Ross River Ltd & Anor v Cambridge City Football Club Ltd

The Club was incorporated on 14th August 1973 as a private company limited by shares to take over the assets, liabilities and business of its predecessor the Cambridge City Football Sports Club Ltd. It appears that a football club bearing the name Cambridge City can trace its existence back approximately 100 years. It is one of two prominent football clubs in Cambridge, the other being known as Cambridge United. It has been a regular competitor in the FA Cup, and competes in the Conference South League.

By late 2002, despite success from time to time on the field, the Club was commercially insolvent, although the value of its assets still exceeded its liabilities, due entirely to the potential for residential development of the Ground.

At all times prior to the adoption of new Articles of Association in 2006 the Club’s constitution provided, by Article 14 as follows;

“A Director shall not be entitled to receive any remuneration in respect of his office as Director or as an employee of the Club. The Directors may be paid all travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the Directors or any committee of the Directors or general meetings of the Company or in connection with the business of the Company”

In late 2002, at the beginning of the events which I must describe, the Club’s directors were Stuart Hamilton, Kevin Satchell and a Mr and Mrs Rolph. Mr Hamilton was the Chairman, and handled the day to day affairs of the Club, subject to the (not very close) supervision of the Board.

The claimants are both offshore vehicles, formed for the purposes of the transactions in issue in these proceedings, and ultimately beneficially owned by Mr York and his family. Blue River is an Isle of Man limited partnership, and Ross River is its general partner. The York family’s beneficial interest in the claimants is held under a trust which is a limited partner in Blue River.

Mr York is a businessman with substantial interests in and around Cambridge, in particular in connection with building and property development, including projects for a number of Cambridge University colleges.

It became apparent to the Club’s then directors in late 2002 that the deteriorating state of its affairs was getting beyond their control. Mr Hamilton’s wife had recently died. He had become reticent about the Club’s day to day affairs, and preliminary attempts to put together a re-location plan which would permit the Ground to be sold so as to improve the Club’s finances had made no progress. Mr George, a former player and full-time employee of the Club, was brought onto the Board to avoid losing him, and he was instrumental in persuading both Mr York and Mr Eastham to contribute their considerable business experience towards turning the Club around, as directors. I have described Mr York’s background. Mr Eastham’s experience lay in sales, having in particular been a sales director for the telecommunications company NTL. Both had, as may be expected, a keen interest in football. In addition, another former player for the Club, Martin Murray, was also recruited to the Board.

A search at Companies House shows that all four new directors were appointed on the 4^th February 2003, although the oral evidence suggested that they were invited to join the board in December 2002.

The appointment of the new directors coincided with the issue by the Football Association of a report on the Club, on the 12^th February 2003, based upon work carried out in September 2001 and a draft report was issued in December 2001, upon which the then directors had been invited to comment. The report noted, at paragraph 4.4, that despite the prohibition in the Club’s Articles upon remuneration of directors (whether as directors or employees) the Club’s then chief executive Mr Hamilton received a salary, and recommended that Article 14 be amended. The report also noted the parlous financial position of the Club, and the Board’s intention to resolve it by a sale of the Ground, coupled with relocation of the Club’s activities. The report noted the expectation of the then Board of receiving about £7.5 Million net for the sale of the Ground, and recorded the directors’ intention to seek shareholders’ approval for a re-location before any decision was made. The evidence of the new directors was, regrettably, that none of them read the FA’s report, having in their view much more urgent crises to deal with. Article 14 was not amended.

Attempts by the new directors to appraise themselves of the up to date financial position of the Club at a series of board meetings in early 2003 met with a lack of co-operation from Mr Hamilton, which culminated in a decision on 6^th May 2003 that he should “step aside” while Mr Eastham carried out a review of the books and records. Mr Hamilton then resigned on about 12^th May and, upon Mr Eastham’s discovery of large amounts of unopened correspondence, including unpaid bills, in Mr Hamilton’s office, an urgent investigation of the Club’s finances was commissioned by the Board from Peters Elworthy & Moore, a local firm of accountants. They reported in writing on 23^rd May, advising that the Club was commercially insolvent (i.e. unable to pay its debts as they fell due), that it had short-term liabilities to creditors in excess of its overdraft facility in the amount of £ 122,000, that it was losing about £12-15,000 a month, and that cash of approximately £250,000 would be needed to meet liabilities to creditors over the following 6 months. The report noted that the Ground represented an asset of significant but uncertain value, noting a recent valuation prepared for its bankers of £750,000 to £1 million, but a possibly much higher development value, subject to major uncertainties which needed to be investigated.

The Club had no money with which to pay Peters Elworthy & Moore for their work. Mr York arranged for his company York Construction (Cambridge) Ltd (“York Construction”) to pay the bill of some £15,000 odd, and the payment was treated as an unsecured loan by York Construction to the Club.

The Board’s immediate response to the discovery of the financial crisis facing the Club was to appoint Mr Eastham as chief executive in the place of Mr Hamilton. Although there is no documentary record of this, the oral evidence of the directors persuades me that, at the outset, Mr Eastham’s fellow directors agreed that he should be paid £2,500 per month (or £30,000 per annum) for his services as chief executive, a slight increase on the £25,000 per annum which Mr Hamilton had been receiving. The Club’s shareholders had neither been asked to consent to, nor informed of the payment of a salary to Mr Eastham, and since the board ignored the Football Association’s advice to amend Article 14, the board had no authority to commit the Club to the making of any salary agreement or salary payments to Mr Eastham.

As is recorded in the minutes of the board meeting on 4^th February 2003, at which the new directors were appointed, the sale of the Ground and consequential re-location of the Club’s activities was a cardinal item of company policy from the moment of their appointment. The minutes noted interest by four property companies, and recorded a decision that each of them should be invited to make offers for the Ground by 4^th March. As an experienced property developer himself, Mr York was asked by the other directors to advise the Club, alongside Mr Hamilton, in connection with the sale of the Ground.

It rapidly became apparent to Mr York that, notwithstanding the optimistic figures which had been suggested to the Football Association, the realisation of the development value of the Ground was likely to be seriously impeded by practical difficulties, which may be grouped under the following four headings:

The Ground was affected by a restrictive covenant contained in a conveyance dated 28^th October 1929 in favour of St John’s College, Cambridge, which limited the use of the Ground to a sports or athletic ground, and prohibited the erection of any building thereon, other than a pavilion or similar building for sporting use. The Club had not by early 2003 taken any legal advice as to the enforceability of this covenant, or entered into any negotiations with the College for its release.

The only access to the Ground lay though the neighbouring Westbrook Centre pursuant to a right of way enjoyed by the Club. By early 2003 the Club had taken no advice either upon the question whether its existing right of way would be sufficient for a residential development upon the Ground, whether the route of the access road was suitable in planning and highway safety terms, or whether the road was suitable for adoption as a public highway. It was believed that a potential alternative means of access was subject to a ransom strip owned by the City Council.

There were a number of occupying tenants, all or some of whom would be likely to require the payment of substantial premia for early surrender. They were the Cambridgeshire Football Association, under a 99 year lease from 1^st May 2001 relating to office premises within an existing building on the Ground. Secondly, Tipacre Ltd had a lease of the majority of the car park on the Ground expiring in January 2007. Thirdly, Crown Castle UK Ltd had erected a mobile telephone transmitter station and mast on part of the Ground under a lease for 20 years from 11th October 1995. Lastly the De Simone family were tenants of a restaurant at the Ground under a lease for 10 years from December 2001, having been tenants since 1985.

By early 2003, the Club had not commenced negotiations with any of its occupying tenants with a view to obtaining early possession, and had little idea whether, and if so for what surrender payments, each of them would be prepared to vacate.

The Ground was, in early 2003, subject to two charges, the first in favour of the Club’s bankers to secure its substantial overdraft, limited at that time to £395,000. Upon a sale therefore, the Club would have to be able to continue trading with a much reduced (if any) overdraft. Secondly, Cambridgeshire FA had a charge to secure a loan to the Club in excess of £150,000.

The combined effect of these difficulties meant that, as became apparent when interested purchasers submitted written offers, the Club had no prospect of an early sale of the Ground on terms which would realise its development potential by a significant immediate monetary payment. For example, David Wilson Homes only offered to pay £100,000 for a 5 year option to purchase. Bovis Homes made an offer which, although substantial, at £7.46 million, was conditional upon the receipt of planning permission for which in early 2003 the Club had not even applied, offering only a £50,000 deposit in the meantime.

Faced with unsatisfactory offers and an increasingly desperate need for cash in the short term, the directors began to focus upon Mr York as a potential lender and, in due course, buyer of the Ground. Mr Hamilton asked Mr York whether he could provide £100,000 as short term funding pending sale but this was not pursued before he resigned. I have already described how Mr York arranged for York Construction to lend money to pay for the investigation by Peters Elworthy & Moore.

At a board meeting in June 2003 Mr York was asked by Mr Murray and Mr Satchell whether he would be interested in purchasing the Ground on terms which would provide for the Club both a share in its development potential and cash in the short term. Mr York agreed to think about it and, having decided that he was interested, informed his colleagues in July of his intention to resign as a director, as he eventually did by letter dated 4^th September. By then he had at Mr Eastham’s request made two unsecured loans to the Club, each of £50,000, on 7^th and 15th August.

In the meantime the Board arranged for professional advice in connection with the sale of the Ground. Taylor Vinters, a Cambridge based firm of solicitors, were retained to provide legal advice on 23^rd May, and Cheffins, a Cambridge based firm of chartered surveyors, were retained to provide valuation and marketing advice in August.

Mr York’s first move towards acquiring the Ground consisted of a proposed agreement pursuant to which, in return for increasing his companies’ lending to the Club from £100,000 to £200,000, his company York Developments Cambridge Ltd (“York Developments”) would receive first, a debenture by way of security, and secondly an option exercisable within 12 years (or longer if there was a pending planning appeal) to purchase the Ground at a formula price consisting of half the difference between the market value of the Ground at the time of exercise and indexed linked planning and development costs (as defined). Any outstanding lending secured by the debenture at the time of exercise of the option was to be deducted from the amount payable to the Club.

Mr Lee of Cheffins advised the Club against the proposed agreement but the directors nonetheless executed the proposed Option Agreement on 1st September 2003, on terms making it conditional upon shareholder consent. Whether the Board’s decision to execute the Option Agreement was a measure of the then extremity of the Club’s financial predicament or of the lack of business acumen on the part of its directors was not explored in evidence, and need not be decided, because at an Extraordinary General Meeting of the Club on 26^th September 2003 the shareholders declined to provide the necessary consent, with the consequence that the Option Agreement never became unconditional, and lapsed. Although the shareholders’ meeting was merely adjourned, and the shareholders told that it (or a further meeting) would be re-convened to discuss varied proposals, the shareholders were not thereafter either invited to, nor did they, take any further part in the disposal of the Ground.

Following the shareholders’ meeting, there ensued almost exactly one year’s negotiations between the Club and a small group of interested purchasers, before the Club signed a contract for the sale of the Ground to York Developments (“the 2004 Sale Agreement”) together with an associated loan agreement, on 28^th September 2004. For the most part, that course of negotiations gives rise to no factual controversy, and is of limited relevance to the issues which I have to decide. It may for present purposes sufficiently be summarised as follows.

Five potential developers were in competition with each other, albeit never all at the same time. They were Ashwell Group Plc, the Burford Group Ltd (which owned the adjacent Westbrook centre), Conygar Investment Company Plc, Yorkshire Ventures Ltd, and York Developments itself. The Club managed to avoid financial collapse by borrowing from two of the competitors, Mr York’s companies (as already described) and Conygar. From time to time each lender sought to use its status as such to improve its bargaining position in the negotiations. On 11^th May 2004 the Club was obliged to secure repayments of its borrowing from York Construction by the grant of a debenture for what was described therein as an advance of £176,000 odd. The evidence suggests that this amount was rather larger than the actual debt of the club to York Construction at the time, but the Debenture was drafted on the assumption that York Construction would lend the additional amount necessary to enable the Club to repay its loan from Conygar, which it did in July.

With the assistance of Taylor Vinters and Cheffins, the Club’s directors led by Mr Eastham played off the various competing purchasers with considerable skill. As late as the day before the 2004 Sale Agreement, the Club was still in active negotiations with Yorkshire Ventures. At the same time, the Club was facing constant pressure from creditors, including both HM Customs and Excise and the Inland Revenue, and struggling to pay the necessary players and staff wages required to enable it to continue with its sporting programme.

Despite being advised by Cheffins to do so, the Club did not however pursue the detailed investigations and negotiations which were required to enable the various difficulties in the way the successful development of the Ground to be either evaluated or surmounted. To do so would have been beyond the Club’s financial and administrative resources at the time. The result was that in seeking to identify the most attractive bidder for the Ground, the Club was obliged to proceed very much in the dark as to the true development value of the Ground.

It is nonetheless no part of the Club’s case that it was induced to make the 2004 Sale Agreement with York Developments by reason of any misrepresentation by that company, or any breach of fiduciary duty by Mr Eastham or any of its directors. Furthermore, the evidence (both oral and documentary) shows that the 2004 Sale Agreement, and the Head of Terms between the same parties which preceded it, were the subject of vigorous and detailed negotiation, both between the representatives of the parties (principally but not only Mr Eastham and Mr York) and their professional advisors. It was, in summary, a hard fought arms’ length commercial deal.

Although the course of that year’s negotiations is in general neither contentious nor relevant, there is one important and highly contentious issue of fact relating to this period, namely whether during the negotiations between the Club and York Developments there was made any agreement for the provision of additional remuneration for Mr Eastham (beyond his basic salary), and if so between which parties, involving which of those parties’ representatives, and upon what terms both as to entitlement and method of payment. That issue is of central relevance to the Club’s case that Mr Eastham was bribed, but I have found it easier to make my findings of fact about the bribery issue as a whole, rather than stage by stage in its precise chronological position in the story.

The 2004 Sale Agreement consisted in essence of a conditional sale of the Ground by the Club to York Developments for £1.3 million, of mutual promises by each party to co-operate with the other in the obtaining of vacant possession and of planning permission for the development of the Ground, and of the sharing between them on a broadly 50/50 basis of the increase in the value of the Ground attributable to the obtaining of vacant possession and planning permission. At the same time, the Agreement provided for the grant of a contracted–out lease of the Ground by York Developments back to the Club for a term of 5 years (from completion) at a rent of £70,000 per annum, with provision for earlier termination at any time after 10^th May 2006, provided that a satisfactory Planning Permission had by then been obtained. I shall refer (as have the parties) to the increase in the value of the Ground as “the Overage”.

The Club’s share of the Overage is defined in the Agreement as the “Additional Consideration” pursuant to a formula for its calculation described in Schedule 5, paragraph 1, as follows:

Schedule 5 then explains that algebraic formula by reference to the definitions to be found in a 14 page definition section in the Agreement. For brevity, but at the expense of precise accuracy, the formula is explicable as follows.

A is either the gross sale proceeds (if the Ground is sold to a third party buyer with planning permission and vacant possession) or the market value (as defined) of the Ground in certain stated events at least five years after the making of the Agreement.

With that explanation, it will be apparent that the Club’s share of the Overage was to be half the net increase in the value of the Ground in excess of the £1.3 million purchase price, net of Planning and Development Costs, from which was to be deducted various amounts by then owing by the Club to any of the York companies. It was the purchase by the Claimants of the Club’s share of the Overage in October 2005 for £900,000 which has given rise to this litigation.

I have described the 2004 Sale Agreement as a conditional sale. The conditions precedent, subject to waiver by York Developments, were:

There is (because it was in writing) no dispute as to the express terms of the 2004 Sale Agreement, but there is an important issue as to its legal effect. Although it contained an express declaration against partnership, the Club claims that the Agreement constituted, or included, a sufficient element of joint venture so as to give rise to mutual obligations of good faith as between its parties, and in particular to an obligation of the Purchaser to give full and fair disclosure to the club of all information relevant to the value of the Club’s share of the Overage, in connection with any negotiations between the parties for the purchase of that share. I shall deal with the legal principles relevant to that issue later in this judgment. At this stage, it is necessary only to summarise the provisions of the Agreement upon which the claim is based.

