Ticketus LLP & Anor v Whyte & Ors

This is an appeal brought, with the permission of Newey J, by the First Defendant Craig Whyte against the decision of Master Marsh. The Master awarded summary judgment for more than £18 million by way of damages and interest for fraudulent misrepresentation.

Octopus Investments is a regulated discretionary fund manager. It acts on behalf of customers who invest in various businesses, including the wholesale purchase at discounted prices of tickets for sporting events, which are then resold to the public at face value. This business is conducted through various entities, which include both Claimants. Investors become members of one or more of these entities. Although there may be no identity of interest between the memberships of the different LLPs, what unites them is that their members are all customers of Octopus, which arranges investments on their behalf. It is common ground that such arrangements had previously been made in respect of tickets for matches played by Rangers Football Club plc (“Rangers”).

On 13 October 2010 Ross Bryan, who was then an investment manager with Octopus, met with Mr Whyte and his associate Phil Betts. Following the meeting Mr Bryan sent a £20 million funding proposal involving the pre-purchase of season tickets for Rangers. Mr Whyte claims that this email was never received, but in my judgment nothing turns on this, since it was sent again on 20 October.

On 21 October 2010 Mr Bryan emailed Mr Whyte enclosing non-binding heads of terms which he had signed. The heads of terms were typed on letterhead bearing the logo “Ticketus” in large print at the top and the words “Ticketus LLP” in smaller print at the bottom. They were addressed to Mr Whyte and headed “proposal to pre-purchase Rangers FC Season Tickets pursuant to acquiring Rangers FC.” They began with the following words:

“Based on the information we have discussed I would like to confirm the terms on which Ticketus 2 LLP, a trading company of Octopus Investments (‘Ticketus’) would be willing to purchase in advance season tickets to watch [Rangers] play. The terms set out below are subject to the successful acquisition of the Club by Mr Craig Whyte …”.

According to Mr Bryan’s witness statement, he sought approval in principle from Octopus’s Investment Committee (“the Committee”) on 28 October 2010. He states that the Committee had real concerns and therefore attached importance to the due diligence which was required. He further states that he advised the Committee on 8 December 2010 that Mr Whyte would be required to give a deed of guarantee and to provide a net asset statement.

On 16 December 2010 Mr Whyte emailed a director’s questionnaire (“the Questionnaire”) to Mr Betts to be forwarded to Mr Whyte. Mr Bryan’s email said:

“This and the net asset statement should paint the picture IC [i.e. the Committee] are looking for.”

It appears that at this stage Mr Whyte was proposing to acquire the share capital of Rangers through a special purpose vehicle. However, the acquisition of Rangers did not take place at the end of 2010. On 7 February 2011 Mr Bryan sent an email to Mr Whyte and Mr Betts. He said that, in order to have the funding in place by the end of February, it would be necessary to complete certain paperwork and due diligence, including the Questionnaire (which he attached) and net asset statement for Mr Whyte. He referred in the email to the documents which would be part of the funding arrangement, including the Ticket Purchase Agreement.

On 28 February 2011 Mr Betts sent an email to Mr Bryan (copied to Mr Whyte) asking whether he was still waiting for anything. Mr Bryan replied as follows:

“Craig – I don’t have your directors questionnaire. Much of it would be n/a [not applicable] I imagine, but most relevant are

a)

have you ever been disqualified as a director

b)

had a company you were involved with investigated or inspected by the LSE, FSA or other financial regulatory body”.

Mr Whyte replied by email on the same day saying:

“I have attached the directors questionnaire. I’m not near a scanner right now so it’s unsigned. Let me know if you need anything else.”

The attached document was headed as follows:

“This Questionnaire has been prepared in connection with the proposed provision of funds via a ticket purchasing mechanism to a BidCo controlled by Mr Craig Whyte in relation to the acquisition of [Rangers]. It forms part of the exercise undertaken by the Octopus Investment Committee to assess whether each Company is an appropriate recipient of funds. It is an important document and you should therefore answer all questions truthfully and without omission.”

Question 6.3 asked Mr Whyte whether he had ever been accused of any fraud or other misconduct in connection with the formation or management of any company or other business. Question 6.6 asked if he had ever been disqualified as a director. The answer to both questions was “no”. The form concluded with a declaration that the answers were true, complete and not misleading in any way. As I have said, the form was unsigned but was enclosed with Mr Whyte’s email to Mr Bryan.

Mario Berti, who was Chairman of the Committee, has made a statement confirming that Mr Bryan reported to the Committee meeting on 28 October 2010, and that the Committee had reservations. He says that on 3 March 2011 Mr Bryan also reported to the Committee on the arrangement which was then proposed and on the material provided by Mr Whyte. Mr Bryan’s statement is to the same effect, but he does not mention the date of the March Committee meeting. Mr Berti additionally states that Mr Bryan also reported on the due diligence enquiries into Mr Whyte, including the material provided by Mr Whyte.

The Claimants have not produced Mr Bryan’s reports to the Committee or the minutes of the relevant Committee meetings. However, there are statements from the remaining 3 members of the Committee confirming Mr Berti’s statement.

