Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
MR STEPHEN MORRIS QC
(Sitting as a Deputy High Court Judge)
Between :
JOSEPH ALFRED WILSON | Claimant |
- and - | |
(1) MICHAEL DODD (2) ROBERT RICHMAN (3) CLEAR SKIN TREATMENTS LIMITED (4) ELLIPSE BEAUTYLIGHT LIMITED (5) KNIGHTSBRIDGE LASER CLINIC LIMITED | Defendants |
Stuart Adair (instructed by Mishcon de Reya, Solicitors) for the Claimant
Anthony Beswetherick (instructed by Coyle White Devine, Solicitors) for the 1st, 3rd, 4th, and 5th Defendants
The Second Defendant did not appear
Hearing dates: 16th,17th,18th,19th 20th & 27th July 2012
Judgment
Mr Stephen Morris QC:
Introduction
In this action, commenced on 18 March 2009, the Claimant, Joseph Wilson ("Mr Wilson") claims relief against the Defendants in relation to an investment of US$250,000 he made in May 1998 in a business carried on by the First Defendant, Michael Dodd ("Mr Dodd") and/or by one or more companies in which Mr Dodd was or is interested. The Third to Fifth Defendants are companies which are controlled and operated by Mr Dodd. I refer to Mr Dodd and the Third to Fifth Defendants collectively as "the Dodd Defendants". The Second Defendant is Mr Robert Richman, a friend and business associate, at various times, of both Mr Dodd and Mr Wilson.
As stated broadly, by Mr Wilson, the relevant business comprises light-based skin treatment, including removal of hair and tattoos and the treatment of various skin blemishes using laser and other light-based technology. The relevant technology included in particular, first, a laser based system known as Softlight, developed and manufactured by Thermolase Corporation, a US company ("Thermolase US") and, secondly, a pulsed light based system known as IPL, developed and manufactured by a Danish company, called Danish Dermatologic Development A/S ("DDD").
Mr Wilson's claim in essence, is that in May 1998, pursuant to an agreement with Mr Dodd, he invested $250,000 in return for a 10% stake in that business. He seeks either declaratory relief to the effect that he has a beneficial entitlement to the business currently operated by the Third to Fifth Defendants or alternatively compensation for the loss of his investment or the loss of his entitlement to the business.
Mr Wilson is represented by Mr Stuart Adair of counsel; the Dodd Defendants are represented by Mr Anthony Beswetherick of counsel. Mr Richman is not represented and has not appeared at the trial.
The three claims in summary
Mr Wilson's case is, or has been, put on three different bases. First, "the Partnership Claim": from the outset, Mr Wilson has claimed relief on the basis that he and Mr Dodd have, since May 1998, been and remain partners in a partnership, operating the business of light-based skin treatment and has sought declarations to that effect, the taking of a partnership account and the dissolution of the partnership. He contends that the business currently operated by the Third to Fifth Defendants forms part of the partnership business. Secondly, "the Misrepresentation Claim": in the course of the proceedings, Mr Wilson has added a claim against both Mr Dodd and Mr Richman, for damages for fraudulent misrepresentation on the basis that he was induced to invest the US$250,000 as a result of false representations by Mr Dodd and Mr Richman that Mr Richman had invested US$500,000 in the same business venture. Damages are sought, effectively, to recover the amount originally invested by Mr Wilson. Thirdly and finally, "the Breach of Trust Claim": in the course of closing argument at the end of the trial, Mr Wilson sought to introduce a claim against Mr Dodd for equitable compensation for breach of trust, on the basis that Mr Dodd wrongly transferred or caused to be transferred the business conducted by one or more of the companies in which Mr Wilson, ultimately, held a beneficial interest to other companies, including the Third to Fifth Defendants in which Mr Wilson had no beneficial interest. Whilst Mr Adair contends that he does not, formally, require permission to amend the particulars of claim to bring this claim, he accepts that this is, at least, a reformulation of the claim. He put forward additional wording to be inserted into the Amended Particulars ("the draft re-amendment"). Both parties made detailed submissions as to whether such a reformulation should be allowed at this late stage.
In due course in this judgment, I deal in turn with each of these three bases of claim. For the time being, I make the following observations. As Mr Adair has at all times recognised, the Partnership Claim and the Misrepresentation Claim are alternatives. It cannot be that Mr Wilson should be both entitled to a share of the ongoing businesses carried on by the Third to Fifth Defendants and at the same time recoup the value of his initial investment. At the outset of the proceedings, Mr Wilson's primary case was that, from the outset, there was an ongoing partnership between himself, Mr Dodd and Mr Richman. However, by the time of the commencement of, and during, the trial, the emphasis had shifted to the claim for damages for fraudulent misrepresentation. Further, whilst not entirely clear from the terms of the draft re-amended particulars of claim, it seems to me that the Breach of Trust Claim must be an alternative to the Partnership Claim. This third basis of claim proceeds on the assumption that Mr Dodd wrongfully deprived Mr Wilson of some beneficial entitlement to the relevant business; whilst the first seeks to assert Mr Wilson's continuing beneficial entitlement to that same business. Indeed, whilst not formally abandoning the Partnership Claim, by the close of the trial, it seems to have become, at the very least, the least preferred basis for Mr Wilson's claim.
Structure of this judgment
In this judgment, in section (A), I set out the relevant background, including the relevant events in outline. In section (B), I summarise the parties' contentions, and identify the issues in the case, and in section (C), I consider the relevant legal principles applicable. Section (D) addresses the facts in detail. I make observations on the witnesses before turning to the relevant sequence of events, including making findings on certain subsidiary issues of primary fact. Finally, in section (E), I turn to each of the main issues, making findings of fact and applying the relevant legal principles to the facts. References to the transcript are in the form [Day/page/lines].
Conclusion in summary
In summary, my conclusions are that the Misrepresentation Claim succeeds as against Mr Dodd and that there will be judgment in favour of Mr Wilson for damages, in an amount to be agreed or determined: see paragraphs 331 and 332 below. The Misrepresentation Claim against Mr Richman fails and will be dismissed: see paragraph 333 below. The Partnership Claim also fails and will be dismissed: see paragraph 256 below. Permission to advance the Breach of Trust Claim is required, but is refused: see paragraph 356 below.
Factual Background
The Parties, and other relevant companies and persons
Mr Wilson and his investment operations
Mr Wilson is an American businessman who is now 88 years old. Over the years he has been very successful in business, principally in property development. In recent years, he has been active as an investor in business ventures. He has over the years spent significant amount of times in the United Kingdom, and at a certain period of time, wished to obtain UK citizenship and a UK passport.
Canterbury Investments Limited ("Canterbury") is a company incorporated in Guernsey and was used as a corporate vehicle through which Mr Wilson, and/or a trust he established (the Lafayette Trust), made investments from time to time in shares and other companies. Spread Trustee Company Limited ("Spread Trustee") were the trustees of the Lafayette Trust. Spread Trustee owned Canterbury.
BGL Reads International Management Limited ("BGL") was at relevant times a company acting as investment advisers and an investment management company based in Guernsey. It appears to have formed part of a group of companies carrying on that business. Other related companies included Spread Asset Management Limited ("Spread Asset") and Reads Private Clients Limited (who appear to have been taxation specialists). By 2008, BGL had been taken over by or had merged with Fortis and became known as the Fortis Reads Group. At relevant times BGL acted for Mr Wilson. Mr Wilson had been introduced to BGL by Mr Dodd. Mr Frank Moon was the principal manager/director at BGL with whom Mr Wilson had dealings. It appears that, from time to time, BGL also acted for Mr Dodd and for Mr Richman in relation to their own investments.
Mr Dodd and his companies
Mr Dodd is a English businessman. He trained as a hairdresser and has worked for the entirety of his career in the hair and beauty industry. He is currently managing director of each of the Third to Fifth Defendants, who operate from premises in Knightsbridge. He was formerly managing director of Thermolase UK Limited ("Thermolase UK").
Narbonne Investments Limited ("Narbonne") is a company incorporated in Alderney in the Channel Islands. It is beneficially owned ultimately by Mr Dodd, through a trust. Narbonne has corporate directors (Giffoine Limited and Huret Limited). Its shares are held by seven nominee companies, also registered in Alderney.
Cosmetic Laser Services LLC ("Cosmetic Laser") is a US corporation, incorporated in Delaware. According to Mr Dodd, it is a wholly owned subsidiary of Narbonne, and, further, owned part of the shares in the joint venture vehicle, Thermolase England LLC ("Thermolase England").
Ellipse Pulsed Light Limited ("Ellipse") was originally the third defendant to this action. Ellipse was incorporated on 16 February 2001 under the name of Speed 8642 Limited. This company then changed its name to Thermolase Pulselight Limited on 2 March 2001 and to Thermolase Pulsed Light Limited on 26 March 2001, before changing its name to Ellipse on 14 November 2001. For convenience, I refer to this company throughout as Ellipse. In its annual return of May 2002, Zabardi Investments Limited ("Zabardi"), a company incorporated in Alderney, was identified as 100% shareholder in Ellipse. Mr Dodd is and was at all material times the ultimate beneficial owner of Zabardi. Zabardi had nominee corporate directors.
Ellipse carried on business distributing and selling IPL based skin treatments from about 2001 until about 2010 Essentially, following the cessation of trading of Thermolase UK, Ellipse carried on business from the same premises. Ellipse stopped trading in 2009 or 2010 and according to Mr Dodd, Ellipse Beautylight Limited took over. Ellipse was struck off the register on 16 February 2010.
The Third Defendant, Clear Skin Treatments Limited ("Clear Skin") was incorporated on 29 September 2010. Its parent too is Zabardi. The dissolution of Ellipse came to the attention of Mr Wilson's solicitors, and at the behest of the Dodd Defendants' solicitors, Clear Skin was substituted as the third defendant to the action on 26 October 2011 in place of Ellipse. Clear Skin's business appears to deal with another type of skin treatment technology. Mr Wilson suggested that it carries on the partnership business of Mr Dodd, after the dissolution of Ellipse.
The Fourth Defendant, Ellipse BeautyLight Limited ("Beautylight") is a company incorporated on 23 October 2008. It appears that it carries on the business of distributing and selling the IPL based skin treatment technology, formerly carried by Ellipse.
The Fifth Defendant, Knightsbridge Laser Clinic Limited ("Knightsbridge") is a company owned and controlled by Mr Dodd which carries on the retail business of a skin care clinic from premises at Knightsbridge. Knightsbridge was originally incorporated on 20 July 2004 under the name The Ellipse Clinic Limited and changed to its current name on 1 November 2007.
Mr Wilson claims that Mr Dodd is currently running his relevant business through these three Defendant companies.
Mr Richman
Mr Richman appears to be a US citizen. Save for acknowledging service and submitting a short written defence he has not participated in these proceedings and has not given evidence.
Thermolase US and related companies
Thermolase US was at the material times a US corporation which developed, owned and produced the laser technology known as the "Softlight laser". It was also a part owner of the joint venture, Thermolase England.
Thermolase England is, or was, a company incorporated in Delaware as the vehicle for the joint venture between Thermolase and Mr Dodd for the distribution of the Thermolase technology outside the USA. According to the case asserted by Mr Dodd in these proceedings, Thermolase US owned 74%, and Cosmetic Laser Services owned 26%, of the shares of Thermolase England. However the evidence as to the precise respective shares of the JV partners is not consistent, as explained in paragraph 182 below.
Thermolase England incorporated 100% subsidiaries for the distribution, in different countries, of the laser technology. Thermolase UK was incorporated in 1996, taking on that name on 28 June 1996. Thermolase UK carried on the business of distributing the Softlight laser in England. Subsequently further subsidiary companies were incorporated in Scotland, Ireland, and South Africa in July and November 1998. There was also a subsidiary in Spain. Mr Dodd was managing director of Thermolase England, of Thermolase UK and the other subsidiaries.
Others
Ferguson Snell & Associates were a firm of solicitors acting for Mr Wilson, from 2001 to about 2006 and 2007 in connection with his application for a UK work permit, residency and passport. John Snell was a director of Ferguson Snell with whom Mr Wilson was dealing. It was Mr Dodd who knew Mr Snell and introduced Mr Wilson to him.
Relations between Messrs Wilson, Dodd and Richman
Mr Richman is a long standing and close friend of Mr Dodd. It was Mr Dodd who introduced Mr Richman to Mr Wilson [4/97/6]; Mr Dodd accepted that this was some time before September 1997 [4/98/20]. Mr Wilson and Mr Richman became friends and close business associates. It appears that Mr Richman, Mr Dodd and Mr Wilson were closely connected with each other's financial dealings and that all three of them had dealings or contact with Mr Moon at BGL. Moreover both Mr Richman and Mr Dodd were intimately involved in assisting Mr Wilson obtain his work permit (and passport).
The relevant business or businesses
Light-based skin treatment businesses
The business or businesses in issue in the case may be described, compendiously, as light based hair removal and skin treatment businesses. This has different aspects: hair removal, different types of skin treatment (removal of blemishes) and tattoo removal. From time to time different technologies have been used in those treatments.
Thermolase US's Softlight technology (also referred to as the ND YAG Laser or Softlight ND YAG Laser) was a system for removal of hair follicles and skin tattoos. It appears initially to have been successful. However by 1998 Thermolase US became subject of claims in the USA, alleging that the hair removal was not permanent. Thermolase US incurred substantial losses and by August 2000 Thermolase US had been taken off the US stock market.
The IPL system developed and manufactured by DDD is used for hair removal, but is not, and cannot be, used for tattoo removal
Mr Dodd and his companies operated a number of business models. First, and initially the Softlight laser supplied by Thermolase US was distributed by Thermolase UK to others who carried out the laser treatment, such as clinics, doctors and spas. The Softlight laser equipment was supplied on a lease basis, on the basis of a 50-50 revenue share. Subsequently, there came a time when Thermolase UK was selling outright the Softlight systems. In addition, Mr Dodd's companies, and in particular Knightsbridge, operated its own beauty clinic, offering retail services, including treatments using the light based technology, whether laser or pulsed light.
The relevant events in outline
In or around 1997 Mr Dodd set up a joint venture with Thermolase US to market and distribute the Softlight laser in the UK and in South Africa and Spain. The joint venture was established through a series of companies. Thermolase UK was the English company which distributed in England.
In May 1998 Mr Dodd invited Mr Wilson to invest in his business. Following oral discussions and a letter dated 21 May 1998 from Mr Dodd to Mr Wilson (the "21 May letter"), Mr Wilson, through Canterbury, his investment company, provided $250,000 in return for a 10% stake. Mr Wilson maintains that he had invested on the basis of a partnership between himself, Mr Dodd and Mr Richman. At the time, Mr Wilson was told that Mr Richman was investing in the same business. In fact he never did so. Mr Wilson claims that he did not find this out until 2009, and further, that over the years that ensued, Mr Dodd and Mr Richman consciously maintained the fiction that Mr Richman had invested. Mr Wilson's investment was concluded through an agreement made between Canterbury and Narbonne ("the Narbonne Agreement"). Precisely what company or business Mr Wilson invested in, and the nature of that investment, is in issue. The terms and effect of the conversations and the 21 May letter are also in issue.
Some time later Mr Dodd became aware of a different technology used in hair removal and skin technology, the IPL system made by DDD, and at some stage, by 2001, his company started acquiring those systems.
In the period from June 2001 to at least 2007, Mr Wilson, with the assistance of Mr Dodd and Mr Richman, and Mr Snell, was involved in obtaining, first, a UK work permit and, then, in efforts to secure permanent residency and a UK passport (which in the result he did not obtain). For that purpose, he was represented as being an employee of Thermolase and Ellipse. He was never so employed.
At a meeting at the Carlton Towers hotel in the summer of 2002 ("the Carlton Towers meeting"), it was agreed that Mr Wilson would receive monthly payments in the sum of £1380 approximately. Those payments started in September 2002 and initially stopped in February 2003.
Some time in or around 2002, Thermolase US's Softlight business came to end. Thermolase UK itself ceased trading in March 2003 and went into a creditors' voluntary liquidation in March 2004. Mr Wilson claims that he did not become aware of this until July 2008. Mr Dodd claims that he told Mr Wilson in 2004, soon after it had happened. Since 2004 at the latest, Ellipse and the Third to Fifth Defendants have carried on business in light based treatments.
The monthly payments, paid this time by Ellipse, recommenced in June 2004 and carried on until April 2006. In June 2006, Mr Wilson referred matters to his US attorneys, with a request to find out about Narbonne and Thermolase. In December 2007, Mr Wilson and Mr Dodd met at the Pritkin Longevity Centre at Turnberry Isle, Florida ("the Pritkin meeting"). There is a dispute as to what was said there. It is common ground that Mr Wilson raised the issue of his monthly payments, claiming that substantial sums were outstanding and further that some form of settlement proposals were discussed.
In June 2008 Mr Wilson's then solicitors wrote a letter before action to Mr Dodd seeking information about outstanding monthly payments and the profits of Mr Dodd's business. Eventually in 2009 Mr Wilson commenced the proceedings to establish the existence of the partnership, and, through the partnership, his entitlement to a share of the business currently being run by the Third to Fifth Defendants.
The three claims, the parties' contentions and the issues
The Partnership Claim
Mr Wilson's case
In summary, Mr Wilson's case was that Mr Dodd made an oral offer of partnership which was repeated in the 21 May letter, and that he, Mr Wilson, accepted that offer by causing Canterbury to pay $250,000 pursuant to the Narbonne Agreement. Alternatively, he contends that the agreement as to partnership was reached in the oral discussion which took place on 21 May 1998.
Mr Wilson alleges that, in or around the end of May 1998, he concluded an agreement to carry on business in partnership with Mr Dodd and Mr Richman, alternatively with Mr Dodd alone, the partnership business being the business of light-based skin treatments ("the alleged partnership business"). That agreement arose out of oral conversations in May 1998, an offer of partnership contained in the 21 May letter and subsequent conduct. The terms of the partnership were that Mr Wilson would have a 10% stake in the partnership and its assets, whilst Mr Richman and Mr Dodd would have 20% and 70% respectively. From those conversations and the 21 May letter, Mr Wilson understood that he was investing in the business generally and Narbonne was merely a corporate vehicle intended to hold the interest of the partnership in the business.
He further alleged that there was an implied term of the partnership agreement that the share capital of companies formed for the purpose of exploiting the business in the UK and elsewhere would be held by Mr Dodd (or any other corporate vehicle formed to hold such share capital) on trust for the partnership. The partnership business was originally carried on by subsidiaries of Thermolase England, in which Mr Wilson had a beneficial interest. That same business is now carried on by the Third to Fifth Defendants, in which Mr Wilson has no beneficial interest. As a matter of fact, the IPL treatment business is merely a natural development of the Softlight laser treatment business and, thus, effectively one and the same partnership business.
As a result of this implied term, the share capital of Ellipse, the Third to Fifth Defendants (and now Narbonne) are or were held on trust as to 10% for Mr Wilson. Mr Wilson claims a declaration to that effect, an order for the dissolution of the partnership and inquiries and accounts in relation to the partnership assets. Essentially Mr Wilson claims to be entitled to 10% of the business currently carried on by the Third to Fifth Defendants.
In support of the existence of the partnership, Mr Wilson relies on two particular matters: the monthly payments and the Pritkin meeting.
First, he relies upon the substantial number of monthly payments which Mr Dodd or his companies made, between September 2002 and April 2006 in a total of £38,695.50, as being payment of a return on his investment in the partnership. Mr Wilson alleges that they were paid pursuant to an agreement made at the Carlton Towers meeting that Mr Dodd would pay a 15% annual return on Mr Wilson's investment in the partnership, and that the sum of £1380 represented the net equivalent (after deduction of tax and NIC) of $3000 per month . Thus, he says, this agreement and these payments are evidence of the existence of the partnership agreement concluded in May 1998 and of its continuing existence, despite the winding up of Thermolase UK.
Secondly, he relies upon an offer of settlement made to him by Mr Dodd at the Pritkin meeting. Mr Wilson alleges that at that meeting, Mr Dodd agreed to pay missing monthly instalments and offered to purchase Mr Wilson's stake in the business for $400,000, thereby acknowledging Mr Wilson's continuing interest in the partnership in the business, despite the demise of Thermolase UK.
The Dodd Defendants’ case
The Dodd Defendants contend that, in May 1998 there was no agreement, express or implied, for a partnership between Mr Wilson and Mr Dodd (whether with or without Mr Richman) to carry on light-based skin treatment business generally or a Thermolase business in particular. In summary, their case is, first, that there was no offer of partnership between him and Mr Wilson. Secondly, that any offer contained in the 21 May letter was superseded by the offer for a corporate investment made in the subsequent telephone conversation on 21 May 1998. Thirdly, in any event, there was no acceptance of any offer of partnership: the payment of $250,0000 was made pursuant to the Narbonne Agreement and not a separate prior personal agreement between Mr Dodd and Mr Wilson. The only agreement concluded was an agreement between Narbonne and Canterbury. Even if there was a personal agreement, it was not an agreement for partnership.
In addition to the conversations between Mr Wilson and Mr Dodd before 21 May 1998, there was also a conversation in May 1998 between Mr Richman and Mr Dodd, in which Mr Richman expressed interest in investing $500,000 in Narbonne in return for a 20% share of any profits arising out of Narbonne's interest in the Thermolase business (which comprised the business of the subsidiaries, in England and elsewhere, of the joint venture company Thermolase England). Further there was also a conversation on 21 May 1998 itself after receipt of 21 May letter.
There was never any offer of partnership in a wider business, in general terms, of a light-based hair and skin treatment business. What was discussed was always a corporate investment in the Thermolase business. Mr Dodd explained the Thermolase business which at that time was confined to distribution of the Softlight laser under revenue sharing. Further no agreement was ever reached between Mr Dodd and Mr Wilson personally. The only agreement concluded was the Narbonne Agreement. In any event, even if there was a personal agreement between the two men, it was an agreement for a corporate investment in the Thermolase business. There was no express or implied agreement for a partnership between Mr Wilson and Mr Dodd (whether with or without Mr Richman). Partnership was never discussed, nor was it ever raised in the following 11 years.
In the May 1998 conversations, Mr Wilson told Mr Dodd he was interested in the proposed investment in Thermolase UK and subsidiaries business, in view of revenue sharing, Thermolase US's financial strength and the benefit of the put option. Mr Dodd explained to Mr Wilson that his interest in the Thermolase companies was derived from his ownership of Narbonne. What he was discussing was the Thermolase business The making of the investment through Canterbury was discussed. Mr Wilson expressed an interest in Canterbury investing $250,000 into Narbonne in return for 10% of Narbonne's interest in the Thermolase business.
