The Football League Ltd v Edge Ellison (a firm)

Judgment

MR JUSTICE RIMER :

Introduction

1. The Football League Limited (“the FLL”) administers the business and furthers the interests of the 72 member clubs which make up the Football League and constitute its shareholders. It organises an annual league of what were formerly known as (and I will call) the First, Second and Third Divisions but now as the Coca Cola Championship, League One and League Two.

2. The FLL owns the broadcasting rights to matches played by its member clubs. In 1995 it licensed the television rights to British Sky Broadcasting Limited (“Sky”) for five years. During the term of that licence, the clubs concluded that a better deal could and should have been done. With a view to doing better in future, the FLL established a Commercial Committee whose function included the negotiation of licences of media rights on the best terms.

3. On 15 June 2000, following an extended marketing exercise by the Commercial Committee, the FLL granted a licence of the television rights to ONdigital Plc (“ONdigital”) for a term of three years from the beginning of the 2001/02 season (when the Sky licence would expire). The total amount payable by ONdigital over the term was £315m, including an advance payment of £47.25m, to be paid as to £12m on 15 June 2000 and as to the balance of £35.25m within 80 days. The advance payment was particularly attractive, since the clubs were in urgent need of money, with some facing risks of insolvency. ONdigital was ITV’s digital broadcasting arm and was a subsidiary of Carlton Communications Plc (“Carlton”) and Granada Media Plc (“Granada”), both FTSE 100 companies.

4. In March 2002, with over two years of the licence term still to run, ONdigital went into administration. It stopped broadcasting on 1 May 2002. It went into liquidation in October 2002. A substantial part of the £315m was unpaid and the FLL could at most hope for a modest dividend in the liquidation: its claim in the Commercial Court for a declaration that each of Carlton and Granada was a guarantor of ONdigital’s liabilities was dismissed by Langley J in August 2002 (Carlton Communications plc and Another v. The Football League [2002] EWHC (Comm.) 1650). I shall refer to that claim as “the guarantee action.”

5. The FLL has now brought this claim against edge ellison. They are the solicitors who acted for it on the licensing of the rights to ONdigital (the firm later merged with Hammond Suddards, now Hammonds). The partner handling the matter was Richard Alderson. The claim is for damages for edge ellison’s alleged negligence in omitting to obtain the FLL’s instructions as to whether it wished to ask for guarantees from Carlton and Granada for the due performance of ONdigital’s payment obligations. As no request for guarantees was made, the claim is made on the basis that the omission cost the FLL the chance of obtaining them. That is said to have caused a loss (including interest) exceeding £142m as at February 2006.

6. edge ellison deny they were negligent and (if they were) that the FLL is entitled to recover damages of anything like that sum; they also assert that the FLL was contributorily negligent. They have in turn brought Part 20 proceedings against Active Rights Management Limited (“ARM”) and one of its directors, Clive Stephen Townley. ARM was retained by the FLL to advise on the strategy for, and to negotiate, the licensing of the television rights. Mr Townley was the ARM individual who did the work. edge ellison say that if, contrary to their case, Mr Alderson was in breach of duty by omitting to raise the question of guarantees, ARM and Mr Townley owed a similar duty to advise the FLL about the same matter and were as much to blame for the resultant loss. ARM and Mr Townley have defended the Part 20 claim.

7. The claim involved a close investigation of the events leading up to the ONdigital agreement. It has required a consideration of the scope of edge ellison’s retainer and of whether, as the FLL claims, Mr Alderson ought in performing his duties under it to have appreciated that security from the two parent companies was or might be required and to have obtained the Commercial Committee’s instructions accordingly. The FLL’s case is that this was impliedly part of his duty. But its case is also based on the disputed assertion that on perhaps three occasions in the lead-up to the signing with ONdigital at least one member of the FLL’s Commercial Committee raised the point that ONdigital’s financial standing was a matter of potential concern; and it is said that this should have alerted Mr Alderson to the claimed need for security. The claim has also required a consideration of what the FLL’s instructions would have been if Mr Alderson had raised the question of guarantees with it; and an assessment of whether Carlton and Granada would have given guarantees if asked, although no evidence was adduced from either as to what their attitude to such a request would or might have been. The quantum of the claimed damages is in issue. So is the issue of contributory negligence. So is the Part 20 claim.

8. Mr Alderson died in October 2002 and so I have been disadvantaged by not having had the benefit of oral evidence from him on the factual points in issue and the criticisms levelled against him. I do, however, at least have a draft statement he made about three weeks before his death and in anticipation of the claim, which had by then been foreshadowed although the claim form was not issued until September 2004. It obviously falls short of what would have been his final written version of events had he lived; and he could not foresee the precise basis on which the FLL would ultimately present its case, which underwent something of a change in 2005. The investigation at the trial showed that there are aspects of Mr Alderson’s statement which are wrong; but it does not follow that it is all wrong, and nor have I so approached it.

9. The story is a long one. I will divide it into four main stages. The first is the preliminary period down to 9 May 2000, by when ONdigital had emerged as a leading contender for the television rights but was still not the only player: it only so emerged during the evening of the day the agreement was signed, 15 June 2000.

10. The second stage concerns some negotiations which took place between the FLL and ONdigital on 10 and 11 May 2000. They came to nothing but are important. As I have said, part of the FLL’s case is that by then at least one member of the Commercial Committee had made it apparent (although, if at all, only in an obscure way) that he wanted guarantees from Carlton and Granada for the performance of ONdigital’s obligations. Quite apart from that, the FLL’s more general case is that the Commercial Committee anyway wanted any deal with ONdigital to be secured. edge ellison deny both limbs of the FLL’s case and their case is that in the course of these negotiations final agreement was reached on all matters except one and that, but for that matter, a licence would promptly have been granted to ONdigital, being a licence whose terms the Commercial Committee knew did not include guarantees. Nor, say edge ellison, was the question of security even mentioned during the negotiations. They say that speaks volumes about the FLL’s claimed wish to have guarantees. The FLL’s response is that, whilst the negotiations made real progress, all that was then intended – even if agreement in principle had been reached on everything - was that ONdigital should be given a period of negotiating exclusivity whilst the details of the contractual terms were finalised, that being a period during which, it is said, edge ellison would have dealt with the matter of guarantees.

11. The third stage is the period from 12 May to 15 June 2000, when the licence was signed, the critical period being from 7 to 15 June 2000. The fourth stage is the subsequent story leading to ONdigital’s collapse in 2002, the guarantee action, the relicensing of the television rights to Sky (also on an unsecured basis), and the making of this claim in September 2004.

12. The course of this judgment is as follows. I will first set out some background under various heads. I will then trace the story through the four stages. In doing so, I will make my findings on disputed factual matters as they arise. I will, however, defer until I deal with the issues raised by the claim my findings on certain more general factual matters central to its disposition, when I will also summarise the findings already made.

The Sky licence

13. The FLL’s licence to Sky was a so-called “short form” agreement for a five-year term from the 1996/97 season to the end of 2000/01 season and was granted by a document of 23 November 1995. It granted rights in respect of the “live and delayed rights in the UK and Eire for all forms of television”. The licence fee was £25m a year. Clause 9 provided that “The [FLL] grant to [Sky] the first and last matching rights to renew this agreement.” That is the “matching rights clause” which later played an important part in the ONdigital story: it was the one matter with regard to which agreement could not be reached during the negotiations with ONdigital on 10 and 11 May 2000. Clause 10 recorded that the parties undertook to negotiate in good faith a “full form agreement”.

14. It was in 2000 common practice for sporting rights agreements of this nature to be executed in “short form”. Such agreements will often also provide (like clause 10) for agreed co-operation towards the signing of a fuller “long form” agreement. The licence to ONdigital was also a “short form” one and included a clause comparable to clause 10. Such clauses will usually amount to unenforceable agreements to agree, as was clause 10 and its equivalent in the ONdigital licence. By 2000 it was the exception rather than the rule for long form agreements ever to be executed, so that the parties’ respective legal rights usually remained governed by the short form agreement. The FLL and ONdigital attempted to negotiate the terms of a long form agreement, but they too could not reach agreement and so their rights also remained so governed.

The FLL’s constitution

15. The FLL has an independent Chairman, a Board of Directors, a Chief Executive and an executive team. In 1999/2000 it also had a specialised Commercial Committee. The story is primarily concerned with the actions of the executive team and the Commercial Committee.

(a) The Board

16. From November 1998 to August 2000, the Chairman of the Board was Peter Middleton. His successor, from August 2000 to August 2002, was Keith Harris. Mr Harris resigned as Chairman following the dismissal of the guarantee action, a result which gave rise to anger among the Football League’s member clubs. Save that Mr Middleton chaired an important Board meeting on 11 May 2000, neither he nor Mr Harris played a material role in the story or gave evidence.

17. The Board is composed of the Chairmen of some of the Football League’s member clubs. It usually meets monthly. Certain of its members were also members of the Commercial Committee. edge ellison place material reliance on the fact that the members of the Commercial Committee were experienced businessmen, who were alive to the question of whether it might be appropriate for a guarantee to be sought for the performance of a proposing counterparty’s contractual obligations. There is, in fact, no dispute about this but I will, in listing the Board members, set out the backgrounds of the four of them who (as members of the Commercial Committee, to which I shall come) played a key role in the ONdigital story. Although there were eight Board meetings during the crucial period, only one (on 11 May 2000) featured to a material extent in the story.

18. The Board members were as follows: (i) David Sheepshanks (he was also Chairman of the Commercial Committee until 7 June 2000). He was Chairman of Suffolk Foods Limited from 1989 to June 2004, a company he had founded with his brother and which was sold in 2004. He became Chairman of Ipswich Town Football Club in August 1995 and is also the Chairman of Ipswich Town Education and Sports Trust and Chairman of the Suffolk Foundation. He was Chairman of the FLL from January 1997 to November 1998 and remained on the Board until June 2000. He was obliged to resign from the Board (and the Commercial Committee) when, in May 2000, Ipswich Town was promoted to the Football Association Premier League (“the Premier League”). From January 1997 until June 2000, he was also a director of the Football Association (“the FA”) and a Vice-President and member of its Executive Committee; (ii) Barry Hearn (he was a member of the Commercial Committee throughout the relevant period). He has been a Fellow of the Institute of Chartered Accountants since 1973. His career has been in the leisure industry. He started his own company in the 1980s, and his Matchroom Group is now an international sports, television and promotion group, providing worldwide representation in snooker, boxing, pool, darts, golf and football. It sells television rights to over 200 companies throughout the world and is responsible for 25,000 hours of television broadcasting worldwide. Mr Hearn has been Chairman of Leyton Orient Football Club since March 1996. He was a director of the FLL between 1998 and 2003; (iii) Peter Heard (he was co-opted on to the Commercial Committee in April 2000). He is a fellow of the RICS, who in 1969 founded the firm of Churston Heard, surveyors, in which he played an active role as partner and then (upon its incorporation) as Chairman until 1998. He became a director of Colchester United Football Club in 1992, he later became its Vice-Chairman and (in 1998) its Chairman. He became a director of the FLL on 30 June 1998 and a director of the FA on 18 July 1998; (iv) Edward Bowler (he joined the Commercial Committee, on 7 June 2000, replacing Mr Sheepshanks as its Chairman). He is a pharmacist by profession who has spent most of his career as a senior executive and director of subsidiaries of the Wellcome Foundation, from which he retired in 1995. He has been the Chairman of Crewe Alexandra Football Club since 1998. He was a director of the FLL from June 1997 to June 1998 and then from June 1999 to June 2002; (v) John Richards (he became a member of the Commercial Committee on 7 June 2000, replacing Mr Murray): there is little evidence as to his background, he played no material part in the story and did not give evidence; and (vi) Ian Stott. There is no evidence as to his background and he too played no material part in the story.

(b) The FLL Chief Executive

19. The FLL’s Chief Executives during the relevant period were: (i) Richard Scudamore from about April 1998 until October 1999. Since leaving the FLL, he has been the Chief Executive of the Premier League. His unchallenged witness statement was put in evidence; (ii) John McKeown from January to April 2000. There is little evidence as to his background and he played no material part in the story; (iii) David Burns from October 2000 to August 2002. He also resigned following the dismissal of the FLL’s claim in the guarantee action. He played a part in events following the collapse of ONdigital, but did not give evidence.

(c) The executive team

20. This comprised two members and their staff. First, Brian Phillpotts, the FLL’s Marketing and Commercial Director from 3 January 1999 to 3 March 2001. He was the lead member. Following university, he did a graduate traineeship with the Scottish and Newcastle group and then, in 1997, went to Newcastle United Football Club as the deputy director of marketing. His business experience was in marketing and general business matters, including operational matters. At Newcastle he concentrated on marketing and on developing the club’s internet strategy. He joined the FLL in January 1999, his role requiring him to report to the Chief Executive on all the FLL’s commercial affairs. He was responsible for marketing, broadcasting, new media rights and sponsorship. He left the FLL in 2001 to become the Director of Commercial Enterprises for the Premier League, a role he retained until August 2005. Richard Masters became the new Commercial Director of the FLL in June 2001, a position he left in August 2005 to become the Director of Sales and Marketing of the Premier League.

21. Mr Phillpotts played a key executive role throughout the process of the licensing of the television rights to ONdigital: he was the only FLL witness who could speak as to the whole course of its process. He had been hired by the FLL with the specific intention that he would be able to handle the proposed re-licensing of the FLL’s media rights with more professionalism than had previously been deployed. He brought with him considerable experience of negotiating and agreeing contracts. In particular, in 2000 he also knew what a parent company guarantee was and that it involved a contract between the parent company guarantor and the principal creditor. He is, if I may say so, obviously highly intelligent.

22. The FLL’s Financial Controller from 1992 to June 2000 was Christopher Griffin. He was the second member of the executive team. He trained as an accountant with KPMG, where he worked in the audit department for three years after qualifying in 1989. He had overall responsibility for the FLL’s finances. Until mid-2001 he continued to work for the FLL as a consultant on another media rights agreement it had entered into in 2000. This related to the grant of the clubs’ internet rights. Mr Griffin made a witness statement and gave oral evidence. His evidence was not challenged by edge ellison.

23. From August 2000 to November 2001, the Financial Controller was Richard Davies; and since November 2001 it has been Tad Detko. They played no part in the story.

(d) The Commercial Committee

24. Because the view was taken that the grant of the television rights to Sky had been handled unprofessionally, and at too low a price, in 1999 the FLL instituted a constitutional change intended to avoid the same thing happening again. It was Mr Scudamore’s idea, the then Chief Executive. Under the new arrangements, the negotiation of the FLL’s media rights was delegated to a committee, originally called the “Broadcasting Committee” but later renamed the “Commercial Committee”. I shall from now on simply call it “the Committee”. By Rule 69.3 of the new rules, the Committee comprised the Chief Executive, three representatives of the First Division and one representative of the Second and Third Divisions. The weighting in favour of the First Division reflected the view that its clubs were a greater commercial draw. The Committee also had power to co-opt additional members. The rules provided, so far as material:

“69.2 The [FLL] Board is empowered on behalf of The League to enter into an [sic] commercial contract which is considered to be in the best interests of The League and the Clubs save that the Board is not empowered to enter into any contract or agreement relating to television rights or any other commercial contract which represents more than 25% of the projected income over the period of the contract or agreement unless such contract or agreement has been approved in principle by the Commercial Committee. Any contract [or] agreement so entered into by The League shall be binding upon Clubs and Clubs shall not enter into commercial contracts which are at variance with commercial contracts entered into by The League. The Secretary shall inform Clubs of the relevant terms of all such commercial contracts entered into by The League.

69.3 All commercial contracts relating to television, broadcasting and radio rights and Internet programming and title sponsorship of the First Division shall be negotiated on behalf of the League by a Commercial Committee comprising the Chief Executive, three representatives of the First Division and one representative of the Second/Third Divisions. The committee may co-opt other members as appropriate.

69.4 Any commercial contract negotiated by the Commercial Committee shall be subject to formal approval of the Board.”

It is agreed that, under those rules, the Board could not commit the FLL to a contract for the grant of television rights unless it had first been approved in principle by the Committee.

25. The negotiation of the grant of the television rights was, therefore, a matter for which the Committee was responsible and it held 16 meetings relating to that task in the lead-up to the agreement with ONdigital on 15 June 2000. The point behind its establishment was to concentrate the maximum available relevant expertise into a relatively small committee. The original members were chosen because of their business experience, including in the case of three of them experience in relation to the sale of media rights.

26. Although the Chief Executive was a member of the Committee, there were two periods during the lead-up to the ONdigital agreement when there was no Chief Executive: October 1999 (when Mr Scudamore left) until January 2000 (when Mr McKeown was appointed); and April 2000 (when Mr McKeown left) until October 2000 (when Mr Burns was appointed). Apart from the Chief Executive, the four original members of the Committee (representing the three Football League Divisions) were as follows: (i) Mr Sheepshanks (also a Board member). He was one of the representatives of the First Division and chaired the Committee until part way through the important meeting of 7 June 2000, when he resigned and was replaced by Mr Bowler, another Board member (this followed the promotion of his club to the Premier League). Mr Sheepshanks was a particularly conscientious member, who attended all Board and Committee meetings and who devoted considerable time (more than other members) outside the formal meetings to considering media rights issues. He also, on occasions, met the broadcasters with whom discussions were taking place. He was the only Committee member to take his own notes at meetings; (ii) Barry Rubery (not a Board member). He was also a First Division representative. He had a major interest in an electronic equipment company, PACE Micro Technology Plc. PACE made set-top boxes enabling televisions to receive signals from subscription broadcasters. He had a good understanding of the subscription broadcasting business and enjoyed a relationship with two such broadcasters, NTL and Sky, to which PACE supplied set-top boxes. He was also a conscientious Committee member, and when unable to attend meetings he would ring or write in with his views and send an alternate, Mr Ayre, in his place; (iii) Mr Hearn (also a Board member). He represented the Second and Third Divisions. He was able to import his experience in dealing in television rights. He also had a relationship with Sky, to whom he had sold programming rights; and (iv) Richard Murray (not a Board member). He was co-opted on to the Committee at its inaugural meeting on 20 December 1999 and was a third First Division representative. He was a successful entrepreneur who had founded Avesco, an audio-visual company which promoted television entertainment, including sports programming. He holds stakes in Complete Communications Corporation Ltd and in Fountain TV, the former holding (through Celador International Ltd) the television rights to “Who Wants to be a Millionaire?” He had been the Chairman of Charlton Athletic since 1995. He was a member of the Committee until 7 June 2000, when he too had to resign because his club had been promoted to the Premier League. He was replaced by Mr Richards (a Board member). In addition to the four original members, Mr Heard (also a Board member) was co-opted on to the Committee in April 2000 following Mr McKeown’s resignation as Chief Executive. Mr Heard was a Second Division representative. I heard evidence from Mr Sheepshanks, Mr Bowler, Mr Hearn, Mr Murray, and Mr Heard. Mr Rubery did not give evidence.

27. These are, therefore, the people who comprised the Committee during the crucial period. Mr Phillpotts also attended Committee meetings, and (when no Chief Executive was in attendance) would exercise the Chief Executive’s voting rights. He agreed that, during the Chief Executive interregna, he also performed certain Chief Executive functions, for example attending meetings with broadcasters in relation to the proposed grant of rights. He also attended Board meetings. Mr Griffin, the other member of the executive, also attended Committee meetings. Mr Phillpotts regarded him as able and experienced.

28. At the same time as it was concerning itself with the grant of the television rights, the Committee was also responsible for negotiating the grant of the Football League’s Clubs’ internet rights. The proposal was to create an internet portal via which material relating to the Football League, its clubs and matches would be available. These rights (“the portal rights”) were proposed to be exploited by a joint venture arrangement between the FLL and a broadcaster. The FLL’s partner in the joint venture became Premium TV Limited (“Premium TV”), a subsidiary of NTL, and NTL guaranteed Premium TV’s obligations. A point made by the FLL is that the proposed giving of this guarantee ought to have alerted Mr Alderson to the need to ensure that the question of guarantees was also considered in relation to the ONdigital transaction. edge ellison’s response is, in short, non sequitur.

edge ellison and Mr Alderson

29. By 1999 edge ellison had for several years been the principal provider of legal services to the FLL. By November 1999 they were involved in 63 different matters for it and Mr Alderson was the partner acting in nine. The FLL asserts that he had an unusually close relationship with it, spending much time at its offices at Connaught Place in London, which it shared with the FA. It held him in high regard. It claims he was at the heart of its advisory and decision-making process and that he acted not just as an outside solicitor but effectively as an in-house lawyer and a de facto member of the FLL’s executive. There is no doubt that he devoted a high proportion of his time to the FLL during the lead-up to the grant of the television rights to ONdigital; and he was the partner with the conduct of edge ellison’s retainer in relation to that matter as well as the portal rights deal. He attended the meetings of the Committee, made notes and prepared formal minutes. Mr Phillpotts said his notes were reliable and tended to concentrate on the issues and action points.

30. I should say something about the minute taking – the relevance being the absence of any reference in any minutes to the statements that the FLL asserts were made at meetings as to the need for guarantees. Mr Phillpotts said the minutes of Committee meetings were not intended to be a transcript of the discussions (nor were they) but were intended at least to record points requiring action. Even if it did not happen in all cases, the usual practice was that if a Committee member proposed something which was not turned down, it would ordinarily be minuted as an action point. Mr Alderson’s practice was to circulate draft minutes of each meeting to every Committee member and to the executives who had attended it. From April 2000 onwards, he did so under cover of a fax sheet inviting comments and corrections; and Committee members or other attendees would sometimes respond accordingly. Mr Phillpotts read the drafts carefully and accepted that he would make corrections when appropriate, although he could not recall doing so in relation to any particular set of minutes (the documents show at least one such instance, in relation to the draft minutes of the Committee meeting of 18 January 2000).

The Oliver & Ohlbaum reports

31. In mid-1999, on Mr Scudamore’s initiative, the FLL commissioned a report from Oliver & Ohlbaum Associates Limited (“O & O”), a highly regarded consultancy firm specialising in the valuation of sports rights and broadcasting platforms and in advising the sellers and buyers of media rights. The FLL wanted an overview of the market and of the broadcasters in it who might be interested in licensing its television rights. O & O produced a draft report on 3 June 1999 and a final one on 29 November 1999. In the November report, its overall valuation of the television rights per year was between £50m and £60m. It identified four major broadcasters for free-to-air rights: the BBC, ITV, Channel 4 and Channel 5; and three main broadcasters for pay-TV rights: Sky, NTL and ONdigital. It described ONdigital as intending to establish itself successfully in the market (Mr Phillpotts’s evidence was that he already knew it was an established broadcaster) and it identified the “commercial backers” behind the broadcasters. It so identified: (i) ITV as backed by Granada, Carlton and United News & Media; (ii) Channel 5 as backed by United News & Media; (iii) NTL as backed by Microsoft; and (iv) ONdigital as backed by Granada and Carlton. Mr Phillpotts accepted that it was important for the FLL to know that broadcasters to whom it might grant its rights were backed by large, experienced and well-financed companies. In its June report, O & O had made the point that Sky had previously enjoyed an element of dominance in the pay TV broadcasting market, but was now facing real competition from ONdigital. Sport was a “subscriber driver” for pay-TV broadcasters, its televising enabling them to increase their subscription base and, in turn, their revenues. Pay-TV broadcasters had traditionally been able to outbid free-to-air broadcasters, the benefit of acquiring the broadcasting rights being the potential to create major additional revenue by driving up both the subscriber numbers and their subscription rates. It was important to the FLL that there should be serious competition for the rights they were offering, and O & O identified the potential competitors, including ONdigital.

ONdigital

32. ONdigital (subsequently renamed ITV Digital plc) was incorporated on 15 January 1997 and was wholly owned by ONdigital Holdings Limited (“Holdings”). Holdings was in turn owned equally by Carlton and Granada. ONdigital had been incorporated to exploit the digital television revolution heralded by the Government in the mid-1990s, the stated aim of which was to switch off analogue signals nationwide by a date towards the end of the present decade. To that end ONdigital had in December 1997 obtained conditional digital multiplex broadcasting licences for a 24-year term from the Independent Television Commission (“the ITC”), which had been established under the Broadcasting Act 1990. Under section 3(3) of that Act, the ITC had to be satisfied that a proposed licensee was fit and proper to hold a licence; and, under section 8(2), it also had to have regard to the applicant’s ability to establish and maintain the proposed service throughout the licence period. ONdigital’s proposed exploitation of the market was governed by a joint venture agreement dated 18 December 1997 between Carlton, Granada, Holdings and ONdigital. Carlton and Granada were entitled to appoint directors to the boards of Holdings and ONdigital.

33. ONdigital launched its pay-television service to customers on 15 November 1998. It proved to be consistently loss-making, although it is only its financial position known as at June 2000 which is of direct present relevance. Its loss for the year ended 30 September 1999 was £148.3m; it had net current liabilities of £95.3m and net liabilities overall of £22.9m. Carlton’s 1999 accounts (published in March 2000) reported that ONdigital had signed up more than 550,000 subscribers by the end of December 1999 and described it as being, over the past year, “the fastest growing pay television platform in Europe.” They said that ONdigital’s target was to have two million subscribers within three years. By 2000 ONdigital’s exclusive content included a four-year contract (together with ITV) for the European Champions League. Carlton and Granada plainly regarded ONdigital as a very important venture and they had provided the financial support necessary to enable it to remain solvent. This support was recorded in ONdigital’s accounts. It was provided by subscriptions (via Holdings) to ONdigital share issues and loan facilities. ONdigital’s accounts for the year ended 30 September 1999 (published on 26 April 2000) recorded that Holdings had granted it a facility of £450m.

34. There is no evidence that either Mr Phillpotts or any Committee member ever considered or sought copies of these accounts, although they were publicly available. I find that they did not consider them and did not therefore at any time focus on the detail of ONdigital’s financial position: they were plainly not interested in it. The Committee members all knew, however, that Carlton and Granada were ONdigital’s parents and had made a major investment in it and that it was dependent upon them for funding. Mr Phillpotts also knew that Carlton and Granada were ONdigital’s parents and had invested large sums of money in it. He knew that the future was digital. He knew that ONdigital was part of the same corporate group as ITV. By early 2000 he regarded ONdigital as a mainstream broadcaster in the competition for the FLL’s rights. By “mainstream” he explained that he meant “broadcasters that were known to members of [the Committee], known to Mr Townley [of ARM, who negotiated the grant of the television licence] and I, known to Mr Alderson. Companies of the stature of BSkyB [Sky], NTL, ONdigital, and not as was coming through at that time new broadcasters who might be new to the market.”

The Committee’s and Mr Phillpotts’s understanding of the commercial considerations relevant to the issues raised by the FLL’s claim

35. In order better to assess the events as they unfold, I will set out the FLL’s position on its own pleadings as to the understanding the Committee had as to the risks of trading with limited liability companies, the nature of a parent company guarantee and with regard to the need for a guarantee from Carlton and Granada of the due performance of ONdigital’s commitments.

36. As explained, the members of the Committee were chosen because they were regarded as having a particular expertise to bring to bear in relation to the grant of the television rights. In particular, Mr Rubery, Mr Hearn and Mr Murray had direct business experience in relation to broadcasting. The FLL admitted in its Reply served on 4 October 2005, verified by a statement of truth, that during the period December 1999 to 7 June 2000 each of Messrs Sheepshanks, Hearn, Rubery, Murray and Bowler knew that: (i) a contract with a limited liability company had the effect that, if that company could not pay, the other contracting party had no recourse to third parties; (ii) a limited liability company could become insolvent or enter administration; and (iii) a parent company guarantee was a method by which third parties could be held liable for a limited liability company’s failure to make payments under a contract. No like admission was made as to Mr McKeown’s knowledge (but he left the Committee in April 2000, before ONdigital was firmly in the frame as a lead contender for the television rights), or as to Mr Ayre’s knowledge (he was an occasional alternate for Mr Murray, but did not give evidence) or as to Mr Heard’s knowledge. Mr Heard did give evidence and he said in his witness statement that his business experience in relation to property transactions had taught him that the covenant strength of a purchaser/tenant/occupier is of paramount importance and that “at no time had I concluded that there was no need for the FLL to take security for any deal with ONdigital.” He also said that, had he been alerted to the fact that ONdigital did not have a good covenant, or that there was a risk that this was not so, he would have wanted details as to the magnitude of any risk; and that in relation to a deal for £315m he had no doubt that he would have wanted security, whether by parent company guarantees or in some other acceptable way. I regard it as implicit in those observations that Mr Heard had the like understanding as the other Committee members of the matters summarised in (i) to (iii) above, which is what I would expect of someone of Mr Heard’s background and experience in a firm of surveyors, his speciality having been in commercial property transactions, including leasehold property: no-one can work in that field without knowing, for example, that it is almost automatic for landlords to consider the need for guarantees of lessees’ obligations. The FLL had also earlier admitted in further information it provided on 1 April 2005 that the members of the Committee (and also Mr Phillpotts and Mr Townley) each appreciated that the financial status and viability of a bidder was a significant factor to be taken into account in evaluating its bid. The FLL also there admitted that they also all knew that ONdigital was a start-up, new venture company that was evidently reliant wholly upon funding from Carlton and Granada.

37. In an earlier version of the FLL’s Reply (served on 1 April 2005 and verified by a statement of truth) it was admitted and averred that:

“… the FLL was able to and did reach its own view as to whether ONdigital’s payment covenant should be relied upon without additional protection from its parent companies. The FLL’s view, by the Commercial Committee and Brian Phillpotts, was that ONdigital’s payment covenant could not be relied upon without parent company guarantees from Carlton and Granada. edge ellison’s negligence was in failing to ensure that the [licence agreement of 15 June 2000] contained such a guarantee or to alert the FLL to the absence of such a guarantee in the contractual documentation it was to sign. …”

That admission and assertion was omitted from the FLL’s later Reply served on 4 October 2005 (in response to the re-amended Defence), but Mr Fenwick QC, for the FLL, did not disclaim any part of it: he affirmed it still stood. The admission as to the FLL’s ability to form its own view on whether it could deal with ONdigital alone, without the protection of guarantees from its parent companies, is of particular importance in the context of the issues in the case – in particular as to whether, as the FLL claims, edge ellison had a duty to advise it on matters such as this. The assertion that Mr Phillpotts and the Committee had decided that parent company guarantees were a requirement is disputed.

Stage one of the story: the events up to 9 May 2000

Regulatory considerations

38. At an early stage, Mr Phillpotts sought Mr Alderson’s advice on the tender process for the licensing of the television rights, in particular with regard to regulatory considerations. The FLL had been following the recent litigation between the Office of Fair Trading (“the OFT”) and the Premier League in the Restrictive Practices Court, which had resulted in a judgment in July 1999. The case concerned licence agreements made in 1992 and 1996 between the Premier League, Sky and the BBC. One aspect of the decision was that a matching rights clause such as clause 9 of the Sky agreement was unlawful, a decision which raised a question as to the validity of clause 9 itself.

39. On 21 October 1999 Mr Alderson sent Mr Phillpotts a note headed “Competition Aspects of TV Deal”. He explained that the Premier League decision had no specific application to the FLL and was now of little evidential value. He focused primarily on the fact that the Competition Act 1998 was due to come into force on 1 March 2000. He said that, under that Act, the FLL’s collective selling rights in respect of the clubs’ media rights could not in practice be challenged. But he advised that a question could arise as to whether the FLL had, and might be abusing, a “dominant position” in a relevant part of the media rights market (see section 18 of the Act, modelled on article 82 of the EC Treaty). He advised that the safe course was for the FLL to engage in an open bidding process for its television rights. He explained the alternatives and advised that tender documents should be carefully worded to ensure that the FLL was not bound to accept either the highest or any proposal. He referred to the Sky matching rights clause and advised that he did not consider it to be enforceable (and in December 1999 the OFT sent the FLL and Sky a letter asking Sky to confirm that it would be deleted). He advised that any contract for the grant of television rights would have to be notified to the OFT.

40. Mr Alderson later obtained the input of a Brussels-based competition lawyer and a refined version of his advice was put before the Committee at its meeting on 20 December 1999. There is no need to consider his advice on this more closely. It is sufficient to note that the FLL regarded the regulatory aspects of the proposed licensing of its media rights as a minefield and relied upon Mr Alderson for guidance through it. This was an aspect of edge ellison’s retainer in relation to the grant of the television rights which required him to vet the licensing process from beginning to end.

The Television Strategy Document

41. edge ellison’s retainer in relation to the grant of the television rights was more fully explained in a document that Mr Phillpotts drafted. This was the Television Strategy Document, which was produced in about early December 1999. Its purpose was broadly to define the roles of the various people who would be involved in the licensing process. It focused only on the television rights, not the portal rights. Mr Phillpotts said he discussed its drafting with Mr Alderson and they agreed that the tasks to be assigned to edge ellison with regard to their duties in relation to the grant of the television rights were correctly defined in it. Mr Alderson denied he had discussed this document but I prefer and accept Mr Phillpotts’s account. There is no doubt that the document was sent to Mr Alderson.

42. The document summarised the current licensing position with Sky. The first page referred to the regulatory aspects of the re-licensing and to the validity of the matching rights clause. It envisaged that the bid process should start on 4 January 2000, with a final recommendation by 31 May 2000, in readiness for the FLL’s June 2000 Annual General Meeting. It said that during that process it was “imperative to establish the rules [sic: roles?] of the following parties and their relationship with each other.” Eight parties were listed: the executive (Mr Phillpotts, Mr Griffin and their staff), the Committee, the “advisers” (who would later include ARM but did not include edge ellison), edge ellison, the Board, the clubs, the Premier League, and the FA.

43. Save in one respect, I need not detail the roles expressly assigned to anyone other than edge ellison as they are of no direct assistance. Also, although the role of the advisers was later filled by ARM, there is no suggestion that ARM was retained on the terms of this document, which it never saw. It is, however, relevant to note that item 7 of the advisers’ assigned role was to “Assess and verify the shortlist companies’ financial and logistical capacity to support the bid.” That would include advice on a bidder’s financial ability to meet its payment obligations as licensee. I presume that the reason the Committee wanted such advice was so that it could then decide, amongst other things, whether it could rely on that bidder’s covenant alone, or whether it would need to be supported by security, for example by guarantees. There was no equivalent in the tasks assigned to edge ellison, who make the point that their duties cannot be regarded as having embraced a like, and overlapping, function. The role actually assigned to them was as follows:

“1. Ensure the tender process falls within a UK legal framework and accounts for both our current contractual obligations and European competition laws.

2. Consult in the type of tender best appropriate.

3. Assist in the preparation of the tender document.

4. Assist in the formulation of the invitation to tender process.

5. Advise the board as to the legal ramifications of the recommended bid.

6. Advise the Commercial Committee of the legal ramifications of the strategic alliances.”

44. Item 1 was primarily directed to consideration of the matching rights clause and regulatory questions. Item 2 was in part directed at regulatory matters (it was not for Mr Alderson to advise on the form of tender process that might generate the best commercial offer: that became ARM’s role). Items 3 and 4 related to the drafting of legal documentation. Item 5 required the giving of legal advice to the Board in relation to the bid recommended by the Committee. Item 6 required the giving of legal advice in relation to any partnership the successful bidder might want to form with another broadcaster (ONdigital, a pay-TV broadcaster, proposed to sub-license certain rights to ITV, which would provide free-to-air coverage).

45. Those terms included no express provision requiring edge ellison to advise the FLL on what, for short, I will call bidder solvency (a phrase I use as embracing the question of whether any particular bidder’s covenant might need to be secured, either by guarantees or otherwise). It was no part of those express terms that they should carry out an assessment of the ability of any particular bidder to honour its covenant and meet its licence liabilities; or to advise the Committee as to the commercial solution for dealing with any bidder about whose covenant a question might arise. But I do not regard it as inevitably following from that that it was no part of their implied duty to raise with the Committee whether it had given consideration to such matters in relation to any particular bidder and, if so, what its instructions were on the point. I will, however, defer until later my decision on whether edge ellison were under any such implied duty, about which there was a stark difference between the FLL and edge ellison.

46. The Television Strategy Document was adopted by the Board on 9 December 1999. It became an important feature of the strategy for the grant of the rights that (as was known to the FLL by December 1999) the separate rights licences that Sky had with the Premier League and the FA would also expire in 2001: and that the licensing of those rights would be up for renewal at the same time as the proposed licensing of the FLL’s television rights.

The portal rights

47. The grant of the portal rights, upon which the FLL only began to focus in about December 2000, was regarded by the FLL as more complicated than that of the television rights; and so it was. First, it involved a new type of rights, in which the clubs and the FLL had not previously engaged. Second, it was important to ensure that their grant did not overlap with that of the television rights. Third, the FLL had no authority from the clubs to deal in their portal rights and so their consent to any deal was required. Fourth, by January 2000 the FLL envisaged that these rights would be exploited not by an outright licence but by a joint venture agreement. This would require consideration by the FLL of the terms of the proposed joint venture, which would have to be negotiated with the joint venture partner. On the footing, as intended, that the venture would be exploited through a company, that would require agreement on matters such as capital contributions, income split, ownership of intellectual property rights and company and board control.

