Lee v Futurist Developments Ltd

This judgment is divided into nine sections as follows: (1) Introduction. (2) The factual background. (3) The witnesses. (4) The applicable law. (5) The Unite introduction fee. (6) A wider corporate opportunity. (7) The alleged misappropriations. (8) The Switch Island agreement. (9) Conclusion.

By a Part 8 claim form issued in the Liverpool District Registry of the Chancery Division on 15 February 2006 the Claimant, Mrs Jennifer Lee (Mrs Lee), applies for an order for the sale of a parcel of potential development land on the south-east side of Dunnings Bridge Road, Aintree, Merseyside (Switch Island) pursuant to the terms of a written Declaration of Trust dated 12 September 2003 under which Mrs Lee and the Defendant, then called Skelhorne Developments Ltd (Skelhorne),hold that property upon trust for themselves as tenants in common, as to 75% for Skelhorne and as to the remaining 25% for Mrs Lee. Under the terms of the trust instrument itself there is no answer to Mrs Lee’s claim. But the trust deed was entered into as part of a “tidying-up” operation following the contemporaneous disposal by Mrs Lee and her husband, Mr Derek Lee (Mr Lee), the second defendant by counterclaim, of their shareholdings in Skelhorne and Mr Lee’s resignation as a director of that company. It is no longer part of Skelhorne’s case that Mrs Lee had been a nominee for Mr Lee; but it is now, I think, common ground (and if it is not I find as a fact) that at all times Mr Lee acted as his wife’s agent in relation to her shares in Skelhorne, including their disposal, and her entry into the trust deed. Skelhorne asserts that it was induced to enter into that deed by misrepresentations (also amounting to collateral warranties) on the part of Mr Lee which entitle it to have the trust deed set aside. Skelhorne also claims that Mr Lee has misapplied or misappropriated moneys belonging to Skelhorne, that he has profited from his position as a director of that company, and that he has acted in breach of his fiduciary duties as a director. Skelhorne therefore defends the claim; and it counterclaims against both Mr and Mrs Lee, seeking an order rescinding the agreement and declaration of trust, an account, equitable compensation and damages (with compound interest).

Following the service of witness statements dated 5 June 2006 from Mr Mark Simpson (Mr Simpson) and Mr Gerard Murphy (Mr Murphy), then (and since 19 September 2002) directors of Skelhorne, Mrs Lee withdrew an application for summary judgment on her claim. Consequently, on 9 June 2006, I made an Order directing that the claim should continue as if it were a Part 7 claim, allocating it to the multi-track, and making consequential directions. The case has been extensively case-managed, with hearings before me on 8 May 2008, 29 May 2009, 8 September 2009, 2 October 2009, 17 February 2010, 3 June 2010, 14 July 2010, and 24 August 2010. During the course of the progression of this case to trial, the defence and counterclaim have evolved through a number of different versions, permission to re-amend having been given most recently at the hearings on 14 July and 24 August 2010 and (as to the form of relief only) on the first day of the trial on 4 October 2010. As part of this process, Skelhorne has alleged that Mr Lee had misappropriated the sums represented by a considerable number of cheques drawn on the company’s bank account, only later to withdraw many of these specific charges; and Skelhorne now pursues to trial only those specific allegations of misappropriation identified at paragraph 27 (V) of the current version of its statement of case. However, Mr Bartley Jones argues that the strength of Skelhorne’s case should not be affected by the way it has developed over time, submitting that the resolution of the live issues between the parties depends almost entirely upon the view formed by the Court of the evidence and explanations given by Mr Lee, rather than upon the evidence of Mr Simpson and Mr Murphy. He also submits that the mere fact that allegations are now withdrawn does not mean that they were not honestly entertained at the time they were advanced.

The trial began on Monday 4 October 2010. The evidence occupied nine court days, followed (after an adjournment for the sequential service of written closing submissions on behalf first of Skelhorne and then of Mr and Mrs Lee) by a day and a half of oral submissions; and the trial concluded (subject to judgment) at about 4.20pm on Tuesday 26 October. Miss Lesley Anderson QC (who has been involved in the case since 2006) appears for Mr and Mrs Lee. Mr Edward Bartley Jones QC (whose involvement only dates from about the middle of September 2010) appears for Skelhorne. Miss Anderson helpfully produced a chronology and a list of characters, which Mr Bartley Jones was content to adopt as framework documents.

Skelhorne’s counterclaim principally concerns a triangular parcel of land (shown on the plan at exhibit DL1 to Mr Lee’s witness statement dated 11 August 2010, and variously referred to as the Grand Central Site or the Skelhorne triangle) to the south of Lime Street main-line railway station in Liverpool, and bounded on the west by Bolton Street (which runs parallel to, and to the east of, that section of Lime Street which lies between The Crown Public House to the north and The Vines Public House to the south), by Skelhorne Street (running from north-west to south-east) and by Copperas Hill (running from south-east to south-west). In December 1996 the north-western part of that site (Car Park A), which was operated as a surface car park, had been acquired by Freshmoore Developments Ltd (Freshmoore) for £250,000. Freshmoore had been incorporated on 2 October 1996, effectively as an equal joint venture between Mr and Mrs Lee and Mr Simpson and his wife, Sarah, (Mrs Simpson). Mr Lee was the sole appointed director of Freshmoore until Mr Simpson was also appointed to act on 25 September 2002. Mr Simpson acted as the sole company secretary until Mrs Hilary Williams (Mrs Williams), who unfortunately passed away in 2007, was appointed to be an additional company secretary on 19 October 2001. There is an issue as to whether this appointment was made with Mr Simpson’s knowledge; although he accepted in evidence that, as a long-standing and trusted confidante of Mr Simpson’s late father, he would have had no real objection to her appointment. Freshmoore was dissolved on 4 August 2005.

Perceiving that the Grand Central Site had valuable development potential, Mr Lee and Mr Simpson later combined with Mr Murphy, an apparently wealthy businessman, with a view to acquiring the remainder of the Skelhorne triangle. The vehicle adopted for this purpose was Skelhorne. This was incorporated on 27 January 1998 and it was described on its note-paper (according to Mr Simpson “a bit tongue in cheek”) as “Part of the Lee & Simpson Group of Companies”. Initially, Skelhorne was an equal joint venture between Freshmoore and Mr Murphy. Later, Skelhorne’s share capital was increased by the issue of further shares to Mr Murphy, to Mr and Mrs Lee, and to Mr and Mrs Simpson; but until the buy-out of Mr and Mrs Lee’s shares on 12 September 2003, Skelhorne was ultimately owned by Mr Murphy (as to 50%), by Mr and Mrs Lee (as to 25%), and by Mr and Mrs Simpson (as to the remaining 25%). In paragraph 9 of his witness statement of 5 June 2006, Mr Simpson acknowledged that Mrs Simpson owned her shares in Skelhorne as his nominee. Mr Lee was the sole appointed director of Skelhorne until 19 September 2002, when Mr Murphy and Mr Simpson were both appointed directors after substantial differences had emerged between Mr Lee and the other two men. Mr Simpson acted as the sole company secretary until 19 October 2001 when Mrs Williams was also appointed to that position. Mr Simpson and Mr Murphy dispute that they were made aware of this appointment at the time. Mr Lee resigned as a director of Skelhorne, and Mrs Williams resigned as its joint secretary, on 12 September 2003 following the sale of each of Mr and Mrs Lee’s shareholdings in Skelhorne for £171,000 and of Freshmoore’s shareholding for £76,000. Skelhorne changed its name to Futurist Developments Ltd on 23 August 2006. Mr Murphy resigned as a director of Skelhorne on 15 September 2008, and he was adjudged bankrupt on 13 February 2009. His discharge has been suspended indefinitely. Mr Simpson resigned as Skelhorne’s company secretary on 15 September 2008 and as a director of Skelhorne on 5 November 2009. By that time (on 2 September 2009) Allied Irish Bank had appointed Law of Property Act receivers over various of Skelhorne’s landholdings in Liverpool. The current directors of Skelhorne are Mr Edward Gaskin and Mr Gerard Michael John Murphy, who is Mr Murphy’s 27 year old son. All but one of Skelhorne’s shares (retained by Mr Simpson) are held by Mr Gerard Murphy Junior. (According to Mr Simpson, that single share had been retained by mistake, and has recently been transferred to Mr Murphy Junior.) It was contended by Miss Anderson (and disputed by Mr Murphy) that he still retained an interest in Skelhorne. Mr Murphy claims not to know the source of the £180,000 security for costs provided by Skelhorne in October 2009, which had been arranged by his wife.

It is common ground that at all material times prior to September 2002 Mr Lee ran Skelhorne “on a day to day basis”. Mr Simpson and Mr Murphy say that matters went much further than this, and that they were, in fact, privy only to such information about the affairs of Skelhorne as Mr Lee allowed them to have. This is disputed by Mr Lee.

Skelhorne gradually acquired parcels of land forming parts of the Grand Central Site, although (contrary to Mr Lee’s wishes) it passed up the opportunity in 1999 to acquire a key piece of land owned by Manweb (the Manweb land) for a total sum of £108,000. Ultimately, on 19 October 2001 Skelhorne acquired Car Park A from Freshmoore for £650,000. Finance for these site acquisitions was provided by Mr Murphy and Mr Simpson, and by bank facilities afforded to Skelhorne by Royal Bank of Scotland (RBS). In September 1999, Skelhorne granted an option to Redrow Commercial Developments Ltd to acquire the site, although Redrow’s interest later disappeared.

The early stages of the development plans for the Grand Central Site envisaged the creation of a new walkway from Lime Street; and to this end Skelhorne acquired the site of the former Futurist Cinema at 61-69 Lime Street (which provided the inspiration for the company’s subsequent change of name). Mr Lee and Mr Simpson considered that other properties fronting Lime Street and situated in the immediate vicinity of the Grand Central Site might experience an uplift in values should Skelhorne’s proposals for the development of that site proceed; and they therefore set about buying up interests in such properties in the names of entities other than Skelhorne. There is an issue between the parties as to whether this was done in order to avoid alerting the existing owners to Skelhorne’s interest in these properties (thereby pushing up the price), and upon the express understanding that (if required by Skelhorne) they would be resold to that entity at cost, plus expenses. In any event, on 6 April 2000 57 Lime Street was purchased for £26,000 by Liverpool City Estates Ltd (LCE), a company owned equally by Mrs Lee, Mrs Simpson and the wife of Mr Barry Pearson (Mr Pearson), who was the relationship manager responsible for the conduct of Skelhorne’s account with RBS. 57 Lime Street was transferred to Skelhorne on 15 November 2001. The price recorded in the transfer (which was executed by Mr Lee and Mrs Williams) was £30,000; but Mr Lee’s evidence is that the true price agreed between himself, Mr Simpson and Mr Murphy was £75,000. He says that this was paid by way of a cheque for £75,000 (No 001143 and dated 18 October 2001) drawn by him to cash on Skelhorne’s bank account; and that the proceeds were divided equally between Mr Simpson, Mr Pearson and Mr Lee (on behalf of their respective wives) after the latter had been reimbursed the initial purchase price he had provided together with the legal expenses he had defrayed in trying unsuccessfully to remove the existing tenants from the property. One of Skelhorne’s claims in these proceedings is for the recovery of the moneys represented by this cheque, to the extent that these exceed the original purchase price of £26,000.

Eastpark Developments Ltd (Eastpark) was a single purpose vehicle owned and controlled by Mr Lee which acquired 45 Lime Street on 29 May 2000 for £225,000. By a transfer dated 19 October 2001 (and executed by Mr Lee and Mrs Williams) this property was transferred to Skelhorne at a stated price of £350,000 (and stamp duty was paid by reference to this sum). In fact, Skelhorne has only been able to trace payments for this property totalling £310,779.28. By reference to the original acquisition price of £225,000, it claims that it has overpaid £85,779.28 for this property.

