accounts. In these circumstances considerable weight must be given to the fact that the judge had the great advantage of seeing most of the principal actors give evidence. We have not had that advantage and in my judgment are not well-placed to differ from his assessment of the truthfulness and reliability of Mr. Rowland or any of the other witnesses, particularly in relation to matters that are not reflected in any of the documents. The judge accepted Mr. Rowland’s account of his conversation with Mr. Constable and in my view was entitled to do so since, when viewed in the context of the other evidence, it was not inherently implausible. When deciding whether he could rely on Mr. Constable’s confession as evidence of what had happened he was right to bear in mind that it involved an admission of serious impropriety which no professional man would be likely to make unless it were true. I think he was entitled to reach the conclusion that it probably was.

In addition to the evidence of Mr. Rowland there was the evidence of Mr. Webster. In his witness statement he said that a few days after the meeting at Claridges Mr. Jafari-Fini had told him that he had made a cash payment to Mr. Constable and Mr. Jonathan Rowland on the morning of 27^th June 2003 in return for Skillglass’s agreement to allow the offer to go unconditional. According to Mr. Webster, Mr. Jafari-Fini was disgusted at the fact that they were hoodwinking Mr. David Rowland. Mr. Webster was clear from his conversation with Mr. Jafari-Fini that the money was a bribe. When the judge asked him in the course of cross-examination to clarify exactly what he understood to have been the nature of the payment Mr. Webster shied away from the use of the word “bribe”, but he made it clear nonetheless that he had understood from what Mr. Jafari-Fini had said to him that it was connected in some way with the offer and was not a payment provided for in the contract.

The judge found Mr. Webster to be an honest and straightforward witness and where his evidence differed from that of Mr. Jafari-Fini he preferred it. Again, having seen both witnesses give evidence, and having regard to the other evidence in the case, I do not think that his conclusion is open to challenge. He found that Mr. Webster was clear from his conversation with Mr. Jafari-Fini that the money had been paid as a bribe and despite Mr. Webster’s reluctance in cross-examination to accept that specific description, I think that the substance of the finding is borne out by his evidence as a whole.

There was, on the other hand, evidence before the judge which tended to support the conclusion that the payment was not a bribe. The most important evidence to that effect came from Mr. Jafari-Fini himself. He said that he had met Mr. Constable and Mr. Jonathan Rowland in Claridges by chance, that they had asked him to lend them £200,000 of the money that he had borrowed from Mr. Webster since he no longer needed it and that under some pressure he had eventually agreed to make them an interest-free loan of £150,000 repayable on demand. This evidence, if accepted by the judge, would have gone a long way to rebut the suggestion that the payment had been a bribe and would, of course, have undermined the evidence of Mr. Rowland, but the judge did not consider Mr. Jafari-Fini to be a reliable witness. In particular, he found his explanation for the payment to be implausible. In my view he was entitled to reach that conclusion for a number of reasons. The money that Mr. Jafari-Fini said he had been persuaded to lend Mr. Constable had been borrowed from Mr. Webster at an unusually high rate of interest. If he did not need it to fund the offer, he could have put it to far better use than making an interest-free loan to two young men whom he did not know particularly well and to whom he was under no obligation. If he was willing to make a loan, however, there is no obvious reason why he should not have been willing to lend the whole sum of £200,000 for which he said he had been asked; at any rate, he did not explain why he had been willing to lend so much but not the full amount for which he had been asked. More importantly, if, as he said, he was reluctant to make a loan of any kind, why did he eventually agree to do so? The suggestion that they nagged him into agreeing to lend such a large sum of money under these circumstances does not ring true. Nor, if the payment was a personal interest-free loan, is it easy to understand why the money was returned to Skillglass rather than to Mr. Jafari-Fini personally, or why it was repaid with interest which was not due and under a description which no one now suggests was correct.

In support of Mr. Jafari-Fini’s case there is the fact that there was a good deal of evidence to suggest that the decision to allow the option to become unconditional was not controversial and may already have been taken in substance by the time he met Mr. Constable and Mr. Jonathan Rowland on 27^th June. Although one of the documents disclosed by Skillglass records that the decision to allow PAL to declare the offer unconditional was taken at a board meeting held at 10.45 a.m. that day, a minute of a meeting of the board of PAL held at 7.26 p.m. the previous day records the decision being taken to declare the offer unconditional and to instruct Deloitte & Touche to release an announcement to the Press by 8.00 a.m. the next day. Mr. Beazley submitted that there was therefore no need for Mr. Jafari-Fini to bribe Mr. Constable in order to ensure that the formalities were completed. There is undoubtedly some force in the point, but I do not think that it is fatal to the judge’s conclusion that the payment was a bribe since, as he observed, the payment itself may well have been made in accordance with a previous understanding. Moreover, it was not necessary for the defendants to establish that the payment actually procured the consent of Skillglass, merely that it was given for that purpose. I agree that the fact that the original payment was made by personal cheque is surprising if it was indeed a bribe, but in my view that fact is not of itself strong enough to outweigh all the evidence pointing the other way.

Looking at the matter overall I am satisfied that the conclusion reached by the judge was one that was open to him on the evidence, recognising, as I am satisfied that he did, the need for cogent evidence to support a finding of that kind. Carnwath L.J. has drawn attention to the judge’s failure to make any findings about the involvement of Mr. Jonathan Rowland, whom he regarded as an unsatisfactory witness, beyond saying that he was sceptical about his evidence that he was unaware of the payment to Mr. Constable until he was told about it by his father in January 2004. I think it probably would have been better if the judge had made findings about the nature and extent of Jonathan Rowland’s involvement, but in the light of the evidence to which I have referred I do not think it was essential for him to do so. He could also, perhaps, usefully also have analysed the evidence at greater length and could have considered in greater detail the state of mind of the different participants, but even then the likelihood is that many questions would have remained unanswered. However, in the light of the evidence to which I have referred I do not think that his failure to do so undermines his findings to any significant extent; nor do I think that the questions which he left unanswered raise serious doubts about them. Accordingly, I do not think this court can properly interfere with his conclusion on this question.

The next question to be considered is whether information about the bribe came to the attention of PAL so that it became obliged to disclose it to Skillglass in accordance with clause 21.8.2 of the Facility Agreement. Since PAL is not a natural person it is necessary first to consider what was known by those who might be regarded as representing it for these purposes and then to decide whether their knowledge is to be attributed to the company. In the event the only person on whose knowledge the defendants sought to rely was Mr. Webster.