Paragraph 1.1 of Schedule 3 required York Developments, as soon as reasonably practicable after Completion, and after taking all necessary advice, considering all relevant matters, and making all necessary investigations, to produce a draft Scheme for the development and maximisation of the value of the Ground, for approval by the Club, not to be unreasonably withheld or delayed. The Scheme was to be produced in any event not later than 12 months after completion.

By paragraph 1.2 of Schedule 3, the Scheme was to be followed by the production by York Developments of a draft planning application, again for approval by the Club. By paragraph 1.5.1 York Developments was to keep the Club informed, at reasonable intervals, of the progress of the planning application, and to give the Club an opportunity to make reasonable representations in respect of both of the Scheme and planning application, and to notify and obtain the approval of the Club in relation to any Material Variations (as defined).

By Schedules 4 and 6, provision was made for the obtaining of vacant possession of the Ground, and the obtaining of planning permission, the obtaining of all necessary types of access for the purposes of the Scheme, and for the removing or the releasing of the restrictive covenant and other encumbrances. Those are defined in Schedule 6 as the Development Conditions.

Paragraph 1.1.1 of Schedule 4 provides as follows:

“After Completion the Vendor shall co-operate with the Purchaser and take all reasonable action required by the Purchaser from time to time to secure vacant possession of the Property by the Lease Termination Date and satisfy the Development Conditions:”

By paragraph 1.1.2 the Club was protected from having to incur third party costs in relation to any aspect of its co-operation required by the Purchaser, unless and until the Purchaser agreed to pay for them.

By paragraph 1.2 the Purchaser was obliged to use all reasonable endeavours to obtain the planning permission and satisfy the Development Conditions taking into consideration “…(b) the obligation to obtain best value …” By paragraph 1.2.1, where payments were to be made or Costs or Liabilities (as defined) incurred by the Purchaser within the meaning of Planning and Development Costs, the Purchaser was to use reasonable endeavours to achieve the lowest cost or best value.

“Costs” was broadly defined. “Planning and Development Costs” was defined as meaning for the Cost and/or compensation reasonably and properly due or incurred by the Purchaser or any Associated Companies (at any time) in relation to those matters set out or referred to in Schedule 7. That Schedule set out an exhaustive list of Planning and Development Costs which included all duties and taxes payable, the cost of the satisfaction of the Conditions Precedent, all professional fees, the cost of purchasing any necessary additional land and the cost of satisfying the Development Conditions.

In summary therefore, the Agreement contained within it obligations of mutual cooperation in relation to the maximisation of the value of the Ground by the obtaining of planning permission and vacant possession, obligations of the Purchaser to consult with and obtain the approval of the Club in relation the Scheme and to the planning application, and an obligation to obtain the best value and/or the lowest cost in incurring expenditure in connection with the Scheme in circumstances where that expenditure was to constitute a deduction against the amount payable to the Club as its share of the Overage.

Although the inclusion of express provisions providing for the early purchase by York Developments of the Club’s share of the Overage was contemplated during negotiations, no such provisions of any kind were ultimately included within the 2004 Sale Agreement. It therefore contains no express terms regulating the conduct of the parties toward each other in the event of any negotiation for such a purchase.

The loan agreement made between York Construction and the Club at the same time as the 2004 Sale Agreement provided for the loan of an additional £135,000 to the Club, secured by the May 2004 Debenture. The immediate cash requirements of the Club pending completion of the 2004 Sale Agreement were thereby provided for.

Shortly after the making of the September 2004 transactions, Mr York was advised that tax savings could be achieved for himself and his family if York Developments’ part in the scheme contemplated by the 2004 Sale Agreement was carried out instead by an offshore corporate structure. Accordingly the Ross River and Blue River entities were set up in the Isle of Man in the manner which I have already described, as the vehicles for this and other development projects. The Club was persuaded that the substitution of the Isle of Man entities for York Developments was not adverse to its interests, and this was achieved by two agreements each made on 3^rd February 2005. The first was a Termination Agreement between the Club and York Developments, which simply provided for the termination for the 2004 Sale Agreement. The second was a fresh Sale Agreement in substantially identical terms to the 2004 Sale Agreement, but now between the Club and Ross River, on behalf of Blue River. I shall refer to it as “the 2005 Sale Agreement”, and to the 2004 and 2005 Sale Agreements as “the Sale Agreements”.

As contemplated by clause 4 of the Sale Agreements, the first requirements for the realisation of the development of the Ground consisted of satisfying the Conditions Precedent, for which the Club was to use all reasonable endeavours, but in relation to which the Purchaser was to be entitled to conduct all relevant discussions and negotiations with Cambridgeshire FA and St John’s College, so as to procure agreement with them on the best terms reasonably available.

Agreement was reached with St John’s College for the release of the restrictive covenant on 10^th January 2005, for the release fee of £75,000 index linked until completion, which was to be a date chosen by the owner from time to time of the Ground not later than the fifth anniversary of the date of the agreement.

Agreement was reached with Cambridgeshire FA for the surrender of its lease and the release of its mortgage on 8^th April 2005, pursuant to which the owner for the time being of the Ground was entitled to obtain vacant possession from Cambridgeshire FA in May of each of 2006-9 inclusive, for a surrender premium of between £450,000 and 500,000 odd depending on the date.

I assume (but the evidence does not describe) that the condition precedent in the obtaining of restrictive covenant insurance was either satisfied or waived. Completion of the 2005 Sale Agreement took place on 29^th April 2005, whereupon the Ground was transferred by the Club to Ross River and leased back to the Club on the terms which I have already briefly described. In order to give good title, the Cambridgeshire FA mortgage and the Club’s bank’s charge had to be, and were, redeemed. A letter from Taylor Vinters to Mr Eastham dated 29^th April 2005 shows how the £1.3 million odd purchase money was applied. £472,000 odd was needed to redeem the bank’s charge. Just under £400,000 was required to redeem the Cambridgeshire FA Mortgage. Taylor Vinters’ fees slightly exceeded £100,000. After other deductions consisting of professional fees, an outstanding judgment debt, an insurance premium tax on the new lease, the Club received only £249,000 odd, of which the letter described £220,500 as being the VAT element of the sale price. Accordingly, although the completion of the sale of the Ground discharged a substantial amount of the Club’s outstanding liabilities, it did little of substance to provide it with ongoing cash flow to satisfy the demands of its loss-making activities. It comes as no surprise therefore that even before completion, discussions commenced between the Club and Ross River with a view to the purchase by Ross River of the Club’s share of the Overage. Before describing those discussions, it is convenient first to describe the process by which initially York Developments but later Ross River set about preparing the Scheme and the planning application, and discharging their obligations to satisfy the Development Conditions pursuant to the Sale Agreements.

Mr York had as early as mid 2004 approached Mr Harney of Waveley for advice in connection with his intended acquisition of the Ground. In July and October 2004 respectively, Mr Harney interviewed Bidwells and Savills as potential valuers and planning consultants to the project. Savills signed a confidentiality undertaking in relation to the project on 29^th October 2004, and were formally retained after a fee proposal made by them by letter of 17^th March 2005.

In order to address the problem of obtaining a satisfactory means of access to the developed site, Mr Harney approached Rutherfords, a Cambridge based firm of highway planning consultants, who signed a confidentiality undertaking on 21 February 2005. He also arranged for Williams & Co, a Cambridge based firm of solicitors, to be instructed on behalf or Ross River, for the purposes of obtaining the advice of Mr Robin Purchas QC in connection with the access issue. Instructions were sent to Mr Purchas on 11^th April with a view to him advising in consultation on 13^th April.

Each of Messrs Savills, Rutherfords, Williams & Co and Mr Purchas were retained for the benefit of the project, i.e. in order to enable Ross River to formulate the Scheme and the planning application pursuant to Schedule 3 of the Sale Agreements, and to work towards satisfying the Development Conditions in co-operation with the Club, pursuant to Schedule 4. Their professional fees would all constitute Planning and Development Costs pursuant to Schedule 7, to be shared, in effect, equally between Ross River and the Club pursuant to the formula in Schedule 5.

The position of Waveley is less straightforward. Prima facie, as project manager, Waveley might be supposed to have fallen into the same category, for the purposes of analysis of its role in relation to the project and liability for its fees, as the other professionals to whom I have referred. In particular, (although this was not explored in evidence) the Club may reasonably have supposed that Waveley was retained for the benefit of the project, and therefore the mutual benefit of Ross River and the Club, in the same way as those other professionals. Mr Harney disputed this position, in cross examination, by reference to the terms upon which Ross River engaged Waveley. By letter of 25^th January 2005 Tenon (the Isle of Man managers of Ross River and Blue River) requested Waveley to act on behalf of Blue River as project manager of the proposed development of the Ground, and on 22^nd February Mr Harney replied on Waveley’s behalf enclosing a signed agreement to act as requested, stating for the record that fees had been agreed at £6,000 per month for 9 months commencing December 2004 followed by a payment on 10% of the Gross profit realised by Blue River, acknowledging that an interim payment of £10,000 had already been received in December 2004. On 8^th March Tenon replied to “clarify” Waveley’s terms of appointment, on the basis that its fee was to be 10% of the net rather than gross profit on the development payable once realised, and that the interim payments of £6,000 per month were to be treated as an advance of the profit share rather than an addition to it. By then, £24,000 had been paid on account.

Mr Harney said that because his firm was to be paid purely by way of a share in Blue River’s net profit from the project, he did not regard his fees as falling within the meaning of Planning and Development Costs pursuant to the Sale Agreements. In his view, Waveley was “part of” the project in the sense of having a share in Blue River’s part of it, rather than an advisor to the project, for the benefit of all its participants. In the events which have happened, this question has not had to be resolved. Mr Harney’s attitude to Waveley’s role is however of relevance to the issue of misrepresentation which I have to decide. It is sufficient for those purposes to say that the basis of Waveley’s remuneration was not, so far as the evidence goes, ever explained to the Club, with the consequence that the Club and its professional advisors, including in particular Mr Lee of Cheffins, were entitled to assume that Waveley and Mr Harney had been retained for the benefit of the project, and therefore for the mutual benefit of the Club and Ross River and its participants, such that they could look to Waveley for reasonable co-operation, and for the disclosure of information, to the extent contemplated by the terms of the Sale Agreements. Whether the Club and Mr Lee entertained any such expectation in fact is a quite different question.

Mr Harney was nonetheless well aware that the Sale Agreements imposed obligations of co-operation and disclosure, initially on York Construction and thereafter on Ross River. This much is apparent from the two page outline of a two phase campaign for the realisation of the Ground’s development value which he prepared on the 19^th October 2004. In relation to both phases (being respectively before and after completion of the purchase of the Ground) the document expressly contemplated that it would be necessary to “liaise with CCFC seeking and obtaining their agreement where appropriate”.

In cross examination, Mr Harney said that he was well aware that the Sale Agreements required both the Scheme and Planning Application to be submitted to the Club for consultation and approval, but that in his view, it was entirely a matter for his clients’ (the River entities’) choice when within the period of twelve months from completion to initiate a process of consultation with the Club, for the purposes of obtaining its approval to the Scheme. In this respect, in my judgment, Mr Harney recognised neither the spirit nor the letter of the Sale Agreements. Paragraph 1.1 of schedule 3 required the Purchaser “as soon a reasonably practicable after Completion… but in any event not later than 12 months from the date of Actual Completion to produce a draft Scheme for approval by the Vendor….”

It will be recalled that Ross River and Blue River were Isle of Man entities managed by corporate managers in the Isle of Man who had no experience of property development. All major decisions were ultimately formulated by Mr York whose family were the ultimate beneficial owners of the River entities, and decisions were communicated to the directors of the River entities via Mr York’s tax adviser Mr Carr of the same firm of Peters Elworthy & Moore whom Mr York had paid to carry out the investigation of the Club’s affairs, in early 2003. Mr Carr normally passed on Mr York’s instructions (no doubt expressed as non-binding wishes, for reasons of tax efficiency) to Tenon.

Nonetheless, for most practical purposes, the person in day to day charge of the River entities’ part in the realisation of the development value of the Ground pursuant to the Sale Agreements was Mr Harney. The evidence, both from Mr Harney, Mr York and in an internal memorandum by Savills, is that Mr Harney’s particular skill lay in the realisation of the development value of property, whereas Mr York’s skill and experience lay more in the carrying out of developments as a builder. The consequence of this differentiation of skill and experience was that Mr York did not merely look to Mr Harney for advice from time to time, but largely left the conduct of the project (or rather his companies’ role in the project) to Mr Harney under the broadest possible de facto delegated authority.

Mr Harney’s recruitment of planning, highways and legal professional advisers in the manner which I have described had not begun to bear fruit in terms of the receipt of useful advice by the time when, in February or March 2005, discussions began between Ross River and the Club with a view to Ross River’s purchase of the Club’s share of the Overage. I shall, for clarity, describe that process separately in due course. It is however important to note Mr Harney’s evidence as to the consequence of the existence of such discussions upon his and Ross River’s responsibilities under the Sale Agreements. He said that, from the moment those negotiations in relation to the Club’s share in the Overage commenced, he regarded the Club and Ross River as having become arms’ length opposing parties in an ordinary commercial property negotiation, and his role as being strictly limited to the advancement of Ross River’s interests in that negotiation. The advancement of the project, in terms of the preparation of the Scheme, the planning application and the satisfaction of the Development Conditions, with all its attendant obligations of cooperation, consultation and disclosure were, in his view, in suspension, from the moment when that negotiation commenced.

By the time Mr Harney gave that evidence, he had of course the benefit of hindsight in knowing that the negotiations had led to a successful conclusion, much later in 2005, pursuant to which his client acquired the whole of the Club’s continuing interest in the Ground, (save for short term rights as occupying tenant), thereby putting an end to the regime of mutual cooperation for the maximisation of its development value contemplated by the Sale Agreements. Furthermore, although this was not explored in evidence, I have little doubt that both Mr Harney and Mr York regarded the continuing urgent requirement of the Club for cash as a factor which would, sooner or later, be bound to force the Club into a sale of its share of the Overage to Mr York’s companies, it being unable to wait for the realisation of the value of its share by the detailed working out of the processes of obtaining planning permission, and satisfying the Development Conditions.

I have no hesitation in accepting Mr Harney’s evidence that his conduct from the outset of those negotiations was the product of a perception that his role from then on was to maximise his client’s interest, regardless of the interests of the Club. Waveley was, after all, a sharer in Ross River’s net profit, such that his own company’s interest lay in minimising the amount paid to the Club by Ross River for the purchase of the Club’s share of the Overage.

Ross River’s obligations under the Sale Agreements were, of course, not suspended merely because of the commencement of negotiations for the purchase of the Club’s share of the Overage. Such a suspension could have been agreed, but it was not, and it is not to be implied merely from the fact that such negotiations commenced. Furthermore, the process of the preparation of a scheme for the realisation of the development value of the Ground, of preparing for a planning application, and of satisfying the Development Conditions did not in fact stop. On the contrary, Mr Harney proceeded with vigour to obtain the advice of the planning, highways and legal professionals whom he had retained, and although the first planning application for the residential development of the Ground was not made until 2006, its preparation was well advanced by the time when the Club’s share in the Overage was acquired by Ross River, on 7^th October 2005. For clarity, I will describe the continuation of that process of preparation down to that date, before describing the course of the negotiations, and the representations made in connection with it.

By the end of March 2005, Mr Harney had instructed Rutherfords to carry out a highway traffic survey, had prepared an outline of Instructions to be given to Mr Purchas, had a preliminary meeting with Savills, with a view to their preparation of a preliminary planning appraisal, and had instructed Camal, a Cambridge firm of architects, to prepare, among other things, a preliminary schedule of accommodation.

The documentary evidence shows that, from the outset, Mr Harney intended to apply for planning permission for approximately 250 residential units or, putting it more broadly, for a number between 200 and 300 units. This is apparent first from Camal’s schedule of accommodation prepared in March 2005, which provides for 194 private units and 54 units of affordable housing. Secondly, the Instructions to Mr Purchas QC which Mr Harney saw and approved in advance, required Mr Purchas to advise on the basis on an assumed density estimate “somewhere between 200 -300 residential units”.