48. On 7 January 2000 the FLL sent a standard form letter to would-be partners in the joint venture, including Sky, United Sport and Premium TV. It invited presentations to the Committee during the week commencing 24 January 2000. The presentations were to cover (i) credentials in relation to new media sector strategy, (ii) proposed structure of The Football League Partner relationship, (iii) guaranteed and estimated revenue streams by product area, and (iv) details and structures of further joint alliances. The FLL shortly afterwards sent similar invitation letters to broadcasters who might be interested in a licence of the television rights, although they sought less information about the broadcasters: this was because the Committee knew more about their standing than it did about that of internet businesses.

49. Four portal rights presentations were made to the Committee on 26 January 2000 and the two most promising candidates were invited back to make a second presentation on 2 February 2000: Premium TV and United News & Media. (Sky was interested in the portal rights, but only as a licensee, not as a joint venturer. The Committee also did not regard Sky as being as familiar as others with the product and so did not take up its portal overtures.)

50. The Premium TV presentation on 2 February 2000 was made by Mr Geoffrey Hamilton-Fairley, who was Premium TV’s chief executive, and Mr Stuart Fraser. Those present on the FLL side were Messrs Sheepshanks, Murray, Rubery, McKeown, Phillpotts, Griffin and Alderson. Mr Phillpotts said in cross-examination that his understanding was that NTL had set up Premium TV as the vehicle to engage in (amongst other ventures) any portal deal with the FLL. He also said he understood that Premium TV had no assets but had been set up to acquire rights; and that the employees from the Premium TV side in any joint venture would be employees of NTL. It is, however, unclear whether he obtained this last understanding at this meeting: Mr Griffin’s unchallenged evidence suggests that it was only later that the FLL discovered this. Mr Phillpotts accepted that the Committee was given some facts about NTL’s financial standing (but not about Premium TV’s), and this is supported by the notes that Mr Sheepshanks made of the presentation, which also recorded that Premium TV was a 100% subsidiary of NTL. Mr Phillpotts remembered that it was explained that the assets were in NTL, but that Premium TV was to be NTL’s chosen vehicle for the joint venture.

51. Mr Alderson commented on this meeting in his witness statement. He recalled that there came a point when Mr Hamilton-Fairley “exploded” (Mr Alderson’s word, also in quotes) and said “we could have all the comfort we wanted.” Mr Alderson could not recall what had prompted the explosion but in his notes of the meeting he had recorded: “GHF: JV partner will be Premium TV but we can have all the comforts we need.” He subsequently included a guarantee by NTL on a due diligence list of issues, and this was agreed to by NTL at a meeting shortly afterwards. An NTL guarantee was ultimately included in the joint venture contract which the FLL entered into with Premium TV.

52. The natural inference from Mr Alderson’s observations in his statement is, I find, that the Committee had probed Mr Hamilton-Fairley as to the financial substance of Premium TV and exposed its apparent frailty. Mr Phillpotts agreed this is what happened. He agreed that it was in that context that Mr Hamilton-Fairley “exploded” and he said that he understood the offered comfort to be a guarantee from NTL. He agreed, as this episode demonstrated, that the Committee was well able to probe the financial standing of a potential bidder and decide for itself when security for its covenant was required. Mr Sheepshanks’s evidence was to the same effect. In his witness statement he said that his recollection was that the Committee was “slightly uneasy” as to who and what Premium TV was, which he confirmed in cross-examination, adding that one of the factors causing the unease was that Premium TV was a shell company with no assets. He also said in his witness statement that he did not believe he was thinking about security at this stage. In cross-examination, however, he accepted that “it was possible” that Mr Hamilton-Fairley’s explosion was his reaction to the Committee’s overt expressions of concern as to the financial solidity of Premium TV (and I find it is obvious that it was); and he also said that he understood Mr Hamilton-Fairley’s offer of “comforts” as an offer of a parent company guarantee for Premium TV’s obligations, which is what Mr Alderson later included in the documentation. He too agreed that this presentation showed that the Committee was capable of raising and probing its concerns about the financial standing of a proposing counterparty; and also that it was not premature for it to be doing so at this early stage of the portal negotiations. As will be seen, Mr Sheepshanks’s assessment of the right time to raise the matter of security in relation to the grant of the television rights was rather different.

53. Mr Griffin’s unchallenged evidence was not positively in line with Mr Phillpotts’s and Mr Sheepshanks’s understanding: he could not recall “how the [‘comforts’] statement made by ntl in its presentation on that date came to be turned into a guarantee in the Portal deal documentation”. Mr Murray’s evidence was not positively in line with it either: he said he could not remember much about this meeting and he could not remember any discussions about Premium TV’s viability or the making of the “comforts” statement, let alone what had prompted it. He said he did not think he would have been thinking other than that cable companies needed to be viewed with caution. Since there is no doubt that the “comforts” statement was made, it appears that Mr Murray has simply forgotten the details of the presentation. As the matter of the portal guarantee is regarded by the FLL as an important factor to bring into account in assessing Mr Alderson’s actions in relation to the television rights, I will summarise the later history relating to it. The FLL’s point is that if Mr Alderson obtained a parent company guarantee for the portal rights deal, why did he not do so in the television rights deal?

54. Following the presentation of 2 February 2000, Mr Alderson wrote to Travers Smith Braithwaite, the solicitors acting for NTL and Premium TV. He referred to the discussions to date, which he said were to resume on 7 February and said they “may lead to a proposal with guaranteed payments over the next three years.” That may not, however, have been a reference to the giving of a guarantee by NTL but may have been no more than a reference to confirmed minimum sums being payable. On 6 February 2000 Mr Griffin sent Mr Sheepshanks a draft business plan that he and Mr Phillpotts had prepared in relation to the portal venture, which referred, under the heading “Ownership issues”, to the “Security of relationship … between [Premium TV] and [NTL].” Again, that was not necessarily a reference to a guarantee. There was a discussion of the portal matter at the Committee meeting on 8 February 2000 and a further meeting with NTL representatives. The Committee was by then obviously attracted at the prospect of a joint venture with Premium TV and there was discussion about agreeing an exclusive negotiating period. There is no mention in the notes of those meetings of the giving of an NTL guarantee.

55. On 15 February 2000 Mr Hamill, an edge ellison corporate finance partner, produced a portal document which listed “due diligence issues” and “[joint venture] issues”. He described the “Parties” as “[The FLL] and NTL (or an appropriate subsidiary – Premium TV).” That suggests it was not apparent (at least to Mr Hamill) that there was yet any firm proposal that Premium TV was to be the joint venture partner, with NTL as guarantor. On the same day Mr Alderson sent Mr Sheepshanks his “first stab at the NTL due diligence”. He listed six heads of “Terms so far”, none reflecting that the agreed proposal was that Premium TV was to be the joint venture partner and NTL a guarantor. Under “Questions for NTL”, the first matter raised was “NTL Inc to guarantee [Premium TV]”. Taking that document at face value, it suggests that the proposal that NTL should be a guarantor was not a term that had yet been agreed in principle but was a matter Mr Alderson considered should be formally put to NTL for its consideration. On some uncertain date (either before or after Mr Alderson’s “first stab”), Mr Hamill produced a checklist, in paragraph 4 of which (“Consideration”) he included against one bullet point: “security – project, shareholder guarantees.” On 16 February 2000 Mr Alderson prepared and sent to Mr Sheepshanks the first draft of a 17-paragraph deal sheet for the joint venture, but it did not refer to the giving of any guarantee.

56. On 21 February 2000 Mr Alderson sent Mr Fraser of Premium TV some “due diligence questions” for both sides to consider at a meeting fixed for the following day. It was in the same form as his earlier “first stab”, raising as a question for NTL the giving of a guarantee for Premium TV. It was agreed at the meeting that the guarantee should be given, the agreement being recorded in a version of the due diligence document that Mr Alderson sent Mr Sheepshanks and Mr Fraser on 25 February 2000.

57. There was a meeting of the Committee on 6 March 2000 at which the portal proposal was discussed. The Committee resolved to recommend to the Board that the FLL should set up a 100% subsidiary company to hold and exploit data rights on behalf of the FLL and the clubs. It also agreed to defer the structure and details of the joint venture until after the grant of the television rights. In the meantime, Mr Hamilton-Fairley was told that the FLL still regarded NTL as the preferred portal partner and that it would continue discussions with NTL in parallel with the grant of the television rights. The portal rights proposal became active again in May 2000 and the joint venture, including NTL’s guarantee, was later entered into in November 2000. I do not regard the details of the intervening history to be material.

58. The evidence relating to the giving of the NTL guarantee does not suggest that the matter was the subject of any express resolution by the Committee on 2 February 2000; and I find it was not. But I do find that the reason the NTL guarantee was sought and given derives from the events of 2 February 2000. I find that what then happened was that the Committee was concerned that NTL’s proposal was that the joint venture partner was to be Premium TV, a company which it assessed to be a shell company without assets; that the Committee explored, and made apparent, its concerns about that; and Mr Hamilton-Fairley responded with his explosive “comforts” offer. Mr Phillpotts and Mr Sheepshanks both understood that to be an offer of a parent company guarantee, as I find it was; and I find it was also so understood by all others present, including Mr Alderson. That is the explanation for the inclusion in the later documentation of such a guarantee. Mr Fenwick suggested as an alternative explanation for Mr Alderson’s raising of the matter of a guarantee in his “first stab” that he had been prompted by Mr Hamill. That is possible, but it is not positively supported by the documents or by any other evidence. In particular, the date of Mr Hamill’s checklist is unknown. I do not accept this as being the correct explanation. I now revert to the television rights.

Presentations for the television rights

59. On 10 January 2000 the FLL sent identical letters to various broadcasters, including ONdigital, advising them that the Sky licence was due to end in 2001, that the Committee was authorised to negotiate on behalf of all Football League clubs and that it would like to talk to all parties interested in all or part of the television rights. Each broadcaster was invited to make a presentation to the Committee during the week commencing 7 February 2000. The letters explained that the meeting was not expected to last more than two hours and added that “As your organisation is well known to the Committee, please keep your introduction and credentials to a minimum and we can use the time constructively to explore the fundamentals for both sides.” Mr Phillpotts confirmed in evidence that the broadcasters were already well-known to the Committee (their knowledge in part deriving from the O & O report) and were not at that stage being asked to provide information about their financial standing.

60. Mr Phillpotts further explained in his evidence that the Committee did not at any stage carry out any “due diligence” in relation to any of the broadcasters, in particular as to their financial standing. Following the entry of ONdigital into administration in 2002, he was proofed by Mr Price of Hammond Suddards Edge in connection with the guarantee action (its conduct on behalf of ONdigital was later taken over by Lawrence Graham when it became apparent that Hammonds might have a conflict of interest). Mr Phillpotts was interviewed by Mr Price on the telephone on 3 April 2002 and in person on 9 April 2002, following which he was sent a draft statement that had been prepared for him. He was interviewed by Mr Price again on 12 April 2002, when they went through the draft, following which Mr Price produced a revised version. That was not sent to Mr Phillpotts, who (I find) never saw it, but it was sent to Lawrence Graham.

61. Mr Price’s notes of his interviews with Mr Phillpotts are in evidence. Mr Phillpotts naturally did not recall the precise terms of what he had said, but I did not understand him to dispute that Mr Price’s note was a reliable note of its substance and I find that it was (Mr Price also gave evidence). As to the interview on 3 April 2002, its substance was that Mr Phillpotts did not carry out any due diligence on the bidders and was unaware that anyone else did; and he agreed in evidence that at no stage in the negotiation process was there a point where he considered he needed further information about any of the bidders. He is recorded as saying to Mr Price: “We were dealing with real players here, not out of left field. We knew who the shareholders were and that gave me the comfort that we were dealing with credible broadcasters. ITV had been Sky’s sub-licensee and Carlton and Granada de facto control ITV. Prior to Sky deal we had relationship – the relationship with ITV goes back to the beginning of football. The Football League home was ITV.” Mr Phillpotts confirmed in evidence that those remarks included ONdigital: he knew who its shareholders were, he attached great importance to the fact that it was part of the ITV family and he regarded it as a credible broadcaster. He said much the same in paragraph 29 of his witness statement in the guarantee action:

“29. When I evaluated the bids [those received on 7 June 2000], I did not give consideration to [ONdigital’s] financial position. This was not an issue for me. We knew who the shareholders were, Granada and Carlton and this was their venture. [ONdigital] were not completely new entrants into the field but came on the back of the track record of Carlton and Granada. That gave me the comfort that we were dealing with a credible broadcaster. Granada and Carlton were ITV. ITV was putting cash into [ONdigital] for its content and was taking the terrestrial rights. ITV was [ONdigital’s] partner. ITV Network made this clear in its letter of 6 June. I had met Carlton people with [ONdigital] repeatedly in the process leading up to the bid. ITV’s relationship with the League went back to the beginning of television coverage. ITV had been BSkyB’s sublicensee and prior to this had the direct rights. ITV was the home of the League and [ONdigital] was part of this. Carlton and Granada were involved in the whole process. Tom Betts went to meetings and Stuart Prebble and Graeme Stanley openly spoke of the need to get the authorisation of their shareholders.”

62. Mr Griffin was of the same view. He said in his witness statement, referring to his impressions in January 2000:

“13. … I had always thought of potential broadcasters in terms of the traditional broadcasters, such as ITV, the BBC and BSkyB (and, to some degree, Channel 4 and Channel 5). I thought of ONdigital as being in the traditional broadcasters’ category, due to its connection with Carlton and Granada. Everyone assumed at that time that ONdigital was going to be a big player because it was backed by Carlton and Granada and it was thought that the acquisition of sports rights would enable ONdigital to establish itself in the marketplace following the BSkyB model.”

63. ONdigital’s presentation to the Committee was on 11 February 2000, when presentations were also made by NTL (again represented by Mr Hamilton-Fairley and Mr Fraser), Channel 5 and Sky. ONdigital was represented by a team of seven, headed by Stuart Prebble. Those present on the FLL side were Messrs Sheepshanks, Murray, Rubery, McKeown, Phillpotts, Griffin and Alderson. The Committee had prepared a standard form list of matters they wished to discuss with each broadcaster, and following the presentations they recorded in them the broadcasters’ respective responses. They did not include anything relating to guarantees or other security. Mr Sheepshanks recorded in his notes that ONdigital explained that it had 522,000 subscribers, that it hoped to have a million by the end of 2000 and two million by 2002; that it was not interested in overseas broadcasting; that it wanted to promote the Football League; that it had ambitions to bid for the Premier League rights but it was realistic about that; and that it regarded the prospect of obtaining the Champions League and the Football League as being a good outcome. Mr Alderson’s notes of the ONdigital presentation included (inter alia) that its shareholders were “Granada, Carlton [United]” and the same subscriber projections that Mr Sheepshanks had noted.

64. Mr Phillpotts agreed that no-one at this meeting probed ONdigital as to its financial standing, any more than the Committee would have probed either Sky or (having had the previous meeting with it) NTL. He said, however, that the FLL was at a different stage of the negotiation process as compared with the portal rights process on 2 February 2000. His point was that on that date they had narrowed the portal field down to two contenders, whereas on 11 February 2000 there were still several contenders for the television rights. That does not, however, square with what he told Mr Price in 2002. The sense of what I find Mr Phillpotts was saying to Mr Price was that, by comparison with the Premium TV/NTL situation, he did not consider it necessary to probe ONdigital’s financial standing because he regarded ONdigital, Carlton and Granada as de facto the same; and he said much the same in cross-examination, namely that “we would not have needed to have probed ONdigital, because we were aware of Carlton and Granada, whereas we did need to probe [Premium TV] regarding its relationship with NTL.” Mr Phillpotts agreed that it was he who had made the initial decision not to investigate ONdigital’s finances and he confirmed that the Committee was happy with that decision on the basis that they were aware from the O & O report “that Carlton and Granada were shareholders in ONdigital, and they were aware who Carlton and Granada were at that point of time in the process.” Mr Griffin’s perception at this meeting was as follows:

“25. My perception at that time was that ONdigital was part of the ‘ITV Group’ and was clearly a new venture of Carlton and Granada. At that stage, ONdigital’s discussions with the Commercial Committee centred around: who ONdigital was; what its reach was; and what ONdigital would do with the FLL’s rights if it were the successful bidder. I do not recall any discussions regarding ONdigital’s corporate structure, although I do recall that it was mentioned up front that ONdigital’s shareholders were Carlton and Granada. My perception of the Committee’s thinking was that, viewed as part of the ‘ITV Group’, the FLL regarded ONdigital as a serious player in the market and as an organisation that would be around for a long time.”

65. The next stage in the negotiations was for the FLL’s commercial adviser to conduct negotiations with the interested broadcasters. The plan was that he should have one-to-one meetings with broadcasters over a two-week period commencing on 13 March 2000. Mr Phillpotts emphasised in cross-examination that, although the scope of the meetings was not limited, they were primarily to be a fact-finding operation, which would probe the broadcasters more deeply than had been possible at the presentations. He agreed that it would also enable the adviser to get a feel for the strength of the market. The adviser appointed by the FLL was ARM.

Active Rights Management Limited

66. Stephen Townley was the senior partner in the firm of Townleys, solicitors, which he had established in 1983 (in 2001 Townleys merged with Hammond Suddards Edge). He specialised in sports law. In early 1999 he and his wife Caroline had also established Active Rights Management Limited (“ARM”). Mrs Townley was the sole shareholder and the two of them were the sole directors. The function of ARM was to provide the non-legal aspects of the services involved in the development, protection and exploitation of media rights deals for sporting organisations. In his witness statement, Mr Townley described ARM’s task as being to assist a client to develop its rights, advise on how to market them and to generate the market for their sale; and he perceived his own role within ARM to be a market maker to maximise the development of owners’ sports rights. Mr Townley made it clear that it was no part of ARM’s function to provide legal advice to clients.

67. Mr Phillpotts had been introduced to ARM in the autumn of 1999. On 21 November 1999 Mrs Townley wrote to him, in response to his request, with ARM’s “credentials, methodology and cost structure for an urgent project to identify the appropriate model(s) for official English football interactive rights.” This was nothing to do with the television rights: it related to the FLL’s proposed exploitation of the portal rights.

68. In late January 2000 Mr Phillpotts attended a presentation given by Mrs Townley. She sent him some promotional material in early February 2000 and suggested that Mr Townley might be suitable for a “media consultant” role in relation to the television rights. Later that month, Mr Phillpotts recommended to the Committee that Mr Townley was the man to act as commercial adviser and negotiator in relation to that job. Mr Phillpotts had done some research on Mr Townley, by talking to other advisers who were conflicted out of assisting the FLL. Mr Townley had recently been advising a number of the 59 racecourses in Great Britain (in particular, a group of leading courses known as the “Super 12”) in connection with a proposed licensing of their media rights, the story of which ran from 1999 to May 2001 (it is summarised in the decision of the Competition Appeal Tribunal in The Racecourse Association and Others v. The Office of Fair Trading, The British Horseracing Board v. The Office of Fair Trading [2005] CAT 29). Mr Phillpotts learnt from his research that Mr Townley’s particular style would meet the flexibility the FLL was looking for. He obviously had a good relationship with, and was trusted by, the main broadcasters who were contending for the television rights, and he knew the television landscape well. He had experience of playing broadcasters off against each other in order to maximise a deal and was very skilled at negotiation. A particular feature of his negotiating style meant, however, that he would not willingly report progress to the Committee. That is because he would often gain and exploit a commercial advantage by assimilating information that others did not know he had, and he regarded it as important to keep it confidential, or at least to restrict its dissemination as much as practicable. But he would (and did) have no problem about Mr Phillpotts (whom he viewed as representing the client) participating in his negotiations; or with sharing information with Mr Sheepshanks, the Committee’s chairman.

69. ARM was appointed as the FLL’s adviser on 18 February 2000, following which Mr Townley attended meetings of the Committee (as did Mrs Townley, who was dealing with the portal rights). His first meeting was on 6 March 2000. From then on he had a major input into the negotiation strategy that should be adopted in relation to the grant of the television rights. Down to then, it had been driven primarily by Mr Phillpotts, although he made it clear that Mr Griffin and Mr Alderson had also played a part in the shaping of the tender process. He also emphasised that Mr Townley’s recommendations about strategy were discussed with him by the executive team and Mr Alderson. He could not, however, recall anything that Mr Alderson actually did in relation to the recommended strategy, but accepted that he needed to know what it was in order (at least in part) to satisfy himself that it would survive scrutiny by the regulatory authorities.

70. On 9 March 2000 Mr Alderson sent Mr and Mrs Townley a draft letter he had prepared outlining ARM’s functions. It related both to those in relation to the television rights and in relation to the portal rights. It recorded that the Committee accepted that Mr Townley “has a way of doing things and recognises the overall benefits even though there will be activity with no detailed reporting.” That was a reference to his negotiating style and to the confidentiality point. It further defined his role as being the strategic adviser on the broadcasting rights. His roles were described as including:

“… a determination of practical and realistic strategies; within any strategic options, identifying the priorities for the Football League; leading deal-making negotiations and recommending and, if accepted, delivering deals which meet the financial and commercial requirements of the Football League. You will be expected to provide vision and leadership within the context of the Football League and its Clubs.

On a more practical level [Mr Townley] is asked to advise on the Broadcasting tender process and tender documents. The process will have to accommodate the separate dynamics of the respective positions of the Football Association and the FA Premier League, both of which are going out to tender within a similar timeframe. Ultimately the Football League may do a joint Broadcasting deal with either or both organisations if that is in the best interests of the Football League and its Clubs.”

The draft made clear that “[Mrs and Mr Townley] are fundamental to this appointment even though their respective services will be provided through [ARM]. Nobody else will do and any sub-contracting of these services by ARM requires the prior written consent of the Football League.” The draft did not expressly impose upon ARM an obligation equivalent to that in item 7 of the role assigned to the advisers in the Television Strategy Document: ARM was not being required to assess the covenant strength of the bidders for the television rights and Mr Phillpotts confirmed that ARM had not been asked to do so. Mr Sheepshanks also agreed, in particular, that matters relating to the security (if any) for a licensee’s covenants were not within ARM’s remit; and nobody else on the FLL side suggested anything else. Mr Townley’s role in relation to the licensing of the television rights was, I find, to act as a market maker, to assist and guide the tender process, to play the market by deploying his special skills, to act as a negotiator and to maximise the value of the rights. He was not intended to be, nor was, a general commercial adviser. I find that it was no part of ARM’s or his functions to assess, or to advise the Committee upon, the covenant strength of particular bidders or to advise the Committee as to the seeking of security for the covenant of any bidder.

71. Mr Phillpotts did not see that draft at the time: it was prepared for the purposes of a special remuneration committee which had been set up on 6 March 2000 to determine ARM’s responsibilities and remuneration. The members were Mr Murray, Mr Griffin and Mr Alderson. They did not include Mr Phillpotts because it was perceived his presence might be a potential cause of future embarrassment with Mr and Mrs Townley, with whom he would be working closely. He agreed in evidence, however, that the draft accurately described Mr Townley’s functions; and that Mr and Mrs Townley were both fundamental to the appointment, even though their services were to be provided through ARM. He also agreed that, in performing his role, Mr Townley did not step outside his role of acting through ARM. ARM’s appointment was never formally finalised on the terms of the draft, and nor did the remuneration committee ever agree a fee structure or fee level with it.

The Committee meeting of 6 March 2000

72. This meeting was attended by Messrs Sheepshanks, Murray, Hearn, Ayre (alternate for Mr Rubery), Hamer and McKeown. Messrs Phillpotts, Griffin, Alderson and Townley, and Mrs Townley, were in attendance.

73. This was Mr Townley’s first meeting. One item on the agenda was “Broadcast – Stephen Townley”. It was expected of him that he would produce his own strategy for the licensing of the television rights. Mr Phillpotts could not recall if he did so at this meeting although Mr Sheepshanks’s recollection is that Mr Townley made clear that he wanted to pursue his own strategy, one which would not necessarily involve the inviting of sealed bids or tender documents. Mr Alderson’s notes of the meeting record that Mr Townley explained that there was a “need to understand the dynamics of the market place with” the FA, the Premier League and the Football League, a reference to the fact that their respective licences were up for renewal at the same time. It is clear that Mr Townley regarded the FLL’s tactics as regards discussions with broadcasters as all-important. Mr Phillpotts said in evidence that his view was that the Premier League’s rights were the hottest property - and I find they were - but that, as between the FA and the Football League, the preference would vary from broadcaster to broadcaster. He said it meant that the FLL would have to be flexible in the way it approached the market. The minutes of the meeting record that Mr Townley was to prepare a pre-tender document by 17 March 2000 (the date of the next Committee meeting), which would be submitted to the Committee for approval.

74. Mr Sheepshanks is recorded as expressing the desirability of the formulation of a strategy, or “wish list,” for the licensing of the television rights. In cross-examination he agreed that the obtaining of a guarantee for a broadcaster’s covenant could be regarded as the type of commercial point that could have been included in it, but he disclaimed the thought that the type of “wishes” it might include would extend to what he called “the legal boilerplating that I would have expected to be done at the end of the deal.” The substance of his evidence was to the effect that he regarded the obtaining of parent company guarantees as part of such “boilerplating”, a term he frequently used. Equally, he did not suggest he imposed any limits on what might be included in any “wish list.” There is no basis for concluding that there were any limits.

75. There is an issue as to whether anything further of note happened at this meeting. The one thing of alleged note which the FLL claims did happen – or may have happened - is not recorded in the minutes. I have explained the practice with regard to the preparation, circulation and correction of the draft minutes of Committee meetings. The issue is as to whether Mr Hearn said anything relating to the need for security for a licensee’s covenant.

76. Mr Hearn’s evidence in chief was that on perhaps three occasions he believes he raised the need for security for any deal with ONdigital, although he disclaims that he ever did so in other than oblique terms. In cross-examination he also disclaimed any confidence that he had in fact raised the matter three times. But he believed he first raised it at this meeting. The two other occasions when (at least in chief) he claimed to have done so were at the Board meeting on 11 May 2000 and the Committee meeting on 7 June 2000.

77. If Mr Hearn did raise any such point at any of these meetings, I find that he made no mention of having done so to the FLL’s solicitors before they wrote their letter before action to edge ellison on 18 June 2003; and the FLL’s new pleaded case as at 1 April 2005 (its re-amended particulars of claim) was no more precise than that an unidentifiable member of the Committee had “on at least one occasion” no later than 10 May 2000 expressed the view that it was important that any agreement with ONdigital should be secured by parent company guarantees. That ruled out anything material having been said by Mr Hearn (or anyone else) on 11 May or 7 June 2000; and it follows that Mr Hearn’s claimed recollections about what he may or may not have said to the Committee on the subject of guarantees had not been shared with anyone by 1 April 2005 since otherwise he would have been named in the pleading. I understood his evidence on these matters to be based on a reconstruction of events which he had made during a subsequent trawl through the documents, being a more thorough one than he had engaged in previously.

78. This was Mr Hearn’s first Committee meeting since 20 December 1999. He had not attended the presentations in January and February 2000. He was not a regular attendee at the Committee’s meetings (no doubt he had many other commitments). He believed he had read the O & O reports, but agreed they did not tell him anything about ONdigital or its parentage he did not already know. He knew that ONdigital was a relatively new company that had been licensed by the ITC and he was broadly familiar with the criteria that ONdigital would have had to meet before being so licensed. He had not seen (or sought) any accounts for ONdigital and at no stage tried to find out about its financial position. Nor did he ask Mr Phillpotts to find out more about it: his attitude was that he “had a team who were making the effort to make sure I was protected. I did not see it as my particular role.” His evidence was that he regarded consideration of matters such as bidder solvency as for Mr Phillpotts and the Committee’s advisers: he regarded it as “obvious” that this is what they were being paid to do. This “not my responsibility” theme was a leitmotif running through the defensive evidence of the Committee members.

79. Mr Hearn claims he had a particular concern that any deal with ONdigital would need to be secured by parent company guarantees. He made it clear in his cross-examination that “because of the people involved” – a reference to Carlton and Granada – he always believed the FLL would be paid, which shows that he took a positive attitude towards any deal with ONdigital, also understanding the important point in this context that the acquisition of the television rights would not simply represent a cost to the broadcaster, but would be a significant driver of subscriptions and revenues for it. But his point was that, because of the very large amount of money involved, the FLL could not take any risks, and it is for that reason that he claims he favoured the obtaining of guarantees. Mr Hearn admits he never said any such thing to anyone in express terms, since it was apparently not in his nature as a chartered accountant to articulate his claimed concern in language that might actually have been useful. He claims that all he ever said on the subject was words to the effect that “we must get paid” (even though he never doubted the FLL would be paid), and he explained that as meaning “In my language that is looking for security.” He made the point that receipt of any promised money was all-important: many of the lower division clubs were struggling financially. Although he claims this was central to his then thought process, and although his claimed concern later proved to be justified, he could not explain how, following the ONdigital collapse, he never mentioned it to anyone until some time in 2005.

80. In, however, an alleged effort to share his claimed concern with others at a time when it might potentially have been useful to the Committee’s thinking, Mr Hearn’s recollection was that on 6 March 2000 he either said, or may have said, words to the effect that “This is our chance. We are going to do a big deal but we need to make sure we get paid.” He disclaims being any more specific than that. There was a dispute as to whether the thrust of his evidence on this in cross-examination was (i) that he was confident he had said something to this effect on 6 March 2002, and believed he “would have” used words along the lines just quoted; or (ii) he was not confident that he had said anything at all on that occasion, but thought that he “would have” said something on the quoted lines. I have read and re-read the passage in the transcript and although my original impression when Mr Hearn gave his evidence favoured alternative (ii), further consideration has led me to prefer alternative (i). Mr Sumption QC, for edge ellison, suggested that this involved applying a jesuitical construction to the relevant exchange: if so, I am with the Jesuits.

81. Mr Hearn’s evidence was therefore that he had a recollection of saying something along these lines at this meeting, motivated by the notion that Mr Townley was saying things to the effect that the FLL had the chance of getting some serious money out of its broadcasting rights. If, however, he said any such thing, I find he cannot have been referring specifically to ONdigital or to any other particular potential bidder. At that stage no one bidder was obviously in the running. Mr Hearn also did not expect any of Mr Phillpotts, Mr Townley or Mr Alderson actually to do anything in response to his remark, which he agreed was merely made “in passing”. He did not expect them to understand him to be saying, in relation to any particular bidder who later appeared likely to win the race, that they should consider whether parent company guarantees were appropriate.

82. Mr Phillpotts’s evidence on this was that, save for what he claims Mr Hearn said at a later Board meeting on 11 May 2000, he had no recollection of anything ever being said by anyone about the need for the ONdigital covenant to be secured by parent guarantees or otherwise. He had no recollection of any such matter being raised at the meeting on 6 March 2000. He did not recall Mr Hearn saying anything at it which might be regarded as guarantee-related.

83. It was put to Mr Phillpotts in cross-examination that if anyone had raised such a matter at this meeting, he would have regarded it as an action point calling for action. His, perhaps surprising, initial response was “Not necessarily … Because I would have assumed that was stating the obvious and therefore it is not an action point because we would take care of it.” His explanation of that answer was that “… it is stating the obvious that it would be a consideration for us at that time in the process.” His evidence then became more realistic, when he agreed that if (i) anyone had suggested on 6 March that security should be sought either from broadcasters generally or from one particular broadcaster, then (ii) that would have been something on which it would have been appropriate to take action. As to whether any such action point should be recorded in the minutes, his initial response was to say that it would depend on the context in which it was made. But he then - again more realistically - also accepted that if the proposal had been made, and no-one disagreed with it, he would have expected it to be recorded as an action point in the minutes. He also agreed that if any such point had been made at the meeting, and had not appeared in the draft minutes, he would have proposed an amendment to reflect the point.

84. The obvious answer to these questions, which Mr Phillpotts displayed some reluctance to give, was that if (i) anyone had ever raised at a meeting that any particular bidder’s covenant would need to be guaranteed, and (ii) the Committee had agreed, then (iii) the matter would have been minuted and (iv) appropriate action would have been taken to ask for a guarantee in the course of negotiating any deal with that bidder. The point is not difficult and was well within Mr Phillpotts’s grasp. I find that his apparent reluctance to accept the obvious was because of a disingenuous attempt to rationalise the possibility that at this meeting Mr Hearn had made the remark he claims he would or may have made and that - assuming it could fairly be interpreted as code for “we must have guarantees from ONdigital’s parent companies” - there was nothing odd about the omission to minute it.

85. As to whether Mr Hearn in fact made the claimed remark, not even he was 100% confident that he had made any remark at this meeting to the effect that “we need to make sure we get paid” and no-one else present has any recollection of his making such a remark at this meeting. It appears to have been a late recollection by Mr Hearn which only surfaced in the latter part of 2005. It was also, if made, an odd thing to say at this stage in the operation: no bids had been made and there was no basis yet for any assumption that the FLL would be doing “a big deal”.

86. I am not satisfied on the probabilities that Mr Hearn did make any such remark at this meeting. No-one else corroborated his evidence. I find that he did not make the claimed remark. But if he did, it was plainly regarded by anyone (if anyone) who might have heard it as a mere passing remark which was neither suggesting nor calling for action in relation to any particular bidder. I find it could not have been, and was not, interpreted by Mr Alderson as conveying that either the Committee as a whole, or Mr Hearn in particular, was requiring him to consider whether security should or might be sought from any bidder. Nor do I accept that Mr Hearn even had the question of guarantees in mind.

87. I should at this stage, and in this context, introduce Mr Murray’s evidence. He was a Committee member until 7 June 2000 (his last meeting was on 18 May): he had to leave the Committee when his team was re-promoted to the Premier League after a year’s relegation to the Football League. He does not recall any remark by Mr Hearn about the claimed need for security. On the other hand, he does claim to recall Mr Rubery making “some sort of fairly obvious statement, during a Commercial Committee meeting, such as: ‘we will need to make sure that ONdigital’s liability is supported by a guarantee.’” Mr Murray cannot recall when this was said or whether Mr Alderson was present. This particular piece of evidence is something Mr Murray only remembered in 2005, when he was asked about the matter: he had not given it any thought during the intervening years (and of course Mr Rubery was not identified in the re-amended particulars of claim of 1 April 2005 as having made any such remark). I do not accept Mr Murray’s evidence of his claimed recollection. Subject to Mr Sheepshanks’s imprecise evidence, to which I shall come, no-one corroborated it; and Mr Rubery did not give evidence. There is no suggestion that he could not have been called as a witness; a witness statement had been served for him.

88. I comment that Mr Murray appears to have had an ill-informed view of the role the Committee was performing in relation to the television rights; and a similar view as to his responsibilities as a Committee member. He understood that the Committee was charged with negotiating the deal for the licensing of the rights. He did not appear to understand that it had to approve any proposed deal before submitting it to the Board for consideration. He made the point that he was not paid to sit on the Committee and had full-time employment elsewhere. He did not regard it as part of his function to inform himself about the sort of people with whom the FLL might be negotiating. This was because he would not have had time to do so and he did not believe it was part of his responsibility. He also said he never asked for any more information on such topics. His explanation for that appeared to be that there were others on the “team” who would consider them. In this respect, his evidence was in line with Mr Hearn’s but their position was wrong. The task of negotiating the deal and satisfying itself that any particular deal could be recommended to the Board was that of the Committee. That did not of course mean that the members had to do the legwork themselves: but it did mean that they had to devote their personal consideration to what legwork needed to be done by others (in particular Mr Phillpotts) and to the results of it when done. How else was the Committee supposed to arrive at a proper, considered decision?

89. Mr Murray did, however, know about ONdigital. In cross-examination, he said he knew it was a digital broadcaster in the ITV family and was a subsidiary of Carlton and Granada, which he knew were large FTSE 100 companies and were among the most successful and highly regarded companies in the UK media sector. He knew that ONdigital represented a large capital investment by them. He did not know that ONdigital had made a major investment in rights, and believed it was a start-up company. He did not know what other products it had. He did not agree that it could be assumed to be unlikely that, given their investment in ONdigital, the parent companies would not allow it to fail and so write off their investment. He said he thought the whole reason why companies incorporate subsidiaries was so that they could pull the plug, even if in consequence they lose their investments – a somewhat cynical perception of why corporate groups trade through subsidiaries.