I have already described the evidence given by Mr. Webster in relation to this issue and the judge’s finding in relation to it. Taking his evidence as a whole, and despite the fact that he felt uncomfortable with the word “bribe”, he seems to have been clear in his own mind that the payment was illegitimate, that it had been made at about the same time as Skillglass had given its consent to the offer going unconditional and that the two were probably connected. I think the judge was right to find that he believed that the payment was a bribe and had been given in connection with the waiver by Skillglass of the condition attaching to the offer.

It was the defendants’ case at trial that PAL knew about the bribe because both Mr. Jafari-Fini’s own knowledge and that of Mr. Webster was to be attributed to it. The judge rejected the first of these submissions on the grounds that Mr. Jafari-Fini was not a director of PAL and that although he acted as its agent for certain purposes, he had no authority from PAL to agree the payment to Mr. Constable. It was therefore impossible, in his view, to conclude that Mr. Jafari-Fini’s knowledge of the payment related to the subject-matter of his agency or was acquired while he was acting within the scope of his authority. That part of the judge’s decision has not been challenged.

In the case of Mr. Webster the judge referred to the principle set out in Bowstead & Reynolds on Agency (17^th edition, 2001), Article 97(1) and held that, since Mr. Webster was a director of PAL at the time in question, his knowledge was to be attributed to the company. He rejected Mr. Jafari-Fini’s submission based on the principle set out by Buckley L.J. in Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250, 261 that Mr. Webster’s knowledge was not to be attributed to PAL because it concerned a matter in respect of which Mr. Webster himself was acting in fraud of the company. Mr. Beazley submitted that the judge’s decision was wrong in this respect because, in order for Mr. Webster’s knowledge to be attributed to PAL, he would have to have been the directing mind and will of the company, a role which he said belonged to Mr. Jafari-Fini.

The principles governing the attribution of knowledge held by one person to another were reviewed and explained by this court in El Ajou v Dollar Land Holdings Plc [1994] 2 All E.R. 685. As I pointed out in my judgment in MAN Nutzfahrzeuge A.G. v Freightliner Ltd [2005] EWHC 2347 (Comm) at paragraph 154, it is necessary to draw a distinction between the principles governing the attribution to a principal of knowledge acquired by his agent and the principles which govern the attribution to a company of knowledge acquired by the person or persons who represent the company for the purposes of the transaction in question (often described as the person who represents its ‘directing mind and will’). In the present case both possible bases of attribution have to be considered.

I am unable to accept Mr. Beazley’s submission that Mr. Webster’s knowledge could not be imputed to PAL unless he was the directing mind and will of the company. If he were merely an agent of the company, information he acquired in that capacity could be attributed to PAL if certain conditions were satisfied. In El Ajou v Dollar Land Holdings Plc at page 702a and following Hoffmann L.J. drew attention to the fact that whether knowledge acquired by an agent is to be attributed to his principal depends on the particular nature and circumstances of the case.

The judge proceeded on the footing that because Mr. Webster was a director of PAL he had unlimited authority to receive information on behalf of the company and that any information he received that might have a bearing on the company’s interests was to be attributed to it. In my view, however, that states the matter too broadly. It is clear from the decision in El Ajou v Dollar Land Holdings Plc itself that it is necessary to consider the capacity in which the agent obtained the information in question. In that case Mr. Ferdman had acquired the information about the source of the funds in his capacity as a director of another company. The claimant argued that because he was also a director of the defendant his knowledge should be attributed to it, but the court rejected that argument because it was not possible to bring him within any of the relevant principles under which the knowledge of an agent is attributed to his principal. In the present case the judge did not find that Mr. Jafari-Fini confided in Mr. Webster because he was a director of PAL; rather, the inference is that he confided in him as a friend. I do not think this is a case, therefore, in which it can be said that Mr. Webster acquired the information in his capacity as a director of PAL.

Mr. Ali Malek Q.C. submitted that, because PAL had a duty to make disclosure of the information acquired by Mr. Webster, the present case is one which falls within Hoffmann LJ.’s second category which he described in the following terms:

The defining feature of these cases, as I understand it, is that the principal has employed an agent to perform a task or transaction of a kind which imposes on the principal a duty to investigate (so that knowledge that the agent acquires in performing it can be treated as knowledge acquired by the principal) or in which the principal is under a duty to disclose information held by his agent (as in the insurance cases). However, neither of those situations applies here. PAL did not employ Mr. Webster to perform a task of the kind envisaged by Hoffmann L.J.; he was simply a member of the board. Nor was this a case in which PAL was under a comparable duty to disclose information in the possession of its agents. Whether clause 21.8.2 of the Facility Agreement imposed an obligation on PAL to disclose information coming to the attention of any of its agents raises a question of construction which it is convenient to consider separately.

In El Ajou v Dollar Land Holdings Plc Hoffmann L.J. was inclined to the view that as chairman of the board Mr. Ferdman owed a duty to bring the information that he had acquired in another capacity to the attention of the defendant’s board. He had not done so, of course, and that led Hoffmann L.J. to consider at pages 703e - 704j the extent to which the imputation of knowledge is affected by the existence of a duty on the part of the agent to communicate the relevant information to his principal. He concluded that it may permit a court to infer as a fact that he actually did so, but that is no more than a rebuttable inference of fact. There is no evidence in this case that Mr. Webster communicated the information to the board of PAL; on the contrary, all the evidence points to the fact that he did not do so. In my view, therefore, the presumption is rebutted and accordingly Mr. Webster’s knowledge cannot be imputed to PAL in accordance with the general principles of agency.

The alternative argument is that Mr. Webster, together with the other directors, is to be regarded as the directing mind and will of the company for this purpose so that his knowledge can be said to be the company’s knowledge. In Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 A.C. 500 Lord Hoffmann giving the opinion of the Board pointed out that in order to identify the natural persons whose acts or state of mind are to be attributed to a legal person such as a company it is necessary to have regard to the policy underlying the particular substantive rule in relation to which the question arises. He said at page 507D-F:

In the context of an obligation which arises under a contract the task of identifying the natural persons whose knowledge or state of mind is to be attributed to the company for the purpose of that obligation can easily be identified as one of construing the contract. It is therefore necessary to ask who among PAL’s directors, employees and agents did the parties intend should be regarded as the company for the purposes of acquiring information that must be disclosed under clause 21.8.2. In other words, whose knowledge is to be treated as the knowledge of PAL for these purposes?

