London Capital & Finance Plc & Ors v Michael Andrew Thomson & Ors

The First Claimant (“LCF”) is in administration. The Second Claimants are the administrators of LCF.

LCF raised money from retail investors by selling “mini-bonds”. These were debt securities which were typically non-transferrable (so that there was no secondary market). Issuance of mini-bonds was not itself a regulated activity and the marketing materials for them did not require approval by any listing authority.

Between 2013 and December 2018 LCF raised a total of over £237 million from about 11,600 bondholders. LCF presented itself to investors as a commercial lender to the SME sector in the United Kingdom. In fact it advanced the money it raised to a small number of connected companies, associated with four individuals, including its CEO. The Claimants contend that these advances were dressed up as commercial loans.

One of the borrowers was the Third Claimant (“LOG”), a company incorporated in England and Wales which is now in administration. It borrowed about £122 million from LCF. The Fourth Claimants are the administrators of LOG.

The Claimants were represented by Mr Robins KC, Mr Shaw and Mr Judd, instructed by Mishcon de Reya LLP.

The First Defendant, Mr Thomson, was at all material times a director of LCF and, for most of its life, its CEO. The Claimants allege that Mr Thomson was also a beneficial owner of various direct and indirect recipients of money from LCF. Mr Thomson admits that he had a 5% beneficial interest in certain such recipients including LPE Support Limited (“LPE Support”), CV Resorts Limited (“CV Resorts”), CV Support Limited (“CV Support”), Waterside Villages plc (“Waterside Villages”), Waterside Support Limited (“Waterside Support”), Costa Property Limited (“Costa Property”), Costa Support Limited (“Costa Support”), Colina Support Limited (“Colina Support”), LOG, London Power Corporation (“LPC”) and London Group LLP. Mr Thomson also admits that he was the beneficial owner of a company called London Financial. The nature of his admitted beneficial interest is disputed. Mr Thomson participated fully in the trial. He was represented by Ms. Dwarka-Gungabissoon, a solicitor advocate of Richard Slade & Partners LLP.

The Second Defendant, Mr Hume-Kendall, was at all material times a director and a beneficial owner of various direct and indirect recipients of sums from LCF, including LOG and Leisure & Tourism Developments (“L&TD”) and companies to which LOG and L&TD lent (or on the Claimants’ case purported to lend) money. Mr Hume-Kendall was a director of LCF from 12 July 2012 to 15 August 2013, at a time when the company was dormant and was known (at various times) as Sales Aid Finance (England) Limited or South Eastern Counties Finance Limited (“SAFE”). Mr Hume-Kendall denies he had any involvement with LCF after 15 August 2013. The Claimants settled with Mr Hume-Kendall very early in the trial.

The Third Defendant, Mr Barker, was at material times a director and a beneficial owner of various direct and indirect recipients of sums from LCF, including LOG. The Claimants settled with Mr Barker before the trial.

The Fourth Defendant, Mr Golding, was at all material times a beneficial owner of various direct and indirect recipients of sums from LCF, including LOG. The Claimants also allege that Mr Golding was at all material times a shadow or de facto director of LCF, which Mr Golding denies. Mr Golding served a Defence, but was debarred from defending the proceedings owing to failures to comply with an unless order requiring him to provide disclosure of documents. He remains a live defendant against whom relief is sought. He did not attend the trial.

The Fifth Defendant, Mr Careless, owned and/or controlled the Sixth Defendant (“Surge”), a marketing company engaged by LCF as its sales agent. These defendants (“the Surge Defendants”) were represented by Mr Ledgister and Mr Curry, instructed by Kingsley Napley LLP.

The Seventh Defendant, Mr Russell-Murphy, assisted SAFE in selling mini-bonds and, after Surge became the marketing agent for LCF, was engaged as a part of the sales team by Surge. He received payments from Surge, as did a company of which he was the sole director and shareholder, the Ninth Defendant (“GP”). The Claimants aver that Mr Russell-Murphy’s knowledge is to be attributed to GP and to Surge. Mr Russell-Murphy admits that his knowledge is to be attributed to GP (as does GP) and does not plead to the allegation that it is to be attributed to Surge. Mr Careless and Surge aver that Mr Russell-Murphy was engaged on a consultancy basis and was not an employee of Surge; accordingly, Mr Careless and Surge deny that Mr Russell-Murphy’s knowledge in its entirety can or should be attributed to Surge. Mr Russell-Murphy and GP served a Defence and gave disclosure of documents but did not attend the PTR or the trial. They remain live Defendants against whom relief is sought.

The Eighth Defendant, Mr Sedgwick, was a solicitor. At various times he was a director and/or company secretary of various companies that were direct and indirect recipients of sums from LCF. He also drafted many of the documents for the transactions under which borrowing companies or their associated companies acquired assets from the individual Defendants (as explained below). He was also the owner and controller of LCF’s security trustee, Global Security Trustees (“GST”), until 31 March 2018. He remains a live defendant. He represented himself at the trial.

The Tenth Defendant, Mrs Hume-Kendall, is the wife of Mr Hume-Kendall and was the recipient of some sums that derived from LCF and/or LOG. The Claimants brought tracing claims against her, which she denied. The claims were settled early in the trial.

There were also claims against the non-executive directors of LOG. These settled well before the trial.

As already stated, LCF raised sums from members of the public through the issuance to them of mini-bonds. LCF issued 16,706 bonds to 11,625 members of the public, who collectively invested a total of over £237 million. LCF told the investors that it would generate returns on sums raised from bondholders by the onward lending of those sums.

The Claimants allege that, in order to induce prospective bondholders to invest, LCF made various representations to them, through information memoranda, brochures, telephone calls and/or conversations, including as to LCF’s overheads, the use to which LCF would apply funds invested by bondholders, the status of companies to which LCF would lend sums and the security of the investments made by bondholders. Mr Golding accepts in his Defence that he occasionally and informally discussed design matters in relation to LCF’s marketing materials, but says he was not otherwise involved with and had no responsibility for the content of those materials. Mr Thomson, Mr Russell-Murphy, and GP admit that representations were made to prospective bondholders by the methods alleged but dispute the content of the representations made. Mr Careless and Surge contend that the Claimants’ case on the alleged representations is inadequately pleaded. Mr Careless and Surge make no admissions as to whether the alleged representations were made or the precise meaning to be attributed to the words of the representations pleaded by the Claimants, but contend that a number of the alleged representations are contrary to the express wording of the information memoranda and/or brochures.

The Claimants allege that the First to Tenth Defendants received substantial sums directly or indirectly from LCF, totalling £136,189,713.76, and that these sums were misappropriated from LCF and/or LOG by the First to Tenth Defendants. The various Defendants admit that they received certain sums but deny that these sums were misappropriated; rather, each contends that this was money to which they were lawfully entitled.

As just stated, LCF lent the sums it received from bondholders to various companies. The Claimants allege that all these companies were connected to and/or controlled by the First to Fourth Defendants and, further, that the loans (and associated sale agreements) were a device to conceal the misappropriation of money from LCF by the First to Tenth Defendants.

As noted above, one of the borrowers was LOG. This company also lent sums it borrowed from LCF to various entities. These entities were consequently the indirect recipients of funds from LCF. The Claimants allege that all of these companies, apart from Atlantic Petroleum p/f (“Atlantic Petroleum”) and Independent Oil and Gas (“IOG”), were connected to and/or controlled by the First to Fourth Defendants and, further, that the making of the loans was (at least in part) a device to conceal the misappropriation of money from LCF and/or LOG by the First to Tenth Defendants. The Claimants contend that, of the approximately £122 million borrowed by LOG from LCF, only £38.4 million was applied by LOG to genuine commercial transactions.

The Claimants allege that in many instances borrower companies were incorporated only very shortly before entering into loans; the borrower companies often conducted no discernible business activity beyond borrowing money; borrowing companies failed to file statutory accounts; borrowing companies manipulated their accounting year-ends; the names of borrowing companies were changed for no discernible reason; loan debt was allocated arbitrarily to borrower companies apparently without reference to any genuine commercial need; very substantial loans were advanced to borrower companies without any written loan agreement in place; loan agreements were dishonestly back-dated; sums purportedly borrowed by one company were paid to some other recipient for no discernible reason; sums purportedly lent to borrower companies were paid directly or indirectly to certain of the Defendants; security agreements were incomplete or otherwise defective and substantial borrowing was unsecured or insufficiently secured; and LCF’s security trustee was owned and controlled by Mr Sedgwick and, subsequently, Mr Thomson.

The Claimants also allege that the alleged misappropriations were effected in some cases through the creation of dishonest transactions which had no commercial rationale but were implemented to disguise the misappropriation of bondholder money. These include transactions described as the Lakeview SPAs, the Elysian SPA, the Prime SPA, the LPT SPA and the LPE SPA.

The Claimants also allege that LCF was operated as a Ponzi scheme and that payments of interest and principal to existing bondholders were funded by the proceeds of new bonds, rather than from income or other resources generated by the borrowing companies themselves. They allege that the borrowing companies never paid any amounts from their own resources to LCF and that any interest payable on their loans was covered by LCF allowing increases in the principal amounts they owed. The Claimants say that all repayments to existing bondholders were funded by sums raised from new investors.

Mr Thomson admits that he had a 5% beneficial interest in a number of LCF’s borrowers but denies any impropriety and maintains that all loans were backed by sufficient security. He contends that the business of LCF was legitimate throughout.

Mr Hume-Kendall admitted (before settling) that he was interested in various of the borrowers of LCF and/or LOG but denied any impropriety and, in particular, contended that all lending by LOG was made in good faith for the purposes of LOG’s business. He denied any wrongdoing.

Mr Barker admitted (before he settled) that he, Mr Hume-Kendall, Mr Thomson, and Mr Golding were interested in various of the borrowers of LCF and/or LOG but denied any impropriety and contended that all lending by LOG was made in good faith for the purposes of LOG’s business. He admitted receiving sums arising from share sales but said that they were proper sales and arose from the restructuring of the group of which LOG was part and the acquisition of certain technology companies by that group.

Mr Golding admits in his Defence that he had a beneficial interest in companies which borrowed sums from LCF and/or LOG but denies any impropriety. Mr Golding says in his Defence that he was not a director of any of those borrowing companies and that (save in relation to FS Equestrian Services Limited (“FSES”)) he was not involved in the decisions taken by those companies to borrow from LCF and/or LOG. Mr Golding also admits that he received sums pursuant to the share sales; he says these were bona fide and genuine commercial transactions pursuant to which he was entitled to the sums received in consideration for the sale of his various interests.

Mr Sedgwick admits in his Defence that loans were made by LCF and LOG to connected entities but alleges that he was not aware that LCF only made loans to connected entities and denies any impropriety. He admits that certain companies had recently been incorporated but avers that was part of a restructuring exercise. He admits that he controlled LCF’s security trustee but says that he relied on LCF’s solicitors, Lewis Silkin, that the appointment of the security trustee was valid and appropriate. He admits his involvement in the share sales by Mr Barker and Mr Hume-Kendall but says that they were proper and arose from the restructuring of the group of which LOG was part and the acquisition of certain technology companies by that group.

Mr Careless and Surge do not admit that there was any fraud or wrongdoing in the business of LCF. They deny that they participated in any wrongdoing there may have been. They say that their role was limited to providing LCF with third-party, outsourced investor facing services and they did not participate in the lending, treasury, or financial aspects of LCF’s business; and always believed LCF’s business to be genuine and legitimate.

Mr Russell-Murphy and GP make no admissions as to the Claimants’ allegations. Mr Russell-Murphy says that he was acting as a salesman and was entitled to receive the sums he did.

As to the legal character of the claims, the Claimants allege that the representations made by LCF to bondholders were false and that the business of LCF was carried on with the intent to defraud bondholders and/or for the fraudulent purpose of misappropriating bondholder monies and/or was operated as a Ponzi scheme. The Claimants allege that each of the remaining live Defendants was knowingly party to that fraudulent trading and should therefore make contributions to the Claimants’ assets. The relevant Defendants deny these claims.

The Claimants also allege that that Mr Thomson and Mr Golding breached the duties they owed to LCF by reason of the matters set out above and that such breaches caused LCF loss and damage. Mr Thomson and Mr Golding deny these claims. As already noted, Mr Golding denies that he acted as a director of LCF and therefore denies that he owed any duties to LCF.

The Claimants allege that the other live Defendants dishonestly assisted Mr Thomson and Mr Golding in breaching their fiduciary duties to LCF and are therefore liable to compensate LCF for the relevant losses. All the live Defendants deny these claims.

The Claimants also make proprietary claims. The Claimants allege that Mr Thomson and Mr Golding caused LCF to pay away money in breach of their duties to LCF, to the First to Eighth and Tenth Defendants, and that these Defendants received such sums with knowledge of these breaches such that it would be unconscionable for them to gain or retain any beneficial interest in the assets received. The Claimants contend that such assets received by the First to Eighth and Tenth Defendants, or the traceable proceeds thereof, are held on constructive trust for LCF and/or subject to LCF’s equitable interest therein. The relevant Defendants deny these claims. They say that there was no misappropriation. They also argue that the claims fail in law because the money which reached the Defendants were no longer the property of LCF, having been lent to borrowing companies or paid to Surge as fees.

The key events took place up to a decade ago. The factual history is complex and involved. The witnesses naturally struggled to remember the details and sequence of events. Memories are mutable and are influenced by the forensic process and by interests and motives. I shall assess the oral testimony as part of the entire evidence. In this case, there are extensive contemporaneous documents including emails, texts and other electronic messages. There are some gaps, as explained below, but it is generally an informative record.

I have reached findings of fact on the basis of the witness testimony, the contemporaneous documents, the motives of the parties and others, the uncontested and uncontroversial facts, and the inherent probabilities.

I will make specific observations about the witnesses’ credibility when reaching findings of fact. Some comments are made here about my impressions of the witnesses.

The Claimants’ witnesses were Mr O’Connell, Mr Shinners, Ms Lloyd, Mr Hudson and Mr Pitt.

Mr O’Connell is one of the administrators of LCF and LOG. He gave evidence about the states of affairs in the administrations. His evidence was clear and concise and was not seriously challenged. I accept it.

Mr Shinners is one of the administrators. He gave evidence about the way the administrators dealt with the IOG assets owned by LOG. He explained that LOG was not itself a trading company and only held assets. He answered questions fairly and clearly and I concluded that his evidence was reliable.

Ms Lloyd is an employee of the administrators’ firm. She gave evidence concerning the decisions taken by them about the disposal of some of the assets in the administration of LCF. She was a cautious witness who was careful to limit her answers strictly to the question. At times she seemed nervous and somewhat defensive, but I saw no reason to doubt her evidence, which I accept as reliable.

Mr Pitt is a chartered accountant who advised the administrators in relation to the sale of the Waterside site. He explained that the title was only sorted out in the summer of 2021. He was a straightforward and helpful witness. His evidence was not undermined by cross-examination, and I accept it.

Mr Hudson is a forensic accountant. He has produced three witness statements dealing with the claimants’ case that LCF operated a Ponzi scheme. He has undertaken a detailed analysis of bank statements, internal company ledgers and other books and has explained money flows between investors, LCF, the borrowing companies and various other entities. He summarised his conclusions in the form of witness statements. The Defendants did not object to the admissibility of his evidence but submitted that he was not an expert witness and that he had not sought to comply with the CPR provisions for such a witness. That is correct, but he was not put forward as an expert. He occasionally became argumentative under cross-examination, but I concluded that his evidence about the money-flows based on the bank and accounting records was presented in a helpful and convenient form, and the Defendants did not seriously challenge his summaries of what that evidence showed.

I also heard evidence from Mr Thomson, Mr Careless and Ms Venn.

Mr Thomson gave some evidence about his physical condition and mental health. In December 2023, he underwent surgery on his spine. This has left him in considerable pain for which he was still taking painkillers, including opioids, during the trial. I held a ground-rules hearing at which I directed that there would be appropriate breaks to allow Mr Thomson to leave the witness box and walk about to relieve his pain. I explained to Mr Thomson that he should indicate if he needed a break. I also ruled that the usual bar would not apply to discussions between Mr Thomson and his lawyers insofar as they concerned his health and pain tolerance while he was giving his evidence. In giving his evidence, Mr Thomson did ask for breaks from time to time. On some occasions it was necessary to stop the cross-examination earlier than usual to give him longer breaks. Counsel for the Claimants also agreed that he would seek to ensure that his questions were readily comprehensible. I was satisfied that he did so.

As to Mr Thomson’s mental health, I was provided with the evidence of a psychiatric consultant who explained that Mr Thomson was subject to anxiety and stress and presented signs of adjustment disorder, which could affect his concentration and focus. Mr Thomson’s advocate asked that the details of his condition should not be publicly disclosed and there is no reason in this judgment to do so. The consultant psychiatrist concluded that Mr Thomson was able to understand the questions he asked during their consultation. I have taken this report into account when assessing Mr Thomson’s evidence. I was satisfied throughout his evidence that Mr Thomson was able to understand the questions posed in cross-examination. He engaged with the details of the questions and sometimes asked for clarification. He also appeared to me to be aware not just of the meaning of the questions but of where he thought they might be leading.

Mr Thomson was an extremely poor witness. My reasons for reaching this conclusion included the following:

For these reasons, I have treated Mr Thomson’s evidence cautiously except where supported by documents or uncontested facts.

Mr Careless began his evidence by giving short and clear answers. As the cross-examination went on this changed and he started to give long, digressive, self-exculpatory ones, often repeating refrains. I concluded that I must take a cautious approach to his evidence save where corroborated by documents or uncontested facts:

Ms Venn worked with Mr Careless. (For some of the relevant period, before her marriage, she was called Kerry Graham, but for convenience she has been referred to throughout the trial as Kerry Venn.) She was a confident witness who generally gave her answers clearly. However, I concluded that I should treat her evidence cautiously save where corroborated by a document or the uncontested facts:

The court may draw adverse inferences from the decision of a party not to give evidence: see Efobi v Royal Mail Group [2021] 1 WLR 3863 at [41].

Mr Thomson explained in his witness statement that he was calling evidence from the audit partners at PwC and EY using witness summonses. He also said at pre-trial hearings that he would call not just the PwC and EY partners but also partners from Oliver Clive and Lewis Silkin. In the event no such witness summonses were served. There was no formal explanation for this, but counsel for Mr Thomson said that PwC and EY engaged City solicitors to contest any such summonses. Given that Mr Thomson has serious constraints on his access to resources (owing to proprietary freezing orders), I do not think I should draw adverse inferences from his failure to require the attendance of these witnesses.

Though he appeared at the trial, Mr Sedgwick chose not to give evidence despite having served a witness statement. I explained to him that the Claimants might invite the court to draw adverse inferences from that decision. There were many points where Mr Sedgwick could have given evidence. These included his understanding of the representations that were made to bondholders and the underlying business of the borrowing companies, the purposes of the various SPAs and whether they were (as alleged by the Claimants) uncommercial transactions used to mask misappropriations, the role of Global Advance Distributions Limited (“GAD”), the role of the security trustee, and the backdating of documents. Mr Sedgwick did not explain his reasons for not giving evidence, other than by submitting that the Claimants had not proved their case. I have concluded that I should draw adverse inferences from his decision not to give evidence. I set out below the respects in which I consider adverse inferences should be drawn below.

Mr Russell-Murphy has not been formally debarred from defending. He has not put in a witness statement or participated in the trial. The Claimants did not, however, invite me to draw adverse inferences against him from his failure to participate. Similarly, in circumstances where Mr Golding was debarred from defending the claim for failing to disclose documents, the Claimants did not invite the court to draw any adverse inferences against Mr Golding.

There was expert evidence on three issues: the market rate for the services provided to LCF by Surge; the value of LOG’s interest in IOG; and the value of land in the Dominican Republic.

On the first issues, the experts gave evidence on whether there was a market rate for the services provided by Surge and whether hypothetical parties transacting at a market rate would have agreed such a rate. The experts agreed that there was no generally accepted market rate for the set of services provided by Surge. On the second point, they differed.

The Claimants called Dr Okongwu, who produced two reports. He is a well-qualified and experienced economics consultant. I considered that he gave careful and considered evidence. He listened meticulously to the questions and answered fairly. His reports were fully reasoned and contained numerous citations.

The Surge Defendants called Mr Grainger. His experience has been as a regulatory and compliance consultant. He has broad and long-term experience in those fields. The Claimants made a number of criticisms of his evidence, including that: (a) he lacked relevant expertise and appeared to confuse personal experience of certain transactions, such as the cost of outsourced services, with expertise in those transactions; (b) he did not cite any relevant material concerning Surge’s fees other than contemporaneous documents provided by Surge’s solicitors; (c) his conclusions were based on assertion rather than reasoning; (d) some of his conclusions were circular; (e) he failed in the joint memorandum to address the differences between the experts on some issues, basing this on grounds of “irrelevance”, even though he had originally raised those issues himself; and (f) he was partisan and unwilling to consider positions contrary to the case of Surge.

I shall return below to the substance of this evidence to the extent that it matters. But at this stage I should record that I concluded there to be real force in each of the Claimants’ criticisms. Mr Grainger failed to engage properly with examples which might lead to conclusions damaging to the Surge Defendants’ case. He struck me as partisan. I concluded that where the experts differed, the evidence of Dr Okongwu was to be preferred to Mr Grainger’s.

But the key point to take from this evidence was that the experts were able to agree that there was no market rate for services of the kind provided by Surge.

The second discipline was the value of LOG’s interest in IOG. The Claimants’ expert was Mr Osborne, a forensic accountant and valuer. He produced two reports. Mr Osborne’s evidence was clear and was not seriously challenged in cross-examination. It was not suggested that he lacked expertise and I accept his evidence. Mr and Mrs Hume-Kendall instructed Mr Wright to give evidence on this issue. Mr Wright produced two reports. Following the settlement agreed between them and the Claimants, Mr Wright did not give evidence and no reliance was placed on his reports by the remaining Defendants.

The third discipline was the value of the land in the Dominican Republic. The Claimants’ expert was Mr Watson, an expert valuer with relevant experience with land there. He was the only expert who gave evidence in this field. He produced two reports, one dealing with the value of The Hill and the other addressing the value of The Beach. There was no serious challenge to his evidence in cross-examination and I accept it.

In reaching findings of fact, I shall not address every submission or item of evidence referred to by the parties but make findings on the points I consider material. I have, however, carefully considered all the evidence and submissions in reaching these conclusions. I apply the civil standard of balance of probabilities (while noting the seriousness of the allegations).

Mr Thomson submitted that some of the facts covered during the trial were not properly in issue on the pleadings. His counsel did not object to these areas of the case being covered in cross-examination or to the documents being referred to during the trial. It is convenient to make relevant findings and then address the pleading points.

I have drawn on the written closing submissions of the parties in compiling this section. The Claimants set out a detailed chronological summary of the documents. I invited counsel for the Defendants in their closing submissions to indicate any points of disagreement with that summary. Counsel for the Defendants did not object to this course. Much of the Claimants’ chronological summary was not contested by the Defendants and I have drawn on it below, amending and supplementing it as appropriate. This does not of course apply to the inferences or findings of facts on the disputed issues which the parties have invited me to make. I specifically asked the parties to identify in their closing submissions the findings of fact they sought and the basis for these findings. They helpfully did this and I have taken account of their submissions.

The arrangement of this section of the judgment is partly chronological and partly thematic.

The following graph shows the amounts raised by LCF from bondholders over the full period from its incorporation (as SAFE) until the FCA raid on 10 December 2018. There are certain landmark dates. Surge started selling bonds in August 2015. LCF started issuing ISA bonds in December 2017.

The early history conveniently starts with an investment scheme for the purchase of off-plan plots of land in the Dominican Republic of an area known as “The Hill” by investors who had paid deposits. The Hill was an undeveloped plot of c.136 hectares, about twenty miles from the north coast of the Dominican Republic, near a small village called Cupey.

The plot was acquired by a Dominican Republic company, Inversiones 51588 SRL (“Inversiones”), in March 2012 for a sum of £708,752. Inversiones was a subsidiary of Sanctuary PCC, a Guernsey company which was itself a subsidiary of Sanctuary International Resorts Ltd (“Sanctuary”), a company connected with Mr Golding and Mr Hume-Kendall. I shall return to the dealings with The Hill.

It is, though, convenient here to summarise the evidence about its value. There have been several valuations of The Hill. There was a draft valuation dated 24 December 2013 prepared by Jonathan Marshall which valued it at US$7.3 million. The report expressly stated that it was prepared for internal purposes and should not be relied upon for loan security. Mr Marshall was instructed to review a valuation conducted by a Julio Perdomo. Mr Marshall visited the Dominican Republic and met Mr Perdomo. The draft said that it was for the “fair value” of the land (i.e. the estimated price for a transfer between identified knowledgeable and willing parties that reflects the interests of the parties). He considered that the value reached by Mr Perdomo was excessive and applied a discount to it. His report was not a Red Book valuation and said that limited reliance should be placed on it.

A revised draft valuation of The Hill by Jonathan Marshall was circulated on 20 March 2014. Again, it was for fair value. In this valuation, Mr Marshall estimated the value of the same site to be US$19.6 million. The draft report does not contain the earlier reservations about the estimate prices per square metre suggested by Mr Perdomo. He also included a residual valuation based on a proposed development plan. The draft explained that Mr Marshall had not undertaken a detailed development appraisal with cash flow forecasts and had ignored interest costs. The draft said that it was not a Red Book valuation, and that limited reliance should be placed on it.

There were also three valuations of The Hill produced by the same Mr Perdomo who was referred to in Mr Marshall’s draft reports. The first, dated 17 May 2017, assessed the value of The Hill at US$37,794,482.88. The bulk of this figure was accounted for by land which Mr Perdomo assigned a value to of US$100 per m²; this was substantially above the figure of US$16.60 per m² he had discussed with Mr Marshall. The second, dated 10 May 2018, estimated the value of The Hill to be US$39,594,940.90. The third, dated 13 November 2018, assessed the value of The Hill at US$44,601,340.90. By this time, the land containing the bulk of the value was given a value of US$125 per m².

Mr Perdomo’s methodology appears to have been to estimate the price per m² of land from comparables and then multiply this by the relevant area, without applying any discount. The values he reached are much higher than those produced in Mr Marshall’s reports and do not appear to have taken account of the extent of the development authorised on each comparable. The three reports do not state that they comply with Red Book requirements.

There have been further valuations since the collapse of LCF. Cushman & Wakefield conducted a valuation of The Hill as at 1 June 2020 which gave it a market value (following 12-24 months of marketing) of US$2 million and a liquidation value (following 3-6 months of marketing) of US$1 million.

Rofiasi Ingeneria conducted a valuation of The Hill as at 12 November 2020, which valued it at US$928,227.

Mr Watson, the Claimants’ expert in this case, has assessed the market value of The Hill (using the comparables method) as at 3 October 2023 to be US$5.43 million. He puts its value between April and November 2017 at US$4.55 million.

I find that the value of The Hill at the material times was that given by Mr Watson. I also find that it would have been obviously reckless for any commercial lender to have relied on the draft reports of Mr Marshall or Mr Perdomo. Mr Marshall’s reports were expressed to be in draft. They were not Red Book valuations. They referred to fair value rather than market value. The second report stated that he had conducted no detailed cash flow analysis for the development. The second report referred to comparable figures without discounting them for the reasons contained in the first report (which appeared sound). Mr Perdomo’s reports used comparable figures without discounting them, as they should have done as explained in the first report of Mr Marshall. Moreover, the land had been bought as a bare plot in March 2012 for c. £700,000 and it remained in that state. There was no evidence that there was any change in the planning permission for it.

There was a second undeveloped site in the Dominican Republic known as “The Beach” (or “Magante”), consisting of 38 parcels of land.

On 22 August 2012 Tenedora 98520 SRL (“Tenedora”), a subsidiary of Sanctuary, entered into a contact with numerous vendors to acquire the land in 38 parcels, for a total of c. US$3.5 million. This contract was unperformed for some years. In 2013, Mr Hume-Kendall and Mr Golding decided not to proceed with the acquisition and development of The Beach. It was not until late 2017 that Tenedora began to pay for and acquire some parcels (which were later registered in its name in 2018 and 2019).

There have been various valuations of The Beach. I accept the Claimants’ submission that it is extremely hard to compare the valuations because they cover different areas of land.

Under the 22 August 2012 sale contract, the 38 parcels of land totalled 241,707.44m² (i.e. c. 24 hectares).

Mr Marshall prepared a draft desktop appraisal in about May 2014 which said the site extends to 23.5 hectares. This was said to be for fair value. It was not a Red Book valuation. Mr Marshall reviewed a report dated 21 May 2013 by Mr Perdomo. He referred to a proposed development plan for 320 units for a luxury spa and resort. As to Mr Perdomo’s comparables, Mr Marshall observed that these had taken little account of the extent of the development on each comparable or factors like location, situation, lot size, planning permission, road access and development timescale. Mr Marshall’s draft report said that he considered Mr Perdomo’s site value to be excessive and that it would not be prudent to use it. Using the residual method Mr Marshall derived a value of US$37.95 million. He said that the appraisal was very limited in scope and had been undertaken without the benefit of a full investigation as to costings and comparables and that the addressee (International Resorts Group plc (“IRG”)) should therefore place limited reliance on the figures.

There was an appraisal produced in November 2016 by one Rafael Oviedo concerned with an area of some 25.8 hectares, comprising thirty-two certificates of title from different owners. Mr Oviedo was described as an “architectural planner”. He appears to have given various views about market value, one of US$11.61 million (as the land currently was), US$16.777 million (with non-objections to its development) and US$25.8 million (with a full development project approved). The appraisal was not a Red Book valuation, and its purpose is unclear. Nor did it contain any reasoning to support the conclusions.

In May 2018 Mr Perdomo produced a report in which he valued land labelled as Magante I, comprising a total of c. 29.8 hectares. He said the market value was c. US$42.5 million. He used a comparative approach. The report was not a Red Book valuation. There appears to have been no adjustment of the comparables listed by Mr Perdomo for location, size, planning or road access.

Mr Perdomo produced another report in November 2018 for land called Magante I and Magante II, giving the area of the former as 29.8 hectares (hence larger than his earlier report). He gave the same value of c. US$42.5 million for Magante I.

After the collapse of LCF, a firm called Rofiasi was instructed to value a site of 29.5 hectares, comprising parts of Magante I and Magante II. Rofiasi plotted Magante I as consisting of only some 15.2 hectares.

Mr Watson has valued the same area of 15.2 hectares on 2 October 2023. He valued it at £4.9 million.

I find for these reasons that the historical valuations are of extremely limited value.

I find that, in any event, Tenedora only ever owned certain of the parcels of land and never owned the entire site. It only began to acquire the parcels in 2017. I also find that it is difficult to place a value of the parcels owned by Tenedora because, without owning substantially all the parcels, it would not have been possible to develop the resort.

I find that the value of The Beach at the material times was no higher than that given by Mr Watson. I also find that it would have been obviously reckless for any commercial lender to have relied on earlier other reports and appraisals. Mr Marshall’s was in draft and was not a Red Book valuation. It referred to fair value rather than market value and said that it contained no detailed cash flow analysis for the development. Mr Perdomo’s reports used comparable figures without discounting them (as should have been done for the reasons explained in the draft report of Mr Marshall). There were discrepancies in the areas covered. Moreover, the original contract was to buy the land as bare plots for a total of c. US$3.5 million and they remained in that state. There was no evidence that there was ever any change in the planning permission for the plots. As just explained such plots as were owned by Tenedora from 2017 onwards were not contiguous, and substantially the entire site was required for the proposed development to take place.

Sanctuary was initially owned by Mr Golding’s brother, Mr Ryan Golding (20%), Mr Mark Ingham (40%), and Mr Andy Woodcock (40%).

Sanctuary marketed the sale of off-plan villas on The Hill before any development had taken place. Investors paid deposits. Sanctuary agreed to pay interest on the deposits and agreed that if an investor changed their mind, the investor did not have to pay the balance and acquire the property but could exercise an option to be repaid 120% of the deposit. Sanctuary took deposits from over 280 investors. Mr Ingham and Mr Barker were closely involved in this process.

I find that the sales team who introduced purchasers to Sanctuary were paid 20% of the deposits.

Mr Russell-Murphy was also involved. He sent invoices to Ecoresorts Sales Limited, a company which engaged in marketing the villas. Sanctuary made payments to him. He also had dealings with Sanctuary’s investors.

The investment scheme ran out of money and was unable to proceed with the development. The Hill remained an undeveloped, bare, plot.

By early 2013 Sanctuary became unable to pay the monthly interest due to investors.

At this stage Mr Hume-Kendall became involved with Sanctuary. He developed a rescue package for the Sanctuary investors. Mr Thomson was also involved.

Mr Hume-Kendall and Mr Thomson were at the time directors of a company called Sustinere Group Plc, which was involved in developing the rescue package. Sustinere made payments to Sanctuary to prevent it becoming cash flow insolvent. Some of the shares in Sanctuary were transferred to Mr Thomson.

By May 2014 at the latest, Mr Thomson became the owner of 100% of Sanctuary PCC on trust for Mrs Hume-Kendall, Mr Golding and his family, and Mr Thomson.

In May 2013 Sanctuary sent letters to the Sanctuary investors about the rescue package involving Sustinere. The letters said that the investor was a regulated UK PLC formed 35 years ago and that its directors and managers had all previously held senior positions in some of the UK’s largest firms and had a wealth of experience in the leisure and investment sectors. They also referred to Buss Murton as one of the UK’s oldest and respected law firms. Mr Sedgwick was a partner in Buss Murton.

In June 2013 there was a roadshow to promote the rescue package, led by Mr Hume-Kendall. At roadshow meetings, the investors were told that: (i) they would have the benefit of security through a UK trust holding security over the land at The Hill; (ii) there would be an improvement in the terms of the buyback option; (iii) their existing option over land at The Hill could be transferred to land at The Beach on the same terms; and (iv) monthly interest payments on sums invested would be restarted.

In order to benefit from this package of rights, investors would need to pay an additional deposit amount. Most of the existing investors agreed to this deal. The additional deposits were paid to Buss Murton.

Trust arrangements were put in place in respect of the deposits. I find that under these arrangements (a) the shares in Inversiones came to be held by Sanctuary PCC on trust for a company called El Cupey Limited, and (b) the single share in El Cupey Limited came to be held on trust for Sanctuary investors, whether or not they had signed up to the rescue package. Mr Thomson and Mr Hume-Kendall were the initial directors of El Cupey Limited.

As explained below, there were various later reorganisations of the ownership structure. But throughout these changes the trust arrangements persisted, under which the shares in Inversiones (which owned The Hill) remained beneficially owned by the Sanctuary investors.

New contractual arrangements were put in place for those Sanctuary investors who had agreed the rescue deal. The additional deposits from such investors amounted to c. £2.4 million.

The monthly interest liability of Sanctuary to its investors was c. £88,000 per month from 2013 to the first half of 2016, at which point it reduced to £30,000 per month.

The total liability of Inversiones to the Sanctuary investors in relation to their buyback options was recorded as £27,282,386 as at June 2017. This was the principal amount of the liability covered by the El Cupey trust arrangements at that date.

I find that a large portion of the additional sums of c. £2.4 million raised under the rescue package were in the event paid to companies owned by Mr Golding, Mr Golding’s brother, Ryan Golding, and Mr Hume-Kendall. They were not used in the development of either The Hill or The Beach.

Specifically, One Monday Limited, a company associated with Mr Thomson, received payments of c. £1.2 million from Sanctuary. One Monday then made various payments in late 2013 and early 2014 including £535,000 to Clydesdale Property Developments Limited (Mr Golding’s company), £200,000 to LV Management (Mr Hume-Kendall’s company); £37,500 to Mr Thomson personally, and £50,000 to Ryan Golding.

LV Management received a further £370,000 directly from Buss Murton’s client account (where Sanctuary’s funds were held) and £60,000 was transferred to Sustinere. As explained in more detail below, I am satisfied that Mr Thomson was in control of One Monday at the time of these payments and that he knew about them.

Turning more specifically to Mr Thomson’s role in these transactions, he had been a director of Sustinere since 22 March 2013. Mr Thomson directed Sustinere to provide financial support to Sanctuary in May 2013. As a director of Sustinere, Mr Thomson was involved in formulating the terms of the “rescue package” provided to Sanctuary in mid-2013. He explained in his witness statement that he “was involved in the planning and financing” of the Sanctuary project. Though he attempted in his oral evidence to distance himself from his involvement, I find that he was aware of the rescue deal and (as just explained) what happened to the sums paid through One Monday. He also knew that Sanctuary had sold villas off-plan to investors and that the villas had not been built. He also knew that Sanctuary had taken deposits from investors in the Sanctuary scheme and that interest payments were due to these investors.

As already noted, Mr Thomson became a shareholder of Sanctuary in June 2013 and Mr Thomson came (by May 2014) to own 100% of Sanctuary PCC, which he held on trust for Mrs Hume-Kendall, Mr Golding and Mr Thomson.

Mr Thomson was also a director of El Cupey Limited between 18 July 2013 and 1 August 2013. In this capacity, he signed a trust deed dated 30 July 2013 by which Sanctuary PCC agreed to hold its shares in Inversiones on trust for El Cupey. He therefore knew that The Hill was (through Inversiones) held on trust for the Sanctuary investors.

Mr Thomson also signed the new contracts with the Sanctuary investors who had signed up to the rescue scheme on behalf of Sanctuary. I find that he was aware of the terms of those contracts. These included that additional payments made by the Sanctuary investors would only be distributed in accordance with the instructions of the trust in favour of the Sanctuary investors; and the trust would ensure that sufficient funds were paid out of the deposits into accounts reserved to pay for planning consents and other purposes that the trust considered to be in the best interest of the Sanctuary investors as a whole. These contractual arrangements were vague and loosely worded. But I find that the impression given to the Sanctuary investors who signed up to the rescue package was that the additional funds would be deployed in obtaining planning permission and then developing the land. It was not explained to those investors that the funds they were paying over would almost immediately be paid out to the shareholders or others interested in the ownership of Sanctuary.

Mr Thomson also knew that additional deposits paid by Sanctuary investors who had signed up to the rescue package in an amount of c. £2.4 million were paid to Buss Murton; and that c. £88,000 was payable each month in interest payments to Sanctuary investors. Mr Thomson also knew, from an email sent to him on 14 May 2014 by Mr Sedgwick, that the potential liability of Inversiones to the Sanctuary investors was c. £23.5 million as at that date.

Mr Thomson also knew that neither he, Mr Golding nor Mrs Hume-Kendall, had paid the previous owners of Sanctuary for the shares in Sanctuary or Sanctuary PCC.

Mr Thomson also knew that because of the trust arrangements in favour of the Sanctuary investors, there was no free equity in The Hill.

Mr Thomson denied in his oral evidence that he knew that The Hill had been purchased by Inversiones for £708,752. I find that he did know this. A copy of the agreement documenting the purchase was in LCF’s books and records and a copy of the agreement was attached to an email sent to Mr Thomson by Mr Ingham on 9 May 2017.

I find that Mr Thomson knew that Jonathan Marshall had produced a draft report in December 2013 that valued The Hill at US$7.3 million. He was sent the draft report by Mr Hume-Kendall on 24 December 2013. This report caused concerns because it was a lower value than had been anticipated. Mr Thomson was copied into the relevant emails.

Mr Thomson said at various stages in his evidence that he did not read emails if the subject line indicated that it was within someone else’s remit, even if the email was marked “urgent” and related to the accounts of a company of which he was a director. I reject this evidence. I find that, save where there is good reason to suppose otherwise, such as ill health at a given time, Mr Thomson in general read emails sent or copied to him. I find in this particular instance that he knew about the concerns about Mr Marshall's draft appraisal.

I have already referred to the revised draft valuation report produced by Mr Marshall. Mr Thomson knew of this because it was sent to him by Mr Hume-Kendall on 30 March 2014. I have already commented on this. It was a draft desktop appraisal, not a Red Book valuation, and said it should not be relied on as a valuation report. Mr Thomson also knew from its contents that it omitted finance costs and that it was predicated on further income from the Sanctuary investors being available to fund the development of The Hill, when (as he knew) no such payments would be due until completion. I also find that Mr Thomson would have noted the substantial increase between the value in this and the earlier appraisal from Mr Marshall. As already mentioned, I find that no prudent businessman would have placed any reliance on this draft appraisal. It placed a value on the land at an amount hugely above the purchase price paid by Inversiones, despite almost nothing having been done since the date of the purchase. I find as a fact that Mr Thomson placed no reliance on it.

Mr Thomson later made use of a May 2014 draft appraisal from Mr Marshall for The Beach which contained a figure of $37.9 million. I shall return to this. I find that no prudent lender could have placed any reliance on this heavily caveated draft desktop appraisal without requiring a proper Red Book valuation. Mr Marshall expressly said in the document that he did not conduct any due diligence on the development plans and the report stated, “You should therefore place limited reliance upon these figures and we would recommend that no irrevocable decision is taken with regard to the property without commissioning a formal valuation report”. I find that Mr Thomson did not actually believe the land to have a value of $37.9 million or anything approaching it.

I find that Mr Thomson knew that Tenedora had no valuable interest in The Beach. He knew that Tenedora had entered into an agreement giving it the right to acquire the plots of land comprising The Beach for the payment of a total sum of US$3.5 million but had not actually acquired them.

I am also satisfied that Mr Thomson knew that until late 2017, Tenedora did not actually acquire any of the plots of land at The Beach. He claimed in oral evidence that he thought Tenedora had been proceeding with the purchase in the meantime. But he was informed by Mr Ingham, by email on 15 April 2016, that Tenedora did not own any of the land at The Beach and Mr Lee repeated this to Mr Thomson in an email on 16 March 2017. I reject Mr Thomson’s evidence that he was unaware of these facts. This would have been particularly vital information for him as a director of LCF (as The Beach formed part of the supposed security for LCF’s lending) and he would have been interested in its value. I find that he knew the truth.

Though Tenedora eventually acquired some of the parcels making up The Beach in 2017, it never in fact acquired the parcels needed to enable the proposed development. I am satisfied that Mr Thomson knew this: he continued to have an interest in what was happening to the development and would have been told the true position.

I have already mentioned that substantial payments were made to One Monday from the further sums raised from the Sanctuary investors. Mr Thomson was a shareholder of One Monday from 5 May 2010 until its dissolution on 2 February 2016 and was a director of One Monday from 9 May 2012. I find that throughout his time as a director, Mr Thomson controlled One Monday’s finances and banking arrangements.

Mr Thomson gave oral evidence that at some unidentified point early in the history, he had handed control of One Monday over to Mr Barker and Mr Michael Peacock and that Mr Barker was added to the bank account mandate. I reject this evidence. My reasons include these:

I conclude that Mr Thomson’s evidence that he had handed over control of One Monday’s banking to others (and so lacked knowledge of its affairs) was a deliberate lie, which he told to distance himself from the damaging evidence that One Monday had been used as a conduit for paying a large proportion of the additional deposits made by Sanctuary investors to himself, Mr Golding, Mr Hume-Kendall and others; rather than it being used for the development of The Hill.

I am satisfied that Mr Thomson knew that some £1.2 million of the additional deposits received from the Sanctuary investors was transferred from Sanctuary PCC’s client account with Buss Murton to One Monday and that One Monday made the payments already identified. I also find that Mr Thomson knew that these payments made to the various individuals (or their companies) of parts of the additional deposits was contrary to the interests of the Sanctuary investors. He also knew that the investors had been led to believe that the additional deposits would be applied in the further development of the land.

As to the involvement of Mr Golding in the dealings with Sanctuary, I am satisfied that:

The next asset to address was called Paradise Beach. This was a resort in Cape Verde. It was owned by a company called Paradise Beach SA. A company called Stirling Mortimore had a purchase contract and agreed to assign its position to CV Resorts, the intended purchaser (a company associated with Mr Golding, Mr Hume-Kendall and others). By a contract with Paradise Beach SA executed on 13 April 2015, CV Resorts agreed to pay various sums for phases of the development. The constituent elements and payment instalments required CV Resorts to pay c. €57 million (c. £41 million at the then exchange rate) to acquire the resort.

In closing submissions, Mr Sedgwick contended that 30% of the price had already been paid by the date of the contract because CV Resorts took over the deposits that had been paid by the previous purchaser. He did not however give evidence and his assertion could not be evaluated in cross-examination. On the documents and evidence before the court (including (a) the contracts in fact signed with Paradise Beach SA in April 2015, (b) the revised contract of May 2016: see below and (c) a spreadsheet circulated by Mr Sedgwick, which said that the only amount deemed to have been paid was c. €184,000) I am satisfied that €57 million was payable.

In August 2015 Savills advised Mr Thomson that the market value of the site was c. €40.5 million. Savills also advised that the “worth value” (the value to the owner or prospective owner such as for investment purposes) was €56.72 million.

In light of Savills’ valuation, the right to acquire Paradise Beach with a market value of €40.5 million for a price of €57 million was therefore worthless. Mr Thomson (who had been given a preliminary opinion of value by Savills in July 2015) said in an email dated 20 July 2015 that they would be “overpaying by quite a margin”.

It will also be noted that Savills sent an email to Mr Thomson on 26 August 2015 which said that with a reduced marketing period (and other negative assumptions) the site would have a market value of €17.6 million.

In the event, none of the land at Paradise Beach was actually acquired. There remained simply a contractual right to acquire the site on paying the sum of €57 million.

As things transpired CV Resorts failed to pay the instalments due under the contract and this led to a legal dispute with Paradise Beach SA. Paradise Beach SA wrote a letter on 19 November 2015 claiming that CV Resorts was in breach of contract. It said that if CV Resorts did not remedy all its breaches, the contract would be terminated.

