Interactive Technology Corporation Ltd v Ferster & Ors

This case concerns three brothers, Warren, Stuart and Jonathan Ferster and the various corporate entities with which they were connected. Warren is the eldest brother and Jonathan is the youngest. The three brothers have been involved in business together for many years. They were first involved in Gaynor (Packaging Film) Ltd, then Coral (Packaging Film) Ltd and then Coral Products Ltd, later Coral Products plc. During this period, the shares which they each held in these companies were the same and their remuneration was broadly similar. Jonathan voluntarily left Coral Products plc in 2007 to manage the online gaming business with which this litigation is concerned. Warren and Stuart left Coral Products plc in 2014 but their departure was not entirely voluntary. The brothers live near to each other in Manchester and they worship at the same synagogue.

The present disputes spring from arrangements made between the brothers in 2004 and 2005. In particular, a company, Interactive Technology Corporation Ltd (“ITC”), was formed and it is agreed that the three brothers had, throughout, equal interests in the shareholding in ITC. Initially, there was a fourth person, a Mr Harvey Binnes, who had a one-fourth equal interest in the shares of ITC but later Mr Binnes’ connection with ITC ceased and the shares in ITC were held by the three brothers in three equal parts. The brothers’ shareholdings in ITC are agreed in this litigation but very little else is, whether as to the initial formation of ITC and its business or as to later events.

This litigation has been very hard fought and, apparently, has been conducted at enormous expense to the protagonists. The allegations which are made are very grave. ITC, and Warren and Stuart, say that Jonathan has been seriously dishonest in relation to his dealings with ITC and the business which it ran or, at least, with which it was connected. ITC applied for and obtained a freezing order and a search and preservation order against Jonathan and a number of companies. There were many interlocutory hearings in relation to those matters, including an unsuccessful appeal by Jonathan to the Court of Appeal. Jonathan’s case is that the allegations of dishonesty which are made against him are entirely without foundation. He says that ITC’s claim involves Warren and Stuart going back upon clear arrangements and understandings which were made at the outset in 2004 and 2005.

Jonathan has brought his own proceedings against Warren and Stuart. His proceedings take the form of a petition under section 994 of the Companies Act 2006, that is, a claim that Warren and Stuart have caused the affairs of ITC to be conducted in a manner that is unfairly prejudicial to Jonathan as a member of ITC. Jonathan says that the whole dispute is a dispute between shareholders and is best understood and resolved in the context of his section 994 petition. In support of his petition, Jonathan says that Warren and Stuart are motivated by greed. He says that he has single-handedly built up a very profitable online gaming business. He says that it was agreed from the outset that the business would belong to him (through companies owned and controlled by him). His case is that the present success of the business owes everything to Jonathan’s efforts and nothing to anything done by Warren and Stuart, because they did not do anything. Now that Warren and Stuart have lost their positions with Coral Products plc, Jonathan says that they wish to seize control of his business. He says that their greed has caused them to invent a claim on behalf of ITC against Jonathan. In addition to fabricating a case against him, he says that they are guilty of blackmail. Although they tried to hide their blackmail in the cloak of an allegedly without prejudice communication, Rose J and the Court of Appeal (upholding her decision and dismissing Warren and Stuart’s appeal) have held that the cloak of without prejudice is not available in a case of unambiguous impropriety, as is involved in this case.

There are now three sets of proceedings. First is ITC’s claim against Jonathan and 13 other companies with which he is connected, although one of them has not been served with the proceedings. I will refer to this claim as “the ITC claim”. Next is Jonathan’s section 994 petition (I will refer to these proceedings as “the Petition”). Lastly, there is a claim brought by Warren and Stuart personally against Jonathan. In these proceedings, Warren and Stuart refer to a line of defence which is maintained by Jonathan in answer to the ITC claim. The line of defence depends upon Jonathan, as the sole registered shareholder in ITC between 2004 and 2007, having caused ITC to act in a particular way. Warren and Stuart say that if Jonathan were to establish that line of defence (although they say that he cannot establish it) then Jonathan held the sole registered share in ITC on trust for Warren, Stuart and Mr Binnes, and Jonathan’s actions, as now relied upon by him in his defence, will have amounted to a breach of that trust. I will refer to this claim as “the Trust Claim”.

ITC was incorporated, in England and Wales, on 9 December 2004. The single subscriber share in ITC was transferred to Jonathan. Warren, Stuart and Jonathan were all appointed as directors. The Articles of Association of ITC adopted the regulations in the then current Table A, subject to some minor changes. It was not suggested that any of those changes to the then current Table A are relevant to this dispute.

In January 2007, Warren, Stuart and Jonathan executed Deeds which were described as “Deeds of Confirmation of Gift and Declaration of Trust”. There was one Deed executed by Jonathan and Warren and a second Deed executed by Jonathan and Stuart. The effect of the Deeds was that Jonathan declared that he held his single share in ITC on trust as to 25% for Warren and as to 25% for Stuart. As to the remaining 50% of the beneficial interest in the share, the intention seems to have been that 25% was held for Jonathan and 25% for Mr Binnes. Mr Binnes had been employed by ITC in a managerial capacity until August 2007.

On 21 May 2007, Jonathan as sole member of ITC resolved to adopt new Articles of Association for ITC. The new Articles adopted the then current version of Table A, subject to variations. One such variation was Article 15 which dealt with the shares of a director or an employee of the company who ceased to be a director or an employee (referred to as a “Leaver”), as the case may be. In that event, there was power for the directors to resolve that the Leaver should be required to transfer his shares at par value. This specific change to the Articles was effected because, at that time, ITC intended to terminate Mr Binnes’ employment with the company and the new Articles would allow the directors to require Mr Binnes to transfer his 25 shares at par value and, indeed, that in due course happened.

On 5 July 2007, further shares in ITC were issued to produce the result that Warren, Stuart, Jonathan and Mr Binnes all held 25 shares each in ITC.

In around August 2007, Mr Binnes was dismissed as an employee of ITC. Pursuant to the articles which had been adopted in May 2007, he was required to transfer his 25 shares to Jonathan. The adjustments to the shareholdings were completed on 28 November 2008 when Mr Binnes’ shares were transferred to Jonathan and a further 25 shares each were issued to Warren and Stuart resulting in each of Warren, Stuart and Jonathan holding 50 shares in ITC.

Club World Casinos Ltd (“CWC”) was incorporated, in England and Wales, on 25 January 2005. The single subscriber share in CWC was transferred to Jonathan. Warren, Stuart and Jonathan were all appointed as directors. In January 2007, Warren, Stuart and Jonathan executed Deeds which were described as “Deeds of Confirmation of Gift and Declaration of Trust”. There was one Deed executed by Jonathan and Warren and a second Deed executed by Jonathan and Stuart. The effect of the Deeds was that Jonathan declared that he held his single share in CWC on trust as to 25% for Warren and as to 25% for Stuart. The position in relation to the remaining 50% of the beneficial interest in the share was not made clear at the hearing before me; the intention might have been that 25% was held for Jonathan and 25% for Mr Binnes (as was the position in relation to the shares in ITC). On 25 May 2010, which was after Mr Binnes had left ITC, Jonathan transferred the single share in CWC to ITC for nil consideration. In January 2013, Jonathan asked his solicitors to prepare an application to strike CWC off the register of companies. On 22 January 2013, Jonathan and Warren as two of the directors of CWC signed an application for CWC to be struck off the register and dissolved and CWC was duly struck off and it was dissolved on 21 May 2013.

World Online Gaming NV was incorporated, in Curaçao, on 15 March 2005. Much later (in around October 2013), this company changed its name to World Online Software NV. Although this change of name came relatively late in the history of the matter, that company was referred to at the trial as “WOS” throughout the relevant events in this litigation. On incorporation, 60 shares in WOS were issued to Jonathan and 1 share was issued to Century Trust Curaçao NV, a Curaçao law firm. Jonathan was the sole director of WOS. On 24 May 2005, Jonathan transferred his 60 shares in WOS to CWC. On 19 December 2012, Jonathan purporting to act on behalf of CWC transferred the 60 shares in WOS back to Jonathan. At the hearing, there was initially some discussion as to whether WOS had a bank account. Documents were then produced to show that WOS opened sterling, euro and US dollar bank accounts on 7 June 2005 but these remained inactive throughout.

The Third Defendant is Carmel Media Group NV incorporated in Curaçao on 30 October 2013. At all material times, Jonathan has been a 99% shareholder and sole director of this company. The other 1% of the shares has throughout been held by Century Management Trust.

The Fourth Defendant is Data Traffic Solutions Ltd incorporated in England and Wales on 27 October 2009. At all material times, Jonathan has been the sole shareholder and sole director of this company.

The Fifth Defendant is Four Seasons Advertising Ltd incorporated in England and Wales on 13 October 2010. At all material times, Jonathan has been the sole shareholder and sole director of this company.

The Sixth Defendant is Four Seasons Media Ltd incorporated in England and Wales on 14 October 2011. At all material times, Jonathan has been the sole shareholder and sole director of this company.

The Seventh Defendant is Four Seasons Technology Ltd incorporated in England and Wales on 6 September 2011. At all material times, Jonathan has been the sole shareholder and sole director of this company.

The Eighth Defendant is Interactive Technology Corporation (Europe) Ltd incorporated in England and Wales on 19 October 2011. At all material times, Jonathan has been the sole shareholder and sole director of this company.

The Ninth Defendant is Lanesborough Investments Ltd incorporated in England and Wales on 28 January 2010. At all material times, Jonathan has been the sole shareholder and sole director of this company.

The Tenth Defendant is Lanesborough Media Ltd incorporated in England and Wales on 15 June 2012. At all material times, Jonathan has been the sole shareholder and sole director of this company.

The Eleventh Defendant is Lanesborough Technology Ltd incorporated in England and Wales on 28 January 2010. At all material times, Jonathan has been the sole shareholder and sole director of this company.

The Twelfth Defendant is Peaklink Ltd incorporated in Cyprus on 12 March 2008. At all material times, Jonathan was the sole shareholder in this company and the directors were Warren, Stuart and Jonathan. The Twelfth Defendant has not been served with these proceedings.

The Thirteenth Defendant is Woodville Ltd possibly incorporated in the Seychelles on a date unknown. At all material times, Jonathan has been the sole shareholder and sole director of this company.

The Fourteenth Defendant is World Online Software Ltd incorporated in England and Wales on 13 June 2006. At all material times, Jonathan has been the sole shareholder and sole director of this company.

Before making any further findings of fact, I need to assess the reliability of the witnesses whose evidence I received.

I heard lengthy evidence from Warren and from Jonathan. Warren was cross-examined for 3 days and Jonathan was cross-examined for more than 4 days. Stuart’s evidence was much briefer than Warren’s evidence; he confirmed what Warren had said and he was cross-examined on a limited number of matters only. It is important for me to form an assessment of the reliability of the evidence of Warren and Jonathan in particular.

Not all of Warren’s evidence was reliable. One difficulty is that in the course of this litigation he has become aware of many matters. From time to time, he gave evidence suggesting that he knew those matters at dates in the past when I consider that he probably did not know them at that time or times. His involvement with the setting up of ITC and the commencement of the online gaming business was limited. In his evidence, he suggested that his involvement was greater than I find it actually was. There were parts of his evidence which were self-serving. He was cross-examined in detail about the degree of his concerns about the online gaming business being illegal under United States law. I find that that matter did cause him concern. I consider that it was nowhere near as great a concern as was suggested to Warren in cross-examination but conversely, I consider that Warren tried to play down and dismiss this point in his evidence. I cannot accept his evidence about the circumstances in which he signed the Deed of Confirmation of Gift and Declaration of Trust in January 2007, to which I will later refer. I prefer the evidence of Mr Philbin, a solicitor, in relation to that matter. I am satisfied that when Warren gave his evidence about this Deed he was concerned that the terms of clause 1 of the Deed might be used to harm his case and so he deliberately gave a false account of his involvement with this Deed. I also do not accept all of (but I do accept most of) his evidence about the alleged agreement made with Jonathan in 2007 about the remuneration payable to Jonathan. In many respects, Warren’s evidence was in accordance with what is shown in those contemporaneous documents which I consider to be reliable. Obviously, in those respects, it is reasonably straightforward for me to accept Warren’s evidence.

Insofar as Stuart stated that he agreed with Warren’s evidence, I am not persuaded that I should give any extra weight to Warren’s evidence on this account. As to Stuart’s own concern about the legality of online gaming in the United States, I make a similar finding in his case to that which I made in relation to Warren. Further, in relation to Stuart’s Deed of Confirmation of Gift and Declaration of Trust and the question of Jonathan’s remuneration in 2007, I make the same findings in his case as I did in relation to Warren.

ITC, Warren and Stuart called the father of the three brothers, Chaim Ferster. At the end of the trial, no party asked me to rely on his evidence and I say no more about him.

It is clear to me that a great deal of Jonathan’s evidence was unreliable. Much of his evidence is flatly contradicted by those contemporaneous documents on which I am satisfied that I can safely rely. This comment applies to the financial documents, in particular, to which I will later refer. Jonathan repeatedly suggested in his evidence that the financial documents over a period of years were all fundamentally mistaken as to what they were describing. When asked why he signed numerous documents of this kind, he suggested that he had not read them and so did not notice the fundamental mistakes which they contained. I cannot accept that evidence. If the documents were mistaken in the way that he now suggests, he would have noticed. I consider that he deliberately gave false evidence when he tried to explain away the contents of the financial documents which he had signed. There were also clear examples in the history of this case of Jonathan telling lies to third parties with whom he was involved. These included HSBC and Mr Gonzales of Century Trust. He also lied to the supervising solicitor who was appointed by the search order made by Birss J. Jonathan wrongly told the supervising solicitor that his laptop was not at the premises being searched. When he made that statement, Jonathan knew that it was false. Jonathan also took the view that there was nothing wrong in creating false company minutes and backdating documents and then using those minutes and documents to tell third parties, including his own advisers, that events had taken place, when they had not, and that people had attended meetings, when they had not been present and knew nothing about the matter. Jonathan sought to justify his behaviour about concocting board minutes, in particular, by stating that everybody did it. Whether he is right about that or not, it does not help me to form the view that he was basically honest and truthful in the course of his evidence. Indeed, I have formed the opposite view. Whenever Jonathan was faced with a matter which was harmful to his case he was usually prepared to lie about it. I find that his whole case, that it was agreed at the outset that the online gaming business would be owned by him and not by the three brothers, is totally false. It may be that, today, Jonathan thinks that that position would produce a fairer result, in view of the amount of work he has done in the business compared with the contribution made by Warren and Stuart, and so he has tried hard to deceive himself that that was how matters were intended to be. He may have deceived himself to some extent on that score but I am quite satisfied that in large parts of his evidence he was deliberately trying to mislead the court.

Mr Hosker is the Chief Financial Officer of ITC and was called by Jonathan to give evidence. Mr Hosker is a much more difficult witness to assess. He started his evidence badly by trying to defend the idea that the accounts of ITC, and indeed of WOS, had been incorrectly prepared from the inception, until the accounts for the year ended 31 January 2012, as the result of a fundamental accounting mistake. That idea was indefensible and his attempt to defend it caused me to have very serious concerns about his reliability as a witness. Later in this evidence, he appeared to be prepared to accept that the accounts of the companies had been correctly prepared up to 31 January 2012. He also suffered from the distinct disadvantage that he displayed deplorable standards of integrity, and indeed dishonesty, in his readiness to assist Jonathan with concocting board minutes and back dating documents and then relying upon the false position apparently created by those documents. He was rightly cross-examined in detail as to Jonathan’s motive, in May 2013, for entering into two agreements which are at the heart of the present dispute and to which I will later refer in detail. Mr Hosker gave evidence as to the reasons for entering into those documents which I will have to consider very carefully later in this judgment.

Mr Philbin is a solicitor and a personal friend of Jonathan. He was a most reluctant witness and was guarded in his answers in cross-examination. There is one particular part of his evidence which was contentious; that related to the circumstances in which his firm prepared the Deeds of Confirmation of Gift and Declarations of Trust in January 2007. He gave his evidence in detail and convincingly. His evidence is far more probable than the rival versions put forward by Warren and Stuart and I accept Mr Philbin’s evidence on this contentious matter.

I was also provided with a number of witness statements from witnesses who were not required to attend the trial for cross-examination. These witness statements were mainly directed to answering the allegation that Jonathan displayed a number of unattractive and undesirable character traits. The witness statements were to the effect that the witnesses did not think that Jonathan did display those character traits. Nothing in this case turns on whether Jonathan displays those defects in character and it is not necessary to make findings about those matters or discuss these witness statements further.

The idea for an online gaming business arose out of a meeting which Jonathan had with Mr Binnes in late 2004. Mr Binnes and his wife had some experience of such a business and had sought to interest Jonathan in setting up an online casino. Jonathan did not have any previous experience in such a business but he was interested in technology and was ready to explore Mr Binnes’ idea. Jonathan telephoned Warren and asked Warren if he would be interested in investing in such a business. Warren said that he would be. There was a similar telephone conversation with Stuart. The three brothers then met Mr Binnes and discussed the proposal to start an online gaming business. The upshot of these conversations was that Jonathan was enthusiastic about trying to start up an online casino and Warren and Stuart thought it was a good idea and they were prepared to invest in such a business. Mr and Mrs Binnes were to perform a managerial role using their previous experience of such a business.

By 2 December 2004, a business plan had been prepared. The plan included budgets which had been prepared by accountants, Alexanders. Mr Binnes and Jonathan had been involved in the preparation of these budgets and Warren had made a contribution as well. Jonathan confirmed in his evidence that at this stage the business was to be operated by a single United Kingdom company and that there would be an off-shore gaming licence. At this stage the three brothers and Mr Binnes would be equal shareholders in the company operating the business.

On 9 December 2004, ITC was formed in order to be the company to operate the online casino. The single subscriber share was transferred to Jonathan. It was not in dispute that he held that share for himself, for Warren and Stuart and for Mr Binnes in equal one-quarter shares. Also on 9 December 2004, Warren, Stuart and Jonathan were appointed directors of ITC.

ITC needed start-up capital. The necessary capital was to be provided to ITC by Yamada Ltd, which was an Isle of Man trust in which the three brothers were equal beneficiaries. Yamada Ltd was to borrow the necessary funds from Coutts Bank and repayment to the bank was to be secured on the assets of the borrower, Yamada Ltd and further secured by guarantees from Warren, Stuart and Jonathan. In due course, Yamada Ltd did borrow £477,500 and advanced it to ITC. Warren, Stuart and Jonathan entered into guarantees to Coutts Bank for the repayment of the loan to Yamada Ltd.

On 25 January 2005, CWC was formed. The single subscriber share was transferred to Jonathan. On 11 February 2005, Warren, Stuart and Jonathan were all appointed directors. At this stage, it seems to have been contemplated that CWC would play a role in the operation of the online gaming business. In fact, as will appear, CWC remained dormant throughout and any steps in which it was involved were as agent for ITC.

On 27 January 2005, the Financial Times published an article which discussed forthcoming flotations in London of companies in the business of online gaming. The article contained mixed messages on the subject of online gaming. It stated that online gaming could be very profitable. It instanced the over-subscribed flotation of Neteller which operated online payment mechanisms used by gambling groups. Conversely, it pointed out that the biggest market for online gaming was in the United States which was hostile to such a business. The article then appeared to draw a distinction between online sports betting which was said to be illegal and casino-style betting and online poker in relation to which the US authorities took “a dim view”. Stuart drew this article to Jonathan’s attention at the time.

In his evidence, Jonathan referred to the Financial Times article, and the fact that Stuart had drawn his attention to it, in support of the contention that Warren and Stuart were very concerned about the risk that the business of online gaming would be illegal in the United States, where many of the customers of the business would be. I find that Jonathan over-stated the extent of this concern on the part of Warren and Stuart and they, in turn, tended in their evidence to be dismissive of the suggestion. I will make my findings in due course on the central question as to whether Warren and Stuart’s concern about the possible illegality of online gaming in the United States did or did not result in an agreement that the online gaming business would be owned and operated by a company other than ITC and such a company (other than ITC) would be solely owned by Jonathan.

On 15 March 2005, WOS was incorporated in Curaçao. On incorporation, 60 shares in WOS were issued to Jonathan and 1 share was issued to a Curaçao services company. On 8 March 2005, shortly before the incorporation of WOS, Jonathan had emailed the company formation agents in Curaçao stating that WOS would be owned by ITC, as the holding company in the United Kingdom, and he added that the company operating the online casino would be CWC. He also told Barclaycard, on 24 March 2005, that WOS was to be a wholly owned subsidiary of ITC.

Also on 15 March 2005, WOS entered into an agreement with a Curaçao company which held a gaming licence granted by the Government of the Netherlands Antilles which licensed the operation of offshore games of chance on the international market by way of service lines within the Netherlands Antilles. Under this agreement the licensee company granted to WOS a non-exclusive right to use the licensee’s facilities in Curaçao. I comment that it was never made clear at the trial what precisely was the benefit of such an agreement. It was submitted to me that it enabled the operator of the online business to tell its customers that it was a licensed operator and that would convey the message to the customers that the operator was an entity regulated by a satisfactory regulatory authority. Beyond entertaining some scepticism about this explanation, I make no findings as to the effect of this agreement concerning a Curaçao licence.

On 24 May 2005, notwithstanding Jonathan’s earlier statements that WOS was to be a wholly owned subsidiary of ITC, Jonathan transferred his 60 shares in WOS to CWC. On 26 May 2005, Jonathan told NatWest Bank that the shares in CWC were held by Warren, Stuart and Jonathan equally. If that was an accurate statement (and therefore Mr Binnes did not have an interest in CWC) the result was WOS was owned by CWC which was owned by Warren, Stuart and Jonathan and ITC was owned by Warren, Stuart, Jonathan and Mr Binnes. In any event, there was no suggestion at this stage that the online gaming business was somehow owned by Jonathan alone.

Prior to 31 May 2005, Jonathan took legal advice from Mr Wilson of Tarlo Lyons, who had been recommended to Jonathan by NatWest Bank. Mr Wilson then wrote a detailed letter of advice to Jonathan on 31 May 2005. It is clear from the letter that Jonathan had explained to Mr Wilson what he proposed for the three companies, ITC, CWC and WOS. The proposal for WOS was that it would run the gaming software in Curaçao. The proposal for CWC was that it would be a holding company in respect of ITC and WOS. As well as being a holding company, it seems that CWC was to operate the outward facing contractual and financial arrangements i.e. it would collect the deposits from players and pay out any winnings. ITC was to perform various administrative functions.

In his letter of advice, Mr Wilson advised that it would be illegal to operate an internet gaming operation in the United Kingdom. This was because of section 12 of the Gaming Act 1968 which restricted lawful gaming to gaming by those present in licensed premises. Conversely, it would be lawful to sell internet gaming to United Kingdom customers from an operation outside the United Kingdom. The result of this advice was that it would be, or probably would be, illegal for CWC to operate an online gaming business within the United Kingdom. Mr Wilson’s letter then contained detailed advice as to how to structure the gaming business so that it was operated in Curaçao and not in the United Kingdom. In summary, the proposals required WOS to be the operator of the business with CWC and ITC performing ancillary administrative services. It was clear from Jonathan’s evidence that Mr Wilson’s advice was not implemented. The business was not operated by WOS. It was operated from within the United Kingdom. As will be seen from all of the financial documents which were prepared, CWC was a dormant company and ITC received all of the revenue of the gaming business and incurred all of the expenditure of that business. As before, there was no suggestion from Mr Wilson or Jonathan at this stage that a move of the operations from the United Kingdom to Curaçao (if it had happened) would have resulted in the business being owned by Jonathan to the exclusion of Warren and Stuart.