Of course, an intention to apply for planning permission for 200-300 units does not, as Mr Harney was at pains to point out, mean that he regarded this as a safe assumption upon which to value the Ground. But it is a fair inference that Mr Harney did not regard the prospect of achieving planning permission at that level of density as fanciful, having regard to the substantial cost (including the fees) associated with the making of a planning application on that scale.

Relevant advice began to flow in during April 2005. On 4^th April Rutherfords reported that the access way though the Westbrook Centre had been designed and constructed with a view to eventual adoption, and that both in terms of quality of construction and layout, the existing road exceeded that normally to be expected of a purely private road. Rutherfords’ only reservation was that at its junction with Milton Road, the private road over the Westbrook Centre used kerb radii well below the normal requirement of 10 metres. But Rutherfords’ opinion was that this had probably been pre-agreed at the stage of the planning application for the Westbrook Centre so that this apparent shortfall in layout specification might well not constitute an obstacle to adoption.

Mr Purchas’s advice, given in consultation on 13^th April, was equally encouraging. His opinion was that the right of way reserved over the Westbrook Centre land for the benefit of the Ground was sufficiently widely drawn to permit access to and from a residential development of the Ground along the existing access route, and that Burford (the owner of the Westbrook Centre) would be unlikely to be able to impose a ransom as the price of permitting the adoption of the existing access way as a public highway.

Mr Harney obtained a draft preliminary planning appraisal from Savills on or shortly before the 12^th April. It noted that the applicable Regional Planning Policy Structure Plan had called for significant increases in the supply of housing within Cambridge, and identified the Ground as a potential site for residential development, with an optimal density of 99 dwellings, but with the possibility of more intensive development. Various constraints on density were mentioned, such as the preservation of the Cambridge skyline, and the loss of existing open space, and Savills warned that the existing policy on affordable housing calling for a 30% element of that type in any redevelopment was in due course to be replaced by a 50% requirement when the re-deposited local plan achieved adoption, and that the Planning Authority would be likely to place increasing weight upon that percentage increase as adoption of the local plan drew nearer.

Savills commented on initial drawings prepared by Camal Architects (not available at the trial) showing a development including 248 units, with a 21% element of affordable housing. This was described by Savills “Clearly at odds with the current Brief for the site and also the policies adopted by the City Council”. Their main concerns were first, that progress needed to be made with the relocation of the Club before a planning application for the development of its existing ground was submitted; secondly that more attention need to be given to the requirement for open space, either on-site or by a contribution towards the acquisition of open space elsewhere: thirdly that 21% affordable housing fell below the current requirement of 30%, rising to 50% in due course; and fourthly that although the proposed scale of the development fitted well with the adjacent Westbrook Centre, some modification of scale might be needed to harmonise with residential properties to the north and south. Nonetheless, Savills’ overall conclusion was that there was a good prospect of achieving a beneficial planning permission on the site, once those specific issues had been addressed.

Mr Harney commented on the draft Savills’ appraisal by letter of 12^th April, making it clear in passing, even prior to receiving Mr Purchas’ opinion, that his aim was to secure access via the existing roadway, which he described as having been built to an adoptable standard and as therefore being suitable for public use. Savills then issued their formal preliminary planning appraisal on an unspecified date in April, substantially in the same form as the draft, but with advice on Mr Harney’s comments. In particular, the final version offered advice as to how their specific concerns which I have summarised from the draft appraisal might be satisfactorily addressed within the context of the proposed 248 unit scheme. In particular, Savills took on board Mr Harney’s point that although in terms of numbers of units the affordable housing element was below the current requirement, it was in fact 40% of the total in terms of area. By reference to an appendix to the appraisal (not available at trial) Savills noted that the Council regarded the access route over the Westbrook Centre as satisfactory, but warned that the Highway Authority might consider that a second access would be necessary for a development of the density contemplated by the proposal.

Mr Harney’s reaction to the Savills appraisal appears from a note of a meeting which he had with Mr Popoff of Savills on 6^th June, the accuracy of which Mr Harney confirmed in evidence. His view was that the Ground would accommodate a scheme of 200 Units of which 30% would be affordable. He expected to achieve planning permission for a total of 160,000 sq ft of accommodation, of which 38,000 sq ft would be public sector. Mr Popoff’s note records his view that “ through experience… Paul will maximise the development potential from this site at planning”.

Although the planning application for the Ground was not submitted by Waveley until 2006, it is evident from its enclosures that a substantial part of the plans used for it had been drawn by Camal by September 2005. They showed a density of 230 units, with 66 of them being affordable (being a unit to unit ratio of 28.7%). The evidence therefore discloses a consistent plan by Mr Harney to seek planning permission for a development of at least 200 units. If Ross River had ever complied with its obligation to submit a Scheme to the Club pursuant to Schedule 3 of the Sale Agreements, I have no doubt that such a Scheme would have consisted of a project for the residential re-development of the Ground at a density of, or exceeding, 200 units.

The evidence does not reveal precisely when these negotiations started, but they were certainly on foot by 7^th March 2005, when Mr Harney prepared a “Proposal for Early Payment of the Additional Consideration to Facilitate CCFC’s Proposed Ground Share with CUFC”. This was not intended to be a document shared with the Club, but rather one used internally by Mr Harney in advising Mr York as to the level of offer which might be made by Ross River. In outline, it assumed a residual land value of £7.8 million, acquisition and development costs of £6 million, Overage of £1.8 million (land value – costs), the Club share of £900,000, and a deduction of 35% for early settlement, interest and risk, leading to an offer of £585,000.

The residual land value was arrived at upon the basis of assumptions that there would be 150 units, of which 40% would be affordable, and would only contribute £480,000 to the land value. The development costs included an assumption that a ransom of 30% of the land value (i.e. £2.4 million) would have to be paid to secure access, but a marginal note suggested that there was potential for a significant rise in that cost assumption.

Mr Harney prepared a second version of this document on 27^th May 2005. This assumed a contribution to value by a 40% provision of affordable units of £132,000 and only 80 private units, (the total density being reduced from 150 to 135 units, but the land value was still assumed to be £7.8 Million. Costs were increased by a rounded up to £100,000 to £6.1 million and the discount for early settlement, interest and risk was raised to 40%, giving rise to an offer of £510,000.

Mr Harney described these documents as the basis of his honest opinion provided to Mr York of the value of the Overage, basing himself, as he said a bank’s valuer would do, strictly upon what could be achieved with certainty, rather than speculative possibilities of a more beneficial development. In my judgment, Mr Harney believed throughout the process of the negotiation of the purchase of the Club’s share of the Overage that its value was substantially greater than that reflected in either of those two documents. The documents were in my judgment designed to justify a pessimistic appraisal of the value of the Overage, for the purpose of supporting an offer designed to leave the lion’s share of the Overage in the hands of Ross River at the end of the transaction, a share from which, of course, Waveley was to derive the whole of its remuneration from its management of the project. My reasons for that conclusion are as follows.

First, the two most important variables in Mr Harney’s calculations were the residual land value of £7.8million, and the amount to be paid for access, of £2.4 million or more. Both of these were in my opinion based upon much more pessimistic assumptions than Mr Harney actually made at the time. The land value was based upon an assumed total density of 150, revised down to 135 units, whereas within 10 days of the second of those documents, Mr Harney was expressing his confidence in obtaining planning permission for 200 units, after considering Savills’ advice. The consequence of those different densities is reflected in the fact that at his meeting with Savills on 6^th June the 200 unit density assumption was calculated as leading to a consequential land value of £13.1 million.

Secondly, as for the amount needed to secure access, the whole tenor of the advice of Rutherfords and of Mr Purchas QC was to the effect that it was probable, albeit not certain, that the existing access through the Westbrook Centre could be used for the purposes of the proposed development, without the need to pay a ransom to anyone. It is plain that, by April 2005, Mr Harney intended to seek planning permission on the basis of a single access through the Westbrook Centre. While the risk that the Highway Authority might require either a second access, or alterations to the existing access which might give Burford a ransom claim, could not be wholly disregarded, I consider notwithstanding his evidence to the contrary, that Mr Harney confidently expected to be able to obtain access for the proposed development at substantially less than the conventional Stokes v Cambridge amount of 30% of the land value, rather than 30% or more, as reflected in his offer calculations.

I do not mean to imply by those conclusions that Mr Harney set out to mislead Mr York. In advising as to the offer to be made for the Club’s share of the overage Mr Harney was perfectly entitled to propose a basis designed to maximise the interests of Ross River, by the use of the most pessimistic assumptions for the purposes of quantifying the two most important variables in the calculation. But, as would appear, Mr Harney then allowed his approach to the maximisation of the interests of Mr York’s companies in the project to lead him into grievous error in his dealings with the Club’s representative Mr Lee, when he asked Mr Harney for information about the progress of the project, so as to enable him to advise the Club.

Mr Lee wrote seeking information from Mr Harney on 22^nd April 2005, shortly after Mr Harney had received the advice from Savills, Rutherfords and Mr Purchas QC which I have described. By that time, Mr York had raised Ross River’s offer for the Club’s share of the Overage from £250,000 to £500,000. Mr Lee’s letter followed a meeting with Mr Harney, and began as follows:

“Further to our meeting last Tuesday, I note that Brian would like to purchase the overage for £500,000. There would appear to be some misunderstanding. I am not asking you to justify or provide a valuation but, obviously, in order to consider the proposal, need a fairly detailed analysis of where you are with regard to the various negotiations such as planning, densities, access, public open space, highways etc in order to form an opinion and advise the Club accordingly. Without such information I am, obviously, not able to offer an opinion as to whether the proposal is a favourable one or not. Would you, therefore, please supply me with further details.”

Mr Harney replied on 29^th April as follows, after referring to Mr Lee’s letter:

“In assessing the offer of an early settlement of Additional Consideration, Ross River Limited, as General Partner of Blue River Limited Partnership, have taken the following planning policies, planning obligations, development costs, compensation costs, and site constrains into consideration.”

There then follow references to the various regional and local planning policies to which Savills had referred in their appraisal. In relation to open space, Mr Harney added that 40% of the total site area would be needed. In relation to the proposed increase of the affordable housing requirement from 30% to 50%, Mr Harney added that the 50% provision had already been agreed on at least 3 significant developments within the City. In relation to density he said that the 99 dwellings anticipated by the Council in the relevant Development Brief assumed more land available than merely the Ground, so that number would have to be reduced.

In relation to development costs Mr Harney provided the following bullet point:

“Securing an acceptable right of access or securing an alternative access to the site either capable of adoption by the Highway Authority- Minimum 30% of land value”

The letter concluded “I understand the offer from Ross River will be withdrawn if they do not receive a response by 31 May 2005. Therefore your early consideration is important to both parties and if I can be of any further assistance please do not hesitate to contact me”.

Mr Harney’s letter made copious references to information such as planning policies already in the public domain, with which, as he no doubt appreciated, Mr Lee would already have been familiar. But he provided no analysis or even information about where he had reached with regard to preparation of the Scheme, mentioning none of the advice received from the various professionals which I have described, save that part of Savills’ advice which referred to publicly available planning policies. That this is how Mr Lee regarded it is apparent from the following paragraph of a letter he wrote on 3^rd May to Mr Eastham, enclosing Mr Harney’s letter of 29^th April:

“Paul Harney’s letter is, to say the least, of limited value. Bearing in mind Brian’s previous mantra about there being an open book between him and the Club and for the transaction to be of mutual benefit, it will be interesting to see what further information, if any, is forthcoming from Paul Harney. I am not, to be frank, holding my breath. Without the information requested, it is, obviously, difficult to advise on the overage clause. The information supplied in Paul’s letter is basically no more or less than we knew already. ”

Mr Lee replied on the 6^th May to Mr Harney. The following are relevant extracts:

“The information, with respect, is of a somewhat standard nature known to us at the time of entering into the transaction and does not, from a valuation point of view, assist to any great extent in quantifying the potential value of the site and thus an appropriate overage payment.

I note that the Urban Capacity has identified the site for up to 99 dwellings. Do you, as yet, have any indication as to the gross and net areas of the development proposed, the mix and type of units and also a layout plan?

Are you anticipating 30% or 50% of affordable housing? If so, does this form part of the 99 dwellings? Is there also likely to be a requirement for key worker housing? Please clarify.

With regard to access, please clarify whether access will be via Burford land or, alternatively, County Council land, the state of negotiations to date and the anticipated cost of such access. Your reference to 30% is somewhat of a standard payment and I would have thought, with the benefit of alternative access, could be reduced.”

“…. Would you also please supply any other relevant reports, etc. as may be available that will assist me in forming a view on the overage payment and advising the Club accordingly.”

He concluded by suggesting that, after provision of the information requested, he and Mr Harney have a further meeting in mid/late May.

After Mr Lee had chased for a response by further letters on 17^th and 20^th May, Mr Harney replied on 25^th May. Since this is the letter upon which the Club’s misrepresentation in cases is based, I must set it out in full;

“Dear Edwin

RE: Cambridge City Football club

I refer to your letters dated 6, 17 and 20 May 2005 and your email received today.

I can confirm that the offer made by Ross River Limited was based solely on assessment of the information provided to you in my letter on 29 April 2005.

The implications of applying all current and emerging planning policies to the development are particularly onerous and these, together with the development costs, access, timescales and risk are factors taken into consideration and on which the offer was made.

Since my letter to you a preliminary meeting has been held with the Planning Authority whose officer reaffirmed that it was their intention to ensure that all relevant planning policies and the objectives of the Mitchams Corner Area Strategic Planning and Development Brief be delivered on this site.

Below, where I can, I have answered the various questions you raise in the order that you raise them:

•

The Urban Capacity study does suggest that up to 99 dwellings could be accommodated on this allocated site. However the density is based on all of the identified land and this includes the County Council owned car park area and school land. The football club site is approximately 0.7 acres smaller than the allocated site. Nevertheless I have taken a more robust view and consider that taking all relevant site constraints into account that up to 130 dwellings could be achieved within the land available. This total assumes that up to 130 dwellings could be achieved within the land available. This total assumes that the development would be up to 4 storeys in height, that only part of the required public open space is provide on site (balance by commuted sum) and a mixed development where at least 75% of the dwellings are flats.

•

It would be prudent at this stage to base the provision of affordable housing on the proposed Local Plan, i.e. 50%, however the final total will be depend on timing of the planning application and the status of the Local Plan at that time and of course the weight the Local Authority are giving to its emerging policy. The affordable housing requirement will include key worker and shared equity and is based on either a percentage of the developable land area or on the total number of dwellings. The type and mix of affordable housing will depend upon local need and the advice/requirements of the Housing Authority.

•

At least 30% of the total land value should be allowed for the cost of providing a suitable access. The Highway Authority has advised the Planning Authority that the existing access is, in their opinion, unsuitable. I am also aware that the County Council retained ransom strips around the boundaries of the former Milton Road School site. The County have also restricted development of that site to all a new access to the City ground off Gilbert Road. Initial approaches have also been made to owners of other properties in Gilbert Road, but at this stage and until such time as this matter is resolved, it is essential that a substantial budget is set aside to achieve a satisfactory access.

•

The initial survey work for the traffic impact assessment has been carried out and I await the report. I do not consider that contributions for improvements to Mitchams Corner or to the Northern Area Transport Policy will be necessary as I anticipate a nett reduction in the overall trip rates.

•

I have not commissioned a development brief as the Local Authority have already produced the Mitchams Corner Area Strategic Planning and Development Brief which forms the basis of their planning policy for this area. However, a design and planning statement will be produced as part of the planning application. I have taken specialist planning advice, the substance of which, was included in my letter to you dated 29 April.

•

There have been no negotiations with the Desimones although I am in the process of seeking further legal advice and intend taking up this matter in the near future.

•

I will not be progressing matters in respect of the communication mast until an overall planning, development and design strategy is in place. Although I do not anticipate significant costs associated with relocation within the site I am advised that this installation will have significant negative impact on sales values. Off site relocation, if possible, is the preferred option.

•

I do not have any reports, either relevant or otherwise, that would assist your further in advising your clients.

I look forward to our meeting tomorrow afternoon when we can discuss this matter in more detail.

