Bleasdale & Anor v Forster

In this action the claimants, Ms Kathleen (Kate) Bleasdale and her husband Mr John Cariss, claim damages for fraudulent misrepresentation, or alternatively for breach of contract, against the defendant, Ms Deborah (Debbie) Forster. The claimants say that they were fraudulently induced by Ms Forster to invest in a private company which she had founded in 2005, Stay Put Tag Limited (“SPTL” or “the Company”). The object of the Company was to exploit and market a device which Ms Forster had invented known as “the Stayput Tag”, the purpose of which was to identify and prevent the misallocation of laundry in care homes and similar institutions. This was a prevalent problem, of which Ms Forster had personal experience, and a cause of frequent distress to residents and their relatives. The tag is a small attachment, similar in appearance to a button, which incorporates a radio frequency identification device and enables a garment to be identified by use of a small hand-held scanner.

In November 2005 Ms Forster transferred the intellectual property rights in the tag to SPTL. Over the next 18 months she succeeded in attracting support from a small number of investors who were willing to provide seed capital in return for shares in the Company. By mid-2007 the 200 issued ordinary £1 shares in SPTL were held as follows:

Dr Rob Mollan was a partner of Mollan & Co Limited who acted as the Company’s accountants. He was also the financial director of the Company, until his resignation from the board on 1 July 2007. The managing director at all material times until January 2008 was Ms Forster herself.

The first investment by the claimants with which this action is concerned took place in August 2007. The immediate background to it was a dispute between Ms Forster and three of her fellow investors, namely Mr Allanson, Mr Stammers and Sir Timothy Chessels (who between them held 42.5% of the shares). Ms Forster suspected, rightly or wrongly, that her opponents were trying to wrest control of the company behind her back and set up a new venture which would effectively freeze her out from the future exploitation of her invention. The Company was also in severe financial difficulties, and was at risk of insolvent liquidation without continuing financial support. In these circumstances Ms Forster appealed to Ms Bleasdale for help. They had never met or been in contact before, but Ms Forster knew that Ms Bleasdale was an experienced and successful businesswoman, and she also knew that Ms Bleasdale was no friend of Sir Timothy Chessels, having successfully sued him for unfair dismissal and recovered very substantial damages of the order of £2 million in a well-publicised dispute.

Before her first meeting with Ms Bleasdale, Ms Forster wrote a letter to her dated 27 June 2007 which is of such central importance that I will quote it in full:

I will return later to some of the detailed history leading up to the claimants’ first investment. It included a telephone conversation between Ms Forster and the claimants on 13 July 2007, and a meeting between Ms Forster and Ms Bleasdale at the latter’s London office on 16 July when Ms Forster handed over various documents. These included what appeared to be some unaudited management accounts for SPTL for the year ended 31 May 2007, prepared by Mollan & Co, which showed a turnover for that period of £308,379 and a loss on ordinary activities before taxation of only £3,176.

The first investment took the form of:

The arrangements were completed on the same day. By a share transfer dated 3 August 2007 Ms Forster transferred 95 shares in SPTL to Ms Bleasdale, who subsequently transferred 47 of her shares to Mr Cariss (who was then her partner, although they have subsequently married). Ms Bleasdale had already paid the £40,000 purchase price for the shares to the Company’s solicitors. On 3 August she also made the initial payment of £70,000 due under the loan agreement. Further payments under the terms of the loan agreement then followed, on various dates between 10 September and 30 November 2007, in the total amount of £155,000.

Following the share transfers mentioned above, the shareholdings in SPTL were as follows:

On 16 October 2007 the claimants, Ms Forster and SPTL entered into a shareholders’ agreement which provided, among other matters, that SPTL would:

The second investment made by the claimants took the form of a convertible loan agreement dated 24 December 2007 whereby Mr Cariss agreed to make £160,000 available to SPTL to be used for its general corporate purposes. The loan was drawn down in full by 28 February 2008. The terms of the agreement provided that if the loan had not been repaid by 29 February 2008, defined as the “due date”, Mr Cariss could then elect to convert the loan on that date into equity in SPTL at a pre-conversion valuation of SPTL of £500,000. In the event, SPTL failed to repay any part of the loan by the due date, and Mr Cariss then exercised his option and assigned half of his rights under the agreement to Ms Bleasdale. This resulted in early March 2008 in the issue of 63 new shares in SPTL, 32 of which were allotted to Ms Bleasdale and 31 to Mr Cariss.

