NGM Sustainable Developments Ltd v Wallis & Ors

This judgment arises out of the trial of this action on liability and quantum.

The claim brought by the Claimant (“NGM”) is based on an allegation that it was induced to enter into a series of documents on 15th January 2010 (“the Security Documents”) on the basis of fraudulent misrepresentations made by the Defendants to induce its signature thereto. In this judgment when I refer to NGM and its complaints I am doing so on the basis that it is controlled by Mr Kerry Martin (“KM”) and Mr Espen Ostbye-Strom (“EOS”) and the complaints arise from them as Directors.

NGM seeks rescission and damages in respect of the obligations it entered into but not rescission of all the documents.

The purpose of the documentation was to enable a sum of £165,000 to be advanced by Lizzano Ltd (“Lizzano”) (the Second Defendant) to enable Filterbed Developments Surbiton Ltd (“Filterbed”) a wholly owned subsidiary of NGM to acquire the property (“Surbiton”) situated in Surbiton described as a 13 acre freehold site to the northwest side of Portsmouth Road Surbiton Surrey KT6 (HMLR Title No TGL139392). Filterbed was founded for that purpose.

The sum of £165,000 was a deposit which was required to be put down in order to enter into an agreement to acquire Surbiton from Kennet Properties Ltd (a subsidiary of Thames Water). It was incorporated on 29th December 2009 as an SPV with company number 07113582. Subsequently it was struck off on 18th June 2013 pursuant to s100 Companies Act 2006.

Filterbed entered into an agreement (“the Agreement”) to acquire Surbiton for £1.65m. Under the loan documents the £165,000 was the 10% deposit. KM a director of Filterbed (also a director of NGM) signed the Agreement in escrow on behalf of Filterbed on 7th January 2010. Contracts were exchanged on 15th January 2010 after the loan documentation was put in place. A significant feature of this case is the fact that NGM had no money even to provide the deposit. The whole basis of the arrangements was that the Defendants (through Lizzano) were to provide the whole of the consideration to acquire the Surbiton site.

Completion of the Agreement was 5th February 2010. Filterbed had no funds to complete the purchase.

A Dramatis Personae and a chronology are attached.

NGM’s case in summary is that it was induced to enter into various documents by fraudulent representations. Those fraudulent representations derive from a side letter (“the Side Letter”) provided to NGM and Filterbed on exchange by the First Defendant. As the Side Letter looms large in this case I have annexed a copy to this judgment as appendix 3.

Neither NGM nor its subsidiary Filterbed had any money. The deposit monies were provided to enable Filterbed to exchange contracts. NGM’s case is that the loan documentation entered into on 15th January 2010 which provided the deposit was intended to be a temporary loan facility to be replaced by a long term arrangement to be negotiated between the parties. Such negotiations of course would have to be completed before 5th February 2010 because the agreement was for completion on that date. It would have been possible to delay matters for a short period of time which would be a breach of contract but not a breach of contract that could lead to immediate rescission for failure to complete. Under clause 8.8.2 of the Standard Commercial Property Conditions (Second Edition), which applied to the agreement upon service of a completion notice by the vendor the buyer becomes under an obligation to complete within 10 days of the giving of that notice (time to be of the essence). Therefore a short breathing space can be obtained at the price of compensating at the rate of interest under the Agreement.

It follows therefore that the negotiations that would necessarily have to take place between the parties from 15th January to 2nd February were vital.

As will be seen by the security documentation the loan for the deposit was provided to be repayable on demand. The obligation to repay was protected primarily by security as a debenture given by Filterbed to Lizzano charging all its present and future assets as security for payment or discharge of the Secured Liabilities (all present and future monies, obligations and other liabilities owed by it to Lizzano whether actual or contingent). The only asset was Filterbed’s interest under the Agreement but that was not worth anything at all really because of its obligation to find the balance of the purchase price (90% of £1.65m) when it had no funds to complete the purchase.

NGM gave Lizzano a debenture on the same day in the same form except that it extended to a Patent Application (no PCT/GB1009/0050498) (“the Patent”) and all of its present and future intellectual property rights in any patent including the Patent. It also extended to security for the Secured Liabilities (with the same definition).

The Patent was an application relating to floating buildings including a buoyant basement structure or platform for a floating building and the method of constructing such a structure. Its purpose therefore was to enable builders to build on sites which were waterlogged or even underwater. Using this method valuable land which otherwise could not be developed became available for development. The Patent itself was only an application and therefore was not particularly valuable either.

In addition the controllers and major beneficial owners of NGM KM and EOS entered into personal guarantees in favour of Lizzano guaranteeing all liabilities Filterbed had to Lizzano. NGM entered into a guarantee guaranteeing all of the obligations of Filterbed to Lizzano. It entered into a guarantee guaranteeing all obligations due from NGM to Lizzano.

Separately NGM guaranteed to Lizzano the repayment of the £165,000 advanced by it to Filterbed.

Accordingly Lizzano had charges over everything in so far as they had a value.

Crucially on the same day NGM granted Lizzano a non exclusive perpetual irrevocable sub licensable freely transferable loyalty free license of all the Intellectual Property Rights relating to the License Technology including the Patents to manufacture and install or have manufactured and installed and sell or otherwise supply the License Technology in the United Kingdom. KM and EOS covenanted to do all acts necessary to procure that NGM complied with its obligations.

Although it does not say so it seems to me that the License can only have been a security and could not be maintained in the event that the indebtedness was repaid. However there was no argument over that effect before me.

The significance of the Loan Agreement, the Security Documentation and the License is that NGM was put in a very vulnerable position. The Interim Loan was repayable on demand. If a demand was made before completion Filterbed would not be able to repay it. That could then enable the demands to be made under the Debentures and Guarantees. There then remained the question of completion of the Agreement which Filterbed could not complete. Lizzano would have to complete the purchase to preserve the security which would cost the balance of the purchase price. Thus it would have to spend £1,485,000 to preserve the £165,000 laid out on the deposit.

In the event that is precisely what happened. The parties were unable to agree further loan documentation to address the purchase price to acquire Surbiton. Lizzano made a demand on all the parties for the £165,000 which was not repaid. It exercised its powers under the Debenture to take control of Filterbed. In its capacity of having a Debenture over NGM Lizzano caused Filterbed to issue shares to it thereby giving it control of the board. Once it had control it caused Filterbed to enter into new arrangements with Lizzano to borrow the balance of the purchase price. Lizzano had taken control of Filterbed’s board by the issue of the shares and the utilisation of those shares to appoint its nominees to the board. Although neither KM nor EOS resigned as requested they would have been out voted had they attended the board meeting on 12th February 2010. In fact they did not attend. That increased all liabilities of NGM under its guarantee and KM and EOS because Filterbed’s indebtedness was significantly increased.

Subsequently on 12th May 2010 Filterbed transferred Surbiton to Cascina Ltd (“the Third Defendant”) for £1.175m which was below the price paid for it 4 months earlier (£1.65m). NGM asserted in the proceedings that was a transfer at an undervalue and therefore challengeable under section 423 of the Insolvency Act 1986. That case was abandoned by Mr Collings QC who appears for NGM in his closing.

The final completion of the story was the acquisition of the Patent. This was achieved appointing a Mr Hoffman on 7th June 2010 as Fixed Charge Receiver of the assets of NGM. The purpose of this exercise was to obtain the Patent. That was done by the Receiver holding an auction. The only bidder for the Patent was Lizzano in the sum of £20,000. Its bid was accepted on 15th July 2010.

The result of all of those activities meant that NGM lost the Patent, and lost its opportunity (if it had one) to acquire Surbiton and develop it. This was achieved because Filterbed entered into the Interim Loan Agreement to borrow the deposit when it and NGM never had the funds to repay it and when they had no arrangements in place to fund the purchase. The ensuing default caused the collapse and the loss of the assets before completion.

The complaint in this action is that NFM was induced to enter into arrangements (and lost everything as a result) because the Defendants made a fraudulent representation that they genuinely intended to enter into long term financial arrangements for the acquisition of Surbiton and also for the redevelopment of Surbiton and other sites (“the wider picture”) in the event that the exercise was successful the expansion of NGM. Its case is that the Defendants never had a genuine intention to enter into such arrangements and the whole scheme was a deception designed to snare NGM into entering into those arrangements so that the Defendants could acquire the Patent and take over the Surbiton site by withdrawing the deposit monies knowing that they could not be repaid.

Mr Collings QC accepts that in order to succeed NGM must show that dishonest intent as a present intent at the time that the Loan Agreements were entered into. He accepts that if the Defendants decided to carry that scheme out after the loan documentation that is not actionable.

In the Amended Particulars of Claim there is also a claim for conspiracy. Mr Collings QC abandoned that claim during the course of the trial. Mr Collings QC made no reference to the section 423 Insolvency Act 1986 claim in his written submissions not having put it in any of his cross examination either. On being pressed by me (T20/39) he agreed to have that claim dismissed.

As regards the fraudulent misrepresentation Mr Collings QC abandoned half of them during the course of his closing (see below). He maintained a claim for rescission of the NGM Debenture, the NGM Guarantee, the NGM Stock Transfer Form and the Patent Licence. He also seeks an order setting aside the assignment of the Patent and retransferring the ownership back to NGM. Whether as a matter of law even if the claim is established such relief can be granted is a matter for debate between the parties.

The live representation is as follows:-

“64 By reason of the matters set out above, the following representations (“the representations”) were made by Mr Wallis either expressly or impliedly to NGM acting by Mr Ostbye-Strom and KM

1)

[abandoned]

2)

In the course of the meeting on 15th January 2020, that:

(i)The Loan and Security Documents were only needed to prevent NGM/Filterbed from completing the purchase with another funder.

(ii)The Licence was only an interim Licence not a perpetual irrevocable licence.

(iii)

Mr Wallis was honourable and could be trusted to stick to the deal that had been agreed and was evidenced by the Heads of Terms.

(iv)Lizzano intended to enter into a long term funding agreement in line with the letters of 11th January 2010 and the Side Letter.

(v)

Lizzano would comply with the terms of the Side Letter in order to further the joint venture with NGM.

(vi)

The Loan and Security Documents would immediately or shortly be superseded by long term funding arrangements in order to further the joint venture with NGM.

(vii)

Lizzano fully intended to fund completion of the Surbiton Site by Filterbed on 5th February 2010 in order to further the joint venture with NGM.

(viii)

Lizzano had no intention of making demand under the First Loan Agreement or of enforcing any of the Securities unless NGM sought to complete the purchase with another funder, thereby ousting Mr Wallis and those associated with them.”

The alleged falsity of the representations are set out in paragraph 98 of the Amended Particulars of Claim as follows:-

“98 The Representations were false and dishonest in that at the time they were made and up to and including 15^th January 2010:

(1)

Mr Wallis and/or Mr Reardon knew and/or Lizzano (after its incorporation) knew that neither Lizzano nor any other GHP/IoM Group company would in fact be entering into any long-term funding arrangements with NGM/Filterbed, either in accordance with the terms of the Side Letter or otherwise.

(2)

Mr Wallis and/or Mr Reardon and/or Lizzano (after its incorporation) had no intention that Lizzano or any other GHP/IoM Group company should enter into any long term funding arrangements with NGM/Filterbed, either in accordance with the terms of the Side Letter or otherwise.

(3)

Mr Wallis and/or Mr Reardon and/or Lizzano knew that the true purpose of the Loan and Security Agreements was to enable Mr Wallis and/or Mr Reardon and/or Lizzano alternatively, Mr Wallis and Lizzano to acquire and/or enjoy the benefit of the Site and the Patent free of any obligation to NGM.

(4)

Mr Wallis and Lizzano could not be trusted to stick to the deal that had been agreed and evidenced by the Heads of Terms.

(5)

Mr Wallis and/or Mr Reardon and/or Lizzano had no intention of funding NGM directly or indirectly to purchase and develop the Site.

(6)

Mr Wallis and/or Mr Reardon and/or Lizzano knew that Lizzano would not comply with the terms of the Side Letter and did not intend that it should do so.

(7)

Mr Wallis and/or Mr Reardon and/or Lizzano knew that Lizzano would shortly be making demand for repayment under the First Loan Agreement.

98A. The falsity of the Representations and of the dishonest intentions of their makers is to be inferred from the events which took place after 15^th January 2010 as pleaded at paragraphs 68-95 and the fact that there was no genuine or credible reason for:

(1)

The failure of Lizzano to provide NGM with the promised further funding agreements after the meeting of 15^th January 2010.

(2)

The refusal, without explanation, of Mr Wallis and/or Mr Reardon to arrange for the payment of £60,000 to NGM for working capital that had been previously promised in the letter of 17^th December 2009.

(3)

The failure to finance NGM on the purchase and development of the Site as represented in the offers to purchase the Site and in the “To Whom It May Concern” letter

(4)

Lizzano suddenly to withdraw from the terms that had previously been set out in the Heads of Terms discussed on 11 January 2010 and given to NGM on 15 January 2010;

(5)

Lizzano to enforce repayment of the Loan and enforce the Security Documents less than three weeks after they had been executed or at all, thereby stripping NGM of all its assets in a few short weeks.

98B It is therefore to be inferred that:

(1)

As at 28^th October 2009 (and thereafter up to and including 15th January 2010) Mr Wallis and Mr Reardon had no intention that NGM would be provided with funding to purchase the Site; and

(2)

As from 17 December 2009 (up to and including 15^th January 2010), Mr Wallis and/or Mr Reardon and/or Lizzano in fact had no intention that Lizzano would fund the purchase of the Site with NGM, or that Lizzano would enter into a joint venture with NGM to exploit the Site to the mutual benefit of NGM and Lizzano.”

The allegation that the Defendants had no intention of completing from 28th October 2009 was abandoned and Mr Collings QC fastened on an unspecified date in January 2010 shortly before the Loan Agreement was entered into.

The abandonment of paragraph 64 (1) in my view is significant. If one looks at them:-

(1)

In the course of the discussions and negotiations leading up to 15^th January 2010, that:

(i)

Mr Wallis and Mr Reardon and/ or a company or companies associated with them, alternatively, Mr Wallis and/ or a company or companies associated with him or them or Mr Reardon would provide long-term finance to NGM (whether directly or indirectly) to purchase and develop the Surbiton Site with the benefit of the Patent.

(ii)

Mr Wallis and Mr Reardon and/ or a company or companies associated with them, alternatively, Mr Wallis and/ or a company or companies associated with him would enter into a joint venture with NGM to finance the purchase of the Surbiton Site and then exploit it to the mutual benefit of NGM and Mr Wallis and Mr Reardon and/or a company or companies associated with them, alternatively, Mr Wallis and/ or a company or companies associated with him.

(iii)

Mr Wallis and Mr Reardon and/ or a company or companies associated with them, alternatively, Mr Wallis and/or a company or companies associated with him would provide long-term funding to or for the benefit of NGM in order to facilitate the purchase of the Surbiton Site for the purpose of furthering the joint venture between NGM and Mr Wallis and Mr Reardon and/or a company or companies associated with them, alternatively, Mr Wallis and/ or a company or companies associated with him.”

All of those statements look to future intention. That is addressed by NGM’s contention in paragraph 98 because it is asserted that there was never any present or future intention to provide the long term financing.

In paragraph 2.5 of his closing Mr Collings QC said that there were 3 representations of existing intention made on 15th January 2010 namely:-

The latter point is completely irrelevant. I do not see the Side Letter as being a check list for what can or cannot be included in the ultimate documentation. The letter is plainly not in sufficient detail. I do not think the letter was intended to be anything other than a statement of intention of what in broad terms was to be found in the final documentation.