In the present case it is unnecessary to consider the position of anyone other than Mr. Webster. The obligation to disclose information “which comes to the attention of the Borrower” must, I think, extend to information held by the board of directors as a whole since the board represents the company at the highest level. The question in the present case is whether information which comes to the attention of one director, but which he has not shared with the rest of the board, is to be treated as information in the possession of the company. In MAN v Freightliner I expressed the view that where the board of directors is properly to be regarded as the directing mind and will of the company in relation to a particular transaction the knowledge of each is to be attributed to the company. That case, however, was concerned with the liability of the company for a false statement made in a written contract which the board as a whole had resolved that the company should enter into. The present case differs inasmuch as it is concerned with the acquisition by the company of information, but there are nonetheless certain similarities arising from the fact that the members of the board can generally be regarded as collectively representing the company. In general, therefore, I think that information relevant to the company’s affairs that comes into the possession of one director, however that may occur, can properly be regarded as information in the possession of the company itself. In my view that presumption informs the present contract and points to the conclusion that information in the possession of Mr. Webster relating to the bribe is to be regarded as information in the possession of PAL itself. That remains the case even if Mr. Jafari-Fini can properly be regarded as representing the company in relation to other aspects of the transaction, as to which it is unnecessary to express any view.

Mr. Beazley did not pursue the submission made to the judge that, if Mr. Webster knew about the bribe but failed to bring it to the attention of the board, he became a party to it, with the consequence that his knowledge is not to be attributed to the company in accordance with the principle recognised and explained in Belmont Finance v Williams. The judge rejected that submission, and in my view he was right to do so since there are no grounds in the present case for holding that Mr. Webster became a party to any fraud on PAL. For these reasons I am satisfied that his knowledge of the bribe is to be attributed to PAL for the purposes of clause 21.8.2.

Clause 21.8.2 obliged PAL to

Although he does not say so in terms, the judge clearly accepted that the information obtained by Mr. Webster was material to the decision whether to waive any condition of the offer and before us Mr. Beazley did not seek to contend otherwise. In my view he was right not to do so. Whatever the truth about the payment made to Mr. Constable (which itself has never been in dispute), PAL was under an obligation to disclose the information that Mr. Webster had obtained, that is, the facts as he understood them to be, if they were material to a decision to waive any condition of the offer. Materiality in the context of clause 21.8.2 must in my view mean information which reasonable persons in the position of the directors of Skillglass would wish to take into account when reaching a decision of that kind. The information acquired by Mr. Webster was in my view material in that sense and PAL was therefore bound to disclose it, unless in some way relieved of that obligation.

Mr. Beazley submitted that, even if the information fell within the scope of clause 21.8.2, PAL was not bound to disclose it in circumstances where Skillglass was already in possession of it through Mr. Constable or Mr. Jonathan Rowland. This raises two questions: is the knowledge of Mr. Constable or Mr. Rowland to be attributed to Skillglass; and if so, did that relieve PAL of its obligation to make disclosure? When considering these questions it is necessary to bear in mind that at the time only Mr. Constable was a director of Skillglass, although both he and Mr. Rowland were directors of its parent company, Resurge.

The judge dealt with this submission very briefly in paragraph 139 of his judgment. He recorded Mr. Jafari-Fini’s argument as being that “as Mr. Constable was a director of Skillglass and Resurge, any knowledge on his part imputed to PAL would also be imputed to the Defendants” and rejected it on the grounds that “that would, however, only be the case where Mr. Constable was not acting in fraud of PAL, whereas I have concluded that he was”.

I find this part of the judgment somewhat obscure because it is not clear to me on what grounds Mr. Constable’s knowledge might be attributable to PAL, as opposed to Skillglass or Resurge. Moreover, the judge said nothing about the position of Mr. Rowland in this connection and since it was apparently part of Mr. Jafari-Fini’s case that he knew all about the payment and that his knowledge was to be imputed to both Resurge and Skillglass, I have some sympathy with his complaint that the judge failed to make any findings about the nature or extent of his involvement. Nonetheless, I think the judge was right to reject the argument. Mr. Rowland, unlike Mr. Constable, was not a director of Skillglass and did not represent the company; insofar as he acquired any relevant information he did not do so on its behalf. It is tempting to assume that Mr. Constable and Mr. Rowland together represented the directing mind and will of Skillglass, but the fact remains that Skillglass had its own board which continued to function independently. I have little doubt that Mr. Constable represented Skillglass for all purposes relating to the transaction, but he was, as the judge found, acting in fraud of the company and therefore his knowledge of his own fraud is not to be imputed to it in accordance with the principle in Belmont Finance v Williams to which I referred earlier. I do not think that the evidence goes so far as to establish that Mr. Rowland represented the directing mind and will of Skillglass for these purposes, but if he did, and if he was a party to the bribe (it was not suggested that he became aware of it by any other means), the position is the same. It follows that in my view the judge was right to hold that Skillglass is not to be treated as having received the information that PAL was under a duty to disclose.

However, even if I were to take a different view of the matter, I should be unable to accept Mr. Beazley’s submission that PAL was relieved of its duty under clause 21.8.2. His argument rested on the proposition that the law does not insist upon disclosure in circumstances where the person to whom it is to be made is already in possession of the relevant information. It is quite true that where a duty of disclosure is implied by law (most obviously in the case of contracts of insurance) it does not usually extend to facts that already are, or should be, known to the person to whom disclosure is to be made. The present case, however, is concerned with a duty imposed by contract and whether that duty is qualified in a similar way turns on the true construction of the contract.

In support of his argument Mr. Beazley drew our attention to the decision of this court in Barrett Brothers (Taxis) Limited v Davies [1966] 1 WLR 1334. That was a case concerning a policy of motor insurance which contained a term making it a condition of the insurers’ liability that the insured should give full particulars of any accident to them in writing as soon as possible after the occurrence of any accident and immediately forward to the insurers any notice of intended prosecution or summons relating to it. Following an accident the insured completed and returned to the insurers a claim form, but he failed to send them either the notice of intended prosecution or the summons which he later received and the insurers relied on his failure to do so as a ground for rejecting the claim.

The County Court judge held that there had been a breach of condition and that the insurers were therefore entitled to decline liability. On appeal, however, Lord Denning M.R., with whom Dankwerts L.J. agreed, decided in favour of the insured on two grounds: that since the insurers had been informed of the prosecution by the police it was unnecessary for the insured to send them the papers; and because they had in any event waived their right to rely upon a breach of the condition because of the way in which they had subsequently conducted themselves. Mr. Beazley relied in particular on a passage at page 1339 where Lord Denning M.R. said:

Salmon L.J. held that in principle the insurers were entitled to avoid liability on the grounds of the insured’s failure to send them the notice of intended prosecution and summons, but agreed that in the circumstances of the case they had waived their right to do so.