This dispute continued and ultimately it resulted in an agreed variation to the terms of the purchase agreement in May 2016, which postponed the dates for the payment of the instalments. The total price remained €57 million.

CV Resorts again failed to pay the instalments, and the dispute with Paradise Beach SA was revived. This continued during 2016 and into 2017. Paradise Beach SA gave notice terminating the contract in June 2017.

I am satisfied that CV Resorts never acquired Paradise Beach and that the right to acquire the site did not have any value.

Mr Thomson was a director of CV Resorts between 23 January 2015 and 15 August 2015 and was therefore a director at the time at which CV Resorts entered into the contract with Paradise Beach SA.

I find that Mr Thomson participated in arranging the Paradise Beach deal, along with Mr Hume-Kendall, Mr Golding, Mr Sedgwick and Mr Ingham. He met the beneficial owners of Paradise Beach SA, Messrs John and Ned Cotter. He accepted in his witness statement that he “had some hand in” making a working financial model of the estimated values of the properties. He attempted to downplay this somewhat in cross-examination, but I conclude it is likely that he was involved. He obtained the valuation of the site from Savills. As one of the two directors of CV Resorts, he was included with Mr Hume-Kendall in communications relating to the drafting of the agreement with Paradise Beach SA.

As already explained, Mr Thomson therefore knew that the market value of the Paradise Beach site was substantially less than the €57 million that CV Resorts was required to pay to acquire it.

Mr Thomson was also given a copy of the variation agreement of May 2016, which maintained the €57 million price. I am satisfied that he was aware of the dispute between CV Resorts and Paradise Beach SA and knew that CV Resorts had not paid any of the sums due under the contract.

By an email of 6 February 2017, Mr Sedgwick informed a Cape Verde lawyer that LCF “are ready to provide the €2 million to purchase the first set of units but they require proper security”. It is probable that Mr Sedgwick had previously discussed this with Mr Thomson. I am satisfied that this shows that Mr Thomson was aware that, by that date, no units had been acquired. Mr Thomson also knew that CV Resorts had still not completed the purchase of any of the units at Paradise Beach by 21 April 2017 from an email to Alex Lee, copied to Mr Thomson, saying, “CV Resorts does not at the moment have any property in its name only the contracts to acquire the land in the Cape Verde”. Mr Thomson said he could not remember this email in his oral evidence. I consider it likely that he read this and other emails as a matter of practice as they affected the security given to LCF.

Mr Thomson said in his evidence that he thought CV Resorts was in fact buying units. There was no contemporaneous evidence supporting that and the emails just referred to show that he knew until at least until mid-2017 that no units had been bought. He was unable to explain these, other than to say that he did not read emails unless the subject line showed he had to. I have rejected this evidence.

No units were in fact purchased and the contract was terminated by the sellers in June 2017. I find it inherently improbable that any of the people then involved would have lied to him about this. I conclude that his oral evidence that he thought that units had been bought at some stage was deliberately untruthful.

I am also satisfied that Mr Thomson knew that CV Resorts never acquired any interest in the Paradise Beach resort (other than the right to buy it for substantially more than its market value).

Mr Golding was also involved in arranging the Paradise Beach deal, along with Mr Thomson, Mr Hume-Kendall, Mr Sedgwick and Mr Ingham. Mr Golding knew that CV Resorts had defaulted under the agreement because he was forwarded the letters dated 19 November 2015 and 15 February 2016 from Paradise Beach SA in which the defaults of CV Resorts were set out.

The first of these letters was forwarded by Mr Sedgwick to Mr Barker who, it is to be inferred, passed it on to Mr Golding. I find that Mr Barker generally communicated his knowledge of material events to Mr Golding. Mr Barker was Mr Golding’s right-hand man and functioned as his nominee in holding shares. Mr Golding had been disqualified as a director and sought to keep his involvement in the various companies hidden.

The second letter concerning the dispute with Paradise Beach SA was forwarded directly to Mr Golding by Mr Sedgwick. On 23 February 2016 Mr Golding received an analysis prepared by Mr Sedgwick of the claims made against CV Resorts by Paradise Beach SA.

Mr Golding was then involved in discussions with John and Ned Cotter to resolve the dispute and authorised the entry by CV Resorts into the variation agreement in May 2016.

Mr Golding knew that the revised purchase agreement did not complete. He was for instance copied into an email dated 10 November 2016 from Mr Hume-Kendall to John Cotter in which Mr Hume-Kendall sought an extension to the completion dates. In this email, Mr Hume-Kendall noted that “the price in contemplation is far in excess of an open market sale”. I find that Mr Golding knew that CV Resorts never completed the purchase of a single unit at Paradise Beach and that this was the reason that Paradise Beach SA terminated the contract on 7 June 2017. By an email of 7 June 2017, Mr Hume-Kendall forwarded to Mr Golding the notice of termination saying, “As you anticipated!”. Mr Hume-Kendall and Mr Golding must therefore have been discussing the prospect before this happened.

Mr Sedgwick participated in arranging the original Paradise Beach deal, along with Mr Hume-Kendall, Mr Golding, Mr Thomson and Mr Ingham. In February 2015, Mr Sedgwick was engaged in drafting an agreement by which Stirling Mortimer would assign its rights in relation to Paradise Beach to CV Resorts. This led to the agreement of April 2015.

Mr Sedgwick was therefore aware of the terms of the agreement. Mr Sedgwick subsequently summarised the payments due under the agreement in a spreadsheet for Michael Peacock.

Mr Sedgwick knew that CV Resorts had defaulted under the agreement because he received the letters dated 19 November 2015 and 15 February 2016 from Paradise Beach SA in which the defaults of CV Resorts were set out. He forwarded the first of these letters to Mr Hume-Kendall and Mr Barker and the second to Mr Hume-Kendall, Mr Barker and Mr Golding. On 23 February 2016 Mr Sedgwick conducted an initial analysis of the claims made against CV Resorts by Paradise Beach SA and sent it to Mr Hume-Kendall, Mr Barker and Mr Golding. Mr Sedgwick acted in the dispute for CV Resorts and drafted correspondence with Paradise Beach SA. He was also involved in the variation agreement by which this first dispute was resolved in May 2016. On 10 October 2016 Mr Sedgwick sent an email, copied to Mr Hume-Kendall, Mr Barker and Mr Ingham, in which he explained that no purchases of units at Paradise Beach had completed. It attached a summary of the outstanding payments due.

On 10 November 2016 Mr Sedgwick drafted an email for Mr Hume-Kendall and Mr Barker to send to John Cotter, seeking to dissuade Paradise Beach SA from terminating the contract. On 12 January 2017 Paradise Beach SA agreed to allow CV Resorts until 1 February 2017 to remedy its breaches. Mr Sedgwick forwarded these letters to Mr Hume-Kendall and Mr Barker. When CV Resorts did not remedy its breaches, on 6 February 2017, Mr Sedgwick sought advice from a lawyer qualified in Cape Verde law. He explained that “we are of the view that the price being paid for the site is too high and wish to persuade them to accept significantly less” and that LCF was ready to provide €2 million. Mr Sedgwick knew that CV Resorts never completed the purchase of any of the units at Paradise Beach and that this was the reason that Paradise Beach SA terminated the contract on 7 June 2017.

The next relevant asset is the Lakeview resort. This was a holiday resort in Bodmin, Cornwall, which contains lodges. The site had an area of about 95.8 acres. The property was developed in the late 1980s and opened in 1991.

The site was acquired by Lakeview Country Club Limited (“LCCL”) in 2012.

At that date, 36 lodges were let on 999-year leases to third parties; 24 lodges were let to a timeshare club, Lakeview Title Limited, and the remaining lodges were owned outright (including a lodge used as a service lodge). The site comprised 4 one-bedroom lodges, 42 two-bedroom lodges, 5 two-bedroom bungalows, and 18 three-bedroom bungalows. There was also an owner’s house and a clubhouse.

Before the LCCL acquisition, the Lakeview site was owned by Vernon Knight Associates (“VKA”), which was a trading partnership between Mike and Penny Vernon. VKA’s bank, Barclays, sought early repayment of VKA’s borrowing.

VKA agreed to sell the Lakeview site to a company called Telos (IOM) Limited, a company incorporated in the Isle of Man, for £1.98 million. Telos accepted investments from 136 investors in the sum of c. £6.4 million for the purchase and development of the Lakeview site. Telos failed, however, to pay the purchase price and it forfeited its deposit. The sale to Telos therefore fell through.

Mr Hume-Kendall and Mr Golding decided to purchase the Lakeview site, using LCCL. The proposed price was initially £4.5 million, mostly consisting of deferred consideration. Mr Hume-Kendall said in an email of 28 November 2012 to Mr Golding that they all agreed this to be way in excess of what the property and business were worth. Mr Hume-Kendall and Mr Sedgwick engaged in renegotiating the price downwards. Negotiations followed in which the price was reduced. Eventually the buying company, LCCL, exchanged contracts with the vendors to acquire the site for £2.75 million. Before completion, there were further renegotiations regarding the price, resulting in a variation agreement. LCCL ultimately acquired the Lakeview site for £1.525 million.

Mr Thomson and Mr Hume-Kendall approached the Telos investors with a proposal to raise money to finance some of the purchase price. Mr Clint Redman assisted them. The proposal was presented to Telos investors in roadshow meetings. They proposed that Telos investors would loan sums which would be repayable with interest at 8% per annum and that 10% of the proceeds of an eventual sale of Lakeview (in due course) would be held by a trust for the benefit of the Telos investors. A large number of the Telos investors took this up and paid a total of £728,672.88.

This left the need to raise other completion sums. The bulk was obtained from Ortus, a bridging lender, which made a secured loan of £800,000 to LCCL, guaranteed by Mr Thomson, Mr Hume-Kendall and Mrs Hume-Kendall.

The sale of the Lakeview site to LCCL completed on 5 April 2013. The total consideration paid was c. £1.6 million, consisting mainly of sums borrowed from Ortus and the Telos investors.

Over time, LCCL and associated companies bought back a number of the lodges not previously owned. Four of these purchases occurred before January 2015.

The site was transferred to Waterside Villages Plc in late 2015. The buy-back of lodges picked up after that, and Waterside Villages accepted the surrender of the timeshare clubs’ 24 leases in return for a payment of £762,000.

The Claimants have compiled a table based on Land Registry documents which shows the dates at which various lodges were acquired and the prices paid for them. In the end, 60 of the 69 lodges were owned by LCCL and related companies.

At the roadshow to the Telos investors, Mr Thomson participated in preparing a presentation to the Telos investors which set out the proposed development of the Lakeview site, including the construction of a 105-bedroom hotel and the various options available to the Telos investors, and in drafting a letter to the Telos investors, which he asked Mr Sedgwick to review.

There was a spreadsheet prepared by Mr Peacock which showed that the total sum raised from the Telos investors was £728,572 and that the annual interest due to the Telos investors was c. £58,000. Mr Thomson accepted in evidence that he probably saw this at the time, and I so find.

I turn to the evidence about the value of the site. As already explained LCCL bought the site for c. £1.6 million in April 2013.

In January 2013 a firm of surveyors, GVA, valued the Lakeview site for LCCL. GVA put the market value of the freehold at £4.65 million. This valuation correctly noted that 36 of the lodges were subject to long leases and 24 of the lodges were subject to timeshare agreements. The report said there was planning permission for a new development to include 36 further holiday lodges and a 105-bedroom hotel, and that LCCL did not intend to proceed with the hotel but assumed that the further 36 new lodges could be developed. The valuation included an element of value which would be generated by such development, and for the resale value of other lodges bought back in and re-sold.

In July 2013 GVA produced a valuation for Ultimate Capital Limited (“Ultimate Capital”), a lender to LCCL. This gave the Lakeview site a market value of £4.5 million, which decreased to £3.6 million if the marketing period was assumed to be restricted to 180 days. The valuation noted that 36 of the lodges were subject to long leases and 24 of the lodges were subject to timeshare agreements.

Savills produced a valuation for LCCL in April 2014. This estimated the market value of the Lakeview site at £4 million, rising to £4.125 million if a tie restricting occupation of the Manor House to an owner or manager of the site were to be lifted. This valuation incorrectly stated that there were 11 lodges owned by LCCL, when in fact at this point LCCL owned only 9 lodges, of which one was a service lodge. The report explained that information had been provided by Mr Thomson, Mr Redman and Mr Ingham. Savills had seen the GVA report of January 2013. They had also been given additional information by Mr Thomson and Mr Hume-Kendall.

GVA produced a further valuation dated December 2014 for International Resorts Group plc, marked for the attention of Mr Thomson. It assessed the market value as at 11 April 2014 at £12.4 million on the special assumption that “the proposed business plan” would be achieved in full and without delay. It also gave the market value without this assumption of £7.15 million. The business plan included the development of a 105-bedroom hotel. The proposed hotel would have cost some £19 million plus professional fees, and the new lodges an additional £4.3 million plus fees. The business plan cashflow made the assumption that build costs would start immediately, including on the new lodges, with the hotel construction starting seven quarters later. It also envisaged the buyback programme starting immediately. I find that Mr Thomson knew that the proposed business plan had not been commenced and was not about to start. Therefore, the £12.4 million figure was of negligible use.

The valuation was also based on an inaccurate assumption that LCCL already owned 26 lodges. It actually owned only 9 lodges, of which one was a service lodge. The report stated that IRG had advised it that LCCL had bought in these extra lodges and that the purchase had completed. I am satisfied that Mr Thomson knew that this assumption about the number of lodges in hand was wrong. He was intimately involved in the affairs of LCCL at the time. The report was addressed to him, and it is likely that he was at least one of the principal providers of information to GVA. This is consistent with the fact that Savills said in their 2014 report (above) and their further report of January 2015 (see below) that Mr Thomson and Mr Hume-Kendall had provided them with information between October 2013 and January 2015.

Savills produced a further valuation for LCCL dated 17 January 2015, addressed to Mr Thomson. Its conclusions as to the market value of the Lakeview site were unchanged from its 2014 report. It said that Mr Thomson and Mr Hume-Kendall had provided Savills with information up to January 2015. As with its earlier report, Savills based its valuation on there being 11 lodges owned by LCCL.

GVA produced another valuation dated 29 January 2015 for Ultimate Capital Limited which held security over the Lakeview resort. This report assessed the market value as at 12 January 2015 to be £4.5 million, reduced to £2.6 million if the sale period was limited to 90 days. The valuation reported that LCCL owned 8 lodges.

Another valuer, John Spacey, conducted some valuations of the Lakeview resort.

In December 2016, Mr Spacey, trading as Porters Intrinsic Valuations, produced four reports for LCF on the value of different components of the Lakeview resort, which in total gave the market value of the Lakeview resort as £15.03 million. Of this figure, £9.36 million was attributable to the value of the lodges. Mr Spacey assigned 3-bedroom lodges, of which he recorded 17, a value of £180,000 and 2-bedroom lodges, of which he recorded 45, a value of £140,000. I find that these values were substantially above the prices at which lodges had been sold in a number of open market transactions. I find that Mr Thomson did not regard it as an accurate view of the value of the site.

On 1 December 2017 Mr Spacey, now trading as The Cobbs Consultancy, sent Global Resort Properties Limited an updating letter in which he stated the value of the Lakeview resort had risen to £22.6 million. He referred to a meeting with Mr Hume-Kendall and his colleagues. Of this figure, £13.6 million was due to the value of the lodges. Mr Spacey recorded that there were 69 lodges, of which 7 were 2-bedroom lodges valued at £200,000 each and 62 were 3-bedroom lodges valued at £250,000 each. Again, I find that these were significantly higher than open market sales at around the same time. In addition, the report erroneously increased the number of 3-bedroom lodges and decreased the number of 2-bedroom lodges. Mr Spacey had also increased the value of the development land from £1.5 million in December 2016 to £4.5 million a year later. This letter was not a Red Book valuation but was an updated appraisal. I find that Mr Thomson did not regard it as an accurate view of the value of the site.

The figures in the letter of 1 December 2017 assumed that refurbishment work had taken place. I find that some limited works had taken place by then, but an email of 6 April 2018 from Mr Terry Mitchell to Mr Hume-Kendall states that “the valuation is based on the lodges being refurbished whereas they may not be completed until end [of] May … subject to availability of vacant lodges”. I find that it is likely that the refurbishment was not completed until October 2018.

On 7 June 2018 Mr Spacey sent Mr Mitchell at Prime RDL a further letter updating the letter of 1 December 2017. He said that the value of the Lakeview resort had risen to £33,199,350. He referred to a proposed development of 113 new lodges. He placed a value of some £11.8 million on this part of the land (up from £4.5 million in his previous letter). The existing lodges were now valued at £17.355 million. Mr Spacey now valued 7 x 2-bedroom lodges (at £240,000 each) and 57 x 3-bedroom lodges (at £275,000 each). The increase in value since 1 December 2017 is not explained, and nor is the different number and configuration of the lodges.

The Lakeview site was sold by the LCF Administrators on 28 April 2022 for £10.1 million, following an extensive marketing process. This was very substantially lower than any of Mr Spacey’s valuations.

As to the role of Mr Thomson in relation to the Lakeview site, he was appointed a director of LCCL on its incorporation on 18 December 2012. Mr Thomson was a witness on a declaration of trust dated 19 December 2012 by which Buss Murton (Nominees) Limited agreed to hold the single share in LCCL on trust as to 71.25% for Mr Golding and his family, 23.75% for Mrs Hume-Kendall and 5% for Mr Thomson.

As already explained, Mr Thomson participated in the roadshow to Telos investors to raise funds for the completion of the purchase of the Lakeview site. He accepted in oral evidence that he was involved in the preparation of a PowerPoint presentation setting out the proposed development of the Lakeview site (including the construction of a 105-bedroom hotel) and the options available to the Telos investors. Mr Thomson also accepted in his oral evidence that he was closely involved in the production of a letter to the Telos investors which also set out the options open to them. I find that he knew the amounts raised from them (£728,552.88) and what the annual interest due to them was (c. £58,000).

On 20 December 2012 Mr Thomson signed the sale and purchase agreement for the land on behalf of LCCL. In March 2013, following the renegotiation between the parties, Mr Thomson also signed the supplemental agreement, which decreased the price to £1.525 million. On 5 April 2013 Mr Thomson signed a facility agreement in the sum of £800,000 with Ortus to obtain bridging finance for the purchase of the Lakeview site. Mr Thomson, along with Mr Hume-Kendall and Mrs Hume-Kendall, also signed the facility agreement as a guarantor.

Mr Thomson knew at the time at which the Lakeview site was acquired the number of lodges and how they were then owned (in hand, long lease or timeshare).

Mr Thomson was also involved in arranging refinancing of the Ortus debt. It refinanced with a loan from Ultimate Capital. Mr Thomson knew that Ultimate Capital had obtained a valuation of the Lakeview site in July 2013 from GVA. He accepted in evidence that he would have seen it at the time, and he was therefore aware of that valuation.

Mr Thomson instructed Savills to provide a valuation of the Lakeview site. Savills addressed its report to Mr Thomson. Mr Thomson was familiar with the content of this report and knew the quantum of the Savills valuation.

Mr Thomson accepted in his oral evidence that he would have seen the valuation of the Lakeview site obtained for Ultimate Capital from GVA in January 2015.

Mr Thomson knew of the GVA valuation produced for IRG in December 2014 and was aware that the value of £12.4 million contained in this valuation was based on the special assumption that the business plan, which included the development of a 105-bedroom hotel, would be achieved in full and without delay.

I am satisfied that Mr Thomson knew that this overstated the value of the site. First, he knew that it was based on LCCL owning 26 lodges. At the time he was heavily involved in the buyback programme. He was the addressee of many of the emails about the programme. Though he denied in oral evidence that he was aware of the details of it, I reject this. The email record shows that he was intimately involved. I also find that he would have noticed the number of lodges that were being valued in the December 2014 report. The contemporaneous documents show that Mr Thomson was seeking to explain the contents of the GVA report to third parties so that they would accept that that the Lakeview site should be valued at £12.4 million. These establish that he had read the report reasonably carefully. I also find that the instruction to GVA as to the number of lodges to include in the valuation was likely to have come from Mr Thomson himself.

I also find that Mr Thomson knew that the business plan referred to in the GVA valuation report had not been achieved or was not about to be achieved in full and without delay and, in particular, that a 105-bedroom hotel had not been built (and was not imminently to be started) at the Lakeview site. Mr Thomson sought in his evidence to suggest that it did not matter that the work had not actually been carried out, as long as it was going to be carried out at some date. I do not accept that. As explained above, the business plan assumed that construction and the extensive buy-back programme would both start immediately (in Q1 of the anticipated timeline in the cashflows) and Mr Thomson knew that neither was imminent. He knew that LCCL did not have the funding to carry out those steps. I reject Mr Thomson’s evidence that he thought that simply because there was a development plan the market value was £12.4 million. That gives no meaning to the important assumption that the plan was to be achieved in full and without delay.

As to Mr Spacey’s valuation of Lakeview, I find that Mr Thomson knew that the actual sales of lodges had been very significantly lower than Mr Spacey’s assumptions. I reject his evidence that he did not know the value of the sales. As already explained, he had been intimately involved in the buy-back and sales process. He also knew that the number and configuration of the lodges in the report was wrong. I also note that Mr Thomson said in evidence that he had never met Mr Spacey and that the report had been produced at the behest of Mr Hume-Kendall and Mr Golding. I find that he did not think that it represented the value of the site.

As to the involvement of Mr Golding in relation to the Lakeview site, Mr Golding appears to have been the main proponent of the purchase. Mr Hume-Kendall seems to have been the public face of Mr Golding’s involvement. Mr Hume-Kendall routinely forwarded emails regarding the proposed acquisition of Lakeview to Mr Golding. The emails show that Mr Golding was actively involved in internal discussions regarding the proposed renegotiation of the price. Mr Golding was involved in raising sums from the Telos investors. Mr Beal, a finance broker, was under the impression that the bridging finance to acquire the Lakeview site was “the finance required for Spencer”. Following the acquisition, Mr Golding became the majority owner of the Lakeview site, via his beneficial interest in LCCL. Mr Golding was the person who had overall control of LCCL.

Mr Golding, therefore, knew how much LCCL paid for the Lakeview site (c. £1.6 million). Mr Golding was also involved in the instruction of Savills to produce a valuation of the Lakeview site. He must therefore have known about the quantum of that valuation. The contemporaneous emails (e.g. one of 6 June 2013) show that Mr Sedgwick and Ms Baldock understood Mr Thomson to be Mr Golding’s employee. In oral evidence, Mr Thomson rejected the suggestion he was Mr Golding’s employee but acknowledged that he represented Mr Golding’s interests in LCCL. As explained above, Mr Thomson held Mr Golding’s shares on trust for him. I find that he acted in accordance with Mr Golding’s instructions concerning LCCL. I am also satisfied that it is proper to infer that, as Mr Golding’s representative, Mr Thomson would have kept Mr Golding informed of significant developments concerning the Lakeview site.

As to the involvement of Mr Sedgwick concerning the Lakeview site, he was instructed by LCCL to deal with the purchase of the Lakeview site from VKA. He knew the details of the negotiations and the eventual purchase. The documents establish that Mr Sedgwick principally received instructions from Mr Hume-Kendall but knew that Mr Golding was also interested in the acquisition. He knew that Mr Golding was the majority beneficial shareholder in LCCL.

Mr Sedgwick also knew that Mr Hume-Kendall had negotiated a loan of £200,000 by Geoffrey Hunt and John Banks, the directors of Telos, to pay the deposit for the purchase. Mr Sedgwick drafted an undertaking from Bewl Holiday Homes LLP that Mr Hunt and Mr Banks would be repaid from the proceeds of sale of Hook House, a property in which Mrs Hume-Kendall was interested. Ultimately Buss Murton gave such an undertaking to Mr Hunt and Mr Banks. The £200,000 arrived in Buss Murton’s client account and Mr Sedgwick instructed that it be paid to the vendors’ solicitors.

Mr Sedgwick incorporated LCCL, which was to act as the purchasing entity, on 18 December 2012. He was appointed the company secretary of LCCL on the same date.

Mr Sedgwick sent the execution version of the purchase agreement to Mr Hume-Kendall, Mr Andrew Visintin and Mr Thomson. Mr Sedgwick witnessed Mr Thomson’s signature of this agreement on behalf of LCCL and sent the signed copy to the vendors’ solicitors. Mr Sedgwick then sent the purchase agreement executed by the vendors to Mr Thomson and Mr Hume-Kendall. Mr Sedgwick also knew of the revised agreement and the ultimate purchase price paid on completion.

Mr Sedgwick knew that Mr Redman and Mr Thomson were trying to engage with Telos investors via a roadshow in early 2013, and he was involved in the communications with the Telos investors. Mr Sedgwick assisted Mr Thomson in drafting a letter to the Telos investors which set out the options open to them. The Telos investors who signed up to the revised offer made payments to Buss Murton’s client account. Mr Sedgwick had control of the account into which these payments were made and kept Mr Thomson and Mr Hume-Kendall informed of such payments. Mr Sedgwick knew that by 26 March 2013 LCCL had received £230,470.17 from the Telos investors because he set out the payments received in a spreadsheet; he knew that by 4 April 2013, £518,802.47 had been received from the Telos investors; and he knew that by 4 July 2013, £728,572.88 had been received from the Telos investors. The same documents show that he knew that LCCL was liable to pay interest to the Telos investors, in an amount of £58,293 per year.

Mr Sedgwick knew that bridging finance was required to complete the purchase. One of the potential providers was Ultimate Capital. On 4 July 2013 Mr Sedgwick told Ultimate Capital that the Telos investors had provided approximately £800,000. I find that this was an overstatement of the true position, and that Mr Sedgwick knew the true figure, given his knowledge of the state of the Buss Murton client account.

Mr Sedgwick also told Ultimate Capital that the shareholders of LCCL had provided “funding in the region of £800,000”. I find that this was not true because the purchase price was £1.525 million and the deposit had been funded by way of a loan from Mr Banks and Mr Hunt.

In the event, bridging finance was provided by Ortus. Mrs Hume-Kendall was added to a draft Ortus guarantee on 3 March 2013. It is to be inferred that this was based on information provided to Ortus by Mr Sedgwick. However, Mr Sedgwick had actually done this on the instructions of Mr Hume-Kendall, because when Mr Sedgwick met Mrs Hume-Kendall on 3 April 2013, she “had not fully appreciated” that she was to be providing a guarantee to Ortus (email of 3 April 2013 from Mr Sedgwick to one of his colleagues).

Mr Sedgwick knew that Ortus had provided £747,157 of the sums due on completion and that LCCL had provided £377,578.38. Mr Sedgwick also knew that the total sum paid by LCCL, including the deposit and compensation payments for the delays to completion was £1.6 million.

Mr Sedgwick was therefore intimately involved in the various stages of the acquisition and obtaining bridging finance by LCCL. He was also appointed as the company secretary. He was also intimately involved in the lodge buyback programme. In the light of this, I find that he was aware of the numbers of lodges held by LCCL from time to time and the values at which they were acquired.

I also infer that he was aware of the various valuations of the Lakeview site and the anomalies and shortcomings in them I have already detailed above. This inference is strengthened by the fact that Mr Sedgwick did not give evidence and subject himself to cross-examination and I find (as an adverse inference) that he had knowledge of these various facts.

LCF was incorporated as South Eastern Counties Finance Limited. It was called Sales Aid Finance (England) Limited from 18 February 2013 until it became London Capital & Finance Limited on 1 July 2015 and then London Capital & Finance Plc on 11 November 2015.

At incorporation, Mr Hume-Kendall, Mr Paul Sayers, and Mr Peacock were directors. Mr Thomson replaced those individuals and was the sole director from 15 August 2013.

The entire share capital of SAFE was initially registered in the name of Mr Peacock. In late 2013 the shares were transferred to and registered in the name of Mr Thomson. He initially held them on trust for Mr Golding under a declaration of trust dated 30 December 2013 (which also covered shares in International Resorts Group ). I find that the reason for this trust arrangement was to ensure that Mr Golding (who had given undertakings not to be concerned or take part in the promotion, formation or management of a company) was not recorded as the owner of SAFE at Companies House.

Those undertakings were given for a period of eight years from 4 April 2011, in connection with the affairs of Clydesdale Enterprises Limited, which had operated as a timeshare business, and which entered liquidation on 7 April 2009 with assets of zero and a deficiency of £45,000. One of the agreed facts annexed to the undertakings was that Mr Golding had acted as a director of Clydesdale despite having been prevented for a period of 10 years from doing so under a Bankruptcy Restriction Order made on 20 December 2006.

Various other shares in other companies were also held on trust for Mr Golding. These included Clydesdale Property Developments Limited and LCCL. I find that these arrangements were also entered into to conceal his involvement with these companies.

I find that Mr Thomson, Mr Hume-Kendall and Mr Barker knew of Mr Golding’s disqualification undertakings. As will be explained below, many documents refer to the respective entitlements of Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding in various companies and a reference to Mr Barker was often used as a way of referring to Mr Golding, so that Mr Barker was acting as his proxy or nominee. I find that Mr Thomson, Mr Hume-Kendall and Mr Barker were aware of this practice, as was Mr Sedgwick.

A company called Lakeview UK Investments Limited (“LUKI”) was set up by Mr Hume-Kendall and Mr Golding to issue bonds to raise sums to develop the Lakeview site. This project was worked on by Mr Thomson and Mr Hume-Kendall.

In an email of 1 July 2013 to Hypa Management, Mr Hume-Kendall explained that “we” currently own the Lakeview site and that the intention was to raise £20 million to be spent in developing a hotel and new lodges and buying up to forty leasehold and timeshare lodges. Mr Hume-Kendall forwarded the email to Mr Golding using the name “John Smith”. The “advisor and manager” was going to be SAFE (as shown by an agreement dated 29 November 2013). This put the sums to be raised at £17 million. SAFE was to advise LUKI about whether it should loan sums to LCCL, determine the value of the assets provided by LCCL as security, and monitor the use of the funds advanced to LCCL. The sums raised were to be used to develop the site. This was explained in an Offering Memorandum dated 12 September 2013. The bonds offered were 5-year bonds paying 11% interest. The bonds were non-transferrable (i.e. were mini-bonds).

The LUKI bond was Mr Thomson’s first experience of a bond issue.

The issuance of the LUKI bond was only partially successful: only c. £3.9 million was raised by mid-2015, and c. £5.1 million by mid-2016.

As explained further below, the Lakeview site was transferred to Waterside Villages Plc in mid-2015, and LCCL retained the land called the “development land”, which was charged by way of security for LUKI’s liabilities to investors under the bond issue. However, the development land was valued at only £1.53 million in December 2016 (assuming that Mr Spacey’s valuation of this element of the site was reliable), so that there was insufficient security for the liabilities to the LUKI investors.

Mr Hume-Kendall resigned as a director of SAFE on 15 August 2013. Shortly before this he was planning a new business venture for SAFE as the issuer of bonds, with Mr Golding and Mr Russell-Murphy. Mr Hume-Kendall explained in an email dated 13 August 2013 to Mr Russell-Murphy (copied to Mr Golding as “John Smith”) that the bond issue would be backed by the two existing sites owned in the UK and the Dominican Republic, which he said were worth around US$200 million, following development. He said this had been assessed by major independent professional firms. He offered Mr Russell-Murphy a 5% share (worth US$10 million) if he was able to raise at least £3 million on the bonds in the next 12 months and assist with other ventures including a timeshare bond. The email was called a draft agreement and was signed “S and S” (i.e. Mr Hume-Kendall and Mr Golding). I am satisfied that, as this email shows, Mr Golding and Mr Hume-Kendall were both involved in the strategic direction of SAFE at that time.

In around August 2013 Mr Thomson prepared an information booklet for a loan scheme for SAFE, directed at members of the public, based on lending at an interest rate of 8.5%. Drafts of the booklet (dated 16 August 2013) stated that year-on-year lending in the UK SME sector had slowed dramatically, and that SAFE would provide finance to businesses in that sector. It explained that the directors of SAFE had significant lending/financing experience. Members of the public were invited to loan money to SAFE, which in turn would lend it to SMEs. The booklet stated that all funds would be held in escrow until loan agreements, guarantees, and legal charges were taken.

On 20 August 2013 Mr Thomson approached Mr Russell-Murphy and Mr Sedgwick, seeking their input into the draft. Mr Sedgwick had suggested that the draft refer to SAFE providing security of 150% of all money raised. In response, Mr Russell-Murphy noted that “the problem with what is being suggested is that the money may not be lent out in line with what’s described in the prospectus ie cash for Simon and Spencer etc”. The Claimants invited me to conclude that Mr Russell-Murphy and Mr Thomson knew at that stage that any cash being raised would be for Mr Hume-Kendall and Mr Golding personally. I find that Mr Russell-Murphy was probably referring to raising cash for businesses relating to Mr Hume-Kendall and Mr Golding, and that is how Mr Thomson understood it. But Mr Russell-Murphy was nonetheless highlighting that the existing draft implied that any funds raised would be lent to independent companies in the SME sector, rather than to specific businesses associated with SAFE and its director. I find that Mr Thomson understood this point.

A draft of the booklet was also circulated to Mark Ingham and to Mr Hume-Kendall. Mr Hume-Kendall hence remained involved in SAFE’s business after his resignation as a director.

Drafts of the brochure and a copy of the Loan Note Agreement were also shared with Mr Golding in September 2013. He knew of the terms on which SAFE was seeking to raise money from investors.

Further drafts of the proposed bonds were produced. The basic details were unchanged, with interest at 8.5% and asset security of 150%; funds to be lent to SMEs to meet demand for finance in the south-east of England; with SAFE to conduct a financial review of every application prior to making lending decisions. Drafts were circulated between Mr Thomson, Mr Hume-Kendall, Mr Golding, Mr Russell-Murphy and Mr Sedgwick. Mr Ingham was also involved. Mr Russell-Murphy said in an email to Mr Benjamin Beal (a finance broker) on 5 September 2013 that he thought it would be an “easy sell”.

The brochure was finalised in September 2013. It attached a letter from Buss Murton LLP dated 28 August 2013 (drafted by Mr Sedgwick), explaining that SAFE had the benefit of certain guarantees from companies owned by the stated directors of SAFE. I find that this statement was untrue and misleading as, first, those companies were not beneficially owned by the stated directors of SAFE and, second, draft guarantees were prepared for some of the directors, but none were actually executed. I am satisfied that Mr Sedgwick knew this, as he sent unexecuted draft guarantees out after the date of the signature on the letter. I draw the adverse inference from his failure to give evidence that he was reckless as to the truth and was prepared to provide a misleading letter to assist in fundraising from the public.

Members of the public started to invest in SAFE bonds from 11 September 2013. Mr Russell-Murphy, who was in the financial services advisory business, was paid a commission of 20% of the gross amount raised by him. This increased to 25% in April 2014.

I find that Mr Thomson and Mr Hume-Kendall were closely involved in the running of SAFE and were kept informed of the level of bond sales and other developments. For instance, on 10 December 2013 Ms Baldock, a salesperson, wrote to Mr Hume-Kendall about attempts to persuade an investor to invest £40,000. Mr Hume-Kendall sent this to Mr Golding and said, “not good”. On 17 December 2013 Ms Baldock sent details of some inward investments to Mr Thomson, Mr Hume-Kendall and Mr Russell-Murphy. Similar details were sent in emails by Mr Russell-Murphy to Mr Thomson and Mr Hume-Kendall on 18 and 23 December 2013 and by Ms. Baldock on 6 January 2014. Also, on 6 January 2014, Ms Maddock of SAFE sent an email to Mr Thomson, Mr Hume-Kendall and Mr Russell-Murphy about the wording of a certificate to be issued by SAFE.

Mr Golding was also kept closely informed about the affairs of SAFE and he participated in strategic decisions and the management of the business. For instance, he made the decision to make a special offer to pay 110% of principal on maturity as well as interest. Mr Thomson then implemented this. Specifically, on 13 December 2013, Mr Thomson said to Mr Russell-Murphy that he understood from “Spence” that Mr Russell-Murphy needed an email from SAFE and that he, Mr Thomson, would organise it. On the same day Mr Russell-Murphy sent an email explaining what he needed, i.e. an email setting out the 110% terminal bonus offer. He copied this email to Mr Hume-Kendall, who was also involved. Mr Thomson duly sent this email to Mr Russell-Murphy. I find that Mr Thomson did what Mr Golding had told him on this point. I find that this episode shows that Mr Golding was keen to raise money from the public as quickly as possible. There is nothing to suggest that either he or Mr Thomson gave any thought to the sustainability of this offer or the ability of SAFE to pay the 10% bonus on top of the interest. I am satisfied that this is because they were wilfully reckless as to the sustainability of the business model and wanted to raise more money at all costs.

Members of the public continued to invest in the SAFE bonds during 2013 and into 2014.

SAFE’s first outward loan was to Sanctuary PCC. Mr Thomson signed the loan application on behalf of Sanctuary as a director. The parties signed a loan agreement dated 1 October 2013 for £675,000. Mr Peacock signed for SAFE.

There was also a debenture, though Sanctuary PCC did not have any valuable property. As already explained, Tenedora had not acquired any of the parcels at The Beach and the benefit of the shares in Inversiones (which held The Hill) was held on trust for the Sanctuary investors.

I find that Mr Sedgwick knew of all these facts. He participated in drafting the documentation, including the El Cupey trust. He also knew that Tenedora had not bought any of the parcels of The Beach. He therefore knew that the security offered by Sanctuary PCC had no value.

I am satisfied that Mr Golding was aware of the loan agreement and the supposed security. He was involved in the dealings with the Sanctuary investors. He also received money from One Monday which had been borrowed by Sanctuary under the SAFE facility (see below). I infer, based on the evidence about his relationships with Mr Hume-Kendall and others, that he knew that others were probably receiving similar payments from One Monday (see further below).

I also find that he knew of the arrangements with the investors including the El Cupey trust arrangements. He therefore knew that Sanctuary PCC’s offer of security for the borrowing from SAFE had no value.

The money drawn down by Sanctuary PCC under the loan was paid by SAFE to One Monday. The sum of £80,000 was paid on 1 October 2013 (the date of the agreement) and further amounts followed in October and November 2013. As already explained, One Monday was Mr Thomson’s company.

One Monday used the money to pay Mr Hume-Kendall, Mr Golding and Mrs Hume-Kendall. Hence from the outset of SAFE’s business, some of the sums raised from bondholders were being paid to Mr and Mrs Hume Kendall and Mr Golding personally, rather than to the borrower, Sanctuary PCC, for its business purposes. These funds were therefore being disbursed at once and were not being invested in income-generating activities of the borrower. Mr Thomson knew this.

Some of the money paid by SAFE to One Monday under the Sanctuary PCC borrowing was paid to a company called Leisure & Tourism Limited, run by Mr Peacock. The bank statements and ledgers for Leisure & Tourism Limited show that these sums were used to meet the monthly interest liabilities of the Sanctuary investors that had been promised to them by Mr Hume-Kendall. Hence part of the money raised from investors in SAFE was being used to pay the interest due to the existing Sanctuary investors on their deposits. Again, these amounts were therefore not being invested in income-generating activities.

Mr Thomson and Mr Golding therefore knew that money raised from bondholders and lent to Sanctuary PCC was going either to themselves or to Sanctuary investors (to pay interest) and not being used to develop The Beach or The Hill. They therefore knew that money derived from investors in SAFE was being paid out and was not being invested into income-generating businesses. They had no concerns about this or the impact it might have on the sustainability of the SAFE business. I find that they were recklessly indifferent to the interests of the investors in SAFE.

Mr Sedgwick ran the Buss Murton account. He kept Mr Thomson (or his PA) and Mr Hume-Kendall abreast of the arrival of sums from SAFE bondholders, and the payments out of the account to Mr Russell-Murphy, One Monday, and others. Mr Sedgwick therefore knew that sums purportedly borrowed by Sanctuary were going to Mr Thomson’s personally owned company. I find (including by adverse inference) that Mr Sedgwick knew that this part of the money was therefore not being invested in an income-generating business by Sanctuary; he was recklessly indifferent to the interests of the bondholders. I also infer from his control of the client accounts (and failure to give evidence) that Mr Sedgwick knew that the Sanctuary investors’ interest payments were being met by Sanctuary PCC from sums borrowed from SAFE (in turn derived from investment by bondholders).

In early 2015 Mr Careless and Ms Venn (then called Kerry Graham) were running a website called The Investment Experts. Members of the public could ask questions about investments. They might say that they had an amount to invest and wanted certain returns. They had to sign in with contact details. Mr Careless and Ms Venn were not themselves investment experts. Their business model consisted of collecting questions from the public and selling these as “leads” to financial advisers, who would follow them up.

Surge was incorporated on 19 January 2015. Until 20 June 2017, Ms Venn held all the issued shares, and she was the sole director until 7 July 2017, when Mr Careless became a director. They both gave evidence that Mr Careless was throughout the 90% beneficial owner of Surge and a de facto director, and that Ms Venn owned the other 10% of the shares beneficially.

On 25 February 2015 Mr Careless and Ms Venn had a meeting with Mr Hume-Kendall, Mr Golding and Mr Russell-Murphy. The introduction was made by Mr Beal, who was a friend of Mr Careless. He had been working with Mr Russell-Murphy.

Before the meeting, Mr Beal provided Ms Venn with the SAFE investment memorandum.

Ms Venn made some fairly cursory internet searches (using Google) and sent a note to Mr Careless headed “Meeting with London Oil and Gas”. There was some limited information about Mr Hume-Kendall. Mr Thomson was described as having been a relationship manager at RBS who was now CEO of International Resorts Group plc (which had started in December 2013). Mr Russell-Murphy was described as an alternative investment adviser. She had been unable to find anything about Mr Golding, nor had she been able to find anything about the SAFE investment bond on Google. Lakeview was described as quite a big holiday resort in Cornwall.

At the meeting, Mr Hume-Kendall and Mr Golding outlined three investment proposals: a proposed £50 million fund for oil and gas exploration, which Mr Careless and Ms Venn considered to be high risk and unlikely to result in many members of the public deciding to invest; a bond issue based on the leisure and tourism industry, involving IRG, L&TD, the Lakeview resort in Cornwall, and a resort in Cape Verde, which Mr Careless and Ms Venn also thought would be unattractive to investors; and SAFE.

Based on an interview Ms Venn gave to the administrators of LCF after its collapse, I find that at the meeting both Mr Golding and Mr Hume-Kendall spoke about these proposed investments and that Mr Careless and Ms Venn understood them to be in business together.

Ms Venn said in her witness statement (and I find) that there were uncomfortable moments in the meeting. Mr Hume-Kendall and Mr Golding had a few different business interests that they wanted help to promote. Mr Hume-Kendall’s real interest was an oil bond, but Mr Careless and Ms Venn thought that this was less attractive than working for SAFE because they could not see that the public would be interested in an oil bond; it seemed too speculative and risky. Ms Venn took a copy of a prospectus for the oil bond, to placate Mr Hume-Kendall.

She also stated in her interview with the administrators (and I find) that a tourism and leisure business was discussed, and that Cape Verde was mentioned. Again, Mr Careless and Ms Venn thought that this was not something that would interest retail investors.

They were really interested in the SAFE bond. They knew that Mr Russell-Murphy was already selling it. They thought that the public would be interested in a business lending to SME companies. At the meeting, the three proposals (oil and gas, leisure and tourism, and SME lending) were presented as three separate and distinct investments.

At that stage, the role envisaged for Mr Careless and Ms Venn was providing leads, a website and online reputation management, in exchange for a fee.

After the meeting, Ms Venn made notes which she sent to Mr Careless. She said (among other things):

“[Information about Mr Hume-Kendall, Mr Golding and Mr Russell-Murphy as in her earlier email].

Spencer Golding: No public information, couldn’t look up his history but clearly a key player in the team.

SAFE (Sales Aid Finance England).

Charge SMEs 12-15% and give a return of 8.5% to investors, this is paid quarterly. Money tied in for 2 years. Loans no longer than 1 year and 150% asset backed security. The company also put up £4.5m security from their own Real Estate portfolio. This is a section 21 exemption bond but are moving towards full FCA accreditation. They have £1mil in this fund.

Leisure and Tourism

2 Divisions

IRG International Resorts Group www.irgplc.com this is basically a land bank

LTD - built out holiday resort in Cornwall and Cape Verde. Lake view in Cornwall … has 70 units and 105 bed hotel. Looking to raise up to £100mil, will be the smallest high yield fully FCA regulated bond. The bond money stays in escrow until defined draw down targets are reached. £2mil, £10mil, the. £10mil tranches. End of year plan is to take this to AIM.

London Oil and Gas

[Details of management team]

They are exploration they are not production …

Fund cap £100mil. Regulated 5 years bond prospectors [sic] ready in second quarter 2015.

Suggestion: link all three products with a bond wrapper. Offers choice and risk spread for investors.

Initial opportunity: overview website and potentially websites for all three funds.

Brochures

Online reputation management”

Ms Venn said in an email of 25 February 2015 that there was excellent news from Mr Beal: “They are totally on the line and want to be reeled in. They would like to start with £1m leads ASAP”.

Mr Careless and Ms Venn began a trial of selling leads for £150 per lead. They used a new company, Surge, to invoice for these services. Surge’s first invoice was dated 13 March 2015 but was numbered no. 011. The second invoice was numbered no. 22. Mr Careless and Ms Venn chased Mr Russell-Murphy for payment of invoices, and Mr Russell-Murphy told them that he would contact Mr Golding following which the invoice was paid. The trial ended by 19 March 2015 and Mr Russell-Murphy provided feedback.