The allegedly fraudulent misrepresentations relied upon by the claimants in relation to the second investment consisted mainly of some draft financial statements for the year ended 30 November 2007, apparently prepared by Mollan & Co, which Ms Forster supplied to Ms Bleasdale in September or October 2007, and a cash flow statement which Ms Forster also sent to the claimants on 21 December 2007 to support a request for £250,000 further funding for the Company. These documents appeared to paint a relatively rosy picture of the Company’s performance to date and its future prospects. The draft financial statements showed a turnover for the year to 30 November 2007 of £207,355 and a profit on ordinary activities before taxation of £53,871. The notes to the accounts said that the turnover shown in the profit and loss account “represents amounts invoiced during the year”. The cash flow statement contained a revised sales forecast that SPTL would make invoiced sales of £2,583,600 during the calendar year 2008. The claimants say that they relied on this material, and on oral assurances given by Ms Forster in a telephone conversation on 24 December, in deciding to make the second investment. They say that it only subsequently emerged that SPTL’s actual turnover for the year ended 30 November 2007 had been under £10,000, and no customer orders of any significance were obtained during 2008.

The claimants’ pleaded case is set out in their particulars of claim dated 17 March 2009, which were settled by counsel who now appears for them, Mr Tom Leech (now QC), and were verified by statements of truth signed by them both. They allege that the fraud was discovered in early March 2008 when the recently appointed new managing director of SPTL, Ms Francine Davis, spoke to a Mr Murphy who was the chief operating officer of Southern Cross Healthcare Limited (“Southern Cross”). According to the claimants, Ms Forster had orally represented to them in July 2007 that the £750,000 contract which she had obtained for the Company was a contract with Southern Cross to supply tags after the successful completion of a pilot scheme. Mr Murphy informed Ms Davis, however, that there was no existing agreement in place between Southern Cross and SPTL, and that there was no prospect of any agreement being concluded between them in the immediate future.

On 13 March 2008 Ms Davis suspended Ms Forster from her employment, and on 1 May 2008 she was dismissed as an employee of SPTL. She was subsequently removed as a director at a general meeting of the shareholders held on 21 July 2008.

In the Spring of 2008 SPTL obtained further funding from two new investors, and Mr Cariss also made some further advances to prevent the Company going into insolvent liquidation. By a series of agreements made on 4 June 2008 between SPTL, a new company called Stay Put Systems Ltd (“Systems”) and Mr Cariss, SPTL transferred its assets to Systems in return for Systems assuming its debts.

The present action is by no means the only litigation in which the claimants, Ms Forster and SPTL are embroiled. Ms Forster has issued claims against SPTL in the Leeds Employment Tribunal, claiming unfair dismissal, damages for breach of contract and an award for unlawful deduction from wages. Those claims have been stayed pending the outcome of the present proceedings. In addition, on 30 March 2010 Ms Forster presented an unfair prejudice petition under section 994 of the Companies Act 2006, seeking an order requiring the claimants to buy her shares in SPTL at a fair value and ancillary relief. The respondents to the petition are the claimants, SPTL and Systems. On 13 May 2010 the respondents served points of defence, again settled for them by Mr Leech QC. The points of defence incorporate the same allegations of fraudulent misrepresentation as are made in the action, but as one would expect the issues in the petition are considerably broader than those in the action. Directions have now been given for the action and the petition to be tried together, and they are listed to be heard in a window beginning on 28 March 2011 with a time estimate of 10 to 15 days.

The application now before me, only a few weeks before the trial date, was issued as long ago as 29 July 2010. In it Ms Forster asks, in effect, for summary judgment in her favour pursuant to CPR Part 24.2 on all the allegations of fraudulent misrepresentation in the particulars of claim, or alternatively that the relevant paragraphs should be struck out pursuant to CPR Part 3.4(2)(a) and (b) as disclosing no reasonable ground for bringing the claim. If the application were to succeed, the claim against her would be reduced to a claim for damages for breach of contract. Ms Forster does not seek an order that the corresponding allegations in the defence to the petition should also be struck out, but it became common ground in the course of the hearing that, if the application succeeded, the claimants would be precluded by issue estoppel from pursuing the same allegations in the context of the petition.

The application was made after completion of standard disclosure (although I should say that the scope and adequacy of the disclosure made by the claimants have been a matter of continuing concern to Ms Forster and her advisers, and further orders for disclosure were made by His Honour Judge Birss QC at a pre-trial review on 19 December 2010, and again on 1 February 2011). The basis of the application was described as follows in the Application Notice:

On 10 August 2010 Master Teverson ordered that the application should be referred to a judge as an interim application by order with a time estimate of one to one and a half days. He directed a timetable for evidence which did not end until 29 October 2010, but directed a listing appointment to be taken out before the end of August.