After the 21 May letter, there was a telephone conversation between Mr Dodd and Mr Wilson, in which Mr Wilson informed Mr Dodd that he was prepared to proceed with the investment by Canterbury into the Thermolase business and it was agreed that Narbonne and Canterbury would need to document the proposed agreement in writing. That led to the Narbonne Agreement under which Narbonne agreed to pay Canterbury 10% of any profits it received through interest in the Thermolase business. Mr Dodd's case is that what Canterbury and Mr Wilson were acquiring was a contractual right to 10% of Narbonne's profits obtained from Thermolase companies.
In June 1998, Mr Richman told Mr Dodd he no longer wished to invest any money into Thermolase. Mr Dodd accepts that he did not discuss with Mr Wilson the fact that Mr Richman had not invested.
The Dodd Defendants further contend that, in any event, Mr Wilson has no interest in the business of the Third to Fifth Defendants. If, which is denied, there was a partnership, the business of Ellipse and the Third to Fifth Defendants is distinct and does not fall within scope of partnership agreement. Ellipse and the Third Defendants did, and do, not carry out the business carried on by Thermolase UK. Their business is distinct. None of them marketed, or market, the Softlight laser. Rather these companies were, and are concerned with the IPL product which uses different technology and has different applications.
As regards the monthly payments, these were made pursuant to Mr Wilson's employment as a consultant to Thermolase UK. The second set of payments were made, in response to Mr Wilson anger at the loss of his investment when Thermolase ceased trading and to meet, ex gratia, his demands for compensation. Although made by Ellipse, in fact these were personal payments made by Mr Dodd. Ultimately Mr Dodd’s evidence was that the payments were loans. In any event, the monthly payments are not evidence of the existence of the alleged partnership, but rather were connected with Mr Wilson's quest for a UK passport.
As regards the Pritkin meeting, this was conducted on a without prejudice basis and evidence about what was said at the meeting is for that reason inadmissible. By the close of the trial, however, the Dodd Defendants no longer insisted on this inadmissibility. As to what transpired at the meeting, Mr Wilson complained about the loss of his investment resulting from the liquidation of Thermolase UK. He did not complain about the cessation of the monthly payments, rather he demanded 10% of Ellipse. Mr Dodd did not acknowledge the existence of the partnership.
The Misrepresentation Claim
Mr Wilson's case
Mr Wilson alleges that as a result of one or more misrepresentations made in May 1998 by Mr Dodd and Mr Richman as to Mr Richman's participation in the business/partnership, he was induced to participate and, in late May 1998, to pay over his $250,000 investment in the business to a company owned and controlled by Mr Dodd, Narbonne. That investment was effected pursuant to the Narbonne Agreement. Three relevant representations are alleged.
First, Mr Dodd made material misrepresentations to Mr Wilson in the oral conversations in May 1998. The precise terms of Mr Dodd's alleged oral misrepresentations are not entirely clear. As explained at paragraph 260 below, Mr Wilson's case has, at different times, been that Mr Dodd represented to him either that Mr Richman had agreed (or was going) to invest $500,000 in the Thermolase business or that Mr Richman had already invested the $500,000 in the business.
Secondly, and most significantly, it is alleged that Mr Dodd made a material misrepresentation in the 21 May letter to Mr Wilson, the terms of which are set out in full at paragraph 129 below. By stating "the deal I have done with Robert is that he has taken 20% of Narbonne Investments Ltd for $500,000", Mr Dodd represented that Mr Richman had invested that sum in consideration for a 20% stake in the partnership and he had not.
Thirdly, in May 1998, Mr Richman also made material misrepresentations in an oral conversation between himself and Mr Wilson, in which Mr Richman made a representation about investing $500,000 in the business and enter into partnership in exchange for a 20% stake in the business. Again, the terms of the alleged representation have not been consistently stated. It was either that Mr Richman had invested, or alternatively that he was going to invest.
Mr Wilson further contends that neither Mr Dodd and Mr Richman ever told him that Mr Richman had not in fact ever invested in Thermolase and that this failure to correct the position both indicated the knowing falsity of the original representations, and, perhaps in some way, constituted a further continuing omission to which liability attached.
These representations were false and knowingly so. Mr Richman had not made such an investment and never did so; a fact which Mr Wilson only discovered in 2009. In reliance on each of these three false representations, Mr Wilson decided to invest the $250,000 in the partnership and/or the business. Had the representations not been made, he would not have invested that sum. He claims damages for the tort of deceit (fraudulent misrepresentation) in the amount of his original investment plus interest, whilst giving credit for the monthly payments received.
In oral closing (and in his written opening), Mr Adair sought to argue, in the alternative, that even if not knowingly false, Mr Dodd made the false representations negligently and claims damages under s.2(1) Misrepresentation Act 1967 ("MA 1967").
Mr Dodd's case
Mr Dodd contends that he did not represent, orally or in writing, that Mr Richman "had invested"; only that Mr Richman "had agreed to invest". In particular, the statement in the 21 May letter was a statement only that Mr Richman had agreed to invest $500,000 (and not that he had made that investment). Secondly, if the representation in the letter means "he has agreed to invest", that was true and it is not open to Mr Wilson to allege that that was false. It was never put to Mr Dodd that at that time Mr Richman had not even agreed to invest or that he knew that. Thirdly, and in any event, even if the statement means, and Mr Wilson understood it to mean, that he “had invested”, Mr Dodd did not intend, and could not have known that it would be so understood, and so any misrepresentation was not knowingly false and could not be fraudulent. Mr Dodd honestly believed the statement to be in made in the latter sense. Fourthly, Mr Wilson did not rely upon the representation, when making his own investment. It was his own decision. Further Mr Dodd did not subsequently fail to correct the position and in any event that is legally irrelevant.
Mr Richman's case
Mr Richman, acting in person, served his defence on 18 September 2009. He states that there was no partnership. Both he and Mr Wilson were offered a corporate investment in Narbonne (he says "a percentage of Narbonne"). He had intended to invest, but he was let down on funding and so his own investment "never transpired" and he was under no duty to tell Mr Wilson that he had not invested. He denies making any misrepresentation and, further, Mr Wilson did not rely upon any misrepresentation: he did his own due diligence regarding that investment. It is not clear from his defence whether Mr Richman admitted or denied making a representation to Mr Wilson. It might be inferred that he did, from the fact that he indicated that he did intend to invest, but was let down on funding and from his assertion that he was under no duty to inform Mr Wilson that he had not invested.
The Breach of Trust Claim
Mr Wilson's case
Mr Wilson's breach of trust claim is not easy to devine. In essence, the new "reformulated" claim for breach of trust is said to arise as follows. Narbonne held, indirectly, at least 26% of the share capital of Thermolase England and, indirectly, of its European subsidiaries, and in particular Thermolase UK. The shares in Narbonne itself were owned, through nominee trust companies, ultimately for the benefit of Mr Dodd. However as a result of the agreement concluded in late May 1998, (the Narbonne Agreement or otherwise), Mr Wilson was the beneficial owner of 10% of the shares in Narbonne, which Mr Dodd thus held on trust for Mr Wilson. At some time between about 2002 and 2004, Mr Dodd procured the transfer of the business carried on by Thermolase UK (and other Thermolase subsidiaries) from those companies (in which Mr Wilson held some beneficial entitlement) to Ellipse and subsequently to the Third to Fifth Defendants, in which Mr Wilson had no beneficial interest. In making such a transfer, Mr Dodd acted in breach of the trust of 10% of the Narbonne shares. Mr Wilson seeks equitable compensation for that breach of trust, apparently in an amount to compensate him for the loss of his beneficial entitlement to the relevant business.
Mr Adair submits that this case does not involve the pleading of any new facts, but merely different legal consequences of the same facts. Permission to amend is not required. If it is required, it should be granted as there is no prejudice to the Dodd Defendants
As regards the Breach of Trust Claim, as pleaded, Mr Wilson claimed that each of the three partners owed each other (and thus Mr Dodd owed Mr Wilson) fiduciary duties to deal in utmost good faith, to provide true accounts and information and not to make a secret profit at the expense of the partnership. Those allegations are all predicated on the existence of the partnership between Mr Dodd and Mr Wilson. In breach of those fiduciary duties, Mr Dodd had failed to provide Mr Wilson with information regarding the business and denied Mr Wilson his interest in the business.
The Dodd Defendants' case
The Dodd Defendants contend that the Breach of Trust Claim is a new claim. Permission to amend is required and should not be granted, because it has no substantive merit and further because it is far too late to introduce it, when to do so would prejudice them.
As regards the merits, the claim is for wrongful misappropriation of the Softlight laser business of Thermolase UK. That is a new allegation, which has no merit. First, it has not been shown that Ellipse sold or marketed the Softlight laser. Secondly, there is no evidence that the alleged transfer or appropriation was in breach of duties or otherwise wrongful. Thirdly, it is in reality a claim for loss incurred either by Narbonne or Thermolase UK; any loss of Mr Wilson is reflective loss and thus not recoverable.
The Issues
On the basis of these competing cases, I identify the main issues in respect of the three claims together with a number of subsidiary issues of fact as follows.
The Partnership Claim
The main issues on the Partnership Claim are:
1(a) In conversations in May 1998, did Mr Wilson and Mr Dodd conclude an agreement at all?
1(b) If so, did the agreement create a partnership between Mr Wilson and Mr Dodd?
1(c) If there was a partnership, what was the scope of the partnership?
The Misrepresentation Claim
The main issues on the Misrepresentation Claim are:
2(a) Did Mr Dodd make representations in May 1998, orally or in the 21 May letter, to Mr Wilson concerning investment by Mr Richman in the Thermolase business, and if so what were the terms and effect of such representations?
2(b) In respect of any representation made by Mr Dodd, was it (a) material (b) false and (c) knowingly false?
2(c) Was Mr Wilson induced,or caused, to make the $250,000 investment by Mr Dodd's representation?
2(d) Did Mr Richman make representations in May 1998 orally to Mr Wilson concerning investment by him in the Thermolase business, and if so what were the terms and effect of such representations?
2(f) In respect of any representation made by Mr Richman, was it (a) material (b) false and (c) knowingly false?
2(g) Was Mr Wilson induced, or caused, to make the $250,000 investment by Mr Richman's representation?
2(h) Did Mr Dodd and/or Mr Richman fail to inform Mr Wilson that in fact Mr Richman had not invested in the Thermolase business, and if so did this constitute a distinct misrepresentation, and if so, does it give rise to a distinct basis of claim?
2(i) Is Mr Wilson entitled to damages for misrepresentation, and if so in what amount?
The Breach of Trust Claim
The main issues on the Breach of Trust claim are:
3(a) Was there a trust of Mr Dodd's shares in Narbonne?
3(b) Did Mr Dodd procure the transfer of the business of Thermolase UK from Thermolase UK to Ellipse and the Third to Fifth Defendants?
3(c) If so, did that amount to a breach of trust?
3(d) What, if any, loss did Mr Wilson sustain as a result?
3(e) Is any loss claimed by Mr Wilson barred on the grounds that his loss merely reflects loss sustained by Narbonne, Thermolase UK or any other company?
3(f) If the claim for breach of trust is arguable, is permission to amend the particulars of claim required to introduce this claim, and if so, are there other grounds for refusing permission to amend?
Subsidiary Issues of Fact
The following subsidiary issues of fact, which may be relevant to one or more of the Main Issues identified above, arise:
The nature of the investment made by Mr Wilson
S(a) What was the nature of Mr Wilson's investment of $250,000?
The business carried on by Thermolase UK and by Ellipse and their overlap
S(b) What is the degree of overlap, if any, between the business carried on by Thermolase UK and the business or businesses carried on by Ellipse, and by the Third to Fifth Defendants?
The demise of Thermolase UK
S(c) When did Mr Wilson find out about Thermolase UK having ceased trading and/or having gone into liquidation?
The monthly payments and their purpose
S(d) In respect of the first set of monthly payments, when was it agreed that they would be made, what was their purpose, and why did they stop?
S(e) In respect of the second set of monthly payments, when was it agreed that the payments would be resumed, what was their purpose, and why did they stop?
The Pritkin meeting
S(f) What happened at the meeting on 27 December 2007?
The Relevant Legal Principles
Partnership
Section 1 of the Partnership Act 1890 ("the Act") defines a "partnership" as "the relation which subsists between persons carrying on a business in common with a view to profit".
It is a precondition to the existence of a partnership that there is a binding contractual relationship between the parties: McPhail v Bourne [2008] EWHC 1235 at §256 (citing Lord Millett in Hurst v Bryk [2002] 1 AC 185 at 194F). That agreement can be created by an express agreement, formally or informally or can be inferred from conduct: McPhail, supra, §§257, 258.
Even if there is an agreement, it has to be considered whether it is an agreement for partnership. Section 2 of the Act identifies a number of features which may be present and which indicate or negate the existence of a partnership. Whilst s.2(3) provides that a receipt of a share of the profits of a business is prima facie evidence that he is a partner, it does not of itself make that person a partner; by way of particular example, s.2(3)(d) provides that a loan to a person in return for a share of profits arising from that person's business or a rate of interest varying with the profits of the business does not make the lender a partner. In Memec v IRC [1998] STC 754 Peter Gibson LJ gave further guidance, taking account of various provisions of the Act, by explaining (at 764 e-g) that:
"The relevant characteristics of an ordinary English partnership are these: (1)the partnership is not a legal entity (2) the partners carry on the business of the partnership in common with a view to profit ... (3) each does so both as principal and ... as agent for each other, binding the firm and his partners in all matters within his authority; (4) every partner is liable jointly with the other partners for the debts and obligations of the firm ... and (5) the partners own the business, having a beneficial interest in the form of an undivided share, in the partnership assets ... including any profits of the business"
Lindley & Banks on Partnership (19th edn) states (at §§5-04 and 5-05):
"Any agreement must be construed as a whole: the mere fact that the parties describe themselves as partners is not conclusive ... . On the other hand, the parties may agree to share profits and losses, but at the same time declare that they are not to be partners. It will then be for the court to identify their real status ... a declaration [against partnership] may be of particular significance where the nature of the relationship does not appear clearly from the remainder of the agreement.
...
If the agreement is not in writing the intention of the parties must naturally be ascertained from their words and conduct."
Fraudulent Misrepresentation
Introduction - causes of action for misrepresentation
In the present case, the primary case alleged is a claim for damages for fraudulent misrepresentation. This is a claim in tort for deceit. The ingredients of the common law tort of deceit were established in Derry v Peek (1889) App Cas 337. Further where a person has been induced to enter into a contract as a result of a fraudulent misrepresentation by the other contracting party, he may rescind the contract or claim damages or both: Chitty on Contracts (30th edn) Vol 1 §6-042.
To establish a claim for fraudulent misrepresentation, the claimant representee must show (a) a false statement of fact; (b) that he is the person to whom the representation was made or a person who was intended to act upon the representation; (c) that the representor intended the representation to be acted upon or was made in such circumstances as the representor must have supposed would probably induce the representee to act upon it; (d) that the representation was material in the sense that it was likely to induce the contract; (e) that the misrepresentation operated on the mind of the representee in making the contract. Further to establish the tort of deceit, the claimant must establish that the false representation has been made "knowingly or without belief in its truth or recklessly, careless whether it be true or false": Derry v Peek, supra, at 374 . I expand upon certain aspects of these elements as follows.
Burden and standard of proof
The burden of proof is on the representee to prove fraud. The standard of proof is the civil standard of balance of probabilities. It is now established that the standard is not heightened merely by reason of the fact that fraud is a serious allegation. There is no necessary connection between seriousness and inherent improbability: see Re S-B (children) [2009] UKSC 17 per Lady Hale at §§11 to 13 and 34 applying Re B (children) [2008] UKHL 35 at § 15, 73 (and explaining Re H (Minors) [1996] AC 563 at 585-586).
Statements of fact and the meaning of the representation
Strictly a misrepresentation must be a false statement of fact, rather than a statement of opinion or intention. However statements of the latter kind may amount to statements of fact, where the representor did not in fact hold the opinion or intention in question. A statement as to the intention of a third party is a statement of fact. See Chitty supra §§6-006 to 6-010.
As regards the meaning of any particular statement, it must be construed as it would be understood by a reasonable representee in the context in which the statement was made. The context includes the position and known characteristics of the actual representee: see MCI WorldCom International Inc v Primus Telecommunications plc [2004] EWCA Civ 957 and IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (Comm) at §50. In Raffeisen Zentralbank Österreich AG v. Royal Bank of Scotland [2011] 1 Lloyd's Rep 123, Christopher Clarke J cited both these passages and summarised the position (at §82) as follows:
"In the case of an express statement, "the court has to consider what a reasonable person would have understood from the words used in the context in which they were used" ... The answer to that question may depend on the nature and content of the statement, the context in which it was made, the characteristics of the maker and of the person to whom it was made, and the relationship between them."
Further the representee must show that he in fact understood the statement in the sense which the court ascribes to it: Raffeisen, supra, §87.
Omissions and failure to correct
Where a statement which is true at the time it is made, but which subsequently ceases to be true to the knowledge of the representor before the contract is entered into, a failure to inform the representee of the change of circumstances will amount to a misrepresentation. It is not necessarily fraudulent to fail to correct the representation, unless the representor knows that he should tell the representee but fails to do so: Chitty, supra, §6-018 and fn 89. Tacit acquiescence in another's self deception can amount to a misrepresentation where it has been previously caused by a positive misrepresentation: Chitty §6-014. However there does not seem to be any duty to correct after the contract is concluded.
Fraud: knowledge of falsity where the statement is ambiguous
The position as regards the representor's state of mind where the representation is ambiguous or capable of being understood in more than one sense is summarised in Chitty, supra, §6-047, as follows:
"If the statement is ambiguous, the representee must first prove that he understood the statement in a sense in which it is in fact false. If then the representor intended the statement to be understood in that sense, he will be guilty of fraud. But a person who makes a statement honestly believing it to be true in the sense in which he understands it to bear is not guilty of fraud merely because the representee understands it in a different sense which is false to the knowledge of the representor. And this is still the case even though the court may agree that the sense in which the representee understands the statement is the meaning which, on its true construction, it ought to bear. To hold a person guilty of fraud, it must be shown that he intended, or was at least willing, that the representation should be understood in a sense which is false." (emphasis added)
In Ansbacher & Co Ltd v Binks[1998] PNLR 221 Nourse LJ approved the following passage from Gross v Lewis Hillman [1970] Ch 445:
"If James intended the letters to convey the impression that the company was a going concern or was willing that a recipient should get that impression, clearly he was guilty of fraud because he knew very well that it was not a going concern. But although that is, in my view, the impression that the letters read together would naturally create, James cannot be held guilty of fraud unless he intended or was willing that they should be read in that way. That appears clearly from Angus v Cliford [1891] 2 Ch 449 and from the Privy Council decision of Akerhielm v De Mare [1959] AC 789, 805, 806" (emphasis added).
Thus in a case of ambiguity, the claimant must show (a) that he understood the statement in a particular sense which was untrue (b) that that sense was the objectively reasonable meaning/construction of the statement and (c) that the representor either intended or was willing for it to be understood in that sense.
Materiality and Inducement
Intention to induce/to be acted upon
In cases of fraud (or s.2(1) MA 1967 negligence) the representee must establish that the representor intended the representee to act on the representation or that it was "made ... in such circumstances as the representor must have supposed that it would probably induce the representee to rely act upon:” Chitty supra §6-030 citing Cullen v Thomson (1862) 6 LT 870
Materiality
There is some debate as to whether in order to succeed the representee must show that the misrepresentation was material, in the sense that a reasonable man would have been influenced by it in deciding whether to enter into the contract. It is certainly the case that if the representation is not material in this sense, then the representee may have difficulty in establishing that he was in fact influenced by it. In the case of fraud, however, it is no defence for the representor that he believed that the statement was irrelevant or unimportant. If the difference between what is stated and what is true would have induced a reasonable man to enter the contract, then the misstatement will be material: see Chitty, supra §6-037.
Actual inducement/reliance/causation
The misrepresentation must have operated on the mind of the representee. However it is not necessary for it to be the sole cause which induced the representee to make the contract. It is sufficient if it was one of the inducing causes: Chitty supra §6-032, 6-034 and 6-035 and fn 166. The position as regards the requirement of inducement was considered in some detail in Raffeisen Zentralbank, supra, §§153, 170 to 190 (in particular 182, 186). In summary, Christopher Clarke J summarised the existing authorities to the following effect. The representee must show that the representation played a real and substantial part in inducing him to enter the contract. The representation need not be the sole inducement, but it has to be a "but for" cause, even if there are other "but for" causes. In other words, if he would have entered into the contract, if the representation had not been made, then there would be no sufficient inducement. Further what the representee would have done if he had been told the truth is not the relevant or a permitted question; what is relevant is what he would have done, if the representation had not been made at all.
In certain circumstances, there is a "presumption" of inducement. Once it is proved that a false statement was made which is "material" in the sense that it was likely to induce the contract and that the representee entered the contract, then "it is a fair inference of fact that he was influenced by the statement and the inference is particularly strong where the misrepresentation was fraudulent". Chitty, supra, §6-036. The presumption might be rebutted. Chitty gives as an example showing that the representee had already firmly made up his mind, although even then the misrepresentation might have induced him not to change his mind.
Damages
The measure of damages for fraudulent misrepresentation is such amount as will put the representee in the position he would have been in, had the representation not been made, and on that basis, in the position he was in before the contract was made: Doyle v Olby (Ironmongers) Limited [1969] 1 QB 158.
Negligent misrepresentation under s.2(1) MA 1967
Section 2(1) Misrepresentation Act 1967 gives a right to damages where the representee has been induced to enter into a contract as though the representation had been fraudulent unless the representor "proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true". Here, the burden of proof is on the defendant representor to disprove negligence. Thus, in the context of the issue of knowledge/appreciation that the representee would understand the representation in the sense that was false, unless the representor can show that he had reasonable grounds to believe that the representee would understand the representation in the sense that was true, he will be liable for negligent misrepresentation. This only applies where the representee has entered into a contract with the representor as a result of the misrepresentation. Liability will arise where the representation is made by an agent of the other contracting party acting within the scope of his authority. In such a case the s.2(1) liability is that of the contracting party and not the agent. However the agent may remain liability for negligence at common law: Chitty, supra §6-076. However where the representor neither contracts with the representee nor is the agent of the party which contracts, there can be no liability under s.2(1) MA 1967. The representor may be liable in fraud or in negligence at common law: see Chitty, supra, §6-077. The same general principles relevant to a claim for the tort of deceit, outlined above, apply to a claim for damages under s.2(1) MA 1967: Chitty, supra, §6-069.