In around June 2005, there was a press release announcing the opening of an online casino under the trading name of Club World Casinos. A firm of accountants, Alexanders, prepared management accounts for the month to 30 June 2005. These accounts were prepared for ITC. From this time onwards until some time in 2008, Jonathan provided Warren and Stuart with trading information for the online gaming business. The figures related to the business of ITC.

In May 2006, Jonathan asked Warren and Stuart whether they would be prepared to invest £50,000 each in the business but they were not prepared to do so.

In October 2006, Stuart received some apparently unsolicited advice from a law firm describing the legal position in individual states of the United States in relation to gambling. Stuart replied stating that the matter was being kept under review.

On 30 October 2006, Jonathan emailed his solicitor Mr Philbin of Wacks Caller (later of Atticus Legal LLP) stating that it was time to “sort out” the correct shareholding in ITC and CWC, as the companies were beginning to show a profit. Jonathan explained that Warren, Stuart and he should have equal shareholdings in ITC and CWC. For some reason, Mr Binnes was not mentioned. Jonathan copied this email to Warren and Stuart. This email led to a meeting of the three brothers with Mr Philbin. I do not accept Warren and Stuart’s assertion that this meeting did not take place. Later, Warren, Stuart and Jonathan signed two deeds described as “Deed of Confirmation of Gift and Declaration of Trust”. I will refer to each deed as a “Deed of Confirmation”.

There were two Deeds of Confirmation. One was between Jonathan and Warren and the other was between Jonathan and Stuart. I find that these deeds were duly signed by the relevant parties. Apart from the fact that one deed related to Warren and the other to Stuart, the deeds are in the same terms. I will refer to the terms of the deed relating to Warren under which Jonathan was described as “the Donor” and Warren was described as “the Donee”.

Clause 1 of the Deed of Confirmation provided:

“The Donor confirms and declares that in order to protect the identity of the Donee due to the Donee’s obligations to Coral Products PLC and the fears of the Donee concerning the holding of shares in companies whose main business is the operation of a gaming related business the Donor has at all times held and continues to hold the Shares [25% each of Interactive Technology Corporation Ltd & Club World Casinos Ltd] (which remain registered in the name of the Donor) as a bare trustee for the Donee for the Donee’s own use and benefit absolutely.”

Clause 2 of the Deed of Confirmation dealt with the Donee’s right to a future transfer of shares to the Donee and the exercise of voting rights and other powers and rights in the meantime. Clauses 3, 4 and 5 of the Deed of Confirmation went into detail as to the tax treatment of the purported gift of shares. The Deeds of Confirmation are curious documents. It would not seem right to describe the relationship between Jonathan on the one hand and Warren and Stuart on the other hand as one of Donor and Donee. Further, the statement that Warren and Stuart were to have 25% each of the shares in ITC and CWC would suggest that Mr Binnes also had 25% in both companies.

I heard evidence from Warren, Stuart and Jonathan about the circumstances in which these Deeds of Confirmation were entered into. Warren and Stuart tried to distance themselves from this transaction and even suggested that they had signed the last page of the document without seeing the other pages. Jonathan emphasised the statements in clause 1 of the Deeds of Confirmation as to the protection of Warren and Stuart’s identity and suggested that that showed that Warren and Stuart did not wish to be involved in an online gaming business and therefore supported his case that Warren and Stuart had always agreed with him that the online gaming business belonged to Jonathan alone. I found the evidence of Warren, Stuart and Jonathan on these deeds to be unreliable and deliberately crafted to try to move the real facts of this case in their different and opposing directions.

I also heard evidence from Mr Philbin. He was a most reluctant witness for various reasons, although those reasons appeared to be more to do with his involvement in later stages of the history of this matter. He was a close friend of Jonathan and supportive of Jonathan’s position generally. Mr Gourgey strongly challenged Mr Philbin’s evidence. However, I consider that the essential parts of his evidence fit the known facts and are inherently credible and I accept those parts of his evidence. His evidence was certainly more convincing than anything I heard from Warren or Stuart or Jonathan on this topic.

I find that what happened in relation to the Deeds of Confirmation is as follows. There was no action taken immediately following Jonathan’s email of 30 October 2006. That was probably due to the fact that Mr Philbin was moving from Wacks Caller to Atticus Legal. Eventually, in January 2007, there was a meeting in Atticus Legal’s offices. The meeting was attended by the three brothers and Mr Philbin. By this time, there was an additional question to be addressed in relation to the shares in ITC, in particular. Jonathan was dissatisfied with Mr Binnes’ services and wished to dismiss him. The difficulty was that Mr Binnes had been promised 25% of the shares in ITC. If Mr Binnes were to be dismissed, he would probably ask for 25% of the shares in ITC to be issued to him. That was not acceptable to the three brothers. They would want Mr Binnes to leave with no shares in ITC. In January 2007, Mr Philbin advised that the way forward was to amend the articles of ITC to provide for the shares of an employee leaving ITC to be transferred at par value. The next step would be to issue to Mr Binnes shares representing 25% of ITC. At the same time, shares representing 25% of ITC could be issued to each of Warren and Stuart. Then Mr Binnes would be dismissed and the transfer provision in the articles would be invoked, leaving Warren, Stuart and Jonathan as equal shareholders in ITC.

The strategy devised in order to deal with Mr Binnes would take some months to be implemented. One course would be to leave the question of Warren and Stuart’s shareholdings to be dealt with in due course and not in January 2007. However, that was thought to be undesirable; in particular, Warren and Stuart wanted their position as shareholders in ITC to be established. Another reason was that ITC was becoming profitable and if shares were issued to Warren and Stuart later in 2007, it was thought that there could be adverse tax consequences. It was thought to be important to establish as early as possible that Jonathan held his single share in ITC on trust for Warren and Stuart as well as himself (and also for Mr Binnes). Indeed, the true position was that Jonathan had from the outset held his share on trust in this way. It was decided that this trust should be confirmed in a document. The question was then raised as to why, if the shares had been held on trust from the outset, the shares had not been issued to the beneficiaries when ITC was formed. It was thought that the Revenue would be sceptical of a bald statement in January 2007 that Jonathan’s share was held on trust. There needed to be an explanation for the creation of that trust. The explanations which were put forward were those expressed in clause 1 of the Deeds of Confirmation, referring to Coral Products plc and the business of gaming. These points did have some basis in reality but they were put forward for the predominant purpose of trying to explain why the shares had not been issued to Warren and Stuart at the outset. The real reason why those shares had not been issued to Warren and Stuart at the outset was simply that nobody had got around to doing it. The extent to which the matters referred to in clause 1 of the Deeds of Confirmation were of any importance is debatable. Those matters did not inhibit Warren and Stuart from openly holding directorships in ITC and did not inhibit them from being registered as shareholders in ITC later in 2007. In any event, the matters referred to in clause 1 of the Deeds of Confirmation go nowhere to support Jonathan’s suggestion that it had been agreed at the outset, and at all times until later 2014, that the online gaming business was to be owned by Jonathan alone. In fact, clause 1 supports the opposite proposition, namely, that the online gaming business was owned by ITC/CWC and Warren and Stuart were the beneficial owners of shares in those companies.

Following the meeting in Atticus Legal’s offices in January 2007, draft Deeds of Confirmation were provided by Atticus Legal to Jonathan and Warren, Stuart and Jonathan signed them. They knew what they were signing. The Deeds were in accordance with their wishes, as expressed to Mr Philbin at the meeting in his offices.

The Gambling Act 2005 received the Royal Assent on 7 April 2005. It was due to come into force in accordance with a later order to be made by the Secretary of State. The documents before me included a detailed note prepared by Mr Wilson, now of Blake Lapthorn Tarlo Lyons, dealing with the provisions of the Gambling Act 2005. The document appeared to be a print out of a PowerPoint presentation. One slide dealt with the question: “Will the Act apply to operations licensed offshore?” The answer was: “Yes, if one piece of remote gambling equipment used in providing facilities for gambling is in Britain.” The slide went on to describe what was meant by “remote gambling equipment”. This phrase included electronic equipment used to store information in connection with participation by customers and to present virtual games but probably did not extend to equipment to maintain banking facilities and ancillary services. Another slide stated that advertising of remote gambling was permitted if the operator was licensed in a territory of the European Economic Area. The slides also referred to the position in the United States resulting from the Interstate Wire Act 1961 and the Unlawful Internet Gambling Act 2006. I was not given any evidence as to whether anyone at ITC considered this document.

On 21 May 2007, the articles of ITC were amended to include a new Article 15 which provided that the shares of a director or employee who ceased to be a director or employee (called “a Leaver”) could be required to transfer his shares in ITC at par value.

On 25 July 2007, further shares in ITC were issued to produce the result that Warren, Stuart, Jonathan and Mr Binnes all held 25 shares each. In August 2007, Mr Binnes was dismissed as an employee of ITC. As a result of his dismissal, he was “a Leaver” within Article 15, which was invoked leading to a transfer of his shares in ITC to Jonathan. This transfer, coupled with new shares being issued to Warren and Stuart, resulted in Warren, Stuart and Jonathan each holding 50 shares in ITC.

The Gambling Act 2005 came into force on 1 September 2007. It repealed the Gaming Act 1968.

On 21 September 2007, Jonathan wrote to Century Management Services NV in Curaçao to say that WOS had no activities or trade at any point up to 31 December 2006.

Following the dismissal of Mr Binnes, Jonathan left his job at Coral Products plc in order to concentrate on running the online gaming business. He formally left Coral Products plc on 23 October 2007 and thereafter he worked full time for ITC. He received a payment of £30,000 from Coral Products plc on his departure. Warren, Stuart and Jonathan had a discussion as to what Jonathan’s remuneration would be now that he was working full time for ITC. I will refer to the detail of that discussion later in this judgment.

In May 2008, Mr Peter Hosker joined ITC as its Chief Financial Officer.

Prior to 21 January 2010, Jonathan sought further advice from Mr Wilson, now at Memery Crystal LLP. On 21 January 2010, Mr Wilson wrote to Jonathan as follows:

“With reference to your query concerning the legality of the provision of gaming services on the internet by Interactive Technology Corporation Limited or Club World Casinos Limited (“the Companies”), to residents of other countries in the world including the USA, the position is as follows.

The Gambling Act 2005 (“the Act”) regulates the provision of facilities for gambling, both remote and non remote. Remote gambling means gambling in which persons participate by the use of remote communication which means the internet, TV, telephone, radio or any other kind of electronic or other technology for facilitating communication. The Companies are involved in the provision of remote gambling services via certain websites. However, even though the Companies are both incorporated and have their places of business in Britain, they do not need a remote operating licence under the Act and can legally operate from here. The reason for this is that the test as to whether a business needs a licence under the Act is whether it has, “at least one piece of remote gambling equipment used in the provision of the facilities situated in Great Britain (but whether or not the facilities are provided for use wholly or partly in the United Kingdom)” (section 36(3)). As I understand it, the gaming software and other remote gambling equipment is located in the Netherlands Antilles and gambling services are provided pursuant to an e-gaming licence held there.

Therefore, the Companies are not providing remote gambling facilities within the jurisdiction according to British gambling law. So the question as to whether the Companies are legally providing facilities for gambling does not arise in British law.

Even if the Companies did have remote gambling equipment in Britain and held a remote gambling licence here it would still be legal in British law to provide such services to any other countries including the USA. The reason for this is that there is specific provision in the Act which states, “A person commits an offence if he does anything in Great Britain, or uses remote gambling equipment situated in Great Britain, for the purpose of inviting or enabling a person in a prohibited territory to participate in remote gambling. A prohibited territory means a country or place designated for the purpose of this section by order made by the Secretary of State.”

The Secretary of State has not made any such order and there are no prohibited territories. Therefore, a British licensee can offer gambling services to a resident of any country in the world including the USA without in any way offending British law.

As stated, the Companies do not have any remote gambling equipment located in Britain so the question does not arise in any event.

I hope this is clear and if you require any more advice then please let me know.”

It is clear from the letter of 21 January 2010 that Jonathan did not say that the online gaming business was being operated by, or belonged to, WOS. Jonathan did not refer to this letter in his witness statement. His evidence at the trial was that he had forgotten all about this letter when he entered into later transactions in May 2013. Mr Hosker told me that he had not seen the Memery Crystal letter until a week before he gave his evidence at the trial.

In April 2010, Jonathan was receiving further advice from Mr Wilson of Memery Crystal, this time in relation to litigation in the United States brought against CWC. The other party to the litigation proposed a settlement of that dispute and for the purpose of the settlement Jonathan was asked to make clear the position as to the identity of the company which was carrying on an online gaming business in the United States. For this purpose, Jonathan stated that CWC was a shell company and that the operating company was ITC.

On 25 May 2010, Jonathan transferred the single share in CWC to ITC for nil consideration.

On 28 July 2010, Jonathan signed a declaration which he sent to Century Trust Management Services NV stating that WOS had not been economically active. He made a similar statement on 5 March 2012.

In August 2012, Jonathan instructed trade mark agents in relation to his proposal that ITC would assign its trade marks in relation to its online gaming business to WOS. The proposal also involved WOS granting a licence back to ITC for use of the trade marks, for which ITC would pay WOS a royalty. It was not clear at the trial whether the proposed transaction proceeded although the trade mark agents charged a fee of £1,860 to ITC.

On 31 October 2012, Mr Hosker sought advice from Century Trust in Curaçao on a proposal to bring WOS “out of dormancy” so that the gaming transactions which were “reported” in the United Kingdom would be “reported” through WOS and a United Kingdom company would make a management charge to WOS.

In November 2012, Jonathan was considering the question of ownership of WOS. He initially seems to have thought that he owned the shares in WOS, apart from one share held by Century Trust. In fact, the shares in WOS were at that time owned by CWC and the single share in CWC was owned by ITC, the shares in which were owned by Jonathan, Warren and Stuart. Jonathan must have discovered that he was not the shareholder in WOS and he then proposed that the CWC shares in WOS would be transferred into his own name. He took advice from Mr Gonzales of Century Trust in Curaçao as to the steps which should be taken for this purpose. He told Mr Gonzales that on 9 January 2012 at a board meeting of CWC, CWC had decided to transfer its shares in WOS to Jonathan. That was not true and Jonathan knew it was not true. Mr Gonzales asked for a copy of the board minutes. Jonathan asked his solicitor to draft an appropriate minute and he was sent a draft minute for a board meeting of CWC. The draft minute referred to a meeting of the three directors of CWC, Warren, Stuart and Jonathan. Mr Hosker, on behalf of Jonathan then completed the draft board minute and stated that the meeting had taken place on 9 January 2012 and had been attended by the three brothers and Mr Hosker. Jonathan then signed the board minute. Jonathan and Mr Hosker knew that this document was false and that no meeting had taken place. Jonathan did not tell Warren or Stuart that he was transferring to himself the shares held by CWC.

On 5 December 2012, Jonathan sent the false board minute to Mr Gonzales. On 19 December 2012, Jonathan purporting to act on behalf of CWC transferred CWC’s shares in WOS to himself. Jonathan told me that when he transferred the shares in WOS to himself, he believed that he had always been the sole owner of WOS so that the share transfer was in accordance with that position. I do not accept his evidence as to his belief. However, his evidence does support a finding that in November and December 2012, Jonathan intended by his actions to acquire ownership of the shares in WOS for himself; he was not simply trying to demonstrate that the shares in WOS were owned by an individual (himself) rather than by a limited company (CWC).

Warren and Stuart have raised questions as to whether the transfer of shares in WOS by CWC to Jonathan was effective and/or whether following the transfer of the shares to Jonathan, he held them on trust for CWC. However, it seems to be agreed that those questions can only be effectively raised by CWC, or in proceedings to which CWC are a party, and CWC was dissolved in May 2013. Accordingly, there is no issue which is at present before the court as to this transfer of shares.

Following the transfer of the shares by CWC to Jonathan, he asked his solicitors to prepare forms to have CWC struck off the register of companies and dissolved. He was provided with the necessary forms which needed to be signed by two directors. Jonathan asked Warren to be the co-signatory on the forms and Warren duly signed the forms on 22 January 2013. CWC was duly struck off and dissolved on 21 May 2013.

On 20 March 2013, Mr Hosker prepared a note summarising a proposed transaction involving ITC and WOS and sent the note to Jonathan for his approval before Mr Philbin of Atticus Legal would be asked to draft the necessary documents. The proposal was in two parts. The first part involved the sale of assets by ITC to WOS. The sale was described as having taken place on a much earlier date, 31 January 2012. The assets were to be the assets of the online gaming business owned by ITC and all of ITC’s money in the various bank accounts. Following ITC’s sale of the business assets to WOS, the two companies were to enter into a “service contract” under which ITC was to provide website services and customer support services to WOS. In other words, ITC would cease operating an online gaming business and become a service company for WOS, which would thereafter operate the online gaming business. The profits of the business would be earned by WOS. However, under the service agreement the profits and, indeed the losses, made by WOS in the business would be recharged to ITC in the form of a management charge.

On 26 April 2013, the solicitor instructed by Jonathan in connection with the sale of the business to WOS produced a draft Asset Purchase Agreement and a draft Supply of Services Agreement.

On 3 May 2013, Jonathan asked Century Trust in Curaçao to form another company in that jurisdiction, to be known as Carmel Media Group NV and that company was duly incorporated (on 30 October 2013).

On 8 May 2013, Mr Hosker sent to Jonathan’s solicitor detailed comments on the draft agreements sent on 26 April 2013. Mr Hosker confirmed in his oral evidence that he had given detailed consideration to the draft documents. There were then further communications between Mr Hosker and the solicitors and the drafts were finalised. On 16 May 2013, Mr Hosker asked Jonathan if he was happy with the draft documents and Jonathan confirmed that he was.

Later in May 2013, Jonathan signed a purported board minute for ITC and on behalf of ITC and WOS he signed an Asset Purchase Agreement (“APA”) and a Supply of Services Agreement (“SSA”).

The board minute purported to record a meeting on 20 January 2012 of Warren, Stuart and Jonathan as directors of ITC. No such meeting had ever taken place, whether on 20 January 2012 or at any other time. Jonathan had not even informed Warren or Stuart of the matters referred to in the board minute. The minute recorded that the board reviewed and unanimously approved the draft APA and the draft SSA. The board minute was entirely false and, when he signed it, Jonathan knew that it was false.

Although the APA was signed by Jonathan in May 2013, he dated it 20 January 2012. The APA provided that it was to take effect on 31 January 2012. The intention in stating that the date of the APA was 20 January 2012 was to make it appear that the APA had been entered into prior to the date on which it was to take effect. By clause 2 of the APA, ITC agreed to sell and WOS agreed to buy the business of an online casino carried on by ITC up to 31 January 2012 together with a number of listed assets including book debts, goodwill and cash at bank. The price for the sale was £826,072.52. The APA stated that this price had been received by ITC.

The SSA, signed by Jonathan in May 2013, was also dated 20 January 2012. The SSA recited that on “the Effective Date”, ITC sold its online casino business to WOS. However, instead of the Effective Date being 31 January or 1 February 2012, to be consistent with the APA, the SSA stated that the Effective Date was 1 February 2013. This appears to have been a slip in drafting. Under the SSA, ITC contracted to provide “Services” to WOS. The word “Services” was defined to include specified services of website development, website management and hosting, marketing and customer support services but also included any other services which WOS agreed to take from ITC. The SSA provided for the Services to be supplied for a period of 12 months from the Effective Date and thereafter to be supplied until the agreement is terminated by either party giving to the other 3 months’ notice to terminate. Thus, WOS was entitled to stop taking a supply of Services from ITC and was free to obtain the Services from another provider. Conversely, ITC was entitled to terminate its liability to provide the Services to WOS. Either party could terminate the SSA with a view to negotiating a new agreement between them but on different terms. WOS was obliged to pay ITC for the Services. The payment to be made was calculated by reference to the cost to ITC of providing the Services. ITC was not entitled to a profit on the provision of the Services but was restricted to reimbursement of its costs. The position as to charging was potentially even more adverse to ITC in that its charges were capped so that they could not exceed the net profit earned by WOS. In addition, ITC was only entitled to charge for its Services annually in arrears.

There is a major dispute as to Jonathan’s motive in causing ITC and WOS to enter into the APA and the SSA. In the course of the evidence, different explanations were put forward. One of these explanations concerned the position of ITC under the Gambling Act 2005 and other explanations concerned the tax treatment, including the VAT treatment, of the relevant transactions. There is no indication in the documents before me that ITC or Jonathan or Mr Hosker took any legal advice, or tax or accountancy advice, in relation to the decision to enter into the APA and the SSA. The only legal advice contained in the documents before me, which might be relevant was the advice given by Mr Wilson of Memery Crystal LLP on 21 January 2010. Jonathan gave evidence that he had forgotten about that advice when he procured ITC and WOS to enter into the APA and SSA. Mr Hosker said that he had not seen that advice at the time and he only saw it a week before he gave his evidence at the trial.

In July 2013, Alexanders carried out work to prepare the accounts of ITC for the year ended 31 January 2013. Throughout that year, ITC had operated an online gaming business. However, Mr Hosker told Alexanders that that was not the case as ITC had transferred its online gaming business to WOS on 31 January 2012, just before the beginning of the financial year on 1 February 2012. That, of course, was the position shown in the back-dated APA. Alexanders asked Mr Hosker to be told the commercial reasons for the transfer. On 14 August 2013, Mr Hosker told them that the commercial reason for the sale was so that the gaming related assets could be “recognised” in the jurisdiction and company where the gaming licence was held. This was plainly a reference to Curaçao and WOS. He also stated that the assets transferred to WOS would not be generating profits under the SSA. That was not accurate in relation to the terms of the SSA as entered into. If WOS had been obliged to pay over its net profits to ITC in return for the Services, then Mr Hosker’s statement would have been accurate.

In October 2013, the name of WOS was changed so as to remove the word “Gaming” and to replace it with “Software”.

In November 2013, Carmel Media Group NV obtained a Curaçao gaming licence; I assume this licence was similar to that held by WOS.

On 27 August 2014, WOS obtained a client provider authorisation for an Interactive Gaming License to be issued by the Mohawk Territory of Kahnawake.

On Friday, 19 September 2014, Warren told Stuart that he wanted to discuss the affairs of ITC with Jonathan. Stuart passed this message on to Jonathan and it was initially agreed that the three brothers would meet on 21 September 2014. Also on 19 September 2014, Warren spoke to ITC’s accountant (Mr Berg) at Alexanders and requested the accounts and management accounts of ITC. Mr Berg stated that he would have to obtain Jonathan’s approval to showing Warren these accounts. A meeting was then arranged for the three brothers at Alexanders’ offices on Monday 22 September 2014.