Mr Careless had greater ambitions for the relationship with SAFE. He proposed a joint venture with SAFE to Mr Russell-Murphy in an email of 23 April 2015.

The proposal was that Mr Careless and Ms Venn would provide leads, as well as sales and marketing materials, and that in return they would be paid £500,000 upfront, a further £500,000 on reaching a certain investment threshold, and 5% of all funds delivered.

Mr Hume-Kendall was not attracted: he explained to Mr Golding and Mr Russell-Murphy in an email of 24 April 2015 his view that the arrangement should be success-driven, and he was concerned by the lack of “conversions” of leads. Ultimately, the proposal was not pursued.

I find Mr Careless was told that Mr Golding was not keen on an upfront payment. Mr Russell-Murphy, Mr Hume-Kendall and Mr Golding were all involved in the discussions about the possible joint venture.

I also find that Mr Careless and Ms Venn remained keen about the possibility of collaborating with Mr Russell-Murphy in connection with SAFE.

SAFE was renamed as LCF in the summer of 2015.

This was about the same time as the acquisition, led by Mr Hume-Kendall, of a company called “London Oil & Gas Limited” (company number 02504629) from Mr Eric Bosshard and his family.

Mr Hume-Kendall was heavily involved in this process. I find that he envisaged that London Oil & Gas would form part of a “London Group” of companies, with London Trading & Development Group Limited (“London Trading”) as the parent company. There are emails (in which Mr Sedgwick was involved) showing that there was a proposed restructuring. By 4 June 2015, Mr Hume-Kendall envisaged that one of the subsidiaries of London Trading would be “London Capital & Finance” and that SAFE should be renamed “London Capital & Finance”. In the event, SAFE was renamed “London Capital & Finance Limited” on 1 July 2015.

Mr Thomson said in his evidence that the name change was his own idea and not that of Mr Hume-Kendall. I reject that evidence. I find that the name change occurred at about the time of the proposed restructuring just described and that the idea at the time was that it would be part of the “London Group” of companies. That was the reason for the use of the word London in the name. I find that Mr Thomson gave this evidence because he wanted to suggest that by the time of the name change he was running LCF alone.

Mr Careless and Ms Venn agreed to prepare a website and branding materials for the rebranding of SAFE as LCF, for a fee of £10,000 plus VAT. Mr Careless and Ms Venn completed this work quickly so that they could begin selling the LCF bond to retail investors as soon as possible. Mr Russell-Murphy and Mr Careless agreed to join forces for this purpose. The initial idea was that Mr Careless would help to generate the leads, and Mr Russell-Murphy would convert them into bond sales. Their plan then changed to one where Surge would market the bonds and Mr Russell-Murphy’s sales operation would be brought into Mr Careless’s marketing operation.

Following this agreement, Mr Russell-Murphy put Mr Careless in touch with Mr Thomson, who contacted Mr Careless for the first time.

At about the same time, Surge reformatted the LCF brochure so that it looked more professional. It continued to contain the same basic contents as the SAFE brochure, including the text about the shortage of funding for SMEs and the business model of lending to SMEs.

On 27 July 2015 Mr Hume-Kendall and Mr Barker approved payment of the second invoice (£5,000 plus VAT) for the work of Mr Careless and Ms Venn in rebranding SAFE as LCF. Mr Sedgwick made the payment.

In early July 2015, an agreement was reached between LCF and Surge, effectively as a continuation of the earlier arrangement with Mr Russell-Murphy, that LCF would pay a commission of 25% to Surge of all sums raised from bondholders. Mr Russell-Murphy agreed to work with Surge on terms that he would receive the same amounts as Mr Careless received from Surge.

In the loan agreements entered between LCF and its borrowers, the “Cost of Borrowing” was defined to mean the sum which would be added to any sum drawn down which had been incurred by LCF in raising the funds comprising the facility. The definition was vague and unspecific. But, from the outset, LCF treated the commissions paid to Surge as a Cost of Borrowing.

A borrower would therefore have to pay the 25% fee paid to Surge. Hence if Surge raised £1 million from bondholders, Surge would immediately be paid £250,000. The balance of £750,000 would be made available to a borrower, but the borrower would (on making the draw down) become liable to repay £1 million and interest on that sum. The borrower would also be required to pay an arrangement fee of 2%. For the borrower (ignoring the 2% fee) its obligations to pay principal and interest were therefore grossed up by 33.33%.

On 16 July 2015 Mr Sedgwick sent a draft of an agreement called the “Golding-SHK Agreement” to Mr Hume-Kendall and Mr Golding, copying Mr Thomson. He said he understood that it reflected what had been agreed.

The finalised agreement, signed in July 2015, was between Mr Hume-Kendall, Mr Barker, Mr Golding, LCCL, and London Trading. Mr Hume-Kendall, Mr Barker and Mr Golding signed it.

Mr Thomson was not a signatory to this agreement, but he had a copy of an unsigned version of it. He sent a copy of it to Mr Barker on 18 April 2016 to evidence that he was the owner of all the shares in LCF; he referred specifically to the passage which provided for this, which shows that he read it at the time.

Mr Thomson alleged in his Defence, and stated in his witness statement and oral evidence, that the day before the draft Golding-SHK agreement was circulated to him, two other agreements were signed. These were a memorandum of understanding (“the MOU”) and a sale and purchase agreement (“the SPA”). These are each documents dated 15 July 2015 on their face. Mr Thomson called the two together as “the buy-out agreement”. He maintained throughout his evidence that they were genuine and were executed on 15 July 2015.

In closing, his counsel submitted that I should so find. She argued that they were of central importance to the case as they explained payments made to Mr Thomson deriving from LCF’s funds after July 2015 (see below). Mr Thomson’s case is that those payments represented the sale of his interests in various companies associated with Mr Hume-Kendall, Mr Barker and Mr Golding and that he had done nothing wrong in receiving them.

The Claimants argued that the two documents were forged. They contended that they were concocted with the assistance of Mr Sedgwick after the FCA raid on LCF on 10 December 2018, when Mr Thomson and the other defendants realised that they needed to explain why Mr Thomson had received around £5 million ultimately deriving from LCF.

Early in the trial, Mr Thomson took the point that the Claimants were deemed to have admitted the authenticity of the documents (by not objecting to them after they featured in his disclosure) and could not challenge their dating. After hearing argument, I decided that the Claimants should be allowed to withdraw from any deemed admission and were entitled to challenge the authenticity of the documents. That decision was not appealed.

In closing arguments, counsel for Mr Thomson submitted that, since the Claimants had not pleaded that the documents were later fabrications, they could not allege this as part of their case that there had been fraudulent trading or a breach of duty by Mr Thomson. I am unable to accept that submission. Mr Thomson has positively asserted the authenticity of the two documents and has sought to justify his receipt of £5 million by reference to them. As his counsel said, they are of central importance to his Defence. The Claimants’ case is that the documents were later fabrications, so that they cannot be relied on to justify the payments. Their positive case is that the payments to Mr Thomson were misappropriations from LCF. Once I had ruled that the Claimants were allowed to challenge the authenticity of the documents, it was open to them to seek a finding that they were forged and rebut this element of the Defence.

Moreover, the point goes to Mr Thomson’s credibility.

The first of the two documents is the MOU.

The second document is the SPA also dated 15 July 2015 on its face.

The Claimants attacked the authenticity of these documents on numerous grounds. Mr Thomson maintained in his written and oral evidence that they were entered into on 15 July 2015.

I find that the documents were fabricated after the FCA raid on LCF in December 2018. My reasons follow.

First, there is relevant evidence about the drafting history of the MOU.

Moreover, there was a clear incentive for creating the MOU – it arose from the need to justify the payments that Mr Thomson had received from LCF.

The earliest version of the signed MOU (i.e. the one dated 15 July 2015) in any of the disclosure has metadata of 19 February 2019. This is a PDF rather than a Word version, so the earliest date of its creation is not known. But nowhere in the disclosure of any of the Defendants is there a version of the 11 July 2015 document with any metadata before 19 February 2019. I conclude that this version was created on or about this date.

This version was sent to the administrators on 19 February 2019.

I am satisfied that the Word version with metadata dated 11 December 2018 was a first draft of what was then changed, signed, backdated to 15 July 2015, and sent to the administrators.

Second, the earliest version of the SPA in the parties’ disclosure is a scanned PDF created on 5 February 2019. It was signed by Mr Thomson, Mr Hume-Kendall and Mr Barker but dated, in manuscript, 10 August 2015 (rather than 15 July 2015).

Mr Thomson was unable to explain in evidence why, if there was a genuine agreement signed on 15 July 2015, the parties should have signed a further version of the same agreement 10 August 2015. It is hard to think of a realistic explanation.

There are in fact emails dating from 2019 which explain the two versions. These show that the version with the 10 August 2015 date was in fact signed on about 5 February 2019, but that it was then decided that it would be better to replace it with another one, dated 15 July 2015. On 12 February 2019 Mr Sayers sent an email to Mr Sedgwick, Mr Hume-Kendall and Mr Barker saying that to progress his work he needed the following “agreement with [Mr Thomson] on his equity c. July 15 (Robert [sc. Mr Sedgwick])”. This shows that it was decided that the existing signed version dated 10 August 2015 was considered to be dated too late and that they needed an earlier dated one. Mr Sedgwick was given the task of producing it. There is then a PDF showing the 15 July 2015 version being scanned on 12 February 2019.

Third, it is very unlikely that the two agreements would have been signed on the same date. The MOU provides for Mr Thomson to be a continuing minority shareholder as to 5%. The SPA by contrast provides for the sale of his interest to Mr Hume-Kendall and Mr Barker for a price of up to £5 million. The principles underlying the documents differ and they do not fit together.

Moreover, the alleged SPA contained an entire agreement clause which said it superseded all other agreements.

Mr Thomson could not explain why there were two agreements between the same parties on the same date rather than one.

Fourth, if the agreements had been entered into in July 2015, it is probable that there would have been drafts circulated to the parties, and some evidence of negotiations of the price to be paid to Mr Thomson. Where other agreements were entered into, they were generally drafted by Mr Sedgwick, who sent them out in draft by email to the parties and sought comments. Mr Thomson, Mr Hume-Kendall and Mr Barker purportedly entered the MOU and SPA. All of them, and Mr Sedgwick, have given disclosure. There is no trace of any drafts or of any negotiations in the period before 15 July 2015.

Fifth, the list of Companies in the schedule to the SPA does not fit in all respects with the 15 July 2015 dating:

Sixth, there was a trust deed dated 28 August 2015 which provided that Mr Thomson was to have a beneficial interest in London Oil and Gas Ltd (i.e. the company bought from the Bosshards). This is not consistent with the idea that he had sold his interests by then. Mr Thomson was unable to offer any explanation of this.

Seventh, at the end of September 2015 the shares in the company then called London Group Limited, previously held by International Resorts Partnership LLP, were registered in the names of Mr Barker (as to 45% for Mr Golding and 5% personally), Mr Hume-Kendall (45%) and Mr Thomson (5%). This holding continued until March 2017, when all the shares in that company were transferred to London Group LLP.

Mr Thomson was unable to explain why the shares were put into his name legally in this way if they had already been sold to Mr Hume-Kendall and Mr Barker and he retained only an interest in the proceeds under the alleged buy-out agreement.

Mr Thomson ultimately said that he did not know that the shares had been put into his name. I reject this evidence. Mr Sedgwick sent him an email on 2 September 2015 which explained what was happening i.e. that the shares were going to be transferred by IRP to the four individuals in accordance with the agreed division. He also attached a diagram showing the group structure. I find that he knew that the shares were transferred to him legally and that this accorded with his then understanding that he was a 5% shareholder in the London Group of companies.

Had the buy-out agreement existed, the shares would not have been put into his name legally; they would presumably have been held under some kind of trust arrangement pending a disposal.

Moreover, on Mr Thomson’s case, Mr Sedgwick was responsible for preparing the alleged SPA of 15 July 2015. If the buy-out agreement had existed, Mr Sedgwick, who was in charge of the designing the restructuring in September 2015, would have understood that the legal title to the London Group Limited shares should be put into the names of Mr Hume-Kendall and Mr Barker. He was familiar with the use of such trust arrangements. Indeed, Mr Golding’s shares were put into the name of Mr Barker.

Eighth, the Golding-SHK Agreement (of July 2015) provided that Mr Thomson was entitled to five per cent of the shares in London Trading, despite that company being listed in the schedule to the alleged SPA as a share which he had sold. The Golding-SHK Agreement said that Mr Thomson would be entitled to a 5% non-voting shareholding in London Trading. It did not say that these would be held for him on trust. This is therefore inconsistent with the SPA.

Ninth, the Lakeview SPA (see further below), which was being drafted during July 2015 and executed on 27 July 2015, provided for Mr Thomson to sell his 5% beneficial interest in LCCL to London Trading. This is inconsistent with the alleged SPA, by which (on his case) he had already sold the shares to Mr Hume-Kendall and Mr Barker. Nobody raised this as an anomaly at the time. Mr Sedgwick would have done had the SPA existed.

Tenth, the SPA provided for the resignation of Mr Thomson as a director of the London Group companies. The contemporaneous documents show that he resigned as a director of a number of the companies at the end of June 2015.

Eleventh, as already explained, on 18 April 2016 Mr Thomson sent a copy of the Golding-SHK Agreement to Mr Barker as evidence that he was the owner of all the shares in LCF; and referred to the specific part of the agreement which effected this (showing that he had read it). Had the MOU or SPA existed, he would have sent them to Mr Barker, rather than a draft agreement - to which he was not a party. Mr Thomson could not explain this in oral evidence.

Twelfth, as explained below, later in the history, Mr Thomson started to receive 7.5% of the proceeds of sales or realisation of London Group companies. This was 50% more than the 5% payable under the alleged July 2015 SPA. Mr Thomson gave evidence that while he was aware of this increased share, he paid it little attention because the total he could receive was capped at £5 million and it was a matter for Mr Hume-Kendall and Mr Barker if they chose to pay him more than 5% - it would merely operate to accelerate some of the receipts. I am unable to accept that evidence, which makes no commercial sense. The SPA contained not just the £5 million cap but also a five-year time limit. It would have been uncommercial for Mr Hume-Kendall and Mr Barker to accelerate payments by paying 50% more than had been agreed: it was always possible that the time limit would expire before the £5 million was reached.

Thirteenth, in a mortgage application in May 2017, Mr Thomson stated that he stood to make tens of millions of pounds from his interest in the companies. He would not have been able to say that (at least without lying) had he already sold his shares for a maximum of £5 million. It is more likely that the reason he did not refer to the SPA is that it did not exist.

Fourteenth, Mr Thomson did not disclose the existence of the SPA in his tax returns. He did, however, refer to the Lakeview SPA. Mr Thomson gave oral evidence that he had given all the relevant materials to his accountants and that he trusted them to produce his tax returns. He suggested that he did not read them before signing them - and that they were simply presented to him for signature at a meeting. I do not accept that evidence. The emails show that his accountants sent him the completed tax returns for signing before the meeting. It is more likely that he did not refer to the SPA because it did not exist.

Fifteenth, there is the complete absence of any reference to the SPA or the MOU in any documents before late 2018 and early 2019. Mr Thomson relied at the trial on an email of 25 January 2016 recording what he told Ms Venn at a meeting that day. The relevant passages are quoted in para [333] below. The email recorded him as saying that that as of a few months ago he became the sole owner of LCF. He said that this was a reference to the July 2015 SPA. But what he told Ms Venn is entirely consistent with the Golding-SHK Agreement, which stated that he was the owner of LCF. This is also consistent with the fact that on 18 April 2016, he sent a copy of the Golding-SHK Agreement to Mr Barker to evidence that he was the owner of all the shares in LCF (see para [307] above). I find that in his discussions with Ms Venn he was referring to that agreement and not the alleged SPA.

Sixteenth, one of the terms of the MOU and SPA was that Mr Thomson would manage LCF without the involvement of Mr Hume-Kendall or Mr Barker. Although Mr Golding was not mentioned, generally a reference to Mr Barker in any of the agreements between the parties was (partly) as a proxy for Mr Golding. As explained below, Mr Hume-Kendall, Mr Barker and Mr Golding continued to be involved in the management of LCF after 15 July 2015. For the reasons set out below I reject Mr Thomson’s evidence that Mr Golding was involved only as an adviser or mentor.

Seventeenth, there is an entry in a conflict-of-interest register maintained by LCF. There are two relevant entries:

As explained above, Mr Thomson placed the alleged “buy out agreement” at the centre of his defence. He repeatedly relied on it during his oral evidence. He said that he thought that the amounts he was receiving under the various impugned SPA agreements were the price under the buyout agreement and that he was unaware that payments were being made to Mr Hume-Kendall, Mr Barker and Mr Golding at the same time and therefore did not realise that they were also “cashing out” (i.e. that money was going into their hands rather than remaining in the borrowing companies).

He maintained this position throughout his evidence. When asked about the second version of the SPA, he claimed that on 12 February 2019 he was standing on the edge of a cliff at Beachy Head. The implication was that he was contemplating suicide. But the metadata of the version of the SPA from his own disclosure was scanned on 12 February 2019, which shows that he scanned it on that date and that his evidence that he was on a cliff-edge was false.

For the reasons given above, I have concluded that Mr Thomson was deliberately lying in his evidence about the alleged buy-out agreement. He knew that the MOU and SPA were created after the FCA raid.

This conclusion is significant in a number of ways:

After the Golding-SHK Agreement, Mr Thomson oversaw the day-to-day management of LCF and Mr Hume-Kendall had less involvement. Mr Hume-Kendall was nonetheless involved to an extent with LCF after the agreement. For example, in November 2015, Mr Hume-Kendall (along with Mr Golding) approved a letter designed to encourage SAFE investors to roll over their investment to LCF, rather than demand the return of funds.

I am satisfied that Mr Golding had a significant continuing involvement in relation to LCF after July 2015. I reject the evidence of Mr Thomson that Mr Golding’s only role was that of an occasional adviser or mentor. Mr Golding has not given disclosure and has been debarred from defending, so his documents are not before the court. I have also noted already that he sought to conceal his involvement in the business and management of companies owing to the undertakings he had given to the Secretary of State. Nonetheless, as explained below, the available documents show his continuing involvement.

On 9 September 2015 Alex Lee (a partner at Buss Murton) provided a spreadsheet relating to the LCF client account to Mr Thomson, who forwarded it to Mr Russell-Murphy cc. Mr Golding, explaining that there were no new funds being credited that day. He was updating Mr Golding about receipts.

On 22 September 2015 Mr Russell-Murphy sent Mr Golding an update of LCF’s “pipeline” of prospective investors. This information was provided to Mr Golding before it reached Mr Thomson: Mr Russell-Murphy forwarded the email to Mr Golding, and later that evening, Mr Golding forwarded the information to Mr Thomson, who forwarded it to Ms Maddock at LCF.

On 15 September 2015 Ms Venn sent an email to Mr Thomson saying that she was “ready to do a minimum order print to provide prospective investors with hard copy brochures”. Mr Thomson forwarded it to Mr Golding: “Hi Spencer, see below, did they mention this to you today?” I infer that Mr Golding had met Surge that day to discuss LCF.

On 17 September 2015, when Mr Thomson had drafted an LCF bond prospectus, he sent it to Mr Russell-Murphy and Mr Golding asking them to review it and to provide their comments. Mr Thomson said in evidence that he looked to Mr Golding for advice because of his broad experience. I reject this. He sent it to Mr Golding because of the latter’s interest and involvement in LCF’s business.

On 13 October 2015 Ms Venn sent an email to Mr Careless, cc. Mr Russell-Murphy, which said:

“As requested, I phoned Spencer. He had a moan about two things:

1.

He downloaded the brochure on the website and it still has the old management team

2.

The website looks ‘sparse’

I told him that Andy provided new biogs that were not detailed enough to use, I had explained this to Andy who asked me to give him examples of what I wanted, I emailed 4 examples and have chased multiple times but I am still waiting.

Andy said he is too busy to get me the pictures to go with the biogs. He asked me to stop chasing him and he will do it ASAP.

I queried what he meant by ‘sparse’ because I think it looks sleek, professional and is concise in an effective way. He said his team would look over it again and give specific feedback on Thursday. I then said there was something I wanted to add but had been awaiting content from Andy since July: real case studies / customer testimonials. Spencer seemed to think this would make a big improvement and said he would chase Andy to get it to us.

Ultimately, I don’t think he is pissed off with us, I think he is pissed off with Andy and he asked me to keep the pressure on Andy and ‘chase him harder’.”

The continued role of Mr Golding (as well as Mr Hume-Kendall) is also apparent from emails regarding a draft reinvestment letter. Some of the loans from early investors to SAFE were falling due for repayment.

Mr Careless and Ms Venn continued to raise important issues about LCF’s business with Mr Golding without reference to Mr Thomson.

Others in Surge understood the central role occupied by Mr Golding within LCF. On 16 November 2015, Ashleigh Newman-Jones of Surge (the son of Mr Jones) told Mr Careless, cc. Ms Venn and Mr Jones, that the revised LCF website was “ready for approval from Andy/Spenser [sic]”. A proposed change in LCF’s bond rates was described as “subject to Spencer and Andy’s approval”.

The contemporaneous documents also show that Surge believed that Mr Golding had the ability to override Mr Thomson in relation to the affairs of LCF. On 17 November 2015 Mr Thomson emailed Ms Venn to say that the LCF investment memorandum was not sufficiently accessible on the LCF website. Ms Venn forwarded his email to Mr Careless, saying, “We need to override him and speak to Spencer”. I find that Surge’s understanding of the relationship between Mr Golding and Mr Thomson was an accurate reflection of the reality. Surge’s understanding was based on what they saw happening in practice. If they had a problem with Mr Thomson, they contacted Mr Golding or Mr Barker and it was generally resolved to their satisfaction.

There was a significant episode concerning compound interest.

Mr Thomson said in evidence about this episode that Mr Golding had made a promise about compound interest without LCF’s authority. He said that Mr Golding sometimes got involved in LCF’s business and that he should not have done so. I do not accept that description of Mr Golding’s role. The Surge documents show that they looked to Mr Golding to overrule Mr Thomson on significant issues and that Mr Golding did so. The documents also show that Surge’s representatives met Mr Golding several times in late 2015 to discuss the affairs of LCF in the absence of Mr Thomson.

There was another episode in November 2015 concerning Surge’s sale team. On 30 November 2015 Ms Venn emailed Mr Careless and Mr Russell-Murphy (“Shocking potential issue!”) to raise a “potential looming problem”. Mr Thomson had told Ms Venn that Surge should be “moving away from having a sales team” in favour of online-only sales without the assistance of a salesperson. Ms Venn told Mr Careless and Mr Russell-Murphy that this “contradicts our last meeting with Spencer when he suggested we expand our sales team to have bigger capacity for face to face meetings”: “I’m glad we are meeting Spencer tomorrow and can clarify/correct this madness!”; “Let’s put it down to Andy being Andy and see if it actually gets raised with Spencer tomorrow”.

Mr Golding’s role was also shown in relation to a new logo in January 2016. Mr Careless emailed Mr Golding on 5 January 2016 to say, “Spencer, [t]he conversation is below, it was with Kerry. Not that it really matters, it is your company, and you can have any logo you want. My team all think the original logo is better. Two logos attached, 1 and 2. Please choose which you prefer. Simple. If you want the new logo then we will make the changes to the site …”

On 25 January 2016 Ms Venn met Mr Thomson and reported to Mr Careless and others in a long email. The report included the following:

“Andy stated that he owns LC&F, he said: ‘Spencer does not have ownership at all, I have a symbiotic relationship with Spencer we assist each other and we are vital to each other but he does not own LC&F. Please stop communicating key information without me. In a meeting last week Paul communicated information about GCEN and your objections to how it works Simon Hume Kendal [sic], he is my customer and it is inappropriate for you to have disclosed the working of my business to him and also inappropriate not to include me in the meeting. I was not made aware of these issues with GCEN.’”

I said: ‘There has been a misunderstanding, we have been lead to believe that whilst you are officially the business owner as registered at companies house, Spencer is a driving force behind LC&F and a key decision maker. You really need to take this up with Spencer because he has presented himself to us as the big chief at LC&F and he invited Simon to the meeting, we believed we were talking candidly to trusted partners who had specifically been invited by the LC&F establishment’

He said: ‘I will take it up for Spencer, just so you know, there is no side agreement / legal agreement behind the scenes, I own LC&F and Spencer does not. However, Spencer is very important to my operation and i will continue to have a good working relationship with him and him with me’

So you understand the tone, Andy wasn't really complaining or annoyed, he was just trying to express to me a frustration that he mustn't be left out because actually it's his business and he wanted to make it clear that if we think Spencer is a controlling partner / owner he is not. This is contrary to what we have been led [to] believe all along. I was surprised so I double checked, I said: ‘Did you come up with the concept of SAFE, was at all your idea and you launched it as a startup?’ Him: ‘Yes others were involved but yes it's my concept and as of a few months ago I am a sole owner of this business’

I don't know what to believe?!? Is this a bit like if I said yes this is my business, nothing to do with Paul, check at companies house. Companies house would just show me but we all know Paul is the visionary and I just create systems to action the practicalities.”

Mr Thomson relied on this email at the trial as evidence that by this stage he was the sole owner of LCF, and that Mr Golding was not. I reach the following findings about it:

Mr Ingham emailed Mr Thomson on 22 January 2016 about amendments to LCF’s brochures, and copied the email to Mr Golding and Mr Hume-Kendall. On 9 February 2016, Mr Ingham emailed Mr O’Leary to explain that Mr Golding had called him about the new LCF brochures, demanding to know when they would be ready.

Also in early 2016, Mr Golding and Mr Hume-Kendall (but not Mr Thomson) were both involved in the discussions with Mr Careless and Mr Russell-Murphy about the possibility of Surge working exclusively for LCF. On 3 February 2016 Mr Sedgwick provided Mr Hume-Kendall and Mr Barker with a draft exclusivity agreement. On 5 February 2016 Mr Sedgwick provided Mr Hume-Kendall and Mr Golding with a third draft of the agreement. Mr Hume-Kendall sent it to Mr Russell-Murphy, saying that it should “get the ball rolling”. Mr Hume-Kendall also explained that “Spence has very bad flu and he has had zero input into this after our initial instruction”.

The attachment was a draft exclusivity agreement between London Group plc (defined as “London”) and Mr Careless/Mr Russell-Murphy (defined as “Surge”). The draft agreement defined “Financial Products” to mean “an investment opportunity bond or other financial instrument issued by LCF and others to a Prospective Client who is introduced by Surge”. It defined “Introduction” to mean “the provision to LCF of the contact details of a Prospective Client who purchases a Financial Product”. The recitals stated:

“(A)

Surge has developed a method of access a large contact base are interested in investing in high quality opportunities

(B)

From proceeds of the Financial Products London is currently obliged to pay an introductory commission of 25%

(C)

London has agreed to pay to Surge the sums referred to in this agreement in consideration of Surge acting exclusively for London in introducing contacts as may be agreed between the parties …”.

The clauses in the draft agreement included these:

On 17 February 2016 Mr Careless replied to Mr Hume-Kendall saying, “Thanks for the agreement and my apologies it has taken so long to reply. Would it be possible for John and I to meet with you and Spencer early next week to discuss it in person?” Mr Hume-Kendall replied (cc. Mr Golding and Mr Russell-Murphy) to say he would be happy to meet to discuss it.

Mr Careless sent a summary of the draft exclusivity terms to Mr Russell-Murphy:

“1.

SF will provide exclusive marketing to LG for a fixed fee of £40k per month.

2.

LCF will pay 25% commissions for funds received by SF.

3.

LCF will pay for 10% for commissions re-broked by SF.

4.

If SF reach £30m funds or more within 12 months of signing of agreement they will receive 10% shareholding in LG.

5.

If SF reach £50m funds or more within 12 months of signing of agreement they will receive 20% shareholding in LG.

6.

SF will pay for all marketing costs of LCF.

7.

PC has current contractual obligations to Blackmore Group and therefore any current or future arrangement with BG will remain outside of this agreement.”

Mr Careless also sent this to Surge’s accountant, Mr Partridge. The draft exclusivity terms were due to be discussed at a meeting between Mr Careless and Mr Hume-Kendall on 23 February 2016. Mr Careless’s “to do” list on 11 April 2016 still included “LCF exclusivity”.

This episode shows that Mr Golding and Mr Hume-Kendall (and Mr Sedgwick) saw LCF as a fund-raising vehicle for the London Group. They were seeking to negotiate arrangements with Surge concerning LCF. They could only have done this if they continued to be able to control its affairs. Surge certainly thought that they had this level of influence and control.

Mr Golding, Mr Barker and Mr Hume-Kendall continued to be routinely consulted by Surge personnel about administrative problems which arose from time to time in connection with LCF’s dealings with investors.

The July 2018 exchange shows that Mr Hume-Kendall, Mr Barker and Mr Golding continued to be involved in the affairs of LCF throughout. The exchange also shows that Mr Careless, Ms Venn and Mr Russell-Murphy thought that Mr Golding was able to instruct Mr Thomson concerning LCF. More generally the evidence shows that the Surge representatives and Mr Russell-Murphy thought that Mr Golding could override Mr Thomson and they often looked to Mr Golding to instruct Mr Thomson what to do when they faced an obstruction.

This is consistent with their understanding at the outset of the arrangement. Ms Venn said in evidence that she thought Mr Golding was the kingpin at their first meeting in February 2015. Mr Careless agreed in his evidence that on meeting Mr Golding he thought he was in charge of LCF and that Mr Golding was “very important” to LCF. This view is also evidenced by the email of 25 January 2016 referred to above.

There is further significant evidence relating to payments that were made by Surge originally to Mr Thomson and then to Mr Golding. I shall make findings about these below. As explained there, I have concluded that these payments were secret commissions paid by Surge to maintain Surge’s high rates of commission from LCF. Surge started by making payments to Mr Thomson, and then (from September 2017 onwards) to Mr Golding: but at the same time as the payments to Mr Golding started, those to Mr Thomson ceased. I find that Mr Golding was able to demand this because he was the ultimate controller of LCF.

There is a more specific point relating to the commissions paid to Mr Golding which shows the understanding Mr Thomson and the Surge Defendants had about Mr Golding’s influence over LCF. In July 2018 they were considering a way of restructuring this arrangement by reducing the interest paid by the borrowing companies to LCF by 1%. That could only have happened if Mr Golding was closely connected with LCF. If the borrowers had been independent, there could have been no reason for it to agree to reduce its interest rates to compensate Mr Golding for what was (on the face of it) a private arrangement he had with Surge. More details of this transaction are given in [1340] below.

In his oral evidence, Mr Thomson said that Mr Golding had no influence in LCF after the shares in LCF were transferred to him in July 2015. He referred repeatedly to the buy-out agreement. I have already found that there was no such agreement. When asked about the various episodes where Mr Golding had been involved in the business after July 2015, Mr Thomson said that Mr Golding was ready to assist and use his expertise as a businessman and that he, Mr Thomson, looked to Mr Golding for assistance as an adviser. I am unable to accept this. The documentary records show that the Surge representatives and Mr Russell-Murphy continued to regard Mr Golding as the controller of LCF. This reflected reality. Mr Golding told Mr Thomson what to do in relation to LCF and Mr Thomson did was he was told. He may have resented this, but it is what happened.

I find that Mr Golding continued to have ultimate control over the affairs of LCF. Mr Thomson was accustomed to and did act in accordance with his instructions or directions. Mr Thomson was rewarded for this by his continuing 5% interest in the London Group (which led to the payments made to him personally – see below) and by being given the shares in LCF.

As already explained, Mr Hume-Kendall was a director of LCF from 12 July 2012 to 15 August 2013.

Mr Thomson was a director from 15 August 2013 to date. He was also company secretary for the same period.

Mr Paul Sayers was a director from 5 September 2013 to 10 August 2015.

Mr Michael Baldwin was a director from 1 October 2015 to 9 June 2016.

Ms Katherine Simpson was a director from 1 October 2015 to date. Mr Thomson described her role in evidence as being concerned with risk and operations.

Mr Martin Binks was a director from 30 October 2015 to 24 August 2016.

Mr Kevin Maddison was a director from 1 February 2017 to date. Mr Thomson said that his role was concerned mainly with IT.

Mr Floris Huisamen (also known as Kobus Huisamen) was a director from 1 July 2016 to date.

Mr Thomson was the CEO of LCF. He said in his evidence that he was the only true executive director until mid-2018. But Mr Thomson also said in his evidence that the other directors were equally responsible for lending decisions. The documentary record shows that Mr Thomson signed the various loan agreements with the borrowers and approved drawdown requests. The documents do not support Mr Thomson’s contention that the other directors made any independent lending decisions. Although Mr Thomson suggested that Mr Huisamen was in charge of monitoring borrowers, there is no evidence that LCF reviewed the financial position or performance of its borrowers. I find that Mr Thomson was in charge of all significant lending decisions and certainly knew about them.

Mr Huisamen became an employee of LCF in January 2016 (and a director in July 2016). He was appointed from January 2016 as the compliance officer of LCF. He had previously worked at Sentient Capital, an advisory firm.

He was an authorised person for the purposes of section 21 of the Financial Services and Markets Act 2000. That provision requires the contents of any communication which is an invitation or inducement to engage in investment activity to be made by or approved by an authorised person. He therefore had the role of confirming that LCF’s communications with the public complied with the applicable FCA rules.

It was common ground that Mr Huisamen has subsequently been sanctioned by the FCA. But that happened well after the collapse of LCF, and I do not draw any inferences from it in this judgment.

In his evidence, Mr Thomson said that Mr Huisamen was in charge of risk compliance, oversight of Surge, financial promotions, oversight of borrowers and regulatory reporting. I have already explained that there is no evidence of any system of financial monitoring of the borrowers. Mr Thomson was in charge of all lending decisions.

Mr Huisamen had given approval for the content of LCF’s communications for the bond issues while he was at Sentient, before joining LCF as a director.

Mr Huisamen vetted external communications by LCF relating to the bonds. He reviewed the Information Memoranda, the website and the brochures published on it. He also listened to samples of calls of Surge employees and reviewed webchat transcripts. The communications between him and Surge were extensive and detailed. I have specifically reviewed the table of communications relied on by the Surge Defendants in their closing submissions.

These show the following: Mr Huisamen actively engaged with Surge throughout its relationship with LCF. Mr Careless wanted him to work on Blackmore’s bonds; Mr Huisamen approved the script of marketing videos; he approved the content of the website; he oversaw a call monitoring system and from 4 August 2016 had access to all of Surge’s call monitoring; he listened to calls from each account manager twice a month from 17 August 2016; on 28 July 2016 he asked to see all the templates used by Surge; he confirmed on 12 January 2017 that he was ultimately responsible for signing off the materials used by Surge from a compliance perspective; on 24 April 2017 he confirmed that Surge’s marketing communications were in order; in May 2017 he approved template letters used by Surge; on 27 July 2017 he rejected some amendments proposed by Ms Venn; he dealt with questions from Surge staff on 24 August 2017 regarding the content and wording of marketing materials; and on 20 March 2018 he provided account managers with a document containing Q&As. I shall return to his involvement below.

This topic is conveniently addressed at this stage, as there were relevant communications about it in the course of the audit of LCF’s accounts to 30 April 2015.

The limit under the SAFE-Sanctuary loan agreement was £675,000. By April 2015, Sanctuary PCC owed almost £1.3 million to SAFE.

In October 2015, SAFE (by now called LCF) was being audited by Oliver Clive & Co. On 22 October 2015 they asked Mr Thomson for a copy of the loan agreement with Sanctuary PCC. They also asked for an explanation of why the money loaned to Sanctuary PCC was being paid to One Monday.

On 23 October 2015 Ms Maddock (who was helping Mr Thomson compile the information) sent him a copy of the signed 1 October 2013 agreement.

Shortly afterwards, Mr Thomson emailed the auditors saying that Ms Maddock had said that she did not have a copy of the agreement and that he was out of the office. I find that he realised that sending over the 1 October 2013 agreement would have raised hard questions, as the lending was beyond the limit.

Mr Thomson then created (or caused to be created) a backdated loan agreement dated 2 October 2013 with a limit of £2 million. Mr Thomson provided a version, signed on its face by Mr Thomson and Mr Peacock, to LCF’s auditors on 26 October 2015.

I find that Mr Thomson did this to give the false impression to Oliver Clive & Co that Sanctuary PCC’s borrowing was within the facility limit agreed with SAFE. It was created to deceive the auditors.

Mr Thomson said in his oral evidence that documents (such as this one) were routinely backdated innocently to record what had already been agreed. I reject this explanation. Mr Thomson deliberately withheld the actual agreement (of 1 October 2013) from the auditors and replaced it with the forged version (dated 2 October 2013) so he could pretend that the borrowing was within agreed limits. He knew he was deceiving the auditors and that what he was doing was not innocent.

Mr Thomson also said in his evidence that the increase to £2 million had been orally agreed only a few weeks after the original facility agreement; and that the original facility agreement had been lost and that he had sought to reconstruct the revised agreement in 2015. This on-the-hoof account was painfully poor. The original had clearly not been lost. Ms Maddock sent it to Mr Thomson on 23 October 2015, an hour before he told the auditors it could not be found. The backdated agreement (for £2 million) was dated 2 October 2013, which is only one day after the actual agreement (for £675,000) and Mr Thomson was unable to explain how the limit could have gone up more than three times in a single day. I find that Mr Thomson deliberately lied about this episode. As well as showing him to be a casual liar, it also demonstrates his readiness to create forgeries with the intention of misleading auditors. Both then and as a witness, he was prepared to say anything he thought might advance his case.

On 9 November 2015 LCF produced accounts for the period ended 30 April 2015, audited by Oliver Clive.

The Directors Report, signed by Mr Thomson, stated that the principal activity of the company was the raising and lending of funds.

The income statement showed turnover for the year ended 31 March 2015 of £182,610 and profit of £29,294. For the period ended 30 April 2015 turnover was £14,072 and profit £782.

The statement of financial position showed net assets of £40,944 as at 30 April 2015.

Turnover was described in the notes as “interest receivable”.

Bonds outstanding were shown as £1,193,374.

LCF issued bonds under a number of series with various durations. There were 11 series of bonds and 4 series of ISA bonds.

They are shown in the following table (prepared by Dr Okongwu).

Column (1) is the name of the series. Column (2) is the period over which each series was sold. Column (3) is the amount offered under the series. Column (4) is the tenor of the bond. Column (5) is the coupon. Column (6) is the payment dates of the coupon. Column (7) represents the annualised rate of return that would have had to be charged by LCF to borrowers to match the liabilities to pay principal and coupons to bondholders. It is calculated by adding a margin of 1.75% to the coupon payable to borrowers, using the payment frequency and redemption date for the various series. (As explained below, LCF represented that it was adding this margin to its outward loans.) The rate of return takes account of the amount that borrowers would have to repay to meet the 25% fee payable to Surge (or 22.5% in the case of the Series 11 and Series 3 ISA bonds). These figures ignore the 2% arrangement fee charged by LCF to borrowers, so the required rate of return would have been higher.

Most of the Information Memoranda (“the IMs”) by which the bonds were marketed referred to professionals.

The IM for Series 2 included a letter from Buss Murton dated 20 July 2015.

The IM for Series 3 stated that it was approved for the purposes of section 21 of FSMA by Sentient Capital. The solicitors to the company were stated as Buss Murton and the solicitors to the fundraising were Lewis Silkin LLP. The accountants were Oliver Clive. The security trustee was GST, and the payment services provider was GCEN.

The same details appeared in the IMs for Series 4 to 8.

Series 10 still carried the name of Sentient on its cover, but Sentient was not referred to in the text. Otherwise, the advisors were the same.

From Series 11, Sentient’s name no longer appeared, and EY were listed as the auditors. The ISA bond IMs gave the same details as the Series 11 IM.

Lewis Silkin reviewed the text of the various IMs. I was not however taken to evidence showing in any detail the process that was undertaken. Nor did I hear from any witnesses from Lewis Silkin. There was no evidence to show that the auditors participated in the production or review of the IMs.

In para 7 of the Re-re-re-amended Particulars of Claim (“the RRRAPOC”) the Claimants allege that, in order to induce members of the public to become bondholders, LCF represented that:

The Claimants contend that these representations were expressly or impliedly made in the IMs and brochures. They also rely on statements made in telephone calls or meetings or via LCF’s website.

In closing submissions, the Claimants grouped the alleged representations in a slightly different order. This section contains my findings about these allegations.

The first group was a series of alleged representations about the value of LCF’s security.

I am satisfied that LCF represented that the value of security substantially exceeded the amount of its loans, which were accordingly fully secured. LCF’s first information memorandum stated that “LC&F are offering to provide asset security to 150% of the value of all monies raised”. LCF also said that “loans made by LC&F will have a maximum value of 75% of the value of the assets over which security is granted”. This representation was repeated in every information memorandum from series 3 onwards, including in all the ISA bond series. It was also contained in every LCF brochure (“no more than 75% loan to value”). I am satisfied that there was a representation that loans would not exceed 75% of the value of security.

LCF also made specific statements about the value of the assets which it said secured LCF’s lending. For example, on about 9 February 2017, LCF’s website was updated to say that LCF had security over assets worth more than £215 million (“Total value of security held exceeds £215m”). LCF advertised in the Times on 3 May 2017 stating, “Value of security £215m, Loan to value ratio 25.9%”. Mr Thomson approved this in advance. This advert appeared subsequently in the Financial Times, the Telegraph and the Times.

Mr Thomson also told Surge’s employees that they could tell prospective bondholders that LCF had security over assets worth more than £215 million. The figures relayed by Surge to bondholders increased over time, ultimately to £685 million (see e.g. email of 26 October 2018 from Mr Phillips to Dr Law).

The second group of alleged representations concerned due diligence about its borrowers.

I am satisfied that LCF represented that it was performing robust due diligence before making any loans, such that it was properly satisfied that borrowers would be able to repay any loans and interest, and that LCF only lent sums to creditworthy borrowers.

As to this, the first LCF investment memorandum stated, “[i]n addition to the physical security identified, LC&F will conduct a full financial review of every application” and “if required will retain the services of Moore Stephens and Baker Tilly to provide further financial analysis prior to any decision to lend being made”. Later IMs said that full due diligence was being carried out (“LC&F has chosen to take a more hands-on approach to its loan commitments not only by conducting full due diligence prior to lending but also with the on-going monitoring of the loans it makes”) and that a financial review of each borrower was conducted prior to lending decisions (“When a company is referred to LC&F, its borrowing application and associated financials and assets will undergo a full financial review, lending assessment and, if required, a further financial analysis via an independent accountant and or surveyor will be undertaken prior to any decision to lend being made”).

The review process was said to include a number of elements, including a “review of historical financial information … over the last three years” and “an appraisal of property assets … by an independent surveyor”. LCF was said only to “make loans to UK businesses that it considers creditworthy, that meet LC&F’s lending criteria and that have realistic and robust repayment proposals.”

The IMs for the ISA bonds contained the same statements.

The statements in LCF’s brochures were substantially the same, stating that LCF only lent to “creditworthy” businesses with “realistic and robust repayment proposals” and that LCF “endeavoured to create multi-layers of security and safeguards to protect Bond Holders’ capital, which range from upfront and ongoing due diligence on prospective borrowers to taking charges over borrowers’ assets”.

Prospective bondholders were also told by Surge that LCF conducted due diligence and would only lend to creditworthy borrowers. Examples are: “Every company we loan to has to go through a very strict lending criteria before we would consider loaning to them”, and “Our minimum loan amount is half a million pounds so it’s quite bulky, that means we don’t lend to start-up companies due to the risk. They have to be established companies with a track record, good credit ratings”.

Surge’s sales team employed approved scripts stating that LCF applied “strict lending criteria” and was “currently rejecting over 60% of companies that apply”. They said that LCF only made loans to established companies with a good credit history: “we have a strict lending criteria before lending takes place (No startup companies, they must have been established for at least 3 years and must have a good credit history)”. LCF was said to have “strict lending criteria”: “We are a corporate financier and we lend money to small/medium size businesses. When we do so we have a strict lending criteria”; “We have never had a default due to our strict lending criteria”; “We have a very strict lending criteria and are currently rejecting over 60% of the companies that approach us”.

The third group of alleged representations concerned lending to numerous unconnected SMEs.

LCF stated in its IM that its business was to lend to SMEs. The heading “Summary of LC&F’s business” was followed by the heading “Sources of finance for SMEs”. LCF’s materials all began with an explanation of the requirement for finance in the SME market. They explained that LC&F’s business was lending to SMEs (“The Directors of LC&F believe that the disparity between the demand for finance from SMEs and the availability of that finance has created an opportunity for LC&F and private investors”); and that LCF met lending demand in the SME market (“LC&F has developed a business model whereby it … provides private investors the opportunity to earn returns by investing the bonds issued by LC&F and it enables LC&F to help meet the lending demand from the SME sector”).

It went on, “LCF has spent the last two years successfully proving this concept on a small scale. The Directors believe LC&F is now ready to expand its operations by issuing more bonds in order to raise additional finance thereby enabling it to increase the number and value of loans it makes to the SME sector. LCF has, using the network of contacts its Directors have developed over their careers, been able to develop relationships with numerous professionals in the financial, accounting and legal professions and it is confident that, using these relationships, it will be able to source additional lending opportunity which will enable it to deploy the proceeds of further bond issues and that the loans arising from those lending opportunities can be made to SMEs on commercially competitive terms”.