In the present case, as regards Mr Dodd, the person alleged to have made the representation was Mr Dodd, but the contracting party was Narbonne. Whilst s.2(1) MA 1967 liability could arise as a result of a representation made by Mr Dodd as agent for Narbonne, the contracting party, the person liable under s.2(1) in those circumstances would be Narbonne. No claim has been brought against Narbonne. As regards Mr Richman, there can be no claim under s.2(1). He was neither the contacting party nor acting as agent for the contacting party.
Negligent misrepresentation at common law
A further possible basis of liability for negligent misrepresentation arises under common law tort principles of negligence, as applied to negligent misstatements on basis of Hedley Byrne v Heller. This might, possibly, have been a basis of liability against Mr Richman and against Mr Dodd, in the absence of proof of fraud. However Mr Wilson advanced no case against either Mr Richman or Mr Dodd on this basis.
Amendments to statements of case
In considering the principles to be applied to the court's approach to amendment to a statement of case, I have been referred to two lines of authority.
The first goes to whether an amendment is required at all. In a statement of case it is necessary only to set out the material facts relied upon and not the legal consequences of those facts. Thus, strictly amendment to a statement of case is not required at all, where all that is sought subsequently to be introduced are new and different legal consequences of the facts already alleged: Re Vandervell's Trusts (No 2) [1974] Ch 269 at 321G-322B, as recently applied in Football Dataco Ltd v Sportradar GmbH [2011] EWCA Civ 330 at §27, where Jacob LJ said "You do not have to spell out precisely the legal basis of the cause of action".
Secondly, where amendment to a statement of case is required, a certain number of principles apply. Amendment is a matter ultimately for the discretion of the court. In general, amendment ought to be allowed so that the real dispute can be adjudicated upon, provided that any prejudice to the other party can be compensated for in costs. Late amendments may be allowed, even after the evidence has been heard. The court is required to balance the injustice in not allowing a party to advance his real case against any prejudice that might be caused to the other party by such amendment. However the court is less ready to allow a very late amendment and a heavy onus lies on a party seeking to make a very late amendment to justify it, as regards his own position and that of the other parties to the litigation and of other litigants in other cases: Swain-Mason v Mills & Reeve LLP [2011] 1 WLR 2735 at §72. At §73, Lloyd LJ went on to emphasise that where a very late amendment is sought to be made, the amending party is obliged to put forward an amended text which satisfies the full requirements of proper pleading. Further a party should not be permitted to amend to raise an argument which does not have real prospects of success: see Civil Procedure: The White Book Service 2012 §17.3.6.
Prudential Assurance v Newman: the principle of no reflective loss
The principle of no reflective loss arises where a defendant is in breach of duty owed both to a company and to a shareholder in that company. It was expressed by the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 at 222H-223A, in the following terms:
"A [shareholder] cannot recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a 'loss' is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only 'loss' is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3 percent shareholding".
In the years which followed, this principle was considered in a number of subsequent cases, culminating in its authoritative treatment by the House of Lords in Johnson v Gore Wood [2002] AC 1, and in particular per Lord Bingham at 35E-36E and per Lord Millett at 61G-62G and 65E-67C. Subsequently, there have been two particular further subsequent decisions of the Court of Appeal, in which the analysis of the House of Lords in Johnson has been the subject of further consideration: Giles v Rhind [2002] EWCA Civ 1428 [2003] Ch 618, and in particular per Waller LJ at §§ 23 to 36 and per Chadwick LJ at §§ 59 to 80 and Gardner v Parker [2004] EWCA Civ 781, in particular per Neuberger LJ at §§ 23 to 33 and 54 to 66. I have considered these cases in detail. The position can be summarised as follows.
First, where a company suffers a loss and as a result a shareholder in the company suffers a diminution in value in his shareholding resulting from that loss, then the position as to who may sue in respect of that loss is as follows.
Where the loss is caused by a breach of a duty owed to the company, then whether or not the shareholder also has a cause of action, only the company can sue; the shareholder cannot sue, because the shareholder loss is merely reflective of the company's loss which is recoverable by the company.
Where the company has no cause of action to sue to recover its loss, but the shareholder does have a cause of action in respect of that loss, the shareholder may sue in respect of the diminution in value of shares.
In any event, where the shareholder suffers loss separate and distinct from the loss suffered by the company caused by a breach of duty independently owed to the shareholder, then the shareholder may sue in relation to that separate loss in addition to any claim by the company in respect of its loss.
A number of further observations can be made. First, two particular factors underlie these principles: the need to avoid double recovery, from one and the same defendant, by the company and by the shareholder; and the need to ensure company autonomy, and to ensure that the company's creditors and other shareholders are not prejudiced by the conduct of one or more individual shareholders: see Johnson per Lord Bingham at 36B-C and Lord Millett at 62E. Secondly, the fact that the company does not in fact sue, or settles its claim, does not mean that the shareholder is entitled to recover for the same loss. In that situation what has caused the shareholder's loss is the decision of the company not to sue, or to settle, not the defendant's wrongdoing: see per Lord Millett at 66D-F and Lord Bingham at 35F. Thirdly, the reflective loss is not limited to the diminution in value of shares; it extends to all other payments which the shareholder might have obtained from the company, had the company not been deprived of funds: per Lord Millett at 66E-H and 67B. Finally, the object is to ascertain whether the loss claimed for is one which would be or would have been made good if the company had enforced its full rights against the party responsible and whether the loss claimed is merely a reflection of the loss suffered by the company: per Lord Bingham at 36C-D.
In Giles v Rhind and then in Gardner v Parker, the Court of Appeal has considered whether there is, and if so the ambit of, an exception to the no reflective loss principle where the defendant's wrongful conduct is said to be the cause of the company not suing on its cause of action.
In Giles v Rhind, both the shareholder and the company had a cause of action and the shareholder's loss was diminution in value of the shareholding. The company had initially sued but that action had been discontinued, because the company, in administrative receivership, was unable to put up security for costs ordered at the behest of the defendant. On the facts, it was arguable that the company's impecuniosity was itself caused by the defendant's wrongdoing. The Court of Appeal held that the no reflective loss principle arguably does not apply where the company has been disabled from pursuing its cause of action by the wrongdoer defendant's own conduct in breach of its duty to the shareholder: see Waller LJ at §§34 and 35 and Chadwick LJ at §§61, 66 and 80.
Adapting the words of Chadwick LJ at §80, in my judgment, the question is whether or not the wrong done to the company by the defendant wrongdoer was a direct cause of the decision of the company, or those acting on its behalf, such as a liquidator, not to bring, or to discontinue, an action by the company against the defendant.
In Gardner v Parker, the claimant, pursuing the claim of the relevant shareholder, sought to rely upon the exception in Giles v Rhind, contending that by virtue of a settlement reached between the company, acting by its administrative receivers, and the defendant wrongdoer under which the company released the defendant from liability, the defendant had disabled the company from suing. The Court of Appeal rejected this argument. Neuberger LJ observed, in relation to the exception in Giles v Rhind as follows (at §60):
"... it is important to bear in mind the limits to the exception established in Giles to the rule against reflective loss. As was made clear by Lord Millett in Johnson at 66D-E ... the mere fact that the company chooses not to claim against the defendant, or settles with the defendant on comparatively generous terms does not, at least without more, justify disapplying the rule against reflective loss (and in this connection it is perhaps worth noting that he was supported by similar observations in this court in Prudential at 223E-F). Accordingly, the court must be satisfied that the sort of circumstances described in Giles by Waller LJ at paragraph 34 or by Chadwick LJ at paragraph 66 exist, before the fact that the company has abandoned, or settled on apparently generous terms, its claim against the defendant, justifies disapplying of the rule against reflective loss."
He held that on the facts there was neither any allegation, nor any evidence to suggest, that the release of the defendant was forced upon the company by the defendant, nor that the company was prevented from pursuing the defendant because of its impecuniosity, nor that any such impecuniosity had been caused by the wrongdoing alleged against the defendant: see §§ 59 and 61. The mere fact that the company was in administrative receivership did not of itself prevent the company suing the defendant (§62). Moreover the fact that the defendant was party to the agreement releasing him from liability was not indicative of the fact that there was pressure on the company to release him from liability (§63). The case on inability to sue caused by the defendant's wrongdoing was not made out on the facts.
In summary, in Gardner v Parker, the Court of Appeal, whilst recognising the existence of the Giles v Rhind exception, held that there must be evidence that the inability of the company to sue has been caused by the wrongdoer's conduct.
Finally, Mr Adair referred me to the earlier Court of Appeal decision in Gerber Garment Technology Inc v Lectra Systems [1997] RPC 44. In Gerber, the shareholder (which was in fact a parent company) was held entitled to recover the loss suffered by two companies which were both subsidiaries of the parent. In reaching this conclusion, Hobhouse LJ (at 475) approved of, and applied, the approach in the New Zealand case of Christensen v Scott [1996] 1 NZLR 273, which seemed to suggest that the shareholder can sue whenever he has a cause of action which has caused him loss. However Gerber does not undermine the general principles stated above. First, the House of Lords in Johnson decided that the approach in Prudential Assurance should be applied in preference to that in Christensen v Scott: per Lord Bingham at 36A-B, Lord Millett at 66B-C and Lord Hutton at 55G. Secondly, and in any event, Gerber was a case where the shareholder had a cause of action, but the company did not. It thus fell into category 2 above: see Lord Bingham at 35G-H, Lord Cooke at 45H, Lord Hutton at 53G and 54B-C and Lord Millett at 62C-D. In my judgment, the decision in Gerber does not represent any special exception arising out the fact that the claimant is the parent of a subsidiary, or a parent of the parent of subsidiary, as suggested by Mr Adair.
The Facts in detail
The Witness Evidence
As to the evidence placed before me, in addition to the documentary evidence, Mr Wilson and Mr Dodd both gave oral evidence. Each of them gave evidence by a number of witness statements which they verified and each was then cross-examined. Mr Richman did not give evidence.
This evidence, in large part, related to events taking place many years ago - up to 14 or 15 years ago, in respect of important events. This lapse of time will have had a very substantial effect on the ability of witnesses to recall at all, or with any accuracy. Other, objective, evidence relating to such events, such as documents or agreed factual context are likely to be far more reliable; and absence such objective evidence, I treat such oral evidence with considerable caution.
Mr Wilson as a witness
Mr Wilson gave oral evidence on the second and third day of the trial. He gave his evidence slowly, due to his age and certain difficulties in hearing. In chief, he verified the contents of three witness statements: the first dated in June 2009 in response to Mr Dodd's application for summary judgment; the second, his main statement for trial, dated 27 July 2011; and his third, dated 16 July 2012, responding to Mr Dodd's statement served just before trial.
The manner in which he gave his evidence was unusual. His own counsel described it as eccentric. Frequently what he said, and how he said it, was expressed in extravagant terms and with a tendency to hyperbole. At times his recollection of relevant events appeared to be very dim, and at other times, his recollection was clearly incorrect. At other points, he digressed into irrelevance. I take fully into account that Mr Wilson is aged 88. Nevertheless he also gave the impression that he remained the astute businessman, which he had plainly been in his working life. I have no doubt that he has a genuine sense of grievance at the conduct of Mr Dodd and Mr Richman.
He had no real recollection of conversations in May 1998, either before or after the 21 May letter. His evidence on these conversations was persistently inconsistent, to the point of being incoherent. At times he gave the impression of saying the first thing that came into his head, without thinking about whether it was true or not, and at times he appeared to give contradictory answers in the same reply. When asked about the 21 May letter, he said, in one and the same sentence, that he didn't read it carefully because it didn't matter and then that he read it and saw the deal that Mr Dodd had done with Mr Richman. As regards contact with Mr Dodd on 21 May 1998, following receipt of the 21 May letter, initially he said that that contact was in a meeting. He vehemently denied that it was over the telephone [2/106/10]. Then on the next day he said he couldn't have had such a meeting, but rather he had had a telephone conversation. He admitted that his earlier evidence had been totally wrong. I recognise that this complete change of evidence may have been due to tiredness on Mr Wilson's part in his evidence on the previous day, and there is credit in the frank subsequent correction of his evidence. Nevertheless this also shows that his recollection cannot be treated as reliable.
However, certain particular aspects of his evidence were more unsatisfactory. He had gone to the Pritkin meeting with a recording device, and had, deliberately and unbeknown to Mr Dodd, recorded the contents of that meeting. However he did not produce the recordings in evidence, claiming that they were "at the moment" lost [2/9/7;] it was suggested [3/172]with some force that he would have looked after the recording very carefully, if what he said happened at the meeting had happened.
Further, as explained below, he was clearly, at the very least, a party to the false statements made about his employment with Thermolase UK made for the purposes of obtaining a work permit and subsequently a UK passport. He sought to minimise his involvement in and indeed was not wholly truthful about his involvement in that process. He said it had been Mr Dodd who had encouraged him and he did not want one if it caused him any risk. But it is plain from the evidence that he was driving it. His own letter of 26 July 2001 to Mr Snell stated untruthfully that he was employed by Thermolase UK, when he, Mr Wilson, knew that not to be the case. He accepted that he and Mr Dodd were going to pretend the monthly payments were salary. His suggestion in his evidence that Mr Dodd was acting dishonestly in reducing payments down from $3000 to $2000 was unfounded. Further it was Mr Wilson who produced a note to Mr Dodd dated 22 June 2006 regarding the steps he needs to take to proceed towards permanent residency. It was his personal "quest for residency".
In relation to the Pritkin meeting, he said [3/168/3-5] that he had never heard of the term "without prejudice" and did not know what it meant. Yet in an email he sent to Mr Richman in 2010 he himself suggested a meeting which would be "held without prejudice". He responded, first, flippantly that the letter was "a love letter" and then retracted his answer given seconds earlier.
Overall, I found his oral evidence to be characterised by frequent inconsistencies. He had no real recollection of events in 1998. It may be that he was not consistently deliberately untruthful, but nevertheless there were so many such inconsistencies that it is very difficult to rely on what he said on any particular issue, in the absence of any other supporting objective evidence.
Mr Dodd as a witness
Mr Dodd gave oral evidence on the third, fourth and fifth days of the trial. In chief he verified the contents of four witness statements: the first two made in 2009 in support of his prior application for summary judgment; the third, his main statement for trial, dated 26 July 2011; and his fourth, served just before trial, dated 12 July 2012. On the first day of his cross-examination, he came across as hostile and aggressive. In the following two days, his manner changed. He was more moderate in his responses and he came across as someone who might be regarded, rather, as a tough businessman. However at various significant times, he became very defensive, and would not accept things which were obviously correct, even though he could understand the underlying reasoning.
There were aspects of his evidence which I find to be credible. I accept his evidence that actually he and Mr Wilson were not as close friends to each other, as perhaps Mr Wilson sought to portray. His evidence of embarrassment concerning the passport issue was credible. However other, important, aspects of his evidence were unsatisfactory and there were numerous instances where his evidence was highly evasive at best, and incoherent and untruthful at worst. I refer to the following examples
Statements in audited accounts: Zabardi and others
His oral evidence about who controls Zabardi was unreliable and untruthful. He initially accepted that Beautylight and Clear Skin were owned by Zabardi and further said that he controls Zabardi [4/51]. However certain statements in the 2008-2009 accounts for Beautylight and in the 2010-2011 accounts for Clear Skin which had been signed by Mr Dodd as a director were put to him. Those statements were to the effect that "the director is unaware of who controls Zabardi Investments Limited". It was put to him that these statements were, to his knowledge, false statements. However, despite his first answer that he controls Zabardi, he denied that the statements in the accounts were false. He gave a series of unconvincing answers in which he sought to say that whilst he was the owner of Zabardi, it was controlled by nominee directors in Alderney and he didn't know who the nominee directors were. His answers were highly evasive and I do not accept them. In my judgment, first, the statements in the accounts were false or at the very least gave the false impression that he had not known about who controlled Zabardi. He accepted in cross examination [6/112] that at the very least he could have found out who the nominee directors were. Secondly, his evidence in cross-examination was untruthful, because he did not want to concede that the statements in the accounts were false. As regards certain statements made in the 1998 and 1999 accounts for Thermolase UK signed by Mr Dodd (and in particular the latter accounts), it is certainly the case that Mr Dodd was prepared to make statements in accounts which are obfuscatory about the ultimate owners of Thermolase UK and about Mr Dodd's consequential beneficial interest in ownership, which on any view he had at the time.
26 June 2001 letter
In cross-examination Mr Dodd claimed that he had no recollection of the 26 June 2001 letter, and even at one point, saying that he had not seen the letter at that time. As explained in paragraph 324 below, his evidence about whether he had written this letter was extremely evasive and I do not accept it. He was seeking to distance himself from the contents of that letter which he realised were plainly damaging to his case.
Disclosure
He was asked at length about the absence of relevant documents from the disclosure he had given in the proceedings and the fact that, when asked by Mr Wilson's solicitors for disclosure, his own solicitors had declined to assist. His evidence in cross examination about the relevant correspondence was evasive. The explanation that relevant documents had been bundled up and sent to the liquidators of Thermolase UK did not stand up to scrutiny; in particular when asked about the receipts the liquidators had given for fixtures and fittings [4/15/2 to 4/19/1]. Similarly his explanation for the fact that in the correspondence Mr Wilson's solicitors had been told to seek the relevant documents from Narbonne did not stand up to scrutiny, in circumstances where he personally owned and controlled Narbonne and could have obtained all the documents. The suggestion that he could not have influenced Narbonne was not credible [4/3/15 to 4/5/24]. Then to make matters worse, having throughout the proceedings sought to say that relevant documents were not available, he informed the court that a substantial number of documents had been discovered and would be available.
The monthly payments
As regards the monthly payments, Mr Dodd was prepared to change his evidence and more than once. First, he said that these were payments to Mr Wilson pursuant to his employment as a consultant to Thermolase UK. Those statements were untruthful. In oral evidence he accepted that Mr Wilson had not provided any consultancy services to Thermolase UK and that his inclusion on the company's payroll was a fiction. As regards the later payments, he said that they were ex gratia payments made out of a sense of moral obligation to compensate Mr Wilson for the loss of his investment. Then in a fourth witness statement, he said, for the first time, that these payments were in fact loans and that he had demanded repayment. He said that he had participated in the fiction of employment in order to assist Mr Wilson in his efforts to obtain a work permit and ultimately a UK passport, and that he had not mentioned this originally because he was embarrassed by his involvement with Mr Wilson's attempts to gain a passport in this way and he realised he should never have got involved in it. I found these passages in his cross-examination to be credible and I accept that he was embarrassed. At that point in his evidence, I find that he showed real regret for his involvement. I accept that this embarrassment was a reason for him not owning up earlier to the falsity of the employment fiction. Nevertheless, this evidence both demonstrated the falsity of his original witness evidence and showed him to be a person who was prepared to be involved in falsification of evidence for work permit purposes. His evidence about a "director's loan account" which he had himself proffered turned out to be untrue and he resiled, saying it was a mistake [5/116/17 to 5/117/19].
In making these changes of position, he showed himself to be someone was prepared to change his account in order to suit his purposes without paying regard to where the truth lay.
For these reasons, absent support from other evidence, I do not rely on Mr Dodd's evidence on disputed issues. I did not find his evidence to be credible on key points in issue. However I do not accept Mr Adair's further submission that because aspects of his evidence in these proceedings is untruthful, it follows that he must have been fraudulent in making the representations he is alleged to have made.
In the following sections, I start by giving a chronological account of the relevant events, making certain observations on the way. Then against the background of this largely undisputed account, I make findings in relation to the subsidiary issues identified in paragraph 73 above.
The relevant sequence of events
1980s
Mr Wilson and Mr Dodd had known each other since the 1980s and for a time both of them lived nearby in Florida. They became close personal friends. Mr Wilson claims that he provided substantial support for Mr Dodd and his family through personally difficult times. The extent to which Mr Wilson trusted and/or relied upon the judgment of Mr Dodd and Mr Richman respectively is disputed, and is addressed in paragraphs 290 to 296 below.
1997 - establishing the Thermolase distribution joint venture outside the USA
In September 1997 Mr Dodd, through Cosmetic Laser, entered into a joint venture with Thermolase US for the distribution of Thermolase US's softlight laser technology treatment outside the USA. The principle joint venture company was Thermolase England. The subsidiary for England and Wales was Thermolase UK and there were to be further subsidiary companies for other territories. According to Mr Dodd, Thermolase UK began trading in around 1997. The ownership of Thermolase England is addressed in Issue S(a) below
Conversations in May 1998 between Mr Wilson and Mr Dodd, and between Mr Wilson and Mr Richman in May 1998
In the course of May 1998 (and before 21 May 1998), there were one or more conversations between Mr Wilson and Mr Dodd in which they discussed the possibility of Mr Wilson making some form of investment in Mr Dodd's Thermolase business venture. At around the same time there were also discussions with Mr Richman in which Mr Richman indicated an interest in investing $500,000 in the same venture. Precisely what was said, by whom and to whom, about Mr Richman's involvement are central issues in the case.
The 21 May letter
On 21 May 1998 Mr Dodd sent a letter to Mr Wilson by fax in the following terms:
"Dear Joe
I am sorry that I did not see you when I was in New York. I thought that I would drop you a line in case you wanted to make an investment in Thermolase.
The deal that I have done with Robert is that he has taken 20% of Narbonne Investments Limited for $500,000. Narbonne is my company that holds my interest in Thermolase. If you are interested I would make the same opportunity available to you. You could also come in for a smaller stake, 10% for $250,000. I would mention that I have a put option on the American holding company, which I can exercise in four years time so that there is a way of unlocking the investment.
Can I please make it clear to you that I do not have any great need to sell any more shares but I would of course be more than happy to do a deal with you if you would like to make an investment.
Best regards
Michael Dodd
Managing Director
Thermolase UK Ltd"
Mr Wilson's case as regards this letter is two fold: first, he contends that the 21 May letter amounts to an offer of partnership between himself and Mr Dodd; and secondly, he contends that it contains the fraudulent misrepresentation that Mr Richman had already invested $500,000 in Narbonne. The content and effect of this letter is a principal issue in the case and is addressed in paragraphs 262 to 268 below
The letter is not on headed notepaper. It appears to have been faxed from Thermo UK Ltd with phone number "01 44 171 581 5118" at 242 pm (US time). The "01 44" is a US code for a UK number and so would suggest that it was received by a fax machine in the US.