Barrett Brothers (Taxis) Ltd v Davies was the only authority upon which Mr. Beazley relied in support of his submission, but, as Bingham J. pointed out in Pioneer Concrete (UK) Ltd v National Employers Mutual General Insurance Association Ltd [1985] 2 All E.R. 395 at page 403, Lord Denning M.R. rested his decision on two grounds, to which he added an observation of a general nature. Bingham J. considered that that observation did not form part of the ratio of the decision and did not correctly represent the law, a view that was subsequently endorsed by the Privy Council in Motor and General Insurance Co Ltd v Pavy [1994] 1 W.L.R. 462. In my view Mr. Beazley’s submission is both contrary to authority and to established principles and must be rejected. Moreover, there are no grounds for construing clause 21.8.2 as requiring disclosure only of information that was not already in the possession of Skillglass. Accordingly, even if the knowledge of Mr. Constable or Mr. Jonathan Rowland could be attributed to Skillglass, that would not have relieved PAL of its obligation under the clause.

For these reasons I have reached the conclusion that PAL was in breach of clause 21.8.2 and that accordingly a Major Default had occurred and was continuing at the time when Skillglass gave the October notice. I am satisfied, therefore, that Skillglass was entitled to give that notice and that my question (i) must be answered ‘Yes’ and questions (ii) and (iii) ‘No’. It follows that Questions (iv) and (v) do not arise, that Question (vi) must be answered ‘Yes’ and that Questions (vii), (viii), (ix) and (x) must all be answered ‘No’.

That is sufficient to dispose of the appeal, but I propose to deal briefly with one of the issues that would arise if Skillglass had not been entitled to serve the October notice because it raises a matter of more general interest, namely, the effect of giving a notice of default in circumstances other than those provided for in the Facility Agreement (what for present purposes I shall refer to as an unauthorised notice of default).

It must be assumed for these purposes that although PAL was in breach of the undertaking contained in clause 20.1 of the Facility Agreement, it was not for one reason or another in breach of clause 21.8.2 and that no Major Default had therefore occurred or was continuing at the time Skillglass gave the October notice. It was Mr. Jafari-Fini’s case that in those circumstances by serving the October notice Skillglass repudiated the Facility Agreement, thereby discharging PAL from all liability under it and him from any liability under his guarantee.

This submission raises the question whether on the true construction of the agreement the service of an unauthorised notice of default would constitute a breach of contract at all. Most commercial loan agreements under which the principal is repayable by instalments contain a provision of some kind permitting the lender to accelerate the debt in the event of a default by declaring the whole of the outstanding amount repayable on demand. However, they do not normally contain either an express or implied obligation on the lender to refrain from giving a notice of default that is premature or invalid for some other reason. If a notice of default is given before one of the stipulated events has occurred the notice is simply invalid and of no effect: see Concord Trust v The Law Debenture Trust Corporation Plc [2004] EWCA Civ 1001; [2004] 2 All E.R. (Comm) 737 per Jonathan Parker L.J. at paragraphs 70-81, approved on appeal [2005] UKHL 27, [2005] 1 W.L.R. 1591 (see in particular the speech of Lord Scott at paragraphs 36-37).

The judge held that there was nothing to distinguish the Facility Agreement from the terms of the bonds considered in the Concord Trust case and that therefore Skillglass did not in any event commit a breach of the agreement by giving the October notice and making the December demand. Mr. Beazley submitted, however, that the judge was wrong so to hold because the expression “ . . . . . the Lender shall not be permitted to . . . .” in the proviso to clause 23.2 imposed a positive obligation on Skillglass not to give notice of default until the expiry of the Certain Funds Period unless there was a continuing Major Default.

I am unable to accept that submission. I recognise, of course, that each agreement must be construed in accordance with its own terms, but the principles identified by Jonathan Parker L.J. in the Concord Trust case apply generally to instruments of this kind. They provide a degree of certainty and a clear point of departure for those embarking on transactions of this type. The parties are free to depart from that position, if they wish to do so, but if that is their intention they can be expected to make it clear. In my view neither the language of the proviso nor any wider commercial considerations support Mr. Beazley’s argument. In the first place, it should be noted that the proviso, as its language indicates, contemplates that an event of default (not amounting to a Major Default) has occurred before the end of the Certain Funds Period, and indeed this part of Mr. Beazley’s argument proceeds on the assumption that PAL was in breach of clause 20.1, though not in breach of clause 21.8.2, when Skillglass gave the October notice. However, since a default of that kind did not of itself entitle Skillglass to exercise its rights under clause 23.2, the position is the same as it would have been if no default of any kind had occurred. The argument can only succeed, therefore, if the agreement imposes on Skillglass an implied obligation to refrain from giving notice of default when no event of default has occurred, a proposition which I am unable to accept in the light of the decision in the Concord Trust case.

Under the terms of the Facility Agreement the lender’s rights upon the occurrence of an event of default are to cancel the facility, call in the whole of the outstanding loan immediately and, if necessary, enforce the security for its repayment. The purpose of the proviso is to ensure that in the absence of a Major Default those rights are not capable of being exercised during the period in which the borrower may still need to draw down funds in order to pay for shares. To achieve that end it is necessary only to ensure that a notice of default, if given, is ineffective prior to the expiry of the Certain Funds Period and the agreement provides for that in two ways: by carefully defining events of default and thus prescribing the grounds on which notice of default can be given; and, except when there is a continuing Major Default, by withdrawing from the lender the right it would otherwise have to serve a notice of default prior to the expiry of the Certain Funds Period. In my view the words “ . . . . the Lender shall not be permitted to . . . ” simply mean that in the absence of a Major Default the lender is not entitled during that period to take any of the steps to which the proviso refers.

Moreover, the implications of Mr. Beazley’s argument seem to me to reinforce the conclusion which I think follows from the language of the agreement. If an unauthorised notice of default is invalid, the borrower’s position is entirely unaffected by it and there is no reason why the parties should have wished to impose on the lender a positive obligation to refrain from serving such a notice. As Lord Scott pointed out in the Concord Trust case, neither commercial considerations nor any of the other factors capable of giving rise to an implied obligation support its existence in an agreement of this kind. There is no reason, therefore, to think that the proviso to clause 23.2 was intended to give rise to such an obligation under the Facility Agreement. A positive obligation to refrain from serving a notice of default in circumstances other than those provided for in the agreement would only be of value if by doing so the lender could effectively exercise its rights, but that is clearly not what the parties intended. Apart from the matters to which I have already referred, it is necessary to bear in mind that there is a strong presumption that a contract is not to be construed in a manner that would enable a party to obtain a benefit under it as a result of his own breach: see Alghussein Establishment v Eton College [1988] 1 W.L.R. 587. There is nothing in the Facility Agreement to indicate that the parties intended that Skillglass should be able to accelerate the repayment of the loan by giving notice of default when an event of default had not occurred; on the contrary, that is obviously not what they intended.