90. On the other hand, in his witness statement Mr Murray had said that ONdigital’s position as part of the ITV group gave him “comfort on questions of viability. I had heard that £1 billion of funding was to be made available to ONdigital by Carlton and Granada. To this extent the security issue did not cry out for immediate consideration. However, I emphasise that this comfort only went so far. It did not divert me from my usual business practice that security would be required. I do not believe it diverted any Committee member either.” Mr Murray also recognised that the acquisition of the rights by ONdigital would be a subscription driver. He did not, however, share his “usual business practice” with the other Committee members and suggest that security should be required either from ONdigital or any other bidder; and there is no evidence that any other Committee member ever said anything to him to justify his last quoted sentence. He confirmed in cross-examination that he did not think at the time that the security issue cried out for immediate consideration; and again made the point that he did not feel that security was his remit. As with other FLL witnesses, he regarded that particular buck as one that could safely be passed to others – in particular, Mr Alderson. His evidence was not, however, that security was not something to which he had given no thought. It was rather to the effect that, whilst he was on the Committee, it was never the right time to raise it. It was too early to do so at the presentations in February 2000; it was not necessary to think about it in March 2000; and nor had it become necessary to do so by 18 May 2000, Mr Murray’s last Committee meeting: not even during the negotiations with ONdigital on 10 and 11 May 2000 in which he participated. Equally, however, he recognised in his witness statement that important terms should not be sprung on interested broadcasters “at the last moment.” From Mr Murray’s viewpoint the precise timing of the point at which any question of security should be raised with a would-be bidder was therefore apparently a matter of some delicacy: but, whenever that time might be, he was in the position of being able to advocate that it had not been reached whilst he was on the Committee.

91. I should also comment on Mr Sheepshanks’s evidence in the present context. He accepted that it was the Committee’s responsibility to make decisions on significant matters arising in the course of the negotiation of the grant of the television rights. He regarded the question of security for any licensee’s covenant as a significant matter. He also said that during his time on the Committee (until 7 June 2000) the matter never came to the Committee for a decision. He said in cross-examination that his position was “that the committee never decided not to take security because it was not discussed in detail during my time on the committee.” He also said, however, that he thought that the Committee did discuss the question of security. He said that some unidentified person around the table made it clear on some unidentified date that “we were dealing with subsidiary companies and we needed to be careful with the whole question of security.” He said an informal decision was made on the point during a discussion at the end of a Committee meeting at which everybody was present. His oral evidence was, therefore, not just that the subject of security was raised and discussed but that the Committee members were in agreement on it; and that from then on his assumption was that “parental guarantees would be part of the belt and braces approach to any final documentation that would be concluded in any agreement.”

92. The striking thing about that evidence is that it emerged for the first time in cross-examination. Mr Sheepshanks’s witness statement made no suggestion that any agreement had ever been reached by the Committee on the question of security for any broadcaster’s covenant. The most he there said was that he had a recollection that “prior to the meeting with ONdigital on 10 May 2000”, someone – perhaps Mr Hearn, Mr Murray, Mr Rubery or Mr Alderson – had noted that “some of the potential bidders were subsidiaries and that the FLL required protection. This referred to both Premium TV and ONdigital. I am sure Richard Alderson would have been present at that meeting as, to my recollection, he only ever missed one Commercial Committee meeting.” Mr Sheepshanks explained in his oral evidence that his witness statement had simply included what he could remember. It appeared, therefore, that he did not remember at the time he made it that any such mention had led to discussion and agreement; and that it was only later that he had remembered that important additional fact. He added that he could not even be sure that Mr Alderson was present at the time (even though he had suggested that it might have been Mr Alderson who had raised the matter).

93. I do not accept that Mr Sheepshanks’s late recollection is of an event that happened and I reject his evidence that it did. The point is so central to the issues in the case that, had it happened and had he remembered it, he could not have failed to flag it up in his witness statement. The notion that the memory of the making of this collective decision suddenly emerged during the crisis of cross-examination is one I am not prepared to accept. Mr Sheepshanks’s evidence on this was, I find, the product of the wish being father to the thought. I was left with no confidence that it was a reliable recollection and I find it was not.

94. Nor do I accept Mr Sheepshanks’s more limited evidence in his witness statement that I have earlier quoted. Mr Hearn disclaims having said any such thing. Mr Murray made no suggestion that he did so. Mr Rubery did not give evidence. Nor do I accept that Mr Alderson made any such remark. If Mr Alderson had raised such a matter, I have no doubt it would have given rise to discussion within the Committee, that Mr Alderson would have recorded it and that (if the outcome was that action was required) action would have been taken. The evidence is that he was a careful and conscientious solicitor. The statement that the remark referred to “some of the potential bidders” being subsidiaries so that the FLL required protection is noteworthy. Sky was also a subsidiary, but no FLL spokesman suggested that anyone ever thought that a guarantee of Sky’s performance might be required. That is interesting because, although the Committee did not investigate it, Sky’s financial position at the time was comparable to ONdigital’s, as I shall explain when I come to the Board meeting of 11 May 2000.

95. I add that Mr Sheepshanks confirmed in his cross-examination that he anyway did not need Mr Alderson to advise him about the need for a parent company guarantee for the covenant of a corporate covenantor of questionable financial solidity. He knew such a covenantor could become insolvent and that there would be no recourse against its shareholders; and he knew what a parent company guarantee was.

96. Finally, I record that Mr Alderson’s evidence in his witness statement was that at no time before the autumn of 2001 (when ONdigital’s financial troubles were becoming publicly known) was there any discussion about guarantees from Carlton and Granada: he did not raise the matter and nor did anyone else.

The Committee meeting of 17 March 2000

97. The members present were Messrs Sheepshanks, Murray, Rubery and McKeown. Messrs Phillpotts, Griffin, Alderson and Townley were in attendance, as was Mrs Townley. Paragraph 4 of the minutes recorded that Mr Townley had held one-to-one meetings with Sky, the BBC, ITV, United News & Media and Channel 5; and was proposing to have like meetings with ONdigital, BT, Yahoo, Telewest and NTL. They also record that he would brief Mr Phillpotts and (when appropriate) Mr Sheepshanks on their outcome, following which there would be a report to the Committee. Paragraph 4.5 recorded the Committee’s view that “cash was the driver” of the whole process and that “Mr Sheepshanks repeated that it will be necessary to manage the Clubs’ expectations.” Mr Townley took the Committee through a template of a pre-tender document whose final draft form was the work of himself and Messrs Phillpotts, McKeown, Griffin and Alderson. He was proposing to send it to broadcasters on 20 March 2000 and he invited Committee members and the executive to submit “wish list” items to him before then. He agreed in evidence that he did not impose a limit on the range of potential wishes.

98. The document was primarily devoted to explaining the nature of the rights on offer and the desired coverage of Football League matches. Paragraph 8 listed ten heads of information that would be required from the broadcaster. Save for information as to the proposed budget to be set aside for promoting the Football League brand, it did not ask for financial information about the broadcasters. It was put to Mr Phillpotts that if the Committee had wanted such information, that would have been the time to ask for it; and that, as Mr Townley had asked for a “wish list”, that would be the time to inform him of any wish to know about the financial standing of potential bidders. Mr Phillpotts disagreed, saying the document was primarily directed at content issues, although he did not suggest that Mr Townley had limited the range of possible wishes. He also said that at that stage a deliberate decision had been taken (by way of contrast with the Premier League’s approach) not to send out a highly prescriptive document specifying what was required of broadcasters: that was consistent with the adoption of the flexible approach that the Committee favoured. There was, on Mr Townley’s advice, no fixed intention to follow the pre-tender document with a formal tender document. The preferred plan was to see what the broadcasters wanted and maximise the value of the deal in terms of cash and exposure; and, if appropriate, to be in a position to close a deal at any stage with any of the broadcasters. Mr Townley’s advice at this meeting was that the FLL’s timing had to be considered very carefully in relation to the timing of the Premier League’s tender process.

99. Mr Sheepshanks’s evidence in cross-examination was that if the Committee had wanted any potential bidder to provide financial information about itself, it could have been asked for in paragraph 8 of the pre-tender document. But his preferred stance was that this was not the time to be asking for financial information: he considered that the time to be considering “all aspects of risk [was] at the end of the process when we had narrowed the field down to having a successful bidder.” He did not suggest that there was any advantage in that approach, but said that that was his thinking and, he suggested, also that of others. He disagreed that, if the Committee were minded to reserve the right to ask any particular broadcaster for guarantees, that right should be reserved in the pre-tender document. By contrast, the pre-tender document actually sent to broadcasters included as a result of the “wish list” invitation a provision that the successful bidder might have to make an upfront payment, an example of a potential financial condition the FLL might seek to impose. Mr Sheepshanks said he regarded that condition as quite different. But he also admitted that he did not at the time deliberately focus on a decision not to include any reserved right to ask for a guarantee. I find that, at any rate as far as he was concerned, he made no such positive decision at the time. The inclusion, or non-inclusion, of such a reserved right was, I find, simply something to which he gave no thought. He disclaimed the suggestion that the matter formed the subject of any discussion within the Committee. His repeated point was that it was Mr Alderson’s job to ensure that any necessary security was included in any contract. He did not say that Mr Alderson was ever instructed to do so, but he did say that the Committee never decided it did not want security. His evidence was, of course, that he did want security, but that during his tenure as chairman of the Committee the time never arrived when it was actually necessary to ask for it. He admits he could have raised the point and accepts he did not. In shifting exclusive responsibility for this on to Mr Alderson’s shoulders, he emphasised that he made clear to Mr Alderson at the outset that his task was to “help us, help me, all the way through this process. Your job is to look after all, look after the Football League interests. Make sure that you prompt us, guide us, as, where, when necessary.”

100. Following this meeting, Mr Townley, Mr Phillpotts and Mr Alderson worked further on the pre-tender document. It was circulated internally on 27 March 2000 and went to broadcasters on and following 28 March 2000. Mr Hearn was not at the meeting but read its minutes. He made no contributions to the “wish list”, either as to the need for security or otherwise, although his evidence was that he regarded security as a matter of concern.

The Committee meeting of 4 April 2000

101. The members present were Mr Sheepshanks and Mr Rubery. Messrs Phillpotts, Griffin, Alderson and Townley were in attendance, as was Mrs Townley. The FLL’s pre-tender document had been sent to broadcasters and the tender documents that had been sent out by the FA and the Premier League were also available. All three documents were received by the Committee. Mr Townley told the Committee that there were four main bidders for the television rights, but that he did not yet know whether the BBC was interested. He had arranged further meetings with broadcasters on 10 April 2000, at which he would or might be accompanied by Mr Phillpotts and/or Mr Sheepshanks. The purpose of the further meetings was to obtain information which would enable the Committee to refine its proposals for the licensing of the rights and to test the strength of the market. Mr Townley’s view had been, and remained, that a formal tender was an unlikely way forward, although that was subject to considering how far the FLL’s position might be affected by the competing re-licensing activities of the FA and the Premier League. One of Mr Townley’s hopes at his forthcoming meetings with broadcasters was, however, that he might be able to generate a pre-emptive bid from one of them at a sufficiently high level to enable an agreement to be made.

The Committee meeting of 11 April 2000

102. The members present were Messrs Sheephanks, Ayre (for Mr Rubery), Heard and Murray. Messrs Phillpotts, Griffin, Alderson and Townley were in attendance, as was Mrs Townley. This was Mr Heard’s first meeting. Mr Phillpotts took the Committee through the Premier League tender document and highlighted various features, including the bid process. Mr Phillpotts had pre-read it in full and accepted in cross-examination that it was a highly prescriptive document that told broadcasters what they would be expected to agree if they got the rights. That was an approach the Committee had rejected. The point of taking the Committee through the document was so that it could compare it with its own pre-tender document sent out at the end of March 2000. One of the conditions that the Premier League’s document imposed was a right to require any licensee to provide acceptable security for the due performance of its payment obligations. Mr Phillpotts said it was possible that he had taken the Committee through this provision, but could not be certain that he did. However, he accepted that he was aware of it and he appears – despite his uncertainty just mentioned – to have accepted that the Committee was also aware of it, although his evidence in the latter respect may perhaps have been a mistake. Mr Sheepshanks, however, accepted in cross-examination that Mr Phillpotts did draw the Committee’s attention to the reserved right to ask for security. By contrast, in his witness statement he had said he could not remember being taken through the document at this meeting; and he criticised Mr Alderson for failing to flag up the provision relating to security. Given that the relevant clause was, so Mr Sheepshanks accepted, pointed out to a collection of Committee members who all claim to understand these things, this criticism of Mr Alderson appears less than fair. To the question whether the Committee was “so devoid of initiative that they were not capable of perceiving the relevance of that for themselves” Mr Sheepshanks’s answer was “I cannot comment on that. I would say not. But, at the end of the day, we relied on our professional adviser very strongly.” What is clear is that no-one on the Committee said: “What a good idea! We should have done something like that. We must remember, should it be appropriate in the case of any particular bidder, to make a request for security for its covenant.” Mr Sheepshanks’s explanation as to why not was because probably “no member of the committee felt that this was necessary at that stage.”

Meetings with broadcasters

103. Mr Townley held further meetings with broadcasters in April 2000. I find that their purpose was, at least in part, to encourage the making of pre-emptive bids (Mr Phillpotts declined to accept that this was a part of their purpose, although Mr Sheepshanks accepted it was). Mr Phillpotts and/or Mr Sheepshanks accompanied Mr Townley at some of the meetings. The decisions as to who would attend which meetings were made by Mr Townley and Mr Phillpotts. Mr Alderson was not asked to attend them, nor did he. The only negotiation meetings he ever attended with broadcasters were those with ONdigital on the afternoon/evening of 10 May 2000 and the morning of 11 May 2000, and again on 15 June 2000. Those were occasions where it was foreseen that draft agreements would or might be negotiated, a task in which his contribution as the FLL’s solicitor was required. It was not his function to negotiate the commercial terms of any licence and he did not do so.

104. Mr Townley and Mr Phillpotts had a meeting with ONdigital on 10 April 2000. On 18 April 2000 Mr Phillpotts had a follow-up meeting on his own with Graeme Stanley, ONdigital’s director of broadcasting (Mr Townley was by then on holiday until 26 April 2000). He agreed that he told Mr Stanley that he liked ONdigital’s proposals with regard to how they would “showcase our content”. No price had yet been mentioned, and whilst I have said that Mr Phillpotts disagreed that the purpose of these (and like meetings with other broadcasters) was to tempt the making of a pre-emptive offer, he at least agreed that the making of any such offers would have provided the FLL with useful information. Mr Stanley had, however, earlier made it clear to Mr Townley that he wished to discuss with the FLL whether a deal could be done; and Mr Phillpotts and Mr Sheepshanks together authorised Mr Townley to encourage Mr Stanley to make a pre-emptive bid. There was also a meeting with Sky on 17 April 2000, attended by Mr Sheepshanks, possibly with Mr Townley and Mr Phillpotts. The purpose was, I find, to encourage Sky to make an early bid.

The Committee meeting on 28 April 2000

105. This meeting was attended by Messrs Sheepshanks, Heard, Murray and Rubery, with Messrs Phillpotts, Griffin, Alderson and Townley, and Mrs Townley, in attendance. It discussed the level of offer at which the Committee would “go to the Clubs without waiting for the [Premier League] deal” i.e. the level at which it would close with a bidder before the Premier League had announced its own awards; and at which the Committee would consider dealing with a broadcaster without going through a formal tender process. The figures were discussed in confidence and were not minuted. Mr Heard’s evidence is that he was against “going early” but was outvoted.

106. This was followed, on 5 May 2000, by a letter from ONdigital to Mr Townley (copied to Mr Sheepshanks and Mr Phillpotts) proposing an exclusive negotiating period until 9 May 2000, to proceed on the basis of an “indicative annualised payment” of £50m and of the package discussed on 10 April 2000. The reason for the requested exclusivity was to avoid an informal auction process; in particular, ONdigital wanted to keep Sky out of the picture. ONdigital knew that Sky, the current broadcasting incumbent, had the benefit of the matching rights clause; and Mr Phillpotts agreed during his evidence that it would have been unacceptable to ONdigital for Sky to be given the opportunity to match its offer. The letter referred to the “short timetable of which we are all aware”. That was, as Mr Phillpotts agreed, in part a reference to a wish to achieve a deal before the outcome of the Premier League competitions: bids for their licences had to be in by 10 May 2000, although they had said they might then need 14 days to evaluate them. But I find it was also, as Mr Townley agreed, because of ONdigital’s hope to conclude a deal with the FLL before the FLL invited tenders from broadcasters generally, which could happen at any time. Mr Phillpotts regarded a £50m offer at the low end of the Committee’s expectations; and on his and Mr Sheepshanks’s instructions, Mr Townley informed Mr Stanley that £50m was disappointingly low. This led to the meetings with ONdigital over 10 and 11 May 2000.

Stage two: the events of 10 and 11 May 2000

The events of 10 May 2000

(a) The Montcalm Hotel

107. On the morning of 10 May 2000, Mr Phillpotts and Mr Townley attended a meeting with ONdigital at the Montcalm Hotel, near Marble Arch. ONdigital was represented by Graeme Stanley, Tom Betts and Paul Matthews (an in-house lawyer). ONdigital raised its bid to £70m a year, expressed to be negotiable, plus other terms I summarise below. Mr Phillpotts took the view there was a good prospect ONdigital could be pushed higher.

(b) The Committee meeting at Connaught Place

108. Following the making of that offer, Mr Phillpotts and Mr Townley returned to the FLL offices in Connaught Place (a five minute walk), where a Committee meeting had been in session since 9.30 am. Those already present were Messrs Sheepshanks, Heard, Hearn, Murray, Rubery, Griffin and Alderson, and Mrs Townley. One or other of Mr Phillpotts and Mr Townley explained the terms ONdigital had proposed. They were noted down by Mr Alderson and included (i) the £70m annual payment (said to be negotiable); (ii) a three-year term; (iii) a revised share of the pay-per-view income, reported as worth between £2m and £4m a year; (iv) the exclusion of live internet rights; (v) the proposed coverage of matches of each division; and (vi) an upfront payment of £31.5m. As to this last point, the Committee had previously discussed the need for such a payment. The new licence would not be on stream until the beginning of the 2001/02 season (over a year away) but the plight of some clubs was so desperate that an early and substantial cash injection was viewed as all important and it had been raised following the request for “wish lists”. The Committee was also told of a proposal for an arrangement under which the rights would be sub-licensed for free-to-air broadcasts by ITV. It was further told that ONdigital wanted an exclusive negotiating period to be agreed by 1.00 pm that day: ONdigital knew that Mr Phillpotts and Mr Townley had left to go to a Committee meeting and it did not want its offer to be hawked around other broadcasters (in particular Sky) and used as a lever to induce better offers from others. Item 5.5 of the minutes of the meeting recorded that the outcome was that “The Committee voted (5-1) to continue the discussions with ONdigital which might lead to an acceptable offer and some form of exclusivity.” Mr Heard thought it was he who was in the minority. Mr Townley’s expressed view was that the Committee should not rush ahead with the ONdigital offer, that it might be premature to do so and that another option was to play the market for longer but the Committee declined to go along with this: and Mr Townley said in evidence that it had had “a strong degree of interest in this offer ….” Mr Hearn’s evidence was that the deal was “extremely exciting” with a “huge amount of money” on offer. There is, I find, no doubt that the Committee sniffed the possibility of an early deal with ONdigital, it wanted to follow that up and it did not want to let the iron cool whilst Mr Townley tempted other broadcasters to offer more.

109. The resolution that the Committee passed meant what it said, namely that the brief of the FLL negotiators was to achieve, if possible, an acceptable offer from ONdigital and, subject to that, to agree a period of exclusivity within which to negotiate a final deal. Mr Phillpotts agreed it might take either minimal time or several days to reach a deal (if at all), his own expectation being that it might take several days; and the cut-off date he had in mind for achieving it was Friday 19 May 2000, a date given to the Committee and with which it agreed. Mr Sheepshanks also agreed that the deed might be done quickly or take several days. The Committee regarded an offer of £80m a year as the key to opening an exclusivity window; and it proposed that ONdigital might, as consideration for it, be asked to make a non-refundable deposit.

110. Before leaving this Committee meeting, I must refer to some evidence from Mr Townley as to a discussion he recalls taking place at a Committee meeting on either 10 or 11 May 2000. There was no Committee meeting on 11 May (although there was a Board meeting), and so it is likely that his claimed recollection is of a discussion at this meeting, and I find it was. He gave evidence to this effect in the guarantee action and confirmed it in this one. He said that during the meeting someone raised a question as to who ONdigital was: he thought it was Mr Heard, and that would make sense, since he was a newcomer to the Committee. Mr Townley said he explained in response that ONdigital was a business owned by Carlton and Granada, and that it was in his view a credible business that had acquired some other major football rights in the market. The point was discussed and Mr Townley’s recollection was that (as he said in his statement in the guarantee action) “… the fact that Carlton and Granada were its [ONdigital’s] shareholders was a critical point in satisfying the Committee as to the strength of ONdigital.” He said in cross-examination that he understood that the Committee was satisfied that ONdigital’s financial standing was “okay” and he was not asked to provide any further explanation about ONdigital. He had no recollection of anyone suggesting that security should be taken for its obligations.

111. Taking that evidence at face value, it amounted to a recollection by Mr Townley that the Committee was satisfied by ONdigital’s family background as to its financial solidity as a would-be licensee: and the discussion took place just before the resumption of negotiations with ONdigital that, I find, the Committee hoped would lead to an early deal. The FLL itself subsequently adopted Mr Townley’s recollection as a sound one and it featured as a piece of background fact in the letter before action that its solicitors sent to edge ellison on 18 June 2003. Mr Phillpotts did not dispute that there was such a discussion but could not give evidence either way about it. Subject to the qualifications advanced by Mr Sheepshanks in his evidence, to which I shall come, no-one challenged Mr Townley’s recollection that there had been such a discussion, although I record that Mr Alderson’s evidence was that he did not believe that there had because he said that, if there had, he would have made a note: he was, however, of the view that the Committee took considerable comfort from the fact that the ONdigital venture was a joint venture between Carlton and Granada. Despite Mr Alderson’s evidence, I find that there was such a discussion, that it took place on 10 May 2000 and that Mr Townley’s recollection of it was correct.

112. Mr Hearn gave evidence which I find was also corroborative of Mr Townley’s recollection. He said that at some early date (which he could not identify) a Committee member (whom he could also not identify) asked Mr Phillpotts who ONdigital was, to which the answer was that its shareholders were Carlton and Granada. Mr Hearn, of course, already knew that. He also agreed that in 2000 he also knew that Carlton and Granada had made large investments in ONdigital and had the strongest possible reason not to allow ONdigital to fail. He said in his witness statement that “I recall that the Commercial Committee also asked if ONdigital had the support of its shareholders and the answer to that question was also yes.” I find that this evidence was a reference to the same discussion at the Committee meeting held on 10 May 2000 of which Mr Townley gave evidence, but that Mr Hearn was in error in recalling that the explanation about ONdigital was given by Mr Phillpotts rather than by Mr Townley: there is no suggestion that it happened on 6 March 2000, which was Mr Hearn’s previous Committee meeting; and his last meeting before that was on 20 December 1999. It also makes sense that the discussion took place immediately before the resumption of potentially important negotiations with ONdigital. That was the context in which the inquiry was raised.

113. In relating Mr Hearn’s evidence about the Committee meeting of 6 March 2000, I explained how he claims it was “obvious” to him that Mr Phillpotts and others would have been finding out about the financial solidity of potential bidders; and how security for ONdigital’s payment commitments (which he anyway expected to be honoured) was of particular importance to him. If that evidence is true, it is surprising that Mr Hearn does not also recollect a more concrete discussion on 10 May 2000 as to ONdigital’s reliability as a counterparty. One might have thought that - once the question of its identity had been raised by someone else at this meeting, and its relationship with Carlton and Granada had been explained: an explanation which told him nothing he did not know – he would have asked Mr Phillpotts if he was satisfied that the FLL could safely deal with it on a stand-alone basis or whether he thought that security in some form would be required. Mr Hearn’s evidence reflected that he had had his own good and bad experiences in the past with secured and unsecured deals; and his evidence is that from at least 6 March down to 7 June 2000 he was worried that ONdigital’s covenant for such large sums of money as were now being talked about ought to be secured (I will come to how he claims his worry evaporated on 7 June 2000). Yet he made no suggestion in his evidence that there was ever any such discussion. Mr Hearn claims that, until 7 June 2000, he was burdened with this particular concern, but the inference he apparently invites is that he chose to bear it all alone, never thinking it necessary, appropriate or wise to share it expressly with his fellow Committee members or with Mr Phillpotts. The Committee meeting on 10 May 2000 was the obvious occasion to do so but he did not.

114. I find that the reason he did not is because, contrary to his claimed continuing worry about the point, he was as satisfied as were the other Committee members as to ONdigital’s strength as a covenantor by the fact that it was backed by Carlton and Granada; and I find that he entertained no thought that its covenant would need to be secured. I have already related that he had no doubt that the FLL would be paid. I do not accept Mr Hearn’s evidence that, either at this or at any stage, he entertained any concern as to the need for a guarantee for ONdigital’s performance. If he had, it is incredible that he did not raise the matter for discussion at this meeting.

115. Mr Sheepshanks disagreed in cross-examination that he had ever been satisfied about ONdigital’s financial solidity because of the identity of its shareholders, although he conceded that the Committee did take “some comfort during the earlier stages that they [ONdigital] were part of the ITV family.” I find that this concession was probably a reference to the ONdigital presentation to the Committee on 11 February 2000, when (amongst other things) ONdigital emphasised its connection to the ITV family. I record, however, that Mr Sheepshanks accepted that he was probably shown a draft of the letter before action that was sent out on 18 June 2003 (which referred in terms to the discussion of 10 May 2000 and the part it played in satisfying the Committee as to ONdigital’s strength) yet he expressed no disagreement with its content. Why not? He did, however, add that he did not believe that the Committee “at any time took comfort – took ultimate comfort from the fact that they were the shareholders, in the sense that there would not ultimately be a requirement for security.” I find that the Committee never discussed the obtaining of security for ONdigital’s covenant, let alone resolved to ask for it, and I reject the gloss that Mr Sheepshanks put on the “satisfaction” that I find the Committee (including Mr Sheepshanks) derived from the discussion on 10 May 2000: I find that no-one ever said anything that justified it. If Mr Sheepshanks had recalled that the Committee had ever so much as mentioned the question of security for ONdigital’s covenant, that assertion would have been included in the letter of 18 June 2003: but it was not. As for Mr Sheepshanks’s own knowledge of ONdigital, he knew it was a subsidiary of Carlton and Granada, that they were large FTSE 100 companies, that they had “the major, major, influence on ITV,” that ONdigital was one of their flagship products, that they had sunk very large sums of money into it, and that ONdigital was likely to be dependent on them for funding. Whilst he did not recall knowing that they had given assurances in their latest accounts to continue to support ONdigital, he accepted it would have been in line with normal practice for them to do so. His evidence was also that, at least by March 2000, he considered that the Committee knew enough about all the interested broadcasters (including ONdigital) to be able to perform its functions; and that had it needed more information about any of them, it could have asked for it. Mr Sheepshanks agreed that no-one ever asked for more information about ONdigital, although he added that his own view was that “the final boilerplating of any arrangement would come at the end.” He said that “… the way in which the whole process was panning out, we had not arrived at the point where we felt it was necessary to consider the issue of security.” His evidence in his witness statement was that that time only arrived on 7 June 2000 – the very day, as it happens, when he stood down from the Committee. He does not suggest that anything had happened in the meantime to identify that as the time to raise the matter: his evidence in cross-examination was that his view throughout was that “we were going to have a secure deal, but my views had crystallised by the time we approached the deal, and I took the view again that Richard Alderson was going to boilerplate any deal. We were concerned to deliver a deal that was absolutely secure for all the Football League clubs as a committee.”

116. Mr Fenwick submitted that the recorded “satisfaction” resulting from the discussion on 10 May 2000 went to no more than that the Committee was satisfied that ONdigital was part of a corporate group that was overall of manifest financial solidity: it was not reflecting any acknowledgment by the Committee that it could, without more, deal with ONdigital alone and on an unsecured basis. He said the correct inference was that it was still an open question as to how the comfort derived from this discussion would be tied into any contract; and it was part of his submission that there was at this stage still tacitly an open question as to which company in the group would be the contracting counterparty.

117. I find that there is no warrant for that suggested gloss on this discussion and I reject it. It had been obvious since the earlier presentations that ONdigital and it alone was the proposing counterparty and Mr Phillpotts and the Committee knew that perfectly well. That is why the status of ONdigital was raised at this meeting: and it makes sense that it was probably Mr Heard who raised it, since the others already knew who ONdigital was and who its parents were. The two draft agreements that were to emerge on the afternoon of 10 May 2000 were with ONdigital alone and the FLL negotiating team also knew that. None of Mr Phillpotts or the Committee members once suggested that any other group company might be the contracting counterparty, or that any such company might be a guarantor. I find that the sense of the meeting was that Mr Phillpotts and the Committee were content to deal with ONdigital as the contracting counterparty. If they had wanted to know more about it, they would have raised it. Neither Mr Phillpotts nor any Committee member ever once suggested that he needed to know any more.

(c)The return to the Montcalm Hotel

118. Following these events at Connaught Place, Mr Phillpotts and Mr Townley bent their steps back towards the Montcalm Hotel, arriving there at about mid-afternoon. They were accompanied by Mr Alderson and Mr Sheepshanks. Mr Sheepshanks said in his evidence that he only arrived later and was, overall, apparently keen to minimise the role he played at this meeting. It is apparent from other evidence that he played a major role in it and I do not accept that he arrived later, which is against the weight of the evidence. I do, however, find that Mr Murray and Mr Rubery only joined the party later. The strength of the FLL attendance reflected the degree of the Committee’s interest in ONdigital’s overtures. Mr Hearn volunteered in evidence that, had he not had another commitment, he thought he would have gone as well. He agreed that the matter was sufficiently important for all members of the Committee who could do so to attend the negotiations; and Mr Sheepshanks also agreed that Mr Hearn and Mr Heard would have been there if they could. Mr Hearn accepted that the proposed negotiation could result in a deal. In cross-examination, he said he did not tell the FLL negotiators that they should make sure any deal with ONdigital was secured. He had no immediate answer to the question why not, but he then said that, with this amount of money on offer, “I would have thought it was pretty obvious anyway…. This is basic in the industry, basic in our business.” He was apparently also relying on the fact that Messrs Phillpotts, Townley and Alderson were on the team handling the negotiations - another “not my responsibility” point.

119. Mr Hearn was wrong that the obtaining of guarantees was “basic”. The FLL’s deals with Sky in 1995 and 2002 were not secured, and Mr Hearn then rightly accepted that every deal has to be assessed on its merits. He later added to his answer by saying that anyway no deal was going to be signed there and then. He said that raising the question of the need for security was “for another time and another place.” That statement, with just a touch of déjà vu about it, contradicted his evidence in his witness statement that the question of the need for security was a basic part of the transaction and “ONdigital and Carlton and Granada would need to know that sooner rather than later.” In cross-examination, he then re-affirmed the latter statement and (as I understood his imprecise evidence) said that the matter of security was something that should have been raised at the outset. That being his ultimate position, albeit only after a degree of vacillation, it might therefore be thought that he would have regarded it as important to stiffen the sinews of the negotiating team on the security front before they set off for the Montcalm Hotel: particularly because, as only an occasional Committee attendee, he also knew at the time that he might not be able to attend the next Committee meeting, fixed for 18 May 2000 (which he did not attend). He did not, however, regard that as a concern as regards the question of security because “this was so basic that I do not believe in my mind I had doubts that everyone who was representing the Football League at that time knew the importance and would get the necessary guarantees. …if you had asked me at that time, do I think this contract will be guaranteed, I would have said without question yes.” He made clear that he was there referring only to the FLL’s team of advisers, namely Messrs Phillpotts, Townley and Alderson. He did not attribute his claimed understanding to the other Committee members: presumably because he did not regard it as their responsibility.

120. Back to the Montcalm Hotel. ONdigital’s numbers were supplemented by the presence of Robert Fyfe, a director, who had not attended the morning meeting. He led the negotiations on ONdigital’s side and made a full note of the course of events over 10 and 11 May 2000. His note is in the documents and it was agreed I can regard it as evidence, giving it such weight as I think fit: Mr Fyfe did not give evidence. I have no reason not to regard it as a reliable account. He had (so far as I know) no axe to grind when making it.

121. Mr Fyfe recorded that he opened the proceedings by saying that ONdigital wanted to conclude a deal as a matter of urgency: it had other bids pending, which would be influenced by whatever ONdigital invested in an FLL deal. Mr Phillpotts recalled this (so did Mr Murray – and also Mr Sheepshanks, which shows he was there at the beginning) and he interpreted the statement as a reference to ONdigital’s current overtures to the FA and the Premier League; he accepted that the FLL was similarly interested in signing a deal with ONdigital if acceptable terms could be negotiated.

122. ONdigital tabled a draft short form licence agreement. Mr Phillpotts’s evidence was that he did not realise at the time that it was a draft for such an agreement, but he came to appreciate that over the next two days. I find he was familiar at this time with the practice under which sporting rights agreements of the type the FLL was seeking to negotiate were normally first signed in short form, containing the essential terms; and that such agreements would normally contain an agreement to agree a long form contract; but that in the world of football and other sporting rights it had been quite common (but was becoming less so) for long form agreements not to be entered into.

123. The 14-clause draft agreement bore the date 10 May 2000. It had been prepared in advance and (in clause 11) proposed a price of £210m over three years (£70m a year), with an advance payment of £31.5m on signing. One copy in evidence includes some amendments proposed by Mr Alderson; and another includes notes and proposed amendments made by Mr Phillpotts and Mr Townley. It is not necessary to detail the points they made. They related mainly to the commercial issues arising out of the draft, which Mr Phillpotts assumed he would also have discussed with the other FLL representatives. I find they were also discussed with the ONdigital representatives. Despite an initial reluctance in cross-examination to agree with Mr Fyfe’s note that both sides proceeded to work through the draft point by point, Mr Phillpotts eventually accepted that they did; and I find that he knew that what they were working through was a draft short form agreement. Mr Sheepshanks was also keen initially to say the FLL representatives did not go through the draft, but it is obvious they did. Mr Townley also confirmed it. Mr Alderson said in his statement that, because the negotiations with ONdigital were “effectively put on hold by the Sky matching rights issue, the terms of this document were not discussed.” That evidence is, I find, wrong, as is shown by the documents (including the production at the meeting of an amended, second draft agreement) and the evidence of others.

124. There was a fruitful inter-party discussion of the first draft. ONdigital raised its offer to £74m a year (with an annual RPI uplift), plus a £4m annual spend on promoting the Football League and its matches (a budget for expenditure of this nature was one of the items raised in the pre-tender document); a 60/40 pay-per-view split; and a £31.5m advance payment on signing the short form agreement. The FLL representatives retired to give the revised offer private consideration. They then returned to the negotiating table where Mr Sheepshanks raised five issues of principle, including price. The parties dealt first with the issues other than price.

125. One issue related to the question of interactivity and internet rights. Mr Fyfe recorded, and I find, that both sides reached agreement that this matter could be left until after the signing of the short form agreement: it would be for the long form agreement. Another related to the need to have ITV as a signatory (it was to have free-to-air rights for part of the rights). That was resolved by an agreement that ONdigital would have 60 days in which to procure ITV to become a party to the agreement. Another related to the coverage ONdigital would be giving the Football League, on which Mr Phillpotts agreed agreement was reached. Finally, Mr Sheepshanks raised the matching rights clause in the Sky licence. The remainder of the negotiations on 10 May 2000 was largely devoted to a discussion of the problem it posed, which was the one matter upon which agreement was not reached during the meeting.

126. The inference from the documents is that, before the question of price was discussed, a second draft agreement was produced by ONdigital, which had a word processor and printer at the hotel. The second, 21-clause, draft was again dated 10 May 2000 and the signature clause had now been amended to refer to Mr Fyfe as the proposed signatory for ONdigital (the first draft had referred to Stuart Prebble, who was not present). I interpret this change as suggesting that ONdigital had ambitions of a prompt signing, an inference confirmed by clause 20 (which I infer was put in by ONdigital), which provided that the agreement was to be binding subject to the approval of the ONdigital board and the FLL, but that it should cease to be binding if that approval was not obtained by 1.00 pm on 11 May 2000. The draft incorporated the amendments proposed by the FLL representatives. Clause 18 dealt with the matching rights clause. The proposal was that, were Sky to exercise its matching right, the FLL should take all reasonable steps to have the clause declared void or unenforceable. If it failed, and Sky exercised its right, that was not to be regarded as putting the FLL in breach of the agreement with ONdigital; and ONdigital was to be relieved from further payment obligations and to be entitled to recover any payments made. Clause 18 did not reflect a term which had been agreed in principle. Mr Sheepshanks in particular expressed concern as to whether the FLL Board would agree with this way of dealing with the problem; and Mr Townley also recalled “us not liking this particular clause.”