Yours sincerely

Paul Harney”

The bulk of Mr Harney’s letter purported to provide answers to the questions raised by Mr Lee in his letter of 6^th May. That letter was not seeking a justification of any valuation of the site by Mr Harney, but information about the essential features of the proposed development for which in due course Mr Harney would be applying for planning permission. That much is plainly apparent from Mr Lee’s letter of 6^th May, in particular when read in the context of his original letter of 22^nd April. Furthermore, in asking for any relevant reports, Mr Lee was plainly seeking copies of professional advice obtained by Mr Harney for the purpose of preparing the Scheme and the Planning Application, pursuant to Ross River’s obligations under the Sale Agreements. Mr Harney acknowledged that this was the fair reading of Mr Lee’s letters, in cross examination. In my judgment Mr Harney well understood that when he prepared his reply on 25^th May.

In my judgment, viewed as a response to Mr Lee’s enquiries, Mr Harney’s letter contained the following material misrepresentations. First, in stating that he had taken a “more robust view… that up to 130 dwellings could be achieved within the land available” he deliberately understated his true view which, as recorded by Savills’ note of their meeting with Mr Harney on 6^th June, was that he believed that 200 units could be accommodated on the site.

Mr Harney did not suggest that his view had changed between 29^th May and 6^th June, but he sought to explain the difference by suggesting that he had gilded the lily when speaking to Savills out of a desire of maximise the importance of the Ground as part of a much larger possible development including the Westbrook Centre and other land, which he was seeking to put together. I do not believe that explanation. In my judgment 200 units was Mr Harney’s “robust view” at the material time.

Secondly, Mr Harney plainly implied that he was working on a proposal to include 50% of affordable housing, although reserving the possibility of including a lower percentage. By contrast, on 6^th June he expressed to Savills the view that he expected to be able to limit the affordable housing to 30%.

Thirdly, Mr Harney seriously misrepresented what he intended to include within the Scheme with regard to access. It is apparent, as I have already described, that Mr Harney firmly intended to use the Westbrook Centre road as the means of access to the development, but the relevant passage of his letter of 25^th May implied that the existing access had already been ruled unsuitable by the Highway authority, that he was expecting to have to pay ransom money either to the County Council or to property owners in Gilbert Road (i.e. to have to obtain an access other than through the Westbrook Centre). While I accept Mr Harney’s evidence that access through the Westbrook Centre without having to pay a ransom to Burford (for example for altering the radii) could not be regarded as certain, in my judgment Mr Harney’s expectation as to access by late May 2005 was that it probably could be obtained without making a full 30% Stokes v Cambridge arrangement. Furthermore, Mr Harney deliberately concealed the favourable advice which he had by then received in that respect both from Rutherfords and from Mr Purchas, advice obtained at a cost which, should there be no buy-out of the Club’s share of the Overage, would be payable as to half by the Club itself under the formula in Schedule 5 of the Sale Agreements.

Fourthly, in stating on the first page of the letter that “whenever I can, I have answered the various questions you raised….” Mr Harney clearly implied, falsely, that he had no information beyond that provided in the rest of his letter by way of answer to the specific requests in Mr Lee’s letter of the 6^th May. He therefore implied that, for example, he had no available indication as to gross and net areas of the development, or of the mix and type of units. This was untrue because he had all that information. Savills’ appraisal included in paragraph 3.10 advice about the appropriate mix and type of affordable accommodation. The Camal specifications already obtained by Mr Harney contained precisely such information, and on 6th June Mr Harney was able to inform Savills of his expectation as to the square footage of the developable area, and the split of that square footage between private and public sector housing.

Fifthly, Mr Harney’s statement that the substance of the specialist planning advice which he had taken was included in his letter on 29^th April was untrue. He had included those parts of Savills’ advice which were in the public domain, but none of the further advice. It is in my judgment no coincidence that the parts of Savills’ advice which he included in his earlier letter were the most pessimistic, so far as concerns the added value to be obtained from the proposed development.

Finally, and most blatantly of all, Mr Harney’s final bullet point; (“I do not have any reports, either relevant or otherwise, that would assist you further in advising your clients”), was a complete falsehood. Mr Harney had by that time Savills’ appraisal (in draft and final form), Rutherfords’ report and had received, at that stage only orally, Mr Purchas’s advice. All of them had been obtained at the ultimate joint expense of Ross River and of the Club. Mr Lee first saw the Savills’ appraisal, Rutherfords’ report and a note later signed by Mr Purchas confirming Williams & Co’s attendance note of the consultation shortly before giving evidence. He told me that he regarded them as of the highest relevance to the task of evaluating the Clubs’ share of the Overage, and I believe him.

Mr Harney stoutly maintained throughout his evidence that in communicating with Mr Lee he did no more nor less than provide his honest opinion as to the matters relevant to a valuation of the Club’s share of the Overage, omitting nothing that he had taken into account himself, and nothing which he had himself communicated to Mr York, or otherwise to Ross River. Again, I have come to the conclusion that this stance of Mr Harney is itself a sophisticated falsehood. It is literally true that the information communicated by Mr Harney broadly reflects the matters specifically referred to in his two assessments of the amounts which should be offered for the Club’s share of the Overage, but as I have already concluded, those assessments did not represent Mr Harney’s real expectation of the value of the Overage, or therefore of the Club’s share of it, but rather a pessimistic basis for a minimum valuation based upon taking account only of that which could be regarded as certain, and ignoring all that for which Mr Harney was planning, hoping, and indeed to a substantial extent, (as reported to Savills on 6^th June), expecting to achieve. Furthermore, in response to my enquiry, Mr Harney admitted at the end of his evidence that he had probably shown Mr York the Savills’ appraisal and the Rutherfords report and explained Mr Purchas’ opinion, albeit that he entertained no expectation that Mr York had the experience or the will to understand the implications of that information in depth.

In my judgment the misrepresentations contained in Mr Harney’s letter of 25^th May to Mr Lee were both deliberate and dishonest. I use the adjective dishonest in both its objective and subjective sense. Mr Harney was the most sophisticated, careful and intelligent of all the witnesses who gave evidence at the trial. His conduct in revealing all information detrimental to the value of the Overage and concealing the rest, however far motivated by a desire to maximise the interest of his Ross River clients and Mr York (but also of course his own interest as a profit sharer with them), was not honest conduct by the standards of honest and reasonable people. While acknowledging that the property world could be something of a jungle, Mr Harney readily acknowledged his understanding that property negotiators are expected and required to tell the truth when negotiating with each other. He therefore fell short of his own professed standard, since he cannot have been ignorant of the respects in which, as I have described, his letter of 25^th May contained falsehoods.

Mr Harney’s falsehoods did not however induce the Club to accept Ross River’s offer of £500,000 for its share of the Overage. Negotiations dragged on, and on 7^th July the Club’s solicitors and valuers stated at a meeting attended by Mr York and Mr Harney that the Club wanted closer to £1 million for its share of the Overage. This led to a walk-out by Mr Harney and Mr York. Eventually, in September, a figure of £900,000 was agreed. Before completing the relevant sale agreement, on 7^th October, the Club sought final advice from Mr Lee, who responded in a letter on that same day which included the following passage:

“It is very possible that the Club would secure a greater financial benefit as and when the site is subsequently sold for development as opposed to accepting the payment of £900,000 offered for the extinguishment of the overage at the present time.

It is, however, obviously, very difficult to give accurate advice on this without having the benefit of a draft development brief, to include density, off-site improvement works, etc. or at least an indication of such. From our previous experience with Paul Harney it is unlikely that such information or assistance would be given, as at best he is obstructive and worst objectionable.

If, however, as discussed, the Club can make better use of a cash payment now as opposed to a future payment, acceptance of the sum offered, subject to the remaining terms being acceptable, merits serious consideration. From what you say, a payment to the Club now would enable the Customs & Excise to be paid and prevent a winding up procedure and also strengthen the Club’s position with regard to negotiations for a new ground, etc.

I am, therefore, obviously, not able to advise you as to whether or not the Club should accept the payment suggested for the release of the overage, although if such payment can be used to a better advantage now for the Club it, obviously, merits serious consideration providing that the Club is aware that it is more than likely that a greater figure than that currently offered might be achieved as and when the overage provision originally agreed is triggered.”

The agreement made on 7th October included a surrender of the Club’s existing lease (which could only be terminated early after the obtaining of planning permission) in exchange for a new lease terminable by Ross River by 6 months notice expiring of 31^st May in any year of the term. Like its predecessor, it was contracted out.

On 14^th September 2005 Waveley had, in a letter to the Club offering £900,000, said:

“It is Ross River’s intention to retain the Football Club on site for as long as possible and at least until such time as a satisfactory planning permission has been achieved and all other development issues resolved. …

However Ross River reserve the right to gain vacant possession at any time following the end of 2005/2006 season (May 2006).”

In fact, on 29^th November 2005, Waveley gave notice on behalf of Ross River terminating the lease on 31^st May 2006.

It is common ground that, funded by Ross River, Mr Harney caused Waveley to pay Mr Eastham the sum of £10,000 on 20^th June 2005, roughly half way in terms of time through the negotiations for the purchase of the Club’s share of the Overage. It is also common ground that, following the conclusion of the Sale of the Club’s share in October 2005, the Club paid Mr Eastham a further £40,000 out of the proceeds of sale. Thereafter Mr Eastham also received two further payments of £4,000 from Waveley in December 2005 and January 2006 respectively. These payments were all made in addition to Mr Eastham’s ordinary salary of £2,500 per month, which the directors had agreed that he should be paid when, once the true financial predicament of the Club had become apparent on Mr Hamilton’s departure, Mr Eastham agreed to take the lead in attempting to secure its survival, as chief executive.

Beyond this bare outline, there is no common ground. One of the perplexities of this part of the case is that not even the claimants’ witnesses put forward a single coherent account of the circumstances in which these payments were made. In two successive witness statements Mr Eastham himself gave different accounts, both which he purported to verify under oath, without any apparent consciousness of their divergence.

I shall begin by summarising the alternative explanations for these additional payments to Mr Eastham, before addressing the question which, or which combination, of those versions I should conclude is the most probable.

The first (“version one”) was that in or shortly before September 2004 it was agreed that the Club should pay Mr Eastham an additional £50,000 in recognition of his contribution to the sale then being negotiated pursuant to Heads of Terms already signed, to be paid on completion of the sale when it was assumed that the Club would be in funds to do so, as the Club’s cost of the negotiations, rather than as a Development Cost. Completion of the sale in April 2005 did not leave the Club with funds sufficient for that purpose, so Mr Eastham asked Mr York for help, and Mr York agreed that Ross River would pay him £2,500 per month for his ongoing work in relation to the project, to be treated as a Development Cost (so that the burden would be shared equally between the River companies and the Club). Upon completion of the Overage Agreement the £900,000 was treated as inclusive of any obligation towards Mr Eastham in relation to the project, so that he was obliged to, and did look to the Club for the balance of £40,000. Finally, the £8,000 later paid by Ross River to Mr Eastham after the making of the Overage Agreement was simply part of a consultancy fee paid for Mr Eastham’s contribution to the reaching of an agreement with the DeSimones (owners of the restaurant), for providing vacant possession, having nothing to do with the Club at all, which had by then sold the entirety of its financial interest in the Ground.

Version 1 was contended for by Mr York in his evidence, and by Mr Eastham in the second of his witness statements to be prepared, which on 13^th June 2007 became the first which he signed. I shall refer to it as his second witness statement. Mr Eastham said that his fellow directors, Messrs George, Murray and Satchell had suggested that he approach Mr York for payment when, upon completion, it became apparent that the Club lacked the resources to pay him. Mr York confirmed that this is what he had been told at the time.

By version 2, the Board agreed in or about September 2004 that Mr Eastham should receive an additional £50,000, but at the sole cost of Mr York’s companies, who would pay the additional amount to the Club, which would then be paid by the Club on to Mr Eastham “for transparency”. Then, in or about March 2005 it is said that it was agreed both by the Board and by Mr York that his companies should pay up to £50,000 direct to Mr Eastham as consultancy fees at the rate of £2,500 per month for his work on the project, but set against the originally agreed £50,000 at the end of the day. Under version 2 therefore, Mr Eastham received £10,000 simply for acting as consultant to Ross River, but with an obligation to account for any such receipt against what had originally “for transparency” been agreed to be paid to him by the Club, from monies received from Mr York’s companies. Version 2 deals with the additional payment of £8,000 in the same way as version 1. This is the version to which Mr Eastham subscribed in his first witness statement, prepared in March 2007 and, according to him, delivered unsigned to both sides in this dispute. I shall refer to it as Mr Eastham’s first witness statement, although it remained unsigned and was not even included in the trial bundles. It first came to my attention when Mr Eastham was asked to verify it, still unsigned, at the commencement of his examination in chief, following which, after a brief adjournment for him to re-read it, he signed it.

Mr George supplied a slight variation on version 2, which I will call version 2A. In his recollection, there was never a stage at which additional payments to Mr Eastham coming from Mr York’s companies were to be routed through the Club, whether for transparency or otherwise. Mr York’s companies were to pay Mr Eastham any additional remuneration above the basic salary of £2,500 per month. In his mind, the £10,000 was simply an advance payment of money which Mr Eastham would otherwise have received from Mr York’s companies at the end of the development project.

Under version 3, it was always agreed from approximately mid 2004 that Mr Eastham should obtain additional remuneration for his work on the development project, the necessary cash for which would be provided by whichever developer was chosen as the Club’s joint venture partner, but accounted for at the end of the day as a Development Cost, and therefore shared 50/50 between the Club and the chosen developer. This version derives from Mr Lee’s recollection, to which he adhered and upon which he expanded in his cross examination. Mr Lee did not however testify to any knowledge of the June 2005 payment of £10,000, or to having been aware of the amount of extra remuneration which it was agreed that Mr Eastham should receive.

The final version (“version 4”) discernable from the claimants’ evidence came from Mr Murray. He said that the directors had been in agreement from the outset that, in order to retain Mr Eastham’s services for a sufficient period to enable him to see through the sale of the Ground and the realisation of its development value to a satisfactory conclusion, it was necessary that Mr Eastham should receive more than his basic salary. Since the Club lacked the money with which to deal with that requirement, it would have to be satisfied by Mr York or his companies, so the directors left it to Mr Eastham to negotiate additional remuneration with Mr York, both as to amount and as to the timing of payments. This process was agreed by the Board during the negotiation of the 2004 Sale Agreement when it appeared that the interests of the Club and Mr York’s companies would be wholly aligned toward the maximisation of the development potential of the Ground. There was, said Mr Murray, then no problem of conflict of interest involved in leaving the Club’s chief executive to negotiate additional remuneration with Mr York.

In a second witness statement provided to the Club, Mr Murray said he was unaware of the £10,000 received by Mr Eastham in June 2005, having been neither consulted nor informed about it at the time.

The Defendant’s evidence exhibited less variation, if only because the Club called only two witnesses on this issue, in addition to relying on Mr Murray’s second statement. Mr Satchell was the Club’s main witness on this issue. His evidence was that while he recalls a recognition on the part of the Board that it would be necessary to pay Mr Eastham an additional lump sum from the proceeds of any successful sale of the Ground, he could not recall any specific sum being agreed, still less any agreement that Mr York or his companies should play any part in making that additional payment available, whether by providing the money or incurring part of the burden of its provision as a matter of joint venture accounting. Mr Satchell denied being either informed of, still less consenting to the June 2005 payment to Mr Eastham, and said that he would have opposed any such arrangement at the time when Mr Eastham was negotiating for the Club for the sale of its share of the Overage to Mr York’s companies, because of the conflict of interest to which any such payment would give rise.

The Club’s other witness on this issue was Mrs Warren of Taylor Vinters. Her evidence was that she could not recall any mention of payment to be made to Mr Eastham by Mr York’s companies. Her recollection, supported as will be seen from her files, was that at the stage of negotiating the Heads of Terms with York Developments’ solicitors in 2004, she attempted to obtain a commitment by York Developments to treat the Club’s internal costs (including Mr Eastham’s salary) as part of the shared development expenses, but was rebuffed.