In addition, the sales team at Surge told the public that there were numerous loans. For instance:

I find that the natural and obvious meaning of LCF’s statements about lending on commercially competitive terms in the SME market was that LCF was lending to numerous unconnected SME borrowers pursuant to arm’s length transactions. As already explained LCF represented that it had “strict lending criteria” for dealing with “applications” (“LC&F will conduct a full financial review of every application”; “When a company is referred to LC&F, its borrowing application and associated financials and assets will undergo a full financial review”). I find that the natural and ordinary meaning of these words was that LCF was lending to numerous commercial entities which were not connected with LCF, which is why LCF invited and considered lending applications.

Counsel for Mr Thomson contended that the words “independent” and “arm’s length” were not used in the IMs or other communications. This is correct. But the obvious and natural impression given by what was stated was that borrowers would make applications, would have to go through a rigorous due diligence process and meet strict lending criteria – in short, would-be arm’s length, unconnected borrowers. This impression was supported by the communications that many of the companies who had approached LCF and had been rejected.

The matter may be assessed by asking whether a reader of LCF’s communications would have supposed that it would be open to LCF to advance money to a connected company in which its CEO had a beneficial interest, and where the other beneficial owners had been and continued to be his close business associates. The references to lending on commercial terms, strict lending criteria, due diligence, and monitoring of borrowers, created a clear impression of lending to independent arm’s length borrowers.

The next group of alleged representations concerned the terms on which lending would be made.

I am satisfied that LCF represented that no sums had been or would be advanced to any borrower before the execution of a legally binding loan agreement and security documents between LCF and the borrower.

LCF’s IMs stated that LCF never advanced loans without putting signed loan and security agreements in place (“Investor funds … will only be remitted to borrowers when all loan documents and security are in place”; “Once a potential Borrowing Company has been assessed as creditworthy, agreed security is taken and legal documents are prepared and signed. Only when all legal and security documentation has been completed to LC&F’s satisfaction, will funds be transferred to the Borrowing Company”). The same representations were contained in the IMs for the ISA bond series and in LCF’s brochures.

LCF also told prospective bondholders that LCF’s loans would be subject to binding security. For instance: “The asset backed aspect protects the loan money. So for every loan we issue, we take a legally binding first charge over assets”; “For each loan that we issue, we take a legally binding first charge”; “As security against the loan, we take a legally binding first charge over assets worth at least 25% more that the loan value”. Surge’s sales team often referred to the presence of security.

The next group of alleged representations concerned the existence of an independent security trustee.

I am satisfied that LCF represented that the security for the lending would be held by an “independent security trustee”, i.e. one which had no connection with LCF or its borrowers.

LCF’s brochures claimed that the security would be held by an “independent security trustee”.

Surge’s sales team also stated that there was an independent security trustee. Ms Baldock told prospective investors on 3 December 2015, “All bond holder funds are protected by an independent security trustee who manages the security held for the investor”. Mr Allen of Surge told prospective investors on 13 June 2016, “An independent security trustee, Global Security Trustees Ltd, holds a charge over all LCF’s assets (to include any new security LCF takes for additional loans made) which it holds on behalf of all bond holders”.

These statements were also included in an LCF fact sheet, which Mr Russell-Murphy circulated to Surge’s sales teams on 4 January 2016 and again on 14 January 2016: “These assets are then held in the form of a debenture by Global Security Trustee’s, a third party company who ensures there is always adequate security in place to protect the bond holders”.

There are numerous examples of Surge’s sales team telling prospective investors about the role of the independent trustee, among other things. Mr Russell-Murphy emailed prospective investors to tell them about the “third party” GST, “who ensures there is always adequate security in place to protect the bondholders”.

The final group of alleged representations concerned the business model of LCF.

LCF made numerous representations about the relationship between its lending activities and its generation of income, which gave the impression that LCF was a genuine lending business. LCF represented that it generated income and profit from lending activities, to enable it to pay high returns, based on its lending to small and medium sized enterprises in the UK and that sums invested by bondholders were capable of generating high returns. I also find that it represented that liabilities to existing bondholders were being paid from income generated from those lending activities. I find that these representations fall within the pleadings in RRRAPOC sub-paras 7 (3), (4), and (8). This finding is based on the following statements:

I also find that LCF represented by these statements (by implication) that the only charges to borrowers were the one-off 2% fee and interest on the loan – which was represented to be 12%-20%. LCF did not disclose the 25% fund-raising fee which was passed on to borrowers as explained above.

Counsel for Mr Thomson submitted that the representations contained in LCF’s communications were not properly identified in the pleadings. I do not think there is anything in this. In my judgment each of the representations I have found to be established falls within paragraph 7 of the RRRAPOC.

Mr Thomson explained in his evidence that LCF monitored its loans and the value of the underlying assets in a series of spreadsheets. Mr Thomson relied on these in closing submissions.

One group of spreadsheets sets out the amounts lent to the borrowing companies and listed the specific drawdowns. The spreadsheets showed the gross amount borrowed (which included the 25% payable to Surge), and the net funds sent to the borrowers. This was not in reality part of a monitoring process. The spreadsheets simply recorded the amounts owing.

Another group of spreadsheets showed the security position for the borrowers. These set out values for the security (including some the values referred to earlier in this judgment and which I have found were (to Mr Thomson’s knowledge) over-inflated).

There were also some spreadsheets containing profit and loss forecasts. For instance, there was a spreadsheet for the “Waterside Project” for the following 6 years. This included figures, including net sales receipts of c. £8 million in year 1, c. £3.4 million in year 2, c. £8.8 million in year 3, and c. £25 million in year 4. The projections were for an ambitious building and refurbishment project at Lakeview, including new lodges and the hotel, which was to start immediately. Mr Thomson knew that these developments were not in fact taking place. This spreadsheet is therefore based on a development which Mr Thomson knew had not occurred and was not imminent.

There was also a spreadsheet appearing to show 10 potential borrowers, including Elysian RGL. The total proposed appears to be c. £3.6 million. They include a bloodstock business and a gold business. These loans did not however occur. There is no evidence as to their connections, if any, to Mr Golding or Mr Hume-Kendall (other than Elysian RGL – see further below). The details about the proposed borrowers are negligible.

These spreadsheets record very rudimentary information. They do not justify Mr Thomson’s submission that LCF was properly keeping track of the investments it had made. There was no meaningful analysis in them of the financial position or performance of the borrowers or of their ability to repay. There was no information explaining how the borrowers were to meet their interest obligations under the loans. The security values were based on the inadequate information already addressed above. As explained there, no proper lending business would have relied on the various reports and valuation documents supplied to LCF: they were not Red Book valuations; they were not addressed to LCF so that LCF could rely on them; they were often drafts; they contained unrealistic assumptions; and they were often methodologically flawed. All that would have been obvious to Mr Thomson who had a banking background.

As already explained, a substantial proportion of the money advanced to borrowers by LCF was used to make payments to Mr Thomson, the Hume-Kendalls, Mr Barker and Mr Golding (and others). These payments were made under various sale and purchase agreements or SPAs. These have been called the Lakeview SPA, the Elysian SPA, the Prime SPA, the LPT SPA and the LPE SPA. Some of these consist of more than one part.

The relevant Defendants say that these were genuine commercial transactions for the sale and purchase of valuable assets and that, to the extent they received payments, this was the price paid under the deals.

The Claimants contend that the SPAs were not genuine commercial deals, but were complex devices, constructed to conceal the misappropriation of funds by the recipients.

The following sections address each of the SPAs and the sums which were received by the relevant Defendants under them.

The Lakeview SPA was executed on 27 July 2015 (though no signed copy has been disclosed).

Under the Lakeview SPA, the shares in LCCL were sold to London Trading & Development Group Limited (London Trading) for £2,105,263.10.

By that date, the legal owners of the shares were Mr Thomson and Mrs Hume-Kendall. The beneficial interests in the shares were at that time held for Mr Golding (71.25%), the Hume-Kendalls (23.75%) and Mr Thomson (5%). The Claimants contended that the 23.75% was held by Mrs Hume-Kendall for Mr Hume-Kendall but it is unnecessary to reach a conclusion on this issue.

I am however satisfied, whatever the ownership position between them, Mr Hume-Kendall made decisions about the Hume-Kendall shareholding and seems to have done so without the prior involvement of Mrs Hume-Kendall. I shall proceed on the basis that the Hume-Kendalls regarded the 23.75% as their property.

In April 2015 Mr Hume-Kendall and Mr Golding were considering selling the shares in LCCL to a company controlled by them. Initially it was intended that Mr Thomson and Mrs Hume-Kendall would sell their shares in LCCL to London Trading for £6.75 million, to be paid by loan notes repayable in 8 years.

I also find that it was understood by the relevant Defendants that the money to pay for the share purchases was going to come from LCF (through loans). There was no other anticipated source for it. This understanding was indeed recorded in the Golding-SHK Agreement, of which Mr Hume-Kendall, Mr Golding, Mr Barker, Mr Sedgwick and Mr Thomson were aware.

However, it was subsequently decided that smaller sums (£1.5 million to Mr Golding, and £750,000 to Mr Thomson and Mrs Hume-Kendall) would be paid in a shorter period. The proposed price was then revised again to £2,105,263.10, on the basis that Mr Golding would receive £1.5 million for his share of 71.25%, Mrs Hume-Kendall would receive £500,000 and Mr Thomson would receive £105,263.15. This was embodied in the Lakeview SPA.

Mr Sedgwick prepared the drafts of the Lakeview SPA. Mr Thomson was provided with drafts and emails about it. He knew that the shares in LCCL were being sold in return for loan notes issued by London Trading. He executed the Lakeview SPA as one of the sellers.

Mr Golding was also aware of the decision to sell the shares in LCCL. He was of course the majority beneficial owner of the LCCL shares, and no decision would or could have been taken without his approval. On 15 July 2015 Mr Sedgwick prepared a memo for Mr Golding explaining the then proposed transaction.

Mr Golding was aware of the terms of the Lakeview SPA as the major beneficial owner of LCCL. He was provided with drafts of the agreement by Mr Sedgwick, Mr Thomson and Mr Barker.

None of the Defendants has disclosed a signed copy of the Lakeview SPA, but the contemporaneous documents show that it was executed and that, as payment, loan notes were issued to Mr Thomson and Mrs Hume-Kendall on 27 July 2015.

I am satisfied that there was no commercially justifiable basis for the consideration payable by London Trading in return for the shares in LCCL.

I am satisfied that Mr Thomson and Mr Golding knew these facts.

There is no evidence that there was any negotiation of the price of the shares.

I am satisfied that it was not a commercially justifiable deal. I am also satisfied that the relevant Defendants did not think it was commercially justifiable. It was a means for extracting value from the ownership of the shares and making payments to the relevant Defendants personally.

The buyer of the LCCL shares under the Lakeview SPA was London Trading. As of 8 July 2015, the shares in London Trading were held by International Resorts Partnership LLP, which held those shares on trust for Mr Golding (71.25%), Mr Hume-Kendall (23.75%) and Mr Thomson (5%). This is shown by a trust deed dated 8 July 2015.

I find that, at about the time of the Lakeview SPA, an agreement or arrangement was reached between the relevant Defendants that the shares in London Trading would be beneficially held between Mr Golding (as to 45%), Mr Hume-Kendall (45%), Mr Thomson (5%) and Mr Barker (5%) once the LCCL transaction had completed. But it was also agreed that the consideration under the Lakeview SPA would be paid according to the old ratios (71.25%, 23.75%, 5%, with nothing for Mr Barker). This is shown by the terms of the Golding-SHK Agreement (see above).

The Claimants contend that there was therefore no change in the identity of the beneficial owners of the shares in LCCL. They say that it was a sale by the beneficial owners to themselves. I find that this is broadly, but not precisely, correct. Mr Thomson and Mr Golding had a beneficial interest in LCCL shares before the sale and continued to have a beneficial interest in LCCL after the sale, but Mr Golding’s interest in London Trading was reduced, the Hume-Kendalls’ interest increased, and Mr Barker was given a 5% interest. What can be said is that the same associated group of individuals was interested before and after the sale of the shares.

Mr Thomson was a director of London Trading from 19 February 2015 to 13 January 2016 and he knew of the beneficial ownership of the shares in London Trading, including his own 5% beneficial ownership (it was set out in the Golding-SHK Agreement). I have already rejected Mr Thomson’s evidence that he had sold his interests in London Trading (and the other London Group companies) under the alleged buy-out agreement of 15 July 2015.

I specifically find that Mr Golding knew of the extent of his beneficial interest in LCCL before the transaction and his interest (and those of the other relevant Defendants) in London Trading after the transaction. The latter division of interests (45:45:5:5) was reflected in the Golding-SHK Agreement.

On 18 August 2015 Mr Sedgwick emailed Mr Hume-Kendall and Mr Barker (cc. Mr Thomson and Mr Golding) with a draft revised version of the Lakeview SPA with a new clause 3.4, which contained a mechanism for allowing a retrospective increase in the price by reference to the values of the claims defined as the “Telos claim” and the “Timeshare claim”. This revised version of the Lakeview SPA was never signed.

I find that the intention to include this revised mechanism followed meetings in the week before the 18 August 2015 email. On 18 August Mr Sedgwick referred to the meetings and said that the major question was “whether we amend the price being paid by LTDG for the shares in [LCCL]”. I find from the fact that the email was sent or copied to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding that they all took part in the meetings.

Mr Thomson was copied into emails about the proposed revision of the purchase price. He also knew that if there was a revision he would receive more money personally and he is likely to have read them.

Another draft of the Lakeview SPA was prepared by Mr Sedgwick on 6 October 2015. This included a revised proposed clause 3.4, which also made reference to potential value in the “Magante Asset”, which was defined to mean an agreement between LCCL and Sanctuary PCC, by which LCCL agreed to fund the development of the site at The Beach, in consideration for a share of the proceeds of sale of that site upon sale. This revised draft of the Lakeview SPA was not executed either.

I find that the reason for these further drafts must have been discussions between Mr Hume-Kendall, Mr Golding, Mr Barker and Mr Thomson for the consideration under the Lakeview SPA to be increased. Mr Sedgwick would not have produced them without their agreement.

These drafts and the fact that there were discussions about them is itself telling. If the Lakeview SPA had been a genuine commercial contract, London Trading, as the buyer of the shares, would not have countenanced revisions. Its directors would simply have insisted on the contract and refused to pay more. The existence of these drafts supports my conclusion that the Lakeview SPA was not a genuine commercial transaction.

In any event, these so-called assets could not have justified any retrospective increase in price:

In his oral evidence, Mr Thomson was unable to provide any explanation of how these so-called assets could have had any value. I find that he knew the facts set out in the previous paragraph above, and that the assets in fact had no substantial value that could justify an uplift in the price. I similarly find that Mr Golding, who had a significant role in relation to the land in the Dominican Republic, the arrangements with the Sanctuary investors, and the Lakeview Resort, understood that these “assets” had limited value, or that the facts underlying them pre-existed the original Lakeview SPA. He knew that the inclusion of them in the draft clause 3.4 was an artificial mechanism.

I am satisfied that Mr Sedgwick was attempting, on the instructions of Mr Hume-Kendall and Mr Golding, to produce a mechanism which could be activated in the future to increase the price payable to increase the amounts that would be paid under the Lakeview SPA to Mr Golding, Mr Hume-Kendall, Mr Barker and Mr Thomson.

On a date between 27 July 2015 and 4 September 2015, LCCL transferred the Lakeview site to an associated company called Waterside Villages Plc, except for some land described as the “development land”, which (as already explained) had been charged to LUKI to secure the liabilities of investors in the LUKI bond.

On 7 October 2015 there were email discussions between the parties to retrospectively increase the price paid under the Lakeview SPA. This increase would not make use of the proposed new clause 3.4. The initial proposal was for the price simply to be increased to £3.5 million. However, a proposed revised agreement reflecting this increase was not executed.

In January 2016 there was further email discussion between Mr Thomson, Mr Hume-Kendall, Mr Barker, Mr Golding, and Mr Sedgwick about increasing the price under the Lakeview SPA.

Mr Sedgwick proposed, in an email of 3 January 2016, that the price could be further increased by adding CV Resorts as a subsidiary of LCCL with retrospective effect. He said that this would “enable us to increase the purchase price further”. He said that CV Resorts becoming a subsidiary “could have happened at the end of March 2015 before the contract with Paradise Beach was entered into and when the company had no value”. He knew of course that it had not in fact been a subsidiary at that date, hence his use of the words “it could have happened”. I find that this shows that he knew that what he was suggesting was an artificial mechanism for increasing the price. He had an elastic approach to chronology; he was even prepared, when convenient, to treat something as having happened which had never occurred in fact.

I find that Mr Sedgwick also knew that CV Resorts was still worthless. In reaching these conclusions (and the others set out in this section) I draw adverse inferences against Mr Sedgwick from his decision not to give evidence.

I am also satisfied that Mr Thomson and Mr Golding knew that Mr Sedgwick had suggested this as another artificial mechanism for increasing the price retrospectively, by bringing in the (supposed) value of CV Resorts. Mr Thomson and Mr Golding both knew that that would have involved falsely pretending the CV Resorts had been a subsidiary of LCCL on 27 August 2015. That was indeed Mr Sedgwick’s suggestion. Mr Thomson indeed accepted in his evidence that this would have been remaking the past.

The fact that Mr Sedgwick was prepared to suggest this demonstrates that he was prepared to engage in the concoction of justifications for paying out as much as possible under the SPA. The price had nothing to do with real values. Mr Thomson and Mr Golding understood that Mr Sedgwick was concocting artificial devices to justify payments to the four individuals. I also find that Mr Thomson and Mr Golding knew that CV Resorts had no value in any event (for reasons already given).

The email of 3 January 2016 also referred to any increase in the consideration for the sale of LCCL being divided in the “current ratios and not the previous ones”. I find that all of Mr Thomson, Mr Golding, Mr Hume-Kendall and Mr Barker knew that the reference to the “new ratios” was to the 45:45:5:5 ratios set out in the Golding-SHK Agreement.

A version of the Lakeview SPA with an increased price of £3.5 million, and containing the new clause 3.4, was executed and backdated to 27 July 2015. The agreement also attached stock transfer forms in which a total consideration money of £3.5 million was recorded. These too were falsely backdated to 27 July 2015.

I make the following findings about this:

I find that Mr Thomson was aware of the proposal to increase the price to £3.5 million. He was kept aware of it by being copied into emails. I have already rejected his repeated general contention in evidence that he did not read most emails addressed to him. I specifically find that he read these particular emails. He was money-driven and the increases meant more for him.

In any case, in January 2016, Mr Thomson signed the version increasing the amount to £3.5 million and including the new clause 3.4, and therefore knew its terms. He also knew that the documents (the agreement and the stock transfer forms) had been dishonestly backdated. There was no proper basis for putting in the earlier date.

The money paid to the relevant Defendants as sellers of the shares under the Lakeview SPA derived from payments from LCF to a London Group company called L&TD. In the bank statements of L&TD, the payments were recorded as a “share payment”.

At the dates when the first sums were paid to the relevant Defendants under the loan notes, there was no facility agreement in place between LCF and L&TD. A backdated facility agreement was then put in place and there was purported security, but the value of this was insufficient.

As to the production of the backdated facility agreement, the documents show that in January 2016, Alex Lee sent two draft facility agreements to Mr Sedgwick (cc. Mr Thomson). These were an “old” facility to cover existing payments, and a “new” facility for future drawdowns. Mr Lee explained that “[t]he ‘old’ refers to the facility that has already been drawn down and the other is for the proposed new facility”. Some of the amounts already drawn down had already been paid to Mr Hume-Kendall and Mr Golding as “share payments” by L&TD. The facilities were then combined into a single facility for £25 million, recorded in a document provided by Mr Lee to Mr Sedgwick (cc. Mr Thomson) on 4 March 2016.

This £25 million facility agreement was signed towards the end of March 2016 but backdated to 27 August 2015. I am satisfied that the document was backdated to give the false impression to auditors that the facilities were already in place before any of the drawdowns had been made.

Mr Sedgwick knew of this backdating. He also knew from the drafting process that L&TD had drawn sums from LCF without any facility agreement in place.

The backdated L&TD facility referred (as security) to the purchase agreement between CV Resorts and Paradise Beach SA, land in the Dominican Republic owned by Inversiones, and to Tenedora.

However, this security had negligible value. As explained above, CV Resorts did not own any land at Paradise Beach and had a worthless right to pay €57 million to acquire a site with a market value of €40 million; the shares in Inversiones were held on trust for El Cupey for the ultimate benefit of the Sanctuary investors by way of security for their deposits; and Tenedora had not acquired The Beach. There was, therefore, nothing valuable to secure L&TD’s liability to LCF.

Mr Thomson, Mr Golding and Mr Sedgwick knew from their involvement in the Sanctuary scheme and Paradise Beach contract that the security was worthless; and, therefore, that L&TD’s borrowings from LCF were effectively unsecured.

On 6 January 2016 Mr Sedgwick sent an email to Mr Golding, Mr Hume-Kendall and Mr Barker saying that Mr Hume-Kendall had said it had been agreed that the sale price of £3.5 million in excess of the original price under the Lakeview SPA was to be divided in the new ratios and he wanted the agreement drawn up on this basis.

This further shows that the arrangement was artificial and uncommercial. Had it been a genuine sale there would have been no proper basis for dividing the proceeds otherwise than under the original ownership ratios.

By July 2016 the payments to the Defendants deriving from the sums paid by LCF to L&TD approached the revised sale price of £3.5 million. Mr Thomson and Mr Golding of course knew of the payments they were respectively receiving. I address their understanding of the amounts the others were receiving below.

The fact that the receipts were approaching £3.5 million led to a further retrospective revision of the price. At first, the proposal was to increase it to £4.5 million, but payments were continuing to be made and, in the event, the price was increased to £6 million. A further version of the Lakeview SPA was signed by Mr Thomson, Mr Hume-Kendall and Mrs Hume-Kendall in July 2016 and backdated to 27 July 2015. Mr Thomson clearly knew of the increase as he signed the agreement. I make the same findings about this as I did in relation to the increase to £3.5 million (see [475] above).

Mr Thomson’s evidence about these increases in price was incoherent. He said that he had no recollection of the discussions regarding the increase in the price. But he also asserted that he was given explanations by Mr Sedgwick and others about the increase in price. I was unable to accept his evidence. I find that he was aware of the increase. He also knew that he was signing a backdated agreement and that the document did not reflect what had been agreed in August 2015.

Within two months of the signature (and backdating) of the third version of the Lakeview SPA to increase the purchase price retrospectively to £6 million, the payments to Mr Thomson, Mr Golding and Mrs Hume-Kendall, funded by LCF, exceeded this figure.

By January 2017 the total payments from LCF to L&TD under the loan facility exceeded £19.6 million. When the 25% fee paid to Surge was accounted for, the gross sum owed by L&TD to LCF stood at more than £27 million. L&TD had exceeded the then facility limit of £25 million.

In order to conceal this, a letter requesting an increase to the facility limit to £30 million was produced in January 2017 and backdated to 20 December 2016. Mr Thomson sent a draft of the letter to Mr Sedgwick. Mr Sedgwick was involved in obtaining a signature on behalf of L&TD on the document. In an email at that time, he made it clear that it was important that the document was backdated.

Mr Sedgwick also inserted the security values into the letter. I find that he knew these figures were not supportable. The letter was signed by Mr Hume-Kendall for L&TD. It stated “the current values of the company’s portfolio of assets” as Waterside: £17.5 million, El Cupey: £30 million and Magante: £14 million. For the reasons given above these valuations were not ones that could be rationally supported. I find that none of the relevant Defendants (including Mr Thomson) believed the assets to be worth anything like that.

At the same time, in January 2017, a second backdated letter was produced (dated 25 October 2016 on its face) seeking LCF’s waiver of a breach of the facility agreement by reason of L&TD’s failure to produce accounts on time. Mr Sedgwick participated in obtaining the signature on the letter. He knew the letter was misleading because L&TD had not sought the waiver in October 2016.

In his oral evidence, Mr Thomson was asked about the backdating of these letters. I find that he knew that the letter seeking the increased facility was backdated to mislead the auditors.

In relation to the waiver letter, he said he did not realise that the auditors would be potentially interested by the fact that LCF had been lending to a company in default. He said that he was just trying to rectify the default and that, in his mind, it had nothing to do with the auditors. That explanation did not, however, account for the backdating. He then claimed that there had in fact been an oral agreement some time before 29 October 2016, waiving the default. I am unable to accept that. If there had been such a waiver, there would have been no reason for LCF to have sent a letter to L&TD on 5 December 2016 notifying it that it was in default (at least without referring to the waiver). Both of the backdated letters were produced so that LCF would be able to deceive its auditors. I find that Mr Sedgwick understood that this was the purpose of the backdated letters.

In April 2017 Mr Thomson, Mr Hume-Kendall, Mr Barker, and Mr Golding discussed via email (and probably otherwise too) activating the mechanism in clause 3.4 of the Lakeview SPA to increase the purchase price retrospectively. Mr Sedgwick helped in giving effect to this plan. The initial proposal was that the price should increase to £13.85 million. Mr Sedgwick produced a draft agreement which recorded that the “Megante Asset” would be given a value of £4 million, the “Telos claim” would be given a value of £1 million, and the “Timeshare claim” would be given a value of £2.85 million. Mr Sedgwick told Mr Hume-Kendall, Mr Barker and Mr Golding that a memorandum showing this would be backdated to March 2017. There is nothing in the evidence to suggest that there was any commercial basis for any of these values and I find that they were plucked from the air to justify the proposed price increase. This draft was not executed.

I find (despite his protestations that he did not read emails) that Mr Thomson was aware of these discussions. As explained above, he was money-driven, and he was personally interested in any increase in the price.

Mr Golding knew about the discussions. He was copied into the emails and was getting a large part of the payments from L&TD (using the old ratios up to £6 million and the new ones thereafter).

Despite the absence of any justification for them under the Lakeview SPA (which even on the backdated revised version had a price of £6 million), payments continued to be made by LCF to L&TD, which in turn made payments to Mr Thomson, Mr Barker, Mr Golding, and Mrs Hume-Kendall as sellers under the Lakeview SPA.

By 22 May 2017 the total paid out to the sellers under the Lakeview SPA was £14,260,361.10.

In emails on 22 May 2017, the parties again discussed activating clause 3.4 to retrospectively increase the purchase price under the Lakeview SPA to £14,260,361.10, the precise amount that had been paid to Mr Thomson, Mr Barker, Mr Golding and Mrs Hume-Kendall under the Lakeview SPA. Mr Sedgwick explained to Mr Thomson that an “agreement has now been reached to increase the consideration to that amount”.

There is no evidence of any negotiations between the sellers and the buyers concerning the amount of the increase or any valuation of the supposed “assets”. I find that that is because the amount of the agreed increase was simply what was needed to justify the sums already paid in relation to the agreement. It was not a genuine attempt to value the “assets” listed under clause 3.4. The parties to the discussions knew that the overall price increase was reverse engineered. Mr Hume-Kendall then proposed the use of rounder numbers. I find that was because the precise numbers would have seemed suspicious.

Mr Golding participated in the discussions to increase the price by attaching values to the “assets” under clause 3.4. He was copied into emails. Mr Thomson gave oral evidence that Mr Golding was one of the key decision makers in this regard.

Mr Sedgwick explained in an email to Mr Thomson on 13 June 2017 that the proposed variation to increase the price should not be increased because the increased asset values “conflicted with certain other things [Mr Hume-Kendall] was seeking to achieve”. I find that this highlighted the obvious reverse engineering of the increased purchase price under the Lakeview SPA. I find that Mr Thomson and Mr Sedgwick understood that the clause 3.4 mechanism was an after-the-event artifice to justify the amounts that had in fact been paid out.

A “variation agreement” was executed on 16 August 2017, where the purchase price was recorded as £14.26 million. It was agreed that it was to be paid in the “old ratios” which represented the position as of 27 July 2015 (even though the money in fact paid to Mr Thomson, Mr Barker, Mr Golding, and Mrs Hume-Kendall as nominee for Mr Hume-Kendall, was only paid in the “old ratios” up to £6 million, after which the money was divided according to the “new ratios”). The variation agreement was signed on 16 August 2017. I find that the variation agreement, like the earlier agreements, was not a genuine commercial contract and that the “assets” referred to in it were not genuinely valued. There was no process of valuation. There was no process of negotiation. The values were simply inserted to justify amounts already paid out to the relevant Defendants. I find that Mr Thomson, Mr Golding and Mr Sedgwick knew this.

Mr Thomson, Mr Golding and Mr Sedgwick therefore knew that the Lakeview SPA and its variants were not genuine commercial sales. They were concocted to justify the payments made from L&TD’s drawings from LCF. They knew that the underlying assets supposedly being sold were worth nowhere near the £14.26 million price paid under the agreement. They knew that the Lakeview SPA was a device used as a cover for channelling money derived from LCF to the four individuals.

A further variation agreement dated February 2018 split the £14.26 million consideration differently, to match the payments which were actually made (starting with the “old ratios” up to £6 million and moving to the “new ratios” after that amount was reached).

There are two contemporaneous documents which record the amounts paid out to the relevant Defendants. In one spreadsheet, Mr Barker recorded payments totalling £14,260,361.10, together with repayment of a loan of £1 million to Mr Golding. Another spreadsheet, whose author is unclear, allocates the sums paid slightly differently. L&TD bank statements using the designation “share payment” show that some £15,859,307.61 had been paid out. It is likely that these included some payments to Mr Golding deemed to be loan repayments: Mr Barker’s spreadsheet includes the repayment of a loan of £1 million made by Mr Golding to LCCL and £300,000 advanced to Mr Thomson by way of a loan. Mr Barker’s spreadsheet also includes payments totalling £35,000 which are recorded as a loan from Mr Golding to Mr Thomson (which does not appear in the L&TD bank statements). As already explained, the parties proceeded on the basis that £14,260,361.10 had been paid. I also note that Mr Barker sent his spreadsheet to Mr Sedgwick on 13 April 2019 together with other documents recording payments made to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding in relation to the Elysian SPA, the Prime SPA, the LPE SPA and the LPT SPA.

To summarise:

Mr Thomson clearly knew about the payments he received personally under the Lakeview SPA and its variants. He knew that his share was 5% (as evidenced by the Lakeview SPA and the Golding-SHK Agreement). He also knew (from those agreements) the size of the shares of the others (Mr Golding: 45%, Mr Hume-Kendall: 45% and Mr Barker: 5%). He knew of the amount payable under the variation agreements (c. £14.26 million) and that he had had about 5% of this. I am satisfied that he knew that the remainder of the £14.26 million was paid out to Mr Golding, Mr Thomson, and Mr Barker in the agreed proportions.

Mr Thomson’s evidence was that he did not know what the others were getting; he claimed that he had sold his interests under the “buy-out” agreement of July 2015 and as far as he was concerned, he was receiving consideration under that. He said in evidence that he was appalled to learn (through the proceedings) how much the other Defendants (i.e. Mr Hume-Kendall, Mr Barker and Mr Golding) had channelled to themselves rather than using them for commercial purposes. He said that he thought L&TD was using the funds for its commercial purposes and not simply “divvying up” large chunks of it. He repeated that his own receipts were just the price payable under his buyout agreement (so he had no reason to know of the divvying up). He said that he thought the rest was being used to improve the property assets of L&TD.

This evidence was both dishonest and revealing. I have already rejected his evidence about the buy-out agreement as a concoction. Once that is put to one side, what is left is that he had a 5% share in the London Group companies; he knew the terms of the Lakeview SPA and the others’ shares under it; and it would have been obvious to him that the other shareholders would have been getting their entitlement, just as he was. Moreover, he knew that the £14.26 million figure was reverse engineered, to justify the total payments made out. There was no other commercial justification for it. I find that it was obvious to him that the balance of 95%, after his own receipts, had been paid to the other three. I reject Mr Thomson’s evidence that he only learnt during these proceedings that the others were getting their share of the money. He knew it at the time. The reason he was not “appalled” at the time was that he wanted to take out as much money as possible and was recklessly indifferent to the interests of bondholders.

Indeed, later in his cross-examination, Mr Thomson altered his evidence and said that he was aware that the other three would have received some of their contractual entitlements but that he did not know the amount. He said that he trusted them to develop the assets in their possession (presumably meaning the businesses within in the London Group). Mr Thomson was a cunning witness and he doubtless recognised that his original hard-line position could not be held. But I also reject the modified position to which he retreated. It was obvious to him that the others were getting their agreed shares.

This issue also explains why Mr Thomson was so insistent on maintaining the “buy-out agreement” in the face of the overwhelming contrary evidence. He realised that without some other explanation the obvious inference was that if he was receiving 5% of the money, he knew the others would be getting the other 95%. The only other explanation he offered was the buy-out agreement.

Mr Thomson’s evidence on this point is revealing because it contains an implicit admission that the channelling of cash to the other individuals from LCF’s sources would have been improper. Hence his protestation that he had been “appalled” to learn of how much they had received. I find that he in fact knew just how much the other three were receiving and that (far from being appalled) he permitted the payments; indeed, he caused them by authorising the payments and being party to the documents used to justify them. He knew that the payments which went to the three individuals and himself were not being used for the commercial purposes of L&TD as a borrower.

I find that Mr Golding knew about the division of the payments to the four individuals. He had agreed the new ratios with Mr Hume-Kendall, Mr Barker, and Mr Thomson (see the Golding-SHK Agreement). He was getting his share and knew that the others were getting their shares (he also knew that up to £6 million the “old” ratios applied – as he must have agreed the ratios).

I also find that Mr Thomson knew that L&TD had no other source of funding than LCF and that it was not generating any revenues or profits from any commercial activities.

Indeed, as explained below, none of the borrowers ever paid any interest liabilities from income they had generated; instead, interest was “paid” by the borrowers increasing their principal obligations to LCF – and the funds used to repay existing bondholders came from new bondholders and not from anything generated by the borrowers.

I have already found that at all material times, Mr Golding was able to and did give instructions to Mr Thomson concerning LCF. I find that Mr Golding agreed with Mr Thomson that LCF should continue to provide funds to L&TD which were then distributed under the Lakeview SPA and its variants.

This is the second of the SPAs. It was an agreement dated 29 April 2017 between Mr Hume-Kendall, Mr Barker and Mr Golding as Sellers; Elysian Resorts Group Limited (“Elysian RGL”) as Buyer; and Global Resort Property Plc (“GRP”) and London Group LLP, for the sale and purchase of the ordinary shares in GRP.

There were three stages to the transaction:

L&TD, the company which had borrowed from LCF, was at that stage owned by London Group Plc, which was the original “London Oil & Gas Limited”. This company had been acquired from the Bosshard family in 2015. It was renamed GRP on 8 February 2017.

Before the Elysian SPA, the shares in GRP were owned by London Group LLP, a limited liability partnership, whose members were Mr Hume-Kendall and Mr Barker. I find that London Group LLP and its subsidiaries, including GRP, were ultimately beneficially owned by Mr Golding, Mr Hume-Kendall, Mr Thomson, and Mr Barker, in the ratios 45:45:5:5. This was the position set out in the Golding-SHK SPA and these were the ratios in which the proceeds had been divided under the Lakeview SPA (and came to be divided under the Elysian SPA: see below).

GRP had three subsidiaries: L&TD, which had borrowed substantial funds from LCF (significant parts of which had been already been paid to Mr Thomson, Mr Hume-Kendall, Mr Barker, Mr Golding and Mrs Hume-Kendall under the Lakeview SPA); London Trading, which owned the shares in LCCL (pursuant to the Lakeview SPA); and International Resorts Group Plc, which held the shares in Inversiones on trust for El Cupey, and the shares in Tenedora.

At this stage, L&TD also had three subsidiaries: CV Resorts, CV Hotels and Waterside Villages Plc, which owned the freehold to the Lakeview site.

As explained above, the first stage in the Elysian SPA transaction was the reallocation of L&TD’s debts to the support companies.

In February 2017 there were discussions between Mr Thomson and Mr Sedgwick about reallocating L&TD’s debt to other companies, and of selling the shares in GRP to a new company. This is evidenced by emails. There was further discussion about this between Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Sedgwick in March 2017. Mr Lee of Buss Murton was involved on LCF’s behalf.

In summary, it was proposed that GRP would be restructured so that it had four subsidiaries that would be able to enter into new facility agreements with LCF: CV Resorts Limited (to own the rights under the contract with Paradise Beach SA); Waterside Villages Plc (to own the Lakeview site apart from the development land); Colina Property Holdings Limited (to own the legal title in the shares in Inversiones); and Costa Property Holdings Limited (to own the shares in Tenedora).

The other part of the proposed plan was that the existing debt owed by L&TD to LCF would be allocated to five newly incorporated companies, which would take over the liability to LCF. This would allow the debt to be removed from GRP’s group, which could then borrow afresh from LCF.

Mr Golding was aware of the reallocation of the legacy debt so that GRP would be free of debt. This was, for example, shown by an email from Mr Ingham to Mr Golding among others on 25 April 2017. Mr Sedgwick received the same email and knew of the reallocation of the debt.

The five companies that were to assume the legacy debt to LCF were incorporated on 25 and 26 April 2017. Four of them were subsidiaries of London Group LLP and corresponded to the four subsidiaries of GRP: they were Colina Support Limited, Costa Support Limited, Cape Verde Support Limited, and Waterside Support Limited. The fifth, Atlantic Petroleum Support Limited, was incorporated as a subsidiary of LPC. These five support companies had no assets of their own.

Atlantic Petroleum Support Limited was to be allocated £16.4 million of LCF’s debt. The remaining four support companies (subsidiaries of London Group LLP) were to be allocated debt in varying sums: Waterside Support Limited: £5 million, Cape Verde Support Limited: £7 million, Colina Support Limited: £5.5 million, and Costa Support Limited: £6.5 million.

Mr Thomson was aware of the reallocation of the debt to the support companies. He gave instructions to Mr Lee about it. He knew that this would allow GRP to be sold to Elysian RGL debt-free, so that GRP and its group could then borrow further money from LCF.

The support companies entered into facility agreements in the amounts mentioned above, each dated 29 April 2017. Mr Thomson, Mr Hume-Kendall and Mr Sedgwick signed these agreements.

The newly incorporated “support” companies granted debentures in favour of LCF dated 29 April 2017. They in fact had no assets of their own and could not therefore provide any valuable security for the assumption of L&TD’s debt to LCF. Mr Thomson implicitly accepted this in his evidence: he said that the asset-owning companies (i.e. the subsidiaries of GRP) would provide the support companies with security. This made little sense because (on his evidence) it would have involved the assets of the asset-owning companies being used twice as security (both for their own new borrowing from LCF and for the legacy borrowing).

The fifth support company, Atlantic Petroleum Support, granted a debenture to LCF which purported to include a charge over LOG’s rights against Atlantic Petroleum p/f under a loan agreement dated 25 May 2016. The debenture stated that the loan had been assigned by LOG to Atlantic Petroleum Support on 28 April 2017. Mr Lee had been told that such an assignment would take place.

However, such an assignment (even if made) would not have been anything like proper security for the £16.4 million of debt that Atlantic Petroleum Support had assumed from L&TD.

Mr Lee made repeated requests for a copy of the assignment. In August 2017 Mr Hume-Kendall and Mr Barker purported to execute an assignment of LOG’s rights against Atlantic Petroleum p/f to Atlantic Petroleum Support Limited. This purported assignment, drafted by Mr Sedgwick, was backdated to 28 April 2017. I find that this was done to deceive Mr Lee.

However, LOG’s board did not authorise the assignment, as Mr Hume-Kendall and Mr Barker (who were directors of LOG) knew. I also find that Mr Sedgwick was never provided with any evidence to demonstrate that there had been proper authorisation of the assignment by LOG.

LOG’s rights against Atlantic Petroleum continued to be treated by Mr Thomson, Mr Hume-Kendall and Mr Sedgwick as remaining with LOG. For instance, in August 2017, Mr Thomson received an email showing how LOG was treating its interest under the loan to Atlantic Petroleum p/f as its own property. Again, in December 2017, Mr Thomson knew from emails he was sent that LOG continued to regard itself as the counterparty to the loan to Atlantic Petroleum p/f, secured on the same asset. Mr Thomson did not express any surprise or seek additional security. I find that Mr Thomson knew that there had never been a genuine assignment of the debt by LOG to Atlantic Petroleum Support.

There is a large volume of emails showing that Mr Sedgwick was aware that, after the date of the supposed assignment, LOG was treating the rights against Atlantic Petroleum p/f as its property. I find that Mr Sedgwick did not believe that LOG had validly assigned those rights to Atlantic Petroleum Support Limited. In relation to this and the other conclusions drawn in relation to Mr Sedgwick’s acts and knowledge in this section, I draw an adverse inference from his decision not to give evidence.

I find that the purported assignment between LOG and Atlantic Petroleum Support was a sham which was put in place, and falsely backdated, to create the impression that there was at least some security for the debt allocated to Atlantic Petroleum Support Limited, when in reality there was none. This is why there was no consideration of it by the board of LOG at the time. The assignment was ultimately set aside on 7 July 2022 by ICC Judge Barber ([2022] EWHC 1672 (Ch)) on the basis that there had been no authority from the board of LOG.

The debentures granted by the other four support companies (the subsidiaries of London Group LLP) refer in turn to a debenture granted in favour of such support company by the corresponding subsidiary of GRP (e.g., a debenture granted by Costa Property Holdings Limited in favour of Costa Support Limited). But these debentures did not secure anything, because they were expressed to be security for the lending made by the relevant support company to the corresponding GRP subsidiary company. No facility was ever entered into between the relevant GRP subsidiary and the corresponding support company, and there was no other basis on which the GRP subsidiary became indebted to the relevant support company. This is the case for each of the GRP subsidiaries.

In any event, as already explained these arrangements would have made no commercial sense for LCF as the support companies had no assets of their own and the assets of the GRP subsidiaries would have had to stand as security for both the legacy debt and the new debt. I have already explained why the GRP subsidiaries had nothing like the assets needed for that level of security.

I find that Mr Thomson was wholly reckless in relation to the security. He did not insist on an independent valuation of the assets which were supposed to stand as security, or require a proper legal report confirming that proper security was held. He did not take even the most basic steps any honest and prudent director of a lending company would have taken. He went along with the transaction because he stood to make large sums from it.

The liabilities owed by the support companies were also subject to security purportedly given by London Group LLP, the parent entity. This appears to have followed discussions in the course of which Mr Lee (acting for LCF) raised queries about security shortly before the transaction completed. Mr Sedgwick explained to Mr Lee that London Group LLP, the parent entity, would hold GRP’s redeemable preference shares, and that the proceeds of those shares would be used to pay the liabilities of the “support companies”. He said that London Group would receive preference shares initially in the sum of c. £90 million and would be responsible for repaying the existing debt out of the redemption proceeds of the preference shares. London Group LLP granted a guarantee, and a debenture purporting to secure the redeemable preference shares in GRP.

This did not, however, result in valuable security being granted in favour of LCF:

I find that there was no genuine intention to use the sums paid out to the individuals under the Elysian SPA (purportedly in redemption of the preference shares) to pay down the legacy debt owing to LCF. First, if this had been the intention, proper documentation would have been put in place requiring the proceeds under the agreement to be applied in paying the legacy debts. This did not happen. Second, the recipients of the money paid pursuant to the agreement never applied any of it in repaying the legacy debt. The fact that they never made any such payments strongly suggests that they never intended to do so.

Mr Thomson also said in oral evidence that the payments in respect of the preference shares under the Elysian SPA would be used to “pay down” the liabilities of the “support companies”. I reject this. It is at odds with the way the payments under the SPA were in fact applied and paid. There was no contractual obligation on the recipients to pay down the legacy debts. Neither Mr Thomson, Mr Hume-Kendall, Mr Barker nor Mr Golding ever used any of the money they received to pay down the legacy debts. I find that Mr Thomson knew that there was never any realistic prospect that the liabilities of the “support companies” to LCF would be repaid and that the reallocation of debt to the support companies was a device to clear away the indebtedness incurred during the period of the Lakeview SPAs to permit fresh borrowing from LCF by GRP’s subsidiaries.

In short, the reallocation of the debts of L&TD to the support companies had no proper commercial rationale. The support companies lacked the assets to provide proper security and failed to provide valid security. On Mr Thomson’s own evidence, even if valid security had been created, the legacy lending and the new lending would both have been secured on the assets of the GRP subsidiaries, which had nothing like the required value even for the new lending, let alone the legacy lending. Indeed, the new lending taken on its own was grossly unsecured. I find that Mr Thomson agreed to the reallocation of the debt and the various security arrangements without any consideration of the interests of LCF or the bondholders. He knew he personally was going to receive 5% of the proceeds of the Elysian SPA and this blinded him to all else. He was recklessly indifferent to the risks the transaction threw onto the bondholders.

I find that Mr Golding and Mr Sedgwick were also aware that the support companies lacked the assets to provide security and that they failed to provide proper security.

The second stage of the transaction was the sale of the shares in GRP to Elysian RGL. This company was only incorporated on 28 April 2017, the day before the SPA. Elysian RGL was owned by Mr Ingham, and its directors were Mr Ingham and Mr McCarthy.

The documents show that there had previously been a plan to use a company called Global Resort Development Limited, which was associated with Mr Terry Mitchell, as the acquisition vehicle. However, it appears that this company was deployed for another purpose, and it was then decided to use Elysian RGL.

The day after the Elysian SPA, Mr Mitchell sent an email to Mr Hume-Kendall saying, “Mark used a company he had available to sign. Presumably we acquire from that entity?” I find (partly based on later events explained below) that Mr Hume-Kendall and Mr Golding had intended to enter a transaction involving Mr Mitchell but that they decided they wanted to go ahead quickly and, therefore, Mr Ingham incorporated a new company to function as the purchaser in the interim, pending a subsequent sale to a company connected with Mr Mitchell.