Over the weekend of 20/21 September 2014, Jonathan contacted his solicitor, Mr Philbin of Atticus Legal. Mr Philbin gave evidence as to what took place. He said that Jonathan was very fearful of what might happen at the meeting with his brothers on the following Monday. After a discussion, Mr Philbin advised Jonathan that he could enter into an agreement dealing with the occupation of ITC’s office premises. On Sunday 21 September 2014, Mr Philbin’s partner drafted a form of agreement to be entered into by ITC and a company owned and controlled by Jonathan, Four Seasons Technology Ltd (“Four Seasons”). The draft agreement was called a “Licence to Occupy”. The draft licence recited that Four Seasons and its associated companies occupied ITC’s offices. That was not in fact the case. The draft licence then recited that Four Seasons had purchased all the tangible assets at ITC’s offices. That also was not true. Clause 2.1 of the draft licence was a grant by ITC of an exclusive licence to occupy ITC’s offices. Clause 3.2 of the draft licence was an undertaking by ITC that, save as permitted by Four Seasons, no director or employee of ITC nor any agent or representative acting for it should enter offices during the period of the licence.

Late on the Sunday evening, 21 September 2014, Jonathan emailed the draft licence to Mr Hosker and asked him to print it out on the morning of 22 September 2014 so that Jonathan could sign it then. He referred to his scheduled meeting with his brothers as a meeting with the “brothers Grimm”. Jonathan then asked Mr Hosker to date the licence as 19 September 2014. On 22 September 2014, Jonathan signed the licence on behalf of ITC and on behalf of Four Seasons. He wrote the date of 19 September 2014 beside his signature.

Also over the same weekend, Jonathan asked Mr Philbin to draft an agreement to provide for Warren and Stuart to sell their shares in ITC to Jonathan and early on 22 January 2014 Jonathan was provided with a draft agreement to this effect.

In the morning of 22 September 2014, Jonathan took steps to set up a bank account for Four Seasons to allow Jonathan to pay monies owned by ITC into this new bank account.

The three brothers met at Alexander’s offices on 22 September 2014 at 2 p.m. Mr Berg and Mr Atkinson of Alexanders were in attendance. The meeting was recorded and I was provided with a transcript of what was said. At the beginning of the meeting, Warren and Stuart said that they wanted to see the accounts of the business. Jonathan replied that that they had never previously asked him for accounts. Warren asked Jonathan what his salary was and Jonathan replied it was £1.5m for the current year. The tone of the meeting deteriorated sharply after that. Jonathan said that he fully deserved that salary because he took all the risks of the business and that Warren and Stuart had done nothing in the business. There were then references to who owned the business. Warren and Stuart said that the business was owned by the three of them. Jonathan replied that the online gaming business was owned by WOS and that he alone owned WOS. Jonathan then asked Mr Berg to confirm that all of the income of the business had gone through ITC. Warren and Stuart said that they were now going to take an active part in the business and Jonathan said that they were not and that he could stop them. Mr Berg said that the matter needed to be resolved. Warren said that Jonathan should buy out Warren and Stuart. Stuart suggested that Jonathan would say that there was nothing to buy out and Jonathan then said in relation to ITC that there was nothing there and that ITC was a surrogate company. Stuart later referred to Jonathan buying out Warren and Stuart. Jonathan said that Warren and Stuart had shares in ITC but ITC had no assets.

Later on 22 September 2014, Jonathan transferred £500,000 of ITC’s money to Four Seasons.

On 24 September 2014, Jonathan transferred £750,000 of ITC’s money to Four Seasons.

On or about 29 September 2014, Jonathan sought to move £1.2million from Four Seasons to Lanesborough Technology Ltd, another company owned and controlled by him, but there were insufficient funds in Four Seasons’ account to make the transfer.

On 15 October 2014, pursuant to an earlier application, Carmel Media Group NV obtained a client provider authorization for an Interactive Gaming License to be issued by the Mohawk Territory of Kahnawake.

On 23 October 2014, Warren went to ITC’s offices but was turned away. Jonathan referred to this incident in an email where he described ITC’s offices as “my office building”.

On 24 October 2014, Warren gave formal notice calling a meeting of the board of directors of ITC on 31 October 2014. The notice set out a number of proposed resolutions. That board meeting duly took place, attended by the three brothers and a solicitor instructed by Warren and Stuart and by Mr Philbin of Atticus Legal, instructed by Jonathan. Warren chaired the meeting and referred to the purpose of the meeting as explained in the calling notice. Jonathan stated that when he had originally agreed to let Warren and Stuart invest in ITC it had been agreed that he would run ITC and that Warren and Stuart would be sleeping partners. He also stated that he had done all the work in ITC and Warren and Stuart had made no contribution to ITC. The notified resolutions were then proposed. These resolutions involved Warren and Stuart being involved in the running of ITC. Jonathan stated that they were contrary to the initial agreement between the parties. The resolutions were passed with Warren and Stuart voting in their favour and Jonathan against them.

There were further communications between Warren, Stuart and Jonathan in November 2014 and requests for information and documents to be provided by Jonathan. On 21 November 2014, ITC applied ex parte for a freezing and property preservation order and a search order against Jonathan, WOS and companies owned and controlled by him. I will set out the procedural history of the litigation in the next section of this judgment together with other matters which took place during the course of the litigation.

In November 2014, ITC prepared draft proceedings intended to be issued against Jonathan, WOS and the 12 companies which later became Defendants in the ITC claim. On 21 November 2014, ITC sought and obtained two orders from Birss J at a hearing without notice to any of the 14 proposed Defendants. The first order was a freezing and property preservation order against all 14 proposed Defendants. The freezing order against Jonathan was limited to an amount of £4,500,000; the property preservation order against the corporate Defendants was unlimited. The second order was a search order in respect of all 14 proposed Defendants. On 23 November 2014, the search order was varied by Warren J, on ITC’s application. On 26 November 2014, 2 December 2014 and 4 December 2014, the freezing order and the property preservation orders were further varied.

On 24 November 2014, ITC issued a Claim Form against 14 Defendants. Jonathan was the First Defendant and WOS was the Second Defendant. The Third to Fourteenth Defendants were other companies which Jonathan had caused to be incorporated from time to time, as described above.

In the meantime, Warren and Stuart’s positions at Coral Products plc were under review. Following a meeting of the board of that company on 26 November 2014, they were removed from their executive positions with immediate effect. Warren and Stuart and Coral Products plc negotiated terms pursuant to which Warren and Stuart resigned from their positions with that company with effect from 1 December 2014.

ITC served its Particulars of Claim in the ITC claim in around December 2014. The Particulars of Claim sought various heads of relief concerning the ownership of the shares in WOS and the other corporate defendants, the ownership of various assets, claims for accounts, equitable compensation and damages.

In relation to the interlocutory applications made by ITC, Jonathan served a witness statement dated 24 December 2014. In paragraph 2.5 of this witness statement, Jonathan sought to explain the relationship between ITC and WOS. He said that this relationship was governed by the SSA dated 20 January 2012. He said that although this agreement was “formalised in 2012”, ITC and WOS had operated on that basis “since WOS began trading in June 2005”. He explained that WOS generated profits from the online gaming business and ITC did not generate any profits but provided services and ITC was entitled to charge WOS for the costs of those services. He then added in paragraph 2.5.3:

“In addition to those costs, WOS has over the years paid discretionary bonuses. Those bonuses are not for fixed amounts or calculated by reference to any fixed formula. They are instead determined by exercising a broad, subjective judgment that might take account of WOS’s profitability, its anticipated future performance, its need for working capital, the risks to the business and so forth. Ultimately, I exercise a broad judgment as to what can and should be paid from WOS to ITC.”

The three brothers attended a board meeting of ITC on 13 January 2015. Jonathan referred to the fact that ITC had sought a freezing order against him. He asked Warren and Stuart: “what documents did you think I was destroying?” Warren replied that they did not think that Jonathan was destroying, or would destroy, documents. He said that ITC had applied for a freezing order because Jonathan was not providing information which had been requested. Jonathan also asked: “what assets did you think I was dissipating?” Warren replied that he had transferred assets from ITC to WOS. Jonathan said that those assets had always been owned by WOS.

On 20 January 2015, the parties to this dispute attended a mediation. The mediator was Ms Eileen Carroll QC (Hon), Deputy Chief Executive of the Centre for Effective Dispute Resolution. The mediation did not result in a settlement.

On 6 February 2015, the Defendants (apart from the Twelfth Defendant who has not been served with the proceedings) served their Defence.

On 6 February 2015, ITC issued an application for an order that certain material which had been allegedly deleted from Jonathan’s laptop should be recovered from Jonathan’s iCloud account.

On 9 February 2015, Jonathan presented a Petition in relation to ITC under section 994 of the Companies Act 2006. The Respondents to the Petition were Warren, Stuart and ITC. The primary relief sought by Jonathan was an order that Jonathan be permitted to purchase the shares of Warren and Stuart in ITC at a fair value to be determined by an independent valuer.

On 16 February 2015, Asplin J continued the two ex parte orders (which had been made by Birss J on 21 November 2014) to a further hearing for the purposes of hearing further argument on the form of the orders. Asplin J rejected submissions made to her on behalf of Jonathan that ITC had been in breach of its duty of full and frank disclosure on the ex parte application for the two orders.

On 19 February 2015, Jonathan’s solicitors wrote to the solicitors for ITC, Warren and Stuart referring to Jonathan’s contention that all of the net income of WOS had been paid over to ITC. Jonathan’s solicitors suggested that ITC should carry out an audit, using its own accountants (Grant Thornton), in relation to the period after the entry into the APA to establish that this was indeed the position.

The further hearing directed by Asplin J’s order of 16 February 2015 took place on 11 March 2015, when the freezing and property preservation order and the search order were continued until trial. The court also gave directions in relation to ITC’s claim and the section 994 Petition including a direction that they be tried together. Subsequent to that hearing, ITC’s application for relief in relation to alleged deletions from Jonathan’s computer was not proceeded with.

On 1 April 2015, Warren and Stuart served their Points of Defence to the Petition.

On 29 April 2015, at the request of the solicitors for ITC and Warren and Stuart, the mediator (Eileen Carroll QC) sent to Jonathan’s solicitors the following email:

“Dear Catherine,

Thank you for returning the call. I am setting out below the 11 points of communication that I have discussed with you following written and telephone communications with DAC. The messages from the claimant are as follows:

1.

We withdraw our existing offer to sell the shares of Warren and Stuart for the sum of [redacted].

2.

We make a revised offer to sell the shares of Warren and Stuart to Jonathan for the aggregate sum of [redacted]. The revised offer is made subject to contract and without prejudice as part of a global compromise incorporating all the parties to the proceedings and the petition. The sale price is to be settled on completion in cash and also by the transfer to Warren and Stuart by Jonathan at market value of his share in any assets which the three brothers own jointly. Any settlements will contain amongst other provisions, confidentiality provisions.

3.

We have increased our offer because we have become aware of further wrongdoings by Jonathan. Jonathan knows the extent of his wrongdoings and our client believes that Jonathan is in very serious trouble which will also have serious implications for Jonathan's partner (Jonathan Seeds) by reason of Jonathan's actions.

4.

It is for Jonathan to assess the reasonableness of the offer we are making. Jonathan ought to realise that the offer is beneficial to him and Jonathan Seeds and HSF should take his instructions.

5.

The claimant has information that Jonathan does not only hold bank accounts in England (as per his affirmation) and various additional offshore accounts are held by him or on his behalf (and/or now Jonathan Seeds).

6.

It is clearly in everyone's (and particularly Jonathan's) interest to wrap this up speedily and quietly. If it is not settled within 48 hours there is a real risk that such a settlement may no longer be possible – the concern being that others will become aware of it.

7.

Mr Watts is expected to take his client's instructions as a matter of urgency as a settlement will obviate the need of further steps such as committal proceedings being issued.

8.

If this offer is not accepted the company also proposes to accept third party funding. The amount of the company's claim will be amended and the amount required by Warren and Stuart for the purchase of their shares will be considerably higher than [redacted] (by at least another £3m) in light of the third party funder's share of sums recovered. Jonathan will also face the repercussions detailed below.

9.

If Jonathan has misled HSF and sworn false evidence Alan Watts will be aware that Jonathan will face charges of perjury, perverting the course of justice and contempt of court and is likely to be imprisoned. If Jonathan Seeds is implicated he may likewise be investigated and/or charged.

10.

In the above circumstances, Jonathan's credibility and reputation will be destroyed barring him out of the online gaming business in the future. He will also have no prospect of succeeding in this case.

11.

Furthermore and hypothetically, if a substantial judgment is entered against Jonathan and it is not satisfied by assets in Jonathan's own name, we will pursue third parties, such as Jonathan Seeds, as regards claims against them where Jonathan has sought to put assets out of the reach of his creditors.

If you wish me to convey any message back once you have talked to Alan and taken your client's instructions I am happy to assist. I do however have a very busy 48 hours coming up so we do have limited time.”

DAC were the solicitors acting for ITC in the litigation. HSF were Jonathan’s solicitors. Catherine Emanuel and Alan Watts were solicitors at that firm. For convenience, I will refer to these solicitors as DAC and HSF. The reference to Jonathan’s affirmation is a reference to an affirmation he had made as to his assets in response to a requirement to that effect in the freezing order which had been made against him. Mr Jonathan Seeds was Jonathan’s partner. The email of 29 April 2015 was headed “Without Prejudice” and “Mediation Privilege” but as will be seen the Court of Appeal has ruled that it is admissible in this litigation.

Also on 29 April 2015, DAC wrote to Mr Seeds stating that they wished to put Mr Seeds on notice that if Jonathan had, since the commencement of the dispute, transferred funds or assets to Mr Seeds, ITC reserved the right to issue proceedings against Mr Seeds.

On 29 April 2015, HSF wrote to DAC and asked for full details of what was being alleged in the mediator’s email. DAC suggested that HSF take instructions from Jonathan. HSF replied that if DAC had reasonable grounds for the allegations and threats which had been made, they should set them out. On 30 April 2015, DAC wrote to HSF that ITC had information that Jonathan held or had interests in various additional offshore accounts. DAC added that “our client neither said nor intended that committal proceedings would be issued or allegations of perjury made if their offer was not accepted” and that “our client does not make any threats as to what will happen if the parties do not reach a settlement agreement”. The position in relation to possible future procedural steps was reserved.

On 7 May 2015, HSF wrote to DAC noting that DAC had not disclosed any information as to the wrongdoing alleged in the email of 29 April 2015 and stating that Jonathan was innocent of any wrongdoing.

On 8 May 2015, DAC wrote to HSF referring to, amongst other things HSF’s proposal that ITC carry out an audit in relation to the period since the entry into the APA; HSF’s original proposal was made in the letter dated 19 February 2015, referred to above although there was other correspondence on this subject before 8 May 2015. On 8 May 2015, DAC stated that an audit since the entry into the APA was too restricted and any audit should relate to the whole period since 2005. On 13 May 2015, HSF replied to this letter stating that neither they nor Jonathan’s accountants (BDO) understood the utility of an audit of the position before the APA and asking Grant Thornton to confirm in writing what they saw as the benefit of an audit before the APA. HSF added that they would consider extending the period of the audit once “the priority three year period” had been dealt with.

Following the earlier correspondence (19 February 2015, 8 and 13 May 2015) on the subject of a possible audit by ITC in relation to the period after the entry into the APA, in the absence of an agreement between the parties, Jonathan instructed BDO to carry out such an audit. On 5 June 2015, BDO delivered a report of their findings in relation to the financial statements of WOS for 2013, 2014 and 2015. BDO summarised their conclusions by stating that they had seen no evidence to suggest that WOS’s revenue had been under-reported, that funds may have been removed from WOS for reasons which were not proper business reasons and that WOS’s net profit to be remitted to ITC had been misstated.

On 2 July 2015, at a meeting of the board of ITC, attended by the three brothers, Jonathan raised the question of the allegation in the email of 29 April 2015 that Jonathan had failed to disclose overseas bank accounts. Warren professed not to recall the allegation.

On 19 November 2015, Jonathan applied in the section 994 proceedings for permission to amend his Petition in accordance with a draft pleading which, in particular, referred to the email from the mediator which had been sent to him on 29 April 2015 on behalf of Warren and Stuart. Although the email was marked “without prejudice”, Jonathan contended that Warren and Stuart could not rely on the privilege as to without prejudice communications because the sending of the email involved unambiguous impropriety on the part of Warren and Stuart.

On 25 November 2015, at a case management conference, HH Judge Raeside QC, sitting as a Judge of the High Court, directed that on the trial of the ITC claim and of the Petition the court should determine issues of liability and the form of relief (if any) but would not determine any issues of quantification in relation to any such relief. Jonathan applied for, and obtained, a direction permitting the calling of expert evidence to deal with the issue whether WOS had paid over its net income to ITC; ITC had not agreed to that direction. ITC were ordered to pay the costs of the application in relation to alleged deletions by Jonathan of electronic data, which application had not been pursued by ITC.

On 22 December 2015, Rose J gave judgment on Jonathan’s application for permission to amend the Petition. She held that the sending of the email involved unambiguous impropriety on the part of Warren and Stuart who therefore could not rely on the privilege in relation to without prejudice communications in relation to that email. Jonathan then duly amended the Petition to rely on the contents of the email.

On 29 January 2016, Warren and Stuart issued a Claim Form against Jonathan in what has been called “the Trust Claim”. This claim was a reaction to certain averments in Jonathan’s Defence to the ITC claim. In that Defence, Jonathan had pleaded that by reason of his status as sole shareholder in ITC between 9 December 2004 and July 2007, Jonathan had been able to authorise actions which could be authorised by the shareholders in general meeting. In the Trust Claim, Warren and Stuart contended that since Jonathan held the single share in ITC on trust for Warren and Stuart (as well as Jonathan and Mr Binnes) the alleged conduct of Jonathan, relied upon by him in his Defence in the ITC claim amounted to a breach of that trust. Warren and Stuart claimed relief accordingly.

On 26 April 2016, Master Marsh ordered the Trust Claim to be tried together with the ITC claim and the Petition.

At a Pre-Trial Review on 18 May 2016, Henry Carr J granted ITC permission to amend its Particulars of Claim in the ITC claim but he directed that the allegations to be contained in paragraph 56A of the Amended Particulars of Claim would not be considered at the trial of the ITC claim but could be the subject of further directions following judgment in relation to the other matters which were tried. In relation to a part of the draft amended Particulars of Claim which contained allegations referred to as the “CWC amendments”, the judge did not at that stage rule on the application to amend but directed that ITC had permission to renew its application to amend its pleading following judgment in relation to the other matters.

On 24 May 2016, the Court of Appeal (Moore-Bick and Tomlinson LJJ and Keehan J) dismissed Jonathan’s appeal against the order made by Asplin J continuing the ex parte orders made by Birss J. Jonathan had submitted to the Court of Appeal that Asplin J had been wrong to continue those orders because ITC had been in breach of its duty of full and frank disclosure when it first obtained the ex parte orders. On dismissing the appeal, the Court of Appeal stated that they would give their reasons later for their decision. Those reasons were given in judgments handed down on 28 June 2016: see [2016] EWCA Civ 614.

On 8 to 10 June 2016, the parties attended a three-day mediation in relation to this dispute. The parties did not reach a settlement of their disputes.

On 15 June 2016, the Court of Appeal (Patten and Floyd LJJ and Baker J) dismissed Warren’s and Stuart’s appeal against the order of Rose J made on 22 December 2015 and stated that they would give their reasons later for their decision. Those reasons were given in judgments handed down on 12 July 2016: see [2016] EWCA Civ 717. The Court of Appeal agreed with Rose J that the email of 29 April 2015 was not the subject of without prejudice privilege because the sending of the email constituted unambiguous impropriety on the part of Warren and Stuart.

During the trial, ITC applied for permission to Re-Amend its Particulars of Claim. The Re-Amendments involved re-amending paragraph 56B of the Particulars of Claim which had been pleaded with the permission of Henry Carr J granted at the Pre-Trial Review and adding paragraph 56C. The parties reached agreement as to how the application for permission to Re-Amend should be dealt with. They agreed that the application for permission to Re-Amend the Particulars of Claim should be adjourned to be considered if appropriate following judgment in relation to all other matters. In addition, it was agreed that the allegations in paragraph 56B, even before the proposed Re-Amendment to paragraph 56B, should not be dealt with at this trial and should be the subject of further directions, if appropriate, following judgment.

ITC’s first set of management accounts were prepared for the month ended June 2005. The accounts were prepared by accountants, Alexanders, who later acted as auditors for ITC. Alexanders acted on the instructions of Jonathan and/or Mr Binnes. The management accounts comprise a profit and loss account and a balance sheet. All of the turnover, the expenses, the assets and the liabilities of the online gaming business were recorded in the management accounts of ITC. Alexanders prepared further management accounts in the same format for further periods ending July 2005, August 2005, October 2005, November 2005, December 2005, January 2006, February 2006, November 2006, December 2006, February 2007, May 2007, June 2007, July 2007, August 2007, September 2007 and January 2008. I was told that ITC’s management accounts were shown to Warren and Stuart up to 2008 and then ITC stopped preparing management accounts. This change may have happened shortly after 31 January 2008 or it may have been later in 2008.

For the period ended 31 January 2006, ITC prepared unaudited financial statements, incorporating a directors’ report and also prepared abbreviated accounts. The directors’ report and the abbreviated accounts were signed by Jonathan on 6 October 2006. They stated that the principal activity of ITC was gambling and betting. As with the earlier management accounts of ITC, all of the turnover, the expenses, the assets and the liabilities of the online gaming business were recorded in the accounts of ITC.

For the period ended 31 January 2007, ITC prepared unaudited financial statements, incorporating a directors’ report. The directors’ report described the business of ITC, slightly differently from the preceding year, as “online marketing and gaming” but otherwise the statements and report followed the format for the preceding year. ITC also prepared abbreviated accounts for that year. The abbreviated accounts contained the note that the turnover represented revenue from gaming income, being net winnings from customers.

For the period ended 31 January 2008, ITC prepared unaudited financial statements, incorporating a directors’ report which followed the format of the preceding year. For the same period, ITC also prepared abbreviated accounts which contained the same note as to turnover as in the abbreviated accounts for the preceding year.

ITC’s financial statements, directors’ reports and abbreviated accounts for the years ended 31 January 2009, 2010, 2011 and 2012 followed the format of the equivalent documents for the year ended 31 January 2008 with some minor variations. For the accounts for the years ended 31 January 2010 onwards, the accounts were audited by Alexanders. At the audit completion meeting on 22 June 2010, it was recorded that the gaming licence was held by WOS and that no charge was made to ITC for the use of that licence. The financial statements for the year ended 31 January 2011 stated that WOS was a company controlled by Jonathan and that WOS owned “the gaming licence through which [ITC] operates. No charge is made for this.” The accounts for 2012 were finalised on 29 October 2012.