By October 2001 Skelhorne had been marketing the Grand Central Site through Knight Frank and Kersh Commercial and it had attracted interest from Worcester Property Company Ltd (Worcester), acting principally by its managing director, Mr Ronald Shuck (Mr Shuck). At that stage what was envisaged was the sale of the site, at a price of some £7.25 million, for development, on a “turnkey” basis, of Car Park A as an hotel (to be leased to Meridian Hotels), and the remainder of the site as (ultimately) 1,100 units of student accommodation, for onward sale to Jarvis University Partnerships Programme (Jarvis). Outline planning consent for hotel and residential development (but not specifically student accommodation) was granted on 6 November 2001. The Manchester office of Hammond Suddards Edge (Hammond Suddards), acting principally by Mr Stelio Coutsavlis (Mr Coutsavlis), was engaged by Skelhorne to act as its solicitors. By about December 2001, Worcester had introduced John Mowlem & Company Plc (Mowlem) to the development proposal as its joint venture partner, to act as the “turn-key” contractor for both the student accommodation and the hotel elements of the development; and one of its wholly-owned subsidiaries, Maple Oak Plc (Maple Oak), was chosen to act as the corporate vehicle for its joint venture with Worcester. The Birmingham office of Pinsent Curtis Biddle (Pinsents) was retained to act as Maple Oak’s solicitors.

Contracts for the sale and purchase of the Grand Central Site, at a price of £6.75 million, were exchanged between Skelhorne and Maple Oak on 15 February 2002. (The reduction in the purchase price reflected changes to other terms of the deal.) This was considered to be “a bloody good” price at the time, as Knight Frank observed in a fax to Mr Lee and Mr Simpson dated 16 January 2002, adding that “no land in Liverpool has ever sold at this level before”. The precise terms of the contract, which was conditional upon the discharge of various conditions, are not material for the purposes of this judgment. As Mr Coutsavlis explained in a letter to Mr Lee and Mr Simpson (also copied to Mr Murphy) dated 11 February 2002, the agreement was essentially an option in favour of Maple Oak, enabling it to rescind at any time for the first four months following exchange, in return for a non-returnable deposit of £200,000.

At some time around February 2002, Jarvis had dropped out of the picture and had been replaced by Unite Group Plc (Unite), another leading player in the market for the provision of student accommodation. The precise circumstances, and timing, of Unite’s involvement are in issue between the parties. Mr Simpson asserts that it was he who first mentioned Unite as a potential end-purchaser of the student accommodation; although it was Mr Rob Cooper (Mr Cooper), then recently engaged by Parkmoor Properties Ltd (Parkmoor) as a development “director”, who first introduced a contact of his at Unite, Mr Mark Rodgers (Mr Rodgers), to the Grand Central Site. By a letter dated 26 February 2002, Mr Shuck wrote to Mr Lee confirming Maple Oak’s agreement to pay Parkmoor £300,000 (in three staged instalments of £100,000 each) in return for introducing Unite in the event of the sale of the completed student accommodation to be built within the Grand Central development proceeding to unconditional completion. Parkmoor was a company owned by Mr and Mrs Lee which had been incorporated on 30 November 2001; and (according to the first report of its sole director, Mr Lee, to 30 November 2002) it had commenced trading on 17 January 2002.

Although this was at one time disputed by Skelhorne, it now accepts that Mr Simpson and Mr Murphy knew about the payment of the £300,000 introduction fee from Maple Oak; although the identity of the appropriate recipient of this payment was a matter of dispute between Mr Lee (on the one hand) and Mr Simpson and Mr Murphy (on the other) until shortly before the completion of the sale to Maple Oak on 12 September 2002, when it was agreed that the payment should be made to Skelhorne rather than to Parkmoor. What is firmly in dispute between the parties is whether Mr Simpson and Mr Murphy also knew (as Mr Lee asserts, but they deny) about the payment to Parkmoor by Unite of a second introduction fee (payable in two instalments) which was agreed in or about February 2002 (as set out in a letter written by Mr Andrew Whatson (Mr Whatson), a regional “director” of Unite, to Mr Cooper in or about February 2002, but mis-dated 20 January 2003) at the rate of £400 per bedroom, and capped at £300,000 for the first of the two blocks of student accommodation and at £150,000 for the second. This was paid (as I find, on the basis of the witness evidence, a cheque requisition form submitted by Unite on 17 September 2002, an invoice from Parkmoor dated 14 January 2003, and Mr Lee’s accompanying letter to Mr Whatson mis-dated 14 January 2002) in two instalments as follows: (1) as to £237,000 (plus VAT) on or about completion of the sale to Maple Oak in September 2002, and (2) as to the balance of £213,000 (plus VAT) in January 2003. On the evidence, I am satisfied that the first instalment was paid to Parkmoor, and the second to Brabners Chaffe Street, as Parkmoor’s solicitors. The first payment is not recorded in Parkmoor’s only filed (or completed) accounts (for the year ended 30 November 2002); and, on the basis of the evidence of Parkmoor’s book-keeper, Mr Roy Nickson (Mr Nickson), neither payment ever passed through Parkmoor’s books. Mr Murphy and Mr Simpson say that they first learned about this secret commission when Mr Simpson attended Unite’s offices in Salford to inspect some documents for the purposes of this litigation in or about October 2007.

Parkmoor subsequently entered into creditors’ voluntary liquidation on 22 October 2004 (with an estimated deficiency as regards creditors of £51,416); and it was dissolved on 26 October 2005. Parkmoor’s records do not explain what became of the £450,000 introduction fee which was payable to it by Unite. Nor do they disclose what became of (1) the gross profit of £125,000 realised on the resale of a laundry at Akenside Street, Bootle (purchased by Parkmoor on 12 July 2002 for £240,000, and re-sold on 3 July 2003 for £365,000); or (2) the sale price of £1.82 million, and the further consideration of £180,000 receivable on or before 1 December 2003, recorded in a transfer dated 1 August 2003 from Parkmoor to a subsidiary company of Unite of further student accommodation at London Road and Oakes Street, Liverpool, (the “Roy Castle” site). The position is similar in relation to the price received on the sale (for £932,740 on 1 July 2003 to another company within the Unite Group) of land at Greek Street, Liverpool (the Greek Street site) by Marshvale Import/Export Ltd (Marshvale). Marshvale had applied for planning permission to develop the Greek Street site as student accommodation on 19 August 2002 (shortly before completion of the sale of the Grand Central Site to Maple Oak). Marshvale was a property development company owned jointly by Mr and Mrs Lee, whose directors were Mr Lee and Mr Cooper. It went into creditors’ voluntary liquidation on 25 August 2004 with an estimated deficiency as regards creditors of £800,000, all of which was apparently owed to Parkmoor (although this debt does not appear in Parkmoor’s own statement of affairs). Marshvale was dissolved on 27 August 2005.

Unless Maple Oak elected to waive the outstanding conditions of the contract to purchase the Grand Central Site before 15 June 2002, Skelhorne was entitled to rescind and to retain the £200,000 deposit. This enabled Skelhorne to put pressure on Maple Oak to accept its terms for the variation of the contract, as Mr Coutsavlis pointed out in a letter to Mr Lee dated 21 May 2002. This led to a series of agreed variations to the contract (on 31 May, 14 June and 5-9 July 2002), which had the effect of extending Maple Oak’s right of rescission, ultimately, to 15 August 2002. (This last variation was granted in return for a non-returnable payment to Skelhorne of £100,000). Paragraph 14 of Skelhorne’s statement of case asserts that the third of these variations (5-9 July) was effected by Mr Lee without informing Mr Murphy or Mr Simpson; but they both now accept that this is wrong, and that these first three variations were all effected with their knowledge and consent. However, Mr Murphy and Mr Simpson assert that they did not know about, or consent to, a further extension (contained in a letter from Maple Oak dated 19 August 2002 and counter-signed by Mr Lee) whereby, in consideration of £50,000 to be paid (in two equal instalments) to Parkmoor, the cut-off date was extended to close of business on 26 August 2002. Rather, Mr Simpson and Mr Murphy assert that they had instructed Mr Lee not to grant any further extension of time to Maple Oak. Skelhorne also assert that they were unaware of two further extensions, the first (on or about 27 August) to 29 August, and the second (on 30 August) to 2 September 2002. Both these extensions were signed on behalf of Mr Lee by Mrs Williams. By the time of these extensions, planning permission had been granted (on 20 August 2002) to redevelop the Grand Central Site as a hotel and residential student accommodation. The reason for these extensions appears to have been a delay on the part of Maple Oak in completing its acquisition of the Manweb land. This was transferred to Maple Oak on 30 August 2002 at a price of £500,000.

Completion of Skelhorne’s sale of the Grand Central Site to Maple Oak was delayed until 12 September 2002 whilst Mr Simpson and Mr Murphy argued with Mr Lee (in the event successfully) that the £300,000 introduction fee should be paid by Maple Oak to Skelhorne rather than to Parkmoor. At the insistence of Maple Oak’s solicitors, on 12 September 2002 Mr Lee signed an agreement redirecting the introductory fee (and the outstanding balance of £25,000 payable to Parkmoor as part of the 19 August extension agreement) to Skelhorne. (It is accepted by Skelhorne that Parkmoor has duly accounted to it for the earlier £25,000 instalment.) As previously stated, there is an issue between the parties as to whether (as Mr Lee says) this was part of a wider compromise agreement whereby it was agreed between Mr Murphy, Mr Simpson and Mr Lee that the introduction fee payable by Unite was to remain payable to Parkmoor. Although Hammond Suddards drafted and submitted to Mr Lee (on 12 September 2002) a deed of settlement to be entered into between Mr Lee, Skelhorne, and Parkmoor, this related only to the total sum of £350,000 to be paid by Maple Oak pursuant to the letters of 26 February and 19 August, and contained no reference to any introduction fee to be paid by Unite; and, in the event, this deed was never executed. The ill-feeling engendered by the dispute over the entitlement to the Maple Oak introduction fee between Mr Simpson and Mr Murphy (on the one hand) and Mr Lee (on the other) led (initially) to the appointment (on 19 September 2002) of the former as additional directors of Skelhorne (with Mr Lee) and a change in the company’s mandate to RBS requiring instructions to be signed by all three directors (on 24 September 2002); and (ultimately) to the severance of all connection between Mr and Mrs Lee and Skelhorne. Indeed, a file note from the company’s auditor, Mr David Levinson (Mr David Levinson), of a meeting with Mr Lee, Mr Simpson and Mr Murphy on 26 September 2002 records that “Derek would like to be bought out”. (According to Mr Lee, who had no recollection of this meeting, he had told Mr Simpson and Mr Murphy that he “wanted out” of Skelhorne even before completion of the Maple Oak transaction.) At an extraordinary general meeting of Skelhorne on 12 June 2003, it was decided that Skelhorne should purchase the interests of Mr and Mrs Lee, and of Freshmoore, in Skelhorne for a total sum of £418,000. This decision was implemented on 12 September 2003, with Mr and Mrs Lee each receiving £171,000 for their shares in Skelhorne, and Freshmoore receiving £76,000. On the same day, Mr Lee resigned as a director of Skelhorne, and Mrs Williams resigned as one of its company secretaries. On this day also, Skelhorne and Mrs Lee entered into the Agreement and Declaration of Trust relating to Switch Island.

In their respective statements of case, both Mr and Mrs Lee assert that the price agreed for the shares in Skelhorne had been fixed “without reference” to Switch Island. The agreement that Mrs Lee should purchase a 25% share in the freehold of Switch Island for £1 is said to have “reflected (a) the interest which Mr Lee, Mrs Lee and Freshmoore had in the Property through their shareholdings in the Company and (b) an informal redundancy payment for Mrs Lee. The latter was agreed in a discussion between Mr Lee and Mr Murphy.” It is Mr Simpson’s evidence that he played “no active role” in the negotiations for Mr Lee’s departure from Skelhorne “as, at the time, I did not want to even be in the same room as Derek”. This is confirmed by Mr Murphy, who says that on two occasions he asked Mr Lee if there were any other matters in regard to his dealings with Skelhorne “that he wished to disclose”. Mr Lee is said to have assured Mr Murphy, on two occasions, that there was nothing further that Mr Murphy would find. Mr Murphy claims that it was on this basis that the shares were bought by Skelhorne and it was agreed that Mrs Lee could have the benefit of a 25% stake in Switch Island. Mr Murphy says that he agreed to the land deal with Mrs Lee at the very last minute, just to make sure that Mr Lee left Skelhorne. He says that if he had known then what he now knows, he would not have paid one penny to either Mr or Mrs Lee.

