Ackerman v Ackerman & Ors

From the early 1960s, Mr Joseph Ackerman (“Joseph” or “JA”), the Claimant, and his brother Mr Jack Ackerman (“Jack”) began to build up a successful property empire, known generally as the Ackerman Group. When Jack died in 1989, his widow, Mrs Naomi Ackerman (“Naomi” or “NA”) acquired his share of the business. Joseph had 4 children, the eldest of whom is Ms Chava Ackerman (“Chava”) and Jack had 5 children, of whom the third is Mr Barry Ackerman (“Barry” or “BA”), the second Defendant. Chava is married to Mr Daniel Wulwick (“Danny” or “DW”), Joseph’s assistant and confidant.

Between 1989 and 2004, Joseph continued to run the affairs of the Ackerman Group. From 2001, Barry began to work part time with Joseph, but they did not see eye to eye. Ultimately from 2004 onwards, relationships between the two branches of the family deteriorated steeply and became extremely acrimonious. In February 2006, Joseph and Naomi decided to de-merge their interests.

For many years, Joseph had been advised by the well-known tax silk, Mr Andrew Thornhill QC, the third Defendant (“Mr Thornhill”). It was agreed loosely that Mr Thornhill should undertake a lottery (the “Lottery”) to decide how the interests should be split. The Lottery was performed by Mr Thornhill in March 2009, but the results were not disclosed to the parties. Eventually a detailed agreement (the “Agreement”) was entered into for the purpose of allowing Mr Thornhill, acting as an expert rather than an arbitrator, to partition the family’s assets. The Agreement was called a “Revised Further Agreed Way Forward” and was dated 25^th June 2009. I shall return in due course to its terms.

The Agreement envisaged a three-stage process as follows:-

Only two of these three stages have been concluded, because when Mr Thornhill published the Report on 5^th January 2011 saying that, in broad terms, all the properties and companies should be transferred to Naomi, Joseph became so disaffected that in April 2011 he begun this action.

In these proceedings, Joseph alleges that Mr Thornhill was guilty of actual bias, collusion and partiality in favour of Naomi and her side of the family, that he acted unfairly and deceitfully, and that he materially departed from his instructions contained within the Agreement. As a result, Joseph contends that the Report and the steps taken in pursuance of it are invalid and of no effect, and that the breaches are so serious as to amount to a repudiation of the Agreement which is said to have been accepted and therefore to be at an end.

The properties, companies and assets that are the subject of this dispute (together the “Group” or the “Ackerman Group”) can be broadly summarised as follows:-

In 1941, Joseph and Jack arrived in the UK as refugees from Czechoslovakia. In 1975 Jack became ill. Joseph and Jack established Delapage as their joint charitable company in 1977. In 1989, Jack died. Between 1989 and 2006, Joseph managed the Ackerman Group with the tacit consent of Naomi.

On 15^th February 2006, Joseph and Danny met with Naomi and Barry at Mr Thornhill’s Chambers, Pump Court Tax Chambers (the “Chambers”), and they agreed to de-merge their interests.

On 16^th February 2006, Joseph wrote to Naomi recording that she and her children had decided to ‘split the Group’, and saying: “I further record I have since 1989 to date never made any acquisitions in my own name nor was I minded to exclude you, as always acting in your best interests. However with your present decision as from our meeting with [Mr Thornhill] on 15/2/06 you agreed that I am free to proceed to make purchases in my own name and if your equity is utilised such capital sum will be taken into account, returned to you without you having any interest benefit or uplift”.

On 26^th February 2006, Naomi replied to Joseph saying that he had initiated the decision to split, and continuing: “[s]ince you wished to continue expanding the business but now only wish to work for your family I agreed that any purchases made until the division, could be financed partly using my equity. Since there was no time to discuss loan conditions in [Mr Thornhill’s] office I suggest another meeting [in order] to discuss the conditions before any loan can be implemented. I also trust that this will apply equally to any acquisitions my family wish to make”.

On 24^th March 2006, Barry wrote a memorandum to Joseph, copied to Naomi, saying: “[r]egarding the continued operation of the group, you have expressed your view that since your family undertakes a majority of the work you can therefore continue acquiring assets but solely for your concern. I think this quite inappropriate. … My mother, during the meeting at [Mr Thornhill’s Chambers] was benevolent and agreed to permit you to acquire assets for your concern. This comes with a proviso that any loan from the company must be agreed in writing between the parties and will be negotiated on a commercial basis”.

On 14^th July 2006, Barry emailed Joseph, Naomi and Danny saying that “[w]ith regard to valuation, we agreed that as this exercise is internal and the result is academic (since we are dividing by way of lottery) we will adopt the figures produced by Joseph. Due to the lack of readily available information it is an immense task for any one person to find, gather, request and collate information on these companies. As a result, it was agreed that I did not need to undertake a valuation. If any particular valuation is required (or is deemed necessary) for whatever purpose in the future (to ascertain an agreed value) then, at that time, I will undertake a valuation”.

On 16^th October 2006, Berwin Leighton Paisner LLP (“BLP”), Naomi’s solicitors, wrote to Joseph as follows:-

“We understand that when it was agreed that you would divide the Group between yourselves, [Naomi] agreed as part of the division agreement, that you could carry out future property transactions for your own account, rather than for the Group’s account on the basis that any such transactions would be small, would not involve the use of, or recourse to, Group assets and that your dealings in these transactions would be transparent. In addition to the above, the funding of those transactions would be fully discussed and pre-agreed between you and [Naomi].

We understand you are carrying, and have subsequently carried, out a number of transactions which we understand are for your own account, one of these transactions being of considerable size (circa. £190m). This is the information as disclosed recently in the ‘property press’.

[Naomi] is concerned that these transactions you have recently carried out should be transparent and should not in any way improperly impact upon the Group or its assets and has asked you for your assurance on this. To date she has not received a satisfactory answer to those queries. Accordingly, [Naomi] has asked us to write to you on the lines set out in this letter.

Please would you supply us within the next 14 days with reasonable details of all transactions carried out in this calendar year and those you intend to carry out for your own account with reasonable details as to how these transactions have been or will be, as the case may be, structured to enable our client to satisfy herself that no Group assets have been involved in any way, for instance in providing finance for the arrangements or in securing finance. Would you also explain, if relevant, how a transaction has been undertaken without any board meetings or signatures from [Naomi].

Until [Naomi] has confirmed in writing that she is satisfied as to how these transactions have been structured and that they have had no improper impact on the Group, she has asked us to inform you that her consent to you to carry out any further transactions has been withdrawn. In addition, to prevent any misunderstanding, proper formal procedures, including director’s (sic) board meetings and relevant signatures should be adhered to”.

On 25^th June 2007, BLP wrote a lengthy letter to Joseph complaining about his having withheld information and access to advisers from her, thus depriving her of her ability properly to perform her director’s duties to the Group companies.

On 3^rd December 2007, Mr Peter Robinson, a partner in BLP, emailed Mr Brian White ("Mr White") of Deloitte, Joseph’s accountant, saying: “We have suggested that the parties check the values of their group after the lottery and if there is a material discrepancy then this gets resolved post-lottery but before final demerger ”.

On 9^th April 2008, Naomi emailed Mr James Levy QC of the law firm Hassans in Gibraltar (“Mr Levy QC”), complaining again about the lack of information being provided to her about the Group’s offshore assets (including the NOF Trust). She suggested that he was being unduly influenced by Joseph and continued: “I have now been trying to ascertain information for over 2 years without success. Meanwhile Joseph continues to mismanage and undertake questionable activities with our companies, particularly since he has geared both the group and his own portfolio too highly. Although he continues to say he wants a demerger, nothing is farther from the truth. He simply cannot demerge at the moment because of his debt position. If he wanted to, he would simply provide answers to questions we have been asking for over one year relating to the joint companies”.

On 18^th June 2008, Joseph and Danny met Mr Thornhill at a drinks party hosted by the Chambers. Mr Thornhill offered his assistance in relation to the de-merger that had been agreed in February 2006.

In September 2008, the parties entered into a “Way Forward Agreement” (the pre-cursor of the Agreement), envisaging a lottery taking place no later than 15^th November 2008.

On 13^th October 2008, Mr Thornhill wrote to the parties saying: “[t]here will then have to be a series of adjustments BEFORE the divisions are actually effected. These adjustments will include: -

On 31^st October 2008, Mr Jeffrey Selwyn (“Mr Selwyn”) sent an email concerning the transfer of properties between Haysport and Twinsectra, to equalise the assets of the two companies so that Joseph and Naomi could each be given control over charitable assets of roughly equal value.

On 5^th November 2008, Barry wrote to Mr Thornhill informing him that Loch Tummel would complete the sale of a Heathrow property, saying that he was inclined to reach agreement now that Joseph’s share “50% - c3.5m will be charged to us to cover his ‘unauthorised borrowings’”.

In January 2009, Mr Thornhill, Mr Robinson and Barry visited Gibraltar to meet Mr Levy QC and Mr Ian Felice of Hassans, who ran the NOF Trust.

In early 2009, Loch Tummel completed the sale of property at Heathrow, making it cash rich.

On 3^rd March 2009, Mr Thornhill conducted the Lottery, in the presence of Mr Stephen Landy (“Mr Landy”) and Mr Robin Berry (“Mr Berry”) of Wilder Coe, the Group’s accountants (“Wilder Coe”), and another barrister from the Chambers.

On 5^th March 2009, Mr Thornhill emailed Barry concerning the proposed Loch Tummel dividend as follows: “[i]f you are able to declare an interim dividend in respect of Loch Tummel, please so [sic] as a matter of urgency and pay it into the Barclays account. On re-consideration I would suggest you pay in enough to keep Barclays in credit e.g. £1 million only. I think on reflection you have to pay a dividend on all the shares. However, you could agree to defer payment of your dividend pro-tem. So that what passes into Barclays at this stage is JA’s dividend” (original emphasis). Mr Thornhill’s evidence was that he envisaged making a direction under the earlier Way Forward agreement in respect of such a dividend.

Also on 5^th March 2009, Barry emailed Mr Thornhill saying that the bank had required £2 million (from the Loch Tummel dividend) and that he had transferred that sum as “per our conversation”. Mr Thornhill’s evidence was that he understood at that time that, since £2 million was required, it had been advanced by way of loan, rather than by the declaration of a dividend.

On 6^th March 2009, Loch Tummel declared a dividend of £4 million. Naomi’s and Barry’s shares of £1 million each were paid to their personal accounts, and Joseph’s share of £2 million was paid to Naomi’s Superetto subsidiaries.

On 10^th March 2009, Mr Landy emailed Mr Thornhill saying that Joseph had asked him to bring to Mr Thornhill’s attention the treatment of the sale proceeds of Loch Tummel, and that Barry had paid £400,000 into each of Naomi’s Superetto companies, and that was not a big problem because “[t]he funds will be used in the Barclays sweep” and “[w]e can account for it in the settlement process”, and continued “[Joseph] would like to waive his right to a dividend and make a Gift Aid payment to his charity for his shares of the profit …”.

On 25^th June 2009, the parties entered into the Agreement (A Revised Further Agreed Way Forward).

On 1^st July 2009, Mr Robinson emailed Mr Thornhill saying, amongst much else that Mr Thornhill would “invite the parties to provide [him] with the information re the Loch Tummell [sic] dividend, Enduring and similar commissions and ABN Amro and other bank information”.

On 14^th July 2009, Mr Selwyn sent another email concerning the transfer of properties between Haysport and Twinsectra.

On 23^rd July 2009, Mr Landy wrote to Mr Thornhill describing what had occurred when Mr Ellis Goldberg (“Mr Goldberg”), a computer consultant, and Mr James Knight and he had attempted to copy electronic files from the Group’s offices at Hendon.

On 6^th August 2009, Mr Thornhill emailed Barry saying he had asked Mr Berry to show him (Barry) all the material gathered so far which he (Barry) was free to inspect and that he wanted Barry’s views on how complete the disclosure (from Joseph’s side) had been. Barry told me that Mr Berry was there to make sure that he did not see any privileged material and that he did not do so. Barry also told me that, after this 45 minute session with the computer, he did not see it again.

On 9^th September 2009, Mr Thornhill sent both parties a note saying:-

“The Lottery is due to be announced within three months of the execution of the Way Forward (see Clause 10). This is on the basis that the parties have promptly taken all steps set out in the preceding clauses. In my view, [Joseph] and [Danny] have not fulfilled their obligations”.

In October 2009, Mr Thornhill says that he learnt that New Liberty was in danger of insolvency.

On 14^th October 2009, Mr Thornhill issued a direction splitting the management of the Group companies between Joseph and Naomi:

In January 2010, Mr Thornhill told Wilder Coe the results of the Lottery in confidence so that they could reconcile and net down the inter-company balances.

On 21^st January 2010, Mr Landy met Barry and was told about the £2 million Loch Tummel dividend. It appears that he may have told Mr Thornhill and Joseph on that same day.

On 22^nd January 2010, Mr James Southworth of Eversheds LLP, Joseph’s then solicitors (“Mr Southworth”), says that he telephoned Mr Thornhill to ask him about the Loch Tummel dividend and Mr Thornhill said that he would be “amazed” if Barry had paid Joseph’s Loch Tummel monies to Naomi’s Superetto subsidiaries. Mr Southworth said that Mr Thornhill gave him the impression that he knew none of the detail of what had happened in respect of the Loch Tummel monies.

On 22^nd January 2010, Barry emailed Mr Thornhill saying that he thought it best to transfer £1.5 million as soon as possible to Hamlins LLP ("Hamlins") since “[Joseph], having received the Loch [Tummel] information is likely to remove this amount immediately”. Barry told me that he wrote this because the Group’s monies held at Barclays Bank were available to Joseph, but the Group’s monies held at Hamlins were under the control of Mr Thornhill.

On 25^th January 2010, Mr Martyn Krantz (“Mr Krantz”), who worked with Barry, emailed Mr Thornhill confirming that in accordance with Barry’s instructions of 22^nd January 2010, £1.8 million had been deposited with Hamlins on behalf of Superetto.

On 26^th January 2010, Mr Thornhill issued a revised management allocation, responding to vigorous complaints made by Joseph’s side, giving Naomi responsibility for 20 companies and Joseph responsibility for 28 companies.

On 29^th January 2010, Mr Landy emailed Danny and Joseph setting out the history of the Loch Tummel dividend as follows:-

“I confirm that we have met with [Mr Thornhill] a number of times in recent months and have asked him to assist in providing information on Loch Tummel. We did this because we were aware that £2,100,000 had been paid into Naomi’s Superetto companies on 5 March 2009 which led us to believe a dividend had been paid. I have also spoken with [Barry] until 21 January 2010 I was unable to obtain the information to complete [Joseph’s] tax return. I met with [Barry] at 3.00pm on Thursday 21 January 2010. He gave me the dividend vouchers for Loch Tummel Ltd and confirmed to me that [Joseph’s] dividend had been paid into the five [Naomi] Superetto companies. … He instructed me to inform [Joseph] that this was to compensate for money he had taken out of the “Ackerman Group””.

On 12^th February 2010, Mr Robinson wrote to Mr Thornhill saying:-

“In a nut-shell Naomi is concerned that there is a lack of even-handedness in what you have decided under The Way Forward and that you have back-tracked on what you have previously agreed with her on important issues…. There is a grave concern on the part of Naomi that you have bowed to pressure from [Joseph] on all these matters. There is further concern that you have not been fair and even-handed and have changed your mind on matters you had previously agreed with Naomi and Barry without explaining to them why this has been so”.

On 14^th February 2010, Joseph emailed Mr Thornhill accusing him of favouring Naomi saying: “it must be up to you to control them to behave in an amicable manner. Why do you not do this?”

On 26^th February 2010, it appears that the so-called “lock-out” occurred whereby Barry changed the external locks at 113 Brent Street, Hendon, London NW4 (“113 Brent Street”) so as to exclude Joseph’s side from the Group’s offices at that address and force them to move completely to UK House, the Group’s offices across the road in Brent Street (“UK House”).

On 1^st March 2010, Mr Thornhill made a direction under the Agreement as follows:-

“1.

[Joseph] is not now being wrongly excluded from 113 Brent Street.

2.

His leaving 113 Brent Street with staff is an essential step in the Way Forward and in my judgment was unlikely to occur at the right time.

3.

Major requests to be met by [Joseph’s] side have not been met, notably computer records and emails.

4.

There has to my certain knowledge been no interference with [Joseph’s] property in his office but I have authorised [Mr Berry] and no-one else to sort the items in [Joseph’s] office out. Much of it clearly needs to be split between the two sides and [Mr Berry] is the ideally suitable person to do it.

5.

In my judgment the fair course is for property clearly owned by or relevant to [Joseph] managed properties to be returned immediately. Items relevant to [Naomi] managed property should be handed to [Naomi]. …”.

Later on 1^st March 2010, Mr Southworth emailed Mr Thornhill saying that Mr Berry had told Danny that afternoon that Barry had given him a key to Joseph’s private office, and suggesting that Barry could only have obtained such a key by changing the locks to that office. Barry told me, and I accept, that in fact there was a spare key to that office found in a key box outside the office, and that he did not change the locks to Joseph’s office. Mr Berry confirmed that he had received the key from Barry, and that he had passed it over to Mr Stuart Parker ("Mr Parker") of Sirius Business Law Solicitors (“Sirius”), Mr Thornhill’s own solicitors, a week later. Also, on 1^st March 2010, Mr Berry tried to extract relevant cheque books and commercial information from Joseph’s office but found that it was impracticable and too time-consuming to separate out relevant material.

On 2^nd March 2010, Mr Thornhill spoke to Mr Southworth on the telephone about the Charity Commission’s approach to debts due from Haysport and Twinsectra to Group companies. In that conversation, Mr Southworth alleges that Mr Thornhill misled him as to what he had agreed with the Commission concerning looking for compensation from Joseph.

On 11^th March 2010, Mr Thornhill made further directions under the Agreement as follows:-

“I [Mr Thornhill] shall be at 113 Brent Street tomorrow [12^th March 2010] as soon as possible after 10 o’clock

By way of preface, both sides are taking matters into their own hands. The action of changing locks is not condoned. There is much talk of wanting to get things to happen but not much will to do anything to get it to happen.

DIRECTION 1

There are belongings of Leigh Coleman at 113 Brent Street. There is no wish to prevent their going to UK House. Could both sides have ready 2 able bodied persons to carry Leigh Coleman’s belongings (and other items dealt with below) to UK House. I will call UK House when I arrive.

DIRECTION 2

There are Superetto files and other files to be handed over to [Joseph’s] side in 113 Brent Street. These can be transferred on Friday morning.

DIRECTION 3

Could I please be given by both sides such keys and log books to vans as they have. I shall then divide them.

DIRECTION 4

I have asked [Mr Goldberg] to attend at 113 Brent Street for two purposes. Purpose 1 is to receive a disc from [Danny] containing computer material from UK House. Purpose 2 (involving access to [Joseph’s] old room) is to examine the system for giving details of Barclays accounts which has broken.

DIRECTION 5

Sally Glassman [“Mrs Glassman”, Joseph’s personal assistant] has personal items in [Joseph’s] old room. Could she please call me Friday morning if she is at UK House to accompany her to the room and take her belongings or arrange for them to be taken? If she is not there on Friday, I could manage Monday 15^th pm, Tuesday 16^th pm, Wednesday pm WITH NOTICE. Unless [Joseph] does so pursuant to Direction 6 Sally can take or arrange to take (in my presence) materials clearly relevant to [Joseph] managed properties.

DIRECTION 6

If [Joseph] is available Friday morning or failing that all the other times specified in Direction 5 in relation to [Mrs Glassman] I would ask [Joseph] with me or failing me, [Mr Parker] to come to his old office and identify and if possible take away private or privileged papers to a safe place. I and [Mr Berry] will thereafter divide what is left into [Joseph] and [Naomi] piles and distribute accordingly. Any uncertain items will be moved to a safe place and both sides can inspect them and I or [Mr Parker] will then divide them.

I have in mind up to an hour to identify the papers.

While [Joseph] is at 113 Brent Street, [Barry] and [Naomi] should not be on the same floor as [Joseph’s] old office.

DIRECTION 7

All computers at 113 Brent Street shall stay there until Mr Goldberg has copied their contents and handed them to me. This applies to both sides.

DIRECTION 8

It is neither desirable nor necessary for [Joseph] to spend days/weeks sorting out his office.

These Directions are inter-conditional. If any one is objected to, then the others fall. Could I please have an email from everyone expressing agreement?

I will write to various parties on aspects of their conduct”.

It appears from Mr Thornhill’s directions of 11^th March 2010 that Joseph was allowed back into his office to remove his possessions on 12^th March 2010, and that was confirmed by Barry’s evidence which, on this point, I accept.

On 15^th March 2010, Mr Thornhill made yet further directions under the Agreement as follows:-

“1.

The visit to 113 Brent Street by [Joseph] and others on last Friday shows quite clearly that the sooner separation occurs the better and the fewer visits by [Joseph’s] side to 113 Brent Street the better.

2.

Material still in [Joseph’s] room:

(i)

Computers and office equipment: see 3 below.

(ii)

Privileged material. This consists of communications between Joseph/[Danny] and Hill Dickinson concerning the family dispute. Clearly this is privileged.

(iii)

Matters concerning the companies. I cannot see any privilege here. Even if [Joseph] is acting as a solicitor the clients are [Joseph] and [Naomi] and their companies. The privilege is theirs not that of [Joseph] as a solicitor. The material is easily capable of division.

My preference is for all this material to be moved to an independent site there to be sorted by [Mr Parker]. I do not wish, or see the necessity, to repeat the scenes of Friday. This could be done on Tuesday pm.

I alone would go to [Joseph’s] old room. [Mr Parker’s] role will be to remove privileged material leaving Wilder Coe to sort out the rest, which should present little difficulty.

On Tuesday 23^rd March 2010, Mr Southworth emailed Mr Thornhill and others at 1.13 a.m. in response to his direction of 22^nd March 2010 objecting to each provision, and saying in relation to the requirement to deliver computer disks: “[t]his is outrageous. You are overstepping the mark considerably here. You, as Queen’s Counsel, are effectively saying that computer materials which have been put beyond my client’s control by the unlawful actions of [Barry] in changing the locks to 113 Brent Street will only be returned once computer material is handed over by [Danny]. On what basis? We require you to retract such an absurd and baseless “direction”. Failure to do so will demonstrate clear complicity in [Barry’s] unlawful acts”.

Later on 23^rd March 2010, Mr Thornhill emailed the parties saying: (1) that he would attend that afternoon at 113 Brent Street with an unconnected junior barrister to remove the papers to neutral territory; (2) privileged papers would be returned unseen by anyone except that junior barrister, and that material relevant to companies would be made available to the side running that company; and (3) “the suggestion that [Danny’s] disc should be handed over after delivery of computers is not agreed. [Danny] should hand the material to Mr Goldberg who will copy it. On receipt by me of confirmation of copying, the computers at 113 Brent Street will be returned”.

On 6^th April 2010, Mr Thornhill issued a direction asking both sides to inform him of any Removed Assets (as defined in the Agreement, as to which see below) by 23^rd April 2010.

On 13^th April 2010, Mr Robinson wrote to Mr Thornhill saying that he wanted to “place on record that while progress has been slow this has invariably been caused as a result of [Joseph’s] threats and blatant refusal to comply with your directions”.

On 23^rd April 2010, Naomi provided her list of Removed Assets to Mr Thornhill.

On 29^th April 2010, Mr Robinson emailed Mr Thornhill saying that he thought the time had come for “more transparency in this matter”. He continued: “[t]here is increasingly a concern on Barry’s and Naomi’s parts that deals are being arranged with [Joseph] and his advisors on matters which are extremely important and affect Naomi without Barry or Naomi being involved or being made aware of what is going on”. Mr Robinson’s evidence was that he did not think this was a concern expressed in relation to the de-merger process.

On 14^th May 2010, Mr Southworth emailed Mr Thornhill in relation to his demand for Danny’s disk as follows:-

“My clients have reluctantly concluded that you are using these items as a form of blackmail in order to obtain certain information for [Barry] which he believes (and possibly you believe) is contained on [Danny’s] disc. [Danny] has copied all relevant materials onto this disc and he is happy for [Mr Berry] to come to his office to verify this … [Danny] and Joseph are not willing to be blackmailed in this way. For the avoidance of doubt, I repeat that my clients are not willing for [Barry] to review the contents of the disc whilst Joseph and his staff are being deprived of the equipment they need to run the companies”.

On 19^th May 2010, Mr Thornhill issued a direction including:-

“Lloyd’s TSB … The Bank is averse to taking further security over Haysport or Twinsectra now that it knows that the benefit of the charge went to the NOF Trust. … Such advice as I have received indicates that the burden should fall on [Joseph’s] companies or on [Joseph]. No doubt the Charity Commission will have a view. The new trustees will need to consider the point at an early stage. One consequence of the new Lloyds view is that there is no need to vary Mr Selwyn’s proposals”.

“The disc the importance of the disc to [Naomi’s] side is that it is the most complete collection of information on the properties and the companies. … I can see no justification for [Mr Southworth’s] email accusing [Naomi’s] side of blackmailing [Joseph] …”

The direction concluded by saying: “[a]ny direction by me which either party dislikes is being turned into a battle ground. This has slowed the Way Forward down. Also it has caused difficulties with accounts and now means that the Charity Commission could intervene. If the few directions I have given in this and the accompanying documents are adhered to we could proceed quickly to issues such as Loch Tummel and the dividend, insurance companies etc. If these directions are not adhered to, I am not prepared to see the Way Forward fail and the Ackerman futures dissipated and so more direct action will be required. It will not be as fair as the Way forward”.

On 25^th May 2010, Mr White emailed Mr Thornhill saying that “we … do not see any reasonable basis for the burden [of the Lloyds debt] to fall on [Joseph] or [Joseph’s] companies when the lottery results have not yet been announced”, and saying that he (Mr Thornhill) had misread Mr Southworth’s email of 14^th May 2010, which had accused Mr Thornhill, not Naomi’s side, of blackmail.

On 14^th July 2010, Mr White emailed Mr Thornhill about the serious position arising from threatened prosecution notices from Companies House in respect of failure to file accounts for 5 companies: “[t]he problem is the accounts cannot be signed by the directors because of going concern issues in view of loans from Delapage due on 31 March 2011. Mark Saunders the audit partner at Wilder Coe could sign a qualified audit report but this would in turn trigger a call in of the bank loans as this would be a breach of lending terms. So not a real option. The solution is for Delapage current trustees to meet for one purpose only and pass a written resolution that loans are extended to 31 March 2013 and that interest continues to be deferred and that the trustees will not seek any interest until 2013 and only then dependent on refinancing opportunities for the borrowing companies. This is on the real basis that to call in the loans now would result in no recoveries after LPA receivers appointed by lending banks. Such a resolution would enable both the auditors and the directors to sign off the accounts and file them at Companies House. This could trigger a tax charge in [Delapage] under the 2006 legislation but we could contend there are no new loans – not an ideal position but the Trustees preserve value this way …”.

On 21^st July 2010, Joseph prepared his list of Removed Assets and proposed adjustments to Mr Thornhill in the form of a report prepared by Deloitte (the “Deloitte Report”).