Jonathan signed various letters of representations addressed to the auditors. On 22 June 2010, he signed a letter representing that the bank accounts in the name of the companies or in his own name had been beneficially assigned to ITC in a board meeting. On 31 August 2011, he signed a letter containing the same statement as to bank accounts. That letter also referred to other companies, including CWC and WOS. CWC was said to be owned by Jonathan and to be dormant. WOS was said to be 99% owned by Jonathan and to be dormant although it held the “gaming licence used by ITC”. The letter also stated that no charge was made for the licence. On 29 October 2012, Jonathan signed a similar letter to that relating to the preceding year. The letter signed on 29 October 2012 also stated that WOS held the gaming licence in trust for ITC and that there was no charge for ITC using the licence.

The accounts for ITC for the year ended 31 January 2013 and later years took a different form. For the year ended 31 January 2013, ITC prepared abbreviated accounts. In respect of fixed assets, the accounts recorded a figure for disposals of £708,507. The turnover was said to be revenue “from the provision of online marketing, IT support and customer services” although it was also noted that the turnover in the preceding year represented gaming income in the form of net winnings from customers. The directors’ report and financial statements for the year ended 31 January 2013 made similar statements. Further, the profit and loss account showed a turnover of £5,103,383 as compared with £13,965,850 in the preceding year. A note in relation to turnover stated that it would be seriously prejudicial to the company’s interests to state the percentage of its turnover that was attributable to markets outside the United Kingdom. A further note stated that on 31 January 2012, certain of the trade and assets of ITC were transferred to WOS and ITC’s revenue was derived from a contract with WOS. That note continued by stating that WOS owed ITC £684,197. These accounts were signed off by Jonathan on 24 October 2013.

For the year ended 31 January 2014, ITC prepared financial statements incorporating a directors’ report and abbreviated accounts in the same format as in the preceding year. The debt owed by WOS to ITC was stated to be £1,692,516. The sale of assets by ITC to WOS was said to have taken place on 31 January 2013. Jonathan signed the accounts for 2014 on 11 June 2014.

At all material times, CWC prepared dormant company accounts. In particular, it prepared such accounts for the years ended 31 January in each of the years 2006 to 2012.

I was shown the financial statements for WOS for the years ended 31 January 2013 and 2014. These statements treated the turnover of the online gaming business as the revenue of WOS and showed WOS incurring expenditure on operational costs leaving it with a nil profit. The figures for operational costs incurred by WOS were the same figures as were shown in ITC’s accounts as its turnover for those years.

The present litigation began in November 2014 and it is not necessary to refer to the accounts which have been prepared since that date.

In order to resolve the issues in the ITC Claim, I will make findings as to the following matters:

Following my consideration of the above matters, I will consider the Trust Claim and then the issues raised by the section 994 Petition.

The case for ITC and Warren and Stuart is that Warren, Stuart, Jonathan and Mr Binnes agreed in late 2004 to set up an online gaming business. The business was to be operated by a limited company and the company formed for that purpose was ITC. Warren, Stuart and Jonathan intended that the shares would be owned equally from the outset by Warren, Stuart, Jonathan and Mr Binnes. Although only one share was issued and it was vested in Jonathan, it is not in dispute that he held it on trust for the four of them equally. In due course, shares were issued to Warren, Stuart, Jonathan and Mr Binnes in accordance with the earlier intentions. After Mr Binnes’ dismissal from ITC, the shares in ITC were then held equally by Warren, Stuart and Jonathan. The business which was to be run by ITC was the business of online gaming. It was not intended that it would carry on the different business of being a service company to a different company which ran an online gaming business. It was appreciated that the business would have the benefit of an offshore gaming licence and that became a gaming licence in Curaçao. The licence was held by a Curaçao company (WOS) for the benefit of ITC’s online gaming business. It was never envisaged that WOS would run the business and it had no staff or premises which would enable it to do anything. That agreement was implemented and was never varied so that it was still the effective agreement in September 2014 when Warren and Stuart challenged Jonathan about his actions.

Jonathan’s case has been put various ways. On 22 September 2014, when challenged about the ownership of the gaming business, Jonathan told Warren and Stuart that the gaming business was owned by WOS and that WOS was owned by him; he said that Warren and Stuart did not have an interest in WOS or in the gaming business. WOS had been formed in March 2005 and Jonathan said he had told Warren and Stuart what the arrangement was at that time. Warren and Stuart had shares in ITC but it had no assets and was a surrogate company. On the other hand, Mr Berg, the accountant, stated that WOS had paid all of its income to ITC.

In his Defence, Jonathan pleaded that in November 2004, the parties agreed that there would be two companies; one company would run the gaming business and the other would be a service provider. Thereafter, Jonathan acquired two companies, WOS and ITC. The intention was for WOS to run the gaming business. Jonathan held 99% of the shares in WOS. Jonathan’s share in ITC was held on trust for Warren, Stuart, Jonathan and Mr Binnes. After receiving advice from Mr Wilson of Tarlo Lyons on 31 May 2005, the parties agreed that the gaming business would be run by WOS which would be owned by Jonathan. Warren and Stuart wanted nothing to do with WOS but they would benefit from their shares in ITC. The gaming licence would be owned by WOS for its own benefit. Jonathan would be in sole control of the business of WOS and, also, the business of ITC. In his witness statements, Jonathan described the arrangements in the same way as in his Defence.

The closing submissions on behalf of Jonathan explained matters in a somewhat different way. It was said that the submissions reflected the evidence Jonathan had given when cross-examined. It was accepted that in November 2004, the intention of all parties was that the online gaming business would be owned by Warren, Stuart, Jonathan and Mr Binnes jointly. Between November 2004 and June 2005, the business model evolved. The evolution was due to Jonathan becoming much better informed as to what was needed to run such a business. During that period, Jonathan was in discussion with various service providers and banks. He took advice from Mr Wilson on 31 May 2005. Further, during the period from November 2004 to June 2005, the three brothers were aware of considerable comment as to the legality of an online gaming business targeting customers in the United States. Jonathan referred to the prospectuses for PartyGaming and Empire Online. It was said that this further information about the position in the United States did not put Jonathan off the idea of an online gaming business but Warren and Stuart were very concerned about their position if they were to be involved in such a business. Jonathan said that he discussed Mr Wilson’s advice with Warren and Stuart and at that point the final version of the arrangement between them was agreed. The final version was that the online gaming business would be owned by WOS and WOS would be owned by Jonathan. Warren and Stuart would be shareholders of ITC which would not run an online gaming business but would provide administrative services to WOS.

There are many problems with Jonathan’s account of the arrangements which were made in the period November 2004 to June 2005. First of all, Jonathan has to show that something happened at some point to change the arrangements arrived at in late 2004 between four participants, Warren, Stuart, Jonathan and Mr Binnes. Pursuant to those arrangements, those four would be joint shareholders in a company which owned an online gaming business. The suggestion is that the arrangements were changed as a result of Mr Wilson’s advice on 31 May 2005. However, it is clear that Jonathan did not implement the key recommendations of that advice. That suggests that Jonathan did not regard this advice as something he had to follow. Warren and Stuart gave evidence that Jonathan did not show them Mr Wilson’s advice. Jonathan’s evidence about showing them the advice and about “the discussions” which followed was entirely general. One would have thought that, if there had been discussions which changed the pre-existing arrangements, there would have been more specific evidence about the same. Indeed, Jonathan seemed to change his evidence, when cross-examined, as to the impact of the advice from Tarlo Lyons. He said that it was not directly Tarlo Lyons’ advice which led to a change in the arrangements. He then suggested that the change was due to Warren’s and Stuart’s concern about the legality of online gaming in the United States which concern was said to be produced by the prospectuses for PartyGaming and Empire Online. However, those prospectuses were slightly later than the date of Tarlo Lyons’ advice and later than the date which Jonathan originally put forward as the date of the change to the arrangements.

Further, under the alleged new arrangements, the position of Mr Binnes was altered. There was no evidence of any discussion with Mr Binnes nor any evidence that he agreed to give up his interest in an online gaming business. There was no suggestion of any reason why Mr Binnes would have wanted to do that. Further, the alleged new arrangement was that WOS would pay over all of its net income to ITC. WOS would never make a profit. ITC would benefit in full from the profits of the online gaming business. However, Jonathan’s case was that there was no detailed discussion as to what this alleged arrangement meant and how it would operate. If there had been an agreement under which Jonathan would be the sole owner of WOS, which was to be the owner of the online gaming business, that agreement would confer no benefit on Jonathan if he then agreed that the online gaming business would never make a profit and the profits of online gaming would be received by ITC. There was no discussion as to what would happen in the case of losses from the online gaming business.

There is the further point that if it had been important to establish that WOS was owned by Jonathan and not by the three brothers, WOS was not in fact owned by Jonathan, certainly not after 24 May 2005. From that date, WOS was owned by CWC and the shares in CWC were held on trust for Warren, Stuart and Jonathan (the position of Mr Binnes in that respect is not clear).

In view of the unreliable nature of Jonathan’s evidence generally, these problems with his case would, taken on their own, suggest that I should accept the evidence of Warren and Stuart and reject Jonathan’s evidence as to the alleged change in the arrangements in around June 2005. However, I consider that the matter is put beyond any doubt by considering the financial documents. I have described these documents in some detail earlier in this judgment.

The financial documents relating to ITC all the way from June 2005 until the year ending 31 January 2012 show a very clear picture as to the ownership of the online gaming business. They show that the online gaming business was owned and operated by ITC. CWC and WOS were wholly inactive. The profits (and losses) of the business were the profits (and losses) of ITC. Money which was in bank accounts in the names of companies other than ITC was expressly declared to be held on trust for ITC and was shown in ITC’s balance sheet. The accounting documents were signed by Jonathan. He gave evidence that he did not really read the documents which he signed year after year and so he did not really know what he was signing. I am wholly unable to accept that evidence. The documents were relatively straightforward and not difficult to understand. I find that Jonathan knew at all material times that the ownership of the online gaming business and the money in the various bank accounts belonged to ITC and to no-one else.

In the light of the above considerations, I find that the arrangements made between the three brothers in late 2004 and continuing thereafter were as described by Warren and Stuart and as recorded in the financial documents.

There is a separate question which needs attention as to the arrangements made between the brothers in the period from November 2004 to June 2005; the question relates to the authority of the three brothers (and, in particular, Jonathan) as directors of ITC. Jonathan contends that it was agreed that he would have unlimited authority to act on behalf of ITC and that such authority extended to him fixing the amount of the remuneration he would receive. I do not accept that contention. The contention is a most unlikely one. In the period prior to 2007, the position was that Warren, Stuart and Jonathan were all directors of ITC and none of them worked full time for ITC. ITC’s business was managed by Mr Binnes. Jonathan was much more involved with ITC in the period prior to 2007 than Warren and Stuart were but that fact does not justify the inference that it must have agreed that Jonathan would have unlimited authority to act on behalf of ITC without consulting or involving Warren and Stuart. As to Jonathan’s contention that the authority conferred on him prior to 2007 extended to his own remuneration, again I do not accept that contention. Jonathan does not allege that there was any express agreement or even discussion at that time about his remuneration. In the period before 2007, Jonathan continued to work for Coral Products plc and was not employed by ITC and he did not receive any remuneration from ITC.

When the three brothers entered into the Deeds of Confirmation of Gift and Declaration of Trust in around January 2007, it was known that there were problems with Mr Binnes and that his future at ITC was not secure. In fact, Mr Binnes was suspended from his duties on 3 July 2007. Shortly after this event, a decision was taken that Jonathan should leave Coral Products plc and work full time for ITC. He formally left Coral Products plc on 23 October 2007 although he increased the amount of work he did for ITC over the summer of 2007, while he was still at Coral. This was undoubtedly a big step for Jonathan and involved him in some degree of risk. Warren and Stuart were not taking a similar risk as they were retaining their positions at Coral.

Two matters need to be addressed as to the new situation where Jonathan was to work full time for ITC. The first concerns the scope of his authority to act on behalf of ITC and the second concerns the discussions which took place as to his remuneration.

The relevant change which the brothers made in their arrangements in 2007 was that Jonathan became employed full time by ITC and took over the management of ITC. The three brothers remained directors but Jonathan was the director who was to be responsible for the management of the company. He became the de facto managing director. It is to be inferred from that fact that he was given the ordinary authority of a managing director but I find that he was not given any greater authority than that.

There is a dispute as to what, if anything, was discussed at this stage as to what Jonathan should be paid by ITC by way of remuneration. Warren and Stuart say that it was expressly agreed that Jonathan’s remuneration from ITC would, at all times, be £120,000 per year greater than any remuneration received by Warren and Stuart from ITC and, for the first year, Jonathan’s remuneration from ITC would be £90,000, to reflect the fact that Jonathan received a severance payment from Coral of £30,000. Jonathan says that there was no discussion of the kind alleged by Warren and Stuart on the subject of remuneration. If there was a time when Jonathan’s remuneration exceeded that of Warren and Stuart by £120,000 per year, Jonathan says that that was pure coincidence. Jonathan’s case is that because he had full authority to act on behalf of ITC on all matters, he had authority on behalf of ITC to fix his own remuneration and that is what he did.

It is very likely that the three brothers would have discussed Jonathan’s remuneration, in the summer of 2007, in the context of Jonathan giving up his employment with Coral and taking over the management of ITC. Jonathan’s suggestion that the topic was not discussed at that time is very surprising. Jonathan seeks to make the suggestion less surprising by asserting that the matter had really all been settled in June 2005 as part of the arrangements entered into at that time. His case as to the arrangements made in June 2005 was that because the online gaming business was the business of WOS and he was the only owner and the director of WOS, all decisions about the gaming business and his remuneration were naturally going to be made by him alone. I have already rejected Jonathan’s evidence about the arrangements made in June 2005. If, as I have found, the arrangements made in June 2005 related to a business owned by four participants (the three brothers and Mr Binnes) with the three brothers as directors, it is not to be expected that Jonathan alone would decide on his remuneration. There is the further consideration that it was not predicted in June 2005 that any of the directors would work full time for ITC. There was therefore no need in June 2005 for the directors to make arrangements as to their remuneration. Further, in June 2005, ITC was a start-up company and the parties could not know how well it would perform; that context would suggest that they would not have been making decisions at that point as to future remuneration.

In support of their case that there was a specific agreement about Jonathan’s remuneration in the summer of 2007, Warren and Stuart rely on a number of matters. First, they say that in 2007 Jonathan was earning £120,000 per year at Coral and that was the salary which he was giving up on moving to ITC. They say that they were also earning approximately £120,000 per year at Coral. (These figures in relation to earnings at Coral did not include benefits and pension payments.) They also point to cash flow projections in September 2007 which showed intended remuneration or drawings by Jonathan of £20,000 per month and intended remuneration or drawings by each of Warren and Stuart of £10,000 per month. They also rely on the sums actually paid to Jonathan in the period from October 2007 to February 2009 which show Jonathan receiving £10,000 per month more than the sum received by each of Warren and Stuart. As against that, there were various projections showing different figures which did not maintain a margin of £120,000 per year in favour of Jonathan. Further, Jonathan is entitled to submit that a remuneration agreement which fixes a margin of £120,000 for all time, for the amount by which his remuneration is to exceed that of his brothers, would be inflexible and surprising.

In relation to the dispute as to what (if anything) was said about Jonathan’s remuneration in 2007, I find the following:

I have already summarised the terms of the APA. Although the APA was signed by Jonathan in May 2013, he dated it 20 January 2012. The APA provided that it was to take effect on 31 January 2012. The intention in stating that the date of the APA was the 20 January 2012 was to make it appear that the APA had been entered into prior to the date on which it was to take effect. By clause 2 of the APA, ITC agreed to sell and WOS agreed to buy the business of an online casino carried on by ITC up to 31 January 2012 together with a number of listed assets including book debts, goodwill and cash at bank.

The price stated in the APA was £826,072.52. The APA stated that this price had been received by ITC. I will consider later in this judgment whether WOS ever did pay any part of that price to ITC.

I have already summarised the terms of the SSA. The SSA, signed by Jonathan in May 2013, was dated 20 January 2012. The SSA recited that on “the Effective Date”, ITC had sold its online casino business to WOS. However, instead of the Effective Date being 31 January or 1 February 2012, to be consistent with the APA, the SSA stated that the Effective Date was 1 February 2013. This appears to have been a slip in drafting. Under the SSA, ITC contracted to provide “Services” to WOS. The word “Services” was defined to include specified services of website development, website management and hosting, marketing and customer support services but also included any other services which WOS agreed to take from ITC. The SSA provided for the Services to be supplied for a period of 12 months from the Effective Date and thereafter to be supplied until the agreement was terminated by either party giving to the other 3 month’s notice to terminate. Thus, WOS was entitled to stop taking a supply of Services from ITC and was free to obtain the Services from another provider. Conversely, ITC was entitled to terminate its liability to provide the Services to WOS. Either party could terminate the SSA with a view to negotiating a new agreement between them but on different terms. WOS was obliged to pay ITC for the Services. The payment to be made was calculated by reference to the cost to ITC of providing the Services. ITC was not entitled to a profit on the provision of the Services but was restricted to reimbursement of its costs. The position as to charging was potentially even more adverse to ITC in that its charges were capped so that they could not exceed the net profit earned by WOS. In addition, ITC was only entitled to charge for its Services annually in arrears.

Jonathan stressed that at all times since 31 January 2012 (the date when the APA supposedly took effect) and at all times since the APA and the SSA were signed in May 2013, WOS has paid all of its net income to ITC. However, the SSA did not provide for that to happen. Jonathan has suggested that the SSA was mistaken when it restricted WOS’s liability to make payments to ITC to the reimbursement of ITC’s costs, subject to a cap by reference to WOS’s profits. Jonathan has never made it clear what would happen, following this litigation, if the court upheld the validity of the APA and the SSA. Would WOS continue to pay over all of its net income to ITC? Or would WOS, solely owned and controlled by Jonathan, operate the SSA in accordance with its terms? No one has applied for rectification of the SSA to include provisions under which WOS would be obliged to pay over its net income to ITC.

There is considerable dispute about Jonathan’s motive in entering into the APA and the SSA. Warren and Stuart say that his motive was clear; they say that he intended to take for himself (through WOS, which he owned on and from 19 December 2012) the business and assets which belonged to ITC. Jonathan’s case was that prior to the APA, the online gaming business and assets were owned by WOS so that the APA did not do anything at all. As to why he bothered to enter into the APA, Jonathan’s case (relying on Mr Hosker’s evidence) was that there were three principal reasons why the APA and the SSA were entered into, namely:

Before I address the dispute as to Jonathan’s motive for entering into the APA and the SSA, I will consider the question as to whether Jonathan had the authority of ITC to commit it to the APA and the SSA, whatever his motive for doing so.

Warren and Stuart say that Jonathan, as managing director of ITC, did not have the authority of ITC to sell its business and its assets to WOS. They also say that, under the APA, the business and assets of ITC were sold at a considerable undervalue. Further, they say that ITC did not receive the price stated in the APA. They say that if the APA was not effective to bind ITC, so that ITC retained its online gaming business and its assets, the SSA falls away as it would be meaningless for ITC to contract to supply services to WOS in relation to a business which WOS did not run.

Jonathan’s primary case in relation to the APA was that the APA did not actually change anything. He says that WOS owned the online gaming business and assets of that business before the APA and it continued to own the business and assets after that date. In view of my finding that the online gaming business and the assets of that business were owned by ITC before the APA, Jonathan’s primary case obviously fails. In any case, Jonathan’s contention was an extraordinary one. He sought to explain why it was proper for ITC to enter into the APA to sell its business and its assets to WOS by saying that ITC did not own the business and the assets which it was contracting to sell.

In the closing submissions on behalf of Jonathan, a variation of the primary case was put forward. It was now said that ITC did not own the online gaming business which the APA was purporting to sell but it did own some (but not all) of the assets which the APA was purporting to sell. As before, in view of my finding that the online gaming business and all of the assets of that business were owned by ITC before the APA, this variation of the primary case obviously fails as well. In any case, this contention is again a remarkable one for similar reasons to those set out above in relation to the primary case.

As to the SSA, Jonathan’s position appears to be that before the SSA, ITC was entitled to receive from WOS its net income from the online gaming business for so long as WOS carried on an online gaming business. Jonathan’s case is that, in so far as the SSA purports to limit ITC’s right to be paid by WOS, and in so far as WOS is entitled to give short notice to terminate the SSA, those provisions are simply mistaken and those results were never intended. Throughout the closing submissions made on behalf of Jonathan, it was simply assumed that, under the APA and the SSA: (1) ITC was entitled to receive from WOS all of its net income so that WOS would make no profit and ITC would receive all of the profit of the gaming business; and (2) WOS could not terminate the SSA. However, that is not what the SSA provides. I have to consider the question of Jonathan’s authority by reference to what the APA and the SSA did rather than what it is alleged Jonathan thought that they did. WOS does not seek rectification of the APA and the SSA. Jonathan says that he had authority to bind ITC to the APA and the SSA. In the absence of a claim to rectification of the SSA, in particular, I will consider that contention by reference to the legal effect of the documents as they stand. If Jonathan did not have authority to enter into the APA and the SSA in accordance with their terms, then those documents do not bind ITC.

Jonathan’s case is that he had actual authority to bind ITC by entering into the APA and the SSA. He says that his actual authority to do what he did was express, alternatively, implied actual authority. He does not contend that he had apparent, or ostensible, authority to bind ITC so that WOS could say that ITC was bound by what Jonathan did, even if he exceeded his actual authority.

Jonathan says that he had express actual authority to bind ITC to the APA and the SSA pursuant to the discussions which he had with Warren and Stuart in around June 2005, alternatively in the summer of 2007. As to implied actual authority, Jonathan relies upon the course of conduct from the commencement of the business in around June 2005 up to the signing of the APA and the SSA in May 2013.

Before considering Jonathan’s particular points about his authority, it is useful to remind oneself of the relevant Articles of ITC. ITC’s Articles were essentially in the form of the Companies Act 1985 version of Table A. Regs. 70 and 71 dealt with the powers of the directors of ITC. By reg. 70, it was provided that “the business of the company shall be managed by the directors who may exercise all the powers of the company”. By reg. 71, the directors were able to appoint any person to be the agent of the company. Reg. 72 permitted the delegation of the powers of the directors. This permitted delegation, to any managing director or any director holding any other executive office, of such of their powers as the directors considered desirable to be exercised by him. By reg. 84, the directors were able to appoint one or more of their number to the office of managing director or to any other executive office under the company. Reg. 82 dealt with the remuneration of the directors which was to be fixed by ordinary resolution. Reg. 83 provided that directors were entitled to expenses properly incurred by them. Reg. 102 provided that dividends were to be declared by ordinary resolution.

Jonathan’s case, as pleaded in paragraph 16 of his Amended Defence to the ITC claim, is that, in June 2005, a number of matters were expressly agreed between the three brothers, all of whom were directors of ITC. In particular, it is pleaded that the gaming business would be owned by Jonathan alone, that Jonathan would control the new business venture and would oversee the day-to-day management undertaken by Mr Binnes, that Warren and Stuart would not be involved in the management of the company and that Jonathan would make all decisions relating to ITC and its business, including the fixing of remuneration and the payment of any dividends.

In his Amended Defence to the ITC claim, Jonathan does not plead that the brothers entered into any different agreement when he left Coral and began to work full time for ITC in or around October 2007. The Amended Defence (paragraph 22) pleads that the agreement reached in 2005 continued to apply on and after 2007. However, it is clear that something did change in or around October 2007 in that Jonathan directly took on the management of ITC and he was no longer overseeing day-to-day management by Mr Binnes.