In the meantime, on 12 September 2002, completion of Skelhorne’s sale of the Grand Central Site to Maple Oak had been effected by way of three land transfers as follows: (1) the transfer of Car Park A by Skelhorne to Maple Oak for £3,750,000; (2) the transfer of part of the site of the proposed student accommodation by way of sub-sale by Skelhorne to LDC (Lime Street) Ltd (LDC), a company within the Unite Group, at Maple Oak’s direction at a price of £4,400,000 plus additional consideration (of which only £1,680,000 was paid to Skelhorne); and (3) the transfer of the remainder of the site by way of sub-sale by Skelhorne to LDC at Maple Oak’s direction at a price of £2,945,000 plus additional consideration (of which only £1,320,000 was paid to Skelhorne). In addition, LDC acquired the Manweb land from Maple Oak at its original cost price of £500,000. In his written skeleton opening, Mr Bartley Jones makes the point that this was an incredibly good deal for Maple Oak: it made a profit of £4,345,000 (£2,720,000 plus £1,625,000) plus the additional consideration (in the event totalling £1,400,000) on the sale of the land to LDC; and it retained Car Park A.

Unfortunately, the plans for the redevelopment of Car Park A as an hotel came to nothing, largely due to the collapse of the Meridian Hotels Group. This had been entirely unforeseen by all the individuals and entities involved in the various transactions. Maple Oak retained Car Park A (with Mr Lee, or Skelhorne, continuing to operate the site as a car park) until 26 October 2004, when it was transferred to Bolton Street Developments Ltd (Bolton), a company associated with Mr Lee and members of his family, at a price of £4,250,000 (pursuant to a conditional sale contract entered into on 24 March 2004). Car Park A was sold on by Bolton to Chieftain Construction Ltd (Chieftain) on 30 June 2006 for £7,500,000. It remains undeveloped and, to this day, it continues to be operated as a surface car park. A board presently stands on Car Park A, facing Lime Street Station, which optimistically proclaims that a 150-bedroom, 4* hotel is “Coming Soon”, describing it as a “Development by” Chieftain and Bolton.

In her opening skeleton argument, Miss Anderson rightly criticises the witness statements prepared for this trial by Mr Murphy, Mr Simpson, and the company auditor, Mr David Levinson, as “littered with inadmissible opinions, comment and speculation”. In his opening skeleton, Mr Bartley Jones accepted that the witness statements of Mr Murphy and (to a lesser extent) Mr Simpson offend against the requirement that a witness statement should contain only evidence, and not submissions, comment, argument or conclusions (or, I should add, speculation and surmise); and he relies only upon the “actual evidence” contained in these witness statements. In a way, it is refreshing for the court to read witness statements so apparently composed from the heart, and devoid of any input from the party’s retained lawyers. The court is well able to separate the wheat from the chaff, whilst bearing in mind the light that such observations may throw upon the views, and prejudices, of the makers of such statements.

Skelhorne called five witnesses, whose evidence occupied the first four days of the trial (from Monday 4^th to Thursday 7^th October). The first was Mr Murphy, who gave evidence for almost 8 hours, spread over two days. He is 53 years of age and an undischarged bankrupt. For the past 10 years or so he has suffered from recurrent depression (re-diagnosed, according to Mr Murphy some three years ago, as bipolar disorder) for which he has been admitted to The Priory Hospital in Altrincham for treatment on some three or four occasions, including a shorter stay in October 2001, during the course of which he executed a power of attorney (dated 22 October 2001) in favour of a Liverpool solicitor, Mr Howard Jones. At the time he gave his evidence, Mr Murphy said that he was feeling alright; and that assessment was confirmed by my observations of him in the witness box. I fear that I cannot regard Mr Murphy as a satisfactory or as a reliable witness. Much of his evidence was vague and lacking in clarity, and at times he contradicted himself in his evidence. Mr Murphy acknowledged that he regarded Mr Lee as “a thief”, and he accepted that he had done so ever since 2002. I am satisfied that this perception has coloured Mr Murphy’s attitude and his evidence, leading him to cast wholly unwarranted aspersions upon the integrity and conduct of Mrs Williams and Mr Nickson on the basis (which I find to be wholly unfounded) that they had allowed themselves to be influenced by, and had acted improperly at the behest of, Mr Lee.

I consider that Mr Murphy has deliberately feigned ignorance of certain aspects of Skelhorne’s affairs, such as the appointment of Mrs Williams as an additional company secretary and the £2.6m loan facility agreed with RBS in October 2001. I am satisfied (as Mr David Levinson recorded, as I find accurately, in a file note dated 19 September 2002) that at that time Mr Murphy was “going through the Skelhorne accounts with a toothcomb and was collecting bank statements”. Mr Murphy’s denials of this in cross-examination were unconvincing, particularly in the light of his acceptance that the relevant documents were available to him, and his expressed views about Mr Lee at the time. Mr Murphy’s evidence that he was opposed to the grant of any further extensions to Maple Oak after the third (agreed) extension to 15 August 2002 was deeply unconvincing, consisting in the repeated litany that he just wanted to keep Skelhorne’s “options open”, despite his acceptance that it was in Skelhorne’s best interests at that time for the deal with Maple Oak to go ahead, and that no-one at that time had had any alternative deal in view. In his evidence, Mr Murphy displayed a marked reluctance to focus upon the realities of the situation in and around August 2002; and his attitudes and evidence were heavily influenced by hindsight and regret at the loss of a perceived opportunity (a direct deal with Unite) which never occurred to anyone at the time. Mr Murphy was visibly uncomfortable when being cross-examined about having to backtrack from Mr Simpson’s false evidence, in which he had concurred, in June 2006 about the existence of a “secret commission” (as it was expressly described) of £300,000 from Maple Oak, ultimately preferring to account for it as a lack of a clear recollection at the time rather than a deliberate distortion of the true position. Mr Murphy could provide no (still less any satisfactory) explanation for the tension inherent in paragraphs 91 and 92 of his witness statement, where he claimed to have raised the issue of the commission with Mr Lee again in June 2002, when it was still uncertain that the deal with Maple Oak was going to complete. For certain aspects of his evidence Mr Murphy was heavily dependant upon the contemporaneous file notes of Hammond Suddards; and he had clear difficulties (which he acknowledged) in recalling the terms of conversations which he had had with Mr Shuck and with Maple Oak’s representative, Mr Paul Bullock (Mr Bullock), in the run-up to completion.

Where Mr Murphy’s evidence accords with that of Mr Lee (or with other reliable witnesses such as Mr Shuck), or with reliable contemporaneous documentation, or with the inherent probabilities of the situation, I accept it. Thus, I accept Mr Murphy’s evidence that Skelhorne had lacked the resources to develop the Grand Central site itself, and therefore never thought of seeking to approach Jarvis directly; that Mr Murphy considered the price achieved from Maple Oak to be a good one; that Mr Murphy accepted throughout the period to completion in September 2002 that it was in Skelhorne’s best interests for the deal with Maple Oak to go ahead; that the notion of dealing directly with Unite was never on the radar of anyone involved with Skelhorne; and that Mr Murphy never sought to dismiss Mr Lee as a director of Skelhorne. Consistently with Mr David Levinson’s evidence, I also accept Mr Murphy’s evidence that he saw the document which recorded the transactions on Mr Murphy’s shareholder’s/director’s loan account (including the challenged £100,000 repayment) and that he accepted at the time that he had received that sum; and I also accept his acknowledgment that there is no evidence that this money went to Mr Lee. But where Mr Murphy’s evidence is inconsistent with reliable contemporaneous documentation, or with the inherent probabilities of the situation, or with the evidence of Mr Lee (and still more that of other reliable witnesses, such as Mr Shuck), then I consider that I should not accept it without the most anxious scrutiny.

Skelhorne’s second witness was its auditor, Mr David Levinson. He is 83 years of age and has been a qualified chartered accountant for 50 years, and continues to practise as such. (His son, Jan Levinson, was a partner in Hammond Suddards in 2002 and, with Mr Coutsavlis, was concerned in the events leading up to completion with Maple Oak in September 2002.) Mr David Levinson gave evidence for some 3 hours on the third day of the trial (Wednesday 6 October) extending (due to a late start at the parties’ request) over the short adjournment. Initially, he seemed clear and precise in his evidence and very much on the ball, although (as he himself acknowledged) he was occasionally inaccurate as to dates. As his cross-examination progressed, however, I came to revise my initial assessment of him. Whilst I acquit Mr David Levinson of any deliberate attempt to mislead the court, and I do not consider him to be a dishonest witness, I am satisfied that he was partisan, both in his written and his oral evidence, and that he tended to adopt the mantle of an advocate for Skelhorne’s case. I am satisfied (from the fact that Mr David Levinson signed off Skelhorne’s audited accounts without qualification) that Mr David Levinson did not entertain the reservations about Mr Lee which he now expresses. I also reject Mr David Levinson’s evidence in cross-examination (which went beyond the terms of paragraph 32 of his witness statement) that Mr Lee ever accepted without question the assertion that he had “had his hands in the till”. I accept Mr David Levinson’s assessment that Mr Nickson went about his job assiduously and carefully; and I consider that Mr David Levinson was unjustified, and unjust, in revising his contemporaneous opinion that there was no reason to doubt Mr Nickson’s integrity.

Where Mr David Levinson’s evidence is consistent with that of Mr Lee, I accept it in preference to conflicting evidence from Mr Murphy or Mr Simpson. I accept that Mr David Levinson had experienced no serious difficulties in his dealings with Mrs Williams. I accept the general accuracy and reliability of Mr David Levinson’s contemporaneous file notes; and I expressly accept his evidence (recorded in his 19 September 2002 file note), and affirmed in cross-examination, that in September 2002 Mr Murphy told Mr David Levinson in so many words that he was going through Skelhorne’s accounts “with a toothcomb”. I accept Mr David Levinson’s evidence that Mr Simpson and Mr Murphy indicated to Mr David Levinson that they were prepared to accept the validity of the payments of £4,500 and £19,975 to the insurance loss consultants, Balcombe Group Plc (Balcombe), which are now challenged by Skelhorne. I also accept (as did Mr Murphy) Mr David Levinson’s evidence that Mr Lee, Mr Simpson and Mr Murphy all saw and agreed the document headed Skelhorne’s “Shareholders’/Directors’ Loan Accounts, 1^st February 2001 to 3^rd February 2003” (sent to Mr Murphy on 1 March 2004) recording (amongst others) the repayment (now challenged by Skelhorne) of £100,000 to Mr Murphy on 10 September 2001. Where Mr David Levinson’s evidence conflicts with that of Mr Lee, however, because of Mr David Levinson’s prejudice against Mr Lee, I am not satisfied that it is reliable; and I consider that I should treat it with considerable reserve.

Skelhorne’s third witness was Mr Simpson, who gave evidence for some 4 ½ hours spread over the third and fourth days of the trial. He is 51 years of age and was twice admitted to The Priory last year (in May and again in October) suffering from depression. According to the witness statement of Mrs Williams, during the course of 2001 Mr Simpson had started to drink quite heavily and to behave more and more erratically, although Mr Simpson denied in cross-examination that he had any problem with alcohol. Mr Simpson gave his evidence in a brusque, no-nonsense fashion, dismissing certain questions which were put to him, and becoming a little heated at times. He clearly had a hands-on and direct approach to the conduct of business matters. Although his evidence was that he had retained a single share in Skelhorne by mistake, he accepted that he had a direct interest in the outcome of this litigation as a substantial creditor of that company. There was clearly no love lost between Mr Simpson and Mr Lee (although Mr Simpson was present in the courtroom for a substantial part of the trial). I am satisfied that in giving evidence, Mr Simpson has engaged in reconstituting the history of events with the benefit of hindsight, and that, in doing so, he has been influenced both by wishful thinking and by his hostility towards Mr Lee. I cannot regard Mr Simpson as a reliable, or as a satisfactory, witness.