On 23^rd July 2010, Mr Southworth wrote a lengthy letter to Mr Thornhill complaining about the delays caused by Barry, and saying that it was critical that the Way Forward was brought to a swift conclusion. He urged Mr Thornhill to announce the Lottery and proceed with the demerger as a matter of the utmost urgency.

On 28^th July 2010, Mr Nicholas Pilsbury ("Mr Pilsbury"), a barrister in the Chambers, visited 113 Brent Street at Mr Thornhill’s request, and met Barry who showed him the location of Joseph’s office, but said it was not possible to enter as it was locked and, whilst he had a key, it was at his home. Mr Pilsbury’s note recorded that, looking through the windows, it appeared as if the office had not been used for some time, and was largely empty. Barry told me in his evidence that he had acquired the key again from Mr Thornhill after Joseph had returned to his office in March 2010 and removed his belongings and all information.

On 17^th August 2010, Mr White ultimately sent the Deloitte Report on Removed Assets prepared on behalf of Joseph and Danny to Mr Thornhill. The report concluded that Joseph was due a compensatory adjustment of £18.2 million.

On 24^th August 2010, the Charity Commission opened a statutory inquiry into Delapage under section 8 of the Charities Act 1993.

On 3^rd September 2010, the Charity Commission made an order preventing Delapage from parting with any property or entering into transactions without the written approval of the Charity Commission.

On 7^th September 2010, Mr Thornhill requested Barry to provide details of the Heathrow transaction.

On 7^th September 2010, Mr Thornhill had dinner with Mr White in Manchester. The discussions are recorded in an email from Mr White dated 8^th September 2010.

On 30^th September 2010, Mr Thornhill met Barry and Mr Robinson at the Chambers. The discussions are recorded in an email from Mr Robinson to Mr Thornhill dated 3^rd October 2010.

On 11^th October 2010, Mr Thornhill met Joseph, Danny, Mr White and Mr Southworth at the Chambers.

On 14^th October 2010, Mr Thornhill met Barry and Mr Robinson at the Chambers. The discussions are recorded in a note prepared by Mr Robinson.

In mid-October 2010, Barry delivered a plastic wallet to the Chambers containing documents providing information about the Heathrow transaction.

On 19^th October 2010, the Charity Commissioners appointed Mr Rod Weston of Mazars as an interim manager of Delapage (the “Managers” or “Mazars”).

On 20^th October 2010, the Charity Commissioners wrote to Naomi enclosing its statement of reasons for the appointment of the Managers saying amongst other things:-

“20.

The Charity has entered into a series of substantial unsecured loans with a number of companies owned by Joseph and Naomi Ackerman in their private capacity. The Charity's draft accounts for 2010 indicate that as of 31 March 2010 £74,860,751 has been loaned to the connected property companies …

22.

During June and July 2010, the Commission spoke to each trustee individually and established that the overall prospect of the loans being repaid was not high. To date, this position is maintained by both parties through their advisors …”.

On 20^th October 2010, Mr Thornhill met Mr White at the Chambers. Mr White demanded an immediate publication of Mr Thornhill’s decisions.

On 26^th October 2010, Mr Thornhill sent an email to each side as follows:-

“‘Adjustments proposed by JA

Later on 26^th October 2010, Mr White emailed Joseph’s responses to Mr Thornhill.

On 1^st November 2010, Barry emailed Mr Thornhill, Mazars, Mr Robinson and Mr Berry (but not Joseph or Danny or their advisers) a spreadsheet with details of “the net value of UK companies” showing a total value of £228,222,856. He said that: “[t]his is based on company valuations by Wilder Coe as of 2008 and property values by Joseph in June 2006. The property values have been decreased by 30% save the following companies Vectacase, Ch Chesterford, Regalrose and Downham (Valeberry and Vinehall) (where recent valuation information is deemed material). Wallshire I have reduced by 25% as it is ‘a more mixed portfolio’). I have adopted the value of 30% since commercial values have fallen between 30 - 40% (and on top was a ‘Joseph premium’), residential values between 20 - 30% and land values (development situations) by up to 50% since 2006. In summary the total net value is … -£23.13M. It is important to stress that this excludes Superetto group/ Charity, which adds to the overall deficit position”.

On 2^nd November 2010, Mr Berry sent Mr Thornhill and both sides two summary balance sheets as at 31^st March 2010 for: (i) the UK group including Superetto (showing net assets of £5 million); and (ii) the Delapage group (showing net assets of £118 million). He said this: “[t]hese report property assets at cost and at “value”. Of course, the current value is subjective, and I invite you to amend the revaluation reserve as you see fit, and to agree how this information should be presented to Mazars. The UK group balance sheet does not include investments in non-UK companies as assets (e.g. Regina Estates Ltd’s loan to Rosara). I also attach summaries of secured creditors (i.e. bank loans) split between (i) Superetto, (ii) the rest of the UK group and (iii) Haysport & Twinsectra …”. The UK Group’s balance sheet showed:-

On 3^rd November 2010, Barry emailed Mr Thornhill summarising Naomi’s responses.

On 5^th November 2010, Mr White emailed Mr Robinson saying: “I spoke to Alex Novak [the Managers] – he would be happy to defer loans for 4 or 5 years; but we need to push him on accrued interest and future interest rates- 7.5% is daft and I [think] the accrued interest should be written off. Afterall (sic), if they call in the loans now they will get zero”.

On 10^th November 2010, Mr Thornhill met (a) Mr White and then (b) Barry and Mr Robinson at the Chambers. The latter discussions are recorded in a note prepared by Mr Robinson.

On 17^th November 2010, Mr Thornhill met Barry, Mr Krantz and Mr Robinson. Mr Robinson’s note of the meeting records a number of rough valuations of the Superetto subsidiaries and debts and continues: “[a]ssign UK debt owed to JA Superetto to [Naomi]. … Assign [Joseph’s] Removed Asset debt from [Naomi] (UK group) to [Joseph’s] Superetto. … [Barry] retains management of [Joseph’s] Superetto to avoid assignments being voided or to negotiate with Mazars. … Give each child a cash amount in lieu of equity shares in [Superetto companies]. … [Mr Thornhill] will produce Removed Assets list and lottery result … [Mr Thornhill] to become sole director and change all bank mandates Then release Removed Assets Then obtain disc from [Mr Goldberg]. RED: Mark Studer … Signing of [accounts]”.

On 19^th November 2011, Mr Robinson emailed Mr Thornhill as follows:

“I understand that you are very close to finalising the list of Removed Assets stating the amount of reparation that is required to ensure a fair division of the assets.

It would appear that the net value of the UK companies (taking into account bank, Delapage and Haysport/Twinsectra debt) is around -£23 million i.e. negative.

The value of the UK group including the Superetto companies may be around £3 million.

It may be that if the debts owed by overseas companies to the UK group are taken into account the value of the whole group including Superetto may be negative.

These values assume that deals can be done on the refinancing – without that the group has no value. It is likely that a refinancing will be possible only if the UK group including the Superetto companies is under single ownership.

We agreed the following actions:

• BLP with [Mr Thornhill’s] counsel (Mark Studer) will investigate the possibility of the equity shares of the Superetto companies which are held on trust for the Ackerman siblings being transferred for a cash sum

• the cash sum will probably be the same in each case to ensure that all the beneficiaries are treated equally and fairly (given the unfair way the Superetto companies have been managed to date)

• if the transfer of equity shares for cash is possible then we need to confirm the exact mechanics to effect these transfers

• at the same time it would seem that the full UK group including the Superetto companies will then be transferred to [Naomi] under The Way Forward

• [Mr Thornhill] will obtain disc information from Mr Goldberg

• after the transfers it may be that there will remain Removed Assets which have not been set against the value of the assets transferred to [Naomi] and we agreed that [Naomi] would be free to seek to recover this amount from [Joseph] after the demerger.

To ensure that the steps mentioned above may be effected without requiring any action form (sic) [Joseph] it was agreed that before the announcements are made re the demerger or the Removed assets:

• [Mr Thornhill] will ensure that he is appointed a director of all the Superetto Companies

• [Mr Thornhill] will ensure that [Joseph] and [Naomi] are removed as directors of all the UK companies (except probably the Superetto companies where two directors may be required). Query whether it is necessary to remove [Naomi] as a director if it is clear that she will have to be reappointed to all the companies?

• [Mr Thornhill] to become a director of Focalpoint along with all other companies.

• [Mr Thornhill] will procure that [Joseph] is removed from all bank mandates.

The intention is to complete the demerger by Friday, 10 December 2010”.

On 21^st November 2010, Mr Robinson emailed Mr Ron Downhill, a tax partner at BLP, saying that “[s]et out below is a summary of the matters agreed with [Mr Thornhill] last week”. It was suggested by Joseph, in effect, that this demonstrated that Naomi’s side were calling the shots at this stage. As will later appear, I do not think that was the case. This email, like many similar ones at this time reflected discussions with Mr Thornhill, not conclusions that he had reached. He was still considering precisely what to do in a fluid and complex commercial situation.

On 23^rd November 2010, Mr Thornhill emailed Mr Robinson commenting on his 19^th November 2010 email that he was “finalising the adjustments”, and that he was “speaking to Mark Studer [of counsel – advising Mr Thornhill personally] today. What happens after that may depend on his advice”.

On 23^rd and 24^th November 2010, Mr Thornhill communicated with Mr White and Mr Southworth in relation to Haysport.

On 24^th November 2010, Mr Thornhill emailed Mr Southworth concerning some dealing with Lloyds Bank in which he said “[h]owever, there may be this point. It would have to be the case that Joseph gets the companies that are doing the re-financing. That could depend on what adjustments will be made, a point I am dealing with at the moment, and whether those adjustments are in the form of share transfers. On one view, there is so little equity left in the jointly-owned companies (ex Superetto) that any adjustments against one or other party could lead to substantial transfers to the other”. Both sides relied on this email: Joseph as showing that he had been misled, and Naomi as showing that Joseph was told squarely that adjustments in the form of share transfers were being contemplated.

On 25^th November 2010, Barry emailed Mr Thornhill saying that “we need [Mr Goldberg’s] confirmation that he can provide i) information required from [Joseph], [Danny], Leigh Coleman, Sam Sherrard, [Mrs Glassman] ii) All emails - sent, received and stored from 1 Jan 2008 iii) All property and corporate files/folders in their system”.

On 2^nd December 2010, the Delapage debt was rolled over until the end of 2011, on the basis that rescheduling negotiations with the Managers should be completed by 31^st January 2011.

On 2^nd December 2010, Mr Thornhill met Joseph, Danny, Mr Southworth and Mr White in the Chambers. Mr White’s note of the meeting records the following exchange:

“[Danny] – the interim managers want to use the next three weeks to negotiate the individual loans. 11 loans between the companies – 9 Superetto plus 2/3 others.

[Mr Thornhill] – I’ve not been asked anything by the Interim Managers.

[Danny] – they are in limbo until they know who owns what.

[Mr Thornhill] – Superetto – no argument. Not up for grabs.

[Danny] – set off and netting off of intercompany debts needs to be done.

[Mr Thornhill] - £44m [owed] by the rest of the group.

[Mr Berry] won’t give us the figures because he’s waiting on [Mr Thornhill]

[Joseph’s] Superetto companies are owed £44m.

[Mr Thornhill] – if you take the lottery split as at 31/03/10, the amounts owed are about the same £500,000 difference approx.

As soon as you start having to make adjustments (any adjustments) the position becomes very complicated.

Residential has held up better than commercial.

The complications arise when you deal with the intercompany debt.

[Mr Thornhill] – once you arrive at a figure for net adjustments, how do you give effect to that?

[Mr Thornhill] to speak to the Interim managers directly.

[Danny] – 2 suggestions

1

Whole portfolio revaluation – too expensive.

2

Do it by sampling.

Got some figures – compare and contrast the figures with the lottery figures.

[Mr Thornhill] – I would like to know [Joseph’s] views on this.

[Mr Thornhill] – I agreed that [Joseph] know more about these properties than anyone else. We could re-apply the different yields and multipliers and come up with a new set of figures.

…

Help by [Danny]:-

If [Mr Thornhill] gets up-to-date tenancy info, [Danny] will do the yields etc.

Not going to be challenged by [Barry] at every stage.

[Mr Thornhill] to see what valuations they have”.

On 3^rd December 2010, Mr Robinson emailed Mr Thornhill saying:-

“This e-mail expands on previous emails I have circulated or ideas we have discussed about putting the demerger into effect.

Assumptions

…

•

that [Joseph’s] Removed Assets will exceed the combined value of all the jointly owned Ackerman assets. …

•

that it is agreed that reparations need to be made within the Superetto group to recompense [Naomi’s] family for the fact that the Superetto group has been managed by [Joseph] in a manner which has significantly favoured his family’s interests.

…

On 6^th December 2010, Mr Thornhill met Barry and Mr Robinson, with Mr Berry, in the Chambers. The discussions are recorded in a note prepared by Mr Robinson.

On 7^th December 2010, Naomi issued proceedings against Joseph seeking declaratory relief in relation to a number of allegedly forged documents.

On 8^th December 2010, Mr Thornhill met Mr Berry and Mr Landy in the Chambers. Mr Berry explained that they had discussed Mr Thornhill’s proposal to award all the jointly-owned companies to Naomi and to allow Superetto to receive long-dated debentures as consideration for the shares in the Superetto subsidiaries.

On 13^th December 2010, Mr Thornhill emailed Mazars in relation to the Delapage debt, saying that he had “written a report”, and that the net figure owed by Joseph to Naomi was in the mid-£20 millions. He continued: “I propose to invite [Joseph] and [Danny] to explain how, if they were allocated the companies potentially due to them in the Lottery, they could raise a sum of this order without prejudicing the ability of the companies to repay Delapage. This is Point No 1 to discuss with you”. In this email, Mr Thornhill suggested that Naomi might acquire the Superetto subsidiaries for deferred debentures or preference shares, with the quantum of the sums secured being fixed by an expert.

On 14^th December 2010, Mr Thornhill met Mazars in the absence of Barry. It was this meeting that gave rise to Mr Thornhill’s idea that he might put in place a trust arrangement. His thinking was that a restructuring of the Delapage debt was going to take place. Obviously that restructuring was going to reduce the debt and the interest charge, and that could well have an effect on the value of the Superetto companies and also the jointly owned companies with whom they were so closely linked. Mr Thornhill told me that it occurred to him that “it was premature possibly to attempt to divide the companies without knowing what form that debt restructuring would take. It could have a very fundamental effect on values. So the possibility that went through my mind, and I was assisted by chancery counsel on this, was to put the jointly owned company shares at least into a trust under the terms of which I could then effect a division later once the debt restructuring proposal had fructified. That was the idea but I rejected it in the end for a variety of practical reasons”.

On 14^th December 2010, Mr Thornhill met Barry and Mr Robinson in the Chambers. Mr Robinson’s note records in relation to the demerger: “[Mr Thornhill] has his report which arrives at a sum [Joseph] will not be able to raise this sum from UK proceeds Implement Newco scheme [Naomi] will own and control a Newco with debentures corresponding to Superetto [companies]”. Barry described this proposal as the “preferred option” at that stage, and said that this was the first time that Mr Thornhill had mentioned the possibility of debentures.

On 21^st December 2010, Mr Thornhill met Barry and Mr Robinson in the Chambers. Mr Robinson’s note recorded that it was agreed that Joseph should be removed as a Superetto director, the privately owned properties should be transferred thereafter, Joseph should be removed as a bank signatory and money should be transferred to Naomi.

On 21^st December 2010, BLP prepared a draft letter to Mr Thornhill reminding him of his duty of fairness to Naomi, and saying that he had established that Joseph had removed substantial assets from the Group, the UK property portfolio was in negative equity, and that Naomi could only be fairly compensated by an adjustment that allowed her to receive further compensation from Joseph. The draft letter was never sent.

On 22^nd December 2010, Mr Thornhill met Naomi, Barry and Mr Robinson at BLP with Mr Berry in attendance, to discuss, as Mr Berry put it: “the steps required to put into effect the plans previously outlined to me by [Mr Thornhill]”.

On 24^th December 2010, Mr Thornhill emailed his lawyer, Mr Parker of Sirius, giving him instructions to draft transfers.

On 29^th December 2010, Mr Thornhill telephoned BLP to ask them to draft some further documents.

On 30^th December 2010, Mr Thornhill met Naomi and Barry, Mr Robinson and Mr Berry in the Chambers. Mr Berry made a detailed note of that meeting on the train home. The meeting considered and made amendments to Mr Thornhill’s draft of the Superetto Agreement. The changes included adding provisions designed to ensure that the valuer valued the debentures as at the date of the Superetto Agreement, and removing the long-stop date of 31^st December 2025 for repayment. Point 14 of Mr Berry’s note recorded: “Mr Thornhill] to retain other funds at Sirius [Mr Thornhill’s solicitors] to cover his anticipated legal costs in defending claims by [Joseph] – [Naomi] and [Barry] pledged to cover all such costs”. Mr Thornhill’s evidence was that Naomi and Barry had indeed made such an offer at this meeting, but that it was an offer that was never taken up.

Later on 30^th December 2010, Mr Thornhill met Naomi and Barry, Mr Robinson and Mr Berry at BLP’s office in a meeting that continued until after 10.00 pm at which:-

On 31^st December 2010, Mr Thornhill emailed Joseph and Naomi and their representatives saying that he had taken steps using his power of attorney to achieve the results in his report that was finalised and would be ready for issue on Wednesday 5^th January 2011.

On 4^th January 2011, Mr Thornhill emailed Mr Southworth saying he wanted the Report to reach everyone simultaneously, and that the covering letter would set out what powers had been exercised.

On 4^th January 2011, Mr Southworth emailed Mr Thornhill complaining that he would not tell them what steps had been taken under Joseph’s power of attorney.

On 5^th January 2011, Mr Thornhill issued his Provisional Adjustment Report. He sent it by email to both sides with a covering email saying: “I attach my Report. It embraces a method of settling the disputes between the two sides which is not one I expected to employ when I accepted the job of carrying out the [Agreement]. To make it clear what the current position is, I state the following:- [Naomi] owns the entire issued share capital of [BANA] which has acquired all the jointly-owned companies. [Joseph] is no longer a director of those companies and the bank mandate is in the process of amendment to exclude him and [Danny] as signatories. [BANA] has agreed with [Superetto] to acquire the Superetto subsidiaries. [Joseph] is no longer a director of [Superetto] or its subsidiaries. The consideration for this sale will be the issue of nine debentures each corresponding to one class of share in [Superetto]. The bank mandates of the Superetto subsidiaries are also in the process of change to exclude [Joseph] and [Danny]. [Joseph’s] interest in the jointly-owned properties, Shomrin Nominees and [Loch Tummel] have been transferred to [Joseph] [sic]. It remains for me to in due course to put a value on those transfers and certify how much of [Naomi’s] claim against [Joseph] has been satisfied”.

The Report is reproduced in its entirety in Appendix 1 to this judgment. In the broadest outline, it concluded as follows:-

On 5^th January 2011, Mr White wrote a most intemperate email to Mr Thornhill saying: “I am a total loss as to how you have come to your conclusions. In all my years of professional practice I have never seen such a skewed and biased outcome. … The “outcome” today was beyond my wildest imagination. And your “outcome” today bears no correlation to what you said at our meeting on 2 December 2010 in your Chambers, which I noted down very carefully. And you have not had the courtesy to return a single call to me over the last three weeks …”.

On 10^th January 2011, Eversheds LLP ("Eversheds"), acting for Joseph, wrote to BLP and Mr Thornhill asking each of them that they:-

On 25^th January 2011, BLP responded to Eversheds saying that their client “was engaged in dialogue with Mr Thornhill prior to the finalisation of the Report … in order to ensure that Mr Thornhill was fully appraised of our client’s views”, and saying that Joseph was not entitled to any of the documentation or additional information requested.

On 1^st February 2011, Mr Thornhill responded to Eversheds, not responding to the request for documents, and saying that:-

On 1^st March 2011, Mr Thornhill sent Mr Robinson a draft of a letter he intended to send to Lloyds Bank asking Mr Robinson to fill in the missing items. The letter included: “[it] is highly unlikely, in my view, that further adjustments will be called for”. It was suggested that this demonstrated Mr Thornhill’s unwillingness to contemplate changing his mind during the third stage of the process contemplated by the Agreement. As later appears, I do not think it demonstrated anything of the kind. It was simply something that he was saying to Lloyds Bank to satisfy them that matters were reasonably settled.

On 25^th March 2011, Eversheds sent a letter before action attaching draft Particulars of Claim.

On 18^th April 2011, BLP made a detailed response to the letter before action, including a statement that Naomi was not “given the opportunity of making representations about the conclusions [of the Report] and the manner in which they were to be put into effect”. Barry accepted in evidence that Naomi had had the opportunity to comment on the way that Mr Thornhill’s recommendations were put into effect. Mr Robinson, on the other hand, thought that the sentence was accurate as Naomi had not in fact seen the conclusions in the Report before 5^th January 2011. I am inclined to agree with Mr Robinson’s, admittedly somewhat technical, construction of the letter.

On 18^th April 2011, Mr Thornhill responded saying that he had left all the documents with BLP and had not kept copies.

On 20^th April 2011, the Claim form was issued seeking orders that:-

On 21^st April 2011, the Particulars of Claim were served. At the same time Mr Joseph Ackerman made an application for:-

On 4^th May 2011, Newey J ordered the expedition of the trial and determined the procedural timetable for the claim. Joseph withdrew his application against the Defendants for early disclosure of the documentation that Mr Thornhill had executed on Joseph’s behalf under the power of attorney.

On 27^th May 2011:-

On 15^th June 2011, solicitors for Joseph (who were, by this time, Enyo Law LLP (“Enyo”)) made a Part 18 request for further information from Mr Thornhill, and a separate one against the BLP Defendants.

On 15^th July 2011, Naomi disclosed some transactional documentation together with her Further Information.

On 18^th July 2011, the solicitors for Mr Thornhill (who were, by this time, M&S Solicitors) wrote to Enyo saying that they would not be providing the documents requested under Part 18.

On 12^th August 2011:-

On 28^th September 2011, Joseph applied to amend his Particulars of Claim in respect of allegations made against Mr Thornhill. On 6^th October 2011, Mann J gave directions in relation to Joseph’s amendments to the Particulars of Claim.

In sub-paragraph (1) of the Agreement, the “J&N Companies” are defined within the definition of Joseph as follows:-

“the companies set out in Schedule 1 hereto (which schedule includes Superetto Limited and its subsidiaries (the “Superetto Companies”) and Delapage Limited and its subsidiaries (the “Delapage Companies”)”.

The Recitals to the Agreement provided as follows:-

Clause 1 of the Agreement provided that: “Prior to the announcement of the Lottery in accordance with clause 10 the steps set out in paragraphs 1 to 9 below shall take place.”

Clause 2(a) required Mr Thornhill to: “nominate [Joseph] (and his employees) or [Naomi] (and her employees) to manage particular properties or companies on such terms as [Mr Thornhill] shall direct. Those properties or companies to be managed by [Naomi] shall be known as [Naomi] Companies and those by [Joseph] as [Joseph] Companies. The parties agree that until any announcement under clause 10 by Mr [Thornhill] there shall be no sales, refinancings, relettings or expenditure (in excess of £100K per property) relating to the properties owned by any of the J&N Companies or referred to in Schedule 2 without [Mr Thornhill’s] prior written consent and after consultation (so far as is practicable) between [Naomi], [Barry], [Joseph] and [Danny]. Those Superetto companies in which members of [Naomi’s] and [Joseph’s] respective families have an interest shall be managed by [Naomi] and [Joseph] respectively. The management of these Superetto companies shall require no consultations and, except in relation to sales and refinancings, no prior written consent of [Mr Thornhill].”

Clause 4 provided as follows: “[Joseph], [Naomi], [Barry] and [Danny] shall appoint [Mr Thornhill] their agent or attorney to carry out in their name or names any action or execute any document and generally do all things that [Mr Thornhill] may in his absolute discretion think fit to secure the purposes of this Deed. Such appointment as agent or attorney shall in every case cease at the latest on 31^st December 2010 or earlier if [Mr Thornhill] shall so decide. Any such appointment shall be deemed to be made under the Powers of Attorney Act 1971. The parties shall forthwith sign powers of attorney in the forms annexed to this Deed and cause to be held board meetings of each J&N Company and sign a deed evidencing this in the form annexed to this Deed.”

Clause 7 provided as follows: “In respect of the Delapage Group, such transfers of properties shall be made when [Mr Thornhill] decides either to equalize the values of Haysport and Twinsectra or to make any adjustments that [Mr Thornhill] shall decide (having regard to the Selwyn proposals) should be made in accordance with clause 10 but so that properties held by Haysport shall be transferred to Delapage. If necessary, properties shall be substituted as directed by [Mr Thornhill] to support the letter of guarantee in favour of Lloyds Bank in connection with the NOF Trust to ensure that the charges falls on properties allocated to [Joseph]. The shares in Haysport shall be vested in a transferee charity nominated by [Joseph] or [Naomi] as the case may be depending upon whether Haysport is allocated to [Joseph] or [Naomi]. The Twinsectra loan to Mr Deaner shall carry with it all rights in connection with tuna fishing in the Seychelles.”

Clause 9(A) provided as follows:-

“Messrs Wilder Coe under the instruction of [Mr Thornhill] shall begin the process of:

(a)

Reconciling all bank accounts to the date of this agreement;

(b)

Reconciling all inter-company balances up to the date of this agreement;

(c)

Netting down all inter-company balances so as to produce a net sum due from [Joseph] to [Naomi] or vice versa.

Messrs Wilder Coe shall report solely to [Mr Thornhill] who shall, if practicable within three days of receipt of such information, ensure that [Naomi] and [Joseph] shall be given an opportunity to comment on the calculations of Wilder Coe.”

Clause 9(B) provided as follows:

“(a)

Forthwith after signing this Deed each of [Naomi] and [Joseph] shall inform [Mr Thornhill] of any Removed Assets which they or their interests have benefited from and what adjustments they believe [Mr Thornhill] should make in dividing the Respective Interests between [Naomi] and [Joseph]. [Mr Thornhill] may direct [Naomi] and [Joseph] to exclude such classes of items as he may think fit.

(b)

In addition [Naomi] and [Joseph] may supply [Mr Thornhill] with questions or information requests they would like [Mr Thornhill] to pose to [Joseph]/[Danny] and [Naomi]/[Barry] respectively.

(c)

[Mr Thornhill] shall inform [Naomi] and [Joseph] which adjustments each has proposed and may require [Naomi]/[Barry] and [Joseph]/[Danny] to respond to any questions or information requests he may choose.

(d)

Any question or information request posed by [Mr Thornhill] and any responses shall be in writing and shall be copied to each of [Naomi], [Barry], [Joseph] and [Danny]. All answers shall be provided in full by and shall be signed by the person or persons to whom the question or request was addressed by [Mr Thornhill] within three working days of any request.

(e)

The questions posed by [Mr Thornhill] shall be designed to reveal full details of the Heathrow transaction including details of cash received and to be received and estimated tax. They shall be designed to reveal full details of commissions and other related sums paid (including all sums paid by Neil Holloway of Mulberry) in relation to any company or property comprised in the Respective Interests to any person (including sums paid to a company with the name of Enduring) and full details (including historic information) of all banking arrangements of companies and other entities comprised in the Respective Interests including those with HSBC, ABN Amro and Soc Gen.”