On one copy of the letter disclosed by Mr Wilson, there are two further fax headers - one of which bears the date 14 June 2006 and appears to be a fax from/to Mr Wilson - and then the second is dated 9 May 2008 and appears to be a fax from the USA to Mr Wilson's then English solicitors, Radcliffe LeBrasseur ("Radcliffes"). A second copy of the faxed letter was produced by Mr Wilson's solicitors. This appears to be in exactly the same form as the copy referred to above, with the same three fax headers at the top. However this second version has two different manuscript annotations, both of which are in Mr Wilson's handwriting. The first annotation reads: "5/21/98. Via DBO- Frank Moon. Wired $250,000 for 10% Narbonne Agreements to follow". The second annotation reads "6/14/06 Find out what[ever] you can about Narbonne and Thermolase".
After some considerable debate at the trial, it became common ground that the annotations were made by Mr Wilson; that the first annotation was made on or around 21 May 1998 and the second annotation was made on 14 June 2006 at a point in time when Mr Wilson forwarded a copy of the 21 May letter to his then US attorney, Mr Michael Sternlieb of the firm Cole, Schotz, Meisel, Forman & Leonard.
Subsequent telephone conversation - May 1998
Mr Dodd's case has always been that after this letter was received there was a further telephone conversation between Mr Wilson and Mr Dodd, and that, in that conversation, Mr Wilson indicated that he was prepared to invest in Mr Dodd's business. As to the basis of that investment, Mr Wilson's case was that it was to be on the basis of partnership; Mr Dodd says it was be on the basis of sale of a part of his stake in Narbonne (reflecting the 21 May letter). As pointed out above, Mr Wilson's oral evidence about this was very confused. Eventually he accepted that after all that there was a telephone conversation. I accept Mr Dodd's consistent evidence as supported by the terms of the first fax header of the copy of the 21 May letter, that there was a telephone conversation, and not a meeting. The first manuscript annotation evidences a conversation after receipt by Mr Wilson of the 21 May letter and must have been made on the copy of the 21 May letter received by Mr Wilson on his fax machine in the US. Moreover, the annotation "5/21/98" indicates a record made by Mr Wilson on 21 May 1998 itself, after he had received, in the USA, the fax of the 21 May letter. The recording of a date in this way is supported by the second annotation recording the date of 14 June 2006.
Mr Richman did not invest
In fact, for whatever reason, Mr Richman did not invest $500,000 (or any sum) in Narbonne or in Thermolase. Mr Wilson alleges that he did not find this out until Mr Dodd served his first witness statement in this action in April 2009, and that, for the previous 11 years, he had laboured under the misapprehension that Mr Richman had indeed invested. He further contends that in the course of those years Mr Dodd and Mr Richman took positive steps to maintain the fiction that Mr Richman had invested. Mr Dodd says that Mr Wilson had known for some considerable time that Mr Richman had not invested.
Agreement between Narbonne and Canterbury dated 22 May 1998
As suggested in the first manuscript note on the 21 May letter, an agreement did follow. By written agreement dated 22 May 1998 and made between Narbonne and Canterbury ("the Narbonne Agreement"), the following was recorded:
"Narbonne Investments Limited agrees for the receipt of the sum of $250,000.00 (Two Hundred Fifty Thousand USA Dollars) that Canterbury Investments Limited has a ten percent stake in its [ie Narbonne's] investment in Thermolase UK Ltd and our interests in Ireland, Scotland and South Africa through companies to be incorporated. I would mention that Narbonne Investments has a put option on Thermolase Corporation, the American holding company which can be exercised in 4 years time, so there is a way of unlocking the investment [ie Narbonne's shareholding in Thermolase UK]" (emphasis added)
At the foot of the document, the agreement is signed and sealed by corporate directors and secretaries on behalf of each of Narbonne and Canterbury.
I make the following observations on the Narbonne Agreement. First, the two parties to the Agreement are limited companies. Secondly, in terms, the Agreement is for a 10% stake in Narbonne's own investment in the stated Thermolase subsidiaries. Canterbury does not, in terms, acquire a 10% ownership stake (or shareholding) in Narbonne itself. Thirdly, the agreement is not a polished draft. The use of the word "our" is somewhat unusual and is to be taken to refer to Narbonne, the company. The use of the word "I" is more at odds with the notion of a corporate party, and might be taken to be a reference to Mr Dodd personally. The wording of that sentence is very similar to wording in the 21 May letter.
Although bearing the date 22 May 1998, it appears that the Narbonne Agreement may have finally concluded a few days later. Minutes of a meeting of the directors of Narbonne held on 25 May 1998 record a board resolution that Narbonne should sell to Canterbury "10% of Narbonne's stake in Thermolase UK and interests in Ireland, Scotland and South Africa" and that signature of the Narbonne Agreement by the directors be authorised.
Then on 28 May 1998, Spread Asset Management sent by fax a copy of the Narbonne Agreement to Mr Wilson and asked him to approve the outstanding payment of $250,000 to Narbonne. As requested, Mr Wilson in turn signed and returned the fax, approving the Narbonne Agreement.
On 10 July 1998 Canterbury's execution of the Narbonne Agreement was ratified by a resolution of the directors of Canterbury at a meeting in Guernsey. The minutes of meeting record the purchase by Canterbury of Narbonne's "10% stake in Thermolase UK and its interests in Ireland, Scotland and South Africa through companies to be incorporated" and the authorisation of signature. This might suggest that Canterbury was buying a stake in Thermolase, and not Narbonne, and that that stake was 10% of Thermolase UK. This is addressed further below.
The payment of the $250,000
It is common ground that Canterbury paid $250,000 to Narbonne. I accept Mr Wilson's evidence that he first wired that money to Canterbury on or around 21 May 1998. The first manuscript annotation on the 21 May letter, stating that he wired the money to Frank Moon at BDO, supports this evidence. The money was then paid over by BGL Reads to Narbonne some time later, on or after 28 May 1998.
In cross-examination, Mr Dodd accepted that the $250,000 received from Canterbury was never invested in Thermolase UK, but rather was retained by Narbonne and remained held by Narbonne even at this time.
Thermolase UK's audited accounts for the period to the end of September 1998 showed a net loss of £278,208.
1999
In May 1999 Mr Wilson wrote to Mr Moon and Mr Pollock at BGL, informing them that he had given authority to Mr Richman to give instructions in relation to his shares in World Port and FirstCom.
On 10 November 1999 Mr Dodd, on behalf of Thermolase UK, sent a letter to Mr Wilson updating him on the progress of Thermolase, enclosing a copy of audited accounts and stated that Narbonne "now has majority control of investments in Thermolase UK Ltd as well as in additional territories of South Africa and Spain". Losses incurred were below projections and profits would be made going forward, in the following three years.
October 2000 to February 2001: Assignment of Canterbury investments, including in Narbonne, to Mr Wilson
In October 2000 Mr Wilson instructed Spread Asset Management to transfer his investments from Canterbury into his own personal name. On 16 December 2000 by a deed of assignment between Canterbury and Spread Trustee, Mr Wilson and Narbonne, Canterbury and Spread Trustee assigned their interest in Narbonne and Thermolase UK to Mr Wilson personally. The interest assigned was defined as "a 10% stake of Narbonne in Thermolase UK".
On 9 February 2001, the directors of Narbonne approved the signature of the Deed of Assignment. The minutes of the meeting of Narbonne's directors record that what was assigned was "a 10% stake in Thermolase UK". This record fails to reflect that Narbonne held only a part share of Thermolase UK. It appears that, at about the same time - in January and February 2001 - other investments held by Canterbury were also transferred to Mr Wilson personally. From correspondence at the time, Mr Richman was in some way involved in discussions with BGL Reads about these transfers. Thereafter, following these transfers from Canterbury to Mr Wilson, steps were taken to terminate the Lafayette Trust.
Ellipse
In February and March 2001, Ellipse was incorporated, bearing, by the end of March, the name Thermolase Pulsed Light Limited. Thus it appears from that name that at this stage this company was seen as part of Mr Dodd's Thermolase operation, albeit in IPL technology rather than in laser technology. Thermolase was thus to be involved in IPL technology.
The work permit/passport issue: June 2001
On 4 June 2001 Mr Richman wrote to Mr Wilson reporting that he had spoken to Mr Dodd who would have the paper work about his work permit sent out to John Snell that week. This is the first reference to a UK work permit for Mr Wilson and shows both Mr Richman and Mr Dodd as being involved in this issue, with Mr Dodd being the contact with Mr Snell, and Mr Richman acting as a conduit with Mr Wilson. On 26 June 2001, Mr Dodd wrote a letter in support of Mr Wilson's application for UK residency. The letter, signed on behalf of Thermolase UK, stated that Mr Wilson was a shareholder in Thermolase UK, retained as a consultant, overseeing the International Division of his business. Mr Dodd offered his assistance in processing Mr Wilson's application for UK residency. As Mr Dodd and indeed Mr Wilson accepted in cross-examination [4/162/ and 3/152/ this letter contained a number of untrue statements. Mr Wilson did not oversee the International Division. In fact he was not retained as a consultant
Second letter dated 26 June 2001 from Thermolase UK to Mr Wilson
A further letter dated 26 June 2001 written on Thermolase UK headed paper stated as follows:
"Dear Joe
I understood that you had spoken to Robert in respect of Thermolase. I thought in the circumstances that I would let you have some bullet points relating to the progress of the company since you made your investment. I am of course letting Robert have a copy of this letter.
...
1.We have acquired control of Thermolase and increased Narbonne's shareholding to 54% .
...
5.In April 2001 we started distributing a new Pulsed Light hair removal system manufactured by a highly sophisticated science orientated company in Denmark. We have had an extremely successful launch and have sold 11 systems.
...
Best Regards
Michael Dodd
Managing Director
Thermolase UK Ltd
cc Robert Richmond" (emphasis added)
Mr Wilson contends that this letter constitutes a continuing representation that Mr Richman had invested in Thermolase, as he had been told, and that, by writing in these terms, Mr Dodd was seeking to perpetuate Mr Wilson's mistaken belief that Mr Richman had invested. Further Mr Wilson contends that the letter does in terms suggest that the IPL technology (and other technology) was regarded as part of the Thermolase business at that time.
The work permit/passport issue: July to October 2001
On 26 July 2001 Mr Wilson wrote to Mr Snell, providing him with relevant personal details for the purposes of his work permit/passport/residency application. He told Mr Snell, inter alia, that he was a US citizen and that he was presently employed by Thermolase UK Ltd as director in its International Division.
By email dated 17 September 2001 Mr Richman wrote to Mr Snell (copied to Messrs Wilson and Dodd) stating:
"Mr Dodd will be hiring Joe Wilson and is interested in arranging a work permit
TITLE: UK Director of New Products
Worked for the parent company, Thermolase US for 3 years. Joe will explore the UK and European markets for new products for Thermolase UK. He will set up a distribution channel for a new.
Before working for the parent company, while he was retired he studied the beauty product industry and build up a potential data base of companies in the laser industry in Europe. Laser products was the area that he specialised in. He became an expert in the filed and was advising Israeli companies on new developments in Laser hair removal industry.
I hope this gives you some idea for Joe's work permit"
Apart from referring to the desire to obtain a work permit, the contents of this email were wholly untrue. When this was read to him in cross-examination, Mr Wilson "giggled" and responded "None of this is true" [3/130/14-20].
On 3 October 2001, the Home Office issued a work permit to Mr Wilson. The work permit was valid for two years from the date of entry in January 2002. The permit, in terms, names the employer as Thermolase UK, occupation as Tech Support and Installation consultant, and salary as £40,000 per annum (£3,333 per month). Soon after, Mr Snell forwarded the work permit to Mr Wilson in the USA.
November 2001
On 14 November 2001, Ellipse changed its name to "Ellipse Pulsed Light Limited". There is no evidence as to why the name was changed at this particular time.
2002
Meeting at Carlton Towers Hotel Summer 2002
At the Carlton Towers meeting, it was agreed that Mr Dodd would procure that monthly payments would be made to Mr Wilson, in the net sum of £1398.50. It is said that this is a net sum, representing, before deduction of income tax and national insurance contributions, the sum of approximately £2000 per month. The purpose and basis of these payments are considered below in Issue S(d) and (e).
The first such monthly payment of £1398.50 to Mr Wilson was made on 2 September 2002. This payment was made, on behalf of Thermolase, by a payroll company called Crownline Limited. Four more such payments were made by Crownline: in October and November 2002, and, for the slightly lesser sum of £1380, in December 2002 and on 25 February 2003. The payments by Thermolase then stopped.
Work permit issues: June 2002 to December 2003
On 28 June 2002, Mr Dodd wrote a further letter of reference for Mr Wilson, on Thermolase UK notepaper, again stating that Mr Wilson had worked as a consultant in his company and describing Mr Wilson as "an upstanding, trustworthy and wonderful man".
Thermolase UK's employers annual return to the Inland Revenue for the tax year 2002-2003 showed Mr Wilson as an employee, recording that his employment had started on 1 September 2002 and that in that period he was paid £14,000.
On 3 December 2003, Mr Wilson wrote to Mr Snell enclosing a copy of his US passport and his work permit. In December 2003, the Home Office wrote to Mr Snell approving the grant of a work permit for Mr Wilson for a further three years, with the same job description and salary. That work permit was valid from January 2004 to January 2007.
March 2003 to March 2004: the demise of Thermolase UK
Mr Dodd contends that Thermolase US withdrew from the Softlight laser market some time in 2002 to 2003 and that it was this withdrawal which "led ultimately" to the liquidation of Thermolase UK. In any event, in or about March 2003, Thermolase UK ceased to trade. It went into creditors' voluntary liquidation on 11 March 2004. As at the date of liquidation, Thermolase UK's statement of affairs showed a deficiency as regards unsecured creditors of just in excess of £1 million and showed Thermolase US as a creditor in an amount of more than £820,000. There is an issue as to when Mr Wilson found out about the demise of Thermolase UK see Issue S(c) below.
According to Mr Dodd, in 2004 Ellipse purchased certain assets of Thermolase UK from the liquidators. What those assets were,and how much Ellipse paid, is not entirely clear. At various times figures of £5000 and £10,000 (plus VAT) were mentioned. There is no evidence to suggest that Ellipse purchased from the liquidators the "business" or goodwill of Thermolase UK - as opposed to particular specified equipment.
On 15 February 2004, according to the Softlight website, Ellipse replaced Thermolase UK as the contact point for sales of the Softlight laser.
June 2004: The monthly payments resume
On 22 June 2004 the monthly payments to Mr Wilson resumed. From then on, the payments were £1380 and were made by Ellipse. It is now common ground that payments were made every month until 26 April 2006; a total of 23 monthly payments. In total, Mr Wilson received from Crownline and Ellipse £38,695.50 in monthly payments. After 26 April 2006, the monthly payments to Mr Wilson stopped.
June 2006: Mr Wilson contacts his US attorney and presses for the UK passport
In June 2006, Mr Wilson was in contact with his US attorney. On 14 June 2006 he sent by fax a number of documents to Mr Sternlieb, including a copy of the 21 May letter. As explained above, on the copy of the faxed letter, there appears the annotation "Find out what you can about Narbonne and Thermolase". He also forwarded to Mr Sternlieb a copy of the 28 June 2002 reference letter from Thermolase UK. An internal email within the US attorneys 21 June 2006, showed that they found out that Mr Dodd's address was Ellipse Clinic Limited. The email stated, referring to Mr Wilson "he added this is a whole new company and he was never informed of that". This appears to be a reference to Mr Wilson having just found out about a new and different company operated by Mr Dodd.
At very much the same time as contacting Mr Sternlieb, Mr Wilson and Mr Dodd were involved in renewed activity in relation to Mr Wilson's quest for a passport. In a manuscript note dated 22 June 2006 to Mr Dodd, Mr Wilson set out the history of the position regarding his work permit. The note recorded that Mr Wilson had been "advised to call John Snell in October or November 2006 to apply for permanent residence in order to obtain citizenship by 17 January 2007". On the next day, 23 June 2006, Mr Dodd wrote, as managing director of Ellipse, to Mr Snell confirming, following a telephone conversation regarding Mr Wilson, that Mr Snell would be applying for permanent residency for Mr Wilson in January 2007 and that Mr Snell would need from Mr Dodd "the October, November and December payslips" plus affidavit and forms duly completed. The letter also indicated that Mr Wilson would be able to apply for British citizenship and a passport by January 2008. The payslips were for October, November and December in 2006.
On 28 June 2006, Mr Wilson's US attorneys found out information about Mr Dodd and Thermolase and passed it on to Mr Wilson. In their internal report, the US attorneys state that they understand Mr Wilson to have acquired 10% in Narbonne and continue:
"It appears that Dodd, through his present company, Ellipse Clinic still uses Thermolase Softlight technology for various applications"
Mr Sternlieb went on to state that "next week, I will send a letter to Dodd requesting an accounting of the entire Narbonne/Thermolase investment". This characterisation of Mr Wilson's investment indicates that Mr Sternlieb himself had, at the time, no understanding that his client, Mr Wilson was involved in a wider "partnership" with Mr Dodd, going beyond the Thermolase corporate investment.
I note that by this time the monthly payments had stopped. Thus, at this time Mr Wilson was simultaneously pursuing his passport application and seeking to find out more about Thermolase and Narbonne, in the context of his monthly payments having recently stopped.
Work permit and passport
In November 2006, Mr Wilson called Mr Snell about applying for permanent residence, in order to obtain citizenship by the time that the renewed work permit expired in January 2007. On 27 March 2007 Mr Wilson wrote to Mr Dodd in relation to his quest for permanent residency, enclosing a page from his US passport and other information.
27 December 2007: the Pritkin meeting
The Pritkin meeting took place on 27 December 2007. Mr Dodd claimed, and Mr Wilson denied, that this meeting was held on a "without prejudice" basis and thus evidence as to what was said at the meeting is not admissible. Additional witness statement evidence from Mr Wilson and Mr Dodd was served just before and during the trial. It is common ground that at the meeting Mr Wilson handed to Mr Dodd a manuscript note he had made. That note recorded Mr Wilson's view of the position, at that time, as regards the monthly payments. What was said at the meeting is the subject of Issue S(f).
Late December 2007/Early 2008: conversation between Wilson and Richman re £4 million sale of businesses
Mr Wilson alleges that in later 2007/early 2008 Mr Richman reported to him a conversation he had had with Mr Dodd. In that conversation, it is alleged, Mr Dodd had told Mr Richman, that the business would be sold for a large sum and that he, Mr Richman, would make a substantial return on his investment of $500,000. Mr Wilson's case here is not consistent. In his second witness statement, Mr Wilson says that the sum in question was £4.5 million and that the conversation took place in December 2007; however the Amended Particulars of Claim, the sum mentioned was said to be £4 million and the conversation took place in early 2008. Mr Wilson says that, implicit within this conversation, was a continued representation on the part of Mr Richman that he had in fact made the initial investment in Thermolase UK back in May 2008. I consider the facts relating to this alleged conversation in addressing the issue of "failure to correct" in paragraphs 325 to 328 below.
March 2008 onwards: Mr Wilson instructs English solicitors
In March 2008 Mr Wilson instructed English solicitors, Radcliffes. On 9 May 2008 Mr Wilson sent documents to Mr Nigel West of Radcliffes, including his annotated version of the 21 May letter.
At the end of May 2008, Mr Wilson contacted Mr Moon at Fortis, seeking a copy of his share certificate for Thermolase and/or Narbonne, which he said he had mislaid. After inquiries, Fortis informed Mr Wilson that there did not appear to be such a share certificate.
On 17 June 2008, Radcliffes sent a letter before action to Mr Dodd. In that letter, Mr Wilson sought payment of outstanding monthly payments (up to £3000 per month). There was no specific mention of a partnership between Mr Wilson and Mr Dodd; but clearly there was a claim to be entitled to 10% of the value of Mr Dodd's hair removal business.
On 1 July 2008, Mr John Goldring, financial adviser to Mr Dodd, responded. On 8 July 2008 Mr Goldring sends a further letter to Radcliffes, enclosing the manuscript note which Mr Wilson had handed to Mr Dodd at the Pritkin meeting.
On 23 October 2008 Beautylight was incorporated. On 29 December 2008, Radcliffes, on behalf of Mr Wilson, issued a stop notice under CPR 73.17 in respect of the share capital of Ellipse. On the next day, Radcliffes wrote to Mr Dodd's solicitors, Coyle White Devine ("Coyles"), enclosing draft particulars of claim and asserting the Partnership Claim for the first time.
Proceedings are issued
On 18 March 2009 the claim form, accompanied by particulars of claim, was issued and served. Mr Wilson's claim was based solely on the Partnership Claim. On 23 April 2009, the Dodd Defendants applied for summary judgment, dismissing the claim. Mr Dodd made two witness statements in support of this application. Mr Wilson claims that it was upon receipt of these witness statements that he found out for the first time that, in fact, Mr Richman had never invested in Narbonne/Thermolase UK at all. This, he claims, led to the introduction of the Misrepresentation Claim.
On 16 June 2009 Coyles refused Radcliffes' request for disclosure concerning corporate information relating to Narbonne, referring the matter to Narbonne. In this and further correspondence, Coyles were being obstructive, given the fact that it was their client who ultimately controlled Narbonne. In July 2009, the Particulars of Claim were amended to introduce the Misrepresentation Claim. On 29 September 2009, Mr Dodd incorporated Clear Skin. On 16 February 2010, Ellipse was dissolved and struck off the register.
In April 2011 Mishcon de Reya, who by that time had started to act for Mr Wilson wrote to complain about the Dodd Defendants' disclosure. On 18 May 2011 Coyles responded, saying, in the main, that the documents were not in their clients' control and directed Mishcon's request to the liquidators of Thermolase UK. Thereafter Mishcon did not press further. On 25 May 2011 Mishcon wrote to complain about the dissolution of Ellipse having taken place some 15 months earlier. By order of Mr Justice Mann dated 26 October 2011. Clear Skin was substituted as third defendant for Ellipse. Finally just before trial, on 11 July 2012, Mishcon renewed its request for disclosure of specific documents, relating particularly to corporate information on the various companies.
Findings of fact on subsidiary issues
Issue S(a): What was the nature of Mr Wilson's investment of $250,000?
It is far from clear what rights, exactly, Canterbury (and subsequently) Mr Wilson acquired in return for its investment of $250,000. The lack of clarity relates both to the nature of what was acquired and the percentage interest in Thermolase UK that was acquired.
Did Canterbury acquire some form of right in 10% of the shares in Narbonne, or some form of right in 10% of Narbonne's shares in Thermolase England and Thermolase UK and, in any event, were those rights proprietary rights or some form of other right or rights in the fruits of the Thermolase joint venture? These issues have particular relevance to the Breach of Trust Claim.