As is apparent from this leisurely timetable, no effort was made by the Defendant to accelerate the hearing of the application; and in view of the commendably realistic time estimate it is not surprising that the hearing date obtained was in mid-February, only some six weeks before the beginning of the trial window. This has had the unfortunate result of placing the court under considerable time pressure, in a heavy matter where the application bundle runs to 12 lever arch files (many of them filled near to bursting) and over 3000 pages.

CPR rule 24.2 provides so far as material as follows:

The principles which should govern the court in dealing with an application for summary judgment are familiar, but bear repetition. A convenient starting point is the summary given by Lewison J in Easyair Limited v Opal Telecom Limited[2009] EWHC 339 (Ch) at [15], which was approved by Etherton LJ in A C Ward & Son v Catlin (Five) Limited[2009] EWCA Civ 1098 at [24]. Lewison J said this:

Mr Leech QC also referred me to the helpful observations of Carnwath LJ (with whom Arden LJ and Morgan J agreed, save on an immaterial point) in Mentmore International Limited v Abbey Healthcare (Festival) Limited[2010] EWCA Civ 761 at [20] to [23]:

Finally, Mr Leech also referred me to the equally valuable observations of Mummery LJ (with whom Longmore LJ and Lewison J agreed) in Doncaster Pharmaceuticals Group Limited v Bolton Pharmaceutical Co 100 Limited[2007] FSR 63 at [10] to [18] from which I cite the following extracts:

In the light of these principles, a number of points may be made.

First, the present case is not one that turns on a short point of law or construction. On the contrary, it involves detailed examination of the relationship between parties who are now at loggerheads with each other over a period of at least a year. Nor is this a case where the parties’ relationship was governed by a document such as a contract of employment. The voluminous documentation is only a part of the picture, and in my view it can only be understood and evaluated in the context of the evidence as a whole, including the oral evidence of the protagonists.

Secondly, the representations pleaded by the claimants are in any event not confined to representations made in or by the production of documents. They include, in the case of the first investment, an allegation that Ms Forster orally represented to the claimants in a telephone conversation on 13 July 2007 that SPTL had a £750,000 contract to supply the tag to Southern Cross (paragraph 17 of the particulars of claims); and in the case of the second investment, an allegation that on 24 December 2007 Ms Forster expressly represented to the claimants, in another telephone conversation, that the revised sales forecast contained in the cash flow statement supplied to the claimants was reasonable (paragraph 34). The only safe way in which the court can come to a conclusion about the content of these conversations, and about the relevance and effect of the representations if they were made, is by hearing the oral evidence of the claimants and Ms Forster, and having it tested in cross-examination. Moreover, the view that the court forms of the parties’ evidence may depend on its assessment of their credibility, and that again is something that can only be determined at trial (except in very rare cases where a party’s evidence is inherently incredible or demonstrably worthless).

Thirdly, the claimants’ pleaded case is supported by their witness statements. I can illustrate this by reference to Ms Bleasdale’s statement signed on 5 November 2010, beginning with her account of her conversation with Ms Forster on 13 July 2007:

Ms Bleasdale goes on to describe the meeting which took place at her office on 16 July, and says that Ms Forster brought her a large number of documents assembled in a purple folder, including a set of “management accounts” for the year ended 31 May 2007. During the meeting they were joined by Mr Cariss. They continued to talk about the product, and about Ms Forster’s falling out with her investors. Ms Bleasdale recalls Ms Forster referring to the existence of a patent, “and also that she was very upbeat about the pilot project with Southern Cross which she said was going really, really well”. Ms Bleasdale then looked at the accounts in Ms Forster’s presence:

By the end of the meeting, Ms Bleasdale says that her views on Ms Forster’s proposition were as follows:

In paragraphs 31 to 34 Ms Bleasdale summarises the factors which led her to make the first investment:

I will not prolong this judgment by quoting from Mr Cariss’ evidence, and it is enough to say that his account of these events is broadly consistent with his wife’s.

In these circumstances, it seems to me all but self-evident that the truth or otherwise of the claimants’ case in relation to the critical first investment can only be ascertained at trial; and if that conclusion is once reached, it is then clear that their case on the second investment must likewise go to trial, because both investments formed part of a single continuous course of dealings between the parties, and the claimants’ approach to the second investment will inevitably have been coloured by their experience of, and reasons for, the first one.