Clause 10 provides for the announcement of the Lottery and adjustments to it:

“(a)

Within such period as [Mr Thornhill] may choose but no later than three months from the execution of this Deed (on the assumption that the parties have promptly taken all steps set out in the preceding clauses) (the “Provisional Adjustment Date”) [Mr Thornhill] shall announce the Lottery together with provisional adjustments to be made between the parties in terms of cash payments, property or share transfers or adjustment of liabilities to achieve fairness or convenience between the parties in regard to the matters raised hitherto by either side or any other matters he thinks fit including the respective contributions of [Joseph] and [Naomi] to the development of the business of the J&N Companies and the Respective Interests and any claims that might lie against [Joseph], [Naomi], [Danny] or [Barry] in relation to the prior conduct of the affairs of the J&N Companies and the Respective Interests or any of them.

(b)

On the Provisional Adjustment Date Mr Thornhill shall deliver to [Naomi] and [Joseph] a report (the “Provisional Adjustment Report”) which shall have attached to it all information and requests arising under clause 9 (B) and shall set out how [Mr Thornhill] has decided to divide the Respective Interests between [Naomi] and [Joseph] setting out what adjustments he has made to the Lottery, his reasons for such adjustments and the information he took into account in arriving at such adjustments.

(c)

In making such adjustments and any further adjustments under this clause [Mr Thornhill] may rely on information provided to him whether provided before or after the occurrence of the Lottery and by whomsoever provided. [Mr Thornhill] may also put questions to any party to confirm or otherwise any information or fact whether previously provided or not. [Mr Thornhill] shall be at liberty in the light in particular of any answers or lack of answers to questions to revise adjustments or make fresh adjustments at any time up to one year after the Provisional Adjustment Date. Such date shall be certified by [Mr Thornhill] and is referred to in the remainder of this Deed as the End Date. Within 14 days of the End Date [Mr Thornhill] shall deliver to [Naomi] and [Joseph] a report (the “Final Adjustment Report”) which shall have attached to it all the information and requests and any answers sent out by or received by [Mr Thornhill] between the Provisional Adjustment Date and the End Date and shall set out any further adjustments since the Provisional Adjustment Date that [Mr Thornhill] has decided are necessary, his reasons for such adjustments and the information he took into account in arriving at such adjustments.

(d)

Until the End Date the parties shall be obliged to provide answers in accordance with Clause 9 (B) (d) and (e). The parties shall also be obliged to give effect to any adjustments or revised adjustments made by [Mr Thornhill] as [Mr Thornhill] may direct at or in any event by the End Date. Copies of all questions put by [Mr Thornhill] to any party and copies of their written responses will be copied to all parties.”

Clause 11 provided as follows:-

Clause 12(A) provides:-

“Subject to Clause 12(C), notwithstanding any other provision to this Deed the parties shall be free after the End Date to pursue any remedy they choose against any other party or person:

(a)

in respect of any information which would have been relevant for [Mr Thornhill] to consider in accordance with the principles set out in the Recitals and which was not taken into account by [Mr Thornhill] in the Provisional Adjustment Report when making any adjustments under Clause 10 unless such information was taken into account by [Mr Thornhill] in the Final Adjustment Report and provided any relating adjustment (if required) has been effected in full or

(b)

to the extent any information which had been taken into account by [Mr Thornhill] in the Provisional Adjustment Report or the Final Adjustment Report when making any adjustments under clause 10 was inaccurate or untrue but so that prior to the production of the Provisional Adjustment Report or Final Adjustment Report [Mr Thornhill] shall publish a full list of all facts found by him relevant to the conclusions of the Reports and shall give all parties who have provided answers at least seven days to consider whether their answers are accurate and true; or

(c)

in respect of any conduct of the affairs of any J&N Company occurring after, in the first instance, 1^st January 2002 but earlier if [Mr Thornhill] so decides by [Joseph] or [Danny] not disclosed in writing to [Naomi] and [Barry] or by [Naomi] or [Barry] not disclosed in writing to [Joseph] and [Danny] prior to the End Date (other than any conduct which amounts to no more than poor management or relates solely to the commercial judgment or the non-participation in management of any person) which conduct has resulted in Removed Assets not already comprehended in information referred to in (a) and (b) above or otherwise caused depletion in the assets of any J&N Company which prevents any division of assets being fair.”

Clause 14 provided that: “[Mr Thornhill] shall determine the form of the division of assets and shall arrange for it to be carried out”.

Clause 15 provided as follows: “All matters not specifically catered for relating to the Lottery and division of assets or any other matter referred to in this Deed shall be determined by [Mr Thornhill] who may seek the views of the parties and their advisors but whose decision shall be final”.

Clause 16 provided as follows:-

“the cost of the Lottery and division of assets including those of [Mr Thornhill] but excluding the costs of those advising either side shall be borne equally or as [Mr Thornhill] directs.

(a)

Each party hereto agrees to carry out any instruction of [Mr Thornhill] given pursuant to this document;

(b)

If either [Joseph] and/or [Danny] or [Naomi] and/or [Barry] fails to carry out any instructions from [Mr Thornhill], they may forfeit any right to adjustments under clause 10 above in their favour whether in whole or in part in the absolute discretion of [Mr Thornhill];

(c)

In consideration of [Mr Thornhill] acting under this Deed, either [Joseph] and [Danny] and [Naomi] and [Barry] agree to indemnify and hold harmless [Mr Thornhill] against any liability, in the case of [Joseph] and [Danny],to [Joseph], [Danny] or their respective spouses, children or their spouses or grand-children, and in the case of [Naomi] and [Barry], to[Naomi], [Barry] or their respective spouses, children or their spouses or grand-children, whatsoever arising out of the performance or non-performance of his functions hereunder”.

The Superetto Agreement was entered into between Superetto and BANA whereby Superetto sold its 9 subsidiaries to BANA in consideration of the issue by BANA of nine debentures. Clause 2 of the Superetto Agreement provides as follows:-

“a.

The parties hereby appoint [Mr Berry] of Wilder Coe or such other person as the parties shall approve to be the valuer of the Sale Shares for the purposes of this clause 2 (the “Valuer”)

b.

The Valuer shall place a value on each company whose shares comprise the Sale Shares, such value to represent the value of each company as at the date of this agreement taking into account only matters known at the date of this agreement, such value also to take into account (1) any adjustments communicated to the Valuer in writing by [Mr Thornhill] and consequent upon the report made by Mr Thornhill pursuant to the [Agreement]; (2) the current market value of any properties owned by the company in question; (3) the likely ability of any debtors of the company in question as at the date of this agreement to repay any debts; and (4) the likely present value of any liabilities of the company in question.

c.

The Valuer shall then make such adjustment as he thinks fit to reflect: (1) the deferral of the redemption of the debentures until a date which shall be not later than three years after repayment by Newco and all of its 100 per cent subsidiaries of all debts owed to [Delapage] or any subsidiary of [Delapage] fixed by him; (2) the fact that the Sale Debentures shall carry no interest; and (3) any other matters that he shall in his sole discretion think fit

d.

the Valuer shall communicate his decision to the parties by not later than 31^st March 2011 whereupon the Purchaser shall forthwith allot and issue the Sale Debentures”.

The Property Deed dated 30^th December 2010 was entered into between Naomi and Joseph in respect of “various properties” provided in clause 3.2 that “[Mr Thornhill] shall cause to be carried out an independent valuation of the beneficial interests of [Joseph] in each of the Jointly Owned Properties, 44 Holden Road and Great Cumberland Place within a period of not more than twenty one days after the date of this Deed and having due regard to the valuation shall determine the amount of the consideration for the assignment and transfer effected by clause 2.1 above such determination to be in writing and to be provided to the parties to this Deed and in the event of failure so to determine for any reason the gross values attributable to each of the Jointly Owned Properties, 44 Holden Road and Great Cumberland Place … shall be the gross values provisionally allocated to each such property as set out in the Schedules to this Deed …”.

Recital 2.5 of the Property Deed provided that: “The determination of [Mr Thornhill] is that [Joseph] is indebted to [Naomi] in an amount which exceeds the extent of his beneficial interests in the Jointly Owned Properties, 44 Holden Road and Great Cumberland Place …”.

Since the Report, Barry and Mr Thornhill have continued to negotiate with the Managers and have reached Heads of Terms (the “Heads of Terms”) that were produced during Barry’s evidence. These Heads of Terms have been agreed in principle but not executed, because the Charity Commissioners are intending to apply to the Chancery Division for their approval before entering into them. The recital to the Heads of Terms indicates that Delapage is owed £75 million plus interest of £22.5 million, and that Delapage has assigned some £73 million of that loan and corresponding interest to Haysport and Twinsectra.

The parties to the Heads of Terms are Delapage, Haysport and Twinsectra, Naomi, Barry, Mr Thornhill, BANA and Morgan Management Limited (a management company owned by Barry and Naomi). The Heads of Terms provide for the rescheduling of the £95.5 million owed by the Group companies to Delapage so that £45.5 million will be waived and £50 million will be restructured into 8 loan notes owed to Haysport and Twinsectra and repayable on fixed dates between 31^st December 2016 and 31^st December 2026 with interest at 2.5% until 2017, 5% until 2022, and thereafter at base rate plus 1.75%, but not less than 5% nor more than 7.5%.

Clause 3.1.2 is a permitted dividend provision that provides that until repayment of the loans from the charity: “no dividends will be paid by [BANA], apart from a dividend equal to 10% of any repayment of the New Charitable Loan in that year (“Permitted Dividend”) or all or part of any unpaid Permitted Dividend”.

Clause 3.1.3 provides that until repayment of the loans from the charity: “the Ackerman family [not defined] will retain 100% ownership and control of [BANA], the Treasury Co. [to be owned by BANA] and the UK companies”.

The parties agreed a list of issues in advance of the trial, but as the evidence developed, it became apparent that those issues were more extensive and less focused than they might have been. After the evidence, Mr Neil Kitchener QC, counsel for Joseph, submitted a substantially revised list raising the points upon which he wished to concentrate. I have made some minor further amendments to the list, which now identifies the following issues for determination:-

Issue 1: Is Mr Thornhill the final arbiter of the true construction of the Agreement?

Issue 2: Questions of Construction:-

Issue 3: Did Mr Thornhill breach the Agreement by:-

Issue 4: Under issue 3(iv) and (v) above, did Mr Thornhill act unfairly or improperly by:-

Issue 5: In all the circumstances of the case, is Mr Thornhill guilty of bias and/or collusion?

Issue 6: Are any breaches of the Agreement material?

Issue 7: If so, what are the consequences for the Agreement? Should the decision be remitted back to Mr Thornhill for a fresh decision?

Issue 8: Is Joseph excluded from relying upon any breaches of the Agreement by reason of estoppel or the Alghussein principle?

Before dealing with these issues, I will summarise some of the more important parts of the oral evidence that was called at the trial.

Mr Southworth became a partner in Eversheds in October 2010. Before that, he was a partner in Hill Dickinson LLP from January 2007. He acted for Joseph between the end of 2007 and when Enyo took over as Joseph’s solicitors in this litigation. He disclosed in chief that he was being compensated by Joseph for his time spent in preparing to give, and giving, evidence at the rate of £320 per hour capped at £18,000. I noticed, however, that he was in court through the majority of the days of the trial.

This dispute has generated large numbers of documents. Mr Southworth gave me the impression that, in preparing to give evidence, he had been content to refresh his memory from those documents selected by Joseph’s current solicitors for that purpose. He does not seem to have made any independent attempt to reconstruct the events about which he was speaking. This approach had a significant effect on his evidence. It meant that his statement read more as an exposition of Joseph’s case rather than a genuine attempt to explain his recollections about what occurred.

When cross-examined, Mr Southworth was constrained to accept on several occasions that criticisms he had made, expressly or impliedly, of Mr Thornhill’s conduct, were inaccurate or over-stated. To his credit, he was generally willing freely to accept this, once the documents were shown to him, but it meant that I found it difficult to place very much reliance on what he told me save where it was corroborated by the documentary record. The opinions he expressed were based on Joseph’s “instructions”, and his criticisms of Mr Thornhill were generally similarly influenced.

It is perhaps worth giving a few specific examples. Mr Southworth amended his original signed statement in chief so as to withdraw the allegation that Mr Thornhill “had clearly intended to give” him the impression in January 2010 that he was not aware of the Loch Tummel dividend to an allegation that he “gave” him that impression. But the passages in Mr Southworth’s statement as a whole are drafted so as to make it look as if it is obvious that Mr Thornhill had lied about what he knew about the Loch Tummel dividend in January 2010. This alleged lie is just an inference or reconstruction from looking later at the documentary record. Both sides knew that the Loch Tummel monies were being used to satisfy Barclays’ need for cash. A dividend was discussed, and it looks from documents in April 2009 as if Mr Thornhill was told at that stage that a dividend had been declared. But that does not mean that Mr Thornhill lied to Mr Southworth when he said he did not know that in January 2009. Mr Thornhill’s explanation has to be evaluated – something that Mr Southworth cannot say much about. Joseph was in no way prejudiced by the treatment which was fully accounted for in the Report. The episode provides an example of how Mr Southworth allowed himself to be used to support allegations that Joseph wished to make.

When asked about valuations, Mr Southworth reluctantly accepted that he knew that valuations had been agreed for the purposes of the Lottery, but said they had not been agreed for the de-merger and the allocation of assets, and that it was his understanding that Mr Thornhill had to reach a view as to values and that was a matter for him. Ultimately, he accepted that everyone knew that valuations would be a very expensive and lengthy exercise, which would take more than 3 months to undertake, and was not envisaged as being appropriate before the Report. When Mr Southworth insisted, as he did in the correspondence I have highlighted, on his speedy timetable, he had not factored in the need for any valuations. Taken against this background, paragraphs 37 and 38 of Mr Southworth’s witness statement, which criticise Mr Thornhill for “[coming] to a view as to values in the way that he did”, for failing to consult on valuations, and “considering [Naomi’s] side’s position on valuations” were unfair and imbalanced. In my judgment, everyone knew that the purpose of the 12 month period between the provisional Report and the Final Report was intended to allow time for appropriate valuations to be obtained.

At the end of paragraph 35 of Mr Southworth’s statement he said that he and Mr White had been misled by Mr Thornhill about the discussions he had had with the Charity Commission over the repayment of Twinsectra and Haysport’s £5 million letter of credit exposure to Lloyds Bank. The suggestion was that this had taken place on 2^nd March 2010. But Mr Southworth had to accept that Mr Thornhill’s direction headed “Other Matters” sent on 19^th May 2010 was completely transparent in saying that the burden should fall on Joseph, and that the same point had been made in clause 7 of the Agreement. In my judgment, Mr Southworth’s criticism of Mr Thornhill was, once again, misplaced, and, perhaps more importantly, partisan.

A large part of Mr Southworth’s cross-examination by Mr John Wardell QC, counsel for the BLP Defendants, was devoted to showing that Mr Southworth’s criticisms of Mr Thornhill concerning the lock-out and the preservation of privilege, privacy and confidentiality of Joseph’s documents were misplaced. Mr Southworth’s statement alleged that Mr Thornhill failed to put in place effective safeguards, and that he “took no steps, notwithstanding my requests and those of others on [Joseph’s] side, to put in place measures to protect the privacy of [Joseph’s] documents and computer records at 113 Brent Street, but instead allowed [Barry] to retain control over them”. These allegations were unfounded and misplaced. I shall not lengthen this judgment by going through all the voluminous documentation that shows this to be the case. Mr Southworth had plainly not done so before he signed his statement. Ultimately Mr Southworth admitted that he had no first hand knowledge of any of Joseph’s privileged documents being accessed by the other side, and that his real criticism was that Mr Thornhill could have taken more decisive steps himself to ensure that it was not possible for other people to access Joseph’s privileged documents. I do not even accept that much reduced criticism.

Mr Southworth was cross-examined about his email dated 14^th May 2010 in which he accused Mr Thornhill of blackmailing Danny and Joseph in relation to the vexed question of access to computers and documents. He told me that he regretted the use of the term blackmail, which he had not intended in the criminal sense. In this context he accepted that he was being asked to write robust correspondence and that Joseph sometimes approved his emails in draft. He expressed the view that neither he nor Joseph was seeking to bully or intimidate Mr Thornhill. I do not agree. I regard it as quite irresponsible for a solicitor to accuse leading counsel of a criminal offence with such apparent indifference. It is quite clear to me that Mr Southworth was inappropriately influenced by his client in doing so, and that Joseph was certainly intent upon intimidating Mr Thornhill, even if Mr Southworth was not.

A dispute developed in Mr Southworth’s evidence about whether his note of the 2^nd December 2010 meeting with Mr Thornhill had accurately recorded Mr Thornhill as having said that the Superetto companies were not up for grabs. I do not think Mr Southworth had any real recollection of the meeting and was giving evidence entirely on the basis of what he had written. Mr Thornhill may well have used the words “up for grabs” in the course of a lengthy 4 hour meeting. But Mr Southworth’s evidence did not help me to resolve the question of whether he said or was understood as meaning that the Superetto companies would not be involved in the adjustments to be made in the Report.

Danny has a degree in accounting and finance and a MA in property valuation and law. He has been involved in the Ackerman Group since August 2003. He married Chava Ackerman in 1990 and they have 7 children varying in age between 1 and 19 years.

Large parts of Danny’s two witness statements and of his cross-examination by Mr Wardell were not strictly relevant to the real issues between the parties, but provided some useful background.

Danny’s evidence consisted largely of a defence of Joseph’s position. It is perhaps unfortunate that Joseph was not himself called to explain his own position. On many occasions, Danny was forced to admit that what he was saying was what he had been told by or understood from Joseph. In closing, Mr Kitchener sought to explain Joseph’s absence by suggesting that it would have made future reconciliation between these warring parties more, not less, difficult, had Joseph given evidence or attended the trial. Be that as it may, it seems to me that, where serious allegations against professional people are being made, it is preferable for the person actually making the allegations to support them in evidence, rather than sending someone with second hand knowledge to do so.

My overall impression of Danny was coloured by his obvious desire to defend or at least explain everything that Joseph had done. I formed the view that, at times, he himself did not truly believe that what had happened was defensible, but he felt obliged to defend it. A good example occurred at the start of his evidence when he was asked about Joseph’s use of Naomi’s equity in the Ackerman Group for his new investments. He was shown the correspondence that I have set out above between the 15^th February 2006 meeting and Barry’s 24^th March 2006 memorandum to Joseph and asked: “[w]hat right does Joseph have to use Naomi's equity to invest in ventures on his own behalf in which she is going to get no benefit or uplift, without her agreement?” He replied: “[t]hat’s what she agreed to at the meeting”, which was an extraordinary response in the face of the correspondence making it clear that Naomi would only consent to the use of her capital on agreed conditions. His hopeless attempted justification for what Joseph had done was that he and Naomi might have spoken thereafter, and that Joseph did not agree with what Naomi and Barry had written. Even after BLP’s letter of 16^th October 2006 (set out above), withdrawing any consent Naomi might have given, was put to Danny, Danny persisted in saying that Naomi had consented to Joseph taking some £11 million from a group company called Wallshire at a meeting they had had, and he had not attended, in September/ October 2006. I found that evidence impossible to accept.

When BLP’s letter to Joseph dated 25^th June 2007 complaining about Joseph’s refusal to provide any information to Naomi was put to Danny, and he was asked why he and Joseph were stonewalling Naomi, he replied: “[t]here was a huge volume of information readily available to Mrs Ackerman that, as far as we know, she didn't even bother to have a look at that information. She had complete access to the accountants and she didn't speak to them either”. I found that answer extraordinary in the light of the documentary record.

On the second day of his evidence, Danny was cross-examined extensively about his approach to the provision of information to Mr Thornhill. In essence, Danny’s position was that Joseph was entirely justified in withholding the emails and other information required by Mr Thornhill as to the companies and properties because of the lock-out, and because Mr Thornhill would not return the computer disk allegedly containing some private and privileged information belonging to Joseph and Danny and Mrs Glassman, until the information that he (Mr Thornhill) required was provided. On several occasions, Mr Thornhill directed Joseph and Danny to provide that information, and Joseph refused it point blank. I have no doubt that Joseph and Danny were adopting an unreasonable position, even if they were justified in complaining about the removal of the private and confidential material. As a result of their approach, they slowed down the de-merger process by many months.

It is plain to me that, throughout the de-merger process, Joseph and Danny tried to ensure that information was not provided openly or timeously to Naomi and Barry about the transactions they were engaged upon. I am not certain whether they were refusing information because, as they saw it, they were engaged in dishonest transactions, or because they had such disrespect and personal dislike of Naomi and Barry that they wanted to do anything they could to upset them, or because they wanted to slow down or scupper the de-merger process entirely. It probably is not crucial to the issues I have to decide. During Danny’s cross-examination, there were numerous further occasions upon which it was put to him that information had been withheld or concealed. His answers were evasive and unreliable. I am entirely satisfied that Joseph and Danny deliberately withheld information from Naomi and Barry and made it impossible for Naomi properly to perform her director’s duties, and that their campaign continued throughout the process that Mr Thornhill undertook.

Danny tried to explain some of his more outrageous emails refusing information and meetings by saying that he accepted that his “tone in emails is somewhat more emotive than others might be, but that's the way I am”. I do not accept that explanation. The truth is that Danny, on Joseph’s behalf, was intent on carrying out Joseph’s objective of getting his own way by bullying Naomi and Barry throughout this sorry process. I found it hard to form a clear view, without seeing Joseph, on whether his true motive was to bully Naomi into giving up the idea of a de-merger so that he could run the business his own way as he always had. But in the end, his motive is probably less important than his actions. I am satisfied that Joseph’s and Danny’s conduct towards Barry and Naomi in the de-merger process was wholly unreasonable and obstructive.

Various specific examples of Joseph and Danny extracting assets from the Group were put to Danny (e.g. the Vidas/Adlergrove transaction and the insurance commissions). As in other parts of his evidence, Danny always defended whatever Joseph had done. It does not seem to me, however, that I need to reach any conclusions on these individual transactions, which formed part of Mr Thornhill’s substantive determination. It is common ground that I am not being asked to consider those findings.

Danny was asked about the management allocation directed by Mr Thornhill in October 2009, and varied, after Joseph’s complaints, in January 2010. In my judgment, there was no proper basis for Danny alleging at paragraph 56 of his first statement that Mr Thornhill had agreed early on with Naomi’s side that that they would be given the management of the bulk of the group.

Danny was asked about the Lloyd’s debt of £5 million referred to in clause 7 of the Agreement. His answers were very revealing. They were as follows:

“Q [ Mr Wardell]. There was no security at all given to the charity, was there, in respect of this line of credit that they were having to secure by their properties? They were given no security at all over the NOF Trust assets?

A [Danny]. No, they were given a charge and there was a full expectation that they would benefit from it in other ways.

Q. They were not given a charge over Rosara, were they, or Liberty 1? I don't recall the charity having any rights vis-a-vis NOF Trust, it was all one-way?

A. As I said, it received a fee for its involvement and there was an expectation that it would prosper from the results of that portfolio as well, as had the charity in the case of all the Ackerman companies over the last 34 years.

MR JUSTICE VOS: Was the charity given a charge or not, Danny?

A. No, no.

MR JUSTICE VOS: You just said it was.

A. I apologise. I meant it received a fee.

MR WARDELL: It had no right to benefit in the event of the offshore entity doing well; all that the charity did was expose itself to a liability of 5 million.

A. We are talking about the charitable subsidiaries as commercial entities. They received a fee as recommended by external accountants for it and there was every expectation, as with any lending from Delapage to any of the Ackerman group companies, that they would receive either a donation or they would benefit in some respect from the uplift that the Rosara or the Liberty 1 properties would do.

Q. What was the fee?

A. It is in the correspondence. I can't remember. It is a percentage of the sum advanced.

Q. And that was never paid, was it?

A. I believe not, no”.

These answers demonstrate, I regret to say, that Danny has little or no grasp of the difference between truth and falsehood. Another example is also equally revealing. It was put to Danny that Joseph was not protecting the interests of the charity when he arranged massive borrowings from Delapage. He replied that: “No, in the 34 years before that, interest had never been missed until [Naomi] refused to pay it in March 2008, no debt had ever forgiven [sic], and Delapage had grown from a charity formed by Jack and his brother Joseph from nothing to a point where it had £80 million worth of assets. I don't think for one second [Joseph] put his own interests in front of those of the charity and he recognised he didn’t own the charity, he was merely there to manage the charity's affairs”. What Danny and Joseph seem to have failed to understand is that, just because you are responsible for giving large sums to charity over many years, does not give you any right to take it back again when your business falls on hard times, even by way of loans. That misunderstanding seems to have been at the heart of Joseph’s approach to running the Group.

Danny was unable to add anything substantive to Mr Southworth’s evidence on Loch Tummel. Danny complained that Mr Thornhill had refused to pay Joseph’s tax on the dividend immediately on 31^st January 2010, but only paid it on 1^st June 2010. I cannot see that that delay has any bearing on whether or not Mr Thornhill misled Danny or Joseph. As appears below, I do not think he did.

Like Mr Southworth, Danny was asked about the Lottery valuations. He accepted that the Agreement did not require Mr Thornhill to obtain 3^rd party valuations before announcing the Lottery results. His point was that he expected Mr Thornhill to announce the results, and then obtain valuations before carrying through the adjustments recommended in the Report. I do not accept that this is what Danny expected, since there is nothing in the Agreement to support the expectation, and nothing in the contemporaneous documentation to support it either. Neither Joseph nor Danny ever sought to make any representations to Mr Thornhill as to valuations before the Report. Even when they were asked by Mr Berry on 2^nd November 2010 for their comments on his valuations that he was presenting to Mazars, Danny did not respond. As Danny told me in relation to the 3^rd party valuations that Mr Thornhill had received from Lloyds: “I was content that Mr Thornhill had been given external advice from the banks and that’s what he would more than likely follow”.

Danny helpfully accepted that Joseph had removed or used a total of £20.74 million, and that the market had fallen between 2006 and 2010. His point here was that the commercial market had fallen more than the domestic market, and that there remained value in the portfolio, despite the massive debt by which it was affected. On Barry’s analysis, the Group’s difficulties were occasioned by the inter-company debts.

Mr Andrew Onslow QC, counsel for Mr Thornhill, put to Danny the numerous serious allegations that Joseph and he had levelled at Mr Thornhill, and suggested that Joseph ought to have attended court to stand behind the allegations. Danny said that Joseph “feels that his position can be put over adequately and completely by Mr Southworth and myself”. I cannot help but say that I found that answer remarkable.

Danny also gave evidence about his recollection of Mr Thornhill saying that the Superetto companies were not “up for grabs” at the 2^nd December 2010 meeting. Danny said that he had an actual recollection of those words being used, and of their context. I do not accept that he had any such recollection. There was no mention of that recollection until the witness statements were served. It did not appear in the letters before action or the pleadings. And paragraph 94g of Danny’s statement refers to the fact that Mr Southworth’s notes record: “ART – Superetto – No argument not up for grabs”.

Danny accepted in the course of his evidence that neither he nor Joseph had asked Mr Thornhill in the time leading up to the Report what company and property transfers Naomi was proposing.