Mr Wilson's pleaded case is that, initially, he acquired a 10% stake "in the Partnership" - though he accepts that under the Narbonne Agreement, Canterbury was to acquire a 10% stake in Narbonne's investment in Thermolase. In closing, his case was that the share capital of Narbonne was held on trust for himself (as to 10%) and Mr Dodd. Mr Dodd's case is that Canterbury (and subsequently Mr Wilson) acquired, for $250,000, the right to 10% of any money received by Narbonne in relation to the Thermolase joint venture. The evidence is contradictory. There are three distinct points.
First, as to what proportion of Thermolase England, the joint venture, was acquired by Mr Dodd (or more strictly by Cosmetic Laser), Mr Dodd's oral evidence in these proceedings is that Cosmetic's (and thus Narbonne's) interest in Thermolase England was 26% and the interest of Thermolase US was 74%. However other, documentary, evidence suggests that that percentage interest was higher than 26%. First, in its November 1998 filing with the US Securities and Exchange Commission (SEC) Thermolase US states that it owns 50% of Thermolase UK. Secondly, in a letter to Mr Wilson dated 10 November 1999, Mr Dodd asserted that Narbonne "now has majority control in Thermolase UK". Thirdly, a published annual report for Thermo Electron Corporation for the period to 30 December 2000 shows Thermolase England being owned as to only 46% by Thermolase. Fourthly, subsequently, in his 26 June 2001 letter, Mr Dodd informed Mr Wilson that Narbonne's shareholding had increased to 54%. No other documentary evidence has been produced to establish directly the respective ownership interests in Thermolase England (and thus in Thermolase UK and the other subsidiaries). On the basis of this documentary evidence, I am not prepared to accept that at all times Cosmetic Laser's interest in Thermolase England was only 26%. I find that by a certain time at least, Narbonne held a majority interest in Thermolase England. I do not need to make a finding as to the precise figure. Absent disclosure of corporate documents, it is impossible to verify the position one way or the other.
Secondly, there is the question whether Canterbury acquired 10% of the Thermolase joint venture and thus of Thermolase UK or merely 10% of Narbonne's stake in Thermolase UK. The effect of the express terms of the Narbonne Agreement is that Canterbury acquired only a 10% stake in Narbonne's investment in Thermolase (whether it was acquiring an interest in Narbonne itself or in Narbonne's interest in Thermolase UK.) Either way, this means that, assuming that Narbonne (through Cosmetic Laser) held only part of the Thermolase joint venture, Canterbury was necessarily acquiring an indirect interest in Thermolase UK which was less than 10%; only 2.6% if it was the case that Narbonne had a 26% interest in Thermolase; and up to 5.4% if Narbonne held 54%.
Other evidence suggests that Mr Wilson believed at the time that he (through Canterbury) was acquiring 10% in Mr Dodd's business, in return for the $250,000, and such an interest would translate as 10% of Thermolase England and Thermolase UK. This finds some support in the express words of Canterbury's own ratification of the Narbonne Agreement in July 1998, which in terms refers to the purchase by Canterbury of Narbonne's 10% stake in Thermolase UK; and in the terms of the Deed of Assignment dated 2001.
In cross-examination [2/24/18], Mr Wilson said that he had assumed that Narbonne was Mr Dodd's business and that he was investing 10 per cent in his business. This evidence might suggest a lack of awareness that Narbonne did not itself own 100% of the business of Thermolase UK. However Mr Wilson had been told of this fact by November 1999 at the latest. In any event, regardless of the terms of the ratification, in my judgment, the Narbonne Agreement signed by both parties refers clearly to 10% of Narbonne's investment in Thermolase and not to 10% of Thermolase itself.
Thirdly, as to the nature of Mr Wilson's rights (whether in Narbonne or in Thermolase), Mr Wilson relies further on a statement by Mr Dodd in his July 2011 witness statement that he and Mr Wilson "are the joint beneficial owners of Narbonne". (This statement was made for the purposes of contradicting Mr Wilson's assertion of partnership; and was not, in my judgment, intended to be a considered assertion of the precise legal relationship and nature of Canterbury's interest in Narbonne).
In cross-examination [4/80 onwards], Mr Dodd was asked about this statement. He said, quite clearly, first that Mr Wilson did not get any share capital of Narbonne and secondly that what he bought was 10% of Narbonne's interest in Thermolase. His statement that they were joint beneficial owners was put to him: [4/85/5-9]
"So you are now saying that Mr Wilson has a beneficial interest in Narbonne, which may not be as big as yours, but is similar to yours, yes?
A. What was said, it was the details of Mr Wilson's corporate investment
...
When asked how Mr Wilson's beneficial interest was held, he answered by referring to the document provided by DBO Reads in Guernsey; which I take to be a reference to the Narbonne Agreement and the Narbonne resolution. He was asked again [4/86/9-15]
"Q. How is Mr Wilson's beneficial interest held?
A. Mr Wilson's beneficial interest was that I - there was a documentation that was put into place that said exactly what Mr Wilson would own of the investment that we had in Thermolase which was the primary investment of Narbonne."
In cross-examination on day 5, [5/96/12-15], it was put to Mr Dodd that his agreement with Mr Wilson could be described as a partnership. He answered as follows:
"A. Absolutely not. .... it is so clear, that it was a corporate investment.
Q. But you accept, don't you, because you say it in your witness statement, that Mr Wilson had a beneficial interest in Narbonne.
A. He had an interest in Narbonne which I'd stated. In Narbonne, we had a joint interest in Thermolase"
The reference, in his witness statement, to "joint beneficial owners of Narbonne" was then put to him and he responded "I'll take your word".
In my judgment, when considered with the contemporaneous documents, Mr Dodd's genuine understanding was that Canterbury (and Mr Wilson's) interest was as described in the Narbonne Agreement and other documentation prepared by BDO at the time. This oral evidence does not exactly or precisely verify what was stated in his witness statement. Although there was confusion, the terms of Narbonne agreement are clear.
I do not accept that the statement in his witness statement is proof that Mr Wilson had a beneficial interest in the shares in Narbonne themselves, (being shares held by Zabardi, and to the ultimate beneficial entitlement of Mr Dodd) or a beneficial interest in Cosmetic Laser (through Narbonne's shares in Cosmetic), nor thus that 10% of those shares were held on trust by Mr Dodd (or Zabardi) for Mr Wilson. Nor do I consider that, even if Mr Dodd held the belief stated in his witness statement, that belief overrides the true legal position on the documents.
On the evidence that is before me, I conclude, first, that Narbonne, through Cosmetic Laser Services, held a proportion of the shares in Thermolase England ("Narbonne's interest"); secondly that Canterbury, and later Mr Wilson, had a 10% stake in Narbonne's interest; and thirdly that the nature of that stake was a right to receive profits, and not a stake or holding in the shares of Narbonne itself.
Issue S(b): What is the degree of overlap, if any, between the business carried on by Thermolase UK and the business or businesses carried on by Ellipse, and by the Third to Fifth Defendants?
This issue was raised, initially, in the context of the Partnership Issue. If there was a partnership, the question arises as to what is or was not encompassed by the "business" the subject of the partnership. It follows, that if, as in fact, I find there was no such partnership, then, to that extent, the degree of overlap between the business of Thermolase UK and that of Ellipse, and, later, of the Third to Fifth Defendants, is not relevant.
Two further observations arise from this initial context of the issue. First, it was no necessary part of Mr Wilson's original case that Ellipse and the later companies were selling Softlight lasers. The allegation was that IPL lasers were a natural development from Softlight lasers and the two products effectively formed part of one and the same continuing business of hair removal. There was no allegation made that Mr Dodd had acted in any way improperly by operating different companies at different times, all in the hair removal business. Secondly, the disclosure, and the evidence principally adduced on this issue was circumscribed by this initial context.
However, it appears that by the end of the trial, this factual issue was being relied upon by Mr Wilson in the Breach of Trust claim. For that reason, I make certain findings of fact.
Mr Wilson's case
Mr Wilson's case, now, on the facts is that, first, in the period during which it operated Thermolase UK sold not only Softlight laser systems, but also IPL systems and, secondly, in the period after the demise of Thermolase UK, Ellipse and the Third to Fifth Defendants, sold not merely IPL systems, but continued to market and sell Softlight laser systems.
The Dodd Defendants' case
The Dodd Defendants' case is that the business of Thermolase UK and that of Ellipse, and the later companies, are quite distinct; that the IPL technology is different from the Softlight laser technology and has no connection with Thermolase US or UK, but was developed and distributed by different companies. They contend further (and I accept) that, before trial, Mr Wilson had made no case in relation to the sale by Ellipse and the later companies of the Softlight laser system, nor that, in some way, Mr Dodd has wrongly misappropriated the business of Thermolase UK. Had such a case been made, other documents could have been obtained and further inquiries could have been made of the liquidator of Thermolase UK. This was not a case of a phoenix operation, as there was a two year period when both Ellipse and Thermolase UK were trading at the same time.
Mr Dodd's evidence
In this second witness statement, Mr Dodd said expressly that Thermolase UK only did one line of business, namely the Softlight laser. When Thermolase US made its decision, in 2002, to withdraw from the hair removal market, he started to look for alternative products. The product he "eventually" found was the DDD IPL system. This was the product at the heart of the business of Ellipse and then Beautylight. The Softlight laser and the IPL system were different: the former, but not the latter was used for tattoo removal; the latter could be used for a wider variety of skin treatments. They were "like chalk and cheese". He expressly denied that the Third to Fifth Defendants were "phoenix companies which picked up precisely where Thermolase stopped off " and that he "had some sort of plan to take his money but make money for me alone". He went on to say that, after the demise of Thermolase, he sought to find a new product and start a new business. Ellipse did nothing which could be construed as a continuation of the Thermolase business, apart from selling on a handful of Softlight lasers, which Ellipse had obtained in part exchange for IPL systems Ellipse had itself sold.
I do not accept this evidence as an accurate description of relevant events.
First, Thermolase UK was involved with the IPL system, before Thermolase US's stated withdrawal in 2002 or 2003 and before Thermolase UK ceased trading in 2003. The DDD IPL system had been found by Mr Dodd considerably before either of these events in 2002 and 2003. This is clear from Mr Dodd's own letter of 26 June 2001. Asked about the letter in cross examination, Mr Dodd accepted that distribution of the IPL had started by April 2001, but, despite the terms of the letter, he denied that it was Thermolase UK who was doing this [5/46/11]. It was separate and different technology and it was being operated and sold through a different company. [5/47/20-21]. He said that there was no intention to deceive Mr Wilson, as shown by the fact that he referred to the IPL technology in the letter.
Secondly, the involvement, from 2004 onwards, of Ellipse, and then Beautylight, with the Softlight laser system appears to have been more substantial than the mere disposal of a "handful of Softlight lasers" received in part exchange. In the period from February 2004 to July 2007, at least, there is evidence that Ellipse was more significantly involved with the Softlight system. Much of this evidence appears from the content, over time, of a website with the domain name www.softlight.co.uk ("the Softlight Website"). It appears that, over time, the Softlight Website was used as the website both for Thermolase UK (as appears from the 26 June 2001 letter itself) and also for Ellipse (and later Beautylight). (There was also a website operating under a different domain name, namely "www.ellipseipl.co.uk" ("the Ellipse Website")). The Softlight Website evidence shows as follows.
First, as at 15 February 2004, in the contacts section of the Softlight Website, the details remained the same, save that Thermolase UK was replaced by Ellipse, as the designated contact point for sales of the Softlight laser. This shows a conscious decision to continue the use of the Softlight Website, formerly used for Thermolase UK's business, for the purposes of Ellipse's business.
Secondly, as at 4 August 2004, the Softlight Website stated the price of the Softlight laser in the UK to be £24,950 and that this was a reduction from a previous price of £29,500 to 24,950). That previous price appears on the equivalent page of the Softlight Website in 2000, although it is not entirely clear when the stated reduction took place. No other version of this page of the Softlight Website after 2000 and before August 2004 has been produced in evidence. It is thus possible that the reduction had taken place before Thermolase UK ceased trading in 2003. Nevertheless this might indicate active selling, or at least an active intention to sell, Softlight lasers by Ellipse. The price for supply outside the UK is stated to be $45,000 FOB UK, as it had been on the September 2000 Softlight Website.
Thirdly, as at 8 February 2005, after the demise of Thermolase, the Softlight Website states "Ellipse ... offer both Laser and IPL technology". Thus Ellipse was positively marketing the Softlight laser (for supply to others) and doing so, not only for tattoo removal, but also for hair removal and skin peel.
Fourthly, between March and July 2006, the Softlight Website shows Ellipse marketing the Softlight laser for hair and tattoo removal. There is a specific page for Softlight on the Website. As at 5 July 2006, the cost of the Softlight is stated to be £32,500 FOB UK (as opposed to $45,000 stated in 2004). The change of currency alone indicates conscious action taken by Ellipse in relation to Softlight.
As regards the Ellipse Website, that shows, for periods between December 2006 and July 2008, the Softlight laser being marketed for tattoo removal. Additionally, the Ellipse Website, in a similar period, markets the availability, at the Ellipse Clinic of treatments using the Softlight laser. For this period, and subsequently, hair removal appears to be based on the IPL system, although it hardly features at all on the Ellipse Website.
Mr Dodd gave evidence about Ellipse's continued involvement with Softlight lasers after 2004, and the content of the Softlight Website. First, he said that Ellipse continued to support systems which had previously been sold by Thermolase UK and to fulfil that company's training commitments [5/53/20 to 5/54/12]. Secondly, he said that, after the demise of Thermolase UK, Ellipse only sold Softlight lasers if others had traded them in [5/65/21 to 5/66/6]. Thirdly, his evidence as to why Ellipse, through the Softlight Website, continued to market the Softlight laser was that this was merely obsolete, non-active, material left on the Softlight Website. However this was not consistent with the clearly conscious change in the contact details for the company selling the Softlight system and the change in the prices of a Softlight laser made in 2004 [see generally 5/65 to 5/91]. I do not accept Mr Dodd's evidence that the limit of Ellipse's involvement with the Softlight laser was merely selling a handful of part-exchanged laser systems.
Findings
I accept that Softlight and IPL were different technologies with some different applications and strengths. After the demise of Thermolase UK, Ellipse and other later companies continued to be involved with the Softlight laser. Certainly Ellipse was involved with the Softlight laser in the retail clinic treatments, in the repair, service and training on Softlight laser systems which had previously been sold by Thermolase UK and in the selling on old part exchange Softlight lasers.
As to whether Ellipse's involvement went further and included also positively selling new Softlight lasers, I find that it was certainly taking some steps to market the sale of such lasers on the Softlight Website. I do not accept Mr Dodd's explanation that the Softlight Website was merely obsolete material which was no longer used [5/71/15 to 5/72/6]. However there is no evidence before me of actual sales of Softlight lasers after this time, by Ellipse, nor of any source, for Ellipse, to acquire new Softlight lasers. It is therefore not possible to reach a firm conclusion as to the extent to which sales and distribution of Softlight lasers formed any or any substantial part of Ellipse's business.
However, even assuming that Ellipse, and Beautylight, did carry on business in the sale of Softlight lasers, the consequences are not clear. For reasons, I have set out above, this has no material bearing on the Partnership Claim. As to the Breach of Trust Claim, as I explain below, I am not satisfied that there is sufficient evidence that Mr Dodd perpetrated some form of wrongful misappropriation of the business of Thermolase UK.
Issue S(c): When did Mr Wilson find out about Thermolase UK having ceased trading and/or gone into liquidation?
There is a dispute as to when Mr Wilson found out about Thermolase UK having ceased trading and having subsequently gone into liquidation. Mr Wilson's case is that he did not find out about the demise of Thermolase UK until receipt of Mr Goldring's letter of 1 July 2008.
Mr Dodd's case, from the outset, has always been that Mr Wilson knew about the demise of Thermolase UK at some point in or before June 2004. In Mr Goldring's letter of 1 July 2008, it was asserted that Mr Dodd had told Mr Wilson about this many times previously. Finally, in his fourth witness statement, Mr Dodd stated, more precisely for the first time, that he had telephoned Mr Wilson soon after Thermolase UK went into liquidation to tell him that Thermolase UK had been forced into liquidation and that his $250,000 had been lost along with his own investment in Thermolase. On this basis, Mr Dodd would have told Mr Wilson some time in March or April 2004. I find as follows.
Mr Dodd did not inform Mr Wilson of the demise of Thermolase UK soon after liquidation in March/April 2004 or indeed at any time before June 2006, at the earliest. There are two significant pieces of contemporaneous documentary evidence which are inconsistent with that suggestion. First, in a manuscript note of Mr Wilson's investment holdings, apparently dated 4 April 2006, Mr Wilson includes within his holdings his investment of $250,000 in "Thermolase UK Narbonne". He also lists that as one of his "investments with Robert Richman". This is strong evidence that as at the date of making that list, Mr Wilson was not aware of the demise of Thermolase UK and that he had not been told by Mr Dodd by that time that that investment was "lost". Secondly, on 14 June 2006, Mr Wilson's manuscript note on a copy of the 21 May letter addressed to his then US attorney, Mr Sternlieb, effectively asking him to find out whatever he could about Narbonne and Thermolase, also indicates that, at the time, Mr Wilson did not know about the liquidation. Further, Mr Dodd's witness evidence of a phone call in March or April 2004 was only referred to very late in the proceedings, and as part of his newly introduced account that the monthly payments were always no more than loans. I do not accept this evidence of a phone call.
The question then is whether Mr Wilson found out about the demise of Thermolase UK upon receipt of the letter of 1 July 2008, or at some earlier date.
In this context the inquiries made by Mr Wilson's US attorneys in June 2006 are pertinent. Those inquiries had in turn been sent in train by Mr Wilson's own request that they should find out about Narbonne and Thermolase. The attorneys first found out that Thermolase had merged and still assumed that Thermolase UK was in existence, but were uncertain. Further, Mr Wilson found out for the first time about Ellipse and expressed concern that he had not previously been aware of this company. Then on 28 June 2006, those attorneys' report indicated that Ellipse is Dodd's present company and that it was still using the Softlight laser. At the same time they advised Mr Wilson that they would send a letter to Mr Dodd requesting an account of the entire Narbonne/Thermolase investment. Given the information obtained and the inquiries that were then being put in train in June 2006, it is not credible that Mr Wilson did not find out, at least, about the cessation of trading until the letter of 1 July 2008. I note that there was no expression of great surprise in the response to the 1 July 2008 letter.
For these reasons, I find that Mr Wilson found out that Thermolase UK was no longer actively trading some time in or soon after June/July 2006. However I am not satisfied however that by that time he found out that Thermolase UK had gone into liquidation. I accept that he did not find that out until later, in July 2008.
Issues S(d) and (e): the monthly payments
Introduction
The fact, and detail, of the payment of monthly sums by Mr Dodd or one of his companies to Mr Wilson, over two periods of time, is not in dispute. Between 2 September 2002 and 25 February 2003 Mr Wilson received monthly payments in a total amount of £6955.50 ("the first tranche"), and between 22 June 2004 and 26 April 2006 Mr Wilson received payment of a further total amount of £31,740 ("the second tranche"). However, the underlying origin and purpose, and identity of the payer, is in dispute.
The explanations put forward by both parties have been neither consistent nor straightforward. I place particular reliance upon external evidence from documents. Much of the obscurity stems from the fact that these payments were intimately connected with both parties' involvement in Mr Wilson's quest for a work permit, and ultimately, for a UK passport. The circumstances of this involvement were something which both parties were concerned not to reveal, and with good reason.
I pause to consider the relevance, to the issues in the case, of the monthly payments. Initially Mr Wilson relied upon these payments, and in particular, the second tranche of monthly payments as evidence of the existence of a partnership between him and Mr Dodd. However, once the partnership issue is put aside (as I find in paragraph 256 below), the relevance of the monthly payments becomes less apparent. Mr Adair submitted in closing that the second tranche of payments goes to the issue of Mr Wilson finding out about the demise of Thermolase UK. The only other issue to which the monthly payments are said to be directly relevant is the issue of Mr Dodd's knowledge of the falsity of the misrepresentation. Mr Adair submitted that the inconsistency in Mr Dodd's evidence concerning the monthly payments supports a conclusion as to Mr Dodd's state of mind when making the representation in May 1998. This is no more than a submission concerning Mr Dodd's credibility as a witness and a suggested propensity for dishonesty; and in my judgment, does not significantly assist me in reaching a conclusion on that substantive issue on misrepresentation. However, if Mr Dodd made or procured the making of the monthly payments out of a sense of moral obligation towards Mr Wilson, then such a finding would tend to support the conclusion that he was aware that he had defrauded Mr Wilson.
Since the monthly payment issues were addressed in detail and hotly contested, I make the following findings. I deal with the two tranches of payments distinctly.
Issue S(c) In respect of the first set of monthly payments, when was it agreed that they would be made, what was their purpose, and why did they stop?
Mr Wilson claims that at the Carlton Towers meeting he had asked Mr Dodd for payment by way of a return on his investment of $250,000 in Thermolase/Narbonne and that it was agreed that Mr Dodd would pay a sum representing a 15% return, amounting to $37,500 per annum. This amounted to approximately $3,000 per month and that £1398.50 was the sterling equivalent of that amount, less tax and national insurance. Mr Dodd denies this. His position was that these payments were made to Mr Wilson on the basis that he was employed as a consultant to Thermolase UK, but he now accepts that in fact he was not so employed and that the fiction of an employment was a device for Wilson to obtain a work permit and ultimately a UK passport. I find as follows.
First, from as early as 2001, Mr Wilson had been seeking a UK work permit and, in order to obtain that permit had gone to some considerable lengths to establish that he was employed by Thermolase UK. Mr Wilson was seeking that work permit with the ultimate aim of obtaining a UK passport. He wanted that passport, because having one or more passports additional to his own US passport would aid his ability to travel in third countries [3/180-182]. From 2001 onwards, Mr Dodd and Mr Richman were involved in assisting Mr Wilson in his quest for a passport. I do not accept Mr Wilson's evidence that the obtaining of a work permit or passport was done for the benefit of Mr Dodd or Mr Richman; it was Mr Wilson's "quest" [3/150].