For all these reasons I am satisfied that Skillglass was not under a positive obligation to refrain from giving an unauthorised notice; any such notice was simply invalid and ineffective. It follows that, even if there was no Major Default, Skillglass did not in my view commit a breach of the Facility Agreement that was capable of discharging PAL from its obligations.

For all these reasons I would dismiss the appeal.

I agree that this appeal should be dismissed. Like Moore-Bick LJ I gratefully adopt the full account of the facts of the case given in the judgment of Carnwath LJ and the earlier judgment of Chadwick LJ to which Carnwath LJ refers. My Lords are not agreed upon what may be called the bribery issue, nor the extent and relevance of the knowledge of Mr Ted Webster (in the context of the question what knowledge fell to be imputed to PAL so as to engage its obligation to disclose to Skillglass in accordance with clause 21.8.2 of the Facility Agreement). The relevant principles relating to the imputation of knowledge to a company are reviewed in some detail in Moore-Bick LJ’s judgment, and Carnwath LJ agrees with his analysis. So do I. The difference between my Lords is as to the facts.

On both the bribery issue and the issue relating to the extent and relevance of Mr Webster’s knowledge, with respect I find myself in agreement with the approach and reasoning of Moore-Bick LJ. On the first, I acknowledge that there are deficiencies in the learned Deputy Judge’s judgment. In particular, he failed to make any findings about the involvement of Mr. Jonathan Rowland, whom he regarded as an unsatisfactory witness. And he would have done well to focus directly and in detail on the state of mind of the various participants. But like Moore-Bick LJ I am unable to conclude that these failures so undermine his findings on the bribery issue as to justify this court overturning them on appeal. Moore-Bick LJ (paragraphs 77 - 84) has described the factual material before the judge, and there is no purpose in my replicating his description. I would respectfully wish to underline a dimension of the appeal emphasised by Moore-Bick LJ at paragraph 80, that

As regards Mr Webster’s knowledge, I agree with Moore-Bick LJ’s reasoning at paragraph 87.

In Skillglass’ amended defence, after a reference to the alleged admissions of the payment of £150,000, there is the following allegation (para 72):

There is no dispute that the Claimant made a payment of £150,000 on 27th June 2003, for the benefit at least of Mr Constable, by means of a cheque payable to “Three V Corporation”. That was also the date of the board meeting at which Skillglass resolved to give its consent to PAL declaring the offer unconditional. “Three Venture Corporate Venturing LLP” (the correct name) was a partnership between Mr Constable, and his business associate, Mr Peter Ward.

There is also no dispute that the money came from a sum lent to the Claimant the previous day by Mr Webster in connection with the offer, although the judge accepted that Mr Webster himself did not know this at the time (para 122). Mr Webster’s role is important to the next step in the Defendants’ argument, since it is his later knowledge of the bribe which they seek to impute to PAL. As to the circumstances of that loan, the judge found:

It is the explanations for the Claimant’s payment which were in apparently sharp conflict. The Claimant said it was a loan to Mr Constable and Mr Jonathan Rowland, for a separate project of their own, apparently connected with their motor racing interests, and that he made it because he had been “pestered” by them. The Defendants said it was a bribe to Mr Constable linked to his role in procuring the Skillglass resolution. Although the judge found that it was a “bribe”, he made no express finding on the other two points of dispute:

Who were the intended recipients? Was it a payment to Mr Constable alone, or was Jonathan Rowland also a party?

What was the purpose of the payment? More specifically, was it for the purpose alleged in the pleadings, that is, for the purpose of “inducing Mr Constable, Mr Jonathan Rowland, Skillglass and/or Resurge to consent to and thereby permit the waiver of the Acceptance Condition”.

Before considering the criticisms of the judge’s conclusions of this issue, it is necessary to set out in some detail the judge’s treatment of the respective cases.

It is fair to start from the Claimant’s initial explanation of the payment in his third witness statement (October 2004), after the allegation had first been made by Mr Robeson in his statement of 13 ^th August 2004 (para 17-18):

For the Claimant’s account of the circumstances of the payment, I refer to the judge’s summary:

The judge accepted the first part of this passage, which accorded also with Mr Webster’s evidence, but not the second. He summarised the cross-examination:

Turning to the Defendants’ account of the payment, the most specific evidence came in the form of alleged admissions made to Mr David Rowland by Mr Constable in January 2004, and by the Claimant himself in March. As to the first, the judge quoted Mr Rowland’s statement, according to which Mr Constable had come to his house in Guernsey on 19 ^th January 2004 in a “very emotional” state (para 116):

The March meeting with the Claimant was at the Carlton Tower Hotel. There is no dispute that the meeting took place, nor that, in the course of a discussion of various matters, Mr Rowland accused the Claimant of paying a bribe to Mr Constable. Mr Rowland’s evidence was that the Claimant admitted having paid the bribe. The Claimant’s evidence was that he had “categorically denied” that the payment had been a bribe, and had stated that Jonathan Rowland had forced him into lending the money. (judgment para 123)

The only other relevant witnesses at trial were Mr Webster and Mr Jonathan Rowland. Mr Webster’s evidence related to a meeting with the Claimant “a few days” after 27 ^th June 2003. As the judge recorded it:

Jonathan Rowland’s role is more controversial. His father spoke of a conversation with him in July 2003, the effect of which the judge summarised:

As to what happened to that money, the judge recorded Jonathan’s own evidence:

The judge referred to some documentary evidence of the sequel to Mr Constable’s visit to Guernsey in January:

In arriving at his conclusion, the judge explained in some detail his view of the evidence (para 129(1)-(7)). Broadly he accepted Mr David Rowland and Mr Webster as truthful witnesses, and where they differed from the Claimant preferred their evidence. In particular he accepted Mr Rowland’s account of the two confessions. Of Mr Constable’s confession he said:

He rejected the Claimant’s account of the payment:

He also accepted that the Claimant had sufficient motive to make a bribe:

He concluded that these various factors “individually and cumulatively” pointed “inexorably” to the conclusion that the payment was a bribe as alleged. However, he added that he had placed no reliance on the evidence of Jonathan Rowland, whom he found “an unsatisfactory witness”. He commented:

The judge held that the considerations listed by him led “inexorably” to the conclusion that “the Claimant did bribe Mr Constable” (para 129). As I have already noted, in spite of his “scepticism” about Jonathan’s evidence, he made no specific finding as to whether he was also a party to the bribe. Nor did he make any specific finding about the precise purpose of the bribe.