It was Mr Simpson who, in June 2006, had given an entirely false account of the discovery in September 2002 of a “secret commission” (described as such) to be paid by Maple Oak to Mr Lee and/or Parkmoor when both he and Mr Murphy now acknowledge that they had first learned about this in late February or early March 2002. I am satisfied that in June 2006 both men were deliberately “talking up” the story of a “secret commission” in order to prevent Mrs Lee securing summary judgment on her claim; and Mr Simpson’s attempt to wriggle out of this (made necessary by the later discovery of the content of the Hammond Suddards file notes) does him little credit, and serves to cast doubt upon both the reliability and the honesty of his evidence. Mr Simpson acknowledged in evidence that he had been wrong to endorse a statement of case (which he, apparently, had verified by a statement of truth) asserting (in paragraph 14) that Mr Lee had entered into the third variation of the Maple Oak contract, extending the second target completion date to 15 August 2002, “without informing Mr Murphy or Mr Simpson”; but Mr Simpson did so expressly (both in his written evidence and in cross-examination) on the basis of his reading of the papers, thereby demonstrating the unreliability of his actual recollection of material events. This is reinforced by Mr Simpson’s reliance upon the Hammond Suddards file notes of discussions in September 2002, rather than setting out his own recollection of events. Mr Simpson expressly acknowledged that the asserted instruction to Mr Lee not to grant any further extensions to Maple Oak was not genuine, but was merely a tactic to put pressure on the purchaser; and that had Maple Oak rescinded, they would probably have got Mr Lee to seek to persuade Maple Oak to change its mind and to complete. Where Mr Simpson’s evidence is consistent with that of Mr Lee, with contemporaneous documents which are reliable, and with the inherent probabilities of the situation, then I accept it. Thus, I accept that Mr Simpson’s evidence there was never any suggestion in September 2002 that Skelhorne should seek to deal directly with Unite; although Mr Simpson was wrong to suggest that Skelhorne could have done a deal with Unite when Jarvis dropped out of the picture in February 2002, because Maple Oak were necessary in order to develop the hotel on Car Park A, and at that time (and until some time between March and 24 April 2002) to build out the student accommodation for Unite. Furthermore, based upon Mr Simpson’s expressed reaction to Mr Lee’s attempt to sell a scheme for the redevelopment of the Free Trade Hall in Manchester to other hoteliers and investors, I have no doubt that Mr Simpson would have strongly resisted any proposal to exclude Maple Oak from the redevelopment of the Grand Central Site. I also accept Mr Simpson’s evidence that all he was seeking to achieve in early September 2002 was to secure the payment of the Maple Oak commission to Skelhorne rather than to Parkmoor, and that he knew nothing about the suggestions by Mr Murphy (made to Hammond Suddards) that he wanted to secure either another £1m, or a 25% uplift on the contract price, from Maple Oak (which I am satisfied were never intended seriously, but were merely made in order “to ruffle a few feathers”). However, where Mr Simpson’s evidence differs from that of Mr Lee, or from the evidence of Mr Lee’s other witnesses (such as Mr Pearson), I am not satisfied that I can safely rely upon it.

There were two final witnesses who briefly gave evidence for Skelhorne on the afternoon of the fourth day of the trial. Mr Richard Palette, a retired banker, gave evidence that until October 2002, any transfer from an account at RBS to an account at National Westminster Bank or any other RBS Group financial institution would have had to have been effected through the CHAPS system. This was relevant to the identity of the recipient of the transfer of £100,000 from Skelhorne’s bank account with RBS made, purportedly to Mr Murphy, on 10 September 2001. Mr Anthony Deegan, Mr Murphy’s book-keeper, gave evidence that in July 2008 he had been unable to trace the receipt of this sum of money into any apparently relevant bank account. There was no challenge to the honesty of either of these two witnesses.

At the request of Mr Bartley Jones, the Court did not sit on Friday 8 October. Mr Lee gave evidence for about 10 hours on the fifth and sixth days of the trial (Monday 11 and Tuesday 12 October). He is 61 years of age and is in poor health, suffering from a life-threatening chest condition which causes him serious breathing difficulties, and a problem with his right eye (requiring specialist ophthalmic surgery) resulting in blurred vision. He attended trial in a motorised scooter. Despite pre-trial indications that he would experience difficulty in giving evidence, in the event he was able to do so clearly and confidently, and without any major interruptions. He was rightly described by Mr Bullock (in an internal Mowlem email in July 2005) as “an interesting character”, which Mr Bullock explained in cross-examination as a reference to Mr Lee as a man “who likes to negotiate a deal for himself – or the company he works for”. Mr Lee struck me as a calm, no-nonsense, forthright and skilful negotiator and businessman, always astute to size up any situation with an eye to identifying a deal from which he could make a good profit. In his prime, I have no doubt that any collaborator would have benefited from Mr Lee’s considerable entrepreneurial and negotiating skills, but not, perhaps, quite to the same extent as Mr Lee himself. I do not regard Mr Lee as thoroughly dishonest, and I certainly would not regard him as “a thief”; but I have no doubt that he lacks the equity lawyer’s appreciation of the finer notions of fiduciary duties and obligations. There is more about him of Thomas Cromwell than of Thomas More.

I have no doubt that Mr Lee is prepared to withhold information when it suits him to do so, as exemplified by the approach which I am satisfied he instructed Howard Jones & Co to adopt and maintain of persistently avoiding any response to inquiries from Mr Simpson and Mr David Levinson regarding the proceeds of the Free Trade Hall deal over many months during the course of 2002. I am satisfied that Mr Lee did this because he had unilaterally (and temporarily) borrowed £250,000 from moneys standing to the credit of that joint venture in the solicitors’ client account in order to finance a personal property investment in Spain. At times, Mr Lee was equivocal in his evidence, as when he suggested that he had told Mr Coutsavlis about the introduction fee from Unite before September 2002, only to backtrack a little when it was pointed out to him that in paragraph 16A.3 of his statement of case (verified by him as recently as 11 August 2010) he had admitted that he had not specifically told Hammond Suddards about the additional £450,000 commission. Mr Lee’s evidence was not always consistent with his pleaded case, as when he asserted (for the first time in cross-examination) that his friend, Mr Wakefield, the sole director of and shareholder in Tunkatop Ltd (Tunkatop), which had been joined as a party to the Maple Oak agreement (with Mr Lee as its surety) in order to operate Car Park A as its tenant after completion, had held his shares as nominee for Mr Simpson, Mr Murphy and Mr Lee when Mr Lee’s pleaded case (at paragraph 3.2) was that Mr Wakefield was the sole owner of Tunkatop. In certain respects, Mr Lee’s evidence was distinctly unsatisfactory, as exemplified by his inability to account for the initial sale proceeds of £1.82m and the deferred consideration of £180,000 paid by one of Unite’s group companies to Parkmoor between July and December 2003 for the purchase of the “Roy Castle” site, and the omission of any reference to this in Parkmoor’s accounts and financial records. The circumstances attending the insolvent liquidations of Parkmoor and Marshvale do little credit to Mr Lee’s business ethics or integrity. I am satisfied that Mr Lee is prepared to disregard what he perceives to be “technical” aspects of company law and tax law if this is required for him to turn a profit; and that I should scrutinise his evidence carefully, and treat it with considerable reserve. Despite all of this, however, I have formed the view that Mr Lee would not deliberately cheat, or steal from, any of his business associates; and that, with certain exceptions, his evidence was more measured and reliable than that of either Mr Murphy or Mr Simpson. In my judgment, Mr Lee would be prepared to strain the truth, even to the extent of lying, in order to retain a sum of money to which he believed himself to be genuinely entitled. But, subject to that, he adheres to certain accepted moral standards; and, within that sphere, I am satisfied that I may treat his evidence, and his denials of wrongdoing, as reliable.

The Lees’ second witness was Mr David Kemble (Mr Kemble), a business associate of Mr Lee, who gave evidence for a little under 20 minutes late on the afternoon of Tuesday 12 October. I found his evidence to be thoughtful and measured. There was no challenge to Mr Kemble’s honesty, but merely to the reliability of his recollection, particularly since he referred in cross-examination, on three occasions, to recalling mention of the payment of a commission to “Futurist” at a time when that company was still known as Skelhorne. (“Futurist” was, however, how Skelhorne had been referred to, and defined, at paragraph 7 of Mr Kemble’s witness statement.)

On Wednesday 13 October, I heard from a further five of the Lees’ witnesses. The first was Mr Rodgers of Unite who gave evidence for about 25 minutes. He was a patently honest and reliable witness. Mr Rodgers was clear that Unite’s introduction to the Grand Central Site had been effected by Mr Cooper, in his capacity as a representative of Parkmoor, and that he was handed architects’ plans for the development which he took away with him. The next witness was Mr Pearson, Skelhorne’s relationship manager at RBS, who (through his wife’s shareholding in LCE) had participated in the initial purchase of 57 Lime Street. He gave evidence for about an hour. I found him to be an entirely honest, reliable, and impartial witness.

I then heard from Mr Cooper, who gave evidence for about 1 hour and 20 minutes. He, too, was an honest and reliable witness. It was Mr Cooper who had introduced the Grand Central Site to Mr Rodgers of Unite and had supplied him with the plans for a generic scheme drawn up by Falconer Chester (although he said that he could have introduced the site to Unite without having any site plans). It was, he said, he who had first conceived the idea of developing the Grand Central Site as student accommodation. Mr Cooper had first learned about the site from Mr Lee and Mr Simpson during his time working for Warwick Group Construction Ltd, prior to its collapse in or about November 2001. He acknowledged that he had “had the ear of the owners” of the site. He reiterated that there had never been any intention for Skelhorne to develop the site itself: it was just a trading opportunity. It had been Mr Cooper’s idea to seek an introduction fee from Unite, and he had experienced no difficulty in persuading Unite to pay such a fee because they were eager to acquire the Grand Central Site. Mr Cooper confirmed that he had received 10% of the introduction fee paid by Unite (£45,000) from Parkmoor, probably in stages.

After the lunch adjournment, I hear from Mr David Hardy (Mr Hardy), who was in the witness box for only about 15 minutes. He had operated a nightclub (leased by Skelhorne to Thirsty Leisure Ltd) at premises forming part of the Grand Central Site. He testified to the occurrence of three fires at the premises (in February and March 2000 and, most seriously, in March 2001) and to receiving a cheque for £42,000 from Skelhorne for the damage caused by the last of these fires in or about October 2002. His evidence was not the subject of any serious challenge. The final witness on the seventh day of the trial was Skelhorne’s book-keeper, Mr Nickson, who gave evidence for about an hour. I found him to be a careful, honest and truthful witness whose evidence I could accept.

On Thursday 14 October I heard from a further three witnesses. The first was Mr Whatson, a former “regional director” of Unite, who gave evidence for about 1 ½ hours. I found him to be an honest, impartial and reliable witness; and Mr Bartley Jones made no significant inroads into his written evidence. Mr Whatson explained that Unite had been prepared to pay the introduction fee to Parkmoor because it had wanted to acquire the Grand Central site so much. It had not paid any similar introduction fee in relation to the Greek Street or the “Roy Castle” sites. The next witness was Mr Bullock, formerly of Mowlem, who gave evidence for about 45 minutes. He, too, was honest, impartial and reliable, and he did not depart from his written evidence. Mr Bullock emphasised the importance to the deal of both obtaining the appropriate planning consent and acquiring the Manweb land. He could not recall being aware at the time that Unite was paying an introduction fee; but he acknowledged that it would not be unusual for an introducing agent to be paid by both parties to the deal. The day’s final witness was Mrs Lee, who gave evidence for about 15 minutes. She had been married to Mr Lee for 41 years and, although she had worked part-time for some Skelhorne on maybe three mornings a week, she had been principally engaged in caring for their three children. Mrs Lee acknowledged that she knew very little about the issues in the case, having left her husband to look after all their affairs. Although she had not held her shares in Skelhorne as a nominee for Mr Lee, she had been content to leave it to him to conduct all of the negotiations in relation to their disposal; and she accepted that anything he had done had been done with her authority, and that she had trusted him.

On Friday 15 October I heard from the final two live witnesses. The first was Mr Jeremy Balcombe (Mr Balcombe), then an employee of Balcombe, who gave evidence (for about 30 minutes) about the purported cash payments to Balcombe of £4,500 and £19,750 in July 2000 and July 2001 respectively. He was of limited assistance to the court because he had no actual recollection of these cash payments; and I did not find him to be a particularly convincing witness. Mr Shuck (of Worcester) gave evidence for about an hour and 10 minutes. He was an impressive and convincing witness, whose evidence I accept as honest and reliable. Mr Shuck was clear that if Jarvis had stayed the course, Maple Oak would have concluded a deal with Jarvis. Mr Shuck had been told by Mr Lee that Unite was paying an introduction fee; but he had not been aware of the amount or how it was to be quantified (although he would have expected it to be not dissimilar to Maple Oak’s own commitment). He confirmed that the Manweb land was essential to the development of the entire Grand Central Site; that he had not wanted the deal to go unconditional until Maple Oak had acquired the Manweb land; and that Maple Oak had not wanted to do that until it had obtained an appropriate planning permission. Mr Shuck acknowledged that this had been “a good deal” for Mowlem and for Worcester which they would not have wanted to lose, although Skelhorne would not have known the value of Maple Oak’s deal with Unite. Although Mr Shuck could not remember a conversation with Mr Murphy complaining about the payment of a commission to Maple Oak and threatening not to complete, I am satisfied (on the basis of paragraph 21 of Mr Bullock’s witness statement, supported by the contemporaneous documents) that such a conversation did take place. But I also accept Mr Shuck’s denial in cross-examination that (contrary to paragraph 93 of Mr Murphy’s witness statement) Mr Shuck ever said to Mr Murphy that there was no “side deal” because I am entirely satisfied that Mr Shuck would never have sought to mislead Mr Murphy in this way.