Those being the alternative explanations put forward by the parties and their witnesses, I turn first to the relevant surviving documents. Their most striking feature is their paucity. There are no agreements, no board minutes or other notes recording the basis upon which Mr Eastham was to be paid. He does not even appear as a salaried employee on the Club’s books because, despite being forced by the financial plight of the Club to work full time to ensure its survival, and working for no one else, Mr Eastham arranged to be paid gross, as a self-employed consultant, an arrangement which is, unsurprisingly, the subject of a continuing challenge by Revenue & Customs, who regard the Club as having failed to comply with its PAYE and NIC obligations in relation to the employment of Mr Eastham.

It might have been expected that Mr Eastham would have produced documents, such as tax returns, relevant to the receipt of the £10,000 in June 2005 as a self-employed consultant. No such documents were produced, and the unchallenged evidence of Mr Robert Young, who had been assisting the Club with certain of its financial affairs from January 2007, is that it appears from a conversation he had with a Mr Moseley, an accountant dealing with Mr Eastham’s personal tax affairs, that Mr Eastham had not by the beginning of March 2007 disclosed his receipt of that payment to Mr Moseley.

With that unpromising introduction, the relevant documents are as follows. I have already referred to the Club’s Articles of Association, which at all material times prohibited the payment of any remuneration to a director, whether as director or employee, and to the attention drawn to that provision in the Football Association’s February 2003 report.

The next relevant document consists of the exchange of emails passing between Mrs Warren of Taylor Vinters and a Mr Philip Wheater, a partner in Forbes Wheater, Mr York’s solicitors, concerning the negotiation of the Heads of Terms in late June and early July 2004. A first draft of the Heads of Terms had been discussed at a meeting between the two firms, together with Mr Lee, Mr Eastham and Mr York on 30^th June. On 1^st July the travelling draft was sent by email by Forbes Wheater to Taylor Vinters with a comment by Mr Wheater in relation to clause 31.2 that :

“… the buyer will pay third party costs, but not internal expenses or other salary costs etc., and accordingly this provision reflects that.”

In its context, this observation plainly meant, and was understood to mean, that Mr York’s companies were not prepared as part of the joint venture then being negotiated, to take responsibility for any part of what the Club had to pay its own staff in connection with its role in the project.

In a reply email dated 2^nd July, Mrs Warren responded as follows,

“It is not agreed that where my clients are required to cooperate with your clients in satisfying the development conditions their own costs and expenses should not be recoverable. For example they might be required to attend meetings at some distance away or incur other expenses and I can see no reason why these should not form part of development costs.”

Mr Wheater’s response, on 6^th July, was that:

“I do not think we have a problem about third party expenses or expenses reasonably incurred, but we cannot agree internal salaries or costs which should not be charged.”

In an email to Mr Eastham and Mr Lee of the same date, Miss Warren advised that:

“I think we could compromise by agreeing that internal salaries would not be charged but that all expenses and costs should be recoverable – they will form part of Development Costs in any event so whatever happens CCFC will effectively be bearing half of these costs.”

Later the same day, she responded to Mr Wheater as follows:

“I think my client would accept that internal salaries would not be charged as long as all costs and fees and expenses incurred in assisting your client werecovered.”

On the next day, in a further email to Mr Eastham and Mr Lee, Mrs Warren said:

“In Clause 12 relating to the Club’s obligations please note that you are allowed recovery of third party costs. I think we should accept this now in order to make progress”.

On the following day, Mr Lee wrote to Miss Warren to the effect that:

“… a further outstanding point was that the developer, while indemnifying the Club for third party costs, would not indemnify the Club for their own costs. I have spoken with Arthur on this and agreed that the proposed wording is satisfactory. He is not concerned about recouping of the Club’s costs, etc.”

There, according to the documents (and Mrs Warren’s recollection) that issue rested.

I have already referred to the provisions in the Sale Agreements about Costs and Planning and Development Costs, and to paragraph 1.1.2 of Schedule 4 where the concept of the Club’s third party costs re-appeared. The exclusion of internal (as opposed to third party) costs of the Club from the ambit of Planning and Development Costs is not as clear in the Sale Agreements as it is in the email correspondence concerning negotiation of the Heads of Terms, but there is no documentary evidence that this point, once clearly settled as it was in July 2004, was ever re-negotiated between the parties’ solicitors.

An attempt was made by the claimants and specifically by Mr Eastham in his evidence to suggest that a passage in an email from Taylor Vinters to him, copied to Mr Lee, dated 28^th September 2004 provided contemporaneous documentary evidence that an additional payment to him of £50,000 had been agreed and disclosed to the Club’s solicitors. This email was sent on the very day of the exchange of the 2004 Sale Agreement. The typed versions of the Sale Agreement and of the contemporaneous Loan Agreement defined “The York Loans” as meaning the sum £75,000 paid to the Club on exchange. But in both, that sum has been changed in manuscript to £135,000.

In paragraph 5 of the email, sent at 14.22 on the day of exchange, Mrs Warren said this:

“The York Loans are now stipulated to be £125,000 paid on or before the date of exchange. I have no idea whether this figure is correct but it needs to be checked and amended if not. I had intended the figure to relate only to the £75,000 paid on completion.

ARTHUR– Have you received a further £50,000 on top of this?”

It needed no assistance from Mrs Warren’s evidence for it to be clear that the paragraph which I have quoted had nothing whatsoever to do with an agreed additional remuneration payable to Mr Eastham personally of £50,000. It was concerned entirely with the question whether the amount of the York Loans typed as being £75,000 was to be increased in manuscript (as presumably Forbes Wheater were then suggesting) to £125,000 i.e. £50,000 greater than the amount originally contemplated and, no doubt, the amount due to pass later that day between the respective solicitors’ client accounts. In the event, the amount actually inserted was £10,000 greater, at £135,000, for reasons which have not survived in documents or in the recollection of any witnesses. By the expression “Arthur- have you received…” in an email addressed to Mr Eastham and Mr Lee, Mrs Warren obviously meant to enquire whether the Club have received a further sum, not due to be transmitted between solicitors that day, sufficient to justify an acknowledgment of receipt then proposed to be £50,000 greater than that which appeared on the typed engrossment.

Mrs Warren, not a witness to over-state the firmness with which she could recall past events, was emphatic that this natural interpretation of that paragraph was indeed the correct one, albeit that she accepted having become slightly confused between exchange and completion in the passage which I have quoted, as the result of earlier correspondence with Forbes Wheater. This document therefore affords no assistance in resolving the issues as to the remuneration agreed for Mr Eastham.

There then follows a documentary silence until June 2005. In passing, I have looked to see whether Mr Harney’s calculations for deciding the amount to be offered to the Club for its share of the Overage sheds any light on this issue. In both of them he included a round sum of £450,000 for “fees”, which provides no assistance either way.

Three relevant documents survive from June 2005. The first is the office copy of Mr Harney’s letter to Mr Eastham dated 20^th June enclosing “three cheques in the sum of £5,000, £2,500 and £2,500 in respect of your consultancy fees in the above matter.”

The second document is an email from Vanessa Roberts at Tenon (the River entities’ Isle of Man managers) to Derek Carr on 22^nd June, notifying Mr Carr of the receipt of correspondence from Mr Harney in relation to counsel’s fees and Williams and Co’s fees in respect of the consultation with Mr Purchas, and seeking Mr Carr’s comments. While that email is of no particular relevance, Mr Carr’s reply of the next day was as follows:

“Vanessa,

As discussed, these fees can be paid.

In addition can you please transfer £10,000 this afternoon to Waveley Project Management as a contribution to the professional fees incurred by CCFC. This is in anticipation of a successful conclusion to agreeing a buy out of CCFC’s 50% share of the development profit.”

It is common ground that the £10,000 to which Mr Carr referred was the aggregate of the sums paid by cheque by Mr Harney to Mr Eastham.

Mr Carr was, as I have described, Mr York’s tax adviser, through whom he was accustomed to communicate his instructions or wishes to the managers of this Isle of Man entities. In his first witness statement Mr Carr said that he was aware of an agreement which he described as a “Fee Agreement” pursuant to which Ross River was to make monthly instalments of £2,500 on behalf of the Club to Mr Eastham. His understanding was that the monthly payments were to be paid to Mr Eastham for consultancy work that he was carrying out in respect of “the joint development of the Ground by Ross River and CCFC” under the terms of what he described as the overage agreement between them (which I interpret to mean the Sale Agreements). He said that the Fee Agreement was to start from March 2005 and that the £2,500 per month payments were “brought up to date in June 2005” because Ross River anticipated that the Overage sale negotiations would be concluded shortly, and wanted to get the payments up to date before the sale took place. He also said that “it was not considered appropriate for Ross River to continue making payments to Arthur Eastham while he was involved in these negotiations.” In cross examination he said that the information upon the basis of which he had composed his email to Vanessa Roberts came either from Mr Harney from Mr York.

In response to an enquiry from me at the beginning of the trial as to how the £10,000 payment to Mr Eastham had been dealt with in Ross River’s books, (there being no relevant disclosure in the trial bundles), Mr Carr made a further witness statement in which he referred to a note on Ross River’s copy bank statements to the effect that the £10,000 was a “Cont to CCFC fees” and explained that “Cont” meant “contribution”. He acknowledged in cross examination that, although Ross River may not have kept conventional books, emails were often used to provide accurate and transparent paper trails in relation to transactions, in order to ensure that the planned tax effectiveness of the use of Isle of Man entities was in due course satisfactorily secured.

On or about 2^nd September 2005, in anticipation of the successful conclusion of the Overage Agreement then in the sum of £950,000, Mr Harney composed a draft e-mail to the Club in which he described the net sum payable of £683,500 (after deductions for rent and an outstanding loan) as being intended:

“to include £100,000 consultancy fee payable to Arthur Eastham”

Mr Harney said that this was the result of a mistaken understanding on his part. The final version of this document received by the Club contained no such reference. Neither the draft nor the final version made any mention of the £10,000 already paid.

Mr Eastham did not provide invoices in respect of the £10,000 “in due course” or at all, prior to the completion of the Overage Agreement. Rather, he prepared four invoices each dated 1^st November 2005, the first three of which acknowledged receipt of each of the three cheques sent to him in June, describing the payments as “Consultancy fees in regards to work done at Cambridge City FC”. The fourth invoice related to his anticipated receipt of the £4,000 which he described as relating to his effort to secure an agreement with the DeSimones, and included exactly the same text. The invoices are numbered 1 to 4 consecutively in a series prefixed “205/” and, as might be expected, Mr Eastham acknowledged that they were the first invoices of any kind which he had prepared that year. He explained that his ability to remember the way in which the £10,000 had been made up arose from having photocopied the three cheques received in June, before banking them.

Finally, there is documentary evidence recording Mr Eastham’s receipt of £40,000, including an invoice numbered 207/12 and dated 1^st March 2006 recording as “monies already received” £40,000 for:

“Consultancy fees in regards to work done at Cambridge City FC – bonus in Chief Executive role for services rendered in sale of ground to enable Club to pay off creditors. Bonus agreed by board of CCFC, advisors Cheffins, Taylor Vinters and all tendering parties, and covered by monies paid to the club by ground purchasers.”

The £40,000 was in fact received by Mr Eastham on the 30^th November 2005, according to his unchallenged evidence on this point. Although the timing of the invoice was not explored in oral evidence, it seems to me from the lengthy and rather self-serving content which I have quoted above, that it was in all probability prepared after the present dispute had arisen, or at least in anticipation of it.

In its accounts for the year ending 30^th June 2005, approved by the Board on 21^st August 2006 and signed by Mr Satchell, note 2 disclosed the payment of directors’ fees in that year of £48,492. This was broken down in note 8 as £32,000 to Mr Eastham and £16,491 to Mr George, payments being made under consultancy contracts. The Club’s accounts do not therefore appear to have treated the £10,000 paid in June 2005 as part of Mr Eastham’s receipts from or on behalf of the Club.

I must now state my conclusions on the issues relating to payment from Mr Eastham. First, I am satisfied that Mr Eastham’s basic salary of £2,500 per month was both agreed and paid with the knowledge and approval of all the Club’s directors. They appear to have been blithely unconcerned about the prohibition upon such payments in the company’s Articles, and equally impervious to the advice of the Football Association, whose report appears not to have been studied by any of the directors at the time. In any event, they told me that they placed compliance with the requirements of what one of them described as a “fluffy” organisation like the Football Association as well down their list of priorities, compared with ensuring, if possible, the survival of the Club. In their defence, it may be said that the restriction in question was a rule by then more favoured in the breach than in the observance, and that the shareholders have not, since the Club’s accounts recording those payments were laid before them, protested at the remuneration either of Mr Eastham, or of his predecessor Mr Hamilton.

In my judgment none of the payments which the directors purported to agree should be paid at the Club’s expense to Mr Eastham were duly authorised by the Club, either at the time they were made, or subsequently, save in so far as the shareholders may have ratified them by approving the accounts. Authority would have required either unanimous shareholder approval or an amendment to the Articles by a resolution at an appropriately constituted general meeting.

I am in that context wholly un-persuaded by Mr Seitler’s submissions to the effect that the payments were within the Board’s power to authorise because they were consultancy payments rather than remuneration to Mr Eastham as an employee, or because he was also the Club’s Secretary and in principle entitled to be paid as such. The directors well knew that Mr Eastham needed to work full time for the Club to have any prospect of ensuring its survival, and that he would not be able to work for anyone else at the same time. He was in my judgment an employee rather than a consultant, and his remuneration could not be purportedly authorised by being mis-described as consultancy payments. Nor on any view did he receive his payments for performing the modest official duties of a company secretary.

Secondly, I am also persuaded that it is probable that the directors all appreciated the need for, and agreed that in principle Mr Eastham should be paid, additional remuneration over and above his basic salary to ensure that he continued to work for the Club for the whole of the period necessary to turn into money the perceived potential development value of the Ground. I am also persuaded that in 2004 they agreed that Mr Eastham should be paid a substantial sum once the proceeds of the realisation of that development value provided the Club with sufficient funds to do so, and that those directors who gave the matter any thought expected that this would occur upon the completion of the Sale Agreements, rather at the later date when the Club’s share in the Overage was realised. The directors’ witness statements left the anticipated timing of that additional payment unclear, but the evidence of those who were asked about it in cross examination was (slightly to my surprise) that it was, in 2004, expected to be possible upon completion of the Sale Agreement.

Implicit in that conclusion is a finding that the directors expected throughout 2004 that Mr Eastham’s additional payment would fall to be made to him by the Club, once in funds do so, rather than by any of Mr York’s companies, albeit that of course the source of funds with which the Club was to make payment was to be payments by Mr York’s relevant company under the Sale Agreement (once made) or by any other developer that might beat Mr York and his companies to the finishing line as the Club’s chosen joint venture partner, during the period prior to October 2004 when the Club was playing off rival bidders against each other.

I am not persuaded that the directors as a body entertained any uniform, clear or consistent understanding at any time as to the incidence of the burden of the additional payment to be made to Mr Eastham, as a matter of joint venture accounting.

By contrast, I consider it probable, and therefore find, that at no time prior to March 2005 did Mr York or any of his companies agree to be responsible for any additional payment for Mr Eastham, either in terms of cash flow or in terms of being responsible for, or even sharing, the ultimate burden as part of the costs of the project. In that respect, Mr York’s evidence coincides with the documentary evidence concerning the negotiation of that point in July 2004 between the parties’ solicitors, with Mrs Warren’s evidence and, albeit not perhaps as clearly, with the terms of the Sale Agreements themselves. Such a payment would not on any reasonable analysis have been a third party payment so far as the Club was concerned.

A substantial part of the evidence of the relevant witnesses was focussed upon what was said to have been mentioned at a negotiating or drafting meeting in or shortly before September 2004 at the offices of Taylor Vinters, attended by Mr York, Mr Harney, Mrs Warren, Mr Lee and Mr Eastham. All those attending other than Mrs Warren gave evidence that they could recall it being discussed at the meeting that, in principle, Mr Eastham should receive an additional payment for his work in progressing the project, and that Mrs Warren had advised that if so, it should be recorded in the Sale Agreement, but that Mr Eastham responded that, since this was a private matter between him and the Club, he would prefer that it was not so recorded. Mrs Warren could recall none of this, and said that, had it occurred, she would have expected to have made a note of it, which she did not.