Fourthly, it is relevant to bear in mind that, even if the application were to succeed in full, both the action (in its reduced form) and the petition (shorn of the fraudulent misrepresentation allegations) would still have to be tried. The court will therefore still have to hear extensive evidence from the parties and resolve numerous hotly disputed issues of fact. For that purpose it will inevitably be obliged to form views about the reliability of the witnesses, and I certainly cannot assume at this stage that those views will necessarily, or even probably, be favourable to Ms Forster. But if I accede to the present application, it can only be on the footing that I do not regard the claimants’ evidence on the misrepresentation issues as being even arguably worthy of credit. In other words, and to put it bluntly, I must be satisfied on the basis of the documentary evidence that their evidence, although verified by statements of truth, is at best unreliable, and at worst deliberately untruthful. This would be a very strong conclusion to reach without giving the claimants the opportunity to have their claims and their evidence tested in the way that the law normally provides for, namely by a trial. In the present case, there would be the added disadvantage that such a conclusion could not bind the future trial judge, who might end up taking a very different view of the parties’ respective credibility. Far better, in my view, since the rest of the case has to go to trial anyway, to leave all the issues, including the misrepresentation claims, to be determined together by a judge who will have heard all the evidence and will have had the time to examine all the transactions in detail. The risk, in the present case, of achieving summary injustice by acceding to the present application is in my judgment a very real one.

The argument strenuously advanced by Mr Marshall on behalf of Ms Forster invites me to start my examination of the history of the matter at the time when the claimants say the fraud came to light in March 2008. He argues that the alleged discovery of the truth about the non-existent £750,000 contract with Southern Cross was not, on the evidence of the contemporary documents, the real reason why Ms Forster was dismissed, and it featured hardly, if at all, in the disciplinary process which followed. He says that the documents show that the Company already knew in January 2008 that there was no contract then in existence with Southern Cross. Building on this, he submits that if the claimants’ case on the discovery of the fraud is unsustainable, their pleaded case on the misrepresentations which induced them to make the two investments must be equally unreliable. He points to the apparently complete absence, even after disclosure, of any clear documentary evidence after June 2007 showing the existence of an assumption by the claimants that such a contract was in place, and that it had generated actual sales beyond the pilot. He points to other documents which appear to evidence a belief by the Company, shared by the claimants, that there were good prospects of entering into a future contract with Southern Cross for supply of the second generation tag, it being understood by everybody that the first generation product was unsuitable for a number of reasons and needed to be re-launched in an improved form.

If I were trying this case on the documents alone, I would acknowledge that there is much force in these contentions. Mr Marshall developed them at some length, and took me to a considerable number of the documents. But the more he did so, the more it seemed to me that the court was being asked to do precisely what all the authorities warn against, viz. conduct a mini-trial on the documents. It is also crucial to guard against the temptation of drawing adverse inferences, as a matter of probability, on the basis of incomplete evidence. It is a familiar fact of forensic life that, at a trial, the contemporary documents often provide the surest guide to what actually happened, and a yardstick by reference to which the oral evidence of the parties may be tested. But that is a very different matter from saying that it is acceptable to dispose of the case before trial, on the basis of inferences drawn from the documents, without the benefit of oral evidence. Furthermore, there are all sorts of reasons why individual documents may not be reliable, or may not be quite what they appear to be on the surface, or where a different complexion may be put on them by oral evidence. Hence the well-established and salutary principle that the court should not conduct a mini-trial on a summary judgment application.

In short, the material drawn to my attention by Mr Marshall will no doubt provide powerful material for cross-examination at trial, and for all I know it may in due course help to establish that the claimants’ pleaded case on fraudulent misrepresentation is indeed unsustainable. But I am nowhere near being persuaded that the claimants’ case is so obviously lacking in merit that it can safely be dismissed at this stage. The particulars of claim were settled by leading counsel, and plead the necessary ingredients of a claim in fraudulent misrepresentation with the necessary high degree of particularity. The claim is supported by the claimants’ witness statements, verified by statements of truth, and is not inherently incredible. There is no dispute that Ms Forster wrote the letter of 27 June 2007, or that it was received by Ms Bleasdale, or that it was intended to elicit her support at a time when Ms Forster was in desperate straits. Furthermore, Ms Forster’s defence to the allegations appears to have undergone a number of evolutions, which Mr Leech took me through and I need not set out. Moreover, the claimants’ cause of action was complete as soon as they had made the investments, and even if their account of how the fraud came to light turns out to be unsustainable, it would not necessarily follow that their pleaded case on the fraud itself was equally vulnerable. These are all matters for trial.