In addition to the live witness evidence called on behalf of Mr and Mrs Lee, there were unchallenged witness statements from two commercial chartered surveyors, Mr James Brown (of Sutton Kersh) and Mr Jonathan Kersh (of Kersh Commercial). The witness statement of Mrs Williams dated 3 April 2007 was admitted as hearsay evidence in view of her unfortunate death. Although I acknowledge that she was not available to be cross-examined, from all that I have heard of Mrs Williams (not least from Mr David Levinson and Mr Simpson), I do not accept that she would have attached her name to any statement which she knew to be untrue in any respect.

There are two further aspects of the evidence which I should record. First, as Miss Anderson has rightly stressed in her submissions, in assessing the evidence, both the witnesses, and the Court, have been hampered both by the absence of significant books and records of Skelhorne, and by the passage of time since certain of the events in issue (a factor further aggravated by Skelhorne’s delay in raising certain of its present claims). Reference was made by Mr Bartley Jones to Mr Lee’s duty under section 221 of the Companies Act 1985, as the sole director of Skelhorne, to keep appropriate accounting records. Although the trial bundles extended to some 28 lever-arch files, the audit working papers, and certain of the underlying and supporting documents, for periods prior to the year ending 31 January 2003 are no longer available. However, I am satisfied that appropriate records were maintained by Mr Lee (acting principally by Mrs Williams and Mr Nickson) at the time, and that they were made available to Mr David Levinson as Skelhorne’s auditor. As Mr Bartley Jones fairly acknowledged, their present non-availability cannot properly be laid at Mr Lee’s door, still less can it be said that Mr Lee has deliberately suppressed relevant documents. Miss Anderson invited me to find that the missing books and records had been collected on behalf of Mr Murphy. Whilst there is certainly evidence to support such a conclusion, it is not necessary for me to find that Mr Murphy has deliberately suppressed relevant documents, and I am not prepared to do so. It is sufficient to say that no adverse inference can be drawn against Mr Lee from the fact that relevant documents and records of Skelhorne are missing. Secondly, I was invited to draw certain (unspecified) inferences from Skelhorne’s omission to adduce any evidence from Mr Coutsavlis or from Mr Bob Collins (Mr Collins) of Licensed Trade Associates (LTA). So far as Mr Coutsavlis is concerned, it would have been open to Mr Lee to call him as a witness (subject to an appropriate waiver of privilege from Skelhorne), yet there is no evidence that he sought to do so. I therefore draw no adverse inference from Skelhorne’s omission to call him to give evidence. In the case of Mr Collins, in the light of the exchange of letters between Skelhorne’s solicitors and Mr Collins dated 21 (or 22) July and 23 August 2010, I consider that the true position is not that the absence of evidence from Mr Collins should be treated as positively supporting Mr Lee’s case, but rather that I should treat Mr Collins as having no valuable evidence to give which would support Skelhorne’s case: compare the approach of Mr Bartley Jones QC (sitting as a deputy judge of the Chancery Division) in Sargeant v Reece [2007] EWHC 2663 (Ch) at paragraph 40.

Happily, there was no material dispute between counsel as to the law which applies to this case. It is admitted on behalf of Mr Lee that, in his capacity as a director of that company, he owed the following fiduciary duties to Skelhorne: (1) a duty not to place himself into a position where his own interests (or those of any third party) were in conflict with the interests of Skelhorne (the no conflict rule); (2) a duty to account to Skelhorne for any benefit or gain obtained or received by him by reason of any abuse of his fiduciary position (the no profit rule); (3) a duty not to divert for his own benefit (or that of a third party) any maturing business opportunities of Skelhorne; (4) a duty not to exploit any confidential information or knowledge for his own benefit (or that of a third party) and a duty to account to Skelhorne for any gain from such exploitation; and (5) a duty to report to Skelhorne any breaches of fiduciary duty on Mr Lee's part.

Mr Bartley Jones emphasises the following: (1) These duties have a strong underlying deterrent purpose and, as a consequence, are absolute and inflexible. There is no scope, for example, for a director to take a subjective view that what he is doing is not prejudicing his company. The inexorable application of the rules may, on occasions, work injustice; but the deterrent nature of the rules justifies the strictness of the standard imposed, and the absence of defences justifying departure from the rules. (2) A fiduciary can commit a breach of the rules notwithstanding that he has not acted fraudulently. (3) It is irrelevant whether the profits made by the fiduciary would, or should, otherwise have gone to the company, or whether the profiteer was under a duty to obtain the source of the profit for the company, or whether the company has in fact been damaged by the actions of the profiteer. The true question, Mr Bartley Jones submits, is whether Mr Lee has acted in circumstances of conflict.

I have no doubt whatsoever that, absent the informed consent of both Mr Simpson and Mr Murphy, as, effectively, the other shareholders in Skelhorne, to its receipt by Parkmoor, Mr Lee was under a fiduciary duty to account for the introduction fee which was paid by Unite to Parkmoor. I accept that it was Mr Cooper who introduced Unite to the Grand Central Site and to Maple Oak, and that he did so as an employee of Parkmoor. I accept also that no conflict arose between Mr Lee’s position as a director of Parkmoor and as a director of Skelhorne because all concerned knew and agreed that all three of the active shareholders in Skelhorne should be entitled to participate in other companies. But Parkmoor was, at the time, a newly-incorporated company, owned by Mr and Mrs Lee and controlled by Mr Lee, which was only just starting to trade. Mr Cooper knew about the Grand Central Site, and its potential interest to Unite, through his association with Mr Lee and Mr Simpson; and, as he acknowledged, he had the ear of the owners of the site. He provided Unite with a site plan drawn up by Skelhorne’s architects. On the evidence (see, for example the reference to Mr Cooper’s missing letter of 7 February 2002 in Mr Whatson’s letter mis-dated 20 January 2003), it is clear (and I so find) that the introduction of Unite was effected, and a fee was sought from it by Parkmoor, before Skelhorne exchanged contracts with Maple Oak on 15 February 2002. The introduction was effected because of genuine concerns about the continuing involvement of Jarvis, and in order to facilitate the sale of the Grand Central Site to Maple Oak by identifying a potential new end-user of the proposed student accommodation. It would be a sad day for equitable jurisprudence if, in the circumstances of the present case, I were to hold that it was open to Mr Lee, notwithstanding his position as the sole appointed, and acting, director of Skelhorne, to take the benefit of any fee attributable to the introduction of Unite to Maple Oak, as the prospective purchaser of the Grand Central Site from Skelhorne, through the medium of a company controlled by him, and owned by himself and his wife, As envisaged by Mr Bartley Jones in his written opening, I have little difficulty in identifying this payment as a corporate opportunity of Skelhorne, and its payment to Parkmoor as a breach by Mr Lee of the fiduciary duties which he owed to Skelhorne. In my judgment, it was not open to Mr Lee to engineer a payment by Unite to his family company, Parkmoor, rather than to Skelhorne, in which his family had only a 25% interest.

At the heart of this aspect of the case, therefore, is whether Mr Murphy and Mr Simpson gave their informed consent to the payment by Unite of the £450,000 introduction fee to Parkmoor. I accept Mr Bartley Jones’s submission that it is astounding that Skelhorne did not raise any complaint about the £450,000 at the outset of this litigation if (as Mr Lee asserts) Mr Murphy and Mr Simpson already knew about it at that time. In answer to a question from the bench at the end of his evidence, Mr Lee could offer no satisfactory explanation for this extraordinary omission. There are really only three possibilities: The first is that Mr Simpson and Mr Murphy are telling the truth when they say that they knew nothing about the payment of a commission by Unite to Parkmoor until Mr Simpson discovered the documents which pointed to its existence when he inspected Unite’s documents at its offices in Salford Quays in or around September 2007. The second is that Mr Simpson and Mr Murphy had known about the Unite commission in 2002, but had subsequently forgotten about it until the inspection of Unite’s documents in 2007. In my judgment I can safely reject this explanation given the extent (clearly evident from the contemporaneous documents) of the disagreement over the payment of the Maple Oak commission which had clearly erupted between the three men in September 2002. Against that background, the existence of the Unite commission could hardly have been forgotten both by Mr Simpson and by Mr Murphy.

The third possible explanation is that Mr Simpson and Mr Murphy knew about the Unite commission in 2006, but they deliberately chose not to raise it at that time. In my judgment, I can also reject this explanation. In order to stave off Mrs Lee’s application for summary judgment, Skelhorne, acting by Mr Simpson and Mr Murphy, raised the allegation, which they now accept was false, that Mr Lee had attempted make a “secret commission” (in the form of the £300,000 payment from Maple Oak) during the time he was involved with the company. It is instructive to consider how the matter was put in Mr Simpson’s June 2006 witness statement (which was confirmed “in its entirety” by Mr Murphy). It was said (in paragraphs 5 and 6) that Mr Lee had admitted “his wrongdoing”, and that a deed had been entered into pursuant to which he had been forced to repay or relinquish any claim on his part, or the part of one of his companies, to that secret commission. It was further said that the deed, the subject of Mrs Lee’s claim, had been entered into on the express basis that Mr Lee had committed no further wrong-doing. Mr Simpson said that he and Mr Murphy had been undertaking certain enquiries into Mr Lee’s activities, and they believed that, contrary to the assurances given around the time of his departure from Skelhorne, “Mr Lee has indeed committed other wrongful acts”. Yet, despite all that, no mention was made of any complaint concerning the payment of the Unite commission in either the June 2006 witness statements, or the original defence of July 2006, until that statement of case was amended in or about November 2007, following what Mr Simpson and Mr Murphy say was the discovery of the documents revealing the existence of the commission payments by Unite at its offices in or around September 2007. It seems to me that there is no satisfactory explanation for the omission to mention the existence of the Unite commission in June 2006 if this was then known to Mr Simpson and Mr Murphy. Miss Anderson suggested that they might have been “keeping their powder dry”, waiting to see if Mr Lee himself raised the existence of this commission payment. I cannot accept this explanation for four reasons. First, I can discern no real advantage to Mr Simpson and Mr Murphy in adopting this course. Secondly, it would seem to me to involve attributing to Mr Simpson and Mr Murphy a degree of Machiavellian tactical sophistication completely at odds with my assessment of their characters. Thirdly, faced with a summary judgment application, it would have been an incredibly risky think to do. Fourthly, there would have been no reason for Mr Simpson and Mr Murphy to continue to hold fire for a further year after Mr Lee had served his defence to counterclaim in September 2006, in which he made no reference to the Unite commission.

Miss Anderson also suggested that Mr Simpson and Mr Murphy might have seen no advantage to Skelhorne in raising the issue of the Unite commission in 2006 because they both knew and appreciated that it had been the subject of an express compromise with Mr Lee in September under which Parkmoor was to retain the Unite commission in return for redirecting the Maple Oak commission to Parkmoor. I reject Mr Lee’s evidence and case that there was any such express compromise agreement. Had there been, I am satisfied that there would have been some indication to that effect in the contemporaneous documentation. I accept Miss Anderson’s submission that the Hammond Suddards file notes are not a complete record of all that was being discussed and was happening at the time; that they give a compressed, abbreviated and, in some respects, distorted depiction of events; and that they were influenced by a genuine, and understandable, concern on the part of Hammond Suddards to address, and document, their concerns about an emerging potential conflict between the positions of Skelhorne, its sole director, and its other active shareholders. Nevertheless, having regard to the personalities of the three investors, and in the context of the dispute over the entitlement to the Maple Oak commission, and in the light of what would then (and following the grant of planning consent for the student accommodation on 20 August 2002) have been appreciated to be the potential size of the Unite commission, I am entirely satisfied that if there had been a compromise agreement which had extended to the Unite commission, it would have been mentioned at some stage to Hammond Suddards and recorded in one of their file notes; and it would have featured in the draft settlement deed which they produced (for execution by Mr Lee, Skelhorne, and Parkmoor) on 12 September 2002. Mr Lee’s equivocation about whether he had revealed the existence of the Unite commission to Mr Coutsavlis was one of the less satisfactory aspects of his evidence; and with good reason, because the inherent likelihood is that had this been disclosed to Mr Simpson or to Mr Murphy, it would also have been disclosed to Mr Coutsavlis.