Further it is not open to NGM to raise items (ii) and (iii) because its case has always been that the Defendants never had any intention to enter into final arrangements at all.

Equally it is correct in my view that the Defendants would not have entered into any arrangements with NGM without equity participation on their part. The deal would not be attractive to them if it was simply advancing money as a loan which would be repaid. The Defendants wanted to participate in the venture if it was profitable. I do not see however that the Side Letter is a representation that there would be no attempt to participate in the equity of NGM by silence or by implication. The fact that the Defendants would want some form of equity participation cannot be a surprise to the NGM. Certainly Mr Potton (“GP”) (a surveyor who was acting for NGM at the time and gave evidence for it at the trial) understood that this was a likelihood and in discussions with other potential funders prior to meeting the Defendants it is quite clear that KM was willing to give up some equity perhaps almost as much as 49%. The strategy is set out fully in Mr Phillip Wallis’ (“PW”) letter to the Directors of Lizzano dated 14th January 2010 but actually sent on 19th January 2010.

That letter sets out fully PW’s thoughts about the venture from the Defendants’ commercial point of view and re-emphasises the need for control, the need for conditional rights for use of the Patent, the need to have appropriate step in rights and some kind of equity and first refusal about future business. All of this was to be enforced through personal guarantees to give direct benefit from any value created for NGM or their shareholder or directors.

The reason put forward for this was that the Defendants were giving them an opportunity in a difficult market to launch their product.

The strength of the securities was emphasised in an email on 15th January 2010 from Mr Nick Davies (“ND”) (Head of Corporate at Mishcon de Reya (“MdR”) to PW summarising the documentation to be prepared and commenting “the individuals are going to be particularly unhappy with the personal guarantees themselves and NGM will not be happy with the grant of a perpetual license to Lizzano.”

It is well known that an actionable representation is required to be a representation of present fact. It is equally well established that all statements (unless action in respect of them is excluded under the ensuing contract) made in antecedent negotiations are regarded as representations see Howard Marine and Dredging Co Ltd v A Ogden & Sons [1978] QB 574 (C.A.).

Equally it can be the case that a statement of intention to the future may carry the implication that the party does not know facts that would make it impossible to carry out the intention. Further future performance can in certain circumstances depending on what happened at the time the representations were made amount to a present factual statement see for example Esso Petroleum Co Ltd v Mardon [1976] QB 801.

It has always been difficult in my opinion to look at the Pleadings and to assert that they are misrepresentations of present fact. The major debate during the trial and closing was actually around paragraph 64 (1) of the Amended Particulars of Claim until Mr Collings QC abandoned it during his closing. It is hardly surprising in my view because they are so clearly demonstrative of promises to the future rather than present representations as to fact.

The claim centred almost entirely around the Side Letter.

The difficulty about the Side Letter from NGM’s point of view is that it is not contractual. The document is marked “subject to contract”. It is extremely general and as a contractual document (if it were one) would fail as being nothing more than an agreement to agree. Parties have tried to circumvent similar documents before see for example Pallant v Morgan Equity [1953] Ch 43, Banner Homes Plc v Luff Developments [2000] Ch 382 and London and Regional Investments Ltd v TBI Ltd [2002] EWCA Civ 335 where the attempt to impose the equity was in respect of a document which was marked subject to contract.

The document to my mind does not set out anything other than a broad general picture and matters that have to be discussed in the future. It starts with the agreement that the Loan that was put in place on 15th January 2010 was a general Interim Loan until completion when it is intended a further agreement which related more specifically to the Surbiton land will be put in place. It states that it is separate from the Loan Agreement but “is given as a recorded intention between the parties, but is not a legal document and is therefore subject to completion of all loan documentation referred to above”. There is then a profit share arrangement set out for development of Surbiton. When one looks at the Side Letter it is difficult to see a more circumspect and provisional document. I have already set out that it was marked “subject to contract”. It acknowledges that a general interim loan document will be put in place until completion at which time it is intended to execute a further agreement which will relate more specifically to the subject transaction Surbiton. It reiterates it is not a legal document but deals with net profits and the share of profits on disposal of a number of parts of the Property. The terms of the Side Letter were addressed further in exchange between PW and KM on 11th January 2010 concerning the thirteen external moorings to fall back on. PW reiterated that the proposals were on the basis that those thirteen external moorings were available as a residual scheme which had an excellent chance of success.

What is clear from the Side Letter is that nothing is clear. It must be appreciated (see below) that the Claimant had no funds to complete the Surbiton acquisition. Equally it had no funds to develop that site once acquired and sell it. The distribution of the profits is set out. Nothing is said about shareholding. Nothing is said either as to the “Big Picture”. That was meant to cover the expansion of the method to other sites. Surbiton was to be the first trial with the hope that if it proved to be successful that would then create greater opportunities through the country. Nothing at all is said about the terms of any future arrangement. It is all for negotiation.

The question of the lack of shareholder interest was raised when the Defendants were cross examined. This led to legitimate concerns that a different case was being put to them.

I have set out above the surviving complaint against the Defendants. It could not be more clear. The pleaded case is that set out in 64 (2) of the Amended Particulars of Claim. The allegation of falsity in paragraph 98 is that the Defendants never had any intention of entering into a long term funding arrangements whether in accordance with the Side Letter or otherwise. Thus the complaint is that the Side Letter was a charade. It is not a complaint that things were missed out with the Side Letter (such as a desire on the part of the Defendants to obtain a shareholding in the Claimant whether a majority or otherwise). The claim stands or falls on establishing that in effect the Defendants were not going to enter into any arrangements at all and that the purpose of trapping the Claimant into the loan interim loan arrangements was to obtain in particular the Patent and also Surbiton.

It is a fundamental tenet of the adversarial procedure in these courts that a case is put against the opposing party. It is only fair for a person against whom allegations are made to have that put to them while giving evidence in the box and to have an opportunity to deal with those in the box in front of the trial Judge. Equally it is a vital tool in the Judge’s exercise of assessing the credibility of witnesses for him to see witnesses confronted with the case against them to see how they react or deal with it. Of course all experienced Judges are well aware of the potentially oppressive nature of cross examination and are alert to ensure that it does not become oppressive and are alert to ensure witnesses fully understand the questions that are being put. For example in a number of instances in this case Counsel put (whether deliberately or not I do not know) questions which comprised two questions. The witness generally hears the latter of the questions and answers that and then it is not clear what his response would be to the earlier part of the rolled up question. A trial Judge should always be alert to ensure that errors do not creep in as such errors will not be identified on reading the transcript.

Equally witnesses regularly say “yes” when they mean “no”. They regularly say “ok” when they are not agreeing the question but acknowledging they understand the question.

I always remind Counsel at the start of any long trial where issues of fact are hotly contested that it is essential that their case is put to the opposing side where necessary in cross examination. I always indicate that a failure to put that case will disentitle them from making submissions criticising witnesses when the criticism was not put to them when they were available for cross examination see for example Sharab v HRH Prince Al-Waleed [2013] EWHC 2324 (Ch).

This is the nature of the adversarial process in these courts. In that context especially in the context of fraud it is essential that the Claimant is tied to the pleaded case: see the observations of Lewison LJ in the Court of Appeal in Lowe v Machell [2012] 1 All ER (Comm) 153 at [74]. This is the more so where a case is based on fraud bearing in mind the observations of Lord Nicholls in Re: H (sexual abuse, standard of proof) [1996] AC 563 at 586:-

“The more serious the allegation the less likely it is the event occurred and hence the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is less likely than negligence……”

Ungoed-Thomas expressed this neatly in Re: Dellow’s Will Trusts [1964] 1 WLR 451, 455:-

“The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it.”

Further I accept the principle that if explanations are put forward by the Defendants a finding of liability involves rejecting those explanations as being inherently improbable see Grupo Torras SA v Al-Sabah (no5) [1999] EWHC 300 (Comm), [1999] CLC 1469 at 1541 (affirmed) CA [2001] Lloyds Reports Bank 36; Attorney General of Zambia v Meer Care & Desai [2007] EWHC 952 (Ch) [90-91].

It follows from that that the Claimant is tied to its pleaded case namely that the Defendants made fraudulent representations to induce them to enter into the Loan Agreement and that those fraudulent representations are those as pleaded in the Amended Particulars of Claim and involve an allegation that the Defendants set out the Side Letter never intending to enter into any negotiations whatsoever.

Mr Collings QC who appears for the Claimants regularly strayed from that golden mean. The Defendants in their closing set out several examples.

Most of these circled around Mr Collings QC trying to establish that the Defendants in their discussions with the Claimants before the Loan Agreement and the Side Letter held back their desire to obtain shares in and possibly control of the Claimant.

The purpose behind this strategy seems to me to attempt to exploit the fact that the Side Letter made no mention of a desire to acquire shares. However the fundamental difficulty facing Mr Collings QC is that the plea he is seeking to establish by this cross examination is not the one that is in the Amended Particulars of Claim. The Claimant’s case is not that the Side Letter did not fully set out what was to be discussed with the result that the shareholding was sprung upon the Claimants (it is said) without warning and when it was not in a position to do anything because it was already committed by the Loan Agreement.

In my view that allegation is not open to the Claimant on the pleading. I corrected Mr Collings QC during his cross examination (see for example T12/200/2-9) (when cross examining Mr Wallis). And the same when cross examining Mr Kevin Reardon (“KR”) (the Fourth Defendant) (T15/101/25-103/22):-

“Q. What the side letter doesn't say is it doesn't say to change from an interim loan on Surbiton to a permanent

loan on Surbiton, plus a share of the equity?

A. Okay. Look, I --

Q. And that is the complaint that's being made?

A. Okay.

Q. Because it only tells part of the story?

A. Right. I --

Q. And it deliberately only tells part of the story,

because NGM, through its directors, would not have

signed up to the interim loan if they had been told the

whole story?

A. All right.

Q. That's the point.

A. Okay.

Q. Now --

A. Can I answer, Mr Collings?

Q. Yes.

A. Thank you. That's the fraud, is it?

Q. It is.

A. Okay.

MR JUSTICE PETER SMITH: It isn't.

MR DAVENPORT: No.

MR JUSTICE PETER SMITH: That's not the pleaded fraud. The

pleaded fraud is that they deliberately pretended they

were going to put money into the long-term scheme and never intended to do so. It's the complete opposite to

what you have just put to him.

MR COLLINGS: Well, I don't agree with that at all.

MR DAVENPORT: My Lord, could I ask -- it sounds unusual.

Could I ask your Lordship to put, before my learned

friend, Mr Collings, the case to the witness, so we just

can do this cleanly and quickly?

MR JUSTICE PETER SMITH: No, it's not my job. I don't get

paid for that.

MR DAVENPORT: I know it's not your job, my Lord.

MR JUSTICE PETER SMITH: It's not in my job description.

MR DAVENPORT: This could be done in two sentences. I have

given my learned friend a note --

MR JUSTICE PETER SMITH: I thought we did that, when we had

your note.

MR DAVENPORT: Yes, it sets it out.

MR JUSTICE PETER SMITH: The plea is in paragraph 98 and it

is not what you have just put to him.

MR DAVENPORT: I have highlighted it, maybe my learned

friend could just read it out to him. I would do it for

him, but that would look a bit illogical.”

The note referred to by Mr Davenport QC in that exchange was a note provided by all Defendants jointly complaining about Mr Collings QC’s attempt to suggest that there was an intention to provide the long term funding but only if the Claimant agreed to an equity stake in NGM and that that latter point was deliberately concealed from the Claimant.

I agree with their analysis. It is not open to the Claimant on the Pleadings. Even if it were it would be impossible to plead a fraud allegation based on a supposed holding back of terms which they wished to impose. If such an activity in pre-contract negotiations was capable of being challenged after the event when the negotiations are not successful as being fraudulent it would make negotiations unworkable in my view. In the present case the Side Letter says nothing at all about what is in the future as regards terms.

KM ultimately accepted this proposition during his evidence:-

“MR JUSTICE PETER SMITH: You accept that there would be

discussions between you and the defendants about that new final loan.

A. (Witness nods)

MR JUSTICE PETER SMITH: Your case, remember, is that they were not -- not that they were obliged to give it to

you, but that they never intended to do it, and that it

was just a sham. That's your case. You understand

that, don't you?

A. Yeah.

MR JUSTICE PETER SMITH: It follows, therefore, that if the

position was that they introduced the wider picture as

a requirement for them to enter into the final Surbiton

loan, there is nothing wrong with that as long as it is

a genuine introduction by them as part of the ongoing

relationship, is there? They are perfectly entitled to

see what you can negotiate.

A. You know, I believe that the negotiations for the

Surbiton site are agreed at the 15th.

MR JUSTICE PETER SMITH: Fine, yes, they can't all be agreed

because you haven't got anything which addresses the

purchase price which has to be paid.

A. The long-term loan agreement is going to have the coupon

and have a period of time.

MR JUSTICE PETER SMITH: What is it that stops them saying

to you, "I am afraid we want more. We also want a piece

of your company, a large piece"? What is to stop them

doing that in the meetings?

A. They do it.

MR JUSTICE PETER SMITH: I know they do it, but is that wrong?

A. Yes, I believe so.

MR JUSTICE PETER SMITH: Wrong in what way?

A. Because they never make any indication of that case

before we enter into the 15th documents.

MR JUSTICE PETER SMITH: So what? You knew that there were

going to be negotiations of the new terms. Your case --

A. Of the loan and the profit share.

MR JUSTICE PETER SMITH: The loan and the profit share, but

what's to stop them introducing that new factor? You

can't say "Hey boys", because you knew that there was

going to be a complete negotiation of the terms on which

they are prepared to put the 1.65 in.

A. They introduce wider terms which --

MR JUSTICE PETER SMITH: Yes, let's assume you are right.

Let's assume that you are right and that it was sprung

on you as you say. That itself you don't complain about

in your case. Your case is not that they sprung terms

on you and those terms were unfair and you were forced

to sign up. That's not your case. Your case is that

yes, they sprung terms on you but this was part of

a strategy in that they never intended genuinely to

negotiate with you, and were motivated to pretend that

they were going along with you solely for the purpose of

taking your asset off you. That's your case.

A. Okay.

MR JUSTICE PETER SMITH: If that is not the case, if you

fail to establish the intention, ignore their intention,

there is absolutely nothing wrong of itself with them

simply saying, "Well, I'm sorry, KM, it's a good

idea and it's such a good idea we want a share of the

profits". There is nothing wrong with that, is there?

You can't stop them saying that.

A. No.

MR JUSTICE PETER SMITH: You can't then stop them saying

"Unless you are willing to give us a bigger picture, we

aren't going to give you the loan to buy. It's hard,

you are in a very hard position, I fully appreciate

that, but I'm afraid if you read my decision in

Rosserlane, you will see what I think about people who

negotiate hard, it's a hard time, as you yourself say to

Mr Topping, "There are going to be hard negotiations and

it's very interesting times", echoing of course what

Donald Sutherland said in a film about takeovers --

A. I think interesting times because it's a pilot scheme

actually --

MR JUSTICE PETER SMITH: You are not -- you know that the

pilot scheme is only part of it, because you say you

were going to discuss a wider picture. Now, you can't

say to them –

A. No, I can't prevent them from doing --

MR JUSTICE PETER SMITH: You can't stop them from bringing

it up because if you had gone to the meeting in Cork and

said, "Woah, stop, I'm not prepared to talk about that",

then they would have said "Woah, stop, we are not

prepared to talk about the purchase price", and then you

would have been finished.