As already explained, the Elysian SPA provided for the sale of 100 ordinary shares in GRP to Elysian RGL on terms which envisaged the issue of £82.125 million redeemable preference shares to Mr Thomson, Mr Hume-Kendall and Mr Barker (which were to be beneficially held between Mr Golding, Mr Hume-Kendall, Mr Thomson and Mr Barker in the ratio 45:45:5:5). Although Mr Golding was not referred to in the agreement, I find that it was always understood that Mr Barker was acting as a proxy or nominee for Mr Golding in respect of his 45% interest. Mr Thomson explained in his oral evidence that Mr Golding was to receive consideration under the Elysian transaction.

Mr Sedgwick was responsible for drafting the Elysian SPA and he understood its terms.

The Claimants accepted that there is comparatively little email correspondence showing Mr Golding’s involvement in the development of the Elysian SPA. However, I find that he was involved for the following reasons: he was a major beneficiary of the transaction, set originally to receive 45% of the proceeds; he must have agreed a reduction to 42.5% to accommodate Mr Ingham’s share (see below); he plainly knew that the funding would come from LCF (over which he had ultimate control), as there was no other plausible source; Mr Sedgwick had acted as his lawyer for many years and was instrumental in creating the transaction; and Mr Golding sought to avoid his own name appearing in documents. An example of the last point is that at about the same time as the Elysian transaction Mr Golding participated in discussions about changes to be made to the Lakeview SPA designed to increase his share of the payments deriving from LCF. Mr Golding was not copied into that correspondence, but Mr Thomson explained that Mr Golding would have been involved in the discussions, and I so find.

Clause 5.3 of the Elysian SPA provided that 50% of any sums left after general and administrative expenses would be applied in repayment of the redeemable preference shares (i.e. that 50% of such sums would be paid to Mr Thomson, Mr Hume-Kendall and Mr Barker (including for Mr Golding)).

No redeemable preference shares in GRP were ever actually issued.

Indeed, no preference shares in GRP could lawfully have been issued and redeemed in the circumstances envisaged by the Elysian SPA.

Though his evidence on this point was not always consistent, I find that Mr Thomson knew that he personally had never been issued with any preference shares by GRP, and that none had been issued to the other sellers either. Since Mr Thomson knew that the redeemable preference shares had not been issued, he also knew that the debenture granted by London Group LLP (which was supposedly over such shares) did not bite on any assets. Mr Thomson was also unable to explain in evidence why he would have been satisfied with this security given that under the Elysian SPA, the redeemable preference shares were supposed to be held by the individual Sellers rather than London Group LLP. I find that Mr Thomson was recklessly indifferent to these matters. He did not take any of the steps an honest and reasonable director would have taken to ensure that proper security was taken. He and the other relevant Defendants were interested in receiving large payments personally and were entirely reckless about security for the bondholders.

The £82,125,000 figure was calculated by adding values for various assets said to belong ultimately to London Group LLP. These included £28.28 million for El Cupey (The Hill), £32.1 million for The Beach, £18.74 million for Lakeview, and £3 million in relation to CV Resorts or Paradise Beach. I find, for reasons already given, that these values were massively inflated. I also find that each of Mr Thomson, Mr Hume-Kendall, Mr Barker, Mr Golding and Mr Sedgwick knew that these values were entirely unrealistic.

Moreover, it is inconceivable that Mr Ingham, who had been involved with the dealings with the land in the Dominican Republic and had transferred Inversiones and Tenedora for no consideration, would genuinely have been prepared to buy them for a total of £60.3 million. Mr Ingham had previously run Sanctuary and therefore knew that The Hill had been acquired for £780,000; that the shares in Inversiones were held on trust for the Sanctuary investors; that the contract price for The Beach was £3.5 million; and that Tenedora had not actually acquired any of the parcels of land on The Beach yet.

Furthermore:

For the above reasons, I find that this was not a genuine arm’s length commercial transaction but was an artificial device designed to justify payments to the four individuals and Mr Ingham. I find that each of Mr Thomson, Mr Hume-Kendall, Mr Barker, Mr Golding, and Mr Sedgwick knew this. Mr Ingham was prepared to go along with the transaction because the Defendants agreed that he would receive 5% of all sums to be distributed under it.

As to Mr Ingham’s role, he had previously run Sanctuary and knew of the Sanctuary scheme. He had also helped Mr Thomson and Mr Hume-Kendall set up SAFE in 2013.

Mr Hume-Kendall and Mr Golding agreed that Mr Ingham would receive 5% of the sums paid under the Elysian SPA, by each of them reducing their shares by 2.5%. This is shown in email discussions between Mr Hume-Kendall, Mr Barker and Mr Sedgwick from February 2017 onwards. By March 2017, it was agreed that they would do this by a trust arrangement.

Mr Ingham did not actually hold any shares in GRP at the time of the transaction. Mr Sedgwick dealt with this by producing backdated declarations of trust by Mr Hume-Kendall and Mr Barker. It appears from the emails that Mr Sedgwick did this to reduce liabilities for tax, i.e., to deceive HMRC.

As to Mr McCarthy’s role, he worked at the time of the transaction for London Group Plc, in the same offices as Mr Ingham, Mr Peacock, Mr Redman, Mr Hume-Kendall, Mr Barker, and Mr Sedgwick. This finding is evidenced by a floorplan for offices which show them working together. Mr McCarthy continued to work for London Group LLP and associated companies until August 2018. He was promised a commission in return for his involvement in the Elysian transaction as well as the Prime SPA (see below).

The third stage of the Elysian transaction was for LCF to grant new facilities to GRP’s subsidiaries. This would enable new drawdowns to be made from LCF, which could then be paid on to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding (as well as Mr Ingham and Mr McCarthy) in the purported redemption of the (non-existent) preference shares.

The facility agreements were prepared and executed in May 2017. It was envisaged that each subsidiary would borrow £20 million.

The GRP subsidiaries also granted debentures which, on their face, secured the new facilities given by LCF. For reasons already given, I find that the new lending was unsecured or very seriously under secured. In summary:

The subsidiaries of GRP then made drawdowns under the new facilities from May 2017 onwards. At the same time, payments started to be made in purported redemption of GRP preference shares. There was no proper basis for this as no such shares had been issued. These drawn-down sums were paid by LCF to GRP (rather than to the subsidiaries which had entered the new facilities). The liability incurred under each drawdown was then allocated to one of the GRP subsidiaries.

The drawdowns from LCF funded payments by GRP to Sands Equity Capital Limited (“Sands Equity”), which was owned by London Group LLP, and of which Mr Hume-Kendall was the sole director. Mr Thomson explained in evidence that its name came from “Spencer and Simon”. Mr Thomson knew this to be a company run by Mr Hume-Kendall and Mr Golding.

Mr Sedgwick, Mr Hume-Kendall and Mr Barker arranged for a backdated agency agreement to be put in place with Sands Equity to explain why the funds were being paid to Sands Equity.

Sands Equity in turn paid these sums to Mr Thomson, Mr Hume-Kendall, Mr Barker, Mr Golding, and Mr Ingham.

I find from the contemporaneous documents that Mr Thomson approved the drawdowns by GRP’s subsidiaries and that he encouraged the drawing of the maximum amount available in LCF’s bank account (essentially being new investments by bondholders). I find that he did this to maximise the payments made under the Elysian SPA. Mr Thomson claimed in evidence that the reason he kept in close communication with Mr Hume-Kendall and Mr Barker about the amounts in LCF’s bank account was because he was keen to maximise lending to the borrowing companies (rather than keeping the money in cash). I reject that evidence. He knew that a very substantial proportion of the advances were being paid out to him and the other Defendants for their personal benefit and he did not think that the money was being invested in income-generating businesses.

I find that Mr Thomson did not genuinely believe that Elysian RGL was able to generate funds to repay the lending from LCF. In his oral evidence, he suggested that he thought that Mr Ingham (now supposedly in charge of GRP) would continue to develop the various land sites, but he could not begin to explain how sufficient funds would be generated to enable the mounting debts to be repaid.

I find that Mr Thomson knew that the others were receiving a substantial part of the advances from LCF to GRP. I find that he knew when he received his payments that this was 5% of the total amount being paid out and that the remaining 95% was going to the others.

I have already made findings about this issue in relation to the payments he received under the Lakeview SPA and the same reasoning applies to the amounts he received under the Elysian SPA. I have rejected his evidence that he thought he was in a special position because of the July 2015 “buyout” arrangements and did not realise that the other Defendants would be getting proportionate shares. There was no such buyout arrangement. Instead, there was the 45:45:5:5 division agreed in July 2015 and reflected in the Golding-SHK Agreement (which he had read and retained).

Moreover, Mr Thomson knew that the money paid under the Elysian SPA was being channelled through Sands Equity and that this was a company controlled by Mr Hume-Kendall and Mr Golding. This was further reason for him to realise that they too would be receiving their shares under the Elysian SPA.

I also find that Mr Thomson was aware of the close correlation in timing between drawdowns being made by the subsidiaries of GRP from LCF and the receipt of sums into his own bank accounts (and I reject his oral evidence to the contrary).

Mr Thomson knew that any payments made in relation to the redeemable preference shares that were supposed to be issued under the Elysian SPA would be made with sums lent by LCF to the GRP subsidiaries. Mr Thomson knew that no redeemable preference shares had ever been issued, and he also knew that there was no proper basis on which payments to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding could be justified under the Elysian SPA.

A total of £11.745 million of LCF’s assets were paid out to Mr Thomson, Mr Hume-Kendall, Mr Barker, Mr Golding and Mr Ingham under the auspices of the Elysian SPA, of which Mr Thomson received £522,250 and Mr Golding received £4,406,625.

The third transaction, the Prime SPA, consisted of three phases.

The first Prime SPA was executed on 13 September 2017 and provided for GRP, Elysian RGL and London Group LLP to sell LV Resorts (which owned Costa Property and Colina Property (which in turn owned the companies which held the two Dominican Republic properties)) to a company called Prime Resort Development Limited (“Prime RDL”). The consideration consisted of loan notes of £11.255 million, to be issued by Prime RDL to London Group LLP.

The second Prime SPA was executed on 7 November 2017. It provided for Mr Ingham, Mr McCarthy and London Group LLP to sell the shares in Elysian to Prime RDL for £12 million of redeemable preference shares in Prime RDL. £10 million of these redeemable preference shares were to be issued to London Group LLP and the rest to Mr Ingham and Mr McCarthy.

The third phase was when the first and second Prime SPAs were combined into an agreement signed on 21 November 2017. This provided for the cancellation of the first and second Prime SPAs and the sale of the shares in Elysian RGL to Prime RDL for (i) £10.3 million of loan notes to be issued by Prime RDL to London Group LLP; and (ii) the issue by Prime RDL of £12 million in preference shares (£9.5 million to London Group LLP and £2.5 million to Mr Ingham and Mr McCarthy).

The combined Prime SPA completed on 6 December 2017. The loan notes were issued by Prime RDL on completion, but Prime RDL never issued the preference shares.

Prime RDL was owned beneficially by Mr Terry Mitchell. He engaged Mr Angel Rodriguez to be involved in its management. There were three nominee directors: Ms Pippa Isbell, Mr Robert Woodward and Mr Ian Sands. Mr Mitchell agreed with Mr Hume-Kendall that they should be the nominee directors. Mr Sands held the shares of Prime RDL on trust for Mr Mitchell.

As already explained, it was anticipated that Mr Mitchell would be involved at the time of the Elysian SPA, but his involvement was postponed because Mr Hume-Kendall and Mr Golding wanted to proceed quickly.

From the first formulation of the drafts of the First Prime SPA, it was understood that the payments would be funded by LCF under facility agreements.

Emails show that Mr Hume-Kendall, Mr Barker, Mr Golding and Mr Sedgwick were involved in designing this transaction from mid-2017 onwards. On 29 August 2017, for example, Mr Hume-Kendall, Mr Barker and Mr Golding received an email from Mr Sedgwick containing heads of terms for the first Prime SPA. It is to be inferred from this that these Defendants were involved in designing the first Prime SPA and had knowledge of the proposed terms of the Prime SPA. One of the heads of terms was that the buyer would be under an obligation to raise corporate finance to repay the loan notes and the money would flow through a paying agent for the former shareholders of GRP. It was anticipated that the “corporate finance” would come from LCF.

I note that at this stage (29 August 2017) the proposed transaction was being discussed by Mr Sedgwick, Mr Hume-Kendall, Mr Barker, Mr Golding and Mr Mitchell without any apparent involvement of Mr Ingham, despite it being concerned with assets which were supposedly owned by Elysian RGL under the Elysian SPA. This is further evidence of the lack of commercial substance of the various transactions, including the Elysian SPA.

The anticipation that the money was to flow from LCF to the various individuals is also shown in an email of 9 September 2017 from Mr Sedgwick to the same Defendants and Mr Ingham. I am satisfied that they always understood that the “corporate finance” would come from LCF (as under the earlier transactions). They therefore knew that the relevant proportion of the advances by LCF would be used to pay Mr Thomson, Mr Hume-Kendall, Mr Barker, Mr Golding and Mr Ingham, and be justified as consideration for the “assets” transferred by them.

The basic concept of LCF being obliged to provide the financing was also shown by an email from Mr Sedgwick to Mr Lee, Mr Hume-Kendall and Mr Thomson dated 11 September 2017. Mr Sedgwick also attached a copy of the draft sale agreement. He said “As always time is in short supply” as they were intending to exchange contracts by the end of the week.

Mr Hume-Kendall was insistent that the arrangement should provide for the agreed consideration to be separated from anything going into the buyer’s (Prime RDL’s) own account. He said this in an email of 9 September 2017. Mr Sedgwick understood the importance of this and explained that clause 5.3 of the draft agreement provided that all corporate finance would be paid to an agent appointed by the Sellers. Mr Sedgwick therefore knew that a large part of the money would go from LCF to the Sellers, via the paying agent.

The first Prime SPA was signed on 13 September 2017. As already explained, Prime RDL was to buy the shares in LV Resorts, which held the shares in Costa Property Holdings Limited and Colina Property Holdings Limited, which held the two “assets” in the Dominican Republic. Clause 6.3 of the first Prime SPA required Prime RDL to “fully utilise” facilities available to it from LCF and provided that such borrowings would be paid to a “Security Trustee”, i.e. a company appointed by London Group LLP. (It was not actually a security trustee – it was just a payment agent.) The Security Trustee would then use 50% of the sums remaining after payment of costs up to £100,000 per month and interest to repay the loan notes.

Following the first Prime SPA, Elysian RGL was left holding the shares in Waterside Village Plc and CV Resorts. The email correspondence shows that a decision was then taken in October 2017 that Elysian RGL itself (holding these remaining assets) would be sold to Prime RDL. On 1 November 2017 Mr Sedgwick circulated an agreement to Messrs Ingham and McCarthy, Mr Hume-Kendall and Mr Barker.

The second Prime SPA was signed on 7 November 2017. It provided for the sale of Elysian RGL to Prime RDL in return for £12 million redeemable preference shares in Prime RDL. Clause 6.2 of the second Prime SPA required Prime RDL to redeem at least £1 million of the preference shares per month. Prime RDL was obliged to “fully utilise the financial facilities available to them from London Capital & Finance plc”, with such borrowings to be paid “directly to the Security Trustee” (now defined as “a company to be appointed by the Sellers”), which would use 50% of the sums remaining after payment of running costs and interest to redeem the preference shares.

On 19 November 2017 Mr Sedgwick suggested combining the first Prime SPA and the second Prime SPA into a single agreement. Mr Sedgwick circulated a draft on 20 November 2017 to Mr Hume-Kendall, Mr Barker, Mr Mitchell, Mr Sands and Mr Seakens (a business associate of Mr Mitchell). The combined Prime SPA agreement was signed the next day on 21 November 2017. It cancelled the first Prime SPA and the second Prime SPA, thereby reversing the earlier transfers.

The combined Prime SPA provided for Messrs Ingham and McCarthy and London Group LLP to sell Elysian RGL to Prime RDL for a total consideration of (a) loan notes in the sum of £10.3 million to be issued by Prime RDL to London Group LLP, and (b) redeemable preference shares in Prime RDL in the sum of £12 million, which were to be issued to London Group LLP (£9.5 million) and Messrs Ingham and McCarthy (£2.5 million). Clause 6.4 of the combined Prime SPA obliged Prime RDL to repay £1 million of the loan notes per month and to redeem £1 million of the preference shares per month. Clause 6.5 of the combined Prime SPA obliged Prime RDL to “fully utilise the financial facilities available to them from London Capital & Finance plc” with such borrowings to be paid “directly to the Security Trustee,” which would then use 50% of the sums remaining after payment of running costs and interest in order to repay the loan notes and redeem the preference shares. The “Security Trustee” was defined as GAD, a company under the control of Mr Sedgwick.

The combined Prime SPA completed on 6 December 2017. On the same date, LV Resorts acquired Costa Support, Colina Support, Cape Verde Support and Waterside Support from London Group LLP.

The net effect of the combined Prime SPA was that Prime RDL acquired Waterside Villages Plc, Colina Property Holdings, and Costa Property Holdings and CV Resorts for £22.3 million, which it was going to borrow from LCF. On the same date, Prime RDL acquired four of the support companies. So, the total debt to LCF which transferred to Prime RDL’s group was around £38.2 million.

There is no evidence that there was any commercial negotiation of the terms of the Prime SPA or significant due diligence being conducted by Mr Mitchell or those behind Prime RDL as the purchasing vehicle. The agreement was drafted by Mr Sedgwick, who acted for the London Group and there is no evidence that Prime RDL instructed its own solicitors to advise on the drafting. Nor is there any evidence of Messrs Ingham and McCarthy (who supposedly controlled Elysian RGL) carrying out any valuations or instructing their own lawyers, which would have been expected had the transaction been a genuine commercial one.

In fact, Messrs Ingham and McCarthy were to be paid a fee or commission. This was to be £2 million between them for the first Prime SPA. Mr Sedgwick drafted documents which provided for this to be paid by giving them an interest in the shares of LV Resorts that would result in them being paid £2 million from the sale proceeds. The fee or commission for Messrs Ingham and McCarthy increased to £2.5 million under the combined Prime SPA. I conclude that these fees or commissions were agreed between Messrs Ingham and McCarthy on the one side and Mr Golding on the other. The emails show that Mr Hume-Kendall did not initially know about these. I conclude that Mr Golding was the principal driver of the deal.

There was also an agreement between Mr Hume-Kendall, Mr Barker, Mr Golding and Mr Mitchell that Mr Mitchell would be paid a fee or commission of £1 million for his involvement. The emails show that Mr Mitchell initially envisaged that he would get the same as Messrs Ingham and McCarthy, i.e. £2 million, and Mr Hume-Kendall signed an agreement to this effect. The agreement (dated 12 September 2017) described the fee as payable by London Group LLP to a company Zectrade Limited, which was called “the Introducer”.

Zectrade was Mr Mitchell’s company. Mr Mitchell gave some instructions about the purposes of the fee when a payments company later sought details of the reasons for the payment. The Zectrade fee was later negotiated down to £1 million. This equates to 4.484% of the total consideration of £22.3 million payable under the combined Prime SPA. A contemporaneous spreadsheet which was prepared to calculate the division of the payments under the Prime SPA provides for Terry Mitchell to be paid 4.484% of drawdowns from LCF. I am satisfied, given his economic interest in the transactions and the fact that he had agreed the commissions for Messrs Ingham McCarthy, that Mr Golding agreed the commission arrangements with Mr Mitchell.

Zectrade was incorporated in the UAE. Zectrade issued invoices which were initially paid by Sands Equity (controlled by Mr Hume-Kendall and Mr Golding) and later paid by London Power Consultants Limited (a company controlled by Mr Barker). The invoices refer to an “agreement dated 13 September”. However, there was no provision in any of the Prime SPAs for Zectrade to be paid £1 million. The reference in the invoices must be a reference to a side agreement. These payments were ultimately made to Zectrade.

Given his involvement in all aspects of the transaction I find that Mr Sedgwick knew that Zectrade was Mr Mitchell’s company. In relation to this and the other findings set out in this section of the judgment, I draw an adverse inference from Mr Sedgwick’s decision not to give evidence at the trial.

These payments are a further reason for concluding that the Prime SPA was not a genuine commercial transaction. Zectrade was Mr Mitchell’s company. Mr Mitchell was also the 100% beneficial owner of Prime RDL, the purchaser under the Prime SPA. It makes no commercial sense for the buyer to pay a fee of £1 million for Mr Mitchell (as Zectrade) to have introduced himself (as Prime RDL) to the deal. A “management fee” of £200,000 per month was also payable to Prime RDL in return for its participation in the transaction. I conclude that, in reality, Mr Mitchell was paid these fees to take part in an uncommercial arrangement. I find that the purpose of the Prime SPA was to provide a justification to enable the relevant Defendants to receive more money for the “assets” being transferred under the SPA, ultimately funded by borrowings from LCF. As already explained these assets had very limited if any value.

There is further evidence that the payments to Messrs Ingham and McCarthy and Zectrade were in the nature of fees for their lending their names (or those of their associates) to the transactions. In a spreadsheet created in November 2018 concerning the £22.3 million of capital gains of the sale “of GRP to Elysian” (divided among Mr Thomson, Mr Hume-Kendall, Mr Barker, Mr Golding, and Mr Ingham), Mr Sedgwick listed the payments of £2.5 million to Messrs Ingham and McCarthy and £1 million to Zectrade as allowable costs. This shows that, in reality, the Prime SPA was understood by the relevant Defendants as a way of making gains in respect of the GRP shares; and that the amounts payable to Messrs Ingham and McCarthy and Zectrade were the merely fees incurred in doing this. I find that Messrs Ingham and McCarthy and Zectrade were assisting Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding in a transaction, the purpose of which was to channel money to them.

I am satisfied that Mr Thomson was aware of the terms of the Prime SPAs at the time they were entered into. Mr Thomson therefore knew that under the Prime SPA, the funds paid from LCF would not be paid to Prime RDL, but to a company appointed by the sellers under the Prime SPAs. I also find that Mr Thomson knew that whenever he approved a drawdown, money arrived in his personal bank account. He was, for instance, aware that drawdown requests made by Prime RDL’s subsidiaries would give instructions for the funds to be paid to companies such as London Power Consultants; and that he received payments from London Power Consultants shortly after such payments from LCF were approved.

Prime RDL made drawdown requests from LCF, which then paid the requested sums to GAD, which was re-registered as a private limited company. Mr Sedgwick controlled it.

GAD paid some of this to Sands Equity, which in turn made payments to Mr Thomson, Mr Hume-Kendall, Mr Barker, and Mr Golding.

GAD also paid some of the money from LCF straight back to LCF so that LCF could pay interest liabilities to LCF’s bondholders. Mr Sedgwick as the controller of GAD was aware about this recycling of new bondholder money to enable interest obligations to be paid to existing bondholders. Mr Thomson knew about it too. He knew about the interest obligations and the recycling of funds through GAD. I address this aspect of the arrangements further below.

Mr Thomson said in his witness statement that “[f]rom [Mr Hume-Kendall’s] point of view, as I understood it, Prime took over the responsibility from Elysian for paying his deferred consideration under the Elysian sale and purchase.” Mr Thomson knew that he and the others were receiving consideration under the Elysian SPA in return for the sale of the underlying “assets” held by the subsidiaries of GRP (see above). He therefore understood that Prime RDL had taken over responsibility for paying the sums purportedly due to him under the Elysian SPA.

Mr Thomson was responsible for the drawdowns under the Prime SPA. In his statement, Mr Thomson said that the Prime SPA did not involve any increase in lending. This can only mean that it did not involve an increase in the lending commitment. But, as explained above, there were further drawdowns by Prime RDL after the Prime SPA, and I find that Mr Thomson approved these. I also reject his suggestion in evidence that the other directors were responsible for approving the drawdowns.

As under the Elysian SPA, Mr Thomson approved the drawdowns and provided information to Mr Barker and others about the amounts available in LCF’s bank accounts. I find that he did this to facilitate the extraction of the maximum sum possible. I again reject the evidence of Mr Thomson that he merely wanted to ensure that LCF’s money was being lent to commercial lenders as soon as possible. The real reason he gave this information was that he wanted to maximise the payments to himself and the other relevant Defendants.

As to this, Mr Thomson made sure that LCF was keeping Mr Golding informed of the amounts available for drawing from LCF’s bank accounts. For instance, on 17 November 2017, Mr Ian Sands (who worked for the London Group) made a drawdown request for £100,000. Mr Golding sent a message to Mr Barker saying that there should be £900,000 in LCF of which £500,000 should be available as a share payment. He referred to Mr Hume-Kendall in the same email. A revised drawdown request came from Mr Sands in the sum of £700,000 payable to GAD. On 20 November 2017 GAD paid that amount to Sands Equity with the reference “Share Purchase”. Sands Equity paid £212,000 each to Mr Golding, and Mr Hume-Kendall, and £25,000 each to Mr Thomson, Mr Barker and Mr Ingham. I am satisfied that Mr Golding was aware of how the funds were being used. This also supports the conclusion that Mr Golding had overall control of LCF and its affairs: he was telling other people about the money and procuring the payment out of the maximum possible, including to himself.

I also find that Mr Thomson knew that when he received personal payments derived from the drawdown requests, he understood that the other 95% was being received by the recipients (including Mr Hume-Kendall, Mr Barker and Mr Golding). I reject his evidence that he was unaware of this, for the same reasons given above in relation to the Lakeview SPA and the Elysian SPA.

In late January 2018 payments under the Prime SPA were paused in what was described as a “payment holiday” in view of limited “headroom”. Payments continued to be paid to the relevant Defendants during this period, though not under the Prime SPA (see further below).

Eventually, Mr Thomson did request some letters containing values of the underlying assets. Letters were provided by Prime RDL. For instance, on 8 May 2018 a draft letter was provided from Messrs Mitchell and Rodriguez which referred to “directors’ valuations”. Prime RDL said that Inversiones and Tenedora each had a value of US$50 million, and Waterside had a current value of more than £30 million. This draft was shared with Mr Hume-Kendall. Mr Thomson was also involved in seeing the drafts, as he asked for the draft to include additional land at Magante. This was then included in the draft letter. The final version of the letter (backdated to 8 May 2018) said the additional land at Magante would be worth US$76 million once it had approvals. Waterside was said to be worth £30 million.

I find that this correspondence was produced with the involvement of Mr Thomson and Mr Hume-Kendall to seek to justify the recommencement of substantial drawdowns by Prime RDL. This then took place from 15 May 2018 onwards.

The renewed drawdowns under the Prime SPA resulted in payments from LCF to London Power Consultants Limited which made payments to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding in the total sum of £1.5 million.

The letter from Prime RDL did not enclose any up-to-date valuations (and certainly none addressed to LCF). I find that no honest and reasonable director in the position of Mr Thomson would have become involved in the process of drafting such letters (which were designed to justify drawdowns from LCF) or have accepted the contents of the letter as giving any assurance. In his oral evidence, Mr Thomson was unable to give any explanation for his involvement in the production of this letter. I also find that no honest and reasonable director in the position of Mr Thomson would have relied on the “values” given in the letter to justify further drawdowns. The valuations were fanciful and had no basis in reality.

A total of £9.2 million of LCF’s assets were paid out to the individual Defendants and others under the Prime SPA, of which Mr Thomson received £413,000 and Mr Golding received £2,840,300.

I find that the Prime SPA was not a genuine commercial transaction. It was designed and used by Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding, assisted by Mr Sedgwick, as a means of channelling funds originating from bondholders in LCF to them, purportedly in consideration for the sale of assets which they knew had nothing like the pretended value. I also find that these Defendants knew that the amounts paid out to the four individuals were (by definition) not being invested into an income-generating business with realistic prospects of being able to use their own resources to repay the interest and principal due under loan facilities with LCF as contractually agreed. Instead, they were going into the personal holdings of the individuals themselves.

The fourth transaction was the LPE SPA. This provided that Mr Hume-Kendall and Mr Barker would sell their shares in Intelligent Technology Investments Ltd (“ITI”) and London Artificial Intelligence Ltd (“LAI”) to a company called LPE Enterprises Ltd for £20 million.

At that time, ITI owned 50% of a company called Asset Mapping Ltd (“Asset Mapping”) and 14% of a company called Reserec Ltd (“Reserec”).

As explained below, by the date on which the LPE SPA was executed, Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding had already received £20 million which was drawn against LOG’s facility with LCF, which was then attributed to this agreement.

The first matter to address under this head is the facility agreement between LCF and LOG. LOG’s first drawdown from LCF took place on 21 March 2016. Initially, the payments were made to London Trading, but the drawing was recorded as a liability owed by LOG.

In the period to 17 June 2016 there were drawdowns of about £2.9 million. There was no written facility agreement in place between LCF and LOG. A facility agreement was prepared in the course of April 2016 and was eventually signed on or around 20 June 2016 and backdated to 15 March 2016. Mr Sedgwick was involved in this process. He either backdated the document or knew it was backdated. This is shown by an email of 9 June 2018 to Mr Hume-Kendall and Mr Barker saying that he had printed out the agreement and left it on Mr Hume-Kendall’s desk for signature. I find that the document was backdated to create the false impression that the drawdowns only occurred after the facility agreement was put in place. A debenture was also executed by LOG in favour of LCF on or around 20 June 2016, which provided security over LOG’s interests in IOG.

I find that Mr Thomson authorised the drawdowns before any facility agreement was in place. I reject his suggestion that other directors were responsible for the drawdowns. He had overall responsibility, and the evidence shows him approving drawdown requests. He also signed the facility agreement and knew that it had been backdated.

The terms of the LOG facility (like the other facilities entered into by LCF) provided for LOG’s liability to be “grossed-up”, so that the borrower also became liable for the 25% sum of each bondholder investment which was paid to Surge. Interest was payable on the grossed-up amount. The commitment period was 3 years. The interest rate was 1.75% plus the interest payable by LCF to its bondholders. Interest was payable quarterly. The facility limit was £20 million.

During the second half of 2016 and into 2017 LOG continued to draw down under the facility. LOG lent much of this money on to IOG. The Claimants accept that this was a genuine commercial loan.

By 12 October 2017 LOG was over the £20 million facility limit by more than £2.8 million. At this time, there was some discussion of a new facility agreement for LOG with an increased limit of £40 million, but this proved to be difficult due to a debate about the wording of a so-called “G&T clause” by which LOG’s obligations to pay interest and repay the principal would be suspended if LCF collapsed. By 6 March 2018 LOG owed £38.4 million to LCF. Mr Thomson continued to approve drawdowns by LOG despite having exceeded the facility.

In March 2018, LOG was being audited. BDO was told by 7 March 2018 that there was an agreed facility limit of £50 million. Mr Peacock, who worked in the finance department of the London Group, sent Mr Sedgwick an email on 7 March 2018 saying that he needed a signed LCF-LOG facility document before audit sign off.

I find that Mr Thomson was aware that BDO were seeking evidence of agreement to a £50 million limit. He was copied into some email chains referring to the audit and he explained in evidence that he probably had conversations with Mr Hume-Kendall and Mr Peacock about what LOG needed for its audit.

In March 2018, Mr Thomson, Mr Hume-Kendall, Mr Sedgwick, Mr Peacock, and Mr Lee of Buss Murton liaised to prepare a letter agreement extending the LOG facility to £50 million. It is clear from the documents that this was only created in March 2018. It was signed by Mr Thomson and Mr Hume-Kendall in March 2018, but backdated to 1 December 2017. I find that this was to mislead BDO into believing that LOG had at all times stayed within the facility limit, and that Mr Thomson, who signed the letter, understood this.

Mr Thomson said in his evidence that the letter reflected an earlier oral agreement. At first, he said that such a conversation “could have happened” before this but was unable to explain why the date 1 December 2017 had been chosen for the letter, or why Mr Peacock told BDO on 7 March 2018 that the letter already existed. Later in his evidence, Mr Thomson became firmer and said that there had been an oral agreement in December 2017 to increase the facility to £50 million. This was different from his witness statement, where he said that in August 2017 LCF increased the limit to £50 million in a side letter. No letter from that time has been disclosed. And there are no documents from December 2017 supporting the suggestion that the limit was orally increased. I concluded that Mr Thomson’s evidence on this point was made up because he thought it would help his case. In the end he was not even prepared to accept that the letter agreement (which was created in March 2018 but bore the date 1 December 2017) was a backdated document.

I find that he knew that the letter was backdated to mislead the auditors. He had allowed the lending to LOG to go over the facility limit. The December 2017 date was chosen because that was the date when the existing limit had been breached.

By this stage, the practice of backdating of documents had become endemic and frequent.

As already explained, there was a “payment holiday” under the Prime SPA after 29 January 2018. However, the payments to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding of money deriving from LCF continued. This was paid to them from drawings under LOG’s facility.

From 2 February 2018 onwards money was transferred from LCF to LOG; from LOG to London Group LLP; and from London Group LLP to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding. These transfers all had the payment reference “Pref Share Adv”. Mr Thomson was aware of this designation as it was shown in his own accounts.

As to this, LPC (LOG’s parent company) had issued 25 million redeemable preference shares to London Group LLP (which was beneficially owned by Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding). I am satisfied that the designation “Pref Share Adv” shows that the parties were anticipating treating the payments as relating (in some way) to preference shares in LPC.

I am satisfied that Mr Thomson approved the drawdowns from LCF, and encouraged the drawing down of whatever was available in LCF’s bank account. Mr Thomson also discussed with Mr Golding the sums available in LCF’s accounts. This is evidenced by SMS messages in March 2018 where Mr Thomson was telling him how much was available.

I am also satisfied that Mr Golding gave instructions for the payment of the sums by LCF to the four individuals via LOG. For instance, on 16 March 2018, Mr Golding texted Mr Barker saying, “Morning, should be about £1m available today. From Andy.” There was then a drawdown request from LOG to LCF for £1.1 million signed by Mr Barker. Mr Golding then sent a further text to Mr Barker saying, “Just had the actual available figs £1.87”. LOG then sent a revised drawdown request signed by Mr Barker for £1.8 million. LCF then paid £1.8 million to LOG, which used the money to pay £1.3 million to London Group LLP with the reference “pref share adv”. London Group LLP then paid sums out to the individual Defendants, including Mr Golding and Mr Thomson.

The sums paid to the relevant Defendants were sometimes paid to a different bank account (such as those of one of their companies) at their election. These payments continued into May 2018.

On 29 March 2018 the bank for London Group LLP, Metro Bank, explained in a letter that it was going to cease operating London Group LLP’s bank account from 28 May 2018. After this, drawdowns from LCF by LOG were paid to Mr Barker’s company, London Power Consultants, which in turn made payments to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding.

Mr Thomson then made alternative arrangements for future payments with LCF’s own payment processor, GCEN. On 14 May 2018 Mr Thomson called Luke Tofts of GCEN to ask him to set up a new payment facility. In a follow-up email, Mr Thomson told Mr Tofts that the facility was to make payments on behalf of Prime RDL, and that the authorised signatories would be Mr Thomson, and three employees of LCF. None of the other directors of LCF was authorised to use the facility. Mr Thomson’s statement to Mr Tofts that the facility was for Prime RDL was untrue. Mr Thomson was unable to explain this in evidence.

On 15 June 2018 Luke Tofts informed Mr Thomson that he had set up an email instruction process for payments and that Mr Thomson would be called personally to confirm the payment instructions.

On 16 May 2018 Mr Barker sent Mr Thomson the personal bank account details of Mr Hume-Kendall, Mr Barker and Mr Golding. The next day Mr Barker sent him the percentage shares in which payments should be made to them: 42.5% (Mr Golding), 42.5% (Mr Hume-Kendall), 7.5% (Mr Barker) and 7.5% (Mr Thomson).

The shares of Mr Thomson and Mr Barker had therefore been increased from 5% each to 7.5% each. As already explained, this is inconsistent with Mr Thomson’s claim that there was a buyout agreement in July 2015 giving him a 5% share of disposals. He was unable to explain this in his oral evidence, which was incoherent.

After the GCEN payment facility was set up, the “drawdowns” by LOG continued. Mr Barker submitted drawdown requests on behalf of LOG to LCF. Mr Thomson instructed LCF’s employees to make payments to LCF’s GCEN account, which were treated as a drawdown on LOG’s facility with LCF. Mr Thomson then instructed GCEN to distribute the funds to the personal bank accounts of Mr Thomson, Mr Hume-Kendall, Mr Barker, and Mr Golding in the new ratios of 7.5: 42.5: 7.5: 42.5. The first group of payments to these individuals was made on 22 June 2018.

By 3 July 2018 the payments drawn from LCF by LOG and paid to Mr Thomson, Mr Hume-Kendall, Mr Barker, Mr Golding via London Group LLP, London Power Consultants and GCEN totalled £20 million. These were treated in the books of LCF as drawdowns by LOG.

Mr Thomson informed GCEN that the payments were made on behalf of LPC, one of LCF’s borrowers, and that LPC was purchasing a company owned by Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding, which explained the payments to the personal bank accounts. This was untrue: there was no agreement with LPC. I conclude that Mr Thomson knew it was false. Mr Thomson assured Mr Tofts that he would provide supporting documentation when he was back in the office. He could not have done so because no such documents existed. This was another lie. It typifies Mr Thomson’s casual approach to truth-telling. GCEN nonetheless continued to process the payments to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding.

From his role in directing these payments, Mr Thomson knew of the amounts being received by the other individuals (Mr Hume-Kendall, Mr Barker, and Mr Golding) and the shares of each of them. Indeed the “pref share adv” payments to Mr Hume-Kendall were recorded in a spreadsheet created by Mr Thomson’s assistant and I find that this was done at Mr Thomson’s direction (despite his denial of it in oral evidence).

Mr Thomson accepted that he was aware of the percentages paid to each of Mr Hume-Kendall, Mr Barker and Mr Golding. I find that he knew that there was a direct link between these payments and the drawdowns from LCF by LOG. On one occasion, on receipt of a drawdown request from LOG, he sent a direction to GCEN for payments to be made in the usual ratios even before hearing from Mr Barker. The payments from GCEN were generally made just after the corresponding drawdowns. Mr Thomson also accepted that he knew that the payments from GCEN were paid in agreed ratios.

I have already concluded that he was aware of the shares being received by the other three under the Lakeview SPA, the Elysian SPA and the Prime SPA. That conclusion is supported by the fact that there is no evidence that he was remotely surprised about the amounts being received by the other individuals from May 2018 onwards. On the contrary, his lack of reaction shows that this was just a continuation of earlier distributions: each individual was getting his agreed share. The only change was to the agreed ratios. This episode also supports my rejection of Mr Thomson’s evidence that he was “appalled” to find out in the course of the trial that large proportions of the advances being made by LCF to the corporate borrowers was in fact being paid to the individual Defendants or their companies. He was not appalled in relation to the payments through GCEN. I find that he was not appalled earlier either. On the contrary, he knew in each case how the money was being divided between them.

It is however again significant that Mr Thomson’s evidence was that the other three were “cashing out” far too early and that they should have left the money in the business. He said that had he known at the time that they were cashing out, he would have raised questions about it. He then went on to qualify this by saying that it was up to the borrowing companies to use the money as they chose. But his initial answer was telling. He did in fact know about the amounts of the payments to the others – this is shown by his involvement in the GCEN account. He did not stop this happening or ask any questions or say to the others that they were cashing out too early. He knew that those receipts were not being maintained within the business of LOG but were going to the individuals personally. I find that he was indifferent to this issue: he just wanted to get as much as he could from the advances from LCF.

As already explained, the drawings under the LOG facility were initially justified as concerned with LPC (whether preference shares in LPC or the acquisition of a company by LPC from Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding, as Mr Thomson told GCEN).

I find that a decision was, however, taken to recharacterise the payments retrospectively as having been made for the sale by Mr Hume-Kendall and Mr Barker of certain technology assets (i.e. their interests in Asset Mapping, LAI and Reserec) to a subsidiary of LOG, namely LPE Enterprises. This became the LPE SPA.

On 20 June 2018 Mr Sedgwick circulated a draft share purchase agreement under which the sellers of shares in ITI and LAI were Mr Hume-Kendall and Mr Barker. Initially, the purchaser was to be London Power & Technology Limited (company number 11424900), a newly incorporated company, of which Mr Hume-Kendall was the sole shareholder, and of which Mr Hume-Kendall was a director. The shares to be sold were 90% of the shares in ITI and 80% of those in LAI. The purchase price was £20 million, and the draft agreement stated that £12.9 million of this sum had already been received.

On 3 July 2018, the same day on which the sums paid to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding drawn under LOG’s facility with LCF reached £20 million, Mr Sedgwick circulated a further draft. The purchaser was now LPE Enterprises, and the amount stated as having been already received was £18.7 million. Mr Sedgwick wrote in a covering email that the agreement was “signed by Elten last week.” However, there is nothing in Mr Barker’s disclosure to suggest that he had signed it “last week” and the version attached to Mr Sedgwick’s email was still an unsigned Word version. Had it been signed, the “last week” would have been that commencing 25 June 2018.

On the same day, 3 July 2018, Ms Wiseman of London Group sent a signed copy of the LPE SPA to Mr Thomson. It had a Purchase Price of £20 million. It was between Mr Hume-Kendall and Mr Barker as Sellers and LPE Enterprises as Buyer. The Sale Shares were 90% of ITI and 80% of LAI. As noted above, ITI itself owned 50% of Asset Mapping and 14% of Reserec.

The final version of the agreement reverted to stating that the figure of £12.9 million had already been advanced.

The executed version was backdated to 21 June 2018. I find that this date was chosen because, by then, the payments to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding via GCEN had not yet taken place: the first of these payments was made on 22 June 2018. At that point, payments of £12.9 million had been made (but not through GCEN). I find that Mr Thomson and Mr Sedgwick knew this. Mr Thomson was responsible for liaising with Mr Tofts and needed to be able to produce a document which would justify the payments from 22 June 2018 onwards. In relation to Mr Sedgwick’s knowledge of this fact (and the other findings in this section), as well as relying on the contemporaneous documents, I draw an adverse inference from his failure to give evidence.

Mr Thomson sent the backdated agreement to Luke Tofts of GCEN on 17 July 2018. Mr Tofts had a number of further questions, including requests for further details about the companies involved and whether an independent valuation had been carried out. Mr Thomson replied that “the companies are all of a technological nature based around artificial intelligence” and that he had seen independent valuations of the technology companies and referred to the involvement of Ernst & Young and Mazars but refused to provide further detail on the basis that he was under a Non-Disclosure Agreement (“NDA”) and was in possession of “market sensitive insider information” which he could not share. These were more lies. There was no NDA. There had been no independent valuations by Ernst & Young or Mazars. Mr Thomson was trying to end the questioning by referring to the presence of an NDA and the risk of providing insider information. Mr Thomson was again making things up to get his way. Mr Thomson floundered when challenged about this in cross-examination.

Mr Tofts asked to be provided with whatever information could be shared but Mr Thomson did not provide any further information.

The terms of the LPE SPA involved a sale by Mr Hume-Kendall and Mr Barker to LPE Enterprises. That company was owned by TW Private LLP, whose members were Mr Hume-Kendall and Mr Barker. As the share proceeds were shared by the two of them with Mr Golding and Mr Thomson, I conclude that the businesses which were the subject of the sale were beneficially owned by the four individuals in agreed ratios before and after the sale. The LPE SPA was a means for receiving cash consideration (ultimately derived from bondholder investments in LCF) for the assets being sold.

There is a document which purports to show a sale of the shares by LPE Enterprises Limited to London Power & Technology (2018) Limited (“LPT”) for £1, which bears the date 27 July 2018 on its face. I make no findings about the genuineness of this document, which has not been relied on by the Defendants as justifying the payments.

Payment for the assets under the LPE SPA was funded by sums drawn by LOG under its facility with LCF. The Claimants contended that the use of funds in this manner was never properly authorised by the board of LOG. In this regard, there is a board minute dated 14 June 2018, which appears to show approval by LOG’s board of bringing the technology companies into the LPC group. However, this document was not the original version of the board minute (which was dated 16 June 2018) but was edited on 27 June 2018 to refer to a price of £20 million. I find that what was decided at the meeting of 14 June 2018 was that the prospect of acquiring the AI business in the future would be investigated, but no decision was made.

Further, the cost to LOG of providing these funds was £27 million rather than £20 million, in view of the grossing-up of funds borrowed by LOG from LCF. I find that the acquisition for £20 million was never authorised at a properly informed meeting of LOG. Moreover, LPE Enterprises was owned by TW Private LLP (rather than LOG) from 22 June 2018.

In this context, after LCF’s collapse, Mr David Elliott (the company secretary of LOG) prepared a note in which he recorded that neither the accounts team nor LOG’s in-house solicitor, Ms Marshall, were aware at the time of the payments made pursuant to the LPE SPA.

In January 2019 Mr Sedgwick prepared a loan agreement between LOG and LPE Enterprises and a call option agreement which entitled LOG to buy the shares in LPE Enterprises for £1. These documents were signed by Mr Hume-Kendall and Mr Barker and backdated to 21 June 2018. I find that this was done to mislead the board into believing that these documents had been in place at the relevant time.