I hope I have now said enough to explain why this application must in my view be dismissed. In view of my conclusion, it is desirable that I should say as little as possible about the evidence, because findings of fact will be a matter exclusively for the trial judge. Equally it would be wholly inappropriate for me to speculate about the extent to which some of the documents may, or may not, be reconcilable with the claimants’ case. It is enough for me to be satisfied, as I am, that their case is fit to go to trial and cannot be disposed of summarily.

The hearing before me concluded during the afternoon of Wednesday 9 February, when I reserved judgment. On the following Tuesday, 15 February, I received a letter from Mr Marshall inviting me to consider some further written submissions, which were attached, and suggesting that the court might be assisted by a further hearing. The submissions concerned three exchanges of emails which according to Ms Forster’s solicitors, Reynolds Porter Chamberlain LLP, had been disclosed late by the claimants’ solicitors, Goodman Derrick LLP, on 10 February, the day after the conclusion of the hearing. Mr Marshall wished to argue that these documents were plainly material to, and affected, the way in which the claimants’ case had been presented at the hearing by Mr Leech. For example in paragraph 2 of the written submissions, Mr Marshall and his junior, Ms Heather Emmerson, said this:

In his covering letter to me, Mr Marshall said that he had notified Mr Leech of his concerns on the previous day, 14 February, and that Reynolds Porter Chamberlain had also raised the matter with Goodman Derrick by a letter sent by email on 14 February requiring an immediate explanation, to which no response had yet been received.

It subsequently transpired that:

In these circumstances, Reynolds Porter Chamberlain have very properly offered unreserved apologies to Goodman Derrick, Mr Leech and the court, and withdrawn any suggestion that either Goodman Derrick or Mr Leech misled the court in any way. However, they point out that the emails disclosed on 21 January as item 1042, including in particular an email sent by Ms Davis to a Mr Cashmore on 7 April 2008 upon which Mr Marshall places particular reliance, consisted of a large, unpaginated and unindexed bundle, and the email in question came to light only when the bundle was subsequently provided in electronic form on 10 February and was electronically reviewed on 11 February. They allege that the disclosure of this item in January involved a breach of CPR 31.10(3) which provides, in relation to standard disclosure, that “[t]he list must identify the documents in a convenient order and manner and as concisely as possible”.

These criticisms were elaborated in a further letter from Mr Marshall to the court dated 16 February. While withdrawing his previous unqualified statement that the email of 7 April 2008 had not been disclosed prior to 10 February, and apologising for having stated the position incorrectly, he still voiced his belief “that the timing and manner of the disclosure merit serious criticism and admit of explanation, given the document’s obvious importance to both the pleaded claim in fraud and the way in which the case for the Respondents was put on this application”. He went on to say that, had the email been available to him, it would have had a substantial influence on the way the case had been argued before me. He concluded:

For his part, Mr Leech then wrote to me on 17 February to set out his own position and that of the claimants. He expressed the willingness of the claimants and himself to accept that an innocent mistake had been made, but said it was nevertheless unfortunate that a serious mistake was made, and that Mr Marshall submitted written submissions to the court making a number of serious allegations without speaking to him personally and waiting for him to respond. Had Mr Marshall done so, Goodman Derrick would then have been able to correct the mistake made by Reynolds Porter Chamberlain. Equally, there would then have been no basis for Mr Marshall to make further written or oral submissions. Mr Leech pointed out that the application for summary judgment had already occupied almost two days of the court’s time, and that Ms Forster’s solicitor, Mr Ballinger, had signed a witness statement in support of the application stating his belief that there was no real prospect of success without relying on these documents. Mr Leech therefore invited me to disregard the further submissions, and not to re-list the matter for further argument.

In my respectful view Mr Marshall acted over-hastily in writing to the court as he did on 15 February, and enclosing written submissions which made serious allegations against the claimants’ solicitors and counsel, without first having spoken to Mr Leech and given him an opportunity to respond to the allegations. Had that elementary step been taken, the true position on disclosure would have come to light and Ms Forster would have been on much weaker ground in asking the court to accept further submissions or re-open the hearing. In all the circumstances I do not think it is appropriate for me to admit the further submissions, and in my view more than enough court time has already been spent on an application which I consider to be misconceived. I will merely add that, on the basis of a quick reading of the further submissions, nothing in them would have caused me to take a different view of the case. At best, the exchange of emails between Ms Davis and Mr Cashmore provides Ms Forster with further material for cross-examination of the claimants and Ms Davis.