For all these reasons, I am driven to the first of the possible explanations identified above, namely that Mr Murphy and Mr Simpson are telling the truth when they say that they knew nothing about the Unite commission until about September 2007. I find that Mr Lee in fact concealed the existence of the Unite commission from Mr Simpson and from Mr Murphy. Although Mr Lee’s evidence that he had told Mr Murphy about the Unite commission is supported by the evidence of Mr Kemble and Mr Cooper, I am satisfied that they are mistaken in their recollections that there was any express reference to the payment of a commission by Unite, and that what they heard being discussed, in the course of a heated exchange between Mr Lee and Mr Murphy, was the commission payable for introducing Unite to Maple Oak. I reject Mr Lee’s evidence that he told Mr Murphy that he was “getting a wedge at both ends” or “was going to get a wedge either side”. The fact that Mr Murphy accepted that this was the sort of language which Mr Lee uses does not mean that it was in fact used in this context: indeed, Mr Lee would hardly have been likely to suggest that he had used a form of words alien to his normal manner of speaking. In all probability, Mr Lee concealed the existence of the payment by Unite to Parkmoor because he genuinely considered that Mr Murphy and Mr Simpson (and thus Skelhorne) had no legitimate claim to this commission since they had played no part in introducing Unite to Maple Oak. Once Mr Lee was made aware that Mr Murphy and Mr Simpson were asserting that the Maple Oak commission should be paid to Skelhorne, the probability is that he simply decided to lie low and keep quiet about the Unite commission, so as to avoid any claim that that payment should pass to Skelhorne as well. I am therefore satisfied that there was no informed consent by Skelhorne to the payment of the Unite commission to Parkmoor. I should add that had I concluded otherwise, I would have held that such consent was binding upon Skelhorne, in accordance with the principles expounded in the case of Re Duomatic Ltd [1969] 2 Ch 365. On the evidence, the requirement of full shareholder consent would have been satisfied since Mr Lee’s approval to the payment of the introduction fee by Unite to Parkmoor would have constituted agreement on the part both of Mrs Lee (for whom he acted generally in relation to the affairs of Skelhorne) and of Freshmoore (of which he was the sole director), whilst Mr Murphy and Mr Simpson’s agreement to the payment being made to Parkmoor would have constituted the necessary agreement on the part of all the other shareholders (since Mrs Simpson merely held her shares as nominee for her husband). However, I find that Mr Lee in fact concealed the existence of the Unite commission payments from Mr Murphy and Mr Simpson.

It follows that I find that Mr Lee is liable to account to Skelhorne for the commission which Parkmoor received from Unite. However, in my judgment this liability to account extends only to the net commission of £405,000 received by Parkmoor after Mr Cooper had been paid his 10% share. This would seem to me to represent a reasonable and just allowance for Mr Cooper’s skill and knowledge in identifying and introducing Unite as a suitable replacement for Jarvis at a time when it looked as though the deal with that company might not proceed, thereby throwing the sale to Maple Oak into doubt. In my judgment, Mr Lee acted both honestly and reasonably in making this payment to Mr Cooper; and it would be unjust to hold him liable to account for what was, in effect, a legitimate expense involved in securing the payment of the Unite commission to Parkmoor. Mr Cooper could not recall precisely when he had received the payment of his share of the Unite commission. On the balance of probabilities, I consider that it is likely to have been received in two equal instalments at about the same time that Parkmoor received payment from Unite.

In my judgment, and in accordance with general equitable restitutionary principles, the net sum of £405,000 for which Mr Lee is liable to account to Skelhorne should carry compound interest from the date on which each instalment of commission was received by Parkmoor from Unite. During the course of closing speeches, I expressed the view (without apparent dissent from either counsel) that any award of compound interest should reflect the basis upon which interest was chargeable to Skelhorne under its October 2001 bank facility from RBS, namely at the rate of 1.5% above Base Rate from time to time, compounded with quarterly rests. I therefore award interest on this basis.

For Skelhorne, Mr Bartley Jones submits that as result of Mr Lee’s beaches of fiduciary duty, Skelhorne lost a wider corporate opportunity, namely the opportunity of doing a deal directly with Unite, cutting Maple Oak and Worcester out of the transaction, and sharing the substantial profit which they stood to make (and in fact achieved) between Skelhorne and Unite. Not only did Mr Lee act in breach of the no profit rule, but he is also said to have acted in breach of the no conflict rule. When negotiating with Maple Oak, with Worcester and with Unite, Mr Lee clearly had a duty to further the best interests of Skelhorne. But, it is contended, maximising Skelhorne’s position conflicted with Mr Lee’s own personal interests (through his family companies, such as Parkmoor and Marshvale) in seeing the transactions in favour of Maple Oak and Unite go through, thereby enabling Parkmoor to receive the introduction fee from Unite (and, before its redirection to Skelhorne, from Maple Oak), and promoting the prospect of other deals with Unite, such as Marshvale’s sale of the Greek Street site, which (because of the timing of the planning application) was clearly in contemplation at the time the sale of the Grand Central Site was proceeding towards completion, and Parkmoor’s later sale of the “Roy Castle” site. (As Mr Lee observed in cross-examination, in the context of these two transactions, “You learn as you go on”.) Mr Bartley Jones submits (by reference to the leading speech of Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421, at 434 C-G) that the basic obligation of a defaulting fiduciary is to pay sufficient compensation to restore his wronged principal to the position in which he would have been had the breach of fiduciary duty not been committed; that the common law rules of remoteness of damage and causation do not apply; that whilst there has to be “some causal connection” between the breach of fiduciary duty and the loss suffered by the principal, that is limited to proof of “the fact that the loss would not have occurred but for the breach”; and that quantum is fixed, not at the date of breach, but at the date of judgment.

Mr Bartley Jones submits that had Mr Murphy and Mr Simpson known that Unite was prepared to pay a commission (and particularly one of the magnitude that it agreed to pay to Parkmoor) for the ability to acquire the student accommodation which was to be developed on the Grand Central Site, Skelhorne would have been in a position to make an informed decision, uninfluenced by the personal interests of its sole appointed, and acting director, as to whether to proceed with Maple Oak in the first place and, later, effectively to extend Maple Oak’s time for irrevocably committing itself to the transaction until after all the planning difficulties had been overcome, and the Manweb site had been secured, or whether to try to enter into separate deals with Unite and with Meridian, cutting Maple Oak and Worcester out of the transaction. Mr Bartley Jones emphasises that, by adopting the former course, Skelhorne would have ended up with more money from a deal with Unite than it in fact achieved from the sale of the whole of the Grand Central Site to Maple Oak; and, when Meridian later collapsed, Skelhorne would have been able to achieve the whole of the price later secured by Maple Oak when it sold Car Park A to Bolton. Mr Bartley Jones relies on the fact that, at the time contracts were exchanged with Maple Oak in February 2002, it was not appreciated that linking the development of the student accommodation to the development of the hotel was a planning issue: this problem only surfaced at the very beginning of July 2002. Mr Bartley Jones emphasises that Mr Murphy and Mr Simpson proceeded with the Maple Oak deal in the first place, and then consented to the first three extensions to the contract, on an uninformed basis, not knowing that Unite was to pay any introduction fee at all, still less a commission of the magnitude which had been agreed with Parkmoor; and that their lack of any informed consent to these matters was due to Mr Lee’s clear breach of the no conflict rule. He submits that as time passed, Skelhorne’s negotiating position strengthened: it became increasingly able to demand full details of Maple Oak’s deal with Unite and, had it maximised its negotiating position during July and August 2002, there was a real and appreciable chance that Skelhorne could have engineered a situation whereby Maple Oak rescinded its purchase agreement and, thereafter, done a deal directly with Unite. The reason it did not do so was because its sole appointed, and active, director, Mr Lee, was so anxious to receive both introduction fees, and to avoid any disruption to Unite’s existing deal with Maple Oak, that he omitted to consider the advantages to Skelhorne of securing an end to the contract with Maple Oak; and, later, he unilaterally granted extensions to Maple Oak either ignoring, or at the very least being blind to, what were Skelhorne’s own best interests.

Mr Bartley Jones argues that, but for Mr Lee’s breaches of fiduciary duty, Skelhorne would not have lost this wider corporate opportunity. Thus, the necessary causal connection between the breach of fiduciary duty and a loss to Skelhorne is established. The loss is the value of that corporate opportunity; and it is that which Mr Lee must restore to Skelhorne. That company was denied the opportunity of properly considering its position and future conduct in a situation which was pregnant with possibilities. The Court should refuse to apply no value to that corporate opportunity unless it is 100% certain that, fully and properly informed, Skelhorne would have made a conscious and deliberate decision to reject all alternative corporate opportunities to enhance its return from the sale of the Grand Central Site. Here, it is said that had Skelhorne appreciated the true strength of its bargaining position (as it should have done if Mr Lee had discharged his fiduciary duties to that company) Skelhorne could have utilised that position to demand a percentage share of Maple Oak’s development profit.

For Mr and Mrs Lee, Miss Anderson submits that this is an opportunistic claim which was first advanced by way of defence to Mrs Lee’s claim to realise her interest in Switch Island, and which owes much to the benefit of hindsight knowledge. She emphasises that it is common ground that at all material times, no-one involved in Skelhorne (including Mr Lee) knew the extent of the profit which Maple Oak and Worcester stood to make on the purchase of the Grand Central Site. She submits that knowledge of Unite’s willingness and agreement to pay an introduction fee to Parkmoor, even if combined with knowledge of how it was to be quantified, and thus an appreciation of its likely magnitude (£450,000), cannot properly be conflated with knowledge, or even a suspicion, of the magnitude of the profit being made on the deal by Maple Oak and Worcester. I accept that submission. Mr Bullock acknowledged that it would not be unusual for an introducing agent to be paid by both parties to any deal; whilst Mr Shuck indicated that he would have expected the introduction fee which Unite was paying to be not dissimilar to that which Maple Oak was paying. In the event, the Unite commission proved to be half as much again as the Maple Oak commission. I am satisfied that had Mr Murphy or Mr Simpson been told about the existence, and basis, of the Unite commission, they would have wished to ensure that it was paid to Skelhorne, and not to Parkmoor. But I am also satisfied that such knowledge would not have led either of them to re-evaluate the wisdom of entering into the deal with Maple Oak; nor would it have led them later to seek to secure the rescission and/or the re-negotiation of the sale to Maple Oak (save to the extent that Mr Murphy would probably have used the existence of the Unite commission as a further justification for threatening not to complete unless payment were to be made to Skelhorne rather than to Parkmoor). I am satisfied that both Mr Murphy and Mr Simpson would have viewed the likely extent of the Unite commission as the product of a combination of Mr Lee’s ability to negotiate a good deal, and Unite’s wish to cut Jarvis, as a perceived competitor, out of the proposed development of the Grand Central Site as student accommodation. I see no justification for the proposition that either Mr Murphy or Mr Simpson would have perceived the level of the Unite commission as any indication that Unite was paying a substantial premium to acquire an interest in the Grand Central Site. Indeed, if anything, the level of that commission would have indicated that Unite perceived that it had secured a good deal for itself. Since no-one involved with Skelhorne (including Mr Lee) had any reason to suspect the extent of the profit being made by Maple Oak and Worcester, they had no reason to make any inquiries in that regard, whether in the context of negotiating the various extensions to the Maple Oak contract or otherwise.