Secondly, Mr Wilson was never in fact an employee of, or consultant to, Thermolase UK or of any other company operated by Mr Dodd. Both Mr Wilson and Mr Dodd eventually accepted this in cross examination. Mr Wilson eventually accepted it was a pretence. [3/126]. In cross examination, Mr Dodd more readily accepted that it had been a fiction [4/162/13-15] He denied vehemently that the fiction was his idea. I accept that. Written statements, in correspondence and in application forms, that Mr Wilson was an employee were made for the purposes of obtaining a work permit and permanent residence. These statements were false. Both Mr Wilson and Mr Dodd were aware that these false statements had been made.
Thirdly, the payment of monthly sums was agreed between Mr Wilson and Mr Dodd at the Carlton Towers meeting. The amount agreed to be paid, £1398.50, was the approximate equivalent of an annual return of 15% on $250,000, but subject to deduction of PAYE and national insurance contribution. That deduction was a substantial amount. Mr Wilson never offered any explanation as to why, if these payments related only to a return on his investment of $250,000, he was content to accept substantially less than 15% He did accept [3/126] that the reason for the reduction was because "they were going to pretend that it was salary to me for being an employee", but that does not explain why he was prepared to get less than 15%. In my judgment, that he was content to accept that deduction demonstrates that the payments also, and equally, served the purpose of supporting his work permit application and that the amount paid was not expressly calculated to be a 15% return on an investment of $250,000.
Whilst I accept Mr Dodd's late evidence that the work permit may well have been a reason for the mechanism for these payments being made through the fiction of an employment with Thermolase UK, that does not explain why Mr Dodd (or Thermolase UK) was prepared to pay out such sums to Mr Wilson.
I conclude that the agreement to make these monthly payments served a dual purpose: to give Mr Wilson some return on his investment of $250,000 and to enable Mr Wilson to be put on the payroll of Thermolase UK, and thereby evidence his supposed employment by Thermolase UK in support of his application for a UK work permit.
Issue S(d): In respect of the second set of monthly payments, when was it agreed that the payments would be resumed, what was their purpose, and why did they stop?
The second tranche payments were actually made by Ellipse and not by Mr Dodd. Mr Dodd's account of how and why the second tranche was paid changed considerably. First, he said that he made these payments to Mr Wilson, who was angry when he had found out in June 2004 that Thermolase UK had ceased trading and that the payments were compensation for the loss of investment made ex gratia out of a sense of moral obligation. He further said that although the payments were actually made by Ellipse, they were in fact debited to his own "directors loan account" in Ellipse's accounts.
However, by the time of the trial, his evidence had changed significantly. He said, for the first time that, in fact the second tranche payments were no more than loans to Mr Wilson (which Mr Wilson at the time promised to pay back) and that he had agreed that Ellipse would pay them in order to support his continued quest for UK permanent residency. Whilst initially maintaining that the payments were debited to a" director's loan account" in Ellipse's accounts [4/66/10-13], he then seemed to accept that the payments were not entered into a "director's loan account" within the accounts of Ellipse; rather he said they were informally set off against the drawings he made from Ellipse by way of salary. His previous and repeated reference to a director's loan account was done "mistakenly" [4/67 and 5/115/12 to 5/117/19].
In my judgment, Mr Dodd's change of evidence as regards the second tranche was motivated in part out of a desire to cover up his role in seeking to obtain a work permit/passport for Mr Wilson. I accept he was embarrassed by this role, because he knew he had been party to false statements.
I also consider that his original evidence was put forward to defeat the Partnership Claim (i.e. to show that payments were not being made by Ellipse, the company). As to why, specifically, he then said the second tranche payments were loans and why he had not mentioned this fact previously, this is not clear. One explanation is that if they were said to be loans, then that would disclose the fact that he was not a genuine employee of Ellipse, to the detriment of Mr Wilson's quest for a passport.
Whilst I accept Mr Dodd's latest evidence that the making of these payments was intricately linked with the passport issue and that he was aware of the questionable nature of the fiction of employment, I do not accept his evidence that the second tranche payments were in fact loans. His consistent evidence up until just before the trial was that he made these payments "ex gratia" and outright. In the written note handed to Mr Dodd at the Pritkin meeting Mr Wilson was still demanding the payments as an entitlement to return on investment; this is quite inconsistent with them being loans. What is more the late suggestion that they were loans was entirely inconsistent with Mr Dodd's repeated assertions that he had made these payments "ex gratia". When this was put to him, Mr Dodd had no clear answer to the inconsistencies in his evidence [5/17/13 to 5/22/8]. I accept they were payments made to help Mr Wilson and voluntarily; I am not satisfied however that Mr Dodd expected to be repaid or asked Mr Wilson to repay.
Secondly, the second tranche were not debited to any "director's loan account" within Ellipse's books. There is no evidence of any such director's loan account. Further I do not accept that they were ultimately debited, in any way, to Mr Dodd personally. There is no satisfactory evidence that Mr Dodd ultimately bore the burden of these payments. I find that these payments were not only made by Ellipse, but also borne by Ellipse. No evidence of an informal set off arrangement has been produced. Mr Dodd's desire to distance Ellipse from the second tranche was in order to meet the argument that Thermolase UK and Ellipse were one and the same business and the first and second tranches were both payments by way of a return on investment in a single business.
Thirdly, Mr Dodd did resume, and make, the payments in the second tranche, out of some sense of moral obligation for having taken $250,000 from Mr Wilson and in order to keep Mr Wilson off his back, in circumstances where by that time, knew that Thermolase UK had gone into liquidation. However, I also consider that, in this period, the work permit/passport issue remained a highly relevant consideration. This is demonstrated by the events of June 2006, when Mr Wilson was dealing with both issues at the same time.
I therefore conclude that Mr Dodd made the second tranche of payments, at least in part, out of a subjective sense of obligation towards Mr Wilson for the investment he had made. However, such a finding does not of itself demonstrate that Mr Dodd knew of the falsity of any representation at the time that it was made; nor does it establish or support a conclusion that he had acted in breach of trust.
Issue S(f)What happened at the Pritkin meeting on 27 December 2007
Three issues were canvassed in respect of the Pritkin meeting. First, was the meeting conducted on a "without prejudice" basis, such that evidence as to what said at the meeting is not admissible? Secondly, if so, did Mr Dodd waive his entitlement to rely on "without prejudice" as a ground of admissibility? Thirdly, if so, what were the relevant contents of the meeting?
As to the first and second issues, by the time of closing, Mr Dodd did not press his claim to inadmissibility on "without prejudice" grounds and was content for evidence as to what was said and agreed at the meeting to be admitted.
As to the third issue, like a number of particular issues of fact raised, the relevance of events at the Pritkin meeting arose in the context of the Partnership Claim. Mr Wilson relied upon things said and done at that meeting as evidence to support the prior existence of a partnership, alleging that Mr Dodd admitted that Mr Wilson had an interest in the business even at this point in time (even after Thermolase UK had gone into liquidation) and thus admitted that a partnership in a wider business existed. However, as I find below, there was no agreement for partnership, and what was said at the Pritkin meeting does not assist on this issue. As regards the Breach of Trust Claim, I do not consider that any alleged admission by Mr Dodd materially assists Mr Wilson's case. If anything, Mr Wilson's case as regards the Pritkin meeting is inconsistent with his case on the Breach of Trust, in that Mr Wilson alleges that at the Pritkin meeting in December 2007, Mr Dodd was recognising, by his offer, Mr Wilson's continuing proprietary interest in the then existing business; whilst the Breach of Trust case is that by that time Mr Dodd had misappropriated that interest. Any residual relevance of the Pritkin meeting lies in issues relating to Mr Dodd's credibility. In my judgement, resolution of the dispute relating to the Pritkin meeting does not materially add to my conclusions on credibility. Nevertheless I address briefly the issues relating to the Pritkin meeting.
Mr Wilson's case is that at the Pritkin meeting he complained that he had not received monthly payments since April 2006; that Mr Dodd told him, first, that he, Mr Dodd, would pay him the outstanding sum(s) by the end of the month; and secondly, that negotiations for the sale of the business were at an advanced stage and that he expected to sell it within 10 to 11 months for many millions of dollars; and thirdly that he would purchase Mr Wilson's interest in the business for a substantial amount, but that Mr Wilson declined Mr Dodd's offer. In his pleading, Mr Wilson stated that the amount offered was $400,000. In his first witness statement, Mr Wilson said that the amount offered was $400,000 for the 10% stake plus an additional $150,000. By the time of his third witness statement Mr Wilson said that the amount offered was $450,000 for the 10% stake; there was no reference to any further amount of $150,000.
Mr Dodd denies this. He says that he attempted to explain that Thermolase UK had gone into liquidation and no longer existed; that Mr Wilson complained to him about the loss of the investment in Narbonne as a result of liquidation of Thermolase UK and demanded a 10% stake in Ellipse. Mr Wilson did not complain about the monthly payments. Mr Dodd accepts that he did make other settlement proposals.
Mr Wilson says that the meeting was friendly, they greeted each other warmly, hugged. He says he complained about the fact that he was no longer receiving his monthly payments. So his case is that he was just asking for the monthly payments to continue. I do not accept Mr Wilson's evidence that the meeting was friendly. By that time the parties were in dispute; and Mr Wilson was demanding payment of a substantial sum. In addition, Mr Wilson secretly recorded the meeting, which in itself is an indication of a lack of trust and the contentious nature of the meeting. In cross examination, Mr Wilson was unable to explain why he would have recorded the meeting, if they still remained friends at that time [3/165/13 to 3/167/3]. I prefer Mr Dodd's evidence [5/28/22 and 5/37/12-17] that it was an extremely hostile meeting.
It is common ground that at the meeting Mr Wilson handed to Mr Dodd a manuscript note he had made. That note contains Mr Wilson's then contemporaneous understanding of the position as regards the monthly payments and recording that these payments were due at the rate of £1,380, that since September 2002, 29 payments had been made, and that 34 monthly payments, totalling £46,920, remained unpaid. I note that the start date there recorded is consistent with the other evidence as to the start of the monthly payments and the number recorded as paid very similar to the number now agreed that were paid. The note evidences Mr Wilson's then expectation that the monthly payments should be continuing.
I note that in his letter dated 1 July 2008, Mr Goldring, acting on Mr Dodd's instructions, accepted that at the Pritkin meeting Mr Wilson demanded to be paid the monthly payments, and, further, Mr Wilson demanded to be paid dividends on his investment. I find on the basis of this document that, at the meeting, Mr Wilson was seeking payment of further outstanding monthly payments and that he believed that these were due to be paid up until the date of the meeting at least. I therefore accept Mr Wilson's case to the extent that, at the meeting, he was complaining about non-payment of monthly payments.
I further find that at the meeting each party made proposals to the other to settle outstanding matters between them. Mr Dodd himself accepts this. I find that Mr Wilson did not complain specifically about the loss of his investment, because, as I have found, at that point he was not aware of the liquidation of Thermolase UK. As to the content of those proposals, I am not prepared to accept that Mr Dodd said he would pay the claimed monthly instalments and that he made an offer of $400,000 to Mr Wilson to go away. Mr Wilson's own position on the terms of the offer made by Dodd has been inconsistent. This inconsistency, together with Mr Wilson's generally poor memory, lead me to conclude that he has no clear recollection of what was discussed.
The Main Issues: finding of fact and the application of the legal principles
The Partnership Claim
Whilst this was, originally, the only basis of Mr Wilson's claim, the Partnership Claim was hardly advanced in closing by Mr Adair.
Issue 1(a): In conversations in May 1998, did Mr Wilson and Mr Dodd conclude an agreement at all?
Mr Wilson's evidence in cross-examination about conversations with Mr Dodd in May 1998 was very confused. He had great difficulty recalling anything about those conversations, when they took place, or whether he took notes [2/101 to 2/14/24]. I find that he had no specific recollection of those conversations.
As regards a conversation on 21 May 1998 itself, Mr Wilson's evidence was wholly inconsistent. On the first day on which he gave evidence, he was quite adamant that no telephone conversation had taken place; rather he said he had spoken to Mr Dodd in person [2/106/3 to 2/108/1 and 2/111/16-18]. However, in his cross examination the next day, he said that there was no meeting and that the discussion must have been on the telephone but that he had no recollection of what was said in the call [3/86/15 to 3/87/18].
I find that there was a telephone conversation between Mr Dodd and Mr Wilson on 21 May 1998, after Mr Wilson had received the 21 May letter. I further find that in the course of the conversation Mr Dodd and Mr Wilson agreed that a more formal agreement was to follow. Both the fact and content of Mr Wilson's manuscript note on one of the copies of the 21 May letter and the fact that an agreement - the Narbonne Agreement - did in fact follow shortly thereafter are strong evidence of such conversation. Further, in his first witness statement, Mr Dodd refers to a call on 21 May. That witness statement was made before Mr Dodd was aware of the existence of Mr Wilson's manuscript note on the copy of the 21 May letter. Mr Dodd's evidence in his witness statement was that in that call on 21 May 1998, Mr Wilson had said he was willing to put in some money into Thermolase.
Accordingly, I find that agreement was reached between the two men in the course of that telephone call on 21 May 1998. That was, at the least, an agreement in principle. The mechanics of the investment would be put in place by a more formal agreement to follow. However the more important question for present purposes was what was the content of that agreement in principle.
Issue 1(b): If so, did the agreement create a partnership between Mr Wilson and Mr Dodd?
Mr Wilson's witness statements contained repeat assertions to the effect that, in return for his proposed investment, Mr Dodd told him that he would become "his partner" or "a partner in his business" and that Mr Richman was also a partner. For example, in first witness statement, he said "when making the investment I believed I was becoming a 10% partner of Michael Dodd in any hair removal business he operated in any country". In that witness statement, Mr Wilson said that he had spoken to Mr Dodd after receiving the 21 May letter and that Mr Dodd had told him that an agreement would be sent. He stated "I understood that the agreement would confirm I was a 10% partner in the hair removal business".
However, these statements, verified in his evidence in chief, were not borne out by his evidence in cross-examination. He readily accepted that the 21 May letter contained no reference to the word "partner" [2/51/19 to 2/52/16]. The cross-examination continued in the following passage [2/52/17 to 2/53/2]:
"Q. You say that there were express discussions before this letter between you and Mr Dodd and you say that he used the words "partners" and "partnership", don't you?
A. You have to understand that I consider both one and the same, investing with somebody and being their partner
Q. So actually there might not have been any reference to the word "partners" or "partnership"?
A. The word "partner" was never used by him, never. In fact he proclaimed that he never had a partner, which isn't true either. But he never said that I was his partner. He let me believe that I was his partner."
Then in re-examination, whilst saying that his evidence was that he entered into a partnership with Mr Dodd, he was asked "When you had discussions with Mr Dodd in 1998 was the word partnership was ever used?", he answered "No" [3/178/1-3].
Mr Dodd's evidence in his witness statements, as to the nature of the investment, was that in return for putting money into Thermolase, Mr Wilson took a 10% stake in Narbonne's interest in Thermolase UK Limited. The discussions were limited to the Thermolase business and partnership was never discussed.
As regards the contention that the 21 May letter itself contained on offer of partnership, it is clear from the terms of the letter that what is being proposed is an investment in Thermolase - a stake specifically in Narbonne and thus a share in Thermolase. In the letter, Thermolase is a reference to Thermolase UK. The letter was signed by Mr Dodd on behalf of that company. Further the letter refers expressly to the selling of shares. By its terms, the offer in the letter is an offer of a stake in Narbonne, a company, which in turn held an interest in Thermolase UK. Whatever the precise nature of the interests in Narbonne and Thermolase UK respectively being offered by Mr Dodd (as to which see paragraphs 186 to 190 above), this was not a personal offer by Mr Dodd of a share or stake in his own personal business, as opposed to the business of companies in which Mr Dodd was interested or involved.
In the light of Mr Wilson's evidence in cross examination and the terms of the 21 May letter, I find that at no point in the course of their exchanges, both oral and written, in May 1998 was any express reference made, by either Mr Dodd or Mr Wilson, to the terms "partner" or "partnership". I further find that Mr Wilson understood, and understands, the term "partner" in a non-technical sense of a business associate or business colleague, rather than in the technical legal sense described in paragraphs 74, 76 and 77 above. Thus, he would include within that term a person with whom, for example, he was a co-shareholder or co-investor in a company.
The fact that the term "partner" was not expressly used by Mr Dodd and Mr Wilson in connection with the agreement they reached in May 1998, does not, of itself, exclude the possibility that, as a matter of law, their relationship resulting from that agreement was one of partnership. However, in my judgment, on the facts of the present case, no such partnership was created between them in May 1998. First, the fact that there was no express use of the term "partnership" is a strong factor pointing against existence of a partnership. Secondly, the investment that was the subject of Mr Wilson and Mr Dodd's investment was, and was intended to be, a "corporate investment". It was an investment in a company, Thermolase UK and other subsidiaries. Moreover it was an investment made initially by Mr Wilson through his own corporate investment vehicle, Canterbury. Thirdly, there is no suggestion in any evidence that Mr Wilson was to be directly liable for the losses and debts of "the business" (whether the losses of Thermolase UK specifically or more generally of a wider hair removal business):see Memec, cited in paragraph 76 above.
Finally, as regards the monthly payments, the subsequent payment of the second tranche does not evidence (nor was it alleged to evidence) the later creation of a partnership (with or without retrospective effect). I also agree with Mr Beswetherick's submission in closing that, in any event, payment of a fixed 15% return on Mr Wilson's investment (as Mr Wilson alleges the monthly payments to have been) is also inconsistent with an agreement between them to share profits or losses of the business and thus inconsistent with the existence of a partnership.
Issue 1(c): If there was a partnership, what was the scope of the partnership?
In view of my conclusions that there was no partnership established between Mr Dodd and Wilson, this question does not arise.
Conclusion on Partnership Claim
Accordingly, for these reasons, I conclude that there was, at no point in time, any partnership between Mr Wilson and Mr Dodd. The Partnership Claim therefore fails.
The Misrepresentation Claim
Issue 2(a): Did Mr Dodd make representations in May 1998, orally or in the 21 May letter, to Mr Wilson concerning investment by Mr Richman in the Thermolase business, and if so what were the terms and effect of such representations?
Oral representation by Mr Dodd
In his witness statement of 27 July 2011, Mr Wilson said that in oral conversations in May 2008, "Michael Dodd informed me .... that Robert Richman was already a partner and had invested $500,000 in his business". In cross-examination, Mr Wilson's evidence about Mr Dodd's oral representation before the 21 May letter was confused. First, he was unable to say whether such a representation was made at that time and said that he did not remember a discussion with Mr Dodd [2/56/1-19]. Then later on the same day, it was put to him that Mr Dodd had never told him this in an oral conversation. He responded "Yes, he did and then he put it in writing when it was then put to him that earlier in his evidence he had said that his recollection of this conversation was bad, he replied, "I don't remember that" [2/101/14-19].
Mr Dodd's evidence, in his witness statement of 26 July 2011 was that he told Mr Wilson "I had offered the same investment opportunity to Mr Richman, but that was the full extent of the conversation". However his evidence in cross examination was unsure and inconsistent with that [4/105/2 to 4/107/14]. First, he said that when he spoke to Mr Wilson on the phone, he was speaking only about Mr Wilson's investment. He then said that he "honestly can't remember" whether he mentioned to Mr Wilson that Mr Richman was going to invest. He denied that it was probable that he had said it, as he was discussing Mr Wilson's investment. Then he said definitively he did not discuss it at all, but then denied that that answer was inconsistent with his previous answer that he could not recall. He maintained that all that they discussed was Mr Wilson's investment, and concluded by denying that he had mentioned Mr Richman's investment in that conversation. On two occasions in that exchange, Mr Dodd sought to refer back to what he had said about this in his witness statement; he knew that, in that statement, he had mentioned Mr Richman. His evidence was evasive, and contradictory and I do not accept it.
I find that Mr Dodd did mention Mr Richman's investment of $500,000 in the course of the oral conversation with Mr Wilson. First, Mr Dodd accepted, in his original witness statement, that he did refer to Mr Richman as a potential investor at least. Secondly, his evidence in cross-examination was internally inconsistent and inconsistent with the witness statement. In those exchanges, he gave the impression of a witness who recalled that he might have said something about this in his witness statement, but could not recall what it was. Thirdly, the fact that there was express and important reference to Mr Richman's investment in Mr Dodd's subsequent 21 May letter supports the likelihood that, in the preceding oral conversation, Mr Dodd would have mentioned the position of Mr Richman. The reference in the letter undermines the thrust of Mr Dodd's evidence in cross-examination that all that was relevant was Mr Wilson's own personal investment.
However, as to the exact words used by Mr Dodd in that conversation to describe the state of Mr Richman's investment, it is not clear whether he said that Mr Richman "had invested" or, rather, "had agreed to invest" or "was investing". Mr Wilson's case on this has swayed to and fro. In the Amended Particulars of Claim both cases are asserted (paragraphs 7(4) and 25A); in the Reply, the case is that the representation was that Mr Richman "had agreed to invest". On the other hand, in his opening Mr Adair contended that the oral representation was that Mr Richman "had already invested". In written closing, the case had reverted to "was going to invest".
I am not satisfied, on the evidence, that Mr Dodd's oral representation was that Mr Richman "had invested", rather than Mr Richman "is going to invest" or "has agreed to invest". Mr Wilson had no clear recollection of the content of the conversation. There is no independent evidence of exactly what was said. Further, the case advanced on Mr Wilson's behalf is beset with inconsistency, and ultimately appeared to fall back on a state of intention or agreement. I find that it was equally likely that the statement was to the effect that Mr Richman was "going to invest". Further, I find that there is no evidence to establish that at the time that such a statement was untrue i.e. that Mr Richman did not intend to invest or at least that Mr Richman had not told Mr Dodd that he was going to invest. For this reason, Mr Wilson's claim based on Mr Dodd's oral representation cannot succeed.
The 21 May letter: what does the statement in the letter about Mr Richman's involvement mean?
The relevant statement in the 21 May letter is "The deal that I have done with Robert is that he has taken 20% of Narbonne Investments Limited for $500,000."
The meaning of these words is a matter for the Court to determine, by asking itself what a reasonable person would have understood from the words used in the context in which they were used see paragraph 82 above. Evidence from Mr Wilson or Mr Dodd as to their understanding is not directly relevant to this question.
Mr Beswetherick contends that the statement indicates only that an agreement had been reached between Mr Dodd and Mr Richman, and not that the deal had been completed; that the words do not necessarily indicate that the investment has been made, nor that Mr Dodd has acquired the stake in Narbonne, nor that the sum of $500,000 has been paid over. In this regard, he relies upon the words "The deal that I have done", suggesting that all that the sentence is describing is the agreement which had been reached by then, between Mr Richman and Mr Dodd. Mr Beswetherick places particular reliance upon a submission that the words used do not mean that Mr Dodd was telling Mr Wilson that Mr Richman had paid over the $500,000. He submits that Mr Wilson's construction involves reading in to the words used a statement to the effect that Mr Richman had in fact paid over. However there is no such statement, either express or implied, in the words actually used.