A meeting of LOG’s board was scheduled for 12 February 2019 to discuss the “existing undocumented and unapproved loans by LOG”. Mr Elliott stated at the meeting that LOG’s board had not authorised the use of LOG’s sums in this way: “The board could not have ratified the loans as they did not know the money had been borrowed”. During the meeting, Mr Hume-Kendall called Mr Sedgwick on a speaker phone. Mr Sedgwick told the meeting that there was a loan facility agreement dated June 2018 and a call option agreement entitling LOG to buy the shares in LPE Enterprises for £1. This prompted Mr Elliott to say that he was resigning as company secretary: “I need a solid base from which to operate, and I feel like I am on shifting sand. I do not agree that those documents were produced by RS back in June and I believe that RS produced the Loan Agreements recently”. Mr Hume-Kendall then said, “I think that’s unfair about RS, why would he back date them?”. I find that the documents were only created in January 2019 and that Mr Hume-Kendall knew that Mr Elliott’s comment about Mr Sedgwick was true and fair. In reaching these findings and others in this section I have considered the documents but have also drawn an adverse inference against Mr Sedgwick from his decision not to give evidence. These documents again show that Mr Sedgwick’s backdating of documents was endemic. It was done to try to mislead the board of LOG into believing that the payments drawn down by LOG had always been for its benefit.

Returning to the LPE SPA itself, as already explained the price under the LPE SPA was £20 million. This was for 90% of the shares in ITI (which owned 50% of Asset Mapping and 14% of Reserec) and 80% of the shares in LAI. The Claimants contend that this price was fanciful as the assets were not worth anything like this much. I shall address the assets in turn.

Asset Mapping was a small company. Its business was the development of technology to map commercial digital assets. It was loss-making. Its accounts for the year ended 30 June 2015 showed a loss of £45,215 for the financial year on a turnover of £25,000 and net assets of £12,605 at the year end. The accounts for the year ended 30 June 2016 showed a loss of £98,880 for the financial year on a turnover of £327,679 and a deficiency of £86,187 at the year end.

In a valuation dated 3 February 2017, Mr John Stuckey FCA of Stuckeys Business Advisors, carried out for the directors of the company, assessed the value of Asset Mapping at £450,000 “based on the hope of future sales and the hard work put into the source code to make it a viable product.”

From March 2017 onwards, Mr Hume-Kendall, Mr Barker, Mr Golding and Mr Ingham were involved in acquiring the shares in Asset Mapping through ITI for a total price of £450,000, less loans from ITI (ultimately funded by LCF) to keep Asset Mapping trading. The net price was £177,000. Mr Sedgwick assisted in the legal aspects of the acquisition, including drafting the SPA. I find that he was aware of the valuation of £450,000, given his involvement in preparing heads of terms for the acquisition.

Under a declaration of trust dated 1 June 2017 (witnessed by Mr Sedgwick), the shares in ITI were held by Mr Ingham on trust for Mr Golding (40%), Mr Hume-Kendall (40%), Mr Barker (10%) and himself (10%).

ITI acquired the shares in Asset Mapping by a share purchase agreement dated 23 June 2017 but initially only acquired 38% of those shares beneficially, with the remainder held on trust for Asset Mapping’s founder, Mr Bill Clee. Mr Golding was involved with the acquisition of Asset Mapping. He knew of the revised heads of terms for the acquisition for £450,000 less the loans already made by ITI. He was aware from emails that the net price was £177,000. He was also aware (from emails) about the completion of the transaction. The SPA for the acquisition was signed at a meeting between Mr Clee and Mr Golding on 19 May 2017.

There were later renegotiations and, in the light of Asset Mapping’s continuing financial difficulties and ITI’s agreement to continue funding of the business, in July 2018 ITI became beneficial owner of 50% of the shares in Asset Mapping. Mr Sedgwick again assisted in the production of the revised agreements with Mr Clee. Mr Golding was aware of them. I find that Mr Sedgwick and Mr Golding knew that Asset Mapping was struggling financially and required continuing funding by ITI; this was why Mr Clee agreed to release 12% of the shares.

Asset Mapping continued to trade at a loss and was only able to continue trading as the result of loans to it from ITI (funded by LCF). A later balance sheet produced for Asset Mapping as at 31 January 2019 showed its deficiency of assets was over £2.1 million. This balance sheet showed loans from ITI of over £2.95 million. When its shares were valued by Mazars (a firm of accountants) as at 28 February 2019, they concluded that the shares in Asset Mapping had an equity value of nil. The assets of Asset Mapping (not the shares in the company) were considered by a proposed administrator to have a value of around £350,000 and they were realised for £175,649 after it went into liquidation.

There was a form of valuation of Asset Mapping dated 30 May 2018 produced by Mr Clive Adkins of Kilby Fox. This was prepared on the instructions of the shareholders of ITI. Mr Adkins was instructed to conduct a valuation based on a “business plan”, the numbers and forecasts in which had been significantly increased at the request of Mr Hume-Kendall, Mr Barker and Mr Golding (see e.g. email of 6 July 2018); he used a very high multiplier of turnover between 16 and 70 times; and he explained that he was not auditing the figures or expressing an opinion with regard to their accuracy or achievability, and that he was unable to provide a current valuation as he had no details for the revenues for the year ended 31 March 2018. The outcome of the calculation was a value of Asset Mapping of £91.28 million for the year ended 31 March 2019, rising to over £2.15 billion for the year ended 31 March 2023. Mr Golding was involved in procuring the report by Mr Adkins. He participated in the preparation of the “business plan” and requested that the numbers be increased (email of 6 July 2018).

The forecast revenue, the basis of which Mr Adkins was instructed to carry out the calculation, showed an enormous rate of growth from the existing revenues, up to £4.6 million for the year ended 31 March 2019 to £107 million for the year ended 31 March 2023. I find that nobody could rationally have placed any reliance on this report, which was essentially an exercise in calculation, based on extremely optimistic projections and assumptions. Mr Adkins expressly disavowed any opinion on the reasonableness of the projections. It was not a valuation in any conventional sense.

I find that the shares in Asset Mapping in fact had no significant value at the time of the LPE SPA.

Turning to LAI and Reserec, LAI was incorporated on 30 June 2017. The shares in LAI were held by GST on trust for Mr Hume-Kendall and Mr Barker. Mr Sedgwick said in an email to Mr Hume-Kendall and Mr Barker on 1 August 2017 that GST would hold the shares on trust for them and that they would transfer the shares to the appropriate shareholders once they had decided who the shareholders should be. At this date, LAI did not trade and had no assets.

LAI invested in the development by Mr Jagadeesh Gorla, a computer programmer, of artificial intelligence software for commodities trading. LAI entered into a consultancy agreement in October 2017 with Mr Gorla and his company, Reserec, under which Reserec would be paid a fee of £11,000 per month for developing the software for LAI. Mr Sedgwick drafted the agreement and knew of its terms.

As explained above, there were payments of £20 million to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding between 2 February 2018 and 3 July 2018. Mr Golding and Mr Hume-Kendall each received £8.5 million from LCF via LOG; Mr Barker and Mr Thomson each received £1.5 million.

As at the start of this period, February 2018, LAI had paid some of the monthly invoices to Reserec under the consultancy agreement. By the end of the period, the work conducted by Mr Gorla had resulted in a study on the possible applications of artificial intelligence in commodity trading. When trialled, this had resulted in a loss.

No professional valuations of the business of LAI were conducted before the start of LOG’s administration in 2019. The administrators then instructed valuers, Hilco, who valued LAI at between £5,000 and £20,000 as at 24 April 2019. I find that LAI had no significant value as at the date of the LPE SPA.

ITI also separately entered an arrangement with Reserec and Mr Gorla dated 21 March 2018. ITI agreed to acquire up to 20% of the shares in Reserec for £1.5 million, to be paid in a number of tranches over 12 months. The acquisition was to be staged; ITI would acquire a percentage of the shares upon paying each instalment. As at 2 February 2018, ITI did not own any shares in Reserec. As at 3 July 2018, ITI owned 10.7% of Reserec Limited, for which it had paid £721,000. There is no reason to suppose that this shareholding was worth more than the amount paid for it by that date.

In summary, the assets transferred under the LPE SPA had a value well short of the £20 million price in that agreement. Asset Mapping and LAI had no significant value. The shareholding in ITI was worth no more than £720,000. I find that the LPE SPA was not a genuine commercial contract. There was no change in the beneficial ownership of the assets purportedly sold under it. There was no professional valuation of the assets. There was no negotiation of the price. The agreement was created after the event and backdated to justify payments that had already been made. A large part of the payments were initially justified by being characterised as payments for preference shares.

The LPE SPA was not a genuine arm’s length commercial transaction but was an artificial device designed to justify payments of sums deriving from LCF to the four individuals. I also find that Mr Thomson, Mr Golding and Mr Sedgwick were all aware of these facts.

This sub-heading refers to the LPT SPA for convenience, but this section also covers several other events: the position under the facility with LOG; the payments made before the LPT SPA; and the LPT SPA itself.

By the LPT SPA, LPT agreed to purchase the preference shares in LPC from Mr Hume-Kendall and Mr Barker, which they had themselves acquired them from London Group LLP. There were 25 million such preference shares, with a nominal value of £0.01 each. The price was £32,225,096. In the event £16.7 million was paid to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding by LCF under the LPT SPA. These sums were funded by drawings against LOG’s facility with LCF.

On 23 July 2018 Mr Thomson authorised payments totalling £4.5 million to be made from funds deriving from LCF via GCEN to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding. The payments were made on 23 July 2018. The payments were divided (Mr Golding: 42.5%, Mr Hume-Kendall: 42.5%, Mr Thomson: 7.5% and Mr Barker: 7.5%). At the time of these payments, there was no contractual or other justification for them. They were simply sums drawn from LCF and paid to the individuals. No honest and reasonable director in Mr Thomson’s position would have allowed this.

These payments were subsequently justified by arrangements concerning the sale of the LPC preference shares. The transaction had two steps. The first was that the 25 million preference shares were distributed in specie by London Group LLP to Mr Hume-Kendall and Mr Barker (the two members of London Group LLP). This was approved by Mr Hume-Kendall at a meeting of London Group LLP on 19 July 2018. The second step was for a new company to be incorporated, which would purchase the preference shares in LPC from Mr Hume-Kendall and Mr Barker. On 20 July 2018 LPT was incorporated for this purpose. Mr Hume-Kendall was the sole director and registered shareholder of LPT. On about 27 July 2018 Mr Hume-Kendall signed an LPT board resolution for the purchase by LPT of the preference shares of LPC for a price of £32,225,096 payable in instalments.

Also on or about 27 July 2018 Mr Hume-Kendall and Mr Barker signed the LPT SPA as sellers; and Mr Hume-Kendall signed the LPT SPA on behalf of LPT. The LPT SPA provided for LPT to purchase the 25 million redeemable preference shares in LPC, of 1p each, from Mr Hume-Kendall and Mr Barker for a purchase price of £32,225,096.

The agreement came after the payments of 4 July 2018 made via GCEN on 23 July 2018, which were ostensibly made under it.

Once the LPT SPA was executed, Mr Thomson approved further payments from LCF via GCEN to the personal bank accounts of Mr Thomson, Mr Hume-Kendall, Mr Barker, and Mr Golding. The process was that LOG would submit a drawdown request to LCF signed by Mr Barker and Mr Barker would subsequently email Mr Thomson with details of how the funds should be divided among Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding. Mr Thomson would then instruct GCEN to make payments in those amounts. Each payment had the reference “Pref Share Advance”.

Mr Thomson again provided information to Mr Barker as to the maximum amount available in LCF’s bank account to be “drawn” for the purpose of these payments.

The payments continued until a final set of payments was made on 26 November 2018, by when £16.7 million had been paid to Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding under the auspices of the LPT SPA.

The payments under the LPT SPA were funded by drawing on LOG’s facility with LCF.

LOG was in breach of its facility limit. By 15 June 2018 LOG owed £76.7 million to LCF. LOG’s facility limit was £50 million (under the backdated letter agreement dated 1 December 2017 described earlier).

By September 2018 LOG owed LCF £104.9 million against a facility limit of £50 million.

Mr Thomson authorised payments from LCF to LOG that he knew were paid to Mr Golding, Mr Hume-Kendall, Mr Barker and Mr Thomson in the ratios 42.5: 42.5: 7.5: 7.5, notwithstanding that LOG had exceeded its credit limit. I find that these ratios reflect the beneficial ownership of London Group LLP at this stage.

Mr Thomson knew the terms of the LPT SPA. Mr Sedgwick sent the document to Mr Thomson, Mr Hume-Kendall and Mr Barker on 6 August 2018. He personally received 7.5% of the payments made under it, amounting to over £1.2 million.

I also infer that Mr Golding knew about it. He received 42.5% of the proceeds of the agreement, amounting to more than £7 million. Mr Sedgwick had been Mr Golding’s solicitor for many years and had drafted the agreement. Mr Barker, who functioned as Mr Golding’s proxy, knew of its terms and signed it. Mr Hume-Kendall, Mr Golding’s close business associate knew of it. He signed it. I am also satisfied that Mr Golding knew that LCF was the ultimate source of the payments.

Mr Thomson said in his oral evidence that his entitlement to the payments under the LPT SPA arose under the July 2015 buy-out agreement. I find that this evidence was dishonest. I have already explained that there were no such agreements. Mr Thomson was also unable to explain why he was getting 7.5% of the proceeds, since the alleged buy-out agreement was 5%. I also find that Mr Thomson knew that the remaining 92.5% was going to the other three individuals (or their companies) under the LPT SPA. Again, he showed no surprise. He was certainly not “appalled” (see the earlier discussion of this point). That is because he understood that the consideration under the LPT SPA, as with the earlier transactions, was being paid to them in agreed ratios. He therefore knew that the £16.7 million paid under the LPT SPA (funded by LCF’s lending to LOG) was not being ploughed into any revenue-generating business of LOG, but was being “cashed out” (to use his expression).

As explained above, the lending to LOG was well above the facility limit. A new facility agreement was discussed and prepared in the course of September and October 2018, to increase the facility limit to £120 million. Mr Thomson participated in the negotiations, assisted by Mr Lee. There were various drafts of the agreement, dated September 2018 in typescript. The revised agreement was signed by Mr Thomson, Mr Hume-Kendall, and Mr Barker between 15 October 2018 and 2 November 2018 but backdated to 4 December 2017 in order to make it seem that LOG had never exceeded the facility limit. I find that the backdating was carried out deliberately to mislead BDO, LOG’s auditors. Mr Thomson wrote a letter to BDO dated 19 November 2018 which stated that as of 30 September 2018 the facility limit was £120 million. That was false, as he knew. The facility was not signed by that date.

In his witness statement Mr Thomson stated that the second facility agreement was a more robust document which was designed to replace the side letter and that nobody was misled. He said that it was dated with the same date as the side letter. He was wrong about the date. The side letter for £50 million (itself backdated) bore the date 1 December 2017. The backdated facility agreement, prepared and executed in October or November 2018, was dated 4 December 2017. Moreover, the facility was not just a more robust replacement of the side letter: it changed the terms of the lending and included an increase in the facility limit from £50 million to £120 million.

Mr Thomson accepted in his oral evidence that the commitment limit of £120 million had not in fact been agreed in December 2017. He also accepted that he must have signed the second LOG facility between 15 October 2018 and 2 November 2018, and that it was in different terms to the side letter with a limit of £50 million. Mr Thomson refused under cross-examination to accept that the second LOG facility was not a truthful document because it had been backdated to 4 December 2017. He said LOG’s borrowing requirements “had evolved” and “considerably moved on”, that the facility was merely “a working document”, and that the new facility was “not a new limit”. I reject this. Mr Thomson could not explain why, if things had moved on, the new agreement was not dated October or November 2018. Nor could he explain why, if there had been an agreement on 1 December 2017 to increase the facility limit to £50 million, this was followed almost immediately by an agreement on 4 December 2017 to increase the limit to £120 million. I find that Mr Thomson knew that the documents were untruthful and designed to mislead BDO. His evidence was dishonest.

It appears that the other board members of LOG were only shown drafts, which showed the date September 2018 in typescript. There was indeed a signed copy dated 18 October 2018 signed by Mr Hume-Kendall and Mr Thomson. This had a commitment of £150 million. It appears from a minute of a meeting of the board of LOG held on 12 February 2019 that this was in the records of LOG and that the board believed this to be the relevant facility agreement. Mr Hume-Kendall did not correct the board about this, including at the meeting on 12 February 2019 when the board was considering the historical sequence of agreements.

The LPT SPA did not change the beneficial ownership of the preference shares in LPC. After they had been distributed in specie by London Group LLP to Mr Hume-Kendall and Mr Barker, the shares were sold by Mr Hume-Kendall and Mr Barker to LPT. The shares in LPT were registered in the name of Mr Hume-Kendall. But by a trust deed executed on 30 November 2018, Mr Hume-Kendall declared that he held the shares in LPT on trust for London Group LLP, whose members were Mr Hume-Kendall and Mr Barker. I am satisfied that London Group LLP itself was owned beneficially by Mr Hume-Kendall, Mr Barker, Mr Golding and Mr Thomson: this is shown by the fact that the proceeds under the various SPAs were distributed to those individuals.

The LPT SPA was in essence therefore a way of extracting a cash consideration of £32 million for shares which stayed with the same group of beneficial owners. Had the intention been for the shares to be placed in a new corporate vehicle, that could have been done without the sale element. And if there was a genuine expectation that the shares would be redeemed, the proceeds would have been paid for the redemption.

Under the terms of the LPT SPA, the price was £32,225,096. The LPT SPA explained (at clause 3.1) that the price, which was based on a draft balance sheet for LPC as of 31 May 2018, was subject to variation in the event that there was a change in its audited accounts, and was intended to be based on 30% of the net asset value of LPC.

The price was calculated as follows:

I am satisfied that there were several basic and self-evident flaws in this approach to the calculation of the value of the shares:

I therefore find that LOG’s liabilities actually significantly exceeded its assets as of 31 July 2018. The value of LPC’s shares in LOG was therefore nil. I also find that at the time that the LPT SPA was prepared and executed, this would have been known to Mr Hume-Kendall, Mr Barker and Mr Golding.

Some of the Defendants relied at the trial on an “offer” addressed to Mr Golding to acquire the preference shares in LPC in the sum of £70 million in October 2017. The offer was set out in a letter dated 25 September 2017 from a company called Blueprint Capital. The person responsible for the offer was Mr Clint Redman who, at the time, worked for London Group LLP and was involved in plans by Mr Thomson, Mr Hume-Kendall and Mr Golding (among others) to issue an “oil bond”. Mr Redman had also had many other dealings with Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Golding over the years. The proposal in the “offer” letter was a mechanism for paying the proceeds of a proposed “oil bond” to Mr Golding. On the same date as this “offer”, an invoice was issued by Blueprint Limited to London Group LLP in the sum £250,000, which was payable to Mr Redman’s bank account. The invoice purported to be in relation to the Paradise Beach project, which by that time had terminated. There was no evidence explaining what this invoice was in respect of.

On its face, the Blueprint Limited “offer” appears to have been a mechanism to pay £70 million of the proceeds of the proposed oil bond to Mr Golding. I heard no evidence from any witness explaining the circumstances of this offer. No weight at all can be placed on it.

For the detailed reasons set out above, I find that (to the knowledge of Mr Thomson, Mr Hume-Kendall, Mr Barker, Mr Golding and Mr Sedgwick) the LPT SPA was not a genuine arm’s length commercial transaction but was an artificial device designed to justify payments from funds deriving from LCF to the four individuals. The sale left the beneficial owners the same; its purpose was to enable the extraction of cash consideration by the four individuals. At the time of the transaction the LPC preference shares had no value and the calculation underlying the price was irrational and obviously inflated.

The sums paid under the LPT SPA all derived from loans from LCF to LOG.

Mr Thomson said repeatedly in his oral evidence that he accepted the assurances of LOG’s board that LOG had provided adequate security for the borrowing from LCF. However, he did not explain any steps he had taken to confirm that LOG’s security was adequate. He did not require the provision of independent valuations of the only assets owned by LOG, namely its interests in IOG and Atlantic Petroleum. He knew that large amounts of the drawdowns by LOG were applied in making payments to himself and the other three individuals, such that these sums were not being maintained and employed by LOG in income-generating activities. He did not require the provision of business plans or other documents from LOG to explain how LOG was going to be able to meet its obligations to pay interest and principal to LCF. He also knew that LOG (like the other borrowers) had agreed to add the 25% payable from gross receipts by LCF to Surge to the drawdowns.

In his closing submissions, Mr Sedgwick relied on an email he sent to Mr Lee, Mr Thomson and Mr Barker on 19 July 2018. In the email Mr Sedgwick said that Mr Hume-Kendall and Mr Thomson had discussed the repayment of the amounts outstanding from CV Resorts and Atlantic Support. The proposal made by Mr Hume-Kendall was that London Group LLP would make available (for payment of the two liabilities) the sum of £1 million per month out of the redemption of the redeemable preference shares in LPC and that payments to LCF would commence shortly. In addition, any sums received from Cape Verde or Atlantic Petroleum would be paid as they were received. Mr Sedgwick also referred to a draft term sheet relating to the payments from CV Resorts and Atlantic Support to LCF. Mr Sedgwick submitted that these documents demonstrated an intention to repay the amounts borrowed from LCF and that this undermined the Claimants’ arguments that LCF was trading fraudulently or was a Ponzi scheme.

Mr Sedgwick introduced these documents in closing. He did not give evidence and therefore the significance and context of the documents could not be explored with him in court. In response, the Claimants pointed out that the email of 19 July 2018 was sent three days after the commencement of the audit process for the April 2017 accounts. The Claimants said that the proposal was produced as evidence to satisfy the auditors of the recoverability of the loans to CV Resorts and Atlantic Support. The Claimants said that nothing in fact then happened; no documents were put in place; and no such payments were ever made from the proceeds of the redemption of the LPC shares. I draw an adverse inference from Mr Sedgwick’s decision not to give evidence. I conclude that I am unable to place any weight on the email of 19 July 2018 or the draft term sheet. I find from the fact that no such payments were ever in fact made that there was no serious intention to put these arrangements in place.

Mr Sedgwick also referred in closing to an email exchange with Mr Lee on 21 November 2018. This concerned the term sheet for the loans from CV Resorts and Atlantic Support. Mr Lee said that this had to do with the sums received from the sale to Prime RDL but said that it would require the actual recipient to sign the agreement as CV Resorts was not the recipient under the Prime SPA. He asked Mr Sedgwick to give it some thought. Mr Sedgwick gave an inconclusive reply. It does not appear that anything more happened. Again, Mr Sedgwick declined to give evidence about this. I am unable to give the exchange any real weight.

Earlier parts of this section have addressed the payments made to the relevant Defendants under the impugned SPAs.

These Defendants also received other amounts ultimately deriving from LCF.

I start with Mr Golding. On some occasions, LCF paid sums to Mr Golding directly. For example, on 27 April 2016, Mr Barker provided Katie Maddock of LCF with an invoice from Mr Golding headed “SG Golding Consulting” in the sum of £32,700 for “professional services”. On 29 April 2016 LCF paid £32,700 to Mr Golding with the reference “SG CONSULTANT”. LCF’s accountants queried this payment. Mr Thomson told them that it was for “financial services consultancy relating to all bonds”.

LCF made a further payment to Mr Golding in the sum of £10,000 with the reference “SG CONSULTANT” on 25 July 2016.

On both of those occasions, LCF made matching payments to Mr Thomson. They both received the same amounts on the same days. There was no agreement under which Mr Golding or Mr Thomson were entitled to such fees.

On another occasion, Mr Thomson, Mr Barker and Mr Golding were paid £30,000 each via London Capital Marketing Limited (“LCM”). I find that this company was controlled by Mr Thomson, who was the sole director and shareholder. On 7 April 2017 LCF paid £90,000 to LCM. Mr Thomson emailed Mr Barker to say that invoices should be addressed to LCM. Mr Barker then emailed Mr Thomson attaching two invoices for “fundraising consultancy” and “professional services”. LCM then paid £30,000 to Mr Thomson, £30,000 to Mr Barker and £30,000 to Mr Golding.

On other occasions, Mr Golding received payments of money originating from LCF via LOG. On 12 June 2017, for instance, LCF paid £601,750 to LOG, and on 13 June 2017 LOG paid £200,000 to Mr Golding and £25,000 to Mr Barker (each with the reference LOG SHARE PAYMENTS). There does not seem to have been any attempt to explain or justify these payments, even by the use of misleading invoices.

LOG also made substantial monthly payments to Mr Golding, often accompanied by payments to Mr Hume-Kendall’s company, LV Management, and Mr Barker’s company, Wealden Consultants Limited (“Wealden Consultants”) (later known as London Power Consultants). For example:

Mr Golding also received payments of money from LCF via London Group LLP. As already explained, LCF routinely paid money to Sands Equity. During that period, Sands Equity made substantial payments to London Group LLP, which in turn paid some of the sums to Mr Golding. London Group LLP often made payments to Mr Hume-Kendall and Mr Barker at the same time. For example:

None of the payments by LCF which found their way to Mr Golding in these ways were justified. I find that Mr Thomson authorised the various payments from LCF to Mr Golding (where they were direct) or the intermediate recipient (where indirect). I have already found that Mr Golding had influence or control over LCF, and I find that Mr Golding authorised or directed the making of these payments.

Mr Golding also received substantial payments from Surge of funds ultimately originating from LCF. Mr Thomson was aware of these payments. This is explained at paragraphs [1109] to [1120], and [1323] to [1350] below.

Turning to Mr Thomson, as just explained, he received payments from LCF and LCM to match those paid to Mr Golding.

Mr Thomson was also paid £10,000 on 4 September 2015, £10,000 on 19 November 2015, £9,733.19 on 4 February 2016, £20,000 on 1 March 2016, £20,000 on 4 April 2016, £52,700 on 29 April 2016, £20,000 on 1 June 2016 and £20,000 on 1 July 2016. Mr Thomson told LCF’s accountants, Oliver Clive, that these sums had been paid to a marketing company called Media GPS Limited (“Media GPS”), which he said had provided marketing and PR services. Mr Thomson provided invoices in the name of Media GPS to support this assertion:

“As discussed please find attached the invoices from Media GPS that cover the marketing and PR work for our bonds. The work this company has done to date cover all our bonds and we will be using them for the same work on our next series of bonds”.

This was dishonest. I find that Media GPS was Mr Thomson’s own company (though he said in his witness statement that it was his father’s). Unfortunately for Mr Thomson, Mr Davidson of Oliver Clive & Co spotted this. He replied, tactfully, “Sorry canyt [sic] use these as you have submitted dormat [sic] accounts for media gps. Must have been a mistake”. The payments were instead classified by Oliver Clive as drawings on Mr Thomson’s director’s loan account and repaid by him to LCF using money from L&TD (which in turn had received sums originating from LCF). The episode shows Mr Thomson’s propensity to take sums from LCF without any proper basis, and then lie about the purpose of the payments.

In his oral evidence, Mr Thomson said that these payments were monthly drawings that were booked as a director’s loan. Mr Thomson said that he created Media GPS with his father and did not deny that he controlled Media GPS (though in his witness statement he said it was his father’s company). Moreover, it was his own evidence that it was he who reversed the payments, which shows that he must have controlled Media GPS.

Mr Thomson went on to suggest that these payments, which totalled £162,433.19, had been paid for his father to do “proof-reading and other work for the company”. This was incredible. LCF’s materials were professionally produced and were reviewed by a number of people. If he was involved at all, Mr Thomson’s father could not conceivably have done that much proof-reading. Moreover, Mr Thomson could not explain in oral evidence why he had reversed the payments if they had genuinely been made for services rendered: he just said that he reversed it “for whatever reason”. I conclude that this evidence about this episode was dishonest.

When asked about this episode Mr Thomson also said, tellingly, that LCF was his company and that if he wanted to take out money, he could have done so very easily by making payments to Media GPS.

LCF made further payments to Media GPS, which in turn made payments to Mr Thomson:

Mr Thomson said in his witness statement that some of these payments constituted his Christmas bonus from LCF. (He also said, inconsistently, that Media GPS was his father’s company – I have already rejected this evidence). He said in his statement that the level of his Christmas bonus was delegated by him not to one of the other members of LCF’s board but to Ms Maddock, who was not a director. He said that Ms Maddock apparently decided that Mr Thomson should be paid £100,000 in 2016 and £175,000 in 2017. He said that he had been happy with his remuneration but that she had pressed him to take a bonus and he then said to her “if you want to pay me a bonus that is up to you” and left it to her. I cannot accept this evidence. There is no credible reason why Ms Maddock (an employee) would have delegated power to do this, rather than the board; or why Mr Thomson would just have accepted whatever she said. He was the CEO and could decide.

Moreover, Mr Thomson admitted in evidence that, rather than being shown as remuneration, these bonuses were recorded in LCF’s accounts as an expense of LCF. That undermines his evidence that everyone knew that the payments were a bonus; it is clear that the company’s accountants did not.

Whatever the mechanism by which these payments were decided and made, there was no proper justification for them, and they were not authorised by LCF’s board. They simply represented an unauthorised extraction of money by Mr Thomson.

Mr Thomson also received large sums (through Media GPS) from Surge, paid with funds ultimately deriving from LCF (see [1109] to [1113] below).

None of these payments was justified. Mr Thomson was taking money from LCF, at the expense of LCF’s bondholders.

Mr Golding also received very substantial personal loans from LCF, which were later waived when the liability was assumed by a company controlled by Mr Golding.

LCF began making advances to Mr Golding on 27 November 2015. They were paid into a bank account operated and controlled by Mr Golding called Home Farm Equestrian Centre. This was a trading name of a business carried on by Mr Golding as a sole trader.

By 29 January 2016 LCF had advanced a total of £200,000 to Mr Golding. By that date, there was no signed facility agreement. There is no evidence of Mr Thomson conducting any due diligence on the financial ability of Mr Golding to repay the liabilities which he was assuming to LCF, such as by reference to Mr Golding’s financial affairs. I find that LCF carried out no such due diligence.

On 8 April 2016 Mr Lee sent a draft loan agreement to Mr Thomson, attached to an email entitled, “Loan to Spencer Golding”. But it was not signed at this time. Nor was there any security at this stage. LCF nonetheless continued to make substantial payments to Mr Golding. It paid him £100,000 on 22 April 2016 and a further £250,000 on 19 May 2016. Mr Lee sent further drafts of the facility agreement to Mr Thomson on 26 May 2016 (with a limit of £2 million). It was still not signed.

A further draft was sent to Mr Thomson on 21 June 2016 but was not signed.

By this point, Mr Golding owed £738,225 to LCF on a grossed-up basis.

Despite the absence of a facility agreement or security, LCF continued to make payments to Mr Golding, including another £100,575 on 29 June 2019, bringing his total debt (gross) to £906,812, and £25,000 in cash on 15 July 2016.

LCF paid a further £201,150 to Mr Golding on 1 September 2016, bringing Mr Golding’s total debt (gross) to £1.88 million. Nothing had been signed and there was no security.

On 22 September 2016 Mr Thomson emailed Mr Lee asking, “Can you give me an update on the loan doc for Spencer”. On 3 October 2016 Mr Lee sent a further draft facility, with a limit of £2 million.

The agreement was eventually signed by Mr Thomson and Mr Golding but was falsely backdated to 20 November 2015 to make it seem as though it had been signed before the first advances to Mr Golding. The year 2015 appeared in typescript on the front pages. I find that Mr Thomson and Mr Golding knew it was backdated deliberately to give the appearance that there was a facility in place before the first advances.

LCF continued to make advances to Mr Golding, including £1,400,779.50 on 21 July 2017 and £397,300 on 11 August 2017.

Steps were then taken to novate the debt payable by Mr Golding. A company called River Lodge Equestrian Centre UK Limited (“River Lodge UK”) was incorporated on 11 January 2017. The sole director of River Lodge UK was Mr Rafael Ariza-Sanctuary, who held 50% of the shares on trust for Mr Golding. Mr Sedgwick was instrumental in generating this paperwork (including the trust deed).

Mr Lee then prepared a new facility agreement between LCF and River Lodge UK and emailed Mr Thomson about it from 3 May 2017 onwards. There were various versions with different limits. In one the commitment limit was £5 million, of which £1.8 million was treated as having already been drawn down. In a later draft the facility limit was to be £10 million. Mr Golding’s liability to LCF (by this time, in the total sum of £6,228,262.64) was expressly treated as having been drawn down under this new facility agreement. In his email of 3 May 2017, attaching the first draft, Mr Lee said he had been coy about the costs of fundraising.

The River Lodge UK facility agreement was signed on or about 9 October 2017, with a facility limit of £20 million. Mr Thomson signed this document. The effect of this arrangement was that Mr Golding was relieved of liability in respect of the sums previously advanced to him, which was now to be treated as lent to River Lodge UK instead. Katie Maddock emailed Mr Golding (cc. Mr Thomson) on 11 October 2017 to say that “all loans … [had] been now repaid in full”.

Mr Golding forwarded this to Mr Barker, who replied, “Nice!” He understood that Mr Golding would not have to repay LCF.

On 14 December 2017 LCF paid £904,050 to River Lodge UK, which in turn paid £470,000 to Mr Golding on 9 January 2018.

LCF also funded a loan by LCM to Mr Golding. As already explained, Mr Thomson was the sole shareholder and director of LCM. LCF had made regular payments to LCM, which accumulated in its bank account. On 14 November 2018 Mr Thomson emailed Luke Tofts of GCEN to explain that LCM was going to be lending money to Mr Golding. He said that LCM would be transferring £452,000 to GCEN for onward transmission by GCEN to Mr Golding. Mr Tofts said he would “speak to compliance and try to get it signed off ASAP”. LCM paid £452,000 to GCEN on 14 and 15 November 2018. Mr Thomson then emailed Mr Tofts to ask him to send the £452,000 from LCM’s account to Mr Golding. Mr Thomson and Mr Tofts had a telephone conversation in which Mr Tofts asked Mr Thomson for a copy of the loan agreement between LCM and Mr Golding. Mr Thomson promised that he would provide this to Mr Tofts and GCEN then paid £452,000 to Mr Golding.

In fact, there was no agreement between LCM and Mr Golding, and this was another lie by Mr Thomson.

On 3 December 2018 Mr Tofts of GCEN emailed Mr Thomson to again request this agreement, adding, “I put my neck on the line for you with compliance to get these payments made and LCM on-boarded in a very short time frame with no supporting docs, so it looks very bad that I still don’t have the docs as they were promised 2 weeks ago”.

On 3 December 2018 Mr Thomson drafted a loan agreement between LCM and Mr Golding, dated 1 November 2018 in typescript. He sent this (as a Word document) to his assistant, Alex Mannering, presumably for printing. The Word metadata shows it was created on 3 December 2018. Mr Thomson signed it. Alex Mannering sent it to Mr Tofts. I find that the document was deliberately backdated to mislead Mr Tofts.

Mr Tofts saw that it was not signed by Mr Golding, and he contacted Alex Mannering, who emailed Mr Thomson to say, “Luke needs the countersigned version of the facility agreement”. Alex Mannering reminded Mr Thomson about this on 5 December 2018 (“Document needs countersigning for Luke Tofts”). A further version, purportedly signed by Mr Golding, was prepared on 6 December 2018 and sent to Mr Tofts. It was again falsely backdated. There is no evidence that this document was sent to Mr Golding for signature or signed by Mr Golding. The signature purporting to be that of Mr Golding does not resemble any other known example. I find that his signature was probably inserted by or on the instructions of Mr Thomson.

LCF paid a further £750,067.50 to Mr Golding on 4 December 2018. No explanation for this payment has been identified.

Mr Golding also received the benefit of sums deriving from LCF in connection with helicopters.

Mr Golding purchased a Eurocopter NS355N with registration N766AM (“N766AM”) for £520,000, using £500,000 from LCF to fund this purchase. Mr Golding later sold N766AM to Mr Thomson’s company, London Financial Group Limited, for £650,000, which was paid to Mr Golding by LCF with the reference “N667AM [sic]”. Mr Thomson was the sole director of London Financial Group Limited at that date.

Mr Golding also bought a EC135 Eurocopter with registration G-MSPT (“G-MSPT”) for £1.65 million plus VAT, with a deposit of £800,000 and the balance in 3 instalments. This was funded by LCF:

Turning to Mr Sedgwick, he too received payments which were ultimately funded by LCF and paid through various companies including LOG, London Group LLP, Sands Equity and LV Management (Mr Hume-Kendall’s company). The parties have agreed that there were payments of this kind amounting to £559,781.33.

During the trial, the court made various third-party disclosure orders against banks. The Claimants claim to have identified further payments to Mr Sedgwick, bringing the total to at least £779,634.11. Mr Sedgwick has not commented on the additional payments.

Some of these payments were made against invoices from Mr Sedgwick’s company, Sedgwick Company Management Limited. Mr Sedgwick contends that these payments were made in return for services rendered. It appears to be the case that Mr Sedgwick was heavily engaged in providing legal services in connection with the many and transactions described above and it is clear that Mr Sedgwick undertook a great deal of work. The legal consequences of this finding are addressed below.

Although the claims against the Hume-Kendalls and Mr Barker have been compromised, there remain some claims which are potentially dependent on claims that they breached their duties to LOG. It is therefore necessary to make some findings about other payments made to them or their companies.

Some of the payments made by LCF to Mr Hume-Kendall have been covered already above. In addition, LOG made frequent payments (funded by LCF) to Mr Hume-Kendall’s company LV Management, usually in the sum of £20,000 per month. Similarly, London Group LLP made payments deriving from LCF to LV Management, often in the sum of £24,000 per month. Mrs Hume-Kendall also received sums directly from LCF. On 12 May 2017, Mr Barker asked Mr Thomson to pay £190,000 to Mrs Hume-Kendall. Mr Thomson replied, “OK”. The same day, LCF paid £186,200 to Mrs Hume-Kendall. There is no documentary evidence to explain or justify this payment to Mrs Hume-Kendall.

Mrs Hume-Kendall also received sums deriving from LCF indirectly, via LOG. On 12 June 2017 LCF paid £601,750 to LOG, which paid £200,000 to Mrs Hume-Kendall two days later. The reference was “LOG Share Payment”. Again, there is no documentary evidence to explain or justify this.

The bank statements contain numerous payments to Mr Barker’s company Wealden Consultants. During the period when LCF was lending sums to L&TD, L&TD was making payments to Wealden Consultants. For example, on 1 April 2016, LCF paid £53,144.18 to L&TD, which paid £12,000 to Wealden Consultants.

LCF also made payments to Wealden Consultants directly, as already explained, including £32,700 on 28 April 2016 for “consultancy work” (apparently in connection with an invoice from Mr Golding for “professional services”). LCF paid £10,000 to Wealden Consultants on 25 July 2016 (when it made matching payments to Mr Thomson and Mr Golding).

On 12 May 2017 Mr Barker told Mr Thomson to pay £100,000 to Wealden Consultants. Mr Thomson complied: LCF paid £98,000 to Wealden Consultants on the same day.

As explained above, sums deriving from LCF were also paid to Wealden Consultants via LCM, LOG and London Group LLP.

I have described the various SPAs which are impugned by the Claimants and made findings in respect of them. It is now possible to summarise the principal lending transactions undertaken by LCF.

The first facility was that between LCF and L&TD.

The next was between LCF and Mr Golding, trading as Home Farm Equestrian Centre.

The next was between LCF and LOG.

Then there was the reallocation of the L&TD indebtedness to the five support companies (Atlantic Support, CV Support, Waterside Support, Costa Support and Colina Support) on 29 April 2017.

In May 2017 LCF entered new facilities with GRP’s subsidiaries (CV Resorts, Waterside Villages Plc, Costa Property Holdings, and Colina Property Holdings).

Next LCF replaced the debt of Mr Golding by entering into the facility with River Lodge UK.

Finally, LCF lent to London Financial Group Limited, a company of which Mr Thomson was a director and the ultimate beneficial owner.

As at the date of the administration the total amount lent to these borrowers was £236.4 million (this included the grossing up to reflect the borrower’s obligations to pay Surge’s fees).

Hence, there was a very small number of borrowers. At the times when the loans were made by LCF they were all closely associated with Mr Golding and Mr Hume-Kendall. Mr Thomson had a beneficial interest in all of the companies other than River Lodge. I have also found that Mr Golding, who had an interest in all of the companies other than London Financial Group Limited, was the ultimate controller of LCF. Mr Thomson and Mr Golding were close business associates of Mr Hume-Kendall and Mr Barker: indeed, the four of them were the beneficial owners of the borrowers and benefited from the various payments made by the borrowers.

After some evasion, Mr Thomson ultimately accepted in his oral evidence that all of LCF’s lending was to this small, closely connected, group of companies.

As already explained, LCF raised some £237 million from bondholders. Of this, some £60.8 million was paid to Surge as commission and a further £76.4 million was paid to Mr Thomson, Mr Golding, the Hume-Kendalls and Mr Barker.

It follows that at least about 57% of the money raised from bondholders could not have been invested in any income-generating activities of borrowing companies. I find that Mr Thomson, Mr Golding and Mr Sedgwick knew this.

Surge’s early dealings with LCF are described above. To recap, before Surge became involved, Mr Russell-Murphy was working as a salesman for SAFE, earning a commission of 25% of the amount of each investment.

Mr Careless initially asked for a fee comprising £500,000 upfront, £500,000 on the delivery of the first £5 million of cash, and 5% of all funds delivered. However, Mr Hume-Kendall and Mr Golding were not keen on the idea of an upfront payment.

Ultimately, Mr Russell-Murphy agreed to work as Surge’s sales director, with Surge selling the SAFE investment product in return for 25% commissions, on the condition that Mr Russell-Murphy would receive the same amount of profits from Surge as Mr Careless. Surge effectively inherited from Mr Russell-Murphy the arrangement for LCF to pay commissions of 25% on bond sales.

Mr Careless was the majority owner of Surge from its incorporation; although for a period his share was held for him by Ms Venn. He was a director of Surge from 7 July 2015, but ran Surge as its CEO from the outset. Ms Venn explained that as CEO he was in control of the business. Ms Venn was the COO and was at times more involved in administrative or legal issues than Mr Careless. However, she reported to him on significant issues. Mr Careless and Ms Venn had a close business relationship and discussed the business continuously.

Mr Careless had started to sell leads to Blackmore in 2015. He was seeking ways of making more money. He said in evidence that he was “scraping for funds” and had debts which he needed to settle. Mr Careless was extremely ambitious for Surge and believed it could be expanded. He was an entrepreneur, who had previously succeeded in business.

The Surge Defendants knew little about LCF at the beginning of their relationship. Ms Venn had undertaken some rudimentary Google searches (see [246] above).

Mr Careless explained in his oral evidence that there was a lot of cynicism about the unregulated mini-bond industry. He also explained that he and his colleagues were cynical about LCF because they thought that people who are trying to build businesses say things which turn out to be untrue or insubstantial.

In an email dated 9 July 2015, Mr Careless told Mr Pat McCreesh of Blackmore that Mr Careless and Mr Russell-Murphy were joining forces. Mr Careless explained that he had had “to cut a very strong deal” to secure Mr Russell-Murphy, whose “sales skills are second to none”. Mr Careless also said that Mr Russell-Murphy had been earning 20% commissions when marketing the SAFE bond and that the product was being rebranded. He said that he was comfortable that the LCF product was not a “rinse” even though he anticipated that Mr McCreesh would be screaming “rinse”. Mr Careless assured Mr McCreesh that his involvement in selling LCF bonds would not affect his work selling Blackmore bonds. In evidence Mr Careless accepted that “rinse” meant fraud.

Mr Careless said that he did not think that LCF was a fraud at the time he drafted this email. I accept that evidence, but I also find that he had already a strong suspicion that LCF might be a rinse, based on the commission rate (even of 20% - soon afterwards he realised it was 25%). He said in the email that it was “screaming” rinse, and this was his own reaction, not something suggested to him by others. This reaction is consistent with his evidence (just summarised) about his general sense of cynicism or scepticism about the unregulated bond marketplace. Mr Careless also said that after this email he became comfortable. But he conducted no due diligence at that time.

He discussed the commission with his long-standing accountant, Mr Partridge. On 23 July 2015 Mr Careless emailed Mr Partridge to say, “Surge Financial Limited … sell a 2 year bond (8% pa) called London Capital & Finance (LCF) … I earn 25% commissions of money into that fund. I know, that’s huge right?”.

Mr Partridge replied on 24 July 2015, saying,

“As you say this commission is insane. On a flat rate the fund would have to grow by 55% in two years to pay your commission and the interest.

Who are LCF, is this the aim stock?

You ‘pay’ me to be cynical but I can’t see how these figures are sustainable.”

Mr Careless’s colleague, Mr Jones, agreed. He expressed the view that the figures were “incredible” but noted that LCF “[had] been paying them for a number of years according to JRM”. He also said that LCF were lending at rates of around 8% per month and were in effect a Wonga for SMEs.

Mr Partridge’s email raised a very telling inquiry. Any borrower would have to be paying very high rates of interest to meet the 25% commission plus interest. As he said that would require returns of c.55% over 2 years, and that he could not see how these figures were sustainable.

Mr Careless was anxious to start selling for LCF because the extremely high commissions would result in huge profits for him. He emailed Mr Partridge on 11 September 2015 to say that he expected that Surge would earn “£200k in comms minimum in September and with £50-60k in outgoings” giving rise to a profit of £140,000 to £150,000 in a single month. Mr Careless was delighted. He was keen to sustain the large profits and so set challenging targets for his team and had “sales sprints”.

Mr Careless knew that the 25% commission was being paid directly from the amounts raised from bondholders. There was no other source from which LCF could pay them.