The Committee approved the funding arrangement which was completed on 9 May 2011. In the event, the Committee decided that funding would be provided by both Claimants. It appears that the transaction was structured differently from the original intention. Instead of providing funds to “BidCo” for the acquisition of the shares in Rangers, Mr Whyte bought the shares for £1 and the funds were provided direct to Rangers.

Rangers went into administration on 14 February 2012 and is now in liquidation. In the current proceedings the Claimants sue the parties to the agreements made in May 2011, including Mr Whyte who gave a guarantee. They also claim damages from Mr Whyte for fraudulent misrepresentation, and it is this claim for which the Master has given summary judgment.

The Particulars of Claim allege that claims were brought against Mr Whyte by the liquidators of Vital UK Ltd for misfeasance and were settled for £150,000 in 1998. It is also alleged Mr Whyte was disqualified from acting as a director for a period of 7 years in or about June 2000. These allegations are admitted in the Defence.

In his reserved judgment dated 5 April 2013, the Master gave summary judgment for the Claimants on the basis that there was no real defence to the following:

Mr Whyte’s appeal is limited to conclusions ii), iii) and vi) above. It is important to note that there is no challenge to conclusion i). Mr Whyte therefore accepts, at least for the purpose of this appeal, that the answers to the Questionnaire constituted a fraudulent misrepresentation, i.e. a false statement made “(1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false” (Derry v. Peek (1889) 15 App Cas 337 at 374).

The 6 grounds of appeal are that Mr Whyte has a real prospect of successfully defending on the basis (in summary) that:

Rule 24.2 of the Civil Procedure Rules provides that the court may give summary judgment if it considers that the defendant has “no real prospect of successfully defending the claim” and that “there is no other compelling reason why the case should be disposed of at a trial”. In this appeal the burden is on Mr Whyte to establish that the Master was wrong to conclude that there was no real prospect of defending on issues ii) and iii) identified in paragraph 17 above and that there was no other compelling reason for a trial. It is convenient to take the grounds of appeal in a different order.

The Master adopted the summary given by Popplewell J in F G Wilson (Engineering) Ltd v. John Holt & Co (Liverpool) Ltd [2013] 1 All ER (Comm) 223at [20]. Both parties were content at the appeal hearing to adopt this summary:

“(1)

the court must consider whether the defendant has a 'realistic' as opposed to a 'fanciful' prospect of success: see Swain v Hillman[2001] 1 All ER 91;

(2)

a 'realistic' defence is one that carries some degree of conviction. This means a defence that is more than merely arguable: see ED & F Man Liquid Products Ltd v Patel[2003] EWCA Civ 472 at [8], [2003] All ER (D) 75 (Apr) at [8], [2003] 24 LS Gaz R 37;

(3)

in reaching its conclusion the court must not conduct a 'mini-trial': see Swain v Hillman;

(4)

this does not mean that the court must take at face value and without analysis everything that a defendant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: see ED & F Man Liquid Products Ltd v Patel at [10];

(5)

however, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: see Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550, (2001) 76 ConLR 62;

(6)

although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: see Bolton Pharmaceutical Co 100 Ltd v Doncaster Pharmaceuticals Group Ltd[2006] EWCA Civ 661, [2007] FSR 63;

(7)

on the other hand it is not uncommon for an application under Pt 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: see ICI Chemicals and Polymers Ltd v TTE Training Ltd[2007] EWCA Civ 725.”

I should add that the Court of Appeal has very recently allowed an appeal from Popplewell J’s decision (sub nom. Caterpillar (NI) Ltd v. John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232) but there was no criticism of this summary of the law, which I adopt.

Each Claimant has to establish that it is a member of the class of persons at which the representation was directed. The Second Claimant points to the original Heads of Terms which expressly refer to it (see paragraph 4 above). Mr Watson-Gandy, Counsel for Mr Whyte, argues that this related to an earlier and different funding proposal. In my judgment the Master was right to reject this submission. The commercial reality is that the parties were considering the provision of funding in the sum of about £20 million to an entity controlled by Mr Whyte, however it might be structured.

The First Claimant is unable to point to any such express reference in a document to or from Mr Whyte. However, both Claimants say that the commercial reality was that Mr Whyte was approaching Octopus (trading as Ticketus) for funding and that it was of no real significance to him which entity or entities in fact provided the funds. This is supported by the rubric at the top of the Questionnaire (see paragraph 10 above), which says that the Questionnaire is “in connection with the proposed provision of funds” and that it forms part of “the exercise undertaken by the Octopus Investment Committee”.

The irresistible conclusion is that the representation was made to the Committee, with the intention that it would be relied on by whichever Ticketus entity or entities ultimately advanced the funds. Accordingly the Master was right to conclude that there was no real prospect of defending on this aspect of the claim.