Barry is a chartered surveyor by profession. He worked for Savills for a number of years after he graduated in 1993, and in 2001 started working for the Ackerman Group 2 days per week at the request of Naomi, whilst continuing to work the other 3 days for Savills.

Barry’s relationship with Joseph turned sour when, in about 2004 or 2005, he questioned Joseph’s policy of gift-aiding the profit made in various Group companies to Delapage as a means of avoiding tax, and later questioned Joseph and Danny’s desire to become involved in high value transactions like the New Liberty portfolio.

Barry’s evidence was not universally impressive. He undoubtedly feigned to have no recollection of relatively recent events, which must have been of great importance to him. The prime example is when he was asked, in effect, why BLP had, after the Report, refused to provide Joseph with the documents that had been executed pursuant to Mr Thornhill’s power of attorney. He repeatedly denied having any recollection of these events and said: “I was only interested at that time in the business. There were an enormous amount of problems and I left the legal information to BLP to deal with. I was only interested in protecting the business. They were very difficult times”. I cannot accept this explanation. Barry was, in my judgment, being deliberately evasive. He must have been instrumental in the decision to refuse the documentation to Joseph’s solicitors.

Barry was cross-examined by Mr Kitchener on a number of documents that it was suggested showed that he knew what Mr Thornhill was going to direct before he did so – in other words to show that Mr Thornhill was in league with Naomi’s side. I broadly accept Barry’s response to these documents which was to say that they represented discussions with Mr Thornhill, not any communication of his final decisions. Barry accepted that the position changed considerably when Mazars were appointed by the Charity Commissioners on 19^th October 2010. I took the following exchange to be truthful:-

“Q. It is the appointment of the interim managers, is it, that prompted the consideration that we heard about earlier this morning of pulling out of the way forward agreement?

A. Not necessarily, no. It was Mr Thornhill not making a decision and this continued delay and I was absolutely petrified that Mazars would step in, and they still can step in as we speak today, and take over the entire business and the demerger would be over”.

The crucial question is, however, what happened between 19^th October 2010 and the Report on 5^th January 2011. Barry’s evidence, which I broadly accept, was that he and Mr Robinson were pushing Mr Thornhill in the direction of the solution he eventually adopted, but that nothing was decided until the end. The documents may put the matter as if things had been agreed with Mr Thornhill, but Barry said and I accept that he thought Joseph would have had the same opportunity as his side had to make their views known and that nothing was decided by Mr Thornhill until the Report or at least the finalisation of the transfer documentation. I accept also that Barry was very focussed on the negotiations with Mazars, since he regarded the rescheduling of the debts due to Delapage as crucial to the Group’s survival. Barry was acutely aware of the fact that Mazars could bring the Group down at any moment, thus sweeping away the demerger at a stroke. He said that Mazars did not want any equity extracted from the Group until the charity debt had been repaid.

As regards the Superetto Agreement, Barry accepted that it was a document that was produced as the result of discussions between Mr Robinson and himself on behalf of Naomi and Mr Thornhill. He said that Mr Thornhill nonetheless completed the document as he saw fit. He accepted that Naomi had a veto over the identity of the valuer to be appointed under clause 2 of the Superetto Agreement. In fact, Mr Eric Charles of Citroen Wells (“Mr Charles”) had been appointed to fulfil that role, when Mr Berry declined it.

Barry was cross-examined about the Heads of Terms to be entered into with the Managers. Barry was plainly intimately involved in its negotiation. Barry was asked about the permitted dividend provision in clause 3.1.2, which allows 10% of any repayment of the outstanding loan to be paid out ahead of the Superetto debentures. He said that that provision was a “performance management fee” which was intended to incentivise early repayment, but rejected the idea that it was a mechanism to benefit Naomi’s side at the expense of the Superetto beneficiaries. Barry rejected the idea that he could not differentiate between Mr Thornhill’s role under the Agreement and his role as an adviser to Naomi’s side. Barry said that the gross rental income of the Group was around £26 million per annum.

Barry was asked about the letter dated 21^st December 2010 that BLP drafted to send to Mr Thornhill. He denied that the letter showed that they knew what Mr Thornhill was going to do, and that it was written because Barry was concerned that Naomi would not be able to bankrupt Joseph unless a cash payment was ordered.

In relation to the vexed question of Joseph’s privileged and private emails, I found Barry’s approach to have been far more pragmatic than Danny’s. He thought that he needed the companies’ documentation to run the companies, and that it should have been provided. He did not want, and I accept he did not make use of, any of Joseph’s privileged material at any stage.

Barry was asked numerous questions about the property valuations that he put forward to Mr Thornhill on 1^st November 2010. His view, which I accept, was that it was always understood that formal valuations would take place after the provisional Report and before the Final Report, but what was being suggested to him was that he had deliberately under-stated the values of the Group’s properties so as to make it appear that the Group was even less solvent than it truly was. No expert evidence was called, and I cannot therefore sensibly decide whether Barry’s valuations or those of Mr Bill Croudace (“Mr Croudace”) of Lloyds Bank (also provided on 1^st November 2010) are to be preferred. In any event, though Barry’s figures were lower, the differences are probably not very material, though I am sure that in making his estimations of value, he was erring on the cautious side. He has probably only been vindicated in comparison with more recent valuations by the continuing economic downturn during 2011. Barry indicated in his evidence that, within the previous 2 weeks, Mr Jacob Kut (“Mr Kut”) of GVA Grimley had been appointed to value the jointly-owned properties under clause 3.2 of the Property Deed.

In relation to the Loch Tummel dividend, Barry was cross-examined by both Mr Onslow and Mr Kitchener. Barry’s statement said that Mr Thornhill was “of course aware that a dividend of [Joseph’s] had been paid into the Barclays account”, but in answer to Mr Onslow he said that he could not recollect any of the content of the conversation with Mr Thornhill on the afternoon of the 5^th March 2009 in which he obtained Mr Thornhill’s approval for the transaction. I have little doubt that what occurred was a simple misunderstanding. Barry thought that Mr Thornhill was happy for him to declare a dividend in Loch Tummel and to use Joseph’s dividend to pay £2 million to Barclays, but Mr Thornhill may well have thought, or at least later remembered, that the money had simply been a loan from the proceeds of sale of the Heathrow property. Barry did not tell Joseph that the dividend had been paid because of the information stand-off, whereby Barry would not tell Joseph and Danny anything until Joseph and Danny disclosed the information Barry thought he was entitled to be given.

Naomi was a plain-speaking witness. Her position was that she had delegated everything to Barry, who told her what she needed to know at various intervals. She accepted that she discussed matters with Barry, but denied reading any emails concerned with the demerger that were copied also to Barry, and denied much recollection of any meetings or discussions, even the crucial meetings that she had attended on 30^th December 2010.

A few passages of her evidence explain clearly her thinking about the de-merger. When it was put to her that she must have been comforted by the reference in Mr Robinson’s 1^st October 2010 email to Mr Thornhill’s intimation that Naomi would receive the UK companies, she said: “[i]t wasn’t any comfort for me at all. To be honest with you, I was uneasy about the whole thing from the beginning because I knew that Mr Thornhill was very close with Joseph and anything could happen at any time. I wasn't assured of anything at all”.

When Naomi was asked about whether Joseph was entitled to a salary adjustment of £11 million for his work in the Group, she said this: “[w]hen my husband died we had an understanding, both Joseph and myself. He didn't want me to demerge. He wanted to keep the business as a whole. He also wanted to run that business without any interference, that means my bringing in someone from my side. I agreed to it because of course it helped me at the time. He did it from the commercial point of view and I did it from my family's point of view, but we did have an understanding that he was going to work, since he was using my assets, on a 50/50 basis for both families. So now you are asking me if he is entitled to 11 million for working in the business. What am I entitled to for his growing as he grew and as the company grew and he was getting benefit from it as well as I was and he was using my assets at the time? As far as I'm concerned, I don't think he is entitled to the 11 million, not under the understanding that we had and not for the mere fact that he was using my assets to let himself grow as well and that is why the business could grow, as it had done, to a very large portfolio because there was a whole and not a half a business to begin with”.

When questioned hard about whether she was not very pleased about receiving all the properties and companies, she explained her muted reaction in this way: “[t]here was a very big mess here, and we owed the charity, I think it was close to 100 million, so from how Barry explained it to me, this company was a worthless company, but with a lot of work, and he said it would take about 18 to 20 years, if he was lucky and he had the opportunity, he would be able to pay back the charity, keep the banks happy, and if it was possible, at the end of the day, you could turn this around, and I think he is entitled to that”.

Naomi was then asked about her understanding of what was happening under the Superetto Agreement. Her response was as follows: “I was hoping there would be some value in it at the end of the day, somewhere along the line, because what I was told was that the Delapage charity was lending money --this is how I understood it -- to the Superetto at a certain percentage, and then the Superetto -- I would like to say, at the time, [Joseph] was warned to keep Superetto separate, because they were the children’s trusts, and I was very happy with that. I thought each of them would have a nest egg at the end of the day, but what he decided to do was to incorporate the whole Superetto group in with the UK companies, and that put the Superetto group at risk, and if you really care about children's charities, you don’t do that, you do keep it out of the group”.

When Naomi was asked if she thought what Joseph was making of her being given the Group, she gave a clear insight into her thoughts as follows: “I wasn’t interested what Joseph was making of all of this. I have to be honest with you, I wiped my hands of Joseph. I never talked about him”.

It was put to her that she must have been very happy on 30^th December 2010, since it was clear from the documents that she had signed that she would be getting everything and there would be nothing payable to Joseph. She said this: “I was hoping that that would happen and be carried out right to the end, yes, but I was still uneasy until it was signed, but it was not sealed. It wasn't 100 per cent. I mean, between the 30th and I think it was the 5th, anything could have happened. Things happened on a daily basis. Anything could have happened. If Mr Thornhill would have said to me at the time “We are signing this, it is 100 per cent okay, everything is okay”, I would have been happy with it. I was signing this, it was being transferred to myself, and I was just hoping it was going to stay like that until the very end”.

Mr Nikki Singla, junior counsel for Joseph, then cross-examined Naomi about Joseph’s generosity, putting to her that she had said in a revenue statement in 2006 that she had enormous respect for Joseph’s ability and hard work. She said this: “[y]ou are talking about the four and the five Superettos? [Joseph] owed me that money. That wasn't a generosity, that fifth Superetto. I think you need to understand … I will explain it, because you have to go way back to know that Jack married off -- that Joseph married off three daughters, bought three big houses, was helping support three families, he had about nine grandchildren, was paying school fees, when I had only married off one daughter with three children. He took all that money out. I never said a word about it. When it came to I think it was 1997, unless I'm wrong, when we did the Superetto group, he knew and I knew that he did owe me that money, and it was just in the way of giving it back. So it wasn't that he was being generous, it was actually what was coming to me”.

Naomi’s cross-examination concluded with another telling question and answer as follows:-

“Q. Do you think now, sitting in that chair, that the acrimony that has been generated from this split in the demerger process has prevented you from casting Joseph in a more positive light?

A. No, I went into this demerger for a good reason”.

In broad terms, I accept Naomi’s evidence. The passages that I have set out demonstrate that she was far from naïve, but I accept that she did not have the detailed knowledge of the day-to-day events that was suggested to her in cross-examination. She plainly felt very let down by Joseph’s conduct in using her assets in the way he did. Though it was not directly suggested to her, I got no sense from what she told me that she was in any sense in league with Mr Thornhill.

Naomi told me that her five children were Ruth, aged 44, Mark, aged 43, Barry, aged 42, Alexander, aged 38, and Neil, aged 33. Of those, Barry, Mark and Alexander are now involved in the Group.

Mr Robinson is chairman of the BLP partnership board, and specialises in corporate and M&A work.

Mr Robinson was questioned about the process by which the 30^th December 2010 agreements and documentation were produced. BLP had drafted three of them, and Mr Parker and Mr Thornhill had drafted the others. The thesis that was put to Mr Robinson was, once again, that Mr Thornhill had been in league with BLP and Naomi and had done as they suggested and required. Mr Robinson’s evidence, which I accept, was to a contrary effect. He described the process as follows:-

“I don't think there was much negotiation of those documents. I think I would have read them to make sure that they made sense and they worked. …

Q. So from that perspective, you would have looked at that [Superetto Agreement] draft, and checked that the agreement promoted your client’s interests to the best of your ability. That’s what you are sworn to do as a lawyer, isn’t it?

A. I don't know about that, but it is not -- I don’t think it worked like that even with the Superetto agreement. It would have been looking at it for a process, making sure it worked sensibly, Mr Thornhill might have asked Barry, "When should these debentures be redeemed, when is the business going to be able to afford it, what are the parameters?", and maybe there might have been a discussion about Mazars, I don't know, saying, "You have to repay the Delapage debt first", and then when is it sensible to do it after that has happened. There might have been a discussion along those lines to get something sensible in place. …

I think I’m just trying to make the point that when we looked at the Superetto agreement, it was realised that points one way or the other would hurt or benefit both [Joseph’s] and Naomi’s children, so it wasn’t a kind of negotiating against [Joseph] for Naomi on that agreement. That’s certainly how we saw it in any case. …

I think you are wrong on the Superetto agreement. I think the Superetto agreement was judged relatively neutrally. It was realised it was going to benefit or disadvantage both sides of the family equally in terms of how we were looking at it. We weren't looking at it on terms of, “Let's screw the beneficiaries because we can get it out in some other way.” That certainly wasn't the attitude”.

Mr Kitchener asked Mr Robinson about the drafting process and suggested that it was not a case of his being in passive receipt of ministerial directions from Mr Thornhill. Mr Robinson answered: “[w]ell, I don't think I agree with that actually, because I think Mr Thornhill -- when we were drafting documents, Mr Thornhill was telling us what he wanted drafted. It just so happened we had secretaries and processors there, we could do something and get it up and running. He would then have looked at the draft and said yes or no and made changes, and that would have been it”.

It was suggested to Mr Robinson that there was no uncertainty as to the contents of the Report after 30^th December 2010, bearing in mind the contents of the documentation signed that day, but Mr Robinson refused to accept the point, saying: “[b]ut we were concerned, we didn’t know what was going to be in the report. Right until the end, we thought there might be a balancing payment to be made, there might be a waiver of all litigation against these -- we just didn’t know”, and “I didn’t know what final decision Mr Thornhill was going to come to overall. He might have said that there were jointly owned monies, and he might have said some of that money has to go -- we thought actually that we might be asked to pay £5 million to Joseph so he could settle that £5 million letter of credit payment. So that was one of the things that we were wondering about”.

When Mr Kitchener suggested that Mr Robinson knew what was on Mr Thornhill’s agenda, he explained how Mr Thornhill undertook the process in a most insightful way as follows:-

“I didn't know what was on Mr Thornhill's agenda. We can look at, for instance, the Superetto letter when I said "agreed", and so on, which in fact doesn’t bear similarity to what was actually in my note, but the whole point throughout this process was that Mr Thornhill was, I regard, an incredibly patient and courteous listener and you would go and have meetings with him, as we did throughout 2010, and he would listen, you wouldn’t get the impression he disagreed, you would come out of the meeting and Barry and I would look at each other and say, “Have we driven this forward, or haven’t we?”, and we thought we probably had and then two weeks later we weren’t sure we had in fact. I think Mr Thornhill was a past master, if you like, at keeping both sides going, [striving] to prevent war breaking out, which it could have. There are many serious occasions during that year when the parties were furious with each other and in the meantime he was taking his time to make his decision and come to a view”.

Mr Robinson did not have a very good reason for BLP having refused point blank to provide the documentation that Mr Thornhill had executed on Joseph’s behalf. He said this when first asked:

“[i]t was possibly a little bit petty but we had spent three and a half years trying to get information for our clients from the other side on the business, without any success and when we were asked for copies of these documents, although it would have been fairly easy to provide them with it, we weren't under any obligation to provide them with anything and we decided that if they wanted it they could ask Mr Thornhill and we were not prepared to cooperate. That was my view”.

In a later answer, he accepted that, although he had not seen why Joseph needed the documents at the time, he now understood why there were things he needed to see in them.

When asked about Naomi’s concern that Joseph should find out what was being planned in November/ December 2010, Mr Robinson said this: “I can't remember whether we were concerned about Joseph finding out or not. We would have been concerned if Joseph had found out I suppose and I don’t deny that, because we would have assumed that Joseph would have done everything to stop it and the demerger would have ground to a halt and so that was obviously not in our interests, and given, which I think is important, that there was 12 months to follow this for Joseph to make representations, you have to bear that in mind”. Mr Kitchener placed great reliance on this admission.

I found Mr Robinson a careful witness, whose evidence I was able, broadly, to rely upon.

Mr Thornhill drafted the Agreement and persuaded the parties to agree to it. As he described it in his statement: “[t]he negotiation of the new agreement was tortuous and continued over several months, not least because [Joseph] and [Naomi] could not meet face to face”, and “the two groups sat in separate rooms and I shuttled between them”.

In dealing with his overall approach in his statement, Mr Thornhill explains: “[i]t would be difficult for me to overstate the degree of acrimony between [Joseph] and [Naomi] and, on occasion, their respective advisors. Inevitably this meant that the process under the Agreement was neither smooth nor swift”. He continued: “… I sought at all times deal with the parties in an even and balanced manner”.

In cross-examination, Mr Thornhill explained how the idea of the debentures had come about after he had seen Mazars on 14^th December 2010. The Managers had told him that they would not contemplate any cash leaving the companies unless it repaid their debt. He described the way he saw the problem in this way: “I had, as I understood it, a very extensive and wide power to deal with the division of assets. First of all I had to decide the question of removed assets and quantify the claim one way or another. Having done that -- and the movement of the Superetto companies was absolutely nothing to do with that -- there was then a very -- really a very simple problem in that if jointly owned companies were transferred to one side or the other, those companies would be substantially indebted to the Superetto companies and quite clearly couldn't last very long. So it was necessary, in my view, to do something about that situation, but it followed upon a decision about the removed assets and it really was a matter of structuring the companies in such a way that what I decided made sense commercially”.

Mr Thornhill explained the ‘trust solution’ that he had considered following the meeting with Mazars, but which was finally rejected by him by 21^st December 2010. The idea was that he should transfer Joseph’s and Naomi’s shares to himself to hold on trust for 5 years, so as to allow time for the Delapage debts to be rescheduled and the value of the Group to be evaluated. Both sides were against any such delay, and eventually Mr Thornhill decided against this route.

Mr Thornhill was asked about Naomi’s evidence that Joseph had not been generous in allowing her children to have 5 (as opposed to his children’s 4) equally valued Superetto companies, but that he was compensating her for his earlier greater drawings. He said he had not heard that before, and that, if he had, it would have affected his decision on drawings.

Mr Thornhill was cross-examined at length on his understanding of the meaning of the Agreement. That is obviously a matter for me. But it was put to Mr Thornhill, who had considered the matter extremely carefully, that the parties were setting up a procedure in relation to adjustments under which they expected to be fully involved. He said: “I think the adjustments that are being referred to are the adjustments which each side is proposing that I make in respect of -- and here one goes back I think to in particular recitals (D) and (E) -- to either Removed Assets, or other depletions of assets which will prevent a fair division of the properties. … when one is looking at adjustments one has to ask oneself what adjustments? And I would say to you that they are the adjustments which make allowances and compensation for the matters which have been bitterly in dispute between the parties which are very clearly set out in recitals (D) and (E)”. He continued later by saying that: “the treatment of the Superetto companies wasn’t any form of adjustment which compensated one side or the other for a Removed Asset or something that was alleged to have been done wrong. … the Superetto companies were dealt with in the same way and they were supposed to be being sold for their proper market value, so there is no sort of compensatory element in the matter at all”.

Mr Kitchener asked Mr Thornhill about the various meetings and emails with BLP that took place in November and December 2010, suggesting at each stage that he should have asked Joseph what he thought of this or that proposal made by him or BLP along the way. Mr Thornhill rejected all this. He accepted that it had never been envisaged in June 2009 that the Superetto companies would change hands, but explained why it would have served no useful purpose to consult Joseph as follows: “he was of the firm view that, if I can put it that way, there was still a lottery cake which could be divided under clause 10(a). The real difficulty which was addressed by the BLP proposals was that what should happen if when one comes to 10(a) there wasn't any cake, how do you make adjustments between the parties in dividing the cake when there isn't any cake, and that was the difficulty which by the time we got to the end of 2010 created a situation which I freely admit would not have been envisaged at the start. … When Joseph and his team met me on 2 December the question of whether there was equity in the jointly owned companies was a point which was distinctly raised and it was quite clear what their view was. Now, it is not my job to try and convince Joseph that he is wrong about valuations. I probably wouldn't have got very far if I had tried because he is a very strong minded individual. However, that was his view, so he thought of course that there was a cake and that there was no reason at all why the process set out in clause 10(a) should not proceed. I agree that's what he thought”. Mr Thornhill continued by reiterating that such a discussion would have culminated in an argument about valuations, and that that would have been pointless. As he saw it, the Agreement required him to decide what to do if indeed, as he put it, there was no Lottery cake. He thought that there was room for consultation on the structure of the recommended transactions before the End Date. He concluded with some force: “[a]s regards removed assets and any adjustments, there had to be total transparency; each side had to know what the other was saying and be given an opportunity to answer it. Then I had to decide the quantum in the light of that. Then I had to divide the assets, having regard to my decision on quantum”. At the end of his evidence on the first day, he said this: “The difficulty is, Mr Kitchener, if one had said to Joseph, "Here is a proposal", he simply would never have accepted the premises. We would have ended up with a furious argument, brick bats flying everywhere, shoutings, bangings -- it wouldn't have done any good because he wouldn't accept the premise on which the decision was based. I knew that. I have been dealing with him for almost two years at this stage. It would have been the most futile exercise you could possibly have imagined. Of course if I was obliged to consult him, then however futile it might have been, I would have done so”.

Mr Kitchener placed great emphasis in his closing submissions on this exchange in relation to what was going on on the 30^th and 31^st December 2010 as demonstrating that Mr Thornhill had lost sight of the need for impartiality:-

“Q. So on the basis of that you will agree, won't you, that the statement that all that happened on 30 and 31 December was that you gave ministerial directions is, to say the least, incomplete?

A. No. I was presenting to the meeting the documents which, having reviewed everything and true, after discussion, were what I required in order to cement in place the result that I had decided on. It seems reasonable enough, in my view, if one is entering into consensual documents at least to discuss some of the terms with the other side”.

As regards Mr Thornhill’s exclusion of Joseph from the final negotiations, Mr Kitchener relied on Mr Thornhill’s admission to that effect in the following passage from his evidence:-

“Q. What you did was carry into effect the intention to do all of this without telling Joseph. That's what happened?

A. When the decision to go forward was finally made, which was nowhere near being made at this stage, it is perfectly true to say that having taken the decision to arrive at the result that I thought was the right result, I took or organised steps to achieve it without involving the risk of having to consult or inform Joseph until it was done. Equally if one had decided to do it the other way round, the same would have happened”.

Later in his evidence, it was put to Mr Thornhill that he had misled Joseph by saying in his letter of 1^st February 2011 that all he had been doing with BLP was giving ministerial directions. I have considered this part of Mr Thornhill’s evidence very carefully. Ultimately, it seems to me that what he said was justified. Mr Thornhill himself decided what steps were to be taken, and even what the detailed terms of the documents were to say. He decided on the valuation provisions in the Superetto Agreement; he decided on the debentures. It is true that he discussed these provisions with BLP, but I accept his evidence that what he was doing was proper and appropriate. He was not being dictated to in any sense by Barry, Naomi or BLP. He was simply getting the documents together as was required in a short timescale. The documents prepared by Mr Robinson and others make it look as if Mr Thornhill was ‘agreeing’ things with BLP as matters proceeded after 17^th November 2010. But I do not think he was. He was carefully making up his mind under the terms of the Agreement as he understood it, changing his mind from time to time as he was entitled to do. The question remains, of course, as to whether Mr Thornhill’s understanding of the proper construction of the Agreement was the correct one. I accept that Mr Thornhill was searching for a fair valuation solution so that, as he put it: “what was eventually chosen upon by me was something which I regard as inherently flexible to take into account all future possibilities, so that the value fixed was a fair one”. When he was asked about BLP’s influence on the date for repayment, Mr Thornhill said that:- “[n]o, on the contrary, I was the person who said "You can't have any repayment of these debentures until we have had the Delapage debt repaid." That was my reading of the situation which I had gathered from the managers”. He freely accepted that the 21 day time limit for the valuations in the Property Deed had escaped his notice.

Mr Kitchener also cross-examined Mr Thornhill on his failure to consult Joseph on the appointment of the valuer under the Superetto Agreement, accusing him of having lost sight of the need to remain independent. Mr Thornhill demurred.

There was extensive cross-examination on why Mr Thornhill did not provide Joseph with copies of the documentation that he had signed on 30^th December 2010 on his behalf. He did not seek to defend what happened, and described it as “most unfortunate” and “nonsensical”. I have no doubt, having heard Mr Thornhill, Barry and Mr Robinson, that what occurred was indeed most unfortunate, but, as Mr Thornhill said, did not affect the fairness of the process up to the Report. What it did do was to exacerbate the suspicion of collusion that Joseph was already feeling. In reality, there was needless aggression on the part of BLP and some inefficiency on the part of Mr Thornhill. Mr Thornhill ought to have kept copies of all the documents he executed and supplied them at once to Joseph with his Report. Instead, he left the 30^th December 2010 meetings after 10.00 pm to catch the last train to his home in Bristol without taking copies. Whilst he was sent some documents after that, he did not himself have a complete set until this litigation was under way. He never properly addressed the situation that had arisen, namely that BLP was refusing Joseph copies, and he never adequately responded to the requests that he provide copies. I do not think there was anything malign or collusive in Mr Thornhill’s conduct. It was just a mistake. He never had any discussion with BLP in which he agreed that Joseph should not have the documents. And when Joseph came to apply to Newey J in May 2011 for the documents, he applied against BLP and not Mr Thornhill. The episode was, put at its best, unhelpful, and may have contributed to Joseph’s continuing persistently intransigent approach after January 2011.

Mr Thornhill’s approach to Joseph is well expressed in the following exchange:-

“Q. You were completely fed up with Joseph at this stage, weren't you?

A. No, not at all. Far from being fed up, I have to say I felt very sorry to have had to have arrived at the conclusion which I did. It didn't give me any pleasure.

Q. You had washed your hands of him and didn't want anything more to do with him?

A. No, not at all. I haven't washed my hands of him at all.

Q. And you were --

A. He may have washed his hands of me but that's a different thing”.

Mr Thornhill was asked why he had not required Naomi to pay cash for the Superetto shares. He explained that something like two-fifths of the mortgages in the Superetto and jointly owned companies were coming up for renewal in the ensuing two years, and that when they did, there would be likely to be calls for extra cash to be put in, so that substantial cash would need to be injected to keep the Group afloat. If the mortgages couldn’t be renewed, then the whole finances of the group would “fall down like a pack of cards”.

It was suggested to Mr Thornhill that Delapage’s Managers were in limbo waiting for him to announce the Lottery results so that they could negotiate a rescheduling with the correct parties. Mr Thornhill rejected this suggestion, saying that the Managers wanted to negotiate with the primary debtors of the charity, namely the Superetto companies. Overall, he said that a single rescheduling deal was necessary because of the criss-crossing of inter-company loans.