He understood, from Mr Partridge’s email of 24 July 2015, that LCF would have to make exceptionally large returns (Mr Partridge estimated 55% over two years) to meet the 25% cost. Mr Careless knew that LCF’s business model was lending to SMEs. So (using Mr Partridge’s figures) it would have to recover principal plus 55% interest over 2 years. I find that he regarded the commission as exceptionally high and realised that it was being offered because LCF was anxious to maximise sales as rapidly as possible.

The Surge Defendants’ case was that the 25% commission was a “market rate” or “industry standard”.

They obtained a direction for the service of expert evidence about the market rate for the kinds of services provided by Surge. In the event, the experts, Mr Grainger and Dr Okongwu, agreed that at the outset of Surge’s relations there was “no generally accepted market rate for the set of services which are said to have been provided by Surge”. I accept this evidence.

I also find that the reference to a market rate by Surge was the product of an exercise in justification that was developed by Surge after the collapse of LCF.

After the collapse of LCF, Ms Venn and Mr Careless sought to find examples of other businesses paying large marketing fees. Some of the examples Ms Venn found, such as Funding Circle, were not analogous, because the marketing costs were a percentage of those companies’ revenues, not the gross sums raised from investors. Ms Venn admitted that she had simply misunderstood the information.

Mr Careless sought to rely on a 20% commission paid to Surge by Blackmore as justification for the level of commission paid by LCF. Both Mr Careless and Ms Venn said in their witness statements that Blackmore was paying 20% before Surge started to sell bonds for LCF. That was incorrect. The initial rate agreed by Blackmore when Surge first started selling bonds for Blackmore in June 2015 was only 7.5%. It was only increased to 20% after LCF came on the scene. Surge indeed used its arrangement with LCF as the basis for increasing the Blackmore rate to 20%.

Moreover, the Blackmore bond was a 5-year product so, on an annualised basis, the commission payable was 4% per year. This is much lower than the annualised rate of the LCF commission for the same services. The Claimants produced a table which annualised the 25% paid by LCF to Surge over the lifespans of the various bonds, but on a weighted average basis. This was explored with Mr Grainger. The weighted average for LCF was 10.9%. This was more than 2.5 times Blackmore’s commission annualised.

Mr Careless gave evidence that there were other entities seeking funding for products like a litigation bond which were prepared to pay high marketing commissions. I find that that there are obvious differences. Litigation funding is a different industry with a distinct business model and a different risk profile. Funders realise that there will be a number of losses but hope to make a profit from the wins. Litigation funding cannot be compared to the business model or risk profile described by LCF in its literature. Ms Venn indeed said in a message to Mr Careless about litigation funding in December 2018, “What other industry can pay 30% for money and make a profit / be unlikely not to go bust.” That was a pertinent question. The business model described by LCF in its marketing materials was quite different from a litigation funding business.

In my judgment the issue for present purposes is not whether other bond issuers with different business models may have been willing to offer a 25% marketing commission. What matters here is Mr Careless’s understanding of how LCF itself could pay 25% given the business model LCF was presenting to investors in its own IMs and other materials.

On that question, Mr Partridge had directly raised the question of sustainability and no satisfactory answer had been provided. Mr Jones’s suggestion in the email of 24 July 2015 (that LCF was a kind of corporate Wonga) was no answer: as Mr Careless knew LCF was not presenting itself in its marketing materials as providing short-term bridging finance at the extremely high rates of interest suggested by Mr Jones.

As to the efforts to find evidence after the collapse of LCF, Mr Careless explained that Ms Venn and her team were trying to find independent evidence that Surge’s commission rate was market standard but struggled to find it. On 22 February 2019 Ms Venn asked Nick Morrison of Surge to place an email from Mr McCreesh of Blackmore in a shared folder entitled “Fees Evidence”. She wrote, “This is independent evidence that our fees are market standard because a Director of Blackmore, Pat McCreesh, has independently stated that to a client making the enquiry.” However, Ms Venn had provided Mr McCreesh with a draft email for him to send to her, so it is of negligible evidential weight.

The Surge Defendants relied on an email dated 22 March 2019 from Hydrogard Legal Services which stated, “I was very interested to see your success in raising funds from Investors and I had hoped that you may help us raise funds for our business for a 25 per cent commission.” I do not think that this email bears any real weight. There was no evidence about how it came about. The timing is very surprising as it was sent after the collapse of LCF, which had attracted huge adverse publicity and in which Mr Careless had been named. Nor was there any evidence about the business of Hydrogard. The email itself was an odd way to negotiate since it offers 25% in an opening shot. It also referred to the Enterprise Investment Scheme, which involves the allotment of shares in companies. So, it would seem, taken at face value, Hydrogard was interested in marketing shares and not bonds. However, sections 552 and 553 of the Companies Act 2006 only permit commissions of 10% or less for procuring any subscription of shares in a company. Mr Careless also accepted in evidence that he did not even respond to the email.

The Surge Defendants also contended that something called “the Highgrove Osprey” bond, issued by a company associated with Mr Russell-Murphy, was prepared to pay high commissions. There was an email dated 30 November 2015 from Highgrove Osprey plc to Mr Russell-Murphy which referred to a meeting with him, Mr Careless and Ms Venn. It said they could pay “a 25% commission and [sic] bond sales and then a percentage of net profits.” Surge did not do business with Highgrove Osprey and there is no evidence of the level of commission Highgrove Osprey in fact paid elsewhere. There was no evidence about the business of Highgrove Osprey or the way it was sold to investors. The company went into liquidation in 2020 and the liquidator has filed a report referring to possible claims against parties involved with the company in relation to the dissipation of sums received from investors. I am unable to place any real weight on this email.

The Surge Defendants also relied on an email from Mr Paschalis of Thistle to Ms Venn dated 18 June 2018. This referred to a UK prospect with 5% three-year loan notes. The business was UK property development. The email said they were allocating 25% of the raise to marketing. This email gives some support for the Surge Defendants’ case that there may have been other companies which might have been willing to pay 25% for marketing. But I am unable to place much weight on it: there was no evidence about the identity of issuer and nothing about its business model or the risks inherent in it. There is no evidence about the way the issuer marketed its product to members of the public. It is also unclear what was to be included in the marketing budget.

The Surge Defendants also relied on an email exchange between Ms Venn and Northern Provident on 20 August 2019, when Ms Venn was seeking to obtain evidence about market rates. Mr Crawford of Northern Provident said that there was a very wide range of pricing, based on either upfront costs or back-end; that 20% is not only sustainable for some firms, but appropriate for everything Surge did. He knew of some cases of 27.5% or 30% but said that was ridiculous given that the business model was not likely to be sustainable. He also knew firms and introducers as low as 10%. Overall, he thought 20% was acceptable. He also said that the key was making sure that the business model could sustain the fee – for example, bridging finance could, but some bonds would not, have the required margin.

The Surge Defendants sought to rely on this email. It is inadmissible as opinion evidence. It is from a friendly source. It can be given no significant weight. Mr Crawford also made the point that there was a very wide range of pricing, which did not support the idea of a market or going rate. He also made the obvious point that the sustainability of any fee would depend on the margins in the business. He referred to a bridging loan business (where the interest rates would be extremely high). That was not the way that the business of LCF was being promoted. It was presented as a commercial lender to SMEs with annual rates of 12-20%.

Mr Grainger also said in his report that in 2014 a firm called Dolphin Capital was willing to pay introductory fees or 20% on five-year loan notes; 14% on three-year loans and 8% for a one-year loan. He supported this evidence by referring to an agreement from 2014 between Dolphin and an introducer. The document seems to have come into Surge’s hands in May 2019: WhatsApp messages from that period show that Mr Careless asked Mr James Hall, who was associated with Dolphin, for help in proving that 25% was the market rate. Mr Hall said he would assist and sent the agreement. There is no evidence that Mr Careless was aware of Dolphin’s fee arrangements in 2014. Moreover, on a five-year annualised basis the fee was for 4%. For shorter loans, the annualised commission is higher, but is well below the 25% charged across the board by Surge (on all tenors of loan). Moreover, there is no evidence about the business model of Dolphin or of the way it was presented to investors. I am unable to give this evidence any material weight.

As already noted, Mr Grainger’s own conclusion was that there was no market rate for Surge’s services. He gave some evidence of the fees charged by other service providers (such as fund managers). Mr Grainger said that Surge’s services were in fact more complex than those of the other service providers. I found none of these comparisons of any material assistance. In my judgment it is implausible to suggest, as Mr Grainger did, that Surge, which was essentially a marketing platform and back-office administrator, was providing more complex services than a fund manager, for example. A principal function of a fund manager is to undertake investment decisions, selecting stocks and sectors for investment. Surge did not do this. In any event, Mr Grainger gave no examples of a fund manager charging fees of 25% of the initial funds invested. Mr Grainger’s reasoning on these points was implausible and undermined any reliance I could place on his evidence.

I also consider that he lacked any relevant expertise in relation to the fees charged by marketing firms. He was an experienced compliance expert. The only evidence he was able to give about fees was some personal experience about fee negotiations when he was part of a business. That is not relevant expert experience.

The Surge Defendants correctly observed that Dr Okongwu could not provide any actual evidence about the mini-bond market in 2015-2019. He readily accepted this. However, it was the Surge Defendants who alleged that 25% was the market rate and their own expert gave evidence that there was no standard industry rate for the services provided by Surge. For the reasons just given, Mr Grainger’s comparators were unconvincing. There is therefore no persuasive evidence either that 25% was a market rate or industry standard.

The experts were also asked to opine about the rate that would have been agreed between reasonable parties in an arm’s length transaction for services of the type Surge was providing. Mr Grainger concluded that he had seen no evidence to suggest that the fees in fact agreed were anything other than those agreed between reasonable arm’s length parties and that, therefore, it could be assumed that the fee was an arm’s length one. That reasoning is circular: it assumes that there had been an ordinary commercial arm’s length negotiation, which is in issue. Mr Grainger accepted that he had not seen the evidence in the case, including about the circumstances in which the 25% arrangement was fixed. I place no reliance on his evidence on this point.

Dr Okongwu said that a commission of 25% was not credible as it implied a rate of return on LCF’s lending which far exceeded the target return that LCF stated in its marketing materials and was far higher than corporate loan rates at the time. I have set out a table prepared by Dr Okongwu in [382] above. Column (7) shows the rates of return which LCF would have had to achieve to match its liabilities to bondholders. This table is conservative as it ignores the 2% arrangement fee. The table shows that LCF would generally have had to earn returns significantly higher than the 12-20% referred to in the IMs.

Moreover, the Cliffware Direct Lending Index which tracks the performance of private middle market loans in the US showed an average of 8.5% interest rates for 2015-2019. Although this is for the US, I find that it is a reasonable proxy for interest rates available in the UK at the time. This is supported by the fact that the ICE BofA Sterling High Yield index ranged from 5.6% to 7.6% over the same period.

Mr Grainger did not respond to this evidence. He did not comment on the table or the rates of return on corporate lending during the relevant period. He justified this by explaining that he did not regard it as a part of the expert issues. I regarded that as unsatisfactory. The Surge Defendants had asked for permission to serve evidence concerning the commission that would have been agreed between arm’s length parties. The economic analysis set out by Dr Okongwu was relevant to that issue. In carrying out his duties to the court, Mr Grainger should have addressed it. I infer from his silence on the point that he had no real answer.

It is also relevant that Surge was making extremely high margins in its business. The contemporaneous emails show that Mr Careless was aware of this at the time. Dr Okongwu has calculated that from 19 January 2015 to 30 September 2018, Surge’s total costs were 64.8% of revenues and that the net profit margin was 35.4%. Surge was a service provider: it was not an innovative business and was not putting its own capital at risk. Given the nature of Surge’s business, this was an extremely high profit margin.

I also note that in his first report Mr Grainger suggested that the net profit margin was 27.6%. That was potentially misleading as it included the period up to 30 September 2019 (and therefore more than three quarters of a year after the collapse of LCF and the cessation of new LCF business for Surge). Mr Grainger refused to engage with Dr Okongwu’s calculations for the 30 September 2018 on the basis that it was outside the scope of his instructions. I find his stance remarkable, given that he included the calculation up to 30 September 2019 in his own report, which was served first. This again served to undermine my ability to rely on him as an independent expert.

I find on the basis of the expert evidence that the commission of 25% was not a credible rate that would have been agreed between arm’s length parties, given LCF’s business model (as represented to investors) as a corporate lender to the SME sector at 12-20%. As explained above there was no market rate.

I find that the actual reactions of Mr Careless and Mr Partridge a better indicator of the market view at the time. They called the commission “huge” and “insane”. They would not have said that if they had thought the fee was no more than a going market rate.

I find that the fee had nothing to do with any industry standard. The Surge Defendants indeed had no role in negotiating it. Mr Careless had an arrangement with Mr Russell-Murphy by which Mr Careless and Mr Russell-Murphy would be equal partners on the basis that they would continue to be paid the 25% commission which Mr Russell-Murphy was already receiving from LCF (as SAFE).

Indeed, Mr Careless knew that the commission rate was so large that he was prepared to split his share of Surge with Mr Russell-Murphy. Mr Russell-Murphy for his part had had a business relationship with Mr Golding for over 15 years.

Moreover, as explained further below ([1109] to [1120] and [1323] to [1350]) Surge later entered arrangements, first with Mr Thomson and later with Mr Golding, to pay them (in turn) monthly sums of 0.5% and 1% respectively of the gross monthly receipts from bondholders. As explained in those passages, I find that Mr Careless agreed to these arrangements as an inducement to maintain Surge’s fee at 25%. Mr Careless accepted in evidence that Mr Thomson was always trying to reduce Surge’s fees. It is inherently unlikely that Surge would have been prepared to pay these inducements if there had been a market rate of 25%. I find that Mr Careless was prepared to pay these sums because he knew that the 25% fee was exceptionally high and he wanted to ensure that it continued.

It is also instructive that the size of the commission was never disclosed to investors. It would have put them off. Mr Thomson and Mr Careless both knew that it would be material to any investment decision. Mr Careless accepted this in evidence but said that Surge was merely the marketing firm and that it was not its decision what to include in marketing materials. Ms Venn accepted that if the 25% commission had been disclosed it would have led to an extremely low conversion (i.e. investment) rate. In my judgment if LCF had disclosed the 25% commissions, bond sales would probably have been far lower than they were; indeed may have been minimal.

This is further reason for concluding that the 25% fund-raising fee was not a market or going rate for mini-bonds. If there had been such a going rate, it would have been materially the same for all such bond issues and there would have been no reason not to disclose it.

The reason why investors would have found the 25% off-putting is that they would not have been satisfied about the sustainability of LCF’s business model, which was essentially described as making a turn on lending out funds to borrowers.

I find that for the same reasons, Mr Careless, who had a far better understanding of LCF’s business than members of the public, had real concerns from July 2015 onwards about the sustainability of the business model in light of the 25% fee. He was generally sceptical about the mini-bond industry and here was a business offering huge or insane commissions. But he did not ask questions about it because he was anxious to make as much money as possible. He also persuaded himself that he would be able to justify Surge’s actions by saying that it was simply the marketing agent and was not making the decisions about the business or how it was sold.

In July 2015 Mr Careless, Ms Venn, and their team worked on the website and branding materials for LCF, including a document dealing with “objections and their rebuttals” for members of the public interested in investing in LCF. “Objections” was the way the salespeople described potential investors’ queries.

So that they could effectively market LCF’s bonds, Mr Careless, Ms Venn, and Mr Russell-Murphy and their team required further information about LCF. This included the number of loans issued, the types of loans, the purpose of the loans, the average term, the interest rates, and testimonials from borrowers. They sought this information from Mr Thomson. A draft Buss Murton letter was circulated stating that LCF had lent out £1.1 million to borrowers. Mr Careless said in an email dated 20 July 2015 that the reference to this figure should be removed, because it “makes the entire operation look very small”; Ms Venn agreed because prospective investors would have a “natural expectation” that LCF “is a multi-million pound organisation”. The figure was then removed from the draft letter.

I find that Mr Careless and Ms Venn knew at that stage that LCF was still a small operator but was being presented as a substantial lender to the SME sector.

Mr Careless wanted LCF to be listed on www.best-investment-funds.co.uk (“BIF”). Mr Careless accepted in evidence that the BIF site was run by him and Ms Venn.

This listed a series of lending products. It appeared to be an objective comparison website. But Mr Careless described it in a to-do list in August 2015 as a “bullshit site”. I find that this reflects Mr Careless’s understanding that it was designed to give the impression that it was an independent comparison site, when this was not the case. Mr Careless charged LCF £1,000 to be listed on the site, despite Mr Careless running it.

To assist with the sales of LCF’s bonds, Mr Careless set up another website, Best Savings Rates (“BSR”), which also appeared to be an objective comparison site. It went live on or about 17 November 2015. Later he set up other comparison websites, including Best ISA Rates (“BIR”).

The purpose of these websites was to take people through LCF’s online application process, as Mr Holdaway of Surge noted in an email to Mr Careless dated 10 September 2015: “We are going to be building a website that lists 10 or so accounts where a person can put their savings, like a comparison website. This will be used to push people through an online application process for LCF”.

Mr Careless said in evidence that the website was not used to push people through to LCF’s online application. He said it was a form of advertising.

I find that the website had the following features. It appeared to be an independent comparison site, but was in fact run by Surge. Surge decided which products to list and how to rank them. The site also allowed potential investors to click via icons to LCF’s online application process. I find that it was used to seek to attract investors and push them through the application process.

The result was that members of the public could “sign up, hands free, directly into LCF” (i.e., by clicking through to LCF’s website and applying online, without any input from Surge’s sales team). Mr Careless explained this in an email of 13 October 2015.

Another intended benefit noted in the same email was that “Best Savings rates will appear on Google for any search of LCF or its derivative search terms and can also be used as a direct sales aid by the sales team. This will enhance trust and therefore sales”. I find that this shows that Mr Careless knew that BSR would be treated by investors as independent (thereby “enhancing trust”).

The third benefit listed by Mr Careless was that the website captured the name and contact details for the potential investor, creating a lead to be called by a salesperson from Surge’s office.

The rankings of the investment products on these websites were not based on any objective evidence. Instead, the websites were arranged by Surge with LCF in first place:

In oral evidence Mr Careless accepted that the rankings on BSR and BIR were not based on any objective evidence, but on which products Surge wanted to boost the sales of at any given time and that the ranking was set to optimise conversion rates. Mr Careless also admitted that LCF was placed at the top of BSR because he wanted to optimise its position in order to maximise Surge’s commission.

Mr Careless accepted in his evidence that Surge had set up BSR in such a way as to encourage members of the public to think that LCF had been independently and objectively ranked. I find that the BSR and BIR websites were materially misleading because they were presented as independent, but in fact were run for Surge's (and LCF’s) benefit. Surge had a financial interest in maximising sales of LCF’s bonds. I reject Mr Careless’s evidence that they were independent because they were not owned or run by LCF itself. Surge had a clear financial interest in selling LCF bonds. Indeed, its interest was aligned with LCF’s. Nor was I able to accept his suggestion that the sites were justified by the fact that he was running a marketing company. The sites were misleadingly presented as independent comparison sites.

On 23 September 2015 Mr Bailey, a Surge salesman, emailed Mr Russell-Murphy and Mr Careless (cc. Mr Jones and Ms Venn) to say:

“I had a call from a client investing in LCF this morning which has made me begin to question the integrity of this investment … I reassured the investor I would not have any part in a scam that was taking people’s hard earned money … I feel totally uneasy about this and the potential issues our company could be faced with … John, can I ask you what due diligence you have carried out on LCF?”

In his oral evidence, Mr Careless said in relation to Mr Bailey’s concerns “I agree with the entirety of the email”. This was a significant answer. Mr Bailey’s email said that he was “totally uneasy” – he did not merely express a vague sense of unease.

At this stage, however, no due diligence had been conducted into LCF. Mr Careless disputed this in his evidence, but was unable to point to anything that had been done, other than speaking to Mr Russell-Murphy and Ms Venn’s basic internet searches in February 2015.

Mr Russell-Murphy responded to Mr Bailey’s email:

“With regards to the product itself, when SAFE originally launched their bond, I carried out an enormous amount of DD at their office, which also involved BM Law as well. The important things like the security and contracts were disclosed and confirmed suitable by BM law, which then led on to BM law being happy to be involved as their custodian”.

Mr Careless knew that Surge had undertaken no real due diligence. Though Mr Russell-Murphy referred to an enormous amount of due diligence, he gave almost no details about what he had done. Any steps he had taken were historic at best: Mr Careless knew that LCF had been a small operation and was looking to expand rapidly. So, any inquiries about security etc. would have been out of date.

Mr Careless did not ask Mr Russell-Murphy for more details about the due diligence that had been carried out. Instead, Mr Careless said in the same email chain that this was a “[g]reat response” to Mr Bailey’s email. His email did not say anything to address the “totally uneasy” feeling expressed by Mr Bailey about LCF.

I find that this again shows that Mr Careless did not wish to ask questions, even when (according to his own evidence) he agreed with Mr Bailey’s totally uneasy feelings about LCF. He was more anxious about getting on with the business and earning commissions.

Surge started selling mini-bonds for LCF in early August 2015 and wanted to make a big sales push, but Mr Careless could not afford to do this from his own resources. On 15 August 2015 Mr Careless emailed Mr Golding to ask for a loan of £20,000. Mr Careless explained to Mr Golding that this would enable Surge to pay for a sales drive:

“We would increase to five sales guys for two weeks, working from our offices in Eastbourne where they can be driven by John. They are normally commission only but we will pay them £1k each for two weeks to push hard and work from our offices. The cash would also allow us to increase their lead volumes from 4 leads a day to 15 a day for that ten day period. During this sprint we would look to put at least £2m into LCF”.

Mr Careless proposed that the loan made by Mr Golding would be repaid by reducing the commissions charged by Surge to LCF to 12.5%. This is further evidence that Mr Careless understood Mr Golding and LCF to be closely linked; indeed, that LCF was Mr Golding’s company.

Mr Golding agreed to provide a loan of £25,000 to Surge on 18 August 2015, and a further loan of £25,000 to Surge on 3 September 2015.

These funds enabled Surge to boost its efforts to sell LCF’s bonds, which Surge’s personnel pursued vigorously. Mr Careless hoped to raise more than £1 million for LCF by the end of September 2015.

In a month or so, Surge had gone from making very little to over £100,000 per month. in profit.

By late October 2015, Mr Careless had set a target of £1.5 million gross receipts into LCF by the end of November 2015.

By mid-November 2015, he stated that £2 million for that month was becoming “a distinct possibility”.

Selling LCF’s bonds was extremely profitable for Surge from an early stage. The pace of progress took Mr Careless and his colleagues by surprise.

On 22 September 2015 Mr Jones told Mr Careless that they might reach £260,000 in commissions for the month. Mr Careless replied, “200k profit for one month … Oh and we are embryonic”.

Mr Careless hoped that a high level of commissions and profits might enable him to buy a helicopter, particularly when combined with other business ideas. He referred to this in an email of 22 September 2015, “9 days of sales left too. Plus, I have pensions and best savings rates. Hello helicopter...”.

On 28 September 2015 Ms Maddock of LCF told Mr Jones that LCF’s account would shortly be credited with £170,000 from new bondholders. Mr Jones forwarded this to Mr Careless, adding, “That should be another £47k comms tomorrow!” Mr Careless was excited about this. He forwarded the email to his father, Mr Partridge, and Mr Ronak Patel, an old friend.

On 23 October 2015 Mr Careless told Mr Jones that if Mr Russell-Murphy and his team hit £1 million in sales per month, resulting in £250,000 in commissions, Surge would make a profit of £200,000 per month. Mr Jones agreed in principle but thought that Surge’s monthly expenditure would be closer to £65,000 (rather than £50,000) (so that Surge’s monthly profit would therefore be £185,000 rather than £200,000).

By the end of January 2016 Surge had made profits of £353,870. Mr Russell-Murphy and the other salespeople working for Surge were highly successful in selling LCF bonds to members of the public, generating substantial commissions and profits for Surge.

On 29 January 2016 Mr Jones provided Mr Careless with an update. Mr Careless forwarded it to his father, saying, “Fyi Pops. £180k cash in bank. £140k certain next week. £350k probably next week. Feb we go for £1m revenues and £650k net profit”.

On 17 June 2016 Mr Careless sent a text stating, “56k comms. One fucking day … Dude, we are making a fucking fortune”.

Mr Careless had set a new goal of £4 million per month (“[w]e will hit our 4 million goal, it’s achievable and we are on target. Double income, bonuses all round”).

Mr Russell-Murphy emailed Mr Careless on 16 May 2017 to say, “[my] main focus as always will be to push LCF, this is our cash cow, and I won’t stop until the 4m target is hit”. Mr Careless agreed with what Mr Russell-Murphy had said. He replied, “I’m with you!”.

Mr Careless appreciated that this success was largely due to the deal that Mr Russell-Murphy had negotiated for the payment of 25% commissions. He said this to Ms Venn on 10 August 2016, explaining, “[w]ithout JRM we wouldn’t be here today. He increased comms to 25%, it’s the main factor in our current success”. Mr Jones thought Mr Russell-Murphy was overpaid for the work he was doing. Mr Careless told Mr Jones in an email of 30 November 2016 that there needed to be equality between Mr Careless’s payments and Mr Russell-Murphy’s, because that is what Mr Careless had agreed with Mr Russell-Murphy in connection with the 25% commissions.

The growth of sales into 2016 and 2017 is described further below. The commissions payable to Surge continued to grow and Surge’s profits continued to increase. Its accounts show that in the twelve months to 31 January 2017 Surge made a post-tax profit of £2,440,680.

On 11 May 2017 Mr Jones emailed Mr Careless to say that Surge was averaging net profits of £800,000 per month and was on track for net profit of £800,000 for May 2017. He said that if Surge’s total sales were to reach £9.5 million a month, Surge’s profits “[would] hit £1m a month, with costs pretty fixed at that point, anything over these figures will translate directly to bottom-line profit figures. Anything we are able to shave from costs will also drop directly in to the bottom-line”.

The LCF bonds were proving to be much easier to sell than the Blackmore bonds. The feeder websites like BSR were being directed to LCF instead of Blackmore. Mr Holdaway explained in an email on 18 October 2017, “With three feeder websites and only a finite amount of traffic I need to ensure that we are allocating traffic as efficiently as possible. Over the last 6 months we have leant [sic] LCF the vast majority of traffic as Blackmore simply wasn’t converting”.

When Mr Holdaway proposed an adjustment to the allocation of web traffic, Ms Baldock agreed on the basis that “the main aim is to generate the maximum amount we can for Surge as a group” and “LCF is the cash cow of the business.”

On 29 July 2018 Ms Baldock told her colleagues that “LCF [is] the cash cow that supports Surge and has allowed the company to grow to where it is today.”

The description of LCF as a cash cow was currency within Surge.

Surge’s largest single expense was the cost of what is known as “advertising” on Google. Payments were made to ensure that LCF would appear near the top of relevant searches. These ran to many millions of pounds.

Surge also paid for advertisements on Facebook, although this cost was relatively low in comparison to the payments to Google.

There were also the costs of advertisements for LCF, as well as advertisements for the feeder sites like BSR, which promoted LCF and Blackmore.

The advertisements on Google and Facebook were paid for via another company, RPDigitalServices Limited (“RP Digital”), which had been set up by Mr Careless and his friend, Mr Ronak Patel (the RP in its name). It was controlled by Mr Careless and Mr Jones.

RP Digital passed these costs on to Surge, with a mark-up. This led to payments of additional sums to Mr Careless, Mr Jones and Aston Beckworth Limited (“Aston Beckworth”), another company owned and controlled by Mr Careless.

RP Digital’s bank statements show that the receipts from Surge exceeded the payments to Google and other companies. The bank statements from 5 December 2015 to 4 May 2016 show that RP Digital paid most of this surplus to Mr Careless and Mr Jones. The bank statements from 5 June 2016 to 14 August 2018 show that RP Digital also paid large part of the surplus to Aston Beckworth.

The sums paid by Surge to RP Digital were not calculated on any precise basis. There does not seem to have been any standard mark-up.

The way the account of RP Digital was run by Mr Jones is shown in an email he sent to his son, Mr Newman-Jones, on 3 August 2017, to provide guidance while he was away. The account was used to pay expenses and was topped up as and when needed by delivering invoices to Surge. In an email of 15 August 2016 Mr Newman-Jones explained to Mr Jones that he had sent Mr Careless £30k from RP Digital’s account the previous day for his car, so he had topped RP Digital up with £30k from Surge.

Returning to events in late 2015, Mr Careless texted Mr Jones on 27 October 2015 saying that, “Mark thinks Spencer [Golding] is Maddoff [sic].” Mark was Mr Partridge. Bernard Madoff ran a notorious Ponzi scheme.

Mr Careless said in oral evidence that this was a joke, made over a drink.

He also said, and repeated the point many times, that Mr Partridge was well-known for his cynicism and could find fault anywhere. In closing, the Surge Defendants referred to some emails which, they said, showed Mr Partridge’s general cynicism.

I find as follows.

More generally I reject the repeated refrain of Mr Careless’s evidence that everything Mr Partridge said was shot through with cynicism. The other emails relied on by the Surge Defendants in closing in fact showed that Mr Partridge gave considered advice to Mr Careless (even if he sometimes used jokes). Mr Careless described him as a trusted long-term adviser.

I find that Mr Careless generally trusted Mr Partridge’s judgment and did not dismiss his comparison of Mr Golding and Bernie Madoff lightly. By this date at the latest, Mr Careless had serious concerns about the integrity of LCF, but that he was too attracted by the prospects of making money to ask questions.

Ms Venn wrote an email on 29 October 2015 to Mr Thomson, Mr Ingham and others saying that the theme they should present in the sale literature was something substantial, safe and secure. LCF should be sold as a financial institution, verified by trusted, regulated, independent bodies.

As explained above, Mr Careless, Ms Venn and Mr Jones ran www.investment-experts-online.co.uk. Some members of the public asked questions on this site about LCF, including whether the extremely high rates of interest meant that LCF was too good to be true.

For instance, on 7 December 2015 a member of the public submitted an enquiry: “How safe is your money in an investment bond, such as those offered by London Capital and Finance. They are offering 8% p.a. on a three-year fixed rate bond. Are these figures too good to be true?” This was received by Mr Careless, Mr Russell-Murphy, Ms Venn and Mr Jones. Mr Careless said, “Very interesting”. He forwarded it to Mr Partridge and his friend Mr Patel. I find that he did so because he thought it was a serious point.

On 15 December 2015 another member of the public asked: “London Capital and Finance are doing a three-year bond with an 8% interest rate, does this seem too good to be true? Is this a reputable company with financial equity in the event of going bust, as I wish to invest a large sum. Will my money be safe?”. Again, this was received by Mr Careless, Mr Russell-Murphy, Ms Venn and Mr Jones.

LCF’s rates of interest had indeed caused a problem when setting up BSR, as Ms Venn explained to Mr Careless, Mr Jones and others on 23 September 2015:

“1.

You will note that LCF is only listed in the 1 year bond option.

2.

The rate is 2.7%.

3.

The minimum balance is £2k.

Why?

1.

We currently sell the 2 year bond for 8.5% the average 2 year bond in the comparison table offers 2%. I was faced with a dilemma: I could not put 8.5% next to 2% and remain credible. I could not offer a 2 year option close to 2% because any client going to the LCF website would see that it is being marketed at 8.5%. Therefore we will only offer the 2 year bond via an assisted sale for 8.5% (business as usual) we will only offer a 1 year bond (2.7%) via the hands free online sale.

2.

I have proposed a rate of 2.7% to LCF because it is higher than – but still in line with – the competition. 8.5% would stand out like a sore thumb next to 2%.”

Ms Venn put together a table for the website, ranking the best products by interest rate. The highest interest rate apart from LCF was 2.1%.

In his oral evidence, Mr Careless acknowledged that to include LCF’s 8.5% bond on this site would not have been credible. He refused however to accept that the interest rate offered by LCF was not credible. He said, implausibly, that there were lots of other lenders offering high rates for equivalent products. I find that is improbable because Ms Venn would simply have listed them on BSR to avoid the problem. He also suggested that the reason these other products were not included on BSR was that they were not paying a fee to be listed. I reject this too because there were products which were listed from providers who did not pay fees. I found Mr Careless’s answers on this point to be evasive and unconvincing. I find that he was troubled by the high rates of interest and thought they might be too good to be true.

On 25 November 2015 Ms Venn observed in an email to Mr Careless and others that LCF “pays a significantly higher rate by comparison” with the other listings on BSR on the 3-year page. She said, “Could be a positive and could be a negative”. The LCF bond was offering 8%; the other listings on BSR at that time were paying interests rates of 4.4%, 2.5%, 2.44%, 2.4%, 2.3%, 2.75% and 3% per annum.

Members of the public continued to submit enquiries on www.investment-experts-online.co.uk asking if LCF was “too good to be true”. Some members of the public who had learnt about LCF on BSR would then ask www.investment-experts-online.co.uk whether it was legitimate: “I am thinking of investing £10,000 with LCF in a protected bond. The interest for one year is 3.9% and 6.5% for two years. This seems very high compared with other rates on offer. How safe is my investment?”

Mr Careless was aware of these inquiries as they were forwarded to him. Equally, members of the public regularly sought to contact LCF, asking whether it was “too good to be true”; their queries went to Surge. Transcripts of their online conversations were sent to Mr Careless and Ms Venn.

I find from these various emails that from September 2015 onwards, Mr Careless thought that the interest rates being offered by LCF for some of its products were extremely high compared to the competition; and that (given his general background scepticism about mini-bonds) this was an obvious reason for concern about LCF’s legitimacy.

LCF was presented as a lender to the SME sector. But it never said anything about the identity of its borrowers. This was on its face surprising since a genuine lender in LCF’s position would be expected to bolster the solidity of its offer to investors by giving details of at least some of its borrowers.

Surge certainly thought that giving some information about borrowers, if only in the form of case studies, would be a valuable marketing tool. They repeatedly sought to persuade Mr Thomson to supply such details.

This part of the history requires a revisit to the events of July 2015. On 16 July 2015, Ms Venn emailed Mr Russell-Murphy to say that she was:

“trying to build a picture of the success [and] selling points of the business and always like to lead with facts and figures as these increase credibility, it would help to know: How many (approximate figure) loans to date, how many defaults, type of loan i.e. for what purpose, average term, interest rate (I believe it is arranged according to risk level, please elaborate), Size of companies borrowing?”

She requested case studies and testimonials from borrowers. Mr Russell-Murphy forwarded her email to Mr Thomson. However, Mr Thomson did not provide any of the requested information about LCF’s borrowers.

On 20 July 2015 Mr Russell-Murphy sent a chasing email to Mr Thomson. He replied (cc. Mr Barker and Mr Golding) to say that he was working on it but did not respond further.

On 29 July 2015 Ms Venn reverted to Mr Thomson about this subject:

“Reading about how Mr X – from a real company that they can see on the internet – was able to benefit from finance that the bank refused and it enabled him to purchase stock / take advantage of opportunities that resulted in him increasing his turnover by 25%, etc… Good success stories really help to sell the bond because investors can see the actual need and results”.

Mr Thomson did not provide the requested information. Ms Venn mentioned it again on 30 July 2015. He still did not provide it.

Ms Venn also discussed this issue with Mr Golding.

On 13 October 2015 Ms Venn emailed Mr Golding, cc. Mr Russell-Murphy: “Spencer, As discussed, I have been waiting for the Case Studies for some time. I had a look back through my emails and can see I first requested this on the 29th July”. Nothing came.

A related issue that was causing Surge concern at this time was the absence of a lending page on LCF’s website. There was nothing to give credence to the idea that prospective borrowers could apply to LCF for a loan. This undermined LCF’s credibility.

Surge therefore created a plausible-looking lending page. Mr Espinoza of Surge designed a lending page for LCF’s website. Mr Russell-Murphy provided comments on it.

Mr Careless said in an email of 14 January 2016 to Ms Venn and others (cc. Mr Partridge), “[w]e need the lending page on LCF going live and with it we need to add what a normal company we would lend to look likes. i.e. £10m turnover; looking for £500k over 6 months; Company has £4m in Company Assets for protection of our loan”.

The lending page (even that created by Surge) never actually went live.

Mr Careless thus knew that there were no details of lenders and no lending page. He believed it to be in LCF’s interests to provide some case studies and to have a lending page. The failure to give this information and set up a page were further reasons for concern about LCF’s integrity whether LCF was conducting a genuine lending business to SMEs.

In December 2015 Mr Careless decided that Mr Partridge should conduct some due diligence into LCF.

To recap, by this stage Mr Careless thought the 25% commission was “huge”; Mr Partridge thought it was “insane” and possibly unsustainable; Mr Partridge had made the comparison with Bernard Madoff; various members of the public had said the interest rates appeared too good to be true; Ms Venn had said that the interest rates could not credibly be listed alongside those of competitors; Mr Thomson had failed despite requests to provide any details of borrowers; Surge had identified the absence of an LCF lending page; and Mr Careless thought that Mr Golding, who was not a director, was in control of LCF and was interested in the borrowing companies. The only due diligence that Surge had undertaken was the rudimentary Google searches in February 2015 before the first meeting. Moreover, as Mr Careless explained in evidence, they (Mr Careless, Mr Partridge and Ms Venn) were generally cynical (i.e. sceptical) about the unregulated mini-bond market.

On 8 December 2015 Mr Careless emailed Mr Partridge to discuss the idea of conducting some light-touch due diligence on LCF:

“I couldn’t get hold of Spencer last night but will do today. I have a plan to make the necessity of the DD seem more run-of-the-mill and less holly-shit-this-better-not-be-a-ponzi. Ill basically say that as Spencer is looking to revise an offer to be involved exclusively with us in one way or another we want to run some DD to make the process easier down the line.

Spencer doesn’t like getting emails. I know, I know.

But you will be getting an intro email to Andy Thomson later. I would start with a call with him to get an overview before you request the evidence you need.”

Mr Careless said in oral evidence that he was persuaded by Mr Partridge that some due diligence was required. The email plainly follows earlier discussions between them.

Mr Careless said in evidence that nothing should be made of the reference to the possibility of a Ponzi scheme and called it a colloquial, throw away, comment. His counsel advanced the same argument in closing. However, it is shorthand for a fraudulent investment scheme; and it was his comment. Mr Partridge had already drawn the Madoff comparison. It is probable that they had discussed the real possibility of LCF being a Ponzi scheme. This conclusion is reinforced by the fact that Mr Careless had clearly given thought to a way of sweetening the need for due diligence by saying that it arose from the discussions about the exclusivity agreement. He recognised that due diligence was needed. Mr Careless indeed accepted in his oral evidence that he would not have thought due diligence was necessary unless there was a real risk that something could be wrong in LCF. I therefore reject the suggestion that this was a mere joke or throw away remark.

At another point in his evidence, Mr Careless said of the “Ponzi” allusion in this email that he was in an industry which was renowned for having products which were not very good. In other words, this was part of a broader concern with mini-bonds. This supports the view that he and Mr Partridge had a real concern by late 2015 that LCF might well be a fraudulent scheme.

Mr Careless also accepted in oral evidence that to establish that LCF was not a Ponzi scheme, Surge needed to know how the underlying assets performed, and how the bondholders’ coupon and Surge’s fee would be paid.

Mr Careless emailed Mr Partridge (cc. Mr Russell-Murphy) about this issue again on 10 December 2015 to say, “[w]e need to conduct this DD with a light touch”. In oral evidence, Mr Careless said that he did not want to jeopardise Surge’s 25% commission or to cause Mr Thomson or Mr Golding to get annoyed with him, as they might do if he asked awkward questions. He wanted to maintain the commercial relationship.

Mr Partridge replied on 10 December 2015 saying, “[i]f they have nothing to hide, they shouldn’t be concerned about DD”. Mr Careless accepted in oral evidence that his concerns that Mr Thomson or Mr Golding would only be likely to get annoyed by due diligence if they did indeed have something to hide. I find that Mr Careless had real concerns that there might be something wrong with LCF but wanted to avoid jeopardising Surge’s commissions.

Mr Partridge said in the same email of 10 December 2015:

“The better news is that LCF have now had to be audited as they are a plc.

But for some reason they reported a single month period shortening their year end from March 2016 to April 2015???

The worse news is

All their loan book is lent to Thomson’s company! This loan (or some of it not clear) was then shifted to International Resorts Group, a company that Thomson used to be a director for.

So it could be that the liabilities now have no assets to back them up.

It may all be innocent but is very convoluted.”

Mr Careless knew from his meeting with Mr Golding and Mr Hume-Kendall in February 2015 that International Resorts Group was connected with the two of them. It had been described as “basically a land bank”. He accepted in his oral evidence that a land bank would not make profits. Hence, Mr Careless knew that LCF’s only loan was to a land-bank business which was not generating profits. He knew that it was connected with Mr Hume-Kendall and Mr Golding. He knew that LCF was having to pay bondholders their coupon and Surge’s commission. I find that this is why Mr Partridge described it as “the worse news” and that this was another worrying development. I find that it is likely that Mr Careless discussed these matters with Mr Partridge and Ms Venn.

In his evidence, Mr Careless said that his primary focus was the value of LCF’s security and that this mattered more than anything else. I do not accept that he thought that he was so single-mindedly focused on security at the time. Surge had very little information about LCF’s security at that stage. But in any case, if LCF were not investing in income-generating businesses (capable of repaying their loans from their income), the obvious inference would have been that it must have been using new bondholders’ money to pay the existing bondholders’ claims; in other words, that it was in the nature of a Ponzi scheme. I find that Mr Careless and Mr Partridge were concerned that this could well have been what was going on.

Mr Careless then emailed Mr Thomson (cc. Mr Partridge and Mr Russell-Murphy) on the 10 December 2015:

“We want to better understand how LCF operates to assist in both our sales and also from a commercial prospect. As it is way above my pay grade and JRM is snowed under I have asked Mark Partridge, our accountant to liaise directly with you. We anticipate at least £50m into LCF bonds over the next 12 months and it would be helpful for us to ensure we know how the underlying assets work in more detail. Can I leave Mark in your capable hands to provide him with those details please.”

Mr Thomson did not respond. On 13 December 2015 Mr Careless emailed Mr Partridge, saying, “Give him a nudge … for me please”.

As explained above, Surge had asked Mr Thomson for information about borrowers. He did not do so. Prospective bondholders often sought information about how their money would be used by LCF to generate a return and this caused problems.

On 16 December 2015 Ms Venn asked Mr Thomson, “How many borrowing companies are there at this time and what is the average loan size please?” Mr Thomson replied, “To date the company has c. £5,000,000 under management … Currently we have in place funding lines for an additional £10,000,000 split over 5 company’s [sic]”.

Ms Venn forwarded this to Mr Careless and Mr Partridge, commenting, “See Andy’s comments regarding the £10m over 5 borrowing companies. I’m interested to know if all 5 are ultimately under the same/connected ownership.” Mr Careless agreed in his oral evidence that this was a pertinent question to ask.

It was pertinent for at least two reasons. First, the picture being presented to bondholders was that LCF was lending to independent borrowers in the SME sector. Second, Mr Partridge and Mr Careless had already raised the prospect of LCF being a Ponzi scheme, a common feature of which is that the people running an investment vehicle have access to investors’ funds for their own purposes.

Later the same day, 16 December 2015, a prospective investor asked Ms Venn by email, “Am I correct in thinking that you were reluctant to tell me how many borrowers you have on your books?” He also said that he was keen to understand the customer list; and pointed out that if there were ten borrowers and one went bust that could be serious, but that if there were a hundred it would not be.

Ms Venn replied to the customer on 17 December 2015, saying that the information about the number of borrowers was not forthcoming as the company felt it was commercially sensitive information which they were unwilling to disclose. I find that she was not told that by LCF but was stalling.

She asked Mr Russell-Murphy about how to respond. Eventually, on 22 December 2015, Mr Russell-Murphy suggested that Ms Venn should obtain the figures from Mr Thomson. She emailed Mr Thomson the same day, saying:

“Generally I have been trying to steer customers away from questions about our lending book however one particular chap is very persistent and wants me to answer the following question, can you please suggest a reply that you are comfortable with:

What about telling me how much in total you have lent and what is the average sum per contract?”

Mr Thomson did not answer this question. Instead, he said he would “have a think” and email her something in the morning. He did not do this.

Mr Careless gave evidence that he discussed things daily with Ms Venn and it is probable that he discussed this problem with her. It was creating an obstacle to selling the investments; and it would clearly have been in LCF’s interests to explain (at least) the number of borrowers and the average loan size. So, the failure to provide the information could not have been explained away as trivial or needless. Surge knew this.

I find that Mr Thomson’s failure to provide even this basic information about its loan book was suspicious; and was a further reason for Surge to have serious concerns about the legitimacy of LCF’s business. I find that Mr Careless in fact had such concerns.

Mr Careless had a lunch meeting with Mr Golding scheduled for 29 December 2015.

On 28 December 2015 Mr Careless emailed his team (cc. Mr Russell-Murphy and Ms Baldock to say, “[w]e had a great end to 2015, bringing £1m into LCF in just 18 days (including two weekends!)”.

Mr Partridge replied:

“DD is obviously very important here in my eyes anyway … So you are seeing Spencer tomorrow. Do you want me there or is it a three wise monkeys meeting? I would not be offended btw but at some time we do have to address this issue.”

Mr Partridge was pressing the need for due diligence. I find that this was because he had serious concerns by now about the legitimacy of LCF’s business and that he had shared these with Mr Careless. The reference to the three wise monkeys was to the story of those who see, speak and hear no wrong.