The Master set out the relevant law as summarised in Chitty on Contracts (31^st edition) paragraph 6-039:

“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, it is a fair inference of fact (though not an inference of law) that he was influenced by the statement, and the inference is particularly strong where the misrepresentation was fraudulent. There is no set list of matters that might rebut the presumption which arises from a fraudulent statement. One is to show that the misrepresentee had already firmly made up his mind, but even then the misrepresentation might have induced him not to change his mind.”

The onus is on Mr Whyte to show that the Master was wrong to conclude (i) that the misrepresentation was material or (ii) if it was material, that Mr Whyte had no real prospect of rebutting the presumption of inducement.

Mr Watson-Gandy accepted the summary in Chitty but had 5 arguments:

Mr Whyte relied on the failure of the Claimants to produce either Mr Bryan’s reports or the minutes of the Committee meetings. The Master dismissed this argument on the basis that the documents were referred to in witness statements and it was therefore open to Mr Whyte to seek disclosure under CPR r. 31.14, which he had failed to do.

In paragraph 5 of his witness statement Mr Berti referred to the various reports made by Mr Bryan (see paragraph 12 above). Mr Watson-Gandy accepted that this amounted to a “mention” of the reports, but argued he could not press for disclosure, because Mr Berti was an employee of Octopus and not of the Claimants. CPR r. 31.14(1) says:

“A party may inspect a document mentioned in –

(a)

a statement of case;

(b)

a witness statement;

(c)

a witness summary”.

Whilst a statement of case will, of necessity, be that of a party to the proceedings, a witness statement may be given by a non-party. The thinking behind the CPR is presumably that, if the party relying on the statement is able to obtain the cooperation of the witness in signing it, then it is only fair that he should produce any documents which are mentioned. The same logic applies to witness summaries: if the party tendering the summary is in a position to mention a document, even without the cooperation of the witness, he should be required to produce it. When I put this to Mr Watson-Gandy, he realistically accepted that he could not rely on the Claimants’ failure to produce Mr Bryan’s reports.

However he continued to rely on the failure to produce Committee minutes. I am satisfied that there is nothing in this point for 3 reasons:

Mr Watson-Gandy argued that the Master was wrong to bring the Overriding Objective into account in reaching his conclusion that there was “no other compelling reason” for a trial. Needless to say, this alternative ground arises only if Mr Whyte fails to establish that he has a real prospect of successfully defending. Even before the introduction of the Civil Procedure Rules, it was relatively unusual for a party to avoid summary judgment in a case where it had no real prospect of success. As Megarry V-C famously observed in Lady Anne Tennant v. Associated Newspapers Group Ltd [1979] FSR 298:

“A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism.”

Mr Watson-Gandy argued that the Master was wrong to take account of the Overriding Objective in reaching his conclusion that there was no other compelling reason for a trial. No authority was cited for or against this proposition. In my judgment it is wrong. CPR r. 1.1 states that:

“(1)

These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly.

(2)

Dealing with a case justly includes, so far as practicable ….”

It is therefore clear from the express language of the CPR, as well as from the way that the courts have interpreted it over the last 15 years, that the Overriding Objective permeates the approach to every aspect of the Rules. It does not override the discretion to allow a case to proceed to trial, even where there is no real prospect of success, but it does affect the way in which the court exercises that discretion and it reinforces the salutary warning against Micawberism.

Mr Watson-Gandy argued that the claim deserves the full light of publicity for 2 reasons, because (i) the claim has already attracted press coverage and it would be unfair to Mr Whyte if only a partial picture were shown and (ii) the Claimants had acted harshly and unconscionably in inducing Mr Whyte to enter into guarantees. I accept there may be claims which deserve publicity even where they have no real prospect of success. However, there are unlikely to be many such claims, particularly in view of the Overriding Objective, and I agree with the Master that this claim is not one of them.

The answer to argument (i) is that the Master has concluded that Mr Whyte made a fraudulent misrepresentation and Mr Whyte has not sought to appeal this conclusion; it might therefore be said that he has brought the publicity on himself by his own fraud. The answer to argument (ii) is that any unfairness in causing Mr Whyte to enter into a guarantee (as to which I have heard no evidence) is irrelevant to the Claimants’ claim for damages for fraudulent misrepresentation, since that claim does not require them to rely on the guarantee.

It was also said on Mr Whyte’s behalf, in reliance on the Bolton Pharmaceutical case (see paragraph 21 above), that there was a risk of injustice to Mr Whyte if he was not given the opportunity to call further evidence or to cross-examine the Claimants’ witnesses. The principal arguments under this head were as follows:

Finally it was argued that that the case should go to trial because of its complexity and financial value and because Mr Whyte is disadvantaged in not having the relevant documents or legal resources. In my judgment the Master was right to reject these arguments, which I regard as pure Micawberism, especially given that the burden of proof is on Mr Whyte to show that he has a real prospect of rebutting the presumption of inducement.

Mr Watson-Gandy has said everything that could be said on behalf of Mr Whyte, but I have reached the clear conclusion that the Master was entitled to give summary judgment for the Claimants. Indeed, had I been hearing the matter, I would have reached the same conclusion. I therefore dismiss this appeal. I will hear Counsel regarding costs and any other consequential matters.