Mr Kitchener returned to the same topic when cross-examining Mr Thornhill on the three explanations that he had given for what Mr Southworth’s note recorded him as saying on 2^nd December 2010, namely that “Superetto – no argument. Not up for grabs”. Mr Thornhill accepted that he had provided three different explanations, but ultimately preferred the one he gave in evidence which was as follows: “I don’t accept that no argument, “not up for grabs”, meant the ownership of the companies is secure. What I had in mind, and I still think it is right, is that the managers always made it plain that they wanted to negotiate across the board, the same deal for everyone, not a mixed deal, one for this and another for another person, and I believe that my observation in reply to Danny’s is “No, the managers are not in limbo. They know precisely which monies are owned by the Superetto companies -- owed by the Superetto companies and they are not going to pick one company off by negotiating this deal with this company and that deal with another one.” In other words, there is no obstacle to the managers, if they wanted to, getting down to work immediately on the renegotiation of those loans”. I have no doubt that this explanation included a large dose of reconstruction. Equally, I have no doubt that Mr Thornhill did not tell Mr Southworth, Joseph or anyone else that the Superetto companies’ ownership was secure and would not be transferred. That would have been a ridiculous thing for him to say, when he had already come close to the conclusion that the Group was in a parlous condition, and could only be saved if in the hands of one side. The truth of this dispute is that nobody actually recalls the words “not up for grabs” being said, and if they were used (which seems likely) their actual context. All the witnesses (Messrs Thornhill and Southworth and Danny) were reconstructing from the note. Whilst I accept that the note, read in context, looks as if Mr Thornhill might have been talking about the ownership of the Superetto companies, I am satisfied having heard all the evidence that that was not what he said and not what he meant. Joseph was not, therefore, misled, deliberately or otherwise, in the way that has been alleged.

It was then put to Mr Thornhill that he had behaved dishonestly in not telling Joseph of Naomi’s proposal that the Superetto companies should be transferred to her. Mr Thornhill returned, in answer, to his point that it was perfectly obvious, if there was no equity, that there was a serious problem and radical steps would be necessary. Joseph and Mr White’s view was that there was equity and that, therefore, there was no problem. Mr Thornhill concluded that there was no equity, and that view was shared by the managers of Delapage. I am satisfied that the allegation of dishonesty was unjustified. There were simply diametrically opposite views of the facts. It was Mr Thornhill’s job to decide what had to be done. The question is whether what he did was fair and in accordance with his instructions. To these issues, I shall return.

Mr Thornhill’s view was best expressed when he explained as follows: “I agree with you that the properties in the Superetto companies, if you looked at the bank loans against them, looked better and more valuable than what was in the jointly owned companies, but then you have to realise that the Superetto companies had borrowed enormous sums of money at interest and lent them to the jointly owned companies in a way that made those monies irrecoverable. That in effect meant that the Superetto companies and the jointly owned companies were locked together in, so to speak, an embrace of death. There was no value anywhere. If the jointly owned companies collapsed, the Superetto companies would be bankrupt”.

Mr Thornhill agreed that there were other possible solutions that he could have adopted, but he insisted that there would have been no point in consulting Joseph on the value of the Group, or the structure of the transactions he proposed, since their views were so diametrically opposed. Joseph thought that there would be no adjustments and that the properties were valuable – or he could make them valuable. Mr Thornhill, Barry and the Managers thought that the Group was bust.

Later it was put to Mr Thornhill that he had agreed with Barry and Naomi and Mr Robinson that Joseph wasn’t going to be told about the Superetto proposals in November 2010. He denied that anything was agreed, explaining: “[e]verything discussed in those notes was premised on the hypothesis that I was satisfied that there was little or no equity in the companies and a substantial claim outstanding from Joseph to Naomi. I did not decide that that was the position until the middle of December. I then decided how finally to dispose of matters and having regard to my duty under clause 14 to arrange the form of the division of the assets, what I did at the end of December in my view was securing the division of the assets. With these highly contentious parties anything less than an absolute fait accompli would have been an absolute disaster”.

There was much cross-examination on the detail of the property valuations. I am not sure that much was gained from it. It is true that some properties had gone up in value since 2006, but many others had gone down. Mr Thornhill did not obtain or rely upon any overall valuation of the Group. He had the agreed lottery valuations from 2006, some values from Mr Croudace of Lloyds Bank and some third party valuations from RBS and others, and Barry’s revaluation at 25-30% lower than the lottery figures. He took a middle course between what he described as the excessive pessimism of Barry’s side and the excessive optimism of Joseph’s side. He was, rightly I think, very much influenced by the Managers’ view that half of the £95 million debt owed to Delapage would be written off. That, he thought, would never have been the starting point if there was present value in the Group.

It seems to me that Mr Thornhill’s point about Joseph’s undue optimism was made good when Mr Kitchener put it to him that “Joseph’s case and [Danny’s] case is that by sensible, innovative and creative property management they were able, in very large part, to mitigate the consequences of falls in the market in relation to the properties under their care”. This question, as with many others over-looked the fact, which Mr Thornhill returned to time and time again, that the Managers wanted to be repaid before any monies left the Group. The following exchange also emphasised the unreality of Joseph’s position:-

“Q. … Joseph’s position in relation to how these properties were run is that the problems were caused by the breakdown of his relationship with Naomi?

A. No, I don't think so at all. I think the major problem, putting it neutrally, is that something like £90 million in various ways has been siphoned out of the jointly owned companies and if that hadn't happened they wouldn't be in the position they are in”.

Mr Thornhill’s thinking was well described in the following exchange:-

“Q. An important part of your thinking, was it, was that the interest of the beneficiaries wasn't harmed by what you were proposing to do in the report?

A. Yes. As far as I was concerned, the transfer of the Superetto companies wasn't any sort of adjustment compensating for anything. It was a structural adjustment without which any resolution of the dispute could not be effected and therefore it followed that what the beneficiaries received, or what was received by Superetto Limited on their behalf had adequately to reflect the value of what was transferred”.

Towards the end of his cross-examination, Mr Thornhill was asked about individual transactions. It was suggested that Mr Thornhill should not have made some specific adjustments because they did not fall within the definition of Removed Assets or legal claims in the Agreement. I will deal with those contentions in due course. Suffice it to say that Mr Thornhill’s explanation for having made the main adjustments in respect of the Rosara and Liberty transactions was that Joseph had made these highly risky investments without consulting Naomi, using her funds, and had persistently refused to tell her any details of what he had done, and then “the loans kept on being made over and over again”.

When it was suggested that Naomi was intending to pursue the claims in respect of Haysport and Twinsectra outside the Agreement, Mr Thornhill told me that those claims were never relinquished. I shall deal with the question of whether they fall inside or outside the ambit of the Agreement at a later stage.

Mr Kitchener made a major attack on Mr Thornhill in relation to the Loch Tummel dividend. The allegation was that Mr Thornhill had known all along from 5^th March 2009 that Barry had declared a dividend in Loch Tummel and used Joseph’s £2 million to fill the gap in funding at Barclays, and that Barry was refusing to tell Joseph what he had done until he provided other information that Barry wanted. Thus, it was alleged that Mr Thornhill had misled Mr Southworth in January 2010, when he said he did not know that the payment had been a dividend. A number of emails were put to him that referred to the dividend. In particular, Mr Robinson’s email dated 24^th April 2009 to Mr Thornhill said that “Barry is to provide details to you of the Loch Tummel dividend etc which will be disclosed to [Joseph] only after he has provided full details of the arrangements with all banks …”. The following exchange then took place:-

“Q. So this shows, doesn’t it, that you did know that the money paid in March 2009 was a dividend?

A.

No, it doesn’t at all. I’m afraid I didn’t see any special significance in the word “dividend”. What Mr Robinson is asking for here is what was completely uncontroversial, that any exchange of information about Loch Tummel should be at the same time as Joseph provided details of the other matters in that bullet point and my eye passed over this without I’m afraid questioning in detail what he was saying”.

I did not find this answer entirely convincing. In my judgment, Mr Thornhill was told that Barry had declared a dividend after 6^th March 2009, but seems to have forgotten. There was much going on. I do not think he was being deliberately evasive either in his conversation with Mr Southworth in January 2010 (8 months later) or in his evidence. He might, however, have been better to say, as I think was the reality, that he had, by January 2010, simply forgotten what he had been told in April 2009 to the effect that it was a dividend, and had perhaps not dealt with it as appropriately as he might.

When I asked Mr Thornhill some questions arising from Mr Landy’s 29^th January 2010 email suggesting that he had asked Mr Thornhill “a number of times in recent months” to assist in providing Loch Tummel information, Mr Thornhill confirmed that the first he knew of the payment having been by way of dividend was when Mr Landy came to see him (probably on the 21^st or maybe 22^nd January 2010). He thought that was some time before Mr Southworth telephoned him on the same subject, but I doubt there was much time between the two.

Apart from his failure to deal with the fact that he must have known that the payment was a dividend some time after 5^th March 2009 from the email traffic, I think the explanation in Mr Thornhill’s witness statement is broadly accurate. I accept he did not collude with Barry, and that he probably did not know as at 5^th March 2009 that the dividend had been declared, thinking the money had gone across as a loan. But he was told later, whether it fully registered or not. Therefore, I doubt whether it would have come to him as quite so much as a surprise as Mr Southworth gained the impression it had, even if he had forgotten by January 2010. But I do not think, as I have said, that there was any impropriety or dishonesty in Mr Thornhill’s conduct on this or indeed any other matter.

It was suggested to Mr Thornhill that he had no reason to suppose that Joseph and Danny used private email addresses and that he had not asked them to separate out their private emails. Mr Thornhill responded as follows:- “I have asked Joseph and Danny on many occasions for the very simple answer to the question, “Can you hand over the information relating to the companies?” Difficulties always cropped up in response to what seemed to me a perfectly simple request. If in fact the separation which you have just described was a necessary prerequisite to supplying the information, I cannot see why that expedient was never carried out on the many occasions -- and there were many of them -- that I requested corporate information from their computer system”. Mr Thornhill was undoubtedly annoyed by Joseph and Danny’s failure in this regard. When that was put to him, he said: “[y]es, because on the one hand he wanted an immediate lottery and on the other hand the very thing which would have enabled it to have happened, which was provision of this information, was withheld. So there he was banging the table saying "Where is the lottery?", but the very thing which would have enabled it to have happened initially never was forthcoming”. Mr Thornhill was also asked about his statement where he had said that Joseph’s conduct and that of some of his staff has been deliberately obstructive in the course of the demerger. He replied that that “was a view to which I was reluctantly forced after innumerable attempts to get what seemed to me perfectly simple information provided and information which undoubtedly was necessary on any reasonable basis to run the companies”. Later he said: “I think what I have said is that the one particular matter which really caused me annoyance was the failure to produce the computer information. That was the one thing -- I mean all the rest you could disregard, but that failure was critical and Joseph on the one hand was standing up and down asking me to get these people off his back, to get these leeches, as he would say, off his back, "I want to go away with what I'm entitled to and run it", but he wouldn't provide the information” and “Well, the thing really was -- it was against his own interest. It seemed to me absolutely ludicrous”.

Mr Kitchener then questioned Mr Thornhill about the suggestion in Mr Onslow’s opening that Joseph had bullied, threatened and intimidated him. Mr Thornhill’s response was that “… if one is looking at various events which I had meetings with Joseph’s side, especially meetings in UK House, I think some people would have found them very intimidatory, and in fact I know, for example, on one occasion Mr Berry emerged from one of those meetings in a very distressed state. I’m afraid it didn’t intimidate me and I’m afraid I used to annoy them by rather beginning to smile and almost laugh at the intimidation because it was a very good way of [defusing] the situation”.

Mr Thornhill described Mr White as “a person who on paper and on the telephone could be extraordinarily offensive”, but who when you met him “it was usually possible to get him to behave perfectly reasonably”.

Mr Kitchener concluded his cross-examination by putting to Mr Thornhill that he had lost sight of his express and implied obligations towards Joseph under the Agreement. Mr Thornhill denied this saying: “I think I bent over backwards in the adjustment process to make it quite clear what each side was saying against the other. I think in making the adjustments there were several areas in which effectively I gave Joseph the benefit of the doubt … When it came to the division of assets, which was my decision, the two sides had diametrically opposed positions as to the value of the jointly owned companies and the quantum of the adjustments I was likely to make. Naomi's side took a certain view on those two matters which compelled them to urge me to do something more -- what's the word -- more direct than perhaps was originally contemplated by the agreement. Joseph's side -- and this was made clear on several occasions -- were quite confident that neither of those vital assumptions made by Naomi were correct. They thought that the lottery could work entirely as predicted or prescribed by clause 10(a), there was equity in the jointly owned companies and the quantum of the adjustments would be very small. In that state of affairs they relied on the fact that I would simply carry out the division of the assets under clause 10(a). But if those assumptions were wrong it was at their risk. If those assumptions were wrong, then it was perfectly obvious that something else would have to be done”.

Save where I have expressed reservations above, I found Mr Thornhill a reliable and careful witness. He was faced with a most difficult task, which I believe he tried very hard to carry out to the best of his ability. It remains for me to consider in due course whether he succeeded in doing so.

Mr Berry qualified as a chartered accountant in 2002, having joined Wilder Coe in 1999. He worked full time on the Ackerman family’s affairs from 2003 until 2006, from which time he split his time between those affairs and running the outsourced accounting division of his firm from its Stevenage office. Mr Berry said that his firm generally had a team of about 5 staff based at the Ackerman Group offices in Hendon. Mr Berry was an entirely reliable witness.

Mr Berry said in paragraph 69 of his statement that Naomi had proposed that he should perform the valuation exercise envisaged by the Report and by paragraph 2 of the Superetto Agreement. He decided, however, having consulted with his firm’s Ethics Committee that he should decline the appointment as he did not possess the relevant experience, and the role would have conflicted with his firm’s role as auditor of these companies.

Mr Berry explained that he had supervised Barry when he was permitted by Mr Thornhill to inspect the hard drive provided by Joseph’s side in August 2009. He confirmed that Barry had not been permitted to access any confidential or privileged information, and indeed that very little information was on the disk.

Mr Berry explained in his statement the ‘back of the envelope’ valuation that he had undertaken in October 2010 and sent to Mr Thornhill on 2^nd November 2010. The calculation showed that the net assets of the UK Group including the Superetto companies was £5 million. Mr Berry had taken the figure of £350 million for properties from Barry’s calculations of some £228 million for jointly-owned properties and a figure of about £122 million for the Superetto properties that Barry had given him, as a single figure, on the telephone.

Before turning to the issues that I have set out above, it is useful to consider in outline the basic legal position on the main questions that underlie this case namely expert determinations, procedural unfairness, materiality and bias.

It has long been established that, if an expert valuer has undertaken his task honestly and in good faith, the outcome cannot be challenged simply because he has made a mistake or one side does not like the outcome. In Campbell v. Edwards [1976] 1 WLR 403, Lord Denning MR said this at page 407:-

“It is simply the law of contract. If two persons agree that the price of property should be fixed by a valuer on whom they agree, and he gives that valuation honestly and in good faith, they are bound by it. Even if he has made a mistake they are still bound by it. The reason is because they have agreed to be bound by it”.

In Jones v. Sherwood Services plc [1992] 1 WLR 277, Dillon LJ said the following at page 287:-

“If the mistake made was that the expert departed from his instructions in a material respect — e.g., if he valued the wrong number of shares, or valued shares in the wrong company, or if, as in Jones (M.) v. Jones (R.R.) [1971] 1 W.L.R. 840, the expert had valued machinery himself whereas his instructions were to employ an expert valuer of his choice to do that — either party would be able to say that the certificate was not binding because the expert had not done what he was appointed to do”.

In Nikko Hotels (UK) Ltd v. MEPC plc [1991] 2 EGLR 103, Knox J said that “If he has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity”. The accuracy of the passage of which these two sentences form a part was doubted in a different context by Lord Neuberger MR in Barclays Bank plc v. Nylon Capital LLP [2011] 2 Lloyd’s Rep 347, but I do not think these sentences were significantly challenged.

In Pontsarn Investments Ltd v. Kansallis-Osake-Pankki [1992] 1 EGLR 148, Judge Paul Baker QC said the following at page 151:

“At worst, [the expert] had come to a wrong conclusion. The fact that he may be patently wrong does not mean that he has not done what he was appointed to do nor that he has asked himself the wrong question. To take any other view would lead to the sort of refined arguments such as have been deployed here and go a long way to emasculate the requirement that the decision of the expert, as a matter of contract between the parties, be final and binding. Thus, the advantages of cost, speed and finality would be seriously diminished”.

These dicta are clear enough. They show that the parties are bound by decisions made in accordance with a process that they agreed, even if those decisions are themselves mistaken. The clear distinction is between an expert departing from the instructions agreed by the parties on the one hand, and an expert making a mistake whilst following his instructions on the other hand. In this case, it has not been argued that Mr Thornhill made a mistake in his Report as to matters of substance. What has been suggested, instead, is that Mr Thornhill departed from the express or implied instructions in the Agreement in a number of ways. There is, therefore, another distinction that is more material to this case. That distinction is between a departure from instructions in matters of expressly or impliedly agreed procedure on the one hand (a “departure from procedural instructions”) and a departure from instructions in matters of substance on the other hand (a “departure from substantive instructions”). An example may illustrate the point. If the agreement appointing the expert provides that the expert shall hold a hearing before reaching his decision, the failure to do so would be a departure in a matter of expressly agreed procedure. If the agreement provides that the value of some shares shall be assessed by the expert on the discounted cashflow basis, an assessment of the value of the shares on a balance sheet basis would be a departure in a matter of substance. This distinction is important when one comes to look at the cases, because, in my judgment they somewhat confuse the two in addressing the question of the consequences of a departure from instructions. I shall return to this point in due course.

Before stating the generally applicable principles on the question of fairness, it is worth making the point that fairness is a question of procedure rather than substance. It is, therefore, basically analogous to a question of departure from procedural instructions, rather than a departure from substantive instructions. Thus, a breach of an implied obligation of fairness can be regarded as a departure from an implied procedural instruction.

It is well established that an expert is not bound to observe all the rules of natural justice, though he does have an implied obligation of fairness. As Megarry J said in Hounslow LBC v. Twickenham Garden Developments Ltd [1971] Ch. 233 at page 259G: “[h]e must throughout retain his independence in exercising that judgment; but provided he does this, I do not think that, unless the contract so provides, he need go further and observe the rules of natural justice; giving due notice of all complaints and affording both parties a hearing”.

Cooke J in Bernhard Schulte GmbH & Co KG v. Nile Holdings Ltd [2004] 2 Lloyd’s Rep. 352, said this at paragraph 95:- “A person sitting in a judicial capacity decides matters on the basis of submissions and evidence put before him, whereas the expert, subject to the express provisions of his remit, is entitled to carry out his own investigations, form his own opinion and come to his own conclusion regardless of any submissions or evidence adduced by the parties themselves”.

In Amec Civil Engineering Ltd v. Secretary of State for Transport [2005] WLR 2339, having discussed the line of authority leading up to and following Megarry J’s dictum in Hounslow at paragraphs 38-47, May LJ (with whom Hooper LJ agreed) said this at paragraph 48:-

“There will be circumstances in which an engineer, using his knowledge of the course of the contract and its progress and incidence, can properly make a decision under clause 66 on request from one of the parties without formal reference to the other. There will be other occasions when he needs information from one or both of the parties. If he entertains representations from one party over and above those inherent in making the request for a decision in the first place, fairness may require him to invite representations from the other party. But I would not go so far as to say that this is a straitjacket requirement in all circumstances. He may be well aware, as in the present case, what the other party's position is. I do not consider that the letter of 6 December should be seen as containing representations which obliged the engineer to invite balancing representations from Amec” (emphasis added).

Rix LJ disagreed with May LJ in Amec as to whether the process had been fair (see paragraph 71), but his conclusion was the same on the facts (see paragraphs 80-84).

It will be observed from the dictum of May LJ how readily questions of unfairness or a departure from express or implied procedural instructions imperceptibly merge with questions of the materiality to which I now turn.

In my judgment, it is when one comes to the law on materiality that departures from substantive instructions and departures from procedural instructions have to be so carefully differentiated.

In Veba Oil Supply & Trading GmbH v. Petrotrade Inc [2002] 1 All ER 703, the parties agreed that the quality of a cargo of oil was to be determined by an expert using the “D 1298” method. But the expert used a different method instead. The Court of Appeal held that the expert had departed from his instructions in a material respect and that his decision was not binding. The Court disagreed over the correct test of materiality in such a case:-

In relation to the consequences of procedural unfairness, however, May LJ said this in Amec at paragraph 50:-

“I should add that I am unpersuaded that unfairness of the kind and degree contended for in this case should be regarded as inevitably rendering the eventual decision of the engineer invalid for the purposes of clause 66. I am unpersuaded that such transgression must necessarily have that consequence. If in formal terms it would have seemed fair to inform Amec that the Highways Agency had requested a clause 66 decision and to invite their representations, the nature of any such response was inevitable and the decision would have been the same”.

In Worrall v. Topp [2007] EWHC 1809 (Ch), the court was again concerned with the consequences of unfairness. An expert surveyor was to resolve a boundary dispute. The terms governing his mandate did not include any obligation to provide each party with material submitted to the expert. It was contended that the failure to provide one crucial email to the other side rendered the decision unfair. Kitchin J (as he then was) disagreed. He said this at paragraphs 21, 25 and 35:-

“21.

Nevertheless, I am satisfied there was an implied obligation upon Mr Caruth to act fairly. Clearly it is highly desirable that any communications between one party and an expert in the position of Mr Caruth are copied to all other parties. Fairness must generally demand that each party should have an opportunity to respond to contentions made by any other party. If this course is not followed then a court may hold that any decision reached by the expert cannot stand. Whether it does so or not must depend upon all the circumstances and, in particular, the nature of the communication, the extent to which it concerned matters of which the other party or parties were already aware and the effect it had on the expert in reaching his decision. …

25.

I have to say that I have considerable sympathy for the appellants. Nevertheless, I have reached the conclusion that these submissions must be rejected for all of the following reasons. …

35.

In my judgment it was indeed most unfortunate that the e-mail of 1 March 2006 and the various plans attached to it were not copied to the appellants. But, in all the circumstances, this was not a serious lapse and it had no effect on the decision making process. The decision reached by Mr Caruth was a decision made in accordance with the terms of the contract”.

Kendall on Expert Determination 2008 4^th edition summarises the effect of procedural unfairness as follows at paragraph 14.13.3 and paragraph :-

“Parties dissatisfied with a decision often contend that the decision should be declared unenforceable because the expert acted unfairly by failing to give each side an equal opportunity to present its case. In a number of cases this contention has failed, there being no general requirement that an expert must always give both sides such an opportunity. However, on the facts of a particular case, and depending on the terms of the contract, the court may still be prepared to decide that an expert's decision is unenforceable on this ground”.

It seems from these authorities, therefore, that a departure from substantive instructions will be material and automatically invalidate a decision unless it is trivial or de minimis, but that a departure from express or implied procedural instructions or an unfairness will not always do so. This seems to me to be the crucial distinction in this case. The dissenting judgment of Dyson LJ in Veba Oil does not quite reach the conclusion that there is a difference between departures from substantive instructions and departures from procedural instructions, but the majority in that case were dealing for the most part with cases concerning departures from substantive instructions. The other cases readily acknowledge, as both Tuckey and Dyson LJJ did in Veba Oil, that the test for materiality in relation to a departure from procedural instructions is less likely to result in the decision being invalidated. I shall return to deal with the precise test that is, in my judgment, applicable.

Bias in this context means actual bias as opposed to the appearance of bias.

In Macro v. Thompson (No 3) [1997] 2 BCLC 36, Robert Walker J made this point clear at page 65 as follows:-

“In his judgment in Campbell v Edwards [1976] 1 All ER 785 at 788, [1976] 1 WLR 403 at 407, Lord Denning MR said that a mistake in an honest valuation did not invalidate it, because the parties have agreed to be bound by it: 'If there were fraud or collusion, of course, it would be different. Fraud or collusion unravels everything'. In Jones v Sherwood Computer Services plc [1992] 2 All ER 170 at 176, [1992] 1 WLR 277 at 284 Dillon LJ referred to this passage as the starting-point for the modern law, though it harks back to a much older statement by Sir John Strange MR in Belchier v Reynolds (1754) 3 Keny 87 at 91, 96 ER 1318 at 1319 making an exception for 'gross fraud or partiality'. There is also a useful review of the older authorities in the judgment of Sir David Cairns in Baber v Kenwood Manufacturing Co Ltd [1978] 1 Lloyd's Rep 175 at 181–183. The most recent authorities are Mercury Communications Ltd v Director General of Telecommunications [1996] 1 All ER 575, [1996] 1 WLR 48 (in which the House of Lords must, I think, have been in general agreement with the unreported dissenting judgment of Hoffmann LJ in the Court of Appeal) and the decision of Lightman J in British Shipbuilders v VSEL Consortium plc [1997] 1 Lloyd's Rep 106. …

On the authorities as a whole I accept the submission made by Mr Rhys that when the court is considering a decision reached by an expert valuer who is not an arbitrator performing a quasi-judicial function, it is actual partiality, rather than the appearance of partiality, that is the crucial test. Otherwise auditors (like architects and actuaries) who have a long-standing professional relationship with one party (or persons associated with one party) to a contract might be unduly inhibited, in continuing to discharge their professional duty to their client, by too high an insistence on avoiding even an impression of partiality. In Hickman & Co v Roberts [1913] AC 229 it was not simply a question of appearances: the architect had actually followed the instructions of the owners, and acted against his own opinion, and under their control (see [1913] AC 229 at 233 and 237–240)”.

In R v. Knapman HM Coroner for Inner West London ex parte Dallaglio and other [1994] 4 All ER 139, Simon Brown LJ said this at pages 151-2:-

“Injustice will have occurred as a result of bias if ‘the decision maker unfairly regarded with disfavour the case of a party under consideration by him’. I take ‘unfairly regarded with disfavour’ to mean ‘was pre-disposed or prejudiced against one party’s case for reasons unconnected with the merits of the issue...”.

Sir Thomas Bingham MR said the following at page 161:

“It has long been regarded as essential that judicial decision-makers should, so far as reasonably possible, resolve disputes coming before them on their legal and factual merits, uninfluenced by extraneous prejudice or predilection or personal interest…The name given by the law to extraneous prejudice or predilection or personal interest in this context is bias”.

In Locabail (UK) Ltd v. Bayfield Properties [2000] QB 451, Lord Bingham of Cornhill said at page 472 that cases of actual bias are very rare and the proof of actual bias is very difficult.

In Re Medicaments and Related Classes of Goods [2001] 1 WLR 700, Lord Phillips MR summarised the meaning of bias at paragraphs 37-38 as follows:

“37.

Bias is an attitude of mind which prevents the judge from making an objective determination of the issues that he has to resolve. A judge may be biased because he has reason to prefer one outcome of the case to another. He may be biased because he has reason to favour one party rather than another. He may be biased not in favour of one outcome of the dispute but because of a prejudice in favour of or against a particular witness which prevents an impartial assessment of the evidence of that witness. Bias can come in many forms. It may consist of irrational prejudice or it may arise from particular circumstances which, for logical reasons, predispose a judge towards a particular view of the evidence or issues before him.