Miss Anderson submits that there must be some substance to the alleged opportunity before it can count as a relevant corporate opportunity; and, on the facts of the instant case, there was no realistic chance that Mr Simpson and Mr Murphy would have wished, or sought, to do any deal directly with Unite. I accept that submission. In February 2002, everyone perceived the deal with Maple Oak to be a very good one, and there was no wish to upset Maple Oak. Nor did anyone think of seeking to do a deal directly between Skelhorne and Unite because, until at least some time after the beginning of March 2002 (and thus after the exchange of contracts with Maple Oak), the deal involved delivering two completed blocks of student accommodation, and Skelhorne lacked the resources to deliver this. Knowledge of the existence and possible extent of the Unite commission would not have affected this position. No doubt, had they known about it, Mr Murphy and Mr Simpson would have sought to secure the Unite commission for Skelhorne; but, in my judgment, there is no way that they would have declined to deal with Maple Oak on the terms in which contracts were in fact exchanged on 15 February 2002.

Had the Unite commission come to light at any time before completion of the Maple Oak contract, in my judgment Skelhorne would still have proceeded to complete the sale to Maple Oak on precisely the same terms (save, perhaps, as to the payment of the Unite commission to Parkmoor). In my judgment, Mr Lee was in no way influenced in proceeding to completion with Maple Oak by the prospect of receiving either the Maple Oak or the Unite commissions. Nor was he swayed by the prospect of any future deals with Unite. (Had he been, he might have regarded that as a factor pointing in favour of seeking to cut out Maple Oak and Worcester, and doing a deal directly between Skelhorne and Unite, to the mutual financial benefit of each of them.) The reality is that, acting in all good faith, Mr Lee considered it to be in the best interests of Skelhorne to proceed to complete the Maple Oak contract. Mr Simpson and Mr Murphy now accept that they consented to the first three extensions of time under the Maple Oak contract (ultimately to 15 August 2002). I reject the submission that theirs was an uninformed consent. Although, as I find, they did not know about the Unite commission, this would not have led them to refuse the extensions of time to Maple Oak which they accept were agreed. Nothing had changed between February and July 2002 to affect the position between Skelhorne and Maple Oak. True it is that at some time between the beginning of March and the last week of April it had been decided that Unite, rather than Mowlem, should build out the student accommodation (because Unite could do so more cheaply). But the evidence was that this change was not known to anyone concerned with Skelhorne at the time (because the terms of the deal between Maple Oak and Unite were confidential); and, even if it was, no-one involved with Skelhorne ever thought of seeking to cut Maple Oak and Worcester out of the deal during the months after April 2002. I am entirely satisfied that the disclosure to Mr Murphy or to Mr Simpson of the existence and basis of the Unite commission would have made no difference in this regard.

Mr Murphy and Mr Simpson assert that they refused to sanction any further extensions of time to Maple Oak. If I were to accept their evidence on this point, I am not sure that it would make any difference. It was Mr Lee who was the sole appointed director of Skelhorne; and, unless and until he was removed from office, or two more directors were appointed and combined to overrule him, it was for him to decide whether any further extensions of time should be granted to Maple Oak. I am satisfied that Mr Lee took the view, uninfluenced by any personal considerations, and entirely consistently with the due discharge of his fiduciary duties as the sole director of Skelhorne, that it was in the best interest of that company to keep the contract with Maple Oak on foot. But, in any event, I reject Skelhorne’s evidence and case that Mr Murphy and Mr Simpson expressly instructed Mr Lee not to grant any further extensions of time to Maple Oak. The evidence of both Mr Murphy and Mr Simpson on this point was wholly lacking in conviction. Even apart from the damage caused to their positions by the retraction of their evidence that they had declined to agree the third extension of time, both witnesses were unable properly to explain, or to justify, their reasons for refusing any further extensions of time to Maple Oak, or their apparent acquiescence in the continuing force and effect of the Maple Oak contract. The reality is that they had no alternative in mind but to carry forward the Maple Oak contract through to completion: there was no “Plan B”. In my judgment, the position would have been no different had the Unite commission been disclosed, or come to light, after the grant of the third extension. Early in July, it became apparent that the local planning authority was seeking to link the planning permission for the student accommodation in to the hotel development; and the planning problems became even more acute after consideration of Maple Oak’s reserved matters planning application was deferred on 31 July 2002. Neither Skelhorne nor Unite were in any position to deliver the hotel accommodation without Maple Oak. Further it was Maple Oak which was pursuing the planning application, and this was needed imminently if Unite’s development plans were to stand any chance of implementation in accordance with its planned timetable for delivery of the student accommodation in time for the 2003-4 academic year. Furthermore, it was Maple Oak (through Mr Shuck) which was involved in negotiating the purchase of the Manweb land, which was essential to the implementation of the development scheme for the student accommodation; and this was itself contingent upon the grant of planning permission. Against this background, in my judgment it is inconceivable that the disclosure of the Unite commission would have induced either Mr Simpson or Mr Murphy to seek to re-negotiate the deal with Maple Oak: their concern was to see the deal with Maple Oak go through to completion, and to secure the Maple Oak commission for Skelhorne at the expense of Parkmoor. Had the existence of the Unite commission come to light, I have no doubt that they would have sought to secure this for Skelhorne as well; but they would not have wished to re-open negotiations with Maple Oak or to seek to deal direct with Unite. It is clear (from the Hammond Suddards file notes) that shortly before completion Mr Murphy embarked upon a tactical game of trying to hold up completion in an attempt to extract some more money from Maple Oak; but Mr Murphy did not seek to suggest that this extended to seeking to extract some form of overage or profit-related payment from Maple Oak; and in the event, his efforts came to nothing. Had Mr Murphy known of the Unite commission, I am satisfied that he would have achieved no greater measure of success.

During the course of closing speeches, I referred counsel to the observation of Wynn-Parry J in Buttle v Saunders [1950] 2 All ER 193 at 195E (spoken in the context of the overriding duty of trustees to obtain the best price which they reasonably could for their beneficiaries) that there was no reason why trustees should not pray in aid the common-sense rule underlying the old proverb: “A bird in the hand is worth two in the bush.” I am satisfied that Mr Murphy and Mr Simpson (as well as Mr Lee) would have adopted that attitude in August and September 2002, even if they had been made aware of the Unite commission payment. In any event, had anyone on behalf of Skelhorne attempted to reopen negotiations over the sale of the Grand Central Site in or about August 2002, I am satisfied that they would have received short shrift from both Maple Oak and Unite, which were anxious to complete on the deal they had already agreed. I therefore reject Skelhorne’s claim that there is any wider corporate opportunity which requires valuation.

I can deal with Skelhorne’s other heads of claim quite shortly. First, the income from Car Park A during the interval between completion of its sale to Maple Oak (on 12 September 2002) and completion of the sale to Bolton (on 26 October 2004). On the evidence provided by Skelhorne’s Cash Books (adjusted by reference to the figures in Knight Frank’s letter of 23 October 2001), I find the gross income for Car Park A to have been in the order of some £2,000 per week. When allowance is made for the “income” paid to Mrs Simpson, and a similar deduction is applied to Mrs Lee’s income, the wages attributable to Car Park A would appear to have been in the order of £470 per week, resulting in a net weekly income of some £1,500. Mr Bartley Jones submits that the continuing receipt of this income stream represented a corporate opportunity which belonged to Skelhorne, for which Mr Lee should be held liable to account. I reject this submission. Under the terms of Skelhorne’s agreement with Maple Oak, it was Tunkatop which was to continue to operate Car Park A after completion. Mr Simpson and Mr Murphy both acquiesced in this position since they received Hammond Suddards’ letter of 11 February 2002 which explained that this was to happen. Clearly, Mr Murphy and Mr Simpson were content for Tunkatop to operate, and to receive the income from, Car Park A, perhaps because, as Mr Lee explained (for the first time in the witness box, and contrary to his earlier pleaded case) Tunkatop was a joint venture between themselves and Mr Lee. In the event, this did not happen, and Mr Lee continued to operate the car park. Mr Lee asserts that he divided the net receipts from Car Park A between himself, Mr Simpson and Mr Murphy; and this is supported by the evidence of Mrs Williams. Mr Simpson and Mr Murphy deny this. I am satisfied that on this issue I should accept Mr Lee’s evidence. Mr Bartley Jones submits that it is inherently unlikely, given the disputes which then existed between them, that Mr Lee should voluntarily pay over any part of the car park takings to Mr Murphy and Mr Simpson, let alone do so without any form of paperwork and, in particular, any receipts. I disagree. Car Park A is in a prominent position. It must have been apparent to both Mr Murphy and Mr Simpson that Car Park A was continuing to operate as a surface car park after completion in the same way as before. At a time when (according to Mr David Levinson’s file note of 19 September 2002) Mr Murphy was “going through the Skelhorne accounts with a toothcomb”, I find it inconceivable that he would not have questioned what was happening to the receipts from Car Park A after completion if he was not receiving any share of them. In my judgment, Skelhorne has not established any liability under this head.

Secondly, the two payments, each of £5,000, allegedly paid in cash to LTA for consultancy services in or about December 1998 and September 1999. I find that there is simply no satisfactory evidence that Mr Lee misappropriated these sums of money. The only evidence to the contrary is the untested hearsay evidence of Mr Collins of LTA. But he has proved himself to be an unreliable witness because (in a letter dated 23 August 2010) he has retracted an earlier statement (in a note to Mr Murphy dated 3 July 2006) that the relevant invoices were false. In my judgment, Skelhorne has not established any liability under this head.

Thirdly, the payment of £21,250 to Mr Lee from Skelhorne’s account with RBS on 21 April 1999. This complaint was first raised in March 2010. The relevant bank statement clearly identifies Mr Lee as the recipient of the payment; and he is recorded as such in Skelhorne’s Cash Book. Other relevant documentation is no longer available. Mr Lee cannot now recall the purpose of this payment; but this is scarcely surprising after the passage of 11 years. Mr David Levinson’s relevant audit papers are missing; but I am satisfied that he would have considered this payment and must have been satisfied of its legitimacy. There is no evidential basis for concluding that Mr Lee misappropriated this sum; and the claim under this head fails.

Fourthly, the two cash payments, allegedly to Balcombe, of £4,500 on 27 July 2000 and £19,975 on 25 July 2001 for commission due from Skelhorne in respect of fire insurance claims. I acknowledge that the evidence in respect of these two payments is both unclear and conflicting. Mr Lee started to write the first cheque out in favour of Balcombe, and then changed it to “Cash”. Balcombe’s internal records establish that an invoice for £3,525 was raised against Skelhorne on 27 July 2000 and £3,500 was received on the same day, resulting in a shortfall of £25 (which was later written off). I cannot see why there should have been a shortfall of £25 if, as Mr Bartley Jones suggests, payment was received from insurance proceeds; or why Mr Lee should have started to write a cheque to Balcombe on this day. The evidence therefore points to at least £3,500 from the £4,500 cash withdrawal having been paid to Balcombe in cash. What became of the £1,000 balance remains a mystery; but I am not prepared to find that it was misappropriated by Mr Lee, or that he has falsified the receipt for this sum: it may be that the error lies in Balcombe’s own accounting records. Nor am I prepared to find that Mr Lee misappropriated the later cash withdrawal of £19,975. Mr Balcombe was not a convincing witness, but I am not prepared to find that he was an untruthful one. His evidence afforded some, albeit limited, support for Mr Lee’s own evidence and case. The sum of £19,975 is consistent with the amount of work performed for Skelhorne by Balcombe; and there is no evidence that payment was effected from the proceeds of any insurance payment. I find it difficult, but not impossible, to accept that payment of as substantial an amount as £19,975 was effected in favour of Balcombe in cash, apparently by way of some 1,000 bank notes. Mr Bartley Jones suggests that the payment in to Mr Lee’s own bank account of sums totalling £21,500 on 31 July 2001 may represent the proceeds of this cash withdrawal; but, if so, I question why Mr Lee did not simply transfer the money between the two accounts, or draw a cheque in his own favour, as he had previously done, without difficulty, on 21 April 1999. On the totality of the evidence, I conclude that the claim in respect of both these payments fails.