127. The price clause (now clause 15) still referred to the price as being £210m over three years (even though in the meantime ONdigital had raised its offer to £74m a year) and so the inference is that the agreement on price, which was also reached at this meeting, followed the creation of this draft. The outcome of the discussion as regards price was that ONdigital increased its offer to £75m a year, plus an annual RPI uplift (but with payments in any year capped at £80m), plus the annual marketing support spend. Mr Fyfe’s note records that the £75m figure was Mr Sheepshanks’s counter-offer, with which Mr Phillpotts was not prepared to agree. He suggested that ONdigital may just have increased its own £74m offer. That is improbable, it is inconsistent with Mr Fyfe’s note, Mr Sheepshanks admitted that the £75m figure came from him and Mr Murray confirmed it. Mr Phillpotts said that, even so, the figure would have to be discussed by the Committee. This was yet another reflection of his apparent anxiety during his evidence to deflect any suggestion that the FLL was a positive and willing participant in these negotiations or that the negotiations were steering towards anything close to finality. It was also somewhat unrealistic since most of the Committee were at the meeting. Assuming, though, that agreement could be reached in principle on all aspects, it is correct that it would be for the Committee formally to consider the proposed deal and either make (or not make) a recommendation to the Board as to whether or not to close with ONdigital. The FLL representatives at the hotel had no authority to close with ONdigital there and then. But they also knew that there was to be an FLL Board meeting the following day.

128. I find there was no discussion at the meeting about negotiating an exclusive period for further negotiation. No witness suggested that a lockout period was discussed, Mr Townley and Mr Phillpotts accepted that it was not, Mr Murray acknowledged in his oral evidence that the matter had got beyond that, and Mr Townley also agreed that “we were in a very advanced state of negotiations that evening.” As follows, no suggestion was made at the meeting that ONdigital should pay a non-refundable deposit as consideration for the opening of an exclusive negotiating window. Mr Phillpotts abjured the suggestion in cross-examination that the talks were going so well that it seemed unlikely that there would be any need for such a deposit: his preferred stance was that the negotiators had been given a discretion on the point and had decided not to raise it. I do not accept that. I find that the negotiations were steering rapidly towards agreement in principle on nearly all issues and that the view was tacitly taken that neither a lockout negotiating period nor a non-refundable deposit by way of consideration for it needed to be added to the afternoon’s business.

129. The revised draft agreement was the subject of private consideration by the FLL representatives. A copy in evidence includes Mr Townley’s comments, going to drafting points and commercial issues. Mr Phillpotts confirmed that the FLL team (including Mr Alderson) went through it together. In his witness statement Mr Phillpotts said he could not recall Mr Alderson advising on its terms, but in cross-examination he accepted that Mr Alderson was part of the FLL team that went through the draft, which is what one would expect. He agreed that the parties were discussing the terms of a short form agreement. He agreed that both sides were reckoning on a deal being made within a very short time: he said that ONdigital may have had 24 hours in mind and that the FLL might have hoped to sign within a week. He agreed they were discussing what he called “relatively high level” issues at this meeting. He agreed that a request for security from ONdigital’s parent companies was a high level matter. He agreed that no request for security was made.

130. It was put to Mr Phillpotts that, given that he regarded security as a high level matter, this was the meeting at which, if it was to be raised at all, the FLL should have been raised it. His answer was no. The essence of his explanation was that it would only become a high level matter which needed to be raised once agreement had been reached in principle on all the other commercial elements of any deal. It has of course been known since the Book of Ecclesiastes that to every thing there is a season, and a time to every purpose under the heaven; but Mr Phillpotts’s stance (in line with at least some of Mr Hearn’s inconsistent evidence, with that of Mr Sheepshanks and also with that of Mr Murray) was that 10 May 2000 at the Montcalm Hotel was neither the season nor the time for raising the admittedly high level matter of security. His further explanation, which I do not accept, was that all that the FLL representatives were dealing with on that occasion was some of the high level issues. He accepted, however, that there would have been no negotiating sense in deferring the question of security to a subsequent date and then springing it on ONdigital. Given that concession and the fact that it is plain that the parties were discussing all the other commercial issues on 10 May 2000, I can find no rational basis for Mr Phillpotts’s offered explanation as to why, if security was to be raised at all, it was not raised then. It was no part of his evidence that security was something that the Committee had not thought about. His evidence was that it simply did not need to be raised then.

131. I regard that stance, if genuinely held, as surprising from a commercial viewpoint. The giving of security was not a mere formality. It would have the potential to expose Carlton and/or Granada to contingent liabilities for a nine-figure sum and was a matter which would in all probability require decisions of their respective boards, which would be likely to take several days. It was also by no means a given that guarantees would be agreed. It was also possible that, if any deal were to be so secured, it might only be on terms that the price payable by ONdigital was to be reduced; or that any guarantees would only be for ONdigital’s liabilities up to a given limit. These were the matters which a request for guarantees would, or might, give rise to; and they might need to be the subject of negotiation and take time to be resolved. It is obvious that, if the matter of guarantees was ever to be raised, 10 May 2000 was the time to raise it. It would also have been convenient because ONdigital was in direct contact with Carlton and Granada as to how much it could offer for the rights: it plainly had only a limited authority as to what it could agree with the FLL.

132. The thrust of Mr Sheepshanks’s evidence about this meeting was to distance himself as much as possible from what was obviously going on; in particular, he disclaimed participation in the negotiation of the terms of the draft agreement and suggested he was only present for a short time. That is not the picture painted in Mr Fyfe’s note, which conveys that he was at the heart of the discussions, and I find he was, which is what I would expect of the Committee’s Chairman. Mr Sheepshanks was keen to convey that it was not just the matching rights clause that was the major obstacle, but that other issues were also not resolved – but he could not identify any. Like Mr Phillpotts, he was also keen to deflect any suggestion that the FLL regarded itself as, at this point, a willing contracting party, let alone as being close to agreement. He said he was “extremely unhappy” to sign any binding agreement because he felt he was being pushed into it. He did not, however, suggest that Mr Alderson had given any indication that he needed more time to consider, from a lawyer’s point of view, the terms of the agreement that was being negotiated. In his witness statement he said that he “attended the meeting feeling comfortable that Richard Alderson was dealing with all contractual aspects of the deal.” That is a travesty of what was happening. Mr Alderson was there as the lawyer, because his skills as such might be, and in fact were, required in connection with the drafting of any agreement; but “the deal” was being negotiated by others, including Mr Sheepshanks.

133. Mr Sheepshanks also said in his witness statement that he did not expect a binding agreement to be reached that day, but that “Successful negotiations would lead to a lock-out period and further detailed agreement of terms with a thorough review by edge ellison.” As regards the first point, it is obvious that no unconditional binding agreement was going to be signed on 10 May 2000, and no one has suggested otherwise: as Chairman of the Committee, Mr Sheepshanks might have been expected to understand that Board approval of any deal was a pre-requisite, and it was not going to be obtained that day. As regards the second point I say two things. First, whilst the Committee team may well have gone to the Montcalm Hotel expecting a lockout period to be negotiated if things went well, I have found that the FLL team shelved the thought that there was any need for the negotiation of a lockout period. Secondly, the theme silently underlying Mr Sheepshanks’s point is the familiar one that the question of security was not a matter for negotiation with ONdigital by the Committee or its members: it was exclusively a matter for Mr Alderson as part of the leisurely “boilerplating” exercise of which Mr Sheepshanks made regular mention. Mr Sheepshanks’s apparent view that the giving by parent companies of guarantees for liabilities running potentially to hundreds of millions of pounds was a mere matter of lawyer’s “boilerplating” reflects, if a truthful view, a surprising one, for reasons already given. If guarantees were to be sought from Carlton and Granada, the evening of 10 May 2000 was the time to ask for them. If the Committee did genuinely want such security, there was no reason not to raise the matter then.

134. It is clear, and I find, that at no point during the meeting was anything said about security. When asked if he agreed with that, Mr Sheepshanks said he could not say whether or not the matter was raised. That was a disingenuous answer. He knows it was not. He acknowledged that “it was not necessarily premature” to raise such a question at this meeting if it was something the Committee wanted. He elaborated that by adding that it was not necessary to raise the matter at this meeting, but “it would have been necessary to raise it before anything was signed legally and binding”, an observation which might be regarded as a contribution of the obvious. He acknowledged that on 10 May 2000 the parties were getting close to a deal and his evidence was that he consciously had in mind the importance of obtaining security from ONdigital. But he adhered to the view that its negotiation was something that could be deferred indefinitely, even to the last minute when the agreement was on the point of signature. It was not something with which any FLL representatives had to trouble themselves. It was, for practical purposes, exclusively within Mr Alderson’s remit, although Mr Alderson had not been told that, not even whilst he was working through the draft short form agreements with the other FLL representatives. Mr Sheepshanks apparently preferred to work on the basis that instructions in this respect could and would be (perhaps were already being) conveyed to Mr Alderson by a process of telepathy.

135. The outcome of the meeting on 10 May 2000 was, I find, that the parties had reached agreement in principle on price and on all bar one of the commercial terms. They had progressed the preparation of a draft short form agreement to the stage of a second draft, clause 17 of which provided for a best endeavours effort to agree a long form agreement within 30 days of signing, although it was still not yet in anything approaching final form (in particular, the price clause lagged behind the parties’ agreement) and would need some fine tuning. I find, however, that by the end of proceedings on 10 May 2000, there was still concern by the FLL as to how to deal with the matching rights clause and agreement had not yet been reached on that. Mr Fyfe’s note records practical suggestions from Mr Murray and Mr Rubery as to how the problem might be dealt with: Mr Murray’s suggestion was that the agreement could include elements like ITV regional coverage that Sky could not match. The result was that both sides agreed to adjourn for the evening to consider their respective positions and to resume the negotiations the following morning, which is what they did.

136. Although I find that this was the position by the end of 10 May 2000, I add that Mr Murray was also not prepared to accept that the point had been reached (or nearly reached) when the Committee would have to make a decision on whether to recommend the deal to the Board. His position was that there were still too many unanswered questions. But the only one he identified was the question of security for ONdigital’s obligation. He was right that that question had not been answered. That is because it had not been asked. He said he did not raise it because “at this moment in time I did not think this was the final agreement.” This was the evidence of the same Mr Murray who considered that important terms should not be sprung on broadcasters at the last moment.

137. “Now might I do it pat, …” said Hamlet as he came upon the King at prayer. But he did not, and his irresolution and delay have spawned countless pages of scholarly explanation. What is not in doubt is that the “it” that Hamlet was entertaining was murder (we were watching and he told us). Beyond their own self-serving assertions – of matters unshared with anyone at the time - there is no evidence that during the meeting of 10 May 2000 either Mr Phillpotts or any Committee member present entertained the thought that guarantees for ONdigital’s commitment might or would be sought. If any of them in fact did so, there is no rational explanation for their view that the matter of security could and should be put off. A key question is whether Mr Phillpotts, Mr Sheepshanks and Mr Murray ever had the point in mind at all.

The events of 11 May 2000: the morning

138. The following morning the negotiations resumed at ONdigital’s offices in Marco Polo House, Battersea. ONdigital was represented by the same team, plus Marcus Ezekiel (another in-house lawyer). The FLL was represented by Mr Phillpotts, Mr Townley and Mr Alderson. Mr Rubery was expected to attend but did not. This appears to have been a consequence of his misfortune the night before in finding himself locked out of his flat as a result of the keys not being where they should have been, following which he had a long search for hotel accommodation. He made up for his absence by faxing a three-page letter to Mr Alderson (copied to Messrs Phillpotts and Sheepshanks) at ONdigital’s offices. He summed up the ONdigital deal as being an £80m a year one (the amount at which ONdigital’s annual cash outflow was to be capped), which he said he had informally mentioned to NTL (which he should not have done), whose response was that it could not match it. His view was that the FLL “should most definitely NOT lose the initiative with oN Digital [sic]”. He proposed a signing with ONdigital on the basis that it would get the rights unless Sky matched its terms. He made comments about seven clauses in the second draft agreement, of which he had retained a copy, adding that “I really do believe it is too good a deal to miss!!” The inference is that, subject to sorting out the matching rights question and the other points he had raised he regarded a deal as there to be had and taken. His apparent enthusiasm for the FLL’s arrival at the edge of what he regarded as a famous deal is to be contrasted with the voices of gloom, reluctance and caution with which in their evidence (so I find) Mr Phillpotts, Mr Sheepshanks and Mr Murray played down the events at the Montcalm Hotel.

139. Reverting to the discussions at Marco Polo House, Mr Fyfe’s note records that the parties reached agreement on the details of the price. It recorded that it was to be £75m in year one, plus RPI indexing in years two and three; there was to be an upfront payment of £31.5m, with £3.15m payable on the signing of the short form agreement and the balance on the signing of the long form agreement (his note does not mention the £80m cap, which also did not appear in the third version of the draft agreement, to which I shall come, and so it looks as if that had gone); there was to be a £2m marketing support spend in year one; and there was to be a 60/40 pay-per-view revenue split. His note suggests that agreement had been reached on coverage and on the disposal of the interactive and internet elements, and I find it had. It appears that Mr Fyfe’s figure of £2m for advertising may perhaps have been a mistake: Mr Townley recalled an agreed reduction of that figure from £4m (agreed the night before) to £2.8m, a figure supported by a note made by Mr Alderson. But I need not take time on this: no-one suggested that agreement had not been reached on the amount of the advertising spend, whatever the figure was.

140. Mr Phillpotts agreed in cross-examination that Mr Fyfe’s account in his note was an accurate record of what happened. Whilst, however, he accepted that agreement had been reached on the timing for the payment of the £31.5m, he said it had not yet been reached on when the annual payments would be made. He was reminded of clause 15 of the second draft, which showed that the £31.5m was to be paid on the signing of the short form agreement, and that the balance of the whole three year sum was to be spread equally over the three year term, with each tranche being payable in advance on 1 August. He appeared to accept that that answered his point, although it did not. By 11 May 2000, the £31.5m was to be paid in the two tranches I have mentioned; and if (as was foreseeable) no long form agreement was signed, there would need to be a provision as to when the second tranche was to be paid. Mr Phillpotts was therefore right, if not for the reasons he gave, that the draftsmen needed to focus more precisely on the payment arrangements. In fact, they did not.

141. Mr Fyfe’s note recorded that most of the rest of the discussion related to the matching rights problem. Mr Phillpotts agreed with that and so did Mr Townley: he said it was the major item discussed. A further document in evidence is a copy of the second draft short form agreement that had been produced on 10 May 2000, bearing notes and proposed amendments made by Mr Alderson, which I find he made either overnight or during the morning. The result of the morning’s discussion was that a third draft short form agreement was produced by ONdigital. It was dated 11 May 2000. It provided for the parties’ respective signatories to be Mr Fyfe and Mr Sheepshanks. It reflected some (but not all) of the amendments proposed in Mr Alderson’s notes, and Mr Phillpotts agreed that they had first been discussed with the ONdigital team.

142. Clause 16 of the new draft was the payment clause: it reflected the terms summarised in Mr Fyfe’s note, making clear that the balance of the payments after the upfront payments were to be made on 1 August in each year, but it made no provision as to when the balance of the upfront payment was to be paid if no long form agreement was signed (and even though clause 18 expressly contemplated that it might not). Neither clause 16 nor any other clause made provision for the marketing support obligation mentioned in Mr Fyfe’s note. Clause 19 contained a more elaborate proposal for dealing with the matching rights clause than had the second draft, but it was similar.

143. I find that by the end of that meeting, as Mr Townley confirmed, agreement in principle had been reached on all issues apart from the question of the matching rights clause.

The events of 11 May 2000: the afternoon (part one)

144. The meeting with ONdigital lasted until 1.15 pm, when the FLL trio returned to Connaught Place to report to the FLL Board, which was holding a meeting. Mr Fyfe’s note recorded that Mr Phillpotts’s and Mr Townley’s mission was:

“… to take the ONdigital ‘bottom line’ position on Matching Rights to the [FLL] Board meeting that afternoon. The ONdigital position was that both ONdigital and the Football League would commit to using all means available to them to defend any claim from Sky relating to matching rights through until Jan 31, 2001. If the situation was still unresolved by that stage either party could exit the agreement.”

145. Mr Phillpotts agreed that note summarised what he and the others were going to do. He disagreed that the purpose of the return visit to Connaught Place was to tell the Board about the rest of the offer too. If that means he did not intend to inform the Board of all the other terms that had been agreed in principle, I do not accept it. It is obvious he would. There would be no point in getting the Board’s views on the matching rights problem if it did not also approve the deal in principle: the parties had reached the end of the line on all other terms. The obvious reason why the matter was being brought before the Board was to obtain a decision on it as to whether a deal could be concluded with ONdigital.

146. Despite that obviousness, Mr Phillpotts was keen at every point in his oral evidence to distance himself from the suggestion that the parties had come close to agreement. His evidence appeared to be directed at painting a picture of the FLL being reluctantly dragged to the altar of agreement and as not itself perceiving the discussions to be nearing finality but as regarding anything ostensibly approaching agreement as simply marking the prelude to a leisurely exchange of drafts between lawyers – when the topic of security could be raised, one upon which the FLL’s apparent position was that there was no need for anyone ever to mention it to anyone. The continuing, but implied, theme of Mr Phillpotts’s evidence was the undisguisedly defensive one that he and the Committee simply never got to the point where they needed to raise the matter of security. That topic was never one for them today; it was always one for Mr Alderson tomorrow. To the question in cross-examination as to what topics, matching rights apart, had still not been agreed with ONdigital by 1.15 pm on 11 May 2000, Mr Phillpotts said he could not recall. The reason he could not is because by then all the terms had been agreed in principle. The only outstanding issue was the matching rights problem; and that is why, at that point in the story, the FLL negotiators returned to headquarters. The difficulty raised by the matching rights problem was that the deal proposed with ONdigital effectively meant that, unless compelled to do so, the FLL would not honour its obligations to Sky under that clause. Whether the FLL could and should espouse such a course raised not just a legal issue, but also an important moral one, and that is why the matter had to be considered at Board level.

147. Mr Phillpotts, Mr Townley and Mr Alderson arrived back at Connaught Place at about 2.00 pm, where they joined the Board meeting which had been in session since about 9.30 am. The meeting was chaired by Mr Middleton. Mr Sheepshanks, Mr Heard and Mr Hearn were present. So was Mr Bowler: he was not a member of the Committee, but later joined it on 7 June 2000. He gave some evidence about controversial matters that may or may not have happened and I should first explain his understanding of the general position by 11 May 2000. As a Board member, he knew about the proposal to grant a licence of the television rights. By March 2000 he knew that ONdigital had made a presentation and that it was a relatively new Carlton/Granada joint venture company, which was seen as an important vehicle for their expansion into the digital television market. He knew nothing of ONdigital’s financial circumstances and he asserted in his witness statement that he had not by then formed any view (nor did he ever) that ONdigital “was itself good for the money it would have to pay for the TV rights.” He said that had the issue of “broadcaster viability” been raised with the Board at, say, the Board meeting on 9 March 2000, the Board would have investigated it, but no such issue was or had been raised and nothing provoked him to raise the point himself with Mr Phillpotts or the Committee. He agreed in cross-examination that he knew, however, that Carlton and Granada were financially very substantial companies, were for practical purposes the two companies behind ITV and that they had sunk hundreds of millions of pounds into creating a countrywide digital transmission network. He also regarded it as “extraordinarily unlikely” that Carlton and Granada would allow ONdigital to go bust and write off their massive investment. That is one of the few pieces of evidence given by Mr Bowler that I find to be reliable, and I have no doubt that that assessment had been implicitly shared by the Committee members when they expressed their satisfaction about ONditigal at the meeting the day before.

148. Reverting to the Board meeting, Mr Alderson’s note records that Mr Townley outlined “the terms” and that Mr Phillpotts outlined “the packages” on offer. Mr Townley thought that he would only have focused on the price and scheduling that was being offered, although Mr Phillpotts thought that Mr Townley explained all the essential terms: and Mr Townley accepted that there may have been an overlap in what the two of them respectively explained. Whoever explained what, I find that the essentials of the deal were outlined to Board (the minutes confirm that a detailed update of the current position was given). The latest draft short form agreement was not before the Board, but Mr Phillpotts agreed that the Board was interested not in the detail but in the basic commercial terms. Mr Hearn confirmed that it was obvious to him and (so he thought) to the rest of the Board that they all understood that ONdigital had made its offer with a view to a deal being signed before the rights went out to tender.

149. The Board discussed its merits. I find that it was aware that ONdigital’s wish was to achieve an early deal, without the rights being put out to tender; and that it was also aware that ONdigital did not want its bid to be revealed to Sky so that Sky could match it (this finding includes Mr Bowler, although his evidence satisfied me that he now has virtually no recollection of any detail of what was actually happening at the time: he said, for example, in cross-examination that his then understanding was that there had anyway been no question of an imminent signing of any deal with ONdigital: even if all terms had been agreed in principle, the television rights were still going out to tender. He was alone, and wrong, in holding that view, and I found his evidence on most topics to be thoroughly unreliable).

150. Mr Sheepshanks’s notes identified several matters that were discussed. One was whether the price justified doing a deal early with ONdigital rather than putting the rights out to tender. Another was the matching rights problem. A third was the coverage ONdigital would provide. A fourth was whether the price was good enough in relation to what it was thought likely the Premier League would achieve for its own rights. A fifth was whether the deal would go down well with the public and the fans: the points there were whether the FLL could be criticised for going early; and whether the deal would make it more expensive for the fans to watch their teams on television. Mr Phillpotts agreed that those five topics were discussed, and Mr Sheepshanks agreed, a little reluctantly, that they were probably discussed. Mr Phillpotts could not recall that any other topics were discussed: and the Board minutes do not suggest otherwise. Subject to the matching rights problem, Mr Phillpotts said the Board was happy with the terms that had been negotiated so far; and Mr Sheepshanks said that, subject to the same point, the Board was “broadly happy” with them.

151. As for the matching rights problem, this raised both legal and moral issues. Mr Alderson explained to the Board how the ONdigital agreement could be tailored to minimise the risks that it presented to the FLL. But he was cut short in mid-explanation because the chairman, Mr Middleton – with the full support of the Board – took the view that, whatever the legal position might be, the FLL was under a moral obligation to honour the Sky licence agreement and so give Sky the opportunity to match any bid from ONdigital. The Board did not, therefore, want to go down the road of dealing with ONdigital and litigating the validity of the matching rights clause with Sky. Sky was the incumbent broadcaster and the FLL had a good relationship with it. Mr Hearn confirmed in cross-examination that the problem of the matching rights clause (on which he also took a firm view) was the only reason why the Board did not authorise the deal to be made. The Board’s view on this topic had the potential to bring the current ONdigital discussions to an abrupt halt, although I find (as I later explain) that its further view was that it would be prepared to deal with ONdigital on the terms proposed provided that a mechanism could be arrived at for enabling the FLL to honour the matching rights clause. As it seems to me, the only mechanism would be a deal with ONdigital conditional upon Sky not electing, or being able, to match it.

152. It is at this meeting – or perhaps at this meeting – that Mr Hearn is said to have made another remark to the effect that any deal with ONdigital would need to be secured, although the evidence about it is inconsistent. In particular, Mr Sheepshanks did not think that any such topic was raised at this meeting. Mr Townley had no recollection of it either. Mr Hearn’s evidence in chief was, however, that he thought that this was the second time he raised the matter, the first having been at the meeting of 6 March 2000. He said in cross-examination that he thought he raised the subject prior to the discussion about the matching rights clause and, in the light of the money that was being talked about, would have once again said something like “let’s make sure we get paid.” He rejected any suggestion that he either did say, or would have said, anything like “we must have parent company guarantees” or “we must have security.” He said he would only have made the general statement he did “because to my mind, even today, it [the need for guarantees] is so obvious as being without question of mention.” He said he was no stranger to financial terminology like security (he is a chartered accountant by qualification, although he said this was “probably by mistake”) but said he does not use that sort of language. He could not remember the actual occasion for his claimed intervention at this meeting, but said that a process of reconstruction had led him to the view that he did make some such point at this meeting. His evidence was that it took place in the boardroom and he believed that on this particular occasion coffee was available in that room, although on others it was sometimes only available in an adjoining anteroom (to the relevance of which I shall come).

153. Mr Phillpotts’s evidence in his witness statement is that he recalled Mr Hearn raising at a Board meeting the need for any deal with ONdigital to be secured. He could not recall when Mr Hearn did so but thought it was about this time and his evidence appeared to favour this meeting. If Mr Hearn did make any such statement at about this time, the 11 May 2000 meeting was the most likely candidate. That is because he was only an occasional visitor to Committee and Board meetings, and his attendance on 10 and 11 May 2000 was his first since that at the meeting of 6 March 2000. Mr Phillpotts did not recall anyone other than Mr Hearn ever making a like suggestion about the need for security.

154. Mr Phillpotts’s recollection is not that Mr Hearn actually said anything in terms to the effect that parent company guarantees would be needed to secure ONdigital’s covenant, or that he said anything at all about the need for some form of security. He said in his witness statement that:

“The comments were made by Barry Hearn in relative terms: that is, was ONdigital as good for the money as BSkyB [Sky]. I recall that I was standing behind Barry Hearn getting a cup of coffee when he was making those comments. I do not recall whether Richard Alderson was also at the meeting.”

155. As a statement which it is suggested was intended to convey that Mr Hearn’s view was that any deal with ONdigital would need to be secured by parent company guarantees, it was a little lame – particularly as it came, if from anyone, from a chartered accountant who might perhaps be expected to utter his thoughts on such a matter with more precision and who had had experience of guarantees in his own business dealings. Mr Phillpotts’s recollection of the making of this remark is anyway unreliable. Whilst I can understand that he could not remember the particular date when the remark was made, I would at least expect him to have some sort of mental picture of the occasion. The events of 10 and 11 May 2000 were something in the nature of a negotiating marathon, which (pace Mr Phillpotts) appear to have come close to achieving a deal with ONdigital and in which he and Mr Alderson played important roles: and, if the bringing of the good news to the Board on 11 May 2000 was the occasion of the Hearn remark, it is surprising that Mr Phillpotts’s mental picture of the scene (if indeed he has one) does not include a sighting of Mr Alderson. That lacuna in his memory does not fill me with confidence that he retains any clear recollection of the making of this remark. As Holmes said of Watson, Mr Phillpotts may have seen, but he did not observe.

156. His cross-examination on the topic served only to lower the confidence level. The evidence disclosed that the FLL Board and Committee meetings were usually held in the boardroom at Connaught Place, in which there was a large oval table capable of seating about 30, and adjoining which there were two rooms. It is agreed that coffee was available for those attending meetings, and Mr Phillpotts’s evidence, in line with Mr Hearn’s was that it was provided either in one of the adjoining rooms or else in the boardroom itself, at one end of the table. His claimed “clear recollection” of the occasion of the Hearn remark was that Mr Hearn was sitting at the boardroom table near the coffee, and that he was standing behind him getting some coffee. Having just explained that “clear recollection,” he then admitted that he did not know where the coffee was situated on that occasion: he did not even know whether he and Mr Hearn were in the boardroom at the time of the coffee/remark incident or in the adjoining room. Nor could he recall where Mr Alderson was, let alone whether he was in earshot of the Hearn remark (in his witness statement he could not recall whether he was there at all).

157. Mr Phillpotts nevertheless remained firm in his recollection of the remark that Mr Hearn had made. But although in his witness statement he suggested that Mr Hearn was there raising the need for any ONdigital covenant to be secured, in cross-examination he admitted that at the time he had not interpreted the remark as a request for parent company guarantees. He agreed that one interpretation of it was whether ONdigital had as much money as Sky did, but also suggested that Mr Hearn could have been asking whether ONdigital had the wherewithal to honour its covenant. He said he understood the remark to convey both senses. He was asked whether Mr Hearn made his remark before or after the Board had agreed that the FLL should honour the matching rights clause. He could not remember whether he had made it before or after that decision, although given that the Board’s decision was likely (if not certain) to put an end to the signing of any immediate deal with ONdigital, it is an improbable remark for Mr Hearn to have made afterwards, as I understood Mr Phillpotts to recognise.

158. As to whether Mr Hearn’s question was answered by anyone, Mr Phillpotts was unable to recall either any answer or even whether it gave rise to any discussion. He said he did not regard the remark as particularly important. If Mr Phillpotts is correct in the attribution of such a remark to Mr Hearn, one wonders what Mr Hearn actually knew about Sky. Its most recent published accounts were those for the year ended 30 June 1999, signed on 1 December 1999. They showed a loss before taxation of £310.3m after exceptional items of £450m for transitioning analogue subscribers to a digital service. The balance sheet showed net current assets of £263.3m and overall net assets of £54.7m. Sky’s accounts for the year to 30 June 2000 were of course not yet drawn, the year not having yet ended, but when they were later signed off on 8 December 2000 they showed a materially worsening picture. The profit and loss account showed a loss before taxation of £134.9m after exceptional items, and the balance sheet showed net current liabilities of £82.3m and overall net liabilities of £80.1m. Note 24 to the accounts recorded that the directors of British Sky Broadcasting Group plc had confirmed they would continue to provide support to Sky to enable it to meet its liabilities as they fell due for the 12 months following the signing of the accounts. This was an approximate reflection of Sky’s financial position at the time Mr Phillpotts recalls Mr Hearn holding Sky up as the benchmark of financial solidity by reference to which the strength of ONdigital should be measured.

159. Mr Phillpotts’s acceptance that he did not regard Mr Hearn’s remark as important is borne out by the fact that he confirmed that nothing happened either at the Committee meeting on 10 May (when there was the discussion as to who was behind ONdigital giving rise to the Committee’s “satisfaction” as to ONdigital’s strength) or on 11 May to cause him to research ONdigital’s financial standing. On that topic there followed this exchange in Mr Phillpotts’s cross-examination:

“Q. That was presumably because if the subject of ONdigital’s financial standing was raised on either of these occasions – 10^th or 11^th May – the board was obviously satisfied about it as far as you could see and needed no further information?

A. Yes, they would have been aware of Carlton and Granada’s involvement and would have left it at that.

Q. If you had got the impression that the board or the commercial committee was not satisfied on the information that they had about the financial standing of ONdigital, you would have seen to it that they got more information, would you not?

A. Yes.

Q. The same would have been true whether the issue had been raised on the 10^th or the 11^th?

A. Yes. …

Q. Am I right in suggesting to you that nobody said to anybody who had been present at the negotiations with ONdigital: what arrangements have been made with them about security? Nobody asked a question of that sort?

A. No.”

160. Mr Bowler also made a contribution to the evidence as to what, if anything, Mr Hearn said at this meeting. He was not the FLL’s best witness. He said he had first been asked for his recollection as to the relevant events in 2005, and he appeared to favour the summer. He had, however, plainly provided some instructions at an earlier date because they were reflected in the FLL’s re-amended pleading served on 1 April 2005. That was the pleading which identified 10 May 2000 as the latest date on which an unidentifiable person had allegedly made comments about the need for security. But Mr Bowler’s witness statement of 29 October 2005 asserted that some such comments were made by Mr Hearn both on 11 May and 7 June 2000. The inference, therefore, is either (i) that Mr Bowler had not been asked for his recollections about this until after 1 April 2005 (which appears improbable: the FLL was by then doing its level best to plead a re-amended case which might enable it to nail Mr Alderson with the nearest it could get to a specific instruction on the need for security); or (ii) that he had been asked, but had at that stage forgotten, the alleged Hearn remarks, which by a miracle of memory only re-surfaced in his recollections several months later. I do not know which alternative is correct, since I do not know what passed between Mr Bowler and the FLL’s solicitors. I would, however, comment that Mr Bowler’s imprecise recall of even the relatively recent matter of when he was asked for his recollections about the events relevant to this case shows what a poor memory he has: and although he claimed to have read his witness statement recently, his cross-examination showed that by then aspects of it had already escaped his recollection: this case well illustrated what an artificial exercise the production of witness statements can be. His memory of what was actually going on in May 2000 has disappeared into a haze.

161. Mr Bowler’s poor memory was borne out by his claimed recollection of the events of the meeting on 11 May 2000. For example, he referred in his witness statement to “much discussion” at it about the written offer ONdigital had made on 5 May 2000. It is quite possible that there was some, perhaps much, discussion about that before the team from Marco Polo House arrived, and Mr Sumption asked Mr Bowler whether that was when it took place. Mr Bowler replied that it took place after the team had arrived. That is improbable. By then the offer of 5 May 2000 was a piece of superseded history, in which no-one could have had any continuing interest. In his witness statement Mr Bowler had also said the Board knew that the negotiating team was in secret talks with ONdigital and “the Board had waited with some anticipation for the negotiating team to join the meeting. When the negotiating team arrived the news was very exciting and it made each of the Board members sit up and take notice.” Yet in cross-examination he said initially (he later re-adopted what he had said in his witness statement) that he had been unaware during the morning that any negotiations were going on with ONdigital. As for what happened when the team joined the Board in the afternoon (bearing the exciting news that the Board had been awaiting “with some anticipation”), he said in cross-examination that the team brought the Board “up to date on where they were” and provided “a detailed account of what they had been discussing with ONdigital” but did not tell the Board what terms were on offer from ONdigital. He could not remember whether it was Mr Townley or Mr Phillpotts who did the talking. He could not remember whether ONdigital’s higher offer had been reported to the Board, although in his witness statement he had been “fairly sure” that the Board had been told that it had offered “£75 million or so per year.” The essence of his evidence was that all that the team reported was “the kind of figures that might be there, to give us a feel for how their negotiations were going forward.” His evidence that the details of the ONdigital offer were not explained to the Board is out of line with other evidence and is, I find, improbable and wrong.

162. Mr Bowler’s contribution to the issue about Mr Hearn’s alleged remarks was as follows. He thought, but was not sure, that the remarks were made after the discussion about the matching rights clause had, for practical purposes, brought the likelihood of any deal with ONdigital to a full stop. Despite that, he said Mr Hearn then forcibly expressed the view that the FLL “should get out there and take the money” (that is, the money that ONdigital had offered, even though it now appeared no deal was going to be done with it) and at the same time make sure the deal was secure. Mr Bowler disclaimed a recollection of Mr Hearn’s exact words, but said they were something along the lines of:

“We’ve a terrific deal; let’s get the deal done, but let’s make sure Ondigital have the cash and that we have safeguards regarding their financial strength.”

163. Mr Bowler said in his witness statement that that led to general Board agreement because Mr Hearn was held in high regard; and he said that “I understood” Mr Hearn’s comments to mean that parent company guarantees for ONdigital’s covenant should be obtained. I infer, therefore, that although Mr Hearn’s wise remarks apparently provoked general agreement (which must mean articulated responses from others), no-one thought it necessary to ask Mr Hearn what he actually meant: in particular, there is no suggestion in Mr Bowler’s witness statement that the subject of parent company guarantees was discussed. Mr Bowler added that he did not know if Mr Alderson was present when the Hearn remarks were made.

164. The first obviously odd thing about that evidence is that Mr Hearn could have thought it appropriate to make such a remark at a point in the meeting when, because of the matching rights clause problem, the deal with ONdigital was probably off. Mr Bowler does not appear to have appreciated that. The second odd thing about it is that, quite apart from the matching rights problem, Mr Bowler’s evidence was that anyway no deal with ONdigital was imminent at all: his own claimed recollection was that the television rights were going to be put out to tender. Why, then, was Mr Hearn apparently assuming that a deal with ONdigital was virtually done and dusted and urging the Board to get out there and sign it up? Judging the matter by reference to Mr Bowler’s own distorted recollection of what was happening, the remarks he attributes to Mr Hearn are nonsense. He must have wondered what he was talking about.

165. By the time of his cross-examination, Mr Bowler’s recollection of the aftermath of the Hearn remarks was even crisper. He said that parent company guarantees were actually mentioned at the meeting as being the necessary forms of security. If he really had recalled any such mention, it is obvious that it would have been included in his witness statement, but it is not. He then sought to explain that omission by saying that they were only mentioned “very quickly in passing, and I took it to understand that was what Mr Hearn was referring to.” So this all-important matter, of what is now claimed to have been of vital commercial importance, was glossed over so quickly, and “in passing”, that Mr Bowler had to do some quick thinking of his own in order to divine the full sense of what Mr Hearn was saying. But that explanation did not square well with his further explanation, which was that Mr Hearn’s forceful remarks had led to a debate by the Board, the sense of which was that the FLL had to have appropriate guarantees: and Mr Bowler said that “guarantees and financial security” were the words used. The upshot of his oral evidence was, therefore, that there was Board agreement (including from him) that guarantees for ONdigital’s covenant were required. Towards the end of his witness statement he had said, however, that had his instructions on the question of the need for parent company guarantees been sought, he would have wanted such guarantees or other sufficient security. But his oral evidence in cross-examination was to the effect that the Board had decided on 11 May (and in his presence) that appropriate guarantees would be required. Mr Bowler’s written and oral evidence was, overall, an essay in inconsistency and improbability. I do not believe a word of his evidence as to Mr Hearn’s alleged remarks at this meeting. Mr Hearn himself disclaims that he says anything of the sort that Mr Bowler attributes to him and specifically rejects the suggestion that he or anyone else suggested in terms that guarantees for ONdigital should be sought.