38.

The decided cases draw a distinction between “actual bias” and “apparent bias”. The phrase “actual bias” has not been used with great precision and has been applied to the situation (1) where a judge has been influenced by partiality or prejudice in reaching his decision and (2) where it has been demonstrated that a judge is actually prejudiced in favour of or against a party”.

The first question to be determined is whether the construction of the Agreement is a matter for Mr Thornhill or for the Court. Mr Wardell has submitted that it is a matter for Mr Thornhill, and that his view of the meaning of the Agreement is final and binding on the parties. This turns on the proper meaning of clauses 11 and 15 which provide that:-

In Mercury Communications Ltd. v. Director General of Telecommunications [1996] 1 W.L.R. 48, Lord Slynn (with whom the rest of the Committee agreed) said this at page 58:-

“It is said, however, by the respondents that the issues to be resolved fall wholly within the competence of the Director. What 'fully allocated costs' and 'relevant overheads' means has been referred to the Director. It is for him and not the courts to make the necessary judgment. He is the 'decision maker' under condition 13 of the licence granted under statutory power. The respondents rely in particular on the decision of Nicholls V-C and of the Court of Appeal in Norwich Union Life Insurance Society v P & O Property Holdings Ltd [1993] 1 EGLR 164. In that case an application was made for an interlocutory injunction to restrain a nominated arbitrator from proceeding with the determination of a dispute referred to him under a funding agreement pending the decision by the court of a question of interpretation of the agreement. In financial terms much turned on the date defined in the funding agreement as 'the completion date'. Two questions arose—what was meant by 'completed' and what were the relevant design drawings? Nicholls V-C and the Court of Appeal both held that as a matter of the construction of the agreement these two matters had been remitted for the determination of the arbitrator, and it was not for the court to take over his function. Reference was made to Jones v Sherwood Computer Services plc [1992] 2 All ER 170, [1992] 1 WLR 277, where the Court of Appeal held that in a case where parties had agreed to be bound by the report of an expert, the report could not be challenged in the courts unless it could be shown that the expert had departed from the instructions given to him in a material respect. In that case the experts had done exactly what they were asked to do.

What has to be done in the present case under condition 13, as incorporated in cl 29 of the agreement, depends upon the proper interpretation of the words 'fully allocated costs', which the respondents agree raises a question of construction and therefore of law, and 'relevant overheads', which may raise analogous questions. If the Director misinterprets these phrases and makes a determination on the basis of an incorrect interpretation, he does not do what he was asked to do. If he interprets the words correctly then the application of those words to the facts may in the absence of fraud be beyond challenge. In my view when the parties agreed in cl 29.5 that the Director's determination should be limited to such matters as the Director would have power to determine under condition 13 of the British Telecommunications licence and that the principles to be applied by him should be 'those set out in those conditions', they intended him to deal with such matters and such principles as correctly interpreted. They did not intend him simply to apply such meaning as he himself thought they should bear. His interpretation could therefore be reviewed by the court. There is no provision expressly or impliedly that these matters were remitted exclusively to the Director, even though in order to carry out his task he must be obliged to interpret them in the first place for himself. Nor is there any provision excluding altogether the intervention of the court. On the contrary, cl 29.5 contemplates that the determination shall be implemented 'Not being the subject of any appeal or proceedings'. In my opinion, subject to the other points raised, the issues of construction are ones which are not removed from the court's jurisdiction by the agreement of the parties” (emphasis added).

Page 10 of Hoffmann LJ’s dissenting judgment in the Court of Appeal (unreported, 22^nd July 1994) is also important. He said this: “[e]ven if the language used by the parties is ambiguous, it must (unless void for uncertainty) have a meaning. Accordingly, if the decision-maker has acted upon what in the court's view was the wrong meaning, he has gone outside his decision-making authority”.

As these passages makes clear, the question of whether, in a particular case, specific construction questions will, or will not, be within the ambit of the expert will depend on the terms of the agreement itself (see also Mummery LJ in National Grid plc v. M25 Group Ltd [1999] 1 EGLR 65, and paragraph 30 of Lloyd LJ in Homepace Ltd v. Sita South East Ltd [2008] EWCA Civ 1).

The cases cited by Lord Slynn, which went the other way, were relatively simple. In Norwich Union, the Court of Appeal approved Nicholls V-C’s decision to the effect that it was for the expert to determine the meaning of the term “completion date” defined as “completed in accordance with the design documents”. Nicholls V-C had said this at page 169D: “[u]nder clause 6(9) the parties have, in short, agreed that a third party (the nominated arbiter) shall determine whether the completion date has arrived… In order to decide whether the development has been completed in accordance with the design drawings, inevitably and obviously the nominated arbiter will have to identify what are the design drawings. He will also have to consider whether the words have reached the standard which the word "completed" would reasonably be understood as bearing in the context of the definition in this agreement. The parties must have intended that the nominated arbiter should determine these matters as well as looking at the physical state of the works”.

In Jones v. Sherwood Computer Services plc [1992] 1 WLR 277, which concerned the determination of the amount of “sales” by expert accountants for the purpose of calculating the consideration in a share sale agreement, Dillon LJ said this at page 287:-

“[a]ny number of issues could arise under the various sub-paragraphs of paragraph 2 of appendix 1 as to the application of the wording of those sub-paragraphs to particular facts. All these issues are capable of being described as issues of law or mixed fact and law, in that they all involve issues as to the true meaning or application of wording in paragraph 2. I cannot read the categorical wording of paragraph 7 as meaning that the determination of the accountants or of the expert shall be conclusive, final and binding for all purposes “unless it involves a determination of an issue of law or mixed fact and law in which case it shall only be binding if the court agrees with it”.

All these cases have recently been considered in detail by the Court of Appeal in Barclays Bank plc v. Nylon Capital LLP [2011] EWCA Civ 826, where the Court was faced with an agreement that provided for an expert determination of allocation of profits and the exclusive jurisdiction of the English courts. Thomas LJ (with whom Etherton LJ agreed) said this:-

“[27] However, although parties must adhere to the agreement which they have made, I do not consider that the approach to an expert determination clause should be the same as that which must now be taken to an arbitration clause. The rationale for the approach in Fiona Trust is that parties should normally be taken, as sensible businessmen, to have chosen one forum for the resolution of their disputes. As arbitration will usually be an alternative to a court for the resolution of all the disputes between the parties, it would not accord with the presumed intention of sensible businessmen to draw fine distinctions between similar phrases to allow a part of the dispute to be outside the arbitration and allocated to the court.

[28] In contradistinction expert determination clauses generally presuppose that the parties intended certain types of dispute to be resolved by expert determination and other types by the court (or if there is an arbitration clause by arbitrators). The rationale of Fiona Trust does not therefore apply, as the parties have agreed to two types of dispute resolution procedure for disputes which might arise under the agreement. The LLP agreement illustrates this: the parties agreed by Cl 26.2 to submit to the exclusive jurisdiction of the English courts, but reserved specific disputes under Cl 26.1 to the expert. They carved out of the exclusive jurisdiction of the English courts, to which they had submitted all disputes between the parties, a limited class of dispute. Therefore, quite unlike the position under agreements with arbitration clauses (as exemplified by Fiona Trust), the parties have chosen two alternative forms of dispute resolution. There is, therefore, no presumption in favour of giving a wide and generous interpretation to the jurisdiction of the expert conferred by the expert determination clause as the reasoning in Fiona Trust is inapplicable. The simple question is whether the dispute which has arisen between the parties is within the jurisdiction of the expert conferred by the expert determination clause or is not within it and is therefore within the jurisdiction of the English court. It is a question of construction with no presumption either way”.

Lord Neuberger MR differed from the majority as Thomas LJ indicated, and said this about pure points of law:-

“[69] Accordingly, it seems to me that, where a contract requires an expert to effect a valuation which is to be binding as between the parties, and there is an issue of law which divides the parties and needs to be resolved by the expert, it by no means follows that his resolution of the issue is incapable of being challenged in court by the party whose argument on the issue is rejected. As Hoffmann LJ said in Mercury v The Director General [1994] CLC 1125, 1140: …

and, it seems to me to follow that the court can review, and, if appropriate, set aside or amend his decision. While certainty and clarity are highly desirable, it is, regrettably, inappropriate to consider that issue further in this case.

[70] I appreciate that, in cases of this sort, the advantage of leaving all points of law to the final determination of the expert is that it results in a relatively quick and cheap process for the parties. However, it must be questionable whether the parties would have intended an accountant, surveyor or other professional with no legal qualification, to determine a point of law, without any recourse to the courts, even if it has a very substantial effect on their rights and obligations. It would, I suggest, be surprising if that were the effect of an expert determination agreement, when the Arbitration Act 1996 gives a right (albeit a limited and prescribed right) to the parties to refer points of law to the court. That Act applies where the parties have entered into an arbitration agreement, which gives them a much greater ability, in law and in practice, to make representations and to involve lawyers in connection with the arbitration, than parties enjoy in connection with the great majority of contractual expert determinations”.

Mr Wardell submitted that this was a case in which, even points of law, had been left to the expert. He drew attention to the fact that Mr Thornhill is a most experienced lawyer, not an accountant or a surveyor, and so it is hardly surprising (unlike in the Nylon case itself) that the parties might have left even legal questions as to the proper construction of the procedure to be followed to Mr Thornhill himself.

In my judgment, however, there is nothing in the wording of clauses 11 and 15 that leads properly to this conclusion in this case. Clause 11 does not provide that if Mr Thornhill misinterprets the meaning of Removed Assets or other terms of the Agreement and makes a determination on the basis of an incorrect interpretation he has done what he was asked to do and the parties are to be bound by it. Clause 11 only provides that the position arrived at between the parties following any adjustments made by Mr Thornhill pursuant to clause 10 as at the End Date shall be final and binding. That position must be arrived at on the basis of the proper meaning of the Agreement. This is not a case, like Norwich Union, where the arbiter was peculiarly well-qualified to understand what the parties had meant by the term “completion date”; nor like Nylon where the question was whether the expert should decide what was meant by “profits”. Here the provisions in dispute comprise normal contractual wording that has a right and wrong meaning as a matter of law. Indeed, Mr Wardell accepted, when pressed, that the single most important question here, namely whether Mr Thornhill was obliged to inform Joseph of proposals for asset transfers made by Naomi, was a pure question of law and construction as to the proper meaning of clause 9.

Mr Wardell submitted that clause 15 indicated that Mr Thornhill was the final arbiter of the meaning of “Removed Assets” and “adjustments”. I cannot see why that should be so. All clause 15 says is that “[a]ll matters not specifically catered for relating to the Lottery and the division of assets or any other matter referred to in this Deed shall be determined by [Mr Thornhill] … whose decision shall be final”. “[A]ny other matters referred to in this Deed” is not a reference to the meaning of the Agreement, but to the provisions of it. The clause is simply not addressing who should be responsible for deciding what the Agreement actually means.

I accept that the absence of a clause dealing with court jurisdiction is a pointer towards Mr Wardell’s position. But it does not seem to me that, by itself, the absence of such a clause is enough. As Hoffmann LJ said, and the House of Lords implicitly approved, in Mercury Communications: “if the decision-maker has acted upon what in the court’s view was the wrong meaning, he has gone outside his decision-making authority”. I also understand the submission that this was classically an agreement where the parties wanted a speedy resolution of their disputes and a clean break (see Recital (F)), so that they must be taken to have chosen Mr Thornhill to decide everything. The problem with this submission is my reading of the whole Agreement itself, which seems to me to have been carefully drafted to say precisely what Mr Thornhill should and should not do. There is much in Mr Kitchener’s argument that the parties have been careful to agree precisely how the procedure should work, and to say exactly what they were asking Mr Thornhill to do. Had they wanted him to decide disputed legal questions of construction, they could easily have said, but they did not.

I see nothing, therefore, in the Agreement, read as a whole, that expressly or impliedly provides that the parties intended to exclude the court’s jurisdiction as to construction. In this case, if Mr Thornhill applied the wrong construction, then, in my judgment, he departed from his instructions. I should say that, in reaching my conclusion on this question, I have had regard particularly to the specific questions of construction that have arisen between the parties. I do not rule out the possibility that some mixed questions of fact and law could well have been left to Mr Thornhill even in this case, but the specific issues dealt with below are not in my judgment in that category.

The competing positions on the meaning of “Removed Assets” in the Agreement are that Joseph submits that it was open to Mr Thornhill to determine that an asset was a “Removed Asset” only if one side had benefited from it by using it for itself, whereas Naomi and Mr Thornhill contend that the term bore a broader meaning, so that any use of a joint asset for one side’s benefit could render it a Removed Asset.

The definition is contained in Recital (C) which says that disputes have arisen as to “the use of cash and/or other assets belonging to the Respective Interests either for the benefit of” the “Joseph Group” or the “Naomi Group”. Thus, the Recital indicates that the cash or other asset must have been used “for the benefit of” either one side or the other. The emphasised words “either” and “or” seem to me to be important. The Recital continues by saying “including in either case trusts in which their respective families may have beneficial interests or for the benefit of charities (including Delapage Limited)”. The first construction question is, therefore, what words are qualified by the “including” passage. It is clear to me that the “including” passage qualifies both the Joseph Group and the Naomi Group so as to make it clear that their respective groups can include trusts for their benefit and the charities to which they donate.

Recital (C) then concludes by saying: “[s]uch cash and or other assets are referred to in the remainder of this Deed as “Removed Assets” regardless of the nature of the benefit conferred”. This is of some assistance in that it indicates that any kind of benefit to one side or the other can make an asset a Removed Asset.

It is relevant that the parties have used the words “Removed Assets” to define what is being considered. It seems to me that these words point to the fact that the parties are thinking of something “removed” from one side or the other, in other words taken out of the Group.

Whilst Recital (C) makes clear that the term “Removed Assets” is intended to be construed broadly, because the benefit conferred can be of any nature, it requires there to be a benefit to either one side or to the other. Plainly, when this dispute first developed, Naomi was alleging that Joseph had siphoned off millions of pounds into investments like Liberty 2 that were held offshore for the benefit of his family alone.

My conclusion is fortified by Recitals (D) and (E). Recital (D) makes clear that the division envisaged by the Agreement could not take place without taking account of Removed Assets “and which of the Naomi Group and the Joseph Group benefited from” the Removed Assets (emphasis added). Recital (E) talks about Joseph and Naomi having asked Mr Thornhill to investigate “who has benefited from Removed Assets”, giving the clear pointer to the words meaning a benefit by one side or the other.

It might remain for consideration whether fraudulent or improper use of joint funds would properly be regarded as Removed Assets. And one might think that a bribe paid by Joseph alone without Naomi’s knowledge, but which was nonetheless for the potential advantage of both Naomi and Joseph, should be regarded as Removed Asset, since it could never actually benefit them lawfully, and should be regarded therefore as having been paid for Joseph’s own personal benefit. This question does not actually arise directly in this case.

I have carefully considered Mr Thornhill’s construction of the term “Removed Asset”, which was, in effect that it could include any joint asset that has been used in a way that one side perceived to be for its benefit, even if that use could, in theory, also have benefited the other side. This interpretation turns, in effect, on the absence of consent by one side to the use of joint funds by the other side. In my judgment, however, this construction does not fit with the words used by the parties and stretches the language too far to be the right construction, taking into account the factual matrix.

I have also considered Mr Wardell’s submission that the words “or for the benefit of charities” indicates that the definition is not speaking only of money that has been siphoned off for the benefit of one side or the other. But it seems to me that this goes nowhere, as the whole Group had been run on the basis that money had been gift-aided to the ‘in-house’ charities with a view to using it later to support the Group. The words Mr Wardell relies on simply acknowledge that money given to charity can be regarded as for the benefit of the giver as much as any other removed monies.

For the reasons I have tried shortly to give, it seems to me that the proper construction of the term “Removed Assets” is that it encompasses only assets removed from the joint assets of the Group for the benefit of one side only.

The first question is whether the term “adjustment” as used in the Agreement has to bear exactly the same meaning in clause 9(B) as it bears in clause 10(a). It was suggested in some of the defendants’ submissions that that might not be the case. And I accept that there is authority in Oxfordshire County Council v. Oxford City Council [2006] UKHL 25 for the court finding one word to have two different meanings when used in two places in one section of a statute (in that case it was held that the single word “locality” had two different meanings when used twice in section 22 of the Commons Registration Act 1965 (see Lord Hoffmann at paragraph 27)).

As it seems to me, however, there is no such possibility in this Agreement. The word “adjustment” first appears in Recital (F) in the context of Mr Thornhill making “adjustments to the Lottery” in order to “try and ensure a fair division between [Joseph] and [Naomi] of the Respective Interests”. The adjustments to the Lottery are provided for by clause 10(a), so the Recital points the reader to that clause to understand the meaning of “adjustment”.

The term “adjustment” is then used in clauses 7, 9(B)(a) and (c), 10(a)(b) and (c), 11 and 12(A)(a) and (b).

Clause 7 points once again to adjustments being made “in accordance with clause 10”.

Clauses 9(B)(a) and (c) are the important information provisions upon which Joseph’s case is founded. Clause 9(B)(a), however, makes it perfectly clear that it is speaking about adjustments which the parties “believe [Mr Thornhill] should make in dividing the Respective Interests between [Naomi] and [Joseph]”. Clause 10(b) mirrors those words by saying that the Provisional Adjustment Report should set out “what adjustments he has made to the Lottery”. Clause 10(a) provides what adjustments can be made to the Lottery as I shall mention again in a moment.

Clauses 11, 12(A)(a) and (b) then all refer to adjustments made by Mr Thornhill pursuant to or under clause 10. Thus, it seems to me that the word “adjustment” as used throughout the Agreement is referring to adjustments made pursuant to clause 10. There is no scope whatever for any argument that the word “adjustment” can bear a different meaning in clause 9 from that in clause 10.

Once that is clear, it seems to me that the word “adjustment” is not difficult to construe. Its meaning is elucidated in clause 10(a) in relation to what kind of provisional adjustments can be made. Those adjustments are ones that are “to be made between the parties in terms of cash payments, property or share transfers or adjustment of liabilities to achieve fairness or convenience between the parties in regard to the matters raised hitherto by either side or any other matters he thinks fit including the respective contributions of [Joseph] and [Naomi] to the development of the business of the J&N Companies and the Respective Interests and any claims that might lie against [Joseph], [Naomi], [Danny] or [Barry] in relation to the prior conduct of the affairs of the J&N Companies and the Respective Interests or any of them”.

Breaking that lengthy provision in clause 10(a) down, it appears that adjustments can be in respect of:-

Joseph has argued strongly that “adjustments” can relate only to Removed Assets or other depletions that were not occasioned simply by commercial mis-judgments or negligence. He relies on the alleged factual matrix suggesting that the parties would not have intended to give Mr Thornhill the power to deprive them of their property as a result of hindsight questioning of their commercial judgment. I do not agree. I have seen nothing in the myriad of documents put before the court to suggest that that the parties intended any such limitation. And in any event, clause 10(a) makes it abundantly clear that adjustments can include any of the 4 enumerated categories that I have set out, including any claims that might lie against Joseph, Naomi, Danny or Barry in relation to the prior conduct of the affairs of the J&N Companies and the Respective Interests. Thus an adjustment includes any claim in respect of the prior conduct of the affairs of the business or the Respective Interests (which under Recital (A) and the definition of Joseph, includes all the companies including the Superetto companies and the Delapage group companies). That must include a claim in negligence or for mismanagement.

The only remaining question is whether the claims in question must be “legal claims” as Joseph suggests. It would, I think, be absurd to suggest that Mr Thornhill was to be confined to making adjustments in respect of fully formulated and sustainable legal claims. The whole purpose of the Agreement was to avoid litigation and future dispute. Mr Thornhill was plainly being given the broadest possible discretion to make adjustments in respect of claims that he thought could reasonably be advanced. The definition of a “claim” was classically something that would fall within his discretion on the principles that I have enunciated above arising from Norwich Union and Mercury Communications.

Recital (E) is supportive of the broad definition of adjustments that I have identified. It provides that Mr Thornhill has been asked to investigate “who has benefited from Removed Assets” and “whether any other depletion of assets would prevent a fair division of assets” for the purpose of making “adjustments to the Lottery to try and ensure a fair division”. The term “depletion of assets” can encompass any method by which losses have been incurred by one side or the other, and one would think in the absence of limiting provisions elsewhere, methods of incurring losses that were only negligent as opposed to deceitful or improper.

In these circumstances, I am of the view that Mr Thornhill misconstrued the term “adjustment”. He was simply wrong when he told me that an adjustment could not include a transfer of property or companies. Clause 10(a) makes clear that adjustments include share or property transfers intended to provide a remedy for Removed Assets or depletion of assets, just as much as any other category. Mr Thornhill’s distinctions between “adjustments” and the “division of assets”, or between “financial adjustments” on the one hand and the “mechanism for division of assets” on the other hand is, in my judgment, mistaken. Adjustments are defined in clause 10(a) and include cash payments, property or share transfers or adjustment of liabilities to achieve fairness or convenience between the parties or any other matters Mr Thornhill thinks fit.

Mr Wardell relied in this connection on clauses 14 and 15 of the Agreement, which he said put Mr Thornhill in charge of the “form of the division of assets” and “[a]ll matters not specifically catered for relating to … the division of assets”. This is true, but it does not depreciate the effect of clause 9(B)(c) which makes clear that Mr Thornhill had to inform Joseph which adjustments had been proposed by the other.

The conclusion reached under issue 2(ii) is, of course, of great significance, since Mr Thornhill was obliged under clause 9(B)(c) to “inform [Naomi] and [Joseph] which adjustments each has proposed”. If I am right in my construction of “adjustments”, Mr Thornhill was obliged to inform Joseph of suggested share transfers in the Superetto companies if these were proposed by Naomi. But that is not an end of the matter, because Mr Wardell argued with considerable force that clause 9(B) was a one-off process. Clause 9(B)(a) provides that Naomi and Joseph shall inform Mr Thornhill of any Removed Assets that they or their interests have benefitted from and what adjustments they believe Mr Thornhill should make “forthwith” after signing the Agreement. Plainly that is a one-off requirement, but it can hardly have been intended that, if Joseph undertook this exercise in two stages, the second stage would not be covered by the remaining provisions in clause 9(B) just because it was a week or two later than “forthwith”.

Clause 9(B)(b) then allows for Naomi and Joseph to supply Mr Thornhill with questions for the other side “in addition”. Presumably, those words were intended to mean that the questions could be posed in addition to the provision of details of Removed Assets and adjustments under clause 9(B)(a). But again, I cannot imagine that the parties can be taken to have intended that if the questions were supplied rather later than “forthwith”, they would fall outside the machinery of clause 9(B) altogether.

As it seems to me, therefore, when one comes to clause 9(B)(c), the same approach is required. Clause 9(B)(c) provides that Mr Thornhill shall inform Naomi and Joseph of the adjustments that the other has proposed, and may require them to answer any questions he may choose (obviously envisaged to include, but not be limited to, questions that the other side has posed under clause 9(B)(b)). These are clear references back to the provisions of clause 9(B)(a) and 9(B)(b) respectively. But since the earlier sub-clauses are not, in my judgment, confined to a single one-off information provision, neither is clause 9(B)(c). That construction would be technical and unworkable, and cannot possibly have accorded with the practical way forward that the Agreement otherwise contemplated. I accept Mr Kitchener’s submission in this regard that the parties were obviously providing for an exchange of information as to what was proposed by the other side, as opposed to an exchange of information as to what Mr Thornhill himself intended.

Clause 9(B)(d) fortifies this construction, providing, as it does, for questions and answers posed by Mr Thornhill to be copied to the other side, and for those answers to be provided “within three working days of any request”. This does not indicate that Mr Thornhill’s questions are to be limited to a single round of questions or that the “forthwith” in clause 9(B)(a) has been carried through to the questions under clause 9(B)(c). In those circumstances, I do not see how the “forthwith” in clause 9(B)(a) can sensibly be carried through to the information that Mr Thornhill is to provide to the other side as the adjustments proposed by one side under clause 9(B)(c).

Mr Wardell argued that, if the parties complied with clause 9(B)(a) forthwith as required, they would not have the information required to make submissions on what adjustments in the broadest sense that should be made. This was supposed to support his narrow construction of the adjustments that might be the subject of such information, and his construction of clause 9(B) as a one-off process. I do not accept that it is sufficient to achieve either. In my judgment, clause 9(B) is of more general application as I have already indicated, despite the temporal word at the start of clause 9(B)(a).

In effect, Mr Wardell’s submission would, if correct, have required words to be read into clause 9(B)(c) to make it read: “[Mr Thornhill] shall inform [Naomi] and [Joseph] which adjustments each has proposed under clause 9(B)(a) and nothing else”. The clause does not, in my judgment, bear that limitation.

Finally, Mr Wardell submitted that if he was wrong on this point, clause 9(B)(c) can be satisfied by Mr Thornhill publishing the other side’s proposals and his intentions in his provisional report, allowing for further representations thereafter under clause 10(c). Since clause 9 is all about what is to happen prior to the announcement of the Lottery, as clause 1 expressly provides, I do not think this argument is sustainable.

For these reasons, I have concluded that clause 9(B)(c) did require Mr Thornhill to inform Joseph of any adjustments (including share transfers) proposed by Naomi, even if those proposals were made at a later stage, but prior to the announcement of the Lottery results.

This is a short point. Joseph submits that Mr Thornhill was obliged under clause 12(A)(b) to publish a full list of all facts found by him, and that he had to give each side 7 days before the Report to consider whether their answers were true and accurate. Since Mr Thornhill did not publish such a list of facts before or at the time of the Report, it is thereby vitiated. The construction point depends on whether the opportunity to reconsider the truth of each side’s answers must be before the Provisional Report, or can be before the Final Report. In my judgment, reading the clause as a whole, what is envisaged is that this opportunity must be given before the Final Report. The second time the words “Provisional Adjustment Report or Final Adjustment Report” are used in clause 12(A)(b), they must be read as if they meant “Provisional Adjustment Report and Final Adjustment Report” or “Provisional Adjustment Report and/or Final Adjustment Report”.

Clause 12 is dealing with the other remedies that the parties are to be at liberty to pursue against each other at the end of the process. As clause 12A says: “ … notwithstanding any other provision to this Deed the parties shall be free after the End Date to pursue any remedy they choose against any other party or person: … (b) to the extent any information which had been taken into account by [Mr Thornhill] in the Provisional Adjustment Report or the Final Adjustment Report when making any adjustments under clause 10 was inaccurate or untrue …”. The relevant part of clause 12(A)(b) is a proviso to that primary provision. Its intent is obviously to make sure that before one party can sue in respect of a lie told by the other to Mr Thornhill, that other party has had 7 days to reconsider the accuracy of what he told Mr Thornhill. Plainly what was in the parties’ minds was the possibility that one party might have denied removing money from the Group. Clause 12 is nothing to do with the machinery of the production of the reports – that is dealt with in clauses 9 and 10. Giving clause 12(A)(b) a sensible meaning requires that the opportunity to correct an untruth told to Mr Thornhill is before the last of the provisional and final reports, not just the provisional one. It is only at that stage, after the End Date, that the proceedings contemplated by clause 12(A) can be brought. It would be pointless to provide for such an onerous requirement in the middle of the process. All that is required is that Mr Thornhill allows the parties the opportunity in clause 12(A)(b) before the final report and the End Date.