In his Amended Defence (paragraphs 25 and 26), Jonathan also pleads a course of dealing by the three brothers in relation to ITC. Jonathan pleads that Warren and Stuart did not participate in the running and the management of ITC, including the management of its financial affairs. Jonathan refers specifically to his remuneration and expenses, ITC’s accounts, and the fixing and payment of dividends.

In his submissions, Mr Thompson submitted that the discussions between the three brothers and the course of dealing produced the result that the three directors had delegated to Jonathan alone all of the powers of the directors and, further, that the three shareholders (putting Mr Binnes on one side as he ceased to be a shareholder in 2007/2008) delegated to Jonathan alone all of the powers of the shareholders in general meeting.

I make the following findings as to the discussions between the three brothers in June 2005 and in the summer of 2007 and as to the course of dealing between them:

Based on these findings, I do not accept that there was an express delegation to Jonathan in June 2005 of all of the powers of the directors. As to the summer of 2007, I consider that Jonathan became the de facto managing director but without being formally appointed as managing director. As such, Jonathan had the power to make all decisions as to the management of the business of ITC. I do not accept that Warren and Stuart as shareholders delegated to Jonathan all of the ability to make decisions as shareholders at a general meeting. As to the payment of dividends, the practice was that Jonathan identified the dividend which was to be paid and Warren and Stuart did not object. I do not consider that this produced the result that Warren and Stuart gave up their ability to participate in the fixing of the dividend as would be the position if they had conferred on Jonathan the sole power of decision as to the amount of the dividend. I also do not accept that Warren and Stuart delegated to Jonathan the power to fix his own remuneration; this is a subject which I will consider in more detail later in this judgment.

It is worth commenting that, as the years went by, it is clear that Jonathan’s own perception as to his position differed more and more from the legal position described above. Jonathan was working hard running ITC whereas Warren and Stuart did next to nothing. Jonathan took it upon himself to pay himself what he wanted. Jonathan began charging personal expenses to ITC. In this way, Jonathan began to persuade himself that the business ought to be considered as if it all belonged to him and he acted accordingly.

Based on the above findings, I will now address the question whether Jonathan had the authority to bind ITC to the APA and the SSA. I consider that he did not. The entry into these documents went well beyond the running of, or the management of, the company. Prior to the APA and the SSA, ITC owned an online gaming business. After the APA and the SSA, it did not. This was a fundamental change in the position of ITC which went beyond the running of, or the management, of the online gaming business. Mr Thompson argued that the APA and the SSA amounted to a tidying up of a messy corporate structure and it was essentially a reorganisation with no economic consequences of any substance. I do not agree. At times, these arguments assumed that WOS was already the owner of the online gaming business or assumed that ITC was entitled under the APA and the SSA to receive all of the net income from the online gaming business. Neither of those assumptions is justified. The true position was that ITC was disposing of its business. Thereafter, it would not run an online gaming business. Even if its rights under the SSA were worth having, the most it would do thereafter would be to provide services to WOS at cost. For the avoidance of doubt, I would reach the same view if the SSA entitled ITC to be paid the net income of the online gaming business “so long as WOS ran an online gaming business” as it was put by Mr Thompson. In that situation, the decision to continue to run the online gaming business would no longer be ITC’s, as that decision would be under the exclusive control of WOS.

There is very little guidance in the authorities as to the usual extent of the authority of a managing director. Mr Thompson helpfully referred to Re Emmadart Ltd [1979] 1 WLR 540. In that case, it was said (by Brightman J) that the directors of a company with the power, under Article 80 of the Companies Act 1948 version of Table A, to manage the business of the company did not have the power to present a winding up petition in the name of the company. It was held that “managing” a company did not extend to an act done “for the purpose of destroying the company”. Plainly, this authority is not directly in point but it does indirectly support the idea that the power to manage a business does not extend to determining that business.

Mr Thompson also referred to Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 but that was principally for the proposition that a director may be given implied actual authority to act, as a result of a course of dealing involving the director and the company. That proposition was not in doubt. The facts of that case are very different from the present case.

Apart from these general considerations, there is the specific point that the three brothers agreed to invest in a company which was to run an online gaming business. It was of the essence of that agreement that the company would run that business. Whatever authority Jonathan was given by the somewhat informal arrangements made in this case, that authority was subject to the agreement that the company was to run the business. It was clearly not envisaged that it would be for Jonathan alone and not the three brothers together to decide to bring that business to an end.

Mr Gourgey also relies on the fact that when Jonathan entered into the APA and SSA, he did not purport to do so as the managing director, or the sole director, with power to bind ITC in that way. Instead, he pretended that the decision had been taken by the board of directors. Mr Gourgey submitted that this fact shows that Jonathan realised that he did not have the authority, acting alone, to bind ITC to the APA and the SSA. I can see the point but as I have decided on the scope of Jonathan’s authority without regard to it, I do not need to determine whether there is any force in this point.

The result of the above is that the APA and the SSA were not authorised by ITC and ITC is not bound by them. That means that on and after May 2013, when these documents were purportedly entered into, the online gaming business and assets of ITC remained owned by ITC. Its accounts from 1 February 2012 should be prepared accordingly. The accounts of WOS which showed WOS receiving the turnover of the online gaming business have been prepared on the wrong basis.

Mr Gourgey submitted that even if (contrary to my findings) Jonathan did have authority to bind ITC to a transaction of the kind represented by the APA and the SSA, he acted outside the scope of that authority because he only had authority to act for the benefit of ITC and he did not reasonably believe that ITC would wish Jonathan to enter into the APA and the SSA. References to an agent’s authority being limited to acts for the benefit of the principal and the need for the agent to have a reasonable belief that the principal would wish the act to be done appear in Bowstead and Reynolds on Agency, 20^th ed. paras. 3-008 and 3-009. There was some discussion at the trial as to the correct test to be applied in this context and I was referred to a number of the authorities referred to in Bowstead and Reynolds. It is not necessary for my decision to express a view on those matters. However, there was a considerable dispute of fact as to Jonathan’s motive for entering into the APA and the SSA and I heard considerable evidence and submissions on that point. I consider that I should make my findings as to Jonathan’s motive for his actions even though it is not relevant to the way in which I have determined the question whether he had authority to bind ITC in relation to the APA and the SSA. In case this matter goes further, my findings might be material to ITC’s alternative case based on the passage in Bowstead and Reynolds. In any case, my findings might be material to the issues arising in relation to the section 994 petition.

In order to ascertain Jonathan’s motive as to why he caused ITC to enter into the APA and SSA, it is necessary to consider the oral evidence of Jonathan and Mr Hosker. As it happens, there is very little in the contemporaneous documents to throw light on this question of motive. However, having regard to the explanations for the transaction which were given by Jonathan and Mr Hosker, it is useful to consider a large number of subsidiary questions and other matters which might be described as follows:

I will now set out my conclusions on these various points.

The first question was as to why did Jonathan wish, in around August 2012, to transfer ITC’s trade marks to a company in Curaçao. It seems likely that the intended transferee at that time was WOS rather than another Curaçao company, although Jonathan did, later, form another Curaçao company. The proposal to assign the trade marks came up earlier than the proposal to transfer the gaming business to WOS. The evidence did not really help with what Jonathan’s motive was for transferring the trade-marks and, as a result, any attempt to answer this question would not help very much with the issue as to Jonathan’s motive in entering into the APA.

The next question is: why did Jonathan wish, in October 2012, to bring WOS out of dormancy? I consider that this raises the same issues as to why Jonathan wanted to enter into the APA.

The next question is: why did Jonathan wish, in late 2012, to see the shares in WOS owned by CWC transferred into his sole name? I consider that the short answer is that Jonathan wanted to be the sole owner of WOS. Earlier in 2012, he believed that he was the sole owner of WOS. He wanted to transfer ITC’s gaming business to WOS. When he discovered that he was not the sole owner of WOS, he simply wanted to change that position. He was not inhibited in acting in this way by the consideration that he did not own CWC, the shares in which were owned beneficially by the three brothers. It seems to me to be likely that Jonathan’s conduct was influenced by the consideration that by late 2012, he had come to regard the gaming business as his business. His thinking probably was that he had done all the work to build up the business and he had taken all the risks involved. Conversely, his two brothers had done virtually nothing in that respect and had already done very well out of their original investment. That influenced his attitude to his remuneration and his expenses; he considered that he should be able to draw on the profits of the gaming business to the extent that he wished, without regard to the fact that the shares in ITC were owned by the three brothers equally.

Mr Hosker suggested that the desire to transfer the shares in WOS from CWC to Jonathan was driven by the different treatment for VAT purposes of the case where the shares were owned by CWC and the case where the shares were owned by Jonathan. The suggestion seemed to be that if ITC supplied administration services to WOS for a consideration at a time when the shares in WOS were owned by CWC, then VAT would have to be charged by ITC to WOS. The converse suggestion was that if ITC supplied administration services to WOS for a consideration at a time when the shares in WOS were owned by Jonathan, then VAT would not have to be charged by ITC to WOS. I asked to be shown the relevant provisions which produced that result. After the hearing, I was provided with certain provisions of the Value Added Tax Act 1994 but my attention was not drawn to any specific provision which produced the result which had been suggested by Mr Hosker. I was not myself able to find such a provision. The result is that I am not able to say that Mr Hosker is right in the explanation which he gave but, in view of the fact that I did not receive any submissions from counsel on this point, it would be wrong for me to hold that he was wrong. I will therefore bear in mind the possibility that he might have been right about the VAT consequences of the shares in WOS being owned by Jonathan. However, I am not persuaded that the (possibly) different VAT treatment was the reason for the transfer of the shares in WOS from CWC to Jonathan. I have explained that the real reason was probably that Jonathan wanted the online gaming business to be owned by a company which was wholly owned by him to reflect his belief that the business ought to be considered to be his business.

The next question is: why did Jonathan cause CWC to be struck off the register and dissolved? Mr Gourgey suggested that Jonathan’s reason was that he wanted to get rid of the possibility that CWC might later bring a claim against Jonathan arising out of Jonathan’s transfer of CWC’s asset, the shares in WOS, to Jonathan alone. That is a possibility but I think that the more likely reason was that Jonathan wanted to get rid of a company which had a reference to “casino” in its name. However, his reasons are not clear and are not easy to determine so that I consider that an attempt to answer this question does not really help in the search for Jonathan’s motive for entering into the APA.

The next question is: what was the effect of the request from Century Trust for a passport for the ultimate beneficial owner of WOS? This request was made at the same time as Jonathan became aware that he did not own the shares in WOS. Those shares were owned by CWC, the shares in which were owned by the three brothers. If Jonathan had to provide passports for Warren and Stuart he would have to explain to them what he was proposing.

Was there a risk that ITC’s bankers would see ITC’s accounts and the reference to the business of gaming? In the case of the financial years up to 31 January 2012, ITC filed abbreviated accounts at Companies House. Mr Hosker told me that, in around October 2012, when ITC signed off its accounts for the year to 31 January 2012, it became clear to him that if matters continued as they were, by reason of the size of ITC’s turnover, ITC would have to file full accounts at Companies House in future years. The concern was said to be that ITC’s bankers, HSBC, could obtain a copy of the full accounts of ITC and that would reveal that ITC was carrying on an online gaming business. It was not immediately obvious to me why the difference between filing abbreviated accounts and filing full accounts would produce a relevant difference in this respect because the abbreviated accounts which had been filed by ITC in earlier years had also disclosed that ITC was carrying on a gaming business. So if HSBC had obtained a copy of the abbreviated accounts from Companies House, then they would have seen the same information about ITC’s business. When this point was put to Jonathan, he gave some surprising evidence about the information which he had previously given to HSBC. He said that although the filed abbreviated accounts had disclosed that ITC carried on a gaming business, and although he had provided abbreviated accounts to HSBC directly (so that they did not have to obtain them from Companies House) the versions of the abbreviated accounts which he gave to HSBC were doctored to remove the references to ITC carrying on a gaming business. I am prepared to accept Jonathan’s evidence that he misrepresented the position to HSBC as it was in many respects not in his interests to reveal to the court that he had been misrepresenting the position to HSBC over the years. The problem still remains: why would the change from abbreviated accounts to full accounts make any relevant difference? The suggestion was that if full accounts were filed, it would be more likely that HSBC would go direct to Companies House to obtain them. I find this suggestion very unpersuasive. However, I do accept that Jonathan was very concerned indeed about HSBC seeing that its customer, ITC, was carrying on a gaming business. I accept that Jonathan saw it as an advantage of transferring the gaming business to WOS that ITC could then prepare accounts, whether abbreviated or full, which would show that ITC was carrying on a different business. However, I doubt if this benefit was the reason for the entry into the APA as distinct from a perceived consequence of doing so.

Was there a risk of illegality under the Gambling Act 2005? The relevant provisions of the Gambling Act 2005 are section 4 (definition of remote gambling) and sections 33 and 36 (together dealing with the territorial scope of the law as to offences in relation to remote gambling). On 21 January 2010, Jonathan had obtained specific advice from Mr Wilson on the operation of these provisions. I have set out the full text of that advice earlier in this judgment. Mr Wilson advised in clear terms that ITC’s operation did not contravene the Gambling Act 2005 and did not require a licence under that Act. Jonathan must have been satisfied with that advice in 2010 as there was no change to ITC’s operation at that time. In the contemporaneous documents for the year or so leading up to the entry into the APA, there is no mention anywhere of any concern about the operation of the Gambling Act 2005. That does not mean that the point was not discussed between Jonathan and Mr Hosker. Mr Hosker told me that at some point a suggestion was made as to whether ITC should accept bets or deposits over the telephone and he was concerned that operating that way might result in ITC having a piece of remote gambling equipment in Great Britain within section 36 of the 2005 Act. He said that caused him to look at the legislation and he thought that it would not be safe to accept bets or deposits over the telephone and so ITC did not do so. Mr Hosker’s evidence was that when he looked at the legislation, he became concerned as to whether the storage by ITC of administrative records in Great Britain might amount to there being a piece of remote gambling equipment in Great Britain so that there would be a need for a licence to carry on remote gambling. Mr Hosker then suggested that this was one of the reasons, in his mind if not in Jonathan’s mind, for the desire to move the gaming business from ITC to WOS.

I have great difficulty in accepting Mr Hosker’s evidence on this point about the Gambling Act 2005. Mr Hosker had no particular skills which would enable him to interpret and apply that legislation. If the point had been of concern to him, it is difficult to understand why he or Jonathan did not take advice on this point. One explanation for not taking advice would be that he, or Jonathan, was quite satisfied with the positive advice that Jonathan had received from Mr Wilson in January 2010. But Mr Hosker said that he was not aware of that advice. Jonathan said that he had forgotten it in the period leading up to the entry into the APA. So there was no real explanation for why they did not take advice in 2012 or 2013 if they really were concerned about this point. I also note that Jonathan was not concerned about the fact that he had not implemented Mr Wilson’s advice of 31 May 2005 as to the operation of the Gaming Act 1968 which governed the position up until 1 September 2007. Further, I was referred to the legal position from 1 November 2014 which was governed by section 33 of the 2005 Act as amended by the Gambling (Licensing and Advertising) Act 2014 where, as I understand it, a licence is now required if remote gambling facilities are being used, or are likely to be used in Great Britain (even if the remote gambling equipment is outside Great Britain). I was not told that ITC or WOS had applied for a licence following this change in the law. However, I was not specifically addressed on this point so I ought not to give it any weight.

My conclusion in relation to the alleged concern about the Gambling Act 2005 is either that there was no concern on that score or, if it did enter into Mr Hosker’s thinking, it was not a consideration of any great weight and did not drive the decision to enter into the APA.

Was there a risk of liability for remote gaming duty? Remote gaming duty was introduced with effect from 1 September 2007. It was payable in accordance with sections 26A to 28M of the Betting and Gaming Duties Act 1981, inserted by the Finance Act 2007. The law was changed by section 155 of the Finance Act 2014, with effect from 1 December 2014. In summary, between 2007 and 2014, the liability to pay remote gaming duty turned on the same question as arose under sections 33 and 36 of the Gambling Act 2005 as to whether there was one piece of remote gambling equipment in Great Britain. If remote gaming duty had been payable by ITC, the sums involved would have been considerable. It would have been well worthwhile ITC taking advice on any question of that kind. However, there is no sign of any discussion within ITC of this point and ITC did not take advice on the point. Although ITC had always told HMRC that it was operating a gaming business, there had never been a suggestion from HMRC that remote gaming duty was payable. Further, even if ITC transferred the online gaming business to WOS in 2013 (or, as it pretended, with effect from January 2012), if there was a concern about liability for remote gaming duty, there would still have a problem with the earlier period from 1 September 2007.

For similar reasons to those expressed above as to Mr Hosker’s evidence about a concern in relation to the Gambling Act 2005, I have great difficulty in accepting his evidence as to a concern as to remote gaming duty. I find either that there was no concern on this score or, if it did enter into Mr Hosker’s thinking, it was not a consideration of any great weight and did not drive the decision to enter into the APA.

On 31 October 2012, Mr Hosker emailed Century Trust in Curaçao and asked for the tax position in Curaçao if WOS had “zero profits or a loss”. The suggestion that WOS might have zero profits fits in with the later memorandum of 20 March 2013, to which I will refer. That suggests that at the end of October 2012, Jonathan was contemplating that all of the net income would be paid by WOS to (presumably) ITC.

I have referred earlier to Mr Hosker’s note of 20 March 2013. This is a potentially significant document. Jonathan naturally relies on it to show that it was always his intention that WOS would pay its net income to ITC. The note is quite clear that “the value of the profit or loss incurred by [WOS] which is specifically related to the above transactions, will be recharged by ITC in the form of a management charge”. Mr Hosker’s covering email to Jonathan stated that the note was “for discussion” before it was sent to Mr Philbin.

What is puzzling, and what has never been explained, is how it came about that the draft of the SSA produced by Mr Philbin’s firm did not give effect to the note of 20 March 2013. Was the note of 20 March 2013 sent to the solicitors? Did Jonathan or Mr Hosker give different instructions to the solicitors? Why did Mr Hosker or Jonathan not pick up, and correct, the point that the SSA did not give effect to the note of 20 March 2013? It is also right to note, in Jonathan’s favour, that after May 2013, WOS did indeed pay over its net income to ITC, as had been established by the audits which have been carried out.

The next question is: why did Jonathan incorporate Carmel Media Group NV in October 2013 and subsequently obtain a gaming licence for that company? It is difficult to avoid the conclusion that Jonathan wanted to make sure that he would have a company wholly owned by himself which could operate an online gaming business.

I have considered what to make of Jonathan’s reaction to Warren’s request in September 2014 to be shown the accounts of ITC and to have a meeting with Jonathan. Jonathan’s reaction to this request was somewhat extreme. He spent the weekend taking action to prevent Warren and Stuart becoming involved again in the affairs of ITC. I note that he called his brothers “the brothers Grimm”. This indicates to me that by September 2014, Jonathan’s perception of the merits of the situation was that the gaming business was his business for him to run (exclusively) and largely, if not exclusively, for his benefit. That is consistent with Jonathan wanting in May 2013, to transfer the gaming business to a company owned by him.

In September 2014, Jonathan caused ITC to enter into a licence of ITC’s office in favour of his company, Four Seasons. That is consistent with Jonathan wanting to exclude his brothers from ITC and treating ITC’s assets as if they were for him alone to deal with.

At the meeting on 22 September 2014, Jonathan told Warren and Stuart that their interests in ITC were worthless.

I consider that what Jonathan said in paragraph 2.5 of his witness statement of 24 December 2014 (referred to earlier) is revealing. This was Jonathan’s first witness statement in this litigation. The paragraph is not confused or unclear. It was obviously very carefully considered by Jonathan and those advising him. It does not say that ITC was entitled to all of the net income of the gaming business. By that time, if not before, it was therefore Jonathan’s considered stance that the question as to whether the profits of the gaming business were retained by WOS or paid over (and, if so, to what extent) was a matter for him and was not a matter of entitlement on the part of ITC.

Jonathan naturally relies on the fact that after May 2013, WOS did pay all of its net income to ITC, as the audits have established. This is in accordance with Mr Hosker’s note of 20 March 2013 and entitles Jonathan to argue that it was always his intention that the transfer of the business to WOS would not adversely affect ITC. As against that, first, the SSA plainly did not so provide and there is no real explanation as to how that came about and, secondly, when Warren and Stuart sought to become involved in ITC in September 2014, that provoked the considered response from Jonathan which was set out in paragraph 2.5 of his witness statement of 24 December 2014.

I have also considered the fact that shortly after the meeting on 22 September 2014, Jonathan transferred £1.25 million of ITC’s money to companies controlled by him.

I now need to stand back from these many competing considerations and ask myself whether I am able to determine Jonathan’s motive in entering into the APA and the SSA. It is clear that Jonathan wanted to transfer the gaming business to WOS. Was that because ITC was in Great Britain and WOS was outside Great Britain or was it because ITC was owned by the three brothers and WOS was (after the transfer of the shares from CWC) owned by Jonathan? I consider that, having regard to the fact that Jonathan bothered to transfer the shares in WOS to himself that it is more probable than not that the principal motivation in entering into the APA was to transfer the gaming business to a company owned by himself alone.

I next need to consider what Jonathan thought when he entered into the SSA. It is quite clear to anyone reading it that the SSA does not provide for all of the net income of WOS to be paid to ITC. When this litigation began, Jonathan served a considered witness statement saying that payments by WOS to ITC were a matter for his discretion. Why then did WOS actually pay all of its net income to ITC from May 2013 until September 2014? It is not possible to be certain about the answer. Perhaps Jonathan always intended that result and only said what he said on 24 December 2014 when Warren and Stuart sought to enforce their legal rights. Perhaps Jonathan always believed what he said on 24 December 2014 but had not yet decided to implement the SSA in accordance with its terms. The fact that WOS has continued to pay its net income to ITC since September 2014 will plainly have been influenced by the legal advice which Jonathan has received in this litigation.

I therefore find:

There was an issue as to whether WOS paid to ITC the price for the assets which were purportedly transferred by the APA. In case it is relevant, I will make my findings on that matter. The APA stated that the price payable for the assets purportedly transferred was £826,072.52. There was no occasion or occasions when WOS made a payment or payments which were intended by it to amount to the payment of this sum. However, WOS did pay over to ITC all of the net profits of the gaming business and, pursuant to the express terms of the APA and SSA, WOS was not obliged to do so. I also find that since May 2013 when the APA and SSA were entered into, the amounts paid by WOS to ITC have exceeded the price stated in the APA. Accordingly, if the APA and the SSA had taken effect in accordance with their express terms, WOS has paid to ITC more than the stated price. Conversely, if as Jonathan asserted, the APA and the SSA were meant to have the effect that WOS would pay over the net profits of the gaming business to ITC, then although WOS has done so, it has not separately or in addition paid the price stated in the APA.