In order to consider the significance of those omissions, it is necessary to look critically at the key elements of the evidence relevant to the Defendants’ case:

Mr Constable’s confession;

The Claimant’s own admissions (to Mr Webster and David Rowland);

The evidence of Jonathan’s role;

The implausibility of the Claimant’s account;

The motives of the “conspirators”.

Mr Constable’s evidence was, as Mr Beazley submits, crucial to the Defendants’ case:

The judge seems to have treated Mr Constable’s absence as a neutral factor. He commented:

This was, in my view, a surprising comment: both because there was no-one else present at the meeting who might have contradicted it, and, more importantly, because it was in fact contradicted by Mr Constable’s own subsequent written statement. This was a statement by him sworn in August 2004 (in separate bankruptcy proceedings by the Claimant against Three V). In the statement, he referred to the negotiations immediately prior to completion of the acquisition, when it became apparent that the Claimant could not provide the £900,000 required:

The judge made no reference to this statement. Although it had been made in other proceedings, it was apparently referred to without objection before the judge (see, for example, the Claimant’s third witness statement, para 16). Indeed Mr Malek relied on it before us to explain why the Claimant’s case had not been prejudiced by the judge’s failure to ensure that Mr Constable was called as a witness. He said:

There were other difficulties in accepting David Rowland’s account of the confession at face value. The first was the lack of detail, most obviously in relation to the role of Jonathan. Mr Constable and Jonathan were joint managing directors of Resurge, and it was their project. Even if Mr Constable had volunteered nothing about Jonathan’s involvement, it is almost inconceivable that David Rowland would not have asked him about it. He was sufficiently suspicious of his son to “go ballistic” with him. Yet he offered no evidence of what Mr Constable said about that issue.

Another serious omission, both from David Rowland’s evidence, and the judge’s treatment of it, was any consideration of Mr Constable’s own motives for accepting a bribe. The probability of the dishonest transaction needed to be judged from both sides. For example, the Claimant made the point that if he had been paying a bribe, he would not have done so by cheque. The judge commented:

I agree with Mr Beazley that the judge should have attached more weight to the absence of direct evidence from Mr Constable, as the key witness on the Defendants’ side.

However, I would go further. The judge’s treatment of the payment by cheque seems to me one illustration of a much more important weakness in the judge’s reasoning. When considering the events in January 2004, the judge commented that it was “a very grave matter” for Mr Constable as a professional man to confess to a bribe. But it was an even graver matter for him to have accepted a bribe in the first place. This was at a time when, as far as we know, he was a reputable accountant and a trusted associate of Mr Rowland, embarking on a joint business transaction worth several million pounds. Neither the Defendants, nor the judge, offered any explanation as to why, in relation to a deal of this magnitude, Mr Constable would have allowed his professional judgment to be swayed, and his reputation put at risk, for the sake of a payment of £150,000. The plausibility of this aspect of the Defendants’ case was never properly tested.

To take account of such factors does not involve rejecting the judge’s view of Mr Rowland’s credibility in general (subject to the issue of his son’s involvement, to which I will come). It involves setting his evidence in context. It has to be remembered that by early 2003 circumstances had changed; the transaction had proved a disaster, and the parties had fallen out. I can readily accept that, in that highly charged atmosphere, Mr Constable decided to confess to his receipt of the irregular payment, and that Mr Rowland interpreted it as a “bribe” of some kind. But, before that was treated as proof against the Claimant, his view needed to be looked at in the context of the relationships as they were in June 2003, and tested against the evidence as a whole, including the contrary evidence, not only of the Claimant, but of Mr Constable himself.

This was an important part of the judge’s reasoning. He accepted Mr Webster’s evidence as that of an independent and reliable witness. It was important, not only as to the fact and purpose of the alleged bribe, but also as to PAL’s imputed knowledge of it. His information came entirely from a conversation with the Claimant “a few days after (the payment was made)… one evening in the office”. In the judge’s words, Mr Webster was “clear from his conversation with the Claimant that the money was a bribe” (para 114). Mr Beazley says that this is not a fair reading of Mr Webster’s evidence as a whole. He accepts that Mr Webster spoke of a payment to Mr Constable and Jonathan Rowland, and of the Claimant’s concern about them “hoodwinking” David Rowland. But beyond that his evidence was far from clear.

Mr Beazley supported his submission by a detailed examination of the transcript (Day 4, p. 56-64, 88). The word “bribe” was not used by Mr Webster in chief. It was first put to him by the judge in the course of cross-examination, and, although he initially accepted the word, he immediately retracted it, preferring the word “illegitimate” (p 56). Later he described it as “not improper in a legal fashion but outwith the agreement…” (p 64).

As to the purpose of the payment, he had said in his witness statement that he understood it to have been “in return for Skillglass’ consent for the offer to go unconditional” (para 35). He was asked about that in cross-examination. The Claimant reminded him of the separate agreement between Skillglass and PAL for an additional fee of £100,000 (mentioned in paragraph 30 of his statement). He suggested that Mr Webster might have been confused between the purpose of this fee and the payment on 27 ^th June. Mr Webster accepted that he might have been “confused about what the payment was for” but there was “no doubt in (his) mind that there was a payment made.” (Day 4 p 62D) The point was then taken up by the judge:

In re-examination, Counsel for the Defendants returned to the issue:

I agree with Mr Beazley that this evidence does not bear the interpretation put on it by the judge. Mr Webster was not “clear… that the money was a bribe”. More importantly, he was not in the end able to confirm that the purpose was related to the offer going unconditional; nor was he was he able to distinguish clearly the separate agreement for payment of £100,000.

Mr Malek submits that the judge “did no more than strip away Mr Webster’s euphemisms”. I agree that Mr Webster’s dislike of the word “bribe” should not be allowed to cloud the issue. He may, as Mr Malek suggests, have been concerned by his own failure to take any action at the time. However, the problem goes beyond a matter of words. The transcript reveals a genuine confusion in Mr Webster’s mind about what he was told about the purposes of the payment, and in particular its relation to the £100,000 already agreed.

This uncertainty is not surprising, given the casual nature of the original meeting, and the fact that the issue did not come to the surface as one of importance until over a year later. His own witness statement was prepared in November 2005, almost two and half years after the event he was describing. Furthermore, the full story of the agreed payments of £100,000 and £50,000 is unclear on the evidence even now. According to Mr Robeson (David Rowland’s adviser), the £100,000 was no more than a piece of creative accounting by Mr Constable:

Mr Rowland’s account of the alleged admission by the Claimant (in March 2004) was “categorically denied” by the Claimant (para 123). There was therefore a direct conflict of evidence on the point, and no independent corroboration.