I do not accept this submission. I find that as a matter of construction, the words used are in the past tense and, together, indicate that a firm or binding arrangement has been concluded and further that by then Mr Richman had acquired the stated interest in Narbonne. First, the words "the deal I've done" plainly mean that an arrangement or agreement has been concluded. On their own, they might indicate that the agreement is executory (in the sense that it has not been performed by either party). However, and more importantly, the words "he has taken 20%" indicate that Mr Richman, as at the time of writing, is the holder of a 20% investment. It is being represented that Mr Richman has acquired his stake or shares in Narbonne. Although it is possible that the statement indicates that whilst the stake has been allotted, Mr Richman has not yet paid, in my judgment, it does mean that Mr Richman has invested, that he is now a stakeholder, and that, even if payment has not in fact been made, Mr Richman is legally bound to do so. What is being conveyed, crucially, is Mr Richman's commitment to the investment. In short, Mr Richman's investment had by then happened. If it were otherwise, the words used would have been "the deal I have done is that Robert will take or has agreed to take".
Whether or not Mr Richman had actually paid over $500,000 by that time is not relevant; and whether or not the representations convey, also, the sense that Mr Richman has paid, is in my judgment irrelevant. Mr Beswetherick places undue reliance upon that aspect. The words "for $500,000" are equally capable of referring to a sum which had been paid or which was due to be paid.
The meaning conveyed to a reasonable person is that the deal has been concluded and that at the very least Mr Richman is legally committed to taking 20% or indeed that he had by that time acquired the 20% investment. The words mean significantly more than Mr Richman has agreed in principle to take a stake.
This conclusion is supported by the context in which the statement was made. As Mr Dodd well knew, Mr Richman's involvement in the investment was important to Mr Wilson; and a statement of commitment (rather than just intention) on Mr Richman's part was likely to influence Mr Wilson in his decision. The letter, and in particular the inclusion of the reference to Mr Richman, was written with the intention of, at the very least, encouraging Mr Wilson to invest.
As regards whether Mr Wilson himself understood the statement in the sense which I have found that it in fact bears, as pointed out below Mr Dodd accepted in evidence that Mr Wilson so understood it, and Mr Wilson's evidence was that he did so understand it [2/80/7 to 2/82/22]. I accept that evidence, supported as it is by Mr Dodd's own admission.
Issue 2(b): In respect of any representation made by Mr Dodd, was it (a) material (b) false and (c) knowingly false?
Was the statement false?
In my judgment, the statement in the 21 May letter, as properly construed above, was false. Mr Richman had not "taken 20% of Narbonne for $500,000". In particular, he had not acquired that stake in Narbonne. He had not paid $500,000 nor was such a sum due from Mr Richman. If and in so far as the statement was a representation that he had paid over the $500,000, it was false. In so far as it was a representation that the sum of $500,000 was due, it was also false. Crucially, and in any event, in so far as it was a representation that, regardless of whether or not payment had been made, Mr Richman had acquired 20% of Narbonne's investment in Thermolase, it was also false.
Was the statement material?
Mr Beswetherick submits that as a matter of fact, by the time of the making of the representation in the letter, Mr Richman had in fact told Mr Dodd that he intended to invest $500,000 in the Thermolase venture, and that there was no evidence to contradict this. Thus, he submits, even if the representation in the 21 May letter bore the meaning ascribed to it by Mr Wilson, then the only element of falsity in the statement was the distinction between Mr Richman "having already invested" and "having agreed to invest"; and that distinction did not amount to a misstatement which was "material".
I accept that it is possible that by the time of the letter Mr Richman had told, or agreed with, Mr Dodd that he intended to invest. It is correct that that was never challenged in cross-examination of Mr Dodd.
However, even if this is correct as a matter of fact, I do not accept that Mr Wilson's case on misrepresentation fails on the grounds that the misrepresentation was not material. First, as a matter of law, the extent to which there is any separate requirement for materiality in a case of fraudulent misrepresentation is not clear: see paragraph 88 above. Secondly, the difference between the "prospect of future investment" by Mr Richman and "the fact of actual investment" by Mr Richman was a difference, such that the element of falsity in the misrepresentation was material. Thirdly, Mr Dodd went out of his way to make the representation in the letter in the form that he did, emphasising the conclusiveness of the position with Mr Richman. The fact that Mr Dodd did so indicates that he considered the difference to be significant, and that in turn supports a finding that it was "material".
Was the statement knowingly false?
The issue here is whether Mr Dodd at the time intended or appreciated that Mr Wilson would understand the statement in the letter in the false sense that Mr Richman had invested in Narbonne?
In his oral closing, in order to show that Mr Dodd was dishonest when making the statement, Mr Adair relied very heavily on the fact that Mr Dodd, in general, gave dishonest evidence in the witness box, and on other statements and conduct, which he alleged to have been dishonest. This went to demonstrate not only that Mr Dodd's evidence that he did not know that the statement was false should not be believed, but further that, because Mr Dodd is a person who is dishonest in other dealings, he must have been dishonest when made the representation. For my part, whilst Mr Dodd's credibility as a witness may take account of other dishonest dealings (if established), I do not consider that the second proposition necessarily follows. In effect, Mr Adair is submitting that Mr Dodd has a propensity for dishonest conduct and that this is relevant. I am not prepared to so conclude.
Mr Dodd gave relevant evidence directly about what he knew at the time about the content of the statement in the 21 May letter. I concentrate on this evidence.
In his witness statements, Mr Dodd states that "with benefit of hindsight, this was not the best choice of words. Whilst I had reached this agreement with Robert Richman, he had not actually paid over $500,000".
He was cross-examined about this at some length. In essence, in his evidence, he relied on the distinction based on whether Mr Richman had physically paid over the sum of $500,000. This was, in effect, the same distinction which Mr Beswetherick sought to make in argument. Mr Dodd accepted that when he wrote the letter he had not received the funds from Mr Richman [4/102/3]. But he did not accept that he knew, at that stage, that Mr Richman had not invested; he maintained that he knew and believed that Richman "was investing". Then the cross-examination continued [4/108/3-9]:
"I'm saying ... the deal I had done with Robert is that he's taken 20 per cent of Narbonne Investments Robert has told me that he was taking 20%. He didn't say he'd wired the funds. I did not state I had the funds. Robert told me that he was taking 20 per cent of the investment ..."
It was then put to him that what is said in the letter meant that the $500,000 has already been paid and that Mr Richman had taken it for $500,000. He responded:
"I wish 14 years later I could change the wording, ... Robert said to me "I will take that 20 per cent for $500,000". So what I put in my letter, which is not the best choice of words, that Robert has done a deal. ... now it may have been a poor choice of words, but I didn't realise I'd be in the High Court 14 years later going over and over this letter
...
Robert told me he was taking it"
I make two observations on those passages. In the first passage, Mr Dodd accepts that the statement indicates that Mr Richman "has taken" 20%; and not merely that he "will take" or even "is taking". In the second passage, he seems to modify what he says about Mr Richman's position by referring to "will take", though in that passage he is referring to what Mr Dodd says Mr Richman had told him and not what is contained in the letter itself; which does not say that Mr Richman "will take".
Mr Dodd then accepted that Mr Wilson had gained his understanding that Mr Richman had invested $500,000 from what Mr Dodd had said in the letter of 21 May [4/113/16-23]
"Q. You accept ... that Mr Wilson understood from what you said to him before the investment and what you said in that letter that Mr Richman had invested $500,000 in the business? You accept that .. he had that belief?
A. Because I stated it in the letter
Q. Yes exactly because you stated it
A. Yes
Q. But you accept that this was his understanding and that was his belief
A. ... Mr Wilson would have read this letter and known that Robert Richman had done a deal with me to take down that amount of shares
Q. And he would have read that letter and understood that he had invested $500,000 in the business?
A. That was a truthful statement at that particular time. Very truthful, because that's what I was told." (emphasis added)
Whilst in terms, this is not quite the same as accepting that he knew, at the time, that Mr Wilson understood the statement in the letter meant that "Richman had actually invested", it was however very close to accepting that it was more than an agreement that he would. Here Mr Dodd accepted that the letter meant, at the very least, that a deal had been done with Mr Richman. Mr Dodd, notably, does not directly answer the last question in this exchange.
Later in his cross-examination, he was asked what the letter meant [4/136-137]. He said that the letter said he had done a deal with Mr Richman, and that was perfectly true because at that time he had done a deal with Mr Richman. When it was put to him that the statement that Mr Richman had taken 20 percent for $500,000 was untrue, he responded "that was true". The cross-examination continued [4/137/8-13]
"Q: He hadn't taken 20 per cent for $500,00, had he?
A: "At that time he told me that he was investing $500,000 and I put it in my letter: I've done a deal with Robert Richman. Of course the words could have been better. I can't give a yes or no because I have stated it clearly in the letter"
This answer is both evasive and has a number of contradictions. First, as in his witness statement, Mr Dodd recognises, at the very least, the ambiguity in the wording of the letter. Then, in the final sentence, he completely contradicts himself, by saying that the statement in the letter is clear, and uses that as a reason for refusing to answer the question asked. That question critically was addressed to the falsity of the key part of the sentence in the letter; namely the statement that Mr Richman "has taken 20% for $500,000".
Comment on Mr Dodd's evidence
First, Mr Dodd's distinction based on whether funds had been paid over by Mr Richman is irrelevant and a distraction. The question was whether or not Mr Richman was, by then, committed to the investment; the representation was that he was so committed.
Secondly, the fact that, in his evidence, Mr Dodd recognises that words used were not "the best choice" indicate that the words used do mean "has invested" or at the very least that Mr Wilson would, or might read, them as meaning "has invested". Thus, at least by the time of giving evidence, Mr Dodd knew that Mr Wilson might reasonably interpret the words to mean as "has invested".
Thirdly, in my judgment, there is no reason to think that Mr Dodd did not also know this at the time of writing the letter. I do not accept his evidence that it is only now in hindsight that he realised the ambiguity at the time and no explanation was given by him as to why he did not realise this at the time
Mr Dodd's oral evidence on this issue, above, was inconsistent and contradictory. In so far as it denied knowledge of falsity at the time, I do not accept it. The words he used to describe the status, at that time, of his "deal" with Mr Richman were not consistent. When describing in evidence the status of Mr Richman's investment, he used the words "has taken", "is taking" and "will take", indiscriminately. Ultimately he failed to answer a straightforward question; in my judgment, because he recognised by doing so, he would have to admit to the falsity and his knowledge of it at the time.
Accordingly, I do not accept that part of Mr Dodd's evidence which stated that at the time he intended the words to be a reference to a future investment only.
Conclusion
In conclusion, I find that Mr Dodd intended the words in the letter to mean (and to be understood by Mr Wilson to mean) that Mr Richman "had invested" and that the investment had happened and/or at the very least that Mr Richman was committed to making the investment. Further that I find that Mr Dodd knew that Mr Wilson would understand the statement in this sense, or at the very least, he was willing for Mr Wilson to understand the statement in this sense.
Issue 2(c): Was Mr Wilson induced to make or caused to make the $250,000 investment by Mr Dodd's representation?
Mr Beswetherick for Mr Dodd contends that Mr Wilson would have done the same, even if no representation about Mr Richman's investment had been made at all. It was not mentioned at all in the telephone call of 21 May. Mr Wilson's own evidence was that he had just wanted to help out Mr Dodd "out of love"; he was not interested in whether there was a joint venture. Further, Mr Wilson did not trust Mr Richman. There was no established pattern of Mr Wilson investing along with Mr Richman by that time. Mr Wilson was an unreliable witness and has no recollection of events. Because of his faith in Mr Dodd's abilities, Mr Wilson would have invested even if Mr Richman had not been mentioned.
Three aspects fall to be considered. First, the general issue of the trust placed by Mr Wilson in Mr Richman and in Mr Dodd. Secondly, the direct evidence relating to reliance. Thirdly, the effect of the presumption of inducement.
The trust placed by Mr Wilson in Mr Richman and Mr Dodd
There is a dispute as to whether, and if so, to what extent, Mr Wilson, at the relevant times, trusted, first, Mr Dodd and, secondly, Mr Richman. Mr Adair, in closing, submitted that Mr Wilson did not really trust Mr Dodd at all, but that he did trust Mr Richman (as far as he trusted anyone). Mr Beswetherick submitted that the evidence establishes that Mr Wilson did not trust Mr Richman and that the evidence about trusting Mr Dodd was not consistent.
In his witness statement Mr Wilson stated that he did trust Mr Dodd. His evidence in cross-examination as regards the extent to which he trusted Mr Dodd and Mr Richman was not entirely clear.
First he said that he treated Mr Dodd and Mr Richman like they were sons of his [2/15]. Then, asked about the 21 May letter, Mr Wilson said [2/47/17 to 23]:
"Of course I gott he letter and I read it and I see $500,000 investment limited, the deal he has done with Robert. Yes I saw that. That was vital, because as much as I loved him, I was very shaky about his behaviour. From years he was a naughty boy and I loved him for it and he was more than naughty now. But I didn't totally trust him.”
A little later [2/49/24 to 2/50/3], he said that he trusted Richman to a degree, although he went on to say that he did not really trust anybody 100 per cent.
Later [2/83/3], he was asked directly about his reliance upon the representation about Mr Richman investing. It was put to him that he had previously told the court that he did not really trust Mr Richman. At that point, he immediately denied that he had said this about Mr Richman, and asserted that he did trust Mr Richman. He went on to say that it was Mr Dodd that he did not trust and that what he had previously said about Mr Dodd was that he trusted him, but knew that he was unpredictable. There was then a passage where there was confusion between the questions asked and the answers given. However, Mr Wilson adamantly maintained his position that he had not previously said that he did not trust Mr Richman. In my judgment, Mr Wilson's evidence as to what he had said earlier was broadly correct, and was consistent with his previous evidence; and in my view the fact that he adamantly resisted Mr Beswetherick's suggestions that his evidence was otherwise, supports the credibility of Mr Wilson on this aspect.
Subsequently, however, in the passage where Mr Wilson was suggesting, wrongly, that he had met with Mr Dodd on 21 May 1998, he did say that he trusted Mr Dodd and Mr Richman completely [2/107/23-24]. Yet later however [3/164/23 to 3/165/4] in the context of the later Pritkin meeting, he repeated his view that, whilst he had affection for Mr Dodd, he didn't really trust him and suggested perhaps that he had lost further trust by then.
In cross-examination, Mr Dodd eventually accepted that he knew at the time that Mr Wilson trusted Mr Richman as far as investments were concerned. [4/100/13 to 4/102/9]
On the basis of this evidence, I find that, first, Mr Wilson did not trust anyone completely; secondly, that as regards Mr Dodd, he had affection for him but had serious doubts about his trustworthiness, arising from his perception of past errant behaviour; and thirdly, as regards Mr Richman, that he did trust him to a somewhat greater extent, first, because of the distinction he drew between Mr Dodd and Mr Richman, and secondly, because it is the case that he was involved with Mr Richman in other investments (even though those investments largely occurred at a somewhat later date). Whilst it may be that, as at May 1998, Mr Wilson had not yet become involved in other investments with Mr Richman, the fact that he did so later, indicates that at that later time he did trust Mr Richman and, at the very least, even at the earlier time, he had no reason not to trust him.
The direct evidence concerning reliance on the misrepresentation
In his second witness statement, Mr Wilson said that he relied upon Mr Richman's due diligence and, more importantly, on the fact that Robert Richman had himself invested money in Mr Dodd's hair removal business. In cross examination, Mr Wilson's consistent oral evidence was to the effect that he relied upon the fact that Mr Richman had invested in making his decision to invest his own $250,000. He would not have invested a penny had he not known that Mr Richman had invested $500,000 [2/10/4 and also 2/25/2-5], and he said that the statement in the letter "was to encourage me to put in 250,000 for 10 per cent" [2/19/12].
Although Mr Wilson's recollection of the detail of the conversations in May 1998 was confused and weak, he was genuinely convinced that he had made the investments because he had been told by Mr Dodd and Mr Richman that Mr Richman was going to invest. Asked about the various communications in 1998, he said [at 2/14/23 to 2/15/3]:
"I remember the result of them very clearly. I don't remember the exact conversations at all, but I remember the result clearly, indelibly, but I invested 250,000 because his partner and my close friend also, two men that I treated like they were sons of mine, had told me and assured me ..."
I accept this evidence. In this passage, Mr Wilson was honest enough to recognise that he did not recall the conversations themselves. That is understandable, given the passage of time. Despite that he was clear in his recollection of the reason why he had invested the $250,000.
Mr Dodd's knowledge of materiality and inducement
Further Mr Adair submitted that Mr Dodd well knew that the representation was material and would influence Mr Wilson. In cross-examination [2/30], Mr Wilson said that Mr Dodd knew that he, Mr Wilson, would not invest unless Mr Richman had also invested. The cross-examination continued:
"Q. He misled you deliberately about these matters?
A. No question about that. I didn't know it at the time"
That Mr Dodd knew that this statement about Mr Richman was important for Mr Wilson is also borne out by Mr Dodd's own evidence.
First, Mr Dodd knew at the time that Mr Wilson trusted Mr Richman. Secondly, in an important passage in his cross examination [4/110-112] Mr Dodd accepted that it would be extremely important to a person making a substantial investment into a start up business that someone else was making a similar but larger investment, and that it would be additionally important to know that that someone else was someone who the first person knew and trusted. Then, he was asked about why he had mentioned Mr Richman's investment in the letter, in the following exchange [4/112/24 to 4/113/15]:
"Q. And so you told him in that letter that Mr Richman had invested $500,000, knowing that that would be extremely likely to persuade him to invest 250,000, didn't you?
A. I think what I put Mr Richman in the letter for was that Mr Richman and Mr Wilson had an investment and I portrayed the fact of what Robert had said to me, that he was taking 20 per cent of the investment. I know Mr Richman and Mr Wilson were very friendly. I knew they had other investments. So if I'd have left that out of the letter - I mean, it was put there because Richman and Wilson had a relationship I don't know a better way of describing it.
Q. So you accept that it was highly relevant to the situation?
A. I think - highly relevant? I meant I put it in there because why would I have not said that Mr Richman had taken that investment. It was a truthful statement. "
(emphasis added)
Presumption of inducement
Finally, I am satisfied that the misrepresentation in the 21 May letter was likely to induce Mr Wilson to make the investment, which Mr Wilson then did. Thus, in accordance with the presumption referred to in paragraph 90 above, it is a fair and strong inference that Mr Wilson was influenced by the statement. I do not consider that, at the time of receipt of the 21 May letter, Mr Wilson had already made up his mind to make the investment. Nor does the evidence I refer to above suggest that the inference should not be drawn.
Conclusion
I do not accept Mr Beswetherick's submission on this issue. Mr Wilson had invested in line with Mr Richman at least once by then. The fact that Mr Richman's investment may not have been mentioned in the telephone call immediately after receipt of the letter is not relevant. It was expressly stated in the letter itself.
I conclude that Mr Wilson did rely upon Mr Dodd's misrepresentation in the 21 May letter. He trusted Mr Richman on investments. Mr Dodd knew that he did, and he included the statement in order to persuade Mr Wilson to invest.
Issue 2(d): Did Mr Richman make representations in May 1998 orally to Mr Wilson concerning investment by him in the Thermolase business, and if so what were the terms and effect of such representations?
Mr Wilson's case as to the terms of Mr Richman's oral representation was not consistently stated. The allegation in the Amended Particulars of Claim was that he told Mr Wilson that he "had agreed to invest" $500,000. This was the allegation to which Mr Richman was responding in his Defence. However, in his first and second witness statements, Mr Wilson stated that in May 1998 Mr Richman also encouraged him to invest in Mr Dodd's new business. Mr Wilson asked him how much he had invested and Mr Richman told him that he "had invested" $500,000 to become a partner in the business with a 20% stake. I note that, despite the terms of his June 2009 witness statement, the Amended Particulars of Claim filed in July 2009, which introduced the allegation of a misrepresentation by Mr Richman, continued to allege that the statement was "agreed to invest". In his written opening, Mr Adair suggested that the representation was that Mr Richman "had invested"; yet in his written closing Mr Adair referred, at different points, to the two different formulations of the representation.
Mr Wilson's evidence in cross examination about Mr Richman's oral representations was confused. He was clear that Mr Richman had, over the 11 years, always told him that he Mr Richman had invested $500,000, but he was unable to say clearly that Mr Richman had told him that in a conversation in May 1998. He was asked whether he remembered conversation with Mr Richman in May 1998. First, he remembered discussing it with Mr Richman, but then he said he did not recall definitely having a conversation with Mr Richman before 21 May 1998. Thirdly he did not remember a specific occasion discussing his investment. However, in this passage of cross-examination he concluded as follows [2/59]:
"Q Is it your case that Richman told you before you made your investment that he had already invested?
A That was important, yes
Q, So ...
That was vital. That was important."
Mr Richman chose not to attend the trial and give evidence. Whilst that might justify the drawing of adverse inferences, it is still necessary for Mr Wilson to prove, by evidence, that the alleged oral representation was made, and, more significantly, if it was, whether it was a statement of future intention to invest ("agreed to invest") or a statement of commitment ("had invested"). As explained above, Mr Richman did put in a written defence. Whilst it is not clear from that defence whether Mr Richman denies that he made any oral representation to Mr Wilson, it certainly cannot be assumed that he accepts that such an oral representation was a statement of commitment, since that was never part of Mr Wilson's pleaded case, to which he responded in his defence.
I conclude that in May 1998 Mr Richman did have one or more conversations with Mr Wilson in which he discussed making an investment of $500,000 in the Thermolase business. Mr Wilson's own evidence that such discussion took place is supported by the fact that Mr Richman implicitly accepts that such a conversation took place.
However, there is insufficient evidence to support the conclusion that the representation made by Mr Richman in those conversations was that by then he "had invested" in Thermolase, as opposed to him having stated that he had agreed to do so. First, Mr Wilson's evidence was uncertain as to the precise terms of the representation and I find that he had no precise recollection of what was said. This is supported by the fact that he has not consistently advanced a case that the representation was that "he had invested". Secondly, unlike the case with the 21 May letter, there is no other, independent, evidence to support a finding that the representation was that he "had invested". Thirdly, as explained in paragraph 330 below, the fact that Mr Richman did not, subsequently, inform Mr Wilson that he had not, after all, invested in Thermolase UK is not sufficient to establish that he said, in May 1998, that he "had invested". I am not persuaded that the representation went any further than Mr Richman saying that "he had agreed" to invest in Thermolase.