In the alternative to its claim that the APA and SSA were not binding on ITC, it submitted in the alternative that the APA and SSA were voidable by reason of section 190 of the Companies Act 2006, although ITC appeared to accept that any claim by it to rescind the APA and SSA pursuant to section 195 of the 2006 Act would have to be the subject of a further claim. In view of my finding that the APA and the SSA were not binding on ITC, ITC do not need to rely on section 190 and it is not necessary to consider whether ITC would be entitled to rescind the agreements under section 195 or whether WOS would be able to resist such a claim. Further, because the APA and the SSA never had effect, there is no claim by ITC pursuant to subsections (3) and (4) of section 190. In these circumstances, it is not necessary (and I think not appropriate) for me to consider sections 190 and 195 any further.

I heard substantial expert evidence as to whether the price stated in the APA was an undervalue. In view of my findings that the APA and the SSA are not binding on ITC, the question of a possible undervalue does not arise and it is not necessary for me to make findings on that question. However, I consider that the valuation evidence is relevant to something which I will need to address later in this judgment, namely, the question whether I should make an order under section 996 of the 2006 Act permitting Jonathan to buy the shares of Warren and Stuart at market value to be determined by an independent valuer. I will consider the valuation evidence in that context later in this judgment.

Jonathan sought to rely on the Duomatic principle (see Re Duomatic Ltd [1969] 2 Ch 365) in connection with the issue as to the binding nature of the APA and SSA and, also, in relation to the dispute as to his remuneration. The argument was that if a relevant transaction was not carried out in accordance with the formal requirements of the Companies Acts and/or the Articles of ITC, the transaction in question was one which could have been done on behalf of ITC if the shareholders in general meeting (or even informally) agreed that it should be done. For this purpose, Jonathan submitted that he had the authority of Warren and Stuart to act for them in their capacity as shareholders in ITC so that the Duomatic principle could be relied upon if Jonathan alone had decided that the transaction should take place. In this way, it was said that Jonathan’s unilateral decision would bind the other shareholders so that his decision amounted to the decision of all of the shareholders. As to this line of argument, I have already decided that Jonathan had the authority of a de facto managing director of ITC but his authority on behalf of ITC did not go further than that. For the same reasons, I find that Warren and Stuart had never agreed that Jonathan had authority to act for them as shareholders so that anything that could be done by the shareholders acting together could be done by Jonathan acting alone.

The APA purported to transfer to WOS the online gaming business and the assets of ITC. However, the APA was not authorised by ITC and was of no effect. ITC remained the owner of the online gaming business and the assets referred to in the APA and WOS never became the owner of that business and those assets.

As I understand it, most, if not all, of the receipts of the online gaming business have been paid into bank accounts in the names of some of the corporate Defendants. As I have explained, when referring to ITC’s accounts over the years, it was declared that the monies in those accounts was owned beneficially by ITC. I find that those statements reflected the reality of the position. At all times, the online gaming business was owned by ITC and ITC was entitled to the receipts of that business. For various reasons, those receipts were paid into bank accounts in the names of other companies. However, those companies were nominees in relation to those monies and held the same on bare trusts for ITC. Since the time of the statements in ITC’s accounts to which I have referred, Jonathan has opened further bank accounts in the names of further nominee companies but the position has remained that the monies in those accounts are receipts from ITC’s business and they are owned beneficially by ITC.

I also heard submissions as to the beneficial ownership of the various gaming licences which have been granted to WOS and to Carmel Media Group NV. WOS holds two licences, one granted in Curaçao in 2005 and one granted by the Mohawk Territory of Kahnawake on 27 August 2014. Carmel Media Group NV also holds two licences, one granted in Curaçao in November 2013 and one granted by the Mohawk Territory of Kahnawake on 15 October 2014.

In relation to WOS’s Curaçao licence, Jonathan made the statement on 29 October 2012 that WOS held this licence on trust for ITC. I heard various submissions as to this statement. In particular, WOS submitted that it was not possible to hold such a licence on trust having regard to the detailed terms of the licence. It was said that the licence was personal to WOS so that its benefit could not in law be held on trust for ITC. It may be that if this submission was sound, it would also apply to the other three gaming licences referred to above.

I do not intend in this judgment to rule on the question whether the gaming licences were held on trust for ITC. I have already expressed scepticism as to whether these licences have any value. If I were to rule upon the legal nature of these licences, I feel that I would need more information as to the legal position in that respect under the laws of Curaçao and the Mohawk Territory of Kahnawake and further submissions as to the extent to which a personal or a non-assignable right can be held on trust for a third party.

I also heard submissions as to whether the shares in the various corporate Defendants (apart from WOS which I have considered separately) are held on trust for ITC. ITC says that the formation of these companies was the result of Jonathan diverting to those companies a corporate opportunity belonging to ITC. The problem with that submission is that these companies (apart from Carmel Media NV) have no function other than to hold monies in bank accounts on bare trusts for ITC. I have already held that the monies in bank accounts held by those companies are held on bare trusts for ITC so that whether the shares in those companies are also held on trust for ITC would not appear to be of any importance. The position in relation to Carmel Media NV is different in that it holds two gaming licences but I have already indicated that I will not in this judgment address the question as to whether those licences are capable of being held on trust for ITC. In these circumstances, I consider that it is not appropriate in this judgment to take time considering the claims in relation to the shares in these corporate Defendants.

ITC’s case in relation to Jonathan’s remuneration is that the three brothers agreed that Jonathan’s remuneration, throughout his time as de facto managing director of ITC, would be £120,000 per year more than was received by each of Warren and Stuart (who would receive the same as each other). I have already held that there was no agreement which was to govern for the whole period that Jonathan acted as managing director. Instead the agreement, which was made, which referred to Jonathan receiving £120,000 more than each of Warren and Stuart, related to the outset of the arrangements and was capable of being reviewed from time to time. In that case, ITC contends that any review of Jonathan’s remuneration was governed by reg. 84 or 82 of the Articles of ITC. Reg. 84 provides that the directors may appoint a managing director, or an executive director, and they may remunerate the appointed director as the directors think fit. Reg. 82 provides that the directors are entitled to such remuneration as the company may by ordinary resolution determine. ITC says that the three directors never did agree a review of Jonathan’s initial remuneration. ITC also says that the company never did, by ordinary resolution or even informally, determine that Jonathan should have an increase in his remuneration. Accordingly, the original terms as to Jonathan’s remuneration continued to apply. Insofar as Jonathan purported to take greater remuneration from ITC, those greater sums were not authorised. ITC claims an account and repayment in relation to the overpayments to Jonathan alternatively, at its election, it claims equitable compensation. There might be a difference between an order for repayment and an order for equitable compensation in that ITC may have incurred further losses over and above the monies taken by Jonathan in the form of higher national insurance contributions.

Jonathan’s case is that remuneration was not discussed either in June 2005, or in the summer of 2007 when the decision was taken that he would work full time for ITC. In the absence of any discussion, Jonathan says that Warren and Stuart, as the other directors, alternatively as the other shareholders in ITC (putting Mr Binnes on one side), delegated to him the power to determine his remuneration as de facto managing director.

I have already rejected Jonathan’s case that his remuneration was not discussed between the brothers in the summer of 2007. I consider that the fact that Warren and Stuart participated in the setting of the initial amount of the remuneration to be paid to Jonathan makes it unlikely that they would have agreed with him that he could at any time, perhaps even immediately, determine his own remuneration. I find that nothing was expressly said about Jonathan’s remuneration for the future. Jonathan’s case as to the delegation to him of the power to fix his own remuneration must therefore be an implied delegation based on the course of dealing between the parties.

In support of an implied delegation, Jonathan relies on the fact that in practice he decided how much to pay himself and Warren and Stuart did not object. He also says, more broadly, that Warren and Stuart delegated to him all of the powers of the directors, and all of the powers of the shareholders to act in a general meeting, but I have already rejected that submission. I will therefore focus on the suggestion that there was an implied delegation to Jonathan of the directors’ powers, alternatively the shareholders’ powers, to determine his remuneration because Warren and Stuart did not object to the remuneration that ITC was paying him. However, Jonathan does not assert that Warren and Stuart knew how much Jonathan was taking from ITC. Warren and Stuart gave evidence that they did not know how much Jonathan was receiving and I accept that evidence. They also said that in 2013 and 2014 they suspected that Jonathan was taking substantial sums from ITC. However, I consider that the failure to investigate that suspicion prior to September 2014 did not amount to an implied delegation to Jonathan of the power to fix his own remuneration.

In view of my finding that the sums taken by Jonathan by way of purported remuneration in excess of the initial agreement as to his remuneration were not authorised by ITC, it follows that Jonathan must repay the excess to ITC.

ITC also claims the right, at its election, to equitable compensation for Jonathan’s breach of fiduciary duty in taking monies from ITC to which he was not entitled. In view of my finding that that the sums taken in excess of his entitlement were not authorised, I also find that Jonathan acted in breach of fiduciary duty to ITC when he took those monies.

These findings are subject to the possibility, on which I did not hear any submissions, as to whether Jonathan can now apply to the directors or the shareholders of ITC for them to review the initial terms as to remuneration and, retrospectively, to award Jonathan remuneration in excess of the terms initially agreed. If ITC were to raise Jonathan’s remuneration retrospectively, then that would affect the amount which Jonathan has to repay and the amount of any equitable compensation.

Jonathan has sought to rely on section 1157(1) of the Companies Act 2006 which provides:

“If in proceedings for negligence, default, breach of duty or breach of trust against -

(a)

an officer of a company, or

(b)

a person employed by a company as auditor (whether he is or is not an officer of the company),

it appears to the court hearing the case that the officer or person is or may be liable but that he acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused, the court may relieve him, either wholly or in part, from his liability on such terms as it thinks fit.”

I did not hear argument as to whether a claim by ITC against Jonathan, to recover sums which he paid to himself as purported remuneration but without the authority of ITC, is a claim for a “default” by Jonathan within section 1157. I will assume that such a claim, as well as a claim for equitable compensation for breach of fiduciary duty, does come within section 1157. Jonathan can only seek to rely on section 1157 if he acted both honestly and reasonably in relation to his remuneration. I am not able to find that Jonathan acted either honestly or reasonably. As to his honesty, Jonathan knew that the level of his remuneration was initially agreed with Warren and Stuart. When he began to increase his remuneration, he purported to act unilaterally. He did not raise the question of his remuneration with Warren and Stuart before he did so and he did not tell them what he had done until he could not avoid doing so at the meeting on 22 September 2014. I consider that the reason that he did not mention his remuneration to them was that he knew they would probably not agree to the sums he was paying himself. Accordingly, he just went ahead and paid himself what he wanted to receive. I find that he must have realised that he was paying himself remuneration to which his brothers had not agreed and which they probably would not agree and to which he was not entitled. That was dishonest. If Jonathan could avoid a finding of dishonesty, for example on the ground that he convinced himself that the business was his alone so that he could pay himself what he wanted, I find that he had no reasonable basis for that belief and so his conduct, even if it might conceivably be honest, was not reasonable. Accordingly, Jonathan is not able to rely on section 1157 of the 2006 Act.

Jonathan also asked to be relieved from the consequences of any breach of trust pursuant to section 61 of the Trustee Act 1925. In view of my finding that he acted neither honestly or reasonably in relation to his remuneration, he is not able to rely on section 61.

I heard substantial expert evidence as to what would have been reasonable remuneration for a person in Jonathan’s position over the relevant period. The witness called by ITC was Ms Swindale of KPMG and Jonathan called Mr Brooks of Inbucon. On the basis of my findings, this evidence is not relevant to any matter which I have to decide. As I have explained, if Jonathan is to receive an increase above the remuneration payable under the agreement he originally made with his brothers, that will be for the directors of ITC to decide. The expert evidence gave rise to a large number of issues and the experts were very far apart both as to the industry data that could be used and as to the approach. As it is not necessary for the purposes of my judgment to discuss this evidence, I will not do so.

Reg. 83 of Table A, which is incorporated in ITC’s Articles, provides:

“The directors may be paid all travelling, hotel, and other expenses properly incurred by them in connection with their attendance at meetings of directors or committees of directors or general meetings or separate meetings of the holders of any class of shares or of debentures of the company or otherwise in connection with the discharge of their duties.”

The part of reg. 83 which is material for present purposes is the following wording:

“The directors may be paid all travelling, hotel, and other expenses properly incurred by them … in connection with the discharge of their duties.”

ITC’s claim in relation to monies taken by Jonathan as alleged expenses is pleaded at some length in the Amended Particulars of Claim. The pleading begins by alleging that Jonathan had taken various specified sums from ITC purportedly by way of “expenses”. It is then pleaded that ITC’s investigations had not established that these sums related to the business of ITC and/or were properly incurred by Jonathan in connection with the discharge of his duties as a director within reg. 83. It was then alleged that Jonathan, despite requests, had not provided a satisfactory explanation or supporting documentation in respect of the alleged expenses. The pleading then contained a number of allegations which, pursuant to earlier directions, were not to be dealt with at the trial which has taken place. Following those matters, it was pleaded that Jonathan was required to account to ITC for his use of ITC’s funds and it was for him to establish that sums which he had taken for purported expenses came within reg. 83. It was then added that to the extent to which Jonathan failed to establish that matter, he had acted in breach of fiduciary duty.

In response to ITC’s claim in relation to purported expenses, Jonathan pleaded that each of the expenses in issue related to work carried out for ITC and/or were properly incurred. As to the alleged breach of fiduciary duty, it was alleged that Jonathan had properly accounted to ITC for expenditure incurred.

In his closing submissions, Mr Gourgey for ITC submitted that Jonathan’s entitlement to be paid expenses was conferred by reg. 83. Pursuant to reg. 83, because Jonathan was a fiduciary, it was for him to establish that the alleged expense was properly payable to him pursuant to reg. 83. Mr Gourgey cited Ross River Ltd v Waveley Commercial Ltd [2014] 1 BCLC 545, at [64] and [94], and Bowstead and Reynolds on Agency, 20^th ed. at para 6-090 in support of this proposition.

In his closing submissions, Mr Thompson on behalf of Jonathan analysed the legal position quite differently. He contended that the claim against Jonathan was for breach of fiduciary duty. Mr Thompson proceeded on the basis that reg. 83 provided for someone to approve a claim to expenses made by a director and he then proceeded to submit that the power to approve a claim to expenses had been delegated to Jonathan. As Jonathan had approved his own claim to expenses, that decision was binding on ITC. Finally, Mr Thompson submitted that Jonathan had not been shown to be in breach of fiduciary duty in relation to his decision to approve his claim to expenses. It could not be objected that Jonathan was subject to a conflict of interest because the delegation to him of the power to approve his own expenses necessarily carried with it the power to act in such a case.

Before addressing these submissions, I wish to make clear that the dispute between the parties is as to the correct interpretation and application of reg. 83. I say that because, at the end of Mr Thompson’s closing submissions, he suggested that Warren and Stuart had received monies from ITC in respect of purported expenses where the items were not in fact conventional expenses. I did not understand Mr Thompson to contend that any director had an entitlement as against ITC to receive monies that did not come within reg. 83.

I consider that Mr Gourgey’s approach to the application of reg. 83 is correct. Reg. 83 does not refer to a director or anyone else having a power to make a decision as to whether expenses should be paid to a director. Reg. 83 provides that a director is entitled to be reimbursed expenses if they satisfy the objective criteria of reg. 83. If the claim to expenses does not satisfy those criteria, then the director is not entitled to be reimbursed. If the director causes ITC to pay him a sum to which he is not entitled under reg. 83, then the director is liable to repay that sum to ITC. I also agree with Mr Gourgey, based on the authorities which he cited, that the burden is on Jonathan to establish that the claimed expenses meet the criteria of reg. 83.

At the trial, the parties examined some of the matters pleaded under this head. The specific matters which I was asked to rule on in ITC’s closing submissions were as follows:

Before making my findings on these matters, it is right to comment that the expenses involved were in many cases very substantial. Jonathan spent the Christmas and New Year holiday in Sandy Lane Hotel in Barbados in December 2011/January 2012, December 2014/January 2015 and December 2015/January 2016. On each occasion, he was accompanied by his partner, Jonathan Seeds. The cost of the accommodation and travel to Barbados in the period 13 December 2011 to 6 January 2012 amounted to £53,563.75. The cost of the similar trip for Christmas 2014 was about £43,000, of which some £32,000 was paid by ITC on 15 September 2014, just before Warren and Stuart asked for a meeting with Jonathan in connection with the affairs of ITC. Jonathan agreed that Christmas and New Year was the most expensive time of year to stay at that hotel. It is fair to say that the costs of other travel and accommodation involved smaller, but still considerable, sums.

Further, the documents indicate that, at least some of the time, Jonathan claimed, as expenses, items of costs which he could not possibly have thought were legitimate expenses. A clear example of that concerns the costs of building work done on his home. In 2010, the builders sent to ITC an invoice for works costing £34,374.05. This was work done on Jonathan’s home. Jonathan did not give any evidence to the effect that he had paid this invoice. There was no evidence that the invoice went unpaid. It looks relatively clear that ITC paid it. Jonathan suggested in this evidence that it was possible that ITC had not paid the invoice but he did not base that suggestion on anything specific. At times in his evidence, he maintained a position which had been pleaded in his Amended Defence to the effect that if this sum was not a proper expense within reg. 83, then it should be treated as remuneration for Jonathan. At other times, he stated that if it were shown that ITC had paid this sum then he would pay the money back to ITC. It is also revealing to refer to a discussion about a later invoice in June 2012. The discussion related to the purchase of various items for the master bedroom for Jonathan’s home. Jonathan asked the supplier to send his invoice to the builder “with no mention of my address or name anywhere”. When cross-examined, Jonathan accepted that it looked like he wanted this cost to be hidden in an invoice to ITC as work done for ITC.

I now return to the specific matters raised by ITC in closing submissions. As to the cost of the building works at Jonathan’s home, that was not within reg. 83.

The next items are the costs of visits to Barbados. Jonathan said that these visits were partly for business and partly for a holiday. When he was asked to explain which part of the visit, for example in 2014, was for business purposes, he gave the instances when he met two people during his stay. The visit had not been arranged for the purpose of having those meetings. One was said to be a potential software provider who had offices in London. The other was a bank manager from Manchester. Jonathan said that he was not prepared to identify any other persons whom he met during his visit because, he said, it would expose a payment processor or an affiliate to certain risks if they were identified. Jonathan also spoke in general terms about the need to be seen at places such as Sandy Lane by other persons in the gaming industry. On this evidence, I am not satisfied that any part of the expense incurred on trips to Sandy Lane was properly incurred by Jonathan in connection with the discharge of his duties as a director of ITC. The visits were for the purposes of holidays for himself and Mr Seeds. The expenditure ought to be considered as personal expenditure. If, which I doubt, there could be said to be any conceivable benefit to ITC through the impression which Jonathan was able to give to other persons involved in the gaming business then I consider that such a benefit was of minor significance only and it would not be appropriate to attempt to apportion any part of the cost of the holiday and to treat that part as an expense within reg. 83.

Jonathan was cross-examined in respect of the expenses which he claimed in relation to visits to Israel in 2009, 2010, 2011, April 2014 and September 2014. Jonathan was not cross-examined in relation to other visits. Based on Jonathan’s evidence as to the purpose of these visits, I hold that the first, second and fourth of the visits as to which Jonathan was cross-examined were proper expenses. As regards the third and fifth of these visits, there was a element of holiday involved and I would regard apportioned parts only of the expenses as proper expenses within reg. 83. In relation to the third visit the proper proportion to allow is one-half and in relation to the fifth visit, the proper proportion is one-third.

Jonathan claimed expenses for a helicopter trip in Israel. The helicopter trip was arranged for Jonathan and his two daughters to celebrate the birthday of one of them. Jonathan stated that there was also another person present (presumably apart from the pilot) and that is possibly correct as there is a photograph of Jonathan and his two daughters beside the helicopter which was taken by some other person. Jonathan stated that he was not prepared to name this other person, apparently because of an alleged risk from identifying him. He was described as an affiliate and Jonathan stated that ITC had done pretty well with this affiliate since that trip. It is clear that the cost of the helicopter trip was either exclusively for private purposes or overwhelmingly for private purposes. In view of the fact that Jonathan’s evidence was unreliable in many respects and in view of his decision not to give the court information about the other person on the helicopter trip, I am not satisfied that it would be appropriate to apportion the cost of this trip so as to allow any part of it as an expense within reg. 83.

Jonathan claimed some £51,000 for an ambulance which was bought and donated to a charity in Israel. Painted on the side of the ambulance were the words: “Donated by Jonathan, Lauren and Hayley Ferster, Manchester, United Kingdom”. Jonathan suggested in his evidence that there was a benefit to ITC in this donation being made in this way. He put forward a far-fetched explanation as to how that might be so. I do not accept the explanation. This cost was not a director’s expense within reg. 83.

In relation to ITC’s claims to recover payments wrongly taken by Jonathan as alleged expense, Jonathan sought to rely on section 1157 of the Companies Act 2006 and section 61 of the Trustee Act 1925. In relation to each of the claims by ITC as to alleged expenses which I have upheld, Jonathan did not act reasonably and so cannot rely on either of these sections. Further, in relation to at least some of his claims to expenses, I regard his behaviour as dishonest.

I have now dealt with the specific heads of alleged expenses which were raised by ITC in closing submissions. ITC also asked for an order that there be an account in relation to all of the expenses which Jonathan had claimed over time, as part of a wider examination of Jonathan’s conduct as a director of ITC and extending to, but not limited to, the pleaded heads of expenses put in issue in ITC’s Amended Particulars of Claim.

I have considered how ITC’s claim in relation to Jonathan’s expenses had been pleaded in order to assess whether it would now be right to make the general order for an account sought by ITC. In its Particulars of Claim, ITC pleaded that, in relation to alleged expenses, Jonathan had caused ITC to pay him sums to which he was not entitled. In support of its claim, ITC gave particulars of sums which had been wrongly claimed by Jonathan. ITC was asked to give further information in relation to this part of the claim. In its further information, ITC put forward an appendix setting out further so called expenses and stated that it would seek to amend its Particulars of Claim to identify these matters. In due course, ITC did amend its Particulars of Claim in that way. Jonathan served a Defence and an Amended Defence to the claim. At the Pre-Trial Review on 18 May 2016, ITC was given permission to amend its claim to include (in paragraph 56A) five further matters where it was alleged that Jonathan had caused ITC to pay further sums which it was not liable to pay. It was ordered that the matters raised by paragraph 56A would not be dealt with at the trial of the other issues. At the trial, I gave ITC permission to make a further amendment to its claim to revise its claim under paragraph 56B (which related to other payments said to have been made for Jonathan’s benefit including a substantial sum paid to Jonathan’s solicitors) but it was agreed that those matters also would not be dealt with at the trial.

In relation to the general claim for an account of Jonathan’s expenses claims, I make the following comments. I consider that Jonathan has been shown to have claimed large sums of money by way of expenses to which he was plainly not entitled. He appears to have regarded his ability to make ITC pay for his personal expenditure as a perk of his office as a director of ITC. That attitude was in keeping with his attitude to his remuneration where he simply took from ITC what he wanted. I have no doubt that his conduct amounted to a grave and persistent breach of his duty as a director and in some instances was clearly dishonest. However, in relation to ITC’s claim in respect of unauthorised payments, I consider that Jonathan was entitled to proceed on the basis that ITC’s claim against him in these respects (apart from the matters in paragraphs 56A and 56B of the Re-Amended Particulars of Claim which were the subject of specific orders) would be dealt with at this trial. Because of the number of the issues which needed attention at this trial I can well understand that ITC did not wish to take time dealing with a host of relatively small sums claimed by Jonathan as expenses and so it concentrated on the more straightforward and more substantial matters.