A. That's why --

MR JUSTICE PETER SMITH: You can't complain about that

unless you can establish it's part of a false and

fraudulent strategy to steal your business from you.

A. I am trying to do that the best way -- the best I can.

MR JUSTICE PETER SMITH: I understand your intent, your

belief as to their motives, but merely complaining about

them springing the wider picture on you has nothing to

do with it because they could have done that as part of

the negotiations, couldn't they?

A. Okay.

MR JUSTICE PETER SMITH: You accept that?

A. I understand, yes.

MR JUSTICE PETER SMITH: It is quite possible you could have

gone to Cork and not secured a deal at all.

A. 100 per cent that is why I am reasonably positive.”

I need not set out any of the other examples set out in the Defendants’ closings.

It was finally put to KR in the correct case:-

“Q. So Mr Davenport and Mr Poole, not liking the words

"hissy fit", they have attributed to KM the words

"erratic behaviour", but it comes to much the same

thing, I think. What you are saying there is that it

was only Lizzano's intention not to go ahead on the

basis of the side letter because of KM's

behaviour, which is indeed what you have just told us?

A. Yes, that's correct.

Q. Because you said -- do you remember, a moment or two

ago, you said, "Hang on a minute, you have missed out

one important thing in that", and you said it was

KM's hissy fit; okay?

A. Yeah.

Q. And indeed that is what is said here, and it's the hissy

fit that leads to what's in the side letter not being

proceeded with; okay?

A. Yeah.

Q. Now, what I am suggesting to you is that what is being

said there is just simply not right, and you never had

any intention of providing long-term funding on the basis of the side letter?

A. May I speak, Mr Cousins(sic)?

Q. Yes.

A. Mr Cousins(sic), get real. Right? We have a guy that

is off the planet at that meeting. He's -- we're

tempted just about to enter into a 30, 40, even more,

£50 million development, and a guy, right, is acting

like an out-of-work film star. All right? And yes, we

changed the deal therefore, but it was not done on

a fraudulent basis.

MR JUSTICE PETER SMITH: You don't need to bang the desk; it

might damage the microphones. Okay?

A. I am sorry. I did explain it. I mean, two years of

this rubbish. It's getting to me, my Lord, I'm sorry.

MR COLLINGS: I think I have put the point, and my learned

friend would accept that I have: you never having had

any intention of providing long-term funding, and

I think you have answered that point.

A. And that's the fraud, is it, Mr Cousins(sic)?

Q. Yes, that you didn't have any intention of going through

with the side letter.

A. Right, okay.”

Note KR’s “right ok” as a classic example of him acknowledging the explanation of the fraud but not admitting it is one interpretation if one just sees the transcript. He actually means “No” and everybody in Court understood that. However a stranger reading the transcript migh think that was an admission.

The reason why this is important is as the Defendants in both sets of written closings submit the pleaded case is that there was never any intention to enter into any arrangements as all. By attempting to suggest that the plan was to hold back certain terms and spring them on the Claimant in negotiations is the opposite of the pleaded case. The reason for that is that it involves the Defendants intending to provide long term funding, the Defendants intending NGM to retain the Patent and to have an opportunity to benefit from the Surbiton site. As I have said for this to be capable of being run there must be a plea of some kind of implied representation by the Side Letter that terms as to shareholding would not be introduced. Apart from it not being pleaded this is hopeless. The idea that the Side Letter which is completely open as to what terms were to be negotiated had some kind of parameters on it which excluded some things but not others is not pleaded in my view.

The Claimant’s case in my opinion was always a weak one and became progressively weaker as the trial went on and ultimately fails.

It was not assisted for example by (inter alia) the following. Originally the plea of fraudulent intent started in October 2009 as soon as the parties entered into negotiations. That was untenable and Mr Collings QC ultimately retreated to some date before 15th January 2010.

Second the conspiracy allegations were abandoned during the course of the trial. Third this had all been seen before. In July 2010 NGM made a number of immensely serious allegations against ND. The complaints to the SRA mirrored its complaint to the SFO and alleged that ND had made false representations at the meeting on 7th January 2010 and had put NGM under economic duress on 15th January 2010. The SRA rapidly dismissed that claim and the matter with regard to the SFO was not proceeded with.

In the present claim the allegations are simply repeated but with different Defendants. KM and EOS only apologised at the start of their evidence before cross examination but had left without apology serious allegations against a professional person and a firm of solicitors which ultimately they admitted had not basis at all. As will be seen in the examination of witnesses below KM and EOS were forced to admit a number of matters that were said in the complaints were untrue.

The most misleading of the complaints was the suggestion that NGM was drawn into the Loan Agreement with a gun to its head bereft of legal advice. It knew that was untrue and the letters of complaint were carefully crafted so that it could give the impression that it had no representation at the meeting (which was untrue) and thus no representation at all (which was untrue as at all material times it had telephone access to its lawyers).

The true picture in my view having heard all the evidence is as follows.

NGM had this idea which was at its very early stage of patented protection in that an application had been made but nothing else. It had tried unsuccessfully for several years to obtain any finance to acquire a site to use it as a project to see whether it worked.

Mr Korat (“CK”) had provided funding of over £1m to NGM. By the summer of 2009 that had gone. There were suggestions that the money had been frittered away in maintaining an expensive lifestyle of KM and EOS. That may or may not be true but the reality is that the £1m had gone, CK was plainly not prepared to put anymore in and he had agreed to have his £1m loan converted to share capital in the Claimant (at a surprisingly low amount in terms of share percentage 13%). By late September 2009 NGM in my view was desperate. It was not in a position even to pay modest fees. The Surbiton opportunity came but it had no money even for a deposit. In the autumn of 2009 it entered into negotiations with the Defendants to fund the acquisition of Surbiton. That of course only tells part of the story because the acquisition of Surbiton is really the end of the beginning only. A lot has to be done to obtain planning permission and then obtain funding to develop the site and sell the developed site on whether as marinas or properties.

On the basis of the figures provided by NGM to the Defendants PW concluded that if everything failed there would be a fall back which would enable them to sell the 13 moorings and cover the outlay of the purchase price. In fact that premise is most probably doubtful.

At the time of the negotiations the Surbiton Site was as KR graphically put it “a duck pond”.

The negotiations drew out until December 2009. NGM’s position was becoming increasingly desperate. It had seen off the other counter bidders by making a large subject to contract offer at £1.65m but the sellers (Kennet) were becoming increasingly impatient because they were not moving to exchange of contracts. The vendors were clearly concerned because NGM in its bids had falsely given the impression that it had funds not only for the deposit but also for exchange. In fact it had neither.

By December 2009 NGM was to my mind insolvent on both a balance sheet basis and on the basis that it was unable to pay its debts as and when they fell due. It was therefore desperate. It was in that context that KM wished to proceed with matters.

The suggestion of an interim loan was his so that the contract could be signed and the deposit paid. This is significant because the whole basis of NGM’s claim against the Defendants was in effect that it was trapped into signing up the Interim Loan Agreement and then the Side Letter was issued and the trap thus sprung.

If that is the correct analysis it is surprising that the trap was actually set by NGM itself and not by the Defendants. Without that suggestion the Defendants would simply have continued negotiations until they were in a position to consider offering finance. It was NGM that was driving the deal.

The key preliminary meeting took place at MdR’s offices on 7th January 2010. All the main parties and their lawyers were present.

In the intervening period the Loan Documentation was prepared by MdR. This took some time but that was not part of any ulterior motive. Ultimately the documentation gestated between the 11th and 15th January 2010. In addition to the contract for acquisition and the Side Letter a large amount of security documents were prepared as security for the Loan Agreement of up to £225,000 between Lizzano and Filterbed. That facility itself was an “on demand facility”. The effect of these documents gave Lizzano security over all assets owned by NGM including the Patent licence. In addition there were guarantees given by NGM, KM and EOS to Lizzano.

That documentation if executed provided full security to the Defendants if it was proceeded with. The documentation was signed after NGM and its officers in particular KM and EOS and CK had had the benefit of advice from their lawyer Mr Larner (“JL”).

On the facts it put NGM in an extremely weak position in negotiating the next stage. The reason for that is that having taken the £165,000 loan Filterbed thus exchanged contracts. It stopped the sellers from re-advertising Surbiton but did not begin to address NGM’s difficulties. It had no funds to pay the balance of the purchase price. It had no funds to repay the on demand facility from Lizzano.

As a result of the on demand facilities provided to Filterbed by Lizzano it and NGM and its shareholders were extremely vulnerable for the reasons that I have set out above. It is not alleged that NGM and its directors did not understand the effect of the arrangements. It is not alleged (ultimately) that they did not receive legal advice. The consequences are that NGM pinned its hopes on negotiating a fresh deal with the Defendants after the contract had been exchanged. Without that exchange it is quite clear that the vendors would have re-marketed Surbiton. NGM would not be in a position to make any credible bid in a re-bidding exercise. NGM therefore took a chance.

At that time NGM was insolvent. At any time any of its creditors could have put it into liquidation as it had no funds to pay even modest amounts. It might have had the expertise but it had no money to begin to develop the Patent. It could not pay the professionals for progressing the Patent application for example. This is somewhat fundamental.

After exchange on 15th January 2010 up until the proposed completion on 5th February 2010 NGM had the opportunity not only to save itself but also enter into an arrangement with the Defendants for the purpose of acquiring Surbiton, developing it and hopefully expanding the Patent and the method in a big way.

Unfortunately it was not to be. There was clearly a personality clash to put it mildly between KM and KR in a number of meetings that were set out to finalise the arrangements between the two camps. The personality clash was sufficiently large to make it impossible for them to work together. It may well be that KM and the other investors in NGM finally realised how weak they were and that in effect they had lost their control of NGM because of their decision to borrow the money on demand (their idea as set out above).

It is not in doubt that the Defendants put the maximum pressure on NGM. However there is no allegation of undue influence or duress in this case. The Defendants simply exploited their strong position and the Claimant’s weakness. That is not of itself actionable. It happens in business transactions day after day. The Defendants also are not bankers as PW and KR emphasised in their evidence. They would not be interested in lending £1.65m to NGM and have a return based on a normal bank interest rate. They would want to use it colloquially “a piece of the action”. The Defendants did not need to do this transaction; they had plenty of other opportunities. They therefore approached it with a reluctance which was a large counter balance to NGM’s desperateness.

As the negotiations fell apart the Defendants looked to their position. If the acquisition of Surbiton did not take place it is inevitable that the deposit would have been forfeited and it is unlikely that the Defendants would ever have seen any of the £165,000 back. There is nothing to suggest NGM had assets beyond the Patent which was of a doubtful value at that early stage of its existence. It appears that KM and EOS were men of straw. In April 2010 EOS was driven to ask Mr Douglas to lend him some money. They refer only to their elderly VW cars as assets. Accordingly Lizzano made a demand to Filterbed which it could not pay and the whole pack of cards collapsed. This left the Defendants in control; enabled them to take control of Filterbed and borrow the full amount of the purchase money to complete the acquisition of Surbiton. Subsequently they as I have said acquired control of the Patent.

After completion there were further negotiations with a view to giving NGM a non-equity role in the development. It is quite clear that the Defendants were genuinely pursuing that option whereas NGM was not. At that time NGM, KM and EOS were attempting to re-finance the deposit with a view to redeeming the deposit and getting the Patent back at least. It is unclear whether a licence would still have been capable of being maintained by the Defendants. Anyway that is not significant because like all the other negotiations for raising money by NGM they failed.

It is clear to me on the evidence that negotiations took place and failed. I simply do not accept having seen such documentation as there is (mostly from the Defendants) and having seen the main players give evidence that there was any dishonest representation by them in respect of the Side Letter. It might be true that they did not expressly refer to shareholding before the Side Letter became into existence but that does not matter; all negotiations were open and NGM’s case is not based on a suggestion that the terms of proposed negotiations were partly held back and that was a dishonest representation (i.e. the point which Mr Collings QC repeatedly tried to put but which is not open to him on the pleadings).

In case that analysis is proven to be wrong one looks then at what claims NGM could make. I do not see that recission is a starter because I do not see that it is appropriate for there to be partial rescission. The Loan Agreement has to be set aside which requires Lizzano’s loan to be repaid with all relevant costs and interest. That in my view is an impossible exercise. One cannot only rescind part of the many documents which were executed. The provision of the security over the Patent is part of the overall financial structure. Filterbed cannot repay the loan. It might be possible for the rescission to operate if NGM and its funders put Filterbed into funds to repay the loan. In addition Filterbed would have to repay the balance of the purchase price which was lent to it by Lizzano after KM and EOS were removed. Finally Filterbed having been struck off on 18th June 2013 pursuant to section 1000 of CA 2006 will need to be revived.

On the question of damages Mr Collings QC accepted that the damages would be on a loss of a chance basis. My conclusion on the evidence as I shall set out below is that there was no realistic prospect that NGM had it not been tied in to the Defendants would have been able to have obtained alternative finance to enable it to exchange and complete the acquisition of Surbiton let alone the development of the project. It would have collapsed into liquidation way before any prospective deal could have been put in place.

In order to make good those general conclusions I now turn to consideration of the evidence.

NGM was set up in October 2003 by KM and EOS. They had had careers in the City before this and had known each other for around 2 years before it was set up. They had no practical experience relative to the product. They had investigated the concept of floating developments such as were found elsewhere in the world particularly Holland, Canada and the US. The idea is to build houses in areas that might be susceptible to flooding. If the process worked it would enable a lot more land which was currently unsuitable for traditional residential development to be developed. Thus it was believed the exercise would generate more land for development and enable more houses to be built. There is of course in all ideas the question of feasibility and financial feasibility. It is undoubtedly the case that the system is more complicated and expensive self-evidently than building traditional houses on traditional sites which are not susceptible to flooding. The difficulty is maintaining interest in a project which will cost more when there is no shortage of land available. Equally there is difficulty in maintaining interest when the economy and the land market is in a difficult position. Builders do not have the funds or access to funds to carry out more esoteric type developments. Nevertheless this is what KM and EOS embarked on.

They rapidly realised that in addition to building houses they would need to ensure that the buildings satisfied the council of mortgage lenders and the requirement for house building guarantees. These two potential problems were to an extent overcome by 2006 although they only had guarantee arrangements from Zurich for a period of 2 years.

The technical input was provided by Carl Nelson (“CN”). He was first met as the Technical Manager of Zurich. Late in 2006 he was offered a post as NGM’s Construction and Technical Director on a salary of £80,000 pa. He took up the post in March 2007.

Also in early 2007 they were introduced to PRC Architects (“PRC”) and they showed great enthusiasm for floating buildings and they became involved in preparing plans for a floating residential, commercial and hotel development at Queen’s Dock Liverpool. PRC were paid £70,000 for their work on the project although that did not proceed.