This too is a short, if important, point. Mr Kitchener submits that the words used in clause 10(a) do not allow Mr Thornhill to order Joseph to pay a residual sum after transferring all the jointly owned assets to Naomi, in the light of Recitals (D) and (E) and clause 9(B). The problem with this argument is that clause 10(a) is, as I have already pointed out, a very broad provision indeed. It allows Mr Thornhill to make adjustments “in terms of cash payments, property or share transfers or adjustment of liabilities to achieve fairness or convenience between the parties in regard to the matters raised hitherto by either side or any other matters he thinks fit” including “any claims that might lie against [Joseph], [Naomi], [Danny] or [Barry] in relation to the prior conduct of the affairs of the J&N Companies and the Respective Interests or any of them”.

The adjustments contemplated, therefore, allow cash payments to be required to achieve fairness between the parties in regard to any other matters Mr Thornhill thinks fit and including any claims in relation to the prior conduct of the affairs of the Group. The limitation that Mr Kitchener seeks to read into these words is simply absent. The recitals do not contradict the governing clause. And, in my judgment, the limitation contended for would anyway be surprising bearing in mind that the dispute arose because Naomi alleged that Joseph had been taking money out of the Group for his own benefit. She did not know the extent of these alleged defalcations. Why should she agree that Mr Thornhill’s powers should be limited to the value of the Group, when she did not know how parlous was its actual financial condition? I do not think any such limitation is to be read into the Agreement or clause 10.

On this issue, Mr Kitchener refers to certain documents, in particular an email from BLP to Mr Thornhill dated 1^st November 2010, and certain parts of Mr Southworth’s statement as tending to show that even Naomi’s side thought that Haysport and Twinsectra were outside the scope of the Agreement. In my judgment, what the parties may or may not have thought after the event cannot on any basis determine an issue of construction.

Clause 10(a) is once again in point. The adjustments contemplated include “any claims that might lie against [Joseph], [Naomi], [Danny] or [Barry] in relation to the prior conduct of the affairs of the J&N Companies and the Respective Interests or any of them”. The “J&N Companies” include in the definition of “JA” in the Agreement Delapage and its subsidiaries, namely Haysport and Twinsectra. Thus, Mr Thornhill was indeed empowered to make adjustments in relation to legal claims that might lie against Joseph in relation to his prior conduct of the affairs of Haysport and Twinsectra.

Clause 7 does nothing to limit that power. It simply reiterates that transfers of properties in respect of the Delapage Group shall be made when Mr Thornhill decides to “make any adjustments that [Mr Thornhill] shall decide (having regard to the Selwyn proposals) should be made in accordance with clause 10” (emphasis added). Clause 7 continues by making it clear that it was envisaged that Mr Thornhill should ensure that the burden of the £5 million Lloyds Bank guarantee in connection with the NOF Trust “falls on properties allocated to [Joseph]”. Simply because properties and not cash are mentioned cannot deprive clause 10 of its full effect. Nor can the fact that the charity companies are excluded from the releases in clause 11. That exclusion was, no doubt, inserted to ensure that the Charity Commissioners retained ultimate control of the Delapage Group. It provides no indication that Mr Thornhill was unable to require Joseph to compensate Haysport and Twinsectra. In my judgment he was fully entitled so to do.

Joseph submits that Mr Thornhill was in breach of the Agreement when he ordered the following three adjustments against Joseph totalling £18.5 million:-

It does not seem to me to matter whether these are sums deemed due in respect of Removed Assets or in respect of mismanagement or negligence claims against Joseph. They were undoubtedly, on the construction of the Agreement as I have held it to be, within Mr Thornhill’s powers. He was not, therefore, in my judgment, in breach of the Agreement in this respect.

Insofar as Naomi proposed the transfer of the Superetto subsidiaries and the jointly-owned properties and companies to herself, Mr Thornhill was, for the reasons I have given under issue 2 above, obliged to inform Joseph under clause 9(B)(c) before promulgating the Report. Mr Thornhill was, therefore, in breach of the Agreement in failing to do so in November and December 2010. I shall return to the consequences of this breach in due course.

What is suggested here is an extremely technical breach. It is said that, when Mr Thornhill asked Barry questions about the receipt of commissions and the Loch Tummel dividend, he should have copied the questions and answers to Joseph under clause 9(B)(d). This, as it seems to me, is correct. It is clear that Mr Thornhill did indeed ask Barry questions about the commissions (and accepted Barry’s answer that he had not received any). It seems likely that he also asked such questions about Loch Tummel. Neither set of questions, nor the answers, was copied to Joseph, and Mr Thornhill was therefore technically in breach of clause 9(B)(d), not clause 9(B)(e) of the Agreement. I shall return to the consequences thereof.

For the reasons I have given under issue 2(iv) above, Mr Thornhill did not have an obligation to provide a list of facts or give Joseph an opportunity to correct them until before the Final Report, which has yet to be produced. He is not, therefore, in breach of the Agreement in this regard.

Clause 15 provides that Mr Thornhill “may seek the views of the parties”. It is not to be inferred from this provision that he must always consult both parties on each issue that concerns him. Such an obligation would be cumbersome and unnecessary. I see no reason to read it in to a clause that simply allows Mr Thornhill to consult the parties, if he chooses, on any matter he wants. The breach alleged under this head against Mr Thornhill is not, in my judgment, made out.

This issue seems to me to confuse the question of (a) whether Mr Thornhill was obliged under the Agreement to inform Joseph of what Naomi said in answer to questions posed, and (b) whether Mr Thornhill was obliged under the Agreement to inform Joseph of what he intended to order under clause 10. As I have said, Mr Thornhill was indeed obliged under clause 9(B)(c) and (d) to inform Joseph of adjustments proposed by Naomi and what Naomi said in answer to questions posed, but he was not obliged (save under a duty of fairness to which I shall turn in due course) to tell Joseph what he was proposing to include in the Report.

I have already found that the failure to copy Joseph in on Barry’s answers on the alleged commissions was a technical breach of clause 9(B)(d). I understand that Joseph objects to Mr Thornhill’s findings on the other matters raised under this issue, but I have not found that Mr Thornhill received responses from Naomi’s side or suggested adjustments from Naomi’s side that he did not copy to Joseph. Joseph was fully aware of Naomi’s objection to his proposed salary adjustment. I do not think there is anything more in this alleged breach than I have already found under issue 3(iii) above.

As appears from my factual findings on the evidence, I am not satisfied that Joseph has made good any allegation that Mr Thornhill acted with actual bias or that he colluded with Naomi’s side or with Barry in particular.

The allegations of bias and collusion are, however, much bound up with the allegations of unfairness dealt with below in issue 4. Those findings should, therefore, be considered as part of my findings under this issue.

I should say under this head, however, that I have concluded that Mr Thornhill retained at all times an attitude of mind which allowed and allows him to make an objective and independent determination of the issues that he had and has to resolve. He never colluded with Naomi, Barry or Mr Robinson, nor did he actually favour the interests of Naomi and Barry over the interests of Joseph and Danny. He was in no sense affected by any prejudice against Joseph. He may have become frustrated and even annoyed by some of Joseph’s conduct during the process of reaching the provisional report stage, but I am entirely satisfied that he never became prejudiced against Joseph.

It is common ground that there is an implied obligation that an expert will undertake his determination fairly. The allegation of breach under this head is, of course, simply an allegation that Mr Thornhill departed from his implied procedural instructions, since the implied obligation of fairness is no more than an implied procedural instruction in every instruction to an expert.

I shall, therefore, deal with this issue under the specific heads of issue 4 below.

This is the nub of the case. I have already held that Mr Thornhill failed, in breach of clause 9(B)(c) to give Joseph notice that Naomi was proposing the transfer of the Superetto companies and all the jointly-owned properties and companies to her.

The level and nature of unfairness is, however, very important to the consequences. I should say first that Mr Thornhill never acted, in my judgment in anything other than perfect good faith. He genuinely believed that his interpretation of the Agreement was the correct one. I have concluded that it was not, but that does not mean that he acted in bad faith in acting as he did.

In his closing submissions, Mr Kitchener focussed on a few crucial points in the chronology in an effort to demonstrate that Mr Thornhill lost any sense of the necessary impartiality, fairness and independence, and simply associated himself with Barry, Naomi and Mr Robinson, looking to them for his instructions. I completely reject this analysis, which is wholly contrary, in my judgment, to the evidence. It is a description of events, which was, in my judgment, borne of Joseph’s desire to criticise everything that Mr Thornhill did, without any sense of balance, and to find conspiracies and mis-dealings where there were none.

It is crucial to understand at the outset the extraordinarily difficult task that Mr Thornhill had agreed to undertake. Many less resilient people might have gone so far as to say that Mr Thornhill was mad to have done so. But that does not make him unfair. In my judgment, his conduct, whilst it was somewhat unwise in a number of minor respects that I have dealt with, and will deal with, was always fairly and properly directed toward obtaining the right answer for the benefit of both sides. To say that Joseph placed obstacles in Mr Thornhill’s path towards this end is a substantial under-statement. Joseph came close to making Mr Thornhill’s task impossible. I have already said that I formed the view that this was, at least on one analysis, his objective. It is very likely that he did not really want to be required to separate the Group; rather he wanted to be allowed to continue to run the Group in his own way, using Naomi’s half interest without consulting her, as he had always done. To that end, he and Danny simply refused to provide Mr Thornhill with the information necessary to allow him to undertake the process to which they had signed up.

I should explain why I cannot share Joseph’s perspective of Mr Thornhill’s fairness and independence. First, Mr Kitchener accepted that Mr Thornhill had not been unfair all along. Mr Kitchener said that Mr Thornhill reached a stage where he was so annoyed with Joseph that he lost his sense of fair play. The stage to which he pointed was in November and December 2010, and in particular the 17^th November 2010 meeting at which he ‘agreed’ certain crucial matters with Barry, and in relation to the 2^nd December 2010 meeting with Joseph at which he allegedly misled Joseph as to his intention to transfer the Superetto companies.

I do not think that Mr Thornhill agreed anything with Barry and Mr Robinson on 17^th November 2010. Mr Robinson’s note records that he had, but in truth, the note was prepared in order to push Mr Thornhill towards the end that he wanted for his client. Mr Thornhill just discussed the possibilities, and developed his thinking as he was fully entitled to do. Mr Thornhill was, as I have already recorded, a very good listener, who always gave the impression that he agreed with what people were saying. He was perhaps, in some senses, ‘all things to all men’, but in truth none of this was unfair nor constituted a loss of independence. He was, I think, playing along with both sides, which was all he could do in the face of the most acrimonious dispute of a life time.

As for 2^nd December 2010, I have already found that Mr Thornhill did not mislead Joseph deliberately or otherwise. He may have used the term “up for grabs”, but whether or not he did so, I do not accept that he meant to communicate that the transfer of the Superetto companies would not be transferred. Nor do I accept that that was how what he said was understood. The 2^nd December 2010 meeting was an unsurprising discussion of Joseph’s tenaciously held view that there was value in the Group, that he could turn it round, and that the appropriate adjustments balanced out, so nothing on balance was due to Naomi, and the Lottery results should be put into effect without adjustment (if they had to be, bearing in mind his probable desire to keep everything under his own control).

Then, Joseph relies on the events at the end of December 2010 that led to the Superetto Agreement and the Property Deed and the other documents that Mr Thornhill and Naomi executed. The key to understanding what happened at that stage is Mr Thornhill’s rather old-fashioned approach to drafting and to information technology. Mr Thornhill is of the old school. He is not at home with email or undertaking office tasks that some younger members of the Bar find second nature. This is not a criticism, but it means that Mr Thornhill was simply not able to produce and process the documentation he needed to do what he had decided to do without the help of a firm of solicitors. His own solicitor, Mr Parker, was one of only two partners in his firm, who also did not, I imagine, have the necessary infrastructure and facilities to put so much material together at the required pace. It is to be remembered that the documentation had to be completed by the end of 2010, and Mr Thornhill had not really decided, even in principle, what he wanted to do until 14^th December 2010 or thereabouts, when he met the Managers.

Mr Thornhill did in fact draft the Superetto Agreement, the most sensitive document himself, but he then asked BLP for their comments. There was nothing improper or even unfair about this, provided, as I am sure he did, he retained his clear understanding that the final terms of that agreement and other documentation was entirely a matter for his own expert judgment. I don’t believe for a moment that Mr Thornhill was improperly influenced by Mr Robinson or Barry or Naomi either at the morning meeting at the Chambers or in the afternoon at BLP’s offices. It would, of course, have been better if Mr Thornhill had had the services of a comparably large firm himself so that he could have done the whole job himself without consulting BLP at so many stages. But that was not practicable, and ultimately I do not think it was, in itself unfair either.

Joseph also complains that Mr Thornhill described the arrangements he put in place with Naomi and Barry as “consensual documents”, and that he had thereby lost sight of the need for impartiality. In my judgment, this submission missed the point. Provided, as I have already found, Mr Thornhill was making the decisions, and had decided that he could only sensibly proceed as he had decided to do, he had to make sure that the arrangements would work. As I have also already said, it would have been better if he had complied with the formal requirements of the Agreement. But taken in context, I think his failure to do so was of very limited effect.

Thereafter, Joseph relies on the emailed communications in the run up to the Report, and on Mr Thornhill’s conduct after the Report. I will deal with these points under the respective issues below, but I do not think Joseph was in any way justified in concluding that Mr Thornhill’s post-Report conduct was evidence of a lack of fairness or independence. In the most part, Mr Thornhill was, I think, somewhat disengaged from the process and returned to undertake his normal practice. As a result, he, perhaps somewhat unwisely, allowed BLP to take the lead in dealing with the ramifications of the Report. One thing that is clear to me is that none of the post-Report conduct leads to the conclusion that Mr Thornhill lost sight of the need to be fair and independent. I do think that Mr Thornhill momentarily lost sight of the need to become engaged on the third stage of the determination process. That occurred partly because Mr White had, on Joseph’s behalf, made such a forceful challenge to what Mr Thornhill had done within hours of receiving the Report. Mr Thornhill thought, with some justification, I think having seen the full correspondence, that Joseph had gone into what might properly be described as “litigation mode”. Mr Thornhill probably thought, therefore and with justification, that the third stage had effectively been put on ice pending resolution of the complaints that Joseph and Mr White and their solicitors were making.

None of this, of course, excuses the breach that I have found established. But it is crucial to put the breach in context as one moves, as I shall under issue 5, to consider the consequences of it.

This allegation adds nothing to the one that I have already dealt with under issue 4(i) above. It is the obvious concomitant to the failure to comply with the proper meaning of clause 9(B)(c). The failure to tell Joseph what Naomi was asking for was only relevant at all, because, had he known, he might have been expected to make submissions to Mr Thornhill objecting to what was proposed. Moreover, as Mr Kitchener submitted, and I accept, had Joseph been told about the specific provisions proposed by Naomi for the Superetto Agreement, he might have wanted to propose other solutions with a less draconian effect on him and his family. I will return to whether any such alternative proposals would have been likely to find favour with Mr Thornhill, but for the moment I accept they might well have been put forward. There were indeed, as Mr Kitchener said, many ways in which a solution of the kind proposed by Mr Thornhill could have been achieved.

I have already dealt with the first part of this issue. For reasons I have already given, I do not think there is anything in the suggestion that there was any breach of the Agreement or any unfairness in failing to consult with Joseph on the valuations he was using for the purpose of the Report.

First, I do not think that Mr Thornhill actually did fail to consult Joseph on valuations. That was, as he told me, a main focus of his discussions with Joseph. Joseph wanted to persuade Mr Thornhill that the valuations meant that the Group was viable. Secondly, both sides were proceeding on the basis that detailed valuations would not be undertaken before the Report, but would be done at the third stage of the process. Thirdly, Mr Thornhill did not, as suggested, unfairly adopt Barry’s pessimistic valuations. Rather, he recognised that Barry’s valuations were pessimistic, and Joseph’s and Danny’s valuations were optimistic, and took his own middle course plumping for a 15% reduction in the agreed Lottery figures, rather than Barry’s suggested 30%. Unfortunately for Joseph, even this modest fall in values resulted in Mr Thornhill, reasonably I think, forming the view that the Group was insolvent and could not survive without a major debt rescheduling with the Managers.

For the reasons I have largely already given, I do not think that Mr Thornhill intentionally misled Joseph at any stage. I think there were some unfortunate misunderstandings at various stages that might have been better handled, but that is very far from the same thing.

In relation to Loch Tummel, I have already found that Mr Thornhill had in fact forgotten in January 2010 that a dividend had been declared, if he ever actually knew that one had been. In these circumstances, he did not mislead Mr Southworth about this.

In relation to the “up for grabs” conversation, I have also already made it clear that Mr Thornhill did not mislead Joseph about the possibility that the Superetto subsidiaries might be allocated to Naomi. He simply did not discuss that possibility with Joseph.

Nor, I think, did Mr Thornhill mislead Joseph as to the extent to which Naomi had been consulted prior to the issue of the Report. Indeed, Mr White complained in his 5^th January 2011 email that Mr Thornhill had not contacted him for three weeks. He probably should have done so, but there is no evidence that Mr Thornhill misled Joseph at any stage about the contact he was having with Naomi’s side.

As regards what had happened on 30^th and 31^st December 2010, again Joseph was not misled. Neither the email to all parties dated 31^st December 2010, nor the email dated 4^th January 2011 from Mr Thornhill to Mr Southworth were factually inaccurate. Mr Thornhill should at an earlier stage have engaged in hearing Joseph’s views on the proposed share transfers, but not having done so, there was no unfairness in the way he communicated the outcome to Joseph.

Mr Kitchener placed great reliance on Mr Thornhill’s failure to provide the documents. I have already explained my view of what happened. Mr Thornhill ought to have arranged for Joseph to get the documents, but he took his eye off the ball (as to which see issue 4(v) below). He did not mislead Joseph in his 1^st March 2011 letter saying he had made ministerial directions. That was what had happened. What he said was truthful, even if it did not tell Joseph the whole story. It might have been better if he had, but it was not unfair not to do so. It was responsible for a loss of confidence which is unfortunate. I shall return however to its legal effect.

I have seen no evidence to suggest that Mr Thornhill misled Joseph as to the basis on which he reached his views regarding the value of the assets. His Report is clear. Mr Thornhill had relied on values from a number of sources including Joseph, the banks and Danny. There was nothing unfair about his having done so.

Joseph asked, quite reasonably, I think, for the documents that had been executed at the end of December 2010 to give effect to Mr Thornhill’s decisions and by using the power of attorney he had provided. BLP refused to supply them until court proceedings were initiated and disclosure was required. Mr Thornhill first failed to deal with the request, and then said, as I think was the case, that he did not have copies of the documents.

Mr Wardell pointed out that the documents were only sought by Joseph’s solicitors for the purposes of this litigation, rather than for the purposes of continuing the process envisaged by the Agreement. This may be true, but it does not affect the fact that, in my judgment, the documents ought to have been timeously provided.

Mr Robinson described his firm’s response to this request as “petty”. I think it was worse than that. It was unacceptably obstructive, and calculated to inflame the already inflamed situation. Mr Thornhill did not seek to make excuses for what had happened and readily accepted that he ought to have seen to it that the documents were provided. I think Mr Thornhill can be largely excused from blame, because he is not particularly computer literate, and certainly does not run a particularly modern or efficient office. Moreover, after the hectic activity of November and December 2010, I think he was getting back to his normal practice. He seems to me to operate as many old-fashioned silks are wont to do, by concentrating on the case of the moment, and putting on the back burner pressing events in other cases. That was certainly the case when he was undertaking a three week tribunal case in Edinburgh in April 2011, and may have been the case also in the earlier months of 2011. Having seen the correspondence, it seems to me that Mr Thornhill took his eye off the ball, but did not deliberately act unfairly. Mistakenly, he left matters to his solicitors and allowed BLP to decide what should be done as to the provision of documents.

Ultimately, however, I do not think that this episode is evidence that Mr Thornhill cannot be trusted to act fairly or independently as between these parties. It was as I have said, just an unfortunate mistake, caused by his having taken his eye off the ball.

I do not understand this allegation to be actively pursued. Even it were, I cannot see that it goes anywhere to showing that Mr Thornhill behaved unfairly.

In my judgment, there is nothing in this allegation. It is true that on 1^st March 2011, Mr Thornhill sent Mr Robinson a draft of a letter he intended to send to Mr Cox of Lloyds including the words: “[it] is highly unlikely, in my view, that further adjustments will be called for”. But, this has to be viewed in context. There had already been a challenge to Mr Thornhill’s decision, and the third stage of the process had simply not started. Moreover, Mr Thornhill did not want to make the banks think that there was continuing uncertainty. I do not think I can read any underlying unfairness into this isolated comment.

The suggestion here is that, by agreeing the Head of Terms including a clause that Barry accepted meant that the Group must remain within Naomi’s family for the duration of the rescheduled loans, Mr Thornhill has been unfair to Joseph. I do not agree. The Heads of Terms are not yet concluded. The term in question was no doubt required by the Managers. If the third stage proceeds, it will be open to Joseph to suggest it is inappropriate and to explain why that is so.

No such agreement was entered into. It was most unfortunate that such an inappropriate offer was made by Naomi’s side.

For the reasons already given, I am satisfied that Mr Thornhill was not guilty of bias or collusion.

In the light of my decisions thus far, materiality is of the highest importance. As a result of Mr Thornhill’s misreading of the Agreement, I have held that he departed from his express procedural instructions in that he failed to inform Joseph of the adjustments that Naomi had proposed to the ownership of the jointly-owned companies and properties and the Superetto companies. The failure to give Joseph the chance to comment on Naomi’s proposal for the transfer of the Superetto companies and the jointly-owned companies and properties was also a breach of the implied obligation of fairness, and therefore a departure from his implied procedural instructions.

Mr Kitchener submitted that the only permissible enquiry was whether the breach was material to the provisional Report, and that one could not ask the broader question of materiality to the process envisaged by the Agreement at large. In other words, Mr Kitchener was suggesting that the Defendants were wrong to submit that materiality must be judged in the light of the fact that the process under the Agreement could (according to them) now proceed as intended, with Joseph and Naomi making further representations to Mr Thornhill on the Report with a view to persuading Mr Thornhill to change his mind before the End Date.

The first question is, of course, whether applying the law that I have sought briefly to set out above, the breaches that I have found to be established were material to Mr Thornhill’s determinations as an expert as comprised in his Report.

It seems from the authorities set out above that a different test of materiality might sensibly apply where there is a departure from substantive instructions on the one hand as opposed to a departure from procedural instructions (whether express or implied) on the other hand.

I confess to finding some difficulty in understanding how Simon Brown LJ’s test for materiality enunciated in Veba Oil can work. He says something that I find inherently contradictory, namely that (a) “Once a material departure from instructions is established, the court is not concerned with its effect on the result”, and (b) “I would hold any departure to be material unless it can truly be characterised as trivial or de minimis in the sense of it being obvious that it could make no possible difference to either party”. This discrepancy cannot affect this case if his test is confined, as I am sure it was intended to be, and on later authorities has already been, to departures from substantive instructions.

As it seems to me, the appropriate test for materiality in relation to all departures from procedural instructions, whether they arise from express procedural instructions or an implied obligation of fairness, must be the same. It seems to me from cases like Amec and Worrall v. Topp that it is generally the case that each party should have an opportunity to respond to contentions made by another party, and that the test for materiality in cases of departures from express or implied procedural instructions including an obligation of fairness is that: (a) if the decision was inevitable, it will not be material; (b) whether a determination is otherwise invalidated depends upon all the circumstances of the case, the nature of the omission or departure, and the effect it had on the expert in reaching his decision. I am inclined to think, without deciding, that Dyson LJ’s test to the effect that it depends on whether the parties would reasonably have regarded the departure as sufficient to invalidate the determination might be another attractive way of considering the matter. That may be a question for a higher court, and so I shall confine myself to applying the test taken from the other cases that I have mentioned.

In this case, I have already found that Joseph might well have wanted to make substantive submissions as to both the solution that Mr Thornhill adopted, and the way in which it was effected. But that does not mean that the decision was automatically not inevitable. I have considered Mr Thornhill’s evidence as to his thought processes very carefully, and I am satisfied that the solution he adopted was one that he had carefully considered to meet the great difficulties created by the ongoing negotiations with the Managers, and in an attempt to provide for equality between the position of all the children of both Naomi and Joseph. I do, therefore, think that the ultimate decision was inevitable in that it was what Mr Thornhill had decided. Joseph’s submissions would, as Mr Thornhill also told me, most likely have consisted of a repetition of his oft-repeated position that there was indeed value in the companies and that no adjustments were necessary. Mr Thornhill had considered carefully a trust solution, which might have allowed him to buy more time, an interim management solution and no doubt other possibilities, but he ultimately resolved in favour of the debenture approach taken together with a discretionary future valuation. I think he would have done so, whatever representations might have been made by or on behalf of Joseph. The outcome in the Report was, therefore, in the relevant legal sense, inevitable. It would not, in my judgment, have been affected had Mr Thornhill not departed from his express and implied procedural instructions in the way that I have found he did.

I cannot possibly say that the final terms of the documentation would inevitably have been the same whatever representations Joseph and his advisers had made. But I am satisfied that they would not have been very much different. The identity of the valuer (namely Mr Berry in the first instance) might have been different, and the precise terms on which the valuer was enjoined to act might also have been different. That means that I cannot decide that the formal documentation was inevitable.

In these circumstances, in order to decide materiality, I have to consider all the circumstances, the nature of the omission or departure, and the effect it had on the expert in reaching his decision. The nature of the omission to seek Joseph’s views on Naomi’s suggestions was not as significant as Joseph has submitted. The process had been going on for years, and I am bound to say that I can only imagine that Mr Thornhill knew all he was ever really going to know about the attitudes of both sides. It is true that knowing the outcome of the rescheduling negotiations with the Managers would have made a great difference, but that was never on the cards, even accepting the much elongated timetable within which Mr Thornhill was operating. An important circumstance that falls to be considered in relation to materiality is, in my judgment, the fact that the determination in question was not a final but an interim determination. On one analysis, the determination reflected in the Superetto Agreement and the Report and the other documents was not a determination at all. It was simply an interim step on the road; a part of the required route to the eventual determination in the Final Report at the End Date. It remains open to Joseph to question the Report and to make representations that the documentation entered into to implement it should be reversed wholly or partially.

The materiality of the breach would also in my judgment be radically affected if it could be said that Mr Thornhill had been shown to have lost his impartiality or independence, or to have been biased or collusive with one side. Mr Kitchener submitted that Joseph had lost confidence in Mr Thornhill’s independence, balance and fairness, and that was enough to make the breach material. It seems to me that that cannot be right. The less successful party may often be disaffected part way through the process. The court will be astute to hold the parties to their bargain and to support as far as is lawful the process to which they have subscribed, no doubt for excellent reasons of economy and expedition, amongst others. In my judgment, a breach will be very likely to be material if, objectively judged, the challenging party has reasonably lost confidence in the independence of the expert on solid evidential grounds. In other words, one relevant and important circumstance making it most likely that a determination will not stand will be if, objectively viewed, the expert has demonstrated any lack of proper independence. I do not think that is the case here. Mr Thornhill has acted in such a way as to upset both sides. Ultimately, his provisional Report comes down more on Naomi’s side than on Joseph’s side; though it may be noted that he only accepted some £23 million of the £70 million worth of adjustments suggested by Naomi. It might well be that the interim nature of the Report would be less relevant if, viewed objectively, Mr Thornhill had lost his independence so that the court could not be satisfied that he would continue the process with the necessary degree of fairness and independence. But that is not the case here. I am entirely satisfied on the evidence that Mr Thornhill will, if that is the effect of the court’s decision, proceed impartially, independently and fairly to undertake the third stage of the determination process.