In relation to the heads of expenses challenged by ITC at the trial, I have now dealt with all of the matters on which I was addressed in closing submissions. The claims in paragraphs 56A and 56B of the Re-Amended Particulars of Claim are the subject of specific orders and remain to be dealt with. Apart from those matters which may be dealt with as permitted by those orders, I do not think that it is appropriate to permit a further stage, by way of an order for an account, at which ITC can raise new matters as to unauthorised expenditure and also raise matters pleaded in its existing pleadings on which it did not seek findings at this trial. I will not make an order for a general account as sought by ITC.

The Trust Claim was brought by Warren and Stuart as Claimants against Jonathan as Defendant. The claim form in the Trust Claim was issued on 29 January 2016. The Trust Claim arose out of the fact that between December 2004, when ITC was incorporated, and July 2007, when further shares in ITC were issued, Jonathan was the registered holder of the single share in ITC but he held that share on trust for himself, Warren, Stuart and Mr Binnes.

In its main claim, ITC referred to the incorporation of WOS on 15 March 2005 and the obtaining by WOS of a Curaçao gaming licence (also on 15 March 2005). On its incorporation, 60 shares in WOS were vested in Jonathan. In its main claim, ITC asserted that if Warren and Stuart did not have an interest in Jonathan’s shares in WOS, then what Jonathan had done was, wrongly, to cause WOS to take advantage of a corporate opportunity which belonged to ITC with the result that Jonathan’s shares in WOS were held on trust for ITC.

In the Trust Claim, Warren and Stuart have pleaded that Jonathan has sought to defend ITC’s claim in relation to WOS by asserting that in and around March 2005, Jonathan was the sole registered shareholder in ITC and, as such, could authorise the diversion of ITC’s corporate opportunity to WOS. In the trust claim, Warren and Stuart asserted that if Jonathan had, in his capacity of sole shareholder of ITC, authorised the diversion of ITC’s corporate opportunity to WOS, then Jonathan had committed a breach of the trust on which the share was held for the benefit of Warren, Stuart and Mr Binnes.

In this judgment, I have not found it necessary to consider whether the incorporation of WOS was a corporate opportunity belonging to ITC. This was principally because, at an early point in the history of this matter, on 24 May 2005, Jonathan’s shares in WOS were transferred to CWC and the shares in CWC were held by Jonathan on trust for himself, Warren and Stuart. Accordingly, any possible wrongdoing caused by a diversion of a corporate opportunity prior to 24 May 2005 was put right at that point.

In view of the fact that it has not been necessary to investigate the pleaded case as to the original diversion of a corporate opportunity form ITC to WOS, it is also unnecessary to consider what was said to be Jonathan’s defence that the transaction was authorised by ITC by reason of the authorisation given by him as sole shareholder in ITC at the relevant time. Accordingly, it is equally unnecessary to investigate the issues raised by the Trust Claim and I will not do so.

I will make my findings of fact as to the matters relied upon in the Petition before considering the legal consequences of those findings.

Mr Thompson on behalf of Jonathan has made a number of different criticisms of the conduct of Warren and Stuart in relation to the affairs of ITC. I will deal with these criticisms as to what Warren and Stuart are alleged to have done in the following order:

The first criticism of Warren and Stuart is that they have denied the existence of the original agreement that the online gaming business belonged to Jonathan. As to that, I have held that Warren and Stuart did not agree at any time that the online gaming business would belong to Jonathan alone. Accordingly, their position in relation to this point was justified.

The second criticism of Warren and Stuart is that, in and since September 2014, they sought to become involved in the online gaming business and/or the management of ITC. As the online gaming business has throughout been owned by ITC, this allegation is simply an allegation that Warren and Stuart sought to become involved in the management of ITC. Jonathan’s contention is that the brothers agreed in 2005 and/or in 2007 that Warren and Stuart would not become involved in the management of ITC. I have made my findings as to the arrangements made in 2005 and 2007 earlier in this judgment. By 2007, it was agreed that Jonathan would be the de facto managing director but it was also agreed that Warren and Stuart would remain directors of ITC. All three expected Jonathan to be responsible for the management of ITC but Warren and Stuart did not agree that they would not be involved in any circumstances. In fact, it suited Warren and Stuart to leave the management of ITC to Jonathan. They trusted him to look after ITC and the interests of the three of them. They received substantial sums from ITC for doing little or no work over the years. However, by September 2014, Warren and Stuart wished to become more involved in the affairs of ITC. At that stage, their wishes were based on their suspicions that Jonathan was taking more out of ITC than he should have done. Matters flared up at the meeting on 22 September 2014 when Jonathan gave them the information that he was paying himself a salary of £1.5 million a year, a figure that startled Warren and Stuart, coupled with his further contention that their interests in ITC were worthless. As I have found in this judgment, the events which then unfolded brought to light serious wrongdoing by Jonathan in relation to the APA and the SSA, his remuneration and his expenses. Even if Warren and Stuart are to be taken to have agreed that they would not interfere with Jonathan’s management of ITC while he was acting properly in relation to ITC, they were not bound to stand by and leave him to manage ITC in a way which involved wrongdoing, which was adverse to them. I reject the second criticism.

The third criticism is that Warren and Stuart “seized control” of ITC. The considerations which are material to this allegation have already been mentioned under the second criticism discussed above. I consider that Warren and Stuart were justified in seeking to become involved in ITC and to place restrictions on what had been Jonathan’s de facto exclusive management of ITC in the light of the information which they had about Jonathan’s conduct of the affairs of ITC.

The fourth criticism is that Warren and Stuart formed a litigation committee for an improper purpose. I will consider this criticism as part of the general criticism that Warren and Stuart have throughout conducted this litigation for an improper purpose. I will consider that general criticism after I have considered the detailed criticisms of the way in which Warren and Stuart caused ITC to conduct aspects of this litigation.

Before dealing with the fifth to tenth criticisms, I need to describe the course of certain interlocutory applications made by ITC. ITC applied for a freezing order and property preservation order and a search order at an ex parte hearing before Birss J on 21 November 2014. ITC was represented by Mr Dougherty. I have a transcript of that hearing. The draft order put before the court did not have a proviso allowing the Respondents, who were to be made subject to the order, to use their assets to pay debts or otherwise make payments in the ordinary course of their business. Such a proviso is standard in a conventional freezing order but is not standard in a property preservation order. The reason is that with a freezing order the applicant is seeking to freeze the respondent’s assets whereas with a property preservation order, the applicant is seeking to preserve assets which the applicant says it owns and which should not be available to the respondent to pay the respondent’s debts. At the hearing on 21 November 2014, Mr Dougherty drew the judge’s attention to the fact that the draft order did not contain a proviso permitting payments in the ordinary course of business. He and the judge discussed whether such a proviso would be appropriate. The effect of an order, absent such a proviso, was directly considered. Mr Dougherty stated that ITC did not wish to shut down the gaming business but he said that Warren and Stuart were sceptical as to the extent to which the assets of ITC had left the United Kingdom (and so were in the hands of WOS or other corporate Defendants). Mr Dougherty submitted that the business ought to be run in a way so that the absence of the proviso would not affect the business and secondly, the order could be varied if there were a problem.

ITC’s evidence for its ex parte applications to Birss J included an affirmation from ITC’s solicitor which contained an explanation as to why the applications were being made ex parte. The solicitor stated that if Jonathan became aware of the applications, he would take immediate steps to ensure that anything that was incriminating or unfavourable to him or the other respondents would be concealed or destroyed. The evidence also included an affirmation from Warren to the effect that he had read a draft of the solicitor’s affirmation. Mr Dougherty also discussed with Birss J the question whether there was a risk that Jonathan would destroy documents. The judge said that there was no evidence that Jonathan was destroying evidence. Mr Dougherty accepted that was so but criticised Jonathan for not being forthcoming with the provision of further information.

Mr Dougherty’s draft order had a provision for what he called “a conditional bench warrant”. This part of the order provided that if Jonathan failed to comply with the search order then the conditional part of the order for a bench warrant would be satisfied so that there would come into existence an effective bench warrant for Jonathan’s arrest and Jonathan could then be arrested. Mr Dougherty explained that he had not found a precedent for such an order. Birss J then indicated that he was not minded to make such an order and the matter was not pressed by Mr Dougherty.

At the end of the hearing on 21 November 2014, Birss J expressed his conclusion that he was satisfied that it was appropriate for him to make orders against the respondents.

On 23 November 2014, on the application of ITC, Warren J made an amendment to the search order. The search order was enforced on 24 November 2014.

On 26 November 2014, Jonathan and WOS applied to Arnold J for a variation of the freezing order and the property preservation order to allow certain payments to be made by WOS. I have a transcript of that hearing. At the hearing before Arnold J, Mr Dougherty for ITC offered a certain variation of the earlier order. This was not satisfactory to WOS and the judge settled on a form of proviso to the earlier orders. The judge’s proviso allowed payments to be made to payment processors and customers in respect of winnings.

The matter came before Mann J on 4 December 2014. I have a transcript of that hearing. In effect, the previous orders were continued until a return date. Mann J declined to order expedition in respect of the further hearing.

On 6 February 2015, ITC issued an application notice for an order for the examination of electronic data for the purpose of establishing whether Jonathan had deleted electronic data in the period between the commencement of the execution of the search order and the return of the laptop computer to Jonathan.

On 11 February 2015, the return date of ITC’s applications, the matter came before Asplin J. I have a transcript of that hearing. On 16 February 2015, Asplin J gave judgment on the applications. She reached the conclusion that it was appropriate for the previous orders to be continued until trial or further order. She specifically dealt with submissions made on behalf of the respondents that there had been material non-disclosure by ITC at the hearing before Birss J. She held that on the material before her, there was no clear evidence that all of the net income of the online gaming business had been paid over to ITC. She did not regard the statement by Mr Berg to that effect (at the meeting on 22 September 2014) as sufficient to enable ITC to conclude that ITC had received all of the net income of the business. She also held that ITC had not misled Birss J in relation to the significance of the draft order not including a proviso as to payments in the ordinary course of business. She also dealt with the risks of harm to ITC if orders were not made. She held that there was a real risk of dissipation of assets. She also held that there was a real risk of the destruction of documents.

On 17 March 2015, Asplin J made an order to give effect to her judgment of 16 February 2015. She also made an order in relation to ITC’s application of 6 February 2015 seeking an examination of the electronic data. She permitted such an examination designed to lead to a report from the independent IT consultants following which ITC was to decide whether to pursue the application of 6 February 2015. In the event, ITC did not pursue that application.

On 24 May 2016, the Court of Appeal (Moore-Bick and Tomlinson LJJ and Keehan J) heard an appeal by the Defendants against the order made by Asplin J continuing the earlier orders. The grounds of appeal involved a challenge to her decision that there had not been material non-disclosure. The Court of Appeal dismissed the appeal and gave their reasons in judgments handed down on 28 June 2016. The only detailed judgment was that of Tomlinson LJ. He referred to the affirmations of ITC’s solicitor and of Warren which were before Birss J. He also referred to the transcript of the meeting of the board of ITC on 13 January 2015 and the exchanges as to whether Warren thought that there was a risk of Jonathan destroying documents. He also referred to further evidence from Warren which had been before Asplin J seeking to explain what he meant on 13 January 2015. Tomlinson LJ said that the untested evidence of Warren as to this explanation was not inherently implausible and Asplin J was entitled to act upon it. Tomlinson LJ also added that Jonathan sought to place on Warren’s statement on 13 January 2015 a weight which it would not bear. Tomlinson LJ also referred to a second ground of appeal based on Mr Berg’s statement on 22 September 2014 that all of the income of the business was being paid to ITC. Tomlinson LJ ruled that this statement, even if true, would not detract from the nature of the allegations against Jonathan and that if it had been pointed out to Birss J, it would not have been seen as material.

The fifth criticism is that Warren and Stuart applied for a freezing order over the assets of WOS and the corporate Defendants, which order was harmful to ITC. It is said that they acted with a reckless disregard for the interests of ITC from which, it is said, I should conclude that they were not concerned with the best interests of ITC. I do not accept this criticism. The material which Warren and Stuart had available to them when they had to decide on behalf of ITC whether to seek freezing relief and a search order has already been examined in contested proceedings, in particular on the inter partes hearing before Asplin J. She was satisfied on that material that it was appropriate to grant ITC the relief which it sought. That material satisfied the judge that there was a sufficient risk of dissipation and harm which justified the grant of that relief. In those circumstances, Warren and Stuart can scarcely be criticised for taking the view that there was sufficient risk of dissipation and harm to justify seeking relief from the court. It is generally essential on an application of that kind that an application is made promptly. An applicant for such relief generally does not have the luxury of time to explore matters to the extent that they can be explored at a subsequent trial; nor can the applicant be expected to interrogate the other party to double check whether the risk of harm is as great as is perceived. It is generally recognised that a freezing order can be a somewhat blunt instrument and its precise effect is not always predictable. I do not consider that Warren and Stuart acted unwisely on behalf of ITC in seeking the relief which the court was satisfied should be granted. Even if they were unwise, given that they did not have a full understanding of the connection between ITC and the respondents, I do not consider that their conduct showed that they were not acting in the best interests of ITC.

The sixth criticism is that Warren and Stuart caused ITC to apply for a search order against Jonathan. At the inter partes hearing, Asplin J was satisfied that it was appropriate to grant that relief against Jonathan. I do not accept this criticism of Warren’s and Stuart’s conduct.

The seventh criticism is that Warren and Stuart caused ITC to apply for a conditional bench warrant in relation to Jonathan. It is likely that the decision to make this application had much more to do with the views of ITC’s solicitors and counsel than it had to do with the views of Warren and Stuart. Jonathan does not make any criticism of ITC’s solicitors or counsel in making that application. Insofar as the solicitors and counsel were influenced by statements from Warren and Stuart as to the risk of wrongdoing by Jonathan, I would not criticise Warren and Stuart for being concerned about what Jonathan might do. Jonathan’s revelations to them at the meeting on 22 September 2014 obviously gave them very grave concern as to Jonathan’s wrongdoing in relation to ITC. I do not accept this criticism.

The eighth criticism is that Warren and Stuart misled Birss J as regards the risk of destruction of documents. As described above, this matter was considered in detail by Tomlinson LJ in his judgment handed down on 28 June 2016. Mr Thompson is entitled to say that one part of the reasoning in the judgment referred to the fact that Warren’s evidence had not been tested before Asplin J so that she was entitled to rely upon it whereas Warren’s evidence was tested at the hearing before me. However, there are other parts of the reasoning of Tomlinson LJ which appear to me to continue to be valid grounds for rejecting this criticism. Further, I would add the fact that when Mr Dougherty discussed with Birss J the evidence as to the risk of destruction of documents, Birss J was not being misled. I do not accept this criticism.

The ninth criticism is that Warren and Stuart failed to disclose a relevant matter to Birss J when they failed to tell him about Mr Berg’s statement on 22 September 2014 that WOS was paying the net income to ITC. I consider that this criticism is answered by the judgment of Tomlinson LJ on that point.

The tenth criticism is that they made a false allegation as to deletions by Jonathan. Mr Thompson submits that it should always have been clear to Warren and Stuart that Jonathan had deleted electronic data after the laptop was returned to him and that there was no basis for the suspicion that he had deleted data after service of the search order and before the return of the laptop. I will assume in Jonathan’s favour that that should have been clear to Warren and Stuart. If so, then I would consider that their application for an examination into the position showed a very high level, perhaps an excessive level, of distrust of Jonathan. However, that state of mind was in the context of litigation where Warren and Stuart were entitled to be very suspicious indeed of what Jonathan might have done. I do not consider that there was any real fault on the part Warren and Stuart in this respect.

The eleventh criticism is they refused Jonathan’s offers of an audit of ITC in 2015. As to that matter, I have referred to the solicitors’ correspondence of 19 February 2015 and 8 and 13 May 2015 and to the BDO report of 5 June 2015. At the trial, I heard evidence from two accountants who had prepared very detailed reports which reviewed the financial statements of WOS for the three years ended 31 January 2013, 2014 and 2015. The expert called by Jonathan, Mr Storan of BDO, came to the same conclusion as he had expressed in the BDO report of 5 June 2015 (to which I have referred above). The expert called by ITC, Mr Kelly of KPMG, concluded that in some respects he was unable to verify certain matters but subject to that comment he found that all of the transactions relevant to WOS had been reflected in the financial statements. These experts met and agreed that for the three years in question, the net profit of WOS have been invoiced in full by ITC to WOS. At the end of the trial, Mr Gourgey submitted that it was not possible to conclude that all the net profits of WOS had been paid over to ITC. This was said to be because of the lack of transparency in WOS’s accounting records. I find that although there were certain areas in the accounting records of WOS which were not complete, there was no evidence to suggest that WOS had failed to pay over to ITC the net profits of the online gaming business for the years in question.

Warren was cross-examined as to why ITC had not agreed to the proposal made by HSF as early as 19 February 2015. It was put to Warren that the real reason for not accepting the proposal was that ITC and Warren and Stuart did not want an audit because they feared that it would establish that WOS, under the control of Jonathan, had indeed paid over its net profits to ITC. It was put to Warren that ITC and Warren and Stuart preferred to fight the litigation and to seek to settle it whilst continuing to allege that Jonathan had dishonestly taken for himself (through WOS) the profits of the online gaming business which rightly belonged to WOS. I find that Warren did not put forward any good reason for declining the proposal of an audit of the position after the (supposed) entry into the APA in 2012 and that he considered that the better tactic for the conduct of the litigation was to continue to allege that Jonathan had been dishonest in the way which was being alleged.

The twelfth criticism is that Warren and Stuart caused the mediator to send the email of 29 April 2015 which was an attempt to blackmail Jonathan. I have set out the full text of that email earlier in this judgment. Rose J held that the email was admissible at the trial of these proceedings (and in particular the Petition) because Warren and Stuart could not claim without prejudice privilege for the unambiguous impropriety involved in sending this email. At paragraph [22] of her judgment, Rose J said this:

“ ... there is no disguising, in my judgment, what was going on here, namely that the brothers were using the threat of causing ITC to instigate committal proceedings in the other litigation (brought by the company against Jonathan for breach of fiduciary duty) in order to make a personal gain for themselves by increasing the payment for their shares. If, in fact, they have real evidence that Jonathan's assets which would be available for satisfying a judgment obtained by the company ultimately in the company's litigation, I do not consider that this provides any excuse for this email. On the contrary, if they had a genuine belief what they appear to be saying here is that they will cause the company to refrain from pursuing those matters if Jonathan pays them personally more money for their shareholdings. I do not agree that the assets of the company are automatically reflected in the value of the shares in the hands of the shareholders so that they are just claiming their share of the monies that the company might win in its claim. The company may have creditors and may want to use the money from any judgment against Jonathan for expanding its business rather than paying out to the shareholders.”

The Court of Appeal (Patten and Floyd LJJ and Baker J) agreed with Rose J. The only detailed judgment of the Court of Appeal was given by Floyd LJ who said at [23]:

“In the end, as [counsel for Warren and Stuart] accepted, what is involved here is an evaluation of whether the threats unambiguously exceeded what was "permissible in settlement of hard fought commercial litigation" (Boreh v Republic of Djibouti [2015] EWHC 769 (Comm) at [132] per Flaux J). In the absence of any error of principle by the judge I should be extremely cautious before coming to the conclusion that the judge's evaluation was wrong. However, I agree with the judge that the threats here did unambiguously exceed what was proper, essentially for the reasons she gave. Firstly, the threats went far beyond what was reasonable in pursuit of civil proceedings, by making the threat of criminal action, (not limited to civil contempt proceedings). Secondly, the threats were said to have serious implications for Jonathan's family because of Jonathan's wrongdoings. Thirdly, the threats were of immediate publicity being given to the allegations. It is nothing to the point in this connection that Warren and Stuart may have believed the allegations to be true. The threat to publicise allegations of extreme severity against Jonathan and his partner, and within such a short timescale, placed quite improper pressure on Jonathan. Fourthly, the purpose of the threats was to obtain for the brothers an immediate financial advantage arising out of circumstances which should accrue, if they had basis in fact, to the benefit of the company. Finally, there was no attempt to make any connection between the alleged wrong and the increased demand.”

In summary, Rose J and the Court of Appeal considered that Warren’s and Stuart’s conduct in causing the mediator to send the relevant email unambiguously exceeded what was proper and placed “quite improper pressure on Jonathan”. I will proceed on that basis.

I have already described what happened immediately after Jonathan’s solicitors received the email of 29 April 2015. Jonathan’s solicitors (HSF) asked for details as to the matters of fact alleged in the email but no information was provided by the solicitors for ITC and Warren and Stuart (DAC) who, instead, wrote on 30 April 2015 stating that their client had not intended that committal proceedings would be issued or allegations of perjury made if the offer was not accepted. DAC also said that their client did not make any threats as to what would happen if there were not settlement. DAC’s response might have been re-assuring in other circumstances but it was likely to be more puzzling than re-assuring in this case. Although DAC stated that their client did not make any threats, it was obvious that their client had just made a serious threat to Jonathan. It seems that nothing happened about the threats in the email save that they were referred to by Jonathan at a board meeting of ITC on July 2015. Warren professed not to know what Jonathan was talking about and Stuart suggested that the board should not discuss the litigation.

It is relevant to consider Warren and Stuart’s position, in particular their state of mind, when they caused the email to be sent to Jonathan’s solicitors. There are three issues which might be relevant. First, was Jonathan guilty of “further wrongdoings”, did he hold “various additional offshore accounts” and had he “sworn false evidence”? Secondly, did Warren and Stuart believe what was said in the email in those respects? Thirdly, did Warren and Stuart have any intention of causing ITC to take action, whether by way of an application to commit for contempt, or promoting criminal proceedings or giving information about Jonathan to third parties?

The first of these issues is: was Jonathan guilty of “further wrongdoings”, did he hold “various additional offshore accounts” and had he “sworn false evidence”? At the trial, there was no evidence that Jonathan had done any of these things. I therefore find that he had not.

The second issue identified above was: did Warren and Stuart believe what was said in the email about further wrongdoings, offshore accounts and false evidence? Warren and Stuart have pleaded in their Points of Defence to the Petition that they did have this belief as at 29 April 2015. On this point, I have Warren’s seventh witness statement dealing with a claim to privilege for certain documents and I also have Warren’s fourth witness statement dealing with the issues generally. I also have his evidence when cross-examined. I appreciate that Stuart also provided witness statements and gave general evidence agreeing with Warren’s evidence but he did not give any specific evidence on the point which I am now examining.