In my judgment, something of the kind probably was said at the meeting, but not in terms that involved the placing of any obligation upon Mr York’s companies in relation to the additional payment, nor in terms which even identified any specific amount. In my judgment the discussion went no further than acknowledging that in principle, the Club was to pay an additional amount to Mr Eastham. Had the discussion involved the imposition of any obligations upon Mr York’s companies in connection with it, it would undoubtedly have required inclusion in the Sale Agreement, all the more so because any such responsibility had been expressly rejected in the negotiations between the parties’ solicitors leading to the signing of the Heads of Terms. Were any such responsibility to be placed on Mr York or his companies, the additional payment would not have been a “private matter” between Mr Eastham and the Club. I can well understand how, being responsible for the accurate drafting of an agreement recording the mutual responsibilities of Mr York’s companies and the Club in relation to the development of the Ground, Mrs Warren may have forgotten about the mention of this private matter, not least because, despite her undoubted integrity and realism as a witness, her powers of recollection of past events were not, as she would be the first to concede, of the highest order.

I have on balance also come to the conclusion that it is less than likely that the directors had, as a body, resolved upon the amount to be paid to Mr Eastham by way of additional payment, upon the successful completion of the sale of the Ground, either in 2004, or indeed, at any significantly earlier time than when payment to Mr Eastham of the £40,000 was actually made in November 2005. In this respect, the evidence was, taken as a whole, vague and unsatisfactory. Mr Eastham said that a sum of £50,000 had been agreed at a board meeting towards the end of September 2004, although his first witness statement suggested that it was in 2005, that being what Mr Eastham described as an error, which was only corrected during his cross examination. Mr George’s written and oral evidence ascribed no date at all to the fixing of £50,000 as the amount of the additional payment. His witness statements merely assumed that it had been agreed by November 2005 without describing when or how. In cross examination Mr George was constrained to admit to the possibility that Mr Satchell had not known of or been involved in fixing Mr Eastham’s additional payment at £50,000.

Mr York’s evidence was only that he was told “some time after” September 2004 that Mr Eastham’s additional payment was ultimately agreed to be £50,000. Mr Murray’s recollection was that the fixing of the amount and timing of any additional payment for Mr Eastham was a matter between him and the chosen developer, since the Club could not pay anything. Mr Satchell denied any involvement in a Board decision to fix the amount, or any contemporaneous knowledge that Mr Eastham had been paid either £40,000 by the Club, or an additional £10,000 by Ross River.

I recognise that in concluding that there was no Board decision fixing Mr Eastham’s additional payment at £50,000 I am departing from the evidence of Mr Eastham himself, and from the gist of the recollection of Mr George who, as I have said, was generally a most impressive witness. I have not done so lightly. My reasons for doing so are first, the absence of any unanimity or even particularity among any of the claimants’ witnesses as to how or when this was agreed; secondly the fact that two out of the four directors were firm in their evidence that it was not, albeit that their evidence was less impressive than that of Mr George; and thirdly because the directors had by then become so accustomed to dealing with the never ending stream of emergencies affecting the Club’s survival by informal processes, that it is easy to see how the need to sit down together, preferably in the absence of Mr Eastham, and decide carefully what he should be paid for his undoubted services, was overlooked.

I note in passing that as late as 2^nd September 2005 Mr Harney was able to sit in front of his computer and draft a letter to the Club purporting to record that a £100,000 consultancy fee was payable to Mr Eastham, until subsequent discussion with Mr York caused him to delete that sentence. The fact that Mr Harney was at that late stage apparently unaware of any agreement that Mr Eastham should be paid £50,000 is a slight, but no means decisive, pointer towards the conclusion which I have reached on balance.

The sum total of my conclusions on this issue so far means that, as completion of the Sale Agreements approached in April 2005, and the directors came to appreciate that the Club would have insufficient funds from the completion monies with which to make a substantial additional payment to Mr Eastham, all that had been agreed between them was the principle that he should receive a substantial payment as soon as the Club was in a position to make it, out of monies flowing to the Club from Mr York’s companies in connection with the project, but that no specific amount had been agreed, nor any requests made to Mr York that his companies should bear the burden, either in terms of cash flow or expense sharing.

Mr York’s evidence was that this changed “in late February/ early March 2005”, when the Club suggested that, with no resources of its own, Mr Eastham should approach Ross River as purchaser “to see if it would be willing to pay (some of) the Consultancy Fees on its behalf”. I take this quotation from Mr York’s first witness statement, the phrase in brackets having been added by him in cross examination. Mr Eastham confirmed the timing of that approach in his second witness statement, and said that the other directors of the Board had suggested that he approach Ross River.

Mr George’s evidence was only that Mr Eastham had told him in June 2005 that he had asked Mr York for some financial help with his daughter’s wedding costs, and that, in October 2005, Mr Eastham had told Mr George to deduct the £10,000 received by him in June from the £50,000 which was otherwise to be paid to him as a result of the successful conclusion of the Overage Agreement.

In cross examination Mr Eastham could no longer recall when between September 2004 and June 2005 a direct payment to him by Ross River was first mooted, but he acknowledged that the impetus for that change came about because of the impending marriage of his eldest daughter, due to take place on 7^th August 2005, and the understandable pressure from his wife to demonstrate a better financial return for all his hard work at the Club than had so far been represented by the payment of a modest £2,500 per month.

Mr Satchell absolutely denied any knowledge of, still less invitation by him to Mr Eastham to seek, payments direct from Ross River. Mr Murray’s evidence was that as far as he was concerned the question of additional payments was, from first to last, a matter between Mr Eastham and Mr York, with which the Club was not involved. While I accept that this may have been Mr Murray’s personal view of the matter in 2004, during the negotiation of the Heads of Terms and the Sale Agreements, this is not what either the Board or Mr York and his companies had agreed. There is no compelling evidence that Mr Murray re-considered whether this was appropriate in or after March 2005, when the commencement of negotiations for the sale of the Club’s share of the Overage meant that there was for the first time (after September 2004) a risk of conflict between the Club’s and Ross River’s interests. Mr Murray’s own evidence was that he knew nothing of the June 2005 payment, and I believe him.

I find that Mr Eastham probably approached Mr York nearer to June than February/March 2005, and that he did so because of the financial embarrassment threatened by his daughter’s wedding, without any invitation to do so by any of his colleagues on the Club’s Board. I find that the payment of £10,000 was structured as if it were arrears of monthly consultancy fees of £2,500 per month due in respect of consultancy services starting to be provided in March 2005, and that both Mr York and Mr Eastham expected it to be taken into account in any final settlement between the parties to the project, whether under the terms of the Sale Agreement or as part of any earlier purchase by Ross River of the Club’s share in the Overage.

For present purposes, the question is not whether the artificial attribution of the payment of £10,000 to arrears of monthly third party fees was itself dishonest, but whether the payment was deliberately concealed from the Club until after the conclusion of the negotiations for the purchase of the Club’s share of the Overage.

In support of a conclusion that it was deliberately concealed is the fact that Mr Eastham’s invoices in respect of the £10,000 were not prepared or sent until November 2005, after the making of the Overage Agreement, in circumstances where the Club and Ross River had by then finally severed the relationship constituted by the Sale Agreements. The invoices, and therefore the underlying payment, would be unlikely ever to have been drawn to the Club’s attention, and no reference was made to the payment in either the draft or final versions of Mr Harney’s letter to the Club in early September 2005. In fact, it appears that the Club found out about the invoices only because a disaffected member of Mr Harney’s staff later made them available, together with other relevant documents, to the Club’s solicitors retained for the purposes of this dispute.

Against that conclusion is the evidence of Mr George, that Mr Eastham told him about the £10,000 when, or soon after, it was paid, and that he invited him to deduct it from the £50,000 which Mr George was otherwise minded to arrange for the Club to pay Mr Eastham after the conclusion of the Overage Agreement. I have considered but rejected the submission that Mr Carr’s email to Miss Roberts referring to the £10,000 as payable in anticipation of the successful outcome of the overage negotiations points one way or the other. In my judgment, taken as a whole, it is neutral, not least because Mr Carr appears to have been told that it was a payment on account of CCFC’s (rather than Ross River’s) professional fees.

I have decided that the June 2005 payment of £10,000 was not actively or deliberately concealed by Mr Eastham from the Club. My reasons now follow.

It was in my judgment in the highest degree improper for Mr Eastham as the chief executive of a company engaged in tough negotiations with Mr York’s companies to seek, let alone obtain, a payment from Mr York or from one of his companies. By doing so, he put himself into Mr York’s debt, morally speaking, and plainly committed a breach of the fundamental obligation of a fiduciary not to place himself in a position of potential conflict between his duties and his interest. Anyone more aware than Mr Eastham of his fiduciary responsibilities would have had the strongest temptation to conceal that conduct from his principal, and I have rejected Mr Eastham’s explanation that his fellow directors invited him to approach Mr York for assistance.

Mr Eastham’s evidence that he did not conceal the payment is however supported by Mr George, a most impressive witness of complete honesty, and a loyal and devoted supporter and servant of the Club. There is no suggestion from Mr George that Mr Eastham asked him to keep that information to himself. Furthermore, both Mr Eastham and Mr George’s evidence shows that, if believed, Mr Eastham invited Mr George to deduct £10,000 from that which Mr George would otherwise have been prepared to pay him once the Club was funds after the conclusion of the Overage Agreement.

More broadly, Mr Eastham’s own record speaks for itself as a diligent and determined fighter for the Club’s survival, at considerable personal expense and financial embarrassment to himself. After a shaky start, he secured the Sale Agreements by the skilful playing-off of rival developers, despite the crippling financial trouble of the Club, which would have driven many similarly challenged companies into administration or liquidation. After receiving the June 2005 payment, he continued vigorously to fight the Club’s corner against Mr York’s companies in the overage negotiations, ultimately leaving to a deal at figure 80% higher than that on offer in June.

I bear in mind also Mr Eastham’s demeanour as a witness. Although I have not accepted the whole of his evidence, and although he did himself no favours by his tendency to make speeches rather than answer questions directly, he did not strike me as a subtle or deceitful witness. I have not ignored his decision, again contrary to his duty, to make a quantity of the Club’s confidential documents, including privileged documents, available to the claimants. It was another plain breach of duty by someone with a great deal to learn about fiduciary responsibilities, but it was in my judgment an exercise of misguided self-defence rather than dishonesty.

Finally, on this most serious allegation, Mr Eastham is entitled to the benefit of the doubt, albeit that he owes it mainly to Mr George’s evidence rather than to his own that I have concluded in his favour on this issue.

The question whether, as I have found, Mr Eastham’s disclosure of his receipt of £10,000 in June 2005 to Mr George means that his principal the Club must be taken to have had knowledge of it, in circumstances where, as I have also found, neither Mr Murray nor Mr Satchell, still less the Club’s legal or valuation advisers knew about it, is a question of law to which I shall shortly return.

The next factual question raised by this issue is whether in assisting Mr Eastham to commit a serious breach of his fiduciary duties to the Club by making him a payment of £10,000 in June 2005, Ross River did so either knowingly, or dishonestly. I have rejected the evidence that Mr Eastham was in fact asked by his fellow directors to approach Mr York for financial assistance in 2005. For the avoidance of doubt, I also reject both Mr Eastham’s and Mr York’s evidence that Mr Eastham made any such suggestion to Mr York. It is not suggested that Mr York, his companies, or advisors made any independent attempt of their own either to inform the Club of the payment, or to find out whether any such payment was known or approved by the Club. For my part, I doubt whether anyone on Mr York’s side gave the matter a moment’s thought.

The most rudimentary appreciation of the nature of fiduciary duties should have suggested to those on Mr York’s side that a payment to the chief executive of the Club during the course of the Overage negotiations would involve a commission by him of a breach of fiduciary duty, in the absence of the clearest possible informed consent to such a payment by those, other than Mr Eastham, responsible for the Club’s affairs. In my judgment the proper conclusion as to the state of mind to be attributed to the claimants in this respect is that they simply did not care whether the payment had been disclosed to or been approved by the Club. I do not however conclude that the payment was made with the intent of procuring an improperly favourable attitude towards the claimants in Mr Eastham’s further conduct of the Overage negotiations, or with the intent that it be deliberately concealed.

Finally, I broadly accept the claimants’ case and their witnesses’ evidence as to the circumstances of the making of the further payments each of £4,000 in December 2005 and January 2006. It was not even suggested that this had in any way been promised or hinted at in advance of the conclusion of the Overage Agreement. Accordingly, the making and receipt of them can be of no relevance to the Club’s claim to set aside that agreement. The question whether in obtaining those further payments Mr Eastham made use of his position as a fiduciary of the Club, so that he ought to be accountable to the Club in respect of it, is not raised by these proceedings, and I say nothing further about it.

The making by one contracting party to another of a material misrepresentation of fact which induces that other to make the contract gives that other the right to rescind the contract, qualified in cases of innocent or negligent misrepresentation by the court’s statutory discretion to award damages in lieu, but not so qualified where, as here, the misrepresentation is fraudulent.

Although silence as to the material facts is not in general capable of constituting a misrepresentation, it may do so where the defendant is under a positive duty of disclosure, for example when negotiating a species of contracts regarded as uberrimae fidei, or where an existing relationship between the parties, such as a fiduciary relationship, imposes an obligation of disclosure.

In the present case, the contentious issues of legal analysis are, first, whether there existed a duty of disclosure upon Ross River when negotiating the purchase of the Club’s share of the Overage, by reason of the relationship between the parties created by the Sale Agreements, and secondly, whether Mr Harney’s misrepresentations made on Ross River’s behalf were material, and if so, such as to induce the Club to enter into the Overage Agreement.

As to the first of those issues, it is well settled that the duty of good faith which subsists between partners extends to any process, whether by negotiation or otherwise, designed to bring about the termination of that relationship: see Blisset v Daniel (1853) 10 Hare 493.

In relationships falling short of partnership, but having in them elements of joint enterprise or joint venture, there is no hard and fast rule as to the existence or otherwise either of a duty of good faith, a fiduciary duty or a duty of disclosure. Each case will turn on its own facts, but if the relationship is regulated by a contract, then the terms of that contract will be of primary importance, and wider duties will not lightly be implied, in particular in commercial contracts negotiated at arms’ length between parties with comparable bargaining power, and all the more so where the contract in question sets out in detail the extent, for example, of a party’s disclosure obligations : see more generally Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, at 97, where Mason J said this:

“That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the effect the contract is intended to have according to its true construction.”

There are however well known badges or hallmarks of a fiduciary relationship, such as:

“Whenever the plaintiff entrusts to the defendant a job to be performed, for instance, the negotiation of a contract on his behalf or for his benefit, and relies on the defendant to procure for the plaintiff the best terms available…”

Per Asquith LJ in Reading v The King [1949] 2KB 232 at 236.

I was invited by Mr Seitler for the claimants to take note of the following passage in Paul Finn’s essay “Fiduciary Law in the Modern Commercial World” collected in McKendrick on Commercial aspects of fiduciary obligation (1992):

“An appraisal (i) of the manner in which, and the apparent purpose for which rights, powers, duties and discretions are allocated by the contract; (ii) of the contract’s particular commercial or business setting, and (iii): of the self-serving actions lawfully open to a party both under, and not withstanding the contract will, as a rule, indicate decisively whether the role and reason of a party in the contract (or in a discrete part of it) can properly be said to be to serve his own interests, the parties’ joint interests, or the interests of the other party.”

I shall adopt that the guidance, in analysing the relationship created by the Sale Agreements.

Turing to the issues of materiality and inducement, there is a material misrepresentation where the false part of a statement is objectively likely to have constituted an inducement to the recipient to enter the contract, not in the sense of being the sole or the predominant cause but merely one of the inducing causes.

Once the misstatement is shown to have been material, then there is “a fair inference of fact” that the recipient was induced by the statement: see Chitty on Contracts (29^th Ed) at Para 6-035 and the numerous cases cited in note 162.

In cases of fraudulent misrepresentation a more rigorous rule is applied, sometimes described as being by way of deterrence: see Chitty (op. cit.) at para 6-034. It is not enough for the representor to show that the representee would, even if the representation had not been made, still have entered the contract. It is sufficient for the representee to show that the misrepresentation “was actively present to his mind” (per Bowen LJ in Edgington v Fitzmaurice (1885) 29Ch. D 459 at 483).