Mr Careless was not sure if the meeting with Mr Golding would go ahead but he had been in touch with him because he replied to Mr Partridge on 28 December 2015 to say that Mr Golding “has offered £30m in security, first charge etc, let’s take that this month, for starters covers us while we get to grips with the underlying asset and how it performs.”

In his oral evidence, Mr Careless accepted that he understood from Mr Golding’s willingness to provide security personally that he might control the borrower. Mr Careless also understood that Mr Golding exercised significant control over LCF.

I find that the fact that Mr Golding appeared to Mr Careless to be on both the lender side and the borrower side was a matter that merited investigation and gave rise to serious concerns about the legitimacy of LCF’s business. This was particularly so in light of the representations that were being made to prospective investors about LCF lending to SMEs.

Mr Careless also accepted in his oral evidence that the security Mr Golding had offered did not remove the need for Surge to conduct due diligence and that Surge would not be able to continue to take 25% commissions legitimately unless it could “get to grips with the underlying asset and how it performs,” even if the £30 million of security was provided.

On the same day, 28 December 2015, Mr Careless also emailed Mr Russell-Murphy, Mr Partridge, Ms Venn, Mr Jones and Ms Baldock to provide them with a link to a story in The Telegraph about a bond issuer called Wellesley, which they had been discussing by email. Mr Careless added:

“JRM and I are meeting with Spencer on Tuesday mid-morning in Crowborough. I intend to bring Mark and use this article as a discussion point that if we had the recently referred to security in place, LCF would be in a far stronger place than Wellesley. If you scroll right down and read the comments, you’ll see the obvious concerns we need to address, ‘Peter Smythe’ in particular nails it. Having £30m on the balance sheet would defeat that argument and conversions would increase.”

Peter Smythe’s comment was:

“If you bothered to look properly at the ‘savings bond’ offering, you would see that they can basically do whatever they want with the money. The funds invested in the ‘savings bond’ will be used to ‘expand its business’ and ‘lending capabilities’ i.e. they can use the money for television adverts and raising even more money to do, basically, whatever they like with it. How does the FCA allow this stuff? These guys dangerously masquerade around as peer-to-peer lenders but all they are in reality is an unregulated fund that offers terrible returns … next scandal waiting to happen.”

Mr Jones responded, “Interesting and timely article. I am sure they will be sniffing around LCF in no time at all”.

Mr Careless replied, “No they won’t. Wellesley got spotted because it went above the parapet by advertising on TV. They’ll stay under the radar for a while yet”.

In oral evidence, Mr Careless accepted the general proposition that if he had thought he was marketing a legitimate business, he would have wanted them to advertise on TV rather than staying under the parapet.

As regards LCF, however, he said that he did not want LCF to advertise on television because he did not want the FCA to conduct a review of LCF’s marketing.

Had the FCA conducted such a review, it would have discovered, as Mr Careless knew, that LCF was not lending to a diversified portfolio of SMEs but rather to a single connected company (which itself was a land bank and which did not generate any profits).

Mr Careless said in evidence that he simply wanted to avoid any involvement from the FCA as it might have interfered with the business.

I find that Mr Careless’s comment that Mr Smythe had “nailed it” shows that he understood by this date that LCF could be doing anything it liked with the bondholders’ funds and that LCF might well be the next scandal. Mr Careless, Ms Venn and Mr Jones all thought that LCF might be doing the same thing as Wellesley was reported to have done. They had serious concerns about LCF’s integrity.

I find also that Mr Careless generally thought that if anything went wrong with the FCA the buck would stop with LCF and its directors. It did not seriously occur to him that he or Surge might potentially be liable. This (and his drive to make more money) explains why he did so little to inquire into the reality of LCF’s business.

In early January 2016 Mr Thomson told Surge that bondholders could use capital gains allowances (and that withholding tax would not be applicable) and that this had been confirmed by BDO and Lewis Silkin. Mr Partridge expressed scepticism about this advice.

Mr Thomson then reversed his position and emailed Mr Russell-Murphy on 13 January 2016 to say that “all interest paid for the bonds is subject to withholding tax at 20%”.

Mr Russell-Murphy emailed Surge’s staff saying,

“Just to clarify – all bonds will be subject to 20% withholding tax … Andy has also confirmed that their legal and accountancy advisers have stated that clients cannot utilise their capital gains allowance on maturity of the bonds”.

Mr Careless forwarded this to Mr Partridge, who replied on 13 January 2016,

“No fcking [sic] shit Sherlock … Sorry a bit rude but really! What happened to BDO and Lewis Silkin’s advice?”

Mr Careless asked Mr Partridge what he meant by this. Mr Partridge explained the same day:

“It is completely the opposite of what was stated last week when utilising your capital allowance was all the rage – alleged backed by BDO and Lewis Silkin. Despite my scepticism.

That’s why emails go out giving completely the wrong advice. Because people want to say the thing punters want to hear rather than reality.

That’s the sort of thing that ends up shutting the company down. Bullshit. You can’t believe anything that comes out of Spencer’s lot and so JRMs mouth. Diversify asap. And consider your sales management.”

Mr Partridge was blunt. He told Mr Careless that Mr Thomson was not to be believed and that he made things up (told punters what they wanted to hear rather than reality). This was a serious message. Mr Partridge said that the potential consequence was that LCF would be shut down.

This email also shows that Mr Partridge also thought that Mr Thomson and Mr Russell-Murphy were part of Mr Golding’s lot, i.e. that Mr Golding was ultimately running things.

In oral evidence, Mr Careless accepted that Mr Russell-Murphy was one of “Spencer’s lot”. He also accepted that Mr Partridge was advising him to get clients other than LCF and that he should consider parting company with Mr Russell-Murphy.

I find that this email represented the views of Mr Careless as well as those of Mr Partridge, that Mr Russell-Murphy was not truthful.

Mr Careless did not take these steps. Instead, he focused on trying to make LCF look more credible to members of the public by creating a lending page on LCF’s website as a sales tool in order to give a more convincing impression to prospective investors that LCF did actually lend to unconnected companies.

In January 2016 Mr Careless sought another loan from Mr Golding, for £200,000. As with Mr Golding’s previous loans, it was to be repaid by Surge reducing the commissions it charged to LCF. Again, I find that this shows that Mr Careless thought that Mr Golding was ultimately in charge of LCF. The reduction in commissions could not otherwise have repaid Mr Golding. Mr Careless planned for £50,000 of this money to be paid to Mr Careless personally, with £30,000 going to Mr Russell-Murphy, while the remaining £130,000 would be for Surge.

Surge’s sales of LCF’s bonds continued to grow. By February 2016, Mr Careless was hoping for “70 LCF leads a day starting tomorrow”. The aim was for £1 million in commission revenues and £600,000 in profits.

In this period, as already explained, Mr Careless and Mr Russell-Murphy were discussing an exclusivity agreement with Mr Hume-Kendall and Mr Golding, which, in part, involved LCF. Mr Thomson was not involved in these discussions. Mr Careless did not want any discussion about it to be on email.

In April 2016 there were 196 applications by investors to purchase bonds totalling £3,441,700 and cleared funds of £2,080,500.

The number for May 2016 was cleared funds of c. £1.8 million. By the end of May 2016 Surge had raised almost £7.9 million for LCF.

In June 2016 Mr Careless set a new goal of £4 million per month.

Mr Russell-Murphy said,

“my main focus will be to push LCF, this is our cash cow and I won’t stop until the 4m target is hit.”

Mr Careless told Mr Jones on 17 June 2016,

“Dude, we are making a fucking fortune.”

Ms Baldock emailed her colleagues on 22 July 2016 to say that (as a result of “rinsing every last client”) the current total of bond collections for June 2016 applications stood at £2,995,800. Mr Careless replied, “That is good work. 3m is a solid number”.

Sales improved again in July 2016, with cleared funds of £4 million.

August 2016 was another record month with cash of over £5 million.

There was a dip in September 2016, but £5 million remained the target for October 2016.

Returning to events in January 2016, as explained above, Mr Careless had referred in an email of 28 December 2015 to getting “£30m on the balance sheet.”

After the meeting, on 2 January 2016, Mr Russell-Murphy emailed Mr Thomson, asking, “how are you progressing with the 30 Million land asset being placed into the company?” Hence, at that stage, the proposed security was going to be land.

Ms Venn emailed Mr Careless on 6 January 2016 to say, “I am concerned that the targets might not be achieved without the £30mil security … Do we have a timeline for the enhanced security?”

On 7 January 2016 Mr Partridge sent an email to Mr Careless in which he wrote “For DD purposes…”. Attached was a picture of a board game called “Ponzi Scheme”. In his oral evidence, Mr Careless said this showed Mr Partridge’s dislike of the finance industry and his cynicism. He also said it was a joke.

It was of course a joke. But, as Mr Careless accepted, people often joke about things that are real, that are difficult or uncomfortable. It was only humorous because it reflected a truth. The context of the email (they had been discussing due diligence) shows that Mr Partridge’s joke was grounded in real concerns about LCF. He had shared these previously with Mr Careless.

I find that Mr Careless believed by this stage that there was a real risk that LCF was a dishonest investment scheme of some kind.

Mr Careless again suggested in evidence that he discounted Mr Partridge’s views because he was always cynical. I have already addressed this theme. I find that he habitually trusted and relied on Mr Partridge’s experience and opinions (see also the email of 14 January 2016 quoted in [1010] below). Moreover, as explained, Mr Careless himself was sceptical about the mini-bond industry.

Mr Careless emailed Mr Barker (cc. Mr Russell-Murphy and Mr Partridge) on 14 January 2016, saying,

“I need to get the security on the balance sheet as fast as possible. I also need to understand what exactly it is, as the Account Managers will need to explain it to the clients it needs to be simple. It will defeat our main objection and increase conversions immediately; therefore, it being added quickly will help increase sales.

Secondly, I want to explore the opportunity laid out on Tuesday in our offices and I have asked Mark who is cc’d to liaise with you directly to get the ball rolling. Mark is a shareholder, friend and a Chartered Accountant and I trust him implicitly. If you require us to sign some form of Non-Disclosure, then that is fine. John and I are busy dealing with this growth and that is why Mark is conducting diligence on our behalf.”

The second passage shows that Mr Careless was looking to Mr Barker to advance the due diligence process. He was contacting Mr Barker as Mr Golding’s proxy.

Mr Careless again chased Mr Barker (cc. Mr Russell-Murphy, Ms Venn, and Mr Partridge) about the promised security on 18 January 2016, saying, “What is the update on this please? In particular, the security on the balance sheet”. Mr Careless forwarded this email to Mr Jones; Mr Barker forwarded it to Mr Thomson.

Mr Partridge emailed Mr Careless to say:

“As per the literature LCF lend to 75% of asset value.

We should consider this. Per our conversation with LCF, 50% of this asset is liquid. The rest is deferred ‘consideration’.

We need to consider whether to stop placing funds at £7.5m x 75% = £5.625m or £15m x 75% = £11.25m”.

Hence, there had been a change in what was being proposed as security. It was no longer a £30 million land asset. Instead, it was now to be an asset worth £15 million which was 50% “liquid” and 50% “deferred consideration”.

Mr Careless chased Mr Barker (cc. Mr Russell-Murphy, Mr Partridge and Ms Venn) on 21 January 2016:

“What would help us significantly is removing the objection about the Company being young and having an empty balance sheet. The sooner the security is added the better. Can I ask you to let me know what the security will be precisely and when it will be added by in a way in which members of the public can see and our team can quote it.”

Mr Careless chased Mr Barker and Mr Thomson (cc. Mr Russell-Murphy, Mr Partridge and Ms Venn) again on 25 January 2016:

“I am just following up on my email from Thursday to you both. Can I get a response this morning by email regarding the security which is being added to the company please. We are growing very quickly and the quality of the balance sheet needs to be shored up to provide comfort for the clients. It remains the largest, most singular objection and hold backs the conversions considerably. It requires your urgent attention.”

As noted above, an “objection” was Surge’s shorthand for an investor’s query.

Again, it is notable that Mr Careless copied in Mr Barker. He associated Mr Barker (who was Mr Golding’s right-hand man) with the efforts to obtain security.

Mr Thomson replied on 25 January 2016 by saying that he wanted to discuss. However, Mr Careless was out of the office.

I find that the changing description of the security and the fact that it had not been given caused Mr Careless further concerns about LCF’s business and integrity.

Ms Venn spoke to Mr Thomson on 25 January 2016. She reported to Mr Careless, Mr Russell-Murphy, Mr Partridge and Mr Jones by email:

“I have just spoken with Andrew Thompson [sic], we discussed some quite sensitive information which he initially didn’t want to be communicated by email but has given me permission to relay this information assuming your commitment not to mention the details outside of this small group. Please don’t even mention to the sales team yet until we decide how to communicate the key changes we have been asked to introduce.

He has not replied to Marks request for DD because he did not receive the emails.

There is no £30million security. There is a transaction taking place with $30mil (yes dollars) to the benefit of LC&F and inter related companies however the only ‘asset’ which they are able to use for the purposes of enhancing LC&F is a loan note for £15mil (yes sterling) in favor of LC&F. They have had it confirmed by their accountants that the loan note can be positioned in the balance sheet so that the assets of the company are boosted. The balance sheet currently shows assets of £6mil therefore an extra £15mil will take it to £21mil which is sizeable and therefore should assist sales but will not be as beneficial as the £30mil charge over property which was originally suggested. Andy says this was a miscommunication by Spencer and it was never an option.

The loan book:

•

Since inception LC&F (formerly SAFE) has lent £4.2 million.

•

Currently there are 80 loans.

•

The average loan size is £75k

•

The largest loan ever was £220k

•

Terms range from 3 months bridging finance to 2 years property development finance.

•

Crucially all 80 loans are to Spencer related businesses i.e. they are funding their own operations.

•

I asked about the strategy for when they will open the opportunity to SMEs generally and he pushed the question back to me; ‘when can you guarantee a consistent flow of funds? I turned down a £2mil loan last week because I didn’t know if we could get £2m in this month’.

•

They have had no defaults since inception.

Andy stated that he owns LC&F, he said: ‘Spencer does not have ownership at all, I have a symbiotic relationship with Spencer we assist each other and we are vital to each other but he does not own LC&F. Please stop communicating key information without me. In a meeting last week Paul communicated information about GCEN and your objections to how it works Simon Hume Kendal [sic], he is my customer and it is inappropriate for you to have disclosed the working of my business to him and also inappropriate not to include me in the meeting. I was not made aware of these issues with GCEN.’

I said: ‘There has been a misunderstanding, we have been lead to believe that whilst you are officially the business owner as registered at companies house, Spencer is a driving force behind LC&F and a key decision maker. You really need to take this up with Spencer because he has presented himself to us as the big chief at LC&F and he invited Simon to the meeting, we believed we were talking candidly to trusted partners who had specifically been invited by the LC&F establishment’

He said: ‘I will take it up for Spencer, just so you know, there is no side agreement / legal agreement behind the scenes, I own LC&F and Spencer does not. However, Spencer is very important to my operation and i will continue to have a good working relationship with him and him with me’

So you understand the tone, Andy wasn't really complaining or annoyed, he was just trying to express to me a frustration that he mustn't be left out because actually it's his business and he wanted to make it clear that if we think Spencer is a controlling partner / owner he is not. This is contrary to what we have been led [to] believe all along. I was surprised so I double checked, I said: ‘Did you come up with the concept of SAFE, was at all your idea and you launched it as a startup?’ Him: ‘Yes others were involved but yes it's my concept and as of a few months ago I am a sole owner of this business’

I don't know what to believe?!? Is this a bit like if I said yes this is my business, nothing to do with Paul, check at companies house. Companies house would just show me but we all know Paul is the visionary and I just create systems to action the practicalities.

BIG ISSUE:

The FCA contacted Andy 10 days ago to say that they have received numerous complains re TIE promoting LC&F. They have also been forwarded email communications from TIE staff. They have mystery shopped us. In the FCAs opinion, we are miss-selling [sic]. It is not OK to state that bond holders capital is 100% safe, there are risks and we are no longer allowed to be so categorical in our statements. We have been operating in good faith but now Andy has alerted us to requested changes we can adapt as necessary.

The FCA went on to state that the LC&F website constitutes a financial promotion in its own right and as it was not Section 21 approved they could shut it down. He promptly got Sentient to approve it and avoided this. He is now very cautious about new content and would like everything to go through a vetting process with sentient (via Andy) before release. This makes sense.

Andy has had two hour long conversations with the FCA and is now implementing the necessary changes which will impact us. By close of business tomorrow, we will have a list of changes to make. The FCA will give us until the 1st February to implement these changes. He said we have to show the IM earlier in the process and make more of a feature of it.

Andy will also write a list of statements that the sales team are using which need to be adjusted, it will take him a few days to complete this. Will be around how we communicate the 100% safe / secured message.”

I find that this email contained several alarming features:

I have already addressed the passages about the ownership of LCF and concluded that the Surge Defendants did not know what to make of Mr Thomson’s claims to be the sole owner, but that they continued to treat Mr Golding as having a controlling influence over LCF.

As to the information about all the loans being made to Golding-related businesses, Mr Careless said in his witness statement that he knew that this was not a reference to 80 borrowers. Indeed, as noted above, Mr Thomson had explained in December 2015 that there were five borrowers and Ms Venn had speculated that these were all connected with Mr Golding.

Moreover, in his oral evidence, Mr Careless said that “I had already worked that out, pretty much, fairly early on” (i.e. even before this email). That was at a time when he thought Mr Golding was the driving force behind LCF (and had not heard Mr Thomson’s claims of sole ownership). Hence, he had worked out at an early stage that Mr Golding or his related businesses were on both sides of the lending relationship; and that his businesses were the only borrowers.

The email also shows that, by this date, Mr Thomson had not responded to Mr Partridge’s requests for due diligence about LCF and its assets. Mr Thomson’s excuse was that he had not received Mr Partridge’s emails. I find that everyone at Surge knew that was a very poor excuse.

Mr Careless’s main focus was on the final point in Ms Venn’s email: that the FCA had “received numerous complains [sic] re TIE promoting LC&F” and had concluded that Surge was mis-selling. Mr Careless responded quickly. He emailed his colleagues (including Mr Russell-Murphy and Ms Baldock) on 25 January 2016 to say:

“Something is coming our way … The dots are forming a line and we have too much to lose to not [take] action. Therefore: - ”

1.

Pause all TIE advertising

2.

Pull TIE down, no pages live, have a page saying, “This site is currently offline.” …

It could be a competition or anyone, even someone who recently left. Some people when they are not allowed to play in goal, try and pop the ball. Either way, for now it closes.

Lastly. All connections, IP, Limited Companies or people connected with TIE need considering or removing from all our other sites. Consider it toxic.

Ashleigh and Ryan this is predominantly for you

Report when completed. These actions may not stop what may come but it may help. It can always and easily relaunch. Nothing is forever.”

The site www.investment-experts-online.co.uk was immediately taken down.

On 26 January 2016 Mr Careless emailed Mr Russell-Murphy, Mr Jones, Ms Venn and Ms Baldock, with the subject “TIE”:

“As you know I have brought TIE down. It is a pre-emptive move as I am expecting repercussions from the FCA regarding some of our dealings with clients. Where we go from here is not decided but to head off a potential issue of breaching the grey area of advice with at least one of our Analysts is paramount … Kerry – Please let me know what cross pollination is existing between TIE and other entities … Then we wait and see what happens”.

Ms Venn emailed everyone to tell them to remove any reference to TIE from LinkedIn.

Mr Thomson had still not given Surge any testimonials from LCF’s borrowers.

On 29 January 2016 Ms Venn emailed Mr Careless, saying,

“Missing piece of the ‘is it a ponzi’ jig saw: we need access to the lending book, inclusive of details re the security in place, what percentage is property and at what gearing, if not property what is it and how was it valued? Is Mark following up, I put him back in contact with Andy on Andys new email address.”

This email followed a discussion between Mr Careless and Ms Venn. This was four days after the 25 January meeting. The information in that email must have been fresh in their minds.

Mr Careless agreed in his oral evidence that this was a serious email (not a joke), focused on what was needed for Surge to be satisfied that it could continue working for LCF.

He also accepted that he had had discussions with both Ms Venn and Mr Partridge about the possibility that LCF might be a Ponzi scheme. He said that the reason for this was that they were working in an unregulated area where there was a lot of cynicism. He also suggested that the idea of a Ponzi scheme was an obsession of Mr Partridge. However, his email shows that it was something that he also discussed with Ms Venn and, as he accepted, it was a serious discussion, not mere banter. I find that this shows that Mr Careless, Ms Venn and Mr Partridge continued to have real concerns that LCF operating an investment fraud.

In closing submissions, the Surge Defendants argued that Ms Venn would not have used the word “ponzi” if she had actually harboured any suspicions about LCF. I reject this. She used the term because she, Mr Careless and Mr Partridge indeed had real concerns that LCF might indeed be a Ponzi scheme. I find however that Mr Careless was willing to gamble that the buck would not come to rest with him if LCF collapsed. He wanted to maintain the commissions.

The email also shows that Mr Careless knew what they needed to satisfy themselves: that is, further information about the loan book, and the security and how it was valued. As explained further below, this information was never in fact provided to Surge. Surge did not obtain access to information about the loan book; did not obtain details about the percentages of security which was in property; and did not see any property valuations. In short, the Surge Defendants thought at the time that they needed this information in order to address their concerns, but never obtained it.

On 1 February 2016 Mr Partridge indeed asked Mr Careless if he should continue to “request DD information” from Mr Thomson. This shows that LCF had not yet provided sufficient information for Surge to be satisfied it was a legitimate business.

At about this time, one of the largest ever investments into LCF bonds was being discussed with a potential investor. He was considering how to invest £1.25 million from a settlement sum received in respect of a life-changing injury to his daughter. Mr Russell-Murphy visited the investor at home to discuss it. Mr Careless said,

“if JRM pulls off that 1m Friday then I’ll be buying a 70k car with the comms the week after … Operation fuck you everyone who didn't believe.”

Mr Russell-Murphy was persuasive. The investment was made and £1.25 million was received through GCEN on 18 February 2016. Surge received £312,500 as commission on this transaction (as part of a payment of £370,000 received on 19 February 2016). The same day, Mr Careless used the commission on this transaction to pay a one-off bonus of £100,000 each for himself and Mr Russell-Murphy. Surge also paid £10,000 to Mr Golding’s son, Lewis, with the reference “Careless JRM”. Mr Careless sent a text message the same day saying, “Spencer payment done”.

More generally, Mr Careless was consumed by making as much money as possible as quickly as he could. He accepted in his evidence that he wanted to get rich; he wanted to make enough money over three to five years to leave with millions in the bank. I find that the drive to get rich quick was almost an obsession and it outweighed the necessity, which Mr Careless had identified, of pursuing difficult questions with Mr Thomson or Mr Golding. He knew that he ought to have been pursuing due diligence but was more focused on making money.

He continued to set demanding sales targets for his team.

Mr Careless also continued to progress the discussions about a proposed exclusivity agreement with Mr Hume-Kendall and Mr Golding (see [336] to [342] above).

Surge produced and added a video to its website in March 2016. It included the following statements.

This video remained on the website. There is an example of Mr Careless encouraging one of the sales team to use it in August 2016.

In early March 2016 Mr Partridge met Mr Thomson, who agreed to provide him with “the security documents held by LCF against the loans provided to date”. Mr Thomson failed to provide these to Mr Partridge, who chased him on 1 April 2016, asking also to see a schedule of loans. Mr Partridge continued to recognise that this information was needed.

On 1 April 2016 Mr Thomson apologised for the delay and said that he had been waiting for one particular document to become available. He referred to documents concerning the Dominican Republic and said he would then send over a due diligence pack. He referred to loan agreements, valuations and security documents. On 1 April 2016 Mr Partridge replied, asking him to send over the documents currently available and the loans they pertained to. Mr Thomson did not send anything.

Mr Partridge informed Mr Careless about his communications with Mr Thomson. Mr Careless therefore knew that Mr Thomson had mentioned having security over land in the Dominican Republic. This was the leisure and tourism business they had discussed in February 2015, and which Mr Careless and Ms Venn had thought would be considered too high-risk to be attractive to retail investors.

On 8 April 2016 Mr Thomson told Mr Careless (cc. Mr Russell-Murphy and Ms Venn) that he had “instructed [his] solicitor to send Mark all the docs”. Mr Lee sent an email saying, “I have not heard from your solicitor yet!” Mr Partridge was trying to obtain all LCF’s security and loan documents from Mr Thomson. Mr Thomson told Mr Lee to send the security/loan documents they were holding.

On 12 April 2016 Mr Lee sent Mr Partridge a facility agreement between L&TD, a corporate guarantee from London Group plc and a debenture supporting the facility agreement.

This was strikingly limited information. It showed Mr Partridge and Mr Careless that LCF had only one borrower at this stage; and that Mr Golding and his associates were behind the borrower. Contrary to the representations in the Surge-produced video, there was therefore no diversification in the loan book.

Mr Careless said in his evidence that he was at this stage comfortable that LCF had enough security. I do not accept this. I find that Surge lacked idea of the actual value of LCF’s security, if indeed there was any. Surge had not been provided with the information listed in Ms Venn’s email of 29 January 2015 (which included the underlying security documents and valuations). Moreover, Mr Thomson had by that stage given inconsistent and vague answers about the security. Surge had asked for more information because it had concerns about the legitimacy of LCF. Despite the absence of this basic information, Surge continued to market LCF’s bonds and earn large commissions.

I find that the paucity of the information provided by Mr Lee in response to Mr Partridge’s requests was further reason for Surge to be concerned about the legitimacy of LCF. Mr Partridge had been seeking basic information about LCF since December 2015 and Surge would have expected a legitimate business to be able to provide it, more or less by return. The information sent by Mr Lee in April 2016 did not constitute what Surge had been seeking.

In marketing the bonds, the Surge salesforce referred to GST and its role.

Mr Sedgwick controlled GST. LCF executed debentures in favour of GST which were filed with Companies House on 13 January 2016.

Surge’s sales team used GST’s role to help them to sell LCF bonds.

For example, Ms Baldock told prospective investors on 3 December 2015, “All bond holder funds are protected by an independent security trustee who manages the security held for the investor”. Mr Russell-Murphy emailed prospective investors to tell them about the “third party” GST “who ensures there is always adequate security in place to protect the bondholders”.

A salesman at Surge told prospective investors on 13 June 2016,

“An independent security trustee, Global Security Trustees Ltd, holds a charge over all LCF’s assets (to include any new security LCF takes for additional loans made) which it holds on behalf of all bond holders.”

Similar statements were included in an LCF fact sheet, which Mr Russell-Murphy circulated to Surge’s sales teams on 4 January 2016 and again on 14 January 2016,

“These assets are then held in the form of a debenture by Global Security Trustee’s, a third party company who ensures there is always adequate security in place to protect the bond holders.”

Mr Careless accepted that he knew that Surge’s staff emphasised the independence of GST in their discussions with members of the public.

There was a live chat function on LCF’s website, staffed by Surge’s sales team. The sales team also used this to tell prospective investors about the role of the independent trustee, among other things.

Mr Careless and Ms Venn became concerned that GST had no online provenance or credibility. Ms Venn emailed Mr Thomson on 3 December 2015 to say,

“Global Security Trustees Limited don’t have a website, I believe they are a new company. This is something that the more research oriented / curious investors will pick up on. It will greatly assist our sales if they build a website so they have an online presence.”

This concern continued well into 2016.

On 3 May 2016 Mr Careless, who was reviewing a webchat between an employee and a potential investor about GST, said that he would “chat with Andy on Thursday about setting up a good online trail of provenance to ensure when Googled it provides comfort.”

On 5 May 2016 Ms Baldock said in an email to Mr Thomson that it was embarrassing and unprofessional that they did not have enough information about GST.

Mr Thomson replied on 6 May 2016. He was dismissive of Ms Baldock’s message and seemed to have been angered by it. He said that Surge had enough information, essentially that “GST is a company set up by lawyers who have 120 years combined experience in this industry and have specifically set up GST to provide a vehicle to independently represent investor interests.”

This was not an adequate answer. Mr Thomson knew that Mr Sedgwick was working for the London Group companies, i.e. the borrowers, and that a key function of any security trustee would be to enforce security against the borrowers. There was an obvious conflict and GST could not independently represent the investors against the borrowers.

Ms Venn was not satisfied with the information from Mr Thomson. She emailed Mr Careless on 7 May 2016 saying, “GST need a proper online presence. They play an important role yet anyone going [sic] DD won’t find much about them and they are not FCA regulated”. That important role included being in a position to enforce the security if LCF collapsed.

Mr Careless reiterated this to Mr Thomson (bcc. Mr Partridge and others) on 7 May 2016. He said that he was writing “Off record”. He said that GST needed a proper online presence as they played an important role. Due diligence would not reveal much, and they were not FCA regulated. He added that he was happy to set up the online provenance free, “so the issue disappears”. He meant the issue of the lack of information about GST impeding bond sales. I find that in this email, he was expressing concerns about the sales angle, rather than the lack of independence of GST.

Mr Partridge read the email chain and was concerned by Mr Thomson’s statement about GST having been set up “to provide a vehicle to independently represent investor interests”. He knew that GST was in fact connected with LCF and London Group in various ways. He emailed Mr Thomson (cc. Mr Careless and Mr Russell-Murphy) on 9 May 2016, saying:

“Hi Andy

Hope you are well. Just seen the trail below.

There is a statement that GST are independent.

Without casting aspersions or commenting on their magnitude there are a number of connections between LCF and GST.

Whilst doing our DD we did note that:

GST, LCF and LG (and subsidiaries etc) share the same registered office.

The sole Director and shareholder of GST is also Company Secretary at LG and indeed most of LG’s group.

LG’s group presumably owning the main UK asset as well as overseas assets upon which LCF is relying.

As I am sure you are very aware.”

This spelt out for both Mr Thomson and Mr Careless that the statement that GST was independent was potentially misleading. There were connections between GST on the one hand, and both LCF and the London Group of companies on the other. Mr Partridge also noted in this email that the main overseas assets and UK asset were owned by London Group.

After some evasion, Mr Careless accepted in his oral evidence that he understood that Mr Partridge was saying that the party which was supposed to be in charge of enforcing the security was connected with the borrowers in some way.

Mr Careless also knew that his own staff were emphasising the independence of GST in their communications with potential investors. This was indeed the reason why Mr Careless was exercised about the lack of an online provenance.

Following a call between Ms Venn and Mr Thomson on 18 May 2016, Ms Venn emailed Mr Careless, Mr Russell-Murphy and others to say that “GST will remain in place long term”. She asked:

“1.

How will we represent what they do to advantage sales when we can no longer claim they manage the security on behalf of the investor on a day to day basis?

2.

How can we build them an online provenance when they are effectively a one or two solicitor firm without a track record? This is further exacerbated by the fact that the main solicitor is standing down due to a conflict of interest”.

The issues in respect of GST remained unresolved.

I find that Mr Careless knew that GST was connected with the borrowing companies (against which it would have to enforce the security if LCF failed). Mr Careless knew that this meant that the statement that GST was independent was misleading (this was the point made by Mr Partridge in his email of 9 May 2016). He also knew that his staff were continuing to emphasise the independence of GST. Mr Careless did nothing about this, but allowed his staff to continue to represent to investors that GST was independent. I find that he was again single-mindedly focused on maximising commission revenues, and that this outweighed the obvious need to ensure that the bondholders were not being misled.

In response to Mr Partridge’s comment in his email of 9 May 2016 about the connections between LCF and GST, Mr Russell-Murphy emailed Mr Partridge (cc. Mr Careless) saying, “Any other linked directorships etc would be useful”.

Mr Partridge responded on 9 May 2016 by providing Mr Careless and Mr Russell-Murphy with a colour-coded spreadsheet identifying connections between LCF and various companies including GST, London Group plc, L&TD, London Trading, LCCL, Waterside Villages and CV Resorts, as well as various other companies connected with Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Sedgwick. He also identified overlapping officers and shareholders (including Mr Thomson, Mr Hume-Kendall, Mr Barker and Mr Sedgwick).

Mr Partridge had collected this information from Companies House. He had not been provided with any further information by LCF, Mr Thomson or Mr Golding. Mr Careless knew this.

The information obtained by Mr Partridge (and recorded in his spreadsheet) suggested that the value in the group of companies lay with London Group plc. Mr Partridge and Mr Careless knew that that company had given a guarantee to LCF, but had not granted security. L&TD, which had granted the debenture in favour of LCF, was shown in the spreadsheet as having no assets of any value on its balance sheet.

Mr Careless already knew before this email that the borrowing businesses were connected with Mr Golding, Mr Hume-Kendall, Mr Sedgwick and Mr Thomson. This email gave more details. One of the data points in the spreadsheet was that Mr Thomson was shown at Companies House as the holder of 5% of the shares in London Group plc, the company shown to have the most value (net assets of £35.8 million). Hence the Surge Defendants knew from the email that Mr Thomson was interested as a shareholder in the London Group.

Mr Partridge referred in an email to Mr Careless on 17 May 2016 to pressing Mr Thomson for a signed debenture and referred to the “complete lack of security”.

Mr Careless said in evidence that he was not aware of the problem over security. He also said that he did not understand the difference between a guarantee and security. I cannot accept this. He knew that Mr Partridge had been pressing for a debenture.

To recap, by this stage:

Mr Careless did not react to this information by pausing the sales of bonds or otherwise. On 10 May 2016, immediately after receiving the colour-coded spreadsheet, Mr Careless sent an email setting out objectives for his team. The top priority was, “LCF to £4m – deadline – 30 days | new fucking brochures, new API, Savings Nest live, leads increased to 150 per day and new Ams”.

In his oral evidence, he regretted the language, but had no answer to the suggestion that his primary focus was raising money for LCF as quickly as possible. He reprised the theme of Mr Partridge’s cynicism. I have already found that, in fact, Mr Careless relied on Mr Partridge as a trusted adviser. I find that Mr Careless pursued material gain single-mindedly.

The sales team at Surge were not party to the efforts to undertake due diligence and the additional information that had been given by Mr Thomson. In her long email of 25 January 2016, Ms Venn had explained that Mr Thomson did not want the information about the identity of the borrowers and the nature of the security to be given to the sales team yet. As a result, the sales team continued marketing the bonds on the basis that LCF was carrying on business as a lender to the UK SME sector, that GST was an independent security trustee, and that there was a diversified lending portfolio.

This led to the sales team raising issues, as bondholders wanted to know the answers to some obvious questions, which came up frequently.

One of the Surge sales team, Ms Finney, compiled a list of frequently asked questions, which included the following key questions for Mr Thomson:

“LENDING: HOW MANY CLIENTS HAVE WE LENT TO? WHO DO WE LEND TO? AVERAGE LOAN SIZE?”; “ASSETS: WHAT ARE THE ASSETS HELD? WHAT IS THEIR VALUE? WHERE CAN I FIND THIS INFORMATION”.

Ms Finney sent this to Ms Baldock on 12 May 2016, attached to an email entitled “Questions for Andy”.

On 13 May 2016 Ms Baldock sent these to Mr Thomson (cc. Mr Russell-Murphy, Mr Careless and Ms Venn), attached to an email with the subject, “Common Questions”. She explained that she had “now spoken with the account managers and we have complied a list of frequently asked questions”.

Mr Careless forwarded this to Mr Partridge, who replied, “I’d like to see the answers!!!”. He had been seeking this (and other) information from Mr Thomson since December 2015, without success.

Mr Careless seems to have been anxious about the idea of letting prospective investors ask too many questions about LCF. On 17 May 2016 when a prospective bondholder asked Mr Barnard (one of Surge’s sales team) a question about Mr Thomson’s role within LCF, Mr Careless sent an email advising Christopher Barnard not to answer it: “I’m going to jump in here. I don’t think it’s a good idea to let prospective investors dictate questions to us. What’s next? What is Andy’s star sign. I think the key is to not let the customer or prospect dictate the terms so easily”.

As already noted, on 17 May 2016 Mr Partridge asked Mr Careless if he could push Mr Thomson further “on his complete lack of security.” Mr Careless replied, “Re AT – let’s wait to see his response to Jo’s email before we make our next move. I am also Jedi Knighting him on Thursday so need him the right side of happy.” I find that Mr Careless did not want to upset Mr Thomson.

On 18 May 2016 Ms Venn reported to the others that Mr Thomson had “agreed to send us his answers to the questions Jo sent through last week”.

On the same day, Mr Thomson drafted his answers to the frequently asked questions, and sent it to Surge. This included (the answers being in lower case):

“GST

WHO ARE THEY?

Global Security Trustees have been set up buy a group of experienced solicitors, each with in excess of 30 years practice history, to provide security trustee services to corporate bond providers.

In 2015 a gap in the market was identified for a security trustee to the corporate bond industry when one of GST's principles was advising on a new bond issue …

WHAT DO THEY DO FOR THE CLIENT NOW AND IN THE EVENT OF LCF FAILING

When a bond is set up GST review the structure and contractually bind themselves, via a trust deed, to ensure bondholder interests are protected if LCF fails. ... If LCF fails GST, via its charge over LCF steps in immediately to ensure investor interests are protected …

WHY IS THERE NO ONLINE PRESENCE OR LITERATURE

Due to the size of the gap in the marketplace for a service of this type GST do not need to advertise a significant volume of introductions from financial industry professionals.

LENDING

HOW MANY CLIENTS HAVE WE LENT TO?

As at the beginning of May 2016 LCF has made 121 loans

WHO DO WE LEND TO, WHAT SECTOR?

LCF lends to all sectors.

AVERAGE LOAN SIZE?

The total size of the loan book at the beginning of May 2016 is £9,055,096.11, this drives an average loan size of c.£75,000

WHY IS THERE NO MENTION OF HOW TO MAKE A LENDING APPLICATION, THERE IS NO FACE TO THIS SIDE OF THE BUSINESS OR CONTACT NUMBER ETC?

LCF uses a network of professional introducers to source lending opportunities and as such does not need to advertise.

ASSETS

WHAT ARE THE ASSETS HELD AND UNDERLYING SECURITY?

The assets LCF currently hold as security is a mixture of property, land, contractual obligations, shares, warrant’s and corporate guarantees from listed company’s.

WHAT IS THEIR VALUE?

The current value (borrowing directors confirmed updated valuations as at the end of April 2016) of the assets pledged as security against LCF’s loan book is c. £62,000,000 (£14m floating charge contractual value, £17.5m property & £34.5m development land). The security taken against these assets is a mixture of corporate guarantees & fixed and floating charges.

WHERE CAN I FIND THIS INFORMATION

This is not published information at this time but will be published in the next set of audited accounts”.

As Mr Thomson knew, these answers were misleading:

Mr Thomson’s answers were obviously inconsistent with information that he had previously provided to Mr Careless, Mr Russell-Murphy, Ms Venn, Mr Jones and Mr Partridge on a confidential basis in January 2016. This group knew that:

Ms Baldock forwarded Mr Thomson’s answers to Mr Careless, who forwarded them to Mr Partridge. He responded, “Just the usual bs I’m afraid”.

Mr Russell-Murphy also forwarded Mr Thomson’s answers to Mr Careless, who replied, “Grrrr”.

Counsel for the Surge Defendants submitted in closing that the statement that about the number of loans was strictly true. I reject this. It is clear from the context that the query was about the number of loans, not the number of drawdowns. There was no reason why members of the public would have been interested in the number of drawdowns (which was completely irrelevant to them), and every reason why they would want to know the number of borrowers.

The submission was indeed at odds with Mr Careless’s evidence.

Mr Careless said, however, that once they had discovered that there was a small number of borrowers Surge corrected what they said to members of the public about this. I am unable to accept this evidence.

I also find that the reason Mr Careless gave this evidence (which I have rejected) is that he appreciated its serious implications, i.e., that Surge had continued making statements to prospective bondholders which he knew to be false.

Mr Careless also said in evidence that Surge was only a marketing company, and that the sales force were reading from a script, which had been approved by Mr Thomson and Mr Huisamen. He appeared to think that this was an adequate answer to the allegation that Surge was prepared to mislead members of the public. I disagree. Mr Careless knew that Surge’s sales team, LCF’s sales channel, was giving potential investors misleading information about the numbers of borrowers, average loan size, diversification of the loan book and the characteristics of the borrowers.

Mr Careless was, as already explained, intensely acquisitive. He said in emails that all he cared about was cash and that he had a determination to succeed and get rich. I find that he comforted himself with the belief that if LCF collapsed, legal and regulatory accountability would fall on LCF and its directors, and would not reach Surge or himself. The collapse of LCF would remove the cash cow but that would be all. Mr Careless was indifferent about misleading the public; he did not care either way. He wanted to maximise his take. He deliberately did nothing to ask further questions about the gulf between LCF’s self-portrayal of its business and what he knew to be the true position.

I also find that Mr Careless (and others involved with Surge) knew that Mr Thomson had deliberately given a false impression about LCF’s borrowers in the Q&As. Mr Partridge called it the “usual bs” i.e. not only was it bullshit but bullshit had become normal. I find that Mr Careless’s answer (“Grrr”) shows that he thought the same thing. Mr Partridge had already described Mr Thomson (and “Spencer’s lot”) as liars before this.

On 1 July 2016 Mr Thomson told Mr Russell-Murphy that LCF held security valued at £35 million and its loan book was £15 million. These figures were different from those provided by Mr Thomson on 18 May 2016; the loan book had increased very substantially, and the value of the security had fallen. Mr Thomson told Mr Russell-Murphy that these figures should now be used. Mr Careless did not react to this.

From June 2016 Surge made a series of monthly payments to Media GPS, Mr Thomson’s company. These continued until September 2017. The invoices from Media GPS were described as for “professional services”.

Mr Careless understood the calculation of the amounts in the invoices. Mr Thomson’s company was paid 0.5% of LCF’s cash receipts from new bondholders in the previous month (equivalent to 2% of Surge’s commission). Mr Careless approved the invoices and sent them to Mr Jones for payment.

In total, Surge paid Mr Thomson more than £400,000 under these invoices. The bank statements for Media GPS show that it generally made a substantial onward payment to Mr Thomson personally from the amounts received from Surge.

Not everyone at Surge thought this was a good idea. Mr Jones said in an email of 7 July 2017 that “We are mad paying him”. However, Mr Careless continued to approve the payments.

The last payment was of the September 2017 invoice. On 9 October 2017 Mr Thomson provided Mr Careless with an invoice (invoice #00117) from Media GPS to Surge for “professional services” in the sum of £38,870. This was not paid. The arrangement involving the payment of 0.5% of gross bondholder investments to Mr Thomson was to be replaced by a new arrangement involving the payment of 1% of bondholder investments to Mr Golding (see further below).

The Claimants pleaded that these payments were misappropriations of LCF funds.

Mr Thomson and the Surge Defendants contended that they were commercially justified payments, made for professional services. The Claimants contended that they were a form of secret commission (i.e., a bribe or kickback) to Mr Thomson to induce him to continue paying the 25% commission to Surge.

Mr Thomson said in evidence that he was carrying out work for Surge on what they did for Blackmore and that he was also “upskilling” Surge’s back-office. He said he was not only working with Blackmore directly but was also working with Surge’s back-office to improve what they did and their processes. He said, “I was working with them on other fundraisings that didn’t derive any income or funding. So, the only way we could recognise that, in terms of a metric, was what was coming through the door”. He said that part of the reason for the payment being based on LCF’s sales was that he was upskilling Surge as well as helping Blackmore.

Mr Careless said in evidence that Mr Thomson was paid a percentage of LCF’s revenue for work conducted for Blackmore.

In closing, Counsel for the Surge Defendants relied on an email of 23 May 2016 from Mr Careless to Mr Thomson and Mr McCreesh (cc. Ms Venn). In it, Mr Careless referred to Mr Thomson coming on board with Surge at a much deeper level. He said that he had asked Mr Thomson to consult for him. He said that he wanted comfort that Mr Thomson would consult on the new bond and that Surge would meet the cost.

I reject the evidence of Mr Thomson and Mr Careless.

For these reasons, I reject Mr Thomson and Mr Careless’s case that the monthly payments were a commercially justified consultancy fee and find that their evidence about this was deliberately false. I find that the payments were a secret commission paid to Mr Thomson to induce LCF to maintain the level of Surge’s fees at 25%.

Members of the public frequently asked Surge’s sales team about LCF’s accounts. By mid-2016 the most recent accounts were for the period ended 30 April 2015. They disclosed net assets of £40,944.

Surge’s sales team told investors that LCF’s accounts for the subsequent year, to 30 April 2016, would show a far stronger position. Mr Thomson said initially that they “would be submitted late April and available early May”.

On 19 April 2016 Mr Thomson said that the accounts had been delayed to June.

Mr Allen, one of Surge’s sales team, emailed Mr Careless and Mr Russell-Murphy and explained that he had a potential investor who wanted to see the accounts before investing and that they were in danger of losing credibility.

Mr Thomson told Mr Careless that the company accounts would be completed in May and the audited accounts would be available in June.

This did not happen. Investors continued to ask about them. On 18 July 2016 Mr Russell-Murphy asked Mr Thomson for an update.

Mr Thomson replied the same day to Mr Russell-Murphy (cc. Mr Careless),

“The position with the accounts is that we are having to wait for guidance from HMRC re a technical point on how to represent the balance sheet. PWC and our accountants are chasing HMRC on a regular basis but I cannot give you a timescale. As soon as the accounts are finalised, I will let you know”.

Mr Russell-Murphy replied to Mr Thomson (cc. Mr Careless) the same day, “Guidance on a technical point should come from PWC, the HMRC accept the accounts anyway you present???”.

Mr Thomson replied the same day,

“With respect I don’t want to go through the detail [with] you, you will just have to accept the position as is and that I am doing what is right for my company”.