166. As to whether Mr Hearn made the different remark which Mr Phillpotts attributes to him on 11 May 2000, I find he did not. No one else supports it; and Mr Hearn disclaims making a remark in such terms. Mr Phillpotts’s recollection of the circumstances of the remark is confused, uncertain and unreliable. He plainly has no real mental image of the occasion when the remark (if any) was made. The making of any such remark on 11 May 2000 was disclaimed by the FLL’s re-amended pleading and Mr Phillpotts could not remember when his memory of it first surfaced. If (contrary to my finding) Mr Hearn did make any such remark, I find it was not addressed to the Board generally or made within Mr Alderson’s hearing; and that the sense of the remark was not one that conveyed to Mr Phillpotts that he needed to be considering ONdigital’s financial standing.

167. Finally, as to whether Mr Hearn made the remark he claims he may have made, I find on the probabilities that he did not. He only seems to have recalled it late in 2005. Nobody else recalls it. If, contrary to my finding, he did make it, no-one has remembered it and it is apparent that no-one regarded it as of any importance at the time or as calling for any action. No-one regarded it as a call for the need to consider whether any licensee’s covenant should be secured. I find that Mr Hearn has convinced himself that something happened which did not. I find that he neither said what he claims, nor even had the concern which he said prompted it. If he really had held such a concern, I have no doubt that he would have voiced it loud and clear. Mr Hearn is no shrinking violet.

The events of 11 May 2000: the afternoon (part two)

168. Following the Board’s decision at this meeting to honour the matching rights clause, Mr Sheepshanks, Mr Phillpotts, Mr Townley and Mr Alderson returned to Marco Polo house where the ONdigital negotiators still were. This was prompted in part by the fact that during the Board meeting ONdigital had telephoned Mr Sheepshanks with a complaint that there had been a leak about its proposals. It was further prompted by a wish to see if anything could be done to sort out the matching rights problem in a way that would satisfy the Board (presumably on terms conditional on Sky not being willing or able to match any bid from ONdigital). That is why Mr Alderson was there: there was a possibility that progress might be made and his drafting skills needed. Mr Fyfe’s note of the resumed meeting (which he said started at 4.00 pm) was that Mr Sheepshanks opened by saying that the Board had approved the deal apart from the proposal to deal with the matching rights problem: the Board regarded itself as owing Sky a moral obligation even though the legal advice was that the clause was unlikely to be enforceable. Mr Fyfe’s note continued:

“The [FLL] Board were be [sic] prepared to accept the ONdigital offer on the other terms outlined, if we could find a process for addressing the matching rights clause. David [Mr Sheepshanks] then left the meeting and wished us well in agreeing a process that we could both live with that would allow the agreement between the Football League and ONdigital to proceed.”

169. The reference to Mr Sheepshanks leaving the meeting was to his departure from Marco Polo house, leaving the matter in the hands of Mr Phillpotts, Mr Townley and Mr Alderson. Mr Phillpotts was not prepared to confirm that Mr Sheepshanks reflected the FLL position in the positive terms recorded by Mr Fyfe: he preferred to recall that Mr Sheepshanks “would have” said no more than that the Board liked the shape of the deal, but he disputed that Mr Sheepshanks “would have” said what Mr Fyfe attributed to him. I am not convinced by Mr Phillpotts’s reconstruction of what Mr Sheepshanks said, although it was consistent with his continuing reluctance to accept that (matching rights apart) final agreement had been reached in principle on all matters. I have no reason not to accept Mr Fyfe’s note as an accurate record of what Mr Sheepshanks said and I find it was. Mr Sheepshanks also declined to agree with Mr Fyfe’s choice of words, but conceded that he would have said something to the effect that there was broad agreement on the contract subject to the matching rights clause problem. He accepted that he wanted to keep the negotiations alive.

170. Further discussion followed but no agreement was reached. ONdigital withdrew its offer and made clear that it would not participate in any open bidding process if Sky’s matching rights clause was going to hang over it.

171. There was a debate by counsel as to whether, had the matching rights problem been resolved at the morning meeting on 11 May 2000 and the Board then approved the deal in principle, an agreement would have been signed up with ONdigital promptly afterwards. edge ellison’s case is that it would, whereas the FLL’s is that it would not: there would still have had to be a period of negotiation in order to finalise the terms of the deal. I am not convinced that it is of any particular relevance to identify which alternative is right. I favour the view, however, and find, that there would have been a period of concentrated drafting negotiation with ONdigital, with a deal being concluded either late on 11 May or, more probably, either on 12 or 13 May 2000. But I also find that, however long the negotiation might have taken, none of Mr Phillpotts or any of the Committee members would have asked for security. That is because, as I find, none of them had any thought that a transaction with ONdigital required security. ONdigital was, in their view, as solid a company as Sky, whose financial solidity they were similarly unconcerned to investigate. Their view was that they could safely deal with ONdigital alone, because it was backed by the two media giants Carlton and Granada, whose massive investment it represented and because it was inconceivable that they would not support it.

Stage three: the events from 12 May to 15 June 2000

172. The attempt to “go early” having failed, the Committee’s chosen plan was to put the television rights out to tender. On 26 May 2000 Mr Townley wrote to the interested broadcasters asking for sealed bids by 5 June 2000. On 31 May 2000 Sky waived its matching rights clause. On 1 June 2000 the Board authorised the Committee “to conclude negotiations on both the broadcasting and Internet deals.” I interpret that as a delegation by the Board to the Committee of the former’s authority to conclude any such deal so negotiated. On 2 June 2000 Mr Townley wrote to the broadcasters again, told them of Sky’s waiver and put the date for sealed bids back to 7 June 2000. On 6 June 2000 he wrote further to the broadcasters explaining that Mr Sheepshanks and Mr Murray would be taking no further part in the process (their clubs had been promoted to the Premier League); that Mr Bowler would be chairing the Committee on 7 June 2000; that the bids would be opened by Mr Bowler, Mr Phillpotts, Mr Townley and Mr Alderson; that they would be kept in safe custody by Mr Alderson; and that the bid values would not be disclosed to the Committee at the first stage but that Mr Phillpotts would report to the Committee and make a recommendation. The outcome would be reported to all bidders and might result in further negotiations with a short list of bidders or exclusive negotiations with a single bidder.

173. It is relevant to note that the broadcasters were not invited to bid for a prescribed package of rights: they were left to identify their own favoured package and state what they were prepared to bid for it. Their different bids would, therefore, need to be evaluated before a recommendation could be made. Mr Phillpotts was keen to suggest in his evidence that Mr Alderson was expected to play a part in that exercise, but I do not accept that. It is obvious, as Mr Phillpotts accepted, that he and Mr Townley would be the people primarily concerned with that task, which was one directed at evaluating the commercial merits of the different bids. In the event, it was Mr Townley alone who took the bids away for evaluation and who produced an analysis of them.

174. On 7 June 2000 ONdigital submitted its bid document to the Committee. It was one of several bids submitted but proved to be an important document.

The ONdigital bid document dated 7 June 2000

175. The ONdigital bid document was enclosed under cover of a letter of 7 June 2000 signed by Mr Stanley. It was headed on every page “Subject to Contract” and “Private and Confidential”. For the avoidance of any possible doubt (and there could be none), the Introduction repeated that it was “subject to contract.” The document described ONdigital as the world’s first and most successful company to launch a digital terrestrial service, delivering multi-channel television and interactive services into the home through an ordinary television aerial. It explained that ONdigital was a 50/50 subsidiary of Carlton and Granada. It referred to the December 1997 grant to ONdigital of its multiplex licence. It said ONdigital employed over 1,200 employees and had a UK subscriber base of more than 675,000, with a projection of 1m subscribers by the end of 2000 and 2m during 2002. It said ONdigital had acquired the rights for the UEFA Champions League Football in 1999. It continued:

“With its shareholders, Carlton Communications and Granada Media Group, ONdigital brings a heavy-weight presence in UK media. Granada and Carlton are both publicly listed companies, are in the FTSE 100, and are the two largest independent television broadcasters in the UK. Both Carlton and Granada possess other significant pay television assets including cable and satellite channels either wholly owned or in joint-ventures with other UK-based pay television broadcasters. Both also have invested heavily in new media and have significant internet investments. Granada is the largest ITV company with over 40 years experience in the UK of producing and broadcasting live sport and, in particular, football. Carlton owns Carlton 021 which has Europe’s largest OB fleet and has been a part of BSkyB’s coverage of the FA Premier League since 1992. Representing two thirds of the ITV network, Carlton and Granada possess unique access to ITV and its large terrestrial audience. ONdigital’s relationship with these companies at the highest level bring further unique cross promotional resource to the Bid.”

176. The document said that ONdigital was seeking a three-year contract commencing in July 2001. The bid was for all the FLL’s television rights. It explained the coverage proposed, which was to be via pay-television and pay- per-view, with the free-to-air terrestrial rights to be exploited through ONdigital’s partnership with ITV.

177. Page 8 included a section headed “Rights Fees and Payment”. The proposal was for a payment of £240m in total (£80m a year) for the rights. The payment schedule offered £36m as an upfront payment, of which £12m was to be paid on signing a short form agreement and the balance on signing a long form agreement; and £68m was to be paid in each of August 2001, 2002 and 2003. The FLL was to have 60% of the net pay-per-view revenue. Page 9 contained this provision, under the heading “Financial Arrangements”:

“ONdigital and its shareholders will guarantee all funding to the FL [Football League] outlined in this document.”

I will call this “the financial arrangements paragraph”. What is said about it is that, on one interpretation, ONdigital was saying that Carlton and Granada would guarantee its obligations. Another interpretation is that it was saying no more than that ONdigital had the commercial backing of its shareholders, which had pledged their financial support for it. Whichever interpretation was right, the paragraph was anyway a poor piece of drafting. In particular, the statement that ONdigital would “guarantee” the stated funding was meaningless. ONdigital was going to be on the contractual hook, because it was the proposing licensee and primary obligor: it could not “guarantee” its own obligations. As I shall explain, the evidence at the trial of the guarantee action was that ONdigital did not intend by this paragraph to convey more than that its bid had the commercial backing of its shareholders.

The Committee meeting of 7 June 2000

178. The meeting was attended by Messrs Sheepshanks, Ayre (alternate for Mr Rubery), Bowler, Hearn, Richards, Stott (alternate for Mr Heard), Phillpotts, Griffin, Alderson and Townley and Mrs Townley. Mr Bowler and Mr Richards were co-opted on to the Committee in place of Mr Sheepshanks and Mr Murray; and Mr Sheepshanks stepped down from the chair immediately before the discussion of the television rights, when Mr Bowler took the chair.

179. Mr Phillpotts reported that a number of sealed bids had been received (in fact seven: Freeserve plc, Channel 5, the BBC, Sky, yes television, Premium TV and ONdigital). The bidders were not required to provide multiple copies of their bids, but some did, including ONdigital. The Committee made it clear that it declined to accept the confidentiality terms that had been specified to broadcasters by Mr Townley’s letter of 2 June 2000, that is that the bid values would not be disclosed to them at this stage. Mr Hearn made the main running on this, saying he had signed a general confidentiality agreement which would prevent him from leaking anything beyond the confines of the boardroom; and the other Committee members had similarly signed such agreements. Mr Phillpotts responded that he would be unable to achieve any improvement on the bids if there was any breach of confidentiality; and Mr Townley said he would resign if there was any leak.

180. There was some dispute as to exactly what then happened, but I find that the outcome was that the Committee’s instructions were that Mr Townley was to open the bids in the presence only of those who were Board members (and so Mr Ayre, who was not, left the meeting) and to read out just the names of the bidders and the amounts of their respective bids. The Committee’s paramount focus was to know how much money was on offer: cash was, and had always been, the driver of the exercise. It would, I find, anyway have been impracticable for Mr Townley to read out the bids in full, which ran to lengths varying from about eight to 40 pages or more; and as they were not all proposing identical packages, an impromptu comparative summary analysis of them would also have been impossible. There was anyway no question of a final decision being made there and then: the bids first had to be analysed (a task that could not be done in committee and was carried out by Mr Townley over the following days) and a recommendation made; and the Committee’s further plan was that Mr Phillpotts and Mr Townley should then attempt to negotiate improvements to the bids.

181. Mr Phillpotts agreed that, following this instruction, Mr Townley opened the bids and read out the bidders’ names and the amounts of their respective bids. He could not remember if Mr Townley read out anything more, but accepted that it was possible he did not (in the guarantee action his evidence was that only the headline figures were read out). Mr Griffin’s evidence about this meeting was that he did not recall the bids being opened and did not believe that Mr Townley had read out the entirety of each bid document (and no-one suggested he did). He made no suggestion that any reference was made to the ONdigital financial arrangements paragraph. Mr Townley’s evidence in the guarantee action and (ultimately) in cross-examination in this one is that he only read out the headline figures. Mr Alderson’s evidence was to the same effect, as corroborated by his email to Mr Rubery of 12 June 2000 in which he said that he did not have much knowledge of the broadcast offers other than the headline figures. Whilst I have commented adversely on Mr Bowler’s evidence, he agreed in cross-examination that all that Mr Townley read out was the name of the bidder and the headline figure for its bid. In particular, he said he did not recall any discussion of the financial arrangements paragraph.

182. Mr Hearn was unable when he made his witness statement to remember whether it was Mr Phillpotts or Mr Townley who did the reading, and he was no surer when it came to his cross-examination. Despite this basic memory lapse, his evidence in chief was that the spokesman read out not just a summary of the bids, but also details of their respective bids such as price and programming. He said that, as each envelope was opened, this material was identified. He disagreed that all that was read out was the bidder and the headline figure. He agreed that the bids were to be taken away, analysed and reported on but did not accept that the Committee was not also told at that meeting of the price and programming offered by each bidder.

183. The highest unconditional bidder was Sky, as all those present understood. Its bid was £273m over three years. (Premium TV’s package A bid was approximately £8.4m a year, but it also indicated that, were it to win the main package of Premier League rights, it would be prepared to pay approximately £100m a year for the FLL rights. Whether that amounted to an alternative, and conditional, bid, does not matter: it at least amounted to a statement of Premium TV’s intentions in a particular uncertain event). Sky was the incumbent broadcaster, with whom the FLL had a good relationship. ONdigital’s bid was the second highest, at £240m, £33m lower. Mr Phillpotts agreed that, at that stage, Sky looked to be the likely winner in the bid for the television rights and I find that Sky was so regarded. But ONdigital was obviously still in the running; and Mr Townley also made it clear in his evidence that Premium TV was definitely not ruled out.

184. Although it might appear obvious that Sky was the likely front runner on 7 June 2000, the FLL’s evidence nevertheless still focused on what was (or was not) said about ONdigital’s bid. Mr Hearn said in his witness statement that Sky’s bid appeared to be “slightly” higher than ONdigital’s (not everyone would agree that a difference of £33m was slight), and that he considered that the endgame would reveal Sky as more interested in the Premier League rights and ONdigital more interested in the FLL rights. He said they again discussed the issue of “getting paid” by ONdigital and that:

“Either Mr Townley or Brian Phillpotts (I cannot remember who read out the details of each offer) referred to that part of the ONdigital 7 June 2000 bid document which stated: “ONdigital and its shareholders will guarantee all funding to the [FLL] outlined in this document”. At this point and being aware of the financial strength of both Carlton and Granada, my concerns about ONdigital’s financial viability evaporated.”

185. In cross-examination, Mr Hearn preferred the recollection that it was Mr Phillpotts who mentioned the financial arrangements paragraph, although he later said it may have been Mr Townley. He said the nature of the mention was that ONdigital was to be guaranteed by its shareholders. This evidence does not square with that of anyone else, no-one else suggesting that the financial arrangements paragraph had been read out. Mr Phillpotts’s evidence was that he noted the financial arrangements paragraph when he read the ONdigital bid document shortly after the Commercial Committee meeting: he plainly had no recollection of its being identified and read out at the meeting by Mr Townley – let alone by himself. Mr Townley said he had no recollection that either he or anyone else read it out. Mr Alderson’s evidence is to the effect that this paragraph was not read out and that he did not even see the ONdigital bid document until August 2000; and Mr Bowler also did not recall the paragraph being read out. Given also that (as I find) the view of the Committee was that Sky was likely to be the front runner, by a considerable margin, it is also improbable that the Committee would have focused on ONdigital’s ability to pay: at that stage, it looked unlikely that the FLL would be dealing with ONdigital. Mr Hearn was challenged about his recollection on this matter in cross-examination, but he stood firm.

186. I do not accept Mr Hearn’s evidence that the financial arrangements paragraph was read out. The instructions to Mr Townley were merely to read out bidders and headline figures and, for reasons given, it was impracticable to do more. ONdigital’s bid was just one of seven, it was significantly lower than Sky’s and there was simply no point in some attempt by Mr Townley to engage in an impossible impromptu comparative exercise. I find he did not do any such thing and, in particular, that he did not read out the financial arrangements paragraph. Nor did anyone else. The overall weight of the evidence is strongly against it and it anyway appears to me to be out of line with the probabilities of what would have happened following the limited instruction that was given to Mr Townley. I add that the evidence also showed that the bids, or some of them, were laid on the table at the meeting, and that in theory Mr Hearn could have picked up the ONdigital bid, quickly consumed it and alighted upon the financial arrangements paragraph on page 9. But he does not suggest he did this and I find he did not. I also find that no-one else (including Mr Alderson) took the opportunity to read the bids that had been placed upon the table.

187. I find, therefore, that Mr Hearn’s evidence that the financial arrangements paragraph was read out is something of which he has since wrongly convinced himself. If it had been read out, others would also have learnt of it at the same time, but no-one suggests they did. I do not accept Mr Hearn’s evidence about the events at this meeting, which appears to be an unreliable reconstruction that is unsupported by anyone else. I find he also said nothing about “getting paid” by ONdigital, his claimed continued concern, which he says was discussed and (I infer) resolved by the reading out of the financial arrangements paragraph. Apart from Mr Bowler, nobody supports the suggestion that there was any such discussion. If there was, it was not so resolved and yet (Mr Bowler apart) no-one else recalls it. I regard Mr Hearn’s account of these aspects of the meeting as thoroughly unreliable and I reject it.

188. Mr Bowler gave evidence that at this meeting Mr Hearn once again raised the issue of parent company guarantees. In his witness statement he said that Mr Hearn used words similar to those he had used on 11 May 2000, being words to the effect that “We’ve got a terrific deal; let’s get the deal done, but let’s make sure ONdigital have the cash and that we have safeguards regarding their financial strength.” That would have been a surprising statement for Mr Hearn to have made (and he disclaims it) and for Mr Bowler to have recalled against a background in which the highest bidder, and perceived likely winner, was Sky, by the considerable margin of £33m. Mr Bowler had, unfortunately for the reliability of this piece of evidence, wrongly recalled in his witness statement that it was ONdigital that had made the highest offer; and he had even gone to the further mistaken length of gilding that mistaken lily with the memory that it was “fairly clear to me that the FLL would be doing a deal with ONdigital.” At the beginning of his oral evidence he said that he had recently noticed the former error in his witness statement (overlooked when he had carefully gone through it before signing it) and said that what he had meant to say was that ONdigital’s bid “could become the most attractive bid.” That revised evidence reflected a degree of somewhat desperate re-grouping by Mr Bowler, about which I will simply say I was wholly unconvinced: it was another piece of evidence from him which I unhesitatingly reject. I find that no-one (Mr Hearn included) said anything at this meeting to the effect that a deal with ONdigital was likely, nor was that the then view of the Committee. At least three bidders (including ONdigital) were still firmly in the frame; an analysis of the bids had to be carried out; and further negotiations were to be conducted. I find that neither Mr Hearn nor anyone else said anything about any deal with ONdigital needing to be secured; and it is only the wisdom of hindsight that has caused Mr Hearn and Mr Bowler to focus on such a recollection. At no stage in the course of this protracted transaction did anyone ever say any such thing.

189. Mr Phillpotts gave some important evidence about the financial arrangements paragraph, which is of significance in assessing his state of mind on the all-important evening of 15 June 2000, when the deal with ONdigital was signed. He said in his witness statement that he read this as an offer of a parent company guarantee, which came as no surprise to him as Carlton and Granada were “obviously the backers of ONdigital.” He said that from then on he proceeded on the basis that any deal with ONdigital would contain guarantees from Carlton and Granada. He followed that observation with this statement:

“I have been asked what my reaction would have been if the ONdigital bid of 7 June 2000 had not contained what I took to be an offer of a parent company guarantee. My response is that, if not on 7 June 2000 then before any concluded agreement with ONdigital, I would have raised the issue and made it clear that I thought the FLL should have security for ONdigital’s obligations.”

190. That piece of evidence raises the question why, if that would have been his response, he made no mention of a need for guarantees during the negotiations of 10 and 11 May 2000. I have explained that his position as at 11 May 2000 was that he had heard nothing to cause him to question ONdigital’s financial standing; and nothing had happened since to cause any change. I regard Mr Phillpotts’s assertion as to his “response” incredible. I do not believe him.

191. Further insight into Mr Phillpotts’s thought processes is to be found in his witness statement in the guarantee action. He there said that when he was evaluating the bids, he did not give consideration to ONdigital’s financial position. “This was not an issue for me. We knew who the shareholders were, Granada and Carlton, and this was their venture. [ONdigital] were not completely new entrants into the field but came on the back of the track record of Carlton and Granada. That gave me the comfort that we were dealing with a credible broadcaster.”

192. In my judgment, the sense of that statement was that Mr Phillpotts had no issue about ONdigital’s financial standing because it was a subsidiary of two substantial FTSE companies: he was reflecting the common “satisfaction” experienced by all (including him) present at the Committee meeting on 10 May 2000. His statement – and claimed understanding - was not silently assuming that ONdigital’s obligations were, or were going to be, formally guaranteed by those companies: it was simply a reflection of the fact that the whole ONdigital venture was the project of those companies, which stood behind it and were backing it with hundreds of millions of pounds of investment (what I will call for short “commercial support”).

193. Mr Phillpotts’s statement did not stop there. He went on to say that when he read the ONdigital bid document, he did not recall “specifically considering” the financial arrangements paragraph. He said he would have read it and seen it “but as far as I was concerned such a guarantee was stating the obvious” and he referred to the link between ONdigital and its parents constantly re-affirmed in the bid document, quoting passages which I have referred to. He said that “As far as I was concerned, Carlton and Granada stood behind [ONdigital]. The wording of the guarantee could not have been clearer and would have reaffirmed the obvious position to me. I knew that they were behind the process and believed they were standing behind [ONdigital].”

194. It was put to Mr Phillpotts that all that he was there saying was that he regarded the financial arrangements paragraph as an obvious affirmation of the parent companies’ commercial support for ONdigital, not that he regarded it as an offered upgrading of that support into a binding legal obligation in the nature of a guarantee. He disagreed, replying that the parent companies’ commercial support had always been apparent to him and that the financial arrangements paragraph firmed that up into a “guarantee offer”. He abjured the suggestion that, after reading that paragraph, he still regarded the parent companies as only offering commercial support. He appears to have arrived at that conclusion even though he admits he could not recall “specifically considering” the financial arrangements paragraph. I do not understand how that is possible: if he now believed that Carlton and Granada were offering guarantees, he must have “specifically” considered it.

The events from 7 to 14 June 2000

195. On about 8 or 9 June 2000, Steven Burton (Mr Alderson’s assistant) collected an envelope from the FLL offices containing an original set of the bid documents. Mr Phillpotts’s evidence is that he was collecting them on behalf of Mr Alderson. He could not remember if Mr Burton had actually asked for them in order to take them to Mr Alderson, or whether he (Mr Phillpotts) suggested to Mr Burton that he should take them to Mr Alderson. There was no evidence on the matter from Mr Burton and no evidence that he actually delivered the, or any, bid documents to Mr Alderson. I find – in circumstances to which I shall come – that Mr Alderson did not see or read the ONdigital bid document (or, probably, but it does not matter) any of the other bid documents before the signing of the agreement with ONdigital on 15 June 2000, and that he did not in fact see the ONdigital bid document until August 2000. There is an issue as to whether he was in breach of his duty to the FLL by failing to obtain and consider a copy of it before allowing the FLL to sign up with ONdigital on 15 June 2000: the point being that, had he done so, he would or should have interpreted the financial arrangements paragraph as offering parent company guarantees and should have taken steps to ensure that the agreement with ONdigital was extended to include such guarantees. I add that Mr Fenwick suggested that the likely explanation of the events was that Mr Burton did deliver the bid documents to Mr Alderson, who read them and then returned them to Mr Phillpotts. That is possible but there is no evidence to support it, and I do not accept that it is what happened.

196. Whether or not Mr Alderson was in such breach (to which I come later), I find – despite suggestions (in particular by Mr Townley) that Mr Alderson was part of the negotiating team - that it was no part of his brief to negotiate with the broadcasters in the immediate aftermath of the bid opening ceremony on 7 June 2000; and I find he took no part in those negotiations. He did not resume contact with ONdigital as part of the FLL negotiating team until the evening of 15 June 2000, when the final form of agreement was thrashed out and his presence as a solicitor was required.

197. The first task following the meeting of 7 June 2000 was for the bids to be analysed; and that was done by Mr Townley. The next task was that of further negotiation, which was to be done by Mr Townley and Mr Phillpotts. Mr Townley completed his bid analysis and at 9.47 pm on Sunday 11 June 2000 he emailed his views to Mr Phillpotts, copying his message to Mr Alderson at 10.03 pm the same evening, which Mr Alderson in turn copied to the Committee. Mr Townley’s analysis, directed at identifying the salient features of each bid, made no reference to ONdigital’s bid offering security. Mr Hearn’s evidence was that this did not concern him, because “this was so obvious anyway from day one, I thought it was guaranteed by the shareholders, everything I had been led to believe, and I had no – I had no doubts in my mind that this was done and dusted.” That evidence can only have been true if Mr Hearn’s recollection of the events at the Committee meeting on 7 June 2000 was true, but I have found that it was a mistaken rewriting of history. If (as I have found) Mr Hearn was unaware of the financial arrangements paragraph on 7 June 2000, there is no evidence that he became aware of it at any stage before the signing with ONdigital on 15 June 2000. I am not satisfied that he did and I find he did not.

198. By the evening of 11 June 2000, in view of the imminent announcement of the Premier League’s award of its own broadcasting rights, Mr Townley regarded the FLL’s negotiating tactics as something that had to be carefully considered, as he explained to Mr Phillpotts. Mr Townley expected the Premier League awards to be announced on Friday 16 June 2000, and he wanted to consider what effect this would have on the market. He wrote this in his letter to Mr Phillpotts (an email attachment):

“We also need to consider whether we are being realistic from a process standpoint if we take a view that it would be in the best interests of the Football League to close matters by Tuesday/Wednesday [13/14 June 2000]. Any arrangements are likely to be subject to contract, which even after Wednesday would not preclude a party withdrawing if the market changed dramatically. The key question however is whether in our view we may get materially less after Wednesday. Our actions should be predicated by our response to this question.”

199. Mr Townley’s letter reflected that, depending on the outcome of the Premier League awards, Sky, NTL (Premium TV) and ONdigital were the likely “three key players” in the FLL market. His advice to Mr Phillpotts was that, in view of the Premier League position, he considered the Committee needed to get itself in a position “come Tuesday night [13 June 2000] where depending upon where we have got to during Tuesday we could make a recommendation to the committee and the committee could agree to accept a bid. I have copied this note to Richard [Mr Alderson], as he may well need to be in a position to advise the committee on whether a binding agreement can be made on Tuesday night.” The letter also raised a potential competition issue upon which Mr Alderson might need to advise. It is apparent, and I find, that Mr Townley was consulting with Mr Phillpotts on the commercial tactics to be adopted, and was keeping Mr Alderson informed so that his contribution as a lawyer could be called upon, perhaps at short notice.

200. Mr Phillpotts was abroad on Monday 12 June 2000, and only saw Mr Townley’s email and attachment either on his return on the evening of 12 June or first thing on the morning of 13 June. There were no negotiations with broadcasters on 12 June 2000, but on that day Mr Townley sent emails (in essentially standard form) to ONdigital, Sky and NTL preparatory to meetings to be held with them on 13 June 2000. He attached a draft deal memorandum (in the form of a draft “subject to contract” agreement) he had prepared: this was loosely based on a draft agreement that Mr Alderson had prepared on 17 May 2000 and provided to him. He copied the emails to Mr Phillpotts and Mr Alderson. The emails raised various matters, including price. It was not known by anyone at this stage with which bidder (if any) the FLL might close a deal or on what terms.

201. Mr Townley’s draft deal memorandum contained no reference to the giving of security by any bidder nor did it make any reference to the ONdigital bid document of 7 June 2000. Mr Phillpotts’s evidence is that, following his sight of that bid document, he believed that any deal with ONdigital would be secured. He might, therefore, have been expected to raise with Mr Townley the omission of his draft to refer to the matter of security. He did not and said in evidence that he could not recall what his thought process was on reading that draft. He did not tell Mr Townley that the question of security was a matter to be raised with ONdigital at the meeting fixed for 13 June 2000. He knew that a guarantee required a contract between the guarantor and the principal creditor and so he knew that any short form agreement with ONdigital would also have to be with Carlton and Granada.

202. During 13 June 2000 Mr Townley had a telephone conversation with Mr Hearn in which he made the same points as he had in his letter of 11 June 2000 to Mr Phillpotts. Mr Hearn recognised, and confirmed in cross-examination, that it had become urgent to conclude a deal before the completion of the Premier League’s rights process.

203. On the morning of 13 June 2000, Mr Stanley of ONdigital emailed to Mr Townley and Mr Phillpotts ONdigital’s own form of draft agreement, for discussion at the meeting fixed for later in the day. It was based on the draft agreement that had formed the basis of the negotiations on 10 and 11 May 2000, but of course excluded the matching rights clause provisions. It contained nothing about parent company guarantees. Mr Phillpotts read the draft. I find that the absence of anything in it about guarantees struck no chord with him, although if his evidence as to his then understanding is correct it should have done: he should have wondered why Carlton and Granada were not parties for the purpose of giving guarantees. His evidence was also that at that stage there was anyway no question that the FLL would that afternoon be thrashing out a contract with ONdigital: NTL and Sky were still firmly also in the frame as competing bidders, and on the morning of 13 June 2000 he still did not know with whom the FLL would be contracting or on what terms.

204. On the afternoon of 13 June 2000, Mr Phillpotts and Mr Townley had meetings with six competing broadcasters. Mr Alderson was not present. Mr Phillpotts said he did not ask Mr Alderson to attend: he explained the FLL stance at that stage as being that “we were talking to broadcasters in terms of finalising what process we would go for next.” I do not regard that as a comprehensive summary of the FLL’s position. The television rights operation was approaching its climax, in circumstances in which – given the imminence of the announcement of the Premier League awards – it might be necessary to close a deal fast with the best bidder. The FLL negotiators were not engaging in a leisurely stroll towards the identification of the chosen endgame: they were hoping to identify the best bid with a view to an early closing of a deal.

205. On 14 June 2000 Mr Townley wrote to the six broadcasters (including ONdigital, Sky and NTL). He invited them (if so inclined) to submit revised proposals as to terms (including price) by 12.00 noon on the following day, 15 June 2000. He invited them also to submit the draft deal memorandum he had earlier drafted and sent to them, with any amendments. He asked for confirmation that any offer would remain open for acceptance for five days. I find it was not apparent to Mr Townley at this stage that ONdigital was likely to be the ultimate winner. His evidence was that Sky was still showing positive interest and that Mr Phillpotts had hopes of a deal with Sky.

The events of 15 June2000

206. Although Mr Townley’s letter went to six broadcasters, by 12.00 noon on 15 June 2000 it had generated only one response: a revised offer from ONdigital at £96.1m a year, expressed to be “on the basis of our initial bid”, a reference to the bid document of 7 June 2000. Mr Townley said in evidence that by this stage he was beginning to receive intelligence that Sky might not make a bid. He thought it had become apparent to him that ONdigital was the likely licensee. He also thought he could also push ONdigital even higher and so in the afternoon he went to see the ONdigital team at the Montcalm Hotel. Mr Phillpotts remained at the FLL offices at Connaught Place in case any further bids came in: he had hopes of a better offer from Sky, probably in conjunction with the BBC, which would take the free-to-air package. His hopes to this end had been raised by conversations he had had with Andrea Vidler of the BBC and Mr Wakeling of Sky. By 5.00 pm Mr Townley had heard that NTL was not going to make a bid. Mr Wakeling then called Mr Phillpotts to say that Sky wanted to make a bid but needed more time. Having spoken to Mr Townley, Mr Phillpotts extended until 8.00 pm the time by which BBC could make a bid, either in conjunction with NTL or Sky.

207. During what was referred to at the trial as a “walk round the block” with Mr Prebble of ONdigital, Mr Townley negotiated an increased offer of £105m a year, a reflection of his considerable negotiating talents. He returned to the FLL offices at about 6.00 pm. When Mr Prebble rang Mr Townley to confirm Carlton and Granada’s agreement to the £105m figure, he said, as I find, that it was conditional on the deal being done straight away. Mr Townley said in evidence this had always been ONdigital’s stance and that he had told either Mr Stanley or Mr Prebble earlier in the day that his view was that their wish was about to come true – the parties would sit in a room and do the deal.

208. At about this time, Mr Phillpotts rang Mr Hearn. He was at the Carden Park Hotel, in Cheshire, where the Football League’s annual conference was taking place. All the FLL Board and Committee members were there, and Mr Hearn had been given authority by the FLL to authorise Mr Phillpotts to enter into a television rights agreement with an appropriate bidder (following the Board’s resolution of 1 June 2000 that authority may have been given by the Committee rather than the Board, but the point is immaterial). Mr Townley had in the meantime become acutely sensitive to the FLL’s position if and when it became public knowledge that Sky had withdrawn from the contest, as it appeared it might. His evidence was that it was Sky’s practice to issue a prompt press release when withdrawing from a bid process so as to get its own version of events out first. At that point ONdigital would know it was the only bidder, the market for the television rights could collapse and its offered price could enter a steep dive. Mr Townley’s advice to Mr Phillpotts and Mr Hearn at this point was that, in such event, the FLL might take up the defensive counter-stance of saying that it would withdraw from the bidding process, and re-offer the rights later in the year.

209. Mr Hearn’s instructions were, however, as I find, that this was not an option. He regarded the ONdigital offer of £96.1m a year as a huge sum of money and he did not want to risk losing a deal at that sort of figure. He said that the Football League clubs expected an announcement to be made at the AGM (which would continue until 17 June 2000). He had learnt during the early afternoon of 15 June 2000 that only one significant bid had been received, namely from ONdigital, and that efforts were being made to tease out another from Sky, probably jointly with the BBC. His instructions to Mr Phillpotts were not to lose the ONdigital offer and to close the deal at £90m or over if there was no Sky/BBC response by 8.00 pm. Mr Hearn’s figure was £6.1m less than ONdigital’s offer, reflecting his concern about a possible market collapse. He placed no other condition on the closing of a deal with ONdigital. The market for the FLL’s television rights was on a knife edge and Mr Hearn knew it: his view was that, if ONdigital learnt it was the only bidder, “believe me, there could have been a bloodbath in terms of the amount of money lost.”

210. At about 7.55 pm Ms Vidler of the BBC rang Mr Phillpotts to say there would be no BBC offer, as it could not secure a pay-television partner; and he told her that the FLL would close with another party. ONdigital was now the sole remaining player and Mr Phillpotts and Mr Townley decided to close with it: following Mr Hearn’s instructions, Mr Phillpotts had no choice in the matter. The two of them, plus Mr Alderson, went to the Montcalm Hotel, arriving at about 8.15 pm. ONdigital had hired a suite. It was represented by Stuart Prebble, Graeme Stanley, Marcus Ezekiel and Paul Matthews.

211. It is probable, and I find, that unless a deal had been struck with ONdigital that evening, Ondigital would have discovered within the next day or so that it was the only remaining bidder whereupon its offered price would have taken a southwards dive. At that point in the process, Mr Phillpotts therefore had no room for alternative manoeuvring. His instructions from the FLL (through Mr Hearn) were to close with ONdigital at no less than £90m a year.