Bribery is committed where one person makes, or agrees to make, a payment to the agent of another person with whom he is dealing without the knowledge and consent of the agent’s principal. Where a contract ensues from those dealings, the principal is entitled to rescission if he neither knew nor consented to the payment. If he knew of it, but did not give his informed consent, the court may award rescission as a discretionary remedy, if it is just and proportionate to do so : See Wilson v Hurstanger Ltd [2007] EWCA Civ.299 Per Tuckey LJ at paragraphs 47 to 51, following Johnson v EBS Pensioner Trustees Ltd [2002] Lloyds Rep PN 309.

The essential vice inherent in bribery is that it deprives the principal, without his knowledge or informed consent, of the disinterested advice which he is entitled to expect from his agent, free from the potentially corrupting influence of an interest of his own : see Logicrose Ltd v Southend United Football Club [1988] 1 WLR 1256 at 1260-61 per Millett J, who continued:

“It is immaterial whether the agent’s mind had been affected or whether the principal has suffered any loss as a result: “the safety of mankind requires that no agent shall be able to put his principal to the danger of such an enquiry as that”: Parker v McKenna (1874) LR 10 Ch. App 96, at 124-5)…. The principal, having been deprived by the other party to the transaction of the disinterested advice of his agent, is entitled to a further opportunity to consider whether it is in his interests to affirm it.”

The liability of the payer to having the ensuing contract rescinded is based upon him having been an accessory to the agent’s breach of fiduciary duty to his principal : see Wilson v Hurstanger Ltd (supra) at paragraph 35. But the payer will not merely by paying his counterparty’s agent incur liability as an accessory, unless the payer actually knows that, or is wilfully blind to the question whether the agent has concealed the payment from his principal : see again per Millett J per Logicrose v Southend (supra) at page 1261, where he said:

“Parties to negotiations do not owe each other a duty to act reasonably, but only to act honestly. In the present context, the principal’s right is a right to rescind for fraud, not negligence. There is in my judgment a close parallel with the cases on knowing assistance in a breach of trust…. In my judgment, the difference between the two lines of authority (that is to say the “bribery” cases and knowing assistance) lies not in the factual background but in the remedy sought: The state of mind necessary to make the other party liable ought to be the same whether claim is for an account of the money which he helped the agent to misappropriate, or rescission of the transaction itself.

My one reservation, which I make for the sake of completeness, is this. It is clear that, where one party to a transaction takes what Collins LJ described as “the hazardous course of making a payment for the personal benefit of the other person’s agent, and does not disclose it to the principal, he cannot afterwards defend the transaction by claiming that he believed the agent to be an honest man who would disclose it himself… Where therefore, knowing that the agent has an interest of his own he does not himself disclose it to the other party, then in the words of Collins LJ… “he must at least accept the risk of the agent not doing so.”

None of these principles were in dispute between the parties before me. The real bone of legal contention lay in the analysis of what, in the context of a limited company such as the Club, constitutes knowledge and, separately, consent. In particular, would any disclosure to directors other than to the whole board, and consent by directors other than the whole board, be sufficient in the event that, as I have found, Mr Eastham failed to disclose his receipt of £10,000 in June 2005 to all his colleagues on the board, and did not receive the consent of all of them?

I was originally disposed to think that, in the context of a company with Articles of Association which prohibited the provision of any remuneration to its directors, whether as directors or employees, nothing short of disclosure to, and consent from, the shareholders would suffice. On further reflection however, I have concluded (without opposition from Mr Davidson) that it is the directors, rather than the shareholders whose knowledge and consent matters. This is because, on any view, they rather than the shareholders were seized of the question whether and on what terms to sell the Club’s share in the Overage, and it was to them, rather than to the shareholders that for practical purposes Mr Eastham was to be expected to provide disinterested advice, as the director with primary delegated responsibility for the conduct of the negotiations with Ross River.

Mr Seitler did not seriously challenge the proposition that for the Club to be said to have given its informed consent to a payment by Ross River to Mr Eastham, it would be necessary to show that all the then directors approved of it. I accept his submission that such approval need not have been resolved upon at a formal meeting attended by all of them at the same time: see Runciman v Walter Runciman Plc [1993] BCC 223.

Much more difficult is the question whether disclosure by Mr Eastham to one of his colleagues on the board, namely Mr George, constituted disclosure to the Club. I was referred to the unreported decision of the Court of Appeal in Mohammad Jafari-Fini v Skillglass Ltd & others [2007] EWCA Civ 261, in which the question was whether the payment of a bribe to an agent of the defendant had come to the attention of a limited company “PAL” so as to trigger PAL’s obligation as the borrower under a debenture to make disclosure of it to its lender Skillglass. It was proved that one of PAL’s directors, a Mr Webster, knew of the bribe, but the evidence showed that he did not communicate it to his colleagues on PAL’s board.

At paragraph 98, Moore-Bick LJ (with whom the other members of the court agreed) said this:

“The question in the case is whether information in the case which comes to the attention of one director, but which he has not shared with the rest of the board, is to be treated as information in the possession of the company. In MAN v Freightliner I expressed the view that where the board of directors is properly to be regarded as the directing mind and will of the company in relation to a particular transaction the knowledge of each is to be attributed to the company. That case, however, was concerned with the liability of the company for a false statement made in a written contract which the board as a whole had resolved that the company should enter into. The present case differs in as much as it is concerned with the acquisition by the company of information, but there are nonetheless certain similarities arising from the fact that the members of the board can generally be regarded as collectively representing the company. In general, therefore, I think that where information relevant to the company’s affairs comes into the possession of one director, however that may occur, it can property be regarded as information in the possession of the company itself. In my view that presumption informs the present contract and points to the conclusion that information in the possession of Mr Webster relating to the bribe is to be regarded as information in the possession of PAL itself.”

Mr Davidson submits that the decision in Jafari-Fini was as a matter of general principle distinguishable from the present case, because of the different purpose for which the company needed the information. There, the information was “needed” only in the sense that it triggered the company’s obligation to report it to its lender under the debenture. In the present case the Club needed the information so as to enable it to make an informed decision whether to permit Mr Eastham to be paid by Ross River, while leading the Club’s negotiations for the sale to Ross River of the Club’s share of the Overage. He referred me to Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2AC 500 as authority for the proposition that in discerning the appropriate “special rule of attribution” the question whose act or knowledge was intended to count as the act or knowledge of the company depended upon the purpose for which it is necessary to make that decision. I consider that the passage in Lord Hoffmann’s well known judgment on this point on page 507 B to F supports Mr Davidson’s submission.

The application of that purposive principle to the question whether a payment to the agent of a limited company has been sufficiently disclosed to deprive it of the character of a bribe is confirmed by the following passage in the judgment of Tuckey LJ in Wilson v Hurstanger (supra):

“What amounts to sufficient disclosure for these purposes? Bowstead says : Consent of the principal is not uncommon. But it must be positively shown. The burden of proving full disclosure lies on the agent and it is not sufficient for him merely to disclose that he has an interest or to make such statements at to what could put the principal on enquiry: nor is it a defence to prove that had he asked for permission it would have been given. I think this is an accurate statement of the law. Whether there has been sufficient disclosure must depend upon the facts of each case given that the requirement is for the principal’s informed consent to his agent acting with a potential conflict of interest.”

Tuckey LJ’s analysis was concerned not with the question whether disclosure to one director rather than to the whole board was sufficient, but with the quantity or quality of the information communicated. Accordingly, Wilson v Hurstanger Ltd does not in terms answer the question in issue in this case. But in my judgment it points the way to the answer. A payment to the agent of a company is by the law relating to bribery required to be disclosed to the company so as to enable it to make an informed decision whether to permit the agent to do something giving rise to a potential conflict of interest. Such an informed decision can in general be made only by the company’s board. Contrary therefore to the general rule propounded by Moore Bick LJ in Jafari–Fini (supra) I conclude therefore that a payment by a person dealing with a company to a managing director of the company charged with the negotiation on the company’s behalf is only disclosed to the company by the director if that disclosure is made to all its directors or to a properly convened board meeting attended by a sufficient quorum.

In the present case the question is as to the disclosure required to be made by the director himself, where the payer took no steps to make the disclosure, leaving it to the payee director. It may be that a less stringent rule is to be applied where the payer makes the disclosure. For example, Mr Davidson conceded that disclosure by Ross River to the company’s solicitors would have sufficed. But where (as here) the only disclosure made by the payee director was to one of his colleagues on the board, that was in my judgment insufficient to bring the existence of the payment to the knowledge of the company.

It may also be that where the payee is not the managing director or (as here) the chief executive, the payee may make sufficient disclosure by telling the MD or CEO. As Mr Davidson put it in closing: “If you disclose to someone who is the leader, that is good enough. But if you are the leader, merely disclosing in a vague way to a follower is not good enough”.

That analysis may be tested by reference to Mr Seitler’s submission that the Club approved the payment by acquiescence, once Mr George knew of it, on the basis that Mr George’s knowledge was to be attributed to the Club. That would be a result at variance with the reality, because the board neither knew nor approved of the payment, by acquiescence or otherwise. The flaw in the submission lies not in the notion that knowledge followed by acquiescence signifies consent, but rather in the proposition that Mr George’s knowledge is to be attributed to the Club.

I have considered whether my conclusion on this issue conflicts with El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 where, reversing Millett J, the Court of Appeal held that the knowledge of one of DLH’s directors (a Mr Ferdman) was to be attributed to the company for the purposes of a claim against it based upon knowing receipt. In my judgment it does not conflict. There, the appeal succeeded not because Mr Ferdman was a director, but because, in relation to the relevant transaction, he had sufficient individual authority from the company to require his mind to be identified for that purpose as the company’s governing mind and will. No such classification can here be applied to the mind of Mr George, the only director whom Mr Eastham informed about the June 2005 payment.

Despite its emotive label, it has never been an essential part of the cause of action in bribery to prove that the payer or the agent had a consciously improper motive or intent. Bribery is established wherever the payment brings about the requisite conflict of interest which is not disclosed to, or consented to by, the principal. It follows that in a case of non-disclosure bribery may be established even where both the payer and the agent were unaware that they were doing anything wrong. Nonetheless, in cases where there has been disclosure to, but not informed consent by, the principal, questions of improper motive and intent may be relevant to the exercise of discretion.

The final legal issue under this heading concerns the question whether the right of rescission, or the court’s discretion to award rescission, can extend so as to bring about the unwinding of a transaction prior in time to the payment or agreement for payment constituting the relevant bribe so as, in this case, to enable the Club to seek the rescission not merely of the Overage Agreement, but of the 2005 Sale Agreement as well.

For that purpose, Mr Davidson advanced two alternative submissions. The first, based upon a well known decision of a two judge Court of Appeal in Panama and South Pacific Telegraph Company v India Gutta Percha Telegraph Works Company (1875) 10 Ch App 515, at 527, was that “if you find a case where, in the contemplation of this court, a principal is conspiring with the servant of the other principal to cheat his master in the execution of a contract, then in common sense, justice, honesty and this Court, the master is entitled to say, “I will have nothing more to do with the business”:” (per James LJ).

In that case, it was shown that shortly after the plaintiff contracted with the defendant for the laying of a cable, the plaintiff’s certifying engineer secretly subcontracted with the defendant to lay the cable himself. As James LJ put it “a surreptitious sub-contact with the agent (the engineer) is regarded as a bribe to him for violating or neglecting his duty”. On discovery of the subcontract, the plaintiff was entitled to terminate the cable laying contract with the defendant, and to receive back money already paid to the defendant pursuant to its terms. He described the relief afforded to the plaintiff as being by way of rescission of the cable laying contract, notwithstanding that it was earlier in time than the subcontract between the defendant and the plaintiff’s certifying engineer.

As part of the justification for his conclusion, James LJ said this, at page 526:

“If a man hired a vetturino to take him from one place to another, and found that the vetturino, after he had accepted the hiring, had conspired with the servant to rob him on the way, he would be entitled to get rid both of the vetturino and the servant.”

I would with great respect regard that in modern terms as an illustration not of rescission in the strict sense but of an accepted anticipatory repudiatory breach putting an end to the contract.

Mellish LJ put the matter more cautiously. First, at page 530, he drew the inference from the facts that, although the sub-contract shortly followed the cable laying contract between the parties, the engineer had it in mind to make the sub-contract from the outset. It was not therefore a simple case of a bribe being agreed after the making of the contract sought to be rescinded.

Nor did Mellish LJ treat the case as one of rescission. This appears from the following passages at pages 531-2:

“I am not quite certain that I go the full length to which the Lord Justice has gone in thinking that because a person has been a party to fraudulent act of this kind after the contract was made, the mere fact of him having been guilty of such fraudulent conduct, supposing that a full remedy for the fraud could be otherwise obtained, would entitle the other party to say, “because you acted fraudulently, therefore I will having nothing more to do with you, and I will not carry out my contract with you.” I am not aware of any authority which has gone to that extent. As far as I know, the consequence of fraud is, that the Court see that the party defrauded obtains, as far as can be given, full redress to the fraud, and as I may have thought it, necessary on this part of the case to consider whether the plaintiff could be relived from the consequences of this fraud by any thing short of the relief which Vice Chancellor has given to them….Now, the way in which the question arises in the present case is really this: the contract has been broken, and it seems to be clear on the facts that, independently of the question which is raised for us, it has been broken by the plaintiff, and so long a time has elapsed that neither party is bound to the other to complete the contract. The only question, remains is, whether the defendants ought to keep the £40,000, and beside that, ought to be allowed to sue at law for any damages they have sustained on the grounds of the plaintiffs not having completed the contract”.

Then, at page 533:

“It seems to me that it would be in the highest degree inequitable to allow the defendants to keep the £40,000 the contract having been broken, and having come to an end, is it to be treated as having been broken by the default of the plaintiffs, or by the default of the defendants? It appears to me clearly that the defendants have deprived the plaintiffs of the advice of the engineer, and having by proper conduct deprived them of this advice the contract really must be treated as having been broken off through the default of the defendants: and having been broken off through their default and misconduct, it follows that the plaintiffs are entitled to have £40,000 claimed back…”

Making due allowance for subsequent changes in the language of contractual analysis, it seems to me that Mellish LJ was indeed treating the case as one of termination by an accepted repudiatory breach, and the repayment of the £40,000 as appropriate monetary relief in the respect of the fraud which had been committed. Accordingly, the Panama case affords no assistance to Mr Davidson in seeking the rescission of the 2005 Sale Agreement. If further performance of it were to be excused by the Club accepting Ross River’s repudiatory breach, the consequence would nonetheless be to leave the Ground in the possession of Ross River, with consequential monetary compensation for breach.

Mr Davidson’s alternative submission was that since the Sale Agreements constituted the Club and Ross River joint venturers in a project requiring mutual good faith and cooperation, the court should not by stopping short at rescission of the Overage Agreement leave the parties bound to each other under the Sale Agreement to a mutually self destructive future in seeking to realise the development value in the Ground while in a relationship of hostile distrust. Rescission of the Sale Agreements was therefore an appropriate solution to that unsatisfactory state of affairs, with appropriate accounts and enquiries to ensure restitutio in integrum.

Mr Davidson’s difficulty was to find any basis for the court having or exercising such a jurisdiction. In the analogous example of partnership, the court could of course decree a dissolution of the partnership upon proof of an irretrievable breakdown in trust and confidence between the parties. But no comparable jurisdiction exists in relation to joint ventures falling short of partnership. Furthermore, dissolution would not be designed to achieve, nor would it achieve anything approaching rescission of the 2005 Sale Agreement, any more than the dissolution of a partnership is intended to restore the parties to the status which existed prior to the making of the partnership agreement.

It follows that I have been unable to discern any basis whereby the court could give effect either to the Club’s desire to recover the Ground free from the terms of the 2005 Sale Agreement, or to the perhaps understandable wish of the Club not to have to continue in an obviously unsatisfactory relationship with Ross River in the future, pursuant to the Sale Agreement, in the event that the Overage Agreement was set aside.