The wide ranging nature of the possibilities was demonstrated by the fact that they also explored other potential applications of the technology such as for work stations for the shipping repair industry, offshore oil rig industry and offshore storage facilities and even possibly military (drawing on the experience of the Mulberry Harbours in the Second World War). It was then decided that the process being developed could be patented. On 11th May 2008 NGM submitted an application for a patent. CN was listed as the inventor. It is said (for example KM’s second witness statement paragraph 24) that CN was listed as an inventor in the application. NGM also agreed to pay him 10% of any licence fees it would earn from the Patent. This was put forward as being a requirement for the US market. In my view that down plays it and seriously down plays CN’s technical assistance. He resigned as a director of NGM towards the end of 2009. CN provided a witness statement for the Defendants but his evidence was not challenged by NGM and he never gave evidence. However he challenged the statement that he was listed as the inventor of the Patent as a gesture of goodwill. He stated that he was listed as the inventor because he was the inventor. He said in his witness statements that he had worked on the development of the Patent alone and he alone produced the hand drawn technical drawings and plans that were needed to make an application, he provided technical drawings and plans to the patent agents and he dealt with his resignation as a director of NGM. He denied that he had resigned as a director. He said that he was made redundant and NGM terminated his employment on 18th February 2010 (i.e. shortly after the collapse of the arrangements with the Defendants). He brought a claim in the Employment Tribunal which resulted in a settlement agreement but NGM reneged on that and did not pay him the settlement fee which was agreed being in itself in lieu of a substantially higher sum in unpaid wages. He became employed by Lizzano from June 2010 but NGM never paid him his award. This is a familiar story in respect of NGM’s professional team at this time. The total amount due to CN was £30,000 in lieu of notice and unpaid salary and £1,140 statutory redundancy pay.

Most of the working capital for NGM was provided by Mr Cyrus Korat (“CK”) who gave evidence for NGM at the trial. He too had a City background having in particular been the manager of the Credit and Mortgage Trading Desks for Merrill Lynch from 2000 to 2008. He met KM and EOS at Merrill Lynch in early 2002 and the concept was explained to him. It made a good impression on him to the extent that he made an initial investment of £50,000. That investment increased over time to a total of £1m. There was no formal sharholders’ agreement and it was based simply on trust. It is by no means clear what happened to CK’s £1m save that by the summer of 2009 it was exhausted. In concrete terms there was very little to show for that money. In order to put NGM’s balance sheet on a solvent basis CK agreed for that £1m loan to be converted in to equity. One can see the necessity for that when one looks at NGM’s accounts to 30th June 2009 and the previous year’s accounts to 30th June 2008. In the latter accounts the liabilities exceeded the assets by £1,540,785. The assets consisted of tangible assets worth £13,423, debtors of £11,093 and cash at the bank and in hand of £71,648. The creditors were over £1m and the vast bulk of that was CK.

The accounts to 30th June 2009 show that on 18th September 2008 1520 B Ordinary shares with a nominal value of £1,520 were allotted for a consideration of £950,000 converted from loans to the company. That gave CK 1500 of the B shares of a total of 4934. There were an additional 9108 A Ordinary shares. That performed some surgery on the balance sheet so that the excess of liabilities over assets fell to £142,699. The debtors were reduced to £3,977 and the cash was reduced to £11,430. The result was that NGM swapped a liability of £1m for a relatively small percentage of shares in it in favour of CK. I cannot believe that anybody would seriously value NGM on the basis that this modest amount obtained by CK was worth £1m. It seems to me quite clear that by the time of the accounts to 30th June 2009 NGM was balance sheet insolvent. The subsequent evidence shows that he was unwilling to put any further money in it.

In early 2009 NGM had explored numerous opportunities for developing sites using the potential of the Patent. They are all set out in the witness statement of GP who was a building project manager who had clearly a number of connections. He first met KM and EOS in April 2009, was impressed with their project and agreed to work for NGM without pay. His role was to introduce it to equity players in the capital market. It was all about timing as he says which was difficult because of the recession. He envisaged that his activities if successful would lead him to becoming the Chief Executive. Ultimately he had a contact who recommended him to James West (“JW”) a senior private banker at Arbuthnot Latham & Co. EOS and GP met him on 29th June 2009 and gave a presentation about NGM. JW consulted his client list and recommended PW. At about the same time the Surbiton Site became available. It appeared to be just the kind of site that would suit the application of the Patent.

GP, EOS and KM met PW for the first time at GHP’s offices off Baker Street on 6th August 2009. A full presentation was given which lasted about 2 hours.

Thereafter there were a number of meetings over lunch in September/October 2009. Significantly GP says in his evidence that there were discussions at those meetings of KM selling roughly 45% of NGM to PW. He formed the view that KM would have been happy to let anything below 50% to benefit the overall picture. This is significant considering NGM’s major complaint against the Defendants is that the question of a shareholding being taken was sprung upon it after the signing of the Loan Agreement.

Nothing was finalised at this stage and is clear everything was tentative. However it did lead to a letter dated 16th September 2009 from PW to KM. That letter set out PW’s thoughts about a development at Weymouth/Portsmouth. This was in anticipation of the possibility of providing accommodation for the Olympics.

It proposed an advance of £2m work capital to develop the site with GHP being the lender. The Patent was to be assigned to it for security. The interest would be 15% on all monies drawn and 5% on undrawn funds and GHP would receive a profit of 50% of the net profits before taxation. The loan monies and all interest was to be “cross collateralised with any other project undertaken”.

He went on then to discuss Surbiton where he was more tentative principally so far as I can see because of the unconditional nature of the purchase and the current timetable for building and sales. Nevertheless he was willing to consider lending on the same basis.

His closing comment was “the above sets out a “ballpark” as to how we wish to work with you; once we get one or two underway we can take a wider view on your business overheads and cashflow because it will be in everybody’s interest to grow and expand in a prudent way. Given the current economic climate a more cautious start does seem appropriate…..”

Armed with that letter NGM made subject to contract offers for the Surbiton site. It had provided PW with its project presentation on 16th September 2009.

The first offer was made by EOS subject to contract on 21st September 2009 in the figure of £500,000.

Clearly funding is important to enable the vendor to assess whether the person making the offer is serious or merely a time waster. EOS said “In order to fund the purchase of this site NGM will use its loan facilities available from one of its partners GHP Securities. NGM and GHP have agreed a loan facility for any site purchases up to £2m and the 2 parties have in principle agreed to fund the purchase of the site”.

That was untrue. As late as 2nd October 2009 EOS was emailing PW suggesting that they continue their discussions because a deal between NGM and GHP would be “beneficiary (sic) for both parties.” CK was involved in these discussions given his large investment and he did not think the proposed arrangements with the Defendants were very satisfactory. He described them as “egregious” bearing in mind the fact that 15% interest and 50% of the profits were payable which he expressed the view would lead to very little for NGM. That might be right but the reality was that NGM had no other avenue to explore because it had no monies to put in to any development. That is well demonstrated by the fact that CN on 27th September 2009 had put in his expenses for July to September. The total claim was £927.43 stretching back to April. He reasonably asked for at least half of the expenses to be cleared. Crispin Topping a Chartered Surveyor specialising in development in residential projects was involved with NGM at this time and he had a contact a Tony Chalkley of Grant Mills Wood one of the selling agents for Thames Water. He had known him for 25 years and informally he provided Mr Topping with a bit of insider information. The bid of £500,000 had been summarily rejected and in mid-October he passed on the fact that Thames Water’s top offer was £1.25m which they were proposing to run with but they might compete if NGM made a bid of £1m with an overage provision. This was passed on to PW.

The clearly desperate state of NGM at this stage is demonstrated by an email from one Dennis O’Sullivan who had the ability to introduce organisations like NGM to supposedly high net worth individuals all of whom were sophisticated and well known to each other. Apparently EOS and KM had suggested they needed £15m. Mr O’Sullivan’s investors would expect to achieve a return of at least 30% although a risk was accepted and would expect to have a clearly defined exit route of typically 3/5 years.

Nevertheless Mr O’Sullivan crushed any prospect of obtaining funds from the people to whom he was connected. He criticised NGM’s accounts pointing out that the accountants to the draft accounts to 30th June 2009 had issued a disclaimer, NGM had no tangible assets and no known source of income to service its current overheads and its overdue debts. Finally he pointed out that as at 2nd October 2009 it had debts of approximately £243,000 and that in the previous period the company had “burned” £1.65m with no source of income.

Next he was critical of the Patent which was hardly advanced. This led to him to say that he was very pleased that NGM had had a substantial offer on the table of £15m (which was untrue) but that he could not see any way forward from his point of view. This was a brutal but accurate assessment of NGM from a potential investor at the time. It is clearly a significant unchallenged piece of evidence about NGM and its prospects.

NGM’s position vis a vis the Patent application was not helped by the fact that it owed the Patent agents an extremely modest sum of £670.98 but was not in a position to pay it.

In the light of the discussions between Mr Topping and Mr Chalkley EOS submitted a further subject to contract offer on 19th October 2009 of £1m plus a 5% overage. Once again it was stated that it would be funded from its facilities available from GHP. That too fell on stony ground and led to a third offer of £1.3m plus the overage. In the meantime a Steve Davies on 21st October 2009 told KM that his “Greek friends” in Piraeus/Athens would not be investing in NGM on the basis that the next 12 to 18 months was going to be very challenging for them. Mr Chalkley told Chris Topping that Thames Water were going to ask the final three including NGM for their best and final offer.

EOS submitted its best bid subject to contract on 28th October 2009 at £1.65m plus a staged overage payment dependant on the number of units of between 5 to 7.85%. Once again the Defendants’ facilities were prayed in aid to show their bona fides.

It is unclear the extent to which PW knew about this but I think it is fairly clear that on 16th October 2009 reference was made to PW agreeing GHP’s name could be put forward in the bid.

PW in cross examination was quite relaxed about that and was prepared to agree that he was a party to this deception put forward to Thames Water. His view was that this was a normal kind of “deception” in property bidding situations. That appears at first blush to be somewhat surprising but I have encountered such a stance before. In Hemsley & Ors v Graham [2013] EWHC 2232 (Ch) in that case the Claimants contended that they had been induced to invest in the Defendant company by reason of fraudulent representations as to the strength of its loan book. It provided loans to people to acquire businesses or properties. Those loans were supposedly for short term bridging finance. In fact the bulk of them did not exist. One of the side lines the company allegedly operated was a facility whereby it “lent” monies to auction bidders for 24 hours. That would then create a credit balance in a bank account which would be shown to potential sellers and the auction house that they had funds in cash necessary to complete any purchase. This was of course untrue because the day afterwards the monies were returned to the Defendant company which claimed a fee for the provision of this service.

Nothing turns on this in the current litigation but it does show that both parties had a “relaxed” approach to honest dealings when it suited them.

By December 2009 NGM’s position was becoming critical. It had secured no further funding to cover its regular expenditure. It had no funding in place for the acquisition of Surbiton. Thames Water were becoming increasingly impatient. In that context NGM’s lawyers (note not the Defendants’) came up with the idea that there should be an Interim Loan in place ahead of the final Loan Agreement being put in place (KM email 16/12/09 to PW). On the same day KM sent a draft “To whom it concerns” letter to be signed by PW agreeing a statement that they were going to partner the purchase of the acquisition of Surbiton and would agree to release £60,000 of monies to NGM to sort out certain agreed backlog/arrears that existed (including rent arrears and commissions due to Arbuthnot). PW provided a signed copy of that letter. It was a comfort letter to be provided to NGM’s creditors and shows how desperate the position was in December 2009. In order to assuage Thames Water the Defendants made arrangements on 5th January 2010 to send the deposit over to NGM’s solicitors to be held in an escrow account pending sorting out the Loan Agreement. All of this of course is still provisional and is merely a smoke screen to camouflage the fact that Thames Water accepted subject to contract NGM’s offer on the belief that finance was in place. NGM had not even paid James West at Arbuthnot Latham for the introduction. By 23rd December 2009 they were hoping to reduce his fee significantly. He was still strung along and vented his frustration by his email of 7th January 2010.

All of the above is symptomatic of the desperate financial position of NGM by January 2010.

There was a meeting on 7th Janaury 2010 at MdR’s offices. KM, EOS and MdR’s lawyer attended together with GP. PW and Nick Davies (“ND”) the partner at MdR were there and the discussion was of interim arrangements. PW and ND stressed that the documents would ensue from that meeting would have some draconian elements. It is unclear whether or not the debentures and personal guarantees were mentioned. GP gave evidence to the effect that there was no mention of them nor that the loan was repayable on demand. Draft Heads of Terms came out on 10th January 2010 reflecting what was discussed generally but made no mention of security.

However it is important to note what PW said in the covering email to KM. He reminded him that when the project was started he was told that there were 13 external moorings in play to fall back on and that a residential scheme had an excellent chance of success. Their investigations revealed there was no consent for those moorings although that should be okay, residential planning consent was going to be a significant uphill battle. PW emphasised the risk profile has grown and the opportunity for a very attractive residential property had dwindled. Nevertheless he was willing to stand by the heads of agreement because of KM’s confidence. Nevertheless he proposed a different share of the reward for the non-residential to reflect the risk profile.

The letter provided that on the disposal of the moorings all outstanding loans should be repaid together with a coupon of 15% per annum. After that the profit share will be 50% after a priority return to GHP of the first £750,000. The same was applicable to the marina except that NGM would share in 33.3% net of the profits after a further priority return to GHP of £750,000. The profit share in respect of the Marina and residential varied according to the number of units.

The loan documentation appeared in dribs and drabs between 7th and the very day of the next meeting on 15th January 2010. GP’s note of that meeting is somewhat Delphic. It cannot pretend to be a full note and has the phrase “interim loan agreement falls away on exchange of the loan agreement including PG and NGM”. He frankly accepted that he did not pay a lot of attention to the detail.

Mr Collings QC in his oral closing placed great reliance on that note. He submitted it showed that when the final agreement was entered into the PGs were to be required no longer. This seems to me to be extremely unlikely. Why would the Defendants take less security when their exposure was going to be increased 10 fold? It is true that they would have Surbiton as security but that would be of difficult value in its present state and there was no margin between the lending and the purchase (100% loan).

In any event GP’s note is not pleaded as a representation. Mr Collings QC referred to paragraph 98 (2) vi which refers to the security “being superseded” with the new loan . This is ingenious but not correct. The pleading simply refers to the replacement of the earlier security with alater one. The word “superseded” does not equate to the security being required no longer. This is to give too much emphasis to a brief and partial note a meeting which GP could not clearly recall. It is too slender to lead to an implication of fraud.

Ultimately the documentation was signed in an unaltered form. NGM does not challenge that documentation. It is not said it was not understood. It is not said at this trial (cf the abandoned complaints to the SRA and the SFO) that it was obtained by duress. The only challenge as I have said is based on an allegation of a fraudulent representation that the Defendants intended to go forward with a final agreement when there was never such any intention from the outset.

Given the limited nature of the pleading it does not really matter whether or not the question of personal guarantees was allegedly “sprung” upon them or otherwise. NGM’s case is not based on a partial revelation of terms with some kind of representation that the Defendants would not be able to introduce more terms than those referred to in the Heads of Terms which does not mention any question of personal guarantees or debentures nor even any equity stake in NGM.

I cannot see that any of this matters. Like any hard negotiated commercial agreement parties’ positions vary during the course of those negotiations. These negotiations had been long drawn out and ultimately NGM had reached the end game in the sense that it is quite clear that without an immediate signing by that time Thames Water would no longer proceed with them. NGM could not proceed without obtaining the interim loan at the very least from the Defendants. It is self-evident to my mind that any lawyer giving any kind of reasonable advice to the Defendants would want to provide full security for the deposit.

I say that from the following. NGM had nothing to give by way of security. The only asset was the Patent which was of doubtful value because it was merely at the stage of an application to register. NGM was insolvent at the time and could not pay its debts. Several of its professionals were being kept off with a promise of money following this arrangement. Its principal investor CK was unwilling to put any more money in.