The negotiation and signing of the licence agreement of 15 June 2000

212. The final negotiations on the form of the short form agreement took until about midnight. The discussions were on the basis of the draft that ONdigital had produced on 13 June 2000 although clause 18 (providing for the agreement of a long form agreement) had since been amended to provide (inter alia) for that agreement “to be negotiated with reference to … ONdigital’s initial bid dated 7^th June 2000 …”. One copy of the draft agreement in evidence has Mr Townley’s notes on it. The draft was reviewed, some changes were negotiated and agreed and the amendments were incorporated into a clean re-print. I find that Mr Phillpotts and Mr Alderson took the view that they did not want to raise matters of potential controversy about the draft. Mr Phillpotts, Mr Townley and Mr Alderson went through the agreed draft before it was signed. Mr Phillpotts agreed that Mr Alderson’s role was to discuss the draft with him, to ensure that he was happy with it, to give him the opportunity to raise any questions on it, and to advise him on it. Mr Phillpotts could not recall any specific matters that were discussed during this exercise. What they did not do, as I find, was to go through the ONdigital bid document of 7 June 2000, although that was referred to in clause 18 of the draft. Mr Phillpotts did not ask Mr Alderson if the draft contained parent company guarantees. He could not recall whether or not he told Mr Alderson that he believed that clause 18 gave the FLL direct recourse against Carlton and Granada (that was his claimed understanding, to which I shall come), but I have no hesitation in finding that he said no such thing to Mr Alderson, who would have disabused him of the notion. Mr Prebble signed for ONdigital and Mr Phillpotts for the FLL. The overall price was £315m over the three-year term, with an upfront payment of £47.25m, payable as to £12m on 15 June 2000 and the balance of £35.25 within 80 days.

213. Clause 18 of the agreement provided:

“18. ONdigital and [the FLL] shall use their best endeavours to execute a long form agreement within 60 days which shall be negotiated with reference to the Football League Pre-Tender Document of 27^th March 2000 and ONdigital’s Initial Bid dated 7^th June 2000 and pre-existing arrangements that [the FLL] has for its portal and 2 side letters from ITV dated 6^th and 15^th June 2000 and ONdigital dated 13^th and 15^th June 2000 and will include clauses such as standard legal boilerplate, confidentiality, compensation for ONdigital if there are significant changes in competition structure which adversely affect the value of the rights granted to ONdigital, minimum broadcast commitments, quality guarantees for programmes and competitions and the like.”

214. Mr Phillpotts’s evidence about his then understanding of the effect of the signed short form agreement as regards giving (or not giving) parent company guarantees was obscure. One thing is clear: he did not seek clarification from Mr Alderson about it. His starting position was that the short form agreement already included guarantees from Carlton and Granada. That was articulated as follows in his witness statement: (i) the bid document of 7 June 2000 had offered guarantees, (ii) the revised bid of 15 June 2000 was on the basis of that bid document, (iii) clause 18 of the short form agreement had been revised to refer to the bid document, and (iv) neither Mr Alderson nor anyone else told him that the short form agreement did not provide the guarantees. For good, but irrelevant, measure he added that ONdigital had always emphasised the involvement of its shareholders in delivering its obligations.

215. I regard that as a disingenuous account of Mr Phillpotts’s claimed thought processes on 15 June 2000, which I regard as improbable and do not believe. In the course of cross-examination his claimed understanding of the position underwent some changes. He initially stuck to the claim that he believed that the guarantees were already in the short form agreement, but refined it by saying that “the actual guarantees would be executed in the long form [agreement] …”. He said he regarded clause 18 as containing the guarantees. He was reminded that he knew that long form agreements were not always concluded, to which he replied that although, historically, that had been the case “there was certainly never an intention or a discussion that there would not be a long form in this process.” Having said that, he acknowledged that, historically, long form agreements had not been concluded despite intentions to conclude them: but he added that it never crossed his mind that there would be no long form agreement in this case - also adding that he appreciated that if it were not possible to agree a long form agreement, the short form agreement would bind. He said that he believed at the time – although he knows now he was wrong – that clause 18 was “sufficient for me”, meaning that he understood it as providing the guarantees.

216. The problem with that evidence is that Mr Phillpotts knew that the short form agreement was not a contract between the FLL and Carlton and Granada; and he knew that the giving of parent company guarantees required a contract that was between the FLL and Carlton and Granada. He was therefore compelled to accept that he knew that the short form agreement did not give the FLL any guarantees from Carlton and Granada, but he said that he “believed that clause 18 gave me sufficient comfort”, which he explained by saying that the “long form would be drafted, making reference to various other documents including the bid of 7^th June.” The effect of those answers was, as I understood them, that he had at most the comfort that guarantees might be negotiated during the uncertain journey towards the negotiation of a long form agreement. Since his evidence in paragraph 195 of his witness statement was that he “saw no reason to be concerned if no long form agreement was concluded (as can happen in this industry)” that must have been cold comfort; and it might be thought that he would have every reason to harbour the concern he there disclaimed. But the starting point of his evidence had been that he believed that the short form agreement had contained the guarantees. His ultimate position was that he believed that he had “been offered one [a guarantee] with sufficient contractual comfort that the execution of the guarantee would come as part of the long form process. I now know that not to be the case, but that was my belief at the time.” In response to the request to explain that, he initially gave some obscure answers but his final stance was that, had he been asked on 16 June 2000 whether (if no long form agreement was signed), the FLL would have had a legal right of recourse against Carlton and Granada, he would have said yes. His explanation was that he believed he could “rely on the financial arrangements clause in the bid that was incorporated into the short form.” That appeared to mean that ultimately he was saying that the guarantee was to be found in the short form agreement, a reversion to his opening stance, although wrestling with Mr Phillpotts’s explanations of the basis of his claimed understanding is not easy.

217. It is an important part of the FLL’s case that Mr Phillpotts should, as he claims, have believed on the evening of 15 June 2000 that the FLL was getting guarantees from Carlton and Granada. Its case is that the Committee was able to make its own mind up on whether security for ONdigital’s covenant should be sought. It is also part of its case - although there is no evidence to support it - that it had made up its mind that it did want security, by way of guarantees from Carlton and Granada. Taking that case at face value, it follows that unless Mr Phillpotts actually believed – and with complete confidence - that, by some elusive process of inexplicable magic, guarantees were being provided on 15 June 2000, the all-important question arises: why did he not raise the matter with Mr Alderson, whose job was to advise on just this sort of thing? At earlier stages in the story, the FLL’s answer (from Mr Phillpotts, Mr Sheepshanks, Mr Murray and to some extent from Mr Hearn) to questions as to the obtaining of security was that it was not a matter for the Committee today but for Mr Alderson tomorrow. But by 15 June 2000, that convenient, but facile, answer was no longer an option. Mr Phillpotts knew that Mr Alderson had made no contribution to the draft agreement as regards security; and he had not even so much as mentioned the point to him. His position was, therefore, that he was relying entirely on his own assessment that the draft nevertheless covered it. The position by the night-time of 15 June 2000 was that, as regards security, there was no tomorrow. If Mr Phillpotts had any question at all about the matter, he had to raise it then. But he did not.

218. Mr Phillpotts’s explanation as to why he did not raise it is his claimed belief that the guarantees were in the bag. I do not accept that evidence, which I do not believe. I make that finding having in mind that Mr Phillpotts is, as I have said, a highly intelligent man, who knew what a short form contract was, knew that long form agreements were not always capable of being negotiated and executed (and were usually not), knew that a contract of guarantee required a contract between the FLL and Carlton and Granada, and knew that the short form agreement with ONdigital was not such a contract. His claimed thought processes about whether or not a parent company guarantee was then being given are confused, inconsistent and unconvincing. I am not prepared to accept that, at the time, he had actually focused on the question at all, let alone formed an unspoken view that parent company guarantees were in fact already in place. He admits he cannot recall “specifically considering” the financial arrangements paragraph when he first read the bid document following the 7 June 2000 Committee meeting, and I have no doubt that he was not considering it, specifically or otherwise, on 15 June 2000 either. If it really was important to him to be satisfied on that date that the FLL had the benefit of parent company guarantees, it is incredible that he did not raise the matter with Mr Alderson. He had a perfectly sufficient understanding about the legal position to be able to say to Mr Alderson: “I see now that ONdigital has offered us parent company guarantees. That is of course of vital importance, and I always intended to ask for it, although somehow I forgot to mention it to you before. Can you confirm that the bid document and/or the short form agreement is sufficient to give the FLL the benefit of such guarantees?”

219. Mr Phillpotts asked no such question. I find that the reason for that was not because he believed either that the FLL was being promised such a guarantee, or (somehow) was being given one by the short form agreement, but because to the extent that he ever focused at all on the financial arrangements paragraph he regarded it as doing no more than confirming the same parent company commercial support that he and the Committee had always regarded Carlton and Granada as offering, a support which had satisfied the Committee on 10 May 2000 as to ONdigital’s strength as a counterparty. In particular, he did not regard it as offering, let alone as actually giving, a parent company guarantee, which was not something for which he had at any stage been looking. I find that he regarded the financial arrangements paragraph as simply re-affirming the commercial support which it was always obvious underlay the ONdigital operation and so in his mind it was not a paragraph which called for any specific consideration. Just as Sir Arthur Conan Doyle’s now celebrated dog in Silver Blaze did not bark at the arrival of the night-time visitor in the stable yard, Mr Phillpotts saw no need to raise with Mr Alderson the repetition in the bid document of what he regarded as a statement of the already obvious, namely that Carlton and Granada would be providing commercial support to ONdigital. In both night-time incidents (curious or otherwise) it was apparently simply a case of business as usual: the dog recognised the visitor; and the financial arrangements paragraph was, in Mr Phillpotts’s assessment, just more of the same.

220. This conclusion as to Mr Phillpott’s understanding of the position as at 15 June 2000 is in line with Mr Griffin’s evidence. He had been present at each of the meetings at which Mr Hearn claims to have made his “we must get paid” contributions. His evidence as to his own state of mind on 15 June 2000 was that he was not concerned as to ONdigital’s ability to fulfil its payment obligations because he “perceived ONdigital to be part of the larger ‘ITV Group’ and supported by Carlton and Granada. I did not apply my mind to the discrete question of whether there was a risk to the FLL because ONdigital was a limited liability company in respect of which its backers might subsequently decide to turn off funding.” First, that points away from any suggestion that Mr Hearn (or anyone else) ever said anything to the Committee to the effect that it needed to consider such a risk; second, it underlines that, for the reasons he gave, Mr Griffin’s position was that it had never occurred to him that ONdigital was a counterparty with which the FLL could not safely deal.

221. Mr Hearn’s evidence is also that he assumed that the short form agreement with ONdigital (which he did not see until after it was signed) included parent company guarantees. That claimed assumption is based on an event that I find did not happen, namely his uncorroborated claim that express reference was made to the financial arrangements paragraph at the meeting of 7 June 2000. I find that Mr Hearn was under no illusion that the short form agreement incorporated guarantees from Carlton and Granada. He admits he never asked Mr Phillpotts (or anyone else) to ensure that such guarantees were obtained and incorporated, nor did he tell him that he assumed they had been and were.

Stage four: events following 15 June 2000

Negotiation of the long form agreement

222. On 3 July 2000 Mr Alderson wrote to Mr Townley asking for a copy of the ONdigital bid document of 7 June 2000. He explained he needed it for the purpose of negotiating the long form agreement, which he said Ondigital had asked Clifford Chance to draft. On the same day he wrote to ONdigital saying he looked forward to receiving the draft. Clifford Chance’s first draft of the agreement included guarantees from Carlton and Granada, but those provisions were struck out by ONdigital and the FLL only learnt about that draft much later, following the collapse of ONdigital in 2002: the Clifford Chance draft did not cross the line in July 2000. The first draft that did cross it was one that Mr Matthews of ONdigital sent Mr Alderson and Mr Phillpotts on 26 July 2000. That contained no provision for guarantees. Mr Townley had by then still not responded to Mr Alderson’s letter of 3 July. On 31 July 2000 Mr Alderson sent a memorandum to Mr Burton saying he had asked Mr Townley for a copy of the bid document, and he also sent a reminder to Mr Townley. It is apparent, and I find, that he did not already have a copy of it; and I find also that he had not previously read it. He was, I find, ignorant of the terms of the bid document until ARM eventually sent him a copy on 8 August 2000, following which I presume he read it.

223. On 10 August 2000 Mr Alderson returned the draft long form agreement to Mr Matthews with his amendments, saying Mr Phillpotts had read it and had given Mr Alderson his comments on it, but had not seen Mr Alderson’s amendments. None of Mr Alderson’s amendments related to the inclusion of guarantees or other security for ONdigital’s commitments; and Mr Phillpotts raised no such matter with him – nor did he ever.

224. On 15 September 2000 Mr Stanley of ONdigital sent Mr Phillpotts the latest draft in advance of a meeting to discuss it. On 26 September 2000 Mr Alderson wrote a letter of advice to Mr Phillpotts about the latest draft. It covered several pages but made no reference to security or the financial arrangements paragraph. Mr Alderson’s evidence is that he did not recall reading that paragraph.

225. Mr Phillpotts’s evidence was that he considered the draft long form agreement, he says carefully, but did not notice the absence of the provision for security in it. He said he was unconcerned, because he considered the FLL already had security. He accepted, however, that he understood that the long form agreement would, if executed, supersede the short form agreement and so, on the basis of his own claimed concern about the need for guarantees, he should have been concerned: he should have wanted to ensure that they were reproduced in the long form agreement. I find that he was not concerned, because he had never perceived there was a need for guarantees and did not believe that they were already included in the short form agreement. The omission of any reference to them in the draft long form agreement therefore rang no bells with him, which is why he never raised the matter. Mr Phillpotts also saw a later draft of the long form agreement. That also said nothing about guarantees either and also rang no bells. He of course knew that the draft long form agreements did not provide for Carlton or Granada to be parties.

226. Subsequent and protracted negotiations took place over the long form agreement. No draft ever provided for parent company guarantees. Substantial agreement was reached in September 2001, but the matter was still not finalised. By the autumn of 2001 there had been talk in the media about the solvency of ONdigital. On 25 October 2001 Mr Alderson wrote to Mr Burns, the FLL’s Chief Executive, giving general advice over several pages as to the relationship with ONdigital in that context, including advice that “If OnDigital becomes insolvent there is no recourse to its shareholders Granada or Carlton.” On 3 December 2001, following the FLL’s decision to that effect, Mr Alderson wrote to ITV Network Limited (for ONdigital) and said that the future solvency of ONdigital needed to be dealt with in the long form agreement and that the FLL must now look for parent company guarantees from Carlton and Granada, as had been envisaged in ONdigital’s bid document of 7 June 2000. The response, on 19 December 2001, was a firm no. It was to the effect that parent company guarantees had been excluded from the negotiations over the long form agreement some time before and were not part of the short form agreement (in fact guarantees had never been the subject of negotiation: they had been included in the original Clifford Chance draft, but had been promptly removed, the FLL never saw that draft and the matter was not raised by either side until December 2001). It is relevant to note that this exchange about guarantees took place at a time when Carlton and Granada were stating publicly that they would continue to support ONdigital’s business. The FLL took up the matter of guarantees up again on 21 January 2002, but to no avail. The parties having failed to reach agreement on the question of guarantees, no long form agreement was ever signed.

The demise of ONdigital

227. ONdigital launched its new ITV Sports Channel in the summer of 2001. By the end of 2001 it was in financial difficulty. This had been brought about by three main factors: (i) whereas its projected subscriber base by the end of 2001 had been 2m subscribers, by November 2001 it had achieved only 1.2m; (ii) its business plan had assumed either that Sky (which held the Football League television rights until the end of the 2000/01 season) would take a sub-licence of those rights (otherwise Sky’s subscribers would be deprived of access to Football League matches) or else that there would be a substantial migration of Sky subscribers to ONdigital. In the event, neither happened; and (iii) commercial television companies in the UK were hit from the end of 2000 by an unexpected slump in advertising revenue, which affected not just ONdigital but also Carlton and Granada. By October 2001 the possible demise of ONdigital was being forecast.

228. Despite these difficulties, Carlton and Granada issued a press release on 28 November 2001 to the effect that they intended to continue to provide funds to ONdigital to enable it to meet its operational requirements as and when they fell due. But on 27 February 2002 they notified the Stock Exchange that they had appointed Deloitte and Touche to assist in a “fundamental restructuring of [ONdigital’s] cost base.” They had by then injected about £1 billion into ONdigital, but determined to stop providing further finance to it. That decision meant that ONdigital was insolvent. An administration order was made in respect of ONdigital on 27 March 2002. ONdigital terminated transmission on 1 May 2002. It went into liquidation on 29 October 2002. By then the FLL had received a total of £136.5m under the licence agreement: (a) the advance payment of £47.25m and (b) the instalment of £89.25m due in August 2001. A total of a further £178.5m would have become due under the agreement in August 2002 and 2003, but once ONdigital went into administration there was no prospect of those payments being made.

The guarantee action

229. The FLL’s response to the administration order was to contend that ONdigital’s commitment under the licence agreement was guaranteed by Carlton and Granada. Hammond Suddards Edge (into which edge ellison had by then merged) gave the FLL firm advice that the contention was wrong (and Mr Alderson had similarly so advised it in October 2001) but the initial advice of leading counsel (not Mr Fenwick) was that the FLL had a strong case, advice which was later tempered to the view that its chances were no better than 50/50, and then to the view that the case was “well arguable”. It may later have been tempered yet further, but if so that remains behind a curtain of privilege which has been drawn in respect of the litigation once it was taken over from Hammonds by Lawrence Graham in April 2002. The known advice was wrong since the claim had no prospect of success. That view does not depend on hindsight based on Langley J’s dismissal of the claim. It turns on the undisputed facts that: (i) ONdigital’s 7 June 2000 bid document, even if it should be construed as offering guarantees by Carlton and Granada, was stated to be “subject to contract”; (ii) it is therefore elementary that, even assuming the financial arrangements paragraph had Carlton and Granada’s authority, the document could not and did not itself give any guarantees and could not have made it plainer that ONdigital was not intending to be committed to anything except by the terms of a formal written agreement; (iii) the only formal such agreement subsequently entered into was the short form agreement of 15 June 2000; (iv) that agreement was exclusively between the FLL and ONdigital, with Carlton and Granada not being parties; (v) it neither purported to contain, nor did contain, any guarantees by Carlton and Granada; (vi) it at most contained, in clause 18, an agreement to agree a long form contract by reference (inter alia) to the earlier bid document, and so can perhaps (at best) be said to amount to an agreement to agree the giving of guarantees; but (vii) clause 18 was contractually unenforceable and no long form contract was agreed; and (viii) nor did Carlton and Granada ever give any guarantees. The claim that they had in fact done so was manifestly flawed and it predictably failed when Langley J dismissed it on 1 August 2002. Lord Grabiner QC, who was briefed in the guarantee action by Carlton and Granada, can have had few easier cases.

The grant of the licence to Sky

230. Following the failure of the ONdigital venture, the FLL sought to cut its losses by re-licensing the broadcasting rights. The former Committee had been disbanded and a new one was formed to negotiate a new deal. It did not include any members of its predecessor save for Mr Hearn, who was co-opted on to it on 17 May 2002, although he had little or no recollection of participating in its activities. He attended no meetings (his other commitments no doubt continued to prevent it) but agreed it would have been his duty to study the papers for them and make his views known. ARM was engaged to negotiate with broadcasters. An information memorandum was sent out to eight broadcasters and to other potentially interested parties. No information as to their financial substance was sought, and the only broadcaster whose financial substance the FLL actually investigated was Sky.

231. Things came to a head on 4 July 2002, when the Committee held its first meeting since 17 May 2002. Ashurst Morris Crisp, solicitors, had been advising the FLL since May 2002 and were in attendance. Mr Hearn was absent, but sent in his views to the effect that he would support a three-year deal at £25m a year. No such offer had yet been made, but Sky was expected to make an offer which materially exceeded the interest shown by other broadcasters. The Committee resolved to approve “in principle” an agreement “most likely with Sky, based on a figure of £25m per annum, subject to the caveat that they would like a three-year deal as opposed to four.”

232. An FLL Board meeting was held at 2.00 pm on the same day. The Board accepted the Committee’s recommendation and authorised the Chairman and Chief Executive to continue negotiations and conclude an agreement on terms no less favourable than those recommended. Negotiations took place with Sky; and at 11.15 pm a further Board meeting was held when it was resolved to close with Sky on the terms of a four-year contract.

233. The agreement between the FLL and Sky was concluded on 5 July 2002. It was for four seasons, commencing with the 2002/03 season. The fees payable were £20m in the first year, £25m in each subsequent year and £5m in equal instalments in each of the second to fourth years (£100m in total). The FLL “carved out” the terrestrial television highlights and on 29 October 2002 licensed them to ITV for the remainder of the 2002/03 season and for 2003/04 at a fee of £2m.

234. The only covenant for the payments was from Sky. No guarantee was given by Sky’s parent company nor was any other security provided. This was a conscious decision by the FLL. Mr Masters, its then Commercial Director, said the Committee was satisfied that the Sky covenant was a strong one. The Committee’s investigation of that matter was apparently carried out on 4 July 2002: none had been carried out before.

235. The FLL was obviously easily satisfied about Sky’s covenant strength: it had been bitten once, but was still not shy. Sky’s latest available accounts (those for the year ended 30 June 2001) showed that at that date it had net current liabilities of over £325m and net liabilities overall of almost £114m. On the face of its balance sheet it was insolvent, but Note 23 to the accounts recorded that the directors of the ultimate parent, BSkyB Group Plc, had confirmed that they would support it for at least the next 12 months; and the accounts were prepared on the assumption that Sky would continue as a going concern. The picture was reminiscent of that of ONdigital two years before (and only different in degree from Sky’s own position as at 30 June 2000). Given the FLL’s experience with ONdigital, its decision to commit itself to a £100m deal with Sky might be regarded as brave. Mr Masters said that a guarantee from Sky’s parent had been sought but refused. So the FLL went ahead anyway. The only rational conclusion is that it took the commercial view that the parent company was unlikely to allow Sky to go under, although Mr Masters preferred the view that the FLL had concluded that Sky was a strong trading company with a very strong position in a growing market in which it had greatly increased its subscriber base. But he also agreed that the FLL had formed a view of the reliability of the Sky group as a whole.

236. Mr Hearn was asked for his views on the deal with Sky. He could not remember approving the decision to give Sky the licence but accepted that he “would have” done so. He had never read Sky’s accounts and knew that at this stage Sky was investing enormous sums in the digitalisation of its previously analogue system. He nevertheless regarded Sky as a sound licensee on the basis that he “had dealt with them for a number of years and I was very satisfied with the way they ran their business and the way they paid their bills.” Mr Hearn appears to adopt an essentially visceral approach in the assessment of whom he deals with. It was put to him that whatever his claimed stance in relation to the prior ONdigital licence, it was not his position that, as a matter of principle, broadcasting rights deals needed to be secured, since the 2002 deal with Sky showed that he was content to deal unquestioningly with a company that, on a stand-alone basis, was insolvent. He disagreed with the proposition and said it depended on how much was at stake. A large deal such as that with ONdigital (involving £315m) needed to be secured, whereas a relatively small deal (for £100m) with Sky did not. His explanation was also that the position in 2002 was quite different. The FLL had nowhere to go, and Sky had come to its rescue; and the FLL had no reason to question its ability to pay. There was no doubt something in the first two points, although the last was more questionable: the FLL was, on the face of it, taking a commercial risk of the same nature it had taken with ONdigital. Its negotiations with Sky also showed that a parent company guarantee is not there for the asking – and certainly not (pace Mr Sheepshanks) mere “boilerplating”.

The FLL’s claims in ONdigital’s liquidation

237. On 2 October 2002 the FLL wrote to the Football League chairmen and chief executives explaining how it was proposing to handle its claims in ONdigital’s liquidation, for which it sought the clubs’ approval. It explained that, in consideration of a payment of £3m from Carlton and Granada, it was proposing to assign to them its claim for a dividend of up to 5p in the £. The proposal was therefore to accept an upfront payment of £3m in exchange for (possibly) the later payment of a dividend of £6.575m (being 5%) of the ONdigital debt. The letter conveyed the impression that it was possible that the dividend might be more than 5%. The clubs gave the FLL the required support and on 24 October the FLL wrote to them informing them that the assignment had been effected. The benefit of the arrangement was in part to achieve an early release of much needed cash for the clubs, which was the primary motivation behind the deal with Carlton/Granada.

238. In the event a greater dividend than 5p in the £ was paid. In June 2005 the FLL received a payment of £5,395,576.50, being the dividend in excess of 5p in the £. The dividend up to that level (£6,575,000) was paid to Carlton and Granada. In addition, in October 2002 they had paid the FLL £2m for the terrestrial television highlight rights “carved out” of the Sky deal. Put summarily, Carlton and Granada paid £5m to the FLL in exchange for which they obtained (i) the highlight rights and (ii) a dividend of £6,575,000, which would otherwise have been paid to the FLL. The net effect is that the FLL paid Carlton and Granada £1,575,000 to take the terrestrial rights off their hands. The FLL’s response to that, apparently unattractive, analysis is that the upfront payments made to it represented a lifeline to many clubs: patience might have led to more jam tomorrow, but the need was for a smaller amount today.

The issues

239. I will consider the issues under the following sub-headings.

1. Did edge ellison owe a duty to the FLL to obtain its instructions as to whether it wanted parent company guarantees for ONdigital’s covenant?

240. The FLL contends that the inclusion of the financial arrangements paragraph in ONdigital’s bid document of 7 June 2000 imposed a particular duty upon edge ellison with regard to obtaining the FLL’s instructions as to guarantees for ONdigital’s covenant. But the FLL’s primary case is that it was anyway edge ellison’s duty to obtain the Committee’s instructions as to its views on ONdigital’s ability to meet its obligations as a would-be licensee and as to whether it wished to seek parent company guarantees for those obligations. I will consider that question first.

241. The answer to it turns on whether edge ellison owed the FLL any such duty under their retainer. If they did, it was either because it was an express term of the retainer or else because in the circumstances of the case it was an implied term. Before focusing upon this, and because an assessment of the extent of a solicitor’s retainer must be made in the light of the circumstances in which he is instructed, I will first summarise my findings of fact as to the Committee’s understanding and intentions with regard to the question of parent company guarantees and also make certain further findings on matters of relevant fact.

(a) The facts

242. The Committee members were chosen for the television rights task because of their business expertise, three of them having experience in relation to broadcasting. The FLL admits that each of Messrs Sheepshanks, Hearn, Rubery, Murray and Bowler knew that: (i) a contract with a limited liability company had the effect that, if that company could not pay, the other contracting party had no recourse to third parties; (ii) a limited liability company could become insolvent or enter administration; and (iii) a parent company guarantee was a method by which third parties could be held liable for a limited liability company’s failure to make payments under a contract. I have found it implicit in Mr Heard’s witness statement that he had a similar understanding and he said nothing in his short oral evidence to suggest otherwise. Mr Phillpotts admitted he had a similar understanding. It is admitted that the Committee members and Mr Phillpotts each appreciated that the financial status and viability of a bidder was a significant factor to be taken into account in evaluating its bid. It is admitted they all knew that ONdigital was a start-up, new venture company that was evidently reliant upon funding from Carlton and Granada. The FLL has also admitted and averred that it

“… was able to and did reach its own view as to whether ONdigital’s payment covenant should be relied upon without additional protection from its parent companies. The FLL’s view, by the Commercial Committee and Brian Phillpotts, was that ONdigital’s payment covenant could not be relied upon without parent company guarantees from Carlton and Granada. edge ellison’s negligence was in failing to ensure that the [licence agreement of 15 June 2000] contained such a guarantee or to alert the FLL to the absence of such a guarantee in the contractual documentation it was to sign. …”

243. I have dealt with each occasion on which it is alleged that a Committee member raised a question of alleged concern as to ONdigital’s ability to pay. The making of this case depended on the surfacing in 2005 of distant memories that no two witnesses share and which I have found to be of events that did not happen. I have found that no such concern was ever expressed by anyone. I have rejected all Mr Hearn’s evidence as to this, and also that of other witnesses who sought to support the assertion that any such alleged concern was ever raised by him or anyone else. I have also rejected Mr Hearn’s minority evidence that the financial arrangements paragraph was read out at the meeting of 7 June 2000 and, therefore, his assertion that at that point his own alleged concern about the need for guarantees evaporated. I have rejected his evidence that he assumed that the agreement of 15 June 2000 contained guarantees. I find this was another reconstruction of events that did not happen and that as at 15 June 2000 he had given no thought to the notion that ONdigital’s covenant should be, or was being, secured by guarantees.

244. I find that at no stage did Mr Phillpotts or any Committee member (including Mr Hearn) entertain any concern as to ONdigital’s ability to honour its obligations under any licence that might be granted to it. I find that from the outset Mr Phillpotts and the Committee members regarded ONdigital as a company that: (i) was a real force in the market and was establishing itself as a competitor for Sky; (ii) had a real future in the digital television field; (iii) had an association with the ITV family with which the FLL had a long association; and (iv) was funded by two substantial and reputable FTSE 100 companies, Carlton and Granada, which had together made enormous investments in it. These circumstances were, from the outset, collectively regarded as sufficient to satisfy Mr Phillpotts and the Committee that they could deal with ONdigital alone, knowing that Carlton and Granada stood behind it as a source of commercial support. I find that ONdigital’s status as a possible counterparty was also the subject of express discussion at the Committee meeting of 10 May 2000, when those present expressed themselves satisfied by reason of its association with Carlton and Granada that it would be a counterparty of sufficient strength. Nothing was then said by anyone that guarantees would be required. Since the Committee was, on 10 May 2000, about to engage in negotiations with ONdigital which, I find, the Committee hoped would lead to an early deal, it is obvious that if this had been in anyone’s mind it would have been raised then, but it was not.

245. I reject all the evidence from the FLL witnesses that the Committee ever intended that guarantees should be sought. I find there was never any such intention. It is obvious that, had there been, the matter would have been raised with ONdigital in the negotiations of 10/11 May 2000 when, as I find, agreement in principle was reached with ONdigital on all issues apart from the matching rights problem. The suggestion advanced by, in particular, Mr Phillpotts and Mr Sheepshanks that this was a matter to be left to the lawyers to deal with later is one I reject as an unsound re-creation of thought processes that did not occur. I reject Mr Phillpotts’s evidence that, by 15 June 2000, he believed that guarantees had been given. I regard his evidence on that as incredible and I do not believe him. I find that he never considered that they were required, that he gave no specific consideration to the financial arrangements paragraph and that he never entertained a thought that they had been offered, let alone given. Consistently with that, when he came to consider the drafts of the long form agreement, he never raised the point that they included no guarantees: and he knew that the long form agreement would supersede the short form agreement and that, if they were to give guarantees, Carlton and Granada would have to be parties to the long form agreement.

246. As to the passage I have quoted from the FLL’s pleadings, I do not question the admission that Mr Phillpotts and the Committee were able to form their own view as to whether guarantees were needed for ONdigital’s covenant, or that they did form their view on that. I would expect Committee members as experienced as they were, and also the experienced Mr Phillpotts, to have a sufficient grasp of the task in hand to have firmly in mind, and to be able to focus on, such a basic commercial matter. If they did and could not, one might wonder what they had learnt from their considerable corporate business experience and how they came to be entrusted with the negotiation of the television rights licence in the first place. I find that they did form a view on the point but that, contrary to the FLL’s pleaded case, it was that they were content to contract with ONdigital alone. I accept that they made no formal decision on the point – no doubt because Mr Phillpotts never put it on the agenda – but I find that they collectively made an implicit decision to that effect at the Committee meeting on 10 May 2000.

247. It was in theory possible, as I find they must have recognised, that Carlton and Granada would withdraw their support for ONdigital’s venture and, necessarily, write off the hundreds of millions of pounds already invested in it. But, short of some unforeseeable catastrophe, it was in the highest degree unlikely that they would; and the Committee was entitled to take the commercial view that they would not. As Mr Fenwick put it in his reply (in the context of whether Carlton and Granada would be likely to have given guarantees if asked): “… unless you are going to support it [Ondigital] – and it was common ground in the guarantee action that the money would have to come from Carlton and Granada – unless you are going to honour it [their pledge of support for ONdigital], you are writing off your investment and you are writing off your business and you are writing off your reputation in the television world for setting up that business.” Those are the sort of considerations the Committee would have had in mind in making its commercial judgment that it could safely contract with ONdigital. Whilst the Committee members now look back with apparent embarrassment at what with hindsight they obviously regard as a mistake on their part, the judgment they exercised at the time was a commercial judgment which unfortunately later turned out, contrary to all reasonable expectations, to be mistaken. The successor Committee exercised a similar commercial judgment when re-letting the rights to Sky in 2002. Sky was then in no obvious position to assume a £100m liability. But the Committee exercised its judgment that Sky’s parent would support it. I reject the pleaded assertion that Mr Phillpotts and the Committee made a decision that they wanted ONdigital’s covenant to be backed by guarantees. The facts do not support it and the assertion is another unsound reconstruction of thought processes that never happened.

248. This is, therefore, a case in which Mr Phillpotts and the Committee made a commercial decision that ONdigital was a counterparty with which the FLL could deal. Since they admit they knew about the benefits of parent company guarantees, they must be taken to have concluded, as I find, that they did not need guarantees and none was sought. The FLL admits that a decision on such a matter was not something upon which it required advice, help or prompting from edge ellison. Despite this, its case is that edge ellison owed it a duty proactively to raise the matter with the Committee and seek its instructions. I turn to consider whether any such duty was owed. I approach this question on the basis of the findings of fact I have made, including that nothing was ever said that might have alerted Mr Alderson to a need to ask for guarantees.

(b) Was the claimed duty owed?

249. In a case involving an allegation of breach of duty, or negligence, by a solicitor, the first question to consider is what the solicitor was retained to do. The answer in any case is likely to be fact sensitive. It is convenient to refer first to the well-known general statement of Oliver J on the subject of a solicitor’s retainer in Midland Bank Trust Co. Ltd. and Another v. Hett, Stubbs & Kemp (a firm) [1979] Ch. 384, at 402:

“Mr Harman [leading counsel for the plaintiff] sought to rely upon the fact that Mr Stubbs was Geoffrey’s solicitor under some sort of general retainer imposing a duty to consider all aspects of his interest generally whenever he was consulted, but that cannot be. There is no such thing as a general retainer in that sense. The expression ‘my solicitor’ is as meaningless as the expression ‘my tailor’ or ‘my bookmaker’ in establishing any general duty apart from that arising out of a particular matter in which his services are retained. The extent of his duties depends upon the terms and limits of that retainer and any duty of care to be implied must be related to what he is instructed to do.

Now no doubt the duties owed by a solicitor to his client are high, in the sense that he holds himself out as practising a highly skilled and exacting profession, but I think that the court must beware of imposing upon solicitors – or upon professional men in other spheres – duties which go beyond the scope of what they are requested and undertake to do. It may be that a particularly meticulous and conscientious practitioner would, in his client’s general interests, take it upon himself to pursue a line of inquiry beyond the strict limits comprehended by his instructions. But that is not the test. The test is what the reasonably competent practitioner would do having regard to the standards normally adopted in his profession, and cases such as Duchess of Argyll v. Beuselinck [1972] 2 Lloyd’s Rep. 172; Griffiths v. Evans [1953] 1 WLR 1424 and Hall v. Meyrick [1957] 2 QB 455 demonstrate that the duty is directly related to the confines of the retainer.”

250. That passage underlines that my task is to identify the terms and limits of edge ellison’s retainer. It is the FLL’s case that, whatever else it extended to, it required Mr Alderson to ask the Committee whether it wished to consider making a request for guarantees for ONdigital’s commitments from Carlton and Granada. The FLL says the question could not have been simpler and, had Mr Alderson asked it, the matter would have been dealt with in accordance with its instructions, which would have been that guarantees should be sought.

251. edge ellison’s case is, first, that it was not an express term of Mr Alderson’s retainer to advise on, or raise, matters of bidder solvency such as this, and they point to the Television Strategy Document, which expressly cast the duty to advise on a bidder’s ability to pay on to the “advisers”, which did not include edge ellison. The document did not also impose upon the “advisers” the duty to advise the FLL as to the commercial options open to it in relation to any bidder whose ability to pay was questionable; and as the FLL admits that it was able to make decisions such as this by itself that is not surprising. Equally, and consistently, this duty was not expressly cast upon edge ellison. I find that the duties expressly imposed upon them by the Television Strategy Document did not include the consideration of, or advice upon, matters of bidder solvency, including questions relating to any need for guarantees.