At first sight this was a surprising admission for the Claimant to make. The judge does not seem to have asked himself what reason the Claimant would have had to make such an admission at this stage. He was by then claiming in exchanges between solicitors that it was a loan, and he knew that Mr Constable was saying that it had been a security deposit. Mr Rowland gave no explanation of what would have induced the Claimant to make the admission, and the judge does not fill the gap.

Another striking factor was David Rowland’s lack of action in response to confirmation of the bribe. It might be understandable, as Mr Malek suggested, that Mr Rowland did not act immediately on Mr Constable’s confession, because he wanted to wait until he had put the accusation to the Claimant directly. But if that was so, one would have expected some action to follow. Yet, nothing was done. Mr Constable was allowed to remain as a director until April, and to adopt the story that this was a security deposit. Although Resurge was an AIM listed company, there is no evidence of any consideration being given to making any public announcement. Correspondence continued to pass between solicitors without any reference to this allegation. Five months went by without any mention of it, until August 2004 when it first emerged in the present proceedings, to provide retrospective support for the October notice.

The judge did not address these apparent anomalies, and gave no specific reason for preferring Mr Rowland’s evidence on this issue.

There was no dispute that £150,000 was paid in the form of a cheque to Three V, and that Mr Constable was one of the intended beneficiaries. There was a dispute whether Jonathan Rowland was also a beneficiary. The Claimant’s case was that the payment had been made to Mr Constable and Jonathan Rowland, for a purpose connected with their motor-racing activities. The judge did not find it necessary to resolve this issue, although he was “sceptical” about Jonathan’s evidence that he was unaware of the payment until January 2004.

Mr Beazley submits that this issue should have been resolved by the judge. It was an important factor in judging the plausibility of the Defendants’ case and the credibility of their evidence, particularly that of David Rowland. Properly analysed, he submits, the weight of the evidence was strongly on the Claimant’s side.

Factors, accepted by the judge, which point to Jonathan Rowland’s involvement include:

The payment was made by the Claimant at Claridge’s on 27 ^th June 2003, at a meeting with Jonathan and Mr Constable alone, apparently at their invitation. (They had “waved at” him on his way to the handover discussions, and later asked him to sit with them.) On this point the Claimant’s evidence was corroborated by that of Mr Webster, and was accepted by the judge (para 111).

On 17 July 2003 Mr Constable drew a cheque on Three V for £75,000, payable to Rowland Capital. According to the evidence of both David and Jonathan Rowland, the payment was related to Jonathan’s motor-racing activities, although it seems to have been diverted by David to offset Jonathan’s other losses (para 115, 118). There was no explanation of the source of, or the reason for, Mr Constable’s generosity.

Jonathan and Mr Constable were not only close business associates, but also both involved in motor-racing. Jonathan had some difficulty in obtaining cash to support this activity, due to the “disapproval” of his wife and the “unsympathetic attitude” of his father (judgment para 115, 118).

David Rowland was sufficiently suspicious of his son’s role to “go ballistic” with him (para 117).

After Mr Constable’s confession, when he had been told by David Rowland to “disgorge” the money with interest, he used Three V to pay £165,000 to Skillglass, for the credit of PAL. At the same time Jonathan Rowland paid £82,500 to Three V. He did so because he thought that the £75,000 received by him the previous July might be associated with the Claimant’s £150,000 payment, and was “potentially tainted” (para 119).

In this connection, Mr Beazley criticises the judge’s refusal to examine the precise nature of the payment of £75,000 made to Rowland Capital, and indeed his turning of the point against the Claimant. In cross-examination of David Rowland, the Claimant had put to him that this payment had not been mentioned in his first witness statement (dated August 2004), but first emerged in his second statement in November 2005. He also accused Mr Rowland of having himself benefited from the money. The judge seems to have misunderstood the point. He said:

He also rejected the Claimant’s allegation that David Rowland had himself “improperly shared in the money”, adding that this attack “reinforces the lack of credibility of the evidence given by the Claimant” (para 129(3)). Mr Beazley says that this was unfair to a litigant-in-person, conducting a difficult cross-examination of an overtly hostile witness. More importantly, in my view, the judge seems to have lost sight of the real point. It was not about the £150,000 payment, but about the true reasons for the sudden receipt from Mr Constable of a payment of £75,000 into the family company, and its repayment with interest when the bribe became known. On any view, this was an unusual transaction, and the coincidence with the alleged bribe to Mr Constable required explanation.

Taken together, the factors noted above gave strong support to the Claimant’s case that Jonathan had been a party to the payment, a case which was also consistent with what he had told Mr Webster at the time. The only direct evidence to the contrary, apart from Mr Constable’s confession, was the unreliable evidence of Jonathan himself. If Jonathan was a party to the payment, not only does that fact throw some doubt on the credibility of David Rowland’s evidence, at least on matters concerning his son, but it also introduces an important new factor in judging the plausibility of the respective cases. It is one thing to infer a corrupt arrangement between the Claimant and Mr Constable against David Rowland, but it is quite another to include his own son in the conspiracy. I shall return to this point below.

The judge thought it implausible that the Claimant would have made an undocumented, interest-free loan for no business reason, out of money that he himself was borrowing at a high rate of interest. Viewed in a purely commercial context, that might be a fair comment. But that was not the context. The comparison was not between an interest-free loan and a commercial transaction, but between an interest-free land and an outright gift. On the face of it, an outright gift to was no less implausible. On either view the payment was a surprisingly generous and uncommercial transaction, which required explanation.

In choosing between the two, a significant issue was whether the Claimant reasonably expected to be repaid, or at least not to lose his money. His stated reason for thinking that he would not lose his money was that the Rowlands were wealthy, and had agreed to lend PAL much larger sums, and that if necessary the loan could be set off against moneys owed by PAL (judgment para 112). He also gave evidence (not mentioned by the judge) that as a Muslim he had religious objections to taking interest on a loan.