The Defendants were being asked to put £165,000 in to NGM to enable it to contract to purchase the Surbiton site. However NGM had no means to complete. The security of the deposit was therefore tenuous. If NGM failed to complete it would risk losing the deposit at the behest of the vendors. A security over a forfeitable deposit does not really amount to much security at all. In that eventuality within a matter of weeks the Defendants would have simply lost £165,000. Unsurprisingly therefore they were advised and took all necessary security over NGM’s assets if it had any and personal guarantees from KM and EOS. They were being required to back NGM with their own personal promise. Once again I see nothing remarkable in that. The only way in which the Defendants could have avoided a loss of the £165,000 would have necessitated them funding the completion of the purchase (which they did). That merely gives them an undeveloped site which KR when he saw it in October 2009 described as a glorified duck pond. Without development it was worth very little. Given all that as I have said the idea that the Defendants would require less security when the exposure was to increase by a factor of 10 is most unlikely.

It is interesting to note that in that context a meeting of 24th November 2009 between KM and GP, with Justin Meredith on behalf of GHP present and the planning officers for the local council showed that the stage 2 development being the main residential would need to demonstrate very special circumstances and would be an uphill struggle. Their view was that the scheme in respect of the residential element which was the whole basis of the proposal would be very difficult to justify given as the borough was able to meet its housing targets set out in the London plan without the site. Further the type of housing envisaged would be unlikely to fall into the category of special need e.g. affordable or student housing. KM’s report to PW of that meeting is best described as optimistic in my view. That is reflected in many ways by the fact that the Defendants have failed to obtain any planning permission despite the long and expensive attempts. They face apparently a concerted campaign by a protest group which in effect are desirous of keeping the duck pond as precisely that. That of course is hindsight but it is fair to say that this was a difficult project bearing in mind the new product the location and the cost. The Defendants were in my view rightly cautious especially in the economic environment that appertained in 2010.

In my view the Defendants were motivated in their desire to obtain maximum security by a desire simply to protect their position to the best that they could.

Conversely NGM entered into all the documentation understanding what it meant and realising its consequences. They had the advantage of legal advice via the telephone (although they dishonestly told the SRA and the SFO impliedly that they had no advice). Their suggestions were rejected and they nevertheless signed. This they did because they had no choice. They could have walked away but that would have been the end of NGM in my view and the total losses.

As in a lot of hard driven commercial negotiations there is not full equality of bargaining power. The Defendants were a substantial organisation that specialised in investing in projects that they hoped would make large profits. They were not interested in bank type returns as PW made clear in his evidence. They did not need this transaction. Unless it was structured in a way that was acceptable to them to minimise their risk they simply would not become involved.

It is true that the consequence of entering into the interim agreement meant that if NGM defaulted on repaying the £165,000 on demand would be that they lost everything. This is what happened. However I do not think it happened as a result of a failure to obtain an agreement as a result of fraudulent misrepresentations by the Defendants that there would be such an agreement. It failed because the two main personalities KM and KR fell out spectacularly in the subsequent meetings to negotiate the final terms of the final documentation. Both decided they could not work with the other and that was the end of it.

It is important to appreciate that NGM’s case is based entirely on inference (paragraph 1.6 of its closing). The primary basis for that is the suggestion that everything unravelled remarkably quickly and that by the time of the completion NGM had effectively lost everything. It is difficult to allege and prove fraud generally; it is even more difficult to seek to establish fraud by inference. There is not one piece of documentary evidence which suggests there was fraud on the part of the Defendants.

Furthermore the internal documentation of the Defendants post the signing of the interim agreement show that they were moving forward with a hope of finalising the agreements.

This was a classic case which NGM hoped to win on cross examination. The Micawberistic approach failed as I shall set out when I comment on the individual witness performances. Mr Collings QC despite a vigorous and searching cross examination of PW and KR failed in my view to extract anything which can be used as a basis for suggesting the Defendants had the requisite fraudulent intent.

The period between 15th January 2010 and the proposed completion date of the Sale Agreement on 2nd February 2010 is a vital period to understand what went wrong in this case.

The Defendants’ internal documentation is completely at odds with the NGM case that they had no intention of entering into long term arrangements with it. The documentation is extensively set out in the Defendants’ closing. I will set out one example namely the email dated 19th January 2010 from PW to ND where he said this:-

“I wanted to give you the heads up before our meeting tomorrow. Lizzano is giving NGM Sustainable Developments Ltd a massive boost as a business by entering into this loan. The Surbiton deal being the first one and in a very difficult market – will massively promote NGM and act as a catalyst for the Company to do many other projects. It is agreed that Lizzano will be given a right of pre-emption on all new business but realistically Lizzano are unlikely to do it all. To my mind Lizzano should also benefit from the share value of the business going forward; of course this is a commercial negotiation but right now Lizzano has the upper hand so strike whilst the iron is hot. In reality GHP - acting for Lizzano and the Mebco structure – will significantly assist and help NGM raise significant new funding and provide property expertise which they do not have. Can you please consider how share options will work in these circumstances and how we can bind the current directors and shareholders of NGM in case that Company goes bust.”

PW talks of course of striking while the iron is hot. He was cross examined on this (T10/200) and he explained it as being the time to secure the best deal. It was not suggested to PW that this was evidence showing a lack of intention on the part of the Defendants to proceed with the deal and thus being merely taking advantage of NGM now it was bound up in the agreement. It was in my view right not to put that because it seems to me having heard PW that this was but one of many instances where PW emphasised that he was of course determined to obtain the best deal for the Defendants. Part of that exercise was following the advice of MdR to protect themselves with maximum security. It is accepted that the idea for the maximum security came from ND and the Defendants merely accepted the advice of their lawyers. That is plainly not evidence of an intention never to enter into the arrangements.

This is another example of PW progressing matters in relation to the “big picture” i.e. beyond Surbiton. He is making clear that that particular transaction will be the first but it will be difficult but it will massively promote NGM. The whole tenure of the email is contrary to NGM’s case in my view.

It is clear that after signing the loan documentation that NGM realised that it was in a weak position with regard to finalising the facilities with the Defendants. The only way to strengthen that position was to attempt to have in place other funds so that they could repay Lizzano’s advance. Of course that would only take them so far because by 5th February 2010 they would have to find the balance of the purchase price. Nevertheless unbeknown to the Defendants at this time NGM was attempting to repay the deposit loan and proceed with Surbiton without the Defendants. KM and EOS tried to persuade CK to provide the money [T6/37]. They also tried to procure £150,000 from CT and sought advice from JL on how to extract themselves from the security and loan arrangements.

The Defendants in their closing categorise this as plotting but I see nothing wrong with that. It is summarised in JL’s email to KM and EOS. It was to be used to show to PW in negotiations that they have funds to repay the loan and that if the Defendants do not water down the terms of the interim loan agreement in the final agreement they will simply repay the advance and all the security documents will fall away. I see nothing wrong about that but it demonstrates how everything was fluid during this period. It was a bluff of course and I suspect the Defendants were not fooled. Once that was called NGM either signed up on the terms being put forward or walked away. If it did the latter it lost everything.

There were two meetings in this period which are vital. The first was at Cork on 27th January 2010. KM, GP, and PW flew to Cork to meet KR. This was the first time they had met KR since the inspection of the duck pond in October 2009.

These exchanges to my mind are explicable on the basis of the Defendants wanting the strongest possible terms that they could have in the negotiations. This was PW’s stance in cross examination also. I do not see that the letters are evidence of an intention never to enter into long term arrangements with NGM. In fact they are the opposite because they are dealing with terms that they would wish to ensure that they have the fullest protection.

PW requested a further meeting with EOS and KM. He also asked CK to attend. According to KM’s evidence at this meeting out of the blue PW asked CK to provide £100,000 should NGM require it. He however was either unable or unwilling to commit any further monies to NGM at that time. At that meeting it was arranged that a meeting with KR would take place and it was arranged that KM, GP together with PW would fly to Cork to meet with KR. This was the first time that they had met KR since the duck pond meeting in late October.

There were clearly undercurrents going on between PW and KR of which KM and his side were blissfully unaware. It was epitomised by a quite an extraordinary letter PW sent to KR dated 9th January 2010. It demonstrated the total breakdown of the relationship between PW and KR. Resentments had been simmering between each other and there had clearly been arguments. It is clear that KR personalises arguments and clearly has a habit of hectoring people in an attempt to demean them to show that he has power over them. PW’s letter demonstrates such treatment he received from KR. It is quite clear that KM and his fellow investors received similar treatment from KR. Despite that clash it is quite clear that by the letter PW was suggesting that this was the decision time for Surbiton but that the proposition seemed to be risky. That reflects the analysis that PW had set out earlier.

On the way over to meet KR the mercurial nature of KR was highlighted by PW volunteering to them that KR could be quite aggressive. It is also clear that the Defendants were having second thoughts about funding the £60,000 required to keep NGM continuing. That was what was behind PW’s request for CK to put more money in. The fact that CK was unwilling to put more money in must have been concerning to PW. He must have formed the view that the Defendants were being required to put all the money in and therefore assumed the risk whereas the Claimant was bringing nothing to the party as it were. I have no doubt that that thought was behind the Defendants thought processes which led them to accept MdR’s advice to take maximum security in the Loan Agreement.

Nevertheless PW’s warning about KR was not only unusual but turned out to be prophetic.

The apparent purpose of the meeting was to take the relationship forward i.e. the supposed big picture. This is EOS’s evidence and is also KR’s evidence in his second witness statement. However it is clear that at least KR had an agenda which involved driving the Claimant down as far as possible to obtain a deal for the maximum benefit of the Defendants. The issue was the £60,000. I am quite satisfied and accept KM’s evidence (which is on this point supported by PW’s evidence) that KR aggressively raised the £60,000 and removed it from being available to NGM. This would have put NGM in a difficult position. The only other possible source of funds at that stage was CK. He had already been asked and declined to produce £100,000 a day earlier. It is quite clear in my view that KR steamrollered over KM and GP and in the course of that steamrollering exercise demanded a 70% share in NGM. It is clear that KR earlier agreed with PW that the Defendants would fund the £60,000. It is clear that KM thought it had been agreed. It was actually included in PW’s own figures on 26th January 2010. PW clearly threw out the proposal for CK to bring £100,000 in as a test on 26th January 2010 which NGM plainly failed. KR in his evidence suggests that it was a ploy agreed between him and PW that he would play the nasty man at the meeting on 27th January 2010 especially in relation to the £60,000. PW does not accept that. His first witness statement on the Cork meeting is illuminating (B2/1/40-43):-

“41 We met Kevin at the airport hotel and I knew in an instance this was going to be a bad meeting. Kevin was in a belligerent mood, and his tone was aggressive. I was used to this behaviour however the others were not, and clearly made them very edgy.

KR focused almost immediately on the £60k, asking for clarification as to why this necessary. Understandably KM had felt this issue had been agreed and was now behind him, and that we were there to discuss the future.

I pointed out to KR that this had been agreed, specifically between heand I, but for whatever reason he was not willing to let go of the point.

The conversation then meandered away from £60,000 towards NGM’s finances, and where KR’s direct manner no doubt caused offence.

The entire meeting was descending into chaos, and I pressed to wrap up as quickly as possible.

41 On the flight back I apologised to KM and GP explaining that we would rearrange when Kevin was on better form. I explained that KR had certain problems and that they should not take it personally.

KM was keen to raise the £60,000 with me, stating that this had been agreed. I confirmed that this was the case, and that I would sort it out.

42 KR called me the next day where he accepted he had “messed up”, and he wanted a further meeting to try and make amends. I believe this took place in London one week later on 3rd February 2010.

43 During this period we were starting to turn the pre-exchange heads of terms into a substantive final structure. Our whole focus prior to this date, and at KM’s insistence, had been on the Surbiton Site. Now the objective was to convert the heads of terms into legal documentation for Surbiton and the wider corporate relationship with NGM, however KR wanted to be an integral part of that process, and hence the importance of a second meeting.”

PW accepted that the £60,000 had been agreed and that he would sort it out. He also said in his witness statement (paragraph 42) that KR called him the next day and accepted he had messed up and wanted a further meeting to try and make amends. Somewhat disingenuously PW said “I believe this took place in London one week later on 3rd February 2010”. This was one of several examples where PW in his witness statement was not giving the full picture leaving it to be extracted in cross examination. I believe he remembered far more than he let on and was unable to recall it because it was inconvenient for the Defendants. This was in particular in relation to KR’s conduct.

KR was at pains to present himself before me as being a paragon of reasonableness and having very little recall of the various meetings. His witness statements were remarkably sparse on key areas. I do not accept his performance before me as representing the way he would perform in meetings. In my view that was a carefully crafted charade and in no way reflects his true persona. The letter of 9th January 2010 written by PW in my view really reveals the true nature of his personality and his problems. That letter was of course a private letter between the two and was written in respect of their own relationship and had nothing primarily to do with Surbiton and the Claimant. KR clearly is an extremely aggressive businessman who made his fortune operating petrol stations in East London and is prepared to use any bullying tactic possible to secure what he wants. That regularly works in negotiations for business. Regularly it can fail. It falls into problems when both sides are of a similar personality. I have not doubt having seen KM that he too had a similar personality to that of KR.

It is clear to me that KM was used to being in control and orchestrating things. This became increasingly difficult from December 2009 and ultimately he lost “his Company”. He had no choice and he did not like it.

This was a clash of egos at the most delicate of meetings. KM no doubt went to the meeting feeling that it was all in the bag and this was to discuss the way forward. Apart from PW’s guarded warning on the flight over I suspect he had little inkling of what to expect. He then met KR at his best (or more realistically at his worst). KR was determined to exploit the Defendants undoubtedly strong position by 27th January 2010. He correctly perceived that in reality NGM had no chance of doing anything but ultimately agreeing whatever terms he was prepared to give them. He must have known that they had little chance of salvaging their position as a result of the Loan Agreement.

I accept PW’s evidence that he could see the meeting disintegrating and closed it off as quickly as he could and I also further accept his evidence when he said he apologised for KR’s behaviour at that meeting.

NGM clearly considered there were difficulties and that it might have to pull out of any relationship with the Defendants. That would necessitate it obtaining funds and redeeming the Defendants security. JL gave it advice on 26th January 2010 when the possibility of obtaining funds from CK was considered. He emphasised (as was obvious) that to be in a positon to negotiate with the Defendants from strength they must be able to threaten them with redemption. After the meeting on 27th January 2010 there was further discussion between JL and EOS as shown in the email of that date.

They were also considering whether or not they had any causes of action against the Defendants. JL gave them a long email advice on that topic. They were exploring the obtaining of £150,000 from clients of Crispin Topping but that faced difficulties as JL’s email showed.

As set out above NGM set about exploring options to take out the Defendants. It was extremely handicapped in that because repaying the monies advanced by the Defendants did not begin to address the problems bearing in mind the fact that NGM was locked into the contract requiring completion of £1.65m on 5th February 2010. That was of course a hopeless prospect because it had no money. Repaying the Defendants simply substituted another potential creditor for those deposit monies but did not advance NGM’s development possibilities. The major difficulty of course is any substitute creditor taking over the Defendants’ assets would be forced to take the same steps that NGM took to preserve the “security” of the deposit and the Patent.

EOS embarked on a round of trying to raise money from other funders. None of them was successful.

Between then and 2nd February 2010 PW negotiated a fresh Heads of Terms with NGM. He had also instructed MdR who produced a formal draft of the same date. Significantly (and destructive of NGM’s case) this included provisions dealing with the equity without demur. It was clear to the Claimant now that they were locked in to the Defendants as all its other prospects of finance had disappeared.