252. edge ellison say it was not an implied term of their retainer either. That is because the matter of ONdigital’s ability to pay was one going to the financial and commercial wisdom of accepting ONdigital’s covenant. It was a matter for the commercial judgment of the Committee. They say it is ordinarily no part of a solicitor’s function to advise his client on the commercial prudence of the transaction in which he is proposing to engage and it was not Mr Alderson’s duty to do so in the circumstances of this case, in which the client’s interests were being looked after by Mr Phillpotts and a Committee that had been hand-picked from those with just the sort of commercial experience that such a judgment called for. Nor is it ordinarily any part of a solicitor’s duty to prompt his client to turn his mind to commercial considerations; and, for the same reason, the circumstances of this case pointed away from any such implied duty to prompt. There was nothing out of the ordinary about the circumstances of the ONdigital transaction and so Mr Alderson had no duty to ask the simple question. The matter was one upon which the Committee simply did not need advice from him. edge ellison say that the contention that they had an implied duty to advise it on the matter has an unusual degree of oddity about it in a case in which Mr Phillpotts and the Committee admit that (a) they knew that ONdigital was dependent for financial support on its parents, (b) they knew if it were to become insolvent the FLL would not (without more) have any recourse against third parties, and (c) they were aware of the advantages that parent company guarantees would provide.

253. On the point that it is ordinarily no part of a solicitor’s implied duty to advise on commercial matters, I was referred to two decisions. The first was that of the Privy Council in Clark Boyce v. Mouat [1994] AC 428. Mrs Mouat had mortgaged her house to secure a loan to her son, who joined in the mortgage as guarantor. His business ran into trouble and he became bankrupt, leaving his mother facing a liability for over $110,000 secured on her house. She sued the solicitors who had acted in the transaction both for her and for her son. The judge had found that she had, at the time, been fully able to comprehend the transaction and the risk to her property that she was undertaking. The solicitors had also advised her to obtain independent advice (which she had declined to do) and also that she risked losing her house. The complaint against them was that they should have ensured that she had independent advice and it included an allegation that they should have disclosed to her that they knew nothing of her son’s ability to service the mortgage. The judgment was delivered by Lord Jauncey of Tullichettle, who said at page 437:

“Their Lordships are accordingly satisfied that Mrs Mouat required of Mr Boyce no more than that he should carry out the necessary conveyancing on her behalf and explain to her the legal consequences of the transaction. Since Mrs Mouat was already aware of the consequences if her son defaulted Mr Boyce did all that was reasonably required of him before accepting her instructions when he advised her to obtain and offered to arrange independent advice. As Mrs Mouat was fully aware of what she was doing and had rejected independent advice, there was no duty on Mr Boyce to refuse to act for her. Having accepted instructions he carried these out properly and was neither negligent nor in breach of contract in acting and continuing to act after Mrs Mouat had rejected his suggestion that she obtain independent advice. Indeed not only did Mr Boyce in carrying out these instructions repeat on two further occasions his advice that Mrs Mouat should obtain independent advice but he told her in no uncertain terms that she would lose her house if Mr R.G. Mouat defaulted. One might well ask what more he could reasonably have done.

When a client in full command of his faculties and apparently aware of what he is doing seeks the assistance of a solicitor in the carrying out of a particular transaction, that solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice on the wisdom of the transaction. To hold otherwise could impose intolerable burdens on solicitors.”

254. edge ellison rely on the second paragraph. Whether the FLL should or might deal on an unsecured basis with ONdigital was a commercial matter for the FLL, upon which edge ellison were not asked, and had no duty, to advise.

255. Of perhaps greater assistance is the more recent decision of the Privy Council in Pickersgill v. Riley [2004] PNLR 31. Mr Riley owned the shares in M Ltd. He had procured the grant of a lease to M, under which he became a guarantor of M’s liabilities as lessee. He wished to sell M’s shares to W Ltd. Before doing so, he asked the lessor to release him from his guarantee but the lessor refused. So Mr Riley negotiated with the individuals behind W that W would indemnify him against any liability for which he might become answerable under his guarantee. On that basis, he sold M’s shares to W for £125,000.

256. Mr Pickersgill was the solicitor acting for Mr Riley on the sale to W. At the time of the sale both Mr Riley and Mr Pickersgill thought W was a company of substance, but neither carried out any investigation into its financial status. Some years later, M became insolvent and rent arrears built up. The lessor claimed against Mr Riley as guarantor, who paid some £56,000 to discharge his liability. Mr Riley sought to be recouped by W, but it turned out that W had at all times since the sale been a shell company with no assets. As W could not pay Mr Riley, he sued Mr Pickersgill for damages for alleged negligence. Mr Riley succeeded at first instance and on appeal in Jersey. The Privy Council reversed that decision. The judgment was delivered by Lord Scott of Foscote.

257. The first question, answered by the courts below in favour of Mr Riley, was whether Mr Pickersgill owed Mr Riley a duty to investigate the financial circumstances of W. If he did, he had breached it. In dealing with that question, Lord Scott first made the following general observations about the extent of the duty of care owed by a solicitor to his client:

“7. It is plain that when a solicitor is instructed by a client to act in a transaction, a duty of care arises. But it is also plain that the scope of that duty of care is variable. It will depend, first and foremost, upon the content of the instructions given to the solicitor by the client. It will depend also on the particular circumstances of the case. It is a duty that it is not helpful to try to describe in the abstract. The scope of the duty may vary depending on the characteristics of the client, in so far as they are apparent to the solicitor. A youthful client, unversed in business affairs, might need explanation and advice from his solicitor before entering into a commercial transaction that it would be pointless, or even sometimes an impertinence, for the solicitor to offer to an obviously experienced businessman.”

258. Lord Scott then referred to a statement in Jackson & Powell on Professional Negligence (5^th ed., 2002) as correctly stating that “[i]n the ordinary way a solicitor is ordinarily not obliged to travel outside his instructions and make investigations which are not expressly or impliedly requested by the client.” He referred to the second paragraph quoted above from Clark Boyce, which he supplemented with quotations from the judgments delivered by the Court of Appeal in Reeves v. Thrings & Long [1996] PNLR 265. Their essence, in line with the statement in Clark Boyce, was that when a solicitor is not retained to advise on the commercial wisdom of a transaction, it is no part of his duty to proffer advice on such matters, at any rate in a case in which it is within the client’s competence to make an evaluation of such matters for himself.

259. Lord Scott regarded the statements in Reeves as providing valuable signposts for the disposition of Mr Pickersgill’s appeal. Mr Riley was an experienced businessman. He knew at the time of the sale to W that M had not yet made a profit. He knew what a guarantee was and that his own guarantee would or could last for 28 years. He knew that M’s future profitability was speculative. The guarantee therefore had no “hidden pitfalls” for him upon which Mr Pickersgill might reasonably be expected to advise him. As for the share sale to W, Mr Riley had negotiated that himself. This factor would not have relieved Mr Pickersgill of the duty to point out to Mr Riley any “legal obscurities” of which Mr Riley might have been unaware, or to draw his attention to any “hidden pitfalls.” Although they had carried out no investigation into W, both Mr Riley and Mr Pickersgill took W to be a company of financial substance, Lord Scott going on to say that “[t]he possibility that [W] might be a company with no or little financial substance was a commercial risk that Mr Riley, an experienced businessman, could have been expected to be aware of. It was not a risk arising out of any legal complexity. It was not a ‘hidden pitfall’ that Mr Pickersgill had a duty to warn Mr Riley about.”

260. The decisions in the courts below appear to have proceeded on the basis of a characterisation of Mr Pickersgill as an “homme d’affaires” whose duties extended to either investigating the financial soundness of W himself or of advising Mr Riley of the risk he would be taking if he completed the sale without first doing this. Mr Pickersgill had, however, at least advised Mr Riley of the potential danger of contracting with a limited company, namely that if W had no assets its counter-indemnity would be worthless. Lord Scott continued as follows:

“14. Their Lordships regard this ‘homme d’affaires’ categorization of Mr Pickersgill as a misdirection. The scope of a solicitor’s duty is governed by the instructions he receives and the circumstances of the case. The scope of a solicitor’s duties may in some cases justify his description as an ‘homme d’affaires’ but the bestowing of that description on him cannot alter or add to the extent of the duty of care that he would otherwise owe. In the present case, in their Lordships’ opinion, it was a positively misleading description and apt to suggest a duty to advise on the commercial implications and wisdom of the transaction, a duty that neither Mr Pickersgill’s instructions nor the circumstances of the case warranted.

15. In their Lordships’ judgment, Mr Pickersgill, in giving clear and correct advice about the risk of taking a contractual indemnity from a limited company, discharged any duty he had to warn Mr Riley of the risk he was taking in accepting the contractual undertaking from [W]. Mr Pickersgill’s duty did not extend to investigating and advising on the financial substance of [W] or to advising on the commercial wisdom of accepting the undertaking from [W] or to advising Mr Riley to investigate the financial substance of [W].

16. It is to be borne in mind that the undertaking to be given might need to be called upon at any time over a period of some 28 years. A company with assets originally might cease to have assets. A company with no assets originally might subsequently acquire them. Both Mr Pickersgill and Mr Riley had assumed [W] to be a company of substance but neither the Royal Court nor the Court of Appeal attributed Mr Riley’s assumption to any representation made by Mr Pickersgill.

17. It was, in their Lordships’ view, a matter for the commercial judgment of Mr Riley whether he was prepared to accept the protection of the contractual undertaking on offer from [W]. He decided to do so, but not in reliance on any advice to do so given by Mr Pickersgill. It was his, Mr Riley’s, commercial decision. His decision may, with hindsight, be regarded as imprudent and to have been based on a mistake as to [W’s] financial substance at the time of the transaction. But Mr Riley cannot, in their Lordships’ opinion, extend Mr Pickersgill’s role from that of his solicitor acting on his instructions to that of his commercial adviser, or to that of his insurer against his commercial misjudgement.

18. Mr Pickersgill did not, in their Lordships’ judgment owe the extended duty of care as pleaded or as expressed by the courts below as the basis of their respective findings of liability. …”

261. Mr Sumption submitted that Riley reflects the key principle applicable in this case. He said, and I agree, that the Television Strategy Document did not impose any express obligation upon Mr Alderson to advise the Committee on bidder solvency. He said, and I find, that he was never asked so to advise. He said, and it is admitted, that the Committee was able to, and did, form its own views as to the risks of contracting with ONdigital alone. He acknowledged that in Riley Mr Pickersgill had at least advised Mr Riley of the risks associated with contracting with a limited company, but said that Mr Pickersgill would not even have had to do that if he had been satisfied on reasonable grounds that Mr Riley was already aware of those risks. He said the Committee anyway did not need advice of that nature: its members had all the necessary commercial understanding. As to the point that all that Mr Alderson needed to do was ask one simple question of the Committee, Mr Sumption said the like point could have been made against Mr Pickersgill: he could just as easily have said to Mr Riley that, whilst he accepted that Mr Riley believed W to be a substantial company, he ought to consider checking it out. But this was not his duty: these were commercial considerations that were not in the nature of “legal obscurities” or “hidden pitfalls” about which it is the solicitor’s duty to advise, being matters which the client cannot be expected to think of but the solicitor can. There is no duty upon a solicitor to point out to the client things which the client can reasonably be expected to appreciate for himself, being matters in respect of which the solicitor has no special skills of appreciation. Implicit in the Riley decision is that the solicitor is entitled to make assumptions about what advice his client needs based on the type of client that he is. Lord Scott makes it plain that a solicitor may need to give advice to the youthful, inexperienced client that he will not need to give to the mature, experienced one.

262. Mr Sumption further illustrated this last proposition by a reference to the decision of the Court of Appeal in Carradine Properties v. D.J. Freeman & Company (a firm) [1999] Lloyd’s Law Reports 483. The facts were far removed and do not matter, but the importance of the case is the recognition by the court that a solicitor will or may owe a duty to make particular inquiries of clients who are ignorant or inexperienced that he will not owe to an experienced client: see the observations of Lord Denning MR at 486/487 and of Donaldson LJ at page 487.

263. As follows from this, it is no part of edge ellison’s case that in any particular situation the nature and extent of a solicitor’s duty to give advice to his client can be definitively and rigidly demarked by reference to the instructions given to him. Apart from the case of the ignorant, or inexperienced, client, when special considerations may arise, there will be other circumstances in which in the course of carrying out his instructions the solicitor will or may have an obligation to proffer unsolicited advice, or seek further instructions. One obvious example is that, if in the course of acting a solicitor comes across information relevant to the transaction, he may have a duty to seek instructions about it even though it may not have been part of his duty to look for it in the first place. But it is said that there were no circumstances in this case impliedly requiring Mr Alderson to give the experienced Mr Phillpotts and the Committee advice on a purely commercial matter upon which they admit they did not need advice.

264. Mr Fenwick submitted that this was an over-rigorous approach to the nature of the duty impliedly owed by edge ellison. He said that Mr Alderson had a duty to ascertain what the FLL wanted to achieve from the proposed transaction and, in order to do so, had to ask the Committee what its instructions were. Given the discussion that took place on 10 May 2000, the known facts that ONdigital was dependent upon Carlton and Granada, and the comfort the Committee then apparently drew from ONdigital’s association with Carlton and Granada, it is said that Mr Alderson had a duty to ascertain from the Committee the nature of the comfort it thought it would be obtaining. He would have to satisfy himself whether the Committee understood that any contract would be with ONdigital alone, or whether it had in mind that Carlton and/or Granada might be the contracting parties. He had to ascertain whether it realised that if the FLL contracted with ONdigital alone, which then became insolvent, it would have no recourse to third parties. He said Mr Alderson could not be satisfied on these matters unless and until he asked. He said that at this stage the Committee did not know that it would be contracting with ONdigital alone, or with which company it would be contracting assuming it reached agreement in principle with ONdigital. He said that it is anyway not enough that the Committee in fact knew all about the risks of insolvency and the benefits of having parent company guarantees because, unless Mr Alderson expressly raised the matter with the Committee, it might be assuming that he was including guarantees in the documentation. He said Mr Alderson had a duty to prepare checklists and to plan the transaction in a way that ensured that questions of this sort were not overlooked and instructions upon them were sought.

265. Mr Fenwick developed the submission very persuasively but its essence, however the point might be elaborated, was that Mr Alderson had a positive duty to ask the Committee if it had considered whether it wanted guarantees for ONdigital’s covenant. In relating the story I have already expressed my disagreement with Mr Fenwick that as at 10 May 2000 there was any doubt in the Committee’s mind as to who, if terms were agreed in the forthcoming negotiations, the FLL would be contracting with: it knew perfectly well the would-be counterparty was ONdigital, which is why it had been discussing ONdigital’s status at the meeting. It also knew that the subsequent negotiations were on the basis that ONdigital would be the sole contracting party because that is what the draft agreement showed. There was never a thought by anyone that Carlton and/or Granada were to be, or might be, contracting parties; and the suggestion that the Committee did not understand exactly what was going on in this respect is to attribute to its members an ignorance of a straightforward course of events which it was their duty to understand and which I find they did understand. It also wholly fails to credit Mr Phillpotts and the Committee with that comprehension of basic business matters that they undoubtedly had. Ultimately – shorn of elaboration - Mr Fenwick’s submission came down to the point that a solicitor acting for a commercially experienced client in the circumstances now in question has a duty to ask the client whether it has considered, and made a decision upon, a purely commercial matter relating to the transaction, being a matter upon which the client admits it needed no advice from the solicitor and which it accepts it was capable of assessing for itself. As for the points about checklists and planning, I do not regard these as adding to the argument: including something in a checklist does not make it part of a solicitor’s duty to follow it up if it is not his duty to raise it in the first place – any more than an omission to include it will excuse him from not discharging his duty if it is.

266. As between the rival submissions, I agree with and accept edge ellison’s submission. In my judgment they owed no implied duty to advise the Committee, or seek its instructions, on its assessment of ONdigital’s solvency and on questions of parent company guarantees. It was not an express term of their retainer to do so and, as Lord Scott made clear in Riley, it would only be an implied term if the circumstances of the case warranted it. There was, so far as I am aware, no direct evidence that Mr Alderson knew that the FLL knew of all the matters relevant to bidder solvency and guarantees that it admits to knowing and it might therefore perhaps be said that he had a duty to enquire as to the Committee’s knowledge, an enquiry which might then have led to a discussion of the need or otherwise for guarantees for ONdigital. I do not, however, regard that as the correct approach. An assessment of the extent to which, if at all, a solicitor may owe the client particular implied duties arising in the circumstances of the case must, in my view, be a question of law depending upon an objective assessment of those circumstances. The question must be whether, in the particular circumstances, it is necessary to imply the relevant duty in order to give effect to the presumed intentions of the parties. I regard this as the principle underlying Lord Scott’s approach in Riley.

267. The circumstances of this case were that Mr Phillpotts and the Committee members were experienced in matters of business and the operation of companies; they had been hand-picked for the task in hand; and were well aware of the potential risks of corporate insolvency and the benefit of parent company guarantees. They had underlined their awareness of the significance of matters of bidder solvency by making it clear in the Television Strategy Document that advice on such matters was for advisers other than edge ellison and had said nothing in it to the effect that they also needed edge ellison’s advice upon it: the inference being that once that advice was given by others, the Committee was equal to deciding how to deal with it and did not need Mr Alderson’s advice upon it as a lawyer. In these circumstances it cannot be imputed to the parties that, as a matter of necessity, it was an implied part of Mr Alderson’s duty to advise the Committee upon matters of bidder solvency. Of course if the Committee decided that they did want guarantees and negotiated their giving, they would probably then have required his skills as a lawyer to ensure that they were in proper form. But that invocation of his skills would only arise once the Committee had made the prior commercial decision. In my judgment Mr Alderson had no implied duty to play any part in the making by the Committee of that decision. I also find, for similar reasons, that (if the point is any different, and I suspect it is not) it was no part of edge ellison’s duty to prompt the Commercial Committee to focus its collective mind on the question of bidder solvency and the consideration of whether security might be sought for any particular bidder’s covenant.

268. Mr Fenwick’s submissions are of course made by a lawyer as to a lawyer’s duties, and lawyers are traditionally acutely risk averse. But I regard it as misleading to focus on the issue at stake in this claim by looking at it through the instinctively cautious perspective of a lawyer. The particular issue was an exclusively business one: can the client safely enter into a commitment at a particular level with a particular counterparty without security? That must be the most basic consideration for a businessman in any substantial transaction. The businessmen looking after the FLL’s interests were all exceptionally experienced. Whilst I accept that they did not consider the matter formally, it is in my judgment apparent that they implicitly made a collective commercial decision that they could and would deal with ONdigital alone, knowing who its backers were. Mr Phillpotts was, in particular, obviously always satisfied about this, which is no doubt why he never put it on the agenda for discussion; and the Committee members were implicitly of the same view, otherwise they would have raised it themselves. If Sky had won the race on 15 June 2000, the Committee would have dealt with Sky on exactly the same basis, knowing who Sky’s backers were and making a commercial judgment that Sky would pay: just as with ONdigital, no-one gave a thought to any covenant from Sky being guaranteed. This was not because they had researched Sky’s ability to pay: it was because they would have regarded themselves as dealing through Sky with a corporate group which would honour its commitments.

269. Whilst, for reasons given, I do not regard this as a necessary finding, I add that I anyway find that such was Mr Alderson’s close association with the Committee over the period of the negotiation of the television rights licence that he was aware that he was dealing with mature, experienced, businessmen who could be expected to, and did, have a full understanding of the commercial considerations which have been the focus of this litigation. Mr Alderson’s evidence was also that he knew that the Committee regarded ONdigital’s parentage as the source of reassurance.

270. I recognise that it may be that, in practice, other solicitors would or might have raised with the Committee the matter of guarantees, or have prompted the Committee to think about the need for them. But that does not mean that it was the implied duty of edge ellison to do so. Their duty must be measured by reference to the consideration of whether their omission to raise the matter was one that no reasonably well-informed and competent solicitor would have allowed (see Saif Ali and Another v. Sydney Mitchell & Co (a firm) and Others [1980] AC 198, at 218, per Lord Diplock). If, as I have found, it was no part of their duty to raise the matter, they were not in breach of duty by not raising it. The reason that the whole focus of this case is on this particular issue is because this is the one – purely commercial - feature of the television rights transaction that hindsight shows went wrong. Had some other commercial matter been later seen to have gone wrong, is it to be said that edge ellison owed a duty to prompt the Committee to think about it? Is the solicitor supposed to review the whole range of commercial considerations that underlie a particular deal, work out which ones he is concerned the client may not have given sufficient thought to and remind him about them? In my judgment the answer is no. If the FLL had dealt instead with Sky (as Mr Phillpotts hoped it might) and that transaction had gone similarly wrong, would there have been the mirror image of this litigation? Mr Hearn made clear his opinion as to what a good payer Sky had always been. Would it, however, then have been said that it was Mr Alderson’s duty to ask the Committee if it had done enough homework on Sky’s financial solidity?

271. I should deal with various other points raised by the FLL in this context. First, the FLL made much of the point that Mr Alderson’s closeness to the FLL’s affairs was such that he had become more than just an outside lawyer engaged on a particular retainer, he had become the equivalent of an FLL in-house lawyer and, in effect, also part of the FLL’s executive, expressing views on non-legal matters. This is said to have extended the range of duties he had to perform; and Mr Sheepshanks was keen to emphasise how he had asked Mr Alderson to hold his hand at all stages in the television rights transaction. I make three points as to this.

272. First, the FLL went to pains in the Television Strategy Document to identify edge ellison’s duties in relation to the grant of the rights and I have summarised what the essence of those duties amounted to. They did not, expressly or impliedly, include a duty to advise on the commercial merits of any transaction with any particular bidder.

273. Secondly, there is no basis for an inference that Mr Alderson’s alleged agreement to hold Mr Sheepshanks’s hand extended his and edge ellison’s functions beyond those assigned to them by that document, namely as lawyers retained by the FLL. Mr Sheepshanks agreed in cross-examination that the advice he expected of Mr Alderson was that of a lawyer.

274. Thirdly, Mr Alderson acted as secretary to the Committee and, as a regular attendee at its meetings, at which he took the minutes, it is likely he sometimes expressed views on non-legal matters, although the FLL witnesses were unable to identify any material non-legal contribution that he made to the course of events. This would anyway not serve to enlarge the nature of edge ellison’s retainer. It is also relevant to note that his continued presence at Committee meetings in relation to the grant of the television rights was important in connection with the regulatory aspects of the matter. He was concerned not just with drafting the final agreement: he had to keep an eye on progress generally in order to consider any regulatory implications. To do this he had to know what was going on, and was proposed, from time to time. That is the explanation for his close involvement in the licensing process.

275. The FLL also placed great reliance on the fact that in the portal deal Mr Alderson arranged for a parent company guarantee from NTL for Premium TV’s obligations in the joint venture agreement. I do not follow how the different course of that transaction is supposed to shed light on Mr Alderson’s duties in relation to the television rights transaction. I find that the reason he included a guarantee in the portal documentation is because the Committee was so effective in demonstrating its ability to probe the financial soundness of Premium TV that the implicit message conveyed to Mr Hamilton-Fairley was that the FLL would require solid backing for Premium TV’s obligations. In response he offered a guarantee from NTL (he did not use that word, but it is obvious he was doing so, as I have found all present understood). Mr Alderson thereafter properly, and naturally, included a guarantee in the documentation. The Committee’s stance in relation to the ONdigital transaction was different. It never questioned ONdigital’s standing as a counterparty save perhaps at the meeting of 10 May 2000, when the outcome of the discussion was that it implicitly displayed itself as content to deal with ONdigital alone. The Premium TV/NTL experience in February 2000 had heightened the Committee’s own sensitivities to the availability and benefit of parent company guarantees, and so it had them firmly in mind in the context of the exploitation of media rights, yet it was prepared to proceed to deal with ONdigital without the like support. It was no part of Mr Alderson’s duty to question them about that decision. His retainer on the television rights transaction was governed by the Television Strategy Document, which had no application to the portal transaction. I do not understand how what Mr Alderson did under the different retainer applying to the portal transaction is relevant in identifying his duties in relation to the television rights transaction.

276. I conclude, therefore, that edge ellison owed no general implied duty under their retainer to seek the Committee’s instructions on their views as to ONdigital’s solvency as a bidder, as a potential counterparty or as to whether requests were to be made for parent company guarantees.

(c) The expert evidence

277. Mr Fenwick called Adrian Barr-Smith, a partner in Denton Wilde Sapte, as an expert witness on a solicitor’s duties in the negotiation of sports rights agreements of the sort in question. Mr Sumption disputed the admissibility of such evidence and at the beginning of the trial it looked as if I was going to be asked to decide the preliminary question of whether the evidence was admissible. I proposed to counsel, and they agreed, that the safer course would be to allow Mr Barr-Smith’s evidence to be admitted, and for him to be cross-examined, without prejudice to Mr Sumption’s argument as to its admissibility. That is what happened.

278. The basic principle is that, with one exception, expert evidence on the duties of a solicitor is not admissible: it is a question of law for the court. It is then a question of fact for the court whether the duty, once identified, has been breached. The exception is that expert evidence is admissible to prove some “practice in a particular profession, some accepted standard of conduct which is laid down by a professional institute or sanctioned by common usage …”. (Midland Bank Trust Co. Ltd. and Another v. Hett, Stubbs & Kemp (a firm) [1979] Ch. 384, at 402, per Oliver J, approved in Bown v. Gould & Swayne [1996] 1 PNLR 130, at 135 (per Simon Brown LJ) and 136/137 (per Millett LJ)).

279. The notion that there could be any special practice or standard of conduct by solicitors in relation to the negotiation of sports rights agreements struck me as improbable. Nor did Mr Barr-Smith prove there was. He disclaimed the suggestion that the standard to be applied to solicitors practising in the field of sports broadcasting rights transactions was governed by principles distinct from those which standard text-books on the duties of solicitors apply to the profession generally. In so far as he sought to suggest that standard practices had evolved in the field of sports broadcasting transactions it turned out to be nothing more than a reflection of his own practice, at least in so far as it related to advice which a solicitor ought to give to his client. He did not prove that his practice was standard practice. He accepted that departure from his own favoured practices would not necessarily be negligent. He accepted that the solvency risks in the field of sports broadcasting rights were no greater than in commercial transactions generally. He accepted that there will be cases in which security will be sought and those in which it will not, that the matter is one for the licensor’s commercial judgment and that in any particular case the degree of aversion to solvency risk will depend on the circumstances. He disclaimed the suggestion that a solicitor had a duty to make inquiries about a counterparty’s solvency unless he had been instructed to do so, but said that a solicitor would at least have a duty to give the client any information he already had touching on the matter of solvency.

280. I find that Mr Barr-Smith neither identified nor proved any common usage amongst solicitors peculiar to the giving of advice in relation to sports rights transactions. I found his evidence to be inadmissible and have ignored it. But if I am wrong about that, I anyway found it unhelpful in determining the nature of edge ellison’s duties in relation to the television rights transaction.

2. If there was such a duty, and Mr Alderson had raised the question of bidder solvency with the Committee, what would its instructions have been?

281. This question does not arise, but I deal with it in case others disagree with my conclusion that no duty was owed. If Mr Alderson did owe such a duty, he did not discharge it. It is therefore relevant to consider what would have happened if he had. The point goes to causation. If the raising of the point would have made no difference to the Committee’s decision to contract with ONdigital alone, the FLL’s claim would still fail as a matter of causation. If, however, had Mr Alderson raised the point, the Committee would have sought guarantees, the FLL establishes the first link in the chain of causation leading potentially to a recovery of damages.

282. The FLL has to prove, on the balance of probability, that it would have sought guarantees had Mr Alderson raised the matter. If he did have a duty to raise it, I consider that the time at which he should and would have done so was at the Committee meeting on 10 May 2000. The Committee had expressly raised the question of ONdigital’s status - obviously against the background that it then looked as if an early deal might be struck - and so that was the time for Mr Alderson to utter words to the effect “Whilst I know you have decided that ONdigital’s parentage provides sufficient commercial comfort for a deal with ONdigital, have you considered the existence of the risk, however remote, that the parents might decline to support it at some point during the next four years and that you might protect yourselves against that risk by seeking guarantees from them? After all, if they are backing ONdigital, there must be a reasonable chance that they would go that extra step and guarantee it, although we do not know whether they would.”

283. Mr Sumption submitted there was no warrant for a conclusion that the Committee would have responded by saying “yes, good idea, let’s ask for guarantees.” It already knew about the benefits of such guarantees and had a made a tacit decision it did not want them. It had not sought them from Sky in 1995; and it had every confidence in ONdigital.

284. I have concluded that the probabilities are that, had any such question been raised by Mr Alderson, the Committee would have asked for guarantees. Whilst I have made the findings I have about its commercial decision on this matter, I also find that it at no stage engaged in an open discussion on the question of security. It simply worked on the basis of an instinctive collective assessment that, for reasons given, ONdigital was a reliable counterparty. But if the question of security had been expressly raised for its consideration, I regard it as probable that the Committee would have taken the view (a) that there was probably nothing to be lost by asking for guarantees, although there was no certainty they would be given; and (b) whilst in commercial terms it viewed their obtaining as unnecessary, it had no crystal ball revealing the future so that it would at least be sensible to take the precaution of asking for them. I expect too that the Committee would have taken the view that if it did not take up the suggestion and the worst happened, it would face the prospect of giving uncomfortable explanations to the clubs.

285. I therefore find on the probabilities that, had Mr Alderson raised the matter, the Committee would have made a decision to ask ONdigital for guarantees from Carlton and Granada. That request would have been made during negotiations of 10/11 May 2000.

3. Would parent company guarantees have been given if asked for?

286. This does not arise either, but I deal with it on the same basis. It goes both to causation and to the measure of damage. The FLL must prove that, had guarantees been sought on 10/11 May 2000, it had a real or substantial chance of getting them, as opposed to a speculative chance. If it fails to prove this, the claim also fails on causation. But if it can prove it, the evaluation of the chance it has so lost is part of the assessment of the recoverable damages, the available range being between something that just qualifies as real or substantial at one end and near certainty at the other end (see Allied Maples Group Ltd. v Simmons & Simmons (a firm) [1995] 1 WLR 1602, at 1611 to 1614, per Stuart-Smith LJ). If the FLL crosses the threshold, then if there is a range of possible outcomes, it may be appropriate for the court to assess the likelihood of each outcome in making its overall assessment of the lost chance (see Ball v Druces & Attlee (a firm) (No. 2) [2004] PNLR 746). Further, in assessing the loss, and in the circumstance that it is the defendant’s negligence which lost the claimant the opportunity of (in this case) obtaining full security for ONdigital’s covenant, it may be appropriate for the court to err on the side of generosity towards the claimant (see Mount v. Baker Austin [1998] PNLR 493, per Simon Brown LJ; and Feakins v. Burstow [2006] PNLR 94). I do not interpret this last guidance as meaning that the court should assess the appropriate measure and then give the claimant a bonus. I interpret it rather as meaning that if the court has a doubt as to the percentage within a given bracket that correctly reflects the lost chance, it should be disposed to give the benefit of the doubt to the claimant.

287. This issue therefore raises another hypothetical question, the task being to assess the FLL’s chance of being offered guarantees. It involves assessing how a third party would have reacted to a request that was not made. There is no evidence as to what Carlton and/or Granada’s attitude to a guarantee request on 10/11 May 2000 would have been: Mr Fenwick called no witnesses from Carlton or Granada. I regard it as unlikely that any expression of willingness to give guarantees would have been obtained during either of those days, since I consider that the assumption of such liabilities would be a matter requiring decisions by the parents’ boards. I find that that would have taken at least several days (and I record, but shall return to it in another context, that Mr Hearn agreed with that). But, for unrelated reasons, the negotiations came to an end on 11 May 2000, before any decision would have been made.

288. In those circumstances I doubt whether, had the request been raised, Carlton and Granada would have processed it beyond 11 May 2000. Why should they? However, once Sky waived the matching rights clause and ONdigital was back in the frame of contenders in early June 2000, I consider that it would have realised that an ability to offer guarantees might be all-important to closing a deal with the FLL, which there is no doubt it was very anxious to do, and so I regard it as probable that it would at that stage itself have re-raised with its parents their willingness to guarantee its obligations under any licence agreement the FLL might in principle be disposed to grant it. The question is, therefore, what chance did the FLL have that, when it came to any final negotiation with ONdigital, it would be offered guarantees by the parents.

289. The parents certainly displayed no willingness to offer guarantees once the short form agreement had been signed, although it is true that they were only asked for them in late 2001, by which time ONdigital was in trouble. But why, once the short form agreement had been signed, should they have been expected to give guarantees? The deal with the FLL had by then been struck and it did not require them to do so. On the other hand, if the giving of guarantees was perceived to be the key to securing a licence in the first place there might have been a willingness to give them; although they might equally have taken the view that their mere presence behind, and massive investment in, ONdigital was enough to satisfy the FLL’s commercial concerns and so would have declined to offer guarantees: I have no reason to believe that the parents would have wanted to give any guarantees unless they felt they were essential on the basis that any refusal to give them would be a deal breaker. Given the FLL’s own attitude to the obtaining of guarantees (it had not itself come up with the idea, and had been content to deal with ONdigital alone: and in July 2002 it dealt with Sky on an unsecured basis, when guarantees were refused) it is far from clear that any refusal would have been a deal breaker. The evidence also shows that ONdigital had only limited authority in what it could offer the FLL: it continually had to refer back to the parents, which were obviously keeping a cautious eye on the level of ONdigital’s commitment. There is no basis for any assumption that the parents would automatically have been willing to underwrite that commitment: to do so would be to expose them to potentially massive additional financial obligations at a time when the assumed failure of ONdigital would already have caused them to write off hundreds of millions of pounds. Granada was at this stage also in the process of merging with Compass, the listing particulars in relation to which had been published on 12 June 2000 and so the question of the assumption of a major guarantee liability may have posed additional problems for it in that connection. The mere fact that the parents were implicitly pledging their commercial support for ONdigital does not mean that they would also have been willing to guarantee its obligations: and in late 2001, when they were still publicly pledging that support, they declined to give guarantees. We know also, by way of a concrete example of how other parent companies work, that Sky’s parent refused to give the FLL a guarantee in July 2002, although it had made public its intention to continue to support Sky. Its attitude to the FLL had been: “This is the deal, take it or leave it.” The FLL took it.

290. Mr Scudamore, who became the Chief Executive of the Premier League in October 1999, gave some evidence relevant to this topic. He was involved in the licensing of the Premier League’s rights in 2000. When it got down to the shortlist of bidders the Premier League invited sealed bids by reference to a draft contract which required parent company guarantees. The bids were required to be submitted on the basis that the bidder had no material objection to the terms of the draft contract. ONdigital submitted a bid for two packages and Mr Scudamore offered the view that, had it been successful (and it was not), guarantees would have been provided by Carlton and Granada.

291. In the event NTL, which was awarded one package, withdrew and those rights were then re-let in what Mr Scudamore said was a much reduced market. ONdigital was again interested and Mr Scudamore had several meetings with Mr Prebble. The outcome was that the parents were not prepared to guarantee the full amount of any bid. Mr Prebble offered a guarantee from them for half the amount of the bid, plus a revenue share of whatever it sold to other broadcasters. The Premier League was not interested and so no deal was done.

292. What then happened was that the Premier League entered into a complicated deal with four broadcasters, including ONdigital. The negotiations took from January to April 2001, with closings in July 2001. Mr Stanley attended the closing meeting for ONdigital and said he had been unable to obtain parent company guarantees. Completion was put off for seven days, when they had still had not been obtained. They were finally obtained two days later. Mr Scudamore suggests that whereas Carlton and Granada had been willing to provide guarantees in the summer of 2000, their attitude had hardened by the summer of 2001.

293. I do not regard Mr Scudamore’s evidence as proving that, had the FLL asked for Carlton’s and Granada’s guarantees in the summer of 2000, they were there for the asking. He invites the inference that, had the Premier League accepted its bid, they would have been given, and he may be right. If so, one explanation might be that Carlton and Granada would have regarded it as worthwhile for the group to assume an extra commitment for the valuable Premier League rights. His evidence also shows that, in the reduced market of the autumn of 2000, they were unwilling to give unlimited guarantees; and that by the summer of 2001, their obtaining was still by no means easy. The inference is that Carlton and Granada made careful assessments before being prepared to give guarantees.

294. In my judgment it follows that the obtaining of guarantees by the FLL from the parents in June 2000 was no foregone conclusion. I consider that there is a material possibility that none would have been offered. But there is no doubt that the ONdigital venture was regarded by the group as a very important one; and I also find that there was a real or substantial chance that they would have been. I find that there would have been a high chance of obtaining guarantees for at least part of ONdigital’s commitment, although a materially lower chance of obtaining guarantees for its entire commitment, an approach that is supported by the fact that in the autumn of 2000 ONdigital’s parents offered guarantees for half the bid it was then discussing with the Premier League. My conclusion is, and I find, that the FLL had (a) a 70% chance of obtaining guarantees from Carlton and/or Granada for up to £160m of ONdigital’s commitment; and (b) a 40% chance of obtaining guarantees for the remaining £155m of its commitment. In arriving at these percentages I have given the FLL the benefit of my doubts as to the appropriate upper limits.