In my judgment the project for the realisation of the development value of the Ground constituted by the mutual obligations of the Club and Ross River set out in the Sale Agreements had enough about it in the nature of a joint venture to require the parties to conduct themselves with mutual good faith in relation both to the carrying out of their various obligations, and in relation to any negotiations for a buy-out of either party’s share in the hoped–for Overage. Clearly, the project was to be carried out for their mutual benefit, as sharers in the anticipated profit, and the costs of the exercise (as Planning and Development Costs) were in substance to be shared by way of deduction before distribution of profits, albeit that the Club assumed no liability for those costs if the project merely broke even or made a loss. In my judgment, neither party entertained any serious apprehension that there might be no Overage at all.

Furthermore, for the parties’ mutual benefit, the Sale Agreements clearly imposed upon Ross River in its conduct of the lion’s share of the work necessary to realise the Overage, obligations to obtain best value and to minimise costs. Adapting the words of Professor (later Justice) Finn’s analysis which I have quoted above, my appraisal of the rights, powers, duties and discretions given to Ross River under the Sale Agreements indicates decisively that the role of Ross River in taking steps and obtaining information for the purpose of developing the Scheme, obtaining the Planning Permission and satisfying the Development Conditions can properly be said to have been for the purpose of serving the parties’ joint interests, rather than simply the separate interests of Ross River, to the extent that they might diverge from the interests of the Club.

In particular, I accept Mr Davidson’s submission that it makes no sense at all to conclude (as Mr Harney appears to have done) that, when it came to a negotiation of a buy-out of the Club’s financial interest in the project, Ross River was at liberty to use, conceal or otherwise deal with information which it had obtained from outside professionals at an expense which was to be shared by the parties as a deduction from their profits, purely for the separate interests of Ross River.

I prefer to describe that duty as being a duty of good faith, by analogy with the well known obligation that subsists between partners, than as a fiduciary duty, albeit that it has an element of fiduciary obligation embedded in it.

I am not however persuaded that the Sale Agreements, and the relationship thereby created between the parties, imposed a positive obligation upon Ross River to volunteer disclosure of all the information which it had gained in discharging its function under the Sale Agreements, once a negotiation for a buyout of the Club’s interest started. The Sale Agreements made detailed provision for the stages in the project at which, either expressly or by necessary implication, Ross River was to make disclosure to the Club. Those stages were (i) the time of the submission to the Club of the Scheme, (ii) the time of the submission to the Club of the draft Planning Application, (iii) routinely thereafter, by way of report on the progress of the Planning Application (iv) upon seeking to sell the Ground to an independent third party after satisfying the Development Conditions, and (v) upon any calculation of the Additional Consideration payable to the Club, for example after five years, in the event that the Club should serve a Sale Notice and Ross River should elect to pay the Club its share of the Overage.

Although it may be said that a duty at all times, and in connection with any matter relevant to the project, to make disclosure of relevant information to the Club would add little to the detailed regime for disclosure set out in the Sale Agreements, the fact remains that after considering whether to do so, the parties deliberately declined to make any provision (whether express or otherwise) in circumstances that, prior to five years or prior to a sale of the Ground to an independent third party, they should wish to negotiate a purchase by one of them of the other’s share of the Overage. This is in my judgment a case in which the specific obligations to volunteer information were exhaustively set out in the Sale Agreements, such that the identification of any wider or more general obligation of disclosure would conflict with those detailed provisions by rendering them unnecessary.

Nonetheless, the obligation of good faith did in my judgment require Ross River, once its agent Mr Harney was asked to provide precisely that information to enable Mr Lee to advise the Club, either to provide it or, if not, to state in the most unambiguous terms that the request was being refused. By purporting to respond positively, while in fact concealing the critical parts of the information by then received most favourable to an optimistic view of the value of the Overage (and therefore of the Club’s share in it in the buyout negotiations) Ross River by Mr Harney committed a grave breach of that obligation of good faith. He took the narrow and misguided view that, because the deadline for submission to the Club of a draft Scheme had not yet arrived, he was entitled in negotiations for the purchase of the Club’s share of the Overage to have single-minded regard to Ross River’s (and of course his own) interests, and to treat the provisions of the Sale Agreements as, for that purpose, in suspense.

It will be apparent from my findings of fact that I have concluded that Mr Harney made dishonest and therefore fraudulent misrepresentations of fact when responding to Mr Lee’s enquiries in May 2005. In doing so he acted as Ross River’s authorised representative, and it has not been suggested that Ross River is otherwise than fully responsible for his misconduct, even though I make clear that the evidence did not show Mr York to have been an active participant in it.

It is equally clear in my judgment that Mr Harney’s misrepresentations were material, despite his denial that they were, and despite Mr Seitler’s submissions that they were not.

Mr Lee’s task, as he clearly explained to Mr Harney, was to advise the Club about the value, including the commercial value, of its share in the Overage, having regard in particular to the type of Scheme being prepared on Ross River’s behalf for the parties’ mutual benefit. His task was not simply to value the Ground at the time of the negotiations. Regardless whether other valuers might take a different course, Mr Lee made it clear to Mr Harney that his approach to an appraisal of the net present value of the Club’s share of a future as yet unrealised Overage, required him to gain an understanding as far as he could of the type of Scheme and associated Planning Application which was in due course planned to be made. Of course the appraisal of present value would require the value attributable to any proposed scheme to be discounted by reference to its prospects of success. But that by no means reduces an attempt to understand and appraise the proposed Scheme to the status of irrelevance. On the contrary, Mr Lee made it clear that he regarded it as essential, and in due course his advice to the Club was that he could offer no useful appraisal of value, not having obtained that information.

The question of materiality may be tested by asking what effect upon Mr Lee’s advice to the Club would have been occasioned by Mr Harney telling him the truth as to his preparations for the Planning Application, rather than the falsehoods which he actually told, and providing the third party professional reports, the existence of which he falsely denied. To that analysis there can in my judgment only be one answer, namely the answer given by Mr Lee in cross examination, to the effect that had he been told the truth, he would have been able to advise the Club in much clearer terms of the added value which they might forgo if resolved to settle in 2005 for a cash payment in advance of the realisation of the Overage pursuant to the machinery contained in the Sale Agreements.

The sheet anchor of the claimants’ case in relation to misrepresentation was that, even if material, and even if intended to induce a buyout of the Overage on terms favourable to the claimants, Mr Harney’s statements to Mr Lee were not in fact an inducement, because Mr Lee did not rely upon them in any respect. Further, Mr Seitler submitted that it was the mere refusal of Mr Harney to provide information about his plans and third party professional reports that led Mr Lee to advise the way he did, rather than Mr Harney’s lies about his plans (for example in relation to density) or his denial of the existence of any relevant reports. He pointed to Mr Lee’s view, clearly expressed in October 2005 that “it is unlikely that such information or assistance would be given, as at best he (Mr Harney) is obstructive and at worst objectionable.”

The claimants’ submissions on inducement are of real force, and I have found this issue to be by no means easy to resolve. In the end, I have not been persuaded by them for the following reasons. First and foremost, in a case where fraudulent material misrepresentations have been deliberately made with a view ( as I find ) improperly to influence the outcome of the negotiation of the contact in favour of the maker and his principal, by an experienced player in the relevant market, there is the most powerful inference that the fraudsman achieved his objective, at least to the limited extent required by the law, namely that his fraud was actively in the mind of the recipient when the contract came to be made. For present purposes, the relevant mind is that of Mr Lee when giving his final advice to the Club before it entered into the Overage Agreement.

Secondly, although Mr Lee’s evident belief was that Mr Harney was obstructive and objectionable, he did not suggest either in his witness statement or in cross examination, when called by the claimants to give evidence, that his lack of regard for Mr Harney at the time went so far as extending to a belief that he had lied to him. In my judgment Mr Lee only appreciated that he had been lied to, when for the first time outside court just before giving his evidence, he saw the third party professional reports, the existence of which Mr Harney had denied, and the evidence of Mr Harney’s real intentions in relation to density, when seeking Planning Permission.

Thirdly, as has been frequently emphasised, analysis of misrepresentation, particularly in relation to materiality and inducement, requires a comparison to be carried out between the statement actually made, and the truth, rather than between the statement made and silence, i.e. no statement. That this is the correct approach is in my judgment all the more apposite when the maker of the statement is, as was the representative of Ross River in this case, under an obligation of good faith, even if that obligation falls short of a strict duty of disclosure.

Fourthly, I reject the submission that the Club would have been forced to complete the Overage Agreement at the price offered by Ross River in any event, due to its financial predicament. It is certainly true that the Club’s lack of working capital led it into the overage negotiations, and that it was facing ever increasing pressure from its creditors by October 2005. The question for the Club was undoubtedly whether to take the bird in the hand rather than wait for the possibility of two in the bush, but its choice was made on the basis of Mr Lee’s inability to offer useful advice as to what the Overage might in due course prove to be worth in circumstances where Mr Lee would have been able to provide worthwhile advice, had he been told the truth by Mr Harney. Pressed though the Club was by its creditors, Mr Satchell was at the very same time coming into possession of substantial funds with which he was prepared to assist the Club. Furthermore, as Mr Eastham very frankly acknowledged in cross examination, if Mr Lee had been able to proffer some valuation advice about the Overage, the Club might have been able to obtain some alleviation of its cash flow crisis by borrowing against its share, having paid off the bulk of its previous borrowing upon completion of the sale of the Ground in April that year.

It follows in my judgment that the natural inference that the deception practised by Mr Harney achieved its objective in affecting the outcome of the Overage negotiations in favour of himself and Ross River has not been displaced by the evidence. In my judgment, Mr Harney’s fraud was still actively present in the Club’s mind, in the sense which I have described, when the Overage Agreement was made.

It follows that the Club is entitled to rescind the Overage Agreement, and having been induced to make it by a fraudulent misrepresentation for which the Claimants are responsible, rescission is not subject to the Court’s statutory discretion to award damages in lieu. No equitable bar to rescission (such as delay) was advanced by the claimants.

It is therefore unnecessary for me to decide whether, separately from misrepresentation, the Club would have been entitled in any event to rescind the Overage Agreement by reason of the plain breach of the claimants’ duty of good faith constituted by Mr Harney’s conduct towards Mr Lee. In my judgment, again by analogy with settled law in relation to the partnership, such a breach of duty would have given rise to a discretion in the court to grant equitable relief, including the setting aside of any agreement for the termination of that relationship obtained by breach of duty while it was subsisting. But since the only circumstances in which I might have concluded that the Club’s case in misrepresentation failed would have been if I had found that Mr Harney’s lies played no part in inducing the Overage Agreement, I consider it unlikely that I would have reached a different and positive conclusion in relation to the exercise of that discretion. Since the question does not need to be decided, I say no more about it.

My findings of fact necessitate the conclusion that Mr Eastham received from Ross River a payment of £10,000 in June 2005, of which two of the Clubs four directors were not informed, and to which the Club did not give its informed consent.

Mr Seitler tried hard to pursuade me that since the payment was simply a response to Mr Eastham’s request of Mr York to assist in his funding of his daughter’s wedding, it had nothing to do with the negotiations concerning the Club’s share of the Overage, and therefore gave rise to no conflict of interest, so that the vice inherent in a case of bribery was wholly absent. I reject that submission. While there would in my judgment have been no conflict of interest occasioned by Ross River providing additional remuneration to Mr Eastham during the course of the progression of the project contemplated by the Sale Agreements in the absence of any negotiation to buy out the Club’s share, the position was inevitably different once those negotiations commenced, and until they reached their conclusion.

True it is that the payments were not in any sense conditional upon Mr Eastham taking any particular attitude in the negotiations, or even conditional upon their successful outcome. But the ways in which the single-minded loyalty of a fiduciary to his principal can be undermined are by no means limited to such crude methods. Just as Mr York obtained leverage in the negotiations leading to the Sale Agreements by lending to the Club and then, at critical moments, threatening to call in his loans, he gained at the very least by doing Mr Eastham the favour of making £10,000 available to him to save him financial embarrassment, the prospect of calling in that favour at some later date. I make it clear that there is no evidence that Mr York ever intended or attempted to do so, between June and October 2005. But it is the propensity for doing so created by the making of such a payment that undermines the fiduciary’s loyalty.

Having decided as a matter of law that disclosure by Mr Eastham to one rather than all of his colleagues on the Club’s board was insufficient to constitute disclosure of the £10,000 payment to the Club, the question remains whether the claimants can avoid rescission by asserting the absence of knowledge on their part that the payment had neither been properly disclosed to, nor approved by the Club. I have concluded as a matter of fact that the claimants (in reality Mr York and Mr Harney) probably gave no thought one way or the other to the question whether the payment had been properly disclosed to or approved by the Club. It is unnecessary for me to conclude whether this constituted willful blindness on the claimants’ part (that is, being conscious of a risk of an improper failure to disclose and not caring one way or the other) because, on any view, the claimants made no attempt of their own either to notify the Club of the payment, or to obtain the Club’s approval of it. Mr Davidson acknowledged that this might have been achieved had the Club’s Solicitors been informed by Ross River, but I have found as a fact that they were not. In those circumstances, following as I do the decision of Millett J in Logicrose (supra) that if the payer leaves it to the agent to inform the principal of the payment, he does so at his own risk, the claimants therefore fail to establish the necessary basis for avoiding the consequence that, in order to give the Club a second opportunity to consider the wisdom of the transaction, the claimants must submit to the rescission of the Overage Agreement.

It will be apparent from my above analysis of the applicable legal principles that, while reluctant to leave the parties to re-forge the relationship necessary to make a success out of the continued performance of their mutual obligations under the Sale Agreements, in the light of what has so far occurred, I do not consider that my findings in relation to misrepresentation and bribery give me jurisdiction to accede to the Club’s invitation to set aside the Sale Agreements. Nor would I have done so even if I considered that I had jurisdiction to award such relief by way of equitable discretion. Nothing in this trial has begun to persuade me that there was any impropriety in the hard fought arms’ length commercial negotiation which led to the making of the Sale Agreements, and therefore to the conferring upon the claimants of the valuable opportunity to realise the development value of the Ground for a benefit to be shared between them and the Club, (and others such as Waverley with whom they chose to sub-divide their share). It would, to my mind, be a positive injustice to the claimants to require them now to transfer the Ground back to the Club, even if they were to obtain restitutio in integrum.

No claim has been advanced that the Club is entitled to treat the Sale Agreements as terminated by accepted repudiation, notwithstanding the claimants’ breach of their duty of good faith. I can well understand why not. That would leave the Ground in the hands of the claimants, and the Club compensated merely in damages for any shortfall occasioned by the breach of duty in their realisation of the value of their share of the Overage.

In my judgment, the just consequence of the claimants’ misconduct which I have identified is precisely that, in the words of Millett J in Logicrose, the Club should be given a further opportunity to consider whether it is in its interests to affirm the Overage Agreement free from the debilitating disadvantages of having had their advisor Mr Lee deliberately misled by Mr Harney, and having had the undivided loyalty of their chief negotiator Mr Eastham undermined by his receipt of a payment from the claimants during the course of those negotiations, without the Club’s knowledge or consent.

It by no means follows from the justice of the Club being given that opportunity, that the Overage Agreement was necessarily a bad agreement in October 2005, but, taking matters as a whole, it seems to me eminently just that the Club should be entitled to reconsider what it wishes to do with its Overage rights.

It follows from the setting aside of the Overage Agreement that the Club is entitled to be restored to its position as lessee under the lease which was surrendered as part of this arrangement, under a lease which is not terminable by the claimants in advance of their obtaining Planning Permission. I will hear submissions as to how that aspect of restoring the status quo ante is to be achieved, consistent with the requirements of the Landlord and Tenant Act 1954, as amended.

Furthermore, the inevitable price of rescission is that the Club must restore to the claimants the £900,000 which it received by reason of the Overage Agreement together with any other relevant benefit thereunder. Again, I will hear submissions as to the question of interest, and as to the form of any necessary order to achieve that result.

Finally, the Claimants’ claims for possession of the Ground and under the Land Registration Act 2002 must be addressed. The claim for possession must be dismissed. The rights of the Club recognised by this judgment do not extend as far as those asserted in the Unilateral Notice registered on its behalf in relation to the Ground. I will hear submissions as to how that disparity should be dealt with.