Warren served his seventh witness statement pursuant to an order made at the Pre-Trial Review on 18 May 2016 requiring the service of a witness statement, if and insofar as ITC, Warren and Stuart claimed privilege for documents and correspondence (relevant to the alleged belief that Jonathan had one or more undisclosed bank accounts as at 29 April 2015); the required witness statement was to identify the documents which were alleged to be privileged and to provide details as to the basis of the claim to privilege. In this witness statement, ITC, Warren and Stuart claimed privilege for a number of specified documents. The seventh witness statement then went on to list in considerable detail the documents for which privilege was claimed. This list reveals a number of matters which might be potentially relevant. There was no argument before me as to whether it had been right to order a party to provide to the other party information as to matters for which privilege is claimed. It was therefore accepted that the contents of the seventh witness statement constituted evidence which was before me. The claim to privilege made in that witness statement was not challenged. It was also not argued that the disclosure in the seventh witness statement amounted to a waiver of privilege. Accordingly, I have before me the evidence in the seventh witness statement but none of the documents there referred to.

Warren’s seventh witness statement refers to five groups of documents. Group A consists of communications between DAC and enquiry agents. The list shows that DAC were in communication with enquiry agents from 17 December 2014 to 20 April 2015; there were 41 emails between them, one telephone call, one text message, one meeting and two reports, the last of which was on 20 April 2015. These communications therefore ended some days before the mediator’s email of 29 April 2015. Group B consisted of communications between DAC and counsel between 8 April 2015 and 24 April 2015; these consisted of instructions to counsel and 23 emails. In relation to this Group, Warren stated that he and Stuart were considering taking contempt proceedings “in April 2015”. There was also a conference call with counsel on 23 April 2015 and counsel prepared a note of advice on the same day. These communications ended some days before the sending of the mediator’s email of 29 April 2015. Group C consisted of communications between DAC and the mediator; in this group, there were 10 emails between 12 April 2015 and 29 April 2015. Group D consisted of communications between DAC and Warren and Stuart consisting of 35 emails between 7 April 2015 and 29 April 2015. There were also two meetings between DAC and Warren and/or Stuart on 12 January 2015 and 2 April 2015. Group E consisted of internal communications within DAC.

It will be remembered that all of the information contained in Warren’s seventh witness statement related to the class of documents said to be relevant to the issue as to whether Warren and Stuart believed that Jonathan had one or more undisclosed offshore bank accounts as at 29 April 2015. The information provided suggests that Warren and Stuart instructed an enquiry agent who had reported by 20 April 2015, that DAC took counsel’s advice on 23 April 2015 and Warren and Stuart were aware of those matters before 29 April 2015.

Based on the contents of Warren’s seventh witness statement, his answers in cross examination and, indeed, the terms of the email of 29 April 2015, I make the following findings:

The third issue identified above was: did Warren and Stuart have any intention of causing ITC to take action, whether by way of an application to commit for contempt, or promoting criminal proceedings or giving information about Jonathan to third parties? The email of 29 April 2015 certainly contained a threat by Warren and Stuart to cause ITC to take this kind of action. However, the next day, DAC wrote to HSF stating that “our client neither said nor intended that committal proceedings would be issued or allegations of perjury made if their offer was not accepted” and that “our client does not make any threats as to what will happen if the parties do not reach a settlement agreement”. The position in relation to possible future procedural steps was reserved. Based on Warren’s answers when cross-examined, I find that the position was as follows. The email of 29 April 2015 was a try-on. It was written in the hope that their suspicions as to non-disclosure might be correct. If they were correct and if Jonathan knew they were correct then that might affect Jonathan’s response. If Jonathan’s response gave Warren and Stuart information which might help their case that there had been non-disclosure then they would take advice on the possibility of making an application for committal. If Jonathan’s response did not give them that sort of information then they did not intend apply to commit Jonathan.

The upshot of my findings as to the circumstances, in which Warren and Stuart caused the email of 29 April 2015 to be sent, is that they were suspicious that Jonathan had not disclosed an offshore bank account but they had very little to go on. They decided to make a serious threat of proceedings for committal and perjury when they had very little to go on, in the hope that their suspicions might be correct and Jonathan might give something away in a way which they might be able to use against him. Their principal purpose in acting in this way was to persuade Jonathan to pay them a greater sum for their shares in ITC.

The thirteenth criticism is Warren and Stuart have caused ITC to pursue its claim for an improper purpose. This judgment has dealt with the various claims made by ITC against Jonathan. I have held that ITC’s claims were well founded. In particular, I have held that the APA and the SSA do not bind ITC so that ITC has owned the online gaming business and the business assets at all times. I have also held that ITC is entitled to be repaid by Jonathan very substantial sums which he improperly took from ITC as unauthorised remuneration and as purported expenses. The litigation has been beneficial to ITC. The litigation has therefore also been beneficial to ITC’s shareholders. Warren and Stuart own two-thirds of the shares in ITC and they have therefore benefitted as shareholders. The fact of that benefit does not mean that they have conducted the litigation for their own benefit and not for the benefit of ITC. In all those respects, the interests of ITC and of Warren and Stuart are allied. However, the criticism is made that Warren and Stuart have not caused ITC to bring this litigation to benefit it or its shareholders but for a wholly different purpose. The suggestion is that Warren and Stuart wish to stop being shareholders in ITC. The way they want to do that is to sell their shares to Jonathan. It is said that they want to force Jonathan to pay a high price for the shares and certainly a price more than the value of the shares. It is said that they are using the ITC claim to obtain an advantage to themselves in their capacity as potential sellers of their shares to Jonathan.

As to the allegation of litigation for an improper purpose, I accept that Warren and Stuart are prepared to sell their shares to Jonathan at what they consider is an acceptable price. That is not surprising in view of the breakdown in the relationship between the three brothers. The alternative to selling their shares is buying Jonathan’s shares or for the three brothers simply to continue to own their own shares. I can see that the outcome of the ITC claim against Jonathan may affect the readiness of the three brothers to prefer one or other of these three courses of action. However, that potential effect does not mean that litigation by ITC and Jonathan which is otherwise justified and proper becomes litigation conducted for an improper purpose.

Section 994(1) of the Companies Act 2006 provides:

“(1)

A member of a company may apply to the court by petition for an order under this Part on the ground–

(a)

that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or

(b)

that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.”

Section 996 of the Companies Act 2006 provides that the powers of the court, when it is satisfied that a petition under section 994 is well founded, are as follows:

“996 Powers of the court under this Part

(1)

If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.

(2)

Without prejudice to the generality of subsection (1), the court's order may–

(a)

regulate the conduct of the company's affairs in the future;

(b)

require the company–

(i)

to refrain from doing or continuing an act complained of, or

(ii)

to do an act that the petitioner has complained it has omitted to do;

(c)

authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct;

(d)

require the company not to make any, or any specified, alterations in its articles without the leave of the court;

(e)

provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly.”

Of the various criticisms which Jonathan has made of the conduct of Warren and Stuart, the principal criticism which I have upheld is that Warren and Stuart caused the sending of the email of 29 April 2015 which contained improper threats to Jonathan. I have also agreed with the criticism that Warren and Stuart did not accept Jonathan’s offer of an audit of the income of the gaming business from 2012 to 2015 because they preferred to continue with the allegation that Jonathan/WOS had dishonestly taken monies that were properly due to ITC.

The questions which arise under section 994 are therefore:

If I hold that the petition is well founded within section 994, then the questions which arise under section 996 are:

I will first consider whether the justified matters of complaint relate to the conduct of the affairs of ITC. It has been said that the words “the affairs of the company” in section 994(1) are extremely wide and should be construed liberally: Re Neath Rugby Ltd (No. 2) [2009] 2 BCLC 427 at [50]. Conversely, not every act of a director or shareholder of a company which has an impact on a petitioner will amount to the conduct of the affairs of the company.

The first matter of complaint is that Jonathan’s offer of an audit in relation to the income and expenditure of the gaming business was turned down so that Jonathan would remain subject to a particular allegation of dishonesty which an audit would show to be unfounded. The offer of an audit was made in and after February 2015 that is after ITC had sued Jonathan in proceedings which made allegations against Jonathan that he or WOS had taken monies otherwise due to ITC and seeking an account. Jonathan’s offer of an account was made to, at least, ITC. ITC did not accept the offer. In one sense, ITC’s stance related to its conduct of its litigation against Jonathan but in a broader sense it also related to the conduct of its affairs which including the bringing of the claim against Jonathan. Therefore, ITC’s refusal of the offer of an audit did relate to the conduct of the affairs of ITC.

As regards the threat made at the behest of Warren and Stuart in the email of 29 April 2015, the purpose of the threat was to persuade Jonathan to pay a larger sum to Warren and Stuart for their shares. However, as analysed by the Court of Appeal in the judgments handed down on 17 July 2016, the threat was as to what would happen if Jonathan did not agree the suggested price for the shares. The threat was that Warren and Stuart would use their control of ITC to take the steps which were threatened. That seems to me to relate to the conduct of the affairs of ITC.

The next question is whether the matters of complaint were prejudicial to Jonathan’s interests as a member of ITC. They were certainly prejudicial to Jonathan’s position in some capacity or other. As to the failure to accept the offer of an audit, this resulted in ITC continuing to make a particular allegation of dishonesty against Jonathan. The threat of committal proceedings or a prosecution for perjury resulted in considerable anxiety for Jonathan. Were these results prejudicial to Jonathan in his capacity as a member of ITC? Could it be said that the allegation of dishonesty was not made against Jonathan “qua member” and that the threat of committal proceedings etc were again not in relation to Jonathan “qua member” but rather as a Defendant to litigation? In so far as the threat might have resulted in Jonathan being put under pressure to pay more for the shares of Warren and Jonathan than he would otherwise have paid, he resisted that pressure and, in any case, he was put under pressure as a potential purchaser of those shares. It has been said that the court should give a wide scope to the concept of the interests of a member and should have regard to equitable considerations: O’Neill v Phillips [1999] 1 WLR 1092. As to equitable considerations, Jonathan can say, on my findings, that when ITC was started, it was on the basis of a personal relationship, involving mutual trust and confidence between the three brothers. It is also clear at the present time that that trust and confidence has utterly broken down. If the matters complained of against Warren and Stuart had contributed to that breakdown, Jonathan could say that their conduct had been prejudicial to his interests as a member of ITC, having regard to equitable considerations. The difficulty with that line of argument is that the trust and confidence between the brothers in relation to ITC, and generally, had totally broken down before the matters of complaint. There was a major breakdown of trust and confidence at the meeting on 22 September 2014 from which the relationship did not recover. On 21 November 2014, ITC applied ex parte for freezing and property preservation orders and a search order against Jonathan, amongst others, on the basis that there was a risk of dissipation of assets by Jonathan. ITC’s pleadings in its claim against Jonathan allege various acts of wrongdoing by him.

Jonathan’s offer of an audit was made in and after February 2015 and ITC declined to accept it over a period and the allegation of misappropriation of ITC funds by WOS/Jonathan continued until audits were carried out and even up to the end of the trial. The threat of committal proceedings and a prosecution was made on 29 April 2015 and was largely if not wholly withdrawn shortly thereafter. Therefore, the matters of complaint did not cause the breakdown of trust and confidence. I do not think that it can realistically be said that these matters contributed to the breakdown of trust and confidence or have prolonged the period in which that trust and confidence has ceased to exist.

On the other hand, as I understand it, ITC is bearing its costs of this litigation. Accordingly, Jonathan can say that his interests as a member of ITC are prejudiced if ITC incurs more costs as a result of the matters of complaint. As to the refusal of the offer to conduct an audit, I consider it highly likely that ITC’s costs have been increased as a result. As to the threats in the email of 29 April 2015, ITC’s costs would have been increased if those threats had been carried out, but in the event they have not been. I consider that there is enough in the first of these two matters of complaint to enable Jonathan to show that his interests as a member of ITC have been prejudiced by that matter. I am much less clear whether the second matter of complaint prejudiced Jonathan in his capacity as a member of ITC but, in the remainder of this judgment, I will assume in his favour that it is possible to take that view.

I next need to consider whether the prejudice to Jonathan’s interests as a member was unfair. As regards ITC’s refusal of the offer of an audit, it can argue that it was caught up in complicated litigation against Jonathan who appeared to have been guilty of substantial wrongdoing and it took a view as to the best way for it to conduct the litigation. I consider that this is well arguable by ITC. However, ITC was making a serious allegation of specific wrongdoing against Jonathan, where Jonathan was offering to clear up the matter of dispute and where I have found that Warren’s motive (in this case on behalf of ITC) in declining an offer of an audit was to give ITC the advantage of keeping alive an allegation of wrongdoing against Jonathan. With some hesitation, I am prepared to hold that that conduct was unfairly prejudicial to Jonathan. As to the threat of committal etc, that was an unfair thing to do. It did cause prejudice to Jonathan in the form of anxiety and stress. I have indicated that I am prepared to assume in Jonathan’s favour that it caused him prejudice in his capacity as a member of ITC. If so, then that prejudice would have been unfair to Jonathan.

In considering whether the matters of complaint were unfairly prejudicial to Jonathan, I have not sought to weigh in the scales the wrongdoing of Jonathan in relation to ITC against the prejudicial conduct of ITC, Warren and Stuart. It is established that wrongdoing on the part of a petitioner seeking relief under section 994 can be relevant in two ways. The first way is that the petitioner’s wrongdoing may make the prejudicial conduct of the respondent not unfair. The second way is that the petitioner’s wrongdoing may justify the court in refusing to grant relief to the petitioner or may influence the choice of any relief which is granted. These propositions are established by Re London School of Electronics Ltd [1986] Ch 211 at 222 B-C, Richardson v Blackmore [2006] BCC 276 and Grace v Biagioli [2006] BCC 85.

As to the first way in which Jonathan’s wrongdoing in this case could be relevant, I doubt if it can be said that his wrongdoing meant that the relevant conduct of ITC, Warren and Stuart was not prejudicial to Jonathan nor did it wholly remove the element of unfairness from that conduct. Jonathan’s wrongdoing did provide the background to what ITC, Warren and Stuart did and certainly goes some way to make their behaviour more understandable and to provide mitigation of the seriousness of their conduct. However, in this case, I consider that if Jonathan’s wrongdoing is to be considered to be relevant to the issues raised by the petition, it should be considered at the later stage as to whether Jonathan ought to be granted any relief and, if so, what relief. That is the next question which I will address.

In his Petition, the primary relief sought by Jonathan is an order permitting him to buy the shares of Warren and Stuart at a fair value between willing parties at arm’s length. This is the relief which, at the trial, I was asked to grant. Jonathan’s Petition sought, in the alternative, an order requiring Warren and Stuart to buy Jonathan’s shares; however, at the trial, Jonathan did not seek relief on this basis. The Points of Defence served by Warren and Stuart pleaded that Jonathan was not entitled to any relief. Neither side asked me to make an order under section 996(2)(a) to regulate the conduct of ITC’s affairs in the future.

Warren and Stuart submitted that even if I found that there was some unfairly prejudicial conduct within section 994, I ought not to grant any relief to Jonathan. They particularly relied upon their allegations as to wrongdoing by Jonathan. I have now dealt with those allegations in this judgment. In considering what I should do by way of the grant of relief (if any) under section 996, I wish to stand back and consider a number of matters as well as the situation as a whole. I will summarise how matters appear to me for this purpose.

ITC was agreed to be owned by the three brothers equally. Jonathan was to be the de facto managing director and to be entitled to remuneration to be agreed in accordance with the articles and to proper expenses. In running ITC, Jonathan did virtually all of the work and Warren and Stuart did virtually none. All three shareholders obtained substantial benefits in the form of dividend and Warren and Stuart received payments described as remuneration which were essentially dividends. Jonathan formed the perception that the business should really be regarded as his so he settled on his own generous remuneration and used ITC’s funds for substantial personal expenditure. In May 2013, he transferred the business and the assets of ITC to a company owned by him (as a result of his transferring to himself shares owned by CWC). When Warren and Stuart wished to become involved in the affairs of ITC, as they were entitled to do, Jonathan fought back against this. He made statements on 22 September 2014 and in a witness statement of 24 December 2014 seeking to deprive ITC of the benefit of the gaming business. In this litigation, he has put forward a case as to the arrangements between the parties, which case I have rejected. In an attempt to support his case, he gave a considerable amount of false evidence.

Jonathan’s wrongdoing has been many times more significant than the matters of complaint which I have upheld against ITC, Warren and Stuart. ITC’s refusal of the offer of an audit can be excused to some extent (but not totally) by a poor choice of litigation tactics. The threat of committal etc cannot be excused but its gravity should be assessed in the context of the litigation and Jonathan’s serious wrongdoing which he denied. The threat was also short lived. The effect of the relevant prejudicial conduct is now effectively at an end. The refusal of Jonathan’s offer of an audit was superseded by the preparation of the expert evidence in this case. The threat of proceedings for committal etc was soon withdrawn and was not pursued.

There has been a breakdown of trust and confidence between the three brothers. That breakdown was caused by Jonathan’s conduct. The unfairly prejudicial conduct which I have found on the part of ITC, Warren and Stuart did not cause the breakdown and did not contribute to it. Further, I do not think that I could hold that such conduct has prolonged or will prolong the period of the breakdown in trust and confidence. That conduct was not and is not causative in relation to the present relationship between the company and the three brothers.

My reaction to these circumstances is that the proper response is to withhold from Jonathan the relief which he seeks under section 996. I do not consider that it would be fair or just to make an order conferring on Jonathan an entitlement to buy out the shares of Warren and Stuart (on terms with which they do not agree) when he is the one who is at fault for the situation which has developed and his fault is many times graver than the relevant conduct of ITC, Warren and Stuart and where their conduct was not causative of the present state of affairs.

In addition to this assessment of the inappropriateness of the relief sought by Jonathan, there is an independent consideration which strongly supports the same conclusion. I will now explain this further consideration.

Jonathan says that he should be allowed to buy Warren’s and Stuart’s shares at market value. Warren and Stuart are prepared to agree to sell their shares to Jonathan but only at a pre-agreed price. In most cases where the court considered that a sale and purchase of shares was appropriate, the court would take the view that fairness and justice required a procedure by which the open market value would be ascertained and then paid. However, the circumstances of this case are most unusual. ITC’s online gaming business is very profitable. However, the capital value of that business (which would have a direct bearing on the value of the shares in ITC) is heavily discounted by reason of the risk that the authorities in the United States might take action which would result in the business no longer being able to access its principal market (which is in the United States). There is a risk that such action might be taken either because the gaming business is illegal under United States law or because the United States law enforcement agencies would be able to take action against payment processors who handle the deposits and the winnings of United States gamblers. The continuation of ITC’s business vitally depends upon those payment processors remaining free to handle the sums in question for the benefit of ITC.

I did not have direct evidence as to the value of the shares in ITC at the present time. However, I was provided with extensive expert evidence as to the value of the assets of ITC at the time of the APA and the SSA. This evidence was adduced in relation to the allegation by ITC that the consideration for those assets, which was supposed to be paid under the APA, was below market value at that time. The witness called by ITC was Mr Kelly of KPMG and the witness called by Jonathan was Mr Mitchell of BDO. It may very well be that the value of the assets at the present time is not identical to their value in 2012 or 2013. However, the point which is relevant for present purposes is the extent to which the value of the business should be discounted to reflect the risk from the United States authorities which might lead to the cesser of the business in the United States.

Mr Mitchell’s evidence discussed in detail the question of the legality of the gaming business in the United States and the resulting risk of a forced cesser of the business. He expressed the view that the value otherwise appropriate for a business free of such a risk should be discounted by as much as 90% or 95% to reflect the risk. That is a massive discount and one which would require considerable justification. However, having heard the evidence tested, I am satisfied that a very large discount would be appropriate on any valuation of the business in this case. I also find that if the value of the shares in ITC were determined by an independent valuer, for the purpose of an order permitting Jonathan to buy the shares of Warren and Stuart at market value, it is much more likely than not that such a valuer would discount the value of the shares by a considerable amount to reflect the relevant risk. I do not think that I have to make findings as to what level of discount would be appropriate or what an independent valuer would think was appropriate but I am able to find that a discount of the order of 90% could well be realistic.

This produces the result that if a shareholder in ITC was not concerned about ITC continuing to run its business as it presently does for such time as will elapse before the United States authorities move against it, or its payment processors, that shareholder is likely to do better by benefitting from dividends from ITC rather than selling his shares at such a heavily discounted price. It is obvious that Warren and Stuart prefer to retain their shares and to benefit from ITC continuing to trade as compared with selling their shares at market value determined by an independent valuer. If I permitted Jonathan to buy Warren’s and Stuart’s shares on this basis, and the independent valuer assessed the value of those shares at a heavily discounted price, it would not take long for ITC’s profits to exceed the value of the shares. For example, if the capital value of the business was assessed as a multiple (say 3) of one year’s profits, and that value was then discounted by 90% so that 10% only was payable, the resulting figure would be 30% of one year’s profits.

I consider that these findings as to the result of a valuation of the shares in ITC are a further reason why it is not appropriate in this case to grant to Jonathan the relief which he seeks under section 996. At the trial, Jonathan did not seek an order that Warren and Stuart buy his shares at market value determined by an independent valuer. It is clear from the evidence of the valuers why it would not be in Jonathan’s interests for his shares to be taken from him on that basis.

Jonathan has made a large number of open offers to Warren and Stuart to buy their shares. The parties have attended more than one mediation in relation to this litigation. The dispute has not been settled and no agreement has been reached in relation to the purchase of one party’s shares by another party. In view of my findings that Jonathan is not entitled to any relief under section 996, it is not necessary for me to consider the detailed terms of the various offers which have been made. The fact that Warren and Stuart did not accept any of these offers does not amount to unfairly prejudicial conduct in relation to the affairs of ITC.

As I have explained, I was not asked to make any other order under section 996, for example, an order regulating the affairs of ITC for the future. I recognise that the result of my findings is that ITC is a company where there is no trust and confidence between the shareholders but yet I am not making any order designed to change that state of affairs. However, on the facts of this case, the petitioner under section 994, Jonathan, is the one who has caused the breakdown in trust and confidence and I do not think it fit to give to him the order which he seeks.

The result of the foregoing is that I will make no order granting relief under section 996. For the sake of completeness, I ought to mention one or two other points as to the future of ITC. There was a reference at the trial to the amendments to the articles of ITC (introduced in May 2007) which referred to the shares of a director leaving ITC being acquired at par. It was suggested that these provisions might be relevant in the future. There has not as yet been an event which would trigger those provisions in relation to Jonathan or his brothers and I did not hear submissions as to how the provisions might operate in such a case. Accordingly, I will say nothing about that topic. Further, I did not hear submissions as to whether the circumstances are such that the court could order the winding up of ITC on the just and equitable ground under section 122(1)(g) of the Insolvency Act 1986 so, again, I will say nothing on that subject.

I will summarise the main findings which I have made.

The online gaming business was at all times owned by ITC. The APA and the SSA were not authorised by ITC and were not binding on ITC.

The monies in bank accounts in the names of the corporate Defendants are held on bare trusts for ITC.

The increases in Jonathan’s remuneration, over and above the amount payable pursuant to the original agreement as to his remuneration, were unauthorised and should be repaid to ITC.

A number of sums paid to Jonathan as alleged expenses were not properly payable to him and should be repaid to ITC.

I will not grant any relief to Jonathan under section 996 of the Companies Act 2006.