4. Did the inclusion of the financial arrangements paragraph in the ONdigital bid document of 7 June 2000 make a difference to edge ellison’s duties?

295. I have found that edge ellison owed no general duty to advise the Committee on, or prompt it about, the solvency of ONdigital or the question of whether guarantees might be sought. The point raised under this issue is, put shortly, that it is said by the FLL that Mr Alderson should have read the ONdigital bid document of 7 June 2000; that he should have read the financial arrangements paragraph as an offer of parent company guarantees from Carlton and Granada; and that he should have advised Mr Phillpotts to obtain them when the deal was being struck with ONdigital on 15 June 2000.

296. I have found that the financial arrangements paragraph was not read out at the meeting of 7 June 2000 so that Mr Alderson could not have learnt of it then, and I find he did not. I find that shortly afterwards a set of bid documents was collected from Mr Phillpotts by Mr Burton. But there is no evidence that the ONdigital bid document actually found its way into Mr Alderson’s hands, let alone that he read it by 15 June 2000. On the contrary, the documents show him making repeated requests for a copy of it in July 2000, from which I infer and find that he did not already have a copy and had not previously seen or read it. I find that he was at all times up to and including 15 June 2000 unaware of the financial arrangements paragraph. The first question is whether he should have taken steps to obtain a copy of, and read, the bid document at an earlier stage so that he was aware of its contents by, at the latest, the evening of 15 June 2000.

297. edge ellison submitted there is no reason why he should. As at 7 June 2000 it was just one of several bid documents. There was no presumption that the FLL would be dealing with ONdigital: at that stage Sky looked to be the likely winner (Mr Phillpotts in particular was hoping right down to about 8.00 pm on 15 June 2000 to deal with Sky) and Mr Townley regarded Premium TV as also still in the frame. Further negotiations were going to be necessary with the bidders and in the meantime the original bid documents had to be comparatively evaluated, which was Mr Townley’s job, not Mr Alderson’s. It is correct that Mr Townley’s letter to broadcasters of 2 June 2000 had told them that Mr Alderson would be the custodian of the bid documents, but that meant no more than it said: the purpose of that was to assure the broadcasters of the confidentiality of their bids. Mr Alderson’s proposed duty as a custodian did not impliedly require him also to read or evaluate the bids himself. In fact, the plan changed a little when on 7 June 2000 the Committee refused to agree to those confidentiality arrangements; and Mr Alderson did not take custody of the bids as planned. They were taken away for evaluation by Mr Townley, with his evaluation being circulated late on 11 June 2000. I have, however, related Mr Burton’s intervention in the story and how, despite that, there is no evidence that the ONdigital bid document came into Mr Alderson’s possession until August 2000.

298. edge ellison say that Mr Alderson anyway had no role to play in relation to the negotiations between 7 and 15 June 2000. They were being handled by Mr Townley and Mr Phillpotts. He had no duty in the meantime to take any proactive steps in relation to any of the bid documents, none being a contractual document and each serving merely as a basis for further negotiations in which he was not a participant. His duty was to await the time when negotiations with a particular bidder appeared to be steering towards agreement, when his task would be take part in, and advise upon, the drafting of the agreement. He could do nothing in the way of useful contract drafting in the meantime, since he did not know who was to be the licensee or on what terms: and a study of the various bid documents at that stage of the process would have been a waste of time and money. The hindsight that underpins the FLL’s case of course requires Mr Alderson to have foreseen that there would be a deal with ONdigital rather than with any other bidder, and so should have been focusing on the terms of its bid document in case it should be relevant to any deal ultimately struck with ONdigital; but edge ellison’s case is that this is not the right basis upon which to assess his duties at this stage of the process.

299. During this period Mr Alderson was provided on 12 June 2000 with Mr Townley’s draft deal memorandum and with ONdigital’s draft agreement of 13 June 2000. Mr Townley’s draft followed his evaluation of the bids and included no provision for guarantees. Nor did ONdigital’s document. Neither included any reference to the ONdigital bid document of 7 June 2000. edge ellison say that Mr Alderson was not obliged to check the bid document to see that the drafting was right and was entitled to assume they reflected the commercial basis on which the parties desired to proceed.

300. ONdigital submitted a revised bid on 15 June 2000. It was at £96.1m and was expressed to be on the terms of the bid document of 7 June 2000. edge ellison suggested that that was the earliest point at which Mr Alderson might perhaps have been expected to look at the bid document, although they also said that Mr Phillpotts’s continued expectation until shortly before 8.00 pm of a better bid from Sky reduced the strength of this suggestion. Only when Sky had dropped out was it apparent that ONdigital had won the race and even then Mr Alderson did not know the terms negotiated with it.

301. Mr Alderson engaged in the endgame with ONdigital in the evening of 15 June 2000 and played his part in agreeing the final terms of the short form agreement. By then ONdigital had added to clause 18 of their earlier draft short form agreement (which Mr Alderson had received on 13 June 2000) a provision for the negotiation of the long form agreement by reference (inter alia) to the bid document of 7 June 2000. edge ellison say, correctly, that Mr Alderson could not have foreseen that change. They also say that he could not reasonably then be expected to cross-refer to the bid document in order to absorb the full implications of clause 18 because he did not need to. Clause 18 did not commit anyone to anything since it was only an unenforceable agreement to use best endeavours to agree the terms of the long form agreement; and he had not been told by anyone that the bid document contained anything which he needed to consider in the context of agreeing the terms of the short form agreement. He was also entitled to have regard to the fact that he knew that Mr Townley and Mr Phillpotts had read the bid document and did not apparently take the view that anything in it needed to be included as an immediately binding commitment in the short form agreement. edge ellison also say that Mr Alderson could not reasonably contemplate that the bid document might have said anything about guarantees, which was not the sort of operational matter that would normally be left to be dealt with in a long form agreement. He was, therefore, not in breach of any duty in failing to review the bid document or, therefore, to take the FLL’s instructions on the financial arrangements paragraph. The important thing for him to consider was that the FLL had included in the remainder of the short form agreement all the terms that it wanted to; and a key consideration is that the agreement the parties were negotiating on the evening of 15 June 2000 was already very familiar to the FLL, an earlier version of it having been the subject of the negotiations on 10/11 May 2000. Mr Phillpotts agreed in cross-examination that Mr Alderson took him through the draft agreement in detail so as to ensure that he understood it, although he could not remember what was discussed.

302. I regard these as, collectively, compelling arguments for excusing Mr Alderson from any duty to consider the bid document, but I have not been persuaded by them. Whilst I agree with edge ellison that, for the reasons submitted, there was no duty upon him to consider the terms of the ONdigital bid document before 15 June 2000, I consider that he did come under a duty to consider it and, so far as appropriate, to advise Mr Phillpotts on it during the evening of 15 June 2000.

303. Mr Fenwick submitted, at least in part, that such a duty was imposed upon him by paragraph 7 of the Television Strategy Document, which required edge ellison to “Advise the Board on the legal ramifications of the recommended bid”. That paragraph referred to the situation in which the Committee had approved a proposed deal with a licensee and was putting it to the Board for the latter’s decision: a situation close to what was happening on the afternoon of 11 May 2000; and it required Mr Alderson to give the Board his legal advice on the proposed deal. This could cover any number of matters.

304. By 15 June 2000 the process of letting the television rights was at its climax, one which had been foreseen over the previous days. The time constraints of coping with it were such that the constitutional procedures governing the operations of the Committee had been compressed. The final terms with ONdigital were agreed on 15 June 2000 by Mr Phillpotts, who was acting upon the instructions from Mr Hearn as an authorised spokesman either of the Board or the Committee (probably the latter: I have referred to the Board’s resolution of 1 June 2000, but whichever it was does not matter, since Mr Hearn’s authority is not in question). Mr Phillpotts’s instructions were to sign with ONdigital at no less that £90m. The notion that, in the circumstances obtaining on the evening of 15 June 2000, paragraph 7 required Mr Alderson to advise the Board about the legal ramifications of the final deal is a little artificial.

305. But this, essentially formal, consideration is beside the real point. The reality was that by late on 15 June 2000 Mr Phillpotts was the human embodiment of the client, the FLL, and Mr Alderson was the solicitor whose duty was to advise him in relation to the transaction to which he was proposing to commit the FLL. That required Mr Alderson to advise Mr Phillpotts on the final form of draft short form agreement, including clause 18. There was an issue between the parties as to whether Mr Alderson advised Mr Phillpotts that clause 18 was a mere unenforceable agreement to agree. Whilst Mr Phillpotts admits that Mr Alderson took him through the draft, he could not remember the discussion they had about it save only that, perhaps a little remarkably, he claims to retain the isolated memory that Mr Alderson did not advise him of the limited legal effect of clause 18. I do not accept that particular piece of evidence as reliable, but I find that Mr Phillpotts anyway knew that long form agreements were commonly not agreed and that a clause such as clause 18 could not be relied upon to compel the creation of a long form agreement.

306. But this aspect of clause 18 is in my judgment also not quite the relevant point. That point is the short one that, for all its known legal limitations, of which Mr Alderson was aware, clause 18 was not in the short form agreement for the fun of it. It was intended to identify matters which the parties would subsequently endeavour to negotiate in good faith and it was important for Mr Alderson to know the potential range of those matters so that he could advise Mr Phillpotts properly on them. As clause 18 referentially incorporated the terms of the bid document of 7 June 2000, I regard it as basic that Mr Alderson needed to consider that document in order to satisfy himself that the client understood the nature of the best endeavours commitment that it was about to assume. A solicitor can only advise a client properly on a document if he has first considered the whole of it and any documents incorporated into it by reference. He cannot safely make assumptions as to things he has not read or considered; and the client is anyway entitled to more than the making of assumptions.

307. I find, therefore, that Mr Alderson should have called on the evening of 15 June 2000 for a copy of the bid document and considered it. Had he done so he would have read the financial arrangements paragraph. He would be likely to have interpreted it as conveying one or other of two possible messages: (i) that Carlton and Granada were lending what I have called their commercial support to ONdigital’s commitments; or (ii) that they were offering formal guarantees of those commitments. A reasonable solicitor would be likely to favour the former because there was no point in the parents volunteering guarantees. The FLL had made it plain on 10 and 11 May 2000 that it was content to deal with ONdigital on an unsecured basis, no mention having been made of any wish for parent company guarantees; and so there was no reason on ONdigital’s part to assume that such guarantees would suddenly become a sine qua non of a deal with the FLL. Why, therefore, should Carlton and Granada suddenly offer to subject themselves to the burden of such guarantees? Of course ONdigital could have foreseen that the FLL might change its mind about that, in which case it might have been prudent for it to have guarantees (if available) ready to be offered should they be requested. But why put them in the shop window?

308. On the other hand the reasonable solicitor is not presumed either to have a monopoly of wisdom on the interpretation of ill-drawn documents or to have the skills of a mind reader. However improbable might be the notion that ONdigital had suddenly decided to offer something that the FLL had displayed no indication of wanting, the financial arrangements paragraph can be read as supporting that improbable notion. On this view parent company guarantees were being offered by way of an unrequested bonus to the FLL. In my judgment Mr Alderson had a duty to advise Mr Phillpotts of that and take his instructions as to whether ONdigital should be asked to ensure that such guarantees (if in fact on offer) were included in the documentation about to be signed rather than left to be negotiated in the course of an attempted agreement of the long form agreement. The reasonably careful solicitor would not regard that as something that could safely be left to be negotiated as a term of the long form agreement: the parent companies’ initial rush of goodwill in that department might evaporate once the short form agreement was signed and there was no legal commitment to give guarantees.

309. I add that I do not consider that there is anything in this conclusion that is inconsistent with my earlier conclusion that Mr Alderson had no implied duty to raise the matter of guarantees with the FLL. The situation by 15 June 2000 was different. The position by then was that, on one view, ONdigital was offering a particular commercial term of potential benefit to the FLL; and Mr Alderson had a duty to obtain Mr Phillpotts’s instructions as to whether he wanted to take it up and, if so, how: whether by including appropriate provisions in the short form agreement or by leaving it to the negotiation of the long form agreement. If the latter were his instructions, Mr Alderson would then have to advise him of the peril inherent in them.

310. I find therefore that Mr Alderson should have raised this matter with Mr Phillpotts. The advice would have surprised Mr Phillpotts because, as I have found, he had at no stage intended or contemplated that the ONdigital agreement might be secured, and was not labouring under any illusion that the proposed short form agreement already incorporated guarantees. If, however, he had been told that ONdigital was, at least on one view, offering parent company guarantees and had been asked whether the documentation should be firmed up to include them, I find he would have said yes. The reason he would have said yes is because there was no possible downside and – in remote future events – there could have been an upside. I find that what would have happened is that Mr Phillpotts would have asked ONdigital to include guarantees from Carlton and Granada in the short form agreement.

5. Would parent company guarantees have been obtained if first sought on the evening of 15 June 2000?

311. The tricky bit is what would have happened next. The bid document of 7 June 2000 was unsigned but was enclosed with a letter signed by Mr Stanley, an ONdigital director. He had no other connection with Carlton or Granada. His evidence to Langley J in the guarantee action was that he had intended by the financial arrangements paragraph to do no more than convey the parent companies’ commercial support, not to offer guarantees from them (which is how I find the reasonable solicitor would also have read it). The further evidence was that neither Carlton nor Granada had authorised Mr Stanley or ONdigital to make any offer of a guarantee from them. Mr Prebble also gave evidence that at no stage had he offered guarantees by the parents, and he said he had no authority to do so. In the face of that evidence the FLL abandoned its case in the guarantee action that ONdigital had actual authority from the parents to offer their guarantees; and its case on implied and ostensible authority also failed.

312. I did not understand it to be part of the FLL’s case that I can or should proceed on any different basis as to ONdigital’s authority (or lack of it) to purport, on one interpretation of the financial arrangements paragraph, to offer guarantees from Carlton and Granada. I anyway find that, had Mr Phillpotts asked the ONdigital negotiators at the Montcalm Hotel on the night of 15 June 2000 to include guarantees from Carlton and Granada in the short form agreement, they would (i) have been taken aback, (ii) have said that ONdigital had not intended to offer such guarantees in the financial arrangements paragraph, had no authority to give them and had never discussed the matter with the parents and (iii) have said that if the FLL wanted to press the request it would have to be put to Carlton and Granada. It is also to be noted that Mr Prebble’s evidence in cross-examination before Langley J was that the parents “needed persuading to go to this level [£105m a year]”.

313. The result would then have been that if – his appetite whetted – Mr Phillpotts had wanted to press for parent company guarantees, they would have had to be negotiated with Carlton and Granada, either directly or via ONdigital. I find on the probabilities that Mr Phillpotts would have asked for guarantees but that the response from ONdigital (having taken instructions from the parents) would have been that there was no question of any commitment to the giving of guarantees being given that night: that is, that there was a nil chance of guarantees being offered that night. It was accepted in evidence by the FLL witnesses (in particular Mr Hearn), and I anyway find, that agreement (if any) to the giving of guarantees would have been a major matter for Carlton and Granada and could not have been obtained over the telephone there and then. It would probably have required board resolutions from the two parents and could have taken several days to achieve - assuming, that is, that the proposal was not turned down. The giving of such guarantees was no formality: it involved the assumption of contingent liabilities for nine-figure sums. Upon being given that response Mr Phillpotts would have realised that, if he wanted to hold out for guarantees, there could be no deal with ONdigital that evening, and the negotiations would have to be deferred for perhaps several days in order for the guarantee request to be negotiated with, and considered by, Carlton and Granada. He had, however, no authority to defer the negotiations for that purpose. His instructions were to sign up with ONdigital at no less than £90m a year; and he knew that, if he did not, the market could collapse the next day.

314. Given the nature of his instructions, and that (so I find), it was no part of them that he was to negotiate a secured deal, I find that Mr Phillpotts would himself have made the decision to withdraw his request for guarantees and to sign up that night with ONdigital on an unsecured basis at £105m a year. If I am wrong in finding that he would have made that decision by himself, then I find that he would have contacted Mr Hearn for instructions as to whether he should so sign up that night or whether he should defer the negotiations so that guarantees could be negotiated with Carlton and Granada. The question that would then arise is whether (i) the FLL, acting by Mr Hearn, would have decided to defer signing up that night with ONdigital at £315m on the basis that within about a week or so ONdigital’s obligations under any licence then granted (on whatever terms were then available) either would, or at least might, be secured by parent company guarantees; or (ii) it would have signed up with ONdigital on an unsecured basis knowing that, if it did not strike while the ONdigital iron was hot, it might find to its cost that within a day or so the iron had cooled and the £315m deal had been forever lost. Mr Townley had made it clear that once the news was out that Sky had left ONdigital as the only player in the field the market could collapse and Mr Hearn knew that. He even foresaw the possibility of a small collapse during 15 June 2000, which is why he authorised Mr Phillpotts to sign with ONdigital at no less than £90m a year.

315. Mr Hearn’s evidence was that had this become a point for consideration on 15 June 2000, he would have halted the deal, and would only have allowed it to proceed on an unsecured basis with the express prior approval of the Committee and the Board. He said if Mr Phillpotts had come back to him after being given his £90m instruction and told him the deal was unsecured, “there is no way, there is no way, we could have taken a chance on it.” He agreed that, given the size of the commitment that the parent companies would be invited to take on, it could have taken a week or ten days to achieve the giving of guarantees. He agreed that the market could in the meantime collapse, but said the problem could have been met by signing an agreement with ONdigital that was conditional on guarantees being given. Since, however, any such agreement could not have committed Carlton or Granada to anything, and a failure of the condition would have released ONdigital from the £315m hook, that was no answer to the dilemma in which the hypothetical question would have placed him. An alternative way the FLL put the case was that it could have asked for an immediate contractual commitment from ONdigital to obtain parent company guarantees. I agree it could have asked, but I find that the answer would have been no. How could ONdigital assume such an obligation?

316. Mr Hearn was adamant that he would not have gone ahead with the deal without guarantees. This was his stated position even if the risk was that the market would fade away (he referred to a potential “bloodbath” in terms of money lost), even though certain of the clubs were desperate for cash and even though his own assessment was that he had no doubt that the FLL would be paid whether or not the deal was secured. Losing the deal would of course also have meant losing the all-important advance payment of £47.25m, which was of such importance to the clubs, some of which were facing insolvency. He said, however, that he would put the solvency of the clubs at risk rather than proceed with an unsecured deal. Having, as I have found, not once given a thought to the need for the ONdigital deal to be secured, his evidence is that had the lack of security been raised for the first time on the evening of 15 June 2000 he would have cancelled the £315m deal and started fresh negotiations with ONdigital for a secured deal on whatever terms could be achieved. One can imagine how impressed the clubs would have been when he explained that to them the next day.

317. Mr Bowler took a similarly cautious view. He was asked to consider the hypothetical circumstances that he had been told on 15 June 2000 that there was no guarantee in the documentation, that it was most unlikely that Carlton and Granada would allow ONdigital to fail and that a request for a guarantee could cause a delay in which the market could fall. He said he would have rejected any advice to proceed with the deal with ONdigital there and then, and would have wanted to discuss with the chairmen of the clubs the level of risk involved and as to whether the FLL should proceed. If that course had been followed, it would be bound to have taken some time and the likelihood of £315m still being on offer could for practical purposes be written off.

318. Mr Heard was also asked to consider the hypothetical dilemma with which the FLL might have been placed if Mr Phillpotts had gone back to it for instructions. He said he was one of the more cautious people involved in football and “may well” have called off an unsecured £315m deal in favour of the chance of a secured one at what might well be “enormously less” than £315m.

319. I am unable to accept any of this evidence, which I regard as a wholly improbable re-creation of the likely response of the FLL in the hypothetical circumstances I am considering. As the famous film director famously said “hindsight is always twenty-twenty” and the difficulty I have with accepting this evidence is that it is obvious that it is disproportionately coloured by the unanswerable wisdom of such vision. If, however, the matter is assessed as at June 2000, leaving the now known future out of account, I find it improbable that the FLL would have taken the line that Mr Hearn so adamantly asserted and that Mr Bowler and Mr Heard echoed, albeit rather less adamantly. Mr Griffin’s evidence was more balanced and realistic. He believed that “the reality of the situation is that the FLL would have gone with ONdigital irrespective of the risk if that was the only offer on the table or substantially the largest offer on the table, but if there had been a credible alternative then there would have been an obligation on the Board and the Commercial Committee to make the alternatives and the risks clear to the member clubs.”

320. The picture was that many of the Football League clubs were desperate for cash. Cash had been the driver of the whole television rights operation and Mr Townley’s skills had negotiated a deal involving fantastic sums of money – way beyond the Committee’s original expectations – including the all-important up-front payment of £47.25m. The deal had been negotiated with a company which was regarded as part of the long established ITV family, which was aiming to be a leading force in the digital television field and which was backed by two substantial and reputable FTSE 100 companies which had invested hundreds of millions of pounds into it. The likelihood that they would let ONdigital go under was in the highest degree remote, although of course the possibility could not be excluded. I have found that Mr Phillpotts and the Committee (including Mr Hearn) were at all stages down to 15 June 2000 content to deal with ONdigital alone, having made the commercial judgment that its substantial parentage gave it sufficient commercial strength. Mr Hearn had no doubt that ONdigital would pay. No-one had thought to ask for guarantees down to 15 June 2000, and I have found that no-one had it in mind that guarantees would be sought. Everyone knew that ONdigital was dependent on Carlton and Granada. But for the assumed raising on 15 June 2000 by Mr Alderson of the question whether guarantees (if in fact on offer) should be sought, the deal would have been done and dusted and no thought would have been given to the fact that it was unsecured. Yet once the subject of guarantees is, for the very first time, raised on the evening of 15 June 2000 in the hypothetical circumstances I have outlined, I am expected to find that the FLL would suddenly have taken the view that an unsecured deal with ONdigital was out of the question and that it could only proceed with it at all if Carlton and Granada gave guarantees for ONdigital’s commitments; and even though the probable consequence of the delay involved in seeking guarantees would be that the £315m deal would probably be lost and that any replacement deal would be at only a savagely reduced figure.

321. I am not prepared to accept that that is how the FLL would have reacted to the raising on 15 June 2000 of the question of guarantees. For reasons which I hope are sufficiently clear from what I have just said I regard it as wholly improbable. In the circumstances in which the FLL had arrived on the cusp of a fantastic – albeit unsecured – deal with ONdigital on 15 June 2000, it would, I find, have made the commercial decision to proceed as it had always planned and to sign up with ONdigital, as it did. It would not have pressed for guarantees. It would have stuck to its commercial decision that it could deal with ONdigital alone and it would have so dealt with it. Just over two years later it was perfectly content to deal with Sky on an unsecured basis, Sky then being in a commercial position analogous to that of ONdigital’s in 2000. True it is that in 2002 Sky was the only bidder in the field offering an acceptable amount of money. But that was much the same as the position that obtained on 15 June 2000 – only ONdigital was still in the race and it alone was offering not just an acceptable, but a fantastic amount of money.

322. I therefore find that although Mr Alderson was in breach of duty in not raising with Mr Phillpotts the guarantee question provoked by the financial arrangements paragraph, it was a breach that caused the FLL no loss, because the FLL would anyway have proceeded with the deal on an unsecured basis. I find that Mr Alderson was not in breach of duty in not raising the paragraph with the FLL at any earlier stage. The consequence of this conclusion is that the FLL is entitled to nominal damages of £2 for this breach of duty but not to any substantial damages.

6. Were edge ellison in breach of duty by not seeking to negotiate the inclusion of guarantees in the long form agreement?

323. I deal with this question on the basis that, nothing having been said about guarantees throughout the negotiation process, Mr Alderson found himself in August 2000 faced with arguing the FLL’s corner in connection with the drafting of the long form agreement. By then he had obtained a copy of the ONdigital bid document, which I presume he read. For reasons which I do not regard it as necessary to repeat I consider that, once he had read the financial arrangements paragraph, he should at an early stage have sought the FLL’s instructions as to whether, in light of that paragraph, it wanted him to ask ONdigital to obtain parent company guarantees and to include their giving in the long form agreement, for which purpose Carlton and Granada would be necessary parties. The answer, as before, would have been yes, in which event he should have asked for them.

324. In fact, for reasons unexplained in the evidence, Mr Alderson did not raise the matter of guarantees with the FLL; and nor did Mr Phillpotts prompt him about them after he had read the first draft of the long form agreement. I consider that Mr Alderson’s failure in this respect was another breach of duty.

325. Whether it was a breach that caused any substantial damage turns on whether, had he raised and pressed the matter with ONdigital, as he should have done, there is a real or substantial chance that Carlton and Granada would have given guarantees. Mr Fenwick urged that there was a real possibility that they would have done at that early stage, there being a degree of goodwill between the new business partners in the honeymoon of their relationship.

326. I am entirely unconvinced by that and do not accept the submission. When Clifford Chance first included a guarantee provision in the initial draft, ONdigital struck it out before the document even crossed the line: Clifford Chance may perhaps have taken the view that this is what the financial arrangements paragraph intended, but ONdigital’s reaction was, so I infer, either (i) that it had never intended to offer guarantees, and/or (ii) that as it was anyway under no legal commitment to provide guarantees, there was no reason why it should do so. As for the attitude of Carlton and Granada themselves, we know that much later, in late 2001, when they were still publicly pledging their support for ONdigital, they refused to give guarantees. As at August 2000 they would no doubt have had a rosier view of ONdigital’s future, and I am prepared to accept that they did then have a genuine degree of goodwill towards the FLL. But I can see absolutely no reason why either of them should have been willing to upgrade their pledged commercial support into a legal guarantee of ONdigital’s obligations. As was shown in the guarantee action, ONdigital had in no manner committed them to giving guarantees and they were under no legal or moral obligation to grant them. There was no reason why they should now give them; indeed I cannot see how either of their boards could properly have authorised their giving. The FLL was by now firmly on the hook and ONdigital had got the rights it wanted, so what benefit would either parent be getting? How could the giving of guarantees have been a proper commitment for the parents to assume? It is plain that it could not. There was at that stage no reason why the parents should have given guarantees to the FLL and I find that the FLL’s chance of obtaining them at that stage was nil.

327. It follows that Mr Alderson’s failure represented a further breach of his duties to the FLL, but I again find that it caused no substantial damage. This is because guarantees, if requested, would have been refused. For like reasons as before, I consider this breach also entitles the FLL to nominal damages of £2.

7. Contributory negligence

328. This does not arise on the basis of my findings. But if, contrary to my view, edge ellison owed a duty to the FLL to raise the matter of parent company guarantees at the Committee meeting of 10 May 2000, then I would have held that it cost the FLL the lost chance that I have earlier found of obtaining guarantees for ONdigital’s commitment under the licence of 15 June 2000.

329. If so, edge ellison submitted that the FLL was guilty of a material degree of contributory negligence. That is because its breach of duty was one for failing to advise, or prompt, the FLL to consider a commercial aspect of the transaction which the FLL admits was one about which it was capable of forming its own view without the need for advice or prompting by edge ellison; and, moreover, one about which it had formed its own view.

330. It is only in rare cases that a solicitor is able to advance a plea of contributory negligence with any real prospect of success, and for obvious reasons. That is because his breach of duty will usually be in relation to a matter within his special expertise as a solicitor, being a duty which is not usually one relating to a purely commercial matter of judgment falling squarely within the client’s own competence. It will usually relate to a matter upon which the client is depending upon the solicitor’s special expertise. The present case is, however, different in kind. Assuming, as I must, that Mr Alderson had a duty to advise or prompt the FLL to consider the question of bidder solvency and parent company guarantees, this was, I find, a matter which was still primarily one for the FLL to consider and assess for itself without any need for such advice or prompting. I have found that it concluded that ONdigital was a sufficiently strong counterparty that it could deal with it alone. The consequence of any advice or prompting by Mr Alderson would, so I have also found, have been that the Committee would have re-considered the assessment it had itself made and have decided, as a matter of caution, to ask for guarantees that it had itself tacitly concluded were unnecessary. Whilst it can therefore be said that Mr Alderson’s breach of duty caused loss to the FLL, the FLL also made its own commercial decision on the same matter, being a decision which, with hindsight, it now regrets.

331. I see no good reason why, in these circumstances, the FLL should not be regarded as contributing to its own loss. I find that it was guilty of contributory negligence since I consider that the relevant issue was one that was primarily for it to decide upon for itself rather than for Mr Alderson to prompt it to consider. I regard the FLL’s contribution as substantial. I assess it at 75%.

8. Quantum

332. This does not arise either but I must make my findings on it. There appears to be no dispute on the figures, but some have given rise to differences of principle. The ultimate figure would have to be adjusted by my assessments of the measure of the FLL’s lost chance and contributory negligence.

333. The gross shortfall under the ONdigital agreement was £178.5m. The FLL accepts it must give credit for: (i) £46,666,667 recovered from the re-licensing to Sky of the television rights in respect of 2002/2004; (ii) £2m received for the 2002 licensing to ITV of the highlights; (iii) £3m received in 2002 from Carlton/Granada under the assignment of the first 5% of dividend; and (iv) the dividend above that of £5,395,576.50. Those credits total £57,062,243.50. That reduces the shortfall to £121,437,756.50.

334. edge ellison say this sum should further be reduced by £3.575m. This was the further sum the FLL would have obtained if it had not assigned its first 5% of debt (worth £6.575m) for £3m to Carlton and Granada. I find that at the time of this assignment the FLL was aware that a dividend in excess of 5% was probable; and the only reason for this apparently imprudent transaction was to achieve immediate much needed cash for the clubs, which were invited to, and did, approve the deal.

335. Whilst I understand that the clubs needed the money and that this was regarded as a convenient way of raising cash for them, the stark fact of this transaction is that the FLL was giving up the probability of £6.575m tomorrow in exchange for £3m today. It is said that this was reasonable mitigation of its loss but I do not see how it was. I do not follow how the giving up of a (probable) £3.575m recovery in order to make an immediate distribution of £3m to its club shareholders can be regarded as having been a reasonable mitigation of its, or the clubs’, loss. The FLL was entitled to engage in this transaction and the clubs approved it. But it cannot expect edge ellison to bear the £3.575m. I agree with edge ellison that the basic figure must be further reduced by this amount, which brings it down to £117,862,756.60.

336. I hold that it also follows that the legal costs incurred in relation to the negotiation of that assignment cannot be charged to edge ellison either. The relevant costs are part of a total bill of £20,033.57, although part also relates to the legal costs associated with the letting of the ITV highlights and part to other matters. I find that the element of those costs referable to the ITV highlights deal was reasonably incurred in mitigation, but not the remainder. I presume that, were it to be relevant, the parties could agree the apportionment of that head of costs, but if not there would have to be an inquiry. edge ellison also accept that the FLL properly incurred legal costs of £39,292.07 in relation to the re-licensing to Sky, and I regard that sum as reasonably incurred in mitigation.

337. The other item in dispute is what appears to be an agreed round sum of £125,000 referable to certain costs paid to Hammond Suddards Edge for work done in March/April 2002 following the collapse of ONdigital. It related in part to an application in ONdigital’s administration for a change of the administrators on the grounds that they had a perceived conflict of interest. In further part it represented costs paid to Hammonds in relation to the proposed claim against Carlton and Granada that they had guaranteed ONdigital’s commitments, the claim that was later dismissed. The costs so claimed relate only to the relatively short period whilst Hammonds were acting in the matter: Lawrence Graham took the case over in April 2002.

338. edge ellison say that the first element of costs is not recoverable as a head of costs reasonably incurred in mitigation because although the reasonableness of the application is not in dispute, it is said that the costs would have been incurred anyway: ONdigital would have gone into administration whether or not edge ellison had been at fault, so that such damage is not damage of a type from which they can be regarded as having assumed a duty to save the FLL harmless. The counter argument is that, but for edge ellison’s negligence, the FLL would not have had to make the application at all: it would simply have recovered under the guarantees. It is said that this expense was reasonably incurred in mitigation of its loss. I agree with the FLL.

339. As regards the other element of the £125,000, it is said that this cannot be regarded as reasonably incurred in mitigation because (a) Mr Alderson had correctly advised the FLL in October 2001 that it had no recourse against Carlton and Granada, and (b) Mr Price of Hammonds gave the FLL similarly correct advice on 1 April 2002. Whilst it is true that leading counsel’s more optimistic advice was that guarantees had arguably been given, that advice was wrong and Mr Price also so advised the FLL. edge ellison accept that the FLL was entitled to prefer leading counsel’s advice and back its hope that he might be right. But when his advice proved to be wrong, as they had told the FLL it was, they say that it is unreasonable for the FLL to claim these costs from them as having been incurred in mitigation of its loss. I agree. In the circumstances I have outlined, I do not consider that the costs of the misconceived claim against Carlton and Granada can be regarded as loss of the type against which edge ellison had a duty to save the FLL harmless. They advised the FLL that the claim would fail: what more could they have done to save the FLL from wasting its money in the way it chose to?

340. Again, my split decision in relation to the £125,000 means that, were the point relevant, the appropriate apportionment would have to be the subject of agreement or, in default, an inquiry.

9. The Part 20 proceedings against ARM and Mr Townley

341. There is no claim by the FLL against ARM and Mr Townley. The only claim against them is that made by edge ellison, who ask for an indemnity or contribution in the event of the FLL’s claim against edge ellison succeeding. The FLL’s claim against edge ellison has failed (I do not believe anyone will regard the recovery of £4 nominal damages as relevant success and I shall ignore it). It follows that the claim against ARM and Mr Townley fails.

342. If the FLL had succeeded against edge ellison, I would anyway have regarded the latter’s claim against ARM and Mr Townley as unfounded. It is based in part on the assertion that if the FLL ever gave any indication at any Committee or Board meeting that it wanted guarantees, then ARM and Mr Townley breached a duty owed to the FLL to ensure that guarantees were negotiated. As I have found that no such indication was ever given, that head of claim fails on the facts.

343. In addition, edge ellison allege that ARM and Mr Townley had a duty to advise the FLL on (in effect) the commercial risks of dealing with ONdigital on an unsecured basis; and it is said that that duty was breached. In earlier relating the matter of ARM’s appointment, I have found that ARM and Mr Townley owed the FLL no such duty. It follows that there can be no question of any such duty having been breached.

344. The final point made against ARM and Mr Townley is that as the financial arrangements paragraph might have been read as offering guarantees from Carlton and Granada, ARM and Mr Townley had a duty to advise the FLL to explore the matter further with ONdigital. In my judgment, it was no part of ARM’s duty to advise the FLL about this either. The financial arrangements paragraph was in the ONdigital bid document for all, in particular Mr Phillpotts, to see. He saw it and did not need anyone to translate it for him. I have found that he read it as mere confirmation of the anyway implicit commercial comfort that Carlton and Granada were offering. If he had read it as offering formal guarantees, and he had wanted to take the matter up, it was open to him to raise it at the meetings with ONdigital which he attended with Mr Townley on 13, 14 and 15 June 2000. It was completely within his commercial competence to do so. He did not need advice from Mr Townley as to whether he should do so and I find that it was no part of ARM’s implied duties to volunteer such advice. Consistently with this, Mr Phillpotts expressly disclaimed in cross-examination by Miss Carr QC, for ARM and Mr Townley, that it was either appropriate or necessary for Mr Townley to raise this matter at any of these meetings. Mr Phillpotts was there expressing his then view as to ARM’s role from the FLL’s perspective. I am not prepared to find that his view was wrong; and I find it was not.

345. I heard an interesting debate on whether, assuming ARM were to be liable to edge ellison, Mr Townley could also be personally liable. Since I find that the claim against ARM and Mr Townley fails on the facts, and anyway does not arise in view of the failure of the claim against edge ellison, I do not propose to extend an overlong judgment by considering a legal issue arising on hypothetical facts which it is unnecessary to decide. The Part 20 claim against both ARM and Mr Townley will be dismissed.

Result

346. I have found that in two respects edge ellison breached the duties they owed the FLL in relation to the grant of the television rights. But I have also found that neither breach caused any substantial damage. In relation to the first breach (that committed on 15 June 2000), I have found that the FLL would not have pressed for guarantees anyway even if Mr Alderson had raised the matter. In relation to the second breach (committed whilst Mr Alderson was negotiating the long form agreement), I have found that guarantees, if requested, would have been refused. I award the FLL £2 nominal damages for each of these two breaches, but otherwise its claim fails. I dismiss edge ellison’s Part 20 claim against ARM and Mr Townley.