The meeting took place on 3rd February 2010 at the Langham Hotel. NGM believed so much had been agreed that they thought it would be a short meeting and there was going to be a dinner afterwards. PW disavowed them of that. It is interesting however PW operated (as he promised on the flight back) throughout these drafts on the basis that the Defendants would put up the £60,000. The only wrinkle was a suggestion that CK had to give a promise not to put NGM into administration if the £150,000 was not repaid. That appears to me to be more technical than of any value. He could not have put NGM in to administration without the consent of Lizzano as a debenture holder. It is quite clear however that PW put back into the draft a clause that had the Defendants providing the £60,000 finance in the Heads of Terms.

The negotiations led to the Heads of Terms. I am of the view based on PW and GP’s evidence in particular that the drafts prepared by PW reflected an honest attempt at what was agreed. It will be seen from the draft that shareholding was (without dissent) dealt with. GP prepared notes of the various meetings but they were nothing more than aide memoires and do not begin to address the detail that would have been discussed at any meeting or any discussions that took place other than at meetings. The shareholder split was 50/50 although the shareholding retained by NGM was to be diluted by the repayment of the £150,000 that was to be advanced. It is clear that NGM through these discussions accepted the Heads of Terms to take the matter forward to the meeting on 3rd February 2010. GP acknowledged in his evidence that PW’s Heads of Terms reflected honestly what was agreed. It might be that they were different to the ones agreed on 15th January 2010 (by that he meant the Side Letter). However they were agreed pending final agreement with NGM.

This meeting took place at the Langham Hotel and as I have said above KM and EOS thought it was to be a short meeting to confirm acceptance of the Heads of Terms followed by dinner. It turned out to be somewhat different. I am quite satisfied having heard PW (who supported KM, EOS and GP on this) that KR resorted to the same tactics that had taken place in Cork on 27th January. I am satisfied he once again raised the £60,000 and he also demanded between 60 and 70% of NGM. This was not necessary to ensure control as PW in particular accepted. Control could have been obtained by a 50-50 split provided the Defendants had the chair of the board and the usual casting vote in the event of deadlock. It could have been achieved as was shown in some of GP’s notes by the Defendants having as little as 49% provided there was a provision that no matters were to be decided unless the Defendants agreed. PW accepted that it was unfortunate to put it mildly that KR raised this issue when all it did was inflame matters with NGM. PW must have viewed KR’s antics with dismay as he could see all his efforts to get the parties together unravelling before his eyes. It was so unnecessary as he accepted. Control did not need 60-70%. The figure of £60,000 is small compared with the overall deal. KR wanted to push for the extra mile. It went badly wrong.

I do not believe PW and KR were acting out a good cop bad cop show. If they were intent on the fraud it would not be necessary. They could have simply insisted on the terms and left NGM stuck with them. However they could not be sure that it would not accept them. Thus the fraud cannot work for that reason alone.

KR did not accept this version but the whole of his evidence before me involved a deliberate attempt to give an impression of a number of matters which I reject. First he tried to give the impression that he had no control over events and that he had no interest in the outcome because he had no interest in the funds that were being invested. I simply do not accept that. The true relationship that KR had with the investments is that nothing was agreed unless he agreed it. It does not matter whether or not he is “on the notepaper” he is the “the governor” (see P) Gilford Motors v Horn[1933] Ch 935. However much he attempted to persuade me he was a voice of reason and did not recall anything I do not accept that evidence. His performance is clearly demonstrated by PW’s letter of 9th January 2010 referred to above.

Unfortunately KM was not a man to lie down and roll over either. In my view there was a classic clash of personalities. KM’s position (and no doubt stress) by 3rd February 2010 was conditioned by the dire position NGM found itself in by that time. KM realised the negotiations were going nowhere unless as he saw it he capitulated to the demands of KR. He was not prepared to do that. Thus he left the meeting abandoning the others. That too was a quite extraordinary thing to do. Nevertheless effectively that was the end of the negotiations. It was also the end for NGM. KM refused the terms and left. By that time it was clear in my view to both KM and KR that they were not going to do business together.

My conclusion by the time this failed meeting was over is that no agreement was going to ensue because of the clash of personalities between KM and KR and the insistence on the part of KR to extracting every conceivable term to the Defendants’ advantage (contrary to the position of PW who had negotiated subject to contract terms before that only to see KR once again break the negotiations).

Did the negotiations fail because KR deliberately sabotaged them because he never intended to do a deal? I reject that case which is the end of NGM’s action as it remained by the time of the closings. KR was determined to obtain the best results in the only way he knew namely to have a no nonsense vigorous debate and in effect dictate the terms that he was prepared to offer. The fact that he was talking at all shows that he was not unwilling to negotiate at all or was embarking on a charade because even he was willing to have a deal with NGM. The problem is the terms he was willing to put forward were unacceptable to KM. That was always a risk in the way in which matters were put together. From NGM’s point of view it was disastrous. That disaster however arose because NGM’s financial position had no choice but to deal with the Defendants and was so desperate that it had locked itself in by the Loan Agreement in the hope of negotiating final terms which were acceptable. That did not happen.

After the meeting of 3rd February 2010 collapsed in the acrimony between the two egos the parties went their separate ways. The Defendants the next day had a detailed conference with MdR about strategy in the light of that failure.

NGM for its part received a draft Loan Agreement from Mr Topping for £150,000 on 4th February 2010. The conversation with MdR produced a desire on the part of the Defendants to serve a demand for the £165,000 and other charges which was accepted consensually so as to enable Lizzano to take over the completion of the Acquisition Agreement from Filterbed. That was agreed with EOS on 4th February 2010. In exchange NGM would be offered a Development Management Agreement with the same profit spilt as per the Heads of Terms. On 4th February 2010 Lizzano issued a demand to Filterbed in the sum of £184,048.97 which of course it could not pay. JL was copied in to it. He provided some advice to EOS and KM on the same day. JL made a proposal for the release of the securities on the basis that Lizzano being allowed to step in to the transaction and complete the acquisition of Surbiton that satisfied the entire amount due under the demand notice. That was rejected by MdR on behalf of the Defendants in less than an hour. JL spelled out the options to KM and EOS on the same day. Later that night ND of MdR set out the options. The third option was that Lizzano lent the money required to complete to Filterbed under a new Loan Agreement with all the security in place. This required Lizzano to enforce the security against NGM and issue the shares in Filterbed transfer the shares in Filterbed to Lizzano and remove all the directors and appoint their own. That would then leave the ability to enforce the charge against the Patent if Lizzano chose to do. On Friday 5th February 2010 the Defendants agreed to go for that option. On the Saturday KM tried to obtain the release of his and EOS’s guarantees by pointing out to PW that they had nothing except two elderly Golf cars. PW rejected that but said that there was a genuine business deal which could work through sensibly if they would move forward in a logical manner. He expressed willingness to meet or discuss but time was short.

A meeting was proposed on 8th February 2010 and early on that day KM sent proposals to PW which basically involved meetings that linking the removal of the charges in exchange for Lizzano taking over but a Development Management Agreement being entered in to at the same time. On the same day the solicitors for Thames Water served a completion notice in respect of the Acquisiton Agreement for Surbiton requiring completion within 10 working days of that notice which would be approximately 22nd February 2010.

On 8th February 2010 at 4.25pm PW sent KM and EOS a letter marked “without prejudice and subject to contract”. The first long paragraph was a brutal examination of KM’s performance pointing out the total lack of bargaining position he was in. However PW expressed that he was willing to make one last attempt to work together and that there was no question of the Defendants fleecing KM or NGM. He apologised in effect for KR’s performance but did suggest that part of it was designed to test how KM would operate under pressure.

The letter then set out an offer which involved NGM obtaining a Development Management Agreement on the same terms as signed up previously but Lizzano would take control of the contract complete the purchase of the Surbiton site but there would be share options given by NGM to Lizzano amounting to 60% of its shares. It would have an option to trigger at par value and would have in effect control of the board. KM was given until Wednesday to accept the offer failing which Lizzano would take control of Filterbed and complete the land purchase. If it was not accepted by then PW said he would “proceed with Surbiton independently and consider our working involvement with you to be at an end. Finally the above offer is not negotiable.”

Brutal though that letter is it is completely at odds with the suggestion that the Defendants had no intention of negotiating genuinely a way forward involving NGM. If their desire was a total lack of intent to negotiate in reality in order to steal NGM’s valuable asset the offer in my view would simply not have arrived. By that time the meeting had collapsed on 3rd February 2010 and a demand for the monies had been made which the Defendants knew NGM could not satisfy. If their strategy was to place them in the position of acquiring NGM’s assets they were then placed to do it. This dialogue did not need to take place. If they had the intent they would not put forward an offer which might have been accepted.

JL pointed out that PW obviously believed NGM would be unable to repay the liabilities. KM circulated the letter between his partners and sent it to Mr Topping as well. In so doing he sought comments. JL gave a sensible observation that PW obviously believed he could not repay the liabilities and that was the key.

NGM sought finance elsewhere. For example Justin Meredith (“JM”) a chartered surveyor who had previously worked for GHP until he fell out with them in December 2009 facilitated a meeting between KM and Charles Douglas (“CD”) a solicitor with a view to introducing finance. There were a number of apparently interested parties but none was prepared to take the matter further. Significantly KR in his evidence before me expressed the view that it would be ludicrous for anybody to enter in to an exchange of contract paying a 10% non-returnable deposit without the intention of completing the transaction. The fact in reality is what NGM did because it did not have the means to complete the contract when it entered in to it.

A draft letter was prepared by Keystone Law to be sent to the Defendants on behalf of NGM but it was never actually sent. That letter contained a number of assertions of misrepresentation, collateral contract, economic duress and failing to put NGM in to funds to complete.

None of those allegations was pursued in this case and the allegations in this case were not set out in that letter. CK’s response to the PW letter was to advise KM that he had little option but to accept the terms provided they were agreed in detail.

After this exchange KM entered in to a dialogue with PW. The sole purpose of it is set out in his email of 9th February 2010 to GP and others “All [...] I think this is the best chance of buying time”.

A number of meetings ensued thereafter between the respective sides. KM suggests that KR came to one on 3rd March 2010 with KR carrying on in the same old way. Neither PW nor KR effect to have any recollection of this meeting. All of these meetings were to consider a continuing relationship with the Defendants. They came to nothing. I am not convinced by this time that KM had any intention to enter into any arrangements with the Defendants and the whole exercise was a process of stringing out the Defendants in the hope that finance would be forthcoming from the other sources to enable NGM to take the Defendants out.

Unfortunately the costs were becoming increasingly expensive. Lizzano was forced to complete the purchase to preserve the deposit against loss in enforcing its security. That made the total required to remove the Defendants in excess of £1.65m. In reality that was always going to be the required sum because taking out the deposit (especially after the completion notice was served) would not assist NGM at all. The financial difficulties of NGM are well illustrated by this time by JL’s email to PW dated 17th February 2010 where in addition to advising him on bankruptcy he was not prepared to provide any further assistance without having at least £12,000 plus VAT (two thirds of the current outstanding bill) paid. In advance of a further meeting on 17th February 2010 PW emailed ND reporting on the prospective meeting and referring to ongoing discussions with NGM and CK which were all to be concluded. PW expressed the view “it is most likely that we will bust NGM with their “blessing” and set up new Co to go forward.” CK seemed to think that this was a good idea as his email to PW shows. All of this still appears to be a buying time exercise by NGM. EOS’ email of 20 February 2010 to GP and KM commented “to see if we can give ourselves and Charles [Douglas] a bit more time on Monday/Tuesday lets get an email together for Philip it probably needs to come from Kerry, as Philip’s view is that we “want” to work with them they want to hear from Kerry that he is committed to it!!! I guess the email needs to have a fine line between showing commitment to new Co and giving us more time”. KM reiterated this in his own email to CD later on in the same day. The strategy subsequent to that meeting with PW was reiterated by EOS in his email to CD on 24th February 2010. CK however cautioned EOS and KM that they must keep the PW deal alive in case the other guys do not come through. On an email of 3rd March 2010 KM recounts to GP and CK the language that KR used in the meeting of 3rd March 2010. I accept that meeting took place and that such language was used.

A note prepared by the Defendants for action in the dispute shows that they were still actively considering a development involving NGM with a 60/40 split in the new Co.

An exchange of emails between PW and KM on 23rd/24th March 2010 shows NGM’s continued financial difficulties. GP was out £2000 and James West (from Arbuthnot Latham who made the first introduction between the parties) is described as an idiot because he asks for some consideration to be given to rewarding him 8 months down the line. By 29th March 2010 time was running out and GHP caused a letter to be sent by Lizzano intimating that an administration was the best way in respect of NGM. The purpose of this was flagged up in the NGM meeting. It was to set in track a method of acquiring the Patent by putting the administrator in in the hope that he would then sell it. Some more time was bought and on 7th April 2010 KM was emailing CK and others that the investors to be introduced by CD (“the Arabs”) wanted to proceed.

Simultaneously the Patent agents were seeking the princely sum of £776.48 which had been outstanding for over a year in relation to their fees for registering the Patent. CK had to pay it; NGM could not.

During April CK carried on the negotiations with PW about the Shareholders Agreement but it is clear this was merely spinning PW out. By 26th April KM was getting somewhat desperate as his email to CD shows. The stalling finally came to an end as regards the Defendants. On 27th April 2010 they decided to give the DM Agreement to GHP Real Estate instead of NGM. CK had to pay the Keltie bill out of his own funds. Matters drifted on through May. By 21st June Keystone Law were threatening a winding up petition in respect of their unpaid fees. The Directors of NGM tried to fob them off by suggesting that their bill was due from Filterbed which had no basis in fact. On 25th June 2010 KM and EOS’ guarantee was called in in the amount of £184,048.97.

On 7th June 2010 Lizzano appointed an LPA Receiver over the Patent. That Receiver assigned the Patent to Lizzano for £20,000. No complaint had been made as regards that appointment and the sale. Nobody other than Lizzano formally expressed interest. NGM knew about the sale but chose not to bid.

Unfortunately for NGM CD’s proposed investors never materialised and the discussions appear to have gone in to the sand by mid May 2010. That meant that the purpose of the spinning out of the Defendants was pointless. NGM took the matter no further beyond making the groundless and dishonest complaints about MdR.

On 6th July 2010 KM and EOS made a complaint against MdR to the SRA. The letter of complaint told a number of lies. First it gave the impression that they did not have access to legal advice. The letter said “NGM and its directors did not have any legal representation in the room. Having had only a few hours to read through all the documents provided by [MdR] there was a significant amount of duress experienced by NGM and its directors”. That statement utterly failed to tell the SRA that at all material times they had free access to JL to advise and between them they made a decision to take his advice over the telephone rather than have him attend the meeting. Further JL made comments on all the documentation and he had enough time to deal with the documents. The Defendants however were not prepared to accept them and KM and EOS had the option whether or not to sign. The giveaway in the obligation to sign is in their statement to the SRA that “they [i.e. MdR] knew that NGM had no other offers of finance and no time to secure one in time to complete the purchase within the deadline set by Thames Water for exchange.”

The second lie was that there was a representation that a simple loan for the balance of the completion monies would be provided in time for completion. There was no such representation. It is not alleged in the present proceedings and it was accepted that it was not made.

In summary they accused MdR of making fraudulent representations, putting NGM under economic duress and induced it to fail to complete by not providing the finance.

Four days later on 10th July 2010 they made a complaint about MdR to the SFO.