It is not for me to consider the substance of what Mr Thornhill decided upon. That cannot be challenged. But I am bound to say that it was clear that he had considered very carefully what practical options were open to him in the light of the financial realities, and concluded that the Group could not survive unless it was in the hands of one party who could negotiate with the Managers and give them confidence in the management for the future. It is hard to say, on the evidence I have heard, that he was obviously misguided or wrong. His solution also had the benefit of preserving any value that is shown to exist in the Group for the 9 children equally.

For these reasons, therefore, I do not think that Mr Thornhill’s departures from express and implied procedural instructions (or breach of the duty of fairness) was material. He would, I am sure, have reached the same substantive conclusion whatever Joseph had said. And any representations that Joseph would have made can still be made at stage three of the process. I am entirely confident that Mr Thornhill will be able to evaluate those representations with an open and independent mind. He will, in particular, in my judgment, be ready and willing, as a former Recorder, to understand that he must now follow the construction of the Agreement that the court has laid down. If, in the light of the representations under clause 10(c) that he receives, he forms the view that changes need to be made to the Superetto Agreement or other documentation, he will be able and willing to make such changes. Nothing is yet set in stone and Naomi will be obliged to act at his direction to change any of the existing transactions that he decides need to be changed. That would have been possible during stage three of the process in any event.

I have taken into account that Naomi and Barry are in possession of what Joseph argues is his property, but clause 10 offers very wide powers and the position can be rectified if Mr Thornhill determines it to be appropriate.

I have also considered Mr Wardell’s argument that Joseph's challenge is premature, because there has been no determination yet. As indicated above, it seems to me that the challenge cannot be regarded as premature as: (a) there has been a departure from the Agreement that the court can put right; and (b) if there had been a loss of independence, bias or collusion, the attack would have been justified.

I should mention for the sake of completeness that, applying the same principles, I am entirely satisfied that the other breaches I have held occurred, in relation, for example, to Barry’s answers on the commissions, are also not material. None of the breaches that I have found and none of the corresponding unfairnesses were material enough to invalidate or vitiate the Report. I will, if the parties wish it, make a declaration to that effect.

Mr Kitchener submitted that the breaches of the Agreement by Mr Thornhill constituted a repudiation of it, which had been accepted at the latest by paragraph 56 of the Particulars of Claim, thereby bringing the Agreement to an end. He said that the breaches were of a condition (in clause 9) or an innominate term, but that, either way, the breaches were so serious that Joseph had been deprived of his bargain, which had been to obtain a fair and independent separation from Naomi.

It is quite clear to me that the breaches that I have found established were not breaches of conditions, nor were they such serious breaches of an innominate term that Joseph could accept them as a repudiation of the Agreement. None of the breaches was deliberate. They were occasioned by an honest misreading of the complicated provisions in the Agreement. Since they are breaches at an interim stage of the determination, they cannot be so fundamental as to deprive Joseph of his bargain or to amount to a repudiation of Agreement. Joseph can, as I have said, make representations and seek to influence Mr Thornhill in reaching his final determination and in preparing his final report.

As for the process going forward, Mr Wardell has submitted, and I accept, that by analogy with Sudbrook Trading Estate Ltd v. Eggleton [1982] 1 AC 44, the court can lay down an amended timetable for the remaining steps under the Agreement. It is common ground that none of the provisions made time of the essence and that the delay in the third stage has been occasioned by these proceedings. I will hear counsel on the appropriate directions, but I understand that the parties are already attempting to agree an extension of time for the final report. I would be inclined to think that a period of six months from now would be reasonable.

Mr Wardell submits that both parties proceeded upon the common assumption that Mr Thornhill would decide what information to pass on, and that there was no obligation to pass on any continuing representations as to adjustments. I have seen nothing to support the idea that there was any such common understanding. It is true that Joseph made representations on the Vidas matter that he asked Mr Thornhill to keep from Naomi, but that never went so far as being a general understanding of the meaning or the requirements of the Agreement. None of the emails relied upon crossed the line to Naomi’s side. Even if agreement can be inferred from silence as Mr Wardell submits, there was no such agreement here. It seems to me, therefore, that the estoppel case could not, whatever my other decisions, have succeeded.

The same applies to the suggestion that the breach was caused by Joseph’s wrongdoing. Joseph was awkward and made Mr Thornhill’s task more difficult, but he did not cause Mr Thornhill to misconstrue clause 9(B). The Alghussein point too could not have succeeded.

This has been a hard fought and acrimonious dispute. For the reasons I have given the claim must be dismissed. But I should not end this judgment without expressing the hope that the parties will now try to work together with Mr Thornhill to make the Agreement work in its third and final stage. I have not hitherto mentioned the dire consequences that both parties have submitted would be occasioned if they were not to succeed. It may be that Mr Thornhill’s determination will not provide everything that each side wanted from it. But they signed up to it. It offers then and it offers now real light at the end of the tunnel. Despite the few mistakes that Mr Thornhill has made, he has been doggedly determined to carry out his appointment and to make a fair determination. He has been working doggedly in the interests of the Ackerman family as a whole. The fall in the property market and the massive debts owed to the charity companies were not Mr Thornhill’s fault. I very much doubt that either side would have found a more determined expert, who wanted to resolve what has been an intractable dispute to the very best of his ability. It would be a tremendous shame if the investment that the parties have made in Mr Thornhill were to be wasted.

I would also like to pay tribute to the parties, to the solicitors and to counsel for the efficient way in which this expedited trial has been conducted. At the pre-trial review, counsel were doubtful about whether the case could fairly be resolved within the three week estimate. In the result, it was tried in 11 court days, finishing 1 hour ahead of schedule on the last day. That could not have been achieved without balance, judgment, and discretion being exercised by all concerned. I only hope that such qualities will be applied by all concerned in equal measure in determining the way forward from here.

I will hear counsel on the appropriate form of order and as to costs.

Appendix 1

A Revised Further Agreed Way Forward was executed on 25th June 2009. It was envisaged that a Lottery announcement with preliminary adjustments would be made within three months:- see clause 10(a).

The animosity and hence lack of co-operation between the two sides has been such as to cause enormous delay. The delay has been accentuated by the following matters: -

(i)

A director of a limited company cannot devolve all directorial powers upon the holder of a power of attorney, though shareholders can;

(ii)

There is a severe conflict of interest affecting me such that I cannot both act on behalf of Delapage and its subsidiaries on the one hand and the Superetto and jointly-owned companies on the other;

(iii)

There is no machinery for compelling persons to do what they refuse to do save in their capacity as shareholders. Otherwise one is left with dismissing them as directors or causing them to resign as directors. These things can be achieved through the powers of attorney.

This Report deals with the adjustments to be made under clause 10 (a). These adjustments take account of Removed Assets (as defined in recital (C)) together with other adjustments to achieve fairness or convenience in regard to matters raised hitherto by either side or any other matters I think fit. There is considerable discretion as to how to achieve these adjustments. The matter is further complicated by the substantial debts owed by the private Ackerman companies to Delapage which cannot be paid as they fall due and need to be re-scheduled. I return to that matter later.

Lists of Removed Assets have been provided by each side. They are very brief. I have also received a report by Deloittes proposing adjustments put forward on behalf of [Joseph] and a list of adjustments proposed by [Naomi]. I have also received information concerning Loch Tummel Ltd provided by [Barry] and a list of insurance commissions paid from jointly-owned companies to a company called Enduring provided partly by [Joseph] and partly by Mulberry.

I propose to take the Deloitte Report produced on behalf of [Joseph] first and deal with the matters raised there. I take them in the order raised: -

Differential in drawings.

The figures here are from Wilder Coe, the group's accountants. It is made clear that the [Joseph] & [Naomi] account figures date from 1998 onwards while figures for the jointly-owned companies only date from 2003. I assume that these figures do not include items dealt with elsewhere in Deloitte's Report, e.g. salaries, management, charges, commissions etc.

It is suggested on the part of [Naomi] that the balance between drawings of both sides would be more equal if the figures went further back, but no figures are available. This suggestion is based on the fact that [Naomi’s] children have married later than [Joseph’s]. On the occasion of weddings substantial expenditure has undoubtedly been incurred in houses for the newlyweds. I accept in principle that this is correct. It is impossible to arrive at accurate figures. I propose to treat the difference as being £500,000 in favour of [Joseph].

Chief Executive's salary.

I accept that since his later brother's illness [Joseph] has worked very hard mainly on the affairs of the United Kingdom companies. However, he has by entering into transactions from approximately 2005 onwards caused enormous losses to arise. I am satisfied that these transactions were entered into substantially by [Joseph] and [Danny] with minimal information being provided to [Naomi] and with the use of cash from the jointly-owned companies in many instances taken without knowledge or approval from [Naomi’s] side. I, therefore, reject the salary claim. [Joseph] and [Danny] have taken drawings quite apart from this salary claim. The right to them is unaffected.

The NOF Trust.

It has been difficult to obtain information concerning this trust. Two versions of the list of the beneficiaries for the trust have come to light. One version suggests that the trust was for both sides of the family. Another suggests that this might not have been so. The handling of investments has been closely managed by [Joseph] and [Danny] and there has been close communication between [Joseph] and [Danny] on the one hand and Hassans acting for the trustees on the other. [Naomi] and [Barry] and their advisers have been excluded from these communications. [Joseph] and [Danny] appeared to have had extremely optimistic notions of the values of the Rosara investments and New Liberty Holdings investments. On the basis of these notions, considerable sums have been provided to Rosara from the jointly-owned companies and lost. I was responsible for stopping this outflow. Considerable sums were also provided from (1) Superetto companies and (2) subsidiaries of Delapage (a charity founded by the Ackerman family) for investment in New Liberty Holdings Ltd. These too have been lost. The Deloitte's Report recommends these losses be split 50/50, as also should the loss occasioned by a guarantee of a letter of credit in respect of Haysport.

I deal first with the Haysport issue. The facts are these. Haysport, a subsidiary of Delapage, a substantial charity, entered into a charge of property in support of the granting of a letter of credit by Lloyds TSB. The letter of credit supported an RBS loan in connection with New Liberty Property Holdings Limited, part of the assets of the NOF Trust. Lloyds TSB has called on Haysport for £5 million and it is presently proposed that one or more jointly-owned companies provide the £5 million. In my view, this £5 million loss ultimately falls to be made good by [Joseph]. I reach this conclusion on the basis that (1) the letter of credit arrangement was made by [Joseph] and risked what was essentially charity money for private benefit (2) Haysport received no separate advice and the commission proposed by BDO acting for New Liberty was (a) inadequate and (b) never paid. Either the £5 million must be borne by a company or companies taken by [Joseph] in the division of assets or he must replace it.

So far as the sums lent to Rosara and lost are concerned, that part provided by jointly-owned companies as to one half and any part provided by [Naomi] Superetto companies as to the whole should be made good by [Joseph]. At one stage there was a proposal to charge the losses on these loans to the [Joseph] Superetto companies. This was done in the 2008 accounts. The arrangement envisaged that [Joseph’s] side would take over the NOF assets. It is now clear that there are no assets to be taken over. That being the case, it is difficult [to see] why the losses on the loans should fall on the [Joseph] Superetto companies which are effectively owned by his children. I am told that it is extremely difficult to ascertain the source of funds lent to Rosara. The amount lent plus accrued interest at the agreed rate is approximately £20 million. I fix the loss to be made good at £10 million.

59 Great Cumberland Place.

The substantial court expenses were, in my view, the consequence of actions initiated by [Joseph]. The loss should be shared 50/50 and can therefore be ignored for adjustment purposes.

Lexham Alliance.

The Deloitte Report suggests that the loan of £2,049 million be written off. The arrangements for the making of this loan were, I find, made by [Joseph]. While he was no doubt acting in what he thought were the group's best interests, [Naomi’s] side were not properly consulted and would probably have objected to the arrangement if they had been. This loss as well as the smaller one of £1,045 million must, in my view, fall on [Joseph].

(F)

Charges by Morgan Management Limited to Jointly-Owned and Superetto Companies.

The first question to be answered is to what extent these are genuine management charges. [Naomi’s] side were working on management matters prior to the division of management though gravely handicapped by lack of access to computer records. The total amount of these charges from March 2008 to date comes to £1.058 million. The salaries for four members of [Naomi’s] management staff have been paid from Morgan Management. In addition one year's salary payment has been made to [Barry] in lieu of any payment from the Barclays account. These appear to me to account for all but a small amount of the fees paid.

Insurance Commissions.

Over many years (from at least 2002 to 2008) commissions were paid by Mulberry in respect of the substantial business put through them from Ackerman companies. The practice appears to have stopped in 2008 but goes back before 2002 in all probability. In 2006, 2007 and 2008, these commissions were diverted without [Naomi’s] knowledge to Enduring Limited and passed on to benefit the Liberty 2 portfolio held for the sole benefit of [Joseph’s] side. Before that sizeable commissions were paid to Twinsectra. I can see no reason whatever for payment to be made to Twinsectra especially when the commissions related to private insurances and the private companies have borrowed so heavily from Delapage and its subsidiaries. The total payments to Twinsectra from 2002 to 2006 are £4.1 million. In my view, [Joseph] must account for one half of all these commissions unless it can be established that the payments are loans as opposed to gifts. If loans, they could be recovered. The amount to be accounted for is £2.05 million. Had proper records existed to enable investigation to be carried out pre 2002, the amount would have been larger.

Repayment of Barclay's facility.

It is admitted by [Joseph] that he is liable for £868,073.

Loch Tummel.

From the information appended to this Report, it is clear that [Joseph] is entitled to a net dividend of £2.15 million (tax on this has been paid from the escrow account). [Joseph] is therefore entitled to £2.15 million but must reimburse the escrow account

An entirely separate matter concerns a sum of £2,846,334 held in Delapage. It was previously held in the escrow account for Delapage. The sum emanates from a gift made by Loch Tummel out of earlier profits, the gift representing [Joseph’s] share of that profit. [Joseph] claims that these funds should be used to make charitable gifts that he wishes to see made. I have every sympathy with this claim but it must be for the trustees of Delapage (or its managers) to decide how the funds should be used.

Other adjustments.

(i)

The Deloitte's Report refers to salary expenses being charged to particular companies and not recharged appropriately around the group. An example is Silverpearl, [Barry’s] Superetto company. Wilder Coe have supplied me with initial figures showing that from 2005 onwards Silverpearl has paid out some £1.3 million for the benefit of jointly-owned companies. Superetto companies, Haysport and Twinsectra: see also 6 (H) (v) below where an overall adjustment is proposed

(ii)

Readyset Resources apparently charges £6,750 per annum rent to nine Superetto companies. It is suggested this calls for an adjustment in favour of [Naomi]. I propose to ignore the matter. In any event clause 6 of the Way Forward deals with the rent of 113 Brent Street which is presumably the head office referred to.

(iii)

Accounts Penalties. Penalties have been attracted by late filing of accounts. This has been partly caused by [Naomi’s] being unwilling to sign the accounts in question. In my view, [Naomi] cannot be blamed or held responsible. There were substantial issues at stake.

(K)

Paragraphs 2.37 of the Deloitte's Report mention several "unquantifiable losses". I deal with them quickly: -

2.37

— 2.38 Empty properties. Both sides have accused the other of leaving properties empty. I propose to make no adjustment.

2.40

113 Brent Street. It is quite true that [Joseph’s] computers were locked in 113 Brent Street. I accept that [Joseph’s] companies have probably had to buy new computers. As against that [Naomi’s] side have had to deal with the fact that [Danny] has never handed over a disc with property information on it. This information is not reproduced in the files. In the circumstances I propose to make no adjustment.

2.4

102 lost sales. I accept that [Naomi] has stopped certain sales. Nevertheless, had those sales occurred, there is every reason to suppose that the proceeds would have been diverted to sustain the NOF Trust. This process was stopped by me in 2009.

2.4

3-4 Damage to reputation. This is too nebulous a head. In any event considerable damage must have resulted from the appointment or receivers to Rosara and New Liberty Property Holdings for which [Naomi] can hardly be blamed.

2.45

Commissions for [Joseph]. I would agree that [Joseph] should be entitled to commissions for successful purchases if [Barry] has. Alternatively [Barry] should account for them. I have found no evidence of [Barry] receiving commissions.

This deals with the Deloitte's Report.

I now turn to the points raised on behalf of [Naomi].

Regina Estates Ltd loans to Rosara.

This has been dealt with 5 (C) above. [Joseph] has put two points to me. The first is that in the Settlor’s letter of wishes the NOF trustees were directed to follow [Joseph’s] recommendations. Be that as it may, [Joseph] recommended the acquisition of certain properties and organized the loans to Rosara that were lost. The second point is that the NOF Trust was established at a time before [Naomi] made it clear that she did not [want] any more offshore investment. Therefore, the investment should be treated no differently from any investment in a jointly-owned UK company. The evidence suggests to me that the NOF Trust at all material times was tightly run by Rosara's directors and [Joseph] and [Danny]. [Naomi] and [Barry] (and indeed I myself) were not volunteered important information. Post 2005 further loans were made and lost. In my judgement, the conclusion at 5 (C) is the correct one.

£10.4 million loan from Rosara.

This amount was borrowed from RBS by increasing Rosara's facility and lent on to [Joseph] interests. It has been lost. Normally [Joseph] would be liable to replace one half. However, the NOF Trust is insolvent by a sum far exceeding £10.4 million and [Joseph] (see above) is bearing [Naomi’s] loss on the NOF Trust. In those circumstances it is unfair to ask [Joseph] to bear more than [Naomi’s] loss on funding the NOF Trust. That is what [Naomi] has lost. The loss of the £10.4 million is analogous to a further drop in the value of Rosara. That would not increase [Naomi’s] loss.

The Alliance Transactions.

I have dealt with Lexham Alliance at 5 (E) above.

(ii)

There is no mention in the Deloitte Report of Marylebone Alliance, a 50/50 company. One half of the losses attributable to Marylebone Alliance should, in my view, be made good by [Joseph]. They arose either from the Liberty 1 investment or from a private investment made by [Joseph]. The capital invested and lost was £7,716,190. Interest amounts to £2,212,800. The amount to be accounted for is thus £4,964,495.

Haysport —Letter of Credit — Twinsectra Loan.

I have dealt with this at 5 (C) above. Exactly the same principles, in my view, apply to the Twinsectra loan of £4 million. It must either be made good by a company allocated to [Joseph] or if not, made good by him.

Brent Management Limited.

Substantial loans have been made to this management company by the subsidiaries of Delapage, by the Superetto companies and by the jointly-owned companies. This company has passed these monies on to fund the Liberty 2 portfolio. The sums are irrecoverable. This company is not referred to in the Deloitte's Report. In my view, [Naomi] can claim recovery of all funds emanating from her Superetto companies and one half of those coming from jointly-owned companies. Here it is possible to trace the source of monies lent. I fix the sum lobe made good at £1.55 million.

(F)

Wilder Coe have supplied a list of amounts totalling £2.7 million paid by way of loans from jointly-owned companies to companies owned by [Joseph]. The loans have been written down to zero. Should the jointly-owned companies be allocated as per the Lottery, these sums are taken care of in the netting down of figures by Wilder Coe. Should that not happen, then [Joseph] will to a greater or lesser extent have to make good the loss.

(G)

A property belonging to Twinsectra has apparently been transferred to Pearscroft, a [Joseph] company. It must be returned.

(H)

Currency / family jewellery / Natalie's flat / Loans to [Danny] / Loans to Mocton / Running of Superetto companies.

A number of miscellaneous matters have been put forward. I deal with them as follows: -

(i)

Loan(s) from jointly-owned companies to Ossie Mocton (a son-in-law of [Joseph]). [Joseph] and [Danny] deny any loans. However, I have been shown a document which indicates the existence at some stage of a substantial loan, which is not recorded in any of the accounts of the jointly-owned or Superetto companies. An explanation will be required.

(ii)

Purchase and sale of a flat for Natalie. a daughter of [Joseph]. This flat has recently been sold. The point made is that it was purchased out of joint company funds. It falls to be dealt with under the heading of Drawings which 1 have dealt with already under 5 (A) above.

(iii)

Loans to [Danny] or companies in which he has an interest. So long as these loans have been properly recorded and not written off, no issue arises.

(iv)

Currency Transactions. It is claimed that these have produced losses. So far as I can see, these transactions have occurred within Twinsectra where two accounts have been kept, one with ABN-AMRO and the other with Merrill Lynch. I have no evidence of any currency loans but that does not mean there weren't any. However, if they occurred within Twinsectra they have now become a matter for investigation by the managers of Delapage. The mere fact that there were, or might have been, losses is not a matter for concern.

(v)

A safe deposit in the names of [Joseph] and [Naomi] existed with the London Safe Deposit Company. It was closed by [Joseph] on 20th January 2009 and the contents removed. [Naomi] does not know of what the contents consisted.

(vi)

Management of the Superetto companies. There are nine classes of shares in Superetto Holdings, each one carrying the right to profits and assets of a particular subsidiary. Originally the nine companies were of equal value but it was accepted at the time that each would grow in value by reference to its own assets. Equality was not intended or guaranteed. Each class of shares came to be held on interest in possession trusts, one for each child of [Joseph] and [Naomi]. The trustees were [Joseph] and [Naomi]. The management of the companies has taken little notice of the existence of the trusts. Some companies, e.g. Silverpearl have been loaded with costs attributable to the group: see 5 (1) (I) above. [Naomi’s] Superetto companies in general have borne unfair proportion of interest costs. Each Superetto company has borne 1/9th of the interest charges of Superetto Limited. However, [Naomi’s] Superetto companies have had substantial loans of their own and have borne that interest too.

I have decided that the fairest way to deal with this issue is in fixing the redemption price of the debentures/preference shares to be issued by Newco: see paragraph 9 (i) below.

The position so far, therefore, is as follows: -

Entitlement of [Joseph] Entitlement of [Naomi] Entitlement of

Haysport & Twinsectra

£ £.00 £

0.50 m Drawings 10.00 m Rosara 4.00 m Haysport

2.15

m Loch Tummel 8.00 m Alliance 5.00 m Twinsectra

Companies

2.05

m Commissions

1.55

m Brent Management

0.87 m Barclays

Less (0.51) Income Tax

____________ ____________ __________

2.14

million £22.47 million £9.00 million

£20.38 million

The net sum of £20.33 million owed by [Joseph] to [Naomi] and the £9 million owed to Delapage subsidiaries must either come from jointly-owned companies taken by [Joseph] or from [Joseph] himself. I seriously doubt whether there is this amount of equity in the jointly-owned companies, let alone the one half that would under the Lottery be [Joseph’s]. When the Lottery figures were determined and markets were much higher, the equity in the jointly-owned companies was £278 million gross, £42 million net after bank loans and unsecured debts. Values would only have to fall by 15 percent to eliminate the equity. To judge from revaluations made recently, the average fall in value is far greater than that. This is a serious situation in two ways. First of all, it is obvious that the use of jointly-owned company assets to fund offshore ventures coupled with donating profits to charity has brought these and the Superetto companies to their knees. If there is any value in them, it is substantially dependent on the jointly-owned companies being able to repay their unsecured debts and the Superetto companies their debts to Delapage and its subsidiaries. Secondly, if adjustments cannot be made because of an insufficiency of assets, [Naomi] would be entitled to take all the jointly-owned assets. However, in that event where adjustment amounts have been halved to reflect prima facie 50/50 ownership (e.g. the loans to Rosara and insurance commissions) these would need to be doubled to reflect the full loss. The Brent Management figure would increase by 0.85 million to 2.4 million. The loans at 6 (F) would also be recoverable, an additional £2.7 million.

These considerations lead me to the conclusion that what the Way Forward envisaged, that is, a 50/50 split of jointly-owned assets with adjustments either way is not possible. Such a split would also leave the two sides to negotiate separately with the managers of Delapage when clearly a combined approach or a single one would be preferable. The managers of Delapage share this view.

Having given the matter considerable thought, my conclusion is as follows: -

(i)

I can see no way in which [Joseph] can out of the jointly-owned companies that would otherwise pass to him under the Lottery raise the sum of £29.38 million without prejudicing the ability of those companies and the [Joseph] Superetto companies to repay debts to Delapage, I have decided that a Newco be formed by [Naomi] which would offer to acquire (a) all shares in the jointly-owned companies and (b) the shares in the Superetto subsidiaries, the consideration being an issue of ordinary shares to [Naomi] (but not [Joseph]) for the jointly-owned companies and the issue of a series of debentures to Superetto Limited, each set being linked to one of the classes of shares in Superetto Limited, the amounts secured by the debentures and their repayment date being determined by an independent expert who will have to regard to all the financial circumstances of the private companies. I would propose to use my powers to ensure that [Joseph] ceases to be a director of the jointly-owned companies and the Superetto companies with immediate effect.

(ii)

The first task of the new group would be to complete bank re-financings. The second would be negotiate a debt re-scheduling with Delapage. I would anticipate that it would take several years to reduce this debt to a manageable size. The next task would be to pay off the Superetto debentures which could only be done once Delapage was paid off. This would leave the residual equity in the hands of [Naomi] which she would take in part satisfaction of her claims against [Joseph].

(iii)

The jointly-owned companies are not the only source for payment of what is owed by [Joseph]. There are, in addition, the jointly-owned properties. I direct that [Joseph] should assign his interest in these properties to [Naomi] and appoint a nominee of [Naomi] as trustee in his place. I have carried out this step as [Joseph’s] attorney. I will instruct a valuer to value the interest so transferred. That value will reduce the claim against [Joseph]. There is also [Joseph’s] holding in Loch Tummel which I have caused Saltire Trustees Limited to transfer to [Naomi]. Finally [Joseph] has a beneficial interest, as I understand it, in Shomrin Nominees Limited which I have also caused to be transferred to [Naomi].

(iv)

I shall also instruct valuers (with skills in property and share valuation) to find the present value of [Naomi’s] equity in Newco. This will enable me to establish [Naomi’s] residual claim against [Joseph].

I fully appreciate that a resolution of matters along these lines was not anticipated in the Way Forward. However, the discretion I am given is very wide and it needs to be used given (1) the very parlous financial standing of the private companies and (2) the total dependence of the Superetto companies for their survival on being repaid very substantial debts by the jointly-owned companies. The affairs of the two groups of companies, Superetto and jointly-owned, have become inextricably linked as a result of the way in which the "group" has been run.

It is my understanding that my position under the Revised Further Agreed Way Forward continues although the powers of attorney have come to an end. Once the steps I have proposed have been implemented and valuations done, I shall certify the outstanding claim against [Joseph] if any. Whether any residual claim could be pursued against any other person is not a concern of this Report.

I have not appended to this Report information from third parties such as Wilder Coe. I have appended the information relating to Loch Tummel Limited and a summary of Morgan Management's cash book. There are further items of information that may be required.