It is now clear that the £75,000 cheque drawn to cash on 18 October 2001, and recorded in Skelhorne’s Cash Book as a payment to the solicitors, Black Norman, was paid in connection with Skelhorne’s purchase of 57 Lime Street from LCE. Mr Bartley Jones is content to accept the price of £30,000 recorded in the transfer as a proper price for 57 Lime Street; but he submits that Mr Lee is liable to account for the balance of £45,000. The difficulty facing Mr Bartley Jones is this is not how the claim was pleaded at paragraph 25 (VII) of Skelhorne’s statement of case. There, the complaint is that, when challenged about the transfer price of £75,000 by Mr Murphy and Mr Simpson, Mr Lee purported to admit that the actual price had been £50,000 “and therefore the balance was debited to his director’s loan account. In fact, he misrepresented the position and the price had only been £26,000 which therefore meant that a further £24,000 had been wrongfully misappropriated and then wrongfully concealed”. Mr Bartley Jones accepts that he is bound by his pleaded case. The short answer to this head of claim is that, as recorded in Mr David Levinson’s file notes of 23 and 26 September 2002, Mr Lee explained at that time that the £20,000 balance between £30,000 and £50,000 represented “legals” paid by LCE in connection with the tenants of 57 Lime Street. The legitimacy of this allowance was apparently accepted at the time.

Both Mr Murphy and Mr Simpson allege that there was an agreement that any properties acquired in the vicinity of the Grand Central Site would, if required for the purposes of its redevelopment, be transferred to Skelhorne at cost “plus expenses”. I find that there was no such agreement. The evidence of Mr Simpson and Mr Murphy on this point was vague and entirely unsatisfactory. Even if there had been any such agreement, however, 57 Lime Street was not required in connection with the sale to Maple Oak, and therefore the condition upon which it was to be transferred to Skelhorne at cost plus expenses was never satisfied. (Precisely the same point applies to 45 Lime Street.) But even if such an agreement were applicable, no complaint was made in relation to the “legals” at the time; and in my judgment it is far too late for such a point to be raised now. The claims in respect of both the £75,000 and 57 Lime Street therefore fail.

Similar considerations apply in relation to 45 Lime Street. In his written closing, Mr Bartley Jones submits that Skelhorne is entitled to recover Eastpark’s profit on the sale of this property to Skelhorne because there was “the most horrendous” conflict of interest and breach of fiduciary duty on the part of Mr Lee in selling this property to Skelhorne for more than its acquisition price of £225,000. Again, this is not the pleaded case: at paragraph 25 (VII) it is said that Mr Lee purported to pay £310,000, taken from Skelhorne, “but when challenged about this by Mr Murphy and Mr Simpson [Mr Lee] purported to admit that the actual price had been £250,000 and therefore the balance was debited to his directors’ loan account. In fact he misrepresented the position and the price had only been £225,000 which therefore meant that a further £25,000 had been wrongfully misappropriated and then wrongfully concealed”. Again, this pleaded case is not borne out by Mr David Levinson’s contemporaneous file notes: at paragraph 2 of his file note of 23 September 2002, he records that he was told by Mr Lee that the original purchase price had been £225,000. Had there been any doubt in the matter, this could have been resolved by reference to the price recorded in the relevant office copy entries (which appeared in the trial bundle). Again, the true position was made clear in September 2002, and it was apparently accepted at the time. The pleaded case is not made out.

Mr Bartley Jones argues that there was an over-payment of stamp duty by Skelhorne since this was calculated by reference to the sale price recorded in the transfer (of £350,000) and not by reference to the price actually paid (of £310,779), or any lesser sum. This claim was not actually pleaded (although it was mentioned by Mr Bartley Jones in opening). But, in any event, the issue of the stamp duty paid on the transfer of 45 Lime Street had been considered at a meeting with Mr David Levinson, attended by Mr Lee, Mr Simpson and Mr Murphy, on 26 September 2002. Paragraph d of Mr David Levinson’s file note records that: “It may be that the amount should have been £7,500, but the stamp duty was paid on the current value at the time of transfer and the £10,500 will have to stand and is therefore accepted.” Irrespective of the state of Skelhorne’s pleaded case, it is not open to it to seek to resile from that position after this interval of time.

The next complaint relates to a payment of £20,000 (plus VAT of £3,500) allegedly made to Duna Ltd, land co-ordinators and developers. This was recorded in Skelhorne’s Cash Book on 18 June 2002 and is represented by a cheque signed by Mr Lee and drawn (but not by him) in favour of Duna Ltd and dated 4 July 2002. This cheque was debited to Skelhorne’s account at RBS on 8 July 2002. The clear inference (which I draw) is that the cheque was made out on 18 June but post-dated. Such a substantial payment must have been subjected to scrutiny by Mr David Levinson at the time he audited Skelhorne’s accounts, and it was not the subject of any contemporaneous challenge. In my judgment, there is no evidential basis upon which I can properly find either that the supporting invoice is fictitious or that Mr Lee has personally benefited from the moneys represented by this cheque.

Finally, there is the transfer of £100,000 “to G Murphy” recorded on Skelhorne’s bank statement on 10 September 2001. The likelihood is that this was an internal RBS bank transfer; yet the evidence is that, at that time, Mr Murphy did not have any account with RBS. I reject Skelhorne’s case that this sum was misappropriated by Mr Lee. There is no evidence that Mr Lee ever received this sum; and Mr Murphy raised no complaint in relation to it until March 2010. The obvious inference is that Mr Murphy knew perfectly well that this was a genuine payment to him; and I so find. The payment of £100,000 to Mr Murphy was recorded as such by Mr Nickson in the Company’s Cash Book, and also in the shareholders’/directors’ loan accounts drawn by Mr David Levinson, which were sent to Mr Murphy on 1 March 2004. Mr Murphy raised no objection to this entry at that time. Earlier, Mr David Levinson had recorded (on 19 September 2002) that Mr Murphy was “going through the Skelhorne accounts with a toothcomb and was collecting bank statements”. At paragraph 53 of his witness statement, Mr Murphy records (in the context of his alleged ignorance of the RBS loan facility of £2.6m) that in September 2002, he “began looking at Skelhorne’s bank statements with more than a critical eye”. Further, Mr Simpson and Mr Murphy scrutinised the entire financial history of Skelhorne at the time of, and following, the summary judgment application in June 2006. Against that background, it is inconceivable that Mr Murphy would not have noticed a payment to himself of £100,000, or raised it as an issue if he had never received it, before March 2010. It is not clear how the £100,000 reached Mr Murphy; but I am satisfied that it did. The claim under this head fails.

On the face of the agreement and declaration and trust relating to Switch Island, Mrs Lee is entitled to compel a sale of this property in order to realise her 25% interest therein. Skelhorne claims to be entitled to have this document set aside on the footing that it entered into it in reliance upon misrepresentations made by Mr Lee whilst acting as his wife’s agent. I reject this claim. I reject Mr Murphy’s evidence that he twice asked Mr Lee if there were any other matters which he wished to disclose, and that Mr Lee responded that there were not. Mr Murphy’s evidence on this point was unsatisfactory; and, given the degree of distrust which existed between the three men at the time Skelhorne entered into the Switch Island deed, it is inherently improbable either that such a question would have been asked or, if asked and responded to in the negative, that this would not have been recorded in writing at the time, probably in the form of a warranty. In any event, I am satisfied that even if such an inquiry had been raised, and Mr Lee had replied in the negative, Mr Murphy (still less Mr Simpson) would not have placed any material reliance upon what Mr Lee had said. I acknowledge that, in order to raise a case of misrepresentation, it is not necessary for the misrepresentation alleged to be the sole cause inducing the representee to enter into the relevant contract, and that is sufficient to show that it is one of the inducing causes. But I reject Mr Bartley Jones’s submission that there is sufficient reliance upon a misrepresentation so long as the representee is aware of the representation, does not know it to be false, and would not have made the contract had a true answer been given. If a man does not believe what he is told, then he does not place any material reliance upon it, even if he might not have entered into the contract had the truth been told and his worst suspicions been confirmed. Again, had Mr Murphy placed any material reliance upon Mr Lee’s alleged denial of any other wrongdoing on his part, I would have expected Mr Murphy to have insisted upon such denial being recorded in writing.

Had I found that Skelhorne had entered into the Switch Island document in reliance upon a misrepresentation on the part of Mr Lee, made as his wife’s agent, I would nevertheless have refused the remedy of rescission on the ground that full restitution would be impossible without also rescinding the contemporaneous agreement for the sale of the shares of Mr and Mrs Lee and of Freshmoore in Skelhorne. I do not accept these were two entirely separate and discrete transactions. That would be to look to the form rather than to the substance of the matter. The reality is that the parties would never have entered into the Switch island document had Mr and Mrs Lee not disposed of their entire interest (both direct and indirect) in Skelhorne. The Switch Island document was part and parcel of the arrangements for Mr Lee to leave Skelhorne and for it to acquire his shares, and those of Mrs Lee and Freshmoore. Skelhorne cannot rescind only part of those arrangements. As Miss Anderson observed, if the Switch Island document were entirely separate from the arrangements for the disposal of Mr and Mrs Lee’s shareholdings in Skelhorne, it might be capable of rescission separately; but then there would be no basis for contending that Skelhorne had been induced to enter into it by false representations made by Mr Lee in connection with the negotiations for his exit from the company and the purchase of his shares.

Mr Bartley Jones seeks to contend that the acquisition by Mrs Lee of her interest in Switch Island was the result of a major breach of fiduciary duty on the part of Mr Lee, who conducted the negotiations as her agent. It is admitted that Mr Lee was under a continuing fiduciary duty, as a director of Skelhorne, to disclose anterior breaches of fiduciary duty on his part. On my findings, he failed to disclose the Unite commission. Mr Bartley Jones therefore submits that Mr Lee breached his fiduciary duty of disclosure on the sale of the shares and the transfer to Mrs Lee of her interest in Switch Island. The consequence of that breach, it is submitted, was that Mrs Lee acquired her interest in Switch Island for £1, which would not have occurred had there been proper disclosure by Mr Lee of his anterior breaches of fiduciary duty. Mrs Lee is said to be liable for the failure of her agent to disclose that which her agent ought to have disclosed, and so she is liable to account for the value of the interest in Switch Island which she has acquired. In those circumstances, it is said that there should be no order for the sale of Switch Island against the wishes of Skelhorne; alternatively, there should be no order for sale unless and until Mr Lee has discharged his liability to Skelhorne in full. In my judgment, this submission conflates and confuses the duties which Mr Lee owed to Skelhorne in his capacity as a director of that company with his role as Mrs Lee’s agent in connection with the negotiation of the sale of her shares in Skelhorne. In the latter role, Mr Lee owed no fiduciary duty of disclosure to Skelhorne. In my judgment, Skelhorne cannot be in any better position, in relation to the negotiations for the disposal of Mrs Lee’s interest in that company, and her acquisition of an interest in Switch Island, than it would have been in had Mrs Lee conducted the negotiations herself, or used an outsider as her agent.

I also reject Mr Bartley Jones’s fall-back submission in this connection that Mr Lee is liable to Skelhorne for the value of the share in Switch Island which Mrs Lee obtained by way of damages or equitable compensation for the breach of his own fiduciary duty to disclose his anterior breach of fiduciary duty in relation to the Unite compensation. In my judgment, that would over-compensate Skelhorne for the loss it has sustained in consequence of such breach of duty. Just satisfaction consists in requiring Mr Lee to repay the amount of the net commission, with compound interest; but no more.

For these reasons, I uphold Mrs Lee’s claim in relation to Switch Island. I can discern no proper basis for withholding the exercise of the Court’s discretion to order a sale of Switch Island against Skelhorne’s wishes.

For the reasons set out above, Mrs Lee’s claim against Skelhorne succeeds, and the counterclaim against her falls to be dismissed. She is entitled to relief in relation to her 25% share in Switch Island. Skelhorne’s counterclaim against Mr Lee succeeds, but only to the extent of the £405,000 net introduction fee received from Unite by Parkmoor, together with compound interest. I invite Counsel to seek to agree the terms of an appropriate minute of order. Any differences can be addressed after this judgment is formally handed down.

I cannot conclude this judgment without expressing my thanks to both leading counsel for the considerable assistance they have provided to the Court during the course of this trial. Such expressions of gratitude are customarily tendered, and are always sincerely meant; but, on this occasion, both counsel deserve especial praise. Mr Bartley Jones came in to the case at very short notice, and he has had to make do with statements of case and witness statements which, in certain respects, caused him difficulties both of presentation and of substance. Although involved in the case throughout, Miss Anderson has had to overcome the difficulties of responding to a counterclaim which has been in a state of constant evolution, and which has not always been expressed with Mr Bartley Jones’s ultimate clarity and precision. Both counsel have responded to these challenges, and to both the absence of certain material documents, and the emergence of other documents during the course of the trial, with their habitual patience, courtesy and good humour. As a result, it has been almost a pleasure to try this case.