That complaint repeated the misstatement about not having any legal representation in the room it accused MdR again of making fraudulent statements and putting NGM under economic duress.

MdR provided a detailed response to the SRA complaint and ultimately the SRA closed the file and informed NGM and MdR on 17th January 2011 that it was satisfied that there was no evidence of professional misconduct. The SFO complaint went nowhere.

The importance of this is that KM and EOS were prepared to accuse an innocent professional firm of fraud and dishonesty without justification. No compelling reason was given for this. After some hints they apologised before the start of their evidence but had never apologised to MdR before.

I regard this as particularly serious because it demonstrates that KM and EOS are prepared to lie when it suits them or they think it can give them an advantage. That willingness was demonstrated elsewhere. The Defendants in their closing provided a substantial critique of KM’s and EOS’ behaviour. These complaints are the high water mark of that complaint. It is fair to say however that they were prepared to mislead Thames Water as to the availability of finance when they put in a bid for Surbiton. They also were willing to mislead PW in the period from 3rd February 2010 to May 2010 that they were seriously interested in carrying on being involved with the Defendants when all the correspondence shows that they were not.

As this case is based on a contention that I should infer the fraud the actual evidence of NGM’s witnesses is not germane to that issue. That is to be found by examining the conduct of the Defendants.

Nevertheless I have commented above on the attitude of KM and EOS.

What is significant from having seen them in the witness box and having the documents being put to them by the Defendants’ Counsel is an assessment of their character. It is clear to me that KM was a head strong personality and was used to being in control. He was faced from mid-2009 with a crisis. All of NGM’s money provided by CK had gone. It was difficult to see where that money had gone. This was graphically exposed when KR grilled him about it at the meetings. He needed money at the time he became involved with the Defendants to pay long outstanding debts and to finance NGM’s continuation. Furthermore of course he needed money to acquire Surbiton and develop it. He was in my view clearly desperate by January 2010 and this put tremendous pressure on him and explained some of his actions such as walking out of the vital meeting of 3rd February 2010.

I did not see that GP, JM and CK provided anything other than background information. It is fair to say that after the negotiations fell apart on 3rd February 2010 they were prepared to go along with the strategy of stringing the Defendants out whilst NGM sought alternative finance.

CT wrongly explained away his failure to provide the £150,000 on the problematical relationship with GHP where as in fact it was because NGM could not provide security.

I accept that GP’s notes of the various meetings which led up to the Loan Agreement are probably accurate as far as they go. Like all notes they were not comprehensive and did not begin to cover everything that could possibly be covered. Equally I fully accept that nobody can be realistically expected to recall the detail of meetings that took place over 5 years ago. Anybody who has such recollection without the aid of contemporary documents (unless something specifically graphic occurs) is likely to be considered with caution.

I found PW to be a compelling witness. He was frank and straightforward. He presented as a tough minded businessman but one who was willing to negotiate. The contemporary evidence which I have summarised above coupled with his evidence shows the lengths he was prepared to go to try and keep the deal together. That effort was despite the performances of KM and KR. He tried to broker a deal on a number of occasions. He was frustrated in that by KR’s conduct and that clearly led to bad feelings between them. That was in addition of course to the bad feelings which had been expressed in his letter of 9th January 2010. He was however professional enough to put those disagreements apart in an attempt to finalise the arrangements. He tried very hard after the negotiations fell apart on 2nd March 2010 to keep NGM on board in a way which had it proceeded would have given them at least 40% of the equity in newco. He was of course being led up the garden path by KM and the others during this period.

KR’s performance as a witness was a masterly performance. However in my view it bore no relation to the way in which he performs outside the Court. He gave the impression of not understanding very much and not recalling very much and I simply do not believe him on that. He was a very successful businessman brought up in the hard knock of business in East London. He went abroad for tax reasons and I am quite satisfied that his behaviour at the meetings was as described by PW, KM and the other witnesses for NGM.

His way of achieving things was simply to bulldoze the other side into submission. The well-known observation of JAF is apposite “those who oppose me I crush!” Some of this was undoubtedly testing the mettle of the other parties. He was clearly provocative. He wanted people to take him on but KM would not; instead when the heat was on he left the key final meeting.

This did not advance the prospects of putting together a deal. He met another person with a super ego in KM.

I remind myself again that the pleaded case is not that terms as to equity partnership or harsh terms were sprung on the Claimant. The claim is that the Defendants never intended to enter into any negotiations.

I am asked to infer such a fraudulent representation. I have set out in some detail above the contemporary documents along the timeline between September 2009 and May 2010 which covers the entirety of the relevant relationship between the parties. I have not been shown any of NGM’s internal documentation. The Defendants have provided relevant contemporary information. I have looked at that material and have referred to it earlier in the judgment. The internal evidence of the Defendants is all one way in my view. It shows that they were interested in the proposals and interested in participating in a venture with the Claimant but on terms. There is not one piece of evidence from the Defendants which shows that they had the fraudulent intention alleged against them.

Further their conduct militates against such an implication. A number of examples will suffice. First from a documentary point of view the gestation of the documents by MdR was delivered late but an explanation was given to that which was not seriously challenged. There was no deliberate withholding of documents to spring on NGM at the last minute. One is not surprised by that; in commercial matters the parties and their lawyers tend to work long hours at high speed. It appears to be a kind of machismo test of people who operate in such an environment. That too extends to the personalities.

The second significant piece of evidence is in my view PW’s conduct. He clearly was interested in driving a hard bargain. He was clearly however at all times concerned to ensure NGM was involved. One way or another that involvement contemplated a significant equity participation in the newco who would be at the top of the corporate structure. After the collapse as I have said on 27th January 2010 he made a strenuous effort to come up with Heads of Terms that were acceptable to the Claimant but his efforts were dashed at the meeting of 3rd February 2010 by two things. First KR reverted to type and carried on bullying in the same old way. Second KM no doubt under great stress could not take it anymore and walked out of the meeting. That policy of the empty chair was unfortunate. I firmly believe that if KM had not so reacted a deal would have been struck on 3rd February which would have been acceptable to both sides.

At the end of the day the terms of 4th February 2010 did give them 40%. If the Defendants were fraudulently acting to take all they would not risk the possibility that NGM would actually accept KR’s new terms. He is simply extracting the last ounce of the deal believing that NGM would have no choice. He misjudged KM.

The third piece of evidence which militates decisively against the fraud is PW’s efforts post the failure of that meeting. If the Defendants were truly intent on defrauding NGM out of its project and never had any intention of participating once those negotiations had stopped they had succeeded in their strategy. Further it had succeeded because KM walked out. They would not have wasted anymore time trying to keep NGM on board under the Development Management Agreement. That proposal ultimately was still going to give NGM a substantial return if the project proved successful. It might not have been what they had hoped for when it set out on the road to developing NGM but in my view there was no choice because of NGM’s crippled financial state.

This extends even to KR. Despite his crash bang approach to negotiations he still remained willing to enter into agreements as suggested by PW after 3rd February 2010 meeting. I refer to the meeting of 3rd March 2010 which he effected not to remember in his evidence. It is true as I accept NGM shows that he carried on again with his same approach. However if there was a fraud it was completed by that time and there was absolutely no need for KR to spend any more time trying to negotiate with NGM in his own particular style. He was still willing at that stage to enter into arrangements which gave NGM some form of equity. That is completely inconsistent with the pleaded allegation of fraud. In my view KR was a very busy and aggressive businessman and he had more things to do with his time than spinning things along by 3rd March 2010. If the case is as alleged by NGM it was complete by 3rd February. The Defendants could have moved far more quickly about gathering in the assets and taking control. In reality they did sufficient to protect the investment in the deposit by buying Surbiton. That was something they had to do within a matter of days because of the completion notice. They then took control in the way that I have set out above but there then was a standstill period while they negotiated (or so they thought) with NGM. After several months of fruitless meetings and prevarication and delay they gave up in late May early June. Unfortunately for NGM its rescuer did not arrive and its prevarication and delaying tactics did nothing. That in my view is not conduct that is consistent with the allegation of fraud against the Defendants.

In conclusion the fallout occurred because of a clash of egos and KM’s decision that he could not do business with KR. By that time he had committed NGM to a purchase he could not fund and set up a situation whereby ultimately he spurned the olive branch proffered by the Development Management Agreement I do not know why he acted that way rejecting advice from (for example) CK not to do this. It is not for me to speculate but I am quite satisfied that NGM was not induced to enter in to the Loan Agreement which ultimately ruined it as a result of the alleged fraudulent misrepresentations.

I accordingly dismiss the action.

I now go on to consider what claims for relief NGM would establish if I was wrong in my determination above.

NGM seeks rescission in this action. The following documents were executed on 15th January 2010:-

NGM seeks rescission of the NGM Debenture, the NGM Guarantee, the NGM stock transfer form and the Patent licence, the assignment of the Patent but nothing else.

Nothing executed by Filterbed is the subject matter in the claim for rescission. However the Filterbed shares are sought to be returned although that might have been a mistake. Finally of course EOS and KM’s guarantees are not the subject matter of the claim for rescission.

This is a neat claim for rescission. What that would do if acceded to would revest the Patent in NGM free from any liabilities but divest NGM of any obligation to reimburse Lizzano for the monies it has expended. That figure of course is as much as £1.65m plus costs because of its acquisition of Surbiton. The purpose of this is to avoid the fact that rescission cannot be obtained unless there is restitutio. NGM could not even have repaid the deposit that was paid to Lizzano.

It seems to me that one cannot pick and choose from the suite of documents in respect to which rescission is sought. It is partial rescission. It cannot be right for NGM to seek to retain the Patent without unscrambling all of the transactions see Chitty (31st Edition) paragraphs 6-123:-

“Partial Rescission Not Allowed

6-123

The more flexible approach advocated in the previous paragraph would not necessarily be inconsistent with what appears to be the current rule that the misrepresentee may only rescind the whole contract and not part of it. In Vadasz v Pioneer Concrete (S.A.) Pty the High Court of Australia had held that in a case of fraud the court has power to set aside the contract on terms and thus could set aside the part of the contract of guarantee to which the fraud related (previous supplies) but leave the rest (as to future supplies) intact. This should be contrasted with the decision of the English Court of Appeal in TSB Bank Plc v Camfield, in which a wife was held to have the right to set aside a charge in its entirety when she had entered it as the result of the husband's misrepresentation that it was limited to £15,000. In Scales Trading Ltd v Far Eastern Shipping Plc the Privy Council had left open the question of whether the approach in Vadasz should be preferred to that in TSB Bank Plc v Camfield. However, in De Molestina v Ponton Colman J. held that it was not even arguable that partial rescission may be awarded. That there cannot be partial rescission is part of a wider principle that there cannot be rescission unless there can be restitutio in integrum. Thus:

“ … if a representee is induced to enter separate contracts A and B by the same misrepresentation, it may be that performance of contract B depends on the prior performance of contract A. In that case one cannot rescind contract A without also rescinding contract B … But there may be cases where, although both contracts were induced by the same misrepresentation, either can be performed without performance of the other. In that case the misrepresentee may rescind unless the contract not sought to be rescinded would never have been entered without also entering the other.”

The observations of Coleman J in De Molestina v Ponton [2002] 1LRP 271 referred to in that paragraph are apposite. There is no question that the Defendants would have entered into the arrangements with Filterbed as regards the acquisition of Surbiton without also having the security over the Patent.

Further Etherton LJ rejected a claim for partial rescission for fraudulent representation in Potter v Dyer [2011] EWCA Civ 1417 at [paragraph 58].

Finally if that rescission was acceded to it was undoubtedly the case that NGM would then seek to deprive the Defendants of using the rights protected by the Patent in developing Surbiton. There was no pre-action correspondence and the claim form was issued on 1st August 2013. In the intervening period the Defendants have invested substantial funds and time in acquiring Surbiton and attempted to obtain planning permission. The amount expended is in excess of £1.16m. That delay means in my view that is a bar to the claim for rescission see Nelson v Rye [1996] 1WLR 1378 for example. Alternatively any rescission if acceded to would be on terms that either the Defendants were repaid that money or that the licence would have to remain in place so as to enable the Defendants to be able to utilise it in the light of their expenditure.

My view therefore is if NGM is entitled to relief for misrepresentation it is not entitled to relief save on the terms identified above. I will if necessary hear submissions as to that when I hand down the judgment.

I have heard a lot of evidence on damages. A lot of it was equivocal and both sides case (especially in relation to the Patent) was not easy to discern. Ultimately the technicalities of the Patent are not significant in my view; a point which has been overlooked at times. The Defendant would need the Licence to preserve their use of the protected rights. The acquisition of the Patent if registered would presumably enable them to try to stop NGM and its investors (through another company for example) from infringing those rights. However that is a long way down the road and cannot be significant. Neither parties’ evidence on this was undermined and I was unable to come to any clear conclusion on it. However it does not matter for reasons which I set out below.

Mr Collings QC accepts that the damages in this case ought to be based on a loss of a chance. I have recently reviewed the authorities extensively in Rosserlane Consultants Ltd v Credit Suisse International [2015] EWHC 384 (Ch) and in particular paragraphs 226-230 which led me to conclude as follows:-

“231.

It seems to me that I should draw the following conclusions:-”

1)

Even in the loss of chance cases the legal burden of proving a loss is on the Claimant.

2)

As it involves the loss of a chance and it is argued that the Defendant caused that loss a Claimant can in appropriate circumstances be given “a fair wind” in how the Court is satisfied as to that loss. Any doubts should be resolved in favour of the Claimant to the best advantage.

3)

The Judge must do the best he can with the evidence before him.

As I said in paragraph 309 the origin of the claim is the well-known case of Allied Maples Group v Simmons & Simmons [1995] 1 WLR 1601.

In the present case NGM submits that the figures put forward by the various experts requires various difficulties debated by the experts to necessitate a 70% discount to be applied to the profit. It further submitted that the average profit projections on the various schemes was 60% but that it should only seek half of that namely 30%. It is said to be borne in mind that NGM is entitled to a “fair wind”. Its claim to damages was assessed by it at 30% of £21m a quite stupendous amount given its financial position at the time.

NGM identified in its closing 5 potential problems:-

As regards survival NGM said (paragraph 8.11) “NGM was in poor financial health but all it needed in order to exploit opportunities and earn consultancy and licensing fees was to survive.” Of course it survives to this day. I am not aware of it earning any consultancy or licensing fees; it has simply lain dormant during the currency of this litigation. NGM did not put forward any reason why licensing fees could not be obtained yet it has not done so. I do not see what is stopping it. The same staff are there and their skills are theirs. I do not believe the alleged misrepresentations if they had been established had any impact on their ability to market themselves on consultancies.

The starting point therefore is what were NGM’s prospects of making profits had they not (on this basis) been trapped in to the Loan Agreement by the allegedly fraudulent representations made by the Defendants? In order to do the exercise therefore one ignores that they entered in to the Loan Agreement. It follows therefore that the subsequent events and the failure to agree anything are irrelevant for assessing the chance. Another way of looking at that would be that that would be assessing damages on the basis that the representation was true namely that there would be genuine negotiation which is not the correct basis for assessing damages for misrepresentation.

Nor is there a claim based on losses (such as wasted expenditure) on account of the alleged fraudulent representations.

Therefore one has to ask the question (applying the fair wind principles set out above) does NGM establish that it would have made profits if it had not entered into the Loan Agreement? If the answer to that is affirmative then one has to go on and assess what is the percentage chance that NGM would have made those profits?