Issue 2(f): In respect of any representation made by Mr Richman, was it (a) material (b) false and (c) knowingly false?
On the basis that the oral representation made by Mr Richman was to the effect that he “had agreed” to invest, whilst I consider that such a representation was material, Mr Wilson has not established that that representation, when made, was false. No case was advanced by Mr Wilson, nor was it put to Mr Dodd, that in fact, as at May 1998, Mr Richman had neither agreed to invest, nor intended to invest. Whilst limited weight can be attached to it, Mr Richman's own stated case in his defence was that he had intended to invest, but that he was let down on funding. There is no evidence that Mr Richman had not even agreed to invest. Mr Wilson has not established that Mr Richman’s representation was false.
In this connection too, Mr Adair sought to rely upon Mr Richman's conduct in subsequently "maintaining the fiction" that he had invested. I make my findings in relation to this below. In my judgment, the fact that Mr Richman did not, subsequently, inform Mr Wilson that he had not, after all, invested in Thermolase UK is not sufficient to establish that, as at May 1998, he had not agreed to invest nor that he had no intention of investing. It is equally consistent with Mr Richman having subsequently changed his mind about investing.
Issue 2(g): Was Mr Wilson induced or caused to make the $250,000 investment by Mr Richman's representation?
In the light of my conclusion above that Mr Richman did not make a false representation, this issue is not relevant to the outcome of the claim against Mr Richman.
Issue 2(h): Did Mr Dodd and/or Mr Richman fail to inform Mr Wilson that in fact Mr Richman had not invested in the Thermolase business, and if so did this constitute a distinct misrepresentation, and if so, does it give rise to a distinct basis of claim?
It seems that the allegation that Mr Dodd and Mr Richman consciously failed to inform Mr Wilson of the fact that Mr Richman never invested in Thermolase may be relevant to two distinct matters. First, it is said to be evidence indicating Mr Dodd and Mr Richman's dishonest state of mind at the time of the making of the representations in May 1998. Secondly, it is or may be said to constitute a distinct misrepresentation by omission and, in some way, thereby constitute a further and distinct ground of liability.
Mr Wilson certainly put forward a case on the first basis. As regards the second matter, no positive case was advanced by Mr Wilson; and the basis of such a case is not immediately apparent, in circumstances where, in general, any duty to correct a misrepresentation arises before the contract is concluded.
In order to establish his case on the facts, Mr Wilson relies on two main pieces of evidence: the 26 June 2001 letter and an alleged conversation he had with Mr Richman in late 2007 or early 2008. Before addressing those matters, I consider Mr Dodd's response to this allegation.
Mr Dodd accepted that the first time he told Mr Wilson about the fact that Mr Richman was not invested was in the course of the summary judgment application in 2009, but denied that, in the previous 11 years, he had been deliberately keeping up a pretence that he had invested [4/137/21-24].
Mr Dodd's case in closing was that he had assumed that Mr Richman had informed Mr Wilson of the correct position that, after all, he had not invested. The fact that Mr Richman had not invested was not something which he, Mr Dodd, wished to dwell upon, given that the Thermolase business had not worked out. He was embarrassed and he knew Mr Wilson would be displeased.
In his July 2011 witness statement, Mr Dodd's evidence was that "Given the length of time between my communications with Mr Wilson, I did not think it would have crossed my mind to discuss Mr Richman's decision with him". He gave, as the reason for this, the fact that in his conversations with Mr Wilson in May 1998, Mr Wilson had placed no importance on what Mr Richman was going to do. In his July 2009 witness statement, Mr Dodd made the same statement, but added as a second reason for it not crossing his mind, the fact that throughout the period, the two of them were in regular contact.
In cross examination [4/121 to 4/124], Mr Dodd said that since Mr Richman and Mr Wilson were close, he presumed that Mr Wilson and Mr Richman would have communicated about all their other investments and he didn't know why Mr Richman wouldn't have told him. It was then put to him that this was not his explanation in his July 2011 witness statement. Mr Dodd then changed his reason for not telling Mr Wilson that Mr Richman had not invested. He then sought to say that he thought at the time that the fact that Richman was investing was not important to Mr Wilson.
Mr Dodd's evidence as to why he did not tell Mr Wilson that Mr Richman had not invested was evasive, inconsistent and unconvincing, I do not accept it.
The 26 June 2001 letter
The terms of the letter are set out in paragraph 150 above. Mr Wilson's case is that the first paragraph of this letter gives the clear impression that at that time, some two years after the misrepresentation was made, Mr Richman had a continuing interest in Thermolase; and that it was not credible that Mr Wilson and Mr Richman could have spoken about Thermolase UK, without Mr Wilson finding out Mr Richman had never made any investment, unless Mr Richman was deliberately seeking to withhold that information.
Mr Dodd's case on this aspect of the 26 June 2001 letter is that Mr Wilson had asked Mr Richman to find out from Mr Dodd what was going on with Thermolase UK. Mr Richman then asked Mr Dodd and Mr Dodd wrote to Mr Wilson. It was because Mr Wilson had asked Mr Richman to act as an intermediary in this way and also because, at the time, Mr Richman was acting as an intermediary in relation to Mr Wilson's work permit and passport issues, that Mr Richman was copied in to the letter. Mr Wilson accepted that he had asked Mr Richman to speak to Mr Dodd to find out what was going on with Thermolase UK [3/117/12-21].
However I do not accept that this is the full explanation for the letter and its terms, and the fact that Mr Richman was copied in. The words "of course" in the third sentence of the letter, suggest a familiarity and carry the implication that it is natural for Mr Richman to be informed too, in his capacity as the other, or another, investor in the Thermolase business.
In cross-examination [4/127/10 to 133/25], Mr Dodd sought to distance himself from the content of the letter; he said it was not signed and he had no recollection of it. He was extremely evasive about the letter; his oral evidence was inconsistent and at times incoherent. At end of this passage he concluded "I'm going to say that I have no recollection of sending this letter" [4/128/21]. I find that that was an answer based on expediency and not necessarily the truth. Indeed, in the course of his cross examination on the next day [5/44], when Mr Dodd was asked about its contents again, he seemed to accept that he had written the letter. I conclude that this is a letter which must have been drafted by and on the instruction of Mr Dodd and that at the time it was sent he was fully aware of its contents.
Subsequent conversations, 2007/2008, between Mr Wilson and Mr Richman
As pointed out in paragraph 170 above, Mr Wilson's case as to the date and contents of these conversations is not entirely consistent. Whilst these may only be small differences, they undermine the reliability of this account which is unsupported by any other evidence. Further in his third witness statement, Mr Wilson made a further unpleaded claim that, as late as April 2009, Mr Richman told Mr Wilson that he wanted his $500,000 back and would pay half of Mr Wilson's legal costs if Mr Wilson could get his money back. Mr Adair pointed out correctly that this evidence was never challenged in cross examination. On the other hand, the allegations do not go specifically to Mr Dodd's conduct.
The real importance in the conversation relates to Mr Richman's failure to inform Mr Wilson of the fact that he had not invested. In that regard, Mr Richman, in his Defence, did not challenge the assertion of this conversation in the Amended Particulars of Claim (although he did go out of his way to challenge other pleaded allegations).
Despite this I am not satisfied that the evidence relied upon to support the alleged fact and content of these conversations in 2007/2008 and in 2009 is of sufficient weight to make the findings sought. Mr Wilson's own case is inconsistent and I am not content to rely solely on the accuracy of his own recollection of what was said.
I do not consider that if conversations of this nature went on between Mr Richman and Mr Wilson, that they necessarily provide further evidence of Mr Dodd actively seeking to conceal the fact that Mr Richman had never invested.
Conclusion
As regards Mr Dodd, I find he did consciously maintain the fiction that Mr Richman had invested in the Thermolase business. I draw this conclusion from his own explanations as to why he had never mentioned the fact that Mr Richman did not invest, and from the 26 June letter. (However I do not reach this conclusion on the basis of subsequent conversations in 2007 and 2008). This finding supports the conclusion above that the misrepresentation in the 21 May letter was knowingly false. However it does not support a claim that there was a subsequent, self standing, fraudulent misrepresentation.
As regards the position of Mr Richman, I find, both on the basis of the 26 June letter itself and both witnesses' evidence, that in around 2001 Mr Wilson and Mr Richman were discussing Thermolase at that point in time. I further find that at that time and in the course of such discussions, Mr Richman did not reveal that he had not in fact invested in Thermolase UK. However, as explained in paragraph 311 above, I am not satisfied that this shows that, when he made his oral representation in May 1998 to the effect that he was going to invest in Thermolase, that statement was knowingly false. Mr Richman's subsequent maintaining of the fiction is, in my judgment, equally consistent with Mr Richman's subsequent embarrassment about having failed to inform Mr Wilson when he changed his mind about investing. Further, this finding does not support a claim that there was a subsequent, self standing, fraudulent misrepresentation by Mr Richman.
Issue 2(i): Is Mr Wilson entitled to damages for misrepresentation, and if so in what amount?
In the light of the foregoing conclusions, Mr Wilson is entitled to damages for the fraudulent misrepresentation made in the 21 May letter. Such damages should that in an amount which put him in the position he would have been in had the misrepresentation not been made. That position is that he would not have paid over $250,000 to Narbonne. I will hear further submissions on the precise quantum of damages. In principle, they should include $250,000 together with interest on that amount, but taking account of the fact that he would not have received the monthly payments over in the period between September 2002 and April 2006.
Conclusion on the Misrepresentation Claim
As regards the claim against Mr Dodd, in the light of my conclusions at paragraphs 267, 269, 270, 273, 287, 304, 329 and 331 above, the claim based on the misrepresentation in the 21 May letter succeeds. The claim based on the oral misrepresentation is not made out (see paragraph 261 above).
As regards the claim against Mr Richman, I conclude that the claim based on the alleged oral misrepresentation fails (see paragraph 310 above).
The Breach of Trust Claim
This claim was raised for the first time in closing, and in the context of a dispute as to whether there is a need for Mr Wilson to obtain permission to re-amend his Amended Particulars of Claim to introduce such a claim. I will consider the substance of the Breach of Trust claim first. However, before doing so, and in the light of Lloyd LJ's injunction in Swain-Mason for the need for a properly pleaded amendment (see paragraph 97 above), I set out the re-amendment proposed by Mr Adair. Mr Adair contends nevertheless that no permission to amend is required, as no new facts are introduced by the proposed re-amendment.
First, it is proposed that paragraph 23 of the Amended Particulars of Claim be amended as follows:
"In the premises, the Business and the share capitals of Ellipse, Beautylight and Knightsbridge are Partnership assets and Mr Dodd holds his interest in those companies and any other companies or legal entities (including for the avoidance of doubt, Narbonne) through which the Business is carried on in the United Kingdom or abroad on trust for himself, Mr Wilson and Mr Richman or alternatively on trust for himself and Mr Wilson".
In my judgment, despite the words "for the avoidance of doubt, Narbonne", an alleged trust of the shares of Narbonne cannot have been originally intended to have been included within the unamended allegation because (a) Narbonne is not currently "carrying on the Business" as there alleged and indeed never had done so and (b) because this paragraph is all predicated on a trust arising from the partnership, whereas the new Breach of Trust Claim is separate from, and alternative to, that claim. Further, there is still not pleaded any factual basis for the allegation of a trust of some of Mr Dodd's shares in Narbonne.
Secondly, the following new paragraph 25B is to be inserted:
"By procuring that the Business was transferred to, and/or carrying on the Business through, companies which were not owned by Narbonne and/or in which Mr Wilson had no beneficial interest, Mr Dodd committed a breach of trust and/or fiduciary duties which caused the Claimant to suffer loss and damage."
Issue 3(a): Was there a trust of Mr Dodd's shares in Narbonne?
The only trust alleged in Amended Particulars of Claim, even with the proposed re-amendment, is predicated on the existence of the partnership: see paragraghs 14, 15 and 18, Amended Particulars of Claim. In view of my conclusions on the Partnership Claim, then the pleaded basis of the claim for a trust fails. There is no pleaded allegation of a self standing trust of the shares. On this basis alone, the Breach of Trust Claim cannot succeed. If that is not right, I consider the position further as follows.
Mr Adair appeared to contend that the trust arose independently of, and indeed as an alternative to, the Partnership Claim. Mr Beswetherick contends, with considerable force, that Mr Wilson ought to have, but has failed, to plead expressly how the trust was said to arise. The fact that he did not do so is itself an indication of the difficulty in Mr Wilson's case in establishing such a basis of a trust. Moreover, it is a ground for refusing to allow any amendment to introduce the Breach of Trust case.
In this connection, all that Mr Wilson relies upon are the assertions by Mr Dodd in his witness statements that he and Mr Wilson "are beneficial owners of" and "had a beneficial interest in" Narbonne. However I am not satisfied that there was a trust of the shares in Narbonne. First, as explained in paragraphs 186 to 190 above, I find that Wilson did not have an interest in the shares in Narbonne, but actually only an interest in Narbonne's interest or shares in Thermolase UK. Secondly, in any event, what Mr Dodd said in his witness statement was not intended as a legal analysis. Thirdly, even if Mr Wilson had an interest in the shares of Narbonne, it is not sufficiently explained or established how such a trust arose. For these reasons too, the Breach of Trust Claim cannot succeed.
Issue 3(b): Did Mr Dodd procure the transfer of the business of Thermolase UK from Thermolase UK to Ellipse and the Third to Fifth Defendants?
Mr Wilson alleges that Mr Dodd creates a series of "phoenix" companies carrying on precisely the same business. The business was transferred to a later company, Ellipse, owned through an entirely different ownership structure in which Mr Wilson had no interest; and so in this way he misappropriated the business assets of Cosmetic Laser or Narbonne. Mr Dodd procured from the liquidators the transfer for the benefit of Ellipse of the goodwill of the business of Thermolase UK without giving value for that goodwill.
I am not satisfied that there is any sufficient evidence that Mr Dodd did procure the transfer of the business or goodwill in this way. I have found that the Softlight Website does show some positive marketing of Softlight lasers. There is however no sufficient evidence to establish that it sold any Softlight lasers or to any material extent carried on the business of distributing Softlight lasers. To the extent that Thermolase was involved in IPL, then it does look like that part of the Thermolase UK business was transferred to Ellipse.
There is no evidence of Mr Dodd directly diverting Thermolase UK's business opportunities away from Thermolase UK and into the business of Ellipse, whilst Thermolase UK was a going concern. Nor is there any evidence of misappropriation from the liquidator of Thermolase UK once he was appointed. This is a very late allegation and there is insufficient evidence to support a finding. That it was made so late is, moreover, highly relevant to the question of permission to amend: see paragraph 357 below.
Issue 3(c): If so, did that amount to a breach of trust?
Mr Wilson could not establish such a breach of trust. First, the pleaded case as to a breach of trust appears to relate to a trust arising out of the alleged partnership, and not the claimed self standing trust. Secondly, there is no sufficient evidence of "wrongful" conduct on the part of Mr Dodd. In closing argument, Mr Adair accepted that Thermolase UK had not been closed down and put into liquidation by Mr Dodd with any wrongful intent. These events happened for good reason. Further even if the business was transferred, there is no evidence that it was transferred at an undervalue or wrongly misappropriated. Thirdly, it not clear that any conduct by Mr Dodd in transferring the business from Thermolase UK to Ellipse would amount to a breach of a duty upon Mr Dodd said to arise as a trustee of shares in Narbonne.
Issue 3(d): What, if any, loss did Mr Wilson sustain as a result?
Mr Adair submitted that Mr Wilson would be entitled to equitable compensation. Initially he said it was probably the same as the quantum of any damages claim for misrepresentation. However in oral closing he changed his position and stated that the equitable compensation would be based on 10% of the value of the business now carried on by the Third to Fifth Defendants. In the light of my conclusions on the Breach of Trust Claim, this does not arise.
Issue 3(e): Is any loss claimed by Mr Wilson barred on the grounds that his loss merely reflects loss sustained by Narbonne, Thermolase UK or any other company?
Even if, contrary to the foregoing, Mr Wilson had a claim against Mr Dodd for loss based on the alleged breach of trust, any loss sustained by Mr Wilson arising from misappropriation is ultimately a loss which is reflective of a loss sustained by Thermolase UK.
First, the essence of the complaint in the Breach of Trust Claim is that what was properly the business of Thermolase UK and other Thermolase subsidiaries was wrongfully misappropriated and transferred away. Thus, in the first place, the person which directly sustained the loss in question was Thermolase UK (and other subsidiaries of Thermolase England).
Secondly, the loss claimed by Mr Wilson is loss in the value of his claimed beneficial entitlement to shares in Narbonne or shares in Thermolase England. On the assumption that Mr Wilson did have a beneficial entitlement to the shares in Narbonne, the loss claimed by Mr Wilson must be the diminution in value of his shareholding in Narbonne. However that loss can be no more than reflective of any loss sustained by Narbonne arising from the alleged wrongdoing by Mr Dodd. In turn, Narbonne's loss can only be a diminution in the value of its indirect shareholding in Thermolase England and, ultimately, in Thermolase UK. Thus, Narbonne's loss is, in turn, reflective of the loss sustained by Thermolase UK arising from that same alleged wrongdoing. Alternatively, if, as I have found, Mr Wilson's beneficial entitlement was to a share of Narbonne's interest in Thermolase England and thus Thermolase UK, then the loss claimed by Mr Wilson is directly a diminution in the value of the that entitlement/interest in Thermolase UK and will be directly reflective of the loss sustained by Thermolase UK arising from the alleged misconduct.
Thus, prima facie the principle of no reflective loss applies. Thermolase UK has or would have had a cause of action against Mr Dodd for the loss arising from any misappropriation of its business: see paragraphs 98 to 101 above. Mr Adair accepted this in oral closing. On that basis, the Breach of Trust Claim must fail on this ground too.
However Mr Adair submitted that the exception in Giles v Rhind applies to the present case. He submitted that Thermolase UK or its liquidator did not sue Mr Dodd because it was disabled from doing so by Mr Dodd's wrongful conduct. Narbonne or Thermolase UK could not pursue its cause of action because of conduct on the part of Mr Dodd himself. Therefore applying Giles v Rhind and Gardner v Parker, the question is whether or not Mr Dodd's alleged conduct in misappropriating the business of Thermolase UK and/or Narbonne was a direct cause of the decision of Narbonne or Thermolase (including the liquidator) not to bring an action against Mr Dodd for the loss it suffered arising out of the misappropriation?
I do not accept that on the facts. The company with the cause of action here is Thermolase UK. The liquidator could have brought proceedings against Mr Dodd. There is no pleaded allegation, and no evidence before me, that Mr Dodd's alleged misappropriation of the Thermolase UK business or any other particular conduct by Mr Dodd prevented the liquidator from bringing proceedings. Nor is there any evidence that the liquidator did not have funds to bring such a claim nor that the alleged misappropriation of the business by Mr Dodd was the thing which caused Thermolase UK not to be able to sue. There is no evidence that Thermolase or the liquidator was disabled from pursuing any claim against Mr Dodd by reason of a lack of financial means caused by Mr Dodd's wrongdoing. It may equally well have been that any impecuniosity on the part of Thermolase UK was caused by other financial pressures on the company arising from any other aspect of its business failure.
Nor do I accept that because Thermolase UK has been dissolved, this, of itself, gives rise to an exception to the no reflective loss principle. Thermolase UK could be restored to the register. In any event, whilst non-existence may prevent double recovery, it does not protect the interests of other creditors of Thermolase UK or other shareholders.
Mr Adair further submitted that Mr Dodd's failure to disclose to Mr Wilson the fact of the demise of Thermolase UK led to concealment of the cause of action. However, regardless of Mr Wilson's knowledge, Thermolase UK and its liquidators knew that Thermolase UK had gone into liquidation, and, if it had been the case, would have known of the misappropriation of the business.
For these reasons, the principle of no reflective loss applies in the present case and the Breach of Trust Claim fails for this reason too.
Issue 3(f): If the claim for breach of trust is arguable, is permission to amend the particulars of claim required to introduce this claim, and if so, are there other grounds for refusing permission to amend?
First, I do not accept Mr Adair's contention that the Breach of Trust Claim does not involve any new allegation of fact and thus, on the basis of Football Dataco (paragraph 96 above), no amendment to Mr Wilson's pleaded case is required. The Breach of Trust Claim does involve new or different allegation of fact: first, that there was a trust of the shares arising otherwise than by virtue of the existence of a partnership between Mr Wilson and Mr Dodd; secondly, that Mr Dodd transferred, and transferred wrongfully, the business of Thermolase UK to Ellipse, including for the first time a positive case made by Mr Wilson that Ellipse marketed the Softlight laser; thirdly an allegation that Mr Dodd's wrongdoing disabled the liquidator of Thermolase from suing.
Secondly, for the reasons given above, the Breach of Trust Claim has no realistic prospect of success and for this reason, permission to amend is refused.
Thirdly, even if the Breach of Trust Claim might otherwise have been arguable, I would not have granted permission to amend so late in the day. The amendment was sought very late, and the new claim was not sufficiently clearly pleaded.
Fourthly, to allow such an amendment would have given rise to injustice, because the new facts have not been fully and properly explored. Mr Dodd did not have an adequate opportunity to address these facts, particularly in relation to the allegation that Mr Dodd wrongfully procured the transfer of Thermolase UK's business. Enquiries could have been made of the liquidator of Thermolase UK to find out what Mr Dodd and/or Ellipse purchased from him and to find out what findings the liquidator had made about the affairs of Thermolase UK, and what the value of the business was at that point in time and he could have addressed fully the issue of the extent to which Ellipse and the later companies were able to sell, and did sell, Softlight lasers could have been addressed.
Conclusions
In the light of my conclusions at paragraph 332 above, Mr Wilson's claim against Mr Dodd for misrepresentation succeeds and there will be judgment for damages. The basis for the calculation of those damages will be in line with the approach indicated in paragraph 331 above.
I will now hear further submissions as to the appropriate orders to be made consequential upon this conclusion. In particular, I will hear submissions as to the precise amount of the damages and interest thereon. I do not currently propose dealing with this and other consequential matters, including costs, immediately following the handing down of this judgment. I will give further directions as to the procedure to be followed.
Finally I should add that I am grateful to both Mr Adair and Mr Beswetherick for the assistance they have provided to the Court in the presentation of oral and written argument in this matter.