In rejecting the suggestion that the payment was a loan, as opposed to an outright gift, the judge seems to have relied principally on its discrepancy with the accounts given by Mr Constable and by Jonathan. He referred to the inconsistency of the Claimant’s account with Mr Constable’s reference to the payment as a “security deposit”, rather than a loan (para 129(6)). He also took the view that the payment of £165,000 by Three Vs to Skillglass “in part repayment of PAL’s borrowings” was inconsistent with a loan but “consistent with the disgorgement of a bribe” (para 129(5)). He added that –

I find this reasoning unconvincing. The reference to Jonathan’s evidence is hard to understand, since he was a discredited witness in the judge’s eyes. Mr Malek says that the reference to his evidence was simply a statement of fact by the judge; but, if so, it is difficult to see why he included it in the list of factors which led “inexorably” to his rejection of the Claimant’s case. Mr Constable’s evidence was also at best suspect. On the Defendants’ case, Mr Constable’s categorisation of the payment as a “security deposit” was an afterthought, invented at his meeting with David Rowland in January. The repayment of the £165,000 shows no more than that Mr Constable thought (or was persuaded by Mr Rowland to accept) that he had no right to retain it. In fact, in accountant’s terms, his “security deposit” explanation was not out of line with the Claimant’s own evidence that, in the last resort, he would be able “to set-off the monies against sums owed by PAL”: in other words, a form of down-payment.

In my view, there was inadequate evidence to reject the Claimant’s sworn evidence that he expected his money to be repaid or at least credited to PAL in due course.

The last, and most critical, issue was the purpose of the payment. The defendants’ case, as summarised by the judge, was that the payment was “a bribe…. in order to procure the waiver of the 90% acceptance condition” (para 105).

The word “conspiracy” was not used by the judge, but, on the Defendants’ case, that is what it had to be. It was important, in weighing the evidence, to bear in mind that this was not a unilateral transaction by the Claimant, but involved other parties. To judge the plausibility of the respective accounts, it was necessary to consider the likelihood of each of those parties being involved in such a conspiracy and their motives for doing so. In my view, it is a serious weakness in the judge’s reasoning that he ignored this aspect of the case, even though it may not have been emphasised in the submissions before him. Indeed, although he found in terms that the payment was “a bribe” (para 129), he made no express finding as to its purpose, in the minds of any of those directly involved.

I consider first the Claimant’s position, and then that of the recipients.

The judge took account of the importance to the Claimant of ensuring that Skillglass’ consent should be obtained, particularly having regard to the substantial fees for which he would be liable if the offer failed; and he rejected the Claimant’s evidence to the contrary (para 129(7)). However, as Mr Beazley says, this was only one part of the picture. The Claimant’s case was, not so much that securing waiver was unimportant, but that by not later than 26 ^th June it had been agreed by Skillglass and the other parties, or at least it was not seriously in doubt. In these circumstances, there was no reason for him to resort to the expedient of a bribe on the 27 ^th June.

There was some support in the documents for this case. The minutes of the PAL board meeting on 26 ^th June 2003 recorded that the consent of Skillglass “had been obtained” to declare the offer unconditional, and there was a signed letter of consent from Skillglass, on its face dated 26 ^th June 2003. There was also some support in the evidence of Mr Brierley. He recalled a conversation with Jonathan Rowland “around mid to late June” when he spoke of the offer being declared unconditional even though the required level of acceptances had not been reached. He himself was “satisfied and confident as to the commercial efficacy of the Offer going unconditional”, and had no reason to raise any objection on behalf of Skillglass.

The burden was on the Defendants to prove the Claimant’s dishonest motive. If there had been a serious possibility on their side of the consent not being given, one would have expected them to have been able to call evidence on the point. The obvious witnesses were David Rowland himself, or Jonathan. Jonathan in particular might have been expected to offer some explanation why the Claimant might have thought it necessary to resort to a bribe at this point, and why his colleague might have been induced to accept it. Yet, neither addressed the point.

As it was, the only relevant witness on the Defendants’ side was Mr Robeson, who made clear that he himself had taken “a back seat”. He had been told by David Rowland on 4 ^th June that Resurge wished the offer to go unconditional, even though the acceptance condition had not been met; and that an additional fee of £100,000 had been agreed with PAL for this purpose. However, a final decision had been left until the end of the month “by which time the situation might have become clearer”. In his oral evidence (Day 5 p 133ff) he spoke of being rung early in the morning on 27 ^th July by Halliwell Landau, and then by Mr Constable, and told that there was a proposal to go unconditional on that day, and of the offer of a further £50,000. But he gave no further information as to how or when the final decision had been made. As he explained, from Rowland Capital’s point of view Resurge was “running the deal”, and if they “really wanted to do the deal and push it… we would go with them”. (Day 5 p 134)

The judge made no comment on the absence of direct evidence on this aspect of the case. Nor did he make any specific finding as to the timing of Skillglass’ decision to give consent, or as to the practical risks of consent not being granted. His only comments on this aspect of the Claimant’s case came later in his judgment, when he was considering the issues of materiality and knowledge. As to the timing of the agreement, he said:

Of the Claimant’s submission that there was no reason for a corrupt payment, because Skillglass’ consent was already assured, the judge commented:

The other important issue, in judging the bribe allegation, was the state of mind of the recipients. As I have said, the probability of a dishonest payment to procure Skillglass’s consent needed to be looked at from both sides.

I have already commented on the lack of any finding as to the motives of Mr Constable (para 30). If it is accepted that Jonathan also was a participant to the “conspiracy”, the implications are even more striking. It would be one thing to find that he had used the occasion, behind his father’s back, to extract some money for his hobby; but quite another to find that he had accepted a bribe to commit his family-company to a major transaction which was otherwise uncertain. Although Jonathan was found to be an unsatisfactory witness, there was no evidence that he was likely to engage in a conspiracy againt his own father, or had the motive to do so. If he or his father had any serious doubts at that stage about the offer, it seems incredible that he would have accepted a bribe of £75,000 to sell his consent, and in effect that of his father. By declining to make any findings as to Jonathan’s own role, the judge was able to put these difficult issues on one side.

At the end of this detailed review, I am driven reluctantly to the view that the judge’s conclusion cannot be supported. He concentrated too much on the apparent implausibility of the Claimant’s account, and did not adequately address the weaknesses and inconsistencies in the Defendants’ case. He jumped from the irregularity of the payment to the conclusion that it was a “bribe”, without considering in sufficient detail the implications of that conclusion. It was for the Defendants to prove to the appropriate standard, not merely that there was an irregular payment of some kind, but that it was intended specifically to influence the Skillglass’ decision to give consent. That assumed not only that there was some uncertainty about Skillglass’s consent, and therefore a reason for the bribe, but also that all the parties (not just the Claimant) had sufficient motive to resort to dishonest means. The judge made no findings on those crucial issues. In my view, in respectful disagreement with my colleagues, the evidence properly considered did not support the Defendants case.