The key and only significant point to this exercise in my view is NGM’s financial position. It is seriously understated in its closing. I have set out the financial history of NGM earlier in the judgment. The accounts showed that it was balance sheet insolvent. Those accounts themselves had to be rewritten even to achieve that level by a generous decision of CK to convert his £1m loan into share capital (at an extremely advantageous rate to NGM). Even with that generosity it remained balance sheet insolvent.

Until mid-2009 NGM had maintained itself and its operations basically on CK’s money. That tap was turned off by CK in the autumn of 2009. The only payment he made after that was the £700 fee due to Keltie (see above) which had been long outstanding. He paid that off in April to keep NGM alive whilst it was spinning the Defendants out on the Development Management Agreement.

All other potentially interested investors had come seen and gone. This is hardly surprising for two very obvious reasons. First in 2008/2010 the country was in the direst recession for several decades. As part of that recession the house building market had virtually collapsed and most established building companies had seen their share values literally decimated in this period. Developments were being sold off at a fraction of their book value to keep companies alive. No significant housebuilding was taking place and there was a surplus of land which did not require any kind of special treatment available. Second the project is of course more expensive because it requires extra work to be done to enable houses to be built on land which ordinarily would not support them. That is self-evidently in my mind only going to be of interest to developers when there is a shortage of land and they still wish to build. Neither was relevant at this time.

NGM could not pay its debts as and when they fell due either. This is demonstrated by the need for the £60,000 from the Defendants in January 2010 to pay its weary and increasingly impatient creditors. Most of those were professionals and the amount that they were owed went back a long time (see CN’s claims for example).

It had obtained preferential treatment by Thames Water because of its large bid and on the strength of its misrepresentation to it that it had funds in place. Several months ensued between the acceptance of its bid subject to contract and nothing was happening. Thames Water indicated that there had to be an exchange in January 2010. This litigation demonstrates the folly of NGM without having access to funds to complete the purchase. Equally I do not believe for one minute Thames Water would have entered into a contract with NGM on the basis of a deposit being paid but without it being in funds to complete the purchase. There was no evidence to show that NGM had any prospects of obtaining the deposit monies let alone the £1.65m required to complete the purchase. It can be faintly suggested that Mr Topping would have provided £150,000. He certainly toyed with the idea both before and after the collapse of the negotiations with the Defendants on 3^rd February 2010. However he never put any money in despite the efforts of NGM to obtain the monies. Even then £150,000 would simply not be enough. It needed £60,000 to pay its creditors. It needed £165,000 to pay the deposit. Third I do not believe anybody would have advanced NGM £150,000 to be used as a deposit to buy Surbiton when it was clear that NGM did not have the funds to complete the purchase. If anybody had been unwise enough to hand over the £165,000 the only security they could have been offered was the contract to acquire Surbiton. To preserve that as a worthwhile asset one needed to purchase it as Lizzano demonstrated very quickly. If a new lender advanced the £165,000 it too would have to fund the purchase merely to preserve the £165,000. Otherwise NGM would not comply with the completion notice and the deposit would have been forfeited. One cannot really see in a commercial contract like the one contemplated how NGM would have obtained relief against forfeiture of the deposit under section 49 of the Law of Property Act 1925. So it would have gone and any lender would have to resort to the securities it obtained from NGM and its investors. Assuming such a lender was not as tough as the Defendants (no PGs, no charge over the Patent and no shares) it would have been worse off. The harsh reality is that any lender would have wanted the protection the Defendants had insisted on.

If a prospective lender had not taken even that security it could have taken some kind of charge over the Patent but that too was extremely tenuous at that stage and would have required further expenditure to improve it. One cannot ignore the fact that it was sold for £20,000 in July 2010 and NGM did not even make a bid for it. Its value then is not challenged in this action.

The evidence shows that the creditors are merely waiting for some kind of successful outcome in this litigation as there is nowhere else to make a recovery.

There is no evidence to show that NGM could have obtained any funds from anywhere else to acquire Surbiton. Thus it would have collapsed into insolvency on 5th February 2010 or shortly thereafter. With the loss of the contract and its deposit (but with an additional liability of £165,000) its Directors would have had no option but to call a meeting of creditors. Otherwise they would be in breach of their duties and potentially exposed to misfeasance or other proceedings such as wrongful trading.

It is significant that in its claim complaints to the SRA and the SFO a major part of the complaint was that MdR allegedly knew that it had no other source of funds. That is about the only truthful point that was made in the two complaints in my view.

I would therefore assess the chances of NGM obtaining Surbiton as 0% on financial grounds alone. The prospect of making profits elsewhere is just as remote.

I do not believe NGM would have survived any longer so as to enable it in effect to go back to the drawing board with other potential sites and other potential funders as there was in my view no prospect of any funder coming forward.

Further NGM has not traded since these events occurred. It is simply in my view being kept alive for the purpose of this action and its creditors are waiting to see what if anything it can recover. There is no reason why having lost Surbiton if it was viable and could have obtained finance it has not done so. No explanation is given for this. It could if necessary have obtained the Patent if it wanted.

The chances of obtaining planning permission in my view were very modest. It is significant to note what is being said on the ground as opposed to what the experts might say. In November 2009 a cautionary shot was put across the bows of NGM by the Planning Officers. Second the Defendants have spent in excess of a £1m in seeking to obtain planning permission and have been rebuffed. PW told me in evidence that there was a substantial local opposition (which had been successful) in wanting to keep the duck pond as a duck pond. If that remains the position as KR observed wryly in his evidence it would become the most expensive duck pond in the world. I do not believe therefore even if this comes into play when I look at those factors that NGM could establish anything more than a very modest percentage chance of obtaining planning permission for Surbiton say 10%. This reflects the Defendants failures. Planning applications were rejected in 2011 and on appeal in 2013. The fall back of the break even position of the moorings themselves is open to considerable doubt.

Further as I have said above if this product was viable and also was profitable the loss of Surbiton is no apparent handicap to that proposal. Any investor would have to take NGM on the basis that it cannot put any money in to the development. The expertise is available and there is no bar on the directors and investors in NGM delivering their expertise to a development on another site. They have not done so and that has not been explained to me.

It might be said that the loss of the Patent prevents it. However the Patent is as I have said not actually a Patent at all and is merely so described for the purposes of this litigation. Patents do not confer rights to do things; they merely enable a Patent holder to stop other people infringing the Patent. It seems to me that if NGM was serious about developing this product it could have either worked round the Patent or spent £20,000 in acquiring it in July 2010 from the LPA Receiver.

The inevitable conclusion from all of that is that NGM does not believe the product is viable and is simply willing to be kept alive by its investors solely for the purpose of using this litigation to try and extract money out of the Defendants. That is my conclusion.

I face considerable difficulty even coming to any conclusion in respect of the damages based on the profitability of the Site because of the lack of core material to support it. This is well exemplified by a number of instances in the evidence. The difficulties about obtaining a successful Patent outcome at the EPO was described by Mr Harris the Defendants’ expert as being capricious. Mr Cummings the Claimant’s expert had the same view (T18/9).

There was a similar difficulty over the costings. Mr Greevy the Defendants’ expert expressed his opinion that the costings on the various sites were understated by NGM by a figure of £27,778,458. Cross-examination however showed how tentative this exercise was because he had no underlying material beyond the mere statement of the figures by the Claimant. He acknowledged his evidence was not based on any figures at all of significance (T18/66-69). Further Mr Collings QC both during cross-examination and in his closing has tried to build a case for the Claimant on Mr Greevy’s evidence.

That led to the following exchange:-

“MR JUSTICE PETER SMITH: You have to prove your case, and

you have to prove that your costings are reasonable.

Now you might be able to prove that some are reasonable

if Mr Greevy agrees with them that where he doesn't

agree with them, you have to prove them. How are you

going to do that?

MR COLLINGS: Well, to the best of my ability on the

material that I have.

MR JUSTICE PETER SMITH: But I am not presented with any

material on your side that's supported by an expert with

a Part 35 declaration, am I?

MR COLLINGS: No.

MR JUSTICE PETER SMITH: If you knock his criticisms out it

doesn't mean that your figures spring up fully armed as

credible, because you are not verifying them by anybody.

MR COLLINGS: Well, I'll have to meet –

MR JUSTICE PETER SMITH: The burden is on you to prove that

your costs are reasonable, isn't it?

MR COLLINGS: Of course, yes.”

There were similar difficulties over the Claimant’s surveyor’s evidence (Mr Ian Froome). He accepted that there could be a swing of plus or minus up to 15% in his valuation as there were no comparables in this area (T18/121-123). His valuation was based on an assumption of the grant of planning permission as he was no planning expert (T18/143). He was aware of the difficulties at Surbiton namely the lack of planning permission, a failed challenge and an active protest group but did not factor that in to his valuation. He had not considered whether or not there would be any difficulties of obtaining mortgages in respect of houses on this property (T18/144). In the modern world if a house is not mortgagable it faces difficult prospects of being sold on the open market. He was not shown any of the documentation in respect of insurance and mortgages and was required to assume it was mortgagable. The difficulty with this development is to distinguish it from being a boat. Boats are not mortgageable generally. He accepted that there was at the time a surplus of normal land available and that the proposed development would be a challenging exercise for an average builder (T18/149). He accepted that there was a lot of material which was not available to the valuers (see appendix 17 of Mr Adams-Cairns’ (the Defendants’ valuer) report and confirmed this in the joint statement and in cross-examination (T18/151). He accepted he had no original material for the costings and it was provided by NGM’s solicitors who in turn obtained it from NGM (T18/154).

Ultimately that led to the following exchange:-

“MR JUSTICE PETER SMITH: Which are 3.5 per cent, which

I think in your report you said they were a bit low, so

you raised it to 5, whereas Mr Greevy said with this it

should be 10, based on something called Spon's tables.

A. Spon's, yes.

MR DAVENPORT: I'm going easy on you, because I can see the

limitations, I'm not shouting or throwing anything at

you because I don't think I need to.

A. No, and I accepted, and in my report I accept that these

valuations do have limitations.

Q. Yes.

A. And if you ask me: will either of these sites sell in

the open market today or at the valuation date for this

price?, the answer is no.

Q. Not a chance in a million, is there?

A. The answer is no, because of the special assumptions

I have had to make.

MR JUSTICE PETER SMITH: The best you could get is an

option, isn't it?

MR DAVENPORT: That's right.

A. Yes.

MR JUSTICE PETER SMITH: A modest downpayment and then see

what happens?

A. The best the developer would get is an option.

MR JUSTICE PETER SMITH: The best the owner would get is

an option, isn't it?

A. All right, I would pay a pound for them, but --

MR JUSTICE PETER SMITH: Plus, I hope, a larger overage.

A. Exactly. You could sell them for some money, the sites --

MR JUSTICE PETER SMITH: You know how much the defendants

paid, don't you?

A. Yes, I do. For Surbiton, yes. Yes.

MR DAVENPORT: They overpaid, didn't they?

A. In the context of the market in which they were working,

I'm not sure they did.

Q. Okay. Well, anyway --

A. Because of course --

Q. -- you wouldn't value Surbiton at 1.65 now, would you?

A. Not now with the refusal of planning permission and

a chucked out on appeal.

Q. Exactly.”

The position of NGM’s accountant was not much better. He was Mr Frenkel an experienced and well known accountancy expert in the Courts.

However he was given none of the underlying material for the preparation of his report. He was also instructed by NGM’s solicitors to assume a 60% loss of a chance. He considered assessment of a loss of a chance not within his remit.

In the joint statement between him and Mr Parry on matters agreed (item 16) they agreed that on a balance sheet basis NGM was technically insolvent in 2009 and most of the net indebtedness at that point was in respect of monies loaned from investors in NGM. They also agreed based on the 2013 accounts and Companies House the company is still in existence, has not been wound up and all of [NGM’s] indebtedness appears to be from its investors. This then was added presumably by Mr Frenkel “however we agree that where a company has no assets, other than a potential litigation outcome, and no demands from creditors, there will be no oppressing need for it to be wound up.”

I would make two observations on that. First the question of the solvency of NGM cannot be assessed on the basis of the cause of action it has against the Defendants. The assessment of damages is on the basis that the misrepresentation had not been made so that there was no relationship with the Defendant and no cause of action against the Defendants. It is to be assessed on the chance which was lost by going elsewhere. Thus the fact that the creditors might wait in respect of litigation against the Defendants is irrelevant to that exercise. It is clear from the matters set out above that some of the creditors reached the end of the line. I cannot believe that they would have waited while NGM went down a fresh road of trying to obtain finance to acquire properties and develop them in accordance with its hopes. In any event it did not have the money to do that and it did not have any experts who were prepared to work for it anymore. All of this reinforces my view that the world in this action is unreal if it is ever thought that NGM would have survived as a company without the investment of the Defendants.

The second point is that if the company is technically insolvent and is being run for the purpose of litigation that could be said to be wrongful trading see Singla v Headman [2010] EWHC 902. By exposing a insolvent company to liability to other creditors (i.e. the Defendants as regards costs in this action) it could be said to be wrongful trading in accordance with that decision.

As I have said above it is essential for any kind of domestic residential development of new houses for sale that those houses are mortgagable and have warranties under NHBC or some other institution. NGM had negotiated those some years earlier but by 2009/2010 the effect of those negotiations had expired. This point was picked up by PW (email 2/11/09). There was no evidence showing tey would still be available in 2010.

The insolvency of NGM in my view is fatal to its case on damages for the reasons I have set out above. I simply do not accept there is any credible evidence that it could have survived save by doing business with the Defendants. The best illustration of this (if one is required) is the letter from Denis O’Sullivan dated 12th October 2009. See above paragraph 116 which to my mind crushes the possibilities of this project ever developing at the hands of NGM and its limited input alone.

Even if that is overcome the evidence of the experts put forward by the Claimant is not to my mind sufficiently credible to be able to form the view that there is even a remote possibility of the development being profitable. The same applies even more spectacularly to the other proposed sites. Once again the test is in the eating. NGM has never sought to develop any of the other sites and has not explained that. If it had lost Surbiton if its projects were as good as it said and the finance was already available it could have gone elsewhere. Equally it would have found the £20,000 to pay for the acquisition of the Patent (even supposing that is necessary for them to develop the idea).

In short an interesting idea but not of great interest in my view. Accordingly even if liability is established I would assess any damages at nil for the reasons set out in this judgment.

Accordingly I would have dismissed the claim even if liability had been established.

I am grateful as ever to both sets of legal teams for the way in which the matters were put forward for trial and the trial conducted. It is of great assistance to a Judge to have all the documents properly prepared and to have comprehensive opening and closing submissions aided and abetted by oral submissions of high skill.

There was an issue as to whether or not KR was able to get his wishes as regards the assets of the K Trust (T20/117-24) and I gave the Second to Sixth Defendants an opportunity to make confidential submissions to which NGM could reply if necessary.

Pursuant to that I was supplied with copies of the documents in support of those submissions. Those documents are supplied confidentially and I confirm a confidentiality order appertains in respect of those limiting the disclosure to the legal advisors.

NGM did not make any submissions in respect to these matters.

The Second to Sixth Defendants not only submit that I do not need to determine the issues but I should decline to make any findings.

I have decided that I need not make any finding. However I remain firmly of the view as set out above that KR was “the governor” in the sense that nobody made any decisions without his say so. Whether that was correct in accordance with the Trust documents or not is irrelevant. That was the de_facto position. It is peripheral because if it is established that PW had made the false representations there was no issue that PW had any authority to make them.

Accordingly however deep the waters run I have no intention of stepping in to them beyond this short paragraph.

Winllan Isle of Man group entity